TELEPHONE COMPANY ACQUISITION AGREEMENT
THIS AGREEMENT is entered into by and between CONVERGENT COMMUNICATIONS,
INC., ("CCI") of 0000 Xxxxx Xxxxxxxx Xxxxxxxxx, Xxxxx 000-0, Xxxxxx, Xxxxxxxx
00000, and FIRST CONTINENTAL GROUP, L.C. ("FCG") of 0000 Xxxxxxxx Xxxx,
Xxxxxxxx, Xxxx 00000, and ICN, LLC ("LLC") of 0000 Xxxxxxxx Xxxx, Xxxxxxxx,
Xxxx 00000 (hereinafter collectively referred to as "the parties") this ___ day
of July, 1996.
RECITALS
WHEREAS, FCG owns ninety-six percent (96%) of the stock of a telephone
company called ICN, LLC ("LLC"); and
WHEREAS, CCI controls a management team with proven experience in growing
telecommunications companies into larger and stronger entities; and
WHEREAS, CCI's management has experience in raising funds for
telecommunications companies; and
WHEREAS, the parties believe that by entering into this Agreement, they
will be able to create a new and more vital ICN corporation ("NEW ICN") with
CCI's management and business plan to grow the company as a new communications
company taking advantage of the 1996 Telecommunications Act; and
WHEREAS, there is a certain dispute with Xxxxxxx X. Xxxxxx ("Xxxxxx") and
entities that he owns or controls which may cause him to interfere with NEW ICN;
and
WHEREAS, the parties desire that Xx. Xxxxx Xxxxxx, a principal of LLC, have
some comfort in the transition between LLC and NEW ICN.
THEREFORE, IT IS AGREED AS FOLLOWS:
The rights and the responsibilities of the parties to this Agreement depend
upon whether there is a closing. The "Closing," as defined herein, is the
closing of at least Four Million Dollars ($4,000,000) in financing for NEW ICN,
whether it be debt or equity, on or before November 30, 1996.
PRE-CLOSING OBLIGATIONS OF CCI
1. DEPOSIT. In order to secure this Agreement, CCI shall pay to FCG as a
deposit the sum of One Hundred Thousand Dollars ($100,000) upon FCG's execution
hereof.
2. BEST EFFORTS FINANCING. CCI shall use its best efforts
to secure financing for the capitalization of NEW ICN, in the sum of at least
Four Million Dollars ($4,000,000) by November 30, 1996. The Principal Financial
Group will be considered by CCI when selecting potential sources of financing.
3. CAPITAL LOANS. During the term of this Agreement and so long as FCG
is not in breach, CCI shall loan NEW ICN Twenty-Five Thousand Dollars ($25,000)
per month to defray the operating expenses of the Company beginning August 15,
1996. Each $25,000 shall be represented by a note executed by LLC and NEW ICN.
All inter-company receivables shall be subordinate to the loans called for by
this Section 3. FCG's guarantees shall be continuing in nature and shall be in
a form acceptable to CCI's counsel. Each of these notes shall be secured by a
lien on all of the assets of LLC. FCG will cause LLC to execute and deliver to
CCI a security agreement and such financing statements as CCI's counsel
requests, and in a form requested by CCI's counsel, to perfect CCI's security
interest. The notes shall be due one year from the date each is executed, and
shall bear interest at the rate of nine percent (9%) per annum. In the event a
note becomes in default, the interest rate shall be eighteen percent (18%) per
annum and all attorneys' fees and costs incurred concerning the collection of
the note shall be borne by the defaulting party. The notes shall contain a
venue selection clause which specifies that they shall be enforceable through
arbitration pursuant to the commercial arbitration rules of the American
Arbitration Association in Denver, Colorado and that the laws of the State of
Colorado apply to the enforceability of the notes. At Closing, the working
capital notes and the payment of One Hundred Thousand Dollars ($100,000) paid
pursuant to Section 1 shall be repaid or converted as provided in section 17(g)
hereafter. In the event FCG defaults hereunder or Closing becomes futile, CCI
shall not be obligated to make further loans under this Section 3.
4. FAILURE OF CLOSING. In the event there is no Closing and FCG is not
in default of this Agreement, CCI's deposit of One Hundred Thousand Dollars
($100,000) shall not be refundable and shall be retained by FCG. CCI shall be
under no further obligation to FCG. This specifically includes, but is not
limited to, any obligation to make the loans described in Section 3, above.
PRE-CLOSING OBLIGATIONS OF FCG AND LLC
5. CONVERSION TO NEW ICN. FCG and LLC, at their own risk and liability,
will cause all of the assets and liabilities of LLC to be converted to assets
and liabilities of a subchapter "C" stock corporation, to be known as ICN
Corporation (hereinafter referred to as "NEW ICN").
6. SECURE OWNERSHIP. FCG will cause itself to become the one hundred
percent (100%) owner of NEW ICN.
7. FURNISH PROOF. FCG will furnish CCI with evidence satisfactory to
CCI's counsel that it has performed its obligations pursuant to paragraphs 5
and 6 within thirty (30) days of the execution of this Agreement. FCG will
bear all legal fees and expenses to perform the acts described in Sections 5
and 6 above. However, at Closing, FCG shall be reimbursed by NEW ICN for
these legal fees and expenses.
8. FURTHER STEPS. From the date of this Agreement until Closing, or the
November 30, 1996 termination of this Agreement, whichever is later, FCG and LLC
shall take all steps with regard to themselves and their assets to facilitate
CCI's efforts to raise Four Million Dollars ($4,000,000) in capital for NEW ICN,
including, but not limited to, any steps required by the investors or
underwriters of the financing or their counsel.
9. COOPERATION. FCG and LLC will fully cooperate and not interfere in
any fashion with CCI's efforts to secure the Four Million Dollar ($4,000,000)
financing.
10. SILENCE. FCG and LLC shall conduct no public or private discussion of
the sale of their businesses or the assets of their businesses unless directed
to do so by CCI.
11. NON-DEPLETION. FCG and LLC shall not deplete or transfer any of their
assets during the term of this Agreement.
12. DEBTS. FCG and LLC shall not incur any debts or obligations outside
of the necessary and ordinary course of their businesses during the term of this
Agreement.
13. RECEIVABLES. FCG shall not collect any inter-company receivables owed
it by LLC.
14. XXXXXX DISPUTE. FCG is currently in a dispute with Xxxxxx and his
entities arising out of Xxxxxx'x former business dealings with LLC and FCG. FCG
agrees to compromise and settle this dispute as soon as possible so that there
is no legal impediment or threat to this Agreement or NEW ICN. CCI agrees to
pay half of any funds paid, up to the sum of $25,000, in the settlement of this
dispute.
15. TERMINATION. In the event this Agreement terminates without default
by FCG, all obligations of FCG and LLC shall cease, except their obligations to
repay and guarantee repayment of the loans described in Section 3 above.
However, if FCG becomes in default of this Agreement or any other note or
agreement with CCI, it shall additionally immediately refund the One Hundred
Thousand Dollars ($100,000) paid pursuant to Section 1.
PARTIES' OBLIGATIONS AT CLOSING
16. CONDITION OF CLOSING. The full and complete performance of this
Agreement by all parties hereto shall be a condition of the Closing.
17. CLOSING OBLIGATIONS. Simultaneously with the Closing, the Parties
shall:
a. Cause NEW ICN to issue stock to CCI so that the result of the
stock issuance is that NEW ICN is owned sixty-eight percent (68%)
by CCI and thirty-two (32%) percent by FCG. It is contemplated
that NEW ICN will initially issue eleven million shares. FCG's
thirty-two percent (32%) will consist of 3.5 million shares of
stock and, in addition, FCG will hold a 1 million share
convertible debenture which, if fully converted, would give FCG
an additional six percent (6%), for a total thirty-eight (38%)
percent potential ownership interest in NEW ICN.
b. Cause 7.5 million shares to issue to CCI, and 3.5 million shares
to issue to FCG.
c. Enter into the "Shareholders' Agreement" in the form attached
hereto and made a part hereof as EXHIBIT A.
d. Enter into a shareholder voting agreement which provides that
while FCG has a thirty-two percent (32%) interest or more in the
ownership of NEW ICN, the board shall consist of five (5) seats,
two (2) of which shall be selected by FCG, and three (3) of which
shall be selected by CCI. Provided, however, that so long as FCG
shall be owed the convertible note described in Section 17(e)
below, FCG shall have the right to select at least one (1) board
seat. FCG's right to select one (1) board seat while the
convertible debenture exists shall be placed in the bylaws of NEW
ICN.
e. Cause NEW ICN to pay FCG One Million Dollars ($1,000,000) from
the proceeds of the Closing and to cause NEW ICN to execute a One
Million Dollar ($1,000,000) convertible note in favor of FCG in
the form attached hereto and made a part hereof as EXHIBIT B.
f. Cause NEW ICN to pay $170,000 to FCG in full satisfaction of all
receivables between ICN and FCG existing at that time. FCG shall
execute a
release of all debts of LLC and NEW ICN which existed prior to
closing in a form acceptable to counsel for CCI.
g. Cause the working capital notes provided for in Section 3 above
and the One Hundred Thousand Dollar ($100,000) deposit provided
for in Section 1 above to be repaid in full in the event the
initial financing exceeds Five Million Dollars ($5,000,000) or at
the sole election of CCI cause these debts to be retired by the
issuance of one share of stock for each $1.00 owed to CCI. In
the event the initial funds raised are less than Five Million
Dollars ($5,000,000), the separate notes shall be consolidated
and reflected in one convertible debenture evidencing the
indebtedness which shall be secured by all assets of ICN. ICN
shall execute a security agreement and such financing statements
as required and in a form acceptable to CCI's counsel. The new
note shall be in the form attached hereto and made a part hereof
as EXHIBIT C. It being the intent of the parties that should the
company have sufficient funds to pay the consolidated note
sooner, then, in that event, the note may be paid prior to
November 30, 1997, at the election of CCI.
OBLIGATIONS OF NEW ICN TO XXXXX XXXXXX AT CLOSING
18. EMPLOYMENT CONTRACT. At the time of Closing, the parties shall cause
an employment contract to be executed between NEW ICN and Xxxxx Xxxxxx with the
following provisions:
a. The term of the contract shall be five (5) years at $125,000 per
year.
b. NEW ICN shall, however, have the right to terminate Xx. Xxxxxx at
any time during the first two years of the contract by paying him
three years' salary.
c. At the beginning of each fiscal year, the board of directors
shall set a pre-established budget criteria and bonus plan which
could result in Xx. Xxxxxx receiving a bonus of not more than
fifty (50%) percent of his salary based on targets established by
the board for the company's performance.
d. Xx. Xxxxxx will be Chief Operating Officer to the Telephone
Operations of the company and will report to the Chief Executive
Officer of NEW ICN.
e. As an officer of NEW ICN, Xx. Xxxxxx will be entitled to the same
health benefits, business expenses and 401(k) plans of NEW ICN as
are all other executive officers of that entity. This will
include an executive company car and other executive perquisites
commensurate with his duties as an executive officer of the
company.
f. It is understood that Xx. Xxxxxx is an officer and director of
various companies and, as such, has duties and responsibilities
to those other companies. NEW ICN will agree that he may
continue his involvements provided that he spend at least eighty
percent (80%) of his time performing his ICN duties. Xx. Xxxxxx
will acknowledge that he is aware of the corporate opportunity
doctrine and agree to bring any business opportunities related to
the businesses of NEW ICN first to the board of NEW ICN.
19. FEMA LOAN. LLC has an outstanding FEMA loan which is guaranteed by
Xxxxx Xxxxxx. The parties shall cause the FEMA loan to be assumed by NEW ICN
and shall use its best efforts to see that Xx. Xxxxxx is released from his
status as a guarantor on that obligation. In the event Xx. Xxxxxx cannot be
released from the obligation, then CCI and FCG will cause NEW ICN to indemnify
Xx. Xxxxxx as long as he has liability pursuant to the FEMA loan, and will cause
NEW ICN to create a reserve cash instrument in a mutually agreeable form to
assure Xx. Xxxxxx that NEW ICN's agreement to indemnify him is enforceable.
MISCELLANEOUS PROVISIONS
20. AMENDMENT. This Agreement may be amended only by the written
agreement of the parties.
21. NUMBER AND GENDER. Unless the context requires otherwise, words
denoting the singular may be construed as denoting the plural; and words of the
plural may be construed as denoting the singular; and words of one gender may be
construed as denoting such other gender as is appropriate.
22. PERFORMANCE OF NECESSARY ACTS. Each party agrees to perform any
further acts and to execute and deliver any additional documents which may be
reasonably necessary to carry out the provisions of this Agreement.
23. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
parties, their heirs, personal representatives or other legal representatives,
successors and assigns. No party may assign any of his rights or obligations
arising hereunder to
any other person or entity.
24. SEVERABILITY. Should any one or more of the provisions hereof be
determined to be illegal or unenforceable, all other provisions hereof shall be
given effect separately therefrom to cause such other provisions to be legally
enforceable and such other provisions shall not be affected thereby.
25. NON-WAIVER. The failure of a party to the Agreement to enforce any
provision, right, claim or assessment under this Agreement upon any default or
violation thereof on a particular occasion shall not operate as a waiver of such
party to enforce any subsequent defaults or violations of any provision, right,
claim or assessment under this Agreement.
26. ATTORNEYS' FEES. In any action at law or in equity or subject to
arbitration under the provisions of this Agreement to enforce any of the
provisions or rights under this Agreement, unless otherwise provided in this
Agreement, the unsuccessful party of such litigation or arbitration, as
determined by the court in a final judgment or decree, shall pay to the
successful party or parties all costs, expenses and reasonable attorneys' fees
incurred therein by such party or parties (including, without limitation, such
costs, expenses and fees on any appeals), and if such successful party shall
recover judgment in any such action or proceeding, such costs, expenses and
attorneys' fees shall be included as part of such judgment.
27. APPLICABLE LAW. Except as otherwise expressly provided herein, it is
the intention of the parties that the laws of the State of Colorado shall govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties.
28. ARBITRATION. All disputes between the parties arising out of this
Agreement shall be arbitrated in Denver, Colorado pursuant to the Rules of the
American Arbitration Association.
29. CAPTIONS. Section captions or headings are not to be considered a
part of this Agreement and are included solely for convenience and are not
included to be full or accurate descriptions of the contents thereof nor shall
such headings be controlling of the interpretation of the contents of any such
section.
30. SEPARATE COUNTERPARTS. This Agreement may be executed in separate
counterparts which shall collectively and separately be considered one and the
same Agreement.
31. MERGER. This Agreement constitutes the entire agreement between the
parties concerning its subject matter.
32. TERM OF THE AGREEMENT. The term of this Agreement
shall be from the date first above written to and including November 30, 1996,
unless extended by written consent of all parties hereto.
33. PARTIES' RIGHTS IF IPO. If it is in the best interests of NEW ICN as
determined by its board of directors, and subject to the underwriters agreement
as to price, propriety of the transaction and amount of stock, then FCG and CCI
shall each have the right to purchase up to twenty percent (20%) of any initial
public offering at the offering price determined by the underwriter.
34. MATERIAL DETERIORIATION. In the event that LLC or NEW ICN's gross
revenues deteriorate by ten percent (10%) during the term of this Agreement,
then the $100,000.00 deposit provided for in Section 1 hereof shall be repaid at
once jointly and severally by NEW ICN, FCG and LLC, and the notes called for in
Section 3 hereof shall be accelerated and shall become due and payable in full.
CONVERGENT COMMUNICATIONS, INC.
BY:
ITS
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FIRST CONTINENTAL GROUP, L.C.
BY:
ITS
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ICN, LLC
BY:
ITS
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