STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of November 6, 2000 by
and among PACIFIC TELCOM, INC., a corporation organized under the laws of
Illinois, PACIFIC TELCOM [CANADA] INC., a corporation organized under the laws
of the Province of Ontario (collectively referred to hereafter as "Buyer"),
EASYTEL CANADA CORPORATION, a corporation organized under the laws of the
Province of Ontario (the "Corporation") and XXXXXXX X. XXXXXXXXX, being the duly
appointed Sellers' Representative of the Selling Shareholders ("Sellers" or
"Shareholders" or "Selling Shareholders").
WITNESSETH
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WHEREAS, the Selling Shareholders collectively own of record and
beneficially one hundred percent (100%) of the issued and outstanding shares of
the common stock of EasyTel Canada consisting of 6,315,000 shares of common
stock, no par value (the "Shares"); and
WHEREAS, the Sellers own in addition to 6,315,000 common shares issued and
outstanding on November 3, 2000, and the further amount of 2,599,850 common
shares representing such shares derived from outstanding options for common
stock exercised and Class A special shares, nonvoting, converted to common
shares pursuant to the Articles of Corporation and by-laws of the Corporation;
WHEREAS, Pacific TelCom [Canada] Inc. is a wholly owned subsidiary of
Pacific TelCom, Inc., and that the capital stock of Pacific TelCom [Canada] Inc.
is comprised of two classes of stock to wit, common shares of no par value and
Class A special shares, nonvoting, convertible to common shares of Pacific
TelCom, Inc. pursuant to the Articles of Corporation and By-Laws of the
Corporation; and
WHEREAS, it is the intention of the parties hereto that, upon consummation
of the purchase and sale of the Shares pursuant to this Agreement, at Closing
effective as of the date hereof (the "Effective Date") Pacific TelCom [Canada]
Inc. shall own one hundred percent (100%) of all of the issued and outstanding
shares of common stock of the Corporation; and
WHEREAS, Pacific TelCom, Inc. has agreed to be a party to this Agreement to
guarantee the obligations of Pacific TelCom [Canada] Inc., its wholly owned
subsidiary.
NOW, THEREFORE, IT IS AGREED:
Section 1. Sale and Purchase.
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1.1 Sale of the Shares. Subject to the terms and conditions herein stated,
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the Selling Shareholders agree to sell, assign, transfer and deliver
the shares to Pacific TelCom [Canada] Inc. on the Effective Date, and
Buyer agrees to purchase the outstanding common shares from the
Selling Shareholders on the Effective Date. The certificates
representing the Shares shall be duly endorsed to Pacific TelCom
[Canada] Inc., or accompanied by Stock Powers and Assignment Separate
from Certificate, duly executed in favor of the Buyer, by the relevant
Selling Shareholders. The Selling Shareholders agree to cure at any
time any deficiencies with respect to the endorsement of the
certificates representing the shares or with respect to the Stock
Power with Assignment Separate from Certificate, accompanying any such
certificates.
Section 2.0 Purchase Price.
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2.1 Payment. In consideration of the transfer, conveyance and assignment
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of the Shares, the Buyer shall pay to the Selling Shareholders the sum
of Two Hundred Fifty Thousand Dollars ($250,000) and One Million One
Hundred Twenty-Five Thousand (1,125,000) duly authorized and issued
Class A special convertible shares of Pacific TelCom [Canada] Inc.,
subject to adjustment as described herein, to be paid in the following
manner.
2.2 Payments of Cash. The Buyer shall pay to the Sellers in the form of
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check or by wire transfer, at the direction of the Corporation, the
sum of Two Hundred Fifty Thousand US Dollars ($250,000) not later than
December 15, 2000. Buyer shall exercise its best efforts to submit
this sum prior to December 15, 2000, and Sellers agree to accept
prepayments in amounts less than this sum from Buyer on a periodic
basis prior to December 15, 2000, to be credited to the amount due the
Sellers in cash.
2.3 Payment in Common Stock. Delivery shall be made by the Buyer to the
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Selling Shareholders on the Effective Date of One Million One Hundred
Twenty-Five Thousand (1,125,000) of Class A special convertible shares
of authorized stock of Pacific TelCom [Canada] Inc., subject to the
terms and conditions of Section 3.3, Section 4.1 and Section 4.2.
2.4 Adjustment to Purchase Price. That portion of the Purchase Price paid
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by Buyer to the Selling Shareholders in Class A special shares of
Buyer is subject to adjustment, as set forth in Section 4.1
"Finality". It is the agreement of Buyer and Sellers that adjustments
to the Purchase Price, pursuant to the provisions regarding "Finality"
shall be such that the value received by Sellers from Buyer, after the
conversion by the Sellers of the Class A special convertible shares of
Pacific TelCom [Canada] Inc. into common shares of Pacific TelCom,
Inc., shall be an amount equal to Eleven Million Two Hundred Fifty
Thousand Dollars ($11,250,000) as the aggregate value of common shares
of Pacific TelCom, Inc., after the net affect of, or pursuant to, an
adjustment to the purchase price hereto.
2.5 Separate Agreements. The Buyer's Agreement herein is intended to be
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made with and effective concerning each and every Selling Shareholder
of the Corporation. In the event that it is necessary for the Buyer to
have a separate Agreement with any such Selling Shareholder, such
separate Agreement shall not be deemed a separate sale and such a
separate Agreement shall not affect or act to construe an adjustment
to the Purchase Price.
2.6 No Prior Credits. It is agreed by the parties that no monies advanced
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by the Buyer to the Sellers under any prior transactions or dealings
shall comprise, or in any way be credited to the Purchase Price.
Section 3.0 Effective Date; Delivery.
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3.1 Closing. The Effective Date of this Agreement is November 6, 2000. On
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the Effective Date, the parties shall meet at 3:00 p.m. at the offices
of Pacific TelCom, Inc., 0000 X. Xxxxxxx Xxxx., Xxx. X-0, Xxx Xxxxx,
XX 00000 and shall thereupon conduct the Closing of this Agreement and
the transactions contemplated herein.
3.2 Selling Shareholders' Delivery of Shares. On the Effective Date,
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Selling Shareholders, through their duly appointed Sellers'
Representative, shall deliver to Pacific TelCom [Canada] Inc. endorsed
Certificates or endorsed Assignments Separate from Certificate with
Stock Powers in the amount of 100% of the Corporation's Common Stock
represented by shares constituting 6,315,000 authorized and issued
common shares of the Corporation outstanding on October 31, 2000;
625,000 common shares representing the exercise of 625,000 options
from a total of 600,000 outstanding options of the corporation; and
1,999,850 common shares representing 540,500 Class A special shares
converted from October 31, 2000 to the Effective Date, for a total of
8,939,850 aggregate common shares of the Corporation.
3.3 Procedures to Deliver Buyer's Shares. Notwithstanding any of the
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foregoing, it is expressly agreed by the parties that the delivery by
Buyer of 1,125,000 Class A special shares of Pacific TelCom [Canada]
Inc. to Sellers, shall be paid and transferred to the Selling
Shareholders pursuant to the following procedures:
3.3.1Selling Shareholders List. Selling Shareholders shall deliver to
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the Buyer at the Effective Date a Final Shareholders List to be
affixed to this Agreement as Exhibit A. Said list shall state,
for every Selling Shareholder, the Shareholder's name and
address, the number of shares of the Corporation held on the
Effective Date, and the number of shares of the Buyer to be
received in exchange thereto. No fractional shares or script will
be issued by Buyer. It is understood by the parties that the
aggregate number of shares to be paid to the Selling Shareholders
at the Effective Date shall not exceed 1,125,000 Class A special
shares of Pacific TelCom [Canada] Inc. regardless of the number
of shares of common stock of the Corporation issued and
outstanding at the Effective Date.
3.3.2Issuance of Certificated Ownership. Subsequent to the Closing,
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Selling Shareholders, individually, shall each receive
certificated shares of their representative pro rata allocation
of Buyer's payment in stock, by delivery by the Buyer of
certificated shares of Class A special shares of Pacific TelCom
[Canada] Inc. convertible to common shares of Pacific TelCom,
Inc., an Illinois corporation.
Section 4. Other Agreements.
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4.1 Finality. The Effective Date of this transaction shall be the date
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hereof, however, the transaction shall be deemed to be in escrow
pending an event of Finality, as set forth in this Section 4.1, and
the Closing Date of this Agreement shall be deemed to be on such event
of Finality. An event of Finality shall occur upon the occasion of one
of the following: An Initial Public Offering of common shares of
Pacific TelCom, Inc.; the common shares of Pacific TelCom, Inc.
becoming tradable on a public market; or November 15, 2001.
On the occurrence of an Initial Public Offering (IPO) of Pacific
TelCom, Inc. common shares on or before November 15, 2001, this
Agreement shall be deemed closed and irreversible, by Sellers'
election, without adjustment, in the event that the Issue Price under
an IPO of the common shares of Pacific TelCom, Inc. shall not be less
than $8.00 per share and not more than $12.00 per share. If the Issue
Price is at least $5.00 per share, but less than $8.00 per share, the
parties agree to adjust the Purchase Price in favor of Sellers, such
that Pacific TelCom, Inc. shall pay such further shares of its common
stock to equal Eleven Million One Hundred Twenty-Five Thousand Dollars
($11,125,000) value. In the event that no Initial Public Offering
concerning the common shares of Pacific TelCom, Inc. occur on or
before November 15, 2001, but that the common shares of Pacific
TelCom, Inc. are publicly tradable on or before November 15, 2001, at
a trading price or Issue Price of less than $5.00 per share, the
parties agree that either the Buyer or Sellers shall have the option
to terminate and undo the subject transaction whereupon the Buyers and
Sellers will conduct all steps, take all actions and execute all
documents necessary to restore Buyer and Sellers to their original
position on the date prior to the Effective Date. However, if no
Initial Public Offering of the common shares of Pacific TelCom, Inc.
has occurred on or before November 15, 2001 but that the common shares
of Pacific TelCom, Inc. are publicly tradable on or before November
15, 2001 at a trading price or Issue Price of $5.00 or more per common
share, this transaction shall be deemed complete and irreversible,
subject to the adjustments set forth herein. For the purposes of
determining trading price on the occurrence of this event of Finality,
the price of a common share of Pacific TelCom, Inc., shall be
determined by the weighted average of such shares for the last ninety
days prior to November 15, 2001. For an event of Finality to have
occurred, that 90 day weighted average shall be not less than $5.00
per common share of Pacific TelCom, Inc. common stock. In the event
that the common shares of Pacific TelCom, Inc. have not been the
subject of an Initial Public Offering and are not publicly tradable on
November 15, 2001, the parties agree that the Sellers' Representative
will have the option to deem the transaction terminated, whereupon
Buyer and Sellers agree to undo the subject transaction or, at the
option of Sellers' Representative, Sellers shall have the right to
deem the transaction finalized, even in the event that the common
shares of Pacific TelCom, Inc. are not publicly tradable on November
15, 2001. In the event this Agreement is terminated and the
transaction undone, no part of the $250,000 Purchase Price is
refundable.
4.2 Conversion of Shares.
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4.2.1Upon Finality. Upon an occurrence of an event of Finality, as set
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forth in Section 4.1 above, the 1,125,000 Class A special shares
of Pacific TelCom [Canada] Inc. shall be thereupon converted to
1,125,000 common shares of Pacific TelCom, Inc., an Illinois
corporation. Upon such conversion, Selling shareholders shall
deliver to the Buyer all Class A special shares of Pacific TelCom
[Canada] Inc. conveyed to Sellers as payment hereunder. All such
certificates representing payment in stock by Buyer to Sellers,
shall be duly endorsed in a form satisfactory to Buyer. Buyer
shall thereupon issue to the Selling Shareholders in certificated
form, an amount of Pacific TelCom, Inc. common shares equal to
the Class A special shares held by each respective Selling
Shareholder of Pacific TelCom [Canada] Inc.
4.2.2Further Features of Class A Special Shares. Notwithstanding the
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provisions concerning the conversion of Class A Special Shares of
Pacific TelCom [Canada] Inc. set forth in Sections 4.1 and 4.2.1,
Sellers may convert any or all such Class A special shares at any
time. Buyer Pacific TelCom, Inc. agrees to cause Pacific TelCom
[Canada] Inc. to issue to Sellers a further amount of Class A
special shares, on the occasion of any stock dividend, stock
split, cash dividend or other distribution, in the same amounts
per Class A special share of Pacific TelCom [Canada] Inc. that
are accorded to the stockholders of common shares of Pacific
TelCom, Inc.
4.3 Funding New Territories. Subsequent to the Effective Date, it shall be
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the duty and obligation of the Buyer to make such capital investments,
on a priority basis, necessary as to allow the capacity and capability
for the issuance of Local Access Numbers for four new Canadian cities
and one existing open Canadian city, for the purposes of the
subscription of new subscribers to the telecommunications products and
services currently offered separately by Buyer and Sellers. Capital
Investments are defined in this Section 4.3 to mean the costs of the
purchase and installation of five T-1 telecommunication switches,
along with necessary operating capital sufficient to pay for necessary
operating expenses of the Corporation from the Effective Date
thereafter. The duty and obligation of the Buyer to make the capital
investments, on a priority basis, as set forth in this Section 4.3 is
defined as follows: From sources of funding to Pacific TelCom, Inc.,
consisting of investment and equity capital, proceeds of debt
instrument offerings and lease line proceeds, Buyer shall commit $.50
of each dollar of such funding received to be applied to the capital
investments of this Section 4.3. This set-aside of capital funding
shall continue until an aggregate amount of $1,035,000 has been so
aggregated by the Buyer to be applied as described in this Section
4.3, based upon anticipated expenses of telecommunications switches in
the amount of $207,000 per unit. It is understood by the parties that
"Buyer" in this Section 4.3 means Pacific TelCom, Inc. and Pacific
TelCom [Canada] Inc.
4.4 Guarantee. As a material inducement to Seller, Pacific TelCom, Inc.
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has agreed to become a party to this Agreement and hereby covenants
and agrees to indemnify and guarantee each and every one of the
obligations of Pacific TelCom [Canada] Inc., its wholly owned
subsidiary.
4.5 Grant of Authority for Certain Continued Operations. The Buyer grants
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to the Corporation, through its President, the limited right to
operate the Corporation for certain essential post Effective Date
duties and responsibilities. This grant of authority shall extend to
the operation of the Corporation's Toronto office and switches, only
for as long as necessary to conduct the orderly transfer of such
operations to the Buyer. Notwithstanding the foregoing, this grant of
authority is further intended to permit the conclusion of certain post
Effective Date matters, including, by a way of illustration, filing of
tax returns, distribution of cash payments of the Purchase Price by
Buyer to the Selling Shareholders and, to the extent required, the
holding of Class A special shares of Pacific TelCom [Canada] Inc., in
trust to accommodate the exercise of any remaining outstanding options
held by option holders of the Corporation, and the exercise of rights
accorded to the Corporation's holders of Class A special shares of the
Corporation. No provision of this Section 4.4 shall be interpreted to
limit the financial responsibility of the Buyer set forth in Section
4.3.
4.6 Retention of Management. Buyer agrees to continue to retain the
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services of Xxxxxxx X. Xxxxxxxxx as Chief Executive Officer of the
Corporation, notwithstanding the limited grant of authority to operate
set forth above. Buyer shall tender to him an Employment Agreement
mutually acceptable to Xxxxxxx X. Xxxxxxxxx and Buyer. The parties
acknowledge and agree that the retention of Xx. Xxxxxxxxx shall act as
a benefit to the Buyer during transition and for continued operations
and benefits of the Corporation thereafter, and such hiring shall not
be deemed to constitute an apparent conflict-of-interest on the part
of Xx. Xxxxxxxxx. Buyer further agrees, within 14 days of the
Effective Date to cause its Board of Directors to appoint Xxxxxxx X.
Xxxxxxxxx as a director of Pacific TelCom, Inc. and to have Xx.
Xxxxxxxxx serve on the same terms and conditions as the members of the
existing Board of Directors of the Buyer.
4.7 Resulting Joint Venture and Sharing of Revenues. It is the
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understanding of Buyer and Sellers, that the Closing of this Purchase
Agreement is in escrow until the Date as described in Section 4.1
"Finality". In the event that the transaction does not close on the
Closing Date, Buyer and Sellers shall undo the subject transaction of
this Purchase Agreement, pursuant to Section 4.1 "Finality", in such
event, the parties agree that there shall be a resulting Joint Venture
between them concerning the Capital Investment made by the Buyer in
having installed five telecommunications switches with the capacity
for the services to be sold by the parties and the revenues derived
from the joint marketing efforts of the Buyer and Sellers. Under the
terms of such a resulting Joint Venture, revenue, after deduction of
Buyer's approved operating costs, will be apportioned as follows: one
third of such revenues are to be apportioned to Buyer to be taken as a
credit toward capital expenditures attendant to such
telecommunications switches, as set forth above; thereafter remaining
revenues shall be divided equally between Buyer and Sellers. Upon
completion of repayment of Buyer for the aforesaid capital
investments, such joint venture revenues shall be shared by the
parties equally, after payment of all pre-approved or budgeted costs.
In the event that Buyer and Sellers undo the subject transactions of
this Purchase Agreement and establish such a resulting Joint Venture,
it is expressly agreed that all prior sources of revenues of the
Corporation and all subsequently developed sources of revenues
exclusively generated by the Corporation shall remain the sole
property of the Corporation and shall not be considered revenues
attributable to the resulting Joint Venture.
4.8 Liabilities. The Corporation is possessed of liabilities regarding a
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loan, carrying a monthly debt service of approximately $3,500.00.
Buyer shall expressly assume the payments of this loan and, upon full
repayment of the principal balance, Buyer shall be entitled to
ownership and title of a cash security deposit in the amount of
$32,500.00.
4.9 Accounts Receivable. With respect to all accounts receivable, the
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Buyer shall be vested with title to all such accounts receivable in
existence on Effective Date.
4.10 Employee Benefits. Any and all liability of the Corporation for
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employee benefits or for paid vacations or for any other employee
benefit accruals, shall be paid in full as of the Effective Date.
Sellers' Representative shall provide Buyer with such a certificate
that such actions have taken place as Buyer may reasonably request.
4.11 Tax Returns. Sellers' Representative will cooperate and assist in the
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preparation and filing, on behalf of the Corporation, of any tax
returns yet to be filed with respect to any taxes for the fiscal
period ending March 31, 2001 to reflect the operations of the
Corporation during that fiscal year. All such tax returns shall be
prepared and filed using tax accounting methods and principals which
are consistent with those used in tax returns for preceding tax
periods, by the Chartered Accountants of the Corporation.
4.12 Deposit With Visa. Any and all deposits maintained with Visa as and
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for security for the processing of credit card transactions shall
remain unaffected by the subject transaction, but title to such
deposit shall be transferred to the Buyer, as part of the subject
transaction.
4.13 Other Financial Benefits. It is agreed by the parties that the Buyer
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shall have full rights, title and interest to all accounts receivable
of the Corporation, and shall receive the right to claim non-capital
loss carry forward amounts on the Corporation's balance sheet as other
and further benefits to the Buyer pursuant to the subject transaction,
as of the Effective Date.
Section 5.0 Representations and Warranties of the Corporation. Except as
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may be set forth on a Schedule of Exceptions, attached hereto as Schedule M, to
be presented at the Effective Date, the Corporation hereby represents and
warrants to the Buyer as set forth below. The Schedule of Exceptions shall be
presented by the Corporation to the Buyer prior to the execution of this
Purchase Agreement and shall be attached hereto as an exhibit. The Schedule of
Exceptions shall specifically identify the relevant sub-paragraph of this
Agreement, and the statements made in each Schedule of Exceptions shall be
deemed to be representations and warranties as if made hereunder.
5.1 Organization and Standing; Articles and Bylaws. The Corporation is a
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corporation duly incorporated and validly existing and in good
standing under the laws of the Province of Ontario. The Corporation
has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Corporation is duly
qualified and authorized to do business, and is in good standing in
each jurisdiction where the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary
and where a failure to do so qualify would have a material adverse
effect on its business or properties. The Articles in the form
attached hereto as Exhibit D have been filed with the Minister of
Commercial Relations before the date hereof.
5.2 Corporate Power. The Corporation will have at the Effective Date and
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on the Closing Date all requisite legal and corporate power and
authority to execute and deliver this Agreement and to carry out and
perform its obligations under the terms of this Agreement.
5.3 Subsidiaries. The Corporation has no subsidiaries or affiliated
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companies and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation or entity.
5.4 Capitalization. The authorized capital stock of the Corporation on
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November 3, 2000 consists of a) 6,315,000 shares of common stock
issued and outstanding and b) 540,500 Class A special shares
convertible to 3.7 common shares each issued and outstanding on
November 3, 2000. The outstanding shares have been duly authorized and
validly issued, and are fully paid and nonassesable and were issued in
compliance with all relevant securities laws. The Corporation has
reserved: (i) 600,000 shares of common stock for issuance upon
exercise of various options held by directors, employees and service
providers; and (ii) 1,999,850 shares of common stock for issuance upon
conversion of Class A special shares; and there are (i) no other
options, warrants or other rights to purchase any of the Corporation
's authorized and unissued capital stock, or any security directly or
indirectly convertible into or exchangeable for shares of capital
stock of the Corporation, (ii) so far as known to the Corporation, no
voting trust or voting agreements among, or irrevocable proxies
executed by, stockholders of the Corporation, (iii) so far as known to
the Corporation, no agreements among stockholders proving for the
purchase or sale of the Corporation 's capital stock, and (iv) no
obligations (contingent or otherwise) of the Corporation to purchase,
redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution
in respect thereof. All such issued and outstanding options and
warrants have been duly and validly issued in compliance with
applicable federal and state securities laws. To the extent that any
Class A special shares have been converted to US common shares, this
shall not operate as an impairment to this Agreement of constitute an
Exception.
5.5 Authorization. All corporate action on the part of the Corporation,
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its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement and delivery of
the shares has been taken prior to the Effective Date. The shares are
free of any liens, encumbrances, or restrictions and are not subject
to any preemptive rights or rights of first refusal.
5.6 Liabilities. Except as set forth in Corporation's financial statements
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as of March 31, 2000, copies of which have been heretofore delivered
to Buyer, the Corporation has no undisclosed liabilities or
obligations, absolute or contingent, except liabilities and
obligations which have been incurred in the ordinary course of
business none of which, in the aggregate, exceeds $10,000.
5.7 Title to Properties and Assets; Liens, Etc. Except for purchase and
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lease and similar arrangements covering minor assets such as copiers
and postage meters, the Corporation has good and marketable title to
its material properties and assets, is not in default of any material
lease, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than the lien of current taxes not yet
due and payable, except as set forth in Exhibit E.
5.8 Compliance with Other Instruments. The Corporation is not in violation
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of any term of its Articles or Bylaws, or in any material respect of
any term or provision of the mortgages, indebtedness, indentures,
contracts, agreements, or instruments or any other material agreement,
or any judgment or decree. The best of its knowledge, the Corporation
is not in violation of any order, statute, rule or regulation
applicable to the Corporation where such violation would materially
and adversely affect the Corporation; to the Corporation's actual
knowledge, the Corporation is not in violation of any order, statute
or regulation applicable to the Corporation. The execution, delivery
and performance of and compliance with this Agreement has not resulted
and will not result in any material violation of, or conflict with, or
constitute a material default under, the Corporation's Articles or
Bylaws or any of such material agreements nor result in the creation
of, or mortgage, pledge, lien, encumbrance or charge upon any of the
material properties or assets of the Corporation.
5.9 Litigation. There are no actions, suits, proceedings or investigations
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pending against the Corporation or its properties or in which the
Corporation is the plaintiff, before any court or governmental agency
nor, to the Corporation's knowledge, is there any threat thereof or
any reasonable basis therefor.
5.10 Employees. To the Corporation's knowledge, no employee of the
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Corporation is in violation of any material term of any employment
contract, if any, exclusive agreement or any other contract or
agreement relating to the relationship of such employee with the
Corporation or any other party because of the nature of the business
conducted or to be conducted by the Corporation. The Corporation is
not aware that any officer or key employee, or that any group of key
employees, intends to terminate his or its employment with the
Corporation, nor does the Corporation have a present intention to
terminate the employment of any key employee. The Corporation has in
all material respects complied with all applicable Provincial and
federal laws related to employment.
5.11 Exclusive Licenses. The Corporation (i) owns and has the right to use,
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free and clear of all liens, charges, claims and restrictions an
Exclusive License Agreement between the Corporation and Infotrust
TELCO and an Exclusive Re-Sellers Agreement with Universal Office
Corporation, attached hereto as Exhibit F and Exhibit G, necessary for
the operation of its business now conducted and proposed to be
conducted, and (ii) the Corporation is not obligated or under any
liability whatsoever to make payments by a way of royalties, fees, or
otherwise to any owner or licensee of the Exclusive License of the
Exclusive License Agreement, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. To the
knowledge of the Corporation, the Corporation has not infringed upon
nor is it infringing such Exclusive License or other intellectual
property of any third party. The Company is not aware of any violation
of the Company's Exclusive License Agreement, or its Exclusive
Re-Sellers Agreement or other proprietary rights.
5.12 Duties to Option Holders. Pursuant to Section 4.4, the Corporation
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holds a grant of authority to hold, in a fiduciary capacity, such
shares of Pacific TelCom [Canada] Inc. Class A shares of stock
equivalent to accommodate the exercise of outstanding options of
employees and certain special service providers of the Corporation.
The Corporation agrees to perform the distribution of such Class A
shares of Pacific TelCom [Canada] Inc. to such option holders promptly
upon the exercise of such options and it is agreed that the
Corporation shall be entitled to retain the proceeds of such exercise.
The Corporation agrees to indemnify and hold harmless Buyer and its
officers, directors and agents harmless from any and all damages,
losses, costs, or expenses suffered or incurred, directly or
indirectly, through application of the Corporation's or Buyer's assets
or otherwise, as a result of any and all claims, demands, suits,
causes of action, proceedings, judgments, and liabilities, including
reasonably counsel fees incurred in litigation or otherwise, assessed,
incurred or sustained by or against any of them with respect to or
arising out of any such indicia fiduciary duty by the Corporation to
any such option holder.
5.13 Brokers or Finders. There are no claims for brokerage commissions,
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finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement
or agreement made by or on behalf of the Corporation.
5.14 Operating Rights. The Corporation has all operating authority,
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licenses, franchises, permits, certificates, consents, rights and
privileges (collectively "Authority") as are necessary or appropriate
to the operation of its business as now conducted and as proposed to
be conducted and which the failure to possess would have a material
adverse effect on the assets, operations or financial condition of the
Corporation. Such Authority are in full force and effect, no
violations have been or are expected to have been recorded in respect
of any such authority, and no proceeding is pending or, to the
knowledge of the Corporation, threatened that could result in the
revocation or limitation of any such authority. The Corporation has
conducted its business so as to comply in all material respects with
all such Authority.
5.15 Minute Books. The minute books of the Corporation contain a complete
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summary of all meetings of directors and shareholders since the time
of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
5.16 Taxes. All federal and Provincial tax returns required to be filed by
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the Corporation have been filed and are true in all material respects,
and all taxes, assessments, fees, and other governmental charges upon
the Corporation, or upon any of its properties, income, or franchises,
shown in such returns to be due and payable have been paid, or if any
such tax returns have not been filed or if any such taxes have not
been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse impact on the properties
or business of the Corporation.
5.17 Disclosure. None of the representations or warranties made by the
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Corporation in this Agreement and no written information in the
Exhibits hereto or otherwise furnished to the Buyers in this Agreement
or Exhibits contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements
contained herein and therein not misleading. The Corporation is not
aware of any fact which has not been disclosed to the Buyer which
would have a material adverse effect on the Corporation's business,
prospects, condition, affairs or operations. The Corporation is not
aware of any error, omission, or untrue statement of a material fact
in the information relied upon by the Buyer in the preparation of the
Exhibits.
5.18 Transactions with Affiliates. Except for (i) regular salary payments
------------------------------
and fringe benefits under an individual's compensation package with
the Corporation, and (ii) certain advances that have been made to the
Corporation by certain key employees as described on Exhibit H, and
(iii) certain related party transactions involving consulting fees and
rent as described in Exhibit I, none of the officers, employees,
directors, or affiliates of the Corporation, or members of their
families is a party to any agreements, understandings, or proposed
transactions with the Company. The Corporation has not guaranteed or
assumed any obligations of the Corporation's officers, directors, or
employees.
5.19 Corporation's Contracts. Except with respect to contracts or
------------------------
understandings between the Corporation and its customers entered into
in the ordinary course of business, all material contracts and
agreements of the Corporation (i) with expected receipts or
expenditures in excess of $10,000, or (ii) with provisions restricting
or affecting the development or distribution of the Corporation's
products or services, or (iii) that provide indemnification by the
Corporation with respect to infringements of proprietary rights, to
which the Corporation is a party as of the Effective date are listed
as Exhibits F and G. All such contracts and agreements are legally
binding. valid, and in full force and effect in all material respects.
The Corporation has received no indication of reduced activity
relating to any contract or agreement with any customer of the
Corporation, and the Corporation has no knowledge of any current
customer of the Corporation that intends to reduce or discontinue its
business with the Corporation.
5.20 Financial Statements. The Corporation has previously delivered to the
---------------------
Buyer un-audited financial statements for the periods ending June 30,
2000. All such financial statements fairly present the financial
condition of the Corporation as of such dates and the results of
operations of the Company for such respective periods.
5.21 Absence of Certain Changes. There has not been since June 30, 2000 up
---------------------------
to and including the Effective Date, any event or condition of any
character which has materially and adversely affected the
Corporation's business, prospects, conditions, affairs, operations,
properties or assets, including but not limited to:
5.21.1 any material adverse change in the financial condition, assets,
liabilities or business of the Corporation;
5.21.2 any damage, destruction or loss of any of the properties or
assets of the Corporation (whether or not covered by insurance)
materially and adversely affecting the business or plans of the
Corporation; or
5.21.3 any labor trouble, or any other event or condition of any
character, which the Corporation knows or has reason to know
would materially and adversely affect the business or plans of
the Corporation.
5.22 Employee Benefits. Except for stock options outstanding on the
------------------
Effective Date, forth in Exhibit J, the Corporation has no other
currently existing employment, bonus, pension, profit sharing,
deferred compensation, stock bonus, retirement, stock purchase,
phantom stock or similar plans.
5.23 Absence of Undisclosed Liabilities. The Corporation does not have any
-----------------------------------
outstanding claims, liabilities, obligations, or indebtedness, whether
accrued, absolute, contingent, or otherwise, except as set forth in
the Balance Sheet or referred to in the footnotes thereto, other than
liabilities incurred subsequent to the Balance Sheet Date of June 30,
2000 in the ordinary course of business. The Corporation is not in
default in respect of the terms or conditions of any indebtedness.
Section 6. Representations and Warranties of the Buyer. The Buyer
------------------------------------------------
represents and warrants to the Corporation with respect to the purchase of the
Shares as follows:
6.1 Organization.
------------
6.1.1Pacific TelCom, Inc. Pacific TelCom, Inc., an Illinois
-------------------
corporation is a Corporation duly organized and existing under
the laws of the State of Illinois, and has all requisite
corporate authority to make, execute, deliver and perform this
Agreement and this Agreement has been duly authorized and
approved by all required corporate action of Pacific TelCom, Inc.
Pacific TelCom, Inc. has an authorized single class of common
stock in the amount of 25,000,000 shares. On the Effective Date,
Pacific TelCom, Inc. has 10,846,040 outstanding common shares.
6.1.2Pacific TelCom [Canada] Inc. Pacific TelCom [Canada] Inc. is a
------------------------------
Corporation duly organized and existing under the laws of the
Province of Ontario, and has all requisite corporate authority to
make, execute, deliver and perform this Agreement and this
Agreement has been duly authorized and approved by all required
corporate action of Pacific TelCom [Canada] Inc. Pacific TelCom
[Canada] Inc. has an authorized class of common voting shares of
which 10,000 shares are outstanding and Class A special shares,
which are nonvoting and convertible to common shares of Pacific
TelCom, Inc. On the Effective Date, Pacific TelCom [Canada] Inc.
has 11,125,000 outstanding Class A special shares.
6.2 No violation. Neither the execution and delivery of this Agreement,
------------
nor the consummation of the transactions contemplated within the
Agreement will constitute a violation of, or be in conflict with, or
result in a cancellation of, or constitute a default under, or create
or cause the acceleration of any debt, obligation or liability
affecting, or resulting in the creation or imposition of any security
interest, lien, or other encumbrance upon any of the assets owned or
used by, or any of the capital stock of either corporation
constituting the Buyer under: (i) any term or provision of the
Articles of Incorporation or by-laws of either corporation
constituting the Buyer; (ii) any judgment, decree, order, regulation,
or rule of any court or government authority; (iii) any statute or
law; (iv) any contract, agreement, indenture, lease or other
commitment to which either corporation constituting the Buyer is a
party or by which it is bound; or (v) cause any material change in the
rights or obligations of any party under which such contract,
agreement, indenture, or commitment.
6.3 No Impairment. Neither of the corporations constituting the Buyer are
--------------
impaired by any law, regulation or order of any court or federal,
state, municipal, provincial or other governmental department,
commission, board, bureau, agency, or instrumentality and: (i) there
are no law suits, proceedings, claims, or governmental investigations
pending or to the knowledge of Buyer, threatened against or involving
Buyer which could materially impair its business; and (ii) there are
no judgments, consents, decrees, injunctions, or any other judicial or
administrative mandates outstanding against Buyer which impair and
adversely affect its property, assets, liabilities, financial
condition, results of operations, or business prospects or its right
to conduct is business as presently conducted.
6.4 Disclosure. None of the representations or warranties made by the
----------
Buyer in this Agreement and no written information furnished to the
Selling Shareholders in this Agreement or otherwise, contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained herein and therein
not misleading. The Buyer is not aware of any fact which has not been
disclosed to the Selling Shareholders which would have a material
adverse affect on the rights and obligations of the Selling
Shareholders.
6.5 Shares of the Buyer. The outstanding Class A special shares of the
----------------------
Buyer have been duly authorized and validly issued, and are fully paid
and non-assessable and were issued in compliance with all applicable
provincial securities laws. The issuance of Buyer's Class A special
shares transferred to the Selling Shareholders herein are without the
requirement of regulatory approval from any applicable provincial
regulatory agency. The Class A special shares of the Buyer paid to the
Selling Shareholders hereunder and the common shares of Pacific
TelCom, Inc. which they are convertible to, are at the Effective Date,
not publicly tradable, have not been registered to be traded publicly
on the Effective Date, and on the Effective Date no public market
exists for the trading of such Class A special shares or common shares
of the corporations constituting the Buyer.
6.6 Dilution. Buyer represents that upon an event of Finality, as set
--------
forth in Section 4.1, whereby Class A special shares of Pacific TelCom
[Canada] Inc. are converted to Pacific TelCom, Inc., common shares,
that such common shares acquired by the Selling Shareholders pursuant
to this transaction shall be subject to significant and substantial
dilution. Upon such conversion to common shares of Pacific TelCom,
Inc., it is understood by the Selling Shareholders that the Selling
Shareholders shall not be acquiring a substantial enough proportion or
percentage of the outstanding issuance of the common stock of Pacific
TelCom, Inc. to acquire management control of Pacific TelCom, Inc.,
elect directors or officers, or in any other method or manner prevent
other or continued dilution. Selling Shareholders acknowledge the
representation further of Buyer that, in the event such dilution
occurs, it is foreseeable that such a dilution would be substantial
and would have a significant effect in reducing the percentage of
ownership of the Selling Shareholders, individually and collectively.
6.7 Access to Data. Buyer has had an opportunity to discuss the
----------------
Corporation's business, management and financial affairs with its
management and the opportunity to review the Corporation's most recent
un-audited financial statement for a complete fiscal year and business
plan. Buyer has also had an opportunity to ask questions of officers
of the Corporation which questions were answered to its satisfaction.
6.8 Brokers or Finders. The Buyer has not, and will not, incur, directly
------------------
or indirectly, as a result of any action taken by such Buyer, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
6.9 Tax Liability. To the extent it deems necessary, it has reviewed with
--------------
its own tax advisors the federal, state, local and provincial tax
consequences of this investment and the transactions contemplated by
this Agreement. It relies solely on such advisors and not on any
statements or representations of the Corporation or any of its agents.
It understands that it (and not the Corporation) shall be responsible
for its own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
Section 7. Representations and Warranties of Selling Shareholders. The
--------------------------------------------------------
Selling Shareholders (collectively and individually) severally represent and
warrant to the Buyer with respect to the purchase of the shares as follows:
7.1 Access to Data. The Selling Shareholders have had an opportunity to
----------------
discuss the terms and conditions of the Purchase Agreement with the
Corporation's management and have had an opportunity to ask questions
of officers of the Corporation, which questions were answered to their
satisfaction.
7.2 Authority. The Sellers' Representative of the Selling Shareholders
---------
have all requisite legal power and authority to execute and deliver
this Purchase Agreement and certificates for the shares of the
Corporation hereunder and to carry out and perform its obligations
under the terms of this Agreement.
7.3 Disclosure. To the best of his or her knowledge, this Agreement, with
----------
the Exhibits thereto, when taken as a whole, does not contain any
untrue statement of a material fact concerning the corporation or omit
to state a material fact necessary in order to make the statements
concerning the corporation contained herein not misleading in light of
the circumstances under which they were made.
7.4 Impairment. There are no actions, suits, proceedings, which impair in
----------
any way such Selling Shareholders' ability to enter into and fully
perform its commitments and obligations under this Agreement or the
transactions contemplated hereby.
7.5 Brokers or Finders. The Selling Shareholders have not, and will not,
--------------------
incur, directly, or indirectly, as a result of any action taken by
such Selling Shareholders, any liability for brokerage or finders'
fees or agent's commissions or any similar charges in connection with
this Agreement.
7.6 Compliance With Other Instruments. The execution, delivery and
------------------------------------
performance of and compliance with this Agreement, and the
transference and delivery of shares will not result in any material
violation of, or conflict with, or constitute a material default under
any agreement, lien, mortgage, pledge, encumbrance or
collateralization on the part of the Selling Shareholders.
7.7 General Release. In consideration of the agreements made hereunder,
----------------
each of the Selling Shareholders hereby release and forever discharge
the Buyer and the Corporation, and each of their shareholders,
officers, directors, representatives, attorneys, and employees, past,
present, and future, individually and collectively for any and all
claims, demands, causes of action or liabilities which each of the
Selling Shareholders ever had or now has, apart from vested stock
options, advances to the Corporation or consulting fees accrued, which
each of the Selling Shareholders ever had or now has, or which their
heirs, executors or administrators hereafter can, shall, or may have
upon or by a reason of any matter or cause whatsoever, whether known
or unknown, suspected or unsuspected, arising on or prior to the
Effective Date, arising out of or in any way connected with each of
the Selling Shareholders' relationship to the Corporation.
Notwithstanding the above, this release shall not affect the Selling
Shareholders' rights and obligations otherwise set forth in this
Agreement.
7.8 Tax Returns. The Selling Shareholders will be solely responsible for
------------
any and all taxes incurred as a result of any taxable event to them
generated by the entry into or performance of any term of this
Agreement.
Section 8. Conditions to Buyer's Obligations. The exchange of documents
----------------------------------
and shares by the parties and the purchase of the shares on the Effective Date
is conditioned upon and subject to the fulfillment of obligations of the Sellers
at or prior to the Effective Date as contained herein.
8.1 List of Selling Shareholders. The Corporation shall deliver to the
-------------------------------
Buyer on or before the Effective Date, relative to Selling
Shareholders, a list of: (i) unexercised options of the Corporation
setting forth the name of the option holder, the address, the number
of unexercised options, the exercise price of such options and the
expire date, to be set forth as Exhibit J; and (ii) a list of
remaining holders of Class A special shares setting forth the names of
such surviving shareholders, addresses, number of shares on the
Effective Date and the amount of unpaid cumulative dividends stated in
US Dollars and set forth in this Agreement as Exhibit K.
8.2 Stock Certificates. Buyer shall receive stock certificates of the
-------------------
Selling Shareholders representing all of the common shares of stock of
the Corporation, duly endorsed for transfer as provided herein at the
Effective Date, or accompanied by executed assignments separate from
certificates with a stock power, in a form satisfactory to the Buyer.
All endorsements on certificates, assignments or stock powers shall be
signature guaranteed, if so required.
8.3 No Material Adverse Change. Prior to the Effective Date, there shall
--------------------------
be no material adverse change in the assets or liabilities, the
business or condition, financial or otherwise of the Corporation and
the Sellers' representative shall deliver to Buyer a certificate in
the form set forth as Exhibit L, dated the Closing Date, to such
effect.
Section 9. Conditions to the Sellers' Obligations. The exchange of
------------------------------------------
documents and shares by the parties on the Effective Date is conditioned upon
and subject to the fulfillment of the conditions set forth below.
9.1 Proceedings. All proceedings to be taken in connection with the
-----------
transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to
Sellers and counsel.
9.2 Performance of Obligations. The Buyer shall have performed and
--------------------------
complied with all agreements and conditions herein required to be
performed or complied with by them on or before the Effective Date.
Section 10. General Provisions.
-------------------
10.1 Amendment and Modification. Subject to applicable law, this Agreement
---------------------------
may be amended, modified or supplemented, as the parties mutually
agree, by a written Agreement signed by a duly appointed
representative of the Buyer and a duly appointed representative of the
Selling Shareholders.
10.2 Expenses. The parties hereto shall pay all of their own expenses
--------
relating to the transactions contemplated by this Agreement, including
the fees and expenses of their respective counsel, accountants, and
financial advisers.
10.3 Governing Law. The interpretation and construction of this Agreement
--------------
and all matters relating hereto shall be governed by the laws of the
State of Illinois relating to contracts made and to be performed in
Illinois.
10.4 Waiver of Terms. Any of the terms or conditions of this Agreement may
----------------
be waived at any time by the party or parties entitled to the benefits
thereof, but only by a written notice signed by an authorized
representative of the party or parties waiving such terms or
conditions.
10.5 Captions. The article and section captions used herein are for
--------
reference purposes only, and shall not in any way affect the meaning
or interpretation of this Agreement.
10.6 Publicity. Prior to the Effective Date, none of the parties hereto
---------
shall issue any press release or make any other statement to the media
relating to this Agreement or the matters contained herein without
obtaining the prior approval of the Buyer.
10.7 Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder will be in writing and will be deemed
to have been duly given when delivered by hand or by air express
courier.
If to the Buyer: Pacific TelCom, Inc.
0000 X. Xxxxxxx Xxxx., Xxx. X-0
Xxx Xxxxx, XX 00000
Attention Xxxx X. Xxxxxxx
With a copy to: Xxxxxxx X. Xxxxx
General Counsel
00 X. XxXxxxx Xx., Xxx. 0000
Xxxxxxx, XX 00000
If to the Sellers to: Xxxxxxx X. Xxxxxxxxx
EasyTel Canada
00 Xxxx Xxxxxx Xxxx, Xxx. 0000
Xxxxxxx, Xxxxxxx X0X0X0
Xxxxxx
With a copy to: Xxxxx X. Xxxxxxx
Xxxxxxxxx, Xxxxxxxx
0 Xxxxxxxx Xx. Xxxx #0000
Xxxxxxx, XX X0X0X0
10.8 Entire Agreement. This Agreement contains the entire understanding
-----------------
between and among the parties and supersedes any prior understandings
and agreements among them respecting the subject matter of this
Agreement.
10.9 Agreement Binding. This Agreement shall be binding upon the heirs,
------------------
executors, administrators, successors and assigns of the parties
hereto.
10.10Pronouns and Plurals. All pronouns and any variations thereof shall
----------------------
be deemed to refer to the masculine, feminine, neuter, singular, or
plural as the identity of the person or persons may require.
10.11Presumption. This Agreement or any section thereof shall not be
-----------
construed against any party due to the fact that said Agreement or any
section thereof was drafted by said party.
10.12Further Action. The parties hereto shall execute and deliver all
---------------
documents, provide all information and take or forbear from all such
action as may be necessary or appropriate to achieve the purposes of
the Agreement.
10.13Parties in Interest. Nothing herein shall be construed to be to the
-----------------
benefit of any third party, nor is it intended that any provision
shall be for the benefit of any third party.
10.14Savings Clause. If any provision of this Agreement, or the
---------------
application of such provision to any person or circumstance, shall be
held invalid, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to
which it is held invalid, shall not be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
PACIFIC TELCOM, INC. EASYTEL CANADA CORPORATION
an Illinois Corporation an Ontario Corporation
By:__________________________ By:__________________________
Xxxx X. Xxxxxxx, President Xxxxxxx X. Xxxxxxxxx, President
PACIFIC TELCOM [CANADA] INC. Selling Shareholders
an Ontario Corporation
By:__________________________ By:__________________________
Xxxx X. Xxxxxxx, President Xxxxxxx X. Xxxxxxxxx
Sellers' Representative
