================================================
STOCK ACQUISITION AGREEMENT
BY AND AMONG
NATIONAL TELESERVICE, INC.,
THE 1993 FRIEND FAMILY REVOCABLE TRUST,
LEAF FAMILY PARTNERS, LTD.,
O. A. FRIEND,
▇▇▇▇ ▇. LEAF,
NETWORK LONG DISTANCE, INC.
AND
▇▇▇▇ ▇. ▇▇▇▇
MAY 5, 1997
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TABLE OF CONTENTS
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ARTICLE 1. CONVEYANCE OF STOCK . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 2. CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND NTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
3.1 NTI Incorporation . . . . . . . . . . . . . . . . . . . . . .2
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3.2 Seller's Organization . . . . . . . . . . . . . . . . . . . .2
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3.3 Capitalization of NTI, Corporate Documents. . . . . . . . . .3
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3.4 Title to NTI Stock. . . . . . . . . . . . . . . . . . . . . .3
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3.5 Status of NTI Stock . . . . . . . . . . . . . . . . . . . . .3
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3.6 Capacity of NTI Stock Owners. . . . . . . . . . . . . . . . .3
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3.7 No Right of First Refusal . . . . . . . . . . . . . . . . . .3
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3.8 Financial Statements. . . . . . . . . . . . . . . . . . . . .4
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3.9 Business Since March 31, 1997 . . . . . . . . . . . . . . . .4
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3.10 Litigation Claims . . . . . . . . . . . . . . . . . . . . . .6
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3.11 Compliance with Laws. . . . . . . . . . . . . . . . . . . . .7
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3.12 Patents, Trademarks, Miscellaneous Intellectual Property. . .7
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3.13 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . .8
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3.14 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . .8
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3.15 Correct Records . . . . . . . . . . . . . . . . . . . . . . .8
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3.16 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . .8
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3.17 Employee Benefit Plans; ERISA . . . . . . . . . . . . . . . .9
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3.18 Title to Property . . . . . . . . . . . . . . . . . . . . . 11
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3.19 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 12
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3.20 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . 12
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3.21 Qualification/Subsidiaries and Other Interests. . . . . . . 13
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3.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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3.23 Corporate and Seller Action . . . . . . . . . . . . . . . . 13
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3.24 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 14
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3.25 Tax Returns . . . . . . . . . . . . . . . . . . . . . . . . 14
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3.26 Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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3.27 Disclosure by NTI, the Sellers, and the Principals. . . . . 15
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3.28 Conflict of Interest. . . . . . . . . . . . . . . . . . . . 15
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3.29 Securities Law Reporting. . . . . . . . . . . . . . . . . . 15
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3.30 Environmental Matters . . . . . . . . . . . . . . . . . . . 15
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3.31 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . 17
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3.32 Americans With Disabilities Act . . . . . . . . . . . . . . 17
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3.33 Securities Laws Compliance. . . . . . . . . . . . . . . . . 17
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3.34 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 18
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3.35 Pooling . . . . . . . . . . . . . . . . . . . . . . . . . . 18
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i
ARTICLE 4. BUYER'S REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 18
4.1 Incorporation . . . . . . . . . . . . . . . . . . . . . . . 18
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4.2 No Defaults . . . . . . . . . . . . . . . . . . . . . . . . 18
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4.3 Corporate Action of Buyer . . . . . . . . . . . . . . . . . 18
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4.4 Disclosure by Buyer . . . . . . . . . . . . . . . . . . . . 19
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4.5 Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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4.6 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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4.7 SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . 19
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ARTICLE 5. COVENANTS OF THE SELLERS AND NTI PENDING CLOSING. . . . . . 19
5.1 Maintenance of Business . . . . . . . . . . . . . . . . . . 19
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5.2 Negative Covenants. . . . . . . . . . . . . . . . . . . . . 20
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5.3 Access to Facilities, Files and Records . . . . . . . . . . 21
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5.4 Organization, Good Will . . . . . . . . . . . . . . . . . . 21
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5.5 Third Party Consents. . . . . . . . . . . . . . . . . . . . 21
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5.6 Securities Laws . . . . . . . . . . . . . . . . . . . . . . 21
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5.7 Communications Laws . . . . . . . . . . . . . . . . . . . . 21
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5.8 Notice of Proceeding. . . . . . . . . . . . . . . . . . . . 21
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5.9 Delivery of NTI Shareholder List. . . . . . . . . . . . . . 22
--------------------------------
5.10 Confidential Information. . . . . . . . . . . . . . . . . . 22
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5.11 No Solicitation . . . . . . . . . . . . . . . . . . . . . . 22
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5.12 Recommendation and Approval of Agreement. . . . . . . . . . 22
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5.13 Audited Financial Statements. . . . . . . . . . . . . . . . 22
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5.14 Public Announcements. . . . . . . . . . . . . . . . . . . . 23
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5.15 Adverse Events. . . . . . . . . . . . . . . . . . . . . . . 23
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5.16 Employees . . . . . . . . . . . . . . . . . . . . . . . . . 23
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5.17 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 24
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5.18 Pooling Treatment . . . . . . . . . . . . . . . . . . . . . 24
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ARTICLE 6. COVENANTS OF BUYER PENDING ACQUISITION. . . . . . . . . . . 24
6.1 Corporate Action. . . . . . . . . . . . . . . . . . . . . . 24
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6.2 Confidentiality . . . . . . . . . . . . . . . . . . . . . . 24
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6.3 Notice of Proceedings . . . . . . . . . . . . . . . . . . . 24
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6.4 Nasdaq NMS Listing. . . . . . . . . . . . . . . . . . . . . 25
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ARTICLE 7. CONDITIONS TO THE OBLIGATIONS OF THE SELLERS AND
NTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 Representations, Warranties, Covenants. . . . . . . . . . . 25
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7.2 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 25
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7.3 Proceedings and Instruments Satisfactory. . . . . . . . . . 25
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7.4 Delivery of Stock . . . . . . . . . . . . . . . . . . . . . 25
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7.5 Registration Rights Agreement . . . . . . . . . . . . . . . 26
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7.6 Employment and Consulting Agreements. . . . . . . . . . . . 26
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7.7 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . 26
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7.8 Consents. . . . . . . . . . . . . . . . . . . . . . . . . . 27
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ARTICLE 8. CONDITIONS TO THE OBLIGATIONS OF BUYER. . . . . . . . . . . 27
8.1 Representations, Warranties, Covenants. . . . . . . . . . . 27
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8.2 Proceedings . . . . . . . . . . . . . . . . . . . . . . . . 27
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8.3 No Casualty . . . . . . . . . . . . . . . . . . . . . . . . 27
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8.4 Proceedings and Instruments Satisfactory. . . . . . . . . . 27
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8.5 Delivery of NTI Common Stock. . . . . . . . . . . . . . . . 28
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8.6 NTI's Creditors and Others. . . . . . . . . . . . . . . . . 28
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8.7 No Change in NTI's Capitalization . . . . . . . . . . . . . 28
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8.8 Resolutions and Resignation of NTI's Directors. . . . . . . 28
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8.9 Certificates of Good Standing . . . . . . . . . . . . . . . 28
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8.10 Certified Articles. . . . . . . . . . . . . . . . . . . . . 28
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8.11 Certified Bylaws. . . . . . . . . . . . . . . . . . . . . . 28
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8.12 Certificate of Incumbency . . . . . . . . . . . . . . . . . 29
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8.13 Corporate Actions . . . . . . . . . . . . . . . . . . . . . 29
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8.14 Seller's Actions. . . . . . . . . . . . . . . . . . . . . . 29
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8.15 Employment, Consulting and Non-Compete Agreements . . . . . 29
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8.16 Termination of Certain Agreements . . . . . . . . . . . . . 29
---------------------------------
8.17 Lang Option . . . . . . . . . . . . . . . . . . . . . . . . 29
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8.18 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . 29
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8.19 Escrow Agreement. . . . . . . . . . . . . . . . . . . . . . 29
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ARTICLE 9. MUTUAL COVENANTS AND CONDITIONS TO OBLIGATIONS OF NTI
AND BUYER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.1 Applications to the Commissions . . . . . . . . . . . . . . 30
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9.2 Necessity for Commission Approvals. . . . . . . . . . . . . 30
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9.3 Board Representation. . . . . . . . . . . . . . . . . . . . 30
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9.4 Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 30
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ARTICLE 10. INDEMNITY AGREEMENTS. . . . . . . . . . . . . . . . . . . 31
10.1 Sellers' Litigation Indemnity Agreements. . . . . . . . . . 31
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10.2 Sellers' Other Indemnity Agreements . . . . . . . . . . . . 31
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10.3 Buyer's Indemnity Agreements. . . . . . . . . . . . . . . . 31
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10.4 Limitation of Amount. . . . . . . . . . . . . . . . . . . . 32
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10.5 No Limitation . . . . . . . . . . . . . . . . . . . . . . . 32
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10.6 Procedure for General Claims. . . . . . . . . . . . . . . . 32
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10.7 Procedure for Third-Party Claims. . . . . . . . . . . . . . 32
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ARTICLE 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. . . . . . . . 34
11.1 Survival. . . . . . . . . . . . . . . . . . . . . . . . . . 34
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ARTICLE 12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . 34
12.1 Abandonment of Transaction. . . . . . . . . . . . . . . . . 34
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iii
12.2 Effect of Termination or Abandonment. . . . . . . . . . . . 35
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12.3 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 35
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12.4 Assignment. . . . . . . . . . . . . . . . . . . . . . . . . 35
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12.5 Further Assurances. . . . . . . . . . . . . . . . . . . . . 35
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12.6 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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12.7 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . 37
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12.8 Rules of Construction . . . . . . . . . . . . . . . . . . . 37
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12.9 Law Governing . . . . . . . . . . . . . . . . . . . . . . . 37
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12.10 Waiver of Provisions. . . . . . . . . . . . . . . . . . . . 38
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12.11 Successors. . . . . . . . . . . . . . . . . . . . . . . . . 38
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12.12 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . 38
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12.13 Public Statements or Releases . . . . . . . . . . . . . . . 38
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12.14 Severability. . . . . . . . . . . . . . . . . . . . . . . . 39
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12.15 No Third Party Beneficiaries. . . . . . . . . . . . . . . . 39
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iv
STOCK ACQUISITION AGREEMENT
BY AND AMONG
NATIONAL TELESERVICE, INC.,
THE 1993 FRIEND FAMILY REVOCABLE TRUST,
LEAF FAMILY PARTNERS, LTD.,
O. A. FRIEND,
▇▇▇▇ ▇. LEAF,
NETWORK LONG DISTANCE, INC.
AND
▇▇▇▇ ▇. ▇▇▇▇
THIS STOCK ACQUISITION AGREEMENT ("Agreement"), is dated as of May 5,
1997, by and among NATIONAL TELESERVICE, INC., a Minnesota corporation
("NTI"), O. A. FRIEND, as sole Trustee and his successors in trust under
THE 1993 FRIEND FAMILY REVOCABLE TRUST, a revocable trust established under
the laws of the State of California, (the "Friend Trust"), LEAF FAMILY
PARTNERS, LTD., a Colorado limited partnership (the "Leaf Partnership"),
the Friend Trust and Leaf Partnership, being known together herein as the
"Sellers", O. A. FRIEND, an individual resident of the State of Washington
("Friend"), ▇▇▇▇ ▇. LEAF, an individual resident of the State of Minnesota
("Leaf"), Friend and Leaf, being known together herein as the "Principals,"
NETWORK LONG DISTANCE, INC., a Delaware corporation ("Buyer"), and, for the
purposes of Sections 5.10, 7.5 and 8.17, ▇▇▇▇ ▇. ▇▇▇▇, an individual
resident of the State of Minnesota ("Lang").
W I T N E S S E T H :
WHEREAS, Buyer, the Sellers and NTI have indicated their mutual desire
that Buyer should acquire all of the issued and outstanding stock of NTI
(the "Acquisition"), upon the terms and conditions set forth in this
Agreement; and
WHEREAS, the Sellers are the record and beneficial holders of 100% of
the issued and outstanding no par value common stock of NTI authorized
issued and outstanding (the "NTI Stock"), and by their signatures below,
agree to convey all of their shares to Buyer.
NOW, THEREFORE, the parties hereto hereby represent, warrant, covenant
and agree as follows:
ARTICLE 1. CONVEYANCE OF STOCK
Subject to the terms and conditions provided in this Agreement, the
Sellers agree to transfer to Buyer all of their right, title and interest
in and to the shares of the NTI Stock owned by Sellers at the Closing (as
defined herein) in consideration of the issuance of 3,274,188 shares of the
$.0001 par value common stock of Buyer (the "Stock") to Sellers allocated
to each Seller on the basis of his percentage ownership of the NTI Stock
(the "Percentage Interest").
ARTICLE 2. CLOSING
The closing of the Acquisition (the "Closing") shall take place at the
offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Weary & ▇▇▇▇▇▇▇▇ in Kansas City,
Missouri, at 10:00 a.m. local time as soon as reasonably possible after the
date on which the last of the conditions described in Articles 7, 8 and 9
to be satisfied is satisfied or at such other time and place as shall be
mutually agreed upon by the parties (the "Closing Date").
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND NTI
As an inducement for Buyer to enter into this Agreement, NTI, each of
the Sellers and each of the Principals, hereby jointly and severally
represent, warrant, covenant and agree with and to Buyer, as follows:
3.1 NTI INCORPORATION. NTI is a corporation duly organized and
validly existing and in good standing under the laws of the State of
Minnesota. NTI has full corporate power and corporate authority to carry
on its business as it is now being conducted, to own and operate its
assets, business and properties, to conduct its business as now conducted
by it, to enter into this Agreement and to perform its obligations
hereunder. Annexed hereto as Schedule 3.1 and made a part hereof is a
complete and correct copy of the Articles of Incorporation and Bylaws
(together with all amendments and restatements of each such document) of
NTI.
3.2 SELLER'S ORGANIZATION. The Friend Trust is a revocable trust
duly established under the laws of the State of California. The Friend
Trust has full trust power and trust authority to enter into this Agreement
and perform its obligations hereunder. Annexed hereto as Schedule 3.2.1
and made a part hereof is a complete and correct copy of the Trust
Declaration and other governing documents of the Friend Trust (together
with all amendments and restatements of each such document). O. A. Friend,
sole trustee of the Friend Trust, has full power and authority to act on
behalf of the Friend Trust, including entering into and executing this
Agreement and performing its obligations hereunder.
2
The Leaf Partnership is a limited partnership duly organized and
validly existing and in good standing under the laws of the State of
Colorado. The Leaf Partnership has full power and authority to enter into
this Agreement and perform its obligations hereunder. Annexed hereto as
Schedule 3.2.2 and made a part hereof is a complete and correct copy of the
Limited Partnership Agreement and other governing documents of the Leaf
Partnership (together with all amendments and restatements of each such
document). ▇▇▇▇ ▇. Leaf and ▇▇▇▇▇▇▇ ▇▇▇ Leaf, General Partners of the Leaf
Partnership, have full power and authority to act on behalf of the Leaf
Partnership, including entering into and executing this Agreement and
performing its obligations hereunder.
3.3 CAPITALIZATION OF NTI, CORPORATE DOCUMENTS. NTI has an
authorized capital stock consisting of 25,000 shares of no par value common
stock, 940 of which are issued and outstanding (the "NTI Stock"). All of
the issued and outstanding NTI Stock is owned of record and beneficially by
the Sellers. Annexed hereto as Schedule 3.3 and made a part hereof is a
complete and correct description of the ownership by the Sellers of the NTI
Stock, including the number of shares held by each Seller and the
certificate numbers of each of the stock certificates issued to the Sellers
and the date of such issuance, as shown on NTI's books and records at March
31, 1997. Except as disclosed in Schedule 3.3, there are no other classes
of equity, options, warrants, calls, rights or commitments or any other
agreements of any character relating to the sale, issuance or voting of any
shares of the NTI Stock, or any securities convertible into or evidencing
the right to purchase any shares of the NTI Stock.
3.4 TITLE TO NTI STOCK. Each of the Sellers has good and marketable
title to, and owns and will continue to own free and clear of all claims,
liens, pledges, options and other encumbrances, all of the NTI Stock listed
in Schedule 3.3 as being owned by him. All of the NTI Stock is validly
issued, fully paid, non-assessable with no personal liability attaching to
the ownership thereof and has not been issued in violation of the
preemptive rights of any other shareholders.
3.5 STATUS OF NTI STOCK. Except as set forth on Schedule 3.5, none
of the NTI Stock is subject to any shareholder agreement, voting agreement,
voting trust, buy-sell agreement or any other similar agreement with
respect to any of the NTI Stock and the NTI Stock shall be transferred to
Buyer at the Closing free and clear of all claims, pledges, security
interests, liens or encumbrances or other restrictions or limitations of
any kind, including inheritance or estate tax liens, pledges, options or
other encumbrances.
3.6 CAPACITY OF NTI STOCK OWNERS. Neither Seller is under any
present legal disability to enter into and perform this Agreement. Each
such Seller will have full power and authority to perform all of its
obligations under this Agreement as of the Closing.
3.7 NO RIGHT OF FIRST REFUSAL. Except as disclosed on Schedule 3.7
annexed hereto and made a part hereof, neither Seller nor NTI is a party to
or restricted by or obligated under any contract or agreement which might
be violated by making or performing any part of this
3
Agreement, including but not limited to rights of first refusal pursuant to
any shareholders' or any other agreement.
3.8 FINANCIAL STATEMENTS. (i) The audited Consolidated Balance Sheets
of NTI as of September 30, 1994, 1995 and 1996 and the unaudited Balance
Sheet of NTI as of March 31, 1997 (the "Balance Sheets"), and (ii) the
related Consolidated Statements of Operations and Shareholders' Equity and
the Consolidated Statements of Cash Flows (as to audited statements only)
for the fiscal years and periods then ended of NTI, together with the notes
thereon, certified by the independent certified public accountants of NTI
as to the audited statements, have been delivered by NTI to Buyer. Such
audited financial statements and notes were prepared in accordance with
generally accepted accounting principles ("GAAP"), consistently applied
during the periods involved, are in accordance with the books and records
of NTI, contain and reflect adequate reserves for (i) all liabilities or
obligations of any nature, whether absolute, contingent or otherwise, in
accordance with GAAP and (ii) all reasonably anticipated losses and costs
in excess of expected revenue, and present fairly the financial position of
NTI, as of such dates and for such periods. All transactions between NTI
and the Sellers related to the business or operations of NTI (other than
transactions related to compensation of either of the Sellers as set forth
in detail on Schedule 3.8 hereto) have been identified in such audited
financial statements. The unaudited financial statements as of and for the
period ended March 31, 1997 have been prepared on a tax basis, contain and
reflect adequate reserves for (i) all liabilities or obligations of any
nature, whether absolute, contingent or otherwise, and (ii) all reasonably
anticipated losses, except for differences between tax and GAAP accounting,
and absence of explanatory footnotes, and present fairly the financial
condition and results of operations of NTI as of such date and for such
period. Such footnote disclosures, if included with the unaudited
financial statements, would be substantially similar in description and
content to the footnote disclosures in the audited financial statements for
the fiscal year ended September 30, 1996. All transactions between NTI and
the Sellers related to the business or operations of NTI (other than
transactions related to compensation of either of the Sellers as set forth
in detail on Schedule 3.8 hereto) have been identified in such unaudited
financial statements. For purposes of this Agreement, the Balance Sheet of
NTI at March 31, 1997, is sometimes referred to as the "Balance Sheet" and
the date thereof is referred to as the "Balance Sheet Date." NTI shall
deliver to Buyer (i) the unaudited compiled financial statements of NTI for
each month ended after the Balance Sheet Date, no later than twenty (20)
days after the end of each such month until Closing shall have occurred,
and (ii) any subsequent unaudited compiled financial statements of NTI for
each fiscal quarter after the Balance Sheet Date, no later than thirty (30)
days after the end of each such fiscal quarter until Closing shall have
occurred. Such financial statements will be prepared in a manner
consistent with the audited financial statements of NTI and will be in
accordance with the books and records of NTI.
3.9 BUSINESS SINCE MARCH 31, 1997. Except as set forth on Schedule
3.9, attached hereto and made a part hereof, since the Balance Sheet Date,
there has not been:
3.9.1 Any material adverse change in the financial condition,
operations, business or prospects of NTI, including, but not
limited to, any state or federal regulatory
4
proceedings which could culminate in an order or other
action which could have such an adverse change, but
excluding generally known industry trends and competitive
conditions affecting the telecommunications industry
generally;
3.9.2 Any material physical damage or destruction, whether or not
covered by insurance, adversely affecting the properties,
business, or operations of NTI;
3.9.3 Any labor dispute or threat thereof or any attempt to
organize or reorganize the employees of NTI for the purpose
of collective bargaining;
3.9.4 Any direct or indirect redemption, purchase or other
acquisition by NTI of any of the NTI Stock, or declaration
of or payment or distribution of any kind of cash or other
assets to either of the Sellers or to any party related or
affiliated with either Seller (a "Seller Affiliate") other
than the payment of dividends as set forth in detail on
Schedule 3.9 hereto;
3.9.5 Any employment, severance, consulting or other compensation
contract entered into by NTI with any director, officer or
employee, or any increase of compensation payable or to
become payable to any of its officers, employees or agents,
except for increases in compensation in the ordinary course
of business including pro rata salary and bonus
distributions to Sellers previously paid at year end, which
increases and distributions are set forth in detail on
Schedule 3.9;
3.9.6 Any communication, whether oral or written, to NTI or the
Sellers from NTI's customers, subscribers or suppliers or
agencies regulating NTI, nor does NTI or the Sellers, after
making due inquiry, have any knowledge of, any potential
development affecting NTI which would reasonably lead NTI or
any of the Sellers to expect a material adverse change in
NTI's business;
3.9.7 Any satisfaction or discharge of any lien by NTI or payment
by NTI of any obligation or liability, other than an
obligation or liability included in the Balance Sheet of
NTI, current liabilities incurred since the Balance Sheet
Date in the ordinary course of business, liabilities
incurred in carrying out the transactions contemplated by
this Agreement and obligations and liabilities under the
contracts and agreements listed in Schedule 3.16 hereof,
3.9.8 Any guaranty, endorsement or indemnification by NTI of the
obligations of any third person, firm or corporation,
3.9.9 Any sale or transfer of any assets or cancellation by NTI of
debts or claims having a value, in the aggregate, of more
than $10,000, except, in each case, in the ordinary course
of business;
5
3.9.10 Any knowing waiver by NTI of any rights having a value
individually, or in the aggregate, in excess of $10,000;
3.9.11 Any transaction entered into, other than in the ordinary
course of business;
3.9.12 Any mortgage, pledge or lien or other encumbrance of any of
its assets, tangible or intangible; or
3.9.13 Any assignment, sale or transfer of any patent, trademark,
trade name, trade secret, copyright or other intangible
asset.
3.10 LITIGATION CLAIMS. Except as set forth in Schedule 3.10
3.10.1 There are no claims, suits, actions, or proceedings of any
nature whatsoever in law or in equity, pending before any
court, governmental department, commission, agency,
instrumentality or authority or any arbitrator, or, to the
best knowledge of NTI, the Sellers, and the Principals,
threatened, nor are there, to the best knowledge of NTI, the
Sellers, and the Principals, any investigations, whether or
not purportedly on behalf of NTI, complaints or reviews by
any court, governmental department, commission, agency,
instrumentality or authority or any arbitrator pending or
threatened against, relating to or affecting NTI.
3.10.2 NTI is not operating under or subject to, nor in default
with respect to, any order, writ, injunction, garnishment,
levy or decree of any federal, state, municipal or other
governmental court, department, commission, board, bureau,
agency or instrumentality. The use or ownership of NTI's
assets, the use or occupancy of NTI's real property, and any
interests related thereto, and the transfer of the NTI
Shares does not constitute a default thereunder.
3.10.3 During the past five (5) years, there has not been nor is
there now pending, any claim(s) against any person in his or
her capacity as either a director or officer of NTI. The
Sellers and the Principals have no actual knowledge or
information of any act, error, or omission which would give
rise to such a claim. Neither NTI, the Sellers, nor the
Principals have been involved in or have knowledge of any
facts or circumstances involving the following which would
give rise to such a claim: (i) antitrust, communications,
copyright, trade name, trademark or patent claims or
litigation; (ii) charges in any civil or criminal action or
administrative proceeding involving a violation of any
federal or state security law or regulation; (iii) charges
in any civil or criminal action or administrative proceeding
involving a violation of any federal or state
6
antitrust or fair trade law or consumer protection law or
regulation, whether general or specific to the
communications services industry; and (iv) actions involving
representative actions, class actions or derivative suits.
3.10.4 Neither NTI, Sellers nor the Principals are aware of any
claim, nor do Sellers have any knowledge of the basis of
any claim, against NTI for injury to person or property of
employees or any third party suffered as a result of the
sale of any product or the performance of any service by
NTI, including claims arising out of any alleged defective
nature of its products or services, except for those types
of claims which are covered by insurance maintained by NTI,
such claims being described on Schedule 3.10.
3.11 COMPLIANCE WITH LAWS. Except as set forth on Schedule 3.11,
annexed hereto and made a part hereof, NTI has not received written notice
and neither NTI, either of the Sellers, nor either of the Principals has
any knowledge, having made due inquiry, of any violation by NTI of its
tariffs or of laws, regulations and orders from any governmental entity
having authority to enforce such tariffs, laws, regulations and orders,
including, but not limited to, the Communications Act of 1934, as
thereafter amended, including, the amendments embodied in the
Telecommunications Act of 1996, and the Telephone Consumer Protection Act
of 1991 (the "Communications Act"), and NTI, the Sellers, and the
Principals do not have any actual knowledge, having made due inquiry, that
any requirements of insurance carriers, applicable to its business are not
being adhered to. The present uses by NTI of its properties do not violate
any such laws, regulations, orders or requirements. To NTI's, Sellers' and
Prinicpals' actual knowledge, having made due inquiry, no consent or
approval by any governmental or quasi-governmental authority, other than
the approval of the Federal Communications Commission, the utility
regulatory commissions in the States of Minnesota, Wisconsin, Iowa,
Illinois, Nebraska, Kansas, Missouri, South Dakota, North Dakota, Wyoming,
California, Arizona, New York, New Jersey, Massachusetts, Florida and Texas
(together, the "Commissions") and compliance with applicable federal and
state securities and corporation laws, is required in connection with the
execution, delivery and performance of this Agreement or the consummation
of the transactions contemplated hereby.
3.12 PATENTS, TRADEMARKS, MISCELLANEOUS INTELLECTUAL PROPERTY.
Schedule 3.12, which is annexed hereto and made a part hereof, sets forth
a correct and complete list of all copyrights, patents, trademarks, trade
names, processes, inventions and formula applied for, issued to or owned by
NTI or under which NTI is licensed or franchised, all of which are valid,
in good standing and uncontested. Except as set forth on Schedule 3.12,
NTI possesses the rights, licenses or other authority to use all
copyrights, patents, inventions, formula, processes (secret or otherwise),
trademarks and trade names necessary to conduct its businesses as presently
conducted or presently proposed to be conducted. Neither NTI, any Seller,
nor any Principal has received any notice or other information with respect
to any alleged infringement or unlawful use of any software license,
copyright, patent, trademark, trade name, process, invention or
7
formula or other intangible property right owned by it or by others. No
director or officer of NTI, neither Seller and no Seller Affiliate, nor any
Principal has any interest in any such copyright, patent, trademark, trade
name, process, invention or formula. NTI has not granted any outstanding
licenses or other rights and has no obligations to grant licenses or other
rights with respect to any copyright, patent, invention, formula, process,
trademark or trade name listed in Schedule 3.12, except as specifically
stated in Schedule 3.12.
3.13 INSURANCE. Schedule 3.13, which is annexed hereto and made a
part hereof, is a correct and complete list of all insurance held by NTI
including the policy number, name of carrier, coverage, term, expiration
date and premium. NTI has its buildings, plants and properties, including,
but not limited to telecommunications equipment and inventories, insured
for its actual cash value, but not exceeding the amount it would cost to
repair or replace such properties, against loss or damage by fire and all
other hazards and risks of the character usually insured against by persons
operating similar properties in the localities where such properties are
located under valid and enforceable policies issued by insurers of
recognized responsibility. Such insurance coverage will be continued in
full force and effect after the Closing and through the date shown on
Schedule 3.13 through which premiums have been paid. NTI has not been
refused any insurance by an insurance carrier to which it has applied for
insurance during the past three years.
3.14 INDEBTEDNESS. Schedule 3.14, which is annexed hereto and made a
Part hereof, is a correct and complete list of all instruments, agreements
or arrangements pursuant to which NTI has borrowed any money, guaranteed or
included any indebtedness or established any line of credit which
represents any liability, contingent or otherwise, of NTI on the date
hereof. True and complete copies of all such written instruments,
agreements or arrangements have been delivered to NTI prior to the date of
this Agreement.
3.15 CORRECT RECORDS. The financial records, ledgers, account books,
minute books, stock certificate books, stock registers, and other corporate
records of NTI are current, correct and complete in all material respects
and all signatures therein are the true signatures of the persons who are
purported to have signed.
3.16 CONTRACTS. The following written contracts, plans, agreements,
arrangements and leases, (true complete copies of which have been furnished
to NTI as of the date hereof), and oral contracts, plans, agreements,
arrangements and leases to which NTI is a party are set forth, listed and,
for the oral contracts, agreements and arrangements, accurately described,
on Schedule 3.16 which annexed hereto and made a part hereof: (i) each
contract for the future purchase of materials, services, supplies or
equipment which (a) has a term in excess of one year or (b) obligates NTI
to pay, in one installment or in the aggregate over its term or one year,
whichever is shorter, an amount in excess of $50,000; (ii) each contract
with a customer made in the ordinary course of business which (a) has a
term in excess of one year or (b) generates revenues for NTI over its term
or in any one 12 month period, whichever is shorter, in excess of $50,000;
(iii) each contract not made in the ordinary and usual course of business;
(iv) each employment, severance and consulting contract; (v) each contract
with any labor union or other
8
labor organization; (vi) each guarantee and accommodation; (vii) each
license and franchise relating to the business of NTI; (viii) each lease of
real and personal property which (a) has a term in excess of one year or
(b) obligates NTI to pay, in one installment or in the aggregate over its
term or one year, whichever is shorter, an amount in excess of $50,000;
(ix) each common carrier agreement pursuant to which NTI purchases
telecommunications services; and (x) each contract and agreement with
affiliates of NTI, including either Seller and any Seller Affiliate
("Material Contracts"). Except as set forth on Schedule 3.16 hereto, NTI
has performed all obligations required to be performed by it to date and
has not breached and is not in default under any agreement listed in
Schedule 3.16 or to which it is a party or by which it is bound, and all of
the same are enforceable in accordance with their terms. NTI has a proper,
legal, valid and binding letter of authorization from at least ninety-eight
percent (98%) of its presubscribed long distance service customers or
subscribers. NTI, Sellers, and Principals know of no facts or
circumstances which constitute, or with the passage of time could
constitute, a default by NTI, the Sellers or any other party under any
Material Contracts, nor are NTI, Sellers, and Principals aware of any
restrictions imposed by such contracts which would in any material way
negatively impact or impair the consummations of the transactions
contemplated by this Agreement.
3.17 EMPLOYEE BENEFIT PLANS; ERISA.
3.17.1 Schedule 3.17.1 lists all contracts, agreements,
arrangements and understandings, whether written or oral,
with respect to the payment or delivery to any person of
compensation, bonuses, perquisites, benefits and other items
of value by NTI.
3.17.2 Schedule 3.17.2 lists each employee of NTI and identifies
the salary, commissions, bonuses, perquisites and benefits
to which each such employee is entitled. Such Schedule also
sets forth the names of all directors and officers of NTI
and a description of any agreement with respect to the
election or tenure of any of them as such.
3.17.3 No employee or director of NTI will be entitled to severance
pay by virtue of the transactions contemplated by this
Agreement. Schedule 3.17.3 sets forth each employee or
director of NTI who has any right to severance pay for any
reason, listing the employee name, severance amount or
method of calculation, and the basis for such right.
3.17.4 Schedule 3.17.4.1 contains a true and complete list of each
pension, profit sharing, other deferred compensation, bonus,
incentive compensation, stock purchase, stock option,
retirement, supplemental retirement, severance or
termination pay, medical, hospitalization, educational
assistance, legal assistance, life insurance, dental,
disability, salary continuation, vacation, supplemental
unemployment benefits plan, program, arrangement or
contract, and each other employee benefit plan,
9
program, arrangement or contract, maintained, contributed
to, or required to be contributed to, or promised by NTI or
any Related Party (hereinafter defined) for the benefit of
any current or former employee, director or agent of NTI or
any Related Party, whether or not any of the foregoing is
funded, whether formal or informal, whether or not subject
to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") (collectively, the "Benefit Plans"). NTI
and its Related Parties do not have any express or implied
commitment or contract to create any additional Benefit Plan
or modify any existing Benefit Plan, other than as may be
required to comply with ERISA or the Internal Revenue Code
of 1986, as amended (the "Code"). NTI has delivered to
Buyer, with respect to each applicable Benefit Plan (1) true
and complete copies of all documents embodying or relating
to each Benefit Plan including, without limitation, the plan
and trust or other funding arrangement relating thereto,
insurance contracts, summary plan descriptions, employee
handbooks or personnel manuals, and all amendments and
supplements thereto; (2) the most recent annual report
(Series 5500 and all schedules thereto), if any, required by
ERISA; and (3) the most recent determination letter received
from the Internal Revenue Service ("IRS"), if any, and any
request for a determination letter with respect to which a
response has not been received. "Related Party" means any
member of a controlled group of corporations, a group of
trades or businesses under common control or an affiliated
service group, within the meaning of Section 414(b), (c),
(m) or (o) of the Code, of NTI.
3.17.5 The Benefit Plans that are intended by NTI or any Related
Party to meet the requirements of Section 401(a) of the Code
are so qualified. All such Benefit Plans have been
administered in compliance with and consistent with all
applicable requirements of the Code and ERISA, including,
without limitation, all reporting and disclosure
requirements. No Benefit Plan is subject to Title IV of
ERISA.
3.17.6 With respect to all Benefit Plans, NTI is in compliance with
the requirements prescribed by any and all statutes, orders
or governmental rules or regulations currently in effect,
including, but not limited to, ERISA and the Code. NTI and
any Related Party have performed the obligations required to
be performed by them under, and are not in default under or
in violation of, any and all of the Benefit Plans, and each
Benefit Plan has been operated in all material respects in
accordance with the requirements of all applicable laws and
regulations. Neither any Benefit Plan or fiduciary nor NTI
or any Related Party, nor any Party in Interest, has taken
any action, or failed to take any action, that could subject
it or any other person to any material liability for any
excise tax under Chapter
10
43 of the Code, any penalty under Title I of ERISA, or for
breach of fiduciary duty with respect to or in connection
with a Benefit Plan. "Party in Interest" means any party in
interest with respect to any Benefit Plan (within the
meaning of Section 3(14) of ERISA) and any disqualified
person with respect to any Benefit Plan (within the meaning
of Section 4975(e)(2) of the Code).
3.17.7 At no time has NTI or any Related Party been required to
contribute to any "multiemployer plan" (within the meaning
of Section 3(37) of ERISA) and NTI and its Related Parties
have no liability (contingent or otherwise) relating to the
withdrawal or partial withdrawal from a multiemployer plan.
NTI and its Related Parties do not participate in any
"multiple employer plans," within the meaning of ERISA.
3.17.8 No Benefit Plan provides or is required to provide group
health, medical, death or survivor benefits to any former or
retired employee of NTI or beneficiary thereof, except to
the extent (i) required under any state insurance law
providing for a conversion option under a group insurance
policy or (ii) under Section 601 of ERISA.
3.17.9 No Benefit Plan or fiduciary has nor does NTI or any Related
Party have any liability to any participant, beneficiary or
other person under any provision of ERISA or any other
applicable law by reason of any payment of, or failure to
pay, benefits or other amounts with respect to or in
connection with any Benefit Plan.
3.17.10 Each Benefit Plan may be terminated by NTI or its Related
Parties within a period of thirty (30) days following the
Closing Date without acceleration or additional vesting of
any benefits (except as otherwise required by law) and
without payment of any amount as a penalty, bonus, premium,
severance pay or other compensation or amount.
3.17.11 With respect to each person who is, has been or would, after
serving any waiting period, be eligible for any Benefit Plan
which is a group health plan or insurance coverage sponsored
by NTI, NTI has previously provided to Buyer all information
necessary to comply with the requirements of the Health
Insurance Portability and Accountability Act of 1996
concerning certificates of coverages.
3.18 TITLE TO PROPERTY.
3.18.1 Schedule 3.18.1, which is annexed hereto and made a part
hereof, contains accurate descriptions by categories of
NTI's owned real property (including all plants and
structures located thereon) (the "Real Property")
11
as of the date of this Agreement. Except as set forth in
Schedule 3.18.1, NTI has good and marketable title in fee
simple to its Real Property, free and clear of all liens and
encumbrances and use restrictions. NTI owns or leases all
the furniture, equipment and leasehold improvements located
in the structures referred to in Schedule 3.18.1.
3.18.2 Schedule 3.18.2 sets forth all leases, subleases and other
agreements under which NTI uses or occupies, or has the
right to use or occupy, now or in the future, any real
property (the "Leased Real Property"). NTI has heretofore
delivered to Buyer true, correct and complete copies of all
leases (including all modifications, amendments and
supplements thereto for the Leased Real Property (the "Real
Property Leases"). Each Real Property Lease is valid,
binding and in full force and effect, all rent and other
sums and charges payable by NTI as tenants thereunder are
current, no termination event or condition or uncured
default of a material nature on the part of NTI or, to NTI's
best knowledge, the landlord, exists under any Real Property
Lease. NTI has a good and valid leasehold interest in the
Leased Real Property leased by it, free and clear of all
mortgages, pledges, liens, encumbrances and security
interests except as set forth on Schedule 3.18.2.
3.18.3 NTI has good and defensible title to all of its other assets
and properties used in the business of NTI, and all assets
and properties reflected in the Balance Sheets, or acquired
after the Balance Sheet Date (other than assets or property
sold or otherwise disposed of in the ordinary course of its
business subsequent to such date) (the "Other Assets"), such
Other Assets being, in each case, free and clear of all
security interests, mortgages, pledges, liens, conditional
sales, agreements, leases, encumbrances or charges of any
nature whatsoever except as expressly stated in Schedule
3.18.3.
3.18.4 The Real Property, Leased Real Property, and the Other
Assets constitute all of the assets used in, and necessary
for the operation of, NTI's business and operations. The
Real Property and Leased Real Property, their uses,
appurtenances and improvements substantially comply with all
applicable ordinances and regulations, building, and zoning
laws. The buildings, machinery, appurtenances and
improvements are in good condition and repair, ordinary wear
and tear excepted, and are free of any latent structural or
engineering defects known to NTI or the Sellers. The Other
Assets are in good condition and repair, ordinary wear and
tear excepted, and are free of any latent structural or
engineering defects known to NTI or the Sellers.
12
3.19 CONSENTS. Except as set forth in Schedule 3.19, except for
applicable requirements under the Communications Act, state communications
or utility regulatory laws, state securities or blue sky laws, if
applicable, no consent, approval or authorization of, or filing,
registration, qualification, declaration or designation with, any
governmental authority or any other third party is required on the part of
NTI or the Sellers as a condition to the valid execution, delivery and
performance of this Agreement by NTI and by the Sellers or as a condition
to the due and valid consummation of the transactions contemplated by this
Agreement or by any of the exhibits.
3.20 NO DEFAULTS. Subject to applicable requirements under the
Communications Act, state communications laws, and the state securities or
blue sky laws, if applicable, the execution, delivery and performance by
NTI and the Sellers of this Agreement will not, in any material respect
(with respect to clauses (ii) through (iv), inclusive, of this Section
3.20), (i) conflict with the Articles of Incorporation, as amended, or
Bylaws of NTI, (ii) conflict with, result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or
give rise to any third-party right of termination, cancellation,
modification or acceleration) under, any of the terms, conditions or
provisions of any trust agreement, voting agreement, shareholders'
agreement, voting trust, note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement, tariff or
other instrument or obligation of any kind affecting NTI or the Sellers or
to which NTI or the Sellers are a party or by which any of the properties
or assets of NTI are or may be bound; (iii) violate any requirement of law,
rule or regulation applicable to NTI; (iv) violate any order, injunction,
judgment or decree of any court or other governmental authority or any
determination of an arbitrator applicable to NTI, either Seller or any of
NTI's properties or assets; or (v) result in the creation or imposition of
any lien, charge or encumbrance of any nature whatsoever upon any of NTI's
assets, which lien charge or encumbrance has not been removed prior to
Closing.
3.21 QUALIFICATION/SUBSIDIARIES AND OTHER INTERESTS. Neither the
nature of NTI's business nor the location of its properties require that it
be duly certified, licensed or qualified to do business in any state or
jurisdiction other than the States of Minnesota, Wisconsin, Iowa, Illinois,
Nebraska, Kansas, Missouri, South Dakota, North Dakota, Wyoming,
California, Arizona, New York, New Jersey, Massachusetts, Florida and Texas
(together, the "States"). NTI is duly qualified, certified or licensed in
each such state where qualification, certification or licensing is
necessary or required to conduct its business and offer communications
services, except where the failure to so qualify, certify or license would
not have a material adverse effect on NTI or the operation of its business.
NTI has no subsidiary corporations or any other interest in any
corporation, partnership, association or joint venture, other than as
described on Schedule 3.21, attached hereto and made a part hereof.
3.22 BROKERS. Except for Heritage Capital Corp., there is no broker
or finder or other person who would have any valid claim against the
Sellers or NTI for a commission or brokerage in connection with this
Agreement or the transactions contemplated hereby and NTI
13
has not retained or employed any such broker, finder or person as such, nor
taken any action which would give any person any valid claim against any
party hereto for such a commission or brokerage. NTI shall pay at Closing
the fees, commissions, expenses and any other charges of Heritage Capital
Corp. which amount shall not exceed Six Hundred Twenty-Five Thousand
Dollars ($625,000) (the "Heritage Fees").
3.23 CORPORATE AND SELLER ACTION. This Agreement and each other
agreement required to be executed and delivered by NTI and the Sellers has
been duly authorized, executed and delivered by NTI and the Sellers and
constitutes a legal, valid and binding agreement of NTI and the Sellers,
enforceable against them in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors
generally, by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing. NTI has taken all actions
required by law and by its Articles of Incorporation and Bylaws to
authorize the execution and delivery of this Agreement, together with its
Schedules and Exhibits, and the consummation of the transactions
contemplated by this Agreement or by any of the Exhibits.
3.24 LIABILITIES. Except as set forth in Schedule 3.24, as of March
31, 1997, NTI had no material liabilities, absolute or contingent, which
are not shown on the Balance Sheet. All liabilities, absolute or
contingent, of NTI incurred subsequent to March 31, 1997, will have been
incurred only in the ordinary course of business. The accounts, notes, and
other receivables, whether current on noncurrent, of NTI shown on the most
recent Balance Sheet before the Closing, and all such receivables of NTI as
of the Closing, were and shall be, to the best knowledge of NTI, the
Sellers and Principals, good and collectible, subject only to an allowance
for doubtful accounts, losses or reserves for returns which may be provided
for in such Balance Sheet or, in the case of receivables subsequently
created, on the books of NTI as of the Closing. The total amount of debt
owed by NTI to banks or other third-party lenders does not, and will not as
of the Closing, exceed $660,000. The average monthly total fraud losses is
for the six (6) months preceding the Closing Date does not exceed two (2)
times the average monthly total fraud losses for the fiscal year ended
September 30, 1996.
3.25 TAX RETURNS. Except as set forth in Schedule 3.25, annexed
hereto and made a part hereof, all federal income tax returns, and other
federal tax returns of every nature, and all state, county and local tax
returns and declarations of estimated tax or estimated tax deposit forms
required to be filed by NTI, have been duly and timely filed, were true,
correct and complete in all material respects and NTI has timely paid all
taxes which have become due and owing or pursuant to any assessment
received by it and has paid all installments of estimated tax due. Where
such returns and reports have not been audited and approved or settled,
there has not been any waiver or extension of any applicable statute of
limitations, and NTI has not received any notice of deficiency or
adjustment. The amounts shown as provisions for taxes on the Balance Sheet
are sufficient for the payment of all respective federal, state, county and
local taxes.
14
All taxes and other assessments and levies which NTI is required by
law to withhold or to correct have been duly withheld and collected, and
have been paid over to the proper governmental authorities or are held by
NTI in separate bank accounts for such payment. All statements and reports
required to be filed under any Chapter of the Code by NTI have been true,
correct and complete in all material respects and duly and timely filed.
Except as described on Schedule 3.25, attached hereto and made a part
hereof, to the best of the Sellers' and the Principals' knowledge, having
made due inquiry, there is not now pending or under contemplation any audit
of any payment, return or report made or filed by NTI or of any claimed
failure to pay or report any kind of tax which may be assessed by any
taxing authority against NTI.
3.26 BANKS. Schedule 3.26, which is annexed hereto and made a part
hereof, is a correct and complete list setting forth the name of each bank
in which NTI has an account or safe deposit box, the names of all persons
authorized to draw thereon or to have access thereto, and the name of each
person holding a power of attorney from NTI.
3.27 DISCLOSURE BY NTI, THE SELLERS, AND THE PRINCIPALS. No
representation or warranty made by NTI, the Sellers or the Principals in
this Agreement and no statement made in any certificate to be delivered at
the Closing, Exhibit or Schedule furnished or to be furnished in connection
with the transactions herein contemplated contains or will contain any
untrue statement of a material fact or omits or will omit to state any
material fact necessary to make such representation or warranty or any such
statement not misleading to a prospective purchaser of the NTI Stock who is
seeking full information with respect to NTI. No disclosure of information
with respect to any warranty or representation contained in this Agreement,
or other matters contemplated by this Agreement, shall be deemed to have
been made or given unless it expressly appears in this Agreement, or in any
document submitted pursuant to a specific requirement of this Agreement.
3.28 CONFLICT OF INTEREST. Except as set forth on Schedule 3.28
annexed hereto and made a part hereof or disclosed as "due from officers"
in the financial statements, neither the Sellers nor any Principal,
director, officer, or employee of NTI or any Seller Affiliate, has (i)
loaned to or guaranteed the loan of a third party to NTI or borrowed any
money from NTI or (ii) any interest in any property, real or personal
whether owned or leased, tangible or intangible, including but not limited
to, software, inventions, patents, trade names or trademarks used in
connection with or pertaining to the business of NTI or any lender,
supplier, customer, sales representatives or distributor of NTI; provided,
however, that the Sellers or such Principal, director, officer, or employee
or relative thereof shall not be deemed to have such interest solely by
virtue of the ownership of less than five percent (5%) of any stock or
indebtedness of any publicly-held company, the stock or indebtedness of
which is traded on a recognized stock exchange or on the Nasdaq National
Market System ("Nasdaq NMS") or the Nasdaq Small Cap Market ("Nasdaq SCM").
15
3.29 SECURITIES LAW REPORTING. NTI is not now and has never been
subject to the reporting requirements administered and enforced by the
Securities and Exchange Commission ("SEC").
3.30 ENVIRONMENTAL MATTERS.
3.30.1 NTI has never generated, stored, discharged, disposed of,
spilled, dumped, poured, emptied, or released Hazardous
Materials (as defined below) and Hazardous Materials
(excluding cleaning materials used by NTI in the ordinary
course of its business) are not presently at, on, in,
beside, above or under the Real Property or, to Sellers and
Principals' best knowledge on the Leased Real Property (the
Real Property and the Leased Real Property being
collectively referred to as the "NTI Property") and no
contingent liability exists in connection with any release
of any Hazardous Materials by NTI. To the best knowledge of
NTI, the Sellers and the Principals, underground storage
tanks are not and have never been located on the NTI
Property.
3.30.2 NTI's operations conducted at the NTI Property at all times
complied in all respects with Environmental Laws (as defined
below). NTI has obtained all governmental authorizations
and permits under Environmental Laws necessary for its
operations. NTI is in compliance with each term and
condition of such authorizations and permits.
3.30.3 To the best knowledge of NTI, the Sellers and the
Principals, the NTI Property and NTI's operations thereon
are not subject to (i) any federal, state, or local
investigation, (ii) any judicial or administrative
proceeding alleging the violation of or liability under any
Environmental Law, or (iii) any outstanding written order or
agreement with any governmental authority or private party
relating to any Environmental Law.
3.30.4 For the purpose of this Agreement, the term "hazardous
materials" shall include, but not be limited to: any
substance defined as "hazardous substances," "hazardous air
pollutant," "pollutants," "contaminants," "hazardous
materials," "hazardous wastes," "toxic chemicals,"
"petroleum or petroleum products," "toxics," "hazardous
chemicals," "extremely hazardous substances," "pesticides"
or related materials, including but not limited to radon and
asbestos, as now, in the past, or hereafter defined in any
applicable federal, state or local law, regulation,
ordinance, policy or directive, including, but not limited
to, the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund
Amendments and Reauthorization Act of 1986,; the Emergency
Planning and Community Right-to-Know Act; the Resource
Conservation and Recovery Act,; the Hazardous
16
Materials Transportation Act of 1974; the Federal Buyer
Pollution Control Act; the Clean Air Act; the Federal
Insecticide, Fungicide and Rodenticide Act; the Safe
Drinking Buyer Act; the Toxic Substances Control Act; the
Oil Pollution Act of 1990; any laws regulating the use of
biological agents or substances including medical or
infectious wastes, each as amended or supplemented, and any
analogous future or present local, state and federal
statutes, regulations and ordinances promulgated pursuant
thereto which may be applicable, as any such acts may be
amended ("Environmental Laws").
3.30.5 NTI agrees and consents to the performance of environmental
testing on the NTI Property as Buyer may reasonably request;
provided, however, that the performance of such tests will
not negate or affect NTI's, the Sellers' or the Principal's
representations or warranties or agreement to indemnify
contained herein.
3.31 LABOR MATTERS. No group of employees of NTI is presently
organized into a collective bargaining unit. No labor union has recently
attempted, or is presently attempting, to organize any of NTI's employees
into a collective bargaining unit. No employees of NTI are on strike or
are threatening to strike.
3.32 AMERICANS WITH DISABILITIES ACT. NTI, the Sellers, and the
Principals have no actual knowledge of any violations of the United States
Americans With Disabilities Act's mandates and obligations, including but
not limited to, those regulating telecommunications providers, facilities
accessibility and employment practices.
3.33 SECURITIES LAWS COMPLIANCE.
3.33.1 Each Seller is acquiring the Stock for his own account for
investment, not as a nominee or agent, and not with a view
to the resale or distribution of the Stock or any part
thereof, and neither Seller has a plan or intention of
selling, granting any participation in, or otherwise
distributing the same. By executing this Agreement, each
Seller further represents that there is no contract,
undertaking, agreement or arrangement with any person for
resale in connection with a distribution to any person with
respect to any of the Stock. Each Seller acknowledges that
the offering of the Stock pursuant to this Agreement will
not be registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities or
blue sky law, on the grounds that the offering and sale of
the Stock contemplated by this Agreement are exempt from
registration pursuant to exemptions available under such
laws, and that Buyer's reliance upon such exemptions is
predicated upon Sellers' representations set forth in this
Agreement. Each Seller acknowledges and understands that
Stock must be held for an indefinite period of time unless
the Stock
17
is subsequently registered under the Securities Act and/or
applicable state securities or blue sky laws or an exemption
from such registration is available.
3.33.2 Each Seller has such knowledge and experience in financial
and business matters that he is capable of evaluating the
merits and risks of an investment in the Stock and is able
to bear the economic risk of an investment in the Stock,
including, without limiting the generality of the foregoing,
the risk of losing part or all of his investment in the
Stock and the possible inability to sell or transfer within
that amount of time.
3.33.3 The transfer of all or any of the Stock may be refused by
Buyer's transfer agent unless the Stock for which transfer
is sought is registered under the Securities Act and all
other applicable federal securities or blue sky laws or
unless the Seller seeking such transfer provides such
information as is deemed necessary by Buyer to show that
such registration is not required, including an opinion of
legal counsel acceptable to Buyer.
3.34 EXPENSES. The legal expenses allocated to NTI in connection with
the transactions contemplated by this Agreement shall be reasonable and
shall not exceed, in the aggregate, $50,000, unless NTI shall have received
written approval to exceed such fee amount from Buyer, which approval shall
not be unreasonably withheld. All other expenses allocated to NTI or
incurred by it in connection with this Agreement, excluding legal expenses,
shall not exceed $15,000. NTI shall pay at Closing fifty percent (50%) of
the total amount of the legal expenses and all other expenses allocated to
or incurred by NTI, which shall not exceed in the aggregate $65,000 (the
"Transaction Fees").
3.35 POOLING. There are no facts, circumstances or conditions not
disclosed herein or in the financial statements or schedules which would
prevent the transactions contemplated by this Agreement from qualifying for
treatment under all relevant accounting principles, opinions and rulings as
a pooling of interests combination.
ARTICLE 4. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants that:
4.1 INCORPORATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is qualified as a foreign corporation in each other jurisdiction in which
it is lawfully required to qualify to conduct business, except where the
failure to so qualify would not have a material adverse effect on Buyer.
4.2 NO DEFAULTS. Except for any consents, waivers or other documents
required to be obtained by the Buyer pursuant to the Loan and Security
Agreement dated May 30, 1996 by and between the Buyer and Nations Bank,
N.A. (South) and any documents related thereto and
18
subject to the applicable requirements under the Communication Act, state
communications laws, the Securities Act, the Exchange Act and the state
securities or blue sky laws, if applicable, neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby is an event which of itself or with the giving of
notice or the passage of time, or both, could constitute, in any material
respect (with respect to clauses (i) and (iii) of this Section 4.2), a
violation of or conflict with or result in any breach of, or default under
the terms, conditions or provisions of, (i) any judgment, law or regulation
(assuming receipt of the approvals referenced in Section 3.10 hereof) or
(ii) Buyer's Articles of Incorporation or Bylaws, or (iii) any agreement or
instrument to which Buyer is a party or by which it is bound or could
result in the creation or imposition of any lien, charge or encumbrance of
any nature whatsoever on the property or assets of Buyer, and no such event
of itself or with the giving of notice or the passage of time, or both,
will result in the acceleration of the due date of any obligation of Buyer.
4.3 CORPORATE ACTION OF BUYER. This Agreement and each other
agreement required to be executed and delivered by Buyer at or prior to
Closing has, or will have been, duly authorized, executed and delivered by
Buyer and constitutes a legal, valid and binding agreement of Buyer,
enforceable against it in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors
generally, by general equity principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
4.4 DISCLOSURE BY BUYER. No representation or warranty made by Buyer
in this Agreement, and no statement made in any certificate to be delivered
at the Closing, Exhibit or Schedule furnished or to be furnished in
connection with the transactions herein contemplated, contains or will
contain any untrue statement of a material fact or omits or will omit a
material fact necessary to make the statements contained therein or herein
not misleading to a prospective purchaser of the Stock who is seeking full
information with respect to Buyer. No disclosure of information with
respect to any warranty or representation contained in this Agreement, or
other matters contemplated by this Agreement, shall be deemed to have been
made or given unless it expressly appears in this Agreement, or in any
document submitted pursuant to a specific requirement of this Agreement.
4.5 STOCK. The Stock, when issued and delivered hereunder, will be
duly and validly issued and will be fully paid and nonassessable.
4.6 BROKERS. Except for Serrus Ventures, LLC there is no broker or
finder or other person who would have any valid claim against Buyer for a
commission or brokerage in connection with the Agreement or the
transactions contemplated hereby and Buyer has not retained or employed any
such broker, finder or person as such, nor taken any action which would
give any person any valid claim against any party hereto for such a
commission or brokerage. Buyer shall pay the fees, commissions, expenses
and any other charges of Serrus Ventures.
19
4.7 SEC REPORTS. At or prior to Closing, Buyer shall deliver to
Sellers its Form 10-K for the fiscal year ended March 31, 1996 of Buyer,
all Form 10-Q's filed with the SEC since the end of the last fiscal year of
Buyer and all Form 8-K's filed during the twenty-four (24) months preceding
the Closing Date (the "SEC Reports"). The information set forth in the SEC
Reports does not contain any untrue statement of material fact or omit to
state any material fact necessary to make the statements made therein not
misleading.
ARTICLE 5. COVENANTS OF THE SELLERS AND NTI PENDING CLOSING
The Sellers, Principals and NTI jointly and severally covenant and
agree that from the date hereof to and including the Closing:
5.1 MAINTENANCE OF BUSINESS. NTI shall continue to carry on its
business, maintain its Real Property, Leased Real Property and Other Assets
and keep its books of account, records and files in substantially the same
manner as heretofore, except that NTI shall seek Buyer's consent prior to
incurring any expense other than in the ordinary course of business or
capital expenditure which individually or in the aggregate would exceed
$10,000. NTI will maintain in full force and effect insurance policies now
in effect.
5.2 NEGATIVE COVENANTS. Without the prior written consent of Buyer,
NTI shall not, and the Sellers and Principals shall do all things and take
all reasonable and proper action to provide that NTI shall not:
5.2.1 Issue, sell, purchase or redeem, or grant options to
purchase or otherwise agree to sell, purchase or redeem any
shares of its capital stock or any other securities of NTI
except for the issuance of common stock pursuant to exercise
of the Lang Option as provided for in Section 8.17 hereof;
5.2.2 Amend its Articles of Incorporation or adopt or amend its
Bylaws;
5.2.3 Incur or prepay any liability for borrowed money, short term
debt or long term debt (as those terms are defined in GAAP),
other than in the ordinary course of business and consistent
with past practices;
5.2.4 Pay or guarantee any obligation or liability other than
obligations or liabilities reflected in the Balance Sheets,
when due, liabilities incurred since the Balance Sheet Date
in the ordinary course of business and obligations under
contracts and agreements referred to in Schedules annexed
hereto or entered into in the ordinary course of business
and current payment of salary, bonus and due from officers
accrual previously made to Sellers in connection with fiscal
year end adjustments such salary, bonus and due from
officers accrual being set forth in detail on Schedule 5.2.4
hereto;
20
5.2.5 Adopt or modify any severance, consulting, bonus, pension,
profit sharing, benefit or other compensation plan or
arrangement or increase its overall work force or enter into
any contract of employment, except compensation increases or
decreases or changes in benefits and increases in work force
made in the ordinary course of business;
5.2.6 Enter into or modify any contract or commitment, incur any
liability, absolute or contingent, waive or fail to enforce
any right or enter into any other transaction, other than in
the ordinary course of business;
5.2.7 Take any action that would or might reasonably be expected
to result in any representation or warranty set forth in
this Agreement being or becoming untrue in any respect or in
any of the conditions to the consummation of the
transactions contemplated by this Agreement set forth in
Article 8 hereof not being satisfied;
5.2.8 Enter into or modify any contracts to purchase long distance
service from interexchange carriers; or
5.2.9 Have made or become obligated to make any dividend payment
or other distribution to the Sellers.
5.3 ACCESS TO FACILITIES, FILES AND RECORDS. At the reasonable
request of Buyer, NTI shall, from time to time, give or cause to be given
to Buyer, its officers, employees, accountants, counsel and authorized
representatives full access to (i) all of the property, accounts, books and
other financial records, minute books, deeds, title papers, insurance
policies, certificates, licenses, agreements, contracts, tariffs,
commitments, tax returns, records and files of every character, employees,
equipment, machinery, fixtures, furniture, vehicles, notes and accounts
payable and receivable and inventories of NTI; (ii) all such other
information concerning the affairs of NTI as Buyer may reasonably request;
(iii) consult with the independent auditors of and counsel to NTI with
respect to all matters, including, but not limited to, the financial
condition of NTI and the audit of NTI's financial statements and any legal
and regulatory matters affecting NTI; and (iv) at Buyer's own cost and
expense, the Real Property of NTI in order to perform a Phase I
environmental audit (the "Environmental Audit").
5.4 ORGANIZATION, GOOD WILL. NTI shall preserve its business
organization intact, retain the services of its present officers and use
its best efforts to retain substantially as at present its employees, and
preserve the good will of its suppliers, subscribers, customers and others
having business relations with it.
5.5 THIRD PARTY CONSENTS. NTI, Sellers and the Principals will
obtain or cause to be obtained the consent of any third party whose consent
is required by NTI or the Sellers in order that the transactions
contemplated by this Agreement may be consummated without violation of any
representation, warranty or covenant made by any of them in this Agreement;
provided,
21
however, that NTI shall not spend any money or otherwise incur any
obligation in order to obtain any such consent without the prior written
approval of Buyer.
5.6 SECURITIES LAWS. NTI, Sellers and the Principals will take all
action necessary to permit the transactions contemplated herein to be
consummated in compliance with all applicable federal and state securities
laws.
5.7 COMMUNICATIONS LAWS. NTI, Sellers and the Principals will take
all action necessary to permit the transactions contemplated herein to be
consummated in compliance with all applicable federal, state and local
telecommunications laws governing or applicable to NTI and its business.
5.8 NOTICE OF PROCEEDING. NTI will, upon becoming aware of any order
or decree or any complaint praying for an order or decree restraining or
enjoining the consummation of the Agreement or the transactions
contemplated hereunder, or upon receiving any notice from any governmental
department, court, agency or commission of its intention to institute an
investigation into, or institute a suit or proceeding to restrain or enjoin
the consummation of this Agreement or such transactions, or to nullify or
render ineffective this Agreement or such transactions if consummated,
promptly notify Buyer in writing of such order, decree, complaint or
notice.
5.9 DELIVERY OF NTI SHAREHOLDER LIST. The list of shareholders in
Schedule 3.2 hereof is a true and complete list setting forth the identity
of all of the common shareholders of NTI, their holdings of all of the
stock of NTI, the certificate number of each share certificate issued to
each of them, and the date of such issuance. Prior to the Closing, NTI
will deliver an updated list of its common shareholders and their holdings
and Buyer may rely completely on such updated list of shareholders.
5.10 CONFIDENTIAL INFORMATION. NTI, each Seller, each Principal and
Lang shall maintain all information gained from Buyer in connection with
the transactions contemplated by this Agreement and the terms of this
Agreement (the "Buyer Confidential Information") in strict confidence, and
shall take all precautions necessary to prevent disclosure, access to, or
transmission of the Buyer Confidential Information, or any part thereof, to
any third party, except as required by law or order of any court having
competent jurisdiction. The Buyer Confidential Information shall be used
only for the purposes of evaluating the transactions contemplated hereby
and in the event the Closing does not occur for any reason, each Seller and
NTI shall, immediately upon Buyer's request, return all copies and
recordings of the Buyer Confidential Information in their possession or
under their control and delete all records thereof in any data storage
system maintained by or for such Seller or NTI.
5.11 NO SOLICITATION. NTI agrees that, prior to the Closing, it shall
not, nor shall any of its directors, officers, employees, agents or
representatives to, directly or indirectly, solicit, initiate or encourage
(including by way of furnishing or disclosing information) inquiries or
proposals concerning any merger, consolidation or acquisition or purchase
of all or any
22
substantial portion of the assets or capital stock of NTI (an "Acquisition
Transaction") or negotiate or enter into any discussions or other
communications with any prospective purchaser (other than Buyer or its
affiliates) with respect to any Acquisition Transaction. NTI shall
immediately advise Buyer of any inquiries or proposals relating to any
Acquisition Transaction.
5.12 RECOMMENDATION AND APPROVAL OF AGREEMENT. The Board of Directors
of NTI has approved and recommended the transactions contemplated by this
Agreement and the agreements related hereto to the shareholders of NTI.
Each of the Sellers agrees to vote their NTI Stock in favor of the
transactions contemplated by this Agreement and the agreements related
hereto and to take such actions as may be necessary to consummate the
transactions contemplated hereby.
5.13 AUDITED FINANCIAL STATEMENTS. NTI shall promptly take any action
necessary to enable Buyer to timely file any required SEC reports including
an audited balance sheet of NTI for each of the two immediately preceding
fiscal years and as of March 31, 1997, and an audited income statement,
statement of cash flows and statement of shareholders' equity for each of
the three preceding years and for the six-month periods ended March 31,
1997 and 1996 (the "Audited Financial Statements") with an unqualified
opinion thereon from a certified public accountant reasonably acceptable to
Buyer, together with the consent of the applicable auditor, in form and
content reasonably acceptable to Buyer, to the effect that such financial
statements may be included in future public filings of Buyer with the SEC.
Such financial statements shall be prepared in accordance with generally
accepted accounting principles and the reporting requirements of the SEC,
including the rules applicable under Regulation S-X. Such statements of
income do not contain any items of special or non-recurring income or any
other income not earned in the ordinary course of business except as
expressly specified therein, and the Audited Financial Statements include
all adjustments, which consist of normal recurring accruals and all
elements of allocable overhead, necessary for such fair presentation.
5.14 PUBLIC ANNOUNCEMENTS. NTI, each of the Sellers, each of the
Principals and Lang acknowledges that Buyer is a publicly-held company and
dissemination of information concerning this transaction or trading in
Buyer's stock by any party to this transaction or any party receiving
information from any party to this transaction prior to public release
could result in violation of SEC ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ regulations. Therefore,
NTI and each of the Sellers agrees not to disseminate any information or
make any public statement concerning the transactions other than what is in
press releases of Buyer, provided, however, that Buyer shall not issue any
press release or other public announcement regarding the execution of this
Agreement without the prior consent of the Sellers, which consent shall not
be unreasonably withheld or delayed.
5.15 ADVERSE EVENTS. Promptly after the occurrence, or failure to
occur, of any event, the occurrence or failure of which would (i)
materially adversely affect, or could reasonably be expected to materially
adversely affect, the assets, properties, operations, business, prospects,
or condition (financial or otherwise) of NTI or the ability of any Seller,
Principal or NTI to perform any of its obligations under this Agreement, or
(ii) which, if known as of the date of this Agreement, would have been
required to be disclosed to Buyer or (iii) causes any
23
representation or warranty contained in this Agreement or any Schedule or
Exhibit hereto to be untrue or inaccurate at any time from the date of this
Agreement to and including the Closing, NTI, Principal and/or such Seller
shall provide to Buyer all relevant information related thereto.
5.16 EMPLOYEES. On or before the Closing Date, NTI shall deliver to
Buyer a list of NTI's employees as of the end of the calendar month
immediately preceding the Closing, indicating the following information for
each employee:
5.16.1 his or her compensation and any applicable severance
arrangement;
5.16.2 whether remunerated on an hourly, weekly, or monthly basis;
5.16.3 date of most recent commencement of service with NTI; and
5.16.4 accrued holiday, vacation, sick leave, long service
entitlement (if any) and permitted time-off due as
compensation for additional time worked, all of which are
accurately reflected in the financial statements of NTI.
5.17 EXPENSES. Sellers shall indemnify and hold harmless Buyer and
NTI in respect of any expenses or claims for fees in excess of the amounts
set forth in Section 3.33 hereof with respect to the transactions
contemplated herein by anyone claiming to have acted for the benefit of, or
on behalf of, NTI or the Sellers.
5.18 POOLING TREATMENT. NTI shall use its best efforts and shall
cause its independent certified public accountants to use their best
efforts to provide all information, documents and representations
reasonably requested by Buyer or its independent certified public
accountants in order that the transactions contemplated by this Agreement
can be treated under all relevant accounting principles, opinions and
rulings, including Accounting Principles Board Opinion No. 16 as a
pooling-of-interests combination.
ARTICLE 6. COVENANTS OF BUYER PENDING ACQUISITION
Buyer covenants and agrees that:
6.1 CORPORATE ACTION. Subject to the provisions of this Agreement,
Buyer will take all necessary corporate and other action required of it to
carry out the transactions contemplated by this Agreement; provided,
however, that nothing in this Article 6 or anywhere else in this Agreement
shall require Buyer to carry out such transactions if a Final Order (as
defined in Section 9.2 of this Agreement) would contain or require a term,
condition or provision which, in Buyer's sole determination, is unduly
burdensome.
6.2 CONFIDENTIALITY. Buyer shall maintain all information gained
from NTI in connection with its evaluation of the transactions contemplated
by this Agreement (the "NTI Confidential Information") in strict
confidence, and shall take all precautions necessary to
24
prevent disclosure, access to, or transmission of the NTI Confidential
Information, or any part thereof, to any third party, except (i) for the
exclusive purpose of evaluating the Merger, (ii) as required by law or an
order of any court having competent jurisdiction, and (iii) as is necessary
or required for Buyer to satisfy its disclosure obligations under the
federal and state securities laws. In the event the Closing does not occur
for any reason, Buyer shall, immediately upon NTI's request, return all
copies and recordings of the NTI Confidential Information in its possession
or under its control and delete all records thereof in any data storage
system maintained by or for Buyer.
6.3 NOTICE OF PROCEEDINGS. Buyer will, upon becoming aware of any
order or decree or any complaint praying for an order or decree restraining
or enjoining the consummation of this Agreement or the transactions
contemplated hereunder, or upon receiving any notice from any governmental
department, court, agency or commission of its intention to institute an
investigation into, or institute a suit or proceeding to restrain or enjoin
the consummation of this Agreement or such transactions if consummated,
promptly notify NTI in writing of such order, decree, complaint or notice.
6.4 NASDAQ NMS LISTING. Buyer agrees that, following Closing, it
will use its reasonable best efforts to qualify its common stock for
listing on the Nasdaq NMS.
ARTICLE 7. CONDITIONS TO THE OBLIGATIONS OF THE SELLERS AND NTI
The obligations of the Sellers and NTI under this Agreement are, at
the option of the Sellers and NTI, subject to the fulfillment of the
following conditions prior to or at the Closing.
7.1 REPRESENTATIONS, WARRANTIES, COVENANTS.
7.1.1 All representations and warranties of Buyer contained in
this Agreement and in any certificate, Exhibit or Schedule
to be delivered by Buyer pursuant hereto or in connection
with the transactions contemplated hereby shall be true and
accurate in all material respects as of the date when made
and shall be deemed to be made again at and as of the
Closing and shall then be true and accurate in all material
respects;
7.1.2 Buyer shall have performed and complied in all material
respects with each and every covenant, agreement and
condition required by this Agreement to be performed or
complied with by it prior to or at the Closing;
7.1.3 Buyer shall have delivered to NTI a certificate of an
officer of Buyer, dated as of the Closing, certifying to the
fulfillment of the conditions set forth in this Section 7.1.
7.2 PROCEEDINGS. No order of any court or other governmental agency
shall have been issued which enjoins the consummation of the transactions
contemplated by this Agreement.
25
7.3 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. All proceedings,
corporate, regulatory or otherwise, to be taken in connection with the
transactions contemplated by this Agreement and all documents incident
thereto, shall be satisfactory in form and substance to the Sellers and
Buyer shall have furnished the Sellers with certified copies of such
proceedings and such other instruments and documents as the Sellers shall
have reasonably requested.
7.4 DELIVERY OF STOCK. Subject to Section 8.19 hereof, Buyer shall
have delivered to the Sellers certificates representing shares of the Stock
in an amount determined as provided in Article 1 of this Agreement. Such
Stock shall be validly issued, fully paid and non-assessable, will not be
subject to any preemptive rights and will be duly listed for trading on the
Nasdaq SCM Automated Confirmation Transaction Service. Each such
certificate shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAW OF
ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
UNLESS THEY ARE SO REGISTERED OR UNLESS AN EXEMPTION FROM REGISTRATION
IS AVAILABLE.
Such certificates (including, without limitation, any certificate issued
upon transfer or in exchange therefor or in substitution therefor) shall
also bear any legend required under any applicable state securities or blue
sky laws. Buyer may make a notation on its records or give instructions to
any transfer agents or registrars for the Stock in order to implement the
restrictions on transfer set forth in this Section 7.4. In connection with
any transfer of such Stock, the transferor shall provide Buyer with such
customary certificates, opinions and other documents as Buyer may
reasonably request to assure that such transfer complies fully with
applicable securities and other laws. Buyer shall not incur any liability
for any delay in recognizing any transfer of such Stock if Buyer in good
faith believes that such transfer may have been or would be in violation of
any material respect of the provisions of the Securities Act or applicable
state securities or blue sky laws. After such time as the legend described
by this Section 7.4 is no longer required on any certificate or
certificates representing any of the Stock in the good faith judgment of
Buyer, upon request of a Seller, Buyer shall cause such certificates or
certificates to be exchanged for a certificate or certificates that do not
bear such legend.
7.5 REGISTRATION RIGHTS AGREEMENT. Buyer shall have executed and
delivered to the Sellers the Registration Rights Agreement in substantially
the form attached hereto and made a part hereof as Schedule 7.5.
7.6 EMPLOYMENT AND CONSULTING AGREEMENTS. On or before the Closing,
Buyer shall have entered into employment agreements with Leaf and Lang and
a consulting agreement with Friend (the "Employment and Consulting
Agreements") in substantially the forms attached hereto and made a part
hereof as Schedules 7.6.1 (with respect to the Employment Agreements) and
7.6.2 (with respect to the Consulting Agreement).
26
7.7 TAX OPINION. Sellers shall have received a tax opinion from its
counsel or independent certified accountants, based on customary reliance
and subject to customary qualifications, to the effect that for federal
income tax purposes:
7.7.1 the acquisition by Sellers of the Stock solely in exchange
for NTI Stock will qualify as a reorganization under Section
368(a)(1)(B) of the Code;
7.7.2 no gain or loss will be recognized by the Sellers upon the
receipt of the Stock in exchange for NTI Stock;
7.7.3 The holding period of the Sellers for the Stock received in
exchange for the NTI Stock will include their respective
holding period for the NTI Stock; and
7.7.4 The tax basis of the Stock received by Sellers in exchange
for NTI Stock will be the same as the tax basis of the NTI
Stock exchanged.
7.8 CONSENTS. Buyer shall have obtained all consents required to be
obtained in order to consummate the transactions contemplated by this
Agreement.
ARTICLE 8. CONDITIONS TO THE OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are, at the option of
Buyer, subject to the fulfillment of the following conditions prior to or
at the Closing:
8.1 REPRESENTATIONS, WARRANTIES, COVENANTS.
8.1.1 All representations and warranties of NTI, the Sellers and
the Principals contained in this Agreement and in any
certificate, Exhibit or Schedule to be delivered pursuant
hereto or in connection with the transactions contemplated
hereby, which Schedule or Exhibit shall not be amended by
NTI, the Sellers or the Principals without Buyer's prior
written consent, shall be true and accurate in all material
respects as of the date when made and shall be deemed to be
made again at and as of the Closing and shall then be true
and accurate in all material respects.
8.1.2 NTI, the Sellers and the Principals shall have performed and
complied in all material respects with each and every
covenant, agreement and condition required by this Agreement
to be performed or complied with by them prior to or at the
Closing;
8.1.3 The Sellers, the Principals and NTI shall each deliver to
Buyer at the Closing a certificate, certifying to the
fulfillment of the conditions set forth in this Section 8.
1.
27
8.2 PROCEEDINGS. There shall be no claims, actions, suits or
proceedings pending or threatened against NTI, the Sellers or the
Principals which would restrict or prohibit NTI, the Sellers or the
Principals from consummating the transactions contemplated by this
Agreement.
8.3 NO CASUALTY. Prior to the Closing, there shall not have
occurred any damage, destruction or loss not covered by insurance exceeding
$10,000.
8.4 PROCEEDINGS AND INSTRUMENTS SATISFACTORY. Except as provided for
in Section 9.2 hereof, all consents, approvals or proceedings, corporate,
regulatory or otherwise, required by third parties or governmental
authorities to be taken in connection with the transactions contemplated by
this Agreement and all documents incident thereto shall be obtained and be
satisfactory in form and substance to Buyer and NTI shall have furnished
Buyer with certified copies of such proceedings and such other instruments
and documents as Buyer shall have reasonably requested.
8.5 DELIVERY OF NTI COMMON STOCK. The Sellers shall have delivered
certificates representing all of the NTI Stock, free and clear of all liens
and encumbrances, duly endorsed in blank with guaranteed signatures and all
required transfer stamps, if any.
8.6 NTI'S CREDITORS AND OTHERS. If required by Buyer, each
instrument or other agreement or document under which NTI has incurred or
may incur debt or bank borrowings or other performance obligations shall
have been amended where necessary or appropriate, without the assumption by
Buyer or NTI of any additional obligation or cost and in a manner
satisfactory in form and substance to Buyer and NTI, so as to permit the
transactions contemplated by this Agreement without a default or
acceleration of any obligation thereunder and to provide that neither Buyer
nor NTI shall become liable, contingently or otherwise, by reason of
consummation of such transactions, for acceleration of payment or other
performance of such debt, bank borrowings or obligations.
8.7 NO CHANGE IN NTI'S CAPITALIZATION. NTI's authorized and issued
and outstanding capital stock shall be as stated in Section 3.2 and, except
for the Lang Option, NTI shall have no agreement, obligation or commitment
of any character to issue shares of its capital stock, or debentures,
bonds, or other evidences of indebtedness convertible, in whole or in part,
into shares of its capital stock. In addition, NTI's long-term debt shall
not exceed a total of $660,000.
8.8 RESOLUTIONS AND RESIGNATION OF NTI'S DIRECTORS. NTI shall have
delivered to Buyer at the Closing certified copies of resolutions adopted
by the Board of Directors and shareholders of NTI adopting and approving
this Agreement and written resignations of NTI directors.
8.9 CERTIFICATES OF GOOD STANDING. NTI shall have delivered to Buyer
a Certificate of Good Standing(or its equivalent) issued by the Secretary
of State of the state of each applicable state to the effect that NTI is
duly incorporated or qualified to transact business and
28
is in good standing under the laws of such states, as of the date of the
Closing. The Leaf Partnership shall have delivered to Buyer a Certificate
of Good Standing (or its equivalent) issued by the Secretary of State of
the state of its formation to the effect that it is duly formed and
qualified to transact business and is in good standing under the laws of
such state, as of the Closing.
8.10 CERTIFIED ARTICLES. NTI shall have furnished to Buyer a copy of
its Articles of Incorporation, including all amendments thereto, which
shall have been certified by the Secretary of State of the State of
Minnesota as of a date reasonably near the Closing Date.
8.11 CERTIFIED BYLAWS. NTI shall have furnished to Buyer a copy of
the Bylaws of NTI which shall have been certified by the Secretary of NTI
as of the Closing Date.
8.12 CERTIFICATE OF INCUMBENCY. NTI shall have furnished to Buyer a
Certificate of the Secretary of NTI, certified as of the Closing Date, as
to the incumbency and signatures of the officers of NTI executing this
Agreement and any document contemplated or delivered under this Agreement.
8.13 CORPORATE ACTIONS. On or before the Closing (i) the Board of
Directors of Buyer shall have approved and ratified this Agreement and
authorized the transactions contemplated hereby and (ii) NTI shall have
taken, and the Sellers shall cause NTI to have taken all corporate action
as may be necessary and satisfactory to Buyer, in its sole discretion, to
formalize, update, bolster and ratify the past actions of the employees,
officers, directors and shareholders of NTI.
8.14 SELLER'S ACTIONS. On or before the Closing, the Friend Trust and
the Leaf Partnership shall have approved and authorized this Agreement and
the transactions contemplated hereby and the Friend Trust and the Leaf
Partnership shall each cause their respective entities to have taken all
action as may be necessary and satisfactory to Buyer, in its sole
discretion, to consummate the transactions contemplated hereby.
8.15 EMPLOYMENT, CONSULTING AND NON-COMPETE AGREEMENTS. On or before
the Closing, the Sellers shall have entered into the Employment and
Consulting Agreements.
8.16 TERMINATION OF CERTAIN AGREEMENTS. NTI shall have furnished to
Buyer proof of the termination of (i) the Lang Option (defined below), (ii)
the Transfer and Redemption Agreement dated September 7, 1994, and (iii)
any and all employment, consulting and affiliate agreements entered into by
and between NTI and either of the Principals and any persons or entities
affiliated with the Principals, except for the Employment and Consulting
Agreements referred in Section 8.15 above.
8.17 LANG OPTION. After the execution of this Agreement but prior to
Closing, the option of ▇▇▇▇ ▇▇▇▇ to acquire common stock of NTI for cash
pursuant to that certain Stock Option Agreement, dated December 10, 1992
(the "Lang Option"), shall have been exercised or terminated. If the
option is exercised, Lang shall be bound by each and every term and
29
condition of this Agreement as though she were an original Seller except
that Article 10 shall not apply to Lang. In such case, the "Percentage
Interest" of each of the Sellers set forth in Article 1 of this Agreement
shall be proportionately adjusted to reflect the issuance of NTI common
stock to Lang pursuant to the exercise of the Lang Option.
8.18 ADVERSE CHANGES. There shall be not have occurred any material
adverse change in the nature, operations or prospects of the business of
NTI from the date of this Agreement through the Closing Date.
8.19 ESCROW AGREEMENT. At the Closing, each of the Sellers (except
for Lang) shall have executed and delivered to Buyer an agreement in
substantially the form attached hereto and made a part hereof as Schedule
8.19 (the "Escrow Agreement") pursuant to which there shall be deposited in
escrow (the "Escrow Fund") by each such Seller with an escrow agent of
Buyer's choice (the "Escrow Agent"), ten percent (10%) of the total number
of shares of Stock each such Seller receives at Closing (the "Escrowed
Shares") to secure the indemnification obligations of such Sellers under
this Agreement.
ARTICLE 9. MUTUAL COVENANTS AND CONDITIONS TO OBLIGATIONS OF NTI AND BUYER
9.1 APPLICATIONS TO THE COMMISSIONS. As soon as practicable after
execution of this Agreement, NTI and Buyer shall join in applications to
the Commissions requesting the approvals and authorizations of each such
Commission of the transactions contemplated by this Agreement. Buyer shall
bear all fees of the Commissions charged in connection with or incidental
to the filing and processing of the aforesaid applications, as well as the
cost of filing and processing. All other fees of legal counsel and
accountants and other "out-of-pocket" expenses shall be borne by the party
incurring them.
9.2 NECESSITY FOR COMMISSION APPROVALS. The obligations of NTI,
Buyer and the Sellers under this Agreement are subject to the receipt prior
to the Closing of an opinion of counsel acceptable to the parties to the
effect that applications for Final Orders (as defined below) have been
filed and there is no legal basis for the denial of a Final Order. For
the purposes of this Section 9.2, a "Final Order" shall mean an order of
any Commission which is not subject to rehearing by such Commission or to
judicial review. The provisions of the prior sentence notwithstanding,
nothing in this Section 9.2 shall be construed to require a party to seek
judicial review of a Commission order if, upon reconsideration by the
Commission which issued such an order upon the motion of a party to this
Agreement or a third party, a party to this Agreement determines that such
an order upon reconsideration contains a term, condition or provision which
is unduly burdensome.
Each of the parties to this Agreement agrees that if Buyer, using its
reasonable judgment, determines that an application to any other state or
federal agency for its approval and authorizing of the transactions
contemplated herein is required, then Buyer shall file such application and
the Sellers and NTI shall join in such application with Buyer and otherwise
act
30
in accordance with the provisions of Section 9.1 of this Agreement with
respect to such application.
9.3 BOARD REPRESENTATION. Buyer will use its reasonable best efforts
to cause the election of ▇▇▇▇ ▇. Leaf and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ to the Board
of Directors of Buyer.
9.4 EXPENSES. Whether or not the transactions contemplated by this
Agreement are concluded, all costs and expenses incurred by NTI shall be
paid by NTI, all costs and expenses incurred by Buyer shall be paid by
Buyer, and all costs and expenses incurred by Sellers shall be paid by
Sellers, relating to personal tax or estate planning matters shall be paid
by the Seller incurring such cost or expense.
ARTICLE 10. INDEMNITY AGREEMENTS
10.1 SELLERS' LITIGATION INDEMNITY AGREEMENTS. The Sellers,
proportionally in accordance with their Percentage Interest, shall for a
period of one (1) year from the Closing Date indemnify NTI, Buyer and its
affiliates and hold its affiliates harmless from any and all claims,
actions, suits, liabilities, losses, damages and expenses of every nature
and character (including, but not by way of limitation, all reasonable
attorneys' fees and all amounts paid in settlement of any claim, action or
suit) ("Losses") which arise or result directly or indirectly from matters
set forth on Schedule 3.10 hereof, or which should have been listed on such
Schedule, provided, however, that the indemnification obligation contained
in this Section 10.1 shall not apply to any Losses which arise or result
directly or indirectly from any such matters unless a Notice of Claim (as
defined below) has been delivered to the Sellers or Principals prior to the
first anniversary of the Closing Date. If a Notice of Claim has been
delivered prior to such anniversary date, any and all such Losses, whether
incurred prior to or after such anniversary date, shall be subject to
indemnification under this Section 10.1.
10.2 SELLERS' OTHER INDEMNITY AGREEMENTS. All representations and
warranties made in this Agreement by the Sellers and Principals are made to
and for the benefit of both Buyer and NTI. With respect to all such
representations or warranties in this Agreement (and/or in the Exhibits or
Schedules attached hereto and the documents to be delivered by the Sellers
and Principals at the Closing), the Sellers, proportionally in accordance
with their Percentage Interest, shall for a period of one (1) year from
the Closing Date indemnify Buyer and NTI against and hold Buyer and NTI
harmless from any and all claims, actions, suits, liabilities, losses,
damages, and expenses of every nature and character (including, but not by
way of limitation, all reasonable attorneys' fees and all amounts paid in
settlement of any claim, action or suit) ("Losses") which arise or result
directly or indirectly from any breach of any representation or warranty,
provided, however, that the indemnification obligation contained in this
Section 10.1 shall not apply to any Losses which arise or result directly
or indirectly from any such matters unless a Notice of Claim (as defined
below) has been delivered to the Sellers prior to the first anniversary of
the Closing Date. If a Notice of Claim has been delivered prior to such
anniversary date, any and all such Losses, whether incurred prior to or
after such anniversary date, shall be subject to indemnification under this
Section 10. 1.
31
10.3 BUYER'S INDEMNITY AGREEMENTS. With respect to all
representations and warranties made by Buyer in this Agreement (and/or in
the Exhibits and Schedules attached hereto and the documents to be
delivered by Buyer at the Closing), Buyer shall for a period of one (1)
year from the Closing Date indemnify the Sellers against and hold the
Sellers harmless from any and all Losses which arise or result directly or
indirectly from any breach of any such representation or warranty,
provided, however, that the indemnification obligation contained in this
Section 10.3 shall not apply to any Losses which arise or result directly
or indirectly from any such matters unless a Notice of Claim (as defined
below) has been delivered to Buyer prior to the first anniversary of the
Closing Date. If a Notice of Claim has been delivered prior to such
anniversary date, any and all such Losses, whether incurred prior to or
after such anniversary date, shall be subject to indemnification under this
Section 10.3.
10.4 LIMITATION OF AMOUNT. No party indemnified under Section 10.1
and 10.2 above shall make a claim for indemnification unless and until such
party has incurred a Loss based on a single or series of related items for
which such party is entitled to indemnification in excess of $50,000 or
cumulative Losses of any kind or dollar amount for which such party is
entitled to indemnification in excess of a total sum of $100,000, except to
the extent that such Losses have been incurred by virtue of or resulted
from fraud, gross negligence or intentional misrepresentation in which case
this Section 10.4 (including the next sentence) shall not apply. In no
event shall the aggregate liability of the Sellers to Buyer and NTI for
indemnification under this Article 10 exceed $3,000,000.
10.5 NO LIMITATION. The indemnity agreements in this Article 10 shall
not constitute a limitation on any of the warranties, representations,
covenants or agreements herein.
10.6 PROCEDURE FOR GENERAL CLAIMS. Buyer shall give reasonably prompt
written notice to Sellers of any claim or event other than Third Party
Claims (as defined below) with respect to which Buyer believes it or its
affiliates is or may be entitled to indemnification pursuant to this
Article 10 and the Sellers shall give reasonably prompt notice to Buyer of
any claim or event other than Third Party Claims with respect to which the
Sellers believe they are or may be entitled to indemnification pursuant to
this Article 10 (in each case, a "Notice of Claim"), provided, however,
that the failure to give notice as provided in this Section 10.5 shall not
relieve the other party of its indemnification obligations hereunder,
except to the extent that the indemnifying party is prejudiced by such
failure to give notice. The Notice of Claim shall state the nature and
basis of said claim or event, the amount thereof to the extent known and
the basis of such party's belief that it may be entitled to indemnification
with respect thereto, including, without limitation, identifying the
representation, warranty, covenant, or agreement which such party believes
has been breached.
10.7 PROCEDURE FOR THIRD-PARTY CLAIMS.
10.7.1 Buyer, on the one hand, and the Sellers on the other, (the
"Indemnified Party"), shall give reasonably prompt written
notice to the other (the "Indemnifying Party") of any claim
or event with respect to which the
32
Indemnified Party believes it is or may be entitled to
indemnification pursuant to this Article 10 resulting from
any claim, action, suit or proceeding brought by any third
party in connection with any litigation, administrative
proceedings or similar actions (including, without
limitation, claims by any assignee or successor of a party
hereto or any governmental agency) (collectively, "Third
Party Claims"), together with an estimate of the amount in
dispute thereunder and a copy of any claim, process, legal
pleadings or correspondence with respect thereto received by
the Indemnified Party, provided, however, that the failure
of the Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations hereunder,
except to the extent that the Indemnifying Party is
prejudiced by such failure to give notice. Within ten days
of receipt of such notice, the Indemnifying Party may, by
written notice to the Indemnified Party, assume the defense
of such Third Party Claim through counsel of its own
choosing (which counsel shall be reasonably acceptable to
the Indemnified Party) with all fees and expenses thereof to
be paid by the Indemnifying Party, in which event the
Indemnified Party may participate in the defense thereof at
its sole expense, provided that such Indemnified Party shall
have the right to employ separate counsel to represent such
Indemnified Party if, in such Indemnified Party's reasonable
judgment, a conflict of interest between the Indemnifying
Party and such Indemnified Party exists with respect to such
Third Party Claim, with all fees and expenses of such
separate counsel to be paid by the Indemnifying Party. If
the Indemnifying Party fails to assume the defense of such
Third Party Claim by filing to deliver a written notice of
the Indemnifying Party's intention to assume such defense
within ten days after receipt of the initial notice thereof,
or thereafter abandons or fails to diligently pursue such
defense (and only in such circumstances), the Indemnified
Party may assume such defense and the fees and expenses of
its counsel will be paid by the Indemnifying Party. If the
Indemnifying Party exercises its right to undertake the
defense against any such Third Party Claim as provided
above, the Indemnified Party shall cooperate with the
Indemnifying Party in such defense and make available to the
Indemnifying Party all pertinent records, materials, and
information in its possession or under its control relating
thereto as is reasonably required by the Indemnifying Party,
with all expenses incurred in connection therewith to be
paid by the Indemnifying Party. Similarly, if the
Indemnified Party is, directly or indirectly, conducting the
defense against any such Third Party Claim, the Indemnifying
Party shall cooperate with the Indemnified Party in such
defense and make available to the Indemnified Party all such
records, materials and information in the Indemnifying
Party's control relating thereto as is reasonably required
by the Indemnified Party, with all expenses incurred in
connection therewith to be paid by the Indemnifying
33
Party. Notwithstanding anything in this Section 10.6 to the
contrary, however, if a claim shall be made with respect to
which the Indemnifying Party has agreed to assume the
defense thereof, the Indemnifying Party shall not thereafter
be entitled to dispute, and hereby agrees not to dispute,
the Indemnified Party's right to indemnification therefor
pursuant to Article 10 hereof or any subsequent claims of
the Indemnified Party with respect to such Third Party
Claim.
10.7.2 The Indemnifying Party shall not, without the written
consent of the Indemnified Party, (i) settle or compromise
any Third Party Claim or consent to the entry of any
judgment which does not include as an unconditional term
thereof the delivery by the claimant or plaintiff to the
Indemnified Party of a written release from all liability in
respect of such Third Party Claim, (ii) settle or compromise
any Third Party Claim in any manner that may adversely
affect the Indemnified Party or (iii) upon the issuance of
an order of a court of competent jurisdiction or an
arbitrator with respect to such Third Party Claim, appeal or
otherwise challenge such order. Upon the settlement or
compromise of any Third Party Claim, the order of a court of
competent jurisdiction or arbitrator (if the Indemnified
Party has failed to consent to the appeal or challenge
thereof) with respect thereto or the final, non-appealable
order of any appellate court (if the Indemnified Party has
consented to the appeal or challenge thereof) with respect
thereto, as the case may be, any resulting settlement,
award, damages or judgment shall be paid (i) in the case of
any such Third Party Claim with respect to which the Sellers
are the Indemnifying Party, by the Sellers, and (ii) in the
case of any such Third Party Claim with respect to which
Buyer is the Indemnifying Party, by Buyer.
ARTICLE 11. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
11.1 SURVIVAL. The several representations and warranties of the
parties contained in or made pursuant to this Agreement shall be deemed to
have been made on and as of the Closing and shall remain operative and in
full force and effect until the fifth anniversary of the Closing Date,
regardless of any investigation or statement as to the results thereof,
made by or on behalf of any such party. Except for the provisions of
Article 10, and Sections 5.10, 5.17, 6.2, 9.3, 9.4, 12.6, 12.7, 12.8
through 12.11, inclusive, and 12.13 through 12.15, inclusive, of this
Agreement, the several covenants and agreements of the parties contained in
this Agreement shall expire on the Closing Date and, except for the
provisions of Sections 5.10, 6.2, 9.3, 9.4, 12.2, 12.3, 12.5, 12.6, 12.8
through 12.11, inclusive, and 12.13 through 12.15, inclusive, of this
Agreement, the several covenants and agreements of the parties contained in
this Agreement shall expire on the termination or abandonment of this
Agreement.
34
ARTICLE 12. MISCELLANEOUS
12.1 ABANDONMENT OF TRANSACTION. The transaction may be abandoned,
and this Agreement terminated, at any time after the date of this
Agreement, but not later than the Closing, by:
12.1.1 The mutual consent of the Board of Directors of NTI and
Buyer, or
12.1.2 Buyer, if NTI or Sellers is in willful breach of any of its
representations, warranties, covenants or agreements under
this Agreement in any material respect; or
12.1.3 NTI or Sellers, if Buyer is in willful breach of any of its
representations, warranties, covenants or agreements under
this Agreement in any material respect; or
12.1.4 Either party hereto if the consummations of the transactions
contemplated by this Agreement have been enjoined and such
injunction is not subject to appeal or if a Final Order
which contains an unduly burdensome term, condition or
provision is issued and no appeal is taken therefrom; or
12.1.5 NTI, Sellers or Buyer if the transactions contemplated
herein shall not have become effective on or before June 30,
1997.
12.2 EFFECT OF TERMINATION OR ABANDONMENT. If for any reason the
transactions contemplated hereby shall not become effective, all written
schedules and other information and all copies of material from the books
and records of any party heretofore furnished to any other party shall be
returned promptly to the party furnishing the same and, in such event, the
provisions of this Agreement relating to confidential information shall
survive the termination of this Agreement and the abandonment of the
reorganization.
12.3 LIABILITIES. In the event this Agreement is terminated and the
contemplated transactions are abandoned pursuant to Section 12.1 hereof, no
party hereto shall have any duty or liability to the other either for
costs, expenses, loss of anticipated profits or otherwise, except with
respect to any liability or damages incurred or suffered by a party as a
result of the breach by the other party of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
12.4 ASSIGNMENT. This Agreement shall not be assigned by NTI or the
Sellers.
12.5 FURTHER ASSURANCES. From time to time prior to, at and after the
Closing, the Sellers, NTI and Buyer will and will cause their respective
directors and officers to execute all such instruments and take all such
actions as the Sellers, Buyer or NTI, being advised by counsel, shall
reasonably request in connection with the carrying out and effectuating of
the intent and purpose hereof and all transactions and things contemplated
by this Agreement including, without limitation, the execution and delivery
of any and all confirmatory and other
35
instruments in addition to those to be delivered on the Closing, and any
and all actions which may reasonably be necessary or desirable to complete
the transactions contemplated hereby.
12.6 NOTICES. All notices, demands and other communications which may
or are required to be given hereunder or with respect hereto shall be given
by NTI on behalf of itself and the Sellers, and by Buyer on behalf of
itself. All such notices, demands and other communication shall be in
writing, shall be given either by personal delivery or by nationally
recognized overnight courier or by telecopier, and shall be deemed to have
been given or made when personally delivered, one business day after
delivered to a nationally recognized overnight courier, postage prepaid and
receipt requested, or one business day after transmission by telecopier,
receipt confirmed, addressed as follows:
(i) If to Buyer:
Network Long Distance, Inc.
Corporate Headquarters
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with a copy to:
▇▇▇▇▇ ▇. ▇▇▇, Esq.
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Weary & ▇▇▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other address as Buyer may from time to time designate by notice
to NTI and the
Sellers;
(ii) If to NTI:
National Teleservice, Inc.
▇.▇. ▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
with copies to:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Esq.
Maun & Simon, PLC
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
36
(iii) If to Sellers:
O. A. Friend, Sole Trustee under The 1993 Friend
Family Revocable Trust
▇▇-▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Leaf Family Partners, Ltd.
Attn: ▇▇▇▇ ▇. Leaf, General Partner
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(iv) If to Principals:
O. A. Friend
▇▇-▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. Leaf
▇.▇. ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
(v) If to Lang:
▇▇▇▇ ▇. ▇▇▇▇
P. O. Box 1142
▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
or to such other address as NTI, the Sellers, the Principals and Lang may
from time to time designate by notice to the other parties.
12.7 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any and all prior
agreements between the parties relating to the subject matter hereof.
12.8 RULES OF CONSTRUCTION. This Agreement shall be construed as
follows:
12.8.1 except as otherwise defined in this Agreement, words shall
be given their commonly understood meaning in agreements of
this nature, except that accounting terms shall be given the
meaning ascribed thereto by generally accepted accounting
principles and interpretations;
12.8.2 this Agreement has been negotiated on behalf of the parties
hereto with the advice of counsel and no general rule of
contract construction
37
requiring an agreement to be more stringently construed
against the drafter or proponent of any particular provision
shall be applied in construction of this Agreement;
12.8.3 the captions of Articles and Sections hereof are for
convenience only and shall not control or affect the meaning
or construction of any of the provisions of this Agreement.
12.9 LAW GOVERNING. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware, but not
including the choice of law rules thereof.
12.10 WAIVER OF PROVISIONS. The terms, covenants, representations,
warranties or conditions of this Agreement may be waived only by a written
instrument executed by the party waiving compliance. Such waiver shall be
authorized solely by the individual or his personal representative, if the
Sellers, or the majority vote of the Board of Directors or the Executive
Committee of the corporate party waiving compliance or by officers
authorized by such Board or Committee. The failure of any party at any
time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by
any party of any condition, or the breach of any provision, term covenant,
representation or warranty contained in this Agreement, whether by conduct
or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation or warranty
of this Agreement. The representations and warranties of the Sellers and
NTI, on the one hand, and Buyer, on the other hand, contained in this
Agreement or in any certificate or other document delivered pursuant hereto
or in connection herewith prior to or at the Closing shall not be deemed
waived or otherwise amended or modified by any investigation made by any
party hereto.
12.11 SUCCESSORS. All of the terms and conditions of this
Agreement shall be binding upon and inure to the benefit of the successors
and permitted assigns of Buyer and of NTI and the successors and personal
representatives of the Sellers. For the purpose of this Agreement, the
term "successors" shall include but not be limited to heirs, legatees, and
devisees, and the term "personal representatives" shall include
administrators, executors, guardians, and
conservators.
12.12 COUNTERPARTS. This Agreement may be executed in several
counterparts, and all so executed shall constitute one agreement, binding
on all of the parties hereto, notwithstanding that all parties are not
signatory to the original or the same counterpart.
12.13 PUBLIC STATEMENTS OR RELEASES. NTI, the Sellers and Buyer
each agree not to make, issue or release any public announcement, statement
or acknowledgment of the existence of, or reveal the terms, conditions and
status of, the transactions provided for in this Agreement, without first
attempting to the extent reasonably possible (and in all cases with regard
to written
38
matters) to clear such announcement, statement, acknowledgment or
revelation with the other parties hereto. Each party agrees that it will
not unreasonably withhold any such consent or clearance from another party.
12.14 SEVERABILITY. In the event that any provision in this
Agreement be held invalid or unenforceable, by a court of competent
jurisdiction, such provision shall be severable from, and such invalidity
or unenforceability shall not be construed to have any effect on, the
remaining provisions of this Agreement, unless such provision goes to the
essence of this Agreement in which case the entire Agreement may be declared
invalid and not binding upon any of the parties.
12.15 NO THIRD PARTY BENEFICIARIES. This Agreement and the
obligations of parties hereunder shall operate exclusively for the benefit
of the parties executing this Agreement and their permitted successors and
assigns and not for the benefit of any other person or entity, including,
without limitation, any other shareholder, creditor, employee or former
employee of NTI and no such person or entity shall have any rights or
remedies hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and their corporate seals, if applicable, to be hereunto affixed,
effective as of the day and year first above written.
NATIONAL TELESERVICE, INC.
By:__________________________________
▇▇▇▇ ▇. Leaf, President
O. A. FRIEND AS SOLE TRUSTEE UNDER THE 1993
FRIEND FAMILY REVOCABLE TRUST
By:__________________________________
O. A. Friend, Sole Trustee
LEAF FAMILY PARTNERS, LTD.
By:__________________________________
▇▇▇▇ ▇. Leaf, General Partner
By:__________________________________
▇▇▇▇▇▇▇ ▇▇▇ Leaf, General Partner
39
_____________________________________
O. A. Friend
_____________________________________
▇▇▇▇ ▇. Leaf
NETWORK LONG DISTANCE, INC.
By:__________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
_____________________________________
▇▇▇▇ ▇. ▇▇▇▇
40
SCHEDULE 7.5
REGISTRATION RIGHTS AGREEMENT
Registration Rights Agreement, dated as of May 12, 1997 (this
"Agreement"), among NETWORK LONG DISTANCE, INC., a Delaware corporation
(the"Company") and O. A. FRIEND, sole Trustee and his successors in trust
under THE 1993 FRIEND FAMILY REVOCABLE TRUST, LEAF FAMILY PARTNERS, LTD.
and ▇▇▇▇ ▇. ▇▇▇▇ (each a "Shareowner").
W I T N E S S E T H :
WHEREAS, pursuant to a Stock Acquisition Agreement (the "Acquisition
Agreement") dated as of May 5, 1997, among the Company, National
Teleservice, Inc., a Minnesota corporation ("NTI"), and Shareowners, all
shares of common stock, no par value of NTI shall, at the Closing Date (as
defined in the Acquisition Agreement), be transferred to the Company (the
"Transaction") in exchange for an aggregate of 3,274,188 shares (the
"Shares") of common stock, par value $.0001 per share, of the Company
("Common Stock"); and
WHEREAS, it is a condition to the obligations of the Company and the
Shareowners to consummate the Transaction that this Agreement be executed
and delivered by the parties hereto.
NOW, THEREFORE, intending to be legally bound, the parties hereto
agree as follows:
Section 1. CERTAIN DEFINITIONS. As used in this Agreement, the
following terms shall have the following meanings:
(a) "Business Day" shall mean any day that is not a Saturday, a
Sunday, a bank holiday or any other day on which commercial banking
institutions in New York, New York are not generally open for business.
(b) "Holder" shall mean any Shareowner that owns of record
Registrable Securities.
(c) "Person" shall mean an individual, partnership, corporation,
business trust, joint stock company, trust, unincorporated association,
joint venture or other entity of whatever nature.
(d) "Registrable Securities" shall mean the Shares and any shares of
Common Stock which may be issued or distributed in respect thereof by way
of stock dividend or stock split or other distribution, recapitalization or
reclassification. As to any particular Registrable Securities, once issued
such securities shall cease to be Registrable Securities when (i) a
registration statement with respect to the sale of such securities shall
have become effective under the Securities Act (as defined below) and
continued to be effective for 120 days thereafter, (ii) they shall have
been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities
Act, (iii) they shall have been otherwise transferred (except transfers to
another Shareowner or to a Shareowner's estate in accordance with Section
7(i)), new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent
disposition of them shall not require registration or qualification of them
under the Securities Act or any state securities or blue sky law then in
force, or (iv) they shall have ceased to be outstanding.
(e) "Registration Expenses" shall mean any and all expenses incident
to performance of or compliance with this Agreement, including, without
limitation, (i) all SEC and stock exchange or National Association of
Securities Dealers, Inc. registration and flag fees, (ii) all fees and
expenses of complying with securities or blue sky laws (including fees and
disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing,
messenger and delivery expenses, (iv) all fees and expenses incurred in
connection with the listing of the Registrable Securities on any securities
exchange, on the Nasdaq National Market System ("Nasdaq NMS") or the Nasdaq
Small Cap Market ("Nasdaq SCM") pursuant to clause (vii) of Section 4, or
(v) the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of any special
audits and/or "cold comfort" letters required by or incident to such
performance and compliance and the reasonable fees of any special experts
retained by the Company in connection with the requested registration.
(f) "SEC" shall mean the Securities and Exchange Commission or its
successor.
(g) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute, and the rules and regulations of
the SEC thereunder, all as the same shall be in effect from time to time,
and a reference to a particular section thereof shall be deemed to include
a reference to the comparable section, if any, of any similar federal
statute.
Section 2. INCIDENTAL REGISTRATIONS.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If, at any time
commencing ninety (90) days after the Closing Date, the Company proposes
to register Common Stock under the Securities Act in connection with the
public offering of Common Stock for its own account solely for cash (other
than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), in a manner which would permit
registration of Registrable Securities for sale to the public under the
Securities Act, it will, at each such time, give prompt written notice to
each Holder of its intention to do so and of the Holder's rights under this
Section 2. Upon the written request of any Holder received by the Company
within 15 days after the delivery of any such notice by the Company (which
request shall specify the amount of Registrable Securities intended to be
disposed of by such Holder), the Company will use its best efforts to
effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by the
Holders, subject to Section 2(c) and Section 7, to the extent required to
permit the disposition of the Registrable Securities so to be registered;
PROVIDED, that (i) if, at any time after giving written notice of its
intention to register
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any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason not to proceed with the proposed registration of
the securities to be sold by it, the Company may, at its election, give
written notice of such determination to the Holders and, thereupon, shall
be relieved of its obligation to register any Registrable Securities in
connection with such registration, and (ii) if such registration involves
an underwritten offering, each Holder requesting to be included in the
Company's registration must sell its Registrable Securities to the
underwriters selected by the Company on the same terms and conditions as
apply to the Company or other selling holders, with such differences,
including any with respect to indemnification and liability insurance, as
may be customary or appropriate for such underwriters in combined primary
and secondary offerings.
(b) EXPENSES. In connection with any registration effort pursuant to
this Section 2, each Holder will pay (i) a pro rata portion of the
aggregate Registration Expenses (based on the number of such Holders'
Registrable Securities included in a Registration Statement at the time the
Registration Statement is filed with the SEC relative to the total number
of securities covered by such Registration Statement at such time), (ii) a
pro rata portion (based on the number of such Holders' Registrable
Securities included in a Registration Statement at the time the
Registration Statement is filed with the SEC relative to the total number
of securities covered by such Registration Statement at such time) of the
aggregate fees and disbursements of underwriters customarily paid by the
issuers or sellers of securities which may not be included in the
Registration Expenses, including liability insurance if the Company so
desires or if the underwriters so require, and the reasonable fees and
expenses of any special experts retained in connection with the requested
registration, (iii) the fees and disbursements of counsel to such Holder,
and (iv) all underwriting discounts and commissions and transfer taxes, if
any, applicable to shares of Registrable Securities to be sold on behalf of
such Holder. All other Registration Expenses shall be paid by the Company.
(c) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant
to this Section 2 involves an underwritten offering and the managing
underwriter advises the Company in writing that, in its opinion, the number
of securities requested to be included in such registration (including
securities of the Company which are not Registrable Securities) exceeds the
number which can be sold in such offering, so as to be likely to have an
adverse effect on such offering as contemplated by the Company (including
the price at which the Company or other holders of Securities propose to
sell such securities), then the Company will include in such registration
(i) first, 100% of the securities the Company or such other holders propose
to sell and (ii) second, the number of Registrable Securities requested to
be included in such registration by the Holders (in proportion (as nearly
as practicable) to the number of such Registrable Securities each Holder
requested to be registered pursuant to Section 2(a)) which, in the opinion
of such managing underwriter, can be sold without having the adverse effect
referred to above.
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