EXECUTION COPY
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AGREEMENT AND PLAN OF EXCHANGE
dated as of the 6th day of October, 1997
by and among
ADVANCED COMMUNICATIONS GROUP, INC.
(Parent)
and
FIRSTEL, INC.
(Company)
and
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇. ▇▇▇▇▇▇▇ VAN LEUR, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
VANDERBERGE, TELE-TECH, INC. AND RAFT, L.L.C.
(Stockholders of the Company)
and
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, AND ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
(Beneficial Owners)
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TABLE OF CONTENTS
1. DEFINITIONS...............................................................3
2. THE ACQUISITIONS..........................................................7
3. CONSIDERATION FOR SHARES..................................................7
4. 351 EXCHANGE PLAN.........................................................8
5. CLOSING...................................................................8
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
COMPANY AND STOCKHOLDERS..................................................8
6.1 Due Organization....................................................9
6.2 Authorization.......................................................9
6.3 Capital Stock of the Company........................................9
6.4 Transactions in Capital Stock.......................................9
6.5 No Bonus Shares....................................................10
6.6 Subsidiaries.......................................................10
6.7 Predecessor Status; etc............................................10
6.8 Spinoff by Company.................................................10
6.9 Financial Statements...............................................10
6.10 Liabilities and Obligations........................................11
6.11 Accounts and Notes Receivable......................................11
6.12 Permits and Intangibles............................................12
6.13 Environmental Matters..............................................12
6.14 Personal Property..................................................13
6.15 Significant Customers; Material Contracts and Commitments..........13
6.16 Real Property......................................................14
6.17 Insurance..........................................................15
6.18 Compensation; Organized Labor Matters..............................15
6.19 Employee Plans.....................................................15
6.20 Compliance with the Code and ERISA.................................16
6.21 Conformity with Law; Litigation....................................17
6.22 Tax Matters........................................................18
6.23 No Violations......................................................19
6.24 Absence of Changes.................................................19
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6.25 Deposit Accounts; Powers of Attorney...............................21
6.26 Relations with Governments.........................................21
6.27 Disclosure.........................................................21
6.28 Prohibited Activities..............................................22
6.29 Draft Registration Statement.......................................22
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS OF STOCKHOLDERS...............................................22
7.1 Authority..........................................................22
7.2 Preemptive Rights..................................................22
7.3 Tax Matters........................................................23
7.4 No Plan of Distribution............................................23
7.5 No Retained Rights.................................................23
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
PARENT...................................................................23
8.1 Due Organization...................................................23
8.2 Authorization......................................................23
8.3 Capital stock......................................................23
8.4 Transactions in Capital Stock, Organization Accounting.............24
8.5 Subsidiaries.......................................................24
8.6 Financial Statements...............................................24
8.7 Liabilities and Obligations........................................25
8.8 Conformity with Law; Litigation....................................25
8.9 No Violations......................................................25
8.10 Parent Securities..................................................26
8.11 Business; Real Property; Material Agreement........................26
8.12 Tax Matters........................................................26
8.13 Draft Registration Statement.......................................27
9. OTHER COVENANTS PRIOR TO CLOSING.........................................27
9.1 Access and Cooperation; Due Diligence; Audits......................27
9.2 Conduct of Business Pending Closing................................28
9.3 Prohibited Activities..............................................28
9.4 Exclusivity........................................................30
9.6 Notification of Certain Matters....................................30
9.7 Amendment of Schedules.............................................31
9.8 Compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements
Act of 1976 (the "▇▇▇▇-▇▇▇▇▇ Act").................................31
9.9 Further Assurance..................................................32
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10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND
COMPANY..................................................................32
10.1 Representations and Warranties Performance of Obligations..........32
10.2 Satisfaction.......................................................32
10.3 No Litigation......................................................32
10.4 Opinion of Counsel.................................................32
10.5 Consents and Approvals.............................................33
10.6 Good Standing Certificates.........................................33
10.7 No Material Adverse Change.........................................33
10.8 Secretary's Certificates...........................................33
10.9 Employment Agreements..............................................33
10.10 Closing of IPO.....................................................33
10.11 Parent Stock Options...............................................33
10.12 Release from Guarantees............................................34
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT............................34
11.1 Representations and Warranties; Performance of Obligations.........34
11.2 No Litigation......................................................34
11.3 Secretary's Certificate............................................34
11.4 No Material Adverse Effect.........................................34
11.5 Stockholders' Release..............................................35
11.6 Satisfaction.......................................................35
11.7 Termination of Related Party Agreements............................35
11.8 Opinion of Counsel.................................................35
11.9 Consents and Approvals.............................................35
11.10 Good Standing Certificates.........................................35
11.11 FIRPTA Certificate.................................................35
11.12 Closing of IPO.....................................................36
11.13 Noncompetition Covenants of Key Employees..........................36
11.14 Employment Agreement...............................................36
11.15 Settlement Agreement...............................................36
11.16 Release of Take or Pay Obligations.................................36
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS AFTER
CLOSING..................................................................36
12.1 Preparation and Filing of Tax Returns..............................36
12.2 Preservation of Employee Benefit Plans.............................37
12.3 Rule 144 Filing....................................................37
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13. TERMINATION OF AGREEMENT.................................................37
13.1 Termination........................................................37
13.2 Liabilities in Event of Termination................................38
14. NONCOMPETITION...........................................................38
14.1 Prohibited Activities..............................................38
14.2 Damages............................................................39
14.3 Reasonable Restraint...............................................39
14.4 Severability, Reformation..........................................39
14.5 Independent Covenant...............................................40
14.6 Materiality........................................................40
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION................................40
15.1 Stockholders.......................................................40
15.2 Parent.............................................................41
15.3 Damages............................................................41
15.4 Survival...........................................................42
16. TRANSFER PROHIBITIONS AND RESTRICTIONS ON WARRANTS AND
WARRANT STOCK............................................................42
17. OTHER TRANSFER RESTRICTIONS..............................................43
18. INVESTMENT REPRESENTATIONS...............................................43
18.1 Compliance With Law................................................43
18.2 Economic Risk, Sophistication......................................44
19. REGISTRATION RIGHTS......................................................44
19.1 PiggyBack Registration Rights......................................44
19.2 Demand Registration Rights.........................................45
19.3 Registration Procedures............................................46
19.4 Other Registration Matters.........................................48
19.5 Indemnification....................................................49
19.6 Contribution.......................................................52
19.7 Availability of Rule 144...........................................52
20. GENERAL..................................................................53
20.1 Cooperation........................................................53
20.2 Successors and Assigns.............................................53
20.3 Entire Agreement...................................................53
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20.4 Counterparts.......................................................53
20.5 Brokers and Agents.................................................53
20.6 Beneficial Owners..................................................54
20.7 Expenses...........................................................55
20.8 Notices............................................................55
20.9 Governing Law......................................................57
20.10 Exercise of Rights and Remedies....................................57
20.11 Time...............................................................57
20.12 Reformation and Severability.......................................57
20.13 Remedies Cumulative................................................57
20.14 Captions...........................................................57
20.15 Public Statements..................................................57
20.16 Amendments and Waivers.............................................57
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AGREEMENT AND PLAN OF EXCHANGE
THIS AGREEMENT AND PLAN OF EXCHANGE (the "Agreement") is made as of the 6th
day of October, 1997, by and among ADVANCED COMMUNICATIONS GROUP, INC., a
Delaware corporation organized in September 1997 ("Parent"), FIRSTEL, INC., a
South Dakota corporation ("Company"), and ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇.
▇▇▇▇▇▇▇ VAN LEUR, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ VANDERBERGE, TELE-TECH, INC. AND RAFT,
L.L.C. (collectively, the "Stockholders"), who are the owners of 1,000 shares
of Common Stock, $1.00 par value, of Company ("Company Stock"), representing
all the issued and outstanding capital stock of Company outstanding on the date
of this Agreement (the "Shares"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, AND
▇▇▇▇▇ ▇. ▇▇▇▇▇▇ (collectively, the "Beneficial Owners").
RECITALS
WHEREAS, ACG, Inc. (formerly named Advanced Communications Group,
Inc.), a Delaware corporation organized in June 1996 ("Old ACG"), has
entered into agreements for, or negotiated the terms of, the acquisition by
merger, asset purchase or stock purchase of ten companies (or interests
therein) engaged in various aspects of the telecommunications industry
("Founding Companies") for voting capital stock and other consideration,
including cash, one of such agreements under negotiation being a merger
agreement among Old ACG, a subsidiary of Old ACG, the Company, the
Stockholders and the Beneficial Owners; and
WHEREAS, Old ACG intended to close the acquisition of the Founding
Companies substantially contemporaneously with the consummation of an
initial underwritten public offering of its common stock; and
WHEREAS, the executive officers of Old ACG have determined that it is
desirable for licensing and other regulatory purposes to restructure the
acquisitions of the Founding Companies; and
WHEREAS, as the initial step in the implementation of the restructured
proposal, Old ACG formed Parent as a new Delaware corporation in September
1997 to serve as the vehicle for the acquisition of the Founding Companies
substantially contemporaneously with the consummation of an initial
underwritten public offering ("IPO") of Common Stock, $.0001 par value, of
Parent ("Parent Stock") at the price to the public reflected in the final
prospectus of Parent relating to the IPO ("IPO Price"); and
WHEREAS, under the restructured proposal, contemporaneously with the
consummation of the IPO and as part of a single transaction, the
stockholders of the Founding Companies, including Stockholders and Old ACG,
will transfer, by stock or asset
purchase or reverse triangular merger, the stock or substantially all
the assets of certain companies and other assets in which they own an
interest to Parent in exchange for voting capital stock of Parent and other
consideration, including cash, voting stock, options, warrants, notes,
convertible notes and other property of Parent, under circumstances that
will constitute a tax-free transfer of property under Section 351 of the
Internal Revenue Code of 1986, as amended, and the rules and regulations
thereunder ("Code"), to the extent of their receipt of voting capital stock
of Parent; and
WHEREAS, substantially contemporaneously with the execution of this
Agreement and in order to document the integrated Section 351 exchange plan
contemplated herein, (a) Old ACG, the other Founding Companies, their
stockholders and others are amending and restating their respective
acquisition agreements; and (b) Parent and Old ACG are entering into a
merger agreement pursuant to which Old ACG will become a wholly-owned
subsidiary of Parent substantially contemporaneously with the consummation
of the IPO; and
WHEREAS, it is contemplated that prior to the consummation of the IPO,
Old ACG will effect an approximately one-for-two reverse stock split, the
exact magnitude of which will be dependent upon the ultimate post IPO
valuation of Parent by the managing underwriters in the IPO and the
anticipated IPO Price; and
WHEREAS, the IPO, the acquisitions of the Founding Companies and Old
ACG are described in the Registration Statement on Form S-1 of Parent
(draft of October 2, 1997), a copy of which is attached to this Agreement
as Annex I ("Draft Registration Statement"); and
WHEREAS, the Company, the New Stockholders and the Beneficial Owners
are parties to the Acquisition Agreements, pursuant to which the New
Stockholders were granted certain rights to become Stockholders and to
acquire certain shares of Parent Stock in connection with the acquisition
of Company by Parent; and
WHEREAS, Parent, the Company, the Stockholders and the Beneficial
Owners desire enter into this Agreement; and
WHEREAS, Parent desires to acquire all the Shares directly from
Stockholders for the consideration set forth in Section 3 of this
Agreement, and Stockholders have agreed to sell the Shares to Parent (and
the New Stockholders have agreed that the consideration set forth in
Section 3 will satisfy in full any rights they may have to acquire any
securities of the Company or Parent pursuant to the Acquisition Agreements
or otherwise) on the terms and subject to the conditions hereinafter set
forth;
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NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants, and agreements herein contained,
the parties hereto hereby agree as follows:
1. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in this
Agreement or in any schedule, or annex attached hereto and not otherwise
defined shall have the following meanings for all purposes of this
Agreement.
"Acquisition Agreements" means, collectively, (i) the Asset Purchase
Agreement dated September 3, 1997 among RAFT, L.L.C., ▇▇▇ Oil, Inc., ▇▇▇▇▇
▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and Firstel, Inc. and (ii) the Asset Purchase
Agreement dated September 3, 1997 among Tele-Tech, Inc., ▇▇▇▇▇ ▇▇▇▇▇▇, and
Firstel, Inc., each as amended from time to time with the prior written
consent of Parent.
"Affiliates" has the meaning set forth in Section 6.8.
"Agreement" has the meaning set forth in the first paragraph of this
Agreement.
"Annex" means each Annex attached hereto that represents a document
relevant to the transactions contemplated in this Agreement.
"A/R Aging Reports" has the meaning set forth in Section 6.11.
"Balance Sheet Date" has the meaning set forth in Section 6.9.
"Beneficial Owners" means ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇.
"Charter Documents" means the Certificate of Incorporation, Articles of
Incorporation or other instrument pursuant to which any corporation,
partnership or other business entity that is a signatory to this Agreement
was formed or organized in accordance with applicable law.
"Closing" has the meaning set forth in Section 5.
"Closing Date" has the meaning set forth in Section 5.
"Code" has the meaning set forth in the fifth recital of this Agreement.
"Company" has the meaning set forth in the first paragraph of this
Agreement.
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"Company Financial Statements" has the meaning set forth in Section 6.9.
"Company Notes" has the meaning set forth in Section 3.
"Company Stock" has the meaning set forth in the first paragraph of this
Agreement.
"Controlled Group" has the meaning set forth in Section 6.20.
"Demand Registration" has the meaning set forth in Section 19.2.
"Draft Registration Statement" has the meaning set forth in the eighth
recital of this Agreement.
"Environmental Laws" has the meaning set forth in Section 6.13.
"ERISA" has the meaning set forth in Section 6.19.
"Founding Companies" has the meaning set forth in the first recital of this
Agreement.
"Founding Stockholders" has the meaning set forth in Section 18.2.
"Hazardous Wastes" and "Hazardous Substances" have the meanings set forth
in Section 6.13.
"▇▇▇▇-▇▇▇▇▇ Act" has the meaning set forth in Section 9.8.
"IPO" has the meaning set forth in the fourth recital of this Agreement.
"IPO Price" has the meaning set forth in the fourth recital of this
Agreement.
"IRS" or "Internal Revenue Service" means the Internal Revenue Service of
the Department of the Treasury.
"June Balance Sheet" has the meaning set forth in Section 6.9.
"Leases" means all real and personal property leased by Company and used,
useful or held for use in connection with Company's business.
"Liens" has the meaning set forth in Section 6.3.
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"Material Adverse Effect" has the meaning set forth in Section 6.1.
"Material Documents" has the meaning set forth in Section 6.23.
"New Stockholders" means Tele-Tech, Inc., a South Dakota corporation, and
RAFT, L.L.C., a limited liability company.
"Note Stock" means the shares of Parent Stock issuable upon conversion of
the Notes.
"Notes" means the Parent's 10% Convertible Subordinated Notes due [Closing
Date], 1999 in the aggregate original principal amount of $2 million and
substantially in the form of Annex III.
"Old ACG" has the meaning set forth in the first recital of this Agreement.
"Old ACG Financial Statements" has the meaning set forth in Section 8.6.
"Other Stockholders" means the persons and entities, other than
Stockholders, that receive shares of Parent Stock, securities convertible
into shares of Parent Stock and/or cash upon the acquisition by Parent of
assets or businesses in which such persons and entities owned an interest
on or prior to the closing date of the IPO.
"Parent" has the meaning set forth in the first paragraph of this
Agreement.
"Parent Charter Documents" has the meaning set forth in Section 8.1.
"Parent Documents" has the meaning set forth in Section 8.9.
"Parent Group" has the meaning set forth in Section 9.1.
"Parent Stock" has the meaning set forth in the fourth recital of this
Agreement.
"Person" means an individual, a corporation, a partnership, an association,
a limited liability company, a joint stock company, a trust or other
unincorporated organization.
"Prohibited Activities" has the meaning set forth in Paragraph 6.28.
"Qualified Plans" has the meaning set forth in Section 6.20.
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"Registerable Securities" means (i) the shares of Parent Stock acquired by
Stockholders constituting part of the Stock Component, (ii) the shares of
Warrant Stock acquired by the holders of Warrants upon the exercise
thereof, and (iii) the shares of Notes Stock acquired by the holders of
Notes upon the conversion thereof.
"Restricted Securities" has the meaning set forth in introductory paragraph
to Section 18.
"Returns" means any returns, reports or statements (including any
information returns) required to be filed for purposes of a particular Tax.
"Schedule" means each Schedule attached hereto, which shall reference the
relevant sections of this Agreement, on which parties hereto disclose
information as part of their respective representations, warranties,
covenants and agreements.
"SEC" means the United States Securities and Exchange Commission.
"Section 351 Exchange Plan" means the Section 351 Exchange Plan in the form
of Annex II.
"Stock Component" has the meaning set forth in Section 3.
"Stock Portion of Fee" is defined in Section 20.5.
"Stockholders" has the meaning set forth in the first paragraph of this
Agreement.
"Subsidiaries" means, with respect to any Person, any corporation or other
organization, whether incorporated or unincorporated, of which (i) such
Person or any other Subsidiary of such Person is a general partner
(excluding partnerships, the general partnership interests of which held by
such Person or any Subsidiary of such Person do not have a majority of the
voting interest in such partnership) or (ii) at least a majority of the
securities or other interests having by their terms ordinary voting power
to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person, by any one or
more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries.
"Tax" or "Taxes" means all Federal, state, local or foreign net or gross
income, gross receipts, net proceeds, sales, use, ad valorem, value added,
franchise, bank shares, withholding, payroll, employment, excise, property,
deed, stamp, alternative or add on minimum, environmental or other taxes or
assessments, whether disputed or not, together with any interest,
penalties, additions to tax or additional amounts with respect thereto.
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"Territory" has the meaning set forth in Section 14.1(i).
"Transfer Taxes" has the meaning set forth in Section 20.7.
"Warrants" means the 50,000 non-transferable Series G Warrants,
substantially in the form of Annex IV, to purchase a like number of shares
of Parent Stock on the terms set forth therein at an initial exercise price
equal to the IPO Price.
"Warrant Stock" means the shares of Parent Stock issuable upon exercise of
the Warrants.
"1933 Act" means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.
2. THE ACQUISITIONS
In September 1997, the Company entered into the Acquisition Agreements with
the New Stockholders and the Beneficial Owners and effected the acquisitions
contemplated thereby. Pursuant to the Acquisition Agreements, the New
Stockholders have certain rights to acquire Company Stock immediately prior to
the acquisition of the Company by Parent, and thereby to receive shares of
Parent Stock pursuant to the acquisition of the Company by Parent. The Company,
the Stockholders, the New Stockholders and the Beneficial Owners agree that any
and all rights any of the New Stockholders or the Beneficial Owners have to
receive or acquire shares of Company Stock or Parent Stock, pursuant to the
Acquisition Agreements or otherwise, will be fully and completely satisfied and
extinguished by the delivery to the New Stockholders of the consideration
specified in Section 3.
3. CONSIDERATION FOR SHARES.
Pursuant to the terms of this Agreement, at the Closing, (a) Stockholders
will transfer, convey, assign and deliver to Parent the Shares, together with
stock powers duly endorsed by Stockholders so that the Shares may be duly
registered in Parent's name, (b) certain Stockholders will transfer, convey,
assign and deliver to Parent notes receivable from Company outstanding at June
30, 1997, in the aggregate principal amount of $1,040,000, together with all
unpaid interest thereon ("Company Notes"), (c) and Parent will acquire the
Shares from Stockholders (and satisfy and extinguish the rights of the New
Stockholders described in Section 2) for an aggregate consideration of: (w) $5
million in immediately available funds, (x) $2 million principal amount of
Notes, (y) 50,000 Series G Warrants and (z) such number of shares of Parent
Stock (rounded to the nearest whole share) as shall be determined by dividing
$11,097,000 by the IPO Price ("Stock Component"). The number of Shares and
principal amount of Company Notes to be exchanged by each Stockholder (other
than the New Stockholders) and the amount of cash and the other consideration
deliverable to each
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Stockholder (subject to the reductions set forth in Section 20.5) are set forth
below opposite the name of such Stockholder:
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PRINCIPAL
AMOUNT OF PRINCIPAL NUMBER OF NUMBER OF
NUMBER OF COMPANY AMOUNT OF AMOUNT OF SERIES G SHARES OF
NAME OF STOCKHOLDER SHARES NOTES CASH NOTES WARRANTS PARENT'S STOCK (1)
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 287.5 $250,000 $1,437,500 $575,000 14,375 25.0263%
---------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇ 287.5 $250,000 $1,437,500 $575,000 14,375 25.0263%
--------------------------------------------------------------------------------------------------------------------
▇. ▇▇▇▇▇▇▇ Van Leur 125 $ 40,000 $ 625,000 $250,000 6,250 10.0554%
--------------------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 150 $250,000 $ 750,000 $300,000 7,500 14.4941%
--------------------------------------------------------------------------------------------------------------------
▇▇▇▇ VanderBerge 150 $250,000 $ 750,000 $300,000 7,500 14.4941%
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Tele-Tech, Inc. 45.35 None None None None 6.9016%
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RAFT, L.L.C. 26.3 None None None None 4.0022%
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TOTAL 1,071.65 $1,040,000 $5,000,000 $2,000,000 50,000 100%
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(1) Expressed as a percentage of the Stock Component.
4. 351 EXCHANGE PLAN
By executing this Agreement, each Stockholder is deemed to have approved
and adopted the Section 351 Exchange Plan to the same extent as if he had
subscribed his signature thereon.
5. CLOSING
The Closing of the transactions contemplated by this Agreement ("Closing")
shall take place on the date of the closing of the sale of shares of the Parent
Stock in the IPO, or such other date as the parties hereto may mutually agree
upon (the "Closing Date"), at such place in New York City as the parties may
mutually agree.
6. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF COMPANY AND
STOCKHOLDERS
Company and each Stockholder that is not a New Stockholder, severally and
not jointly, represent, warrant, covenant and agree (i) that all of the
following representations and warranties in this Section 6 are true at the date
of this Agreement and, subject to Section 9.7, shall be true at the Closing
Date, (ii) that all of the covenants and agreements in this Section 6 shall be
materially complied with or performed at and as of the Closing Date. None of
the representations,
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warranties, covenants and agreements set forth in this Section 6 shall survive
the Closing Date. For purposes of this Section 6, the term "Company" shall mean
and refer to Company and all of its Subsidiaries, if any.
6.1 Due Organization. Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its incorporation,
and is duly authorized and qualified to do business and is in good standing
under the laws of each jurisdiction where such qualification is required except
where the failure to be so authorized or qualified would not have a material
adverse effect on the business, operations, affairs, prospects, properties,
assets or condition (financial or otherwise), of Company taken as a whole (as
used herein with respect to Company, or with respect to any other Person, a
"Material Adverse Effect"). Schedule 6.1 sets forth the jurisdiction in which
Company is incorporated and contains a list of all such jurisdictions in which
Company is authorized or qualified to do business. True, complete and correct
copies of the Charter Documents and Bylaws, each as amended, of Company are all
attached hereto as Schedule 6.1. The stock records of Company, as heretofore
made available to Parent, are correct and complete in all material respects. To
the knowledge of Company and Stockholders, there are no minutes in the
possession of Company or Stockholders which have not been made available to
Parent, and all of such minutes are correct and complete in all material
respects.
6.2 Authorization. Company has all requisite corporate power and authority
to conduct its business as presently conducted and to enter into this Agreement
and to perform its obligations hereunder. The execution and delivery by Company
of this Agreement and its consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of Company. This
Agreement has been duly executed and delivered by Company, and approved by all
the stockholders of Company, and is a valid and binding obligation of Company,
enforceable against Company in accordance with its terms.
6.3 Capital Stock of the Company. The authorized capital stock of Company
consists of 1,000,000 shares of Company Stock. As of the date of this agreement
only 1,000 shares of the capital stock of Company are issued and outstanding,
and they are owned of record by Stockholders who are not New Stockholders in
the amounts set forth in Section 3. On the Closing Date, immediately prior to
the purchase of Company Stock by Parent, only 1,071.65 shares of the capital
stock of the Company shall be issued and standing, and the same shall be owned
in the amounts set forth in Section 3 by the persons set forth in Section 3.
Except as set forth on Schedule 6.3, all such shares referenced in the prior
two sentences are owned free and clear of all mortgages, liens, security
interests, pledges, voting trusts, restrictions, encumbrances and claims of
every kind (collectively, the "Liens"). All of the issued and outstanding
shares of the capital stock of Company (i) have been duly authorized and
validly issued and (ii) are fully paid and nonassessable. Further, none of
such shares was issued in violation of the preemptive rights of any past or
present stockholder.
6.4 Transactions in Capital Stock. Except as set forth on Schedule 6.4,
Company has not acquired any Company Stock since January 1, 1992. Except as set
forth on Schedule 6.4 or described in the Acquisition Agreements, (i) no
option, warrant, call, conversion right or commitment of any kind exists which
obligates Company
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to issue or sell any of its authorized but unissued capital stock; (ii) Company
has no obligation (contingent or otherwise) to purchase, redeem or otherwise
acquire any of its equity securities or any interests therein or to pay any
dividend or make any distribution in respect thereof; and (iii) neither the
voting stock structure of Company nor the relative ownership of shares among
any of its respective stockholders has been altered or changed in contemplation
of the transactions contemplated by this Agreement. Schedule 6.4 also includes
complete and accurate copies of all stock option or stock purchase plans,
including a list of all outstanding options, warrants or other rights to
acquire shares of Company Stock.
6.5 No Bonus Shares. Except as set forth on Schedule 6.5, none of the
shares of Company Stock was issued pursuant to awards, grants or bonuses.
6.6 Subsidiaries. Except as set forth in Schedule 6.6, (i) Company has no
Subsidiaries, (ii) Company does not presently own, of record or beneficially,
or control, directly or indirectly, any capital stock, securities convertible
into capital stock or any other equity interest in any Person, and (iii)
Company is not directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity.
6.7 Predecessor Status; etc. Set forth in Schedule 6.7 is a listing of all
names of all predecessor companies of Company, including the names of any
entities acquired by Company (by stock purchase, merger or otherwise) or owned
by Company or from whom the Company previously acquired material assets in
excess of $25,000, in any case, since January 1, 1992. Except as disclosed on
Schedule 6.7, Company has not been, within such period of time, a Subsidiary or
division of another corporation or a part of an acquisition which was later
rescinded.
6.8 Spinoff by Company. Except as set forth on Schedule 6.8, there has not
been any sale, spin-off or split-up of material assets in excess of $25,000 of
either Company or any other Person, that directly or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common control
with, Company ("Affiliates") since January 1, 1992.
6.9 Financial Statements. The Draft Registration Statement contains the
following financial statements of the Company and the related notes thereto
(the "Company Financial Statements"): the Company's audited Balance Sheets as
of December 31, 1996 and 1995, its unaudited Balance Sheet as of June 30, 1997
("June Balance Sheet"), its audited Statements of Operations, Stockholders'
Deficit and Cash Flows for the years ended December 31, 1996 and 1995, its
unaudited Statements of Operations, Stockholders' Deficit and Cash Flows for
the year ended December 31, 1994 and its unaudited Statements of Operations,
Stockholders' Earnings and Cash Flows for the six months ended June 30, 1997
and 1996 (June 30, 1997 being hereinafter referred to as the " Balance Sheet
Date"). The audited and unaudited Company Financial Statements have
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been prepared in accordance with generally accepted accounting principles
applied on a consistent basis throughout the periods indicated (except as noted
therein). The Balance Sheets included in the Draft Registration Statement
present fairly the financial position of Company as of the dates indicated
thereon, and the Statements of Operations, Stockholders' Deficit and Cash Flows
included in the Draft Registration Statement present fairly the results of
operations for the periods indicated thereon in accordance with generally
accepted accounting principles. The Company Financial Statements at and for the
years ended December 31, 1996 and 1995 have been examined by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
Company P.L.L.P., independent public accountants.
6.10 Liabilities and Obligations. Company had no material liabilities of
any kind, character or description, whether accrued, absolute, secured or
unsecured, contingent or otherwise, as of the Balance Sheet Date that are not
reflected on the June Balance Sheet or otherwise reflected in the Company
Financial Statements at the Balance Sheet Date, including all loan agreements,
indemnity or guaranty agreements, bonds, mortgages, liens, pledges or other
security agreements. Except as set forth on Schedule 6.10 or set forth in the
Acquisition Agreements, since the Balance Sheet Date Company has not incurred
any material liabilities of any kind, character and description, whether
accrued, absolute, secured or unsecured, contingent or otherwise, other than
liabilities incurred in the ordinary course of business. Company has also
disclosed to Parent on Schedule 6.10, in the case of those contingent
liabilities related to pending or threatened litigation or other liabilities
which are not fixed or otherwise accrued or reserved, the following
information:
(i) a summary description of the liability together with the
following:
(x) copies of all relevant documentation relating thereto;
(y) amounts claimed and any other action or relief sought; and
(z) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted;
6.11 Accounts and Notes Receivable. Company has delivered to Parent an
accurate list (which is set forth on Schedule 6.11) of the accounts and notes
receivable of Company, as of the Balance Sheet Date, and including receivables
from and advances to employees and Stockholders. Company shall also provide
Parent (x) an accurate list of all receivables generated subsequent to the
Balance Sheet Date and (y) an aging of all accounts and notes receivable
showing amounts due in
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30 day aging categories, and such list and such aging report (the "A/R Aging
Reports") shall be current as of July 31, 1997. Except to the extent reflected
on Schedule 6.11 or as disclosed by Company to Parent in a writing accompanying
the A/R Aging Reports, such accounts, notes and other receivables are
collectible in the amounts shown on Schedule 6.11, and shall be collectible in
the amounts shown on the A/R Aging Reports, net of reserves reflected in the
June Balance Sheet and as of the date of the A/R Aging Reports, respectively.
6.12 Permits and Intangibles. Company holds all licenses, franchises,
permits and other governmental authorizations the absence of any of which could
have a Material Adverse Effect on its business, and Company has delivered to
Parent an accurate list and summary description (which is set forth on Schedule
6.12) of all such licenses, franchises, permits and other governmental
authorizations, including titles, certificates, trademarks, trade names,
patents, patent applications and copyrights owned or held by Company (including
interests in software or other technology systems, programs and intellectual
property) (it being understood and agreed that a list of all environmental
permits and other environmental approvals is set forth on Schedule 6.13). To
the knowledge of Company, the licenses, franchises, permits and other
governmental authorizations listed on Schedules 6.12 and 6.13 are valid in all
material respects, and Company has not received any notice that any
governmental authority intends to cancel, terminate or not renew any such
license, franchise, permit or other governmental authorization. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in the licenses,
franchises, permits and other governmental authorizations listed on Schedules
6.12 and 6.13 and is not in violation of any of the foregoing except where such
non-compliance or violation would not have a Material Adverse Effect on
Company. Except as specifically provided in Schedule 6.12, the transactions
contemplated by this Agreement will not result in a material default under or a
material breach or violation of, or materially adversely affect the rights and
benefits afforded to Company by, any such license, franchise, permit or
government authorization, including those listed on Schedule 6.13.
6.13 Environmental Matters. Except as set forth on Schedule 6.13, (i)
Company has substantially complied with and is in compliance with all Federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees applicable
to it or any of its properties, assets, operations and businesses relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of Hazardous
Wastes and Hazardous Substances (as such terms are defined in any applicable
Environmental Law) including petroleum and petroleum products; (ii) Company has
obtained and substantially adhered to all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Hazardous
Wastes and Hazardous Substances, a list of all of which permits and approvals
is set forth on Schedule 6.13, and
-12-
has reported to the appropriate authorities, to the extent required by all
Environmental Laws, all past and present sites owned and operated by Company
where Hazardous Wastes or Hazardous Substances have been treated, stored,
disposed of or otherwise handled; (iii) there have been no releases or threats
of releases (as defined in Environmental Laws) at, from, in or on any property
owned or operated by Company except as permitted by Environmental Laws; (iv) to
the knowledge of Company, no on-site or off-site location to which Company has
transported or disposed of Hazardous Wastes and Hazardous Substances or
arranged for the transportation of Hazardous Wastes and Hazardous Substances is
the subject of any Federal, state, local or foreign enforcement action or any
other investigation which could lead to any material claim against Company or
Parent for any clean-up cost, remedial work, damage to natural resources,
property damage or personal injury, including, but not limited to, any claim
under the comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) Company has no contingent liability in connection
with any release of any Hazardous Waste or Hazardous Substance into the
environment.
6.14 Personal Property. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.14) of (i) all personal property included (or
that will be included) in "property and equipment" on the June Balance Sheet of
Company, (ii) all other personal property owned by Company with a value in
excess of $10,000 (x) as of the Balance Sheet Date and (y) acquired since the
Balance Sheet Date and (iii) true and complete copies of all written Leases in
respect of personal property, including, in the case of each of (i), (ii) and
(iii), an indication as to which assets are currently owned, or were formerly
owned, by Stockholders, relatives of Stockholders, or Affiliates of Company.
Except as set forth on Schedule 6.14, (a) all personal property used by Company
in its business is either owned by Company or leased by Company pursuant to a
Lease included on Schedule 6.14, (b) all of the personal property listed on
Schedule 6.14 is in good working order and condition, ordinary wear and tear
excepted and (c) all Leases included on Schedule 6.14 are in full force and
effect in all material respects and to the knowledge of Company constitute
valid and binding agreements of the parties (and their successors) thereto in
accordance with their respective terms.
6.15 Significant Customers; Material Contracts and Commitments. Company has
delivered to Parent an accurate list (which is set forth on Schedule 6.15) of
all significant customers, or persons or entities that are sources of a
significant number of customers, it being understood and agreed that a
"significant customer," for purposes of this Section 6.15, means a customer (or
person or entity) (i) representing 2% or more of Company's annual revenues as
of the Balance Sheet Date or (ii) reasonably expected to represent 2% or more
of Company's revenues during the twelve-month period ending June 30, 1998.
Except to the extent set forth on Schedule 6.15, none of Company's significant
customers (or persons or entities that are sources of a significant number of
customers)
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has given written notice of an intention to cancel a contract or substantially
reduce utilization of the services provided by Company.
Company has listed on Schedule 6.15 all material contracts, commitments and
similar agreements to which the Company is a party or by which it or any of its
properties are bound (including, but not limited to, contracts with significant
customers, joint venture or partnership agreements, contracts with any labor
organizations, strategic alliances and options to purchase land), other than
agreements listed on Schedule 6.10, 6.14 or 6.16, (x) in existence as of the
Balance Sheet Date and (y) entered into since the Balance Street Date, and in
each case has delivered true, complete and correct copies of such agreements to
Parent. Company has complied with all material commitments and obligations
pertaining to it, and is not in material default under any contract or
agreement listed on Schedule 6.15 and no notice of default under any such
contract or agreement has been received. Company has also indicated on Schedule
6.15 a summary description of all plans or projects involving the acquisition
of any personal property, business or assets requiring, in any event, the
payment of more than $20,000 by Company.
6.16 Real Property. Schedule 6.16 includes a list of all real property
owned or leased by Company (i) as of the Balance Sheet Date and (ii) acquired
or leased since the Balance Sheet Date, and all other real property, if any,
used by Company in the conduct of its business. Company has good and insurable
title to the real property owned by it, including those reflected on Schedule
6.16, subject to no Lien except for:
(w) Liens reflected on Schedules 6.10 or 6.15 as securing specified
liabilities (with respect to which no material default exists);
(x) Liens for current taxes not yet payable and assessments not in
default;
(y) easements for utilities serving the property only; and
(z) easements, covenants and restrictions and other exceptions to
title shown of record in the office of the County Clerks in which the
properties, assets and leasehold estates are located which do not adversely
affect in any material respect the current use of the property.
Schedule 6.16 contains, without limitation, (1) true, complete and correct
copies of all title reports and title insurance policies currently in
possession of Company with respect to real property owned by Company, (2) true,
complete and correct copies of all Leases and agreements in respect of such
real property leased by Company and (3) an indication as to which such
properties, if any, are
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currently owned, or were formerly owned, by Stockholders or business or
personal Affiliates of Company or Stockholders.
Except as set forth on Schedule 6.16, all of such Leases included on Schedule
6.16 are in full force and effect in all material respects and to the knowledge
of Company constitute valid and binding agreements of the parties (and their
successors) thereto in accordance with their respective terms.
6.17 Insurance. Company has delivered to Parent, as set forth on and
attached to Schedule 6.17, (i) an accurate list as of the Balance Sheet Date of
all insurance policies carried by Company, (ii) an accurate list of all
insurance loss runs on workers compensation claims received for the past three
policy years or (iii) true, complete and correct copies of all insurance
policies currently in effect. Such insurance policies evidence all of the
insurance that Company is required to carry pursuant to all of its contracts
and other agreements and pursuant to all applicable laws or that management of
Company otherwise believes is prudent and appropriate to insure against the
risks inherent in Company's business in accordance with industry practice. All
of such insurance policies are currently in full force and effect in all
material respects and shall remain in full force and effect in all material
respect through the Closing Date. No insurance carried by Company has been
canceled by the insurer and the Company has never been denied coverage.
6.18 Compensation; Organized Labor Matters. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.18) showing all officers,
directors and other key employees of Company and the rate of compensation (and
the portions thereof attributable to salary, bonus and other compensation,
respectively) of each of such persons as of (i) the Balance Sheet Date and (ii)
the date of this Agreement. Since the Balance Sheet Date, there have been no
increases in the compensation payable or any special bonuses to any officer,
director, key employee or other employee, except ordinary salary increases
implemented on a basis consistent with past practices.
Except as set forth on Schedule 6.18, (w) Company is not bound by or
subject to (and none of its respective assets or properties is bound by or
subject to) any arrangement with any labor union, (x) no employees of Company
are represented by any labor union or covered by any collective bargaining
agreement, (y) to the knowledge of Company, no campaign to establish such
representation is in progress and (z) there is no pending or, to the best of
Company's knowledge, threatened labor dispute involving Company and any group
of its employees nor has Company experienced any labor interruption over the
past three years.
6.19 Employee Plans. Company has delivered to Parent an accurate list
(which is set forth on Schedule 6.19) showing all employee benefit plans of
Company, including all employment agreements and other agreements or
arrangements containing "golden parachute" or other similar provisions, and
deferred compensation agreements, together with true, complete and correct
copies
-15-
of such plans, agreements and any trusts related thereto, and classifications
of employees covered thereby as of the Balance Sheet Date. Except for the
employee benefit plans, if any, described on Schedule 6.19, Company does not
sponsor, maintain or contribute to any plan program, fund or arrangement that
constitutes an "employee pension benefit plan," and Company does not have any
obligation to contribute to or accrue or pay any benefits under any deferred
compensation or retirement funding arrangement on behalf of any employee or
employees (such as, for example, and without limitation, any individual
retirement account or annuity, any "excess benefit plan" (within the meaning of
Section 3(36) of the Employee Retirement Income Security Act of 1974, as
amended "ERISA") or any non-qualified deferred compensation arrangement). For
the purposes of this Agreement, the term "employee pension benefit plan" shall
have the same meaning as is given that term in Section 3(2) of ERISA. Company
has not sponsored, maintained or contributed to any employee pension benefit
plan other than the plans set forth on Schedule 6.19, nor is the Company
required to contribute to any retirement plan pursuant to the provisions of any
collective bargaining agreement establishing the terms and conditions of
employment of any of Company's employees.
Company is not now, nor as a result of its past activities can it
reasonably be expected to become, liable to the Pension Benefit Guaranty
Corporation (other than for premium payments) or to any multi employer employee
pension benefit plan under the provisions of Title IV of ERISA.
All employee benefit plans listed on Schedule 6.19 and the administration
thereof are in substantial compliance with their terms and all applicable
provisions of ERISA and the regulations issued thereunder, as well as with all
other applicable Federal, state and local statutes, ordinances and regulations.
All accrued contribution obligations of Company or any Subsidiary with
respect to any plan listed on Schedule 6.19 have either been fulfilled in their
entirety or are fully reflected on the balance sheet of Company as of the
Balance Sheet Date.
6.20 Compliance with the Code and ERISA. All employee benefit plans listed
on Schedule 6.19 that are intended to qualify under Section 401(a) of the Code
(the "Qualified Plans") are, and have been so qualified and have been
determined by the Internal Revenue Service to be so qualified, and copies of
such determination letters are included as part of Schedule 6.19. Except as
disclosed on Schedule 6.19, all reports and other documents required to be
filed with any governmental agency or distributed to plan participants or
beneficiaries (including, but not limited to, actuarial reports, audits or
Returns) have been timely filed or distributed, and copies thereof are included
as part of Schedule 6.19. Neither Stockholders, any such plan listed in
Schedule 6.19, nor Company has engaged in any transaction prohibited under the
provisions of Section 4975 of the Code or Section 406 of ERISA. No employee
benefit plan listed on Schedule 6.19 has incurred an accumulated funding
deficiency, as defined in Section 412(a) of the Code and Section 302(1) of
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ERISA; and Company has not incurred (i) any liability for excise tax or penalty
payable to the Internal Revenue Service or (ii) any liability to the Pension
Benefit Guaranty Corporation (other than for premium payments). In addition:
(v) there have been no terminations or discontinuance of contributions
to any Qualified Plan without notice to and approval by the Internal
Revenue Service;
(w) no plan listed on Schedule 6.19 that is subject to the provisions
of Title IV of ERISA has been terminated;
(x) there have been no "reportable events" (as that phrase is defined
in Section 4043 of ERISA) with respect to employee benefit plans listed in
Schedule 6.19;
(y) Company has not incurred liability under Section 4062 of ERISA;
and
(z) no circumstances exist pursuant to which Company could reasonably
be expected to have any direct or indirect liability whatsoever (including,
but not limited to, any liability to any multi employer plan or the Pension
Benefit Guaranty Corporation under Title IV of ERISA or to the Internal
Revenue Service for any excise tax or penalty, or being subject to any
statutory Lien to secure payment of any such liability) with respect to any
plan now or heretofore maintained or contributed to by any entity other
than Company that is, or at any time was, a member of a "controlled group"
(as defined in Section 412(n)(6)(B) of the Code) that includes Company
("Controlled Group").
The transactions contemplated by this Agreement together with any amounts paid
or payable by Company or any member of the Controlled Group have not resulted
in and will not result in payments to "disqualified individuals" (as defined in
Section 280G(c) of the Code) of Company or any member of the Controlled Group
which, individually or in the aggregate will constitute "excess parachute
payments" (as defined in Section 280G(b) of the Code) resulting in the
imposition of the excise tax under Section 4999 of the Code or the disallowance
of deductions under Section 280G of the Code.
6.21 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 6.21 or 6.13, Company is not in violation of any law or regulation or
any order of any court or Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality having
jurisdiction over Company which would have a Material Adverse Effect; and
except to the extent set forth on Schedule 6.10 or 6.13, there are no material
claims, actions, suits or proceedings, commenced or, to the knowledge of
Company, threatened, against or affecting Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
-17-
commission, board, bureau, agency or instrumentality having jurisdiction over
Company and no notice of any claim, action, suit or proceeding, whether pending
or threatened, has been received by Company or any Stockholder. Company has
conducted and is conducting its business in substantial compliance with the
requirements, standards, criteria and conditions set forth in applicable
Federal, state and local statutes, ordinances, permits, licenses, orders,
approvals, variances, rules and regulations, including all such permits,
licenses, orders and other governmental approvals set forth on Schedules 6.12
and 6.13, and is not in violation of any of the foregoing which might have a
Material Adverse Effect.
6.22 Tax Matters.
(i) Company is currently taxed under Subchapter S of the Code.
Stockholders have filed all income Tax Returns that they were required to
file with respect to Company, and Company has filed all Tax Returns that it
was required to file. All such Tax Returns filed by Company were correct
and complete in all material respects. All Taxes owed by Company (whether
or not shown on any Tax Return) have been paid or reserved for on its
books. Except as set forth on Schedule 6.22, Company is not currently the
beneficiary of any extension of time within which to file any Tax Return.
Since January 1, 1994, no claim with respect to Company has been made by an
authority in a jurisdiction where Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Company's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Company has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other party.
(iii) Company does not expect any authority to assess any material
amount of additional Taxes for any period for which Tax Returns have been
filed. There is no material dispute or claim concerning any Tax liability
of Company either claimed or raised by any authority in writing or as to
which Company has knowledge based upon direct inquiry by any agent of such
authority. Schedule 6.22(iii) lists all Tax Returns relating to income Tax
of Company for taxable periods ended on or after January 1, 1993, indicates
those Returns of which Company is aware that have been audited and
indicates those Returns that currently are the subject of audit. Company
has delivered to Parent correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies assessed against or
agreed to by Company for any taxable period ended on or after January 1,
1993.
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(iv) Except as set forth on Schedule 6.22(iv), neither Stockholders
nor Company has waived any statute of limitations in respect of Taxes or
agreed to any extension of time with respect to a Tax assessment or
deficiency.
(v) Company has not filed a consent under Section 341(f) of the Code
concerning collapsible corporations. Company has not made any material
payments, is not obligated to make any material payments and is not a party
to any agreement that under certain circumstances could obligate it to make
any material payments that will not be fully deductible under Section 280G
of the Code.
(vi) Company has not received a ruling from any taxing authority or
entered into any agreement regarding Taxes with any taxing authority that
would, individually or in the aggregate, apply to the Surviving Corporation
after the Closing Date.
6.23 No Violations. Company is not in violation of its Charter Documents.
Neither Company nor, to the knowledge of the Company, any other party thereto,
is in material default under any Lease, instrument, agreement, license, or
permit set forth on Schedule 6.12, 6.13, 6.14, 6.15 or 6.16, or any other
material agreement to which it is a party or by which its properties are bound
(the "Material Documents"); and, except as set forth in Schedule 6.23, (i) the
rights and benefits of Company under the Material Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Material Documents or the Charter
Documents. Except as set forth on Schedule 6.23, none of the Material Documents
requires notice to, or the consent or approval of, any governmental agency or
other third party with respect to any of the transactions contemplated hereby
in order to remain in full force and effect in all material respects, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any material
right or benefit. Except as set forth on Schedule 6.23, to the knowledge of
Company none of the Material Documents prohibits the use or publication by
Company or Parent of the name of any other party to such Material Document, and
none of the Material Documents prohibits or restricts Company from freely
providing services to any other customer or potential customer of Company,
Parent or any other Founding Company.
6.24 Absence of Changes. Since the Balance Sheet Date, except as set forth
on Schedule 6.24 or in the Acquisition Agreements, there has not been:
(i) any material adverse change in the financial condition, assets,
liabilities (contingent or otherwise), income or business of Company taken
as a whole;
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(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of
Company;
(iii) any change in the authorized capital of Company or its
outstanding securities or any change in its ownership interests or any
grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution in
respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of Company;
(v) any increase in the compensation, bonus, sales commissions or fee
arrangement payable or to become payable by Company to any of its officers,
directors, stockholders, employees, consultants or agents, except for
ordinary and customary bonuses and salary increases for employees in
accordance with past practice;
(vi) any work interruptions, labor grievances or labor claims filed,
or any other similar labor event or condition of any character, materially
adversely affecting the business of Company;
(vii) any sale or transfer, or any agreement to sell or transfer, any
material assets, property or rights of Company to any person, including,
without limitation, Stockholders and their Affiliates outside the ordinary
course of business of Company;
(viii) any cancellation, or agreement to cancel, any indebtedness or
other obligation owing to Company, including without limitation any
indebtedness or obligation of any Stockholders or any Affiliate thereof,
outside the ordinary course of business of Company;
(ix) any plan, agreement or arrangement granting any preferential
right to purchase or acquire any interest in any of the assets, property or
rights of Company or requiring consent of any party to the transfer or
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or arrangement
to purchase or acquire, any property, right or asset outside of the
ordinary course of Company's business;
(xi) any waiver of any material rights or claims of Company;
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(xii) any material breach, amendment or termination of any contract,
agreement, license, permit or other right to which Company is a party:
(xiii) any transaction by Company outside the ordinary course of its
business;
(xiv) any cancellation or termination of a material contract with a
customer or client prior to the scheduled termination date; or
(xv) any other distribution of property or assets by Company outside
the ordinary course of Company's business.
6.25 Deposit Accounts; Powers of Attorney. Company has delivered to Parent
an accurate list (which is set forth on Schedule 6.25) as of the date of the
Agreement setting forth:
(i) the name of each financial institution in which Company has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account and account number; and
(iv) the name of each person authorized to draw thereon or have access
thereto.
Schedule 6.25 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from Company and a
description of the terms of such power.
6.26 Relations with Governments. Except for political contributions made in
a lawful manner which, in the aggregate, do not exceed $10,000 per year for
each year in which any Stockholder has been a stockholder of Company, Company
has not made, offered or agreed to offer anything of value to any governmental
official, political party or candidate for government office nor has it
otherwise taken any action which would cause Company to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any law of similar
effect. If political contributions made by Company have exceeded $10,000 per
year for each year in which any Stockholder has been a stockholder of Company,
each contribution in the amount of $5,000 or more shall be described on
Schedule 6.26.
6.27 Disclosure. This Agreement, including the Schedules and Annexes
hereto, together with all other documents and information made available to
Parent and its representatives in writing pursuant hereto, present fairly the
business and operations of Company for the time periods with
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respect to which such information was requested. Company's rights under the
documents delivered pursuant hereto would not be materially adversely affected
by, and no statement made herein would be rendered untrue in any material
respect by, any other document to which Company is a party, or to which its
properties are subject, or by any other fact or circumstance regarding Company
(which fact or circumstance was, or should reasonably, after due inquiry, have
been known to Company) that is not disclosed pursuant hereto or thereto.
6.28 Prohibited Activities. Except as set forth on Schedule 6.28 or in the
Acquisition Agreements, Company has not, between the Balance Sheet Date and
the date of this Agreement, taken any of the actions set forth in Section 9.3
("Prohibited Activities").
6.29 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they were provided by the Company expressly for inclusion
therein but not otherwise, are true, accurate and complete in all material
respects and do not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
7. ADDITIONAL REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF
STOCKHOLDERS
Each Stockholder further, severally and not jointly, represents, warrants,
covenants and agrees (i) that the representations and warranties set forth
below are true as of the date of this Agreement and, subject to Section 9.7,
shall be true at the Closing Date and (ii) that all of the covenants and
agreements in this Section 7 shall be materially complied with or performed at
and as of the Closing Date. None of the representations and warranties in this
Section 7 shall survive the Closing Date.
7.1 Authority. Each Stockholder has the full legal right, power and
authority to enter into this Agreement. This Agreement has been executed and
delivered by each Stockholder and constitutes a legal, valid and binding
obligation of such Stockholder in accordance with its terms.
7.2 Preemptive Rights. Each Stockholder does not have, or hereby waives,
any preemptive or other right to acquire shares of Company Stock or Parent
Stock that such Stockholder has or may have had, other than rights of any
Stockholder to acquire Parent Stock pursuant to (i) this Agreement, (ii) upon
conversion of the Notes, (iii) upon exercise of the Warrants, or (iv) any
option granted by Parent.
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7.3 Tax Matters. The Stockholders have been advised by their counsel and
are satisfied, as of the date hereof, that certain aspects of the transactions
contemplated by this Agreement qualify for the deferral of gain pursuant to
Section 351 of the Code.
7.4 No Plan of Distribution. No Stockholder has any intention or
arrangement to sell or otherwise dispose of any Parent Stock to be received
pursuant to this Agreement and the Section 351 Exchange Plan.
7.5 No Retained Rights. No Stockholder will retain any right after the
Closing in any Company Stock but, to the extent that such right may exist upon
the consummation of the Closing, such right shall be deemed to have been
released and extinguished.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF PARENT
Parent represents, warrants, covenants and agrees (i) that, except as
disclosed in the Draft Registration Statement, all of the following
representations and warranties in this Section 8 are true at the date of this
Agreement and, subject to Section 9.7, shall be true at the Closing Date, (ii)
that all of the covenants and agreements in this Section 8 shall be complied
with or performed at and as of the Closing Date, and (iii) that none of the
representations, warranties, covenants or agreements in this Section 8 shall
survive the Closing Date.
8.1 Due Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws of the States of Delaware, and is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted, except where the
failure to be so authorized or qualified would not have a Material Adverse
Effect. True, complete and correct copies of the Charter Documents and By-laws,
each as amended, of Parent (the "Parent Charter Documents") are all attached
hereto as Schedule 8.1.
8.2 Authorization. Parent has all requisite corporate power and authority
to enter into this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement by Parent and its consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action of Parent. This Agreement has been duly executed and delivered
by Parent and is a valid and binding obligation of Parent, enforceable against
each of them in accordance with its terms.
8.3 Capital stock. The authorized capital stock of Old ACG is as set forth
in Schedule 8.3. All of the issued and outstanding shares of the capital stock
of Old ACG (i) have been duly
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authorized and validly issued, (ii) are fully paid and nonassessable, (iii) are
owned of record and beneficially by the persons set forth on Schedule 8.3 and
(iv) were offered, issued, sold and delivered by Old ACG in compliance with all
applicable state and Federal laws concerning the offer, issuance, sale and
delivery of securities. Further, none of such shares was issued in violation of
the preemptive rights of any past or present stockholder of Old ACG. Subject to
the consummation of the reverse stock split referred to in the eighth recital
of this Agreement and the consummation of Parent's acquisition of Old ACG in
the reverse triangular merger, the capitalization of Parent will be identical
to the capitalization of Old ACG immediately prior to the consummation of the
IPO.
8.4 Transactions in Capital Stock, Organization Accounting. Except as set
forth on Schedule 8.4 or contemplated to be issued in connection with the
acquisitions of the Founding Companies, (i) no option, warrant, call,
conversion right or commitment of any kind exists which obligates Parent to
issue any of its authorized but unissued capital stock and (ii) Parent has no
obligation (contingent or otherwise) to purchase, redeem or otherwise acquire
any of its equity securities or any interests therein or to pay any dividend or
make any distribution in respect thereof. Schedule 8.4 also includes complete
and accurate copies of all stock option or stock purchase plans, including a
list, accurate as of the date hereof, of all outstanding options, warrants or
other rights to acquire shares of capital stock of Parent.
8.5 Subsidiaries. Neither Parent nor Old ACG has any subsidiaries except
for the companies identified on Schedule 8.5. Except as set forth in the
preceding sentence, neither Parent nor Old ACG presently owns, of record or
beneficially, or controls, directly or indirectly, any capital stock,
securities convertible into capital stock or any other equity interest in any
Person nor is Parent or Old ACG, directly or indirectly, a participant in any
joint venture, partnership or other non-corporation entity.
8.6 Financial Statements. The Draft Registration Statement contains the
following financial statements of ACG, which reflect the results of its
operations from inception in June 1996 (the "Old ACG Financial Statements"):
Old ACG's audited Balance Sheet as of December 31, 1996 and its unaudited
Balance Sheet as of June 30, 1997, and audited Statements of Operations,
Stockholder's Equity and Cash Flows and related notes thereto for the period
from June 10, 1996 through December 31, 1996 and unaudited Statements of
Operations, Stockholder's Equity and Cash Flows for the six months ended June
30, 1997. The audited Old ACG Financial Statements have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the period indicated (except as noted thereon or on
Schedule 8.6). The unaudited Old ACG Financial Statements were prepared in
accordance with the books and records of Old ACG in accordance with generally
accepted accounting principles consistently applied. Old ACG's Balance Sheets
present fairly the financial position of Old ACG as of the dates indicated
thereon, and Old ACG's Statements of Operations, Stockholder's Equity and Cash
Flows included in the Old ACG Financial Statements
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present fairly the results of operations for the periods indicated thereon in
accordance with generally accepted accounting principles. Old ACG's Financial
Statements at and for the period ended December 31, 1996 have been examined by
KPMG Peat Marwick LLP, independent public accountants.
8.7 Liabilities and Obligations. Except as set forth on Schedule 8.7,
neither Parent nor Old ACG has any material liabilities, contingent or
otherwise, except as set forth in or contemplated by this Agreement or the
Draft Registration Statement and except for fees incurred in connection with
the transactions contemplated hereby and thereby.
8.8 Conformity with Law; Litigation. Except to the extent set forth on
Schedule 8.8 or in the Draft Registration Statement, neither Parent nor Old ACG
is in violation of any law or regulation or any order of any court or Federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality having jurisdiction over either of them which would
have a Material Adverse Effect; and except to the extent set forth in Schedule
8.8, there are no material claims, actions, suits or proceedings, pending or,
to the knowledge of Parent or Old ACG, threatened, against or affecting Parent
or Old ACG, at law or in equity, or before or by any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality having jurisdiction over either of them and no notice of any
claim, action, suit or proceeding, whether pending or threatened, has been
received. Parent and Old ACG have conducted and are conducting their respective
businesses in substantial compliance with the requirements, standards, criteria
and conditions set forth in applicable Federal, state and local statutes,
ordinances, permits, licenses, orders, approvals, variances, rules and
regulations and are not in violation of any of the foregoing which might have a
Material Adverse Effect.
8.9 No Violations. Neither Parent nor Old ACG is in violation of any Parent
Charter Document. None of Parent, Old ACG, or, to the knowledge of Parent and
Old ACG, any other party thereto, is in material default under any lease,
instrument, agreement, license, or permit to which Parent or Old ACG is a
party, or by which Parent or Old ACG, or any of their respective properties,
are bound (collectively, the "Parent Documents"); and (i) the rights and
benefits of Parent and Old ACG under the Parent Documents will not be
materially adversely affected by the transactions contemplated hereby and (ii)
the execution of this Agreement and the performance of the obligations
hereunder and the consummation of the transactions contemplated hereby will not
result in any material violation or breach or constitute a material default
under, any of the terms or provisions of the Parent Documents or the Parent
Charter Documents. Except as set forth on Schedule 8.9, none of the Parent
Documents requires notice to, or the consent or approval of, any governmental
agency or other third party with respect to any of the transactions
contemplated hereby in order to remain in full force and effect, and
consummation of the transactions contemplated hereby will not give rise to any
right to termination, cancellation or acceleration or loss of any right or
benefit.
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8.10 Parent Securities. The shares of Parent Stock, Notes and Warrants
deliverable to the Stockholders pursuant to this Agreement will have been duly
authorized prior to the Closing, and upon consummation of the transactions
contemplated by this Agreement, will be validly issued, fully paid and
nonassessable. Prior to the Closing, the shares of Parent Stock issuable upon
conversion of the Notes and upon exercise of the Warrants will have been duly
authorized and reserved for issuance and such shares, when issued upon
conversion of such securities in accordance with the terms thereof, will be
validly issued, fully paid and nonassessable.
8.11 Business; Real Property; Material Agreement Old ACG was formed in June
1996 and Parent was formed in September 1997. Neither Parent nor Old ACG has
conducted any material business since the date of its inception, except raising
capital and in connection with this Agreement and similar agreements with other
companies involved in the telephone business and associated activities and
consummating the transactions referred to in the Draft Registration Statement.
Except as disclosed on Schedule 8.11, neither Parent nor Old ACG owns or has at
any time owned any real property or any material personal property or is a
party to any other material agreement.
8.12 Tax Matters.
(i) Old ACG has filed all Tax Returns that it was required to file.
All such Tax Returns filed by Old ACG were correct and complete in all
material respects. All Taxes owed by Old ACG (whether or not shown on any
Tax Return) have been paid. Old ACG is not currently the beneficiary of any
extension of time within which to file any Tax Return. Since Old ACG's
formation in June 1996, no claim with respect to Old ACG has been made by
an authority in a jurisdiction where Old ACG does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There is no Lien
affecting any of Parent's assets that arose in connection with any failure
or alleged failure to pay any Tax.
(ii) Old ACG has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder or other party.
(iii) Old ACG does not expect any authority to assess any material
amount of additional Taxes against Old ACG for any period for which Tax
Returns have been filed. There is no material dispute or claim concerning
any Tax liability of Old ACG either claimed or raised by any authority in
writing or as to which Parent has knowledge based upon direct inquiry by
any agent of such authority.
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8.13 Draft Registration Statement. The text of, and the financial
statements and other financial information contained in, the Draft Registration
Statement, insofar as they relate to Parent or Old ACG but not otherwise, are
true, accurate and complete in all material respects and do not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading.
9. OTHER COVENANTS PRIOR TO CLOSING
9.1 Access and Cooperation; Due Diligence; Audits.
(i) Between the date of this Agreement and the Closing Date, Company
will afford to the officers and authorized representatives of Parent, Old
ACG, the Founding Companies, and Parent's prospective underwriters
(collectively, the "Parent Group") access to all of Company's sites,
properties, books and records and will furnish Parent with such additional
financial and operating data and other information as to the business and
properties of Company as Parent may from time to time reasonably request.
Company will cooperate with Parent Group, its representatives, auditors
and counsel in the preparation of and any documents or other material that
may be required in connection with any documents or materials required by
this Agreement. Parent will, and will cause the other members of the Parent
Group, to treat all information obtained in connection with the negotiation
and performance of this Agreement as confidential in accordance with the
provisions of Section 15.
(ii) Between the date of this Agreement and the Closing, Parent will
afford, or will cause to be afforded, to the officers and authorized
representatives of Company and Stockholders access to all of Parent Group's
sites, properties, books and records and will furnish Company and
Stockholders with such additional financial and operating data and other
information as to the business and properties of Parent Group as Company
and Stockholders may from time to time reasonably request. Parent will
cooperate with Company and Stockholders' representatives, auditors and
counsel in the preparation of any documents or other material which may be
required in connection with any documents or materials required by this
Agreement. Company and Stockholders will cause all information obtained in
connection with the negotiation and performance of this Agreement to be
treated as confidential in accordance with the provisions of Section 15.
(iii) Company agrees to permit an independent accounting firm selected
by Parent to audit and render a report on the Company Financial Statements,
provided that all the costs and expenses of such audits are paid by Parent.
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9.2 Conduct of Business Pending Closing. Unless otherwise approved in
writing by Parent, between the date of this Agreement and the Closing Date,
Company will:
(i) carry on its business in substantially the same manner as it has
heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its properties and facilities, including those held
under lease, in as good working order and condition as at present, ordinary
wear and tear excepted;
(iii) perform in all material respects all of its obligations under
agreements relating to or affecting its respective assets, properties or
rights;
(iv) keep in full force and effect in all material respects the
present insurance policies or other comparable insurance coverage;
(v) use its reasonable best efforts to maintain and preserve its
business organization intact, retain its respective present key employees
and maintain its respective relationships with suppliers, customers and
others having business relations with it;
(vi) maintain material compliance with all material permits, laws,
rules and regulations, consent orders, and all other orders of applicable
courts, regulatory agencies and similar governmental authorities;
(vii) maintain present debt instruments and Leases and not enter into
new or amended debt instruments or Leases; and
(viii) maintain or reduce present salaries and commission levels for
all officers, directors, employees and agents except for ordinary and
customary bonus and salary increases for employees in accordance with past
practices.
9.3 Prohibited Activities. Between the date of this Agreement and the
Closing Date, Company will not, without prior written consent of Parent:
(i) make any change in its Charter Documents or By-laws;
(ii) issue any securities, options, warrants, calls, conversion rights
or commitments relating to its securities of any kind other than in
connection with the exercise of options or warrants listed in Schedule 6.4;
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(iii) declare or pay any dividend, or make any distribution in respect
of Company Stock whether now or hereafter outstanding, or purchase, redeem
or otherwise acquire or retire for value any shares of Company Stock;
(iv) enter into any contract or commitment or incur or agree to incur
any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an
amount not in excess of $20,000;
(v) create, assume or permit to exist any Lien upon any asset or
property whether now owned or hereafter acquired, except (x) with respect
to purchase money Liens incurred in connection with the acquisition of
equipment with an aggregate cost not in excess of $20,000 as necessary or
desirable for the conduct of its businesses, (y) (1) Liens for Taxes either
not yet due or being contested in good faith and by appropriate proceedings
(and for which contested Taxes adequate reserves have been established and
are being maintained) or (2) materialmen's, mechanics', workers',
repairmen's, employees' or other like Liens arising in the ordinary course
of business, or (3) Liens set forth on Schedule 6.10 or 6.15;
(vi) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the normal course of business;
(vii) negotiate for the acquisition of any business or the start-up of
any new business;
(viii) merge or consolidate or agree to merge or consolidate with or
into any other corporation;
(ix) waive any material right or claim; provided that it may negotiate
and adjust bills in the course of good faith disputes with customers in a
manner consistent with past practice, provided, further, that such
adjustments shall not be deemed to be included in Schedule 6.11 unless
specifically listed thereon;
(x) commit a material breach or amend or terminate any material
agreement, permit, license or other right; or
(xi) enter into any other transaction outside the ordinary course of
its business or prohibited hereunder;
provided, however, that the Company may distribute to the Stockholders, prior
to the Closing, funds necessary to pay the income tax liability accruing to
them on account of Company revenue (the
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"Interim Revenues") realized during the Interim Period (meaning the period
commencing on the Balance Sheet Date and ending on the Closing Date).
Notwithstanding the foregoing proviso, such dividend may not exceed 35% of the
Interim Revenues. If a subsequent audit reveals that the amount of Interim
Revenues actually realized do not correspond to the amount estimated for
purposes of calculating Stockholder income tax liability, then the difference
shall be either paid by the Company to the Stockholders or refunded by the
Stockholders to the Company, as the case may be. This obligation to make a
corrective payment or refund shall survive the Closing until six months after
the Company files its 1997 tax returns.
9.4 Exclusivity. Neither any Stockholder, nor Company, nor any agent,
officer, director, trustee or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with, the
earlier to occur of the Closing Date or the termination of this Agreement in
accordance with its terms, directly or indirectly:
(i) solicit or initiate the submission of proposals or offers from any
person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any person other than Parent or its
authorized agents relating to
any acquisition or purchase of all or a material amount of the assets of, or
any equity interest in, Company or merger, consolidation or business
combination of Company.
9.5 Agreements. Stockholders and Company shall terminate (i) any
stockholders agreements, voting agreements, voting trusts, options, warrants
and employment agreements between the Company and any employee who is listed on
Schedule 6.18 and (ii) any existing agreement between Company and any
Stockholder, on or prior to the Closing Date. Copies of such termination
agreements are listed on Schedule 9.5 and attached thereto.
9.6 Notification of Certain Matters. Stockholders and Company shall give
prompt notice to Parent of (i) the occurrence or non-occurrence of any event
the occurrence or non-occurrence of which would likely cause any representation
or warranty of Company or Stockholders contained herein to be untrue or
inaccurate in any material respect at or prior to the Closing Date and (ii) any
material failure of any Stockholder or Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by such
Person hereunder as of such date. Parent shall give prompt notice to Company of
(i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would likely cause any representation or warranty of
Parent contained herein to be untrue or inaccurate in any material respect at
or prior to the Closing Date and (ii) any
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material failure of Parent to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder as of such date. The
delivery of any notice pursuant to this Section 9.6 shall not be deemed to (i)
modify the representations or warranties hereunder of the party delivering such
notice, which modification may only be made pursuant to Section 9.7, (ii)
modify the conditions set forth in Sections 10 and 11, or (iii) limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
9.7 Amendment of Schedules. Each party hereto agrees that, with respect to
the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules with respect to any matter hereafter arising or
discovered which, if existing or known at the date of this Agreement, would
have been required to be set forth or described in the Schedules.
Notwithstanding the foregoing sentence, no amendment or supplement to a
Schedule prepared by Company or Parent that constitutes or reflects an event or
occurrence that would have a Material Adverse Effect may be made unless Parent
or Company, as the case may be, consents to such amendment or supplement. For
all purposes of this Agreement, including without limitation for purposes of
determining whether the conditions set forth in Sections 10.1 and 11.1 have
been fulfilled, the Schedules shall be deemed to be the Schedules as amended or
supplemented pursuant to this Section 9.7. No party to this Agreement shall be
liable to any other party if this Agreement shall be terminated pursuant to the
provisions of Section 13.1. Neither the entry by Parent into any other
agreement, such as this Agreement, after the date hereof for the acquisition of
one or more companies involved in or assets associated with the telephone
business and related activities nor the performance by Parent of its
obligations thereunder shall be deemed to require the amendment to or a
supplementation of any Schedule hereto.
9.8 Compliance with the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act of
1976 (the "▇▇▇▇-▇▇▇▇▇ Act"). All parties to this Agreement hereby recognize
that compliance with the ▇▇▇▇-▇▇▇▇▇ Act may be required in connection with the
transactions contemplated herein. If it is determined by the parties to this
Agreement that compliance with the ▇▇▇▇-▇▇▇▇▇ Act is required, then: (i) each
of the parties hereto agrees to cooperate and use its best efforts to comply
with the ▇▇▇▇-▇▇▇▇▇ Act, (ii) such compliance by and Company shall be deemed a
condition precedent in addition to the conditions precedent set forth in
Section 11 of this Agreement, and such compliance by Parent shall be deemed
a condition precedent in addition to the conditions precedent set forth
in Section 10 of this Agreement, (iii) the parties agree to cooperate and use
their best efforts to cause all filings required under the ▇▇▇▇-▇▇▇▇▇ Act to be
made, and (iv) Parent shall be responsible for all filing fees under the
▇▇▇▇-▇▇▇▇▇ Act.
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9.9 Further Assurance. The parties hereto agree to execute and deliver, or
cause to be executed and delivered, such further instruments or documents or
take such other action as may be reasonably necessary or convenient to carry
out the transactions contemplated by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF STOCKHOLDERS AND COMPANY
The obligations of Stockholders with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
10.1 Representations and Warranties Performance of Obligations. All
representations and warranties of Parent contained in this Agreement shall be
true and correct in all material respects as of the Closing Date with the same
effect as though such representations and warranties had been made on and as of
such date; all of the terms, covenants and conditions of this Agreement to be
complied with or performed by Parent on or before the Closing Date shall have
been duly complied with or performed in all material respects; and a
certificate to the foregoing effect dated the Closing Date, and signed by the
President or any Vice President of Parent shall have been delivered to Company.
10.2 Satisfaction. All actions, proceedings, instruments and documents
required to carry out this Agreement or incidental hereto and all other related
legal matters shall be reasonably satisfactory to Stockholders and their
counsel.
10.3 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of Company
as a result of which the management of Company deems it inadvisable to proceed
with the transactions hereunder.
10.4 Opinion of Counsel. Company shall have received an opinion from
counsel for Parent, dated the Closing Date, in the form and substance
reasonably acceptable to Company and Stockholders, relating to, insofar as
Parent is concerned, (i) the authorization, execution, delivery, performance
and enforceability of this Agreement, (ii) the consummation of the transactions
contemplated herein and (iii) such other legal matters as Company may
reasonably request.
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10.5 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made.
10.6 Good Standing Certificates. Parent shall have delivered to Company a
certificate, dated as of a date no later than ten days prior to the Closing
Date, duly issued by the Delaware Secretary of State and, unless waived by
Company, in each state in which Parent is authorized to do business, showing
that each of Parent is in good standing and authorized to do business and that
all state franchise and/or income tax returns and taxes for Parent,
respectively, for all periods prior to the Closing Date have been filed and
paid to the extent required.
10.7 No Material Adverse Change. No event or circumstance shall have
occurred with respect to Parent or Old ACG that would constitute a Material
Adverse Effect.
10.8 Secretary's Certificates. Company shall have received a certificate or
certificates, dated the Closing Date and signed by the Secretary of Parent,
certifying the completeness and accuracy of the attached copies of Parent's
Charter Documents (including amendments thereto), ByLaws (including amendments
thereto), and resolutions of the board of directors and, if required, the
stockholders of Parent approving Parent's entering into this Agreement and the
consummation of the transactions contemplated hereby.
10.9 Employment Agreements. Each of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ Van Leur
shall have been afforded an opportunity to enter an employment agreement
substantially in the forms of Annex V and Annex VI, respectively.
10.10 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
10.11 Parent Stock Options. Parent's Board of Directors shall have awarded
ten-year options to purchase an aggregate of 250,000 shares of Parent Stock at
the IPO Price to the officers and employees of Company listed on Schedule
10.11, such options to be issued pursuant to Parent's 1997 Stock Award Plan and
to become vested and fully exercisable in equal increments on the first,
second, third, fourth, and fifth anniversaries of the Closing Date, provided
such person remains affiliated with Company on each such anniversary dates.
These options are additional to the options referred to in Annex V and VI
hereof.
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10.12 Release from Guarantees. The Stockholders shall have been fully
released from the guarantees of Company indebtedness and the pledges of assets
to secure such indebtedness that are listed on Schedule 10.12.
11. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
The obligations of Parent with respect to actions to be taken on the
Closing Date are subject to the satisfaction or waiver on or prior to the
Closing Date of all of the following conditions. Upon Closing, all conditions
not satisfied shall be deemed to have been waived.
11.1 Representations and Warranties; Performance of Obligations. All the
representations and warranties of Stockholders and Company contained in this
Agreement shall be true and correct in all material respects as of the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date; all of the terms, covenants and conditions of
this Agreement to be complied with or performed by Stockholders and Company on
or before the Closing Date shall have been duly performed or complied with in
all material respects; and Stockholders and Company each shall have delivered
to Parent a certificate dated the Closing Date and signed by them to such
effect.
11.2 No Litigation. No action or proceeding before a court or any other
governmental agency or body shall have been instituted or threatened to
restrain or prohibit the transactions contemplated herein and no governmental
agency or body shall have taken any other action or made any request of Parent
as a result of which the management of Parent deems it inadvisable to proceed
with the transactions hereunder.
11.3 Secretary's Certificate. Parent shall have received a certificate,
dated the Closing Date and signed by the Secretary of the Company, certifying
the completeness and accuracy of the attached copies of Company's Charter
Documents (including amendments thereto), By-Laws (including amendments
thereto), and resolutions of the board of directors and Stockholders approving
Company's entering into this Agreement and the consummation of the transactions
contemplated hereby.
11.4 No Material Adverse Effect. No event or circumstance shall have
occurred with respect to Company which would constitute a Material Adverse
Effect, and Company shall not have suffered any material loss or damages to any
of its properties or assets, whether or not covered by insurance, which change,
loss or damage materially affects or impairs the ability of Company to conduct
its business.
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11.5 Stockholders' Release. Stockholders shall have delivered to Parent an
instrument dated the Closing Date releasing Company and Parent from (i) any and
all claims of Stockholders against Company and Parent and (ii) obligations of
Company and Parent to Stockholders, except for (x) items specifically
identified on Schedules 6.10 and 6.15 as being claims of or obligations to
Stockholders, (y) obligations arising under this Agreement or the transactions
contemplated hereby, (z) claims for indemnification against the Company in the
Stockholder's capacity as officers or directors of the Company.
11.6 Satisfaction. All actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been
reasonably satisfactory to Parent and its counsel.
11.7 Termination of Related Party Agreements. Except as set forth on
Schedule 11.7, all existing agreements between Company and Stockholders shall
have been canceled effective prior to or as of the Closing Date.
11.8 Opinion of Counsel. Parent shall have received an opinion from counsel
to Company and Stockholders, dated the Closing Date, in the form and substance
reasonably acceptable to the Parent, relating to, insofar as Company and
Stockholders are concerned, (i) the authorization, execution, delivery,
performance and enforceability of the Agreement, (ii) the consummation of the
transactions contemplated herein and (c) such other matters as Parent shall
reasonably request.
11.9 Consents and Approvals. All necessary consents of and filings with any
governmental authority or agency relating to the consummation of the
transactions contemplated herein shall have been obtained and made; and all
consents and approvals of third parties listed on Schedule 6.23 shall have been
obtained.
11.10 Good Standing Certificates. The Company shall have delivered to
Parent a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate governmental authority in
Company's state of incorporation and, unless waived by Parent, in each state in
which Company is authorized to do business, showing Company is in good standing
and authorized to do business and that all state franchise and/or income Tax
returns and Taxes for Company for all periods prior to the Closing have been
filed and paid.
11.11 FIRPTA Certificate Each Stockholder shall have delivered to Parent a
certificate to the effect that he or she is not a foreign person under Section
1.1445-2(b) of the Treasury regulations.
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11.12 Closing of IPO. The sale by Parent of shares of Parent Stock in the
IPO shall have closed prior to or substantially contemporaneously with the
consummation of the transactions contemplated herein.
11.13 Noncompetition Covenants of Key Employees. Each of the Persons
designated on Schedule 6.18 as a key employee shall have executed and delivered
to Parent a noncompetition agreement that contains all the substantive
provisions of Section 14.
11.14 Employment Agreement. Each of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇. ▇▇▇▇▇▇▇ Van Leur
shall have executed an employment agreement with Company substantially in the
form of Annex V and Annex VI respectively.
11.15 Settlement Agreement. Stockholders shall have paid all amounts due
and payable to ▇▇▇▇▇▇▇ ▇. Law, a former executive officer of Company, in
complete settlement of all outstanding claims of Mr. Law under the Settlement
Agreement dated as of February 6, 1996.
11.16 Release of Take or Pay Obligations. Company shall have been released
from its accrued take or pay obligations under its contract with Total Network
Services, a division of Cable & Wireless, Inc., dated July 18, 1996, through
September 30, 1997, and its continuing take or pay obligation shall be reduced
to a rate of $25,000 per month through the expiration of such contract.
12. ADDITIONAL COVENANTS OF PARENT AND STOCKHOLDERS AFTER CLOSING
12.1 Preparation and Filing of Tax Returns.
(i) Stockholders shall file or cause to be filed all separate Federal
income Tax Returns (and any state and local Tax Returns filed on the basis
similar to that of S corporations under Federal income Tax rules) of
Company for all taxable periods that end on or before the Closing Date.
Each Stockholder shall pay or cause to be paid all Tax liabilities (in
excess of all amounts already paid with respect thereto or properly accrued
or reserved with respect thereto on the Company Financial Statements) shown
by such Returns to be due.
(ii) Parent shall file or cause to be filed all separate Returns of,
or that include, Company for all taxable periods ending after the Closing
Date.
(iii) Each party hereto shall, and shall cause its Subsidiaries and
Affiliates to, provide to each of the other parties hereto such cooperation
and information as any of them reasonably may request in filing any Return,
amended Return or claim for refund,
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determining a liability for Taxes or a right to refund of Taxes or in
conducting any audit or other proceeding in respect of Taxes. Such
cooperation and information shall include providing copies of all relevant
portions of relevant Returns, together with relevant accompanying schedules
and work papers, relevant documents relating to rulings or other
determinations by Taxing Authorities and relevant records concerning the
ownership and Tax basis of property, which such party may possess. Each
party shall make its employees reasonably available on a mutually
convenient basis at its cost to provide explanation of any documents or
information so provided. Subject to the preceding sentence, each party
required to file Returns pursuant to this Agreement shall bear all costs of
filing such Returns.
12.2 Preservation of Employee Benefit Plans. Following the Closing Date,
Parent shall not terminate any health insurance, life insurance or 401(k) plan
in effect at Company until such time as Parent is able to replace such plan
with a plan that is applicable to Parent and all of its then existing
Subsidiaries; provided that Parent shall have no obligation to provide
replacement plans that have the same terms and provisions as the existing
plans; provided, further, that any new health insurance plan shall provide for
coverage for preexisting conditions. Notwithstanding the prior sentence, Parent
agrees not to terminate or materially modify, for a period of eighteen months
from the Closing Date, the cafeteria benefit plan in effect as of the date
first set forth above.
12.3 Rule 144 Filing. Parent, from and after the IPO, shall use
commercially reasonable efforts to assure that Rule 144 under the Securities
Act will be available for sales of shares by Stockholders after the first
anniversary of the Closing Date.
13. TERMINATION OF AGREEMENT
13.1 Termination. This Agreement may be terminated at any time prior to the
Closing Date solely:
(i) by mutual consent of the boards of directors of Parent and
Company;
(ii) by the Stockholders, on the one hand, or by Parent (acting
through its board of directors), on the other hand, if a Registration
Statement on Form S-1 relating to the IPO has not been filed with the SEC
prior to October 16, 1997;
(iii) by the Stockholders, on the one hand, or by Parent (acting
through its board of directors), on the other hand, if the transactions
contemplated by this Agreement to take place at the Closing shall not have
been consummated by January 31, 1998 unless the failure of such
transactions to be consummated is due to the willful failure of the party
seeking to
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terminate this Agreement to perform any of its obligations under this
Agreement to the extent required to be performed by it prior to or on the
Closing Date;
(iv) by Stockholders, on the one hand, or by Parent, on the other
hand, if a material breach or default shall be made by the other party in
the observance or in the due and timely performance of any of the material
covenants, agreements or conditions contained herein, and the curing of
such default shall not have been made on or before the Closing Date; or
(v) by Stockholders, on the one hand, or by Parent, on the other hand,
if either such party or parties declines to consent to an amendment or
supplement to a Schedule proposed by the other party or parties pursuant to
Section 9.7 because such proposed amendment constitutes or reflects an
event or occurrence that would have a Material Adverse Effect.
13.2 Liabilities in Event of Termination. Except as provided in Section
9.7, the termination of this Agreement will in no way limit any obligation or
liability of any party based on or arising from a breach or default by such
party with respect to any of its representations, warranties, covenants or
agreements contained in this Agreement including, but not limited to, legal and
audit costs and out of pocket expenses.
14. NONCOMPETITION
14.1 Prohibited Activities. Each Stockholder will not, for a period of
three years following the Closing Date, for any reason whatsoever, directly or
indirectly, for himself or on behalf of or in conjunction with any other
Person:
(i) engage, as an officer, director, stockholder, owner, partner,
joint venturer, or in a managerial capacity, whether as an employee,
independent contractor, consultant or advisor, or as a sales
representative, in the sale or marketing of yellow page publishing,
telecommunication services, interconnect services and natural gas or
electrical goods and services within the states of Arkansas, Colorado,
Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico,
North Dakota, Oklahoma, South Dakota, Wyoming and Texas (the "Territory");
(ii) call upon any person within the Territory who is an employee of
Parent (including the Subsidiaries thereof) in a sales representative or
managerial capacity for the purpose or with the intent of enticing such
employee away from or out of the employ of
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Parent (including the Subsidiaries thereof); provided that each
Stockholder shall be permitted to call upon and hire any member of his
immediate family;
(iii) call upon any Person which is or which has been, within one year
prior to the Closing Date, a customer of Parent (including the Subsidiaries
thereof) within the Territory for the purpose of soliciting or selling
products or services in direct competition with Parent within the
Territory;
(iv) call upon any prospective acquisition candidate, on any
Stockholder's own behalf or on behalf of any competitor of Parent in the
long-distance or local telephone business, which candidate, to the
knowledge of such Stockholder after due inquiry, was called upon by Parent
(including the Subsidiaries thereof) or for which, to the knowledge of such
Stockholder after due inquiry, Parent (or any Subsidiary thereof) made an
acquisition analysis, for the purpose of acquiring such entity; or
(v) disclose existing or prospective customers of Company to any
Person for any reason or purpose whatsoever except to the extent that the
Company has in the past disclosed such information to the public for valid
business reasons.
Notwithstanding the above, the foregoing covenants shall not be deemed to
prohibit any Stockholder from acquiring as an investment not more than one
percent of the capital stock of a competing business whose stock is publicly
traded.
14.2 Damages. Because of the difficulty of measuring economic losses to
Parent as a result of a breach of the foregoing covenants, and because of the
immediate and irreparable damage that could be caused to Parent for which it
would have no other adequate remedy, each Stockholder agrees that the foregoing
covenants may be enforced by Parent in the event of breach by such Stockholder,
by injunction and restraining order.
14.3 Reasonable Restraint. It is agreed by the parties hereto that the
foregoing covenants in this Section 14 impose a reasonable restraint on the
Stockholders in light of the activities and business of Parent (including the
Subsidiaries thereof) on the date of the execution of this Agreement and the
reasonably foreseeable plans of Parent.
14.4 Severability, Reformation. The covenants in this Section 14 are
severable and separate, and the unenforceability of any specific covenant shall
not affect the provisions of any other covenant. Moreover, in the event any
court of competent jurisdiction shall determine that the scope, time or
territorial restrictions set forth are unreasonable, then it is the intention
of the parties
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that such restrictions be enforced to the fullest extent the court deems
reasonable, and the Agreement shall thereupon be automatically reformed.
14.5 Independent Covenant. All of the covenants in this Section 14 shall be
construed as an agreement independent of any other provision in this Agreement,
and the existence of any claim or cause of action of any Stockholder against
Parent (including the Subsidiaries thereof), whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
Parent of such covenants. It is specifically agreed that the period of three
years stated at the beginning of this Section 14, during which the agreements
and covenants of each Stockholder made in this Section 14 shall be effective,
shall be computed by excluding from such computation any time during which such
Stockholder is in violation of any provision of this Section 14. The covenants
contained in Section 14 shall not be affected by any breach of any other
provision hereof by any party hereto and shall become nugatory if the
transactions contemplated by this Agreement are not consummated.
14.6 Materiality. Stockholders hereby agree that the covenants set forth in
this Section 15 are a material and substantial part of the transactions
contemplated by this Agreement.
15. NONDISCLOSURE OF CONFIDENTIAL INFORMATION
15.1 Stockholders. Stockholders recognize and acknowledge that they had in
the past, currently have, and in the future may have, access to certain
confidential information of Company and/or Parent and Old ACG, such as
operational policies, and pricing and cost policies that are valuable, special
and unique assets of Company and/or Parent and Old ACG. Stockholders agree that
they will not disclose such confidential information to any Person for any
purpose or reason whatsoever, except (i) to authorized representatives of
Parent; (ii) following the Closing, such information may be disclosed by
Stockholders as is required in the course of performing their duties for Parent
or the Company; and (iii) to counsel and other advisers; provided that such
advisers (other than counsel) agree to the confidentiality provisions of this
Section 15.1, unless (x) such information becomes known to the public generally
through no fault of Stockholders, (y) disclosure is required by law or the
order of any governmental authority under color of law; provided, that prior to
disclosing any information pursuant to this clause (y), Stockholders, if
possible, shall give immediate prior written notice thereof to Parent and
provide Parent with the opportunity to contest such disclosure, or (z) the
disclosing party reasonably believes that such disclosure is required in
connection with the defense of a lawsuit against the disclosing party. In the
event of a breach or threatened breach by any Stockholder of the provisions of
this Section 15.1, Parent shall be entitled to an injunction (without the
posting of bond or proof of actual damages) restraining such Stockholders from
disclosing, in whole or in part, such confidential information. Nothing herein
shall be construed as prohibiting Parent from pursuing any other available
remedy for such breach
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or threatened breach, including the recovery of damages. In the event the
transactions contemplated by this Agreement are not consummated, (1) the
abovementioned restrictions on each Stockholder's ability to disseminate
confidential information with respect to Company shall become nugatory and (2)
each Stockholder (including his representatives, advisors and legal counsel)
shall within ten business days of the Parent's request, deliver all copies of
the confidential information of Parent in his possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other material
prepared by such Stockholder or his representatives, advisors or legal
counsel).
15.2 Parent. Parent recognizes and acknowledges that it had in the past and
currently have and in the future may have, prior to the Closing, access to
certain confidential information of Company, such as operational policies, and
pricing and cost policies that are valuable, special and unique assets of
Company. Parent agrees that, prior to the Closing, or if the transactions
contemplated by this Agreement are not consummated, it will not disclose such
confidential information to any person for any purpose or reason whatsoever,
except (i) to authorized representatives of Company; and (ii) to counsel and
other advisers; provided that such advisers (other than counsel) agree to the
confidentiality provisions of this Section 15.2, unless (x) such information
becomes known to the public generally through no fault of Parent, (y)
disclosure is required by law or the order of any governmental authority under
color of law; provided, that prior to disclosing any information pursuant to
this clause (y), Parent shall, if possible, give immediate prior written notice
thereof to Company and Stockholders and provide Company and Stockholders with
the opportunity to contest such disclosure, or (z) the disclosing party
reasonably believes that such disclosure is required in connection with the
defense of a lawsuit against the disclosing party. In the event of a breach or
threatened breach by Parent of the provisions of this Section 15.2, Company and
Stockholders shall be entitled to an injunction (without the posting of bond or
proof of actual damages) restraining Parent from disclosing, in whole or in
part, such confidential information. Nothing herein shall be construed as
prohibiting Company and Stockholders from pursuing any other available remedy
for such breach or threatened breach, including the recovery of damages. In the
event the transactions contemplated by this Agreement are not consummated,
Parent (including its representatives, advisors and legal counsel) shall within
ten business days after Company's request, deliver all copies of the
confidential information of Company in their possession in any form whatsoever
(including, but not limited to, any reports, memoranda, or other materials
prepared by Parent or Old ACG or their representatives, advisors or legal
counsel at the direction of Parent or Old ACG).
15.3 Damages. Because of the difficulty of measuring economic losses as a
result of the breach of the foregoing covenants in Section 15.1 and 15.2 and
because of the immediate and irreparable damage that would be caused for which
no other adequate remedy exists, the parties hereto agree that, in the event of
a breach by any of them of the foregoing covenants, the covenant may be
enforced against the other parties by injunction and restraining order.
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15.4 Survival. The obligations of the parties under this Section 15 shall
survive the termination of this Agreement for a period of three years from the
Closing Date or the termination of this Agreement pursuant to Section 13.
16. TRANSFER PROHIBITIONS AND RESTRICTIONS ON WARRANTS AND WARRANT STOCK
STOCKHOLDERS ACKNOWLEDGE THAT THE WARRANTS ARE NON-TRANSFERRABLE AND HENCE
CANNOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED, PLEDGED,
DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF BY ANY STOCKHOLDER EXCEPT (I)
PURSUANT TO THE LAWS OF DESCENT AND DISTRIBUTION, (II) IN CONNECTION WITH A
TENDER OFFER OR EXCHANGE OFFER FOR ALL THE PARENT STOCK OR (III) TO A
STOCKHOLDER'S IMMEDIATE FAMILY MEMBERS, OR TRUSTS CREATED FOR THEIR BENEFIT,
IN EACH CASE ONLY IF THE TRANSFEREE AGREES TO BE BOUND BY THE TERMS OF THIS
SECTION 16. In addition, Stockholders further acknowledge that for a period of
one year from the date of the original issuance of any Warrant Stock upon the
exercise of a Warrant, except pursuant to Section 18, no Stockholder may sell,
assign, exchange, transfer, encumber, pledge, distribute, appoint, or
otherwise dispose of any Warrant Stock. The Warrant Stock delivered to the
Stockholders upon exercise of the Warrants will bear a legend substantially in
the form set forth below and containing such other information as Parent may
deem necessary or appropriate:
THIS SECURITY MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF DATE OF ORIGINAL ISSUANCE]. UPON THE WRITTEN
REQUEST OF THE HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS
RESTRICTIVE LEGEND (AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER
THE DATE SPECIFIED ABOVE.
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17. OTHER TRANSFER RESTRICTIONS
Except for transfers to immediate family members who agree to be bound by
the restrictions set forth in this Section 17 (or trusts for the benefit of
Stockholders or family members, the trustees of which so agree), for a period
of one year from the Closing, except pursuant to Section 19, no Stockholder
shall sell, assign, exchange, transfer, encumber, pledge, distribute, appoint,
or otherwise dispose of any Parent Stock or Note (or the shares of Parent Stock
issued upon any conversion thereof) received by such Stockholder in the
transactions contemplated herein. The Parent Stock and Notes delivered to the
Stockholders pursuant to Section 3 of this Agreement (and any shares of Parent
Stock issued upon the conversion thereof) will bear a legend substantially in
the form set forth below and containing such other information as Parent may
deem necessary or appropriate:
NEITHER THIS SECURITY [NOR THE SHARES OF COMMON STOCK ISSUABLE UPON THE
CONVERSION HEREOF] MAY BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED, APPOINTED OR OTHERWISE DISPOSED OF, AND THE ISSUER SHALL
NOT BE REQUIRED TO GIVE EFFECT TO ANY ATTEMPTED SALE, ASSIGNMENT, EXCHANGE,
TRANSFER, ENCUMBRANCE, PLEDGE, DISTRIBUTION, APPOINTMENT OR OTHER DISPOSITION
PRIOR TO [FIRST ANNIVERSARY OF CLOSING DATE]. UPON THE WRITTEN REQUEST OF THE
HOLDER OF THIS CERTIFICATE, THE ISSUER AGREES TO REMOVE THIS RESTRICTIVE LEGEND
(AND ANY STOP ORDER PLACED WITH THE TRANSFER AGENT) AFTER THE DATE SPECIFIED
ABOVE.
18. INVESTMENT REPRESENTATIONS
Stockholders acknowledge that the Parent Stock comprising the Stock
Component, the Notes, the Note Stock and the Warrant Stock (collectively, the
"Restricted Securities") have not been and will not be registered under the
1933 Act and therefore may not be resold without compliance with the
requirements of the 1933 Act and applicable state securities laws. All of the
Restricted Securities are being acquired by Stockholders solely for their own
respective accounts, for investment purposes only, and not with a view to the
distribution thereof.
18.1 Compliance With Law. Stockholders represent, warrant, covenant and
agree that none of the Restricted Securities will be offered, sold, assigned,
exchanged, transferred, encumbered, distributed, appointed or otherwise
disposed of except after full compliance with all of the applicable provisions
of the 1933 Act and the rules and regulations of the SEC thereunder and the
provisions of applicable state securities laws and regulations. All the
Restricted Securities shall bear the following legend in addition to the legend
required under Section 16 or Section 17 of this Agreement:
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") AND MAY NOT BE SOLD OR OTHERWISE TRANSFERRED
UNLESS AND UNTIL (A) THE SECURITIES SHALL HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS
(COLLECTIVELY, THE "ACTS") OR (B) THE HOLDER OF THESE SECURITIES PROVIDES
THE ISSUER WITH (X) AN UNQUALIFIED WRITTEN OPINION OF LEGAL COUNSEL, WHICH
COUNSEL AND OPINION (IN FORM AND SUBSTANCE) SHALL BE REASONABLY
SATISFACTORY TO THE ISSUER, TO THE EFFECT THAT THE PROPOSED DISPOSITION OF
THESE SECURITIES MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE ACTS OR (Y)
SUCH OTHER EVIDENCE AS MAY BE REASONABLY SATISFACTORY TO THE ISSUER THAT
THE PROPOSED DISPOSITION MAY BE EFFECTED WITHOUT REGISTRATION UNDER THE
ACTS.
18.2 Economic Risk, Sophistication. Each Stockholder represents that he or
she has received, has read and understands the Draft Registration Statement,
and in particular, the risk factors described therein. Each Stockholder further
represents that he or she is able to bear the economic risk of an investment in
the Restricted Securities and can afford to sustain a total loss of such
investment and either (i) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of the
proposed investment in Parent or (ii) together with the senior executives of
the Company, with whom it has consulted, has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the proposed investment in Parent. Stockholders have had an adequate
opportunity to ask questions and receive answers from the officers of Parent,
and the Company concerning any and all matters relating to the transactions
described herein including, without limitation, the background and experience
of the current and proposed officers and directors of Parent, the plans for the
operations of the business of Parent and any plans for additional acquisitions
and the like. Stockholders have asked any and all questions in the nature
described in the preceding sentence and all questions have been answered to
their satisfaction.
19. REGISTRATION RIGHTS
19.1 PiggyBack Registration Rights. At any time following the Closing Date,
whenever Parent proposes to register any Parent Stock for its own or the
account of others under the 1933 Act for a public offering, other than (i) any
registration of shares to be used as consideration for acquisitions of
additional businesses by Parent and (ii) registrations relating to employee
benefit
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plans, Parent shall give each of the Stockholders prompt written notice of its
intent to do so. Upon the written request of any of the Stockholders given
within 15 business days after receipt of such notice, Parent shall cause to be
included in such registration all Registerable Securities (including any shares
of Parent Stock issued as a dividend or other distribution with respect to, or
in exchange for, or in replacement of such Registerable Securities) which any
such Stockholder requests; provided, however, if Parent is advised in writing
in good faith by any managing underwriter of an underwritten offering of the
securities being offered pursuant to any registration statement under this
Section 19.1 that the number of shares to be sold by persons other than Parent
is greater than the number of such shares which can be offered without
adversely affecting the offering, Parent may reduce pro rata the number of
shares offered for the accounts of such persons (based upon the number of
shares held by such person) to a number deemed satisfactory by such managing
underwriter.
19.2 Demand Registration Rights. At any time after the first anniversary of
the Closing Date, the holders of a majority of the shares of Parent Stock (i)
representing Registerable Securities owned by the Stockholders or their
permitted transferees or (ii) representing Registerable Securities (as defined
in the agreements similar to this Agreement mentioned below) acquired by other
stockholders of Parent on or prior to the closing of the IPO in connection with
the acquisition of their companies by Parent pursuant to an agreement, similar
to this Agreement (or upon exercise or conversion of securities of Parent
received pursuant to such agreement) (the persons referred to in clauses (i)
and (ii) being collectively referred to as the "Founding Stockholders"), which
shares have not been previously registered or sold and which shares are not
entitled to be sold under Rule 144(k) (or any similar or successor provision)
promulgated under the 1933 Act, may request in writing that Parent file a
registration statement under the 1933 Act covering the registration of such
shares of Parent Stock issued to and held by the Founding Stockholders or their
permitted transferees (including any stock issued as a dividend or other
distribution with respect to, or in exchange for, or in replacement of such
Parent Stock) (a "Demand Registration"). Within ten days of the receipt of such
request, Parent shall give written notice of such request to all other Founding
Stockholders and shall, as soon as practicable but in no event later than 45
days after notice from the Founding Stockholders requesting such registration,
file and use its best efforts to cause to become effective a registration
statement covering all such shares. Parent shall be obligated to effect only
one Demand Registration for all Founding Stockholders and will keep such Demand
Registration current and effective for not less than 90 days (or such shorter
period as is required to complete the distribution and sale of all shares
registered thereunder).
Notwithstanding the foregoing paragraph, following such a demand a majority
of the disinterested directors of Parent (i.e. directors who have not demanded
or elected to sell shares in any such public offering) may defer the filing of
the registration statement for a 30 day period.
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If at the time of any request for a Demand Registration Parent has
formulated plans to file within 60 days after such request a registration
statement covering the sale of any of its securities in a public offering under
the 1933 Act, no registration of the Parent Stock shall be initiated under this
Section 19.2 until 90 days after the effective date of such registration
statement unless Parent is no longer proceeding diligently to secure the
effectiveness of such registration statement; provided that Parent shall
provide the Founding Stockholders the right to participate in such public
offering pursuant to, and subject to, Section 19.1.
19.3 Registration Procedures. All expenses incurred in connection with the
registrations under this Section 19 (including all registration, filing,
qualification, legal, printing and accounting fees, but excluding underwriting
commissions and discounts attributable to the sale of any Registerable
Securities), shall be borne by Parent. In connection with
registrations under Sections 19.1 and 19.2 Parent will, as expeditiously as
practicable:
(i) Prepare and file with the SEC a registration statement with
respect to such Registerable Securities and use its best efforts to cause
such registration statement to become and remain effective; provided that
Parent may discontinue any registration of its securities that is being
effected pursuant to Section 19.2 at any time prior to the effective date
of the registration statement relating thereto. Parent shall be obligated
to effect only one Demand Registration for all Founding Stockholders;
provided, however, that Parent shall not be deemed to have satisfied its
obligation under Section 19.2 unless and until a Demand Registration
covering all shares of Registerable Securities requested to be registered
has been filed and become effective under the 1933 Act and has remained
current and effective for not less than 90 days (or such shorter period
as is required to complete the distribution and sale of all shares
registered thereunder).
(ii) Prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement
and the prospectus used in connection therewith as may be necessary to keep
such registration statement effective for a period as may be requested by
the stockholders of Parent holding a majority of the Registrable Securities
covered thereby not exceeding 90 days and to comply with the provisions of
the 1933 Act with respect to the disposition of all securities covered by
such registration statement during such period in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement; provided, that before filing a registration
statement or prospectus relating to the sale of Registerable Securities, or
any amendments or supplements thereto, Parent will furnish to counsel to
each holder of Registerable Securities covered by such registration
statement or prospectus, copies of all documents proposed to be filed,
which documents will be subject to the review of such counsel, and Parent
will give reasonable consideration in good faith to any comments of such
counsel received prior to any such filing.
(iii) Furnish to each holder of Registerable Securities covered by the
registration statement and to each underwriter, if any, of such
Registerable Securities, such number of copies of a preliminary prospectus
and prospectus for delivery in conformity with the
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requirements of the 1933 Act, and such other documents, as such Person
may reasonably request, in order to facilitate the public sale or other
disposition of the Registerable Securities.
(iv) Use its best efforts to register or qualify the Registerable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as each seller shall
reasonably request, and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to consummate the
disposition of the Registerable Securities owned by such seller, in such
jurisdictions, except that Parent shall not for any such purpose be
required (x) to qualify to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section 19.3(iv), it
is not then so qualified, or (y) to subject itself to taxation in any such
jurisdiction, or (z) to take any action which would subject it to general
or unlimited service of process in any such jurisdiction where it is not
then so subject.
(v) Use its best efforts to cause the Registerable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registerable Securities.
(vi) Immediately notify each seller of Registerable Securities covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act within the
appropriate period mentioned in Section 19.3(ii), if Parent becomes aware
that the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, and, at the request of any such seller, deliver a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registerable Securities, each prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii) Otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and make generally available to its
security holders, in each case as soon as practicable, but not later than
45 calendar days after the close of the period covered thereby (90 calendar
days in case the period covered corresponds to a fiscal year of the
Parent), an earnings statement of Parent which will satisfy the provisions
of Section 11 (a) of the 1933 Act.
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(viii) Use its best efforts in cooperation with the underwriters to
list such Registerable Securities on each securities exchange as they may
reasonably designate.
(ix) In the event the offering is an underwritten offering, use its
best efforts to obtain a "cold comfort" letter from the independent public
accountants for Parent in customary form and covering such matters of the
type customarily covered by such letters.
(x) Execute and deliver all instruments and documents (including in an
underwritten offering an underwriting agreement in customary form) and take
such other actions and obtain such certificates and opinions as the
stockholders of Parent holding a majority of the shares of Registerable
Securities covered by the registration statement may reasonably request in
order to effect an underwritten public offering of such Registerable
Securities.
(xi) Make available for inspection by the seller of such Registerable
Securities covered by such registration statement, by any underwriter
participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent
retained by any such seller or any such underwriter, all pertinent
financial and other records, pertinent corporate documents and properties
of Parent, and cause all of Parent's officers, directors and employees to
supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement.
(xii) Obtain for delivery to the underwriter or agent an opinion or
opinions from counsel for Parent in customary form and in form and scope
reasonably satisfactory to such underwriter or agent and its counsel.
19.4 Other Registration Matters.
(i) Each Stockholder holding shares of Registerable Securities covered
by a Registration Statement referred to in this Section 19 will, upon
receipt of any notice from Parent of the happening of any event of the kind
described in Section 19.3(vi), forthwith discontinue disposition of the
Registerable Securities pursuant to the registration statement covering such
Registerable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 19.3(vi).
(ii) If a registration pursuant to Section 19.1 or 19.2 involves an
underwritten offering, each Stockholder (including his permitted assigns)
agrees, if his shares of Registerable Securities are included in such
registration, not to effect any public sale or
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distribution, including any sale pursuant to Rule 144 under the 1933
Act, of any Registerable Securities, or of any security convertible into or
exchangeable or exercisable for any Registerable Securities (other than as
part of such underwritten offering), without the consent of the managing
underwriter, during a period commencing seven calendar days before and
ending 180 calendar days (or such lesser number as the managing underwriter
shall designate) after the effective date of such registration. Similarly,
each of the Stockholders agrees not to effect any sale or distribution,
including any sale pursuant to the registration rights provided in Section
19.1, of any Registerable Securities, or of any security convertible into
or exchangeable or exercisable for any Registerable Securities, without the
consent of the managing underwriter of the IPO during a period commencing
on the effective date of the Draft Registration Statement and ending 365
calendar days (or such lesser number as such managing underwriter shall
designate) after such effective date.
19.5 Indemnification.
(i) In the event of any registration of any securities of Parent under
the 1933 Act pursuant to Section 19.1 or 19.2, Parent will, and it hereby
agrees to, indemnify and hold harmless, to the extent permitted by law,
each seller of any Registerable Securities covered by such registration
statement, each Affiliate of such seller and their respective directors,
officers, employees and agents or general and limited partners (and
directors, officers, employees and agents thereof) and, if such seller is a
portfolio or investment fund, its investment advisors or agents, each other
person who participates as an underwriter in the offering or sale of such
securities and each other person, if any, who controls such seller or any
such underwriter within the meaning of the 1933 Act, as follows:
(x) against any and all loss, liability, claim, damage or expense
whatsoever arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in any registration
statement (or in any amendment or supplement thereto) or preliminary,
final or summary prospectus contained therein, including all
documents incorporated therein by reference, or the omission or
alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arising out of an untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or prospectus
(or any amendment or supplement thereto) or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(y) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation,
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or investigation or proceeding by any governmental agency or
body, commenced or threatened, or of any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or omission, if such settlement is effected with the written
consent of Parent; and
(z) against any and all expense reasonably incurred by them in
connection with investigating, preparing or defending against any
litigation, or investigation or proceeding by any governmental agency
or body, commenced or threatened, or any claim whatsoever based upon
any such untrue statement or omission, or any such alleged untrue
statement or mission to the extent that any such expense is not paid
under subsection (x) or (y) above;
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such seller or any such director,
officer, employee, agent, general or limited partner, investment advisor or
agent, underwriter or controlling person and shall survive the transfer of
such securities by such seller.
(ii) Parent may require, as a condition to including any Registerable
Securities in any registration statement filed in accordance with Section
19.1 or 19.2, that Parent shall have received an undertaking reasonably
satisfactory to it from the prospective seller of such Registerable
Securities or any underwriter, to indemnify and hold harmless (in the same
manner and to the same extent as set forth in Section 19.5(i)) Parent with
respect to any statement or alleged statement in or omission or alleged
omission from such registration statement, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement, if
and only to the extent that such statement or alleged statement or omission
or alleged omission was made in reliance upon and in conformity with
written information furnished to Parent by or on behalf of such seller or
underwriter specifically stating that it is for use in the preparation of
such registration statement, preliminary, final or summary prospectus or
amendment or supplement. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of Parent or
any such director, officer or controlling person and shall survive the
transfer of such securities by such seller. In that event, the obligations
of the Parent and such sellers pursuant to this Section 19.5 are to be
several and not joint; provided, however, that, with respect to each claim
pursuant to this Section 19.5, Parent shall be liable for the full amount
of such claim, and each such seller's liability under this Section 19.5
shall be limited to an amount equal to the net proceeds (after deducting
the underwriting discount and expenses) received by such seller from the
sale of Registerable Securities held by such seller pursuant to this
Agreement.
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(iii) Promptly after receipt by an indemnified party hereunder of
written notice of the commencement of any action or proceeding involving a
claim referred to in this Section 19.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to such indemnifying party of the commencement of such
action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of
its obligations under this Section 19.5, except to the extent (not
including any such notice of an underwriter) that the indemnifying party is
materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified
and indemnifying parties may exist in respect of such claim (in which case
the indemnifying party shall not be liable for the fees and expenses of
more than one firm of counsel selected by holders of a majority of the
shares of Registerable Securities included in the offering or more than one
firm of counsel for the underwriters in connection with any one action or
separate but similar or related actions), the indemnifying party will be
entitled to participate in and to assume the defense thereof, jointly with
any other indemnifying party similarly notified, to the extent that it may
wish with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party for any legal or other expenses
subsequently incurred by such indemnifying party in connection with the
defense thereof, provided that the indemnifying party will not agree to any
settlement without the prior consent of the indemnified party (which
consent shall not be unreasonably withheld) unless such settlement requires
no more than a monetary payment for which the indemnifying party agrees to
indemnify the indemnified party and includes a full, unconditional and
complete release of the indemnified party; provided, however, that the
indemnified party shall be entitled to take control of the defense of any
claim as to which, in the reasonable judgment of the indemnifying party's
counsel, representation of both the indemnifying party and the indemnified
party would be inappropriate under the applicable standards of professional
conduct due to actual or potential differing interests between them. In the
event that the indemnifying party does not assume the defense of a claim
pursuant to this Section 19.5(iii), the indemnified party will have the
right to defend such claim by all appropriate proceedings, at the expense
of the indemnifying party, and will have control of such defense and
proceedings, and the indemnified party shall have the right to agree to any
settlement without the prior consent of the indemnifying party. Each
indemnified party shall, and shall cause its legal counsel to, provide
reasonable cooperation to the indemnifying party and
its legal counsel in connection with its assuming the defense of any claim,
including the furnishing of the indemnifying party with all papers served
in such proceeding. In the event that an indemnifying party assumes the
defense of an action under this Section 19.5(iii), then such indemnifying
party shall, subject to the provisions of this Section 19.5, indemnify and
hold harmless the
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indemnified party from any and all losses, claims, damages or
liabilities by reason of such settlement or judgment.
(iv) Parent and each seller of Registerable Securities shall provide
for the foregoing indemnity (with appropriate modifications) in any
underwriting agreement with respect to any required registration or other
qualification of securities under any federal or state law or regulation of
any governmental authority.
19.6 Contribution. In order to provide for just and equitable contribution
in circumstances under which the indemnity contemplated by Section 19.5 is for
any reason not available or insufficient for any reason to hold harmless an
indemnified party in respect of any losses, claims, damages or liabilities
referred to therein, the parties required to indemnify by the terms thereof
shall contribute to the aggregate losses, liabilities, claims, damages and
expenses of the nature contemplated by such indemnity agreement incurred by
Parent, any seller of Registerable Securities and one or more of the
underwriters, except to the extent that contribution is not permitted under
Section 11 (f) of the 1933 Act. In determining the amounts which the respective
parties shall contribute, there shall be considered the relative benefits
received by each party from the offering of the Registerable Securities by
taking into account the portion of the proceeds of the offering realized by
each, and the relative fault of each party by taking into account the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
statement or omission and any other equitable considerations appropriate under
the circumstances. Parent and each person selling securities agree with each
other that no seller of Registerable Securities shall be required to contribute
any amount in excess of the amount such seller would have been required to pay
to an indemnified party if the indemnity under Section 19.5(ii) were available.
Parent and each such seller agree with each other and the underwriters of the
Registerable Securities, if requested by such underwriters, that it would not
be equitable if the amount of such contribution were determined by pro rata or
per capita allocation (even if the underwriters were treated as one entity for
such purpose) or for the underwriters' portion of such contribution to exceed
the percentage that the underwriting discount bears to the initial public
offering price of the Registerable Securities. For purposes of this Section
19.6, each person, if any, who controls an underwriter within the meaning of
Section 15 of the 1933 Act shall have the same rights to contribution as such
underwriter, and each director and each officer of Parent who signed the
registration statement, and each person, if any, who controls Parent or a
seller of Registerable Securities within the meaning of Section 15 of the 1933
Act shall have the same rights to contribution as Parent or a seller of
Registerable Securities, as the case may be.
19.7 Availability of Rule 144. Parent shall not be obligated to register
shares of Registerable Securities held by any Stockholder at any time when the
resale provisions of Rule 144(k)
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(or any similar or successor provision) promulgated under the 1933 Act are
available to such Stockholder.
20. GENERAL
20.1 Cooperation. Company, each Stockholder and Parent shall deliver or
cause to be delivered to the other on the Closing Date and at such other times
and places as shall be reasonably agreed to, such additional instruments as any
of the others may reasonably request for the purpose of carrying out this
Agreement. Stockholders will cooperate and use their reasonable efforts to have
the present officers, directors and employees of Company cooperate with Parent
on and after the Closing Date in furnishing information, evidence, testimony
and other assistance in connection with any Tax Return filing obligations,
actions, proceedings, arrangements or disputes of any nature with respect to
matters pertaining to all periods prior to the Closing Date.
20.2 Successors and Assigns. This Agreement and the rights of the parties
hereunder may not be assigned (except by operation of law), but if assigned by
operation of law, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto, the successors of Parent and Company, and the
heirs and legal representatives of Stockholders. Notwithstanding the foregoing,
any Stockholder may assign his shares of Parent Stock or Notes or Warrants and
rights thereunder, to a family or children's trust; provided that the assignee
agrees to be bound by the terms of this Agreement to the same extent as his or
its assignor.
20.3 Entire Agreement. This Agreement (including the Schedules and Annexes)
and the documents delivered pursuant hereto constitute the entire agreement and
understanding among Stockholders, Company and Parent and supersede any prior
agreement and understanding relating to the subject matter of this Agreement.
This Agreement, upon execution and delivery, constitutes a valid and binding
agreement of the parties hereto enforceable in accordance with its terms and
may be modified or amended only by a written instrument executed by
Stockholders and by Company and Parent, acting through their respective
officers or representatives, duly authorized by their respective Boards of
Directors. Any disclosure made on any Schedule delivered pursuant hereto shall
be deemed to have been disclosed for purposes of any other Schedule required
hereby; provided that Company shall make a good faith effort to cross reference
disclosures, as necessary or advisable, between related Schedules.
20.4 Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original and all of which
together shall constitute but one and the same instrument.
20.5 Brokers and Agents.
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(i) Except with respect to Company's agreement ("▇▇▇▇▇ Agreement")
with ▇▇▇▇▇, ▇▇▇▇ & Company LLC ("▇▇▇▇▇"), each party represents and
warrants that it employed no broker or agent in connection with this
transaction and agrees to indemnify the other parties hereto against all
loss, cost, damage or expense arising out of claims for fees or commission
of brokers employed or alleged to have been employed by such indemnifying
party.
(ii) Pursuant to the ▇▇▇▇▇ Agreement and at the Closing, ▇▇▇▇▇ is
entitled to receive in payment of its investment banking fee: (a) $191,452
in cash, (b) a number of shares of Parent Stock out of the Stock Component
that is equal to $378,577 divided by the IPO Price, rounded down to the
nearest whole share, under terms and conditions identical to those
pertaining to the Parent Stock received by the Stockholders, (c) $76,581 in
aggregate value of Notes under terms and conditions identical to those
pertaining to the Notes received by the Stockholders, and (d) 3,000
Warrants under terms and conditions identical to those pertaining to the
Warrants to be received by the Stockholders. Accordingly, each of the
Stockholders instructs Parent to reduce the cash, Parent Stock, original
principal amount of Notes, and Warrants otherwise payable and issuable to
each Stockholder pursuant to Section 3 as set forth in the following table:
Value of
Cash to be Withheld Stock Reduction in Original Warrants to
Stockholder Name Percentage Withheld at IPO Price Principal Amount of Notes be withheld
---------------- ---------- -------- ------------ ------------------------- -----------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇ 28.75% $55,042 $106,880 $22,017 862.5
▇▇▇▇▇ ▇. ▇▇▇▇▇ 28.75% $55,042 $106,880 $22,017 862.5
▇. ▇▇▇▇▇▇▇ Van Leur 12.5 % $23,932 $ 43,723 $ 9,573 375
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 15 % $28,718 $ 60,542 $11,487 450
▇▇▇▇ Vanderberge 15 % $28,718 $ 60,542 $11,487 450
Total 100 % $191,452 $378,577 $76,581 3,000
Parent is further authorized to pay the entire $191,452 in cash
directly to ▇▇▇▇▇ and issue the Parent Stock, Notes, and Warrants
described in the chart above to the principals of ▇▇▇▇▇ according to the
chart below:
IPO Value
▇▇▇▇▇ Principal Parent Stock Notes Warrants
--------------- ------------ ----- --------
▇▇▇▇ ▇. ▇▇▇▇▇ $128,716 $26,037 1,020
J. ▇▇▇▇▇▇▇ ▇▇▇▇ $128,716 $26,037 1,020
▇▇▇▇▇▇▇▇, Inc. $ 75,715 $15,316 600
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ $ 45,429 $ 9,190 360
Total $378,577 $76,581 3,000
Each of the foregoing principals of ▇▇▇▇▇ has executed this Agreement to
evidence his or its agreement to be bound by the terms of Sections 17, 18,
19 and 20 thereof to the same extent if he or it was named as a Stockholder
herein. Ths address of each of the foregoing for purposes of Section 20.8
is ▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇ (Telecopy No. 540-687-8112).
20.6 Beneficial Owners.
(a) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ (the "RAFT Owners")
represent and warrant that, as of the date of this Agreement, they own 100%
of the equity interests in RAFT,
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L.L.C. The RAFT Owners covenant that, through the Closing Date, they shall not
permit any person or entity other than the Beneficial Owners to purchase, own
or otherwise acquire any beneficial interest in any equity interest in RAFT,
L.L.C. The RAFT Owners shall promptly notify Parent in the event that any third
party acquires such an equity interest.
(b) ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ represents and warrants that, as of the date of
this Agreement, he owns 100% of the equity interests in Tele-Tech, Inc. and
covenants that, through the Closing Date, he shall not permit any other person
or entity to purchase, own or otherwise acquire any beneficial interest in any
equity interest in Tele-Tech, Inc. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ shall promptly notify Parent
in the event that any third party acquires such an equity interest.
(c) The Beneficial Owners agree that they are each bound to the terms
of Sections 7, 11, 12, 13, 14, 15, 16, 17, 18, 19 and 20 of this Agreement to
the same extent as if each of them were named as a Stockholder herein. The
Beneficial Owners have executed this Agreement to evidence their agreement to
be bound by the terms of this Agreement to the extent set forth in this Section
20.6.
20.7 Expenses. Whether or not the transactions herein contemplated shall be
consummated, Parent will pay the fees, expenses and disbursements of Parent,
Company and their respective agents, representatives, accountants and counsel
incurred in connection with the subject matter of this Agreement and any
amendments thereto, including all costs and expenses incurred in the
performance and compliance with all conditions to be performed by Parent and
Company under this Agreement. Each Stockholder shall pay all sales, use,
transfer, real property transfer, gains, stock transfer and other similar taxes
("Transfer Taxes") imposed in connection with the transactions contemplated
herein, the fees and expenses of Stockholders' legal counsel and all other
costs and expenses incurred by Stockholders in their performance and compliance
with all conditions to be performed by them under this Agreement. Each
Stockholder shall file all necessary documentation and Returns with respect to
such Transfer Taxes. In addition, each Stockholder acknowledges that he, and
not Company or Parent, will pay any Taxes due upon receipt of the consideration
payable pursuant to Section 3, and will assume all Tax risks and liabilities of
the Company in connection with the transactions contemplated hereby.
20.8 Notices. All notices of communication required or permitted hereunder
shall be in writing, addressed to the party to be notified, and may be given by
(i) depositing the same in United States mail, postage prepaid and registered
or certified with return receipt requested, (ii) by telecopying the same if
receipt thereof is confirmed or (iii) by delivering the same in person to an
officer or agent of such party.
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(x) If to Parent addressed to it at:
Advanced Communications Group, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Bracewell & ▇▇▇▇▇▇▇▇▇, L.L.P.
South Tower Pennzoil Place
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ III
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
(y) If to Stockholders, addressed to them at their addresses set forth on
Schedule 6.3, with copies to such counsel as is set forth with respect to each
Stockholder on such Schedule 6.3;
(z) If to the Company, addressed to it at:
FirsTel, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇ & Berlin, Chartered ▇▇▇▇ ▇ ▇▇▇▇▇▇ ▇.▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Telecopy No.: ▇▇▇-▇▇▇-▇▇▇▇
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or to such other address or counsel as any party hereto shall specify pursuant
to this Section 20.7 from time to time.
20.9 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of South Dakota, excluding its conflict of laws
principles.
20.10 Exercise of Rights and Remedies. Except as otherwise provided herein,
no delay of or omission in the exercise of any right, power or remedy accruing
to any party as a result of any breach or default by any other party under this
Agreement shall impair any such right, power or remedy, nor shall it be
construed as a waiver of or acquiescence in any such breach or default, or of
any similar breach or default occurring later; nor shall any waiver of any
single breach or default be deemed a waiver of any other breach or default
occurring before or after that waiver.
20.11 Time. Time is of the essence with respect to this Agreement.
20.12 Reformation and Severability. In case any provision of this Agreement
shall be invalid, illegal or unenforceable, it shall, to the extent
practicable, be modified in such manner as to be valid, legal and enforceable
but so as to most nearly retain the intent of the parties, and if such
modification is not possible, such provision shall be severed from this
Agreement; and in either case the validity, legality and enforceability of the
remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
20.13 Remedies Cumulative. Except as otherwise provided in Section 13, no
right, remedy or election given by any term of this Agreement shall be deemed
exclusive but each shall be cumulative with all other rights, remedies and
elections available at law or in equity.
20.14 Captions. The headings of this Agreement are inserted for convenience
only, shall not constitute a part of this Agreement or be used to construe or
interpret any provision hereof.
20.15 Public Statements. The parties hereto shall consult with each other
and no party shall issue any public announcement or statement with respect to
the transactions contemplated hereby without the consent of the other parties,
unless the party desiring to make such announcement or statement, after seeking
such consent from the other parties, obtains advice from legal counsel that a
public announcement or statement is required by applicable law.
20.16 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived only with the
written consent of Parent, Newco, Company and Stockholders. Any amendment or
waiver effected in accordance with this Section 20.16 be binding upon each of
the parties hereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Chairman and Chief Executive
Officer
FIRSTEL, INC.
By:
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Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
STOCKHOLDERS:
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▇▇▇▇ ▇. ▇▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇
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▇. ▇▇▇▇▇▇▇ Van Leur
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇
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▇▇▇▇ VanderBerge
NEW STOCKHOLDERS:
TELE-TECH, INC.
By:
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Name:
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Title:
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RAFT, L.L.C.
By:
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Name:
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Title:
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BENEFICIAL OWNERS:
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
PRINCIPALS OF ▇▇▇▇▇, ▇▇▇▇ &
COMPANY LLC
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▇▇▇▇ ▇. ▇▇▇▇▇
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J. ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇, INC.
By:
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Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇.
Title: President
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▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
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ANNEX I
DRAFT REGISTRATION STATEMENT
(separately provided)
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ANNEX II
ADVANCED COMMUNICATIONS GROUP, INC.
SECTION 351 EXCHANGE PLAN
The Board of Directors of Advanced Communications Group, Inc., a
Delaware corporation organized in September 1997 ("Company"), has adopted this
Section 351 Exchange Plan effective as of October 3, 1997 ("Exchange Plan") in
order to comply with the requirements of Section 351 of the Internal Revenue
Code of 1986, as amended, and the rules and regulations promulgated thereunder
("Code"), and for purposes of defining the rights of various persons who may
make future transfers of voting capital stock and other consideration,
including cash and other assets (the items transferred being collectively
referred to herein as the "Assets") to the Company, all as more particularly
set forth below:
WHEREAS, the Company intends to acquire outstanding shares of capital
stock of certain corporations and other assets and acquire the outstanding
capital stock of ACG, Inc., a Delaware corporation, in a reverse triangular
merger, all as part of an integrated transaction as more particularly described
in the Company's Registration Statement in Form S-1 (draft of October 2, 1997)
("Draft Registration Statement") relating to its initial underwritten public
offering ("IPO"), the foregoing acquisitions being hereinafter collectively
referred to as the "Acquisitions"; and
WHEREAS, the various transactions comprising the Acquisitions will
occur substantially concurrently upon the consummation of the IPO;
NOW THEREFORE, in order to obtain the Assets, the Company may elect to
exchange, as a part of a single plan, shares of its voting capital stock and
other consideration, including cash, warrants, options and promissory notes,
for such Assets as shall be transferred to the Company by one or more of the
following individuals and entities: (i) the existing shareholders of the
predecessor to the Company in a reverse triangular merger; (ii) certain holders
of capital stock of other corporations or other assets that shall be acquired
by the Company pursuant to the Acquisitions; (iii) certain other persons or
entities who may assist the Company in the Acquisitions or in the manufacture
and or marketing of its products, (iv) purchasers of the Company's capital
stock in the IPO; and (v) certain other financial investors; and
FURTHERMORE, it is the expectation of the Company (without making any
representation with respect thereto) that the parties contributing such Assets
to the Company as part of the Acquisitions and the IPO will possess immediately
after the completion of the Acquisitions, at least
80% of the total combined voting power of all classes of capital stock of the
Company entitled to vote and at least 80% of the total number of shares of all
other classes of capital stock of the Company; and
FURTHERMORE, it is also the intention of the Company (without making
any representation with respect thereto) that the foregoing transfers of Assets
to the Company shall qualify as tax free within the provisions of Section 351
of the Code; provided, however, that the Company does not assume any liability
or responsibility to any holder of capital stock of the Company or any other
person or entity in the event Section 351 of the Code does not apply to such
transfers of Assets; and
FURTHERMORE, it is the expectation of the Company that the parties to
the Acquisitions and the IPO will contribute Assets to the Company in the
approximate amounts contemplated by the Draft Registration Statement in
exchange for the voting capital stock, and other consideration, including cash,
options, warrants and promissory notes of the Company, in the approximate
amounts contemplated by the Draft Registration Statement.
The shares of voting capital stock and other consideration, including
cash, options, warrants and promissory notes of the Company, deliverable in the
Acquisitions may be subject to adjustment in accordance with the various
acquisition agreements between the Company and the contributing parties. This
Exchange Plan shall not obligate any party to any Acquisition to consummate
such Acquisition other than upon the terms of the definitive acquisition
agreement executed by such party with respect to such Acquisition.
By the execution of the acquisition agreement to which this Exchange
Plan is attached as Annex II, each of the contributing parties thereto
evidences such party's agreement with and adoption of this Exchange Plan.
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ANNEX III
Advanced Communications Group, Inc.
$----------------
10% CONVERTIBLE SUBORDINATED NOTE DUE [ANNIVERSARY DATE OF CLOSING], 1999
DATED: ___________, 1997
------------------
THE SECURITIES REPRESENTED HEREBY WERE NOT ISSUED IN A TRANSACTION
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED UNLESS SUCH SALE
OR TRANSFER IS COVERED BY AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES
LAWS OR, IN THE OPINION OF COUNSEL TO THE
ISSUER, IS EXEMPT FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT
AND SUCH LAWS.
--------------------
Advanced Communications Group, Inc., a Delaware corporation organized
in September 1997 (the "Company"), for value received, hereby promises to pay
to ____________, or registered assigns, the principal sum of ____________
Dollars ($___________) in one installment on [anniversary date of closing],
1999, in such coin or currency of the United States of America as at the time
of payment shall be legal tender for the payment of public and private debts,
and to pay to the registered holder hereof interest from the date hereof,
annually on [anniversary date of closing] of each year commencing [anniversary
date of closing], 1998, on said principal sum, in like coin and currency, at a
rate per annum of ten percent (10%), to Noteholder until payment of said
principal sum has been made or duly provided for; provided, however, that
payment of interest may be made at the option of the Company by wire transfer
of funds to such bank account in the United States as shall be designated in
writing to the Company by the registered holder hereof or by check mailed to
the address of the registered holder hereof as such address shall appear in the
Note Register
maintained by the Company. Interest shall be calculated on the basis of a
360-day year of twelve 30-day months.
ARTICLE I.
Defined Terms
SECTION 1.01 Defined Terms. Unless the context otherwise requires,
capitalized terms used herein shall have the meanings ascribed to them in
Article X.
ARTICLE II.
General Provisions
SECTION 2.01 Mutilated Destroyed, Lost or Stolen Note. In case this
Note shall become mutilated or be destroyed, lost or stolen, the Company in its
discretion may execute and deliver a new Note, in exchange and substitution for
the mutilated Note or in lieu of and in substitution for the Note destroyed,
lost or stolen. In every case the Noteholder shall furnish to the Company such
security or indemnity as may be required by it to save the Company harmless,
and, in every case of destruction, loss or theft the Noteholder shall also
furnish to the Company evidence to its satisfaction of the destruction, loss or
theft of this Note and of the ownership thereof. Upon issuance of any
substituted Note, the Company may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in relation
thereto and other expenses connected therewith.
SECTION 2.02 Transfer and Registration of Notes. This Note may be
presented for transfer by surrender hereof at the office of the Company
maintained for that purpose in accordance with the provisions of Section 5.02,
duly endorsed or accompanied by a written instruction of transfer in form
satisfactory to the Company, duly executed by the holder hereof or his attorney
duly authorized in writing. This Note may be transferred in whole, but not in
part. The Company will have no obligation to transfer this Note unless its
requirements are met and such transfer complies with the legend on the first
page of this Note. By its acceptance of this Note, the holder hereof
acknowledges the restrictions on transfer of this Note set forth herein, and
agrees that it will transfer this Note only as provided herein.
The Company shall not be required to register the transfer of this
Note (i) during a period beginning at the opening of business on a day which is
15 days before the mailing of a notice of redemption of this Note and ending on
the close of business on the day of such mailing, or (ii) if this
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Note has been selected for redemption in whole or in part pursuant to Article
III, except the unredeemed portion of this Note if being redeemed in part.
The Company shall keep or cause to be maintained at the office of the
Company maintained in accordance with the provisions of Section 5.02 a register
(herein sometimes referred to as the "Note Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall register the
Notes (as defined below).
SECTION 2.03 Aggregate Principal Amount of Notes. This Note is one of
a duly authorized issue of Notes of the Company known as its 10% Convertible
Subordinated Notes due [anniversary date of closing], 1999, limited to the
aggregate principal amount of Two Million and No/100 Dollars ($2,000,000.00).
As used herein, the term "Notes" refers to all of such issue of Notes.
SECTION 2.04 Amendment of Notes. Each of the Notes may be amended with
the written consent of the holders of at least a majority in outstanding
principal amount of the Notes; provided that without the written consent of the
holder of this Note, no amendment shall (i) reduce the rate or change the time
for payment of interest on this Note, (ii) reduce the principal of or change
the maturity of this Note, (iii) amend Section 7.01, or (iv) make any change in
Article VIII that adversely affects the rights of the holder of this Note.
After an amendment becomes effective, it shall bind the holders and every
subsequent holder of Notes, even if notation of the amendment is not made on
any Note. However, the Company may place an appropriate notation regarding an
amendment on any Note thereafter executed.
ARTICLE III.
Redemption of Note
SECTION 3.01 Redemption Price. The Company may, at its option, redeem
all or from time to time any part of this Note, upon notice as set forth in
Section 3.02 at a redemption price equal to the principal amount to be
redeemed, together with accrued and unpaid interest on the principal amount to
be redeemed to the date fixed for redemption.
SECTION 3.02 Notice of Redemption. If the Company shall desire to
exercise the right to redeem all or any part of this Note pursuant to Section
3.01, it shall fix a date for redemption and shall mail a notice of such
redemption at least 20 days, but not more than 45 days, prior to the date fixed
for redemption to the holder of this Note at the last address of such holder as
the same appears on the Note Register. Such mailing shall be by first class
mail. The notice if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the holder receives such
notice.
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In any case, failure to give such notice by mail or any defect in the notice to
the holder of this Note shall not affect the validity of the proceedings for
the redemption of this Note.
Each such notice of redemption shall be given in the name of the
Company and shall specify the date fixed for redemption, the principal amount
to be redeemed, the redemption price at which this Note or portion thereof is
to be redeemed, the place of payment, that payment will be made upon
presentation and surrender of this Note, that interest accrued to the date
fixed for redemption will be paid as specified in such notice, that on and
after said date fixed for redemption interest hereon or on the portions hereof
to be redeemed will cease to accrue and that the right to convert this Note or
portion thereof into Common Stock will terminate at 5:00 p.m., Houston, Texas
time, on the second day prior to the date fixed for redemption. If this Note is
to be redeemed in part only, the notice of redemption shall also state that on
and after the date fixed for redemption, upon surrender of this Note, a new
Note in aggregate principal amount equal to the unredeemed portion hereof will
be issued without charge to the holder.
SECTION 3.03 Payment of Note Called for Redemption. If notice of
redemption has been given as above provided, this Note or the portion of this
Note with respect to which such notice has been given shall become due and
payable on the date and at the place stated in such notice at the applicable
redemption price, together with interest accrued and unpaid to the date fixed
for redemption, and on and after such date (unless the Company shall default in
the payment of this Note or portion hereof to be redeemed at such redemption
price, together with interest accrued to such date) interest on this Note or
portion hereof so called for redemption shall cease to accrue, and this Note or
portion hereof so called for redemption shall be deemed not to be outstanding
and shall not be entitled to any benefit under this Note except to receive
payment of such redemption price, together with accrued interest to the date
fixed for redemption. On presentation and surrender of this Note on or after
the date fixed for redemption at the place of payment in such notice specified,
this Note or the specified portion hereof to be redeemed shall be paid and
redeemed by the Company at the applicable redemption price, together with
interest accrued thereon to the date fixed for redemption.
ARTICLE IV.
Conversion of Note
SECTION 4.01 Conversion Right and Conversion Price. Subject to and
upon compliance with the provisions of this Article IV, the holder hereof shall
have the right, at his option, exercisable at any time until the date ten
business days prior to the stated maturity date of this Note or, in case this
Note or a portion hereof shall have been called for redemption prior to such
date, this Note or such portion thereof until and including but (unless the
Company shall default in the payment due upon the redemption hereof) not after,
5:00 p.m., Houston, Texas time, on the second
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day prior to the date fixed for redemption of this Note pursuant to Section
3.02, to convert all (but not less than all) of the aggregate principal amount
of this Note into that number of fully paid and non-assessable shares of Common
Stock (as such shares shall then be constituted) obtained by dividing the then
outstanding principal amount of this Note by the conversion price then in
effect, by surrender of this Note in the manner provided below in this Section
4.01. The conversion price shall initially be $_________ [the initial public
offering price] per share of Common Stock and is subject to adjustment in
certain instances, as hereinafter provided.
This Note may be converted by surrender of the Note, accompanied by
(i) a duly executed notice of conversion which may be in the form appearing as
Exhibit A hereto or such other form as is satisfactory to the Company at any
time during usual business hours at the office or agency to be maintained by
the Company in accordance with the provisions of Section 5.02 and (ii) a
written instrument or instruments of transfer in form satisfactory to the
Company duly executed by the holder or his attorney duly authorized in writing.
SECTION 4.02 Issuance of Common Stock on Conversion. As promptly as
practicable after the surrender, as herein provided, of this Note for
conversion, the Company shall deliver or cause to be delivered at the foregoing
office or agency, to or upon the written order of the holder hereof,
certificates representing the number of fully paid and nonassessable shares of
Common Stock of the Company into which this Note may be converted in accordance
with the provisions of this Article IV. Such conversion shall be deemed to have
been made at the close of business on the date that this Note shall have been
surrendered for conversion with a notice of conversion and other required
instruments duly executed, so that the rights of the Noteholder shall cease at
such time and, subject to the following provisions of this Section 4.02, the
person or persons entitled to receive the shares of Common Stock upon
conversion of this Note shall be treated for all purposes as having become the
record holder or holders of such shares of Common Stock at such time and such
conversion shall be at the conversion price in effect at such time; provided,
however, that no such surrender on any date when the stock transfer books of
the Company shall be closed shall be effective to constitute the person or
persons entitled to receive the shares of Common Stock upon such conversion as
the record holder or holders of such shares of Common Stock on such date, but
such surrender shall be effective to constitute the person or persons entitled
to receive such shares of Common Stock as the record holder or holders thereof
for all purposes at the close of business on the next succeeding day on which
such stock transfer books are open; and, in that event such conversion shall be
at the conversion price in effect on the date that this Note shall have been
surrendered for conversion, as if the stock transfer books of the Company had
not been closed. If the last day for the exercise of the conversion right shall
not be a Business Day, then such conversion right may be exercised on the next
succeeding Business Day.
No fractional share of Common Stock shall be issued upon conversion of
this Note. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of this
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Note, the Company shall pay a cash adjustment in respect of such fraction in an
amount equal to such fraction of a share multiplied by the Current Market Price
(as defined herein) per share of Common Stock at the close of business on the
Business Day which next precedes the day of conversion as determined in
accordance with this Section 4.04.
SECTION 4.03 Adjustments of Conversion Price. The conversion price in
effect at any time shall be subject to adjustments from time to time on or
after the date of original issuance of this Note as follows:
(i) In case the Company shall (A) declare a dividend or make
a distribution payable in Common Stock on the Common Stock, (B)
subdivide or reclassify its outstanding shares of Common Stock into a
greater number of shares, or (C) combine its outstanding shares of
Common Stock into a smaller number of shares, the conversion price in
effect at the time of the record date for such dividend or
distribution or the effective date of such subdivision, combination or
reclassifica tion shall be proportionately reduced in the case of any
increase in the number of shares of Common Stock outstanding, and
increased in the case of any reduction in the number of shares of
Common Stock outstanding, so that the holder of this Note when
surrendered for conversion after such time shall be entitled to
receive the kind and amount of shares which such holder would have
been entitled to receive had such Note been converted into Common
Stock immediately prior to such time and had such Common Stock
received such dividend or other distribution or participated in such
subdivision, combination or reclassification. Such adjustment shall be
effective as of the record date for such dividend or distribution or
the effective date of such combination, subdivision or
reclassification and shall be made successively whenever any event
listed above shall occur. If, as a result of an adjustment made
pursuant to this Section 4.03(i), the holder of this Note thereafter
surrendered for conversion shall become entitled to receive shares of
two or more classes of the capital stock of the Company, the Board of
Directors of the Company (whose determination shall be conclusive if
made in good faith and shall be described in a statement provided to
the registered holder of this Note) shall in good faith determine the
allocation of the conversion price between and among shares of such
classes of capital stock.
(ii) In case the Company shall issue rights or warrants to
all holders of its Common Stock entitling them (for a period expiring
within 45 days of the date fixed for the determination of stockholders
entitled to receive such rights or warrants) to subscribe for or
purchase shares of Common Stock at a price per share less than the
Current Market Price (as defined in Section 4.03(iv) below) of the
Common Stock, on the date fixed for the determination of stockholders
entitled to receive such rights or warrants (the "Determination
Date"), the conversion price at the opening of
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business on the day following the Determination Date shall
be reduced by multiplying the conversion price by a fraction of which
the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the Determination Date plus
the number of shares of Common Stock which the aggregate of the
offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such Current
Market Price of the Common Stock and the denominator shall be the
number of shares of Common Stock outstanding at the close of business
on the Determination Date plus the number of shares of Common Stock so
offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day
following the Determination Date. For purposes of determining under
this Section 4.03(ii) the number of shares of Common Stock outstanding
at any time, there shall be excluded all shares of Common Stock held
in the treasury of the Company or by any wholly-owned subsidiary of
the Company. If any or all such rights or warrants are not so issued
or expire or terminate before being exercised, the conversion price
then in effect shall be appropriately readjusted, but such
readjustment shall not be applied retroactively to any conversion
hereof effected prior to such readjustment.
(iii) In case the Company shall distribute to all holders of
its Common Stock evidences of its indebtedness or assets (including
securities, but excluding cash dividends or a distribution referred to
in paragraph (i) above or paid out of surplus) or rights or warrants
to subscribe for or purchase any of the Company's securities
(excluding those referred to in Section 4.03(ii) above), the
conversion price shall be adjusted so that it shall equal the price
determined by multiplying the conversion price in effect immediately
prior to the close of business on the date fixed for the determination
of stockholders entitled to receive such distribution by a fraction of
which the numerator shall be the Current Market Price per share of the
Common Stock on the date fixed for such determination less the then
fair market value (as determined by the Board of Directors of the
Company, in good faith and in the exercise of its reasonable business
judgment and described in a resolution of the Board of Directors
certified by the Secretary or Assistant Secretary of the Company), of
the portion of the assets or evidences of indebtedness so distributed
applicable to one share of Common Stock and the denominator shall be
such Current Market Price per share of the Common Stock; provided,
however, if exercise of such right or warrant is subject to the
occurrence of a contingent event, adjustment of the conversion price
shall be made in the manner provided for in Section 4.03(ii) above and
the date that the right or warrant becomes exercisable shall be deemed
to be the Determination Date for purposes of such adjustment. The
conversion price adjustment made pursuant to this Section 4.03(iii)
shall become effective immediately prior to the opening of business on
the day following the date fixed for
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the determination of stockholders entitled to receive such
distribution (except in the case of rights or warrants subject to
exercise upon the occurrence of a contingent event, in which case such
adjustment shall become effective at the time such rights or warrants
become exercisable).
(iv) For the purposes of this Article IV, the "Current
Market Price" per share of Common Stock on any date means the reported
last sale price per share of Common Stock regular way on such day or,
in case no such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in each case on the
New York Stock Exchange, or, if the Common Stock is not listed or
admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such
Exchange, on the principal national securities exchange on which the
Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities
exchange, the average of the closing bid and asked prices in the
over-the-counter market as reported by the National Association of
Securities Dealers' Automated Quotation System, or, if not so
reported, as reported by the National Quotation Bureau, Incorporated,
or any successor thereof, or, if not so reported, the average of the
closing bid and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to
time by the Company for that purpose; or, in all other cases, the
value established by the Board of Directors in good faith; and the
"average" Price per share for any period shall be determined by
dividing the sum of the Prices determined for each Trading Day in such
period by the number of Trading Days in such period.
(v) All calculations under this Section 4.03 shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the
case may be.
(vi) No adjustment in the conversion price shall be required
pursuant to any subsection of this Section 4.03 unless such adjustment
(together with prior adjustments which by reason of this Section
4.03(vi) were not required to be made at the time otherwise required
by the above subsections of this Section 4.03) would require a change
of at least 1% in such price; provided, however, that any adjust ments
which by reason of this Section 4.03(vi) are not required to be made
shall be carried forward and taken into account in any subsequent
adjustment.
SECTION 4.04 Certain Notices and Calculations. Whenever the conversion
price is adjusted as provided in Section 4.03, the Company shall promptly
deliver to the holder hereof a certificate signed by two officers of the
Company setting forth the conversion price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
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computation thereof.
SECTION 4.05 Effect of Consolidation Merger, etc. In case of any
consolidation or merger of the Company with or into any other corporation
(other than a merger which does not result in any reclassification, conversion,
exchange or cancellation of outstanding shares of Common Stock), or in case of
any sale or transfer of all or substantially all of the assets of the Company,
or the reclassification of the Common Stock into another form of capital stock
of the Company, whether in whole or in part, the holder of this Note shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities and property or cash (including, if applicable,
Common Stock) which the holder would have been entitled to receive upon such
consolidation, merger, sale, transfer or reclassification if he had held the
Common Stock issuable upon the conversion of this Note immediately prior to
such consolidation, merger, sale, transfer, or reclassification. The foregoing
provisions of this Section 4.05 shall similarly apply to successive
reclassifications and changes of shares of Common Stock of the Company and to
successive consolidations, mergers, sales, transfers, or reclassifications.
SECTION 4.06 Reservation of Shares. The Company covenants that it will
at all times reserve and keep available, free from pre-emptive rights, out of
its authorized but unissued Common Stock, solely for the purpose of issue upon
conversion of this Note as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of this Note. The Company
covenants that all shares of Common Stock which shall be so issuable shall,
upon issuance, be duly and validly issued and fully paid and non-assessable.
The Company shall from time to time, in accordance with applicable law,
increase the authorized amount of its Common Stock if at any time the
authorized amount of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of all Notes at the time outstanding.
SECTION 4.07 Certain Covenants. Before taking any action which would
cause an adjustment reducing the conversion price below the then stated or par
value of the shares of Common Stock issuable upon conversion of this Note, the
Company will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Company may validly and legally issue
fully paid and non-assessable shares of such Common Stock at such adjusted
conversion price.
SECTION 4.08 Taxes Upon Conversion. The issuance of certificates for
shares of Common Stock upon the conversion of this Note shall be made without
charge to the converting Noteholder for any tax in respect of the issuance of
such certificates, and such certificates shall be issued in the respective
names of, or in such names as may be directed by, the holder of this Note;
provided, however, that the Company shall not be required to pay any tax which
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate in a name other
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than that of the holder of this Note, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid; and provided, further, that in no event shall the Company be
required to pay or reimburse the holder for any income tax payable by such
holder as a result of such issuance.
SECTION 4.09 Certain Notices. In case:
(i) the Company shall authorize the distribution to all
holders of its Common Stock of evidences of its indebtedness or
assets (other than cash dividends or other cash distributions
paid out of surplus); or
(ii) the Company shall authorize the granting to the holders
of its Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock or any class or of any other
rights; or
(iii) of any reclassification of the capital stock of the
Company (other than a subdivision or combination of its
outstanding shares of Common Stock), or of any consolidation or
merger to which the Company is a party and for which approval of
any stockholders of the Company is required, or of the sale,
lease or transfer of all or substantially all of the property of
the Company; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then, in each case, the Company shall cause to be mailed, to the holder hereof
at such holder's last address as the same appears on the Note Register, at
least 20 days, but not more than 45 days, prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution, rights or
warrants, or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution, rights
or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, lease, transfer, dissolution,
liquidation or winding up is expected to become effective, and the date as of
which it is expected that holders of Common Stock of record shall be entitled
to exchange their Common Stock for securities or other property deliverable
upon such reclassification, consolidation, merger, sale, lease, transfer,
dissolution, liquidation or winding up.
SECTION 4.10 Common Stock Defined. Whenever reference is made in this
Note to the issue or sale of shares of Common Stock, the term "Common Stock"
shall include only shares of the class designated as Common ▇▇▇▇▇, ▇.▇▇▇▇ par
value, of the Company, at the date hereof or shares of any class or classes
resulting from any reclassification or reclassifications thereof and
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which have no preference in respect of dividends or of amounts payable in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption by the Company; provided,
that if at any time there shall be more than one such resulting class, the
shares of each such class then so deliverable shall be substantially in the
proportion which the total number of shares of such class resulting from all
such reclassifications bears to the total number of shares of all such classes
resulting from all such reclassifications.
ARTICLE V.
Particular Covenants of the Company
SECTION 5.01 Payment of Principal and Interest on Note. The Company
covenants and agrees that it will duly and punctually pay or cause to be paid
the principal of and the interest on this Note at the place, at the respective
times and in the manner provided herein.
SECTION 5.02 Office for Notices and Payments etc. So long as this Note
remains outstanding, the Company will maintain in the City of Houston, Texas,
an office or agency where this Note may be presented for payment, an office or
agency where this Note may be presented for registration of transfer or
exchange or for conversion as herein provided, and an office or agency where
notices and demands to or upon the Company in respect of this Note may be
served. Until otherwise designated by the Company in a written notice such
offices or agencies shall be the executive offices of the Company.
SECTION 5.03 Limitation on Senior Debt. The Company covenants and
agrees that as long as this Note is outstanding it will not permit the
aggregate amount of Senior Indebtedness outstanding to exceed Fifty Million and
No/100 Dollars ($50,000,000.00).
ARTICLE VI.
Immunity of Incorporators, Stockholders,
Officers and Directors
SECTION 6.01 Note Solely Corporate Obligations. No recourse for the
payment of the principal of or interest on this Note, or for any claim based
hereon or otherwise in respect hereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in this Note, or because of
the creation of any indebtedness represented hereby, shall be had against any
incorporator, stockholder, officer or director, as such, past, present or
future, of the Company or of any successor corporation, either directly or
through the Company or any successor corporation, whether by virtue of any
constitution, statute, or rule of law, or by the enforcement of any
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assessment or penalty or otherwise; it being expressly understood that all such
liability is hereby expressly waived and released as a condition of, and as a
consideration for, the execution of this Note.
ARTICLE VII.
Remedies in Event of Default
SECTION 7.01 Event of Default. In case one or more of the following
Events of Default shall have occurred and be continuing:
(a) default in the payment of any installment of interest
upon this Note as and when the same shall become due and payable, and
continuance of such default for a period of 30 days; or
(b) default in the payment of the principal of this Note as
and when the same shall become due and payable either at maturity,
upon redemption, by declaration or otherwise; or
(c) failure on the part of the Company duly to observe or
perform any covenants or agreements (other than a covenant or
agreement the breach or a default in the performance of which is
elsewhere in this Section 7.01 specifically dealt with) on the part of
the Company that continues for a period of 30 days after the date on
which written notice (such written notice to state it is a "Notice of
Default" hereunder) of such failure, requiring the Company to remedy
the same, shall have been given to the Company and each holder of any
Senior Indebtedness and each entity committed or obligated to issue or
fund any Senior Indebtedness (provided that such holder or entity has
previously given the holders of the Notes written notice to the effect
that it is a holder of Senior Indebtedness or an entity committed or
obligated to issue or fund Senior Indebtedness (as the case may be)
and that such holder or entity requests that it be given any such
notice) by the holder hereof; or
(d) without the consent of the Company, a court having
jurisdiction shall enter an order for relief with respect to the
Company under the Bankruptcy Code or without the consent of the
Company a court having jurisdiction shall enter a judgment, order or
decree adjudging the Company a bankrupt or insolvent, or enter an
order for relief for reorganiza tion, arrangement, adjustment or
composition of or in respect of the Company under the Bankruptcy Code
or applicable state insolvency law and the continuance of any such
judgment, order or decree unstayed and in effect for a period of 90
consecutive days; or
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(e) the Company shall institute proceedings for entry of an
order for relief with respect to the Company under the Bankruptcy Code
or for an adjudication of insolvency, or shall consent to the
institution of bankruptcy or insolvency proceedings against it, or
shall file a petition seeking, or seek or consent to reorganization,
arrangement, composition or relief under the Bankruptcy Code or any
applicable state law, or shall consent to the filing of such petition
or to the appointment of a receiver, custodian, liquidator, assignee,
trustee, sequestrator or similar official (other than a custodian
pursuant to 8 Delaware Code ss.226 or any similar statute under other
state laws) of the Company or of substantially all of its property, or
the Company shall make a general assignment for the benefit of
creditors as recognized under the Bankruptcy Code; or
(f) default in the payment of any principal of or interest
on any Senior Indebtedness or on any Pari Passu Debt having an
outstanding principal balance of at least $500,000 as and when the
same shall become due and payable and such failure is not cured within
the applicable grace period, if any, or any Senior Indebtedness or any
Pari Passu Debt having an outstanding principal balance of at least
$500,000 shall be declared to be due and payable prior to the stated
maturity thereof;
then and in each and every such case, unless the principal of this Note shall
have already become due and payable, the holders of a majority in outstanding
principal amount of the Notes ("Majority Holders"), by notice in writing to the
Company and each holder of any Senior Indebtedness and each entity committed or
obligated to issue or fund any Senior Indebtedness (provided that such holder
or entity has previously given the holder hereof written notice to the effect
that it is a holder of Senior Indebtedness or an entity committed or obligated
to issue or fund Senior Indebtedness (as the case may be) and that such holder
or entity requests that it be given any such notice), may declare the principal
of all Notes and any accrued interest to the date of declaration to be due and
payable immediately, and upon any such declaration the same shall become and
shall be immediately due and payable, subject to Article VIII.
SECTION 7.02 Remedies Cumulative and Continuing. All powers and
remedies given by this Article VII to the holders of the Notes shall, to the
extent permitted by law, be deemed cumulative and not exclusive of any other
thereof or of any other powers and remedies available to such holders, by
judicial proceedings or otherwise, to enforce the performance or observance of
the covenants and agreements contained in the Notes, and no delay or omission
of any holder to exercise any right or power accruing upon any default
occurring and continuing as aforesaid, shall impair any such right or power, or
shall be construed to be a waiver of any such default or an acquiescence
therein; and every power and remedy given by this Article VII or by law to the
holders of the Notes may be exercised from time to time, and as often as shall
be deemed expedient, by such holders.
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SECTION 7.03 Waiver of Presentment, Demand, Etc. Except as provided
herein, the Company hereby waives presentment and demand for payment, protest,
notice of protest and nonpayment, notice of the intention to accelerate, notice
of acceleration, and agrees that its liability on this Note shall not be
affected by any renewal or extension in the time of payment hereof, by any
indulgences, and hereby consents to any and all renewals, extensions,
indulgences, releases, or changes, regardless of the number of such renewals,
extensions, indulgences, releases, or changes.
ARTICLE VIII.
Subordination of Note
SECTION 8.01 Agreement of Subordination. The Company irrevocably
covenants and agrees, and the holder of this Note, by his acceptance thereof,
likewise irrevocably covenants and agrees, that the payment of the principal of
and interest on this Note is hereby expressly subordinated, to the extent and
in the manner hereinafter set forth, to the prior payment in full of all Senior
Indebtedness. The provisions of this Article VIII are made for the benefit of
the holders of Senior Indebtedness, and such holders shall, at any time, be
entitled to enforce such provisions against the Company or the holder hereof.
No holder of any Senior Indebtedness shall be deemed to owe any fiduciary duty
or any other obligation to any holder of this Note now or at any time
hereafter.
SECTION 8.02 Payment Over of Proceeds Upon Dissolution, etc. (a) In
the event of (x) any insolvency, bankruptcy, receivership, liquidation,
reorganization, readjustment, composition or other similar proceeding relative
to the Company or its creditors or its property, (y) any proceeding for
voluntary liquidation, dissolution or other winding up of the Company whether
or not involving insolvency or bankruptcy proceedings, or (z) any assignment
for the benefit of creditors or any marshaling of the assets of the Company,
then and in any such event,
(i) all Senior Indebtedness (including interest accruing on
such Senior Indebtedness after the date of filing a petition or other
action commencing any such proceeding to the extent such interest is
an allowed claim) shall first be paid in full, or have provision made
for payment in full to the reasonable satisfaction of the holder of
any Senior Indebtedness, before the holder of this Note shall be
entitled to receive any payment on account of the principal of or
interest on the indebtedness evidenced by this Note, and
(ii) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other
than securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, provided the rights of
the holders of Senior Indebtedness are not altered by such
reorganization or readjustment, the payment of which is subordinate,
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at least to the extent provided in this Article VIII with
respect to this Note, to the payment of all Senior Indebtedness at the
time outstanding and to the payment of all securities issued in
exchange therefor to the holders of Senior Indebtedness at the time
outstanding), to which the holder of this Note would be entitled
except for the provisions of this Article VIII, shall be paid by the
liquidating trustee or agent or other person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or other trustee or agent, directly to the holders
of Senior Indebtedness or their representative or representatives or
to the trustee or trustees under any indenture under which any
instruments evidencing any of such Senior Indebtedness may have been
issued, ratably according to the aggregate amounts remaining unpaid on
account of the principal of and premium, if any, and interest on, the
Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior Indebtedness remaining
unpaid and/or outstanding (as the case may be), after giving effect to
any concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
(b) No payments on account of principal of or interest on
this Note shall be made unless full payment of amounts then due for
principal of (including any sinking fund payment), premium, if any,
and interest on all Senior Indebtedness has been made or otherwise
duly provided for to the reasonable satisfaction of each holder of any
Senior Indebtedness.
(c) In the event and during the continuation of any default
or event of default in respect of any Senior Indebtedness or under any
agreement under which any Senior Indebtedness was issued continuing
beyond the period of grace, if any, specified in such agreement, then,
unless and until such default shall have been cured or waived or shall
have ceased to exist, no payment shall be made by the Company and no
application of funds shall be made with respect to the principal of or
interest on this Note.
(d) In the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than
securities of the Company or any other corporation provided for by a
plan of reorganization or readjustment, provided that the rights of
the holders of Senior Indebtedness are not altered by such
reorganization or readjustment, the payment of which is subordinate,
at least to the extent provided in this Article VIII with respect to
this Note, to the payment of all Senior Indebtedness at the time
outstanding and to the payment of all securities issued in exchange
therefor to the holders of Senior Indebtedness at the time
outstanding), shall be received by the holder of this Note during the
continuance of any event specified in Sections 8.02(a), 8.02(b) or
8.02(c) prohibiting such payment and before all Senior Indebtedness is
-15-
paid in full or provision made for its payment to the
reasonable satisfaction of each holder of any Senior Indebtedness,
such payment or distribution (subject to Section 8.04) shall be
immediately paid by the holder hereof over to the holders of Senior
Indebtedness (or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued), upon
their written request remaining unpaid or unprovided for as provided
in the foregoing subsection (ii) of Section 8.02(a), for application
to the payment of such Senior Indebtedness until all such Senior
Indebtedness shall have been paid in full, after giving effect to any
concurrent payment or distribution, or provision therefor, to the
holders of such Senior Indebtedness.
(e) Subject to the payment in full of all Senior
Indebtedness and the irrevocable and complete termination of all
commitments and obligations to issue or fund any Senior Indebtedness
(and not before such time), the holder of this Note shall be
subrogated equally and ratably with the holders of all other Notes to
all rights of the holders of Senior Indebtedness to receive payments
or distributions of cash, property or securities of the Company
applicable to the Senior Indebtedness until the principal of and
interest on this Note shall be paid in full; and, for purposes of such
subrogation, no payments or distributions to the holders of Senior
Indebtedness of cash, property or securities distributable or paid
over to the holders of Senior Indebtedness under the provisions hereof
to which the holder of this Note or other Notes would be entitled
except for the provisions of this Article VIII shall, as between the
Company, its creditors other than the holders of Senior Indebtedness,
and the holder of this Note or of other Notes, be deemed to be a
payment by the Company to or on account of the Senior Indebtedness, it
being understood that the provisions of this Article VIII are and are
intended solely for the purposes of defining the relative rights of
the holder of this Note, the holders of other Notes and the holders of
the Senior Indebtedness.
(f) Nothing contained in this Article VIII or elsewhere in
this Note is intended to or shall impair, as between the Company, its
creditors other than the holders of Senior Indebtedness (and the
entities committed or obligated to issue or fund any Senior
Indebtedness), and the holder of this Note, the obligation of the
Company, which is absolute and unconditional, to pay to the holder
hereof the principal of and interest hereon, as and when the same
shall become due and payable in accordance with the terms hereof, or
is intended to or shall affect the relative rights of the holder
hereof and other creditors of the Company other than the holders of
the Senior Indebtedness (and the entities committed or obligated to
issue or fund any Senior Indebtedness), nor shall anything in this
Note prevent the holder from exercising all remedies otherwise
permitted by applicable law upon the happening of any Event of Default
under this Note, subject to the rights, if any, under this Article
VIII of the holders of Senior Indebtedness (and the entities committed
or obligated
-16-
to issue or fund any Senior Indebtedness) in respect of
cash, property or securities of the Company received upon the exercise
of any such remedy.
(g) Without notice to or the consent of the holder of this
Note, the holders of the Senior Indebtedness or the entities committed
or obligated to issue or fund any Senior Indebtedness may at any time
and from time to time, without impairing or releasing the
subordination herein made, change the manner, place or terms of
payment, or change or extend the time of payment of or renew or alter
the Senior Indebtedness or the commitment or obligation to issue or
fund any Senior Indebtedness, or amend or supplement in any manner any
instrument evidencing the Senior Indebtedness or the commitment or
obligation to issue or fund any Senior Indebtedness, any agreement
pursuant to which the Senior Indebtedness was issued or incurred or
any instrument securing or relating to the Senior Indebtedness or the
commitment or obligation to issue or fund any Senior Indebtedness;
release any person liable in any manner for the payment or collection
of the Senior Indebtedness; exercise or refrain from exercising any
rights in respect of the Senior Indebtedness against the Company or
any other person; apply any money or other property paid by any person
or released in any manner to the Senior Indebtedness; accept or
release any security for the Senior Indebtedness; sell, exchange,
release or otherwise deal with any property pledged, mortgaged or
otherwise securing Senior Indebtedness; or exercise or refrain from
exercising any rights against the Company or any other person; all
without thereby impairing in any respect the rights of such holders of
Senior Indebtedness as provided in this Article VIII.
SECTION 8.03 No Waiver of Subordination Provision. No right of any
present or future holder of any Senior Indebtedness of the Company to enforce
subordination, as herein provided, shall at any time in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms, provisions and covenants of this
Note, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
SECTION 8.04 Payments to Noteholder. Nothing contained in this Article
VIII or elsewhere in this Note, shall, however, affect the obligation of the
Company to make, or prevent the Company from making, at any time, except as
provided in Section 8.02, payments of principal of or interest on this Note.
SECTION 8.05 Authorization of Noteholder to Company to Effect
Subordination. The holder of this Note by his acceptance hereof irrevocably
authorizes and directs the Company on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article VIII and appoints the Company his attorney-in-fact for such purpose.
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SECTION 8.06 All Provisions of Note Qualified by Article VIII.
Notwithstanding anything herein contained to the contrary, all the provisions
of this Note shall, except as otherwise provided herein, be subject to the
provisions of this Article VIII, so far as the same may be applicable thereto.
ARTICLE IX.
Miscellaneous Provisions
SECTION 9.01 Successors and Assigns of Company Bound. All the
covenants, stipulations, promises and agreements in this Note contained by or
in behalf of the Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 9.02 Notice to Noteholder. When this Note provides for notice
to the holder of any event, such notice shall be sufficiently given (unless
otherwise expressly herein provided) if in writing and mailed, first class,
postage prepaid, to the holder at his address as it appears on the Note
Register, not later than the latest date, and not earlier than the earliest
date, prescribed for the giving of such notice. Any notice which is mailed to
the holder in the manner herein provided shall be conclusively presumed to have
been duly given. Where this Note provides for notice in any manner, such notice
may be waived in writing by the person entitled to receive such notice, either
before or after the event, and such waiver shall be the equivalent of such
notice.
SECTION 9.03 TEXAS CONTRACT. THIS NOTE SHALL BE DEEMED TO BE A
CONTRACT MADE UNDER THE LAWS OF THE STATE OF TEXAS, AND FOR ALL PURPOSES SHALL
BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF SAID STATE.
SECTION 9.04 Legal Holidays. In any case where the date of maturity of
interest on or principal of this Note or the date fixed for redemption of this
Note shall not be a Business Day, then payment of interest on or principal of
this Note need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the date of maturity
or the date fixed for redemption, and no interest shall accrue for the period
after such prior date.
SECTION 9.05 Severability. In case any provision of this Note shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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ARTICLE X.
Definitions
SECTION 10.01 Definitions. The terms defined in this Section 10.01
(except as herein otherwise expressly provided or unless the context otherwise
requires) for all purposes of this Note shall have the respective meanings
specified in this Section 10.01.
"Bankruptcy Code" shall mean the United States Bankruptcy Code, 11
United States Code ss. 101 et seq. or any successor statute thereto.
"Board of Directors", when used with reference to the Company, shall
mean the Board of Directors of the Company, or any committee of such Board
authorized to exercise the powers and authority of such Board with respect to
the action purportedly taken by such committee.
"Business Day" shall mean any day except a Saturday, a Sunday or a day
on which banking institutions in the City of Houston, Texas are authorized or
required by law to close.
"Indebtedness" shall mean the following, whether outstanding on the
date hereof or hereafter created, incurred, assumed or guaranteed, (a) the
principal of, premium if any, and interest on (i) indebtedness of the Company
for money borrowed, (ii) indebtedness of the Company evidenced by bonds, notes,
debentures or similar obligations, (iii) capitalized lease obligations, (iv)
indebtedness or obligations incurred, assumed or guaranteed by the Company in
connection with the acquisition or improvement of any property or asset or the
acquisition by it or by a Subsidiary of any business, (v) indebtedness of
others of the kinds described in the preceding clauses (i), (ii), (iii), and
(iv), assumed or guaranteed by the Company or in effect guaranteed by the
Company through an agreement to purchase or otherwise, (vi) obligations which
would be classified as liabilities on the balance sheet of the Company in
accordance with generally accepted accounting principles, evidencing the
purchase price for the acquisition of assets of any kind, tangible or
intangible, by the Company or a Subsidiary, except in the ordinary course of
business, and (b) any increases, refundings, renewals, rearrangements or
extensions of and amendments, modifications and supplements to any
indebtedness, liability or obligation described in clause (a) above.
"Junior Indebtedness" shall mean Indebtedness which, by the terms of
the instrument by which such Indebtedness is created or evidenced, ranks junior
and subordinate in right of payment to the Notes.
"Note" shall mean this Note and any Note issued on exchange or
transfer hereof.
-19-
"Noteholder," "holder of this Note" or other similar terms mean any
person in whose name at the time this Note shall be registered in the Note
Register kept for that purpose in accordance with the terms hereof.
"Pari Passu Debt" shall mean any Indebtedness other than (a) Senior
Indebtedness and (b) Junior Indebtedness.
"Senior Bank Lenders" means any commercial lending institution or
group of commercial lending institutions that are or become parties to the
Company's principal working capital, acquisition financing or long-term debt
credit facilities.
"Senior Indebtedness" shall mean whether outstanding on the date
hereof or hereafter created, incurred, assumed or guaranteed, the principal of,
premium if any, and interest on Indebtedness for money borrowed by the Company
in an aggregate amount not exceeding Fifty Million and No/100 Dollars
($50,000,000.00) and owed to Senior Bank Lenders.
"Subsidiary" shall mean any corporation of which the Company, or the
Company and one or more Subsidiaries, or any one or more Subsidiaries, directly
or indirectly own voting securities entitling the holders thereof to elect a
majority of the directors, either at all times or so long as there is no
default or contingency which permits the holders of any other class or classes
of securities to vote for the election of one or more directors.
IN WITNESS WHEREOF, the Company has caused this instrument to be
executed by a duly authorized officer and has caused a facsimile or its
corporate seal to be imprinted hereon.
ADVANCED COMMUNICATIONS GROUP, INC.
[SEAL]
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
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EXHIBIT A
[Form of Conversion Notice]
To Advanced Communications Group, Inc.:
The undersigned registered holder of $_________ principal amount of
10% Senior Convertible Subordinated Notes due [anniversary date of closing],
1999 of Advanced Communications Group, Inc. (the "Note") hereby irrevocably
exercises the option to convert the Note into shares of Common Stock of
Advanced Communications Group, Inc. in accordance with the terms of Section
4.01 of the Note, and directs that the shares issuable and deliverable upon
such conversion, together with a check in payment for any fractional share, be
issued and delivered to the holder hereof unless a different name has been
indicated below. If shares are to be issued in the name of a person other than
the undersigned, this Note must be duly endorsed by, or accompanied by
instruments of transfer in form satisfactory to Advanced Communications Group,
Inc. duly executed by, the undersigned, and the undersigned will pay all
transfer taxes payable with respect thereto.
Dated:
----------------------- -----------------------------------
Signature of Noteholder
If different from that of Noteholder, print name, address (including zip code)
and social security or other taxpayer identification number of person in whose
name the Common Stock will be issued:
---------------------------------------
---------------------------------------
---------------------------------------
(zip code)
---------------------------------------
Social Security or other Taxpayer
Identification Number of Noteholder
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ANNEX IV
ADVANCED COMMUNICATIONS GROUP, INC.
NON-TRANSFERRABLE SERIES G WARRANT
Total Number of Series G Warrants: 50,000 Warrant No. G
Number of Series G Warrants represented
by this Warrant Certificate:
This Warrant Certificate certifies that, for value received,
is the registered holder of the number of Warrants set forth above. Each
Warrant entitles the holder thereof, at any time or from time to time after the
closing and (b) on or before the Expiration Date, to purchase from the Company
one fully paid and nonassessable share of Common Stock at the Exercise Price,
subject to adjustment as provided herein.
"Acts" means the Securities Act of 1933, as amended, and applicable
state securities laws.
"Agreement" means the Agreement and Plan of Exchange dated as of
October 6, 1997 by and among Company, Firstel and others, including the initial
registered holder of this Warrant Certificate.
"Board of Directors" means the board of directors of the Company (or
any authorized committee thereof).
"Closing" means the consummation of the purchase and sale of the
outstanding capital stock of FirsTel as contemplated by the Agreement.
"Closing Date" means the date upon which the Closing occurs.
"Common Stock" means the Common Stock, $.0001 par value per share, of
the Company, or such other class of securities as shall then represent the
common equity of the Company.
"Common Stock Equivalent" means any Convertible Security or any
warrant, option or other right to subscribe for or purchase Common Stock or any
Convertible Security, other than pursuant to Employee Benefit Plans.
"Company" means Advanced Communications Group, Inc., a Delaware
corporation organized in September 1997.
"Conversion Securities" means the Common Stock or other securities or
property receivable on the exercise of the Warrants.
"Convertible Security" means any security or evidence of indebtedness
that is convertible into or exchangeable for Common Stock.
"Employee Benefit Plans" means all thrift plans, stock purchase plans,
stock bonus plans, stock option plans, employee stock ownership plans and other
incentive or profit sharing arrangements for the benefit of employees.
"Exercise Price," subject in all circumstances to adjustment in
accordance with Section 3, means $_____ [IPO Price].
"Expiration Date" means 5:00 p.m., Houston Time on the fifth
anniversary of the Closing Date.
"FirsTel" means Firstel, Inc., a South Dakota corporation.
"Market Price" means the average Price per share of Common Stock for
the 20 Trading Days immediately preceding the date of authorization of the
issuance of any shares of Common Stock by the Board of Directors.
"Price" on any day means the reported last sale price per share of
Common Stock regular way on such day or, in case no such sale takes place on
such day, the average of the reported closing bid and asked prices regular way,
in each case on the New York Stock Exchange, or, if the Common Stock is not
listed or admitted to trading on such Exchange, on the American Stock Exchange,
or, if the Common Stock is not listed or admitted to trading on such Exchange,
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading, or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the average of the
closing bid and asked prices in the over-the-counter market as reported by the
National Association of Securities Dealers' Automated Quotation System, or, if
not so reported, as reported by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the average of the closing bid
and asked prices as furnished by any member of the National Association of
Securities Dealers, Inc. selected from time to time by the Company for that
purpose; or, in all other
-2-
cases, the value established by the Board of Directors in good faith; and the
"average" Price per share for any period shall be determined by dividing the
sum of the Prices determined for each Trading Day in such period by the number
of Trading Days in such period.
"Trading Day" means a day on which the principal national securities
exchange on which the Common Stock is listed or admitted to trading is open for
the transaction of business or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in New York City are not
authorized or obligated by law or executive order to close.
"Warrants" means the Series G Warrants represented by this Warrant
Certificate.
1. EXERCISE OF WARRANTS. (a) The Warrants evidenced by this Warrant
Certificate may be exercised in whole or in part by presentation and surrender
at the office of the Company specified herein of (i) this Warrant Certificate
with the Election To Exercise duly completed and executed, and (ii) payment of
the Exercise Price as then in effect, by bank draft or cashier's check, for the
number of Warrants being exercised. If the holder of this Warrant Certificate
at any time exercises less than all the Warrants evidenced by this Warrant
Certificate, the Company shall issue to such holder a Warrant Certificate
identical in form to this Warrant Certificate, but evidencing a number of
Warrants equal to the number of Warrants originally represented by this Warrant
Certificate less the number of Warrants previously exercised.
(b) To the extent that the Warrants evidenced by this Warrant
Certificate have not been exercised at or prior to the Expiration Date, such
Warrants shall expire and the rights of the holder shall become void and of no
effect.
2. RESTRICTIONS ON TRANSFER. THE WARRANTS EVIDENCED BY THIS WARRANT
CERTIFICATE MAY NOT BE SOLD, ASSIGNED, EXCHANGED, TRANSFERRED, ENCUMBERED,
PLEDGED, DISTRIBUTED OR OTHERWISE DISPOSED OF EXCEPT IN THE LIMITED INSTANCES
PROVIDED IN SECTION 16 OF THE AGREEMENT. ACCORDINGLY, SUCH WARRANTS HAVE NOT
BEEN REGISTERED UNDER THE ACTS IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION
PROVISIONS THEREOF. The holder hereof acknowledges that the Conversion
Securities may not be directly or indirectly sold, transferred or otherwise
disposed of in violation of the provisions of the Acts. Any purported sale,
transfer or other disposition of this Warrant Certificate, the Warrants
evidenced hereby or the Conversion Securities in violation of this provision
shall be void and the Company shall not be required to recognize the same.
Compliance with this provision is the responsibility of the holder. Each
certificate representing Conversion Securities shall bear a legend
substantially similar to the bold-faced legend appearing in Section 17 of the
Agreement. Reference is made to Sections 16, 17, 18 and 19 of the Agreement
that relate to the non-transferability of the
-3-
Warrants, the type of legend that shall be imprinted on Conversion Securities
and the rights of the holders of Conversion Securities to secure registration
of their securities under the Acts under certain circumstances. Such sections
are incorporated by reference herein. The Company shall deem and treat the
registered holder of this Warrant Certificate as the true and lawful owner of
the Warrants evidenced hereby for all purposes, any claims of another person to
the contrary notwithstanding.
3. ANTIDILUTION ADJUSTMENTS. The shares of Common Stock purchasable on
exercise of the Warrants evidenced by this Warrant Certificate are shares of
Common Stock as constituted as of the Closing Date. The number and kind of
securities purchasable on the exercise of the Warrants evidenced by this
Warrant Certificate, and the Exercise Price, shall be subject to adjustment
from time to time upon the happening of certain events, as follows:
(a) Mergers, Consolidations and Reclassifications. In case of any
reclassification or change of outstanding securities issuable upon exercise of
the Warrants evidenced by this Warrant Certificate at any time after the
Closing Date (other than a change in par value, or from par value to no par
value, or from no par value to par value or as a result of a subdivision or
combination to which paragraph (b) of this Section 3 applies), or in case of
any consolidation or merger of the Company with or into another corporation
(other than a merger with another corporation in which the Company is the
surviving corporation and which does not result in any reclassification or
change [other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination
to which paragraph (b) of this Section 3 applies] in the securities issuable
upon exercise of this Warrant), the holder of the Warrants evidenced by this
Warrant Certificate shall have, and the Company, or such successor corporation
or other entity, shall covenant in the constituent documents effecting any of
the foregoing transactions that such holder does have, the right to obtain upon
the exercise of the Warrants evidenced by this Warrant Certificate, in lieu of
each share of Common Stock, other securities, money or other property
theretofore issuable upon exercise of a Warrant, the kind and amount of shares
of stock, other securities, money or other property receivable upon such
reclassification, change, consolidation or merger by a holder of the shares of
Common Stock, other securities, money or other property issuable upon exercise
of a Warrant if the Warrants evidenced by this Warrant Certificate had been
exercised immediately prior to such reclassification, change, consolidation or
merger. The constituent documents effecting any such reclassification, change,
consolidation or merger shall provide for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided in paragraph (a)
of this Section 3. The provisions of paragraph (a) of this Section 3 shall
similarly apply to successive reclassifications, changes, consolidations or
mergers.
(b) Subdivisions and Combinations. If the Company, at any time
after the Closing Date, shall subdivide its shares of Common Stock into a
greater number of shares (or pay to any holders of securities of the Company a
dividend payable in, or make any other distribution of, Common Stock), the
Exercise Price in effect immediately prior to such subdivision shall be
proportionately reduced, and the number of shares of Common Stock purchasable
upon exercise of
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the Warrants evidenced by this Warrant Certificate shall be proportionately
increased, as at the effective date of such subdivision, dividend or
distribution or if the Company shall take a record of holders of its Common
Stock for such purpose, as at such record date, whichever is earlier. If the
Company, at any time after the Closing Date, shall combine its shares of Common
Stock into a smaller number of shares, the Exercise Price in effect immediately
prior to such combination shall be proportionately increased, and the number of
shares of Common Stock purchasable upon exercise of the Warrants evidenced by
this Warrant Certificate shall be proportionately reduced, as at the effective
date of such combination, or if the Company shall take a record of holders of
its Common Stock for purposes of such combination, as at such record date,
whichever is earlier.
(c) Certain Issuances of Securities. If the Company at any time
after the Closing Date shall issue any additional shares of Common Stock
(otherwise than as provided in paragraphs (a) through (b) of this Section 3) at
a price per share less than the Market Price, then the Exercise Price upon each
such issuance shall be adjusted to that price determined by multiplying the
Exercise Price by a fraction:
i. the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock multiplied by the
Market Price, and (2) the consideration, if any, received and deemed
received by the Company upon the issuance of such additional shares of
Common Stock, and
ii. the denominator of which shall be the Market Price
multiplied by the total number of shares of Common Stock outstanding
immediately after the issuance of such additional shares of Common
Stock.
No adjustments of the Exercise Price shall be made under paragraph (c)
of this Section 3 upon the issuance of any additional shares of Common Stock
that (v) are issued pursuant to Employee Benefit Plans that otherwise would
cause an adjustment under paragraph (c) of this Section 3; provided that the
aggregate number of shares of Common Stock so issued (including the shares
issued pursuant to any options, rights or warrants or convertible or
exchangeable securities issued under such Employee Benefit Plans containing the
right to purchase shares of Common Stock) pursuant to Employee Benefit Plans
shall not exceed 10% of the Company's outstanding Common Stock (on a fully
diluted basis using the treasury stock method) at the time of such issuance;
(w) are issued pursuant to any Common Stock Equivalent (i) which was
outstanding on the Closing Date or (ii) if upon the issuance of any such
Common Stock Equivalent, any such adjustments shall previously have been made
pursuant to paragraph (d) of this Section 3 or (iii) if no adjustment was
required pursuant to paragraph (d) of this Section 3.
(d) Common Stock Equivalents. If the Company shall, after the
Closing Date, issue any Common Stock Equivalent, or if, after any such
issuance, the price per share for which
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additional shares of Common Stock may be issuable thereunder is amended, then
the Exercise Price upon each such issuance or amendment shall be adjusted as
provided in paragraph (c) of this Section 3 on the basis that (i) the maximum
number of additional shares of Common Stock issuable pursuant to all such
Common Stock Equivalents shall be deemed to have been issued as of the earlier
of (a) the date on which the Company shall enter into a firm contract for the
issuance of such Common Stock Equivalent, or (b) the date of actual issuance of
such Common Stock Equivalent; and (ii) the aggregate consideration for such
maximum number of additional shares of Common Stock shall be deemed to be the
minimum consideration received and receivable by the Company for the issuance
of such additional shares of Common Stock pursuant to such Common Stock
Equivalent; provided, however, that no adjustment shall be made pursuant to
paragraph (d) of this Section 3 unless the consideration received and
receivable by the Company per share of Common Stock for the issuance of such
additional shares of Common Stock pursuant to such Common Stock Equivalent is
less than the Market Price. No adjustment of the Exercise Price shall be made
under paragraph (d) of this Section 3 upon the issuance of any Convertible
Security which is issued pursuant to the exercise of any warrants or other
subscription or purchase rights therefor, if any adjustment shall previously
have been made in the Exercise Price then in effect upon the issuance of such
warrants or other rights pursuant to paragraph (d) of this Section 3.
(e) Miscellaneous. The following provisions shall be applicable
to the making of adjustments in the Exercise Price hereinbefore provided in
this Section 3:
i. The consideration received by the Company shall be deemed
to be the following: (I) to the extent that any additional shares of
Common Stock or any Common Stock Equivalent shall be issued for cash
consideration, the consideration received by the Company therefor, or,
if such additional shares of Common Stock or Common Stock Equivalent
are offered by the Company for subscription, the subscription price,
or, if such additional shares of Common Stock or Common Stock
Equivalent are sold to underwriters or dealers for public offering
without a subscription offering, the initial public offering price, in
any such case excluding any amounts paid or receivable for accrued
interest or accrued dividends and without deduction of any
compensation, discounts, commissions or expenses paid or incurred by
the Company for and in the underwriting of, or otherwise in connection
with, the issue thereof; (II) to the extent that such issuance shall
be for a consideration other than cash, then, except as herein
otherwise expressly provided, the fair value of such consideration at
the time of such issuance as determined in good faith by the Board of
Directors, as evidenced by a certified resolution of such Board of
Directors delivered to the holder of this Warrant Certificate setting
forth such determination. The consideration for any additional shares
of Common Stock issuable pursuant to any Common Stock Equivalent shall
be the consideration received by the Company for issuing such Common
Stock Equivalent, plus the additional consideration payable to the
Company upon the exercise, conversion or exchange of such Common Stock
Equivalent. In case of the issuance at any time of any additional
shares of Common Stock or Common Stock Equivalent in payment
-6-
or satisfaction of any dividend upon any class of stock
other than Common Stock, the Company shall be deemed to have received
for such additional shares of Common Stock or Common Stock Equivalent
(which shall not be deemed to be a dividend payable in, or other
distribution of, Common Stock under paragraph (b) of this Section 3)
consideration equal to the amount of such dividend so paid or
satisfied.
ii. Upon the expiration of the right to convert, exchange or
exercise any Common Stock Equivalent the issuance of which effected an
adjustment in the Exercise Price, if any such Common Stock Equivalent
shall not have been converted, exercised or exchanged, the number of
shares of Common Stock deemed to be issued and outstanding because
they were issuable upon conversion, exchange or exercise of any such
Common Stock Equivalent shall no longer be computed as set forth
above, and the Exercise Price shall forthwith be readjusted and
thereafter be the price which it would have been (but reflecting any
other adjustments in the Exercise Price made pursuant to the
provisions of paragraph (c) of this Section 3 after the issuance of
such Common Stock Equivalent) had the adjustment of the Exercise Price
made upon the issuance or sale of such Common Stock Equivalent been
made on the basis of the issuance only of the number of additional
shares of Common Stock actually issued upon exercise, conversion or
exchange of such Common Stock Equivalent and thereupon only the number
of additional shares of Common Stock actually so issued shall be
deemed to have been issued and only the consideration actually
received by the Company (computed as in subparagraph (i) of paragraph
(e) of this Section 3) shall be deemed to have been received by the
Company.
iii. The number of shares of Common Stock at any time
outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Company or its
Subsidiaries (as defined in the Agreement).
iv. For the purposes of this Section 3, the term "shares of
Common Stock" shall mean shares of (i) the class of stock designated
as the Common Stock of the Company at the Closing Date or (ii) any
other class of stock resulting from successive changes or
reclassifications of such shares consisting solely of changes in par
value, or from par value to no par value, or from no par value to par
value. If at any time, because of an adjustment pursuant to paragraph
(a) of this Section 3, the Warrants shall entitle the holders to
purchase any securities other than shares of Common Stock, thereafter
the number of such other securities so purchasable upon exercise of
each Warrant and the Exercise Price of such securities shall be
subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Warrants contained in this Section 3.
(f) Calculation of Exercise Price. The Exercise Price in effect
from time to time shall be calculated to four decimal places and
rounded to the nearest thousandth.
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4. NOTICE OF ADJUSTMENT TO EXERCISE PRICE. Whenever the Exercise Price
is required to be adjusted as provided in Section 3, the Company shall
forthwith compute the adjusted Exercise Price and shall prepare and mail to the
holder hereof a certificate setting forth such adjusted Exercise Price and
showing in reasonable detail the facts upon which such adjustment is based.
5. VOLUNTARY REDUCTION. The Company may make such decreases in the
Exercise Price as shall be determined by it, as evidenced by a certified
resolution of the Board of Directors delivered to the holders, to be advisable
to avoid or diminish any income tax to the holder resulting from any dividend
or distribution of stock or issuance of rights or warrants to purchase or
subscribe for stock or from any event treated as such for income tax purposes.
Whenever the Exercise Price is reduced, the Company shall mail to the holder a
notice of the reduction at least 15 days before the date the reduced Exercise
Price takes effect, stating the reduced Exercise Price and the period for which
such reduced Exercise Price will be in effect.
6. NOTICES TO WARRANT HOLDER. In the event:
(a) of any consolidation or merger to which the Company is a
party and for which approval of any stockholders of the Company is required, or
of the conveyance or sale of all or substantially all of the assets of the
Company, or of any reclassification or change of the Common Stock or other
securities issuable upon exercise of the Warrants (other than a change in par
value, or from par value to no par value, or from no par value to par value or
as a result of a subdivision or combination), or a tender offer or exchange
offer for all shares of Common Stock (or other securities issuable upon the
exercise of the Warrants); or
(b) the Company shall declare any dividend (or any other
distribution) on the Common Stock, other than regular cash dividends; or
(c) the Company shall authorize the granting to the holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
any class or series of capital stock; or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be sent to the holder hereof, at least
30 days prior to the applicable record date hereinafter specified, or promptly
in the case of events for which there is no record date, a written notice
stating (x) the date for the determination of the holders of record of shares
of Common Stock (or other securities issuable upon the exercise of the
Warrants) entitled to receive any such dividends or other distribution, (y) the
initial expiration date set forth in any tender offer or exchange offer for
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants), or (z) the date on which any such consolidation, merger, conveyance,
transfer,
-8-
dissolution, liquidation or winding up is expected to become effective or
consummated, and the date as of which it is expected that holders of record of
shares of Common Stock (or other securities issuable upon the exercise of the
Warrants) shall be entitled to exchange such shares for securities or other
property, if any, deliverable upon such reclassification, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up. Failure
to give such notice or any defect therein shall not affect the legality or
validity of any distribution, right, option, warrant, issuance, consolidation,
merger, conveyance, transfer, dissolution, liquidation or winding up, or the
vote upon any action.
7. REPORTS TO HOLDERS. The Company will cause to be delivered, by
first-class mail, postage prepaid, to the holder at such holder's address
appearing hereon, or such other address as the holder shall specify, a copy of
any reports delivered by the Company to the holders of Common Stock.
8. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) Until the Expiration Date, the Company shall at all times
reserve and keep available, free from preemptive rights, out of the aggregate
of its authorized but unissued Common Stock (and other securities), for the
purpose of enabling it to satisfy any obligation to issue shares of Common
Stock (and other securities) upon the exercise of the Warrants evidenced by
this Warrant Certificate, the number of shares of Common Stock (and other
securities) issuable upon the exercise of such Warrants.
(b) All Common Stock (and other securities) which may be issued
upon exercise of the Warrants evidenced by this Warrant Certificate shall upon
issuance be validly issued, fully paid, non-assessable and free from all taxes,
liens and charges with respect to the issuance thereof.
9. NO RIGHTS AS STOCKHOLDER. The holder of the Warrants evidenced by
this Warrant Certificate shall not, by virtue of holding such Warrants, be
entitled to any rights of a stockholder of the Company either at law or in
equity, and the rights of the holder of the Warrants evidenced by this Warrant
Certificate are limited to those expressed herein.
10. NOTICES. All notices provided for hereunder shall be in writing
and may be given by registered or certified mail, return receipt requested,
telex, telegram, telecopier, air courier guaranteeing overnight delivery of
personal delivery, if to the holder at the following address:
FirsTel, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
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and, if to the Company:
Advanced Communications Group, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attention: Chairman and Chief Executive Officer
Telecopier: (▇▇▇) ▇▇▇-▇▇▇▇
11. GOVERNING LAW. This Warrant Certificate shall be governed by and
construed in accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed this _____ day of __________, 1997 by its Chairman and Chief
Executive Officer, thereunto duly authorized.
ADVANCED COMMUNICATIONS GROUP, INC.
By:
-------------------------------------
▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Chairman and Chief Executive Officer
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ELECTION TO EXERCISE
[To be executed on exercise of the Warrants evidenced by this
Warrant Certificate]
TO: Advanced Communications Group, Inc.
The undersigned, the holder of the Warrants evidenced by the attached
Warrant Certificate, hereby irrevocably elects to exercise Warrants, and
herewith makes payment of ($ ) representing the aggregate Exercise Price
thereof, and requests that the certificate representing the securities issuable
hereunder be issued in the name of _____________________ and delivered to ,
whose address is_______________________________. .
Dated:___________________ ___________________________________________
________________________________________
Signature(s) of Registered Holder(s)
Note: The above signature(s) must
correspond with the name as written on
the face of this Warrant Certificate in
every particular, without alteration or
enlargement or any change whatsoever.
-11-
ANNEX V
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of ___________,
1997, by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("Employee") and FirsTel, Inc., a South Dakota
corporation ("Company") (collectively referred to as the "Parties"). The
Company and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and the Company, the Company
employs Employee, and Employee accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc. ("ACG"), a Delaware corporation. Unless the
context otherwise clearly requires, all references to ACG in this Agreement
shall include ACG, the Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the fifth anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for his services to the Company under this Agreement,
the Company shall pay to Employee during the term of this Agreement a
base salary ("Base Salary") of $175,000 per annum, payable in equal
semi-monthly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions
applied generally to employees of the Company for any employee benefit
plans.
3.2 After the first twelve consecutive months of employment after the date
first set forth above, and after every consecutive twelve-month period
thereafter, Employee shall be eligible to receive a potential cash
bonus up to 50% of Employee's Base Salary ("Bonus") to be based upon
his performance as determined by the Compensation Committee of the
Board of Directors ("Compensation Committee") of ACG. Employee agrees
that the decision as to whether to award a Bonus and the percentage
amount thereof will be made by the Compensation Committee and will be
based upon the criteria set by such committee.
3.3 Employee will be entitled to two weeks of paid vacation annually
during the term of this Agreement.
3.4 Employee will be awarded one hundred thousand (100,000) options to
acquire common stock in Advanced Communications Group, Inc. at an
exercise price equal to the initial public offering price per share.
The options shall have a term of five years and shall become
exercisable in one-third increments on each anniversary date of the
date hereof. Accordingly, the options shall become fully vested three
years from the date hereof; provided, however, that the vesting of
such options will be accelerated in the event of the termination of
Employee's employment hereunder pursuant to Sections 6.1(b),(d) or
(f), and in the event of any other termination, no options shall vest
after the date of termination. The options shall, except as provided
herein, be granted pursuant to ACG's 1997 Stock Awards Plan, a copy of
which has heretofore been delivered to Employee. The options shall,
except as provided herein, be subject to such terms and conditions as
may be prescribed by the Compensation Committee.
3.5 Employee shall receive benefits commensurate with his level of
employment under the executive employee benefits plans of ACG.
4. Duties and Extent of Service.
Employee shall hold the office of President of the Company. At no additional
compensation, Employee shall also serve Advanced Communications Group, Inc. as
its President -- Telecommunications Group. Employee agrees to perform the
duties incidental to his positions, as determined from time to time by the
Chief Executive Officer of Advanced Communications Group, Inc. Employee shall
devote such time, attention, and energy to the business of ACG as are required
to perform his duties and responsibilities. Employee shall not after the date
hereof and during the remaining term of this Agreement -- except in connection
with (i) Employee's ownership interest in ▇▇▇▇▇▇▇, Comes, ▇▇▇▇▇ & Co., P.C.,
(ii) the occasional services provided with respect thereto, (iii) his
director's positions held on the Family Bank and SGL Holding Co. boards of
directors, and (iv) his indirect involvement with ▇▇▇▇▇▇ Designs, Ltd., which
is his wife's gift store -- be engaged, directly or indirectly, in any other
business activity if pursued for gain, profit, or other pecuniary advantage
without the prior written consent of the Chief Executive Officer of Advanced
Communications Group, Inc. In any event after the date hereof, Employee shall
not take any action inconsistent with Employee's relationship and
responsibilities as an employee of the Company and ACG, or take any action
which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
-2-
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that he will have access to
certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information includes,
but is not limited to: customer names; contracts; products purchased
by customers; production capabilities and processes; customer account
and credit data; referral sources; computer programs and software;
names and information relating to potential acquisition candidates;
financing sources and other business relationships; information
relating to confidential or secret designs, processes, formulae,
plans, devices, or materials of ACG's business and marketing plans,
confidential information and trade secrets relating to the
distribution and marketing of ACG's products and services; patents
pending; confidential characteristics of ACG's products and services;
customer comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG; management,
accounting, and reporting systems, procedures, and programs; off net
contracts, leases, marketing agreements, sales employee compensation
information, plans, and programs; marketing and financial analysis,
plans, research, programs, and related information and data; forms,
agreements, and legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and other
similar information.
5.2 Employee acknowledges and agrees that this Confidential Information
constitutes valuable, special, and unique property of ACG.
5.3 Employee will not, at any time during or within five years after the
term of this Agreement or his employment with ACG, disclose any
Confidential Information to any person, firm, corporation,
association, or other entity for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any information in
Employee's possession before its disclosure to Employee by ACG, the
Company or the Company's predecessor in interest; or (b) information
that is or shall lawfully be published or become part of the general
knowledge through no act or omission of Employee. The Confidential
Information disclosed to Employee under this Agreement is not within
the foregoing exceptions merely because such information is embraced
by more general information in the public domain or in Employee's
possession; or merely because portions thereof are in the public
domain or in Employee's possession.
-3-
5.5 To protect the confidentiality of the Confidential Information,
Employee further agrees that while employed by ACG and for a period of
one year (in the case of involuntary termination) or two years ( in
the case of termination that is not involuntary termination)
immediately after the termination of this Agreement or his employment
with ACG, he will not, for himself, or on behalf of any other person,
firm, partnership, company, or corporation (i) generally compete in
any manner whatsoever with ACG or solicit, accept, divert, or take
away from ACG the business of any person, company, or business; (ii)
directly or indirectly induce or attempt to influence any employee,
officer, director, consultant, agent, vendor or other entity related
to ACG to terminate his or her employment or association in any manner
whatsoever with ACG; or (iii) engage in any commercial or technical
activity involving the development, formulation, manufacture,
production, distribution, marketing or sale of any product and
services that ACG designs, produces, manufactures, distributes,
markets or sells during the term of this Agreement or Employee's
employment with ACG. The prescribed territory in which Employee shall
not compete with ACG as outlined in this Paragraph 5.5 shall consist
of all of those areas of the United States in which ACG is doing
business at the time of Employee's termination of employment. The
obligations of Employee pursuant hereto are additional to the
obligations described in Section 15 of the Agreement and Plan of
Exchange dated contemporaneously herewith.
5.6 Employee understands and acknowledges that, due to the unique nature
of the products and services provided by ACG and the need for sales
personnel to have a relatively high degree of technical knowledge
concerning these products and services, employment by ACG, including
the special training, knowledge, and confidential information that
will be acquired in the course of such employment, will give Employee
distinct and substantial advantages for potential sales activities
concerning such products and services. Employee further understands
and acknowledges that: because of the definition of products and
services covered by this Agreement, the highly specialized nature of
those products and services, the limited size and number of business
entities in the business of developing and/or selling those products
and services, and the much more numerous opportunities for Employee to
work in his trade with respect to products and services not covered by
this Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly onerous
on Employee. Employee therefore agrees that the limitations as to
time, geographic area, and scope of activity contained in Paragraph
5.5 do not impose a greater restraint than is necessary to protect the
Confidential Information, goodwill, and other business interests of
ACG. Employee also
-4-
agrees that in light of the facts acknowledged above, the substantial
investment of ACG in developing its business and providing special
training to Employee, and the certain and substantial harm that ACG
would suffer if Employee were to engage in any of the activities
described in Paragraph 5.5, ACG's need for the protection afforded by
Paragraph 5.5 is greater than any hardship Employee might experience
by complying with its terms. Employee also agrees that, if any
provision of the covenant set forth in Paragraph 5.5 is found to be
invalid in part or whole, ACG may elect, but shall not be required, to
have such provision reformed, whether as to time, geographic area,
scope of activity, or otherwise, as and to the extent required for its
validity under applicable law, and, as so reformed, such provisions
shall be enforceable.
5.7 Employee acknowledges that a violation or attempted violation on his
part of any provision in this Paragraph 5 may cause irreparable damage
to ACG. Accordingly, in the event of a breach or threatened breach by
Employee of the provisions of this Paragraph 5, Employee agrees that
ACG shall be entitled as a matter of right to an injunction, out of
any court of competent jurisdiction, restraining any violation or
further violation of such agreements by Employee or his agents,
without showing any evidence of actual monetary loss resulting from
such breach, including, but not limited to, restraining Employee from
using or disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any person,
firm, corporation, or other entity to whom any of such information may
have been disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be construed as
prohibiting ACG from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of damages
and attorneys' fees from Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on the
occurrence of any of the following events:
(a) End of Term: If the term of employment under the Agreement or any
term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or becomes
disabled such that he no longer is reasonably able to perform his
duties as contemplated by this Agreement, the Company shall pay
to Employee, or to the estate of Employee if he dies, that part
of his
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Base Salary which would otherwise be payable to Employee through
the end of the month in which his death or disability occurs,
after giving effect to accrued sick leave benefits and accrued
vacation time, if any. Upon such payment, as well as applicable
insurance benefits, if any, all obligations of ACG to the
Employee or his estate shall be fully satisfied, and this
Agreement shall terminate.
(c) Resignation of Employee: If Employee resigns prior to the end of
the term of this Agreement, this Agreement shall terminate
immediately, and the Company shall pay to Employee that part of
his Base Salary which would otherwise be payable to Employee
through the effective date of his resignation. Upon such payment,
all obligations in any manner whatsoever of ACG to Employee shall
be fully satisfied.
(d) Change in Ownership, Management, or Employee's Responsibilities:
If there is a change in the ownership or management of ACG after
the date hereof, and either of these changes significantly alters
Employee's job responsibilities or compensation, Employee may
resign from his positions within 60 days of such a change. If
Employee resigns pursuant to this paragraph, the Company will
continue to provide Employee with his monthly compensation for a
period of two years after the initial date of any such change.
Employee is not entitled to receive any Bonus if he resigns as
provided in this paragraph. For the period after Employee's
resignation during which Employee will be paid, Employee will not
have any authority to act on behalf of ACG. If such a change in
control and either job responsibilities or compensation occurs
and Employee's employment under this Agreement is terminated
without cause or Employee resigns pursuant to this paragraph, any
of Employee's options that have not vested shall immediately
become fully vested.
(e) Termination by the Company "With Cause." If Employee (i) violates
any material provision of this Agreement; (ii) fails to perform
the services required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG; and/or (iv) is
convicted of a crime other than a routine traffic violation, ACG
may terminate the employment of Employee with cause. If Employee
is terminated "with cause," Employee shall not be entitled to
receive any further salary or benefits under this Agreement other
than payment for that part of Employee's compensation that would
otherwise be payable to Employee through the last date of his
employment with ACG. Upon
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such payment, all obligations of ACG to Employee shall be fully
satisfied, and this Agreement will terminate. Employee shall not
be entitled to receive any Bonus or accrued vacation pay if his
termination is "with cause."
(f) Termination by the Company Without Cause. In the event the
Company terminates Employee's employment for any reason other
than as described in (d) or (e) above, Employee shall be entitled
to the Base Salary for a period of one year from termination.
6.2 Termination of this Agreement shall not relieve Employee of any
continuing obligations expressly provided in this Agreement,
including, without limitation, those set forth in Paragraph 5.
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents, data,
accounting records, personnel files, computer terminals, equipment,
and other records and written material prepared or compiled by
Employee or furnished to Employee while in the employ of ACG shall be
the sole and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies thereof,
shall be retained by Employee upon termination of his employment. This
ACG property shall not be removed from ACG premises without ACG's
prior written consent.
7.2 Upon termination of this Agreement or whenever requested by ACG,
Employee immediately shall deliver to ACG all of the ACG property or
any of ACG's documents in Employee's possession or under Employee's
control, including, but not limited to, all documents or data,
Confidential Information, accounting records, computer terminals,
data, discs, printouts and tapes, accounting machines, and all office
furniture and fixtures, supplies, equipment, and other personal
property placed in the office of ACG. No copies of any such data shall
be retained by Employee.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at FirsTel, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (Telecopy No.: 605-332-8004),
and to the Company, c/o ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, or to such other address as either party shall designate
by written notice to the other. Notices may be sent by
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messenger or by registered or certified mail, postage prepaid, addressed to the
party or parties to be notified, with return receipt requested. Notices sent by
messenger shall be deemed received upon their actual receipt of the party to
whom they are directed. Notices sent by registered or certified mail shall be
deemed received on the third day following their deposit with the United States
Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by ACG or Employee concerning the subject matter contained in this
Agreement, including, but not limited to, Employee's employment, termination
from, and/or affiliation with ACG shall be settled by arbitration in Houston,
Texas, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. In reaching his or
her decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement. Any and all charges that may be made for the cost
of the arbitration and the fees and expenses of the arbitrator shall be borne
equally by the parties; attorneys' fees and witness expenses shall be borne by
the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of ACG under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of
ACG. This Agreement shall be binding upon the Employee and his agents,
heirs, executors, administrators and legal representatives. The rights
and obligations of Employee hereunder shall not be assignable by
Employee.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one
instrument.
10.4 This Agreement contains the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written,
and there are no other warranties, representations, covenants or
agreements among ACG, the Employee and ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ in connection
with the subject matter hereof.
10.5 The waiver by ACG of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by ACG of any
subsequent breach by Employee.
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10.6 If a court of competent jurisdiction shall adjudge to be invalid any
clause, sentence, subparagraph, paragraph or section of this
Agreement, such judgment or decree shall not affect, impair,
invalidate, or nullify the remainder of this Agreement, but the effect
thereof shall be confined to the clause, sentence, subparagraph,
paragraph, or section so adjudged to be invalid.
The parties have executed this Agreement to be effective as of the day
and year first above written.
"COMPANY" "EMPLOYEE"
FIRSTEL, INC.
---------------------------------- ----------------------------------
By: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Its: Chairman
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ANNEX VI
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of ___________,
1997, by ▇. ▇▇▇▇▇▇▇ Van Leur ("Employee") and FirsTel, Inc., a South Dakota
corporation ("Company") (collectively referred to as the "Parties"). The
Company and Employee agree as follows:
1. Employment.
In consideration of the mutual covenants and agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by Employee and the Company, the Company
employs Employee, and Employee accepts employment subject to the terms and
conditions of this Agreement. The Company is a wholly-owned subsidiary of
Advanced Communications Group, Inc. ("ACG"), a Delaware corporation. Unless the
context otherwise clearly requires, all references to ACG in this Agreement
shall include ACG, the Company and ACG's other subsidiaries.
2. Term.
This Agreement shall commence and become effective on the date hereof and end
on the fifth anniversary of the date hereof. Such term of employment may be
renewed for successive periods of one year thereafter upon the mutual agreement
of the Parties.
3. Compensation and other Benefits.
3.1 As compensation for his services to the Company under this Agreement,
the Company shall pay to Employee during the term of this Agreement a
base salary ("Base Salary") of $110,000 per annum, payable in equal
semi-monthly installments, subject only to such payroll and
withholding deductions as may be required by law and other deductions
applied generally to employees of the Company for any employee benefit
plans.
3.2 After the first twelve consecutive months of employment after the date
first set forth above, and after every consecutive twelve-month period
thereafter, Employee shall be eligible to receive a potential cash
bonus up to 50% of Employee's Base Salary ("Bonus") to be based upon
his performance as determined by the Compensation Committee of the
Board of Directors ("Compensation Committee") of ACG. Employee agrees
that the decision as to whether to award a Bonus and the percentage
amount thereof will be made by the Compensation Committee and will be
based upon the criteria set by such committee.
3.3 Employee will be entitled to two weeks of paid vacation annually
during the term of this Agreement.
3.4 Employee will be awarded fifty thousand (50,000) options to acquire
common stock in Advanced Communications Group, Inc. at an exercise
price equal to the initial public offering price per share. The
options shall have a term of five years and shall become exercisable
in one-third increments on each anniversary date of the date hereof.
Accordingly, the options shall become fully vested three years from
the date hereof; provided, however, that the vesting of such options
will be accelerated in the event of the termination of Employee's
employment hereunder pursuant to Section 6.1(d) or Section 6.1(f), and
in the event of any other termination, no options shall vest after the
date of termination. The options shall, except as provided herein, be
granted pursuant to ACG's 1997 Stock Awards Plan, a copy of which has
heretofore been delivered to Employee. The options shall, except as
provided herein, be subject to such terms and conditions as may be
prescribed by the Compensation Committee.
3.5 Employee shall receive benefits commensurate with his level of
employment under the executive employee benefits plans of ACG.
3.6 Until the first anniversary of this Agreement, Employee shall be
entitled to a sales bonus ("Sales Bonus") each month equal to ten
percent (10%) of the amount that (a) the monthly sales achieved by the
Company in that calendar month exceeds (b) Thirty-Five Thousand
Dollars ($35,000.00) (the "Sales Target"). Adjustments to the Sales
Target subsequent to the first anniversary shall be made from time to
time, but in no event less frequently than annually, in order to
account for new factors bearing directly on the Employee's efforts and
contributions to sales (e.g., inflation, increase in the number of
salespersons reporting directly or indirectly to Employee, the effects
of future acquisitions, market conditions, prior performance, etc.).
If the President of the Company and the Employee are unable to agree
upon the Sales Target for any particular period following the first
anniversary, then it shall be finally determined in good faith by the
Compensation Committee.
3.7 Employee shall be entitled to an additional bonus ("Annual Billed
Usage Bonus") paid annually, commencing on the first anniversary of
this Agreement, equal to the sum of the Excess Usage for the prior
twelve calendar months. "Excess Usage" means, in any particular
calendar month, five tenths of a percent (0.5%) of the amount that (a)
the monthly sales achieved by the Company in that calendar month
exceeds (b) Eight Hundred Thousand Dollars ($800,000.00) (the "Monthly
Billed Usage Target").
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Adjustments to the Monthly Billed Usage Target subsequent to the first
anniversary shall be made from time to time, but in no event less
frequently than annually, in order to account for new factors bearing
directly on the Employee's efforts and contributions to annual billed
usage (e.g., inflation, increase in the number of salespersons
reporting directly or indirectly to Employee, the effects of future
acquisitions, market conditions, prior performance, etc.). If the
President of the Company and the Employee are unable to agree upon the
Monthly Billed Usage Target for any particular period following the
first anniversary, then it shall be finally determined in good faith
by the Compensation Committee.
3.8 Employee shall be entitled to an automobile allowance of $400 per
month.
4. Duties and Extent of Service.
Employee shall hold the office of ______________ of the Company. At no
additional compensation, Employee shall also serve Advanced Communications
Group, Inc. as its Vice President -- Sales and Marketing / Telecommunications
Group. Employee agrees to perform the duties incidental to his positions, as
determined from time to time by the Chief Executive Officer of Advanced
Communications Group, Inc. Employee shall devote such time, attention, and
energy to the business of ACG as are required to perform his duties and
responsibilities. Employee shall not after the date hereof and during the
remaining term of this Agreement be engaged, directly or indirectly, in any
other business activity if pursued for gain, profit, or other pecuniary
advantage without the prior written consent of the Chief Executive Officer of
Advanced Communications Group, Inc. In any event after the date hereof,
Employee shall not take any action inconsistent with Employee's relationship
and responsibilities as an employee of the Company and ACG or take any action
which is intended, or may be reasonably expected, to harm the reputation,
business, prospects, or operations of ACG.
5. Protection of Confidential Information and Employee Non-Competition.
5.1 Employee recognizes and acknowledges that he will have access to
certain confidential information and trade secrets of ACG
("Confidential Information"). Such Confidential Information includes,
but is not limited to: customer names; contracts; products purchased
by customers; production capabilities and processes; customer account
and credit data; referral sources; computer programs and software;
names and information relating to potential acquisition candidates;
financing sources and other business relationships; information
relating to confidential or secret designs, processes, formulae,
plans, devices, or materials of ACG's business and marketing plans,
confidential information and trade secrets relating to the
distribution and
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marketing of ACG's products and services; patents pending;
confidential characteristics of ACG's products and services; customer
comments; troubleshooting requirements; product and service
development; market development; manuals written by ACG; management,
accounting, and reporting systems, procedures, and programs; off net
contracts, leases, marketing agreements, sales employee compensation
information, plans, and programs; marketing and financial analysis,
plans, research, programs, and related information and data; forms,
agreements, and legal documents; regulatory and supervisory reports;
correspondence; statements; corporate books and records; and other
similar information.
5.2 Employee acknowledges and agrees that this Confidential Information
constitutes valuable, special, and unique property of ACG.
5.3 Employee will not, at any time during or after the term of this
Agreement or his employment with ACG disclose any Confidential
Information to any person, firm, corporation, association, or other
entity for any reason or purpose.
5.4 The foregoing restrictions shall not apply to: (a) any information in
Employee's possession before its disclosure to Employee by ACG, the
Company or the Company's predecessor in interest; or (b) information
that is or shall lawfully be published or become part of the general
knowledge through no act or omission of Employee. The Confidential
Information disclosed to Employee under this Agreement is not within
the foregoing exceptions merely because such information is embraced
by more general information in the public domain or in Employee's
possession, or merely because portions thereof are in the public
domain or in Employee's possession.
5.5 To protect the confidentiality of the Confidential Information,
Employee further agrees that while employed by ACG and for a period of
one year immediately after the termination of this Agreement or his
employment with ACG, regardless of whether such termination of
employment is voluntary or involuntary, he will not, for himself, or
on behalf of any other person, firm, partnership, company, or
corporation (i) generally compete in any manner whatsoever with ACG or
solicit, accept, divert, or take away from ACG the business of any
person, company, or business; (ii) directly or indirectly induce or
attempt to influence any employee, officer, director, consultant,
agent, vendor or other entity related to ACG to terminate his or her
employment or association in any manner whatsoever with ACG; or (iii)
engage in any commercial or technical activity involving the
-4-
development, formulation, manufacture, production, distribution,
marketing or sale of any product and services that ACG designs,
produces, manufactures, distributes, markets or sells during the term
of this Agreement or Employee's employment with ACG. The prescribed
territory in which Employee shall not compete with ACG as outlined in
this Paragraph 5.5 shall consist of all of those areas of the United
States in which ACG is doing business at the time of Employee's
termination of employment. The obligations of Employee pursuant hereto
are additional to the obligations described in Section 15 of the
Agreement and Plan of Merger dated contemporaneously herewith.
5.6 Employee understands and acknowledges that, due to the unique nature
of the products and services provided by ACG and the need for sales
personnel to have a relatively high degree of technical knowledge
concerning these products and services, employment by ACG, including
the special training, knowledge, and confidential information that
will be acquired in the course of such employment, will give Employee
distinct and substantial advantages for potential sales activities
concerning such products and services. Employee further understands
and acknowledges that: because of the definition of products and
services covered by this Agreement, the highly specialized nature of
those products and services, the limited size and number of business
entities in the business of developing and/or selling those products
and services, and the much more numerous opportunities for Employee to
work in his trade with respect to products and services not covered by
this Agreement, the limitations as to time and geographic area
contained in Paragraph 5.5 are reasonable and are not unduly onerous
on Employee. Employee therefore agrees that the limitations as to
time, geographic area, and scope of activity contained in Paragraph
5.5 do not impose a greater restraint than is necessary to protect the
Confidential Information, goodwill, and other business interests of
ACG. Employee also agrees that in light of the facts acknowledged
above, the substantial investment of ACG in developing its business
and providing special training to Employee, and the certain and
substantial harm that ACG would suffer if Employee were to engage in
any of the activities described in Paragraph 5.5, ACG's need for the
protection afforded by Paragraph 5.5 is greater than any hardship
Employee might experience by complying with its terms. Employee also
agrees that, if any provision of the covenant set forth in Paragraph
5.5 is found to be invalid in part or whole, ACG may elect, but shall
not be required, to have such provision reformed, whether as to time,
geographic area, scope of activity, or otherwise, as and to the extent
required for its validity under applicable law, and, as so reformed,
such provisions shall be enforceable.
-5-
5.7 Employee acknowledges that a violation or attempted violation on his
part of any provision in this Paragraph 5 may cause irreparable damage
to ACG. Accordingly, in the event of a breach or threatened breach by
Employee of the provisions of this Paragraph 5, Employee agrees that
ACG shall be entitled as a matter of right to an injunction, out of
any court of competent jurisdiction, restraining any violation or
further violation of such agreements by Employee or his agents,
without showing any evidence of actual monetary loss resulting from
such breach, including, but not limited to, restraining Employee from
using or disclosing, in whole or in part, such Confidential
Information or trade secrets; rendering any services to any person,
firm, corporation, or other entity to whom any of such information may
have been disclosed or is threatened to be disclosed; and/or violating
the non-competition provision. Nothing herein shall be construed as
prohibiting ACG from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of damages
and attorneys' fees from Employee.
6. Termination of Employment.
6.1 Employee's employment under this Agreement shall terminate on the
occurrence of any of the following events:
(a) End of Term: If the term of employment under the Agreement or any
term of renewal ends.
(b) Death or Disability of Employee: If Employee dies or becomes
disabled such that he no longer is reasonably able to perform his
duties as contemplated by this Agreement, the Company shall pay
to Employee, or to the estate of Employee if he dies, that part
of his Base Salary which would otherwise be payable to Employee
through the end of the month in which his death or disability
occurs, after giving effect to accrued sick leave benefits and
accrued vacation time, if any. Upon such payment, as well as
applicable insurance benefits, if any, all obligations of ACG to
the Employee or his estate shall be fully satisfied, and this
Agreement shall terminate.
(c) Resignation of Employee: If Employee resigns prior to the end of
the term of this Agreement, this Agreement shall terminate
immediately, and the Company shall pay to Employee that part of
his Base Salary which would otherwise be payable to Employee
through the effective date of his resignation. Upon such payment,
all obligations in any manner whatsoever of ACG to Employee shall
be fully satisfied.
-6-
(d) Change in Ownership, Management, or Employee's Responsibilities:
If there is a change in the ownership or management of ACG after
the date hereof, and either of these changes significantly alters
Employee's job responsibilities or compensation, Employee may
resign from his positions within 60 days of such a change. If
Employee resigns pursuant to this paragraph, the Company will
continue to provide Employee with his monthly compensation for a
period of two years after the initial date of any such change.
Employee is not entitled to receive any Bonus, Sales Bonus, or
Annual Billed Usage Bonus (collectively, "Benefits") if he
resigns as provided in this paragraph. For the period after
Employee's resignation during which Employee will be paid,
Employee will not have any authority to act on behalf of ACG. If
such a change in control and either job responsibilities or
compensation occurs and Employee's employment under this
Agreement is terminated without cause or Employee resigns
pursuant to this paragraph, any of Employee's options that have
not vested shall immediately become fully vested.
(e) Termination by the Company "With Cause." If Employee (i) violates
any material provision of this Agreement; (ii) fails to perform
the services required of him pursuant to this Agreement; (iii)
commits acts of fraud or dishonesty against ACG; and/or (iv) is
convicted of a crime other than a routine traffic violation, ACG
may terminate the employment of Employee with cause. If Employee
is terminated "with cause," Employee shall not be entitled to
receive any further salary or benefits under this Agreement other
than payment for that part of Employee's compensation that would
otherwise be payable to Employee through the last date of his
employment with ACG. Upon such payment, all obligations of ACG to
Employee shall be fully satisfied, and this Agreement will
terminate. Employee shall not be entitled to receive any Benefits
or accrued vacation pay if his termination is "with cause."
(f) Termination by the Company Without Cause. In the event the
Company terminates Employee's employment for any reason other
than as described in (d) or (e) above, Employee shall be entitled
to the Base Salary for a period of one year from termination.
6.2 Termination of this Agreement shall not relieve Employee of any
continuing obligations expressly provided in this Agreement,
including, without limitation, those set forth in Paragraph 5.
-7-
7. Return of ACG Property.
7.1 All data, drawings, documents, contracts, computerized data,
information printouts, and tapes, tape recordings, documents, data,
accounting records, personnel files, computer terminals, equipment,
and other records and written material prepared or compiled by
Employee or furnished to Employee while in the employ of ACG shall be
the sole and exclusive property of ACG, and none of such data,
drawings or other records and written material, or copies thereof,
shall be retained by Employee upon termination of his employment. This
ACG property shall not be removed from ACG premises without ACG's
prior written consent.
7.2 Upon termination of this Agreement or whenever requested by ACG,
Employee immediately shall deliver to ACG all of the ACG property or
any of ACG's documents in Employee's possession or under Employee's
control, including, but not limited to, all documents or data,
Confidential Information, accounting records, computer terminals,
data, discs, printouts and tapes, accounting machines, and all office
furniture and fixtures, supplies, equipment, and other personal
property placed in the office of ACG. No copies of any such data shall
be retained by Employee.
8. Notices.
Any notice required or permitted to be given under this Agreement shall be in
writing and addressed to Employee at FirsTel, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇ (Telecopy No.: 605-332-8004),
and to the Company, c/o ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇, or to such other address as either party shall designate
by written notice to the other. Notices may be sent by messenger or by
registered or certified mail, postage prepaid, addressed to the party or
parties to be notified, with return receipt requested. Notices sent by
messenger shall be deemed received upon their actual receipt of the party to
whom they are directed. Notices sent by registered or certified mail shall be
deemed received on the third day following their deposit with the United States
Postal Service.
9. Arbitration.
Exclusive jurisdiction with respect to any dispute, controversy, or claim
brought by ACG or Employee concerning the subject matter contained in this
Agreement, including, but not limited to, Employee's employment, termination
from, and/or affiliation with ACG shall be settled by arbitration in Houston,
Texas, in accordance with the Employment Dispute Resolution Rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbitrator may be entered in any court having jurisdiction. In reaching his
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or her decision, the arbitrator shall have no authority to change or modify any
provision of this Agreement. Any and all charges that may be made for the cost
of the arbitration and the fees and expenses of the arbitrator shall be borne
equally by the parties; attorneys' fees and witness expenses shall be borne by
the party incurring them.
10. Miscellaneous.
10.1 The rights and obligations of ACG under this Agreement shall inure to
the benefit of and shall be binding upon the successors and assigns of
ACG. This Agreement shall be binding upon the Employee and his agents,
heirs, executors, administrators and legal representatives. The rights
and obligations of Employee hereunder shall not be assignable by
Employee.
10.2 This Agreement shall be governed by and construed in accordance with
the laws of the State of Texas.
10.3 This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original and all of which shall constitute one
instrument.
10.4 This Agreement contains the entire agreement of the parties pertaining
to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions, whether oral or written,
and there are no other warranties, representations, covenants or
agreements among ACG, the Employee and ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ in connection
with the subject matter hereof.
10.5 The waiver by ACG of a breach of any provision of this Agreement by
Employee shall not operate or be construed as a waiver by ACG of any
subsequent breach by Employee.
10.6 If a court of competent jurisdiction shall adjudge to be invalid any
clause, sentence, subparagraph, paragraph or section of this
Agreement, such judgment or decree shall not affect, impair,
invalidate, or nullify the
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remainder of this Agreement, but the effect thereof shall be confined
to the clause, sentence, subparagraph, paragraph, or section so
adjudged to be invalid.
The parties have executed this Agreement to be effective as of the day and
year first above written.
"COMPANY" "EMPLOYEE"
FIRSTEL, INC.
---------------------------------- ----------------------------------
By: ▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ Van Leur
Its: Chairman
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