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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
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AMERIVISION COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Oklahoma 73-1378798
(State or other jurisdiction (IRS employer identification
of incorporation or organization) number)
5900 Mosteller Drive, Suite 1800 73112
Oklahoma City, Oklahoma (Zip Code)
(Address of principal
executive offices)
Registrant's telephone number, including area code: (405) 600-3800
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
to be so registered which each class it be registered
------------------- ---------------------------------
None
Securities to be registered pursuant to Section 12(g) of the Act:
Title of Class
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Common Voting Stock, $0.10 par value
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TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
ITEM 1. Business......................................................................................3
ITEM 2. Financial Information........................................................................22
ITEM 3. Properties...................................................................................41
ITEM 4. Security Ownership of Certain Beneficial Owners and Management...............................42
ITEM 5. Directors and Executive Officers.............................................................43
ITEM 6. Executive Compensation.......................................................................46
ITEM 7. Certain Relationships and Related Transactions...............................................51
ITEM 8. Legal Proceedings............................................................................59
ITEM 9. Market Price of and Dividends on Common Equity and Related Stockholder
Matters......................................................................................62
ITEM 10. Recent Sales of Unregistered Securities......................................................62
ITEM 11. Description of Company's Securities to be Registered.........................................63
ITEM 12. Indemnification of Directors and Officers....................................................65
ITEM 13. Financial Statements and Supplementary Data..................................................66
ITEM 14. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure...................................................................................66
ITEM 15. Financial Statements and Exhibits............................................................66
</TABLE>
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ITEM 1. BUSINESS
GENERAL
Amerivision Communications, Inc. (the "Company" or "Amerivision") is a
provider of domestic long distance and other telecommunications services
primarily to residential users. The Company employs a specialized marketing
program known as affinity-based marketing. Under this program, the Company
obtains membership lists from non-profit organizations that support strong
family values, such as Concerned Women For America, Christian Broadcasting
Network, Trinity Broadcasting Network and Christian Coalition, and markets its
services under the LIFELINE(R) service mark to those organizations' members. The
non-profit organizations receive a percentage, currently approximately 10%, of
certain collected revenues generated from their members. In some cases the
organizations will directly contact their members to sell the Company's
services. In return the organizations may receive a flat fee for each new
customer obtained by that organization, in addition to the percentage of
revenues. The Company has experienced substantial success marketing to this
family values affinity largely because its customers, in addition to receiving
essential telecommunications services, are able to indirectly contribute to
causes they strongly support.
Amerivision believes it is the largest affinity-based marketing
reseller of telecommunications services to non-profit organizations in the
United States. The Company is affiliated with thousands of non-profit
organizations and as of July 31, 1999 had over 620,000 subscribers for its
telecommunication services in all 50 states. The Company has experienced rapid
growth with revenues increasing from $2.9 million in 1993 to $124.2 million in
1998.
The Company's long distance traffic is primarily carried by MCI
WorldCom, Inc. ("MCI WorldCom"). Although Amerivision does not operate its own
long distance network, effective February 1, 1999 the Company began operating
the switching assets and personnel of Hebron Communications Corporation
("Hebron"), which includes telecommunications switches in Oklahoma City and
Chicago. The Company plans to purchase the switches later this year under terms
of an asset purchase agreement with Hebron. This purchase will allow the Company
to originate and terminate a portion of its long distance calls. See Item 7
below for a discussion of Hebron and the terms of the transaction with Hebron.
In addition to residential long distance service, the Company also offers its
customers other telecommunications services such as Internet access, paging,
calling cards, prepaid phone cards and toll-free service.
The Company was incorporated in 1991 as an Oklahoma corporation and
maintains its principal executive offices at 5900 Mosteller Drive, Suite 1800,
Oklahoma City, Oklahoma 73112 and its telephone number is (405) 600-3800.
RECENT DEVELOPMENTS
Over the past several months several important developments have
occurred with respect to the Company and its business. Major developments
include:
RESOLUTION OF SECURITIES AND EXCHANGE COMMISSION'S INVESTIGATION. In
July 1996, at the request of the Company, the Securities and Exchange Commission
(the "Commission") instituted
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an investigation into whether the Company and its then directors and principal
officers had violated any federal securities laws. In July 1998 the Commission
issued a cease-and-desist order to the Company, Hebron and Tracy C. Freeny, at
that time President of the Company, and Carl Thompson, at that time Senior Vice
President of the Company with respect to the subject matter of investigations
which concluded the investigation. See Item 8 - Legal Proceedings -
Investigation by the Securities and Exchange Commission.
ADDITION OF NEW DIRECTORS. In October 1998, four new members of the
board of directors of the Company were elected, bringing a wide range of skills
and experiences to the Company. The new directors are Stephen D. Halliday, a
lawyer and accountant with 20 years of professional experience; Jay A. Sekulow,
a lawyer who is in charge of a nationally-known public interest law firm; John
B. Damoose, a former executive with a Fortune 500 corporation; and John E.
Telling, a 31-year securities industry professional. See Item 5 - Directors and
Officers.
ADDITION OF NEW OFFICERS AND KEY EMPLOYEES. In October 1998, Stephen D.
Halliday was elected President and Chief Executive Officer of the Company. Prior
to that, Mr. Halliday had been performing various consulting services for the
Company while serving as a partner at Wiley, Rein & Fielding, a leading
telecommunications law firm. In December 1998, five members of
PricewaterhouseCoopers LLP telecommunications consulting practice with,
collectively, over 75 years of experience in the telecommunications industry
joined the Company, including Kerry A. Smith, a Vice President of the Company,
and such persons are very active in the Company's business and operations. In
January 1999, Dan L. Carter was elected a Vice President of the Company and
brings with him over 20 years of operational experience. In April 1999, David E.
Grose joined the Company as Vice President and Chief Financial Officer and
brings with him over 10 years experience as chief financial officer of
publicly-traded concerns. See Item 5 - Directors and Officers.
TERMINATION OF RELATIONSHIP WITH VISIONQUEST MARKETING SERVICES, INC.
Effective January 1, 1999, the Company and VisionQuest Marketing Services, Inc.
("VisionQuest") mutually terminated their business relationship. Until such time
VisionQuest had performed substantially all of the Company's telemarketing
service requirements, but the Company determined it needed to establish a core
telemarketing business, which it believes it can operate on a more
cost-effective basis than through its prior relationship with VisionQuest. See
Item 7 - Certain Relationships and Related Transactions - Transactions with
VisionQuest.
NEW CREDIT FACILITY WITH COAST BUSINESS CREDIT, INC. In February 1999,
the Company entered into a credit facility with Coast Business Credit, Inc.
("Coast Loan") providing the Company with up to $12.6 million in financing and
in May 1999 the Company was approved to increase the borrowings under the credit
facility to an aggregate of $30.0 million. The proceeds of the Coast Loan have
been used by the Company to repay more expensive indebtedness and will be used
to pay for necessary capital improvements and restructuring. In connection with
the Coast Loan, Hebron, three directors of the Company, including Tracy C.
Freeny, Chairman of the Board of the Company, one significant shareholder of the
Company and one former shareholder of the Company all agreed to subordinate all
amounts owed to them by the Company (an aggregate of $7,366,000) to the Coast
Loan.
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NEW SUPPLY AGREEMENT WITH MCI WORLDCOM. In April 1999, the Company
entered into a multi-year supply agreement with MCI WorldCom for long distance
services. The Company lowered its costs as a result of the new agreement and
resolved certain billing disputes between the two parties. See Item 1 - Business
- - Suppliers.
PENDING TRANSACTIONS WITH HEBRON. Effective February 1999, the Company
began operating certain telecommunications switches of Hebron and, subject to
certain conditions including approval of Hebron's shareholders, will acquire
such switches later this year. The Company will also acquire all of Hebron's
assets related to an Internet product it had been jointly developing with the
Company. The closing of the transaction will allow the Company to have both
switched and switchless long distance under its full control and to operate both
the switches and the Internet assets on a more effective and cost efficient
basis than through its prior relationship with Hebron. See Item 7 - Certain
Relationships and Related Transactions - Transactions with Hebron.
SIX MONTHS RESULTS OF OPERATIONS. For the six months ended June 30,
1999 the Company had income from operations of $7.4 million and net income of
$2.8 million, compared with income from operations of $725,000 and a net loss of
$1.5 million, for the same period in 1998. These improved results were primarily
attributable to costs savings and operational improvements.
BUSINESS STRATEGY
The Company's overall strategy is to profitably grow its
telecommunications and other services by further developing the family values
affinity. Elements of the Company's strategy include:
o Building the Company's Brand. Although the Company is a
significant affinity-based marketing company, the Company
believes that it is still relatively unknown in the
marketplace. The Company has retained one of the nation's
leading non-profit marketing consulting firms, to assist the
Company in improving its image and brand awareness.
o Expanding its Marketing Efforts and Portfolio of
Telecommunications-Related Services. In 1998 substantially all
of the Company's revenues were derived from the provision of
long distance telephone service. The Company believes that it
can grow its revenues by increasing the marketing of its
existing services to the membership of organizations currently
endorsing LifeLine services and offering additional
telecommunications services, such as voicemail, conference
calls and Internet access, and bundling such services with the
long distance telephone service it already provides.
o Providing Cost Competitive Services. The Company continually
works to position its services in a manner which is
cost-competitive with similar services provided by other
telecommunications services providers. To achieve competitive
margins on its telecommunications services the Company intends
to continually review and refine its operations to achieve
operating and cost effectiveness.
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o Building a Filtered Family Friendly Internet Access Service.
In July 1999, the Company launched a filtered family friendly
Internet access service nationwide and is marketing this
service to both its existing customers and new customers.
o Building a Business-Oriented Product Offering. Historically,
the vast majority of the Company's customers have been
residential. The Company believes that it can expand its
customer profile to include small and medium size businesses.
The Company is planning to increase its marketing efforts to
small and medium size businesses by approaching organizations
currently endorsing LifeLine.
o Marketing Non-Telecommunications Products and Services. In
light of the Company's success in marketing telecommunications
services to the family values affinity group, the Company
believes that there is a substantial opportunity to market
non-telecommunication services to its customer base. For
example, the Company provides a credit card product and is
evaluating additional product opportunities.
INDUSTRY OVERVIEW
LONG DISTANCE
Since the break-up of AT&T Corp. ("AT&T") in 1984, annual revenues for
the domestic long distance market have increased significantly. According to
industry data, AT&T, together with Sprint Corporation ("Sprint") and MCI
WorldCom constitute what generally is regarded as the first tier in the long
distance market. Large regional long distance companies, some with national
capabilities, such as Qwest Communications International, Inc. (through its LCI
International, Inc. subsidiary) ("Qwest"), constitute the second tier of the
industry and, cumulatively, are believed to account for less than 10% of the
market. The remainder of the market share is held by several hundreds of smaller
companies, known as third-tier carriers. Many first- and second-tier companies,
most notably AT&T, Sprint and MCI WorldCom, actively have been providing long
distance products for resale for a number of years to capture incremental
traffic volume.
Long distance companies can be categorized in different ways. One
distinction is between facilities-based companies and non-facilities-based
companies, or resellers. Facilities-based companies own transmission facilities,
such as fiber optic cable or digital microwave equipment. Profitability for
facilities-based carriers is dependent not only upon their ability to generate
revenues but also upon their ability to manage complex networking and
transmission costs. Substantially all of the first- and second-tier long
distance companies are facilities-based carriers and generally offer service
nationwide. Most facilities-based carriers in the third tier of the market
generally offer their service only in a limited geographic area. Some
facilities-based carriers, including many of those in the second tier, contract
with other facilities-based carriers to provide transmission where they have
geographic gaps in their facilities. Similarly, non-facilities-based companies,
such as the Company, contract with facilities-based carriers to provide
transmission of their customers' long distance traffic. Pricing in such
contracts is typically either on a fixed rate lease basis or a call volume
basis. Profitability for non-facilities based carriers is based primarily on
their ability to generate and retain sufficient revenue volume to negotiate
attractive pricing with one or more facilities-based carriers.
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A second distinction among long distance companies is that of
switch-based versus switchless carriers. Switched carriers have one or more
switches, computers that direct telecommunications traffic in accordance with
programmed instructions. All of the facilities-based carriers are switched
carriers, as are many non-facilities-based companies. Switchless carriers depend
on one or more facilities-based carriers to provide both transmission capacity
and switch facilities. In addition, switchless resellers enjoy the benefit of
offering their service on a nationwide basis, assuming that their underlying
carrier has a nationwide network. As a result of the pending acquisition of
certain assets of Hebron, the Company operates and will own switches in two
markets, Oklahoma City and Chicago, but will continue to contract with
facilities-based carriers to provide most of its switching services.
Competition in the long distance industry is based primarily upon
pricing, customer service, network quality and value-added services. The success
of a non-facilities-based carrier such as the Company depends almost entirely
upon the amount of traffic that it can commit to the underlying carrier; the
larger the commitment, the lower the cost of service. Subject to contract
restrictions and customer brand loyalty, resellers like the Company may
competitively bid their traffic among other national long distance carriers to
gain improvement in the cost of service. The non-facilities-based carrier
devotes its resources entirely to marketing, operations and customer service,
deferring many of the costs of network maintenance and management to the
underlying carrier.
The relationship between resellers and the major underlying carriers is
predicated primarily upon the pricing strategies of the first-tier companies,
which has resulted historically in higher rates for individuals and small
business customers. Individuals and small business customers do not generate
enough volume to receive reduced rates. The higher rates result from the higher
cost of credit, collection, billing and customer service per revenue dollar
associated with small billing level long distance customers. By committing to
large volumes of traffic, the reseller is guaranteeing traffic to the underlying
carrier. The underlying carrier is also relieved of the administrative burden of
qualifying and servicing large numbers of relatively small accounts. The
successful reseller efficiently markets the long distance product, processes
orders, verifies credit and provides customer service to these large numbers of
small accounts.
INTERNET ACCESS SERVICES
Internet access and related value-added services ("Internet services")
represent one of the fastest growing segments of the telecommunications
marketplace. According to industry estimates, the number of Internet users in
the United States who access the World Wide Web reached approximately 29.2
million in 1997 and is projected to grow to approximately 72.1 million by the
year 2000. In addition, total Internet service providers ("ISP") revenues in the
United States are projected to grow from $4.6 billion in 1997 to $18.3 billion
in 2000. Declining prices in the personal computer market, continuing
improvements in Internet connectivity, advancements in Internet navigation
technology, and the proliferation of services, applications, information and
other content on the Internet have attracted a rapidly growing number of users.
Numerous companies have moved to enter the Internet services market,
such as (i) telecommunications services providers, including national and
regional interexchange carriers, incumbent local exchange carriers ("LECs") and
competitive LECs, (ii) online commercial
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information service providers, (iii) computer hardware and software providers,
(iv) cable television operators and (v) national, regional and local companies
that focus primarily on providing Internet services. These companies pursue a
wide variety of business strategies. For example, cable television operators,
who are not required to grant third party ISPs access to their local networks,
are deploying high-speed cable modems among their subscribers. Incumbent and
competitive LECs, which generally provide third party ISPs access to their local
networks, are deploying high-speed data transmission technologies such as DSL to
support the provision of Internet services.
PRODUCTS AND SERVICES
In 1998, the Company's revenues were substantially all from long
distance sales, however, as discussed below, other products are entering the
sales cycle.
TELECOMMUNICATIONS SERVICES.
Long Distance. The Company provides long distance service to over
620,000 subscribers as of July 31, 1999 most of whom are residential. In
addition, the Company offers calling cards, prepaid phone cards, and toll-free
service. For these services, the Company offers pricing on competitive basis
(including discounted rates for higher volume) with the larger long distance
companies. The Company also intends to offer additional services such as audio
conferencing, voice mail and caller ID.
Wireless. The Company resells the paging services of Paging Networks,
Inc., the largest provider of paging service in the U.S. Local, regional and
national paging service is offered on an alpha and numeric basis. The Company
has also entered into a contract with Shared Technology Cellular to resell
Phillips wireless telephones in the future on a prepaid basis and is also
exploring offering wireless telephone service by reselling the services of a
national wireless provider.
Internet Access. In July 1999, the Company began offering Internet
access services nationwide. The Company's Internet access service, marketed as
"ifriendly.com," has been designed for the Company's affinity group customer
base so that its subscribers will not, subject to certain limitations inherent
to the filtering technology, be able to access "offensive" materials on the
Internet. The Company believes it is one of a few Internet service providers to
offer this option on a national basis.
NON-TELECOMMUNICATIONS SERVICES.
In light of the Company's success in marketing telecommunications
services to the family values affinity group, the Company believes that there is
a substantial opportunity to market non-telecommunication services to its
customer base. The Company currently issues a branded credit card issued by
Guaranty Bank based in Oklahoma City, Oklahoma. The Company believes that the
pricing and terms offered to its participating organizations are competitive
with major credit card providers.
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MARKETING AND SALES
The Company primarily markets its telecommunications services utilizing
the family values affinity. To obtain new customers, the Company uses sales
executives, telemarketing and various promotional efforts including direct mail,
radio, television, convention advertising and the Internet.
Some of the sales executives expend the majority of their efforts
obtaining new non-profit organizations who will endorse LifeLine services and
maintaining existing relationships. The other sales executives principally seek
to expand the number of members of existing non-profit organizations who endorse
LifeLine services as well as sell additional services to and seek to improve the
retention rate of existing subscribers. Prior to 1999, sales executives were
compensated based on a percentage of sales revenue collected. Although some
commission agreements remain in place, effective January 1, 1999, subject to
certain transition arrangements, sales executives are generally compensated with
a base salary and the opportunity to earn bonuses based on their individual
performance.
Once membership lists of non-profit organizations have been obtained,
the Company generally contacts members and solicits their telecommunications
services through direct mail or telemarketing. The Company works with the
organizations in its direct mail efforts, often placing advertising in
newsletters or inserting brochures about the Company in the organizations'
mailings. The Company will also use its telemarketing resources to contact
members of participating organizations. The Company's telemarketing efforts are
also scripted towards affinities of members of a particular organization. The
Company currently operates two call centers, one in Oklahoma City, Oklahoma and
the other in Tahlequah, Oklahoma and, as of July 31, 1999, the call centers had
an aggregate of 250 full and part time employees who operate over 185 call
stations. The Company advertises its services through television and radio
programs which target viewers and listeners who support the family values
affinity, including Christian radio and television networks. The Company
participates in conferences and conventions sponsored by organizations endorsing
LifeLine services. Prior to those events, the Company will either advertise in
materials being sent or send materials to persons attending the event in order
to increase awareness of the telecommunications services the Company offers. At
the actual events, the Company will set up booths or make presentations
regarding its telecommunications services and have personnel on site to explain
the services and assist in enrolling customers.
The Company has also recently begun capitalizing upon the marketing
opportunities created through the Internet. On some websites of participating
organizations, the Company's services are promoted or a link to the Company's
website is provided. The Company is investigating other ways to expand the
marketing to current and potential customers through the Internet.
The Company believes that due to its affinity program it has an average
retention rate of customers better than industry average. Nonetheless, through
improved customer service, competitive rate plans and additional services the
Company is striving to further improve its retention rate. The Company believes
that significant growth may be obtained through the above efforts as well as
expanded marketing initiatives.
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SUPPLIERS
In April 1999, the Company executed a new contract with MCI WorldCom
for provision of the Company's long distance traffic. The contract has certain
monthly minimum volume commitments and the Company must direct all of its
switchless long distance traffic to MCI WorldCom. The Company also received a
credit and was released of any prior liability to MCI WorldCom in connection
with the settlement of various billing disputes between the Company and MCI
WorldCom. This contract offers a significant reduction in pricing from the prior
MCI WorldCom billing rates charged to the Company.
COMPETITION
OVERVIEW. The telecommunications services industry is highly
competitive, rapidly evolving and subject to constant technological change.
While the Company believes it is the largest affinity-based marketing reseller
of telecommunications services to organizations advocating family values in the
United States, there are numerous companies offering the services the Company
offers, and the Company expects competition to increase in the future. The
Company believes that existing competitors are likely to continue to expand
their service offerings and/or lower their prices to appeal to existing or
potential customers of the Company. Many of the Company's existing competitors
have financial, personnel and other resources, including brand name recognition,
substantially greater than that of the Company. Moreover, the Company expects
that new competitors are likely to enter the communications market, and some of
these new competitors may market communications services similar to the
Company's services. Some of these new competitors may have financial, personnel
and other resources, including brand name recognition, substantially greater
than those of the Company. In particular, the regional Bell operating companies
("RBOCs") will be strong competitors once they are allowed to provide long
distance services in their in-region markets. In addition, AT&T has recently
purchased the cable company TeleCommunications, Inc. and is attempting to
purchase another cable company, MediaOne Group Inc. ("MediaOne"). It is unclear
whether the purchase of MediaOne will receive regulatory approval. AT&T intends
to use these cable facilities and those of other cable companies with which it
has signed agreements to offer local telephony, long distance, Internet, and
other services to customers in competition with incumbent local exchange
carriers and other competitive local exchange carriers ("CLECs").
In addition, the regulatory environment in which the Company operates
is undergoing significant change. As this regulatory environment evolves,
changes may occur which could create greater or unique competitive advantages
for all or some of the Company's current or potential competitors, or could make
it easier for additional parties to provide services similar to those offered by
the Company.
LONG DISTANCE. The Company provides long distance services by reselling
the facilities of other carriers in the United States. The long distance
industry is intensely competitive and significantly influenced by the marketing
and pricing decisions of the larger industry participants such as AT&T, Sprint
and MCI WorldCom. Moreover, the industry has undergone and will continue to
undergo significant consolidation that has created and will continue to create
numerous other entities with substantial resources to compete for long distance
business, such as Excel Communications, Inc., Frontier and Qwest. In addition,
as a result of the Telecommunications Act
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of 1996 ("Telecommunications Act"), RBOCs will soon be able to enter the long
distance market. These larger competitors have significantly greater name
recognition and financial, technical, network and marketing resources. They may
also offer a broader portfolio of services and have longer standing
relationships with customers targeted by the Company. Moreover, there can be no
assurance that certain of the Company's competitors will not be better situated
to negotiate contracts with suppliers of telecommunications services which are
more favorable than contracts negotiated by the Company. Many of the Company's
competitors enjoy economies of scale that can result in a lower cost structure
for transmission and related termination costs, and which could cause
significant pricing pressures on the Company.
The Company competes in the long distance market primarily on the basis
of price, customer service and the ability to provide a variety of
communications products and services. Customers frequently change long distance
providers in response to the offering of lower rates or promotional incentives
by competitors. Prices for long distance calls have declined in recent years and
are likely to continue to decrease. Competition in all of the relevant markets
is expected to increase which could adversely affect net revenue per minute and
gross margins as a percentage of net revenue. There can be no assurance that the
Company will be able to compete effectively in the long distance market.
INTERNET TELEPHONY. Certain ISPs have recently announced plans to use
IP Telephony to introduce long distance services at rates 30% to 50% below
standard long distance rates. IP Telephony could increase pressure on the
Company and other communications companies to reduce prices and margins from
long distance services. There can be no assurance that the Company will not
experience substantial decreases in call volume, pricing and/or margins due to
IP Telephony. There can also be no assurance that the Company will be able to
offer its telecommunications services to end users at a price which is
competitive with the IP Telephony services offered by these new companies.
INTERNET SERVICE PROVIDER. Recently, the Company began providing
Internet access on a nationwide basis and is substantially increasing its
investment in this line of business. The Internet services market is highly
competitive, as there are no substantial barriers to entry, and the Company
expects that competition will continue to intensify. The Company's competitors
in this market include ISPs, other telecommunications companies, online services
providers and Internet software providers. Many of these competitors have
greater financial, technological and marketing resources than those available to
the Company. Internet services are currently deemed enhanced services by the FCC
and therefore are not subject to federal and state common carrier regulations,
including long distance interstate and intra-state access fees. There can be no
assurance that Internet services will not be subject to additional regulation in
the future.
TECHNOLOGICAL ADVANCES. In the future, the Company may be subject to
intense competition due to the development of new technologies resulting in an
increased supply of transmission capacity. The telecommunications industry is
experiencing a period of rapid and significant technological evolution, marked
by the introduction of new product and service offerings and increasing
satellite transmission capacity for services similar to those to be provided by
the Company. The introduction of new products or emergence of new technologies
may cause capacity to greatly exceed the demand, reducing the pricing of certain
services to be provided by the
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Company. There can be no assurance that the Company's services will satisfy
future customer needs, that the Company's technologies will not become obsolete
in light of future technological developments, or that the Company will not have
to make significant additional capital investments to upgrade or replace its
system and equipment. The effect on the Company's operations of technological
changes cannot be predicted and if the Company is unable to keep pace with
advances, it could have a material adverse effect on the Company.
REGULATION
The terms and conditions under which the Company provides
telecommunications products and services are subject to government regulation.
Federal laws and Federal Communications Commission ("FCC") regulations apply to
interstate telecommunications, while particular state regulatory authorities
have jurisdiction over telecommunications that originate and terminate within
the same state.
DOMESTIC FEDERAL REGULATION. The Company is classified by the FCC as a
non-dominant carrier, and therefore is subject to significantly reduced federal
regulation. After the reclassification of AT&T as a non-dominant carrier in its
provision of domestic services, among domestic carriers only the LECs are
classified as dominant carriers for the provision of interstate access services.
As a consequence, the FCC regulates many of the rates, charges, and services of
the LECs to a greater degree than the Company's. A separate affiliate of an RBOC
complying with certain statutory separation requirements and, once authorized,
offering in-region interstate inter-exchange services is regulated as a
non-dominant carrier. Similarly, a separate affiliate of an independent LEC
offering in-region interstate inter-exchange services is treated as
non-dominant, but the separation requirements it must comply with are less
strict than those applicable to the RBOCs. This non-dominant treatment may make
it easier for the RBOCs to compete directly with the Company for long distance
subscribers. Because AT&T is no longer classified as a dominant carrier, certain
pricing restrictions that formerly applied to AT&T have been eliminated, which
may make it easier for AT&T to compete with the Company for low volume long
distance subscribers.
The FCC generally does not exercise direct oversight over cost
justification and the level of charges for services of non-dominant carriers,
such as the Company, although it has the statutory power to do so. Non-dominant
carriers are required by statute to offer interstate services under rates,
terms, and conditions that are just, reasonable, and not unduly discriminatory.
The FCC has the jurisdiction to act upon complaints filed by third parties or
brought on the FCC's own motion against any common carrier, including
non-dominant carriers, for failure to comply with its statutory obligations.
Additionally, the Telecommunications Act grants explicit authority to the FCC to
"forbear" from regulating any telecommunications services provider in response
to a petition and if the agency determines that the public interest will be
served for such inaction.
The FCC imposes only minimal reporting requirements on non-dominant
carriers, although the Company is subject to certain reporting, accounting, and
record keeping obligations. A number of these requirements are imposed, at least
in part, on all carriers, and others are imposed on carriers such as the Company
whose annual operating revenue exceed $100 million.
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Resale carriers, like all other interstate carriers, are also subject
to a variety of miscellaneous regulations that, for instance, govern the
documentation and verifications necessary to change a subscriber's long distance
carrier, limit the use of "800" numbers for pay-per-call services, require
disclosure of certain information if operator assisted services are provided,
and govern interlocking directors and management. Other types of FCC regulation
may impose costs on the Company, such as regulatory fees, universal contribution
service obligations, North American Numbering Plan Administration fees,
Telecommunications Relay Services obligations, number portability obligations,
Communications Assistance for Law Enforcement Act obligations, the Universal
Service Fund surcharge and the Primary Interexchange Carrier Charge.
The Telecommunications Act authorizes the RBOCs to provide inter-Local
Access and Transport Area ("LATA") inter-exchange telecommunication services,
upon the receipt of any necessary state and/or federal regulatory approvals that
are otherwise applicable to the provision of intrastate or interstate long
distance services and, for in-region inter-LATA services, upon specific FCC
approval predicated upon satisfying other conditions, including a checklist of
interconnection and other requirements. The Telecommunications Act also provides
for certain safeguards against anticompetitive conduct by the RBOCs in the
provision of inter-LATA service including a requirement for a separate
subsidiary and certain joint marketing limitations.
GTE Corporation ("GTE") was previously prohibited from providing
inter-exchange telecommunications services. However, the Telecommunications Act
authorizes GTE to provide inter-LATA inter-exchange telecommunications services
without regard to limitations by region, although the necessary state and/or
federal regulatory approvals that are otherwise applicable to the provision of
intrastate and/or interstate long distance service must be obtained by GTE prior
to the provision of long distance service. GTE is now providing such services.
In addition, GTE is subject to the provisions of the Telecommunications Act that
impose interconnection and other requirements on the LECs.
Further, the Telecommunications Act prohibits carriers from changing a
subscriber's carrier of telephone exchange or toll services except in
conformance with the FCC's verification rules. In addition to other penalties
imposed by the Telecommunications Act and the FCC's rules, a carrier that
violates the FCC's verification rules and collects charges from the subscriber
is liable to the carrier previously authorized by the subscriber for the amount
collected. The FCC has adopted rules implementing these provisions. The FCC's
order was appealed and some of its rules have been stayed, pending final review
by the Court of Appeals.
STATE REGULATION. The Company is subject to varying levels of
regulation in virtually all states. The vast majority of the states require the
Company to apply for certification, which entails proof of technical, managerial
and financial ability to provide intrastate telecommunications services, or at
least to register or to be found exempt from regulation, before commencing
intrastate service. A majority of states also require the Company to file and
maintain detailed tariffs listing their rates for intrastate service. Many
states also impose various reporting requirements and/or require prior approval
or notice for transfers of control of certified carriers, and/or for corporate
reorganizations; acquisitions of telecommunications operations; assignments of
carrier assets, including subscriber bases; and carrier securities offerings.
Certificates of authority can generally be conditioned, modified, canceled,
terminated, or revoked by state regulatory authorities for failure to comply
with
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<PAGE> 14
state law and/or the rules, regulations, and policies of the state regulatory
authorities. Fines and other penalties, including the return of all monies
received for intrastate traffic from residents of a state, may be imposed for
such violations. In addition, several states have verification rules different
from the FCC's regarding changing a subscriber's authorized carrier.
Currently, the Company can provide originating interstate and
intrastate service to customers in all 48 contiguous states and the District of
Columbia and has applications pending for service in Hawaii and Alaska. Of the
states in which the Company provides originating service, some state Public
Utilities Commissions ("PUCs") actively assert regulatory oversight over the
services offered by the Company.
Additionally, the rules for each state vary in regard to the
authorization of inter-LATA versus intra-LATA service. Upon initial
certification, the Company generally requested approval to provide resold
intrastate long distance telecommunications services, unless a state had
specific rules pertaining to LATAs. At the time, depending on the individual
state regulations, some states only allowed the Company to provide inter-LATA
services, and the LECs typically provided intra-LATA services. As a result of
the Telecommunications Act, intra-LATA competition is now allowed in all states.
Generally speaking, as the rules have been modified, the states have either
ordered that all certified inter-LATA carriers now have the authority to provide
intra-LATA services, or directives have been given for companies to apply for
intra-LATA authority or revise existing tariffs to comply with state
regulations. In those states which issued directives for companies to apply for
intra-LATA authority or revise tariffs, the Company has complied with such
orders.
The Company continuously monitors regulatory developments in all states
in which it does business in order to ensure regulatory compliance. The Company
believes that it is in compliance in all material respects with the requirements
of federal and state regulatory authorities and maintains contact regularly with
the various regulatory authorities in each jurisdiction.
PROPRIETARY RIGHTS
The Company has obtained a federally registered service mark for the
name LIFELINE for long distance telecommunications services. With the exception
of the LIFELINE(R) service mark, the Company does not own or use in its
operations any other material intellectual property.
INFORMATION SYSTEMS
In August 1998, the Company completed a comprehensive independent
review of its information systems ("Information Systems"). Based on the results
of such review, the Company has decided that its current Information Systems,
which are based on FoxPro software, are not sufficient, determining that the
current Information Systems will need to be modified and supplemented to become
year 2000 compliant and new Information Systems will need to be implemented in
order for the Company to operate more effectively. To most efficiently
accommodate customer growth and new product offerings, the Company is pursuing a
Windows NT environment with an underlying client/server architecture. This
platform will also include a data warehouse with front-end tools to address
financial, operational, and sales and marketing research and reporting. The
costs of the Information Systems improvements cannot be determined at this
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<PAGE> 15
time, but it is anticipated it may exceed $4.0 million. The Company currently
anticipates funding the Information Systems improvements from the Coast Loan,
but, if proceeds from this loan are not available, it may not have sufficient
other capital resources to implement the improvements. There can be no
assurances that the Company will have the capital resources available which are
necessary to implement the improvements or that, if implemented, the
improvements will function effectively. The failure to implement the
improvements or if the improvements are ineffective Information Systems could
have a material adverse effect on the Company.
EMPLOYEES
As of July 31, 1999, the Company had approximately 270 full time
employees and 100 part time and temporary employees. None of the Company's
employees is party to any collective bargaining agreement and the Company has
never experienced a work stoppage. The Company considers its relations with its
employees to be good.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS.
There are many factors that affect the Company's business and the
results of its operations, some of which are beyond the control of the Company.
The following is a description of some of the important factors that may cause
the actual results of the Company's operations in future periods to differ
materially from those currently expected or desired.
HISTORY OF LOSSES; POTENTIAL FLUCTUATIONS IN OPERATING RESULTS. Since
the formation of the Company in 1991, the Company has incurred losses for each
full fiscal year. There can be no assurances that the Company will ever attain
consistent profitability. Also, the Company is experiencing significant
expenditures related to its recent introduction of Internet access service, its
Information Systems improvements and its reorganization efforts and anticipates
these expenditures will continue, possibly for an extended period of time.
The Company's operating results have fluctuated in the past and may
fluctuate significantly in the future as a result of a variety of factors, some
of which are outside of the Company's control, including general economic
conditions, specific economic conditions in the telecommunications industry, the
relationships with non-profit organizations, the effects of governmental
regulation and regulatory changes, user demand, capital expenditures and other
costs relating to the expansion of operations, the introduction of new services
by the Company or its competitors, the mix of services sold, pricing changes and
new service introductions by the Company and its competitors and prices charged
by suppliers. For example, revenues decreased 9.6% for the first six months of
1999 compared to the first six months of 1998. The Company believes that this
decrease was attributable to its reduced telemarketing efforts, which the
Company has begun to increase, but there can be no assurance that such decline
will not continue in the future. As a strategic response to a changing
competitive environment, the Company may elect from time to time to make certain
pricing, service or marketing decisions that could have a material adverse
effect on the Company.
SUBSTANTIAL INDEBTEDNESS; NEED FOR ADDITIONAL CAPITAL. As of June 30,
1999, the Company had outstanding indebtedness (excluding current liabilities of
$39.0 million) of $12.3 million, total assets of $28.1 million and a working
capital deficit of $19.4 million. Since formation, the Company has
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<PAGE> 16
experienced significant cash shortages and has had to raise equity through sale
of securities and borrow money from various affiliates to fund its operations
and continue as a going concern. As of June 30, 1999, notes payable of
approximately $4.2 million had matured and had not been repaid. Additionally,
the Company intends (i) to modify its current Information Systems and implement
additional Information Systems to improve the flow of information related to the
operations and to become year 2000 compliant, (ii) to incur other capital
expenditures and reorganization expenses and (iii) to continue to pursue its
Internet access service. The aggregate cost of implementation of these
activities are not known at this time, but may exceed $6.0 million. The Company
will need to raise additional capital from public or private equity or debt
sources in order to finance these costs and its working capital needs, debt
service obligations and contemplated capital expenditures. If additional funds
are raised through the issuance of equity securities, the percentage ownership
of the Company's then current shareholders would be reduced. There can be no
assurance that the Company will be able to raise such capital on satisfactory
terms or at all. In the event that the Company is unable to obtain such
additional capital or is unable to obtain such additional capital on acceptable
terms, the Company may be required to reduce the scope of its operations, which
could have a material adverse effect on the Company.
LIABILITIES FOR BREACH OF SECURITIES LAWS. Substantially all of the
Company's sales of Common Stock and certain notes, other than sales to officers
and directors of the Company, failed to comply with certain provisions of the
federal and states' securities laws, including compliance with registration
requirements and, possibly, compliance with anti-fraud provisions. The Company
and two of its officers, after voluntarily presenting these facts to the
Securities and Exchange Commission (the "Commission") in July 1996, consented
in July 1998 to the entry of a cease and desist order from the Commission
concerning violations of the federal securities laws. See Item 8 below for a
more detailed description of these proceedings.
The federal securities laws provide legal causes of action against the
Company by persons buying the securities from the Company including action to
rescind the sales. With respect to the offerings described above, the statutes
of limitations relating to such actions appear to have expired for sales made by
the Company more than three years ago. Substantially all of these sales were
made by the Company more than three years ago. However, with respect to such
sales, other causes of action may exist under federal law, including causes of
action for which the statute of limitation may have not expired.
While certain suits under the federal acts may be barred, similar laws
in many of the states provide similar rights. The Company sold stock to persons
in over forty states, and those states typically provide that a purchaser of
securities in a transaction that fails to comply with the state's securities
laws can rescind the purchase, receiving from the issuing company the purchase
price paid plus an interest factor, frequently 10% per annum from the date of
sales of such securities, less any amounts paid to such security holder. The
statutes of limitations for these rights typically do not begin running until a
purchaser discovers the violation of the law, and therefore in most instances,
and depending on individual circumstances, the statute of limitations do not
appear to limit those rights for most purchasers of securities from the Company.
Also, depending on the law of the state and individual circumstances, monetary
damages and other remedies may be granted for breach of state securities laws.
Accordingly, the Company has a significant, material contingent liability under
state securities laws for those sales of approximately $10.0 million at June 30,
1999. However, if
16
<PAGE> 17
the Company redeems any shares of Common Stock, the holders of such shares would
no longer have a claim under state securities laws.
Additionally, the Company may be liable for rescission or other
remedies under states securities laws to the purchasers of the Hebron common
stock because of the relationships of the two companies, creating an additional
significant, material contingent liability to the Company of approximately $3.5
million at June 30, 1999. While the Company may have liability for rescission of
the sales of the Hebron securities, the holders of Hebron securities will not
have any damages under the rescission rights if Hebron successfully completes
its currently proposed liquidation. See Item 7 below for a description of the
Hebron transaction including its proposed liquidation. If the liquidation is
completed as currently proposed, and the Company pays the notes in full, the
Company anticipates that the Hebron shareholders would receive assets in the
liquidation with a value greater than the value of their rescission rights.
If purchasers of securities of either the Company or Hebron are
successful in asserting any of the above-described claims, it could have a
material adverse effect on the Company.
DEPENDENCE ON RELATIONSHIPS WITH NON-PROFIT ORGANIZATIONS.
Substantially all of the Company's revenues are derived from the members of the
non-profit organizations with which it has relationships. The non-profit
organizations receive a percentage, currently approximately 10%, of certain
collected revenues generated from their members. The Company does not have long
term written agreements with many of these non-profit organizations.
Accordingly, a non-profit organization may have no legal obligation to maintain
its relationship with the Company and there is nothing to ensure that
compensation to the non-profit organizations will remain at current levels.
There can be no assurances that the Company will be able to maintain its
relationships with the non-profit organizations or establish relationships with
new non-profit organizations. If one or more significant non-profit
organizations chooses to sever its relationship with the Company or the rate of
compensation to the non-profit organizations is changed, it could have a
material adverse effect on the Company.
COMPETITION. The telecommunications industry is highly competitive and
is significantly influenced by the marketing and pricing decisions of the larger
industry participants, such as AT&T, MCI WorldCom and Sprint. Many of the
Company's competitors are significantly larger and have substantially greater
financial, technical and marketing resources than the Company. The industry has
relatively insignificant barriers to entry, numerous entities competing for the
same customers and high churn rates (customer turnover), as customers frequently
change long distance providers in response to the offering of lower rates or
promotional incentives by competitors. The Company competes to a large extent on
the basis of price and also on the basis of customer service and its ability to
provide a variety of telecommunications services. The Company expects
competition on the basis of price and service offerings to increase.
In addition to these competitive factors, recent and pending
deregulation may encourage new entrants. For example, as a result of federal
legislation enacted in 1996, after fulfilling certain statutory requirements,
RBOCs will be allowed to enter the long distance market, AT&T, MCI WorldCom and
other long distance carriers are allowed to enter the local telephone services
market, and any entity (including cable television companies and utilities) are
allowed to enter both the local
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<PAGE> 18
service and long distance telecommunications markets. In addition, the FCC has
reclassified AT&T as a "non-dominant" carrier, which substantially reduces the
regulatory constraints on AT&T.
DEPENDENCE ON MCI WORLDCOM. The Company does not own telecommunications
transmission lines. Accordingly, substantially all telephone calls made by the
Company's customers are transmitted over MCI WorldCom's network under an
agreement with MCI WorldCom which is also a competitor of the Company. The
Company's ability to maintain and expand its business is currently dependent
upon whether the Company continues to maintain a favorable relationship with MCI
WorldCom and whether MCI WorldCom remains a viable supplier to the Company. The
deterioration or termination of the Company's relationship with MCI WorldCom or
MCI WorldCom's failure to remain a viable supplier to the Company could have a
material adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a
significant degree upon the continued contributions of its management team,
particularly Stephen D. Halliday, its President and Chief Executive Officer, and
Tracy Freeny, its Chairman of the Board, and marketing, technical and sales
personnel. The Company's employees may voluntarily terminate their employment
with the Company at any time. Competition for qualified employees and personnel
in the telecommunications industry is intense and, from time to time, there is a
limited number of persons with knowledge of and experience in particular sectors
of the telecommunications industry. The Company's success also will depend on
its ability to attract and retain qualified management, marketing and sales
personnel. The process of locating such personnel with the combination of skills
and attributes required to carry out the Company's strategies is often lengthy.
There can be no assurance that the Company will be successful in attracting and
retaining such personnel. The loss of the services of key personnel, or the
inability to attract additional qualified personnel, could have a material
adverse effect on the Company.
LACK OF RECORDS AND AMBIGUITIES. The Company over the first several
years of its existence did not maintain complete records as to certain of its
corporate activities. The Company, working with its auditors and legal counsel,
has reconstructed certain records including minutes of meetings of its board of
directors relating to the issuance of Common Stock and notes and approval of
other acts and transactions of the Company. These minutes are based on certain
records of the Company and upon affidavits of persons who served as directors
during such earlier periods. To the extent, if any, that such reconstructed
records fail to reflect shares of Common Stock issued and outstanding, dilution
would occur to known existing shareholders. To the extent, if any, notes or
other indebtedness are outstanding but not reflected in current records, the
Company's net worth would be reduced.
Certain records and documents that were maintained by the Company
contain ambiguities which require interpretations of their meanings and contain
provisions inconsistent with actions of the Company. See for example Note F to
Notes to Consolidated Financial Statements concerning the secured nature of
certain notes of the Company. Where records and documents of the Company are
ambiguous, parties to such documents may interpret those records and documents
in a manner contrary to the Company's interpretations which could affect the
obligations and rights of the Company in an adverse manner.
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<PAGE> 19
POTENTIAL ADVERSE EFFECTS OF REGULATION. The Telecommunications Act
provides specific guidelines under which the RBOCs can provide long distance
services, which will permit the RBOCs to compete with the Company in the
provision of domestic and international long distance services. The legislation
also opens all local service markets to competition from any entity (including,
for example, long distance carriers, such as AT&T, cable television companies
and utilities). Because the legislation opens the Company's markets to
additional competition, particularly from the RBOCs, the Company's ability to
compete may be adversely affected. Moreover, as a result of and to implement the
legislation, certain federal and other governmental regulations will be adopted,
amended or modified, and any such adoption, amendment or modification could have
a material adverse effect on the Company.
The FCC and relevant PUCs have the authority to regulate interstate and
intrastate rates, respectively, ownership of transmission facilities, and the
terms and conditions under which the Company's services are provided. Federal
and state regulations and regulatory trends have had, and in the future are
likely to have, both positive and negative effects on the Company and its
ability to compete. In general, neither the FCC nor the relevant state PUCs
currently regulate the Company's long distance rates or profit levels, but
either or both may do so in the future. A move by the FCC toward lessened
regulation has given AT&T, the largest long distance carrier in the U.S.,
increased pricing flexibility that has permitted it to compete more effectively
with smaller long distance carriers, such as the Company. In addition, the
commitments made by the U.S. government in the recently-completed WTO
negotiations will make it easier for certain foreign-affiliated carriers to
provide service in competition with the Company. There can be no assurance that
changes in current or future Federal or state regulations or future judicial
changes would not have a material adverse effect on the Company.
In order to provide their services, long distance carriers, including
the Company, must generally purchase "access" from LECs to originate calls from
and terminate calls in the local exchange telephone networks. Access charges
presently represent a significant portion of the Company's network costs in all
areas in which it operates. Interstate access charges are regulated by the FCC
while intrastate access charges are regulated by the relevant state PUCs. The
FCC is currently considering how to reform its access charge rules. The access
charge structure ultimately adopted by the FCC could have a material adverse
effect on the Company, particularly if it imposes relatively greater costs on
smaller carriers (such as the Company) compared to larger carriers (such as AT&T
and MCI WorldCom).
The Company currently competes with the RBOCs and other LECs such as
GTE in the provision of "short haul" toll calls completed within a LATA. Subject
to a number of conditions, the Telecommunications Act eliminated many of the
restrictions which prohibited the RBOCs and GTE from providing long-haul, or
inter-LATA toll service, and thus the Company will face additional competition.
To complete long-haul and short-haul toll calls, the Company must purchase
"access" from the LECs. The Company must generally price its toll services at
levels equal to or below the retail rates established by the LECs for their own
short-haul or long-haul toll rates. To the extent that the LECs are able to
reduce the margin between the access costs to the Company and the retail toll
prices charged by LECs, either by increasing access costs or lowering retail
toll rates, or both, the Company will encounter adverse pricing and cost
pressures in competing against LECs in both the short-haul and long-haul toll
markets.
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DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS. The Company has determined
that its current Information Systems are not sufficient. It has determined that
the current Information Systems will need to be modified and supplemented to
become year 2000 compliant and new Information Systems will need to be
implemented in order for the Company to operate more effectively. The costs of
the Information Systems improvements cannot be determined at this time, but it
is anticipated to be approximately $3.5 to $4.0 million. If the proceeds of the
Coast Loan are not available to fund this cost, the Company will not have
sufficient capital resources to implement the improvements. There can be no
assurances that the Company will have or, if necessary, be able to obtain the
capital resources necessary to implement the improvements or that, if
implemented, the improvements will function effectively. The failure to
implement the improvements or the ineffectiveness of the improvements could have
a material adverse effect on the Company.
MINIMUM VOLUME COMMITMENTS AND SHORTFALLS. The Company has entered into
a supply contract with MCI WorldCom for the long distance telecommunication
services provided to its customers. To obtain favorable forward pricing from MCI
WorldCom, the Company has committed to purchase certain minimum volumes of a
variety of long distance services during the term of the contract. There can be
no assurance that the Company will not incur shortfalls in the future or that it
will be able to successfully renegotiate, or otherwise obtain relief from, its
minimum volume commitments in the future. If future shortfalls occur, the
Company may be required to make substantial payments without associated revenue
from customers or MCI WorldCom may terminate service and commence formal action
against the Company. Such payments are not presently contemplated in the
Company's capital budgets and would have a material adverse effect on the
Company.
Because of the Company's commitments to purchase fixed volumes of use
from MCI WorldCom at predetermined rates, the Company could be adversely
affected if MCI WorldCom were to lower the rates it makes available to the
Company's target market without a corresponding reduction in the Company's
rates. Similarly, the Company could be adversely affected if MCI WorldCom fails
to adjust its overall pricing, including prices to the Company, in response to
price reductions of other major carriers. MCI WorldCom has agreed to review
rates charged to the Company but the language of the agreement states that MCI
WorldCom is not legally obligated to lower the rates charged to the Company.
CUSTOMER ATTRITION. Customer attrition is a problem inherent in the
long distance industry. The Company believes it experiences customer attrition
at levels less than industry average, nevertheless; the Company's revenue is
adversely affected by customer attrition. The customer attrition experienced by
the Company is attributable to a variety of factors, including the Company's
termination of customers for non-payment and the marketing and sales initiatives
of the Company's competitors such as, among other things, national advertising
campaigns, telemarketing programs and the use of cash or other incentives. There
can be no assurances that this attrition will not increase from current levels.
Failure to maintain customer attrition at or below current levels could have a
material adverse effect on the Company.
RAPID TECHNOLOGICAL CHANGE. The telecommunications industry is
characterized by rapidly evolving technology. The Company believes that its
success will increasingly depend on its ability to offer, on a timely basis, new
services based on evolving technologies and industry standards.
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There can be no assurance that the Company will have the ability or resources to
develop the new services, that new technologies required for such services will
be available to the Company on favorable terms or that such services and
technologies will enjoy market acceptance. Further, there can be no assurance
that the Company's competitors will not develop products or services that are
technologically superior to those used by the Company or that achieve greater
market acceptance. The development of any such superior technology by the
Company's competitors, or the inability of the Company to successfully respond
to such a development, could render the Company's existing products or services
obsolete and could have a material adverse effect on the Company.
DEPENDENCE UPON INTEGRITY OF CALL DATA RECORDS. The Company depends on
the timeliness and accuracy of call data records provided to it by MCI WorldCom
which supplies the Company with telecommunications services, and there can be no
assurance that accurate information will consistently be provided on a timely
basis. Failure of the Company to receive prompt and accurate call data records
will impair the Company's ability to bill its customers on a timely basis. Such
billing delays could impair the Company's ability to collect amounts owed by its
customers. Due to the multitude of billing rates and discounts which suppliers
must apply to the calls completed by the Company's customers, and due to routine
logistical issues such as the addition or termination of customers, the Company
regularly has disagreements with MCI WorldCom concerning the amounts invoiced
for its customers' traffic. The Company pays MCI WorldCom according to its own
calculation of the amounts owed as recorded on the computer tapes provided by
MCI WorldCom. The Company's computations of amounts owed are frequently less
than the amount shown on the MCI WorldCom's invoices. Accordingly, MCI WorldCom
may consider the Company to be in arrears in its payments until the amount in
dispute is resolved. Although these disputes have generally been resolved on
terms favorable to the Company, there can be no assurance that this will
continue to be the case. Future disputes which are not resolved favorably to the
Company could have a material adverse effect on the Company.
LACK OF RETURNS OF CAPITAL. From July 31, 1994 until December 31, 1997,
the Company paid returns of capital on the shares of Common Stock and accrued
amounts payable to Messrs. Freeny and Thompson. The Company does not anticipate
paying any other returns of capital or cash dividends or distributions in the
foreseeable future and anticipates that future earnings will be retained to
repay outstanding indebtedness and to finance operations. Furthermore, the terms
of the Coast Loan limit the payment of any returns of capital or other dividends
or distributions to its shareholders.
NO PUBLIC MARKET; ILLIQUIDITY. There is no established public trading
market for the shares of Common Stock and the Company currently does not intend
to seek inclusion of the shares of Common Stock in any established public
trading market. As a result, a holder of shares of Common Stock will not easily
be able to dispose of his shares of Common Stock. Further restricting liquidity
of the Common Stock is a right of first refusal provided for in the bylaws of
the Company in favor of the Company and certain stockholders with respect to any
sales of Common Stock by its shareholders. There can be no assurances that an
established public trading market will ever exist for the shares of Common Stock
or that a shareholder will be able to dispose of his shares of Common Stock
through any other methods.
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FORWARD-LOOKING STATEMENTS. Certain statements contained in this Form
10 are not based on historical facts, but are forward-looking statements that
are based upon numerous assumptions as of the date of this Form 10 that could
prove to be inaccurate. When used in this Form 10, the words "anticipate",
"believe", "estimate", "expect", "will", "could", "may" and similar expressions,
as they relate to management or the Company, are intended to identify
forward-looking statements. Such statements reflect the current views of
management with respect to future events and are subject to certain risks,
uncertainties and assumptions, including those described in "The Company -- Risk
Factors" herein. Should one or more of these risks or uncertainties materialize,
or should the underlying assumptions prove incorrect, actual results may vary
materially from those described herein. The Company disclaims any obligation to
update the forward-looking statements contained in this Form 10.
ITEM 2. FINANCIAL INFORMATION
SELECTED HISTORICAL FINANCIAL AND OPERATING DATA
The historical financial data presented in the following table for and
at the end of each of the four years in the five-year period ended December 31,
1998 are derived from the audited financial statements of the Company.
The historical financial data presented in the following table for and
at the end of the one-year period ended December 31, 1994 and at the end of the
six month periods ended June 30, 1998 and 1999 are derived from the unaudited
consolidated financial statements of the Company. In the opinion of management
of the Company, such unaudited consolidated condensed financial statements
include all adjustments (consisting of normal recurring adjustments) necessary
for a fair presentation of the financial data for such periods. The results for
the six months ended June 30, 1999 are not necessarily indicative of the results
to be achieved for the full year.
The historical financial data for the years ended December 31, 1995,
1996, 1997 and 1998 are derived from the audited consolidated financial
statements of the Company. This information is not necessarily indicative of the
company's future performance.
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The data presented below should be read in conjunction with the
Company's consolidated financial statements and the notes thereto included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------- ---------------------
1994 1995 1996 1997 1998 1998 1999
----------- -------- -------- -------- -------- --------- ----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales........................................... $ 12,603 $ 59,313 $ 100,858 $ 113,351 $ 124,232 $ 62,652 $ 57,180
-------- -------- --------- --------- --------- -------- --------
Operating expenses:
Cost of telecommunication services................ 7,701 35,088 48,748 44,711 48,787 24,138 25,198
-------- -------- --------- --------- --------- -------- --------
Cost of telecommunication services
provided by related parties................... -- -- 4,685 13,529 14,736 7,554 1,469
-------- -------- --------- --------- --------- -------- --------
Selling, general and administrative............... 5,256 21,059 36,194 44,530 49,368 26,102 21,304
-------- -------- --------- --------- --------- -------- --------
Selling, general and administrative
to related parties............................ 1,028 11,222 9,977 5,893 6,805 3,390 --
-------- -------- --------- --------- --------- -------- --------
Depreciation and amortization..................... 92 375 593 683 2,102 743 1,771
-------- -------- --------- --------- --------- -------- --------
Total operating expenses...................... 14,077 67,744 100,197 109,346 121,798 61,927 49,742
-------- -------- --------- --------- --------- -------- --------
Operating income (loss)............................. (1,474) (8,431) 661 4,005 2,434 725 7,438
-------- -------- --------- --------- --------- -------- --------
Other income and (expense):
Interest expense and other financing charges...... (229) (441) (1,536) (3,245) (4,993) (2,373) (2,620)
-------- -------- --------- --------- --------- -------- --------
Interest expense and other financing charges
incurred to related parties................... (86) (42) (297) (924) (974) (600) --
-------- -------- --------- --------- --------- -------- --------
Loss on loans and other receivables............... -- -- (200) -- (552) -- --
-------- -------- --------- --------- --------- -------- --------
Impairment loss on asset held for disposal........ -- -- -- -- (215) -- --
-------- -------- --------- --------- --------- -------- --------
Equity in income (losses) of affiliates........... (28) 135 28 (99) 41 41 --
-------- -------- --------- --------- --------- -------- --------
Other income...................................... 6 111 86 14 59 32 202
-------- -------- --------- --------- --------- -------- --------
Income (loss) before income tax (benefit)......... (1,811) (8,668) (1,258) (249) (4,200) (2,175) 5,020
-------- -------- --------- --------- --------- -------- --------
Income tax expense (benefit)...................... (1,202) (3,371) (396) 92 (643) (656) 2,219
-------- -------- --------- --------- --------- -------- --------
Net income (loss)................................. $ (609) $ (5,297) $ (862) $ (341) $ (3,557) $ (1,519) $ 2,801
-------- -------- --------- --------- --------- -------- --------
Earnings (loss) per share :
Basic............................................. $ (1.22) $ (9.75) $ (3.79) $ (1.01) $ (4.22) $ (2.07) $ 3.52
-------- -------- --------- --------- --------- -------- --------
Diluted........................................... $ (1.22) $ (9.75) $ (3.79) $ (1.01) $ (4.33) $ (2.07) $ 3.42
-------- -------- --------- --------- --------- -------- --------
CASH FLOWS:
Operating activities.............................. $ (1,289) $ (5,014) $ 1,489 $ (1,624) $ 8,772 $ 1,619 $ (7,753)
-------- -------- --------- --------- --------- -------- --------
Investing activities.............................. (1,867) (618) (294) (922) (148) (99) 11
-------- -------- --------- --------- --------- -------- --------
Financing activities.............................. 6,362 2,815 (967) 2,008 (8,004) (1,518) 8,609
-------- -------- --------- --------- --------- -------- --------
BALANCE SHEET DATA:
Total assets...................................... $ 10,244 $ 18,654 $ 20,961 $ 24,554 $ 21,259 $ 27,581 $ 28,122
-------- -------- --------- --------- --------- -------- --------
Working capital (deficit)......................... 2,570 (6,592) (18,321) (20,811) (23,590) (21,222) (19,357)
-------- -------- --------- --------- --------- -------- --------
Total long-term debt.............................. 8,717 14,217 5,494 9,062 10,244 9,490 12,267
-------- -------- --------- --------- --------- -------- --------
Total stockholder's deficit(1).................... (2,574) (13,360) (16,827) (22,612) (25,971) (24,252) (23,157)
-------- -------- --------- --------- --------- -------- --------
OTHER FINANCIAL DATA:
EBITDA (2)........................................ $ (1,382) $ (8,056) $ 1,254 $ 4,688 $ 4,536 $ 1,468 $ 9,209
-------- -------- --------- --------- --------- -------- --------
</TABLE>
- ----------------------
(1) Dividends were declared through December 31, 1997. See "Dividend
Policy."
(2) EBITDA represents operating income (loss) before depreciation and
amortization. EBITDA is frequently used by securities analysts and is
presented herein to provide additional information about the Company's
operations. EBITDA is not a measurement presented in accordance with
generally accepted accounting principles. EBITDA should not be
considered in isolation or as a substitute for net income or cash flow
data prepared in accordance with generally accepted accounting
principles or as a measure of a company's profitability or liquidity.
23
<PAGE> 24
AMERIVISION COMMUNICATIONS, INC. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company provides domestic long distance and other
telecommunications services, primarily to residential users. Since its
formation in 1991, the Company's annual long distance telephone volume has
grown from approximately $1.0 million in net sales in 1991 to over $124.0
million in net sales in 1998. Substantially all of this growth is attributable
to the increase in the Company's subscriber base. The Company's subscriber base
has increased from approximately 30,000 subscribers at the beginning of 1994 to
approximately 620,000 subscribers at the end of July 1999. The Company does
not, however, expect its revenues or subscriber base to continue to grow at
this rate in the future.
The growth in the Company's long distance revenues and customer base
is attributable to the Company's marketing efforts. The Company entered into
agreements or made strategic alliances with various non-profit organizations.
From the first quarter of 1993 through the middle of 1996, the Company relied
almost exclusively on the telemarketing efforts of VisionQuest a related entity
in which the Company owned an equity interest, to solicit and acquire new long
distance customers. The non-profit organizations would provide the Company and
VisionQuest with its membership rosters, and VisionQuest would direct its
telemarketing services to those individuals. The Company has decreased the use
of telemarketing for its marketing efforts and began, in the middle of 1996, to
increase its own marketing related efforts through direct mail, television and
radio advertising, including sponsorship of various radio and television
programs for the organizations whose members subscribe to the Company's long
distance services. These marketing efforts as well as telemarketing are
currently being utilized by the Company to solicit and acquire new long
distance customers.
Sales commissions are paid to both employees and independent
contractors. Salespersons earn commissions based upon a percentage of the
commissionable, billable traffic generated by the non-profit organizations for
which the salesperson has been assigned. The total sales commission for each
non-profit organization is approximately 5.0%. This payment is generally split
among several people, including the outside salesperson that is the primary
contact with the non-profit organization and the inside salesperson that is
responsible for working with the outside salesperson in servicing the accounts.
Although the Company has over 215 salespersons and employees who receive
commissions, approximately 58.0%, 55.0%, 59.0% and 55.0% of total commissions
were earned by the top 10 salespersons in 1996, 1997, 1998 and for the six
months ended June 30, 1999, respectively.
In 1996, the Federal Communications Commission adopted regulations
implementing the Telecommunications Act enacted that year. To support universal
service, carriers are required to contribute certain percentages of their
annual gross receipts to fund the High Cost Fund, the Schools and Libraries
Fund, and the Low Income Fund. The FCC has allowed carriers to offset these
charges by passing them through to their customers. In addition, the FCC
adopted a Primary Interexchange Carrier Charge ("PICC") to allow LECs to
recover through non-usage-sensitive charges certain costs associated with long
distance carriers having access to LEC networks. The FCC has also allowed the
long distance carriers to offset these amounts by passing these charges on to
their customers.
The Company bills its customers under several different methods. Some
customers receive their long distance bills directly from the Company. The
Company also has billing and collection agreements with several of the RBOCs.
Customers who are billed through the RBOCs receive their long distance phone
bill with their local phone bill from the RBOC. The Company also utilizes two
third party billing
24
<PAGE> 25
and collection services for customer billings through other
LECs or RBOCs with whom the Company does not have a separate billing and
collection agreement.
Although the Company does not own or operate its own long distance
network, effective February 1, 1999 the Company began operating the switching
assets and related personnel of Hebron, which includes telecommunications
switches in Oklahoma City and Chicago. The Company plans to purchase the
switches later this year under terms of an asset purchase agreement with
Hebron. This will allow the Company to originate and terminate certain long
distance calls. MCI WorldCom carries the majority of the Company's long
distance traffic. The Company pays its carriers based on the type of calls,
time of certain calls, duration of calls, the terminating phone numbers, and
the terms of the Company's contract in effect at the time of the calls. In
addition to residential long distance service, the Company also offers its
customers other telecommunication services such as paging, Internet access
services, calling cards, prepaid phone cards and toll-free service.
The Company rebates a percentage, approximately 10.0%, of the
customer's gross billings to a non-profit organization selected by the customer
but approved by the Company. Gross billings include all revenues, except
international long distance calls.
Beginning in the fourth quarter of 1996, the Company began offering a
"Non-Profit Organization Bonus Sign-Up" program in certain instances. During
the years ended December 31, 1996, 1997, 1998 and for the six months ended June
30, 1999 total bonus sign up expense was $132,000, $311,000 $283,000 and
$42,000, respectively.
Selling, general and administrative expenses include billing fees
charged by LECs and other third party billing and collection companies, bad
debts, commissions to salespersons, advertising and telemarketing expenses,
customer service and support, and other general overhead expenses.
Interest expense includes the cost of financing the Company's accounts
receivables and loans from individuals.
The Company has recognized a net deferred tax for the tax effects of
temporary differences and net operating loss carryforwards, to the extent that
the Company has determined that it is more likely than not that it will realize
those tax benefits.
25
<PAGE> 26
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO SIX MONTHS ENDED JUNE 30, 1998
The following table sets forth for the six-month periods indicated the
percentage of net sales represented by certain items in the Company's
statements of operations:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1998 1999
-------- --------
<S> <C> <C>
Net sales 100.0% 100.0%
-------- --------
Operating expenses:
Cost of telecommunication services 50.6% 46.6%
-------- --------
Selling, general and administrative expenses 47.1% 37.3%
-------- --------
Depreciation and amortization expense 1.2% 3.1%
-------- --------
Total operating expenses 98.9% 87.0%
-------- --------
Income from operations 1.1% 13.0%
-------- --------
Interest expense (4.7)% (4.6)%
-------- --------
Other income 0.1% 0.4%
-------- --------
Income (loss) before income tax (benefit) (3.5) 8.8%
-------- --------
Income tax expense (benefit) (1.1)% 3.9%
-------- --------
Net income (loss) (2.4)% 4.9%
-------- --------
</TABLE>
Net Sales: Net sales decreased 9.6% to $57.2 million for the six
months ended June 30, 1999 from $62.7 million for the six months ended June 30,
1998. This decrease was the result of a decrease in total minutes of traffic,
resulting from reduced marketing efforts during the six months ended June 30,
1999 and a reduction in minutes under certain rate plans, which are billed at a
higher per minute rate. Total billable minutes were approximately 310.4 million
minutes for the six months ended June 30, 1999 compared to 324.8 million
minutes for the six months ended June 30, 1998, a decrease of 4.4%.
The Company believes it is more cost effective to bill its residential
customers who have smaller than average phone bills through the LECs as opposed
to billing them directly. As a result, a greater percentage of customers who
are billed directly by the Company are the commercial customers or residential
customers who generate larger than average monthly phone bills. In 1997, the
Company began billing a larger percentage of its customers through the LECs and
other billing and collection services. Approximately 78.0% of net sales were
billed through the LECs or other billing and collection services for the six
months ended June 30, 1999, compared to 73.0% for the six months ended June 30,
1998. Customers receiving their bills directly from the Company were
approximately 22.0% for the six months ended June 30, 1999 compared to 27.0%
for the same period in 1998.
26
<PAGE> 27
Cost Of Telecommunication Services: The Company's cost of sales are
variable costs based on amounts paid by the Company to its providers for its
customers' long distance usage, as well as the amounts paid to providers for
customer service and support. For the six months ended June 30, 1999, the
Company's overall cost per minute decreased slightly compared to the six months
ended June 30, 1998. During the six months ended June 30, 1999 and 1998, the
amounts and relative percentage of net sales to each of its providers was as
follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------
1998 1999
--------------------------- ---------------------------
Amount Percentage of Amount Percentage of
(000's) Net Sales (000's) Net Sales
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
MCI WorldCom $ 21,071 33.6% $ 16,224 28.3%
---------- ---------- ---------- ----------
Hebron 7,554 12.1% 1,469 2.6%
---------- ---------- ---------- ----------
Switched Operations -- -- 5,183 9.1%
---------- ---------- ---------- ----------
PICC/USF Fees 3,067 4.9% 3,791 6.6%
---------- ---------- ---------- ----------
Totals $ 31,692 50.6% $ 26,667 46.6%
---------- ---------- ---------- ----------
</TABLE>
MCI WorldCom: The Company's overall percentage usage of MCI WorldCom
decreased as a result of the Company beginning to operate, effective February
1, 1999 the switches previously operated by Hebron. The Company plans to
purchase the switches later this year under terms of an asset purchase
agreement with Hebron. For the six months ended June 30, 1999, total minutes of
usage from MCI WorldCom were approximately 230.5 million minutes compared to
approximately 270.1 million minutes for the same period in 1998, a decrease of
14.7% resulting from the switch purchase.
Hebron: The decrease in cost of sales to Hebron is attributable to the
decreased minutes of usage, from approximately 20.4 million minutes for the six
months ended June 30, 1999 compared to 100.3 million minutes for the six months
ended June 30, 1998. The decrease of 79.7% results from the Company assuming
operation of the switches. The cost per minute of usage decreased for the six
months ended June 30, 1999 compared to the six months ended June 30, 1998. This
decrease was primarily attributable to a rate reduction provided by Hebron to
match rates with MCI WorldCom during 1998.
Switched Operations: Effective February 1, 1999 the Company began
operating the switching assets and related personnel of Hebron, which includes
telecommunications switches in Oklahoma City and Chicago. The total minutes of
usage for switched operations for the six months ended June 30, 1999 were 100
million minutes.
PICC/USF Fees: These expenses increased for the six months ended June
30, 1999 compared to the same period in 1998 because the collection of these
fees was implemented in 1998, and many carriers and LEC's did not bill in the
first month or so of 1998.
Selling, General and Administrative Expenses: The significant
components of selling, general and administrative expenses include the
following:
<TABLE>
<CAPTION>
Six Months Ended June 30,
-----------------------------------------------------------
1998 1999
--------------------------- ---------------------------
Amount Percentage of Amount Percentage of
(000's) Net Sales (000's) Net Sales
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Billing fees and charges $ 6,563 10.5% $ 4,358 7.6%
---------- ---------- ---------- ----------
Advertising expense 2,632 4.2% 1,826 3.2%
---------- ---------- ---------- ----------
Other general and administrative 10,954 17.5% 10,663 18.7%
---------- ---------- ---------- ----------
Related party telemarketing expense 3,390 5.4% -- --
---------- ---------- ---------- ----------
Rebates to non-profit organizations 5,953 9.5% 4,457 7.8%
---------- ---------- ---------- ----------
Totals $ 29,492 47.1% $ 21,304 37.3%
---------- ---------- ---------- ----------
</TABLE>
27
<PAGE> 28
Billing Fees and Charges: Billing fees and charges include the
contractual billing fees and bad debts charged by LEC's and other third party
billing companies. During 1998, in an effort to improve the timing of cash
flows, the Company utilized the third party billing and collection services of
Billing Information Concepts ("BIC") and Hold Billing Services ("Hold") for a
percentage of its billings. However, the Company has increased its direct
billings during 1999. Total billings processed through BIC and Hold were
approximately 30.0% of net sales for the six months ended June 30, 1999
compared to 38.0% of net sales for the six months ended June 30, 1998.
Applicable billing charges from BIC and Hold were approximately 3.1% and 14.7%
of net sales for the six months ended June 30, 1999 and 1998, respectively.
Advertising Expense: Advertising expenses decreased 30.6% to $1.8
million for the six months ended June 30, 1999 compared to $2.6 million for the
six months ended June 30, 1998 due to the Company curtailing its advertising
expenses. The Company utilizes direct mail, radio, television and other forms
of advertising to acquire new customers.
Other General and Administrative Expense: Other general and
administrative expenses decreased by approximately 2.7 % for the six months
ended June 30, 1999 as compared to the same period in 1998 due to reductions in
commissions to salespersons.
Telemarketing Expense to Related Party: The Company incurred no
related party telemarketing expense during the six months ended June 30, 1999
compared to $3.4 million for the six months ended June 30, 1998. This decrease
was partially due from moving telemarketing from utilization of VisionQuest to
being conducted by the Company and partially due to reduced telemarketing
activity. During the six months ended June 30, 1998, reimbursement of 100% of
corporate overhead expenses incurred by VisionQuest were approximately $1.3
million, representing 2.1% of net sales
Rebates to Non-Profit Organizations: During the six months ended June
30, 1999, rebates to non-profit organizations decreased by approximately 25.1%
to $4.5 million compared to $6.0 million for the same period in 1998. The
majority of the decrease is due to a 4% bad debt factor utilized to reduce the
commissionable revenues and a decrease in additional discretionary commission
amounts, set by management to maintain a more constant rebate amount to the
non-profit organizations. As of June 30, 1999, the Company was affiliated with
approximately 35,000 organizations for its rebate program, compared to
approximately 31,000 organizations as of June 30, 1998. For the six months
ended June 30, 1999 and 1998, approximately 41.0% and 33.5%, respectively, of
total rebates were paid to the top ten organizations.
Depreciation and Amortization: Depreciation and amortization expense
increased 138% to $1.8 million for the six months ended June 30, 1999 compared
to $743,000 for the same period in 1998. This increase is attributable to an
increase in the value of the Company's property and equipment primarily due to
recording the purchase of switch and Internet equipment associated with the
Hebron transaction.
Interest Expense and Other Finance Charges: Interest expense decreased
11.9% to $2.6 million for the six months ended June 30, 1999 compared to $3.0
million for the same period in 1998. This decrease is attributable to an
increase in borrowings related to the Company's credit facility partially
28
<PAGE> 29
offset by a decrease in the average applicable interest rates for the six
months ended June 30, 1999 as compared to same earlier period.
Other Income (Expense): For the six months ended June 30, 1999,
interest income and rental income decreased to $20,000 compared to $73,000 for
the same period in 1998. This decrease is due to a reduction in interest income
principally as a result of certain notes being retired during 1998 and due to
the elimination of the Company's equity in income from VisionQuest.
Income Tax Expense (Benefit): For the six months ended June 30, 1999
the Company recorded a deferred income tax expense of approximately $2.2
million, and for the same period in 1998, the Company recorded a deferred
income tax benefit of approximately $656,000. The income tax benefits
recognized in the financial statements consist primarily of the deferred tax
effects of the temporary differences between the financial and tax bases of
assets and liabilities, and net operating loss carryforwards. The Company
believes that it will realize the tax benefits of net operating loss
carryforwards within the period allowed under Federal tax laws (15 years).
Net Income (Loss): During the six months ended June 30, 1999, the
Company reported net income of $2.8 million compared to a net loss of $1.5
million for the six months ended June 30, 1998.
STATEMENTS OF OPERATIONS DATA FOR THE YEARS ENDED
DECEMBER 31, 1996, 1997 AND 1998:
The following table sets forth for the years indicated the percentage
of net sales represented by certain items in the Company's statements of
operations:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
---------- ---------- ----------
Operating expenses:
Cost of telecommunication services 53.0% 51.4% 51.1%
---------- ---------- ----------
Selling, general and administrative expenses 45.8% 44.5% 45.2%
---------- ---------- ----------
Depreciation and amortization expense 0.5% 0.6% 1.7%
---------- ---------- ----------
Total operating expenses 99.3% 96.5% 98.0%
---------- ---------- ----------
Income from operations 0.7% 3.5% 2.0%
---------- ---------- ----------
Interest expense (1.9)% (3.7)% (4.8)%
---------- ---------- ----------
Other expense --% --% (0.6)%
---------- ---------- ----------
Loss before income tax (benefit) (1.2)% (0.2)% (3.4)%
---------- ---------- ----------
Income tax expense (benefit) (0.3)% 0.1% (0.5)%
---------- ---------- ----------
Net loss (0.9)% (0.3)% (2.9)%
---------- ---------- ----------
</TABLE>
29
<PAGE> 30
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Net Sales: Net sales increased 9.6% to $124.2 million in 1998 compared
to $113.4 million in 1997. This increase was the result of PICC and USF
revenues in the amount of $10.1 million, which began in 1998 and an increase in
billable minutes and the customer base. Total billable minutes were
approximately 635 million minutes in 1998 compared to 616 million minutes in
1997, an increase of 3.1%.
The Company believes it is more cost effective to bill its residential
customers who have smaller than average phone bills through the LECs as opposed
to billing them directly. As a result, a greater percentage of customers who
are billed directly by the Company are the commercial customers or residential
customers who generate larger than average monthly phone bills. In 1997, the
Company began billing a larger percentage of its customers through the LECs and
other billing and collection services. Approximately 77.0% of net sales were
billed through the LECs or other billing and collection services in 1998,
compared to 73.0% in 1997. Customers receiving their bills directly from the
Company were approximately 23.0% in 1998 compared to 27.0% in 1997.
Cost Of Telecommunication Services: The Company's cost of sales are
variable costs based on amounts paid by the Company to its providers for its
customers' long distance usage. For the year ended December 31, 1998, the
Company's overall cost per minute as compared to 1997 decreased by 8%. During
the years ended December 31, 1998 and 1997, the amounts and relative percentage
of net sales to each of its providers was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1997 1998
--------------------------- ---------------------------
Amount Percentage of Amount Percentage of
(000's) Net Sales (000's) Net Sales
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
MCI WorldCom $ 44,711 39.5% $ 41,650 33.5%
---------- ---------- ---------- ----------
Hebron 13,529 11.9% 14,736 11.9%
---------- ---------- ---------- ----------
PICC/USF Fees -- -- 7,137 5.7%
---------- ---------- ---------- ----------
Totals $ 58,240 51.4% $ 63,523 51.1%
---------- ---------- ---------- ----------
</TABLE>
MCI WorldCom: The Company's overall percentage usage of MCI WorldCom
declined as a result of the Company directing a larger percentage of its
traffic to Hebron in 1998. During 1998 and 1997, total minutes of usage from
MCI WorldCom were approximately the same at 536 million minutes. In June 1997,
the Company received approximately a $0.01 per minute rate reduction on its
regular, interstate traffic from MCI WorldCom.
Hebron: In March 1997, Hebron began providing the Company with
telecommunications services through its Chicago switch as well as its Oklahoma
City switch. The cost of sales to Hebron remained constant while minutes of
usage increased to 208 million minutes in 1998 compared to 175 million minutes
in 1997, an increase of 18.9%. The cost per minute decreased and was primarily
attributable to a $1.1 million rate reduction provided by Hebron during 1998 to
match rates charged by MCI WorldCom.
PICC/USF Fees: This program for collection of fees was implemented in
1998.
30
<PAGE> 31
Selling, General and Administrative Expenses: The significant
components of selling, general and administrative expenses include the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1997 1998
--------------------------- ---------------------------
Amount Percentage of Amount Percentage of
(000's) Net Sales (000's) Net Sales
---------- ------------- ---------- -------------
<S> <C> <C> <C> <C>
Billing fees and charges $ 10,347 9.1% $ 12,580 10.1%
---------- ---------- ---------- ----------
Advertising expense 4,115 3.6% 5,107 4.1%
---------- ---------- ---------- ----------
Other general and administrative 18,536 16.4% 20,923 16.8%
---------- ---------- ---------- ----------
Related party telemarketing expense 5,894 5.2% 6,805 5.5%
---------- ---------- ---------- ----------
Rebates to non-profit organizations 11,531 10.2% 10,758 8.7%
---------- ---------- ---------- ----------
Totals $ 50,423 44.5% $ 56,173 45.2%
---------- ---------- ---------- ----------
</TABLE>
Billing Fees and Charges: Billing fees and charges include the
contractual billing fees and bad debts charged by LECs and other third party
billing companies. During 1998, the Company decreased its utilization of third
party billing and collection services of Zero Plus Dialing ("ZPDI") and Hold
for a percentage of its billings as compared to 1997. Total billings processed
through ZPDI and Hold decreased to approximately 35.0% of net sales in 1998
compared to 40.0% of net sales in 1997. Applicable billing charges from ZPDI
and Hold were approximately 4.6% and 7.0% of net sales in 1998 and 1997,
respectively.
Advertising Expense: Advertising expense increased significantly in
1998 to $5.1 million, compared to $4.1 million in 1997, an increase of 24.0%
due to increased marketing efforts, including direct mail, radio, television
and other forms of advertising.
Other General and Administrative Expense: Other general and
administrative expenses increased by approximately 13.0% during 1998 compared
to 1997 due to increased fees for professional and other services, with some
offset in reductions in commissions to salespersons.
Telemarketing Expense to Related Party: The Company's telemarketing
expense increased during 1998, as the Company paid VisionQuest its direct cost
spent for telemarketing projects, plus reimbursement of 100% of corporate
overhead incurred by VisionQuest. In 1997, telemarketing expenses included
reimbursement of a portion of the overhead costs incurred by VisionQuest in
connection with its telemarketing activities for the Company. During 1997,
total telemarketing expense was reduced by $670,000, as VisionQuest agreed to
reimburse that amount to the Company, in the form of a note. During 1998 and
1997, corporate overhead expenses incurred by VisionQuest were approximately
$4.7 million and $900,000, respectively, representing 3.8% and 0.8% of net
sales, respectively
Rebates to Non-Profit Organizations: During 1998, rebates to
non-profit organizations decreased by approximately 7.0%, to $10.8 million in
1998 compared to $11.5 million in 1997. The majority of the decrease is due to
an increase in the bad debt factor utilized to reduce the commissionable
revenues and a decrease in additional discretionary commission amounts, set by
management to maintain a more constant rebate amount to the non-profit
organizations. At the end of 1998, the Company was affiliated with
approximately 35,000 organizations for its rebate program, compared to
approximately 31,000 organizations at the end of 1997. For 1998 and 1997,
approximately 42.0% and 44.0%, respectively, of total rebates were paid to the
top ten organizations.
Depreciation and Amortization: Depreciation and amortization expense
increased 208% to $2.1 million in 1998 compared to $683,000 in 1997. This
increase is attributable to the amortization of a not to compete covenant
contained in Carl Thompson's separation agreement.
31
<PAGE> 32
Interest Expense and Other Finance Charges: Interest expense and other
finance charges increased to $6.0 million in 1998 compared to $4.2 million in
1997. The primary reasons for the increase were the Company's increased use of
debt financing and an increase in the Company's use of working capital line of
credit agreements to finance its accounts receivable during 1997.
Other Income (Expense): Interest income and rental income increased to
$59,000 during 1998 compared to $14,000 in 1997, principally as a result of the
Company having more cash to invest and an increase in interest income on
certain notes offset by less space available for rental purposes in a building
formerly owned by the Company. The Company's equity in income and in the net
loss incurred by VisionQuest in 1998 and 1997 was approximately $41,000 and
$99,000, respectively.
Income Tax Expense (Benefit): In 1998 the Company recorded a deferred
income tax benefit of approximately $643,000, and in 1997, the Company recorded
a deferred income tax expense of approximately $92,000. The income tax benefits
recognized in the financial statements consist primarily of the deferred tax
effects of the temporary differences between the financial and tax bases of
assets and liabilities, and net operating loss carryforwards. The Company
believes that it will realize the tax benefits of net operating loss
carryforwards within the period allowed under Federal tax laws (15 years).
Net Income (Loss): During the years ended December 31, 1998 and 1997,
the Company incurred a net loss of $3.6 million and $341,000, respectively.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales: Net sales increased 12.4% to $113.4 million in 1997
compared to $100.9 million in 1996. This increase was the result of an increase
in the customer base and billable minutes. Total billable minutes were
approximately 616 million minutes in 1997 compared to 563 million minutes in
1996, an increase of 9.4%.
The Company believes it is more cost effective to bill its residential
customers who have smaller than average phone bills through the LECs as opposed
to billing them directly. As a result, a greater percentage of customers who
are billed directly by the Company are the commercial customers or residential
customers who generate larger than average monthly phone bills. In 1997, the
Company began billing a larger percentage of its customers through the LECs and
other billing and collection services. Approximately 73.0% of net sales were
billed through the LECs or other billing and collection services in 1997,
compared to 55.0% in 1996. Customers receiving their bills directly from the
Company were approximately 27.0% in 1997 compared to 45.0% in 1996.
Cost Of Telecommunication Services: The Company's cost of sales are
variable costs based on amounts paid by the Company to its providers for its
customers' long distance usage. For the year ended December 31, 1997, the
Company's overall cost per minute as compared to 1996 decreased by 3.6%. During
the years ended December 31, 1997 and 1996, the amounts and relative percentage
of net sales to each of its providers were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1996 1997
--------------------------- ---------------------------
Amount Percentage of Amount Percentage of
(000's) Net Sales (000's) Net Sales
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
---------- ---------- ---------- ----------
MCI WorldCom $ 48,748 48.3% $ 44,711 39.5%
---------- ---------- ---------- ----------
Hebron 4,685 4.7% 13,529 11.9%
---------- ---------- ---------- ----------
Totals $ 53,433 53.0% $ 58,240 51.4%
---------- ---------- ---------- ----------
</TABLE>
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<PAGE> 33
MCI WorldCom: The Company's overall usage of MCI WorldCom declined as
a result of the Company using Hebron for a larger percentage of its traffic.
During 1997, total minutes of usage from MCI WorldCom were approximately 536
million minutes compared to 566 million minutes in 1996, a decline of 5.3%. In
June 1997, the Company received approximately a $0.01 per minute rate reduction
on its regular, interstate traffic from MCI WorldCom. In 1996, the Company
recognized a $1.2 million credit from MCI WorldCom, as a result of backlog and
processing disputes, which had accumulated over an extended period.
Hebron: Hebron began providing the Company with telecommunications
services in 1996 through its Oklahoma City switch. Additionally, in March 1997,
Hebron began providing the Company with telecommunications services through its
Chicago switch. The increase in cost of sales to Hebron is attributable
primarily due to increased minutes of usage to 175 million minutes in 1997,
compared to 84 million minutes in 1996, an increase of 108.0%.
Selling, General and Administrative Expenses: The significant
components of selling, general and administrative expenses include the
following:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1996 1997
--------------------------- ---------------------------
Amount Percentage of Amount Percentage of
(000's) Net Sales (000's) Net Sales
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Billing fees and charges $ 6,591 6.5% $ 10,347 9.1%
---------- ---------- ---------- ----------
Advertising expense 2,659 2.6% 4,115 3.6%
---------- ---------- ---------- ----------
Other general and administrative 17,103 17.0% 18,536 16.4%
---------- ---------- ---------- ----------
Related party telemarketing expense 9,977 9.9% 5,894 5.2%
---------- ---------- ---------- ----------
Rebates to non-profit organizations 9,841 9.8% 11,531 10.2%
---------- ---------- ---------- ----------
Totals $ 46,171 45.8% $ 50,423 44.5%
---------- ---------- ---------- ----------
</TABLE>
Billing Fees and Charges: Billing fees and charges include the
contractual billing fees and bad debts charged by LECs and other third party
billing companies. During 1997, in an effort to improve the timing of cash
flows, the Company utilized the third party billing and collection services of
ZPDI and Hold Billing Services for a greater percentage of its billings as
compared to 1996. Total billings processed through ZPDI and Hold were
approximately 40.0% of net sales in 1997 compared to 27.0% of net sales in
1996. Applicable billing charges from ZPDI and Hold were approximately 7.0% and
5.0% of net sales in 1997 and 1996, respectively.
Advertising Expense: Advertising expense increased significantly in
1997 to $4.1 million compared to $2.7 million in 1996, an increase of 54.8%.
Prior to 1996, substantially all of the Company's marketing efforts was through
VisionQuest. However, in the second quarter of 1996, the Company, in addition
to utilizing VisionQuest, began to increase its own marketing related efforts
through direct mail, radio, television and other forms of advertising to
acquire new customers.
Other General and Administrative Expense: Other general and
administrative expenses increased by approximately 8.4% during 1997 compared to
1996.
Telemarketing Expense to Related Party: The Company's telemarketing
expense consists of the costs of commissions and other corporate overhead
expenses incurred by VisionQuest in connection with
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<PAGE> 34
the Company's telemarketing activities. During 1997 and 1996, corporate
overhead expenses incurred by VisionQuest were approximately $900,000 and $2.3
million, respectively, representing 0.8% and 2.3% of net sales, respectively.
In 1997, telemarketing expenses included reimbursement of a portion of the
overhead costs incurred by VisionQuest in connection with its telemarketing
activities for the Company. In 1996, telemarketing expenses consisted primarily
of a 3.0% commission paid to VisionQuest on commissionable long distance
traffic generated by VisionQuest, which was discontinued at the end of 1996.
Rebates to Non-Profit Organizations: During 1997, rebates to
non-profit organizations increased by approximately 17.0% to $11.5 million in
1997 compared to $9.8 million in 1996. The majority of the increase is due to
an increase in net sales and commissionable traffic. At the end of 1997, the
Company was affiliated with approximately 31,000 organizations for its rebate
program, compared to approximately 27,000 organizations at the end of 1996. For
1997 and 1996, approximately 44.0% and 43.0%, respectively, of total rebates
were paid to the top ten organizations.
Depreciation and Amortization: Depreciation and amortization expense
remained fairly constant at $683,000 in 1997 compared to $593,000 in 1996.
Interest Expense and Other Finance Charges: Interest expense and other
finance charges increased to $4.2 million in 1997 compared to $1.8 million in
1996. The primary reasons for the increase were the Company's increased use of
debt financing which began in 1996 and continued throughout all of 1997, and an
increase in the Company's use of working capital line of credit agreements to
finance its accounts receivable during 1997.
Other Income (Expense): Interest income and rental income decreased to
$14,000 in 1997 compared to $86,000 in 1996, principally as a result of the
Company having less cash to invest and less space available for rental
purposes. The Company's equity in the net loss incurred by VisionQuest in 1997
was approximately $99,000. In 1996, the Company's equity in VisionQuest's net
income was approximately $18,000. The Company also recovered $10,000 in 1996,
from its investment in Switchless Reseller Services ("SRS") which had been
written off in 1995.
Income Tax Expense (Benefit): In 1997, the Company recorded a deferred
income tax expense of approximately $92,000 and in 1996, the Company recorded a
deferred income tax benefit of approximately $396,000. The income tax benefits
recognized in the financial statements consist primarily of the deferred tax
effects of the temporary differences between the financial and tax bases of
assets and liabilities, and net operating loss carryforwards. The Company
believes that it will realize the tax benefits of net operating loss
carryforwards within the period allowed under Federal tax laws (15 years).
Net Income (Loss): During the years ended December 31, 1997 and 1996,
the Company incurred a net loss of $341,000 and $862,000, respectively.
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operations for 1996 was $1,489,000, compared to
net cash used in operations of $1,624,000 in 1997, and net cash provided by
operations of $8,772,000 in 1998. The increase in cash flow from operations was
primarily attributable to the timing of collections on accounts receivable and
the payment of accounts payable.
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<PAGE> 35
From its existence through 1995, the Company's primary source of
financing was the sale of equity securities. Approximately $12.0 million in
equity securities were sold to investors during this period. Beginning in
December 1995 and continuing through August 1996, the Company also raised
approximately $4.9 million through the issuance of short-term promissory notes.
Substantially all of the Company's sales of Common Stock and certain notes,
other than sales to officers and directors of the Company, failed to comply
with certain provisions of the federal and states' securities laws, including
compliance with registration requirements and, possibly, compliance with
anti-fraud provisions. While certain actions under the federal acts may be
barred, similar laws in many of the states provide similar rights. The Company
sold stock to persons in over forty states and those states typically provide
that a purchaser of securities in a transaction that fails to comply with the
state's securities laws can rescind the purchase, receiving from the issuing
company the purchase price paid plus an interest factor, frequently 10% per
annum from the date of sales of such securities, less any amounts paid to such
security holder. Accordingly, the Company has a significant, material
contingent liability under state securities laws for those sales of
approximately $10.0 million at June 30, 1999. The Company has also financed its
working capital needs through various accounts receivable credit facilities
with Trinity Financial Resources ("Trinity"), Hebron, and other billing and
collection companies. In September 1997, the Company entered into a $5,000,000
accounts receivable purchase agreement with RFC Capital Corporation ("RFC").
Other sources of financing have included various short and long-term
borrowings, primarily from individuals and related parties, and by extending
payables to vendors and tax authorities beyond payment terms.
The Company's primary uses of cash have historically been for
telemarketing efforts to increase the Company's customer base, and to pay
returns of capital to its stockholders. From the beginning of 1994 through
December 31, 1998, total amounts expended for telemarketing activities were
approximately $32.6 million. Substantially all of these expenses were to
VisionQuest. In addition, from 1994 through the end of 1997, the Company
declared $19.0 million in returns of capital to its stockholders. As of June 30,
1999, all returns of capital had been paid, except for amounts payable to Tracy
Freeny and Carl Thompson, totaling $3.2 million and $337,500, respectively. The
Company is paying the amount owed to Thompson in accordance with the terms of
Thompson's separation agreement, which provides for payments of $40,000 per
month. The Company and Freeny have agreed to defer payment of such amounts owed
to Freeny until such time as the Company's financial condition further improves
and it has funds available, legally and in good business practice, to pay any
such accrued returns of capital. In consideration for this deferral and Freeny's
subordination of the accrued returns of capital to the Coast Loan, the Company
will pay him $300,000 per year, subject to limitations under the Coast Loan
Agreement, until the payment of the accrued returns of capital is resumed and,
if resumed, all amounts paid to Freeny pursuant to the agreement shall be
credited against his accrued returns of capital.
The Company's financing costs have historically exceeded market rates.
Most of the note payable obligations have borne interest at 18% or higher.
Interest costs and late fees on vendor payables and tax obligations also
generally have an effective rate of 18% or higher. The effective interest rates
on the Company's accounts receivable credit facilities have ranged from 12% to
58%. Financing costs have been increased by fees charged by Hebron, and finance
companies such as Trinity, Hold and RFC in connection with the line of credit
financing and accounts receivable factoring arrangements. Other LEC billings
were financed through the Company's line of credit agreements with Hebron and
Trinity in 1998 and 1997 and beginning in the fourth quarter of 1997, through
the Company's factoring arrangement with RFC. The arrangements with Hebron and
Trinity provided for a 2.0% billing fee, respectively as well as a 2 cents per
call record charge by Hebron, in addition to the interest charged under the
agreements. During 1998 and 1997, total billing fees charged by Hebron, Trinity
and RFC were approximately 1.3% and 1.0% of net sales, respectively. Such fees
were negligible in 1996.
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<PAGE> 36
This combination of high financing costs, return of capital payments,
and the short-term nature of most of the Company's indebtedness have
contributed to the Company's lack of profitability and negative working
capital, which totaled $19.4 million at June 30, 1999.
During 1998, the Company was approved for a $30 million credit
facility ("Credit Facility") with Coast Business Credit ("Coast"). In February
1999, the Company closed on the first phase of the Credit Facility.
The first phase of the Credit Facility was accounts receivable based,
and provided initial funding of approximately $12.6 million. The proceeds from
this Credit Facility were used to replace the existing accounts receivable
credit facilities and purchase agreement, and to enable the Company to become
substantially current on its existing past due vendor payables and tax
obligations. In connection with closing the first phase of the Credit Facility
the Company also obtained $2.5 million in subordinated debt financing from
Patrick Enterprises, an investor. These funds were initially restricted to
maintain reserves as specified in the Credit Facility with Coast.
In April 1999, the Company met the terms and conditions for converting
the Credit Facility from an accounts receivable based facility to a full credit
facility. Accordingly, Coast has approved the conversion to the full credit
facility. Under the terms of the Credit Facility, funding availability is based
upon recurring monthly collections or earnings multiples. The Company's initial
availability was approximately $29.0 million under the Credit Facility.
Of the $29.0 million in initial availability, approximately $14.0
million was outstanding as of June 30, 1999 under the Credit Facility. Of the
remaining balance of $15.0 million, approximately $6.8 million is reserved for
the payment of the Company's existing non-subordinated indebtedness, and the
balance is available to the Company for working capital, capital improvements
and debt reduction. In addition, the $2.5 million subordinated loan received in
February 1999 is also available for working capital, capital improvements and
debt reduction. The Company intends to negotiate with certain of its
non-subordinated creditors to replace their existing indebtedness with some
other form of debt instrument, subordinated to the Credit Facility. This would
increase, on a dollar for dollar basis, the Company's availability under the
Credit Facility, as these non-subordinated creditors totaling $6.8 million are
currently reserved under the Credit Facility. The Company cannot predict or
assess the likelihood of success in converting its existing indebtedness to
subordinated debt instruments.
The Credit Facility is secured by a blanket lien on all of the
Company's assets, including accounts receivable and the Company's customer base.
The terms of the Credit Facility are for three years from initial funding, with
an interest rate of prime plus 3.5%. Although the Credit Facility has a
three-year term, it will be classified as a current liability in the Company's
financial statements because the agreement contains certain subjective
acceleration clauses and requires that all cash receipts be deposited to a
lockbox, the proceeds of which are used daily to repay the debt.
The Company expects that its future capital requirements will be
significant. Approximately $3.5 to $4.0 million will be required to upgrade the
Company's management information systems. Additionally, the Company estimates
$3.0 to $3.5 million will be required for various aspects of reorganization. The
Company plans to increase its telemarketing activities and to upgrade its
outbound telemarketing and inbound customer service facilities, and estimates
the total cost for these activities to be approximately $1.0 million.
Furthermore, Internet expenditures have approximated $2.0 million to date and
are estimated to be $1.5 to $2.0 million over the next twelve-month period.
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<PAGE> 37
The Company plans to utilize its availability under the Credit
Facility and the additional $2.5 million of subordinated debt to finance the
majority of these investing and financing needs. The Company plans to increase
its availability under the Credit Facility by seeking to convert some of its
existing indebtedness to subordinated debt. The Company will continue to seek
alternate financing sources, including equipment term loans, capital leases and
mezzanine financing.
The Company estimates cash flow from operations and, to the extent
required, borrowings under the Credit Facility would be sufficient to fund its
remaining obligations and to meet its other anticipated capital requirements
for 1999. As of June 30, 1999, the Company had $14.0 million of borrowings
outstanding under the Credit Facility, $6.8 million reserved for
non-subordinated debt and approximately $8.2 million of available borrowing
capacity under the Credit Facility. In the event the Company's estimates of
capital requirements are too low, and the Company does not have sufficient
availability under the Credit Facility or is unable to obtain alternate sources
of financing, the Company may be required to curtail its capital improvement
and telemarketing expansion plans.
In June 1999, the Company paid off debt of approximately $2.2 million
to certain of its non-subordinated creditors. This will increase on a dollar
for dollar basis, once approved by Coast, the Company's availability under the
Credit Facility, as these payments to certain non-subordinated creditors are
part of the amount totaling $6.8 million currently reserved under the Credit
Facility.
Operating Activities
Significant uses of cash in operating activities for the six months
ended June 30, 1999 include decreases in accounts payable of $8.3 million.
Accounts receivable increased by $5.7 million and prepaid expenses increased by
$531,000. Net non-cash expenses of $1,771,000 were principally depreciation and
amortization. The Company also generated cash from operations by recording net
income of $2,801,000 and $2.2 million from recording a deferred income tax
expense.
Significant sources of cash in operating activities in 1998 include
decreases in accounts receivable of $2.7 million. Net non-cash expenses of $2.9
million, principally depreciation, amortization, impairment loss on fixed
assets and losses on other receivables significantly offset the net loss of
$3.6 million incurred by the Company in 1998. The Company also generated cash
from operations of approximately $5.8 million by extending or delaying payments
to vendors, and $5.8 million in connection with the sale of certain of its
accounts receivable.
Significant uses of cash in operating activities in 1997 included
increases in accounts receivable of $6.1 million. Net non-cash expenses of
$874,000, principally depreciation and amortization, offset the net loss of
$341,000 incurred by the Company in 1997. The Company also generated cash from
operations of approximately $1.6 million by extending or delaying payments to
vendors, and $2.4 million in connection with the sale of certain of its
accounts receivable.
Significant sources of cash in operating activities in 1996 included
additions to amounts payable to vendors and interest payable to lenders of $4.7
million. Significant uses of cash in operations in 1996 included a net loss of
$862,000 offset by net non-cash expenses, primarily depreciation and
amortization, totaling $636,000. Additional uses of cash in operations included
net increases in accounts receivable totaling $3.0 million.
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<PAGE> 38
Investing Activities
The Company's investing activities for the six months ended June 30,
1999 consisted primarily of property and equipment purchases of $511,000 offset
by proceeds of $522,000 from the sale of an asset held for disposal.
The Company's investing activities in 1998 consisted primarily of
property and equipment purchases of $353,000. Investments totaling $55,000,
which had been pledged as collateral for a loan in 1996, were released in 1998.
Sources of cash included repayments of advances made to related parties
totaling $150,000.
The Company's investing activities in 1997 consisted primarily of
property and equipment purchases of $337,000 and a loan made to a related
company in the amount of $670,000. Investments totaling $85,000, which had been
pledged as collateral for a loan in 1996, were released in 1997.
The Company's investing activities in 1996 consisted of property and
equipment purchases totaling $478,000, a loan made to an unrelated, independent
television broadcasting company totaling $200,000 (which was subsequently
charged off), and the pledge of an investment as collateral on a loan totaling
$150,000. Sources of cash included repayments of advances made to related
parties totaling $534,000.
Financing Activities
During the six months ended June 30, 1999, financing activities
provided $8.6 million in cash. The most significant source of cash was an
increase of $10.1 million in borrowings under the Company's Credit Facility.
Other financing activities included borrowings from related parties totaling
$262,000 and repayments to related parties totaling $489,000, for net use of
cash totaling $227,000, and other borrowings totaling $2.6 million and
repayments totaling $3.8 million, for a net use of cash totaling $1.2 million.
During the year ended December 31, 1998, financing activities used
$8.0 million in cash. The most significant use of cash was a decrease of $4.7
million in borrowings under the Company's various line of credit agreements.
Additionally, returns of capital paid to stockholders and redemption of Common
Stock also comprised the use of cash in financing activities, totaling $1.3
million in 1998. Other financing activities included borrowings from related
parties totaling $1.6 million and repayments to related parties totaling $3.1
million, for net use of cash totaling $1.5 million, and other borrowings
totaling $400,000 and repayments totaling $748,000, for a net use of cash
totaling $348,000.
During the year ended December 31, 1997, financing activities provided
$2.0 million in cash to the Company. The most significant source of cash was an
increase of $6.8 million in borrowings under the Company's various line of
credit agreements. Returns of capital paid to stockholders and redemptions of
Common Stock comprised the largest use of cash in financing activities,
totaling $5.0 million in 1997. Other financing activities included borrowings
from related parties totaling $3.7 million and repayments to related parties
totaling $4.4 million, for a net use of cash of $700,000, and other borrowings
totaling $1.4 million and repayments totaling $500,000, for net proceeds of
cash totaling $900,000.
During the year ended December 31, 1996 financing activities used $1.0
million in cash. The principal uses of cash in financing activities were
returns of capital paid to stockholders and redemption of common stock totaling
$7.1 million. Principal sources of cash included proceeds from notes payable,
totaling $5.2 million. Other sources of cash included an increase in borrowings
under line of credit agreements of $1.0 million and proceeds from issuance of
common stock totaling $144,000. In addition,
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<PAGE> 39
the Company had borrowings from related parties totaling $8.2 million and
repayments to related parties totaling $7.9 million, for net proceeds of
$300,000, and repayments of other notes payable totaling $440,000.
RECENT EVENTS
In July 1999, the Company launched a filtered family friendly Internet
access service nationwide and intends to market this service to both its
existing customers and new customers.
YEAR 2000 COMPUTER ISSUES
Background. The Year 2000 problem, commonly referred to as the "Y2K"
problem, is the product of a longstanding practice in the computer industry
that permitted the use of only two digits, rather than four, to define the
yearly dates. This abbreviation of dates makes it impossible for certain
computer systems and other equipment with embedded microchips or processors,
referred to collectively as "business systems," to distinguish between
centuries for a given date. For example, a business system affected by the Y2K
problem would be unable to distinguish between 1898 and 1998: it would read
both as simply "98." Not even technology experts know with certainty what will
happen on January 1, 2000 to those business systems affected by the Y2K
problem. Some anticipate such business systems to revert to "00," recognizing
the date as January 1, 1900. This could cause miscalculations, which could, in
turn, disrupt operations, delay payments or, in extreme conditions, disable
those business systems entirely. In addition, the potential exists for a
"cascade effect" in which the problems of suppliers, customers and other
business partners impact the performance of companies which have already
addressed their own Y2K issues. Any or all of these events could have a
material adverse effect on a company's business, financial condition or results
of operations.
The Company has addressed any Y2K issues in its significant business
systems and has developed contingency plans for Y2K disruptions. The Company has
completed an internal Y2K review to meet these goals. Certain employees of the
Company, assisted by professional consultants, conducted this assessment of the
Company's computer systems and operations infrastructure. The Company has not
hired any new employees specifically to address the Company's internal Y2K
issues. This assessment allowed the Company to determine what actions were
necessary to minimize any business disruptions or other liabilities related to
the Y2K problem.
Y2K Readiness Assessment. The Company assessed its Y2K readiness
through a plan which accomplished the following:
o identified and inventoried Y2K problems in significant
business systems;
o assigned the highest priority to Y2K business systems
identified as critical for continuing operations;
o assessed other Y2K risks;
o resolved and corrected Y2K problems with repairs, upgrades, or
replacements as necessary;
o tested any Y2K repairs, upgrades, or replacements;
39
<PAGE> 40
o conducted Y2K surveys of significant customers, suppliers, and
other key business associates; and
o developed and tested Y2K contingency plans.
The Company believes this Y2K readiness assessment has enabled it,
before January 1, 2000, to replace, upgrade or modify any critical business
system affected by the Y2K problem.
The Company has upgraded and modified its software, to ensure that they
are Y2K-compliant. The Company replaced existing computer hardware with new
technology as needed as part of its normal business operations. The Company
believes that the Y2K problem will not have a material adverse effect on its
existing computer hardware; as, the Company tested its hardware to ensure such
compliance.
As part of its readiness assessment, the Company has performed an
inventory of each critical business system and is in the process of upgrading
hardware and has completed code remediation. The Company has determined a likely
worst case Y2K scenario for its business systems and has established an
appropriate contingency plan.
The Company's key business associates include suppliers of equipment
and services, automated interfaces, and software supplies, who provide
essential capital equipment, services and supplies for the Company's business
systems. If Y2K problems with a supplier delay the purchase of any of the above
mentioned essential items, the Company's business systems could experience idle
time resulting in loss of revenue, adversely impacting the Company's cash flow,
results of operations and financial position. The Company has sought Y2K
readiness assurances from these key business associates. These assurances are
intended to aid the Company in determining the extent to which the failure of
the key business associates to correct their own Y2K problems could affect the
Company. While some of the Company's key business associates have assured the
Company that they are addressing their Y2K problems, the Company cannot
guarantee that its key business associates will resolve their Y2K problems in a
timely manner; nor can the Company inspect the Y2K efforts of these key
business associates or independently verify their representations. In addition,
the Company cannot predict the effect on its business operations of the failure
of systems owned by others, of the delivery of inaccurate information from
other companies, or of the inability of others' systems to interface with the
Company's systems. The Company is in the process of assessing these risks;
however, the Company cannot guarantee that another company's failure to resolve
its own Y2K problems would not materially and adversely affect the Company.
Costs. The Company is funding the costs of its Y2K compliance efforts
with cash flows from operations and from available borrowing capacity under the
Coast facility. The ability of the Company and certain software vendors
successfully to identify and repair or replace critical business systems
affected by the Y2K problem will greatly influence the total Y2K costs. Based
upon its assessment to date, the Company estimates the total Y2K costs at
approximately $1.5 million. This estimated cost for Y2K is in addition to the
normal and recurring costs for systems development, implementation and
maintenance. The Company does not expect these costs to have a material adverse
effect on the Company's overall results of operations or cash flows.
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<PAGE> 41
Contingency Plans. The Company has a contingency plan with respect to
the Y2K problem which was established as part of its Y2K readiness assessment.
Risks. The Company is currently unable to predict with certainty the
exact risk which Y2K problems would pose to its operations in a reasonably
likely worst case scenario. The Company's assessment of the impact of Y2K
problems, as discussed above, is based on Company management's understanding
and best estimates at the present time and could change substantially with a
change in circumstances. For example, the inability of key business associates
to remedy external Y2K problems or the failure of the Company's personnel and
certain software vendors to identify or repair internal Y2K problems could
adversely affect the Company's performance. Thus, successful avoidance of Y2K
issues depends on many factors, some of which are outside of the Company's
control and some of which are unknown at this time. The Company cannot assure
that it will not experience any disruptions or other adverse effects from Y2K
problems despite expending reasonable efforts to avoid them. While the Company
presently does not expect any catastrophic failures of any of its business
systems, it cannot assure that such failures will not occur. No one should rely
on statements to the contrary. These assessments are based upon numerous
assumptions as to future events and, as such, there can be no guarantee that
these estimates and predictions will prove accurate.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 129,
"Disclosure of Information about Capital Structure," which establishes
standards for disclosing information about an entity's capital structure and is
effective for financial statements for periods ending after December 15, 1997.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and display of comprehensive income
and its components in the financial statements for fiscal years beginning after
December 15, 1997. The FASB also issued, in June 1997, SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for the way public companies disclose information about
operating segments, products and services, geographic areas and major
customers. SFAS No. 131 is effective for financial statements for periods
beginning after December 15, 1997. The Company has determined that the impact
on its financial statements of adopting SFAS Nos. 129, 130 and 131 is not
material. In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," which is effective for fiscal quarters
ending after June 15, 1999. The Company does not expect the adoption of SFAS
No. 133 to have a material impact on its financial statements.
FORWARD-LOOKING STATEMENTS.
Certain statements contained in this Form 10 are not based on
historical facts, but are forward-looking statements that are based upon
numerous assumptions as of the date of this Form 10 that could prove not to be
accurate. When used in this Form 10, the words "anticipate", "believe",
"estimate", "expect", "will", "could", "may" and similar expressions, as they
relate to management or the Company, are intended to identify forward-looking
statements. Such statements reflect the current views of management with respect
to future events and are subject to certain risks, uncertainties and
assumptions, including those described in "The Company -- Risk Factors" herein.
Should one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may vary materially from
those described herein. The Company disclaims any obligation to update the
forward-looking statements contained in this Form 10.
ITEM 3. PROPERTIES
The Company's executive offices and substantially all of its operations
are located in over 61,000 square feet of office space in a 195,000 square foot,
20-story office building owned by Hebron. The Company leases this space from
Hebron on a month-to-month basis at a cost of $43,000 per month. The Company
also operates a call center in Tahlequah, Oklahoma pursuant to a lease which was
assumed from VisionQuest. The Company believes that these facilities are
adequate for the Company's intended activities for the foreseeable future.
41
<PAGE> 42
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of Common Stock, $0.10 par value of the Company ("Common
Stock"), as of August 31, 1999, by (a) each person known by the Company to own
beneficially more than 5% of the outstanding Common Stock, (b) each director of
the Company, (c) each Named Executive Officer (as defined in Item 6 below) and
(d) all executive officers and directors as a group. The Company believes that
each of such stockholders has the sole voting and dispositive power over the
shares held by such stockholder except as otherwise indicated.
<TABLE>
<CAPTION>
SHARES OWNED
-------------------------------
NAME NUMBER PERCENTAGE
- ---- -------- -----------
<S> <C> <C>
Tracy C. Freeny (1).............................................. 167,993 20.0%
Stephen D. Halliday (2).......................................... 22,373 2.6
John B. Damoose (3).............................................. 7,224 *
Jay A. Sekulow (4)............................................... 25,373 3.0
John E. Telling (5).............................................. 28,317 3.3
Carl Thompson (6)................................................ 48,513 5.8
Sharon Freeny (7)................................................ 167,993 20.0
Harvey Price (8)................................................. 50,000 6.0
Donald Price (9)................................................. 50,000 6.0
All Officers and Directors as
a Group (8 Persons) (1)(2)(3)(4)(5).......................... 251,280 29.0
</TABLE>
- --------------------------
(1) Includes 165,993 shares held jointly by Mr. Freeny and his wife and
2,000 shares held by Mr. Freeny's minor son. Mr. Freeny disclaims
beneficial ownership of the shares owned by his minor son. Mr.
Freeny's address is 6220 N.E. 113th Street, Edmond, Oklahoma 73034.
(2) Includes 6,824 shares subject to options held by Mr. Halliday, 3,411
shares which are subject to forfeiture pursuant to the terms of the
Halliday Employment Agreement (as defined herein) and 11,000 shares
which Mr. Halliday has the right to purchase from Mr. Thompson.
(3) Includes 2,275 shares subject to options held by Mr. Damoose, 3,411
shares which are subject to forfeiture pursuant to the terms of the
Stock Agreement (as defined herein) and 400 shares subject to warrants
held by Mr. Damoose. Mr. Damoose also has the right to acquire shares
upon the conversion of the Damoose Note (as defined herein), however,
the number of shares issuable upon conversion cannot be determined
because the conversion price is not currently ascertainable.
(4) Includes 6,824 shares subject to options held by Mr. Sekulow and 3,411
shares which are subject to forfeiture pursuant to the terms of the
Stock Agreement (as defined herein), 3,400 shares subject to warrants
held by C.A.S.E., Inc. ("CASE"), an entity of which Mr. Sekulow is
President and a director, 7,000 shares held by CASE and 4,000 shares
which CASE has the right to purchase from Mr. Thompson. CASE also has
the right to acquire shares upon the conversion of the CASE Note (as
defined herein), however, the number of shares issuable upon
conversion cannot be determined because the conversion price is not
currently ascertainable.
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<PAGE> 43
(5) Includes 5,394 shares held by Mr. Telling's wife, 2,000 shares held
jointly by Mr. Telling and his wife, 6,824 shares subject to options
held by Mr. Telling, 6,824 shares which are subject to forfeiture
pursuant to the terms of the Telling Employment Agreement (as defined
herein) and 5,000 shares which his wife has the right to acquire from
Mr. Freeny. Mr. Telling disclaims beneficial ownership of shares owned
by his wife.
(6) Carl Thompson's address is 3600 Eagles Landing, Jones, Oklahoma 73049.
(7) Includes 165,993 shares held jointly by Ms. Freeny and her husband and
2,000 shares held by Ms. Freeny's minor son. Ms. Freeny disclaims
beneficial ownership of the shares owned by her minor son. Ms.
Freeny's address is 6620 N.E. 113th Street, Edmond, Oklahoma 73034.
(8) Harvey Price's address is Route 1, Box 49D, Wetomka, Oklahoma 74883.
(9) Donald Price's address is Route 2, Box 46, Holdenville, Oklahoma 74848.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the
executive officers and directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Tracy C. Freeny 55 Chairman of the Board
Stephen D. Halliday 50 President, Chief Executive
Officer and Director
David E. Grose 46 Vice President and Chief
Financial Officer
Dan L. Carter 47 Vice President
Kerry A. Smith 38 Vice President
John E. Telling 59 Director of the Company and
an Executive of the Internet
John B. Damoose 52 Department of the Company
Director
Jay A. Sekulow 43 Director
</TABLE>
Tracy C. Freeny is a founder of the Company and has served as Chairman
of the Board since the formation of the Company in May 1991 and served as
President from such time until October 1998. As Chairman of the Board, Mr.
Freeny not only performs traditional Chairman of the Board duties but also
assists the Company's relationship with the non-profit organizations and its
shareholders for the Company. From 1970 until 1990 Mr. Freeny operated a life
insurance agency affiliated with Phoenix Mutual Life Insurance Company and is a
lifetime member of the life insurance industry Million Dollar Roundtable. In
1990, Mr. Freeny went to work for AmeriTel Communications, Inc. ("AmeriTel") a
reseller of long distance telephone services and in 1991
43
<PAGE> 44
acquired the assets of AmeriTel to begin the Company. Mr. Freeny graduated from
Oklahoma State University with a bachelor of arts degree in finance. In July
1998, Mr. Freeny agreed to a cease and desist order issued by the Securities
and Exchange Commission regarding the violation of various federal securities
laws. For more information regarding this order, see Item 8 below.
Stephen D. Halliday has been the President, Chief Executive Officer and
a director of the Company since October 1998. From 1980 until 1997, Mr. Halliday
was a partner with Coopers & Lybrand LLP (which is now PricewaterhouseCoopers
LLP) and from 1997 until October 1998 he was a partner in the law firm of Wiley,
Rein & Fielding ("WRF") in Washington, D.C. He continues to serve as of counsel
with WRF for matters which do not involve the Company. Mr. Halliday graduated
from Duke University with bachelor of arts degree in accounting, William & Mary
University with a law degree and Georgetown University with a masters of law
degree in taxation.
David E. Grose has been a Vice President and the Chief Financial
Officer of the Company since April 1999. From July 1997 through April 1999, Mr.
Grose served as Vice President and Chief Financial Officer of Bayard Drilling
Technologies, Inc., formerly a publicly traded oil and gas company. Prior to
that Mr. Grose was affiliated with Alexander Energy Group from its inception in
March 1980, serving from 1987 through 1996 as a director and Vice President,
Treasurer and Chief Financial Officer. In August 1996, National Energy Group
acquired Alexander Energy Corporation and he served as Vice President of Finance
and Treasurer through February 1997. Mr. Grose graduated from Oklahoma State
University with a bachelor of arts degree in political science and University of
Central Oklahoma with a masters degree in business administration.
Dan L. Carter has been a Vice President of the Company since January
1999. Prior to that Mr. Carter served as Director of Operations for the American
Center for Law and Justice ("ACLJ"), a non-profit public interest law firm since
June 1995. While serving with ACLJ, from June 1996 to July 1997, Mr. Carter also
served as station manager for WPGD, a television station located in Nashville,
Tennessee. Prior to that, Mr. Carter served as Headmaster for Masters Christian
Academy in Atlanta, Georgia from July 1993 through June 1995. Mr. Carter
graduated from Georgia Southwestern College with a bachelor of arts degree in
history and a masters degree in education.
Kerry A. Smith has been a Vice President of the Company since December
1998. Most recently he served as the Telecom/Infocom Practice Director for
PricewaterhouseCoopers LLP in Dallas, Texas, and has extensive product-marketing
experience with MCI WorldCom. Mr. Smith has more than 15 years experience in the
telecommunications industry holding key senior staff and management positions.
His resume includes key positions managing global alliance partners in Canada,
Latin America, Mexico, and Great Britain developing strategic business plans and
launching new products and services. Mr. Smith graduated from Capitol College
with a bachelor of science in telecommunication engineering technology.
John E. Telling has been a director of the Company since October 1998
and has served as an executive of the Company's newly organized Internet
department since July 1999. Mr. Telling is a founder and has been Chairman of
the Board, President and Chief Executive Officer of Hebron (an affiliated
company) since January 1996. Prior to that time, from June 1994 until January
1996, Mr. Telling was a Senior Vice President with Schroder Wertheim, Inc., an
investment banking firm and, from June 1993 until June 1994, a Partner of
Merrion Group, a financial services entity. Mr.
44
<PAGE> 45
Telling graduated from Lehigh University with a bachelor of science degree in
business administration.
John B. Damoose has been a director of the Company since October 1998.
Since, May 1997 Mr. Damoose has been President of two non-profit organizations,
Religious Heritage of America Foundation and Freedom of Ministries of America.
Prior to that, from May 1996 until May 1997, he served as President of the
Christian Broadcasting Network and from November 1993 until May 1996 he served
as Senior Vice President - Marketing and Communications for International
Family Entertainment. Mr. Damoose also held various management positions with
Chrysler Corporation from November 1982 through November 1993, most recently
serving as Vice President of Worldwide Marketing. Mr. Damoose graduated from
the University of Michigan with a bachelor of science degrees in
economics/political science and Columbia University with a masters degree in
business administration.
Jay A. Sekulow has been a director of the Company since October 1998.
Mr. Sekulow is an attorney and has been Chief Counsel of the American Center for
Law and Justice, a non-profit public interest law firm ("ACLJ") since 1992. He
has also been, since 1995, Chief Executive Officer of Regency Productions, Inc.
("Regency"), a radio production company which produces a thirty-minute daily
radio program on legal issues hosted by Mr. Sekulow and, since 1987, President
and a Director of CASE, a non-profit public interest law firm. Mr. Sekulow
graduated cum laude from Mercer University with both a bachelor of arts degree
in history and law degree.
BOARD OF DIRECTORS MATTERS
All directors hold offices until the next annual meeting of the
shareholders and until their successors have been duly elected and qualified.
Each officer serves at the discretion of the Board of Directors, subject to the
terms of certain employment agreements described below.
The Board of Directors has established an Audit Committee and a
Compensation/Nominating Committee. The Audit Committee is composed of Messrs.
Sekulow and Damoose, with Mr. Damoose serving as Chairman. The Audit Committee
is responsible for (a) reviewing the scope of, and the fees for, the annual
audit of the Company, (b) reviewing with the independent auditors the Company's
accounting practices and policies, (c) reviewing with the independent auditors
their final report, (d) reviewing with internal and independent auditors overall
accounting and financial controls and (e) being available to the independent
auditors for consultation purposes.
The Compensation/Nominating Committee is composed of Messrs. Sekulow
and Damoose, with Mr. Sekulow serving as Chairman. The Compensation/Nominating
Committee is responsible for reviewing the Company's policies with respect to
the compensation of its officers at the Vice President level or higher,
including the basis of the compensation of its chief executive officer and its
relationship to corporate objectives and identifying and nominating future
nominees as members of the Board of Directors.
The Board of Directors has also adopted a policy statement on conflict
of interest transactions, which requires that all proposed conflict of interest
transactions be approved by a majority of directors who will receive no benefit
from the transaction.
45
<PAGE> 46
ITEM 6. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid the Company's
chief executive officer, its former chief executive officer and a former
executive officer of the Company for services rendered in 1996, 1997 and 1998
(collectively, the "Named Executive Officers"). See Item 7 below for a
description of transactions involving Messrs. Freeny, Thompson and Halliday and
other directors of the Company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------
OTHER ANNUAL
COMPENSATION ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) COMPENSATION ($)(2)
----------------------------- ----- ------------ ------- -------------------
<S> <C> <C> <C> <C>
Tracy C. Freeny, Chairman of the Board (3) 1998 82,728 246,111 --
1997 61,440 238,795 6,459
1996 61,440 228,176 413,741
Stephen D. Halliday, President and Chief 1998 98,462 -- 127,500(5)
Executive Officer (4) 1997 -- -- --
1996 -- -- --
Carl Thompson (6) 1998 10,800 85,004 --
1997 37,440 231,314 5,769
1996 35,916 228,176 377,885
</TABLE>
(1) These amounts represent commissions paid to Messrs. Freeny, Thompson
and a third employee based on the amount of revenue the Company
derived from certain customers. The total amount of commissions were
5% of the revenue generated from all customers of the Company for
which no other sales agent or representative of the Company was
receiving a commission. The total commissions from such sales were
split evenly among Messrs. Freeny, Thompson and the third employee.
(2) These amounts represent salary paid to Messrs. Freeny and Thompson by
VisionQuest. In January 1997, All compensation paid to Messrs. Freeny
and Thompson from VisionQuest was permanently discontinued. Messrs.
Thompson and Freeny were officers and directors of VisionQuest and
were shareholders of VisionQuest. (For a more detailed discussion of
the Company's relationship and transactions with VisionQuest, see Item
7 below).
(3) Mr. Freeny also served as President of the Company during 1996, 1997
and 1998 until October 1998. Mr. Freeny currently serves as Chairman
of the Board of the Company and since April 1999 has been paid
$300,000 per year.
(4) Mr. Halliday was elected President and Chief Executive Officer of the
Company in October 1998. Mr. Halliday's annual salary is $450,000.
(5) These amounts represent payments made to Mr. Halliday prior to his
becoming the Company's President and Chief Executive Officer.
(6) Mr. Thompson served as the Senior Vice President of the Company during
1996, 1997 and 1998, until his resignation in April 1998.
HALLIDAY EMPLOYMENT AGREEMENT
Effective as of May 24, 1999 (the "Commencement Date"), the Company
entered into an employment agreement (the "Halliday Employment Agreement") with
Stephen D. Halliday, President, Chief Executive Officer and a director of the
Company. The initial term of the Halliday Employment Agreement is for five
years, with automatic one-year extensions. Pursuant to the Halliday Employment
Agreement, Mr. Halliday receives an annual salary of $450,000 to be increased to
$600,000 on October 1, 1999, subject to annual review by the board of directors
of the Company, which shall increase his salary at the annual consumer price
index rate of increase and may further increase but not decrease such salary at
the board of directors discretion. Also, on October 1, 1999, Mr. Halliday shall
receive a one-time bonus of $100,000. Mr. Halliday is also entitled to receive
various medical, dental and group insurance, pension and other retirement
46
<PAGE> 47
benefits, disability and other benefit plans and vacation as the Company makes
available to its senior executive officers. Mr. Halliday may be terminated in
the event of his disability, for cause (as defined in the Halliday Employment
Agreement) or without cause and Mr. Halliday may terminate his employment for
good reason (as defined in the Halliday Employment Agreement, which includes
any termination of Mr. Halliday's employment by the Company other than for
cause and any change of control of the Company). If Mr. Halliday is terminated
for cause or without cause (subject to the right of Mr. Halliday to terminate
his employment for good reason) because of his death, he or his estate, as the
case may be, will receive his salary and other benefits accrued as of the date
of termination or death. If Mr. Halliday's employment is terminated as a result
of his disability, Mr. Halliday will receive his salary and other benefits
accrued as of the date of disability and 60% of his base salary for the period
of disability but not exceeding the remaining term of the Halliday Employment
Agreement. If Mr. Halliday terminates his employment for good reason, he is
entitled to continue to receive his base salary for the remaining term of the
Halliday Employment Agreement and, in addition, one year following the date of
his termination, all his Common Stock and options to purchase Common Stock will
immediately vest and he will receive a cash bonus which will equal all taxes
payable by Mr. Halliday as a result of the vesting and the payment of this
bonus. If the Company intends to terminate Mr. Halliday's employment without
cause, it must give him notice and he is entitled to terminate his employment
for good reason.
Pursuant to the Halliday Employment Agreement, as of the Commencement
Date, the Company issued Mr. Halliday 4,549 shares of Common Stock (0.5% of the
fully diluted outstanding Common Stock on such date), subject to certain vesting
requirements. This issued stock vests as follows: 25% of the shares vested on
July 1, 1999 and 25% of the shares vest on each July 1 thereafter. If Mr.
Halliday fails to serve as an officer of the Company all unvested shares will be
forfeited unless Mr. Halliday terminated his employment for good reason.
Additionally, Mr. Halliday is to receive a cash bonus after any portion of these
shares vests that will equal all taxes payable by him as a result of the vesting
and the payment of this bonus.
The Halliday Employment Agreement also granted Mr. Halliday two
options to purchase shares of Common Stock. The first option effective as of
the Commencement Date granted Mr. Halliday options to purchase 27,296 shares
(3% of fully diluted outstanding Common Stock as of such date) at the fair
value of the Common Stock as of February 1, 1998, which is currently being
determined by a third party appraiser (the "Exercise Price"). These options are
subject to the following vesting schedule: 25% of the shares vested on July 1,
1999 and 25% of the shares vest on each July 1 thereafter. The second option,
which will be effective three years after the Commencement Date, will entitle
Mr. Halliday to purchase 2% of the fully diluted outstanding Common Stock as of
such date at the Exercise Price plus 25%. The second option vests as follows:
50% of the shares vest four years after the Commencement Date and 50% of the
shares vest five years after the Commencement Date. If Mr. Halliday fails to
serve as an officer of the Company, unless he terminated his employment for
good reason, the vesting will immediately cease, however, Mr. Halliday can
exercise all vested options after such time until the termination of the
options. All of these options will vest upon any sale of the Company. Once an
option to purchase shares has vested it will remain exercisable for five years
from such vesting date.
Tracy Freeny also individually agreed that for as long as Mr. Halliday
is employed by the Company to vote all of his shares of Common Stock for Mr.
Halliday and each of the other current
47
<PAGE> 48
directors of the Company for election to the board of directors of the Company.
Also, pursuant to an employment agreement which was replaced by the Halliday
Employment Agreement, Carl Thompson agreed to vote for Messrs. Halliday,
Damoose and Sekulow's election to the board of directors of the Company. In
June 1999, Mr. Thompson executed an agreement pursuant to which he agreed to
honor his agreements contained in such prior employment agreement.
SMITH EMPLOYMENT AGREEMENT
Effective as of December 31, 1998 (the "Effective Date"), the Company
entered into an employment agreement (the "Smith Employment Agreement") with
Kerry A. Smith, a Vice President of the Company. The initial term of the Smith
Employment Agreement is for two years, with automatic one-year extensions.
Pursuant to the Smith Employment Agreement, Mr. Smith receives an annual base
salary of $215,000 and a bonus of $50,000. Both Mr. Smith's annual base salary
and guaranteed bonus are subject to review after the initial term of the Smith
Employment Agreement and may, at the Company's discretion, be adjusted from
time-to-time according to Mr. Smith's responsibilities, capabilities,
performance and other criteria deemed appropriate by the Company. Mr. Smith is
entitled to receive various medical, dental and group insurance, pension and
other retirement benefits, disability and other benefit plans and vacation as
the Company makes available to its senior executive officers. The Company may
also terminate this Agreement at any time during the initial term and for any
reason whatsoever upon ninety (90) days notice to Mr. Smith. If the Company
notifies Mr. Smith of its election to terminate Mr. Smith before the first
anniversary of the Effective Date, Mr. Smith shall be entitled to receive
severance pay equal to six (6) months pay (and payable in a lump sum or over the
course of such period, at the option of the Company) and health insurance for
such period. If the Company notifies Mr. Smith of its election to terminate Mr.
Smith between the first anniversary of the Effective Date and the second
anniversary of the Effective Date, Mr. Smith shall be entitled to receive
severance pay equal to four (4) months pay and health insurance for such period.
Severance pay shall be payable in a lump sum or over the course of the period
covered, at the option of the Company. In addition to the amounts set forth in
the previous two sentences, upon termination Mr. Smith is entitled to receive a
share of the bonus pro rated from the beginning of the fiscal year in which the
termination occurs to the date of the termination notice. Severance pay after
the initial term shall be subject to negotiation between Mr. Smith and the
Company.
FREENY EMPLOYMENT AGREEMENT
Effective as of the Commencement Date, the Company entered into an
employment agreement (the "Freeny Employment Agreement") with Tracy C. Freeny,
Chairman of the Board of the Company, as consideration for the additional
services Mr. Freeny performs for the Company. The initial term of the Freeny
Employment Agreement is for five years, with automatic one-year extensions.
Pursuant to the Freeny Employment Agreement, Mr. Freeny receives an annual
salary of $300,000, subject to annual review by the board of directors of the
Company, which shall increase his salary at the annual consumer price index rate
of increase and may further increase but not decrease such salary at the board
of directors discretion. Mr. Freeny is also entitled to receive various medical,
dental and group insurance, pension and other retirement benefits, disability
and other benefit plans and vacation as the Company makes available to its
senior executive officers. Mr. Freeny may be terminated in the event of his
disability, for cause (as defined in the Freeny
48
<PAGE> 49
Employment Agreement) or without cause and Mr. Freeny may terminate his
employment for good reason (as defined in the Freeny Employment Agreement,
which includes any termination of Mr. Freeny's employment by the Company other
than for cause and any change of control of the Company). If Mr. Freeny is
terminated for cause or without cause (subject to the right of Mr. Freeny to
terminate his employment for good reason) because of his death, he or his
estate, as the case may be, will receive his salary and other benefits accrued
as of the date of termination or death. If Mr. Freeny's employment is
terminated as a result of his disability, Mr. Freeny will receive his salary
and other benefits accrued as of the date of disability and 60% of his base
salary for the period of disability but not exceeding the remaining term of the
Freeny Employment Agreement. If Mr. Freeny terminates his employment for good
reason, he is entitled to continue to receive his base salary for the remaining
term of the Freeny Employment Agreement and, in addition, one year following
the date of his termination. If the Company intends to terminate Mr. Freeny's
employment without cause, it must give him notice and he is entitled to
terminate his employment for good reason.
TELLING EMPLOYMENT AGREEMENT
Effective as of the Commencement Date, the Company entered into an
employment agreement (the "Telling Employment Agreement") with John E. Telling,
an executive of the Internet department of the Company. The initial term of the
Telling Employment Agreement is for five years, with automatic one-year
extensions. Pursuant to the Telling Employment Agreement, Mr. Telling receives
an annual salary of $250,000, subject to annual review by the board of directors
of the Company, which shall increase his salary at the annual consumer price
index rate of increase and may further increase but not decrease such salary at
the board of directors discretion. Mr. Telling is also entitled to receive
various medical, dental and group insurance, pension and other retirement
benefits, disability and other benefit plans and vacation as the Company makes
available to its senior executive officers. Mr. Telling may be terminated in the
event of his disability, for cause (as defined in the Telling Employment
Agreement) or without cause and Mr. Telling may terminate his employment for
good reason (as defined in the Telling Employment Agreement, which includes any
termination of Mr. Telling's employment by the Company other than for cause and
any change of control of the Company). If Mr. Telling is terminated for cause or
without cause (subject to the right of Mr. Telling to terminate his employment
for good reason) because of his death, he or his estate, as the case may be,
will receive his salary and other benefits accrued as of the date of termination
or death. If Mr. Telling's employment is terminated as a result of his
disability, Mr. Telling will receive his salary and other benefits accrued as of
the date of disability and 60% of his base salary for the period of disability
but not exceeding the remaining term of the Telling Employment Agreement. If Mr.
Telling terminates his employment for good reason, he is entitled to continue to
receive his base salary for the remaining term of the Telling Employment
Agreement and, in addition, one year following the date of his termination and
all his Common Stock and options to purchase Common Stock will immediately vest.
If the Company intends to terminate Mr. Telling's employment without cause, it
must give him notice and he is entitled to terminate his employment for good
reason.
Pursuant to the Telling Employment Agreement, as of the Commencement
Date, the Company issued Mr. Telling 9,099 shares of Common Stock (1.0% of the
fully diluted outstanding Common Stock on such date), subject to certain vesting
requirements. This issued stock vests as
49
<PAGE> 50
follows: 25% of the shares vested on July 1, 1999 and 25% of the shares vest
each July 1 thereafter. If Mr. Telling fails to serve as an officer of the
Company all unvested shares will be forfeited unless Mr. Telling terminated his
employment for good reason.
The Telling Employment Agreement also granted Mr. Telling options to
purchase 27,296 shares (3% of fully diluted outstanding Common Stock as of such
date) at the Exercise Price. These options are subject to the following vesting
schedule: 25% of the shares vested on July 1, 1999 and 25% of the shares vest
on each July 1 thereafter. If Mr. Telling fails to serve as an officer of the
Company, unless he terminated his employment for good reason, the vesting will
immediately cease, however, Mr. Telling can exercise all vested options after
such time until the termination of the options. All of the options will vest
upon any sale of the Company. Once an option to purchase shares has vested it
will remain exercisable for five years from such vesting date.
STOCK AGREEMENTS
Each of Jay A. Sekulow and John B. Damoose, directors of the Company,
have entered into Stock Agreements with the Company (the "Stock Agreements").
The Stock Agreements are also effective as of the Commencement Date and provide
that the party thereto (the "Party") shall receive certain compensation for his
agreement to serve and continued service as a director of the Company. On the
Commencement Date, the Company issued each Party 4,549 shares of Common Stock
(0.5% of fully diluted outstanding Common Stock on such date), subject to
vesting. This issued stock vests as follows: 25% of the shares vested on July 1,
1999 and 25% of the shares vest on each July 1 thereafter. If a Party fails for
any reason to serve as a director, all unvested shares will be forfeited.
Additionally, each Party is to receive a cash bonus after any portion of these
shares vests that will equal all taxes payable by the Party as a result of the
vesting and the payment of this bonus.
The Stock Agreements also grant each Party options to purchase a
certain number of shares of Common Stock at the Exercise Price. Messrs. Sekulow
and Damoose received options to purchase 27,296 shares (3.0% of fully diluted
outstanding Common Stock as of such date) and 9,099 shares (1.0% of fully
diluted outstanding Common Stock on such date), respectively. These options are
subject to the following vesting schedule: 25% of the shares vested on July 1,
1999 and 25% of the shares vest on each July 1 thereafter. If a Party ceases to
serve as a director, the vesting will immediately cease, however, the Party can
exercise all vested options after such time until the termination of the
options. All of the options will vest upon any sale of the Company. Once an
option to purchase shares has vested it will remain exercisable for five years
from such vesting date.
Tracy Freeny also individually agreed for a period of four years from
the execution of such agreement to vote all of his shares of Common Stock for
the Party and each of the other current directors of the Company for election to
the board of directors of the Company. Also pursuant to a stock agreement with
Mr. Sekulow which was replaced by the Stock Agreement, Carl Thompson agreed to
vote for Messrs. Halliday, Damoose and Sekulow's election to the board of
directors of the Company. In June 1999, Mr. Thompson executed an agreement
pursuant to which he agreed to honor his agreements contained in such prior
agreement.
50
<PAGE> 51
SEPARATION AGREEMENT WITH CARL THOMPSON
In April 1998, Mr. Thompson resigned as Senior Vice President and
director of the Company. In connection with such resignation, the Company and
Mr. Thompson entered into an agreement pursuant to which Mr. Thompson will
receive (a) $40,000 a month until all accrued and unpaid returns of capital
($995,952 as of the date of the agreement) have been paid and (b) $20,000 a
month for the remainder of his life so long as Mr. Thompson does not take any
action significantly detrimental to the Company. The agreement also contains
certain non-competition provisions which Mr. Thompson was required to comply
with until April 1999.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
TRANSACTIONS WITH MESSRS. FREENY AND THOMPSON
During 1995 and 1996 on various occasions, Tracy Freeny, at that time
President of the Company; Carl Thompson, at that time Senior Vice President of
the Company; and Willeta Thompson, Mr. Thompson's wife, sold shares of Common
Stock owned by them to various third parties and loaned substantially all of the
proceeds of such sales to the Company. The following table sets forth the terms
of such sales of Common Stock:
<TABLE>
<CAPTION>
Range of
Number of Number of Per Share
Date of Sales Seller Shares Sold Purchasers Sale Prices Total Proceeds
------------- ------ ----------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
June 1995 Carl Thompson 1,000.00 1 $ 100 $100,000
August 1995 Tracy Freeny 1,050.00 4 100 105,000
August 1995 Willeta Thompson 7143.76 35 40 to 150 706,814
September 1995 Tracy Freeny 2,358.01 20 40 to 150 249,743
October 1995 Tracy Freeny 6,484.65 12 60 to 150 958,400
November 1995 Tracy Freeny 233.22 5 100 to 150 24,725
December 1995 Tracy Freeny 33.00 1 30.30 1,000
January 1996 Tracy Freeny 2,639.48 11 75 to 150 276,633
February 1996 Tracy Freeny 446.99 10 150 62,369
April 1996 Tracy Freeny 30.00 1 150 4,500
</TABLE>
During 1995, 1996, 1997 and 1998, the Company repaid certain amounts
owed by the Company to Messrs. Freeny and Thompson and Mrs. Thompson. The
following table sets forth the terms of such loans and the repayment status of
those loans (each of these Loans bore interest at 8% per annum):
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<PAGE> 52
<TABLE>
<CAPTION>
Date Payee Original Principal Amount Maturity Date Payment Status
---- ----- ------------------------- ------------- --------------
<S> <C> <C> <C> <C>
June 1, 1995 Carl Thompson $100,000 May 31, 1997 paid in full at maturity
August 31, 1995 Willeta Thompson 658,813 August 31, 1997 paid in full in March
1998
September 30, 1995 Tracy Freeny 318,134 September 30, 1997 paid in full at maturity
October 31, 1995 Tracy Freeny 962,120 October 31, 1997 paid in full at maturity
November 30, 1995 Tracy Freeny 29,765 November 30, 1997 paid in full at maturity
December 31, 1995 Tracy Freeny 9,399 December 31, 1997 paid in full at maturity
March 31, 1996 Tracy Freeny 343,501 March 31, 1998 paid in full at maturity
October 23, 1996 (1) Tracy Freeny 345,000 demand note paid in full in May
1997
</TABLE>
- ------------------------
(1) This loan was not in connection with the sale of stock by the payee.
In December 1997 Mr. Thompson borrowed $400,000 from a shareholder of
the Company and subsequently loaned all of the proceeds therefrom to the
Company. Mr. Thompson then directed the Company to make all payments in respect
of his loan to the Company to the shareholder in satisfaction of his loan to Mr.
Thompson. This loan bore interest at an imputed rate of 51% based on repayment
of the loan in 10 monthly payments of $50,000. This loan has been paid in full.
Additionally, during 1996, 1997 and 1998, Messrs. Freeny and Thompson
and Tom Anderson, Mr. Thompson's son-in-law, periodically made short-term,
non-interest bearing loans to the Company for working capital that remained
outstanding from one day to up to three months. The following table sets forth
the amounts advanced and repaid during such periods:
<TABLE>
<CAPTION>
1996 1997 1998
Party Loans Repayments Loans Repayments Loans Repayments
----- ----- ---------- ----- ---------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Tracy Freeny $845,000 $500,000 $601,000 $946,000 $497,824 $400,000
Carl Thompson 155,000 155,000 120,000 120,000 -- --
Tom Anderson 120,000 120,000 -- -- -- --
</TABLE>
Each of Messrs. Freeny and Thompson is a founder of the Company and
acquired his original shares of Common Stock upon formation of the Company
without payment of cash consideration. These shares represent a majority of the
shares of Common Stock owned by each of them. During 1995, 1996 and 1997, the
Company paid returns of capital to all shareholders except Messrs. Freeny and
Thompson. As to them, the Company accrued returns of capital of $849,118,
$1,659,443 and $1,260,343, respectively, to Mr. Freeny and accrued returns of
capital of $301,827, $582,459 and $433,010, respectively, to Mr. Thompson on
their shares of Common Stock. These returns of capital were accrued on the same
per share basis as paid to all other shareholders of the Company. As of June 30,
1999, the Company's financial statements reflect outstanding non-interest
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<PAGE> 53
bearing returns of capital payable to Messrs. Freeny and Thompson of $3,200,000
and $337,500, respectively. The Company began paying Mr. Thompson monthly
installments of $40,000 towards these accrued but unpaid returns of capital in
connection with his separation agreement with the Company. Pursuant to a letter
agreement entered into in July 1999, the Company deferred payment to Mr. Freeny
of his accrued returns of capital and Mr. Freeny agreed to such deferment until
such time as the Company's financial condition improved and it has funds
available, legally and in good business practice, to pay any such accrued
returns of capital. In consideration for this deferral, Mr. Freeny's
subordination of the accrued returns of capital to the Coast Loan and certain
other acts performed by Mr. Freeny while President of the Company which were
outside of the customary responsibilities of an officer such as personally
guaranteeing debt, the Company will pay him $300,000 per year until the payment
of the accrued returns of capital is resumed and, if resumed, all amounts paid
to Mr. Freeny pursuant to this agreement shall be credited against his accrued
returns of capital. The Company agreed to seek a determination of the propriety
of paying the accrued returns of capital no later than December 31, 2001. In
January 1995, the Company redeemed 2,140 shares of Common Stock for $214,164
from Mr. Freeny and 250 shares of Common Stock for $25,000 from Mr. Thompson.
In addition, Messrs. Freeny and Thompson have received certain other
payments from the Company more particularly described in Item 6 above.
TRANSACTIONS WITH VISIONQUEST
VisionQuest was formed in March 1993 by the Company, Messrs. Freeny and
Thompson and Shawn Rohrer, Mr. Freeny's son-in-law, to outsource substantially
all of the Company's telemarketing service requirements. Messrs. Freeny and
Thompson served as directors and officers of VisionQuest and Mr. Rohrer is the
President and a director of VisionQuest. Effective January 1, 1999, pursuant to
various written agreements, the Company and VisionQuest terminated their
business relationship. The Company purchased from VisionQuest the rights to use
all of VisionQuest's assets related to its call center located in Tahlequah,
Oklahoma through December 1999 ("Tahlequah Assets") for the following
consideration (i) 1,099,850 shares of common stock of VisionQuest, which
represented approximately 48% of the outstanding stock of VisionQuest (397,100
of these shares were owned by the Company and 702,750 of these shares were owned
by Tracy Freeny which he conveyed to the Company for no consideration
immediately prior to the consummation of this transaction) and (ii) cancellation
of all remaining amounts owed by VisionQuest to the Company pursuant to a
promissory note dated December 31, 1997 in the original principal amount of
$670,000 ($520,000 was owed as of the effective date of the transaction).
VisionQuest also agreed until January 1, 2000 to provide telemarketing services
for the Company if and when requested by the Company. If VisionQuest performs
such services the Company will be charged an hourly rate which begins at $35 per
hour and declines to $30 per hour if a certain amount of work is performed.
Also, in connection with and as consideration for the transaction, each of the
Company and VisionQuest executed mutual releases related to all prior dealings
between the parties including all contracts or obligations between the two
parties.
The Company believes that the terms of its above-described transaction
with VisionQuest were fair and in the best interests of the Company for the
following reasons: (i) the value of the stock of VisionQuest was low because
VisionQuest would no longer have the Company's
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<PAGE> 54
telemarketing business, which represented a substantial portion of
VisionQuest's business, (ii) the $520,000 obligation which was forgiven was a
rate reduction given by VisionQuest to the Company in anticipation of a
proposed business combination between the two entities and once those plans
were discontinued, it became necessary to forgive such obligation and (iii) the
Company determined it needed to establish a core telemarketing business and can
use the Tahlequah Assets to begin establishing its own telemarketing center,
which the Company believes it can operate on a more cost-effective basis than
through its prior relationship with VisionQuest.
The Company compensated VisionQuest for its service through variety of
arrangements including commissions, hourly fees and overhead and expense
reimbursements. In 1995, 1996, 1997 and 1998, the Company's total payments to
VisionQuest were $11,103,000, $8,987,000, $5,274,000 and $6,209,000,
respectively, which resulted in the Company paying VisionQuest an effective
hourly rate of $36, $31, $33 and $50, respectively, in those years. The Company
believes that VisionQuest charged the Company a higher rate for its services
than it charged independent third parties and higher than the Company could have
obtained in an arms-length transaction with an unaffiliated third party that
provides the same telemarketing services.
Mr. Freeny received compensation from VisionQuest in 1995, 1996 and
1997 totaling approximately $303,600, $414,000 and $6,500, respectively; Mr.
Thompson received compensation from VisionQuest in 1995, 1996 and 1997 totaling
approximately $292,000, $378,000 and $5,800, respectively; and Mr. Rohrer
received compensation from VisionQuest in 1995, 1996 and 1997 totaling
approximately $367,000, $503,000, and $590,000, respectively. In January 1997
all compensation paid to Messrs. Freeny and Thompson from VisionQuest was
permanently discontinued.
Periodically during 1997 and 1998, VisionQuest made short-term working
capital loans to the Company. These loans ranged from $50,000 to $100,000, did
not bear interest and were repaid within three to five business days. All of
these loans have been paid in full.
In connection with its telemarketing services, VisionQuest utilized the
Company's telecommunication services and paid the Company's out-of-pocket
expenses for such services. In 1995, 1996, 1997 and 1998, VisionQuest paid the
Company approximately $930,000, $1,030,000, $788,000 and $1,001,000 for
telecommunication services.
TRANSACTIONS WITH HEBRON
Hebron was formed in December 1995 to provide certain
telecommunications services to the Company. Hebron's primary assets consist of
various equipment and leases for equipment utilized in telecommunications
switching network services ("Switching Assets"), a 20-story, 195,000 square
foot office tower in Oklahoma City, Oklahoma, where the Company's principal
executive offices and substantially all of its operations are located, and
certain assets jointly-developed with the Company and used in connection with
the Company's Internet operations ("Internet Assets"). John Telling, a director
of the Company, has been the President and Chief Executive Officer and a
director of Hebron since its formation in December 1995 and is also a major
shareholder of Hebron. In 1996, 1997, 1998 and the first six months of 1999,
Hebron paid Mr. Telling $47,859, $112,308, $187,308 and $116,987, respectively,
as salary and cash bonuses for his services to Hebron and in 1998
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<PAGE> 55
Mr. Telling received a bonus of Hebron stock valued at $225,000. Each of Messrs.
Freeny and Thompson served as directors and officers of Hebron from its
formation until November 1996 and are shareholders of Hebron and John Damoose, a
director of the Company, is a director of Hebron. Messrs. Telling, Freeny and
Thompson received stock in Hebron for serving as directors of Hebron. As of June
30, 1999, Mr. Telling and his wife, collectively, and Messrs. Freeny and
Thompson owned 8.80%, 5.87%, and 5.87%, respectively, of the outstanding stock
of Hebron. Mr. Damoose does not own any stock in Hebron and receives no
compensation for serving as a director of Hebron. In December 1998, Messrs.
Freeny and Thompson each returned the 2,500 shares of Hebron stock they received
for serving as directors of Hebron.
Effective February 1, 1999, the Company began operating the Switching
Assets and the Internet Assets and, on April 30, 1999 pursuant to an asset
purchase agreement, agreed to acquire all of such assets (the "Hebron
Acquisition"). At the closing of the Hebron Acquisition, the Company shall pay
to Hebron the following: (i) as consideration for the Switching Assets, $567,073
in the form of a promissory note (the "Switch Note") and (ii) as consideration
for the Internet Assets, $584,295 plus or minus closing prorations in the form
of a promissory note ("Internet Note"). Also, upon execution of the agreement,
the Company issued to Hebron a promissory note ("Payables Note") in the amount
of $2,274,416 as consideration for amounts owed by the Company directly to
Hebron for switching services prior to February 1, 1999. Also in connection with
the Hebron Acquisition, the Company will assume the following liabilities of
Hebron: (a) all liabilities under contracts it is assuming related to the
Switching Assets and Internet Assets, (b) the costs of Hebron in excess of its
revenues in winding up its business from February 1, 1999 until 13 months from
the closing of the Hebron Acquisition, with such costs not to exceed $1,156,000,
with any such payments to be credited against the outstanding principal balance
of the Switch Note and Internet Note, and (c) all outstanding accounts payable
of Hebron to unaffiliated third parties which result from the use by the Company
of the Switching Assets which total $2,338,580. One of the contracts to be
assumed by the Company is a long term contract between Hebron and IXC
Communications, Inc. ("IXC") pursuant to which Hebron contracts for services
guaranteeing IXC a minimum of $550,000 monthly revenue from such contract. All
of the Company's obligations pursuant to the Switch Note, Internet Note and
Payables Note are guaranteed by Mr. Freeny, with such guaranty being secured by
a pledge of 50,000 shares of Common Stock owned by Mr. Freeny. At the closing of
the Hebron Acquisition, each of Messrs. Freeny and Thompson and another
individual will deliver the 20,000 shares of Hebron Stock owned by each of them
to Hebron and in return Hebron will transfer to each of them 2,000 shares of
Common Stock owned by Hebron.
The Switch Note and the Internet Note have identical terms which are as
follows: interest accrues at 12.50% per annum for the first nine months after
issuance and 16.25% per annum thereafter, accrued interest is paid monthly in
arrears, principal is payable in six equal installments with the first payable
due 13 months from issuance and continuing each month thereafter until paid in
full 18 months from such issuance and all obligations under these notes will be
subordinated to the Coast Loan. The Payables Note was issued effective as of
February 1, 1999 and its terms are identical to the Switch Note and the Internet
Note except that the outstanding principal amount of the Payables Note is due
and payable in one installment on August 31, 2000. The Closing of the Hebron
Acquisition is subject to (i) shareholder approval of Hebron, (ii) the issuance
of a fairness opinion with respect to the terms of the Hebron Acquisition and
(iii) certain other customary closing conditions. In connection with the Hebron
Acquisition, Hebron is required to submit a plan of
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<PAGE> 56
liquidation to its shareholders and, if approved, proceed with the orderly
liquidation of Hebron. The Company believes the Hebron Acquisition will be
consummated prior to the end of 1999.
The Company believes that the terms of its above-described transaction
with Hebron were fair and in the best interests of the Company because (i) the
purchase of the Switching Assets allows the Company to have both switchless and
certain switched long distance under its full control, (ii) the Company paid
Hebron's net book value for the Switching Assets, (iii) the Company reimbursed
Hebron for Hebron's out-of-pocket costs for the Internet Assets, (iv) the
Company believes it can operate both the Switching Assets and Internet Assets on
a more effective and cost efficient basis than through its prior relationship
with Hebron and (v) the Company was able to convert a significant account
payable into a long term subordinated obligation.
In 1995, the Company purchased equipment which was then sold to Hebron
in March 1996 for the Company's cost basis in such equipment. Also in 1995, the
Company entered into a lease agreement with a third party to lease the required
switching network equipment. In March 1996, the Company sublet this equipment to
Hebron on identical terms as the Company's lease terms and ultimately assigned
the lease to Hebron in July 1996, but the Company remained a guarantor of the
lease obligation. Finally, the Company assigned a telecommunications services
agreement to Hebron. During 1996, 1997, 1998 and the first month of 1999, the
Company incurred telecommunications services expense payable to Hebron of
approximately $4,685,000, $13,529,000, $14,736,000 and $1,469,000, respectively.
In 1997, the Company believes that it could have obtained the services provided
by Hebron on more favorable terms in an arm's length transaction with an
unaffiliated third party. However, in 1998 the Company and Hebron adjusted the
rates being charged so that the Company was paying Hebron generally what the
Company would pay for similar services in an arm's length transaction with an
unaffiliated third party.
In December 1995, the Company advanced Hebron $170,000 to make the cash
payment to purchase the office building owned by Hebron. This advance was
interest free and repaid in March 1996. Beginning in 1996, the Company leased
office space from Hebron. Since January 1998, the Company's principal executive
offices and office space for substantially all of its operations were being
leased from Hebron. During 1996, 1997, 1998 and the first six months of 1999,
the Company incurred rent expense payable to Hebron of approximately $25,000,
$110,000, $380,000 and $268,000, respectively. The Company believes that the
terms of the lease with Hebron were at least as favorable to the Company as
could have been obtained in an arm's length transaction with an unaffiliated
third party.
In December 1996, Hebron began providing advance funding to the Company
on billings transmitted by the Company to certain LECs. Certain shareholders of
Hebron, including Judith Telling, Mr. Telling's wife, and Art Richardson and
David Dalton, each directors of Hebron, loaned Hebron money at 18% per annum so
that Hebron could make the loans to the Company. The Company assigned specific
LEC tapes to an independent escrow agent designated by Hebron, who would forward
the tapes to the applicable LEC and, upon confirmation of receipt of the tape,
advance up to 75% of the net tape amount to the Company. When the escrow agent
received payment from the LEC it would remit payment to the Company of any
remaining amounts owed to the Company after deducting interest of 18% per annum
on the advance amount and factoring fees charged by Hebron of 2% of the tape
amount plus $0.02 per call record. In 1996, 1997 and 1998, the Company
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<PAGE> 57
incurred expenses in connection with these advances of approximately $57,000,
$908,000 and $879,000, respectively. At December 31, 1998 all amounts had been
repaid. Based on the amount of interest and factoring fees charged on these
loans to the Company by Hebron pursuant to this program, the effective costs of
funds on such loans was approximately 58% per annum. The Company believes that
it could have obtained unaffiliated third party financing on more favorable
terms. Additionally, Hebron periodically has made loans to the Company for
working capital purposes in amounts less than $1,275,000, which bore interest at
10%.
In 1996 and 1997, Hebron paid Mr. Telling and his wife aggregate
dividends of $31,500 and $70,500, respectively, with respect to the stock they
owned in Hebron. Hebron also paid dividends of $23,625 and $52,875 to each of
Mr. Freeny and Mr. Thompson in 1996 and 1997.
TRANSACTIONS WITH DIRECTORS
Jay A. Sekulow, a director of the Company, is Chief Executive Officer,
a director and 50% shareholder of Regency, and, through Regency, hosts a daily
nationally syndicated radio talk show. The Company pays Regency $159,000 per
month to fund a portion of the cost that Regency incurs in creating this show
and Mr. Sekulow advertises the long distance services of the Company extensively
during the show at no additional charge. Regency also receives 10% of certain
collected revenues from the customers subscribed as a result of the advertising
during the show. The Company estimates that it has received over 105,000
customer subscriptions as a result of advertising during Mr. Sekulow's show.
Mr. Sekulow is also Chief Counsel of ACLJ and President and a director
of CASE, both of which provide their membership list to the Company in return
for receiving 10% of certain collected revenues from members of such
organizations who become customers of the Company, which, like the arrangement
with Regency, is the same arrangement that all other non-profit organizations
have with the Company. For 1996, 1997, 1998 and the first six months of 1999,
Regency, ACLJ and CASE collectively received aggregate payments from the Company
as a result of these arrangements (but not including amounts funded by the
Company in respect of the radio show) of approximately $231,000, $775,000,
$1,062,000 and $544,000, respectively. Additionally, these non-profit
organizations receive an agent commission ranging between 2 and 3% of certain
collected revenues which for 1996, 1997, 1998 and the first six months of 1999,
were approximately $44,000, $168,000, $497,000 and $59,000, respectively.
From August 1997 through November 1997, CASE loaned the Company an
aggregate of $1,000,000 ("CASE Loan"). The terms and conditions of the CASE Loan
have been subsequently amended. The CASE Loan accrued interest at 10% and a
portion of the principal had been repaid. In April 1999, the outstanding
principal balance and all accrued interest thereon of the CASE Loan was
converted into a new note payable to CASE in the original principal amount of
$850,000, of which $588,183 was the remaining principal balance and accrued
interest of the CASE Loan and $261,817 was a new loan from CASE to the Company
(the "CASE Note"). The CASE Note bears interest at 10% per annum which is
payable monthly and the entire outstanding principal balance is payable in full
in April 2004 which can be extended at CASE's option for an additional five
years on the same terms and conditions. The CASE Note is subordinated to the
Coast Loan and is convertible at any time into shares of Common Stock, at the
option of CASE, at per share price equal
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<PAGE> 58
to the lower of (i) the fair market value of the Common Stock on January 1,
1998, as determined by an appraisal, or (ii) the lowest publicly traded price
of the Common Stock three months following the establishment of a public
trading market for the Common Stock. Prior to the fourth anniversary of the
Note, the Company has the right to prepay the CASE Note at a 10% premium to its
then appraised value (including conversion value) ("Prepayment Right"). The
Company also had the option, which it did not exercise, to borrow an additional
$150,000 from CASE on or prior to June 20, 1999. In connection with the
issuance of the CASE Note, the Company is required to issue CASE warrants to
purchase 3,400 shares of Common Stock for $0.01 per share. The Company believes
that the terms and conditions of the CASE Loan and CASE Note were at least as
favorable as the Company could have obtained in an arm's length transaction
with an unaffiliated third party.
In June 1998, John Damoose, a director of the Company, loaned the
Company $150,000. The loan accrued interest at 18% and $50,000 of the principal
was repaid in May 1999. In May 1999, the outstanding principal balance and all
accrued interest thereon of the Damoose Loan was converted into a new note
payable to Mr. Damoose in the original principal amount of $100,000 ("Damoose
Note"). The terms of the Damoose Note and the terms of the CASE Note are
identical other than the amounts. The Damoose Note matures in April 2001 and can
be extended, at Mr. Damoose's option, for an additional three years on the same
terms and conditions. In connection with the issuance of the Damoose Note, the
Company is required to issue Mr. Damoose warrants to purchase 400 shares of
Common Stock for $0.01 per share. The Company believes that the terms and
conditions of the Damoose Loan and Damoose Note were at least as favorable as
the Company could have obtained in an arm's length transaction with an
unaffiliated third party.
From 1997 until October 1998, Mr. Halliday, the President, Chief
Executive Officer and a director of the Company, was a partner in the law firm
of WRF and Mr. Halliday continues to serve as Of Counsel with WRF for matters
which do not involve the Company. In 1997, 1998 and the first six months of
1999, the Company paid WRF $69,000, $741,000 and $467,000, respectively, for
legal fees and expenses and does not include any amounts paid by the Company
directly to Mr. Halliday for his services. WRF billed the Company its standard
billing rates for work performed for the Company. WRF will continue to perform
work for the Company in the future, which will continue to be billed to the
Company at WRF's standard rates.
In March 1997, Judith Telling, John E. Telling's wife, loaned Tracy C.
Freeny $150,000 which was secured by 10,000 shares of Common Stock owned by Mr.
Freeny. In March 1999, Mr. Freeny granted Mrs. Telling an option to purchase
10,000 shares of Common Stock owned by Mr. Freeny, with an exercise price of $50
per share with respect to 5,000 shares and $100 with respect to 5,000 shares. In
connection with the stock option agreement, Mrs. Telling applied the outstanding
balance of the March 1997 loan against the exercise price of such shares
lowering the respective exercise prices to $35 and $85 per share. Also, in March
1999, Mrs. Telling exercised the option to purchase 5,000 shares for $35 per
share for an aggregate additional price (without giving effect to the
application of the outstanding balance of the 1997 loan) of $175,000.
In addition, Messrs. Halliday, Damoose and Sekulow received and are
entitled to receive certain other payments from the Company more particularly
described in Item 6 above.
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<PAGE> 59
OTHER MISCELLANEOUS TRANSACTIONS
In 1997, the Company entered into 25-year sales representative
agreements with certain of its key sales representatives, including, Tom
Anderson, Mr. Thompson's son-in-law; Diana Riske, Mr. Telling's daughter; and
Jeff Cato, Mr. Freeny's son-in-law. The agreements provide that the sales
representatives will receive a commission of 3% of the net domestic billings of
customers who subscribe to the Company's telecommunication services either
directly or indirectly through any subscriber, business or organization procured
as a result of the sales representatives contact with such subscriber, business
or organization. In addition, the sales representatives will receive a
commission of 1% of the net domestic billings of customers subscribed through
any sales representative of the Company recruited by the sales representative.
The sales representatives will receive substantially all of the payments under
these agreements if they die or are terminated, with or without cause, during
the term of the agreement. One sales representative who also has a 25-year sales
representative agreement, David Dalton, has received over $700,000 per year for
each of 1996, 1997 and 1998 under his agreement. For 1997, 1998 and the first
six months of 1999, Mr. Anderson, Ms. Riske and Mr. Cato received salary and
commissions of approximately $232,000, $206,000 and $75,000; $51,000, $55,000
and $43,000; and $94,000, $134,000 and $68,000, respectively. In April 1998, Mr.
Anderson resigned as an employee of the Company and, pursuant to the terms of a
separation agreement with Mr. Anderson, the Company will pay him 100% of all
amounts under his agreement until the Company completes an initial public
offering when he will receive 75% of such amounts. In July 1999, Mr. Cato
voluntarily agreed to terminate his contract.
ITEM 8. LEGAL PROCEEDINGS
INVESTIGATION BY THE SECURITIES AND EXCHANGE COMMISSION
In 1995, the Company determined that it may not have registered its
securities with the Commission when it was obligated to do so under the federal
securities laws and that, consequently, it may have engaged in the sale or
delivery of unregistered securities in violation of the federal securities laws.
In July 1996, the Company voluntarily reported this information to the
Commission, which then instituted an investigation into whether the (a) Company;
(b) Tracy L. Freeny, the Company's Chairman of the Board and, at that time, the
Company's President; and (c) Carl D. Thompson, at that time, the Company's
Senior Vice President had violated any of the federal securities laws. In 1997,
the Commission requested documents relating to Hebron's sale and delivery of
securities. The Company, Freeny, Thompson, and Hebron cooperated with the
Commission during this investigation. The Company provided the Commission a
"discussion only" draft of a Form 10 Registration Statement for the three-year
period ended December 31, 1995 as well as other documents as requested by the
Commission. Mr. Freeny and Mr. Thompson voluntarily gave sworn statements to the
Commission in 1997. Hebron also voluntarily provided documents to the Commission
when requested to do so.
On September 24, 1997, the Commission's staff attorney who was
conducting the investigation informed the Company that she intended to recommend
to the Commission that it institute cease-and-desist proceedings against the
Company based upon the staff's belief that the Company violated Sections 5(a)
and 5(c) of the Securities Act of 1933, as amended ("Securities Act"), and
Section 12(g) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), and
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Rule 12g-1 promulgated under the Exchange Act ("Rule 12g-1"). Also on September
24, 1997, the Commission's staff attorney informed Messrs. Freeny and Thompson,
and Hebron that she intended to recommend that the Commission institute
cease-and-desist proceedings against them. On July 15, 1998, the Company and
Messrs. Freeny and Thompson each executed an offer of settlement (the "Offers")
that were contingent upon the Commission accepting the staff attorney's
recommendation. In the Offers, the Company and Messrs. Freeny and Thompson
consented to the entry of a cease-and-desist order which provided that they
would cease and desist from committing or causing any violations or future
violations of Sections 5(a) and 5(c) of the Securities Act and Section 12(g) of
the Exchange Act and Rule 12g-1. Additionally, in the Offers, Hebron consented
to the entry of a cease-and-desist order which provided that it would cease and
desist from committing or causing any violations or future violations of
Sections 5(a) and 5(c) of the Securities Act.
On July 23, 1998, the Commission approved the Commission's staff
attorney's recommendation and accepted the Offers. On July 30, 1998, the
Commission issued a cease-and-desist order which stated that (a) the Company,
Messrs. Freeny and Thompson, and Hebron had violated Sections 5(a) and 5(c) of
the Securities Act; (b) the Company had violated Section 12(g) of the Exchange
Act and Rule 12g-1; and (c) Messrs. Freeny and Thompson had caused the violation
of Section 12(g) of the Exchange Act and Rule 12g-1. The Commission ordered the
Company, Messrs. Freeny and Thompson, and Hebron to cease and desist from
committing or causing any violations and any future violations of Sections 5(a)
and 5(c) of the Securities Act and the Company and Messrs. Freeny and Thompson
to cease and desist from committing or causing any violations or future
violations of Section 12(g) of the Exchange Act and Rule 12g-1. The Commission
did not order any monetary penalties, fines, sanctions, or disgorgement against
the Company, Messrs. Freeny or Thompson, Hebron or anyone else associated with
the Company or any of the other parties.
INVESTIGATIONS BY STATE SECURITIES COMMISSIONS
In December 1994, the Washington Department of Financial Institutions -
Securities Division ("WDS") notified the Company that it was aware that the
Company may have offered unregistered securities to residents of the State of
Washington and instructed the Company to cease and desist such offers and to
provide information with respect to any sales of such securities. In April 1997,
the WDS told the Company that it was trying to close its file on the Company and
attempted to serve a subpoena on the Company that sought various documents
relating to the Company's shareholders in Washington state. The Company
voluntarily produced documents in response to the improperly-served subpoena in
May 1997. The WDS has not corresponded with the Company since May 1997.
In February 1996, the Oklahoma Department of Securities ("ODS") made an
inquiry to the Company with regard to the basis upon which the Company and
Hebron had offered and sold securities and effected issuances of short-term
notes under an advance payment loan program, without registration under the
Oklahoma Securities Act. The Company responded to such inquiry in February 1996
advising the ODS that neither the Company nor its Oklahoma counsel believed that
the short-term notes issued under the advance payment loan program constituted
securities, and claiming that the Common Stock was exempt from registration
under Section 401(b)(9)(B) of the Oklahoma Securities Act. Hebron responded to
the ODS inquiry under separate cover in February 1996. In its response, Hebron
stated that it had not engaged in an advance payment loan program, that it had
authorized a private offering and sale under Section 4(6) of the Securities,
Rule 505 of Regulation D promulgated under the Securities Act and, as
applicable, state Uniform Limited Offering Exemptions. Neither the Company nor
Hebron have had any further contact with the ODS since their responses.
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<PAGE> 61
LIABILITIES FOR BREACH OF SECURITIES LAW
Substantially all of the Company's sales of Common Stock and certain
notes, other than sales to officers and directors of the Company, failed to
comply with certain provisions of the federal and states' securities laws,
including compliance with registration requirements and, possibly, compliance
with anti-fraud provisions. The Company and two of its officers, after
voluntarily presenting these facts to the Commission in August 1996, consented
in July 1998 to the entry of a cease and desist order from the Commission
concerning violations of the federal securities laws.
The federal securities laws provide legal causes of action against the
Company by persons buying the securities from the Company including action to
rescind the sales. With respect to the offerings described above, the statutes
of limitations relating to such actions appear to have expired for sales made by
the Company more than three years ago. Substantially all of these sales were
made by the Company more than three years ago. However, with respect to such
sales, other causes of action may exist under federal law, including causes of
action for which the statute of limitation may have not expired.
While certain suits under the federal acts may be barred, similar laws
in many of the states provide similar rights. The Company sold stock to persons
in over forty states, and those states typically provide that a purchaser of
securities in a transaction that fails to comply with the state's securities
laws can rescind the purchase, receiving from the issuing company the purchase
price paid plus an interest factor, frequently 10% per annum from the date of
sales of such securities, less any amounts paid to such security holder. The
statutes of limitations for these rights typically do not begin running until a
purchaser discovers the violation of the law, and therefore in most instances,
and depending on individual circumstances, the statute of limitations do not
appear to limit those rights for most purchasers of securities from the Company.
Also, depending on the law of the state and individual circumstances, monetary
damages and other remedies may be granted for breach of state securities laws.
Accordingly, the Company has a significant, material contingent liability under
state securities laws for those sales of approximately $10.0 million at June 30,
1999. However, if the Company redeems any shares of Common Stock, the holders of
such shares would no longer have a claim under state securities laws.
Additionally, the Company may be liable for rescission or other
remedies under states securities laws to the purchasers of the Hebron common
stock because of the relationships of the two companies, creating an additional
significant, material contingent liability to the Company of approximately $3.5
million at June 30, 1999. While the Company may have liability for rescission of
the sales of the Hebron securities, the holders of Hebron securities will not
have any damages under the rescission rights if Hebron successfully completes
its currently proposed liquidation. See Item 7 below for a description of the
Hebron transaction including its proposed liquidation. If the liquidation is
completed as currently proposed, and the Company pays the notes in full, the
Company anticipates that the Hebron shareholders would receive assets in the
liquidation with a value greater than the value of their rescission rights.
If purchasers of securities of either the Company or Hebron are
successful in asserting any of the above-described claims, it could have a
material adverse effect on the Company.
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<PAGE> 62
OTHER LEGAL PROCEEDINGS
The Company is not party to any other material pending legal
proceedings.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public trading market for the shares of Common
Stock and the Company currently does not intend to seek inclusion of the shares
of Common Stock in any established public trading market. At August 31, 1999,
there were 838,926 outstanding shares of Common Stock owned by approximately
1,200 holders of record. All of the outstanding shares of Common Stock can be
sold pursuant to Rule 144 of the Securities Act without limitations except for
251,280 shares of Common Stock held by affiliates of the Company. All but 22,747
shares of the shares held by affiliates may be sold subject to the limitations
provided for in Rule 144. As of June 30, 1999, the Company had issued (i)
options to purchase an aggregate of 90,987 shares of Common Stock to certain of
its officers and directors, (ii) warrants to purchase an aggregate of 3,800
shares of Common Stock to certain creditors of the Company and (iii) convertible
notes in the aggregate principal amount of $385,800 ("Convertible Notes"). The
Convertible Notes generally have no specified maturity date and are convertible
into Common Stock at the option of the Company. The Convertible Notes contain
varying terms with respect to conversion price. Some of the Convertible Notes
contain specific conversion prices while others do not set forth a conversion
price. With respect to the Convertible Notes which do not contain specific
conversion prices, the Company has assumed between $135 and $150 per share
conversion prices. Based on the foregoing assumptions, the Company estimates
that the outstanding Convertible Notes are convertible into 2,765 shares of
Common Stock. Additionally, if Mr. Halliday is employed by the Company on May
24, 2002, the Company is required to issue him options to purchase shares of
Common Stock equal to 2% of the fully diluted outstanding Common Stock on such
date. The Company has not granted any registration rights to any holder of its
Common Stock or any person who has the right to acquire Common Stock.
During 1996 and 1997, the Company declared returns of capital on its
shares of Common Stock of $8,137,721 and $6,193,684, respectively, all of which
were paid when declared or have been subsequently paid except for $3,200,000 and
$337,500 which were accrued and are payable as of June 30, 1999 to each of
Messrs. Freeny and Thompson, respectively. The Company has not declared any
returns of capital or other cash dividends or distributions on its shares of
Common Stock since December 31, 1997. The Company does not anticipate paying any
other cash dividends in the foreseeable future and anticipates that future
earnings will be retained to finance operations. Furthermore, the terms of the
Coast Loan limit the payment of any returns of capital or other dividends or
distributions to its shareholders.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following table sets forth information regarding the sale by the
Company of Common Stock not registered under the Securities Act since July 31,
1996:
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<PAGE> 63
<TABLE>
<CAPTION>
Date Purchaser Number of Shares Purchase Price
---- --------- ---------------- --------------
<S> <C> <C> <C>
September 25, 1996 Kevin Weeks 80.00 $ 6,000
October 3, 1996 Charles Bowman, IRA 100.00 15,000
October 3, 1996 Freeman & Associates - SEP 100.00 15,000
October 16, 1996 Barbara Smythe 133.33 20,000
October 16, 1996 Robert Smythe 200.00 30,000
November 5, 1996 Ralph or Betty Wilkerson 145.00 21,750
November 5, 1996 Stephen Wilkerson 40.00 6,000
November 5, 1996 Norman or Vicki Allen 54.00 8,100
November 5, 1996 R.E. or Glenda Merriman 10.00 1,500
November 8, 1996 Jim or Gloria Argue 2.00 270
</TABLE>
All of these shares were issued upon exercise of previously granted
stock options.
The consideration received by the Company from the issuance of all the
securities set forth above was cash. Exemption from registration for all of the
sales was claimed under Section 4(2) of the Securities Act regarding
transactions not involving any public offering. No commissions were paid by any
person in connection with these sales.
ITEM 11. DESCRIPTION OF COMPANY'S SECURITIES TO BE REGISTERED
GENERAL
The Company has authorized capital stock consisting of 1,000,000 shares
of Common Stock, $0.10 par value. As of August 31, 1999, there were 838,926
outstanding shares of Common Stock owned by approximately 1,200 holders of
record. All outstanding shares of Common Stock are fully paid and nonassessable.
All holders of Common Stock have full voting rights and are entitled to one vote
for each share held of record on all matters submitted to a vote of the
shareholders. Votes are not cumulated in the election of directors. Shareholders
have no preemptive or subscription rights. Holders of Common Stock are entitled
to dividends when, as and if declared by the Board of Directors from funds
legally available therefor and are entitled, upon liquidation to share ratably
in all assets remaining after payment of liabilities. The Company is the
transfer agent and registrar for the Common Stock, but reserves the right to
retain a third party to perform such services.
REDEMPTION RIGHTS
While the Company's Certificate of Incorporation authorizes the Company
only to issue a single class of Common Stock, the Company has from time to time
entered into various contracts with certain of its shareholders pursuant to
which the Company agreed, upon request of one or more of such shareholders, to
redeem the shares of Common Stock owned by such shareholder. The Company has for
financial accounting purposes segregated its Common Stock into two distinct
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<PAGE> 64
groups, redeemable and non-redeemable. Of the 816,379 shares of Common Stock
outstanding at June 30, 1999, 15,737 shares are characterized as redeemable and
are held of record by approximately 150 shareholders and 800,642 shares are
characterized as non-redeemable and are held of record of by approximately 1,050
shareholders.
The Company has entered into four variations of redemption agreements,
which it classifies as Type A, Type B, Type C and Type D. Generally, each
redemption agreement provides that the shares of Common Stock shall be
repurchased for an amount that gives the shareholder a specified rate of return
based on the length of time the shareholder owned such shares. Type A agreements
were issued primarily between October 1992 and December 1992 and Type B
agreements were issued primarily between January 1993 and May 1995. Both the
Type A and Type B agreements provide that shareholders owning their shares of
Common Stock between 6 months and one year receive a 12% annual return; between
one year and 18 months receive a 15% annual return; and between 18 months and
two years receive an 18% annual return. All of the Type A and Type B agreements
are no longer exercisable pursuant to their terms.
Type C agreements were issued primarily between July 1992 and September
1992 and have terms identical to the Type A and Type B agreements except that
these agreements remain exercisable without limitation and the Company agreed to
redeem the shares of Common Stock owned for more than two years for the highest
price shares of Common Stock have been sold to an investor. Type D Agreements
have no expiration and were issued from May 1995 until the Company discontinued
issuing redemption agreements altogether in February 1996. Type D agreements
provide that shareholders owning their shares of Common Stock less than one year
receive a 10% annual return; between one year and 18 months receive a 15% annual
return; between 18 months and three years receive an 18% annual return; and over
three years an amount based on the estimated market price for the shares of
Common Stock, as determined by management. At June 30, 1999, of the 15,737
shares of Common Stock that were classified as redeemable, 0 shares, 0 shares,
1,577 shares and 14,160 shares were subject to Type A, Type B, Type C and Type D
agreements, respectively. Irrespective of the existence of these redemption
obligations, certain factors both legal and economic may affect or restrict the
ability of the Company to make a redemption.
ANTI-TAKEOVER STATUTES
Section 1090.3 of the Oklahoma General Corporation Act ("OGCA")
contains provisions prohibiting a broad range of business combinations, such as
a merger or consolidation, between an Oklahoma corporation with a class of
voting stock that is listed on a national securities exchange, authorized for
quotation on an inter-dealer quotation system or held of record by 1,000 or more
shareholders, and an "interested shareholder" (which is defined as any owner of
15% or more of the corporation's stock) for three years after the date on which
such shareholder became an interested shareholder, unless, among other things,
the stock acquisition which caused the person to become an interested
shareholder was approved in advance by the corporation's board of directors.
Because the Company has more than 1,000 shareholders, it is subject to this
Section 1090.3.
Sections 1145 through 1155 of the OGCA also contain provisions
regulating a "control share acquisition" which effectively deny voting rights to
shares of an Oklahoma corporation acquired in control share acquisitions unless
a resolution granting such voting rights is approved at a meeting
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<PAGE> 65
of shareholders by affirmative majority of all voting power, excluding all
interested shares. A control share acquisition is one in which a purchasing
shareholder acquires more than one-fifth, one-third, or a majority, under
various circumstances, of the voting power of the stock of an "issuing public
corporation." An "issuing public corporation" is an Oklahoma corporation that
has (i) any class of securities registered pursuant to Section 12 or subject to
Section 15(d) of the Exchange Act; (ii) 1,000 or more shareholders; and (iii)
either (a) more than 10% of its shareholders are Oklahoma residents; (b) more
than 10% of its shares owned by Oklahoma residents; or (c) at least 10,000
shareholders are Oklahoma residents. Upon filing of this Form 10, the Company
will meet the statutory definition of an "issuing public corporation" and will
be subject to the control share acquisition provisions of the OGCA.
RIGHT OF FIRST REFUSAL
The Bylaws of the Company provide that any shareholder desiring to
transfer its shares of Common Stock ("Selling Shareholder") must first comply
with a right of first refusal in favor of Tracy Freeny, Aubrey Price, Carl
Thompson and any other shareholder owning 11,000 or more shares of Common Stock
(a "Major Shareholder") and, if the Major Shareholders decline such right, the
Company. A Selling Shareholder must give written notice to the Company of its
intention to sell and the Company will forward notice of the same to each Major
Shareholder. A Major Shareholder has 15 days from mailing of notice by the
Company to express its intention to purchase the shares being sold. If none or
less then all of the shares are purchased by the Major Shareholders and the
Company, the Selling Shareholder shall thereafter be entitled to sell all shares
not purchased.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1031 of the OGCA empowers a corporation to indemnify any person
who was or is a party to or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
corporation), by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorney's fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. With respect to actions or suits by or in the right of the
corporation, such indemnification is limited to expenses (including attorneys'
fees) actually and reasonably incurred by such person in connection with the
defense or settlement of such action or suit. Further, no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the extent
that the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the court shall deem proper. Additionally, a
corporation is required to indemnify its directors and officers against expenses
to the extent that such directors or officers have been successful on the merits
or otherwise in defense of any action, suit or proceeding referred to above or
in defense of any claim, issue or matter therein.
65
<PAGE> 66
An indemnification can be made by the corporation only upon a
determination made in the manner prescribed by the statute that indemnification
is proper in the circumstances because the party seeking indemnification has met
the applicable standard of conduct as set forth in the OGCA. The indemnification
provided by the OGCA shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any bylaw, agreement, vote
of stockholders or disinterested directors, or otherwise. A corporation also has
the power to purchase and maintain insurance on behalf of any person covering
any liability incurred by such person in his capacity as a director, officer,
employee or agent of the corporation, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability. The indemnification provided by the OGCA shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
The Company's Bylaws provide that the Company shall indemnify its
officers, directors, employees and agents to the extent permitted by the OGCA.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data are set forth following
the signature page hereof beginning on page F-1.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
The Financial Statements listed below are filed as part of this
Registration Statement on Form 10 following the signature page hereof beginning
on page F-1.
Index to Consolidated Financial Statement
Independent Auditors' Report
Consolidated Balance Sheets as of December 31, 1997
and 1998 and June 30, 1999
Consolidated Statements of Operations for the Years
Ended December 31, 1996, 1997 and 1998 and
the Six Months Ended June 30, 1998 and 1999
Consolidated Statements of Stockholders' Deficiency
for the Years Ended December 31, 1996, 1997
and 1998 and the Six Months Ended June 30,
1998 and 1999
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1996, 1997 and 1998 and
1998 and the Six Months Ended June 30, 1998
and 1999
66
<PAGE> 67
Notes to Consolidated Financial Statements
(b) Exhibits
<TABLE>
<S> <C>
3.1 - Certificate of Incorporation of the Company
3.2 - Bylaws of the Company
3.3 - Secretary certificate regarding amended and restated bylaws
4.1 - Form of certificate representing shares of the Company's common
stock
4.2 - Form of Type A Redemption Agreement
4.3 - Form of Type B Redemption Agreement
4.4 - Form of Type C Redemption Agreement
4.5 - Form of Type D Redemption Agreement
4.6 - Form of Convertible Note
4.7 - Promissory Note dated April 20, 1999, payable by the Company to
C.A.S.E., Inc.
4.8 - Promissory Note dated April 20, 1999, payable by the Company to
John Damoose
10.1 - Agreement, dated as of April 13, 1998, between the Company and
Carl Thompson
10.2 - First Amendment to April 13, 1998 Agreement between Amerivision
Communications, Inc. and Carl Thompson, dated as of December 31,
1998, among the Company, Carl Thompson and Willeta Thompson
10.3 - Employment Agreement, dated as of May 24, 1999 between the
Company and Stephen D. Halliday
10.4 - Stock Agreement, dated as of May 24, 1999, among the Company,
Jay A. Sekulow and Tracy Freeny
10.5 - Stock Agreement, dated as of May 24, 1999, among the Company,
John Damoose and Tracy Freeny
10.6 - Employment Agreement, dated as of May 24, 1999, between the
Company and John E. Telling
10.7 - Employment Agreement dated as of May 24, 1999 between the
Company and Tracy Freeny
10.8 - Reaffirmation of Commitments made in Employment Agreement of
Stephen D. Halliday dated as of June 30, 1999
10.9 - Reaffirmation of Commitments made in Stock Agreement of Jay A.
Sekulow dated as of June 30, 1999
10.10 - Agreement effective January 1, 1999, between the Company and
VisionQuest
10.11 - Telemarketing Services Agreement, effective as of January 1, 1999
between the Company and VisionQuest
10.12 - Clarification to Agreement, effective as of June 9, 1999, by and
between the Company and VisionQuest
10.13 - Asset Purchase Agreement, dated as of April 30, 1999, among Hebron,
the Company, Tracy Freeny, Carl Thompson and S. T. Patrick.
</TABLE>
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<PAGE> 68
<TABLE>
<S> <C>
10.14 - Lease/License Agreement, dated as of April 30, 1999 between Hebron
and the Company.
10.15 - Form of Promissory Note payable by the Company to Hebron (form to
be used with respect to Switch Note and Internet Note)
10.16 - Promissory Note dated February 1, 1999, in the original principal
amount of $2,274,416 payable by the Company to Hebron
10.17 - Capital Stock Escrow and Disposition Agreement dated April 30,
1999 among Tracy C. Freeny, Hebron and Bush Ross Gardner Warren
& Rudy, P.A.
10.18 - Loan and Security Agreement dated as of February 4, 1999 between
10.18.1 - Amendment Number One to Loan and Security Agreement dated as of
October 12, 1999 between the Company and Coast Business Credit
**10.19 - Telecommunications Services Agreement dated April 20, 1999 by and
between the Company and WorldCom Network Services, Inc.
**10.20 - Program Enrollment Terms dated April 20, 1999 between the Company
and WorldCom Network Services, Inc.
10.21 - Security Agreement dated April 20, 1999 by and between the Company
and WorldCom Network Services, Inc.
10.22 - Letter Agreement dated July 14, 1999 between the Company and
Tracy C. Freeny
10.23 - Employment Agreement dated December 31, 1998, between the
Company and Kerry Smith
21.1 - List of subsidiaries of the Company
23.1 - Consent of Cole & Reed, P.C.
27.1 - Financial Data Schedule
27.2 - Financial Data Schedule
</TABLE>
** Information from this agreement has been omitted because the Company has
requested confidential treatment. The information has been filed
separately with the Securities and Exchange Commission.
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<PAGE> 69
SIGNATURE
Pursuant to the requirements of the Section 12 of Securities Exchange
Act of 1934, the Registrant has duly caused this registration statement to be
signed on its behalf by the undersigned, thereunto duly authorized.
AMERIVISION, INC.
Date: October 14, 1999 By:
/s/ Stephen D. Halliday
-----------------------------------
Stephen D. Halliday
President and Chief Executive Officer
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<PAGE> 70
Audited Consolidated Financial Statements
AMERIVISION COMMUNICATIONS, INC.
As of December 31, 1997 and 1998, and
for the Years Ended December 31, 1996, 1997 and 1998
<TABLE>
<S> <C>
Independent Auditors' Report.................................................1
Consolidated Balance Sheets..................................................2
Consolidated Statements of Operations........................................4
Consolidated Statements of Stockholders' Deficiency..........................5
Consolidated Statements of Cash Flows........................................6
Notes to Consolidated Financial Statements...................................8
</TABLE>
F-1
<PAGE> 71
[COLE & REED, P.C. LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
AmeriVision Communications, Inc.
Oklahoma City, Oklahoma
We have audited the accompanying consolidated balance sheets of AmeriVision
Communications, Inc. as of December 31, 1997 and 1998, and the related
consolidated statements of operations, stockholders' deficiency, and cash flows
for each of the three years in the period ended December 31, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of AmeriVision
Communications, Inc. at December 31, 1997 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
/s/ COLE & REED, P.C.
Oklahoma City, Oklahoma
April 30, 1999, except for Note C, for which the effective
date is September 24, 1999.
F-2
<PAGE> 72
CONSOLIDATED BALANCE SHEETS (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- --------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 15 $ 635 $ 1,502
Accounts receivable, net of allowance for uncollectible
accounts of $233 and $393 at December 31, 1997
and 1998 15,810 11,800 17,469
Other receivables 746 -- --
Receivables from related parties 503 152 --
Investment in and note receivable from affiliate 150 578 --
Telemarketing center operation rights -- -- 193
Prepaid expenses and other current assets 69 231 491
------- ------- -------
TOTAL CURRENT ASSETS 17,293 13,396 19,655
OTHER ASSETS
Property and equipment, net 1,067 1,118 4,120
Investment in and note receivable from affiliate 537 -- --
Net deferred income tax benefits 4,877 5,520 3,301
Covenants not to compete -- 546 596
Asset held for disposal 715 500 --
Other assets 65 179 450
------- ------- -------
7,261 7,863 8,467
------- ------- -------
TOTAL ASSETS $24,554 $21,259 $28,122
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 73
CONSOLIDATED BALANCE SHEETS (dollars in thousands)--Continued
AMERIVISION COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 16,120 $ 21,487 $ 14,761
Accounts payable to related parties 3,854 3,232 --
Borrowings under operating lines of credit 8,379 3,706 13,827
Accrued interest payable 249 292 141
Short-term notes payable to individuals 5,562 5,268 3,508
Returns of capital payable to stockholders 1,090 -- --
Accrued returns of capital to related party, current portion 242 -- --
Loans and notes payable to related parties, current portion 1,730 686 1,472
Current portion of other notes payable and capital lease obligations 878 2,315 5,303
-------- -------- --------
TOTAL CURRENT LIABILITIES 38,104 36,986 39,012
LONG-TERM DEBT TO RELATED PARTIES, net of current portion 1,263 4,218 5,407
ACCRUED RETURNS OF CAPITAL TO RELATED PARTY 3,225 3,225 3,200
LONG-TERM DEBT, net of current portion 1,539 1,046 1,933
COMMITMENTS AND CONTINGENCIES -- -- --
REDEEMABLE COMMON STOCK, carried at redemption value 3,035 1,755 1,727
Shares outstanding at December 31, 1997: 21,462
Shares outstanding at December 31, 1998: 15,737
STOCKHOLDERS' DEFICIENCY
Common Stock--par value $0.10 per share, 80 80 80
authorized 1,000,000 shares
total issued and outstanding:
December 31, 1997: 821,905
December 31, 1998: 816,379
net of redeemable shares:
December 31, 1997: 800,443
December 31, 1998: 800,642
Additional paid-in capital 9,909 9,928 9,928
Retained earnings (deficit) (32,601) (35,979) (33,165)
-------- -------- --------
TOTAL STOCKHOLDERS' DEFICIENCY (22,612) (25,971) (23,157)
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 24,554 $ 21,259 $ 28,122
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 74
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share amounts)
AMERIVISION COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31 June 30
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 100,858 $ 113,351 $ 124,232 $ 62,652 $ 57,180
OPERATING EXPENSES
Cost of telecommunication services 48,748 44,711 48,787 24,138 25,198
Cost of telecommunication services provided
by related parties 4,685 13,529 14,736 7,554 1,469
Selling, general and administrative expenses 36,194 44,530 49,368 26,102 21,304
Selling, general and administrative expenses
to related parties 9,977 5,893 6,805 3,390 --
Depreciation and amortization 593 683 2,102 743 1,771
--------- --------- --------- --------- ---------
TOTAL OPERATING EXPENSES 100,197 109,346 121,798 61,927 49,742
--------- --------- --------- --------- ---------
INCOME FROM OPERATIONS 661 4,005 2,434 725 7,438
OTHER INCOME (EXPENSE)
Interest expense and other finance charges (1,536) (3,245) (4,993) (2,373) (2,270)
Interest expense and other finance charges
incurred to related parties (297) (924) (974) (600) (350)
(Loss) recovery on loans and other receivables (200) -- (552) -- 182
Impairment loss on asset held for disposal -- -- (215) -- --
Equity in income (losses) of affiliates 28 (99) 41 41 --
Other income 86 14 59 32 20
--------- --------- --------- --------- ---------
(1,919) (4,254) (6,634) (2,900) (2,418)
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAX
EXPENSE (BENEFIT) (1,258) (249) (4,200) (2,175) 5,020
INCOME TAX EXPENSE (BENEFIT) (396) 92 (643) (656) 2,219
--------- --------- --------- --------- ---------
NET INCOME (LOSS) $ (862) $ (341) $ (3,557) $ (1,519) $ 2,801
========= ========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE $ (3.79) $ (1.01) $ (4.22) $ (2.07) $ 3.52
========= ========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE $ (3.79) $ (1.01) $ (4.33) $ (2.07) $ 3.42
========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 75
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Nonredeemable Additional Retained
Common Paid-in Earnings
Stock Capital (Deficit) Total
-------- -------- -------- --------
<S> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $ 72 $ 1,918 $(15,350) $(13,360)
Issuance of nonredeemable common stock (1,051 shares) -- 151 -- 151
Acquisition and cancellation of nonredeemable
common stock (80,001 shares) (8) (3) (1,477) (1,488)
Expiration of redemption obligations applicable to
redeemable common stock (145,296 shares) 15 7,162 -- 7,177
Accretion of redemption value of redeemable
common stock -- -- (1,834) (1,834)
Returns of capital to nonredeemable stockholders
($9.90 per share) -- -- (6,611) (6,611)
Net loss -- -- (862) (862)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1996 79 9,228 (26,134) (16,827)
Acquisition and cancellation of nonredeemable
common stock (100 shares) -- (5) (10) (15)
Expiration of redemption obligations applicable to
redeemable common stock (10,617 shares) 1 686 -- 687
Accretion of redemption value of redeemable
common stock -- -- (470) (470)
Returns of capital to nonredeemable stockholders
($7.54 per share) -- -- (5,646) (5,646)
Net loss -- -- (341) (341)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1997 80 9,909 (32,601) (22,612)
Expiration of redemption obligations applicable to
redeemable common stock (199 shares) -- 19 -- 19
Decrease in redemption value of redeemable
common stock (unaudited) -- -- 179 179
Net loss -- -- (3,557) (3,557)
-------- -------- -------- --------
BALANCE AT DECEMBER 31, 1998 80 9,928 (35,979) (25,971)
Decrease in redemption value of redeemable
common stock (unaudited) 13 13
Net income (unaudited) -- -- 2,801 2,801
-------- -------- -------- --------
BALANCE AT JUNE 30, 1999 (unaudited) $ 80 $ 9,928 $(33,165) $(23,157)
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 76
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31 June 30
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (862) $ (341) $ (3,557) $ (1,519) $ 2,801
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation of property and equipment 521 611 464 106 786
Amortization of intangible assets 72 72 1,638 637 985
Equity in undistributed net (income) losses of affiliates (18) 99 (41) (41) --
Losses on other receivables 200 -- 552 -- --
Impairment loss (recovery) on asset held for disposal -- -- 215 -- (22)
Loss on disposal of fixed assets 257 -- -- -- --
Deferred income tax expense (benefit) (396) 92 (643) (656) 2,219
Changes in assets and liabilities:
Decrease (increase) in operating assets:
Accounts receivable (3,285) (5,575) 2,187 (3,587) (1,411)
Sale of accounts receivable -- 2,435 1,823 1,835 (4,258)
Receivables from related parties -- (503) 351 418 152
Other receivables 308 (85) 194 627 --
Prepaid expenses and other assets (17) 20 (231) (81) (531)
Increase (decrease) in operating assets:
Accounts payable and accrued expenses 2,091 518 5,367 4,725 (6,726)
Accounts payable to related parties 2,248 1,221 410 (636) (1,597)
Interest payable 370 (188) 43 (209) (151)
-------- -------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,489 (1,624) 8,772 1,619 (7,753)
INVESTING ACTIVITIES
Repayments from officers 11 -- -- -- --
Purchases of property and equipment (478) (337) (353) (209) (511)
Proceeds from sale of asset held for disposal -- -- -- -- 522
Loans and advances made to third party (200) -- -- -- --
Release (purchase) of investments pledged (150) 85 55 (40) --
Advances and loans to affiliates -- (670) -- -- --
Repayments from affiliates 523 -- 150 150 --
-------- -------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (294) (922) (148) (99) 11
FINANCING ACTIVITIES
Proceeds of loans from related parties 8,145 3,699 1,554 1,380 262
Repayments of loans and other obligations to related parties (7,936) (4,324) (3,051) (1,853) (489)
Net increase (decrease) in borrowings under line of credit arrangements 1,041 6,790 (4,673) 158 10,121
Proceeds from notes payable and long-term debt 725 590 250 250 2,553
Repayment of notes and leases payable (120) (224) (304) (200) (2,038)
Proceeds from short-term notes payable to individuals 4,459 773 150 150 --
Repayment of short-term notes payable to individuals (323) (322) (444) (87) (1,760)
Accrued returns of capital paid to related party -- -- (242) (226) (25)
Returns of capital paid to other stockholders (5,595) (4,906) (1,090) (1,090) --
Proceeds from issuance of common stock 144 -- -- -- --
Redemptions of common stock (1,507) (68) (154) -- (15)
-------- -------- -------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (967) 2,008 (8,004) (1,518) 8,609
-------- -------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 228 (538) 620 2 867
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 325 553 15 15 635
-------- -------- -------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 553 $ 15 $ 635 $ 17 $ 1,502
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE> 77
CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands)--Continued
AMERIVISION COMMUNICATIONS, INC.
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31 June 30
1996 1997 1998 1998 1999
------- ------- ------- ------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest and other finance charges paid $ 1,463 $ 4,357 $ 5,924 $ 3,182 $2,771
======= ======= ======= ======= ======
Income taxes paid $ -- $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Acquisition of nonredeemable common stock in exchange
for notes payable to the stockholders $ 20 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
Acquisition of assets and increase in liability to related company $ -- $ -- $ 192 $ -- $ --
======= ======= ======= ======= ======
Assets acquired by incurring capital lease obligations $ 234 $ 375 $ 70 $ -- $ 351
======= ======= ======= ======= ======
Assets acquired by incurring capital lease obligations and notes payable
to related parties $ -- $ -- $ -- $ -- $2,296
======= ======= ======= ======= ======
Assignment of lease obligation to related party $ 807 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
Conversion of redeemable common stock to subordinated note payable $ -- $ -- $ 928 $ -- $ --
======= ======= ======= ======= ======
Conversion of notes payable to common stock $ 26 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
Exchange of convertible notes payable to individuals for note payable
to related party $ 145 $ -- $ -- $ -- $ --
======= ======= ======= ======= ======
Exchange of investment in common stock and note receivable
for rights to operate telemarketing center $ -- $ -- $ -- $ -- $ 578
======= ======= ======= ======= ======
Conversion of trade payables to related party to notes
payable to related party $ -- $ -- $ 1,224 $ -- $1,635
======= ======= ======= ======= ======
Termination settlement obligations to former officer and employees $ -- $ -- $ 2,184 $ 2,184 $ 650
======= ======= ======= ======= ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
(Information with respect to June 30, 1999 and the six months ended June 30,
1998 and 1999 is unaudited)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Description of Business: AmeriVision Communications, Inc. (the
"Company") was incorporated in Oklahoma on March 15, 1991. The Company provides
long distance telecommunications services to subscribers throughout the United
States, and completes subscriber calls to all directly dialable locations
worldwide.
The Company is a predominantly switchless long distance reseller, and obtains
the majority of its switching and long-haul transmission of its service from
MCI/WorldCom, Inc. ("WorldCom"). Beginning in 1996, Hebron Communications
Corporation ("Hebron"), a related party, also began providing the Company with a
portion of its switching and transmission services. Hebron leases switching
facilities in Oklahoma City and Chicago. Both WorldCom and Hebron bill the
Company, at contractual per-minute rates, which vary depending on the time,
distance, and type of call, for the combined usage of the Company's nationwide
base of customers. Effective February 1, 1999, the Company began operating the
switching assets and personnel of Hebron.
Principles of Consolidation: The Company owns 100% of the common stock of
AmeriTel Communications, Inc. ("AmeriTel") and AmeriVision Network, Inc. Neither
of these companies has any operations nor any assets or liabilities.
Unaudited Interim Information: The information presented as of June 30, 1999,
and for the six months ended June 30, 1998 and 1999, has not been audited and
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. In the opinion of management, the unaudited interim financial
statements included all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the Company's financial position as of
June 30, 1999, and the results of its operations and its cash flows for the six
months ended June 30, 1998 and 1999, and the stockholders' deficiency for the
six months ended June 30, 1999. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full fiscal year.
Accounting Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Cash Equivalents: The Company defines cash equivalents as highly liquid,
short-term investments with an original maturity of three months or less.
Investments pledged as collateral for loans are not considered cash equivalents.
F-9
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Accounts Receivable: The Company bills its customers either directly, through
billing agreements with Local Exchange Carriers ("LEC"), or through two
unrelated billing and collection companies, collectively referred to as the
Billing Agents, which bill the customer through LECs with which the Company does
not have a LEC billing agreement. At December 31, 1997 and 1998, approximately
82% and 69%, respectively, of the Company's total accounts receivable were from
LECs or Billing Agents. In addition, approximately 5% and 10% of total accounts
receivable at December 31, 1997 and 1998, respectively, were attributable to
revenues earned in December of the respective year but not billed to the
customers until the normal billing dates in January of the following year.
Property and Equipment: Property and equipment is stated at cost, net of
accumulated depreciation. Depreciation is provided using straight-line and
accelerated methods over the estimated useful lives of the assets. Maintenance
and repairs are charged to expense as incurred.
Asset Held for Disposal: The Company's asset held for disposal is carried at the
lower of book value or fair value, less estimated costs to sell.
Advertising Costs: Advertising and telemarketing costs are expensed as incurred,
and totaled approximately $10,549, $9,942 and $11,912 during the years ended
December 31, 1996, 1997 and 1998, respectively.
Interest Expense and Other Finance Charges: Interest expense and other finance
charges included interest incurred on short-term and long-term borrowings,
interest and related fees on accounts receivable credit facilities, and
interest, penalties and late charges on amounts payable to vendors and taxing
authorities.
Investment in and Note Receivable from Affiliate: Investment in and note
receivable from affiliate includes the underlying book value of the Company's
13.25% ownership in VisionQuest Marketing Services, Inc. ("VisionQuest"), and
the balance due related to a note receivable from VisionQuest. Through June 30,
1998, this investment was accounted for using the equity method, because the
Company's two directors and executive officers also had significant ownership
interests and served on the Board of Directors of VisionQuest. Accordingly, the
Company had the ability to significantly influence the management decisions of
VisionQuest. From July 1, 1998 through December 31, 1998, the Company's ability
to influence the management decisions of VisionQuest was diminished, and the
Company did not recognize any of the pro-rata earnings or losses of VisionQuest
subsequent to July 1, 1998. As discussed in Note C, the Company does not have
any ownership interests in VisionQuest as of January 1, 1999.
Revenue Recognition: The Company recognizes telecommunications revenues when the
Company's customers make long distance telephone calls from their business or
residential telephones or by using the Company's telephone calling cards. Income
from prepaid telephone calling cards is recognized as the telephone service is
utilized.
Deferred Loan Closing Costs: Costs incurred through December 31, 1998 in
connection with the Company's credit facility with a financial institution, as
described in Note C, have been capitalized and will be amortized over the period
of the credit facility.
F-10
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Commissions: Certain independent Company representatives, as well as certain
officers and employees, receive commissions by soliciting non-profit
organizations to promote and market the Company's services to the non-profit
organization's members. The commission percentages are approximately 5% of net
commissionable revenues. Commissions expense is included in selling, general and
administrative expenses.
Rebates to Non-profit Organizations: The Company rebates approximately 10% of a
customer's commissionable long distance revenues to a non-profit organization.
Concentrations of Credit Risk: Financial instruments that potentially subject
the Company to concentrations of credit risk include accounts receivable from
customers, including accounts receivable that have been sold with recourse (see
Note K) and accounts payable to its carrier. The Company's customer base is
distributed throughout the United States, and the Company does not require any
collateral from its customers. Although significant portions of the Company's
revenues are billed through the Billing Agents and LECs, the ultimate
collectibility of these accounts is dependent upon the status of the individual
customer. There are no significant concentrations of revenues or accounts
receivable among individual customers.
The Company enlists the support of non-profit organizations to promote the
Company's services in return for the Company's rebate. The loss of the support
of one or more significant non-profit organizations could have a material,
adverse impact on the Company's results of operations. Approximately 43%, 44%,
and 42% of the Company's net sales during the years ended December 31, 1996,
1997 and 1998, respectively, were earned from customers that have designated the
ten (10) most significant non-profit organizations as recipients of the
Company's rebate.
The Company purchases the majority of its long distance switching and network
services from WorldCom.
The Company maintains deposits at financial institutions that at times exceed
federally insured limits. Management does not believe there is any significant
risk of loss associated with this concentration of credit.
Redeemable Common Stock: Redeemable common stock is carried at its redemption
value. Redemption value includes the proceeds received upon issuance of the
common stock, and is increased by accretions resulting from the Company's
agreement to redeem the stock at cost plus annual rates of return, as specified
in the redemption agreements (see Note J). The carrying value is reduced by
quarterly returns of capital payments made to the holders of redeemable common
stock, and by the redemption price paid to each selling stockholder. As the
redemption options expire, as more fully discussed in Note J, the principal
amounts invested by the individual stockholders are reclassified as
nonredeemable common stock.
Nonredeemable Common Stock: Nonredeemable common stock consists of stock issued
to certain officers upon formation of the Company, and to other stockholders
with whom the Company had not executed a redemption agreement. Nonredeemable
common stock also includes the principal amounts invested by stockholders whose
redemption options have expired.
F-11
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued
Income Taxes: Income tax expense is based on pretax financial accounting income.
The Company uses the asset and liability method of accounting for income taxes.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. This method also requires the
recognition of future tax benefits such as net operating loss carryforwards, to
the extent that realization of such benefits is more likely than not.
Covenants Not to Compete: Covenants not to compete are discounted to their
present value based upon the term of the agreement, and are being amortized over
the effective period of the covenant.
Earnings (Loss) Per Share: Earnings (loss) per share is computed under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share." SFAS No. 128 requires presentation of a basic earnings per
share and diluted earnings per share. Basic earnings (loss) per share is
computed by dividing earnings (losses) available to nonredeemable common
stockholders by the weighted average number of nonredeemable shares outstanding
during the year. Diluted earnings (loss) per share reflect per share amounts
that would have resulted if dilutive potential nonredeemable common stock had
been converted to nonredeemable common stock. Potential nonredeemable common
stock includes redeemable common stock and convertible notes payable. For 1996
and 1997, conversions of potential nonredeemable common stock were not included
in the computation of earnings (loss) per share, however, since they would have
resulted in an antidilutive effect.
Fair Values of Financial Instruments: The following methods and assumptions were
used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents--The carrying amount of cash and cash
equivalents approximates its fair value.
Receivables sold with recourse--The carrying amounts of trade
receivables sold with recourse approximates their fair value.
Restricted Investment--The carrying amount of the investment pledged as
collateral on a loan approximates its fair value.
Short and long-term debt--Based upon the Company's current incremental
borrowing rates and the general short-term nature of most debt, the
carrying amount of short and long-term debt approximates its fair
value.
Redeemable Common Stock--It is not practicable to estimate the fair
value of the Company's redeemable common stock because of the lack of
quoted market prices and the inability to estimate fair value without
incurring excessive costs. The carrying amount of redeemable common
stock, however, is based upon its redemption price.
F-12
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE B--RELATED PARTY TRANSACTIONS
During each of the three years ended December 31, 1996, 1997 and 1998, the
Company participated in transactions with its officers and directors,
VisionQuest, and Hebron.
Transactions with Officers and Directors (per share amounts not in thousands)
From January 1996 through April 1996, the Chairman of the Company's Board of
Directors sold 3,116 shares of his personal Company stock (nonredeemable) to
twenty-two (22) individuals for $344 and loaned the proceeds to the Company. The
terms of the note payable are described in Note G. The Company issued redemption
agreements to three of the individuals who purchased 199 shares totaling $19.
Returns of capital declared and accrued to the Chairman totaled $1,659 and
$1,260 in 1996 and 1997, respectively. At December 31, 1997 and 1998, accrued
returns of capital to the Chairman totaled approximately $3,467 and $3,225,
respectively. The Company and the Chairman have agreed to defer payments of
these accrued returns of capital until such time as the Company's financial
condition improves and it has funds available, legally and in good business
practice, to pay any such accrued returns of capital. In consideration for this
deferral and for the Chairman's subordination of these accrued returns of
capital to the Company's credit facility, as described in Note C, the Company
will pay the Chairman $300 per year subject to limitations under the Company's
Credit Facility. If the payment of the accrued returns of capital is resumed,
all amounts paid to the Chairman pursuant to this agreement shall be credited
against the accrued returns of capital.
Returns of capital declared and accrued to the former Senior Vice President of
the Company totaled $582 and $433 in 1996 and 1997, respectively. In April 1998,
the Senior Vice President resigned. In connection with his resignation, the
Company agreed to repay his accrued returns of capital totaling approximately
$1,208 at December 31, 1997, in the amount of $40 per month. The Company also
agreed to pay him $20 per month for the remainder of his life, provided that the
terms of his termination agreement are met. These terms include a noncompete
agreement effective through April 1999 and a provision that the former Senior
Vice President will take no actions significantly detrimental to the Company.
The Company has accrued the present value of this obligation based upon his
expected life at the date of the agreement. In addition, the Company is
amortizing the noncompete agreement over the one-year term. This covenant not
to compete was fully amortized as of March 31, 1999.
VisionQuest
The Company utilized VisionQuest as its provider of telemarketing services from
1993 through December 31, 1998. Total amounts paid to VisionQuest for
telemarketing services during the years ended December 31, 1996, 1997 and 1998,
were approximately $9,460, $5,242 and $6,209, respectively.
Telemarketing expenses incurred in 1998 included the direct costs of
telemarketing services provided by VisionQuest to the Company during 1998, plus
reimbursement of all of VisionQuest's operating expenses and corporate overhead.
F-13
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE B--RELATED PARTY TRANSACTIONS--Continued
VisionQuest, Continued
From January 1997 through October 1997, telemarketing expenses included an
hourly billing rate for telemarketing services. In addition, from January 1997
through October 1997, the Company helped to fund VisionQuest's operating
expenses in the amount of approximately $25 per week, for a total of
approximately $1,330.
In November 1997, the Company and VisionQuest agreed that the portion of the
operating expenses that related to VisionQuest's other clients should be repaid
to the Company. As a result, in April 1998, and effective December 31, 1997,
VisionQuest signed a note payable to the Company, totaling $670, to repay these
expenses. In June 1998, VisionQuest repaid $150 of this note to the Company. As
part of obtaining the rights to operate one of VisionQuest's telemarketing
centers, as discussed in Note C, the balance of this note receivable of $520 was
canceled effective January 1, 1999.
In November and December 1997, the telemarketing expenses incurred equaled the
direct costs of telemarketing services, plus reimbursement of all of
VisionQuest's operating expenses and corporate overhead.
Throughout all of 1996, telemarketing expenses included an hourly billing for
telemarketing services plus a commission of 3% of the commissionable traffic on
gross billings.
The Chairman received compensation from VisionQuest totaling approximately $414
in 1996 and $6 in 1997. The former Senior Vice President of the Company received
compensation from VisionQuest totaling approximately $378 in 1996, and $6 in
1997. This compensation arrangement was discontinued in early January 1997.
As a result of the payment of the corporate payroll and operating expenses in
1997 and 1998 and commissions in 1996, the Company paid a higher rate for its
telemarketing services than the stated hourly rate. After giving effect to these
other expenses paid by the Company, VisionQuest charged the Company a higher
rate for its services than it charged independent third parties and higher than
the Company could have obtained in an arms-length transaction with an
unaffiliated third party that provides the same telemarketing services.
At December 31, 1997, $100 was payable to VisionQuest in connection with a
short-term loan. This amount is included as a loan payable to related parties at
December 31, 1997, and was repaid in January 1998.
At December 31, 1997, accounts receivable from related parties includes
approximately $338 from VisionQuest; this amount was repaid in January 1998.
F-14
<PAGE> 84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE B--RELATED PARTY TRANSACTIONS--Continued
Hebron
Hebron was incorporated in November 1995 to provide switching network services
to the Company. Hebron has a relationship with the Company through partially
integrated management. The Company's Chairman and the former Senior Vice
President served on Hebron's Board of Directors from its inception in November
1995 until their resignation in November 1996. In addition, the President and
another director of Hebron were appointed to the Company's Board of Directors
in October 1998.
Cost of sales in 1996, 1997 and 1998 includes approximately $4,685, $13,529 and
$14,736, respectively, of telecommunications services provided by Hebron. In
1997, Hebron charged the Company a higher rate for the switched one-plus
interstate and intrastate services it provided to the Company than the Company
could have obtained from its primary carrier. In July 1998, and retroactive to
January 1998, Hebron agreed to lower its rates so that they matched those of the
Company's primary carrier. Hebron also charged the Company interest of 18% per
annum on the accounts payable for telecommunication services that are over 55
days from the invoice date. This interest rate is comparable to the rate charged
by the Company's primary carrier. During 1996, 1997 and 1998, the Company
incurred interest expense of approximately $0, $35 and $129, respectively,
related to past due accounts payable invoices.
Hebron owns an office building that is adjacent to the building owned by the
Company. Beginning in 1996, the Company began leasing office space from Hebron
for certain of its departments. Throughout all of 1997 and into 1998, the
Company moved additional departments, including its administration offices, to
Hebron's office building. For most of 1998, substantially all of the Company's
operations were located in the building owned by Hebron. Total rent expense
incurred to Hebron was approximately $25, $110 and $380 in 1996, 1997 and 1998,
respectively.
In December 1996, Hebron made an account receivable line of credit facility
available to the Company on certain billings that are transmitted by the Company
to specific LECs (the "Hebron Loan Program"). The Hebron Loan Program provided
for the Company to pay 18% interest on the amounts advanced under the credit
facility, plus fees of 2% of billings processed and 2 cents per call record. As
a result of the stated interest rate and the fees, the effective interest rate
of this financing arrangement was approximately 58% in 1996, 1997 and 1998. This
effective interest rate was higher than what the Company could have obtained in
an arrangement with independent third parties. The Company incurred total
interest and other related financing costs of approximately $62, $805 and $885
in 1996, 1997 and 1998, respectively, under the Hebron Loan Program.
In October 1998, the Company stopped using the Hebron Loan Program as an
accounts receivable financing source, and at December 31, 1998, all advances
under the Hebron Loan Program credit facility had been repaid. Receivables from
related parties of $152 at December 31, 1998 consists of amounts that had been
withheld for interest and escrow fees under the Hebron Loan Program but which
were reimbursed to the Company because the related expenses were not incurred.
At December 31, 1997, outstanding advances under the Hebron Loan Program totaled
approximately $1,461 (see Note E). Receivables from related parties at December
31, 1997, includes approximately $165 due from Hebron in connection with sales
taxes and settlement tapes that had been collected by Hebron and were remitted
to the Company in 1998.
F-15
<PAGE> 85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE B--RELATED PARTY TRANSACTIONS--Continued
Hebron, Continued
In 1997 and through July 1998, the Company transmitted a portion of its accounts
receivables through one of its Billing Agents through an account maintained at
the Billing Agent under Hebron's name. Hebron charged the Company a fee equal to
2% of the net revenues transmitted under this arrangement. The total fees
incurred by the Company in 1997 and 1998 were approximately $135 and $101,
respectively.
As discussed in Note G, Hebron periodically made loans to the Company for
working capital purposes. The loans generally carried an interest rate of 10%.
Total interest expense incurred on loans made by Hebron to the Company was
approximately $65, $46 and $6, respectively, during the years ended December 31,
1996, 1997 and 1998.
During 1995, the Company purchased equipment, totaling approximately $271, with
the intention of selling all such assets to Hebron. In March 1996, the Company
sold all of the assets to Hebron at its cost basis. During 1995, the Company
also entered into a lease agreement with a third party to acquire the required
switching network equipment. In March 1996, the Company sub-let this equipment
to Hebron at terms identical to the Company's lease terms and in July 1996, the
Company assigned this obligation to Hebron. The Company remains a guarantor on
the lease obligation (see Note K).
Accounts payable to related parties include $3,990 and $3,892 at December 31,
1997 and 1998, respectively, for telecommunication services and other services
provided by Hebron to the Company. In connection with an agreement between the
Company and Hebron, as described in Note C, approximately $661 of this accounts
payable has been reclassified as a long-term obligation. As discussed in Note C,
the Company has also agreed to reimburse Hebron for costs and expenses incurred
by Hebron on behalf of the Company in connection with the development of an
internet service product. This amount totaled approximately $563 through
December 31, 1998, and is included in the long-term portion of payables to
related parties at December 31, 1998.
Other Related Party Transactions
The chief counsel and executive director of one of the largest non-profit
organizations that participates in the Company's 10% rebate program was named a
director of the Company in October 1998. During the years ended December 31,
1996, 1997 and 1998, the Company incurred approximately $360, $775 and $1,060,
respectively, in rebates to this organization or its affiliates. The director
also controls a company that produces a radio program that the Company sponsors.
During the years ended December 31, 1996, 1997 and 1998, the Company incurred
approximately $1,011, $1,803 and $1,918 in advertising expenses to this company.
As discussed in Note G, a charitable organization affiliated with this same
director also provided the Company with a $1,000 loan in 1997.
During the years ended December 31, 1996, 1997 and 1998, the Company expended
approximately $0, $69 and $741, respectively, to a law firm in which the
Company's current President and CEO is a former partner.
F-16
<PAGE> 86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE C--SUBSEQUENT EVENTS
Termination of Relationship with VisionQuest
Effective January 1, 1999, the Company and VisionQuest mutually terminated their
business relationship. The Company acquired from VisionQuest the rights to use
all of the assets located in VisionQuest's Tahlequah, Oklahoma telemarketing
center in exchange for all of the Company's ownership interests in VisionQuest,
all of the Company President's ownership interests in VisionQuest (which were
transferred to the Company for no consideration immediately prior to the
transfer), and cancellation of the note receivable between the Company and
VisionQuest. Effective January 1, 1999, the Company reclassified its investment
in and note receivable from VisionQuest to a short-term intangible asset,
telemarketing facility operating rights. This asset is being amortized to
expense over the first nine months of 1999.
Transactions with Hebron
In April 1999, and effective February 1, 1999, the Company and Hebron entered
into an asset purchase agreement (the "Hebron APA"). Under the terms of the
Hebron APA, the Company agreed to:
(1) pay Hebron for all expenses that Hebron incurred prior to January
31, 1999 related to the switch network, and convert the balance
owed to Hebron for telecommunications services previously provided,
totaling approximately $2.3 million, to a note payable,
(2) reimburse Hebron for its costs and expenses incurred on the
Company's behalf in connection with the development of an internet
service product, totaling approximately $584, and acquire the
rights to the assets and assume all of the related lease
obligations incurred by Hebron in connection with the internet
service product, totaling approximately $1.2 million, and
(3) purchase all of the switch assets at their net book value, assume
all of the related switch lease obligations totaling approximately
$1.3 million, and issue a note payable to Hebron for the net amount
of $567.
In connection with the Hebron APA, the Company issued a promissory note payable
to Hebron totaling $2.3 million for item (1) discussed above. This note payable
has been subordinated to the Company's credit facility described below. The
Company also plans to issue notes payable for the internet and switch assets.
The purchase of the internet and switch assets is subject to the approval of
Hebron's stockholders. If such approval is obtained, the notes payable for the
internet and switch assets will also be subordinated to the Company's credit
facility described below.
F-17
<PAGE> 87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE C--SUBSEQUENT EVENTS--Continued
Transactions with Hebron, Continued
The Company assumed operations of the switch and internet assets effective
February 1, 1999, pursuant to a lease license agreement between the Company and
Hebron. Under the lease license agreement, the Company has agreed to pay Hebron
the amount of interest that would be paid on the switch and internet notes
payable. The Company has recorded the assets and the related lease and note
payable obligations in its financial statements effective February 1, 1999, and
the statement of operations from February 1999 forward reflect the costs of
operating those switches and internet assets. If the Hebron stockholders do not
approve the transaction, the assets and related obligations would be removed
from the Company's financial statements.
Credit Facility
The Company has a $30,000 line of credit facility (the "Credit Facility") with a
financial institution. The Credit Facility can be categorized into two distinct
parts, (1) an accounts receivable based facility, and (2) a full credit facility
based upon collections multiples or earnings ratios. In February 1999, the
Company closed on the accounts receivable facility. The total amount of the
funding was approximately $12,600 and the proceeds were used to retire the
Company's existing credit facilities and pay outstanding and past due taxes and
other liabilities. In connection with the Credit Facility, Patrick Enterprises,
Inc. ("Patrick") loaned the Company $2,500, which is subordinated to the Credit
Facility. These funds were restricted for reserves required under the terms of
the Credit Facility. In May 1999, the Company was approved for the remaining
portion of the Credit Facility, and the restrictions on the funds loaned by
Patrick were released. At June 30, 1999, the Company could borrow up to $29,000
under the Credit Facility, of which $6,800 is restricted for the repayment of
certain existing indebtedness. The outstanding balance at June 30, 1999 was
$13,827.
The Credit Facility has a three-year term from the date of closing, and carries
an interest rate of prime plus 3.5%. The interest rate during the period ended
June 30, 1999, was 11.25%. The Credit Facility is secured by substantially all
of the Company's assets, including accounts receivable and the Company's
customer base. The Credit Facility contains a subjective acceleration clause and
requires that the Company maintain a lockbox, in which all of the Company's cash
receipts are deposited and used to repay the outstanding advances under the
Credit Facility. Because of these requirements, the Credit Facility is
classified as a current liability in the Company's balance sheet.
Upon closing the Credit Facility, the Company paid a $200 early prepayment fee
to terminate its accounts receivable purchase agreement. The termination fee has
been included as a current period charge to interest during the six months ended
June 30, 1999. The Company also incurred $300 in loan closing fees in connection
with the Credit Facility. The loan closing fees have been capitalized and are
being amortized over the three-year term of the Credit Facility.
F-18
<PAGE> 88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE C--SUBSEQUENT EVENTS--Continued
Credit Facility, Continued
In connection with closing the Credit Facility, several of the Company's
creditors, in addition to Patrick, agreed to subordinate the Company's
obligations to them in favor of the financial institution providing the Credit
Facility. These creditors include Hebron Communications Corporation ("Hebron"),
two members of the Company's Board of Directors, one former member of the
Company's Board of Directors, a former sales representative, and a former
stockholder who redeemed his stock in exchange for a note payable from the
Company. Repayment of these obligations is limited as specified in the loan and
security agreement between the Company and the financial institution. The total
outstanding debt owed to subordinated creditors as of June 30, 1999, was
approximately $6,891. In addition, the Chairman of the Board of Directors agreed
to subordinate accrued returns of capital totaling $3,200 at June 30, 1999 in
favor of the Credit Facility.
Stock Option Plans
The Company has stock option plans for certain of its directors and executives.
Each agreement grants the director or executive the option, to purchase a
specified percentage, ranging from 1.0% to 3.0%, of the fully diluted
outstanding common stock as of May 24, 1999. The Company has reserved
approximately 91,000 shares for issuance under the existing stock option plans.
The option purchase price is based upon the value of the Company's common stock
as of February 1, 1998. As discussed below, the Company has not determined the
value of its common stock as of that date. The options begin to vest effective
July 1, 1999.
Stock Award Agreements
The Company has also entered into stock award agreements with certain of its
officers and directors. The total number of shares to be issued under each
agreement is based upon a specified percentage of the fully diluted outstanding
common stock as of May 24, 1999. Approximately 22,000 shares have been reserved
for issuance under the stock award agreements. The Company is in the process of
obtaining a valuation of its common stock, however such valuation has not yet
been completed, and the Company cannot reasonably estimate the fair value of its
common stock by other means. Thus, no stock has been issued nor have any amounts
been recorded as of June 30, 1999. The stock to be issued pursuant to such
agreements begins to vest effective July 1, 1999.
F-19
<PAGE> 89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE C--SUBSEQUENT EVENTS--Continued
Telecommunications Contract
In April 1999, the Company entered into a telecommunications contract with
WorldCom, its primary provider of switchless telecommunications services. The
term of the contract is for three years, with early termination provided for
based on meeting specified purchase commitments during the term of the contract.
In connection with the contract, WorldCom agreed to subordinate its interests in
the Company's customer base, as well as its accounts payable and other rights
and obligations, to the financial institution providing the Company's Credit
Facility. WorldCom has a second security lien on all of the assets in which the
financial institution has a first security lien. The agreement provides for
reduced rates as well as credits for disputed payables. The Company recognized
these credits as a reduction of expenses during the six months ended June 30,
1999.
NOTE D--PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Office equipment, furniture and fixtures $2,082 $2,477 $3,193
Switch equipment -- -- 1,882
Internet equipment -- 98 1,158
Other fixed assets 163 149 279
------ ------ ------
2,245 2,724 6,512
Less accumulated depreciation 1,178 1,606 2,392
------ ------ ------
$1,067 $1,118 $4,120
====== ====== ======
</TABLE>
As discussed in Note C above, the Company recorded the Oklahoma City and Chicago
switches and the internet assets effective February 1, 1999. The total cost of
these assets acquired by assuming the related lease obligations and issuing
notes payable to Hebron for the net book value was approximately $2,926. The
total cost of all assets held under capital lease obligations was $493 and
$3,769 at December 31, 1998 and June 30, 1999, respectively. Accumulated
depreciation of leased equipment was approximately $82 and $160 at December 31,
1997 and 1998, respectively, and $742 at June 30, 1999.
Depreciation expense on property and equipment, including depreciation on
assets held under capital leases, was approximately $521, $611, and $464 during
the years ended December 31, 1996, 1997, and 1998, respectively, and $197 and
$786 during the six months ended June 30, 1998 and 1999, respectively.
In 1997, the Company began relocating its management and employees from the
building it owns to an adjacent office building owned by Hebron, and completed
its relocation in 1998. During 1998, the Company began efforts to sell the
building. The Company determined that the carrying amount of this asset was
impaired, and accordingly, recognized a loss of $215 in 1998. The Company sold
this building for $522 in February 1999.
F-20
<PAGE> 90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE E--LINE OF CREDIT ARRANGEMENTS
The Company has entered into various agreements, both with unrelated third
parties as well as related parties, whereby the other companies will advance 75%
to 80% of a LEC accounts receivable to the Company, and accept the LEC accounts
receivable as security on the advances. In 1997 and 1998, the Company had such
agreements with Hebron, as described in Note B, and with Trinity and one of the
Billing Agents.
The total outstanding advances under the line of credit arrangements are as
follows:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Hebron $ 1,461 $ -- $ --
Trinity 2,931 1,780 --
Billing Agent 3,987 1,926 --
Credit Facility -- -- 13,827
------- ------- -------
$ 8,379 $ 3,706 $13,827
======= ======= =======
</TABLE>
The effective interest rates during 1997 and 1998 on the line of credit
arrangements were 58% for Hebron, 25% for Trinity, and 12.5% for the Billing
Agent. These interest rates approximated the rates in effect throughout all of
1997 and 1998.
At December 31, 1998, the maximum amount of borrowings available under the
Trinity facility was $3,500, subject to the available accounts receivable
borrowing base. There was no limitation on the Billing Agent's credit facility,
except as limited by the available accounts receivable borrowing base.
The Hebron credit facility was retired during the fourth quarter of 1998, and
all outstanding advances were repaid. In February 1999, the Trinity and Billing
Agent credit facilities were replaced with the Company's new credit facility
described in Note C.
The managing general partner of Trinity is a stockholder of the Company and of
Hebron, and is a former director of Hebron.
F-21
<PAGE> 91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE F--SHORT-TERM NOTES PAYABLE TO INDIVIDUALS
Short-term notes payable to individuals consist of the following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Convertible notes payable $ 482 $ 421 $ 399
Advance payment loan program notes 4,410 4,077 3,109
Direct bill program notes 670 770 --
------ ------ ------
$5,562 $5,268 $3,508
====== ====== ======
</TABLE>
Convertible Notes Payable: In 1995, the Company issued promissory notes payable
to approximately seventy-five (75) individuals, substantially all of which are
convertible to common stock. These notes generally have no specified maturity
date and are convertible to common stock at the option of the Company. Interest
accrues at 10% and is payable quarterly. All of these notes are classified as
current liabilities in the accompanying balance sheet. The individual notes
contain varying terms with regard to the conversion agreements. Some of the
notes do not specify any conversion terms other than they are convertible at the
option of the Company. Other notes specify that the conversion will be based on
a specific price per share. During 1996, ten (10) notes totaling $26 were
converted to 172 shares of common stock issued by the Company. In addition, in
1996, the Chairman exchanged 1,497 shares of common stock then owned by him for
nine (9) convertible notes totaling $145. The Company then issued a note payable
to the Chairman in satisfaction of the convertible notes payable. The note
payable to the Chairman had an interest rate of 8% and was repaid in full during
1998.
Notes Payable - Advance Payment Loan Program: In November 1995, the Company
initiated an Advance Payment Loan Program (APLP), under which individuals have
lent the Company money to finance working capital needs. Although the loan
agreements indicate that the loans were to be secured by accounts receivable
from the LECs, no security agreements were perfected and all of the Company's
LEC accounts receivables are pledged to other lenders, as discussed in Notes E
and K. Therefore, these loans are effectively unsecured. Interest on the APLP
notes is 18% per annum, payable quarterly. The loans generally mature nine
months after the date of issuance. At any point after maturity, an individual
may request the funds to be repaid, and the Company, at its option, may repay
the notes in three equal monthly installments. In August 1996, the Company
ceased soliciting new investors into the APLP. At December 31, 1998, all notes
outstanding under the APLP had matured, and were payable on demand by the
lenders.
Notes Payable - Direct Bill Program: In October 1997 through December 1997, the
Company obtained a series of loans from third parties, for the purpose of
financing working capital operations. The loan agreements indicate that the
security for the loans are the Company's accounts receivable arising from its
customers which are billed directly by the Company, although no security
agreements were perfected. These loans bear interest at rates of 20% to 25% per
annum, payable quarterly. The loans mature six months after the date of
issuance, but may be renewed for an additional three months by mutual agreement
of the lender and the Company. As of June 30, 1999, all such notes had been
repaid in full.
F-22
<PAGE> 92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT
Related Parties
Notes payable and long-term debt to related parties consists of the following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Note payable to the Chairman, dated March 31,
1996, unsecured, interest rate of 8%, matured
March 31, 1998 and paid in full $ 225 $ -- $ --
Loan payable to the Chairman, made May 1998,
unsecured, no specified interest rate or maturity
date, balance paid in full -- 98 --
Accrued returns of capital to former Senior Vice
President of the Company, unsecured, no stated
interest rate, monthly payments of $40 until
paid in full, subordinated to the Credit Facility
in February 1999 1,208 575 337
Accrued termination obligation payable to former
officer and director, effective April 1998,
payment terms of $20 per month with an
imputed interest rate of 11.25% over his
estimated life at the date of the agreement,
unsecured -- 2,169 2,167
Note payable to former Senior Vice President of
the Company, dated December 11, 1997,
payable in ten monthly installments of $50,
stated interest rate of 25%, but effective interest
rate of 51% based upon the payment terms, paid
in full (see explanation below) 400 -- --
Note payable to wife of former Senior Vice
President of the Company, dated August 31,
1995, unsecured, interest rate of 8%, matured
August 31, 1997, and automatically renewed,
paid in full during 1998 56 -- --
</TABLE>
F-23
<PAGE> 93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
Related Parties, Continued
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Note payable to an organization affiliated with a
Company director, dated July 1997, unsecured,
monthly payments beginning in July 1998 of
$80 per month including interest at 10%,
payments reduced to $36 per month in January
1999, subordinated to the Credit Facility, and
restructured in April 1999 $ 1,000 $ 688 $ 850
Note payable to Company director, dated June 2,
1998, unsecured, monthly payments of $25 plus
interest at 18% scheduled to begin in March
1999, subordinated to Credit Facility, and
restructured in April 1999 -- 150 100
Notes payable to Hebron, unsecured, interest rate
of 10%, due on demand 4 -- --
Note payable to Hebron, dated February 1, 1999,
current interest rate of 12.5%, subordinated to
Credit Facility, monthly interest only payments
plus specified prepayments of principal not to
exceed $1,234 through March 2000, balance due
August 1, 2000, secured by 50,000 shares of
Company common stock owned by the
Chairman -- -- 2,274
Payable to Hebron for telecommunications
services, converted to note payable effective
February 1, 1999, as described above -- 1,224 --
Note payable to Hebron for switch assets,
effective upon approval by Hebron
stockholders, initial interest rate of 12.5%,
interest only payments for 12 months, matures
18 months from effective date -- -- 567
</TABLE>
F-24
<PAGE> 94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
Related Parties, Continued
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Note payable to Hebron for internet assets and
reimbursement of related expenses, effective
upon approval by Hebron stockholders, initial
interest rate of 12.5%, interest only payments
for 12 months, matures 18 months from
effective date $ -- $ -- $ 584
Loan payable to VisionQuest, made December 23,
1997, no stated interest rate, unsecured, repaid
January 5, 1998 100 -- --
------- ------- -------
2,993 4,904 6,879
Amounts due within one year 1,730 686 1,472
------- ------- -------
$ 1,263 $ 4,218 $ 5,407
======= ======= =======
</TABLE>
In April 1999, the note with the organization affiliated with a Company director
was restructured. The new note provides for additional advances of approximately
$260, bringing the total outstanding balance to $850, and monthly interest only
payments at 10% for five years, with the unpaid principal due at maturity in
April 2004. The lender has the option to convert the note to common stock at a
per share price equal to the lower of (1) the fair market value of the common
stock on January 1, 1998 as determined by an appraisal, or (2) the lowest
publicly traded price of the common stock three months following the
establishment of a public trading market for the common stock. The terms of the
agreement also provide for the Company to issue the organization warrants to
purchase 3,400 shares of Company common stock at a strike price of $0.01 per
share.
The note payable to the Company director was also restructured in April 1999.
The balance was paid down to $100, the payment terms provide for monthly
interest only payments at 10%, with the unpaid principal due in April 2001. The
note may be extended for an additional three years at the option of the lender.
This note also contains conversion options similar to the ones described above.
The terms of the agreement also provide for the Company to issue the director
warrants to purchase 400 shares of Company common stock at a strike price of
$0.01 per share.
The note payable to the former Senior Vice President totaling $400 at December
31, 1997 was part of a transaction in which the former Senior Vice President
borrowed $400 from an individual under terms identical to the note between the
Company and the former Senior Vice President. The former Senior Vice President
then loaned the proceeds to the Company. The Senior Vice President then directed
the Company to repay the other individual in satisfaction of the Senior Vice
President's note with the Company, and this note was repaid in full during 1998.
F-25
<PAGE> 95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
During 1997 and 1998, the President, Senior Vice President, VisionQuest and
Hebron periodically made short-term advances and loans to the Company for
operating purposes. These advances and loans contained terms ranging from less
than one week to two to three months. Total proceeds and repayments of these
loans are summarized as follows:
<TABLE>
<CAPTION>
1997 1998
-------------------- ---------------------
Proceeds Repayments Proceeds Repayments
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
President $ 601 $ 946 $ 498 $ 400
Senior Vice President 120 120 -- --
Hebron 1,178 1,194 265 269
VisionQuest 950 850 641 741
</TABLE>
Other Notes Payable, Long-Term Debt and Capital Lease Obligations:
Notes payable, long-term debt and capital lease obligations to others consists
of the following:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Note payable to unaffiliated company, dated April
15, 1997, described in the agreement as being
secured by the Company's customer base but
not perfected, and containing the personal
guaranties of the Chairman and former Senior
Vice President, interest of 18% payable
monthly, matured April 15, 1999 $ 350 $ 350 $ 350
Note payable to individual, dated March 1, 1996,
described in the agreement as being secured by
the Company's customer base but not perfected,
and containing the personal guaranties of the
Chairman and former Senior Vice President,
interest of 18% payable monthly, matured
March 1, 1998 280 280 --
</TABLE>
F-26
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Others, continued:
Note payable to individual, dated December 1,
1996, described in the agreement as being
secured by the Company's customer base but
not perfected, and containing the personal
guaranties of the Chairman and former Senior
Vice President, interest of 18% payable
monthly, matures December 1, 1999 $ 475 $ 475 $ 475
Note payable to individual, dated October 10,
1996, described in the agreement as being
secured by the Company's customer base but
not perfected, and containing the personal
guaranties of the Chairman and former Senior
Vice President, interest of 18% payable
monthly, matured October 10, 1998 100 100 100
Note payable to individual, dated June 1, 1997,
described in the agreement as being secured by
the Company's customer base but not perfected,
interest of 18% payable monthly, matured
June 1, 1998 50 50 50
Note payable to individual, dated December 3,
1996, described in the agreement as being
secured by the Company's customer base but
not perfected, interest of 18% payable monthly,
matured June 3, 1998 100 100 100
Note payable to individual, dated December 20,
1996, described in the agreement as being
secured by the Company's customer base but
not perfected, interest of 18% payable monthly,
matured June 20, 1998 100 100 100
Note payable to individual, dated January 1998,
described in the agreement as being secured by
Direct Bill Accounts Receivable but not
perfected, interest of 25% payable monthly,
matured October 1998 -- 200 --
</TABLE>
F-27
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Others, continued:
Loans payable to two individuals, originating in
December 1997 and May 1998, maturing in
December 2005 and May 2006, monthly
payments of $8 in the aggregate, including
interest with an effective rate of approximately
58% $ 140 $ 183 $ 181
Note payable to seller of building, secured by first
mortgage on office building, monthly payments
of $10 including interest at 10%, matures April
1, 2001 (repaid upon sale of building in
February 1999) 355 245 --
Notes payable to banks, secured by automobiles,
interest rates from 7.75% to 9.5%, maturing in
various years through 2004 75 35 83
Note payable to financial institution to purchase
computer equipment, secured by certificate of
deposit, dated September 11 , 1996, interest rate
of 7.5%, repaid upon maturity 59 -- --
Note payable to individual, interest at 18%
payable monthly, principal due upon maturity in
January 2000, subordinated to the Credit
Facility, secured by 50,000 shares of Company
common stock owned by the Chairman -- -- 2,500
Note payable to individual for redemption of
5,000 shares of Type D redeemable common
stock, imputed interest rate of 14%, payable in
monthly installments with the balance due in
August 1999, subordinated to the Credit Facility -- 928 246
Accrued termination obligation payable to former
salesman, effective June 1999, payment terms
of $20 per month with an imputed interest rate
of 11.25% over three years, unsecured,
subordinated to Credit Facility -- -- 584
</TABLE>
F-28
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Others, continued:
Capital lease obligation for telephone system,
effective February 1997 with subsequent
amendments, effective interest rate of 21.5%,
payable in monthly installments of $16 through
August 2002 $ 333 $ 315 $ 413
Capital lease obligation for equipment, effective
February 1999, monthly payments of $7 through
October 2000, effective interest rate of 9% -- -- 134
Capital lease obligation for internet equipment,
assumed from Hebron, monthly payments of
$39 through June 2001, effective interest rate of
12% -- -- 873
Capital lease obligation for switch equipment,
assumed from Hebron, monthly payments of
$26 through December 2000, effective interest
rate of 13.25% -- -- 512
Capital lease obligation for switch equipment,
assumed from Hebron, monthly payments of
$20 through March 2002, effective interest rate
of 12% -- -- 535
------- ------- -------
2,417 3,361 7,236
Amounts due within one year 878 2,315 5,303
------- ------- -------
$ 1,539 $ 1,046 $ 1,933
======= ======= =======
</TABLE>
Under the terms of the notes payable to various individuals in an aggregate
amount of $1,175 as of June 30, 1999, as listed above, the Company has agreed
that the security for the above notes will include the assets of the Company,
including the customer base. No security agreements were ever perfected pursuant
to these agreements, and any collateral is subject to the Company's credit
facility. The Chairman and former Senior Vice President have personally
guaranteed Company notes payable to individuals in an aggregate amount of $925
as of June 30, 1999.
F-29
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE G--NOTES PAYABLE AND LONG-TERM DEBT--Continued
Future maturities of notes payable and long-term debt as of June 30, 1999 are as
follows:
<TABLE>
<CAPTION>
Related
Parties Others Total
------- ------- -------
<S> <C> <C> <C>
2000 $ 1,472 $ 5,303 $ 6,775
2001 2,409 1,053 3,462
2002 11 659 670
2003 12 68 80
2004 863 36 899
Thereafter 2,112 117 2,229
------- ------- -------
$ 6,879 $ 7,236 $14,115
======= ======= =======
</TABLE>
NOTE H--INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Current
Federal and state $ -- $ -- $ --
Deferred
Federal and state (396) 92 (643)
----- ----- -----
$(396) $ 92 $(643)
===== ===== =====
</TABLE>
At December 31, 1998, the Company has net operating loss carryforwards totaling
approximately $5,100 that may be used to offset future taxable income. These net
operating loss carryforwards begin to expire in the year 2009.
Income tax expense (benefit) for the years ended December 31, 1996, 1997 and
1998, differs from the expected rate of 34% for the following reasons:
<TABLE>
<CAPTION>
1996 1997 1998
----- ----- -----
<S> <C> <C> <C>
Federal income tax (benefit) at statutory rate (34.0) (34.0) (34.0)
Expenses and losses not providing a tax benefit 8.2 81.9 8.9
Change in valuation allowance -- -- 15.5
State income tax (benefit), net (5.6) (5.5) (5.7)
----- ----- -----
(31.4) 42.4 (15.3)
===== ===== =====
</TABLE>
F-30
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE H--INCOME TAXES--Continued
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31 June 30
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Tax effect of future tax deductible items
Allowance for uncollectible receivables $ 93 $ 379 $ 178
Deferred telemarketing costs 3,534 2,516 1,687
Intangible assets 76 56 53
Depreciable assets 35 161 126
Net operating loss carryforwards 1,027 1,969 1,116
Other reserves and settlements 119 1,089 1,011
------- ------- -------
Total deferred tax assets 4,884 6,170 4,171
Less valuation allowance -- (650) 870
------- ------- -------
Net deferred tax assets 4,884 5,520 3,301
Tax effect of future taxable differences
Investments in affiliates (7) -- --
------- ------- -------
Total deferred tax liabilities (7) -- --
------- ------- -------
Net deferred tax benefits $ 4,877 $ 5,520 $ 3,301
======= ======= =======
</TABLE>
The Company has established a valuation allowance for the tax effects of
temporary differences to the extent it has determined that it is less likely
than not that it will realize the future tax benefits of those temporary
differences. The net deferred tax assets are based upon management's estimates
of future taxable income, and could be reduced significantly in the near term,
if management's estimates of future taxable income are significantly reduced.
NOTE I--NONRECURRING CREDITS AND CHARGES
The net loss in 1998 includes approximately $552, before taxes, of losses
recognized on loans and advances made to an unrelated long distance reseller.
Although the Company is attempting to collect these amounts, sufficient
uncertainties exist to their recoverability, and the Company has provided a
reserve for this receivable at December 31, 1998. During the six months ended
June 30, 1999, the Company did recover $182 of this loss. The Company also
recognized a pre-tax loss of $215 in connection with the impairment of its
former corporate headquarters.
In 1996, the Company recognized a loss of $200, before taxes, on a $100
promissory note and a $100 open advance to an unrelated independent broadcasting
company.
F-31
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE J--REDEEMABLE AND NONREDEEMABLE COMMON STOCK
The Company has from time to time entered into various agreements with certain
of its shareholders pursuant to which the Company agreed, upon request of one or
more of such shareholders, to redeem the shares of Common Stock owned by such
shareholder. While the Company's Certificate of Incorporation authorizes the
Company to issue a single class of Common Stock, the Company has, for financial
accounting purposes, segregated its Common Stock into two distinct groups,
redeemable and nonredeemable. Of the 816,379 shares of Common Stock outstanding
at December 31, 1998, 15,737 shares are characterized as redeemable common stock
and 800,642 shares are characterized as nonredeemable common stock.
The Company has entered into four variations of the redemption agreements, which
it classifies as Type A, Type B, Type C and Type D. Generally, each redemption
agreement provides that the shares of Common Stock shall be repurchased for an
amount that gives the shareholder a specified rate of return based on the length
of time the shareholder owned such shares. Type A agreements were issued
primarily between October 1992 and December 1992 and Type B agreements were
issued primarily between January 1993 and May 1995. Type A redemption agreements
provide that shareholders owning their shares of Common Stock between 6 months
and one year receive a 12% annual return; between one year and 18 months receive
a 15% annual return; and between 18 months and two years receive an 18% annual
return. Type B redemption agreements provide that shareholders owning their
shares of common stock between one year and 18 months receive a 15% annual
return, and between 18 months and two years receive an 18% annual return. Each
of the Type A and Type B agreements expire two years after issuance. All of the
Type A and Type B agreements have now expired pursuant to their terms.
Type C agreements were issued primarily between July 1992 and September 1992 and
have terms identical to the Type A agreements except that Type C agreements have
no expiration. The Company has agreed at its option to redeem the shares of
Common Stock owned for more than two years for the last highest price that the
shares of Common Stock have been sold to an investor. Type D Agreements have no
expiration and were issued from May 1995 until the Company discontinued issuing
redemption agreements altogether in February 1996. Type D agreements provide
that shareholders owning their shares of Common Stock less than one year receive
a 10% annual return; between one year and 18 months receive a 15% annual return;
between 18 months and three years receive an 18% annual return; and over three
years an amount based on a formula specified in the agreement.
During the year ended December 31, 1998, substantially all of the outstanding
Type D redeemable common stock had been outstanding for over three years.
Accordingly, the redemption price was based upon the formula specified in the
Type D redemption agreements for stock held over three years. Application of the
formula to the carrying amount of Type D redeemable common stock resulted in a
net reduction of the redemption price of approximately $179 during the year
ended December 31, 1998.
During the years ended December 31, 1996, 1997 and 1998, total periodic returns
of capital, with respect to both nonredeemable and redeemable shares were
$8,132, $6,194 and $0, respectively.
F-32
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE J--REDEEMABLE AND NONREDEEMABLE COMMON STOCK--Continued
A summary of activity of redeemable common stock during each of the years ended
December 31, 1996, 1997 and 1998, and the six months ended June 30, 1999 is as
follows:
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended December 31 June 30
1996 1997 1998 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 10,736 $ 3,853 $ 3,035 $ 1,755
Issuance of redeemable common stock
1996: 199 shares 19 -- -- --
Redemptions of redeemable common stock (38) (53) (1,082) (15)
1996: 416 shares
1997: 356 shares
1998: 5,256 shares
1999: 200 shares
Expiration and cancellation of redemption options (7,177) (687) (19) --
1996: 145,296 shares
1997: 10,617 shares
1998: 199 shares
Change in redemption value of redeemable
common stock 1,834 470 (179) (13)
Returns of capital to redeemable stockholders (1,521) (548) -- --
-------- -------- -------- --------
Balance at end of period $ 3,853 $ 3,035 $ 1,755 $ 1,727
======== ======== ======== ========
</TABLE>
F-33
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE J--REDEEMABLE AND NONREDEEMABLE COMMON STOCK--Continued
At December 31, 1997 and 1998, the carrying amount of redeemable common stock is
as follows:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Principal amount invested by stockholders $2,319 $1,506
Accumulated accretion of agreed upon redemption
price, net of periodic returns of capital paid to
the stockholders 716 249
------ ------
$3,035 $1,755
====== ======
</TABLE>
At December 31, 1997 and 1998, the approximate carrying amounts of redeemable
common stock applicable to the various types of redemption agreements were as
follows:
<TABLE>
<CAPTION>
1997 1998
------ ------
<S> <C> <C>
Type A and B redemption agreements $ 23 $ --
Type C redemption agreements 391 391
Type D redemption agreements 2,621 1,364
------ ------
$3,035 $1,755
====== ======
</TABLE>
Effective March 31, 1996, several owners of redeemable common stock canceled the
Company's redemption obligation. The total number of shares and related carrying
amount transferred from redeemable common stock to nonredeemable common stock
was approximately 24,000 and $1,398, respectively.
NOTE K--COMMITMENTS AND CONTINGENCIES
Violations of Federal and State Securities Laws
In 1995, the Company determined that it may not have registered its securities
with the Securities and Exchange Commission (the "Commission") when it was
obligated to do so under Federal securities laws and that, consequently, it may
have engaged in the sale or delivery of unregistered securities in violation of
the Federal securities laws. In July 1996, the Company voluntarily reported this
information to the Commission, which then instituted an investigation into
whether the Company and its principal officers and executives at that time (the
current Chairman of the Board of Directors and the former Senior Vice President
of the Company - the "Principal Officers") had violated any of the Federal
securities laws. The Company and the Principal Officers cooperated with the
Commission during this investigation. The Company provided the Commission with a
"discussion only" draft of a Form 10 Registration Statement for the three-year
period ended December 31, 1995 as well as other documents as requested by the
Commission. The Principal Officers also voluntarily gave sworn statements to the
Commission in 1997.
F-34
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE K--COMMITMENTS AND CONTINGENCIES--Continued
Violations of Federal and State Securities Laws, Continued
In September 1997, the Commission's staff attorney who was conducting the
investigation informed the Company that the staff intended to recommend to the
Commission that it institute cease-and-desist proceedings against the Company,
based upon the staff's belief that the Company had violated Sections 5(a) and
5(c) of the Securities Act of 1933, as amended ("Securities Act"), and Section
12(g) of the Securities Exchange Act of 1934, as amended ("Exchange Act"), and
Rule 12g-1 promulgated under the Exchange Act. Also in September 1997, the
Commission's staff attorney informed the Principal Officers and Hebron that the
staff intended to recommend that the Commission institute cease-and-desist
proceedings against them.
On July 15, 1998, the Company, the Principal Officers and Hebron executed an
offer of settlement in which they consented to the entry of a cease-and-desist
order contingent upon the Commission accepting the Commission's staff's
recommendation. The offers provided that the Company and the Principal Officers
would cease and desist from committing or causing any violations or future
violations of Sections 5(a) and 5(c) of the Securities Act and Section 12(g) of
the Exchange Act and Rule 12g-1. Additionally, in the Offers, Hebron consented
to the entry of a cease-and-desist order which provided that it would cease and
desist from committing or causing any violations or future violations of
Sections 5(a) and 5(c) of the Securities Act.
On July 23, 1998, the Commission approved the Commission's staff attorney's
recommendation and accepted the offers of settlement. On July 30, 1998, the
Commission issued a cease-and-desist order which stated that (a) the Company,
the Principal Officers and Hebron had violated Sections 5(a) and 5(c) of the
Securities Act; (b) the Company had violated Section 12(g) of the Exchange Act
and Rule 12g-1; and (c) the Principal Officers had caused the violation of
Section 12(g) of the Exchange Act and Rule 12g-1. The Commission ordered the
Company, the Principal Officers, and Hebron to cease and desist from committing
or causing any violations and any future violations of Sections 5(a) and 5(c) of
the Securities Act and Section 12(g) of the Exchange Act and Rule 12g-1. The
Commission did not order any monetary penalties, fines, sanctions, or
disgorgement against the Company, the Principal Officers, Hebron or anyone else
associated with the Company or any of the other parties.
The federal securities laws provide legal causes of action against the Company
by persons buying the securities from the Company including action to rescind
the sales. With respect to the sales described above, the statutes of
limitations relating to such actions appear to have expired for sales made by
the Company more than three years ago. Substantially all of the stock sales were
made by the Company more than three years ago. However, with respect to such
sales, other causes of action may exist under federal law, including causes of
action for which the statute of limitations may not have expired.
Each of the states in which the Company has effected sales of common stock has
its own securities laws, which likely have equal applicability to the Company's
activities discussed above. The Company sold stock to persons in over forty
states, and those states typically provide that a purchaser of securities in a
transaction that fails to comply with the state's securities laws can rescind
the purchase, receiving from the issuing company the purchase price paid plus an
interest factor, frequently 10% per annum from the date of sales of such
securities, less any amounts paid to such security holder. The statutes of
limitations for these rights typically do not begin running until a purchaser
discovers the violation of the law, and therefore in most instances, and
depending on individual circumstances, the statute of limitations do not appear
to limit those rights for most purchasers of securities from the Company. Also,
depending on the law of the state and individual circumstances, monetary damages
and other remedies may be granted for breach of state securities laws. As a
result, the Company has a significant contingent liability under state
securities laws as of June 30, 1999. The Company cannot predict how many of the
stockholders will attempt to exercise their right of rescission, and no
liability has been accrued at December 31, 1998 or at June 30, 1999.
F-35
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE K--COMMITMENTS AND CONTINGENCIES--Continued
Violations of Federal and State Securities Laws, Continued
In addition, the Company may be liable for rescission under state securities
laws to the purchasers of the Hebron common stock because of the relationships
of the two companies. The Company cannot predict how many of the Hebron
stockholders will exercise their right of rescission, and no liability has been
accrued at December 31, 1998 or at June 30, 1999.
Other Securities Matters
In December 1994, the Washington Department of Financial Institutions -
Securities Division ("WDS") notified the Company that it was aware that the
Company may have offered unregistered securities to residents of the State of
Washington and instructed the Company to cease and desist such offers and to
provide information with respect to any sales of such securities. In April 1997,
the WDS told the Company that it was trying to close its file on the Company and
attempted to serve a subpoena on the Company that sought various documents
relating to the Company's shareholders in Washington State. The Company
voluntarily produced documents in response to the subpoena in May 1997. The WDS
has not corresponded with the Company since May 1997.
In February 1996, the Oklahoma Department of Securities ("ODS") made an inquiry
to the Company with regard to the basis upon which the Company had offered and
sold securities and effected issuances of short-term notes under the APLP
without registration under the Oklahoma Securities Act. The Company responded to
such inquiry in February 1996 advising the ODS that neither the Company nor its
Oklahoma counsel believed that the short-term notes issued under the APLP
constituted securities, and claiming that the common stock was exempt from
registration under Section 401(b)(9)(B) of the Oklahoma Securities Act. The
Company has not had any further contact with the ODS since its response.
Commitments with Providers
During 1998, the Company purchased switching and network services under the
terms of a payment agreement and a security agreement with WorldCom. The
Company's agreements with WorldCom were on a month-to-month basis, and did not
require the Company to obtain minimum monthly revenue commitments. As described
in Note C, the Company's new agreement with WorldCom requires the Company to
maintain minimum purchase commitments. The Company is also required to maintain
minimum purchase commitments with the underlying carrier that transports the
Company's call records through the Oklahoma City and Chicago switches.
F-36
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE K--COMMITMENTS AND CONTINGENCIES--Continued
Guarantor Obligations
The Company has guaranteed the Oklahoma City switching equipment lease
obligation that was assigned to Hebron in July 1996. The total amount of the
lease obligation guaranteed by the Company as of December 31, 1998 was
approximately $700. The Company has also guaranteed the payment of monthly
rentals of the space in which the Oklahoma City switch is located. Through
December 31, 1998, the Company has not been required to make any of the required
payments pursuant to its guarantor obligations. As discussed in Note C, the
Company assumed the operations of the switching equipment and accepted
responsibility for the payment of the related lease obligations effective
February 1, 1999.
Accounts Receivable and Customer Base
During 1996 and through September 1997, one of the Billing Agents held a first
lien security interest on all customer accounts receivable, including those
accounts not billed through the Billing Agent. In October 1997, the Company
stopped using the advance payment services of the Billing Agent, and the Billing
Agent released its security interest on the Company's accounts receivable.
As discussed in Note E, Hebron, Trinity and one of the Billing Agents provided
the Company with advance funding on certain LEC billings. All of these lenders
had a first security interest on those account receivables from LECs for which
they provided funding. The Company ceased using Hebron as an accounts receivable
financing source during 1998. The accounts receivable credit facilities with
Trinity and the Billing Agent were retired in February 1999 upon closing of the
Credit Facility, and all security interests held by Trinity and the Billing
Agent were released in favor of the Credit Facility.
In September 1997, the Company entered into an agreement with a third party
("Accounts Receivable Purchaser"), whereby the Company agreed to sell its
rights, title and interest in selected accounts receivable to the Accounts
Receivable Purchaser. The Accounts Receivable Purchaser determined which of the
Company's accounts receivable it would purchase. Such accounts receivable
included those receivables from LECs with which the Company had a direct LEC
contract and which had not been financed by Hebron or Trinity. Under the terms
of the agreement, the Company was the servicer of the accounts receivable sold
to the Accounts Receivable Purchaser. The agreement provided for the Accounts
Receivable Purchaser to commit to an initial maximum purchase commitment of
$5,000. The program fees equal to 1.17% per month (14% per year) were applied to
the aggregate outstanding value of all purchased receivables.
During 1997 and 1998, the Company sold receivables with an aggregate carrying
amount of $3,950 and $37,849, respectively, to the Accounts Receivable
Purchaser. At December 31, 1997 and 1998, outstanding accounts receivable
totaling $2,435 and $4,258, respectively, had been purchased by the Accounts
Receivable Purchaser. WorldCom subordinated $5,000 of its security interest in
the Company's customer base to the Accounts Receivable Purchaser.
F-37
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE K--COMMITMENTS AND CONTINGENCIES--Continued
Accounts Receivable and Customer Base, Continued
In connection with the Company's Credit Facility described in Note C, the
Company re-acquired all outstanding receivables sold to the Accounts Receivable
Purchaser, the facility with the Accounts Receivable Purchaser was retired, and
all security interests in the Company's accounts receivable and customer base
were released in favor of the Credit Facility and WorldCom, respectively.
Non-Cancelable Operating Leases
The Company leases copiers and other equipment under agreements that are
accounted for as operating leases. These lease agreements expire in varying
years through 2000. Total lease expense was approximately $75, $30 and $75 in
1996, 1997 and 1998, respectively. Future commitments under non-cancelable
operating leases are not significant.
Long-Term Agreements with Salespersons
In 1997, the Company entered into long-term agreements with certain
salespersons. The agreements are effective for twenty-five (25) years, and
provide for a 3% commission of the net domestic phone billings, as defined in
the agreement, to be paid to the salespersons. In addition, each agreement
provides for additional commissions through recruitment efforts, death and
termination benefits, and other benefits as described in the agreements. In
exchange for the extended contract terms and death and termination benefits, the
Company received non-competition agreements, as defined in the agreements, with
each of the salespersons.
Among the persons who have entered into these long-term agreements are a
son-in-law of the Company's Chairman, who voluntarily agreed to terminate his
contract in July 1999, and a daughter of the President of Hebron.
Other Matters
The Company is party to various matters pertaining to litigation, claims and
assessments arising in the normal course of business. The Company, upon advice
from its attorneys, evaluates the likelihood of losses on pending litigation,
claims and assessments, or unasserted claims and assessments of which the
Company has knowledge. Losses are accrued if it is determined that it is
probable that the Company will incur a loss. In management's opinion, any losses
in excess of amounts accrued in the accompanying financial statements will not
be material to the financial position of the Company.
As a result of rules adopted by the Federal Communications Commission ("FCC"),
the Company has determined that it has a liability to owners of pay telephones
for certain calls made by the Company's customers from November 1996 through
October 7, 1997. The FCC has not yet determined, however, the basis upon which
amounts owed are to be determined, and the Company cannot reasonably estimate
this amount. The Company does not believe, however, that amounts ultimately
owed, if any, will be material to the Company's financial position.
F-38
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE L--FINANCIAL CONDITION AND RESULTS OF OPERATIONS
From its inception through December 31, 1998, the Company had incurred
cumulative net operating losses totaling approximately $12,057. The Company's
accumulated stockholders' deficiency increased from approximately ($22,612) at
December 31, 1997 to approximately ($25,971) at December 31, 1998. In addition
to the net operating losses, the accumulated deficit has been attributed to the
Company's declaration of returns of capital during 1994 through 1997 totaling
approximately $19,030. Furthermore, the Company's current liabilities exceeded
its current assets by approximately $20,811 and $23,590 at December 31, 1997 and
1998, respectively. These factors among others may indicate that the Company may
be unable to continue as a going concern for a reasonable period of time.
During 1998, the Company took several steps which management believes will
enable the Company to realize profitable operations, as well as improving the
Company's financial position and liquidity. These steps include:
o The Company appointed four new members to its Board of Directors to
oversee the management and operations of the Company. In addition,
the Company employed several new personnel in its management
positions. These new personnel have substantial experience and
expertise in the telecommunications industry, and will help enable
the Company to manage its operations more efficiently and
effectively.
o As discussed in Note C, the Company has been approved by a financial
institution for a $30,000 line of credit. The proceeds of this line
of credit will enable the Company to become current on its existing
obligations, repay existing loans and notes which carry a higher
interest rate, retire existing lines of credit agreements, with
additional proceeds being available for working capital purposes.
Although for financial reporting purposes the new line of credit
will be classified as a current liability, the term of the facility
is for three years and will not be due and payable unless the
Company is in default under the terms of the facility. The Company
closed on the first portion of this facility in February 1999, and
received approximately $12,600. The proceeds from this initial
funding were used to become current on past due trade and taxes
payable, as well as to retire existing accounts receivable credit
facilities. In addition, the Company received approximately $2,500
of debt from Patrick, which is subordinated in favor of the Credit
Facility. In May 1999, the Company was approved for the remaining
portion of the Credit Facility, and the restrictions on the funds
loaned by Patrick were released. Upon closing the remaining portion
of the Credit Facility, the Company believes that it will have
sufficient borrowing availability to provide for its most immediate
needs, as well as reducing its interest costs by replacing
high-yield debt with the proceeds of the Credit Facility.
F-39
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE L--FINANCIAL CONDITION AND RESULTS OF OPERATIONS--Continued
o The Company has also undertaken a comprehensive evaluation of its
internal operations, and has identified numerous areas where costs
and expenses can be significantly reduced. During the latter part of
1998, the Company achieved savings in advertising costs, costs of
billings and collections, and other general overhead costs. In
addition, as discussed in Note C, the Company began managing and
operating its telemarketing operations internally in 1999, rather
than outsourcing those services to VisionQuest. These factors have
enabled the Company to realize significant savings in operating
costs, and contributed to the Company realizing pre-tax earnings
during the six months ended June 30, 1999.
o As discussed in Note C, the Company entered into a new
telecommunications contract with WorldCom in April 1999. In
addition, as discussed in Note C, the Company acquired the assets
and assumed the obligations related to the Oklahoma City and Chicago
switches, previously owned by Hebron. The Company is assuming the
responsibility for the operation of these switches as well. The
Company has realized and expects to continue to realize significant
savings in its cost of telecommunications services.
Management believes that the above factors, will enable the Company to realize
profitable operations and reduce its deficits, improve its liquidity ratios, and
continue to meet its obligations on an ongoing basis.
NOTE M--DEFERRED COMPENSATION PLANS
From September 1997 through December 1997, and as amended in December 1998, the
Company entered into non-qualified deferred compensation agreements with certain
agent representatives. The deferred compensation plan, which is not funded,
allowed these agent representatives to defer portions of their current
compensation. The Company is paying the deferred compensation to the agent
representatives equal to the amount of their deferred compensation plus
effective rates of return ranging from 45% to 55%. The amount charged to
operations in 1997 was approximately $412. The liability for the deferred
compensation is included in accounts payable and accrued expenses, and totaled
approximately $412 and $385 at December 31, 1997 and 1998, respectively. In July
and August 1999, all but one of these obligations was repaid.
F-40
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE N--EARNINGS (LOSS) PER SHARE (per share amounts not in thousands)
The computation of basic and diluted earnings (loss) per share is as follows:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31 June 30
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Basic Earnings (Loss) Per Share
Net income (loss) $ (862) $ (341) $ (3,557) $ (1,519) $ 2,801
-------- -------- -------- -------- --------
Decrease (increase) in redemption value
of redeemable common stock (1,834) (470) 179 (141) 13
-------- -------- -------- -------- --------
Net income (loss) available to non-
redeemable common stockholders $ (2,696) $ (811) $ (3,378) $ (1,660) $ 2,814
======== ======== ======== ======== ========
Average shares of nonredeemable
common stock outstanding 711 799 801 801 801
======== ======== ======== ======== ========
Basic Earnings (Loss) Per Share $ (3.79) $ (1.01) $ (4.22) $ (2.07) $ 3.52
======== ======== ======== ======== ========
Diluted Earnings (Loss) Per Share
Net income (loss) available to non-
redeemable common stockholders $ (2,696) $ (811) $ (3,378) $ (1,660) $ 2,814
Decrease in redemption value of
redeemable common stock -- -- (179) -- (13)
-------- -------- -------- -------- --------
Net income (loss) available to non-
redeemable common stockholders
and assumed conversions $ (2,696) $ (811) $ (3,557) $ (1,660) $ 2,801
======== ======== ======== ======== ========
Average shares of nonredeemable
common stock outstanding 711 799 801 801 801
Stock warrants -- -- -- -- 1
Conversion of redeemable common stock -- -- 21 -- 16
-------- -------- -------- -------- --------
Average shares of common stock
outstanding and assumed conversions 711 799 822 801 818
======== ======== ======== ======== ========
Diluted Earnings (Loss) Per Share $ (3.79) $ (1.01) $ (4.33) $ (2.07) $ 3.42
======== ======== ======== ======== ========
</TABLE>
F-41
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE N--EARNINGS (LOSS) PER SHARE
(per share amounts not in thousands)--Continued
The average shares listed below (in thousands) were not included in the
computation of diluted earnings (loss) per share because to do so would have
been antidilutive for the periods presented:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended December 31 June
1996 1997 1998 1998 1999
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Conversion of convertible notes 4 3 3 3 3
Conversion of redeemable stock 115 23 -- 21 --
</TABLE>
Because the Company has not yet issued the shares pursuant to the stock awards,
as described in Note C, such shares have not been included in the computation of
diluted earnings per share for the six and three months ended June 30, 1999. In
addition, because the Company has not yet determined the exercise price of the
stock options, as described in Note C, the options have not been included in the
computation of diluted earnings per share for the six and three months ended
June 30, 1999.
NOTE O--QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1997 1997 1997 1997
------------- ----------- -------------- ------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $ 27,037 $ 27,975 $ 28,783 $ 29,556
Net income (loss) 171 27 (2) (537)
Basic earnings (loss)
per share 0.04 (0.11) (0.14) (0.81)
Diluted earnings (loss)
per share 0.04 (0.11) (0.14) (0.81)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31,
1998 1998 1998 1998
------------- ----------- -------------- ------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net sales $ 30,842 $ 31,810 $ 31,494 $ 30,086
Net loss (520) (999) (699) (1,339)
Basic earnings (loss)
per share (0.79) (1.28) (0.58) (1.56)
Diluted earnings (loss)
per share (0.79) (1.28) (0.85) (1.63)
</TABLE>
F-42
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued (dollars in thousands)
AMERIVISION COMMUNICATIONS, INC.
NOTE O--QUARTERLY FINANCIAL DATA (UNAUDITED)--Continued
<TABLE>
<CAPTION>
Three Months Ended
---------------------------
March 31, June 30,
1999 1999
---------- -----------
(in thousands except per share data)
<S> <C> <C>
Net sales $ 29,040 $ 28,140
Net income 16 2,801
Basic earnings per share 0.02 3.49
Diluted earnings per share 0.02 3.40
</TABLE>
F-43
<PAGE> 113
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 - Certificate of Incorporation of the Company
3.2 - Bylaws of the Company
3.3 - Secretary certificate regarding amended and restated bylaws
4.1 - Form of certificate representing shares of the Company's common
stock
4.2 - Form of Type A Redemption Agreement
4.3 - Form of Type B Redemption Agreement
4.4 - Form of Type C Redemption Agreement
4.5 - Form of Type D Redemption Agreement
4.6 - Form of Convertible Note
4.7 - Promissory Note dated April 20, 1999, payable by the Company to
C.A.S.E., Inc.
4.8 - Promissory Note dated May 1, 1999, payable by the Company to
John Damoose
10.1 - Agreement, dated as of April 13, 1998, between the Company and
Carl Thompson
10.2 - First Amendment to April 13, 1998 Agreement between Amerivision
Communications, Inc. and Carl Thompson, dated as of December 31,
1998, among the Company, Carl Thompson and Willeta Thompson
10.3 - Employment Agreement, dated as of May 24, 1999 between the
Company and Stephen D. Halliday
10.4 - Stock Agreement, dated as of May 24, 1999, among the Company,
Jay A. Sekulow and Tracy Freeny
10.5 - Stock Agreement, dated as of May 24, 1999, among the Company,
John Damoose and Tracy Freeny
10.6 - Employment Agreement, dated as of May 24, 1999, between the
Company and John E. Telling
10.7 - Employment Agreement dated as of May 24, 1999 between the Company
and Tracy Freeny
10.8 - Reaffirmation of Commitments made in Employment Agreement of
Stephen D. Halliday dated as of June 30, 1999
10.9 - Reaffirmation of Commitments made in Stock Agreement of Jay A.
Sekulow dated as of June 30, 1999
10.10 - Agreement effective January 1, 1999, between the Company and
VisionQuest
10.11 - Telemarketing Services Agreement, effective as of January 1, 1999
between the Company and VisionQuest
10.12 - Clarification to Agreement, effective as of June 9, 1999, by and
between the Company and VisionQuest
10.13 - Asset Purchase Agreement, dated as of April 30, 1999, among
Hebron, the Company, Tracy Freeny, Carl Thompson and
S. T. Patrick.
</TABLE>
<PAGE> 114
<TABLE>
<S> <C>
10.14 - Lease/License Agreement, dated as of April 30, 1999 between
Hebron and the Company.
10.15 - Form of Promissory Note payable by the Company to Hebron (form to
be used with respect to Switch Note and Internet Note)
10.16 - Promissory Note dated February 1, 1999, in the original principal
amount of $2,274,416 payable by the Company to Hebron
10.17 - Capital Stock Escrow and Disposition Agreement dated April 30,
1999 among Tracy C. Freeny, Hebron and Bush Ross Gardner Warren &
Rudy, P.A.
10.18 - Loan and Security Agreement dated as of February 4, 1999 between
the Company and Coast Business Credit
10.18.1 - Amendment Number One to Loan and Security Agreement dated as of
October 12, 1999 between the Company and Coast Business Credit
**10.19 - Telecommunications Services Agreement dated April 20, 1999 by and
between the Company and WorldCom Network Services, Inc.
**10.20 - Program Enrollment Terms dated April 20, 1999 between the Company
and WorldCom Network Services, Inc.
10.21 - Security Agreement dated April 20, 1999 by and between the
Company and WorldCom Network Services, Inc.
10.22 - Letter Agreement dated July 14, 1999 between the Company and
Tracy C. Freeny
10.23 - Employment Agreement dated December 31, 1998, between the Company
and Kerry Smith
21.1 - List of subsidiaries of the Company
23.1 - Consent of Cole & Reed, P.C.
27.1 - Financial Data Schedule
27.2 - Financial Data Schedule
</TABLE>
** Information from this agreement has been omitted because the Company has
requested confidential treatment. The information has been filed
separately with the Securities and Exchange Commission.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF INCORPORATION
(PROFIT)
TO THE SECRETARY OF STATE OF THE STATE OF OKLAHOMA:
1. The name of this corporation is:
AmeriVision Communications, Inc.
- --------------------------------------------------------------------------------
(Please refer to procedure sheet for statutory words
required to be included in the corporate name.)
2. The address of the registered office in the State of Oklahoma and the
name of the registered agent at such address are:
Rocky Lee Marshall, 1315 SW 24th, Bldg. E., Norman, Cleveland 73072
- --------------------------------------------------------------------------------
Name Number & Street Address City County Zip Code
3. The duration of the corporation is: Perpetual
------------------------------------
(Perpetual unless otherwise stated)
4. The purpose or purposes for which the corporation is formed are:
To enter into the telephone and communications business in all its
phases and to engage in any lawful act or activity for which
corporations may be organized under the General Corporations Laws of
the State of Oklahoma.
5. The aggregate number of shares which the corporation shall have
authority to issue, the designation of each class, the number of shares of each
class, and the par value of the share of each class are as follows:
NUMBER OF PAR VALUE PER SHARE
SHARES SERIES (Or, if without par value, so state)
- --------------------------- ------ --------------------------------------
Common 1,000,000 $.10 (10 cents)
-------------------- --------------------------------------
Preferred
------------------ --------------------------------------
Total No. Shares: 1,000,000 Total Authorized Capital: $100,000
---------- -------------
6. If the powers if the incorporator(s) are to terminate upon the filing
of the certificate of incorporation, the names and mailing addresses of the
persons who are to serve as directors:
NAME MAILING ADDRESS CITY STATE ZIP CODE
- ------------------ --------------------- -------------- ----- --------
- ------------------ --------------------- -------------- ----- --------
- ------------------ --------------------- -------------- ----- --------
<PAGE> 2
7. The name and mailing address of the incorporator(s):
NAME MAILING ADDRESS CITY STATE ZIP CODE
- ------------------ --------------------- -------------- ----- --------
Rocky Lee Marshall 1315 SW 24th, Bldg. E Norman OK 73072
THE UNDERSIGNED, for the purpose of forming a corporation under the
laws of the State of Oklahoma does certify that the facts herein stated are
true, and has accordingly hereunto set my hand this 4th day of March, 1991.
/s/ Rocky Lee Marshall
------------------------
Signature
------------------------
Signature
<PAGE> 1
Exhibit 3.2
BYLAWS OF
ARTICLE I
AMERIVISION COMMUNICATIONS, INC.
(AN OKLAHOMA CORPORATION)
Section 1. This Corporation shall be known as AmeriVision
Communications, Inc.
ARTICLE II
OFFICES
Section 1. Principal Office. The principal office for the transaction
of the business of the Corporation in Oklahoma is hereby fixed and located at
Norman, Oklahoma.
The Board of Directors is hereby granted full power and authority to change said
principal office from one location to another in Oklahoma. Any such change shall
be noted in the Bylaws by the Secretary, opposite this section, or this section
may be amended to state the new location.
Section 2. Other Offices. Branch or subordinate offices may at any time
be established by the Board of Directors at any place or places where the
Corporation is qualified to do business or the business of the Corporation may
require.
ARTICLE III
MEETINGS OF SHAREHOLDERS
Section 1. Place of Meetings. All annual meetings of shareholders and
all other meetings of shareholders shall be held either at the principal office
of the Corporation or at any other place within or without the State of Oklahoma
as may be designated either by the Board of Directors pursuant to authority
hereinafter granted to said Board of Directors or by the written consent of the
shareholders entitled to vote at such meeting holding at least a majority of
such shares given either before or after the meeting and filed with the
Secretary of the Corporation.
Section 2. Annual Meetings. The annual meetings of shareholders shall
be held on such date not less than sixty (60) nor more than one-hundred twenty
(120) days after the end of the Corporation=s last preceding fiscal year, as the
Board of Directors shall prescribe; provided, that if any such year the annual
meeting shall not have been held within such period, then it shall be held at
10:00 a.m. on the first Tuesday of January each year; provided, however, that
should said day fall on a legal holiday, then any such annual meeting of
shareholders shall be held at the same time and place on the next day thereafter
ensuing which is a full business day. Any such annual meeting may be held at any
other time which may be designated in a resolution by the Board of Directors or
by the written consent of shareholders entitled to vote at such meeting holding
at least a majority of such shares. At such annual meeting, directors shall be
elected, reports of the affairs of the
<PAGE> 2
Corporation shall be considered, and any other business may be transacted which
is within the powers of the shareholders to transact and which may be properly
brought before the meeting.
Written notice of shareholders= meetings shall be given to each
shareholder entitled to vote, either personally or by mail or other means of
written communication, charges prepaid, addressed to such shareholder at his
address appearing on the books of the Corporation or given by him to the
Corporation for the purpose of notice. If a shareholder gives no address, notice
shall be deemed to have been given him if sent by mail or other means of written
communication addressed to the place where the principal office of the
Corporation is situated. All such notices shall be sent to each shareholder
entitled thereto not less than ten (10) nor more than thirty (30) days before
each annual meeting.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by statute, may be called
at any time by the President, or by resolution of the Board of Directors, or by
one or more shareholder holding at least one-fourth (1/4) of the issued and
outstanding voting shares of the Corporation, or such meeting may be held at any
time without call or notice upon unanimous consent of the shareholders. Except
in special cases where other express provision is made by statute, notice of
such special meeting shall be given in the same manner and pursuant to the same
notice provisions as for annual meetings of shareholders, notices of any special
meeting, and the purpose or purposes of the meeting. Business transacted at any
special meeting of shareholders shall be limited to the purposes stated in the
notice.
Section 4. List of Shareholders Entitled to Vote. The officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
two (2) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder for any purpose germane to the meeting during ordinary business
hours for a period of at least two (2) days prior to the meeting, either at a
place within the city when the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof and may be inspected
by any stockholder who is present.
Section 5. Quorum. The holders of one-third (1/3) of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business, except as otherwise provided by statute or the
Certificate of Incorporation of the Corporation. When a quorum is present at any
meeting, a majority of the shares represented thereat and entitled to vote
thereat shall decide any question brought before such meeting. The shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum.
Section 6. Voting. At each meeting of shareholders, each shareholder
entitled to vote shall vote in person or by proxy, and he shall have one (1)
vote for each share standing registered in his name at the closing of the
transfer books for such meeting, or the record date fixed for such
2
<PAGE> 3
meeting of the Board of Directors, as the case may be, or standing registered in
his name at the time of such meeting if neither a date for the closing of the
transfer books nor a record date for such meeting has been fixed by the Board of
Directors.
Section 7. Consent of Absentees. The transaction of any meeting of
shareholders, either annual or special, however called and noticed, shall be as
valid as though transacted at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, not present in person,
or by proxy, signs a written waiver of notice, or a consent to the holding of
such meeting, or an approval of the minutes thereof. All such waivers, consents
or approvals shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 8. Action Without Meeting. Any action which, under any
provisions of the laws of the State of Oklahoma or under the provisions of the
Certificate of Incorporation or under these Bylaws may be taken at a meeting of
the shareholders, may be taken without a meeting if a record or memorandum
thereof be made in writing and signed by members having not less than the
minimum number of votes that would be necessary to authorize such action at a
meeting at which all members having a right to vote thereon were present and
voted, and such record or memorandum shall be filed with the Secretary of the
Corporation and made a part of the corporate records.
Section 9. Proxies. Any shareholder entitled to vote or execute
consents shall have the right to do so either in person or by one or more agents
authorized by proxy. The appointment of a proxy shall be in writing and signed
by the shareholder, but shall require no other attestation and shall be filed
with the Secretary of the Corporation at or prior to the meeting. The
termination of a proxy=s authority by act of the shareholder shall, subject to
the time limitation herein set forth, be ineffective until written notice of the
termination has been given to the Secretary of the Corporation. Unless otherwise
provided therein, an appointment filed with the Secretary shall have the effect
of revoking all proxy appointments of prior date.
Section 10. Fees and Compensation. Directors, and such, shall not
receive any stated salary for their services, but by resolution of the board, a
fixed sum and expenses of attendance, if any, may be allowed for attendance at
such regular or special meeting of the board, provided that nothing herein
contained shall be construed to preclude any director from serving the
Corporation in any other capacity and receiving compensation therefore.
Section 11. Action Without Meeting. Any action required or permitted to
be taken at a meeting of the Board of Directors may be taken without a meeting
if all members of the Board of Directors shall individually or collectively
consent to such action by signing a written record or memorandum thereof. Such
record or memorandum shall have the same effect as a unanimous vote of the Board
of Directors and shall be filed with the Secretary of the Corporation and made a
part of the corporate records.
Section 12. Participation in Meeting by Telephone. Any one or more
members of the Board of Directors or of any committee of the Board of Directors
may participate in a meeting of the Board of Directors or committee by means of
a conference telephone or similar communications
3
<PAGE> 4
equipment allowing all persons participating in the meeting to hear each other
at the same time. Participation by such means shall constitute presence in
person at a meeting.
ARTICLE IV
EXECUTIVE COMMITTEE
Section 1. Election. At the annual meeting, or any special meeting of
the Board of Directors, the Board of Directors may, if it deems necessary,
acting by resolution adopted by a majority of the number of directors fixed by
these Bylaws, elect from their own members an Executive Committee composed of
three or more voting members.
Section 2. Duties. The Executive Committee shall have all of the powers
of the directors in the interim between meetings of the Board of Directors,
except the power to declare dividends and to adopt, amend, or repeal the
Certificate of Incorporation or the Bylaws and where action of the Board of
Directors is required by law. It shall keep regular minutes of its proceedings
which shall be reported to the directors at their next meeting.
Section 3. Meetings. The Executive Committee shall meet at such times
as may be fixed by the Committee or on the call of the President. Notice of the
time and place of the meeting shall be given to each member of the Committee in
the manner provided for the giving of notice to members of the Board of
Directors of the time and place of special meetings of the Board of Directors,
both inclusive of Article IV that are applicable to the Executive Committee.
ARTICLE V OFFICERS
Section 1. Officers and Qualifications. The officers of the Corporation
shall be a President, a Secretary, a Treasurer, and such other officers as the
Board of Directors may deem necessary or advisable including, but not limited
to, a Chairman of the Board of Directors, an Executive Vice-President, and one
or more Vice Presidents and Assistant Secretaries. Any two offices, except the
office of the President and Secretary, may be held by the same person.
Section 2. Election. All officers of the Corporation shall be elected
annually by the Board of Directors and its meeting held immediately after the
annual meeting of shareholders.
Section 3. Term of Office. All officers shall hold office until their
successor has been duly elected and has qualified, or until removed as
hereinafter provided.
Section 4. Removal of Officers. The duties and powers of the officers
of the Corporation shall be as follows, and as shall hereafter be set by
resolution of the Board of Directors.
Section 5. Duties of Officers. The duties and powers of the officers of
the Corporation shall be as follows, and as shall hereafter be set by resolution
of the Board of Directors.
4
<PAGE> 5
Chairman of the Board of Directors. The Chairman of the Board of
Directors shall be the Chief Executive Officer of the Company. He shall
preside at all meetings of the shareholders and directors. He shall
make reports to the directors and shareholders as may be required from
time to time.
The Chairman of the Board of Directors shall have general and active
executive management of the Corporation and shall perform all such
other duties as are incident to the position of Chief Executive Officer
and such other duties as are properly assigned to him by the Board of
Directors.
The Chairman of the Board of Directors shall be an ex-officio member of
all committees of the Board of Directors.
President. The President shall be the Chief Operating Officer of the
Company. He shall make such reports to the directors and shareholders
as may be required from time to time. He shall preside at all meetings
of the shareholders and directors in the absence of the Chairman of the
Board of Directors.
The president shall have general and active management of the
operations of the Corporation. He shall perform all such other duties
as are incident to the position of the Chief Operating Officer, or as
properly assigned to him by the Board of Directors. He shall preside at
all meetings of the shareholders and directors in the absence of the
Chairman of the Board of Directors.
Vice President. In the absence of President, or in the event of his
death, inability or refusal to act, the Vice President shall perform
the duties of the President and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the President.
The Vice President shall perform such other duties as from time to time
may be assigned to him by the President or by the Board of Directors.
The Board of Directors may designate such titled as may be descriptive
of their respective functions or indicative of their relative
seniority.
Secretary. The Secretary shall keep or cause to be kept, at the
principal office of the Corporation or such other place as the Board of
Directors may order, a book of minutes of all meetings of directors and
shareholders, with the time and place of holding, whether regular or
special, and, if special, how authorized, the notice thereof given, the
names of those present at directors= meetings, the number of shares
present or represented at shareholders= meetings, and the proceedings
thereof.
The Secretary shall keep, or cause to be kept, at the principal office
of the Corporation or at the office of the Corporation=s transfer
agent, a share ledger, or a duplicate share ledger, showing the names
of the shareholders and their addresses, the number and classes of
shares held by each, the number and date of certificates issued for the
same, and the number and date of cancellation of every certificate
surrendered for cancellation.
5
<PAGE> 6
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board of Directors required by the
Bylaws or by law to be given, and he shall keep the seal of the
Corporation in safe custody. He shall also sign, with the President or
Vice President, all contracts, deeds, licenses and other instruments
when so order. He shall make such reports to the Board of Directors as
they may request and shall also prepare such reports and statements as
are required by the laws of the State of Oklahoma and shall perform
such other duties as may be prescribed by the Board of Directors by the
Bylaws.
The Secretary shall allow any shareholder, on application, during
normal business hours, to inspect the share ledger. He shall attend to
such correspondence and perform such other duties as may be incidental
to his office or as may be properly assigned to him by the Board of
Directors. The Assistant Secretary or Secretaries shall perform the
duties of the Secretary in the case of his absence or disability and
such other duties as may be specified by the Board of Directors.
Treasurer. The Treasurer shall keep and maintain, or cause to be kept
and maintained, adequate and correct amounts of the properties and
business transactions of the Corporation, including account of its
assets, liabilities, receipts, disbursements, gains, losses, capital,
surplus and shares. The books of account shall at all reasonable times
be open to inspection by any director.
The Treasurer shall deposit all monies and other valuables in the name
and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of
the Corporation as may be ordered by the Board of Directors, shall
render to the President and directors, whenever they request it, an
account of all of his transactions as Treasurer and of the financial
condition of the Corporation and shall have such other powers and
perform such other duties as may be prescribed by the Board of
Directors or the Bylaws.
The Assistant Treasurer or Treasurers shall perform the duties of the
Treasurer in the event of his absence or disability and such other
duties as the Board of Directors may determine.
Section 6. Delegation of Duties. In case of the absence or disability
of any officer of the corporation or for any other reason that the Board of
Directors may deem sufficient, the Board of Directors may, by a vote of a
majority of the whole Board of Directors delegate, for the time being, the
powers or duties, or any of them, of such officer to any other officer or to any
director.
ARTICLE VI
SHARES OF STOCK
Section 1. Capital Stock. The amount of authorized capital stock of the
Corporation shall be 1,000,000 shares, which shall consist of one class, Common,
of the par value of $.10 (ten cents) per share. All stock shall be
nonassessable.
6
<PAGE> 7
Section 2. Certificates of Stock. A certificate of certificates for
shares of the capital stock of the Corporation shall be issued to each
shareholder when any such shares are fully paid, showing the number of the
shares of the Corporation standing on the books in his name. All such
certificates shall be signed by the President or a Vice President and the
Secretary or an Assistant Secretary, or be authenticated by facsimiles of the
signatures of the President and Secretary or by a facsimile of the signature of
the President and the written signature of the Secretary or an Assistant
Secretary. Every certificate authenticated by a facsimile to a signature must be
countersigned by a transfer agent or transfer clerk. Even though an officer who
signed, or whose facsimile signature has been written, printed or stamped on, a
certificate for shares shall have ceased by death, resignation or otherwise to
be an officer of the Corporation before such certificate is delivered by the
Corporation, such certificate shall be as valid as though signed by a duly
elected, qualified and authorized officer, if it be countersigned by a transfer
agent or transfer clerk and registered by an incorporate bank or trust company
as registrar of transfer. Such certificate shall also be numbered and sealed
with the seal of the Corporation. Such seal may be a facsimile, engraved or
imprinted.
Section 3. Record of Shareholders; Transfer of Shares. There shall be
kept at the registered office of the Corporation a record containing the names
and addresses of all shareholders of the Corporation, the number and class of
shares held by each and the dates when they respectively became the owners of
record thereof; provided, however, that the foregoing shall not be required if
the Corporation shall keep at its registered office a statement containing the
name and post office address, including street number, if any, of the custodian
of such record. Duplicate lists may be kept in such other state or states as
may, from time to time, be determined by the Board of Directors. Transfers of
stock of the Corporation shall be made on the books of the Corporation only upon
authorization by the registered holder thereof or by his attorney lawfully
constituted in writing and on surrender and cancellation of a certificate or
certificates for a like number of shares of the same class properly endorsed or
accompanied by a duly executed proof of authenticity of the signatures as the
Corporation or its transfer agents may reasonably require.
Section 4. Registered Shareholders. The Corporation shall be entitled
to recognize the holder of record of any share or shares of stock as the
exclusive owner thereof for all purposes, and, accordingly, shall not be bound
to recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
Section 5. Lost Certificates. Except as hereinafter in this section
provided, no new certificate for shares shall be issued in lieu of an old one
unless the latter is surrendered and canceled at the same time. The Board of
Directors may, however, in case any certificate for shares is lost, stolen,
mutilated or destroyed, authorize the issuance of a new certificate in lieu
thereof, upon such terms and conditions including indemnification of the
Corporation reasonably satisfactory to it, as the Board of Directors shall
determine.
Section 6. Regulations; Appointment of Transfer Agents and Registrars.
The Board of Directors may make such rules and regulations as it may deem
expedient concerning the issuance, transfer and registration of certificates for
shares of stock. It may appoint one or more transfer agents
7
<PAGE> 8
or registrars of transfers, or both, and may require all certificates of stock
to bear the signature of either or both.
Section 7. Treasury Shares. Treasury shares, or other shares not at the
time issued and outstanding, shall not, directly or indirectly, be voted at any
meeting of the shareholders, or counted in calculating the actual voting power
of shareholders at any given time.
Section 8. Securities. Any security of the Corporation, which is issued
to any person without an effective registration under the Securities Act of
1933, as amended, or the Blue Sky Laws of any state having jurisdiction, shall
no be transferable, or be the subject of any offer, sale, pledge, assign or
transfer until the Corporation has been furnished with the opinion of owner=s
counsel satisfactory to counsel for the Corporation that such offer, sale,
pledge, assign or transfer does not involve a violation of the Securities Act of
1933, as amended, or the applicable Blue Sky Laws of any state having
jurisdiction. The certificate representing the securities shall bear
substantially the following legend:
"The securities represented by this certificate are not registered
under the Securities Act of 1933, as amended (the "Act"), or the Blue
Sky Laws of any state, and these shares may not be offered, sold,
transferred, pledged or assigned in the absence of any effective
registration under the "Act" or an opinion of owner=s counsel
satisfactory to counsel for the issuer that such offer, sale, transfer,
assign, or pledge does not involve a violation of the Securities Act of
1933, as amended, or the Blue Sky Laws of any state having
jurisdiction."
Section 9. Fractional Shares. The Corporation shall not be required to
issue certificates representing any fraction or fractions of a share or shares
of any class, but may issue in lieu thereof, one or more script certificates in
such form or forms as shall be approved by the Board of Directors, each
representing a fractional interest in respect to one share. Such script
certificates, upon presentation together with similar script certificates
representing in the aggregate an interest in respect of one or more full shares,
shall entitle the holder thereof to receive one or more full shares of the class
and series, if any, specified in such script certificate.
Unless otherwise provided by the terms of the script certificate, each
script certificate shall entitle the holder thereof to receive dividends, to
participate in the distribution of corporate assets in the event of the
Corporation=s liquidation, and to vote the fractional shares in person or by
proxy.
Section 10. Legends. The following Legend shall be printed or typed
conspicuously upon all of the share certificates issued by the Corporation:
"Transfer of the shares represented by this Certificate is restricted
pursuant to Article VI, Section 11, of the Bylaws of the Corporation."
Section 11. Share Transfer Restrictions. Any shareholder desiring to
sell any of the shares of the Corporation shall be subject to the following
limitations.
8
<PAGE> 9
(a) Such shareholder shall give written notice by registered mail
to the Secretary of the Corporation of his/her intention to
sell such shares. Said notice shall specify the number of
shares to be sold, the price per share, name of the person
desiring to purchase, and the terms upon which the sale is to
be made;
(b) The Secretary of the Corporation shall, within five (5) days
thereafter, give written notice to each of the major capital
shareholders (Tracy Freeny, Aubrey Price, and Carl Thompson)
and any future shareholder who owns 11,000, or more, shares of
stock, giving those persons written notice stating the number
of shares offered for sale, the price per share, and the terms
upon which the sale is being made. Such notice shall be sent
to mail, addressed to each major capital shareholder, at his
last address as it appears on the books of the Corporation.
Within fifteen (15) days after the mailing of such notices,
any major capital shareholder desiring to purchase all or part
of such shares shall deliver by mail or otherwise, to the
Secretary of the Corporation, a written offer for the number
of shares desired by him, accompanied by the purchase price
therefore with authorization to pay such purchase price
against delivery of such shares;
(c) If the shareholders offer to purchase more than the total
number of shares available for purchase by them, then the
shareholders offering to purchase shall be entitled to
purchase such proportion of said shares as the number of
shares of the Corporation which he holds bears the total
number of shares held by all stockholders offering to
purchase. In the event that the proportion of said shares to
which a shareholder should be entitled to purchase is more
than the number of shares he desires to purchase, each
remaining share holder desiring to purchase additional shares
shall be entitled to purchase such proportion of the over-plus
as the number of shares which he holds bears to the total
number of shares held by all shareholders desiring to
participate;
(d) If none, or only a part of the shares offered for sale, are
purchased by the major capital shareholders, then such shares
shall be offered to the Corporation. In the event the
Corporation should fail to purchase all or a part of such
shares within a twenty (20) days= period, then the shareholder
who offered the same for sale shall have thereafter the right
to sell said shares not so purchased to such person specified
in the notice;
(e) In the event that the shareholders who offered the shares for
sale should be permitted to sell the same, this right shall
extend for a period of one (1) month following the last date
any other shareholders could have made an offer to purchase
such shares;
(f) Additional Shares.
(1) That in the event additional shares are made available,
all present owners of shares shall have the option to buy
shares equal to that required to maintain his percentage of
ownership in the Corporation;
9
<PAGE> 10
(2) It is recognized that AmeriVision Communications, Inc. is
a "C" Corporation, having duly filed an election for
Subchapter C status with the Internal Revenue Service under
the provisions of Section 1362 of the Internal Revenue Code,
and that said designation is important to the present
shareholders. It is therefore agreed that no present
shareholder will dispose of his stock by gift, sale, or
otherwise, to any present or new shareholders in a manner that
might put in jeopardy the "C" corporation designation.
Agreements made between Major Capital Shareholders are not subject to
the share transfer restrictions enumerated in this Section 11.
Section 12. Closing of Transfer Books. The Board of Directors may close
the Transfer Books at any time, at their discretion, for a period not exceeding
thirty (30) days preceding any meeting, annual or special, of the shareholders,
or a day appointed for the payment of a dividend.
ARTICLE VII
DIVIDENDS
Section 1. Dividends. Dividends on the capital stock of the Corporation
may be paid only from profits and shall be fixed by the Board of Directors of
the Corporation at the annual meeting or at any special meeting provided,
however, that before payment of any dividend, or making any distribution of
profits, there may be set out of the surplus or net profits of the Corporation,
such sum or sums as the directors, from time to time, in their absolute
discretion, deem proper as a reserve to meet the contingencies for equalizing
dividends, for repairing or maintaining any property of the Corporation, or for
such purpose as the Directors shall deem conducive to the interests of the
Corporation.
ARTICLE VIII
MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of the Corporation shall be
determined by the Board of Directors, unless otherwise determined by the Board
of Directors.
Section 2. Seal. The corporate seal shall be a devise containing the
name of the Corporation, the year, and the words "Corporate Seal, Oklahoma."
Section 3. Annual Report. The Board of Directors shall not be required
to send an annual report to the shareholders of this Corporation.
Section 4. Inspection of Corporation Records. The share ledger or
duplicate share ledger, the books of account, copy of the bylaws, as amended,
certified by the Secretary, and minutes of proceedings of the shareholders and
directors and of the Executive and other committees of the directors shall be
open to inspection upon the written demand of any shareholder or holder or as
the
10
<PAGE> 11
holder of a voting trust certificate and shall be exhibited at any time when
required by the demand of ten percent (10%) of the share represented at any
shareholders= meeting. Such inspection may be made in person or by an agent or
attorney and shall include the right to make extracts. Demand of inspection,
other than at a shareholders= meeting, shall be made in writing upon the
President, Secretary, or Assistant Secretary of the Corporation.
ARTICLE IX
NOTICES
Section 1. Form of Notices. Whenever, under the provisions of these
Bylaws, notice is required to be given to any director, officer or shareholder,
it shall not be construed to mean personal notice, but such notice may be given
in writing, by mail, by depositing the same in the United States Mail in a
postpaid, sealed wrapper, addressed to such director, officer or shareholder at
such address as appears on the books of the Corporation, or, in default of other
address, to such director, officer or shareholder at the general post office in
the city where the Corporation=s principal office for the transaction of
business is located, and such notice shall be deemed to be given at the time
when the same shall be thus mailed.
Section 2. Waiver of Notice. Any shareholder, director or officer may
waive any notice required to be given under these Bylaws by a written waiver
signed by the person, or persons, entitled to such, whether before or after the
time stated therein, and such waiver shall be deemed equivalent to the actual
giving of such notice.
ARTICLE X
AMENDMENTS
Section 1. Who May Amend. The Board of Directors is expressly
authorized, without the assent of the vote of the shareholders, to make, amend,
alter or rescind the Bylaws of the Corporation by the affirmative vote of
two-thirds (2/3) of the Board of Directors. These Bylaws may also be amended by
a majority vote of the shareholders at any annual or special meeting of the
shareholders.
ARTICLE XI
INDEMNIFICATION
Section 1. Indemnification of Officers, Directors, Employees and Agents
of the Corporation. The Corporation shall indemnify its officers, directors,
employees, and agents to the extent permitted by the Oklahoma General
Corporation.
11
<PAGE> 12
Section 2. Nonexclusive Indemnification. The indemnification provided
by this Article XI shall not be deemed exclusive of any other rights to which
those seeking indemnification may be entitled under any agreement, vote of
shareholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 3. Insurance. The Corporation shall have power to purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of another Corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power to indemnify him against such liability under
the provisions of this Article XI.
Section 4. Constituent Corporation. For the purpose of this Article,
references to "the Corporation" include all constituent corporations absorbed in
a consolidation or merger as well as the resulting or surviving corporation so
that any person who is or was a director, officer, employee or agent of such a
constituent or is or was serving at the request of such constituent corporation
as a director, officer, employee, or agent of another corporation, partnership,
joint venture, trust or other enterprise shall stand in the same position under
the provisions of this Article XI with respect to the resulting or surviving
corporation as he would if he had served the resulting or surviving corporation
in the same capacity.
12
<PAGE> 13
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting Secretary of AmeriVision
Communications, Inc. an Oklahoma Corporation.
2. That the foregoing Bylaws comprising of 17 pages constitute
the Bylaws of said Corporation as duly adopted by the Board of
Directors thereof on the 1st day of May, 1991.
IN WITNESS WHEREOF, I have hereunto subscribed my name and
affixed the seal of said Corporation on the 1st day of May,
1991.
/s/ CARL THOMPSON
------------------------------------
Carl Thompson
Secretary
13
<PAGE> 1
EXHIBIT 3.3
CERTIFICATE
OF THE
FORMER SECRETARY OF
AMERIVISION COMMUNICATIONS, INC.
------------------------------------------
The undersigned, Carl Thompson, being the former Secretary of
AmeriVision Communications, Inc., an Oklahoma corporation (the "Company") hereby
certifies the following:
A. He is the former duly authorized Secretary of the Company and
served in such capacity on May 1, 1991;
B. The Bylaws of the Company were duly adopted by the Board of
Directors of the Company (the "Board") on May 1, 1991;
C. The Bylaws of the Company contain an inadvertent omission
regarding the procedures and other matters applicable to the
Board;
D. It was the intention of the Board to include the text attached
hereto as Exhibit A immediately after Article III, Section 9
of the Bylaws.
Dated as of this 28th day of September, 1999
/s/ Carl Thompson
------------------------------
Carl Thompson
<PAGE> 2
EXHIBIT A
ARTICLE III-A
MEETINGS OF BOARD OF DIRECTORS
Section 1. Number, Election and Term of Office. The number of directors
of the corporation shall fixed from time to time by the Board of Directors. In
the absence of any other action by the Board of Directors, the number of
directors shall be two. Directors will be elected at the annual meeting of the
shareholders, or at a special shareholders meeting called for purposes including
the election of directors. Each director, except in case of death, resignation,
retirement, disqualification or removal, will serve until the next meeting at
which directors are elected and thereafter until his successor has been elected
and has qualified.
Section 2. Place of Meetings. The annual meeting of the Board of
Directors shall be held immediately following the annual shareholders meeting.
All annual meetings of Board of Directors and all other meetings of Board of
Directors shall be held at the principal office of the corporation or at any
other place within or without the State of Oklahoma as may be designated by the
Board of Directors or by the person duly authorized to convene such meeting.
Section 3. Special Meetings. Special meetings of the Board of Directors
for any purpose or purposes, unless otherwise prescribed by statute, may be
called at any time by the President, or by a request of the majority of the
Board of Directors, or such meeting may be held at any time without call or
notice upon unanimous consent of the directors. Except in special cases where
other express provision is made by statute, notice of such special meetings
shall be given in such manner as is calculated to provide to all directors at
least 24 hours notice of such meeting for annual meetings of shareholders.
Notices of any special meeting shall include the purpose or purposes of the
meeting. Business transacted at any special meeting of the Board of Directors
shall be limited to the purposes stated in the notice except upon the unanimous
consent of the directors.
Section 4. Quorum. The presence of a majority of the Board of Directors
shall constitute a quorum at all meetings of the Board of Directors for the
transaction of business, except as otherwise provided by statute or the
Certificate of Incorporation of the corporation. When a quorum is present at any
meeting, a majority of the directors entitled to vote shall decide any question
brought before such meeting.
Section 5. Voting. At each meeting of the Board of Directors, each
director entitled to vote shall have one (1) vote.
Section 6. General Powers of Directors. The business and affairs of the
corporation shall be managed by the Board of Directors. In addition to the
powers and authority expressly conferred upon it by these Bylaws, the Board of
Directors may exercise all such powers of the corporation and do all such lawful
acts and things as are not by law, by any legal agreement
- 2 -
<PAGE> 3
among stockholders, by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 7. Specific Powers of Directors. Without prejudice to such
general powers, it is hereby expressly declared that the directors shall have
the following powers, to-wit:
(1) To adopt and alter a common seal of the corporation.
(2) To make and change regulations, not inconsistent with these Bylaws,
for the management of the corporation's business and affairs.
(3) To purchase or otherwise acquire and to sell and otherwise dispose
of for the corporation any property, rights, or privileges which the corporation
is authorized to acquire or dispose of.
(4) To pay for the property purchased for the corporation and to accept
payment for any property sold by the corporation either wholly or in partly in
money, stock, bonds, debentures, or other securities of the corporation.
(5) To borrow money and to make and issue notes, bonds, and other
negotiable and transferable instruments, mortgages, deeds of trust, and trust
agreements, and to do every act and thing necessary to effectuate the same.
(6) To remove any officer for cause or summarily without cause, and in
their discretion from time to time, to devolve the powers and duties of any
officer upon any other person for the time being.
(7) To appoint and remove or suspend such subordinate officers, agents
or factors as they may deem necessary and to determine their duties and fix, and
from time to time change, their salaries or remuneration, and to require
security as and when they think fit.
(8) To confer upon any officer of the Corporation the power to appoint,
remove and suspend subordinate officers, agents and factors.
(9) To determine who shall be authorized on the Corporation's behalf to
make and sign bills, notes, acceptances, endorsements, checks, releases,
receipts, contracts and other instruments.
(10) To determine who shall be entitled to vote in the name and behalf
of the corporation upon, or to assign and transfer, any shares of stock, bonds,
or other securities of other corporations held by this corporation.
(11) To delegate any of the powers of the Board in relation to the
ordinary business of the corporation to any standing or special committee, or to
any officer or agent (with power to sub-delegate), upon such terms as they think
fit.
- 3 -
<PAGE> 4
(12) To call special meetings of the stockholders for any purpose or
purposes.
2. Sections 10-12 of Article III shall be redesignated Sections 8
through 10, respectively, of Article III-A.
- 4 -
<PAGE> 1
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF OKLAHOMA
Number Shares
AMERIVISION COMMUNICATIONS, INC.
( AN OKLAHOMA CORPORATION )
THESE SHARES OF STOCK ARE RESTRICTED
( SEE REVERSE SIDE )
This certifies that __________________________________________________is the
owner of _____________________________________________________shares of the
Capital Stock of
______________________________________________________________________________
transferable only on the books of the Corporation by the holder hereof in person
by Attorney upon surrender of this Certificate properly endorsed.
IN WITNESS WHEREOF, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed
this day of A.D.
--------- -------- -----
--------------------------- --------------------------
SECRETARY PRESIDENT
Corporate Seal
SHARES---$0.10---EACH
<PAGE> 2
RESTRICTIONS:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE NOT REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR THE BLUE SKY LAWS OF ANY
STATE, AND THESE SHARES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR
ASSIGNED IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER THE ACT OR AN
OPINION OF OWNER'S COUNSEL SATISFACTORY TO COUNSEL FOR THE ISSUER THAT SUCH
OFFER, SALE, TRANSFER, ASSIGNMENT, OR PLEDGE DOES NOT INVOLVE A VIOLATION OF THE
ACT OR THE BLUE SKY LAWS OF ANY STATE HAVING JURISDICTION. TRANSFER OF THE
SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED PURSUANT TO ARTICLE VI,
SECTION 11, OF THE BYLAWS OF THE ISSUER. THE ISSUER WILL FURNISH A COPY OF SUCH
BYLAWS TO THE HOLDER HEREOF, WITHOUT CHARGE, UPON WRITTEN REQUEST TO THE ISSUER
AT ITS PRINCIPAL PLACE OF BUSINESS OR SUCH OTHER PLACE AS THE ISSUER MAY
DESIGNATE.
For Value Received,_______hereby sell, assign and
transfer unto_______________________________________________
______________________________________________Shares of the
Capital Stock represented by the within Certificate and do
hereby irrevocably constitute and appoint__________________
Attorney to transfer the said Stock on the books of the
within named Corporation with full power of substitution in
the premises.
Dated__________________
In presence of______________________________
NOTICE. THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE,
IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR
ANY CHANGE WHATEVER.
<PAGE> 1
EXHIBIT 4.2
BUY-OUT OPTION
This buy-out option is between ___________________ and AmeriVision
Communications, Inc.
_________________ is a purchaser of ______ shares of common stock at a purchase
price of ___________ per share on ________________.
AmeriVision Communications, Inc. will buy back the stock purchased by the above
shareholder in the following manner.
1) Investors owning AmeriVision stock for a minimum of six months
to one year will receive 12% interest on their investment.
2) Investors owning AmeriVision stock for one year to 18 months
will receive 15% interest on their investment.
3) Investors owning AmeriVision stock for 18 months to 24 months
will receive 18% interest on their investment.
Interest will be figured on an annual interest rate. Example: 12% interest on
$1,000.00 for 6 months equals $60.00.
- --------------------------------
Date
- -------------------------------- ----------------------------------
Witness Tracy Freeny, President
AmeriVision Communications, Inc.
- -------------------------------- ----------------------------------
Witness , Stockholder
<PAGE> 1
EXHIBIT 4.3
BUY-OUT OPTION
This buy-out option is between______________________ Amerivision Communications,
Inc.
____________________ is a purchaser of ________ shares of common stock at a
purchase price of ______________ per share on ______________________.
AmeriVision Communications, Inc. will buy back the stock purchased by the above
shareholder in the following manner:
1) AmeriVision stock held for one year to 18 months will receive a
15% return.
2) AmeriVision stock held for 18 months to 24 months will receive a
18% return.
- ------------------------------------ ----------------------------------
Date Tracy Freeny, President
AmeriVision Communications, Inc.
- ------------------------------------ ----------------------------------
Witness , Stockholder
- ------------------------------------ ----------------------------------
Witness , Stockholder
INTEREST IS FIGURED ON AN ANNUAL PERCENTAGE RATE. THIS
BUY BACK AGREEMENT IS AT THE OPTION OF THE STOCKHOLDER.
<PAGE> 1
EXHIBIT 4.4
BUY-OUT OPTION
This buy-out option is between _______________________ and Amerivision
Communications, Inc.
__________________ is a purchaser of ___________ shares of common stock at a
purchase price of ____________ per share on ________________________.
AmeriVision Communications, Inc. will buy back the stock purchased by the above
shareholder in the following manner:
1) AmeriVision stock held for a minimum of six months to one year
will receive a 12% return.
2) AmeriVision stock held from one year to 18 months will receive a
15% return.
3) AmeriVision stock held for 18 months to 24 months will receive a
18% return.
Any stock held for 24 months minimum will be bought back by AmeriVision at the
last highest price it was sold to an investor.
- ------------------------------ -----------------------------------
Date Tracy Freeny, President
AmeriVision Communications, Inc.
- ------------------------------ -----------------------------------
Witness
<PAGE> 1
EXHIBIT 4.5
BUY-OUT OPTION
This buy-out option is between _________________________ and AmeriVision
Communications, Inc.
__________________________ is a purchaser of shares of common stock at
a purchase price of ___________ per share on _____________________.
AmeriVision Communications, Inc. will buy back the stock purchased by the above
shareholder in the following manner.
1) AmeriVision stock held less than one year will receive 10%
return.
2) AmeriVision stock held from one year to 18 months will receive a
15% return.
3) AmeriVision stock held for 18 months to 36 months will receive an
18% return.
4) AmeriVision stock held for over 36 months will receive 90% of the
market established by AmeriVision management. (Accounts on line
producing revenue times $200 divided by number of shares
outstanding times 90%)
- ------------------------------- -----------------------------------
Date Tracy Freeny, President
AmeriVision Communications, Inc.
- ------------------------------- -----------------------------------
Witness ,Stockholder
Interest is figured on an annual percentage rate. This buy-back agreement is at
the option of the stockholder.
<PAGE> 1
LOAN/STOCK PURCHASE AGREEMENT EXHIBIT 4.6
This Agreement is between ____________________ and ___________________.
Amerivision Communications, Inc. has received $_________ from
__________________. This $__________ is a loan to Amerivision Communications,
Inc. until such time as new stock is available. Amerivision Communications, Inc.
agrees to pay 10% interest on the funds until the funds are converted to stock.
___________________________ agrees to transfer the funds to stock at
$_______ per share when new stock is available.
This Agreement is dated _____________________.
- --------------------------------
Witness By:
-----------------------------------
Name:
-----------------------------------
Title:
-----------------------------------
AMERIVISION COMMUNICATIONS, INC.
<PAGE> 1
EXHIBIT 4.7
PROMISSORY NOTE
$850,000.00 Oklahoma City, Oklahoma
April 20, 1999
FOR VALUE RECEIVED, AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation ("Borrower") hereby promises to pay to the order of C.A.S.E., a
California corporation ("Lender"), on the Maturity Date the principal sum of
Eight Hundred Fifty Thousand and No Cents ($850,000.00), together with interest
payable as set forth herein.
Commencing on the date first set forth above, (10%) interest shall
accrue on the unpaid principal amount hereunder at a rate of ten percent (10%)
per annum. Payments of interest shall be made in equal monthly installments of
Seven Thousand Eighty Three Dollars and Thirty Three Cents ($7,083.33)
commencing May 20 and all unpaid principal and any accrued and unpaid interest
under this Note shall be due and payable in full on April 19, 2004 (the
"Maturity Date").
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the office of Lender located at 1000 Hurricane Shoals Road, Bldg. D, Suite 1100,
Lawrenceville, Georgia 30043 or at such other place as Lender may designate from
time to time in writing.
Borrower and all other persons liable on this Note hereby waive
presentment for payment, demand, notice of dishonor, protest, notice of protest
and all other demands and notices in connection with the delivery, performance
and enforcement of this Note.
Lender hereby subordinates payment by the Borrower of any and all
indebtedness, liabilities, guarantees and other obligations of the Borrower to
Lender, now existing or hereafter arising (collectively, the "Subordinated
Debt"), to the payment to one or more senior secured lenders to Borrower
designated from time to time by Borrower in writing (each a "Senior Lender"), of
all indebtedness, liabilities, guarantees and other obligations of the Borrower
to the Senior Lenders, now existing or hereafter arising (including without
limitation any interest, charges and other sums accruing after the filing of a
petition by or against Borrower under the Bankruptcy Code) (the "Senior Debt").
Lender agrees not to ask for, demand, sue for, take or receive all or
any part of the Subordinated Debt nor any security therefor, unless and until
all of the Senior Debt has been paid and performed in full; provided that, so
long as no event of default and no event which, with notice or passage of time
or both, would constitute an event of default under any document, instrument or
agreement evidencing, securing or relating to the Senior Debt, both before and
after giving effect to the following payments, has occurred, Subordinated
Creditor may accept payment of the Subordinated Debt.
<PAGE> 2
This Note is being delivered in, is intended to be performed in, shall
be construed and enforceable in accordance with, and be governed by the internal
laws of, the State of Oklahoma without regard to principles of conflict of laws.
The state and federal courts in Oklahoma City, Oklahoma shall have exclusive
jurisdiction over all matters arising out of this Note, and service of process
in any such proceeding shall be effective if mailed to Borrower at its address
set forth above. BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY
MATTERS ARISING OUT OF THIS NOTE. If this Note is referred to any attorney for
collection, and the payment is obtained without the entry of judgment, the
obligors shall pay to the holder of this Note its attorneys' fees.
The right and remedies of Lender provided for hereunder are cumulative
with the rights and remedies of Lender available under any other instruments or
agreement or under applicable law. The principal amount of this Note shall
continue to be effective or be reinstated, as the case may be, if at any time
any amount received by Lender in respect of this Note is rescinded or must
otherwise be restored or returned by Lender including without limitation upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or upon the appointment of any intervenor or conservator of, or trustee
or similar official for Borrower or any substantial part of its properties, or
otherwise, all as though such payments had not been made.
The Promissory Note described herein shall replace in the entirety any
obligation owing by Borrower to Lender arising from the Promissory Note between
Borrower and Lender dated January 15, 1999. This note shall also be subject to
the attached Addendum.
IN WITNESS WHEREOF, Borrower has duly executed and delivered this
Promissory Note as of the date first set forth above.
AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
----------------------------------
Name: Stephen D. Halliday
Title: President/CEO
2
<PAGE> 3
ADDENDUM TO PROMISSORY NOTE
Dated April 20, 1999
Borrower: AmeriVision Communications, Inc.
("AmeriVision")
Lender: C.A.S.E., Regency Productions, Inc., or
assigns
Facility: Subordinated Convertible Promissory Note
("Note"). This Note will be subordinated to
Coast Business Credit.
Loan Amount: The loan is $850,000.00 of which
$588,183.41 is funded as of April 20, 1999.
The initial advance will be $261,816.59
which will increase the aggregate loan to
$850,000.00. An additional $150,000.00 may
be advanced by Lender on the same terms and
conditions at Lender's option within 60 days
(i.e., on or before June 20, 1999).
Repayment and Conversion: On or before April 19, 2004 Lender shall
have the option to convert the Note to
common stock at the lower of fair market
value without discount for marketability
(determined by appraisal) of the stock on
January 1, 1998 (approximate date of
original loan from C.A.S.E. to AmeriVision)
or the lowest publicly traded value of the
stock (on an equivalent diluted basis)
within three months of trading on a stock
exchange. Lender can at its election extend
the Note on the same terms and conditions
including convertibility for up to five
additional years. Borrower can call the Note
at a 10% premium to its then appraised value
(including conversion value) on or before
April 19, 2003.
Warrants: Borrower shall issue at the time of
AmeriVision's reorganization (but no later
than March 31, 2000) to Lender detachable
warrants to purchase 3,400 shares of
Borrower's common stock (increased to 4,000
shares if the additional $150,000 is
advanced by Lender) at a strike price equal
to $0.01 per share.
3
<PAGE> 4
Other: Lender's conversion and warrant position
shall be governed by standard anti-dilution
terms. Loan proceeds of $261,816.59 will be
used comply with Coast loan requirements
with the exception of approximately $100,000
for telemarketing equipment and other
purposes. Borrower will provide Lender with
any requested information on Borrower's
financial states. Borrower will notify
Lender on default of any Coast covenant or
condition.
By: /s/ Stephen D. Halliday
---------------------------------
Stephen D. Halliday
President/CEO
4
<PAGE> 1
EXHIBIT 4.8
PROMISSORY NOTE
$100,000.00 Oklahoma City, Oklahoma
May 1, 1999
FOR VALUE RECEIVED, AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation ("Borrower") hereby promises to pay to the order of John Damoose, an
individual ("Lender"), on the Maturity Date the principal sum of One Hundred
Thousand Dollars and No Cents ($100,000.00), together with interest payable as
set forth herein.
Commencing on the date first set forth above, (10%) interest shall
accrue on the unpaid principal amount hereunder at a rate of ten percent (10%)
per annum. Payments of interest shall be made in equal monthly installments of
Eight Hundred Thirty Three Dollars and Thirty Three Cents ($833.33) commencing
June 1 and all unpaid principal and any accrued and unpaid interest under this
Note shall be due and payable in full on April 30, 2001 (the "Maturity Date").
All payments of principal and interest under this Note shall be made in
lawful money of the United States of America in immediately available funds at
the office of Lender located at 11871 Snowfield Court, Traverse City, Michigan
49686 or such other place as Lender may designate from time to time in writing.
Borrower and all other persons liable on this Note hereby waive
presentment for payment, demand, notice of dishonor, protest, notice of protest
and all other demands and notices in connection with the delivery, performance
and enforcement of this Note.
Lender hereby subordinates payment by the Borrower of any and all
indebtedness, liabilities, guarantees and other obligations of the Borrower to
Lender, now existing or hereafter arising (collectively, the "Subordinated
Debt"), to the payment to one or more senior secured lenders to Borrower
designated from time to time by Borrower in writing (each a "Senior Lender"), of
all indebtedness, liabilities, guarantees and other obligations of the Borrower
to the Senior Lenders, now existing or hereafter arising (including without
limitation any interest, charges and other sums accruing after the filing of a
petition by or against Borrower under the Bankruptcy Code) (the "Senior Debt").
Lender agrees not to ask for, demand, sue for, take or receive all or
any part of the Subordinated Debt nor any security therefor, unless and until
all of the Senior Debt has been paid and performed in full; provided that, so
long as no event of default and no event which, with notice or passage of time
or both, would constitute an event of default under any document, instrument or
agreement evidencing, securing or relating to the Senior Debt, both before and
after giving effect to the following payments, has occurred, Subordinated
Creditor may accept payment of the Subordinated Debt.
<PAGE> 2
This Note is being delivered in, is intended to be performed in, shall
be construed and enforceable in accordance with, and be governed by the internal
laws of, the State of Oklahoma without regard to principles of conflict of laws.
The state and federal courts in Oklahoma City, Oklahoma shall have exclusive
jurisdiction over all matters arising out of this Note, and service of process
in any such proceeding shall be effective if mailed to Borrower at its address
set forth above. BORROWER HEREBY WAIVES THE RIGHT TO TRIAL BY JURY OF ANY
MATTERS ARISING OUT OF THIS NOTE. If this Note is referred to any attorney for
collection, and the payment is obtained without the entry of judgment, the
obligors shall pay to the holder of this Note its attorneys' fees.
The right and remedies of Lender provided for hereunder are cumulative
with the rights and remedies of Lender available under any other instruments or
agreement or under applicable law. The principal amount of this Note shall
continue to be effective or be reinstated, as the case may be, if at any time
any amount received by Lender in respect of this Note is rescinded or must
otherwise be restored or returned by Lender including without limitation upon
the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or upon the appointment of any intervenor or conservator of, or trustee
or similar official for Borrower or any substantial part of its properties, or
otherwise, all as though such payments had not been made.
The Promissory Note described herein shall replace in the entirety any
obligation owing by Borrower to Lender arising from the Promissory Note between
Borrower and Lender dated June 2, 1998. This note shall also be subject to the
attached Addendum.
IN WITNESS WHEREOF, Borrower has duly executed and delivered this
Promissory Note as of the date first set forth above.
AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
---------------------------------------
Name: Stephen D. Halliday
Title: President/CEO
2
<PAGE> 3
ADDENDUM TO PROMISSORY NOTE
Dated May 1, 1999
Borrower: AmeriVision Communications, Inc.
("AmeriVision")
Lender: John Damoose
Facility: Subordinated Convertible Promissory Note
("Note"). This Note will be subordinated to
Coast Business Credit.
Loan Amount: $100,000.00
Repayment and Conversion: On or before April 30, 2001 Lender shall
have the option to convert the Note to
common stock at the lower of fair market
value without discount for marketability
(determined by appraisal) of the stock on
June 2, 1998 or the lowest publicly traded
value of the stock (on an equivalent diluted
basis) within three months of trading on a
stock exchange. Lender can at its election
extend the Note on the same terms and
conditions including convertibility for up
to three additional years. If extended,
Borrower can call the Note at a 10% premium
to its then appraised value (including
conversion value) on or before April 19,
2003.
Warrants: Borrower shall issue at the time of
AmeriVision's reorganization (but no later
than March 31, 2000) to Lender detachable
warrants to purchase 400 shares of
Borrower's common stock at a strike price
equal to $0.01 per share.
Other: Lender's conversion and warrant position
shall be governed by standard anti-dilution
terms. Borrower will provide Lender with any
requested information on Borrower's
financial states. Borrower will notify
Lender on default of any Coast covenant or
condition.
By: /s/ Stephen D. Halliday
---------------------------------
Name: Stephen D. Halliday
Title: President/CEO
3
<PAGE> 1
Exhibit 10.1
AGREEMENT
Agreement between AmeriVision Communications, Inc. ("Company") and
Carl Thompson ("Thompson") dated the 13th day of April, 1998 as follows:
follows:
1. Thompson resigns effective this date as an officer, director,
and employee of Company. Thompson and Company agree to handle
this separation in a professional and courteous manner.
2. Company will pay outstanding notes payable due Thompson in
full on the current payment schedule.
3. Company will pay Thompson $60,000 per month starting on April
13, 1998 and each 30 days thereafter. This payment of $60,000
includes $40,000 per month as payment on the accrued
dividends due Thompson at December 31, 1997 by Company (until
such accrued dividends are paid in full) and $20,000 per
month as a payment in lieu of commissions. The payment of
$60,000 will be adjusted to $20,000 per month after the
dividends have been paid in full. The first monthly payment
due after the Coast Business loan closes will be increased by
$40,000 for that month only. The payment of $20,000 per month
will continue for the duration of Thompson's life.
4. The Company can elect to discontinue the $20,000 per month
(described in Section 3) due to any of the following:
a. If Thompson does not provide advisory services to
Company as requested for the nine month period from
the date of the Agreement.
b. If Thompson takes actions which are significantly
detrimental to the interests of AmeriVision, (other
than the competition discussed in 4c).
c. If Thompson competes against Company or solicits
their employees for hire within a period of one year
(unless a public offering by Company occurs sooner
but in any event the period is no less than nine
months from date of Agreement). If Thompson complies
with this clause 4c. Thompson will be paid $200,000
on April 13, 1999 as an additional payment.
5. Thompson hereby grants the rights of first refusal to Company
if Thompson decides to sell any or all of Thompson's existing
shares in Company. This right of refusal shall give Company
the ability to match any bona fide third party offer for such
shares. This right will continue so long as Thompson holds
any of his existing shares in the Company.
<PAGE> 2
6. Thompson will transfer by April 18, 1998 all of his shares in
Visionquest Inc. to Company for no additional consideration.
7. Thompson waives any claims against Company as of the date of
this Agreement.
8. Thompson acknowledges that his resignation is voluntary, that
he desires to pursue other business interests, and that he
will seek God's direction to determine the best way for him
to serve God.
/s/ Carl Thompson /s/ Tracy Freeny
- ----------------------------- ----------------------------------
Carl Thompson Tracy Freeny
President
AmeriVision Communications, Inc.
-2-
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO APRIL 13, 1998 AGREEMENT
BY AND BETWEEN
AMERIVISION COMMUNICATIONS, INC.
AND CARL THOMPSON
THIS FIRST AMENDMENT TO APRIL 13, 1998 AGREEMENT BY AND BETWEEN
AMERIVISION COMMUNICATIONS, INC. AND CARL THOMPSON (this "Amendment") is made as
of this 31st day of December, 1998, by and between AmeriVision Communications,
Inc., an Oklahoma corporation (the "Company"), Carl Thompson, an individual
residing at 1905 Ridgecrest, Edmond, Oklahoma 73013 ("Mr. Thompson"), and
Willeta Thompson, an individual residing at 1905 Ridgecrest, Edmond, Oklahoma
73013 and wife of Mr. Thompson ("Mrs. Thompson").
AGREEMENT:
The parties hereto acknowledge and agree that the following recitals
are an accurate description of the facts relating to the subject matter of the
Agreement and this Amendment:
WHEREAS, the Company and Mr. Thompson entered into that certain
Agreement dated the 13th day of April, 1998 (the "Agreement");
WHEREAS, the Agreement provided, among other things, for the surrender
to the Company by Mr. Thompson of all the stock of VisionQuest Marketing
Services, Inc., an Oklahoma corporation ("VisionQuest"), directly or indirectly
owned by Mr. Thompson and the payment under certain circumstances by the Company
to Mr. Thompson of $200,000 on April 13, 1999 (the "$200,000 Payment");
WHEREAS, on July 1, 1998, Mr. and Mrs. Thompson agreed to the payment
of $50,000 by VisionQuest to Mrs. Thompson in exchange for all stock of
VisionQuest owned by her or held in her name, and on that date such payment was
made and such stock was transferred to, and placed in the treasury of,
VisionQuest;
WHEREAS, in exchange for, and as an integral part of the transaction
described in the previous paragraph, Mr. Thompson agreed to forego any right to
the $200,000 Payment;
WHEREAS, there are no changes to the Agreement except as stated below;
and
WHEREAS, the foregoing transfers and transactions having occurred, the
purpose of this Amendment is to acknowledge such facts and transactions and
revise the Agreement to reflect the same.
<PAGE> 2
NOW, THEREFORE, taking the foregoing into account, and in consideration
of the mutual covenants and agreements set forth herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Revision of Last Sentence of Section 4c. The last sentence of
Section 4c (i.e. "If Thompson complies with this clause 4c, Thompson will be
paid $200,000 on April 13, 1999 as an additional payment.") is hereby stricken
in its entirety.
2. Replacement of Section 6. Section 6 is hereby stricken in its
entirety.
3. Full Force and Effect; No Revision. As of the date hereof, the
Agreement is in full force and effect, and has not been revised or amended other
than as set forth herein.
4. Counterparts. This Amendment may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5. Entire Agreement. This Amendment and the Agreement (as amended)
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and thereof and supersede and cancel all prior agreements
and understandings between them or any of them as to such matter.
[SIGNATURE PAGE FOLLOWS]
2
<PAGE> 3
SIGNATURE PAGE FOR FIRST AMENDMENT TO APRIL 13, 1998
AGREEMENT BY AND BETWEEN
AMERIVISION COMMUNICATIONS, INC.
AND CARL THOMPSON
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first written above.
AMERIVISION COMMUNICATIONS, INC.
By: /s/ STEPHEN D. HALLIDAY
----------------------------
Name: Stephen D. Halliday
Title: President and CEO
/s/ Carl Thompson
-------------------------------
Carl Thompson
/s/ Willeta Thompson
-------------------------------
Willeta Thompson
S-1
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 24th day of May 1999, by and between Stephen
D. Halliday, an individual currently residing at 105 William Richmond,
Williamsburg, VA 23185 ("EXECUTIVE"), AmeriVision Communications, Inc., an
Oklahoma corporation maintaining business offices at 5900 Mosteller Drive, Suite
1800, Oklahoma City, Oklahoma 73112, and each successor in interest
(collectively the "COMPANY"), and Tracy Freeny ("STOCKHOLDER").
BACKGROUND INFORMATION
The Company wishes to continue to obtain the services of Executive as
an executive of the Company and to create over time a shareholding in the
Company by Executive for the mutual benefit of Executive and the Company.
Stockholder supports the engagement of Executive and wishes to support his
continued service as set forth below. Executive is willing to serve as an
executive of the Company on the terms and conditions set forth below.
OPERATIVE PROVISIONS
1. Employment and Term.
The Company hereby employs the Executive and the latter hereby accepts
employment by the Company commencing as of May 24, 1999 ("the COMMENCEMENT
DATE") and continuing to the fifth anniversary date thereof (the "INITIAL
TERM"), which employment shall thereafter be automatically extended for
unlimited successive one-year periods (each a "SUCCESSOR TERM") unless it is
terminated during the pendency of any such Term, whether Initial or Successor,
by the occurrence of one of the events described in Section 8, hereof, or by one
party furnishing the other with written notice, at least six months prior to the
expiration of such Term, of an intent to terminate this Agreement upon the
expiration of such Term. If the Company, prior to, on or subsequent to the
Commencement Date, effects a merger with and into another entity such that it
then has no continuing legal existence, the Stockholder shall, in connection
with the consummation of such transaction, ensure to the extent possible that
the surviving entity assumes the obligations described hereunder. To the extent
that such an assumption is undertaken, references herein to the Company shall
also be deemed to refer to the party assuming its obligations hereunder.
2. Duties.
During the Term of this Agreement, whether Initial or Successor, the
Executive shall render to the Company services as its President and Chief
Executive Officer and shall perform such duties normally associated with that
position and commensurate with those performed by such officers of similarly
sized and functioning entities and as may be reasonably designated by and
subject to the supervision of the Company's Board of Directors, and he shall
serve in such additional capacities appropriate to his responsibilities and
skills as shall be designated by the Company, through action of its Board of
Directors. Specifically, Executive shall be responsible for all operations and
management of the Company (including any merged or otherwise legally
<PAGE> 2
affiliated entity) as well as finance, legal, strategy, and acquisitions and
shall report to the Board of Directors.
3. Base Compensation.
For the services to be rendered by the Executive under this Agreement
the Company shall pay him, while he is rendering such services and performing
his duties hereunder, and the Executive shall accept as full payment for such
service, a base compensation starting on the Commencement Date of not less than
$450,000 per year, payable in substantially equal installments coinciding with
the Company's normal employment compensation payment cycle or pursuant to such
other arrangements as the parties may agree upon (the "BASE COMPENSATION"). Such
Base Compensation shall be reviewed as of each anniversary of February 1, 1999
and may then be increased by action of the Company's Board of Directors; but
under no condition may the Executive's Base Compensation be decreased below the
amounts hereinabove set forth, or any higher amount then being paid to him,
regardless of any change in or diminution of the Executive's duties owed to the
Company. In any event, as of October 1, 1999, Executive's compensation shall be
adjusted to $600,000 per year. At such time, Company shall also pay Executive a
bonus in the amount of $100,000. Each year, effective on the anniversary of
February 1, 1999, Executive's compensation shall increase at the annual C.P.I.
rate of increase (up to 5%) in lieu of any Board action as described herein to
further increase Executive's salary for the ensuing year.
4. Stock Bonus.
On or promptly after May 24, 1999, the Executive shall receive from the
Company one or more certificates, registered in his name, representing one-half
percent (1/2%) of the shares of the Company's common stock that are issued and
outstanding as of the close of business on the date preceding the Commencement
Date; determined on a fully diluted basis inclusive of shares reserved for
issuance upon (a) the complete exercise of all then outstanding option, warrant
or rights grants (inclusive of the shares to be made the subject of the
Executive's option grants herein described) and employee stock incentive plans,
(b) the conversion of then outstanding preferred shares or convertible debt
instruments into shares of the Company's common stock, or (c) the consummation
of any then-authorized stock split or stock dividend provided that if at the
time of such intended issuance the Company constitutes a subsidiary of another
corporation or its corporate existence has been terminated as a result of its
merger into or consolidation with another corporation, then Executive shall
receive certificate(s) representing an identical ownership interest in the
ultimate parent of the Company or of the survivor of any such merger or
consolidation, or, if no such parent shall then exist, then in the survivor of
the merger or consolidation. The value of each such share as of the date of
issuance or date of vesting, as applicable, shall be determined by the issuer's
board of directors. The shares shall vest 25 percent on July 1, 1999 and 25
percent on the anniversary thereof for each year of service to the Company by
Executive after July 1, 1999 up to three years of service. In addition, the
Company shall pay at the time of each such vesting a cash bonus to Executive
equal to an amount such that after the payment by Executive of all federal,
state and local income taxes, self-employment taxes, or other taxes (including
any interest or penalties, arising from the actions or inactions of
<PAGE> 3
the Company, imposed with respect thereto) ("INCOME TAXES") imposed on the
receipt of the stock being vested and on such bonus, Executive retains an amount
of the bonus equal to the Income Taxes imposed on him by the vesting of the
stock and by the bonus payments.
5. Fringe Benefits; Reimbursement of Expenses; Stock Option Grants.
During his period of employment hereunder, the Executive shall be
entitled to (a) such leave by reason of physical or mental disability or
incapacity and to such participation in the medical, dental and group insurance,
pension and other retirement benefits and disability and other fringe benefit
plans and vacation as the Company may make generally available to all of its
most senior executive employees from time to time; subject, however, as to such
plans, to such budgetary constraints or other limitation as may be imposed by
the Board of Directors of the Company from time to time; and (b) reimbursement
for all normal and reasonable expenses necessarily incurred by him in the
performance of his obligations hereunder, subject in each case to such
reasonable substantiation requirements as may be imposed by the Company.
The Executive is hereby granted a non-qualified option (the "FIRST
OPTION") to acquire from the Company authorized but unissued shares of its
common stock in a quantity equal to three percent (3%) of the Company's then
issued and outstanding common stock, to be determined on a fully diluted basis
inclusive of shares reserved for issuance upon (a) the complete exercise of all
then outstanding option, warrant or rights grants (inclusive of the shares to be
made the subject of Executive's option grant herein described) and employee
stock incentive plans, (b) the conversion of then outstanding preferred shares
or convertible debt instruments into shares of the Company's common stock, or
(c) the consummation of any then-authorized stock split or stock dividend
provided that if at the time of such intended issuance the Company constitutes a
subsidiary of another corporation or its corporate existence has been terminated
as a result of its merger into or consolidation with another corporation, then
Executive shall receive certificate(s) representing an identical ownership
interest in the ultimate parent of the Company or of the survivor of any such
merger or consolidation, or, if no such parent shall then exist, then in the
survivor of the merger or consolidation. The exercise price of each share
subject of the First Option grant shall in consideration of Executive's prior
agreement with the Company be the fair value at February 1, 1998 as determined
by the Company's Board of Directors, and assuming the Executive is then an
employee of the Company or has previously terminated such employment under the
"Good Reason" provisions of Section 8e below, the date upon which exercise of
incremental portions of the First Option may commence shall be determined in the
following manner:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
The following percentage shall be exercisable
of the First Option shares commencing
-------------------------- ---------------------
<S> <C>
25% on July 1, 1999
25% July 1, 2000
25% July 1, 2001
25% July 1, 2002
</TABLE>
and each exercise right shall continue in force for a period of five years
following its commencement, irrespective of the Executive's subsequent
employment status with the Company. Further, on the date of any sale of all or
substantially all of the Company's assets or any merger or consolidation
transaction as the result of which the Company is not the surviving entity
(other than any merger effected for the principal purpose of reincorporation in
another jurisdiction or for another purpose not resulting in at least a 30%
change in the ultimate beneficial ownership of the Company), the Executive (or,
in the event of his legal incapacity, his legal representative(s)) shall also be
entitled to exercise the First Option as to all shares then otherwise ineligible
for exercise, and within the six-month period following his death, the
Executive's representative(s) or Beneficiary(ies) shall be entitled to exercise
the First Option as to one-half of all shares which would otherwise be
ineligible for acquisition as of the date of his death. Shares made the subject
of the First Option grant as to which no exercise right shall have commenced on
the date of the Executive's termination of employment for other than death or
Good Reason, shall be returned to the status of authorized but unreserved shares
and shall no longer be available for acquisition.
Three years after the Commencement Date, the Company shall grant the
Executive if the Executive is still employed by the Company, an option ("SECOND
OPTION") to acquire from the Company authorized but unissued shares of its
common stock in a quantity equal to two percent (2%) of the then issued and
outstanding common stock of the Company, determined at that time on a fully
diluted basis as described herein. The exercise price of each share to be made
the subject of such grant shall be twenty-five percent higher than the exercise
price of the First Option. The Executive's right to exercise fifty percent of
the options granted in this Second Option shall vest 48 months after the
Commencement Date and fifty percent 60 months after the Commencement Date and
such right once vested shall continue for five years following the Initial Term
irrespective of the Executive's subsequent employment status with the Company.
Unless otherwise stated, this Second Option shall have the same provisions,
terms, and conditions as the First Option including those for death and Good
Reason Termination.
-4-
<PAGE> 5
The Executive's right to maintain an additional business office at a
location of his choice shall apply throughout the Term of this Agreement. The
Company shall pay all reasonable commuting expenses of the Executive in
maintaining this arrangement, as well as the reasonable commuting costs incurred
by the Executive's wife in making four round-trip visits during each calendar
year. Company will fund the costs of this separate business office.
6. Proprietary Interests.
During or after the expiration of his term of employment with the
Company, the Executive shall not communicate or divulge to, or use for the
benefit of, any individual, association, partnership, trust, corporation or
other entity except the Company, any proprietary or confidential information of
the Company received by the Executive by virtue of such employment, without
first being in receipt of the Company's written consent to do so and in
compliance with the terms of any other confidentiality or non-competition
agreement which the Executive may hereafter execute with the Company; provided
that nothing contained herein shall restrict the Executive's use or disclosure
of such information known to the public (other than that which he may have
disclosed in breach of this Agreement), or as required by law (so long as
Executive gives the Company prior notice of such required disclosure). Company
acknowledges that Executive has outside legal matters for which Executive is
responsible. Executive pledges that such duties will not interfere with
Company's interests.
7. Remedies for Breach of Obligations.
a. Injunctive Relief. The parties agree that the services of the
Executive are of a personal, specific, unique and extraordinary character and
cannot be readily replaced by the Company. They further agree that in the course
of performing his services, the Executive will have access to various types of
proprietary information of the Company, which, if released to others or used by
the Executive other than for the benefit of the Company, in either case without
the Company's consent, could cause the Company to suffer irreparable and
continuing injury. Therefore, the confidentiality obligations of the Executive
established under Section 6 hereof shall be enforceable by the Company both at
law and in equity, by injunction, specific performance, damages or other remedy;
and the right of the Company to obtain any such remedy shall be cumulative and
not alternative and shall not be exhausted by any one or more uses thereof.
b. Arbitration. In the event of any dispute between the parties under
or relating to this Agreement or relating to the Executive's employment by the
Company, such dispute shall be submitted to and settled by arbitration in
Oklahoma County, Oklahoma, in accordance with the rules and regulations of the
American Arbitration Association then in effect. The arbitrator(s) shall have
the right and authority to determine how their award or decision as to each
issue and matter in dispute may be implemented or enforced. Any decision or
award shall be final and conclusive on the parties; there shall be no appeal
therefrom other than for claimed bias, fraud or misconduct by the arbitrator(s);
judgment upon any award or decision may be entered in any court of competent
jurisdiction in the State of Oklahoma or elsewhere; and the parties hereto
consent to the application by any party in interest to any court of competent
jurisdiction for
-5-
<PAGE> 6
confirmation or enforcement of such award. The party against whom a decision is
made shall pay the fees of the American Arbitration Association. Notwithstanding
the foregoing, the Company, at its sole option shall be entitled to enforce its
rights, as contemplated by Section 7a hereof, to injunctive and other equitable
relief in the event of a breach of Section 6 hereof or of any material term of a
confidentiality or non-competition agreement to which the Company and the
Executive shall then be parties, either by arbitration pursuant to this Section
7b, or directly in any court of competent jurisdiction.
8. Termination of Employment.
a. Death. The Executive's employment hereunder shall terminate in the
event of the Executive's death. Except for (i) any salary and benefits accrued,
vested and unpaid as of the date of any such termination, (ii) any benefits to
which the Executive or his heirs or personal representatives may be entitled
under and in accordance with the terms of any employee benefit plan, policy or
program maintained by the Company, and (iii) the limited right to exercise the
Option described in Section 5 above, the Company shall be under no further
obligation hereunder to the Executive or to his heirs or personal
representatives, and the Executive or his heirs or personal representatives no
longer shall be entitled to receive any payments or any other rights or benefits
under this Agreement.
b. Disability. The Company may terminate the Executive's employment
hereunder for "DISABILITY," if an independent physician mutually selected by the
Executive (or his legal representative) and the Board of Directors or its
designee (or, upon an inability of such parties to effect the selection within a
period of ten days, by the independent certified public accounting firm then
serving the Company) shall have determined that the Executive has been
substantially unable to render to the Company services of the character
contemplated by Section 2 of this Agreement, by reason of a physical or mental
illness or other condition, for more than 60 consecutive days or for shorter
periods aggregating more than 120 days in any period of 12 consecutive months
(excluding in each case days on which the Executive shall be on vacation). In
the event of such Disability, the Executive shall be entitled to receive any
salary and benefits accrued, vested and unpaid as of the date of any such
termination and any benefits to which the Executive may be entitled under and in
accordance with the terms of any employee benefit plan, policy or program
maintained by the Company; and upon the Executive's receipt of such salary and
benefits the Company shall be under no further obligation hereunder to the
Executive and the Executive no longer shall be entitled to receive any payments
or any other rights or benefits under this Agreement.
c. Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for "CAUSE." For purposes of this Agreement,
"Cause" shall mean any of the following:
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<PAGE> 7
i. The Executive's repeated willful misconduct or gross
negligence;
ii. The Executive's repeated conscious disregard of his
obligations hereunder or of any other written duties
reasonably assigned to him by the Board of Directors;
iii. The Executive's repeated conscious violation of any
provision of the Company's by-laws or of its other
stated policies, standards or regulations;
iv. The Executive's commission of any act involving
fraud; or
v. A determination that the Executive has demonstrated a
dependence upon any addictive substance, including
alcohol, controlled substances, narcotics or
barbiturates;
provided, however, that if the Board of Directors of the Company desires to
terminate the Executive for any of the reasons set forth in: (1) clause (i),
(ii) or (iii) of this Section 8c, the Company, within the 60-day period
immediately following each alleged commission of a proscribed act or omission,
shall have furnished to the Executive a written description of the allegedly
proscribed act or omission and a statement advising him that the Company views
such conduct as being of the type which could lead to a termination of the
Executive for Cause; (2) clause (ii) or (iii) of this Section 8c, the Board must
be able to demonstrate that the Executive has been furnished with a copy of the
written duty, by-law provision, policy, standard or regulation, the violation of
which the Executive is being accused, at a time prior to the alleged commission
of the violation: or (3) clause (iv) or (v) of this Section 8c, the Board shall
first be required to obtain an opinion from Company counsel to the effect that
there is an adequate basis upon which either such determination may be made.
Except for any salary and benefits accrued, vested and unpaid as of the date of
any such termination, the Company shall be under no further obligation hereunder
to the Executive and the Executive no longer shall be entitled to receive any
payments or any other rights or benefits, under this Agreement.
d. Termination by the Company Other Than for Cause. The Company may
terminate the Executive's employment hereunder upon the expiration of the
Initial Term or any Successor Term, provided that notice of termination is
furnished as set forth in Section 1, and subject to the right of the Executive,
within such notification period, to effect his own Good Reason termination as
described in subsection 8e below. In the event of either such termination, the
Executive shall be entitled to receive any salary and benefits accrued, vested
and unpaid as of the date of any such termination and any benefits to which the
Executive may be entitled under and in accordance with the terms of any employee
benefit plan, policy or program maintained by the Company, as well as, in the
event that the Executive shall have timely effected a Good Reason termination,
those benefits authorized under the provisions of subsection 8e; and following
his receipt of such salary and benefits the Company shall be under no further
obligation hereunder to the Executive and the Executive no longer shall be
entitled to receive any payments or any other rights or benefits under this
Agreement.
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<PAGE> 8
e. Termination by the Executive for Good Reason. Notwithstanding
anything herein to the contrary, the Executive shall be entitled to terminate
his employment hereunder for "Good Reason" without breach of this Agreement. For
purposes of this Agreement, "GOOD REASON" shall exist upon the occurrence of any
of the following events or matters, in each case without the Company first being
in receipt of the Executive's written consent thereto, and the period of time
within which the Executive shall be required to exercise a Good Reason
termination of service shall be 30 days, measured from the date upon which he is
notified by the Company of such occurrence, or, with respect to the matter
identified in clause (iii) below, from the date upon which the Executive
notifies the Company of his belief that a material breach has occurred, and,
with respect to the matter identified in clause (vi) below, from the later of
the dates upon which the Executive's or the Company's physician statement is
furnished:
i. A directed change in the Executive's place of
employment in violation of Section 5 above;
ii. A material adverse change in, or a substantial
elimination of, the duties and responsibilities of
the Executive;
iii. A material breach by the Company of its obligations
hereunder;
iv. A change in control of the Company;
v. Receipt by the Executive of the Company's notice that
it intends to terminate him other than for Cause
either at the end of a particular Term of employment,
whether Initial or Successor; or
vi. Impairment of the Executive's health to an extent
that makes his continued performance of duties under
this Agreement hazardous to his physical or mental
health, provided that the Executive shall have
furnished the Company with a written statement from a
qualified physician to that effect, and, provided
further, that, at the Company's request, made within
ten days after its being furnished with a copy of
such statement, the Executive shall submit to an
examination by a physician selected by the Company
and such physician shall have concurred in writing
with the conclusion of the Executive's physician.
For purposes of clause (iv) above, a "CHANGE IN CONTROL OF THE COMPANY" shall
mean (a) the acquisition, directly or indirectly, after the date hereof, by any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as in effect on the date hereof), of voting power over
voting shares of the Company that would entitle the holder(s) thereof to cast at
least 25% of the votes that all shareholders would be entitled to cast in the
election of directors of the Company, provided that such term shall not be
deemed to apply to an acquisition by one or more institutional underwriters
directly from the Company in accordance with the conditions of a registration
statement theretofore filed with and declared effective by the United States
Securities and Exchange Commission; or (b) the failure, at any time within the
Term of this Agreement (inclusive of both Initial and Successor), of the
individuals who at the Commencement Date shall constitute the Company's Board of
Directors to constitute at least a
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<PAGE> 9
majority of such membership, unless the election of each director who is not a
director at the Commencement Date shall have been approved in advance by
directors representing at least 75% of the directors then in office who are
directors at the Commencement Date.
In the event of a Good Reason termination by the Executive within the
Initial or any Successor Term, the Executive shall be entitled to continue to
receive from the Company the Executive's current annual Base Compensation
through the Initial Term or Successor Term as applicable, and in addition
Executive shall receive the Executive's current annual Base Compensation payable
over the succeeding 12-month period from the effective date of termination.
Under either circumstance, the Executive shall also be entitled to continue to
receive full vesting of all Stock Bonus and Stock Option Grants as provided in
Sections 4 and 5. In addition, the Company shall pay at the time of each such
vesting a cash bonus to the Executive as described above in Section 4. Except
for such termination compensation following any such termination, and except for
any salary and benefits accrued, vested and unpaid as of the date of any such
termination, the Executive no longer shall be entitled to receive any payments
or any other rights or benefits under this Agreement, and the Company shall have
no further obligation hereunder to the Executive following any such termination.
f. Termination by the Executive for Other Than Good Reason. The
Executive may terminate his employment hereunder upon the expiration of the
Initial Term or any Successor Term, provided that notice of termination is
provided as set forth in Section 1. In the event of such termination, the
Executive shall be entitled to receive any salary and benefits accrued, vested
and unpaid as of the date of any such termination and any benefits to which the
Executive may be entitled under and in accordance with the terms of any employee
benefit plan, policy or program maintained by the Company; and following his
receipt of such salary and benefits to the Company shall be under no further
obligation hereunder to the Executive and the Executive no longer shall be
entitled to receive any payments or any other rights or benefits under this
Agreement.
g. Life and Disability Insurance Coverage. If termination of employment
is due to any reason other than death, the Executive shall have the right,
subject to receiving approval of the Company (which shall not be unreasonably
withheld), to purchase any policy of insurance on his life or insuring against
his disability which is owned by the Company, the exercise of which right shall
be made by notice furnished to the Company within 30 days subsequent to the date
of termination. The purchase price of each policy of life insurance shall be the
sum of its interpolated terminal reserve value (computed as of the closing date)
and the proportional part of the gross premium last paid before the closing date
which covers any period extending beyond that date; or if the policy to be
purchased shall not have been in force for a period sufficient to generate an
interpolated terminal reserve value, the price shall be an amount equal to all
net premiums paid as of the closing date. The purchase price of each disability
income policy shall be the sum of its cash value and the proportional part of
the gross premium last paid before the closing date which covers any period
extending beyond that date. The purchase of any insurance policy by the
Executive shall be closed as promptly as may be practicable after the giving of
notice, in no event to exceed 30 days therefrom.
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<PAGE> 10
h. Termination Plan. The provisions of subsections 8a-g, inclusive,
shall be eliminated and be of no further legal effect immediately following the
adoption by the Company's Board of Directors of a resolution, voluntarily joined
in by the Executive, either in his capacity as a member thereof or, if he is
then not such a member, individually, approving a termination of employment plan
applicable to the Executive and all other elected officers of the Company.
9. Excise Taxes.
Notwithstanding anything herein to the contrary, in the event any
payments to the Executive hereunder are determined by the Company to be subject
to the tax imposed by Section 4999 of the Code or any similar federal or state
excise tax, or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such interest and
penalties are hereinafter collectively referred to as the "EXCISE TAX"), the
Company shall pay to the Executive at the time of his termination an additional
cash amount (the "GROSS-UP PAYMENT") such that after the payment by Executive of
all federal, state or local income taxes, Excise Taxes or other taxes (including
any interest or penalties imposed with respect thereto) imposed upon the receipt
of the Gross Up Payment, Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax, imposed on the severance payments provided herein.
For purposes of determining whether any payments to the Executive
hereunder will be subject to the Excise Tax and the amount of such Excise Tax:
a. any other payments or benefits received or to be received by the
Executive in connection with a Change in Control or the termination of
employment (whether pursuant to the terms of this Agreement or of any other
plan, arrangement or agreement with the Company) shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess
parachute payments" within the meaning of Section 280G(b)(1) shall be treated as
subject to the Excise Tax, unless in the opinion of tax counsel selected by the
Company's independent auditors and acceptable to the Executive, other payments
or benefits (in whole or in part) do not constitute parachute payments under
Section 280G of the Code, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code;
b. the amount of the severance payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (i) the total amount
of the severance payments or (ii) the amount of excess parachute payments within
the meaning of Sections 280G(b)(1 ) and (4) (after applying clause (a), above);
and
c. the value of any noncash benefits or any deferred payment or benefit
shall be determined by the Company's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
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<PAGE> 11
If the Excise Tax is subsequently determined to be less than the amount
taken into account hereunder at the time of termination or employment, the
Executive shall repay to the Company, at the time the reduction in Excise Tax is
finally determined, the portion of the Gross-Up Payment attributable to such
reduction. If the Excise Tax is determined to exceed the amount taken into
account hereunder at the time of termination of employment, the Company shall
make an additional Gross-Up Payment to the Executive in respect of such excess
at the time the amount of such excess is finally determined.
10. Reduction in Payments.
a. For purposes of this Section 10, (i) "PAYMENT" shall mean any
payment or distribution in the nature of compensation to or for the benefit of
the Executive, whether paid or payable pursuant to this Agreement or otherwise,
(ii) "AGREEMENT PAYMENT" shall mean a Payment paid or payable pursuant to this
Agreement (disregarding this Section 10), (iii) "NET AFTER TAX RECEIPT" shall
mean the Present Value of a Payment net of all taxes imposed on the Executive
with respect thereto under Sections 1 and 4999 of the Internal Revenue Code of
1986, as amended (the "CODE"), determined by applying the highest marginal rate
under Section 1 of the Code which applied to the Executive's taxable income for
the immediately preceding taxable year, (iv) "PRESENT VALUE" shall mean such
value determined in accordance with Section 280G(d)(4) of the Code, and (v)
"SAFE HARBOR" shall mean $1.00 less than three times the Executive's "base
amount" within the meaning of that term in Section 280G of the Code.
b. Anything in this Agreement to the contrary notwithstanding, in the
event such accounting firm that may be agreed upon by the Company and the
Executive (the "ACCOUNTING FIRM") shall determine that receipt of all Payments
would subject the Executive to tax under Section 4999 of the Code, it shall
determine whether the receipt of the Safe Harbor would result in greater Net
After Tax Receipts to the Executive than receipt of all the Agreement Payments.
If such firm determines that the receipt of the Safe Harbor would so result, the
aggregate Payments shall be reduced to the Safe Harbor as provided below.
If the Accounting Firm determines that aggregate Payments should be
reduced to the Safe Harbor, the Company shall promptly give the Executive notice
to that effect and a copy of the detailed calculation thereof, and the Executive
may elect, in his sole discretion, which and how much of the Agreement Payments
or any other Payments shall be eliminated or reduced (as long as after such
election the Present Value of the aggregate Payments equals the Safe Harbor),
and shall advise the Company in writing of his election within ten days of his
receipt of notice. If no such election is made by the Executive within such
ten-day period, the Company may elect which of the Agreement Payments shall be
eliminated or reduced (as long as after such election the Present Value of the
aggregate Payments equals the Safe Harbor) and shall notify the Executive
promptly of such election. All determinations made by the Accounting Firm under
this Section 10 shall be binding upon the Company and the Executive and shall be
made within 60 days of a termination of employment of the Executive. As promptly
as practicable following such determination, the Company shall pay or distribute
for the benefit of the Executive such Agreement Payments as are then due to the
Executive under this Agreement and shall promptly pay to or distribute for the
benefit of the Executive in the future such Agreement Payments as
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<PAGE> 12
become due to the Executive under this Agreement. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. If the Accounting Firm
determines that no tax is payable by the Executive pursuant to Section 4999 of
the Code, it shall furnish the Executive with a written opinion that failure to
report such tax on the Executive's applicable federal income or excise tax
return would not result in the imposition of a negligence or similar penalty.
c. While it is the intention of the Company and the Executive to reduce
the amounts payable or distributable to the Executive hereunder only if the
aggregate Net After Tax Receipts to the Executive would thereby be increased, as
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that amounts will have been paid or distributed by the Company to or
for the benefit of Executive pursuant to this Agreement which should not have
been so paid or distributed ("OVERPAYMENT") or that additional amounts which
will have not been paid or distributed by the Company to or for the benefit of
the Executive pursuant to this Agreement could have been so paid or distributed
("UNDERPAYMENT"), in each case, consistent with the calculation hereunder. In
the event that the Accounting Firm, based upon the assertion of a deficiency by
the Internal Revenue Service against either the Company or the Executive which
the Accounting Firm believes has a high probability of success, determines that
an Overpayment has been made, any such Overpayment paid or distributed by the
Company to or for the benefit of the Executive shall be payable by the Executive
to the Company if and to the extent such deemed loan and payment would not
either (i) reduce the amount on which the Executive is subject to tax under
Section 1 and Section 4999 of the Code or (ii) generate a refund of such taxes.
In the event that the Accounting Firm determines that an Underpayment has
occurred, any such Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive together with interest at the applicable federal
rate provided for in Section 7872(f)(2) of the Code.
11. Indebtedness of Executive.
If, during the course of his employment, the Executive becomes indebted
to the Company for any reason, the Company shall, if it so elects, have the
right to set-off and to collect any sums due it from the Executive out of any
amounts which it may owe to the Executive for unpaid compensation. In the event
that this Agreement terminates for any reason, all sums owed by the Executive to
the Company shall become immediately due and payable.
12. Miscellaneous Provisions.
a. Notice: All notices or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and shall be considered
properly given to the recipient party if furnished by hand delivery; by sending
a copy thereof by first class or express mail, postage prepaid, or by courier
service (with charges prepaid), in each case to the address indicated above or
to such other address as the recipient shall have provided in accordance with
the terms hereof; or by sending a copy thereof by whatever telecopier service
the recipient shall have designated below (or by subsequent notice provided in
accordance with the terms hereof). If the notice is sent by mail or courier
service, it shall be deemed to have been given to the
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<PAGE> 13
recipient when deposited in the United States mail or courier service for
delivery to that party; or if by telecopier, when the sending party is in
receipt of documentary evidence that the transmission has been successfully
completed. Whenever the furnishing of notice is required, the same may be waived
by the party entitled to receive such notice.
b. Assignability: The Company may assign this Agreement to, and only
to, an entity owned more than 50% by the Company (directly or indirectly), and
which acquires all or substantially all of the Company's business, and upon such
assignment this Agreement shall inure to the benefit of and be binding upon such
entity. Neither this Agreement nor any right or interest hereunder shall be
assignable by Executive but shall inure to the benefit of and be binding upon
him, his Beneficiaries and legal representatives.
c. Nontransferability of Options: The First Option and the Second
Option are not transferable by the Executive otherwise than by will or the laws
of descent and distribution. During Executive's lifetime, only Executive may
exercise the First Option and the Second Option. This Option may not be
transferred, assigned, pledged, hypothecated, or otherwise disposed by the
Executive during his lifetime, whether by operation of law or otherwise, and is
not subject to execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation, or other disposition of this Option contrary
to the provisions hereof, and the levy of an attachment or similar process upon
the First Option and the Second Option, shall be null and void and without
effect. The Company shall have the right to terminate the First Option and the
Second Option in the event of such attempted transfer, assignment, pledge,
hypothecation, or other disposition, or levy of attachment or similar process,
by notice to that effect to the Executive, provided, however, that termination
of the First Option and the Second Option hereunder shall not prejudice any
rights or remedies which the Company may have under this Agreement or otherwise.
d. Restrictions on the Transferability of Shares: The shares of common
stock of the Company received under Section 4 above are not transferable other
than after they have vested in accordance with such Section or by will or the
laws of descent and distribution, or as set forth in this Section 12. Any
attempted transfer, assignment, pledge, hypothecation, or other disposition of
any such shares contrary to the provisions hereof shall be null and void and
without effect. The certificate(s) evidencing such shares described in Section 4
shall bear a legend indicating that the transferability of the shares is
governed by this Agreement.
e. Entire Agreement: This Agreement, and any other document referenced
herein, constitute the entire understanding of the parties hereto with respect
to the subject matter hereof, and no amendment, modification or alteration of
the terms hereof shall be binding unless the same be in writing, dated
subsequently to the date hereof and duly approved and executed by each of the
parties hereto. This Agreement supersedes in its entirety the Employment
Agreement dated January 27, 1998 between the Executive and the Company.
Furthermore, Tracy Freeny pledges that if any document, contract or agreement
executed by Tracy Freeny conflicts as to the duties stated in such document,
contract, or agreement with the duties as outlined in Section 2 of this
Agreement, the terms of this Agreement as to duties shall prevail over any
conflicting document, contract, or agreement.
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<PAGE> 14
f. Enforceability: If any term or condition of this Agreement shall be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement, and such term or condition except to such extent or in such
application, shall not be affected thereby and each and every term and condition
of this Agreement shall be valid and enforced to the fullest extent and in the
broadest application permitted by law.
g. Governing Law: This Agreement shall be deemed to have been made in
and shall be construed and interpreted in accordance with the laws of the State
of Oklahoma without giving effect to principles of conflicts of laws.
h. Counterparts: This Agreement may be executed by any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
i. Binding Effect: Each of the provisions and agreements herein
contained shall be binding upon and inure to the benefit of the personal
representatives, devisees, heirs, successors, transferees and assigns of the
respective parties hereto.
j. Legal Fees and Costs: If a legal action is initiated by any party to
this Agreement against another, arising out of or relating to the alleged
performance or non-performance or any right or obligation established hereunder,
or any dispute concerning the same, any and all fees, costs and expenses
reasonably incurred by each successful party or his or its legal counsel in
investigating, preparing for, prosecuting, defending against, or providing
evidence, producing documents or taking any other action in respect of, such
action shall be the joint and several obligation of and shall be paid or
reimbursed by the unsuccessful party(ies).
k. Beneficiary: As used herein, the term "Beneficiary" shall mean the
person or persons (who may be designated contingently or successively and who
may be an entity other than an individual, including an estate or trust)
designated in writing to receive the expiration of Agreement or death benefits
described in Section 8 above. Each Beneficiary designation shall be effective
only when filed with the secretary of the Company during the Executive's
lifetime. Each Beneficiary designation filed with the Secretary will cancel all
designations previously so filed. If the Executive fails to properly designate a
Beneficiary or if the Beneficiary predeceases the Executive or dies before
complete distribution of the benefit has been made, the Company shall distribute
the benefit (or balance thereof) to the Executive's probate estate.
l. Adjustments: In the event of any change in the common stock of the
Company by reason of a stock dividend, forward or reverse stock split,
recapitalization, corporate merger or combination, exchange of shares with
another corporation, or a substantially similar event which dilutes the value of
or otherwise adversely affects such stock or the ability of Executive to
exercise his option rights, granted under Section 5 above, in accordance with
the terms of this Agreement (each a "CORPORATE FINANCE TRANSACTION"), the number
of shares made the subject of Executive's options and the price at which each
share is subject to purchase by Executive shall be adjusted appropriately to
ensure that the shares will be subject to acquisition by Executive at a price
and upon terms commensurate to those herein set forth. Moreover, the Company
shall be required to notify Executive promptly following its approval of a
Corporate Finance Transaction,
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<PAGE> 15
and to provide Executive with the right to effect an exercise of the options
within whatever period of time then precedes the scheduled consummation of such
Transaction.
m. Board of Directors: Tracy Freeny agrees individually and pledges
that he will vote in favor of and use his best efforts to ensure that as of the
Commencement Date the Board of Directors of the Company and any controlled or
affiliated entities will be Tracy Freeny, Jay A. Sekulow, John E. Telling, John
Damoose and Executive. For so long as Executive continues to be employed
pursuant to this Employment Agreement, Tracy Freeny agrees to vote his shares of
the Company stock in favor of election of Executive as a director of the Company
and any controlled or affiliated entities.
IN WITNESS WHEREOF, the parties have executed this Agreement.
By: /s/ Tracy Freeny
--------------------------------------------
Tracy Freeny, Stockholder
By: /s/ Stephen D. Halliday
--------------------------------------------
Stephen D. Halliday
AmeriVision Communications, Inc.
By: /s/ Tracy Freeny
--------------------------------------------
Tracy Freeny, Chairman of the Board
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<PAGE> 1
Exhibit 10.4
STOCK AGREEMENT
THIS AGREEMENT, made this 24th day of May 1999, by and between Jay A.
Sekulow, an individual currently residing at 820 Bent Grass Court, Dacula,
Georgia 30211 ("SEKULOW"), AmeriVision Communications, Inc., an Oklahoma
corporation maintaining business offices at 5900 Mosteller Drive, Suite 1800,
Oklahoma City, Oklahoma 73112, and each successor in interest (collectively the
"COMPANY"), and Tracy Freeny, ("STOCKHOLDER").
BACKGROUND INFORMATION
The Company wishes to obtain the continued services of Sekulow as a
director of the Company and to create over time a shareholding in the Company by
Sekulow for the mutual benefit of Sekulow and the Company. Stockholder supports
the election of Sekulow as a director and wishes to support his continued
service as set forth below. Sekulow is willing to serve as a director of the
Company on the terms and conditions set forth below.
OPERATIVE PROVISIONS
1. Commencement Date.
Stockholder pledges that effective as of May 24, 1999 (the "COMMENCEMENT
DATE"), the Stockholder will vote in favor of and use his best efforts to ensure
the election of Sekulow to the Board of Company and otherwise pledge to use his
best efforts to ensure that the Company agrees to the terms of this Agreement.
If the Company, prior to, on or subsequent to the Commencement Date, effects a
merger with and into another entity such that it then has no continuing legal
existence, the Stockholder shall, in connection with the consummation of such
transaction, ensure to the extent possible that the surviving entity assumes the
obligations described hereunder. To the extent that such an assumption is
undertaken, references herein to the Company shall also be deemed to refer to
the party assuming its obligations hereunder.
2. Duties.
Sekulow agrees in good faith to perform those duties normally associated
with being a director of similar companies including attendance at board and
committee meetings as designated by the Board. In addition to board and
committee meetings, such duties shall also include limited consulting advisory
assistance, including sales proposals, meetings with charities, marketing
strategy, television network and programming development, and raising equity or
other funding for Company. In recognition of these services Company agrees to
compensate Sekulow as described below in Section 3 Stock Bonus and Section 4
Stock Option Grant.
<PAGE> 2
3. Stock Bonus.
On or promptly after May 24, 1999, Sekulow shall receive from the Company
one or more certificates, registered in his name, representing an amount equal
to one-half percent (1/2%) of the shares of the Company's common stock that are
issued and outstanding as of the close of business on the date preceding the
Commencement Date; determined on a fully diluted basis inclusive of shares
reserved for issuance upon (a) the complete exercise of all then outstanding
option, warrant or rights grants (inclusive of the shares to be made the subject
of Sekulow's option grant herein described) and employee stock incentive plans,
(b) the conversion of then outstanding preferred shares or convertible debt
instruments into shares of the Company's common stock, or (c) the consummation
of any then-authorized stock split or stock dividend provided that if at the
time of such intended issuance the Company constitutes a subsidiary of another
corporation or its corporate existence has been terminated as a result of its
merger into or consolidation with another corporation, then Sekulow shall
receive certificate(s) representing an identical ownership interest in the
ultimate parent of the Company or of the survivor of any such merger or
consolidation, or, if no such parent shall then exist, then in the survivor of
the merger or consolidation. The value of each such share as of the date of
issuance or date of vesting, as applicable, shall be determined by the issuer's
board of directors. The shares shall vest 25 percent on July 1, 1999 and 25
percent on the anniversary thereof for each year of service to the Company by
Sekulow after July 1, 1999 up to three years of service. In addition, the
Company shall pay at the time of each such vesting a cash bonus to Sekulow equal
to an amount such that after the payment by Sekulow of all federal, state and
local income taxes, self-employment taxes, or other taxes (including any
interest or penalties, arising from the actions or inactions of the Company,
imposed with respect thereto) ("INCOME TAXES") imposed on the receipt of the
stock being vested and on such bonus, Sekulow retains an amount of the bonus
equal to the Income Taxes imposed on him by the vesting of the stock and by the
bonus payments.
4. Stock Option Grant.
Sekulow is hereby granted a non-qualified option (the "OPTION") to acquire
from the Company authorized but unissued shares of its common stock in a
quantity equal to three percent (3%) of the Company's then issued and
outstanding common stock, to be determined on a fully diluted basis inclusive of
shares reserved for issuance upon (a) the complete exercise of all then
outstanding option, warrant or rights grants (inclusive of the shares to be made
the subject of Sekulow's option grant herein described) and employee stock
incentive plans, (b) the conversion of then outstanding preferred shares or
convertible debt instruments into shares of the Company's common stock, or (c)
the consummation of any then-authorized stock split or stock dividend provided
that if at the time of such intended issuance the Company constitutes a
subsidiary of another corporation or its corporate existence has been terminated
as a result of its merger into or consolidation with another corporation, then
Sekulow shall receive certificate(s) representing an identical ownership
interest in the ultimate parent of the Company or of the survivor of any such
merger or consolidation, or, if no such parent shall then exist, then in the
survivor of the merger or consolidation. The exercise price of each share the
subject of the Option grant shall in consideration of Sekulow's prior
commitments to the Company be the fair
-2-
<PAGE> 3
value at February 1, 1998 as determined by the Company's Board of Directors, and
on the condition that Sekulow is then a director of the Company, the date upon
which exercise of incremental portions of the Option may commence shall be
determined in the following manner:
<TABLE>
<CAPTION>
The following percentage shall be exercisable
of the Option shares commencing
------------------------ --------------------
<S> <C>
25% on July 1, 1999
25% July 1, 2000
25% July 1, 2001
25% July 1, 2002
</TABLE>
and each exercise right shall continue in force for a period of five years
following its commencement, irrespective of Sekulow's subsequent status with the
Company. Further, on the date of any sale of all or substantially all of the
Company's assets or any merger or consolidation transaction as the result of
which the Company is not the surviving entity (other than any merger effected
for the principal purpose of reincorporation in another jurisdiction or for
another purpose not resulting in at least a 30% change in the ultimate
beneficial ownership of the Company), Sekulow (or, in the event of his legal
incapacity, his legal representative(s)) shall also be entitled to exercise the
Option as to all shares then otherwise ineligible for exercise, and within the
six-month period following his death, Sekulow's representative(s) or
Beneficiary(ies) shall be entitled to exercise the Option as to one-half of all
shares which would otherwise be ineligible for acquisition as of the date of his
death. Shares made the subject of the Option grant as to which no exercise right
shall have commenced on the date of Sekulow's termination as a board member,
shall be returned to the status of authorized but unreserved shares and shall no
longer be available for acquisition by Sekulow.
5. Proprietary Interests.
During or after the expiration of his term as a director with the Company,
Sekulow shall not communicate or divulge to, or use for the benefit of, any
individual, association, partnership, trust, corporation or other entity except
the Company, any proprietary or confidential information of the Company received
by Sekulow by virtue of such directorship, without first being in receipt of the
Company's written consent to do so and in compliance with the terms of any other
confidentiality or non-competition agreement which Sekulow may hereafter execute
with the Company; provided that nothing contained herein shall restrict
Sekulow's use or disclosure of such information known to the public (other than
that which he may have disclosed in breach of this Agreement), or as required by
law (so long as Sekulow gives the Company prior notice of such required
disclosure).
-3-
<PAGE> 4
6. Remedies for Breach of Obligations.
a. Injunctive Relief. The parties agree that the services of Sekulow are of
a personal, specific, unique and extraordinary character and cannot be readily
replaced by the Company. They further agree that in the course of performing his
Services, Sekulow will have access to various types of proprietary information
of the Company, which, if released to others or used by Sekulow other than for
the benefit of the Company, in either case without the Company's consent, could
cause the Company to suffer irreparable and continuing injury. Therefore, the
confidentiality obligations of Sekulow established under Section 5 hereof shall
be enforceable by the Company both at law and in equity, by injunction, specific
performance, damages or other remedy; and the right of the Company to obtain any
such remedy shall be cumulative and not alternative and shall not be exhausted
by any one or more uses thereof.
b. Arbitration. In the event of any dispute between the parties under or
relating to this Agreement, such dispute shall be submitted to and settled by
arbitration in Oklahoma County, Oklahoma, in accordance with the rules and
regulations of the American Arbitration Association then in effect. The
arbitrator(s) shall have the right and authority to determine how their award or
decision as to each issue and matter in dispute may be implemented or enforced.
Any decision or award shall be final and conclusive on the parties; there shall
be no appeal therefrom other than for claimed bias, fraud or misconduct by the
arbitrator(s); judgment upon any award or decision may be entered in any court
of competent jurisdiction in the State of Oklahoma or elsewhere; and the parties
hereto consent to the application by any party in interest to any court of
competent jurisdiction for confirmation or enforcement of such award. The party
against whom a decision is made shall pay the fees of the American Arbitration
Association. Notwithstanding the foregoing, the Company, at its sole option
shall be entitled to enforce its rights, as contemplated by Section 6a hereof,
to injunctive and other equitable relief in the event of a breach of Section 5
hereof or of any material term of a confidentiality or non-competition agreement
to which the Company and Sekulow shall then be parties, either by arbitration
pursuant to this Section 6b, or directly in any court of competent jurisdiction.
7. Miscellaneous Provisions.
a. Notice: All notices or other communications required or permitted to be
given pursuant to this Agreement shall be in writing and shall be considered
properly given to the recipient party if furnished by hand delivery; by sending
a copy thereof by first-class or express mail, postage prepaid, or by courier
service (with charges prepaid), in each case to the address indicated above or
to such other address as the recipient shall have provided in accordance with
the terms hereof; or by sending a copy thereof by whatever telecopier service
the recipient shall have designated below (or by subsequent notice provided in
accordance with the terms hereof). If the notice is sent by mail or courier
service, it shall be deemed to have been given to the recipient when deposited
in the United States mail or courier service for delivery to that party; or if
by telecopier, when the sending party is in receipt of documentary evidence that
the transmission has been successfully completed. Whenever the furnishing of
notice is required, the same may be waived by the party entitled to receive such
notice.
-4-
<PAGE> 5
b. Assignability: The Company may assign this Agreement to, and only to, an
entity owned more than 50% by the Company (directly or indirectly), and which
acquires all or substantially all of the Company's business, and upon such
assignment this Agreement shall inure to the benefit of and be binding upon such
entity. Neither this Agreement nor any right or interest hereunder shall be
assignable by Sekulow, but shall inure to the benefit of and be binding upon
him, his Beneficiaries and legal representatives.
c. Nontransferability of Option: The Option is not transferable by Sekulow
otherwise than by will or the laws of descent and distribution. During Sekulow's
lifetime, only Sekulow may exercise the Option. This Option may not be
transferred, assigned, pledged, hypothecated, or otherwise disposed by Sekulow
during his lifetime, whether by operation of law or otherwise, and is not
subject to execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation, or other disposition of this Option contrary
to the provisions hereof, and the levy of an attachment or similar process upon
the Option, shall be null and void and without effect. The Company shall have
the right to terminate the Option in the event of such attempted transfer,
assignment, pledge, hypothecation, or other disposition, or levy of attachment
or similar process, by notice to that effect to Sekulow, provided, however, that
termination of the Option hereunder shall not prejudice any rights or remedies
which the Company may have under this Agreement or otherwise.
d. Restrictions on the Transferability of Shares: The shares of common
stock of the Company received under Section 3 above are not transferable other
than after they have vested in accordance with such Section or by will or the
laws of descent and distribution, or as set forth in this Section 7. Any
attempted transfer, assignment, pledge, hypothecation, or other disposition of
any such shares contrary to the provisions hereof shall be null and void and
without effect. The certificate(s) evidencing such shares described in Section 3
shall bear a legend indicating that the transferability of the shares is
governed by this Agreement.
e. Entire Agreement: This Agreement, and any other document referenced
herein, constitute the entire understanding of the parties hereto with respect
to the subject matter hereof, and no amendment, modification or alteration of
the terms hereof shall be binding unless the same be in writing, dated
subsequently to the date hereof and duly approved and executed by each of the
parties hereto. This Agreement supersedes in its entirety the Stock Agreement
dated January 27, 1998 between Sekulow and the Company.
f. Enforceability: If any term or condition of this Agreement shall be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement, and such term or condition except to such extent or in such
application, shall not be affected thereby and each and every term and condition
of this Agreement shall be valid and enforced to the fullest extent and in the
broadest application permitted by law.
g. Governing Law. This Agreement shall be deemed to have been made in and
shall be construed and interpreted in accordance with the laws of the State of
Oklahoma without giving effect to principles of conflicts of laws.
-5-
<PAGE> 6
h. Counterparts: This Agreement may be executed by any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
i. Binding Effect: Each of the provisions and agreements herein contained
shall be binding upon and inure to the benefit of the personal representatives,
devisees, heirs, successors, transferees and assigns of the respective parties
hereto.
j. Legal Fees and Costs: If a legal action is initiated by any party to
this Agreement against another, arising out of or relating to the alleged
performance or non-performance or any right or obligation established hereunder,
or any dispute concerning the same, any and all fees, costs and expenses
reasonably incurred by each successful party or his or its legal counsel in
investigating, preparing for, prosecuting, defending against, or providing
evidence, producing documents or taking any other action in respect of, such
action shall be the joint and several obligation of and shall be paid or
reimbursed by the unsuccessful party(ies).
k. Adjustments. In the event of any change in the common stock of the
Company by reason of a stock dividend, forward or reverse stock split,
recapitalization, corporate merger or combination, exchange of shares with
another corporation, or a substantially similar event which dilutes the value of
or otherwise adversely affects such stock or the ability of Sekulow to exercise
his Option rights, granted under Section 4 above, in accordance with the terms
of this Agreement (each a "CORPORATE FINANCE TRANSACTION"), the number of shares
made the subject of Sekulow's Option and the price at which each share is
subject to purchase by Sekulow shall be adjusted appropriately to ensure that
the shares will be subject to acquisition by Sekulow at a price and upon terms
commensurate to those herein set forth. Moreover, the Company shall be required
to notify Sekulow promptly following its approval of a Corporate Finance
Transaction, and to provide Sekulow with the right to effect an exercise of the
Option within whatever period of time then precedes the scheduled consummation
of such Transaction.
l. Board of Directors. For five years, Stockholder agrees to vote his
shares of the Company in favor of election of Sekulow as a director of the
Company or any controlled or affiliated entity.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement.
By: /s/ TRACY FREENY
----------------------------------------------
Tracy Freeny, Stockholder
By: /s/ JAY A. SEKULOW
----------------------------------------------
Jay A. Sekulow
AmeriVision Communications, Inc.
By: /s/ Stephen D. Halliday
----------------------------------------------
Stephen D. Halliday, Chief Executive Officer
-7-
<PAGE> 1
Exhibit 10.5
STOCK AGREEMENT
THIS AGREEMENT, made this 24th day of May 1999, by and between John
Damoose, an individual currently residing at 11871 Snowfield Court, Traverse
City, Michigan 49686 ("DAMOOSE"), AmeriVision Communications, Inc., an Oklahoma
corporation maintaining business offices at 5900 Mosteller Drive, Suite 1800,
Oklahoma City, Oklahoma 73112, and each successor in interest (collectively the
"COMPANY"), and Tracy Freeny, ("STOCKHOLDER").
BACKGROUND INFORMATION
The Company wishes to obtain the continued services of Damoose as a
director of the Company and to create over time a shareholding in the Company by
Damoose for the mutual benefit of Damoose and the Company. Stockholder supports
the election of Damoose as a director and wishes to support his continued
service as set forth below. Damoose is willing to serve as a director of the
Company on the terms and conditions set forth below.
OPERATIVE PROVISIONS
1. Commencement Date.
Stockholder pledges that effective as of May 24, 1999 (the
"COMMENCEMENT DATE"), the Stockholder will vote in favor of and use his best
efforts to ensure the election of Damoose to the Board of Company and otherwise
pledge to use his best efforts to ensure that the Company agrees to the terms of
this Agreement. If the Company, prior to, on or subsequent to the Commencement
Date, effects a merger with and into another entity such that it then has no
continuing legal existence, the Stockholder shall, in connection with the
consummation of such transaction, ensure to the extent possible that the
surviving entity assumes the obligations described hereunder. To the extent that
such an assumption is undertaken, references herein to the Company shall also be
deemed to refer to the party assuming its obligations hereunder.
2. Duties.
Damoose agrees in good faith to perform those duties normally
associated with being a director of similar companies including attendance at
board and committee meetings as designated by the Board. In addition to board
and committee meetings, such duties shall also include limited consulting
advisory assistance, including sales proposals, meetings with charities,
marketing strategy, television network and programming development, and raising
equity or other funding for Company. In recognition of these services Company
agrees to compensate Damoose as described below in Section 3 Stock Bonus and
Section 4 Stock Option Grant.
<PAGE> 2
3. Stock Bonus.
On or promptly after May 24, 1999, Damoose shall receive from the
Company one or more certificates, registered in his name, representing an amount
equal to one-half percent (1/2%) of the shares of the Company's common stock
that are issued and outstanding as of the close of business on the date
preceding the Commencement Date; determined on a fully diluted basis inclusive
of shares reserved for issuance upon (a) the complete exercise of all then
outstanding option, warrant or rights grants (inclusive of the shares to be made
the subject of Damoose's option grant herein described) and employee stock
incentive plans, (b) the conversion of then outstanding preferred shares or
convertible debt instruments into shares of the Company's common stock, or (c)
the consummation of any then-authorized stock split or stock dividend provided
that if at the time of such intended issuance the Company constitutes a
subsidiary of another corporation or its corporate existence has been terminated
as a result of its merger into or consolidation with another corporation, then
Damoose shall receive certificate(s) representing an identical ownership
interest in the ultimate parent of the Company or of the survivor of any such
merger or consolidation, or, if no such parent shall then exist, then in the
survivor of the merger or consolidation. The value of each such share as of the
date of issuance or date of vesting, as applicable, shall be determined by the
issuer's board of directors. The shares shall vest 25 percent on July 1, 1999
and 25 percent on the anniversary thereof for each year of service to the
Company by Damoose after July 1, 1999 up to three years of service. In addition,
the Company shall pay at the time of each such vesting a cash bonus to Damoose
equal to an amount such that after the payment by Damoose of all federal, state
and local income taxes, self-employment, taxes or other taxes (including any
interest or penalties, arising from the actions or inactions of the Company,
imposed with respect thereto) ("INCOME TAXES") imposed on the receipt of the
stock being vested and on such bonus, Damoose retains an amount of the bonus
equal to the Income Taxes imposed on him by the vesting of the stock and by the
bonus payments.
4. Stock Option Grant.
Damoose is hereby granted a non-qualified option (the "OPTION") to
acquire from the Company authorized but unissued shares of its common stock in a
quantity equal to one percent (1%) of the Company's then issued and outstanding
common stock, to be determined on a fully diluted basis inclusive of shares
reserved for issuance upon (a) the complete exercise of all then outstanding
option, warrant or rights grants (inclusive of the shares to be made the subject
of Damoose's option grant herein described) and employee stock incentive plans,
(b) the conversion of then outstanding preferred shares or convertible debt
instruments into shares of the Company's common stock, or (c) the consummation
of any then-authorized stock split or stock dividend provided that if at the
time of such intended issuance the Company constitutes a subsidiary of another
corporation or its corporate existence has been terminated as a result of its
merger into or consolidation with another corporation, then Damoose shall
receive certificate(s) representing an identical ownership interest in the
ultimate parent of the Company or of the survivor of any such merger or
consolidation, or, if no such parent shall then exist, then in the survivor of
the merger or consolidation. The exercise price of each share the subject of the
Option grant shall in consideration of Damoose's prior commitments to the
Company be the fair
-2-
<PAGE> 3
value at February 1, 1998 as determined by the Company's Board of Directors, and
on the condition that Damoose is then a director of the Company, the date upon
which exercise of incremental portions of the Option may commence shall be
determined in the following manner:
<TABLE>
<CAPTION>
The following percentage shall be exercisable
of the Option shares commencing
------------------------ --------------------
<S> <C>
25% on July 1, 1999
25% July 1, 2000
25% July 1, 2001
25% July 1, 2002
</TABLE>
and each exercise right shall continue in force for a period of five years
following its commencement, irrespective of Damoose's subsequent status with the
Company. Further, on the date of any sale of all or substantially all of the
Company's assets or any merger or consolidation transaction as the result of
which the Company is not the surviving entity (other than any merger effected
for the principal purpose of reincorporation in another jurisdiction or for
another purpose not resulting in at least a 30% change in the ultimate
beneficial ownership of the Company), Damoose (or, in the event of his legal
incapacity, his legal representative(s)) shall also be entitled to exercise the
Option as to all shares then otherwise ineligible for exercise, and within the
six-month period following his death, Damoose's representative(s) or
Beneficiary(ies) shall be entitled to exercise the Option as to one-half of all
shares which would otherwise be ineligible for acquisition as of the date of his
death. Shares made the subject of the Option grant as to which no exercise right
shall have commenced on the date of Damoose's termination as a board member,
shall be returned to the status of authorized but unreserved shares and shall no
longer be available for acquisition by Damoose.
5. Proprietary Interests.
During or after the expiration of his term as a director with the
Company, Damoose shall not communicate or divulge to, or use for the benefit of,
any individual, association, partnership, trust, corporation or other entity
except the Company, any proprietary or confidential information of the Company
received by Damoose by virtue of such directorship, without first being in
receipt of the Company's written consent to do so and in compliance with the
terms of any other confidentiality or non-competition agreement which Damoose
may hereafter execute with the Company; provided that nothing contained herein
shall restrict Damoose's use or disclosure of such information known to the
public (other than that which he may have disclosed in breach of this
Agreement), or as required by law (so long as Damoose gives the Company prior
notice of such required disclosure).
-3-
<PAGE> 4
6. Remedies for Breach of Obligations.
a. Injunctive Relief. The parties agree that the services of Damoose
are of a personal, specific, unique and extraordinary character and cannot be
readily replaced by the Company. They further agree that in the course of
performing his Services, Damoose will have access to various types of
proprietary information of the Company, which, if released to others or used by
Damoose other than for the benefit of the Company, in either case without the
Company's consent, could cause the Company to suffer irreparable and continuing
injury. Therefore, the confidentiality obligations of Damoose established under
Section 5 hereof shall be enforceable by the Company both at law and in equity,
by injunction, specific performance, damages or other remedy; and the right of
the Company to obtain any such remedy shall be cumulative and not alternative
and shall not be exhausted by any one or more uses thereof.
b. Arbitration. In the event of any dispute between the parties under
or relating to this Agreement, such dispute shall be submitted to and settled by
arbitration in Oklahoma County, Oklahoma, in accordance with the rules and
regulations of the American Arbitration Association then in effect. The
arbitrator(s) shall have the right and authority to determine how their award or
decision as to each issue and matter in dispute may be implemented or enforced.
Any decision or award shall be final and conclusive on the parties; there shall
be no appeal therefrom other than for claimed bias, fraud or misconduct by the
arbitrator(s); judgment upon any award or decision may be entered in any court
of competent jurisdiction in the State of Oklahoma or elsewhere; and the parties
hereto consent to the application by any party in interest to any court of
competent jurisdiction for confirmation or enforcement of such award. The party
against whom a decision is made shall pay the fees of the American Arbitration
Association. Notwithstanding the foregoing, the Company, at its sole option
shall be entitled to enforce its rights, as contemplated by Section 6a hereof,
to injunctive and other equitable relief in the event of a breach of Section 5
hereof or of any material term of a confidentiality or non-competition agreement
to which the Company and Damoose shall then be parties, either by arbitration
pursuant to this Section 6b, or directly in any court of competent jurisdiction.
7. Miscellaneous Provisions.
a. Notice: All notices or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and shall be considered
properly given to the recipient party if furnished by hand delivery; by sending
a copy thereof by first class or express mail, postage prepaid, or by courier
service (with charges prepaid), in each case to the address indicated above or
to such other address as the recipient shall have provided in accordance with
the terms hereof; or by sending a copy thereof by whatever telecopier service
the recipient shall have designated below (or by subsequent notice provided in
accordance with the terms hereof). If the notice is sent by mail or courier
service, it shall be deemed to have been given to the recipient when deposited
in the United States mail or courier service for delivery to that party; or if
by telecopier, when the sending party is in receipt of documentary evidence that
the transmission has been successfully completed. Whenever the furnishing of
notice is required, the same may be waived by the party entitled to receive such
notice.
-4-
<PAGE> 5
b. Assignability: The Company may assign this Agreement to, and only
to, an entity owned more than 50% by the Company (directly or indirectly), and
which acquires all or substantially all of the Company's business, and upon such
assignment this Agreement shall inure to the benefit of and be binding upon such
entity. Neither this Agreement nor any right or interest hereunder shall be
assignable by Damoose, but shall inure to the benefit of and be binding upon
him, his Beneficiaries and legal representatives.
c. Nontransferability of Option: The Option is not transferable by
Damoose otherwise than by will or the laws of descent and distribution. During
Damoose's lifetime, only Damoose may exercise the Option. This Option may not be
transferred, assigned, pledged, hypothecated, or otherwise disposed by Damoose
during his lifetime, whether by operation of law or otherwise, and is not
subject to execution, attachment or similar process. Any attempted transfer,
assignment, pledge, hypothecation, or other disposition of this Option contrary
to the provisions hereof, and the levy of an attachment or similar process upon
the Option, shall be null and void and without effect. The Company shall have
the right to terminate the Option in the event of such attempted transfer,
assignment, pledge, hypothecation, or other disposition, or levy of attachment
or similar process, by notice to that effect to Damoose, provided, however, that
termination of the Option hereunder shall not prejudice any rights or remedies
which the Company may have under this Agreement or otherwise.
d. Restrictions on the Transferability of Shares: The shares of common
stock of the Company received under Section 3 above are not transferable other
than after they have vested in accordance with such Section or by will or the
laws of descent and distribution, or as set forth in this Section 7. Any
attempted transfer, assignment, pledge, hypothecation, or other disposition of
any such shares contrary to the provisions hereof shall be null and void and
without effect. The certificate(s) evidencing such shares described in Section 3
shall bear a legend indicating that the transferability of the shares is
governed by this Agreement.
e. Entire Agreement: This Agreement, and any other document referenced
herein, constitute the entire understanding of the parties hereto with respect
to the subject matter hereof, and no amendment, modification or alteration of
the terms hereof shall be binding unless the same be in writing, dated
subsequently to the date hereof and duly approved and executed by each of the
parties hereto. This Agreement supersedes in its entirety the Stock Agreement
dated June 4, 1998 between Damoose and the Company.
f. Enforceability: If any term or condition of this Agreement shall be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement, and such term or condition except to such extent or in such
application, shall not be affected thereby and each and every term and condition
of this Agreement shall be valid and enforced to the fullest extent and in the
broadest application permitted by law.
g. Governing Law. This Agreement shall be deemed to have been made in
and shall be construed and interpreted in accordance with the laws of the State
of Oklahoma without giving effect to principles of conflicts of laws.
-5-
<PAGE> 6
h. Counterparts: This Agreement may be executed by any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
i. Binding Effect: Each of the provisions and agreements herein
contained shall be binding upon and inure to the benefit of the personal
representatives, devisees, heirs, successors, transferees and assigns of the
respective parties hereto.
j. Legal Fees and Costs: If a legal action is initiated by any party to
this Agreement against another, arising out of or relating to the alleged
performance or non-performance or any right or obligation established hereunder,
or any dispute concerning the same, any and all fees, costs and expenses
reasonably incurred by each successful party or his or its legal counsel in
investigating, preparing for, prosecuting, defending against, or providing
evidence, producing documents or taking any other action in respect of, such
action shall be the joint and several obligation of and shall be paid or
reimbursed by the unsuccessful party(ies).
k. Adjustments: In the event of any change in the common stock of the
Company by reason of a stock dividend, forward or reverse stock split,
recapitalization, corporate merger or combination, exchange of shares with
another corporation, or a substantially similar event which dilutes the value of
or otherwise adversely affects such stock or the ability of Damoose to exercise
his Option rights, granted under Section 4 above, in accordance with the terms
of this Agreement (each a "CORPORATE FINANCE TRANSACTION"), the number of shares
made the subject of Damoose's Option and the price at which each share is
subject to purchase by Damoose shall be adjusted appropriately to ensure that
the shares will be subject to acquisition by Damoose at a price and upon terms
commensurate to those herein set forth. Moreover, the Company shall be required
to notify Damoose promptly following its approval of a Corporate Finance
Transaction, and to provide Damoose with the right to effect an exercise of the
Option within whatever period of time then precedes the scheduled consummation
of such Transaction.
l. Board of Directors: For five years, Stockholder agrees to vote his
shares of the Company in favor of election of Damoose as a director of the
Company or any controlled or affiliated entity.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement.
By: /s/ Tracy Freeny
------------------------------
Tracy Freeny, Stockholder
By: /s/ John Damoose
------------------------------
John Damoose
AmeriVision Communications, Inc.
By: /s/ Stephen D. Halliday
------------------------------
Stephen D. Halliday,
Chief Executive Officer
-7-
<PAGE> 1
Exhibit 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 24th day of May 1999, by and between John E.
Telling, an individual currently residing at 6109 Stonecreek Way, Edmond,
Oklahoma 73003 (the "EXECUTIVE") AmeriVision Communications, Inc., an Oklahoma
corporation maintaining business offices at 5900 Mosteller Drive, Suite 1800,
Oklahoma City, Oklahoma 73112, and each successor in interest (collectively the
"COMPANY"), and Tracy Freeny ("STOCKHOLDER").
BACKGROUND INFORMATION
The Company wishes to obtain the services of Executive as an executive
of the Company and to create over time a shareholding in the Company by
Executive for the mutual benefit of Executive and the Company. Stockholder
supports the engagement of Executive and wishes to support his continued service
as set forth below. Executive is willing to serve as an executive of the Company
on the terms and conditions set forth below.
OPERATIVE PROVISIONS
1. Employment and Term.
The Company hereby employs the Executive and the latter hereby accepts
employment by the Company commencing as of May 24, 1999 ("the COMMENCEMENT
DATE") and continuing to the fifth anniversary date thereof (the "INITIAL
TERM"), which employment shall thereafter be automatically extended for
unlimited successive one-year periods (each a "SUCCESSOR TERM") unless it is
terminated during the pendency of any such Term, whether Initial or Successor,
by the occurrence of one of the events described in Section 8, hereof, or by one
party furnishing the other with written notice, at least six months prior to the
expiration of such Term, of an intent to terminate this Agreement upon the
expiration of such Term. If the Company, prior to, on or subsequent to the
Commencement Date, effects a merger with and into another entity such that it
then has no continuing legal existence, the Stockholder shall, in connection
with the consummation of such transaction, ensure to the extent possible that
the surviving entity assumes the obligations described hereunder. To the extent
that such an assumption is undertaken, references herein to the Company shall
also be deemed to refer to the party assuming its obligations hereunder.
2. Duties.
During the Term of this Agreement, whether Initial or Successor, the
Executive shall render to the Company services as President of the Company's
internet service provider division, provisionally named Lifeline.net, and shall
perform such duties normally associated with that position and commensurate with
those performed by such officers of similarly sized and functioning entities and
as may be reasonably designated by and subject to the supervision of the
Company's Chief Executive Officer or serve in such other capacities and with
such duties as shall be designated by the Company, through action of its Board
of Directors.
<PAGE> 2
3. Base Compensation.
For the services to be rendered by the Executive under this Agreement
the Company shall pay him, while he is rendering such services and performing
his duties hereunder, and the Executive shall accept as full payment for such
service, an annualized base compensation starting on the Commencement Date of
$250,000 and for each succeeding 12-month period during the Initial or any
Successor Term (inclusive of any amounts subject to federal, state or local
employment-related withholding requirements), payable in substantially equal
installments coinciding with the Company's normal employment compensation
payment cycle or pursuant to such other arrangements as the parties may agree
upon (the "BASE COMPENSATION"). Such Base Compensation shall be reviewed as of
each anniversary of the Commencement Date and may then be increased by action of
the Company's Board of Directors; but under no condition may the Executive's
Base Compensation be decreased below the amounts hereinabove set forth, or any
higher amount then being paid to him, regardless of any change in or diminution
of the Executive's duties owed to the Company. Each year thereafter, Executive's
compensation shall increase at the annual C.P.I. rate of increase (up to 5%) in
lieu of any Board action as described herein to further increase Executive's
salary.
4. Stock Bonus.
On or promptly after May 24, 1999, the Executive shall receive from the
Company one or more certificates, registered in his name, representing one
percent (1%) of the shares of the Company's common stock that are issued and
outstanding as of the close of business on the date preceding the Commencement
Date; determined on a fully diluted basis inclusive of shares reserved for
issuance upon (a) the complete exercise of all then outstanding option, warrant
or rights grants (inclusive of the shares to be made the subject of the
Executive's option grant herein described) and employee stock incentive plans,
(b) the conversion of then outstanding preferred shares or convertible debt
instruments into shares of the Company's common stock, or (c) the consummation
of any then-authorized stock split or stock dividend provided that if at the
time of such intended issuance the Company constitutes a subsidiary of another
corporation or its corporate existence has been terminated as a result of its
merger into or consolidation with another corporation, then Executive shall
receive certificate(s) representing an identical ownership interest in the
ultimate parent of the Company or of the survivor of any such merger or
consolidation, or, if no such parent shall then exist, then in the survivor of
the merger or consolidation. The value of each such share as of the date of
issuance or date of vesting, as applicable, shall be determined by the issuer's
board of directors. The shares shall vest 25 percent on July 1, 1999 and 25
percent on the anniversary thereof for each year of service to the Company by
Executive after July 1, 1999 up to three years of service. In addition, the
Company shall pay at the time of each such vesting a cash bonus to Executive
equal to an amount such that after the payment by Executive of all federal,
state and local income taxes, self-employment taxes, or other taxes (including
any interest or penalties, arising from the actions or inactions of the Company,
imposed with respect thereto) ("INCOME TAXES") imposed on the receipt of the
stock being vested and on such bonus, Executive retains an amount of the bonus
equal to the Income Taxes imposed on him by the vesting of the stock and by the
bonus payments.
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<PAGE> 3
5. Fringe Benefits; Reimbursement of Expenses; Stock Option Grant.
During his period of employment hereunder, the Executive shall be
entitled to (a) such leave by reason of physical or mental disability or
incapacity and to such participation in the medical, dental and group insurance,
pension and other retirement benefits and disability and other fringe benefit
plans and vacation as the Company may make generally available to all of its
most senior executive employees from time to time; subject, however, as to such
plans, to such budgetary constraints or other limitation as may be imposed by
the Board of Directors of the Company from time to time; and (b) reimbursement
for all normal and reasonable expenses necessarily incurred by him in the
performance of his obligations hereunder, subject in each case to such
reasonable substantiation requirements as may be imposed by the Company.
The Executive is hereby granted a non-qualified option (the "OPTION")
to acquire from the Company authorized but unissued shares of its common voting
stock in a quantity equal to three percent (3%) of the Company's then issued and
outstanding common stock, to be determined on a fully diluted basis inclusive of
shares reserved for issuance upon (a) the complete exercise of all then
outstanding option, warrant or rights grants (inclusive of the shares to be made
the subject of Executive's option grant herein described) and employee stock
incentive plans, (b) the conversion of then outstanding preferred shares or
convertible debt instruments into shares of the Company's common stock, or c)
the consummation of any then-authorized stock split or stock dividend provided
that if at the time of such intended issuance the Company constitutes a
subsidiary of another corporation or its corporate existence has been terminated
as a result of its merger into or consolidation with another corporation, then
Executive shall receive certificate(s) representing an identical ownership
interest in the ultimate parent of the Company or of the survivor of any such
merger or consolidation, or, if no such parent shall then exist, then in the
survivor of the merger or consolidation. The exercise price of each share the
subject of the Option grant shall in consideration of Executive's prior
agreement with the Company be the fair value at February 1, 1998 as determined
by the Company's Board of Directors, and assuming the Executive is then an
employee of the Company or has previously terminated such employment under the
"Good Reason" provisions of Section 8e below, the date upon which exercise of
incremental portions of the Option may commence shall be determined in the
following manner:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
The following percentage shall be exercisable
of the Option shares commencing
------------------------ --------------------
<S> <C>
25% on July 1, 1999
25% July 1, 2000
25% July 1, 2001
25% July 1, 2002
</TABLE>
and each exercise right shall continue in force for a period of five years
following its commencement, irrespective of the Executive's subsequent
employment status with the Company. Further, on the date of any sale of all or
substantially all of the Company's assets or any merger or consolidation
transaction as the result of which the Company is not the surviving entity
(other than any merger effected for the principal purpose of reincorporation in
another jurisdiction or for another purpose not resulting in at least a 30%
change in the ultimate beneficial ownership of the Company), the Executive (or,
in the event of his legal incapacity, his legal representative(s)) shall also be
entitled to exercise the Option as to all shares then otherwise ineligible for
exercise, and within the six-month period following his death, the Executive's
representative(s) or Beneficiary(ies) shall be entitled to exercise the Option
as to one-half of all shares which would otherwise be ineligible for acquisition
as of the date of his death. Shares made the subject of the Option grant as to
which no exercise right shall have commenced on the date of the Executive's
termination of employment for other than death or Good Reason, shall be returned
to the status of authorized but unreserved shares and shall no longer be
available for acquisition.
The Executive's existing right to maintain his principal business
office at a location of his choice within the state of New Jersey for one week
during each calendar month occurring in the spring, autumn and winter of each
calendar year, and for such number of weeks during the summer as he deems
appropriate, shall be preserved throughout the Term of this Agreement. The
Company shall pay all reasonable commuting expenses of the Executive in
maintaining this arrangement, as well as the reasonable commuting costs incurred
by the Executive's wife in making four round-trip visits to New Jersey during
each calendar year.
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<PAGE> 5
6. Proprietary Interests.
During or after the expiration of his term of employment with the
Company, the Executive shall not communicate or divulge to, or use for the
benefit of, any individual, association, partnership, trust, corporation or
other entity except the Company, any proprietary or confidential information of
the Company received by the Executive by virtue of such employment, without
first being in receipt of the Company's written consent to do so and in
compliance with the terms of any other confidentiality or non-competition
agreement which the Executive may hereafter execute with the Company; provided
that nothing contained herein shall restrict the Executive's use or disclosure
of such information known to the public (other than that which he may have
disclosed in breach of this Agreement), or as required by law (so long as
Executive gives the Company prior notice of such required disclosure).
7. Remedies for Breach of Obligations.
a. Injunctive Relief. The parties agree that the services of the
Executive are of a personal, specific, unique and extraordinary character and
cannot be readily replaced by the Company. They further agree that in the course
of performing his services, the Executive will have access to various types of
proprietary information of the Company, which, if released to others or used by
the Executive other than for the benefit of the Company, in either case without
the Company's consent, could cause the Company to suffer irreparable and
continuing injury. Therefore, the confidentiality obligations of the Executive
established under Section 6 hereof shall be enforceable by the Company both at
law and in equity, by injunction, specific performance, damages or other remedy;
and the right of the Company to obtain any such remedy shall be cumulative and
not alternative and shall not be exhausted by any one or more uses thereof.
b. Arbitration. In the event of any dispute between the parties under
or relating to this Agreement or relating to the Executive's employment by the
Company, such dispute shall be submitted to and settled by arbitration in
Oklahoma County, Oklahoma, in accordance with the rules and regulations of the
American Arbitration Association then in effect. The arbitrator(s) shall have
the right and authority to determine how their award or decision as to each
issue and matter in dispute may be implemented or enforced. Any decision or
award shall be final and conclusive on the parties; there shall be no appeal
therefrom other than for claimed bias, fraud or misconduct by the arbitrator(s);
judgment upon any award or decision may be entered in any court of competent
jurisdiction in the State of Oklahoma or elsewhere; and the parties hereto
consent to the application by any party in interest to any court of competent
jurisdiction for confirmation or enforcement of such award. The party against
whom a decision is made shall pay the fees of the American Arbitration
Association. Notwithstanding the foregoing, the Company, at its sole option
shall be entitled to enforce its rights, as contemplated by Section 7a hereof,
to injunctive and other equitable relief in the event of a breach of Section 6
hereof or of any material term of a confidentiality or non-competition agreement
to which the Company and the Executive shall then be parties, either by
arbitration pursuant to this Section 7b, or directly in any court of competent
jurisdiction.
-5-
<PAGE> 6
8. Termination of Employment.
a. Death. The Executive's employment hereunder shall terminate in the
event of the Executive's death. Except for (i) any salary and benefits accrued,
vested and unpaid as of the date of any such termination, (ii) any benefits to
which the Executive or his heirs or personal representatives may be entitled
under and in accordance with the terms of any employee benefit plan, policy or
program maintained by the Company, and (iii) the limited right to exercise the
Option described in Section 5 above, the Company shall be under no further
obligation hereunder to the Executive or to his heirs or personal
representatives, and the Executive or his heirs or personal representatives no
longer shall be entitled to receive any payments or any other rights or benefits
under this Agreement.
b. Disability. The Company may terminate the Executive's employment
hereunder for "DISABILITY," if an independent physician mutually selected by the
Executive (or his legal representative) and the Board of Directors or its
designee (or, upon an inability of such parties to effect the selection within a
period of ten days, by the independent certified public accounting firm then
serving the Company) shall have determined that the Executive has been
substantially unable to render to the Company services of the character
contemplated by Section 2 of this Agreement, by reason of a physical or mental
illness or other condition, for more than 60 consecutive days or for shorter
periods aggregating more than 120 days in any period of 12 consecutive months
(excluding in each case days on which the Executive shall be on vacation). In
the event of such Disability, the Executive shall be entitled to receive any
salary and benefits accrued, vested and unpaid as of the date of any such
termination and any benefits to which the Executive may be entitled under and in
accordance with the terms of any employee benefit plan, policy or program
maintained by the Company; and upon the Executive's receipt of such salary and
benefits the Company shall be under no further obligation hereunder to the
Executive and the Executive no longer shall be entitled to receive any payments
or any other rights or benefits under this Agreement.
c. Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for "CAUSE." For purposes of this Agreement,
"CAUSE" shall mean any of the following:
i. The Executive's repeated willful misconduct or gross negligence;
ii. The Executive's repeated conscious disregard of his obligations
hereunder or of any other written duties reasonably assigned to
him by the Board of Directors;
iii. The Executive's repeated conscious violation of any provision of
the Company's by-laws or of its other stated policies, standards
or regulations;
iv. The Executive's commission of any act involving fraud; or
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<PAGE> 7
v. A determination that the Executive has demonstrated a dependence
upon any addictive substance, including alcohol, controlled
substances, narcotics or barbiturates;
provided, however, that if the Board of Directors of the Company desires to
terminate the Executive for any of the reasons set forth in: (1) clause (i),
(ii) or (iii) of this Section 8c, the Company, within the 60-day period
immediately following each alleged commission of a proscribed act or omission,
shall have furnished to the Executive a written description of the allegedly
proscribed act or omission and a statement advising him that the Company views
such conduct as being of the type which could lead to a termination of the
Executive for Cause; (2) clause (ii) or (iii) of this Section 8c, the Board must
be able to demonstrate that the Executive has been furnished with a copy of the
written duty, by-law provision, policy, standard or regulation, the violation of
which the Executive is being accused, at a time prior to the alleged commission
of the violation: or (3) clause (iv) or (v) of this Section 8c, the Board shall
first be required to obtain an opinion from Company counsel to the effect that
there is an adequate basis upon which either such determination may be made.
Except for any salary and benefits accrued, vested and unpaid as of the date of
any such termination, the Company shall be under no further obligation hereunder
to the Executive, and the Executive no longer shall be entitled to receive any
payments or any other rights or benefits, under this Agreement.
d. Termination by the Company Other Than for Cause. The
Company may terminate the Executive's employment hereunder upon the expiration
of the Initial Term or any Successor Term, provided that notice of termination
is furnished as set forth in Section 1, and subject to the right of the
Executive, within such notification period, to effect his own Good Reason
termination as described in subsection 8e below. In the event of either such
termination, the Executive shall be entitled to receive any salary and benefits
accrued, vested and unpaid as of the date of any such termination and any
benefits to which the Executive may be entitled under and in accordance with the
terms of any employee benefit plan, policy or program maintained by the Company,
as well as, in the event that the Executive shall have timely effected a Good
Reason termination, those benefits authorized under the provisions of subsection
8e; and following his receipt of such salary and benefits the Company shall be
under no further obligation hereunder to the Executive and the Executive no
longer shall be entitled to receive any payments or any other rights or benefits
under this Agreement.
e. Termination by the Executive for Good Reason.
Notwithstanding anything herein to the contrary, the Executive shall be entitled
to terminate his employment hereunder for "Good Reason" without breach of this
Agreement. For purposes of this Agreement, "GOOD REASON" shall exist upon the
occurrence of any of the following events or matters, in each case without the
Company first being in receipt of the Executive's written consent thereto, and
the period of time within which the Executive shall be required to exercise a
Good Reason termination of service shall be 30 days, measured from the date upon
which he is notified by the Company of such occurrence, or, with respect to the
matter identified in clause (iii) below, from the date upon which the Executive
notifies the Company of his belief that a material breach has occurred, and,
with respect to the matter identified in clause (vi) below, from the later of
the dates upon which the Executive's or the Company's physician statement is
furnished:
-7-
<PAGE> 8
i. A directed change in the Executive's place of employment in
violation of Section 5 above;
ii. A material adverse change in, or a substantial elimination
of, the duties and responsibilities of the Executive;
iii. A material breach by the Company of its obligations
hereunder;
iv. A change in control of the Company;
v. Receipt by the Executive of the Company's notice that it
intends to terminate him other than for Cause either at the
end of a particular Term of employment, whether Initial or
Successor; or
vi. Impairment of the Executive's health to an extent that makes
his continued performance of duties under this Agreement
hazardous to his physical or mental health, provided that the
Executive shall have furnished the Company with a written
statement from a qualified physician to that effect, and,
provided further, that, at the Company's request, made within
ten days after its being furnished with a copy of such
statement, the Executive shall submit to an examination by a
physician selected by the Company and such physician shall
have concurred in writing with the conclusion of the
Executive's physician.
For purposes of clause (iv) above, a "CHANGE IN CONTROL OF THE COMPANY" shall
mean (a) the acquisition, directly or indirectly, after the date hereof, by any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as in effect on the date hereof), of voting power over
voting shares of the Company that would entitle the holder(s) thereof to cast at
least 25% of the votes that all shareholders would be entitled to cast in the
election of directors of the Company, provided that such term shall not be
deemed to apply to an acquisition by one or more institutional underwriters
directly from the Company in accordance with the conditions of a registration
statement theretofore filed with and declared effective by the United States
Securities and Exchange Commission; or (b) the failure, at any time within the
Term of this Agreement (inclusive of both Initial and Successor), of the
individuals who at the Commencement Date shall constitute the Company's Board of
Directors to constitute at least a majority of such membership, unless the
election of each director who is not a director at the Commencement Date shall
have been approved in advance by directors representing at least 75% of the
directors then in office who are directors at the Commencement Date.
In the event of a Good Reason termination by the Executive within the
Initial or any Successor Term, the Executive shall be entitled to continue to
receive from the Company the Executive's current annual Base Compensation
through the Initial Term or Successor Term as applicable, and in addition
Executive shall receive the Executive's current annual Base Compensation payable
over the succeeding 12-month period from the effective date of termination.
Under either circumstance, the Executive shall also be entitled to continue to
receive full vesting of all Stock Bonus and Stock Option Grants as provided in
Sections 4 and 5. In addition, the Company shall pay at the time of each such
vesting a cash bonus as described
-8-
<PAGE> 9
above in Section 4. Except for such termination compensation following any such
termination, and except for any salary and benefits accrued, vested and unpaid
as of the date of any such termination, the Executive no longer shall be
entitled to receive any payments or any other rights or benefits under this
Agreement, and the Company shall have no further obligation hereunder to the
Executive following any such termination.
f. Termination by the Executive for Other Than Good Reason.
The Executive may terminate his employment hereunder upon the expiration of the
Initial Term or any Successor Term, provided that notice of termination is
provided as set forth in Section 1. In the event of such termination, the
Executive shall be entitled to receive any salary and benefits accrued, vested
and unpaid as of the date of any such termination and any benefits to which the
Executive may be entitled under and in accordance with the terms of any employee
benefit plan, policy or program maintained by the Company; and following his
receipt of such salary and benefits to the Company shall be under no further
obligation hereunder to the Executive and the Executive no longer shall be
entitled to receive any payments or any other rights or benefits under this
Agreement.
g. Life and Disability Insurance Coverage. If termination of
employment is due to any reason other than death, the Executive shall have the
right, subject to receiving approval of the Company (which shall not be
unreasonably withheld), to purchase any policy of insurance on his life or
insuring against his disability which is owned by the Company, the exercise of
which right shall be made by notice furnished to the Company within 30 days
subsequent to the date of termination. The purchase price of each policy of life
insurance shall be the sum of its interpolated terminal reserve value (computed
as of the closing date) and the proportional part of the gross premium last paid
before the closing date which covers any period extending beyond that date; or
if the policy to be purchased shall not have been in force for a period
sufficient to generate an interpolated terminal reserve value, the price shall
be an amount equal to all net premiums paid as of the closing date. The purchase
price of each disability income policy shall be the sum of its cash value and
the proportional part of the gross premium last paid before the closing date
which covers any period extending beyond that date. The purchase of any
insurance policy by the Executive shall be closed as promptly as may be
practicable after the giving of notice, in no event to exceed 30 days therefrom.
h. Termination Plan. The provisions of subsections 8a-g,
inclusive, shall be eliminated and be of no further legal effect immediately
following the adoption by the Company's Board of Directors of a resolution,
voluntarily joined in by the Executive, either in his capacity as a member
thereof or, if he is then not such a member, individually, approving a
termination of employment plan applicable to the Executive and all other elected
officers of the Company.
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<PAGE> 10
9. Indebtedness of Executive.
If, during the course of his employment, the Executive becomes indebted
to the Company for any reason, the Company shall, if it so elects, have the
right to set-off and to collect any sums due it from the Executive out of any
amounts which it may owe to the Executive for unpaid compensation. In the event
that this Agreement terminates for any reason, all sums owed by the Executive to
the Company shall become immediately due and payable.
10. Miscellaneous Provisions.
a. Notice: All notices or other communications required or permitted to
be given pursuant to this Agreement shall be in writing and shall be considered
properly given to the recipient party if furnished by hand delivery; by sending
a copy thereof by first class or express mail, postage prepaid, or by courier
service (with charges prepaid), in each case to the address indicated above or
to such other address as the recipient shall have provided in accordance with
the terms hereof; or by sending a copy thereof by whatever telecopier service
the recipient shall have designated below (or by subsequent notice provided in
accordance with the terms hereof). If the notice is sent by mail or courier
service, it shall be deemed to have been given to the recipient when deposited
in the United States mail or courier service for delivery to that party; or if
by telecopier, when the sending party is in receipt of documentary evidence that
the transmission has been successfully completed. Whenever the furnishing of
notice is required, the same may be waived by the party entitled to receive such
notice.
b. Assignability: The Company may assign this Agreement to, and only
to, an entity owned more than 50% by the Company (directly or indirectly), and
which acquires all or substantially all of the Company's business, and upon such
assignment this Agreement shall inure to the benefit of and be binding upon such
entity. Neither this Agreement nor any right or interest hereunder shall be
assignable by Executive but shall inure to the benefit of and be binding upon
him, his Beneficiaries and legal representatives.
c. Nontransferability of Option: The Option is not transferable by the
Executive otherwise than by will or the laws of descent and distribution. During
Executive's lifetime, only Executive may exercise the Option. This Option may
not be transferred, assigned, pledged, hypothecated, or otherwise disposed by
the Executive during his lifetime, whether by operation of law or otherwise, and
is not subject to execution, attachment or similar process. Any attempted
transfer, assignment, pledge, hypothecation, or other disposition of this Option
contrary to the provisions hereof, and the levy of an attachment or similar
process upon the Option, shall be null and void and without effect. The Company
shall have the right to terminate the Option in the event of such attempted
transfer, assignment, pledge, hypothecation, or other disposition, or levy of
attachment or similar process, by notice to that effect to the Executive,
provided, however, that termination of the Option hereunder shall not prejudice
any rights or remedies which the Company may have under this Agreement or
otherwise.
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<PAGE> 11
d. Restrictions on the Transferability of Shares: The shares of common
stock of the Company received under Section 4 above are not transferable other
than after they have vested in accordance with such Section or by will or the
laws of descent and distribution, or as set forth in this Section 10. Any
attempted transfer, assignment, pledge, hypothecation, or other disposition of
any such shares contrary to the provisions hereof shall be null and void and
without effect. The certificate(s) evidencing such shares described in Section 4
shall bear a legend indicating that the transferability of the shares is
governed by this Agreement.
e. Entire Agreement: This Agreement, and any other document referenced
herein, constitute the entire understanding of the parties hereto with respect
to the subject matter hereof, and no amendment, modification or alteration of
the terms hereof shall be binding unless the same be in writing, dated
subsequently to the date hereof and duly approved and executed by each of the
parties hereto. This Agreement supersedes in its entirety all other prior
agreements between the Executive and the Company, including but not limited to
the Employment Agreement dated October 9, 1997 and the Amended and Restated
Employment Agreement dated January 1, 1998. Furthermore, Tracy Freeny pledges
that if any document, contract or agreement executed by Tracy Freeny conflicts
as to the duties stated in such document, contract, or agreement with the duties
as outlined in Section 2 of this Agreement, the terms of this Agreement as to
duties shall prevail over any conflicting document, contract, or agreement.
f. Enforceability: If any term or condition of this Agreement shall be
invalid or unenforceable to any extent or in any application, then the remainder
of this Agreement, and such term or condition except to such extent or in such
application, shall not be affected thereby and each and every term and condition
of this Agreement shall be valid and enforced to the fullest extent and in the
broadest application permitted by law.
g. Governing Law: This Agreement shall be deemed to have been made in
and shall be construed and interpreted in accordance with the laws of the State
of Oklahoma without giving effect to principles of conflicts of laws.
h. Counterparts: This Agreement may be executed by any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
i. Binding Effect: Each of the provisions and agreements herein
contained shall be binding upon and inure to the benefit of the personal
representatives, devisees, heirs, successors, transferees and assigns of the
respective parties hereto.
j. Legal Fees and Costs: If a legal action is initiated by any party to
this Agreement against another, arising out of or relating to the alleged
performance or non-performance or any right or obligation established hereunder,
or any dispute concerning the same, any and all fees, costs and expenses
reasonably incurred by each successful party or his or its legal counsel in
investigating, preparing for, prosecuting, defending against, or providing
evidence, producing
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<PAGE> 12
documents or taking any other action in respect of, such action shall be the
joint and several obligation of and shall be paid or reimbursed by the
unsuccessful party(ies).
k. Beneficiary: As used herein, the term "Beneficiary" shall mean the
person or persons (who may be designated contingently or successively and who
may be an entity other than an individual, including an estate or trust)
designated in writing to receive the expiration of Agreement or death benefits
described in Section 8 above. Each Beneficiary designation shall be effective
only when filed with the secretary of the Company during the Executive's
lifetime. Each Beneficiary designation filed with the Secretary will cancel all
designations previously so filed. If the Executive fails to properly designate a
Beneficiary or if the Beneficiary predeceases the Executive or dies before
complete distribution of the benefit has been made, the Company shall distribute
the benefit (or balance thereof) to the Executive's probate estate.
l. Adjustments: In the event of any change in the common stock of the
Company by reason of a stock dividend, forward or reverse stock split,
recapitalization, corporate merger or combination, exchange of shares with
another corporation, or a substantially similar event which dilutes the value of
or otherwise adversely affects such stock or the ability of Executive to
exercise his option rights, granted under Section 5 above, in accordance with
the terms of this Agreement (each a "CORPORATE FINANCE TRANSACTION"), the number
of shares made the subject of Executive's options and the price at which each
share is subject to purchase by Executive shall be adjusted appropriately to
ensure that the shares will be subject to acquisition by Executive at a price
and upon terms commensurate to those herein set forth. Moreover, the Company
shall be required to notify Executive promptly following its approval of a
Corporate Finance Transaction, and to provide Executive with the right to effect
an exercise of the options within whatever period of time then precedes the
scheduled consummation of such Transaction.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Agreement.
By: /s/ Tracy Freeny
----------------------------
Tracy Freeny, Stockholder
By: /s/ John E. Telling
----------------------------
John E. Telling
AmeriVision Communications, Inc.
By: /s/ Stephen D. Halliday
----------------------------
Stephen D. Halliday,
Chief Executive Officer
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<PAGE> 1
Exhibit 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 24th day of May 1999, by and between Tracy
Freeny, an individual currently residing at 6220 NE 113th Street, Edmond,
Oklahoma 73034 (the "EXECUTIVE") AmeriVision Communications, Inc., an Oklahoma
corporation maintaining business offices at 5900 Mosteller Drive, Suite 1800,
Oklahoma City, Oklahoma 73112, and each successor in interest (collectively the
"COMPANY").
BACKGROUND INFORMATION
The Company wishes to obtain the continued service of Executive as an
executive of the Company. Executive is willing to serve as an executive of the
Company on the terms and conditions set forth below.
OPERATIVE PROVISIONS
1. Employment and Term.
The Company hereby employs the Executive and the latter hereby accepts
employment by the Company commencing as of May 24, 1999 ("the COMMENCEMENT
DATE") and continuing to the fifth anniversary date thereof (the "INITIAL
TERM"), which employment shall thereafter be automatically extended for
unlimited successive one-year periods (each a "SUCCESSOR TERM") unless it is
terminated during the pendency of any such Term, whether Initial or Successor,
by the occurrence of one of the events described in Section 7, hereof, or by one
party furnishing the other with written notice, at least six months prior to the
expiration of such Term, of an intent to terminate this Agreement upon the
expiration of such Term. If the Company, prior to, on or subsequent to the
Commencement Date, effects a merger with and into another entity such that it
then has no continuing legal existence, the Company shall, in connection with
the consummation of such transaction, ensure to the extent possible that the
surviving entity assumes the obligations described hereunder. To the extent that
such an assumption is undertaken, references herein to the Company shall also be
deemed to refer to the party assuming its obligations hereunder.
2. Duties.
During the Term of this Agreement, whether Initial or Successor, the
Executive shall render to the Company services as Chairman of the Board of
Directors and shall perform such duties normally associated with that position
and commensurate with those performed by such chairmen of similarly sized and
functioning entities and as may be reasonably designated by the Company, through
action of its Board of Directors.
<PAGE> 2
3. Base Compensation.
For the services to be rendered by the Executive under this Agreement
the Company shall pay him, while he is rendering such services and performing
his duties hereunder, and the Executive shall accept as full payment for such
service, an annualized base compensation starting on the Commencement Date of
not less than $300,000 and for each succeeding 12-month period during the
Initial or any Successor Term (inclusive of any amounts subject to federal,
state or local employment-related withholding requirements), payable in
substantially equal installments coinciding with the Company's normal employment
compensation payment cycle or pursuant to such other arrangements as the parties
may agree upon (the "BASE COMPENSATION"). Such Base Compensation shall be
reviewed as of each anniversary of the Commencement Date and may then be
increased by action of the Company's Board of Directors; but under no condition
may the Executive's Base Compensation be decreased below the amounts hereinabove
set forth, or any higher amount then being paid to him, regardless of any change
in or diminution of the Executive's duties owed to the Company. Each year
thereafter, Executive's compensation shall increase at the annual C.P.I. rate of
increase (up to 5%) in lieu of any Board action as described herein to further
increase Executive's salary.
4. Fringe Benefits; Reimbursement of Expenses.
During his period of employment hereunder, the Executive shall be
entitled to (a) such leave by reason of physical or mental disability or
incapacity and to such participation in the medical, dental and group insurance,
pension and other retirement benefits and disability and other fringe benefit
plans and vacation as the Company may make generally available to all of its
most senior executive employees from time to time; subject, however, as to such
plans, to such budgetary constraints or other limitation as may be imposed by
the Board of Directors of the Company from time to time; and (b) reimbursement
for all normal and reasonable expenses necessarily incurred by him in the
performance of his obligations hereunder, subject in each case to such
reasonable substantiation requirements as may be imposed by the Company.
5. Proprietary Interests.
During or after the expiration of his term of employment with the
Company, the Executive shall not communicate or divulge to, or use for the
benefit of, any individual, association, partnership, trust, corporation or
other entity except the Company, any proprietary or confidential information of
the Company received by the Executive by virtue of such employment, without
first being in receipt of the Company's written consent to do so and in
compliance with the terms of any other confidentiality or non-competition
agreement which the Executive may hereafter execute with the Company; provided
that nothing contained herein shall restrict the Executive's use or disclosure
of such information known to the public (other than that which he may have
disclosed in breach of this Agreement), or as required by law (so long as
Executive gives the Company prior notice of such required disclosure).
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<PAGE> 3
6. Remedies for Breach of Obligations.
a. Injunctive Relief.
The parties agree that the services of the Executive are of a personal,
specific, unique and extraordinary character and cannot be readily replaced by
the Company. They further agree that in the course of performing his services,
the Executive will have access to various types of proprietary information of
the Company, which, if released to others or used by the Executive other than
for the benefit of the Company, in either case without the Company's consent,
could cause the Company to suffer irreparable and continuing injury. Therefore,
the confidentiality obligations of the Executive established under Section 5
hereof shall be enforceable by the Company both at law and in equity, by
injunction, specific performance, damages or other remedy; and the right of the
Company to obtain any such remedy shall be cumulative and not alternative and
shall not be exhausted by any one or more uses thereof.
b. Arbitration.
In the event of any dispute between the parties under or relating to
this Agreement or relating to the Executive's employment by the Company, such
dispute shall be submitted to and settled by arbitration in Oklahoma County,
Oklahoma, in accordance with the rules and regulations of the American
Arbitration Association then in effect. The arbitrator(s) shall have the right
and authority to determine how their award or decision as to each issue and
matter in dispute may be implemented or enforced. Any decision or award shall be
final and conclusive on the parties; there shall be no appeal therefrom other
than for claimed bias, fraud or misconduct by the arbitrator(s); judgment upon
any award or decision may be entered in any court of competent jurisdiction in
the State of Oklahoma or elsewhere; and the parties hereto consent to the
application by any party in interest to any court of competent jurisdiction for
confirmation or enforcement of such award. The party against whom a decision is
made shall pay the fees of the American Arbitration Association. Notwithstanding
the foregoing, the Company, at its sole option shall be entitled to enforce its
rights, as contemplated by Section 6a hereof, to injunctive and other equitable
relief in the event of a breach of Section 5 hereof or of any material term of a
confidentiality or non-competition agreement to which the Company and the
Executive shall then be parties, either by arbitration pursuant to this Section
6b, or directly in any court of competent jurisdiction.
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<PAGE> 4
7. Termination of Employment.
a. Death. The Executive's employment hereunder shall terminate in the
event of the Executive's death. Except for (i) any salary and benefits accrued,
vested and unpaid as of the date of any such termination and (ii) any benefits
to which the Executive or his heirs or personal representatives may be entitled
under and in accordance with the terms of any employee benefit plan, policy or
program maintained by the Company, the Company shall be under no further
obligation hereunder to the Executive or to his heirs or personal
representatives, and the Executive or his heirs or personal representatives no
longer shall be entitled to receive any payments or any other rights or benefits
under this Agreement.
b. Disability. The Company may terminate the Executive's employment
hereunder for "DISABILITY," if an independent physician mutually selected by the
Executive (or his legal representative) and the Board of Directors or its
designee (or, upon an inability of such parties to effect the selection within a
period of ten days, by the independent certified public accounting firm then
serving the Company) shall have determined that the Executive has been
substantially unable to render to the Company services of the character
contemplated by Section 2 of this Agreement, by reason of a physical or mental
illness or other condition, for more than 60 consecutive days or for shorter
periods aggregating more than 120 days in any period of 12 consecutive months
(excluding in each case days on which the Executive shall be on vacation). In
the event of such Disability, the Executive shall be entitled to receive any
salary and benefits accrued, vested and unpaid as of the date of any such
termination and any benefits to which the Executive may be entitled under and in
accordance with the terms of any employee benefit plan, policy or program
maintained by the Company; and upon the Executive's receipt of such salary and
benefits the Company shall be under no further obligation hereunder to the
Executive and the Executive no longer shall be entitled to receive any payments
or any other rights or benefits under this Agreement.
c. Termination by the Company for Cause. The Company may terminate the
Executive's employment hereunder for "CAUSE." For purposes of this Agreement,
"CAUSE" shall mean any of the following:
i. The Executive's repeated willful misconduct or gross
negligence;
ii. The Executive's repeated conscious disregard of his
obligations hereunder or of any other written duties
reasonably assigned to him by the Board of Directors;
iii. The Executive's repeated conscious violation of any provision
of the Company's by-laws or of its other stated policies,
standards or regulations;
iv. The Executive's commission of any act involving fraud; or
v. A determination that the Executive has demonstrated a
dependence upon any addictive substance, including alcohol,
controlled substances, narcotics or barbiturates;
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<PAGE> 5
provided, however, that if the Board of Directors of the Company desires to
terminate the Executive for any of the reasons set forth in: (1) clause (i),
(ii) or (iii) of this Section 7c, the Company, within the 60-day period
immediately following each alleged commission of a proscribed act or omission,
shall have furnished to the Executive a written description of the allegedly
proscribed act or omission and a statement advising him that the Company views
such conduct as being of the type which could lead to a termination of the
Executive for Cause; (2) clause (ii) or (iii) of this Section 7c, the Board must
be able to demonstrate that the Executive has been furnished with a copy of the
written duty, by-law provision, policy, standard or regulation, the violation of
which the Executive is being accused, at a time prior to the alleged commission
of the violation: or (3) clause (iv) or (v) of this Section 7c, the Board shall
first be required to obtain an opinion from Company counsel to the effect that
there is an adequate basis upon which either such determination may be made.
Except for any salary and benefits accrued, vested and unpaid as of the date of
any such termination, the Company shall be under no further obligation hereunder
to the Executive, and the Executive no longer shall be entitled to receive any
payments or any other rights or benefits, under this Agreement.
d. Termination by the Company Other Than for Cause. The
Company may terminate the Executive's employment hereunder upon the expiration
of the Initial Term or any Successor Term, provided that notice of termination
is furnished as set forth in Section 1, and subject to the right of the
Executive, within such notification period, to effect his own Good Reason
termination as described in subsection 7e below. In the event of either such
termination, the Executive shall be entitled to receive any salary and benefits
accrued, vested and unpaid as of the date of any such termination and any
benefits to which the Executive may be entitled under and in accordance with the
terms of any employee benefit plan, policy or program maintained by the Company,
as well as, in the event that the Executive shall have timely effected a Good
Reason termination, those benefits authorized under the provisions of subsection
7e; and following his receipt of such salary and benefits the Company shall be
under no further obligation hereunder to the Executive and the Executive no
longer shall be entitled to receive any payments or any other rights or benefits
under this Agreement.
e. Termination by the Executive for Good Reason.
Notwithstanding anything herein to the contrary, the Executive shall be entitled
to terminate his employment hereunder for "Good Reason" without breach of this
Agreement. For purposes of this Agreement, "GOOD REASON" shall exist upon the
occurrence of any of the following events or matters, in each case without the
Company first being in receipt of the Executive's written consent thereto, and
the period of time within which the Executive shall be required to exercise a
Good Reason termination of service shall be 30 days, measured from the date upon
which he is notified by the Company of such occurrence, or, with respect to the
matter identified in clause (iii) below, from the date upon which the Executive
notifies the Company of his belief that a material breach has occurred, and,
with respect to the matter identified in clause (vi) below, from the later of
the dates upon which the Executive's or the Company's physician statement is
furnished:
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<PAGE> 6
i. A directed change in the Executive's principal place of
employment to a location outside of the metropolitan Oklahoma
City area;
ii. A material adverse change in, or a substantial elimination
of, the duties and responsibilities of the Executive;
iii. A material breach by the Company of its obligations
hereunder;
iv. A change in control of the Company;
v. Receipt by the Executive of the Company's notice that it
intends to terminate him other than for Cause either at the
end of a particular Term of employment, whether Initial or
Successor; or
vi. Impairment of the Executive's health to an extent that makes
his continued performance of duties under this Agreement
hazardous to his physical or mental health, provided that the
Executive shall have furnished the Company with a written
statement from a qualified physician to that effect, and,
provided further, that, at the Company's request, made within
ten days after its being furnished with a copy of such
statement, the Executive shall submit to an examination by a
physician selected by the Company and such physician shall
have concurred in writing with the conclusion of the
Executive's physician.
For purposes of clause (iv) above, a "CHANGE IN CONTROL OF THE COMPANY" shall
mean (a) the acquisition, directly or indirectly, after the date hereof, by any
"person" (as such term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as in effect on the date hereof), of voting power over
voting shares of the Company that would entitle the holder(s) thereof to cast at
least 25% of the votes that all shareholders would be entitled to cast in the
election of directors of the Company, provided that such term shall not be
deemed to apply to an acquisition by one or more institutional underwriters
directly from the Company in accordance with the conditions of a registration
statement theretofore filed with and declared effective by the United States
Securities and Exchange Commission; or (b) the failure, at any time within the
Term of this Agreement (inclusive of both Initial and Successor), of the
individuals who at the Commencement Date shall constitute the Company's Board of
Directors to constitute at least a majority of such membership, unless the
election of each director who is not a director at the Commencement Date shall
have been approved in advance by directors representing at least 75% of the
directors then in office who are directors at the Commencement Date.
In the event of a Good Reason termination by the Executive within the
Initial or any Successor Term, the Executive shall be entitled to continue to
receive from the Company the Executive's current annual Base Compensation
through the Initial Term or Successor Term as applicable, and in addition
Executive shall receive the Executive's current annual Base Compensation payable
over the succeeding 12-month period from the effective date of termination.
Except for such termination compensation following any such termination, and
except for any salary and benefits accrued, vested and unpaid as of the date of
any such termination, the Executive no longer shall be entitled to receive any
payments or any other rights
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<PAGE> 7
or benefits under this Agreement, and the Company shall have no further
obligation hereunder to the Executive following any such termination.
f. Termination by the Executive for Other Than Good Reason.
The Executive may terminate his employment hereunder upon the expiration of the
Initial Term or any Successor Term, provided that notice of termination is
provided as set forth in Section 1. In the event of such termination, the
Executive shall be entitled to receive any salary and benefits accrued, vested
and unpaid as of the date of any such termination and any benefits to which the
Executive may be entitled under and in accordance with the terms of any employee
benefit plan, policy or program maintained by the Company; and following his
receipt of such salary and benefits to the Company shall be under no further
obligation hereunder to the Executive and the Executive no longer shall be
entitled to receive any payments or any other rights or benefits under this
Agreement.
g. Life and Disability Insurance Coverage. If termination of
employment is due to any reason other than death, the Executive shall have the
right, subject to receiving approval of the Company (which shall not be
unreasonably withheld), to purchase any policy of insurance on his life or
insuring against his disability which is owned by the Company, the exercise of
which right shall be made by notice furnished to the Company within 30 days
subsequent to the date of termination. The purchase price of each policy of life
insurance shall be the sum of its interpolated terminal reserve value (computed
as of the closing date) and the proportional part of the gross premium last paid
before the closing date which covers any period extending beyond that date; or
if the policy to be purchased shall not have been in force for a period
sufficient to generate an interpolated terminal reserve value, the price shall
be an amount equal to all net premiums paid as of the closing date. The purchase
price of each disability income policy shall be the sum of its cash value and
the proportional part of the gross premium last paid before the closing date
which covers any period extending beyond that date. The purchase of any
insurance policy by the Executive shall be closed as promptly as may be
practicable after the giving of notice, in no event to exceed 30 days therefrom.
h. Termination Plan. The provisions of subsections 7a-g,
inclusive, shall be eliminated and be of no further legal effect immediately
following the adoption by the Company's Board of Directors of a resolution,
voluntarily joined in by the Executive, either in his capacity as a member
thereof or, if he is then not such a member, individually, approving a
termination of employment plan applicable to the Executive and all other elected
officers of the Company.
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<PAGE> 8
8. Indebtedness of Executive.
If, during the course of his employment, the Executive becomes
indebted to the Company for any reason, the Company shall, if it so elects, have
the right to set-off and to collect any sums due it from the Executive out of
any amounts which it may owe to the Executive for unpaid compensation. In the
event that this Agreement terminates for any reason, all sums owed by the
Executive to the Company shall become immediately due and payable.
9. Miscellaneous Provisions.
a. Notice: All notices or other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be considered properly given to the recipient party if furnished by hand
delivery; by sending a copy thereof by first class or express mail, postage
prepaid, or by courier service (with charges prepaid), in each case to the
address indicated above or to such other address as the recipient shall have
provided in accordance with the terms hereof; or by sending a copy thereof by
whatever telecopier service the recipient shall have designated below (or by
subsequent notice provided in accordance with the terms hereof). If the notice
is sent by mail or courier service, it shall be deemed to have been given to the
recipient when deposited in the United States mail or courier service for
delivery to that party; or if by telecopier, when the sending party is in
receipt of documentary evidence that the transmission has been successfully
completed. Whenever the furnishing of notice is required, the same may be waived
by the party entitled to receive such notice.
b. Assignability: The Company may assign this Agreement to,
and only to, an entity owned more than 50% by the Company (directly or
indirectly), and which acquires all or substantially all of the Company's
business, and upon such assignment this Agreement shall inure to the benefit of
and be binding upon such entity. Neither this Agreement nor any right or
interest hereunder shall be assignable by Executive but shall inure to the
benefit of and be binding upon him, his Beneficiaries and legal representatives.
c. Entire Agreement: This Agreement, and any other document
referenced herein, constitute the entire understanding of the parties hereto
with respect to the subject matter hereof, and no amendment, modification or
alteration of the terms hereof shall be binding unless the same be in writing,
dated subsequently to the date hereof and duly approved and executed by each of
the parties hereto.
d. Enforceability: If any term or condition of this Agreement
shall be invalid or unenforceable to any extent or in any application, then the
remainder of this Agreement, and such term or condition except to such extent or
in such application, shall not be affected thereby and each and every term and
condition of this Agreement shall be valid and enforced to the fullest extent
and in the broadest application permitted by law.
e. Governing Law: This Agreement shall be deemed to have been
made in and shall be construed and interpreted in accordance with the laws of
the State of Oklahoma without giving effect to principles of conflicts of laws.
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<PAGE> 9
f. Counterparts: This Agreement may be executed by any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
g. Binding Effect: Each of the provisions and agreements
herein contained shall be binding upon and inure to the benefit of the personal
representatives, devisees, heirs, successors, transferees and assigns of the
respective parties hereto.
h. Legal Fees and Costs: If a legal action is initiated by any
party to this Agreement against another, arising out of or relating to the
alleged performance or non-performance or any right or obligation established
hereunder, or any dispute concerning the same, any and all fees, costs and
expenses reasonably incurred by each successful party or his or its legal
counsel in investigating, preparing for, prosecuting, defending against, or
providing evidence, producing documents or taking any other action in respect
of, such action shall be the joint and several obligation of and shall be paid
or reimbursed by the unsuccessful party(ies).
i. Beneficiary: As used herein, the term "Beneficiary" shall
mean the person or persons (who may be designated contingently or successively
and who may be an entity other than an individual, including an estate or trust)
designated in writing to receive the expiration of Agreement or death benefits
described in Section 7 above. Each Beneficiary designation shall be effective
only when filed with the secretary of the Company during the Executive's
lifetime. Each Beneficiary designation filed with the Secretary will cancel all
designations previously so filed. If the Executive fails to properly designate a
Beneficiary or if the Beneficiary predeceases the Executive or dies before
complete distribution of the benefit has been made, the Company shall distribute
the benefit (or balance thereof) to the Executive's probate estate.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement.
By: /s/ Tracy Freeny
----------------------------------
Tracy Freeny
AmeriVision Communications, Inc.
By: /s/ Stephen D. Halliday
----------------------------------
Stephen D. Halliday,
Chief Executive Officer
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<PAGE> 1
Exhibit 10.8
REAFFIRMATION OF COMMITMENTS MADE IN EMPLOYMENT AGREEMENT
OF STEPHEN D. HALLIDAY
On this 30th day of June, 1999, the undersigned, Carl Thompson
("Thompson"), a stockholder of AmeriVision Communications, Inc. (the "Company"),
acknowledges that Stephen D. Halliday ("Halliday") and the Company entered into
an Employment Agreement on May 24, 1999. Notwithstanding such Employment
Agreement, Thompson reaffirms and agrees to continue to be bound by all pledges,
commitments, promises, and covenants that he made in an Employment Agreement
dated January 27, 1998 between the Company, Thompson and Halliday, including but
not limited to the pledge to vote for Halliday, John Damoose, and Jay A. Sekulow
to serve on the Company's Board of Directors.
By: /s/ Carl Thompson
----------------------------
Carl Thompson
<PAGE> 1
Exhibit 10.9
REAFFIRMATION OF COMMITMENTS MADE IN STOCK AGREEMENT
OF JAY A. SEKULOW
On this 30th day of June, 1999, the undersigned, Carl Thompson
("Thompson"), a stockholder of AmeriVision Communications, Inc. (the "Company")
acknowledges that Jay A. Sekulow ("Sekulow") and the Company entered into a
Stock Agreement on May 24, 1999. Notwithstanding such Stock Agreement, Thompson
reaffirms and agrees to continue to be bound by all pledges, commitments,
promises, and covenants that he made in a Stock Agreement dated January 27,
1998 between the Company, Thompson, Tracy Freeny and Sekulow, including but not
limited to his pledge to vote for Sekulow, John Damoose and Stephen D. Halliday
to serve on the Company's Board of Directors.
By: /s/ Carl Thompson
--------------------------------
Carl Thompson
<PAGE> 1
Exhibit 10.10
AGREEMENT
THIS AGREEMENT (this "Agreement") is made effective as of the 1st day
of January, 1999 by and between AmeriVision Communications, Inc., an Oklahoma
corporation (the "Buyer"), and VisionQuest Marketing Services, Inc., an
Oklahoma corporation (the "Seller").
RECITALS
Seller owns and operates four telemarketing centers (collectively, the
"Telemarketing Centers"), one of which is known as the Tahlequah Center
("Tahlequah" or the "Tahlequah Center"). Seller wishes to sell the Tahlequah
Center to Buyer and to retain the right to use up to fifty percent of its
telemarketing capacity through February 28, 1999, and Buyer wishes to buy
Tahlequah and permit Seller to use such telemarketing capacity, all on the
terms and conditions set forth herein.
In order to facilitate the orderly transfer of the Tahlequah Center
from Seller to Buyer, the parties wish to provide for a two month Period (as
further defined below) during which Period Seller will manage the operations of
the Tahlequah Center for the mutual benefit of Buyer and Seller, and Buyer and
Seller will split evenly the telemarketing capacity of the Tahlequah Center and
split (prorated by the amount of telemarketing time used) all costs of
operation and ownership of the Tahlequah Center.
AGREEMENT
NOW, THEREFORE, taking the foregoing into account, and in
consideration of the mutual covenants and agreements set forth herein, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE 1: SALE AND PURCHASE
1.1 Tahlequah Assets. Subject to the terms and conditions hereof,
Seller shall grant, convey, sell, assign, transfer and deliver to Buyer on the
Closing Date (as hereinafter defined) all interests of Seller in all
properties, assets and interests, real and personal, tangible and intangible,
of every type and description, and used or held for use solely in the business
and operations of the Tahlequah Center (collectively, the "Tahlequah Assets"),
which shall include:
(a) Tangible Personal Property. All interests of Seller as of
the date of this Agreement in all equipment, telephones, voicemail systems,
PBXs, switches, routers, dialers, ACDs, LANs, servers, workstations, CTIs,
IVRs, furniture, fixtures, office materials and
<PAGE> 2
supplies, and other tangible personal property of every kind and description,
used or held for use, owned or leased, in connection with the business or
operation of Tahlequah.
(b) Tahlequah Contracts. All contracts and agreements of
Seller used or held for use in connection with the equipment, business or
operation of Tahlequah, other than contracts and agreements solely for the sale
of telemarketing service by Seller. Seller shall have no liability to EIS in
regards to any contract with EIS and Buyer indemnifies Seller with regard to
any such liabilities to EIS existing post-Closing.
(c) Files and Records. All files, logs, reports and other
records or information that relate to the business or operation of the
Tahlequah Center other than contracts and agreements solely for the sale of
telemarketing service by Seller.
Each of the foregoing items shall be part of the Tahlequah Assets
together with any other such item acquired by Seller in the business or
operation of the Tahlequah Center between the date hereof and the Closing Date,
and shall be sold and conveyed to Buyer free and clear of all liens, security
interests, pledges, restrictions, prior assignments, claims and encumbrances of
any kind or type whatsoever (other than any restrictions set forth in the
existing contract with EIS) (collectively, "Liens").
Notwithstanding the foregoing in this Section, the Tahlequah Assets
shall not include the "VisionQuest" name or any trade or service mark related
thereto.
1.2 Training by Seller. Seller agrees to provide such training and to
make available such personnel to Buyer and Buyers' management and MIS personnel
(up to a maximum of five man-days) as is requested by Buyer to assist it to be
able proficiently to operate the Tahlequah Center after the Closing Date,
provided, however, that such training shall be provided by February 15, 1999.
1.3 Liabilities Retained by Seller. Except as explicitly set forth to
the contrary herein, Buyer shall not assume or be liable for any obligation or
liability arising from the pre-Closing operation of the Tahlequah Center or any
other pre-closing liability or obligation of Seller (the "Retained
Liabilities"). The Retained Liabilities shall include, without limitation: (i)
any liability or obligation of Seller arising out of or relating to any
contract, lease agreement or instrument not explicitly assumed hereunder; (ii)
any liability or obligation of Seller owing to any present (as of the Closing
Date) or former Tahlequah employee (whether or not hired by Buyer following
Closing) or arising out of or relating to any employee benefit plan or
otherwise relating to employment; (iii) any liability or obligation of Seller
arising out of or relating to any litigation, proceeding or claim (whether or
not such litigation, proceeding or claim is pending, threatened or asserted
before, on or after the Closing Date); (iv) any other liabilities, obligations,
debts or commitments of Seller; and (v) any claims asserted against the
Tahlequah Center or any of the Tahlequah Assets relating to any event (whether
act or
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<PAGE> 3
omission) prior to the Closing Date, including without limitation, the payment
of all taxes. Seller shall retain and shall hereafter pay, satisfy, discharge,
perform and fulfill all Retained Liabilities as they become due, without any
charge or cost to Buyer.
1.4 Consideration. The consideration to be transferred from Buyer to
Seller for the Tahlequah Assets will be: (a) One Million Ninety-Nine Thousand
Eight Hundred Fifty (1,099,850) shares of Seller's common stock having $0.001
per share par value as further described below (the "Transferred Stock"); and
(b) cancellation and release of all amounts remaining due under that certain
promissory note with Seller as Maker in favor of Buyer as Payee (the "Note")
dated December 31, 1997 with an outstanding balance of $520,000 as of the date
hereof.
1.5 Adjustments. Except as explicitly set forth to the contrary
herein, the operation of the Tahlequah Center and the income and normal
operating expenses attributable thereto through the day preceding the Closing
Date (the "Adjustment Date") shall be for the account of Seller and thereafter
for the account of Buyer, and, if any income or expense is properly allocable
or credited, then it shall be allocated, charged or prorated accordingly.
Expenses for goods or services received both before and after the Adjustment
Date, power and utilities charges, frequency discounts, rents and similar
prepaid and deferred items shall be prorated between Seller and Buyer as of the
Adjustment Date in accordance with generally accepted accounting principles.
All special assessments and similar charges or liens imposed against the
property leased for the Tahlequah Center and tangible personal property in
respect of any period of time through the Adjustment Date, whether payable in
installments or otherwise, shall be the responsibility of Seller, and amounts
payable with respect to such special assessments, charges or liens in respect
of any period of time after the Adjustment Date shall be the responsibility of
Buyer, and such charges shall be adjusted accordingly. To the extent that any
of the foregoing prorations and adjustments cannot be determined as of the
Closing Date, Buyer and Seller shall conduct a final accounting and make any
further payments and adjustments that are necessary, as required on a date
mutually agreed upon, within sixty (60) days after the Closing.
1.6 Mutual Releases. As part of the consideration for the transactions
contemplated in this Agreement, Buyer and Seller agree mutually to resolve,
adjust and release all existing and potential claims, disputes, causes of
action, obligations, liabilities, inter-company receivables or other accounts
in existence between them as of the Adjustment Date, other than work in
progress under existing agreements, and to execute appropriate release
agreements to accomplish the same.
1.7 Closing. The consummation of the sale and purchase provided for in
this Agreement (the "Closing") shall take place on or before January 1, 1999 at
Buyer's offices (the "Closing Date").
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1.8 Period. During the period between the Closing Date and February
28, 1999 (the "Period"), Seller and Buyer agree as follows:
(a) Employees. During the Period, the employees at the
Tahlequah Center as of the Closing Date shall remain, together with any
additional employees hired during the Period, Seller's employees, and, subject
to Section 1.8(c), all expenses and liabilities relating to such employees
attributable to employment during the Period, including without limitation for
salaries and state and federal taxes, shall be the responsibility of Seller.
During the Period, Seller shall also be responsible for the staffing of the
Tahlequah Center and shall use its best efforts to keep the Tahlequah Center
fully staffed, consistent with past practice, industry standards and the
Tahlequah Center's full operating capacity, provided, however, that such
staffing shall be done at rates and on terms consistent with good business
practice, an appropriate anti-nepotism policy and the long-term best interests
of the Tahlequah Center. Buyer shall have the right in good faith to request
the hiring of any person as an employee at the Tahlequah Center and to request
the dismissal of any existing employee at the Tahlequah Center for any
appropriate reason, but Seller shall have the final authority regarding such
request for the duration of the Period.
(b) Conclusion of Period. At the conclusion of the Period:
(i) all employees of the Tahlequah Center shall become the employees of Buyer,
and Seller shall have no liability for amounts owing to or with respect to such
employees for employment at Tahlequah after the Period; and (ii) Seller will
not, during 1999, whether on its own behalf or on behalf of another person,
corporation or other entity, directly or indirectly solicit or induce, or to
attempt to solicit or induce, any employee of Buyer or of the Tahlequah Center
to leave Buyer or the Tahlequah Center for any reason whatsoever, or hire any
person who then is, or was during or prior to the Period, an employee of Buyer.
(c) Expenses. All out of pocket expenses attributable to the
operation of the Tahlelquah Center during the Period (exclusive of Retained
Liabilities), including without limitation relating to employees, utilities,
rent and supplies (but excluding overhead of Buyer or Seller, any amount paid
to any affiliate, officer, director or shareholder of Buyer or Seller, or to
any affiliate or relative of either, any interest expense, trade expense,
reimbursed expense, capital expense, depreciation or amortization or other
expense incurred by Buyer or Seller other than specifically relating to the
actual operation of the Tahlequah Center), shall be split by the Buyer and
Seller pro rata according to the relative amount of telemarketing services used
at the Tahlequah Center by each of Buyer and Seller. Any amounts due to Buyer
or Seller for such expenses shall be paid within ten days of invoice therefor
and may be offset against other amounts owing pursuant to this paragraph to
avoid duplicative payments.
(d) Joint Management. During the Period, Seller shall,
through a manager resident at the Tahlequah Center, manage the Tahlequah Center
with the assistance of, and in consultation with, the assistant manager, who
shall be appointed by Buyer and who shall also
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be resident at the Tahlequah Center. Seller and Buyer shall use their best
efforts, and shall direct the manager and assistant manager respectively to
cooperate in the management and operation of the Tahlequah Center.
Notwithstanding the provisions of Section 1.8(a) hereof regarding employees,
Buyer's assistant manager shall be employed by, and on the payroll of, Buyer.
(e) Division of Telemarketing Capacity at the Tahlequah
Center. During the Period, each of Seller and Buyer shall be entitled to use up
to fifty percent (50%) of the telemarketing capacity of the Tahlequah Center,
and shall make available to the other any unused portion of such capacity.
Buyer and Seller shall ensure in good faith that their respective manager will
divide the employees of Tahlequah equitably and appropriately between
telemarketing jobs of Buyer and Seller in a manner calculated to provide to
each telemarketing services of high quality consistent with past and industry
practice and in accordance with any confidentiality requirements.
(f) Confidentiality. The parties acknowledge and agree that
certain information, including without limitation procedures, strategies,
scripts and orders, may be highly confidential or proprietary, and that
agreements or information relating to any of the foregoing may require that
confidentiality be strictly maintained. Accordingly, Buyer and Seller shall
take such measures as are reasonable and appropriate to protect such
information. Such measures may include, without limitation: segregating the
employees and management of the Tahlequah Center from such information,
requiring the execution of confidentiality agreements, and restricting access
to the computer systems of the Tahlequah Center by password.
(g) Cooperation. The parties acknowledge and agree that joint
operation of the Tahlequah Center during the Period may result in competing
demands, including on the capacity of the equipment used for telemarketing and
the time and loyalty of the employees. Notwithstanding this potential, Buyer
and Seller agree to cooperate in good faith to resolve any such difficulties
and to make every reasonable effort to ensure the efficient and effective
operation of the Tahlequah Center for the mutual benefit of Buyer and Seller
consistent with past and industry practice.
1.9 Call Option. At any time during the period commencing on the date
nine (9) months following the Closing Date and ending on the first anniversary
of the Closing Date the Seller may by written notice to the Buyer exercise an
option (the "Call Option") to acquire the Tahlequah Assets in consideration of
one dollar ($1.00) and assumption of all obligations (i) arising subsequent to
the Call Option Closing Date (defined below) under contracts and agreements
used or held for use in connection with the equipment, business or operation of
Tahlequah, and (ii) under the real estate lease for the Tahlequah Center. In
connection with any such exercise of the Call Option, at the closing (the "Call
Option Closing Date") (x) all employees of the Tahlequah Center (other than any
employees of Buyer which were not
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employees of the Seller prior to the Closing Date and which are designated as
retained employees by Buyer at or prior to the Call Option Closing Date) shall
become employees of the Seller, (y) Seller shall execute and deliver an
instrument or instruments of assumption substantially in the form delivered by
Buyer on the Closing Date, and (z) Buyer shall execute and deliver a bill of
sale and other documents of transfer with respect to the Tahlequah Assets
substantially in the form delivered by the Seller on the Closing Date. The Call
Option Closing Date shall unless otherwise agreed by the parties be the date
ten (10) days after delivery of the notice of exercise of the Call Option.
Closing adjustments and other closing matters shall be dealt with substantially
in accordance with the Closing.
ARTICLE 2: REPRESENTATIONS AND WARRANTIES
Each party or the party identified represents, warrants and
covenants to the other as follows:
2.1 Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization. It
has the requisite power and authority to own and operate the Tahlequah Center,
to carry on the Tahlequah Center's business as now conducted, and to execute
and deliver this Agreement and any other agreements and instruments to be
executed and delivered by it pursuant hereto, to consummate the transactions
contemplated hereby and thereby and to comply with the terms, conditions and
provisions hereof and thereof.
2.2 Authority. The execution, delivery and performance of this
Agreement and any other agreements and instruments to be executed and delivered
by it pursuant hereto have been duly authorized and approved by all necessary
corporate action and do not require any further authorization or consent by
such company or its shareholders. This Agreement is, and any other agreements
and instruments to be executed and delivered by it pursuant hereto when
executed and delivered by it will be its legal, valid and binding agreement
enforceable in accordance with its respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency,
reorganization or other similar laws affecting or limiting the enforcement of
creditors' rights generally and except as such enforceability is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
ARTICLE 3: ITEMS TO BE DELIVERED AT THE CLOSING; CONDITIONS TO CLOSING.
3.1 Deliveries by Seller. At the Closing, Seller shall deliver to
Buyer duly executed by Seller or such other signatory as may be required by the
nature of the document:
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(a) bills of sale, certificates of title, endorsements,
assignments, general warranty deeds and other good and sufficient instruments
of sale, conveyance, transfer and assignment, in form and substance
satisfactory to Buyer, sufficient to sell, convey, transfer and assign the
Tahlequah Assets to Buyer free and clear of Liens and to quiet Buyer's title
thereto;
(b) certified copies of resolutions, duly adopted by the
board of directors and shareholders of Seller, which shall be in full force and
effect at the time of the Closing, authorizing the execution, delivery and
performance by Seller of this Agreement, and the consummation of the
transactions contemplated hereby;
(c) a complete release of all claims, causes of action and
liabilities of Buyer to Seller, other than those assumed, preserved or
otherwise retained by Buyer hereunder, in form and substance satisfactory to
Buyer; and
(d) the certificate referred to in Section 3.3
3.2 Deliveries by Buyer. At the Closing, Buyer shall deliver to
Seller:
(a) the Transferred Stock;
(b) an instrument or instruments of assumption;
(c) certified copies of resolutions, duly adopted by the
Board of Directors of Buyer, which shall be in full force and effect at the
time of the Closing, authorizing the execution, delivery and performance by
Buyer of this Agreement and the consummation of the transactions contemplated
hereby;
(d) all certificates evidencing the Transferred Stock,
together with such assignments and other good and sufficient instruments of
sale, conveyance, transfer and assignment sufficient to sell, convey, transfer
and assign the Transferred Stock to Seller;
(e) a complete release of all claims, causes of action and
liabilities of Seller to Buyer, other than those assumed, preserved or
otherwise retained by Seller hereunder, in form and substance satisfactory to
Seller; and
(f) the certificate referred to in Section 3.3.
3.3 Representations, Warranties and Covenants. Each of the
representations and warranties of each party contained in this Agreement shall
have been true and correct as of the date when made and shall be deemed to be
made again on and as of the Closing Date and the last day of the Period and
shall then be true and correct except to the extent changes are
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permitted or contemplated pursuant to this Agreement. Each party shall have
performed and complied with each and every covenant and agreement required by
this Agreement to be performed or complied with by it prior to or on the
Closing Date. Each party shall have furnished the other party with a
certificate, dated the Closing Date and duly executed by an officer of the
party making the certificate authorized on behalf of such party to give such a
certificate, to the effect that the conditions and deliveries set forth in this
Section 3 with respect to such party have been satisfied.
ARTICLE 4: TERMINATION
4.1 Termination. This Agreement may be terminated at any time prior to
Closing: (a) by the mutual consent of Seller and Buyer; (b) by Buyer, if on the
Closing Date Seller has failed to satisfy any of the conditions or deliveries
set forth in Section 3.1; (c) by Buyer if it is not in material breach
hereunder and if Seller has failed to cure a material breach of any of its
representations, warranties or covenants under this Agreement within fifteen
(15) calendar days after Seller receives notice from Buyer of such breach; (d)
by Seller, if on the Closing Date Buyer has failed to satisfy any of the
conditions or deliveries set forth in Section 3.2; or (e) by Seller if it is
not in material breach hereunder and if Buyer has failed to cure a material
breach of any of its representations, warranties or covenants under this
Agreement within fifteen (15) calendar days after Buyer receives notice from
Seller of such breach. A termination pursuant to this Section 4.1 shall not
relieve any party of any liability it would otherwise have for a breach of this
Agreement.
ARTICLE 5: GENERAL PROVISIONS
5.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective
representatives, successors and assigns. Seller may not assign any of its
rights or delegate any of its duties hereunder without the prior written
consent of Buyer, and any such attempted assignment or delegation without such
consent shall be void.
5.2 Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly made and received when personally served or when
delivered by recognized overnight courier service, expenses prepaid, addressed
as set forth on the signature page hereto. Any party may alter the address to
which communications are to be sent by giving notice of such change of address
in conformity with the provisions of this Section providing for the giving of
notice.
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5.3 Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Oklahoma, without giving
effect to principles of conflicts of laws.
5.4 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof, and supersedes all prior agreements, understandings, inducements
or conditions, express or implied, oral or written, relating to the subject
matter hereof. The express terms hereof control and supersede any course of
performance and/or usage of trade inconsistent with any of the terms hereof.
5.5 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
5.6 Time of Essence. Time is of the essence hereunder.
[SIGNATURE PAGE FOLLOWS]
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SIGNATURE PAGE TO AGREEMENT
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first written above.
BUYER: AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
---------------------------------------
Name: Stephen D. Halliday
Title: President/CEO
Address:
5900 Mosteller Drive
Suite 1850
Oklahoma City, OK 73112
SELLER: VISIONQUEST MARKETING SERVICES, INC.
By: /s/ Shawn Rohrer
---------------------------------------
Name: Shawn Rohrer
Title: President/CEO
Address:
5600 North May Avenue
Suite 350
Oklahoma City, OK 73104
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Exhibit 10.11
TELEMARKETING SERVICES AGREEMENT
THIS TELEMARKETING SERVICES AGREEMENT (this "Agreement") is made as of
the 1st day of December, 1998, by and between AmeriVision Communications, Inc.,
an Oklahoma corporation ("AmeriVision"), and VisionQuest Marketing Services,
Inc., an Oklahoma corporation ("Marketer").
RECITALS
WHEREAS, AmeriVision sells certain products and services including
long distance services, and would like to contract with Marketer to provide
certain telemarketing services for these products and services on the terms and
conditions set forth herein; and
WHEREAS, Marketer is in the business of providing telephone marketing
services and wishes to provide the services referenced above and further
detailed herein.
AGREEMENT
NOW THEREFORE, in consideration of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. SERVICE; REPORTS.
A. Marketer shall perform and provide the outbound
telemarketing campaign, programs and services as set forth in any Service
Request given by AmeriVision to Marketer identifying the desired programs and
services, and any other information or limitations deemed appropriate by
AmeriVision. Service Requests will be sent to Marketer at least ninety (90)
days prior to the date on which the requested services are to commence.
Marketer can decline a Service Request within ten (10) days of receipt of the
Service Request from AmeriVision. Marketer shall conduct each campaign and
provide information to callers about the things or services being promoted in
accordance with the applicable script(s) and call standards and individual
program goals of AmeriVision. Any change to scripting is conditioned upon
receipt of prior written approval by AmeriVision. Marketer agrees to utilize
its facilities, expertise, knowledge, experience and skill in providing these
services to AmeriVision and shall use its best efforts in providing such
services.
B. Marketer shall provide to AmeriVision monthly reports of
services provided hereunder including such information as is consistent with
accepted industry standards and past business practice. In addition to
information provided in accordance with the previous sentence, Marketer shall
provide such additional information and reports as are, in AmeriVision's
reasonable opinion, necessary or appropriate.
<PAGE> 2
2. CONFIDENTIALITY.
A. Each party hereto agrees to keep strictly confidential all
the Confidential Information (defined below) as further set forth herein.
B. The term "Confidential Information" shall mean any
information disclosed by or on behalf of one party (the "Disclosing Party") to
the other party (the "Receiving Party"), including but not limited to any
information appearing on credit applications, information relating to either
party's businesses, services, products, processes, formulas, designs, formats,
marketing plans, analyses, strategies, forecasts, research, underwriting
criteria, and names, telephone numbers, addresses, and any other
characteristics, identifying information or aspects of the Disclosing Party's
existing or potential businesses, customers or prospects, and including without
limitation names acquired in performance of this Agreement. Confidential
Information shall not include any information which (i) is or becomes available
to the public other than as a consequence of a breach of any obligation of
confidentiality; or (ii) is disclosed to a final order of a court of competent
jurisdiction.
C. The Receiving Party agrees to hold in strict confidence
and trust all Confidential Information and not to disclose, sell, rent or
otherwise provide, directly or indirectly, any Confidential Information or any
other thing relating to the Confidential Information without the prior written
consent of the Disclosing Party. The Receiving Party shall take all necessary
precautions to prevent the disclosure of the aforesaid information to third
parties, including (at a minimum) by using such procedures as the Receiving
Party uses with its own proprietary or confidential information or any other
information to which it has access in the course of its business. The Receiving
Party may disclose Confidential Information to its employees or agents so long
as such persons agree to be bound by the terms of this Agreement, and in such
case Confidential Information shall only be disclosed to the extent necessary
to fulfill its obligations under this Agreement. The Receiving Party further
agrees that it will use the Confidential Information only in connection with
this Agreement and not for the Receiving Party's own purposes or for the
benefit of anyone not party hereto. The Receiving Party agrees to require any
of its employees or agents who receive Confidential Information to comply with
this Agreement and the Receiving Party agrees to be responsible for any breach
hereof by its agents or employees.
D. When requested by the Disclosing Party, the Receiving
Party hereby agrees to return to the Disclosing Party all Confidential
Information received by the Receiving Party from the Disclosing Party or from a
third party on behalf of the Disclosing Party, together with all copies,
duplicates, summaries, compilations or analyses of such Confidential
Information.
E. In addition to the understanding set forth herein with
respect to the Confidential Information, each party agrees to keep strictly
confidential and not to disclose to any third party, the existence or any
aspect of this Agreement, or of any ongoing or completed negotiations or
business dealings between the parties. Each party agrees that it will not use
or disclose the other party's name, trade name, or any other proprietary
designation(s) except as
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necessary to perform its obligations to or on behalf of such party, without
such party's prior written consent.
F. Each party acknowledges and agrees that in the event it
fails to comply with this Agreement, the other party may suffer irreparable
harm which may not be adequately compensated by monetary damages. Therefore,
each party agrees that, in the event of breach or threatened breach of this
Agreement, the other party shall be entitled to injunctive and/or other
preliminary or equitable relief, in addition to any other remedies available
for such breach or threatened breach.
G. The parties hereto acknowledge and agree that nothing
contained in this Agreement shall be construed as granting to any Receiving
Party any license or other rights to any Confidential Information.
3. OWNERSHIP OF AND RIGHTS TO USE INFORMATION. All information which
is created, obtained or arises as a result of Marketer providing services
pursuant to this Agreement including, without limitation, all of the
information supplied to Marketer by AmeriVision, and any and all rights to use
the same, are and shall remain the property of AmeriVision and may be used and
disposed of as it in its sole discretion sees fit. All such information shall
be considered Confidential Information and shall be treated in accordance with
the terms set forth in Section 2 hereof. Marketer shall have no right, title or
interest whatsoever in the Confidential Information, nor shall it have any
right to use the Confidential Information for any purpose other than as set
forth herein or disclose it to any other party without the prior written
consent of AmeriVision.
4. REPRESENTATIONS AND WARRANTIES. Marketer represents and warrants
that the performance of services pursuant to this Agreement will not violate
any provision of any agreement, undertaking or order to which it is a party or
by which it is bound. Marketer agrees to comply with all applicable local,
state and federal laws, regulations and rules in its performance of this
Agreement. Marketer agrees to comply fully with all scripts and call standards
provided by AmeriVision for each campaign.
5. RETURN OF MATERIAL. Upon completion of work or termination of this
Agreement, Marketer shall promptly return to AmeriVision any and all materials
including, but not limited to, all Confidential Information as set forth in
Section 2 above, which were provided to it by AmeriVision or created by
Marketer in performance of its duties hereunder.
6. INDEMNIFICATION.
A. By AmeriVision. AmeriVision shall indemnify, defend and
hold harmless Marketer, its officers, agents and employees from and against any
and all losses, liabilities, claims, suits, judgments, settlements, damages,
costs and expenses, including reasonable attorneys' fees and related costs,
which may accrue against, be charged to, incurred by or recoverable from
Marketer, its officers, agents or employees as a result of (i) a material
breach by AmeriVision of any representations, warranties, covenants,
undertakings or
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<PAGE> 4
obligations hereunder, or (ii) the negligence or the intentional misconduct of
any director, officer, employee, agent or affiliate of AmeriVision.
B. By Marketer. Marketer shall indemnify, defend and hold
harmless AmeriVision, its officers, agents and employees from and against any
and all losses, liabilities, claims, suits, judgments, settlements, damages,
costs and expenses, including reasonable attorneys' fees and related costs,
which may accrue against, be charged to, incurred by or recoverable from
AmeriVision, its officers, agents or employees as a result of (i) a material
breach by Marketer of any representations, warranties, covenants, undertakings
or obligations hereunder, (ii) the negligence or intentional misconduct of any
director, officer, employee, agent or affiliate of Marketer; or (iii) the
infringement of any third party's patent, trade or service mark or other
proprietary rights.
7. FORCE MAJEURE. Performance under this Agreement shall be excused if
rendered impossible or unreasonably difficult by a force or event which cannot
be foreseen, controlled or prevented by the exercise of ordinary prudence,
diligence and care, regardless of the source, origin, identity or character of
the force or event, including, but not limited to, interruptions of electrical
power, heat, light, telecommunication lines or telephones, acts of God, or
governmental intervention resulting from the necessities of war. If performance
of all or any part of this Agreement is prevented by any such force or event,
then performance of this Agreement shall be suspended without penalty to either
party only as to such unperformable portions. Notwithstanding the foregoing
sentence, Marketer shall have a disaster recovery plan in place that will allow
for the continuity of business within 72 hours of any such disruption of
service. In addition, Marketer will practice restoring its system from back-up
tapes at least quarterly.
8. TERM; TERMINATION.
A. This Agreement shall remain in effect for a term of twelve
(12) months from the date hereof unless sooner terminated as set forth herein,
and may be renewed on the same terms and conditions if both parties so elect at
least thirty (30) days prior to the conclusion of the term.
B. Either party shall have the right to terminate this
Agreement if the other party hereto:
(i) breaches any material representation,
warranty, covenant or other obligation under this Agreement and fails to cure
the same to the reasonable satisfaction of the other party within thirty (30)
days after the date of written notice of such breach; or
(ii) becomes insolvent or bankrupt, however
evidenced, including, without limitation, by filing or having filed against it
a petition under the U.S. Bankruptcy Code (11 U.S.C. Section 101, et seq.)
provided, however, that a petition filed under 11 U.S.C. Section 303 shall not
create a right to terminate hereunder unless it remains undismissed for sixty
(60) days after filing.
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C. Rights, obligations or liabilities which arise prior to
the termination of this Agreement shall survive the termination of the
Agreement notwithstanding the provisions of this Section.
9. PAYMENT TERMS.
A. AmeriVision agrees to pay Marketer the fees set forth on
Exhibit A hereto for hours incurred pursuant to the Service Request, which
Exhibit may be modified from time-to-time by written agreement signed by both
parties. AmeriVision shall not be liable for any charges or expenses that
exceed the hours specified in any Service Request multiplied by the applicable
rates set forth on Exhibit A, unless it has first given its written approval
therefor.
B. Payment shall be due within fifteen (15) days from the
date AmeriVision receives the invoice. All invoices shall be in sufficient
detail to permit AmeriVision to determine the amount of time and the nature of
services and expenses for which compensation is sought. Marketer will, upon
request, provide a detailed accounting of all hours incurred and services
provided.
10. RECIPROCITY OF TERMS FOR MARKETER. In the event that Marketer
should wish to have AmeriVision provide telemarketing services to Marketer,
AmeriVision agrees to provide such services, subject to the availability of
reasonably sufficient excess capacity, on the same terms and conditions as
Marketer is providing services to AmeriVision hereunder.
11. NOTICES. Any notice required or permitted to be given pursuant to
this Agreement shall be sufficiently given if delivered by hand or sent by
registered or certified mail, return receipt requested, and if to AmeriVision,
to:
AmeriVision Communications, Inc.
5900 Mosteller Drive
Suite 1850
Oklahoma City, OK 73112
Attn: Dan Carter
Fax: 405-600-3823
and if to Marketer, delivered or sent to:
VisionQuest Marketing Services, Inc.
5600 North May Avenue
Suite 350
Oklahoma City, OK 73104
Attn: Shawn Rohrer
Fax: 405-600-3556
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12. ADVERTISING. Marketer shall not use AmeriVision's name, mark,
logo, or any Confidential Information or work as part of any marketing or
promotional endeavor, however styled, without AmeriVision's prior written
consent.
13. SUCCESSOR AND ASSIGNS. All terms and provisions of this Agreement
shall be binding on and inure to the benefit of the parties hereto and their
respective transferees, successors and permitted assigns; provided, however,
that neither party may assign its rights or delegate its duties hereunder
without the prior written consent of the other, and any attempted assignment or
delegation without such consent shall be void.
14. REMEDIES. In the event that a party breaches any of its
obligations set forth in this Agreement, the other party shall be entitled to
exercise any right or remedy available to it either at law or in equity. The
exercise of any particular right or remedy shall not preclude the exercise of
any other right or remedy.
15. WAIVER. The failure by a party hereto at any time or times to
require strict performance of any provision of this Agreement shall in no
manner be construed as a waiver of such party's right at a later time to
enforce the same, nor shall the waiver by any party of a breach of any
provision hereof constitute a waiver of any succeeding breach of the same or
any other provision or constitute a waiver of the provision itself.
16. SURVIVAL. The provisions of Sections 2, 3 and 6 of this Agreement
shall survive termination of this Agreement. The provisions of any other
Section of this Agreement shall survive as stated therein.
17. HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not in any way limit or otherwise affect the meaning
or interpretation of any of the terms hereof.
18. ENTIRE AGREEMENT. This Agreement contains the entire understanding
of the parties hereto with respect to the subject matter hereof and supersedes
any prior oral or written agreements with respect thereto. There are no
representations, covenants, conditions, warranties or agreements between the
parties except those expressed in this Agreement.
19. GOVERNING LAW. This Agreement shall be construed, and the legal
relations between the parties determined, in accordance with the substantive
law of the State of Oklahoma without regard to any conflict of laws provisions
thereof.
20. DISPUTE RESOLUTION. Any controversy, dispute or claim arising out
of or relating to this contract or the performance, construction, enforcement,
breach, termination or validity thereof shall be decided by binding arbitration
held in Oklahoma City, Oklahoma, conducted in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA") as set
forth in this section. Judgment upon the award rendered by the arbitrator(s)
may be entered in any court having jurisdiction thereof. An arbitration
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<PAGE> 7
proceeding shall be initiated by any party giving written notice to arbitrate
to the other party, which shall contain a statement setting forth the nature of
the dispute, the amount involved, if any, the remedy sought and the name of the
arbitrator appointed by that party (the "Arbitration Notice"). Within ten (10)
days after the date of the Arbitration Notice, the other party shall appoint an
arbitrator and shall identify its arbitrator in writing to the arbitrator
already appointed and to the other party. The two arbitrators thus appointed
shall appoint a third within ten (10) days of the date of the appointment of
the last of the two arbitrators. If either party shall fail to appoint an
arbitrator within (10) days after the other party shall have appointed first
arbitrator, the party failing to timely make the appointment shall be deemed to
have waived its right to appoint an arbitrator and the arbitrator already
appointed shall be the sole arbitrator. The hearing on the arbitration shall
commence no later than twenty (20) days after the date of the appointment of
the third arbitrator or, if there shall be only one arbitrator as set forth in
the previous sentence, the date of the expiration of the right of the other
party to appointment the second arbitrator. The arbitrator(s) shall render a
decision as rapidly as possible, but in no event later than twenty (20) days
after the commencement of the hearing. In the event of the resignation, death,
or disability of an arbitrator appointed hereunder, the remaining arbitrator(s)
shall continue the arbitration to final conclusion; if the last remaining
arbitrator shall thus be unable to serve, the parties shall appoint new
arbitrators within the time frames set forth above. In addition to monetary
awards, the arbitrator(s) shall have the power to grant appropriate relief
including without limitation specific performance and injunctive relief. The
party against which the award is made shall pay all costs and expenses of the
arbitration, including without limitation costs, expenses, and reasonable
counsel fees.
21. RIGHT TO AUDIT. Marketer's performance, premises and records
relating to this Agreement may be audited by AmeriVision's representatives upon
reasonable notice at reasonable times to ensure compliance with the terms
hereof. Marketer agrees to maintain such books and records as are necessary to
substantiate billings rendered to AmeriVision, which books and records shall be
true, complete and correct and shall be kept in accordance with generally
accepted accounting principles. Marketer further agrees to preserve such
records for a period of at least two (2) years after the date of termination of
this Agreement.
SIGNATURE PAGE FOLLOWS
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<PAGE> 8
[SIGNATURE PAGE FOR TELEMARKETING SERVICES AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized representatives as
of the date first written above.
AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
---------------------------------
Name: Stephen D. Halliday
Title: President and CEO
VISIONQUEST MARKETING SERVICES, INC.
By: /s/ Shawn Rohrer
---------------------------------
Name: Shawn Rohrer
Title: President and CEO
-8-
<PAGE> 9
EXHIBIT A
Hourly Rates for Service Requests
<TABLE>
<CAPTION>
Hours per Month Hourly Rate
--------------- -----------
<S> <C> <C>
0 - 999 $ 35.00
1000 - 2999 32.50
3000 and higher 30.00
</TABLE>
<PAGE> 1
Exhibit 10.12
CLARIFICATION TO AGREEMENT
THIS CLARIFICATION TO AGREEMENT (this "Clarification") is made
effective as of the 9th day of June, 1999 by and between AmeriVision
Communications, Inc., an Oklahoma corporation (the "Buyer"), and VisionQuest
Marketing Services, Inc., an Oklahoma corporation (the "Seller").
RECITALS
Seller and Buyer are parties to the January 1, 1999 Agreement (the
"Agreement") relating to, among other things, the purchase and sale of the
Tahlequah Center, as defined in the Agreement. Seller and Buyer wish to clarify
the intent of certain provisions of the Agreement as set forth herein.
Capitalized terms used herein but not defined shall have the meanings set forth
in the Agreement.
AGREEMENT
NOW, THEREFORE, taking the foregoing into account, and in consideration
of the mutual covenants and agreements set forth herein, the parties, intending
to be legally bound, hereby agree as follows:
1. Clarification to Section 1.9. Section 1.9 of the Agreement is hereby
deleted and replaced in its entirety with the following:
"1.9 Call Option. At any time during the period commencing on
the date eleven (11) months following the Closing Date and ending on
December 31, 1999 the Seller may by written notice to the Buyer
exercise an option (the "Call Option") to reacquire the Call Assets (as
defined below) in consideration of one dollar ($1.00). In connection
with any such exercise of the Call Option, at the closing (the "Call
Option Closing Date"): (a) Buyer shall transfer and sell to Seller
Buyer's interest, if any, in certain equipment separately described and
used at the Tahlequah Center (the "Call Assets"), (b) Buyer shall, at
its sole expense, ship the Call Assets to a location within the state
of Oklahoma selected by Seller, and (c) Buyer shall execute and deliver
a bill of sale and other documents of transfer with respect to the Call
Assets substantially in the form delivered by the Seller on the Closing
Date. Notwithstanding anything to the contrary in this Section 1.9, (x)
Buyer makes no representations or warranties as to its title, if any,
in and to the Call Assets, and (y), the Call Assets shall not include:
the four management and supervisor work stations and any software on
such workstations; telephones (including phones at workstations
purchased by
<PAGE> 2
Buyer); cabling, T1, voice and data lines; electrical wiring; facsimile
machines; copiers; furniture; lamps; general office supplies and
equipment; fixtures; lease or other contract rights; employees or
employment agreements (whether written or otherwise); and in any event
Seller shall not be required to assume any obligations by reacquiring
the Call Assets. The Call Option Closing Date shall unless otherwise
agreed by the parties be the date ten (10) days after delivery of the
notice of exercise of the Call Option."
2. Counterparts. This Clarification may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
- 2 -
<PAGE> 3
SIGNATURE PAGE TO CLARIFICATION
IN WITNESS WHEREOF, the parties have duly executed this Clarification
as of the date first written above.
BUYER: AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
----------------------------------
Name: Stephen D. Halliday
Title: President/CEO
Address:
5900 Mosteller Drive
Suite 1850
Oklahoma City, OK 73112
SELLER: VISIONQUEST MARKETING SERVICES, INC.
By: /s/ Shawn Rohrer
----------------------------------
Name: Shawn Rohrer
Title: President/CEO
Address:
5600 North May Avenue
Suite 350
Oklahoma City, OK 73104
<PAGE> 1
Exhibit 10.13
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (the "Agreement") is made as of this 30th
day of April 1999 by and among HEBRON COMMUNICATIONS CORPORATION, a Florida
corporation (the "Seller"), AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation (the "Buyer"), Tracy Freeny, an individual residing at 6220 N.E.
113th Street, Edmond, Oklahoma 73034 ("Mr. Freeny"), Carl Thompson, an
individual residing at 1905 Ridgecrest, Edmond, Oklahoma 73013 ("Mr. Thompson"),
and S.T. Patrick, an individual residing at 1330 Easton Drive, Lakeland, Florida
33803 ("Mr. Patrick").
Recitals
Seller owns and operates telecommunications switches in Chicago,
Illinois and Oklahoma City, Oklahoma providing switched-resold
telecommunications service (the "Telecommunications Business") pursuant to
certain licenses, permits and authorizations (the "FCC Authorizations") issued
by the Federal Communications Commission (the "FCC") and pursuant to certain
licenses, permits and authorizations (the "State Authorizations") issued by
certain state regulatory agencies having jurisdiction over the
Telecommunications Business (collectively, the "State Commissions"). The State
Authorizations and the FCC Authorizations shall be referred to herein
collectively as the "Regulatory Authorizations."
Seller owns and operates certain assets in connection with an Internet
service provider project (the "Internet Business") heretofore conducted in
conjunction with Buyer. The Internet Business and the Telecommunications
Business shall be referred to herein collectively as the "Business."
Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, the Assets (defined below) that comprise the Business, subject to the
terms and conditions of this Agreement.
NOW, THEREFORE, taking the foregoing into account, and in consideration
of the mutual covenants and agreements set forth herein, the parties, intending
to be legally bound, hereby agree as follows:
ARTICLE 1: SALE AND PURCHASE
1.1 Assets. On the Closing Date (defined below), Seller shall grant,
convey, sell, assign, transfer and deliver to Buyer all interests of Seller or
of any Affiliate (defined below) of Seller in all properties, assets,
privileges, rights, interests and claims, real and personal, tangible and
intangible, of every type and description, wherever located, including goodwill
(except for Excluded Assets as defined in Section 1.2) used or held for use by
Seller or any Affiliate of Seller in connection with the: (1) Telecommunications
Business (the "Switch Assets") and (2) Internet Business (the "Internet
Assets"). The Internet Assets and the Switch
<PAGE> 2
Assets shall be referred to herein collectively as the "Assets." For purposes of
this Agreement, an "Affiliate" of a person or entity means any other person (or
relative of any person) or entity that owns or controls, is owned or controlled
by, or is under common control with, such person or entity. Without limiting the
foregoing, the Assets shall include the following:
(a) Tangible Personal Property. All interests of Seller as of the
date of this Agreement in all equipment, electrical devices, cables, furniture,
fixtures, office materials and supplies, hardware, tools, spare parts, and other
tangible personal property of every kind and description, used or held for use
in connection with the Business, including without limitation those listed and
described on Schedule 1.1(a)(i) (Switch Assets) and Schedule 1.1(a)(ii)
(Internet Assets) attached hereto, and any additions, replacements, and
improvements thereto between the date of this Agreement and the Closing Date
(collectively, the "Tangible Personal Property").
(b) Real Property. All interests of Seller as of the date of this
Agreement of every kind and description in and to leased real property, and
improvements thereon, principally used or held by Seller for use in the Business
and listed and described on Schedule 1.1(b) attached hereto, and any additions
and improvements thereto between the date of this Agreement and the Closing Date
(collectively, the "Real Property").
(c) Contracts. Those contracts and agreements used in connection
with the Business that are listed and described on Schedule 1.1(c)(i) (Switch
Assets) and Schedule 1.1(c)(ii) (Internet Assets) attached hereto (the
"Contracts").
(d) Intangible Property. All interests of Seller as of the date of
this Agreement in all trademarks, trade names, service marks, franchises,
patents, slogans, logotypes and other intangible rights, used or held for use in
connection with the Business, including without limitation all right, title and
interest in and to the marks or names (and any and all variations thereof), and
all of those listed and described on Schedule 1.1(d)(i) (Switch Assets) and
Schedule 1.1(d)(ii) (Internet Assets) attached hereto, and those acquired by
Seller between the date hereof and the Closing Date (collectively, the
"Intangible Property").
(e) Copyrights. All interests of Seller as of the date of this
Agreement in all software and all related common-law and statutory copyrights
used or held for use in the Business, together with all software and copyrights
acquired by Seller for use in the Business or operation of the Assets between
the date hereof and the Closing Date.
(f) Files and Records. All files and other records that relate to
the Business or the Assets (other than duplicate copies of such files
("Duplicate Records")), including without limitation all schematics, blueprints,
engineering data, customer lists, reports,
- 2 -
<PAGE> 3
specifications, projections, statistics, promotional graphics, and other
advertising, marketing or related materials, and all other technical and
financial information concerning the Business or the Assets.
(g) Claims. Any and all claims and rights against third parties if
and to the extent that they relate to the Business or the Assets, including,
without limitation, all rights under manufacturers' and vendors' warranties.
(h) Prepaid Items. All deposits, reserves and prepaid expenses
relating to the Business or the Assets and prepaid taxes relating to the
Business or to the operation of the Assets.
(i) Goodwill. All of Seller's goodwill in, and going concern value
of, the Business.
(j) Accounts Receivable. All of Seller's accounts receivable
pertaining to the Business or operation of the Assets.
(k) Siemens Equipment. Any equipment purchased pursuant to the
Siemens Contract (defined below) and paid for by Buyer.
(l) Now Owned or Hereafter Acquired. All of the above whether now
owned or contracted for by Seller or hereafter acquired.
The Assets shall be sold and conveyed to Buyer free and clear of
all mortgages, liens, deeds of trust, security interests, pledges, restrictions,
prior assignments, charges, claims, defects in title and encumbrances of any
kind or type (collectively, "Liens"), except the Liens or other post-Closing
obligations of Seller under the Contracts which Buyer assumes under the terms of
this Agreement (the "Permitted Encumbrances").
1.2 Excluded Assets. There shall be excluded from the Assets and
retained by Seller to the extent in existence on the Closing Date, Seller's
ownership interest in the real property owned by Seller listed on Schedule 1.2,
cash, cash equivalents, publicly traded securities and any other contracts and
agreements not included in the Contracts, pension, profit sharing and all other
employee benefit plans, and any Duplicate Records (the "Excluded Assets").
1.3 Liabilities.
(a) Assumed Liabilities. Buyer shall assume only the following
liabilities (the "Assumed Liabilities"): (i) the post-Closing obligations of
Seller under the Contracts and the Real Property Leases (defined below) that are
listed on Schedule 1.1(b); (ii) Hebron
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<PAGE> 4
Termination Expenses (defined below); (iii) one-half of any obligation of Seller
to purchase equipment or to pay any amount in settlement and cancellation of
such contract under the "Switching Products Contract Offer" by Siemens
Stromberg-Carlson ("Siemens"), a copy of which is attached hereto as Annex A
(the "Siemens Contract"), which obligation shall not exceed $1,429,793 (one-half
of $2,859,586 shown on the face of the Siemens Contract) (but not including any
obligation thereunder arising from any breach or default thereof); and (iv) the
Seller's Payables (defined below).
(b) Retained Liabilities. Buyer shall not assume or be liable for,
unless explicitly included in the Assumed Liabilities or provided for under the
Lease/License Agreement (defined below), any obligation or liability arising
from the pre-Closing operation of the Business or the Assets or any other
liability or obligation of Seller, including without limitation the following:
(i) any liability or obligation of Seller arising out of or relating to any
contract, contract of employment whether written or otherwise, financing
agreement, lease agreement, or instrument; (ii) any liability or obligation of
Seller owing to any employee of Seller (whether or not hired by Buyer upon
Closing) or arising out of or relating to any employee benefit plan or otherwise
relating to employment (and Seller shall, for purposes of this Agreement, pay
all accrued benefits, severance pay and other amounts owing to any employees, as
if such employees had been terminated as of January 31, 1999, whether or not
such amounts are then due, and whether or not such employees are hired by Buyer
upon Closing); (iii) any claims asserted against the Business or any of the
Assets relating to any event (whether act or omission) prior to the Closing
Date, including without limitation, the payment of all taxes; (iv) the balance
of any obligations under the Siemens Contract (other than the portion thereof
explicitly assumed by Buyer pursuant to Section 1.3(a)(iii)), including without
limitation any obligation to purchase equipment and any obligation thereunder
arising from any breach or default thereof; or (v) any other obligation,
liability, debt, or commitment of Seller not explicitly assumed by Buyer
hereunder. The foregoing in this Section 1.3(b) shall be referred to herein
collectively as the "Retained Liabilities." Seller retains and shall hereafter
pay, satisfy, discharge, perform and fulfill all Retained Liabilities as they
become due, without any charge or cost to Buyer.
(c) Hebron Termination Expenses. Hebron Termination Expenses, as
used herein means the reasonable costs and expenses actually incurred by Seller
in the ordinary course of operating or terminating its business activities
between (I) February 1, 1999 and (II) the date thirteen (13) months after the
Closing Date, and including all such reasonable costs and expenses arising from
the termination of Seller's status as a tariffed inter-exchange carrier, as well
as during all subsequent periods within which Buyer is in breach of its payment
obligations under any of the Notes, but only to the extent that such costs and
expenses incurred in any calendar month exceed Seller's revenues actually
received in the same month inclusive of whatever revenue is received by Seller
in such month under the Lease/License Agreement (defined in Section 1.7) or the
Notes, provided that Buyer shall not be obligated to pay Seller in excess of
(aa) the greater of (i) $30,000 in any one calendar month other than October,
1999
- 4 -
<PAGE> 5
or March 2000, or (ii) the difference between (x) the product of $30,000 times
the number of calendar months occurring between February 1999 and the month
within which a particular payment is to be made (including within such number
the month of February 1999 and the month of payment) and (y) the cumulative
amount of previous payments made within those same months; (bb) $155,000 in
October 1999 (Seller being responsible for the satisfaction in that month of a
promissory note in the principal amount of $125,000 owing to Growth Fund
International, Ltd., a Florida limited partnership); and (cc) $671,000 by March
15, 2000 (Seller being responsible for the satisfaction in that month of income
taxes, expected to total $641,000, that will result from the closing of this
Agreement and the recapture of previously reported accelerated depreciation
deductions) and, in any event no more than $1,156,000 in the aggregate;
provided, however that in the event Buyer has at the relevant time sufficient
borrowing availability under that certain Loan and Security Agreement dated
February 4, 1999 by and between Buyer and Coast Business Credit ("Coast") (the
"LSA") not only to fund such payment but also to provide for Buyer's working
capital needs, Buyer shall also be obligated to prepay the amounts due in March
2000 set forth above as follows: $481,000 in September 1999 (Seller being
responsible for the satisfaction in that month of estimated income taxes,
expected to total such amount, that will result from the closing of this
Agreement and the recapture of previously reported accelerated depreciation
deductions) and $160,000 in December 1999 (Seller being responsible for the
satisfaction in that month of estimated income taxes, expected to total such
amount, that will result from the Closing of this Agreement and the recapture of
previously reported accelerated depreciation deductions) and provided further
that to the extent Buyer fails to fund the prepayments described in the
foregoing proviso, Buyer shall be responsible to Seller for the difference
between any applicable interest and penalties imposed on Seller by the IRS as a
result of such failure and the amount of interest due under the Notes in respect
of such unpaid prepayment from the due date of such estimated tax payment until
March 15, 2000. Any payments made by Buyer pursuant to this Section 1.3 shall be
deemed prepayments of the earliest maturities under the Notes (and shall be
applied first to any delinquent interest and thereafter to principal), provided,
however, that no obligation of Buyer arising under this Section 1.3 shall be
construed as accelerating any obligation or causing the accrual of any default
rate of interest under any Note.
(d) Additional Prepayment. Upon successful completion of the
Shareholder Action pursuant to Section 4.7 and delivery of the certificate
referred to in Section 9.1(i), Buyer shall pay to Seller the amount of $108,013
representing the amount of Hebron's real property tax due and outstanding as of
February 1, 1999 in connection with the property described as 5900 Mosteller
Drive, Oklahoma City, OK 73112 and associated penalties due and outstanding
through April 30, 1999. Such payment shall be a prepayment under the Notes and
shall reduce on a pro rata basis the Hebron Termination Expense payments set
forth in Section 1.3(c)(aa).
- 5 -
<PAGE> 6
1.4 Consideration.
(a) Purchase Price. The purchase price for the Switch Assets is an
amount equal to Five Hundred Sixty-Seven Thousand Seventy-Three Dollars
($567,073) (the "Switch Price"), which shall be evidenced by and payable in
accordance with the terms of a promissory note to be issued by Buyer at Closing
in like amount in the form attached hereto as Exhibit A ("Switch Note"). The
purchase price for the Internet Assets is set forth in Schedule 1.4(a), plus or
minus any Closing prorations made pursuant hereto (the "Internet Price"), which
shall be evidenced by and payable in accordance with the terms of a promissory
note to be issued by Buyer at Closing in like amount in the form attached hereto
as Exhibit B ("Internet Note"). In addition to the Switch Note and the Internet
Note, Buyer shall issue the Payables Note (defined below) and pay the Seller's
Payables and the Post-LOI Switch Debt (each term being defined below). The
Switch Note, Internet Note and Payables Note shall be referred to herein
collectively as the "Notes." The sum of the Internet Price, the Switch Price and
the Buyer's Debt (defined below) shall be referred to herein collectively as the
"Purchase Price."
(b) Accounts Payable.
(i) As of the date of this Agreement, Buyer is indebted to
Seller in the total amount as calculated and set forth on Schedule 1.4(b) (the
"Buyer's Debt"). Of this amount, all amounts owing by Seller (the "Seller's
Payables") to any non-Affiliated third-party creditors of Seller as of January
31, 1999 resulting from the use of the Switch Assets through such date by Buyer
or Buyer's customers, are calculated and set forth on Schedule 1.4(b). The
difference between Buyer's Debt and Seller's Payables ("Remaining Buyer's Debt")
is calculated and set forth on Schedule 1.4(b).
(ii) On the date of execution of this Agreement, Buyer shall
execute in favor of Seller a promissory note in the principal amount of the
Remaining Buyer's Debt, and shall deliver the same in the form attached hereto
as Exhibit C (the "Payables Note") in full satisfaction of such Debt.
Thereafter, and on or before the Closing Date, Buyer shall pay and discharge all
of the Seller's Payables as and when due according to the terms of each or shall
assume Seller's obligation therefor. Any payment by Buyer of any of the Seller's
Payables shall be made directly to the account creditor of such Seller's
Payable, and not to or through Seller. Seller shall deliver promptly any
documentation it receives from any such creditors, along with any other
documentation received with respect to each such creditor sufficient for Buyer
to determine the accuracy of such invoices.
(c) Seller's Post-LOI Accounts Payable. From and after February 1,
1999, the accounts payable of Seller to non-Affiliated third-party creditors
(collectively, "Post-LOI Creditors") resulting from Buyer's use of the Switch
Assets through the date of this Agreement (collectively, the "Post-LOI Switch
Debt") shall be paid by Buyer directly to the Post-LOI Creditors and not to or
through Seller. Seller shall promptly deliver to Buyer any documentation it
receives from any such creditors, along with any other documentation received
with respect to each Post-LOI Creditor sufficient for Buyer to determine the
accuracy
- 6 -
<PAGE> 7
of such invoices and to pay them in a timely manner.
(d) Seller acknowledges and agrees that each of the Notes shall be
subordinated to Buyer's obligations under the LSA to Coast under one or more
subordination agreements in form and substance reasonably satisfactory to each
of Coast and Seller (collectively, the "Subordination Agreements"). As of the
date hereof, Seller shall deliver to Buyer a Subordination Agreement in
connection with the Payables Note in the form attached hereto as Exhibit D.
1.5 Allocation. Buyer and Seller will allocate the Purchase Price in
accordance with the respective fair market values of the Assets and the goodwill
being purchased and sold in accordance with the requirements of Section 1060 of
the Internal Revenue Code of 1986, as amended (the "Code"). The allocation shall
be determined by mutual agreement of the parties. Buyer and Seller each further
agrees to file its federal income tax returns and its other tax returns
reflecting such allocation.
1.6 Adjustments. The operation of the Internet Business and the income
and normal operating expenses attributable thereto through January 31, 1999 (the
"Adjustment Date") shall be for the account of Seller and thereafter for the
account of Buyer, and, if any income or expense is properly allocable or
credited, then it shall be allocated, charged or prorated accordingly. Expenses
for goods or services received both before and after the Adjustment Date, power
and utilities charges, frequency discounts, rents and similar prepaid and
deferred items shall be prorated between Seller and Buyer as of the Adjustment
Date in accordance with generally accepted accounting principles. All special
assessments and similar charges or liens imposed against the Real Property and
Tangible Personal Property in respect of any period of time through the
Adjustment Date, whether payable in installments or otherwise, shall be the
responsibility of Seller, and amounts payable with respect to such special
assessments, charges or liens in respect of any period of time after the
Adjustment Date shall be the responsibility of Buyer, and such charges shall be
adjusted accordingly. To the extent that any of the foregoing prorations and
adjustments cannot be determined as of the Adjustment Date, Buyer and Seller
shall conduct a final accounting and make any further payments, as required on a
date mutually agreed upon, within one hundred twenty (120) days after the
Closing.
1.7 Closing
(a) Consummation. The consummation of the sale and purchase of the
Assets provided for in this Agreement (the "Closing") shall take place at the
offices of Buyer on a date mutually agreeable to Buyer and Seller within fifteen
(15) days after the date by which all State Commission Consents (defined below)
have been received pursuant to initial determination of the State Commissions,
but in no event later than one (1) year after the date of this Agreement (the
"Final Closing Date"), in any case subject to the satisfaction or waiver of the
last of the conditions required to be satisfied or waived pursuant to Articles 7
and 8 below
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<PAGE> 8
(other than those requiring a delivery of a certificate or other document, or
the taking of other action, at the Closing). Alternatively, the Closing may take
place at such other time or date as the parties may mutually agree upon in
writing. The date on which the Closing is to occur is referred to herein as the
"Closing Date." Notwithstanding the date on which the Closing actually occurs,
the Closing shall be effective as of February 1, 1999.
(b) Pre-Closing Lease/License Agreement. As of the date hereof,
Buyer and Seller shall execute a Lease/License Agreement which provides for the
physical transfer of possession of the Assets upon the effective date of such
Lease/License Agreement. Buyer shall begin to operate the Assets consistent with
the terms of such Lease/License Agreement on its date of execution.
1.8 Regulatory Applications.
(a) State Applications. As soon as possible (but in no event later
than ten (10) business days after the date hereof) Seller shall file or have
filed on its behalf a request with each State Commission seeking the termination
of the State Authorization held by Seller and requesting written confirmation of
such cancellation by each State Commission (collectively, the "State
Applications"). Seller and Buyer shall diligently take all steps that are
necessary, proper or desirable to expedite the prosecution of the State
Applications to a favorable conclusion. Each party shall promptly provide the
other with a copy of any pleading, order or other document served on it relating
to each of the State Applications, shall furnish all information required by
each of the State Commissions, and shall be represented at all meetings or
hearings scheduled to consider each of the State Applications.
(b) Final Consent. The written consent of all of the State
Commissions whose consent is necessary or appropriate to consummate the
transactions called for herein shall be referred to herein collectively as the
"State Commission Consent;" provided, however, that Buyer and Seller may
mutually waive the requirement that such consent shall be in writing. For
purposes of this Agreement, the term "Final" shall mean, as to each of the State
Commissions, that action shall have been taken by each of the State Commissions
(including action duly taken each of the State Commission's staff, pursuant to
delegated authority) which shall not have been reversed, stayed, enjoined, set
aside, annulled or suspended; with respect to which no timely request for stay,
petition for rehearing, appeal or certiorari or sua sponte action of each of the
State Commissions with comparable effect shall be pending; and as to which the
time for filing any such request, petition, appeal, certiorari or for the taking
of any such sua sponte action by each of the State Commissions shall have
expired or otherwise terminated.
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<PAGE> 9
1.9 Exchange of Stock.
(a) Each of Mr. Freeny, Mr. Thompson and Mr. Patrick shall deliver
to Seller at the Closing a certificate representing twenty thousand (20,000)
shares of Class A Common Stock of Seller (a total of 60,000 shares contemplated
to be delivered, along with stock powers executed in blank). In exchange for
such delivery: (1) each of Mr. Freeny, Mr. Thompson and Mr. Patrick shall
receive as full consideration for such shares from Seller at the Closing a
certificate representing two thousand (2,000) shares of Common Stock of Buyer.
(b) In this Section 1.9: (i) the exchange called for shall be
effective as of February 1, 1999, and (ii) the failure of any of Mr. Freeny, Mr.
Thompson or Mr. Patrick (each an "Exchangor") to deliver his respective shares
as set forth herein shall not affect the obligation of any other Exchangor to
deliver his respective shares in Seller, as appropriate, or the right of any
other Exchangor to receive their respective shares in Buyer from Seller.
ARTICLE 2: REPRESENTATIONS AND WARRANTIES OF SELLER
To induce Buyer to enter into this Agreement and to consummate the
transactions contemplated hereby, Seller represents and warrants to Buyer as
follows:
2.1 Organization. Seller is a corporation organized, existing and
active under the laws of the jurisdiction of its organization (as first set
forth above). Seller has the power and authority to own and operate the Assets,
to carry on the Business, and to execute and deliver this Agreement and all of
the other agreements and instruments to be executed and delivered Seller
pursuant hereto (collectively, the "Seller Ancillary Agreements"), to consummate
the transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof.
2.2 Name and Addresses. The name of Seller set forth in the heading to
this Agreement is its correct name. Listed on Schedule 2.2 are all prior names
of Seller and all of Seller's prior and present trade names. Seller shall give
Buyer thirty (30) days prior written notice before changing its name or doing
business under any other name. Seller has complied, and will in the future
comply, with all laws relating to the conduct of business under a fictitious
business name. Listed on Schedule 2.2 are all of the addresses at which Seller
currently does, or has in the past done, business or currently locates, or has
in the past located, any of the Assets, any other assets or any of its business
or operations.
2.3 Authority. The execution, delivery and performance of this
Agreement and the Seller Ancillary Agreements by Seller have been authorized and
approved subject to further authorization or consent of Seller's shareholders.
This Agreement is, and each Seller Ancillary Agreement when executed and
delivered by Seller and the other parties thereto will be, a legal, valid and
binding agreement of Seller enforceable in accordance with its respective terms,
except in each case as such enforceability may be limited by bankruptcy,
moratorium, insolvency, reorganization or other similar laws affecting or
limiting the enforcement of
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creditors' rights generally and except as such enforceability is subject to
general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
2.4 No Conflicts. Except as set forth in Schedule 2.4, neither the
execution and delivery by Seller of this Agreement and the Seller Ancillary
Agreements nor the consummation by Seller of any of the transactions
contemplated hereby or thereby nor compliance by Seller with or fulfillment by
Seller of the terms, conditions and provisions hereof or thereof will:
(i) conflict with, result in a breach of the terms, conditions
or provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of rights
under, or result in the creation or imposition of any Lien upon any of the
Assets under, the certificate of incorporation or bylaws of Seller, any
contract, lease, agreement or instrument, any governmental license, permit or
authorization, or any judgment, order, award or decree to which Seller is a
party or any of the Assets is subject or by which Seller is bound, or any
statute, other law or regulatory provision affecting Seller or the Assets; or
(ii) require the approval, consent, authorization or act of,
or the making by Seller of any declaration, filing or registration with, any
third party or any foreign, federal, state or local court, governmental or
regulatory authority or body, except for such of the foregoing as are necessary
pursuant to the Communications Act (defined below) or applicable state law.
2.5 Financial Statements. Schedule 2.5 shall be completed within thirty
(30) days from the date of this agreement to set forth a true and correct copy
of the unaudited balance sheet of the Business (the "Unaudited Balance Sheet")
as of December 31, 1998 (the "Balance Sheet Date") and the related statement of
income for the year then ended. Such balance sheet and statement of income have
been prepared in accordance with generally accepted accounting principles
consistently applied and present fairly the financial position and results of
operations of the Business as of the date and for the period covered thereby.
2.6 Operations Since Balance Sheet Date. Since the Balance Sheet Date
there has been: (i) no material adverse change in the financial condition or the
results of operations of the Business; and (ii) no damage, destruction, loss or
claim (whether or not covered by insurance) or condemnation or other taking
which materially adversely affects the Assets or the Business. Since the Balance
Sheet Date the Business and operation of the Assets have been conducted only in
the ordinary course and in conformity with past practice.
2.7 No Undisclosed Liabilities. Except as set forth in Schedule 2.7, to
the best of Seller's knowledge, Seller is not subject, with respect to the
Assets, to any liability (including,
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without limitation, unasserted claims, whether known or unknown), whether
absolute, contingent, accrued or otherwise, which is not shown or reserved for
in the Balance Sheet, other than (i) liabilities of the same nature as those set
forth in the Balance Sheet and incurred in the ordinary course of business after
the Balance Sheet Date and (ii) immaterial liabilities.
2.8 No Undisclosed Contracts.
(a) The contracts listed in Schedule 2.8 constitute all of the
material contracts to which Seller is a party and which are used and useful to
conduct the Business as it is presently being conducted.
(b) Except as otherwise disclosed therein, with respect to each
contract set forth on Schedule 2.8, to the best of Seller's knowledge: (i) a
true and correct copy of such contract has heretofore been delivered to Buyer;
(ii) such contract constitutes a valid and binding obligation of Seller; (iii)
such contract is in full force and effect; (iv) Seller is not in default under
such contract and knows of no other default by any other party thereto; (v)
Seller has not received a notice of termination with respect to such contract;
(vi) except for those contracts which by their terms will expire prior to the
Closing Date (or will be otherwise terminated prior to the Closing Date in
accordance with the provisions hereof) such contract may be transferred to the
Buyer pursuant to this Agreement and will be in full force and effect at the
time of such transfer, in each case without breaching the terms thereof or
resulting in the forfeiture or impairment of any rights thereunder and without
the consent, approval or act of, or the making of any filing with, any other
party; and (vii) Seller has performed its obligations under each of the
contracts, and Seller is not in, or alleged to be in, breach or default under
any of the contracts, and, to the best knowledge of Seller, no other party to
any of the contracts has breached or defaulted thereunder, and no event has
occurred and no condition or state of facts exists which, with the passage of
time or the giving of notice or both, would constitute such a default or breach
by Seller or, to the best knowledge of Seller, by any such other party.
(c) Except with respect to those contracts listed on Schedule 2.8
and marked with an asterisk, no consent or approval of any other party to any
contract listed in Schedule 2.8 is required for the assignment of any material
contract to Buyer or for the consummation of the transactions contemplated
herein.
(d) Seller has no obligations pursuant to the Siemens Contract or
otherwise to Siemens other than the obligation to purchase certain equipment for
$2,859,586, as further set forth in the Siemens Contract.
(e) Seller shall deliver to Buyer not later than fifteen (15) days
after the date of this Agreement a true and correct copy of each of the
contracts listed on Schedule 2.8 and marked with a double asterisk. Buyer shall
be permitted for a period of ten (10) business days
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commencing upon its receipt of each such contract to terminate this Agreement if
such contract reveals any condition of which Buyer is unaware as of the date of
this Agreement and which condition (or conditions taken together) would in the
judgment of Buyer have a material adverse effect on the value of the Assets or
on Buyer's ability to operate the Assets.
2.9 Taxes. Except as otherwise noted in Schedule 2.9, Seller has, in
respect of the Business and in connection with the Assets, filed all foreign,
federal, state, county and local income, excise, property, sales, use, franchise
and other tax returns and reports which are required to have been filed by it
under applicable law and has paid all taxes which have become due pursuant to
such returns or pursuant to any assessments which have become payable. All
monies required to be withheld by Seller from persons who were or are employees
for income taxes, social security and other payroll taxes have been collected or
withheld, and paid to the appropriate governmental authorities.
2.10 Assets. Except for the Excluded Assets, the Assets constitute all
the assets used or held for use in connection with the Business. Seller has good
and marketable title to the Assets, free and clear of Liens, except for
Permitted Encumbrances. Upon delivery to Buyer at Closing of the documents
contemplated by Section 9.1(a), Seller will thereby transfer to Buyer good and
marketable title to the Assets, free and clear of Liens, except for Permitted
Encumbrances.
2.11 Regulatory Authorizations. Seller is the holder of the Regulatory
Authorizations listed and described on Schedule 2.11. Such Regulatory
Authorizations constitute all of: (i) the licenses and authorizations required
under the Communications Act of 1934, as amended (the "Communications Act"), or
the rules, regulations and policies of the FCC for, and used in the operation
of, the Business, and (ii) the licenses and authorizations required under
applicable state statute, or the rules, regulations and policies of each of the
State Commissions for, and used in the operation of, the Business. Seller has no
actual knowledge that any of the Regulatory Authorizations are not in full force
and effect or have been revoked, suspended, canceled, rescinded or terminated or
have expired. There is not pending or, to the actual knowledge of Seller,
threatened any action by or before the FCC or any of the State Commissions to
revoke, suspend, cancel, rescind or modify any of the Regulatory Authorizations
(other than proceedings to amend FCC or state rules of general applicability),
and there is not now issued or outstanding or pending or threatened, by or
before the FCC or any of the State Commissions, any order to show cause, notice
of violation, notice of apparent liability, or notice of forfeiture or complaint
against Seller or the Assets. The Seller has no actual knowledge that the
Business is not operating in compliance with the Regulatory Authorizations, the
Communications Act, and the rules, regulations and policies of the FCC, or any
applicable state statutes, or the rules, regulations and policies of any of the
State Commissions.
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(b) Seller has no actual knowledge that: (i) all reports and
filings required to be filed with, and all regulatory fees required to be paid
to, the FCC or each of the State Commissions by Seller with respect to the
Business have not been timely filed and paid or that all such reports and
filings are not accurate or complete; (ii) it is not maintaining all files and
records for the Business as may be required by FCC or each of the State
Commissions; (iii) with respect to FCC and each of the State Commission
licenses, permits and authorizations, it is not operating any facilities or
providing services for which it does not have an appropriate Regulatory
Authorization; and (iv) it is not meeting the conditions of each such Regulatory
Authorization.
2.12 Real Property. Schedule 1.1(b) contains a description of all
leased real property used or held for use in the operation of the Business (the
"Leased Real Property"). Schedule 1.1(b) includes a description of each lease or
similar arrangement (including the amount of rent, expiration date, renewal and
the location and description of the real property covered by such lease or other
agreement) under which Seller is lessee or licensee of, or holds, uses or
operates, any real property in the business or operation of the Business (the
"Real Property Leases"). The Real Property Leases provide sufficient access to
the Assets without need to obtain any other access rights. Neither the whole nor
any part of any Real Property is subject to any pending or threatened suit for
condemnation or other taking by any public authority.
2.13 Personal Property. Schedule 1.1(a)(i) (Switch Assets) and Schedule
1.1(a)(ii) (Internet Assets) contain a list of all machinery, equipment,
furniture and other tangible personal property owned by Seller and used or held
for use in the operation of the Business. Each item of Tangible Personal
Property is in good operating condition and repair, is free from material defect
or damage, is functioning in the manner and purposes for which it was intended,
and has been maintained in accordance with industry standards.
2.14 Intangible Property. Seller has all right, title and interest in
and to all trademarks, service marks, trade names, copyrights, trade dress and
all other intangible property used in the conduct of the Business as presently
operated. Schedule 1.1(d)(i) (Switch Assets) and Schedule 1.1(d)(ii) (Internet
Assets) contain a description of all material Intangible Property. Seller has
received no notice of any claim that any Intangible Property or the use thereof
conflicts with, or infringes upon, any rights of any third party (and there is
no basis for any such claim of conflict). Seller has the sole and exclusive
right to use the Intangible Property. No service provided by Seller or the
Business or operation of the Assets infringes upon any copyright, patent or
trademark of any other party.
2.15 Employees. Schedule 2.15 contains a list of all Seller's employees
who have full time responsibilities related to the Business (collectively,
"Employees"), their position and rate of compensation, all amounts owing for
vacation, accrued benefits, severance pay and other amounts owing to the
Employees, and a description of all Seller's employee benefit
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plans. Seller has delivered to Buyer copies of all Seller's handbooks, policies
and procedures relating to Employees. Seller has complied with all material
labor and employment laws, rules and regulations applicable to the Business,
including without limitation those which relate to prices, wages, hours,
discrimination in employment and collective bargaining, and is not liable for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing. There is no unfair labor practice charge or complaint against
Seller in respect of the Business or in connection with operation of the Assets
pending or threatened before the National Labor Relations Board, any state labor
relations board or any court or tribunal.
2.16 Compliance with Law. Seller has no actual knowledge of its
non-compliance with any material law, regulation, rule, writ, injunction,
ordinance, franchise, decree or order of any court or of any foreign, federal,
state, municipal or other governmental authority which is applicable to the
Assets or the Business. There is no action, suit or proceeding pending or, to
the actual knowledge of Seller, threatened against Seller with respect to the
Business or in connection with its operation of the Assets. To the best
knowledge of Seller, there are no claims or investigations pending or threatened
against Seller with respect to the Assets or the Business. There is no action,
suit or proceeding pending or, to the actual knowledge of Seller, threatened
against Seller which questions the legality or propriety of the transactions
contemplated by this Agreement.
2.17 Insurance. Seller now has in force adequate fire and other risk
insurance covering the full replacement value of the Assets and shall cause such
insurance to be maintained in full force until the Closing Date. All of such
policies are in full force and effect and Seller is not in default thereunder.
Seller has not received notice from any issuer of any such policies of its
intention to cancel, terminate or refuse to renew any policy issued by it.
2.18 Environmental. Except as described in Schedule 2.18, no hazardous
or toxic substance or waste (including without limitation petroleum products) or
other material regulated under any applicable environmental, health or safety
law (each a "Contaminant") has been generated, stored, transported or released
(each a "Release") on, in, from or to the Assets or properties of the Business.
To the best of Seller's knowledge, all items listed on Schedule 2.18 have been
stored and handled properly in compliance with any applicable environmental,
health or safety law and do not represent a safety hazard. Neither the Business
nor any of the Assets are subject to any order from or agreement with any
governmental authority or private party respecting (i) any environmental, health
or safety law, (ii) any environmental clean-up, removal, prevention or other
remedial action or (iii) any obligation or liability arising from the Release of
a Contaminant. Neither the Business nor any of the Assets includes any
underground storage tanks or surface impoundments, any asbestos-containing
material, or any polychlorinated biphenyls. Seller has not received in respect
of the Business or any of the Assets any notice or claim to the effect that it
is or may be liable as a result of the Release of a Contaminant. To the best
knowledge of Seller, neither the Business nor any of the Assets is
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the subject of any investigation by any governmental authority with respect to a
Release of a Contaminant.
2.19 No Finder. No broker, finder or other person is entitled to a
commission, brokerage fee or other similar payment in connection with this
Agreement or the transactions contemplated hereby as a result of any agreement
or action of Seller or any party acting on Seller's behalf.
2.20 Disclosure. With respect to Seller, the Business and the Assets,
this Agreement and the Seller Ancillary Agreements do not and will not contain
any untrue statement of material fact or omit to state a material fact required
to made in order to make the statements herein and therein not misleading in
light of the circumstances in which they are made.
2.21 Accounts Payable.
(a) As of the date of this Agreement, each of the amount of the
Buyer's Debt, the Seller's Payables, and the Remaining Buyer's Debt is listed on
Schedule 1.4(b). Except for the Notes and the obligations to make payments
directly to Seller's creditors provided for herein, Buyer is not indebted to
Seller.
(b) All Seller's Payables are listed on Schedule 1.4(b), along
with the name, address, account number, contact information and balance due, and
Seller has delivered to Buyer all original documentation regarding such accounts
payable.
(c) Seller has provided to Buyer copies of all documentation
received with respect to the Post-LOI Switch Debt and Post-LOI Creditors
sufficient for Buyer to determine the accuracy of such invoices. The identity of
the Post-LOI Creditors is identical to or a subset of the non-Affiliated
third-party creditors listed on Schedule 1.4(b). Except for variations directly
attributable to changes in telecommunications service traffic levels resulting
from Buyer's use of the Switch Assets, Seller has not by act or omission caused
the amount of each of the obligations owed to the Post-LOI Creditors, on a per
diem or other appropriate incremental basis, to substantially increase from the
corresponding amount of each of the obligations owed as Seller's Payables listed
on Schedule 1.4(b).
ARTICLE 3: REPRESENTATIONS AND WARRANTIES OF BUYER
To induce Seller to enter into this Agreement and to consummate the
transactions contemplated hereby, Buyer represents and warrants to Seller as
follows:
3.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation (as first set forth above). Buyer has the requisite corporate
power and authority to execute and deliver this Agreement
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and all of the other agreements and instruments to be executed and delivered by
Buyer (collectively, the "Buyer Ancillary Agreements"), to consummate the
transactions contemplated hereby and thereby and to comply with the terms,
conditions and provisions hereof and thereof.
3.2 Authority. The execution, delivery and performance of this
Agreement and of the Buyer Ancillary Agreements by Buyer have been duly
authorized and approved by all necessary action of Buyer and do not require any
further authorization or consent of Buyer. This Agreement is, and each Buyer
Ancillary Agreement when executed and delivered by Buyer and the other parties
thereto will be, a legal, valid and binding agreement of Buyer enforceable in
accordance with its respective terms, except in each case as such enforceability
may be limited by bankruptcy, moratorium, insolvency, reorganization or other
similar laws affecting or limiting the enforcement of creditors' rights
generally and except as such enforceability is subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
3.3 No Conflicts. Except as set forth in Schedule 3.3, neither the
execution and delivery by Buyer of this Agreement and the Buyer Ancillary
Agreements or the consummation by Buyer of any of the transactions contemplated
hereby or thereby nor compliance by Buyer with or fulfillment by Buyer of the
terms, conditions and provisions hereof or thereof will: (i) conflict with the
charter or bylaws of Buyer or any judgment, order or decree to which Buyer is
subject; or (ii) require the approval, consent, authorization or act of, or the
making by Buyer of any declaration, filing or registration with, any third party
or any foreign, federal, state or local court, governmental or regulatory
authority or body, except for such of the foregoing as are necessary pursuant to
the Communications Act or applicable state statute, regulation or any decision
by the State Commissions.
3.4 No Finder. No broker, finder or other person is entitled to a
commission, brokerage fee or other similar payment in connection with this
Agreement or the transactions contemplated hereby as a result of any agreement
or action of Buyer or any party acting on Buyer's behalf.
3.5 Financial Statements. Schedule 3.5 shall be completed within thirty
(30) days from the date of this Agreement to set forth a true and complete copy
of the audited balance sheets of Buyer as of December 31, 1998 and December 31,
1997 and the related consolidated statements of income, shareholders' equity and
cash flows for the years ended December 31, 1998 and December 31, 1997 and
December 31, 1996, (such balance sheets and the related statements of income,
shareholders' equity and cash flows being collectively referred to herein as the
"Buyer Financial Statements"). The Buyer Financial Statements fairly present the
financial position of Buyer as of the dates thereof and the results of
operations and cash flows of Buyer for the periods then ended, in conformity
with GAAP applied on a basis consistent with prior periods, except as otherwise
noted therein. The accounting records underlying the
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Buyer Financial Statements fairly reflect in all material respects the
transactions of Buyer.
3.6 Tax Matters. Buyer has filed all tax returns required to be filed
by it involving a tax liability or other material potential detriment for
failure to file. Buyer has paid, or has established adequate reserves for the
payment of, all federal income taxes and all state and local income taxes and
all franchise, property, sales, employment, foreign or other taxes required to
be paid with respect to the periods covered by its filed returns. Buyer has
withheld from employee wages and paid over to the proper governmental
authorities all amounts required to be so withheld and paid over.
3.7 Absence of Certain Changes. Since the date of the most recent
balance sheet provided under Section 3.5, there has been no event, change or
occurrence which has had or is reasonably likely to have, individually or when
aggregated with other such matters, a material adverse effect on the business of
the Buyer, taken as a whole (a "Buyer Material Adverse Effect").
3.8 Contracts. Neither Buyer nor any of its subsidiaries is in
violation of its respective articles of incorporation or bylaws or in default in
the performance or observance of any material obligation, agreement, covenant or
condition contained in any contract, indenture, mortgage, loan agreement, note,
lease or other instrument to which it is a party or by which it or its property
may be bound, except for violations or breaches which will not result in a Buyer
Material Adverse Effect.
3.9 Litigation. Except as set forth in Schedule 3.9, there is no
action, suit, claim, investigation, review or other proceeding pending or, to
the knowledge of Buyer, threatened against Buyer or involving any of its
properties or assets, at law or in equity or before or by any foreign, federal,
state, municipal, or other governmental court, department, commission, board,
bureau, agency or other instrumentality or Person or any board of arbitration or
similar entity, except for any action, suit, claim, investigation, review or
other proceeding, which will not result in a Buyer Material Adverse Effect.
Buyer will notify Seller immediately in writing of any such proceeding against
Buyer.
3.10 Compliance. Except as set forth in Schedule 3.10, Buyer is not in
default with respect to or in violation of (i) any judgment, order, writ,
injunction or decree of any court, or (ii) any statute, law, ordinance, rule,
order or regulation of any governmental department, commission, board, bureau,
agency or instrumentality, whether federal, state or local, except for such
defaults which will not result in a Buyer Material Adverse Effect; and the
consummation of the transactions contemplated by this Agreement will not
constitute such a default or violation as to Buyer. Buyer maintains all material
permits, licenses and franchises from governmental agencies required to conduct
its business as it is now being conducted.
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ARTICLE 4: COVENANTS OF SELLER
Seller covenants and agrees that from the date hereof until the
completion of the Closing, and, in the case of Section 4.8, thereafter:
4.1 Operation of the Business.
(a) Except as otherwise provided in the Lease/License Agreement,
Seller shall: (i) continue to carry on the Business and keep its books and
accounts, records and files in the usual and ordinary manner in which the
business has been conducted in the past; (ii) operate the Business in accordance
with the terms of the Regulatory Authorizations and in compliance with the
Communications Act, FCC rules, regulations and policies, and all other
applicable state and other laws, rules and regulations, and State Commission
rules, and maintain the Regulatory Authorizations in full force and effect and
timely file and prosecute any necessary applications for renewal of the
Regulatory Authorizations; (iii) use best efforts to preserve the organization
of the Business intact, retain substantially as at present the Business's
employees, consultants and agents, and preserve the goodwill of the Business's
suppliers, advertisers, customers and others having business relations with it;
(iv) keep all Tangible Personal Property and Real Property in good operating
condition (ordinary wear and tear excepted) and repair and maintain adequate and
usual supplies of inventory, office supplies, spare parts and other materials as
have been customarily maintained in the past; and (v) preserve intact the
Business and the Assets and maintain current and in full force and effect all
insurance policies with respect to the Business and the Assets in existence as
of the date hereof.
(b) Notwithstanding Section 4.1(a), Seller shall not, without the
prior written consent of Buyer and other than pursuant to the Lease/License
Agreement: (i) sell, lease, transfer, alienate or encumber, or agree to sell,
lease, transfer, alienate or encumber, any Assets, except for non-material sales
or leases, in the ordinary course of business of items which are being replaced
by assets of comparable or superior kind, condition and value; (ii) grant any
raises to employees of the Business, pay any substantial bonuses or enter into
any contract of employment with any employee or employees of the Business; (iii)
amend or terminate any of the Contracts or enter into any contract, lease or
agreement with respect to the Business except those entered into in the ordinary
course of business that will be paid and performed in full before the Closing;
(iv) make any substantial change in the services provided by the Business or in
connection with the Assets; (v) by any act or omission cause any representation
or warranty set forth in Article 2 to become untrue or inaccurate; or (vi) by
any act or omission cause the representation set forth in Section 2.21(c) to be
inaccurate at any time.
4.2 Names and Addresses. Seller shall give Buyer thirty (30) days prior
written notice before changing its name or doing business under any other name,
or changing its
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principal place of business or any address at which it does any part of the
Business or holds any of the Assets, or moving any material assets to another
address. Seller will continue to comply with all laws relating to the conduct of
business under a fictitious business name.
4.3 Access. At the request of Buyer, Seller shall give or cause to be
given to the officers, employees, accountants, counsel, agents, consultants and
representatives of Buyer: (i) full access to all facilities, properties,
accounts, books, title papers, insurance policies, licenses, agreements,
contracts, commitments, records and files of every character, equipment,
machinery, fixtures, furniture, vehicles, notes and accounts payable and
receivable of Seller associated with the conduct of the Business; and (ii) all
such other information concerning the affairs of the Business as Buyer may
reasonably request. Any investigation or examination by Buyer shall not in any
way diminish or obviate any representations or warranties of Seller made in this
Agreement or in connection herewith.
4.4 Consents. Seller shall use its best efforts to obtain all of the
consents noted on Schedule 2.8 hereto. If Seller does not obtain a consent
required to assign a Contract hereunder, Buyer shall not be required to assume
such Contract. Marked with an dagger on Schedule 2.8 are those consents the
receipt of which are conditions precedent to Buyer's obligation to close under
this Agreement (the "Required Consents"). Seller shall obtain the Required
Consents prior to Closing.
4.5 Estoppel Certificates; Liens. Seller, at Seller's expense, will
obtain and deliver to Buyer (i) written estoppel certificates (the "Estoppel
Certificates") duly executed by the lessors under the Real Property Leases, in
form and substance satisfactory to Buyer and (ii) all UCC, judgment and state
and federal tax lien search reports (showing searches in the name of Seller)
necessary to assure that no Liens are filed or recorded against the Switch
Assets in the public records of Illinois and Oklahoma or against the Internet
Assets in Illinois and Oklahoma, or any other jurisdiction where the Assets are
located (the "Lien Search Reports"). The Estoppel Certificates shall be dated
within thirty (30) days prior to Closing. The Lien Search Reports shall be
delivered within thirty (30) days after the date of this Agreement and shall be
updated within thirty (30) days prior to the Closing Date.
4.6 Cooperation with Due Diligence. Seller shall use its best efforts
diligently to cooperate with Buyer in the commencement, conduct and completion
of due diligence with respect to the Assets, the Business, and all associated
agreements, financial, legal, tax, accounting, environmental, and other
considerations.
4.7 Shareholder Action. Seller shall: (i) as soon as possible (but in
no event later than ten (10) days after receipt of the Fairness Opinion (defined
below)), prepare and deliver to its shareholders a proxy statement or consent
solicitation seeking shareholder approval of the transactions contemplated by
this Agreement (including, but not limited to, the disposal of Seller's material
assets and the subsequent dissolution of Seller as contemplated by Section 4.8
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of this Agreement) in accordance with applicable law and regulation; (ii) hold a
duly authorized meeting of its shareholders in a timely fashion for purposes of
considering the matters set forth in such proxy statements or consent
solicitations; and (iii) vote such proxy statements or consent solicitations in
favor of the transactions contemplated by this Agreement (including, but not
limited to, the disposal of Seller's material assets and the subsequent
dissolution of Seller as contemplated by Section 4.8 of this Agreement)
(collectively, the "Shareholder Action"). Seller shall use its best efforts to
obtain such shareholder approval within thirty (30) days of the date hereof.
4.8 Dissolution Agreement. Seller shall use its best efforts to sell or
otherwise dispose of all of its material assets other than the Assets in a
commercially reasonable and orderly fashion and shall promptly thereafter
commence the dissolution of Seller and the distribution of the net proceeds to
the shareholders of Seller in accordance with applicable state law. To the
extent that such liquidation takes place prior to payment in full under the
Notes, Seller agrees to take all necessary steps to establish a liquidating
trust or other similar mechanism under which the net proceeds of any payments
received under the Notes shall be paid directly to the shareholders of Seller.
The Buyer has represented to the Seller that the agreement of the Seller to
distribute to its shareholders the net proceeds of the transactions contemplated
by this Agreement is a material inducement to the Buyer entering into and
performing this Agreement. Seller's obligations pursuant to this covenant shall
survive the Closing.
4.9 Fairness Opinion. Seller shall use best efforts to obtain on or
prior to the date fifteen (15) days from the date of satisfaction of the
condition subsequent set forth in Section 3.5 the opinion of its financial
advisors, Katzen, Marshall & Associates, Inc., in a customary form and to the
effect that the sale of Assets as set forth herein is fair to Seller from a
financial point of view ("Fairness Opinion").
ARTICLE 5: COVENANTS OF BUYER
Buyer covenants and agrees that:
5.1 Security Agreement. Buyer will (a) use its best efforts to take all
steps that are necessary, proper or desirable to grant at the Closing to Seller
a third perfected security interest in Buyer's customer base, to secure Buyer's
obligations under the Notes, subordinated only to any security interest in that
same collateral which is held by WorldCom Network Services, Inc. and Coast,
subject to the consent of each such creditor to the granting of such security
interest, and (b) not grant any security interest in its customer base from and
after the date of this Agreement, except with respect to WorldCom Network
Services, Inc. or Coast, which is not subordinated to Seller's security interest
therein.
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<PAGE> 21
5.2 Employees. Buyer shall offer employment to all Employees who had
full time responsibilities related to the Switch Assets as of January 31, 1999,
each of whom are marked with an asterisk on Schedule 2.15 ("Switch Employees"),
provided, however, that Buyer shall not assume any obligation under, and Seller
shall indemnify Buyer against, any contract of employment between Seller and any
Employee.
ARTICLE 6: COVENANTS OF BUYER AND SELLER
Buyer and Seller covenant and agree that from the date hereof until the
completion of the Closing:
6.1 Representations and Warranties. Each party shall give the other
detailed written notice promptly upon learning of the occurrence of any event
that would cause or constitute a material breach (or would have caused a breach
had such event occurred or been known to it prior to the date hereof) of any of
its the representations, warranties, or covenants contained in this Agreement.
6.2 Notice of Proceedings. Each party promptly notify the other in
writing upon: (a) becoming aware of any order or decree or any complaint praying
for an order or decree restraining or enjoining the consummation of this
Agreement or the transactions contemplated hereunder; or (b) receiving any
notice from any governmental department, court, agency or commission of its
intention (i) to institute an investigation into, or institute a suit or
proceeding to restrain or enjoin, the consummation of this Agreement or such
transactions, or (ii) to nullify or render ineffective this Agreement or such
transactions if consummated.
ARTICLE 7: CONDITIONS TO THE OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or on the
Closing Date:
7.1 Representations, Warranties and Covenants. Each of the
representations and warranties of Buyer contained in this Agreement shall have
been true and correct as of the date when made and shall be deemed to be made
again on and as of the Closing Date and shall then be true and correct, except
to the extent changes are permitted or contemplated pursuant to this Agreement.
Buyer shall have performed and complied with each and every covenant and
agreement required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. Buyer shall have furnished Seller with a
certificate, dated the Closing Date and duly executed by an officer of Buyer
authorized on behalf of Buyer to give such a certificate, to the effect that the
conditions set forth in this Section 7.1 have been satisfied.
7.2 Proceedings. Neither Seller nor Buyer shall be subject to any
restraining order or injunction restraining or prohibiting the consummation of
the transactions contemplated
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<PAGE> 22
hereby. In the event such a restraining order or injunction is in effect, this
Agreement may not be abandoned by Seller pursuant to this Section 7.2 prior to
the Final Closing Date, but the Closing shall be delayed during such period.
This Agreement may be abandoned after the Final Closing Date if such restraining
order or injunction remains in effect.
7.3 Regulatory Consent. The State Commission Consent shall have been
granted by each of the State Commissions by initial order, without any
conditions materially adverse to Seller.
7.4 Deliveries. Buyer shall have complied with each and every one of
its obligations set forth in Section 9.2.
7.5 Fairness Opinion. Seller shall have obtained the Fairness Opinion
described in Section 4.9.
7.6 Shareholder Action. Seller shall have successfully completed the
Shareholder Action identified in Section 4.7.
ARTICLE 8: CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are, at its option,
subject to the fulfillment of the following conditions prior to or on the
Closing Date:
8.1 Representations, Warranties and Covenants. Each of the
representations and warranties of Seller contained in this Agreement shall have
been true and correct as of the date when made and shall be deemed to be made
again on and as of the Closing Date and shall then be true and correct except to
the extent changes are permitted or contemplated pursuant to this Agreement.
Seller shall have performed and complied with each and every covenant and
agreement required by this Agreement to be performed or complied with by it
prior to or on the Closing Date. Seller shall have furnished Buyer with a
certificate, dated the Closing Date and duly executed by an officer of Seller
authorized on behalf of Seller to give such a certificate, to the effect that
the conditions set forth in this Section 8.1 have been satisfied.
8.2 Proceedings. Neither Seller nor Buyer shall be subject to any
restraining order or injunction restraining or prohibiting the consummation of
the transactions contemplated hereby. In the event such a restraining order or
injunction is in effect, this Agreement may not be abandoned by Buyer pursuant
to this Section 8.2 prior to the Final Closing Date, but the Closing shall be
delayed during such period. This Agreement may be abandoned after such date if
such restraining order or injunction remains in effect.
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<PAGE> 23
8.3 Regulatory Consent. The State Commission Consent shall have been
granted by each of the State Commissions and shall have become Final, without
any conditions materially adverse to Buyer.
8.4 Deliveries. Seller shall have complied with each and every one of
its obligations set forth in Section 9.1.
8.5 Required Consents. Seller shall have obtained all of the Required
Consents.
8.6 Shareholder Action. Seller shall have successfully completed the
Shareholder Action identified in Section 4.7.
ARTICLE 9: ITEMS TO BE DELIVERED AT THE CLOSING
9.1 Deliveries by Seller. At the Closing, Seller shall deliver to Buyer
duly executed by Seller or such other signatory as may be required by the nature
of the document:
(a) bills of sale, certificates of title, endorsements,
assignments, general warranty deeds and other good and sufficient instruments of
sale, conveyance, transfer and assignment, in form and substance satisfactory to
Buyer, sufficient to sell, convey, transfer and assign the Assets to Buyer free
and clear of Liens (other than Permitted Encumbrances);
(b) the Required Consents and any other consents obtained by
Seller under Section 4.4;
(c) certified copies of the Certificate of Incorporation, Bylaws,
stockholders agreements and Certificates of Active Status of Seller, and
resolutions, duly adopted by the board of directors and shareholders of Seller,
which shall be in full force and effect at the time of the Closing, authorizing
the execution, delivery and performance by Seller of this Agreement, and the
consummation of the transactions contemplated hereby;
(d) the certificate referred to in Section 8.1;
(e) the Estoppel Certificates and the Lien Search Reports;
(f) the certificates of AmeriVision stock referred to in
Section 1.9;
(g) the Subordination Agreement or Agreements for each of the
Switch Note and Internet Note identified in Section 1.4(d);
(h) the Fairness Opinion identified in Section 4.9; and
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<PAGE> 24
(i) a certificate evidencing successful completion of the
Shareholder Action identified in Section 4.7.
9.2 Deliveries by Buyer. At the Closing, Buyer shall deliver to Seller:
(a) the Switch Note and Internet Note;
(b) an instrument or instruments of assumption of the Assumed
Liabilities;
(c) certified copies of resolutions, duly adopted by the Board of
Directors of Buyer, which shall be in full force and effect at the time of the
Closing, authorizing the execution, delivery and performance by Buyer of this
Agreement and the consummation of the transactions contemplated hereby; and
(d) the certificate referred to in Section 7.1.
9.3 Deliveries by Messrs. Freeny, Thompson and Patrick. At the Closing:
(a) Mr. Freeny shall deliver to Seller a certificate representing
twenty thousand (20,000) shares of Seller's stock referred to in Section 1.9,
along with stock powers executed in blank;
(b) Mr. Thompson shall deliver to Seller a certificate
representing twenty thousand (20,000) shares of Seller's stock referred to in
Section 1.9, along with stock powers executed in blank; and
(c) Mr. Patrick shall deliver to Seller a certificate representing
twenty thousand (20,000) shares of Seller's stock referred to in Section 1.9,
along with stock powers executed in blank.
ARTICLE 10: SURVIVAL; INDEMNIFICATION
10.1 Survival. All representations, warranties, covenants and
agreements contained in this Agreement, or in any certificate, agreement, or
other document or instrument, delivered pursuant hereto, shall survive (and not
be affected in any respect by) the Closing, any investigation conducted by any
party hereto and any information which any party may receive.
10.2 Indemnification.
(a) From and after Closing, Seller (an "Indemnifying Party")
hereby agrees to indemnify and hold harmless Buyer, the directors, officers and
employees of Buyer and all persons which directly or indirectly, through one or
more intermediaries, control, are
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<PAGE> 25
controlled by, or are under common control with Buyer, and their respective
successors and assigns (collectively, the "Buyer Indemnitees") from, against and
in respect of, and to reimburse the Buyer Indemnitees for, the amount of any and
all Deficiencies (as defined in Section 10.3(a)).
(b) From and after Closing, Buyer (an "Indemnifying Party") hereby
agrees to indemnify and hold harmless Seller, the directors, officers and
employees of Seller and all persons which directly or indirectly, through one or
more intermediaries, control, are controlled by, or are under common control
with Seller, and their respective successors and assigns (collectively, the
"Seller Indemnitees") from, against and in respect of, and to reimburse the
Seller Indemnitees for, the amount of any and all Deficiencies (as defined in
Section 10.3(b)).
10.3 Deficiencies.
(a) As used in this Article 10, the term "Deficiencies" when
asserted by Buyer Indemnitees or arising out of a third party claim against
Buyer Indemnitees shall mean any and all losses, damages, liabilities and claims
sustained by the Buyer Indemnitees and arising out of, based upon or resulting
from: (i) any misrepresentation, breach of warranty, or any failure to comply
with any covenant, obligation or agreement on the part of Seller contained in or
made pursuant to this Agreement; (ii) any failure by Seller to pay or perform
any of the Retained Liabilities; or (iii) any litigation, proceeding or claim by
any third party relating to the operation of the Business prior to Closing. Such
Deficiencies include without limitation any and all acts, suits, proceedings,
demands, assessments and judgments, and all fees, costs and expenses of any
kind, related or incident to any of the foregoing (including, without
limitation, any and all Legal Expenses (as defined in Section 10.6 below)).
(b) As used in this Article 10, the term "Deficiencies" when
asserted by Seller Indemnitees or arising out of a third party claim against
Seller Indemnitees shall mean any and all losses, damages, liabilities and
claims sustained by the Seller Indemnitees and arising out of, based upon or
resulting from: (i) any misrepresentation, breach of warranty, or any failure to
comply with any covenant, obligation or agreement on the part of Buyer contained
in or made pursuant to this Agreement; (ii) any failure by Buyer to pay or
perform any of the Assumed Liabilities; or (iii) any litigation, proceeding or
claim by any third party relating to the operation of the Business after
Closing. Such Deficiencies include without limitation any and all acts, suits,
proceedings, demands, assessments and judgments, and all fees, costs and
expenses of any kind, related or incident to any of the foregoing (including,
without limitation, any and all Legal Expenses (as defined in Section 10.6
below)).
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<PAGE> 26
10.4 Procedures.
(a) In the event that any claim shall be asserted by any third
party against the Buyer Indemnitees or Seller Indemnitees (Buyer Indemnitees or
Seller Indemnitees, as the case may be, hereinafter, the "Indemnitees"), which,
if sustained, would result in a Deficiency, then the Indemnitees, as promptly as
practicable after learning of such claim, shall notify the Indemnifying Party of
such claim, and shall extend to the Indemnifying Party a reasonable opportunity
to defend against such claim, at the Indemnifying Party's sole expense and
through legal counsel acceptable to the Indemnitees, provided that the
Indemnifying Party proceeds in good faith, expeditiously and diligently. The
Indemnitees shall, at their option and expense, have the right to participate in
any defense undertaken by the Indemnifying Party with legal counsel of their own
selection. No settlement or compromise of any claim which may result in a
Deficiency may be made by the Indemnifying Party without the prior written
consent of the Indemnitees unless: (A) prior to such settlement or compromise
the Indemnifying Party acknowledges in writing its obligation to pay in full the
amount of the settlement or compromise and all associated expenses; and (B) the
Indemnitees are furnished with a full release.
(b) In the event that the Indemnitees assert the existence of any
Deficiency against the Indemnifying Party, they shall give written notice to the
Indemnifying Party of the nature and amount of the Deficiency asserted. If the
Indemnifying Party within a period of thirty (30) days after the giving of the
Indemnitees' notice, shall not give written notice to the Indemnitees announcing
its intent to contest such assertion of the Indemnitees (such notice by the
Indemnifying Party being hereinafter referred to as the "Contest Notice"), such
assertion of the Indemnitees shall be deemed accepted and the amount of the
Deficiency shall be deemed established. In the event, however, that a Contest
Notice is given to the Indemnitees within such thirty (30) day period, then the
contested assertion of a Deficiency shall be settled by arbitration to be held
in Oklahoma City, Oklahoma in accordance with the Commercial Rules of the
American Arbitration Association then existing. The determination of the
arbitrator shall be delivered in writing to the Indemnifying Party and the
Indemnitees and shall be final, binding and conclusive upon all of the parties
hereto, and the amount of the Deficiency, if any, determined to exist, shall be
deemed established.
(c) The Indemnitees and the Indemnifying Party may agree in
writing, at any time, as to the existence and amount of a Deficiency, and, upon
the execution of such agreement such Deficiency shall be deemed established.
10.5 Payment. The Indemnifying Party hereby agrees to pay the amount of
established Deficiencies within fifteen (15) days after the establishment
thereof. The amount of established Deficiencies shall be paid in cash. At the
option of the Indemnitees, the Indemnitees may offset any Deficiency or any
portion thereof that has not been paid by the Indemnifying Party to the
Indemnitees against any obligation the Indemnitees, or any of them, may have to
the Indemnifying Party.
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<PAGE> 27
10.6 Legal Expenses. As used in this Article 10, the term "Legal
Expenses" shall mean any and all fees (whether of attorneys, accountants or
other professionals), costs and expenses of any kind reasonably incurred by any
person identified herein and its counsel in investigating, preparing for,
defending against, or providing evidence, producing documents or taking other
action with respect to any threatened or asserted claim.
ARTICLE 11: MISCELLANEOUS
11.1 Termination. This Agreement may be terminated at any time prior to
Closing: (a) by the mutual consent of Seller and Buyer; (b) by any party hereto
if any of the State Commissions denies the approvals contemplated by this
Agreement in an order which has become Final provided that the party giving
notice is not in breach or default hereof and that such denial was not caused by
the party giving notice; (c) by Buyer as provided in Section 11.5 (Risk of
Loss); (d) by Buyer or Seller if the Closing has not taken place by the Final
Closing Date; (e) by Buyer, if on the Closing Date Seller has failed to satisfy
any of the conditions set forth in Section 8.1, 8.4, or 8.5; (f) by Buyer if it
is not in material breach hereunder and if Seller has failed to cure a material
breach of any of its representations, warranties or covenants under this
Agreement within thirty (30) days after it receives notice from Buyer of such
breach; (g) by Seller, if on the Closing Date Buyer has failed to satisfy either
of the conditions set forth in Section 7.1 or 7.4; or (h) by Seller if it is not
in material breach hereunder and if Buyer has failed to cure a material breach
of any of its representations, warranties or covenants under this Agreement
within thirty (30) days after it receives notice from Seller of such breach. A
termination pursuant to this Section 11.1 shall not relieve any party of any
liability it would otherwise have for a breach of this Agreement.
11.2 Specific Performance. In the event of a breach or threatened
breach by Seller of any representation, warranty, covenant or agreement under
this Agreement, at Buyer's election, in addition to any other remedy available
to it, Buyer shall, while not in breach of any of its obligations hereunder, be
entitled, together with any other remedy available at law or equity, to an
injunction restraining any such breach or threatened breach and, subject to
obtaining any requisite approval any of the State Commissions, to enforcement of
this Agreement by a decree of specific performance requiring Seller to fulfill
its obligations under this Agreement, in each case without the necessity of
showing economic loss or other actual damage and without any bond or other
security being required.
11.3 Expenses. Each party hereto shall bear all of its expenses
incurred in connection with the transactions contemplated by this Agreement,
including without limitation, accounting and legal fees incurred in connection
herewith; provided, however, that: (i) Seller and Buyer shall each pay one-half
of the filing fees required to be paid in connection with the FCC Application
and the State Applications; and (ii) Seller shall be exclusively responsible
for, and Buyer shall not have any liability or responsibility for any sales or
transfer taxes
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<PAGE> 28
(including without limitation any real estate transfer taxes), arising from the
transfer of the Assets to Buyer.
11.4 Further Assurances. From time to time prior to and after Closing,
each party hereto will execute all such instruments and take all such actions as
any other party shall reasonably request, without payment of further
consideration, in connection with carrying out and effectuating the intent and
purpose hereof and all transactions contemplated by this Agreement, including
without limitation the execution and delivery of any and all confirmatory and
other instruments in addition to those to be delivered at Closing, and any and
all actions which may reasonably be necessary to complete the transactions
contemplated hereby. The parties shall cooperate fully with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations under this Agreement.
11.5 Risk of Loss. Subject to the terms of the Lease/License Agreement,
the risk of loss, damage or destruction to any of the Assets shall be borne by
Seller at all times up to the time of Closing on the date of Closing, and it
shall be the responsibility of Seller to repair or cause to be repaired and to
restore the property to its condition prior to any such covered loss, damage, or
destruction. In the event of any such covered loss, damage, or destruction, the
proceeds of any claim for any loss, payable under any insurance policy with
respect thereto, shall be used to repair, replace, or restore any such property
to its former condition, subject to the conditions stated below. In the event of
any loss or damage to any of the Assets, Seller shall notify Buyer thereof in
writing immediately. Such notice shall specify with particularity the loss or
damage incurred, the cause thereof (if known or reasonably ascertainable), and
the insurance coverage, and in the event that any of the Assets are not
completely repaired, replaced or restored on or before the scheduled Closing
Date, Buyer at its option: (a) may elect to postpone Closing until such time as
any of the Assets have been completely repaired, replaced or restored (and, if
necessary, Seller shall join Buyer in requesting from each and any of the State
Commissions any extensions of time in which to consummate the Closing that may
be required in order to complete such repairs); or (b) may elect to consummate
the Closing and accept any of the Assets in its then condition, in which event
the Purchase Price shall be reduced at Closing in an amount equal to the cost of
completion of such repair, replacement or restoration (with a final accounting
and settlement within 120 days after the Closing); or (c) terminate this
Agreement.
ARTICLE 12: GENERAL PROVISIONS
12.1 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective
representatives, successors and assigns. Seller may not assign any of its rights
or delegate any of its duties hereunder without the prior written consent of
Buyer, and any such attempted assignment or delegation without such consent
shall be void. Buyer may assign its rights and obligations hereunder in whole or
in
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<PAGE> 29
part without Seller's consent. In the event of assignment of either party, that
party shall remain liable for each of its obligations hereunder.
12.2 Amendments; Waivers. The terms, covenants, representations,
warranties and conditions of this Agreement may be changed, amended, modified,
waived, or terminated only by a written instrument executed by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision of this Agreement shall in no manner affect the right of such
party at a later date to enforce the same. No waiver by any party of any
condition or the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
12.3 Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly made and received when personally served or when
delivered by Federal Express or a similar overnight courier service, expenses
prepaid, addressed as set forth in Schedule 12.3. Any party may alter the
address to which communications are to be sent by giving notice of such change
of address in conformity with the provisions of this Section providing for the
giving of notice.
12.4 Captions. The captions of Articles and Sections of this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
12.5 Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Oklahoma, without giving
effect to principles of conflicts of laws.
12.6 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof and supersedes all prior agreements, understandings, inducements
or conditions, express or implied, oral or written, relating to the subject
matter hereof, including without limitation the letter agreement dated February
1, 1999. The express terms hereof control and supersede any course of
performance and/or usage of trade inconsistent with any of the terms hereof.
This Agreement has been prepared by all of the parties hereto, and no inference
of ambiguity against the drafter of a document therefore applies against any
party hereto.
12.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
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<PAGE> 30
12.8 Interpretation. References herein to Seller shall be construed
case by case to mean Seller and/or its Affiliates as the context requires to
enable Buyer to obtain the fullest benefit of this Agreement.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 31
SIGNATURE PAGE TO ASSET PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
BUYER: AMERIVISION COMMUNICATIONS, INC.
Attest: By: /s/ Stephen D. Halliday
----------------- ---------------------------------------
Stephen D. Halliday, President
SELLER: HEBRON COMMUNICATIONS CORPORATION
Attest: By: /s/ John E. Telling
----------------- ---------------------------------------
John E. Telling, President/CEO
SOLELY FOR THE PURPOSES OF SECTIONS 1.9 and 9.3:
Attest: /s/ Tracy Freeny
----------------- ---------------------------------------
Tracy Freeny, an individual
Attest: /s/ Carl Thompson
----------------- ---------------------------------------
Carl Thompson, an individual
Attest: /s/ S.T. Patrick
----------------- ---------------------------------------
S.T. Patrick, an individual
<PAGE> 1
EXHIBIT 10.14
LEASE/LICENSE AGREEMENT
THIS LEASE/LICENSE AGREEMENT (this "Agreement") is made on this 30th
day of April 1999 by and among HEBRON COMMUNICATIONS CORPORATION, a Florida
corporation ("Hebron"), and AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation ("AmeriVision").
Recitals
Hebron owns and operates telecommunications switches in Chicago,
Illinois and Oklahoma City, Oklahoma providing switched-resold
telecommunications service (the "Telecommunications Business") and holds certain
licenses, permits and authorizations (the "FCC Authorizations") issued by the
Federal Communications Commission (the "FCC") and certain licenses, permits and
authorizations (the "State Authorizations") issued by certain state regulatory
agencies having jurisdiction over the Telecommunications Business (collectively,
the "State Commissions"). The State Authorizations and the FCC Authorizations
shall be referred to herein collectively as the "Regulatory Authorizations."
Hebron owns and operates certain assets in connection with an Internet
service provider project (the "Internet Business") heretofore conducted in
conjunction with AmeriVision. The Internet Business and the Telecommunications
Business shall be referred to herein collectively as the "Business."
Pursuant to the Asset Purchase Agreement of even date herewith (the
"Purchase Agreement"), Hebron has agreed to sell to AmeriVision, and AmeriVision
has agreed to purchase from Hebron, certain Assets that comprise the Business
under the terms and conditions set forth therein (any capitalized terms used
herein but not defined shall have the meaning set forth in the Purchase
Agreement). In the interim between the date hereof and the Closing Date under
the Purchase Agreement, Hebron and AmeriVision wish to transfer from Hebron to
AmeriVision custody and control of the Assets, which AmeriVision shall hold and
operate as if the Assets were owned by AmeriVision herein between the
Commencement Date (defined below) and the Closing Date (or such other date as
may be set forth herein), all as further set forth herein.
Agreement
NOW, THEREFORE, taking the foregoing into account, and in consideration
of the mutual covenants and agreements set forth herein, the parties, intending
to be legally bound, hereby agree as follows:
1. Term. The term of this Agreement (the "Term") shall be deemed to
have begun on February 1, 1999 (the "Commencement Date") and shall terminate,
unless earlier terminated in accordance with the terms herewith, upon the
earlier of the following: (1) the
<PAGE> 2
date of the consummation of the Closing of the Purchase Agreement; (2) one (1)
year after the date of the Purchase Agreement; (3) by either party in the event
of any adverse vote of the shareholders of Hebron on the transactions
contemplated by the Purchase Agreement; or (4) by the non-breaching party in the
event the Purchase Agreement is terminated under Section 11.1(f) or (h) thereof.
2. Lease and License of Assets. Hebron hereby leases to AmeriVision,
and AmeriVision hereby leases from Hebron, for the Term all of the Assets
(excluding the Intangible Property) on the terms and conditions set forth
herein. Hebron hereby grants to AmeriVision, and AmeriVision hereby accepts from
Hebron, for the Term an exclusive license to use all of the Intangible Property.
Hebron represents, warrants and covenants that AmeriVision shall have the
exclusive right to possess, use and control the Assets during the Term, free
from interference from Hebron or any person claiming by, through or under
Hebron.
3. Payments; Proceeds of Operation of Assets.
(a) During the Term, AmeriVision shall pay to Hebron a fee in the
amount of Three Hundred Ninety Four and 40/100 Dollars ($394.40) per day,
payable in arrears on the last day of each calendar month ending within, and on
the last day of the Term. Notwithstanding the foregoing, AmeriVision shall pay
to Hebron fees due hereunder from the period of February 1, 1999 to April 30,
1999 upon the satisfaction of the following: (i) successful completion of
approval by Hebron's shareholders to the transactions set forth in the Asset
Purchase Agreement between AmeriVision and Hebron dated as of April 30, 1999;
and (ii) delivery of documentation to AmeriVision reflecting such shareholder
approval.
(b) In consideration of the mutual promises and covenants contained
herein and the terms of the Asset Purchase Agreement, AmeriVision agrees to duly
execute and deliver to Hebron the Payables Note on the date of this Agreement.
(c) All revenue resulting from the operation of the Business or any
of the Assets shall be for the account of AmeriVision, and AmeriVision shall be
entitled to collect all accounts receivable arising therefrom. On the date of
this Agreement, in exchange for AmeriVision's execution and delivery of the
Payables Note, Hebron shall assign to AmeriVision all of Hebron's accounts
receivable that comprise the Remaining Buyer Debt.
4. Benefit, Assumption of Contracts.
(a) During the Term, AmeriVision shall pay and discharge in a timely
manner the obligations of Hebron under each of the Contracts listed on Schedule
2.8 of the Purchase Agreement. AmeriVision may, but shall not be obligated to,
assume any of the Contracts prior to the date of the consummation of the Closing
of the Purchase Agreement. If
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<PAGE> 3
AmeriVision elects to assume any of the Contracts prior to such date, Hebron
shall assign such Contracts to AmeriVision and shall cooperate with AmeriVision
to effectuate such assignment, including without limitation by using its best
efforts to obtain consent to assignment from other parties to any Contracts
where such consents may be necessary or appropriate. In any event, Hebron shall
provide the benefits of each Contract to AmeriVision and shall take no action
and (other than with respect to AmeriVision's duty to pay and discharge Hebron's
obligations pursuant to such Contracts set forth herein) make no omission that
would cause or permit such contracts to lapse, go into default or otherwise no
longer be in full force and effect and available to AmeriVision.
(b) To the extent that any Contract that AmeriVision wishes to
assume is not capable of being sold, assigned, transferred, delivered or
subleased without the waiver or consent of any third person (including a
government or governmental unit), or if such sale, assignment, transfer,
delivery or sublease or attempted sale, assignment, transfer, delivery or
sublease would constitute a breach thereof or a violation of any law or
regulation, this Agreement and any assignment executed pursuant hereto shall not
constitute a sale, assignment, transfer, delivery or sublease or an attempted
sale, assignment, transfer, delivery or sublease thereof. In those cases where
consents, assignments, releases and/or waivers have not been obtained at or
prior to the Commencement Date to the transfer and assignment to AmeriVision of
the Contracts, this Agreement and any assignment executed pursuant hereto, to
the extent permitted by law, shall constitute an equitable assignment by Hebron
to AmeriVision of all of Hebron's rights, benefits, title and interest in and to
the Contracts, and where necessary or appropriate, AmeriVision shall be deemed
to be Hebron's agent for the purpose of obtaining all of Hebron's rights and
performing and discharging all of Hebron's liabilities arising after the
Commencement Date under such Contracts. Hebron shall use its best efforts to
provide AmeriVision with the financial and business benefits of such Contracts
(including, without limitation, permitting AmeriVision to enforce any rights of
Hebron arising under such Contracts), and AmeriVision shall, to the extent
AmeriVision is provided with the benefits of such Contracts, perform and in due
course pay and discharge in a timely fashion all debts, obligations and
liabilities of Hebron under such Contracts to the extent that AmeriVision was to
assume those obligations pursuant to the terms hereof.
5. Further Assurances. From time to time during the Term, each party
hereto will execute all such instruments and take all such actions as any other
party shall reasonably request, without payment of further consideration, in
connection with carrying out and effectuating the intent and purpose hereof and
all transactions contemplated by this Agreement, including without limitation
the execution and delivery of any and all confirmatory and other instruments,
and any and all actions which may reasonably be necessary to complete the
transactions contemplated hereby. The parties shall cooperate fully with each
other and with their respective counsel and accountants in connection with any
steps required to be taken as part of their respective obligations under this
Agreement.
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<PAGE> 4
6. Representations and Warranties.
(a) Hebron represents and warrants as follows: (i) Hebron is
organized, existing and active under the laws of the jurisdiction of its
organization; (ii) Hebron has the requisite power and authority to execute,
deliver and perform this Agreement; (iii) the execution, delivery and
performance of this Agreement have been authorized and approved, subject to
further authorization or consent of Hebron's shareholders to the Closing under
the Purchase Agreement; (iv) the execution, delivery and performance of this
Agreement by Hebron does not conflict with any other agreement to which Hebron
is a party, other than Contracts as to which consent to assignment is required;
and (v) the execution, delivery and performance of this Agreement by Hebron does
not conflict with the terms and conditions set forth in Hebron's FCC
Authorizations or State Authorizations, including the statutes, rules,
regulations and policies of the FCC or the statutes, rules, regulations and
policies of each of the State Commissions applicable thereto.
(b) AmeriVision represents and warrants as follows: (i) AmeriVision
is organized, existing and in good standing under the laws of the jurisdiction
of its organization; (ii) AmeriVision has the requisite power and authority to
execute, deliver and perform this Agreement; (iii) the execution, delivery and
performance of this Agreement have been duly authorized by all necessary action
of AmeriVision; (iv) the execution, delivery and performance of this Agreement
by AmeriVision does not conflict with any other agreement to which AmeriVision
is a party; (v) AmeriVision holds all the licenses and authorizations required
under the Communications Act of 1934, as amended (the "Communications Act"), or
the rules, regulations and policies of the FCC for, and used in the operation
of, the Assets, and the licenses and authorizations required under applicable
state statute, or the rules, regulations and policies of each of the State
Commissions for, and used in the operation of, the Assets (collectively, the
"AmeriVision Authorizations"); and (vi) the AmeriVision Authorizations are in
full force and effect and have not been revoked, suspended, canceled, rescinded
or terminated and have not expired.
7. Insurance; Maintenance Agreements. During the Term and to the extent
permitted under the Contracts listed on Schedule 2.8, AmeriVision shall: (i)
maintain in full force the types and levels of insurance coverage required under
the terms of each such Contract for the Assets; (ii) otherwise provide adequate
fire and other risk insurance covering the full replacement value of the Assets;
and (iii) perform all affirmative obligations required by any Contract necessary
to maintain in effect for the benefit of Hebron any maintenance or factory
support obligations of any other Contract party. To the extent that AmeriVision
reasonably determines that it may not perform any of the obligations set forth
above consistent with the terms of any of the Contracts, AmeriVision shall
reimburse Hebron for the reasonable costs associated with Hebron performing such
obligation provided that, should Hebron be required to maintain insurance
coverage for the Assets, it shall name AmeriVision as an additional
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<PAGE> 5
insured or take such other action at AmeriVision's reasonable request to ensure
that AmeriVision is eligible to receive the economic benefit of such policy.
8. Risk of Loss. To the extent of the insurance coverage maintained by
AmeriVision with respect to the Assets, the risk of loss, damage or destruction
to any of the Assets shall be borne by AmeriVision at all times during the Term.
In the event of any such covered loss, damage, or destruction, the proceeds of
any claim for any loss payable under any insurance policy with respect thereto
shall be used to repair, replace, or restore any such property to its former
condition. In the event of any loss or damage to any of the Assets, AmeriVision
shall notify Hebron thereof in writing immediately. Such notice shall specify
with particularity the loss or damage incurred, the cause thereof (if known or
reasonably ascertainable), and the insurance coverage.
9. Operation of the Business.
(a) AmeriVision shall: (i) operate and care for the Assets, and keep
its books and accounts, records and files, in a commercially reasonable manner
consistent with past practice; (ii) operate the Assets in accordance with the
terms of the AmeriVision Authorizations and in compliance with the
Communications Act, FCC rules, regulations and policies, and all other
applicable state and other laws, rules and regulations, and State Commission
rules, and maintain the AmeriVision Authorizations in full force and effect and
timely file and prosecute any necessary applications for renewal of the
AmeriVision Authorizations; (iii) use best efforts to preserve the organization
of the Business intact, and preserve the goodwill of the Business's suppliers,
advertisers, customers and others having business relations with it; (iv) keep
all Tangible Personal Property and Real Property in good operating condition
(ordinary wear and tear excepted) and repair and maintain adequate and usual
supplies of inventory, office supplies, spare parts and other materials as have
been customarily maintained in the past; and (v) furnish to Hebron monthly
reports in the same form and approximately at the same time as the internally
prepared business statements submitted to Coast Business Credit under the LSA.
Nothing in this paragraph shall be deemed to require AmeriVision to make any
material investment in the Business.
(b) Hebron shall not, without the prior written consent of
AmeriVision: (i) sell, lease, transfer, alienate or encumber, or agree to sell,
lease, transfer, alienate or encumber any of the Assets; (ii) enter into any
contract of employment with any employee or employees of the Business; or (iii)
amend or terminate any of the Contracts or enter into any contract, lease or
agreement with respect to the Business.
10. Unwind. Upon a termination of this Agreement other than concurrent
with a Closing of the Purchase Agreement, AmeriVision and Hebron shall cooperate
to unwind the effect hereof, and Hebron shall reassume the contracts and leases
assigned to and assumed by AmeriVision, if any, and AmeriVision and Hebron shall
each execute such documents,
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<PAGE> 6
instruments and agreements, and take such other action, as may be necessary to
implement any such transaction and carry out the intent of this Section,
provided, however, that nothing in this Section 10 shall be construed to require
AmeriVision to disgorge any of the economic benefits of operating the Assets
during the period from the Commencement Date through the date of such
termination.
11. Indemnification.
(a) AmeriVision shall indemnify, defend, and hold harmless Hebron
from and against any and all claims, losses, costs, liabilities, damages and
expenses (including reasonable attorneys' fees and other expenses incidental
thereto) of every kind, nature, and description arising out of: (i) any
misrepresentation or breach of any warranty of AmeriVision in this Agreement; or
(ii) any failure by AmeriVision to comply with its covenants or agreements set
forth in this Agreement.
(b) Hebron shall indemnify, defend, and hold harmless AmeriVision
from and against any and all claims, losses, costs, liabilities, damages, and
expenses (including reasonable attorneys' fees and other expenses incidental
thereto) of every kind, nature, and description arising out of: (i) any
misrepresentation or breach of any warranty of Hebron in this Agreement; or (ii)
any failure by Hebron to comply with its covenants or agreements set forth in
this Agreement.
12. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and their respective
representatives, successors and assigns; provided, however, that neither party
may assign any of its rights or delegate any of its duties hereunder without the
prior written consent of the other party, and any such attempted assignment or
delegation without such consent shall be void.
13. Amendments; Waiver. The terms, covenants, representations,
warranties and conditions of this Agreement may be changed, amended, modified,
waived, or terminated only by a written instrument executed by the party waiving
compliance. The failure of any party at any time or times to require performance
of any provision of this Agreement shall in no manner affect the right of such
party at a later date to enforce the same. No waiver by any party of any
condition or the breach of any provision, term, covenant, representation or
warranty contained in this Agreement, whether by conduct or otherwise, in any
one or more instances shall be deemed to be or construed as a further or
continuing waiver of any such condition or of the breach of any other provision,
term, covenant, representation or warranty of this Agreement.
14. Notices. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly
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<PAGE> 7
made and received when personally served or when delivered by Federal Express or
a similar overnight courier service, expenses prepaid, addressed as follows:
If to AmeriVision, to:
AmeriVision Communications, Inc.
5900 Mosteller Drive, Suite 1850
Oklahoma City, Oklahoma 73112
Attn: Stephen D. Halliday
Fax: 405-600-3823
with a copy, which shall not constitute notice, to:
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, DC 20006
Attn: Dag Wilkinson
Fax: 202-719-7049
If to Hebron, to:
Hebron Communications Corporation
5900 Mosteller Dr., Suite 1750
Oklahoma City, OK 73112
Attn: John E. Telling
Fax: (405) 600-3617
with a copy, which shall not constitute notice, to:
Bush Ross Gardner Warren & Rudy
220 South Franklin Street
Tampa, Florida 33602
Attn: Jeremy P. Ross
Fax: 813-223-9620
Any party may alter the address to which communications are to be sent by giving
notice of such change of address in conformity with the provisions of this
Section providing for the giving of notice.
15. Governing Law. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the State of Oklahoma, without giving
effect to principles of conflicts of laws.
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<PAGE> 8
16. Entire Agreement. This Agreement and the Purchase Agreement
constitute the full and entire understanding and agreement between the parties
with regard to the subject matter hereof and thereof, and supersede all prior
agreements, understandings, inducements or conditions, express or implied, oral
or written, relating to the subject matter hereof and thereof. The express terms
hereof and thereof control and supersede any course of performance and/or usage
of trade inconsistent with any of the terms hereof or thereof. This Agreement
has been prepared by all of the parties hereto, and no inference of ambiguity
against the drafter of a document therefore applies against any party hereto.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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<PAGE> 9
SIGNATURE PAGE TO LEASE/LICENSE AGREEMENT
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first written above.
HEBRON COMMUNICATIONS CORPORATION
Attest: By: /s/ John E. Telling
---------------- -------------------------------------
John E. Telling, President/CEO
AMERIVISION COMMUNICATIONS, INC.
Attest: By: /s/ Stephen D. Halliday
---------------- -------------------------------------
Stephen D. Halliday, President
<PAGE> 1
Exhibit 10.15
PROMISSORY NOTE
$_______________ Oklahoma City, Oklahoma
[______, 1999]
FOR VALUE RECEIVED, AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation ("Borrower") hereby promises to pay to the order of HEBRON
COMMUNICATIONS CORPORATION, a Florida corporation ("Lender"), on the Maturity
Date the principal sum of _________________________________ Dollars
($__________), together with interest payable as set forth herein.
Interest shall accrue on the unpaid principal amount hereof at the
rate of Twelve and One-Half percent (12.5%) per annum from the date hereof
through the last day of the ninth (9th) full calendar month hereafter, and
Sixteen and One-Quarter percent (16.25%) per annum thereafter. Payments of
interest shall be due and payable in arrears on the last day of each calendar
month that the principal amount hereunder remains outstanding. Payments of
principal shall be due and payable in six (6) equal monthly installments
commencing on the last day of the thirteenth (13th) full calendar month after
the date hereof, and continuing on the last day of each succeeding calendar
month until paid in full. All unpaid principal and any accrued and unpaid
interest under this Note shall be due and payable in full on the last day of
the eighteenth (18th) full calendar month after the date hereof (the "Maturity
Date"). This Note is made pursuant, and shall be subject, to the April 30, 1999
Asset Purchase Agreement between Borrower and Lender. Interest on the principal
amount shall be compounded annually, computed on the basis of a 365-day year
and due and payable for the actual number of days principal remains
outstanding.
In the event of a default in payment hereunder, all principal and
interest then due and owing shall bear interest at the Maximum Rate (defined
below). As used herein, the term "Maximum Rate" means the lesser of Eighteen
percent (18%) or the highest permissible non-usurious interest rate. Neither
payment nor acceptance of any such interest shall constitute a waiver of
default or impair Lender's rights or remedies.
Borrower shall have the right and option, without notice, premium,
forfeiture or other penalty, to prepay the principal of this Note in whole or
in part at any time prior to the Maturity Date.
All payments of principal and interest under this Note shall be made
in lawful money of the United States of America in immediately available funds
at the office of Lender located at 5900 Mosteller Drive, Suite 1750, Oklahoma
City, Oklahoma 73112, Attn: John E. Telling, or at such other place as Lender
may designate from time to time in writing.
<PAGE> 2
Borrower and all other persons liable on this Note hereby waive
presentment for payment, demand, notice of dishonor, protest, notice of protest
and all other demands and notices in connection with the delivery, performance
and enforcement of this Note.
This Note and all obligations arising hereunder (the "Subordinated
Debt") are subordinated to any obligations of Borrower to Coast Business Credit
("Coast") (the "Senior Debt"). This Note is subject to the Subordination
Agreement of even date herewith by and between Borrower, Lender and Coast (the
"Subordination Agreement"), and, in the event of any inconsistency between the
terms of this Note and the terms of the Subordination Agreement, the
Subordination Agreement shall control.
This Note is being delivered in, is intended to be performed in, shall
be construed and enforceable in accordance with, and be governed by the
internal laws of, the State of Oklahoma without regard to principles of
conflict of laws. The state and federal courts in Oklahoma City, Oklahoma shall
have exclusive jurisdiction over all matters arising out of this Note, and
service of process in any such proceeding shall be effective if mailed to
Borrower at its address set forth above. BORROWER HEREBY WAIVES THE RIGHT TO
TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE. If this Note is referred
to any attorney for collection, and the payment is obtained without the entry
of judgment, the Borrower shall pay to the holder of this Note its attorneys'
fees.
The rights and remedies of Lender provided for hereunder are
cumulative with the rights and remedies of Lender available under any other
instrument or agreement or under applicable law. The principal amount of this
Note shall continue to be effective or be reinstated, as the case may be, if at
any time any amount received by Lender in respect of this Note is rescinded or
must otherwise be restored or returned by Lender including without limitation
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or upon the appointment of any intervenor or conservator of, or
trustee or similar official for Borrower or any substantial part of its
properties, or otherwise, all as though such payments had not been made.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 3
SIGNATURE PAGE TO PROMISSORY NOTE
IN WITNESS WHEREOF, Borrower has duly executed and delivered this
Promissory Note as of the date first set forth above.
AMERIVISION COMMUNICATIONS, INC.
By:
------------------------------------
Stephen D. Halliday
President
<PAGE> 1
Exhibit 10.16
PROMISSORY NOTE
$2,274,416 Oklahoma City, Oklahoma
February 1, 1999
FOR VALUE RECEIVED, AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation ("Borrower") hereby promises to pay to the order of HEBRON
COMMUNICATIONS CORPORATION, a Florida corporation ("Lender"), on the Maturity
Date the principal sum of Two Million Two Hundred Seventy Four Thousand Four
Hundred Sixteen Dollars ($2,274,416), together with interest payable as set
forth herein.
Interest shall accrue on the unpaid principal amount hereof at the
rate of Twelve and One-Half percent (12.5%) per annum from the date hereof
through the last day of the ninth (9th) full calendar month hereafter, and
Sixteen and One-Quarter percent (16.25%) per annum thereafter. Payments of
interest shall be due and payable in arrears on the last day of each calendar
month that the principal amount hereunder remains outstanding. All unpaid
principal and any accrued and unpaid interest under this Note shall be due and
payable in full on the last day of the eighteenth (18th) full calendar month
after the date hereof (the "Maturity Date"). This Note is made pursuant, and
shall be subject, to the Asset Purchase Agreement between Borrower and Lender
of April 30, 1999. Interest on the principal amount shall be compounded
annually, computed on the basis of a 365-day year and due and payable for the
actual number of days principal remains outstanding.
In the event of a default in payment hereunder, all principal and
interest then due and owing shall bear interest at the Maximum Rate (defined
below). As used herein, the term "Maximum Rate" means the lesser of Eighteen
percent (18%) or the highest permissible non-usurious interest rate. Neither
payment nor acceptance of any such interest shall constitute a waiver of
default or impair Lender's rights or remedies.
Borrower shall have the right and option, without notice, premium,
forfeiture or other penalty, to prepay the principal of this Note in whole or
in part at any time prior to the Maturity Date.
All payments of principal and interest under this Note shall be made
in lawful money of the United States of America in immediately available funds
at the office of Lender located at 5900 Mosteller Drive, Suite 1750, Oklahoma
City, Oklahoma 73112, Attn: John Telling, or at such other place as Lender may
designate from time to time in writing.
Borrower and all other persons liable on this Note hereby waive
presentment for payment, demand, notice of dishonor, protest, notice of protest
and all other demands and notices in connection with the delivery, performance
and enforcement of this Note.
<PAGE> 2
This Note and all obligations arising hereunder (the "Subordinated
Debt") are subordinated to any obligations of Borrower to Coast Business Credit
("Coast") (the "Senior Debt"). This Note is subject to the Subordination
Agreement of even date herewith by and between Borrower, Lender and Coast (the
"Subordination Agreement"), and, in the event of any inconsistency between the
terms of this Note and the terms of the Subordination Agreement, the
Subordination Agreement shall control.
This Note is being delivered in, is intended to be performed in, shall
be construed and enforceable in accordance with, and be governed by the
internal laws of, the State of Oklahoma without regard to principles of
conflict of laws. The state and federal courts in Oklahoma City, Oklahoma shall
have exclusive jurisdiction over all matters arising out of this Note, and
service of process in any such proceeding shall be effective if mailed to
Borrower at its address set forth above. BORROWER HEREBY WAIVES THE RIGHT TO
TRIAL BY JURY OF ANY MATTERS ARISING OUT OF THIS NOTE. If this Note is referred
to any attorney for collection, and the payment is obtained without the entry
of judgment, the Borrower shall pay to the holder of this Note its attorneys'
fees.
The rights and remedies of Lender provided for hereunder are
cumulative with the rights and remedies of Lender available under any other
instrument or agreement or under applicable law. The principal amount of this
Note shall continue to be effective or be reinstated, as the case may be, if at
any time any amount received by Lender in respect of this Note is rescinded or
must otherwise be restored or returned by Lender including without limitation
upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of
Borrower or upon the appointment of any intervenor or conservator of, or
trustee or similar official for Borrower or any substantial part of its
properties, or otherwise, all as though such payments had not been made.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 3
SIGNATURE PAGE TO PROMISSORY NOTE
IN WITNESS WHEREOF, Borrower has duly executed and delivered this
Promissory Note as of the date first set forth above.
AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
-----------------------------------
Stephen D. Halliday
President
<PAGE> 1
EXHIBIT 10.17
CAPITAL STOCK ESCROW
AND DISPOSITION AGREEMENT
CAPITAL STOCK ESCROW AND DISPOSITION AGREEMENT dated as of April 30,
1999 (the "AGREEMENT"), by and among TRACY FREENY (the "GUARANTOR"); HEBRON
COMMUNICATIONS CORPORATION (collectively with its assigns, the "HOLDER"); and
BUSH ROSS GARDNER WARREN & RUDY, P.A. (the "ESCROW AGENT").
BACKGROUND INFORMATION
Concurrently with the execution of this Agreement AmeriVision
Communications, Inc., an Oklahoma corporation (the "MAKER") of which the
Guarantor is a member of its board of directors and a controlling shareholder,
has executed in favor of and delivered to the Holder a single promissory note in
the form attaching hereto as Exhibit A (the "FIRST NOTE"), and under the terms
of an Asset Purchase Agreement, of even date herewith, the Maker is required, at
a closing to be conducted hereafter, to execute and deliver to Holder two
additional promissory notes in the forms attaching hereto as composite Exhibit B
(collectively the "REMAINING NOTES" and together with the First Note the
"NOTES"). This Agreement is being entered into for the purpose of better
securing timely payment by the Maker of its obligations under each of the Notes.
Accordingly, for valuable consideration, the receipt and adequacy of which is
acknowledged by each party to this Agreement, the parties agree as follows:
OPERATIVE PROVISIONS
1. DEPOSIT OF COLLATERAL AND NOTES. The Guarantor has delivered to the
Escrow Agent a single certificate evidencing his registered ownership of 50,000
shares, $.10 par value, of the Maker's single class of common stock authorized
for issuance (together with any additional equity securities of the Maker
delivered to the Escrow Agent under the provisions of Section 4 below, the
"SHARES"), and a separate stock power executed by the Guarantor, in the form
attaching hereto as Exhibit C, intended to cause a transfer of registered
ownership of the Shares to the Holder upon proper presentation to the Maker or
its stock transfer agent (collectively, the "COLLATERAL"). The Holder has, in
turn, delivered to the Escrow Agent an executed copy of the First Note, and
herein covenants to deliver an executed copy of each of the Remaining Notes
promptly following its receipt thereof. The Escrow Agent acknowledges receipt of
the Collateral and a copy of the First Note.
2. RELEASE OF COLLATERAL.
(a) DELIVERY TO MAKER UPON SATISFACTION OF NOTE. Upon delivery
to the Escrow Agent of a written notification, executed by the Holder, that the
obligation of the Maker under each of the Notes has been satisfied, the Escrow
Agent shall deliver the Collateral to the Guarantor.
1
<PAGE> 2
Delivery shall be made by hand or by registered mail, return receipt requested,
addressed to the Guarantor at the location indicated in Section 7.(a) hereof,
and upon completing such delivery the obligations of the Escrow Agent hereunder
shall terminate. Conversely, if the Guarantor believes that the Maker has
satisfied all of its obligations under all of the Notes, but notice to that
effect has not been timely furnished to the Escrow Agent by the Holder, the
Guarantor may furnish the Escrow Agent with notice of satisfaction, specifying
therein the individual transactions (i.e., the dates, character and amounts of
payment made) upon which he relies to establish such satisfaction by the Maker.
Within three business days following such receipt the Escrow Agent shall furnish
a copy of the Guarantor's notice to the Holder. If, within ten business days
following such delivery to the Holder, the Escrow Agent shall not be in receipt
of the Holder's separate notice denying the Maker's satisfaction, accompanied by
an accounting which sets forth all monetary amounts acknowledged by the Holder
as being received from Maker, including the date of each such receipt and all
amounts, both as to principal and interest, which the Holder believes still to
be owing by the Maker under any of the Notes, the Escrow Agent shall deliver the
Collateral to the Guarantor. Delivery shall be made in the manner specified
above in this subsection and upon completion thereof the Escrow Agent's
obligations hereunder shall terminate.
(b) DELIVERY TO HOLDER UPON DEFAULT. In the event that, on or
after the Maturity Date (as that capitalized term is defined in each Note) and
otherwise during the pendency of this Agreement, the Holder shall believe the
Maker to be in default of its payment obligations under any of the Notes, the
Holder shall believe the Maker to be in default of its payment obligations under
any of the Notes, the Holder may so notify the Escrow Agent, specifying therein
the amount of principal and interest comprising the basis of such alleged
default and a calculation which clearly supports such claim. Within three
business days following receipt of such notice, the Escrow Agent shall furnish a
copy thereof to Maker and the Guarantor. If, within ten business days following
such delivery, the Escrow Agent shall not be in receipt of Maker's or the
Guarantor's separate notice denying the Maker's default alleged by the Holder,
accompanied by the Maker's canceled check(s), confirmation of completed wire
transfer, or other evidence of its payment of all amounts due, both as to
principal and interest, under each Note, Escrow Agent shall deliver the
Collateral to the Holder. Delivery shall be made by hand or by registered mail,
return receipt requested, addressed to the Holder at the location indicated in
Section 7.(a) hereof, and upon completing such delivery the obligations of the
Escrow Agent hereunder shall terminate.
(c) DELIVERY FOLLOWING DISPUTE CONCERNING SATISFACTION OR
DEFAULT. If, after delivering the Guarantor's notice of satisfaction as
described in paragraph (a) above or the Holder's notice of default as described
in paragraph (b), the Escrow Agent shall timely receive the above-described
notice (and any accompanying supportive documentation) from the remaining party
disputing the alleged satisfaction or default, the Escrow Agent shall retain
possession of the Collateral until the controversy has been settled by the
remaining parties to this Agreement and shall take further action with respect
thereto only in accordance with the terms of (1) an agreement, dated subsequent
to the date of the Escrow Agent's receipt of the applicable notice of dispute
and executed by the Guarantor and the Holder, or (2) a final judgment entered by
a court of competent jurisdiction as to which the time for appellate review has
expired and no appeal has been taken; provided that, in lieu of retaining the
Collateral, the Escrow Agent may, at any time after its receipt of notice of a
dispute, file an action of interpleader in a court of competent jurisdiction and
thereafter release
2
<PAGE> 3
possession of the Collateral to the registry of such court, following which
action is obligations hereunder shall terminate.
3. DISPOSITION OR RETENTION OF COLLATERAL RECEIVED BY HOLDER. In the
event that the Holder obtains possession of the Collateral pursuant to the terms
of Section 2.(b) hereof, the Holder shall be required to sell such of the Shares
as shall be necessary to satisfy its claims against the Guarantor, provided,
however, that holder's possession of the Collateral and any disposition of the
Shares shall be in the capacity of a secured party there therefore controlled
by, and subject to the Florida Uniform Commercial Code - Secured Transactions,
Chapter 679, Florida Statutes, or any successor law, and to the requirements of
applicable federal and state securities law relating to the resale of restricted
securities. Unless the Shares are then of a class customarily traded on a
nationally recognized securities market, the Holder shall give the Guarantor at
least a 15-day notice of any such proposed sale, whether public or private, so
the Guarantor may bid thereat. The amount of the Holder's claims to be satisfied
from the sale of any of the Shares shall equal the total amount due under each
Note which is not theretofore paid, inclusive of accrued but unpaid interest,
together with such expenses, expressly including a reasonable attorney fee and
associated legal expenses, as are due and payable pursuant to each Note and
reimbursable under the Florida Uniform Commercial Code. Any excess of the
proceeds received upon sale of any of the Shares shall be paid to the Guarantor
(and any unsold Shares returned to him); and any deficiency which remains after
a sale of all the Shares shall be recoverable by such other legal remedies then
available to the Holder, none of which shall be deemed waived by the Holder's
sale of the Shares.
4. DIVIDENDS, DISTRIBUTIONS AND VOTING RIGHTS. All dividends and other
distributions made with respect to the Shares, except cash dividends or
distributions paid out of the Maker's earnings or profits, and all securities
exchanged for or issued in a reclassification of or substitution for the same,
shall be delivered by the Guarantor to the Escrow Agent and held by it as
additional security under the provisions of this Agreement. So long as the Maker
is not in default under any Note the Guarantor shall have all rights of
ownership, including voting rights, with respect to the Shares other than that
of possession and as limited by the preceding sentence.
5. RIGHTS AND LIMITATIONS UPON DUTY OF ESCROW AGENT. The Escrow Agent:
(a) shall not be obligated to deliver any item of property or
property interest unless the same shall have been first actually received by the
Escrow Agent pursuant to the provisions hereof.
(b) shall not be responsible in any manner for the validity or
sufficiency of any share certificate or stock power received by it in its
capacity as Escrow Agent.
(c) shall be entitled to act upon any written certificate,
statement, notice, demand, request, consent, agreement or other instrument
whatever, not only in reliance upon its due execution and the validity and
effectiveness of its provisions, but also as to the accuracy and completeness of
any information therein contained, which the Escrow Agent shall in good faith
believe to be genuine and to have been signed or presented by any authorized
person.
3
<PAGE> 4
(d) shall be entitled to request and receive from any
remaining party hereto such documents in addition to those provided for herein
as the Escrow Agent may deem necessary to resolve any questions of fact involved
in the provisions hereof.
(e) may, at the expense of the remaining parties hereto,
consult independent counsel of its choice in respect to any question relating to
its duties or responsibilities under this Agreement, and shall not be liable for
any action taken or omitted in good faith on advice of such counsel.
(f) shall be under no obligation to advance any funds in
connection with the maintenance or administration of this Agreement, to
institute or defend any action, suit or legal proceeding in connection herewith,
or to take any other action likely to involve the Escrow Agent in expense,
unless first indemnified by the remaining parties hereto, or either of them, as
the case may be, to the Escrow Agent's satisfaction.
(g) shall not be bound by any amendment to this Agreement or
by any other agreement between the remaining parties hereto except such
amendment or agreement as shall have been executed by the Escrow Agent.
(h) shall have only such duties and responsibilities as are
expressly set forth in this Agreement, together with a general fiduciary duty of
reasonable diligence in the performance of its obligations hereunder.
(i) may resign and be discharged from its duties hereunder at
any time by furnishing notice of such intended resignation to each other party,
specifying a date when such resignation shall take effect (which date shall be
no fewer than 15 days after the date of mailing or other delivery of such
notice) and furnishing to such parties, on or prior to such date, a final
accounting of the assets that then comprise the Collateral and of all financial
activity within the escrow account from the latter of (1) the date of the Escrow
Agent's appointment, or (2) the date of the Escrow Agent's most recent
accounting, provided, however, that the Escrow Agent shall have accounted for
all periods for which it has held the funds until the date of such resignation
(the "ACCOUNTING"). Upon receipt of such notice, the remaining parties shall
appoint a successor escrow agent, such successor to become Escrow Agent
hereunder upon the resignation date specified in the subject notice or, if
later, upon the Escrow Agent's presentation of the Accounting. If such parties
are unable to agree upon the identity of a successor escrow agent within 15 days
after the date of such notice, the Escrow Agent shall be entitled to appoint its
own successor and shall continue to act in its fiduciary capacity until its
successor accepts the escrow by notice to the parties hereto and takes
possession of the Funds. If the Escrow Agent is unable, despite the use of its
best efforts, to obtain the services of a successor, it may petition a court of
competent jurisdiction for an appointment effecting such an appointment or
providing another remedy, and, pending entry, may deposit the Collateral in the
registry of the court, together with the Accounting (prepared, in such event,
through the end of the business day immediately preceding such a deposit). The
remaining parties may at any time agree to substitute a new escrow agent by
giving notice thereof to the Escrow Agent then acting.
4
<PAGE> 5
(j) shall be indemnified and held harmless by each of the
remaining parties hereto against any and all liabilities incurred by it
hereunder, except for those resulting from the willful misconduct or gross
negligence of the Escrow Agent.
(k) shall have a lien upon all escrowed assets in an amount
sufficient to secure all liabilities, expenses, fees, costs or charges paid,
incurred or earned by it arising out of or resulting from this escrow
arrangement, and the right, superior to all duties imposed upon it under this
Agreement, to retain possession of all escrowed assets pending satisfaction of
all such amounts.
(l) may, if it becomes uncertain concerning its rights and
responsibilities under this Agreement, or if it receives instructions with
respect to the Collateral that it believes to be in conflict with the terms
hereof, or is advised that a dispute has arisen with respect to the Collateral,
without liability, refrain from taking any action other than to use its best
efforts to safeguard the Collateral until it is directed otherwise in a writing
signed by the remaining parties or by an order of a court of competent
jurisdiction. The Escrow Agent is not obligated to institute or defend any legal
proceedings, although it may, in its sole discretion and at the remaining
parties' expense, institute or defend such proceedings (including proceedings
seeking a declaratory judgment), join interested parties and deposit the
Collateral in the registry of the court.
6. COMPENSATION AND EXPENSES. For any services which it may be required
or reasonably deem appropriate to render hereunder (other than the passive
receipt and holding of Collateral), the Escrow Agent shall receive compensation
from the remaining parties at the rate and in the manner charged under its
applicable standard fee schedule in effect at the time a particular service is
rendered. The remaining parties shall further be obligated to pay for all
reasonable expenses and costs incurred by the Escrow Agent in the administration
of this Agreement, which expenses shall be separately billed by the Escrow Agent
either in advance (based on reasonable estimates) or following their incurrence,
as the Escrow Agent shall determine.
7. MISCELLANEOUS PROVISIONS.
(a) NOTICES. All demands, notices, requests, consents and
other communications required or permitted under this Escrow Agreement shall be
in writing and shall be personally delivered or sent by facsimile machine (with
a confirmation copy sent by one of the other methods authorized in this
Section), commercial courier or United States Postal Service overnight delivery
service, or, deposited with the United States Postal Service and mailed by first
class, registered or certified mail, postage prepaid, as set forth below:
As to Guarantor: Tracy Freeny
c/o AmeriVision Communications, Inc.
5900 Mosteller Drive, Suite 1111
Oklahoma City, Oklahoma 73112
As to the Holder: Hebron Communications Corporation
5900 Mosteller Lane, Suite 1750
Oklahoma City, Oklahoma 73112
5
<PAGE> 6
As to Escrow Agent: Bush Ross Gardner Warren & Rudy, P.A.
220 South Franklin Street
Tampa, Florida 33602
Notices shall be deemed given upon the earlier to occur of (1)
actual receipt by the party to whom such notice is directed; (2) if sent by
facsimile machine, on the day (other than a Saturday, Sunday or legal holiday in
the jurisdiction to which such notice is directed) such notice is sent if sent
(as evidenced by the facsimile confirmed receipt) prior to 5:00 p.m. Eastern
Time and, if sent after 5:00 p.m. Eastern Time, on the day (other than a
Saturday, Sunday or legal holiday in the jurisdiction to which such notice is
directed) after which such notice is sent; (3) on the first business day (other
than a Saturday, Sunday or legal holiday in the jurisdiction to which such
notice is directed) following the day the same is deposited with the commercial
carrier if sent by commercial overnight delivery service; or (4) the fifth day
(other than a Saturday, Sunday or legal holiday in the jurisdiction to which
such notice is directed) following deposit thereof with the United States Postal
Service as aforesaid. Each party, by notice duly given in accordance therewith
may specify a different address for the giving of any notice hereunder.
(b) BINDING AGREEMENT; NON-ASSIGNABILITY. Each of the
provisions and agreements herein contained shall be binding upon and inure to
the benefit of the respective parties hereto, as well as their successors, but
no statement contained herein is intended to confer upon any person or entity,
other than the parties hereto and their successors in interest and permitted
assignees, any rights or remedies under or by reason of this Agreement unless so
stated to the contrary. No right under this Agreement shall be assignable nor
any duty delegable by any party, except as expressly authorized in this
Agreement, without the prior consent of each other party.
(c) ENTIRE AGREEMENT. This Agreement, and the other documents
referenced herein, constitute the entire understanding of the parties hereto
with respect to the subject matter hereof, and no amendment, modification or
alteration of the terms hereof shall be binding unless the same be in writing,
dated subsequent to the date hereof and duly approved and executed by each of
the parties hereto.
(d) SEVERABILITY. If any term or other provision of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal or
incapable of being enforced in any particular respect or under any particular
circumstance, such term or provision shall nevertheless remain in full force and
effect in all other respects and under all other circumstances, and all other
terms, conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner, to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
(e) HEADINGS. The headings of this Agreement are inserted for
convenience and identification only, and are in no way intended to describe,
interpret, define or limit the scope, extent or intent hereof.
6
<PAGE> 7
(f) APPLICATION OF FLORIDA LAW. This Agreement, and the
application or interpretation thereof, shall be governed exclusively by its
terms and by the laws of the State of Florida. Venue for all purposes shall be
deemed to lie within Hillsborough County, Florida.
(g) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, by means of multiple signature pages each containing less than
all required signatures, and by means of facsimile signatures, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement on the day and year first written above.
HOLDER: HEBRON COMMUNICATIONS
CORPORATION
By: /s/ John E. Telling
-------------------------------
John E. Telling, President
GUARANTOR: /s/ Tracy Freeny
----------------------------------
TRACY FREENY
ESCROW AGENT: BUSH ROSS GARDNER WARREN & RUDY,
P.C.
By: /s/ Richard B. Hadlow
-------------------------------
Richard B. Hadlow, President
8
<PAGE> 9
GUARANTY AGREEMENT
This Guaranty Agreement is made and given as of April 30, 1999, by
TRACY FREENY (hereafter referred to as "GUARANTOR") to HEBRON COMMUNICATIONS
CORPORATION, a Florida corporation ("HCC").
As an inducement to HCC to enter into that certain Asset Purchase
Agreement, of even date herewith, with AMERIVISION COMMUNICATIONS, INC., an
Oklahoma corporation ("AVCI"), under the terms of which HCC will sell its
operating assets to AVCI at a closing to occur hereafter and in exchange for
AVCI's execution and delivery of three separate promissory notes evidencing
various components of the purchase price (the "NOTES"), one of which has been
delivered by AVCI contemporaneously with the execution of this Agreement and the
other two will be executed and delivered contemporaneously with the closing of
this Asset Purchase Agreement, and timely payment of each of which is to be
secured by Guarantor's deposit into escrow, pursuant to the terms of a Capital
Stock Escrow and Disposition Agreement of even date herewith among AVCI, HCC and
the Escrow Agent named therein (the "ESCROW AGREEMENT"), of 50,000 shares of
AVCI's single authorized class of common voting stock, all of which are
registered in Guarantor's name (all of the foregoing instruments, together with
any other identified therein, being collectively referred to as the "LOAN
DOCUMENTS"), and in consideration for HCC's execution and delivery of the Asset
Purchase Agreement, the undersigned Guarantor hereby absolutely and
unconditionally guarantees to HCC payment and collection in full of all sums due
to HCC under and pursuant to the Notes and the other Loan Documents, including,
without limitation, all interest, late charges and other expenses payable to HCC
thereunder, whether at maturity or otherwise, and the full performance of all
obligations of AVCI under the Notes and the other Loan Documents (all of the
foregoing guaranteed obligations of AVCI being hereinafter sometimes referred to
collectively as the "OBLIGATIONS").
Guarantor's obligations hereunder shall be unconditional irrespective
of, among other matters, the lack of genuineness, validity, regularity or
enforceability of the Loan Documents or of AVCI's Obligations evidenced thereby,
any and all suretyship defenses otherwise available to Guarantor (which are
hereby expressly waived), and any other bar to the enforceability of this
Guaranty or of any Loan Document, whether against Guarantor, AVCI or any other
guarantor of AVCI's Obligations. Guarantor shall, upon the occurrence of an
event of default under any Loan Document and subsequent demand of HCC, pay all
amounts due to HCC under all Loan Documents, without defense or set off, and HCC
shall not be required, as a condition of its demand for or receipt of such
payment, to first proceed to preserve, utilize or exhaust any other right or
remedy against AVCI, any other guarantor or any collateral or security interest
held by HCC and arising out of HCC's loan to AVCI as evidenced by the Loan
Documents.
Guarantor expressly waives acceptance of this Guaranty by HCC,
presentment and demand for payment, protest, notice of protest and notice of
dishonor or non-payment of any AVCI Obligation; any right to require suit
against AVCI or any other party before enforcing this Guaranty; any right to
have security applied before enforcing this Guaranty; and any right of
subrogation to HCC's rights against AVCI until AVCI's Obligations to HCC are
paid in full; and Guarantor hereby consents and agrees that renewals and
extensions of time of payment, surrender, release, exchange,
9
<PAGE> 10
substitution, dealing with or taking of additional collateral security, taking
or release of other guaranties, abstaining from taking advantage of or realizing
upon any collateral security or other guaranties and any and all other
forebearances or indulgences granted by HCC to AVCI or any other party in
connection with the transactions described in any of the Loan Documents may be
made, granted and effective by HCC without notice to Guarantor and without in
any manner affecting his liability hereunder.
Guarantor covenants and agrees with HCC that during such time as this
Guaranty is in effect, Guarantor will make no material adverse change in his
financial status. In the event of any breach of such covenant and agreement, all
AVCI Obligations under each Loan Document, regardless of their terms, shall, at
HCC's discretion, be deemed for the purposes of this Guaranty to have matured,
and, at HCC's election, Guarantor shall promptly pay and perform all AVCI
Obligations, and HCC may take any action deemed necessary or advisable to
enforce this Guaranty.
To induce HCC to accept this Guaranty Agreement and to make the loans
evidenced by the Note, Guarantor represents and warrants to, and, as applicable,
covenants with, HCC that:
(h) This Guaranty Agreement is a legal, valid and binding
obligation of Guarantor enforceable against Guarantor in accordance with its
terms, except to the extent that such enforcement may be limited by applicable
bankruptcy, insolvency and other similar laws affecting creditors' rights
generally, and principles of equity.
(i) Guarantor is not insolvent or contemplating filing a
voluntary petition for bankruptcy nor aware of any possibility or threat of
being subject to any petition for involuntary bankruptcy.
(j) Guarantor's personal financial statement, dated as of
April 30, 1999, in the form attaching hereto as Exhibit A (the "FINANCIAL
STATEMENT"), represents his good faith estimate of the value of Guarantor's
assets and liabilities and a statement of his adjusted gross income as reflected
on his personal federal income tax return as filed with respect to calendar year
1998, and there has been no material adverse change in the Guarantor's assets,
liabilities or adjusted gross income from that reflected in the Financial
Statement.
(k) Guarantor has no fixed or contingent liabilities which are
material but are not reflected in the Financial Statement or in any notes
thereto. No information, exhibit or report furnished by Guarantor to HCC in
connection with the negotiation of this Guaranty Agreement contains any material
misstatement of fact or omits to state a material fact necessary, in order to
make the statements made therein, in light of the circumstances under which they
shall have been made, not materially misleading.
(l) Guarantor is not a party to any indenture, loan or loan
agreement, or, to Guarantor's knowledge, any lease or other agreement or
instrument, or subject to any restriction, which could have a material adverse
effect on the ability of Guarantor to carry out his obligations under this
Guaranty Agreement. Guarantor is not in default in any respect in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any agreement or instrument to which he is a party.
10
<PAGE> 11
(m) There is no pending or, to Guarantor's knowledge,
threatened action or proceeding against or affecting Guarantor before any court,
governmental agency or arbitrator which may, in any single case or in the
aggregate, materially adversely affect the Guarantor's business, properties,
assets, liabilities, affairs, financial condition or prospects, or Guarantor's
ability to perform his obligations under this Guaranty Agreement.
(n) Guarantor is neither in default under, nor subject to, any
judgment, writ, injunction, decree, rule, or regulation of any court, arbitrator
or federal, state, municipal or other governmental authority, commission, board,
bureau, agency or instrumentality, domestic or foreign.
(o) Guarantor has title to all of his properties and assets,
real and personal, tangible and intangible, including the properties and assets
reflected in his Financial Statement (other than any properties or assets
thereafter disposed of in the ordinary course of his business or personal
activities, for full value), and none of the properties and assets owned by
Guarantor are subject to any lien except as disclosed to HCC in writing.
(p) Guarantor has filed all tax returns (federal, state and
local) required to be filed and has paid all taxes, assessments and governmental
charges and levies thereon which are due, including interest and penalties.
This Guaranty shall not expire until all of AVCI's Obligations have
been satisfied. This Guaranty shall be binding upon Guarantor, each of his
transferees and assigns, and, in the event of his death, his personal
representative(s) and each of his devisees and heirs, to the extent of the value
of those properties and assets owned by Guarantor and passing under the terms of
his will or the laws of intestacy, and as otherwise allowed by applicable law,
jointly and severally, and shall inure to the benefit of HCC, its successors and
assigns. The obligations, representations and warranties of Guarantor set forth
herein are undertaken and made jointly and severally with those of each other
guarantor, if any, of AVCI's Obligations.
In the event that a petition in bankruptcy or for an arrangement or
reorganization of AVCI under the bankruptcy laws or for the appointment of a
receiver for AVCI or any of its property is filed by or against AVCI, or if AVCI
shall make an assignment for the benefit of its creditors or shall become
insolvent, all indebtedness of AVCI shall, for the purposes of this Guaranty, be
deemed to have become immediately due and payable.
Any notice furnished to Guarantor by HCC at any time shall not imply
that such notice or any further or similar notice was, is or shall in the future
be required.
Guarantor shall pay to HCC any and all costs, expenses and reasonable
attorneys' fees paid or incurred by HCC in collecting or endeavoring to collect
the indebtedness of AVCI under the Loan Documents or in enforcing or endeavoring
to enforce this Guaranty.
11
<PAGE> 12
IN WITNESS WHEREOF, this Guaranty has been executed and delivered to
HCC by Guarantor as of the day and year written above.
/s/ Tracy Freeny
---------------------------------
TRACY FREENY
STATE OF OKLAHOMA )
)
COUNTY OF OKLAHOMA )
The foregoing Guaranty was executed before me, this ___ day of May
1999, by Tracy Freeny, an individual who either is personally known to me or
produced his Oklahoma driver's license as identification, and who was placed
under oath by me prior to such execution.
/s/ Paula Foster
---------------------------------
(signature)
Paula Foster
---------------------------------
(printed name)
Notary Public, State of Oklahoma
My commission expires: 2/17/00
12
<PAGE> 1
EXHIBIT 10.18
- --------------------------------------------------------------------------------
LOAN AND SECURITY AGREEMENT
by and between
AMERIVISION COMMUNICATIONS, INC.,
an Oklahoma corporation
and
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
Dated as of February 1, 1999
- --------------------------------------------------------------------------------
<PAGE> 2
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- -------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. DEFINITIONS............................................................1
Account Debtor.................................................1
Affiliate......................................................1
Agreement......................................................1
AmeriTel.......................................................1
Audit..........................................................1
Borrower.......................................................1
Borrower's Address.............................................1
Business Day...................................................1
Carrier Reserve................................................1
Change of Control..............................................2
Closing Date...................................................2
Coast..........................................................2
Code...........................................................2
Collateral.....................................................2
Credit Limit...................................................2
Debt Reserve...................................................2
Default........................................................2
Deposit Account................................................2
Dollars or $...................................................2
Early Termination Fee..........................................2
EBIT...........................................................2
EBITDA.........................................................2
Eligible Receivables...........................................2
Eligible Unbilled Receivables..................................3
Equipment......................................................3
Event of Default...............................................3
GAAP...........................................................3
General Intangibles............................................3
Hebron.........................................................4
Hold...........................................................4
Inventory......................................................4
Investment Property............................................4
Leased Locations...............................................4
Loan Documents.................................................4
Loans..........................................................4
Material Adverse Effect........................................4
Material Subsidiary............................................4
Maturity Date..................................................4
Maximum Dollar Amount..........................................4
Minimum Monthly Interest.......................................4
Net Worth......................................................4
Obligations....................................................4
Patrick Enterprises............................................4
Permitted Liens................................................4
Person.........................................................5
Prime Rate.....................................................5
Receivables....................................................5
Renewal Date...................................................5
Renewal Fee....................................................5
Solvent........................................................5
Subordinated Creditors.........................................6
Triggering Event...............................................6
USBI...........................................................6
VisionQuest....................................................6
WorldCom.......................................................6
Year 2000 Problem..............................................6
Other Terms....................................................6
2. CREDIT FACILITIES......................................................6
2.1 LOANS..........................................................6
3. INTEREST AND FEES......................................................6
3.1 INTEREST.......................................................6
3.2 FEES...........................................................6
4. SECURITY INTEREST......................................................6
5. CONDITIONS PRECEDENT...................................................7
5.1 Status of Accounts at Closing..................................7
5.2 Minimum Availability...........................................7
5.3 Landlord Waiver................................................7
5.4 Opinion of Borrower's Counsel..................................7
5.5 Priority of Coast's Liens......................................7
5.6 Insurance......................................................7
5.7 Borrower's Existence...........................................7
5.8 Organizational Documents.......................................7
5.9 Taxes..........................................................7
5.10 Due Diligence..................................................7
5.11 Other Documents and Agreements.................................7
5.12 Management Background Checks...................................8
5.13 Lockbox/Triparty/Blocked Account Agreements....................8
5.14 Debt Subordination Agreements.................................8
5.15 Year 2000 Assessment Certificate...............................8
5.16 Net Worth......................................................8
5.17 PATRICK ENTERPRISES INFUSION...................................8
5.18 Outline of Carrier Agreement Terms.............................8
5.19 Discount Long Distance.........................................8
5.20 Settlement with The Caleb Trust................................8
6. REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE BORROWER..............................................8
6.1 Existence and Authority........................................9
6.2 Name; Trade Names and Styles...................................9
6.3 Place of Business; Location of Collateral......................9
6.4 Title to Collateral; Permitted Liens...........................9
6.5 Maintenance of Collateral......................................9
6.6 Books and Records..............................................9
6.7 Financial Condition, Statements And Reports....................9
</TABLE>
i
<PAGE> 3
<TABLE>
COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
<S> <C> <C>
6.8 Tax Returns and Payments; Pension Contributions.........10
6.9 Compliance with Law.....................................10
6.10 Litigation..............................................10
6.11 Use of Proceeds.........................................10
6.12 Year 2000 Compliance....................................10
7. RECEIVABLES.....................................................10
7.1 Representations Relating to Receivables ................10
7.2 Representations Relating to Documents
and Legal Compliance....................................10
7.3 Schedules and Documents Relating to Receivables.........10
7.4 Collection of Receivables...............................11
7.5 Remittance of Proceeds..................................11
7.6 Disputes................................................11
7.7 Intentionally Deleted...................................11
7.8 Verification............................................11
7.9 No Liability............................................11
8. ADDITIONAL DUTIES OF THE BORROWER...............................12
8.1 Financial and Other Covenants...........................12
8.2 Insurance...............................................12
8.3 Reports.................................................12
8.4 Access to Collateral, Books and Records.................12
8.5 Negative Covenants......................................12
8.6 Litigation Cooperation..................................13
8.7 Further Assurances......................................13
9. TERM............................................................13
9.1 Maturity Date...........................................13
9.2 Early Termination.......................................13
9.3 Payment of Obligations..................................14
10. EVENTS OF DEFAULT AND REMEDIES..................................14
10.1 Events of Default.......................................14
10.2 Remedies................................................15
10.3 Standards for Determining Commercial Reasonableness.....16
10.4 Power of Attorney.......................................17
10.5 Application of Proceeds.................................18
10.6 Remedies Cumulative.....................................18
11. GENERAL PROVISIONS..............................................18
11.1 Interest Computation....................................18
11.2 Application of Payments.................................18
11.3 Charges to Accounts.....................................18
11.4 Monthly Accountings.....................................18
11.5 Notices.................................................18
11.6 Severability............................................19
11.7 Integration.............................................19
11.8 Waivers.................................................19
11.9 No Liability for Ordinary Negligence....................19
11.10 Amendment...............................................19
11.11 Time of Essence.........................................19
11.12 Attorneys Fees, Costs and Charges.......................19
11.13 Benefit of Agreement....................................20
11.14 Publicity...............................................20
11.15 Paragraph Headings; Construction........................20
11.16 Governing Law; Jurisdiction; Venue......................20
11.17 MUTUAL WAIVER OF JURY TRIAL.............................20
</TABLE>
ii
<PAGE> 4
- --------------------------------------------------------------------------------
COAST
LOAN AND SECURITY AGREEMENT
BORROWER: AMERIVISION COMMUNICATIONS, INC., AN OKLAHOMA
CORPORATION
ADDRESS: 5900 MOSTELLER DRIVE, SUITE 1850
OKLAHOMA CITY, OKLAHOMA 73112
DATE: FEBRUARY 1, 1999
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between COAST
BUSINESS CREDIT, a division of Southern Pacific Bank ("Coast"), a California
corporation, with offices at 12121 Wilshire Boulevard, Suite 1111, Los Angeles,
California 90025, and the borrower named above ("Borrower"), whose chief
executive office is located at the above address ("Borrower's Address"). The
Schedule to this Agreement (the "Schedule") shall for all purposes be deemed to
be a part of this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain terms used in this Agreement are set forth in Section 1
below.)
1. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:
"Account Debtor" means the obligor on a Receivable other than a local
exchange carrier or the obligor on a General Intangible.
"Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Agreement" means this Agreement, together with all schedules and exhibits
hereto, as amended, supplemented or otherwise modified from time to time.
"Alternative Carrier" means a telecommunications carrier, other than
WorldCom, acceptable to Coast which contracts to supply telecommunication
services to Borrower, on terms substantially similar to the terms provided to
Borrower by WorldCom, with said terms to be reasonably acceptable to Coast.
"AmeriTel" means AmeriTel Communications, Inc., an Oklahoma corporation.
"Audit" means to inspect, audit and copy Borrower's books and records and
the Collateral.
"Borrower" has the meaning set forth in the introduction to this Agreement.
"Borrower's Address" has the meaning set forth in the introduction to this
Agreement.
"Business Day" means a day on which Coast is open for business.
"Carrier Reserve" means the reserve established and maintained on a thirty
(30) day accrual, by Coast against the Loans which would otherwise be available
under this Agreement to cover the amount of wholesale carrier charges incurred
by Borrower as provided for in Section 8.1 of the Schedule. Attached as Exhibit
"F" is an example of the procedure for establishing and maintaining the Carrier
Reserve.
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"Change of Control" shall be deemed to have occurred at such time as a
"person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934) (other than the current holders of the
ownership interests in any Borrower) becomes the "beneficial owner" (as defined
in Rule 13d- 3 under the Securities Exchange Act of 1934), directly or
indirectly, as a result of any single transaction, of more than twenty-five
percent (25%) of the total voting power of all classes of stock or other
ownership interests then outstanding of any Borrower normally entitled to vote
in the election of directors or analogous governing body.
"Closing Date" means the date of the initial funding under this Agreement.
"Coast" has the meaning set forth in the introduction to this Agreement.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.
"Collateral" has the meaning set forth in Section 4 hereof.
"Collections" means Borrower's recurring monthly "subscriber" collections.
"Credit Limit" means the maximum amount of Loans that Coast may make to
Borrower pursuant to the amounts and percentages shown on the Schedule.
"Debt Reserve" has the meaning set forth in Section 2.1 of the Schedule.
"Default" means any event which with notice or passage of time or both,
would constitute an Event of Default.
"Deposit Account" has the meaning set forth in Section 9105 of the Code.
"Dollars or $" means United States dollars.
"Early Termination Fee" means the amount set forth on the Schedule that
Borrower must pay Coast if this Agreement is terminated by Borrower or Coast
pursuant to Section 9.2 hereof.
"EBIT" means, in any fiscal period, Borrower's consolidated net income
(other than extraordinary or non-recurring items of Borrower for such period),
plus (i) the amount of all interest expense and income tax expense of Borrower
for such period, on a consolidated basis, and plus or minus (as the case may be)
(ii) any other non-cash charges which have been added or subtracted, as the case
may be, in calculating Borrower's consolidated net income for such period.
"EBITDA" means, in any fiscal period, Borrower's consolidated net income
(other than extraordinary or non-recurring items of Borrower for such period),
plus (i) the amount of all interest expense, income tax expense, depreciation
expense, and amortization expense of Borrower for such period, on a consolidated
basis, and plus or minus (as the case may be) (ii) any other non-cash charges or
extraordinary expenses in accordance with GAAP which have been added or
subtracted, as the case may be, in calculating Borrower's consolidated net
income for such period. Attached as Exhibit "A" is a sample calculation of
EBITDA based upon Borrower's most recent financial statements.
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Coast, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Coast may from time to time deem appropriate. Eligible
Receivables shall not include the following:
(a) Receivables that the Account Debtor has failed to pay within 90
days of invoice date or Accounts with selling terms of more than 30 days;
(b) Receivables owed by an Account Debtor or its Affiliates where
twenty-five percent (25%) or more of all Receivables owed by that Account Debtor
(or its Affiliates) are deemed ineligible under clause (a) above;
(c) Receivables with respect to which the Account Debtor is an
employee, Affiliate, or agent of Borrower;
(d) Receivables with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other terms
by reason of which the payment by the Account Debtor may be conditional;
(e) Receivables that are not payable in Dollars or with respect to
which the Account Debtor: (i) does not maintain its chief executive office in
the United States, or (ii) is not organized under the laws of the United States
or any State thereof, or (iii) is the government of any foreign country or
sovereign state, or of any state, province, municipality, or other political
subdivision thereof, or of any department, agency, public corporation, or other
instrumentality thereof;
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(f) Receivables with respect to which the Account Debtor is either (i)
the United States or any department, agency, or instrumentality of the United
States (exclusive, however, of Accounts with respect to which Borrower has
complied, to the satisfaction of Coast, with the Assignment of Claims Act, 31
U.S.C. Section 3727), or (ii) any State of the United States (exclusive,
however, of Receivables owed by any State that does not have a statutory
counterpart to the Assignment of Claims Act);
(g) Receivables with respect to which the Account Debtor is a creditor
of Borrower, has or has asserted a right of setoff, has disputed its liability,
or has made any claim with respect to the Receivables;
(h) Receivables with respect to an Account Debtor whose total
obligations owing to Borrower exceed twenty percent (20%) of all Eligible
Receivables, to the extent of the obligations owing by such Account Debtor in
excess of such percentage;
(i) Receivables with respect to which the Account Debtor is subject to
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation proceeding, or becomes insolvent, or goes out of
business;
(j) Receivables the collection of which Coast, in its reasonable credit
judgment, believes in good faith to be doubtful by reason of the Account
Debtor's financial condition;
(k) Receivables with respect to which the goods giving rise to such
Receivable have not been shipped and billed to the Account Debtor, the services
giving rise to such Receivable have not been performed and accepted by the
Account Debtor, or the Receivable otherwise does not represent a final sale;
(l) Receivables with respect to which the Account Debtor is located in
the states of New Jersey, Minnesota, Indiana, or West Virginia (or any other
state that requires a creditor to file a Business Activity Report or similar
document in order to bring suit or otherwise enforce its remedies against such
Account Debtor in the courts or through any judicial process of such state),
unless Borrower has qualified to do business in New Jersey, Minnesota, Indiana,
West Virginia, or such other states, or has filed a Notice of Business
Activities Report with the applicable division of taxation, the department of
revenue, or with such other state offices, as appropriate, for the then-current
year, or is exempt from such filing requirement; and
(m) Receivables that represent progress payments or other advance
billings that are due prior to the completion of performance by Borrower of the
subject contract for goods or services.
"Eligible Unbilled Receivables" means Eligible Receivables as to which the
invoice has not yet been prepared and sent to an Account Debtor; provided,
however, an otherwise Eligible Unbilled Receivable shall cease being an Eligible
Unbilled Receivable when it is invoiced and the invoice sent to the Account
Debtor or if no invoice is prepared and sent to the Account Debtor, thirty (30)
days after the end of the calendar month in which the services, giving rise to
the Receivable, were rendered.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dies, jigs, goods and
other goods (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"Event of Default" means any of the events set forth in Section 10.1 of
this Agreement.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States, consistently applied.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, all choses in action, causes of action, corporate or other business
records, Deposit Accounts, Investment Property, inventions, designs, drawings,
blueprints, patents, patent applications, trademarks and the goodwill of the
business symbolized thereby, names, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, security and
other deposits, rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments now
or hereafter arising therefrom, all claims of Borrower against Coast, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation life
insurance, key man insurance, credit insurance, liability insurance, property
insurance and other insurance), tax refunds and claims, computer programs,
discs, tapes and tape
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files, claims under guaranties, security interests or other security held by or
granted to Borrower, all rights to indemnification and all other intangible
property of every kind and nature (other than Receivables).
"Hebron" means Hebron Communications Corporation, a Florida corporation.
"Hold" means HOLD Billing Services, Ltd., a Texas limited partnership.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Borrower's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing.
"Investment Property" has the meaning set forth in Section 9115 of the Code
as in effect as of the date hereof.
"Leased Locations" means each and every location leased by Borrower.
"Loan Documents" means this Agreement, the agreements and documents listed
on Section 5 of the Schedule, and any other agreement, instrument or document
executed in connection herewith or therewith.
"Loans" has the meaning set forth in Section 2.1 hereof.
"Material Adverse Effect" means a material adverse effect on (i) the
business, assets, condition (financial or otherwise) or results of operations of
Borrower or any Material Subsidiary of Borrower or any guarantor of any of the
Obligations taken as a whole, (ii) the ability of Borrower or any guarantor of
any of the Obligations to perform its obligations under this Agreement
(including, without limitation, repayment of the Obligations as they come due)
or (iii) the validity or enforceability of this Agreement or any other agreement
or document entered into by any party in connection herewith, or the rights or
remedies of Coast hereunder or thereunder.
"Material Subsidiary" means the subsidiaries of Borrower listed on Exhibit
"B" attached hereto.
"Maturity Date" means the date that this Agreement shall cease to be
effective, as set forth on the Schedule, subject to the provisions of Section
9.1 and 9.2 hereof.
"Maximum Dollar Amount" has the meaning set forth in Section 2 of the
Schedule.
"Minimum Monthly Interest" has the meaning set forth in Section 3 of the
Schedule.
"Net Worth" means shareholders equity of a Person at any date determined in
accordance with GAAP, plus subordinated debt (which will include approximately
$1,000,000 of debt to a settling entity, as more particularly described in
Section 6.10 of the Schedule, provided that: (i) the debt is incurred by
Borrower, and (2) the debt is subordinated in favor of Coast as more
particularly described in Section 5.20 herein. Attached as Exhibit "C" is a
sample calculation of Net Worth based upon Borrower's most recent financial
statements.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Coast, whether evidenced by this Agreement or any note
or other instrument or document, whether arising from an extension of credit,
opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment and any participation by Coast in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorneys'
fees (including attorneys' fees and expenses incurred in bankruptcy), expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other
present or future instrument or agreement between Borrower and Coast.
Patrick Enterprises" means Patrick Enterprises, Inc., a Florida corporation
"Permitted Liens" means the following:
(a) purchase money security interests in specific items of Equipment;
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(b) leases of specific items of Equipment;
(c) liens for taxes not yet payable;
(d) additional security interests and liens consented to in writing by
Coast, which consent shall not be unreasonably withheld;
(e) security interests being terminated substantially concurrently with
this Agreement;
(f) liens of materialmen, mechanics, warehousemen, carriers, or other
similar liens arising in the ordinary course of business and securing
obligations which are not delinquent;
(g) liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by liens of the type described above in
clauses (a) or (b) above, provided that any extension, renewal or replacement
lien is limited to the property encumbered by the existing lien and the
principal amount of the indebtedness being extended, renewed or refinanced does
not increase; or
(h) liens in favor of customs and revenue authorities which secure
payment of customs duties in connection with the importation of goods.
(i) security interests and consensual liens existing on the Closing
Date which are listed on Exhibit "D".
Coast will have the right to require, as a condition to its consent under
subparagraph (d) above, that the holder of the additional security interest or
lien sign an intercreditor agreement on Coast's then standard form, acknowledge
that the security interest is subordinate to the security interest in favor of
Coast, and agree not to take any action to enforce its subordinate security
interest so long as any Obligations remain outstanding, and that Borrower agree
that any uncured default in any obligation secured by the subordinate security
interest shall also constitute an Event of Default under this Agreement.
"Person" means any individual, sole proprietorship, general partnership,
limited partnership, limited liability partnership, limited liability company,
joint venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.
"Prime Rate" means the actual "Reference Rate" or the substitute therefor
of the Bank of America NT & SA whether or not that rate is the lowest interest
rate charged by said bank. If the Prime Rate, as defined, is unavailable, "Prime
Rate" shall mean the highest of the prime rates published in the Wall Street
Journal on the first business day of the applicable month, as the base rate on
corporate loans at large U.S. money center commercial banks.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance), letters of credit, contract
rights, chattel paper, instruments, securities, documents, securities accounts,
security entitlements, commodity contracts, commodity accounts, investment
property and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, all merchandise returned to or
repossessed by Borrower, and all rights of stoppage in transit and all other
rights or remedies of an unpaid vendor, lienor or secured party.
"Renewal Date" shall mean the Maturity Date if this Agreement is renewed
pursuant to Section 9.1 hereof, and each anniversary thereafter that this
Agreement is renewed pursuant to Section 9.1 hereof.
"Renewal Fee" means the fee that Borrower must pay Coast upon renewal of
this Agreement pursuant to Section 9.1 hereof, in the amount set forth on the
Schedule.
"Solvent" means, with respect to any Person on a particular date, that on
such date (a) at fair valuations, all of the properties and assets of such
Person are greater than the sum of the debts, including contingent liabilities,
of such Person, (b) the present fair salable value of the properties and assets
of such Person is not less than the amount that will be required to pay the
probable liability of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its properties and assets and
pay its debts and other liabilities, contingent obligations and other
commitments as they mature in the normal course of business, (d) such Person
does not intend to, and does not believe that it will, incur debts beyond such
Person's ability to pay as such debts mature, and (e) such Person is not engaged
in business or a transaction, and is not about to engage in business or a
transaction, for which such Person's properties and assets would constitute
unreasonably small capital after giving due consideration to the prevailing
practices in the industry in which such Person is engaged. In computing the
amount of contingent liabilities at any time, it is intended that such
liabilities will be computed at the amount that, in light of all the facts and
circumstances existing at such time, represents the amount that reasonably can
be expected to become an actual or matured liability.
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"Subordinated Creditors" means each of Persons and debts or obligations
listed on Exhibit "E" attached hereto.
"Triggering Event" means the execution and delivery, in form and substance
satisfactory to Coast and its counsel, of an intercreditor agreement between
Borrower and WorldCom or an Alternative Carrier wherein it is provided or
acknowledged that Coast shall have a first priority security interest in all of
Borrower's assets including, without limitation, its subscriber base and
WorldCom or an Alternative Carrier will have a second priority security interest
in only the subscriber base.
"USBI" means Zero Plus Dialing, Inc., a Delaware corporation, doing
business as U.S. Billing.
"VisionQuest" means VisionQuest Marketing Service, Inc., an Oklahoma
corporation.
"WorldCom" means WorldCom Network Services, Inc., dba WilTel, a Delaware
corporation.
"Year 2000 Problem" means the risk that computer systems, software and
applications used by a Person may be unable to recognize and perform properly
date- sensitive functions involving certain dates prior to and any dates after
December 31, 1999.
"Other Terms." All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in accordance
with GAAP. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
2. CREDIT FACILITIES.
2.1 LOANS. Coast will, in accordance with Coast's standard procedures, make
loans to Borrower (the "Loans"), in amounts and in percentages to be determined
by Coast in its good faith discretion, up to the Credit Limit, provided no
Default or Event of Default has occurred and is continuing. Furthermore, Coast
may create reserves against the Loans which otherwise would be available under
this Agreement, in addition to the required Debt Reserve described in Section
2.1 of the Schedule and the required Carrier Reserve, or reduce its advance
rates described in Section 2.1 of the Schedule, without declaring a Default or
an Event of Default if it reasonably determines that there has occurred a
Material Adverse Effect.
3. INTEREST AND FEES.
3.1 INTEREST. All Loans and all other monetary Obligations shall bear
interest at the rate shown on the Schedule, except where expressly set forth to
the contrary in this Agreement. Interest shall be payable monthly, in arrears,
on the last day of the month. Interest due and unpaid may, in Coast's
discretion, be charged to Borrower's loan account, and the same shall thereafter
bear interest at the same rate as the other Loans. Regardless of the amount of
Obligations that may be outstanding from time to time, Borrower shall, from and
after the Closing Date, pay Coast Minimum Monthly Interest during the term of
this Agreement with respect to the Loans in the amount set forth on the
Schedule.
3.2 FEES. Borrower shall pay Coast the fee(s) shown on the Schedule, which
are in addition to all interest and other sums payable to Coast and are deemed
fully earned and are nonrefundable.
4. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Coast a security interest in all of Borrower's
interest in the following, whether now owned or hereafter acquired, and wherever
located: All Receivables, Inventory, Equipment, Investment Property, and General
Intangibles, including, without limitation, all of Borrower's Deposit Accounts,
and all money, and all property now or at any time in the future in Coast's
possession (including claims and credit balances), and all proceeds of any of
the foregoing (including proceeds of any insurance policies, proceeds of
proceeds, and claims against third parties), all products of any of the
foregoing, and all books and records related to any of the foregoing (all of the
foregoing, together with all other property in which Coast may now or in the
future be granted a lien or security interest, is referred to herein,
collectively, as the "Collateral"). Notwithstanding the foregoing provisions of
this Section 4, such grant of a security interest shall not extend, and the term
"Collateral" shall not include the following (collectively, the "Non-Assignable
Collateral"): any rights in any "Collateral," as that term is defined in the
June 1, 1996 Security Agreement between Borrower and WorldCom, in which a prior
security interest in favor of WorldCom has been granted by Borrower to the
extent that (i) such Non-Assignable Collateral is not assignable or capable of
being further encumbered as a matter of law or under the terms of any agreement
between Borrower and WorldCom (but solely to the extent that any such
restriction shall be enforceable under applicable law),
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without the consent of WorldCom, and (ii) such consent has not been obtained;
provided, however, that the Non- Assignable Collateral shall not, in any event,
include the following and the foregoing grant of a security interest shall
extend to, and the term Collateral shall include the following: (a) the
Non-Assignable Collateral upon the receipt of consent therefor from WorldCom or
upon termination of WorldCom's security interest, and (b) any and all proceeds
of the Non-Assignable Collateral to the extent that the assignment or
encumbering of such proceeds is not so restricted. In the event that an Event of
Default shall have occurred and is continuing, the Borrower shall use all
reasonable efforts to obtain the consent of WorldCom as may be required from
time to time by Coast in writing.
5. CONDITIONS PRECEDENT.
The obligation of Coast to make the Loans is subject to the satisfaction,
in the sole discretion of Coast, at or prior to the first advance of funds
hereunder, of each, every and all of the following conditions:
5.1 STATUS OF ACCOUNTS AT CLOSING. Each carrier accounts payable of
Borrower shall be current with the exception of existing accounts payable
currently under dispute with WorldCom which have been reserved pursuant to
paragraph 5.17 herein. No other accounts payable shall be due and unpaid sixty
(60) days past its invoice date, except for such accounts payable being
contested in good faith in appropriate proceedings and for which adequate
reserves have been provided.
5.2 MINIMUM AVAILABILITY. Borrower shall have minimum availability
immediately following the initial funding in the amount set forth on the
Schedule.
5.3 LANDLORD WAIVER. Coast shall have received duly executed landlord
waivers and access agreements in form and substance satisfactory to Coast, in
Coast's sole and absolute discretion, and, when deemed appropriate by Coast, in
form for recording in the appropriate recording office, with respect to all
Leased Locations where Borrower maintains any inventory or equipment.
5.4 OPINION OF BORROWER'S COUNSEL. Coast shall have received an opinion of
Borrower's counsel, in form and substance satisfactory to Coast in its sole and
absolute discretion.
5.5 PRIORITY OF COAST'S LIENS. Coast shall have received the results of "of
record" searches reflecting its Uniform Commercial Code filings against Borrower
and indicating that Coast has a perfected, first priority lien in and upon all
of the Collateral, subject only to Permitted Liens.
5.6 INSURANCE. Coast shall have received copies of the insurance binders or
certificates evidencing Borrower's compliance with Section 8.2 hereof, including
lender's loss payee endorsements.
5.7 BORROWER'S EXISTENCE. Coast shall have received copies of Borrower's
articles or certificate of incorporation and all amendments thereto, and a
Certificate of Good Standing, each certified by the Secretary of State of the
state of Borrower's organization, and dated a recent date prior to the Closing
Date, and Coast shall have received Certificates of Foreign Qualification for
Borrower from the Secretary of State of each state wherein the failure to be so
qualified could have a Material Adverse Effect.
5.8 ORGANIZATIONAL DOCUMENTS. Coast shall have received copies of
Borrower's By-laws and all amendments thereto, and Coast shall have received
copies of the resolutions of the board of directors of Borrower, authorizing the
execution and delivery of this Agreement and the other documents contemplated
hereby, and authorizing the transactions contemplated hereunder and thereunder,
and authorizing specific officers of Borrower to execute the same on behalf of
Borrower, in each case certified by the Secretary or other acceptable officer of
Borrower as of the Closing Date.
5.9 TAXES. Coast shall have received evidence from Borrower that Borrower
has complied with all tax withholding and Internal Revenue Service regulations
and that Borrower will pay concurrent with the first advance of funds hereunder
or has paid and is current on all taxes, whether federal, state or other
applicable taxing body, in form and substance satisfactory to Coast in its sole
and absolute discretion.
5.10 DUE DILIGENCE. Coast shall have completed its due diligence with
respect to Borrower.
5.11 OTHER DOCUMENTS AND AGREEMENTS. Coast shall have received such other
agreements, instruments and documents as Coast may require in connection with
the transactions contemplated hereby, all in form and substance satisfactory to
Coast in Coast's sole and absolute discretion, and in form for filing in the
appropriate filing office, including, but not limited to, those documents listed
in Section 5 of the Schedule.
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5.12 MANAGEMENT BACKGROUND CHECKS. Coast shall have received the results of
management background checks, including, without limitation, TRWs, tax lien and
litigation searches, LEXIS/NEXIS searches and such other due diligence as Coast
may deem necessary, on certain key officers of Borrower selected by Coast which
background checks shall be satisfactory to Coast in Coast's sole and absolute
discretion.
5.13 LOCKBOX/TRIPARTY/BLOCKED ACCOUNT AGREEMENTS. Coast shall have received
evidence that all cash remittances of Borrower shall be collected pursuant to
one or more lockbox/triparty agreements or blocked account agreements in form
and substance acceptable to Coast.
5.14 DEBT SUBORDINATION AGREEMENTS. Coast shall have received executed debt
subordination agreements evidencing subordinated debt in an approximate
aggregate principal amount equal to Four Million Six Hundred Thousand Dollars
($4,600,000), in the form of Exhibit 5.14 from the Subordinated Creditors.
5.15 YEAR 2000 ASSESSMENT CERTIFICATE. Coast shall have received a
certificate from the relevant officer of Borrower to the effect that, as the
result of an assessment undertaken by Borrower of Borrower's computer systems,
software and applications and after inquiry made to Borrower's material
suppliers and vendors, Borrower knows of no facts that would cause Borrower to
reasonably believe that the Year 2000 Problem will cause a Material Adverse
Effect.
5.16 NET WORTH. Coast shall have received evidence satisfactory to Coast in
its sole and absolute discretion that Borrower's Net Worth is no more negative
than negative Twelve Million Dollars ($12,000,000).
5.17 PATRICK ENTERPRISES INFUSION. Patrick Enterprises shall, pursuant to
that certain____________, 199__ Promissory Note made by Borrower, have infused
into Borrower Two Million Five Hundred Thousand Dollars ($2,500,000) in the form
of cash to support an accounts payable reserve of One Million Six Hundred
Thousand Dollars ($1,600,000) for disputed WorldCom accounts payable and to fund
the five (5) month Six Hundred Fifty Thousand Dollar ($650,000) interest
reserve. Cash security for the disputed WorldCom accounts payable will be held
by Coast and released dollar for dollar to Borrower as disputed amounts are
resolved to the reasonable satisfaction of Coast, including using such reserve
to fund payments to WorldCom for payment of the disputed WorldCom accounts
payable. The interest reserve will be released upon the occurrence of: (i) a
Triggering Event, (ii) the establishment of the Debt Reserve, and (iii) provided
that an Event of Default does not then exist and will not result from the
release of the interest reserve. The remaining amount of $250,000, over and
above the amounts needed for the Worldcom accounts payable reserve and the
interest reserve, will be released following the Closing Date provided that: (i)
an Event of Default does not then exist and will not result from the release of
the monies, and (ii) sufficient borrowing availability exists under the terms of
this Agreement. Coast shall have received an executed Debt Subordination
Agreement substantially in the form attached hereto as Exhibit 5.17. Borrower
acknowledges and agrees that the Patrick Enterprises infusion: (i) will not be
segregated, (ii) will earn interest at the rate of the Prime Rate minus three
percent (3%), (iii) will be held indefinitely until the sooner to occur of: (a)
its release pursuant to the terms described hereinabove, or (b) the repayment of
the Obligations.
5.18 OUTLINE OF CARRIER AGREEMENT TERMS. If no telecommunications services
agreement is executed by and between Borrower and WorldCom or an Alternative
Carrier prior to the Closing Date, Borrower shall provide Coast with a detailed
list of the terms of the agreement that it presently has with WorldCom or an
Alternative Carrier.
5.19 DISCOUNT LONG DISTANCE. Coast shall have received evidence from
Borrower that Borrower has resolved its carrier accounts payable dispute with
Discount Long Distance, with said evidence to be in form and substance
reasonably satisfactory to Coast.
5.20 SETTLEMENT OF POTENTIAL LITIGATION. If the current dispute, more
particularly described in Section 6.10 of the Schedule, is settled and results
in the creation of an approximately $1,000,000 promissory note by Borrower,
Coast shall have been provided with a subordination agreement wherein the
creditor subordinates the approximate $1,000,000 obligation owing to it by
Borrower in favor of Coast, with said subordination agreement to be in form and
substance reasonably satisfactory to Coast.
6. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Coast to enter into this Agreement and to make Loans,
Borrower represents and warrants to Coast as follows, and Borrower covenants
that the following representations will
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continue to be true, and that Borrower will at all times comply with all of the
following covenants:
6.1 EXISTENCE AND AUTHORITY. Borrower is and will continue to be, duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization. Borrower is and will continue to be qualified
and licensed to do business in all jurisdictions in which any failure to do so
would have a Material Adverse Effect. The execution, delivery and performance by
Borrower of this Agreement, and all other documents contemplated hereby (a) have
been duly and validly authorized, (b) are enforceable against Borrower in
accordance with their terms (except as enforcement may be limited by equitable
principles and by bankruptcy, insolvency, reorganization, moratorium or similar
laws relating to creditors' rights generally), and (c) do not violate Borrower's
articles or certificate of incorporation, or Borrower's by-laws, or any law or
any material agreement or instrument which is binding upon Borrower or its
property, and (d) do not constitute grounds for acceleration of any material
indebtedness or obligation under any material agreement or instrument which is
binding upon Borrower or its property.
6.2 NAME; TRADE NAMES AND STYLES. The name of Borrower set forth in the
heading to this Agreement is its correct name. Listed on the Schedule are all
prior names of Borrower and all of Borrower's present and prior trade names.
Borrower shall give Coast thirty (30) days' prior written notice before changing
its name or doing business under any other name. Borrower has complied, and will
in the future comply, with all laws relating to the conduct of business under a
fictitious business name.
6.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The address set forth in the
heading to this Agreement is Borrower's chief executive office. In addition,
Borrower has places of business and Collateral is
located only at the locations set forth on the Schedule. Borrower will give
Coast at least thirty (30) days' prior written notice before opening any
additional place of business, changing its chief executive office, or moving any
of the Collateral to a location other than Borrower's Address or one of the
locations set forth on the Schedule.
6.4 TITLE TO COLLATERAL; PERMITTED LIENS. Borrower is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Borrower. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Coast now has, and will continue
to have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Borrower will at all
times defend Coast and the Collateral against all claims of others. None of the
Collateral now is or will be affixed to any real property in such a manner, or
with such intent, as to become a fixture. Borrower is not and will not become a
lessee under any real property lease pursuant to which the lessor may obtain any
rights in any of the Collateral and no such lease now prohibits, restrains,
impairs or will prohibit, restrain or impair Borrower's right to remove any
Collateral from the leased premises. Whenever any Collateral is located upon
premises in which any third party has an interest (whether as owner, mortgagee,
beneficiary under a deed of trust, lien or otherwise), Borrower shall, whenever
requested by Coast, use its reasonable best efforts to cause such third party to
execute and deliver to Coast, in form acceptable to Coast, such waivers and
subordinations as Coast shall specify, so as to ensure that Coast's rights in
the Collateral are, and will continue to be, superior to the rights of any such
third party. Borrower will keep in full force and effect, and will comply with
all the terms of, any lease for a Leased Location where any of the Collateral
now or in the future may be located.
6.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Coast in writing of any
material loss or damage to the Collateral that could reasonably be expected to
have a Material Adverse Effect.
6.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records in accordance with
GAAP.
6.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Coast have been, and will be, prepared in
conformity with GAAP (except, in the case of unaudited financial statements, for
the absence of footnotes and subject to normal year-end adjustments) and now and
in the future will fairly reflect the financial condition of Borrower, at the
times and for the periods therein stated. Between the last date covered by any
such statement provided to Coast and the date hereof, there has been no Material
Adverse Effect. Borrower is now and will continue to be Solvent.
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6.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Except with respect to
taxes being paid with the first advance of funds hereunder, Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely pay,
all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owed by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notifies Coast in writing
of the commencement of, and any material development in, the proceedings, and
(iii) posts bonds or takes any other steps required to keep the contested taxes
from becoming a lien upon any of the Collateral. As of the date hereof, Borrower
is unaware of any claims or adjustments proposed for any of Borrower's prior tax
years which could result in additional taxes becoming due and payable by
Borrower. Borrower has paid, and shall continue to pay all amounts necessary to
fund all present and future pension, profit sharing and deferred compensation
plans in accordance with their terms, and Borrower has not and will not withdraw
from participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
Borrower shall, at all times, utilize the services of an outside payroll service
providing for the automatic deposit of all payroll taxes payable by Borrower.
6.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all material foreign, federal, state
and local laws and regulations relating to Borrower that are reasonably likely
to result in a Material Adverse Effect, including, but not limited to, the Fair
Labor Standards Act, and those relating to Borrower's ownership of real or
personal property, the conduct and licensing of Borrower's business, and
environmental matters.
6.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Borrower's
knowledge) threatened by or against or affecting Borrower in any court or before
any governmental agency (or any basis therefor known to Borrower) which may
result, either separately or in the aggregate, in a Material Adverse Effect.
Borrower will promptly inform Coast in writing of any claim, proceeding,
litigation or investigation in the future threatened or instituted by or against
Borrower involving an amount set forth on the Schedule.
6.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely to
payoff of existing debt, for working capital purposes and for other lawful
business purposes. Borrower is not purchasing or carrying any "margin stock" (as
defined in Regulation G of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any Loan will be used to purchase or carry any
"margin stock" or to extend credit to others for the purpose of purchasing or
carrying any "margin stock."
6.12 YEAR 2000 COMPLIANCE. As the result of a review and assessment
undertaken by Borrower of Borrower's computer systems, software and applications
and after inquiry made of Borrower's material suppliers and vendors Borrower
represents and warrants that the Year 2000 problem is not reasonably likely to
result in a Material Adverse Effect.
7. RECEIVABLES.
7.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Coast as follows: Each Receivable (other than those not yet earned
by performance) shall, on the date each Loan is requested and made, represent an
undisputed bona fide existing unconditional obligation of the Account Debtor
created by the sale, delivery and acceptance of goods or the rendition of
services in the ordinary course of Borrower's business.
7.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Coast as follows: All statements made and all unpaid
balances appearing in all invoices, instruments and other documents evidencing
the Receivables are and shall be true and correct and all such invoices,
instruments and other documents and all of Borrower's books and records are and
shall be genuine and in all respects what they purport to be. All sales and
other transactions underlying or giving rise to each Receivable shall fully
comply with all applicable laws and governmental rules and regulations. All
signatures and indorsements on all documents, instruments, and agreements
relating to all Receivables are, to the best of Borrower's knowledge, genuine,
and all such documents, instruments and agreements are, to the best of
Borrower's knowledge, legally enforceable in accordance with their terms.
7.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall deliver
to Coast via
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facsimile, unless otherwise directed by Coast, at such locations and at such
intervals as Coast may reasonably request, transaction reports and loan
requests, schedules of Receivables, and schedules of collections, all on Coast's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Coast's security interest and other
rights in all of Borrower's Receivables, nor shall Coast's failure to advance or
lend against a specific Receivable affect or limit Coast's security interest and
other rights therein. Loan requests received after 10:30 A.M. Los Angeles,
California time, will not be considered by Coast until the next Business Day.
Together with each such schedule, or later if requested by Coast, Borrower shall
furnish Coast with copies (or, at Coast's request, originals) of all contracts,
orders, invoices, and other similar documents, and all original shipping
instructions, delivery receipts, bills of lading, and other evidence of
delivery, for any goods the sale or disposition of which gave rise to such
Receivables, and Borrower warrants the genuineness of all of the foregoing.
Borrower shall also furnish to Coast an aged accounts receivable trial balance
in such form and at such intervals as Coast shall request. In addition, Borrower
shall deliver to Coast the originals of all instruments, chattel paper, security
agreements, guarantees and other documents and property evidencing or securing
any Receivables, upon receipt thereof and in the same form as received, with all
necessary indorsements, all of which shall be with recourse. Borrower shall also
provide Coast with copies of all credit memos as and when requested by Coast.
7.4 COLLECTION OF RECEIVABLES. All payments on, and proceeds of,
Receivables shall be deposited by Borrower into a lockbox or blocked account as
Coast may specify, pursuant to one or more lockbox or blocked account agreements
in such form as Coast may specify. Coast or its designee may, at any time,
notify Account Debtors that Coast has been granted a security interest in the
Receivables. Coast shall promptly apply all payments on, and proceeds of,
Receivables (a) to the Obligations in such order as Coast shall determine,
and/or (b) to the payment of any carrier accounts payable that are not current
at such time and from time to time as determined by Coast in its reasonable
discretion.
7.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered to Coast within one (1) Business Day after
receipt by Borrower, in their original form, duly endorsed to Coast, to be
applied to the Obligations in such order as Coast shall determine. Borrower
agrees that it will not commingle proceeds of Collateral with any of Borrower's
other funds or property, but will hold such proceeds separate and apart from
such other funds and property and in an express trust for Coast. Nothing in this
Section limits the restrictions on disposition of Collateral set forth elsewhere
in this Agreement.
7.6 DISPUTES. Borrower shall notify Coast promptly of all disputes or
claims in excess of Fifty Thousand Dollars ($50,000) relating to Receivables.
Borrower shall not forgive (completely or partially), compromise or settle any
Receivable for less than payment in full, or agree to do any of the foregoing,
except that Borrower may do so, provided that: (a) Borrower does so in good
faith, in a commercially reasonable manner, in the ordinary course of business,
and in arm's length transactions, which are reported to Coast on the regular
reports provided to Coast; (b) no Default or Event of Default has occurred and
is continuing; and (c) taking into account all such discounts settlements and
forgiveness, the total outstanding Loans will not exceed the Credit Limit. Coast
may, at any time after the occurrence of an Event of Default, settle or adjust
disputes or claims directly with Account Debtors for amounts and upon terms
which Coast considers advisable in its reasonable credit judgment and, in all
cases, Coast shall credit Borrower's Loan account with only the net amounts
received by Coast in payment of any Receivables.
7.7 INTENTIONALLY DELETED.
7.8 VERIFICATION. Coast may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Receivables, by means of mail, telephone or otherwise, either in the name of
Borrower or Coast or such other name as Coast may choose.
7.9 NO LIABILITY. Coast shall not under any circumstances be responsible or
liable for any shortage or discrepancy in, damage to, or loss or destruction of,
any goods, the sale or other disposition of which gives rise to a Receivable, or
for any error, act, omission or delay of any kind occurring in the settlement,
failure to settle, collection or failure to collect any Receivable, or for
settling any Receivable in good faith for less than the full amount thereof, nor
shall Coast be deemed to be responsible for any of Borrower's obligations under
any contract or agreement giving rise to a Receivable. Nothing herein shall,
however, relieve Coast from liability for its own gross negligence or willful
misconduct.
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8. ADDITIONAL DUTIES OF THE BORROWER.
8.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply with
the financial and other covenants set forth in the Schedule.
8.2 INSURANCE. Borrower shall, at all times insure all of the tangible
personal property Collateral and carry other business insurance with reputable
insurers and comparable in kind and amount to that set forth on Schedule 8.2
attached hereto, all of which policies are in full force and effect as of the
date hereof and copies of which have been provided to Coast pursuant to Section
5.6 hereof, and Borrower shall provide evidence of such insurance to Coast, so
that Coast is satisfied that such insurance is, at all times, in full force and
effect. All liability insurance policies of Borrower shall name Coast as an
additional insured, and all property casualty and related insurance policies of
Borrower shall name Coast as a loss payee thereon and Borrower shall cause a
lender's loss payee endorsement in form reasonably acceptable to Coast. Upon
receipt of the proceeds of any such insurance, Coast shall apply such proceeds
in reduction of the Obligations, except that, provided no Default or Event of
Default has occurred and is continuing, Coast shall release to Borrower
insurance proceeds with respect to Equipment totaling less than the amount set
forth in Section 8 of the Schedule, which shall be utilized by Borrower for the
replacement of the Equipment with respect to which the insurance proceeds were
paid. Coast may require reasonable assurance that the insurance proceeds so
released will be so used. If Borrower fails to provide or pay for any insurance,
Coast may, but is not obligated to, obtain the same at Borrower's expense.
Borrower shall promptly deliver to Coast copies of all reports made to insurance
companies.
8.3 REPORTS. Borrower, at its expense, shall provide Coast with the written
reports set forth in Section 8 of the Schedule, and such other written reports
with respect to Borrower (including budgets, sales projections, operating plans
and other financial documentation), as Coast shall from time to time reasonably
specify.
8.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times but not
less frequently than quarterly and on one (1) Business Day's notice, Coast, or
its agents, shall have the right to perform Audits, including, without
limitation, Audits with respect to all amounts paid, directly or indirectly, to
Hebron and VisionQuest to (a) confirm that such payments reflect arms-length
transactions between the parties, and (b) confirm that charges for services
rendered by Hebron and VisionQuest, respectively, are comparable to charges for
similar services rendered by competing vendors. Coast shall take the same steps
it takes to keep its own confidential information confidential, to keep
confidential all confidential information obtained in any report or Audit, but
Coast shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The Audits shall be at Borrower's expense and the charge for the Audits
shall be Seven Hundred Fifty Dollars ($750) per person per day (or such higher
amount as shall represent Coast's then current standard charge for the same),
plus reasonable out-of-pocket expenses. Coast also shall have the right from
time to time as determined by Coast in its sole discretion (but absent the
occurrence of a Default or Event of Default, Coast's right to an appraisal shall
be limited to one (1) such appraisal during any twelve (12) month period), at
Borrower's sole cost and expense, to have an appraisal of the subscriber base
conducted by an appraiser acceptable to Coast in its sole and absolute
discretion. Borrower agrees to fully cooperate with the appraiser in any such
appraisal and make all information relating to the subscriber base available to
the appraiser at such times and places as requested by the appraiser. Borrower
will not enter into any agreement with any accounting firm, service bureau or
third party to store Borrower's books or records at any location other than
Borrower's Address, without first notifying Coast of the same and obtaining the
written agreement from such accounting firm, service bureau or other third party
to give Coast the same rights with respect to access to books and records and
related rights as Coast has under this Loan Agreement.
8.5 NEGATIVE COVENANTS. Borrower shall not, without Coast's prior written
consent, do any of the following:
(a) merge or consolidate with another entity, except in a transaction
in which (i) the owners of Borrower hold at least fifty percent (50%) of the
ownership interest in the surviving entity immediately after such merger or
consolidation, and (ii) Borrower is the surviving entity;
(b) acquire any assets, except (i) in the ordinary course of business,
or (ii) in a transaction or a series of transactions not involving the payment
of an aggregate amount in excess of the amount set forth in Section 8 of the
Schedule;
(c) enter into any other transaction outside the ordinary course of
business;
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(d) sell or transfer any Collateral, except for the sale of finished
Inventory in the ordinary course of Borrower's business, and except for the sale
of obsolete or unneeded Equipment in the ordinary course of business;
(e) store any Inventory or other Collateral with any warehouseman or
other third party without notifying Coast of the same;
(f) sell any Inventory on a sale-or-return, guaranteed sale,
consignment, or other contingent basis;
(g) make any loans of any money or other assets, except (i) advances to
customers or suppliers in the ordinary course of business, and (ii) travel
advances, employee relocation loans and other employee loans and advances in the
ordinary course of business;
(h) incur any debts, outside the ordinary course of business, which
would have a Material Adverse Effect;
(i) guarantee or otherwise become liable with respect to the
obligations of another party or entity;
(j) pay or declare any dividends or distributions on the ownership
interests in Borrower (except for: (i) dividends or distributions payable from
Borrower's "Net Earnings" (as more particularly described and as limited by
Section 8.1 of the Schedule), and (ii) dividends or distributions payable solely
in stock form of ownership interests in Borrower);
(k) make any change in Borrower's capital structure which would have a
Material Adverse Effect;
(l) transfer or side stream any funds to any Affiliate, except in the
ordinary course of business, and except for payments, directly or indirectly, to
Hebron and VisionQuest that reflect arms-length transactions between the parties
and that reflect charges for services rendered by Hebron and Vision Quest
respectively, that are comparable to charges for similar services rendered by
competing vendors; or
(m) dissolve or elect to dissolve.
Notwithstanding anything to the contrary set forth above in this Section
8.5, Borrower may merge or consolidate with, or transfer all or substantially
all of Borrower's assets to, or purchase all of the assets (or all such assets
other than Real Property) of Hebron, all of the assets or the Tahlequah
telemarketing center assets of VisionQuest or all or substantially all of the
assets of any other affiliate which is a wholly owned or jointly owned
subsidiary, provided that (i) Borrower is not released hereunder and the
surviving entity assumes the Obligations, (ii) Coast shall be satisfied, in its
discretion, that its lien on the Collateral is not adversely affected thereby,
and (iii) Coast shall be satisfied, in its sole discretion that the transaction
will not adversely affect the ability of Borrower to perform its obligations
under this Agreement (including, without limitation, repayment of the
Obligations as they come due).
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default is continuing or would occur as a
result of such transaction.
8.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Coast with respect to any Collateral or relating to
Borrower, Borrower shall, without expense to Coast, make available Borrower and
its officers, employees and agents and Borrower's books and records, to the
extent that Coast may deem them reasonably necessary in order to prosecute or
defend any such suit or proceeding.
8.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Coast, to execute all documents and take all actions, as Coast, may deem
reasonably necessary or useful in order to perfect and maintain Coast's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
9. TERM.
9.1 MATURITY DATE. This Agreement shall continue in effect until the
Maturity Date; provided that the Maturity Date shall automatically be extended,
and this Agreement shall automatically and continuously renew, for successive
additional terms of one year each, unless one party gives written notice to the
other, not less than sixty (60) days prior to the Maturity Date or the next
Renewal Date, that such party elects to terminate this Agreement effective on
the Maturity Date or such next Renewal Date. If this Agreement is renewed under
this Section 9.1, Borrower shall pay to Coast a Renewal Fee in the amount shown
in Section 3 of the Schedule. The Renewal Fee shall be due and payable on the
Renewal Date and thereafter shall bear interest at a rate equal to the rate
applicable to the Receivable Loans.
9.2 EARLY TERMINATION. This Agreement may be terminated prior to the
Maturity Date as follows: (a) by Borrower, effective three (3) Business Days
after written
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notice of termination is given to Coast; or (b) by Coast at any time after the
occurrence of an Event of Default, without notice, effective immediately. If
this Agreement is terminated by Borrower or by Coast under this Section 9.2, at
any time after the Closing Date and prior to third anniversary of the date
hereof, then and in that event, Borrower shall pay to Coast an Early Termination
Fee in the amount shown in Section 3 of the Schedule. The Early Termination Fee
shall be due and payable on the effective date of termination and thereafter
shall bear interest at a rate equal to the rate applicable to the Loans.
9.3 PAYMENT OF OBLIGATIONS. On the Maturity Date or on any earlier
effective date of termination, Borrower shall pay and perform in full all
Obligations, whether evidenced by installment notes or otherwise, and whether or
not all or any part of such Obligations are otherwise then due and payable.
Notwithstanding any termination of this Agreement, all of Coast's security
interests in all of the Collateral and all of the terms and provisions of this
Agreement shall continue in full force and effect until all Obligations have
been paid and performed in full; provided that, without limiting the fact that
Loans are subject to the discretion of Coast, Coast may, in its sole discretion,
refuse to make any further Loans after termination. No termination shall in any
way affect or impair any right or remedy of Coast, nor shall any such
termination relieve Borrower of any Obligation to Coast, until all of the
Obligations have been paid and performed in full. Upon payment and performance
in full of all the Obligations and termination of this Agreement, Coast shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Coast's security
interests.
10. EVENTS OF DEFAULT AND REMEDIES.
10.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement:
(a) any warranty, representation, statement, report or certificate
made or delivered to Coast by Borrower or any of Borrower's officers, employees
or agents, now or in the future, shall be untrue or materially misleading and
results in a Material Adverse Effect; or
(b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or
(c) the total Loans and other Obligations outstanding at any time
shall exceed the Credit Limit; or
(d) Borrower shall fail to deliver the proceeds of Collateral to Coast
as provided in Section 7.5 above, or shall fail to give Coast access to its
books and records or Collateral as provided in Section 8.4 above, or shall
breach any negative covenant set forth in Section 8.5 above; or
(e) Borrower shall fail to comply with the financial covenants set
forth in the Schedule or shall fail to perform any other non-monetary Obligation
which by its nature cannot be cured; or
(f) Borrower shall fail to perform any other non-monetary Obligation,
which failure is not cured within ten (10) Business Days after the date due; or
(g) any levy, assessment, attachment, seizure, lien or encumbrance
(other than a Permitted Lien) is made on all or any part of the Collateral which
is not cured within forty-five (45) days provided that no risk to Coast's rights
in Collateral in Coast's reasonable discretion result from the delay after the
occurrence of the same; or
(h) any default or event of default occurs under any obligation
secured by a Permitted Lien, which is not cured within any applicable cure
period or waived in writing by the holder of the Permitted Lien with the
exception of existing accounts payable currently under dispute with WorldCom
which have been reserved for pursuant to paragraph 5.17 herein; or
(i) Borrower breaches any material contract or obligation, which has
or may reasonably be expected to have a Material Adverse Effect with the
exception of existing accounts payable currently under dispute with WorldCom
which have been reserved for pursuant to paragraph 5.17 herein; or
(j) Dissolution, termination of existence, insolvency or business
failure of Borrower or any guarantor of any of the Obligations; or appointment
of a receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower or any guarantor of any of the Obligations under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect; or
(k) the commencement of any proceeding against Borrower or any
guarantor of any of the Obligations under any reorganization, bankruptcy,
insolvency, arrangement, readjustment of debt, dissolution or liquidation law or
statute of any
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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jurisdiction, now or in the future in effect, which is (i) not timely
controverted, or (ii) not cured by the dismissal thereof within forty-five (45)
days after the date commenced; or
(l) revocation or termination of, or limitation or denial of liability
upon, any guaranty of the Obligations or any attempt to do any of the foregoing;
or
(m) revocation or termination of, or limitation or denial of liability
upon, any pledge of any certificate of deposit, securities or other property or
asset of any kind pledged by any third party to secure any or all of the
Obligations, or any attempt to do any of the foregoing, or commencement of
proceedings by or against any such third party under any bankruptcy or
insolvency law; or
(n) Borrower or any guarantor of any of the Obligations makes any
payment on account of any indebtedness or obligation which has been subordinated
to the Obligations, other than as permitted in the applicable subordination
agreement, or if any Person who has subordinated such indebtedness or
obligations terminates or in any way limits his subordination agreement; or
(o) except as permitted under Section 8.5(a), Borrower shall suffer or
experience any Change of Control without Coast's prior written consent, which
consent shall be in the discretion of Coast in the exercise of its reasonable
business judgment; or
(p) Borrower shall conceal, remove or transfer any part of its
property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or
(q) there shall be any Material Adverse Effect; or
(r) Borrower fails to achieve, on or before December 31, 1999, the
projected Net Worth provided Coast in writing on or before the Closing Date and
such failure has a Material Adverse Effect; or
(s) a thirty percent (30%) decrease occurs in any one month of
collections received by Coast from the previous month; provided, however, if
Borrower can demonstrate that the decline is not the result of a permanent
reduction in sales or does not represent a permanent adverse change in the
financial performance and the same are supported by documentation reasonably
satisfactory to Coast within ten (10) days of the receipt by Coast of Borrower's
collections and collection reports, then and only then the occurrence of the
event described in this subparagraph (s) shall not constitute an Event of
Default; or
(t) a thirty percent (30%) decrease occurs in any one month of
collections received by Coast based on a trailing three month moving average; or
(u) a twenty percent (20%) decrease occurs at any time in the
appraised value of the subscriber base from its appraised value as of March 1,
1998, as determined by an appraiser acceptable to Coast in its sole and absolute
discretion.
Coast may cease making any Loans or extending any credit hereunder during any of
the above cure periods.
10.2 REMEDIES. Upon the occurrence, and during the continuance, of any
Event of Default, Coast, at its option, and without notice or demand of any kind
(all of which are hereby expressly waived by Borrower), may do any one or more
of the following:
(a) Cease making Loans or otherwise extending credit to Borrower under
this Agreement;
(b) Accelerate and declare all or any part of the Obligations to be
immediately due, payable and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation;
(c) Take possession of any or all of the Collateral wherever it may be
found, and for that purpose Borrower hereby authorizes Coast without judicial
process to enter onto any of Borrower's premises without interference to search
for, take possession of, keep, store or remove any of the Collateral, and remain
on the premises or cause a custodian to remain on the premises in exclusive
control thereof, without charge for so long as reasonably necessary in order to
complete the enforcement of its rights under this Agreement or any other
agreement; provided, however, that should Coast seek to take possession of any
of the Collateral by Court process, Borrower hereby irrevocably waives:
(i) any bond and any surety or security relating thereto required
by any statute, court rule or otherwise as an incident to such possession;
(ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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(iii) any requirement that Coast retain possession of, and not
dispose of, any such Collateral until after trial or final judgment;
(d) Require Borrower to assemble any or all of the Collateral and make
it available to Coast at places designated by Coast which are reasonably
convenient to Coast and Borrower, and to remove the Collateral to such locations
as Coast may deem advisable;
(e) Complete the processing, manufacturing or repair of any Collateral
prior to a disposition thereof and, for such purpose and for the purpose of
removal, Coast shall have the right to use Borrower's premises, vehicles,
hoists, lifts, cranes, equipment and all other property without charge. Coast is
hereby granted a license or other right to use, without charge, Borrower's
labels, patents, copyrights, rights of use of any name, trade secrets, trade
names, trademarks, service marks, and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in completing production of,
advertising for sale, and selling any Collateral and Borrower's rights under all
licenses and all franchise agreements shall inure to Coast's benefit;
(f) Sell, lease or otherwise dispose of any of the Collateral, in its
condition at the time Coast obtains possession of it or after further
manufacturing, processing or repair, at one or more public and/or private sales,
in lots or in bulk, for cash, exchange or other property, or on credit, and to
adjourn any such sale from time to time without notice other than oral
announcement at the time scheduled for sale. Coast shall have the right to
conduct such disposition on Borrower's premises without charge, for such time or
times as Coast deems reasonable, or on Coast's premises, or elsewhere and the
Collateral need not be located at the place of disposition. Coast may directly
or through any affiliated company purchase or lease any Collateral at any such
public disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as to
title or physical condition or otherwise at the time of sale;
(g) Demand payment of, and collect any Receivables and General
Intangibles comprising Collateral and, in connection therewith, Borrower
irrevocably authorizes Coast to endorse or sign Borrower's name on all
collections, receipts, instruments and other documents, to take possession of
and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Coast's sole
discretion, to grant extensions of time to pay, compromise claims and settle
Receivables and the like for less than face value; and
(h) Demand and receive possession of any of Borrower's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto.
All attorneys' fees, expenses, costs, liabilities and obligations incurred
by Coast (including attorneys' fees and expenses incurred in connection with
bankruptcy) with respect to the foregoing shall be due from the Borrower to
Coast on demand. Coast may charge the same to Borrower's loan account, and the
same shall thereafter bear interest at the same rate as is applicable to the
Receivable Loans. Without limiting any of Coast's rights and remedies, after the
occurrence and during the continuation of any Event of Default, the interest
rate applicable to the Obligations shall be increased by an additional three
percent per annum.
10.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Coast agree that a sale or other disposition (collectively, "sale") of any
Collateral which complies with the following standards will conclusively be
deemed to be commercially reasonable:
(a) Notice of the sale is given to Borrower at least seven (7) days
prior to the sale, and, in the case of a public sale, notice of the sale is
published at least seven (7) days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted;
(b) Notice of the sale describes the collateral in general,
non-specific terms;
(c) The sale is conducted at a place designated by Coast, with or
without the Collateral being present;
(d) The sale commences at any time between 8:00 a.m. and 6:00 p.m Los
Angeles, California time;
(e) Payment of the purchase price in cash or by cashier's check or wire
transfer is required; and
(f) With respect to any sale of any of the Collateral, Coast may (but
is not obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same.
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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Coast shall be free to employ other methods of noticing and selling the
Collateral, in its discretion, if they are commercially reasonable.
10.4 POWER OF ATTORNEY. Borrower grants to Coast an irrevocable power of
attorney coupled with an interest, authorizing and permitting Coast (acting
through any of its employees, attorneys or agents) at any time, at its option,
but without obligation, with or without notice to Borrower, and at Borrower's
expense, to do any or all of the following, in Borrower's name or otherwise, but
Coast agrees to exercise the following powers in a commercially reasonable
manner:
(a) Execute on behalf of Borrower any documents that Coast may, in its
sole discretion, deem advisable in order to perfect and maintain Coast's
security interest in the Collateral, or in order to exercise a right of Borrower
or Coast, or in order to fully consummate all the transactions contemplated
under this Agreement, and all other present and future agreements;
(b) After the occurrence and during the continuation of an Event of
Default, execute on behalf of Borrower any document exercising, transferring or
assigning any option to purchase, sell or otherwise dispose of or to lease (as
lessor or lessee) any real or personal property which is part of Coast's
Collateral or in which Coast has an interest;
(c) After the occurrence and during the continuation of an Event of
Default, execute on behalf of Borrower, any invoices relating to any Receivable,
any draft against any Account Debtor and any notice to any Account Debtor, any
proof of claim in bankruptcy, any Notice of Lien, claim of mechanic's,
materialman's or other lien, or assignment or satisfaction of mechanic's,
materialman's or other lien;
(d) Take control in any manner of any cash or non-cash items of payment
or proceeds of Collateral; endorse the name of Borrower upon any instruments, or
documents, evidence of payment or Collateral that may come into Coast's
possession;
(e) Endorse all checks and other forms of remittances received by
Coast;
(f) After the occurrence and during the continuation of an Event of
Default, pay, contest or settle any lien, charge, encumbrance, security interest
and adverse claim in or to any of the Collateral, or any judgment based thereon,
or otherwise take any action to terminate or discharge the same;
(g) After the occurrence and during the continuation of an Event of
Default, grant extensions of time to pay, compromise claims and settle
Receivables and General Intangibles for less than face value and execute all
releases and other documents in connection therewith;
(h) After the occurrence and during the continuation of an Event of
Default, pay any sums required on account of Borrower's taxes or to secure the
release of any liens therefor, or both;
(i) After the occurrence and during the continuation of an Event of
Default, settle and adjust, and give releases of, any insurance claim that
relates to any of the Collateral and obtain payment therefor;
(j) Instruct any third party having custody or control of any books or
records belonging to, or relating to, Borrower to give Coast the same rights of
access and other rights with respect thereto as Coast has under this Agreement;
(k) After the occurrence and during the continuation of an Event of
Default, take any action or pay any sum required of Borrower pursuant to this
Agreement and any other present or future agreements; and
(l) Pay from time to time all or any portion of any carrier accounts
payable that is not current during the term of this Agreement other than amounts
currently in dispute with WorldCom.
Any and all sums paid and any and all costs, expenses, liabilities,
obligations and attorneys' fees incurred by Coast (including attorneys' fees and
expenses incurred pursuant to bankruptcy) with respect to the foregoing shall be
added to and become part of the Obligations, and shall be payable on demand.
Coast may charge the foregoing to Borrower's loan account and the foregoing
shall thereafter bear interest at the same rate applicable to the Receivable
Loans. In no event shall Coast's rights under the foregoing power of attorney or
any of Coast's other rights under this Agreement be deemed to indicate that
Coast is in control of the business, management or properties of Borrower.
Borrower shall pay, indemnify, defend, and hold Coast and each of its officers,
directors, employees, counsel, agents, and attorneys-in-fact (each, an
"Indemnified Person") harmless (to the fullest extent permitted by law) from and
against any and all claims, demands, suits, actions, investigations,
proceedings, and damages, and all attorneys fees and disbursements and other
costs and expenses actually incurred in connection therewith (as and when they
are
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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incurred and irrespective of whether suit is brought), at any time asserted
against, imposed upon, or incurred by any of them in connection with or as a
result of or related to the execution, delivery, enforcement, performance, and
administration of this Agreement and any other Loan Documents or the
transactions contemplated herein, and with respect to any investigation,
litigation, or proceeding related to this Agreement, any other Loan Document, or
the use of the proceeds of the credit provided hereunder (irrespective of
whether any Indemnified Person is a party thereto), or any act, omission, event
or circumstance in any manner related thereto (all the foregoing, collectively,
the "Indemnified Liabilities"). Borrower shall have no obligation to any
Indemnified Person hereunder with respect to any Indemnified Liability that a
court of competent jurisdiction determines to have resulted from the gross
negligence or willful misconduct of such Indemnified Person. This provision
shall survive the termination of this Agreement and the repayment of the
Obligations.
10.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Coast first to the costs, expenses,
liabilities, obligations and attorneys' fees incurred by Coast in the exercise
of its rights under this Agreement, second to the interest due upon any of the
Obligations, and third to the principal of the Obligations, in such order as
Coast shall determine in its sole discretion. Any surplus shall be paid to
Borrower or other persons legally entitled thereto; Borrower shall remain liable
to Coast for any deficiency. If, Coast, in its sole discretion, directly or
indirectly enters into a deferred payment or other credit transaction with any
purchaser at any sale of Collateral, Coast shall have the option, exercisable at
any time, in its sole discretion, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the Obligations
until the actual receipt by Coast of the cash therefor.
10.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Coast shall have all the other rights and remedies accorded a
secured party in equity, under the Code, and under all other applicable laws,
and under any other instrument or agreement now or in the future entered into
between Coast and Borrower, and all of such rights and remedies are cumulative
and none is exclusive. Exercise or partial exercise by Coast of one or more of
its rights or remedies shall not be deemed an election, nor bar Coast from
subsequent exercise or partial exercise of any other rights or remedies. The
failure or delay of Coast to exercise any rights or remedies shall not operate
as a waiver thereof, but all rights and remedies shall continue in full force
and effect until all of the Obligations have been indefeasibly paid and
performed.
11. GENERAL PROVISIONS.
11.1 INTEREST COMPUTATION. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Coast (including
proceeds of Receivables and payment of the Obligations in full) shall be deemed
applied by Coast on account of the Obligations three (3) Business Days after
receipt by Coast of immediately available funds, and, for purposes of the
foregoing, any such funds received after 10:30 AM Los Angeles, California time,
on any day shall be deemed received on the next Business Day. Coast shall be
entitled to charge Borrower's account for such three (3) Business Days of
"clearance" or "float" at the rate(s) set forth in Section 3 of the Schedule on
all checks, wire transfers and other items received by Coast, regardless of
whether such three (3) Business Days of "clearance" or "float" actually occur,
and shall be deemed to be the equivalent of charging three (3) Business Days of
interest on such collections. This across-the-board three (3) Business Day
clearance or float charge on all collections is acknowledged by the parties to
constitute an integral aspect of the pricing of Coast's financing of Borrower.
11.2 APPLICATION OF PAYMENTS. Subject to Section 7.5 hereof, all payments
with respect to the Obligations may be applied to the Obligations, in such order
and manner as Coast shall determine in its sole discretion.
11.3 CHARGES TO ACCOUNTS. Coast may, in its discretion, require that
Borrower pay monetary Obligations in cash to Coast, or charge them to Borrower's
Loan account, in which event they will bear interest from the date due to the
date paid at the same rate applicable to the Loans.
11.4 MONTHLY ACCOUNTINGS. Coast shall provide Borrower monthly with an
account of advances, charges, expenses and payments made pursuant to this
Agreement. Such account shall, absent manifest error, be deemed correct,
accurate and binding on Borrower and an account stated unless Borrower notifies
Coast in writing to the contrary within thirty (30) days after receipt of each
account describing the nature of any alleged errors or omissions.
11.5 NOTICES. All notices to be given under this Agreement shall be in
writing and shall be given either personally or by reputable private delivery
service or by regular first-class mail, facsimile or certified mail return
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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receipt requested, addressed to Coast or Borrower at the addresses shown in the
heading to this Agreement, or at any other address designated in writing by one
party to the other party. Notices to Coast shall be directed to the Commercial
Finance Division, to the attention of the Division Manager or the Division
Credit Manager. All notices shall be deemed to have been given upon delivery in
the case of notices personally delivered, faxed (at time of confirmation of
transmission), or at the expiration of one (1) Business Day following delivery
to the private delivery service, or two (2) Business Days following the deposit
thereof in the United States mail, with postage prepaid.
11.6 SEVERABILITY. Should any provision of this Agreement be held by any
court of competent jurisdiction to be void or unenforceable, such defect shall
not affect the remainder of this Agreement, which shall continue in full force
and effect.
11.7 INTEGRATION. This Agreement and such other written agreements,
documents and instruments as may be executed in connection herewith are the
final, entire and complete agreement between Borrower and Coast and supersede
all prior and contemporaneous negotiations and oral representations and
agreements, all of which are merged and integrated in this Agreement. There are
no oral understandings, representations or agreements between the parties which
are not set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
11.8 WAIVERS. The failure of Coast at any time or times to require Borrower
to strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Borrower and Coast shall not waive or
diminish any right of Coast later to demand and receive strict compliance
therewith. Any waiver of any Default shall not waive or affect any other
Default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Borrower and delivered to Coast shall be deemed to have been waived
by any act or knowledge of Coast or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Coast and delivered
to Borrower. Borrower waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Coast on which
Borrower is or may in any way be liable, and notice of any action taken by
Coast, unless expressly required by this Agreement.
11.9 NO LIABILITY FOR ORDINARY NEGLIGENCE. Neither Coast, nor any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by Borrower
or any other party through the ordinary negligence of Coast, or any of its
directors, officers, employees, agents, attorneys or any other Person affiliated
with or representing Coast, but nothing herein shall relieve Coast from
liability for its own gross negligence or willful misconduct.
11.10 AMENDMENT. The terms and provisions of this Agreement may not be
waived or amended, except in a writing executed by Borrower and a duly
authorized officer of Coast.
11.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
11.12 ATTORNEYS FEES, COSTS AND CHARGES. Borrower shall reimburse Coast for
all attorneys' fees (including attorneys' fees and expenses incurred pursuant to
bankruptcy) and all filing, recording, search, title insurance, appraisal,
audit, and other costs incurred by Coast, pursuant to, or in connection with, or
relating to this Agreement (whether or not a lawsuit is filed), including, but
not limited to, any attorneys' fees and costs (including attorneys' fees and
expenses incurred pursuant to bankruptcy) Coast incurs in order to do the
following: prepare and negotiate this Agreement and the documents relating to
this Agreement; obtain legal advice in connection with this Agreement or
Borrower; enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower's books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Coast's security interest
in, the Collateral; and otherwise represent Coast in any litigation relating to
Borrower. If either Coast or Borrower files any lawsuit against the other
predicated on a breach of this Agreement, the prevailing party in such action
shall be entitled to recover its costs and attorneys' fees (including attorneys'
fees and expenses incurred pursuant to bankruptcy), including (but not
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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limited to) attorneys' fees and costs incurred in the enforcement of, execution
upon or defense of any order, decree, award or judgment. Borrower shall also pay
Coast's standard charges for returned checks and for wire transfers, in effect
from time to time. All attorneys' fees, costs and charges (including attorneys'
fees and expenses incurred pursuant to bankruptcy) and other fees, costs and
charges to which Coast may be entitled pursuant to this Agreement may be charged
by Coast to Borrower's loan account and shall thereafter bear interest at the
same rate as the Receivable Loans.
11.13 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be
binding upon and inure to the benefit of the respective successors, assigns,
heirs, beneficiaries and representatives of Borrower and Coast; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Coast, and any prohibited
assignment shall be void. No consent by Coast to any assignment shall release
Borrower from its liability for the Obligations. Coast may assign its rights and
delegate its duties hereunder without the consent of Borrower. Coast reserves
the right to syndicate all or a portion of the transaction created herein or
sell, assign, transfer, negotiate, or grant participations in all or any part
of, or any interest in Coast's rights and benefits hereunder. In connection with
any such syndication, assignment or participation, Coast may, pursuant to a
confidentiality agreement substantially in the form of Exhibit 11.13 attached
hereto, disclose all documents and information which Coast now or hereafter may
have relating to Borrower or Borrower's business. To the extent that Coast
assigns its rights and obligations hereunder to a third Person, Coast thereafter
shall be released from such assigned obligations to Borrower.
11.14 PUBLICITY. Coast is hereby authorized, at its expense, to issue
appropriate press releases and to cause a tombstone to be published announcing
the consummation of this transaction and the aggregate amount thereof, provided,
however, that Borrower shall have the right, in its reasonable discretion, to
approve the content of the same.
11.15 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Coast acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Coast or Borrower under any rule of construction or
otherwise.
11.16 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Coast and Borrower
shall be governed by the internal laws of the State of California, without
regard to its conflicts of law principles. As a material part of the
consideration to Coast to enter into this Agreement, Borrower (a) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Coast's option, be litigated in courts located within California, and
that the exclusive venue therefor shall be Los Angeles County; (b) consents to
the jurisdiction and venue of any such court and consents to service of process
in any such action or proceeding by personal delivery or any other method
permitted by law; and (c) waives any and all rights Borrower may have to object
to the jurisdiction of any such court, or to transfer or change the venue of any
such action or proceeding.
11.17 MUTUAL WAIVER OF JURY TRIAL. BORROWER AND COAST EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN COAST AND BORROWER, OR ANY CONDUCT, ACTS OR
OMISSIONS OF COAST OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH COAST OR BORROWER, IN ALL
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COAST BUSINESS CREDIT LOAN AND SECURITY AGREEMENT
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OF THE FOREGOING CASES, WHETHER SOUNDING
IN CONTRACT OR TORT OR OTHERWISE.
BORROWER:
AMERIVISION COMMUNICATIONS, INC.,
an Oklahoma corporation
By /s/ Stephen D. Halliday
---------------------------------------------
President or Vice President
By /s/ Scott Freeny
---------------------------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank,
a California corporation
By /s/ John Sternen
---------------------------------------------
Title: VP - Underwriting Manager
-----------------------------------------
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COAST
SCHEDULE TO
LOAN AND SECURITY AGREEMENT
BORROWER: AMERIVISION COMMUNICATIONS, INC.,
AN OKLAHOMA CORPORATION
ADDRESS: 5900 MOSTELLER DRIVE, SUITE 1850
OKLAHOMA CITY, OKLAHOMA 73112
DATE: FEBRUARY 1, 1999
This Schedule forms an integral part of the Loan and Security Agreement between
Coast Business Credit, a division of Southern Pacific Bank, and the
above-borrower of even date.
================================================================================
SECTION 2 - CREDIT FACILITIES
SECTION 2.1 - CREDIT LIMIT:
Loans in a total amount at any time
outstanding not to exceed the
lesser of a total of Thirty Million
Dollars ($30,000,000.00) at any one
time outstanding (the "Maximum
Dollar Amount") or the sum of an
amount not to exceed 85% of the
amount of Borrower's Eligible
Receivables (as defined in Section
1 of this Agreement), plus an
amount not to exceed 75% of the
amount of Borrower's Eligible
Unbilled Receivables (as defined in
Section 1 of this Agreement);
provided, however, effective upon
the occurrence of a Triggering
Event (as defined in Section 1 of
this Agreement) and so long as no
Event of Default then exists or
would result, Loans in a total
amount at any time outstanding
shall thereafter not exceed the
lesser of the Maximum Dollar Amount
or the lesser of (a) and (b) below:
(a) Advances up to three (3) times
recurring monthly collections
received by Coast measured on
a trailing three-month moving
average up to a maximum of
seventy percent (70%) of the
orderly liquidation value of
Borrower's subscriber base, as
determined from time to time
by an appraiser acceptable to
Coast in its sole and absolute
discretion; or
(b) Four times EBITDA based on a
rolling 12 months.
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Notwithstanding the foregoing, at
all times prior to the occurrence
of a Triggering Event, Coast shall
establish and maintain a five (5)
month interest reserve in the
amount of Six Hundred Fifty
Thousand Dollars ($650,000) for
interest accruing on Borrower's
unsecured unsubordinated notes due
to various individuals; provided,
however, after the occurrence of a
Triggering Event the five (5) month
interest reserve shall be released
and a debt reserve (the "Debt
Reserve") in the amount of Eight
Million Seven Hundred Thousand
Dollars ($8,700,000) shall be
established against the Loans which
otherwise would be available under
the Agreement. The Debt Reserve
shall be released from time to time
in an amount equal to the principal
amount of each note payable by
Borrower under its "APLP", "Stock
Program" or "Direct Bill Programs,"
other than notes payable to the
Subordinated Creditors, which after
the Closing Date are (a) cancelled
and converted to an equity interest
in Borrower, (b) retired and marked
"paid in full", in accordance with
its terms or by way of a prepayment
provided that the prepayment: (i)
will not cause a Material Adverse
Effect, and (ii) consented to by
Coast in its sole discretion, or
(c) converted to subordinated debt
pursuant to a debt subordination
agreement in form and substance
satisfactory to Coast.
================================================================================
SECTION 3 - INTEREST AND FEES
SECTION 3.1 - INTEREST RATE: A rate equal to the Prime Rate plus
the applicable margin per annum set
forth below, determined by
reference to the Net Worth of
Borrower as of the immediately
preceding fiscal year end or
quarter end, confirmed, in each
case, by a CPA year-end or quarter
audit:
<TABLE>
<CAPTION>
Applicable Margin
Net Worth Per Annum
--------- ----------
<S> <C>
Less than $2,000,000 3.25%
Equal to or greater than $2,000,000 2.50%
but less than $5,000,000
Equal to or greater than $5,000,000 2.00%
but less than $10,000,000
Equal to or greater than $10,000,000 1.50%
</TABLE>
The interest rate applicable to all
Loans shall be calculated on the
basis of a 360-day year for the
actual number of days elapsed and
shall be adjusted monthly as of the
first day of each month. The
interest to be charged for each
month shall be based on the highest
Prime Rate in effect during the
prior month, but in no event shall
the rate of interest charged on any
Loans in any month be less than 9%
per annum.
23
<PAGE> 27
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SECTION 3.1 - MINIMUM MONTHLY
INTEREST: The amount due based on daily
outstandings of not less than forty
percent (40%) of the Maximum Dollar
Amount.
SECTION 3.2 - LOAN FEE: 1.00% of the Maximum Dollar Amount
(i.e. $300,000), such amount being
fully earned on the Closing Date,
and payable Two Hundred Thousand
Dollars ($200,000) on the Closing
Date with the remaining One Hundred
Thousand Dollars ($100,000) to
become a separate term loan ("term
loan"), but which shall not reduce
the Credit Limit hereunder, payable
six months following the Closing
Date with said term loan accruing
interest at the same rate as the
Loans hereunder. At the end of the
six month period, the term loan
will be paid by adding the term
loan to the outstanding Loans
hereunder.
SECTION 3.2 - FACILITY FEE: $4,000 per quarter, payable on the
Closing Date (prorated for any
partial quarter at the beginning of
the term of this Agreement) and on
the first day of each calendar
quarter thereafter during the term
hereof.
SECTION 9.1 - RENEWAL FEE: 0.50% of the Maximum Dollar Amount
per year commencing on the Renewal
Date.
SECTION 9.2 - EARLY TERMINATION
FEE: 1. If termination occurs at anytime
prior to or on the first
anniversary of the Closing Date:
An amount equal to the greater
of (i) an amount equal to all
interest due and payable during
the six (6) months immediately
preceding the effective date of
termination, or (ii) an amount
equal to the Minimum Monthly
Interest multiplied by the
number of full or partial months
from the effective date of
termination to the first
anniversary of the Closing Date,
or (iii) an amount equal to the
average monthly interest accrued
during the six (6) months
immediately preceding the
effective date of termination,
multiplied by the number of full
or partial months from the
effective date of termination to
the first anniversary of the
Closing Date.
2. If termination occurs at anytime
after the first anniversary of
the Closing Date: An amount
equal to two percent (2%) of the
Maximum Dollar Amount (as
defined in this Schedule) if
termination is effective after
the first anniversary and before
the second anniversary of the
Closing Date; and one percent
(1%) of the Maximum Dollar
Amount, if termination occurs
after the second anniversary of
the Closing Date and before the
Maturity Date.
================================================================================
SECTION 5 - CONDITIONS PRECEDENT
SECTION 5.2 - MINIMUM
AVAILABILITY: $300,000 provided, however, after
the occurrence of a Triggering
Event the Minimum Availability will
be $1,000,000.
24
<PAGE> 28
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SECTION 5.11 - OTHER DOCUMENTS
AND AGREEMENTS: 1. Tri-Party Agreements with each
local exchange carrier,
including USBI and Hold;
2. Landlord Waiver regarding
Hebron Communications
Corporation;
3. Debt Subordination Agreements
from each of the Subordinated
Creditors in such amounts and
for such obligations of
Borrower as determined by Coast
in its sole discretion;
4. Debt Subordination Agreement
from Patrick Enterprises;
5. UCC-1 financing statements,
fixture filings and termination
statement with respect to
Borrower and/or AmeriTel;
6. Security Agreements (including
those covering copyrights,
patents and trademarks) of
Borrower and AmeriTel,
respectively; and
7. Lockbox Agreement/Blocked
Account Agreement of Borrower
and AmeriTel.
================================================================================
SECTION 6 - REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 6.2 - PRIOR NAMES OF
BORROWER: Ameri-Tel Communications, Inc.
SECTION 6.2 - PRIOR TRADE NAMES
OF BORROWER: None
SECTION 6.2 - EXISTING TRADE NAMES
OF BORROWER: LifeLine
SECTION 6.3 - OTHER LOCATIONS AND
ADDRESSES: None
SECTION 6.10 - MATERIAL ADVERSE
LITIGATION:
- Dispute in the process of being
settled for approximately
$1,000,000 to be paid to settling
entity over an 8 month period.
Payments are subject to compliance
with Negative Covenant requirements
of Section 8.5(j) of Agreement and
limitations contained in Section
8.1 of the Schedule. The
approximate $1,000,000 obligation
will be evidenced by a promissory
note containing provisions which
subordinate the obligation in favor
of Coast. There is no assurance
that this matter will be so
settled.
- Existing accounts payable
currently under dispute with
WorldCom which have been reserved
for pursuant to paragraph 5.17
herein.
25
<PAGE> 29
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
SECTION 6.10 - FUTURE CLAIMS AND Borrower will promptly inform Coast
LITIGATION: in writing of any claim,
proceeding, litigation or
investigation in the future
threatened or instituted by or
against Borrower involving any
single claim of Fifty Thousand
Dollars ($50,000) or more, or
involving One Hundred Thousand
Dollars ($100,000) or more in the
aggregate.
================================================================================
SECTION 8 - ADDITIONAL DUTIES OF BORROWER
SECTION 8.1 - OTHER PROVISIONS: 1. Borrower shall at all times
maintain a Net Worth no more
negative than negative
($12,000,000).
2. Each carrier accounts payable
of Borrower shall be kept
current during the term of this
Agreement with the exception of
existing accounts payable
currently under dispute with
WorldCom which have been
reserved for pursuant to
paragraph 5.17 herein. All
other accounts payable of
Borrower shall be paid on or
before sixty (60) days past its
invoice date, except for such
accounts payable being
contested in good faith in
appropriate proceedings and for
which adequate reserves have
been provided.
3. In connection with the Carrier
Reserve (as defined in Section
1 of this Agreement), Borrower
shall provide Coast with
Borrower's written direction to
pay directly, out of and to the
extent of the amount in the
Carrier Reserve, the amounts
due monthly to Borrower's
wholesale telecommunications
carriers (other than Hebron).
4. All transactions between
Borrower, on the one hand, and
Hebron or VisionQuest, on the
other hand, shall be on an
arms-length basis and all
charges for services rendered
by Hebron or VisionQuest shall
be comparable to charges for
similar services rendered by
competing vendors.
5. Borrower shall deliver to Coast
Borrower's audited financial
statements for fiscal years
ending 1996 and 1997 as soon as
such financial statements are
available. Such audited
financial statements shall not
contain any material adverse
change(s), as determined by
Coast in its sole discretion,
from the preliminary financial
statements for such years
previously delivered to Coast
in connection with this
Agreement.
6. Borrower may pay interest on
its obligations owing to the
Subordinated Creditors pursuant
to the provisions of each
promissory note executed by
Borrower in favor of the
Subordinated Creditor, provided
such interest payments do not
exceed in the aggregate the
amount determined in accordance
with the following formula
measured on a monthly basis:
.80 X (EBIT less the principal and
interest payments due on the
Obligations under the
Agreement)
26
<PAGE> 30
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
provided, however, so long as no
Event of Default has occurred and
is continuing, Borrower may during
the term of this Agreement make
payments to Carl Thompson of Forty
Thousand Dollars ($40,000) per
month plus the sum of Forty
Thousand Dollars ($40,000) on the
Closing Date to be applied against
the dividends payable as shown on
the balance sheet of Borrower in
the approximate amount of Five
Hundred Forty Five Thousand Three
Hundred and Thirty Dollars
($545,330) as of January 21, 1999,
and
provided further, that so long as
(i)no Event of Default has occurred
and is continuing under the terms
of this Agreement, and (ii)
Borrower's cash flow ratio
(cumulative EBITDA/total principal
amortization plus interest payments
on Debt (defined below) for
Borrower's current fiscal year) is
at least 1.25 to 1:00 measured
monthly, and (iii) Borrower's
borrowing availability is equal to
or greater than Five Hundred
Thousand Dollars ($500,000)
(availability is defined as
unrestricted cash plus Loan excess
availability minus the sum of
(accounts payable over 60 days past
invoice date except for such
accounts payable being contested in
good faith in appropriate
proceedings and for which adequate
reserves have been provided plus
book overdraft plus any payments to
be made to all or a portion of the
Subordinated Creditors), Borrower
may during the term of this
Agreement make regularly scheduled
payments of principal (and
retroactive scheduled payments of
principal that were not made during
the current fiscal year) on the
following subordinated notes: (a)
$36,000 per month to C.A.S.E. on
its $655,409 note (principal
balance as at 01/01/99); provided,
however, that (except as provided
in the following paragraph) the
principal balance outstanding on
such note shall at no time fall
below $300,000, (b) monthly
scheduled principal payments in an
amount not to exceed $25,000 to
Tracy Freeny on his $3,275,108 note
(principal balance as at 01/01/99);
provided, however, that (except as
provided in the following
paragraph) the principal balance
outstanding on such note shall at
no time fall below $2,975,000, and
provided lastly, in addition to the
above principal payments, so long
as (i)no Event of Default has
occurred and is continuing under
the terms of this Agreement, (ii)
subject to the above set forth
availability test, Borrower may
further repay the principal balance
of the debt owing to the
Subordinated Creditors or to
parties who have replaced the
Subordinated Creditors, in an
amount (exclusive of the specific
payments to Carl Thompson discussed
above) not to exceed 25% of
Borrower's quarterly "Net Earnings"
(defined as net income after tax
net of extraordinary gains,
measured on a cumulative basis for
Borrower's current fiscal year, and
based on quarterly reviewed
financial statements) (the "SubDebt
Net Earnings Payments").
Additionally, so long as no Event
of Default has occurred and is
continuing under the terms
27
<PAGE> 31
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
of the Agreement, Borrower may pay
from quarterly Net Earnings,
dividend or distribution payments
on ownership interests of Borrower
(which include, without limitation,
the scheduled settlement payments
for the $1,000,000 obligation
listed in Section 6.10 of the
Schedule), as provided for in
Section 8.5(j)(i) of the Agreement,
in an amount up to 50% of
Borrower's quarterly Net Earnings
less any SubDebt Net Earnings
Payments.
Nothing in this Agreement shall be
interpreted to restrict the
Borrower's right to fully or
partially re-finance the
obligations owing to the
Subordinated Creditors with the
proceeds of further subordinated
debt evidenced by loan
documentation and subordination
agreements satisfactory to Coast.
["Debt" means, as of the date of
determination, the sum, but without
duplication, of any and all of the
Borrower's: (i) indebtedness
heretofore or hereafter created,
issued, incurred or assumed by such
Borrower (directly or indirectly)
for or in respect of money
borrowed; (ii) obligations for the
deferred purchase price of property
or services.]
SECTION 8.2 - INSURANCE: Subject to the limitations set
forth in Section 8.2 of the
Agreement, Coast shall release to
Borrower insurance proceeds with
respect to Equipment totaling less
than Fifty Thousand Dollars
($50,000).
SECTION 8.3 - REPORTING: Borrower shall provide Coast with
the following:
1. Monthly Receivable agings,
aged by invoice date, within
ten (10) days after the end
of each month.
2. Monthly accounts payable
agings, aged by invoice
date, and outstanding or
held check registers within
ten (10) days after the end
of each month.
3. Monthly internally prepared
financial statements, as
soon as available, and in
any event within thirty (30)
days after the end of each
month.
4. Quarterly reviewed financial
statements, as soon as
available, and in any event
within forty-five (45) days
after the end of each fiscal
quarter of Borrower.
5. Quarterly customer lists,
including customer name,
address, and phone number.
6. Annual financial statements,
as soon as available, and in
any event within ninety (90)
days following the end of
Borrower's fiscal year,
containing the unqualified
opinion of, and certified
by, an independent certified
public accountant acceptable
to Coast.
SECTION 8.5(b) - NEGATIVE COVENANTS
(ACQUIRED ASSETS) Fifty Thousand Dollars ($50,000)
28
<PAGE> 32
COAST BUSINESS CREDIT SCHEDULE TO LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
================================================================================
SECTION 9 - TERM
SECTION 9.1 - MATURITY DATE: The last Business Day of the month
three (3) years from the Closing
Date, subject to automatic renewal
as provided in Section 9.1 of the
Agreement, and early termination as
provided in Section 9.2 of the
Agreement.
29
<PAGE> 1
EXHIBIT 10.18.1
AMENDMENT NUMBER ONE TO
LOAN AND SECURITY AGREEMENT
THIS AMENDMENT NUMBER ONE TO LOAN AND SECURITY AGREEMENT, dated as of
October 12, 1999 (this "Amendment"), amends that certain Loan and Security
Agreement, dated as of February 4, 1999 (as amended from time to time, the "Loan
Agreement"), by and between AMERIVISION COMMUNICATIONS, INC., an Oklahoma
corporation ("Borrower"), on the one hand, and COAST BUSINESS CREDIT, a division
of Southern Pacific Bank, a California corporation ("Coast"), on the other hand.
All initially capitalized terms used in this Amendment shall have the meanings
ascribed thereto in the Loan Agreement unless specifically defined herein.
R E C I T A L S
WHEREAS, Borrower and Coast wish to amend the Loan Agreement pursuant
to the terms and provisions set forth in this Amendment; and
NOW, THEREFORE, the parties hereto agree as follows:
AMENDMENT
Section 1. AMENDMENT TO SECTION 2.1(a) OF THE SCHEDULE REGARDING
THE ADVANCE MULTIPLE. Section 2.l(a) of the Schedule to the Loan Agreement is
hereby amended by deleting such Section in its entirety and replacing it with
the following:
"(a) Advances up to four (4) times recurring monthly collections
received by Coast measured on a trailing three-month moving
average up to a maximum of seventy percent (70%) of the orderly
liquidation value of Borrower's subscriber base, as determined
from time to time by an appraiser acceptable to Coast in its sole
and absolute discretion; or"
Section 2. AMENDMENT TO SECTION 2.1(a) OF THE SCHEDULE REGARDING
THE CREDIT LIMIT. Section 2.l (a) of the Schedule to the Loan Agreement is
hereby amended to add the following paragraph at the end of said Section:
"If Borrower requests an increase in the Maximum Dollar Amount from
Thirty Million Dollars ($30,000,000) to Thirty Five Million Dollars
($35,000,000) after January 30, 2000 and prior to or on January 30,
2001, Borrower shall provide Coast with 90 days written notice prior to
the proposed effective date of any such increase. To be eligible for
the increase: (1) the provisions of this Section 2.1, with the
exception of the Maximum Dollar Amount limitation, must otherwise allow
for Loans (i.e., borrowing availability) in excess of $30,000,000, (2)
an Event of Default shall not then exist or result from such increase,
and (3) any funds which may become available for borrowing from such an
increase will be utilized by Borrower for working capital purposes
consistent with prior utilization of Loan proceeds.
1
<PAGE> 2
If such an increase becomes effective, Borrower shall pay Coast a fee
equal to one percent (1%) of the amount that the Maximum Dollar Amount
is increased, with said fee to be fully earned and payable concurrently
with the effectiveness of such an increase."
Section 3. AMENDMENT TO SECTION 9.1 OF THE SCHEDULE REGARDING THE
MATURITY DATE. Section 9.1 of the Schedule to the Loan Agreement is hereby
amended by deleting such Section in its entirety and replacing its with the
following:
"January 30, 2003, subject to automatic renewal as provided in Section
9.1 of the Agreement, and early termination as provided for in Section
9.2 of the Agreement."
Section 4. AMENDMENT TO SECTION 9.2 OF THE SCHEDULE REGARDING THE
EARLY TERMINATION FEE. Section 9.2 of the Schedule to the Loan Agreement is
hereby amended by deleting such Section in its entirety and replacing it with
the following:
"1. If termination occurs at anytime prior to or on the second
anniversary of the Closing Date: An amount equal to the greater of
(i) an amount equal to all interest due and payable during the six
(6) months immediately preceding the effective date of
termination, or (ii) an amount equal to the Minimum Monthly
Interest multiplied by the number of full or partial months from
the effective date of termination to the second anniversary of the
Closing Date, or (iii) an amount equal to the average monthly
interest accrued during the six (6) months immediately preceding
the effective date of termination, multiplied by the number of
full or partial months from the effective date of termination to
the second anniversary of the Closing Date.
2. If termination occurs at anytime after the second anniversary of
the Closing Date: An amount equal to two percent (2%) of the
Maximum Dollar Amount (as defined in this Schedule) if termination
is effective after the second anniversary and before the third
anniversary of the Closing Date, and one percent (1%) of the
Maximum Dollar Amount, if termination occurs anytime after the
third anniversary of the Closing Date and before the Maturity
Date.*
[*If Borrower's request for an increase in the Maximum Dollar
Amount, as set forth in Section 2.1 of the Schedule, from
$30,000,000 to $35,000,000 is denied solely on the basis of
Coast's exercise of its sole and absolute discretion
notwithstanding that said increase would otherwise be allowable
pursuant to the provisions of Section 2.1 of the Schedule, then
the Early Termination Fee referenced in paragraphs 1 and 2
immediately above will become:
"If termination occurs at anytime after the first anniversary of
the Closing Date: An amount equal to two percent (2%) of the
Maximum Dollar Amount (as defined in this Schedule) if termination
is effective after the first anniversary and before the second
anniversary of the Closing Date; and one percent (1%) of the
Maximum Dollar Amount, if termination occurs anytime after the
second anniversary of the Closing Date and before the Maturity
Date."
2
<PAGE> 3
Section 5. AMENDMENT TO SECTION 3.1 OF THE SCHEDULE TO THE LOAN
AGREEMENT REGARDING THE INTEREST RATE. Section 3.1 of the Schedule to the Loan
Agreement is hereby deleted in its entirety and replaced with the following:
"A rate equal to the Prime Rate plus the applicable margin per annum
set forth below, determined by reference to the Net Worth of Borrower
as of the immediately preceding fiscal year end or quarter, confirmed,
in each case, by a CPA year-end or quarter end audit:
<TABLE>
<CAPTION>
Applicable Margin
Net Worth Per Annum
----------- -----------------
<S> <C>
More negative than a negative ($1,500,000) 3.25%
Equal to or greater than a negative
($1,500,000) but less than a positive
$1,500,000 2.50%
Equal to or greater than $1,500,000
but less than $6,500,000 2.00%
Equal to or greater than $6,500,000 1.50%
The interest rate applicable to all Loans shall be calculated on the
basis of a 360-day year for the actual number of days elapsed and shall
be adjusted monthly effective as of the first day of each month. The
interest to be charged for each month shall be based on the highest
Prime Rate in effect during said month, but in no event shall the rate
of interest charged on any Loans in any month be less than 9% per
annum.
</TABLE>
Section 6. CONSENT TO PREPAYMENT OF PATRICK ENTERPRISES
SUBORDINATED DEBT. Notwithstanding the terms of the Loan Agreement and that
certain Debt Subordination Agreement dated as of February 4, 1999, between
Patrick Enterprises, Inc., a Florida corporation and Coast (the "Subordination
Agreement"), Coast hereby consents to the prepayment in full of the Subordinated
Debt as defined in the Subordination Agreement. Upon said repayment in full,
Coast agrees that it will release/terminate the Subordination Agreement.
Section 7. CONDITION PRECEDENT. The effectiveness of this
Amendment is expressly conditioned upon the receipt by Coast of an executed copy
of this Amendment together with copies of all other agreements, instruments and
documents as Coast may require in connection with the transactions contemplated
hereby.
Section 8. ENTIRE AGREEMENT. The Loan Agreement, as amended
hereby, embodies the entire agreement and understanding between the parties
hereto and supersedes all prior agreements and understandings relating to the
subject matter hereof. Borrower represents, warrants
3
<PAGE> 4
and agrees that in entering into the Loan Agreement and consenting to this
Amendment, it has not relied on any representation, promise, understanding or
agreement, oral or written, of, by or with, Coast or any of its agents,
employees, or counsel, except the representations, promises, understandings and
agreements specifically contained in or referred to in the Loan Agreement, as
amended hereby.
Section 9. CONFLICTING TERMS. In the event of a conflict between
the terms and provisions of this Amendment and the terms and provisions of the
Loan Agreement, the terms of this Amendment shall govern. In all other respects,
the Loan Agreement, as amended and supplemented hereby, shall remain in full
force and effect.
Section 10. MISCELLANEOUS. This Amendment shall be governed by and
construed in accordance with the laws of the State of California. This Amendment
may be executed in any number of counterparts, all of which taken together shall
constitute one agreement, and any party hereto may execute this Amendment by
signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed by their respective officers thereunto duly authorized as of
the date first above written.
BORROWER:
AMERIVISION COMMUNICATIONS, INC.,
An Oklahoma corporation
By /s/ STEPHEN D. HALLIDAY
-----------------------------------------
President or Vice President
By /s/ DAVID GROSE
-----------------------------------------
Secretary or Ass't Secretary
COAST:
COAST BUSINESS CREDIT,
a division of Southern Pacific Bank
By /s/ JEFFREY CRISTOL
-----------------------------------------
Title Vice President
--------------------------------------
4
<PAGE> 1
Exhibit 10.19
WORLDCOM NETWORK SERVICES, INC.
CLASSIC/TRANSCEND SWITCHED SERVICES
TELECOMMUNICATIONS SERVICES AGREEMENT
This TELECOMMUNICATIONS SERVICES AGREEMENT (the "TSA") is entered into
as of the 20th day of April, 1999, by and between WORLDCOM NETWORK SERVICES,
INC., a Delaware corporation, with its principal office at 6929 North Lakewood
Avenue, Tulsa, Oklahoma 74117 ("WORLDCOM") and AMERIVISION COMMUNICATIONS, INC.,
an Oklahoma corporation, with its principal office at 5900 Mosteller Drive,
Suite 1850, Oklahoma City, OK 73112 ("CUSTOMER").
In consideration of good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SWITCHED SERVICES; OTHER DOCUMENTS; START OF SERVICE.
(A) Services. WorldCom agrees to provide and Customer agrees to accept
and pay for switched telecommunications services and other associated
services (collectively the "SWITCHED SERVICES") as further described in
the "SERVICE SCHEDULE" attached hereto and incorporated herein by
reference, which describes the particular services, specific terms and
other information necessary or appropriate for WorldCom to provide the
Service to Customer. The Switched Services provided by WorldCom are
subject to (i) the terms and conditions contained in this TSA and the
Program Enrollment Terms (the "PET") which are attached hereto and
incorporated herein by reference, (ii) the rates and discounts set
forth in the applicable Rate and Discount Schedule (the "RATE
SCHEDULE") attached hereto and incorporated herein by reference, and
(iii) each Service Request (described below) which is accepted
hereunder. The PET, as subscribed to by the parties, shall set forth
the Effective Date, the Service Term, Customer's minimum monthly
commitment, if any, and other information necessary to provide the
Switched Services under this TSA. In the event of a conflict between
the terms of this TSA, the PET, the Service Schedule, the Rate Schedule
and the Service Request(s), the following order of precedence will
prevail: (1) the PET, (2) the Rate Schedule, (3) the Service Schedule,
(4) this TSA, and (5) Service Request(s). This TSA, the Pet, the
Service Schedule and the applicable Rate and Discount Schedule are
sometimes collectively referred to as the "AGREEMENT."
(B) Service Requests. Customer's request to initiate or cancel Switched
Services shall be described in an appropriate WorldCom Services Request
("SERVICE REQUEST"). A Service Request may consist of machine readable
tapes, facsimiles or
<PAGE> 2
other means approved by WorldCom. Further, Service Requests shall
specify all reasonable information, as determined by WorldCom,
necessary or appropriate for WorldCom to provide the Switched
Service(s) in question, which shall include without limitation, the
type, quantity and end point(s) (when necessary) of circuits comprising
a Service Interconnection as described in the applicable Service
Schedules, or automatic number identification ("ANI") information
relevant to the Switched Service(s), the Requested Service Date, and
charges, if any, relevant to the Switched Services described in the
Service Request. After WorldCom's receipt and verification of a valid
Service Request for SWITCHED ACCESS Service (as defined in the Service
Schedule) requiring a change in the primary interchange carrier
("PIC"), WorldCom agrees to (i) submit the ANI(s) relevant to such
Service Requests to the following local exchange carriers ("LECS")
(with which WorldCom currently has electronic interface capabilities)
within ten (10) days: Ameritech, Bell Atlantic, BellSouth, Nynex,
Pacific Bell, Southwestern Bell, US West, GTE and United, and (ii)
submit the ANI(s) relevant to such Service Requests to those LECs with
which WorldCom does not have electronic interface capabilities within a
reasonable time.
(C) Start of Service. WorldCom's obligation to provide and Customer's
obligation to accept and pay for non-usage sensitive charges for
Switched Services shall be binding to the extent provided for in this
Agreement upon the submission of an acceptable Service Request to
WorldCom by Customer. Customer's obligation to pay for usage sensitive
charges for Switched Services shall commence with respect to any
Switched Service as of the date the Switched Service in question is
made available to and used by Customer ("START OF SERVICE"), but in no
event later than the "REQUESTED SERVICE DATE" if such Switched Service
is available for Customer's use as of such Requested Service Date.
Start of Service for particular Services shall be further described in
the Service Schedule relevant to the Switched Services in question.
2. CANCELLATION.
(A) Cancellation Charge. At any time after the Effective Date, Customer
may cancel this Agreement if Customer provides written notification
thereof to WorldCom not less than thirty (30) days prior to the
effective date of cancellation. In such case (or in the event WorldCom
terminates this Agreement as provided in Section 7), Customer shall pay
to WorldCom all charges for Services provided through the effective
date of such cancellation plus a cancellation charge (the "CANCELLATION
CHARGE") equal to one hundred percent (100%) of Customer's
commitment(s), if any, (as described in the PET) that would have become
due for the unexpired portion of the Service Term.
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(B) Liquidated Damages. It is agreed that WorldCom's damages in the
event Customer cancel this Agreement shall be difficult or impossible
to ascertain. The provision for a cancellation charge in Subsection
2(A) above is intended, therefore, to establish liquidated damages in
the event of a cancellation and is not intended as a penalty.
(C) Cancellation Without Charge. Notwithstanding anything to the
contrary contained in Subsection 2(A) above, Customer may cancel this
Agreement without incurring any cancellation charge if (i) WorldCom
fails to provide a network as warranted in Section 8 below; (ii)
WorldCom fails to deliver call detail records promptly based on the
frequency selected by Customer (i.e., monthly, weekly or daily); or
(iii) WorldCom fails to submit ANI(s) relevant to such Service Requests
to the LECs within the time period described in Subsection 1(B) above.
Provided, however, Customer must give WorldCom written notice of any
such default and an opportunity to cure such default within five (5)
days of the notice. In the event WorldCom fails to cure any such
default within the five-day period on more than three (3) occasions
within any six (6) month period, Customer may cancel this Agreement
without incurring any cancellation charge.
3. CUSTOMER'S END USERS.
(A) End Users. Customer will obtain and upon WorldCom's request provide
WorldCom (within two (2) business days of the date of the request) a
written Letter of Agency ("LOA") acceptable to WorldCom [or with any
other means approved by the Federal Communications Commission ("FCC")
or any applicable public utility commission ("PUC")], for each ANI
indicating the consent of such end user of Customer ("END User") to be
served by Customer and transferred (by way of change of such End User's
designated PIC) to the WorldCom network prior to order processing. Each
LOA will provide, among other things, that the End User has consented
to the transfer being performed by Customer or Customer's designee.
When applicable, Customer will be responsible for notifying its End
Users, in writing (or by any other means approved by the FCC) that (i)
a transfer charge will be reflected on their LEC bill for effecting a
change in their PIC, (ii) the entity name under which their interstate,
intrastate and/or operator services will be billed (if different from
Customer), and (iii) the "primary" telephone number(s) to be used for
maintenance and questions concerning their long distance service and/or
billing. Customer agrees to send WorldCom a copy of the documentation
Customer uses to satisfy the above requirements promptly upon request
of WorldCom. WorldCom may change the foregoing requirements for
Customer's confirming orders and/or for notifying End Users regarding
the transfer charge at any time in order to conform with applicable FCC
and state regulations. Provided, however, Customer will be solely
responsible for ensuring that the transfer of End Users to the WorldCom
network conforms with applicable FCC and state regulations, including
without limitation, the regulations established by the FCC with respect
to verification of
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orders for long distance service generated by telemarketing as
promulgated in 47 C.F.R., Part 64, Subpart K, Section 64.1100 or any
successor regulation(s).
(B) Transfer Charges/Disputed Transfers. Customer agrees that it is
responsible for (i) all charges incurred by WorldCom to change the PIC
of End Users to the WorldCom network, (ii) all charges incurred by
WorldCom to change End Users back to their previous PIC arising from
disputed transfers to the WorldCom network plus, at WorldCom's option,
an administrative charge equal to --**-- of such charges, and (iii) any
other damages suffered by or awards against WorldCom resulting from
disputed transfers.
(C) Excluded ANIs. WorldCom has the right to reject any ANI supplied by
Customer for any of the following reasons: (i) WorldCom is not
authorized to provide or does not provide long distance services in the
particular jurisdiction in which the ANI is located, (ii) a particular
ANI submitted by Customer is not in proper form, (iii) Customer is not
certified to provide long distance services in the jurisdiction in
which the ANI is located, (iv) Customer is in material default of this
Agreement, (v) Customer fails to cooperate with WorldCom in
implementing reasonable verification processes determined by WorldCom
to be necessary or appropriate in the conduct of business, or (vi) any
other circumstance reasonably determined by WorldCom which could
adversely affect WorldCom's performance under this Agreement or
WorldCom's general ability to transfer its other customers to other end
users to the WorldCom network, including without limitation, WorldCom's
ability to electronically effect PIC changes with the LECs. In the
event WorldCom rejects an ANI, WorldCom will notify Customer of its
decision specifically describing the rejected ANI and the reason(s) for
rejecting that ANI, and will not incur any further liability under this
Agreement with regard to that ANI. Further, any ANI requested by
Customer for Switched Services may be deactivated by WorldCom if no
Switched Services billings relevant thereto are generated in any three
(3) consecutive calendar month/billing periods. WorldCom will be under
no obligation to accept ANIs within the last full calendar month period
preceding the scheduled expiration of the Service Term.
(D) Records. Customer will maintain documents and records ("RECORDS")
supporting Customer's re-sale of Switched Services, including, but not
limited to, appropriate and valid LOAs from End Users for a period of
not less than (twelve) 12 months or such longer period as may be
required by applicable law, rule or regulation. Customer shall
indemnify WorldCom for any costs, charges or expenses incurred by
WorldCom arising from disputed PIC selections involving Switched
Services to be provided to Customer for which Customer cannot produce
an
- --------------------
--**-- This symbol signifies information from the agreement that has
been omitted because the Company has requested confidential treatment. The
information has been filed separately with the Securities and Exchange
Commission.
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appropriate LOA relevant to the ANI and PIC charge in question, or
when WorldCom is not reasonably satisfied that the validity of a
disputed LOA has been resolved.
(E) Customer Service. Customer will be solely responsible for billing
its End Users and providing such End Users with customer service.
Customer agrees to notify WorldCom as soon as reasonably possible in
the event an End User notifies Customer of problems associated with the
Switched Services, including without limitation, excess noise, echo, or
loss of service.
4. CUSTOMER'S RESPONSIBILITIES.
(A) Expedite Charges. In the event Customer requests expedited services
and/or charges to Service Requests and WorldCom agrees to such request,
WorldCom will pass through the charges assessed by any supplying
parties (e.g., local access providers) for such expedited charges
and/or charges to Service Requests involved at the same rate to
Customer. WorldCom may further condition its performance and such
request upon Customer's payment of such addition charges to WorldCom.
(B) Fraudulent Calls. Customer shall indemnify and hold WorldCom
harmless from all costs, expenses, claims or actions arising from
fraudulent claims of any nature which may comprise a portion of the
Switched Services to the extent that the party claiming the call(s) in
question to be fraudulent is (or had been at the time of the call) an
End User of such Switched Services through Customer or an end user of
the Switched Services through Customer's distribution channels.
Customer shall not be excused from paying WorldCom for Switched
Services provided to Customer or any portion thereof on the basis that
fraudulent calls comprised a corresponding portion of the Switched
Services. In the event WorldCom discovers fraudulent calls being made
(or reasonably believes fraudulent calls are being made), nothing
contained herein shall prohibit WorldCom from taking immediate action
(without notice to Customer) that is reasonably necessary to prevent
such fraudulent calls from taking place, including without limitation,
denying Switched Services to particular ANIs or terminating Switched
Services to or perform specific locations.
5. CHARGES AND PAYMENT TERMS.
(A) Payment. WorldCom billings for Switched Services hereunder are made
on a monthly basis (or such other basis as may be mutually agreed to by
the parties) following Start of Service. Subject to Subsection 5(C)
below, Switched Services shall be billed at the rates set forth in the
applicable Rate and Discount Schedule attached hereto. Customer will be
notified of WorldCom's time of day rate periods (including WorldCom
Recognized National Holidays). Discounts, if any, applicable to the
rates for certain Services are set forth in the Rate and Discount
Schedule.
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Customer will pay all undisputed charges relative to each WorldCom
invoice for Switched Services within thirty (30) days of the invoice
date set forth on each WorldCom invoice to Customer ("DUE DATE"). If
payment is not received by WorldCom on or before the Due Date, Customer
shall also pay a late fee in the amount of the lesser of one and
one-half percent (12%) of the unpaid balance of the charges for
Switched Services rendered per month or the maximum lawful rate under
applicable state law.
(B) Taxes. Customer acknowledges and understands that WorldCom computes
all charges herein exclusive of any applicable federal, state or local
use, gross receipts, sales and privilege taxes, duties, fees or similar
liabilities (other than general income or property taxes), whether
charged to or against WorldCom or Customer because of the Switched
Services furnished to Customer ("ADDITIONAL Charges"). Customer shall
pay such Additional Charges in addition to all other charges provided
for herein. Customer will not be liable for certain Additional Charges
if Customer provides WorldCom with an appropriate exemption
certificate.
(C) Modification of Charges. WorldCom reserve the right to eliminate
particular Switched Services and/or modify charges for particular
Switched Services (which charge modifications shall not exceed
then-current generally available WorldCom charges for comparable
services), upon not less than sixty (60) days prior notice to Customer,
which notice will state the effective date for the charge modification.
In the event WorldCom notifies Customer of the elimination of a
particular Switched Service and/or an increase in the charges, Customer
may terminate this Agreement without incurring a cancellation charge
only with respect to the Switched Service(s) affected by the increase
in charges. In order to cancel such Switched Service(s), Customer must
notify WorldCom, in writing, at least thirty (30) days prior to the
effective date of the increase in charges. In the event Customer
cancels its subscription to a particular Switched Service as described
in this Subsection 5(C), WorldCom and Customer agree to negotiate in
good faith concerning Customer's minimum monthly commitment, if any,
described in the PET.
(D) Billing Disputes. Notwithstanding the foregoing, amounts reasonably
disputed by Customer (along with late fees attributable to such
amounts) shall apply but shall not be due and payable for a period of
sixty (60) days following the Due date therefor, provided Customer: (i)
pays all undisputed charges on or before the Due Date, (ii) presents a
written statement of any billing discrepancies to WorldCom in
reasonable detail on or before the Due Date of the invoice in question,
and (iii) negotiates in good faith with WorldCom for the purpose of
resolving such dispute within said sixty (60) day period. In the event
such dispute is mutually agreed upon and resolved in favor of WorldCom,
Customer agrees to pay WorldCom the disputed amounts together with any
applicable late fees within ten (10) days of the resolution (the
"ALTERNATE DUE DATE"). In the event of such dispute is mutually greed
upon and
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resolved in favor of Customer, Customer will receive a credit for the
disputed charges in question and the applicable late fees. In the event
WorldCom has responded to Customer's dispute in writing and the parties
fail to mutually resolve or settle the dispute within such sixty (60)
day period (unless WorldCom has agreed in writing to extend such
period) all disputed amounts together with late fees shall become due
and payable, and this provision shall not be construed to prevent
Customer from pursuing any available legal remedies. WorldCom shall not
be obligated to consider any Customer notice of billing discrepancies
which are received by WorldCom more than sixty (60) days following the
Due Date of the invoice in question.
6. CREDIT; CREDITWORTHINESS:
(A) Credit. Customer's execution of this Agreement signifies Customer's
acceptance of WorldCom's initial and continuing credit approval
procedures and policies. WorldCom reserves the right to withhold
initiation or full implementation of any or all Switched Services under
this Agreement pending WorldCom's initial satisfactory credit review
and approval thereof which may be conditioned upon terms specified by
WorldCom, including, but not limited to, security for payments due
hereunder in the form of a cash deposit or other means. WorldCom
reserves the right to modify its requirements, if any, with respect to
any security or other assurance provided by Customer for payments due
hereunder in light of Customer's actual usage when compared to
projected usage levels upon which any security or assurance requirement
was based.
(B) Creditworthiness. If at any time there is a material adverse change
in Customer's creditworthiness, then in addition to any other remedies
available to WorldCom, WorldCom may elect, in its sole discretion, to
exercise one or more of the following remedies: (i) cause Start of
Service for Switched Services described in a previously executed
Service Request to be withheld; (ii) cease providing Switched Services
pursuant to a Suspension Notice in accordance with Section 7(A); (iii)
decline to accept a Service Request or other requests from Customer to
provide Switched Services which WorldCom may otherwise be obligated to
accept and/or (iv) condition its provision of Switched Services or
acceptance of a Service Request on Customer's assurance of payment
which shall be a deposit or such other means to establish reasonable
assurance of payment. An adverse material change in Customer's
creditworthiness shall include, but not be limited to: (i) Customer's
material default of its obligations to WorldCom under this or any other
agreement with WorldCom; (ii) failure of Customer to make full payment
of all undisputed charges due hereunder on or before the Due Date (or
disputed charges on or before the Alternate Due Date) on three (3) or
more occasions during any period of twelve (12) or fewer months or
Customer's failure to make such payment on or before the
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Due Date (or the Alternate Due Date, if applicable) in any two (2)
consecutive months, (iii) acquisition of Customer (whether in whole or
by majority or controlling interest) by an entity which is insolvent,
which is subject to bankruptcy or insolvency proceedings, which owes
past due amounts to WorldCom or any entity affiliated with WorldCom or
which is a materially greater credit risk than Customer; or (iv)
Customer's being subject to or having filed for bankruptcy or
insolvency proceedings or the legal insolvency of Customer.
7. REMEDIES FOR BREACH.
(A) Suspension of Service. In the event all undisputed charges due
pursuant to WorldCom's invoice are not paid in full by the Due Date or
undisputed charges owed by Customer, if any, are not paid in full by
the Alternate Due Date, WorldCom shall have the right, after giving
Customer at least ten (10) days prior notice and opportunity to pay
such charges within such 10-day period, to suspend all or any portion
of the Switched Services to Customer ("SUSPENSION NOTICE") until such
time (designated by WorldCom in its Suspension Notice) as Customer has
paid in full all undisputed charges then due to WorldCom, including any
late fees. Following such payment, WorldCom shall reinstitute Switched
Services to Customer only when Customer provides WorldCom with
satisfactory assurance of Customer's ability to pay for such Switched
Services (i.e., a deposit, letter of credit or other means acceptable
to WorldCom) and Customer's advance payment of the cost of
reinstituting such Switched Services. If Customer fails to make the
required payment by the date set forth in the Suspension Notice,
Customer will be deemed to have canceled the Services suspended
effective as of the date of suspension which cancellation shall not
relieve Customer for payment of application cancellation charges as
described in Section 2.
(B) Disconnection of Service. In the event Customer is in material
breach of this Agreement, including without limitation, failure to pay
all undisputed charges due hereunder by the date stated in the
Suspension Notice described in Subsection 7(A) above, WorldCom shall
have the right, after giving Customer at least five (5) days prior
written notice and opportunity to cure (which notice may be given
instead of or in conjunction with the Suspension Notice described in
Subsection 7(A) above), and in addition to foreclosing any security
interest WorldCom may have, to (i) disconnect all or any portion the
Switched Services being provided hereunder and/or terminate this
Agreement; (ii) withholding billing information from Customer; and/or
(iii) contact the End Users (for whom calls are originated and
terminated solely over facilities comprising the WorldCom network)
directly and bill such End Users directly until such time as WorldCom
has been paid in full for the amount owed by Customer. If Customer
fails to make payment by the date stated in the Suspension Notice and
WorldCom, after giving Customer five (5) days prior written notice,
terminates this Agreement as provided in this Section 7, such
termination shall not
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relieve Customer for payment of applicable cancellation charges as
described in Section 2 above.
8. WARRANTY. WorldCom will use reasonable efforts under the circumstances
to maintain its overall network quality. The quality of Switched Services
provided hereunder shall be consistent with telecommunications common carrier
industry standards, government regulations and sound business practices.
WORLDCOM MAKES NO OTHER WARRANTIES ABOUT THE SWITCHED SERVICES PROVIDED
HEREUNDER, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE.
9. LIABILITY; GENERAL INDEMNITY; REIMBURSEMENT.
(A) Limited Liability. IN NO EVENT WILL EITHER PARTY HERETO BE LIABLE
TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL LOSSES OR DAMAGES, INCLUDING WITHOUT LIMITATION, LOSS OF
REVENUE, LOSS OF CUSTOMERS OR CLIENTS, LOSS OF GOODWILL OR LOSS OF
PROFITS ARISING IN ANY MANNER FROM THIS AGREEMENT AND THE PERFORMANCE
OR NONPERFORMANCE OF OBLIGATIONS HEREUNDER.
(B) General Indemnity. In the event parties other than Customer (e.g.,
Customer's End Users) shall have use of Switched Services through
Customer, then Customer agrees to forever indemnify and hold WorldCom,
its affiliated companies and any third-party provider or operator of
facilities employed in provision of the Switched Services harmless from
and against any and all claims, demands, suits, actions, losses,
damages, assessments or payments which those parties may assert arising
out of or relating to any defect in the Switched Services.
(C) Reimbursement. Customer agrees to reimburse WorldCom for all
reasonable costs and expenses incurred by WorldCom due to WorldCom's
direct participation (either as a party or witness) in any
administrative, regulatory or criminal proceeding concerning Customer
if WorldCom's involvement in said proceeding is based solely on
WorldCom's provision of Switched Services to Customer.
10. FORCE MAJEURE. If WorldCom's performance of this Agreement or any
obligation hereunder is prevented, restricted or interfered with by causes
beyond its reasonable control including, but not limited to, acts of God, fire,
explosion, vandalism, cable cut, storm or other similar occurrence, any law,
order, regulation, direction, action or request of the United States government,
or state or local governments, or of any department, agency, commission, court,
bureau, corporation or other instrumentality of any one or more such
governments, or of any civil or military authority, or by national emergency,
insurrection, riot, war, strike,
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lockout or work stoppage or other labor difficulties, or supplier failure,
shortage, breach or delay, then WorldCom shall be excused from such performance
on a day-to-day basis to the extent of such restriction or interference.
WorldCom shall use reasonable efforts under the circumstances to avoid or remove
such causes or nonperformance and shall proceed to perform with reasonable
dispatch whenever such causes are removed or cease.
11. STATE CERTIFICATION. Customer warrants that in all jurisdictions in
which it provides long distance services that require certification, it has
obtained the necessary certification from the appropriate governmental authority
and, if required by WorldCom, agrees to provide proof of such certification
acceptable to WorldCom. In the event Customer is prohibited, either on a
temporary or permanent basis, from continuing to conduct its telecommunications
operations in a given state, Customer shall (i) immediately notify WorldCom by
facsimile, and (ii) send written notice to WorldCom within twenty-four (24)
hours of such prohibition.
12. INTERSTATE/INTRASTATE SERVICE. Except with respect to Services
specifically designated as intrastate Services or international Services, the
rates provided to Customer in the Service Schedule are applicable only to
Switched Services if such Switched Services are used for carrying interstate
telecommunications (i.e., Switched Services subject to FCC jurisdiction).
WorldCom shall not be obligated to provide Switched Services with end points
within a single state or Switched Services which originate/terminate at points
both of which are situated within a single state. In those states where WorldCom
is authorized to provide intrastate service (i.e., telecommunications
transmission services subject to the jurisdiction of state regulatory
authorities), WorldCom will, at its option, provide intrastate Switched Services
pursuant to applicable state laws, regulations and applicable tariff, if any,
filed by WorldCom with state regulatory authorities as required by applicable
law.
13. AUTHORIZED USE OF WORLDCOM NAME; PRESS RELEASES. Without WorldCom's
prior written consent, Customer shall not (i) refer to itself as an authorized
representative of WorldCom whenever it refers to the Switched Services in
promotional, advertising or other materials, or (ii) use WorldCom's logos, trade
marks, service marks, or any variations thereof in any of its promotional,
advertising, or other materials. Additionally, Customer shall provide to
WorldCom for its prior review and written approval, all promotions, advertising
or other materials or activity using or displaying WorldCom's name or the
Services to be provided by WorldCom. Customer agrees to change or correct, at
Customer's expense, any such material or activity which WorldCom, in its sole
judgment, determines to be inaccurate, misleading or otherwise objectionable.
Customer is explicitly authorized to only use the following statements in its
sales literature or if in response to an inquiry by Customer's end user: (i)
"Customer utilizes the WorldCom network", (ii) "Customer utilizes WorldCom's
facilities", (iii) "WorldCom provides only the network facilities", and (iv)
"WorldCom is our network services provider". Except as specifically provided in
this Section 13, the parties further agree that any press release, advertisement
or publication generated by a party regarding this Agreement, the Services
provided hereunder or in which a party desires to
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mention the name of the other party or the other party's parent or affiliated
company(ies), will be submitted to the non-publishing party for its written
approval prior to publication.
14. NOTICES. Notices under this Agreement shall be in writing and delivered
to the person identified below at the offices of the parties as they appear
below or as otherwise provided for by proper notice hereunder. Customer shall
notify WorldCom in writing if Customer's billing address is different than the
address shown below. 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 mailing or transmittal via hand delivery of
facsimile.
IF TO WORLDCOM: WorldCom Network Services, Inc.
6929 North Lakewood Avenue
Tulsa, Oklahoma 74117
Attn: Carrier Sales Dept.
IF TO CUSTOMER:
--------------------------------
--------------------------------
--------------------------------
Attn:
---------------------------
Telephone No.:
------------------
Fax No.:
------------------------
15. 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.
16. PARTIAL INVALIDITY; GOVERNMENT ACTION.
(A) Partial Invalidity. If any part of any provision of this Agreement
or any other agreement, document or writing given pursuant to or in
connection with 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, Customer and WorldCom will negotiate in good
faith with respect to any such invalid or unenforceable part of the
extent necessary to render such part valid and enforceable.
(B) Government Action. Upon thirty (30) days prior notice, either party
shall have the right, without liability to the other, to cancel an
affected portion of the Switched Service if any material rate or term
contained herein and relevant to the affected Switch Service is
substantially changed (to the detriment of the terminating party) or
found to be unlawful or the relationship between the parties hereunder
is
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found to be unlawful 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.
17. 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.
18. USE OF SERVICE. Upon WorldCom's acceptance of a Service Request
hereunder, WorldCom will provide the Switched Services specified therein to
Customer upon condition that such Switched Services should be not used for any
unlawful purpose. The provision of Switched Services will not create a
partnership or joint venture between the parties or result in a joint
communications service offering to any third parties, and WorldCom and Customer
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 Communications Act of 1934 (47 U.S.C. Section 211(a)) as
implemented in 47 C.F.R. Section 43.51.
19. CHOICE OF LAW; FORUM
(A) Law. This Agreement shall be construed under the laws of the State
of Oklahoma without regard to notice of law principles.
(B) Forum. Any legal action or proceeding with respect to this
Agreement may be brought in the Courts of the State of Oklahoma in and
for the County of Tulsa or the United States of America for the
Northern District of Oklahoma. By execution of this Agreement, both
Customer and WorldCom hereby submit to such jurisdiction, hereby
expressly waiving whatever rights may correspond to either of them by
reason of their present or future domicile. In furtherance of the
foregoing, Customer and WorldCom hereby agree to service by U.S. Mail
at the notice addresses referenced in Section 14. Such service shall be
deemed effective upon the earlier of actual receipt or seven (7) days
following the date of posting.
20. PROPRIETARY INFORMATION.
(A) Confidential Information. The parties understand and agree that the
terms and conditions of this Agreement (but not the existence thereof),
all documents referenced herein (including invoices to Customer for
Switched Services provided hereunder), communications between the
parties regarding this Agreement or the Switched Services to be
provided or actually provided hereunder), as well as such information
relevant to any other agreement between the parties (collectively
"CONFIDENTIAL Information"), are confidential as between Customer and
WorldCom.
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(B) Limited Disclosure. A party shall not disclose Confidential
Information (unless subject to discovery or disclosure pursuant to
legal process), to any other party other than the directors, officers,
and employees of a party or a party's agents including their respective
attorneys, consultants, 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 shall only be made 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.
(C) Survival of Confidentiality. The provisions of this Section 20 will
be effective as of the date of this Agreement and remain in full force
and effect for a period which will be the longer of (i) one (1) year
following the date of this Agreement, or (ii) one (1) year from the
termination of all Services hereunder.
21. SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon and
insure to the benefit of the parties hereto and their respective successors or
assigns, provided, however, that Customer shall not assign or transfer its
rights or obligations under this Agreement without the prior written consent of
WorldCom, which consent shall not be unreasonably withheld or delayed, and
further provided that any assignment or transfer without such consent shall be
void.
22. GENERAL.
(A) Survival of Terms. The terms and provision contained in this
Agreement that by their sense of 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.
(B) Headings. Descriptive headings in this Agreement are for the
convenience only and shall not affect the construction of this
Agreement.
(C) 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 context reasonably requires.
(D) Rule of Construction. No rule of construction requiring
interpretation against the drafting party hereof apply in the
interpretation of this Agreement.
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23. 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 all proposals
and prior agreements (oral or written) between the parties relating to the
Switched Services provided hereunder. No subsequent agreement between the
parties concerning the Switched Services shall be effective or binding unless it
is made in writing and subscribed to by Customer and WorldCom.
24. OTHER AGREEMENTS. Customer acknowledges and agrees that this Agreement
and the Switched Services described herein may not be combined with any other
switched services products or services offered by WorldCom, WorldCom's parent
company or WorldCom's affiliates. Additionally, Customer acknowledges and agrees
that:
(A) Current Services. As of the Effective Date of this Agreement, (i)
all switched telecommunications services ("CURRENT SERVICES") offered
by WorldCom (formerly WilTel, Inc.), WorldCom's parent company,
WorldCom, Inc. (formerly LDDS Communications, Inc.) or any of
WorldCom's affiliates, including without limitation, IDB WorldCom
Services, Inc. (hereinafter referred to as the "WORLDCOM Group"), which
are currently being provided by a member of the WorldCom group,
Customer (which for purposes of this Section 24 will include Customer's
parent company, Customer's subsidiaries and any other entities under
common control with Customer; hereinafter referred to as the "CUSTOMER
GROUP") pursuant to existing service agreements ("EXISTING AGREEMENTS")
will be cancelled and no longer in force or effect except for changes
or credits due for Current Services rendered as of the Effective Date
of this Agreement and provisions intended to survive termination, such
as limitation of liability, indemnification and confidentiality, and
(ii) all Current Services provided a member of the Customer Group by a
member of the WorldCom Group will be provisioned under the terms and
conditions of this TSA. Simultaneous with the execution of this
Agreement, if applicable, Customer shall cause all members of the
Customer Group to agree to the cancellation of such Existing Agreements
and the provision of Current Services under the terms and conditions of
this Agreement and Customer agrees to provide WorldCom with reasonable
documentation evidencing such agreement.
(B) Third Party Agreements. If Customer acquires or merges or combines
with a third party after the Effective Date of this Agreement, and such
third party has existing agreement(s) with a member of the WorldCom
Group (collectively referred to as the "THIRD PARTY AGREEMENTS") for
the provision of switched telecommunications services ("THIRD PARTY
EXISTING SERVICES"), then ninety (90) days following the date of such
acquisition, merger or combination (or such earlier date contained in a
written notice from Customer to WorldCom) (the "TRANSFER DATE"), (i)
the Third Party Agreements will be canceled and no longer in force or
effect except for commitments, if any, contained in such Third Party
Agreements and
14
<PAGE> 15
charges and credits due for Services rendered prior to the Transfer
Date, (ii) Third Party Existing Services will be provisioned under this
Agreement, and (iii) the aggregate commitment(s) (e.g., revenue,
volume, minute, etc.) remaining under such Third Party Agreements, if
any, shall be added on a pro rata basis to the commitment(s), if any,
existing under this Agreement. Simultaneous with the closing of such
acquisition, combination or merger, Customer will cause such third
party and all of its affiliates who are parties to such Third Party
Agreements, to agree to the cancellation of such Third Party Agreements
and the provision of Third Party Existing Services under the terms and
conditions of this Agreement and Customer agrees to provide WorldCom
with reasonable documentation evidencing such agreement. In the event
any Third Party Agreement(s) have a provision similar to the provision
contained herein, the parties agree to negotiate in good faith
concerning which agreement (i.e., this Agreement or any Third Party
Agreement) shall survive and which agreement(s) shall be terminated.
Example: Assume (i) Customer's Commitment is $500,000, (ii) there are
twenty-four (24) months remaining in the Service Term of this
Agreement, and (iii) Customer acquires a third party who has an
existing switched telecommunications services agreement with a member
of the WorldCom Group which contains a minimum monthly revenue
commitment of $250,000 and has ten (10) months remaining in the term of
such agreement. Customer's "new" Commitment will be $604,166 for the
remaining twenty-four (24) months in the Service Term {$500,000 +
[($250,000 x 10)/24]}.
15
<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Telecommunications
Services Agreement as of the dates set forth below which Agreement will be
effective as described in the PET attached hereto.
WORLDCOM NETWORK SERVICES, INC. AMERIVISION COMMUNICATIONS, INC.
By: /s/ John H. Krummez By: /s/ Stephen D. Halliday
------------------------------------ ----------------------------------
(Signature) (Signature)
John H. Krummez Stephen D. Halliday
- --------------------------------------- -------------------------------------
(Print Name) (Print Name)
Senior Vice President President
- --------------------------------------- -------------------------------------
(Title) (Title)
April 20, 1999 April 19, 1999
- --------------------------------------- -------------------------------------
(Date) (Date)
16
<PAGE> 17
WORLDCOM NETWORK SERVICES, INC.
SERVICE SCHEDULE FOR AMERIVISION
Capitalized terms not defined in this Service Schedule shall have the
same meaning ascribed to them in the Telecommunications Services Agreement,
TSA#AVI-990301, between AmeriVision Communications, Inc. and WorldCom Network
Services, Inc. Any reference to Customer in this Service Schedule shall be
deemed as a reference to AmeriVision.
1. SWITCHED SERVICES: During the Service Term of the Agreement, WorldCom
will provide the following Switched Services (all as more particularly described
herein), (i) to and from the locations below, and (ii) for the charges and
applicable discounts set forth in the applicable Rate Schedule for Customer:
(a) "TERMINATION SERVICE" which is WorldCom's termination of calls
received from Customer's Service Interconnection(s).
(b) "TOLL FREE ORIGINATION SERVICE" which is the origination of
Toll Free calls by WorldCom and the termination of such calls
to Customer's Service Interconnection(s).
(c) "SWITCHED ACCESS SERVICE" which is the origination (via
individual telephone access lines) and termination of calls
solely over facilities comprising the WorldCom network.
(d) "DEDICATED ACCESS SERVICE" which is the origination and
termination of calls solely over facilities comprising the
WorldCom network which origination or termination is via
dedicated access lines.
(e) "TRAVEL CARD SERVICE" which is the origination (via Travel
Card Toll Free number access) and termination of calls solely
over facilities comprising the WorldCom network.
2. SERVICE INTERCONNECTIONS:
(a) In order to utilize (i) TERMINATION Service and TOLL FREE
ORIGINATION Service, one or more full time dedicated connections
between Customer's network and the WorldCom network at one or more
WorldCom designated locations ("WORLDCOM POP") must be established
("CARRIER SERVICE INTERCONNECTIONS"), and (ii) DEDICATED ACCESS
Service, one or more full time dedicated connections between an End
User's private branch exchange ("PBX") or other customer premise
equipment and the WorldCom network at one or more WorldCom POP(s) must
be established ("DEDICATED SERVICE INTERCONNECTIONS"). Each Carrier
Service Interconnection and Dedicated Service Interconnection shall be
comprised of one or more dedicated access circuits, as the case may be.
Carrier Service
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<PAGE> 18
Interconnections and Dedicated Service Interconnections are
collectively referred to as "SERVICE INTERCONNECTIONS".
(b) The circuit(s) comprising each Service Interconnection to a
WorldCom POP shall be requested by Customer on the appropriate WorldCom
Service Request. Each Service Request will describe (among other
things) the WorldCom POP to which a Service Interconnection is to be
established, the Requested Service Date therefor, the type and quantity
of circuits comprising the Service Interconnection and any charges and
other information relevant thereto, such as, Customer's terminating or
originating switch location, as the case may be. Such additional
information may be obtained from Customer or gathered by WorldCom and
recorded in Technical Information Sheets provided by WorldCom.
(c) Once ordered, and unless otherwise provided for in this TSA,
Service Interconnections or the circuits comprising each Service
Interconnection may only be canceled by Customer upon not less than
thirty (30) days prior written notice to WorldCom.
(d) With respect to a Carrier Service Interconnection, absent the
automatic number identification ("ANI") of the calling party, Customer
shall provide WorldCom with a written certification (the
"CERTIFICATION") of the percentage of interstate (including
international) and intrastate minutes of use relevant to the minutes of
traffic to be terminated in the same state in which the WorldCom POP is
located to which the Carrier Service Interconnection is made. This
Certification shall be provided by Customer prior to Start of Service
for any Carrier Service Interconnection and may be modified from time
to time by Customer and subject to recertification upon the request of
WorldCom which requests shall not be made unilaterally by WorldCom more
than once each calendar quarter. Any such modification(s) or
Certification(s) shall be effective as of the first day of any calendar
month and following at least forty-five (45) days notice from Customer.
In the event Customer fails to make such Certification, the relevant
minutes of use will be deemed to be subject to the Intrastate Rates
described in the applicable Rate and Discount Schedule. In the event
WorldCom or any other third party requires an audit of WorldCom's
interstate/intrastate minutes of traffic, Customer agrees to cooperate
in such audit at its expense and make its call detail records, billing
systems and other necessary information reasonably available to
WorldCom or any third party solely for the purpose of verifying
Customer's interstate/intrastate minutes of traffic. Customer agrees to
indemnify WorldCom for any liability WorldCom incurs in the event
Customer's Certification is different than that determined by the
audit.
(e) With respect to Carrier Service Interconnections, Customer shall be
solely responsible for establishing and maintaining each Carrier
Service Interconnection over facilities subject to WorldCom's approval.
With respect to Dedicated Service Interconnections, WorldCom will
provision and maintain local access facilities between the End User
location (i.e., PBX) and the WorldCom POP, subject to any LEC charges
plus other applicable terms and charges set forth in WorldCom's F.C.C.
Tariff No. 5, however,
CONFIDENTIAL - EXECUTION COPY
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<PAGE> 19
Customer may elect to be responsible for establishing each Dedicated
Service Interconnection over facilities subject to WorldCom's approval.
Service Interconnections shall only be comprised of DS-1 facilities
unless otherwise provided for in the Service Request and agreed to in
writing by WorldCom. If a Service Interconnection is proposed to be
made via a local exchange carrier, WorldCom will have the authority to
direct Customer to utilize WorldCom's entrance facilities or local
serving arrangement ("LSA") with the relevant local telephone operating
company, and Customer will be subject to a non-discriminatory charge
therefor from WorldCom. The monthly recurring charge relevant to
Customer's use of LSA capacity shall be subject to upward adjustment by
WorldCom from time to time which adjustment, if any, shall not exceed
the rate that otherwise would be charged for the equivalent switched
access capacity between the same points by the relevant local telephone
operating company pursuant to its published charges for the type of
service in question.
(f) If other private line interexchange facilities are necessary to
establish a Service Interconnection, and such facilities are requested
from WorldCom, such facilities will be provided on an individual case
basis.
(g) Commencing with the second full calendar month following Start of
Service for each circuit comprising a Service Interconnection (i.e.,
both Carrier Service Interconnections and Dedicated Service
Interconnections) and thereafter, Customer will maintain Switched
Services measured usage charges per DS-1 (or DS-1 equivalent circuit)
of not less than an average of --**-- per calendar month/billing period
("MINIMUM MONTHLY USAGE"). In the event Customer fails to obtain the
required Minimum Monthly Usage for the circuits comprising each Service
Interconnection, WorldCom will charge and Customer will pay the
difference between the number of DS-1s times the Minimum Monthly Usage
(i.e., --**--) and Customer's total Switched Services measured usage
charges for the circuit(s) comprising the Service Interconnection in
question ("MINIMUM USAGE CHARGE"). WorldCom TERMINATION Service and
TOLL FREE ORIGINATION Service minutes carried over the same Service
Interconnection, if any, shall be included in determining if Customer
has met the Minimum Monthly Usage requirement.
Example: Assume Customer's actual Switched Services measured
usage charges for 2 DS-1s comprising a Carrier Service
Interconnection at WorldCom POP A is $3,500, Customer's actual
Switched Services measured usage charges for 2 DS-1s
comprising a Carrier Service Interconnection at WorldCom POP B
is $4,500, and Customer's End User's actual Switched Services
measured usage charges for 1 DS-1 comprising a Dedicated
Service Interconnection at WorldCom POP C is $600. Customer
would not be subject to a Minimum Usage Charge since
Customer's actual Minimum Monthly Usage is $8,600 which
exceeds Customer's Minimum Monthly Usage of --**--.
- --------------------
--**-- This symbol signifies information from the agreement that has
been omitted because the Company has requested confidential treatment. The
information has been filed separately with the Securities and Exchange
Commission.
CONFIDENTIAL - EXECUTION COPY
Page 3 of 9
<PAGE> 20
(h) DS-1 circuits comprising all Service Interconnections will be
subject to a nonrecurring --**-- per DS-1 switch port installation
charge, and DS-3 circuits comprising all Service Interconnections will
be subject to a nonrecurring per DS-3 switch port installation charge
as determined on an individual case basis.
3. FORECASTS: Before Customer's initial order for Switched Services, Customer
shall provide WorldCom with a forecast regarding the number of minutes expected
to be terminated or originated in various LATAs and/or Tandems, so as to enable
WorldCom to configure optimum network arrangements. IN THE EVENT CUSTOMER'S
SWITCHED SERVICE TRAFFIC VOLUMES RESULT IN A LOWER THAN INDUSTRY STANDARD
COMPLETION RATE OR OTHERWISE ADVERSELY AFFECT THE WORLDCOM NETWORK, WORLDCOM
RESERVES THE RIGHT TO BLOCK THE SOURCE OF SUCH ADVERSE TRAFFIC AT ANY TIME.
Customer will provide WorldCom with additional forecasts from time to time upon
WorldCom's request which shall not be more frequent than once every three (3)
months.
4. START OF SERVICE: Start of Service for the various Switched Services
will occur as described below:
<TABLE>
<CAPTION>
-------------------------------------------- --------------------------------------------------------------
SERVICE START OF SERVICE
-------------------------------------------- --------------------------------------------------------------
<S> <C>
TERMINATION Service Concurrently with the activation of each circuit comprising
Carrier Service Interconnections relevant to TERMINATION
Service
-------------------------------------------- --------------------------------------------------------------
TOLL FREE ORIGINATION Service
Concurrently with the
activation of each circuit
comprising Carrier Service
Interconnections relevant
to TOLL FREE ORIGINATION
Service
-------------------------------------------- --------------------------------------------------------------
SWITCHED ACCESS Service ANI by ANI
basis concurrently with
the activation of each ANI
to be served, and a TOLL
FREE Number by TOLL FREE
Number basis concurrently
with activation of each
TOLL FREE Number
-------------------------------------------- --------------------------------------------------------------
DEDICATED ACCESS Service Concurrently with the activation of each circuit comprising
Dedicated Service Interconnections
-------------------------------------------- --------------------------------------------------------------
TRAVEL CARD Service Code by Code
basis concurrently with
the activation of each
Code.
-------------------------------------------- --------------------------------------------------------------
</TABLE>
5. LIMITATION OF ORIGINATION OR TERMINATION LOCATIONS:
<TABLE>
<CAPTION>
----------------------------------- ------------------------------------- ---------------------------------
SWITCHED SERVICE ORIGINATION FROM TERMINATION TO
----------------------------------- ------------------------------------- ---------------------------------
<S> <C> <C>
TERMINATION Service Any WorldCom POP Any direct dialable location
worldwide
----------------------------------- ------------------------------------- ---------------------------------
</TABLE>
Page 4 of 9
CONFIDENTIAL - EXECUTION COPY
<PAGE> 21
<TABLE>
<CAPTION>
----------------------------------- ------------------------------------- ---------------------------------
SWITCHED SERVICE ORIGINATION FROM TERMINATION TO
----------------------------------- ------------------------------------- ---------------------------------
<S> <C> <C>
TOLL FREE ORIGINATION Service Locations in the 48 contiguous Any Customer designated Carrier
United States, Hawaii, Alaska, the Service Interconnection
US Virgin Islands, Puerto Rico and
Canada
----------------------------------- ------------------------------------- ---------------------------------
SWITCHED ACCESS (1+) Service All equal
access exchanges in the Any direct
dialable location 48 contiguous
United States (except worldwide in
LATA 921-Fishers Island, New York)
and Hawaii
----------------------------------- ------------------------------------- ---------------------------------
SWITCHED ACCESS (Toll Free) Locations in the 48 contiguous Locations in the 48 contiguous
Service United States, Hawaii, Alaska, the United States and Hawaii
US Virgin Islands, Puerto Rico
----------------------------------- ------------------------------------- ---------------------------------
DEDICATED ACCESS (1+) Service Locations in the 48 contiguous Any direct dialable location
United States worldwide
----------------------------------- ------------------------------------- ---------------------------------
DEDICATED ACCESS (Toll Free) Locations in the 48 contiguous Any Customer designated
Service United States, Hawaii, Alaska, the Dedicated Service
US Virgin Islands, Puerto Rico Interconnection
----------------------------------- ------------------------------------- ---------------------------------
BASIC TRAVEL CARD Service Locations in the 48 contiguous Locations in the 48 contiguous
United States United States, Hawaii, Alaska,
the US Virgin Islands, Puerto
Rico and Canada
----------------------------------- ------------------------------------- ---------------------------------
BASIC TRAVEL CARD Service Locations in Hawaii, Alaska, the US Locations in the 48 contiguous
Virgin Islands, Puerto Rico and United States
Canada
----------------------------------- ------------------------------------- ---------------------------------
BASIC TRAVEL CARD Service Select International locations Locations in the 48 contiguous
United States
----------------------------------- ------------------------------------- ---------------------------------
TRAVEL CARD Service - Enhanced SEE Schedule 6 to the applicable SEE Schedule 6 to the
Features Rate and Discount Schedule applicable Rate and Discount
Schedule
----------------------------------- ------------------------------------- ---------------------------------
</TABLE>
6. BILLING INCREMENTS:
(A) Switched Service - (i) all calls (excluding California IntraLATA
and California intrastate calls and calls to International Locations,
Canada and Mexico) will be billed in six (6) second increments and
subject to a six (6) second minimum charge, (ii) California IntraLATA
and California intrastate calls will be billed in six (6) second
increments and subject to an eighteen (18) second minimum, and (iii)
calls to International Locations, Canada and Mexico will be billed in
six (6) second increments and subject to a thirty (30) second minimum
charge.
(B) All calls will be billed (i) utilizing Hardware Answer Supervision
where available, and with respect to TOLL FREE Services, commencing
with Customer's switch wink or answer back. If Customer is found to be
non-compliant in passing back appropriate answer supervision, i.e.,
answer back, WorldCom reserves the right to suspend TOLL FREE Service
or deny requests by Customer for additional Service until appropriate
compliance is established.
Page 5 of 9
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<PAGE> 22
7. CDR MEDIA: WorldCom will provide Call Detail Records (CDRs) for
WorldCom's Switched Services in machine readable form in one of several magnetic
tape formats (selected by Customer on Customer's Service Request) ("CDR MEDIA").
CDR Media provided under this Section (i) monthly is provided at no charge, (ii)
weekly is subject to a recurring monthly charge of --**--, and (iii) daily is
subject to the applicable non-recurring Installation Charge as described below
(plus all leased-line and equipment costs necessary to implement Daily CDR Media
which will be determined on an individual case basis depending on Customer's
specific configuration).
<TABLE>
<CAPTION>
---------------------------------------------- -------------------------- --------------------------
TYPE TOTAL CONTRACT NON-RECURRING
VALUE INSTALLATION CHARGE
---------------------------------------------- -------------------------- --------------------------
<S> <C> <C>
Daily CDR Media-Customer provided hardware --**-- --**--
and software
---------------------------------------------- -------------------------- --------------------------
Daily CDR Media-PC Solution --**-- --**--
---------------------------------------------- -------------------------- --------------------------
Sub-Daily CDR Media-Customer provided --**-- --**--
hardware and software
---------------------------------------------- -------------------------- --------------------------
Sub-Daily CDR Media-PC Solution --**-- --**--
---------------------------------------------- -------------------------- --------------------------
</TABLE>
8. TOLL FREE NUMBERS:
(a) TOLL FREE numbers will be issued to Customer (i.e., issuance
equates to activation or reservation, whichever occurs first) on a
random basis. Customer requests for specific numbers will be considered
by WorldCom, and if provided, will be subject to additional charges as
set forth below and WorldCom's then current reservation policy which
shall also apply to any randomly selected and reserved TOLL FREE
number. At any time preceding three (3) months from the scheduled
expiration of the Service Term, Customer may only reserve TOLL FREE
numbers in an amount equal to the greater of (i) 50, or (II) --**-- of
the total number to TOLL FREE numbers activated by WorldCom for
Customer. Customer requests for TOLL FREE numbers inconsistent with the
above stated conditions may be considered by WorldCom on an individual
case basis. TOLL FREE numbers reserved for Customer will be activated
upon Customer's request.
(b) Customer Request for Specific Numbers - --**-- per individual TOLL
FREE number.
(c) Customer specifically agrees that regardless of the method in which
a TOLL FREE number is reserved for or otherwise assigned to Customer,
that Customer will not seek any remedy from WorldCom under a theory of
detrimental reliance or otherwise that such TOLL FREE number(s) are
found not to be available for Customer's use until such TOLL FREE
number is put in service for the benefit of Customer, and that such
TOLL FREE number(s) shall not be sold, bartered, brokered or otherwise
released by Customer for a fee ("TOLL FREE NUMBER TRAFFICKING"). Any
attempt by Customer to engage in TOLL FREE
Page 6 of 9
CONFIDENTIAL - EXECUTION COPY
<PAGE> 23
Number Trafficking shall be grounds for reclamation by WorldCom for
reassignment of the TOLL FREE number(s) reserved for or assigned to
Customer.
9 ENHANCED TOLL FREE SERVICES: The following TOLL FREE identification services
and routing options (collectively, "ENHANCED TOLL FREE SERVICES") are available
from WorldCom:
IDENTIFICATION SERVICES:
i. Dialed Number Identification Service - identification of
specific TOLL FREE number dialed.
ii. Real-Time ANI - receipt of telephone number of calling party.
TOLL FREE ROUTING OPTIONS:
i. Message Referral - recording (up to six (6) months) that
informs callers that the TOLL FREE number has been
disconnected or refers callers to new number.
ii. Call Area Selection - selection or blockage of locations from
which TOLL FREE numbers can be received (i.e., State, NPA,
LATA or NXX level).
iii. Call Distributor Routing - distribution of TOLL FREE traffic
evenly over dedicated access lines in a trunk group (e.g.,
ascending, descending, most idle, least idle).
iv. Route Completion (Overflow) - overflow of TOLL FREE dedicated
access traffic only to up to five (5) pre-defined alternate
routing groups (e.g., dedicated access, WATs access lines or
switched access lines).
v. Geographic Routing - termination of calls to a single TOLL
FREE number from two or more originating routing groups to
different locations.
vi. Time-of-Day Routing - routing of calls to single TOLL FREE
number based on time of day (up to forty-eight (48) time slots
of 15-minute increments in a 24-hour period).
vii. Day-of-Week Routing - routing of calls to singe TOLL FREE
number based on each day of the week.
viii. Day-of-Year Routing - routing of calls to single TOLL FREE
number based on up to fifteen (15) customer-specified
holidays.
ix. Percent Allocation Routing - routing of calls for each
originating routing group to two (2) or more terminating
locations based on customer-specified percentage.
Page 7 of 9
CONFIDENTIAL - EXECUTION COPY
<PAGE> 24
Customer will receive the Identification Services described above at no
charge. The minutes of use rates for TOLL FREE Routing Options
described above (in addition to the TOLL FREE Routing Option Feature
Charges described below) will be the same rates for SWITCHED ACCESS
Service (TOLL FREE) and DEDICATED ACCESS Service (TOLL FREE), whichever
is applicable, as described in the applicable Rate and Discount
Schedule excluding Route Completion (Overflow). If Customer selects
Route Completion (Overflow) and Customer's traffic overflows from
DEDICATED ACCESS Service (TOLL FREE) to SWITCHED ACCESS Service (TOLL
FREE), Customer's minute of use rate will be the rate associated with
SWITCHED ACCESS Service (TOLL FREE). The TOLL FREE Routing Option
Feature Charges are as follows:
Installation Charge: --**-- per feature; maximum of --**-- per TOLL
FREE number.
Change Order Charge: --**-- per feature; maximum of --**-- per TOLL
FREE number.
Monthly Recurring Charge: --**-- per feature; maximum of --**-- per
TOLL FREE number.
Expedite Charge: --**-- (i.e., outside normal interval time of four (4)
business days).
Note: More than ten (10) points of termination for a single feature
will be treated as two (2) features. Further, every additional ten (10)
points of termination will be treated as a separate feature.
10. RESPORG SERVICES: Responsible Organization Services (relevant to TOLL
FREE Numbers) if provided by WorldCom will be provided by WorldCom pursuant to
WorldCom's F.C.C. Tariff No. 5.
11. AUTHORIZATION CODES FOR TRAVEL CARD SERVICE: WorldCom will supply
Customer with authorization codes ("CODES") containing nine (9) or fourteen (14)
digits for use with a corresponding TOLL FREE Service number for origination and
termination of TRAVEL CARD Service calls. The Codes may be obtained by Customer
in blocks of ten (10) not to exceed a total of 1000 Codes at any one time.
WorldCom reserves the right to deny access to any Code at any time.
12. INBOUND PORTION OF TRAVEL CARD SERVICE CALL: The inbound service
portion of a TRAVEL CARD Service call (i.e., the TOLL FREE Service) must be
provided by WorldCom.
13. ACCOUNTING CODES: For every billed telephone number (BTN) requested by
Customer, whether verified or non-verified, Customer shall pay a monthly
recurring charge of --**--.
14. PAY PHONE SURCHARGE: In the event WorldCom is required to compensate
payphone service providers (PSPs) for toll-free or access code calls which
originate from payphones (including without limitation, any Order adopted by the
FCC) ("PAYPHONE SURCHARGE"), WorldCom will charge and Customer agrees to pay
WorldCom the amount of the Payphone Surcharge which is required to be paid by
WorldCom.
Page 8 of 9
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<PAGE> 25
15. RBOC TERMINATION/ORIGINATION: With respect to Classic Switched
Services, following Start of Service for TERMINATION SERVICE, TOLL FREE
ORIGINATION Service and/or DEDICATED ACCESS Service, Customer will maintain at
least 80% of the minutes of traffic (during any calendar month or pro rata
portion thereof) with respect to each of the above-mentioned Services for
termination or origination in a Tandem owned and operated by a Regional Bell
Operating Company ("RBOC TERMINATIONS/ORIGINATIONS") and subject to such RBOC's
tariffed access charges. WorldCom shall have the right to apply a $0.020 per
minute surcharge to the number of minutes by which Non-RBOC
Terminations/Originations exceed 20% of total monthly minutes for each of the
following Services: TERMINATION Service, TOLL FREE ORIGINATION Service and
DEDICATED ACCESS Service.
16. PRESUBSCRIBED INTEREXCHANGE CARRIER CHARGE (PICC): With respect to
Switched Services to be provided under the Agreement, WorldCom will charge
Customer for any LEC-assessed presubscribed interexchange carrier charge ("PICC
CHARGE") which PICC Charge will be reasonably determined by WorldCom as of a
date certain each month (the "PICC CHARGE DETERMINATION DATE") but only if
WorldCom is directly billed by the LEC for such PICC Charge. Customer's PICC
Charge will be determined as of the PICC Charge Determination Date and will be
based on the same criteria for which WorldCom is assessed such charge by the LEC
(e.g., number and type of Customer's End Users (i.e., residential or business)
as well as the type of line associated with each such End User (i.e., single
line, secondary line or multi-line). This Section 16 will be deemed to include
any other similar additional charges assessed by a LEC after the date of this
Agreement (i.e., charges for which WorldCom is not currently being assessed).
Page 9 of 9
CONFIDENTIAL - EXECUTION COPY
<PAGE> 1
EXHIBIT 10.20
WORLDCOM NETWORK SERVICES, INC.
CLASSIC/TRANSCEND(TM)SWITCHED SERVICES
PROGRAM ENROLLMENT TERMS
These PROGRAM ENROLLMENT TERMS (the "PET") are made by and between
WorldCom Network Services, Inc. ("WORLDCOM") and AmeriVision Communications,
Inc. ("CUSTOMER") and are a part of their Telecommunications Services Agreement
for Switched Services. Capitalized terms not defined herein shall have the
meaning ascribed to them in the TSA, the Service Schedule or the applicable Rate
and Discount Schedule.
1. SERVICE TERM: The Service Term shall commence as of --**-- (the
"EFFECTIVE DATE") and shall continue through and include --**-- (the
"SERVICE TERM"), subject to earlier termination as provided in
Subsection 2(B) below. Provided, however, notwithstanding the
immediately preceding sentence, the rates set forth herein will be
effective as of --**-- (the "RATE EFFECTIVE DATE"). Upon expiration of
the Service Term, the Switched Services in question will continue to be
provided pursuant to the same terms and conditions as are then in
effect (including without limitation, the applicable rates, discounts
and commitments, if any), subject to termination by either party upon
sixty (60) days prior written notice to the other party.
2. CUSTOMER'S MINIMUM REVENUE COMMITMENT:
(A) Commencing with the Effective Date (as determined under Section 1
above) and continuing through the end of the Service Term (including
any extensions thereto) (the "COMMITMENT PERIOD"), Customer agrees to
maintain, on a take-or-pay basis, cumulative Monthly Revenue (as
defined in the applicable Rate and Discount Schedule) equal to at least
the amounts shown below by the end of the respective months listed
("CUSTOMER'S MINIMUM REVENUE COMMITMENT").
--**--
- --------------------
--**-- This symbol signifies information from the agreement that has
been omitted because the Company has requested confidential treatment. The
information has been filed separately with the Securities and Exchange
Commission.
4/15/99 Page 1 of 9
CONFIDENTIAL - EXECUTION COPY
<PAGE> 2
(B) Notwithstanding anything to the contrary contained in Subsection
(A) above, as soon as Customer's cumulative Monthly Revenue (which will
include any Deficiency Charges actually paid by Customer) is equal to
at least --**--, either party may cancel this Agreement in its entirety
upon at least --**-- prior written notice to the other party.
3. DEFICIENCY CHARGE: In the event Customer does not maintain Customer's
Minimum Revenue Commitment in any month during the Commitment Period
(regardless of whether Customer has commenced using any or all of the
Switched Services described herein), then for those month(s) only,
Customer will pay WorldCom the difference between Customer's Minimum
Revenue Commitment and Customer's actual Monthly Revenue (as described
in the applicable Rate and Discount Schedule) (the "DEFICIENCY
CHARGE"). The Deficiency Charge will be due at the same time payment is
due for Service provided to Customer, or immediately in an amount equal
to Customer's Minimum Revenue Commitment for the unexpired portion of
the Service Term, if WorldCom terminates this Agreement based on
Customer's default. Provided, however, WorldCom agrees to waive any
Deficiency Charges that arise solely due to a catastrophic network
event which materially prevents Customer's use of Services hereunder
sufficient to satisfy Customer's Minimum Revenue Commitment. In such
case, Customer shall have the burden of proof in establishing the date
and duration of such event as well as the general sources of Customer's
traffic affected by such event. Provided, for purposes of this
Agreement, any catastrophic network events lasting less than --**--
and/or affecting less than --**-- minutes of Customer's traffic will be
deemed not material.
4. CANCELLATION WITHOUT CHARGE: The parties agree to substitute Subsection
2(C) of the TSA to read in its entirety as follows:
(C) Cancellation Without Charge. Notwithstanding anything to the
contrary contained in Subsection 2(A) above, Customer may cancel this
Agreement without incurring any cancellation charge if:
i. WorldCom fails to provide a network as warranted in Section
8 below and fails to cure such default within five (5) days
following written notice from Customer; or
ii. WorldCom fails to (a) deliver call detail records promptly
based on the frequency selected by Customer (i.e., monthly,
weekly or daily); or (b) submit ANI(s) relevant to such
Service Requests to the LECs within the time period described
in Subsection 1(B) above. Provided, however, Customer must
give WorldCom written notice of any such default under this
Subpart (ii) and an opportunity to cure such default within
five (5) days of the notice. In the event WorldCom fails to
cure any such default within the five-day period set forth in
this Subpart (ii) on more than three (3) occasions within any
six (6) month period, Customer may cancel this Agreement
without incurring any cancellation charge.
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5. DISPUTED TRANSFER CHARGES: The parties agree to substitute the first
sentence only of Subsection 3(A) and Subsection 3(B) of the TSA to read
in their entirety as follows:
(A) End Users. Customer will use reasonable efforts to obtain and upon
WorldCom's request will provide WorldCom (within two (2) business days
of the date of the request) a written Letter of Agency ("LOA")
acceptable to WorldCom [or with any other means if approved by the
Federal Communications Commission ("FCC") and any applicable public
utility commission ("PUC") and accepted by the applicable local
exchange provider provided the local exchange provider has the
authority to accept or deny certain forms of LOAs (provided, further,
nothing contained herein will require WorldCom to challenge the right
of local exchange providers to accept or deny certain forms of LOAs),
for each ANI indicating the consent of such end user of Customer ("END
USER") to be served by Customer and transferred (by way of such End
User's designated PIC) to the WorldCom network prior to order
processing.
(B) Transfer Charges/Disputed Transfers. Customer agrees that it is
responsible for (i) all charges incurred by WorldCom to change the PIC
of End Users to the WorldCom network, (ii) all charges incurred by
WorldCom to change End Users back to their previous PIC arising from
disputed transfers to the WorldCom network plus, at WorldCom's option,
an administrative charge equal to --**-- of such charges, and (iii) any
other damages suffered by or awards against WorldCom resulting from
disputed transfers unless such damages or awards are the result of
actions taken solely by WorldCom without any involvement (either
directly or indirectly) by Customer.
6. PAYMENT TERMS: The parties agree to substitute Subsection 5(A) and 5(B)
of the TSA to read in their entirety as follows:
(A) Payment. WorldCom billings for Switched Services hereunder are made
on a monthly basis (or such other basis as may be mutually agreed to by
the parties) following Start of Service. Subject to Subsection 5(C)
below, Switched Services shall be billed at the rates set forth in the
applicable Rate and Discount Schedule attached hereto. Customer will be
notified of WorldCom's time of day rate periods (including WorldCom
Recognized National Holidays). Discounts, if any, applicable to the
rates for certain Services are set forth in the Rate and Discount
Schedule. Customer will pay all undisputed charges relative to each
WorldCom invoice for Switched Services within (i) --**-- days of the
invoice date set forth on each WorldCom invoice to Customer with
respect to Services provided in months 1 through 3 following the
Effective Date of this Agreement, (ii) --**-- days of the invoice date
set forth on each WorldCom invoice to Customer with respect to Services
provided in months 4 through 6 following the Effective Date of this
Agreement, and (iii) --**-- days of the invoice date set forth on each
WorldCom invoice to Customer with respect to Services provided through
the remainder of the Service Term (collectively, the "DUE DATE"). If
payment is not received by WorldCom on or before the Due Date, Customer
shall also pay a late fee in the amount of the lesser of one and
one-half percent (1 1/2%) of the unpaid
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<PAGE> 4
balance of the charges for Switched Services rendered per month or the
maximum lawful rate under applicable state law. Commencing with the
Effective Date and continuing through the end of the Service Term,
Customer agrees to provide WorldCom (a) unaudited financial statements
within --**-- days following each month, (b) "reviewed" financial
statements within --**-- days following each quarter, and (c) audited
financial statements within --**-- days following the end of each of
Customer's fiscal years.
(B) Taxes. Customer acknowledges and understands that WorldCom computes
all charges herein exclusive of 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 WorldCom or customer because of the
Switched Services furnished to Customer ("ADDITIONAL CHARGES").
Customer shall pay such Additional Charges in addition to all other
charges provided for herein. Customer will not be liable for certain
Additional Charges if Customer provides WorldCom with an appropriate
exemption certificate. Provided, to the extent Customer is not an "end
user" of the Services provided hereunder, with respect to any
Additional Charges which are assessed solely on WorldCom's end users
("END USER CHARGES"), WorldCom agrees not to assess Customer such End
User Charges. Provided, however, in the event WorldCom is required to
collect End User Charges from Customer, Customer agrees to pay WorldCom
such End User Charges unless Customer provides WorldCom a written
certification, signed by an officer of Customer, that Customer has
directly paid such End User Charges.
7. PAYMENT OF DISPUTED AMOUNTS: Notwithstanding anything to the contrary
contained in Subsection 5(D) of the TSA, in the event Customer pays
WorldCom any amount which is ultimately determined not to be due
WorldCom, WorldCom agrees to pay Customer such amount plus interest on
such amount equal to one and one-half (1 1/2%) of such amount per month
or the maximum lawful rate under applicable state law.
8. CREDIT: The parties agree to delete the first two sentences of
Subsection 6(A) of the TSA.
9. REMEDIES FOR BREACH: In the event WorldCom elects its remedies under
Subsection 7(B) of the Agreement and bills Customer's End Users
directly, WorldCom agrees to collect any amounts owing from such End
Users in good faith and in accordance with reasonable business
practices. In the event WorldCom collects any amounts from Customer's
End Users, such amounts will offset any amounts owed by Customer under
this Agreement. In other words, Customer's liability for charges for
Services rendered and the Deficiency Charge, if applicable, will be
reduced by any amounts WorldCom collects from Customer's End Users.
10. FORCE MAJEURE: The parties agree to substitute Section 10 of the TSA to
read in its entirety as follows:
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<PAGE> 5
If either party's performance of this Agreement or any obligation
hereunder (excluding payments owed by Customer for Services rendered by
WorldCom) is prevented, restricted or interfered with by causes beyond
its reasonable control including, but not limited to, acts of God,
fire, explosion, vandalism, cable cut, storm or other similar
occurrence, any law, order, regulation, direction, action or request of
the United States government, or state or local governments, or of any
department, agency, commission, court bureau, corporation or other
instrumentality of any one or more such governments, or of any civil or
military authority, or by national emergency, insurrection, riot, war,
strike, lockout or work stoppage or other labor difficulties, or
supplier failure, shortage, breach or delay, then the affected party
shall be excused from such performance on a day-to-day basis to the
extent of such restriction or interference. The affected party shall
use reasonable efforts under the circumstances to avoid or remove such
causes or nonperformance and shall proceed to perform with reasonable
dispatch whenever such causes are removed or cease.
11. OTHER AGREEMENTS: The parties agree to substitute Subsection 24(B) of
the TSA to read in its entirety as follows:
(B) Third Party Agreements. If Customer acquires or merges or combines
with a third party after the Effective Date of this Agreement, and such
third party has existing agreement(s) with a member of the WorldCom
Group (collectively referred to as the "THIRD PARTY AGREEMENTS") for
the provision of switched telecommunications services ("THIRD PARTY
EXISTING SERVICES"), then ninety (90) days following the date of such
acquisition, merger or combination (or such earlier date contained in a
written notice from customer to WorldCom) (the "TRANSFER DATE"), if
requested by WorldCom, Customer agrees to select one Agreement (either
this Agreement or a Third Party Agreement) (the "SURVIVING AGREEMENT")
pursuant to which all switched services will be provided to Customer
and all members of the Customer Group and all other agreements (the
"CANCELED AGREEMENTS") will be canceled and no longer in force or
effect except for commitments, if any, contained in the Canceled
Agreements and charges and credits due for Services provided prior to
the effective date of cancellation of such Canceled Agreements.
Further, as of the effective date of cancellation, Third Party Existing
Services or, if applicable, the Services provided under this Agreement
will be provisioned under the Surviving Agreement, and the aggregate
commitment(s) (e.g., revenue, volume, minute, etc.) remaining under the
Canceled Agreements shall be added on a pro rata basis to the
commitment(s), if any, existing under the Surviving Agreement.
Simultaneous with the closing of such acquisition, combination or
merger, Customer will cause such third party and all of its affiliates
who are parties to such Third Party Agreements, to agree to such
cancellation(s) as appropriate and the provision of such Services, as
appropriate under the terms and conditions of the Surviving Agreement
and Customer agrees to provide WorldCom with reasonable documentation
evidencing such agreement.
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<PAGE> 6
12. TARIFF REFERENCES: Except to the extent specifically referenced in this
Agreement, this Agreement does not incorporate any terms or conditions
contained in any federal and/or state tariffs filed or to be filed by
WorldCom or any of its affiliates.
13. DISPUTE RESOLUTION: If the parties are unable to resolve any dispute
arising under or relating to this Agreement, the parties may resolve
such disagreement or dispute as follows:
(a) Either party may, by written notice to the other party (the
"DISPUTE NOTICE"), request that a designated representative from each
of the parties attempt to resolve the matter. Within fifteen (15) days
after delivery of the Dispute Notice such representatives of both
parties will use good faith efforts to schedule a meeting at a mutually
acceptable time and place to attempt to resolve the dispute.
(b) If the matter has not been resolved within thirty (30) days after
delivery of the Dispute Notice, or if such representatives fail to meet
within fifteen (15) days after delivery of such Dispute Notice, either
party may initiate mediation in accordance with the procedures set
forth in (C) below. All negotiations conducted by such representatives
shall be confidential and shall be treated as compromise and settlement
negotiations for purposes of federal and state rules of evidence.
(c) If such representatives are unable to resolve the dispute or have
failed to meet, the parties may elect to participate in a nonbinding
mediation procedure as follows:
(A) A mediator will be selected by having counsel for each
party agree on a single person to act as mediator. The
parties' counsel as well as up to three (3) representatives of
each of the parties will appear before the mediator at a time
and place determined by the mediator, but not more than sixty
(60) days after delivery of the Dispute Notice. The fees of
the mediator and other costs of the mediation will be shared
equally by the parties.
(B) Each party will present a review of the matter and its
position with respect to such matter. At the conclusion of
both presentations the parties may ask questions of each
other. Either party may abandon the mediation procedure at the
end of the presentation and question periods and the mediation
procedure shall not be binding on either party.
(C) If the matter is not resolved after applying the mediation
procedure set forth above, or if either party refuses to take
part in the mediation process, either party may initiate legal
proceedings to resolve their dispute.
(D) The provisions of this Section 13 shall not preclude a party form
instituting legal proceedings seeking injunctive relief (including,
without limitation, a temporary restraining
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<PAGE> 7
order) prior to the commencement or completion of the specified dispute
resolution procedures.
14. REQUIREMENTS AGREEMENT: In consideration of the rates set forth in the
Rate Schedule, and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, during the Service
Term Customer agrees to purchase --**-- of its telecommunications
services requirements for SWITCHED ACCESS Service (1+ and Toll Free)
(which services are described in this Agreement) from WorldCom under
the terms and conditions set forth in this Agreement ("CUSTOMER'S
REQUIREMENTS OBLIGATION"). Upon request from WorldCom, Customer agrees
to provide WorldCom reasonable documentation evidencing Customer's
compliance with this Section 14 and if requested by WorldCom, agrees to
allow WorldCom or its representatives to audit Customer's books and
records as may be necessary solely to ensure Customer's compliance with
Customer's Requirements Obligation. In the event Customer is in breach
of this Agreement, in addition to WorldCom's other rights and remedies
described in this Agreement, notwithstanding anything to the contrary
contained in the Agreement, WorldCom shall have the right to
immediately increase Customer's SWITCHED ACCESS Service rates set forth
in the Rate Schedule to --**--. Any increase as described herein will
not affect Customer's Minimum Revenue Commitment set forth in Section 2
above.
15. SEMI-ANNUAL REVIEW OF RATES: Provided Customer is in substantial
compliance with the terms of this Agreement, commencing September 1,
1999, and continuing on the first day of every seventh (7th) month
thereafter (i.e., March 1, 2000; September 1, 2000; March 1, 2001;
etc.), WorldCom and Customer agree to review the rates hereunder with a
view to adjusting in good faith such rates taking into account (i)
rates then generally available to WorldCom's other wholesale customers
under other "programs" being offered by WorldCom when taken as a whole,
and (ii) rates then generally available to WorldCom's other wholesale
customers for similar services, commitments and other terms. In
conducting such review, the parties agree to take into account state
and/or federal mandates regarding local access reform, if any, that may
affect the cost of the Services provided hereunder and which result in
either an increase or decrease to such rates. Provided, however,
nothing contained in this Section 15 will obligate WorldCom to reduce
Customer's rates under this Agreement.
16. CUSTOMER PROPRIETARY INFORMATION: In addition to WorldCom's obligations
to protect Customer's Confidential Information under Section 20 of the
TSA, WorldCom agrees to comply with all applicable laws, rules and
regulations regarding Customer's proprietary network information and
the proprietary network information of Customer's End Users which
information has been directly provided or disclosed by Customer to
WorldCom.
17. SUBORDINATION AGREEMENT: Simultaneous with the execution of this
Agreement, WorldCom agrees to execute the attached Intercreditor
Agreement by and between WorldCom, Customer and Coast Business Credit,
a division of Southern Pacific Bank.
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<PAGE> 8
18. CREDIT/SETTLEMENT:
(A) In consideration of the terms and conditions contained in this
Agreement, Customer's payment to WorldCom of --**-- on or before the
due date of WorldCom's April 1, 1999 invoice, and other good and
valuable consideration the receipt and sufficiency of which are hereby
acknowledged, upon execution of this Agreement, WorldCom agrees to give
Customer a credit (the "CREDIT") equal to --**-- which the parties
agree equals all invoiced and unpaid charges including interest and
late fees owed by Customer for Services provided by WorldCom prior to
January 1, 1999 (i.e., up through and including the January, 1999
invoice) (the "SETTLEMENT DATE") (including any Services provided to
Hebron Communication Corporation or American Electronics Corporation
d/b/a Discount Long Distance assertedly through Customer by WorldCom
through the Settlement Date. For purposes of this Agreement, such
Services shall include without limitation (i) the following WorldCom
billing account numbers for Switched Services: --**--; and the
following WorldCom billing account numbers for private line services:
--**--, and any other accounts for which Customer had payment
responsibility under that certain Payment Agreement dated June 1, 1996,
and executed by Customer, WorldCom and National Telephone &
Communications, Inc., including without limitation, billing account
numbers --**--. In addition to the Credit described herein, WorldCom
agrees to waive any finance charges up through and including March 31,
1999 (i.e., the April, 1999 invoice). WorldCom acknowledges that the
rates charged to Customer from and after November 30, 1998, through the
Rate Effective Date described in Section 1 above shall be consistent
with the rates provided under the WilMAX Telecommunications Services
Agreement dated June 1, 1996 (the "NTC AGREEMENT"), as referenced in
that certain Payment Agreement by and between WorldCom, Customer and
National Telephone & Communications, Inc. dated June 1, 1996.
(B) In consideration hereof, Customer and WorldCom, together with and
on behalf of their respective predecessors, successors, parents,
subsidiaries, affiliates, assigns, agents, directors, officers,
employees and shareholders hereby release the other party and its
respective predecessors, successors, parents, subsidiaries, affiliates,
assigns, agents, directors, officers, employees and shareholders, from
any and all claims, demands, damages, causes of action, debts,
obligations, liabilities or controversies of any kind whatsoever,
whether at law or in equity, whether before a local, state or federal
court, arbitrator or state or federal administrative agency or
commission, and whether known or unknown, liquidated or unliquidated,
that the releasing party has or may have against the other on account
of or in any way related to the NTC Agreement, any Services provided or
billed to Customer prior to the Settlement Date, or any statements
and/or representations made by the other party's personnel regarding
the Services provided to Customer (the "DISPUTED MATTERS"). Upon
receipt of the Credit, (i) it shall be the full and final settlement of
each party's disputes and claims pertaining to the Disputed Matters,
and (ii) each party shall thereafter be barred from bringing any
charge, complaint or other action against the other relating to the
Disputed Matters for all periods prior to the Settlement Date. It is
understood and agreed by the parties that this Amendment is not to be
construed or used as an admission of any liability
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<PAGE> 9
whatsoever by either party, its officers, directors, employees, agents,
representatives, affiliates or subsidiaries, which liability is
expressly denied, nor is it to be construed or used as an admission
that a party has committed or engaged in any deceptive or unlawful act,
violation or other breach of duty imposed by the NTC Agreement,
applicable tariffs or applicable law.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed these
Classic/TRANSCEND(TM) Switched Services Program Enrollment Terms.
WORLDCOM NETWORK SERVICES, INC. AMERIVISION COMMUNICATIONS,
INC.
By: /s/ John H. Krummez By: /s/ Stephen D. Halliday
------------------------------- -----------------------------
(Signature) (Signature)
John H. Krummez Stephen D. Halliday
- ---------------------------------- --------------------------------
(Print Name) (Print Name)
Senior Vice President President
- ---------------------------------- --------------------------------
(Title) (Title)
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<PAGE> 11
WORLDCOM NETWORK SERVICES, INC.
SWITCHED SERVICES
RATE SCHEDULES FOR AMERIVISION
Capitalized terms not defined in this Rate Schedule shall have the
meaning ascribed to them in the Telecommunications Services Agreement,
TSA#AVI-990301, between AmeriVision Communications, Inc. and WorldCom Network
Services, Inc.
RATES
(A) TERMINATION Service
--**--
(B) TOLL FREE ORIGINATION Service
--**--
(C) SWITCHED ACCESS Service
--**--
(D) DEDICATED ACCESS Service
--**--
(E) TRAVEL CARD Service
--**--
(F) Directory Assistance
--**--
ATTACHMENTS:
--**--
- -------------------
--**-- This symbol signifies information from the agreement that has
been omitted because the Company has requested confidential treatment. The
information has been filed separately with the Securities and Exchange
Commission.
<PAGE> 1
Exhibit 10.21
SECURITY AGREEMENT
AMERIVISION COMMUNICATIONS, INC., an Oklahoma corporation with its
principal office at 5900 Mosteller Drive, Suite 1850, Oklahoma City, Oklahoma
73112 ("DEBTOR"), and WORLDCOM NETWORK SERVICES, INC., a Delaware corporation,
with its principal office at 6929 North Lakewood Avenue, Tulsa, Oklahoma 74117
("SECURITY PARTY"), agree as follows:
SECTION 1. CREATION OF SECURITY INTEREST
Debtor hereby grants to secured Party a security interest in the
property described in Section 2 of this Agreement (the "COLLATERAL") to secure
performance and payment of (i) all obligations arising under or in connection
with that certain Telecommunications Services Agreement dated April 20, 1999
and more particularly described as TSA#AVI-990301 (including those certain
Program Enrollment Terms attached thereto) (collectively, the "TSA") between
Debtor and Secured Party, and all related instruments, documents or agreements
and any amendments, extensions, renewals or replacements of or to the
foregoing; and (ii) all other obligations and indebtedness of Debtor to Secured
Party of whatever kind and however created whether presently existing or
hereafter arising. All of the foregoing obligations and indebtedness described
in this Section 1 shall hereinafter be referred to as the "SECURED
INDEBTEDNESS," and the TSA and all other documents evidencing or giving rise to
the Secured Indebtedness shall hereinafter be referred to collectively as the
"SECURITY INSTRUMENTS."
SECTION 2. COLLATERAL
(a) As collateral for the Secured Indebtedness, Debtor hereby assigns
and grants to Secured Party a lien and security interest in all of the Debtor's
following property, wherever located, and whether now owned or hereafter
acquired or created:
(b) All of Debtor's now owned and hereafter acquired accounts (whether
or not earned by performance), letters of credit, contract rights, chattel
paper, instruments, securities, documents, securities accounts, security
entitlements, commodity contracts, commodity accounts, investment property and
all other forms of obligations at any time owing to Debtor, all guaranties and
other security therefor, all merchandise returned to or repossessed by Debtor,
and all rights of stoppage in transit and all other rights or remedies of any
unpaid vendor, lienor or secured party (collectively, "RECEIVABLES").
(c) All general intangibles of Debtor, whether now owned or hereafter
created or acquired by Debtor, including, without limitation, all choses in
action, causes of action, corporate or other business records, deposit
accounts, investment property (as such term is defined in the Uniform
Commercial Code in effect in the state of Oklahoma), inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the goodwill
of the business symbolized thereby, names,
Page 1 of 9
<PAGE> 2
trade names, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, all documents containing the names, addresses,
telephone numbers, and other information regarding Debtor's customers and
tapes, programs, printouts, disks, and other material and documents relating to
the recording, billing or analyzing of any of the foregoing, customer contracts
for the furnishing by Debtor of telecommunications services, and billing and
collection contracts, whether evidenced by a document or otherwise, security
and other deposits, rights in all litigation presently or hereafter pending for
any good cause or claim (whether in contract, tort or otherwise), and all
judgments now or hereafter arising therefrom, all claims of Debtor against
Secured Party, rights to purchase or sell real or personal property, rights as
a licensor or licensee of any kind, royalties, telephone numbers, proprietary
information, purchase orders, and all insurance policies and claims (including
without limitation life insurance, key man insurance, credit insurance,
liability insurance, property insurance and other insurance), tax refunds and
claims, computer programs, discs, tape and tape files, claims under guaranties,
security interests or other security held by or granted to Debtor, all rights
to indemnification and all other intangible property of every kind or nature
(other than Receivables).
(d) All of Debtor's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including without limitation
all raw materials, work in process, finished goods and goods in transit, and
including without limitation all farm products), and all materials and supplies
of every kind, nature and description which are or might be used or consumed in
Debtor's business or used in connection with the manufacture, packing,
shipping, advertising, selling or finishing of such goods, merchandise or other
personal property, and all warehouse receipts, documents of title and other
documents representing any of the foregoing (collectively, "INVENTORY").
(e) All of Debtor's present and hereafter acquired machinery, molds,
machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dies, jigs, goods and other goods
(other than Inventory) of every kind and description used in Debtor's
operations or owned by Debtor and any interests in any of the foregoing and all
attachments, accessories, accessions, replacements, substitutions, additions or
improvements to any of the foregoing, wherever located.
(f) All proceeds of any of the foregoing, all products of any of the
foregoing, and all books, records and documents relating to any and all of the
foregoing, whether in the form of writing, microfilm, microfiche, tape, or
electronic media.
SECTION 3. DEBTOR'S REPRESENTATIONS AND WARRANTIES
Debtor hereby represents and warrants to Secured Party that Debtor is
and will at all times in the future be, the sole owner of the Collateral,
having good and marketable title thereto (except for items of Equipment which
are leased by Debtor), free and clear of any and all liens, charges, security
interests, encumbrances, adverse claims or rights of others created by any acts
or omissions of Debtor, except for the security interest granted to Secured
Party and any and all liens and security interests that are defined as
Permitted Liens in that certain Loan and Security Agreement between Debtor and
Coast Business Credit ("COAST") dated February 4, 1999, as the same may be
amended from time to time, including, but not limited to the present and future
liens and security interests in favor of Coast and any and all additional
security interests and liens consented to in writing by Coast
Page 2 of 9
<PAGE> 3
(collectively, "PERMITTED LIENS"). Debtor will at all times defend Secured
Party and the Collateral against all claims of others other than the holders of
Permitted Liens. None of the Collateral is or will be affixed to any real
property in such a manner, or with such intent, as to become a fixture. Debtor
is not and will not become a lessee under any real property lease pursuant to
which the lessor may obtain any rights in any of the Collateral and no such
lease now prohibits, restrains, impairs or will prohibit, restrain or impair
Debtor's right to remove any Collateral from the leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Debtor shall, whenever requested by Secured Party, use its
reasonable best efforts to cause such third party to execute and deliver to
Secured Party, in form acceptable to Secured Party, such waivers and
subordinations as Secured Party shall specify, so as to ensure that the rights
of the Secured Party in the Collateral are, and will continue to be, superior
to the rights of any such third party. Debtor will keep in full force and
effect, and will comply with all the terms of, any lease for a Leased Location
where any of the Collateral now or in the future may be located.
SECTION 4. EVENTS OF DEFAULT
The following events are "EVENTS OF DEFAULT":
4.1 Failure to Pay. Debtor does not pay when due any amount due under
any of the Security Instruments or the Debtor otherwise breaches the provisions
thereof, and such nonpayment or other breach is not cured within any cure
period provided thereunder.
4.2 Limitations Regarding Collateral. The Debtor sells, transfers,
leases or otherwise disposes of any of the Collateral, or attempts, offers or
contracts to do so (other than in the ordinary course of Debtor's business), or
Debtor creates, permits or suffers to exist any lien, security interest,
encumbrance, claim or right in or to the Collateral other than Permitted Liens
and those in favor of Secured Party (the "OTHER ENCUMBRANCES"). Debtor will, at
Debtor's sole expense, defend the Collateral against and take such other action
as is necessary to remove such Other Encumbrances and defend the right, title
and interest of Secured Party in and to any of Debtor's rights to the
Collateral, including without limitation any proceeds and products thereof,
against the claims and demands of all persons other than the holder of
Permitted Liens.
4.3 Misrepresentation. Any representation or warranty made by the
Debtor herein or in any of the Security Instruments proves to have been untrue
in any material respect, or any representation, statement (including Financial
Statements), certificate or data furnished or made by the Debtor (or any
officer, accountant or attorney of the Debtor) hereunder or under any of the
Security Instruments proves to have been untrue in any material respect, as of
the date as of which the facts therein set forth were stated or certified.
4.4 Impairment of Collateral. Secured Party, in good faith, considers
any Collateral to be unsafe or in such danger of misuse that Secured Party's
prospect of or right to payment or performance under this Agreement or any
instrument or agreement required hereunder or under any other agreement between
Secured Party and Debtor is materially impaired.
Page 3 of 9
<PAGE> 4
4.5 Cross Default. Debtor breaches, defaults, or commits an event of
default under any other agreement, document or instrument between Secured Party
(or an affiliate of Secured Party) and Debtor and such breach, default or event
of default is not cured within any cure period provided thereunder.
4.6 Change of Name or Principal Place of Business. Debtor changes its
name, or its principal place of business, or changes its corporate structure in
any way that would make filed financing statements misleading without giving
Secured Party at least thirty (30) days advance written notice of such change
or move, and ensuring that any steps necessary to continue the perfection and
priority of Secured Party's security interest in the Collateral shall have been
taken, all at Debtor's expense.
4.7 Opportunity to Cure. Any Event of Default described in Subsections
4.1, 4.2 and 4.3, 4.4 and 4.5 may be cured within five (5) calendar days after
written notice by Secured Party to Debtor.
SECTION 5. SECURED PARTY'S RIGHTS
5.1 Rights of Secured Party Upon Default. If there is an Event of
Default and such default is not cured within any applicable cure period, the
Secured Party may, at its option and at any time thereafter:
(a) Declare the entire aggregate amount of the Secured
Indebtedness then outstanding and the interest and other fees
and expenses accrued thereon, and all other obligations of
debtor to Secured Party to be immediately due and payable
without notice and without presentment, demand, protest,
notice of protest, or other notice of default or dishonor of
any kind, all of which are hereby expressly waived by the
Debtor;
(b) require Debtor to assemble the Collateral, including any
books and records pertaining to the Collateral, and make them
available to Secured Party at a place designated by Secured
Party;
(c) notify any account debtor, any buyers of the Collateral,
and any other person of Secured Party's interest in the
Collateral;
(d) request confirmation from any account debtor of the
status of the account upon which the account debtor is
obligated;
(e) require Debtor to obtain Secured Party's prior written
consent to any sale, agreement to sell, or other disposition
of any Collateral (other than in the ordinary course of
Debtor's business);
(f) remedy any default or waive any default without waiving
the default remedies and without waiving any other prior or
subsequent default; and
Page 4 of 9
<PAGE> 5
(g) take such measures as Secured Party may deem necessary or
advisable to take possession of, hold, preserve, process,
assemble, insure, collect on, prepare for sale or lease,
market for sale or lease, sell or lease, or otherwise dispose
of any Collateral.
Debtor hereby constitutes and appoints Secured Party as Debtor's
attorney-in-fact to perform all acts and execute all documents solely in
connection with the remedies described in this Agreement. This power of
attorney is coupled with an interest and shall be irrevocable until such time
as all of Debtor's obligations under the Security Instruments (including
without limitation, the TSA) are satisfied in full. Secured Party's rights
under this Subsection 5.1 may only be exercised to the extent any amount of the
Secured Indebtedness remains unpaid and specifically may not be exercised with
respect to any amounts in excess of the Secured Indebtedness.
5.2 Further Documentation; Pledge of Instruments. If Secured Party
reasonably determines that further action is necessary and desirable in order
to obtain the full benefits of this Agreement and the rights and powers granted
herein, Secured Party may request in writing that Debtor execute, deliver and
record further documents, instruments, agreements and amendments (including
without limitation, any financing statements or amendments under the applicable
Uniform Commercial Code), in which case Debtor agrees to act promptly. At any
time and from time to time, upon the written request of Secured Party, Debtor
promptly and duly shall execute, deliver and record any documents, instruments,
agreements and amendments, and take all such further action as Secured Party
may reasonably deem necessary and desirable in obtaining the full benefits of
this Agreement and of the rights and powers herein granted, including, without
limitation, the filing of any financing statements or amendments under the
applicable Uniform Commercial Code. Debtor also hereby authorizes Secured Party
to file any such financing statement or amendment thereto, without the
signature of Debtor, or with a copy or telecopy of Debtor's signature, to the
extent permitted by applicable law, or to execute any financing statement or
amendment thereof on behalf of Debtor as Debtor's attorney-in-fact.
5.3 Rights Under Uniform Commercial Code. Without limiting any of
Secured Party's rights and remedies under this Agreement, Secured Party may
enforce the security interests and other liens given hereunder, and under all
Security Instruments and documents referred to herein or contemplated hereby,
pursuant to the applicable Uniform Commercial Code and any other applicable law
including all legal and equitable remedies available to lenders generally.
5.4 Payments of Taxes and Insurance. If Debtor fails to pay any taxes,
assessments, insurance premiums, or other amounts due to third parties as
required by Debtor on the Collateral, Secured Party may in its discretion, upon
reasonable prior notice to Debtor make any such payment reasonably determined
by Secured Party to be due and owing. Any payments made by Secured Party under
this Subsection 5.4 shall not constitute (i) an agreement by Secured Party to
make similar payments in the future, or (ii) a waiver by Secured Party of any
Event of Default under this Agreement. Secured Party need not inquire as to, or
contest the validity of, any such expenses, tax security interest, encumbrance
or lien, and the receipt of the notice for the payment thereof shall be
conclusive evidence that the same was validly due and owing. Debtor agrees to
pay Secured Party, on demand, each payment made by Secured Party under this
Subsection 5.4 together with a late fee, if any, provided in the TSA.
Page 5 of 9
<PAGE> 6
5.5 Rights and Remedies are Cumulative. All rights and remedies
provided herein are cumulative and may be exercised singly or concurrently, and
are not exclusive of any rights or remedies otherwise provided by law. Any
single or partial exercise of any right or remedy shall not preclude the
further exercise thereof or the exercise of any other right or remedy.
5.6 Self-Help Remedies. SECURED PARTY MAY ENFORCE ITS RIGHTS UNDER
THIS AGREEMENT WITHOUT RESORT TO PRIOR JUDICIAL PROCESS OR JUDICIAL HEARING.
NOTHING IN THIS AGREEMENT IS INTENDED TO PREVENT DEBTOR OR SECURED PARTY FROM
RESORTING TO JUDICIAL PROCESS AT SUCH PARTY'S OPTION.
5.7 Sale or Disposition of Collateral. Without limiting the generality
of the foregoing, if there is an Event of Default which the Debtor fails to
cure within any applicable cure period, the Secured Party may, at its option
and at any time thereafter, without further demand of performance, or other
demand, advertisement or notice of any kind (except the notice specified below
of time and place and public or private sale) to or upon Debtor or any other
person (all and each of which demands, advertisements and/or notices are hereby
expressly waived), may forthwith collect, receive, appropriate and realize upon
the Collateral, or any part thereof, in one or more parcel at public or private
sale or sales, at any exchange, broker's board or at any of Secured Party's
offices or elsewhere at such prices as it may deem best, for cash or on credit
or for future delivery without assumption of any credit risk. Secured Party
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of said Collateral so sold, free of any right or equity of redemption
in Debtor. To the extent permitted by applicable law, Debtor waives all claims,
damages, and demands against Secured Party arising out of the lawful
repossession, retention or sale of the Collateral in accordance with the terms
hereof.
5.8 Notice of Sale. Debtor agrees that Secured Party need not give
more than ten (10) days' notice of the time and place of any public sale or of
the time after which a private sale may take place and that such notice is
reasonable notification of such matters.
5.9 Application of Sale Proceeds. Secured Party shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care, safekeeping or otherwise of any or
all of the Collateral or in any way relating to the rights of Secured Party
hereunder, including reasonable attorneys' fees and legal expenses, to the
payment in whole or in part of the Secured Indebtedness, in such order as
Secured Party may elect. Debtor shall remain liable for any deficiency
remaining unpaid after such application and the reasonable fees of any
attorneys employed by Secured Party to collect such deficiency, and only after
so applying such net proceeds and after the payment by Secured Party of any
other amount required by any provision of law, including Section 9-504(1) of
the Uniform Commercial Code, need Secured Party account for the surplus, if
any, to Debtor.
5.10 Inspection of Records. Secured Party and any of its employees and
agents may enter upon Debtor's premises at any reasonable time to inspect
Debtor's books and records pertaining to the Collateral.
Page 6 of 9
<PAGE> 7
5.11 No Consequential Damages. SECURED PARTY SHALL NOT BE LIABLE FOR
ANY CONSEQUENTIAL, SPECIAL, INDIRECT OR INCIDENTAL DAMAGES IN CONNECTION WITH
THIS AGREEMENT OR THE COLLATERAL.
SECTION 6. ADDITIONAL PROVISIONS
6.1 Notices. Any communications between the parties hereto to be given
in writing shall be given by mailing the same, postage prepaid, or by telex,
cable, facsimile, overnight courier, or personal delivery, to each party at
their addresses set forth below or to such other addresses as either party may
in writing hereafter indicate. Any communication shall be effective upon the
earlier of delivery or five (5) days after sending.
Addresses for Notices and Communications Are:
If to the Secured Party: WorldCom Network Services, Inc.
6929 North Lakewood Avenue
Tulsa, Oklahoma 74117
Attention: Credit and Collections
If to Debtor: AmeriVision Communications, Inc.
5900 Mosteller Drive, Suite 1850
Oklahoma City, OK 73112
Facsimile No.: (405) 600-3823
6.2 No Waiver; Cumulative Remedies. Secured Party shall not by any
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Secured Party. A waiver by Secured Party of any right or remedy hereunder on
any one occasion shall not be construed as a bar to any right or remedy which
Secured Party would otherwise have had on any future occasion. The rights and
remedies hereunder provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
6.3 Successors and Assigns. All covenants and agreements herein
contained by or on behalf of the Debtor shall bind its successor and assigns
and shall inure to the benefit of the Secured Party and its successors and
assigns. Secured Party's rights under this Agreement or the indebtedness hereby
secured may be assigned from time to time and in any such case the assignee
shall be entitled to all of the rights, privileges and remedies granted in this
Agreement to Secured Party. Debtor may not assign this Agreement or any
instruments or documents executed in connection herewith or any of the rights
of Debtor hereunder without the prior written consent of Secured Party.
6.4 Governing Law. This Agreement shall be construed in accordance
with and governed by the laws of the State of Oklahoma, without regard to the
conflict of law provisions.
6.5 Severability. In the event any one or more of the provisions
contained in this Agreement, the Security Instruments, or in any other
instrument or document referred to herein or executed in connection with or as
a security for the TSA, shall, for any reason, be held to be invalid,
Page 7 of 9
<PAGE> 8
illegal or unenforceable, such provision(s) shall not affect any other
provisions of this Agreement, the TSA, the Security Instruments, or any other
instrument or document referred to herein or executed in connection with or as
security for the TSA.
6.6 Defined Terms. Unless otherwise defined in this Agreement, terms
used in this Agreement which are defined in the applicable Uniform Commercial
Code are used with the meanings as therein defined.
6.7 Entire Agreement. This Agreement and all instruments, agreements,
and documents attached hereto, referred to herein or executed in connection
herewith, integrate all the terms and conditions mentioned herein or incidental
hereto, constitute the entire agreement between the parties with respect to the
subject matter thereof, and supersede all prior discussions, negotiations and
communication whether oral or written. Neither Secured Party nor Debtor shall
be bound by any promises, representations, warranties, or affirmations not
contained in this Agreement, in an agreement, instrument, or document attached
hereto or referred to herein or executed in connection herewith.
6.8 Paragraph Headings. Paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provision of this
Agreement.
6.9 Attorneys' Fees. In the event either party retains the services of
an attorney in any action involving the enforcement of any provision of the
TSA, this Agreement, or any other obligation of Debtor to Secured Party, the
prevailing party as determined by the jurisdiction in which such action is
brought, shall be entitled to reasonable attorneys' fees and other costs,
expenses, and disbursements incurred by the prevailing party in connection
therewith in addition to such other relief as may be available to the
prevailing party.
SECTION 7. PRIOR SECURITY AGREEMENT
The parties acknowledge there currently exists that certain Security
Agreement (the "PRIOR AGREEMENT") dated as of June 1, 1996, by and between
Debtor and Secured Party pursuant to which debtor granted Secured Party a
security interest in certain of its Collateral as defined in such Prior
Agreement. The parties agree that upon the execution and delivery of this
Security Agreement to Secured Party, the Prior Agreement will be canceled and
superseded in its entirety by this Agreement.
Page 8 of 9
<PAGE> 9
EXECUTED as of the 20th day of April, 1999.
DEBTOR:
AmeriVision Communications, Inc.
By: /s/ Stephen B. Halliday
------------------------------------
Title: President
---------------------------------
Print Name: Stephen B. Halliday
----------------------------
ATTEST:
Name:
------------------------------------
Title:
-----------------------------------
[SEAL]
SECURED PARTY:
WorldCom Network Services, Inc.
By: /s/ Robert S. Vetera
------------------------------------
Title: Vice President
---------------------------------
Print Name: Robert S. Vetera
----------------------------
THE UNDERSIGNED HEREBY CONSENTS TO
AMERIVISION COMMUNICATIONS, INC.'S
GRANTING OF THE SECURITY INTEREST TO
WORLDCOM NETWORK SERVICES, INC. AS
SET FORTH IN THIS AGREEMENT:
Coast Business Credit(R), a division of
Southern Pacific Bank
By:
------------------------------------
Title:
---------------------------------
Print Name:
----------------------------
Page 9 of 9
<PAGE> 1
EXHIBIT 10.22
CONFIDENTIAL
AMERIVISION LETTERHEAD
July 14, 1999
Mr. Tracy Freeny
5900 Mosteller Drive, Suite 1850
Oklahoma City, Oklahoma 73112
Dear Tracy:
This letter is to set forth our agreement as previously discussed.
The Company's financial records reflect an accrued return of capital
payable to you of $3,225,000 at March 31, 1999 (the "Account"). As a condition
to the Coast loan to the Company, you agreed to subordinate your Account to the
Coast loan and to defer payment of that Account (which is described in the Coast
agreement dated February 4, 1999 as a note with a principal balance of
$3,275,108 at January 1, 1999) as described in pages 28 and 29 of the Coast
agreement. The Company's financial records at March 31, 1999 also reflect
current liabilities of $41,719,000, current assets of $18,516,000 and a retained
earnings (deficit) of ($32,291,000). The Company desires to defer payment of the
Account to a future time when the Company's financial condition has improved and
the Company has funds available, legally and in good business practice, to pay
the Account.
In consideration of your subordination of the Account to the Coast loan
and your deferral of payment of the Account as provided in the Coast agreement
and as further provided herein, the Company will pay you $300,000 a year until a
determination by the Board of the Company, based on legal opinions or judicial
review, that the Company can or cannot pay the Account consistent with
applicable laws. The Board will undertake such a determination no later than
December 31, 2001. If the Board so determines that the Account can be paid,
payment in full shall be due immediately or in accordance with other
arrangements between you and the Company and the annual payments shall be
credited as payments on the Account.
In no event will the Company make payments under this agreement in
excess of the amounts of payment to you as allowed under the Coast agreement or
that would otherwise cause the Company to violate the Coast agreement or to
cause a default thereunder.
<PAGE> 2
Mr. Tracy Freeny
July 14, 1999
Page 2
If this letter sets forth your agreement with the Company, please
execute in the space provided below.
Very truly yours,
AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
----------------------------
Stephen D. Halliday
President/CEO
Agreed to and accepted:
/s/ Tracy Freeny
- ----------------------
Tracy Freeny
July 14, 1999
<PAGE> 1
EXHIBIT 10.23
AGREEMENT
OF KERRY A. SMITH
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of this 1st day
of December, 1998, by and between the individual identified on Exhibit A hereto
("Individual"), and AmeriVision Communications, Inc., an Oklahoma corporation
("AmeriVision").
RECITALS
WHEREAS, AmeriVision wishes to retain Individual and Individual wishes
to be retained by AmeriVision, all on the terms and conditions set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Individual and AmeriVision hereby agree as follows:
1. Employment Duties. AmeriVision hereby employs individual in the
position identified on Exhibit A hereto, made a part hereof and incorporated
herein by reference, and Individual hereby accepts for the term of this
Agreement and subject to the terms and conditions set forth herein. Individual
shall report to and serve at the direction of the President/CEO of AmeriVision
and shall, subject to such direction, have such responsibilities, duties and
authority as are customary for such position, and shall participate in the
administration and execution of AmeriVision's business affairs, operations and
policies at the direction of the President/CEO of AmeriVision. AmeriVision's
Board of Directors or President/CEO may change Individual's title or
responsibilities upon notice of the same to Individual. Beginning upon execution
of this Agreement, individual shall perform faithfully and to the best of his or
her abilities the duties assigned, and shall devote his or her full and
undivided business time and attention to the transaction of the business and
affairs of AmeriVision.
2. Term. The term of this Agreement shall commence on thirty (30) days
from the above date (the "Commencement Date"), and shall continue in effect
until the second anniversary of the Commencement Date (the "Initial Term"),
unless sooner terminated pursuant to Section 3 hereof (the Initial Term and any
extension thereof shall be known as the "Terms"). Upon expiration of the Initial
Term, this Agreement shall renew automatically for successive terms of one (1)
year each, unless AmeriVision notifies Individual of its intention not to renew
at least ninety (90) days prior to the expiration of the then current Term,
which shall not result in any liability for severance pay as set forth in
Section 3 hereof.
3. Termination and Severance Pay. Notwithstanding Section 2 and Section
4 hereof, AmeriVision may also terminate this Agreement at any time during the
Term and for any reason whatsoever upon ninety (90) days notice to Individual.
If AmeriVision notifies Individual of its
<PAGE> 2
election to terminate Individual pursuant to this Section before the first
anniversary of the Effective Date, Individual shall be entitled to receive
severance pay equal to six (6) months pay (and payable in a lump sum or over the
course of such period, at the option of AmeriVision) and health insurance for
such period. If AmeriVision notifies Individual of its election to terminate
Individual pursuant to this Section between the first anniversary of the
Effective Date and the second anniversary of the Effective Date, Individual
shall be entitled to receive severance pay equal to four (4) months pay and
health insurance for such period. Severance pay shall be payable in a lump sum
or over the course of the period covered, at the option of AmeriVision. In
addition to the amounts set forth in the previous two sentences, upon
termination pursuant to this Section. Individual shall be entitled to receive a
share of the Guaranteed Bonus identified on Exhibit A hereto pro rata from the
beginning of the fiscal year in which the termination occurs (the "Termination
Year") to the date of the termination notice (the "Pro Rated Guaranteed Bonus"),
which shall be calculated as follows: The Pro Rated Guaranteed Bonus shall be
equal to the total Guaranteed Bonus for the entire Termination Year (a)
multiplied by a fraction the numerator of which is the number of days in the
Termination Year through the date of the termination notice and the denominator
of which is 365, and then (b) reduced (but not below zero) by the amount of
Guaranteed Bonus already paid to individual with respect to the Termination Year
prior to the date of the termination notice. Individual shall not be entitled to
any severance pay except as specifically set forth in this Section. Severance
pay after the Initial Term shall be subject to negotiation between Individual
and AmeriVision.
4. Salary. As compensation for services provided hereunder, AmeriVision
shall pay Individual an amount which is no less than a base annual salary and
Compensated Bonus in the amount listed in Exhibit A hereto (the "Base Salary")
at intervals (currently bi-monthly) consistent with AmeriVision's customary
practice as such practice may from time-to-time change. The Base Salary and
Guaranteed Bonus shall be subject to review after the Initial Term and may, at
AmeriVision's discretion, be adjusted from time-to-time according to
Individual's responsibilities, capabilities, performances and any other factor
deemed appropriate by AmeriVision.
5. Exclusive Services. Individual shall devote his or her entire time
and attention to AmeriVision's business and shall not, without the written
consent of AmeriVision, either directly or indirectly, engage to any other
profession or business to which Individual would be giving his or her time and
effort to the detriment of AmeriVision's business.
6. Business Expenses. AmeriVision shall reimburse individual for
reasonable and necessary business expenses incurred by Individual in performing
his duties so long as such expenses are consistent with any budget or policies
established by AmeriVision. Individual shall provide AmeriVision with reasonable
supporting documentation sufficient to satisfy reporting requirements of the
Internal Revenue Service and AmeriVision.
7. Nondisclosure of Information and Post Employment Restrictions.
a. Nondisclosure of confidential information and trade
secrets. Individual agrees that, except as authorized by AmeriVision or a final
judicial determination by a court of law, Individual shall not use or disclose
any "Confidential Information," as defined in Section 7(b) of this Agreement, or
Trade Secrets respecting AmeriVision during the Term or at any time thereafter.
-2-
<PAGE> 3
b. "Confidential Information." Individual understands and
agrees that: (i) in the course of Individual's retention by AmeriVision it will
be necessary for Individual to acquire information which could include, in whole
or in part, information concerning AmeriVision sales, sales volume, sales
methods, sales proposals, customers and prospective customers, identity of
customers and prospective customers, identity of key purchasing personnel in the
employ of customers and prospective customers, amount or kind of customer
purchases from AmeriVision, AmeriVision sources and terms of supply, AmeriVision
computer programs, system documentation, special hardware, product hardware,
related software development, AmeriVision manuals, formulae, processes, methods,
machines, compositions, ideas, improvements, inventions, or other confidential
or proprietary information belonging to AmeriVision or relating to AmeriVision's
affairs (collectively referred to as "Confidential Information); (ii) the
Confidential Information is the property of AmeriVision; (iii) the use,
misappropriation, or disclosure of the Confidential Information would constitute
a breach of trust and could cause irreparable injury to AmeriVision; and (iv) it
is essential to the protection of AmeriVision's good will and to the maintenance
of AmeriVision's competitive position that the Confidential Information be kept
secret and that Individual not disclose the Confidential Information to others
or use the Confidential Information to Individual's own advantage or the
advantage of others.
c. Restrictions on Competition. Individual covenants and
agrees that, during the period of Individual's retention and for a period of one
(1) year following the latter of: (i) termination of this Agreement, and (ii)
the last day of the period as to which severance or any other pay or
compensation relates, Individual shall not engage, directly or indirectly,
whether as principal or as agent, officer, director, employee, consultant,
shareholder, or otherwise, alone or in association with any other person,
corporation or other entity, in any Competing Business which has a location
which is a corporate headquarters or regional office within fifty (50) miles of
Oklahoma City, Oklahoma. For purposes of this Agreement, the term "Competing
Business" means any person, corporation or other entity which sells or attempts
to sell any products or services which are the same as or similar to the
products and services sold or promoted by AmeriVision at any time and from time
to time during the two (2) years immediately prior to the termination of
individual's employment.
d. Non-Solicitation of Customers and Suppliers. Individual
agrees that, during his or her retention with AmeriVision and for one (1) year
following the latter of: (i) termination of this Agreement, and (ii) the last
day of the period as to which severance or any other pay or compensation
relates, Individual will not directly or indirectly solicit the trade of, or
trade with, any customer, prospective customer or supplier of AmeriVision for
any business purpose other than for the benefit of AmeriVision.
e. Non-Solicitation of Individuals. Individual agrees that,
during his or her employment with AmeriVision and for one (1) year following the
latter of (i) termination of this Agreement, and (ii) the last day of the period
as to which severance or any other pay or compensation relates, Individual will
not, whether on his or her own behalf or on behalf of another person,
corporation or other entity, directly or indirectly solicit or induce, or
attempt to solicit or induce, any employee of AmeriVision to leave AmeriVision
for any reason whatsoever, or hire any person who then is, or was during the
Term, an employee of AmeriVision.
-3-
<PAGE> 4
f. Return of Materials. Upon the termination of Individual's
employment with AmeriVision, including without termination for any reason, with
or without cause, Individual will promptly deliver to AmeriVision all
correspondence, drawings, blueprints, manuals, letters, notes, notebooks,
reports, flowcharts, programs, proposals and any documents concerning
AmeriVision's customers or concerning products or processes used by AmeriVision,
together with all copies, compilations and analyses of any of the foregoing,
and, without limiting the foregoing, will promptly deliver to AmeriVision any
and all other documents or materials containing or constituting Confidential
Information.
g. Equitable Relief. Because a remedy at law for any breach of
the provisions of this Section 7 will be inadequate, in addition to any and all
other remedies available to AmeriVision, AmeriVision shall be entitled to have
the remedies of a restraining order, injunction or other emergency, temporary or
permanent equitable relief to enforce the provisions hereof. Individual agrees
that the issues in any action brought under this Section 7 will be limited to
claims under this Section 7 and all other claims and counterclaims under other
provisions of this Agreement will be excluded. All expenses, including
reasonable attorneys' fees and expenses arising out of claims under this Section
7 shall be borne by the losing party to the fullest extent permitted by law. The
provisions in Section 17 (arbitration) notwithstanding. AmeriVision may elect to
remedy an alleged breach by Individual of this Section 7 by commencing an
immediate court action without resort to arbitration in any court of competent
jurisdiction.
h. Individual acknowledges, warrants, represents, and agrees
that the confidentiality covenants, restrictions and competition and the
additional nondisclosure of information and post-employment restrictions
contained in this Section 7 are necessary for the protection of AmeriVision's
legitimate business interest and are reasonable in scope and content.
8. Inventions and Work Product.
a. For purposes of this Section 8, the following definitions
shall apply:
i. "Inventions", shall mean: (A) all
inventions, improvements, modifications, and
enhancements, whether or not patentable,
made by Individual during Individual's
retention by AmeriVision, and (B) all
inventions, improvements, modifications and
enhancements made by Individual during a
period one (1) year after any suspension or
termination of Individual's employment by
AmeriVision, which relate, directly or
indirectly, to the past, present or future
business of AmeriVision.
ii. "Work Product" shall mean all documentation,
manuals, software, creative works, know-how,
processes and information created, in whole
or in part, by Individual during
Individual's retention by AmeriVision,
whether or not copyrightable or otherwise
protectable, excluding Inventions.
-4-
<PAGE> 5
b. Individual shall promptly disclose to AmeriVision all
inventions and keep accurate records relating to the conception and reduction to
practice of all Inventions. Such records shall be the sole and exclusive
property of AmeriVision, and Individual shall surrender possession of such
records to AmeriVision upon any suspension by termination of Individual's
retention with AmeriVision.
c. Individual hereby assigns to AmeriVision, without
additional consideration to Individual, the entire right, title and interest in
and to the Inventions and Work Product and in and to all proprietary rights
therein or based thereon. Individual agrees that the Work Product shall be
deemed to be a "work made for hire," Individual shall execute all such
assignments, oaths, declarations and other documents as may be prepared by
AmeriVision to effect the foregoing.
d. Individual shall provide AmeriVision with all information,
documentation, and assistance AmeriVision may request to perfect, enforce or
defend the proprietary rights in or based on the Inventions or Work Product.
AmeriVision, in its sole discretion, shall determine the extent of the
proprietary rights, if any, to the protected in or based on the Inventions and
Work Product. All such information, documentation, and assistance shall be
provided at no additional expense to AmeriVision, except for out-of-pocket
expenses which Individual incurs at AmeriVision's request.
e. Individual represents, warrants and covenants that he or
she owns no proprietary rights in any Inventions or Work Product.
9. Severability Reformation. Should any provision of this Agreement, or
the application thereof, to any extent, be held invalid or unenforceable by a
court of competent jurisdiction, the remainder of this Agreement, or alternative
applications thereof shall not be affected thereby and shall continue to be
valid and enforceable to the fullest extent permitted by law or equity. Further,
should any provisions of this Agreement be held invalid or unenforceable by
reason of an excessive scope, restrictions or obligation, such provision shall
be deemed reformed to provide for such scope, restriction or obligation to the
fullest extent deemed not to be invalid or unenforceable.
10. Notices. All notices required or permitted under this Agreement
shall be in writing and shall be deemed delivered when delivered in person or
deposited in the United States mail, postage prepaid, addressed as follows:
If to AmeriVision, to:
5900 Mosteller Drive
Suite 1850
Oklahoma City, OK 73112
Attn: Dan Carter
Fax: (405) 600-3823
If to Individual, to the address set forth on Exhibit A hereto.
-5-
<PAGE> 6
11. Entire Agreement. This Agreement, together with any other
agreements concurrently or subsequently entered into between the parties hereto,
contain the entire Agreement of the parties with respect to the subject matter
hereof and thereof, and there are no other promises or conditions in any other
agreement whether oral or written. This Agreement supersedes any prior written
or oral agreements between the parties.
12. Amendment. This Agreement may be modified or amended only by a
writing signed by both parties.
13. Waiver of Breach. The waiver by AmeriVision of a breach of any
provisions of this Agreement by Individual shall not operate or be construed as
a waiver of any subsequent breach by Individual.
14. Assignment; Third-Party Beneficiaries. The rights and obligations
of AmeriVision and Individual under this Agreement are of a personal nature,
and, therefore this Agreement and the rights and obligations of the parties
hereto are not assignable by Individual. This Agreement is personal in nature
and there are no third-party beneficiaries.
15. Governing Law. This Agreement shall be incorporated and constructed
pursuant to Texas law.
16. Knowing and Voluntary Agreement Entered into After Opportunity for
Review by Counsel. Individual represents and warranties that he or she has been
afforded an opportunity for his or her attorney to thoroughly and completely
review this Agreement with him or her, and that he or she understands the
contents hereof and agrees to be bound by the terms of this Agreement.
17. Dispute Resolution. If a dispute arises from or relates to this
contract or breach thereof, and if the dispute cannot be settled through direct
discussion between the parties, the parties hereby agree to endeavor first to
settle the dispute by mediation administered by the American Arbitration
Association under its Commercial Mediation Rules before resorting to
arbitration. Any unresolved controversy or claim arising from or relating to
this contract or breach thereof shall be settled by arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules, and judgment on the award rendered by the neutral arbitrator
may be entered in any court having jurisdiction thereof. The arbitrator shall
have the authority to award equitable as well as legal relief. Any mediation or
arbitration shall be held in Dallas, Texas.
18. Reimbursement. AmeriVision agrees to reimburse Individual to the
extent that PricewaterhouseCoopers ("PWC") requires a non-competition payment
under the Individual's contract with PWC.
[SIGNATURE PAGE FOLLOWS]
-6-
<PAGE> 7
SIGNATURE PAGE FOR EMPLOYMENT AGREEMENT
AMERIVISION: AMERIVISION COMMUNICATIONS, INC.
By: /s/ Stephen D. Halliday
-----------------------------
Name: Stephen D. Halliday
Title: President/CEO
INDIVIDUAL: /s/ Kerry A. Smith
------------------------------------
Kerry A. Smith, Individual
-7-
<PAGE> 8
EXHIBIT A
Individual: Kerry A. Smith
Home Address: 2701 Westmoreland Drive
Plano, Texas 75093
Facsimile: 972-596-5847
Position: Vice President - Support Services
Base Annual Salary: $215,000
Health Benefits: Consistent with Company policy
Bonuses: Guaranteed Annual Bonus: $50,000 for the
year beginning December 1, 1998 payable as
follows:
<TABLE>
<CAPTION>
Payment Payment Date
------- ------------
<S> <C> <C>
First Quarter $8,000.00 March 31
Second Quarter $8,000.00 June 30
Third Quarter $8,000.00 September 30
Fourth Quarter $26,000.00 December 31
</TABLE>
The Guaranteed Annual Bonus will be no less
than the amounts set forth above, but
increases shall be subject to performance
objectives set by AmeriVision President/CEO
Steve Halliday, including those set forth
below:
o Create Service Delivery organization
o Introduce new products and services
into AmeriVision organizational
structure and sales portfolio.
o Increase departmental efficiencies
through reallocation of resources and
streamlining functionality.
o Implement automated solutions and
applications to achieve productivity
gains and cost reductions.
o Establish performance objectives, sales
and marketing goals across all lines of
product and services.
o Develop strategy for migration to
facilities- based carrier.
o Define strategies for MIS directions,
Y2K risk management and IT improvement
initiatives.
-8-
<PAGE> 9
MEMORANDUM
TO: Kerry A. Smith
FROM: Stephen D. Halliday
DATE: December 2, 1998
RE: Agreement dated December 1, 1998
Listed below are additional compensation details related to the
Agreement dated December 1, 1998:
o At Risk Bonus Pools for all Senior Executives
o 2% of Net Revenue generated from TRI Enhanced Platform
("VirtuO")
o 2% of Net Revenue generated from Prepaid Debit Cellular
(Shared Technology)
o 1% of incremental long distance Net Revenue associated with
AmeriVision's quarterly performance starting with the
second fiscal quarter after the Commencement Date.
Net Revenue is collected revenue less sales and non-profit
commissions, payments and royalties and less sales returns and
allowances. The above three pools are separate and each shall
be decreased to the extent the budgeted Gross Profit
Percentage is not achieved. Gross Profit Percentage is the
percentage calculated based on Net Revenue less direct
expenses associated with that pool. The reduction shall be 1%
for every .5% shortfall in gross profit percentage.
Accordingly, no bonus shall be due unless at least 50% of the
budgeted gross profit percentage is achieved. These pools
shall apply to the Initial Term only. The applicability of the
pools to any renewal term is subject to negotiation. Each
bonus pool is payable forty-five (45) days after the end of
the calendar year for all eligible employees who are still
employed at that date. All pools will be calculated on a
calendar year basis.
o Stock Incentive Plan ("SIP"). Employee will be granted twice
the average award of options under the AmeriVision SIP. It is
anticipated that the SIP will have two phases or 5% each of
822,000 shares allocated to the senior executives, and that
Phase I shall be completed on or before June 30, 1999. Fair
market value of the options will be determined on day of
issuance after plan approval. Stock will be subject to a
vesting schedule anticipated to be no more than four (4)
years. In the event that the company is merged or sold and
AmeriVision is not the dominate or surviving party, a cash
settlement will be awarded to Employee for all vested and
awarded but uninvested stock options. The settlement will
reflect the purchase price
-9-
<PAGE> 10
at the time of sale or merger. The SIP is subject to approval
of such plan by the Board of Directors of AmeriVision.
AMERIVISION COMMUNICATIONS, INC.
/s/ Kerry A. Smith By: /s/ Stephen D. Halliday
- -------------------------------------- -----------------------------
Kerry A. Smith, an individual Name: Stephen D. Halliday
Title: President/CFO
-10-
<PAGE> 1
Exhibit 21.1
Subsidiary
None.
<PAGE> 1
EXHIBIT 23.1
[COLE & REED, P.C. LETTERHEAD]
CONSENT OF INDEPENDENT AUDITORS
We consent to the use in this Registration Statement on Form 10 of our report
dated April 30, 1999, except for Note C, as to which the effective date is
September 24, 1999, relating to the consolidated financial statements of
AmeriVision Communications, Inc. as of December 31, 1997 and 1998, and for the
years ended December 31, 1996, 1997 and 1998.
/s/ COLE & REED, P.C.
Oklahoma City, Oklahoma
September 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1998 JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1998 DEC-31-1997 DEC-31-1996
<CASH> 635 15 553
<SECURITIES> 0 0 0
<RECEIVABLES> 12,193 16,043 12,853
<ALLOWANCES> 393 233 183
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 13,396 17,293 13,973
<PP&E> 2,724 2,245 2,323
<DEPRECIATION> 1,606 1,178 642
<TOTAL-ASSETS> 21,259 24,554 20,961
<CURRENT-LIABILITIES> 36,986 38,104 32,294
<BONDS> 8,489 6,027 1,642
0 0 0
1,755 3,035 3,853
<COMMON> 80 80 79
<OTHER-SE> (26,051) (22,692) (16,906)
<TOTAL-LIABILITY-AND-EQUITY> 21,259 24,554 20,961
<SALES> 124,232 113,351 100,858
<TOTAL-REVENUES> 124,232 113,351 100,858
<CGS> 63,523 58,240 53,433
<TOTAL-COSTS> 121,798 109,346 100,197
<OTHER-EXPENSES> 767 99 200
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 5,967 4,169 1,833
<INCOME-PRETAX> (4,200) (249) (1,258)
<INCOME-TAX> (643) 92 (396)
<INCOME-CONTINUING> (3,557) (341) (862)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (3,557) (341) (862)
<EPS-BASIC> (4.22) (1.01) (3.79)
<EPS-DILUTED> (4.33) (1.01) (3.79)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,502
<SECURITIES> 0
<RECEIVABLES> 17,912
<ALLOWANCES> 443
<INVENTORY> 0
<CURRENT-ASSETS> 19,655
<PP&E> 6,512
<DEPRECIATION> 2,392
<TOTAL-ASSETS> 28,122
<CURRENT-LIABILITIES> 39,012
<BONDS> 10,540
0
1,727
<COMMON> 80
<OTHER-SE> (23,237)
<TOTAL-LIABILITY-AND-EQUITY> 28,122
<SALES> 57,180
<TOTAL-REVENUES> 57,180
<CGS> 26,667
<TOTAL-COSTS> 49,742
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,620
<INCOME-PRETAX> 5,020
<INCOME-TAX> 2,219
<INCOME-CONTINUING> 2,801
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,801
<EPS-BASIC> 3.52
<EPS-DILUTED> 3.42
</TABLE>
