EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
BY AND AMONG
SA TELECOMMUNICATIONS, INC.,
ADDTEL COMMUNICATIONS, INC.
AVIRAM ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
EFFECTIVE AS OF NOVEMBER 1, 1996
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is made as of
January 10, 1997, by and among SA Telecommunications, Inc., a
Delaware corporation ("Purchaser"), Addtel Communications, Inc., a
California corporation (the "Company"), and Aviram ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
the holders of an aggregate of 100% of the issued and outstanding
shares of capital stock of the Company (individually a
"Shareholder" and collectively the "Shareholders").
WHEREAS, pursuant to that certain Letter of Intent dated as of
November 27, 1996 by and among the parties hereto (the "Letter of
Intent"), the Shareholders contracted to sell and Purchaser
contracted to buy, all of the issued and outstanding shares of
capital stock of the Company (the "Shares") in accordance with the
terms therein expressed and subject to the execution of definitive
agreements setting forth such terms; and
WHEREAS, Purchaser desires to purchase, and the Shareholders
desire to sell, all of the Shares in accordance with the terms
hereof.
NOW, THEREFORE, in consideration of the mutual benefits to be
derived and the representations and warranties, conditions and
promises herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties
hereto hereby agree as follows:
ARTICLE 1. GENERAL
SECTION 1.1 DEFINITIONS. Unless otherwise stated in this
Agreement, the following terms shall have the following meanings,
and other terms shall have the meaning assigned to such terms
elsewhere in this Agreement (all such definitions to be equally
applicable to both the singular and plural forms of any of the
terms herein defined):
AFFILIATE shall mean any Person that, directly or indirectly,
controls, or is controlled by or under common control with, another
Person. For the purposes of this definition, "control" (including
the terms "controlled by" and "under common control with"), as used
with respect to any Person, means the power to direct or cause the
direction of the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities
or by contract or otherwise.
ANNIVERSARY DATE shall mean January 10, 1998, SIX MONTH
ANNIVERSARY DATE shall mean July 10, 1997, and EIGHTEEN MONTH
ANNIVERSARY DATE shall mean July 10, 1998.
AGREED AMOUNT shall mean $1,175,747.33.
ARBITRATION shall mean a proceeding brought pursuant to
Section 9.9 hereof which settles disputes concerning this
Agreement.
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AUDIT BID AMOUNT shall mean $15,000.
BUSINESS shall mean the business of the Company as conducted
in the normal course prior to the date hereof, including without
limitation the business of marketing, selling and providing long
distance telephone service (on a wholesale and retail basis).
BUSINESS DAY shall mean any day other than a Saturday, Sunday
or a day on which the commercial banking institutions in Dallas,
Texas are authorized to be closed.
CASH AND CASH EQUIVALENTS shall mean the sum of (a) amount of
cash in all bank accounts of the Company on the Closing Date and
(b) the deposits and prepayments existing on the Closing Date
listed on "Exhibit E" hereto to the extent such amounts have either
been converted into cash or are not subject to forfeiture, dispute
or offset 150 days from the Closing Date with respect to actions or
events occurring prior to the Closing Date.
CLOSING DATE shall mean the date on which the Purchaser
purchases and receives the Shares (and not the Effective Date),
which date shall be the date after which the conditions set forth
in Article V hereof are satisfied or such other day prior to
January 15, 1997 as the Company and Purchaser shall mutually agree.
CLOSING DATE ACCOUNTS RECEIVABLE shall mean billed accounts
receivable and properly accrued but unbilled accounts receivable of
the Company as of the Closing Date.
CODE shall mean the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder, all as the
same shall be in effect at the time.
COLLECTED ACCOUNTS RECEIVABLE shall mean net Closing Date
Accounts Receivable subsequently collected within (a) 120 days
after the Closing Date for accounts receivable of the Company
billed as of the Closing Date and (b) 120 days after the Closing
Date for properly accrued but unbilled accounts receivable of the
Company as of the Closing Date and so reflected in the Debt
Adjustment Calculation.
COMMISSION shall mean the Securities and Exchange Commission.
COMMON STOCK shall mean the common stock, par value $.50 per
share of the Company.
COMPANY'S STANDARD ACCOUNTING PRACTICES shall mean those
accounting practices used by the Company when preparing all
unaudited Financial Statements, including Balance Sheets, Income
Statements, Statements of Cash Flows, and Statements of Stockholder
Equity. In general, the Company's Standard Accounting Practices
include, but are not limited to, the following principles and
procedures: (i) No footnotes have been appended to the Financial
Statements, (ii) Revenue has been recognized upon completion of the
telephone calls, (iii) Unbilled revenue has been recorded at
month's end as accrued but unbilled revenue, (iv) Carrier costs
have been generally recorded to the periods in which such revenues
were recognized, (v) Depreciation and Amortization calculations
were generally in accordance with U.S. Federal Tax calculations,
(vi) Cash receipts have
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generally been applied against the oldest open Accounts Receivable
invoice, (vii) Bad Debt allowances have been generally calculated
based on the Company's historical Bad Debt experience, (viii) All
Tax returns are Compilations, and no Review or Audit has been
undertaken except for the Audited Financial Statements dated May
31, 1996, and (ix) The accounting practices employed have generally
been applied on a systematic and rational basis, with the intent to
fairly present the financial condition of the Company.
CONTRACT OR AGREEMENT shall mean any contract, agreement,
understanding, lease, sublease, license, sublicense, distribution
agreement, promissory note, evidence of indebtedness, indenture,
instrument, mortgage, insurance policy, annuity or other binding
commitment, whether written or oral, and shall include any proposal
or other offer to any Person to enter into any of the foregoing.
DEBT ADJUSTMENT shall mean a decrease in the Initial Purchase
Price in an amount equal to the amount, if any, by which (a) Total
Liabilities of the Company as of the Closing Date reduced by Agreed
Amount exceeds (b) the sum of (i) Cash and Cash Equivalents and
(ii) Collected Accounts Receivable.
DEBT ADJUSTMENT DATE shall mean the date which is 170 days
after the Closing Date.
DISCLOSURE SCHEDULE or SCHEDULES shall mean the schedules to
this Agreement delivered by the Shareholders and/or the Company to
Purchaser which are approved by Purchaser (with reservation of all
rights with respect thereto) and incorporated by reference to the
Section of this Agreement to which each such schedule relates.
DISPUTED DEBT ADJUSTMENT shall mean that portion of the Debt
Adjustment, if any, which Shareholders have disputed pursuant to
Section 1.5 hereof.
EBITDA shall mean earnings before interest, taxes,
depreciation, amortization, nonrecurring charges and other income
(expense) determined in accordance with GAAP.
EFFECTIVE DATE shall mean November 1, 1996.
ERISA shall mean the Employee Retirement Income Security Act
of 1974, as amended.
GAAP shall mean generally accepted accounting principles
applied on a consistent basis.
INDEBTEDNESS shall mean with respect to any Person, without
duplication, and whether or not contingent, (a) all indebtedness of
such Person for borrowed money which is evidenced by a note, bond,
debenture or similar instrument, (b) all obligations of such Person
in respect of letters of credit or bankers' acceptance issued or
created for the account of such Person, (c) all liabilities secured
by any consensual Lien (including capital leases and Liens arising
in connection with purchase money debt) on any property owned by
such Person even if such Person has not assumed or otherwise become
liable for the payment thereof to the extent of the lesser of the
amount of the debt secured thereby or the value of the property
subject to such Lien, (d) any capital stock which, by its terms (or
by the terms of any security into which it is convertible or for
which it is exchangeable), or upon the happening of any event
matures or is mandatorily redeemable, pursuant to a sinking fund
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obligation or otherwise, or is redeemable at the sole option of the
holder thereof, (e) to the extent not otherwise included, any
guarantee of such Person of any other Person's indebtedness or
other obligations described in (a) through (d) in this definition;
provided, however, that Indebtedness shall not include trade
payables (including without limitation, obligations under third
party accounts receivable billing agreements) incurred in the
ordinary course of business and payable in accordance with
customary practices and non-interest bearing installment
obligations and accrued liabilities incurred in the ordinary course
of business.
INVESTOR NOTES shall mean the 16 promissory notes payable by
the Company to the Persons and in the original principal amounts
listed on "Exhibit D" hereto.
LETTER AGREEMENT shall mean that certain letter agreement
among Purchaser, the Company and the Shareholders dated as of
January 10, 1997.
LIEN shall mean all mortgages, deeds of trust, claims, liens,
security interests, pledges, hypothecations, conditional sale
contracts, claims, rights of first refusal, options, charges,
liabilities, obligations, agreements, privileges, liberties,
easements, rights-of-way, powers of attorney, limitations,
reservations, restrictions and other encumbrances of any kind.
MATERIAL ADVERSE EFFECT shall mean any (a) change, development
or effect (individually or in the aggregate) in the general
affairs, management, business, goodwill, results of operations,
condition (financial or otherwise), assets, liabilities or
prospects (whether or not the result thereof would be covered by
insurance) that would be material and adverse to the Company (or
such other parties as the context requires), or (b) fact or
development that would (individually or in the aggregate), after
giving effect to the Transactions, impair the Company's (or such
other parties, as the context requires) ability or obligations to
perform on a timely basis any obligations such Person has under the
Operative Documents or in the ordinary course of its business.
NAMED DEBTORS shall mean World X Change Communications, Star
Telecommunications and JD Services.
NONSOLICITATION AGREEMENTS shall mean the Nonsolicitation
Agreements in the form of "Exhibit A" hereto, to be executed by
each of the Shareholders at the Closing.
OPERATIVE DOCUMENTS shall mean this Agreement, the
Nonsolicitation Agreements, the Pledge Agreement, the Letter
Agreement, and all other Contracts or Agreements, documents, and
certificates executed and delivered by or on behalf of the Company,
the Shareholders, Purchaser or USC at or before the Closing
pursuant to this Agreement.
ORDER shall mean any order, writ, injunction, decree,
judgment, award or determination of any Tribunal.
PERMITS shall mean all permits, authorizations, certificates,
approvals, registrations, variances, exemptions, rights-of-way,
franchises, privileges, immunities, grants, ordinances, licenses
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and other rights of every kind and character (a) under any (1)
federal, state, local or foreign statute, ordinance or regulation,
(2) Order or (3) contract with any Tribunal or (b) granted by any
Tribunal.
PERSON shall mean an individual, partnership, association,
joint venture, limited liability company, corporation, trust,
unincorporated organization or Tribunal.
PLEDGE AGREEMENT shall mean the Pledge Agreement executed
between the Shareholder Agent and Purchaser at Closing, in
substantially the form of "Exhibit B" hereto.
PLEDGED STOCK shall mean 500,000 shares of Common Stock,
$.0001 par value, of Purchaser, issued by Purchaser to USC.
PRIMARY JURISDICTIONS shall mean Arizona, California Colorado,
Florida, Illinois, New Jersey, Nevada, Oregon, Texas, Washington,
and Utah.
PRODUCTS shall mean all products manufactured, produced,
licensed, marketed or distributed by the Company.
REAL PROPERTY shall mean the real property owned by the
Company, if any.
SETTLEMENT DATE shall mean the later to occur of (a) 170 days
after the Closing Date or (b) the date on which Purchaser and the
Shareholders reach agreement on the Debt Adjustment Calculation in
accordance with Section 1.5 hereof.
SHAREHOLDER AGENT shall mean ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ acting as
agent and duly qualified attorney in fact for all such Shareholders
for purposes of this Agreement.
SHAREHOLDER PERCENTAGES shall mean the percentages set forth
beside each Shareholder's name as follows: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 15%,
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ 55%, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 15%, and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ 15%.
SUBSIDIARY shall mean with respect to any corporation shall
mean any other corporation of which at least a majority of the
securities having by their terms ordinary voting power to elect a
majority of the Board of Directors of such other corporation is at
the time directly or indirectly owned or controlled by such first
corporation, or by such first corporation and one or more of its
Subsidiaries.
TAXES shall mean any federal, state, local, county, or foreign
taxes or similar charges imposed by any Tribunal (including without
limitation, estimated or actual income, franchise, gross receipts,
sales, ad valorem, occupation, windfall profits, environmental,
customs duties, social security, unemployment, disability,
withholding, excise, use, transfer, payroll, real or personal
property, value added, alternative, occupancy or other taxes,
assessments, fees, levies, imposts, duties, deductions or other
charges of any nature whatsoever (including, without limitation,
interest and penalties) imposed by any law, rule or regulation.
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TAX OBLIGATIONS shall mean any Taxes which are attributable or
relating to the assets or the Business of the Company for any
periods ending on or before the Closing Date or which may be
applicable because of the transactions contemplated hereby.
TAX RETURNS shall mean all reports, elections, declarations,
claims for refund, estimates, information statements and returns
(including schedules and attachments thereto) relating to or
required to be filed in connection with, any Taxes pursuant to
statutes, rules, and regulations of any Tribunal.
TOTAL LIABILITIES shall mean all liabilities (accrued or
otherwise) of the Company on the Closing Date computed in
accordance with GAAP (including without limitation the following
accrued liabilities as of the Closing Date: payroll, unpaid
vacation, sick pay and severance pay for employees, Taxes, carrier
fees, accounting, legal and consulting fees and expenses, rent, the
fees and expenses of Maverick other than the success fee).
TRANSACTION OR TRANSACTIONS shall mean the acquisition of
stock, performance of covenants, and transactions contemplated
hereby in each case as contemplated by this Agreement.
TRIBUNAL shall mean any government, arbitration panel, court
or any federal, state, municipal or other governmental department,
commission, board, bureau, agency, authority or instrumentality,
domestic or foreign.
UNDISPUTED DEBT ADJUSTMENT shall mean the amount equal to the
difference between the Debt Adjustment, if any, and the Disputed
Debt Adjustment.
UNDISPUTED ESCROW AMOUNT shall mean that portion of the Escrow
Amount not subject to an unresolved Claimed Amount.
USC shall mean U.S. Communications, Inc., a Texas corporation
and wholly owned Subsidiary of Purchaser.
WHOLESALE BAD DEBT shall mean all billed accounts receivable
of the Company on October 31, 1996 related to the Company's
wholesale long distance business from (a) wholesale account debtors
other than the Named Debtors and (b) from the Named Debtors which
remain uncollected by the Company on the 61st date after billing.
SECTION 1.2 PREVIOUS AGREEMENT. The parties hereto
expressly acknowledge, confirm and agree that the Letter of Intent
has been replaced in its entirety by this Agreement and is without
any further force or effect whatsoever.
SECTION 1.3 AGREEMENT TO SELL. Subject to the terms and
conditions of the Operative Documents, at the Closing, the
Shareholders shall sell, transfer and deliver to Purchaser, and
Purchaser shall purchase, all of the Shares.
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SECTION 1.4 PURCHASE PRICE. The aggregate purchase price
for Shares (the "Purchase Price") shall equal $9,500,000 (the
"Initial Purchase Price"), subject to reduction by the Debt
Adjustment. The Initial Purchase Price includes the aggregate
consideration of $2,000,000 to be received pursuant to the terms of
the Nonsolicitation Agreements (the "Nonsolicitation Fee"), with an
aggregate of $500,000 of such Nonsolicitation Fee being payable at
Closing, and the remaining $1,500,000 to be held in escrow (the
"Escrow Amount") pursuant to the escrow provisions specified below,
with such amounts being subject to reduction by the Debt
Adjustment. The Initial Purchase Price, subject to the Debt
Adjustment, shall be allocated among the Shareholders in accordance
with the Shareholder Percentages as follows:
NAME OF SHAREHOLDER NONSOLICITATION FEE REMAINDER OF PURCHASE
PAYABLE AT CLOSING HELD IN ESCROW PRICE PAYABLE AT CLOSING
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ $ 75,000 $ 225,000 $1,125,000
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ $ 275,000 $ 825,000 $4,125,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $ 75,000 $ 225,000 $1,125,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $ 75,000 $ 225,000 $1,125,000
--------- ---------- ----------
Total $500,000 $1,500,000 $7,500,000
SECTION 1.5 DEBT ADJUSTMENT. The Initial Purchase Price
shall be decreased by an amount equal to the Debt Adjustment, if
any. For purposes of determining the Debt Adjustment, not later
than 150 days after the Closing Date, Purchaser shall prepare and
deliver to the Shareholders the calculation of the Debt
Adjustment, showing only the Total Liabilities, Cash and Cash
Equivalents and Collected Accounts Receivable as of the Closing
Date ("Debt Adjustment Calculation"). The parties hereto agree
that the Company shall have expensed fully in the month ending
October 31, 1996 (i) an amount equal to the aggregate of Wholesale
Bad Debt (and the Company's accounts receivable as of October 31,
1996 and thereafter shall not reflect the accounts receivable to
which such Wholesale Bad Debt relates), and (ii) the Audit Bid
Amount. Within 20 days after the receipt by Shareholders of the
Debt Adjustment Calculation, the Shareholder Agent shall notify
Purchaser and the Company of any objections the Shareholders may
have to the Debt Adjustment Calculations, and Purchaser and the
Shareholder Agent will endeavor promptly to discuss and resolve
such objections. In the absence of such objections within such 20
day period, or following resolution of them between Purchaser and
the Shareholder Agent, the Shareholders shall be deemed to have
approved the Debt Adjustment Calculation and agreed to all amounts
set forth therein for purposes of the adjustments to be made
pursuant to this Section 1.5, but subject to any rights of
indemnification which Purchaser may have pursuant hereto with
respect to the accuracy or completeness of the information on the
basis of which the Debt Adjustment Calculations was prepared and
any other rights Purchaser may have under this Agreement. If after
the Debt Adjustment Date, there remain Disputed Debt Adjustment
amounts, and Purchaser and the Shareholder Agent have not mutually
agreed in writing to continue negotiating, such Disputed Debt
Adjustment amounts shall be referred within 15 days to Ernst &
Young or such other independent public accounting firm of national
stature not used by any of the parties hereto or their respective
Affiliates during the prior 2 years as is mutually satisfactory to
Purchaser and the Shareholder Agent for resolution within 30 days
of the submission to such firm. The determination of such firm
with
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respect to the Disputed Debt Adjustment Amounts shall be conclusive
and binding, subject however, to any rights of Purchaser hereunder
with respect to the accuracy or completeness of the information on
the basis of which such calculation was determined. The fees and
expenses of such firm shall be borne equally between Purchaser on
the one hand, and the Shareholders on the other hand, in accordance
with the Shareholder Percentages. Upon the date of the earlier to
occur of resolution of the Disputed Debt Adjustment amounts by (i)
mutual written agreement between Purchaser and the Shareholder
Agent, or (ii) the determination of the independent accounting
firm, the amounts agreed upon or determined shall be appropriately
applied to the Debt Adjustment by each party as if such amounts
were applied to the Debt Adjustment as of the Debt Adjustment Date,
and any amounts due any party hereto shall be paid.
(a) On the Debt Adjustment Date, the Initial Purchase Price
and the Escrow Amount shall be decreased by an amount ("Undisputed
Debt Adjustment") if any, equal to the difference between the Debt
Adjustment, if any, and the Disputed Debt Adjustment, if any as
follows:
(i) The Undisputed Debt Adjustment, if any, shall first
be applied against the portion of the Initial Purchase Price
consisting of the Undisputed Escrow Amount as of the Debt
Adjustment Date. In the event that the Undisputed Escrow
Amount as of the Debt Adjustment Date exceeds the Undisputed
Debt Adjustment, the parties hereto agree that Purchaser shall
be entitled to reduce the Undisputed Escrow Amount held in
escrow by Purchaser as of the Debt Adjustment Date pursuant to
Section 1.7 by the amount of such Undisputed Debt Adjustment
and thereafter such Undisputed Debt Adjustment shall be owned
by Purchaser free of the escrow provisions hereunder.
(ii) In the event that the Undisputed Debt Adjustment
exceeds the Undisputed Escrow Amount on the Debt Adjustment
Date, the Initial Purchase Price shall be reduced by such
excess, and each Shareholder shall pay to Purchaser on the
Debt Adjustment Date a sum ("Debt Adjustment Shortfall") equal
to the product of (a) the amount equal to the Undisputed Debt
Adjustment minus the Undisputed Escrow Amount on the Debt
Adjustment Date and (b) such Shareholder's Shareholder
Percentage; provided, however, that each Shareholder shall be
jointly and severally liable for payment of the entire Debt
Adjustment Shortfall to Purchaser, which amount shall be due
and payable on the Debt Adjustment Date.
(b) For purposes of collection of the Company"s Closing Date
Accounts Receivable for calculation of the Debt Adjustment, the
following procedures shall apply:
(i) All collections during the Settlement Period
received from the account debtors of the Company shall be
applied to the invoice intended to be paid by such account
debtor if such intent can be determined. If such intent
cannot be determined, then payment shall be applied on a
"first in, first out" basis".
(ii) The Company will continue to utilize its standard
credit and collection policies, procedures and practices, but
without responsibility to institute legal or collection
proceedings.
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(c) Upon the later to occur of (i) receipt of full payment of
the Debt Adjustment Shortfall by Purchaser or (ii) the Settlement
Date, Purchaser shall transfer to the Shareholders in accordance
with the Shareholder Percentages the Company's rights to any
Closing Date Accounts Receivable which remain uncollected by the
Company on the 121st day after the Closing Date so that each of the
Shareholders may then take his own steps, including, without
limitation, the use of collection agencies and litigation, to
collect the full unpaid balances thereof in due course.
(d) Upon the date of expiration of the statute of limitations
with respect to any Tax for which there was a related accrued Tax
accrual used in the calculation of the Debt Adjustment Amount ("Tax
Accrual Amount"), or alternatively, the reversal or reduction by
the Company or Purchaser of any Tax Accrual Amount, Purchaser shall
return any Tax Accrual Amount which was reversed or which was not
actually used by Purchaser to pay the related Tax to which such Tax
Accrual Amount relates.
Section 1.6 Closing Deliveries. Without limiting the
deliveries at the Closing set forth in Article 6 hereof, at the
Closing:
(a) each of the Shareholders shall deliver to Purchaser
(i) certificates representing the Shares, endorsed for
transfer to Purchaser, which shall transfer to Purchaser good
title to the Shares, free and clear of all Liens; and (ii)
such other documents, including officer's certificates,
opinions of counsel and other Contracts or Agreements as may
be required by this Agreement or reasonably requested by
Purchaser; and
(b) Purchaser shall execute wire transfers to each of
the Shareholders in the amount specified as "Payable at
Closing" in Section 1.4 hereof to the bank account of a bank
located in the United States specified by such Shareholder in
writing to Purchaser, and shall hold $1,500,000 of the Initial
Purchase Price in escrow as provided in Section 1.4 pursuant
to the terms of Section 1.7 hereof, subject to decrease by the
provisions of Sections 1.5 and 1.7 hereof. Purchaser shall
cause USC to deliver to the Shareholder Agent the Pledged
Stock in accordance with the Pledge Agreement.
SECTION 1.7 ESCROW.
(a) At the Closing, (i) Purchaser shall hold in escrow
the Escrow Amount to satisfy any claims made by Purchaser in
respect of (A) the Debt Adjustment, and (B) any amounts
alleged to be due to Purchaser by Purchaser under Article 8 of
this Agreement ("Claimed Amount") in accordance with Section
1.7(d) below, and Purchaser shall deliver to the Shareholder
Agent a stock certificate representing the Pledged Stock
issued in the name of the Shareholder Agent to hold only in
accordance with the Pledge Agreement. Purchaser shall not be
required to segregate the Escrow Amount from any of its other
funds and may invest the Escrow Amount in any manner Purchaser
may desire.
(b) On the Debt Adjustment Date, Purchaser shall reduce
the Undisputed Escrow Amount by the Undisputed Debt
Adjustment, if any, as provided in Section 1.5 hereof and
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the remaining balance of the Escrow Amount after such
reduction and other distributions provided for herein shall be
referred to as the "Adjusted Escrow Amount".
(c) Purchaser shall be entitled to continue to hold
Claimed Amounts not yet finally resolved in accordance with
Section 1.7(d) and Article 8 hereof and shall be entitled to
distribute to Purchaser free from the escrow provisions of
this Agreement any Claimed Amount finally resolved in
accordance with Section 1.7(d) and Article 8 hereof. Purchaser
shall pay to the Shareholders in accordance with the
Shareholder Percentages to the extent such funds have not
otherwise been distributed as provided herein: (i) on the Six
Month Anniversary Date, 50% of the excess, if any, of the
Adjusted Escrow Amount over the Disputed Debt Adjustment on
such Six Month Anniversary Date; (ii) on the Anniversary Date,
25% of excess, if any, of the Adjusted Escrow Amount over the
Disputed Debt Adjustment on the Anniversary Date; and (iii) on
the Eighteen Month Anniversary Date, the remainder of the
excess of the Adjusted Escrow Amount over the Disputed Debt
Adjustment on the Eighteen Month Anniversary Date. Any
amounts paid to the Shareholders from the Escrow Amount shall
earn simple interest compounded monthly at a per annum rate
equal to the average rate per annum quoted for one year jumbo
certificates of deposit by major banks in New York, New York
as quoted in the southwest edition of THE WALL STREET JOURNAL
on the first and last day of each release period payable on
the date upon which such Escrow Amount is distributed to such
Shareholders. In the event of a failure by Purchaser to make
a scheduled payment from the Escrow Amount according to
Section 1.7 hereof or the failure by the Shareholders to make
a payment to Purchaser according to Section 1.5(a)(ii) hereof
within 5 days, the non-paying party shall be subject to a one-
time penalty of 10% of the amount not paid plus all collection
costs, including reasonable attorney's fees.
(d) At any time on or before the Eighteen Month
Anniversary Date, Purchaser may give the Shareholder Agent
written notice of a claim (a "Notice of Claim") for which
Purchaser is seeking indemnification under Article 8 of this
Agreement from the Escrow Amount stating the dollar amount of
the Escrow Funds claimed as a result of Purchaser's damages
thereof (the "Claimed Amount"). Within 10 Business Days after
a Notice of Claim is given by Purchaser to the Shareholder
Agent, the Shareholder Agent shall have the right to file with
Purchaser written notice that the Shareholders intend to
contest Purchaser's claim. If, within such 10 Business Day
period, Purchaser does not receive such notice from the
Shareholder Agent or receives notice from the Shareholder
Agent that such claim is uncontested, Purchaser may reduce the
Escrow Amount by the Claimed Amount and thereafter Purchaser
shall own such funds free from the escrow provisions
hereunder. If, however, within such 10 Business Day period,
Purchaser shall receive notice from the Shareholder Agent of
the intention of the Shareholders to contest Purchaser's
Notice of Claim and the underlying claim with respect to the
Escrow Funds (a "Contested Claim"), then Purchaser shall
continue to hold the Claimed Amount until the earliest to
occur of: (i) receipt of written notice from the Shareholder
Agent consenting to the release of the Claimed Amount to
Purchaser; (ii) receipt of a written final decision of the
Arbitration Panel pursuant to Section 9.9 directing
disposition of the Claimed Amount after Arbitration; or (iii)
receipt of a written agreement of the Shareholder Agent and
Purchaser, that (A) Purchaser or (B) the Shareholders are
entitled to all or part of the Claimed Amount. Thereupon,
Purchaser shall deliver to the proper party (which may include
Purchaser) the Claimed Amount in
10
accordance with clause (i), (ii) or (iii) above. Any Contested
Claim shall be submitted to Arbitration if Purchaser and the
Shareholder Agent are unable to resolve such dispute within 30 days
of the receipt by Purchaser of a Contested Claim unless Purchaser
and the Shareholder Agent mutually agree in writing to extend such
period.
ARTICLE 2. REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS
Each of the Shareholders, jointly and severally, hereby
represent and warrant to Purchaser that the following are true and
correct as of the date of this Agreement and will be true and
correct (without limitation) through the Closing and as of that
date, regardless of what investigations, if any, Purchaser shall
have made prior hereto or prior to the Closing:
SECTION 2.1 ORGANIZATION; QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of California. The Company has the
corporate power and authority to own, operate and lease all of the
properties and assets it now owns, operates and leases and to carry
on its business as now being conducted. The Company is duly
qualified as a foreign corporation and is in good standing to do
business in each jurisdiction in which the property owned, leased
or operated by it or the nature of the business conducted by it
makes such qualification necessary, except where the failure to so
qualify would not have a Material Adverse Effect on the Company.
Section 2.1 of the Disclosure Schedule sets forth a true and
correct list of each jurisdiction in which the Company is qualified
to do business. The Company does not have any employees, maintain
any office, or own or lease any real property in any state that is
not listed on Section 2.1 of the Disclosure Schedule. The Company
has heretofore delivered to Purchaser complete and correct copies
of its Certificate of Incorporation (certified by the Secretary of
State of California) and Bylaws as such are currently in effect.
SECTION 2.2 AUTHORITY. The Company has the corporate power
and authority to execute, deliver and perform the Operative
Documents to which it is a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the
Company and the Shareholders of the Operative Documents, and the
consummation of the transactions contemplated hereby and thereby,
have been duly and validly authorized by the Board of Directors of
the Company and no other corporate proceedings on the part of the
Company or the Shareholders are necessary with respect thereto.
This Agreement has been duly and validly executed and delivered by
the Company and the Shareholders, and constitutes a legal, valid
and binding obligation of the Company and the Shareholders,
enforceable against each of them in accordance with its terms,
except as the same may be limited by bankruptcy, insolvency,
reorganization, moratorium or other laws affecting generally the
enforcement of creditors' rights and by general principles of
equity. The Nonsolicitation Agreement and the Pledge Agreement,
when executed and delivered by each Shareholder who is a party
thereto, will constitute a legal, valid and binding obligation of
such Shareholder, enforceable against such Shareholder in
accordance with their respective terms, except as the same may be
limited by bankruptcy, insolvency, reorganization, moratorium or
other laws affecting generally the enforcement of creditors' rights
and by general principles of equity. Neither any of the
Shareholders nor the Company, is a party to, or subject to, or
bound by, any currently
11
existing Order of any Tribunal, or any arbitration award that would
restrict performance by any of the Shareholders or the Company of
this Agreement or any other Operative Documents.
SECTION 2.3 CAPITALIZATION. The authorized capital stock
of the Company consists of 200,000 shares of the Company's Common
Stock. The Shares, consisting of 125,000 shares of such Common
Stock owned by the Shareholders, are all the issued and outstanding
shares of capital stock of the Company and there are no shares held
in treasury of the Company. Each of the Shares is validly issued
and outstanding, fully paid and nonassessable. There are no
options, warrants or other commitments to issue or sell any shares
of capital stock or any securities or obligations convertible into
or exchangeable for, or giving any Person any right to acquire from
the Company, any shares of its capital stock other than the
transactions contemplated hereby. No shares of the Company's
capital stock, including, but not limited to the Common Stock, have
been issued in violation of any preemptive rights or applicable
federal or state securities laws. There are no restrictions,
including but not limited to self-imposed restrictions, on the
retained earnings of the Company or on the ability of the Company
to declare and pay dividends. There are no outstanding obligations
of the Company to repurchase, redeem or otherwise acquire any
capital stock or other securities of the Company. There are no
stock appreciation rights, equity appreciation plans, stock
valuation plans or similar Contracts or Agreements or arrangements
pursuant to which any Person shall have the right to receive any
money or property with respect to the equity securities, capital
structure or shareholders equity, or any increase in the value of
any of them, of the Company.
SECTION 2.4 INVESTMENTS. The Company does not, directly or
indirectly, own or control any equity or debt interest or any form
of proprietary interest in any Person, or any right or option to
acquire any such interest in any such Person. None of Sellers or
any of their relatives or Affiliates own, directly or indirectly,
any interest in any Person which is a competitor, customer or
supplier of the Company or which otherwise has business dealings
with the Company.
SECTION 2.5 GOVERNMENTAL CONSENTS AND APPROVALS. The
execution, delivery and performance by the Company and each of the
Shareholders of the Operative Documents to which each such Person
is a party and the consummation of the transactions contemplated
thereby by the Company and each of the Shareholders requires no
consent, approval, order or authorization of, action by or in
respect of, or registration or filing with, (a) any Tribunal in the
Primary Jurisdictions, other than as set forth on Section 2.5 of
the Disclosure Schedule or (b) any Tribunal in jurisdictions other
than the Primary Jurisdictions except as set in the Letter
Agreement.
SECTION 2.6 NO VIOLATIONS. The execution, delivery and
performance of the Operative Documents by the Company and each of
the Shareholders to which such Person is a party, the consummation
by the Company and each of the Shareholders of the transactions
contemplated thereby or compliance by the Company and each of the
Shareholders with any of the provisions thereof does not and will
not (a) conflict with or result in any breach or violation of any
provision of the Certificate of Incorporation or Bylaws of the
Company, (b) result in a default, or give rise to any right of
termination, cancellation or acceleration or loss of any benefit
(with or without the giving of notice or lapse of time or both), or
require the consent, approval, waiver or other action by any Person
under any of the terms, conditions or provisions of Contract or
Agreement or obligation to which any Shareholder or the Company is
a party or by which any Shareholder or the Company
12
may be bound, (c) result in the creation or imposition of any Lien
on any of the property of any Shareholder or the Company, or (d)
except for the regulatory approvals disclosed pursuant to Section
2.5(a) and (b), violate any Order, statute, rule or regulation
applicable to any Shareholder or the Company or any of its
properties or assets.
SECTION 2.7 FINANCIAL STATEMENTS.
(a) The following unaudited financial statements of the
Company have heretofore been delivered to Purchaser: (i) the
federal income tax returns within which are included the
balance sheet of the Company as of May 31, 1996 (the "Annual
Balance Sheet") and the statements of operations and of
stockholder's equity for each of the one year periods ended
May 31, 1995, May 31, 1994 and May 31, 1993 and a statement of
cash flows for the Company as of May 31, 1996 and May 31,
1995, together with any related notes and schedules, (such
balance sheets, the related statements of operations, of
stockholder's equity and of cash flows, and the related notes
and schedules being hereinafter together referred to as the
"Annual Financial Statements"); (ii) the unaudited balance
sheets of the Company as of October 31, 1996, November 30,
1996 and December 31, 1996 and the related unaudited
statements of operations, of stockholder's equity and of cash
flows for the periods then ended (such balance sheets, the
related statements of operations, of stockholder's equity and
of cash flows, being hereinafter together referred to as the
"Interim Financial Statements").
(b) The Annual Financial Statements and the Interim
Financial Statements (collectively, the "Financial
Statements"), including the related notes and schedules, have
been prepared from the books and records of the Company which
accurately reflect the transactions of the Company. The
Financial Statements are true, complete and correct, were
prepared in accordance with the Company's Standard Accounting
Practices, subject to normal recurring year-end audit
adjustments with respect to the Interim Financial Statements.
The Financial Statements present fairly the financial position
of the Company as of the dates of such statements. The trade
accounts and other receivables of the Company which are
classified as current assets on the balance sheets of the
Company in the Interim Financial Statements have arisen from
bona fide transactions in the ordinary course of business, are
true and correct and are valid and enforceable claims subject
to no right of offset or counterclaim and are collectible
within 120 days following the Closing Date at the face amount
thereof net of any amounts for bad debt related to such
account for which Purchaser has received credit in the Debt
Adjustment. There have been no write-ups of any assets (other
than inventory) included in such Financial Statements.
(c) Except as set forth in Section 2.29(d)(i) of the
Disclosure Schedule, the Company has no liabilities
(contingent or otherwise) other than: (i) those set forth or
reserved against in the balance sheet of the Company as of
December 31, 1996, and (ii) those incurred since December 31,
1996 in the ordinary course of business and consistent with
past practices. The Company has no Indebtedness other than
disclosed on Section 2.29(d)(ii) of the Disclosure Schedule.
There are no receivables of the Company owed by Affiliates of
the Company which are not disclosed in the Interim Financial
Statements and listed on Schedule 2.32 of the Disclosure
Schedule.
13
(d) The Company's books of account have been kept
accurately in the ordinary course of business, the
transactions entered therein represent bona fide transactions,
and the revenues, expenses, assets and liabilities of the
Company have been properly recorded in such books. The
Company has adequately funded all accrued employee benefit
costs and such funding is reflected in the Interim Financial
Statements.
SECTION 2.8 TITLE TO AND CONDITION OF ASSETS AND
PROPERTY. The Company has good and marketable title to any and all
assets reflected in the Interim Financial Statements currently
owned and used in the operation of its business, and such assets
are free and clear of all Liens. Section 2.8(a) of the Disclosure
Schedule further sets forth a true and complete description of all
real and tangible personal property currently leased or otherwise
occupied or used but not owned by the Company, true, correct and
complete copies of which leases and other Contracts or Agreements,
including all amendments and modifications thereto have heretofore
been delivered to the Company. Each of the leases is a valid and
binding obligation of the parties thereto and neither the Company
nor the lessor thereunder is in default under, and no condition
exists that with notice or lapse of time or both would constitute
a default under any such lease. The Company enjoys peaceful and
undisturbed possession under all such leases. The Company does not
own any Real Property or any interest therein other than the real
property leases listed in Schedule 2.8(a) of the Disclosure
Schedule. All personal property not set forth in Section 2.8(a) of
the Disclosure Schedule and reflected on the Financial Statements
is owned by the Company. Except as listed in Section 2.8(b) of the
Disclosure Schedule, all property owned or leased by the Company
and reflected on the Financial Statements or located on the
premises of the Company is in good operating condition and repair,
ordinary wear and tear excepted, is suitable for the use to which
the same is customarily put, is free from defects other than minor
defects that do not interfere with or detract from the use or value
thereof and is merchantable and not obsolete and is of a quality
and quantity presently usable in the ordinary course of the
operation of the Business of the Company and is all of the assets
currently used or needed in said Business. Except as set forth in
Section 2.8(c) of the Disclosure Schedule, the buildings,
structures, improvements, assets and operations of the Company
conform with all applicable restrictive covenants, deeds, leases,
and restrictions and all applicable federal, state and local laws,
ordinances, rules and regulations, including, but not limited to,
those relating to zoning and working conditions.
SECTION 2.9 LITIGATION. Except as disclosed in Section 2.9
of the Disclosure Schedule, there is no action, order, claim, suit,
proceeding, litigation, investigation, inquiry, review or notice
("Proceeding") pending or threatened against, relating to or
affecting the Company or its properties or assets or any officer or
director of the Company relating to the Company, at law or in
equity, before any Tribunal nor is there any basis for asserting
the foregoing. None of the Proceedings listed on Section 2.9 of
the Disclosure Schedule would, if determined adversely to the
Company, individually or in the aggregate have a Material Adverse
Effect. Neither the Company nor any of its properties or assets is
specifically by name, subject to any currently existing Order.
Except as disclosed in Section 2.9 of the Disclosure Schedule, the
Company is not subject to any currently existing Proceeding by any
Tribunal. There is no basis for the assertion of any Proceeding by
any Tribunal or any Person regarding any violation of federal or
state securities laws. There are no Proceedings pending or, to the
knowledge of any Shareholder, threatened against the Company or any
Shareholder, whether at law or in equity and whether civil or
criminal in nature, before any
14
Tribunal nor are there any Orders of any such Tribunal outstanding
against the Company or any Shareholder which, in either case, seek
specifically to prohibit, restrict, or delay consummation of the
transactions contemplated hereby or fulfillment of any of the
conditions upon the obligations of the Shareholders or the Company
under this Agreement.
SECTION 2.10 ABSENCE OF CHANGES. Except as set forth in
Section 2.10 of the Disclosure Schedule, since May 31, 1996, the
Business of the Company has been operated in the ordinary course
consistent with past practice and there has not been (a) any
material adverse change in the Business, operations, properties,
condition (financial or otherwise), prospects, assets or
liabilities (contingent or otherwise) of the Company; (b) any
dividend declared or paid or distribution made on the capital stock
of the Company, or any capital stock thereof redeemed or
repurchased; (c) any incurrence of long-term Indebtedness or
unusual increase in the current liabilities of the Company; (d) any
salary, bonus or compensation increases to any officers, employees
or agents of the Company; (e) any pending or threatened labor
disputes or other labor problems against or affecting the Company;
(f) any transaction or Contract or Agreement, or amendment or
termination of any transaction or Contract or Agreement by the
Company, except normal transactions or Contracts or Agreements
consistent in nature and scope with prior practices and entered
into in the ordinary course of business consistent with past
practices, (g) any mortgage, sale, transfer, distribution or other
disposition of any assets by the Company, except in the ordinary
course of business consistent with past practices, (h) any theft,
damage, destruction or loss by the Company to or of any of its
assets except to the extent that any asset damaged, destroyed or
lost has been repaired or replaced, (i) any capital expenditures
for additions to property, plant or equipment in excess of $5,000,
(j) any grant or credit to any customer or distributor on terms
materially more favorable than the terms on which credit has been
extended to such customer or distributor in the past nor changed
the terms of any credit previously extended, (k) any change in the
accounting methods or practices followed by the Company or any
change in the depreciation or amortization policies or rates
heretofore adopted; or (l) any other change in the nature of, or
the manner of conducting, the Business of the Company, other than
changes that neither have had, nor reasonably may be expected to
have, a Material Adverse Effect on the Business of the Company.
SECTION 2.11 UNDISCLOSED LIABILITIES; COMMITMENTS. Except
as disclosed in Section 2.11(a) of the Disclosure Schedule, the
Company has no Indebtedness, liabilities or obligations, whether
accrued, absolute, contingent or otherwise, and whether due or to
become due, and there is no basis for the assertion against the
Company of any such Indebtedness, liability or obligation, that
were not accrued or reserved against in the Financial Statements.
Except as set forth in Section 2.11(b) of the Disclosure Schedule,
the Company has performed all Contracts or Agreements to which the
Company is a party, and there is not under any such Contracts or
Agreements any existing default or event of default or event which
with notice or lapse of time or both would constitute a default.
SECTION 2.12 ENVIRONMENTAL MATTERS. Except as set forth on
Section 2.12 of the Disclosure Schedule, the Company has duly
complied with, and its Business, operations, assets, equipment,
leaseholds and other facilities are in compliance with, the
provisions of all federal, state and local environmental, health
and safety laws, codes and ordinances and all rules and regulations
promulgated thereunder, governing (a) air emissions, (b) discharges
to surface water or ground
15
water, (c) solid or liquid waste disposal, (d) the use, storage,
generation, handling, transport, discharge, release, or disposal of
toxic or hazardous substances or wastes, or (e) other
environmental, health or safety matters, including, without
limitation, the Comprehensive Environmental Response Compensation
and Liability Act of 1980, 42 U.S.C. Sections 601 et seq., as
amended, the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901 et seq., as amended, the Federal Water Pollution
Control Act, 33 U.S.C. Sections 1251 et seq., as amended, the Clean
Air Act, 42 U.S.C. Sections 7401 et seq., as amended, the
Occupational Safety and Health Act of 1970, as amended ("OSHA"),
the Safe Drinking Water Act, as amended, the Toxic Substances
Control Act, as amended, the Superfund Amendments and
Reauthorization Act of 1986, as amended, and other environmental
conservation or protection laws. There is no Proceeding pending or
threatened against the Company relating to the environment nor is
there a basis for the assertion against the Company of any
Proceeding. The Company has not received notice of, nor knows of,
any past, present or future events, conditions, facts,
circumstances, activities, practices, incidents, actions or plans
that may interfere with or prevent compliance or continued
compliance or that might constitute a violation of any federal,
state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder,
which relate to the use, ownership or occupancy of the property or
the operation of the Business of the Company.
SECTION 2.13 PENSION MATTERS. The Company has never
maintained or contributed to any defined benefit pension plans (as
defined in Section 3(2) of ERISA or any multiemployer plans (as
defined in Section 3(37)(A) of ERISA). Each employee benefit plan
(as defined in Section 3(3) of ERISA) (each, an "Employee Benefit
Plan" or "Plan") maintained for employees of the Company or to
which the Company has contributed and any related trust agreement,
annuity contract or any other funding or implementing instrument
complies currently and has complied in the past, as to form,
operation and administration, with the provisions of ERISA, as
amended, and all other applicable laws, rules and regulations and
with the Code where required in order to be tax-qualified under
Section 401(a) or 403(a) and 501(a) of the Code, and no event has
occurred that may give rise to disqualification of any such Plan
under said Sections. All necessary Tribunal approvals for the
Employee Benefit Plans have been obtained. Each Employee Benefit
Plan that is subject thereto meets and has met at all times the
minimum funding standards of Section 302 of ERISA, Section 412 of
the Code and any other applicable law, and no accumulated funding
deficiency, whether or not waived, exists with respect to any such
Plan. Each Employee Benefit Plan that is an employee pension
benefit plan (as defined in Section 3(2)(A) of ERISA) has been duly
authorized by the Board of Directors of the Company and a favorable
determination as to the qualification under the Code of each such
employee pension benefit plan has been made by the Internal Revenue
Service. The Company has delivered to Purchaser the following
documents as in effect on the date hereof: (A) true, correct and
complete copies of each Plan, including all amendments thereto,
which is an employee pension benefit or welfare benefit plan
(within the meaning of Sections 3(1) or 3(2) of ERISA), and in the
case of any unwritten Plans, descriptions thereof, (B) with respect
to any Plans or Plan amendments described in the foregoing clause
(A), (i) the most recent determination letter issued by the
Internal Revenue Service after September 1, 1974, if any, (ii) all
trust agreements or other funding Contracts or Agreements,
including insurance contracts, and (iii) the most recent actuarial
valuations, annual reports, summary plan descriptions, employee
handbooks or other descriptive materials supplied and employee or
retiree summaries of material modifications and summary annual
reports, if any. With respect to any Plan, no prohibited
transaction (within the
16
meaning of Section 406 of ERISA and/or Section 4975 of the Code)
exists which could subject the Company to any liability or civil
penalty assessed pursuant to Section 502(i) of ERISA or a Tax
imposed by Section 4975 of the Code. Neither the Company nor any
of its Affiliates, nor any administrator or fiduciary of any Plan
(or agent of any administrator or fiduciary of any Plan (or agent
of any of the foregoing) has engaged in any transaction or acted or
failed to act in a manner which is likely to subject the Company to
any liability for a breach of fiduciary or other duty under ERISA
or any other applicable law. The transactions contemplated by this
Agreement will not be, or cause any, prohibited action or
transaction.
There are no pending claims, investigations or causes of
action ("Claims") and, to the best of each Shareholder's knowledge,
no such Claims are planned or threatened, against any Employee
Benefit Plan or fiduciary of any such plan by any participant,
beneficiary or Tribunal with respect to the qualification or
administration of any such Employee Benefit Plan. Neither the
Company nor any of the Shareholders has made, nor will any of them
or any of the Company's employees or representatives make prior to
the Closing Date, any representation to or Contract or Agreement
with, any of the Company, the Company's employees or any of the
Shareholders (whether written or oral) with respect to (i) the
provisions of any employee benefits other than those provided under
any Employee Benefit Plan disclosed to Purchaser on Schedule 2.13
of the Disclosure Schedule, or (ii) the continuation of any
benefits beyond the Closing Date under any Employee Benefit Plan.
All filings required by ERISA and the Code as to each Plan have
been timely filed and all notices and disclosures to participants
required by ERISA or the Code have been timely provided. Each Plan
to which ERISA Sections 601 through 609 and Section 4980B of the
Code apply has been administered in compliance with such Sections.
The Company has made or shall make full and timely payment of all
amounts which are required under the terms of the Plans to be paid
as a contribution to each such Plan with respect to the period from
the end of the last plan year ending before the date of this
Agreement to the Closing Date. The Company does not have any
unfunded obligations with respect to any Plan. All contributions
made to or accrued with respect to all Employee Benefit Plans are
deductible under Section 404 or 162 of the Code. No amounts, nor
any assets or any Employee Benefit Plan are subject to Tax as
unrelated business taxable income under Section 511, 512, or 419A
of the Code. No facts exist which could result in a material
increase in premium costs of Plans for which benefits are insured
or a material increase in benefit costs of Plans which provide self
insured benefits. No Plan provides (or has any obligation or
commitment to provide) health, medical, disability, life or other
similar benefits with respect to any current or former employees
(or beneficiary thereof) of the Company beyond their retirement or
other termination of service (other than coverage mandated by Title
I, Subtitle B, Part 6 of ERISA, which coverage is fully paid by the
former employee or his dependents). There are no Contracts or
Agreements which will provide payments to any officer, employee,
shareholder, or highly compensated individual of the Company which
will be "parachute payments" under Section 280G of the Code that
are nondeductible to the Company or subject to Tax under Section
4999 of the Code. All group health plans of the Company and each
of its Affiliates have been operated in compliance with the group
health plan continuation coverage requirements of Part 6 of
Subtitle B of Title I of ERISA and Section 4980B of the Code.
SECTION 2.14 LABOR MATTERS. Except as set forth in Section
2.14 of the Disclosure Schedule, the Company has no obligations,
contingent or otherwise, under any employment or consulting
17
Contract or Agreement, or collective bargaining agreement or other
Contract or Agreement with a labor union or other labor or employee
group. There are no efforts presently being made or threatened by
or on behalf of any labor union with respect to the employees of
the Company. The Company is in compliance with all federal, state
or other applicable laws, domestic or foreign, regarding employment
and employment practices, terms and conditions of employment and
wages and hours, and have not and are not engaged in any unfair
labor practice. No unfair labor practice complaint against the
Company is pending or threatened before the National Labor
Relations Board. There is no labor strike, dispute, slowdown or
stoppage pending or threatened against or involving the Company.
No representation question exists respecting the employees of the
Company. No employment-related grievance or internal or informal
complaint or liability with respect to the termination of any
employee, consultant or agent exists. No arbitration proceeding
arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted. No collective
bargaining agreement is currently being negotiated by the Company,
and the Company has not experienced any labor difficulty. There
has not been any adverse change and none of the Shareholders has
any present knowledge that there will be any adverse change in
relations with employees of the Company as a result of any
announcement or consummation of the transactions contemplated by
this Agreement. No employee of the Company is in violation of any
term of any employment contract, or any other Contract or Agreement
with or any restrictive covenant or any other common law obligation
to a former employer relating to the right of any such employee to
be employed by the Company because of the nature of the business
conducted or to be conducted by the Company or to the use of trade
secrets or proprietary information of others, and the employment of
the Company's employees does not subject the Company to liability
in connection with such covenants or Contracts or Agreements.
There is neither pending nor threatened Proceedings with respect to
any Contract or Agreement, covenant or obligation referred to above
nor is there any basis for asserting the foregoing.
SECTION 2.15 TAXES. Except as listed on Section 2.15(a) of
the Disclosure Schedule or the Letter Agreement, all Taxes that are
due and payable by the Company have been timely paid, and the
Company has timely filed (and, through the Closing Date, will
timely file) all foreign, federal, state, county, local and other
Tax Returns required by law to be filed by the Company. All such
Tax Returns are true, complete and correct in all respects for the
periods covered thereby. The Company is not delinquent in the
payment of any Tax, there is no Tax deficiency asserted against the
Company, and there is no unpaid assessment, proposal for additional
Taxes, deficiency or delinquency in the payment of any of the Taxes
of the Company or any violation of any federal, state, local or
foreign law that could be asserted by any Tax Tribunal. There are
no Tax liens upon any properties or assets of the Company. Except
as set forth on Section 2.15(b) of the Disclosure Schedule, no
Internal Revenue Service, state or local, audit, investigation or
Proceeding of the Company is pending or threatened, and the results
of any completed audits are properly reflected in the Financial
Statements. The Company has not granted any extension to any Tax
Tribunal of the limitation period during which any Tax liability
may be asserted. The Company has not committed any violation of
any federal, state, county, local or foreign Tax laws. All monies
required for the payment of Taxes not yet due and payable with
respect to the operations of the Company through and including the
Closing Date have been approved, reserved against and entered upon
the books and Financial Statements. All monies required to be
withheld by the Company from employees or collected from customers
for Taxes, and the portion of any such Taxes to be paid by the
Company
18
to the appropriate Tax Tribunals or set aside in accounts for such
purpose have been approved, reserved against and entered upon the
books and Financial Statements. The provisions for Taxes shown on
the Interim Financial Statements will be adequate to cover the
liability of the Company for Tax Obligations to the Closing Date.
SECTION 2.16 INVENTORY. No item included in the
inventories, materials or supplies of the Company is pledged as
collateral or held on consignment from others. All such inventory
items are standard quality goods saleable in the ordinary course of
business.
SECTION 2.17 PROPRIETARY RIGHTS. The Company owns or
validly licenses the right to use all technology, proprietary
information, know-how, ideas (patented or unpatented), data,
licenses, customer lists, processes, formulas, trade secrets,
telephone numbers, computer software, computer programs, designs,
inventions, trademarks, trademark registrations and applications
therefor, registered and common law copyrights, and registered
copyright applications, trade names (whether or not registered or
registrable), service marks, service ▇▇▇▇ registrations and
applications therefor (collectively, the "Proprietary Rights")
necessary to conduct the Business of the Company as such Business
is presently being conducted, including without limitation the
trademark "International Advantage." The Company is not currently
using the trade names "La Conexion Directa" and "1-800 Conexion,"
which are owned by ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇. Section 2.17(a) of the
Disclosure Schedule sets forth a complete and correct list
(including without limitation, where applicable, registration
numbers and dates of filing, renewal and termination, license
and/or royalty Contracts or Agreements) of all Proprietary Rights.
No consent or approval of any third party will be required for the
use of the Proprietary Rights by the Company after the consummation
of the transactions contemplated hereby and the transactions
hereunder will not result in any breach of any Contract or
Agreement relating to any Proprietary Rights. No claim or
opposition has been asserted by any Person to the ownership of or
the Company's right to use any of the Proprietary Rights or
challenging or questioning the validity or effect of any Contract
or Agreement relating thereto, and there is no valid basis for any
such claim or assertion. The Company has ownership of, or valid
licenses to use all of, the Proprietary Rights. Each of the
Proprietary Rights is valid and subsisting, has not been cancelled,
abandoned or otherwise terminated and, if applicable, has been duly
asserted, registered and filed. The Proprietary Rights owned by
the Company are owned free and clear of all Liens. The Company has
taken all reasonable steps to establish and preserve its ownership
of all Proprietary Rights. The Company's use of the Proprietary
Rights will not, and the conduct of the Business as presently
conducted does not, infringe on or violate the rights of any other
Person. No Proceedings have been instituted, are pending or are
threatened that challenge or oppose the rights of the Company with
respect to any of the Proprietary Rights. The Company has not
received any notice or inquiry from any Person of any alleged
infringement by the Company. The Company has not given and is not
bound by any Contract or Agreement of indemnification in connection
with any Proprietary Rights or product or service sold or performed
by the Company. Neither the Company nor any Shareholder is aware of
any infringement by others of the Company's Proprietary Rights.
Set forth in Section 2.17(b) of the Disclosure Schedule is a list
of all confidentiality Contracts or Agreements entered into by the
Company relating to the Proprietary Rights and all such contracts
are in full force and effect. No Person has been or is authorized
to use or copy any of the Company's computer software, computer
programs, computer systems, mailing or customer lists (or any part
thereof), and, to the knowledge of the Company and the
Shareholders, no such use or copying has
19
occurred or is occurring. All software owned by the Company is
listed in Section 2.17(c) of the Disclosure Schedule, and except as
disclosed in Section 2.17(c) of the Disclosure Schedule and
performs in accordance with industry standards.
SECTION 2.18 SURETY OBLIGATIONS. The Company is not
obligated as surety or indemnitor under any surety, performance,
completion or similar bond or other Contract or Agreement issued
and has not entered into any Contract or Agreement to assure
payment, performance or completion of performance of any
undertaking or obligation of any Person.
SECTION 2.19 NO BROKERS. Neither the Company nor any of the
Shareholders has employed any broker, agent or finder or incurred
any liability for any brokerage fees, commissions or finders' fees
in connection with the transactions contemplated hereby, except the
success fee of Maverick Management Group ("Maverick"), which is the
sole obligation of the Shareholders.
SECTION 2.20 RECORDS. The minute books, books of account,
stock record books and other records of the Company, all of which
have been made available to Purchaser, contain accurate and
complete records of all corporate actions of the stockholders and
Boards of Directors (and committees thereof) since the
incorporation of the Company.
SECTION 2.21 COMPLIANCE WITH LAW; CONDUCT. The Company has
not violated or failed to comply with any statute, law, ordinance,
regulation, rule or order of any foreign, federal, state or local
government or any other Tribunal or any judgment, order, writ,
injunction or decree of any court, applicable to its Business or
operation, except where such violations or failure to comply would
not have a Material Adverse Effect on the Company. The Company's
Business is conducted in conformity with all applicable foreign,
federal, state and local governmental and regulatory requirements.
The Company has all Permits from governmental agencies required to
conduct its Business as then and are now contemplated to be
conducted except for those Permits which if not obtained would not
individually or in the aggregate have a Material Adverse Effect on
the Company.
SECTION 2.22 REGULATORY COMPLIANCE. Section 2.22 of the
Disclosure Schedule set forth a list of each of the states in which
the Company is engaged in its Business in which states
certification is required and has been obtained and in which states
certification is not required. Except as set forth in the Letter
Agreement, the Company is in compliance with all state and federal
rules and regulations applicable to the Business, including, but
not limited to, those regulations governing the provision of
operator assisted telecommunications services conducted as a pass
through service for AT&T Communications, Inc., including, but not
limited to, the requirements set forth under 47 C.F.R. Section
64.703 - 64.707, and the terms and conditions within each order
granting jurisdictional authority and all related tariffs, and has
timely and completely filed all reports and other documents
required by each state listed on Section 2.22 of the Disclosure
Schedule or any Tribunal of such state to maintain its authority to
provide telecommunications services in such state.
SECTION 2.23 INVESTMENT COMPANY ACT; ETC. The Company 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, or an "investment adviser" within the
meaning of the Investment Advisers Act of 1940, as amended.
20
SECTION 2.24 PUBLIC UTILITY HOLDING COMPANY ACT. The
Company is not a "public utility," a "holding company," an
"affiliate" of a "holding company" or a "subsidiary company" of a
"holding company," within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or a "public utility" within the
meaning of the Federal Power Act, as amended.
SECTION 2.25 INSURANCE. Contained in Section 2.25 of the
Disclosure Schedule is a complete and accurate description of all
insurance maintained by the Company with respect to the assets,
properties and business of the Company. All of the insurable
properties of the Company are insured for their benefit under valid
and enforceable policies, issued by insurers rated B+ or better.
The insurance maintained by the Company is in amounts and of a
nature as is customarily maintained by Persons conducting
operations similar to those of the Company. None of such insurance
coverage will terminate on consummation of the transactions
contemplated hereby.
SECTION 2.26 INSTRUMENTS IN FULL FORCE AND EFFECT;
POSSESSION UNDER LEASES. Section 2.26 of the Disclosure Schedule
contains a complete and accurate list of all material Contracts or
Agreements and obligations, (including, without limitation,
agreements with carriers supplying long distance services to the
Company ("Carrier Agreements"), licenses, royalties, operating and
capital leases, assignments and similar Contracts or Agreements) of
the Company (the "Material Contracts"). Except as set forth on
Section 2.26 of the Disclosure Schedule, all Carrier Agreements
with the Company shall be terminable by the Company upon not more
than thirty days written notice without premium or penalty. The
Material Contracts are valid, binding and in full force and effect
against the Company and have not been amended or supplemented in
any manner or respect except as disclosed in Section 2.26 the
Disclosure Schedule. Except as specifically disclosed in Section
2.26 of the Disclosure Schedule, there are no defaults by the
Company thereunder and neither the Company nor any Shareholder know
of any defaults thereunder by any other party thereto, and no event
has occurred that with the lapse of time or action or inaction by
any party thereto would result in a violation thereof or a default
thereunder.
SECTION 2.27 RECEIVABLES. The Section 2.27(a) of the
Disclosure Schedule contains a complete and accurate list of all
the Company's accounts receivable (including aged accounts
receivable, loan receivables and advances) as of October 31, 1996,
November 30, 1996 and December 31, 1996 showing the name of each
account debtor and the amount due from each by invoice number and
date. All of such accounts receivables and all account receivables
since the date thereof have arisen in the ordinary course of
business for Products delivered or services rendered. Neither the
Company nor any Shareholder is aware of any event or condition with
respect to a specific customer that causes it to believe that any
such receivable will not be collected in full in due course without
resort to litigation and will not be subject to counterclaim or
setoff. Except as set forth in Section 2.27(b) of the Disclosure
Schedule, the write-offs for doubtful accounts reflected on the
various Financial Statements were or will be, as the case may be,
determined in accordance with the Company's Standard Accounting
Practices and past practice consistently applied and adequately
provide for all uncollectible receivables.
SECTION 2.28 ACCOUNTS PAYABLE. Section 2.28 of the
Disclosure Schedule contains a complete and accurate list of all
the Company's aged accounts payable at October 31, 1996,
21
November 30, 1996 and December 31, 1996, showing the name of each
account creditor and the amount due to each by invoice number and
date.
SECTION 2.29 ITEMS REFLECTED IN THE DISCLOSURE SCHEDULE.
Section 2.29 of the Disclosure Schedule contains a complete and
accurate list or brief description of (a) all current or pending
Contracts or Agreements (of real or personal property), between
the Company and any Person that involve, in the aggregate, the
payment or receipt by the Company of more than $5,000, which cannot
be cancelled without penalty upon thirty days' notice; (b) all
employee benefit programs (including but not limited to medical,
profit-sharing or pension plans), employee bonus and incentive
compensation arrangements and accrued and unused vacation time as
of October 31, 1996, of the Company and through the Closing Date;
(c) any compensation, noncompetition, severance, or consulting
Contracts or Agreements between the Company and any of the
Company's employees, consultants or agents at present and any
consulting Contracts or Agreements between the Company and any
consultants for the previous two fiscal years; (d) all Contracts or
Agreements relating to the borrowing of money by the Company or the
direct or indirect guaranty by the Company of any third Person, (e)
the number and job category of all current employees of the
Company, including with respect to key employees, their names, date
of employment, current compensation (including sales commissions)
and date and amount of last increase in compensation; (f) all
capital assets of the Company with a book value greater than $200,
setting forth any Liens or restrictions thereon; (g) federal and
state income Tax Returns for the last three fiscal years; (h) a
list of all Contracts or Agreements for which consents of any
private Persons or public authorities would be required (citing the
section(s) thereof requiring such consents) for the consummation of
the transactions contemplated hereby, or for the preventing of any
termination of any material right, privilege, Contract or Agreement
of, or any loss or disadvantage to, the Company or Purchaser upon
consummation of the transactions contemplated hereby; (i) all
Permits relating to any of the Company's operations and all tariffs
filed by the Company; (j) any Contracts or Agreements of the
Company with any of its competitors; (k) the ten largest customers
of the Company and the ten largest suppliers to the Company for the
fiscal year ended May 31, 1996, and for the period from June 1,
1996 to December 31, 1996; (l) all financing statements filed or
signed which list the Company as a debtor (naming such secured
party, date and place of filing, and identification of the Contract
or Agreement to which such financing statement relates); (m) all
current trade-out arrangements between the Company and any Person;
and (n) the CIC Codes and Access Codes of the Company. The Company
has not received notice, or has knowledge or reason to believe,
that any retail customer who produced monthly revenue to the
Company in November 1996 in excess of $10,000 is seeking or
presently intends to seek to terminate or diminish its relationship
with the Company.
SECTION 2.30 BANK ACCOUNTS; POWERS OF ATTORNEY. Section
2.30 of the Disclosure Schedule completely and accurately lists the
name of each bank, brokerage firm or other financial institution in
which the Company has an account or possesses a safe deposit box
and sets forth the amount and nature of all cash and cash
equivalents contained therein at December 31, 1996. Section 2.30
of the Disclosure Schedule also completely and accurately lists the
names of all Persons authorized to draw thereon, or to have access
thereto or to authorize transactions therein, and the names of all
parties, if any, holding powers of attorney from the Company with
respect thereto or with respect to any
22
other matter, and the account number of any such account. The
Company does not maintain any securities or commodity trading
account or other brokerage account.
SECTION 2.31 PRODUCT AND SERVICE WARRANTIES. There is no
claim against or liability of the Company on account of Product or
service warranties or with respect to the manufacture, sale,
license or lease of Products or performance of services, and except
as disclosed in Section 2.31 of the Disclosure Schedule, there is
no basis for any such claim on account of Products heretofore
manufactured, sold or leased or services performed.
SECTION 2.32 TRANSACTIONS WITH AFFILIATES. Except as set
forth in Section 2.32 of the Disclosure Schedule, the Company has
not engaged in any loans, Contracts or Agreements, or other
transactions with any Shareholder, director, officer or key
employee of the Company, or any member of any such individual's
immediate family or any other Affiliate of the Company. As of the
Closing Date, all advances or loans made by the Company to any
stockholder, officer, director, employee, Affiliate or agent of the
Company will have been repaid in full, with accrued interest to the
date of repayment.
SECTION 2.33 CORRUPT PRACTICES. Since the inception of the
Company, there have been no violations of the Foreign Corrupt
Practices Act or any similar state or federal statute relating to
bribery or similar offenses by the Company or any of their agents.
Neither the Company nor any officer, director, employee or agent of
the Company (or any Person acting on behalf of any of the
foregoing) has since the date of Company's incorporation, given or
agreed to give any gift or similar benefit of more than nominal
value to any customer, supplier, governmental employee or official,
or any other Person who is or may be in a position to help or
hinder the Company or assist the Company in connection with any
actual or proposed transaction, which gift or similar benefit, if
not given in the past, would have a Material Adverse Effect, or
which would subject the Company to penalty in any private or
governmental litigation or Proceeding.
SECTION 2.34 ABSENCE OF BAD DEBT OR UNCOLLECTIBLE ACCOUNTS.
At October 31, 1996 and at the date of each subsequent balance
sheet included in the Interim Financial Statements, the Company had
no bad debt or uncollectible account which has not been revealed
and written off in the Financial Statements.
SECTION 2.35 NO DEFAULT. The Company is not in default
under, and no condition exists that with notice or lapse of time or
both would constitute a default under (a) its respective
Certificate of Incorporation or Bylaws; (b) any Contract or
Agreement or evidences of Indebtedness for borrowed money to which
the Company is a party or by which the Company or any of its assets
bound; or (c) any Order of any Tribunal.
SECTION 2.36 COPIES OF DOCUMENTS; ACCURACY OF INFORMATION
FURNISHED. The Company or the Shareholders have delivered or made
available to Purchaser complete and accurate copies of all
documents listed on the Disclosure Schedule and all other
information requested for deciding whether to consummate the
transactions hereby. All of the exhibits and schedules provided by
the Company or the Shareholders are true, correct and complete in
all material respects and no written representation, warranty or
statement made by the Company or the Shareholders in or pursuant to
23
this Agreement contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact to
make such representation, warranty or statement not misleading to
Purchaser who are seeking complete and accurate information with
respect to the Company.
SECTION 2.37 TITLE TO SHARES. The Shareholders are the
lawful owners of the number of shares of Company's Common Stock set
forth below:
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ 68,750
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 18,750
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 18,750
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 18,750
The Shareholders are the sole holders and owners (beneficially and
of record) of all of the Company's Common Stock. Each of the
Shareholders holds good, valid and indefeasible title to such
Shares. The Shareholders each possess full authority and legal
right to sell, transfer and assign the entire legal and beneficial
ownership of the Shares issued to each of them, free and clear of
all Liens, Contracts or Agreements with respect to voting or the
purchase or sale of securities, preemptive rights, proxies or
other interests of any nature of any Person ("Restrictions").
There are no outstanding rights or obligations granted by any of
the Shareholders to purchase or acquire any of the Shares except
pursuant to this Agreement. Upon the transfer of the Shares to
Purchaser hereunder at Closing, Purchaser will own the entire legal
and beneficial interest in the Shares free and clear of all
Restrictions.
SECTION 2.38 DISCLOSURE.
(a) No representation or warranty of any of the
Shareholders or the Company contained in this Agreement or
statement in the Disclosure Schedule contains any untrue
statement or omits to state a material fact necessary in order
to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading.
(b) There is no fact known to Shareholders or the
Company which has specific application to the Company and
which could have a Material Adverse Effect but which has not
been set forth in this Agreement or the Disclosure Schedule
hereto.
(c) The disclosures in the Disclosure Schedule attached
hereto shall relate only to the representations and warranties
in the Section of this Agreement to which they expressly
relate and to no other representation or warranty in this
Agreement.
(d) In the event of any inconsistency between the
statements in the body of this Agreement and those in the
Disclosure Schedule attached hereto (other than an exception
expressly set forth as such in the Disclosure Schedule in
relation to a specifically identified representation or
warranty), those in this Agreement shall control.
SECTION 2.39 NO SOLICITATION. Since November 27, 1996,
neither the Company or any of its officers, directors nor any of
the Shareholders have, or have permitted any of their respective
24
agents or representatives (including, without limitation,
investment bankers, attorneys and accountants), directly or
indirectly to (a) solicit, initiate or encourage submission of
proposals or offers by, or (b) furnish any information with respect
to or otherwise cooperate in any way with, or participate in any
discussions or negotiations with, any Person (other than Purchaser)
with respect to any proposal regarding the acquisition or purchase
of all or a material portion of the assets of, or any equity
interest in the Company or any business combination with the
Company.
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Except as set forth in the disclosure schedule delivered to
the Company and the Shareholders by Purchaser contemporaneously
with the execution hereof (the "Purchaser Disclosure Schedule"),
Purchaser hereby represents and warrants to the Company and each of
the Shareholders as follows, regardless of what investigations, if
any, the Company or the Shareholders shall have made prior hereto:
SECTION 3.1 ORGANIZATION; QUALIFICATION. Purchaser is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Purchaser has full
corporate power and authority to own and lease all of the
properties and assets it now owns and leases and to carry on its
business as now being conducted.
SECTION 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT.
Purchaser has the corporate power and authority to execute, deliver
and perform this Agreement and the other Operative Documents to
which it is a party and to consummate the transactions contemplated
hereby and thereby. USC has the corporate power and authority to
execute, deliver and perform the Pledge Agreement and to consummate
the transactions contemplated thereby. The execution and delivery
by Purchaser and USC of the Operative Documents to which it is a
party, and the consummation of the transactions contemplated hereby
and thereby, have been duly and validly authorized by the Board of
Directors of Purchaser and USC, respectively, and no other
corporate proceedings on the part of Purchaser or USC are necessary
with respect thereto. This Agreement has been duly and validly
executed and delivered by Purchaser and constitutes a legal, valid
and binding obligation of Purchaser, enforceable against it in
accordance with its terms, except as enforcement hereof may be
limited by bankruptcy, insolvency, fraudulent conveyance,
moratorium or other similar laws affecting enforcement of
creditors' rights generally. The Pledge Agreement, when executed
and delivered by USC, will constitute a legal, valid and binding
obligation of USC, enforceable against USC in accordance with its
terms, except as enforcement hereof may be limited by bankruptcy,
insolvency, fraudulent conveyance, moratorium or other similar laws
affecting enforcement of creditors' rights generally. As of the
date hereof, to Purchaser's knowledge and except as contemplated by
this Agreement, Purchaser is not prohibited by any Tribunal or
Contract or Agreement from acquiring the Company.
SECTION 3.3 INVESTMENT. Purchaser is acquiring the Shares
for its investment only and not with a view to the public
distribution or resale thereof or any interest therein in violation
of the Securities Act of 1933 (the "Securities Act") or any other
applicable federal laws or regulations. Purchaser is familiar with
the meaning of the foregoing representation and fully understands
the restrictions and limitations that are imposed thereby. The
Shareholders have disclosed to Purchaser, and Purchaser understands
and agrees, that Purchaser must bear the economic risk of its
investment
25
in the Shares for an indefinite period of time because the Shares
have not been registered under the Securities Act or any state blue
sky law, and therefore, cannot be sold unless subsequently
registered under the Securities Act and applicable state blue sky
laws (or unless an exemption from such registration is available).
Purchaser is able and prepared to bear the economic risks of
investing in and holding the Shares for an indefinite period of
time. At all times during this transaction and at the date of this
Agreement, Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits
and risk of the investment in the Shares. Purchaser has had access
to such financial and other information and has been afforded the
opportunity to ask such questions of the Shareholders and
representatives of the Company (and has received answers and/or
representations in this Agreement with respect thereto) as it deems
necessary in connection with its decision to purchase the Shares.
Nothing in this Section 3.3 shall eliminate or affect the right of
Purchaser to indemnity under Article 8 of this Agreement.
SECTION 3.4 NON-CONTRAVENTION. Neither the execution nor
delivery of this Agreement by Purchaser, nor the consummation by
Purchaser of the transactions contemplated hereby, will (i) violate
any provision of the Certificate of Incorporation or bylaws of
Purchaser or (ii) assuming the representations and warranties of
the Shareholders set forth in Article II hereof are true and
correct, the Company is in compliance with all applicable laws,
rules and regulations regarding its Business, and assuming that
the Company has no Indebtedness, (A) violate, or result with the
passage of time in a violation of, any provision of any mortgage,
lien, lease, agreement, license or instrument to which Purchaser is
a party or to which it is subject, except such violations which
would not have a Material Adverse Effect on the Company and its
subsidiaries taken as a whole, (B) result in the acceleration of,
entitle any party to accelerate any obligation under, or result in
the creation or imposition of any claim, lien, pledge, security
interest, restriction or other encumbrance upon any of the property
of Purchaser (other than the security interest of Greyrock Business
Credit in the assets and stock of the Company upon acquisition by
Purchaser of the Shares) pursuant to any provision of any mortgage,
lien, lease, agreement, license or instrument to which Purchaser is
a party or to which Purchaser is subject, or (C) other than any
regulatory approvals required in connection with the transfer of
ownership the Company from the Shareholders to Purchaser, violate
any judgement, order, writ, injunction, decree, regulation or rule
of any court or governmental authority applicable to Purchaser or
its assets.
SECTION 3.5 NO BROKERS. Purchaser has not employed any broker
or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions
contemplated hereby.
SECTION 3.6 PROCEEDINGS. There are no Proceedings pending or,
to the knowledge of Purchaser, threatened against Purchaser,
whether at law or in equity and whether civil or criminal in
nature, before any Tribunal nor are there any Orders of any such
Tribunal outstanding against Purchaser which, in either case, seek
specifically to prohibit, restrict, or delay consummation of the
transactions contemplated hereby or fulfillment of any of the
conditions upon the obligations of the Purchaser under this
Agreement.
SECTION 3.7 DISCLOSURE. Purchaser has previously furnished
to the Shareholders copies of the following reports and/or filings
of Purchaser: Annual Report on Form 10-KSB for the year ended
26
December 31, 1995, definitive proxy statement dated April 25, 1995,
Quarterly Reports on Form 10-QSB for the quarters ended March 31,
1996, June 30, 1996 (as amended by Form 10Q-SB/A filed with the
Commission on August 29, 1996), Current Reports on Form 8-K dated
February 29, 1996, May 23, 1996, June 24, 1996, July 29, 1996, and
December 10. 1996 (the "SEC Filings"). None of the SEC Filings at
the time of filing contained any untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE 4. ADDITIONAL AGREEMENTS
SECTION 4.1 INVESTIGATION OF BUSINESS AND PROPERTIES. No
investigations by the Purchaser or its employees, representatives
or agents shall reduce or otherwise affect the obligation or
liability of the Company or any of the Shareholders with respect to
any representations, warranties, covenants or agreements made
herein or in an Exhibit, Schedule or other certificate, Contract or
Agreement or document (including the Disclosure Schedule), executed
or delivered in connection with this Agreement.
SECTION 4.2 CONFIDENTIALITY. Each party agrees with
respect to all technical, commercial and other information that is
furnished or disclosed by the other parties, including, but not
limited to, information regarding such party's (and its
Subsidiaries' and Affiliates') organization, personnel, business
activities, customers, subscribers, policies, assets, finances,
costs, sales, revenues, technology, rights, obligations,
liabilities and strategies (the "Information"), that, unless and
until the transactions contemplated hereby shall have been
consummated, (a) such Information is confidential and/or
proprietary to the furnishing/disclosing party and entitled to and
shall receive treatment as such by the receiving party; (b) the
receiving party will hold in confidence and not disclose or use
(except in respect of the transactions contemplated hereby) any
such Information, treating such Information with the same degree of
care and confidentiality as it accords its own confidential and
proprietary information; provided, however, that the receiving
party shall not have any restrictive obligation with respect to any
Information that (i) is contained in a printed publication
available to the general public, (ii) is or becomes publicly known
through no wrongful act or omission of the receiving party, or
(iii) is known by the receiving party without any proprietary
restrictions by the furnishing/disclosing party at the time of
receipt of such Information; and (c) all such Information furnished
to a party by another, unless otherwise specified in writing, shall
remain the property of the furnishing/disclosing party and, in the
event this Agreement is terminated, shall be returned to it,
together with any and all copies made thereof, upon request for
such return by it (except for documents submitted to a governmental
agency with the consent of the furnishing/disclosing party or upon
subpoena and that cannot be retrieved with reasonable effort), and
each party shall confirm in writing to the others compliance with
any such request. Each party hereto acknowledges that the remedy
at law for any breach by a party of its obligations under this
section is inadequate and that the other parties shall be entitled
to equitable remedies, including injunctive relief, in the event of
breach by any other party.
SECTION 4.3 INVESTIGATION OF FINANCIAL STATEMENTS. The
Company agrees to give, and agrees to cause its independent
certified public accountants to give, such assistance to the
independent certified public accountants of Purchaser, and to
employees or representatives of
27
Purchaser as it may reasonably request in connection with their
review of the Financial Statements. Such review shall specifically
include, without limitation, the right to examine any notes and
work papers related thereto.
SECTION 4.4 AGREEMENT TO CONSUMMATE. Subject to the terms
and conditions herein provided, each of the parties hereto agrees
to use commercially reasonable efforts to do all things necessary,
proper or advisable under applicable laws and regulations to
consummate and make effective, as soon as reasonably practicable,
the transactions contemplated by this Agreement, including, but not
limited to, the obtaining of all consents, authorizations, orders
and approvals of any Tribunal required in connection therewith and
initiating or defending any legal action that is necessary or
appropriate to permit the transactions contemplated hereby to be
consummated. At any time after the Closing Date, if any further
action is necessary, proper or advisable to carry out the purposes
of this Agreement, then, as soon as is reasonably practicable, each
party to this Agreement shall take, or cause its proper officers to
take, such action. No party to this Agreement shall take or cause
to be taken any action that would cause the representations or
warranties expressed herein to be untrue or incorrect on the
Closing Date.
SECTION 4.5 NOTICE. The Company and the Shareholders shall
promptly give notice to Purchaser upon becoming aware of the
occurrence or failure to occur, or the impending or threatened
occurrence or failure to occur, of any event that would cause or
constitute, any of their representations or warranties being or
becoming untrue. Purchaser will promptly give notice to the
Company and the Shareholders upon becoming aware of the occurrence
or failure to occur, of any event that would cause or constitute,
any of their representations or warranties being or becoming
untrue.
SECTION 4.6 PUBLIC ANNOUNCEMENTS. The Shareholders shall
not make any public statement with respect to this Agreement or the
transactions contemplated hereby on behalf of themselves or the
Company without prior consent and approval of the content thereof
by Purchaser; provided, however, that any Shareholder shall be
permitted to disclose this transaction and the contents hereof to
any governmental agencies seeking such information from Shareholder
as an individual and not as a representative of the Company as such
Shareholder's legal counsel shall deem necessary to comply with
applicable law.
ARTICLE 5. CONDITIONS PRECEDENT TO CLOSING
SECTION 5.1 GENERAL CONDITIONS. Consummation of the
Transactions shall be subject to the fulfillment at the Closing
Date of each of the following conditions:
(a) NO INJUNCTION. No court having jurisdiction shall
have issued, to the knowledge of Purchaser, the Company or any
Shareholder, an injunction preventing the consummation of the
Transaction that shall not have been stayed or dissolved at
the Closing Date.
(b) PROCEEDINGS. All proceedings taken or to be taken
in connection with the transactions contemplated hereby, and
all documents incident thereto shall be reasonably
28
satisfactory in form and substance to the parties and their
counsel, and the parties and their counsel shall have received
all such counterpart originals or certified or other copies of
such documents as the parties or their counsel may reasonably
request.
(c) OTHER AGREEMENTS. The appropriate Persons shall
have executed the Nonsolicitation Agreements, and the Pledge
Agreement.
SECTION 5.2 CONDITIONS TO CLOSING IN FAVOR OF THE
COMPANY. Consummation of the Transactions shall be subject to the
fulfillment, to the satisfaction of the Company, or written waiver,
at or before the Closing Date, of each of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF PURCHASER. The
representations, warranties and statements of Purchaser
contained in this Agreement, the exhibits hereto and the
Purchaser Disclosure Schedule, shall be complete and accurate
as of the date of this Agreement and shall also be complete
and accurate at and as of the Closing Date, except for changes
contemplated by this Agreement, as if made on the Closing
Date; and Purchaser shall have performed or complied with all
agreements and covenants required by this Agreement to be
performed or complied with by them at or prior to the Closing
Date.
(b) PURCHASER OFFICER'S CERTIFICATES. Purchaser shall
have delivered to the Shareholders a certificate, dated the
Closing Date, of a President or Vice President of Purchaser to
the effect that (a) such Person is familiar with the
provisions of this Agreement and (b) the conditions specified
in Section 5.1 and in Section 5.2(a) have been satisfied in
all material respects.
SECTION 5.3 CONDITIONS TO CLOSING IN FAVOR OF
PURCHASER. Consummation of the Transactions shall be subject to
the fulfillment, to the satisfaction of Purchaser, or its written
waiver, at or before the Closing Date of the following conditions:
(a) COPIES OF RESOLUTIONS OF THE COMPANY. The Company
shall have furnished Purchaser with copies of resolutions duly
adopted by the Board of Directors and Shareholders approving
the execution and delivery of the Operative Documents, and the
consummation of the transactions contemplated thereby,
certified as of the Closing Date by the Secretary or an
Assistant Secretary of the Company.
(b) OPINION OF COUNSEL FOR THE COMPANY AND THE
SHAREHOLDERS. The Company and the Shareholders shall have
furnished Purchaser with an opinion dated the Closing Date of
Nowalsky & ▇▇▇▇▇▇▇▇, L.L.P., counsel for the Company and
Shareholders, in form attached hereto as "Exhibit C".
(c) REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND
SHAREHOLDERS. The representations, warranties and statements
of the Company and Shareholders contained in this Agreement,
the exhibits hereto and the Disclosure Schedule shall be
complete and accurate as of the date of this Agreement and
shall also be complete and accurate at and as of the Closing
Date, except for changes contemplated by this Agreement, as if
made at and
29
as of the Closing Date; and the Company and each of the
Shareholders shall have performed or complied with all
agreements and covenants required by this Agreement to be
performed or complied with by such Person at or prior to the
Closing Date.
(d) OFFICERS' AND SHAREHOLDERS' CERTIFICATE. The
Company and each of the Shareholders shall have delivered to
Purchaser a certificate, dated the Closing Date (and, with
respect to the Company, signed by the President and Secretary
of such entity) to the effect that (a) they are familiar with
the provisions of this Agreement and (b) the conditions
specified in Section 5.1 and in Section 5.3(c) have been
satisfied.
(e) GOVERNMENTAL CONSENTS, AUTHORIZATIONS, ETC. Except
as provided in the Letter Agreement, all consents,
authorizations, orders or approvals of, and filings or
registrations with, and any permits, licenses or other
authorizations required by, any applicable Tribunal that are
required for or in connection with, the execution and delivery
of this Agreement by Purchaser and the consummation by
Purchaser of the transactions contemplated hereby shall have
been obtained or made.
(f) LEGISLATION. No law or legally binding regulation
shall have been enacted that does or would prohibit, restrict
or delay consummation of the Transactions or any of the
conditions to the consummation of the Transactions or that
does or would have a Material Adverse Effect on the Company.
(g) LITIGATION. There shall be no effective injunction,
writ or preliminary restraining order or any other Order of
any nature issued by a Tribunal of competent jurisdiction
restraining or prohibiting consummation or altering the terms
of any of the transactions provided for herein, or actions
seeking damages based upon the foregoing.
(h) NO ADVERSE CHANGE. There shall have occurred no
adverse change (whether or not covered by insurance) in the
assets or financial condition of the Company since May 31,
1996 or in the information furnished to Purchaser by the
Company or the Shareholders with respect to the Company prior
to the date hereof except as set forth in the Disclosure
Schedule.
(i) PURCHASER'S INVESTIGATION. The investigations by
Purchaser and its representatives in connection with the
proposed Transactions shall not have caused Purchaser, or its
representatives to become aware of any facts or circumstances
(even if such facts or circumstances were previously disclosed
to the Purchaser in the Disclosure Schedule or elsewhere in
the Operative Documents) which relate to the business,
operations, assets, properties, liabilities, financial
conditions, results of operation or affairs of the Company
that, in the sole judgment of Purchaser make it inadvisable
for Purchaser to proceed with the Transactions contemplated by
this Agreement.
(j) INDEBTEDNESS. At Closing, the Company shall have no
Indebtedness of any kind or nature except as disclosed in
Section 2.29(ii) of the Disclosure Schedule.
30
(k) AUDITED FINANCIAL STATEMENTS. Purchaser shall have
received revised Annual Financial Statements which have been
audited without qualification and do not show any deviation or
departure from GAAP and such revised Financial Statements for
the year ended (and as of) May 31, 1996. All of the costs
associated with the audit shall be borne by Purchaser except
as reflected by the Audit Bid Amount previously expensed by
the Company. Such revised Annual Financial Statements shall
be found to be satisfactory to Purchaser in its sole and
absolute discretion.
(l) CARRIER AGREEMENTS. Except as set forth on Section
2.26 of the Disclosure Schedule, all Carrier Agreements with
the Company shall be terminable by the Company upon not more
than thirty days written notice without premium or penalty.
(m) CIC CODES AND ACCESS CODES. No Person shall have
the right to terminate the use by the Company of the CIC Codes
and Access Codes upon consummation of the transactions
contemplated hereby.
(n) INVESTOR NOTES. The Company and the Shareholders
shall have delivered to Purchaser (1) an executed release by
each such holder in form and substance satisfactory to
Purchaser which indicates that the Investor Notes are paid in
full, and (2) checks dated January 7, 1997 payable to the
order of each such holder in the full amounts set forth on
"Exhibit D" hereto for mailing by registered mail to such
holders of the Investor Notes.
(o) WHOLESALE BAD DEBT. The Company shall have expensed
fully in the month ended October 31, 1996 an amount equal to
the Wholesale Bad Debt.
(p) LENDER CONSENT. Purchaser shall have received the
consent of Greyrock Business Credit to consummation of the
transactions contemplated by this Agreement, if required.
(r) WORLDCOM. The Company shall have withdrawn its
Motion for Temporary Retraining Order, Preliminary Injunctive
Relief and Complaint No. USDC 96-4108 Sect K. Mag 4 in
accordance with the letter agreement executed by WorldCom,
Inc., the Purchaser and the Company.
ARTICLE 6. CLOSING DATE AND TERMINATION OF AGREEMENT
SECTION 6.1 CLOSING DATE.
(a) Subject to the right of the Purchaser and the
Company to terminate this Agreement pursuant to Article 7
hereof, the closing for the consummation of the transactions
contemplated by this Agreement (the "Closing") shall, unless
another date or place is agreed to in writing by the Company
and Purchaser, take place at the offices of Purchaser at 3:00
p.m. on January 10, 1997 or such later date prior to January
15, 1996 as the parties may agree upon in writing (the
"Closing Date").
(b) At the Closing, the Company and the Shareholders, as
applicable, shall deliver, or cause to be delivered to the
Purchaser, the following:
31
(1) the original stock certificates representing
the Shares, together with stock powers duly endorsed in
blank;
(2) the opinion of counsel for the Company and the
Shareholders referred to in Section 5.3(b);
(3) the certificate referred to in Section 5.3(d),
dated as of the Closing Date;
(4) resignations of the directors and officers of
the Company;
(5) good standing certificates (as to valid
existence and franchise tax payments) from the
appropriate governmental authorities in California and
each other jurisdiction listed on Section 2.1 of the
Disclosure Schedule;
(6) the Nonsolicitation Agreements executed by each
of the Shareholders and the Pledge Agreement executed by
the Shareholder Agent;
(7) certified copies of the resolutions of the
Board of Directors, authorizing the execution, delivery
and performance of the Operative Documents;
(8) evidence of the payment in full of the Investor
Notes and the releases executed by each of the holders of
the Investor Notes; and
(9) the corporate minute books, stock transfer
ledgers, blank certificate books and corporate seal of
the Company.
(c) At the Closing, Purchaser shall cause to be
delivered to Shareholders the following:
(1) the certificate referred to in Section 5.2(b)
dated as of the Closing Date;
(2) the Pledge Agreement executed by USC and the
Pledged Shares;
(3) certified copies of the resolutions of the
Board of Directors of Purchaser, authorizing the
execution, delivery and performance of the Operative
Documents;
(4) the amounts of the wire transfers to be made
pursuant to Section 1.6(b) hereof.
ARTICLE 7. AMENDMENT
SECTION 7.1 AMENDMENT. This Agreement and the exhibits and
schedules hereto may be amended by the parties hereto at any time
after the Closing Date; provided, however, that any amendment must
be by an instrument or instruments in writing signed and delivered
on behalf of each of the parties hereto.
32
ARTICLE 8. INDEMNIFICATION
SECTION 8.1 INDEMNITY.
(a) Shareholders jointly and severally agree to
indemnify and hold Purchaser, its subsidiaries (including the
Company), and their respective officers, directors, agents,
attorneys and accountants ("Purchaser Indemnitees") harmless
from any and all damages, losses (which shall include any
diminution in value), liabilities (joint or several),
payments, obligations, penalties, claims, litigation, demands,
defenses, judgments, suits, proceedings, costs, disbursements
or expenses (including without limitation, fees, disbursements
and expenses of attorneys, accountants and other professional
advisors and of expert witnesses and costs of investigation
and preparation) of any kind or nature whatsoever
(collectively "Damages"), directly or indirectly resulting
from, relating to or arising out of:
(i) an actual or alleged breach or nonperformance
(partial or total) of or inaccuracy in any representation
or warranty or covenant or agreement of any of
Shareholders or the Company contained in any Operative
Document;
(ii) an actual or alleged breach or nonperformance
(partial or total) by the Company or any of the
Shareholders of any covenant or agreement of any of
Shareholders or the Company (or any Affiliate thereof)
contained in any Operative Document;
(iii) all claims based on any Plans of
whatsoever nature (including all liabilities to any
Person under ERISA and all liabilities to any Tribunal)
or for salary or other compensation, worker's
compensation claims, and benefits attributable to service
or to employment by the Company prior to the Closing;
(iv) the success fee of Maverick and all alleged
claims by any broker or finder against the Company or
Purchaser as a result of an alleged Contract or Agreement
with the Company or the Shareholders in connection with
the transactions contemplated hereby;
(v) all litigation disclosed on Section 2.9 of the
Disclosure Schedule with respect to actions or omissions
of the Company or event occurring prior to the Closing;
(vi) the matters set forth in Section 5 of the
Letter Agreement to the extent set forth therein;
(vii) all other alleged violations of any local,
state, or federal laws, rules or regulations relating to
any aspect of the Company's Business and transfer of
ownership of the Shares where such claims arise out of
circumstances occurring prior to the Closing Date.
33
(viii) all alleged violations of any local, state or
federal laws, rules or regulations relating to the
employment relationship (such as the use of independent
contractors, termination of employment, wages, hours,
concerted activity, discrimination, occupational health
and safety and the payment and withholding of Taxes),
where such claims arise out of circumstances occurring
prior to the Closing Date.
(ix) any claims based on the use of scientology
concepts in the Company's employee handbook on or prior
to the Closing Date.
The Company shall have the right to control any defense
of any Claim for which Purchaser may seek indemnification
except for those defenses raised in response to any claim
made by any of the Shareholders.
(b) Subject to Section 8.1(c) hereof, from and after the
Closing Date, Purchaser shall indemnify and hold the
Shareholders and their representatives, officers, directors,
agents, attorneys and accountants ("Seller Indemnitees")
harmless from and against, any and all liability, damage,
loss, cost or expense (including reasonable attorneys fees)
that is based upon or that arises out of any actual or
alleged breach or nonperformance (partial or total) of any
representation or warranty, covenant or agreement of Purchaser
contained in this Agreement or any other Operative Document.
In addition, after the Closing, each Shareholder who serves as
an officer and employee of the Company shall be entitled to
the benefits of the indemnification provisions set forth in
Purchaser's bylaws to the same extent as any other officer and
employee of Purchaser or its subsidiaries is so entitled.
(c) Each Shareholder shall retain liability, and shall
jointly and severally indemnify Purchaser, for the payment of
any Tax liabilities of the Company with respect to its assets
and the conduct of its Business during all periods ending as
of or prior to the Closing.
(d) In order to seek indemnification from the
Shareholders for any amount beyond the amounts held in escrow
pursuant to the provisions of Section 1.5 and Section 1.7
hereof, Purchaser shall give the Shareholder Agent written
notice of a claim (an "Indemnification Notice") that Purchaser
has under Article 8 of this Agreement stating the dollar
amount of the Damages claimed. Within 10 Business Days after
an Indemnification Notice is received by the Shareholder
Agent, the Shareholder Agent shall have the right to file with
Purchaser written notice that the Shareholders intend to
contest Purchaser's claim. If, within such 10 Business Day
period, Purchaser does not receive such notice from the
Shareholder Agent or receives notice from the Shareholder
Agent that such claim is uncontested, Purchaser shall be
entitled to indemnification in the amount of Damages claimed
in the Indemnification Notice without further action
hereunder. If within such 10 Business Day period, Purchaser
shall receive notice from the Shareholder Agent of the
intention of the Shareholders to contest Purchaser's
Indemnification Notice, the Purchaser and Shareholder Agent
shall attempt to reach a mutually satisfactory agreement with
respect to such claim. In the event the Purchaser and
Shareholder Agent shall not reach a mutually satisfactory
agreement with respect to such claim within thirty days of
receipt of the notice
34
from the Shareholder Agent to contest Purchaser's
Indemnification Notice, such claim shall be submitted to
Arbitration in accordance with Section 9.9 hereof. In the
event that Purchaser is not paid the entire amount of Damages,
if any, to which Purchaser is entitled with respect to any
claim under Article 8 of this Agreement within 5 days of the
earlier to occur of: (i) receipt of written notice from the
Shareholder Agent consenting to Damages; (ii) receipt of a
written final decision of the Arbitration Panel pursuant to
Section 9.9 directing disposition of a specified amount of
Damages to Purchaser after Arbitration, Purchaser shall be
entitled to receive from the Shareholders, in addition to the
amount of Damages so agreed or awarded, an amount equal to 10%
of the amount not paid as a penalty hereunder.
(e) In order to seek indemnification from
Purchaser, the Shareholder Agent shall give the Shareholder
Agent written notice of a claim (an "Shareholder
Indemnification Notice") that the Shareholders have under
Article 8 of this Agreement stating the dollar amount of the
Damages claimed. Within 10 Business Days after an Shareholder
Indemnification Notice is received by Purchaser, Purchaser
shall have the right to file with the Shareholder Agent
written notice that Purchaser intends to contest claim. If,
within such 10 Business Day period, the Shareholder Agent does
not receive such notice from Purchaser or receives notice from
Purchaser that such claim is uncontested, the Shareholder
Agent on behalf of the Shareholders shall be entitled to
indemnification in the amount of Damages allocated in
accordance with the Shareholder Percentages claimed in the
Indemnification Notice without further action hereunder. If
within such 10 Business Day period, the Shareholder Agent
shall receive notice from Purchaser of the intention of
Purchaser to contest the Shareholder's Indemnification Notice,
the Purchaser and Shareholder Agent shall attempt to reach a
mutually satisfactory agreement with respect to such claim.
In the event the Purchaser and Shareholder Agent shall not
reach a mutually satisfactory agreement with respect to such
claim within thirty days of receipt of the notice from
Purchaser to contest the Shareholder's Indemnification Notice,
such claim shall be submitted to Arbitration in accordance
with Section 9.9 hereof. In the event that the Shareholder
Agent is not paid the entire amount of Damages, if any, to
which the Shareholders are entitled with respect to any claim
under Article 8 of this Agreement within 5 days of the earlier
to occur of: (i) receipt of written notice from Purchaser
consenting to Damages; (ii) receipt of a written final
decision of the Arbitration Panel pursuant to Section 9.9
directing disposition of a specified amount of Damages to the
Shareholder Agent after Arbitration, the Shareholder Agent on
behalf of the Shareholders in accordance with the
Shareholder's Percentages shall be entitled to receive from
Purchaser, in addition to the amount of Damages so agreed or
awarded, an amount equal to 10% of the amount not paid as a
penalty hereunder.
SECTION 8.2 INDEMNIFICATION IF NEGLIGENCE OF INDEMNITEE.
The indemnification provided in this Article 8 shall be applicable
whether or not negligence of the applicable Purchaser Indemnitee or
Seller Indemnitee is alleged or proven.
SECTION 8.3 NO THIRD PARTY BENEFICIARIES. The foregoing
indemnification is given solely for the purpose of protecting the
parties to this Agreement and the Purchaser Indemnitees and the
Seller Indemnitees and shall not be deemed extended to, or
interpreted in a manner to confer any benefit, right or cause of
action upon, any other Person.
35
SECTION 8.4 REMEDIES OF PURCHASER. In any proceeding by
Purchaser to assert or prosecute any claims under, or to otherwise
enforce, this Agreement, the Shareholders covenant and agree that
they shall not assert as a defense or bar to recovery by Purchaser,
and hereby waive any right to so assert such defense or bar such
recovery, that (a) prior to Closing, the Company shall have had
knowledge of the circumstances giving rise to the claim being
pursued by it; (b) prior to Closing, the Company engaged in conduct
or took action that caused or brought about the circumstances
giving rise to its claim, or otherwise contributed thereto; or (c)
the Company is estopped from asserting or recovering upon its claim
by reason of having joined in the representations, warranties and
covenants made by the parties in this Agreement; or (d) the
Shareholders have a right of contribution from the Company to the
extent that there is any recovery against them.
ARTICLE 9. GENERAL PROVISIONS AND OTHER AGREEMENTS
SECTION 9.1 NOTICES. All notices and other communications
hereunder shall be in writing and shall be deemed given if and when
delivered personally or transmitted by telex, telecopy or telegram,
mailed by registered or certified mail (return receipt requested)
or sent by a recognized next business day courier to the following
Persons at the following addresses (or at such other address for a
party as shall be specified by like notice):
(a) If to Purchaser:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇. ▇▇▇▇, ▇▇., Chairman and Chief
Executive Officer
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President and General Counsel
at the same address
(b) If to the Company:
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, President
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Nowalsky & ▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
36
(c) If to the Shareholders:
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇. #▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
with copies to:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, #▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
SECTION 9.2 FEES AND EXPENSES. The Company shall pay all
fees, costs and expenses (including without limitation, those of
accountants, appraisers and attorneys) of the Company and their own
fees, costs and expenses (including without limitation, those of
accountants and attorneys) incurred in connection with or related
to the preparation, negotiation, execution, delivery, satisfaction,
compliance and consummation of this Agreement and the transactions
contemplated hereby and the closing conditions hereunder. Except
as provided in Section 4.3 hereof, Purchaser shall pay its own such
fees, costs and expenses (including without limitation, those of
accountants and attorneys) and the fees of Nowalsky & ▇▇▇▇▇▇▇▇,
L.L.P. in connection with the regulatory approvals required in the
Primary Jurisdictions for the change of ownership of the Company.
The Shareholders shall pay the success fee due Maverick.
SECTION 9.3 INTERPRETATION. The headings contained in this
Agreement are for reference purposes only and shall not affect the
meaning or interpretation of this Agreement. Terms such as
"herein," "hereof," "hereinafter" refer to this Agreement as a
whole and not to the particular sentence or paragraph where they
appear, unless the context otherwise requires. Terms used in the
plural include the singular, and vice versa, unless the context
otherwise requires.
SECTION 9.4 COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
SECTION 9.5 MISCELLANEOUS. This Agreement and the
Operative Documents (a) constitutes the entire agreement and
supersedes all other prior Contracts or Agreements, both written
and oral, among the parties, or any of them, with respect to the
subject matter hereof; (b) is not intended to and shall not confer
upon any other Person any rights or remedies hereunder or otherwise
with
37
respect to the subject matter hereof, except for rights that may
expressly arise as a consequence of the Transaction; (c) shall not
be assigned by operation of law or otherwise; (d) has been drafted
by all of the parties to this Agreement and should not be construed
against any of the parties hereto; and (e) shall be governed in all
respects, including validity, interpretation and effect by the
substantive laws of the State of Texas without regard to conflict
of law provisions.
SECTION 9.6 SURVIVAL. No investigation by the parties
hereto made heretofore or hereafter shall affect the
representations and warranties of the parties that are contained
herein, and each such representation and warranty shall survive
such investigation and the consummation of the transaction
contemplated by this Agreement until the earlier to occur of (i)
the end of the applicable statute of limitations period with
respect to the matter addressed by any other claim for
indemnification hereunder and (ii) January 10, 2000, except (A) as
to matters which notice has been given by Purchaser to the
Shareholder Agent prior to that date, (ii) as to Tax matters, which
shall survive until the running of the applicable statute of
limitations with respect to such Tax matter, and (iii) with
respect to the representations and warranties of the Shareholders
in Section 2.38 which shall survive indefinitely.
SECTION 9.7 INDEPENDENT OBLIGATIONS OF SHAREHOLDERS. Each
of the Shareholders acknowledges and agrees that such Shareholder's
execution hereof constitutes such Shareholder's agreement to be
bound irrespective of any other Shareholder's execution hereof. In
no event shall Purchaser be bound by the terms hereof unless all
Shareholders agree to be bound by the terms hereof. In no event
shall any Shareholder who fails to execute this Agreement be
entitled to any payment hereunder or under any document or
transaction contemplated hereby.
SECTION 9.8 OFFER OF EMPLOYMENT AND SALARY REDUCTION. The
Company and the Shareholders hereby agree that, in the event the
Closing occurs:
(a) the Shareholders shall continue to be employed full-
time by the Company for a period of six full months following
the Closing (the "Employment Period") at the following monthly
salaries with the following titles:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ President $10,000
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ Employee $10,000
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President $ 6,333
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Vice President $10,000
and the duties and responsibilities of each such Shareholder
shall be decided by the Company's Chairman and Chief Executive
Officer. The parties understand and agree that ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ may resign from employment after providing two weeks
written notice to the Company and Purchaser, and that such
resignation shall not be considered a breach of this Section
9.8.
(b) in the event that EBITDA is not greater or equal to
$100,000 each calendar month during the third through sixth
calendar month following the Closing Date, each such
Shareholder's salary shall be proportionately reduced (based
upon the amount of such
38
Shareholder's monthly salary) by the amount by which the Company's
monthly EBITDA is less than $100,000; provided, however, in no
event shall a Shareholder's monthly salary be reduced below 65% of
the monthly salary stated above. For purposes of the calculation
of EBITDA, (i) Purchaser will not allocate any costs to the Company
for a method of business not being conducted by the Company on or
prior to Closing, and (ii) Purchaser will not allocate any costs
or expenses of its other operations to the Company.
(c) if a Shareholder does not maintain full-time
employment during the Employment Period for any reason, such
Shareholder's salary shall cease on the date of termination of
such employment; provided however, that the Company shall not
terminate a Shareholder solely for the purpose of reducing
salaries.
SECTION 9.9 ARBITRATION. In the event of any dispute,
controversy or claim of any kind or nature arising under or in
connection with this Agreement (excluding the calculation of the
Debt Adjustment, which shall be resolved in accordance with Section
1.5), the parties are unable to resolve through informal
discussions or negotiations, the parties agree to submit such
dispute, controversy or claim to arbitration in accordance with the
following procedures:
(a) Either the Shareholder Agent or Purchaser may demand
arbitration by giving the other parties written notice to such
effect, which notice will (i) describe, in reasonable detail,
the nature of the dispute, controversy or claim, the amount,
if any, involved and the remedy sought, and (ii) name an
independent arbitrator who is experienced in the resolution of
disputes, controversies or claims of such a nature. In
addition, such party demanding arbitration shall take such
steps as are necessary to commence arbitration proceedings
under the rules of the American Arbitration Association
(including, without limitation, the payment of any
administrative fees provided thereunder). Within 10 Business
days after the other party's receipt of such demand, such
other party will name a second independent arbitrator who is
experienced in the resolution of disputes, controversies or
claims of such a nature. The two arbitrators so named will
promptly select a third neutral arbitrator who is experienced
in the resolution of disputes, controversies and claims of
such a nature. The arbitration will be heard by a panel of
the three arbitrators so chosen (the "Arbitration Panel") in
Dallas, Texas, and the resolution of the dispute, controversy
or claim will be determined by a majority vote of the
Arbitration Panel. The Commercial Arbitration Rules of the
American Arbitration Association will govern the conduct of
the arbitration.
(b) The Arbitration Panel may apportion between the
parties as the Arbitration Panel may deem equitable the fees,
costs and expenses of the arbitration incurred by the parties;
provided, however that Purchaser and the Shareholders,
respectively, shall be responsible for fees and expenses of
the arbitrator selected by the Shareholder Agent, and the fees
and expenses of the third arbitrator shall be borne equally by
Purchaser and the Shareholders, respectively. The Arbitration
Panel may not award interest on any awards made by the
Arbitration Panel.
39
(c) Any award rendered by the Arbitration Panel will be
final, conclusive and binding upon the parties and any
judgment thereon may be entered and enforced in any court of
competent jurisdiction. Other than actions for temporary and
permanent injunctive relief or specific performance or any
action necessary to enforce the award of the Arbitration
Panel, the provisions of this Section 9.9 will constitute the
exclusive remedy of the parties and a complete defense to any
suit, action or other proceeding instituted in any court or
before any administrative tribunal with respect to any
dispute, controversy or claim arising under or in connection
with this Agreement or the other Contracts or Agreements
contemplated hereby. Notwithstanding any other provision in
this Section 9.9 to the contrary, the Arbitration Panel will
not have the authority to amend the provisions of this Section
9.9 without obtaining the prior written consent of the
Company and Purchaser.
40
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement or have caused this Agreement to be executed by their
duly authorized officers.
SA TELECOMMUNICATIONS, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President
ADDTEL COMMUNICATIONS, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
President
SHAREHOLDERS:
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
41
SPOUSAL CONSENT
The undersigned, in her individual capacity as the spouse of
the Shareholder listed opposite her name, does hereby execute this
Agreement below for the purposes of (i) indicating her
understanding of, and binding her to perform in accordance with the
provisions of this Agreement, (ii) binding her community property
interest, if any, in the Shares now or hereafter owned by her
spouse and (iii) acknowledging that if the Shares owned by her
spouse is community property, it is the special community property
of such spouse, subject to the exclusive control and dominion of
said spouse.
Spouse Shareholder Date
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ January 7, ▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇
Before me, the undersigned notary, personally appeared ▇▇▇▇
▇▇▇▇▇▇▇▇, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that she executed
the same for the purposes and consideration therein expressed.
Sworn to and subscribed before me, this 7th day of January,
1997.
[Seal}
/s/ Signature Illegible
------------------------
Notary Public
My Commission Expires: 9-3-98
---------
42
SPOUSAL CONSENT
The undersigned, in her individual capacity as the spouse of
the Shareholder listed opposite her name, does hereby execute this
Agreement below for the purposes of (i) indicating her
understanding of, and binding her to perform in accordance with the
provisions of this Agreement, (ii) binding her community property
interest, if any, in the Shares now or hereafter owned by her
spouse and (iii) acknowledging that if the Shares owned by her
spouse is community property, it is the special community property
of such spouse, subject to the exclusive control and dominion of
said spouse.
Spouse Shareholder Date
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-------------------▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ January 7, ▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇
Before me, the undersigned notary, personally appeared ▇▇▇▇▇
▇▇▇▇▇▇▇▇, known to me to be the person whose name is subscribed to
the foregoing instrument, and acknowledged to me that she executed
the same for the purposes and consideration therein expressed.
Sworn to and subscribed before me, this 7th day of January,
1997.
[Seal}
/s/ Signature Illegible
------------------------
Notary Public
My Commission Expires: May 5, 2000
--------------
43
SPOUSAL CONSENT
The undersigned, in her individual capacity as the spouse of
the Shareholder listed opposite her name, does hereby execute this
Agreement below for the purposes of (i) indicating her
understanding of, and binding her to perform in accordance with the
provisions of this Agreement, (ii) binding her community property
interest, if any, in the Shares now or hereafter owned by her
spouse and (iii) acknowledging that if the Shares owned by her
spouse is community property, it is the special community property
of such spouse, subject to the exclusive control and dominion of
said spouse.
Spouse Shareholder Date
/s/ Dalit ▇. ▇▇▇▇▇▇▇▇
-----------------------Dalit ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ January 7, ▇▇▇▇
▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇
Before me, the undersigned notary, personally appeared Dalit
▇. ▇▇▇▇▇▇▇▇, known to me to be the person whose name is subscribed
to the foregoing instrument, and acknowledged to me that she
executed the same for the purposes and consideration therein
expressed.
Sworn to and subscribed before me, this 7th day of January,
1997.
[Seal}
/s/ Signature Illegible
------------------------
Notary Public
My Commission Expires: Feb. 9, 2000
----------------
44
LIST OF SECTIONS TO DISCLOSURE SCHEDULE
Section 2.1 Foreign Qualification States
Section 2.5 Consents and Approvals of Tribunals
Section 2.8(a) Real Property Owned and Leased; Tangible
Personal Property Leases
Section 2.8(b) Exceptions to Good Operating Condition
Section 2.8(c) Exceptions to Compliance with Laws
Section 2.9 Litigation
Section 2.10 Changes Since ▇▇▇▇ 31, 1996
Section 2.11(a) Liabilities and Commitments
Section 2.11(b) Defaults
Section 2.12 Environmental Matters Exceptions
Section 2.13 Employee Benefit Plans
Section 2.14 Labor Matters
Section 2.15(a) Tax Disclosure
Section 2.15 Tax Audits
Section 2.17(a) Proprietary Rights
Section 2.17(b) Confidentiality Agreements
Section 2.17(c) Owned Software
Section 2.22 States in which Is Certification Required and
Is Not Required
Section 2.25 Insurance
Section 2.26 Material Contracts
Section 2.27(a) Accounts Receivable
Section 2.28 Accounts Payable
Section 2.29(a) Agreement Involving $5,000 or more and Not
Terminable in 30 days
Section 2.29(b) Employee Benefit Programs
Section 2.29(c) Compensation, Noncompetition, Severance and
Consulting Agreements
Section 2.29(d) Indebtedness for Borrowed Money and Guarantees
Section 2.29(e) Employees
Section 2.29(f) Capital Assets
Section 2.29(g) Income Tax Returns
Section 2.29(h) All Consents
Section 2.29(i) Permits and Tariffs
Section 2.29(j) Agreements with Competitors
Section 2.29(k) Ten Largest Customers and Suppliers
Section 2.29(l) Financing Statements
Section 2.29(m) Trade-out Arrangements
Section 2.29(n) CIC Codes and Access Codes
Section 2.30 Bank Accounts
Section 2.31 Product and Service Warranties
Section 2.32 Transactions with Affiliates
(i)
LIST OF EXHIBITS
Exhibit A Form of Nonsolicitation Agreement
Exhibit B Pledge Agreement
Exhibit C Opinion of Counsel for the Company and
Shareholders
Exhibit D Investor Notes Schedule
Exhibit E Deposits and Prepayments Existing on the
Closing Date
Pursuant to Item 601(b)(2) of Regulation S-K, this exhibit omits
certain nonmaterial schedules and exhibits comprising a part of the
original document. The following items have been omitted from this
exhibit: all sections of the Disclosure Schedule, Exhibit C-Opinion
of Counsel for the Company and Shareholders, Exhibit D-Investor
Notes Schedule, and Exhibit E-Deposits and Prepayments Existing on
the Closing Date. The Company agrees to supplementally furnish a
copy of any of the omitted items to the Securities and Exchange
Commission upon request.
EXHIBIT A
NONSOLICITATION AGREEMENT
This Nonsolicitation Agreement (this "Agreement") is made and
entered into as of January 10, 1997 (the "Effective Date"), by and
between _________________, ("Shareholder"), and SA
Telecommunications, Inc, a Delaware corporation ("Purchaser").
WHEREAS, Shareholder is the holder of certain shares of the
outstanding capital stock of Addtel Communications, Inc., a
California corporation ("Addtel"); and
WHEREAS, in accordance with the terms of that certain Stock
Purchase Agreement dated as of January 10, 1997 by and among
Purchaser, Addtel, the Shareholder and the holders of the remaining
capital stock of Addtel (the "Stock Purchase Agreement"), the
Shareholder, in order to preserve the value and good will of Addtel
and as a material inducement for the closing of the Stock Purchase
Agreement, has agreed to enter into this Agreement.
WHEREAS, Addtel is currently serving customers in the states
of Arizona, California, Connecticut, Colorado, Delaware, District
of Columbia, Florida, Georgia, Illinois, Indiana, Kansas, Kentucky,
Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri,
New Hampshire, New Jersey, New York, Nevada, North Carolina, Ohio,
Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee,
Texas, Washington, Wisconsin, West Virginia, Utah, Vermont and
Virginia;
WHEREAS, in connection with the Stock Purchase Agreement,
Shareholder has been paid $_____ and is entitled to an additional
$_________ being held in escrow under the Stock Purchase Agreement
subject to adjustments and other distributions as provided in the
Stock Purchase Agreement;
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements set forth herein, the parties
hereto agree as follows:
1. DEFINITIONS. Unless otherwise stated in this Agreement,
the following terms shall have the following meanings, and other
capitalized terms used herein and not otherwise defined herein
shall have the meaning ascribed to such terms in the Stock Purchase
Agreement.
AGENTS AND SUBAGENTS shall mean any Person which directly or
indirectly resells the telecommunications services of any of the
Protected Parties on the Effective Date or on the earlier to occur
of the Termination Date or the Six Month Anniversary Date.
COMPETING BUSINESS shall mean any business conducted by a
Person which is engaged in any business of any of the Protected
Parties that such Protected Party is conducting on the Effective
Date.
CUSTOMERS shall mean any Person who has used the
telecommunications services of any of the Protected Parties (1) on
the Effective Date or at any time during the 12 months preceding
the
1
Effective Date or (2) on the earlier to occur of the Termination
Date or the Six Month Anniversary Date.
CUSTOMER DATA shall mean with respect to any Person, all of
the Person's customer lists, lists of potential customers, sales
records and other customer data (including credit data) relating to
the business of such Person.
EMPLOYEE shall mean any Person (excluding the Shareholder) who
is an active employee of any of the Protected Parties.
PROTECTED PARTIES shall mean Addtel, Purchaser and any of
Purchaser's Affiliates.
RESTRICTED PERIOD shall mean a period beginning on the
Effective Date and ending five years from the Effective Date.
SUPPLIER DATA shall mean with respect to any Person, all of
the Person's supplier lists and publications of potential
suppliers, transmission carriers, switched service providers and
other supplier data relating to the purchase of raw materials,
utilities and other supplies used in connection with the business
of such Person.
TERMINATION DATE shall mean the date upon which Shareholder's
employment with Addtel ceases for any reason.
VENDORS shall mean any Person that furnishes goods or services
to any of the Protected Parties on the Effective Date or on the
earlier to occur of the Termination Date or the Six Month
Anniversary Date.
2. NONSOLICITATION. During the Restricted Period, the
Shareholder hereby agrees that he shall not, directly or
indirectly, solicit or interfere, for the benefit of any Competing
Business, with the Customers, Agents or Subagents, and Employees of
any of the Protected Parties in any county of each state in which
Addtel conducts business on the Effective Date. Without in any
manner limiting the scope of the foregoing provisions, if the
Shareholder engages in any of the following acts, he shall be
considered to have violated this covenant: (a) induces or attempts
to induce any Customer to withdraw, curtail, divert or cancel its
business or any agreements with any of the Protected Parties; (b)
induces or attempts to induce any Employee of any of the Protected
Parties to terminate his or her employment with such Person; (c)
induces or attempts to induce any Vendor providing services on
behalf of any of the Protected Parties to terminate such Vendor's
business relationship with such Protected Party; (d) develops any
materials or rights (whether contractual, property or otherwise)
utilizing the confidential information of any of the Protected
Parties, except for the benefit of the Protected Parties; or (e)
disrupts in any manner whatsoever any existing business
relationship of any of the Protected Parties. For purposes of this
Agreement, confidential information shall exclude general industry
knowledge and know how.
2
3. CONFIDENTIALITY AND NON-DISCLOSURE. The Shareholder
acknowledges and agrees that he has had and may in the future have
access to certain trade secrets and confidential information of a
proprietary nature to Addtel, including without limitation Customer
Data and Supplier Data. The Shareholder acknowledges and agrees
that all trade secrets and confidential information are valuable
and unique assets of Addtel or its Customers, the confidentiality
of which is essential to Addtel's ability to differentiate its
products and services, to compete and to fulfill its contractual
obligations. The Shareholder also acknowledges and agrees that
Addtel or its Customers will retain a proprietary interest in such
information that will persist beyond termination of his or her
affiliation with Addtel. The Shareholder agrees that he (a) will
not intentionally disclose such information to other parties; (b)
will take reasonable precautions to protect against the inadvertent
disclosure of such information or the theft or misappropriation of
such information by others; and (c) will make no use of such
information except as requested by any of the Protected Parties.
All documentation relating to the trade secrets and confidential
information of Addtel or its Customers shall remain the exclusive
property of Addtel or its Customers and such information shall not
be removed from the premises of Addtel or its Customers without
Purchaser's prior written consent.
4. NO BREACH. Shareholder represents and warrants that the
execution and delivery of this Agreement and his performance and
consummation of the transactions contemplated under this Agreement,
does not and will not, conflict, breach, or constitute a default
under any other agreement, instrument, covenant or restriction that
Shareholder is a party to or otherwise bound by.
5. RELIEF. In the event of breach or threatened breach by
Shareholder of any provision of this Agreement, Purchaser shall be
entitled to (a) relief by temporary restraining order, temporary
injunction, permanent injunction or otherwise, as issued by a court
of law or equity, (b) recovery of all attorneys' fees and costs
incurred by Purchaser in obtaining such relief, and (c) any other
legal and equitable relief to which it may be entitled, including,
but not limited to, any and all monetary damages which Purchaser
may incur as a result of said breach or threatened breach or
violation. Purchaser may pursue any remedy available to it,
including declaratory relief, concurrently or consecutively in any
order as to any breach, violation, or threatened breach or
violation, and the pursuit of one such remedy at any time will not
be deemed an election of remedies or waiver of the right to pursue
any other remedy. Purchaser has the right to pursue partial
enforcement and/or to seek declaratory relief regarding the
enforceable scope of this Agreement without penalty and without
waiving Purchaser's right to pursue any other available remedy
subject to or concurrently with declaratory relief. The covenants
contained in this Agreement are independent, and the existence of
any claim or cause of action of the Shareholder against Purchaser,
whether predicated on this Agreement, the Stock Purchase Agreement
or otherwise, shall not constitute a defense to the enforcement of
this Agreement by Purchaser.
6. EXTENSION OF RESTRICTED PERIOD FOR INJUNCTIVE RELIEF. If
the Shareholder violates the restrictive covenants of Section 1
above and Purchaser brings legal action for injunctive or other
relief under Section 5 above, Purchaser shall not be deprived of
the benefit of the full period of the Restricted Period as a result
of the time involved in obtaining the relief.
3
7. ILLEGAL, INVALID OR UNENFORCEABLE PROVISIONS. If any
provision of this Agreement is held to be illegal, invalid, or
unenforceable under present or future laws effective during the
term of this Agreement, such provision shall be fully severable;
this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part of
this Agreement; and the remaining provisions of this Agreement
shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its
severance from this Agreement. Furthermore, in lieu of each such
illegal, invalid, or unenforceable provision, there shall be added
automatically, as a part of this Agreement, a provision as similar
in terms to such illegal, invalid, or unenforceable provision as
may be possible and be legal, valid and enforceable. Moreover, if
any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be excessively broad as to time
duration, geographical scope, activity, or subject, it shall be
construed, by limiting and reducing it, so as to be enforceable to
the extent compatible with the applicable law as it shall then
appear.
8. DISPUTES. In the event any party hereto seeks any
judicial determination of any of its rights or obligations
contained herein, the prevailing party or parties in such judicial
determination, whether plaintiff or defendant, shall be entitled to
recover damages, reasonable attorneys' fees, court costs and other
reasonable expenses resulting from such judicial determination on
the basis thereof.
This Agreement shall not be subject to Arbitration pursuant to the
provisions of Section 9.9 of the Stock Purchase Agreement.
9. NOTICES. In the event a notice or other document is
required to be sent hereunder, such notice or other document shall
be personally delivered or sent by registered or certified mail,
return receipt requested, to the party entitled to receive such
notice or other document at the address reflected in the Stock
Purchase Agreement.
10. ENTIRE AGREEMENT. This Agreement contains the entire
agreement between the parties hereto with respect to the subject
matter contained herein. This Agreement may be amended from time
to time by an instrument in writing signed by all those who are
parties to this Agreement at the time of such amendment.
11. SUCCESSORS AND ASSIGNS. The terms, provisions and
agreements herein contained shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, personal
representatives, successors and assigns. Purchaser may assign this
Agreement to any Person without the consent of the Shareholder.
12. WAIVER OF BREACH. The waiver by a party hereto of a
breach of any provision of this Agreement shall not operate or be
construed as a waiver of any subsequent breach by any party.
13. GOVERNING LAW. The Agreement shall be governed in all
respects, including validity, interpretation and effect, by the
substantive laws of the State of Texas without regard to conflict
of law provisions.
4
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on the day and year first above written.
__________________________ SA TELECOMMUNICATIONS, INC.
[Name of Shareholder]
BY:__________________________
▇▇▇▇ ▇▇▇▇▇▇
Vice President
5
EXHIBIT B
PLEDGE AGREEMENT
This Pledge Agreement dated as of January 10, 1997 (the
"Effective Date") is by and between U.S. Communications, Inc., a
Texas corporation ("Pledgor"), SA Telecommunications, Inc., a
Delaware corporation ("Purchaser"), and ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇
("Pledgee"), as agent and attorney in fact for the shareholders
named in that certain Stock Purchase Agreement dated as of January
10, 1997 (the "Stock Purchase Agreement") between Purchaser, Addtel
Communications, Inc., a California corporation, and Shareholder
Agent, ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ (the "Shareholders").
1. THE PLEDGE. Pledgor, for a valuable consideration and in
order to secure the performance of Purchaser's obligations under
the escrow provisions of Section 1.7 of the Stock Purchase
Agreement ("Purchaser's Obligations") does hereby pledge, transfer
and deliver to Pledgee and does hereby grant Pledgee a security
interest (the "Security Interest") in 500,000 shares of Common
Stock, $.0001 par value, of Purchaser ("Pledged Shares"). The
Pledged Shares, when delivered to Pledgee by Pledgor pursuant
hereto, shall be in suitable form for transfer by delivery, or
shall be accompanied by duly executed instruments of transfer or
assignment in blank.
Pledgee is acquiring a security interest in the Pledged Shares
solely for purposes of collateral for Purchaser's Obligations and
for Pledgee's own beneficial account, and not with a view to, or
for resale in connection with, any distribution of the Pledged
Shares. Pledgee understands that the transfer of the Pledged
Shares to Pledgee under this Agreement has not been registered
under the Securities Act of 1933, as amended (the "Securities Act")
or any state securities laws by reason of specific exemptions under
the provisions thereof which depend in part upon the investment
intent of Pledgee and/or the other representations made by Pledgee
in this Agreement. Pledgee understands that Pledgor is relying
upon the representations, covenants and agreements contained in
this Agreement (and any supplemental information) for the purpose
of determining whether this transaction meets the requirements for
such exemptions. Pledgee agrees (a) that Pledgee will not sell,
assign, pledge, give, transfer or otherwise dispose of the Pledged
Shares or any interest therein, or make any offer or attempt to do
any of the foregoing, except pursuant to a registration of the
Pledged Shares under the Securities Act and all applicable state
securities laws or in a transaction which, in the opinion of
counsel satisfactory to Purchaser, is exempt from the registration
provisions of the Securities Act and all applicable state
securities laws; (b) that Purchaser and any transfer agent for the
Pledged Shares shall not be required to give effect to any
purported transfer of any of the Pledged Shares except upon
compliance with the foregoing restrictions; and (c) that a legend
in substantially the following form will be placed on the
certificates representing the Pledged Shares:
The shares represented by this Certificate have not been
registered under the Securities Act of 1933 (the "Act") and
are "restricted securities" as that term is defined in Rule
144 of the Act. The shares may not be offered for sale, sold
or otherwise transferred except pursuant to an effective
registration statement under the Act or pursuant to an
exemption from registration under the Act, the availability of
which is to be established to the satisfaction of
the Company. The shares represented by this Certificate are
subject to a Voting Agreement, which is on file with the
Company at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇
Pledgee has not offered or sold any portion of the Pledged Shares
and has no present intention of dividing such Pledged Shares with
others or of reselling or otherwise disposing of any portion of
such Pledged Shares.
2. VOTING AGREEMENT WITH RESPECT TO PLEDGED SHARES. Pledgee
hereby agrees that during the Voting Term, ▇▇▇▇ ▇. ▇▇▇▇, ▇▇., or
his nominee, shall have full power and authority to vote the
Pledged Shares, and Pledgee shall have no voting rights whatsoever
with respect to the Pledged Shares. For purposes of this
Agreement, (a) "Voting Term" shall mean a period beginning on the
Effective Date and ending on the earlier to occur of (i) the tenth
anniversary of the Effective Date or (ii) the date of sale by
Pledgee under the Shares in a Permitted Transaction, and a
"Permitted Transaction" shall mean (A) a bona fide broker
transaction in the public market or (B) a private transaction in
which no single purchaser of the any of the Pledged Shares shall
receive a block of more than 25,000 shares of Pledgor's Common
Stock. A counterpart of this Agreement shall be deposited with
Purchaser at its principal offices and shall be subject to the same
rights of examination of any stockholder of Purchaser, in person or
by agent or attorney, as are the books and records of Purchaser.
At all meetings of the stockholders of Purchaser, or with regard to
any action taken pursuant to consent, during the Voting Term, the
Pledged Shares held or owned by Pledgee shall be voted by ▇▇▇▇ ▇.
▇▇▇▇, ▇▇., in the manner designated by him. To the extent
necessary for the enforcement hereof, this Agreement shall be
deemed to provide ▇▇▇▇ ▇. ▇▇▇▇, ▇▇. an irrevocable proxy for the
Voting Term, which such proxy is expressly agreed between the
parties hereto to be coupled with an interest as contemplated by
applicable law. Any share of Purchaser's Common Stock subject to
this Section 2 shall remain so subject, regardless of any
conveyance thereof to any party, during the Voting Term, and any
party proposing to transfer any of the Pledged Shares in a
transaction which is not a Permitted Transaction shall secure a
written agreement from the transferee that such party agrees to be
bound by the terms of this Section 2 in form and substance
satisfactory to Purchaser. Pledgee understands that Purchaser
shall not permit the voting of the Pledged Shares in contravention
of the terms hereof.
3. DEFAULT. The term Event of Default shall mean that the
Arbitration Panel (as defined in the Stock Purchase Agreement)
shall have finally determined in an Arbitration proceeding
conducted in accordance with Section 9.9 of the Stock Purchase
Agreement that Purchaser is obligated to pay the Shareholders an
amount due under Purchaser's Obligations, and Purchaser fails to
pay such amount within five days of the conclusion of such
Arbitration proceedings.
4. REMEDIES UPON EVENT OF DEFAULT. Pledgee understands that
the Pledged Shares are "restricted securities" under applicable
federal securities laws and that the Securities Act and the rules
of the Securities and Exchange Commission (the "Commission")
provide in substance that Pledgee may dispose of the Pledged Shares
only pursuant to an effective registration statement under the
Securities Act or an exemption therefrom, and Pledgee understands
that except as provided on Schedule 1 hereto, neither Purchaser nor
Pledgor has any obligation or intention to register any of the
Pledged Shares issued to Pledgee thereunder, or to take action so
as to permit sales pursuant to the Securities Act (including Rule
144 thereunder). Pledgee understands that Pledgee may not at any
time demand the purchase by Purchaser, Pledgor, or any shareholder
of Purchaser of the Pledged Shares. If any Event of Default shall
have occurred and be continuing, Pledgee's exclusive remedy
hereunder shall be to sell the Pledged Shares in accordance with
the restrictions specified in this Agreement, PROVIDED, HOWEVER,
that Pledgee shall give Pledgor and Purchaser not less than 30
days' prior written notice of Pledgee's intention to make such
sale, and the time and place of any sale or other intended
disposition of any of the Pledged Shares, and Pledgor or any Person
designated by Pledgor may within such 30 day period purchase such
Pledged Shares from Pledgor for cash at a per share price equal to
the average per share closing price for Purchaser's Common Stock on
the Nasdaq Stock Market's SmallCap Market (or any stock exchange
upon which Purchaser's Common Stock may then be listed) for the
period of five days preceding such sale ("Pledgor's Option"). In
the event that Pledgor's Option is not exercised, Pledgee may
exercise the registration rights provided on Schedule 1 hereto.
5. APPLICATION OF PROCEEDS. The proceeds of any sale of, or
other realization upon, all or any part of the Pledged Shares shall
be applied by Pledgee in the following order or priorities:
FIRST, to pay the expenses of such sale or other
realization, including all expenses, liabilities and advances
incurred or made by Pledgee in such sale;
SECOND, to the payment of all Purchaser's Obligations;
THIRD, to pay to Pledgor or Purchaser (as directed by
Pledgor), or their respective successors or assigns, any
surplus then remaining from such proceeds. As used herein the
term "proceeds" including all cash, securities and other
property received in respect of the Pledged Shares.
6. TERMINATION OF SECURITY INTERESTS; RELEASE OF PLEDGED
SHARES. Upon the performance in full of Purchaser's obligations
under the escrow provisions of Section 1.7 of the Stock Purchase
Agreement, (a) the Security Interests shall automatically terminate
and all rights to the Pledged Shares shall revert to Pledgor, and
(b) Pledgee shall return the Pledged Shares to Pledgor. Upon any
such termination of the Security Interests or release of Pledged
Shares, Pledgee will, at Pledgor's expense, execute and deliver to
Pledgor such documents as Pledgor shall reasonably request to
evidence the termination of the Security Interests or the release
of such Pledged Shares, as the case may be.
7. NOTICES. All notices hereunder shall be in writing and
shall be deemed to have been given or made at the time either
personally delivered or sent by national overnight delivery service
as follows: (a) if to Pledgor and Purchaser to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, Attention: Vice
President and General Counsel, and (b) if to Pledgee to: ▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇. #▇, ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇.
8. WAIVERS, EXCLUSIVE REMEDIES. No failure on the part of
Pledgee to exercise, and no delay in exercising, and no course of
dealing with respect to, any right, power or remedy under this
Agreement shall operate as a waiver thereof; nor shall any single
or partial exercise by Pledgee or Pledgor of any right, power or
remedy under this Agreement preclude any other or further exercise
thereof. The remedies in this Agreement are exclusive and Pledgee
is not entitled to any other remedies provided by law, in equity or
otherwise.
9. ARBITRATION. All disputes between Pledgor and Pledgee
shall be handled in accordance with the provisions of Section 9.9
of the Stock Purchase Agreement, which provisions are hereby
incorporated by reference in this Agreement.
10. CHANGES IN WRITING. Neither this Agreement nor any
provision hereof may be changed, waived, discharged or terminated
orally, but only a statement in writing signed by the party against
which enforcement of the change, waiver, discharge or termination
is brought.
11. APPLICABLE LAW. This Agreement other than the voting
agreement contained in Section 2 hereof (the "Voting Agreement")
shall be governed by and construed and interpreted in accordance
with the laws of the State of Texas without giving effort to any
conflict of laws principle that might require the application of
law of any other jurisdiction, and the Voting Agreement shall be
governed by and construed and interpreted in accordance with the
General Corporation Law of the State of Delaware.
12. SEVERABILITY. If any provision is invalid or
unenforceable in any jurisdiction, the other provisions hereof
shall remain in full force and effect in such jurisdiction, and the
validity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
13. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which together shall constitute one and
the same instrument.
In witness whereof, the undersigned have executed this
Agreement as of the day first above written.
U.S. COMMUNICATIONS, INC. SA TELECOMMUNICATIONS, INC.
By:______________________ By: ____________________________
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
Vice President Vice President
______________________________
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, as Agent
and Attorney in Fact for Aviram
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
The undersigned hereby agree that ▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ may act as
Agent and Attorney in Fact for all of the undersigned in connection
with this Agreement.
__________________________ ______________________________
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
__________________________ ______________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Schedule 1
Registration Rights
Subject to the provisions hereof, after receiving a written request
by Pledgee on behalf of all Shareholders issued after an Event of
Default and the expiration of the Pledgor's Option without exercise
(the "Registration Event") in substantially the form attached
hereto as Schedule 2 (the "Demand Notice"), Purchaser shall prepare
and within 60 days of the receipt of the Demand Notice, file a
registration statement (the "Registration Statement") for the
public sale by the Shareholders of the Pledged Shares then owned by
such Shareholders. Purchaser shall use all reasonable efforts to
cause the Registration Statement to become effective as soon as
practicable and to remain effective until the earlier of (i) 90
days from the effective date of such Registration Statement or (ii)
such time as all shares subject to such Registration Statement have
been sold thereunder. The Demand Notice shall be accompanied by a
list of blue sky jurisdictions as Pledgee may reasonably request
and the Company shall use all reasonable efforts to ensure
compliance with applicable blue sky laws in such listed
jurisdictions subject to the limitations set forth herein.
1. Purchaser shall pay all expenses of the registration
hereunder. In no event, however, shall Purchaser pay the
Shareholders' underwriting discounts or commissions or any fees or
costs of counsel to the Shareholders.
2. Purchaser shall supply to Pledgee a reasonable number of
copies of all registration materials and prospectuses. Purchaser
and the Shareholders shall execute and deliver to each other
indemnity agreements which are conventional in registered offerings
of this type. The Shareholders shall reasonably cooperate with
Purchaser in the preparation and filing of the Registration
Statement and appropriate amendments thereto and in connection
therewith provide Purchaser with a representation letter as
requested by Purchaser.
3. Pledgee and the Shareholders may not transfer the registration
rights granted hereunder.
4. Notwithstanding the foregoing, Purchaser shall not be
obligated to effect, or take any action to effect, any such
registration pursuant to the registration rights granted hereunder
in any particular jurisdiction in which Purchaser would be required
to execute a general consent to service of process or otherwise
qualify to do business in effecting such registration,
qualification, or compliance, unless Purchaser has already
consented to service or qualify to do business in such jurisdiction
or in any jurisdiction in which Purchaser is not authorized to
offer or sell its securities.
5. The Registration Statement filed pursuant to the request of
Pledgee may include other securities of Purchaser, with respect to
which registration rights have been granted or may be granted and
may include securities of Purchaser being sold for the account of
Purchaser.
6. Neither Pledgee nor the Shareholders shall have any right to
take any action to restrain, enjoin or otherwise delay any
registration as a result of any controversy that might arise with
respect to the interpretation or implementation of the registration
rights granted herein.
7. The right to request any such registration shall expire on
that date which is 90 days after the occurrence of the Registration
Event.
8. Pledgee hereby represents and warrants to and covenants with
Purchaser and to each officer, director and agent of Purchaser as
follows:
(a) Pledgee has all requisite authority to enter into
this Agreement on behalf of the Shareholders and to perform
all the obligations required to be performed by Pledgee or the
Shareholders hereunder.
(b) Pledgee is familiar with the business and financial
condition, properties, operations and prospects of Purchaser,
and, at a reasonable time prior to the execution of this
Agreement, has been afforded the opportunity to ask questions
of and receive satisfactory answers from Purchaser and
Purchaser's officers and directors, or other persons acting on
the Purchaser's behalf, concerning the business and financial
condition, properties, operations and prospects of Purchaser
and has asked such questions as Pledgee desires to ask and all
such questions have been answered to the full satisfaction of
Pledgee.
(c) No representations or warranties have been made to
Pledgee or the Shareholders by Purchaser as to the tax
consequences of the pledge of the Pledged Shares pursuant to
this Agreement, or as to profits, losses or cash flow which
may be received or sustained as a result of such pledge.
Pledgee understands and acknowledges that Purchaser has
significant outstanding indebtedness and a significant amount
of Preferred Stock issued to investors which such Preferred
Stock has rights and preferences superior to that of the
Pledged Shares.
Schedule 2
FORM OF DEMAND NOTICE
VIA FEDERAL EXPRESS
SA Telecommunications, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: General Counsel
The undersigned is the Pledgee under that certain Pledge
Agreement dated as of January 10, 1997 ("Pledge Agreement") among
the undersigned, SA Telecommunications, Inc. ("STEL"), and U.S.
Communications, Inc. All capitalized terms used herein and not
defined shall have the meaning set forth in the Pledge Agreement.
After the occurrence of an Event of Default and the Registration
Event, STEL has agreed to register for resale the Pledged Shares
held by Pledgee upon demand with the Commission. The undersigned
hereby gives written notice to STEL that the Registration Event has
occurred and hereby requests STEL to register the Pledged Shares
with the Commission in accordance with the terms and conditions of
the Pledge Agreement. A list of blue sky jurisdictions is set
forth underneath the undersigned's signature.
______________________________
▇▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, Individually and
as Agent and Attorney in Fact for
Aviram ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇
List of blue sky jurisdictions:
California