MEMORANDUM OF UNDERSTANDING
This memorandum of understanding ("Memorandum") is made and entered into as
of July 5, 1999 by and between U.S. Digital Communications, Inc., a Nevada
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corporation ("USDI"), and Telcam, Telecommunications Company of the Americas,
Inc., a Texas corporation ("Telcam"). This Memorandum sets forth the intention
of the parties hereto to enter into definitive documents which will contain,
among other provisions, the terms and conditions set forth below ("Definitive
Documents"). The parties agree that they will negotiate in good faith in order
to complete the Definitive Documents and to consummate the transaction
contemplated herein. Until the Definitive Documents are executed by USDI and
Telcam, the terms and conditions of this Memorandum will be a binding agreement,
unless specifically stated otherwise herein.
1. Proposed Transaction.
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Subject to the approval of USDI's stockholders, Telcam and USDI will enter
into a combination in the form of a tax-free, reverse triangular reorganization
under Section 368(a)(1)(B) of the Internal Revenue Code pursuant to which a
newly formed, wholly owned subsidiary of USDI would be merged into Telcam and
Telcam's shareholders would exchange 100% of the issued and outstanding common
stock of Telcam for shares of common stock of USDI ("Transaction"). Following
the consummation of the Transaction, the shareholders of Telcam will own shares
of common stock of USDI which represent in number and value not less than 51% of
the sum of (i) all classes of stock of USDI which are issued as of the date of
Closing (defined below), (ii) all options and warrants for all classes of stock
of USDI outstanding as of the date of Closing, (iii) all shares of stock of USDI
which could be issued upon conversion of any debt or stock of USDI outstanding
on the date of Closing, and (iv) all shares estimated in good faith by USDI
which may be issued in settlement of any threatened or pending litigation or
claim against USDI as of the date of Closing.
2. Definitive Documents.
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Details of the transaction shall be embodied in the Definitive Documents
satisfactory to Telcam and USDI. The parties shall diligently proceed to
complete the Definitive Documents, which shall contain terms, conditions,
representations and warranties usually and customarily found in documents
executed in connection with transactions similar to those contemplated by this
Memorandum.
3. Due Diligence Period.
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A 60-day period for due diligence shall commence immediately upon the
receipt of the last item of due diligence described in Appendix A attached to
this Memorandum ("Due Diligence Period") and closing of the Transaction will
occur not later than 15 days after expiration of the Due Diligence Period.
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4. Management of USDI's Subsidiaries and Settlement Agreement with Creditors
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of USDI and USDI's Subsidiaries.
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(a) Effective upon the execution of this Memorandum and continuing until
Closing or the date upon which Telcam gives written notice to USDI that it will
not enter into the Transaction, Telcam will manage, solely through the employees
of Telcam, (i) the existing customer service agreements of the wholly owned
subsidiary of USDI, International Satellite Group, Inc., and its subsidiary
corporations (collectively "Subsidiary") and (ii) the agreements between
Subsidiary and its service providers. Within five business days of the
effective date of this Memorandum, Telcam will be authorized by the Board of
Directors of Subsidiary to serve as the telecommunication contract operations
manager of Subsidiary. Subsidiary agrees to cooperate with Telcam's
arrangements and not to interfere with Telcam's administration and management of
the telecommunication contracts. From and after the effective date of this
Memorandum Telcam will have the right and authority to possess and control the
assets of Subsidiary in order to manage operations of Subsidiary; however, USDI
will have at all times access to all financial, bank and accounting records of
Subsidiary which are maintained by Telcam. Telcam will provide USDI copies of
all documents executed by Telcam or received by Telcam relating to service
agreements of Subsidiary. Telcam shall not enter into any agreements binding
Subsidiary or USDI without the prior written consent of USDI, except for service
agreements with customers to sell inventory and/or airtime for not less than
fair market value, and USDI and Subsidiary shall not enter into any agreements
binding USDI or Subsidiary without the prior written consent of Telcam. Telcam
shall not sell, assign or terminate any customer contract without the written
consent of USDI. USDI and Subsidiary agree that they will immediately inform
Telcam of any discussions between either of them and any party to an existing
telecommunication contract that concern modification or termination of such
contract and any discussions between either of them and any party to a
prospective telecommunication contract. USDI and Subsidiary hereby agree to
indemnify and hold harmless Telcam, its officers, directors, shareholders and
agents from any and all contractual liability to third parties arising from
Telcam's operation of the telecommunication contracts of USDI and Subsidiary
pursuant to the provision of this Paragraph 4(a), to the greatest extent
permitted by applicable law for all acts taken by Telcam in good faith in its
capacity as the telecommunication contracts manager of Subsidiary, unless such
liability is caused by Telcam's proven gross negligence or willful misconduct.
Telcam and USDI hereby agree to indemnify each other, and the officers,
directors, shareholders and agents of each other against any liability arising
from fraud violations of this Memorandum, or violations of the law committed by
the indemnitor. The Definitive Documents will contain provisions that will
address in detail the subsequent transfer of Telcam's management of Subsidiary
in the event the Transaction is not consummated. In the event of such
subsequent transfer, Telcam shall transfer all documents, materials,
communications, files, equipment and agreements in its control to USDI and shall
provide reasonable assistance in the transfer of the management of the
Subsidiary to USDI.
(b) Telcam will be authorized, as the exclusive agent of the Subsidiary
and USDI, to negotiate a standstill, settlement and/or modification agreement
with the creditors of USDI and the Subsidiary ("Settlement Agreement), subject
to the approval of USDI. If Telcam determines, at any time and in its sole
discretion, that the Settlement Agreement will require the payment, in the
aggregate, of more than 30% of accounts payable of USDI and the Subsidiary (the
accounts
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payable to be agreed upon by Telcam and USDI), then Telcam shall have the right
to terminate the Interim Agreement and all negotiations regarding the
Transaction without liability to USDI, the Subsidiary and all officers,
directors, agents and shareholders of USDI and the Subsidiary.
5. Pre-Closing Obligations.
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(a) Inventory Loan. On the effective date of this Memorandum, Telcam shall
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lend USDI $75,000 ("Inventory Loan"), secured by a first lien on all assets of
USDI and Subsidiary. The proceeds of the Inventory Loan will be used for the
payment of third-party creditors of USDI and Subsidiary.
(b) Sale of Inventory of Subsidiary. On the effective date of this
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Memorandum, Telcam agrees to commence best efforts, as non-exclusive agent of
Subsidiary, to obtain a buyer or buyers for the inventory of Subsidiary. All
sales of inventory shall be subject to the mutual approval of USDI and Telcam.
In addition to the efforts of Telcam to sell inventory, USDI will have the right
to solicit buyers and to sell the inventory, and both Telcam and USDI agree to
cooperate in such sales efforts in furtherance of their mutual objectives to
obtain the best price for the inventory. All proceeds from the sale of the
inventory (whether accomplished by USDI or by Telcam) shall be delivered
directly to USDI after payment of reimbursement of reasonable, agreed upon
expenses of Telcam which were incurred in connection with such sale or sales and
repayment of the Inventory Loan. Upon receipt of the net proceeds USDI shall
apply all such net proceeds to payment of third-party creditors of USDI and
Subsidiary.
(c) Operating Loans to USDI. Subject to the terms and conditions of the
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Definitive Documents, Telcam or its designee will advance to USDI during the Due
Diligence Period funds required for the business operations of Subsidiary
pursuant to a budget approved by both Telcam and USDI. Subject to Telcam's
receipt and review of invoices and bills, Telcam or its designee agrees to lend
USDI during the Due Diligence Period sufficient funds to pay (i) utility bills,
rent and current payroll of USDI at its Maryland corporate office; (ii) costs of
closing the offices of Subsidiary in Burbank, California and Atlanta, Georgia;
and (iii) all costs of moving assets of Subsidiary to Telcam's corporate
offices. All loans made pursuant to this Paragraph 5(c) shall be referred to as
"Operating Loans."
Proceeds of the Operating Loans will be funded by direct payment by Telcam
to the creditors of USDI and Subsidiary. The Operating Loans to USDI will be
evidenced by promissory notes bearing interest at 10% per annum and secured by a
valid first lien on all assets of USDI. The Operating Loans will have a
maturity date of the earlier of (i) one year or (ii) 90 days after the date
Telcam gives written notice that it is terminating its due diligence. Each
promissory note evidencing an Operating Loan will include a conversion feature
pursuant to which the holder of the promissory note will have the right to
convert the Operating Loan to common or preferred stock of USDI based upon the
closing price of the shares traded on the date upon which the Operating Loan was
made.
6. Expenses.
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Each party will bear its own expenses incurred by the Transaction.
7. Conditions to Closing.
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The following, among others ordinarily found in documents such as the
Definitive Documents, will be conditions to the obligation of Telcam to close
the Transaction:
a. All approvals of this Transaction which are required by law or
corporate governance documents or which are deemed appropriate by Telcam shall
have been obtained
b. Telcam shall have completed due diligence to its satisfaction.
The following, among others ordinarily found in documents such as the
Definitive Documents, will be conditions to the obligation of USDI to close the
Transaction:
a. All approvals of this Transaction which are required by law or
corporate governance documents or which are deemed appropriate by USDI shall
have been obtained.
b. USDI shall have completed due diligence to its satisfaction.
8. Disclosures.
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Except as otherwise required by the SEC, NASD or law, all public releases
and regulatory filings relating to this Transaction shall be approved by both
parties hereto prior to release, filing or other dissemination.
9. Exclusive Arrangement.
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Beginning with the effective date of this Memorandum and ending on the last
day of the Due Diligence Period or the date upon which Telcam gives written
notice that it is terminating its due diligence, whichever is the first to
occur, USDI agrees to honor the terms of this Memorandum and will not directly
or indirectly solicit or participate in any discussions or negotiations with, or
provide any information to, or otherwise cooperate in any other way with, or
facilitate or encourage any effort to attempt to, or enter into any agreement or
understanding with, any person or group of persons (other than Telcam and its
directors and agents) concerning any competing transaction relating to the sale
of assets or stock of USDI or to the sale of assets or stock of Subsidiary.
10. Directors and Officers.
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Effective upon the closing of the Transaction, Telcam shall have four
representatives on the Board of Directors of USDI and three of the existing
directors of USDI shall be retained. The Definitive Documents shall also make
satisfactory arrangements, to be agreed upon by the parties
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for any directors and officers who are terminating their relationship with USDI
upon completion of the Transaction and any director or officer who will be
retained after completion of the Transaction. Recognizing the important benefits
and value that the present officers and directors of USDI have brought to USDI
and this proposed transaction, Telcam agrees to negotiate in good faith to
provide fair and reasonable continuing compensation and/or termination benefits
to the said individual directors and officers of USDI. Telcam shall also make
satisfactory arrangements with the individual directors and officers of USDI
concerning their existing stock options in USDI.
11. Confidentiality.
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Each party agrees to hold in confidence and not to disclose or use for its
own benefit any confidential, proprietary information received from the other
party during the "due diligence" review and for a period of three years
thereafter. The confidentiality agreement contained herein shall not apply to
(A) information already known when received, (B) information in the public
domain when received or thereafter in the public domain through sources other
than us, or (C) information lawfully obtained from a third party not subject to
confidentiality obligation contained herein. Each party agrees to restrict
access to the other parties information to persons in their organization who
have a need to know and who have signed individual secrecy agreements
corresponding to those which we have undertaken. If negotiations are
discontinued or the transaction does not close for any reason, each party will
return all documents furnished by the other party and will keep no copies.
AGREED as of the later date set forth here below:
U.S. Digital Communications, Inc.
July 5, 1999 By: /s/ Xxxxxx X. Xxxxxxx
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Date Xxxxxx X. Xxxxxxx, President **
Telcam, Telecommunications Company of the
Americas, Inc.
July 5, 1999 By: /s/ Xxxxxx Xxx
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Date Xxxxxx Xxx, President
**This document has been approved by the Board of Directors of USDI
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