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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported):
September 30, 1999
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AVERY COMMUNICATIONS, INC.
(Exact name of registrant as specified in charter)
Delaware 000-27095 12-2227079
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
190 South LaSalle Street
Suite 1710
Chicago, IL 60603
(Address of Principal Executive Offices)(Zip Code)
(312) 419-0077
(Registrant's telephone
number, including area code)
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Item 2. Acquisition or Disposition of Assets.
In March 1999, Avery entered into a merger agreement with Primal Systems,
Inc. and the principal shareholders of Primal. Primal is a privately held
software development corporation that designs, develops and supports an
integrated suite of client/server and browser-based software solutions focusing
on customer acquisition and retention in the telecommunications industry,
primarily utilizing decision support software and Internet technologies.
On September 30, 1999, the transaction was closed and Primal merged into a
wholly owned subsidiary of Avery. The name of the surviving corporation was
changed to Primal Solutions, Inc.
At the time of the merger, Avery issued 4,000,000 shares of Avery's
convertible preferred stock in exchange for all of the issued and outstanding
shares of Primal. Of this amount, 2,000,000 shares will be held in escrow to
satisfy the indemnification obligations of the principal shareholders of Primal
under the merger agreement. Any shares not returned to Avery under these
indemnification provisions will be released to Primal's shareholders based upon
the consolidated operating performance of Primal and Primal's wholly owned
subsidiary, Primal Billing Solutions, from August 1, 1999, through July 31,
2000.
The Primal shareholders may also receive up to a maximum 4,000,000
additional shares of Avery convertible preferred stock as additional
consideration for the merger based on the consolidated operating performance of
Primal and Primal Billing Solutions from August 1, 1999, through July 31, 2000.
The shares of convertible preferred stock issued and issuable by Avery are
convertible into Avery common stock on a one-for-one basis.
The consolidated operating performance of Primal and Primal Billing
Solutions will be based upon the consolidated revenues and actual operating
losses of Primal and Primal Billing Solutions during the period from August 1,
1999, through July 31, 2000. To receive the minimum additional shares under the
merger agreement, Primal and Primal Billing Solutions must have consolidated
revenues during this period of at least $6,660,000. To receive the maximum
number of shares under the merger agreement, Primal and Primal Billing Solutions
must have consolidated revenues during this period of at least $15,540,000.
There are eight revenue and operating loss thresholds between the minimum and
maximum thresholds that provide for the release of a pro rata number of shares
between the minimum and maximum amounts. The number of shares are subject to
reduction in each case if the actual consolidated operating loss of Primal and
Primal Billing Solutions for such period exceeds the consolidated operating loss
specified in the merger agreement for the applicable consolidated revenue
amount.
In addition, the principal shareholders of Primal will have the right
during September and October 2000 to require Avery to repurchase up to 1,550,000
shares of Avery common stock issued upon the conversion of the Avery preferred
stock received in the merger for the purchase price of
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$2.50 per share if Primal and Primal Billing Solutions have consolidated gross
revenues of at least $8,325,000 and their consolidated operating loss does not
exceed $1,082,000 during the period beginning August 1, 1999, and ending July
31, 2000. Assuming that Mark J. Nielsen is still employed by Avery on August 15,
2000, the number of shares required to be repurchased will be reduced by the
total number of shares received by Mr. Nielsen in the Primal merger. The minimum
number of shares Mr. Nielsen could receive at such consolidated gross revenues
and operating loss thresholds is 456,340 shares, which would reduce the
repurchase obligation to 1,093,660 shares. The maximum number of shares Mr.
Nielsen could receive is 1,215,600, which would reduce the repurchase obligation
to 334,400 shares.
At the time of the merger, Avery entered into employment agreements with
the principals of Primal and entered into an agreement to register the
underlying shares of Avery common stock into which the Avery convertible
preferred stock is convertible.
Item 7. Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The financial statements required by this item will be filed not later
than 60 days following the filing date of this Form 8-K.
(a) Pro forma financial information.
The pro forma financial information required by this item will be
filed not later than 60 days following the filing date of this Form 8-
K.
(c) Exhibits
2.1 Primal Merger Agreement (filed as Exhibit 2.5 to Avery's
Registration Statement on Form SB-2 (Registration No. 333-65133) and
incorporated by reference herein)
2.2 Amendment No. 1 to the Primal Merger Agreement (filed as Exhibit
2.1 to Avery's Current Report on Form 8-K, dated September 27, 1999, and
incorporated by reference herein)
99.1 Press release announcing the closing of the Primal Systems, Inc.
merger
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AVERY COMMUNICATIONS, INC.
Date: October 4, 1999 By: /s/ Scot M. McCormick
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Scot M. McCormick
Vice President
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EXHIBIT INDEX
Exhibit Page
Number Description of Document Number
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2.1 Primal Merger Agreement (filed as Exhibit 2.5 to Avery's Registration
Statement on Form SB-2 (Registration No. 333-65133) and
incorporated by reference herein)
2.2 Amendment No. 1 to the Primal Merger Agreement (filed as Exhibit 2.1
to Avery's Current Report on Form 8-K, dated September 27, 1999, and
incorporated by reference herein)
99.1 Press release announcing the closing of the Primal Systems, Inc. merger
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EXHIBIT 99.1
FOR IMMEDIATE RELEASE
OCTOBER 4, 1999
AVERY COMMUNICATIONS COMPLETES ACQUISITION OF PRIMAL SYSTEMS
Acquisition Expands Avery's Business into the Wireless and Internet Markets
CHICAGO, IL - October 4, 1999 - Avery Communications, Inc. (OTC BB: ATEX), a
provider of Internet-enabled customer management and intelligence solutions to
IP and telecom operators, today reported that it has completed its acquisition
of Primal Systems, Inc., a privately-held company providing enterprise solutions
for Customer Relationship Management (CRM) to the communications industry
worldwide. Primal Systems, Inc. was merged into a wholly-owned subsidiary of
Avery Communications, and will now be known as Primal Solutions, Inc.
All of Primal's current management and other staff, totaling 88, are continuing
with the merged business. The company's operations will remain in Irvine,
California.
Avery to Realize Important Strategic Benefits
"In addition to having tremendous synergies with Avery's existing customer base,
Primal operates a business with tremendous growth potential of its own," said
Mark Nielsen, Avery's President and CEO. "Primal is an excellent vehicle for
implementing Avery's stated strategy of expanding into the Internet Protocol
(IP) and Customer Relationship Management areas of the communications
marketplace. In addition, Primal's e-commerce direct billing product expands
Avery's core expertise into the fastest growing, highest potential markets -
wireless and the Internet."
Primal's business plan anticipates approximately $8-$10 million in calendar 1999
revenue.
Commenting on his company's merger with Avery, Primal's founder and President
John Faltys said, "It is clear that the core competencies of both companies will
benefit as a result of our merger with Avery. Primal can leverage Avery's
customer base and financial foundation to introduce our e-commerce and CRM
solutions into a wider market more aggressively."
Acquisition Terms
Pursuant to the terms of the acquisition agreement, Avery issued 4,000,000
shares of Avery's convertible preferred stock in exchange for all of the issued
and outstanding shares of Primal. Of this total amount, 2,000,000 shares have
been placed in an escrow account, and will be released to Primal's shareholders
upon satisfaction of the indemnification obligations of Primal's principal
shareholders under the acquisition agreement, as well as performance benchmarks
established for Primal through July 2000. The Avery convertible preferred
shares are convertible one-for-one into Avery common stock. The closing price
of Avery common stock on October 1, 1999 was $0.875.
Earnout Provisions
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Avery established performance incentives for Primal. Primal shareholders are
eligible to receive up to an additional 4,000,000 shares of Avery convertible
preferred stock as incentive consideration, depending on the operating
performance of Primal and its subsidiary, Primal Billing Solutions, from August
1, 1999 through July 31, 2000. The maximum amount of shares under the merger
agreement will be granted if the consolidated operating revenues of Primal
reaches $15,540,000.
About Avery and Primal Systems
Avery Communications is the public parent of two wholly-owned subsidiaries: HBS
Billing Services, Ltd., provides local exchange carrier (LEC) clearinghouse
billing services to domestic long-distance telephone companies and other third
party billers who desire their charges to appear on the local telephone bill.
The company's operations are based in San Antonio, Texas. Based in Irvine,
California, Primal Solutions, Inc. is a leading provider of customer management
and intelligence solutions to the communications industries worldwide, including
web-enabled customer acquisition and retention, billing, switch mediation and
decision support. Its Outfront(TM) Decision Support software utilizes some of
the newest Java-based technology to provide telecommunications and Internet
providers with powerful business intelligence for customer retention, valuation
and executive decision making. For more information, please visit the company's
web site at www.primalsys.com.
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Certain statements contained in this document may be deemed to be forward-
looking statements under federal securities laws and Avery intends that such
forward-looking statements be subject to the safe-harbor created thereby. Such
forward-looking statements include, but are not limited to (i) expectations of
strategic benefits to be realized by Avery as a result of acquiring Primal, and
(ii) growth in the financial performance of Avery as a result of acquiring
Primal. Avery cautions that these statements are qualified by important factors
that could cause actual results to differ materially from those reflected by the
forward-looking statements contained herein. Such factors include, but are not
limited to (a) the failure of Avery successfully to integrate the operations of
Primal into its existing business, and (b) other risks as detailed from time to
time in Avery SEC reports, including Quarterly Reports on Form 10Q, Currents
Reports on Form 8-K, and Annual Reports on Form 10-K.
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