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Technology Stocks : Qwest Communications (Q) (formerly QWST)

Q 97.25

+4.4%

Jan 16 9:30 AM EST

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To: Roger Hess who wrote (3275)	4/2/1999 10:53:00 AM
From: MangoBoy	Read Replies (2) of 6846

Last year QWST acquired a small company called Phoenix Network (PHX) for $27.2M, exchanging one share of QWST for every 46 shares of PHX which valued PHX at around $0.76/share. The deal also called for an additional $4M cash (or $0.11/share) to be distributed pending the resolution of litigation in which PHX might be held partially liable. If you were a PHX shareholder at the time of closing, your PHX shares were converted over to QWST and you also received a non-transferable escrow "certificate" for the potential cash. The liability goes back to a lawsuit between Dial-Net (later acquired by WorldCom) and ACI (later acquired by PHX). I won't get into all the details, but essentially WCOM accused ACI of breach of non-compete and confidentiality agreements. Van Essen was the majority owner of ACI at the time. When PHX acquired ACI it required Van Essen to indemnify PHX against exposure to the suit up to a certain dollar limit. After some negotiations, what is now a $1.2M escrow fund was set up by Van Essen to protect PHX should the suit go against ACI. QWST inherited all this when it acquired PHX. The $4M reserve was stipulated because WCOM was seeking damages well above $1.2M. The news as of yesterday is that the judge threw out some of WCOM's claims (or ruled against) and the damages against ACI are now in the $300K range, easily covered by the indemnification reserve. WCOM is appealing but it's highly unlikely that the judge will increase the damage award. Since the WCOM v. ACI/Van Essen case has been defended by Van Essen's counsel and not QWST, QWST hasn't incurred any significant costs that would be charged against the $4M so most if not all of it should flow to PHX shareholders of record once the appeals process is exhausted. Hope this helps. Mark

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