AGREEMENT AND PLAN OF MERGER
By and Among
POLISH TELEPHONES AND MICROWAVE CORPORATION
d/b/a TELSCAPE INTERNATIONAL, LTD.
ORION NEWCO, INC.
ORION COMMUNICATIONS, INC.
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July 26, 1996
TABLE OF CONTENTS
TO
AGREEMENT AND PLAN OF REORGANIZATION
ARTICLE/SECTION/SUBJECT PAGE
INTRODUCTION AND RECITALS 1
ARTICLE I
THE MERGER; THE CONVERSION OF SECURITIES
1.1 (a) THE MERGER 2
(b) CLOSINGS 2
1.2 MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF
COMPANY COMMON STOCK 2
1.3 EFFECT OF THE MERGER 8
1.4 CERTIFICATE OF INCORPORATION; BYLAWS 8
1.5 DIRECTORS AND OFFICERS 8
1.6 EXCHANGE AND SURRENDER OF CERTIFICATES 8
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS 9
(a) AUTHORIZATION 9
(b) STOCKHOLDER AUTHORITY 9
(c) ORGANIZATION; SUBSIDIARIES 10
(d) MINUTE BOOKS 10
(e) CAPITALIZATION 10
(f) FINANCIAL STATEMENTS 10
(g) OWNED REAL PROPERTY 11
(h) LEASED REAL PROPERTY; TENANCIES 11
(i) TITLE 11
(j) FIXED ASSETS; CONDITION OF ASSETS 12
(k) INTELLECTUAL PROPERTY 13
(l) ACCOUNTS RECEIVABLE 14
(m) ACCOUNTS PAYABLE 14
(n) ABSENCE OF UNDISCLOSED LIABILITIES 14
(o) ABSENCE OF CERTAIN CHANGES OR EVENTS 14
(p) AGREEMENTS 16
(q) NON CONTRAVENTION; CONSENTS 16
(r) EMPLOYEE BENEFIT PLANS 17
(s) LABOR RELATIONS 17
(t) INSURANCE 18
i
ARTICLE/SECTION/SUBJECT PAGE
(u) TAX MATTERS 18
(v) COMPLIANCE WITH APPLICABLE LAW 19
(w) LITIGATION 19
(x) PERMITS 20
(y) UNLAWFUL PAYMENTS 20
(z) WARRANTIES 20
(aa) OFFICERS, DIRECTORS AND EMPLOYEES 21
(bb) LOANS TO OR FROM AFFILIATES 21
(cc) CLIENTS, VENDORS, SUPPLIERS AND SERVICE PROVIDERS 21
(dd) BOOKS AND RECORDS 21
(ee) BANK ACCOUNTS 21
(ff) AGREEMENTS WITH AFFILIATES 21
(gg) ACCURACY OF INFORMATION FURNISHED 21
2.2 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS 22
(a) TITLE TO THE SHARES 22
(b) INVESTMENT PURPOSE 22
(c) RECEIPT OF INFORMATION 22
2.3 REPRESENTATIONS AND WARRANTIES OF TELSCAPE 22
(a) AUTHORIZATION 23
(b) ORGANIZATION 23
(c) CAPITALIZATION 23
(d) NON CONTRAVENTION; CONSENTS 23
(e) LITIGATION 24
(f) ACCURACY OF INFORMATION FURNISHED 24
(g) COMPLIANCE WITH APPLICABLE LAW 24
2.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES 25
ARTICLE III
COVENANTS
3.1 COVENANTS OF THE COMPANY AND THE STOCKHOLDERS 25
(a) NOTIFICATION 25
(b) ADDITIONAL FINANCIAL STATEMENTS 25
(c) ADDITIONAL SUMMARIES OF ACCOUNTS AND NOTES
RECEIVABLE 25
(d) ADDITIONAL SUMMARIES OF ACCOUNTS PAYABLE 26
(e) CONDUCT OF BUSINESS; CERTAIN COVENANTS 26
(f) PROPOSALS; OTHER OFFERS 28
(g) BEST EFFORTS AND COOPERATION; FURTHER ASSURANCES 29
(h) ACCESS TO ADDITIONAL AGREEMENTS AND INFORMATION 29
3.2 COVENANTS OF TELSCAPE COMPANIES 29
(a) NOTICE OF DEFAULTS 29
(b) THIRD PARTY CONSENTS 30
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ARTICLE/SECTION/SUBJECT PAGE
(c) BEST EFFORTS AND COOPERATION; FURTHER ASSURANCES 30
(d) ACCESS TO ADDITIONAL INFORMATION AND AGREEMENTS 30
(e) CONFIDENTIALITY 30
3.3 GOVERNMENTAL FILINGS AND CONSENTS 30
3.4 PUBLICITY 30
3.5 RIGHT TO INVESTIGATE 31
(a) OBLIGATION OF THE COMPANY AND THE STOCKHOLDERS 31
(b) EFFECTIVENESS OF REPRESENTATIONS NOTWITHSTANDING
INVESTIGATION 31
ARTICLE IV
CONDITIONS
4.1 CONDITIONS TO OBLIGATIONS OF TELSCAPE COMPANIES 31
(a) NO MATERIAL ADVERSE CHANGE 31
(b) COPIES OF RESOLUTIONS 32
(c) OPINION OF COMPANY'S AND STOCKHOLDERS' COUNSEL 32
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES;
PERFORMANCE OF COVENANTS 32
(e) DELIVERY OF OFFICERS' CERTIFICATES 32
(f) DELIVERY OF STOCK CERTIFICATES 32
(g) CONSENTS AND WAIVERS 32
(h) LITIGATION 32
(i) DELIVERY OF DOCUMENTS AND OTHER INFORMATION 33
4.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDERS 33
(a) COPIES OF RESOLUTIONS 33
(b) OPINION OF COUNSEL TO TELSCAPE 33
(c) ACCURACY OF REPRESENTATIONS AND WARRANTIES;
PERFORMANCE OF COVENANTS 33
(d) DELIVERY OF OFFICERS' CERTIFICATES 33
(e) STOCK CERTIFICATES 34
(f) CONSENTS AND WAIVERS 34
(g) LITIGATION 34
ARTICLE V
INDEMNIFICATION AND CLAIMS
5.1 Indemnification by the Company and the Stockholders 34
5.2 Claims Against Indemnified Party 35
5.3 Right of Offset 35
5.4 Indemnification by Telscape and Newco 35
5.5 Claims Against the Stockholders 36
5.6 Right of Offset 36
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ARTICLE/SECTION/SUBJECT PAGE
ARTICLE VI
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
6.1 TERMINATION BY MUTUAL AGREEMENT 36
6.2 TERMINATION FOR FAILURE TO CLOSE 36
6.3 TERMINATION BY OPERATION OF LAW 37
6.4 TERMINATION FOR FAILURE TO PERFORM COVENANTS OR CONDITIONS 37
6.5 EFFECT OF TERMINATION OR DEFAULT; REMEDIES 37
6.6 REMEDIES; SPECIFIC PERFORMANCE 37
ARTICLE VII
MISCELLANEOUS
7.1 Fees and Expenses 38
7.2 Modification, Amendments and Waiver 38
7.3 Assignment 38
7.4 Burden and Benefit 38
7.5 Brokers 38
7.6 Entire Agreement 39
7.7 Governing Law 39
7.8 Notices 39
7.9 Counterparts 40
7.10 Rights Cumulative 40
7.11 Severability of Provisions 40
7.12 Headings 40
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LIST OF EXHIBITS AND SCHEDULES
TO
AGREEMENT AND PLAN OF REORGANIZATION
EXHIBITS:
Exhibit 4.1(c): Form of Opinion of Counsel to Company and Stockholders
Exhibit 4.2(b): Form of Opinion of Counsel to Telscape
SCHEDULES:
Schedule 1.0 Stockholders of the Company
Schedule 2.1(c): Organization
Schedule 2.1(e): Capitalization
Schedule 2.1(h): Leased Real Property; Tenancies
Schedule 2.1(k): Intellectual Property
Schedule 2.1(l): Accounts Receivable
Schedule 2.1(m): Accounts Payable
Schedule 2.1(p): Agreements
Schedule 2.1(q): Non-Contravention; Consents
Schedule 2.1(r): Employee Benefit Plans
Schedule 2.1(aa) Officers, Directors and Employees
Schedule 2.1(bb): Loans to or from Affiliates
Schedule 2.1(cc): Clients, Vendors, Suppliers and Service Providers
Schedule 2.1(ee): Bank Accounts
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is entered into as of
this ____ day of July, 1996, by and among Polish Telephones and Microwave
Corporation, d/b/a Telscape International, Ltd., a Texas corporation
("Telscape"), Orion Newco, Inc. a Texas corporation and a wholly owned
subsidiary of Telscape ("Newco"), Orion Communications, Inc., a Texas
corporation (the "Company") and the stockholders of the Company listed on the
signature pages of this Agreement (the "Stockholders"). (Telscape and Newco
are sometimes referred to in this Agreement as the "Telscape Companies.")
BACKGROUND:
Upon the terms and subject to the conditions of this Agreement and in
accordance with the Texas Business Corporation Act (the "Texas Law"), Newco
will merge with and into the Company (the "Merger") and, pursuant to such
Merger the issued and outstanding shares of the Common Stock, $0.10 par value
per share of the Company (the "Company Common Stock"), will be converted into
the right to receive shares of common stock, $0.001 par value per share, of
Telscape (the "Telscape Common Stock").
The Board of Directors of the Company has determined that the Merger is
fair to, and in the best interests of, the Company and its stockholders and has
approved and adopted this Agreement and the transactions contemplated by this
Agreement.
The Board of Directors of Telscape has determined that the Merger is fair
to, and in the best interests of, Telscape and its stockholders and has
approved and adopted this Agreement and the transactions contemplated by this
Agreement.
The Board of Directors of Newco has approved and adopted this Agreement
and Telscape, as the sole stockholder of Newco, will adopt this Agreement
promptly after the execution by the parties.
For federal income tax purposes, it is intended that the Merger qualify as
a reorganization under the provisions of Section 368(a) of the United States
Internal Revenue Code of 1986, as amended (the "Code").
THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement and other good and valuable consideration, the receipt and
sufficiency of which all parties mutually acknowledge, the parties, intending
to be legally bound, agree as follows:
1
ARTICLE
THE MERGER; THE CONVERSION OF SECURITIES
1.1 (a) THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement, and in accordance with the applicable provisions
of Texas Law, at the Effective Time (as defined in Section 1.3), Newco will be
merged with and into the Company. As a result of the Merger, the separate
corporate existence of Newco will cease and the Company will continue as the
surviving corporation of the Merger (the "Surviving Corporation").
(b) CLOSINGS.
(i) Unless this Agreement has been terminated pursuant to
Article IV before the Closing Date, and subject to the satisfaction or waiver
of the conditions set forth in Article IV, the consummation of the Merger (the
"Closing") will take place at the offices of De ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ &
▇▇▇▇▇, ▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇, on August 1, 1996 (but in
any event within two business days) after the satisfaction or waiver of the
conditions as set forth in Article IV, or at such other date, time, and place
as Telscape and the Company agree; provided that the conditions set forth in
Article IV have been satisfied or waived at or prior to such time. The date on
which the Closing takes place is referred to as the "Closing Date." As
promptly as practicable on the Closing Date, the parties will cause the Merger
to be consummated by filing a certificate of merger (the "Certificate of
Merger") with the Secretary of State of the State of Texas, in such form as
required by, and executed in accordance with the relevant provisions of, Texas
Law (the date and time of such filing, or such later date or time agreed upon
by Telscape and the Company and set forth in the Certificate of Merger, being
the "Effective Time"). For all tax purposes, the Closing will be effective at
the end of the day on the Closing Date.
(ii) Upon the terms and subject to the conditions set
forth in this Agreement, on the Closing Date (as defined in Section 1.2(a)) and
at the Closing (as defined in Section 1.2(a)):
(A) the Telscape Companies will execute and
deliver the other agreements, instruments and documents referred to in Section
4.2; and
(B) the Company will execute and deliver the
other agreements, instruments and documents referred to in Section 4.1.
1.2 MERGER CONSIDERATION; CONVERSION AND CANCELLATION OF COMPANY
COMMON STOCK. At the Effective Time, by virtue of the Merger and without any
action on the part of the Telscape Companies, the Company, or their respective
stockholders, including, without limitation, the Stockholders:
(a) subject to the other provisions of this Article I, the
outstanding shares of Company Common Stock (or fraction thereof) issued and
outstanding immediately prior to the Effective Time will be converted into
400,000 shares of Telscape Common Stock. Telscape Common Stock will be
2
allocated among the Stockholders as set forth on Schedule 1.3(a) hereto (which
allocation does not contemplate the issuance of any fractional shares of
Telscape's capital stock or warrants to purchase the issuance of any such
fractional shares). Notwithstanding the foregoing, if between the date of this
Agreement and the Effective Time the outstanding shares of Telscape Common
Stock or Company Common Stock have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination, exchange of shares, or
similar occurrence, the number of shares of Telscape Common Stock into which
the Company Common Stock will be converted will be correspondingly and
proportionately adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination, or exchange of shares.
(b) Notwithstanding any provision of this Agreement to the
contrary, each share of Company Common Stock held in the treasury of the
Company immediately prior to the Effective Time will be cancelled and
extinguished without any conversion thereof and no payment will be made with
respect thereto.
(c) All shares of the Company Common Stock will cease to be
outstanding and will automatically be cancelled and retired, and each
certificate previously evidencing the Company Common Stock outstanding
immediately prior to the Effective Time (other than Company Common Stock
described in Section 1.2(b)) (the "Converted Shares") will thereafter represent
the right to receive that number of shares of Telscape Common Stock determined
in accordance with Section 1.2(a) (the "Merger Consideration"). The holders of
certificates previously evidencing Company Common Stock will cease to have any
rights with respect to such Company Common Stock except as otherwise provided
in this Agreement or by applicable law. Such certificates previously
evidencing Company Common Stock will be exchanged for certificates evidencing
the whole shares of Telscape Common Stock. No fractional shares of Telscape
Common Stock will be issued in connection with the Merger. The determinations
of the Board of Directors of Telscape made in good faith shall not be subject
to review by anyone, and shall be final, binding and conclusive on all persons
ever interested hereunder.
(d) Each share of common stock, par value $0.10 per share, of
Newco issued and outstanding immediately prior to the Effective Time will be
converted into one share of common stock, par value $0.10 per share, of the
Surviving Corporation.
(e) REGISTRATION OF TELSCAPE COMMON STOCK
(i) DEFINITIONS. As used in this Section 1.(e), the
following terms shall have the meanings set forth below:
(1) The terms "register," "registered" and
"registration" shall refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Securities
Act of 1933 (the "Securities Act"), and the declaration or ordering of the
effectiveness of such registration statement or document.
(B) The term "Registrable Securities" shall
mean: (i) the Telscape Common Stock; and (ii) any other securities of Telscape
issued as (or issuable upon the conversion or exercise of any warrant, right or
3
other security which is issued as) a dividend or other distribution with
respect to, in exchange for or in replacement of such Telscape Common Stock
referenced in (i) immediately above, excluding in all cases, however, any
Registrable Securities sold to the public pursuant to a registration under the
Securities Act or an applicable exemption therefrom.
(C) The term "Holder" shall mean and refer to
the holders of the Telscape Common Stock, other than ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇, issued in accordance with this Agreement.
(ii) PIGGY BACK REGISTRATION RIGHTS. If (but without
any obligation to do so) Telscape at any time during the two-year period
commencing the date hereof proposes to register (including for this purpose a
registration effected by Telscape for securityholders other than the Holder)
any of its securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration on Form
S-4, Form S 8 or any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), Telscape shall, each such
time, promptly give the Holders written notice of such registration. Upon the
written request of the Holders or any of them given within ten (10) days after
receipt of such written notice from Telscape, Telscape shall, subject to the
provisions of this Section 1(e), cause to be registered under the Securities
Act all of the Registrable Securities that the Holder has requested to be
registered; and provided further, however, that the Registrable Securities
shall be subject to restrictions on transfer for 90 days after the effective
date of the subject registration statement. The inclusion of any of the
Holder's Registrable Securities in a registration statement filed by Telscape
and declared effective by the Securities and Exchange Commission ("SEC") shall
be deemed to be the exercise by such Holder of the piggy-back registration
rights granted herein to such Holder, and Telscape shall have no further
obligations under this Subsection 1(e)(ii).
(iii) OBLIGATIONS OF TELSCAPE. Whenever required
hereunder to effect the registration of any Registrable Securities, Telscape
shall, as expeditiously as reasonably possible:
(A) Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, and,
upon the request of the Holders of a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for at least
seven (7) months.
(B) Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement.
(C) Furnish to the Holders such numbers of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
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(D) Use its best efforts to register and
qualify the securities covered by such registration statement under the
securities laws of such jurisdictions as shall be reasonably requested by the
Holders for the distribution of the securities covered by the registration
statement, provided that Telscape shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general
consent to service of process in any such jurisdiction.
(E) In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement with terms generally satisfactory to the managing underwriter of such
offering.
(F) Notify the Holders, promptly after
Telscape shall have received notice thereof, of the time when the registration
statement becomes effective or any supplement to any prospectus forming a part
of the registration statement has been filed.
(G) Notify the Holders of any stop order
suspending the effectiveness of the registration statement and use its
reasonable best efforts to remove such stop order.
(iv) FURNISH INFORMATION. It shall be a condition
precedent to the obligations of Telscape to take any action pursuant hereto
that the Holder, having chosen to have its Registrable Securities included for
registration, shall furnish to Telscape such information regarding the Holder,
its Registrable Securities and the intended method of disposition of such
securities as shall be required to effect the registration thereof. The Holder
shall be required to represent to Telscape that all such information which is
given is complete and accurate in all material respects. The Holder shall
deliver to Telscape a statement in writing from the beneficial owners of such
securities that such beneficial owners bona fide intend to sell, transfer or
otherwise dispose of such securities.
(v) EXPENSES.
(A) REGISTRATION EXPENSES. All expenses
incurred by Telscape in complying with Subsections 1(e)(ii), 1(e)(iii) and
1(e)(iv) hereof, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for Telscape, "Blue
Sky" fees and expenses, and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of Telscape which shall be paid in any event by Telscape) shall be
borne by Telscape.
(B) SELLING EXPENSES. All underwriting
discounts, underwriters' expense allowance, and selling commissions applicable
to the sale of Registrable Securities by the Holders and all fees and
disbursements of any special counsel (other than Telscape's regular counsel)
shall be borne by the Holders of the Registrable Securities so registered pro
rata on the basis of the number of Registrable Securities so registered.
(vi) UNDERWRITING REQUIREMENTS. All Holders proposing
to distribute their Registrable Securities through an underwriting in which
5
Telscape has proposed or is proposing to participate, shall (together with
Telscape and any other Holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by Telscape.
Notwithstanding any other subsection of this Subsection 1(e), at the request of
the managing underwriter, the Holder shall delay the sale of Registrable
Securities which such Holder has requested be registered hereunder for up to
180 days following the effective date of the registration statement. If any
Holder disapproves of the terms of any such underwriting, such Holder may elect
to withdraw therefrom by written notice to Telscape and the managing
underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be withdrawn from such registration except at the
election of the Holder.
(vii) DELAY OF REGISTRATION. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any
such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section.
(viii) INDEMNIFICATION. In the event that any
Registrable Securities are included in a registration statement pursuant
hereto:
(A) To the extent permitted by law, Telscape
will indemnify and hold harmless each Holder, the officers, directors and
partners of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against any losses, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, a "Violation"): (i) any untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; (ii) the omission to state therein a material fact
required to be stated therein, or necessary to make the statements therein not
misleading; or (iii) any violation by Telscape of the Securities Act, the
Exchange Act, any applicable state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any applicable state
securities law; and Telscape will reimburse the Holder for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, damage, liability or action; provided, however, that
the indemnity agreement contained in this Subsection 1(e)(viii)(A) shall not
apply to amounts paid in settlement of any such loss, damage, liability or
action if such settlement is effected without the consent of Telscape, nor
shall Telscape be liable in any such case for any such loss, damage, liability
or action to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any such
Holder, underwriter or controlling person; provided, however, that Telscape
will not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in said
registration statement, said preliminary prospectus, said final prospectus or
said amendment or supplement in reliance upon and in conformity with written
information furnished by such Holder or any other Holder, for use in the
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preparation thereof; and further provided, however, that the foregoing
indemnity agreement is subject to the condition that, insofar as it relates to
any untrue statement, alleged untrue statement, omission or alleged omission
made in any preliminary prospectus but eliminated or remedied in the
prospectus, such indemnity agreement shall not inure to the benefit of any
underwriter or broker, if a copy of the prospectus was not sent or given to
such person with or prior to the confirmation of the sale of such securities to
such person.
(B) To the extent permitted by law, each
selling Holder will indemnify and hold harmless Telscape, its directors, its
officers, any person who controls Telscape within the meaning of the Securities
Act or the Exchange Act, any underwriter (within the meaning of the Securities
Act) for Telscape and any person who controls such underwriter against any
losses, claims, damages or liabilities (joint or several) to which Telscape or
any such director, officer, controlling person, or underwriter or controlling
person may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by the
Holder expressly for use in connection with such registration; and the Holder
will reimburse any legal or other expenses reasonably incurred by Telscape or
any such director, officer, controlling person, underwriter or controlling
person thereof, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this Subsection 1(e)(viii)(B) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(C) Promptly after receipt by an indemnified
party under this Subsection 1(e)(viii) of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Subsection 1(e)(viii), notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with
the fees and expenses to be paid by the indemnifying party, if representation
of such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to notify an indemnifying party within a reasonable
time of the commencement of any such action, to the extent prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Subsection 1(e)(viii), but the
omission so to notify the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Subsection 1(e)(viii).
(ix) REPORTS UNDER EXCHANGE ACT. With a view of
making available to the Holders the benefits of Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
7
permit a Holder to sell securities of Telscape to the public without
registration, Telscape agrees to:
(A) use its best efforts to make and keep
public information available, as those terms are understood and defined in Rule
144, at all times; and
(B) use its best efforts to file with the SEC
in a timely manner all reports and other documents required of Telscape under
the Securities Act and the Exchange Act.
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the
Merger will be as provided in the applicable provisions of Texas Law.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS. At the Effective Time, the
articles of incorporation of Newco, as in effect immediately prior to the
Effective Time, will be the articles of incorporation of the Surviving
Corporation and thereafter will continue to be its articles of incorporation
until amended as provided in such articles of incorporation and pursuant to
Texas Law. The bylaws of Newco, as in effect immediately prior to the
Effective Time, will be the bylaws of the Surviving Corporation and thereafter
will continue to be its bylaws until amended as provided in such bylaws and
pursuant to Texas Law.
1.5 DIRECTORS AND OFFICERS. The directors of the Company immediately
prior to the Effective Time will be the directors of the Surviving Corporation,
each to hold office in accordance with the articles of incorporation and bylaws
of the Surviving Corporation, and the officers of the Company immediately prior
to the Effective Time will be the officers of the Surviving Corporation, each
to hold office in accordance with the bylaws of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified.
1.6 EXCHANGE AND SURRENDER OF CERTIFICATES.
(a) As soon as practicable after the Effective Time, each
holder of a certificate previously evidencing Company Common Stock will be
entitled, upon surrender of such certificate to Telscape or its transfer agent,
to receive in exchange for such certificate, a certificate or certificates
representing the number of the whole shares of Telscape Common Stock so
surrendered have been converted as described in Section 1.3, in such
denominations and registered in such names as such holder may request
consistent with the provisions of this Agreement. Until so surrendered and
exchanged, each certificate previously evidencing Company Common Stock will
represent solely the right to receive the whole shares of Telscape Common
Stock. Unless and until any such certificates are so surrendered and
exchanged, no dividends or other distributions payable to the holders of record
of Telscape Common Stock as of any time on or after the Effective Time will be
paid to the holders of such certificates previously evidencing Company Common
Stock; provided, however, that upon any such surrender and exchange of such
certificates, there will be paid to the record holders of the certificates
issued and exchanged therefor (i) the amount, without interest, of dividends
and other distributions, if any, with a record date on or after the Effective
8
Time theretofore paid with respect to such whole shares of Telscape Common
Stock; and (ii) at the appropriate payment date, the amount of dividends or
other distributions or payments, if any, with a record date on or after the
Effective Time but prior to surrender and a payment date occurring after
surrender, payable with respect to such whole shares of Telscape Common Stock.
Notwithstanding the foregoing, no party to this Agreement (or Telscape's
transfer agent) will be liable to any former holder of Company Common Stock for
any cash, Telscape Common Stock, or dividends or distributions delivered to a
public official pursuant to applicable abandoned property, escheat, or similar
law.
(b) All of the Telscape Common Stock issued upon the surrender
for exchange of certificates previously representing Company Common Stock in
accordance with the terms of this Agreement will be deemed to have been issued
in full satisfaction of all rights pertaining to such Company Common Stock. At
and after the Effective Time, there will be no further registration of
transfers on the stock transfer books of the Surviving Corporation of Company
Common Stock that was outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates that previously evidenced Company Common
Stock are presented to the Surviving Corporation for any reason, they will be
cancelled and exchanged as provided in this Article I.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
STOCKHOLDERS. The Company and ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇ (the "Management
Stockholders"), jointly and severally, and the remaining Stockholders,
severally but not jointly with the other Stockholders, hereby represent and
warrant to Telscape as follows:
(a) AUTHORIZATION. The Company has taken all necessary
corporate action and has all the necessary corporate power to enter into this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and delivered by the officers of
the Company on its behalf, and assuming that this Agreement is the valid and
binding obligation of Telscape, is the valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms, except
as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect, or
by legal or equitable principles, relating to or limiting creditors' rights
generally and except that the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and
to the discretion of the court before which any proceeding therefor may be
brought.
(b) STOCKHOLDER AUTHORITY. Each Stockholder represents and
warrants that such Stockholder has the ability to consummate the transactions
contemplated hereby, that this Agreement has been duly executed and validly
delivered by each Stockholder and that this Agreement is the valid and binding
obligation of the Stockholders, enforceable against such Stockholders in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
9
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(c) ORGANIZATION; SUBSIDIARIES. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Texas. The Company has the corporate power and authority to own and
lease its properties and assets and to carry on its business as it is now being
conducted and is duly qualified to do business as a foreign corporation in each
jurisdiction where it owns or leases real property or conducts business, except
where the failure to be so qualified would not have a material adverse effect
on the business, operations, earnings, prospects, assets or condition
(financial or otherwise) of the Company. Set forth on Schedule 2.1(c) hereto
is a true and correct list of each jurisdiction in which the Company is
qualified to do business. The Company does not own any shares of capital stock
or other interest in any corporation, partnership, association or other entity.
(d) MINUTE BOOKS. The Company and the Stockholders have made
available to Telscape true, correct and complete copies of certificates of
incorporation or equivalent instrument, bylaws or equivalent instruments,
minute books, stock certificates and Stock Record Books of the Company. The
minute books of the Company contain minutes or consents reflecting all actions
taken by the directors (including any committees) and stockholders of each of
the Company.
(e) CAPITALIZATION. The authorized, issued and outstanding
shares of capital stock of the Company as of the date hereof is 105,000 shares
of common stock, par value $0.10 per share, of which 80,000 are issued and
outstanding. The outstanding shares of Company Common Stock have been duly
authorized, validly issued and are fully paid and non assessable. The Company
hereby represents and warrants that the issued and outstanding shares of
Company Common Stock owned by Stockholders are owned free of preemptive rights
and free and clear of all adverse claims, liens, mortgages, charges, security
interests, encumbrances and other restrictions or limitations of any kind
whatsoever, other than restrictions inherent in the exemptions from securities
registration or qualification requirements under which the Company Common Stock
was issued to the Stockholders. The Company has not issued any shares of
capital stock which could give rise to claims for violation of any federal or
state securities laws (including any rules or regulations promulgated
thereunder) or the securities laws of any other jurisdiction (including any
rules or regulations promulgated thereunder). As of the date hereof, there are
no options, warrants, calls, convertible securities or commitments of any kind
whatsoever relating to the shares of Company Common Stock subject hereto or any
of the unissued shares of capital stock of the Company, and there are no voting
trusts, voting agreements, stockholders agreements or other agreements or
understandings of any kind whatsoever which relate to the voting of the capital
stock of the Company.
(f) FINANCIAL STATEMENTS. The Company has heretofore
delivered to Telscape: (i) an unaudited interim balance sheet of the Company as
at June 30, 1996 (the "Balance Sheet") and unaudited interim statements of
operations and retained earnings and cash flows for the period ended June 30,
1996, (all of the foregoing, including the notes thereto, may collectively be
10
referred to hereinafter as the "Financial Statements"). The Financial
Statements present fairly, in all material respects, the financial position of
the Company as of the date indicated and the results of operations and cash
flows of the Company for the period indicated in conformity with generally
accepted accounting principles applied on a consistent basis. The Company
shall deliver to Telscape audited consolidated financial statements as of a
date within forty-five days of the Closing with an unqualified opinion thereon
issued by an independent certified public accounting firm acceptable to
Telscape (the "Audited Financial Statements"). The Audited Financial
Statements will reflect aggregate liabilities not in excess of $200,000, cash
and cash equivalents in excess of $450,000 and stockholders' equity in excess
of $450,000.
(g) OWNED REAL PROPERTY. The Company does not own (of record
or beneficially), nor does it have any interest in, any real property other
than the leased real property set forth below. Except for such leased real
property and any easements or rights of way for the benefit of the Company
which are appurtenant thereto, the Company does not own any real property.
(h) LEASED REAL PROPERTY; TENANCIES. The Company has
delivered to Telscape true, correct and complete copies of all leases and
subleases (the "Real Property Leases") with respect to real property leased by
the Company as lessee and used in the conduct of its business or otherwise (the
"Leased Real Property"). Except as set forth on Schedule 2.1(h), the Company
is not required pursuant to the provisions of any of the Real Property Leases
or otherwise to obtain the consent of any lessor with respect to the Leased
Real Property prior to or in connection with consummation of the transactions
contemplated hereby and the Company is not in default under nor, to the best
knowledge of the Company and the Management Stockholders, is any third party in
default under any of the Real Property Leases. There are no subleases or
subtenancies for any part of the Leased Real Property that shall remain in
effect after the Closing Date and, to the best knowledge of the Company and the
Management Stockholders, there is no third party which has any right to
purchase, use or otherwise possess all or any part of the Leased Real Property.
(i) TITLE. The Company: (i) holds a valid and enforceable
leasehold interest in the Leased Real Property; and (ii) owns good and
marketable title to all of the assets and properties reflected on the Balance
Sheet or purchased by the Company after the date thereof (other than supplies
consumed or assets or properties sold in the ordinary course of business
subsequent to the date thereof). To the best knowledge of the Company and the
Management Stockholders, the Real Property Leases are leased free of all
adverse claims, liens, mortgages, charges, security interests, encumbrances and
other restrictions or limitations of any kind whatsoever, except: (A) as
stated in the Financial Statements or the Audited Financial Statements; (B) for
liens for taxes or assessments not yet due and payable or which are being
contested by the Company in good faith; (C) for minor liens imposed by law for
sums not yet due or which are being contested by the Company in good faith; and
(D) for imperfections of title, adverse claims, charges, restrictions,
limitations, encumbrances, liens or security interests that are minor and which
do not detract from the value of the Leased Real Property subject thereto or
which do not impair the operations of the Company or affect the present use of
the Leased Real Property. To the best knowledge of the Company and the
Management Stockholders, there is no condemnation or eminent domain proceeding
11
pending or threatened against the Leased Real Property (or any part thereof).
The Company has not made any commitments or received any notice, oral or
written, from any public authority or other entity with respect to the taking
or use of the Leased Real Property (or any part thereof), whether temporarily
or permanently, for easements, rights of way or other public or quasi public
purposes or for any other purpose whatsoever nor, to the best knowledge of the
Company and the Management Stockholders, is there any proceeding pending or
threatened which could adversely affect the zoning classification relating to
such property or its use by the Company as of the date hereof. The assets
reflected on the Balance Sheet and those purchased by the Company after the
date thereof are owned free of all adverse claims, liens, mortgages, charges,
security interests, encumbrances and other restrictions or limitations of any
kind whatsoever, except: (A) as stated in the Financial Statements; (B) for
liens for taxes or assessments not yet due and payable or which are being
contested by the Company in good faith; (C) for minor liens imposed by law for
sums not yet due or which are being contested by the Company in good faith; and
(D) for imperfections of title, adverse claims, charges, restrictions,
limitations, encumbrances, liens or security interests that are minor and which
do not detract in any material respect from the value of any of the assets
subject thereto or which do not impair the operations of the Company in any
material respect or affect the present use of the assets in any material
respect. The Company has not made any commitments or received any notice, oral
or written, from any public authority or other entity with respect to the
taking or use of any of the Company's assets, whether temporarily or
permanently, for any purpose whatsoever, nor is there any proceeding pending
or, to the best knowledge of the Management Stockholders, threatened which
could adversely affect any asset owned or used by the Company as of the date
hereof.
(j) FIXED ASSETS; CONDITION OF ASSETS. To the best knowledge
of each of the Company and the Management Stockholders, the Real Property
Leases and all other documents and agreements pursuant to which the Company has
obtained the right to use or occupy any real property, personal property or
assets, are valid and enforceable in all respects in accordance with their
respective terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect, or by legal or equitable principles, relating to or
limiting creditors' rights generally and except that the remedy of specific
performance and injunctive and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. To the best knowledge of the Company and
the Management Stockholders, all permits and authorizations related to the
location or operation of the business of the Company are in good standing and
are valid and enforceable in all respects in accordance with their respective
terms. To the best knowledge of the Company and the Management Stockholders,
there is not, under any of the foregoing instruments, documents or agreements,
any existing material default, nor is there any event which, with notice or
lapse of time or both, would constitute a default, which could have a material
adverse effect on the business, assets, operations, earnings, prospects or
condition (financial or otherwise) of the Company or materially adversely
affect its use of the Leased Real Property or the title to its assets. To the
best knowledge of each of the Company and Management Stockholders, the Company
is not in violation of and has complied with all applicable zoning, building or
other codes, statutes, regulations, ordinances, notices and orders of any
governmental authority with respect to the occupancy, use, maintenance,
condition, operation and improvement of the Leased Real Property or assets,
except where the failure to comply would not have a material adverse effect on
12
the business, operations, earnings, prospects, assets or condition (financial
or otherwise) of the Company. To the best knowledge of each of the Company and
the Management Stockholders, the Company's use of any improvements for the
purposes for which any of the Leased Real Property or assets are being used as
of the date hereof does not violate any such code, statute, regulation,
ordinance, notice or order. To the best knowledge of each of the Company and
Management Stockholders, the Company possesses all licenses, certificates of
occupancy, permits and authorizations required to be obtained by the Company
with respect to the Company's operation and maintenance of the Leased Real
Property or assets for all uses for which such property is or assets are
operated or used by the Company as of the date hereof, except where the failure
to do so would not have a material adverse effect on the business, operations,
earnings, prospects, assets or condition (financial or otherwise) of the
Company. All of the property or assets owned or leased by the Company is in
good operating condition and repair, subject to normal wear and use and each is
usable in a manner consistent with current use by the Company.
(k) INTELLECTUAL PROPERTY.
(i) Schedule 2.1(k) hereto sets forth a true, correct
and complete list (including where applicable, the date of registration and the
serial or registration number) of all registered and unregistered trademarks,
service marks and trade names (including any applications for the same), trade
secrets, registered and unregistered copyrights, and computer programs and
software (whether or not protected by patent, copyright or otherwise) which are
owned by, licensed by, used in or are material to the business of the Company
(the "Intellectual Property"). With respect to each of the foregoing items,
there is listed on Schedule 2.1(i) hereto the following: (A) the extent of the
Company's interest therein; (B) each agreement and all other documents
evidencing the Company's interest therein; (C) the extent of the interest of
any third party therein; and (D) each agreement and all other documents
evidencing the interest of any third party therein.
(ii) Except as set forth on Schedule 2.1(k) hereto, the
Company's right, title or interest in the Intellectual Property is free and
clear of adverse claims, liens, mortgages, charges, security interests and
encumbrances or other restrictions or limitations of any kind whatsoever.
(iii) The Company has not committed any acts of unfair
competition or directly, indirectly, contributorily or by inducement, infringed
upon any patent, trademark, service ▇▇▇▇, trade name, copyright, computer
program or software, or any other intellectual property, nor, to the best
knowledge of the Company, has the Company misappropriated any of the foregoing
from any other person or entity or received from any other person or entity any
notice, charge, claim or other assertion with respect thereto.
(iv) The Company has not sent or otherwise communicated
to any other person or entity any notice, charge, claim or other assertion of,
nor has the Company any knowledge of, any present, impending or threatened
infringement upon any of the Intellectual Property by any other person or
entity, or misappropriation of any of the foregoing by any other person or
entity, or any commission of acts of unfair competition by any other person or
entity.
13
(l) ACCOUNTS RECEIVABLE. The Company has delivered the
Balance Sheet which accurately, correctly and completely reflects the aggregate
amount of Accounts Receivable at the respective dates thereof. All of the
Accounts Receivable are valid, arose out of bona fide transactions in the
ordinary course of business, and are the valid and binding obligations of and
are enforceable against the respective account debtors thereunder, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect.
The Accounts Receivable have: (i) been collected; (ii) are collectible in the
ordinary course of business; or (ii) have been adequately reserved for in
accordance with generally accepted accounting principles consistently applied.
There is no contest, claim or right of set off contained in any written
agreement with any account debtor relating to the amount or validity of any
Account Receivable. Since June 30, 1996, to the best knowledge of the Company
and the Management Stockholders, there has been no event that could materially
increase the ratio of uncollectible Accounts Receivable ("Uncollectible
Receivables") to the Accounts Receivable or cause the Company's reserve, if
any, for Uncollectible Receivables to be inadequate.
(m) ACCOUNTS PAYABLE. The Company has delivered the Balance
Sheet which accurately, correctly and completely reflect the aggregate amount
of Accounts Payable at the respective dates thereof. There have been no
material changes in the Accounts Payable since such date other than those
incurred in the ordinary course of the conduct of the Business consistent with
past practices. All of the Accounts Payable are current (within 30 days),
arose out of bona fide transactions in the ordinary course of business, and are
the valid and binding obligations of and are enforceable against the Company,
except as such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect.
(n) ABSENCE OF UNDISCLOSED LIABILITIES. Other than as set
forth on the Balance Sheet, the Company has not had and does not have any
indebtedness, loss or liability of any nature whatsoever (other than those
incurred in the ordinary course of business), whether accrued, absolute,
contingent or otherwise and whether due or become due, which is material to the
assets, business or operations of the Company.
(o) ABSENCE OF CERTAIN CHANGES OR EVENTS. The Company has
not, except as expressly set forth in this Agreement, since June 30, 1996:
(i) issued, sold, granted or contracted to issue, sell
or grant any of its stock, notes, bonds, other securities or any option to
purchase any of the same;
(ii) amended its certificate of incorporation or
bylaws;
(iii) made any capital expenditures or commitments for
the acquisition or construction of any property, plant or equipment other than
in the ordinary course of business of the Company;
14
(iv) entered into any material transaction in any way
inconsistent with the past practices of its business or conducted its business
in any manner inconsistent with its past practices;
(v) incurred any damage, destruction or any other loss
to any of its property or assets in an aggregate amount exceeding Ten Thousand
Dollars ($10,000) whether or not covered by insurance;
(vi) suffered any loss in an aggregate amount exceeding
Ten Thousand Dollars ($10,000) and, neither the Company nor the Management
Stockholders has become aware of any intention on the part of any client,
dealer or supplier to discontinue its current relationship with the Company,
the loss or discontinuance of which, alone or in the aggregate, could have a
material adverse effect on the Company's business, assets, operations,
earnings, prospects or condition (financial or otherwise);
(vii) modified, amended or altered any contractual
arrangement with any client, dealer or supplier, the modification, amendment or
alteration of which, alone or in the aggregate, could have a material adverse
effect on the Company's business, assets, operations, earnings, prospects or
conditions (financial or otherwise);
(viii) incurred any material liability or obligation
(absolute or contingent) or made any material expenditure other than in the
ordinary course of business of the Company;
(ix) experienced any material adverse change in the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company or experienced or have knowledge of any event which
could have a material adverse effect on the business, assets, operations,
earnings, or condition (financial or otherwise) of the Company;
(x) declared, set aside or paid any dividend or other
distribution in respect of the capital stock of the Company;
(xi) redeemed, repurchased, or otherwise acquired any
of its capital stock or securities convertible into or exchangeable for its
capital stock or entered into any agreement with respect to any of the
foregoing;
(xii) granted, conveyed, transferred, assigned or made
any sale of Accounts Receivable or any accrual of liabilities outside of the
ordinary course of its business;
(xiii) granted, conveyed, transferred, assigned or made
any sale of any material interest in the Intellectual Property;
(xiv) purchased, disposed of or contracted to purchase
or dispose of, or granted or received an option or any other right to purchase
or sell, any of its property or assets, except in the ordinary course of
business;
15
(xv) increased the rate of compensation payable or to
become payable to the officers or employees of the Company, or increased the
amounts paid or payable to such officers or employees under any bonus,
insurance, pension or other benefit plan, or made any arrangements therefor
with or for any of said officers or employees except for increases consistent
with the Company's ordinary course of business or increases resulting from the
application of existing formulas under existing plans, agreements or policies
relating to employee compensation;
(xvi) adopted or amended any collective bargaining,
bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation or other plan, agreement, trust, fund or arrangement for
the benefit of its employees, except as otherwise required or permitted herein;
or
(xvii) changed any material accounting principle,
procedure or practice followed by the Company or changed the method of applying
such principle, procedure or practice.
(p) AGREEMENTS. The Company has heretofore delivered to
Telscape and Newco true, correct and complete copies of all contracts,
agreements and other instruments material to the business or operation of the
Company, including without limitation, those to which the Company is a party
and those by which any of its property or assets are bound. Other than the
materials heretofore delivered to Telscape and Newco, there is no contract or
agreement to which the Company or any Stockholder is a party or which affects
the assets, liabilities or outstanding securities of the Company, which is
material to the business or operation of the Company. None of the foregoing
agreements limit the freedom of the Company to compete in any line of business
or with any person or other entity in any geographic region within or outside
of the United States of America.
Neither the Company, the Management Stockholders, nor any third party, to
the best knowledge of the Company and the Management Stockholders, is in
material default and no event has occurred which, with notice or lapse of time
or both, could cause or become a material default by the Company, any
Management Stockholder or any third party under any contract, agreement,
document or instrument to which the Company or any Management Stockholder is a
party which is material to the business or operations of the Company. Each
contract, agreement, document or instrument to which the Company or the
Management Stockholders is a party which is material to the business or
operations of the Company is enforceable, in accordance with its terms, against
all other parties thereto, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(q) NON CONTRAVENTION; CONSENTS. Neither the execution and
delivery of this Agreement by each of the Company and the Management
Stockholders, nor consummation of the transactions contemplated hereby, does or
will: (i) violate or conflict with any provision of the articles of
16
incorporation or bylaws of the Company; (ii) violate or, with the passage of
time, result in the violation of any provision of, or result in the
acceleration of or entitle any party to accelerate any obligation under, or
result in the creation or imposition of any lien, charge, pledge, security
interest or other encumbrance upon any of the property or assets, which are
material to the business or operation of the Company, pursuant to any provision
of any mortgage, lien, lease, agreement, permit, indenture, license,
instrument, law, order, arbitration award, judgment or decree to which the
Company is a party or by which it or any of such property or assets are bound,
the effect of which violation, acceleration, creation or imposition could have
a material adverse effect on the business, assets, operations, earnings,
prospects (financial or otherwise) of the Company; (iii) violate or conflict
with any other restriction of any kind whatsoever to which the Company or the
Stockholders are subject or by which any of their properties or assets may be
bound, the effect of any of which violation or conflict could have a material
adverse effect on the business, assets, operations, earnings or prospects
(financial or otherwise) of the Company; or (iv) constitute an event permitting
termination by a third party of any agreement to which either the Company or
the Management Stockholders are party or are subject, which termination could
have a materially adverse effect on the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of the Company. To the best
knowledge of the Company and the Management Stockholders, no consent,
authorization, order or approval of, or filing or registration with, any
governmental commission, board or other regulatory body is required in
connection with the execution, delivery and performance of the terms of this
Agreement and consummation of the transactions contemplated hereby by the
Company or the Management Stockholders.
(r) EMPLOYEE BENEFIT PLANS. Schedule 2.1(r) sets forth a
true, correct and complete list of all "employee benefit plans" as such term is
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA") (the "Benefit Plans") covering the employees of the
Company (the "Employees"). Each Benefit Plan is in compliance in all material
respects with all applicable provisions of law, including ERISA and the
Internal Revenue Code of 1986, as amended (the "Code"). There are no pending
or, to the knowledge of the Company and the Management Stockholders, threatened
claims against any Benefit Plan (except for claims for benefits payable in the
normal operation of the Benefit Plans) that could give rise to any material
liability to the Company. All material reports, notices and returns required
to be filed with any governmental agency or provided to any person or entity
with respect to the Benefit Plans have been timely filed. The Company has
never had and does not now have any Benefit Plan that is an employee pension
plan (as defined in Section 3(2) of ERISA) nor does the Company contribute to
any multiemployer pension or multiemployer welfare benefit plan (within the
meaning of Section 3(37) of ERISA).
(s) LABOR RELATIONS. There are no agreements with or pending
petitions for recognition of any labor union or association as the exclusive
bargaining agent for any or all of the employees of the Company and no such
petition has been pending at any time during the two years prior to the date
hereof. There has not been any organizing effort by any union or other group
seeking to represent any employees of the Company as its exclusive bargaining
agent at any time during the two years prior to the date hereof. There are no
labor strikes, work stoppages or other labor disputes now pending or, to the
best knowledge of the Company or the Management Stockholders, threatened
against the Company, nor has there been any such labor strike, work stoppage or
17
other labor dispute or grievance at any time during the two years prior to the
date hereof. Neither the Company nor the Management Stockholders has any
knowledge that any executive, key employee or any group of employees of the
Company has any plans to terminate his/her employment with the Company.
(t) INSURANCE. The Company has heretofore delivered to
Telscape and Newco true, correct and complete list of all insurance policies or
binders of insurance or programs of self insurance which relate to the business
of the Company. The coverage under each such policy and binder is in full
force and effect. Neither the Company nor the Management Stockholders has any
knowledge of nor has the Company or the Management Stockholders received any
notice of cancellation, termination, nonrenewal or disallowance of any claim
thereunder or with respect thereto. Neither the Company nor the Management
Stockholders has any knowledge of any facts or the occurrence of any events
which could form the basis of any claim against the Company relating to its
business, assets, properties or operations which could increase the insurance
premiums payable by the Company under such policy or binder in excess of normal
increases consistent with industry practices.
(u) TAX MATTERS. The Company is not a member of an affiliated
group, within the meaning of Section 1504 of the Code (an "Affiliated Group").
The Company has filed when due and will file if and when due prior to the
Closing Date (after giving effect to any extensions granted by the requisite
legal or regulatory authority) all returns, reports, elections, estimates,
declarations, schedules, forms and other documents ("Tax Returns") relating to
taxes required to be filed by the Code or by any applicable federal, state,
county, municipal, local, foreign or other laws, including, without limitation,
consolidated, combined or unitary returns, for any taxable period ending prior
to or on the Closing Date (the "Pre Closing Tax Period"). The taxable year of
the Company for federal and state income and business tax purposes currently
ends on February ___ of each year. All taxes shown on any Tax Return required
to be filed with respect to the Company for any Pre Closing Tax Period have
been, or will have been, paid or accrued prior to the Closing. The Company has
fully accrued on its books all taxes for any periods which are not yet due. No
tax liens have been filed, and no material claims have been or are being
asserted or proposed, against the Company with respect to any taxes. No Tax
Returns of the Company have been audited in the past five years by any taxing
authority, no deficiencies or claims have been proposed, assessed or claimed
(including interest and penalties) against the Company which have not been paid
or accrued, and the Company has not waived or extended any statute of
limitations with respect to the assessment of any taxes, which waiver or
extension has not yet expired by its terms. There are no suits, actions,
proceedings, claims or investigations now pending against the Company with
respect to any taxes. The Company has withheld or collected from each payment
made to each of its employees, consultants, contractors and other payees the
amount of all taxes (including, but not limited to, federal income taxes, state
and local income and wage taxes, payroll taxes, workers' compensation and
unemployment taxes) required to be withheld or collected therefrom for all Pre
Closing Tax Periods and the Company has timely paid or accrued and reported the
same in respect of its employees, consultants, contractors and other payees to
the proper tax receiving offices. The Company does not have any liability for
any taxes of any nature whatsoever other than as shown on the Balance Sheet
(except for liabilities for taxes accruing after the date of such balance sheet
in the ordinary course of business) and neither the Management Stockholders nor
18
the Company is aware of any basis for any additional liabilities for taxes for
any Pre Closing Tax Period. The reserve for accrued but unpaid taxes for the
period ending June 30, 1996 includes adequate provision for all taxes which
have been assessed or which will be due and payable by the Company for all Pre
Closing Tax Periods. The Company does not file any state or local tax returns
on a unitary or combined basis with any other member of an Affiliated Group.
To the extent that any Management Stockholder may incur tax liability in
connection with the transactions contemplated hereby, such Management
Stockholder, and not the Company, will be responsible for fulfilling any
obligations or liabilities with respect thereto. Notwithstanding the
foregoing, however, no Stockholder will be responsible for fulfilling any
obligation or liability with respect to tax liability incurred in connection
with or resulting from an election or action taken by Telscape or Newco on or
after the Closing Date.
The term "taxes" or "tax" as used in this section or referred to elsewhere
in this Agreement shall mean all taxes, charges, fees, levies, penalties, or
other assessments, including without limitation, income, capital gain, profit,
gross receipts, ad valorem, excise, property, payroll, withholding, employment,
severance, social security, workers' compensation, occupation, premium, customs
duties, windfall profits, sales, use, and franchise taxes, imposed by the
United States, or any state, county, local or foreign government or any
subdivision or agency thereof, and including any interest, penalties, or
additions attributable thereto.
(v) COMPLIANCE WITH APPLICABLE LAW. The Company has been and
is in compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules and regulations, except where the failure to comply with
which would not materially adversely affect the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of the Company or
which would subject any officer or director of the Company to civil or criminal
penalties or imprisonment. The Company has complied with the rules and
regulations of all governmental agencies having authority over its business or
its operations, including without limitation, agencies concerned with intra
state and interstate commerce, occupational safety and employment practices,
except where the failure to comply would not have a material adverse effect on
the business, operations, earnings, prospects, assets or condition (financial
or otherwise) of the Company. None of the Company nor any of the Management
Stockholders has any knowledge of or received any notice of violation of any
such rule or regulation during the two years prior to the date hereof which
could result in any liability of the Company for penalties or damages or which
could subject the Company to any injunction or government writ, order or
decree. To the best knowledge of each of the Company and the Management
Stockholders, there are no facts, events or conditions that could interfere
with, prevent continued compliance with or give rise to any liability under any
foreign, federal, state or local governmental laws, statutes, ordinances or
regulations applicable to the business, assets, operations, earnings, prospects
or condition (financial or otherwise) of the Company, except where the failure
to do so would not have a material adverse effect on the business, operations,
earnings, prospects, assets or condition (financial or otherwise) of the
Company.
(w) LITIGATION. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Company or the
Management Stockholders, threatened, which could restrict the Company or the
Management Stockholders' ability to perform his respective obligations
hereunder or could have a material adverse effect on the business, assets,
19
operations, earnings, prospects or condition (financial or otherwise) of the
Company. To the best knowledge of the Company and the Management Stockholders,
there are no grounds for or facts, events or circumstances which could form the
basis of any such action that could cause or result in any such action, suit,
proceeding or investigation or which is probable of assertion. Neither the
Company nor the Management Stockholders is in default in respect of any
judgment, order, writ, injunction or decree of any court or any federal, state,
local or other governmental agency, authority, body, board, bureau, commission,
department or instrumentality which could have a material adverse effect on the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company.
(x) PERMITS. The Company holds all permits, licenses, orders
and approvals of all federal, state or local governmental or regulatory
authorities, agencies or bodies required for the conduct and operation of the
Company's business as currently conducted, except where the failure to do so
would not have a material adverse effect on the business, operations, earnings,
prospects, assets or condition (financial or otherwise) of the Company. All
such permits, licenses, orders, and approvals are in full force and effect and
no suspension, termination or revocation of any of the foregoing is, to the
best knowledge of the Company and the Management Stockholders, threatened.
None of such permits, licenses, orders or approvals will be materially
adversely affected by consummation of the transactions contemplated by this
Agreement. The Company has complied with the rules and regulations of all
governmental or other regulatory agencies, authorities, bodies, boards,
bureaus, commissions, departments or instrumentalities which regulate,
supervise or are in any manner concerned with import and export licenses,
occupational safety and employment practices relating to the Company's
business, except where the failure to do so would not have a material adverse
effect on the business, operations, earnings, prospects, assets or condition
(financial or otherwise) of the Company. The Company has no knowledge of nor
has it received any notice of violation of any of such rules or regulations
during the two years prior to the date hereof which would result in any
liability of the Company for penalties or damages or which would subject the
Company to any injunction or governmental writ, order or decree.
(y) UNLAWFUL PAYMENTS. Neither the Company, the Management
Stockholders, nor to the best knowledge of the Company and the Management
Stockholders, any officer, director, employee, agent or representative of the
Company (other than the Management Stockholders acting in his/her capacity as
any of the foregoing) has made, directly or indirectly, any bribe or kickback,
illegal political contribution, payment from corporate funds which was
incorrectly recorded on the books and records of the Company, unlawful payment
from corporate funds to governmental or municipal officials in their individual
capacities for the purpose of affecting their action or the actions of the
jurisdiction which they represent to obtain favorable treatment in securing
business or licenses or to obtain special concessions of any kind whatsoever,
or illegal payment from corporate funds to obtain or retain any business.
(z) WARRANTIES. The Company has made adequate provision and
has adequately reserved for any warranty made by the Company (express or
implied by law or otherwise) with respect to the products or services sold,
distributed or licensed to its clients or clients.
20
(aa) OFFICERS, DIRECTORS AND EMPLOYEES. Set forth on Schedule
2.1(aa) hereto is a true, correct and complete list of all of the officers,
directors and employees of the Company as of the date hereof, including their
respective names, titles, salaries and bonuses for the last five years. There
are no employment agreements between the Company and any of the foregoing
officers, directors and employees of the Company in effect as of the date
hereof.
(bb) LOANS TO OR FROM AFFILIATES. There exist no outstanding
loans by the Company to any current or former officer, director, employee,
consultant or Management Stockholders of the Company or any affiliate of any of
the foregoing. There are no outstanding loans to the Company by any current or
former officer, director, employee, consultant or Management Stockholders of
the Company.
(cc) CLIENTS, VENDORS, SUPPLIERS AND SERVICE PROVIDERS. Set
forth on Schedule 2.1(cc) hereto is a true, correct and complete list of the
clients, vendors, suppliers and service providers of the Company. Since June
30, 1996, there has not been any material adverse change in the business
relationship of the Company with any of the persons or entities listed on
Schedule 2.1(cc).
(dd) BOOKS AND RECORDS.
(i) The books of account and other financial records
of the Company are complete and correct and have been maintained in accordance
with good business practices.
(ii) All material corporate action of the Company's
board of directors (including any committees) and Stockholders of the Company
since the date of the Company's incorporation has been authorized, approved
and/or ratified in the minute books of the Company.
(ee) BANK ACCOUNTS. Set forth on Schedule 2.1(ee) is a true,
correct and complete list of the names of each bank, savings and loan, or other
financial institution, at which the Company maintains any account (including
any cash contribution or similar accounts) and the names of all persons
authorized to draw thereon or who have access thereto. Schedule 2.1(ee)
includes a true, correct and complete list of each credit or loan facility
established and/or maintained by or on behalf of the Company and includes the
amounts available to the Company under each such facility, the outstanding
principal balance thereunder as of the date hereof, the interest rate
applicable thereto and the maturity date thereof.
(ff) AGREEMENTS WITH AFFILIATES. The Company is not a party to
any instrument, license, lease or other agreement, written or oral, with any
officer, director or Stockholders of the Company.
(gg) ACCURACY OF INFORMATION FURNISHED. The Company and the
Management Stockholders represent jointly and severally that no statement by
the Company or the Management Stockholders set forth herein or in the exhibits
or the schedules hereto, and no statement set forth in any certificate or other
instrument or document required to be delivered by or on behalf of the Company
or any Management Stockholders pursuant hereto or in connection with the
consummation of the transactions contemplated hereby, contained, contains or
21
will contain any untrue statement of a material fact, or omits, omitted or will
omit to state any material fact which is necessary to make the statements
contained herein or therein, in light of the circumstances under which they
were made, not misleading.
2.2 REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS. The Stockholders
represent and warrant to Telscape as follows:
(a) TITLE TO THE SHARES. Each Stockholder hereby represents
and warrants that such Stockholder is the sole legal and beneficial owner of
the number of shares of Company Common Stock as set forth in Schedule 2.2(a) to
this Agreement, which shares, in the aggregate, represent all of the issued and
outstanding shares of capital stock of the Company. Each Stockholder hereby
represents and warrants that the issued and outstanding shares of Company
Common Stock owned by such Stockholders are owned free of preemptive rights and
free and clear of all adverse claims, liens, mortgages, charges, security
interests, encumbrances and other restrictions or limitations of any kind
whatsoever, other than restrictions inherent in the exemptions from securities
registration or qualification requirements under which Company Common Stock was
issued to the Stockholders.
(b) INVESTMENT PURPOSE. Each Stockholder represents that such
Stockholders are acquiring the shares of Telscape Common Stock issuable to him
pursuant hereto solely for his own account for investment purposes only and not
with a view toward resale or distribution thereof other than pursuant to an
effective registration statement or applicable exemption from the registration
requirements of the Securities Act. Each Stockholder understands that such
shares of Telscape Common Stock will be issued in reliance upon an exemption
from the registration requirements of the Securities Act and that subsequent
sale or transfer of such securities is prohibited absent registration or
exemption from the provisions of the Securities Act. Each Stockholder hereby
agrees that he will not sell, assign, transfer, pledge or otherwise convey any
of the shares of Telscape Common Stock issuable to him pursuant hereto, except
in compliance with the provisions of the Securities Act and in accordance with
any transfer restrictions or similar terms set forth on the certificates
representing such securities or otherwise set forth herein.
(c) RECEIPT OF INFORMATION. The Stockholders have received
copies (excluding exhibits) of all the following documents, in each case as
filed with the SEC: (a) Telscape's Annual Report on Form 10 K for the year
ended December 31, 1995 (the "1995 10 K"); (b) Telscape's Quarterly Report on
Form 10 Q for the quarter ended March 31, 1996 (the "Latest 10 Q"); and (c) all
Current Reports on Form 8 K filed by Telscape with the SEC since March 31, 1996
(collectively, the "SEC Filings"). The Stockholders have received all
information concerning Telscape as they required in order to evaluate the terms
and conditions of this Agreement, the Merger and Telscape Common Stock. The
Stockholders have had the opportunity to ask any questions they might have
concerning Telscape's operations and financial condition.
2.3 REPRESENTATIONS AND WARRANTIES OF TELSCAPE. Telscape and Newco
jointly and severally represent and warrant to the Company and the Stockholders
as follows:
22
(a) AUTHORIZATION. Each of Telscape and Newco has all
requisite power and authority to execute, deliver and perform under this
Agreement. This Agreement has been duly and validly executed and delivered by
each of Telscape and Newco and, assuming that this Agreement is the valid and
binding obligation of the Company and the Stockholders, is the valid and
binding obligation of each of Telscape and Newco, enforceable against each in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect, or by legal or equitable principles, relating
to or limiting creditors' rights generally and except that the remedy of
specific performance and injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
(b) ORGANIZATION. Telscape is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas.
Telscape has the corporate power and authority to own and lease its properties
and assets, and to carry on its business as it is now being conducted. Newco
is a corporation duly organized, validly existing and in good standing under
the laws of Texas and has full corporate power to own its properties and to
properly conduct its business. Telscape is duly qualified to do business as a
foreign corporation in each jurisdiction where it owns or leases real property
or conducts business, except where the failure to be so qualified would not
have a material adverse effect on the business, operations, earnings,
prospects, assets or condition (financial or otherwise) of Telscape.
(c) CAPITALIZATION. The number of authorized, issued and
outstanding shares of capital stock of Telscape as of the date hereof is as set
forth above in the recitals to this Agreement. The outstanding shares of
Telscape Common Stock and Newco Stock have been duly authorized and validly
issued and are fully paid and nonassessable. As of the date hereof, the number
of shares of capital stock which Telscape is currently authorized to issue is
adequate to permit Telscape to fulfill its obligations hereunder with respect
to issuance of the shares of Telscape Common Stock to the Stockholders pursuant
hereto. On the Closing Date, the shares of Telscape Common Stock issuable to
the Stockholders pursuant to Subsection 1.1 will be duly authorized, validly
issued, fully paid and nonassessable. As of the date hereof, there are no
options, warrants, calls, convertible securities or commitments of any kind
whatsoever relating to the shares of Telscape Common Stock subject hereto.
(d) NON CONTRAVENTION; CONSENTS. Neither the execution and
delivery of this Agreement, nor consummation of the transactions contemplated
hereby, does or will: (i) violate or conflict with any provision of the
certificate of incorporation or bylaws of Telscape or Newco; (ii) violate or
conflict with any material provision of any mortgage, lien, lease, agreement,
permit, indenture, license, instrument, law, order, arbitration award, judgment
or decree to which either Telscape or Newco is a party or by which it or the
property or assets which are material to its business or operation are bound,
the effect of any of which violation would have a material adverse effect on
the business, assets, operations, earnings, prospects (financial or otherwise)
of the Company; (iii) violate or conflict with any other restriction to which
Telscape or Newco is subject or by which any of the property or assets which
are material to the business or operation of Telscape or Newco may be bound,
the effect of any of which violation or conflict would have a material adverse
effect on the business, assets, operations, earnings, prospects (financial or
23
otherwise) of the Company; or (iv) constitute an event permitting termination
of any agreement to which Telscape or Newco is subject by any other party
thereto, if in any such circumstance such termination could have a materially
adverse on the ability of Telscape to fulfill its respective obligations
hereunder. Other than as provided herein, no consent, authorization, order or
approval of, or filing or registration with, any governmental commission, board
or other regulatory body is required in connection with the execution, delivery
and performance of the terms of this Agreement by Telscape or Newco and
consummation by Telscape and Newco of any of the transactions contemplated
hereby.
(e) LITIGATION. There is no action, suit, proceeding or
investigation pending against or related to Telscape or Newco to the best
knowledge of Telscape and Newco, nor has Telscape or Newco been threatened with
any such action, suit, proceeding or investigation, which would restrict the
ability of either to perform its respective obligations hereunder or which
would have a material adverse effect on the business, assets, operations,
earnings, prospects or condition (financial or otherwise) of Telscape or Newco.
To the best knowledge of Telscape, there are no grounds for or facts, events or
circumstances which would form the basis of any such action that would cause or
result in any such action, suit, proceeding or investigation or which is
probable of assertion. Telscape is not in default in respect of any judgment,
order, writ, injunction or decree of any court or any federal, state, local or
other governmental agency, authority, body, board, bureau, commission,
department or instrumentality which could have a material adverse effect on the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of Telscape or Newco.
(f) ACCURACY OF INFORMATION FURNISHED. No statement by
Telscape or Newco set forth herein or in the exhibits or the schedules hereto,
and no material statement contained in Telscape's SEC filings, and no statement
set forth in any certificate or other instrument or document required to be
delivered by or on behalf of Telscape or Newco pursuant hereto or in connection
with consummation of the transactions contemplated hereby, contained, contains
or will contain any untrue statement of a material fact, or omitted, omits or
will omit to state any material fact which is necessary to make the statements
contained herein or therein, in light of the circumstances under which they
were made, not misleading.
(g) COMPLIANCE WITH APPLICABLE LAW. Telscape has been and is
in compliance with all foreign, federal, state and local laws, statutes,
ordinances, rules and regulations (including, without limitation, the
Securities Act and the Exchange Act) as of the date hereof, the failure to
comply with which could materially adversely affect the business, assets,
operations, earnings, prospects or condition (financial or otherwise) of
Telscape or which would subject any officer or director of Telscape to civil or
criminal penalties or imprisonment. Telscape has complied with the rules and
regulations of all governmental agencies having authority over its business or
its operations, including without limitation, agencies concerned with intra
state and interstate commerce, occupational safety, environmental protection
and employment practices, except where the failure to comply would not have a
material adverse effect on the business, operations, earnings, prospects,
assets or condition (financial or otherwise) of Telscape. Telscape has no
knowledge of and has not received any notice of violation of any such rule or
regulation during the two years prior to the date hereof which could result in
any liability of Telscape for penalties or damages or which could subject it to
24
any injunction or government writ, order or decree. To the best knowledge of
Telscape, there are no facts, events or conditions that could interfere with,
prevent continued compliance with or give rise to any liability under any
foreign, federal, state or local governmental laws, statutes, ordinances or
regulations applicable to the business, assets, operations, earnings, prospects
or condition (financial or otherwise) of Telscape, except where the failure to
do so would not have a material adverse effect on the business, operations,
earnings, prospects, assets or condition (financial or otherwise) of Telscape.
2.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties set forth in Sections 2.1, 2.2 and 2.3 hereof shall survive
until the close of business on the second anniversary of the Closing Date,
provided that, notice or demand with respect to any alleged breach thereof is
given as required pursuant to Article III hereof; and further provided that,
with respect to claims for damages arising out of any misrepresentation or
breach of warranty made by the Company and the Management Stockholders relating
to taxes, notice shall have been given on or before the close of business on
the sixtieth day following the later to occur of: (i) the expiration date of
the statute of limitations applicable to any indemnified federal, state or
local tax liability; and (ii) the final determination of any such tax
liability, including the final administrative and/or judicial determination
thereof.
ARTICLE III
COVENANTS
3.1 COVENANTS OF THE COMPANY AND THE STOCKHOLDERS.
(a) NOTIFICATION. Each of the Company and the Stockholders
shall give prompt notice to Telscape of: (i) any notice or other communication
received by the Company or such Stockholders prior to the Closing Date relating
to a material default or an event which, with notice or lapse of time or both
would become a material default under this Agreement or under any other
material contract, agreement or instrument to which the Company is a party, by
which it or any of its properties or assets are bound or to which it or any of
its properties or assets are subject; (ii) any event which, with notice or
lapse of time or both, would cause any warranty or representation of the
Company or the Stockholders under this Agreement to be inaccurate, untrue,
incomplete or misleading in any respect; (iii) any notice or other
communication from any third party alleging that the consent of such third
party was, is or may be required in connection with the transactions
contemplated by this Agreement; and (iv) any material adverse change in the
business, assets, operations, earnings, prospects or condition (financial or
otherwise) of the Company.
(b) ADDITIONAL FINANCIAL STATEMENTS. Upon request, prior to
and through the Closing Date, the Company shall furnish to Telscape within
fifteen (15) calendar days after the end of each calendar month, an unaudited
monthly balance sheet and statements of operations and retained earnings for
the Company for each month ending after June 30, 1996.
(c) ADDITIONAL SUMMARIES OF ACCOUNTS AND NOTES RECEIVABLE.
Upon request, prior to and through the Closing Date, the Company shall deliver
to Telscape, within fifteen (15) calendar days after the end of each calendar
25
month, a summary of all Accounts Receivable (including a complete aging in such
form as may be requested by Telscape) as of the end of each such calendar month
for each month ending after June 30, 1996.
(d) ADDITIONAL SUMMARIES OF ACCOUNTS PAYABLE. Upon request,
prior to and through the Closing Date, the Company shall deliver to Telscape,
within fifteen (15) calendar days after the end of each calendar month, a
summary of all Accounts Payable as of the end of each such calendar month for
each month ending after February 29, 1996.
(e) CONDUCT OF BUSINESS; CERTAIN COVENANTS. Prior to and
through the Closing Date, the Company shall conduct and operate its business
and will not, without prior written consent of Telscape, which consent shall
not be unreasonably withheld, take any action other than in accordance with the
ordinary and usual course of business. The Company will use its best efforts
to preserve intact its business, operation, organization and relationships with
its employees, independent contractors, agents, suppliers, clients and others
having business dealings with it. Prior to and through the Closing Date,
without the prior written consent of Telscape, which consent shall not be
unreasonably withheld, the Company shall not, and the Stockholders shall not
permit the Company to:
(i) amend its articles of incorporation or bylaws;
(ii) issue or otherwise grant or enter into any
agreement relating to the issuance or grant of any stock options, warrants or
other rights calling for or permitting the issue, transfer, sale or delivery of
its capital stock;
(iii) pay or declare any cash dividend or other dividend
or distribution with respect to its capital stock;
(iv) issue, transfer, sell or deliver any shares of its
capital stock or any securities convertible into or exchangeable for, with or
without additional consideration, such capital stock;
(v) redeem, purchase or otherwise acquire for any
consideration any outstanding shares of its capital stock or any securities
convertible into or exchangeable for, with or without additional consideration,
such capital stock;
(vi) incur any indebtedness for borrowed money, except
in the ordinary course of business or pursuant to existing agreements which the
Company or the Stockholders have previously disclosed or made available to
Telscape;
(vii) permit the occurrence or continuance of any
material default under any material agreement to which the Company is a party;
(viii) make any acquisition of the capital stock or all
or substantially all of the assets of any entity;
26
(ix) merge or consolidate with any corporation or enter
into any joint venture arrangement with any third party;
(x) enter into any employment or similar contract with
or increase the compensation payable to any officer or employee of the Company,
except in the ordinary course of business of the Company and in a manner
consistent with the Company's past practices;
(xi) alter, amend or otherwise modify any material term
or provision of any material contract or agreement with any of its clients,
suppliers or vendors;
(xii) adopt, amend or modify in any material respect or
terminate any Benefit Plan, severance plan or collective bargaining agreement
or make awards or distributions under any Benefit Plan or severance plan except
in a manner consistent with the Company's past practices or as otherwise
contemplated herein;
(xiii) sell, enter into any contract to sell or grant any
option to purchase, any of its assets other than in the ordinary course of
business;
(xiv) create, assume or permit to exist any lien,
pledge, security interest, encumbrance or mortgage of any kind whatsoever on
any of its properties or assets other than:
(1) liens existing on the date hereof which the
Company or the Stockholders previously disclosed to Telscape or which are
otherwise permitted hereby;
(B) any mortgage, pledge, lien or other security
interest in or upon any property or asset hereafter acquired by the Company in
the ordinary course of business, which mortgage, pledge, lien or other security
interest is entered into contemporaneously with such acquisition to secure or
provide for the payment of any part of the purchase price therefor, or the
assumption by the Company of any mortgage, pledge, lien or other security
interest in or upon any property or asset hereafter acquired by the Company
which mortgage, pledge, lien or other security interest existed at the time of
such acquisition; provided that, each such mortgage, pledge, lien or other
security interest shall not extend to or cover any property or asset of the
Company other than such property or asset hereafter acquired;
(C) any mortgage, pledge, lien or other security
interest created for the sole purpose of renewing or refunding any mortgage,
pledge, lien or other security interest allowed under clause (B) above;
provided that, the principal amount of indebtedness secured thereby shall not
exceed the principal amount of indebtedness so secured at the time of such
renewal or refunding and that such renewed or refunded mortgage, pledge, lien
or other security interest shall not extend the mortgage, pledge, lien or other
security interest renewed or refunded to any additional property or asset;
(D) the pledge by the Company of any property or
asset as security required by law or governmental regulation as a condition to
the transaction of any business or the exercise of any privilege, license or
right;
27
(E) a banker's lien or right of offset on funds
of the Company deposited with a lender or holder in the ordinary course of
business in favor of any lender of funds or holder of the Company's commercial
paper in the ordinary course of business;
(F) liens for taxes, assessments and governmental
charges or levies imposed upon the Company or upon its income or profit, or
upon any of its property or assets if the same shall not at the time be due or
are being contested in good faith in appropriate proceedings; and
(G) liens imposed by law, such as those of
carriers, warehousemen and mechanics, for sums not yet due or are being
contested in good faith in appropriate proceedings.
(xv) except in the ordinary course of business, enter
into any contract, including but not limited to assignments, licenses,
transfers of exclusive rights, "work for hire" agreements, special commissions,
employment contracts, purchase orders, sales orders, mortgages and security
agreements, which:
(A) contain a grant or other transfer, whether
present, retroactive, prospective or contingent, by the Company of any rights
in any Intellectual Property;
(B) contain a promise made by or to the Company
to pay any consideration, lump sum, royalty or other payment with respect to
the acquisition, practice or use of any rights in any Intellectual Property;
(xvi) except in the ordinary course of business or
arising out of or relating to this Agreement, initiate any legal proceedings
involving the Company, including suits and administrative proceedings in the
United States or any foreign country;
(xvii) file with any federal, state or local governmental
agency or regulatory body, any cancellation, reduction, modification, change or
amendment of or addition to any schedule of tariffs currently on file with such
agency or regulatory body, or file with such governmental agency or regulatory
body any schedule of tariffs for services which are not covered by the tariff
schedules on file therewith as of the date hereof; or
(xviii) take any action that would cause any
representation or warranty contained herein to be inaccurate, untrue,
incomplete or misleading.
(f) PROPOSALS; OTHER OFFERS. Prior to the Closing Date,
neither the Company nor any Stockholders shall, directly or indirectly (whether
through an employee, a representative, an agent or otherwise) solicit or
encourage any inquiries or proposals, engage in negotiations for or consent to
or enter into any agreement providing for the acquisition of the capital stock
or all or any part of the assets (except in the ordinary course of business) or
the business of the Company. The Company shall promptly notify Telscape upon
its receipt or other knowledge of any such request, inquiry or proposal.
Neither the Company nor any Stockholders shall, directly or indirectly (whether
through an employee, a representative, an agent or otherwise) disclose any
28
nonpublic information relating to the Company or afford access to any of the
books, records or other properties of the Company to any person or entity that
is considering, has considered or is making any such acquisition inquiry or
proposal.
(g) BEST EFFORTS AND COOPERATION; Further Assurances. Prior
to the Closing Date, with the cooperation of Telscape where appropriate, the
Company shall:
(i) timely comply with all filing requirements which
federal, state or local law may impose on the Company with respect to the
transactions contemplated by this Agreement;
(ii) use its diligent efforts to take all actions
necessary to be taken, make any filing and obtain any consent, authorization or
approval of or exemption by any governmental authority, regulatory agency or
any other third party (including, without limitation, any landlord or lessor of
the Company and any party to whom notification is required to be delivered or
from whom any form of consent is required) which is required to be filed or
obtained by the Company in connection with the transactions contemplated by
this Agreement;
(iii) make full and timely payment of all fees and
annuities and take all other action appropriate to maintain in full force and
effect any and all patent, trademark and service ▇▇▇▇ registrations and
applications for registration owned by or controlled by the Company.
(h) ACCESS TO ADDITIONAL AGREEMENTS AND INFORMATION. Prior to
the Closing Date, the Company shall deliver to Telscape at Telscape's request
any and all agreements, contracts, documents and other instruments material to
the business or operation of the Company, including, without limitation, those
to which the Company is a party and those by which any of its property or
assets are bound and including without limitation, any and all materials
referenced herein or in the schedules hereto.
3.2 COVENANTS OF TELSCAPE COMPANIES.
(a) NOTICE OF DEFAULTS. Telscape Companies shall give prompt
notice to the Company and the Stockholders of: (i) any notice or other
communication received by Telscape Companies prior to the Closing Date relating
to a default hereunder or event which, with notice or lapse of time or both,
would become a default hereunder or under any material contract, agreement or
instrument to which Telscape is a party, by which it or any of its properties
or assets are bound or to which it or any of its properties or assets are
subject which would prevent the consummation of the transactions contemplated
hereby; (ii) any event which, with notice or lapse of time or both, would cause
any representation or warranty of Telscape under this Agreement to be
inaccurate or misleading in any respect; (iii) any notice or other
communication by any third party alleging that the consent of such third party
is or may be required in connection with the transactions contemplated by this
Agreement; and (iv) any adverse change in the business, assets, operations,
earnings, prospects or conditions (financial or otherwise) of Telscape
Companies.
29
(b) THIRD PARTY CONSENTS. Each of Telscape Companies shall
use its best efforts to obtain any consent, authorization or approval of, or
exemption by, any governmental authority or agency or other third party
required to be obtained or made by it in connection with this Agreement or the
consummation of the transactions contemplated hereby.
(c) BEST EFFORTS AND COOPERATION; FURTHER ASSURANCES. Prior
to the Closing Date, with the cooperation of the Company and the Stockholders
where appropriate, each of Telscape Companies shall:
(i) timely comply with all filing requirements which
federal, state or local law may impose on Telscape or Newco with respect to the
transactions contemplated by this Agreement;
(ii) use its diligent efforts to take all actions
necessary to be taken, make any filing and obtain any consent, authorization or
approval of or exemption by any governmental authority, regulatory agency or
any other third party which is required to be filed or obtained by Telscape or
Newco in connection with the transactions contemplated by this Agreement; and
(iii) not take any action that would cause any
representation or warranty contained herein to be inaccurate, untrue,
incomplete or misleading.
(d) ACCESS TO ADDITIONAL INFORMATION AND AGREEMENTS. Prior to
the Closing Date, each of Telscape Companies shall make available or otherwise
deliver to the Company or the Stockholders, upon its or his request, any and
all agreements, contracts, documents or other information material to its
business or operations.
(e) CONFIDENTIALITY. Prior to the Closing Date, or at all
times hereafter in the event that the transactions contemplated hereby are not
consummated or this Agreement is otherwise terminated, each of the parties
hereto shall, except as may be otherwise required by applicable law, hold
confidential all information obtained in connection with the transactions
contemplated by this Agreement. In the event that this Agreement is
terminated, each of the parties shall return to original owner all of such
information as shall be in documentary or other tangible form, including all
copies thereof.
3.3 GOVERNMENTAL FILINGS AND CONSENTS. The Company, the Stockholders
and Telscape Companies shall cooperate with one another in filing any necessary
applications, reports or other documents with any federal or state agencies,
authorities or bodies having jurisdiction with respect to the business of the
Company or the transactions contemplated by this Agreement, and in seeking any
necessary approval, consultation or prompt favorable action of, with or by any
of such agencies, authorities or bodies.
3.4 PUBLICITY. The Company and Telscape Companies will consult with
each other party hereto prior to making, releasing or otherwise disseminating
any public announcements with respect to the transactions contemplated by this
Agreement. Any public announcements permitted hereunder shall be made only at
such time and in such manner as the Company and the Stockholders (collectively
30
acting as one) and Telscape Companies (collectively acting as one) shall
mutually agree, except that any party hereto shall be free to make such public
announcements, to comply with federal or state laws, provided that such
announcement is simultaneously delivered to the other parties hereto.
3.5 RIGHT TO INVESTIGATE.
(a) OBLIGATION OF THE COMPANY AND THE STOCKHOLDERS. The
Company shall afford to the officers and authorized representatives and agents
of Telscape Companies, during what are currently the regular business hours of
the Company and upon prior notice, free and full access to any office,
warehouse, plant, property, inventory, accounts, books and records of the
Company such as to afford Telscape Companies the full opportunity to make such
investigations as it shall desire or deem appropriate with respect to the
affairs of the Company. The officers of the Company shall furnish Telscape
Companies with such additional financial and operating data and other
information relating to the assets, property, business and operation of the
Company as Telscape or Newco shall from time to time request.
(b) EFFECTIVENESS OF REPRESENTATIONS NOTWITHSTANDING
INVESTIGATION. Notwithstanding any party's undertaking or conduct of any
investigation pursuant hereto, or any party's failure to so investigate, the
representations, warranties and agreements of each of the parties hereto shall
be operative and effective and shall survive the Closing Date to the extent
previously set forth in Section 2.4. In the event that a party hereto becomes
aware or knows prior to the Closing that a representation or warranty made
herein by another party hereto is untrue, such party shall express such
knowledge by written notice thereof to the party rendering such representation
or warranty on or prior to the Closing Date. Knowledge on the part of Telscape
on or prior to the Closing that a representation or warranty of the Company or
the Stockholders is untrue or knowledge on the part of the Company or the
Stockholders on or prior to the Closing Date that a representation or warranty
of Telscape or Newco is untrue, shall render that specific representation or
warranty inoperative and ineffective and such other party shall not have any
liability in respect thereof pursuant to Article VI hereof; provided that, such
knowledge is expressed by written notice thereof to the party rendering such
representation or warranty on or prior to the Closing Date.
ARTICLE IV
CONDITIONS
4.1 CONDITIONS TO OBLIGATIONS OF TELSCAPE COMPANIES. The obligation
of each of Telscape Companies to consummate the transactions contemplated by
this Agreement is subject to the fulfillment of each of the following
conditions, which may be waived in whole or in part by Telscape Companies to
the extent permitted by applicable law:
(a) NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 no
material adverse change in the business, assets, operations, earnings,
prospects or condition (financial or otherwise) of the Company, and no event
which would materially and adversely affect the business, assets, operations,
31
earnings, prospects or condition (financial or otherwise) of the Company shall
have occurred.
(b) COPIES OF RESOLUTIONS. At the Closing, the Company shall
have furnished Telscape with certified copies of resolutions duly adopted by
the board of directors of the Company and the Stockholders authorizing the
execution, delivery and performance of the terms of this Agreement and all
other necessary or proper corporate action to enable the Company to comply with
the terms of this Agreement.
(c) OPINION OF COMPANY'S AND STOCKHOLDERS' COUNSEL. The
Company and the Stockholders shall have furnished Telscape Companies, at the
Closing, with an opinion of Sonfield & Sonfield, counsel to the Company and the
Stockholders, dated as of the Closing Date, substantially in the form attached
hereto as Exhibit 4.1(c).
(d) ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
COVENANTS. Each of the representations and warranties of the Company and the
Stockholders set forth in this Agreement was true, correct and complete in all
material respects when made and shall also be true, correct and complete in all
material respects at and as of the Closing Date, with the same force and effect
as if made at and as of the Closing Date. The Company and the Stockholders
shall have performed and complied in all material respects with all agreements
and covenants required by this Agreement to be performed by the Company and the
Stockholders at or prior to the Closing Date.
(e) DELIVERY OF OFFICERS' CERTIFICATES. The Company and the
Management Stockholders shall have delivered to Telscape Companies
certificates, dated the Closing Date, and signed by the President of the
Company (with respect to the Company), and by the Management Stockholders
individually (as Stockholders of the Company), representing and affirming that:
(i) the representations and warranties made by each of the Company and the
Stockholders were and are true, correct and complete as required by Subsection
4.1(d) above and the conditions set forth in Section have been satisfied. The
Company shall also have delivered a certificate signed by the Secretary of the
Company with respect to the authority and incumbency of the officers of the
Company executing this Agreement and any documents required to be executed or
delivered in connection therewith.
(f) DELIVERY OF STOCK CERTIFICATES. At the Closing, the
Stockholders shall have delivered to Newco certificates representing all of the
issued and outstanding capital stock of the Company, which certificates shall
be properly endorsed in blank or shall be accompanied by a properly executed
stock power.
(g) CONSENTS AND WAIVERS. On or prior to the Closing Date,
any and all necessary consents, authorizations, orders or approvals described
in Subsection 3.1 above shall have been obtained, except as the same shall have
been waived by Telscape Companies.
(h) LITIGATION. On the Closing Date, there shall be no
effective injunction, writ or preliminary restraining order or any order of any
kind whatsoever with respect to the Company or the Stockholders issued by a
court or governmental agency (or other governmental or regulatory authority) of
32
competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated hereby or making consummation thereof unduly
burdensome to the Company or the Stockholders. On the Closing Date and
immediately prior to consummation of the transactions contemplated by this
Agreement, no proceeding or lawsuit shall have been commenced, be pending or
have been threatened by any governmental or regulatory agency or authority or
any other person with respect to the transactions contemplated by this
Agreement.
(i) DELIVERY OF DOCUMENTS AND OTHER INFORMATION. Prior to the
Closing Date, the Company shall have delivered to Telscape Companies all of the
agreements, contracts, documents and other instruments required to be delivered
pursuant to the provisions of this Agreement, or otherwise reasonably requested
by Telscape.
4.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS.
The obligations of the Company and the Stockholders to consummate the
transactions contemplated by this Agreement are subject to the fulfillment of
each of the following conditions, which may be waived in whole or in part by
the Company and/or the Stockholders to the extent permitted by law:
(a) COPIES OF RESOLUTIONS. At the Closing, each of Telscape
Companies shall have furnished the Company with certified copies of resolutions
duly adopted by the respective boards of directors of Telscape Companies
authorizing the execution, delivery and performance of the terms of this
Agreement and all other necessary or proper corporate action to enable each of
Telscape Companies to comply with the terms of this Agreement.
(b) OPINION OF COUNSEL TO TELSCAPE. Telscape Companies shall
have furnished the Company and the Stockholders, at the Closing, with an
opinion of De ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇, counsel to Telscape Companies,
dated as of the Closing Date, substantially in the form attached hereto as
Exhibit 4.2(b).
(c) ACCURACY OF REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF
COVENANTS. Each of the representations and warranties of Telscape Companies was
true, correct and complete in all material respects when made and shall also be
true, correct and complete in all material respects at and as of the Closing
Date, with the same force and effect as if made at and as of the Closing Date.
Each of Telscape Companies shall have performed and complied with in all
material respects all agreements and covenants required by this Agreement to be
performed by Telscape at or prior to the Closing Date.
(d) DELIVERY OF OFFICERS' CERTIFICATES. Telscape and Newco
shall have delivered to the Company and the Stockholders certificates, dated
the Closing Date and signed by the President of each of Telscape and Newco,
affirming that: (i) the representations and warranties of each of Telscape and
Newco as set forth in Section 2.3 of this Agreement and referred to in
Subsection 4.2(c) above were and are true, correct and complete as required by
Subsection 4.2(c) above; and (ii) the conditions set forth in this Section
have been satisfied. Telscape and Newco shall also have delivered a
certificate signed by the Secretary of Telscape and Newco, respectively, with
respect to the authority and incumbency of the officers of each of Telscape and
33
Newco executing this Agreement and any documents required to be executed or
delivered in connection therewith.
(e) STOCK CERTIFICATES. At the Closing, Telscape shall have
issued and Newco shall have delivered to the Stockholders certificates
representing the shares of Telscape Common Stock issuable pursuant hereto,
which certificates shall be in the name of the respective Stockholders.
(f) CONSENTS AND WAIVERS. On or prior to the Closing Date,
any and all necessary consents, authorizations, orders or approvals described
in Subsection 3.2 above shall have been obtained, except as the same shall have
been waived by the Company and the Stockholders.
(g) LITIGATION. On the Closing Date, there shall be no
effective injunction, writ or preliminary restraining order or any order of any
kind whatsoever with respect to Telscape or Newco issued by a court or
governmental agency (or other governmental or regulatory authority) of
competent jurisdiction restraining or prohibiting the consummation of the
transactions contemplated herein or making the consummation thereof unduly
burdensome to Newco. On the Closing Date and immediately prior to consummation
of the transactions contemplated by this Agreement, no proceeding or lawsuit
shall have been commenced, be pending or have been threatened or by any
governmental or regulatory agency or authority or any other person with respect
to the transactions contemplated by this Agreement.
ARTICLE V
INDEMNIFICATION AND CLAIMS
5.1 INDEMNIFICATION BY THE COMPANY AND THE STOCKHOLDERS.
(a) Subject to Section 5.1(b) hereof, the Company and the
Stockholders hereby agree, severally, to indemnify and hold harmless Telscape
and Newco (collectively, the "Indemnified Parties") against and in respect of
all damages, claims, losses and expenses (including, without limitation,
reasonable attorneys' fees and disbursements) reasonably incurred by Telscape
and Newco (all such amounts may hereinafter be referred to as the "Damages")
arising out of: (i) any misrepresentation or breach of any warranty made by
the Company or the Stockholder (as the case may be) pursuant to the provisions
of this Agreement or in any statement, certificate or other document furnished
by the Company or such Stockholder pursuant to this Agreement; and (ii) the
nonperformance or breach of any covenant, agreement or obligation of the
Company or any Stockholder contained in this Agreement which has not been
waived by Telscape and Newco collectively. No Stockholder shall have the right
to seek contribution from the Company in the event that such Stockholder is
required to make any payments hereunder.
(b) The Company and the Stockholders shall be obligated to
indemnify the Indemnified Parties pursuant to this Section 5.1 with respect to
34
claims for Damages as to which the Indemnified Parties shall have given written
notice to the Company and the Stockholders on or before the close of business
on the sixtieth day following the second anniversary of the Closing Date. The
Company and the Stockholders shall be obligated to indemnify the Indemnified
Parties with respect to claims for Damages arising out of any misrepresentation
or breach of warranty made by the Company or such Stockholder(s), as the case
may be, as to which the Indemnified Parties shall have given notice on or
before the close of business on the sixtieth day following the later of: (i)
the expiration date of the statute of limitations applicable to any indemnified
federal, state, foreign or local tax liability; or (ii) the final determination
of any such tax liability, including the final administrative and/or judicial
determination thereof.
5.2 CLAIMS AGAINST INDEMNIFIED PARTY. With respect to claims or
demands by third parties, whenever an Indemnified Party shall have received
notice that such a claim or demand has been asserted or threatened which, if
valid, would be subject to indemnification under Section 5.1 hereof, such
Indemnified Party shall as soon as reasonably possible and in any event within
thirty (30) days of receipt of such notice, notify the Company and the
Stockholders of such claim or demand and of all relevant facts within its
knowledge which relate thereto. The Company and/or the Stockholders shall then
have the right at their own expense to undertake the defense of any such claims
or demands utilizing counsel selected by the Company or the Stockholders, as
the case may be, and approved by Telscape and Newco, which approval shall not
be unreasonably withheld. In the event that the Company or any Stockholder
should fail to give notice of the intention to undertake the defense of any
such claim or demand within sixty (60) days after receiving notice that it has
been asserted or threatened, Telscape and Newco shall have the right to defend,
satisfy and discharge the same by payment, compromise or otherwise and shall
give written notice of any such payment, compromise or settlement to the
Company and the Stockholders.
5.3 RIGHT OF OFFSET. In the event that the Company or any
Stockholders may be required to pay monies in indemnification to any
Indemnified Party pursuant to any indemnification provision of this Agreement,
such Indemnified Party shall have the right to offset any amounts which are
owed to it in indemnification by the Company or the Stockholders against any
amounts which are payable by such Indemnified Party to the Company or the
Stockholders, as the case may be, provided however, that nothing set forth in
this section shall relieve the Indemnified Party of its obligations hereunder.
5.4 INDEMNIFICATION BY TELSCAPE AND NEWCO.
(a) Subject to Section 5.4(b) hereof, Telscape hereby jointly
and severally agrees to indemnify and hold harmless the Stockholders against
and in respect of all damages, claims, losses and expenses (including without
limitation, reasonable attorneys' fees and disbursements) reasonably incurred
by the Stockholders with respect thereto (all such amounts may hereinafter be
referred to as "Stockholders Damages") arising out of: (i) any
misrepresentation or breach of any warranty made by Telscape or Newco pursuant
to the provisions of this Agreement or in any statement, certificate or other
document furnished by Telscape or Newco pursuant to this Agreement; and (ii)
the nonperformance or breach of any covenant, agreement or obligation of
Telscape or Newco which has not been waived by the Stockholders.
35
(b) Telscape or Newco shall be obligated to indemnify any
Stockholder pursuant to this Section 5.4 only with respect to claims for
Stockholders Damages as to which such Stockholder shall have given written
notice to Telscape and Newco on or before the close of business on the sixtieth
day following the second anniversary of the Closing Date.
(c) In any case where Telscape and Newco have indemnified any
Stockholders for any Stockholders Damages and a Stockholders recovers from a
third party all or any part of the amount so indemnified by Telscape or Newco,
the Stockholders shall promptly reimburse to Telscape the amount so recovered.
5.5 CLAIMS AGAINST THE STOCKHOLDERS. With respect to claims or
demands by third parties, whenever the Stockholders shall have received notice
that such a claim or demand has been asserted or threatened, which, if valid,
would be subject to indemnification under Section 5.4 hereof, the Stockholders
shall as soon as reasonably possible and in any event within thirty (30) days
of receipt of such notice, notify Telscape and Newco of such claim or demand
and of all relevant facts within its knowledge which relate thereto. Telscape
and/or Newco shall have the right at their own expense to undertake the defense
of any such claim or demand utilizing counsel selected by Telscape or Newco and
approved by the Stockholders. In the event that either Telscape or Newco
should fail to give notice of its intention to undertake the defense of any
such claim or demand within sixty (60) days after receiving notice that it has
been asserted or threatened, the Stockholders shall have the right to defend,
satisfy and discharge the same by payment, compromise or otherwise and shall
give written notice of any such payment, compromise or settlement to Telscape
and Newco.
5.6 RIGHT OF OFFSET. In the event that any Indemnified Party may be
required to pay monies in indemnification to the Company and/or the
Stockholders pursuant to any indemnification provision of this Agreement, the
Company and/or the Stockholders shall have the right to offset any amounts
which are owed to either party in indemnification by the Indemnified Parties
against any amounts which are payable by either the Company and/or the
Stockholders to either Indemnified Party, as the case may be; provided,
however, that nothing set forth in this section shall relieve either the
Company and/or the Stockholders of either's obligations hereunder.
ARTICLE VI
TERMINATION AND REMEDIES FOR BREACH OF THIS AGREEMENT
6.1 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be terminated
at any time prior to the Closing by unanimous consent of the parties hereto,
provided that such consent to terminate is manifested in writing and is signed
by each of the parties hereto.
6.2 TERMINATION FOR FAILURE TO CLOSE. This Agreement may be
terminated by any of the parties hereto if the Closing shall not have occurred
by August 31, 1996, provided that, the right to terminate this Agreement
pursuant to this section shall not be available to any party whose failure to
36
fulfill any of its obligations hereunder has been the cause of or resulted in
the failure to consummate the transactions contemplated hereby by the foregoing
date.
6.3 TERMINATION BY OPERATION OF LAW. This Agreement may be terminated
by any of the parties hereto if, in the reasonable opinion of counsel to the
respective parties hereto, there shall be any statute, rule or regulation that
renders consummation of the transactions contemplated hereby illegal or
otherwise prohibited, or a court of competent jurisdiction or any government
(or governmental authority) shall have issued an order, decree or ruling, or
has taken any other action restraining, enjoining or otherwise prohibiting the
consummation of such transactions and such order, decree, ruling or other
action shall have become final and nonappealable.
6.4 TERMINATION FOR FAILURE TO PERFORM COVENANTS OR CONDITIONS. This
Agreement may be terminated prior to the Closing Date:
(a) by Telscape or Newco if: (i) any of the representations
and warranties made in this Agreement by the Company or the Stockholders shall
not be true and correct, when made or at any time prior to consummation of the
transactions contemplated hereby as if made at and as of such time; (ii) any of
the conditions set forth in Section hereof have not been fulfilled or waived
by the Closing Date; (iii) the Company or the Stockholders shall have failed to
observe or perform any of their respective obligations under this Agreement; or
(iv) as otherwise set forth herein; or
(b) by the Company or the Stockholders if: (i) any of the
representations and warranties of Telscape or Newco shall not be true and
correct when made or at any time prior to consummation of the transactions
contemplated hereby as if made at and as of such time; (ii) any of the
conditions set forth in Section hereof have not been fulfilled by the Closing
Date; (iii) Telscape shall have failed to observe or perform any of its
respective material obligations under this Agreement; or (iv) as otherwise set
forth herein.
6.5 EFFECT OF TERMINATION OR DEFAULT; REMEDIES. In the event of
termination of this Agreement as set forth above, this Agreement shall
forthwith become void and there shall be no liability on the part of any Non
Defaulting Party (as defined below). The foregoing shall not relieve any
Defaulting Party from liability for damages actually incurred as a result of
such party's breach of any term or provision of this Agreement.
6.6 REMEDIES; SPECIFIC PERFORMANCE. In the event that any party shall
fail or refuse to consummate the transactions contemplated by this Agreement
(except pursuant to Sections 6.1, 6.2 or 6.3 above) or if any default under or
breach of any representation, warranty, covenant or condition of this Agreement
on the part of any party (the "Defaulting Party") shall have occurred that
results in the failure to consummate the transactions contemplated hereby, then
in addition to the other remedies provided herein, the non defaulting party
(the "Non Defaulting Party") shall be entitled to seek and obtain money damages
from the Defaulting Party and/or may seek to obtain an order of temporary or
permanent injunctive relief or specific performance thereof against the
Defaulting Party from a court of competent jurisdiction, provided that, the Non
Defaulting party seeking any injunctive relief or specific performance such
37
protection must file its request with such court within forty five (45) days
after it becomes aware of the Defaulting Party's failure, refusal, default or
breach and further provided, that in no event shall a Defaulting Party be
liable for special, incidental or consequential damages. In addition, the Non
Defaulting Party shall be entitled to obtain from the Defaulting Party court
costs and attorneys' fees incurred in connection with or in pursuit of
enforcing the rights and remedies provided hereunder.
ARTICLE VII
MISCELLANEOUS
7.1 FEES AND EXPENSES. The Stockholders and the Company shall
respectively pay their own and the Company's expenses and Telscape and Newco
shall pay its own expenses incident to negotiation, execution, delivery and
performance of the terms of this Agreement and the consummation of the
transactions contemplated hereby.
7.2 MODIFICATION, AMENDMENTS AND WAIVER. The parties hereto may
amend, modify or otherwise waive any provision of this Agreement by unanimous
consent, provided that such consent and any amendment, modification or waiver
is in writing and is signed by each of the parties hereto.
7.3 ASSIGNMENT. None of the Company, the Stockholders, Telscape or
Newco shall have the authority to assign its respective rights or obligations
under this Agreement without the prior written consent of the other parties
hereto, except that Telscape or Newco may assign all or any portion of its
respective rights hereunder without the prior written consent of the Company or
the Stockholders to any affiliate of Telscape or Newco (including any wholly
owned subsidiary), and the Company and the Stockholders shall execute such
documents as are necessary in order to effectuate such assignments.
7.4 BURDEN AND BENEFIT. This Agreement shall be binding upon and, to
the extent permitted in this Agreement, shall inure to the benefit of the
parties and their respective successors and assigns. In the event of a default
by the Company or any Stockholders of any of their respective obligations
hereunder, the sole and exclusive recourse and remedy of Telscape or Newco
shall be against the Company and/or the Stockholders, as the case may be, and
any of the Company's or the Stockholders' assets; under no circumstances shall
any officer or director of the Company be liable in law or equity for any
obligations of the Company or the Stockholders hereunder. In the event of a
default by Telscape or Newco of any of its respective obligations hereunder,
the sole and exclusive recourse and remedy of the Stockholders and the Company
shall respectively be against Telscape or Newco and its assets; under no
circumstances shall any officer, director, Stockholders or affiliate of
Telscape or Newco be liable in law or equity for any obligations of Telscape or
Newco hereunder.
7.5 BROKERS. The Company and the Stockholders represent and warrant
to Telscape and/or Newco that there are no brokers or finders entitled to any
brokerage or finder's fee or other commission or fee based upon arrangements
made by or on behalf of the Company or the Stockholders or any other person in
38
connection with this Agreement or any of the transactions contemplated hereby.
In consideration of services performed in connection with the transactions
contemplated hereby, Telscape has agreed to pay (and has agreed to assume all
responsibility to pay) a finders fee to Benchmark Equity Group, Inc. which
shall be the sole obligation of Telscape. Telscape and Newco represent and
warrant to the Company and the Stockholders that no other broker or finder is
entitled to any brokerage or finder's fee or other commission or fee based upon
arrangements made by or on behalf of Telscape in connection with this Agreement
or any of the transactions contemplated hereby, other than fees or commissions
for which Telscape shall be solely responsible.
7.6 ENTIRE AGREEMENT. This Agreement and the exhibits, lists and
other documents referred to herein contain the entire agreement among the
parties hereto with respect to the transactions contemplated hereby and
supersede all prior agreements with respect thereto, whether written or oral.
7.7 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas, without regard, however, to
such jurisdiction's principles of conflicts of laws.
7.8 NOTICES. Any notice, request, instruction or other document to be
given hereunder by any party hereto shall be in writing and delivered
personally, by facsimile transmission or telex, or sent by commercial overnight
delivery service or registered or certified mail (return receipt requested),
postage prepaid, addressed as follows:
If to the Company
or the Stockholders:
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
-------------------------
with a copy to: Sonfield & Sonfield
▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esquire
If to Telscape: Telscape International, Ltd.
▇▇▇ ▇. ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn:
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
E Mail: ▇▇▇▇▇▇.▇▇▇▇@▇▇▇▇▇▇▇▇▇▇.▇▇▇
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with a copy to: De ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇▇ ▇ ▇▇▇▇▇▇, ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇ ▇▇▇▇▇▇▇, Esq.
Facsimile: (▇▇▇) ▇▇▇ ▇▇▇▇
E Mail: ▇▇▇▇▇▇▇@▇▇▇.▇▇▇
or to such other persons or addresses as may be designated in writing by the
party to receive such notice. If sent as aforesaid, the date any such notice
shall be deemed to have been delivered on the date of transmission of a
facsimile or telex, the day after delivery to a commercial overnight delivery
service, or five days after delivery into a United States Postal facility.
7.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which shall
constitute but one agreement.
7.10 RIGHTS CUMULATIVE. All rights, powers and privileges conferred
hereunder upon the parties, unless otherwise provided, shall be cumulative and
shall not be restricted to those given by law. Failure to exercise any power
given any party hereunder or to insist upon strict compliance by any other
party shall not constitute a waiver of any party's right to demand exact
compliance with any of the terms or provisions hereof.
7.11 SEVERABILITY OF PROVISIONS. The provisions of this Agreement
shall be considered severable in the event that any of such provisions are held
by a court of competent jurisdiction to be invalid, void or otherwise
unenforceable. Such invalid, void or otherwise unenforceable provisions shall
be automatically replaced by other provisions which are valid and enforceable
and which are as similar as possible in term and intent to those provisions
deemed to be invalid, void or otherwise unenforceable. Notwithstanding the
foregoing, the remaining provisions hereof shall remain enforceable to the
fullest extent permitted by law.
7.12 HEADINGS. The headings set forth in the articles and sections of
this Agreement and in the exhibits and the schedules to this Agreement are
inserted for convenience of reference only and shall not be deemed to
constitute a part hereof.
7.13 KNOWLEDGE STANDARD. When used in this Agreement, the phrase "to
the best knowledge of," "knowledge of," "known to" or similar phrases shall
mean the actual knowledge of: (i) with respect to Telscape and Newco, the
officers and directors of each of Telscape and Newco; (ii) with respect to the
Company, the officers and directors of the Company; and (iii) with respect to
the Stockholder, such stockholder(s).
* * * * *
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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered on the date and year first above written.
ATTEST: POLISH TELEPHONES AND MICROWAVE
CORPORATION
(SEAL)
------------------------------ By:
--------------------------------
Chief Executive Officer
ATTEST: ORION NEWCO, INC.
(SEAL)
------------------------------ By:
--------------------------------
Chief Executive Officer
ATTEST: ORION COMMUNICATIONS, INC.
(SEAL)
------------------------------ By:
--------------------------------
Chief Executive Officer
WITNESS: THE STOCKHOLDERS
------------------------------ By:
--------------------------------
WITNESS:
------------------------------ By:
--------------------------------
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