EXHIBIT 2.2
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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STAR TELECOMMUNICATIONS, INC.,
IIWII CORP.
AND
UNITED DIGITAL NETWORK, INC.
Dated as of November 19, 1997
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TABLE OF CONTENTS
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ARTICLE I THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.1 THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 FILING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.3 EFFECTIVE TIME OF THE MERGER. . . . . . . . . . . . . . . . . . . . .2
1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. . . . . . . . . . . . . . .2
1.5 DIRECTORS AND OFFICERS. . . . . . . . . . . . . . . . . . . . . . . .2
1.6 WARRANTS AND OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . .2
ARTICLE II CONVERSION OF AND SURRENDER AND
PAYMENT FOR COMMON STOCK . . . . . . . . . . . . . . . . . . . . . .2
2.1 CONVERSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.2 CLOSING OF TRANSFER BOOKS . . . . . . . . . . . . . . . . . . . . . .4
2.3 SURRENDER OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . . .4
ARTICLE III CERTAIN EFFECTS OF MERGER . . . . . . . . . . . . . . . . . . . . . .4
3.1 EFFECT OF MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . .4
3.2 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . . . . . . . . . .5
ARTICLE IV REPRESENTATIONS AND WARRANTIES
OF THE ACQUIROR AND NEWCO . . . . . . . . . . . . . . . . . . . . . .5
4.1 ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.2 CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
4.3 AUTHORITY RELATIVE TO AGREEMENT . . . . . . . . . . . . . . . . . . .5
4.4 ACQUIROR COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . .6
4.5 NO VIOLATIONS OR CONSENTS . . . . . . . . . . . . . . . . . . . . . .6
4.6 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
4.7 FINANCIAL STATEMENTS AND REPORTS. . . . . . . . . . . . . . . . . . .7
4.8 REGISTRATION STATEMENT; BLUE SKY FILINGS; PROXY STATEMENT;
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . .7
4.9 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . .8
5.1 CORPORATE ORGANIZATION. . . . . . . . . . . . . . . . . . . . . . . .8
5.2 CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
5.3 OPTIONS, WARRANTS OR OTHER RIGHTS . . . . . . . . . . . . . . . . . .8
5.4 AUTHORITY RELATIVE TO AGREEMENT . . . . . . . . . . . . . . . . . . .9
5.5 NO VIOLATIONS OR CONSENTS . . . . . . . . . . . . . . . . . . . . . .9
5.6 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS . . . . . . . . . . . . 10
5.7 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.8 FINANCIAL STATEMENTS AND REPORTS; MATERIAL LIABILITIES. . . . . . . 10
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5.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. . . . . . . . . . . . . . . . 11
5.10 BENEFIT PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.12 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . 13
5.13 REAL ESTATE LEASES. . . . . . . . . . . . . . . . . . . . . . . . . 13
5.14 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES. . . . . . . 14
5.15 TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.16 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . 15
5.17 LABOR MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.18 INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.19 CONTRACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.20 REGISTRATION STATEMENT; BLUE SKY FILINGS; PROXY STATEMENT;
OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.21 BROKERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.22 CONTINUITY OF INTEREST. . . . . . . . . . . . . . . . . . . . . . . 17
5.23 TRANSACTIONS WITH AFFILIATED PARTIES. . . . . . . . . . . . . . . . 17
ARTICLE VI COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . 18
6.1 REGISTRATION STATEMENT; PROXY STATEMENT; STOCKHOLDER
MEETING; VANCOUVER EXCHANGE. . . . . . . . . . . . . . . . . . . . 18
6.2 CONDUCT OF THE BUSINESS OF THE COMPANY PRIOR TO THE
EFFECTIVE TIME. . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 ACCESS TO PROPERTIES AND RECORD; ACQUIROR NOTICE. . . . . . . . . . 21
6.4 NEGOTIATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.6 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.7 REASONABLE BEST EFFORTS . . . . . . . . . . . . . . . . . . . . . . 22
6.8 CERTIFICATION OF STOCKHOLDER VOTE . . . . . . . . . . . . . . . . . 23
6.9 LOAN TO COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.10 OUTSOURCING AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . 23
6.11 AFFILIATE AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . 23
6.12 PROXY AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.13 DISCLOSURE SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VII CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . . 24
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. . . . . 24
7.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT
THE MERGER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.3 CONDITIONS TO OBLIGATIONS OF THE ACQUIROR AND NEWCO TO
EFFECT THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.4 CLOSING CONDITIONS DEEMED SATISFIED . . . . . . . . . . . . . . . . 26
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ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . 27
8.1 TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
8.2 FEES AND EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.3 AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
8.4 WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IX MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.1 SURVIVAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.2 EXPENSES AND FEES . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.3 NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.4 HEADINGS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.5 PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.6 ENTIRE AGREEMENT; KNOWLEDGE . . . . . . . . . . . . . . . . . . . . 30
9.7 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
9.8 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.9 INVALIDITY, ETC.. . . . . . . . . . . . . . . . . . . . . . . . . . 31
9.10 SPECIFIC PERFORMANCE. . . . . . . . . . . . . . . . . . . . . . . . 31
9.11 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
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EXHIBITS
Exhibit A Certificate of Merger
Exhibit B Promissory Note
Exhibit C Affiliate Agreements
Exhibit D Proxy Agreement
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of November 19, 1997 (this
"Agreement"), by and among STAR Telecommunications, Inc., a Delaware corporation
(the "Acquiror"), IIWII Corp., a Delaware corporation and wholly-owned
subsidiary of the Acquiror ("Newco"), and United Digital Network, Inc., a
Delaware corporation (the "Company").
R E C I T A L S:
A. The Boards of Directors of Newco, the Acquiror and the Company deem it
advisable and in the best interests of their respective stockholders to merge
Newco with and into the Company (the "Merger") upon the terms and conditions set
forth herein and in accordance with the General Corporation Law of the State of
Delaware (the "General Corporation Law") (the Company and Newco being
hereinafter sometimes referred to as the "Constituent Corporations" and the
Company, following the effectiveness of the Merger, being hereinafter sometimes
referred to as the "Surviving Corporation"); and
B. The Boards of Directors of the Acquiror, Newco and the Company have
approved the Merger upon the terms and subject to the conditions set forth
herein and, in the case of the Company, on the receipt of a "fairness opinion"
from its financial advisor in form, substance, and scope that is satisfactory to
the Board of Directors of the Company.
A G R E E M E N T
NOW, THEREFORE, in consideration of the mutual representations, warranties,
covenants, agreements and conditions contained herein, and in order to set forth
the terms and conditions of the Merger and the mode of carrying the same into
effect, the parties hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. Upon the terms and conditions hereinafter set forth
and in accordance with the General Corporation Law, at the Effective Time, as
defined below, Newco shall be merged with and into the Company and thereupon the
separate existence of Newco shall cease, and the Company, as the Surviving
Corporation, shall continue to exist under and be governed by the General
Corporation Law.
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1.2 FILING. Upon the satisfaction or waiver of the conditions set
forth in Section 7 hereof (other than the condition set forth in Section 7.1(b)
which may not be waived), Newco and the Company will cause a Certificate of
Merger, in substantially the form of EXHIBIT A attached hereto (the "Certificate
of Merger"), to be executed and filed with the Secretary of State of the State
of Delaware as provided in Section 251 of the General Corporation Law.
1.3 EFFECTIVE TIME OF THE MERGER. The Merger shall become effective
immediately upon the filing, in accordance with Section 251 of the General
Corporation Law, of the Certificate of Merger with the Secretary of State of the
State of Delaware in accordance with Section 251. The date and time of such
filing is herein sometimes referred to as the "Effective Time."
1.4 CERTIFICATE OF INCORPORATION AND BY-LAWS. Upon the effectiveness
of the Merger, the Certificate of Incorporation of Newco shall be the
certificate of incorporation of the Surviving Corporation and the By-Laws of
Newco as in effect on the date hereof shall be the By-Laws of the Surviving
Corporation.
1.5 DIRECTORS AND OFFICERS. The persons who are directors of Newco
immediately prior to the Effective Time and the officers of the Company shall,
after the Effective Time and in accordance with the Certificate of Merger, serve
as the directors and officers, respectively, of the Surviving Corporation, in
each case such directors and officers to serve until their successors have been
duly elected and qualified in accordance with the Certificate of Incorporation
and By-Laws of the Surviving Corporation.
1.6 WARRANTS AND OPTIONS. On the Effective Time, the Acquiror shall
assume the duties and obligations of the Company, and the Acquiror shall be
vested with the powers, rights and privileges of the Company, under (a) the
warrants of the Company that remain outstanding at the Effective Time (the
"Warrants") and (b) the options of the Company that remain outstanding at the
Effective Time (the "Options"), as such warrants and options are listed on
Schedule 5.3. As of the Effective Time, the Acquiror shall have reserved for
issuance and continue to maintain sufficient shares of Acquiror Common Stock, as
defined below, to issue the required shares of Acquiror Common Stock pursuant to
the exercise of Warrants and Options after the Effective Time, subject to
appropriate adjustment in the exercise price thereof, based on the Exchange
Ratio, as defined below.
ARTICLE II
CONVERSION OF AND SURRENDER AND
PAYMENT FOR COMMON STOCK
2.1 CONVERSION. At the Effective Time, by virtue of the Merger and
without any action on the part of the holders thereof:
(a) Each of the issued and outstanding shares of the Common
Stock, $.01 par value, of the Company ("Common Stock"), other than
(i) Dissenting Stock, as defined below,
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or (ii) shares of Common Stock held in the treasury of the Company, shall be
automatically converted into the right to receive consideration per share (the
"Merger Consideration") consisting of that portion of a share (the "Exchange
Ratio") of the Acquiror's common stock, $0.001 per share ("Acquiror Common
Stock"), determined by dividing $2.75 by the average closing price of
Acquiror's Common Stock on the Nasdaq National Market for the five (5) trading
days prior to the Effective Time (the "Average Price"), provided that, if the
Average Price is equal to or greater than $32.73, then the Exchange Ratio shall
be determined by dividing $3.00 by the Average Price, provided, further, that,
if the Average Price is less than or equal to $26.78, then the Exchange Ratio
shall be determined by dividing $2.50 by the Average Price. The Exchange Ratio
shall be adjusted as may be necessary and appropriate to reflect any and all
stock splits, reverse stock splits, reclassifications and similar capital events
that affect Acquiror Common Stock.
(b) Each issued and outstanding share of the Common Stock of
Newco shall be converted into approximately Seven Thousand Five Hundred
Sixty-Four (7,564) validly issued, fully paid and non-assessable shares of
common stock, $.01 par value (the "New Common Stock"), of the Surviving
Corporation.
(c) All shares of Common Stock which are held by the Company as
treasury shares shall be canceled and retired and cease to exist, without any
conversion thereof or payment with respect thereto.
(d) No fraction of a share of Acquiror Common Stock will be
issued in the Merger, but, in lieu thereof, each holder of Common Stock who
would otherwise be entitled to a fraction of a share of Acquiror Common Stock
(after aggregating all fractional shares of Acquiror Common Stock to be received
by such holder) will be entitled to receive from the Acquiror an amount of cash
(rounded to the nearest whole US $0.01) equal to the product of (i) such
fraction of a share multiplied by (ii) the Average Price.
Notwithstanding any provision of this Agreement to the contrary, shares of
the Common Stock with respect to which appraisal rights have been demanded and
perfected in accordance with Section 262(d) of the General Corporation Law (the
"Dissenting Stock") shall not be converted into the right to receive the Merger
Consideration at or after the Effective Time, and the holder thereof shall be
entitled only to such rights as are granted by the General Corporation Law.
Notwithstanding the preceding sentence, if any holder of shares of Common Stock
who demands appraisal of such shares under the General Corporation Law shall
effectively withdraw his demand for such appraisal (in accordance with
Section 262(k) of the General Corporation Law) or becomes ineligible for such
appraisal (through failure to perfect or otherwise) then, as of the Effective
Time or the occurrence of such event, whichever is the last to occur, such
holder's Dissenting Stock shall cease to be Dissenting Stock and shall be
converted into and represent the right to receive the Merger Consideration,
without interest thereon, as provided in this Section 2.1. The Company shall
give Acquiror (i) prompt notice of any written demands for appraisal,
withdrawals of demands for appraisal and any other instrument served pursuant to
Section 262 of the General Corporation Law received by the Company and (ii) the
opportunity to
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participate in all negotiations and proceedings with respect to demands for
appraisal under such Section.
2.2 CLOSING OF TRANSFER BOOKS. At the Effective Time, the stock
transfer books of the Company shall be closed, and no transfer of shares of
Common Stock of the Company shall thereafter be made. If, after the Effective
Time, certificates previously representing shares of Common Stock are presented
to the Surviving Corporation or the Exchange Agent, as defined below, such
certificates shall be canceled and exchanged for the Merger Consideration as
provided in Section 2.1, subject to applicable law in the case of Dissenting
Stock.
2.3 SURRENDER OF CERTIFICATES. At least five days prior to the
mailing of the Proxy Statement, as defined below, Newco shall, subject to the
reasonable approval of the Company, designate an exchange agent (the "Exchange
Agent") to effect the exchange for Acquiror Common Stock of certificates that,
prior to the Effective Time, represented shares of Common Stock entitled to the
Merger Consideration. As soon as practicable after the Effective Time, the
Exchange Agent shall send a notice and transmittal form to each holder of record
of Common Stock immediately prior to the Effective Time advising such holder of
the effectiveness of the Merger and the procedure for surrendering to the
Exchange Agent (who may appoint forwarding agents with the approval of Newco)
the certificate or certificates to be exchanged pursuant to the Merger. Upon
the surrender for exchange of such a certificate, together with such letter of
transmittal duly completed and properly executed in accordance with instructions
thereto and such other documents as may be required pursuant to such
instructions, the holder shall receive the Merger Consideration. After the
Effective Time, until so surrendered and exchanged, each certificate which
immediately prior to the Effective Time represented outstanding shares of the
Common Stock (other than Dissenting Stock) shall represent solely the right to
receive the Merger Consideration.
ARTICLE III
CERTAIN EFFECTS OF MERGER
3.1 EFFECT OF MERGER. On and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises, and
be subject to all the restrictions, disabilities and duties of each of the
Constituent Corporations; and all and singular rights, privileges, powers and
franchises of each of the Constituent Corporations, and all property, real,
personal and mixed, and all debts due to either of the Constituent Corporations
on whatever account, as well for stock subscriptions as all other things in
action or belonging to each of the Constituent Corporations, shall be vested in
the Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter the property of
the Surviving Corporation as they were of the Constituent Corporations, and the
title to any real estate vested by deed or otherwise, in either of the
Constituent Corporations shall not revert or be in any way impaired; but all
rights of creditors and all liens upon any property of either of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to and be the
sole responsibility of the
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Surviving Corporation and may be enforced against the Surviving Corporation to
the same extent as if said debts, liabilities and duties had been incurred or
contracted by it.
3.2 FURTHER ASSURANCES. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper to vest, perfect or confirm, of record or otherwise, in the Surviving
Corporation, the title to any property or right of the Constituent Corporations
acquired or to be acquired by reason of, or as a result of, the Merger, the
Constituent Corporations agree that the Surviving Corporation and its proper
officers and directors shall and will execute and deliver all such deeds,
assignments and assurances in law and do all acts necessary, desirable or proper
to vest, perfect or confirm title to such property or right in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement, and that
the proper officers and directors of the Constituent Corporations and the proper
officers and directors of the Surviving Corporation are fully authorized in the
name of the Constituent Corporations or otherwise to take any and all such
action.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE
ACQUIROR AND NEWCO
The Acquiror and Newco jointly and severally represent and warrant to the
Company as follows:
4.1 ORGANIZATION. Each of Acquiror and Newco is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, and each has the requisite corporate power and authority to own, lease
and operate its assets and to conduct its business in the manner in which it is
presently conducted.
4.2 CAPITAL STOCK. The authorized capital stock of the Acquiror
consists in its entirety of 50,000,000 shares of Common Stock, $0.001 par
value, of which, as of September 30, 1997, 15,798,254 are issued and
outstanding, and 5,000,000 shares of Preferred Stock, $0.001 par value per
share, none of which is issued and outstanding. The authorized capital stock of
Newco consists in its entirety of 1,000 shares of common stock, $.01 par value,
all of which are issued and outstanding. All of the outstanding shares of Newco
common stock are owned beneficially and of record by the Acquiror.
4.3 AUTHORITY RELATIVE TO AGREEMENT. Each of the Acquiror and Newco
has full corporate power and authority to execute and deliver this Agreement and
to consummate the Merger and the other transactions contemplated on its part
hereby. The execution, delivery and performance by each of the Acquiror and
Newco of this Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Acquiror and Newco. This Agreement has been duly executed and delivered
by each of the Acquiror and Newco, and is a legal, valid and binding obligation
of each of the
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Acquiror and Newco, enforceable against each of the Acquiror and Newco in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general equitable
principles.
4.4 ACQUIROR COMMON STOCK. The shares of Acquiror Common Stock to be
issued in connection with the Merger have been duly authorized and, when issued
as contemplated hereby at the Effective Time, will be validly issued, fully paid
and non-assessable, and not subject to any preemptive rights or other rights or
interests of third parties.
4.5 NO VIOLATIONS OR CONSENTS. The execution, delivery and
performance of this Agreement by each of the Acquiror and Newco and the
consummation by each of them of the transactions contemplated hereby, will not
(i) violate or conflict with any provision of any charter or by-laws of the
Acquiror or Newco, (ii) require the consent, waiver, approval, license or
authorization of or any filing by the Acquiror or Newco with any public
authority, other than (a) the filing of a pre-merger notification report under
The Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended, and the
rules and regulations promulgated thereunder (the "HSR Act"), (b) in connection
with or in compliance with the provisions of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), the Securities Act of 1933, as amended
(the "Securities Act"), the Communications Act of 1934, as amended (the
"Communications Act"), the General Corporation Law or the "takeover" or "blue
sky" laws of various states and (c) any other filings and approvals expressly
contemplated by this Agreement, (iii) violate, conflict with or result in a
breach of or the acceleration of any obligation under, or constitute a default
(or an event which with notice or the lapse of time or both would become a
default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of the Acquiror or Newco pursuant to any
provision of any indenture, mortgage, lien, lease, agreement, instrument, order,
judgment or decree to which the Acquiror or Newco is subject or by which the
Acquiror or Newco or any of their property or assets is bound, or (iv) violate
or conflict with any law, rule, regulation, permit, ordinance or decree
applicable to the Acquiror or Newco or by which any property or asset of either
of them is bound or affected except, in each of the instances set forth in items
(i) through (iv) above, where failure to give such notice, make such filings, or
obtain such authorizations, consents or approvals, or where such violations,
conflicts, breaches or defaults, in the aggregate, would not have an Acquiror
Material Adverse Effect, as defined below.
4.6 LITIGATION. Except as may be disclosed in the Acquiror SEC
Filings, as defined below, there are no suits, arbitrations, actions or
proceedings pending or, to the best of the Acquiror's knowledge, threatened or,
to the best of the Acquiror's knowledge, investigations pending or threatened
against the Acquiror or with respect to any property or asset of it before any
court, arbitrator, administrator or governmental or regulatory authority or body
which, in the aggregate, are likely to have a material adverse effect on the
business, operations or financial condition of the Acquiror (an "Acquiror
Material Adverse Effect").
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4.7 FINANCIAL STATEMENTS AND REPORTS. The Acquiror heretofore has
delivered to the Company true and complete copies of (a) its Registration
Statement on Form S-1 dated June 12, 1997, Registration No. 333-21325, and
(b) its Quarterly Reports on Form 10-Q for the quarters ended June 30, 1997 and
September 30, 1997 (collectively,"Acquiror SEC Filings"). As of the respective
times such documents were filed or, as applicable, became effective, the
Acquiror SEC Filings complied as to form and content, in all material respects,
with the requirements of the Securities Act and the Exchange Act, as the case
may be, and the rules and regulations promulgated thereunder, and did not
contain any untrue statement of a material fact or omit to state any 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 Acquiror included in the Acquiror SEC Filings were
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis and (except as may be indicated therein or in the
notes thereto) present fairly the consolidated financial position, results of
operations and cash flows of the Acquiror and its consolidated subsidiaries as
of the dates and for the periods indicated subject, in the case of unaudited
interim consolidated financial statements, to normal recurring year-end
adjustments.
4.8 REGISTRATION STATEMENT; BLUE SKY FILINGS; PROXY STATEMENT; OTHER
INFORMATION. The Registration Statement, as defined below, and the information
supplied or to be supplied in writing by either the Acquiror or Newco for
inclusion in the Proxy Statement, as defined below, and any other documents to
be filed with the Securities and Exchange Commission (the "SEC"), including,
without limitation, the British Columbia Securities Commission ("BCSC"), the
Vancouver Stock Exchange (the "VSE") or any regulatory agency in connection with
the transactions contemplated hereby, will not be, at the respective times such
documents are filed or declared effective by the SEC and on the Effective Time,
and, with respect to the Proxy Statement, when first published, sent or given to
stockholders of the Company, false or misleading with respect to any material
fact, or omit to state any material fact necessary in order to make the
statements therein not misleading or, in the case of the Proxy Statement or any
amendment thereof or supplement thereto, at the time of the special meeting of
the Company's stockholders provided for in Section 6.1, be false or misleading
with respect to any material fact, or omit to state any material fact necessary
to correct any statement in any earlier communication with respect to the
solicitation of any proxy for such meeting. All documents which the Acquiror or
Newco files or is responsible for filing with the SEC and any regulatory agency
in connection with the Merger (including, without limitation, the Registration
Statement) will comply as to form and content in all material respects with the
provisions of applicable law and regulations. Notwithstanding the foregoing,
the Acquiror and Newco make no representations or warranties with respect to any
information that has been supplied in writing by the Company or its auditors,
attorneys or financial advisors specifically for use in the Registration
Statement or in any other documents to be filed by the Acquiror with the SEC or
any other regulatory agency in connection with the transactions contemplated
hereby.
4.9 BROKERS. Neither the Acquiror nor Newco has paid or become
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in
7
connection with this Agreement, except that the Acquiror has retained Xxxxxx
Brothers as its financial advisor in connection with the transactions
contemplated by this Agreement.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedules to be delivered to the
Acquiror by the Company (the "Disclosure Schedules") pursuant to Section 6.13,
the Company represents and warrants to the Acquiror and Newco as follows:
5.1 CORPORATE ORGANIZATION. Each of the Company and each of its
subsidiaries Advanced Management Services, Inc. CTN -- Custom Telecommunications
Network of Arizona, Inc. and United Digital Network of Texas, Inc. (formerly
known as AnswerNet, Inc., which includes, pursuant to a merger, Digital Network,
Inc.) (each a "Subsidiary" and collectively, the "Subsidiaries"), is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation with all requisite corporate power and authority
to own, operate and lease its properties and to carry on its business as it is
now being conducted, and is qualified or licensed to do business and is in good
standing in each jurisdiction in which the failure to be so qualified or
licensed, in the aggregate, would have a material adverse effect on the
financial condition, operations or business of the Company and the Subsidiaries
taken as a whole (a "Company Material Adverse Effect"). The Certificates of
Incorporation and By-Laws of the Company and the Subsidiaries are in full force
and effect. The Company is not in violation of or in default under any
provision of its Certificate of Incorporation or By-Laws. The Subsidiaries are
the only subsidiaries, direct or indirect, of the Company.
5.2 CAPITAL STOCK. The authorized capital stock of the Company
consists in its entirety of 100,000,000 shares of Common Stock, $.01 par value,
of which, as of the date hereof, 7,564,103 are issued and outstanding and none
are held in the Company's treasury. Except as set forth on SCHEDULE 5.2, all of
the outstanding shares of capital stock of each of the Subsidiaries are owned
beneficially and of record by the Company free and clear of all liens, charges,
encumbrances, options, rights of first refusal or limitations or agreements
regarding voting rights of any nature, other than the Proxy Agreement, as
defined below. All of the outstanding shares of capital stock of the Company
and the Subsidiaries have been duly authorized, validly issued and are fully
paid and nonassessable.
5.3 OPTIONS, WARRANTS OR OTHER RIGHTS. Except as set forth on
SCHEDULE 5.3 or as contemplated by this Agreement, there is no outstanding
right, subscription, warrant, call, unsatisfied preemptive right, option or
other agreement or arrangement of any kind to purchase or otherwise to receive
from the Company or any Subsidiary any of the outstanding, authorized but
unissued, unauthorized or treasury shares of the capital stock or any other
equity security of the Company or any Subsidiary and there is no outstanding
security of any kind convertible into or exchangeable for such capital stock.
8
5.4 AUTHORITY RELATIVE TO AGREEMENT. The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
Merger and the other transactions contemplated on its part hereby. The
execution and delivery by the Company of this Agreement and the consummation of
the transactions contemplated on its part hereby have been duly authorized by
its Board of Directors, and (other than the approval and adoption of this
Agreement by the holders of a majority of the then outstanding shares of Common
Stock, as provided in Section 6.1 hereof, the filing and recordation of
appropriate merger documents as required by the General Corporation Law and the
receipt of a satisfactory fairness opinion from its financial advisor) no other
corporate proceedings on the part of the Company or its stockholders are
necessary to authorize the execution and delivery of this Agreement by the
Company or the consummation of the transactions contemplated on its part hereby.
In that regard, the Company hereby represents that its Board of Directors has
(i) determined that the Merger is fair to and in the best interests of the
Company's stockholders, (ii) approved the Merger and (iii) resolved to recommend
in the Proxy Statement adoption of this Agreement and authorization of the
Merger by the stockholders of the Company, such matters to be subject to the
fiduciary duties of such directors and to the receipt of a satisfactory fairness
opinion from its financial advisor. This Agreement has been duly executed and
delivered by the Company, and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or other laws affecting the enforcement
of creditors' rights generally or by general equitable principles.
5.5 NO VIOLATIONS OR CONSENTS. Except as set forth on SCHEDULE 5.5,
the execution, delivery and performance of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby will not (i) violate
or conflict with any provision of any charter or by-laws of the Company or any
Subsidiary, (ii) require the consent, waiver, approval, license or authorization
of or any filing by the Company or any Subsidiary with any third party or public
authority (other than (a) the filing of a premerger notification report under
the HSR Act, (b) in connection with or in compliance with the provisions of the
Exchange Act, the Securities Act, the General Corporation Law, the
Communications Act or the "takeover" or "blue sky" or "public utility" laws of
various states, and (c) and any other filings and approvals expressly
contemplated by this Agreement, including, without limitation, those with the
BCSC and the VSE), (iii) violate, conflict with or result in a breach of or the
acceleration of any obligation under, or constitute a default (or an event which
with notice or the lapse of time or both would become a default) under, or give
to others any right of termination, amendment, acceleration or cancellation of,
or result in the creation of a lien or other encumbrance on any property or
asset of the Company or any Subsidiary pursuant to any provision of any
indenture, mortgage, lien, lease, agreement, instrument, order, judgment or
decree to which the Company or any Subsidiary is subject or by which the Company
or any Subsidiary or any of their property or assets is bound, or (iv) violate
or conflict with any law, rule, regulation, permit, ordinance, regulation or
decree applicable to the Company or any Subsidiary or by which any property or
asset of either of them is bound or affected except, in each of the instances
set forth in items (i) through (iv) above, where failure to give such notice,
make such filings, or obtain such authorizations, consents or
9
approvals, or where such violations, conflicts, breaches or defaults, in the
aggregate, would not have a Company Material Adverse Effect.
5.6 GOVERNMENTAL AUTHORIZATIONS AND REGULATIONS. SCHEDULE 5.6 is a
true and complete list of all material governmental licenses, franchises,
permits and other authorizations ("Permits") held by the Company and/or the
Subsidiaries. Such Permits are all governmental licenses, franchises, permits
and other authorizations necessary to the conduct of the business of the Company
and the Subsidiaries, except where the failure to hold such Permits, in the
aggregate, would not have a Company Material Adverse Effect. Such Permits are
valid and in full force and effect and the Company knows of no threatened
suspension, cancellation or invalidation of any such Permit except where any
such action would not result in a Company Material Adverse Effect. Neither the
Company nor any Subsidiary is in conflict with, or is in default or violation
of, any law, rule, regulation, order, judgment, Permit, ordinance, regulation or
decree applicable to the Company or any Subsidiary or by which any property or
asset of either of them is bound or affected, except where such conflicts,
defaults or violations, in the aggregate, would not have a Company Material
Adverse Effect.
5.7 LITIGATION. Except as may be disclosed in the PPM, as defined
below, or on SCHEDULE 5.7, there are no suits, arbitrations, actions or
proceedings, pending or, to the best of the Company's or any Subsidiary's
knowledge, threatened or, to the best of the Company's or any Subsidiary's
knowledge, investigations pending or threatened against the Company or any
Subsidiary or with respect to any property or asset of any of them before any
court, arbitrator, administrator or governmental or regulatory authority or body
which, in the aggregate, are likely to have a Company Material Adverse Effect.
5.8 FINANCIAL STATEMENTS AND REPORTS; MATERIAL LIABILITIES.
(a) The Company has delivered to the Acquiror true and complete
copies of its Confidential Private Placement Memorandum dated October 28, 1997
(the "PPM") As of the date thereof, the PPM did not contain any untrue
statement of a material fact or omit to state any 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 in the PPM were prepared in accordance with GAAP applied on a
consistent basis and (except as may be indicated therein or in the notes
thereto) present fairly the consolidated financial position, results of
operations and cash flows of the Company and its consolidated subsidiaries as of
the dates and for the periods indicated subject, in the case of un-audited
interim consolidated financial statements, to normal recurring year-end
adjustments and subject to the "going concern" opinion of the Company's
independent accountants. (The audited consolidated balance sheet of the Company
and the Subsidiaries as of April 30, 1997 included in the PPM is hereinafter
called the "Company Balance Sheet," and April 30, 1997 is hereinafter called the
"Company Balance Sheet Date," and the Company's balance sheet for the three
month period ended July 31, 1997 included in the PPM is hereafter called the
"Interim Balance Sheet").
10
(b) Except as set forth on SCHEDULE 5.8(b), the Company and its
Subsidiaries, considered as a whole, have no material liabilities or obligations
(whether fixed, accrued, contingent or otherwise) that are not fully reflected
or provided for on, or disclosed in the notes to, the Company Balance Sheet or
the Company Interim Balance Sheet, except for (i) liabilities in the ordinary
course of business that could not be reasonably expected to have a Company
Material Adverse Effect or (ii) liabilities incurred in the ordinary course of
business that are not required by GAAP to be reflected thereon and which are not
material.
5.9 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the Company Balance
Sheet Date and except as disclosed on SCHEDULE 5.9, the business of the Company
and the Subsidiaries have been conducted in the ordinary course consistent with
past practice, and (i) there has not been any material adverse change in the
financial condition, results of operations, properties, or business of the
Company or any Subsidiary, nor, to the Company's knowledge, has there occurred
any event or development that could be reasonably foreseen to result in a
Company Material Adverse Effect.
5.10 BENEFIT PLANS. Except as disclosed on SCHEDULE 5.10, neither the
Company nor any Subsidiary has outstanding any employment agreement with any
officer or employee of the Company or any Subsidiary or any bonus, incentive
compensation, deferred compensation, profit sharing, stock option, stock bonus,
stock purchase, savings, severance, salary continuation, consulting, retirement
(including health and life insurance benefits provided after retirement) or
pension plan (including Company Employee Benefit Plans as defined in
Section 5.11 hereof) or arrangement with or for the benefit of any officer,
employee or other person, or for the benefit of any group of officers, employees
or other persons that provides for payment of more than $100,000 in annual
benefits. Neither the Company nor any Subsidiary has made, or entered into any
agreement to make, any payment that becomes payable as a result of the
consummation of this transaction which would be treated as an "excess parachute
payment" as defined in Section 280G of the Internal Revenue Code of 1986, as
amended (the "IRC"). There are no such agreements, plans or other arrangements
entered into with or provided for any independent contractors with whom the
Company or any Subsidiary has a business relationship.
5.11 ERISA. Set forth on SCHEDULE 5.10 are all of the employee
benefit plans, as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), but without regard to whether any
such plan is in fact subject to ERISA, that is sponsored, or is being maintained
or contributed to, by the Company or any Subsidiary that provides for payment of
more than $25,000 in annual benefits (the "Company Employee Benefit Plans").
None of the Company Employee Benefit Plans are "multiemployer plans" as defined
in Section 3(37) of ERISA. The Company has furnished or made available or will
promptly after the date hereof make available to Newco and the Acquiror (a) a
true and complete copy of the plan document and summary plan description for
each Company Employee Benefit Plan, (b) a true and complete copy of the most
recently filed Form 5500 (including the related schedules) with respect to each
Company Employee Benefit Plan for which such form is required to be filed, (c) a
true and complete copy of any trust agreement, insurance contract or other
agreement or arrangement serving as source of funding any benefits payable under
any Company Employee Benefit Plan, and
11
(d) the most recently issued financial statement and actuarial report, if any,
for each Company Employee Benefit Plan. No "prohibited transactions" (as such
term is defined in Section 4975 of the IRC, or in Part 4 of Subtitle B of
Title I of ERISA) have occurred with respect to any Company Employee Benefit
Plan that could result in the imposition of taxes or penalties that, in the
aggregate, could have a Company Material Adverse Effect. With respect to each
of the Company Employee Benefit Plans that is intended to qualify for favorable
income tax treatment under Section 401(a) of the IRC, (i) the Internal Revenue
Service ("IRS") has issued a favorable determination letter with respect to such
plan; (ii) except as set forth on SCHEDULE 5.10, the Company has furnished Newco
and Acquiror with a copy of the determination letter most recently issued by the
IRS with respect to such plan and the application filed with the IRS for such
determination letter; and (iii) to the best knowledge of the Company, no event
has occurred from the date of each such favorable determination letter that
would adversely affect the tax-qualified status of the plan in question. Each
Company Employee Benefit Plan has been administered in compliance with the
applicable requirements of ERISA and the IRC, and in compliance with all other
applicable provisions of law, except for such noncompliance, if any, that, in
the aggregate, would not have a Company Material Adverse Effect. With respect
to each Company Employee Benefit Plan, neither the Company nor any Subsidiary
has incurred liabilities which, in the aggregate, could have a Company Material
Adverse Effect as a result of the violation of or the failure to comply with any
applicable provision of ERISA, the IRC, any other applicable provision of law,
or any provision of such plan. None of the Company Employee Benefit Plans which
is an "employee pension benefit plan", as that term is defined in Section 3(2)
of ERISA (a "Company Employee Pension Benefit Plan"), has incurred an
"accumulated funding deficiency," within the meaning of Section 302 of ERISA or
Section 412 of the IRC which, in the aggregate, could have a Company Material
Adverse Effect. Neither the Company nor any Subsidiary has failed to make any
contribution to, or to make any payment under, any Company Employee Benefit Plan
that it was required to make pursuant to the terms of the plan or pursuant to
applicable law in any amount which, in the aggregate, could have a Company
Material Adverse Effect. To the best knowledge of the Company, no "reportable
events," with respect to which a notice must be filed with the Pension Benefit
Guaranty Corporation ("PBGC"), has occurred with respect to any Company Employee
Pension Benefit Plan subject to Title IV of the ERISA which events, in the
aggregate, could have a Company Material Adverse Effect. No proceedings by the
PBGC to terminate any Company Employee Pension Benefit Plan pursuant to
Subtitle C of Title IV of ERISA have to the best of the Company's knowledge,
been instituted or threatened which, in the aggregate, could have a Company
Material Adverse Effect. Except for any liabilities in an amount which, in the
aggregate, would not have a Company Material Adverse Effect, neither the Company
nor any Subsidiary (1) has incurred any liability to the PBGC in connection with
any Company Employee Pension Benefit Plan, including any liability under
Section 4069 of ERISA and any penalty imposed under Section 4071 of ERISA,
(2) has terminated any Company Employee Pension Benefit Plan, or ceased
operations at any facility or withdrawn from any Company Employee Pension
Benefit Plan, in a manner that could subject it to liability or any liens under
Section 4062, 4063, 4064 or 4068 of ERISA or (3) has any knowledge as to the
existence of any state of facts, or as to the occurrence of any transactions,
that might reasonably be anticipated to result in any liability of the Company
or any Subsidiary to the PBGC under any other provision of Title IV of ERISA.
There is no pending or, to the best knowledge of the
12
Company, threatened legal action, proceeding or investigation against or
involving any Company Employee Benefit Plan which could result in liabilities to
the Plan, the Company or any Subsidiary that, in the aggregate, could have a
Company Material Adverse Effect. Except as disclosed on SCHEDULE 5.10, the
present value of accrued benefits of each Company Employee Benefit Plan that is
a defined benefit plan as defined in Section 3(35) of ERISA does not exceed the
value of the assets of such plan available to pay such benefits by an amount
that, in the aggregate for all such plans, could have a Company Material Adverse
Effect. All representations made by the Company in this Section 5.11 are
likewise true with respect to each Subsidiary.
5.12 ENVIRONMENTAL MATTERS. "Company Real Properties" shall mean all
real property now or previously owned, operated or leased by the Company, any
Subsidiary or any predecessor-in-interest. Except as set forth on SCHEDULE
5.12: (i) the Company, each of the Subsidiaries, and to the best of the
Company's knowledge, each of the Company Real Properties is in compliance with,
and has no liability under any or all applicable Environmental Laws, except
where the failure to comply or such liability would not have a Company Material
Adverse Effect; (ii) none of the Company, any Subsidiary or any of the Company
Real Properties has been alleged in writing by any governmental agency or third
party to be in violation of, to be liable under, or to be subject to any
administrative or judicial proceeding pursuant to, any Environmental Law, the
violation of which would have a Company Material Adverse Effect; and (iii) to
the best knowledge of the Company and each Subsidiary, there are no facts or
circumstances which could reasonably form the basis for the assertion of any
claims against the Company or any Subsidiary relating to environmental matters
which, in the aggregate, would have a Company Material Adverse Effect. As used
herein, Environmental Law means any federal, state, or local law, statute, rule
or regulation, or the common law governing or relating to the environment or to
occupational health and safety.
5.13 REAL ESTATE LEASES. SCHEDULE 5.13 sets forth a complete and
accurate list, a copy of which has been delivered to the Acquiror of (i) all
leases and subleases under which the Company or any Subsidiary is lessor or
lessee of any real property, together with all amendments, supplements,
nondisturbance agreements and other agreements pertaining thereto; (ii) all
material options held by the Company or any Subsidiary or contractual
obligations on the part of the Company or any Subsidiary to purchase or acquire
any interest in real property; and (iii) all options granted by the Company or
any Subsidiary or contractual obligations on the part of the Company or any
Subsidiary to sell or dispose of any material interest in real property (except
for sale-leaseback transactions) in each such instance in items (i) through
(iii) above, which provides for a payment of more than $25,000. Such leases,
subleases and other agreements are in full force and constitute binding
obligations of the Company and, to the best of its knowledge, the other parties
thereto, and (i) there are no defaults thereunder by the Company or any
Subsidiary or, to the best of Company's knowledge, by any other party thereto;
and (ii) no event has occurred which (with notice, lapse of time or both or
occurrence of any other event) would constitute a default by the Company or any
Subsidiary or, to the best of the Company's knowledge, by any other party
thereto, other than defaults or events which, in the aggregate, would not have a
Company Material Adverse Effect. The Company or a Subsidiary has good, valid
and insurable
13
leasehold title to all such leased property, free and clear of all encumbrances,
liens, charges or other restrictions of any kind or character, except for
Permitted Liens, as defined below.
5.14 TITLE TO PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES.
SCHEDULE 5.14 lists all real property owned by the Company or any Subsidiary as
of the date of this Agreement. The Company and/or a Subsidiary has good, valid
and insurable title in fee simple to all of the real property listed on
SCHEDULE 5.14, free and clear of all encumbrances, liens, charges or other
restrictions of any character whatsoever, except for (i) statutory liens for
current taxes or assessments not due or delinquent or the validity of which is
being contested in good faith, (ii) mechanics, workers, repairmen's and other
similar liens arising or incurred in the ordinary course of business, (iii) such
other liens, imperfections in title, charges, easements, restrictions and other
encumbrances, if any, which in the aggregate do not have a Company Material
Adverse Effect, and (iv) except as set forth on SCHEDULE 5.14 (collectively
"Permitted Liens"). Except for leased assets, the Company and the Subsidiaries
have good and insurable title to all of their material tangible personal
property used in their businesses, including, without limitation, those
reflected in the Company Balance Sheet (other than assets disposed of in the
ordinary course of business since the Company Balance Sheet Date), free and
clear of all liens, charges, pledges, security interests or other encumbrances,
except liens for taxes not yet due and payable and such liens or other
imperfections of title of the type and nature described as "Permitted Liens"
above to the extent applicable, if any, as would not, in the aggregate, have a
Company Material Adverse Effect on the operation of the business of the Company
or any Subsidiary, and except as reflected or disclosed in the Company Balance
Sheet, or on SCHEDULE 5.14.
5.15 TAX MATTERS. Except as set forth on SCHEDULE 5.15, the Company
has paid, or the Company Balance Sheet contains adequate provision for, all
federal, state, local, foreign or other governmental income, franchise, payroll,
F.I.C.A., unemployment, withholding, real property, personal property, sales,
payroll, disability and all other taxes imposed on the Company or any Subsidiary
or with respect to any of their respective properties, or otherwise payable by
them, including interest and penalties, if any, in respect thereof
(collectively, "Company Taxes"), for the Company taxable period ended on the
date of the Company Balance Sheet and all fiscal periods of the Company prior
thereto, except such nonpayment, or failure to make adequate provision, which,
in the aggregate, would not have a Company Material Adverse Effect. Company
Taxes paid and/or incurred from the date of the Company Balance Sheet until the
Effective Time include only Company Taxes incurred in the ordinary course of
business determined in the same manner as in the taxable period ending on the
date of the Company Balance Sheet. Except as disclosed on SCHEDULE 5.15, the
Company and its Subsidiary have timely filed all income tax, excise tax, sales
tax, use tax, gross receipts tax, franchise tax, employment and payroll related
tax, property tax, and all other tax returns which the Company and/or each
Subsidiary (as the case may be) are required to file ("Tax Returns"), and have
paid or provided for all the amounts shown to be due thereon, except where such
failure to make such timely filings, in the aggregate, would not have a Company
Material Adverse Effect, and except for the nonpayment of such amounts which, in
the aggregate, would not have a Company Material Adverse Effect. Except as set
forth on SCHEDULE 5.15, (i) neither the Company nor any Subsidiary has filed or
entered into, or is otherwise bound by, any election, consent or extension
agreement
14
that extends any applicable statute of limitations with respect to taxable
periods of the Company, (ii) the Company is not a party to any contractual
obligation requiring the indemnification or reimbursement of any person with
respect to the payment of any Tax, (iii) no claim has ever been made or
threatened by an authority in a jurisdiction where the Company or any Subsidiary
do not file Tax Returns that they are or may be subject to Taxes by that
jurisdiction, except for any such claims as, in the aggregate, would not have a
Company Material Adverse Effect, (iv) no issues have been raised by the relevant
taxing authorities on audit that are of a recurring nature and that would have
an effect upon the Taxes of the Company or any Subsidiary, except for any issue
which, in the aggregate, would not have a Company Material Adverse Effect.
Except as set forth on SCHEDULE 5.15, to the best of the Company's and each
Subsidiary's knowledge, no action or proceeding is pending or threatened by any
governmental authority for any audit, examination, deficiency, assessment or
collection from the Company or any Subsidiary of any Company Taxes, no
unresolved claim for any deficiency, assessment or collection of any Company
Taxes has been asserted against the Company or any Subsidiary, and all resolved
assessments of Company Taxes have been paid or are reflected in the Company
Balance Sheet, except for any of the foregoing which, in the aggregate, would
not have a Company Material Adverse Effect.
5.16 INTELLECTUAL PROPERTY. SCHEDULE 5.16 lists all the registered
patents, trademarks, service marks, copyrights, trade names and applications for
any of the foregoing owned by the Company or any Subsidiary as of the date of
this Agreement (the "Registered Intellectual Property"). The Company and/or the
Subsidiaries have good title to the Registered Intellectual Property and have
good title to, or valid licenses or rights to use, all patents, copyrights,
trademarks, trade names, brand names, proprietary and other technical
information, technology and software (collectively "Intellectual Property")
which are used in the operation of their businesses as presently conducted,
except for such title, license or use imperfections as, in the aggregate, would
not have a Company Material Adverse Effect. There are no claims or proceedings
pending or, to the Company's and each Subsidiary's knowledge, threatened against
the Company or any Subsidiary asserting that the Company or any Subsidiary is
infringing or engaging in the unauthorized use of any Intellectual Property of
any other person or entity, except such claims or proceedings which, in the
aggregate, would not have a Company Material Adverse Effect.
5.17 LABOR MATTERS. Neither the Company nor any Subsidiary is a party
to any collective bargaining agreement with respect to any of their employees.
None of the employees of the Company or any Subsidiary are represented by any
labor union and, as of the date hereof, neither the Company nor any Subsidiary
has any knowledge of any union organizational efforts involving the Company's
employees during the past five years. Except as set forth on SCHEDULE 5.17,
neither the Company nor any Subsidiary has received written notice of any claim,
or has knowledge of any facts which are likely to give rise to any claim, that
they have not complied in any respect with any laws relating to the employment
of labor, including, without limitation, any provisions thereof relating to
wages, hours, collective bargaining, the payment of social security and similar
taxes, equal employment opportunity, employment discrimination or employment
safety, except such claims which, in the aggregate, would not have a Company
Material Adverse Effect.
15
5.18 INSURANCE. SCHEDULE 5.18 lists, as of the date of this
Agreement, all material policies of fire, products liability, general liability,
vehicle, worker's compensation, directors' and officers' liability, title and
other insurance owned or held by or covering the Company or any Subsidiary or
any of their property or assets which are material to the business of the
Company and any Subsidiary, taken as a whole. As of the date hereof, all of
such policies are in full force and effect, except as to matters or defaults
which, in the aggregate, would not have a Company Material Adverse Effect, and
no written notice of cancellation or termination has been received with respect
to any such policy which has not been replaced or cannot be replaced on
substantially similar terms prior to the date of such cancellation or
termination.
5.19 CONTRACTS. SCHEDULE 5.19 contains a complete and correct list of
all material agreements, contracts and commitments (collectively, the
"Contracts"), (a) to which the Company is a party or by which it is bound, or
(b) by which any of the assets, properties or the business is bound, and in
either case, which constitute (i) mortgages, indentures, security agreements,
and other agreements and instruments relating to the borrowing of money by or
from, or any extension or credit to or from, the Company; (ii) sales agency or
marketing agreements; (iii) agreements or commitments for capital expenditures;
(iv) brokerage or finder's agreements; (v) partnership, joint venture or other
arrangements or agreements involving a sharing of profits or expenses;
(vi) contracts or commitments to sell, lease or otherwise dispose of any assets,
properties or business other than in the ordinary course of business;
(vii) contracts or commitments limiting the freedom of the Company to compete in
any line of business or in any geographic area or with any person, and any
nondisclosure or nonsolicitation agreements which limit the Company; (viii) any
other agreements, contracts and commitments material to the business, operations
or financial condition of the Company in each instance under items (i) through
(viii) above which Contract relates to an aggregate amount of more than $75,000.
All of the Contracts are valid and in full force and effect and the Company has
performed all of its obligations under each Contract and no default, violation
or breach by the Company or, to the Company's knowledge, any other party, under
any Contract has occurred which affects the enforceability of such Contract or
any party's rights thereunder, except for such defaults, violations and breaches
which would not, in the aggregate, have a Company Material Adverse Effect.
5.20 REGISTRATION STATEMENT; BLUE SKY FILINGS; PROXY STATEMENT; OTHER
INFORMATION. The Proxy Statement and the information supplied or to be supplied
in writing by the Company for inclusion in the Registration Statement and any
other documents to be filed with the SEC, the BCSC, the VSE or any other
regulatory agency in connection with the transactions contemplated hereby will,
at the respective times such documents are filed, or, as applicable, declared
effective, and on the Effective Time, and, with respect to the Proxy Statement,
when first published, sent or given to stockholders of the Company, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements therein not misleading or, in the case
of the Proxy Statement or any amendment thereof or supplement thereto, at the
time of the special meeting of the Company's stockholders provided for in
Section 6.1, be false or misleading with respect to any material fact, or omit
to state any material fact necessary to correct any statement in any earlier
communication with respect to the
16
solicitation of any proxy for such meeting. If, at any time prior to the
Effective Time, any event relating to the Company or any of its affiliates,
officers or directors is discovered by the Company that should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, the Company will promptly inform the Acquiror, and such amendment or
supplement will be promptly filed with the VSE and disseminated to the
stockholders of the Company, to the extent required by applicable securities
laws. All documents which the Company files or is responsible for filing with
the VSE and any other regulatory agency in connection with the Merger
(including, without limitation, the Proxy Statement) will comply as to form and
content in all material respects with the provisions of applicable law.
Notwithstanding the foregoing, neither the Company nor the Subsidiary make any
representations or warranties with respect to any information that has been
supplied in writing by the Acquiror or Newco, or their auditors, attorneys,
financial advisors, specifically for use in the Proxy Statement, or in any other
documents to be filed with the VSE or any other regulatory agency in connection
with the transactions contemplated hereby.
5.21 BROKERS. Except as set forth in Schedule 5.21, neither the
Company nor any Subsidiary has paid or become obligated to pay any fee or
commission to any broker, finder, investment banker or other intermediary in
connection with this Agreement.
5.22 CONTINUITY OF INTEREST. The Company has caused each person who
is an affiliate, as defined in Rule 12b-2 under the Exchange Act (an
"Affiliate"), to deliver to the Acquiror and each Affiliate has, concurrently
with the signing of this Agreement, signed an affiliate agreement in the form
attached hereto as EXHIBIT C (an "Affiliate Agreement") providing, among other
things, that such person has no plan or intention and will not sell, pledge,
transfer or otherwise dispose of shares of Acquiror Common Stock or in any way
reduce their risk relative to any such shares, until such time as financial
results covering at least 30 days of combined operations of the Acquiror and the
Company have been published within the meaning of Section 201.01 of the
Codification of Financial Reporting Policies of the SEC and except in compliance
with the applicable provisions of the Securities Act, and the rules and
regulations thereunder.
5.23 TRANSACTIONS WITH AFFILIATED PARTIES. SCHEDULE 5.23 sets forth a
true and complete list and description of all transactions engaged in between
the Company and any director, officer, employee, stockholder, partner or agent
of the Company, or any of their respective spouses or children, any trust of
which any such person is the grantor, trustee or beneficiary, any corporation of
which any such person or party is a stockholder, employee, officer or director,
or any partnership or other person in which any such person or party owns an
interest (all such persons, trusts, corporations and partnerships being herein
referred to collectively as "Affiliated Parties" and individually as an
"Affiliated Party"). No Affiliated Party is a party to any agreement, contract
or commitment with the Company except as set forth in SCHEDULE 5.24.
ARTICLE VI
COVENANTS AND AGREEMENTS
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6.1 REGISTRATION STATEMENT; PROXY STATEMENT; STOCKHOLDER MEETING;
VANCOUVER EXCHANGE.
(a) As promptly as practicable after the execution of this
Agreement, the Acquiror and Newco will file with the SEC a registration
statement on Form S-4 (as amended or supplemented, the "Registration Statement")
relating to the registration under the Securities Act of the Acquiror Common
Stock to be received in the Merger, and file with state securities
administrators such registration statements or other documents as may be
required under applicable blue sky laws to qualify or register such Acquiror
Common Stock in such states as are designated by the Company (the "Blue Sky
Filings"). The Acquiror and Newco will use their reasonable best efforts to
cause the Registration Statement to become effective as soon as practicable. In
the process of its preparation of the Registration Statement, the Acquiror will
provide the Company and its advisors drafts of the Registration Statement and
will provide the Company and its advisors a reasonable opportunity to
participate in such drafting process. The Acquiror will notify the Company
promptly of the receipt of any comments from the SEC or its staff or from any
state securities administrators and of any request by the SEC or its staff or by
any state securities administrators for amendments or supplements to the
Registration Statement or any Blue Sky Filings or for additional information,
and will supply the Company and its legal counsel with copies of all
correspondence between the Acquiror or any of its representatives, on the one
hand, and the SEC, its staff or any state securities administrators, on the
other hand, with respect to the Registration Statement.
(b) As promptly as practicable following the execution of this
Agreement, and after receipt by the Company of a fairness opinion from its
financial advisor, the Company agrees that this Agreement shall be submitted at
a meeting (the "Meeting") of its stockholders duly called and held pursuant to
Section 251(c) of the General Corporation Law. As soon as practicable after the
date of this Agreement, the Company shall take all action, to the extent
necessary in accordance with applicable law, its Certificate of Incorporation
and By-Laws, to convene a meeting of its stockholders promptly to consider and
vote upon the approval of the Merger, and the Company shall prepare and file
with the VSE, subject to the prior approval of the Acquiror, which approval the
Acquiror shall not unreasonably withhold, such information as may be necessary
to allow the VSE to approve the merger (the "VSE Approval"), preliminary and
final versions of a proxy statement and proxy and other filings relating to the
Meeting as required by the VSE and the applicable regulations thereof. The term
"Proxy Statement" shall mean such proxy statement at the time it initially is
mailed to stockholders and all duly filed amendments or revisions made thereto,
if any, similarly mailed. Notice of the Meeting shall be mailed to the
Company's stockholders of the Company along with the Proxy Statement. The
Company will notify the Acquiror promptly of the receipt of any comments from
the VSE with respect to the Proxy Statement and will supply the Acquiror and its
legal counsel with copies of all correspondence from or to the VSE and any other
applicable regulatory authority. The Company, after consultation with the
Acquiror and its legal counsel, shall respond promptly to any comments made by
the VSE with respect to the VSE Approval and the Proxy Statement and cause the
Proxy Statement and proxy to be mailed to its stockholders at the earliest
practicable time following the execution hereof.
18
6.2 CONDUCT OF THE BUSINESS OF THE COMPANY PRIOR TO THE EFFECTIVE
TIME. Except as set forth on SCHEDULE 6.2, the Company agrees that prior to the
Effective Time, except as otherwise consented to or approved in writing by the
Acquiror or expressly permitted by this Agreement:
(a) the business of the Company and the Subsidiaries shall be
conducted only in the ordinary course and consistent with past practice;
(b) each of the Company and each Subsidiary shall not (i) amend
its Certificate of Incorporation or By-Laws, (ii) change the number of
authorized, issued or outstanding shares of its capital stock, except upon the
exercise of stock options or warrants outstanding on the date hereof,
(iii) declare, set aside or pay any dividend or other distribution or payment in
cash, stock or property in respect of shares of its capital stock, (iv) make any
direct or indirect redemption, retirement, purchase or other acquisition of any
of its capital stock (except for repurchases of Common Stock from employees
pursuant to existing stock subscription agreements between the Company and
certain of its employees) or (v) split, combine or reclassify its outstanding
shares of capital stock;
(c) neither the Company nor any Subsidiary shall, directly or
indirectly, (i) issue, grant, sell or pledge or agree or propose to issue,
grant, sell or pledge any shares of, or rights of any kind to acquire any shares
of the capital stock of the Company or any Subsidiary, except that the Company
may issue shares of Common Stock upon the exercise of stock options or warrants
outstanding on the date hereof, (ii) other than in the ordinary course of
business and consistent with past practice and other than with respect to the
Promissory Note, incur any material indebtedness for borrowed money, except
material indebtedness for borrowed money incurred under credit facilities
existing as of the date hereof, (iii) waive, release, grant or transfer any
rights of material value, except in the ordinary course of business consistent
with past practices or (iv) transfer, lease, license, sell, mortgage, pledge,
dispose of or encumber any material assets of the Company or any Subsidiary
other than in the ordinary course of business and consistent with past practice;
(d) the Company and the Subsidiaries shall use their reasonable
commercial efforts to preserve intact the business organization of the Company
and the Subsidiaries, to keep available the services of its operating personnel
and to preserve the goodwill of those having business relationships with each of
them, including, without limitation, suppliers and customers;
(e) neither the Company nor any Subsidiary will, directly or
indirectly, (i) increase the compensation payable or to become payable by it to
any of its employees, officers or directors, except in accordance with
employment agreements, welfare and benefit plans set forth on SCHEDULE 5.10, and
except, with respect to employees who are not directors or officers, for
increases in the ordinary course of business, consistent with past practice,
(ii) adopt additional, or make any payment or provision, other than as required
by existing plans or agreements, including provisions and actions under existing
stock option plans in connection with the Merger, in the ordinary course of
business and consistent with prior practice, with respect to
19
any stock option, bonus, profit sharing, pension, retirement, deferred
compensation, employment or other payment or employee compensation plan,
agreement or arrangement for the benefit of employees of the Company or any
Subsidiary, (iii) grant any stock options or stock appreciation rights or issue
any warrants, (iv) enter into or amend any employment or severance agreement or
arrangement or (v) make any loan or advance to, or enter into any written
contract, lease or commitment with, any officer or director of the Company or
its Subsidiary;
(f) neither the Company nor any Subsidiary shall, directly or
indirectly, assume, guarantee, endorse or otherwise become responsible for the
obligations of any other individual, firm or corporation other than a Subsidiary
or make any loans or advances to any individual, firm or corporation except in
the ordinary course of its business and consistent with past practices;
(g) neither the Company nor any Subsidiary shall make any
investment of a capital nature either by purchase of stock or securities,
contributions to capital, property transfers, acquisition or financing of
equipment or otherwise, or other than in the ordinary course of business, by the
purchase of any property or assets of any other individual, firm or corporation;
(h) neither the Company nor any Subsidiary shall enter into
modify or amend in any material respect or take any action to terminate their
respective material contracts, except in the ordinary course of business;
(i) neither the Company nor any Subsidiary shall take any
action, other than reasonable and usual actions in the ordinary course of
business and consistent with past practice, with respect to accounting policies
or procedures, except for changes required by GAAP;
(j) neither the Company nor any Subsidiary shall, without the
consent of the Acquiror, settle or compromise any material federal, state, local
or foreign income tax proceeding or audit;
(k) the Company and the Subsidiaries will promptly advise the
Acquiror in writing of any Company Material Adverse Effect or any breach of the
Company's representations or warranties, or any material breach of a covenant
contained herein of which the Company or any Subsidiary has knowledge; and
(l) neither the Company nor any Subsidiary shall enter into an
agreement to do any of the things described in clauses (a) through (k).
6.3 ACCESS TO PROPERTIES AND RECORD; ACQUIROR NOTICE. The Company
and the Subsidiaries shall afford to the Acquiror and Newco and their respective
accountants, counsel and representatives, reasonable access during normal
business hours throughout the period prior to the Effective Time to all of their
properties, books, contracts, commitments and written records (including, but
not limited to, tax returns for the preceding six years), and shall make
reasonably available their officers and employees to answer fully and promptly
questions put to them thereby;
20
provided that no investigation pursuant to this Section 6.3 shall alter any
representation or warranties of any party hereto or conditions to the obligation
of the parties hereto; provided, further, that such access shall not
unreasonably interfere with the normal business operations of any of the parties
hereto. In connection with the preparation of its fairness opinion, the
Company's financial advisor shall be provided with the reasonable level of
access to the Acquiror and its books and records that may be necessary with
respect thereto. The Acquiror will provide the Company written notice of any
Acquiror Material Adverse Effect.
6.4 NEGOTIATIONS. Following the execution of this Agreement by the
Company, neither the Company nor any Subsidiary, nor the directors, officers,
attorneys, financial advisors, or other authorized persons of any of them,
shall, directly or indirectly, solicit, initiate or participate in discussions
or negotiations with or the submission of any offer or proposal by or provide
any information to, any corporation, partnership, person, or other entity or
group (other than Newco or the Acquiror or any officer or other authorized
representative of Newco or the Acquiror) concerning any Third Party Transaction,
as defined below, or, except as provided in Section 8.1(b) or as may be
consistent with fiduciary responsibilities under applicable law as advised in
writing by outside counsel, participate in any negotiation regarding any Third
Party Transaction or otherwise cooperate in any way with any effort or attempt
by any other person to effectuate a Third Party Transaction. Notwithstanding the
foregoing, the Board of Directors of the Company may furnish such information to
or enter into discussions and/or negotiations with any corporation, partnership,
person or other entity or group that makes an unsolicited offer to engage in a
Third Party Transaction with the Company that the Board of Directors of the
Company in good faith determines, with the assistance of its financial advisor,
may represent a transaction more favorable to the Company's stockholders when
compared to the Merger and the Merger Consideration if, and only to the extent
that, the Board determines after consultation with outside legal counsel that
the failure to take such action would be inconsistent with the compliance by the
Board of Directors with its fiduciary duties to the stockholders of the Company
under applicable law, provided that such party shall enter into a
confidentiality agreement on substantially the terms contained in Section 6.6 of
this Agreement, the Company shall notify the Acquiror as to the contents of
information being provided and the Company shall diligently enforce its rights
under such confidentiality agreement. The Company represents and warrants that
the Company is not currently involved in discussions or negotiations with any
third party with respect to a Third Party Transaction. The Company will
promptly communicate to the Acquiror the identity of any potential third party
purchaser making any such proposal or contact and, prior to the execution of any
agreement relating to any such Third Party Transaction, shall also communicate
the proposed terms and conditions thereof. The Company agrees not to release
any third party from, or waive any provision of, any confidentiality or
standstill agreement to which the Company is a party.
6.5 INDEMNIFICATION. The Acquiror agrees that all provisions with
respect to indemnification by the Company and the Subsidiaries or with respect
to liability to the Company or any Subsidiary now existing in favor of any
present or former director, officer, employee or agent (and their respective
heirs and assigns) of the Company or any Subsidiary, respectively (the
"Indemnified Parties"), as set forth in their respective Certificates of
Incorporation, as amended,
21
or By-Laws or pursuant to other agreements in effect on the date hereof, shall
survive the Merger, shall not be amended, repealed or modified and shall
continue in full force and effect for a period of at least six years from the
Effective Time.
6.6 CONFIDENTIALITY.
(a) Subject to applicable law and to subpoena, the Acquiror and
Newco will hold, and will cause each of their affiliates, employees, officers,
directors and other representatives to hold, in strict confidence, and to not
use to the detriment of the Company or the Subsidiaries, any information or data
concerning the Company or the Subsidiaries furnished to them in connection with
the transactions contemplated by this Agreement, except for information or data
generally known or available to the public; and if the transactions contemplated
by this Agreement are not consummated, such confidence shall be maintained and
the Acquiror and Newco will return to the Company or the Subsidiaries all such
information and data as the Company or the Subsidiaries may request.
(b) Subject to applicable law and to subpoena, each of the
Company and the Subsidiaries will hold, and will cause each of the Company's and
each Subsidiary's employees, officers, directors and other representatives to
hold, in strict confidence, and to not use to the detriment of the Acquiror or
Newco, any information or data concerning the Acquiror or Newco furnished to
them in connection with the transactions contemplated by this Agreement, except
for information or data generally known or available to the public; and if the
transactions contemplated by this Agreement are not consummated, such confidence
shall be maintained and the Company and the Subsidiaries will return to the
Acquiror or Newco all such information and data as the Acquiror or Newco may
request.
6.7 REASONABLE BEST EFFORTS. Subject to the terms and conditions
hereof and the fiduciary obligations of the directors of the Company, each of
the parties hereto agrees to use their reasonable best efforts to take, or cause
to be taken, all action and to do, or cause to be done, all things necessary to
satisfy the conditions set forth herein as soon as practicable, including,
without limitation, reasonable best efforts necessary to list on the Nasdaq
National Market the shares of the Acquiror Common Stock issuable pursuant to the
Merger or thereafter, reasonable best efforts necessary to have removed or
rescinded any temporary, preliminary or permanent injunction, including the
injunctions or other orders described in Section 7.1(c), and reasonable best
efforts necessary to defend against any and all litigation, including the
proceedings described in Section 7.1(f) brought against either of the parties
hereto. The Acquiror and the Company each agree to take, or cause to be taken,
all action, and to do, or cause to be done, all things necessary or required by
the United States Federal Trade Commission or the United States Department of
Justice in connection with the expiration or termination of the waiting period
under the HSR Act; provided that neither party will be required to take any
action or to do anything in connection with the foregoing which would materially
impair the Acquiror's or the Surviving Corporation's ownership or operation of
all or a material portion of the business and assets of the Company and its
Subsidiary taken as a whole, or compel the Acquiror to dispose of all or a
material portion of the business or assets of the Acquiror and its subsidiaries,
taken as a whole.
22
No party hereto will take any action for the purpose of delaying, impairing or
impeding the receipt of any required consent, authorization, order or approval
or the making of any required filing or registration.
6.8 CERTIFICATION OF STOCKHOLDER VOTE. At or prior to the closing of
the transactions contemplated by this Agreement, the Company shall deliver to
Acquiror a certificate of the Company's Secretary setting forth (i) the number
of shares of Common Stock voted in favor of adoption of this Agreement and
consummation of the Merger and the number of shares of Common Stock voted
against adoption of this Agreement and consummation of the Merger; and (ii) the
number of shares of Dissenting Stock.
6.9 LOAN TO COMPANY. On the execution of this Agreement, the
Acquiror shall loan to the Company $2.5 million pursuant to the terms and
conditions set forth in that certain promissory note attached hereto as
Exhibit B (the "Promissory Note").
6.10 OUTSOURCING AGREEMENT. The Company and the Acquiror shall use
reasonable efforts to negotiate the terms and conditions of and enter into a
billing outsourcing agreement, which shall provide, among other things, for the
management by Acquiror of the Company's customer xxxxxxxx and which shall be on
terms at least as favorable as the terms of the Company's present outsourcing
agreement.
6.11 AFFILIATE AGREEMENTS. To ensure that the Merger is accounted for
as a "pooling of interests," the Company will deliver to Newco from such
affiliates of the Company as deemed necessary by the Acquiror's independent
auditors a written agreement in the form attached hereto as Exhibit C (the
"Affiliate Agreements") relating to the disposition of the shares of the
Acquiror's Common Stock received thereby in the Merger.
6.12 PROXY AGREEMENT. On the execution of this Agreement, Xxxx X.
Xxxxxxxx shall deliver to the Acquiror a proxy agreement substantially in the
form attached hereto as Exhibit D (the "Proxy Agreement").
6.13 DISCLOSURE SCHEDULES. The Company shall use its reasonable best
efforts to deliver the Disclosure Schedules to the Acquiror promptly following
the execution of this Agreement.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following conditions:
23
(a) The Registration Statement shall have been declared
effective, and no stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC or shall be continuing to be in
effect, and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(b) This Agreement and the Merger contemplated hereby shall have
been approved and adopted by the requisite vote of the holders of the
outstanding shares of Common Stock of the Company entitled to vote thereon at
the Meeting.
(c) No United States, Canadian or state governmental authority
or other agency or commission or United States, Canadian or state court of
competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, injunction or other order (whether
temporary, preliminary or permanent) which is in effect and has the effect of
making the acquisition of Common Stock by Newco illegal or otherwise prohibiting
consummation of the transactions contemplated by this Agreement.
(d) Any waiting period applicable to the Merger under the HSR
Act shall have expired or been terminated.
(e) All filings with the FCC required under the Communications
Act and with state agencies under state public utility statutes, if necessary,
shall have been made.
(f) The shares of Acquiror Common Stock issuable in the Merger
or thereafter shall have been authorized for listing on the Nasdaq National
Market, upon official notice of issuance.
(g) There shall not have been instituted or pending any action
or proceeding by or before any court or governmental authority or other
regulatory or administrative agency or commission, domestic or foreign, by any
government or governmental authority, nor shall there be any determination by
any government, governmental authority, regulatory or administrative agency or
commission which, in either case, would require either party to take any action
or do anything in connection with the foregoing which would result in a material
adverse effect to their respective businesses or materially impair Acquiror's or
the Surviving Corporation's ownership or operation of all or a material portion
of the business or assets of the Company and the Subsidiary, taken as a whole,
or compel Acquiror to dispose of all or a material portion of the business or
assets of Acquiror and the Subsidiaries, taken as a whole.
7.2 CONDITIONS TO THE OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.
The obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Each of the Acquiror and Newco shall have performed in all
material respects its obligations under this Agreement required to be performed
by it on or prior to the Effective Time pursuant to the terms hereof.
24
(b) All representations or warranties of the Acquiror and Newco
in this Agreement which are qualified with respect to an Acquiror Material
Adverse Effect or materiality shall be true and correct, and all such
representations or warranties that are not so qualified shall be true and
correct in all material respects, in each case as if such representation or
warranty was made as of the Effective Time, except to the extent that any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such specified
date.
(c) Since the date of this Agreement, there shall not have been
any material adverse change in the financial condition, results of operations,
properties or business of the Acquiror and its Subsidiaries, taken as a whole,
excluding any such change caused by a general change in the economy or in the
telecommunications industry served by the Acquiror and its Subsidiaries.
(d) Each of the Acquiror and Newco shall have delivered a
certificate of its President or Vice President to the effect set forth in
paragraphs (a), (b) and (c) of this Section 7.2.
(e) The Company shall have received from Xxxxxxx & XxXxxxxx,
counsel to the Acquiror and Newco, an opinion dated the Effective Time in the
form reasonably agreed to by the parties hereto.
(f) The Company shall have received the opinion of its financial
advisors that the Merger and other transactions contemplated by this Agreement
are fair, from a financial point of view, to the stockholders of the Company.
7.3 CONDITIONS TO OBLIGATIONS OF THE ACQUIROR AND NEWCO TO EFFECT THE
MERGER. The obligations of Acquiror and Newco to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions:
(a) Each of the Company and its Subsidiaries shall have
performed in all material respects each of its obligations under this Agreement
required to be performed by it on or prior to the Effective Time pursuant to the
terms hereof.
(b) All representations or warranties of the Company in this
Agreement which are qualified with respect to a Company Material Adverse Effect
or materiality shall be true and correct, and all such representations or
warranties that are not so qualified shall be true and correct in all material
respects, in each case as if such representation or warranty were made as of the
Effective Time except to the extent that any such representation or warranty is
made as of a specified date, in which case such representation or warranty shall
have been true and correct as of such specified date.
(c) Since the date of this Agreement, there shall not have been
any material adverse change in the financial condition, results of operations,
properties or business of the Company and its Subsidiaries, taken as a whole,
excluding any such change caused by a general
25
change in the economy or in the telecommunications industry served by the
Company and its Subsidiaries and other than any such change approved by the
Acquiror.
(d) The Company shall have delivered a certificate of its
President or Vice President to the effect set forth in paragraphs (a), (b) and
(c) to this Section 7.3.
(e) Newco shall have received letters of resignation addressed
to the Company from those members of the Company's board of directors as listed
on SCHEDULE 7.3(e), which resignations shall be effective as of the Effective
Time.
(f) The Acquiror shall have received from Xxxxxx Xxxxxx Flattau
& Klimpl, LLP, counsel to the Company, an opinion dated the Effective Time in
the form reasonably agreed to by the parties hereto.
(g) Holders of no more than 5% of the outstanding shares of
Common Stock shall not have caused such shares to become Dissenting Stock.
(h) Newco shall have received executed Affiliate Agreements from
designated Company affiliates.
(i) The Acquiror shall have received letters (i) from Xxxxxx
Xxxxxxxx LLP approving the accounting treatment of the Merger as a "pooling of
interests" and (ii) from Price Waterhouse LLP that the Company has taken no
action in the past two years that would prevent the application of a "pooling of
interests" accounting treatment to the Merger, and the SEC shall not have
objected to such accounting treatment.
7.4 CLOSING CONDITIONS DEEMED SATISFIED. If the Meeting has been
completed and has resulted in a vote sufficient to approve the Merger in
accordance with applicable law, and if all other conditions precedent to the
consummation of the Merger contained in this Article VII (other than the
conditions set forth in Sections 7.1(c) and (d)) have been satisfied or have
otherwise been waived as of the date of such Meeting, such conditions precedent
to the consummation of the Merger (except as provided in the next succeeding
sentence) shall terminate, and the parties to this Agreement agree to consummate
the Merger as soon as practicable thereafter; provided, however, that in no
event shall any party be required to consummate the Merger or any other
transactions contemplated by this Agreement to the extent that such consummation
would violate any applicable laws or regulations. In such event, the Acquiror,
on the one hand, and the Company, on the other hand, shall cooperate to deliver,
as soon as practicable after the satisfaction or waiver of such conditions
precedent, the officer's certificates and opinions required of the Acquiror by
Section 7.2(d) and 7.2(f), and required of the Company by Section 7.3(d) and
7.3(f), respectively, and, upon the Effective Time, the Acquiror shall deliver
the certificate required of the Exchange Agent by Section 7.2(e) and the Company
will deliver to Newco the letters of resignation required by Section 7.3(e).
26
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated herein may be abandoned at any time prior to the Effective Time and
before approval by the stockholders of the Company:
(a) by the mutual consent of Newco and the Company;
(b) by Newco or the Company, if (i) the Board of Directors of
the Company shall have failed to recommend, or withdrawn, modified or amended in
any respect its approval or recommendation of the Merger and of the transactions
contemplated hereby or the Board of Directors of the Company shall have resolved
to do any of the foregoing or (ii) the stockholders shall have failed to vote in
favor of this Agreement and the Merger and, in the case of the Company seeking
termination pursuant to Section 8.1(b)(i), the Company having paid to Newco the
Termination Fee, as defined below, in accordance with the terms of Section 8.2.
(c) by Newco if (i) there has occurred a material adverse change
in the financial condition, operations, or business of the Company and its
Subsidiaries taken as a whole, or (ii) there is a breach of any of the
representations and warranties of the Company which are qualified with respect
to a Company Material Adverse Effect or materiality or if the Company shall have
breached in any material respect any of such representations or warranties which
are not so qualified, or if the Company fails to comply in any material respect
with any of its covenants or agreements contained herein, which breaches or
failures, as the case may be, are, in the aggregate, material in the context of
the transactions contemplated by this Agreement;
(d) by the Company (i) if there has occurred a material adverse
change in the financial condition, operations, or business of the Acquiror or
(ii) there is a breach of any of the representations and warranties of the
Acquiror or Newco which are qualified with respect to an Acquiror Material
Adverse Effect or materiality or if the Acquiror or Newco shall have breached in
any material respect any of such representations or warranties which are not so
qualified, or if the Acquiror or Newco fails to comply in any material respect
with any of its covenants or agreements contained herein, which breaches or
failures, as the case may be, are, in the aggregate, material in the context of
the transactions contemplated by this Agreement; and
(e) by either Newco or the Company, if on or before May 1, 1998
the Merger shall not have been consummated; provided that neither party may
terminate under this Section 8.1(e) if such failure has been caused by that
party's material breach of this Agreement; provided further that if any
condition to this Agreement shall fail to be satisfied by reason of the
existence of an injunction or order of any court or governmental or regulatory
body resulting from an action or proceeding commenced by any party which is not
a government or governmental authority, then at the request of either party the
deadline date referred to above shall be extended for a reasonable period of
time, not in excess of 120 days, to permit the parties to have such injunction
vacated or order reversed.
27
(f) by the Acquiror by the later to occur of December 3, 1997,
or the date that is three business days after delivery by the Company of the
final version of the Disclosure Schedules.
(g) by the Company if it has not satisfied the condition set
forth in Section 7.2 (f).
In the event of such termination and abandonment, no party hereto
(or any of its directors or officers) shall have any liability or further
obligation to any other party to this Agreement except as provided in
Section 8.2, and except that nothing herein will relieve any party from
liability for any wilful breach of this Agreement prior to such termination or
abandonment.
8.2 FEES AND EXPENSES. If this Agreement is terminated by Newco or
the Company pursuant to Section 8.1(b)(i), (a) after receipt of a bona fide
proposal to acquire (by means of a tender or exchange offer, merger,
consolidation, business combination or otherwise) all or a substantial portion
of the outstanding shares of Common Stock or of the assets of the Company and
the Subsidiaries (all such transactions being referred to herein as "Third Party
Transactions"), or (b) prior to the satisfaction of the condition set forth in
Section 7.2(f), then the Company shall, simultaneously with such termination,
pay to Newco by wire transfer of immediately available funds, $2,000,000.00 (the
"Termination Fee").
8.3 AMENDMENT. Subject to the applicable provisions of the General
Corporation Law, this Agreement may be amended by the parties hereto solely by
action taken by their respective Boards of Directors. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
8.4 WAIVER. At any time prior to the Effective Time, the parties
hereto, by action taken by their respective Boards of Directors, may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any documents delivered
pursuant hereto, and (iii) waive compliance by the other party with any of the
agreements or conditions herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.1 SURVIVAL. All representations, warranties and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall terminate and be extinguished at the Effective Time or the
earlier date of termination of this Agreement pursuant to Section 8.1, as the
case may be, except that the agreements set forth in Article I and in
Sections 6.5, 6.6, 6.7, 6.9, 6.10 and 9.5 will survive the Effective Time
indefinitely and those set
28
forth in Sections 8.2 and 9.5 will survive the termination of this Agreement
indefinitely, and other than any covenant the breach of which has resulted in
the termination of this Agreement.
9.2 EXPENSES AND FEES. If the Merger is consummated, all reasonable
fees and expenses incurred in connection with the Merger and the transactions
contemplated thereby will be paid by the Surviving Corporation. If the Merger
is not consummated, each party hereto shall, subject to the provision of
Section 8.2 above, bear their respective fees and expenses.
9.3 NOTICES. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally or sent by registered or certified
mail (postage prepaid, return receipt requested) or by telecopier to the parties
at the following addresses and facsimile numbers:
(a) if to Newco or the Acquiror to:
STAR Telecommunications, Inc.
000 X. Xx Xx Xxxxxx Xx.
Xxxxx Xxxxxxx, XX 00000
Attention: Xxxxx Xxxxxxxx
Fax: (000) 000-0000
with copies to:
Xxxxxxx & XxXxxxxx
000 Xxxxx Xxxxx Xxxxxx, Xxx. 0000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxx, Esq.
Fax: (000) 000-0000
(b) if to the Company, to:
United Digital Network, Inc.
00000 XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx, XX 00000
Attention: Xxxx X. Xxxxxxxx
Fax: (000) 000-0000
with copies to:
Xxxxxx Xxxxxx Flattau & Klimpl, LLP
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
29
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made as
of the date so delivered or mailed or confirmation of transmission.
9.4 HEADINGS. The headings contained in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
9.5 PUBLICITY. The parties hereto shall not, and shall cause their
affiliates not to, issue or cause the publication of any press release or other
announcement with respect to the Merger or this Agreement without consulting
with all other parties and their respective counsel and without delivering a
draft of any such press release to such parties.
9.6 ENTIRE AGREEMENT; KNOWLEDGE. This Agreement constitutes the
entire agreement among the parties and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. For purposes of this Agreement,
"knowledge" of any party shall mean the knowledge of the executive officers of
that party after such officers shall have made all reasonable inquiries.
9.7 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties, provided that
Newco's rights and duties hereunder may be assigned to a wholly owned subsidiary
of the Acquiror, which assumes all of Newco's duties and obligations. This
Agreement is not intended to confer upon any other person any rights or remedies
hereunder.
9.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
9.9 INVALIDITY, ETC. In the event that any provision of this
Agreement shall be deemed contrary to law or invalid or unenforceable in any
respect by a court of competent jurisdiction, the remaining provisions shall
remain in full force and effect to the extent that such provisions can still
reasonably be given effect in accordance with the intentions of the parties, and
the invalid and unenforceable provisions shall be deemed, without further action
on the part of the parties, modified, amended and limited solely to the extent
necessary to render the same valid and enforceable.
9.10 SPECIFIC PERFORMANCE. Each of the parties hereto acknowledges
and agrees that the other parties hereto would be irreparably damaged in the
event any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, each of the
parties hereto agrees that they each shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and conditions hereof in any
action instituted in any
30
court of the United States or any state having competent jurisdiction, in
addition to any other remedy to which such party may be entitled, at law or in
equity.
9.11 GOVERNING LAW. The validity and interpretation of this Agreement
shall be governed by the laws of the State of Delaware, without reference to the
conflict of laws principles thereof.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the Acquiror, Newco and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
ACQUIROR: STAR Telecommunications, Inc.
By: /s/ Xxxxx Xxxxxxxx
-------------------------------------
Xxxxx Xxxxxxxx
Chief Executive Officer
NEWCO: IIWII Corp.
By: /s/ Xxxxx Xxxx
-------------------------------------
Xxxxx Xxxx
Chief Financial Officer
COMPANY: United Digital Network, Inc.
By: /s/ Xxxx X. Xxxxxxxx
-------------------------------------
Xxxx X. Xxxxxxxx
Chief Executive Officer
32
