-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JWZBgqimcdnSwdd1QtnoV8hFmipQajjXZrwJNvcoTy04STJDVKkIum85eUA2byC5 CwQjrVfJlrCPglU58Q8aLQ== 0000927025-96-000032.txt : 19960416 0000927025-96-000032.hdr.sgml : 19960416 ACCESSION NUMBER: 0000927025-96-000032 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960415 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICONNECT INC CENTRAL INDEX KEY: 0000837993 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE COMMUNICATIONS (NO RADIO TELEPHONE) [4813] IRS NUMBER: 481056927 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-18654 FILM NUMBER: 96547285 BUSINESS ADDRESS: STREET 1: 6750 W 93RD ST STE 110 CITY: OVERLAND PARK STATE: KS ZIP: 66212-1465 BUSINESS PHONE: 9133418888 MAIL ADDRESS: STREET 1: 6750 W 93RD STREET STREET 2: STE 110 CITY: OVERLAND PARK STATE: KS ZIP: 66212-1465 FORMER COMPANY: FORMER CONFORMED NAME: AMERIFAX INC /DE/ DATE OF NAME CHANGE: 19920703 10KSB 1 AMERICONNECT 10KSB U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB MARK ONE [X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-18654 AMERICONNECT, INC. (NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER) DELAWARE (STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) 6750 WEST 93RD STREET, SUITE 110, OVERLAND PARK, KS 66212 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) 48-1056927 (I.R.S. EMPLOYER IDENTIFICATION NO.) (913) 341-8888 (ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE) -------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE EXCHANGE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE EXCHANGE ACT: COMMON STOCK, PAR VALUE $.01 PER SHARE. --------------------- CHECK WHETHER THE ISSUER (1) FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE ISSUER WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO ___ CHECK IF THERE IS NO DISCLOSURE OF DELINQUENT FILERS IN RESPONSE TO ITEM 405 OF REGULATION S-B CONTAINED IN THIS FORM, AND NO DISCLOSURE WILL BE CONTAINED, TO THE BEST OF ISSUER'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-KSB OR ANY AMENDMENT TO THIS FORM 10-KSB. [X] ISSUER'S REVENUES FOR ITS MOST RECENT FISCAL YEAR WERE $17,099,635. TO THE BEST OF THE COMPANY'S KNOWLEDGE, THE AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY NON-AFFILIATES OF THE ISSUER IS APPROXIMATELY $6,767,961, BASED UPON AN AVERAGE BID AND ASKED PRICE OF $1.34 AT MARCH 28, 1996, BASED ON INFORMATION OBTAINED FROM THE NASDAQ BULLETIN BOARD, WHICH IS A QUOTATION SERVICE. THE AGGREGATE MARKET VALUE OF THE ISSUER'S CLASS A COMMON STOCK, NO SHARES OF WHICH WERE HELD BY NON-AFFILIATES AT DECEMBER 31, 1995, IS NOT READILY ASCERTAINABLE. THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF COMMON EQUITY AT MARCH 28, 1996, WAS AS FOLLOWS: 6,324,717 SHARES OF COMMON STOCK AND 592,033 SHARES OF CLASS A COMMON STOCK. DOCUMENTS INCORPORATED BY REFERENCE: PORTIONS OF THE ISSUER'S DEFINITIVE PROXY STATEMENT FOR THE 1996 ANNUAL MEETING OF STOCKHOLDERS, TO BE FILED WITH THE COMMISSION ON OR BEFORE APRIL 29,1996, ARE INCORPORATED BY REFERENCE INTO PART III OF THIS ANNUAL REPORT ON FORM 10-KSB. TRANSITIONAL SMALL DISCLOSURE FORMAT: YES NO X FORM 10-KSB ANNUAL REPORT YEAR ENDED DECEMBER 31, 1995 Item No. Topic Page PART I Item 1. Description of Business. . . . . . . . . . . . . . . 1 Item 2. Description of Property. . . . . . . . . . . . . . . 5 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 5 Item 4. Submission of Matters to a Vote of Security Holders. 5 PART II Item 5. Market for Common Equity and Related Stockholder Matters. . . . . . . . . . . . . . . . . 6 Item 6. Management's Discussion and Analysis or Plan of Operation . . . . . . . . . . . . . . . . . . . . . 7 Item 7. Financial Statements . . . . . . . . . . . . . . . .12 Item 8. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure .28 PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance With Section 16(a) of the Exchange Act . . . . . . . . .29 Item 10. Executive Compensation . . . . . . . . . . . . . . .29 Item 11. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . .29 Item 12. Certain Relationships and Related Transactions . . .29 Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . .29 PART I ITEM 1. DESCRIPTION OF BUSINESS GENERAL OVERVIEW AmeriConnect, Inc., a Delaware corporation, which was organized under the name Amerifax, Inc. ("Amerifax") in Delaware on June 28, 1988 ("AmeriConnect"), together with its wholly owned subsidiary, AmeriConnect, Inc. of New Hampshire, a New Hampshire corporation ("ANH" and, together with AmeriConnect, the "Company"), provides long distance telecommunications services to individuals and small to medium-sized businesses. On June 7, 1994, Amerifax changed its name to AmeriConnect, Inc. ANH was formed on June 28, 1993 and started doing business in New Hampshire in July 1993. The Company is a switchless reseller of long distance telecommunications services and, as such, does not own or lease any telephone equipment or participate in the call completion process. Instead, the Company places its customers on the long distance networks of facilities-based, interexchange carriers, which provide the actual call transmission services. Currently, the Company utilizes the services of Sprint Communications, L.P. ("Sprint") and WilTel, Inc. ("WilTel"). These interexchange carriers bill the Company at contractual rates for the combined usage of the Company's customers utilizing such carriers' respective networks. The Company then bills its customers individually at rates established by the Company. The Company is responsible for payments to its carriers without regard to whether payment is made by the Company's customers. The Company's corporate headquarters are located at 6750 W. 93rd St., Suite 110, Overland Park, Kansas 66212, and its telephone number is (913) 341-8888. RECENT DEVELOPMENTS - POSSIBLE MERGER On January 15, 1996, the Company and Phoenix Network, Inc. ("Phoenix"), a San Francisco, California-based long distance reseller and provider of value-added telecommunications services, signed a letter of intent to merge the two companies in a stock- for-stock transaction. The parties currently are negotiating a definitive merger agreement. In connection with the proposed merger, Phoenix expects to issue approximately 4 million new shares of common stock in exchange for all of the outstanding shares of the Company. It is currently anticipated that the closing will take place on or about August 15, 1996, pending the obtaining of all necessary regulatory approvals and approval of the shareholders of both companies. There can be no assurance that the ongoing negotiations between the Company and Phoenix will in fact result in the execution of a definitive merger agreement or that the terms of any such agreement will be as described above. SERVICES AND PRICING The Company provides to its customers a wide variety of long distance telecommunications services, including both switched and dedicated "WATS" services, "800" services, calling card services, account codes and international calling, as well as other specialized services designed for customers with more sophisticated telecommunications needs. The Company's customers are able to obtain, through the Company, substantially all of the basic services offered by the Company's underlying interexchange carriers to such carriers' direct sale customers, but at rates generally lower than those available directly from the carrier. Individually, the Company's customers do not have sufficient long distance usage to qualify for the discount rates made available by major carriers to large users of long distance services. By combining all of its customers' traffic under the Company's accounts with the carriers, the Company can take advantage of volume discounts offered by such carriers and, in turn, can pass along a portion of such savings to its customers. The Company's customers provide the Company with information regarding their telephone numbers and locations, which the Company processes and forwards to one of its interexchange carriers. The carrier makes the appropriate arrangements with the local telephone company so that the customer's long distance traffic is routed to that carrier. The carrier then sends the Company, on a periodic basis, information regarding the long distance traffic of all the Company's customers who are serviced by such carrier. The Company is obligated to pay the carrier for such traffic at contractual rates without regard to whether payment is made by the Company's customers. The Company processes the information and provides its customers with monthly invoices for such customers' long distance calls at rates established by the Company. The customers are obligated to pay the Company directly. The Company offers its customers a pricing option of one flat rate per minute (any time and without restrictions) on interstate long distance calls to points almost anywhere in the United States. In general, the Company believes the weighted average of the rates charged by the Company's long distance competitors to typical small to medium-sized business customers is higher than the Company's flat rate pricing option. The flat rate pricing concept is also available for the in-bound "800" and calling card services offered by the Company. While the Company also offers price structures for its various services that are more typical of the industry (i.e., based upon time of use, distance and total volume), most of its customers select the flat rate products. The Company believes this is due to the fact that these products are easier for customers to understand than traditional volume- and time-variable products. In response to the marketing efforts of the major interexchange carriers, the Company offers customers twelve month and twenty-four month Guaranteed Rate Plans ("GRPs"), assuring customers of consistent rates over the selected period. VENDORS The Company provides long distance telecommunications services to its customers primarily through the Sprint network, an all-digital, all-fiber optic transmission system, pursuant to a Carrier Transport Switched Services Agreement, dated July 28, 1995, between Sprint and the Company (as amended, the "Sprint Agreement"). The Company also provides long distance telecommunications services to its customers using the WilTel network, pursuant to a Telecommunications Services Agreement, dated June 27, 1994, between WilTel and the Company (as amended, the "WilTel Agreement"). Pursuant to the Sprint Agreement and the WilTel Agreement, the Company receives discounts on long distance services from Sprint and WilTel based upon the total volume of services purchased by the Company. Both agreements contain minimum usage requirements that the Company must meet in order to avoid shortfall penalties. The Company neither owns nor leases any switching or transmission facilities used in the actual call completion process, and, as a consequence, the Company is entirely dependent on the facilities-based carriers providing these services for the Company's customers. MARKETING The Company targets small to medium-sized businesses which are active users of long distance services. These businesses generally are not large enough to take advantage of the volume discounts offered by major interexchange carriers to their large customers. The Company provides what it believes to be superior billing and customer service at lower prices than major interexchange carriers. To differentiate itself from the major interexchange carriers, the Company offers a package of value-added billing summary reports. These reports may include summaries identifying usage by telephone number, traffic type, time of day and day of month, as well as frequently called numbers and international calls. The Company also places a strong emphasis on customer relations. All new customers receive a welcome letter, most receive an activation call, and larger customers receive periodic customer support calls to measure their satisfaction with the Company and its services and to sell additional services. The Company markets its services primarily through non- employee sales agents which are supported by area sales directors ("ASDs") who are employees of the Company. Each ASD is responsible for assisting existing sales agents and recruiting new sales agents within his or her geographic region. The Company believes the utilization of non-employee sales agents to be the most cost effective method of sales because sales agents generally are compensated only by commissions tied directly to sales. Sales by sales agents now represent approximately seventy-two percent (72%) of the Company's monthly revenue and this percentage is expected to increase during 1996. Sales by one agent now represent approximately nineteen percent (19%) of the Company's monthly revenue. During 1995, the Company utilized approximately 81 non-employee sales agents throughout the United States. At December 31, 1995, the Company employed 4 ASDs and now employs 3 ASDs. The Company also markets its services through its own direct sales force, which sales personnel are compensated on a salary plus commission basis. In December 1995, the Company hired a new sales manager and two new sales persons, all of whom were concentrating their sales efforts in the Kansas City metropolitan area. During the first three months of 1996, the Company hired an additional four new sales persons to concentrate on sales in the Kansas City metropolitan area. For the year ended December 31, 1995, thirty-four percent (34%) of the Company's revenues were from the Kansas City metropolitan area. While the Company does not advertise through the mass- media, it indirectly benefits from advertising by the major interexchange carriers. Through their advertising, the Company's primary market is made aware of choices in long distance suppliers. In addition, the Telecommunications Resellers Association ("TRA"), of which the Company has been a member since its inception, promotes resellers such as the Company. TRA's public relations campaign has included major stories in periodicals such as Inc. Magazine, Smart Money and Entrepreneur as well as regular coverage in Communications Daily, Network World and Phone +. CUSTOMERS As of December 31, 1995, the Company had 7,085 customers subscribing to its long distance telecommunications services. This represents a decrease of 849 customers or approximately 11% from the number of customers at December 31, 1994. During 1995, the Company billed its customers an average of approximately $190 for long distance usage, compared to average per customer billings of approximately $150 during 1994. The Company believes the decrease in the number of customers and the increase in the amount of the average customer bill are primarily attributable to the loss of certain residential customers associated with a particular agent. See "Legal Proceedings" and "Management's Discussion and Analysis or Plan of Operation - General." During 1995, no single customer accounted for more than 2% of the Company's gross revenues. COMPETITION The long distance telecommunications industry is highly competitive and subject to rapid technological and regulatory change. The Company's competitors include the three major facilities-based, interexchange carriers (American Telephone and Telegraph Company ("AT&T"), MCI Telecommunications Corporation ("MCI") and Sprint), other large carriers (e.g., Frontier Communications, Inc. ("Frontier") and WorldCom Communications, Inc. ("WorldCom")) and several hundred smaller carriers. As a result of the newly enacted Telecommunications Act of 1996 (the "Telecommunications Act"), the regional bell operating companies (the "RBOCs") are now authorized to provide inter-LATA ("local access and transport area") long distance telephone services outside their own regions, and, under certain circumstances, to provide inter-LATA long distance telephone services within their own regions. The Telecommunications Act also removes the prohibition on providing long distance services previously imposed on the GTE telephone operating companies (the "GTOCs"). The three major carriers, the RBOCs, the GTOCs and many of the other carriers have resources significantly greater than those available to the Company, as well as longer operating histories and larger customer bases. From time to time any of these entities may be able to provide a range of services comparable to or more extensive than those provided by the Company at rates competitive with the Company's rate structure. In addition, new companies may be formed which utilize the same volume-discount pricing available to the Company, because the Company does not have proprietary contractual arrangements in that regard. Most prospective customers of the Company are already receiving service directly from at least one long distance carrier, and the Company must convince prospective customers to alter these relationships to generate new business. As a result of the foregoing, there can be no assurance that the Company will be competitive. Furthermore, the Company is in direct competition with the facilities-based carriers for the right to service the end user. The Company believes, given the highly competitive nature of the industry, that the carriers view switchless resellers as an alternative marketing channel giving the carrier incremental minutes of traffic with no marketing cost and minimal support costs. On February 8, 1996, the Telecommunications Act was signed into law. This legislation permits the RBOCs to provide inter-LATA long distance services under certain circumstances and subject to certain restrictions. In particular, the new legislation permits each of the RBOCs to provide inter-LATA service outside its own region. Additionally, an RBOC may offer in-region inter-LATA service if federal and state regulators determine (i) that the RBOC has opened its local loop network to competitors and (ii) that the RBOC faces competition from a facilities-based provider offering local exchange service to businesses and residents in that state. In order for the RBOC to offer this in-region long distance service, the Federal Communications Commission (the "FCC") also must determine that such entry is in the "public interest." Many of the RBOCs and the GTOCs have already announced their intention to enter the business of reselling long distance services and, as a result, the Company will face significant additional competition. However, entry into this business will involve compliance by these companies with certain regulatory requirements. See " - Regulation." In addition, certain regulatory proceedings affecting the Company and its competitors may affect the Company's competitive position. For a more detailed discussion of the regulatory proceedings affecting the Company, see " - Regulation." REGULATION The FCC retains general regulatory jurisdiction over the provision of telecommunications services by all common carriers, but does not currently regulate the long distance telephone rates or profit levels of non-dominant common carriers such as the Company. The FCC imposes certification and tariff filing requirements for international service and tariff filing requirements for domestic interstate service for all common carriers. The FCC, however, has recently proposed "mandatory de- tariffing" of services offered by non-dominant long distance carriers such as the Company, pursuant to authority granted in the Telecommunications Act. This mandatory de-tariffing would relieve all domestic long distance companies, including the Company, from the requirement of filing tariffs. Utilizing authority granted in the Telecommunications Act, the FCC has also recently proposed regulations to govern the entry of the RBOCs into the interstate long distance service markets. The FCC has proposed that, so long as these long distance services are offered by affiliates of the RBOCs that are structurally separate from the RBOCs, these interexchange services would be classified as "non-dominant" (like the services provided by the Company). Services classified as dominant are subject to increased regulation of rates, earnings and operations by the FCC. In a separate rulemaking proceeding, the FCC has also recently proposed elimination of the structural separation requirement for the long distance services offered by independent local exchange carriers and RBOCs outside their regions. The proposals described above remain under consideration by the FCC. Many of the existing long distance carriers and long distance resellers have urged the FCC to classify the RBOCs' long distance service units as dominant, allowing the FCC greater oversight of their rates, earnings and operations. These companies have also urged the FCC to adopt stricter structural separation requirements. The RBOCs, conversely, contend that the structural separation requirements are unnecessary and constitute a violation of the Telecommunications Act. In the fall of 1995, the FCC granted AT&T non-dominant status in the domestic interexchange service market. As a result, the FCC no longer directly regulates the rates, earnings and operations of AT&T, a carrier with which the Company competes and from which the Company may lease transmission services. The Company's intrastate long distance services generally are subject to the jurisdiction of utility regulatory authorities in the states in which the Company operates. The state regulatory authorities regulate access charge arrangements between the local telephone companies and all long distance carriers for intrastate long distance services. Most state regulatory authorities also regulate entry and competition within the intrastate long distance market by requiring all carriers to obtain and maintain certificates of public convenience and necessity. Some state regulatory authorities also require carriers to file tariffs which set forth their rates and conditions of service. Regulation by the state regulatory authorities differs significantly from state to state. The Company believes it is in substantial compliance with the applicable state regulatory provisions. The Company historically has not experienced significant problems in its dealings with state regulatory authorities. There is a current trend toward less regulation of intrastate long distance telecommunications services in certain states in which the Company operates. Resale long distance carriers historically have been subject to a lesser degree of regulation than facilities-based carriers and mixed-mode carriers. Deregulation, however, may result in a more comparable degree of regulation among all carriers, particularly with regard to rates. The Company has filed and continues to file, as the case may be, for the relevant approvals from federal and state regulatory agencies to provide access to international and intrastate long distance services. As of December 31, 1995, the Company was authorized to provide intrastate service in 36 states and was awaiting approval to provide intrastate service in four additional states. The Company continues to prepare applications consistent with state filing requirements on a priority basis relative to the Company's potential customer additions. Although management believes approval of such applications will be granted, there can be no assurance that the Company will obtain all necessary remaining approvals to conduct its business as proposed. PATENTS, TRADEMARKS AND LICENSES On February 13, 1995, the Company filed two applications for federal registration of "AmeriConnect" as a service mark, one of which was for the name only and one of which was for the name with a design. On July 6, 1995, the U.S. Patent and Trademark Office informed the Company that both of its service mark applications had been refused because the service marks too closely resembled other registered service marks. On January 11, 1996, the Company filed amendments to the two service mark applications appealing the refusals. On April 9, 1996, the U.S. Patent and Trademark Office passed the two service marks to publication in the official gazette. Barring opposition by any party that feels it would be damaged by the service marks, the service marks will be registered exclusively to the Company. However, there is no assurance that the registrations will not be opposed, perhaps successfully, by other parties. In that event, the efforts of the Company and the funds expended to develop recognition of the AmeriConnect name, and to register such name, would have no value. EMPLOYEES At March 28, 1996, the Company had 36 full-time employees and no part-time employees. ITEM 2. DESCRIPTION OF PROPERTY The Company leases office space at 6750 W. 93rd St., Suite 110, Overland Park, Kansas, under a lease calling for payments of $2,653 per month from September 1, 1993, through August 31, 1998. An amendment to that lease, dated on February 1, 1994, which provides for additional office space, calls for payments of $2,243 per month from February 1, 1994 through August 31, 1998. A second amendment to the lease, dated November 23, 1994, which also provides for additional office space, calls for payments of $2,362 per month from January 1, 1995 through December 31, 1999. Consequently, the Company's total rental expense equals $7,258 per month. Rental expense for the years ended December 31, 1995 and 1994, was $87,967 and $56,358, respectively. The Company leases office space in McLean, Virginia under a lease providing for payments of $3,643 per month from June 1, 1991 through May 31, 1996. The leased property is no longer used by the Company, and the Company has obtained a sublease for this space. (See Notes 5 and 9 to the Company's Financial Statements.) In 1995, rental income from the sublease of $30,744 was netted against rental payments of $46,792 and the difference, $16,048, was charged against accrued office closing costs. ITEM 3. LEGAL PROCEEDINGS The Company is currently involved in certain disputes that have arisen in the ordinary course of business, including an action in the District Court of Johnson County, Kansas filed by the Company on July 20, 1995 against Overlooked Opinions, Inc. ("Overlooked") and a related entity, Lyrihn Communications, Inc. ("Lyrihn"). The Company's claims arose out of the alleged breach by Overlooked of an agency agreement between the Company and Overlooked for the sale of long distance services to residential customers and out of the alleged breach by Overlooked of certain loan agreements between the Company and Overlooked. Overlooked and Lyrihn have filed a counterclaim alleging breach of the agency agreement by the Company. The Company is seeking $356,669.63 plus interest and attorneys' fees in damages. Overlooked and Lyrihn are seeking an unspecified amount of damages in their counterclaim. The Company is currently negotiating a mutual release of all claims with Overlooked and Lyrihn and does not expect to incur any additional liability as a result of this litigation. In the event a mutual release is not executed, the Company intends to vigorously prosecute these actions. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1995. PART II ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS General High and low bid prices for the Company's Common Stock, par value $.01 per share (the "Common Stock"), for each quarterly period during 1994 and 1995 were: COMMON STOCK
Quarter Ended High Low March 31, 1994 15/16 1/4 June 30, 1994 1 1/8 1/8 September 30, 1994 1 3/16 December 31, 1994 1 1/4 3/16 March 31, 1995 9/16 3/8 June 30, 1995 7/16 5/16 September 30, 1995 3/8 1/4 December 31, 1995 1/2 3/8
In connection with the Company's initial public offering, the Company issued Units, each of which consisted of five shares of Common Stock and five Redeemable Class A Warrants. The Redeemable Class A Warrants expired unexercised on May 29, 1994. The Common Stock is not listed on an exchange. Price information for the Common Stock was obtained from the NASDAQ bulletin board which is a quotation service. These quotations could include inter-dealer prices and may not include retail mark-up, mark-down or commission and may not represent actual transactions. There has never been an established public trading market for the Company's Class A Common Stock, par value $.00001 per share (the "Class A Common Stock"). At March 27, 1996, there were 60 holders of record of Common Stock and 2 holders of record of Class A Common Stock. The Company has declared no cash dividends since its inception in 1988, and it is the Board's intent not to pay dividends for the foreseeable future. Rather, all available funds will be used for working capital purposes. In addition, the Company's credit facility prohibits the paying of dividends at this time. RECENT SALES OF UNREGISTERED SECURITIES On April 8, 1993, the Company issued 300,000 shares of Common Stock to Mr. Robert R. Kaemmer as a commitment fee for a revolving credit agreement, dated November 10, 1992, pursuant to which Mr. Kaemmer agreed to lend up to $300,000 to the Company. These shares were not registered under the Securities Act of 1933 (as amended, the "Securities Act") in reliance upon the exemption from registration provided in Section 4(2)of the Securities Act (the "Section 4(2) Exemption"). On April 27, 1994, Mr. Robert R. Kaemmer purchased 900,000 shares of Common Stock. Mr. Kaemmer was granted the right to purchase such stock at a purchase price of $0.33 per share on November 10, 1992, in connection with the execution of the revolving credit agreement described above. These shares were not registered under the Securities Act in reliance upon the Section 4(2) Exemption. ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT ON FORM 10-KSB CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THE SECTION ENTITLED "FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS," AS WELL AS THOSE DISCUSSED ELSEWHERE IN THE COMPANY'S REPORTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. GENERAL The Company's financial condition and results of operations deteriorated substantially during 1995, primarily as a result of the following factors. Competition. Competition in the long distance telecommunications industry increased significantly during 1995. Major long distance companies like AT&T and Sprint began to market directly to the Company's primary market - small to medium-sized businesses. Other existing competitors began aggressively reducing rates to maintain and build customer base and expand minute volume. In addition, new competitors emerged targeting the Company's primary market. Many of these competitors sought to build volume quickly and, in order to accomplish this goal, sold their long distance services at rates that, in the Company's opinion, do not reflect the full costs of doing business. Accordingly, while the Company reduced its rates and undertook efforts to maintain and build its customer base (as described below), the Company was unable to match the rates and/or services offered by many of its competitors, thereby increasing the number of customers lost to competitors. While the Company continued to acquire new customers, lost business partially offset new business. As a consequence of this competitive rate pressure, while the total minutes billed increased approximately 8% from 1994 to 1995, the average revenue per minute dropped approximately 9%. Direct Operating Costs. The negative effect of the competitive rate pressure on the Company's financial condition was exacerbated by its inability to achieve direct operating cost reductions from its major underlying carrier. Throughout 1995, the Company attempted to negotiate a new contract with such carrier which would reduce the rates paid by the Company. The Company was unable to obtain a new contract until September 1995. While the new contract reduces the Company's costs at certain increased volume targets, which would result in significant cost reductions for the Company, to date the Company has been unable to achieve the volume targets necessary to realize the reduced carrier pricing. Company's Response. In the absence of a new carrier contract, the Company sought to increase its volume by offering services at rates that were competitive in the market, but that significantly reduced the Company's margins. The Company hired Area Sales Directors and other personnel to support its sales agent program, increased commissions to sales agents to maintain its relationship with key agents, and promoted aggressive marketing campaigns designed to increase sales. While the Company believed these actions to be necessary to respond to the competitive environment, they had the effect of increasing selling, general and administrative expenses, thereby further reducing the Company's margins. These actions continue to result in increased expenses and to negatively impact the Company's margins. Write-Offs. Throughout 1995 and previous years, the Company had recorded credits due from one of its carriers which the Company believed at the time should be applied to reduce usage costs. During the year ended December 31, 1995, approximately $283,000 of these previously recorded credits were determined to be uncollectible and were written off. This write- off inflated direct operating costs and reduced overall margins for the year ended December 31, 1995. In 1994, the Company signed an agreement with an agent representing more than 25,000 residential customers. In order to facilitate the movement of these customers, the Company loaned $141,000 to the agent as an advance against future commissions and paid certain start-up costs on the agent's behalf. While the Company billed these customers for approximately $1,000,000 in long distance usage during 1994, due to circumstances beyond the Company's control, the payment performance was well below, and the attrition rate well above what the Company typically experiences with respect to small and medium-sized business customers. As a result, bad debt expense was in excess of the normal expected rate, and agent commissions were insufficient to pay off the loans which became due in December 1994. As of December 31, 1995, the total amount due from the agent, including the loans was approximately $498,000. As of December 31, 1994, the Company had recorded $100,000 as an allowance against the start-up costs due from the agent and uncollected billings due from the customers represented by this agent. During the year ended December 31, 1995, the Company determined that all start-up costs and billings from this agent are uncollectible and, accordingly, $398,000 was written off. This write-off negatively impacted sales, general and administrative expenses for the year ended December 31, 1995. These residential long distance users are no longer customers of the Company. See "Legal Proceedings." RESULTS OF OPERATIONS Total Revenues. Total revenues increased from $16,984,324 in 1994 to $17,099,635 in 1995, an increase of $115,311 or approximately 1%. While the total number of minutes billed during 1995 increased approximately 8% over 1994, the average revenue per minute decreased approximately 9%. Also contributing to the flat revenue increase was the loss in late 1994 of an agent that represented a large number of residential customers. Direct Operating Costs. Direct operating costs increased from $12,642,307 in 1994 to $13,399,190 in 1995, an increase of $756,883 or approximately 6%. As a percentage of revenues, direct operating costs increased from approximately 74% in 1994 to 78% in 1995. Direct operating costs for 1994 included $150,000 in customer appreciation credits from one of the Company's interexchange carriers. Without the $150,000 credit, direct operating costs for 1994 would have been $12,792,307 or approximately 75% of revenue. Direct operating costs for 1995 were negatively impacted by a $200,000 write-off of credits due from a supplier. Without the $200,000 write-off, direct operating costs for 1995 would have been $13,199,190 or approximately 77% of revenue. The increase in direct operating costs as a percentage of revenues, as adjusted, results primarily from competitive pressures previously mentioned which reduced the revenue per minute charged to the Company's customers while the rates charged the Company by the major underlying carrier remained relatively constant. Selling, Administrative and General Expenses. The Company's selling, administrative and general expenses increased from $3,912,979 in 1994 to $4,847,248 in 1995, an increase of $934,269 or approximately 24%. As a percentage of revenue, selling, administrative and general expenses increased from 23% in 1994 to 28% in 1995. The biggest single increase in this expense category in dollars was in compensation expense. Compensation expenses increased from $2,136,194 in 1994 to $2,418,641 in 1995, an increase of $282,447 or approximately 13%. Salaries for sales related positions increased from $168,594 to $299,205, an increase of $130,611 or approximately 77%, which increase resulted from the addition of several sales positions throughout 1995. Agent commissions increased from $1,310,236 to $1,435,996, an increase of $125,760 or approximately 10% due to the introduction in 1995 of a commission plan designed to attract high volume agents. Billing expenses increased from $469,050 in 1994 to $610,196 in 1995, an increase of $141,146 or approximately 30%. This increase is attributable in part to an increase in monthly processing fees charged by the Company's billing agent. The number of Company call records processed increased significantly during 1995 and the Company is charged by its billing agent on a per record basis. In addition, the amount of stored historical information within the billing system continued to accumulate during 1995. The Company took measures in early 1996 to find alternative storage methods for such information in order to reduce the portion of billing expenses attributable to such storage. Bad debt expenses increased from $537,640 in 1994 to $739,374 in 1995, an increase of $201,734 or approximately 38%. During 1994, the Company signed an agreement with an agent representing more than 25,000 residential customers. In order to facilitate the movement of these customers, the Company loaned $141,000 to the agent as an advance against future commissions and paid certain start-up costs on the agent's behalf. While the Company billed these customers for some long distance usage during 1994, due to circumstances beyond the Company's control, the payment performance was well below, and the attrition rate well above, what the Company typically experiences with respect to its small and medium-sized business customers. At December 31, 1994, a reserve of $100,000 was established against amounts due from this agent whose receivable, including unpaid charges, aggregated $498,000. During 1995, the Company and this agent became involved in litigation, and it has been determined that no recovery on the amounts will be made. As a result, the remaining receivable of $398,000 was written off. The Company is currently negotiating a mutual release of all claims with this agent and does not expect to incur any additional liability as a result of the litigation. Office occupancy expenses which include office leases, equipment leases, telephone expense and insurance expense increased from $255,479 in 1994 to $364,703 in 1995, an increase of $109,224 or approximately 43%. The increase is a result of additional leased space occupied during January 1995 and related expenses associated with an increase in personnel. Fees for professional services increased from $251,484 in 1994 to $319,207 in 1995, an increase of $67,723 or approximately 27%. This increase resulted primarily from increases in the costs of legal and accounting services associated with the litigation with an agent and the potential merger previously mentioned. A significant amount of legal expenses were also incurred in connection with the litigation previously mentioned. Travel expense increased from $53,334 in 1994 to $104,804 in 1995, an increase of $51,470 or approximately 97%. The increase is directly attributable to the addition of Area Sales Directors in late 1994. See "Description of Business - Marketing." Income Tax Effect. In 1995, the Company reduced the deferred tax asset to zero. LIQUIDITY AND CAPITAL RESOURCES On December 31, 1994 and December 31, 1995, the Company had a net worth of $1,479,219 and a deficit of $237,041, respectively. In 1994, the Company generated $301,463 cash from operations. Contributing to the cash generated from operations during 1994 was a $150,000 customer appreciation credit the Company received from one of its carriers. In 1995, the Company used $64,222 cash in operations. While the Company reported a net loss of $1,718,510 for 1995, non-cash items such as depreciation and amortization, provision for doubtful accounts and deferred income taxes collectively contributed $1,316,067 of the total loss. The remaining portion of the total loss, $402,443, along with a $118,481 increase in accounts receivable and a $691,755 increase in accounts payable, contributed to the cash used in operating activities. The Company has a contract with a firm to provide subscriber statement processing and billing services. The contract is for a period of three (3) years and expires in September 1996. Terms of the contract provide for a monthly base charge with additional per unit processing charges. Termination of this contract for cause requires a 90-day period during which any breach of the contract can be cured, plus a requirement for a subsequent written 30-day notice. Termination for cause requires the payment of all amounts owed. Termination of the contract for the convenience of the Company requires a written 180-day notice and a termination fee equal to one year's charges. The Company is required to make minimum payments of $5,000 per month. The Company has a contract with Sprint to provide telecommunications services for the Company's customers. The agreement covers the pricing of the services for a term of two years beginning September 1995. The Company has an annual minimum usage commitment of $12,000,000 through August 1996 and $14,400,000 from September 1996 to August 1997. In the event the Company's customers use less than the minimum commitment, the difference is due and payable by the Company to Sprint. Assuming a monthly average requirement of $1,000,000 under the Sprint contract, for the period from September, 1995 through December 1995 the Company accumulated a shortfall of $719,545. The Company anticipates additional shortfall amounts to accumulate during 1996. In the event the proposed merger with Phoenix Network, Inc. occurs, the Company currently anticipates that all accumulated shortfall amounts will be addressed in a new contract between Sprint and the surviving corporation. In the event the proposed merger does not occur, the Company has begun negotiations with Sprint to address the accumulated shortfall. While the Company believes the accumulated shortfall at December 31, 1995, and any additional shortfall amounts, will be resolved in a manner which will not have a material adverse effect on the business or financial condition of the Company in the event the proposed merger does not occur, there can be no assurance of such a result. If the Company were required to pay the full amount of accumulated shortfalls, this would have a material adverse effect on the Company's financial condition. The Company has a contract with WilTel, Inc. ("WilTel") to provide telecommunications services at discounted rates which will vary based upon the amount of usage by the Company. The term of this usage commitment is thirty-nine (39) months. The Company's agreement with WilTel calls for a minimum monthly usage commitment of $50,000 through January 1998. In the event the Company's customers use less than the minimum commitment in any month, the difference is due and payable by the Company to WilTel in the following month. The Company was in compliance with the contractual requirements of the agreement throughout the year ended December 31, 1995. On June 8, 1995, the Company entered into a revolving credit facility which allows for maximum borrowings by the Company of the lesser of $1,000,000 or 50% of eligible (less than 61 days old) receivables. Interest is payable monthly at the bank's prime rate (8.5% at December 31, 1995) plus 1%. Under the terms of the credit facility, the Company is required to meet certain financial covenants. At December 31, 1995, the Company was in default of certain of these financial covenants, which defaults are continuing. While the Company currently does not expect these defaults to impair its ability to utilize this facility during the remainder of the existing term, it may negatively impact the Company's ability to renew the credit facility. In the event the credit facility cannot be renewed or the Company is unable to utilize the existing facility, the Company would attempt to obtain a comparable credit facility from an alternative financing source. While the Company has been able to obtain such facilities in the past, there can be no assurance that the Company will be able to obtain a credit facility with comparable terms or at all. The inability to obtain a credit facility would have a material adverse effect on the Company's financial condition and business. The line is secured by all of the Company's accounts receivable. During 1995, the Company had used this facility for short terms borrowings, but had no outstanding borrowings at year end. In accordance with the terms of the credit facility, the Company purchased a term life insurance policy on this key employee with a face amount of $1,750,000 during the year ended December 31, 1994. Annual premiums are approximately $3,500. At December 31, 1995, the Company had a ratio of current assets to current liabilities of 0.86, as opposed to 1994 when such ratio was 1.49. Working capital deficit at December 31, 1995 was $391,502, as compared to working capital of $1,112,197 at December 31, 1994. The Company's business as a non-facilities based reseller of long distance telecommunications services is generally not a capital intensive business, and at December 31, 1995, the Company had no material commitments for capital expenditures. The Company anticipates any additional capital expenditures in the future will be confined to minimal purchases of office fixtures and equipment. Currently none of the Company's customers represents more than 2% of the monthly revenues. The proposed merger would reduce the Company's direct operating costs through volume discounts on long-distance pricing from its carriers and would provide certain economies of scale that together management believes would allow its operations to become profitable and allow it to compete for new and existing customers. If for any reason the proposed merger is not consummated, the Company plans to increase its sales and reduce its costs and will continue to explore other strategic alternatives (which may include financings, mergers, acquisitions, joint ventures or other strategic transactions). In addition, if the proposed merger is not consummated, the Company intends to negotiate new contracts with its carriers which would allow its operations to become profitable. FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS Dependence on Service Providers. The Company depends on a continuing and reliable supply of telecommunications services from facilities-based, interexchange carriers. Because the Company does not own or lease switching or transmission facilities, it depends on these providers for the telecommunications services used by its customers and to provide the Company with the detailed information on which it bases its customer billings. The Company's ability to expand its business depends both upon its ability to select and retain reliable providers and on the willingness of such providers to continue to make telecommunications services and billing information available to the Company for its customers on favorable terms and in a timely manner. See "Description of Business - Vendors." Potential Adverse Effects of Rate Changes. The Company bills its customers for the costs of the various telecommunications services procured on their behalf. The total billing to each customer is generally less than telephone charges for the same service provided by the major carriers. The Company believes its lower customer bills are an important factor in its ability to attract and retain customers. To the extent the differential between the telephone rates offered by the major carriers directly to their customers and the cost of the bulk- rate telecommunications services procured by the Company from its underlying carriers decreases, the savings the Company is able to obtain for its customers could decrease and the Company could lose customers or face increased difficulty in attracting new customers. If the Company elected to offset the effect of any such decrease by lowering its rates, the Company's operating results would also be adversely affected. Competition. An existing or potential customer of the Company has numerous other choices available for its telecommunications service needs, including obtaining services directly from the same carriers whose services the Company offers. From time to time, the Company's competitors may be able to provide a range of services comparable to or more extensive than those available to the Company's customers at rates competitive with the Company's rates. In addition, most prospective customers of the Company are already receiving service directly from at least one long distance carrier, and thus the Company must convince prospective customers to alter these relationships to generate new business. The Company competes with three major interexchange carriers, AT&T, MCI and Sprint, other large carriers, including Frontier and WorldCom, and several hundred smaller carriers. Additionally, as a result of legislation enacted by the federal government in February of 1996, the RBOCs and GTOCs will have, upon compliance with certain regulatory requirements, the right to provide long distance service. Many of the RBOCs and GTOCs have already announced their intention to enter the business of providing long distance service. The telecommunications industry is highly competitive and subject to rapid technological and regulatory change. Because the tariffs offered by the major carriers for telecommunications services are not proprietary in nature, there are no effective barriers to entry into the Company's line of business. Because of the considerably greater resources of competitors of the Company, there can be no assurance that the Company will be able to remain competitive in the current telecommunications environment. See "Description of Business - Competition." Possible Volatility of Stock Price. The market price of the Company's Common Stock has, in the past, fluctuated substantially over time and may in the future be highly volatile. Factors such as the announcements of potential mergers, acquisitions, joint ventures or other strategic combinations involving the Company, rate changes for various carriers, technological innovation or new products or service offerings by the Company or its competitors, as well as market conditions in the telecommunications industry generally and variations in the Company's operating results, could cause the market price of the Common Stock to fluctuate substantially. Because the public float for the Company's Common Stock is small, additional volatility may be experienced. Control by Officers and Directors. As of March 28, 1996, the Company's executive officers and directors beneficially owned or controlled approximately 52.9% of the total voting power represented by the Company's outstanding capital stock, taking into account that holders of the Company's Class A Common Stock are entitled to five votes per share of such stock and assuming the exercise of all outstanding options for the Company's capital stock which are exercisable within sixty (60) days. The votes represented by the shares beneficially owned or controlled by the Company's executive officers and directors would, if they were cast together, control the election of a majority of the Company's directors and the outcome of most corporate actions requiring stockholder approval. Investors who purchase Common Stock of the Company may be subject to certain risks due to the concentrated ownership of the capital stock of the Company. Such risks include: (i) the shares beneficially owned or controlled by the Company's executive officers and directors could, if they were cast together, delay, defer or prevent a change in control of the Company, such as an unsolicited takeover, which might be beneficial to the stockholders, and (ii) due to the substantial ownership or control of outstanding shares by the Company's executive officers and directors and the potential adverse impact of such substantial ownership or control on a change in control of the Company, it is less likely that the prevailing market price of the outstanding shares of the Company's Common Stock will reflect a "premium for control" than would be the case if ownership of the outstanding shares were less concentrated. Governmental Regulation. As a reseller of long distance telecommunications services, the Company is subject to many of the same regulatory requirements as facilities-based interexchange carriers. The intrastate long distance telecommunications operations of the Company are also subject to various state laws and regulations, including certification requirements. Generally, the Company must obtain and maintain certificates of public convenience and necessity from regulatory authorities in most states where it offers service, and in some of these jurisdictions it must also file and obtain prior regulatory approval of tariffs for intrastate offerings. There can be no assurance that the regulatory authorities in one or more states or the FCC will not take action having an adverse effect on the business or financial condition of the Company. See "Description of Business - Regulation." ITEM 7. FINANCIAL STATEMENTS INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Certified Public Accountants . . . 13 Consolidated Balance Sheet as of December 31, 1995 . . . 14 Consolidated Statements of Operations for the Years Ended December 31, 1995 and December 31, 1994 . . . . . . 16 Consolidated Statements of Stockholders' Deficit for the Years Ended December 31, 1995 and December 31, 1994 17 Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 and December 31, 1994 . . . . . . 18 Notes to the Consolidated Financial Statements . . . . . 20 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors and Stockholders AmeriConnect, Inc. We have audited the accompanying consolidated balance sheet of AmeriConnect, Inc. (a Delaware corporation) and subsidiary as of December 31, 1995, and the related consolidated statements of operations, stockholders' deficit, and cash flows for each of the two years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these 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 audits 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 financial statements referred to above present fairly, in all material respects, the consolidated financial position of AmeriConnect, Inc. and subsidiary as of December 31, 1995, and the consolidated results of their operations and their consolidated cash flows for each of the two years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. GRANT THORNTON LLP Kansas City, Missouri February 16, 1996 AMERICONNECT, INC. Consolidated Balance Sheet
ASSETS December 31, 1995 CURRENT ASSETS Cash $ 293,492 Accounts receivable, net of allowance of $361,260 (Notes 1, 2 and 6) 1,961,815 Accounts receivable-trade, with affiliates (Note 3) 6,065 Accounts receivable-agents, including accrued interest(Note 11) 1,492 Notes receivable-director/shareholder (Note 3) 14,500 Prepaid commissions 126,042 Other current assets 94,251 Total current assets 2,497,657 NON-CURRENT ASSETS Equipment and software, net of accumulated depreciation and amortization of $230,868 (Note 1) 143,202 Deposits 19,528 TOTAL ASSETS $2,660,387
See accompanying notes to financial statements AMERICONNECT, INC. Consolidated Balance Sheet
December 31, 1995 LIABILITIES AND STOCKHOLDERS' DEFICIT CURRENT LIABILITIES Accounts payable (Notes 1, 2 and 6) $2,782,432 Sales taxes payable 97,460 Accrued office closing costs (Note 9) 8,539 Other accrued liabilities 733 Total current liabilities 2,889,164 NON-CURRENT LIABILITIES Customer deposits 8,264 Total liabilities 2,897,428 COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 8 and 10) -- STOCKHOLDERS' DEFICIT (Note 8) Class A common stock, par value $.00001 per share; 10,000,000 shares authorized; issued 6,562,033 shares 66 Common stock, par value $.01 per share; 20,000,000 shares authorized; issued 6,504,967 shares 65,050 Additional paid-in capital 3,642,731 Accumulated deficit (3,943,025) Treasury stock - class A common, at cost; 5,970,000 shares (60) Treasury stock - common, at cost; 180,250 shares (1,803) Total stockholders' deficit (237,041) TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $2,660,387
See accompanying notes to financial statements AMERICONNECT, INC. Consolidated Statements of Operations
For the Year Ended December 31, 1995 1994 REVENUES (Notes 1, 2, 3 and 6) Sales $17,022,095 $16,923,025 Sales to affiliates 77,540 61,299 Total revenues 17,099,635 16,984,324 COSTS AND EXPENSES Direct operating costs 13,399,190 12,642,307 Selling, administrative and general expenses 4,847,248 3,912,979 Depreciation and amortization (Note 1) 76,693 43,793 Total costs and expenses 18,323,131 16,599,079 Operating income (loss) (1,223,496) 385,245 OTHER INCOME (EXPENSE) Interest income 19,898 28,000 Interest expense (6,558) (18,157) Interest expense to director/shareholder (Note 3) (1,587) -- Loan fees (1,250) (3,332) Miscellaneous (5,517) 46,229 Total other income (expense) 4,986 52,740 NET INCOME (LOSS) BEFORE INCOME TAXES (1,218,510) 437,985 INCOME TAX EXPENSE (NOTES 1 AND 8) Currently payable -- 16,405 Deferred 500,000 -- Total income tax expense 500,000 16,405 NET INCOME (LOSS) $(1,718,510) $421,580 Net income (loss) per common and common equivalent $(0.228) $0.061 share (Note 1) Weighted average common and common equivalent shares outstanding (Note 1) 7,550,710 6,868,221
See accompanying notes to financial statements AMERICONNECT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Class A Common Stock Common Stock Additional Paid-In Accumulated Description Shares Amount Shares Amount Capital Deficit Balance, January 1, 1994 6,788,833 $ 68 5,251,167 $52,512 $3,350,479 ($2,646,095) Conversion of Class A to Common (113,400) (1) 113,400 1,134 (1,133) Issuance of Common to directors 19,000 190 3,888 Net income for the year 421,580 Stock options exercised 933,000 9,330 289,130 Balance, December 31, 1994 6,675,433 $ 67 6,316,567 $63,166 $3,642,364 ($2,224,515) Net loss for the year (1,718,510) Stock options exercised 75,000 750 1,500 Conversion of Class A to Common (113,400) (1) 113,400 1,134 (1,133) Balance, December 31, 1995 6,562,033 $66 6,504,967 $65,050 $3,642,731 ($3,943,025)
See accompanying notes to financial statements AMERICONNECT, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Treasury Stock Treasury Class A Common Stock Common Stock Description Shares Amount Shares Amount Total Balance, January 1, 1994 (5,970,000) ($60) (180,250) ($1,803) $ 755,101 Conversion of Class A to Common Issuance of Common to directors 4,078 Net income for the year 421,580 Stock options exercised 298,460 Balance, December 31, 1994 (5,970,000) ($60) (180,250) ($1,803) $1,479,219 Net loss for the year (1,718,510) Stock options exercised 2,250 Conversion of Class A to Common Balance, December 31, 1995 (5,970,000) ($60) (180,250) ($1,803) ($237,041)
See accompanying notes to financial statements AMERICONNECT, INC. Consolidated Statements of Cash Flows
For the Year Ended December 31, 1995 1994 Cash flows from operating activities: Net income (expense) $(1,718,510) $421,580 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 76,693 43,793 Provision for doubtful accounts 739,374 537,640 Deferred income taxes 500,000 -- (Increase) decrease in assets: Accounts receivable (118,481) (517,299) Accounts receivable-trade from affiliates 3,804 (6,055) Prepaid commissions (88,764) 7,641 Other current assets (57,041) (36,569) Deposits 511 (11,494) Increase (decrease) in liabilities: Accounts payable 691,755 (97,881) Accrued office closing costs (10,153) (54,521) Sales taxes payable (34,193) 50,187 Other accrued liabilities (29,832) (28,840) Deferred income (13,384) (14,219) Customer deposits (6,001) 7,500 Net cash provided by (used in) operating activities (64,222) 301,463 Cash flows from investing activities: Purchase of equipment and software (95,263) (108,001) Note receivable-director/shareholder (3,000) (11,500) Notes receivable-agents (23,115) (206,995) Payments on agents' notes receivable 70,900 5,838 Net cash used in investing activities (50,478) (320,658) Cash flows from financing activities: Proceeds from bank loan 6,143,950 3,450,000 Payments on bank loan (6,143,950) (3,450,000) Sale of stock to officer -- 297,000 Distribution of stock to director -- 4,078 Sale of stock to employees 2,250 1,460 Net cash provided by financing activities 2,250 302,538 Net increase (decrease) in cash (112,450) 283,343 Cash at beginning of year 405,942 122,599 Cash at end of year $293,492 $405,942 Supplemental disclosure of cash flow information: Cash Paid During the Year for: Interest $7,854 $18,072 Income Taxes $3,340 $20,105
See accompanying notes to financial statements Supplemental disclosure of non-cash financing activities: During the third quarter of 1994 and the fourth quarter of 1995, separate private transactions took place in which, in each case, 113,400 shares of Class A Common Stock were converted to Common Stock. The effect of this was to reduce the Class A Common Stock account by $1.00 and to increase the Common Stock account by $1,134 for each transaction. This occurs because the par value of the Class A is $.00001 per share and the par value of the Common is $.01 per share. See accompanying notes to financial statements AMERICONNECT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES THE COMPANY: AmeriConnect, Inc. and its wholly owned subsidiary, AmeriConnect, Inc. of New Hampshire (collectively, the "Company") resell long distance telecommunications services primarily to individuals and small to medium-sized businesses. AmeriConnect, Inc. of New Hampshire was formed June 28, 1993, in order to do business in the state of New Hampshire. PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the accounts of AmeriConnect, Inc. and its wholly-owned subsidiary, AmeriConnect, Inc. of New Hampshire. All material intercompany accounts and transactions have been eliminated. RECOGNITION OF REVENUE: The Company purchases network services primarily at bulk rates and resells the services to its customers at marginally higher rates. Revenue and its associated costs are recognized on an accrual basis in the period during which the usage occurs. EQUIPMENT AND SOFTWARE: Equipment and purchased software are recorded at cost. Depreciation and amortization are provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives. The straight-line method of depreciation is used for all assets for financial reporting purposes, but accelerated methods are used for tax purposes. INCOME PER COMMON AND COMMON EQUIVALENT SHARE: Income per share is based upon the weighted average of common and common equivalent shares outstanding during the period. COMMON STOCK EQUIVALENTS: Common stock equivalents considered in the calculation of income per common and common equivalent share include options outstanding under the Company's 1988 and 1994 stock option plans. INCOME TAXES: Deferred income taxes result from timing differences between pretax accounting income and taxable income. Deferred tax assets in 1994 arose primarily from net operating loss carryforwards. (See Note 7.) USE OF ESTIMATES: In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - ECONOMIC DEPENDENCY AND CONCENTRATION OF CREDIT RISK ECONOMIC DEPENDENCY: The Company operates as a non- facilities-based reseller of long distance telecommunications services to individuals and small to medium-sized businesses. The Company acquires its network services by contracting with two underlying interexchange carriers (Sprint Communications, L.P. ("Sprint") and WilTel, Inc. ("WilTel")). As of December 31, 1995, the Company was indebted to Sprint and WilTel for normal monthly services in the amount of $2,266,170 and $296,661, respectively, which are included in accounts payable on the accompanying consolidated balance sheet. CONCENTRATION OF CREDIT RISK: The Company grants credit to its customers, who include individuals and small to medium-sized businesses. NOTE 3 - TRANSACTIONS WITH RELATED PARTIES SALES TO RELATED ENTITIES: Sales of long distance service to entities related to shareholders aggregated $77,540 and $61,299 for the years ended December 31, 1995 and 1994, respectively. Such sales were consummated on terms similar to those prevailing with unrelated customers. NOTE RECEIVABLE - DIRECTOR/SHAREHOLDER: During 1994 and early 1995, the Company made loans totaling $14,500 to a director/shareholder. They were secured by 19,000 shares of the Company's common stock and bore interest at 2 1/2% over the published prime rate found in The Wall Street Journal. The loans were paid in full on January 24, 1996. NOTE 4 - SIGNIFICANT SALES TO MAJOR CUSTOMERS During 1995 and 1994, no customer accounted for 2% or more of the Company's gross revenue. NOTE 5 - OPERATING LEASES The Company leases office space at 6750 W. 93rd St., Suite 110, Overland Park, Kansas, under a lease calling for payments of $2,653 per month through August 31, 1998. An amendment to that lease, executed on February 1, 1994, for additional office space calls for payments of $2,243 per month from February 1, 1994 through August 31, 1998. A second amendment to the lease for additional office space calls for payments of $2,362 per month from January 1, 1995 through December 31, 1999. Rental expense for the years ended December 31, 1995 and 1994, was $87,967 and $56,358, respectively. The Company also leases office equipment and furniture under various operating leases. As of December 31, 1995, remaining minimum annual rental commitments under noncancelable operating leases for office space, office equipment and furniture are as follows: Total Rent Fiscal Years Commitments
1996 $143,602 1997 103,945 1998 67,517 1999 28,350 $343,414
Total expenses recognized for all operating leases including leases for office space for the years ended December 31, 1995 and 1994 were $156,366 and $106,489, respectively. NOTE 6 - COMMITMENTS AND CONTINGENCIES The Company has a contract with a firm to provide subscriber statement processing and billing services. The contract is for a period of three (3) years and expires in September 1996. Terms of the contract provide for a monthly base charge with additional per unit processing charges. Termination of this contract for cause requires a 90-day period during which any breach of the contract can be cured, plus a requirement for a subsequent written 30-day notice. Termination for cause requires the payment of all amounts owed. Termination of the contract for the convenience of the Company requires a written 180-day notice and a termination fee equal to one year's charges. The Company is required to make minimum payments of $5,000 per month. The Company has a contract with Sprint to provide telecommunications services for the Company's customers. The agreement covers the pricing of the services for a term of two years beginning September 1995. The Company has an annual minimum usage commitment of $12,000,000 through August 1996 and $14,400,000 from September 1996 to August 1997. In the event the Company's customers use less than the minimum commitment, the difference is due and payable by the Company to Sprint. Assuming a monthly average requirement of $1,000,000 under the Sprint contract, for the period from September, 1995 through December 1995 the Company accumulated a shortfall of $719,545. The Company anticipates additional shortfall amounts to accumulate during 1996. In the event the proposed merger with Phoenix Network, Inc. occurs, the Company currently anticipates that all accumulated shortfall amounts will be addressed in a new contract between Sprint and the surviving corporation. In the event the proposed merger does not occur, the Company has begun negotiations with Sprint to address the accumulated shortfall. While the Company believes the accumulated shortfall at December 31, 1995, and any additional shortfall amounts, will be resolved in a manner which will not have a material adverse effect on the business or financial condition of the Company in the event the proposed merger does not occur, there can be no assurance of such a result. If the Company were required to pay the full amount of accumulated shortfalls, this would have a material adverse effect on the Company's financial condition. The Company has a contract with WilTel to provide telecommunications services at discounted rates which will vary based upon the amount of usage by the Company. The term of this usage commitment is thirty-nine (39) months. The Company's agreement with WilTel calls for a minimum monthly usage commitment of $50,000 through January 1998. In the event the Company's customers use less than the minimum commitment in any month, the difference is due and payable by the Company to WilTel in the following month. The Company was in compliance with the contractual requirements of the agreement throughout the year ended December 31, 1995. On June 8, 1995, the Company entered into a revolving credit facility which allows for maximum borrowings by the Company of the lesser of $1,000,000 or 50% of eligible (less than 61 days old) receivables. Interest is payable monthly at the bank's prime rate (8.5% at December 31, 1995) plus 1%. Under the terms of the credit facility, the Company is required to meet certain financial covenants. The line is secured by all of the Company's accounts receivable. During 1995, the Company had used this facility for short terms borrowings, but had no outstanding borrowings at year end. At December 31, 1995, the Company was in default of certain of these financial covenants, which defaults are continuing. While the Company currently does not expect these defaults to impair its ability to utilize this facility during the remainder of the existing term, it may negatively impact the Company's ability to renew the credit facility. In the event the credit facility cannot be renewed or the Company is unable to utilize the existing facility, the Company would attempt to obtain a comparable credit facility from an alternative financing source. While the Company has been able to obtain such facilities in the past, there can be no assurance that the Company will be able to obtain a credit facility with comparable terms or at all. The inability to obtain a credit facility would have a material adverse effect on the Company's financial condition and business. In accordance with the terms of the credit facility, the Company purchased a term life insurance policy on this key employee with a face amount of $1,750,000 during the year ended December 31, 1994. Annual premiums are approximately $3,500. NOTE 7 - INCOME TAXES The valuation of the deferred tax asset includes the following amounts: 1995 1994
Deferred tax asset $1,667,882 $1,091,512 Valuation allowance (1,667,882) (591,512) Deferred tax asset $ -0- $ 500,000
The approximate tax effect caused by the net operating loss carryforward, and the difference in treatment for book and tax for allowance for doubtful accounts and prepaid commissions gives rise to the deferred tax asset at December 31, 1995 and 1994 of $1,667,882 and $1,091,512, respectively. In 1994, the valuation allowance was established to reduce the deferred tax asset to the amount that will more likely than not be realized. In 1995, the Company increased the valuation on its deferred tax asset by $1,076,370, reducing the deferred asset to zero. Because of the operating loss in 1995, the Company is no longer able to determine that it would more likely than not realize the deferred tax asset. As a result of this change in estimate, the valuation allowance was increased by $500,000, which related to the deferred tax asset as of December 31, 1994, and an additional valuation allowance of $576,370 was recorded to offset the additional deferred tax asset created by the net operating loss in 1995. In 1994, management believed that it would realize the deferred tax asset of $500,000. The deferred tax asset was classified in the accompanying consolidated balance sheet as a $250,000 current and a $250,000 long-term asset. The valuation allowance was adjusted for the years ended December 31, 1995 and 1994, as follows: 1995 1994
Valuation allowance, beginning of year $591,512 $688,200 Valuation adjustment 576,370 (96,688) Adjustment in allowance due to change in estimate 500,000 -- Valuation allowance, end of year $1,667,882 $591,512
The income tax expense reflected in the consolidated statements of operations differs from the amount computed at federal statutory income tax rates. The principal differences are as follows: 1995 1994
Federal income tax expense computed at statutory rate $(389,436) $ 139,980 State income tax effect (73,111) 26,280 Net operating loss carryforward 462,547 (158,564) Alternative minimum tax effect -- 8,709 Valuation adjustment due to change in estimate 500,000 -- Income tax expense $500,000 $ 16,405
The components of income tax expense related to continuing operations are as follows: 1995 1994
Current $ -- $16,405 Deferred 500,000 -- $500,000 $16,405
The Company has available for income tax purposes the following net operating loss carryforwards at December 31, 1995: Year of Expiration Amount
2005 $ 363,712 2006 1,671,205 2007 185 2008 185 2010 1,687,506 $3,722,793
NOTE 8 - COMMON STOCK, WARRANTS AND OPTIONS PUBLIC OFFERING: In its initial public offering in 1989, the Company issued 828,000 units each of which consisted of five shares of previously unissued common stock, par value $.01 per share, and five redeemable Class A Warrants at a price per unit of $5.00. Each of the Class A Warrants, which was transferable separately immediately upon issuance, entitled the holder to purchase for $1.00 one share of common stock and one redeemable Class B common stock purchase warrant ("Class B Warrant"). The Class A Warrants expired on May 29, 1994. Each Class B Warrant entitled the holder to purchase one share of common stock at $1.50 until May 29, 1994. The warrants are not common stock equivalents for the purposes of the earnings per share computations. (See Note 1.) In addition, the Company granted the underwriter and finder options to purchase 57,600 and 14,400 units, respectively, at $6.00 per unit exercisable over a period of four years commencing one year from the date of the prospectus. MISSING STOCK CERTIFICATES: Prior to the Company's initial public offering, the stockholders of record as of March 29, 1989, executed escrow agreements which required the placement in escrow of 150,000 shares of outstanding common stock and 5,970,000 shares of outstanding Class A common stock pending the achievement of certain earnings objectives. These earnings objectives were not met and, consequently, all of the shares subject to the escrow agreement were retired and have been accounted for as treasury stock since December 31, 1992. In addition, in connection with the execution of a voting trust agreement in 1989, certificates representing 3,014,751 shares of Class A common stock were issued in the name of a voting trust in substitution for the certificates held by some of the stockholder-parties to the voting trust agreement. This voting trust expired in June of 1992. During the first quarter of 1992, however, the Company learned that the escrow agent associated with the escrow agreements asserts that it has never received the stock certificates representing the shares subject to the escrow agreements. During the same period, the Company discovered that the certificates representing 2,975,751 of the shares transferred to the voting trust were never delivered to the Company for cancellation. The Company has been unable to locate neither the original share certificates nor the certificates issued to the voting trust. As a result, if a stockholder attempted to transfer any of the shares subject to the escrow agreements or the voting trust agreement in violation of such agreements, there can be no assurance that an innocent transferee could not successfully claim the right to the shares purportedly transferred to him or her. The Company believes, however, that the legends affixed to each of the missing certificates, which state that the shares are subject to the restrictions of the voting trust agreement and the escrow agreements, respectively, are sufficient to prevent a transferee from acquiring a valid claim with respect to the shares represented by the missing certificates. In addition, the Company has obtained affidavits from each holder of the missing certificates that no such purported transfers have been made. STOCK RIGHTS: The rights and preferences of common stock and Class A common stock are substantially identical except that each share of common stock entitles the holder to one vote whereas, each share of Class A common stock entitles the holder to five votes. Class A common stock automatically converts into common stock on a one-for-one basis upon sale or transfer to an entity or individual who was not a holder of Class A common stock before such sale or transfer, or at any time at the option of the holder. During each of 1994 and 1995, 113,400 shares of Class A stock were converted to common stock through private transactions. STOCK OPTION PLANS: On July 29, 1988, the Company adopted a stock option plan allowing 300,000 shares of unissued but authorized common stock for issuance of incentive and/or non- qualified stock options. At December 31, 1995, all options had been granted under the plan, and 23,000 options had been returned to the Company by employees who resigned prior to vesting. Such returned options are again available for use under the plan. On May 27, 1994, the Company adopted a second stock option plan allowing for 500,000 shares of unissued but authorized common stock for issuance of incentive and/or non- qualified stock options. As of December 31, 1995, 487,000 options under this plan had been granted and 142,000 options had been returned to the Company by employees who resigned prior to vesting. Such returned options are again available for use under the plan. Stock option plan transactions for the year ended December 31, 1995, are summarized below: 1988 Plan 1994 Plan Total
Outstanding, beginning of year 260,000 247,500 507,500 Granted -0- 234,500 234,500 Exercised (75,000) -0- (75,000) Cancelled (16,000) (137,000) (153,000) Outstanding, end of year 169,000 345,000 514,000 Option price per share exercised $0.03-$0.50 -- $0.03-$0.50 Price for outstanding options $0.03-$0.50 $0.26-$0.75 $0.03-$0.75
The expiration dates for the options issued under the 1988 Plan range from May 1998 to December 2003. At December 31, 1995, 23,000 shares were available for future grants under the 1988 Plan. The expiration dates for the options issued under the 1994 Plan range from August 2004 to December 2005. At December 31, 1995, 155,000 shares were available for future grants under the 1994 Plan. STOCK ISSUED WITH RESPECT TO SERVICE ON BOARD OF DIRECTORS: In October 1992, the Board approved the issuance of stock as compensation to directors not receiving any other form of compensation from the Company. Each qualifying director received 5,000 shares of common stock for each quarter of service. During 1994, 19,000 shares of common stock were issued pursuant to the Board action, but no shares were issued pursuant thereto in 1995. STOCK ISSUABLE WITH RESPECT TO REVOLVING CREDIT FACILITY: In connection with a revolving credit agreement with Robert R. Kaemmer, President of the Company, Mr. Kaemmer had the option to purchase up to 900,000 shares of common stock at $0.33 per share. Mr. Kaemmer exercised this option by purchasing 900,000 shares of common stock on April 27, 1994. NOTE 9 - OFFICE CLOSING COSTS After reviewing the costs of maintaining its Washington, D.C. sales office, the projected sales from that location, and the general financial condition of the Company, the Board decided to close the office effective December 31, 1991. All estimated costs and expenses directly associated with the closing of the office were accrued as of December 31, 1991, and recognized in the financial statements. Subsequent payments of the accrued costs were charged to the liability account, accrued office closing costs. NOTE 10 - KEY EMPLOYEE INCENTIVE COMPENSATION PLAN The Company has an incentive compensation plan which provides for incentive payments to a key employee based on 5% of net earnings before depreciation and amortization and income taxes. Expenses under the plan amount to $-0- and $27,726 for the years ended 1995 and 1994, respectively. In addition, during the year ended December 31, 1994, the board of directors authorized a one-time performance bonus of $45,000 to this key employee. The payment was made during the second quarter of 1994. NOTE 11 - NOTES RECEIVABLE The Company conducts a portion of its business through agents. Some of these agents have borrowed from the Company in order to obtain necessary capital to expand their operations. These borrowings are represented by short term promissory notes. The terms of the notes permit the Company to withhold the monthly payments from commissions due the agents, if necessary. The interest rate for all the notes is 2 1/2% over the prime rate published by The Wall Street Journal. At December 31, 1994, a reserve of $100,000 was established against amounts due from a specific agent whose receivable, including unpaid charges, aggregated $498,061. During 1995, the Company and this agent became involved in litigation, and it has been determined that no recovery on the amounts will be made. As a result, the remaining receivable of $398,061 was written off. The Company is currently negotiating a mutual release of all claims with this agent and does not expect to incur any additional liability as a result of the litigation. NOTE 12 - ONGOING OPERATIONS The accompanying financial statements have been prepared in accordance with generally accepted accounting principles. The Company reported a net loss of $1,718,510 in 1995. As a result, liabilities exceeded assets by $237,041. Non-cash items such as depreciation and amortization, provision for doubtful accounts and deferred income taxes collectively contributed $1,316,067 of the loss. The remaining $402,443, along with a $118,481 increase in accounts receivable and a $691,755 increase in accounts payable, contributed to cash used in operations of $64,222. In light of the foregoing, in order to become profitable, the Company must achieve sufficient volume levels to obtain additional discounts under its existing carrier contracts or negotiate new contracts with its carriers to obtain favorable pricing at existing volume levels and reduce other costs. In addition, the Company may explore financing and other strategic transactions, such as the proposed merger (discussed in Note 13 below). The proposed merger would reduce the Company's direct operating costs through volume discounts on long-distance pricing from its carriers and would provide certain economics of scale which management believes would allow its operations to become profitable and allow it to compete for new and existing customers. If, for any reason, the proposed merger is not consummated, the Company plans to increase sales and reduce its costs and will continue to explore other strategic alternatives (which may include financings, mergers, acquisitions, joint ventures or other strategic transactions). NOTE 13 - SUBSEQUENT EVENT On January 15, 1996, the Company and Phoenix Network, Inc. ("Phoenix"), a San Francisco, California-based long distance reseller and provider of value-added telecommunications services, signed a letter of intent to merge the two companies in a stock- for-stock transaction. The parties currently are negotiating a definitive merger agreement. In connection with the proposed merger, Phoenix expects to issue approximately 4 million new shares of common stock in exchange for all of the outstanding shares of the Company. It is currently anticipated that the closing will take place on or about August 15, 1996, pending the obtaining of all necessary regulatory approvals and approval of the shareholders of both companies. There can be no assurance that the ongoing negotiations between the Company and Phoenix will in fact result in the execution of a definitive merger agreement or that the terms of any such agreement would be as described above. NOTE 14 - FOURTH QUARTER ADJUSTMENTS During the fourth quarter 1995, the Company recorded adjustments of approximately $940,000 relating primarily to receivables and the deferred tax asset. ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the two most recent fiscal years, there were no changes in or disagreements with the Company's independent certified public accountants. PART III ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT The information required by Item 9 is incorporated herein by reference to (i) the information under the caption "Election of Directors" (except that the information set forth under the subcaption "Compensation of Directors" is expressly excluded from such incorporation) and (ii) the information under the caption "Compliance with Section 16(a) of the Securities Exchange Act of 1934," in each case, in the Company's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-KSB. ITEM 10. EXECUTIVE COMPENSATION The information required by Item 10 is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-KSB. ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by Item 11 is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-KSB. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by Item 12 is incorporated herein by reference to the Company's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered by this Form 10-KSB. ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 CERTIFICATE OF INCORPORATION, AS AMENDED TO DATE - Incorporated by reference - previously filed as Exhibit 3.1 to Registrant's Form 10-QSB for the quarterly period ended June 30, 1994. 3.3 BYLAWS - Incorporated by reference - previously filed as Exhibit 3.3 to Registration Statement on Form S-1 under the Securities Act of 1933 filed by Registrant. Registration Statement No. 33-23845. 4.1 FORM OF UNIT PURCHASE OPTION - Incorporated by reference - previously filed as Exhibit 4.1 to Registration Statement on Form S-1 under the Securities Act of 1933 filed by Registrant. Registration Statement No. 33-23845. 4.2 FORM OF WARRANT AGREEMENT - Incorporated by reference - previously filed as Exhibit 4.2 to Registration Statement on Form S-1 under the Securities Act of 1933 filed by Registrant. Registration Statement No. 33-23845. 10.1 TERMINATION AGREEMENT, DATED JANUARY 14, 1992, with Gordon Hutchins, Jr. - Incorporated by reference - previously filed as Exhibit 10.1 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1992 filed March 31, 1993. 10.2 1988 STOCK OPTION PLAN - Incorporated by reference - previously filed as Exhibit 10.4 to Registration Statement on Form S-1 under the Securities Act of 1933 filed by Registrant. Registration Statement No. 33-23845. 10.3 1994 STOCK OPTION PLAN, DATED MAY 27, 1994 - Incorporated by reference - previously filed as Exhibit 4.3 to Registration Statement on Form S-8 under the Securities Act of 1933 filed by Registrant, Registration Statement No. 33-80058. 10.4 DATA PROCESSING SERVICE AGREEMENT WITH AFFILIATED COMPUTER SYSTEMS COMMERCIAL SERVICES, INC. - Incorporated by reference - previously filed as Exhibit 10.12 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1990 filed April 9, 1991. 10.5 SECOND ADDENDUM PROPOSAL TO DATA PROCESSING SERVICE AGREEMENT IN EXHIBIT 10.4 HERETO, DATED OCTOBER 4, 1993 - Incorporated by reference - previously filed as Exhibit 10.4 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1993 filed March 30, 1994. 10.6 OFFICE BUILDING LEASE FOR REGISTRANT'S FACILITY IN OVERLAND PARK, KANSAS, DATED AUGUST 20, 1993 - Incorporated by reference - previously filed as Exhibit 10.5 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1993 filed March 30, 1994. 10.7 AMENDMENT TO OFFICE BUILDING LEASE, DATED FEBRUARY 1, 1994 - Incorporated by reference - previously filed as Exhibit 10.6 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1993 filed March 30, 1994. 10.8 OFFICE BUILDING LEASE FOR REGISTRANT'S FACILITY IN MCLEAN, VIRGINIA, AS AMENDED TO DATE - Incorporated by reference - previously filed as Exhibit 10.13 to Registrant's Form 10-KSB for fiscal year ended December 31, 1991. 10.9 AGREEMENT TO RENEW SUBLEASE FOR REGISTRANT'S FACILITY IN MCLEAN, VIRGINIA, DATED FEBRUARY 14, 1994 - Incorporated by reference - previously filed as Exhibit 10.8 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1993 filed March 30, 1994. 10.10 VOLUME PURCHASE AGREEMENT, DATED MAY 17, 1994, WITH SPRINT COMMUNICATIONS COMPANY L.P. - Incorporated by reference - previously filed as Exhibit 1 to Registrant's Form 10-QSB for the quarterly period ended June 30, 1994. 10.11 TELECOMMUNICATIONS SERVICES AGREEMENT, DATED JUNE 27, 1994, WITH WILTEL, INC. - Incorporated by reference - previously filed as Exhibit 2 to Registrant's Form 10-QSB for the quarterly period ended June 30, 1994. 10.12 AMENDMENT TO TELECOMMUNICATIONS SERVICES AGREEMENT, DATED NOVEMBER 1, 1994, WITH WILTEL, INC. - Incorporated by reference - previously filed as Exhibit 10.12 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. * 10.13 REVOLVING LOAN AGREEMENT AND ADDENDA, DATED MAY 10, 1994, WITH MERCANTILE BANK OF KANSAS - Incorporated by reference - previously filed as Exhibit 10.13 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.14 ASSIGNMENT OF LIFE INSURANCE POLICY AS COLLATERAL, DATED MAY 10, 1994, TO MERCANTILE BANK OF KANSAS - Incorporated by reference - previously filed as Exhibit 10.14 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.15 SECURITY AGREEMENT, DATED MAY 10, 1994, WITH MERCANTILE BANK OF KANSAS - Incorporated by reference - previously filed as Exhibit 10.15 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.16 PROMISSORY NOTE, DATED MAY 10, 1994, WITH MERCANTILE BANK OF KANSAS - Incorporated by reference - previously filed as Exhibit 10.16 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.17 SECURITY AGREEMENT, DATED MAY 10, 1994, WITH MERCANTILE BANK OF KANSAS - Incorporated by reference - previously filed as Exhibit 10.17 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.18 EMPLOYMENT AGREEMENT, DATED JANUARY 1, 1995, WITH ROBERT R. KAEMMER - Incorporated by reference - previously filed as Exhibit 10.18 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995.** 10.19 PROMISSORY NOTE, DATED JUNE 15, 1994, WITH RICHARD K. HALFORD - Incorporated by reference - previously filed as Exhibit 10.19 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.20 PROMISSORY NOTE, DATED AUGUST 1, 1994, WITH RICHARD K. HALFORD - Incorporated by reference - previously filed as Exhibit 10.20 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.21 PLEDGE AGREEMENT, DATED NOVEMBER 23, 1994, WITH RICHARD K. HALFORD - Incorporated by reference - previously filed as Exhibit 10.21 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 10.22 REVOLVING CREDIT AGREEMENT, DATED NOVEMBER 10, 1992, WITH ROBERT R. KAEMMER - Incorporated by reference - previously filed as Exhibit 10.8 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1992 filed March 31, 1993. 10.23 AMENDMENT TO REVOLVING CREDIT AGREEMENT, DATED MAY 7, 1993, WITH ROBERT R. KAEMMER - Incorporated by reference - previously filed as Exhibit 10.16 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1993 filed March 30, 1994. 10.24 PROMISSORY NOTE, DATED NOVEMBER 10, 1992, WITH ROBERT R. KAEMMER - Incorporated by reference - previously filed as Exhibit 10.9 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1992 filed March 31, 1993. 10.25 AMENDMENT TO PROMISSORY NOTE, DATED MAY 7, 1993, WITH ROBERT R. KAEMMER - Incorporated by reference - previously filed as Exhibit 10.18 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1993 filed March 30, 1994. 10.26 SECURITY AGREEMENT, DATED NOVEMBER 10, 1993, WITH ROBERT R. KAEMMER - Incorporated by reference - previously filed as Exhibit 10.10 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1992 filed March 31, 1993. 10.27 SETTLEMENT AGREEMENT, DATED MAY 1, 1992, WITH AETNA LIFE INSURANCE COMPANY - Incorporated by reference - previously filed as Exhibit 10.11 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1992 filed March 31, 1993. 10.28 CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT, DATED JULY 28, 1995, WITH SPRINT COMMUNICATIONS COMPANY L.P.* 10.29 AMENDMENT TO CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT, DATED OCTOBER 30, 1995, WITH SPRINT COMMUNICATIONS COMPANY L.P.* 10.30 AMENDMENT TO CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT, DATED FEBRUARY 29, 1996, WITH SPRINT COMMUNICATIONS COMPANY L.P. 10.31 REVOLVING LOAN AGREEMENT AND ADDENDA, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.32 PROMISSORY NOTE, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.33 COMPREHENSIVE SECURITY AGREEMENT, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.34 SECURITY AGREEMENT, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.35 PROMISSORY NOTE, DATED APRIL 3, 1995, WITH RICHARD K. HALFORD. 10.36 AMENDMENT NO. 1 TO PLEDGE AGREEMENT, DATED APRIL 3, 1995, WITH RICHARD K. HALFORD. 10.37 EXTENSION OF JUNE 15, 1994 PROMISSORY NOTE, DATED DECEMBER 29, 1995, WITH RICHARD K. HALFORD. 10.38 EXTENSION OF AUGUST 1, 1994 PROMISSORY NOTE, DATED DECEMBER 29, 1995, WITH RICHARD K. HALFORD. 10.39 EXTENSION OF APRIL 3, 1995 PROMISSORY NOTE, DATED DECEMBER 29, 1995, WITH RICHARD K. HALFORD. 10.40 LETTER TO MERCANTILE BANK OF KANSAS, DATED JANUARY 24, 1996, REGARDING THE FULL SATISFACTION BY RICHARD K. HALFORD OF THE PROMISSORY NOTES DATED JUNE 15, 1994, AUGUST 1, 1994 AND APRIL 3, 1995. 10.41 SECOND AMENDMENT TO OFFICE BUILDING LEASE FOR REGISTRANT'S FACILITY IN OVERLAND PARK, KANSAS, DATED NOVEMBER 23, 1994. 21.1 LIST OF SUBSIDIARIES OF THE REGISTRANT - Incorporated by reference - previously filed as Exhibit 21.1 to Registrant's Form 10-KSB for the fiscal year ended December 31, 1994 filed March 31, 1995. 23 CONSENT OF GRANT THORNTON LLP. 27 FINANCIAL DATA SCHEDULE. (b) Reports on Form 8-K On January 17, 1996, the Company filed a report on Form 8-K under Item 5 - Other Events regarding a press release issued by the Company and Phoenix Network, Inc. ("Phoenix") announcing that they had signed a letter of intent (the "Letter of Intent") to merge the Company and Phoenix in a stock-for-stock transaction. On March 19, 1996, the Company filed a second report on Form 8-K under Item 5 - Other Events regarding a press release issued by the Company and Phoenix announcing that they had extended the term of the Letter of Intent. * Confidential material deleted and filed separately with the Commission pursuant to a request for confidential treatment. ** Management contract or compensatory plan or arrangement required to be identified by Item 13(a). SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERICONNECT, INC. By: /s/ Robert R. Kaemmer Robert R. Kaemmer President and Director Date: April 15, 1996 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the issuer and in the capacities and on the date indicated. /s/ Robert R. Kaemmer April 15, 1996 Robert R. Kaemmer President and Director (Principal Executive Officer and Principal Financial Officer) /s/ Janet M. Flynn April 15, 1996 Janet M. Flynn Secretary, Director /s/ Richard K. Halford April 15, 1996 Richard K. Halford Director EXHIBIT INDEX NUMBER ITEM PAGE 10.28 CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT, DATED JULY 28, 1995, WITH SPRINT COMMUNICATIONS COMPANY L.P.* 10.29 AMENDMENT TO CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT, DATED OCTOBER 30, 1995, WITH SPRINT COMMUNICATIONS COMPANY L.P.* 10.30 AMENDMENT TO CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT, DATED FEBRUARY 29, 1996, WITH SPRINT COMMUNICATIONS COMPANY L.P. 10.31 REVOLVING LOAN AGREEMENT AND ADDENDA, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.32 PROMISSORY NOTE, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.33 COMPREHENSIVE SECURITY AGREEMENT, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.34 SECURITY AGREEMENT, DATED JUNE 8, 1995, WITH MERCANTILE BANK OF KANSAS. 10.35 PROMISSORY NOTE, DATED APRIL 3, 1995, WITH RICHARD K. HALFORD. 10.36 AMENDMENT NO. 1 TO PLEDGE AGREEMENT, DATED APRIL 3, 1995, WITH RICHARD K. HALFORD. 10.37 EXTENSION OF JUNE 15, 1994 PROMISSORY NOTE, DATED DECEMBER 29, 1995, WITH RICHARD K. HALFORD. 10.38 EXTENSION OF AUGUST 1, 1994 PROMISSORY NOTE, DATED DECEMBER 29, 1995, WITH RICHARD K. HALFORD. 10.39 EXTENSION OF APRIL 3, 1995 PROMISSORY NOTE, DATED DECEMBER 29, 1995, WITH RICHARD K. HALFORD. 10.40 LETTER TO MERCANTILE BANK OF KANSAS, DATED JANUARY 24, 1996, REGARDING THE FULL SATISFACTION BY RICHARD K. HALFORD OF THE PROMISSORY NOTES DATED JUNE 15, 1994, AUGUST 1, 1994 AND APRIL 3, 1995. 10.41 SECOND AMENDMENT TO OFFICE BUILDING LEASE FOR REGISTRANT'S FACILITY IN OVERLAND PARK, KANSAS, DATED NOVEMBER 23, 1994. 23 CONSENT OF GRANT THORNTON LLP. 27 FINANCIAL DATA SCHEDULE. * Confidential material deleted and filed separately with the Commission pursuant to a request for confidential treatment. EX-10.28 2 CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT EXHIBIT 10.28 CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT THIS AGREEMENT (the "Agreement") is entered into by and between SPRINT COMMUNICATIONS COMPANY L.P. ("Sprint"), and AmeriConnect, Inc. ("Customer"). Sprint and Customer are "Parties" hereto. In consideration of the mutual promises contained herein, the Parties agree as follows: 1. DEFINITIONS. Capitalized terms appearing in bold print are defined in EXHIBIT 1. 2. CONFIDENTIALITY. During the TERM and thereafter, neither Party shall disclose any terms of this Agreement, including pricing, or PROPRIETARY INFORMATION of the other Party. PROPRIETARY INFORMATION shall remain the property of the disclosing Party. A Party receiving PROPRIETARY INFORMATION shall: (i) use or reproduce such information only when necessary to perform this Agreement; (ii) provide at least the same care to avoid disclosure or unauthorized use of such information as it provides to protect its own PROPRIETARY INFORMATION; (iii) limit access to such information to its employees or agents who need such information to perform this Agreement; and (iv) return or destroy all such information, including copies, after the need for it has expired, upon request of the disclosing Party, or upon termination of this Agreement. Because of the unique nature of PROPRIETARY INFORMATION, a breach of this paragraph may cause irreparable harm for which monetary damages may be inadequate compensation. Accordingly, in addition to other available remedies, a Party may seek injunctive relief to enforce this paragraph. 3. TERM. If this Agreement is executed by Sprint prior to the first day of the month, then the TERM shall commence on the first day of the following month; otherwise, the TERM shall commence on the first day of the second month following the month in which it is executed by Sprint. The TERM will continue after commencement for the period specified in ATTACHMENT A. 4. TERMINATION FOR CAUSE. 4.1. A party may terminate this Agreement upon the other Party's failure to cure any of the following within 30 days following written notice thereof: (a) the (i) insolvency, corporate reorganization, arrangement with creditors, receivership or dissolution of the other Party; or (ii) institution of bankruptcy proceedings by or against the other Party; (b) assignment or attempted assignment of the Agreement or any interest therein, except as permitted by Paragraph 24 hereof; (c) change in control of the defaulting Party without the other Party's prior written consent, which consent shall not be unreasonably withheld; (d) a SPRINT PROPRIETARY INFORMATION - RESTRICTED final order by a government entity with appropriate jurisdiction that a SERVICE or the relationship hereunder is contrary to law or regulation; or (e) breach of any provision herein not otherwise referred to in Paragraph 4. 4.2. Sprint may terminate this Agreement immediately and without notice if Customer fails to cure a breach as provided in Paragraph 8 or breaches a provision of Paragraph 17 or 18. 4.3. Customer may terminate the Agreement upon 30 days written notice if special rate adjustments exceed the maximum provided in Paragraph 16. 4.4. Upon termination of this Agreement a Party may recover from the other all sums it is owed at the time of termination. 5. TERMINATION WITHOUT CAUSE: EARLY TERMINATION CHARGE. 5.1. Customer may terminate this Agreement at any time without cause upon 90 days prior written notice to Sprint and payment to Sprint of the EARLY TERMINATION CHARGE in Subparagraph 5.2. SERVICE will be discontinued the first business day of the fourth month after such notice of termination. 5.2. CARRIER TRANSPORT BASE RATES and PROMOTIONAL DISCOUNTS are based on Customer's agreement to purchase SERVICE for the entire TERM. It is difficult if not impossible to calculate Sprint's loss if Customer terminates the Agreement pursuant to Subparagraph 5.1 prior to the end of the TERM. Therefore, to compensate Sprint for such loss, and not as a penalty, Customer shall pay Sprint an EARLY TERMINATION CHARGE in the event of such termination. The EARLY TERMINATION CHARGE shall equal [*]% of the sum of the MINIMUM COMMITMENT for each month remaining in the TERM when SERVICE is discontinued pursuant to Subparagraph 5.1. The EARLY TERMINATION CHARGE shall be paid within 30 days after the notice provided pursuant to Subparagraph 5.1. 6. APPLICATION OF TARIFFS: INTERSTATE ADJUSTMENT. 6.1. Interstate and international SERVICE shall be provided pursuant to TARIFF as supplemented by this Agreement. In the event of a conflict between this Agreement and any TARIFF, the TARIFF shall control. 6.2. Intrastate SERVICE is provided pursuant to TARIFF in every respect. PROMOTIONAL DISCOUNTS will not apply to intrastate SERVICE. An INTERSTATE ADJUSTMENT may be applied based on intrastate usage as provided in ATTACHMENT D. The INTERSTATE ADJUSTMENT shall be based on intrastate usage at the PRODUCT HIERARCHY LEVEL and will equal the difference between (a) such usage priced at TARIFF less TARIFF discounts and (b) such usage priced at the * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED INTERSTATE ADJUSTMENT RATE in ATTACHMENT D less DISCOUNT ONE discounts. The INTERSTATE ADJUSTMENT for a given month shall not exceed interstate billing for such month. 6.3. Customer shall pay all TARIFF charges including, without limitation, fixed charges, feature charges, enhanced 800 charges, access facility charges, installation and other non-recurring charges. 6.4. Sprint may modify or withdraw TARIFFS from time to time, which may include discontinuation of any SERVICE without Sprint's liability. 7. RELATIONSHIP OF PARTIES. Neither this Agreement nor the provision of SERVICE creates a joint venture, partnership or agency between Sprint and Customer. Customer is the service provider with respect to END USERS. Sprint is merely a supplier to Customer with no relationship to END USERS. 8. USE OF NAME AND MARKS. This Agreement confers no right to use the name, service marks, trademarks, copyrights, patents or CIC of either Party except as expressly provided herein. Neither Party shall take any action which would compromise the registered copyrights or service marks of the other. Sprint's name is proprietary and nothing herein constitutes a general license authorizing its use. Customer may not: (a) promote or advertise Sprint's name or capabilities to END USERS or prospective END USERS; (b) attempt to sell its service using Sprint's name; or (c) represent to END USERS or prospective END USERS that they would be Sprint customers or that they may obtain Sprint service from Customer. Sprint shall provide Customer written notice of a breach of this paragraph. Customer shall use its best efforts to immediately cure such breach, advising Sprint of its actions. If, in Sprint's opinion, Customer fails to effect a cure within 30 days of Sprint's notice, then Sprint may, at its option, terminate the Agreement pursuant to Subparagraph 4.2. Sprint's provision of NETWORK EXTENSION SERVICE may result in END USERS being notified by their LEC that Sprint is their designated PIC. Therefore, to avoid confusion and potential "slamming" complaints, Sprint hereby authorizes Customer to use Sprint's name under the following conditions to provide END USERS from whom Customer has obtained a PIC AUTHORIZATION with a fulfillment piece containing the following Notice (the "Notice"): We want to affirm how ______ will provide your long distance service. Although ________ will provide your invoice and customer service, we use major national carriers to actually carry your long distance calls. After subscribing to our service, you may receive a notice from your local phone company which says that your long distance "Carrier of Choice" is SPRINT PROPRIETARY INFORMATION - RESTRICTED Sprint. __________ has selected Sprint as the long distance network provider it will use to handle your calls. That selection was based on your quality and price requirements. If you have any questions about your order, please call our toll free customer service number, 1-800-____-_________. If Customer subscribed to Sprint Express, calls placed by END USERS to the Sprint ITFS number will be answered "Sprint operator." This may cause confusion if the END USER does not know its calls are being carried on the Sprint network. Therefore, to avoid such confusion, Sprint hereby authorizes Customer to provide END USERS who use Sprint Express with a fulfillment piece containing the following notice (the "Sprint Express Notice"): "International call origination may be provided by a Sprint operator." Sprint may withdraw consent to use the Sprint Express Notice upon 10 days written notice. Customer shall obtain Sprint's prior written approval of any fulfillment piece in which the Notice or the Sprint Express Notice will appear. 9. SERVICE. SERVICES provided hereunder are described in EXHIBIT 2. 10. LEGAL COMPLIANCE: REMEDIES FOR NON-COMPLIANCE. 10.1. Customer represents and warrants that (a) it has obtained all licenses and regulatory authority necessary to operate as contemplated herein and (b) it will not submit an END USER ANI for activation without obtaining and maintaining a proper PIC AUTHORIZATION. 10.2. If, in Sprint's opinion, Customer breaches this paragraph, Sprint may (a) terminate this Agreement pursuant to Subparagraph 4.1(e), (b) reject END USER ANIS submitted by Customer for placement under its account and/or (c) discontinue PROMOTIONAL DISCOUNTS. If Sprint elects option (b) or (c), it will resume accepting ANIS and/or reinstate PROMOTIONAL DISCOUNTS only after Customer produces evidence satisfactory to Sprint that it has cured its breach. 11. CUSTOMER RESPONSIBILITIES. 11.1. Customer shall not be relieved of any obligation hereunder by virtue of the fact that SERVICE is ultimately used by END USERS. 11.2. Customer shall produce for Sprint's inspection, at Customer's expense, any PIC AUTHORIZATION within 48 hours after Sprint's oral or written request, or within any shorter period required by a LEC or regulatory agency. If Customer fails to comply with this subparagraph then Sprint may (a) discontinue PROMOTIONAL DISCOUNTS and/or (b) refuse to activate additional ANIS under Customer's account. SPRINT PROPRIETARY INFORMATION - RESTRICTED 11.3. Customer shall reimburse Sprint for any charge assessed by a LEC for processing a PIC request initiated by Customer and pay Sprint a PIC Assessment Fee equal to [*]% of such charge. 11.4. Customer shall be solely responsible for END USER solicitation, service requests, creditworthiness, customer service, billing and collection. 11.5. Customer shall be financially liable for usage generated by each END USER ANI activated by Sprint until such ANI is presubscribed to another IXC. Customer may request Sprint to block NETWORK EXTENSION SERVICE to an ANI upon the END USER'S failure to pay Customer, subject to Customer's prior certification to Sprint that it has given the END USER any notice required by law. Customer shall reimburse Sprint for expenses incurred to block an ANI. 11.6. Customer shall be solely liable for amounts it cannot collect from END USERS, and billing adjustments it grants END USERS, including adjustments for fraudulent charges, directory assistance or any other form of credit. 11.7. Customer shall comply with Sprint's network interface procedures when it orders its own access facilities. 12. SERVICE ACTIVATION. Sprint will use reasonable efforts to provide switched SERVICE within 15 days, and dedicated SERVICE within 30 days, following Customer's order, or the requested delivery date, whichever is later. These deadlines will be extended by the time it takes to address activation errors or obtain from Customer a complete and accurate order or PIC AUTHORIZATION. Customer shall reimburse Sprint for LEC imposed fees resulting from a request to expedite SERVICE. 13. PRICING: FORWARD PRICING: GENERAL CONDITIONS. 13.1. PRICING. CARRIER TRANSPORT BASE RATES and PROMOTIONAL DISCOUNTS are contained in the ATTACHMENTS hereto. 13.2. PRICES IN LIEU OF OTHER DISCOUNTS. CARRIER TRANSPORT BASE RATES and PROMOTIONAL DISCOUNTS are extended in lieu of any other TARIFF or contractual discount, special pricing, or discount term plan. Discounts upon discounts are only permitted if expressly provided for herein. 13.3. PRICES CONTINGENT ON PERFORMANCE. CARRIER TRANSPORT BASE RATES and PROMOTIONAL DISCOUNTS are contingent on Customer's full performance of all terms of the Agreement. If Customer fails to pay the undisputed portion of an invoice pursuant to Paragraph 17, all * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED SERVICE for which payment is past due may, at Sprint's option, be priced at CARRIER TRANSPORT BASE RATES. 13.4. PER MINUTE CHARGES. CARRIER TRANSPORT BASE RATES are invoiced based on PER MINUTE CHARGES utilizing the RATE PERIODS and BILLING INCREMENTS in ATTACHMENT B. 13.5. SWITCHED ORIGINATION, TERMINATION AND 800 ORIGINATION CHARGES. Customer shall pay the charges specified in ATTACHMENT B for each originating minute and each terminating minute of an interstate call that originates and/or terminates in a NON-BELL SERVICE AREA. 13.6. PROMOTIONAL PRICING LEVELS. Customer will receive DISCOUNT ONE and DISCOUNT TWO discounts applied only to RATE ELEMENTS as provided in ATTACHMENTS C and D. 13.7. FORWARD PRICING. As a transition to the pricing hereunder, DISCOUNT TWO discounts may be based for a period of time on the greater of Customer's actual DISCOUNT TWO MONTHLY VOLUME OF SERVICE or a specified FORWARD PRICING VOLUME OF SERVICE. The FORWARD PRICING VOLUME OF SERVICE and the period during which it may be applied are specified in ATTACHMENT A. 13.8. PRICING CONTINGENT ON PRIMARY CARRIER STATUS. Pricing hereunder is contingent on Customer utilizing Sprint as its PRIMARY CARRIER for the PRIMARY CARRIER SERVICES listed in ATTACHMENT A. If 800 SERVICE is a PRIMARY CARRIER SERVICE then Customer shall (a) designate Sprint as its PRIMARY CARRIER in the 800 Service Management System database for all interstate 800 traffic that is not originated directly by Customer and (b) maintain access facilities sufficient to send at least [*]% of its traffic to Sprint with no more than [*]% blockage during the peak busy hour of Customer's average business day. If Dial 1 WATS is a PRIMARY CARRIER SERVICE then [*]% of all END USER ANIS under Customer's control shall be PICED to Sprint during the TERM. If Ultra WATS is a PRIMARY CARRIER SERVICE then Customer shall maintain access facilities sufficient to send to Sprint at least [*]% of the traffic Customer does not terminate itself. Customer shall produce, within 30 days following Sprint's request, evidence acceptable to Sprint that it is in compliance with this subparagraph. Failure to maintain Sprint as PRIMARY CARRIER on any PRIMARY CARRIER SERVICE will result in SERVICE being provided hereunder at CARRIER TRANSPORT BASE RATES for the remainder of the TERM. Customer may select a temporary back-up carrier for any period during which it is affected by a Sprint network outage. * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED 14. SURCHARGES. 14.1. MINIMUM COMMITMENT SURCHARGE. Any month Customer fails to meet the MINIMUM COMMITMENT stated on ATTACHMENT A, Customer shall pay a surcharge for SERVICE provided during such month equal to the difference between the MINIMUM COMMITMENT and Customer's NET USAGE. The MINIMUM COMMITMENT shall not relieve Customer of any credit or security obligation hereunder. 14.2. LEC CAP SURCHARGE. Any month Customer exceeds the MAXIMUM NON-BELL TRAFFIC PERCENTAGE specified in ATTACHMENT B for any SERVICE type, Customer shall pay Sprint the per minute surcharge for such SERVICE specified in ATTACHMENT B for each minute above the MAXIMUM NON-BELL TRAFFIC PERCENTAGE that originates from or terminates to a NON-BELL SERVICE AREA. MAXIMUM NON- BELL TRAFFIC PERCENTAGES will be calculated independently for originating and terminating minutes at each PRODUCT HIERARCHY LEVEL. 14.3. MINIMUM AVERAGE TIME REQUIREMENT SURCHARGE. Any month Customer fails to equal or exceed the MINIMUM AVERAGE TIME REQUIREMENT specified in ATTACHMENT B for SERVICES specified in ATTACHMENT B, then Customer shall pay Sprint a per minute surcharge on such usage equal to (a) the per minute surcharge specified in ATTACHMENT B multiplied by (b) the difference between (i) the number of minutes the SERVICE was used and (ii) the number of calls using the SERVICE multiplied by the MINIMUM AVERAGE TIME REQUIREMENT. This surcharge shall be calculated at each PRODUCT HIERARCHY LEVEL. 14.4. NONCOMPLETE CALL SURCHARGE. Any month Customer exceeds the MAXIMUM NONCOMPLETE 800 CALL PERCENTAGE for interstate Ultra 800 and/or interstate FONline 800 traffic as stated on ATTACHMENT B, Customer shall pay Sprint a surcharge equal to the amount stated in ATTACHMENT B for each NONCOMPLETE 800 CALl in excess of the MAXIMUM NONCOMPLETE 800 CALL PERCENTAGE. This surcharge shall be calculated at each PRODUCT HIERARCHY LEVEL. 14.5. MINIMUM PORT USAGE SURCHARGE. Any month Customer fails to equal or exceed the MINIMUM PORT USAGE per ACTIVE ULTRA WATS PORT as stated on ATTACHMENT A, Customer shall pay Sprint a surcharge on its Ultra WATS usage equal to the difference between (a) Customer's actual NET USAGE for Ultra WATS SERVICE and (b) the MINIMUM PORT USAGE multiplied by the total number of ACTIVE ULTRA WATS PORTS. This surcharge shall be calculated at each PRODUCT HIERARCHY LEVEL. 15. SERVICE CHARGES. Customer shall pay Sprint a $[*] service charge for each END USER ANI or 800 number Customer submits for activation (a) that Sprint determines lacks a proper PIC AUTHORIZATION or (b) that requires Sprint to disconnect or transfer such ANI or 800 number from Sprint's data base before placing it within Customer's CTIS hierarchy. However, the service charge provided for in 15(b) will be waived if such END USER ANIS, * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED or 800 numbers, do not exceed [*]% of the total ANIS, or 800 numbers, submitted by Customer during the previous 90 days. 16. SPECIAL RATE ADJUSTMENTS. 16.1. Sprint may, after 60 days notice to Customer, adjust the price of SERVICE provided hereunder to reflect (a) changes in the average per-minute rate of interstate LEC access charges imposed on Sprint and/or (b) changes in international net settlements or currency exchange rates. 16.2. If during any period of 12 consecutive months the adjustments to a rate provided for herein exceed [*] percent of such rate, then Customer may terminate the Agreement pursuant to Subparagraph 4.3. 17. PAYMENT FOR SERVICE. 17.1. PAYMENT OBLIGATION. Customer shall pay Sprint for SERVICE pursuant to the terms of this Agreement and applicable TARIFFS. 17.2. CALL DETAIL. Sprint will provide Customer with a call detail media containing Customer's SERVICE usage. Sprint may, at it's option, and without liability to Customer, modify the format of the call detail media following 30 days written notice to Customer. 17.3. PAYMENT PROCEDURE. Sprint will invoice Customer monthly for SERVICE provided hereunder. Invoices shall be due and payable upon receipt. Undisputed charges for SERVICE that are not paid within 30 days after Customer's receipt of the invoice shall be past due. Interest will be charged on past due amounts beginning the 31st day following Customer's receipt of the invoice at a rate equal to the lesser of [*]% per annum or the maximum rate allowed by law. The price of SERVICE is exclusive of applicable taxes. CARRIER TRANSPORT BASE RATES and PROMOTIONAL DISCOUNTS are contingent on Customer providing Sprint with certificates from appropriate taxing authorities exempting Customer from taxes that would otherwise be invoiced hereunder. 17.4. BILLING DISPUTES. If Customer in good faith disputes any invoiced amount, it shall submit to Sprint, within 30 days following receipt of the invoice, full payment of the undisputed portion of the invoice and written documentation identifying and substantiating the disputed amount. If the Parties, in good faith, cannot resolve the dispute within a reasonable period of time, then the dispute shall be settled by arbitration pursuant to Paragraph 22. * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED 18. PAYMENT SECURITY. Provision of SERVICE is contingent on credit approval by Sprint. Upon request by Sprint, Customer shall provide Sprint with financial statements, or other indications of Customer's financial circumstances. If Customer's financial circumstances or payment history is or becomes unacceptable to Sprint, then Sprint may require a deposit, irrevocable letter of credit or other form of security acceptable to Sprint. Customer's failure to provide such security within 20 days following Sprint's request shall constitute a default under Subparagraph 4.2. 19. INDEMNIFICATION. Each Party (as "Indemnitor") shall indemnify, defend and hold harmless the other Party (as "Indemnitee") from and against any and all liabilities, costs, damages, fines, assessments, penalties and expenses (including reasonable attorney's fees) resulting from (a) breach of any provision in this Agreement by Indemnitor, its employees or agents, or (b) any misrepresentation or illegal act of Indemnitor, its employees or agents, arising out of the Indemnitor's performance hereunder. Customer shall indemnify, defend and hold Sprint harmless from and against any and all liabilities, costs and damages (including reasonable attorney's fees) resulting from any claim arising out of: (i) use of SERVICE by Customer to extend its service to END USERS; (ii) use of SERVICE by Customer or END USERS; (iii) libel, slander, or patent or trademark infringement arising from the combination or use of SERVICE with Customer provided service or facilities; or (iv) Customer's marketing, advertising, sales or promotional activities. 20. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING LOSS OF PROFITS, LOSS OF CUSTOMERS OR GOODWILL ARISING FROM THE RELATIONSHIP OR CONDUCT OF BUSINESS HEREUNDER. 21. WARRANTIES. WARRANTIES AND REMEDIES SET FORTH IN THE AGREEMENT AND SPRINT'S TARIFFS ARE THE ONLY WARRANTIES AND REMEDIES WITH RESPECT TO THE SERVICE, AND ARE IN LIEU OF ANY OTHER WARRANTY, WRITTEN OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. 22. ARBITRATION. Any dispute arising out of or relating to the Agreement will be finally settled by arbitration in accordance with the rules of the American Arbitration Association. The arbitration will be governed by the United States Arbitration Act, 9 U.S.C. Sec. 1, et. seq., and judgment upon the award rendered by the arbitrator(s) may be entered by any court with jurisdiction. The arbitration will be held in the Kansas City, MO metropolitan area. SPRINT PROPRIETARY INFORMATION - RESTRICTED 23. NOTICES. Notices, requests or other communications (excluding invoices) hereunder shall be in writing and sent by certified mail addressed as follows: If to Sprint: Sprint Communications Company 3100 Cumberland Circle Atlanta, GA 30339 Attention: Vice President-Diversified Brands With copy to: Sprint Communications Company 8140 Ward Parkway Kansas City, MO 64114 Attention: Vice President Law-Marketing/Sales If to Customer: AmeriConnect, Inc. 6750 West 93rd Street, Suite 110 Overland Park, KS 66212 Attention: Robert Kaemmer 24. ASSIGNMENT. Neither this Agreement nor any right or obligation hereunder may be assigned or delegated to any other entity without the prior written consent of the other Party, which consent shall not be unreasonably withheld. 25. EXCUSABLE DELAY. In the event of an EXCUSABLE DELAY the performance obligations of the Parties hereunder shall be suspended and the TERM shall be extended for a period of time equal to the length of such delay; provided, however, the affected Party shall promptly notify the other Party of the nature of the delay and the estimated time that it will continue. If an EXCUSABLE DELAY continues for more than 90 days and has a material adverse impact on the other Party, such other Party may, at its option and upon written notice to the other Party, such other Party may, at its option and upon written notice to the other Party, terminate this Agreement without liability other than payment for SERVICE provided prior to termination. Notwithstanding the foregoing, neither Party may invoke this paragraph with regard to any event listed in Paragraph 4 or to delay performance of Paragraphs 17 or 18. 26. CAPTIONS. Captions of the paragraphs and subparagraphs herein are for convenience only, are not part of the Agreement and shall not define or limit any of the Agreement's terms. 27. CHOICE OF LAW. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Kansas. 28. RULES OF CONSTRUCTION. No rule of construction requiring interpretation against the draftsman shall apply in the interpretation of this Agreement. SPRINT PROPRIETARY INFORMATION - RESTRICTED 29. ENTIRE AGREEMENT. This Agreement, together with the attached EXHIBITS and ATTACHMENTS, represents the entire agreement of the Parties with respect to the subject matter hereof and supersedes all other agreements between the Parties relating to the SERVICE. 30. MODIFICATION OF AGREEMENT. This Agreement, including its EXHIBITS and ATTACHMENTS, may be amended, modified or supplemented only by a separate written document executed by both parties with the formality of this Agreement. 31. WAIVER OF TERMS. No term or provision herein shall be waived, and no breach or default excused, unless such waiver or consent is in writing and signed by the Party to which it is attributed. No consent by a Party to, or waiver of, a breach or default by the other, whether express or implied, shall constitute a consent to, or waiver of, any subsequent breach or default. 32. PARTIAL INVALIDITY. If any provision of this Agreement shall be invalid or unenforceable, such invalidity or unenforceability shall not invalidate or render the Agreement unenforceable, but rather the Agreement shall be construed as if not containing the invalid or unenforceable provision. However, if such provision is an essential element of this Agreement, the Parties shall promptly attempt to negotiate a substitute therefor. 33. CUMULATIVE REMEDIES. Except as otherwise provided herein, the remedies provided for in this Agreement are in addition to any other remedies available at law or in equity. 34. EXPIRATION OF OFFER. Sprint's offer to enter into this Agreement shall be withdrawn if the Agreement is not executed by both Parties within 45 days after the PROPOSAL DATE stated on ATTACHMENT A. EXECUTED and made effective as provided herein. AmeriConnect, Inc. SPRINT COMMUNICATIONS COMPANY, L.P. By: /s/ Robert R. Kaemmer By: /s/ Patti Manuel Robert R. Kaemmer Patti Manuel President President, BSG Sales Date:_________________________ Date:______________________________ SPRINT PROPRIETARY INFORMATION - RESTRICTED EXHIBIT 1 DEFINITIONS Capitalized terms appearing in bold print in the Agreement, its Exhibits and Attachments are defined as follows: "ACTIVE ULTRA WATS PORT" means a Customer access port (DS-0 equivalent) connected to Sprint and activated as Ultra WATS SERVICE. "ANI" means a calling telephone number identification which is forwarded to an IXC by a LEC as a call is placed. "ASSOCIATED LOCATION" means a physical premise to or from which Sprint provides SERVICE which is: (a) owned or leased by Customer; (b) occupied by a business in which Customer has an equity interest of at least a [*]%; or (c) occupied by a franchisee of Customer. "ATTACHMENT" means a supplement attached to, and a part of, the Agreement. "BILLING INCREMENT" means a TARIFFED billing increment, unless otherwise stated in ATTACHMENT B. "CALLING CARD" means a card issued to an END USER in Customer's name containing an authorization code that the END USER may use to originate calls over Sprint's network as provided in EXHIBIT 2. "CARRIER FONCARD SERVICE" means a SERVICE consisting of a Sprint authorization code incorporated into Customer's CALLING CARD which, together with Customer's service enhancements, is provided to END USERS for use in originating calls over Sprint's network as provided in EXHIBIT 2. "CARRIER TRANSPORT BASE RATES" means the prices provided herein for CARRIER TRANSPORT SERVICE. "CARRIER TRANSPORT SERVICE" means switched SERVICE purchased under the Agreement and invoiced under CTIS. "CIC" means an IXC carrier identification code. "CTIS" means Sprint's Carrier Transport Invoicing System. * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED "DAY RATE PERIOD" means the TARIFF day rate period unless otherwise specified herein. "DISCOUNT ONE" means a RATE ELEMENT specific discount that (1) is based on Customer's DISCOUNT ONE MONTHLY VOLUME OF SERVICE and (2) is applied to usage at the Service Hierarchy Level that has been priced at CARRIER TRANSPORT BASE RATES. "DISCOUNT ONE MONTHLY VOLUME OF SERVICE" means the volume of Customer's monthly usage, at each PRODUCT HIERARCHY LEVEL, for a specific RATE ELEMENT priced at CARRIER TRANSPORT BASE RATES. "DISCOUNT RATE PERIOD" means the TARIFF international discount rate period unless otherwise specified herein. "DISCOUNT THREE" means a RATE ELEMENT specific discount that (1) is based on Customer's DISCOUNT THREE MONTHLY VOLUME OF SERVICE and (2) is applied at the PRODUCT HIERARCHY LEVEL or the SERVICE HIERARCHY LEVEL to interstate or international usage to the LATAs or countries specified in ATTACHMENT C. "DISCOUNT THREE MONTHLY VOLUME OF SERVICE" means the volume of Customer's monthly usage, at the PRODUCT HIERARCHY LEVEL or SERVICE HIERARCHY LEVEL, of interstate or international minutes to the specific LATAs or countries identified in ATTACHMENT C and priced based on the usage levels and RATE PERIODS specified in ATTACHMENT C. "DISCOUNT TWO" means a RATE ELEMENT specific discount that (1) is based on Customer's DISCOUNT TWO MONTHLY VOLUME OF SERVICE and (2) is applied to usage at the SERVICE HIERARCHY LEVEL that has been priced at CARRIER TRANSPORT BASE RATES less DISCOUNT ONE discounts. "DISCOUNT TWO MONTHLY VOLUME OF SERVICE" means the volume of Customer's monthly usage, at the MASTER HIERARCHY LEVEL, of all CARRIER TRANSPORT SERVICES, including directory assistance SERVICES, priced at CARRIER TRANSPORT BASE RATES after the application of DISCOUNT ONE discounts, but prior to the application of DISCOUNT TWO discounts. DISCOUNT TWO MONTHLY VOLUME OF SERVICE does not include CARRIER TRANSPORT SERVICE charges that are not based on usage, Clearline Service charges, Private Line charges, any charge associated with access (dedicated or non-dedicated), facilities charges, any usage related fixed charge, any non-recurring charge such as installation charges, taxes, surcharges, transfer fees, or interest. "EARLY TERMINATION CHARGE" means the charge imposed for terminating the Agreement prior to expiration of the TERM as provided in Paragraph 5 thereof. "ECONOMY RATE PERIOD" means the TARIFF international economy rate period. SPRINT PROPRIETARY INFORMATION - RESTRICTED "END USER" means a customer of Customer to whom Sprint extends NETWORK EXTENSION SERVICE at a NON-ASSOCIATED LOCATION. "EVENING RATE PERIOD" means the TARIFF evening rate period unless otherwise specified herein. "EXCUSABLE DELAY" means any event that prevents a Party from performing its obligations hereunder and that is beyond the reasonable control and without the fault or negligence of such Party. "EXHIBIT" means a supplement attached to, and a part of, the Agreement. "FORWARD PRICING VOLUME OF SERVICE" means the volume of service specified in ATTACHMENT A upon which DISCOUNT TWO discounts may be based as provided in Subparagraph 13.7 of the Agreement. "INTERSTATE ADJUSTMENT" means the adjustment under Subparagraph 6.2 to the invoice for interstate usage that is based on the level of intrastate usage. "INTERSTATE ADJUSTMENT RATE" means the rate identified in ATTACHMENT D that is used to determine the INTERSTATE ADJUSTMENT as provided in Subparagraph 6.2. "IXC" means interexchange carrier. "LEC" means local exchange carrier. "MASTER HIERARCHY LEVEL" means billing hierarchy level 1. "MAXIMUM NONCOMPLETE 800 CALL PERCENTAGE" means, for each month, for each Service type, the ratio, expressed as a percentage, of (i) the aggregate number of NONCOMPLETE 800 CALLS during such period divided by (ii) the aggregate number of 800 calls during such period. This percentage shall be calculated at each PRODUCT HIERARCHY LEVEL. "MAXIMUM NON-BELL TRAFFIC PERCENTAGE" means, for each month, the ratio, expressed as a percentage, of (i) the number of minutes during such period that originate from, or terminate in, a NON-BELL SERVICE AREA, divided by (ii) the total number of minutes during such period. MAXIMUM NON-BELL TRAFFIC PERCENTAGES will be calculated independently for originating and terminating minutes at the PRODUCT HIERARCHY LEVEL. "MINIMUM AVERAGE TIME REQUIREMENT" means the minimum average call duration, expressed in minutes, for SERVICES as specified in ATTACHMENT B. MINIMUM AVERAGE TIME REQUIREMENT calculations will be made at each PRODUCT HIERARCHY LEVEL. SPRINT PROPRIETARY INFORMATION - RESTRICTED "MINIMUM COMMITMENT" means the minimum monthly usage commitment stated on ATTACHMENT A. The calculation to determine whether Customer has met the MINIMUM COMMITMENT shall be based on Customer's invoiced NET USAGE. "MINIMUM PORT USAGE" means the minimum NET USAGE for Ultra WATS Service stated on ATTACHMENT A that Customer shall generate per ACTIVE ULTRA WATS PORT. "NETWORK EXTENSION SERVICE" means Service that Sprint extends to the NON- ASSOCIATED LOCATION of an END USER. "NET USAGE" means the monthly amount invoiced for use of a SERVICE net of DISCOUNT ONE, DISCOUNT TWO and DISCOUNT THREE discounts. NET USAGE includes the following as they apply to particular SERVICES: monthly per-minute usage charges invoiced under the Agreement; route advance charges; real time ANI charges; switched origination and termination charges; directory assistance charges; MINIMUM AVERAGE TIME REQUIREMENT Surcharges; Noncomplete Call Surcharges; FONcard surcharges; and LEC Cap Surcharges. "NIGHT/WEEKEND RATE PERIOD" means the TARIFF night/weekend rate period unless otherwise specified herein. "NONCOMPLETE 800 CALL" means an attempted FONline 800 or Ultra 800 call that is not completed to the called number for any reason. "NON-ASSOCIATED LOCATION" means any physical premise to or from which Sprint provides SERVICE that is not an ASSOCIATED LOCATION. "NON-BELL SERVICE AREA" means the geographic service area of any "independent" LEC which is not a Bell Operating Company. "OFF PEAK RATE PERIOD" means (a) the EVENING RATE PERIOD and the NIGHT/WEEKEND RATE PERIOD for interstate traffic and (b) the DISCOUNT RATE PERIOD and Economy RATE PERIOD for international traffic. "PEAK RATE PERIOD" means (a) the DAY RATE PERIOD for interstate traffic and (b) the STANDARD RATE PERIOD for international traffic. "PER MINUTE CHARGE" means the per minute charge for SERVICE as set forth in EXHIBIT C based on RATE PERIODS and BILLING INCREMENTS stated in ATTACHMENT B. "PIC" means primary interexchange carrier. SPRINT PROPRIETARY INFORMATION - RESTRICTED "PIC AUTHORIZATION" means an END USER'S selection of a PIC that meets the requirements of federal and state law. "PRIMARY CARRIER" means the IXC designated by Customer as its first routing choice and primary overflow carrier. "PRIMARY CARRIER SERVICE" means the SERVICE specified in ATTACHMENT A for which Sprint shall be Customer's PRIMARY CARRIER. "PRODUCT HIERARCHY LEVEL" means the level in the Customer billing hierarchy directly above the SERVICE HIERARCHY LEVEL which ties SERVICE together for purposes of reporting. Each PRODUCT HIERARCHY LEVEL is considered independently for calculation and application of DISCOUNT ONE, LEC Cap Surcharges, MINIMUM AVERAGE TIME REQUIREMENT Surcharges, NONCOMPLETE 800 CALL Surcharges and MINIMUM PORT USAGE Surcharges. "PROMOTIONAL DISCOUNTS" is a collective reference to DISCOUNT ONE, DISCOUNT TWO, DISCOUNT THREE and INTERSTATE ADJUSTMENTS. "PROPOSAL DATE" means the date indicated on ATTACHMENT A that the Agreement is offered by Sprint to Customer. "PROPRIETARY INFORMATION" means (a) written information of a Party which is clearly and conspicuously marked as proprietary or confidential or which is accompanied by written notice that such information is confidential, or (b) a verbal communication which is subsequently confirmed in writing to the other Party as confidential or proprietary information which (i) is maintained in confidence and secrecy by the disclosing Party, (ii) is valuable to the disclosing Party because of such confidence or secrecy, and (iii) is subject to the disclosing Party's reasonable efforts to maintain such confidentiality and secrecy. PROPRIETARY INFORMATION shall not include information which (1) is at any time in the public domain other than through wrongdoing on the part of an entity owing a duty of confidentiality to the disclosing Party, (2) is within legitimate possession of the receiving Party without obligation of confidentiality, (3) is lawfully received from a third party having rights therein without restriction of the right to disseminate the information, (4) is independently developed without breach of any obligation of confidentiality through parties without access to or knowledge of such PROPRIETARY INFORMATION, (5) is disclosed with prior written approval of the other Party, (6) is transmitted after the disclosing Party has received written notice from the receiving Party that it does not desire to receive further PROPRIETARY INFORMATION, or (7) is obligated to be produced under order of a court of competent jurisdiction. "RATE ELEMENT" means a jurisdictional element of the rate for a particular SERVICE. For example, Ultra WATS rates consist of separate RATE ELEMENTS for interstate, intrastate, SPRINT PROPRIETARY INFORMATION - RESTRICTED Canada, Mexico domestic, Mexico international, other international, and directory assistance usage. "RATE PERIODS" is a collective reference to the DAY RATE PERIOD, DISCOUNT RATE PERIOD, ECONOMY RATE PERIOD, EVENING RATE PERIOD, NIGHT/WEEKEND RATE PERIOD, OFF PEAK RATE PERIOD, PEAK RATE PERIOD, and STANDARD RATE PERIOD. "SERVICE" means the service identified in the EXHIBITS and ATTACHMENTS that Sprint shall provide and Customer shall purchase hereunder. "SERVICE HIERARCHY LEVEL" means the lowest level in the Customer's billing hierarchy. "STANDARD RATE PERIOD" means the TARIFF standard rate period for international SERVICE unless otherwise specified herein. "TARIFF(S)" means any applicable tariff filed by Sprint with the Federal Communications Commission for interstate or international SERVICE (including TARIFF revisions) and/or any applicable tariff filed with a state regulatory commission for intrastate SERVICE. Should Sprint no longer file TARIFFS in order to provide SERVICE, then TARIFF shall mean the standard rate tables and terms and conditions that replace such TARIFFS. "TERM" means the term of the Agreement as provided in Paragraph 3 thereof. SPRINT PROPRIETARY INFORMATION - RESTRICTED EXHIBIT 2 SERVICES The following SERVICES are provided pursuant to the Agreement: 1. WATS SERVICE. 1.1. ULTRA WATS. Ultra WATS is provided hereunder for switched outbound traffic with interstate or international termination that originates over dedicated special access (DS-1 or DS-3) circuits. Ultra WATS includes both Carrier Ultra WATS and Network Extension Ultra WATS. 1.2. CARRIER ULTRA WATS. Carrier Ultra WATS is Ultra WATS Service subscribed to, and paid for, by Customer that originates from an ASSOCIATED LOCATION. Carrier Ultra WATS may be obtained only by a carrier with its own CIC. 1.3. NETWORK EXTENSION ULTRA WATS. Network Extension Ultra WATS is Ultra WATS Service subscribed to, and paid for, by Customer but connected directly to a NON-ASSOCIATED LOCATION. 1.4. DIAL 1 WATS. Dial 1 WATS is provided hereunder for switched outbound traffic utilizing Feature Group D protocol having interstate or international termination. 1.5. DBG SWITCHED DIGITAL SERVICE. Switched digital CARRIER TRANSPORT SERVICE is a combination of LEC switched data capabilities and the Sprint data network that is billed under CTIS. 2. 800 SERVICE. 2.1. ULTRA 800. Ultra 800 is provided hereunder for Customer switched inbound traffic with interstate or international origination that terminates over dedicated special access (DS-1 or DS-3) circuits. Ultra 800 includes both Carrier Ultra 800 and Network Extension Ultra 800. 2.2. CARRIER ULTRA 800. Carrier Ultra 800 is Ultra 800 SERVICE subscribed to, and paid for, by Customer that terminates to an ASSOCIATED LOCATION. Carrier Ultra 800 may be obtained only by a carrier with its own CIC. 2.3. NETWORK EXTENSION ULTRA 800. Network Extension Ultra 800 is Ultra 800 SERVICE subscribed to, and paid for, by Customer but connected directly to an NON-ASSOCIATED LOCATION. SPRINT PROPRIETARY INFORMATION - RESTRICTED 2.4. FONLINE 800. Sprint FONline 800 is provided hereunder for switched inbound traffic, terminating on Feature Group D protocol, having interstate or international origination. 2.5. INTERNATIONAL 800 ORIGINATION. International origination 800 ("ITFS") for Ultra 800 and FONline 800 SERVICE shall be provided subject to availability. Because of a limited quantity of 800 numbers in some countries, Sprint may, as it deems appropriate, after 30 days notice, disconnect any 800 number which does not generate at least [*] minutes of usage during any period of three consecutive months. ITFS traffic must be terminated directly in the continental U.S. If reorigination occurs, ITFS traffic is subject to foreign PTT interruption and is beyond Sprint's control. ITFS SERVICE shall be provided pursuant to TARIFF, including rates, discounts and 800 number charges, unless otherwise provided herein. 2.6. COMMAND ROUTING BETWEEN ULTRA 800 AND FONLINE 800. Customer locations requiring command routing between Ultra 800 and FONline 800 will be billed in a separate billing system and will not receive special pricing under the Agreement until it can be supported by CTIS. 3. FONVIEW. FONview is not available for SERVICE billed under CTIS. 4. DIRECTORY ASSISTANCE. 4.1. INTERSTATE. Interstate directory assistance provided hereunder must have a domestic origination over Customer's circuits. Sprint may modify directory assistance prices provided in the Agreement to reflect changes in LEC directory assistance charges. 4.2. INTERNATIONAL. International directory assistance is provided pursuant to TARIFF. International directory assistance must have a domestic origination over Customer's circuits and request numbers must be located in the countries listed in Sprint's FCC TARIFF 1, Section 2.1. International directory assistance may be obtained by calling a Sprint operator who will request the number from the appropriate country's international operator. Sprint may modify directory assistance prices provided in the Agreement to reflect changes in directory assistance charges of other countries. 4.3. TOLL-FREE 800 DIRECTORY LISTINGS. Customer's 800 numbers shall not be eligible for any toll-free 800 directory listing at Sprint's expense. 5. CARRIER FONCARD SERVICE. 5.1. CARRIER FONCARD SERVICE consists of an authorization code issued by Sprint which Customer will incorporate into a CALLING CARD. The CALLING CARD, together with Customer provided service enhancements, will be provided in Customer's name to END USERS who may * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED use the card to originate calls over Sprint's network in the contiguous U.S. and selected countries. Sprint will transport Customer's CALLING CARD traffic with the same quality as Sprint FONcard traffic. 5.2. AVAILABILITY. CARRIER FONCARD SERVICE is provided subject to (a) availability and compatibility of facilities, (b) Customer fulfillment, and (c) 800 access origination, which Customer agrees may be withheld by Sprint in certain LATAs because of facility constraints. 5.3. ACTIVATION. Sprint will provide Customer with activated authorization codes to be imprinted on Customer's CALLING CARDS. The codes will be provided within 30 days following Customer's request and notice to Sprint of Customer's fulfillment vendor. 5.4. 800 ACCESS. Customer may elect CALLING CARD access to a Sprint operator using either a "Generic" or "Branded" 800 access number. The operator response to a Generic 800 call will be similar to: "Long Distance, may I help you?" Calls to a Branded access number will be answered by an operator assigned exclusively to Customer. Operator response to Branded access calls will be similar to: "(CUSTOMER) Long Distance Operator." Customer shall pay a non-recurring charge for establishing account access as provided in ATTACHMENT B. 5.5. SERVICE REPRESENTATIVE. Sprint will designate a representative to provide Customer service. This representative will not be available for direct contact by END USERS. 5.6. NON-EMERGENCY DEACTIVATION. Sprint will advise Customer of the process for requesting non-emergency deactivation of an authorization code. Sprint may periodically deactivate unused authorization codes to minimize potential fraud. Sprint will notify Customer of any such deactivation. Emergency deactivation is provided for in Subparagraph 5.9 of this Attachment. 5.7. REMEDY FOR SERVICE FAILURE. Notwithstanding anything to the contrary in Subparagraph 4.1(e) of the Agreement, Customer's sole and exclusive remedy for failure of a particular CARRIER FONCARD SERVICE shall be discontinuation of the affected SERVICE subject to Paragraph 25 of the Agreement. 5.8. CUSTOMER OBLIGATIONS. Customer shall, at Customer's expense: (a) design, manufacture and distribute its CALLING CARDS; (b) solicit END USERS in its own name in compliance with Paragraph 8 of the Agreement; (c) address END USER service requests; (d) determine END USER creditworthiness; (e) define its relationship with END USERS relative to its CALLING CARD service by tariff or contract; (f) provide CALLING CARD fulfillment using a bonded fulfillment vendor; (g) supply its fulfillment vendor with necessary END USER information; (h) maintain its own END USER data base; (i) provide END USER customer SPRINT PROPRIETARY INFORMATION - RESTRICTED service, billing and collection; (j) maintain its own END USER customer service number, which shall be printed on each CALLING CARD; (k) establish internal CALLING CARD management procedures; (l) monitor for fraud and code abuse; and (m) cooperate and interface with Sprint to prevent fraud or code abuse as provided herein. Customer shall provide Sprint with all order authorizations, service applications and information that Sprint requires to establish and maintain CARRIER FONCARD SERVICE and proper invoicing. Customer shall be liable for (a) all usage charged to an activated authorization code after the code is provided to Customer or its agent, (b) non payment by END USERS, and (c) billing adjustments granted to END USERS as provided in Subparagraph 11.6 of the Agreement. Customer shall indemnify and hold Sprint harmless from any claim or damages resulting from Sprint's deactivation of an authorization code at Customer's request. 5.9. CODE ABUSE; FRAUD; EMERGENCY DEACTIVATION. Sprint and Customer will cooperate to deter CALLING CARD fraud and code abuse. Sprint will monitor usage of Customer CALLING CARDS to detect fraud or code abuse in the same manner that it monitors FONcard usage of its own customers. This activity will not create any liability on the part of Sprint resulting from code abuse or fraud. Customer shall be liable for all usage charged to an activated authorization code that results from fraud or code abuse. Sprint will notify Customer of (a) the process Customer may use to obtain emergency deactivation of a lost or stolen CALLING CARD and (b) the process Sprint will use to notify Customer of suspected fraud or code abuse. Customer shall maintain a 7 day per week, 24 hour per day, contact that Sprint will immediately notify if fraud or code abuse is suspected. Customer shall advise Sprint within 30 minutes after receiving such notice whether it wants the authorization code deactivated. If Sprint is unable to reach Customer's contact, or if Customer fails to respond to Sprint's notice within 30 minutes, Sprint may, in its discretion, deactivate the authorization code and advise Customer of its actions. Sprint shall incur no liability for such deactivation. Sprint shall be liable for calls charged to an authorization code after a period of 4 hours following an appropriate emergency deactivation request. Requests for credit pursuant to this subparagraph shall be supported by appropriate documentation. Sprint will investigate and, in its discretion, either approve or reject such requests. Notwithstanding anything in Paragraph 18 of the Agreement, the amount of any credit request under this subparagraph shall not be deducted as a disputed charge prior to payment of an invoice. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment A A.3. TERM OF AGREEMENT: 24 months A.13.7. FORWARD PRICING - FORWARD PRICING VOLUME OF SERVICE Not Applicable A.13.8. PRIMARY CARRIER REQUIREMENT. Customer shall utilize Sprint as its PRIMARY CARRIER for the following PRIMARY CARRIER SERVICES Not Applicable A.14.1. MINIMUM COMMITMENT CARRIER TRANSPORT MONTHLY MONTHS NET USAGE COMMITMENT 1-12 $1,000,000 13-24 $1,200,000 A.14.5. MINIMUM PORT USAGE: $[*] Minimum Net Ultra WATS Usage Per Port PROMOTIONAL ACF/COC/EFC CHARGES All ACF Charges will be per applicable tariff. Monthly recurring COC charges will be $[*] per port. Monthly recurring EFC charges will be $[*] per port when Customer utilizes Sprint's entrance facilities. A.34 PROPOSAL DATE: July 21, 1995 * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment B - 1 B.13.4. Billing Increments/Usage Periods for Per Minute Charges. Service will be invoiced based on PER MINUTE CHARGES utilizing TARIFFED RATE PERIODS and TARIFFED BILLING INCREMENTS, unless specifically set forth below: Initial Additional Service Type/ Billing Increment Billing Increment Rate Element (sec) (sec) Interstate Ultra WATS [ [ Canada Term. Ultra WATS Mexico US Element Ultra WATS Mexico Int'l. Element Ultra WATS Other Int'l Ultra WATS Interstate Dial 1 WATS Canada Term. Dial 1 WATS Mexico US Element Dial 1 WATS Mexico Int'l. Element Dial 1 WATS Other Int'l Dial 1 WATS * * Interstate Ultra 800 Canada Orig. Ultra 800 Mexico Ultra 800 Other Int'l. Ultra 800 Caribbean Ultra 800 Interstate FONline 800 Canada Orig. FONline 800 Mexico FONline 800 Other Int'l. FONline 800 Caribbean FONline 800 Interstate FONcard ] ] B.13.5. NON-BELL SWITCHED ORIGINATION/TERMINATION/800 ORIGINATION CHARGE. Not applicable * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment B - 2 B.14.2 LEC CAP MAXIMUM NON-BELL TRAFFIC. Maximum Originating Maximum Terminating Non-Bell Service Type Non-Bell Traffic % Non-Bell Traffic % Surcharge Dial 1 WATS [ [ [ FONline 800 * FONcard ] * * Ultra WATS Net Ext N/A ] Ultra 800 Net Ext [*] ] B.14.3. MINIMUM AVERAGE CALL DURATION: MINIMUM AVERAGE TIME REQUIREMENT (MATR) shall not apply unless specifically set forth below: Service Type MATR MATR Surcharge N/A N/A N/A PROMOTIONAL MONTHLY RECURRING 800 CHARGES: Customer's Monthly Recurring FONline 800 service charge will be $[*] per FONline 800 account per month. There will be no more than [*] 800 numbers per FONline 800 account. Customer's 800 numbers (FONline 800 and Ultra 800) requiring 800 Toll- free Directory Assistance Listings will be charged an additional Monthly Recurring Charge of $[*] per month per 800 number requiring such listing. B.14.4. MAXIMUM NONCOMPLETE CALL PERCENTAGE. Ultra 800 and FONline 800Maximum NoncompletePer Call Usage Type (Rate Element)800 Call PercentageSurcharge Intrastate/Interstate [ % [ * * International/Canadian %] ] [ * ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 1 INTERSTATE SWITCHED NETWORK EXTENSION BASE RATES LATA DIAL 1 WATS FONLINE 800 CARRIER FONCARD GROUP* PEAK OFF-PEAK PEAK OFF-PEAK PEAK OFF-PEAK 1 [ [ [ [ [ [ * * * * * * 2 ] ] ] ] ] ] Interstate and Intrastate Carrier FONcard Surcharge: [*] Per Call ** INTERSTATE SWITCHED NETWORK EXTENSION TWO YEAR TERM DISCOUNT 1: [*]% INTERSTATE SWITCHED NETWORK EXTENSION DISCOUNT 2 MONTHLY VOLUME OF DIAL 1 WATS FONLINE 800 CARRIER FONCARD CARRIER TRANSPORT SERVICE PEAK OFF-PEAK PEAK OFF-PEAK PEAK OFF-PEAK [ [ [ [ [ [ [ * * * * * * * ] ] ] ] ] ] ] * See LATA Group Descriptions. Group 2 rates apply to usage originating from/terminating to Group 2 LATAs. Group 2 rates are not eligible for Discount 2. ** FONcard Surcharge not eligible for Discounts DIAL 1 WATS DIRECTORY ASSISTANCE Interstate Directory Assistance Rate: $ [ Canada & Caribbean Directory Assistance Rate: $ * Other International Directory Assistance Rate: $ ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 2 INTERSTATE DEDICATED NETWORK EXTENSION BASE RATES LATA ULTRA WATS NET EXT ULTRA 800 NETWORK EXT GROUP* PEAK OFF-PEAK PEAK OFF-PEAK 1 [ [ [ [ * * * * 2 ] ] ] ] INTERSTATE DEDICATED NETWORK EXTENSION NEW CUSTOMER PROMO DISCOUNT 1: [*]% For dedicated Network Extension Service (Ultra WATS and Ultra 800), Customer will be eligible for the New Customer Promotion Discount 1 above (applied to the interstate base rate usage) for all existing accounts and new accounts that were not dedicated access users on the Sprint network for the six (6) months immediately preceding receipt of order. Any new accounts that were dedicated access users on the Sprint network for the six (6) months preceding receipt of order will be billed in a separate billing product hierarchy level and will not receive the New Customer Promotion discount. INTERSTATE DEDICATED NETWORK EXTENSION DISCOUNT 2 MONTHLY VOLUME OF ULTRA WATS NET EXT ULTRA 800 NETWORK EXT CARRIER TRANSPORT SERVICE PEAK OFF-PEAK PEAK OFF-PEAK [ [ [ [ [ * * * * * ] ] ] ] ] * See LATA Group Descriptions. Group 2 rates are not eligible for Discount 2. ULTRA WATS NETWORK EXTENSTION DIRECTORY ASSISTANCE Interstate Directory Assistance Rate: [ Canada & Caribbean Directory Assistance Rate: * Other International Directory Assistance Rate: ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 3 CANADA TERMINATING BASE RATES PER MINUTE Dial 1 WATS [ Ultra WATS Net Ext * Carrier Ultra WATS ] FONcard CANADA TERMINATING TWO YEAR TERM DISCOUNT 1: [*]% CANADA TERMINATING DISCOUNT 2 MONTHLY VOLUME OF DIAL 1 ULTRA WATS CARRIER TRANSPORT SERVICE WATS NETWORK EXTENSION FONCARD [ [ [ [ * * * * ] ] ] ] CANADA ORIGINATING BASE RATES PER MINUTE FONline 800 [ Ultra 800 Net Ext Carrier Ultra 800 * FONcard ] CANADA ORIGINATING TWO YEAR TERM DISCOUNT 1: [*]% CANADA ORIGINATING DISCOUNT 2 MONTHLY VOLUME OF ULTRA 800 CARRIER TRANSPORT SERVICE FONLINE 800 NETWORK EXTENSION FONCARD [ [ [ [ * * * * ] ] ] ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 4 MEXICO TERMINATING BASE RATES DOMESTIC ELEMENT BASE RATES PER MINUTE PEAK OFF-PEAK Dial 1 WATS [ [ Ultra WATS Net Ext * * Carrier Ultra WATS ] ] INTERNATIONAL ELEMENT PER MINUTE BASE RATES PEAK OFF-PEAK MEXICO RATE STEP* 1ST ADD'L 1ST ADD'L 1 [ [ [ [ 2 3 4 * * * * 5 6 7 8 ] ] ] ] MEXICO TERMINATING TWO YEAR TERM DISCOUNT 1: [*]% MEXICO TERMINATING DISCOUNT 2 MONTHLY VOLUME OF DIAL 1 ULTRA WATS CARRIER TRANSPORT SERVICE WATS NETWORK EXTENSION [ [ [ * * * ] ] ] MEXICO TERMINATING FONCARD BASE RATES PER MINUTE **: Peak Off-Peak [*] [*] * Mexico Rate Steps are defined in Sprint FCC Tariff #2 ** FONcard rates not eligible for discounts * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 5 MEXICO ORIGINATING BASE RATES * (Ultra 800 Network Extension & FONline 800)
US Rate Area 1 US Rate Area 2 US Rate Area 3 US Rate Area 4 Standard Economy Standard Economy Standard Economy Standard Economy Mexico Zone 1 [ [ [ [ [ [ [ [ Mexico Zone 2 Mexico Zone 3 * * * * * * * * Mexico Zone 4 ] ] ] ] ] ] ] ]
MEXICO ORIGINATING TWO YEAR TERM DISCOUNT 1: [*]% MEXICO ORIGINATING FONCARD BASE RATES PER MINUTE ** Peak Off-Peak [*] [*] * US Rate Area and Mexico Rate Zone are defined in Sprint FCC Tariff #2. ** FONcard rates not eligible for discounts * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 6 Interstate Carrier UltraWATS LATA Groups
GROUP 1 GROUP 2 128 Boston, MA 490 New Orleans, LA 222 Trenton, NJ 482 Jackson, MS 132 New York Metro 524 Kansas City, MO 234 Pittsburgh, PA 520 St. Louis, MO 224 Newark, NJ 552 Dallas, TX 238 Baltimore, MD 536 Oklahoma City, OK 228 Philadelphia, PA 560 Houston, TX 248 Richmond, VA 538 Tulsa, OK 236 Washington, DC 628 Minneapolis, MN 320 Cleveland, OH 558 Austin, TX 340 Detroit, MI 656 Denver, CO 324 Columbus, OH 566 San Antonio, TX 358 Chicago, IL 666 Phoenix, AZ 336 Indianapolis, IN 635 Cedar Rapids, IA 426 Raleigh, NC 674 Seattle, WA 430 Greenville, SC 660 Utah 438 Atlanta, GA 722 San Francisco, CA 452 Jacksonville, FL 721 Las Vegas, NV 460 Miami, FL 730 Los Angeles, CA 458 Orlando, FL 732 San Diego, CA 468 Memphis, TN 920 Connecticut 470 Nashville, TN 922 Cincinnati, OH 480 Mobile, AL GROUP 3 GROUP 4 130 Rhode Island 478 Montgomery, AL 126 Springfield, MA 492 Baton Rouge, LA 133 Poughkeepsie, NY 486 Shreveport, LA 244 Roanoke, VA 546 Amarillo, TX 134 Albany, NY 521 Columbia, MO 246 Culpepper, VA 550 Abilene, TX 136 Syracuse, NY 522 Springfield, MO 330 Evansville, IN 554 Longview, TX 138 Binghampton, NY 528 Little Rock, AR 332 South Bend, IN 556 Waco-Temple, TX 140 Buffalo, NY 532 Wichita, KS 334 Auburn/Hunt., IN 562 Beaumont, TX 252 Norfolk, VA 534 Topeka, KS 338 Bloomington, IN 568 Brownsville, TX 322 Youngstown, OH 540 El Paso, TX 346 Lansing, MI 570 Bryan, TX 325 Akron, OH 542 Midland, TX 350 Green Bay, WI 620 Rochester, MN 326 Toledo, OH 544 Lubbock, TX 366 Bloomington, IL 624 Duluth, MN 328 Dayton, OH 548 Wichita Falls, TX 368 Peoria, IL 626 St. Cloud, MN 348 Grand Rapids, MI 564 Corpus Christi, TX 370 Champ.-Urban, IL 636 Fargo-Brainerd, ND 354 Madison, WI 630 Sioux City, IA 424 Greensboro, NC 668 Tucson, AZ 356 Milwaukee, WI 632 Des Moines, IA 428 Wilmington, NC 676 Spokane, WA 374 Springfield, IL 634 Davenport, IA 432 Florence, SC 720 Reno, NV 420 Asheville, NC 644 Omaha, NE 436 Charleston, SC 728 Fresno, CA 422 Charlotte, NC 646 Grand Island, NE 440 Savannah, GA 736 Monterey, CA 434 Columbia, SC 658 Colorado Spgs, CO 442 Augusta, GA 738 Stockton, CA 454 Gainsville, FL 672 Portland, OR 444 Albany, GA 924 Erie, PA 456 Daytona Beach, FL 726 Sacramento, CA 446 Macon, GA 937 Richmond, IN 462 Louisville, KY 952 Tampa, FL 448 Pensacola, FL 939 Ft. Myers, FL 476 Birmingham, AL 974 Rochester, NY 450 Panama City, FL 953 Tallahasse, FL 477 Huntsville, AL 472 Chattanooga, TN 956 Bristol/JoCty, TN 474 Knoxville, TN 958 Lincoln, NE 488 Lafayette, LA 973 Palm Springs, CA GROUP 5 GROUP 6 120 Maine 362 Cairo, IL 670 Eugene, OR 820 Puerto Rico 122 New Hampshire 364 De Kalb, IL 724 Chico, CA 822 U.S. Virgin Islands 124 Vermont 376 Quincy, IL 734 Bakersfield, CA 832 Alaska 220 Atlantic City, NJ 464 Owensboro, KY 740 San Luis Ob., CA 834 Hawaii 226 Capital, PA 466 Winchester, KY 923 Lima-Mansfield, OH 921 Fishers Island, NY 230 Altoona, PA 484 Biloxi, MS 927 Harrisonburg, VA 929 Edinburg, VA 232 Northeast, PA 526 Fort Smith, AR 928 Charlottesville, VA 932 Bluefield, WV 240 Hagerstown, MD 530 Pine Bluff, AR 938 Terre Haute, IN 963 Kalispell, MT 242 Salisbury, MD 638 Bismark, ND 949 Fayetteville, NC 980 Navajo Terr., AZ 250 Lynchburg, VA 640 Sioux Falls, SD 951 Rocky Mount, NC 981 Navajo Terr., UT 254 Charleston, WV 648 Great Falls, MT 960 Coeur D'Alene, ID ALL OTHERS 256 Clarksburg, WV 650 Billings, MT 961 San Angelo, TX 342 Marquette, MI 652 Boise, ID 976 Mattoon, IL 344 Saginaw, MI 654 Cheyenne, WY 977 Macomb, IL 352 Eau Claire, WI 664 New Mexico 978 Olney, IL 360 Rockford, IL
SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 7 Interstate Carrier Ultra 800, Dial 1 WATS, FONline 800, FONcard, Ultra WATS Network Extension and Ultra 800 Network Extension LATA Groups
GROUP 1 120 Maine 350 Green Bay, WI 486 Shreveport, LA 654 Cheyenne, WY 122 New Hampshire 352 Eau Claire, WI 488 Lafayette, LA 656 Denver, CO 124 Vermont 354 Madison, WI 490 New Orleans, LA 658 Colorado Spgs, CO 126 Springfield, MA 356 Milwaukee, WI 492 Baton Rouge, LA 660 Utah 128 Boston, MA 358 Chicago, IL 520 St. Louis, MO 664 New Mexico 130 Rhode Island 360 Rockford, IL 521 Columbia, MO 666 Phoenix, AZ 132 New York Metro 362 Cairo, IL 522 Springfield, MO 668 Tucson, AZ 133 Poughkeepsie, NY 364 De Kalb, IL 524 Kansas City, MO 670 Eugene, OR 134 Albany, NY 366 Bloomington, IL 526 Fort Smith, AR 672 Portland, OR 136 Syracuse, NY 368 Peoria, IL 528 Little Rock, AR 674 Seattle, WA 138 Binghampton, NY 370 Champ.-Urban, IL 530 Pine Bluff, AR 676 Spokane, WA 140 Buffalo, NY 374 Springfield, IL 532 Wichita, KS 720 Reno, NV 220 Atlantic City, NJ 376 Quincy, IL 534 Topeka, KS 721 Las Vegas, NV 222 Trenton, NJ 420 Asheville, NC 536 Oklahoma City, OK 722 San Francisco, CA 224 Newark, NJ 422 Charlotte, NC 538 Tulsa, OK 724 Chico, CA 226 Capital, PA 424 Greensboro, NC 540 El Paso, TX 726 Sacramento, CA 228 Philadelphia, PA 426 Raleigh, NC 542 Midland, TX 728 Fresno, CA 230 Altoona, PA 428 Wilmington, NC 544 Lubbock, TX 730 Los Angeles, CA 232 Northeast, PA 430 Greenville, SC 546 Amarillo, TX 732 San Diego, CA 234 Pittsburgh, PA 432 Florence, SC 548 Wichita Falls, TX 734 Bakersfield, CA 236 Washington, DC 434 Columbia, SC 550 Abilene, TX 736 Monterey, CA 238 Baltimore, MD 436 Charleston, SC 552 Dallas, TX 738 Stockton, CA 240 Hagerstown, MD 438 Atlanta, GA 554 Longview, TX 740 San Luis Ob., CA 242 Salisbury, MD 440 Savannah, GA 556 Waco-Temple, TX 920 Connecticut 244 Roanoke, VA 442 Augusta, GA 558 Austin, TX 922 Cincinnati, OH 246 Culpepper, VA 444 Albany, GA 560 Houston, TX 923 Lima-Mansfield, OH 248 Richmond, VA 446 Macon, GA 562 Beaumont, TX 924 Erie, PA 250 Lynchburg, VA 448 Pensacola, FL 564 Corpus Christi, TX 927 Harrisonburg, VA 252 Norfolk, VA 450 Panama City, FL 566 San Antonio, TX 928 Charlottesville, VA 254 Charleston, WV 452 Jacksonville, FL 568 Brownsville, TX 937 Richmond, IN 256 Clarksburg, WV 454 Gainsville, FL 570 Bryan, TX 938 Terre Haute, IN 320 Cleveland, OH 456 Daytona Beach, FL 620 Rochester, MN 939 Ft. Myers, FL 322 Youngstown, OH 458 Orlando, FL 624 Duluth, MN 949 Fayetteville, NC 324 Columbus, OH 460 Miami, FL 626 St. Cloud, MN 951 Rocky Mount, NC 325 Akron, OH 462 Louisville, KY 628 Minneapolis, MN 952 Tampa, FL 326 Toledo, OH 464 Owensboro, KY 630 Sioux City, IA 953 Tallahasse, FL 328 Dayton, OH 466 Winchester, KY 632 Des Moines, IA 956 Bristol/JoCty, TN 330 Evansville, IN 468 Memphis, TN 634 Davenport, IA 958 Lincoln, NE 332 South Bend, IN 470 Nashville, TN 635 Cedar Rapids, IA 960 Coeur D'Alene, ID 334 Auburn/Hunt., IN 472 Chattanooga, TN 636 Fargo-Brainerd, ND 961 San Angelo, TX 336 Indianapolis, IN 474 Knoxville, TN 638 Bismark, ND 973 Palm Springs, CA 338 Bloomington, IN 476 Birmingham, AL 640 Sioux Falls, SD 974 Rochester, NY 340 Detroit, MI 477 Huntsville, AL 644 Omaha, NE 976 Mattoon, IL 342 Marquette, MI 478 Montgomery, AL 646 Grand Island, NE 977 Macomb, IL 344 Saginaw, MI 480 Mobile, AL 648 Great Falls, MT 978 Olney, IL 346 Lansing, MI 482 Jackson, MS 650 Billings, MT 348 Grand Rapids, MI 484 Biloxi, MS 652 Boise, ID GROUP 2 820 Puerto Rico 921 Fishers Island, NY 980 Navajo Terr., AZ 822 U.S. Virgin Islands 929 Edinburg, VA 981 Navajo Terr., UT 832 Alaska 932 Bluefield, WV ALL OTHERS 834 Hawaii 963 Kalispell, MT
SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 8 OTHER INTERNATIONAL DISCOUNTS OTHER INTERNATIONAL DISCOUNT 1: [*]% Other International Discount 2 Schedules ULTRA WATS NETWORK EXTENSION: MONTHLY VOLUME OF COUNTRY COUNTRY COUNTRY COUNTRY CARRIER TRANSPORT USAGE GROUP 1 GROUP 2 GROUP 3 GROUP 4 [ [ [ [ [ * * * * * ] ] ] ] ] DIAL 1 WATS: MONTHLY VOLUME OF COUNTRY COUNTRY COUNTRY COUNTRY CARRIER TRANSPORT USAGE GROUP 1 GROUP 2 GROUP 3 GROUP 4 [ [ [ [ [ * * * * * ] ] ] ] ] GROUP 1 GROUP 2 GROUP 3 GROUP 4 Australia Belgium Argentina All Others Austria Denmark Brazil Finland Germany China France India Israel Hong Kong Italy Philippines Japan Netherlands Poland Singapore South Korea Spain Sweden Switzerland Taiwan Venezuela United Kingdom SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 9 Other International Base Rates
- - - - -ULTRA WATS- - - - - - - - -DIAL 1 WATS - - - CTRY STD. DISC. ECON. STD. DISC. ECON. COUNTRY CODE $/MIN. $/MIN. $/MIN. $/MIN. $/MIN. $/MIN ALBANIA 355 [ [ [ [ [ [ ALGERIA 213 AMER. SAMOA 684 ANGOLA 244 ANGUILLA 809 ANTIGUA 809 ARGENTINA 54 ARMENIA 7 ARUBA 297 ASCENSION ISLDS. 247 ATLANTIC OCEAN E 871 ATLANTIC OCEAN W 874 AUSTRALIA 61 * * * * * * AUSTRALIAN EXTN. TER. 672 AUSTRIA 43 AZERBAIJAN 7 BAHAMAS 809 BAHRAIN 973 BANGLADESH 880 BARBADOS 809 BELARUS 7 BELGIUM 32 BELIZE 501 BENIN 229 BERMUDA 809 BHUTAN 975 * * * * * * BOLIVIA 591 BOSNIA & HERZEGOVINA 387 BOTSWANA 267 BRAZIL 55 BRITISH VIRGIN ISLDS 809 BRUNEI 673 BULGARIA 359 BURKINA FASO 226 BURUNDI 257 CAMBODIA 855 CAMEROON 237 CAPE VERDE ISLAND 238 CAYMAN ISLANDS 809 CENTRAL AFRICAN REP. 236 CHAD REPUBLIC 235 CHILE 56 CHINA 86 COLOMBIA 57 CONGO 242 ] ] ] ] ] ]
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 10 Other International Base Rates
- - - - -ULTRA WATS- - - - - - - - - DIAL 1 WATS - - - CTRY STD. DISC. ECON. STD. DISC. ECON. COUNTRY CODE $/MIN. $/MIN. $/MIN. $/MIN. $/MIN. $/MIN COOK ISLANDS 682 [ [ [ [ [ [ COSTA RICA 506 CROATIA, REPUB OF 385 CUBA 53 CYPRUS 357 CZECH REPUBLIC 42 DENMARK 45 DIEGO GARCIA 246 DJIBOUTI 253 DOMINICA 809 DOMINICAN REPUBLIC 809 ECUADOR 593 EGYPT 20 EL SALVADOR 503 * * * * * * EQUATORIAL GUINEA 240 ERITREA 291 ESTONIA 372 ETHIOPIA 251 FAEROE ISLANDS 298 FALKLAND ISLANDS 500 FIJI ISLANDS 679 FINLAND 358 FRANCE 33 FRENCH ANTILLES 590 FRENCH GUIANA 594 FRENCH POLYNESIA 689 GABON 241 GAMBIA 220 * * * * * * GEORGIA 7 GERMANY 49 GHANA 233 GIBRALTAR 350 GREECE 30 GREENLAND 299 GRENADA 809 GUADELOUPE 590 GUAM 671 GUANTANAMO BAY 539 GUATEMALA 502 GUINEA 224 GUINEA-BISSAU 245 GUYANA 592 HAITI 509 HONDURAS 504 HONG KONG 852 ] ] ] ] ] ]
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 11
Other International Base Rates - - - - -ULTRA WATS- - - - - - - - - DIAL 1 WATS - - - CTRY STD. DISC. ECON. STD. DISC. ECON. COUNTRY CODE $/MIN. $/MIN. $/MIN. $/MIN. $/MIN. $/MIN HUNGARY 36 [ [ [ [ [ [ ICELAND 354 INDIA 91 INDIAN OCEAN REGION 873 INDONESIA 62 IRAN 98 IRAQ 964 IRELAND 353 ISRAEL 972 ITALY 39 IVORY COAST 225 JAMAICA 809 JAPAN 81 * * * * * * JORDAN 962 KAZAKHSTAN 7 KENYA 254 KIRGISTAN 7 KIRIBATI 686 KUWAIT 965 LAOS 856 LATVIA 371 LEBANON 961 LESOTHO 266 LIBERIA 231 LIBYA 218 LIECHTENSTEIN 41 LITHUANIA 370 LUXEMBOURG 352 * * * * * * MACAO 853 MACEDONIA 381 MADAGASCAR 261 MALAWI 265 MALAYSIA 60 MALDIVES 960 MALI REPUBLIC 223 MALTA 356 MARSHALL ISLANDS 692 MAURITANIA 222 MAURITIUS 230 MAYOTTE ISLAND 269 MICRONESIA 691 MOLDOVA 373 MONACO 33 MONGOLIA 976 MONTENEGRO 381 ] ] ] ] ] ]
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 12
Other International Base Rates - - - - -ULTRA WATS- - - - - - - DIAL 1 WATS - - - CTRY STD. DISC. ECON. STD. DISC. ECON. COUNTRY CODE $/MIN. $/MIN. $/MIN. $/MIN. $/MIN. $/MIN MONTSERRAT 809 [ [ [ [ [ [ MOROCCO 212 MOZAMBIQUE 258 MYANMAR (BURMA) 95 NAMIBIA 264 NAURU 674 NEPAL 977 NETHERLANDS 31 NETHERLANDS ANTIL 599 NEVIS ISLAND 809 NEW CALEDONIA 687 NEW ZEALAND 64 NICARAGUA 505 * * * * * * NIGER REPUBLIC 227 NIGERIA 234 NIUE 683 NORWAY 47 OMAN 968 PACIFIC OCEAN REGION 872 PAKISTAN 92 PALAU REPUBLIC 680 PANAMA 507 PAPUA NEW GUINEA 675 PARAGUAY 595 * * * * * * PERU 51 PHILIPPINES 63 POLAND 48 PORTUGAL 351 QATAR 974 REUNION ISLAND 262 ROMANIA 40 RUSSIA 7 RWANDA 250 SAINT HELENA 290 SAINT KITTS 809 * * * * * * SAINT LUCIA 809 SAINT PIERRE 508 SAINT VINCENT 809 SAIPAN 670 SAN MARINO 39 SAO TOME 239 SAUDI ARABIA 966 SENEGAL 221 SERBIA 381 SEYCHELLES ISLAND 248 ] ] ] ] ] ]
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 13
Other International Base Rates - - - - -ULTRA WATS- - - - - - - DIAL 1 WATS - - - CTRY STD. DISC. ECON. STD. DISC. ECON. COUNTRY CODE $/MIN. $/MIN. $/MIN. $/MIN. $/MIN. $/MIN SIERRA LEONE 232 [ [ [ [ [ [ SINGAPORE 65 SLOVAKIA 381 SLOVENIA, REPUB OF 386 SOLOMON ISLANDS 677 SOUTH AFRICA 27 SOUTH KOREA 82 SPAIN 34 SRI LANKA 94 SURINAME 597 SWAZILAND 268 SWEDEN 46 SWITZERLAND 41 * * * * * * SYRIAN ARAB REPUBLIC 963 TAIWAN 886 TAJIKISTAN 7 TANZANIA 255 THAILAND 66 TOGO 228 TONGA ISLANDS 676 TRINIDAD 809 TUNISIA 216 TURKEY 90 TURKMENISTAN 7 TURKS & CAICOS ISLDS 809 * * * * * * TUVALU 688 UGANDA 256 UKRAINE 7 UNITED ARAB EMIRATES 971 UNITED KINGDOM 44 URUGUAY 598 UZBEKISTAN 7 VANUATU 678 VENEZUELA 58 VIETNAM 84 WALLIS & FUTANA IS 681 WESTERN SAMOA 685 YEMEN ARAB REPUBLIC 967 ZAIRE 243 ZAMBIA 260 ZIMBABWE 263 ] ] ] ] ] ]
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment C - 14 Other International Toll Free (US Inbound) Ultra 800 Base Rates BASE RATE BASE RATE COUNTRY PER MINUTE COUNTRY PER MINUTE ANTIGUA [ JAPAN [ AUSTRALIA LIECHTENSTEIN BAHAMAS LUXEMBOURG BAHRAIN MALAYSIA BARBADOS MONACO BELGIUM NETHERLAND ANTILLES BERMUDA NETHERLANDS BOLIVIA NEW ZEALAND BRAZIL NICARAGUA CHILE NORWAY CHINA PANAMA COLOMBIA PHILIPPINES COSTA RICA * PORTUGAL * CYPRUS SAIPAN DENMARK SAN MARINO DOMINICAN REP SINGAPORE ECUADOR SOUTH AFRICA EL SALVADOR KOREA (SOUTH) FINLAND SPAIN FRANCE SWEDEN GERMANY SWITZERLAND GUAM TAIWAN GUATEMALA THAILAND HONG KONG TRINIDAD INDONESIA TURKEY IRELAND UNITED KINGDOM ISRAEL VATICAN CITY ITALY ] VENEZUELA ] ITFS DISCOUNT 1 MONTHLY VOLUME OF CARRIER TRANSPORT ITFS USAGE DISCOUNT 1 [ [ * * ] ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment D - 1 Interstate Adjustment Base Rates and Discounts
BASE RATES BASE RATES DAY EVENING N/W DAY EVENING N/W SERVICE STATE ($/MIN) ($/MIN) ($/MIN) STATE ($/MIN) ($/MIN) ($/MIN) Dial 1 WATS AK [ [ [ MT [ [ [ AL NC AR ND AZ NE CA NH CA NJ CO NM CT NV DE NY FL OH GA OK HI OR IA * * * PA * * * ID RI IL SC IN SD KS TN KY TX LA UT MA VA MD VT ME WA MI WI MN WV MO WY ] ] ] MS ] ] ]
Interstate Adjustment Discount 1 [ [ * * ] ] [FN] Interstate Adjustment Base Rate for California Intrastate/Intralata traffic. Interstate Adjustment Base Rate for California Intrastate/Interlata traffic. Discount 1 calculated based on Intrastate usage rated at Interstate Adjustment base rates (for all 50 states) at the billing hierarchy Product level (level 4). * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment D - 2 Interstate Adjustment Base Rates and Discounts
BASE RATES BASE RATES DAY EVENING N/W DAY EVENING N/W SERVICE STATE ($/MIN) ($/MIN) ($/MIN) STATE ($/MIN) ($/MIN) ($/MIN) FONline 800 AK [ MT [ [ [ and FONCARD AL NC AR ND AZ NE CA NH CA NJ CO NM CT NV DE NY FL OH GA OK HI OR IA PA ID * RI * * * IL SC IN SD KS TN KY TX LA UT MA VA MD VT ME WA MI WI MN WV MO WY ] ] ] MS ] Interstate Adjustment Discount 1 [ [ * * ] ] Interstate Adjustment Base Rate for California Intrastate/Intralata traffic. Interstate Adjustment Base Rate for California Intrastate/Interlata traffic. Discount 1 calculated based on Intrastate usage rated at Interstate Adjustment base rates (for all 50 states) at the billing hierarchy Product level (level 4).
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment D - 3 Interstate Adjustment Base Rates and Discounts
BASE RATES BASE RATES DAY EVENING N/W DAY EVENING N/W SERVICE STATE ($/MIN) ($/MIN) ($/MIN) STATE ($/MIN) ($/MIN) ($/MIN) Carrier Ultra AK [ [ [ MT [ [ [ WATS & AL NC Ultra WATS AR ND Net Ext. AZ NE CA NH CA NJ CO NM CT NV DE NY FL OH GA OK HI OR IA * * * PA * * * ID RI IL SC IN SD KS TN KY TX LA UT MA VA MD VT ME WA MI WI MN WV MO WY ] ] ] MS ] ] ] Interstate Adjustment Discount 1 [ [ * * ] ] Interstate Adjustment Base Rate for California Intrastate/Intralata traffic. Interstate Adjustment Base Rate for California Intrastate/Interlata traffic. Discount 1 calculated based on Intrastate usage rated at Interstate Adjustment base rates (for all 50 states) at the billing hierarchy Product level (level 4).
* Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment D-4 Interstate Adjustment Base Rates and Discounts
BASE RATES BASE RATES DAY EVENING N/W DAY EVENING N/W SERVICE STATE ($/MIN) ($/MIN) ($/MIN) STATE ($/MIN) ($/MIN) ($/MIN) Carrier AK [ [ [ MT [ [ [ Ultra 800 & AL NC Ultra 800 AR ND Net Ext. AZ NE CA NH CA NJ CO NM CT NV DE NY FL OH GA OK HI OR IA * * * PA * * * ID RI IL SC IN SD KS TN KY TX LA UT MA VA MD VT ME WA MI WI MN WV MO WY ] ] ] MS ] ] ] Interstate Adjustment Discount 1 [ [ * * ] ] Interstate Adjustment Base Rate for California Intrastate/Intralata traffic. Interstate Adjustment Base Rate for California Intrastate/Interlata traffic. Discount 1 calculated based on Intrastate usage rated at Interstate Adjustment base rates (for all 50 states) at the billing hierarchy Product level (level 4). * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. SPRINT PROPRIETARY INFORMATION - RESTRICTED
EX-10.29 3 AMENDMENT NO. 1 TO CARRIER TRANSPORT AGREEMENT EXHIBIT 10.29 AMENDMENT TO CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT THIS AMENDMENT (the "Amendment") is made by SPRINT COMMUNICATIONS COMPANY L.P. ("Sprint") and AmeriConnect, Inc. ("Customer"), to that certain Carrier Transport Switched Services Agreement which was executed on or about 7/28/95 (the "Agreement"). Sprint and Customer are "Parties" hereto. In consideration of the mutual promises contained herein, the Parties amend the Agreement as follows: 1. The following Attachments, or parts of an Attachment, are stricken from the Agreement in their entirety. Each Attachment, or part of an Attachment, so stricken shall be replaced as part of the Agreement with the attachment to this Amendment that bears the same title or heading. * Attachment D-2 * Attachment D-4 2. If this Amendment is executed by Sprint prior to the first day of the month, then the Amendment shall become effective on the first day of the following month; otherwise, the Amendment shall become effective the first day of the second month following the month in which it is executed by Sprint. 3. All other terms and conditions of the Agreement shall remain in full force and effect. EXECUTED and made effective as provided herein. AMERICONNECT, INC. SPRINT COMMUNICATIONS COMPANY, L.P. By: /s/ Robert R. Kaemmer By: /s/ Patti Manuel Robert R. Kaemmer Patti Manuel Title: President Vice President - BSG Date: 10/30/95 Date: 10/30/95 SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment D-2 INTERSTATE ADJUSTMENT BASE RATES AND DISCOUNTS BASE RATES BASE RATES Day Evening N/W Day Evening N/W Service State ($/min) ($/min) ($/min) State ($/min) ($/min) ($/min) FONline 800 and FONCARD IL [ * * * ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. Sprint Proprietary Information - RESTRICTED Attachment D-4 INTERSTATE ADJUSTMENT BASE RATES AND DISCOUNTS BASE RATES BASE RATES Day Evening N/W Day Evening N/W Service State ($/min) ($/min) ($/min) State ($/min) ($/min) ($/min) Carrier Ultra 800 & ULTRA 800 NET EXT IL [ * * * ] * Confidential material omitted and filed separately with the Commission pursuant to a request for confidential treatment. Sprint Proprietary Information - RESTRICTED EX-10.30 4 AMENDMENT NO. 2 TO CARRIER TRANSPORT AGREEMENT EXHIBIT 10.30 AMENDMENT TO CARRIER TRANSPORT SWITCHED SERVICES AGREEMENT THIS AMENDMENT (the "Amendment") is made by SPRINT COMMUNICATIONS COMPANY L.P. ("Sprint") and Americonnect, Inc. ("Customer"), to that certain Carrier Transport Switched Services Agreement which was executed on or about 7/28/95 (the "Agreement"). Sprint and Customer are "Parties" hereto. In consideration of the mutual promises contained herein, the Parties amend the Agreement as follows: 1. The following Attachments, or parts of an Attachment, are stricken from the Agreement in their entirety. Each Attachment, or part of an Attachment, so stricken shall be replaced as part of the Agreement with the attachment to this Amendment that bears the same title or heading. * Attachment A (Section A.14.1) 2. If this Amendment is executed by Sprint prior to the first day of the month, then the Amendment shall become effective on the first day of the following month; otherwise, the Amendment shall become effective the first day of the second month following the month in which it is executed by Sprint. 3. All other terms and conditions of the Agreement shall remain in full force and effect. EXECUTED and made effective as provided herein. Americonnect, Inc. SPRINT COMMUNICATIONS COMPANY L.P. By: /s/ Robert R. Kaemmer /s/ R. Michael Franz R. Michael Franz President DBG Title: President Date: 2/26/96 Date: 2/29/96 SPRINT PROPRIETARY INFORMATION - RESTRICTED Attachment A A.14.1 MINIMUM ANNUAL COMMITMENT: CARRIER TRANSPORT NET ANNUAL USAGE MONTHS COMMITMENT 1-12 (year 1) $1,000,000 13-24 (year 2) $1,200,000 *This commitment will be on an annual basis. If at the end of the first 12 months of the agreement (Year 1 of contract), Customer has not billed net usage of $12,000.00 then customer will be assessed minimum commitment surcharges as stated in Section 14.1. If at the end of months 13-24 (year 2 of contract) Customer has not billed net usage of $14,400,000 (for months 13- 24) then customer will be assessed minimum commitment surcharges as stated in Section 14.1 PROPRIETARY INFORMATION RESTRICTED EX-10.31 5 REVOLVING LOAN AGREEMENT WITH MERCANTILE EXHIBIT 10.31 REVOLVING LOAN AGREEMENT THIS REVOLVING LOAN AGREEMENT (this "Agreement"), dated and effective as of the 8th day of June, 1995, by and between Mercantile Bank of Kansas ("Bank"), a Kansas state bank with its principal place of business at 4700 West 50th Place, Roeland Park, Kansas 66205 and AmeriConnect, Inc. ("Borrower"), a Delaware corporation with its principal place of business at 6750 W. 93rd Street, Suite 110, Overland Park, Ks 66212 has reference to the following facts and circumstances: A. Borrower has requested that Bank loan monies to Borrower and Bank, in the event it accepts this Agreement in writing, will lend monies to Borrower pursuant hereto. NOW, THEREFORE, in consideration of any loan or advance or grant of credit hereafter made by Bank to or for the benefit of Borrower and for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. DEFINITIONS AND TERMS 1.1 The following terms and/or phrases shall have the meanings set forth and shall be applicable to the singular and plural form, giving effect to the numerical difference; whenever the context so requires, the use of "it" in reference to Borrower shall mean Borrower as identified at the beginning of this Agreement: (A) "AFFILIATE": any person that, directly or indirectly, through one or more intermediaries, controls the Borrower (a "Controlling Person") or any Person (other than the Borrower or a subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. (B) "BORROWER'S LIABILITIES": all obligations and liabilities of Borrower to Bank (including, without limitation, all debts, claims and indebtednesses) whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable, however evidenced, created, incurred, acquired or owing and however arising, whether under this Agreement, the Note or any Other Agreements, instrument and/or documents heretofore, now and/or from time to time hereafter executed by, and/or on behalf of Borrower, and delivered to Bank, or by operation of law or otherwise. (C) "BORROWER'S OBLIGATIONS": all terms, conditions, warranties, representations, agreements, undertakings, covenants and provisions (other than Borrower's Liabilities) to be performed, discharged, kept, observed or complied with by Borrower pursuant to this Agreement or under any Other Agreements, instrument and/or document heretofore, now and/or from time to time hereafter executed by, and/or on behalf of, Borrower, and delivered to Bank. (D) "BUSINESS DAY": any day other than a Saturday, Sunday or legal holiday observed by Bank. (E) "CHARGES": all Federal, State, County, City and/or other governmental taxes, levies, assessments, charges, claims or encumbrances upon and/or relating to Borrower's business, Borrower's ownership and/or use of any of its assets and/or Borrower's income and/or gross receipts. (F) "CREDIT": the definition ascribed to this term in Section 2.1. (G) "ENVIRONMENTAL LAW": the definition ascribed to this term in Section 4.1(E). (H) "EVENT OF DEFAULT": the definition ascribed to this term in Section 6.1. (I) "FINANCIALS": those financial statements of Borrower, if any, heretofore, concurrently herewith or hereafter delivered by or on behalf of Borrower to Bank. (J) "GUARANTOR": any Person which has guaranteed to Bank the payment, collection or performance of all or any portion of Borrower's Liabilities and/or Borrower's Obligations and/or has granted to Bank a security interest in, or lien or encumbrance upon, some or all of such Person's real and/or personal property to secure the payment and/or performance of all or any portion of Borrower's Liabilities and/or Borrower's Obligations. (K) "INDEBTEDNESS": all obligations and liabilities of Borrower to any Person other than Bank (including, without limitation, all debts, claims and indebtednesses) whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable, however evidence, created, incurred, occurred or owing and howsoever arising, whether under written or oral agreement, by operation of law, or otherwise. (L) "LOANS": the definition ascribed to this term in Section 2.1. (M) "NOTE": the promissory note in the form attached hereto as Exhibit A to be executed and delivered by Borrower to Bank in evidence of the Credit (as defined in Section 2.1). (N) "OTHER AGREEMENTS": all agreements, instruments and documents, including, without limitation, loan agreements, security agreements, guaranties, mortgages, deeds of trust, notes, pledges, applications and agreements for letters of credit, letters of credit, advices of credit, bankers acceptances, notices, financing statements and all other written matter heretofore, now and/or from time to time hereafter executed by and/or on behalf of Borrower and delivered to Bank, or issued by Bank upon the application and/or other request of, and on behalf of, Borrower. (O) "PERSON": any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). (P) "TERMINATION DATE": June 1, 1996, or such later date to which it may be extended pursuant to Section 7.12. (Q) "UNMATURED EVENT OF DEFAULT": any event or condition which, with the lapse of time or giving of notice to Borrower or both, would constitute an Event of Default. 1.2 Except as otherwise defined in this Agreement, all accounting words, terms and/or phrases used herein shall have the meanings customarily given them in accordance with generally accepted accounting principles. 2. CREDIT: GENERAL TERMS 2.1 Subject to the terms and conditions of this Agreement and the Other Agreements and provided that an Event of Default or Unmatured Event of Default, does not then exist, Bank agrees to make such loans or advances (individually a "Loan" and collectively, the "Loans") to Borrower, as Borrower may from time to time request, of up to, but not in excess of, $1,000,000.00, at any time outstanding (the "Credit"). Loans made by Bank may be repaid, and subject to the terms and conditions hereof, reborrowed to, but not including the Termination Date, unless the Credit is otherwise terminated as provided in this Agreement. In the event the outstanding principal balance of the Loans exceeds the limitations set forth above, Borrower shall immediately and without notice or demand, make the necessary payments to eliminate such excess. 2.2 All Loans made hereunder and other liabilities of Borrower arising hereunder shall be paid by Borrower on the Termination Date, unless payable sooner pursuant to the terms of this Agreement and/or the Note, but may, at Borrower's election, be repaid in whole or in part any time prior to such date without premium or penalty unless otherwise stated in the Note. 2.3 All fees, and all interest payable in respect of the Credit, shall be computed on the basis of a year of 360 days, and charged for the actual number of days elapsed. Whenever any payment to be made under this Agreement, the Note or the Other Agreements shall be due on a non- Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall be included in the computation of interest due upon the Credit. 2.4 If Bank shall determine at any time after the date hereof that the adoption of any law, rule or regulation regarding capital adequacy, or any change therein or in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by Bank with any request or directive regarding capital adequacy (whether or not having the force of law) from any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on Bank's capital as a consequence of its obligations hereunder to a level below that which Bank could have achieved, but for such adoption, change or compliance (taking into consideration Bank's policies with respect to capital adequacy) by an amount deemed by Bank to be material, then Borrower shall pay to Bank upon demand such amount or amounts, in addition to the amounts payable under the provisions of this Agreement or the Other Agreements, as will compensate Bank for such reduction. Determinations by Bank for purposes of this Section of the additional amount or amounts required to compensate Bank shall be conclusive in the absence of manifest error. In determining such amount or amounts, Bank may use any reasonable averaging and attribution methods. 3. CONDITIONS PRECEDENT TO DISBURSEMENT 3.1 (A) The obligation of the Bank to make the initial Loan to Borrower under the Credit is subject to the condition precedent that Bank shall have received each of the following, duly executed and in form and substance satisfactory to Bank: (i) Duly executed copy of this Agreement; (ii) Note, payable to the order of Bank and dated as of the date of the initial Loan; (iii) Guaranty duly executed by: N/A; (iv) Subordination and Stand-By Agreement duly executed by: N/A; (v) Secretary's Certificate, Partnership Certificate or affidavit or sole proprietorship (said form being dictated by Borrower's legal entity); (vi) Security Agreement; (vii) Pledge Agreement; and (viii) Such other opinions, documents, certificates or approvals as Bank reasonably may request. (B) The obligation of the Bank to make the initial Loan and each subsequent Loan is subject to satisfaction of the following conditions precedent: (i) No change in the condition or operations, financial or otherwise, of Borrower shall have occurred, which change, in the reasonable credit judgment of Bank may have a material adverse effect on Borrower; (ii) Before and after giving effect to such Loan, no Event of Default or Unmatured Event of Default shall have occurred and be continuing hereunder; and (iii) Before and after giving effect to such Loan, all representations and warranties of Borrower hereunder and/or under the Other Agreements shall be true and correct as though made on the date of such Loan. 4. REPRESENTATIONS AND WARRANTIES 4.1 To induce Bank to enter into this Agreement and to make Loans to Borrower, Borrower makes the following representations and warranties to Bank, all of which shall survive the execution of this Agreement and the making of the initial Loan: (A) Borrower is a Delaware duly organized and existing and in good standing under the laws of the jurisdiction in which it was incorporated and/or established, and has all requisite power and authority, corporate and/or otherwise, to conduct its business and to own its properties. Borrower is duly licensed and/or qualified to do business and in good standing in all jurisdictions in which the laws thereof require Borrower to be so licensed and/or qualified. (B) The execution, delivery and performance by Borrower of this Agreement and the other Agreements, are within the powers of Borrower, corporate or otherwise, have been duly authorized by all necessary action and do not and will not: (i) require any consent or approval of the stockholders of Borrower; (ii) violate any provision of any certificate or articles of incorporation, by- laws, partnership agreement or other agreements of Borrower or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award binding upon or applicable to Borrower; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; and/or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of Borrower. This Agreement and the Other Agreements constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization and other similar laws of general application affecting the enforcement of creditor's right or by general principles of equity. (C) Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (D) All employee pension and benefit plans subject to the Employee Retirement Income Security Act of 1974 ("ERISA") which are maintained for employees of Borrower, are in compliance in all material respects with the applicable provisions of ERISA. (E) The operations of Borrower comply in all respects with the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law or any other federal, state or local laws, rules, regulations, orders or decrees (collectively, "Environmental Laws") relating to, or imposing liabilities or standards of conduct concerning any hazardous substances, pollutants, contaminants, toxic or dangerous waste, substance or material defined as such in any Environmental Law. There are no actions or proceedings which are pending, or to the knowledge of Borrower threatened, against Borrower under any Environmental Law. (F) The Financials, copies of which have been furnished to Bank, are complete and correct and fairly present the financial condition of Borrower as of the dates referred to therein, and the results of their operations for the periods then ended, all in accordance with generally accepted accounting principles applied on a consistent basis. Since the date thereof, there has been no material adverse change in the property, financial condition or business operations of Borrower. (G) Borrower has and at all times hereafter shall have good and marketable title to all of its assets, real and personal, free and clear of all liens, security interests, mortgages, claims and/or encumbrances except those granted in favor of Bank, those existing as of the date of this Agreement as reflected in the Financials and/or otherwise disclosed therein and those referred to in Section 5.1(A) hereof. (H) Except for trade payables arising in the ordinary course of its business since the dates reflected in the Financials and/or as otherwise disclosed therein, Borrower has no Indebtedness. (I) Borrower is not in default with respect to any indenture, loan agreement, mortgage, deed of trust or similar agreement relating to the borrowing of monies to which it is a party or by which it is bound. (J) Borrower has and is in good standing with the respect to all governmental permits, certificates, consents and franchises necessary to continue the conduct of business conducted by it and to own or lease and operate its properties as now owned or leased by it. (K) Borrower is not a party to any agreement, instrument or undertaking, or subject to any other restriction (i) which materially or adversely affects, or may in the future so affect, the property, financial condition or business operations of Borrower, or (ii) under or pursuant to which Borrower is or will be required to place (or under which any other Person may place) a lien upon any of its properties to secure payment and/or performance of any liability or obligation, either upon demand or upon the happening of any condition or event, with or without demand. (L) There are no actions or proceedings which are pending or threatened against Borrower, which (i) relate to the execution, delivery or performance of this Agreement and/or any of the Other Agreements, or (ii) would cause any material adverse change in the property, financial condition or business operations of Borrower. (M) The proceeds of any Loan shall be used for proper business purposes and consistently with all applicable laws and statutes. Borrower is not in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan shall 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. (N) No information, exhibit or report furnished by Borrower to Bank in connection with the negotiation, execution or future performance of this Agreement, contains any false or misleading information or misstatement of any facts. 5. COVENANTS 5.1 So long as any of Borrower's Liabilities shall remain unpaid, Borrower shall not do any of the following without the prior written consent of Bank: (A) Create or permit to be created or allow to exist any mortgage, pledge, encumbrance or other lien upon or security interest in any property or assets now owned or hereafter acquired by Borrower, except (i) such as exist and/or are granted to Bank hereunder or under any of the Other Agreements; (ii) liens for Charges which are not yet due and payable; (iii) mechanics', materialmen's, bankers', warehousemen's and similar liens arising in the ordinary course of business and securing obligations of Borrower that are not over due for a period of more than sixty (60) days or are being contested in good faith by appropriate proceedings diligently pursued; (iv) liens arising in connection with worker's compensation, unemployment insurance, pensions and social security benefits which are not over due or are being contested in good faith by appropriate proceedings diligently pursued; (v) liens arising for purchase money acquisitions as permitted in section 5.1(B) below; or (vi) zoning restrictions, easements, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially detract from the value or impair the use of such real property. (B) Incur or permit to exist any Indebtedness except (i) Indebtedness under the terms of this Agreement; (ii) Indebtedness hereafter incurred in connection with liens permitted under Section 5.1(A) hereof; (iii) Indebtedness for purchase money acquisitions not in excess of an aggregate amount of $1,000,000.00 at any point in time; and (iv) other Indebtedness approved in writing by Bank. (C) Permit or suffer any levy, attachment or restraint to be made affecting any of its assets or permit or suffer any receiver, trustee or assignee for the benefit of creditors, or any other custodian to be appointed to take possession of all or any of Borrower's assets. (D) Acquire any other business or make any loan, advance or extension of credit to, or investment in, any other Person, or create or participate in the creation of any subsidiary or joint venture, except: (i) investments in (a) Bank repurchase agreements, (b) savings accounts or certificates of deposit in a financial institution of recognized standing, (c) obligations issued or fully guaranteed by the United States, and (d) prime commercial paper maturing within ninety (90) days of the date of acquisition by Borrower; (ii) loans and advances made to employees and agents in the ordinary course of business, such as travel and entertainment advances and similar items; and (iii) investments shown on the Financials, provided that such investments shall not be increased. (E) Liquidate or dissolve, or merge with or into or consolidate with or into any other Person, or sell, lease, transfer or otherwise dispose of all or any substantial part of its property, assets or business (other than sales made in the ordinary course of business), amend, modify or supplement Borrower's certificate or articles of Incorporation, bylaws, partnership agreement or other document evidencing the existence of Borrower as a legal entity. (F) Discount or sell with recourse, or sell for less than the face amount thereof, any of its notes or accounts receivable, whether now owned or hereafter acquired. (G) Guaranty or otherwise, in any way, become liable with respect to the obligations or liabilities of any Person, other than in connection with the endorsement of instruments or items for payment for deposit or collection in the ordinary course of its business. (H) Enter into any transaction, including without limitation, the purchase, sale or exchange of property or the rendering of any services, with any Affiliate, or enter into, assume or suffer to exist any employment, consulting or other like contract with any Affiliate or any officer, director or partner of any Affiliate, except a transaction or contract which is in the ordinary course of business and is upon fair and reasonable terms no less favorable than would be obtained in a comparable arms-length transaction with a person not an Affiliate. 5.2 So long as any of Borrower's Liabilities shall remain unpaid, Borrower shall do all of the following, unless waived in writing by Bank: (A) Maintain insurance in such amounts and against such risks as are customary by companies engaged in the same or similar businesses and similarly situated. (B) Maintain standard and modern system for accounting in accordance with generally accepted principles of accounting consistently applied throughout all accounting periods and consistent with those applied in the preparation of the Financials, and furnish to Bank such information respecting the business, assets and financial condition of Borrower as Bank reasonably may request and, without request, furnish to Bank: (i) within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of Borrower, consolidated and/or, if applicable, consolidating balance sheet(s) and statement(s) of income and surplus of Borrower and its consolidated subsidiaries as of the close of such quarter and of the comparable quarter in the preceding fiscal year in reasonable detail and accompanied by a certificate of the chief financial officer of Borrower stating that such statements are true and correct (subject to audit and normal year-end adjustments) and that, as of the close of the last period covered in such financial statements, no condition or event had occurred which constitutes an Event of Default or Unmatured Event of Default hereunder (or if there was such a condition or event, specifying the same); and (ii) as soon as available, and in any event within ninety (90) days after the close of each fiscal year of Borrower, a copy of the detailed long-form audit report for such year and accompanying consolidated and/or, if applicable, consolidating financial statements of Borrower and its consolidated subsidiaries, as prepared by independent certified public accountants selected by Borrower and satisfactory to Bank. (C) Permit representatives of Bank to visit and inspect any of the properties and examine any of the books and records of Borrower at any reasonable time and as often as reasonably may be desired. (D) Possess and maintain all necessary franchises, patents, trademarks, trade names, copyrights and licenses to conduct its respective business(es). 6. DEFAULT 6.1 The occurrence of any one of the following shall constitute a default ("Event of Default") by Borrower under this Agreement: (A) If Borrower shall fail to pay any of Borrower's Liabilities, when due and payable, or declared due and payable; (B) If Borrower shall default in the performance or observance of any of Borrower's Obligations (not constituting an Event of Default under any other clause of this Section 6.1); (C) If any representation, warranty, statement, report or certificate made or delivered by Borrower, or any of its officers, employees or agents, to Bank is not true and correct in any material respect when made or deemed made; (D) If Borrower, or any Guarantor shall (i) become insolvent, (ii) not be paying their respective debts generally as such debts become due, (iii) make an assignment for the benefit of creditors or cause or suffer any of their respective assets to come within the possession of any receiver, trustee or custodian, (iv) have a petition filed by or against any of them under the Bankruptcy Reform Act of 1978, as amended, or any similar law or regulation, (v) have any of their respective assets attached, seized or levied upon or (vi) otherwise become the subject of any insolvency or creditor enforcement proceedings; (E) If Borrower shall default in the payment, when due, whether by acceleration or otherwise, of any Indebtedness of Borrower, and such default is declared and is not cured within the time, if any, specified therefore in any agreement governing the same, or any event or condition shall occur which results in the acceleration of the maturity of any Indebtedness of Borrower or enables the holder thereof to accelerate the maturity of any such Indebtedness; (F) The death or incompetency of any individual Guarantor or the appointment of a conservator for all or any portion of any such Guarantors assets; (G) If one or more judgments or decrees shall be entered against Borrower involving, individually, or in the aggregate, a liability of $10,000.00 or more and such judgments or decrees shall not have been vacated discharged or stayed pending appeal within sixty (60) days after the entry thereof; (H) If this Agreement or any of the Other Agreements, including, without limitation, the Note, at any time after their respective execution and delivery, shall cease to be in full force and effect, shall be declared null and void, shall be revoked or terminated or shall be subject to any contest by any Person as to their validity and/or enforceability, for any reason, or if Borrower shall for any reason deny any further liability to Bank hereunder and thereunder; or (I) The occurrence of any default or Event of Default under any of the Other Agreements which is not cured within the time, if any, specified in such Other Agreement. 6.2 Upon the occurrence of any Event of Default or upon the occurrence, and during the continuance of any of the events described in Section 6.1 (notwithstanding Borrower's right to cure same), Bank shall have no further obligation to, and may then forthwith cease making Loans to or for the benefit of Borrower under this Agreement and the Other Agreements without any notice to Borrower. Upon an Event of Default, without notice by Bank to or demand by Bank of Borrower, Borrower's Liabilities shall be immediately due and payable. Bank, in its sole discretion, upon an Event of Default may exercise one or more of the rights and remedies accruing to Bank under this Agreement or any of the Other Agreements and/or applicable law upon default by a Borrower, including, without limitation, the right to set off and/or reduce to cash and apply to the payment of any of Borrower's Liabilities, any monies, reserves, deposits, certificates of deposit, deposit accounts and interest and dividends thereon, securities, cash and other property in the possession of or under the control of Bank or any of Bank's affiliates (as defined in section 7.10). 7. MISCELLANEOUS 7.1 Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by Bank on account of Borrower's Liabilities and Borrower agrees that Bank shall have the continuing exclusive right to apply and reapply any and all such payments in such manner as Bank may deem advisable, notwithstanding any entry by Bank upon any of its books and records. 7.2 This Agreement and the Other Agreements may not be modified, altered or amended except by an agreement in writing signed by Borrower and Bank. Borrower may not sell, assign or transfer this Agreement or the Other Agreements or any portion thereof, including, without limitation, Borrower's rights, titles, interests, remedies, powers and/or duties thereunder. Borrower consents to Banks' grant of participations in or sale, assignment, transfer or other disposition, at any time or from time to time hereafter, of this Agreement or the Other Agreements, or any portion thereof, including, without limitation, Bank's rights, titles, interests, remedies, powers and/or duties. 7.3 Bank's failure at any time or times hereafter to require strict performance by Borrower or failure to enforce Bank's rights, under any provision of this Agreement or the Other Agreements shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith or to enforce Bank's rights. Any suspension or waiver by Bank of an Event of Default shall not suspend, waive or affect any other Event of Default, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement and the Other Agreements, and no Event of Default by Borrower under this Agreement and the Other Agreements, shall be deemed to have been suspended or waived by Bank unless such suspension or waiver is by an instrument in writing signed by an officer of Bank and directed to Borrower specifying such suspension or waiver. 7.4 If any provision of this Agreement or the Other Agreements or the application thereof is held invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances will not be affected thereby and the provisions of this Agreement and the Other Agreement shall be severable in any such instance. 7.5 This Agreement and the Other Agreements shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Bank. This provision, however, shall not be deemed to modify Section 7.2 hereof. 7.6 Except as otherwise specifically provided in this Agreement, Borrower waives any and all notice or demand which Borrower might be entitled to receive with respect to this Agreement by virtue of any applicable statute or law, and waives presentment, demand and protest and notice of presentment, protest, default, dishonor, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Bank on which Borrower may in any way be liable and hereby ratifies and confirms whatever Bank may do in this regard. 7.7 Upon demand by Bank, Borrower shall reimburse Bank for all costs, fees and expenses incurred by Bank or for which Bank becomes obligated, in connection with the negotiation, preparation and conclusion of this Agreement and the Other Agreements, including, without limitation, all fees, costs and expenses of attorneys retained by Bank (including attorneys who are employees of Bank and/or any of its affiliates). 7.8 This Agreement and the Other Agreements are submitted by Borrower to Bank (for Bank's acceptance or rejection thereof) at Bank's principal place of business as an offer by Borrower to borrow monies from Bank and shall not be binding upon Bank or become effective until and unless accepted by Bank, in writing, at said place of business. If so accepted by Bank, this Agreement and the Other Agreements shall be deemed to have been made at said place of business. This Agreement and the Other Agreements shall be governed and controlled by the internal laws of the State of Kansas as to interpretation, enforcement, validity, construction, effect and in all other respects, without reference to principles of choice of law. 7.9 JURISDICTION. TO INDUCE BANK TO ACCEPT THIS AGREEMENT AND ALL OTHER AGREEMENTS RELATED HERETO, BORROWER HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR ANY AGREEMENT RELATED HERETO OR ANY COLLATERAL HELD BY BANK IN CONNECTION HEREWITH OR THEREWITH SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF OLATHE, STATE OF KANSAS OR IN THE CITY OF KANSAS CITY, STATE OF KANSAS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN EITHER OF SAID CITIES IN THE STATE OF KANSAS. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT IN ACCORDANCE WITH THIS SECTION. BORROWER AND BANK IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH BORROWER AND BANK ARE PARTIES. 7.10 To the extent permitted by applicable law, if at any time or times hereafter Bank employs counsel (including attorneys who are employees of Bank and/or any of its affiliates) (A) for advice or other representation with respect to this Agreement, the Note or the Other Agreement or the administration of the Credit, (B) to represent Bank in any litigation, contest, dispute, suit or proceeding or to commence, defend or intervene or take any other action in or with respect to any such matter, or (C) to enforce any rights of Bank against Borrower and/or any Guarantor, the reasonable costs, fees and expenses incurred by Bank in any manner or way with respect to the foregoing, shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. For purposes of this Agreement "affiliate" of the Bank shall include but not be limited to Mercantile Bank Inc. ("MBI") and any banking or non- banking subsidiary of MBI, whether owned, controlled by, controlling or under common control with MBI directly or individually through any subsidiary. 7.11 To the extent that Bank receives any payment on account of Borrower's Liabilities, and any such payment(s) or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment(s) received, Borrower's Liabilities, or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment(s) had not been received by Bank and applied on account of Borrower's Liabilities. 7.12 This Agreement shall terminate on June 1, 1996 unless the Credit is otherwise terminated pursuant to the terms of this Agreement. Borrower may terminate the Credit at any time upon written notice to Bank and payment in full of the outstanding principal balance of, and accrued and unpaid interest on, the Loans and all other of Borrower's Liabilities under this Agreement. All of Bank's rights and remedies, the liens and security interest of Bank in the Collateral and all of Borrower's Liabilities shall survive termination of the Credit extended to Borrower hereunder until all of the Borrower's Liabilities have been paid in full. The termination or cancellation of the Credit shall not affect or impair the liabilities and obligations of Borrower and/or any Guarantor or any one or more of them to Bank or Bank's rights with respect to any Loans and advances made and other Borrower's Liabilities incurred prior to such termination or with respect to the Collateral. 7.13 All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex or similar writing) and shall be given to such party at its address or telex number set forth on the signature pages hereof or such other address or telex number as such party may hereafter specify. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answer back is received, (ii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section. NOTICE. THIS AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND BANK, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND BANK. IF THERE ARE ANY ADDITIONAL TERMS, THEY ARE REDUCED TO WRITING AS FOLLOWS: N/A I/WE AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN BORROWER AND BANK. BORROWER: BANK: AmeriConnect, Inc. MERCANTILE BANK OF KANSAS By: /s/ Robert R. Kaemmer By:_______________________________ Robert R. Kaemmer, President IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year specified at the beginning hereof. BORROWER/CORPORATION AmeriConnect, Inc. (Print Corporation Name) By:_________________________________ By: /s/ Robert R. Kaemmer Print Name:_________________________ Print Name: Robert R. Kaemmer Title:______________________________ Title: President Address:____________________________ Address: 6750 W. 93rd Street, Suite 110 ____________________________________ Overland Park, Ks 66212 TELEX:______________________________ TELEX:_____________________________ BORROWER/PARTNERSHIP ___________________________________ (Print Partnership Name) By:_________________________________ By:________________________________ Print Name: ________________________ Print Name:________________________ Title: General Partner Title: General Partner Address:____________________________ Address:___________________________ ____________________________________ ___________________________________ TELEX:______________________________ TELEX:_____________________________ BORROWER/INDIVIDUAL ___________________________________ ____________________________________ ___________________________________ (Print Name) (Print Name) ____________________________________ ___________________________________ (Signature) (Signature) Address:____________________________ Address: __________________________ ____________________________________ ___________________________________ TELEX:______________________________ TELEX: ____________________________ ACCEPTANCE Accepted this 8th day of June, 1995, at Bank's principal place of business in the City of Roeland Park, State of Kansas. BANK: MERCANTILE BANK OF KANSAS By: /s/ James A. Thomas Title: James A. Thomas, Sr. Vice President Address: 4700 W. 50th Place Roeland Park, Kansas 66205 ADDENDUM TO LOAN AGREEMENT This is an Addendum to the Revolving Loan Agreement executed by and between Mercantile Bank of Kansas ("Bank") and AmeriConnect, Inc. ("Borrower") on June 8, 1995 ("Agreement"). Borrower and Bank agree that the following terms shall be incorporated into the Agreement as if fully set forth therein: 1. DEFINITIONS AND TERMS (1) The following terms and/or phrases shall have the meanings set forth thereafter and such meanings shall be applicable to the singular and plural form, giving effect to the numerical difference; whenever the context so requires, the use of "it" in reference to Borrower shall mean Borrower as identified at the beginning of this Agreement: (A) "Consolidated Current Ratio": the relationship, expressed as a numerical ratio, between: (i) the amount of all assets which, under generally accepted accounting principles, would appear as current assets on the consolidated balance sheet of Borrower; and (ii) the amount of all liabilities which, under generally accepted accounting principles, would appear as current liabilities on such balance sheet, including, without limitation, (a) all liabilities payable on demand or maturing (whether by reason of specified maturity, fixed prepayment, sinking funds or accruals of any kind, or otherwise) within twelve (12) months or less from the date of the relevant statement, (b) all lease and rental obligations due within twelve (12) months or less, and (c) all customers' advances and progress billings on contracts. (B) "Consolidated Net Earnings": the excess of: (i) all revenues and income derived from operation in the ordinary course of business (excluding extraordinary gains and profits upon the disposition of investments and fixed assets); over (ii) all expenses and other proper charges against income (including payment or provision for all applicable income and other taxes and all principal payments to be made with respect to the Loan within twelve (12) months, but excluding extraordinary losses and losses upon the disposition of investments and fixed assets), all as determined on a consolidated basis in accordance with generally accepted accounting principles. (C) "Consolidated Net Working Capital": an amount equal to the difference between: (i) the amount of all assets which, under generally accepted accounting principles, would appear as current assets on the consolidated balance sheet of Borrower; less (ii) the amount of all liabilities which, under generally accepted accounting principles, would appear as current liabilities on such balance sheet, including, without limitation, (a) all liabilities payable on demand or maturing (whether by reason of specified maturity, fixed prepayment, sinking funds or accruals of any kind, or otherwise) within twelve (12) months or less from the date of the relevant statement, (b) all lease and rental obligations due within twelve (12) months or less, and (c) all customers' advances and progress billings on contracts. (D) "Consolidated Tangible Net Worth": the total of all assets which, under generally accepted accounting principles, would appear as assets on the consolidated balance sheet of Borrower, less all of the following: (i) the book amount of all such assets which would be treated as intangibles under generally accepted accounting principles, including, without limitation, all such items as goodwill, trademarks, trademark rights, trade names, trade name rights, brands, copyrights, patents, patent rights, licenses, deferred charges and unamortized debt discount and expense; (ii) any write-up in the book value of any such assets resulting from a revaluation thereof subsequent to the date of the Financials (iii) all reserves, including reserves for depreciation, obsolescence, depletion, insurance and inventory valuation, but excluding contingency reserves not allocated for any particular purpose and not deducted from assets; (iv) the book amount, if any, of shares of Borrower's "Treasury Stock"; (v) "Consolidated Total Liabilities" (hereinafter defined); and (vi) all investments in foreign Affiliates and nonconsolidated domestic Affiliates. (E) "Consolidated Total Liabilities": the total of all liabilities of Borrower which, under generally accepted accounting principles, would appear on a consolidated balance sheet of Borrower. (The terms and conditions on the reverse side hereof are an integral part of this agreement and are incorporated herein by reference.) 2. COVENANTS 2.1 So long as any of Borrower's Liabilities shall remain unpaid, Borrower shall do the following, unless waived in writing by Bank: (A) At all times maintain: (i) Consolidated Net Working Capital in the amount of at least $200,000.00; and (ii) Consolidated Tangible Net Worth in the amount of at least $1,000,000.00 for the fiscal year ending 12/31, 1995 and shall increase by 50% of Consolidated Net Earnings for each fiscal year thereafter with such increases to be cumulative for each fiscal year; and (iii) Consolidated Net Earnings in the amount of at least $200,000.00; for the fiscal year ending 12/31, 1995 and shall thereafter remain positive for each fiscal year; and (iv) a ratio of Consolidated Total Liabilities to Consolidated Tangible Net Worth of not more than 4 to 1; and (v) a Consolidated Current Ratio of at least 1.15:1. Except as provided herein, all terms and conditions of the Agreement remain unchanged and in full force and effect. Borrower reaffirms all representations, warranties and covenants in the Agreement as of the date hereof. Borrower further represents and warrants that it is not in default under any of its obligations under the Agreement and that the execution and delivery of the Addendum is duly authorized, and that all necessary and proper acts have been performed or taken. Whenever any reference shall be made to the Agreement, it shall be deemed to mean the Agreement as amended hereby. This Addendum shall be deemed to be a contract made under the laws of the State of Kansas and the rights and obligations of the parties hereunder shall be construed and controlled by the laws of the State of Kansas. This Addendum shall be binding upon and inure to the parties hereto and to their respective assessors and assigns. NOTICE. THIS AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND BANK, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND BANK. IF THERE ARE ANY ADDITIONAL TERMS, THEY ARE REDUCED TO WRITING AS FOLLOWS: N/A I/WE AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN BORROWER AND BANK. BANK: BORROWER: MERCANTILE BANK OF KANSAS AmeriConnect, Inc. By: /s/ James A. Thomas By: /s/ Robert R. Kaemmer (signature) (signature) James A. Thomas Robert R. Kaemmer (print name) (print name) TITLE: Sr. Vice President TITLE: President IN WITNESS WHEREOF, this Addendum has been entered into as of the ________ day of ______________________, __________. BANK: BORROWER: MERCANTILE BANK OF KANSAS AmeriConnect, Inc. (print name of Borrower) By: /s/ James A. Thomas By: /s/ Robert R. Kaemmer (signature) (signature) James A. Thomas Robert R. Kaemmer (print name) (print name) TITLE: Sr. Vice President TITLE: President EXHIBIT A Borrowing Base Certificate This Borrowing Base Certificate is delivered pursuant to the terms of that certain Revolving Loan Agreement dated June 8, 1995, by and between Mercantile Bank of Kansas and AmeriConnect, Inc. (the "Loan Agreement"). All capitalized terms used and not otherwise defined herein shall have the respective meanings ascribed to them in the Loan Agreement. Borrower hereby represents and warrants to Bank that the following information is true and correct as of ________________________, 19___: A. 1. Total Accounts $_______________ 2. Ineligible Accounts $_______________ 3. Eligible Accounts (Item 1 minus Item 2) $_______________ 4. 50% of face amount Eligible Accounts $_______________ B. 5. Total Inventory $_______________ 6. Ineligible Inventory $_______________ 7. Eligible Inventory (Item 5 minus Item 6) $_______________ 8. N/A% of face amount of Eligible Inventory $_______________ Borrower hereby further represents and warrants to Bank that the following information is true and correct as of __________________________, 19___: 9. Aggregate principal amount of outstanding Loans $_______________ 10. Borrowing Base Excess (Deficit) (Item 4 and 8 minus Item 9) (Negative amount represents mandatory repayment $ =============== If Item 10 above is negative, this Borrowing Base Certificate is accompanied by the mandatory repayments required under the Loan Agreement. This Borrowing Base Certificate is dated the _____ day of ________________, 19___. Borrower AmeriConnect, Inc. By:_____________________________________ Title:__________________________________ ADDENDUM TO REVOLVING LOAN AGREEMENT (Borrowing Base/AR & Inventory) This is an Addendum to the Revolving Loan Agreement entered into by and between AmeriConnect, Inc. ("Borrower") and Mercantile Bank of Kansas ("Bank") on June 8, 1995 ("Agreement"). Borrower and Bank agree the following terms and conditions shall be incorporated into the Agreement as if fully set forth therein. 1. Definitions and Terms. The following terms and/or phrases shall have the meanings set forth thereafter and such meanings shall be applicable to the singular and plural form, giving effect to the numerical difference; whenever the context so requires, the use of "it" in reference to Borrower shall mean Borrower as identified at the beginning of this Agreement: (A) "Accounts" mean any account of the Borrower and any other right of the Borrower to payment for goods sold or leased or for services rendered, whether or not evidenced by an instrument or chattel paper and whether or not yet earned by performance; (B) "Accounts Receivable Availability" means an amount of up to 50% of the Borrower's Eligible Accounts; (C) "Borrowing Base" means an amount equal to the sum of the Accounts Receivable Availability and the Inventory Availability; (D) "Borrowing Base Certificate" shall have the meaning ascribed to such term in Section 2.1.1; (E) "Eligible Accounts" means any Accounts except the following: (a) Accounts created from the sale of goods on non-standard terms and/or that call for payment to be made later than Thirty-Five (35) days from the date of sale or lease; (b) Accounts unpaid more than Sixty (60) days from the date of invoice; (c) Accounts of any Obligor with Twenty percent (20%) or more of the outstanding balance unpaid for more than Ninety (90) days from the date of invoice; (d) Accounts with respect of which the Obligor is an officer, employee, agent, parent, subsidiary or affiliate of Borrower or is related or has common shareholders, officers or directors with Borrower; (e) Accounts with respect to consignment sales; (f) Accounts with respect to which payment by the Obligor is or may be conditional; (g) Accounts with respect to which Borrower is or may become liable to the Obligor for goods sold or services rendered by such Obligor to Borrower; (h) Accounts with respect to which the Obligor is not a resident of the United States; (i) Accounts with respect to which any warranty or representation provided in Section 3.1(A) is not true and correct; (j) Accounts which are progress payments accounts or contra accounts; and (k) any and all other Accounts Bank deems, in its sole and absolute discretion, to be unacceptable. Accounts of Borrower which are at any time Eligible Accounts but which subsequently fail to meet any of the foregoing requirements shall no longer be an "Eligible Account". (F) "Eligible Inventory" means Inventory which meets the following requirements: (a) it is owned by Borrower, and not subject to any assignment, claim or lien, other than (i) a lien in favor of Bank, and (ii) liens consented to by Bank in writing; (b) it is new and unused except as Bank may otherwise consent in writing; (c) except as Bank may otherwise consent, it is not stored with a bailee, warehouseman or similar party; if so stored with Bank's consent, such bailee, warehouseman or similar party has issued and delivered to Bank, in form and substance acceptable to Bank, such documents and agreements as Bank may require, including but not limited to warehouse receipts therefor in Bank's name; (d) it has not been deemed unacceptable by Bank in its sole and absolute discretion, due to age, type, category, quality and/or quantity; (e) it is not inventory which in any way fails to meet or violates any warranty, representation or covenant contained in this Agreement or any Other Agreement relating directly or indirectly to such Borrower's Inventory; and (f) it is not Inventory which consists of work-in-process or other Inventory (other than raw material Inventory) which is used or consumed in connection with the manufacture, packing, shipping, advertising, selling or finishing of goods held by Borrower for sale or lease, including, without limitation, packaging or mailing supplies. Inventory of a Borrower which is at any time Eligible Inventory but which subsequently fails to meet any of the foregoing requirements shall no longer be Eligible Inventory. (G) "Inventory" means all of Borrower's goods held for sale or lease or to be furnished under contracts of service or if so furnished, or if they are raw materials, work in process or materials used or consumed in a business; (H) "Inventory Availability" means an amount up to 0% of the Borrowers Eligible Inventory. (I) "Obligor" means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government, who is and/or may become obligated to Borrower under or on account of Accounts. 2. Credit: General Terms: Section 2.1 of the Agreement shall be amended to read as follows: 2.1 Subject to the terms and conditions of this Agreement and the Other Agreements and provided that no Event of Default does not then exist, Bank agrees that the maximum amount of loans or advances (individually "Loan" and collectively, the "Loans") as Borrower may from time to time request up to but not in excess of ONE MILLION AND NO/100********** ($1,000,000.00), provided, however, that in no event shall the maximum amount of Loans to Borrower exceed the Borrowing Base (the "Credit"). Loans made by Bank may be repaid, and subject to the terms and conditions hereof, reborrowed up to but not including the Termination Date, unless the Credit is otherwise terminated as provided in this Agreement. In the event that the outstanding principal of the Loans exceeds the Credit, Borrower shall, immediately and without notice or demand, make the necessary payment(s) to eliminate such excess. 2.1.1(a) Borrower shall deliver to Bank on the Fifteenth (15th) day of each month commencing on June 15, 1995 (regardless of whether or not a borrowing is made on that date), a Borrowing Base Certificate in the form of Exhibit A attached hereto and incorporated herein by reference (a "Borrowing Base Certificate") setting forth: (i) the Borrowing Base and its components as of the end of the immediately preceding month; (ii) the aggregate principal amount of all outstanding Loans; and (iii) the difference, if any, between the Borrowing Base and the aggregate principal amount of all outstanding Loans. The Borrowing Base shown in such Borrowing Base Certificate shall be and remain the Borrowing Base hereunder until the next Borrowing Base Certificate is delivered to Bank, at which time the Borrowing Base shall be the amount shown in such subsequent Borrowing Base Certificate. Each Borrowing Base Certificate shall be certified (subject to normal year-end adjustments) as to truth and accuracy by the President or principal financial officer of Borrower. (b) If at any time the Borrowing Base as shown on the most recent Borrowing Base Certificate shall be less than the aggregate principal amount of all outstanding Loans, Borrower shall be automatically required (without demand or notice of any kind by Bank, all of which are hereby expressly waived by Borrower) to immediately repay the Loans in an amount sufficient to reduce such aggregate principal amount of outstanding Loans to the amount of the Borrowing Base. 2.1.2 Procedure for Borrowing. Subject to the terms and conditions hereof, Bank shall cause the Loans to be made to Borrower at any time and from time to time up to the Termination Date upon timely prior oral or written notice ("Borrowing Notice") to Bank specifying: (1) the desired amount of the Loan and (2) the date on which the Loan proceeds are to be made available to Borrower. Such Borrowing Notice, if in writing, shall be in the form of the notice attached hereto as Exhibit B. Each Borrowing Notice must be received by Bank not later than 10:00 a.m. (Bank's local time) on the Business Day on which a Loan is to be made. A Borrowing Notice shall not be revocable by Borrower. Subject to the terms and conditions hereof, provided that Bank has received the Borrowing Notice, Bank shall (unless Bank determines that any applicable condition specified in this Agreement has not been satisfied) make such Loan to Borrower by crediting the amount of such Loan to Borrower's account at Bank, Account not later than 2:00 p.m. (Bank's local time) on the Business Day specified in said Borrowing Notice. Borrower hereby authorizes Bank to rely on telephonic, telegraphic, telecopy, telex or written instructions of any person identifying himself as a person authorized to request a Loan or make a repayment hereunder, and on any signature which Bank believes to be genuine, and Borrower shall be bound thereby in the same manner as if such person were actually authorized or such signature were genuine. Borrower also hereby agrees to indemnify Bank and hold Bank harmless from and against any and all claims, demands, damages, liabilities, losses, costs and expenses relating to or arising out of or in connection with the acceptance of instruction for making Loans or repayments hereunder. (The terms and conditions on the reverse side hereof are an integral part of this agreement and are incorporated herein by reference). EX-10.32 6 PROMISSORY NOTE WITH MERCANTILE EXHIBIT 10.32 For Use With Loan Agreements PROMISSORY NOTE $1,000,000.00 Date: June 8, 1995 FOR THE VALUE RECEIVED, the undersigned, AmeriConnect, Inc., a Delaware Corporation ("Borrower") hereby unconditionally promise to pay, to the order of Mercantile Bank of Kansas ("Bank") On June 1, 1996, the principal amount of ONE MILLION AND NO/100 Dollars ($1,000,000.00) or if less, the aggregate unpaid principal amount of all advances made by Bank to Borrower and evidenced by this Note. The aggregate principal amount which Bank shall be committed to have outstanding hereunder at any one time shall not exceed **********ONE MILLION AND NO/100********** Dollars ($1,000,000.00), which amount may be borrowed, paid, reborrowed and repaid, in whole or in part. The initial advance, all subsequent advances and all payments made on account of principal may be endorsed by the holder hereof in its records or, at its option, on a schedule attached to this Note, which in the absence of manifest error shall be evidence of the principal owing and unpaid on this Note. Borrower further promises to pay to the order of Bank interest on the principal amount from time to time outstanding hereunder at the rate of 1.0% per annum over the "Prime Rate", adjustable daily. Interest is billed as of the last day of each month and is payable by the 10th of the following month, beginning with the payment billed June 30, 1995 and due July 10, 1995, with any remaining accrued interest due at maturity of June 1, 1996. After maturity, interest shall be payable on demand on the outstanding principal balance at a rate equal to 2.00% per annum in excess of the otherwise payable rate. In addition, if Borrower fails to make any payment of any principal or interest on this Note when due, Borrower promises to pay to the order of Bank on demand a late fee in an amount not to exceed the greater of $25.00 or 5.00% of each late payment. All payments received by Bank shall be applied first to the payment of billed/due and unpaid late fees and the costs and expenses hereinafter described, next to billed/due and unpaid interest hereon, and the remainder to principal. For purposes of this Note the term "Prime rate" shall be the interest rate announced from time to time by Bank as its "Prime rate" on commercial loans (which rate shall fluctuate as and when said Prime rate shall change). Interest shall be computed on the basis of a year consisting of 360 days and paid for actual days elapsed. All required payments shall be made in immediately available funds in lawful money of the United Sates of America at the office of Bank situated at 4700 W. 50th Place, Roeland Park, Kansas 66205 or at such other place as the holder may designate in writing. The acceptance by the holder hereof of any principal or interest due after the date it is due as described above shall not be held to establish a custom or waive any rights of the holder to enforce prompt payment of any other principal or interest payments or otherwise. Bank may record the date and amount of all loans and all payments hereunder in the records it maintains. Bank's books and records showing the account between Bank and Borrower shall be conclusive evidence of the outstanding amounts under this Note in the absence of manifest error. This Note is referred to in that certain Revolving Loan Agreement dated 6/8/95 by and between Borrower and Bank to which reference is made for a statement of additional terms and conditions, including acceleration, which may affect this Note. Borrower has the right to prepay this Note in whole or in part at any time without penalty or premium, provided: (1) all billed/due and unpaid interest shall accompany such prepayment; (2) there is not a default under any of the terms of this Note at the time of prepayment; and (3) all prepayments shall be credited and applied to the installments of principal in inverse order of their stated maturity. Borrower agrees to pay to Bank, upon demand by Bank, all reasonable costs, charges and expenses (including, without limitation, to the extent permitted by applicable law, the reasonable fees and expenses of any attorney [including but not limited to, any attorney employed by Bank or any affiliate of Bank] retained by Bank) incurred by Bank in connection with (a) the collection or enforcement of Borrower's liabilities and obligations under this Note, (b) the collection and enforcement of Bank's right in and to any Collateral (hereinafter defined), and/or (c) any litigation, contest, dispute or other proceeding (whether instituted by Bank, Borrower or any other person or entity) in any way relating to Borrower's liabilities and obligations hereunder and/or to the "Collateral". Borrower's obligations, as aforesaid, shall survive payment of this Note. For purposes of this Note, the term "affiliate of Bank" shall mean any entity which controls, is controlled by or is under common control with Bank, including, without limitation, Mercantile Bancorporation Inc. ("MBI") and any banking or non-banking subsidiary of MBI. Presentment, demand for payment, protest and notice of dishonor and of protest are hereby severally waived by all parties hereto, whether as maker, endorser or guarantor to Bank. TO INDUCE BANK TO ACCEPT THIS AGREEMENT AND ALL OTHER AGREEMENTS RELATED HERETO, BORROWER HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR ANY AGREEMENT RELATED HERETO OR ANY COLLATERAL HELD BY BANK IN CONNECTION HEREWITH OR THEREWITH SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF OLATHE, STATE OF KANSAS OR IN THE CITY OF KANSAS CITY, STATE OF KANSAS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN EITHER OF SAID CITIES IN THE STATE OF KANSAS. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT IN ACCORDANCE WITH THIS SECTION. BORROWER AND BANK IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH BORROWER AND BANK ARE PARTIES. The liabilities and obligations of Borrower under this Note shall be secured by (a) Accounts Receivable, Inventory, Furniture, Fixtures, Equipment, Life Insurance and (b) any and all balances, credits, deposits or monies of or in the name of Borrower now or hereafter maintained with, and any and all other property of or in name of Borrower now or hereafter in the possession of Bank; and (c) any and all of Bank's security interests, liens or encumbrances heretofore, now and/or from time to time hereafter granted by Borrower and/or any endorser or guarantor to Bank, including but not limited to the security interests granted pursuant to Security Agreement (Comprehensive) dated 6/8/95 and Security Agreement 6/8/95 (collectively the "Collateral"). Borrower hereby grants to Bank a security interest in the Collateral for the payment of all liabilities and obligations of Borrower under this Note, and all renewals and extensions thereof and for the payment of all other present and future obligations to Bank regardless of whether currently contemplated or agreed upon. In addition to and not in limitation of all rights of offset that Bank or any other holder of this Note may have under applicable law Bank or such other holder of this Note shall have the right to appropriate and apply to the payment of this Note any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter with Bank or other holder. If any of the following events ("Events of Default") shall occur: (a) the Borrower fails to make any payment on this Note when the same shall become due and payable, whether under the terms of this Note or under any agreement, instrument or document heretofore, now or at any time or times hereafter delivered to Bank by Borrower; (b) a default or an event of default under any agreement, instrument or document heretofore now or at any time or times hereafter delivered to Bank by Borrower which is not cured within the time, if any specified therefore in such agreement, instrument or document then, and in each such event, Bank or the holder of this Note may, at its option, declare the entire outstanding principal amount of and all billed/due and unpaid interest on this Note and all other amounts payable by the Borrower hereunder to be forthwith due and payable, whereupon all of the unpaid principal amount, billed/due and unpaid interest and all such other amounts shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the borrower, and Bank or holder may exercise any and all other rights and remedies which it may have under this Note or any other agreement, document or instrument evidencing, securing or guaranteeing the payment of this Note or under applicable law. Notwithstanding anything contained herein to the contrary, in no event shall interest accrue under this Note at a rate in excess of the highest rate permitted by applicable law, and if interest (including any charge or fee held to be interest by a court of competent jurisdiction) in excess thereof shall be paid, then the excess shall constitute a payment of, and be applied to, the principal balance hereof then outstanding, or at Bank's election, shall be repaid to the undersigned. NOTICE. THIS AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND BANK, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND BANK. IF THERE ARE ANY ADDITIONAL TERMS, THEY ARE REDUCE TO WRITING AS FOLLOWS: N/A I/WE AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN BORROWER AND BANK. BORROWER: BANK: AmeriConnect, Inc. MERCANTILE BANK OF KANSAS By: /s/ Robert R. Kaemmer By: /s/ James A. Thomas, Sr. V.P. Robert R. Kaemmer, President All obligations of the Borrower (if more than one) hereunder are joint and several. This Note shall be governed by and construed in accordance with the laws of the State of Kansas. BORROWER/CORPORATION AmeriConnect, Inc. (Print Corporation Name) By:_________________________________ By: /s/ Robert R. Kaemmer Print Name:_________________________ Print Name: Robert R. Kaemmer Title:______________________________ Title: President Address:____________________________ Address:6750 W. 93rd Street, Suite 110 ____________________________________ Overland Park, KS 66212 BORROWER/PARTNERSHIP ____________________________________ (Print Partnership Name) By:_________________________________ By:_________________________________ Print Name:_________________________ Print Name:_________________________ Title: General Partner Title: General Partner Address:____________________________ Address:____________________________ ____________________________________ ___________________________________ BORROWER/INDIVIDUAL ____________________________________ ____________________________________ (Print Name) (Print Name) ____________________________________ ___________________________________ (Signature) (Signature) Address:____________________________ Address:___________________________ ____________________________________ ___________________________________ ____________________________________ ____________________________________ (Print Name) (Print Name) ____________________________________ ___________________________________ (Signature) (Signature) Address:____________________________ Address:___________________________ ____________________________________ ___________________________________ EX-10.33 7 COMPREHENSIVE SECURITY AGREEMENT EXHIBIT 10.33 COMPREHENSIVE SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Agreement"), made as of the 8th day of June, 1995, by and between Mercantile Bank of Kansas ("Bank"), with its principal place of business at 4700 West 50th Place, Roeland Park, Kansas 66205, and AmeriConnect, Inc. ("Borrower"), a Delaware Corporation with its principal place of business at 6750 W. 93rd Street, Suite 110, Overland Park, Kansas 66212, has reference to the following facts and circumstances: A. BORROWER, now and from time to time hereafter, may request loans, advances, extensions of credit and/or other financial accommodations from Bank; and B. Bank, to secure further the payment of "Borrower's Liabilities" (hereinafter defined) has requested that Borrower execute and deliver this Agreement in favor of Bank. NOW, THEREFORE, in consideration of any loan, advance, extension of credit and/or other financial accommodation at any time made by Bank to or for the benefit of Borrower, and of the promises set forth herein, the parties hereto agree as follows: 1. DEFINITIONS AND TERMS 1.1 The following words, terms and/or phrases shall have the meanings set forth thereafter and such meanings shall be applicable to the singular and plural form thereof, giving effect to the numerical difference; whenever the context so requires, the use of "it" in reference to Borrower shall mean Borrower as identified at the beginning of this Agreement: (A) "ACCOUNT": the definition ascribed to this term in Section 2.1 below. (B) "BORROWER'S LIABILITIES": all obligations and liabilities of Borrower to Bank (including, without limitation, all debts, claims and indebtednesses) whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable, however evidenced, created, incurred, acquired or owing and however arising, whether under this Agreement or the "Other Agreements" (hereinafter defined), instrument and/or documents heretofore, now and/or from time to time hereafter executed by, and/or on behalf of Borrower, and delivered to Bank, or by operation of law or otherwise. (C) "BORROWER'S OBLIGATIONS": all terms, conditions, warranties, representations, agreements, undertakings, covenants and provisions (other than Borrower's Liabilities) to be performed, discharged, kept, observed or complied with by Borrower pursuant to this Agreement and/or any of the Other Agreements, instruments and/or document heretofore, now and/or from time to time hereafter executed by and/or on behalf of Borrower, and delivered to Bank. (D) "CHARGES": all national, federal, state, county, city, municipal and/or other governmental (or any instrumentality, division, agency, body or department thereof, including, without limitation, the Pension Benefit Guaranty Corporation) taxes, levies, assessments, charges, liens, claims or encumbrances upon and/or relating to the "Collateral" (hereinafter defined), Borrower's Liabilities, Borrower's Obligations, Borrower's business, Borrower's ownership and/or use of any of its assets, and/or Borrower's income and/or gross receipts. (E) "COLLATERAL": the definition ascribed to this term in Section 2.1 below. (F) "ENVIRONMENTAL LAW": the definition ascribed to this term in Section 3.1(F). (G) "EQUIPMENT": the definition ascribed to this term in Section 2.1 below. (H) "EVENT OF DEFAULT": the definition ascribed to this term in Section 5.1 below. (I) "FINANCIALS": those financial statements of Borrower, if any, heretofore or concurrently herewith delivered by or on behalf of Borrower to Bank. (J) "GENERAL INTANGIBLES": the definition ascribed to this term in Section 2.1 below. (K) "GUARANTOR": any Person which has guaranteed to Bank the payment, collection or performance of all or any portion of Borrower's Liabilities and/or Borrower's Obligations, and/or has granted to Bank a security interest in, or lien or encumbrance upon, some or all of such Person's real and/or personal property to secure the payment and/or performance of all or any portion of Borrower's Liabilities and/or Borrower's Obligations. (L) "HAZARDOUS MATERIAL": the definition ascribed to this term in Section 5.1(F). (M) "INDEBTEDNESS": all obligations and liabilities of Borrower to any Person other than Bank (including, without limitation, all debts, claims and indebtednesses) whether primary, secondary, direct, contingent, fixed or otherwise, heretofore, now and/or from time to time hereafter owing, due or payable, however evidenced, created, incurred, acquired or owing and however arising, whether under written or oral agreement, by operation of law, or otherwise. (N) "INVENTORY": the definition ascribed to this term in Section 2.1 below. (O) "LOANS": any and all loans, advances, extensions of credit and/or other financial accommodations of any kind or nature made by Bank at any time to, for the benefit of or at the request of Borrower, including, without limitation, all reimbursement obligations arising in connection with Bank's issuance of any letters of credit upon the application of Borrower. (P) "OBLIGOR": any Person who is and/or may become obligated to Borrower under or on account of Accounts. (Q) "OTHER AGREEMENTS": all agreements, instruments and documents, including, without limitation, loan agreements, security agreements, guaranties, mortgages, deeds of trust, notes, pledges, applications and agreements for letters of credit, letters of credit, advices of credit, bankers acceptances, notices, financing statements and all other written matter heretofore, now and/or from time to time hereafter executed by and/or on behalf of Borrower and delivered to Bank, or issued by Bank upon the application and/or other request of, and on behalf of Borrower. (R) "PERSON": any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation, institution, entity, party or government (whether national, federal, state, county, city, municipal or otherwise, including, without limitation, any instrumentality, division, agency, body or department thereof). (S) "PREMISES": any real property (or interest therein) at any time owned (beneficially or directly) or leased by Borrower or otherwise used by Borrower in the conduct of its business. (T) "RECORDS": the definition ascribed to this term in Section 2.1 below. (U) "STOCK": all shares, interests, participations or other equivalents (however designated) of or in a corporation, whether or not voting, including, but not limited to, common stock, warrants, preferred stock, convertible debentures and all agreements, instruments and documents convertible, in whole or in part, into any one or more or all of the foregoing. (V) "SUPPLEMENTAL DOCUMENTATION": the definition ascribed to this term in Section 2.3 below. 1.2 Except as otherwise defined in this Agreement or the Other Agreements, all words, terms and/or phrases used herein and therein shall be defined by the applicable definition therefor (if any) in the Uniform Commercial Code as adopted by the State of Kansas. 2. COLLATERAL: GENERAL TERMS 2.1 To secure the prompt payment to Bank of Borrower's Liabilities and the prompt, full and faithful performance by Borrower of Borrower's Obligations, Borrower grants to Bank a security interest in and to, and assigns and pledges to Bank, all of Borrower's now existing and/or owned and hereafter arising and/or acquired: (a) all of the items listed on the schedule attached hereto, if any; (b) accounts, chattel paper, contract rights, leases and rental income thereunder, leasehold interests, letters of credit, instruments and documents ("Accounts"), and all goods whose sale, lease or other disposition by Borrower have given rise to Accounts and have been returned to or repossessed or stopped in transit by Borrower; (c) all patents, copyrights and trademarks, and all applications for and registrations of the foregoing, all trade names, goodwill, beneficial interests, rights to tax refunds and all other general intangibles of any kind or nature whatsoever ("General Intangibles"); (d) all inventory of Borrower, wherever located, whether in transit, held by others for Borrower's account, covered by warehouse receipts, purchase orders and contracts, or in the possession of any carriers, forwarding agents, truckers, warehousemen, vendors or other Persons, including, without limitation, all raw materials, work in process, finished merchandise, supplies, goods, incidentals, office supplies and packaging materials ("Inventory"); (e) goods (other than Inventory), machinery, equipment, vehicles, appliances, furniture, furnishings and fixtures ("Equipment"); (f) monies, reserves, deposits, certificates of deposit and deposit accounts and interest or dividends thereon, securities, cash, cash equivalents and other property now or at any time or times hereafter in the possession or under the control of Bank, any of its affiliates (as defined in Section 6.10) or its bailee; (g) all books, records, computer records, ledger cards, programs and other computer materials, customer and supplier lists, invoices, orders and other property and general intangibles at any time evidencing or relating to the Collateral ("Records"); (h) all accessions to any of the Collateral and all substitutions, renewals, improvements and replacement of and additions thereto; (i) all other property of Borrower, real and/or personal, in which Borrower heretofore, now and/or from time to time hereafter has granted or grants to Bank a security interest, assignment, lien, claim or other encumbrance; and (j) all products and proceeds of the foregoing (whether such proceeds are in the form of cash, cash equivalents, proceeds of insurance policies, Accounts, General Intangibles, Inventory, Equipment, Records or otherwise). All of the foregoing is referred to herein individually and collectively as the "Collateral." Borrower shall make appropriate entries upon its financial statements and Records disclosing Bank's security interest in and assignment and pledge of the Collateral. 2.2 If the Collateral shall at any time or from time to time become unsatisfactory to Bank, Borrower shall upon demand, pledge, assign, transfer and deposit with Bank and grant to Bank a security interest in and to such additional property satisfactory to Bank as Bank may request. 2.3 Borrower shall execute and/or deliver to Bank, at any time and from time to time hereafter at the request of Bank, all agreements, instruments, documents and other written matter (the "Supplemental Documentation") that Bank reasonably may request, in form and substance acceptable to Bank, to perfect and maintain perfected Bank's security interest, lien and/or encumbrance in and/or assignment and pledge of the Collateral and to consummate the transactions contemplated in or by this Agreement and the Other Agreements. Borrower, irrevocably, hereby appoints Bank (and all Persons designated by Bank for that purpose) as Borrower's true and lawful attorney (and agent-in-fact) to sign the name of Borrower on the Supplemental Documentation and to deliver the Supplemental Documentation to such Persons as Bank, in its sole and absolute discretion, may elect. Borrower agrees that a carbon, photographic or photostatic copy, or other reproduction, of this Agreement or of any financing statement, shall be sufficient as a financing statement. 2.4 Bank (by any of its officers, employees and/or agents) shall have the right, at any time or times during Borrower's usual business hours, to inspect the Collateral (and the Premises upon which it is located) and all related Records and to verify the amount and condition of or any other matter relating to the Collateral. All costs, fees and expenses incurred by Bank, or for which Bank becomes obligated, in connection with such inspection and/or verification shall constitute part of Borrower's Liabilities, payable by Borrower to Bank on demand. 2.5 Borrower warrants and represents to and covenants with Bank that: (a) except as specifically stated at the end of this Section, Bank's security interest in the Collateral is now and at all times hereafter shall be perfected and have a first priority; (b) the offices and/or locations where Borrower keeps the Collateral and the Records are at the locations specified at the end of this Section and Borrower shall not remove such Records and/or the Collateral therefrom and shall not keep any of such Records and/or the Collateral at any other office or location unless Borrower gives Bank written notice thereof at least thirty (30) days prior thereto and the same is within the continental United States of America; and (c) the addresses specified at the end of this Section include and designate Borrower's chief executive office, chief place of business and other offices and places of business and are Borrower's sole offices and places of business. Borrower, by written notice delivered to Bank at least thirty (30) days prior thereto, shall advise Bank of Borrower's opening of any new office or place of business or its closing of any existing office or place of business and any new office or place of business shall be within the continental United States of America. Prior liens, if any: N/A; locations of Collateral, the Records, Borrower's principal place of business and all other offices and places of business: 6750 W. 93rd Street, Suite 110, Overland Park, KS 66212. 2.6 Bank, in its sole and absolute discretion, without waiving or releasing any of Borrower's Obligations or any Event of Default, may at any time or times hereafter, but shall be under no obligation to pay, acquire and/or accept an assignment of any security interest, lien, encumbrance or claim asserted by any Person against the Collateral. All sums paid by Bank in respect thereof and all costs, fees and expenses, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto incurred by Bank or for which Bank becomes obligated on account thereof shall be part of Borrower's Liabilities payable by Borrower to Bank on demand. 2.7 No authorization given by Bank pursuant to this Agreement or the Other Agreements to sell any specified portion of Collateral or any items thereof, and no waiver by Bank in connection therewith shall establish a custom or constitute a waiver of the prohibition contained in this Agreement against such sales, with respect to any portion of the Collateral or any item thereof not covered by said authorization. 2.8 Regardless of the adequacy of any Collateral, any deposits or other sums at any time credited by or payable or due from Bank or any bailee of Bank to Borrower, or any monies, cash, cash equivalents, certificates of deposit, securities, instruments, documents or other assets of Borrower in the possession or control of Bank or its bailee for any purpose may at any time be reduced to cash and applied by Bank to, or setoff by Bank against, Borrower's Liabilities hereunder. 2.9 With respect to Accounts, except as otherwise disclosed by Borrower to Bank in writing, Borrower warrants and represents to Bank that: (a) they are genuine, and in all respects are what they purport to be and are not evidenced by a judgment; (b) they represent undisputed, bona fide transactions completed in accordance with the terms and provisions contained in the invoices and other documents delivered to Bank with respect thereto; (c) the amounts thereof, which may be shown on any Schedule of Accounts and/or all invoices and statements delivered to Bank with respect thereto, are actually and absolutely owing to Borrower and are not contingent for any reason; (d) there are no setoffs, counterclaims or disputes existing or asserted with respect thereto and Borrower has not made any agreement with any Obligor thereof for any deduction therefrom except a regular discount allowed by Borrower in the ordinary course of its business for prompt payment; (e) there are no facts, events or occurrences which in any way impair the validity or enforceability thereof or tend to reduce the amount payable thereunder from the amount thereof, which may be shown on any Schedule of Accounts and on all invoices and statements delivered to Bank with respect thereto; (f) to the best of Borrower's knowledge all Obligors have the capacity to contract and are solvent; (g) the services furnished and/or goods sold giving rise thereto are not subject to any lien, claim, encumbrance or security interest except that of Bank; (h) Borrower has no knowledge of any fact or circumstance which would impair the validity or collectibility thereof; and (i) to the best of Borrower's knowledge, there are no proceedings or actions which are threatened or pending against any Obligor which might result in any material adverse change in its financial condition. 2.10 Bank shall have the right, at any time or times after an Event of Default, in its sole and absolute discretion, without notice thereof to Borrower: (a) to notify any or all Obligors that the Accounts have been assigned to Bank and that Bank has a security interest therein; (b) to direct such Obligors to make all payments due from them to Borrower upon the Accounts directly to Bank; and (c) to enforce payment of and collect, by legal proceedings or otherwise, the Accounts in the name of Bank and Borrower. 2.11 Borrower, irrevocably, hereby designates, makes, constitutes and appoints Bank (and all Persons designated by Bank) as Borrower's true and lawful attorney (and agent-in-fact) from and after an Event of Default, with power, without notice to Borrower and at such time or times thereafter as Bank, in its sole and absolute discretion, may determine, in Borrower's or Bank's name: (a) to demand payment of the Accounts; (b) to enforce payment of the Accounts by legal proceedings or otherwise; (c) to exercise all of Borrower's rights and remedies with respect to the collection of the Accounts; (d) to settle, adjust, compromise, extend or renew the Accounts; (e) to settle, adjust or compromise any legal proceedings brought to collect the Accounts; (f) to sell or assign the Accounts upon such terms, for such amounts and at such time or times as Bank deems advisable; (g) to discharge and release the Accounts; (h) to prepare, file and sign Borrower's name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Accounts; (i) to prepare, file and sign Borrower's name on any proof of claim in bankruptcy or similar document against any Obligor; and (j) to endorse the name of Borrower upon any chattel paper, document, instrument, invoice, freight bill, bill of lading or similar document or agreement relating to the Accounts. 2.12 Borrower shall be liable or responsible for: (a) the safekeeping of Inventory; (b) any loss or damage thereto or destruction thereof occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; or (d) any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person whomsoever. 2.13 Borrower warrants and represents to and covenants with Bank that: (a) Inventory shall be kept only at the locations specified in Section 2.5 hereof; (b) Borrower, immediately upon demand by Bank therefor, now and from time to time hereafter, shall execute and deliver to Bank Designations of Inventory specifying Borrower's cost of Inventory and such other matters and information relating to Inventory as Bank may request; (c) Borrower does now keep and hereafter at all times shall keep correct and accurate Records itemizing and describing the kind, type, quality and quantity of Inventory, Borrower's cost therefor and selling price thereof and the daily withdrawals therefrom and additions thereto all of which Records shall be available (during Borrower's usual business hours), upon demand, to any of Bank's officers, employees or agents for inspection and copying thereof; (d) all Inventory is now and hereafter at all times shall be of good, merchantable and first-grade quality, free from defects; (e) Inventory shall not now or at any time or times hereafter be comprised of any altered, damaged, out-dated, second-grade, second-hand, out-of-style, discontinued or reconditioned goods; (f) Inventory is not now and shall not at any time or times hereafter be stored with a bailee, warehouseman or similar party without Bank's prior written consent, and, in such event, Borrower will concurrently therewith cause any such bailee, warehouseman or similar party to issue and deliver to Bank, in form and substance acceptable to Bank, warehouse receipts therefor in Bank's name; (g) any of Bank's officers, employees or agents shall have the right, upon demand, now and at any time or times hereafter during Borrower's usual business hours, to inspect and examine Inventory and to check and test the same as to quality, quantity, value and condition; and (h) Bank's exercise of any of the rights or remedies described in Article 5 of this Agreement or in any of the Other Agreements shall not constitute a violation of any applicable law, or a breach of any provision contained in any agreement, instrument or document concerning the assignment or license of, or the payment of royalties for, any patents, patent rights, trade names, trademarks, trade secrets, know-how, copyrights or any other form of intellectual property now or at any time or times hereafter protected as such by any applicable law. All costs, fees and expenses incurred by Bank in connection therewith (or which Bank becomes obligated to pay) shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. 2.14 Until an Event of Default, Borrower may sell Inventory in the ordinary course of its business (which does not include a transfer in partial or total satisfaction of Indebtedness). Borrower shall be liable or responsible for: (a) the safekeeping of Inventory; (b) any loss or damage thereto or destruction thereof occurring or arising in any manner or fashion from any cause; (c) any diminution in the value thereof; and (d) any act or default of any carrier, warehouseman, bailee or forwarding agency thereof or other Person whomsoever. 2.15 Borrower warrants and represents to Bank that, except as disclosed in Section 2.5 hereof, Borrower has good, indefeasible, and merchantable title, free and clear of all liens, claims and encumbrances, to and ownership of the Equipment. Borrower, immediately upon demand by Bank, shall execute and deliver to Bank schedules of Equipment containing such information requested by Bank. Equipment shall be kept and/or maintained solely at locations specified in Section 2.5. 2.16 Borrower shall keep and maintain the Equipment in good operating condition and repair and shall make all necessary replacements thereof and renewals thereto so that the value and operating efficiency thereof shall at all times be maintained and preserved. Borrower shall not permit any such items to become a fixture to real estate or accession to other personal property. 2.17 Borrower, immediately on demand by Bank, shall deliver to Bank any and all evidence of ownership of, including, without limitation, certificates of title to and applications for title to, any Equipment. 2.18 Borrower shall notify Bank within five (5) days after it shall acquire any Equipment covered by certificates of title. With respect to such newly acquired Equipment, Borrower shall deliver to Bank, simultaneously with such notice, the certificates of title relating to such Equipment and appropriate financing statements, if required by applicable law, duly completed by Borrower, to enable Bank to perfect its lien in such Equipment. 3. WARRANTIES AND REPRESENTATIONS 3.1 Borrower represents and warrants to Bank that: (A) Borrower is a Delaware Corporation duly organized and existing and in good standing under the laws of the jurisdiction in which it was incorporated and/or established, and has all requisite power and authority, corporate and/or otherwise, to conduct its business and to own its properties. Borrower is duly licensed and/or qualified to do business and in good standing in all jurisidictions in which the laws thereof require Borrower to be so licensed and/or qualified. (B) The execution, delivery and performance by Borrower of this Agreement and the Other Agreements, are within the powers of Borrower, corporate or otherwise, have been duly authorized by all necessary action and do not and will not: (i) require any consent or approval of the stockholders of Borrower; (ii) violate any provision of any certificate or articles of incorporation, by-laws, partnership agreement or other agreements of Borrower or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award binding upon or applicable to Borrower; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; and/or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of Borrower. This Agreement and the Other Agreements constitute legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with their terms, except as enforceability maybe limited by bankruptcy, insolvency, reorganization and other similar laws of general application affecting the enforcement of creditor's right or by general principles of equity. (C) Borrower warrants and represents to and covenants with Bank that Borrower shall not, without Bank's prior written consent thereto, which Bank may or may not give in its sole discretion, concurrently or hereafter; (a) grant a security interest in, assign, sell or transfer any of Borrower's assets to any Person or permit, grant, or suffer a lien, claim or encumbrance upon any of Borrower's assets, except; (i) liens set forth in Section 4.1(A) of this Agreement; (ii) liens created by this Agreement and the Other Agreements; (iii) liens for Charges which are not yet due and payable, or which are permitted pursuant to Section 4.3 of this Agreement; (iv) mechanics', materialmen's, bankers', carriers', warehousemen's and similar liens arising in the ordinary course of business and securing obligations of Borrower that are not overdue for a period of more than sixty (60) days or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest any proceedings commenced for the enforcement of such liens shall have been duly suspended and such provision for the payment of such liens has been made on the books of Borrower as may be required by generally accepted accounting principles; (v) liens arising in connection with worker's compensation, unemployment insurance, old age pensions and social security benefits which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that in the case of any such contest any proceedings commenced for the enforcement of such liens shall have been duly suspended and such provision for the payment of such liens has been made on the books of Borrower as may be required by generally accepted accounting principles; (vi) liens incurred in the ordinary course of business to secure the performance of statutory obligations arising in connection with progress payments or advance payments due under contracts with the United States government or any agency thereof entered into in the ordinary course of business, liens incurred or deposits made in the ordinary course of business to secure the performance of tenders, statutory obligations, bids, leases, performance bonds, fee and expense arrangements with trustees and fiscal agents and other similar obligations (exclusive of obligations incurred in connection with the borrowing of money or the payment of the deferred purchase price of property) and liens directly securing appeal and release bonds, provided that adequate provision for all such obligations has been made on the books of Borrower in accordance with generally accepted accounting principles; and (vii) zoning restrictions, easements, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially detract from the value or impair the use of such real property: (D) Borrower is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (E) All employee pension and benefit plans subject to the Employee Retirement Income Security Act of 1974 ("ERISA") which are maintained for employees of Borrower, are in compliance in all material respects with the applicable provisions of ERISA. (F) The operations of Borrower comply in all respects with the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law or any other federal, state or local laws, rules, regulations, orders or decrees (collectively, "Environmental Laws") relating to, or imposing liabilities or standards of conduct concerning any hazardous substances, pollutants, contaminants, toxic or dangerous waste, substance or material defined as such in any Environmental Law (collectively, "Hazardous Materials"). There are no proceedings which are pending, or to the knowledge of Borrower threatened, against Borrower under any Environmental Law. (G) The Financials, copies of which have been furnished to Bank, are complete and correct and fairly present the financial condition of Borrower as of the dates referred to therein, and the results of their operations for the period then ended, all in accordance with generally accepted accounting principles applied on a consistent basis. Since the date thereof, there has been no material adverse change in the property, financial condition or business operations of Borrower. (H) Borrower has and at all times hereafter shall have good and marketable title to all of its assets, real and personal, free and clear of all liens, security interests, mortgages, claims and/or encumbrances except those granted in favor of Bank, those existing as of the date of this Agreement as reflected in the Financials and/or as otherwise disclosed therein and those referred to in Section 2.5 hereof. (I) Except for trade payables arising in the ordinary course of its business since the dates reflected in the Financials and/or as otherwise disclosed therein, Borrower has no Indebtedness. (J) Borrower is not in default with respect to any indenture, loan agreement, mortgage, deed of trust or similar agreement relating to the borrowing of monies to which it is a party or by which it is bound. (K) Borrower has and is in good standing with the respect to all governmental permits, certificates, consents and franchises necessary to continue the conduct of its business as previously conducted by it and to own or lease and operate its properties as now owned or leased by it. (L) Borrower is not a party to any agreement, instrument or undertaking, or subject to any other restriction (i) which materially or adversely affects, or may in the future so affect, the property, financial condition or business operations of Borrower, or (ii) under or pursuant to which Borrower is or will be required to place (or under which any other Person may place) a lien upon any of its properties to secure payment and/or performance of any liability or obligation, either upon demand or upon the happening of any condition or event, with or without demand. (M) There are no actions or proceedings which are pending or threatened against Borrower, which (i) relates to the execution, delivery or performance of this Agreement and/or any of the Other Agreements, or (ii) would cause any material adverse change in the property, financial condition or business operations of Borrower. (N) The proceeds of any Loans shall be used for business purposes and consistently with all applicable laws and statutes. Borrower is not in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loans shall 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. (O) No information, exhibit or report furnished by Borrower to Bank in connection with the negotiation, execution or future performance of this Agreement, contains any false or misleading information or misstatement of any facts. 4. COVENANTS 4.1 So long as any of Borrower's Liabilities shall remain unpaid, Borrower shall not do, any of the following without the prior written consent of Bank: (A) Create or permit to be created or allow to exist any mortgage, pledge, encumbrance or other lien upon or security interest in any property or assets now owned or hereafter acquired by Borrower, except (i) such as exist and/or are granted to Bank hereunder or under any of the Other Agreements; (ii) liens for Charges which are not yet due and payable; (iii) mechanics', materialmen's, bankers', warehousemen's and similar liens arising in the ordinary course of business and securing obligations of Borrower that are not over due for a period of more than sixty (60) days and are being contested in good faith by appropriate proceedings diligently pursued; (iv) liens arising in connection with worker's compensation, unemployment insurance, pensions and social security benefits which are not over due or are being contested in good faith by appropriate proceedings diligently pursued; or (v) zoning restrictions, easements, licenses, restrictions on the use of real property or minor irregularities in title thereto, which do not materially detract from the value or impair the use of such real property. (B) Permit or suffer any levy, attachment or restraint to be made affecting any of its assets or Collateral or permit or suffer any receiver, trustee or assignee for the benefit of creditors, or any other custodian to be appointed to take possession of all of any of Borrower's assets or any of the Collateral. (C) Acquire any other business or make any loan, advance or extension of credit to, or investment in, any other Person, or create or participate in the creation of any subsidiary or joint venture, except: (i) investments in (a) Bank repurchase agreements, (b) savings accounts or certificates of deposit in a financial institution of recognized standing, (c) obligations issued or fully guaranteed by the United States, and (d) prime commercial paper maturing within ninety (90) days of the date of acquisition by Borrower; (ii) loans and advances made to employees and agents in the ordinary course of business, such as travel and entertainment advances and similar items; and (iii) investments shown on the Financials, provided that such investments shall not be increased. (D) Liquidate or dissolve, or merge with or into or consolidate with or into any other Person, or sell, lease, transfer or otherwise dispose of all or any substantial part of its property, assets or business (other than sales made in the ordinary course of business), amend, modify or supplement Borrowers certificate or articles of Incorporation, bylaws, partnership agreement or other document evidencing the existence of Borrower as a legal entity. (E) Discount or sell with recourse, or sell for less than the fact amount thereof, any of its notes or accounts receivable, whether now owned or hereafter acquired. (F) Guaranty or otherwise, in any way, become liable with respect to the obligations or liabilities of any Person, other than in connection with the endorsement of instruments or items for payment for deposit or collection in the ordinary course of its business. 4.2 Borrower, at its sole cost and expense, shall keep and maintain: (a) the Collateral insured for the greater of the full insurable value or the full replacement value thereof against loss or damage by fire, theft, explosion, sprinklers and all other hazards and risks ordinarily insured against by other owners or users of properties in similar businesses; (b) business interruption insurance; and (c) public liability insurance relating to Borrower's ownership and use of its assets. All such policies of insurance shall be in form, with insurers and in such amounts as may be satisfactory to Bank. Borrower shall deliver to Bank certificates for each policy of insurance, evidence of payment of all premiums for each such policy and, upon Bank's request therefor, copies of all such policies. Such policies of insurance (except those of public liability) shall contain an endorsement, in form and substance acceptable to Bank, showing loss payable to Bank. Such endorsement or an independent instrument furnished to Bank, shall provide that all insurance companies will give Bank at least thirty (30) days prior written notice before any such policy or policies of insurance shall be altered or canceled and that no act or default of Borrower or any other Person shall affect the right of Bank to recover under such policy or policies of insurance in case of loss or damage. Borrower hereby directs all insurers under such policies of insurance (except those of public liability) to pay all proceeds payable thereunder directly to Bank. Borrower, irrevocably, appoints Bank (and all officers, employees or agents designated by Bank) as Borrower's true and lawful attorney (and agent-in-fact) for the purpose of endorsing the name of Borrower on any check, draft, instrument or other item of payment for the proceeds of such policies of insurance. Furthermore, Borrower, irrevocably, appoints Bank (and all officers, employees or agents designated by Bank) as Borrower's true and lawful attorney (and agent-in-fact) from and after an Event of Default, for the purpose of making, settling and adjusting claims under such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. In the event Borrower at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above or to pay any premium in whole or in part relating thereto, then Bank, without waiving or releasing any of Borrowers Obligations or any Event of Default hereunder, may at any time or times thereafter (but shall be under no obligation to do so) obtain and maintain such policies of insurance and pay such premium and take any other action with respect thereto which Bank deems advisable. All sums so disbursed by Bank, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. 4.3 Borrower shall pay promptly, when due, all of the Charges, provided, however, that notwithstanding the foregoing, Borrower may permit or suffer the Charges to attach to Borrower's assets and may dispute, without prior payment thereof, the Charges, provided that Borrower, in good faith, shall be contesting the same in an appropriate proceeding, enforcement thereof against any assets of Borrower shall be stayed and appropriate reserves therefor shall have been established on the Records of Borrower in accordance with generally accepted accounting principles. In the event Borrower, at any time or times hereafter, shall fail to pay the Charges as required herein, Borrower shall so advise Bank thereof in writing: Bank may, without waiving or releasing any of Borrower's Obligations or any Event of Default hereunder, in its sole and absolute discretion, at any time or times thereafter, make such payment, or any part thereof and take any other action with respect thereto which Bank deems advisable. All sums so paid by Bank and any expenses, including reasonable attorneys' fees, court costs, expenses and other charges relating thereto, shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. 4.4 Borrower shall: (a) pay or discharge or otherwise satisfy at or before maturity or before the same becomes delinquent, all Indebtedness, provided, however that Borrower shall not be required to pay any Indebtedness which is unsecured while the same is being contested by it in good faith and by appropriate proceedings so long as Borrower shall have set aside on its books reserves in accordance with generally accepted accounting principles with respect thereto and title to any property of Borrower is not jeopardized; (b) preserve and maintain its corporate existence, rights, privileges and franchises in the jurisdiction of its incorporation or organization, and quality and remain qualified to do business in each other jurisdiction in which such qualification is necessary in view of its business or operations; (c) comply with all laws, rules, regulations and governmental orders (federal, state and local) having applicability to it or to the businesses at any time conducted by it, where the failure to so comply would have a material adverse effect, either individually or in the aggregate, on the business, condition (financial or otherwise), assets, operations or prospects of Borrower; and (d) duly and punctually pay and perform each of its obligations under this Agreement and the Other Agreements in accordance with the terms thereof. 4.5 Maintain standard and modern system for accounting in accordance with generally accepted principles of accounting consistently applied throughout all accounting periods and consistent with those applied in the preparation of the Financials, and furnish to Bank such information respecting the business, assets and financial condition of Borrower as Bank reasonably may request and, without request, furnish to Bank: (i) within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of Borrower, consolidated and/or, if applicable, consolidating balance sheet(s) and statement(s) of income and surplus of Borrower and its consolidated subsidiaries as of the close of such quarter and of the comparable quarter in the preceding fiscal year in reasonable detail and accompanied by a certificate of the chief financial officer of Borrower stating that such statements are true and correct (subject to audit and normal year-end adjustments) and that, as of the close of the last period covered in such financial statements, no condition or event had occurred which constitutes an Event of Default hereunder (or if there was such a condition or event, specifying the same); and (ii) as soon as available, and in any event within ninety (90) days after the close of each fiscal year of Borrower, a copy of the detailed long-form audit report for such year and accompanying consolidated and/or, if applicable, consolidating financial statements of Borrower and its consolidated subsidiaries, as prepared by independent certified public accountants selected by Borrower and satisfactory to Bank. 4.6 Permit representatives of Bank to visit and inspect any of the properties and examine any of the books and records of Borrower at any reasonable time and as often as reasonably may be desired. 4.7 Possess and maintain all necessary patents, franchises, trademarks, trade names, copyrights and licenses to conduct its respective business(es). 5. DEFAULT 5.1 The occurrence of any one of the following events shall constitute a default ("Event of Default") under this Agreement: (a) Borrower shall default in the performance or observance of any of Borrower's Obligations under this Agreement; (b) Borrower shall default in the performance or observance of any other of Borrower's Obligations; (c) if any representation or warranty on the part of Borrower contained in this Agreement or the Other Agreements, or any document, instrument or certificate delivered pursuant hereto or thereto shall have been incorrect in any material respect when made or deemed made; (d) if Borrower fails to pay Borrower's Liabilities, when due and payable or declared due and payable; (e) if the Collateral, any collateral securing the obligations to Bank of any Guarantor or any other material portion of Borrower's or any such Guarantor's assets, are attached, seized, subjected to a writ of distress warrant, or are levied upon, or come within the possession of any receiver, trustee, custodian or assignee for the benefit of creditors; (f) if a petition under any section or chapter of the Bankruptcy Reform Act of 1978, as amended, or any similar law or regulation shall be filed by Borrower or any Guarantor or if Borrower or any Guarantor shall make an assignment for the benefit of creditors or if any case or proceeding is filed by Borrower or any Guarantor for its dissolution or liquidation; (g) if Borrower or any Guarantor is enjoined, restrained or in any way prevented by court order from conducting all or any material part of its business affairs or if a petition under any section or chapter of the Bankruptcy Reform Act of 1978, as amended, or any similar law or regulation is filed against Borrower or any Guarantor or if any case or proceeding is filed against Borrower or any Guarantor for its dissolution or liquidation and such injunction, restraint or petition is not dismissed or stayed within thirty (30) days after the entry or filing thereof; (h) if an application is made by Borrower or any Guarantor for the appointment of a receiver, trustee or custodian for the Collateral, any collateral securing such Guarantor's obligations to Bank or any other material portion of Borrower's or such Guarantor's assets; (i) if an application is made by any Person other than Borrower or any Guarantor for the appointment of a receiver, trustee, or custodian for the Collateral, any collateral securing any such Guarantor's obligations to Bank or any other material portion of Borrower's or such Guarantor's assets and the same is not dismissed within thirty (30) days after the application therefor; (j) except as permitted in Section 4.3 above, if a notice of any Charge is filed of record with respect to all or any of Borrower's assets, or if any Charge becomes a lien or encumbrance upon the Collateral or any other of Borrower's assets and the same is not released within thirty (30) days after the same becomes a lien or encumbrance; (k) if Borrower is in default in the payment of Indebtedness (other than Borrower's Liabilities) and such default is declared and is not cured within the time, if any, specified therefor in any agreement governing the same; (l) the death or incompetency of Borrower (if an individual) or any Guarantor (which is an individual), or the appointment of a conservator for all or any material portion of Borrower's or any such Guarantor's assets or the Collateral; (m) the occurrence of a default or Event of Default under any agreement, instrument and/or document executed and delivered by any Guarantor to Bank, which is not cured within the time, if any, specified therefor in such agreement, instrument or document; (n) the occurrence of a default or an Event of Default under any of the Other Agreements, which is not cured within the time, if any, specified therefor in such Other Agreement; (o) if one or more judgments or decrees shall be entered against Borrower involving, individually, or in the aggregate, a liability of $10,000.00 or more and all such judgments or decrees shall not have been vacated, discharged or stayed pending appeal within sixty (60) days from the entry thereof; (p) if this Agreement or any of the Other Agreements shall cease for any reason to be in full force and effect (other than by reason of the satisfaction of all of Borrower's Liabilities or voluntary release by Bank of any Other Agreement) or Borrower or any other Person (other than Bank) shall disavow its obligations thereunder, or shall contest the validity or enforceability of any thereof; or (q) if any lien or security interest in any Collateral or any collateral securing the obligations of any Guarantor to Bank shall for any reason cease to be a legal, valid, perfected or enforceable first priority lien on and security interest in such Collateral or Guarantor's collateral (other than by reason of the payment in full of all obligations secured thereby or voluntary release by the secured party of such Collateral or Guarantor's collateral). 5.2 All of Bank's rights and remedies under this Agreement and the Other Agreements are cumulative and non-exclusive. 5.3 Upon an Event of Default or the occurrence of any one of the events described in Section 5.1, without notice by Bank to or demand by Bank of Borrower, Bank shall have no further obligations to and may then forthwith cease making Loans to or for the benefit of Borrower. Upon an Event of Default, without notice by Bank to or demand by Bank of Borrower's Liabilities shall be due and payable, forthwith. 5.4 Upon an Event of Default, Bank, in its sole and absolute discretion, may: (a) exercise any one or more of the rights and remedies accruing to a secured party under the Uniform Commercial Code of the relevant state or states and any other applicable law upon default by a debtor; (b) enter, with or without process of law and without breach of the peace, any Premises where the Collateral is or may be located, and without charge or liability to Bank therefor seize and remove the Collateral from said Premises and/or remain upon said Premises and use the same for the purpose of collecting, preparing and disposing of the Collateral; and (c) sell or otherwise dispose of the Collateral at public or private sale for cash or credit provided, however, that Borrower shall be credited with the net proceeds of such sale only when such proceeds are actually received by bank. 5.5 Upon an Event of Default, Borrower, immediately upon demand by Bank, shall assemble the Collateral and make it available to Bank at a place or places to be designated by Bank which are reasonably convenient to Bank and Borrower. Borrower recognizes that in the event Borrower fails to perform, observe or discharge any of Borrower's Obligations, no remedy of law will provide adequate relief to Bank, and agrees that Bank shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 5.6 Any notice required to be given by Bank of a sale, lease, other disposition of the Collateral or any other intended action by Bank, deposited in the United States mail, postage prepaid and duly addressed to Borrower at its principal place of business specified at the beginning of this Agreement not less than five (5) days prior to such proposed action, shall constitute commercially reasonable and fair notice to Borrower thereof. 5.7 Upon an Event of Default, Borrower agrees that Bank may, if Bank deems it reasonable, postpone or adjourn any such sale of the Collateral from time to time by an announcement at the time and place of sale or by announcement at the time and place of such postponed or adjourned sale, without being required to give a new notice of sale. Borrower agrees that Bank has no obligation to preserve rights against prior parties to the Collateral. Further, Borrower waives and releases any cause of action and claim against Bank as a result of Bank's possession, collection or sale of the Collateral, any liability or penalty for failure of Bank to comply with any requirement imposed on Bank relating to notice of sale, holding of sale or reporting of sale of the Collateral, and, to the extent permitted by law, any right of redemption from such sale. 5.8 In the event Bank seeks possession of the Collateral through replevin or other court process, Borrower hereby irrevocably waives (a) any bond, surety or security required as an incident to such possession, and (b) any demand for possession of the Collateral prior to commencement of any suit or action to recover possession thereof. 6. MISCELLANEOUS 6.1 Borrower waives the right to direct the application of any and all payments at any time or times hereafter received by Bank on account of Borrower's Liabilities and Borrower agrees that Bank shall have the continuing exclusive right to apply and reapply any and all such payments in such manner as Bank may deem advisable, notwithstanding any entry by Bank upon any of its books and records. 6.2 This Agreement and the Other Agreements may not be modified, altered or amended except by an agreement in writing signed by Borrower and Bank. Borrower may not sell, assign or transfer this Agreement or the Other Agreements or any portion thereof, including, without limitation, Borrower's rights, titles, interests, remedies, powers and/or duties thereunder. Borrower consents to Bank's sale, assignment, transfer or other disposition, at any time or from time to time hereafter, of this Agreement or the Other Agreements, or any portion thereof, including, without limitation, Bank's rights, titles, interests, remedies, powers and/or duties. 6.3 Bank's failure at any times hereafter to require performance by Borrower of any provision of this Agreement or the Other Agreements shall not waive, affect or diminish any right of Bank thereafter to demand strict compliance and performance therewith. Any suspension or waiver by Bank of an Event of Default shall not suspend, waive or affect any other Event of Default, whether the same is prior or subsequent thereto and whether of the same or of a different type. None of the undertakings, agreements, warranties, covenants and representations of Borrower contained in this Agreement and the Other Agreements, and no Event of Default by Borrower under this Agreement and the Other Agreements, shall be deemed to have been suspended or waived by Bank unless such suspension or waiver is by an instrument in writing signed by an officer of Bank and directed to Borrower specifying such suspension or waiver. 6.4 If any provision of this Agreement or the Other Agreements or the application thereof is held invalid or unenforceable, the remainder of this Agreement and the application of such provision to other Persons or circumstances will not be affected thereby and the provisions of this Agreement and the Other Agreements shall be severable in any such instance. 6.5 This Agreement and the Other Agreements shall be binding upon and inure to the benefit of the successors and assigns of Borrower and Bank. This provision, however, shall not be deemed to modify Section 6.2 hereof. 6.6 Except as otherwise specifically provided in this Agreement, Borrower waives any and all notice or demand which Borrower might be entitled to receive with respect to this Agreement by virtue of any applicable statute or law, and waives presentment, demand and protest and notice of presentment, protest, default, dishonor, non-payment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Bank on which Borrower may in any way be liable and hereby ratifies and confirms whatever Bank may do in this regard. 6.7 Upon demand by Bank, Borrower shall reimburse Bank for all costs, fees and expenses incurred by Bank or for which Bank becomes obligated, in connection with the negotiation, preparation and conclusion of this Agreement and the Other Agreements, including, without limitation, all fees, costs and expenses of attorneys retained by Bank (including attorneys who are employees of Bank and/or any of its affiliates). 6.8 This Agreement and the Other Agreements are submitted by Borrower to Bank (for Bank's acceptance or rejection thereof) at Bank's principal place of business and shall not be binding upon Bank or become effective until and unless accepted by Bank, in writing, at said place of business. If so accepted by Bank, this Agreement and the Other Agreements shall be deemed to have been made at said place of business. This Agreement and the Other Agreements shall be governed and controlled by the internal laws of the State of Kansas as to interpretation, enforcement, validity, construction, effect and in all other respects, without reference to principles of choice of law. 6.9 TO INDUCE BANK TO ACCEPT THIS AGREEMENT AND ALL OTHER AGREEMENTS RELATED HERETO, BORROWER HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO BANK'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR ANY AGREEMENT RELATED HERETO OR ANY COLLATERAL HELD BY BANK IN CONNECTION HEREWITH OR THEREWITH SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF OLATHE, STATE OF KANSAS OR IN THE CITY OF KANSAS CITY, STATE OF KANSAS. BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN EITHER OF SAID CITIES IN THE STATE OF KANSAS. BORROWER HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT IN ACCORDANCE WITH THIS SECTION. BORROWER AND BANK IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH BORROWER AND BANK ARE PARTIES. 6.10 To the extent permitted by applicable law, if at any time or times hereafter Bank employs counsel (including attorneys who are employees of Bank and/or any of its affiliates) (A) for advice or other representation with respect to this Agreement or the Other Agreements or the administration, (B) to represent Bank in any litigation, contest, dispute, suit or proceeding or to commence, defend or intervene or take any other action in or with respect to any such matter, or (C) to enforce any rights of Bank against Borrower and/or any Guarantor, the reasonable costs, fees and expenses incurred by Bank in any manner or way with respect to the foregoing, shall be part of Borrower's Liabilities, payable by Borrower to Bank on demand. For purposes of this Agreement "affiliate" of the Bank shall include, but not be limited to Mercantile Bancorporation, Inc. ("MBI") and any banking or non- banking subsidiary of MBI, whether owned, controlled by, controlling or under common control with MBI directly or indirectly through any subsidiary. 6.11 This agreement shall continue in full force and effect until Borrower's Liabilities are fully paid, performed and discharged. To the extent that Bank receives any payment on account of Borrower's Liabilities, and any such payment(s) or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, subordinated and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy act, state or federal law, common law or equitable cause, then, to the extent of such payment(s) received, Borrower's Liabilities, or part thereof intended to be satisfied shall be revived and continue in full force and effect, as if such payment(s) had not been received by Bank and applied on account of Borrower's Liabilities. 6.12 Except as otherwise specifically provided herein, requests and other communications to any party shall be in writing (including bank wire, telex or similar writing) and shall be given at its address or telex number set forth on the signature pages hereof or such other address or telex number as may hereafter be specified. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate confirmation is received, (ii) if given by mail, 72 hours after such communication is deposited by the mails with first class postage prepaid addressed as aforesaid or (iii) if given by any other means, when delivered at the address specified in this Section. NOTICE. THIS AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN BORROWER AND BANK, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN BORROWER AND BANK. IF THERE ARE ANY ADDITIONAL TERMS, THEY ARE REDUCED TO WRITING AS FOLLOWS: N/A I/WE AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN BORROWER AND BANK. BORROWER: BANK: AmeriConnect, Inc. MERCANTILE BANK OF KANSAS By: /s/ Robert R. Kaemmer By:_______________________________ Robert R. Kaemmer, President IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year specified at the beginning hereof. BORROWER/CORPORATION AmeriConnect, Inc. By:________________________________ By: /s/ Robert R. Kaemmer Print Name:_________________________ Print Name: Robert R. Kaemmer Title:_______________________________ Title: President Address:____________________________ Address: 6750 W. 93rd Street, Suite 110 ___________________________________ Overland Park, KS 66212 TELEX:____________________________ TELEX:____________________________ BORROWER/PARTNERSHIP ___________________________________ (Print Partnership Name) By:________________________________ By:_________________________________ Print Name:_________________________ Print Name:_________________________ Title: General Partner Title: General Partner Address:____________________________ Address:____________________________ ___________________________________ __________________________________ TELEX:____________________________ TELEX:____________________________ BORROWER/INDIVIDUAL By:_______________________________ By:________________________________ Print Name:________________________ Print Name:_________________________ Address:___________________________ Address:____________________________ __________________________________ __________________________________ TELEX:_____________________________ TELEX:____________________________ By:________________________________ By:_______________________________ Print Name:_________________________ Print Name:_________________________ Address:____________________________ Address:____________________________ ___________________________________ __________________________________ TELEX:_____________________________ TELEX:____________________________ Accepted this 8th day of June, 1995, at Bank's principal place of business in the City of Roeland Park, State of Kansas. BANK: MERCANTILE BANK OF KANSAS By: /s/ James A. Thomas Title: James A. Thomas, Sr. Vice President Address: 4700 W. 50th Place Roeland Park, Kansas 66205 EX-10.34 8 SECURITY AGREEMENT EXHIBIT 10.34 SECURITY AGREEMENT THIS AGREEMENT, is made and entered into as of the 8th day of June, 1995, by and between AmeriConnect, Inc., a[an] Delaware Corporation (whether one or more hereinafter referred to as "Debtor") with its principal place of business at _________________________, and MERCANTILE BANK OF KANSAS, a Kansas state bank, with an address of 4700 West 50th Place, Roeland Park, Kansas 66205 as Secured Party (hereinafter referred to as "Secured Party"). Both Debtor and Secured Party are hereinafter referred to in the singular and neuter. RECITAL: Debtor is about to become or is indebted to Secured Party and it is contemplated that Debtor may from time to time become further indebted to Secured Party in the sole discretion of Secured Party. NOW, THEREFORE, for and in consideration of any loan, advance, or other credit heretofore, concurrently herewith, or hereafter extended by Secured Party to Debtor, the Secured Party and Debtor agree as follows: I. GRANT OF SECURITY INTEREST: A. Collateral. Debtor hereby grants to Secured Party as secured party to secure Debtor's Obligations hereinafter defined, a continuing security interest in the following described property of Debtor, wherever situated: Assignment of Life Insurance Policy No. 40989967 with Transamerica Occidental Life Insurance Company on the life of Robert R. Kaemmer with a face amount of $1,750,000.00, and all additions and attachments thereto, and all replacements thereof and substitutions therefor. whether now owned or hereafter acquired by Debtor or now in existence or hereafter arising, all rights of Debtor in any way relating to the foregoing, all proceeds thereof and all books and records in any form relating thereto (the property subject to the security interest herein granted being sometimes collectively referred to as the "Collateral"). B. No Sale of Collateral. The granting of a security interest in proceeds does not authorize the sale of any of the Collateral except such Collateral as is inventory held for sale and then only to a buyer in the ordinary course of Debtor's business. II. OBLIGATIONS SECURED: The security interests herein granted are granted to secure all loans and advances and other credit heretofore, concurrently herewith, or hereafter made or extended by Secured Party to Debtor (including, but not limited to, those evidenced by a promissory note or notes, or open account, overdrafts, and advances under letters of credit) all interest thereon and collection costs (including, but not limited to attorneys' fees and expenses to the extent not prohibited by applicable law) thereof, as well as any and all other liabilities of Debtor to Secured Party, now existing or hereafter arising hereunder or otherwise, absolute or contingent (as guarantor for the obligations of another or otherwise), whether created directly or acquired by Secured Party as assignee or otherwise, joint or several, joint and several, due or to become due, whether similar or dissimilar to any other obligations, and all renewals and extensions of any of the foregoing. The foregoing are sometimes hereinafter referred to as "Debtor's Obligations" or "Obligations". It is intended that all of Debtor's Obligations be secured hereunder irrespective of whether other or further property of the same or similar or a different type or nature than that herein encumbered is encumbered to secure any one or more of Debtor's Obligations at the time of the creation thereof or prior or subsequent to the creation thereof. Until all Obligations have been fully satisfied, Secured Party's liens and security interests in and to all of the Collateral, and all products and proceeds thereof, shall continue in full force and effect. III. WARRANTIES OF DEBTOR: As a material inducement to Secured Party to extend credit to Debtor, Debtor, and if Debtor is other than an individual, the person(s) signing on behalf of Debtor, represent and warrant to Secured Party that: A. Good Standing. Debtor is a Delaware Corporation duly organized and existing and in good standing under the laws of the jurisdiction in which it is incorporated and/or established, and has all requisite power and authority, corporate and/or otherwise, to conduct its business and own its properties. Debtor is duly licensed and/or qualified to do business and is in good standing in all jurisdictions in which the laws thereof require Debtor to be so licensed and/or qualified. B. Authority. The execution, delivery and performance by Debtor of this Security Agreement and of any financing statements relating hereto and the incurring of any Obligations are within the powers of Debtor, corporate or otherwise, have been duly authorized by all necessary action and do not and will not: (i) require any consent or approval of the stockholders of Debtor; (ii) violate any provision of any certificate or articles of incorporation, by-laws, partnership agreement or other agreements of Debtor or of any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award binding upon or applicable to Debtor; (iii) require the consent or approval of, or filing or registration with, any governmental body, agency or authority; and/or (iv) result in a breach of or constitute a default under, or result in the imposition of any lien, charge or encumbrance upon any property of Debtor. This Security Agreement constitutes a legal, valid and binding obligation of Debtor enforceable against Debtor in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization and other similar laws of general application affecting the enforcement of creditor's right or by general principles of equity. C. No Other Liens. With the sole exception of the security interest granted hereby, Debtor is, or, as to Collateral to be acquired after the date hereof, shall be, the owner of the Collateral free from any lien, security interest or encumbrance, and Debtor will defend the Collateral against all claims and demands of all persons (except Secured Party) at any time claiming the same or any interest therein. D. No Other Financing Statements. There is not now, and shall not be until all of Debtor's Obligations are discharged, any financing statement covering any of the Collateral on file in any public office other than financing statements filed by or on behalf of Secured Party. E. Not Investment Company. Debtor is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. F. ERISA Compliance. All employee pension and benefit plans subject to the Employee Retirement Income Security Act of 1974 ("ERISA") which are maintained for employees of Debtor, are in compliance in all material respects with the applicable provisions of ERISA. G. Environmental Compliance. The operations of Debtor comply in all respects with the Comprehensive Environmental Response, Compensation and Liability Act, any so-called "Superfund" or "Superlien" law or any other federal, state or local laws, rules, regulations, orders or decrees (collectively, "Environmental Laws") relating to, or imposing liabilities or standards of conduct concerning any hazardous substances, pollutants, contaminants, toxic or dangerous waste, substance or material defined as such in any Environmental Law (collectively, "Hazardous Materials"). There are no actions or proceedings which are pending, or to the knowledge of Debtor threatened, against Debtor under any Environmental Law. H. Accurate Information. The financial statements and other information furnished by or on behalf of Debtor for purposes of obtaining credit, are complete and correct and fairly present the financial condition of Debtor as of the dates referred to therein, and the results of their operations for the periods then ended, all in accordance with generally accepted accounting principles applied on a consistent basis. Since the date thereof, there has been no material adverse change in the property, financial condition or business operations of Debtor. No information, exhibit or report furnished by Debtor to Secured Party in connection with the negotiation, execution or future performance of this Security agreement, contains any false or misleading information or misstatement of any facts. I. Marketable Title. Debtor has and at all times hereafter shall have good and marketable title to all of its assets, real and personal, free and clear of all liens, security interests, mortgages, claims and/or encumbrances except those granted in favor of Secured Party, and those existing as of the date of this Security Agreement as reflected in the financial statements furnished to Secured Party by Debtor and/or otherwise disclosed therein. J. No Other Indebtedness. Except for trade payables arising in the ordinary course of its business since the dates reflected in the financial statements furnished to Secured Party by Debtor and/or as otherwise disclosed therein, Debtor has no indebtedness or obligations to any person other than Secured Party. K. No Default. Debtor is not in default with respect to any indenture, loan agreement, mortgage, deed of trust or similar agreement relating to the borrowing of monies to which it is a party or by which it is bound. L. Necessary Permits. Debtor has and is in good standing with the respect to all governmental permits, certificates, consents and franchises necessary to continue the conduct of its business as previously conducted by it and to own or lease and operate its properties as now owned or leased by it. M. No Adverse Agreements. Debtor is not a party to any agreement, instrument or undertaking, or subject to any other restriction (i) which materially or adversely affects, or may in the future so affect, the property, financial condition or business operations of Debtor, or (ii) under or pursuant to which Debtor is or will be required to place (or under which any other person may place) a lien upon any of its properties to secure payment and/or performance of any liability or obligation, either upon demand or upon the happening of any condition or event, with or without demand. N. No Adverse Proceedings. There are no actions or proceedings which are pending or threatened against Debtor, which (i) relates to the execution, delivery or performance of this Security Agreement or (ii) would cause any material adverse change in the property, financial condition or business operations of Debtor. O. Use of Proceeds. The proceeds of any indebtedness of Debtor secured hereby shall be used for proper business purposes and consistently with all applicable laws and statutes. Debtor is not in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U issued by the Board of Governors of the Federal Reserve System), and no proceeds of any Loan shall 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. P. Location of Collateral. Debtor's chief place of business, chief executive office, place where all its inventory and equipment subject to this Agreement are located, and place where its books and records relating to equipment, inventory, accounts and contract rights subject to this Agreement are kept is at the address given at the beginning of this Agreement, and Debtor has no other places of business or locations of inventory and/or equipment and records, except as follows: N/A IV. COVENANTS OF DEBTOR: A. Collect Receivables. Debtor shall endeavor to collect all accounts subject to this Agreement, when due, and take such action with respect thereto as Secured Party may request, or, in the absence of such request, as is reasonable for Debtor's business and the protection of Secured Party's security interest. B. Deliver Proceeds. Debtor shall, upon Secured Party's request, deliver to Secured Party no later than the banking day following the date of receipt, in the form received, except for the endorsement to Secured Party's order, all cash, checks, and other instruments for the payment of money which are received by Debtor in payment for or as proceeds of any Collateral, to be applied by Secured Party in reduction of any of the Obligations in such order as Secured Party may elect or deposit the same in a deposit account over which Secured Party alone shall have power of withdrawal ("the Collateral Account") as further security for the Obligations, from which Secured Party may at its election make reductions in the Obligations or make available to Debtor portions to be used in the conduct of Debtor's business. C. Rejections, Returns or Repossession of Inventory. Debtor shall notify Secured Party immediately of any rejections, returns or repossessions of any inventory subject to this Agreement to the extent that any such action taken together with other such actions in any calendar month exceeds five percent (5%) of Debtor's outstanding accounts at the beginning of such month. D. Public Filings; Notice to Other Creditors. Debtor shall execute such financing statements or other documents or instruments, pay the cost of filing the same in, and searching the records of, such public offices, and take such other actions as Secured Party may deem necessary or desirable to perfect and to ascertain the priority of perfection of the security interests hereby granted. A carbon, photographic or other reproduction of this Agreement or of a financing statement is sufficient to be filed as a financing statement. In the event that, in Secured Party's opinion, any of the Collateral is or becomes subject to the Federal Assignment of Claims Act, Debtor shall take all steps required by Secured Party to comply with said Act. Secured Party may notify any other person, whether or not a creditor of Debtor, of the existence of this Agreement and Secured Party's security interest in the Collateral. Debtor waives any claim against Secured Party based on or arising out of any such notification. E. Records. Debtor shall furnish Secured Party such information relating to it, its account debtors (if the Collateral consists of accounts or general intangibles) and the Collateral as Secured Party or its agents may request, and permit Secured Party or its agents to visit any place where any Collateral (including books and records) may be kept, and to audit, copy and make extracts therefrom, and will deliver any such books and records to Secured Party or its agents upon request, and will mark or stamp its records to show Secured Party's security interest upon request. Secured Party or its agents are expressly authorized to verify the accuracy of such books and records by any method Secured Party or its agents deem reasonable, including, but not limited to, direct contact with any and all account debtors (if the Collateral consists of accounts). All of the foregoing may be accomplished as often as Secured Party deems appropriate. F. Location of Collateral. Debtor shall keep all its Collateral at the locations set forth in III P hereof and its books and records pertaining to the Collateral and maintain its chief executive office and chief place of business at the address set forth at the beginning of this Agreement, and shall not store any Collateral in any other places nor move its books and records nor change the location of its chief executive office and chief place of business without giving Secured Party at least thirty (30) days prior written notice, provided that as to any inventory subject to this Agreement held for lease which is mobile or of the type normally used by the lessee at more than one location, it will be stored at such address when not on lease and provided that as to any mobile equipment or equipment of a type normally used in more than one (1) location which is subject to this Agreement, Debtor will store it at such location when not in use. G. Not to Dispose of Collateral. Debtor shall not, except for the sale or lease of inventory (subject to this Agreement) to a buyer or lessee in the ordinary course of Debtor's business, create or permit to exist any other lien on, or sell, assign or transfer, any part or all of the Collateral. H. Insurance. Debtor shall keep all Collateral insured at all times to the full insurable value thereof, by policies of insurance with loss payable clauses in favor of Secured Party and Debtor as their interests may appear, providing for at least thirty (30) days' prior written notice to Secured Party of any cancellation, with such companies, insuring against such losses, casualties and injuries, and in such form as Secured Party may require. Such policies or, at Secured Party's option, certificates thereof, shall be delivered to Secured Party. Secured Party may, but shall not be obligated to, pay the cost of such insurance, or insurance insuring Secured Party's interest alone, upon Debtor's failure to furnish such insurance. Secured Party may, at its option, apply all or any part of any proceeds of such insurance to the Obligations or may make the same or any part thereof available to Debtor. I. Commercial Paper; Documents. Debtor shall, if any of the Collateral shall be evidence by promissory notes, trade acceptances, or other instruments for the payment of money, immediately deliver the same to Secured Party appropriately endorsed to Secured Party's order, and regardless of the form of such endorsement, Debtor waives demand, presentment, notice of dishonor and all other notices with respect thereto. J. Name, Address or Ownership Changes. Debtor shall notify Secured Party at least thirty (30) days before Debtor (i) changes its name, trade name or name under which it does business, (ii) makes use of any new or additional names, (iii) opens any new or additional places of business or closes any place of business, or (iv) adds any additional partners (if a partnership). K. Condition of Collateral. Debtor shall keep all Collateral in first class order and repair, excepting any loss, damage or destruction which is fully covered by proceeds of insurance, not use or permit to be used any inventory or equipment subject to this Agreement in violation of any statute, regulation, rule, ordinance or insurance policy, and pay promptly when due all taxes and assessments thereon or upon use and operation thereof. L. Endorsement; Application of Proceeds. Secured Party is expressly authorized to endorse, in the name of Debtor, any item that may come into Secured Party's possession in any manner, representing any payment on, or other proceeds of, the Collateral, and to apply the proceeds of the Collateral to Debtor's Obligations in any manner Secured Party determines. Debtor hereby waives demand, presentment, notice of dishonor and all other notices with respect thereto, and this authorization shall be deemed a power coupled with an interest, and irrevocable until all Obligations are paid in full. M. Actions by Secured Party. Secured Party may from time to time, at its option (but shall not be required to), perform any agreement of the Debtor hereunder which the Debtor shall fail to perform and take any other action which Secured Party deems necessary or advisable for the maintenance or preservation of any of the Collateral or the interest of Secured Party therein (including, but not limited to, the discharge of taxes or liens of any kind against the Collateral or the procurement of insurance), and Debtor agrees forthwith to reimburse Secured Party, on demand, for all expenses of Secured Party in connection with the foregoing, together with interest thereon at the highest lawful rate, or if there is no maximum lawful rate, at the highest rate in effect with respect to any of Debtor's Obligations at the time the Secured Party advances any money, from the date of each advance until reimbursed by Debtor. Any amounts advanced shall be added to, and become a part of, the Obligations. Secured Party may, for the foregoing purpose, act in its own name or that of Debtor, and may also act for the purpose of adjusting, selling, compromising or collecting any account, or any insurance policies on the Collateral or cancelling any insurance policy on the Collateral, or endorsing any check or draft received in connection therewith, in payment of a loss, for all which purposes Debtor hereby grants to Secured Party and to any officer or agent of Secured Party its power of attorney, coupled with an interest, and irrevocable so long as any of the Obligations shall be outstanding, and hereby ratifies and confirms any and all such actions that Secured Party or any of its officers or agents may take pursuant to the power granted in this Agreement, and waives any claim against Secured Party and all such officers or agents by reason of any of the foregoing actions or by reason of any actions taken pursuant to Section VI hereof, except for any action taken in actual bad faith. N. Fixtures. Debtor shall not, except with the express prior written consent of Secured Party, permit any of the Collateral consisting of equipment to become so affixed to real estate or personal property as to become a part thereof. O. Collateral Updates. Debtor shall promptly notify Secured Party in writing of (i) any loss of, damage to, or depreciation in the value of any or all of the Collateral, and (ii) any occurrence or condition that Debtor knows or has reason to know does or may impair the value of any or all of the Collateral. V. EVENTS OF DEFAULT: Debtor shall be in default under this Agreement upon the occurrence of any one or more of the following events, sometimes hereinafter referred to as "Events of Default": A. Nonpayment or Nonperformance. Default in the payment or performance of any of Debtor's Obligations (including any installment payment), or default in any obligation, covenant or liability contained or referred to herein, or default in any note or other writing evidencing or securing the same, or default of any endorser, guarantor or surety for any liability or obligation of Debtor to Secured Party, any such default to be determined after applicable cure periods, if any. B. Misrepresentation. If any warranty, representation or statement made or furnished to Secured Party by or on behalf of Debtor or any endorser, guarantor or surety for Debtor, proves to have been false or untrue or misleading in any material respect when made or furnished. C. Default in Payment or Performance of Other Debts. The occurrence of any event which results in the acceleration of the maturity of any indebtedness of Debtor or any endorser, guarantor or surety for Debtor to others under any indenture, note, mortgage, agreement or undertaking. D. Impairment of Collateral. Uninsured loss, theft, damage, or destruction, or sale (except as herein expressly permitted) or encumbrance, to or of, any of the Collateral or the making of any levy, seizure or attachment thereof or thereon or the failure by Debtor to properly care for or protect any of the Collateral. E. Material Adverse Change. The occurrence of any event or condition which, in Secured Party's discretion, constitutes a material adverse change in the business or financial condition of Debtor or any endorser, guarantor or surety for Debtor or which materially and adversely affects the ability of any of the foregoing to perform their respective obligations to Secured Party. F. Termination of Guaranty. If any guarantor for Debtor attempts to terminate such guarantor's guaranty prior to its stated termination date or gives notice that such guarantor's guaranty is terminated with respect to all events that occur after the date of termination. G. Disability or Death. If any guarantor or Debtor, if an individual, dies or becomes physically or mentally disabled to such an extent that such guarantor or Debtor is unable to make managerial decisions for a period which exceeds thirty (30) calendar days. H. Insecurity. The written notification to Debtor by Secured Party stating that Secured Party, in its discretion, deems itself to be insecure with respect to the repayment of the Obligations or with respect to any of the Collateral, and specifying the reasonable basis therefor. I. Impairment of Debtor or Guarantor. If Debtor or any endorser, guarantor or surety of Debtor shall: (i) discontinue business, or (ii) make a general assignment for the benefit of its or their respective creditors, or (iii) apply for or consent to the appointment of a custodian, receiver, trustee or liquidator of all or a substantial part of their respective assets, or (iv) be adjudicated a bankrupt or insolvent or have an order for relief entered with respect to any of them, or (v) file a voluntary petition in bankruptcy or file a petition or an answer seeking a composition, reorganization or an arrangement with creditors or seeking to take advantage of any other law (whether federal or state) relating to relief for debtors, or admit (by answer, default or otherwise) the material allegations of any petition filed against any of them in any bankruptcy, reorganization, composition, insolvency or other proceeding (whether federal or state) relating to relief for debtors, or (vi) suffer or permit to continue unstayed and in effect for thirty (30) consecutive days any judgment, decree or order entered by a court or governmental agency of competent jurisdiction, which assumes control of any of them or approves a petition seeking a reorganization, composition or arrangement of any of them or any other judicial modification of the rights of any of their respective creditors, or appoints a custodian, receiver, trustee or liquidator for any of them or for all or a substantial part of any of their respective business or assets, or (vii) not be paying their respective debts as they become due, or (viii) be enjoined or restrained from conducting all or a material part of any of their businesses as now conducted and the same is not dismissed and dissolved within thirty (30) days after the entry thereof. J. Litigation. Any litigation or administrative proceeding ensues, and is not dismissed within thirty (30) days, involving Debtor or a guarantor for Debtor, and the adverse result of such litigation or proceeding would have, in Secured Party's reasonable opinion, a materially adverse effect on Debtor or a guarantor, endorser or surety, for Debtor. VI. RIGHTS AND REMEDIES OF SECURED PARTY: Secured Party shall have the following rights and remedies: A. Collect Receivables. Secured Party shall have the right to notify account and contract debtors obligated on any part or all of the Collateral to make payment thereof directly to Secured Party, and Secured Party may take control of all proceeds of any of the Collateral, which rights Secured Party may exercise at any time whether or not Debtor is then in default. Until such time as Secured Party elects to exercise such rights, Debtor is authorized to collect and enforce all such contracts and accounts in accordance herewith. The cost of collection and enforcement, including attorneys' fees and expenses, if and to the extent not prohibited by applicable law, shall be borne by Debtor whether the same are incurred by Secured Party or Debtor. B. Acceleration. Upon the occurrence of any Event of Default, Secured Party may, without notice or demand, declare all of Debtor's Obligations to be immediately due and payable, irrespective of the terms of any note or other writing evidencing the same and whether any such note or writing contains any provision for acceleration of the maturity thereof. C. Possession. Upon the occurrence of any Event of Default, Secured Party shall be entitled to the immediate possession of the Collateral, and may require Debtor to assemble the Collateral and records relating thereto and make items thereof available to Secured Party or its agents at a place to be designated by Secured Party or its agents which is reasonably convenient to both parties, and Secured Party or its agents shall have the right, and Debtor does hereby authorize and empower Secured Party or its agents to enter upon the premises wherever the Collateral may be, in order to remove the same, and Secured Party or its agents may proceed to dispose of the Collateral in whole or in part, in any commercially reasonable manner, including but not limited to, public or private sale, lease or both, for cash or credit or partly for each, after first giving notice to Debtor in the manner hereinafter provided, and apply the proceeds thereof first to costs and expenses of retaking, holding, and preparing for sale or lease or other disposition and of such sale or lease or other disposition and the like (including, but not limited to, reasonable attorneys' fees and expenses), then to the Obligations in such order as Secured Party may determine, until discharged in full and the balance of such persons, including Debtor, as may be lawfully entitled thereto. D. Expenses. To the extent not prohibited by applicable law, Debtor shall pay Secured Party on demand any and all expenses, including, but not limited to, legal expenses and reasonable attorneys' fees incurred or paid by Secured Party in protecting the Collateral or enforcing the Obligations and other rights of Secured Party hereunder, including its right to take possession of the Collateral, whether with respect to any bankruptcy type proceeding or otherwise, and all such expenses shall become a part of the Obligations and bear interest as aforesaid whether or not litigation be commenced. E. Secured Party as Attorney-in-Fact. Insofar as the Collateral shall consist of accounts, instruments, chattel paper, documents of title, general intangibles, things in action or the like, Secured Party may (and is hereby for the following purposes irrevocably constituted the attorney-in-fact of Debtor under a power coupled with an interest until all Obligations are discharged) either in its own name or in the name of Debtor, and without prior notice to Debtor, demand possession or payment of, endorse, collect, issue or accept, receipt for, settle, compromise, adjust, sue for possession or payment of, foreclose or realize upon any of the Collateral, all as Secured Party may determine, whether or not the Obligations are then due, and for the further purpose of realizing Secured Party's rights therein and in furtherance of these powers, Secured Party may receive, open and dispose of mail addressed to Debtor and endorse instruments, notes, checks, drafts, money orders, documents of title or other evidences of payment, shipment or storage of any form of Collateral on behalf of and in the name of Debtor, Debtor hereby ratifying and confirming any and all such actions as Secured Party may take pursuant hereto and waiving any claim against Secured Party or any of its officers or agents by reason of any of the foregoing actions except for any action taken in actual bad faith. F. Disposition. Upon the occurrence of any Event of Default, Secured Party may proceed to dispose of the collateral, in whole or in part, in one or more lots, in any commercially reasonable manner, including but not limited to sale (which may be public or private, or public as to some Collateral and private as to other Collateral), lease or both, for cash or credit or partly for each, after first giving notice to Debtor in the manner hereinafter provided, and Secured Party may apply the proceeds of any such disposition first to costs and expenses of retaking, holding and preparing for sale or lease or other disposition, second to costs and expenses of the sale or lease or other disposition (including but not limited to reasonable attorneys' fees and expenses, if and to the extent not prohibited by applicable law), and third to the Obligations in such order as Secured Party may determine, until discharged in full. Any balance of such proceeds remaining after discharge of the Obligations in full shall be distributed to such persons, including Debtor, as may be lawfully entitled thereto. G. Notice of Disposition. If Secured Party disposes of any part or all of the Collateral, unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, Secured Party will give Debtor reasonable notice of the time and place of any public sale thereof, or the time after which any private sale or other intended disposition thereof is to be made. The requirement of reasonable notice shall be met if such notice is mailed, postage-prepaid, to the address of Debtor specified in or as provided in Section VIIH. hereof at least ten (10) days before the day of the public sale, or ten (10) days before the date after which the private sale or other intended disposition may take place. H. Transfer of Title. Secured Party may at any time, in its sole discretion, transfer any securities constituting Collateral into its own name or that of its nominee and receive the income therefrom and hold the same as security for Debtor's Obligations or apply such income to principal and interest due on such Obligations. I. Additional Rights and Remedies. In addition, Secured Party shall have all of the rights and remedies of a secured party under the Uniform Commercial Code as though fully set out herein. VII. GENERAL PROVISIONS: A. Assignment. This Agreement, including but not limited to any rights granted or duties imposed herein, may not be assigned, delegated, sublicensed, conveyed, transferred, or encumbered by Debtor without the prior written consent of Secured Party. Secured Party may assign this Assignment and its security interest and rights hereunder, in whole or in part, to any transferee of the whole or any part of the Obligations. B. Captions. The captions and headings appearing in this Agreement have been inserted solely for the purpose of ready reference. They shall not be deemed to define, limit, expand or otherwise affect the scope or intent of this Agreement or any provision hereof. C. Compliance With Laws. Debtor shall comply with all statutes, rules, and regulations applicable to the performance of its obligations under this Agreement. D. Cumulative Rights. Each and every right granted to Secured Party hereunder or under any document or arrangement incident or related thereto, or otherwise available to Secured Party at law or in equity, is and shall be deemed cumulative, not alternative, and may be exercised in Secured Party's sole discretion from time to time. No failure on the part of Secured Party to exercise, and no delay in exercising any rights hereunder shall operate as a waiver thereof, nor shall any single or partial exercise or commencement to exercise by Secured Party of any right hereunder preclude any other or further exercise thereof, or the exercise of any other right. E. Definitions. Words used in this Agreement which are defined in the Uniform Commercial Code shall have the meanings given to such words in such Code for purposes of this Agreement, unless the context clearly indicates otherwise. Unless the context indicates otherwise, words importing the singular number shall include the plural number and vice versa. The word "person" shall include but not be limited to natural persons, associations, partnerships, and corporations. If more than one person signs this Agreement as Debtor, then references herein to "Debtor" shall refer to each of them individually and all of them collectively, as the context may require, and their obligations hereunder shall be joint and several. The word "or" shall not be exclusive. Words of a given gender and number shall include correlative words of other genders and numbers as the context requires. F. Incidental Acts. Each party to this Agreement agrees to perform any other or further acts, and execute and deliver any other or further documents, as may be necessary or appropriate to implement this Agreement. G. Modification. This Agreement shall not be modified in any manner, in whole or in part, except by a written instrument signed by each party to be bound thereby. H. Notices. All notices, demands or other communications ("Communications") required or permitted hereunder shall be in writing (including telecopy, telegraphing, telex or cable communications) and mailed, telecopied, telegraphed, telexed, cabled or delivered, if to Secured Party or if to Debtor at their respective addresses set forth above. All Communications must be in writing and must be mailed, telegraphed, telecopied, delivered by reputable overnight courier service, delivered in person or sent by telex or cable to the appropriate party at the address set forth herein or to such other address as may be designated by it in a written notice to all other parties. Any Communication given by telegram, telecopy, telex or cable must be confirmed within 48 hours by letter. Any Communication given by mail will be effective on the earlier of receipt or the third calendar day after deposit in the United States mail, certified or registered, postage prepaid. Any communication given by telegraph or cable shall be effective when delivered to the telegraph company with charges prepaid. Any Communication given by telex, telecopy, overnight courier service or personal delivery shall be effective when received. I. No Duty to Protect Collateral. Secured Party shall have no duty or obligation to collect or protect all or any part of the Collateral or any proceeds or products thereof, nor to preserve any rights against any person or entity, except to provide reasonable physical protection for such Collateral as may be in Secured Party's possession from time to time. J. Original; Counterparts. This Agreement may be executed in any number of originals or counterparts, each of which shall be deemed an original, but all of which together shall constitute only one instrument. K. Severability. Any provision of this Agreement which is unenforceable in any jurisdiction is hereby waived, but only for that jurisdiction in which the provision is unenforceable and only to the extent unenforceable, and without affecting any other provision of this Agreement. L. Successors. This Agreement shall bind and inure to the benefit of each party and its successors, assigns, agents and representatives. M. Time Periods. Whenever any part is obligated to act within a specified time period, such period shall begin, if triggered by an event, on the day next following the day on which the event occurred, and if triggered by a planned future event, on the last day within the specified time period preceding the planned future event. In any case, said time period will expire at 2:00 p.m., Secured Party's local time, on the final day of said period. N. Waivers Limited. Any waiver by any party of any provision of this Agreement shall not be construed or deemed to be a waiver of any other provision of this Agreement, nor a waiver of any subsequent breach of the same or any other provision of this Agreement, unless such waiver is in writing and signed by the party to be bound by it. O. Additional Collateral. In addition to all other rights and remedies of Secured Party hereunder, Secured Party may require and Debtor agrees to provide additional collateral or security for Debtor's Obligations at any time Secured Party deems itself insecure; and if such a requirement is imposed, now or in the future, Secured Party shall have any rights and remedies contained in any mortgage, security agreement or other documents executed by Debtor in connection therewith. P. Account Methods. The Debtor shall compute the net income of the Debtor under the method of accounting on the basis of which the Debtor regularly computes the net income of the Debtor in keeping the Debtor's books and records. The Debtor shall not change the method of accounting on the basis of which the Debtor regularly computes the net income of the Debtor in keeping the Debtor's books and records without giving Secured Party prior written notice of such change. A change in the method of accounting of the Debtor includes a change in the overall plan of accounting for income or expenses or a change in the treatment or any material item used in such overall plan. A "material item" is any item which involves the proper time for the inclusion of the item in income or the taking of an expense. Changes in the method of accounting of the Debtor include, but are not limited to (i) a change from the cash receipts and disbursements method to an accrual method; (ii) a change from an accrual method to the cash receipts and disbursements method; (iii) a change involving the method or basis used in the valuation of inventories; (iv) a change from the cash or accrual method to a long-term contract method; (v) a change from a long- term contract method to the cash or accrual method; (vi) a change involving the adoption, use, or discontinuance of any other specialized method of computing net income; or (vii) a change in the treatment of any other material item of income or expense. Q. Effective Date. This Agreement shall be effective when signed by the Debtor. R. Deposits. As additional security for all of the Obligations, Debtor grants to Secured Party a security interest in and assigns to Secured Party all of Debtor's right, title and interest in and to any deposits or other sums at any time credited by or due from Secured Party to Debtor and in and to all property of Debtor in the possession or custody of Lender for any purpose (including property left in safekeeping or custody). S. Choice of Law. This Agreement shall be governed in all respects, including but not limited to interpretation and performance, by the laws of the State of Kansas. All references to the Uniform Commercial Code shall be to such Code as enacted in the such State. T. Jurisdiction. TO INDUCE SECURED PARTY TO ACCEPT THIS AGREEMENT AND ALL OTHER AGREEMENTS RELATED HERETO, THE DEBTOR HEREBY IRREVOCABLY AGREES THAT, SUBJECT TO SECURED PARTY'S SOLE AND ABSOLUTE ELECTION, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT ARISING OUT OF OR FROM OR RELATED TO THIS AGREEMENT OR ANY AGREEMENT RELATED HERETO OR ANY COLLATERAL HELD BY SECURED PARTY IN CONNECTION HEREWITH OR THEREWITH SHALL BE LITIGATED ONLY IN COURTS HAVING SITUS WITHIN THE CITY OF OLATHE, STATE OF KANSAS OR IN THE CITY OF KANSAS CITY, STATE OF KANSAS. THE DEBTOR HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURT LOCATED WITHIN EITHER OF SAID CITIES IN THE STATE OF KANSAS. THE DEBTOR HEREBY WAIVES ANY RIGHT IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT IN ACCORDANCE WITH THIS SECTION. SECURED PARTY AND DEBTOR IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY ACTION IN WHICH SECURED PARTY AND DEBTOR ARE PARTIES. NOTICE. THIS AGREEMENT IS THE FINAL EXPRESSION OF THE CREDIT AGREEMENT BETWEEN DEBTOR AND SECURED PARTY, AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR OR CONTEMPORANEOUS ORAL CREDIT AGREEMENT BETWEEN DEBTOR AND SECURED PARTY. IF THERE ARE ANY ADDITIONAL TERMS, THEY ARE REDUCED TO WRITING AS FOLLOWS: N/A I/WE AFFIRM THAT NO UNWRITTEN ORAL AGREEMENT EXISTS BETWEEN DEBTOR AND SECURED PARTY. DEBTOR: SECURED PARTY: AmeriConnect, Inc. MERCANTILE BANK OF KANSAS By: /s/ Robert R. Kaemmer By: /s/ James A. Thomas, Sr. V.P. Robert R. Kaemmer, President IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and year specified at the beginning hereof. DEBTOR: ATTEST: CORPORATION (Corporate Seal) _______________________ Secretary AmeriConnect, Inc. (Print Name of Corporation) BY:______________________________ BY: /s/ Robert R. Kaemmer (Signature) (Signature) PRINT NAME:______________________ PRINT NAME: Robert R. Kaemmer TITLE:___________________________ TITLE: President ADDRESS:_________________________ ADDRESS: 6750 W. 93rd Street, _________________________________ Ste. 110 Overland Park, KS 66212 TELEX:___________________________ TELEX:_____________________________ PARTNERSHIP SOLE PROPRIETORSHIP/INDIVIDUAL _________________________________ BY:________________________________ (Print Name of Partnership) (Signature) BY:______________________________ PRINT NAME:________________________ (Signature) ADDRESS:___________________________ PRINT NAME:______________________ ___________________________________ TITLE: General Partner TELEX:_____________________________ ADDRESS:_________________________ _________________________________ TELEX:___________________________ ACCEPTANCE: Accepted this 8th day of June, 1995, at Secured Party's principal place of business in the City of Roeland Park, State of Kansas. SECURED PARTY: MERCANTILE BANK OF KANSAS BY: /s/ James A. Thomas, Sr. V.P. TITLE: James A. Thomas, Sr. Vice President ADDRESS: 4700 W. 50th Place Roeland Park, Kansas 66205 TELEX:______________________________________ EX-10.35 9 PROMISSORY NOTE - 4/3/95 - HALFORD EXHIBIT 10.35 NOTE $3,000 Overland Park, Kansas April 3, 1995 FOR VALUE RECEIVED, the undersigned, Richard K. Halford (the "Borrower"), hereby unconditionally promises to pay to the order of AmeriConnect, Inc., or its registered assigns (the "Holder"), at 6750 West 93rd Street, Suite 110, Overland Park, Kansas, 66212, in lawful money of the United States of America and in immediately available funds, the principal amount of THREE THOUSAND DOLLARS ($3,000), together with interest on the principal amount hereof from the date hereof, compounded annually, at the prime rate published from time to time by Citibank, N.A. plus 2% per annum, payable in full on December 31, 1995. Provided, however, that in no event shall the rate of interest exceed the maximum rate of nonusurious interest allowed from time to time by law, as is now or, to the extent allowable by law, as hereinafter may be in effect, to be paid by the Borrower (and to the extent permitted by law, interest on any overdue principal or interest thereon). The Borrower may prepay all or any portion of this Note at any time and from time to time without premium or penalty of any kind. If any one of the following events (each, an "Event of Default") shall occur and be continuing for any reason whatsoever (and whether such occurrence shall be voluntary or involuntary or come about or be effected by operation of law or otherwise): (i) there should be a default in the payment of principal or interest due hereunder; or (ii) the Borrower fails to perform or observe any term, covenant or agreement contained in the Pledge Agreement, as amended and in effect as of the date hereof, between the Borrower and the Holder (the "Pledge Agreement"), or after the execution and delivery of the Pledge Agreement and prior to its termination in accordance with its terms, the Pledge Agreement ceases, for any reason, to be in full force and effect or the Borrower so asserts or the liens created by the Pledge Agreement cease to be enforceable or to the same effect and priority purported to be created thereby; or (iii) the Borrower or any other person liable hereon should make an assignment for the benefit of creditors; or (iv) attachment or garnishment proceedings are commenced against the Borrower or any other person liable hereon; or (v) a receiver, trustee or liquidator is appointed over or execution levied upon any property of the Borrower; or (vi) proceedings are instituted by or against the Borrower or any other person liable hereon under any bankruptcy, insolvency, reorganization, receivership or other law relating to the relief of debtors from time to time in effect, including without limitation the United States Bankruptcy Code, as amended; then (a) if such Event of Default is an event specified in clauses (v) or (vi) above, this Note shall automatically become immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower, and (b) if such Event of Default is not an event specified in clauses (v) or (vi) above, the registered holder may at its option, by notice in writing to the Borrower, declare this Note to be, and the Note shall thereupon be and become, immediately due and payable at par together with interest accrued thereon, without presentment, demand, protest or notice of any kind, all of which are hereby waived by the Borrower. All payments made hereunder shall be made in lawful currency of the United States of America by certified or bank cashier's check payable to AmeriConnect, Inc., 6750 West 93rd Street, Suite 110, Overland Park, Kansas, 66212, or at such other place as the registered holder may designate in writing. All payments made hereunder, whether a scheduled installment, prepayment, or payment as a result of acceleration, shall be allocated first to costs and expenses of the registered holder resulting from collection efforts with respect to this Note, second to accrued but unpaid interest, and third to installments of principal remaining outstanding hereunder, first to principal amounts overdue then to principal amounts currently due and then to installments of principal due in the future in the inverse order of their maturity. The Borrower agrees to pay all reasonable costs of collection, including attorneys' fees, paid or incurred by the registered holder in enforcing this Note on default or the rights and remedies herein provided. This Note is secured as provided in the Pledge Agreement. The Borrower, for itself and for any guarantors, sureties, endorsers and/or any other person or persons now or hereafter liable hereon, if any, hereby waives demand of payment, presentment for payment, protest, notice of nonpayment or dishonor and any and all other notices and demands whatsoever, and any and all delays or lack of diligence in the collection hereof, and expressly consents and agrees to any and all extensions or postponements of the time of payment hereof from time to time at or after maturity and any other indulgence and waives all notice thereof. No delay or failure by the registered holder in exercising any right, power, privilege or remedy hereunder shall affect such right, power, privilege or remedy or be deemed to be a waiver of the same or any part thereof; nor shall any single or partial exercise thereof or any failure to exercise the same in any instance preclude any further or future exercise thereof, or exercise of any other right, power, privilege or remedy, and the rights and privileges provided for hereunder are cumulative and not exclusive. The delay or failure to exercise any right hereunder shall not waive such right. The registered holder may sell, assign, pledge or otherwise transfer all or any portion of his interest in this Note at any time or from time to time without prior notice to or consent of and without releasing any party liable or becoming liable hereon. By executing this Note the Borrower represents to the registered holder that he is duly authorized and empowered to execute and deliver this Note and that this Note constitutes the legal and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF KANSAS. IN WITNESS WHEREOF, the undersigned has duly caused this Note to be executed and delivered at the place specified above and as of the date first written above. BORROWER /s/ Richard K. Halford Richard K. Halford EX-10.36 10 AMENDMENT NO. 1 TO PLEDGE AGREEMENT - HALFORD EXHIBIT 10.36 AMENDMENT NO. 1 TO PLEDGE AGREEMENT (the "Amendment"), dated as of April 3, 1995, by and between AMERICONNECT, INC., a Delaware corporation ("Secured Party"), and RICHARD K. HALFORD ("Pledgor"). W I T N E S S E T H: WHEREAS, Secured Party and Pledgor are parties to that certain Pledge Agreement, dated as of November 23, 1994 (the "Original Agreement"); and WHEREAS, on April 3, 1995, Secured Party loaned to Pledgor $3,000, which borrowing is evidenced by a note dated April 3, 1995 (the "Third Note"); and WHEREAS, Secured Party requires Pledgor to extend Secured Party's existing security interest in the Collateral so as to secure Pledgor's obligations under the Third Note in addition to the First Note and the Second Note; and WHEREAS, capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Original Agreement; and WHEREAS, Secured Party and Pledgor desire to amend certain terms of the Original Agreement; NOW, THEREFORE, in consideration of the mutual terms, conditions and other agreements set forth herein, the parties hereto agree to the following amendments to the Original Agreement as follows: ARTICLE I AMENDMENTS SECTION 1.1 The definition of the term "Notes" in the second recital of the Original Agreement is hereby amended to include the Third Note in addition to the First Note and the Second Note. SECTION 1.2. Except as amended by this Amendment, the Original Agreement shall remain in full force and effect. SECTION 1.3. On and as of the date hereof, and after giving effect to this Amendment, Pledgor represents that no default has occurred and is continuing under the Original Agreement. SECTION 1.4. This Amendment shall become effective upon the execution hereof by Secured Party and Pledgor. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed as of the day and year first above written. AMERICONNECT, INC. By: /s/ Robert R. Kaemmer Name: Robert R. Kaemmer Title: Chief Executive Officer "Secured Party" /s/ Richard K. Halford Richard K. Halford "Pledgor" EX-10.37 11 EXTENSION OF 6/15/94 PROMISSORY NOTE - HALFORD EXHIBIT 10.37 EXTENSION OF PROMISSORY NOTE EXTENSION OF PROMISSORY NOTE (the "Extension"), dated as of December 29, 1995, by and between AMERICONNECT, INC., a Delaware corporation (the "Holder"), and RICHARD K. HALFORD (the "Borrower"), both being parties to that certain Note dated June 15, 1994 (the "Note"). W I T N E S S E T H: WHEREAS, pursuant to the terms and conditions of the Note, Borrower has previously delivered to Holder a Note, dated June 15, 1994, in the original principal sum of $10,000; and WHEREAS, Holder and Borrower desire to extend the date on which the Note is payable in full to May 15, 1996. NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the parties hereto do hereby agree as follows: 1. The Note shall be extended to be payable in full on May 15, 1996. 2. Borrower agrees to print the following legend on the Note: "This Note is subject to any and all terms, conditions and modifications as provided in the Extension of Promissory Note dated as of December 29, 1995." 3. Except as amended by this Extension, the Note shall remain in full force and effect. 4. This Extension shall become effective upon the execution hereof by Holder and Borrower. IN WITNESS WHEREOF, the parties hereto have caused this Extension to be duly executed as of the day and year first above written. /s/ Richard K. Halford Richard K. Halford "BORROWER" AMERICONNECT, INC. By: /s/ Robert R. Kaemmer Name: Robert R. Kaemmer Title: President "HOLDER" EX-10.38 12 EXTENSION OF 8/1/94 PROMISSORY NOTE - HALFORD EXHIBIT 10.38 EXTENSION OF PROMISSORY NOTE EXTENSION OF PROMISSORY NOTE (the "Extension"), dated as of December 29, 1995, by and between AMERICONNECT, INC., a Delaware corporation (the "Holder"), and RICHARD K. HALFORD (the "Borrower"), both being parties to that certain Note dated August 1, 1994 (the "Note"). W I T N E S S E T H: WHEREAS, pursuant to the terms and conditions of the Note, Borrower has previously delivered to Holder a Note, dated August 1, 1994, in the original principal sum of $1,500; and WHEREAS, Holder and Borrower desire to extend the date on which the Note is payable in full to May 15, 1996. NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the parties hereto do hereby agree as follows: 1. The Note shall be extended to be payable in full on May 15, 1996. 2. Borrower agrees to print the following legend on the Note: "This Note is subject to any and all terms, conditions and modifications as provided in the Extension of Promissory Note dated as of December 29, 1995." 3. Except as amended by this Extension, the Note shall remain in full force and effect. 4. This Extension shall become effective upon the execution hereof by Holder and Borrower. IN WITNESS WHEREOF, the parties hereto have caused this Extension to be duly executed as of the day and year first above written. /s/ Richard K. Halford Richard K. Halford "BORROWER" AMERICONNECT, INC. By: /s/ Robert R. Kaemmer Name: Robert R. Kaemmer Title: President "HOLDER" EX-10.39 13 EXTENSION OF 4/3/95 PROMISSORY NOTE - HALFORD EXHIBIT 10.39 EXTENSION OF PROMISSORY NOTE EXTENSION OF PROMISSORY NOTE (the "Extension"), dated as of December 29, 1995, by and between AMERICONNECT, INC., a Delaware corporation (the "Holder"), and RICHARD K. HALFORD (the "Borrower"), both being parties to that certain Note dated April 3, 1995 (the "Note"). W I T N E S S E T H: WHEREAS, pursuant to the terms and conditions of the Note, Borrower has previously delivered to Holder a Note, dated April 3, 1995, in the original principal sum of $3,000; and WHEREAS, Holder and Borrower desire to extend the date on which the Note is payable in full to May 15, 1996. NOW, THEREFORE, for and in consideration of the foregoing and other good and valuable consideration, the parties hereto do hereby agree as follows: 1. The Note shall be extended to be payable in full on May 15, 1996. 2. Borrower agrees to print the following legend on the Note: "This Note is subject to any and all terms, conditions and modifications as provided in the Extension of Promissory Note dated as of December 29, 1995." 3. Except as amended by this Extension, the Note shall remain in full force and effect. 4. This Extension shall become effective upon the execution hereof by Holder and Borrower. IN WITNESS WHEREOF, the parties hereto have caused this Extension to be duly executed as of the day and year first above written. /s/ Richard K. Halford Richard K. Halford "BORROWER" AMERICONNECT, INC. By: /s/ Robert R. Kaemmer Name: Robert R. Kaemmer Title: President "HOLDER" EX-10.40 14 LETTER TO MERCANTILE - HALFORD LOANS PAID IN FULL EXHIBIT 10.40 January 24, 1996 Mercantile Bank of Kansas 9900 W. 87th Street Overland Park, KS 66212 Dear Sirs: This will confirm that per our stock registration records, Mr. Richard K. Halford is the rightful owner of Certificate No. 0300 for 19,000 shares of Amerifax, Inc. (nka AmeriConnect, Inc.) common stock, and that the certificate delivered to you herein is the original certificate described hereof. This delivery is being granted against payment of $14,527.16 in satisfaction of all principal and interest due AmeriConnect, Inc. by Richard K. Halford from those certain promissory notes dated June 15, 1994, August 1, 1994 and April 3, 1995. Sincerely, AmeriConnect, Inc. By: /s/ Janet M. Flynn Secretary Attest: /s/ Mark D. Zach EX-10.41 15 AMENDMENT NO. 2 TO OFFICE BLDG LEASE - OP EXHIBIT 10.41 SECOND AMENDMENT THIS DOCUMENT will serve as a Second Amendment to both the primary Standard Office Lease executed on August 20, 1993 for 2,547 square feet and expanded with 2,153 square feet for a total of 4,700 square feet on December 21, 1993 at 6750 West 93rd Street, Suite 110, Overland Park, Kansas. The Lease is amended by the Tenant expanding into an additional 2,100 square feet in the most northeasterly pod of the first floor of the subject property (as indicated on the attached floor plan). The demised premises will now total 6,800 square feet. The payment of rent on this expanded 2,100 square feet of the demised premises will commence January 1, 1995 and expire December 31, 1999. The terms of rent will be $13.50 per square foot for this additional 2,100 square feet. The monthly payment of $2,360.50. One months rent and another months rent of security deposit totalling $4,725.00 will be required upon execution of this Second Amendment. All other terms and conditions of the primary Lease and first Amendment shall apply to this Second Amendment and remain in full force and effect except the following: 1. The lease expiration of the primary Lease and the first Amendment will be modified to expire concurrently with this Second Amendment on December 31, 1999. 2. Comparable tenant finish will be provided on this expansion space as was provided in the previous 4,700 square feet of demised premises. The expansion space will be built out per the attached floor plan at sole cost to the Landlord. Landlord and Tenant shall agree on tenant finish materials used prior to Tenant's occupancy of January 1, 1995. 3. This Amendment will modify the base year operating expenses for the primary Lease and the First Amendment to a 1994 base year for all leases. Signatures and dates executed on the lines provided below represent agreement by both parties. LANDLORD: TENANT: MO-CON HUNT, INC. AMERIFAX, INC. /s/ Donna Lee /s/ Robert R. Kaemmer Donna Lee Robert R. Kaemmer 11/25/94 11/23/94 Date Date EX-23 16 CONSENT OF GRANT THORNTON LLP Consent of Independent Auditors We have issued our report dated February 16, 1996, accompanying the consolidated financial statements included in the Annual Report of AmeriConnect, Inc. and subsidiary on Form 10-KSB for the year ended December 31, 1995. We hereby consent to the incorporation by reference of said report in the Registration Statement of AmeriConnect, Inc. and subsidiary on Form S-8 (File No. 33-80058, effective June 10, 1994). GRANT THORNTON LLP /s/ Grant Thornton LLP Kansas City, Missouri April 15, 1996 EX-27 17 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF AMERICONNECT, INC. CONTAINED IN ITS ANNUAL REPORT ON FORM 10-KSB FOR THE YEARLY PERIOD ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1995 DEC-31-1995 293,492 0 2,345,132 361,260 0 2,497,657 374,070 230,868 2,660,387 2,889,164 0 0 0 65,116 (302,157) 2,660,387 17,099,635 17,099,635 13,399,190 18,323,131 6,767 0 8,145 (1,218,510) 500,000 (1,718,510) 0 0 0 (1,718,510) (0.228) (0.228)
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