Exhibit 2.3
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER
BETWEEN
U.S. DIGITAL COMMUNICATIONS, INC.
AND
TELCAM, TELECOMMUNICATIONS COMPANY
OF THE AMERICAS, INC.
DATED AS OF DECEMBER 27, 1999
TABLE OF CONTENTS
ARTICLE I: THE MERGER.............................................................................................1
SECTION 1.1 The Merger..................................................................................1
SECTION 1.2 Closing.....................................................................................2
SECTION 1.3 Effective Time of the Merger................................................................2
SECTION 1.4 Effects of the Merger.......................................................................2
SECTION 1.5 Certificate of Incorporation; By-Laws.......................................................2
SECTION 1.6 Directors...................................................................................3
SECTION 1.7 Officers Following the Merger...............................................................3
SECTION 1.8 Directors and Officers of the Surviving Corporation.........................................3
ARTICLE II: EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; EXCHANGE OF CERTIFICATES................................................................4
SECTION 2.1 Effect on Capital Stock.....................................................................4
SECTION 2.2 Exchange of Certificates....................................................................5
ARTICLE III: REPRESENTATIONS AND WARRANTIES.......................................................................6
SECTION 3.1 Representations and Warranties by the Parent................................................6
SECTION 3.2 Representations and Warranties of the Company..............................................18
ARTICLE IV: CONDUCT OF BUSINESSES PENDING THE MERGER.............................................................25
SECTION 4.1 Conduct of Business of the Parent .........................................................25
SECTION 4.2 Management of Subsidiaries' Operations.....................................................27
SECTION 4.3 Conduct of Business of Parent and Subsidiaries.............................................27
SECTION 4.4 Notification of Certain Matters............................................................27
SECTION 4.5 Assistance.................................................................................28
SECTION 4.6 Conduct of Business of the Company ........................................................28
ARTICLE V: ADDITIONAL AGREEMENTS................................................................................30
SECTION 5.1 Shareholder Approval; Preparation of Proxy Statement.......................................30
SECTION 5.2 Access to Information......................................................................31
SECTION 5.3 No Solicitation............................................................................32
SECTION 5.4 Reasonable Best Efforts....................................................................33
SECTION 5.5 Public Announcements.......................................................................34
SECTION 5.6 Conveyance Taxes...........................................................................34
ARTICLE VI: CONDITIONS OF MERGER................................................................................35
SECTION 6.1 Conditions to Obligation of Each Party to Effect the Merger................................35
SECTION 6.2 Conditions to Obligations of the Company...................................................35
SECTION 6.3 Conditions to Obligations of the Parent....................................................36
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ARTICLE VII: TERMINATION, AMENDMENT AND WAIVER..................................................................37
SECTION 7.1 Termination................................................................................37
SECTION 7.2 Effect of Termination......................................................................38
SECTION 7.3 Fees and Expenses..........................................................................38
SECTION 7.4 Brokers....................................................................................39
SECTION 7.5 Subsidiaries' Operations...................................................................39
SECTION 7.6 Amendment..................................................................................39
SECTION 7.7 Waiver.....................................................................................40
ARTICLE VIII: GENERAL PROVISIONS................................................................................40
SECTION 8.1 Non-Survival of Representations, Warranties and Agreements.................................40
SECTION 8.2 Notices....................................................................................40
SECTION 8.3 Certain Definitions........................................................................41
SECTION 8.4 Severability...............................................................................42
SECTION 8.5 Entire Agreement; Assignment...............................................................43
SECTION 8.6 Parties in Interest........................................................................43
SECTION 8.7 Director and Officer Liability.............................................................43
SECTION 8.8 Enforcement of Agreement...................................................................43
SECTION 8.9 Governing Law..............................................................................43
SECTION 8.10 Headings..................................................................................44
SECTION 8.11 Counterparts..............................................................................44
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 27, 1999 (this
"Agreement"), by and between U.S. DIGITAL COMMUNICATIONS, INC., a Nevada
corporation (the "Parent"), and TELCAM, TELECOMMUNICATIONS COMPANY OF THE
AMERICAS, INC., a Texas corporation (the "Company").
WHEREAS, the respective Boards of Directors of Parent and the Company
have approved, and deem it advisable and in the best interests of Parent and the
Company and of their respective shareholders to consummate the business
combination transaction provided for herein in which USDI Acquisition, Inc., a
Texas corporation which is a wholly owned subsidiary of the Parent ("Sub"), will
merge with and into the Company (the "Merger");
WHEREAS, pursuant to the Merger, each outstanding share of the
Company's common stock, no par value (the "Company Common Stock"), shall be
converted into shares of Parent's common stock, $0.01 par value per share
("Parent's Common Stock"), upon the terms and subject to the conditions set
forth herein;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, Parent and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, mutual covenants and agreements herein contained,
and intending to be legally bound hereby, Parent and the Company hereby agree as
follows:
ARTICLE I: THE MERGER
SECTION 1.1 THE MERGER.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the Texas Business Corporation Act (the
"TBCA"), at the Effective Time (as defined in Section 1.3), Sub shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Sub shall cease, and the Company shall continue as
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the surviving corporation of the Merger (the "Surviving Corporation") and shall
continue under the name TELCAM, Telecommunications Company of the Americas, Inc.
SECTION 1.2 CLOSING.
Unless this Agreement shall have been terminated and the transactions
herein contemplated shall have been abandoned pursuant to Section 7.1 and
subject to the satisfaction or waiver of the conditions set forth in Article VI,
the closing of the Merger (the "Closing") will take place as promptly as
practicable (and in any event within two business days) following satisfaction
or waiver of the conditions set forth in Article VI (the "Closing Date"), at the
offices of Xxxxxxxx & Xxxxx, P.C., Houston, Texas, unless another date, time or
place is agreed to in writing by the parties hereto.
SECTION 1.3 EFFECTIVE TIME OF THE MERGER.
As soon as practicable on or after the Closing Date, the parties hereto
shall cause the Merger to be consummated by filing articles of merger with the
Secretary of State of the State of Texas ("Articles of Merger"), in such form as
required by, and executed in accordance with the relevant provisions of, the
TBCA (the date and time of the filing of the Articles of Merger with the
Secretary of State of the State of Texas, or such later time as is specified in
the Articles of Merger, being the "Effective Time").
SECTION 1.4 EFFECTS OF THE MERGER.
The Merger shall have the effects set forth in the TBCA. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time all the properties, rights, privileges, immunities, powers and franchises
of the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION; BY-LAWS.
At the Effective Time:
(a) The certificate of incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be the certificate of
incorporation of the Surviving Corporation following the Merger.
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(b) The by-laws of the Company, as in effect immediately prior to the
Effective Time, shall be the by-laws of the Surviving Corporation and thereafter
may be amended or repealed in accordance with their terms or the certificate of
incorporation of the Surviving Corporation or as provided by applicable law.
SECTION 1.6 DIRECTORS.
(a) Four directors of the Parent shall be nominated by the Company
to fill vacancies on the Board of Directors of the Parent at the Effective Time.
(b) The directors to be nominated by the Company shall be determined
within 21 days of the date hereof by the Board of Directors of the Company. If,
prior to the Effective Time of the Merger, any of the Company's designees to the
Board of Directors of the Parent as so selected shall decline or be unable to
serve as a director of the Parent, the Board of Directors of the Company shall
designate another person to serve in such person's stead.
(c) Subject to the fiduciary duties of the Board of Directors of the
Parent, and the willingness of such Persons to serve as directors of the Parent,
the Board of Directors of the Parent shall submit as nominees for election to
the Board of Directors of the Parent at the Annual Meeting of Stockholders of
the Parent to be held in 2000 the directors of the Parent as provided for
herein.
SECTION 1.7 OFFICERS FOLLOWING THE MERGER.
Xxxxxx X. Xxxxxxx shall be the Chairman of the Parent and Xxxxxxx Xxxx
shall be a director and the President and Chief Executive Officer of the Parent.
The other officers of the Parent shall be the officers of the Company as of the
Effective Time of the Merger, together with such other persons as may be
selected by the Company to serve as officers of the Parent. All such officers
shall hold office in accordance with the Certificate of Incorporation and
By-laws of the Parent from the Effective Time of the Merger until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
SECTION 1.8 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION.
The directors of the Company immediately prior to the Effective Time shall be
the initial directors of the Surviving Corporation, each to hold office in
accordance with the articles of incorporation and by-laws of the Surviving
Corporation. Xxxxxxx Xxxx shall be the Chief Executive Office and President and
the other officers of the Company immediately prior to the Effective Time shall
continue as officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed, as the case may be, and
qualified.
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ARTICLE II: EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
SECTION 2.1 EFFECT ON CAPITAL STOCK.
At the Effective Time, by virtue of the Merger and without any action
on the part of the holders of any shares of Company Common Stock, or the Parent
as the holder of all shares of capital stock of Sub:
(a) COMMON STOCK OF SUB. Each share of common stock, par value $0.01
per share, of Sub issued and outstanding immediately prior to the Effective Time
shall be converted into 1,000 validly issued, fully paid and nonassessable share
of common stock, no par value, of the Surviving Corporation, which shall be all
of the issued and outstanding capital stock of the Surviving Corporation.
(b) CANCELLATION OF TREASURY STOCK. Each share of Company Common Stock
that is owned by the Company shall automatically be canceled and retired and
shall cease to exist and no consideration shall be delivered or deliverable in
exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK AND ANTIDILUTION.
(i) It is the intent of the Parent and the Company that, upon
consummation of the Merger, the holders of the Company Common Stock will, in the
aggregate, own 51% of the Parent Common Stock which has been issued at the
Effective Time PLUS 51% of the Parent Common Stock of the Parent which may be
issued in conversion of, in exchange for or in settlement of, as applicable,
preferred stock of the Parent ("Parent Preferred Stock"), accrued but unpaid
dividends on any Parent Preferred Stock, options or warrants for Parent Common
Stock, debt of the Parent or any Subsidiary (including debt evidenced by the
Loan Agreements), claims made against the Parent or any Subsidiary by any
Person, or any other agreement or instrument which exists at the Effective Time
(each a "Convertible Security").
(ii) The consideration given to the holders of Company Common
Stock (the "Merger Consideration") shall be delivered as follows: (x) All issued
and outstanding shares of Company Common Stock at the Effective Time shall be
converted into the number of shares of Parent Common Stock which represents not
less than 51% of the Parent Common Stock issued at the Effective Time (including
the shares of Parent Common Stock issued pursuant to this Subsection
2.1(c)(ii)(x)); and (y) if, within 60 calendar months following the Effective
Time, the Parent issues, agrees to issue or is subject to any agreement (written
or oral), understanding
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(written or oral) or court order to issue Parent Common Stock for any
Convertible Security, then each holder of Company Common Stock shall be entitled
to receive and shall receive for each share of Company Common Stock held at the
Effective Time 1.041 shares of Parent Common Stock for each share of Parent
Common Stock which may be issued in conversion of, in exchange for or in
settlement of a Convertible Security which existed at the Effective Time.
(iii) The Merger Consideration deliverable under Subsection
2.1(c)(ii)(x) shall be payable to the holder thereof upon surrender of the
certificate formerly representing such share of Company Common Stock. All such
shares of Company Common Stock, when so converted under Subsection
2.1(c)(ii)(x), shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate previously
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the Merger Consideration payable pursuant
to Subsection 2.1(c)(ii)(x) upon the surrender of such certificates and the
right to receive the Merger Consideration payable pursuant to Subsection
2.1(c)(ii)(y).
(d) NO FRACTIONAL PARENT SHARES. No fractional shares of Parent Common
Stock shall be issued in the Merger. A fractional share of Parent Common Stock
that a holder of Company Common Stock would otherwise be entitled to receive as
a result of the Merger shall be rounded up to the nearest whole share.
SECTION 2.2 EXCHANGE OF CERTIFICATES.
(a) EXCHANGE AGENT. Prior to the Effective Time of the Merger, Parent
shall engage Corporate Stock Transfer, Inc. or such other bank or trust company
reasonably acceptable to the Company, to act as exchange agent (the "Exchange
Agent") for the issuance of the Merger Consideration upon surrender of
Certificates.
(b) PAYMENT OF MERGER CONSIDERATION. Parent shall cause there to be
provided to the Exchange Agent on a timely basis, as and when needed after the
Effective Time of the Merger, certificates for the Parent Common Stock to be
issued upon the conversion of the Company Common Stock pursuant to Section 2.1.
(c) EXCHANGE PROCEDURE. As soon as practicable after the Effective Time
of the Merger, the Exchange Agent shall mail to each holder of record of a
certificate or certificates that immediately prior to the Effective Time of the
Merger represented outstanding Company Common Stock (the "Certificates"), (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in a form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the certificates
representing the Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent or to such other agent or agents
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as may be appointed by the Surviving Corporation, together with such letter of
transmittal, duly executed, and such other documents as may reasonably be
required by the Exchange Agent, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate or certificates representing the
number of whole shares of parent Common Stock into which the Company Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 2.1, and the Certificate so surrendered shall forthwith be canceled.
If the shares of Parent Common Stock are to be issued to a Person other than the
Person in whose name the Certificate so surrendered is registered, it shall be a
condition of exchange that such Certificate shall be properly endorsed or
otherwise in proper form for transfer and that the Person requesting such
exchange shall pay any transfer or other taxes required by reason of the
exchange to a Person other than the registered holder of such Certificate or
establish to the reasonable satisfaction of the Surviving Corporation that such
tax has been paid or is not applicable. Until surrendered as contemplated by
this Section 2.2, each Certificate shall be deemed at any time after the
Effective Time of the Merger to represent only the right to receive, upon
surrender of such Certificate, the number of shares of Parent Common Stock into
which the Company Shares theretofore represented by such Certificate shall have
been converted pursuant to Section 2.1. The Exchange Agent shall not be entitled
to vote or exercise any rights of ownership with respect to the Parent Common
Stock held by it from time to time hereunder, except that it shall receive and
hold all dividends or other distributions paid or distributed with respect
thereto for the account of Person entitled thereto.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender of Certificates in accordance with
the terms of this Article II, together with any dividends payable thereon to the
extent contemplated by this Section 2.2, shall be deemed to have been exchanged
and paid in full satisfaction of all rights pertaining to the Company Common
Stock theretofore represented by such Certificates and there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the Company Common Stock that were outstanding immediately prior
to the Effective Time. If, after the Effective Time, Certificates are presented
to the Surviving Corporation for any reason, they shall be canceled and
exchanged as provided in this Article II.
ARTICLE III: REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES BY THE PARENT.
The Parent represents and warrants to, and agrees with, the Company as
follows, subject to any exceptions specified in the Disclosure Letter of Parent
previously provided to the Company on the date hereof (the "Parent Disclosure
Letter") and except as expressly contemplated by this Agreement:
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(a) ORGANIZATION; STANDING AND POWER. The Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has the requisite corporate power and authority to carry on its
business as now being conducted. The Parent is duly qualified to do business and
is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification necessary,
other than in such jurisdictions where the failure to be so qualified to do
business (individually or in the aggregate) would not have a Material Adverse
Effect on the Parent and the Subsidiaries, taken as a whole. The Parent has
provided the Company with complete and correct copies of the certificate of
incorporation and by-laws of the Parent currently in effect.
(b) SUBSIDIARIES. The Subsidiaries are corporations duly organized,
validly existing and in good standing under the laws of their respective
jurisdictions of incorporation and have the requisite corporate power and
authority to carry on their respective businesses as they are now being
conducted and to own, operate and lease the assets they now own, operate or hold
under lease, except where the failure to be so organized, existing or in good
standing would not have a Material Adverse Effect on the Parent and the
Subsidiaries, taken as a whole. At the Effective Time, the Subsidiaries will be
duly qualified to do business and are in good standing in each jurisdiction in
which the nature of their respective businesses or the ownership or leasing of
their respective properties makes such qualification necessary, other than in
jurisdictions where the failure to be so qualified or in good standing would not
have a Material Adverse Effect on the Parent and the Subsidiaries, taken as a
whole. All the outstanding shares of capital stock of the Subsidiaries are owned
of record and beneficially by the Parent and have been duly authorized and
validly issued and are fully paid and nonassessable and were not issued in
violation of any preemptive rights or other preferential rights of subscription
or purchase of any Person other than those than have been waived or otherwise
cured or satisfied, free and clear of all Liens. The Parent has provided the
Company with complete and correct copies of the certificate of incorporation and
by-laws of each Subsidiary as currently in effect.
(c) CAPITAL STRUCTURE. The authorized capital stock of the Parent
consists of 50,000,000 shares of Parent Common Stock and 10,000,000 shares of
Parent Preferred Stock, $0.01 par value per share. At the close of business on
December 15, 1999, 36,237,858 shares of Parent Common Stock (excluding 5,902,200
shares of Parent Common Stock held in treasury), were issued and outstanding,
and 4,130 shares of Parent Preferred Stock were issued and outstanding. In
addition, at the close of business on December 15, 1999, (i) 7,000,000 shares of
Parent Common Stock were reserved for issuance pursuant to the provisions of
Series B and Series C preferred stock conversion rights, and (ii) 6,540,000
shares of Parent Common Stock were reserved for issuance pursuant to Parent's
employee and director benefit plans and arrangements, of which 6,540,000 shares
of Parent Common Stock were reserved for issuance upon the exercise of
outstanding options. Except as set forth above, no shares of capital stock or
other equity or voting securities of the Parent are reserved for issuance or
outstanding. All outstanding shares of capital stock of the Parent are, and all
such shares issuable upon the exercise of options will be, validly issued, fully
paid and nonassessable and not subject to
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preemptive rights. No capital stock has been issued by the Parent since December
15, 1999 to the date hereof, other than the Parent Common Stock issued pursuant
to options outstanding on or prior to such date in accordance with their terms
at such date and Parent Common Stock issued in conversion of Series B and Series
C preferred stock. Except as set forth in Section 3.1(c) of the Parent's
Disclosure Letter, there were no outstanding or authorized securities, options,
warrants, calls, rights, commitments, preemptive rights, agreements,
arrangements or undertakings of any kind to which the Parent or any of the
Subsidiaries is a party, or by which any of them is bound, obligating the Parent
or any of its Subsidiaries to issue, deliver or sell, or cause to be issued,
delivered or sold, any shares of capital stock or other equity or voting
securities of, or other ownership interests in, the Parent or any of its
Subsidiaries or obligating the Parent or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call, right,
commitment, agreement, arrangement or undertaking. The shares of Parent Common
Stock to be issued pursuant to the terms of this Agreement will, when issued, be
validly issued, fully paid and nonassessable and not subject to preemptive
rights.
(d) AUTHORITY. The Parent has the requisite corporate power and
authority to enter into this Agreement and, subject to approval of the Merger
by the holders of a majority of the outstanding shares of Parent Common Stock
("Parent Stockholder Approval"), to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Parent and the
consummation by the Parent of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Parent,
subject to the Parent Stockholder Approval. This Agreement has been duly and
validly executed and delivered by the Parent and constitutes a valid and
binding obligation of the Parent, enforceable against the Parent in
accordance with its terms, except as may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other
similar laws affecting or relating to the enforcement of creditors' rights
generally and by general principles of equity.
(e) NONCONTRAVENTION; CONSENTS AND APPROVALS. The execution and
delivery of this Agreement by the Parent do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a material benefit
under, or result in the creation of any Lien upon or right of first refusal with
respect to any of the properties or assets of the Parent or any of the
Subsidiaries, under any provision of (i) the certificate of incorporation or
by-laws of the Parent or any provision of any comparable organizational
documents of the Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to the Parent or any of the Subsidiaries or
their respective properties or assets or (iii) assuming all the consents, filing
and registrations referred to in the following sentence are obtained and made,
any judgment, order, decree, statute, law, ordinance, rule or regulation or
arbitration award applicable to the Parent or any of the Subsidiaries or their
respective properties or assets, other than, in the case of clause (ii), any
such conflicts, violations, defaults, rights or
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Liens that individually or in the aggregate would not have a Material Adverse
Effect on the Parent and the Subsidiaries, taken as a whole, and would not
materially impair the ability of the Parent to perform its obligations hereunder
or prevent the consummation of any of the transactions contemplated hereby. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Governmental Entity is required by or with respect to the
Parent or any of the Subsidiaries in connection with the execution and delivery
of this Agreement by the Parent or the consummation by the Parent of the
transactions contemplated hereby, except for (i) the filing with the SEC of (A)
the Proxy Statement with respect to Parent Stockholder Approval and (B) such
reports under Section 13(a) of the Exchange Act as may be required in connection
with this Agreement and the transactions contemplated hereby, (ii) the filing of
the Articles of Merger with the Secretary of State of the State of Texas as
provided in the TBCA and appropriate documents with the relevant authorities of
other states in which Sub is qualified to do business, and (iii) such other
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under the "takeover" or "blue sky" laws of various
states and such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made would not have a Material Adverse Effect on the Parent and the
Subsidiaries, taken as a whole.
(f) LICENSES. To the knowledge of Parent, each of the Parent and the
Subsidiaries has all permits, licenses, waivers and authorizations, including
licenses, authorizations and certificates of and from applicable state and local
authorities, which are necessary for it to conduct its business in the manner in
which it is presently being conducted (collectively, "Licenses"), other than any
Licenses the failure of which to have would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. To the
knowledge of Parent, each of the Parent and the Subsidiaries is in compliance
with the terms of all Licenses, except for such failures so to comply which
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. To the knowledge of Parent, the Parent and the
Subsidiaries have duly performed their respective obligations under and are in
compliance with the terms of such Licenses, except for such nonperformance or
noncompliance as would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. There is no pending or, to the
knowledge of the Parent, threatened application, petition, objection or other
pleading with any Governmental Entity which challenges or questions the validity
of, or any rights of the holder under, any License, except for such
applications, petitions, objections or other pleadings, that would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect or that are applicable to the telecommunications industry
generally.
(g) SEC DOCUMENTS AND OTHER REPORTS. The Parent has filed all required
documents with the SEC since August 6, 1999 (the "SEC Reports"). As of their
respective filing dates, the SEC Reports complied in all material respects with
the requirements of the Securities Act of 1933, as amended, and the rules and
regulations thereunder (the "Securities Act"), or the Exchange Act, as the case
may be, each as in effect on the date so filed, and at the time filed with
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SEC none of the SEC Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Parent included in the SEC
Reports comply as of their respective dates as to form in all material respects
with the then applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with generally accepted accounting principles (except, in the case of the
unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly present the consolidated financial position
of the Parent and its consolidated Subsidiaries as at the dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
(h) INFORMATION SUPPLIED. The Proxy Statement (or any amendment thereof
or supplement thereto) will, at the date of mailing to shareholders of the
Parent and at the time of the Shareholders' Meeting to be held in connection
with the Merger, not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, except that no representation is made by the Parent
with respect to statements made based on information supplied by the Company in
writing specifically for inclusion in the Proxy Statement. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder.
(i) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1998,
except as contemplated by this Agreement, the Memorandum of Understanding, the
Loan Agreements, as set forth in Section 3.1(i) of the Parent's Disclosure
Letter, or disclosed in the SEC Reports filed since that date and up to the date
of this Agreement, there has not been (i) any material change by the Parent in
its accounting methods, principles or practices, (ii) any entry by the Parent or
the Subsidiaries into any commitment or transaction material to the Parent or
the Subsidiaries, (iii) any declaration, setting aside or payment of any
dividends or distributions in respect of the shares of Parent Common Stock or
any redemption, purchase or other acquisition of any of its securities, (iv) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, or any other increase in the
compensation payable or to become payable to any officers or key employees of
the Parent or any of its subsidiaries other than in the ordinary course of
business consistent with past practice or as was required under employment,
severance or termination agreements in effect as of December 31, 1998, (v) any
material bonus paid to the employees of the Parent or its Subsidiaries, (vi) any
sale or transfer of any material assets of the Parent or the Subsidiaries other
than in the ordinary course of business and consistent with past practice or
10
(vii) any loan, advance or capital contribution to or investment in any person
by the Parent or any Subsidiary.
(j) LIABILITIES. Except for (a) liabilities incurred in the ordinary
course of business consistent with past practice, (b) transaction expenses
incurred in connection with this Agreement, the Memorandum, and the Loan
Agreements, (c) liabilities which individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect, (d) liabilities set
forth on any balance sheet (including the notes thereto) included in the
Parent's financial statements included in the SEC Reports filed prior to the
date hereof, or the Proxy, or (e) as disclosed in Section 3.1 (j) of the
Parent's Disclosure Letter since December 31, 1998 neither the Parent nor any of
the Subsidiaries has incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether due or to become
due, that would be required to be reflected or reserved against in a
consolidated balance sheet of the Parent and the Subsidiaries (including the
notes thereto) prepared in accordance with generally accepted accounting
principles as applied in preparing the consolidated balance sheet of the Parent
and the Subsidiaries as of December 31, 1998 contained in the Parent's Annual
Report on Form 10-K for the fiscal year ended and as contained in the Parent's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1999.
(k) ABSENCE OF LITIGATION. Except as disclosed in Section 3.1(k) of the
Parent's Disclosure Letter, in the Parent's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998 and the Parent's Quarterly Report on Form
10-Q for the fiscal quarter ended September 30, 1999, there are no suits,
claims, actions, proceedings or investigations pending or, to the knowledge of
the Parent, threatened against the Parent or any Subsidiary, or any properties
or rights of the Parent or any Subsidiary, before any court, arbitrator or
administrative, governmental or regulatory authority or body, domestic or
foreign, that (i) individually or in the aggregate would reasonably be expected
to have a Material Adverse Effect, (ii) as of the date of this Agreement
question the validity of this Agreement or any action to be taken by the Parent
in connection with the consummation of the transactions contemplated hereby or
(iii) as of the date of this Agreement would prevent or result in a material
delay of the consummation of the transactions contemplated hereby. As of the
date hereof, neither the Parent nor any Subsidiary nor any of their respective
properties is or are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which would reasonably be expected to have, a
Material Adverse Effect or which would prevent or result in a material delay of
the consummation of the transactions contemplated hereby.
(l) LABOR MATTERS. Except as set forth in the SEC Reports filed prior
to the date hereof, (i) neither the Parent nor any Subsidiary is a party to any
labor or collective bargaining agreement, and no employees of the Parent or any
Subsidiary are represented by any labor organization, (ii) to the knowledge of
the Parent there are no material representation or certification proceedings, or
petitions seeking a representation proceeding pending or threatened to be
brought or filed with the National Labor Relations Board or any other labor
relations
tribunal or authority and (iii) to the knowledge of the Parent there
are no material organizing activities involving the Parent or any Subsidiary
with respect to any group of employees of the Parent or the Subsidiaries.
(m) EMPLOYEE ARRANGEMENTS AND BENEFIT PLANS.
(i) Section 3.1(m) of the Parent Disclosure Letter sets forth
a complete and correct list of (i) all employee benefit plans within the meaning
of Section 3(3) of ERISA and all bonus or other incentive compensation, deferred
compensation, salary continuation, severance, disability, stock award, stock
option, stock purchase, tuition assistance, or vacation pay plans or programs
(collectively the "Plans") and (ii) all written employment, severance,
termination, change-in-control, or indemnification agreements (collectively, the
"Employment Arrangements"), in each case (i) or (ii) under which the Parent or
any Subsidiary has any obligation or liability (contingent or otherwise). Except
as set forth in the SEC Reports filed prior to the date of this Agreement and
except as would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect: (A) each Plan has been administered and is in
compliance with the terms of such Plan and all applicable laws, rules and
regulations, (B) no "reportable event" (as such term is used in section 4043 of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
(other than those events for which the 30 day notice has been waived pursuant to
the regulations), "prohibited transaction" (as such term is used in section 406
of ERISA or section 4975 of the Code) or "accumulated funding deficiency" (as
such term is used in section 412 or 4971 of the Code) has heretofore occurred
with respect to any Plan and (C) each Plan intended to qualify under Section
401(a) of the Code has received a favorable determination from the IRS regarding
its qualified status and no notice has been received from the IRS with respect
to the revocation of such qualification.
(ii) Except as set forth in Section 3.1(m) of the Parent
Disclosure Letter, there is no litigation or administrative or other proceeding
involving any Plan or Employment Arrangement nor has the Parent received written
notice that any such proceeding is threatened, in each case where an adverse
determination would reasonably be expected to have a Material Adverse Effect.
The Parent has not contributed to any "multiemployer plan" (within the meaning
of section 3(37) of ERISA) and neither the Parent nor any Subsidiary has
incurred, nor, to the best of the Parent's knowledge, is reasonably likely to
incur any withdrawal liability which remains unsatisfied in an amount which
would reasonably be expected to have a Material Adverse Effect. The termination
of, or withdrawal from, any Plan or multiemployer plan to which the Parent
contributes, on or prior to the Closing Date, will not subject the Parent to any
liability under Title IV of ERISA that would reasonably be expected to have a
Material Adverse Effect.
(iii) With respect to each Plan and Employment Arrangement, a
complete and correct copy of each of the following documents (if applicable)
have been provided by the Parent: (i) the most recent Plan or Employment
Arrangement, and all amendments thereto and
12
related trust documents; (ii) the most recent summary plan description, and all
related summaries of material modifications; (iii) the most recent Form 5500
(including schedules); (iv) the most recent IRS determination letter; (v) the
most recent actuarial reports (including for purposes of Financial Accounting
Standards Board report no. 87, 106 and 112) and (vi) the most recent estimate of
withdrawal liability from any Plan constituting a multiemployer plan if any.
(iv) Except as disclosed in the SEC Reports, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment becoming due to
any employee (current, former or retired) or consultant of the Parent or any
Subsidiary, (ii) increase any benefits under any Plan or Employment Arrangement
or (iii) result in the acceleration of the time of payment or vesting of any
rights under any Plan or Employment Arrangement.
(n) TAX MATTERS.
(i) To the best of Parent's knowledge, the Parent and each of
the Subsidiaries have timely filed with the appropriate taxing authorities all
material Tax Returns (as defined below) required to be filed through the date
hereof and will timely file any such material Tax Returns required to be filed
on or prior to the Closing Date (except those under valid extension) and all
such Tax Returns are and will be true and correct in all material respects, (B)
all Taxes (as defined below) of the Parent and each Subsidiary shown to be due
on the Tax Returns described in (A) above have been timely paid or adequately
reserved for in accordance with GAAP (except to the extent that such Taxes are
being contested in good faith, which contested Taxes are set forth in Section
3.1(n) of the Parent Disclosure Letter), (C) no material deficiencies for any
Taxes have been proposed, asserted or assessed against the Parent or any
Subsidiary that have not been fully paid or adequately provided for in the
appropriate financial statements of the Parent and the Subsidiaries, and no
power of attorney with respect to any Taxes has been executed or filed with any
taxing authority and no material issues relating to Taxes have been raised in
writing by any governmental authority during any presently pending audit or
examination, (D) the Parent and the Subsidiaries are not now subject to audit by
any taxing authority and no waivers of statutes of limitation with respect to
the Tax Returns have been given by or requested in writing from the Parent, (E)
there are no material liens for Taxes (other than for Taxes not yet due and
payable) on any assets of the Parent or any of the Subsidiaries, (F) neither the
Parent nor any of the Subsidiaries is a party to or bound by (nor will any of
them become a party to or bound by) any tax indemnity, tax sharing, tax
allocation agreement, or similar agreement, arrangement or practice with respect
to taxes, (G) neither the Parent nor any of the Subsidiaries has ever been a
member of an affiliated group of corporations within the meaning of Section 1504
of the Code, other than the affiliated group of which the Parent is the common
parent, (H) neither the Parent nor any of the Subsidiaries has filed a consent
pursuant to the collapsible corporation provisions of Section 341(f) of the Code
(or any corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provisions of state or local law)
apply to any disposition of any asset owned by
13
the Parent or any of the Subsidiaries, as the case may be, (I) neither the
Parent nor any of the Subsidiaries has agreed to make, nor is any required to
make any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise, (J) the Parent and the Subsidiaries have
complied in all material respects with all applicable laws, rules and
regulations relating to withholding of Taxes and (K) no property owned by the
Parent or any of the Subsidiaries (i) is property required to be treated as
being owned by another person pursuant to the provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended and in effect immediately prior to
the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax exempt use
property" within the meaning of Section 168(h)(1) of the Code; or (iii) is tax
exempt bond financed property within the meaning of Section 168(g) of the Code.
(ii) As used in this Agreement, "Tax Return" shall mean any
return, report or statement required to be filed with any governmental authority
with respect to Taxes. As used in this Agreement, "Taxes" shall mean taxes of
any kind, including but not limited to those measured by or referred to as
income, gross receipts, sales, use, ad valorem, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
value added, property or windfall profits taxes, customs, duties or similar
fees, assessments or charges of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any
governmental authority, domestic or foreign.
(o) INTELLECTUAL PROPERTY. The Parent and the Subsidiaries do not
presently own any (i) registered trademarks, service marks, brand names and
other indications of origin, or (ii) patents. The Parent presently has the
applications for the patents which are set forth on Section 3.1(o)of the
Parent's Disclosure Letter pending before the U.S. Department of Commerce,
Patent and Trademark Office. The Parent makes no representation or warranties
concerning the patent applications.
(p) ENVIRONMENTAL MATTERS. To the best of Parent's knowledge and except
as disclosed in the SEC Reports filed prior to the date of this Agreement and
except as would not reasonably be expected to have a Material Adverse Effect,
(i) the operations of the Parent and the Subsidiaries have been and are in
compliance with all Environmental Laws and with all Licenses required by
Environmental Laws, (ii) there are no pending or, to the knowledge of the
Parent, threatened, actions, suits, claims, investigations or other proceedings
(collectively, "Actions") under or pursuant to Environmental Laws against the
Parent or the Subsidiaries or involving any real property currently or, to the
knowledge of the Parent, formerly owned, operated or leased by the Parent or the
Subsidiaries, (iii) the Parent and the Subsidiaries are not subject to any
Environmental Liabilities, and, to the knowledge of the Parent, no facts,
circumstances or conditions relating to, arising from, associated with or
attributable to any real property currently or, to the knowledge of the Parent,
formerly owned, operated or leased by the Parent or the Subsidiaries or
operations thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of the Parent all
real property operated or leased by the Parent or the Subsidiaries is free of
contamination from Hazardous
14
Material and (v) there is not now, nor, to the knowledge of the Parent, has
there been in the past, on, in or under any real property owned, leased or
operated by the Parent or any of its predecessors (a) any underground storage
tanks, above-ground storage tanks, dikes or impoundments containing Hazardous
Materials, (b) any asbestos- containing materials, (c) any polychlorinated
biphenyls, or (d) any radioactive substances. As used in this Agreement,
"Environmental Laws" means any and all federal, state, local or municipal laws,
rules, orders, regulations, statutes, ordinances, codes, decisions, injunctions,
orders, decrees, requirements of any Governmental Entity, any and all common law
requirements, rules and bases of liability regulating, relating to or imposing
liability or standards of conduct concerning pollution, Hazardous Materials or
protection of human health or the environment, as currently in effect and
includes, but is not limited to, the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. Section 9601 et seq., the
Hazardous Materials Transportation Act 49 U.S.C. Section 1801 et seq., the
Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Section 6901 et seq.,
the Clean Water Act. 33 U.S.C. Section 1251 et seq., the Clean Air Act, 33
U.S.C. Section 2601 et seq., the Toxic Substances Control Act, 15 U.S.C. Section
2601 et seq., the Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C.,
Section 136 et seq., and the Oil Pollution Act of 1990, 33 U.S.C. Section 2701
et seq., as such laws have been amended or supplemented, and the regulations
promulgated pursuant thereto, and all analogous state or local statutes. As used
in this Agreement, "Environmental Liabilities" with respect to any person means
any and all liabilities of or relating to such person or any of its subsidiaries
(including any entity which is, in whole or in part, a predecessor of such
person or any of such subsidiaries), whether vested or unvested, contingent or
fixed, actual or potential, known or unknown, which (i) arise under or relate to
matters covered by Environmental Laws and (ii) relate to actions occurring or
conditions existing on or prior to the Closing Date. As used in this Agreement,
"Hazardous Materials" means any hazardous or toxic substances, materials or
wastes, defined, listed, classified or regulated as such in or under any
Environmental Laws which includes, but is not limited to, petroleum, petroleum
products, friable asbestos, urea formaldehyde and polychlorinated biphenyls.
(q) TRANSACTIONS WITH AFFILIATES. Except as set forth in the SEC
Reports filed prior to the date of this Agreement, there are no contracts,
agreements, arrangements or understandings of any kind between any affiliate of
the Parent, on the one hand, and the Parent or any Subsidiary, on the other
hand.
(r) BROKERS. No broker, finder, financial advisor or investment banker
is entitled to any brokerage, finder's or other fee, commission or expense
reimbursement in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Parent.
(s) MATERIAL AGREEMENTS.
15
(i) Except as disclosed in Section 3.1(s) of the Parent's
Disclosure Letter and any agreement entered into on behalf of the Subsidiaries
by the Company pursuant to the Memorandum, from and after December 31, 1998,
neither the Parent nor any of the Subsidiaries has entered into any contract,
agreement or other document or instrument (other than this Agreement) that is
required to be filed with the SEC that has not been so filed on or before the
date of this Agreement or any material amendment, modification or waiver under
any contract, agreement or other document or instrument that was previously so
filed.
(ii) The Parent makes no representations or warranty
concerning the validity or enforceability of the following (collectively, "USDI
Material Contracts"):
1. Employment Agreement between U.S. Digital Communications, Inc.
and Xxxxxx Xxxxxxx, effective June 1, 1998.
2. Employment Agreement between International Satellite Group, Inc.
and Xxxxxx Xxxxxx dated December 31, 1998.
3. Employment Offer between Skysite and Xxxxxxx Xxxxxxx dated July
16, 1997.
4. Employment Agreement between Skysite and Xxxxx Xxxxxx April 22,
1998.
5. Employment Agreement between International Satellite Group, Inc.
and Xxxxxx Xxxxxx dated March 8, 1999.
6. Employment Agreement dated January 7, 1999 between International
Satellite Group, Inc. and Xxxxxxx Xxxxx.
7. Alleged Agreement between International Satellite Group, Inc. and
Xxxxx Xxxxxxxx.
8. Promissory Note dated June 25, 1999 in the original principal
amount of $50,000.00 payable to Balmore Funds, S.A. of Tortula,
British Virgin Island.
9. Promissory Note dated June 25, 1999 in the original principal
amount of $50,000.00 payable to Austost Ansalt Schaan, of Vaduz,
Liechtenstein.
10. Placement Agent Agreement dated December 6, 1996 by and between
Viscorp and Wincap, Ltd.
11. Private Placement Memorandum with SMS Capital Services dated
March 26, 1993.
16
12. Non Disclosure Agreement between U.S. Digital Communications,
Inc. and Xxxxx X. Xxxxxxxxxx, dated March 23, 1999.
13. Financing Procurement Agreement between U.S. Digital
Communications, Inc. and Xxxxx Xxxxxxxxxx dated March 18, 1999,
and related documents.
14. Terms of Business between U.S. Digital Communications, Inc. and
Xxxxxxx, PLC, dated March 31, 1999.
15. Engagement Letter dated March 16, 1999, between U.S. Digital
Communications, Inc. and Chatsworth Securities, LLC.
16. Engagement Letter dated March 29, 1999, between U.S. Digital
Communication, Inc. and Chatsworth Securities, LLC.
17. Settlement and Release Agreements between U.S. Digital
Communication, Inc. and Xxxxxx Xxxxx dated March 19, 1999.
18. Settlement and Release Agreements between U.S. Digital
Communication, Inc. and Xxxxx Xxxxxx dated March 19, 1999.
19. Fee Agreement and Non-Circumvention Agreement between U.S.
Digital Communication, Inc. and The Geneva Group, Inc. dated
March 29, 1999.
20. Engagement Letter between X.X. Xxxxx & Associates and Visual
Information Services Corporation dated September 8, 1997.
21. Asset Purchase Agreement between International Satellite Group,
Inc. and Xxxxxx Xxxxxx dated March 8, 1999.
22. Asset Purchase Agreement between International Satellite Group,
Inc. and Enhanced Personal Communications, Inc.
23. Promissory Note dated January 7, 1999 in the original principal
amount of $300,000.00 in favor of Enhance Personal
Communications, Inc.
24. Service Provider Agreement dated February 6, 1999 between TMI
Communications Company, Limited Partnership and International
Satellite Group, Inc., as amended by letter agreement dated
February 6, 1999.
25. Retainer agreement between U.S. Digital Communications, Inc. and
Rothwell, Figg, Ernst & Kustz, PC dated January 26, 1999.
17
26. Non Negotiable Promissory Note dated September 12, 1997 in the
original principal amount of $100,000.00 payable to Anker Bank.
27. Non Negotiable Promissory Note dated December 10, 1997 in the
original principal amount of $150,000.00 payable to Anker Bank.
28. Non Negotiable Promissory Note dated April 2, 1998 in the
original principal amount of $100,000.00 payable to DG Bank.
29. Non Negotiable Promissory Note dated May 5, 1998 in the original
principal amount of $350,000.00 payable to Finter Bank.
30. Non Negotiable Promissory Note dated April 27, 1998 in the
original principal amount of $150,000.00 payable to Finter Bank.
31. Service provider agreement between Skysite Communications
Corporation and American Mobile Satellite Corporation, as
amended.
32. Iridium Product Sales Agreement and service provider agreements,
as amended, between Iridium North America, L.P. and Project 77,
Inc. and/or International Satellite Group, Inc.
(iii) Parent acknowledges that it or its Subsidiaries may be
in default under the agreements with Iridium North America, L.P. and American
Mobile Satellite Corporation included in USDI Material Contracts in (ii) above.
Pursuant to the Memorandum, the Company is in negotiations with the applicable
service providers regarding these agreements. Neither the Parent nor any of the
Subsidiaries is in breach of any material agreement other than any USDI Material
Contract, except for breaches which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
(iv) The Parent has delivered true and complete copies to the
Company of every USDI Material Contract, including all amendments or
modifications thereto.
(t) COMPLIANCE WITH APPLICABLE LAW. Except as disclosed by the Parent
in the SEC Reports filed prior to the date hereof or disclosed in Section 3.1(t)
of the Parent's Disclosure Letter, the Parent and the Subsidiaries are not in
violation of any law, ordinance or regulation of any Governmental Entity. Except
as disclosed by the Parent in the SEC Reports filed prior to the date hereof or
disclosed in Section 3.1(t) of the Parent's Disclosure Letter, to the knowledge
of the Parent no investigation or review by any Governmental Entity with respect
to the Parent or its Subsidiaries is pending or threatened, nor, to the
knowledge of the Parent, has any Governmental Entity indicated an intention to
conduct the same.
18
(u) TANGIBLE PROPERTY. All of the personal property of the Parent is in
good operating condition, reasonable wear and tear excepted, and usable in the
ordinary course of business, except where the failure to be in such condition or
so usable would not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect. The Company has possession of all personal
property of the Subsidiaries and is solely relying on its inspection of the
same.
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby represents and warrants to, and agrees with, the
Parent as follows, subject to any exceptions specified in the Disclosure Letter
of the Company previously provided to the Parent on the date hereof (the
"Company Disclosure Letter") and except as expressly contemplated by this
Agreement:
(a) ORGANIZATION; STANDING AND POWER. The Company is a corporation
validly existing and in good standing under the laws of the State of Texas and
has the requisite corporate power and authority to carry on its business as it
is now being conducted. The Company is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure to be so qualified to do business
(individually or in the aggregate) would not have a Material Adverse Effect. The
Company has provided the Parent with complete and correct copies of the articles
of incorporation and by-laws of the Company as currently in effect.
(b) CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 1,000,000 shares of Company Common Stock, no par value. At the close
of business on December 21, 1999, 335,173 shares of Company Common Stock were
issued and outstanding (excluding 157,327 shares of Company Common Stock held in
treasury). No shares of capital stock or other equity or voting securities of
the Company are reserved for issuance or outstanding. All outstanding shares of
capital stock of the Parent are, and all such shares issuable upon the exercise
of options will be, validly issued, fully paid and nonassessable and not subject
to preemptive rights. As of December 21, 1999, except as set forth in Section
3.2(b) of the Company Disclosure Letter, there were no outstanding or authorized
securities, options, warrants, calls, rights, commitments, preemptive rights,
agreements, arrangements or undertakings of any kind to which the Company is a
party, or by which it is bound, obligating the Company to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of capital stock or
other equity or voting securities of, or other ownership interests in, the
Company or obligating the Company to issue, grant, extend or enter into any such
security, option, warrant, call, right, commitment, agreement, arrangement or
undertaking.
19
(c) AUTHORITY. The Company has the requisite corporate power and
authority to enter into this Agreement and, subject to the approval of the
Merger by the holders of the outstanding shares of Company Common Stock
("Company Stockholder Approval"), to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action on the part of the
Company, subject to Company Stockholder Approval. This Agreement has been duly
executed and delivered by the Company and, assuming due authorization, execution
and delivery by the Parent, constitutes a legal, valid and binding obligation of
the Company enforceable against in accordance with its terms, except as may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar laws affecting or relating to the enforcement of
creditors' rights generally and by general principles of equity.
(d) NONCONTRAVENTION; CONSENTS AND APPROVALS. The execution and
delivery by the Company of this Agreement do not, and the consummation by the
Company of the transactions contemplated hereby and compliance by the Company
with the provisions hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any obligation
or the loss of a benefit under, or result in the creation of any Lien upon or
right of first refusal with respect to any of the properties or assets of the
Company under, (i) any provision of the certificate of incorporation or by-laws
of the Company, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, obligation, instrument, permit, concession,
franchise or license applicable to the Company, or (iii) assuming all the
consents, filings and registrations referred to in the following sentence are
obtained and made, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its properties or assets, other
than, in the case of clause (ii) or (iii), any such violations, defaults,
rights, losses or liens, that, individually or in the aggregate, would not have
a Material Adverse Effect on the Company. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by or
with respect to the Company in connection with the execution and delivery of
this Agreement by the Company or is necessary for the consummation of the Merger
and the other transactions contemplated by this Agreement, except (i) the filing
of the Articles of Merger with the Secretary of State of the State of Texas, and
(ii) such other consents, approvals, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, reasonably be expected to prevent or result in
a material delay of the consummation of the transactions contemplated hereby.
(e) LICENSES. To the knowledge of the Company, the Company has all
permits, licenses, waivers and authorizations, including licenses,
authorizations and certificates of and from applicable state and local
authorities which are necessary for it to conduct its business in the manner in
which it is presently being conducted (collectively, "Licenses"), other than any
Licenses the failure of which to have would not, individually or in the
aggregate, reasonably be
20
expected to have a Material Adverse Effect. To the knowledge of the Company, the
Company is in compliance with the terms of all Licenses, except for such
failures so to comply which would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect, and the Company has
duly performed its obligations under and is in compliance with the terms of such
Licenses, except for such nonperformance or noncompliance as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. There is no pending or, to the knowledge of the Company,
threatened application, petition, objection or other pleading with any
Governmental Entity which challenges or questions the validity of, or any rights
of the Company under, any License, except for such applications, petitions,
objections or other pleadings, that would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect or that are applicable
to the telecommunications industry generally.
(f) INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement will, at the date of mailing to shareholders of the Parent and at the
time of the Shareholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Since May 13, 1999, except as
contemplated by this Agreement, the Memorandum of Understanding and the Loan
Agreements or disclosed in Section 3.1(g) of the Company Disclosure Letter, the
Company has conducted its business only in the ordinary course and, since such
date, there has not been (i) any condition, event or occurrence which,
individually or in the aggregate, has had, or would reasonably be expected to
have, a Material Adverse Effect, (ii) any termination or cancellation of, or any
modification to, any agreement, arrangement or understanding which has had or
would reasonably be expected to have a Material Adverse Effect, (iii) any
material change by the Company in its accounting methods, principles or
practices, (iv) any revaluation by the Company of any of its material assets
other than in the ordinary course of business, consistent with past practice,
(v) any entry by the Company into any commitment or transactions material to the
Company, (vi) any declaration, setting aside or payment of any dividends or
distributions in respect of the shares of Company Common Stock or any
redemption, purchase or other acquisition of any of its securities, (vii) any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including,
without limitation, the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, or any other increase in the
compensation payable or to become payable to any officers or key employees of
the Company or any of its subsidiaries other than in the ordinary course of
business consistent with past practice or as was required under employment,
severance or termination agreements in effect as of May 13, 1999; (viii) any
bonus paid to the employees of the Company, (ix) any sale or transfer of any
material assets of the Company other than in the
21
ordinary course of business and consistent with past practice or (x) any loan,
advance or capital contribution to or investment in any person by the Company.
(h) LIABILITIES. Except for (a) liabilities incurred in the ordinary
course of business consistent with past practice, (b) transaction expenses
incurred in connection with this Agreement, the Memorandum and the Loan
Agreements, (c) liabilities incurred in connection with the Memorandum and the
Loan Agreements, (d) liabilities which individually or in the aggregate would
not reasonably be expected to have a Material Adverse Effect, or (e) liabilities
set forth on any balance sheet (including the notes thereto) included in the
Company's financial statements as of December 31, 1998 and as of September 30,
1999, the Company has not incurred any liabilities or obligations of any nature,
whether or not accrued, contingent or otherwise, and whether due or to become
due, that would be required to be reflected or reserved against in a balance
sheet of the Company as of December 31, 1998 and as of September 30, 1999
(including the notes thereto).
(i) ABSENCE OF LITIGATION. There are no suits, claims, actions,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company, or any properties or rights of the Company,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign, that (i) individually or in the
aggregate, would reasonably be expected to have a Material Adverse Effect, (ii)
as of the date of this Agreement question the validity of this Agreement or any
action to be taken by the Company in connection with the consummation of the
transactions contemplated hereby or (iii) as of the date of this Agreement would
prevent or result in a material delay of the consummation of the transactions
contemplated hereby. As of the date hereof, neither the Company nor any of its
properties is or are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which would reasonably be expected to have, a
Material Adverse Effect or which would prevent or result in a material delay of
the consummation of the transactions contemplated hereby.
(j) LABOR MATTERS. The Company is not a party to any labor or
collective bargaining agreement, and no employees of the Company are represented
by any labor organization. To the knowledge of the Company there are no material
representation or certification proceedings, or petitions seeking a
representation proceeding pending or threatened to be brought or filed with the
National Labor Relations Board or any other labor relations tribunal or
authority and to the knowledge of the Company there are no material organizing
activities involving the Company with respect to any group of employees of the
Company.
(k) EMPLOYEE ARRANGEMENTS AND BENEFIT PLANS.
(i) Section 3.2(m) of the Company Disclosure Letter sets forth
a complete and correct list of (i) all employee benefit plans within the meaning
of Section 3(3) of ERISA and all bonus or other incentive compensation, deferred
compensation, salary continuation,
22
severance, disability, stock award, stock option, stock purchase, tuition
assistance, or vacation pay plans or programs (collectively the "Plans") and
(ii) all written employment, severance, termination, change-in-control, or
indemnification agreements (collectively, the "Employment Arrangements"), in
each case (i) or (ii) under which the Company has any obligation or liability
(contingent or otherwise). To the knowledge of the Company, except as would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect: (A) each Plan has been administered and is in compliance with
the terms of such Plan and all applicable laws, rules and regulations, (B) no
"reportable event" (as such term is used in section 4043 of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")) (other than those
events for which the 30 day notice has been waived pursuant to the regulations),
"prohibited transaction" (as such term is used in section 406 of ERISA or
section 4975 of the Code) or "accumulated funding deficiency" (as such term is
used in section 412 or 4971 of the Code) has heretofore occurred with respect to
any Plan and (C) each Plan intended to qualify under Section 401(a) of the Code
has received a favorable determination from the IRS regarding its qualified
status and no notice has been received from the IRS with respect to the
revocation of such qualification.
(ii) There is no litigation or administrative or other
proceeding involving any Plan or Employment Arrangement nor has the Company
received written notice that any such proceeding is threatened, in each case
where an adverse determination would reasonably be expected to have a Material
Adverse Effect. The Company has not contributed to any "multiemployer plan"
(within the meaning of section 3(37) of ERISA) and the Company has not incurred,
nor, to the best of the Company's knowledge, is reasonably likely to incur any
withdrawal liability which remains unsatisfied in an amount which would
reasonably be expected to have a Material Adverse Effect. The termination of, or
withdrawal from, any Plan or multiemployer plan to which the Company
contributes, on or prior to the Closing Date, will not subject the Company to
any liability under Title IV of ERISA that would reasonably be expected to have
a Material Adverse Effect.
(iii) With respect to each Plan and Employment Arrangement, a
complete and correct copy of each of the following documents (if applicable)
have been provided by the Company: (i) the most recent Plan or Employment
Arrangement, and all amendments thereto and related trust documents; (ii) the
most recent summary plan description, and all related summaries of material
modifications; (iii) the most recent Form 5500 (including schedules); (iv) the
most recent IRS determination letter; (v) the most recent actuarial reports
(including for purposes of Financial Accounting Standards Board report no. 87,
106 and 112) and (vi) the most recent estimate of withdrawal liability from any
Plan constituting a multiemployer plan if any.
(iv) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
payment becoming due to any employee (current, former or retired) or consultant
of the Company, (ii) increase any benefits under any Plan or Employment
Arrangement or (iii) result in the acceleration of the time of payment or
vesting of any rights under any Plan or Employment Arrangement.
23
(l) TAX MATTERS.
(i) To the knowledge of the Company, the Company has timely filed with the
appropriate taxing authorities all material Tax Returns (as defined below)
required to be filed through the date hereof and will timely file any such
material Tax Returns required to be filed on or prior to the Closing Date
(except those under valid extension) and all such Tax Returns are and will be
true and correct in all material respects, (B) all Taxes (as defined below) of
the Company shown to be due on the Tax Returns described in (A) above have been
timely paid or adequately reserved for (except to the extent that such Taxes are
being contested in good faith, which contested Taxes are set forth in Section
3.1(n) of the Company Disclosure Letter), (C) no material deficiencies for any
Taxes have been proposed, asserted or assessed against the Company that have not
been fully paid or adequately provided for in the appropriate financial
statements of the Company, and no power of attorney with respect to any Taxes
has been executed or filed with any taxing authority and no material issues
relating to Taxes have been raised in writing by any governmental authority
during any presently pending audit or examination, (D) the Company is not now
subject to audit by any taxing authority and no waivers of statutes of
limitation with respect to the Tax Returns have been given by or requested in
writing from the Company, (E) there are no material liens for Taxes (other than
for Taxes not yet due and payable) on any assets of the Company, (F) the Company
is not a party to or bound by (nor will it become a party to or bound by) any
tax indemnity, tax sharing, tax allocation agreement, or similar agreement,
arrangement or practice with respect to taxes, (G) the Company has not ever been
a member of an affiliated group of corporations within the meaning of Section
1504 of the Code, (H) the Company has not filed a consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state or local law) or agreed to have Section
341(f)(2) of the Code (or any corresponding provisions of state or local law)
apply to any disposition of any asset owned by the Company, (I) the Company has
not agreed to make, nor is any required to make any adjustment under Section
481(a) of the Code by reason of a change in accounting method or otherwise, (J)
the Company has complied in all material respects with all applicable laws,
rules and regulations relating to withholding of Taxes and (K) no property owned
by the Company (i) is property required to be treated as being owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; (ii) constitutes "tax exempt use property" within the
meaning of Section 168(h)(1) of the Code; or (iii) is tax exempt bond financed
property within the meaning of Section 168(g) of the Code.
(m) INTELLECTUAL PROPERTY. The Company does not presently own any (i)
registered trademarks, service marks, brand names and other indications of
origin, or (ii) patents.
(n) ENVIRONMENTAL MATTERS. Except as would not reasonably be expected
to have a Material Adverse Effect, to the knowledge of the Company, (i) the
operations of the Company
24
have been and are in compliance with all Environmental Laws and with all
Licenses required by Environmental Laws, (ii) there are no pending or, to the
knowledge of the Company, threatened, actions, suits, claims, investigations or
other proceedings (collectively, "Actions") under or pursuant to Environmental
Laws against the Company or the Subsidiaries or involving any real property
currently or, to the knowledge of the Company, formerly owned, operated or
leased by the Company, (iii) the Company is not subject to any Environmental
Liabilities, and no facts, circumstances or conditions relating to, arising
from, associated with or attributable to any real property currently or, to the
knowledge of the Company, formerly owned, operated or leased by the Company or
operations thereon that could reasonably be expected to result in Environmental
Liabilities, (iv) all real property owned and to the knowledge of the Company
all real property operated or leased by the Company is free of contamination
from Hazardous Material and (v) there is not now nor has there been in the past,
on, in or under any real property owned, leased or operated by the Company or
any of its predecessors (a) any underground storage tanks, above-ground storage
tanks, dikes or impoundments containing Hazardous Materials, (b) any asbestos-
containing materials, (c) any polychlorinated biphenyls, or (d) any radioactive
substances.
(o) TRANSACTIONS WITH AFFILIATES. Except as disclosed in Section 3.1(g)
of the Company Disclosure Letter, there are no contracts, agreements,
arrangements or understandings of any kind between any affiliate of the Company,
on the one hand, and the Company, on the other hand.
(p) BROKERS. No broker, finder, financial advisor or investment banker
is entitled to any brokerage, finder's or other fee, commission or expense
reimbursement in connection with the transactions contemplated by this Agreement
based upon arrangements made by and on behalf of the Company.
(q) MATERIAL AGREEMENTS.
(i) Except as disclosed in Section 3.1(q) of the Company
Disclosure Letter, the Company is not a party to and has not entered into or, as
of the date hereof, made any material amendment or modification to or granted
any material waiver under the following (collectively, "Company Material
Contracts"): Employment Agreement between Xxxx Xxxxxxxx and the Company
effective June 20, 1999; Agreement between Qwest Communications Corporation and
the Company dated August 5, 1999; Lease Agreement between 1322 Space Park, L.P.
as Landlord and the Company as Tenant dated as of July 1, 1999; Agreement for
Billing and Related Services between the Company and Telone Telecommunications,
Inc. dated as of June 7, 1999; Marketing Agreement between Midwest TELCAM, Inc.
and the Company dated August 6, 1999; Marketing Agreement between Canam
Communications and the Company dated August 6, 1999; the Memorandum; and the
Loan Agreements.
25
(ii) Except as disclosed in Section 3.1(q) of the Company
Disclosure Letter, each of the Company Material Contracts is valid and
enforceable against the Company in accordance with its terms and there is no
default under any Company Material Contract either by the Company or, to the
knowledge of the Company, by any other party thereto, and no event has occurred
that with the lapse of time or the giving of notice or both would constitute a
default hereunder by the Company or, to the knowledge of the Company, any other
party thereto, in any such case in which such default or event would reasonably
be expected to have a Material Adverse Effect. The Company has not received any
written notice (or to the knowledge of the Company any other notice) of default
or termination of any Company Material Contract, and to the knowledge of Company
there exists no basis for any assertion of a right of default or termination
under any Company Material Contract.
(iii) The Company has delivered true and complete copies to
the Parent of every Company Material Contract, including all amendments or
modifications thereto.
(r) COMPLIANCE WITH APPLICABLE LAW. To the knowledge of the Company,
the Company is not in violation of any law, ordinance or regulation of any
Governmental Entity, except that no representation or warranty is made in this
Section 3.2 (r) with respect to Environmental Laws, and except for violations or
possible violations which would not reasonably be expected to have a Material
Adverse Effect. To the knowledge of the Company no investigation or review by
any Governmental Entity with respect to the Company is pending or threatened,
nor, to the knowledge of the Company, has any Governmental Entity indicated an
intention to conduct the same.
(s) TANGIBLE PROPERTY. All of the assets of the Company are in good
operating condition, reasonable wear and tear excepted, and usable in the
ordinary course of business, except where the failure to be in such condition or
so usable would not individually or in the aggregate reasonably be expected to
have a Material Adverse Effect.
ARTICLE IV: CONDUCT OF BUSINESSES PENDING THE MERGER
SECTION 4.1 CONDUCT OF BUSINESS OF THE PARENT.
26
The Parent covenants and agrees that, during the period from the date
hereof to the Effective Time, unless the Company shall otherwise agree in
writing, the businesses of the Parent and its Subsidiaries shall be conducted
only in, and the Parent shall not take any action and its Subsidiaries shall not
take any action except in, the ordinary course of business; and the Parent shall
use its best efforts to preserve intact the business organization of the Parent
and the Subsidiaries, to keep available the services of the present officers,
employees and consultants of the Parent and the Subsidiaries and to preserve the
present relationships of the Parent and the Subsidiaries with customers,
suppliers and other persons with which the Parent or any of the Subsidiaries has
significant business relationships. Notwithstanding the other provisions of this
Section 4.1, the parties acknowledge that the Company is operating the business
of the Subsidiaries pursuant to the terms of the Memorandum and Section 4.2
below, and the provisions and restrictions of this Section 4.1 shall not apply
to any action taken by the Company with regard to the Subsidiaries. Without
limiting the generality of the foregoing, except as expressly provided in this
Agreement (including Section 4.3), neither the Parent nor any of the
Subsidiaries shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose or commit to do, any of the following
without the prior written consent of Company:
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock (except dividends and
distributions by a wholly owned subsidiary of the Parent or of a Subsidiary to
its parent), (ii) split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock or (iii) purchase, redeem or
otherwise acquire any shares of capital stock of the Parent or any of the
Subsidiaries or any other securities thereof or any rights, warrants or options
to acquire any such shares or other securities (other than in connection with
its employee stock purchase plan consistent with past practice);
(b) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of its capital stock or the capital stock of
any of its Subsidiaries, any other voting securities or any securities
convertible into, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or any other securities or
equity equivalents (including without limitation stock appreciation rights);
(c) (i) increase the compensation or fringe benefits of any of its
directors, officers or employees, or (ii) grant any severance or termination
pay, or (iii) enter into any Employment Arrangement or similar agreement or
arrangement with any present or former director level or other equivalent or
more senior officer or employee, or any other employee of the Parent and Sub or
any of the Subsidiaries, or (iv) establish, adopt, enter into or amend in any
material respect or terminate any Plan or Employment Arrangement or other plan,
agreement, trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
27
(d) except as set forth in the Proxy Statement, amend its certificate
of incorporation, by-laws or other comparable charter or organizational
documents;
(e) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to the Parent and
its Subsidiaries taken as a whole;
(f) sell, lease, dispose of, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets,
except in the ordinary course of business;
(g) (i) incur or assume any indebtedness for borrowed money or
guarantee any such indebtedness of another person, issue or sell any debt
securities or warrants or other rights to acquire any debt securities of the
Parent or any of the Subsidiaries, guarantee any debt securities of another
person, enter into any "keep well" or other agreement to maintain any financial
statement condition of another person or enter into any arrangement having the
economic effect of any of the foregoing, except for borrowings incurred in the
ordinary course of business under the Loan Agreement, or (ii) make any loans,
advances or capital contributions to, or investments in, any other person;
(h) authorize or expend any funds for capital expenditures;
(i) enter into, amend in any respect, terminate, rescind, waive in any
respect or release any of the terms or provisions of any (i) USDI Material
Contract or (ii) any other agreement which is material to the business of the
Parent and Sub and the Subsidiaries taken as a whole, including, but not limited
to the Creditors' Agreements;
(j) knowingly violate or fail to perform any material obligation or
duty imposed upon it by any applicable material federal, state or local law,
rule, regulation, guideline or ordinance;
(k) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(l) recognize any labor union (unless legally required to do so) or
enter into or materially amend any collective bargaining agreement;
(m) except as may be required as a result of a change in law or in
generally accepted accounting principles, make any material change in its method
of accounting;
28
(n) revalue in any material respect any of its material assets,
including, without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course of
business or as required by generally accepted accounting principles;
(o) except to the extent required by law, make or revoke any Tax
election or settle or compromise any Tax liability that is, in the case of any
of the foregoing, material to the business, financial condition or results of
operations of the Parent and its Subsidiaries taken as a whole or change (or
make a request to any taxing authority to change) any material aspect of its
method of accounting for tax purposes;
(p) except for claims covered by insurance, settle or compromise any
litigation in which the Parent or any Subsidiary is a defendant (whether or not
commenced prior to the date of this Agreement) or settle, pay or compromise any
claims not required to be paid, or settle or compromise any pending or
threatened suit, action or claim;
(q) pay any liabilities or obligations (absolute, accrued, asserted,
contingent or otherwise);
(r) take, propose to take, or agree in writing or otherwise to take,
any of the foregoing actions.
SECTION 4.2 MANAGEMENT OF SUBSIDIARIES' OPERATIONS.
Prior to the Effective Time, unless this Agreement is terminated
pursuant to Article VII, management of the Subsidiaries' business operations
shall remain with the Company pursuant to terms and conditions of the
Memorandum.
SECTION 4.3 CONDUCT OF BUSINESS OF PARENT AND SUBSIDIARIES.
During the period from the date of this Agreement to the Effective
Time, neither Parent nor any Subsidiary shall engage in any activities of any
nature except as provided in, or in connection with the transactions
contemplated by, this Agreement.
SECTION 4.4 NOTIFICATION OF CERTAIN MATTERS.
If Parent or any Subsidiary or the Company receives an administrative
or other order or notification relating to any violation or claimed violation of
any Governmental Entity that could affect Parent's, any Subsidiary's or the
Company's ability to consummate the transactions contemplated hereby, Parent,
Subsidiary or the Company as the case may be, shall promptly notify the other
parties thereof and shall use all reasonable efforts to take such steps as may
be
29
necessary to remove any such impediment to the transactions contemplated by this
Agreement. In addition, Parent or the Company, as the case may be, shall give to
the other party prompt written notice of (a) the occurrence, or failure to
occur, of any event of which it becomes aware that has caused or that would be
likely to cause any representation or warranty of Parent or the Company, as the
case may be, contained in this Agreement to be untrue or inaccurate at any time
from the date hereof to the Closing Date, and (b) the failure of Parent or the
Company, as the case may be, or any officer, director, employee or agent
thereof, to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it hereunder. No such
notification shall affect the representations or warranties of the parties or
the conditions to their respective obligations hereunder.
SECTION 4.5 ASSISTANCE.
If the Company requests, the Parent will cooperate, and will cause
Xxxxxxx Xxxxxx & Xxxxxxxxx to cooperate, in all reasonable respects with the
efforts of the Company to finance the transactions contemplated by this
Agreement, including without limitation, providing assistance in the preparation
of one or more offering documents relating to financing to be obtained by the
Company, all at the sole expense of the Company ("Offering Documents"). The
Parent (a) shall furnish to Xxxxxxx Xxxxxx & Xxxxxxxxx, as independent
accountants to the Parent, such customary management representation letters as
Xxxxxxx Xxxxxx & Xxxxxxxxx may require of the Parent in connection with the
delivery of any customary "comfort" letters requested by the Company's financing
sources and (b) shall furnish to the Company all financial statements (audited
and unaudited) and other information in the possession of the Parent or its
representatives or agents as the Company shall reasonably determine is necessary
or appropriate for the preparation of such Offering Documents.
SECTION 4.6 CONDUCT OF BUSINESS OF THE COMPANY .
The Company covenants and agrees that, during the period from the date
hereof to the Effective Time, unless the Parent shall otherwise agree in
writing, the business of the Company shall be conducted only in, and the Company
shall not take any action except in, the ordinary course of business; and the
Company shall use its best efforts to preserve intact the business organization
of the Company, to keep available the services of the present officers,
employees and consultants of the Company and to preserve the present
relationships of the Company with customers, suppliers and other persons with
which the Company has significant business relationships. Without limiting the
generality of the foregoing, except as expressly provided in this Agreement, the
Company, between the date of this Agreement and the Effective Time, directly or
indirectly does, or proposes or commits to do, any of the following without the
prior written consent of Parent:
30
(a) (i) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, (ii) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of its
capital stock or (iii) purchase, redeem or otherwise acquire any shares of
capital stock of the Company or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities (other than
in connection with its employee stock purchase plan consistent with past
practice);
(b) authorize for issuance, issue, deliver, sell or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise), pledge
or otherwise encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
or any other securities or equity equivalents (including without limitation
stock appreciation rights);
(c) (i) increase the compensation or fringe benefits of any of its
directors, officers or employees, or (ii) grant any severance or termination
pay, or (iii) enter into any Employment Arrangement or similar agreement or
arrangement with any present or former director level or other equivalent or
more senior officer or employee, or any other employee of the Company, or (iv)
establish, adopt, enter into or amend in any material respect or terminate any
Plan or Employment Arrangement or other plan, agreement, trust, fund, policy or
arrangement for the benefit of any directors, officers or employees;
(d) amend its certificate of incorporation, by-laws or other comparable
charter or organizational documents;
(e) acquire or agree to acquire (i) by merging or consolidating with,
or by purchasing a substantial portion of the stock or assets of, or by any
other manner, any business or any corporation, partnership, joint venture,
association or other business organization or division thereof or (ii) any
assets that are material, individually or in the aggregate, to the Company taken
as a whole;
(f) sell, lease, dispose of, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets,
except in the ordinary course of business;
(g) except as contemplated by the Memorandum and the Loan Agreements,
(i) incur or assume any indebtedness for borrowed money or guarantee any such
indebtedness of another person, issue or sell any debt securities or warrants or
other rights to acquire any debt securities of the Company, guarantee any debt
securities of another person, enter into any "keep well" or other agreement to
maintain any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, except for
borrowings
31
incurred in the ordinary course of business under the Loan Agreement, or (ii)
make any loans, advances or capital contributions to, or investments in, any
other person;
(h) authorize or expend any funds for capital expenditures;
(i) enter into, amend in any respect, terminate, rescind, waive in any
respect or release any of the terms or provisions of any (i) Company Material
Contract or (ii) any other agreement which is material to the business of the
Company taken as a whole;
(j) knowingly violate or fail to perform any material obligation or
duty imposed upon it by any applicable material federal, state or local law,
rule, regulation, guideline or ordinance;
(k) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(l) recognize any labor union (unless legally required to do so) or
enter into or materially amend any collective bargaining agreement;
(m) except as may be required as a result of a change in law or in
generally accepted accounting principles, make any material change in its method
of accounting;
(n) revalue in any material respect any of its material assets,
including, without limitation, writing down the value of inventory or
writing-off notes or accounts receivable other than in the ordinary course of
business or as required by generally accepted accounting principles;
(o) except to the extent required by law, make or revoke any Tax
election or settle or compromise any Tax liability that is, in the case of any
of the foregoing, material to the business, financial condition or results of
operations of the Company taken as a whole or change (or make a request to any
taxing authority to change) any material aspect of its method of accounting for
tax purposes;
(p) except for claims covered by insurance, settle or compromise any
litigation in which the Company is a defendant (whether or not commenced prior
to the date of this Agreement) or settle, pay or compromise any claims not
required to be paid, or settle or compromise any pending or threatened suit,
action or claim;
(q) pay any liabilities or obligations (absolute, accrued, asserted,
contingent or otherwise);
32
(r) take, propose to take, or agree in writing or otherwise to take,
any of the foregoing actions.
ARTICLE V: ADDITIONAL AGREEMENTS
SECTION 5.1 SHAREHOLDER APPROVAL; PREPARATION OF PROXY STATEMENT.
(a) On or prior to February 7, 2000, the Parent shall duly call, give
notice of, convene and hold a meeting of holders of the Parent Common Stock (the
"Shareholders Meeting") for the purpose of obtaining the Company Stockholder
Approval. Without limiting the generality of the foregoing but subject to
Section 5.3(b), the Parent agrees that its obligations pursuant to the first
sentence of this Section 5.1(a) shall not be affected by (i) the commencement,
public proposal, public disclosure or communication to the Parent of any
Transaction Proposal or (ii) the withdrawal or modification by the Board of
Directors of the Parent of its approval or recommendation of this Agreement or
the Merger. The Parent shall, through its Board of Directors (but subject to the
right of the Board of Directors to withdraw or modify its approval or
recommendation of the Merger and this Agreement as set forth in Section 5.3(b)),
recommend to its shareholders that the Company Stockholder Approval be given.
(b) The Parent shall prepare and file a preliminary Proxy Statement
with the SEC and shall use its reasonable best efforts to respond to any
comments of the SEC or its staff, and, to the extent permitted by law, to cause
the Proxy Statement to be mailed to the Parent's shareholders as promptly as
practicable after responding to all such comments to the satisfaction of the
staff and in any event at least ten (10) days prior to the Shareholders Meeting.
The Parent shall notify the Company promptly of the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff for amendments
or supplements to the Proxy Statement or for additional information and will
supply the Company with copies of all correspondence between the Parent or any
of its representatives, on the one hand, and the SEC or its staff, on the other
hand, with respect to the Proxy Statement or the Merger. If at any time prior to
the Shareholders Meeting there shall occur any event that should be set forth in
an amendment or supplement to the Proxy Statement, the Parent shall promptly
prepare and mail to its shareholders such an amendment or supplement. The Parent
shall not mail any Proxy Statement, or any amendment or supplement thereto, to
which the Company reasonably objects. The Company shall cooperate with and
provide such information as is reasonably requested by the Parent in the
preparation of the Proxy Statement or any amendment or supplement thereto.
(c) Parent, in its capacity as the sole shareholder of Sub, by its
execution hereof, approves and adopts this Agreement and the transactions
contemplated hereby.
33
SECTION 5.2 ACCESS TO INFORMATION.
The Parent shall, and shall cause each of the Subsidiaries to, upon
reasonable notice, afford to the Company and to the officers, employees,
accountants, counsel, actuaries, financial advisors and other representatives of
the Company and the Company's financing sources with respect to the transactions
contemplated by this Agreement, reasonable access to, and permit them to make
such inspections as they may reasonably require of, during normal business hours
during the period from the date of this Agreement through the Effective Time,
all their respective properties, books, contracts, commitments, documents and
records and, during such period, the Parent shall, and shall cause each of Sub
and the Subsidiaries to, furnish promptly to the Company (i) a copy of each
report, schedule, registration statement and other document filed by it during
such period pursuant to the requirements of federal or state securities laws and
(ii) all other information concerning its business, properties and personnel as
the Company may reasonably request. The Parent shall use reasonable best efforts
to cause its senior management to cooperate with any reasonable request by the
Company relating to the Company obtaining the financing described in the
Offering Documents.
SECTION 5.3 NO SOLICITATION.
(a) The Parent shall, and the Parent shall direct and use its best
efforts to cause the officers, directors, employees, representatives, agents and
affiliates of the Parent and the Subsidiaries to, immediately cease any
discussions or negotiations with any parties that may be ongoing with respect to
any Transaction Proposal (as hereinafter defined). The Parent shall not, nor
shall it permit any of the Subsidiaries to, nor shall it authorize or permit any
of its officers, directors or employees or any investment banker, financial
advisor, attorney, accountant or other representative retained by it or any of
the Subsidiaries to, directly or indirectly, (i) solicit, initiate or knowingly
encourage (including by way of furnishing information or assistance) any
inquiries or the making of any proposal which constitutes, or may reasonably be
expected to lead to, any Transaction Proposal or (ii) enter into or participate
in any discussions or negotiations regarding any Transaction Proposal;
(b) Except as set forth in this Section 5.3, or for other good cause as
required by the Board of Directors' fiduciary duties and obligations, the Board
of Directors of the Parent shall not (i) withdraw or modify, or propose publicly
to withdraw or modify, in a manner adverse to the Company, the approval or
recommendation by such Board of Directors of the Merger or this Agreement, (ii)
approve or recommend, or propose publicly to approve or recommend, any
Transaction Proposal or (iii) cause the Parent or the Sub to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement related to any Transaction Proposal. Notwithstanding the foregoing, if
the Board of Directors of the Parent determines in good faith that it has
received a Superior Proposal, the Board of Directors of the
34
Parent may, prior to the receipt of the Parent Stockholder Approval, withdraw or
modify its approval or recommendation of the Merger and this Agreement, approve
or recommend a Superior Proposal (as defined below) or terminate this Agreement,
but in each case, only at a time that is at least ten business days after the
Company's receipt of written notice advising the Company that the Board of
Directors of the Parent has received a Transaction Proposal that may constitute
a Superior Proposal, specifying the material terms and conditions of such
Superior Proposal and the names of the person or persons making such Superior
Proposal.
(c) Nothing contained in this Section 5.3 shall prohibit the Parent
from taking and disclosing to its shareholders a position contemplated by Rules
14d-9 and 14e-2 promulgated under the Exchange Act or from making any disclosure
to the Parent's shareholders if, in the good faith judgment of the Board of
Directors of the Parent, after consultation with outside counsel, such
disclosure is necessary in order to comply with its fiduciary duties to the
Parent's shareholders under applicable law or is otherwise required under
applicable law.
(d) (i) For purposes of this Agreement, "Transaction Proposal"
means any bona fide inquiry, proposal or offer from any person relating to any
direct or indirect acquisition or purchase of more than 50% of the assets of the
Parent, the Sub or the Subsidiaries or more than 50% of the voting power of the
shares of the Parent's Common Stock then outstanding or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving the Parent, the Sub or the Subsidiaries, other
than the transactions contemplated by this Agreement.
(ii) For purposes of this Agreement, a "Superior Proposal"
means any proposal determined by the Board of Directors of the Parent in good
faith, after consultation with outside counsel, to be a bona fide proposal and
made by a third party to acquire, directly or indirectly, for consideration
consisting of cash, property and/or securities, more than 50% of the voting
power of the shares the Parent's Common Stock then outstanding or more than 50%
of the assets of the Parent, the Sub or the Subsidiaries and otherwise on terms
which the Board of Directors of the Parent determines in its good faith
judgment, after consultation with outside counsel and with a financial advisor
of nationally recognized reputation (such as the financial advisor(s) identified
in Section 3.1(r)), to be more favorable to the Parent's shareholders (taking
into account all factors relating to such proposal deemed relevant by the Board
of Directors of the Parent, including, without limitation, the financing of such
proposal, any regulatory issues related thereto and all other conditions to
closing) than the Merger.
SECTION 5.4 REASONABLE BEST EFFORTS.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its reasonable best efforts to
take, or cause to be taken, all actions, and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things
35
reasonably necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including (i) the obtaining of all necessary
actions, waivers, consents, licenses and approvals from Governmental Entities
and the making of all necessary registrations and filings (including filings
with Governmental Entities) and the taking of all reasonable steps as may be
necessary to obtain an approval, waiver or license from, or to avoid an action
or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties (and in furtherance thereof
the Parent, with the prior written consent of the Company, may make and commit
to make payments to third parties and enter into or modify agreements), (iii)
the defending of any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement, or the consummation of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
carry out fully the purposes of, this Agreement.
(b) In connection with, but without limiting, the foregoing, the Parent
and its Board of Directors shall (i) use reasonable best efforts to ensure that
no state takeover statute or similar statute or regulation is or becomes
applicable to this Agreement, the Merger or any of the other transactions
contemplated by this Agreement and (ii) if any state takeover statute or similar
statute or regulation becomes applicable to this Agreement, the Merger or any of
the transactions contemplated by this Agreement, use reasonable best efforts to
ensure that the Merger and the other transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated by this
Agreement and otherwise to minimize the effect of such statute or regulation on
the Merger and the other transactions contemplated by this Agreement.
(c) Each of the parties hereto shall promptly provide the others with a
copy of any inquiry or request for information (including any oral request for
information), pleading, order or other document either party receives from any
Governmental Entities with respect to the matters referred to in Section 5.4.
(d) The Company shall give prompt notice to Parent, and Parent shall
give prompt notice to the Company, of (i) any notice of, or other communication
relating to, a default or event which, with notice or lapse of time or both,
would become a default, if received by it or any of the Subsidiaries subsequent
to the date of this Agreement and prior to the Effective Time, under any USDI
Material Contract or Company Material Contract, or (ii) any written notice or
other communication from any third party alleging that the consent of such third
party is or may be required in connection with the transactions contemplated by
this Agreement; provided, however, that the delivery of any notice pursuant to
this Section 5.4 shall not cure such breach or
36
noncompliance or limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 5.5 PUBLIC ANNOUNCEMENTS.
Each of the parties hereto shall consult with each other before issuing
any press release or otherwise making any public statements with respect to the
Merger and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law,
fiduciary duties or any listing agreement with any national securities exchange
or quotation system.
SECTION 5.6 CONVEYANCE TAXES.
Each of the parties hereto shall cooperate in the preparation,
execution and filing of all returns, questionnaires, applications, or other
documents regarding any real property transfer gains, sales, use, transfer,
value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes that become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Effective Time.
ARTICLE VI: CONDITIONS OF MERGER
SECTION 6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE MERGER.
The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) SHAREHOLDER APPROVAL. The Company Stockholder Approval and the
Parent Stockholder approval shall have been obtained, including the Parent
Stockholder Approval of (i) an amendment to the Parent's articles of
incorporation increasing the number of authorized shares of Parent Common
Stock to 325,000,000, providing that the provisions of Nevada Revised
Statutes 78.378 to 78.3793 do (ii) if and under the terms requested by the
Company, a reverse stock split of the Parent's issued and outstanding common
stock.
(b) Parent's bylaws shall have been amended to provide that the
provisions of Nevada Statutes 78.378 to 78.3793 do not apply to Parent.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in
37
effect, nor shall any proceeding by any Governmental Entity seeking any of the
foregoing be pending. There shall not be any action taken, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY.
The obligations of the Company to effect the Merger are subject to the
satisfaction of the following additional conditions unless waived in writing by
the Company:
(a) REPRESENTATIONS AND WARRANTIES OF THE PARENT. The representations
and warranties of the Parent set forth in this Agreement shall be true and
correct in all respects (provided that any representation or warranty of the
Parent contained herein that is subject to a materiality, Material Adverse
Effect or similar qualification shall not be so qualified for purposes of
determining the existence of any breach thereof on the part of the Parent) as of
the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for such breaches that would not,
individually or in the aggregate with any other breaches on the part of the
Parent, reasonably be expected to have a Material Adverse Effect on the Parent,
and the Company shall have received a certificate signed on behalf of the Parent
by the Chief Executive Officer of the Parent to such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE PARENT AND SUB. The Parent and
Sub shall have performed in all material respects all obligations required to be
performed by them under this Agreement and the Loan Agreements at or prior to
the Closing Date, and the Company shall have received certificates signed on
behalf of the Parent and Sub by the Chief Executive Officer of each the Parent
and Sub to such effect.
(c) RESIGNATIONS. The Parent shall have obtained the resignations of A.
Xxxxx Xxxxxxxx and Xxxxxxxx Xxxxxx from the Parent's Board of Directors
effective at the Effective Time.
(d) CONSENTS. The Parent shall have obtained the consent or approval of
each person (including any Governmental Entity) whose consent or approval shall
be required in connection with the transactions contemplated hereby under any
USDI Material Contract.
(e) PREFERRED STOCK, OPTIONS AND CONVERTIBLE SECURITIES. Each share of
Parent Preferred Stock shall have been or will be as of the Effective Time
converted into and/ or redeemed for shares of Parent Common Stock. All Stock
Incentive Plans shall have been or will be as of the Effective Time duly
canceled by the Parent and each Option and all securities convertible into or
exchangeable, redeemable or exercisable for shares of capital stock or voting
38
securities of the Parent shall be or will be as of the Effective Time canceled,
exercised or expired, with the effect that, upon consummation of the Merger, the
shareholders of the Company will own 51% of the capital stock and voting
securities of the Parent on a fully diluted basis.
(f) CREDITORS' AGREEMENT. As of the Effective Time, all creditors of
and claimants against the Parent and the Subsidiaries shall have entered into
Creditors' Agreements which are satisfactory to the Company.
(g) COMPLETION OF DUE DILIGENCE. The Company shall have completed due
diligence investigations of the Parent and the Subsidiaries to its satisfaction
and in its sole discretion.
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF THE PARENT.
The obligations of the Parent to effect the Merger are subject to the
satisfaction of the following additional conditions unless waived by the Parent:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The representations
and warranties of the Company set forth in this Agreement shall be true and
correct in all respects (provided that any representation or warranty of the
Company contained herein that is subject to a materiality, Material Adverse
Effect or similar qualification shall not be so qualified for purposes of
determining the existence of any breach thereof on the part of the Company) as
of the date of this Agreement and (except to the extent such representations and
warranties speak as of an earlier date) as of the Closing Date as though made on
and as of the Closing Date, except for such breaches that would not,
individually or in the aggregate with other breaches on the part of the Company,
materially adversely affect the ability of the Company to consummate the
transactions contemplated hereby, and the Parent shall have received a
certificate signed on behalf of the Company by the President of the Company to
such effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement and the Loan Agreements at or prior to the Closing Date,
and the Parent shall have received a certificate signed on behalf of the Company
by the President of the Company to such effect.
(c) COMPLETION OF DUE DILIGENCE. Parent shall have completed due
diligence investigations of Company to its satisfaction and in its sole
discretion.
ARTICLE VII: TERMINATION, AMENDMENT AND WAIVER
39
SECTION 7.1 TERMINATION.
This Agreement may be terminated and the Merger contemplated hereby may
be abandoned at any time prior to the Effective Time, notwithstanding Parent
Stockholder Approval or Company Stockholder Approval:
(a) by mutual written consent of Parent and the Company; or
(b) by Parent, so long as the Parent is not then in material breach of
its obligations hereunder, upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any such representation or warranty of the Company shall have
been or become untrue, in each case such that the conditions set forth in
Section 6.3 would not be satisfied and such breach or untruth (i) cannot be
cured by the Closing Date or (ii) has not been cured within ten days of the date
on which the Company receives written notice thereof from Parent;
(c) by the Company, so long as the Company is not then in material
breach of its obligations hereunder, upon a breach of any material
representation, warranty, covenant or agreement on the part of Parent set forth
in this Agreement, or if any such representation or warranty of Parent shall
have been or become untrue, in each case such that the conditions set forth in
Section 6.2 would not be satisfied and such breach or untruth (i) cannot be
cured by the Closing Date or (ii) has not been cured within ten days of the date
on which Parent receives written notice thereof from the Company;
(d) by either Parent or the Company if any permanent injunction or
other order, decree, ruling or action by any Governmental Entity preventing the
consummation of the Merger shall have become final and nonappealable; provided
that such right of termination shall not be available to any party if such party
shall have failed to make reasonable efforts to prevent or contest the
imposition of such injunction or other order, decree, ruling or action and such
failure materially contributed to such imposition;
(e) by either Parent or the Company if (other than due to the willful
failure of the party seeking to terminate this Agreement to perform its
obligations hereunder required to be performed at or prior to the Effective
Time) the Merger shall not have been consummated on or prior to March 1, 2000
(the "Termination Date");
(f) by either Parent or the Company, if the Parent Stockholder Approval
of this Agreement and the Merger required for the consummation of the Merger
shall not have been obtained by reason of the failure to obtain the Parent
Stockholder Approval at a duly held meeting of shareholders or at any
adjournment thereof; or
40
(g) by the Company, if (i) the Board of Directors of the Parent (A)
shall have withdrawn, modified or changed its approval or recommendation of this
Agreement or the Merger in any manner which is adverse to the Company, (B) shall
have approved or have recommended to the shareholders of the Parent a
Transaction Proposal or (C) shall have resolved to do the foregoing; or (ii) the
Parent shall have wilfully failed to hold the Shareholders Meeting on or prior
to February 7, 2000 (the "Delayed Date"); provided that the Delayed Date shall
be automatically extended for each day with respect to which the failure to hold
the Shareholders Meeting (x) is attributable to a lack of reasonable cooperation
and assistance by the Company or its affiliates or (y) is the result of any
injunction or similar action or any action of the SEC, in each case preventing
or delaying the holding of such meeting.
SECTION 7.2 EFFECT OF TERMINATION.
In the event of the termination of this Agreement pursuant to Section
7.1, this Agreement shall forthwith become void and there shall be no liability
on the part of any party hereto except as set forth in Section 7.3, Section 7.5
and Section 8.1; provided, however, that nothing herein shall relieve any party
from liability for any breach hereof.
SECTION 7.3 FEES AND EXPENSES.
(a) Except as provided below in this Section 7.3, all fees and expenses
incurred in connection with the Merger, this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such fees or expenses,
whether or not the Merger is consummated.
(b) The Parent shall pay, or cause to be paid, in same day funds to the
Company the amounts set forth below (which amounts shall constitute full
satisfaction of all of the Parents's obligations and liabilities to the Company
under this Agreement) under the circumstances and at the times specified: If the
Company terminates this Agreement under Section 7.1(c) as a result of a willful
breach of a material representation, warranty or covenant by the Parent, and
within 320 days thereafter, (A) the Parent or Sub enters into a merger
agreement, acquisition agreement or similar agreement (including, without
limitation, a letter of intent) with respect to a Transaction Proposal, or a
Transaction Proposal is consummated, or (B) the Parent or Sub enters into a
merger agreement, acquisition agreement or similar agreement (including, without
limitation, a letter of intent) with respect to a Superior Proposal, or a
Superior Proposal is consummated, which in the case of either (A) or (B) above
will result in shareholders of the Parent becoming entitled to receive upon
consummation of such Transaction Proposal or Superior Proposal consideration
with a value (determined in good faith by the Board of Directors of the Parent)
per share of Parent Common Stock greater than the value afforded the
shareholders of the Parent in the event the Merger were consummated then, in the
case of either (A) or (B) above, the Parent shall pay to the Company upon the
consummation of such Transaction
41
Proposal or Superior Proposal (i) a fee of $20,000 per month for the Company's
management of the operations of the Subsidiaries from July 5, 1999 through the
date of termination of this Agreement, (ii) reimbursement of the expenses of the
Company incurred in connection with the transactions contemplated by this
Agreement (the "Termination Fee") upon demand, and (ii) all amounts payable
under the terms of the Loan Agreements upon demand.
SECTION 7.4 BROKERS.
Except as otherwise provided in Section 7.3, the Company agrees to
indemnify and hold harmless the Parent, and the Parent agrees to indemnify and
hold harmless the Company, from and against any and all liability to which the
Parent, on the one hand, or the Company, on the other hand, may be subjected by
reason of any brokers, finders or similar fees or expenses with respect to the
transactions contemplated by this Agreement to the extent such similar fees and
expenses are attributable to any action undertaken by or on behalf of the
Company or Parent, as the case may be.
SECTION 7.5 SUBSIDIARIES' OPERATIONS.
Upon termination of this Agreement by the Company or by the Parent
pursuant to Section 7.1, the Company shall transfer to the Parent the management
of all operations of the Subsidiaries, subject to the prior performance by the
Parent of its obligations under the Loan Agreements. All costs and expenses
incurred in connection with the transfer of the management and the assets of the
Subsidiaries to the control of the Parent shall be paid by the Parent. The
Company and the Parent shall cooperate and assist each other in the transfer of
operations and assets contemplated by this Section 7.5.
SECTION 7.6 AMENDMENT.
This Agreement may be amended by the parties hereto by action taken by
the respective Boards of Directors of Parent and the Company at any time prior
to the Effective Time; provided, however, that, after approval of the Merger by
the shareholders of the Parent, no amendment may be made which would reduce the
amount or change the type of consideration into which each share of Parent Stock
shall be converted upon consummation of the Merger. This Agreement may not be
amended except by an instrument in writing signed by the parties hereto.
SECTION 7.7 WAIVER.
42
At any time prior to the Effective Time, any party hereto, to the
extent lawful, may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (c) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE VIII: GENERAL PROVISIONS
SECTION 8.1 NON-SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 7.1, except that (i) those agreements set forth in Section
2.1, Section 2.2, Section 5.2, Section 5.4, Section 5.5, Section 7.2, Section
7.3, Section 7.4 and Article VIII shall survive the Effective Time and (ii)
those agreements set forth in Section 5.2, Section 7.2, Section 7.3, Section
7.4, Section 7.5 and Article VIII shall survive termination (in each of (i) and
(ii) in accordance with the terms of such provisions).
SECTION 8.2 NOTICES.
All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly given upon receipt) by delivery in person or by registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
if to Parent or Sub: U.S. Digital Communications, Inc.
Xxx Xxxxxxxxx Xxxxxx, Xxxxx 000
Xxxxx Xxxxx, Xxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx
with a copy to: Caplan, Buckner, Xxxxxxxxx & Xxxxxxxx
Three Bethesda Metro Center, Xxxxx 000
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxxxxx Xxxxxxxx, Esq.
43
if to the Company: TELCAM, Telecommunications Company of the
Americas, Inc.
0000 Xxxxx Xxxx Xxxxx, Xxxxx 000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx Xxxx
with a copy to: Xxxxxxxx & Xxxxx, P.C.
0000 Xxxx Xxx Xxxx., Xxxxx 0000
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxx X. Xxxxx, Esq.
SECTION 8.3 CERTAIN DEFINITIONS.
For purposes of this Agreement, the term:
(a) "affiliate" of a person means a person that directly or indirectly,
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first mentioned person;
(b) "beneficial owner" with respect to any shares of Company Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares of Company Common Stock (i) which such person or any of its affiliates or
associates beneficially owns, directly or indirectly, (ii) which such person or
any of its affiliates or associates (as such term is defined in Rule 12b-2 of
the Exchange Act) has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of time),
pursuant to any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or (B)
the right to vote pursuant to any agreement, arrangement or understanding or
(iii) which are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or person with whom such person
or any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
shares;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "Creditors' Agreements" means any and all agreements between the
Parent or any Subsidiary and a creditor or creditors of the Parent or any
Subsidiary which compromise or settle indebtedness of the Parent or any
Subsidiary.
44
(e) "generally accepted accounting principles" shall mean the generally
accepted accounting principles set forth in the opinions and pronouncements of
the Accounting Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession in the United
States, in each case applied on a basis consistent with the manner in which the
audited financial statements for the fiscal year of the Parent ended December
31, 1998 were prepared;
(f) "knowledge" means, with respect to any entity, knowledge of any
officer of an entity after reasonable inquiry (except as otherwise set forth
herein);
(g) "Lien" means, with respect to any asset (including, without
imitation, any security) any mortgage, lien, pledge, collateral assignment,
hypothecation, charge, security interest or encumbrance of any kind in respect
of such asset;
(h) "Loan Agreements" means the working capital credit agreement and
promissory note dated as of July 5, 1999 between the Parent and the Company and
the working capital credit agreement and promissory note dated August 6, 1999
between the Parent and Texas Interim Funding, Ltd., a Texas limited partnership.
(i) "Memorandum" means the memorandum of understanding dated July 5,
1999 between the Company and the Parent, as modified or supplemented from time
to time.
(j) "person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act);
(k) "Subsidiary" or "Subsidiaries" means any corporation, partnership,
joint venture or other legal entity of which the Parent or the Sub, as the case
may be (either alone or through or together with any other subsidiary), owns,
directly or indirectly, 50% or more of the stock or other equity interests the
holder of which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 8.4 SEVERABILITY.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as
45
to effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the fullest extent possible.
SECTION 8.5 ENTIRE AGREEMENT; ASSIGNMENT.
Except for the Memorandum of Understanding, this Agreement constitutes
the entire agreement among the parties with respect to the subject matter hereof
and supersedes all prior agreements and undertakings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. This
Agreement will be binding upon, inure to the benefit of and be enforceable by
the parties and their respective successors and assigns.
SECTION 8.6 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 8.7 DIRECTOR AND OFFICER LIABILITY.
The directors, officers, stockholders and other controlling persons of
each of the parties and their affiliates acting in such capacity shall not in
such capacity have any personal liability or obligation arising under this
Agreement (including any claims that the other parties may assert) other than as
an assignee of this Agreement.
SECTION 8.8 ENFORCEMENT OF AGREEMENT.
The parties hereto agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, such remedy being in addition to any other remedy to which
any party is entitled at law or in equity.
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SECTION 8.9 GOVERNING LAW.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Texas, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
SECTION 8.10 HEADINGS.
The descriptive headings contained in this Agreement are included for
convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 8.11 COUNTERPARTS.
This Agreement may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement.
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IN WITNESS WHEREOF, Parent and the Company have caused this Agreement
to be executed as of the date first written above by their respective officers
thereunto duly authorized.
U.S. DIGITAL COMMUNICATIONS, INC.
By:
------------------------------
Name:
Title:
TELCAM, TELECOMMUNICATIONS
COMPANY OF THE AMERICAS, INC.
By:
--------------------------------
Name:
Title:
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