As filed with the Securities and Exchange Commission on
August 16, 1996 Registration No. 333-8305
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-----------------
PRE-EFFECTIVE
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
UTG COMMUNICATIONS, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
<TABLE>
<S> <C> <C>
Delaware 4813 13-3895294
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
----------------------
</TABLE>
<TABLE>
Altsteinhauserstrasse 33
6330 Cham
Zug, Switzerland
011-041-729-8282
<S> <C>
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
----------------------
DAVID SCHLECHT
18 Cattano Avenue
Morristown, NJ 07960
(201) 644- 3161
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
----------------------
Copies of all communications, including all communications
sent to the agent for service, should be sent to:
WALTER M. EPSTEIN, ESQ.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, NY 10112
(212) 698-7758
----------------------
</TABLE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after the Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering./ /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering./ /
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box./ /
----------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=====================================================================================================================
PROPOSED
MAXIMUM PROPOSED
OFFERING MAXIMUM AMOUNT
TITLE OF EACH CLASS AMOUNT PRICE AGGREGATE OF
OF SECURITIES TO BE TO BE PER OFFERING REGISTRATION
REGISTERED REGISTERED SECURITY(1) PRICE(1) FEE
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.00001 per
share.............................. 3,156,000 $ 5.25 $16,569,000 $5,713.452(2)
- ---------------------------------------------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457 under the Securities Act of 1933, as amended.
(2) $4,989.32 of this amount has been paid.
<PAGE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
<PAGE>
SUBJECT TO COMPLETION, DATED AUGUST 16, 1996
PROSPECTUS
UTG COMMUNICATIONS, INC.
3,156,000 SHARES OF COMMON STOCK
This Prospectus relates to 3,156,000 shares (the "Shares") of common
stock, par value $.00001 per Share ("Common Stock"), of UTG Communications,
Inc., a Delaware corporation formerly known as United Telegroup International,
Inc. (the "Company") which are being offered for sale by certain selling
stockholders (the "Selling Stockholders"). See "Selling Stockholders."
The Company will not receive any of the proceeds from the sales of the
Shares by the Selling Stockholders. The Shares may be offered from time to time
by the Selling Stockholders through ordinary brokerage transactions in the
over-the-counter market, in negotiated transactions or otherwise, at market
prices prevailing at the time of sale or at negotiated prices.
The Selling Stockholders may be deemed to be "Underwriters" as defined in
the Securities Act of 1933, as amended (the "Act"). If any broker-dealers are
used by the Selling Stockholders, any commissions paid to broker-dealers and, if
broker-dealers purchase any Shares as principals, any profits received by such
broker-dealers on the resales of the Shares may be deemed to be underwriting
discounts or commissions under the Act. In addition, any profits realized by the
Selling Stockholders may be deemed to be underwriting commissions. All costs,
expenses and fees in connection with the registration of the Shares offered by
the Selling Stockholders will be borne by the Company. Brokerage commissions, if
any, attributable to the sale of the Shares will be borne by the Selling
Stockholders. The Company has agreed to indemnify the Selling Stockholders
against certain liabilities, including liabilities under the Act.
The Shares offered by this Prospectus may be sold from time to time by the
Selling Stockholders or by transferees, commencing on the date of this
Prospectus. No underwriting arrangements have been entered into by the Company
or, to the Company's knowledge, the Selling Stockholders. The distribution of
the Shares by the Selling Stockholders may be effected in one or more
transactions, privately-negotiated transactions or through sales to one or more
dealers for resale of such Shares as principals, at market prices prevailing at
the time of sale, at prices related to such prevailing market prices or
negotiated prices. Usual and customary or specifically negotiated brokerage fees
or commissions may be paid by the Selling Stockholders in connection with sales
of the Shares.
Unless otherwise specifically provided, all currency amounts in this
document are expressed in United States dollars and are preceded by "$". See
"Prospectus Summary-Exchange Rates."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CIRIMINAL OFFENSE.
------------------
The date of this Prospectus is __________, 1996
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information appearing elsewhere in this Prospectus. An investment in
the Shares offered hereby involves a high degree of risk. See "Risk Factors."
Each prospective investor is urged to read this Prospectus in its entirety. All
references to the Company include UTG Communications, Inc., a Delaware
corporation (" UTG"), and its subsidiary UTG Communications Holding, AG,
a Swiss corporation ("UT Holding"), and UT Holding's wholly-owned subsidiary
UTG Communications AG, a Swiss corporation ("UT AG"). Certain terms relating to
the Company's business are defined in "Glossary."
THE COMPANY
GENERAL
The Company is a development stage company that provides quality private
voice, fax and data management telecommunication services in Switzerland,
primarily to businesses and business groups at prices which are generally below
those of major telecommunications carriers. As of August 9, 1996, the
Company has entered into contracts with 14 customers to provide customized
telecommunications service packages. These customized packages include
telecommunications minutes plus other services selected by customers. The
Company provides local support, round-the-clock customer service and full
network redundancy to all customers. Available services include system design
and installation as well as digital compression, fax transmission compression,
digital data services and wideband digital data services. Additional customers
are being solicited daily and it is anticipated that new customers will be added
on a regular basis. In the future, the Company intends to expand its operations
though local subsidiaries or joint ventures into other countries in the European
Union (the "EU") as such countries' telecommunications industries become
deregulated, which deregulation is, for the most part, expected to be completed
by early 1998, and as market conditions in such other EU countries warrant.
Both the competitive environment and the economic framework in which
international telecommunication companies operate are changing at a rapid pace.
Due to the liberalization of telecommunication markets and technical
improvements, the Company is able to utilize the infrastructure provided by
international telecommunication carriers in connection with the services it
offers. This allows the Company to offer its customers one of Europe's largest
meshed fiber optic networks, which will eventually include more than 90
international points of presence ("POPs"). In providing its services, the
Company connects a customer's telephone installation to the Company's POP in
Switzerland by means of dedicated lines, and such POP then routes such
customer's outgoing voice, fax and data transmissions though leased transmission
lines directly to the Company's switch in the United Kingdom. The communications
are then transferred directly from the Company's switch into the international
networks. All of this is achieved without loss in speech quality or speed during
connection and with the customer dialing his international destination directly,
as he had done prior to becoming a Company customer. The Company is able
to provide its services at attractive prices to its customers due to the large
potential purchasing power of the Company.
SERVICES
The Company sells telecommunications minutes in connection with a broad
range of services which are customized to suit individual customer needs. The
Company does not anticipate that the sale of telecommunications minutes without
other services will be a significant portion of its business. The Company
designs, installs and commissions voice, fax and data transmission equipment
appropriate for each of its customers in a manner similar to that provided by
major telecommunications carriers but at a lower price.
The Company offers services including digital compression techniques, where
usage warrants, at 8, 16 or 64 kbps (which compression allows for substantial
overall cost savings because compression allows more information to be sent
through fewer lines which allows the Company to lease fewer lines and offer
reduced calling tariffs), fax transmission compression, and digital data
services in a full range of transmission support and interface types between 1.2
kbps and 2 mb (which can be point to point or point to multipoint). For
customers requiring additional network bandwidth, the Company is able to provide
wideband digital data services which provide increased capacity and which
support applications such as audio- and videoconferencing, high speed imaging,
and corporate communication networking requirements. With the growing
2
<PAGE>
use of Local Area Networks ("LAN's"), customers will be able to directly connect
their LAN traffic to the Company's network, for access to remote locations and
for applications such as file transfer, remote data access and e-mail. The
Company offers a fully managed network service that includes, management,
control and configuration, remote access for diagnostic and maintenance
services, regular network status reports and controlled access security. The
Company is conducting feasibility studies to identify the market potential and
regulatory environment for offering additional services, including video
conferencing, paging, international call back, Internet access, facsimile and
frame relay services, and expects to introduce Internet access, enhanced travel
cards and video conferencing.
The Company provides all of its customers with a high level of quality
service, including local support, round-the-clock customer service and full
network redundancy. Additionally, the Company's customers receive comprehensive
billing packages. The Company's standard monthly statement will include a
management summary report, a call detail report recording every long distance
call and facsimile call, and a pricing breakdown by call destination. Optional
reports include call summaries by account code, area or city code, international
destination and time-of-day. This information is available to customers in the
form of hard copy, magnetic tape or disk.
STRATEGY
The Company's objective is to grow its long distance telecommunications
customer base in Switzerland and to establish itself in other deregulated
markets in the EU as they develop. With its communication network, the Company
is well positioned to take advantage of telecommunications deregulation in
Switzerland and will be well-prepared for the upcoming full deregulation of the
telecommunication markets in other countries of the EU which deregulation is,
for the most part, expected to be completed by early 1998. The network will
provide the Company with the tools to keep pace with the ongoing technological
development in the telecommunications industry. The Company has positioned
itself between the major full-service and high price telecommunications carriers
and the no service (or limited service) cut rate telecommunications minutes
resellers which it believes will eventually expand into its markets. The Company
offers substantially lower rates to customers compared to the major
telecommunications companies, but believes that it is not required to be the
lowest cost provided of minutes because it will be able to attract new business
and maintain its customers' business by offering broad based solutions to their
telecommunications business needs. The Company believes that by positioning
itself this way, it will retain and add customers who wish to save on their
telecommunications expenses yet who also demand a high level of service with the
availability of a wide array of service offerings.
The Company intends to expand its operations in Switzerland by focusing on
and marketing its principal competitive strengths which are: (1) the Company's
sales and marketing organization and the customized service the Company offers
to its customers; (2) the Company's offering of competitive prices which the
Company believes are generally lower than prices charged by the major carrier in
the Swiss market; (3) the Company's position as an early entrant in the
Swiss market as an alternative carrier; (4) the Company's focus on more
profitable international telecommunications traffic; and (5) the Company's
switched-based networking capabilities. The availability of existing
transmission capacity in the Swiss market makes the leasing of transmission
lines attractive to the Company and enables it to grow network usage without
having to incur the significant capital and operating costs associated with the
development and operation of a transmission line infrastructure. See
"Business--Industry" and "Business--Network."
In the future, as business and regulatory conditions warrant, the Company
hopes to utilize the foregoing competitive strengths to expand into other
countries of the EU. In connection with such expansion the Company may enter
into strategic alliances or make investments in companies that are complementary
to its current operations.
The Company primarily targets customers with between $5,000 and $50,000 of
monthly usage. The Company believes that, in addition to being price sensitive,
these customers tend to be focused on customer service and are more likely to
rely on one or two carriers for their telecommunications needs. The diversity of
the Company's targeted customer base enhances network utilization by combining
business-driven workday traffic with night and weekend off-peak traffic. The
Company strives to be more cost effective, flexible, innovative and responsive
to the needs of its customers than the major carriers, while providing more
service and service offerings than cut rate resellers.
The Company's belief that its prices will generally be lower than those of
the major carriers is based upon informal surveys of the pricing offered by the
major carriers. However, because prices and promotional programs change rapidly
and
3
<PAGE>
often in the telecommunications industry, the prices offered by the Company may
not always be as competitive as the prices charged by the major carriers.
ORGANIZATION
UTG was incorporated in the State of Delaware on April 17, 1996. As of
April 30, 1996, in exchange for 7,250,000 shares of Common Stock, UTG
acquired all of the outstanding shares, other than qualifying shares, of UT
Holding. As of April 30, 1996, UTG also issued 2,750,000 shares of Common
Stock to Interfinance Inv. Co. Ltd., a Panamanian corporation ("Interfinance"),
183,333 of which were issued in exchange for $200,000 in cash and 2,566,667 of
which were issued in exchange for $26 in cash and a Promissory Note due on April
30, 1997 in the principal amount of $2,799,974 (the "Interfinance Note"). The
Interfinance Note was secured by 2,566,667 shares of Common Stock. As of June
28, 1996, Interfinance, which is a Selling Stockholder in this Prospectus,
satisfied the Interfinance Note in full from proceeds received from purchasers
of a portion of its Shares. As a condition to the sale of the shares to
Interfinance, the Company entered into a Registration Rights Agreement dated as
of April 30, 1996 pursuant to which the Company agreed to register such shares
for resale under the Act. On August 15, 1996 the Company sold an additional
400,000 shares of Common Stock to Interfinance for $1,000,000 consisting of
$10,000 in cash and a Promissory Note due on February 1, 1997 in the original
principal amount of $990,000 (the "Second Interfinance Note"). The Second
Interfinance Note is secured by 396,000 shares of Common Stock. As a condition
to such sale the Company agreed to register such 400,000 shares for resale in
this offering. See "Certain Transactions." The Company's mailing address and
telephone number are 18 Cattano Avenue, Morristown, New Jersey 07960;
attention David Schlecht; (201) 644-3161.
THE OFFERING
</TABLE>
<TABLE>
<S> <C>
Securities Offered........................... 3,156,000 shares of Common Stock by the Selling Stockholders.
See "Selling Stockholders and Plan of Distribution" and "Description of
Securities."
Risk Factors................................. The Shares offered hereby involve a high degree of risk.
See "Risk Factors."
</TABLE>
SUMMARY FINANCIAL INFORMATION
<TABLE><CAPTION>
February 29, 1996 (date of
inception) to April 30, 1996(1)
--------------------------------------
Consolidated Statement of Operations Data:
<S> <C>
Sales.................................................. $ --
Net Loss............................................... $ (317,754)
Loss per share......................................... $ (.03 )
Weighted average number of Shares outstanding......... 10,006,000
April 30, 1996
--------------------------------------
Consolidated Balance Sheet Data:
Total Assets.......................................... $ 3,945,491
Liabilities (all current)............................ $ 1,171,915
Stockholders' equity................................. $ 2,773,576
</TABLE>
- ------------
4
<PAGE>
(1) UTG was incorporated on April 17, 1996, UT Holding was incorporated on
February 29, 1996 and UT AG was incorporated on March 28, 1996. The
consolidated results include UTG and its subsidiaries, UTG Holding
and UTG AG.
(2) The weighted average number of common shares and common equivalent shares
outstanding for purposes of the loss per share amounts are computed on the
basis of all stock being outstanding for all periods presented.
EXCHANGE RATES
Exchange Rates of the Swiss Franc ("CHF"). The high and low exchange rates
(i.e., the highest and lowest rates at which the CHF closed), and the period end
exchange rate of the United States dollar in exchange for the CHF for the period
February 29, 1996 through April 30, 1996, as reported by the Federal Reserve
System, Washington, D.C. were as follows:
January 1 to
April 30, 1996
--------------
High $1.2445
Low $1.1867
March 1, 1996 $1.1945
April 1, 1996 $1.2035
April 30, 1996 $1.2142
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements in the Prospectus Summary and under the captions "Risk
Factors," "Plan of Operation," "Business" and elsewhere in this Prospectus may
constitute "forward-looking statements." Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company, or industry
results, to be materially different from any future results, performance, or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; industry capacity; industry trends; demographic changes;
competition; material costs and availability; the loss of any significant
customers; changes in business strategy or development plans; quality of
management; availability, terms and deployment of capital; business abilities
and judgment of personnel; availability of qualified personnel; changes in, or
the failure to comply with, government regulations; and other factors referenced
in this Prospectus. See "Risk Factors."
5
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
following risk factors before purchasing the Shares offered hereby.
NO OPERATING HISTORY; UNCERTAINTY OF NEW BUSINESS. The Company is subject to
all of the risks inherent in the establishment of a new business enterprise,
including limited capital, possible delays, uncertain markets and competition.
The Company commenced operations in April 1996 in Switzerland. The initial
operations of the Company have produced development stage costs through April
30, 1996 which development stage costs will continue in the future. Currently,
the Company operates in Switzerland and as of August 9, 1996 has entered into
contracts with 14 customers. The likelihood that the Company will succeed in
the telecommunications business must be considered in light of general economic
conditions and the difficulties, expenses and delays frequently associated with
the development of new businesses. There can be no assurance that the Company
will succeed in its business or that a changing economic environment will not
adversely affect such business. There can be no assurance that the Company will
achieve profitability in the future. The Company will focus in the near term on
the expansion of its service offerings and geographic markets which may
adversely affect cash flow and operating performance. As each of the
telecommunications markets in Switzerland and in the other countries of the EU
continue to mature, the Company's possible revenues and customer base in each
such market is likely to decrease over time. The Company's operating results may
fluctuate significantly in the future as a result of a variety of factors, some
of which are outside of the Company's control, including general economic
conditions, specific economic conditions in the telecommunications industry, the
effects of governmental regulation and regulatory changes, user demand, capital
expenditures and other costs relating to the expansion of operations, the
introduction of new services by the Company or its competitors, the mix of
services sold and the mix of channels through which those services are sold,
pricing changes and new service introductions by the Company and its
competitors, and prices charged by suppliers. As a strategic response to a
changing competitive environment the Company may elect from time to time to make
certain pricing, service or marketing decisions or enter into strategic
alliances or investments that could have a material adverse effect on the
Company.
NEED FOR ADDITIONAL CAPITAL. The Company needs to continue to enhance and
expand its operations in order to maintain its competitive position, expand its
service offerings and geographic markets and continue to meet the increasing
demands for providing quality service at competitive prices. The Company may
need to raise additional capital from public or private equity or debt sources
in order to finance its anticipated growth including local service expansion and
working capital needs. In addition, the Company may need to raise additional
funds in order to take advantage of unanticipated opportunities, including more
rapid international expansion or investments in, or strategic alliances with,
companies that are complementary to the Company's current operations, or to
develop new products or otherwise respond to unanticipated competitive
pressures. If additional funds are raised through the issuance of equity
securities, the percentage ownership of the Company's then current
stockholders would be reduced. There can be no assurance that the Company will
be able to raise such capital on satisfactory terms or at all. If the Company
decides to raise additional funds through the incurrence of debt, the Company
would likely become subject to restrictive financial covenants which could,
among other things, restrict the Company's ability to pay dividends, issue
securities or incur additional debt. In the event that the Company is unable to
obtain such additional capital or is unable to obtain such additional capital on
acceptable terms, the Company may be required to reduce the scope of its
presently anticipated expansion, which could materially adversely affect the
Company's business, results of operations and financial condition and its
ability to compete. See "Plan of Operation."
DEPENDENCE ON TRANSMISSION FACILITIES-BASED CARRIERS AND SUPPLIERS. The
Company owns a switch in the United Kingdom and a POP in Switzerland. Initially,
the Company is purchasing its telecommunications minutes from Telemedia
International and its subsidiaries ("TMI") pursuant to a five year contract with
TMI (the "TMI Contact"). The TMI Contract may be terminated by either party upon
thirty days written notice. If the TMI Contract is terminated by the Company the
Company must pay TMI certain installation charges to the extent that they have
not been recouped by TMI plus an additional months fee. The Company believes
that the costs associated with termination of the TMI Contract would not be
material to the Company. Due to the large excess capacity in the
telecommunications industry, should the TMI Contract be terminated, the Company
believes that it would be able to replace the services currently provided by TMI
upon substantially the same
6
<PAGE>
terms and without incurring material costs or a disruption of service, however
there can be no assurance that termination of the TMI Contract would not have a
material adverse affect on the Company. Resellers in this industry can own or
lease transmission lines. Telephone calls made by the Company's customers are
connected from the Company's POP to its switch through transmission lines that
the Company leases under a variety of arrangements with transmission
facilities-based long distance carriers, some of which are or may become
competitors of the Company. Most of these transmission lines are leased on a
monthly or longer-term basis at rates that are less than the rates the Company
charges its customers for connecting calls through these lines. Accordingly, the
Company is vulnerable to changes in its lease arrangements, such as price
increases and service cancellations. The Company's operations are highly
dependent upon many carriers' leased transmission lines. The Company's ability
to maintain and expand its business is dependent upon whether the Company
continues to maintain favorable relationships with the transmission
facilities-based carriers from which the Company leases transmission lines.
Although the Company believes that its relationship with its carriers is
generally satisfactory, the deterioration or termination of the Company's
relationship with such carriers could have a material adverse effect upon the
Company. Certain of the vendors from whom the Company leases transmission lines
may be subject to tariff controls and other price constraints which in the
future may be changed. The Company receives volume discounts when leasing its
transmission lines. If the Company's telecommunications volume is less than
anticipated, then the Company will lease less and not receive as great a
discount. The Company purchases or leases its transmission lines for its
convenience, and transmission lines of comparable quality may be obtained from
several alternative suppliers. However, a failure by a supplier to deliver
quality products on a timely basis, or the inability to develop alternative
sources if and as required, could result in delays which could have a material
adverse effect on the Company. See "Business--Network."
POTENTIAL ADVERSE EFFECTS OF REGULATION.
Currently, since no calls by Company customers originate in the United
States, the Company does not believe that it is subject to any
telecommunications laws or regulations in the United States. In the future, when
and if the Company's services expand, it is possible that the Company may become
subject to the telecommunications laws and regulations of the United States. If
this were to occur, compliance with such laws would involve certain costs, and,
while the Company would make every effort to comply with such laws and
regulations, failure to comply could have a material adverse effect on the
Company.
See "Business--Regulation."
Due to its ownership of a switch in the United Kingdom, the
telecommunications services provided by the Company are indirectly affected by
regulations introduced by the United Kingdom telecommunications regulatory
authority, The Office of Telecommunications ("Oftel"). Since the break up of the
United Kingdom telecommunications duopoly consisting of British
Telecommunications PLC ("British Telecom") and Mercury Communications Ltd.
("Mercury") in 1991 it has been the stated goal of Oftel to create a competitive
marketplace. Oftel has imposed mandatory rate reductions on British Telecom in
the past, which are expected to continue for the foreseeable future. Although
the Company does not believe that any regulations introduced by Oftel will
interfere with or substantially affect its business, there can be no assurance
that future changes in regulation and government in the United Kingdom will
not have a material adverse effect on the Company. See "Business--Regulation."
In March 1992, the Swiss government, in a federal decree on
telecommunications services, introduced a complete liberalization of the
transmission of messages through leased lines. Pursuant to such decree, the
Swiss Federal Council also authorized subscribers of leased lines to transmit
voice messages as long as those messages are transmitted for their own purposes.
In order to conform to the evolution of legislation in other countries in the
EU, in July 1995, the Swiss government modified the decree to provide a new
definition of the term "a message transmitted for its own purposes" so as to
make it possible to offer telephone services through leased lines to "closed
user groups." The Swiss authorities have adopted an expansive notion of the
"closed user group" including not only a parent company and its subsidiaries,
but also separate companies which have a strong common economic interest, such
as a manufacturing company and its supplier or important clients. Additionally,
according to this new regulation on telephone services, the subscriber of the
leased line does not necessarily have to be a member of the "closed user group,"
but can also be, for instance, a foreign telephone company. The Company is
currently permitted to conduct its business as currently conducted and does not
have to obtain a license from the Swiss government in order to provide its
services. The Company believes that it is in compliance with all material
7
<PAGE>
Swiss laws and regulations. There can be no assurance that future
changes in the telecommunications laws of Switzerland will not
adversely affect the Company. See "Business--Regulation."
Currently, the Company is operating only in Switzerland, however, when and
if the Company expands into other countries in the EU it will become subject to
the laws and regulations of each such country. If and when the Company becomes
subject to such laws and regulations, compliance with such laws and regulations
will involve certain costs, and, while the Company will make every effort to
comply with such laws and regulations, failure to comply could have a material
adverse effect on the Company.
INCREASING COMPETITION. The telecommunications industry is highly
competitive and is significantly influenced by the marketing and pricing
decisions of the larger industry participants. The industry has relatively
insignificant barriers to entry, numerous entities competing for the same
customers and a high churn rates (customer turnover), as customers frequently
change long distance providers in response to the offering of lower rates or
promotional incentives by competitors. The Company competes on the basis of
price, customer service and its ability to provide a variety of
telecommunications services. The Company believes that while its customers may
be price sensitive they want quality and value added services and therefore,
will remain customers as long as prices are competitive and the quality of
service is high. The Company expects competition on the basis of price and
service offerings to increase.
Many of the Company's competitors are significantly larger, have
substantially greater financial technical and marketing resources and larger
networks than the Company, control transmission lines and have long-standing
relationships with the Company's target customers. Currently, the Company's
main competitor in Switzerland is Swiss Telecom PTT ("Swiss Telecom"), which
controls almost all of the Swiss telecommunications market and had approximately
$5.6 billion in revenue in 1995. In the future, additional competitors may
include, among others, Deutsche Telecom AG ("Deutsche Telecom"), AT&T, MCI
Telecommunications Corporation ("MCI"), Sprint Corp. ("Sprint"), British Telecom
and Mercury. As the Company expands into other countries of the EU there will be
additional competition in each of those countries from telecommunications
companies within each of those countries. Other United States carriers are also
expected to enter the EU market. Furthermore, the recently announced proposed
merger of Bell Atlantic Corp. and Nynex Corp., the joint venture between MCI and
Microsoft Corporation ("Microsoft"), under which Microsoft will promote MCI's
services, the recently announced joint venture among Sprint, Deutsche Telecom
and France Telecom, and other mergers, acquisitions and strategic alliances,
could also increase competitive pressures upon the Company and have a material
adverse effect on the Company.
In addition to these competitive factors, recent and pending
telecommunications deregulation in Switzerland and other EU markets may
encourage new entrants. As the Company expands its geographic coverage, it will
encounter increased competition. Moreover, the Company believes that competition
in the EU markets is likely to increase and become more similar to competition
in the United States markets over time as such EU markets continue to experience
deregulatory influences. Prices in the long distance industry have
declined from time to time in recent years and, as competition increases in the
EU, prices are likely to continue to decrease. The Company's competitors may
reduce rates or offer incentives to existing and potential customers of the
Company. To maintain its competitive position, the Company believes that it must
be able to reduce its prices in order to meet reductions in rates, if any, by
others. See "Plan of Operation" and "Business--Competition."
RISKS OF GROWTH AND EXPANSION. The Company plans to expand its service
offerings in Switzerland, and, in addition, the Company also intends to
establish a presence in other deregulating EU markets that have high density
telecommunications traffic when the Company believes that business and
regulatory conditions in such EU countries warrant. There can be no assurance
that the Company will be able to add service or expand its markets at the rate
presently planned by the Company or that the existing regulatory barriers will
be reduced or eliminated. The Company's anticipated growth may place a
significant strain on the Company's administrative, operational and financial
resources and increase demands on its systems and controls. As the Company
increases its service offerings and expands its targeted markets, there will be
additional demands on the Company's customer support, sales and marketing and
administrative resources and network infrastructure. There can be no assurance
that the Company's operating and financial control systems and infrastructure
will be adequate to maintain and effectively monitor future growth. The failure
to continue to upgrade the administrative, operating and
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<PAGE>
financial control systems or the emergence of unexpected expansion difficulties
could materially adversely affect the Company.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. Currently the Company
operates in Switzerland. In the future the Company hopes to expand into other
countries in the EU as regulatory and business conditions in such EU countries
warrant. There are certain risks inherent to doing business on an international
level, such as unexpected changes in regulatory requirements, tariffs, customs,
duties and other trade barriers, difficulties in staffing and managing foreign
operations, longer payment cycles, problems in collecting accounts receivable,
political risks, fluctuations in currency exchange rates, foreign exchange
controls which restrict or prohibit repatriation of funds, technology export and
import restrictions or prohibitions, delays from customs brokers or government
agencies, seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world and potentially adverse tax
consequences resulting from operating in multiple jurisdictions with different
tax laws, which could materially adversely impact the success of the Company's
international operations. In many countries, the Company may need to enter into
a joint venture or other strategic relationship with one or more third parties
in order to successfully conduct its operations. Additionally, the Company's
revenues and expenses are denominated in currencies other than United States
dollars, and changes in exchange rates may have a great effect on the Company's
results of operations.There can be no assurance that such factors will not
have a material adverse effect on the Company's future operations and,
consequently, on the Company's business, results of operations and financial
condition. In addition, there can be no assurance that laws or administrative
practices relating to taxation, foreign exchange or other matters of countries
within which the Company operates will not change. Any such change could have a
material adverse effect on the Company. Additionally, a component of the
Company's strategy is its planned expansion into additional international
markets. There can be no assurance that the Company will be able to obtain the
capital it requires to finance such expansion on satisfactory terms or at all.
In many international markets, protective regulations and long-standing
relationships between potential customers of the Company and their local
providers may create barriers to entry. Pursuit of additional international
growth opportunities may require significant investments for an extended period
before returns, if any, on such investments are realized. In addition, there can
be no assurance that the Company will be able to obtain the permits and
operating licenses required for it to operate, to hire and train employees or to
market, sell and deliver high quality services in these markets.
DEPENDENCE ON EFFECTIVE INFORMATION SYSTEMS. To complete its billing, the
Company will have to record and process massive amounts of data quickly and
accurately. While the Company believes its management information system is
currently adequate, the Company believes that the successful implementation and
integration of these information systems is important to its growth its ability
to monitor costs, to bill customers and to achieve operating efficiencies. There
can be no assurance that the Company will not encounter delays or cost-overruns
or suffer adverse consequences in implementing and upgrading these systems. In
addition, as the Company's suppliers revise and upgrade their hardware, software
and equipment technology, there can be no assurance that the Company will not
encounter difficulties in integrating the new technology into the Company's
business or that the new systems will be appropriate for the Company's
business. See "Business--Information Systems."
DEPENDENCE UPON THIRD PARTIES. The Company is dependent upon various third
party carriers and suppliers to provide a portion of its services and
maintenance in a timely and satisfactory manner. Failure by such third party
carriers and suppliers to provide such services or maintenance in a timely or
satisfactory manner, or any interruption in such services or maintenance, could
have a materially adverse effect on the Company. See "Business--Network."
RISKS ASSOCIATED WITH INVESTMENTS AND STRATEGIC ALLIANCES. As part of its
business strategy, as regulatory and business conditions warrant, the Company
expects to seek to develop strategic alliances in the EU and to make investments
in companies that are complementary to its current operations. Any such future
strategic alliances or investments would be accompanied by the risks commonly
encountered in strategic alliances with, or investments in, companies. Such
risks include, among other things, the difficulty of assimilating the operations
and personnel of the companies, the potential disruption of the Company's
ongoing business, the inability of management to maximize the financial and
strategic position of the Company by the successful incorporation of licensed or
acquired technology and rights into the Company's service offerings,
9
<PAGE>
the maintenance of uniform standards, controls, procedures and policies and the
impairment of relationships with employees and customers as a result of changes
in management. Moreover, any such investment or alliance would involve a
business located outside the United States and therefore, the transaction would
involve the risks associated with international expansion. See "-Risks
Associated with International Operations." There can be no assurance that the
Company would be successful in overcoming these risks or any other problems
encountered with such strategic alliances or investments. In addition, if the
Company were to consummate one or more significant strategic alliances or
investments in which the consideration consisted of stock, stockholders of the
Company could suffer a significant dilution of their interests in the Company.
The financial impact of investments and strategic alliances could have a
material adverse effect on the Company. See "Business--Investments and Strategic
Alliances."
TECHNOLOGICAL CHANGES MAY ADVERSELY AFFECT COMPETITIVENESS AND FINANCIAL
RESULTS. The telecommunications industry is characterized by rapid and
significant technological advancements and introductions of new products and
services utilizing new technologies. There can be no assurance that the Company
will maintain competitive services or that the Company will obtain appropriate
new technologies on a timely basis or on satisfactory terms.
DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant
degree upon the continued contributions of its management team, including Thomas
Combrinck, Andreas Popovici and Franco Reinschmidt, and technical, marketing and
sales personnel. The Company does not have key-person life insurance
policies on the lives of any of its employees. The Company has no employment
agreement with Mr. Combrinck but it has entered into management agreements with
Mr. Popovici and Mr. Reinschmidt. Competition for qualified employees and
personnel in the telecommunications industry is intense and, from time to time,
there are a limited number of persons with knowledge of and experience in
particular sectors of the telecommunications industry. The Company's success
also will depend on its ability to attract and retain qualified management,
marketing, technical and sales executives and personnel. The process of locating
such personnel with the combination of skills and attributes required to carry
out the Company's strategies is often lengthy. The loss of the services of key
personnel, including Thomas Combrinck, Andreas Popovici and Franco Reinschmidt,
or the inability to attract additional qualified personnel, could have a
material adverse effect on the Company's results of operations, development
efforts and ability to expand. There can be no assurance that the Company will
be successful in attracting and retaining such executives and personnel. Any
such event could have a material adverse effect on the Company. See
"Management."
VOTING CONTROL. Mr. Thomas Combrinck beneficially owns approximately 65.5%
of the outstanding shares of Common Stock. See "Certain Transactions." This
gives Mr. Combrinck the ability to control the outcome of substantially all
issues submitted to the Company's Board of Directors or stockholders and an
investor will be dependent upon his capabilities and judgment. Moreover,
concentration of effective voting control could serve to perpetuate current
management and could make the Company less attractive to potential acquirors.
This concentration of ownership could also make it very difficult, if not
impossible, for a third-party to effect a non- negotiated change in control of
the Company. See "Management" and "Principal Stockholders."
HOLDING COMPANY STRUCTURE; RELIANCE ON SUBSIDIARIES FOR DIVIDENDS. UTG
is a holding company, the principal assets of which are its current operating
subsidiaries in Switzerland. As the Company expands, it anticipates that it will
operate through new subsidiaries located in other countries in the EU. While
there are no restrictions under Swiss law, operating subsidiaries set up in the
future in other countries of the EU may be subject to corporate law restrictions
on their ability to pay dividends to UTG. There can be no assurance that
UTG will be able to cause its operating subsidiaries to declare and pay
dividends or make other payments to UTG when requested by UTG. The
failure to pay any such dividends or make any such other payments could have a
material adverse effect upon the Company.
POTENTIAL VOLATILITY OF STOCK PRICE. The market price of the Common Stock
following this offering may be highly volatile. Factors such as variations in
the Company's revenue, earnings and cash flow, the difference between the
Company's actual results and the results expected by investors and analysts and
announcements of new service offerings, marketing plans or price reductions by
the Company or its competitors could cause the market price of the Common Stock
to fluctuate
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<PAGE>
substantially. In addition, the stock markets recently have experienced
significant price and volume fluctuations that particularly have affected
telecommunications companies and resulted in changes in the market prices of the
stocks of many companies that have not been directly related to the operating
performance of those companies. Such market fluctuations may materially
adversely affect the market price of the Common Stock.
Trading in the Common Stock will be conducted on the NASD Bulletin Board or
in the over-the-counter market in what is commonly referred to as the "pink
sheets." An investor will find it difficult to dispose of their Common Stock or
to obtain accurate quotations as to the price of the Common Stock and there will
most likely be limited coverage of news concerning the Company. In addition, the
Common Stock will be subject to a rule that imposes additional sales practice
requirements on broker-dealers who sell such Common Stock to persons other than
established customers and accredited investors (accredited investors are
generally persons having net worth in excess of $1,000,000 or annual income
exceeding $200,000 or $300,000 together with a spouse). For transactions covered
by this rule, the broker-dealer must make a special suitability determination
for the purchaser and must have received the purchaser's written consent to the
transaction prior to sale, as well as disclosing certain information concerning
the risks of purchasing low-priced securities on the market for such securities.
Consequently the non-listing will adversely affect the ability of broker-dealers
to sell the Common Stock and the ability of purchasers in this offering to sell
their Common Stock in the secondary market and will make subsequent financing
difficult.
As of the date of this Prospectus, several brokerage firms have indicated
their interest to engage in market making activities with respect to the Common
Stock. In the event that these market makers and specialists do not function as
such, public trading in the Common Stock will be adversely affected or may cease
entirely.
NO PUBLIC MARKET FOR COMMON STOCK. Prior to this offering, there has been no
public market for the Common Stock. There can be no assurance that an active
market will develop for the Common Stock, or that if it should develop that it
will continue.
SHARES ELIGIBLE FOR FUTURE SALE. Of the Company's 10,406,000 shares of
Common Stock currently outstanding on the date of this Prospectus, 7,250,000
shares are "restricted securities," as defined in Rule 144 of the Securities
Act, and under certain circumstances may be sold without registration pursuant
to Rule 144. The 7,250,000 shares of Common Stock which are "restricted
securities" will become eligible for sale in May 1998. Any substantial sale of
restricted securities pursuant to Rule 144 could have an adverse effect on
the market price of the Common Stock. The Company cannot predict the effect,
if any, that market sales of Common Stock or the availability of such Common
Stock for sale will have on the market price prevailing from time to time,
however, sales of the Shares by the Selling Stockholders, or even the potential
of such sales, could have an adverse effect on the market price of the Common
Stock. See "Selling Stockholders and Plan of Distribution" and "Shares Eligible
for Future Sale."
NO DIVIDENDS. Since its inception, the Company has not paid any dividends on
the Common Stock. The Company intends to retain future earnings, if any, to
provide funds for the operation of its business and, accordingly, does not
anticipate paying any cash dividends on the Common Stock in the reasonably
foreseeable future. See "Dividend Policy."
DELAWARE ANTI-TAKEOVER LAW. The Company is governed by the provisions of
Section 203 of the General Corporation law of the State of Delaware. In general,
this law prohibits a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which such person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
A "business combination" is defined to include mergers, asset sales and other
transactions resulting in a financial benefit to the stockholder. An "interested
stockholder" is defined as a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15 percent or more
of the corporation's voting stock.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company which could prevent the Company's
stockholders from realizing a premium through a non-negotiated change in
control. The Company's stockholders, by adopting an amendment to the Certificate
of Incorporation or By-Laws of the Company, may
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<PAGE>
elect not to be governed by Section 203, effective twelve months after adoption.
Neither the Certificate of Incorporation nor the By-Laws of the Company
currently excludes the Company from the restrictions imposed by Section 203.
THE COMPANY
The Company is a development stage company that provides quality private
voice, fax and data management telecommunication services in Switzerland,
primarily to businesses and business groups at prices which are generally below
those of major telecommunications carriers. As of August 9, 1996, the
Company has entered into contracts with 14 customers to provide customized
telecommunications service packages. These customized packages include
telecommunications minutes plus other services selected by customers. The
Company provides local support, round-the-clock customer service and full
network redundancy to all customers. Available services include system design
and installation as well as digital compression, fax transmission compression,
digital data services and wideband digital data services. Additional customers
are being solicited daily and it is anticipated that new customers will be added
on a regular basis. In the future, the Company intends to expand its operations
though local subsidiaries or joint ventures into other countries in the EU as
such countries' telecommunications industries become deregulated, which
deregulation is, for the most part, expected to be completed by early 1998, and
as market conditions in such other EU countries warrant.
Both the competitive environment and the economic framework in which
international telecommunication companies operate are changing at a rapid pace.
Due to the liberalization of telecommunication markets and technical
improvements, the Company is able to utilize the infrastructure provided by
international telecommunication carriers in connection with the services it
offers. This allows the Company to offer its customers one of Europe's largest
meshed fiber optic networks, which will eventually include more than 90
international POPs. In providing its services, the Company connects a customer's
telephone installation to the Company's POP in Switzerland by means of dedicated
lines, and such POP then routes such customer's outgoing voice, fax and data
transmissions though leased transmission lines directly to the Company's switch
in the United Kingdom. The communications are then transferred directly from the
Company's switch into the international networks. All of this is achieved
without loss in speech quality or speed during connection and with the customer
dialing his international destination directly, as he had done prior to becoming
a Company customer. The Company is able to provide its services at attractive
prices to its customers due to the large potential purchasing power of the
Company.
DIVIDEND POLICY
Since its inception, the Company has not paid any dividends on the Common
Stock. The Company intends to retain future earnings, if any, that may be
generated from the Company's operations to help finance the operations and
expansion of the Company and, accordingly, does not plan, for the reasonably
foreseeable future, to pay dividends to holders of the Common Stock. Any
decision as to the future payment of dividends will depend on the results of
operations and financial position of the Company and such other factors as the
Company's Board of Directors, in its discretion, deems relevant.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Shares by the
Selling Stockholders.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at April
30, 1996. All information set forth below should be read in conjunction with the
balance sheet of the Company and related notes that appear elsewhere in this
Prospectus.
Stockholders' Equity
Common Stock--$0.00001 Par Value
Authorized 20,000,000 shares;
10,006,000 Issued and Outstanding(1) $ 100
Additional paid-in capital $ 3,088,474
Retained Deficit $ (317,754)
Foreign Currency Translation Adjustment $ 2,739
Minority Interest $ 17
Total Stockholders' Equity $ 2,773,576
=========
- ------------
(1) Does not include 400,000 shares of Common Stock subsequently
issued to Interfinance. See "Certain Transactions."
SELECTED FINANCIAL DATA
The following selected consolidated financial data of The Company with
respect to the period from February 29, 1996 (inception) to April 30, 1996 is
derived from the Company's consolidated financial statements. The consolidated
financial statements of the Company for the period from February 29, 1996
(inception) to April 30, 1996 are included elsewhere in this Prospectus. Such
consolidated financial statements have been audited by Merdinger, Fruchter,
Rosen & Corso, P.C. independent certified accountants. The selected consolidated
financial information provided below should be read in conjunction with "Plan of
Operation" and the consolidated financial statements of the Company and the
notes thereto included elsewhere in this Prospectus. See "Index to Consolidated
Financial Statements."
<TABLE>
<CAPTION>
Period from February 29,
1996, (inception), to
to April 30, 1996(1)
---------------------------------
Consolidated Statement of Operations Data:
<S> <C>
Sales.................................................. $ --
Net Loss............................................... $ (317,754)
Loss per share......................................... $ (.03)
Weighted average number of Shares outstanding......... 10,006,000
April 30, 1996
---------------------------------
Consolidated Balance Sheet Data:
Total Assets.......................................... $ 3,945,491
Liabilities (all current)............................ $ 1,171,915
Stockholders' equity................................. $ 2,773,576
- ------------
</TABLE>
(1) UTG was incorporated on April 17, 1996, UT Holding was incorporated on
February 29, 1996 and UT AG.
13
<PAGE>
(2) The weighted average number of common shares and common equivalent shares
outstanding for purposes of the loss per share amounts are computed on the
basis of all stock being outstanding for all periods presented.
14
<PAGE>
PLAN OF OPERATION
During the 12-month period following the date of this Prospectus the Company
intends to focus on expanding its customer base in Switzerland, and intends to
explore the possibility of expanding into other countries of the EU where
business and regulatory conditions warrant. Additionally, the Company intends,
to the extent necessary, to continue to upgrade its network and information
systems so that they remain adequate for its business needs.
The Company believes that its current level of employees is sufficient, and
currently has no plans to significantly change the number of its employees.
However, as the Company expands, it intends to hire additional employees to meet
its needs.
The Company will not receive any of the proceeds from the sale of Shares
by the Selling Shareholders. The Company raised approximately $4 million
from recent private placements, of which $3,010,000 has been paid to the
Company in cash and the remaining $990,000 is represented by a promissory note
which is payable to the Company on or before February 1, 1997. The Company has
begun to generate limited revenues from operations. With a portion of funds
raised in private placements, the Company has repaid a $1,000,000 loan from
Heddag AG (the "Heddag Loan") together with $19,444 in interest and has
purchased approximately $700,000 in equipment.
Although the Company believes that the Company's current cash and revenue
from operations will be sufficient to fund the Company's anticipated capital
needs for the 12 month period following the date of this Prospectus, there
can be no assurance that it will be sufficient to fund operations during such
period. The Company may be required to seek additional financing during such
period in the event of delays, cost overruns or unanticipated expenses
associated with a company in an early stage of development.
Upon the completion of its new switch by the end of August, the Company
believes that it will have the equipment it needs to provide its services for
the next 12 months at a level necessary to produce an operating profit. There
can be no assurance that the Company will ever generate sufficient revenue to
produce an operating profit. Depending on the success of the Company's sales
efforts and the amount of revenue it generates over the next 12 month period,
the Company may decide to purchase additional equipment to upgrade its network
or enhance its informational systems. However, the purchase of additional
equipment is not required and will done during such period only if such purchase
can be justified by the Company's customer base and operating revenue.
Additionally, if the Company decides to expand into other countries of the
EU or pursue any strategic investments or joint ventures during the next 12
months, it might require additional financing to commence such operations or
consummate such investments or joint ventures.
If the Company requires additional financing following the date of this
Prospectus there can be no assurance that the Company will be able to obtain
such additional financing or that such financing, if available, will be on
acceptable terms. If the Company were to require additional financing but were
unable to arrange for such financing on acceptable terms, the Company would be
materially and adversely affected and could have to cease or substantially
reduce operations. The need for additional financing will depend on the
Company's operating revenue and expansion plans at such time. See
"Risk Factors--No Operating History, Uncertainty of New Business, --Need
For Additional Capital, --Risks Associated With International
Operations, and --Risks Associated with Investments and Strategic Alliances."
15
<PAGE>
BUSINESS
GENERAL
The Company is a development stage company that provides quality private
voice, fax and data management telecommunication services in Switzerland,
primarily to businesses and business groups at prices which are generally below
those of major telecommunications carriers. As of August 9, 1996, the
Company has entered into contracts with 14 customers to provide customized
telecommunications service packages. These customized packages include
telecommunications minutes plus other services selected by customers. The
Company provides local support, round-the-clock customer service and full
network redundancy to all customers. Available services include system design
and installation as well as digital compression, fax transmission compression,
digital data services and wideband digital data services. Additional customers
are being solicited daily and it is anticipated that new customers will be added
on a regular basis. In the future, the Company intends to expand its operations
though local subsidiaries or joint ventures into other countries in the EU as
such countries' telecommunications industries become deregulated, which
deregulation is, for the most part, expected to be completed by early 1998, and
as market conditions in such other EU countries warrant.
Both the competitive environment and the economic framework in which
international telecommunication companies operate are changing at a rapid pace.
Due to the liberalization of telecommunication markets and technical
improvements, the Company is able to utilize the infrastructure provided by
international telecommunication carriers in connection with the services it
offers. This allows the Company to offer its customers one of Europe's largest
meshed fiber optic networks, which will eventually include more than 90
international POPs. In providing its services, the Company connects a customer's
telephone installation to the Company's POP in Switzerland by means of dedicated
lines, and such POP then routes such customer's outgoing voice, fax and data
transmissions though leased transmission lines directly to the Company's switch
in the United Kingdom. The communications are then transferred directly from the
Company's switch into the international networks. All of this is achieved
without loss in speech quality or speed during connection and with the customer
dialing his international destination directly, as he had done prior to becoming
a Company customer. The Company is able to provide its services at attractive
prices to its customers due to the large potential purchasing power of the
Company.
INDUSTRY
The global telecommunications industry has dramatically changed in the
United States commencing with AT&T's divestiture of its 22 regional operating
companies ("RBOCs") in 1984 and continuing through the recently enacted
amendments to the United States Communications Act. Significant regulatory
changes have also occurred and are occurring in Switzerland and in other
countries in the EU. Prior to these changes, the long distance
telecommunications markets in the United States, Switzerland and other countries
in the EU consisted of one provider. As a result of fundamental regulatory
changes in the United States, Switzerland and other countries in the EU, coupled
with technological and network infrastructure developments which increased
significantly the voice and data telecommunications transmission capacity of
dominant carriers, the long distance industry in the United States has
developed, and in the EU is developing, into a highly competitive one
consisting of numerous alternative long distance carriers. The Company
anticipates that the further deregulation in the United States and the EU will
promote the continued development of competitive telecommunications markets
in the United States and the EU.
Long distance telecommunications carriers can be differentiated by several
defining operational characteristics. One such defining characteristic is
between transmission facilities-based companies and non-transmission
facilities-based companies (resellers). Transmission facilities-based carriers,
such as AT&T and British Telecom, own their own long distance interexchange or
transmission facilities and originate and terminate calls through local exchange
systems. Profitability for transmission facilities-based carriers is dependent
not only upon their ability to generate revenues but also upon their ability to
manage complex networking and transmission costs. All of the first- and most of
the second-tier long distance companies are transmission facilities-based
carriers and generally offer service over broad geographic areas. Most
transmission facilities-based carriers in the third tier of the market offer
their service only in a limited geographic area. Some transmission facilities
based carriers contract with other transmission facilities-based carriers to
provide transmission where they have geographic gaps in their facilities.
Resellers, such as the Company, carry their long distance traffic over
transmission lines
16
<PAGE>
leased from transmission facilities-based carriers, originate and terminate
calls through local exchange systems or "competitive access providers" ("CAPs")
and contract with transmission facilities-based carriers to provide transmission
of long distance traffic either on a fixed rate lease basis or a call volume
basis. Profitability for resellers is dependent largely on their ability to
generate on a continuing basis sufficient revenue volume which is sufficient in
size to permit them to negotiate attractive pricing with one or more
transmission facilities-based carriers.
A second operating characteristic differentiating telecommunications
companies is between switch-based and switchless telecommunications companies.
Switch-based telecommunications companies, such as the Company, own or lease one
or more switches, which are computers that direct telecommunications traffic to
form a transmission path between a caller and the recipient of a call. All
transmission facilities-based carriers are switch-based, as are many resellers,
including the Company. Switchless resellers depend on one or more transmission
facilities-based carriers or switch-based resellers for transmission and
switching facilities. The Company believes that owning its switches reduces its
reliance on other carriers and enables it to efficiently route
telecommunications traffic over multiple leased transmission lines and to
control costs and record data and customer information. The availability of
existing transmission capacity in the Company's markets makes leasing of
transmission lines attractive to the Company and enables it to grow network
usage without having to incur the significant capital and operating costs
associated with the development and operation of a transmission line
infrastructure.
The international, national and local markets for voice telephone services
in Switzerland has grown to approximately $5.6 billion in annual revenue during
1995. In Switzerland, Swiss Telecom historically has dominated the
telecommunications market and was the largest carrier in Switzerland during
1995, with approximately $5.6 billion of revenues from international, national
and local voice telephone services.
The international, national and local markets for voice telephone services
in the EU, other than in Switzerland, has grown to approximately $210 billion in
annual revenue during 1995. In each country in the EU there has historically
been one telephone company which has dominated the telecommunications market. As
a result of deregulatory trends this situation is slowly changing and these
markets are beginning to open up for competition from other telecommunications
providers.
SERVICES
The Company sells telecommunications minutes in connection with a broad
range of services which are customized to suit individual customer needs. The
Company does not anticipate that the sale of telecommunications minutes without
other services will be a significant portion of its business.
The Company designs, installs and commissions voice, fax and data
transmission equipment appropriate for each of its customers in a manner similar
to that provided by major telecommunications carriers but at a lower price.
The Company offers services including digital compression techniques, where
usage warrants, at 8, 16 or 64 kbps (which compression allows for substantial
overall cost savings because compression allows more information to be sent
through fewer lines which allows the Company to lease fewer lines and offer
reduced calling tariffs), fax transmission compression, and digital data
services in a full range of transmission support and interface types between 1.2
kbps and 2 mb (which can be point to point or point to multipoint). For
customers requiring additional network bandwidth, the Company is able to provide
wideband digital data services which provide increased capacity and which
support applications such as audio- and videoconferencing, high speed imaging,
and corporate communication networking requirements. With the growing use of
LAN's, customers will be able to directly connect their LAN traffic to the
Company's network, for access to remote locations and for applications such as
file transfer, remote data access and e-mail. The Company offers a fully managed
network service that includes, management, control and configuration, remote
access for diagnostic and maintenance services, regular network status reports
and controlled access security. The Company is conducting feasibility studies to
identify the market potential and regulatory environment for offering additional
services, including video conferencing, paging, international call back,
Internet access, facsimile and frame relay services, and expects to introduce
Internet access, enhanced travel cards and video conferencing.
The Company provides all of its customers with a high level of quality
service, including local support, round-the-clock customer service and full
network redundancy. Additionally, the Company's customers receive comprehensive
billing packages. The Company's standard monthly statement will include a
management summary report, a call detail report
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recording every long distance call and facsimile call, and a pricing breakdown
by call destination. Optional reports include call summaries by account code,
area or city code, international destination and time-of-day. This information
is available to customers in the form of hard copy, magnetic tape or disk.
BUSINESS STRATEGY
The Company's objective is to grow its long distance telecommunications
customer base in Switzerland and to establish itself in other deregulated
markets in the EU as they develop. With its communication network, the Company
is well positioned to take advantage of telecommunications deregulation in
Switzerland and will be well-prepared for the upcoming full deregulation of the
telecommunication markets in other countries of the EU, which deregulation is,
for the most part, expected to be completed by early 1998. The network will
provide the Company with the tools to keep pace with the ongoing technological
development in the telecommunications industry. The Company has positioned
itself between the major full-service and high price telecommunications carriers
and the no service (or limited service) cut rate telecommunications minutes
resellers which it believes will eventually expand into its markets. The Company
offers substantially lower rates to customers compared to the major
telecommunications companies, but believes that it is not required to be the
lowest cost provided of minutes because it will be able to attract new business
and maintain its customers' business by offering broad based solutions to their
telecommunications business needs. The Company believes that by positioning
itself this way, it will retain and add customers who wish to save on their
telecommunications expenses yet who also demand a high level of service with the
availability of a wide array of service offerings.
The Company intends to expand its operations in Switzerland by focusing on
and marketing its principal competitive strengths which are: (1) the Company's
sales and marketing organization and the customized service the Company offers
to its customers; (2) the Company's offering of competitive prices which the
Company believes are generally lower than prices charged by the major carrier in
the Swiss market; (3) the Company's position as an early entrant in the Swiss
market as an alternative carrier; (4) the Company's focus on more profitable
international telecommunications traffic; and (5) the Company's switched-based
networking capabilities. The availability of existing transmission capacity in
the Swiss market makes the leasing of transmission lines attractive to the
Company and enables it to grow network usage without having to incur the
significant capital and operating costs associated with the development and
operation of a transmission line infrastructure. See "Business--Industry" and
"Business--Network."
In the future, as business and regulatory conditions warrant, the Company
hopes to utilize the foregoing competitive strengths to expand into other
countries of the EU. In connection with such expansion the Company may enter
into strategic alliances or make investments in companies that are complementary
to its current operations.
The Company's belief that its prices will generally be lower than those of
the major carriers is based upon informal surveys of the pricing offered by the
major carriers. However, because prices and promotional programs change rapidly
and often in the telecommunications industry, the prices offered by the Company
may not always be as competitive as the prices charged by the major carriers.
SALES AND MARKETING
The Company markets its services through a variety of channels, including
the Company's internal sales forces and independent sales agents. The Company
has a total of approximately 5 internal sales personnel and approximately 8
independent sales agents and partnerships serving its markets. Although it has
not experienced significant turnover, a loss of a significant number of
independent sales agents and partnerships could have a significant adverse
effect on the Company's ability to generate additional revenue. The Company
maintains sales offices in Switzerland.
Currently, no customer accounts for 10% or more of the Company's projected
total revenue.
The Company generally utilizes its internal sales force to target medium and
large business customers. The Company markets its services to small and
medium-sized businesses through independent sales agents. Telemarketers also are
used to market services to small business customers and residential customers
and to generate leads for the other members of the Company's internal sales
force and independent sales agents.
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The Company primarily targets customers with between $5,000 and $50,000 of
monthly usage. The Company believes that, in addition to being price sensitive,
these customers tend to be focused on customer service and are more likely to
rely on one or two carriers for their telecommunications needs. The diversity of
the Company's targeted customer base enhances network utilization by combining
business-driven workday traffic with night and weekend off-peak traffic. The
Company strives to be more cost effective, flexible, innovative and responsive
to the needs of its customers than the major carriers, while providing more
service and service offerings than cut rate resellers.
NETWORK
The Company has established its own POP in Switzerland and owns a switch in
the United Kingdom. The Company is currently completing another switch in the
U.K. which will be able to handle a higher volume of telecommunications traffic
than the Company's existing switch. The Company anticipates this new switch will
be operational by September 1996. Lines leased from transmission
facilities-based carriers link the Company's POP to its switch. Customers access
the Company's network through direct access lines or by dial-up access using
auto dialing equipment, indirect access code dialing or least cost routing
software integrated in the customer's telephone equipment. The Company gains a
competitive advantage from operating with owned switches because this allows the
Company to route its calls more effectively. Also, having its switches located
in London, one of the most competitive telecommunications sites in Europe,
assures that a large supply of cheap bandwidth from numerous carriers is readily
available. This large supply allows the Company to maintain a network which
offers competitive rates to a large number of destinations.
The Company utilizes a network of lines leased under volume discount
contracts with transmission facilities-based carriers, much of which are fiber
optic cable. The selection of any particular circuit for the transmission of a
call is controlled by routing software, located in the Company's switch, that is
designed to cause the most efficient use of the Company's network. In the
future, the Company will evaluate opportunities to install POPs in selected
markets where the volume of its customer traffic makes such an investment
economically viable. Utilization of the Company's switch allows the Company to
route customer calls over multiple networks to reduce costs.
The Company has entered into the TMI Contact, pursuant to which the Company
purchases telecommunication minutes from TMI. The TMI Contract contains
under-utilization provisions. These provisions which require the Company to pay
fees to TMI if the Company does not meet minimum periodic usage requirements.
There can be no assurance that such charges would not be assessed in the future.
The TMI Contract may be terminated by either party upon thirty days written
notice. If the TMI Contract is terminated by the Company the Company must pay
TMI certain installation charges to the extent that they have not been recouped
by TMI plus an additional months fee. The Company believes that the costs
associated with termination of the TMI Contract would not be material to the
Company. Due to the large excess capacity in the telecommunications industry,
should the TMI Contract be terminated, the Company believes that it would be
able to replace the services currently provided by TMI upon substantially the
same terms and without incurring material costs or a disruption of service,
however, there can be no assurance that termination of the TMI Contract would
not cause a material adverse affect on the Company.
The Company generally utilizes redundant, highly automated advanced
telecommunications equipment in its network and has diverse alternate routes
available in cases of component or facility failure. Automatic traffic rerouting
enables the Company to provide a high level of reliability for its customers.
Computerized automatic network monitoring equipment facilitates fast and
accurate analysis and resolution of network problems. The Company provides
customer service and support, 24-hour network monitoring, trouble reporting and
response, service implementation coordination, billing assistance and problem
resolution. The Company controls all of its billing services through its switch
in the United Kingdom.
Network costs are the single largest expense incurred by the Company. The
Company strives to control its network costs and its dependence on other
carriers by leasing transmission lines on an economical basis. The Company may
also negotiate leases of private line circuits with carriers that operate fiber
optic transmission systems at rates independent of usage, particularly on routes
over which the Company carries high volumes of calls. The Company also has
various third party carriers and suppliers provide some of its services and
maintenance, which saves an estimated 25% of costs. The Company attempts to
maximize the efficient utilization of its network by marketing to a mix of
customers, including internet,
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most of whom tend to use its services most frequently on weekdays during normal
business hours, and some of whom use its services most often during night and
weekend off-peak hours.
INFORMATION SYSTEMS
The Company believes that maintaining sophisticated and reliable billing and
customer services information systems that integrate billing, accounts
receivables and customer support is a core capability necessary to record and
process the data generated by a telecommunications service provider. The Company
believes its management information system is currently adequate for its needs.
In the future the Company will strive to enhance and grow such system so that it
continues to be adequate. There can be no assurance that the Company will not
suffer adverse consequences or cost over-runs in implementing new information
systems. See "Risk Factors--Dependence on Effective Information Systems."
REGULATION
UNITED STATES
Currently, since no calls by Company customers originate in the United
States, the Company does not believe that it is subject to any
telecommunications laws or regulations in the United States. In the future, when
and if the Company's services expand, it is possible that the Company may become
subject to the telecommunications laws and regulations of the United States. If
this were to occur, compliance with such laws would involve certain costs, and,
while the Company would make every effort to comply with such laws and
regulations, failure to comply could have a material adverse effect on the
Company.
UNITED KINGDOM
Due to its ownership of a switch in the United Kingdom, the
telecommunications services provided by the Company are indirectly affected by
regulations introduced by Oftel. Since the break up of the United Kingdom
telecommunications duopoly consisting of British Telecom and Mercury in 1991 it
has been the stated goal of Oftel to create a competitive marketplace. Oftel has
imposed mandatory rate reductions on British Telecom in the past, which are
expected to continue for the foreseeable future. Although the Company does not
believe that any regulations introduced by Oftel will interfere with or
substantially affect its business, there can be no assurance that future changes
in regulation and government in the U.K will not have a material adverse effect
on the Company.
SWITZERLAND
In March 1992, the Swiss government, in a federal decree on
telecommunications services, introduced a complete liberalization of the
transmission of messages through leased lines. Pursuant to such decree, the
Swiss Federal Council also authorized subscribers of leased lines to transmit
voice messages as long as those messages are transmitted for their own purposes.
In order to conform to the evolution of legislation in other EU countries, in
July 1995, the Swiss government modified the decree to provide a new definition
of the term "a message transmitted for its own purposes" so as to make it
possible to offer telephone services through leased lines to "closed
user groups." The Swiss authorities have adopted an expansive notion of the
"closed user group" including not only a parent company and its subsidiaries,
but also separate companies which have a strong common economic interest, such
as a manufacturing company and its suppliers or important clients. Additionally,
according to this new regulation on telephone services, the subscriber of the
leased line does not necessarily have to be a member of the "closed user group,"
but can also be, for instance, a foreign telephone company. The Company is
currently permitted to conduct its business as currently conducted and does not
have to obtain a license from the Swiss government in order to provide its
services. The Company believes that it is in compliance with all material
Swiss laws and regulations. There can be no assurance that future changes in the
telecommunications laws of Switzerland will not adversely affect the Company.
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<PAGE>
THE EU
Currently, the Company is operating only in Switzerland, however, when and
if the Company expands into other countries in the EU it will become subject to
the laws and regulations of each such country. If and when the Company becomes
subject to such laws and regulations, compliance with such laws and regulations
will involve certain costs, and, while the Company will make every effort to
comply with such laws and regulations, failure to comply could have a material
adverse effect on the Company.
COMPETITION
The telecommunications industry is highly competitive and is significantly
influenced by the marketing and pricing decisions of the larger industry
participants. In each of its markets, the Company will compete on the basis of
price and customer service and its ability to provide a broad array of
telecommunications services. The industry has relatively insignificant barriers
to entry, numerous entities competing for the same customers and a high average
churn rate, as customers frequently change long distance providers in response
to the offering of lower rates or promotional incentives by competitors. The
Company believes that while its customers are price sensitive they want
quality and value added services and therefore, will remain customers as long as
the Company's prices are competitive, the quality of the Company's service is
high and the Company continues to offer a wide array of service offerings. The
industry has experienced and will continue to experience rapid regulatory and
technological change. Many competitors in each of the Company's current and
proposed markets are significantly larger than the Company, have substantially
greater resources than the Company, control transmission lines and larger
networks than the Company and have long-standing relationships with the
Company's target customers. There can be no assurance that the Company will
remain competitive in this environment. Regulatory trends have had, and may have
in the future, significant effects on competition in the industry. As the
Company expands its geographic coverage, it will encounter increased
competition. See "Risk Factors--Potential Adverse Effects of Regulation," "Risk
Factors--Increasing Domestic and International Competition" and "--Regulation."
Competition in the long distance industry is based upon pricing, customer
service, network quality, value-added services and customer relationships. The
success of a non-transmission facilities-based carrier, such as the Company,
depends largely upon the amount of traffic that it can commit to the
transmission facilities-based carrier and the resulting volume discount it can
obtain. Subject to contract restrictions and customer brand loyalty, resellers
like the Company may competitively bid their traffic among other national long
distance carriers to gain improvement in the cost of service. The relationship
between resellers and the larger transmission facilities-based carriers is
twofold. First, a reseller is a customer of the services provided by the
transmission facilities-based carriers, and that customer relationship is
predicated primarily upon the pricing strategies of the first tier companies.
The reseller and the transmission facilities-based carriers are also
competitors. The reseller will attract customers to the extent that its pricing
for customers is generally more favorable than the pricing offered the same size
customers by larger transmission facilities-based carriers. However,
transmission facilities-based carriers have been aggressive in developing
discount plans which have had the effect of reducing the rates they charge to
customers whose business is sought by the reseller. Thus the business success
of a reseller is significantly tied to the pricing policies established by
the larger transmission facilities-based carriers.
Many of the Company's competitors are significantly larger, have
substantially greater financial technical and marketing resources and larger
networks than the Company, control transmission lines and have long-standing
relationships with the Company's target customers. Currently, the Company's
main competitor in Switzerland is Swiss Telecom, which controls almost all
of the Swiss telecommunications market and had approximately $5.6 billion in
revenue in 1995. In the future, additional competitors may include, among
others, Deutsche Telecom, AT&T, MCI, Sprint, British Telecom and Mercury. As the
Company expands into other countries of the EU there will be additional
competition in each of those countries from telecommunications companies within
each of those countries. Other United States carriers are also expected to enter
the EU market. Furthermore, the recently announced proposed merger of Bell
Atlantic Corp. and Nynex Corp., the joint venture between MCI and Microsoft,
under which Microsoft will promote MCI's services, the recently announced joint
venture among Sprint, Deutsche Telecom and France Telecom, and other mergers,
acquisitions and strategic alliances, could also increase competitive pressures
upon the Company and have a material adverse effect on the Company.
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<PAGE>
The Company believes its services will be competitive, in terms of price and
quality with the service offerings of Swiss Telecom primarily because of the
Company's advanced network-related hardware and software systems and the network
configuration and traffic management expertise employed by it in Switzerland.
In addition to these competitive factors, recent and pending
telecommunications deregulation in Switzerland and other EU markets may
encourage new entrants. As the Company expands its geographic coverage, it will
encounter increased competition. Moreover, the Company believes that competition
in the EU markets is likely to increase and become more similar to competition
in the United States markets over time as such EU markets continue to experience
deregulatory influences. Prices in the long distance industry have declined from
time to time in recent years and, as competition increases in the EU, prices are
likely to continue to decrease. The Company's competitors may reduce rates or
offer incentives to existing and potential customers of the Company. To maintain
its competitive position, the Company believes that it must be able to reduce
its prices in order to meet reductions in rates, if any, by others.
INVESTMENTS AND STRATEGIC ALLIANCES
As the Company expands its service offerings, geographic focus and its
network, the Company anticipates that it will seek to make investments in or
enter into strategic alliances with, companies providing services complementary
to the Company's existing business. The Company believes that, as the global
telecommunications marketplace becomes increasingly competitive, expands and
matures, such transactions will be critical to maintaining a competitive
position in the industry.
The Company's ability to effect strategic alliances and make investments may
be dependent upon its ability to obtain additional financing. While the Company
may in the future pursue an active strategic alliance or investment policy, no
specific strategic alliances, or investments are currently in negotiation and
the Company has no immediate plans to commence such negotiations. If the Company
were to proceed with one or more significant strategic alliances or investments
in which the consideration consists of cash, a substantial portion of the
Company's available cash could be used to consummate investments. If the Company
were to consummate one or more significant strategic alliances or investments in
which the consideration consists of stock, stockholders of the Company could
suffer a significant dilution of their interests in the Company.
In connection with investments or strategic alliances, the Company could
incur substantial expenses, including the fees of financial advisors, attorneys
and accountants, and any expenses associated with registering shares of the
Company's capital stock, if such shares are issued. The financial impact of such
investments or strategic alliances could have a material adverse effect on the
Company's business, financial condition and results of operations and could
cause substantial fluctuations in the Company's quarterly and yearly operating
results. See "Risk Factors--Need for Additional Capital," "--Risks Associated
with Investment and Strategic Alliances" and "Plan of Operation."
FACILITIES
The Company currently leases approximately 3,000 square feet in Zug,
Switzerland for approximately 3,900 CHF (approximately $3,260) per month. Such
lease expires on June 30, 1997. The Company believes that its facilities are
adequate for its current administration and business needs.
EMPLOYEES
As of the date of this Prospectus, the Company had 7 full-time employees in
Switzerland. The Company has never experienced a work stoppage and its employees
are not represented by a labor union or covered by a collective bargaining
agreement. The Company considers its employee relations to be good.
LEGAL PROCEEDINGS
As of the date of this prospectus the Company is not a party to any material
legal proceedings.
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MANAGEMENT
The executive officers and directors of the Company are as follows:
NAME AGE POSITION
- ---- --- --------
Thomas Combrinck 38 Chairman of the Board and Director of the
Company and Director of UT Holding
and UT AG
David Schlecht 42 President, Chief Executive Officer
and Director
Ronald Kuzon 51 Treasurer, Secretary and Director
Andreas Popovici 42 Managing Director and Director of UT AG
Franco Reinschmidt 35 Chief Financial Officer and Director
of UT AG
THOMAS COMBRINCK has served as Chairman of the Board and as a
director of the Company since July 1, 1996. Mr. Combrinck also serves
as a director of UT Holding and UT AG, which positions he has held
since February 1996 and March 1996, respectively. Mr. Combrinck also
serves as Chief Executive of United Telegroup Ltd. UK, a
telecommunications company located in the United Kingdom, which
position he has held since March 1994. From March 1993 through March
1994 Mr. Combrinck was an independent consultant to a number of large
telecommunications companies in various countries of the EU. From 1990
to March 1993 Mr. Combrinck was a Manager at Swiftcall, one of the
largest telecommunications resellers in the United Kingdom. Mr.
Combrinck will devote approximately 90% of his time to the business of
the Company. See "Certain Transactions."
DAVID E. SCHLECHT has served as President, Chief Executive Officer
and as a director of the Company since its inception. Mr. Schlecht
also serves as President of Product Development & Packaging, Inc., a
packaging brokerage firm, which position he has held since 1989. Mr.
Schlecht will devote approximately 50% of his time to the business of
the Company. See "Executive Compensation."
RONALD W. KUZON has served as Treasurer and a director of the Company since
its inception, and has served as the Company's Secretary since July 1, 1996. Mr.
Kuzon also served as President of Needham Capital Group, Inc., a venture capital
company, which position he has held since 1993. From 1990 to 1993 Mr. Kuzon was
self employed as a private investor.
ANDREAS POPOVICI has served as Managing Director and a director of UT AG
since March 1996. Mr. Popovici also served as General Manager of Callcom, a
Swiss telecommunications service company, from October 1995 to March 1996. Prior
to that time, Mr. Popovici served as Director of the systems department at
Swissphone, a Swiss telecommunications company ("Swissphone"), from 1991 through
October 1995. See "Executive Compensation."
FRANCO REINSCHMIDT has served as Chief Financial Officer and a
director of UT AG since March 1996. Mr. Reinschmidt has served as head
of strategic planning at Zurich Insurance of Switzerland since 1995
and will continue in such position through September 1996. From March 1996
through September 1996 he has been and will be devoting less time to Zurich
Insurance of Switzerland and has, and will, receive only half of his salary from
such company. During 1995 Mr. Reinschmidt worked as a consultant and helped with
the start up activities of Alpage, an Austrian pager company. From 1992 to
1995 Mr. Reinschmidt was the head of corporate development at Swissphone and
from 1989 to 1992 he worked as project manager of mergers and acquisitions for
Vontebel Bank. See "Executive Compensation."
Directors of the Company hold office until the next annual meeting of
stockholders of the Company and until their successors are duly elected and
qualified, or until their earlier death, resignation or removal. No family
relationships exist among any of the directors or executive officers of the
Company.
The Company pays its non-employee directors a fee of $500 for each meeting
of the Board of Directors attended in person and $200 for each telephonic board
meeting or committee meeting, in cash, plus reasonable out-of-pocket expenses.
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<PAGE>
Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company shall, to the
fullest extent permitted by law, indemnify all directors, officers,
incorporators, employees and agents of the Company against liability for certain
of their acts. The Company's Certificate of Incorporation also provides that,
with certain exceptions, no director of the Company will be liable to the
Company for monetary damages as a result of certain breaches of fiduciary duties
as a director. Exceptions to this include a breach of the director's duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, improper declaration of dividends and
transactions from which the director derived an improper personal benefit.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to any arrangement, provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth information as to the number of shares of
Common Stock beneficially owned as of the date of this Prospectus by (i) each
beneficial owner of more than five percent of the outstanding Common Stock, (ii)
each current executive officer and director and (iii) all current executive
officers and directors of the Company as a group. All shares are owned both of
record and beneficially unless otherwise indicated.
Number and Percentage of Shares of Common Stock Owned
- -------------------------------------------------------------------------------
Name and Address Shares Owned Percentage Owned
- ---------------- ------------ ----------------
Thomas Combrinck(1)(2) 6,550,000 62.9%
Baarerstrasse 75
6302 Zug,
Switzerland
Interfinance Inc. Co. Ltd 2,444,000 23.5%
Steinhaldenring 8, CH-8954
Geroldswil, Switzerland
Ronald W. Kuzon 2,000 *
300 Park Avenue,
Suite 1940
New York, NY
10022
David E. Schlecht 4,000 *
17 Cattano Avenue
Morristown, NJ
07960
Andreas 400,000 3.8%
Popovici(1)
Baarerstrasse 75
6302 Zug,
Switzerland
Franco 300,000 2.9%
Reinschmidt(1)
Baarerstrasse 75
6302 Zug,
Switzerland
All directors and 7,256,000 69.7%
executive
officers as a
group (three
persons)
- ------------
* Less than 1%
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(1) Thomas Combrinck has entered into agreements with each of Andreas Popovici
and Franco Reinschmidt pursuant to which Mr. Combrinck has transferred,
subject to certain restrictions, 400,000 and 300,000 shares of Common
Stock owned by him to Mr. Popovici and Mr. Reinschmidt, respectively.
Such shares will be held in escrow and will vest over a two year period
with the unvested portion reverting to Mr. Combrinck if either of
Mr. Popovici or Mr. Reinschmidt leaves the Company for any reason within
such two year period. During such two year period, Mr. Popovici
and Mr. Reinschmidt will have voting power with respect to all
transferred shares.
(2) Does not include 700,000 shares transferred to Mr. Popovici and
Mr. Reinschmidt portions of which will revert to Mr. Combrinck if
either Mr. Popovici or Mr. Reinschmidt leave the Company within
two years.
EXECUTIVE COMPENSATION
UT Holding was incorporated in February 1996, UT AG was incorporated in
March 1996 and UTG was incorporated in April 1996. UT AG has entered into
Management Agreements with several individuals, however, only two of these
individuals make significant contributions to the Company and have contracts
which provide for salaries in 1996 in excess of $100,000. Mr. Andreas Popovici
has entered into a three year Management Agreement with UT AG dated March
14, 1996 (the "Popovici Agreement"), pursuant to which he serves as the Managing
Director and a director of UT AG. Pursuant to the Popovici Agreement Mr.
Popovici will devote 200 working days to the Company at an annual salary of
260,000 CHF (approximately $208,000) and will receive an additional 1,000 CHF
(approximately $800) for each new Company customer which he introduces to the
Company during the first year and an additional 750 CHF (approximately $600) for
each new Company customer which he introduces to the Company during the second
and third year of the Popovici Agreement. Mr. Franco Reinschmidt has entered
into a three year Management Agreement with UT AG dated April 4, 1996 (the
"Reinschmidt Agreement") pursuant to which Mr. Reinschmidt will devote 200
working days to the Company at an annual salary of 195,000 CHF (approximately
$156,000) and will receive an additional 1,000 CHF (approximately $800) for each
new Company customer which he introduces to the Company during the first year
and an additional 750 CHF (approximately $600) for each new Company customer
which he introduces to the Company during the second and third year of the
Reinschmidt Agreement. Mr. Reinschmidt is currently receiving only one half of
his salary and will begin to receive his full salary commencing in October 1996.
Both the Popovici Agreement and the Reinschmidt Agreement will automatically be
renewed for successive one year terms, unless terminated by either party at
least six months prior to the end of their terms, and each also provides for
certain benefits including insurance, business expense accounts and a company
car. Both agreements also contain confidentiality provisions which require
each employee to maintain secrecy, both during and after the term of employment,
with respect to the business, transactions, know-how and other relevant
information of the Company.
Since May 1, 1996 David Schlecht has been compensated at a rate of $60,000
per annum. Mr. Schlecht devotes approximately 50% of his time to the
business of the Company. It is anticipated that certain other executives of the
Company, including Mr. Thomas Combrinck, may enter into employment
agreements with the Company in the future. See "Management."
As of the date of this Prospectus, the Company has not issued any options.
The Company pays its non-employee directors a fee of $500 for each meeting
of the Board of Directors attended in person and $200 for each telephonic board
meeting or committee meeting attended, in cash, plus reasonable out-of-pocket
expenses.
Pursuant to Section 145 of the Delaware General Corporation Law, the
Company's Certificate of Incorporation provides that the Company shall, to the
fullest extent permitted by law, indemnify all directors, officers,
incorporators, employees and agents of the Company against liability for certain
of their acts. The Company's Certificate of Incorporation also provides that,
with certain exceptions, no director of the Company will be liable to the
Company for monetary damages as a result of certain breaches of fiduciary duties
as a director. Exceptions to this include a breach of the director's duty of
loyalty, acts or omissions not in good faith or which involve intentional
misconduct or knowing violation of law, improper declaration of dividends and
transactions from which the director derived an improper personal benefit.
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<PAGE>
CERTAIN TRANSACTIONS
As of April 30, 1996, in exchange for 7,250,000 shares of Common Stock, the
Company acquired all of the outstanding shares, other than qualifying shares, of
UT Holding from Thomas Combrinck. At such time Thomas Combrinck, who is
currently a director of the Company, was not a director of the Company but was,
and currently still is, a director of UT Holding. The Company did not engage a
third-party to independently review the fairness of this transaction because the
cost of such review would have been high; however, the Company believes that
this transaction was fair from a financial point of view. This belief is based
on the fact that this transaction was analyzed by the Company's Board of
Directors and was negotiated by the Company with a then-unaffiliated third party
at arm's length. At the time such transaction was consummated the two directors,
who voted in favor of such transaction, were the Company's only stockholders.
On August 15, 1996 the Company sold an additional 400,000 shares of Common
Stock to Interfinance for $1,000,000 consisting of $10,000 in cash and the
Second Interfinance Note. The Second Interfinance Note is secured by 396,000
shares of Common Stock. As a condition to such sale the Company agreed to
register such 400,000 shares for resale in this offering. This transaction was
negotiated at arms-length, and the Company believes that the terms were as fair
to the Company from a financial point of view as could have been obtained from
an unaffiliated third party.
SELLING STOCKHOLDERS AND PLAN OF DISTRIBUTION
The Selling Stockholders have advised the Company that sales of the Shares
may be effected from time to time in transactions (which may include block
transactions) in the over-the-counter market, in negotiated transactions,
through the writing of options on the Shares or a combination of such methods of
sale, at fixed prices that may be changed, at market prices prevailing at the
time of sale, or at negotiated prices. The Selling Stockholders may effect such
transactions by selling the Shares directly to purchasers or through
broker-dealers that may act as agents or principals. Such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Stockholders and/or the purchasers of Shares for whom such
broker-dealers may act as agents or to whom they sell as principals, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). David E. Schlecht and Ronald Kuzon, director of the
Company, have advised the Company that they have not entered into any agreement
with respect to the sale of their Shares.
The Selling Stockholders and any broker-dealers that act in connection with
the sale of the Shares as principals may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Act and any commission received by them and
any profit on the resale of the Shares and/or as principals might be deemed to
be underwriting discounts and commissions under the Act. The Selling
Stockholders may agree to indemnify any agent, dealer or broker-dealer that
participates in transactions involving sales of the Shares against certain
liabilities, including liabilities arising under the Act. The Company will not
receive any proceeds from sales of the Shares by the Selling Stockholders. Sales
of the Shares by the Selling Stockholders, or even the potential of such sales,
could have an adverse effect on the market price of the Common Stock.
There can be no assurance that Selling Stockholders will be able to sell
some or all of the Shares listed for sale herein. There is no established public
trading market for the Common Stock as of the date of this Prospectus. See "Risk
Factors--Marketability of Securities."
The following table sets forth certain information with respect to the
Selling Stockholders for whom the Company is registering the Shares for resale
to the public. The Company will not receive any of the proceeds from the sale of
the Shares. There are no material relationships between any of the Selling
Stockholders and the Company except as otherwise indicated. Beneficial ownership
of the Shares by each Selling Stockholder after the sale will depend on the
number of Shares sold by each Selling Stockholder. The Shares offered by the
Selling Stockholders are not being underwritten.
<TABLE>CAPTION>
Beneficial Ownership Beneficial Ownership After Offering
Prior to Offering Maximum if Maximum is Sold
Name of -------------------- Amount to be -----------------------------------
Selling Stockholder Amount Percent Sold Amount Percent
- --------------------------- ------------ --------------- -------------------- -------------- -------------------
<S> <C> <C> <C> <C>
</TABLE>
26
<PAGE>
<TABLE><CAPTION>
Beneficial Ownership
Beneficial Ownership After Offering if
Prior to Offering Maximum Maximum is sold
Neme of -------------------------- Amont to ------------------------
Selling Stockholder AMOUNT PERCENT be Sold AMOUNT PERCENT
- ----------------------- -------------- ------------ ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
Interfinance Inv. 2,444,000 23.5% 2,444,000 0 0%
Co. Ltd.
Alain Ballmer 10,000 * 10,000 0 0%
Andre Brugger 30,000 * 30,000 0 0%
Joseph Drescher 5,000 * 5,000 0 0%
Gemarfin SA 50,000 * 50,000 0 0%
Jacquet Bernard 10,000 * 10,000 0 0%
Kurt Martin 75,000 * 75,000 0 0%
Consulting
Mario Reinschmidt 34,000 * 34,000 0 0%
Josef A. Schwyter 10,000 * 10,000 0 0%
Triaxis Trust AG 200,000 1.9% 200,000 0 0%
Joseph Ulrich 1,000 * 1,000 0 0%
Union Bacaire 75,000 * 75,000 0 0%
Prive
Andreas Weinberg 10,000 * 10,000 0 0%
Ambrosius Stiflung 10,000 * 10,000 0 0%
ATAG AG 10,000 * 10,000 0 0%
Banque Scandinave 25,000 * 25,000 0 0%
en Suisse SA
Myrta Brugger 20,000 * 20,000 0 0%
Credit Suisse 60,000 * 60,000 0 0%
Alain Dettling 10,000 * 10,000 0 0%
Aurelio Ferrari 15,000 * 15,000 0 0%
Hanspeter Iselin 2,000 * 2,000 0 0%
Bernard Jaquet 10,000 * 10,000 0 0%
Carlos Perez 1,000 * 1,000 0 0%
Martin Sieber 2,000 * 2,000 0 0%
Sok Chung Long 1,000 * 1,000 0 0%
Robert Speri 20,000 * 20,000 0 0%
VPM Verwaltungs AG 10,000 * 10,000 0 0%
David Schlecht(1) 4,000 * 4,000 0 0%
Ronald Kuzon(1) 2,000 * 2,000 0 0%
</TABLE>
- ------------
*Less then 1%.
(1) Is a director of the Company.
All expenses of this registration will be borne by the Company.
Previous sales of shares of Common Stock were made pursuant to private
placements which the Company believes were exempt from registration under the
Act. As of April 30, 1996, in exchange for 7,250,000 shares of Common Stock, the
Company acquired all of outstanding shares, other than qualifying shares, of UT
Holding. As of April 30, 1996, the Company also issued 2,750,000 shares of
Common Stock to Interfinance, 183,333 of which were issued in exchange for
$200,000 in cash and 2,566,667 of which were issued in exchange for $26 in cash
and the Interfinance Note, which was repaid as of June 28, 1996. As a condition
to the sale of the shares to Interfinance, the Company entered into a
Registration Rights Agreement dated as of April 30, 1996 pursuant to which the
Company agreed to register such shares for resale under the Act. On August 15,
1996 the Company sold an additional 400,000 shares of Common Stock to
Interfinance for $1,000,000 consisting of $10,000 in cash and the Second
Interfinance Note. The Second Interfinance Note is secured by 396,000 shares
of Common Stock. As a condition to such sale the Company agreed to register
such 400,000 shares for resale in this offering.
The Company has been informed that, other than David Schlecht and Ronald
Kuzon, the Selling Stockholders reside outside of the United States.
27
<PAGE>
DESCRIPTION OF SECURITIES
AUTHORIZED STOCK
The authorized capital stock of the Company consists of 20,000,000 shares of
Common Stock, par value $.00001 per share.
COMMON STOCK
Subject to the prior rights of the holders of any shares of any Preferred
Stock which may be authorized and issued in the future, the holders of the
Common Stock are entitled to receive dividends from funds of the Company legally
available therefor when, as and if declared by the Board of Directors of the
Company, and are entitled to share ratably in all of the assets of the Company
available for distribution to holders of Common Stock upon the liquidation,
dissolution or winding-up of the affairs of the Company. Holders of the Common
Stock do not have any preemptive, subscription, redemption or conversion rights.
Holders of the Common Stock are entitled to one vote per share on all matters
which they are entitled to vote upon at meetings of stockholders or upon actions
taken by written consent pursuant to Delaware corporate law. The holders of
Common Stock do not have cumulative voting rights, which means that a plurality
of such outstanding shares can elect all of the directors of the Company. All of
the shares of the Common Stock currently issued and outstanding are, fully-paid
and nonassessable. There are currently 32 holders of the Common Stock. No
dividends have been paid to holders of the Common Stock since the inception of
the Company, and no dividends are anticipated to be declared or paid in the
reasonably foreseeable future. See "Dividend Policy." There is no established
public trading market for the Common Stock as of the date of this Prospectus.
See "Risk Factors--Marketability of Securities."
DELAWARE ANTI-TAKEOVER LAW
The Company is governed by the provisions of Section 203 of the General
Corporation law of the State of Delaware. In general, this law prohibits a
public Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which such person became an interested stockholder, unless the
business combination is approved in a prescribed manner. A "business
combination" is defined to include mergers, asset sales and other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is defined as a person who, together with affiliates and associates, owns (or,
within the prior three years, did own) 15% or more of the corporation's voting
stock.
These provisions could have the effect of delaying, deferring or preventing
a change of control of the Company which could prevent the Company's
stockholders from realizing a premium through a non-negotiated change in
control. The Company's stockholders, by adopting an amendment to the Certificate
of Incorporation or By-Laws of the Company, may elect not to be governed by
Section 203, effective twelve months after adoption. Neither the Certificate of
Incorporation nor the By-Laws of the Company currently excludes the Company from
the restrictions imposed by Section 203.
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer & Trust Company will serve as the transfer agent and
registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
On the date of this Prospectus, the Company has outstanding 10,406,000
shares of Common Stock. Of such 10,406,000 shares of Common Stock, 3,156,000
shares (of which 396,000 shares are held by the Company as collateral for a
loan, see "Certain Transactions") are freely tradable without restriction as
long as a current registration statement covering such shares is in effect under
the Securities Act except for any shares purchased by any person who is or
thereby becomes an affiliate of the Company, which shares will be subject to the
resale limitations contained in Rule 144 promulgated under the Securities Act.
28
<PAGE>
All of the 7,250,000 currently outstanding shares of Common Stock not being
registered hereby are restricted securities within the meaning of Rule 144 under
the Securities Act and, in general, if held for at least two years, will be
eligible for sale in the public market in reliance upon and subject to the
limitations of Rule 144.
In general under Rule 144, as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
affiliate of the Company as that term is defined under the Securities Act, is
entitled to sell, within any three month period, a number of shares beneficially
owned for at least two years that does not exceed the greater of (i) one percent
of the number of the then outstanding shares of Common Stock or (ii) the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are also subject to certain
requirements as to the manner of sale, notice and the availability of current
public information about the Company. Furthermore, a person who is not deemed to
have been an affiliate of the Company during the ninety days preceding a sale by
such person and who has beneficially owned such shares for at least three years
is entitled to sell such shares without regard to the volume, manner of sale or
notice requirements. All 7,250,000 shares of restricted Common Stock outstanding
on the date of this Prospectus are held by affiliates of the Company. All
7,250,000 restricted shares of Common Stock will become eligible for sale under
Rule 144 in May 1998.
Prior to the date of this Prospectus, there has been no public market for
the Company's securities. Following the date of this Prospectus, the Company
cannot predict the effect, if any, that market sales of the Common Stock, or the
availability or such shares for sale, will have on the market price prevailing
from time to time. Nevertheless, sales by the existing stockholders of
substantial amounts of Common Stock in the public market could adversely affect
prevailing market prices for the Company's securities.
LEGAL MATTERS
The validity of the Shares offered by this Prospectus is being passed upon
for the Company and the Selling Stockholders by Rubin Baum Levin Constant &
Friedman, 30 Rockefeller Plaza, 29th Floor, New York, New York 10112.
EXPERTS
The consolidated financial statements of the Company for the period from
February 29, 1996 (Inception) to April 30, 1996, included herein and elsewhere
in the Registration Statement have been audited by Merdinger, Fruchter, Rosen &
Corso, P.C., independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance thereon and upon the
authority of said firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-B2 under the Act, covering the
Shares offered by this Prospectus. For further information with respect to the
Company and the Shares offered hereby, reference is made to the Registration
Statement and the exhibits filed as part of thereof, which may be examined at
the Public Reference Section maintained by the Commission at its principal
office in Washington, D.C. at 450 Fifth Street, N.W., Washington, D.C. 20549 and
copies of such material can be obtained from the Public Reference Section of the
Commission at prescribed rates. Statements contained in this Prospectus as to
the contents of any contract or other document referred to herein are not
necessarily complete. In each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement.
Information can also be obtained at the Northeast Regional Office of the
Commission at 7 World Trade Center, Suite 1300, New York, New York 10048 and at
the Midwest Regional Office of the Commission at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.
Subsequent to this offering, the Company will be a reporting company under
the Exchange Act. The Company intends to distribute to its stockholders annual
reports containing audited financial statements with a report therein by
independent public accountants after the end of each fiscal year. In addition,
if the Company is required to prepare such reports, the Company will make
available to its stockholders, upon request, quarterly reports for the first
three quarters of each fiscal
29
<PAGE>
year containing unaudited financial statements and other information after the
end of each fiscal quarter, upon written request to the Secretary of the Company
or otherwise as required by law.
GLOSSARY
The terms defined in this glossary are used throughout this Prospectus.
MUX Multiplexer. Digital voice and
data telecommunication equipment
that routes calls to the POP.
POP Point of presence. Area
network access interface
which gathers calls from
the MUX and routes them
into the international
network. POPs are located
in major cities and
customers are connected
to the POP by local tail
circuits.
Closed User Group A legally defined user
group (e.g., a
corporation) using
different carriers in
not yet fully deregulated
markets (private phone
networks). Legislation
regarding closed user
groups differs from
country to country.
LAN Local Area Network.
Kbps Kilobytes per second
(data transmission
speed).
Switch Computer, or voice
switching matrix, that
directs
telecommunications
traffic to form a
transmission path between
a caller and the
recipient of a call.
Meshed Fiber Optic Network International
Telecommunications
network with multiple
fiber optic lines between
POP locations which
provides a fully
resilient service.
Digital Compression Techniques A process whereby either
(same as Fax Transmission telephone or fax calls on
Compression) are comprised which
allows the Company to transmit
more telephone/fax calls over the
same bandwidth as required by a
normal telephone call. This is
achieved using the latest Low
Delay CELP compression
technologies.
Digital Data Services Point to point or
multipoint circuit for exchange
of data traffic.
Mb Data transmission speed
in megabites per second.
Churn Rates Customer turnover.
30
<PAGE>
Transmission Facilities-based Telecommunications
Carriers Companies that own their
own long-distance interexchange
or transmission facilities and
originate and terminate calls
through local exchange systems.
Caps Competitive Access
Providers.
Switch-based Telecommunications Company that owns or
Company leases one or more
switches. All
transmission facilities-
based carriers are
switch-based.
60
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Contents Page
Independent Auditors' Report F-2
Consolidated Balance Sheet F-3
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Equity F-5
Consolidated Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7-10
Independent Auditors' Report on Consolidating F-11
Supplementary Information
Consolidating Balance Sheet F-12
Consolidating Statement of Operations F-13
F1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
UTG COMMUNICATIONS, INC.
We have audited the accompanying consolidated balance sheet of UTG
Communications, Inc. and Subsidiaries as of April 30, 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the period from February 29, 1996 (inception) to April 30, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of UTG
Communications, Inc. and Subsidiaries as of April 30, 1996, and the results of
its operations and its cash flows for the period from February 29, 1996
(inception) to April 30, 1996 in conformity with generally accepted accounting
principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
July 12, 1996
F-2
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
APRIL 30, 1996
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 780,960
Subscription Receivable 3,000,000
Prepaid Expenses 10,203
-----------
Total Current Assets 3,791,163
Property and Equipment, at Cost,
Net of Accumulated Depreciation of
$2,337 at April 30, 1996 137,903
Organizational Costs, Net of Accumulated
Amortization of $169 at April 30, 1996 9,997
Deferred Taxes -
Other Assets 6,428
----------
Total Assets $3,945,491
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 171,915
Loan Payable 1,000,000
----------
Total Current Liabilities 1,171,915
----------
Commitments and Contingencies -
STOCKHOLDERS' EQUITY
Common Stock - $0.00001 Par Value
Authorized; 20,000,000 shares;
10,006,000 Issued and Outstanding 100
Additional Paid-in-Capital 3,088,474
Retained Deficit ( 317,754)
Foreign Currency Translation Adjustment 2,739
Minority Interest 17
----------
Total Stockholders' Equity 2,773,576
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $3,945,491
==========
The accompanying notes are an integral part of the financial statement.
F-3
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
REVENUE
Sales $ -
----------
Total Revenue -
----------
EXPENSES
Salaries and Consulting Fees 171,932
Travel Expenses 65,776
Professional Fees 23,005
Rent 3,437
Telephone 3,159
Depreciation and Amortization 2,559
Office Expenses 2,517
Bank Fees 355
----------
Total Operating Expenses 272,740
----------
LOSS FROM OPERATIONS ( 272,740)
OTHER (INCOME) EXPENSES
Interest Income ( 449)
Interest Expense 4,804
Loss From Foreign Currency 40,659
-----------
Total Other Expenses 45,014
-----------
NET LOSS ( 317,754)
===========
LOSS PER COMMON SHARE
Primary $( .03)
============
Fully Diluted $( .03)
============
The accompanying notes are an integral part of the financial statement.
F-4
<PAGE>
<TABLE><CAPTION>
UTG COMMUNICATIONS, INC.
... ........................
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
Additional Foreign Total
Common Stock Paid-In Accumulated Currency Minority Stockholders'
---------------------------
Shares Amount Capital Deficit Adjustment Interest Equity
------------- ----------- --------- ------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception
(February 29, 1996) $ - $ - $ - $ - $ - $ - $ -
Net Loss - - - ( 317,754) - - (317,754)
Issuance of Common Stock 10,006,000 100 3,088,474 - - - 3,088,574
Foreign Currency Translation
Adjustment - - - - 2,739 - 2,739
Minority Interest - - - - - 17 17
---------- ----------- ----------- --------- ---------- -----------
Balance at April 30, 1996 $ 10,006,000 $ 100 $ 3,088,474 $( 317,754) $ 2,739 $ 17 $ 2,773,576
========== ========== =========== =========== ========= ========== ===========
</TABLE>
The accompanying notes are integral part of the financial statement.
F-5
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
CASH FLOW FROM OPERATING ACTIVITIES
Net Loss $( 317,754)
Adjustments to Reconcile Net Loss to
Net Cash Used by Operating Activities
Depreciation and Amortization 2,559
Changes in Certain Assets and Liabilities:
Increase in Prepaid Expenses ( 10,203)
Increase in Organization Costs ( 10,166)
Increase in Other Assets ( 6,428)
Increase in Accounts Payable and Accrued Expenses 171,915
-------------
Total Cash (Used) by Operating Activities (170,077)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Fixed Assets ( 140,240)
------------
Total Cash (Used) By Investing Activities ( 140,240)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contribution to Capital 88,574
Proceeds From Loan 1,000,000
Minority Interest 17
----------
Total Cash Provided By Financing Activities 1,088,591
----------
EFFECTS OF EXCHANGE RATE
CHANGES ON CASH 2,686
----------
2,686
----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 780,960
CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR -
----------
CASH AND CASH EQUIVALENTS - END OF YEAR $ 780,960
==========
CASH PAID DURING THE YEAR FOR:
Interest Expense $ -
==========
Income Taxes $ -
==========
NON CASH FINANCING ACTIVITIES:
The Company issued common stock in exchange for stock subscription
agreements. As of April 30, 1996, the receivable on the agreements totaled
$3,000,000.
The accompanying notes are an integral part of the financial statement.
F-6
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Basis of Presentation
---------------------
The accompanying consolidated financial statements include the
accounts of UTG Communications, Inc. ("The Company"), a holding
company organized under the laws of the state of Delaware on April
17, 1996 and its 99.9% owned subsidiary; UTG Communications
Holding AG, ("UTH"),incorporated under the laws of Switzerland on
February 29, 1996, and its wholly-owned subsidiary UTG
Communications AG, ("UTAG"), incorporated under the laws of
Switzerland on March 28, 1996. All significant intercompany accounts
and transactions have been eliminated in consolidation.
b) Line of Business
----------------
The Company is a switch-based provider of private voice, fax and
data management telecommunication services in Switzerland.
c) Cash and Cash Equivalents
-------------------------
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
d) Organization Costs
------------------
Organization costs consist of legal and other administrative costs
incurred relating to the formation of the Company. These costs have
been capitalized and will be amortized over a period of five years.
e) Property and Equipment
----------------------
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method based upon the estimated useful lives
of the various classes of assets. Maintenance and repairs are
charged to expense as incurred.
f) Translation of Foreign Currency
-------------------------------
The Company translates the foreign currency financial
statements of its Switzerland subsidiaries, UTH and UTAG,
in accordance with the requirements of Statement of
Financial Accounting Standards No. 52, "Foreign Currency
Translation". Assets and liabilities are translated at
current exchange rates, and related revenues and expenses
are translated at average exchange rates in effect during
the period. Resulting translation adjustments are
recorded as a separate component in stockholders' equity.
Foreign currency transaction gains and losses are
included in determining net income.
F-7
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Loss Per Share
--------------
Loss per share is based on the weighted average number of shares of
common stock outstanding during the period.
h) Income Taxes
------------
Income taxes are provided for based on the liability method of
accounting pursuant to Statement of Financial Accounting Standards
(SFAS) No. 109, "Accounting for Income Taxes". The liability method
requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary differences
between the reported amount of assets and liabilities and their tax
basis.
NOTE 2 - LOAN PAYABLE
Financing for the start-up operations of UTH was provided by a loan
agreement between UTH and Hedag AG (HAG) dated March 27, 1996, for
$1,000,000 bearing interest at 7% per annum payable semi-annually on
September 30, 1996 and March 31, 1997.
The Company shall pay to HAG the entire principal balance of the
loan, plus any unpaid accrued interest by March 31, 1997.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at April 30, 1996 is summarized as follows:
Computer Equipment $ 89,270
Telephone Equipment 18,809
Furniture and Fixtures 32,161
-----------
140,240
Less: Accumulated Depreciation 2,337
-----------
$ 137,903
NOTE 4 - MINORITY INTEREST
Minority interest represents less than a 1% share of the common
equity and net loss of the Company's two subsidiaries UTH and UTAG.
F-8
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
NOTE 5 - FOREIGN OPERATIONS
Substantially all of UTH's and UTAG's operations take place in the
country of Switzerland.
Substantially all of UTH's and UTAG's identifiable assets are
located in the country of Switzerland.
NOTE 6 - SUBSCRIPTION RECEIVABLE
As of April 30, 1996, the Company entered into two stock
subscription agreements with Interfinance Inv. Co., Ltd.
(ITC) to sell common stock of the Company as follows:
1) The sale of 183,333 shares of the Company's common
stock for an aggregate purchase price of $200,000.
Payment for the shares was subsequently received by the
Company on May 21, 1996.
2) The sale of 2,566,667 shares of the Company's common stock in
exchange for $26 in cash and a promissory note due on April 30,
1997 in the principal amount of $2,799,974, bearing interest at
7% per annum. The note is secured by the 2,566,667 shares of
common stock.
NOTE 7 - INCOME TAXES
Deferred income taxes are determined based upon differences between
the tax basis of the Company's assets and liabilities and their
financial statement carrying amounts, multiplied by the applicable
statutory income tax rate.
Significant components of the Company's deferred tax liabilities and
assets are as follows:
Deferred Tax Assets
Net Operating Loss Carryforwards $ 106,166
Less: Valuation Allowance ( 106,166)
----------
Total Deferred Tax Assets $ -
==========
F-9
<PAGE>
UTG COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
NOTE 7 - INCOME TAXES (Continued)
As April 30, 1996, the Company had a net operating loss which will
be available to reduce future taxable income. The full realization
of the tax benefit associated with the carryforward depends
predominantly upon the Company's ability to generate taxable income
during the carryforward period. Because of the current uncertainty
of realizing such tax asset in the future, a valuation allowance has
been recorded equal to the amount of the net deferred tax asset.
NOTE 8 - RELATED PARTY TRANSACTIONS
The Company has related party transactions with United Telegroup
Ltd. UK (UTK), a company with which they share a common director.
NOTE 9 - COMMITMENTS AND CONTINGENCIES
The Company has several employment agreements, the terms of which
expires at various times through April 1999.
NOTE 10 - SUBSEQUENT EVENTS
1) On June 28, 1996, subsequent to the date of the balance
sheet, the Company received from ITC the sum of $2,799,974,
relating to their promissory note for the sale of stock.
See also Note 6.
2) On July 4, 1996, subsequent to the date of the balance sheet,
the Company repaid the entire principal balance of $1,000,000
plus accrued interest of $19,444, relating to their loan from
HAG. See also Note 2.
3) On August 15, 1996, subsequent to the date of the balance
sheet, the Company entered into a subscription agreement to
sell 400,000 shares of its common stock to Interfinance
Inv. Co., Ltd. for an aggregate price of $1,000,000 consisting
of $10,000 in cash and a secured promissory note dated
August 15, 1996 in the amount of $990,000. The note provides
for interest at the rate of 7% per annum on the principal
balance and matures on February 1, 1997. The note is secured
by the aforementioned 400,000 shares of common stock being
purchased through this subscription agreement.
It is agreed by the parties that the stock certificate
representing the shares shall be issued by the Company within
10 days of the effective date of registration statement
covering the shares.
F-10
<PAGE>
INDEPENDENT AUDITORS' REPORT ON CONSOLIDATING
SUPPLEMENTARY INFORMATION
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
UTG COMMUNICATIONS, INC.
We have audited the accompanying consolidated financial statements of UTG
COMMUNICATIONS, INC. AND SUBSIDIARIES as of April 30, 1996 and for the period
from February 29, 1996 (Inception) to April 30, 1996 and issued our report then
ended July 12, 1996. Our audit was conducted for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The consolidating supplementary information is presented only for analysis
purposes and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
MERDINGER, FRUCHTER, ROSEN, & CORSO, P.C.
Certified Public Accountants
New York, N.Y.
July 12, 1996
F-11
<PAGE>
<TABLE>
<CAPTION>
UTG COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING BALANCE SHEET
APRIL 30, 1996
United Telegroup
International United Telegroup United Telegroup
ASSETS Inc. Holding AG AG Subtotal
---------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ - $ 718,838 $ 62,122 $ 780,960
Subscription Receivable 3,000,000 - - 3,000,000
Prepaid Expenses - - 10,203 10,203
Due from Affiliate - 239,635 - 239,635
---------------- ------------ ------------- -------------
Total Current Assets 3,000,000 958,473 72,325 4,030,798
Property and Equipment - - 137,903 137,903
Organization Costs - 4,501 5,496 9,997
INVESTMENT IN SUBSIDIARIES 83,074 83,717 - 166,791
OTHER ASSETS - - 6,428 6,428 -
--------------- -------------- ------------ ------------ -----------------
TOTAL ASSETS $ 3,083,074 $ 1,046,691 $ 222,152 $ 4,351,917
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ - $ 8,186 $ 163,729 $ 171,915
Due to Affiliate - - 239,635 239,635
Loan Payable - 1,000,000 - 1,000,000
-------------- ----------- --------------- -------------
Total Current Liabilities - 1,008,186 403,364 1,411,550
-------------- ----------- ------------ -----------
STOCKHOLDERS' EQUITY
Common Stock 100 83,091 83,717 166,908 ( 166,808)
Additional Paid-in Capital 3,088,474 - - 3,088,474
Retained Deficit ( 5,500) ( 45,325) ( 266,929) ( 317,754)
Foreign Currency Translation
Adjustment - 739 2,000 2,739
Minority Interest - - - -
---------------- --------------- --------------- --------------
TOTAL STOCKHOLDERS' EQUITY 3,083,074 38,505 ( 181,212) 2,940,367
------------ ------------ ------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 3,083,074 $ 1,046,691 $ 222,152 $ 4,351,917
=========== =========== ============= ===========
<CAPTION>
ASSETS Elimination Total
------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and Cash Equivalents $ - $ 780,960
Subscription Receivable - 3,000,000
Prepaid Expenses - 10,203
Due from Affiliate ( 239,635) -
------------- -------------
Total Current Assets
( 239,635) 3,791,163
Property and Equipment - 137,903
Organization Costs - 9,997
INVESTMENT IN SUBSIDIARIES
( 166,791) -
OTHER ASSETS - 6,428
--------------- ------------
TOTAL ASSETS $( 406,426) $ 3,945,491
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ - $ 171,915
Due to Affiliate ( 239,635) -
Loan Payable - 1,000,000
---------------- -------------
Total Current Liabilities ( 239,635) 1,171,915
------------- -----------
STOCKHOLDERS' EQUITY
Common Stock 100 100
Additional Paid-in Capital - 3,088,474
Retained Deficit - ( 317,754
Foreign Currency Translation
Adjustment - 2,739
Minority Interest 17 17
--------------- ---------------
TOTAL STOCKHOLDERS' EQUITY ( 166,791) 2,773,576
-------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $( 406,426) $ 3,945,491
============= ===========
</TABLE>
F-12
<PAGE>
<TABLE><CAPTION>
UTG COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE PERIOD FROM FEBRUARY 29, 1996 (INCEPTION) TO APRIL 30, 1996
United Telegroup
International United Telegroup United Telegroup
Inc. Holding AG AG Subtotal
--------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE
Sales $ - $ - $ - $ -
----------------- ---------------- --------------- ----------------
Total Revenues - - - -
----------------- ---------------- --------------- ----------------
OPERATING EXPENSES
Salaries and Consulting Fees 5,500 - 166,432 171,932
Travel Expenses - - 65,776 65,776
Professional Fees - - 23,005 23,005
Rent - - 3,437 3,437
Telephone - - 3,159 3,159
Depreciation and Amortization Expense - 78 2,481 2,559
Office Expenses - - 2,517 2,517
Bank Fees - 233 122 355
---------------- --------------- -------------- --------------
Total Operating Expenses 5,500 311 266,929 272,740
-------------- --------------- -------------- --------------
LOSS FROM OPERATIONS ( 5,500) ( 311) ( 266,929) ( 272,740)
OTHER (INCOME) EXPENSES
Interest Income - ( 449) - ( 449)
Interest Expense - 4,804 - 4,804
Loss From Foreign Currency - 40,659 - 40,659
----------------- ------------- ---------------- --------------
Total Other Expenses - 45,014 - 45,014
----------------- ------------- ---------------- --------------
NET LOSS $( 5,500) $( 45,325) $( 266,929) $( 317,754)
============= ============= ============= ===========
<CAPTION>
Elimination Total
-------------- -------------
Elimination Total <C> <C>
-------------- -------------
<S> <C> <C> $ - $ -
REVENUE ----------------- ----------------
Sales $ - $ - - -
----------------- ---------------- ----------------- ----------------
Total Revenues - -
----------------- ----------------
- 171,932
OPERATING EXPENSES - 65,776
Salaries and Consulting Fees - 171,932 - 23,005
Travel Expenses - 65,776 - 3,437
Professional Fees - 23,005 - 3,159
Rent - 3,437 - 2,559
Telephone - 3,159 - 2,517
Depreciation and Amortization Expense - 2,559 - 355
Office Expenses - 2,517 ----------------- ----------------
Bank Fees - 355 - 272,740
----------------- ---------------- ----------------- ----------------
Total Operating Expenses - 272,740 - ( 272,740)
----------------- ----------------
LOSS FROM OPERATIONS - ( 272,740)
- ( 449)
OTHER (INCOME) EXPENSES - 4,804
Interest Income - ( 449) - 40,659
Interest Expense - 4,804 ----------------- --------------
Loss From Foreign Currency - 40,659 - 45,014
----------------- -------------- ----------------- --------------
Total Other Expenses - 45,014
----------------- -------------- $ - $( 317,754)
== ================= ============
NET LOSS $ - $( 317,754)
================= ============
</TABLE>
F-13
<PAGE>
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
No dealer, salesperson or other
person has been authorized in connection
with the Offering to give any
information or to make any
representations other than those
contained in this Prospectus. This
Prospectus does not constitute an offer
or a solicitation in any jurisdiction to
any person to whom it is unlawful to
make such offer or solicitation. Neither
the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create an implication UTG COMMUNICATIONS,
that there has been no change in the INC.
circumstances of the Company or the
facts herein set forth since the date
hereof.
---------------
TABLE OF CONTENTS 3,156,000
SHARES OF COMMON STOCK
Page
----
Prospectus Summary................... 2
Risk Factors......................... 6
The Company.......................... 12
Dividend Policy...................... 12
Use of Proceeds...................... 12
Capitalization....................... 13
Selected Financial Data.............. 13
Plan of Operation.................... 14
Business............................. 15
Management........................... 22
Principal Stockholders............... 23
Executive Compensation............... 24
Certain Transactions................. 25 ------------------
Description of Securities............ 25 PROSPECTUS
Shares Eligible For Future Sale...... 27 ------------------
Legal Matters........................ 28
~~~~~~~~Experts.............................. 28
Additional Information............... 28
Glossary..............................29
Index to Consolidated Financial
Statements.........................F-1
----------------------
________, 1996
Until --------, 1996 all dealers
effecting transactions in the registered
securities, whethe or not participating
in this distribution, may be required
to deliver a Prospectus. This is in
addition to the obligation of dealers
to deliver a Prospectus when acting
at underwriters and with respect to
their unsold allotments or
subscriptions.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Registrant in connection with the
issuance and distribution of the securities being registered are as follows:
AMOUNT
-----------------
SEC Registration Fee............................................ $ 5,713.45
Printing and Engraving Costs.................................... $20,000.00
Accounting Fees and Expenses................................... $10,000.00
Legal Fees and Expenses........................................ $75,000.00
Blue-Sky Fees and Expenses..................................... $5,000.00
Transfer Agent's Fees and Expenses............................. $3,500.00
Miscellaneous Expenses......................................... $5,786.55
-------------
Total......................................................... $125,000.00
==========
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation and the By-Laws of the Registrant provide
that the Registrant shall indemnify its officers, directors and certain others
to the fullest extent permitted by the Delaware General Corporation Law. Section
145 of the General Corporation Law of Delaware (the "GCL") provides in pertinent
part as follows:
(a) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgements, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interest of he corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him connection with the defense or
settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and except that no indemnification shall be
made in respect of any claim, issue or matter as to which such person shall have
been adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other Court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsection (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsection (a) and (b) of this section (unless
ordered by a court shall be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer,
II-1
<PAGE>
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by he board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable, a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer of director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by other employees and agents may be so paid upon such terms and conditions, if
any, as the board deems appropriate.
(f) The indemnification and advancement of expense provided by, or granted
pursuant to, the subsections of this section shall not be deemed exclusive of
any other right to which those seeking indemnification or advancement of
expenses may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors of otherwise, both as to action in his official capacity
and as to action in another capacity while holding such office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under his section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporations as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans' references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
reference to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation, which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a persons.
In accordance with Section 102(b)(7) of the GCL, Article Seven of the
Certificate of Incorporation of the Registrant eliminates the personal liability
of the Company's directors to the Company or its stockholders for monetary
damages for breach of their fiduciary duties as a director, with certain
exceptions set forth in said Section 102(b)(7).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Registrant has sold the following unregistered securities during the three
years preceding the filing of this Registration Statement:
As of April 30, 1996, in exchange for 7,250,000 shares of Common Stock, the
Company acquired all of outstanding shares of UT Holding. As of April 30, 1996,
the Company also issued 2,750,000 shares of Common Stock to Interfinance,
183,333 of which were issued in exchange for $200,000 in cash and 2,566,667 of
which were issued in exchange for $26 in cash and the Interfinance Note, which
was repaid as of June 28, 1996.
On August 15, 1996 the Company sold an additional 400,000 shares
of Common Stock to Interfinance for $1,000,000 consisting of $10,000
in cash and the Second Interfinance Note. The Second Interfinance Note
is secured by 396,000 shares of Common Stock.
II-2
<PAGE>
No underwriter was utilized in these transactions. The Company relied upon
Regulation S and/or Section 4(2) of the Act and the rules and regulations
promulgated thereunder, for its exemption the issuance of such shares from
registration under the Act.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
3.1 Certificate of Incorporation of the Company*
3.1(a) Amendment to Certificate of Incorporation of the Company
3.2 By-laws of the Company*
4.1 Specimen Common Stock Certificate
5.1 Opinion of Rubin Baum Levin Constant & Friedman
Stock Purchase Agreement dated April 30, 1996 between
10.1 Registrant and Tom Combrinck
10.2 Subscription Agreement dated April 30, 1996 between Registrant
and Interfinance for the purchase of 183,333 shares of Common
Stock
10.3 Subscription Agreement dated April 30, 1996 between Registrant
and Interfinance for the purchase of 2,566,667 shares of
Common Stock
10.4 Promissory Note in the principal amount of $2,799,974, dated
April 30, 1996, by Interfinance in favor of Registrant
10.5 Security and Pledge Agreement dated April 30, 1996 between
Registrant and Interfinance
10.6 Registration Rights Agreement dated April 30, 1996 between
Registrant and Interfinance
10.7 Agreement dated December 21, 1995 between Registrant and
Telemedia International, together with Assignment dated
July 1, 1996
10.8 Lease beginning April 1, 1996 between Registrant and
Guido M. Renggli
10.9 Management Agreement dated March 14, 1996 between
Registrant and Andreas Popovici
10.10 Management Agreement dated April 4, 1996 between Registrant
and Franco Reinschmidt
10.11 Form of Customer Contract of Registrant
10.12 Subscription Agreement dated August 15, 1996, between
Registrant and Interfinance for the purchase of 400,000 shares
of Common Stock
10.13 Promissory Note in the principal amount of $990,000 dated
August 15, 1996, by Interfinance in favor of Registrant
10.14 Security and Pledge Agreement dated August 15, 1996 between
Registrant and Interfinance
21.1 List of Subsidiaries
23.1 Consent of Merdinger, Fruchter Rosen & Corso, P.C.
23.2 Consent of Rubin Baum Levin Constant & Friedman (contained in
Exhibit 5.1)
27.1 Financial Data Schedule*
- ------------
*Previously filed.
(B) FINANCIAL STATEMENT SCHEDULES OF REGISTRANT.
Financial statement schedules have been omitted because they are not
applicable or the required information is shown in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
UNDERTAKINGS REQUIRED BY REGULATION S-B, ITEM 512(A).
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) reflect in the Prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and
II-3
<PAGE>
any deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective Registration Statement; and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) To, for determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) To file a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of this offering.
UNDERTAKINGS REQUIRED BY REGULATION S-B, ITEM 512(E).
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
UNDERTAKINGS REQUIRED BY REGULATION S-B, ITEM 512(F).
The undersigned registrant hereby undertakes that:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4)
or 497(h) under the Securities Act as part of this registration statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial
bona fide offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in New York, New York on August 14, 1996.
UTG COMMUNICATIONS, INC.
By: /S/David /Schlecht
----------------------------------
David Schlecht
President and Chief Executive
Officer
(Principal Executive Officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby severally constitutes and appoints David Schlecht and Ronald Kuzon
and each of them, his true and lawful attorneys-in-fact and agents, each acting
alone, with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and all
documents relating thereto, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each acting alone
full power and authority to do and perform each and every act and thing
necessary or advisable to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/S/Thomas Combrinck Chairman of the Board and August 14, 1996
- ------------------------------------------ Director
Thomas Combrinck
/S/David Schlecht President, Chief Executive Offi- August 14, 1996
- ------------------------------------------ cer and Director (Principal
David Schlecht Executive Officer)
/S/Ronald Kuzon Treasurer, Secretary (Principal August 14,
- ------------------------------------------
Ronald Kuzon Financial Officer) 1996
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ---------- -----------
3.1(a) Amendment to Certificate of Incorporation of the Company
4.1 Specimen Common Stock Certificate
5.1 Opinion of Rubin Baum Levin Constant & Friedman
10.1 Stock Purchase Agreement dated April 30, 1996 between
Registrant and Tom Combrinck
10.2 Subscription Agreement dated April 30, 1996 between Registrant
and Interfinance for the purchase of 183,333 shares of Common
Stock
10.3 Subscription Agreement dated April 30, 1996 between
Registrant and Interfinance for the purchase of 2,566,667
shares of Common Stock
10.4 Promissory Note in the principal amount of $2,799,974, dated
April 30, 1996, by Interfinance in favor of Registrant
10.5 Security and Pledge Agreement dated April 30, 1996 between
Registrant and Interfinance
10.6 Registration Rights Agreement dated April 30, 1996 between
Registrant and Interfinance
10.7 Agreement dated December 21, 1995 between Registrant and
Telemedia International, together with Assignment dated July
1, 1996
10.8 Lease beginning April 1, 1996 between Registrant and Guido M
Renggli
10.9 Management Agreement dated March 14, 1996 between Registrant
and Andreas Popovici
10.10 Management Agreement dated April 4, 1996 between Registrant
and Franco Reinschmidt
10.11 Form of Customer Contract of Registrant
10.12 Subscription Agreement dated August 15, 1996, between
of Common Stock
10.13 Promissory Note in the principal amount of $990,000 dated
August 15, 1996, by Interfinance in favor of Registrant
10.14 Security and Pledge Agreement dated August 15, 1996 between
Registrant and Interfinance
21.1 List of Subsidiaries
23.1 Consent of Merdinger, FruchterRosen & Corso, P.C.
23.2 Consent of Rubin Baum Levin Constant & Friedman (contained in
Exhibit 5.1)
Exhibit 3.1(a)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
UNITED TELEGROUP INTERNATIONAL, INC.
The undersigned corporation in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
UNITED TELEGROUP INTERNATIONAL, INC.
SECOND: The corporation hereby amends its Certificate of
Incorporation as follows:
Paragraph FIRST of the Certificate of Incorporation, relating to
the corporate title of the corporation, is hereby amended to read as
follows:
FIRST: The name of the Corporation is:
UTG COMMUNICATIONS, INC.
THIRD: The amendment herein was authorized by the Board of
Directors and the consent in writing, setting forth the action so taken,
signed by the holders of a majority of all the outstanding shares entitled
to vote thereon, pursuant to Sections 228 and 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this Certificate
to be executed by its President, who affirms that the statements made
herein are true under the penalties of perjury, this 15th day of August,
1996.
\s\ David E. Schlecht
----------------------------------
David E. Schlecht, President
Exhibit 4.1
NUMBER SHARES
CS
COMMON STOCK COMMON STOCK
UTG COMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 912907 10 2
THIS IS CERTIFIES THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE
PAR VALUE OF $.00001 OF THE COMMON STOCK OF
UTG COMMUNICATIONS, INC.
(hereinafter the "Corporation") transferable on the books of the
Corporation by the registered holder hereof in person or by duly authorized
attorney, upon surrender of this certificate properly endorsed.
This Certificate and the shares represented hereby are issued and
shall be held subject to all provisions of the Certificate of Incorporation
and of the Bylaws of the Corporation (copies of which are on file with the
Transfer Agent) to all of which the holder by acceptance hereof assents.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by the facsimile signatures of its duly authorized officers and to
be sealed with the facsimile seal of the Corporation.
Dated
[CORPORATE SEAL]
/s/ Ronald W. Kuzon /s/ David E. Schlecht
SECRETARY PRESIDENT AND CHIEF EXECUTIVE OFFICER
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
UTG COMMUNICATIONS, INC.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in
full according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM -- UNIF GIFT MIN ACT --
as tenants in _____
common Custodian _____
TEN ENT -- (Cust) (Min
as tenants by the or)
entireties under Uniform
JT TEN -- Gifts to Minors
as joint tenants Act __________
with right of
survivorship and (State)
not as tenants in
common
Additional abbreviations may also be used though not in the above
list.
For value received, ___________________________ hereby sell, assign
and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE
| |
---------------------------------------------- ---------------------------
- ---------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
-------------------------------------------------------------------
Shares of the capital stock represented by the within Certificate, and do
hereby irrevocably constitute and appoint
---------------------------------
- ---------------------------------------------------------------------------
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated, _______________________________
___________________________________
Signature(s) Guaranteed:
_________________________________________________________________
THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT, OR ANY CHANGE WHATEVER. THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C RULE 17 AD-15.
</TABLE>
Exhibit 5.1
[RUBIN BAUM LEVIN CONSTANT & FRIEDMAN LETTERHEAD]
August 15, 1996
Board of Directors
UTG Communications, Inc.
18 Cattano Avenue
Morristown, NJ 07960
Re: Registration Statement on Form SB-2
with the Securities and Exchange
Commission (Reg. No. 333-8305)
----------------------------------
Gentlemen:
We have acted as counsel to UTG Communications, Inc. (formerly
United Telegroup International, Inc.), a Delaware corporation (the
"Company"), in connection with the preparation by the Company of its
Registration Statement on Form SB-2 under the Securities Act of 1933, as
amended (the "Registration Statement"), to which this opinion is to be
filed as an exhibit. The Registration Statement relates to the
registration by the Company of 3,156,000 shares (the "Shares") of the
Company's common stock, par value $.00001 per share (the "Common Stock"),
being registered on behalf of Selling Stockholders.
You have requested us to render to you the following opinion. In
connection therewith, we have examined the Registration Statement
(including all amendments thereto), the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions authorizing the
transactions contemplated in connection with the Registration Statement.
We have also examined originals, or copies certified or otherwise
identified to our satisfaction, of such other corporate documents and
records of the Company and certificates of public officials and officers of
the Company, and have made such other investigations, as we have deemed
necessary or appropriate in connection with rendering this opinion. As to
questions of fact material to this opinion, we have, when
<PAGE>
[RUBIN BAUM LEVIN CONSTANT & FRIEDMAN LETTERHEAD]
Board of Directors
UTG Communications, Inc.
August 15, 1996
Page 2
relevant facts were not independently established by us, relied upon
certificates of public officials and information supplied to us by officers
of the Company.
For purposes of this opinion, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals and the conformity to authentic originals of all documents
submitted to us as certified, conformed or photostatic copies.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized and validly
existing under the laws of the State of Delaware.
2. All requisite corporate actions have been taken to authorize
the issuance of the Shares.
3. All of the Shares have been duly authorized for issuance
and, when issued and delivered, will be duly and validly issued fully paid
and non-assessable.
We are attorneys admitted to practice in the State of New York
and do not purport to be experts in, or to render opinions concerning, the
laws of any other jurisdiction other than the laws of the United States of
America.
We hereby consent to the filing of this opinion with the
Securities and Exchange Commission as an exhibit to the Registration
Statement, to the use of our name as your counsel with respect to the
Registration Statement and to all references made to us therein.
RUBIN BAUM LEVIN CONSTANT & FRIEDMAN
Exhibit 10.1
STOCK PURCHASE AGREEMENT
AMONG
UNITED TELEGROUP INTERNATIONAL, INC.
AND
TOM COMBRINCK
AS OF APRIL 30, 1996
<PAGE>
TABLE OF CONTENTS
1.Definitions
2.Purchase and Sale of Target Shares
(a)Basic Transaction
(b)Purchase Price
(c)The Closing
(d)Deliveries at the Closing
3.Representations and Warranties Concerning the Transaction
(a) Representations and Warranties of the Seller
(b) Representations and Warranties of the Buyer
4. Representations and Warranties Concerning the Target and Its
Subsidiaries
(a) Organization, Qualification, and Corporate Power
(b) Capitalization
(c) Noncontravention
(d) Brokers' Fees
(e) Title to Assets
(f) Subsidiaries
(g) Undisclosed Liabilities
(h) Legal Compliance
(i) Contracts
(j) Disclosure
5. Pre-Closing Covenants
(a) General
(b) Notices and Consents
(c) Operation of Business
(d) Preservation of Business
(e) Full Access
(f) Notice of Developments
(g) Exclusivity
6. Post-Closing Covenants
(a) General
(b) Litigation Support
(c) Transition
(d) Confidentiality
(e) Covenant Not to Compete
(f) Certificates
7. Conditions to Obligation to Close
(a) Conditions to Obligation of the Buyer
(b) Conditions to Obligation of the Seller
8. Remedies for Breaches of This Agreement
(a) Survival of Representations and Warranties
(b) Indemnification Provisions for Benefit of the Buyer
(c) Indemnification Provisions for Benefit of the Seller
<PAGE>
(d) Matters Involving Third Parties
(e) Other Indemnification Provisions
9. Tax Matters
(a) Section 338(h)(10) Election
(b) Tax Periods Ending on or Before the Closing Date
(c) Tax Periods Beginning Before and Ending After the Closing Date
(d) Cooperation on Tax Matters
(e) Tax Sharing Agreements
(f) Certain Taxes
10. Termination
(a) Termination of Agreement
(b) Effect of Termination
11. Miscellaneous
(a) Press Releases and Public Announcements
(b) No Third-Party Beneficiaries
(c) Entire Agreement
(d) Succession and Assignment
(e) Counterparts
(f) Headings
(g) Notices
(h) Governing Law
(i) Amendments and Waivers
(j) Severability
(k) Expenses
(l) Construction
(m) Incorporation of Exhibits, Annexes, and Schedules
(n) Specific Performance
(o) Submission to Jurisdiction
Disclosure Schedule -- Exceptions to Representations and Warranties
Concerning the Target and Its Subsidiaries
2
<PAGE>
STOCK PURCHASE AGREEMENT
Agreement entered into as of April 30, 1996, by and among United
Telegroup International, Inc., a Delaware corporation (the "Buyer"), and
-------
Tom Combrinck, an individual (the "Seller"). The Buyer and the Seller are
--------
referred to collectively herein as the "Parties."
----------
The Seller owns 9,998 shares of the outstanding capital stock of
United Telegroup Holding A.G. ZUG, a Swiss corporation (the "Target").
------
This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of
shares of capital stock of the Target owned by the Seller in return for the
Shares (as such term is hereinafter defined).
Now, therefore, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations,
warranties, and covenants herein contained, the Parties agree as follows.
1. Definitions.
------------
"Accredited Investor" has the meaning set forth in Regulation D
---------------------
promulgated under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings,
----------------------
hearings, investigations, charges, complaints, claims, demands,
injunctions, judgments, orders, decrees, rulings, damages, dues, penalties,
fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes,
liens, losses, expenses, and fees, including court costs and reasonable
attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
-----------
promulgated under the Securities Exchange Act.
"Basis" means any past or present fact, situation, circumstance,
-------
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis
for any specified consequence.
"Buyer" has the meaning set forth in the preface above.
-------
"Buyer Share" means any share of the Common Stock, par value $.00001
-------------
per share, of the Buyer.
"Closing" has the meaning set forth in Sec.2(c) below.
---------
"Closing Date" has the meaning set forth in Sec.2(c) below.
--------------
<PAGE>
"Code" means the Internal Revenue Code of 1986, as amended.
------
"Confidential Information" means any information concerning the
--------------------------
businesses and affairs of the Target and its Subsidiaries that is not
already generally available to the public.
"Disclosure Schedule" has the meaning set forth in Sec.4 below.
---------------------
"Financial Statement" has the meaning set forth in Sec.4(g) below.
---------------------
"GAAP" means United States generally accepted accounting principles as
------
in effect from time to time.
"Indemnified Party" has the meaning set forth in Sec.8(d) below.
-------------------
"Indemnifying Party" has the meaning set forth in Sec.8(d) below.
--------------------
"Intellectual Property" means (a) all inventions (whether patentable
-----------------------
or unpatentable and whether or not reduced to practice), all improvements
thereto, and all patents, patent applications, and patent disclosures,
together with all reissuances, continuations, continuations-in-part,
revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
copyrightable works, all copyrights, and all applications, registrations,
and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all
trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing
and production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information,
and business and marketing plans and proposals), (f) all computer software
(including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever
form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
-----------
"Liability" means any liability (whether known or unknown, whether
-----------
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Non-Seller Target Shares" has the meaning set forth in Sec.3(a)(v)
------------------------
below.
"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to
quantity and frequency).
"Party" has the meaning set forth in the preface above.
-------
2
<PAGE>
"Person" means an individual, a partnership, a corporation, an
--------
association, a joint stock company, a trust, a joint venture, an
unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).
"Purchase Price" has the meaning set forth in Sec.2(b) below.
----------------
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934,
-------------------------
as amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
-------------------
charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and
payable or for Taxes that the taxpayer is contesting in good faith through
appropriate proceedings, (c) purchase money liens and liens securing rental
payments under capital lease arrangements, and (d) other liens arising in
the Ordinary Course of Business and not incurred in connection with the
borrowing of money.
"Seller" has the meaning set forth in the preface above.
--------
"Shares" has the meaning set forth in Sec.2(b) below.
--------
"Subsidiary" means any corporation with respect to which a specified
------------
Person (or a Subsidiary thereof) owns a majority of the common stock or has
the power to vote or direct the voting of sufficient securities to elect a
majority of the directors.
"Target" has the meaning set forth in the preface above.
--------
"Target Share" means any share of the common stock of CHF 10 of the
--------------
Target.
"Tax" means any federal, state, local, or foreign income, gross
-----
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under
Code Sec.59A), customs duties, capital stock, franchise, profits, withholding,
social security (or similar), unemployment, disability, real property,
personal property, sales, use, transfer, registration, value added,
alternative or add-on minimum, estimated, or other tax of any kind
whatsoever, including any interest, penalty, or addition thereto, whether
disputed or not.
"Tax Return" means any return, declaration, report, claim for refund,
------------
or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Sec.8(d) below.
-------------------
3
<PAGE>
2. Purchase and Sale of Target Shares.
-----------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of
------------------
this Agreement, the Buyer agrees to purchase from the Seller, and the
Seller agrees to sell to the Buyer, all of the Target Shares owned by the
Seller for the consideration specified below in this Sec.2.
(b) Purchase Price. The Buyer agrees to pay to the Seller at the
---------------
Closing (the "Purchase Price") 7,250,000 shares of the Buyer Shares (the
----------------
"Shares").
- --------
(c) The Closing. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place commencing at 9:00 a.m. local
---------
time on the business day following the satisfaction or waiver of all
conditions to the obligations of the Parties to consummate the transactions
contemplated hereby (other than conditions with respect to actions the
respective Parties will take at the Closing itself) or such other date as
the Buyer and the Seller may mutually determine (the "Closing Date").
--------------
(d) Deliveries at the Closing. At the Closing, (i) the Seller will
--------------------------
deliver to the Buyer the various certificates, instruments, and documents
referred to in Sec.7(a) below, (ii) the Buyer will deliver to the Seller the
various certificates, instruments, and documents referred to in Sec.7(b)
below, (iii) the Seller will deliver to the Buyer stock certificates
representing all of the Target Shares owned by the Seller, endorsed in
blank or accompanied by duly executed assignment documents, and (iv) the
Buyer will deliver to the Seller the consideration specified in Sec.2(b)
above.
3. Representations and Warranties Concerning the Transaction.
----------------------------------------------------------
(a) Representations and Warranties of the Seller. The Seller
---------------------------------------------
represents and warrants to the Buyer that the statements contained in this
Sec.3(a) are correct and complete as of the date of this Agreement and will be
correct and complete as of the Closing Date (as though made then and as
though the Closing Date were substituted for the date of this Agreement
throughout this Sec.3(a)) with respect to the Seller.
(i) Authorization of Transaction. The Seller has full power and
-----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and
legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions. The Seller need not give any notice to,
make any filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order to
consummate the transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
-----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Seller
4
<PAGE>
is subject or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller is a party or by which he or it
is bound or to which any of his or its assets is subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to
--------------
pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
the Buyer could become liable or obligated.
(iv) Investment. The Seller (A) understands that the Shares have
-----------
not been registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Shares for his own account for
investment purposes, and not with a view to the distribution thereof,
(C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning the Buyer and has had the opportunity to obtain additional
information as desired in order to evaluate the merits and the risks
inherent in holding the Shares, (E) is able to bear the economic risk
and lack of liquidity inherent in holding the Shares, and (F) is an
Accredited Investor as such term is defined in the Securities Act.
(v) Target Shares. The Seller holds of record and owns
--------------
beneficially 9,998 Target Shares, free and clear of any restrictions
on transfer (other than any restrictions under the Securities Act and
state securities laws), Taxes, Security Interests, options, warrants,
purchase rights, contracts, commitments, equities, claims, and
demands; except, that, the transfer of the Target Shares owned by the
------ ----
Seller requires a resolution of the Board of Directors of the Target
approving the transfer of such shares. The Seller is not a party to
any option, warrant, purchase right, or other contract or commitment
that could require the Seller to sell, transfer, or otherwise dispose
of any capital stock of the Target (other than this Agreement). The
Seller is not a party to any voting trust, proxy, or other agreement
or understanding with respect to the voting of any capital stock of
the Target. The Target Shares owned by the Seller constitute all
shares of capital stock of the Target except for an aggregate of two
Target Shares owned by two directors of the Target, with each director
owning one of such two Target Shares, (the "Non-Seller Target
-----------------
Shares").
------
(b) Representations and Warranties of the Buyer. The Buyer represents
--------------------------------------------
and warrants to the Seller that the statements contained in this Sec.3(b) are
correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout
this Sec.3(b)).
(i) Organization of the Buyer. The Buyer is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of
the jurisdiction of its incorporation.
5
<PAGE>
(ii) Authorization of Transaction. The Buyer has full power and
-----------------------------
authority (including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding obligation of
the Buyer, enforceable in accordance with its terms and conditions.
The Buyer need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government or
governmental agency in order to consummate the transactions
contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
-----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other
restriction of any government, governmental agency, or court to which
the Buyer is subject or any provision of its charter or bylaws or (B)
conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under
any agreement, contract, lease, license, instrument, or other
arrangement to which the Buyer is a party or by which it is bound or
to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to
--------------
pay any fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated by this Agreement for which
any Seller could become liable or obligated.
(v) Investment. The Buyer is not acquiring the Target Shares with
-----------
a view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
4. Representations and Warranties Concerning the Target and Its
------------------------------------------------------------
Subsidiaries. The Seller represents and warrants to the Buyer that the
- -------------
statements contained in this Sec.4 are correct and complete as of the date of
this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the
date of this Agreement throughout this Sec.4), except as set forth in the
disclosure schedule delivered by the Seller to the Buyer on the date hereof
and initialed by the Parties (the "Disclosure Schedule"). Nothing in the
---------------------
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or warranty made herein, however, unless the Disclosure
Schedule identifies the exception with reasonable particularity and
describes the relevant facts in reasonable detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an
exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or
other item itself). The Disclosure Schedule will be arranged in paragraphs
corresponding to the lettered and numbered paragraphs contained in this Sec.4.
(a) Organization, Qualification, and Corporate Power. Each of the
-------------------------------------------------
Target and its Subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the jurisdiction of its
incorporation. Each of the Target and its Subsidiaries is duly
6
<PAGE>
authorized to conduct business and is in good standing under the laws of
each jurisdiction where such qualification is required. Each of the Target
and its Subsidiaries has full corporate power and authority and all
licenses, permits, and authorizations necessary to carry on the businesses
in which it is engaged and in which it presently proposes to engage and to
own and use the properties owned and used by it. Sec.4(a) of the Disclosure
-----------------------
Schedule lists the directors and officers of each of the Target and its
- --------
Subsidiaries. The Seller has delivered to the Buyer correct and complete
copies of the charter and bylaws of each of the Target and its Subsidiaries
(as amended to date). The minute books (containing the records of meetings
of the stockholders, the board of directors, and any committees of the
board of directors), the stock certificate books, and the stock record
books of each of the Target and its Subsidiaries are correct and complete.
None of the Target and its Subsidiaries is in default under or in violation
of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Target
---------------
consists of 10,000 Target Shares all of which are issued and outstanding.
All of the issued and outstanding Target Shares have been duly authorized,
are validly issued, fully paid, and nonassessable, and are held of record
by the persons or Person's set forth in Sec.4(b) of the Disclosure Schedule.
--------------------------------
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or commitments that could require the Target to issue, sell, or otherwise
cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Target. There are no
voting trusts, proxies, or other agreements or understandings with respect
to the voting of the capital stock of the Target.
(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (i) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which any of the Target and
its Subsidiaries is subject or any provision of the charter or bylaws of
any of the Target and its Subsidiaries or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which any of the Target and its
Subsidiaries is a party or by which it is bound or to which any of its
assets is subject (or result in the imposition of any Security Interest
upon any of its assets). None of the Target and its Subsidiaries needs to
give any notice to, make any filing with, or obtain any authorization,
consent, or approval of any government or governmental agency in order for
the Parties to consummate the transactions contemplated by this Agreement.
(d) Brokers' Fees. None of the Target and its Subsidiaries has any
--------------
Liability or obligation to pay any fees or commissions to any broker,
finder, or agent with respect to the transactions contemplated by this
Agreement.
7
<PAGE>
(e) Title to Assets. The Target and its Subsidiaries have good and
----------------
marketable title to, or a valid leasehold interest in, the properties and
assets used by them or located on their premises, free and clear of all
Security Interests.
(f) Subsidiaries. Other than United Telegroup A.G., Target has no
-------------
Subsidiaries.
(g) Undisclosed Liabilities. None of the Target and its Subsidiaries
------------------------
has any Liability (and there is no Basis for any present or future action,
suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against any of them giving rise to any Liability), which have not
been disclosed in writing to the Buyer.
(h) Legal Compliance. Each of the Target, its Subsidiaries, and their
-----------------
respective predecessors and Affiliates has complied with all applicable
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local,
and foreign governments (and all agencies thereof), and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply.
(i) Contracts. Prior to the date of this Agreement, the Target has
----------
disclosed to the Buyer all material contracts of the Target dated prior to
the date of this Agreement, and the Target has either delivered to the
Buyer, or given the Buyer the opportunity to review, all such material
contracts.
(j) Disclosure. The representations and warranties contained in this
-----------
Sec.4 do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements and information
contained in this Sec.4 not misleading.
5. Pre-Closing Covenants. The Parties agree as follows with respect to
----------------------
the period between the execution of this Agreement and the Closing.
(a) General. Each of the Parties will use his or its reasonable best
--------
efforts to take all action and to do all things necessary, proper, or
advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of
the closing conditions set forth in Sec.7 below).
(b) Notices and Consents. The Seller will cause each of the Target and
---------------------
its Subsidiaries to give any notices to third parties, and will cause each
of the Target and its Subsidiaries to use its reasonable best efforts to
obtain any third party consents, that the Buyer reasonably may request in
connection with the matters referred to in Sec.4(c) above. Each of the Parties
will (and the Seller will cause each of the Target and its Subsidiaries to)
give any notices to, make any filings with, and use its reasonable best
efforts to obtain any authorizations, consents, and approvals of
governments and governmental agencies in connection with the matters
referred to in Sec.3(a)(ii), Sec.3(b)(ii), and Sec.4(c) above.
8
<PAGE>
(c) Operation of Business. The Seller will not cause or permit any of
----------------------
the Target and its Subsidiaries to engage in any practice, take any action,
or enter into any transaction outside the Ordinary Course of Business.
Without limiting the generality of the foregoing, the Seller will not cause
or permit any of the Target and its Subsidiaries to (i) declare, set aside,
or pay any dividend or make any distribution with respect to its capital
stock or redeem, purchase, or otherwise acquire any of its capital stock.
(d) Preservation of Business. The Seller will cause each of the Target
-------------------------
and its Subsidiaries to keep its business and properties substantially
intact, including its present operations, physical facilities, working
conditions, and relationships with lessors, licensors, suppliers,
customers, and employees.
(e) Full Access. The Seller will permit, and the Seller will cause
------------
each of the Target and its Subsidiaries to permit, representatives of the
Buyer to have full access at all reasonable times, and in a manner so as
not to interfere with the normal business operations of the Target and its
Subsidiaries, to all premises, properties, personnel, books, records
(including Tax records), contracts, and documents of or pertaining to each
of the Target and its Subsidiaries.
(f) Notice of Developments. The Seller will give prompt written notice
-----------------------
to the Buyer of any material adverse development causing a breach of any of
the representations and warranties in Sec.4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in Sec.3 above.
No disclosure by any Party pursuant to this Sec.5(f), however, shall be deemed
to amend or supplement the Disclosure Schedule or to prevent or cure any
misrepresentation, breach of warranty, or breach of covenant.
(g) Exclusivity. The Seller will not (and the Seller will not cause or
------------
permit any of the Target and its Subsidiaries to) (i) solicit, initiate, or
encourage the submission of any proposal or offer from any Person relating
to the acquisition of any capital stock or other voting securities, or any
substantial portion of the assets of, any of the Target and its
Subsidiaries (including any acquisition structured as a merger,
consolidation, or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by
any Person to do or seek any of the foregoing. None of the Seller will vote
their Target Shares in favor of any such acquisition structured as a
merger, consolidation, or share exchange. The Seller will notify the Buyer
immediately if any Person makes any proposal, offer, inquiry, or contact
with respect to any of the foregoing.
6. Post-Closing Covenants. The Parties agree as follows with respect
-----------------------
to the period following the Closing.
(a) General. In case at any time after the Closing any further action
--------
is necessary or desirable to carry out the purposes of this Agreement, each
of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any
9
<PAGE>
other Party reasonably may request, all at the sole cost and expense of the
requesting Party (unless the requesting Party is entitled to
indemnification therefor under Sec.8 below). The Seller acknowledges and
agrees that from and after the Closing the Buyer will be entitled to
possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Target and its
Subsidiaries.
(b) Litigation Support. In the event and for so long as any Party
-------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection
with (i) any transaction contemplated under this Agreement or (ii) any
fact, situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or
prior to the Closing Date involving any of the Target and its Subsidiaries,
each of the other Parties will cooperate with him or it and his or its
counsel in the contest or defense, make available their personnel, and
provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost
and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Sec.8 below).
(c) Transition. The Seller will not take any action that is designed
-----------
or intended to have the effect of discouraging any lessor, licensor,
customer, supplier, or other business associate of any of the Target and
its Subsidiaries from maintaining the same business relationships with the
Target and its Subsidiaries after the Closing as it maintained with the
Target and its Subsidiaries prior to the Closing. The Seller will refer all
customer inquiries relating to the businesses of the Target and its
Subsidiaries to the Buyer from and after the Closing.
(d) Confidentiality. The Seller will treat and hold as such all of the
----------------
Confidential Information, refrain from using any of the Confidential
Information except in connection with this Agreement, and deliver promptly
to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which
are in his or its possession. In the event that the Seller is requested or
required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, the Seller will
notify the Buyer promptly of the request or requirement so that the Buyer
may seek an appropriate protective order or waive compliance with the
provisions of this Sec.6(d). If, in the absence of a protective order or the
receipt of a waiver hereunder, the Seller is, on the advice of counsel,
compelled to disclose any Confidential Information to any tribunal or else
stand liable for contempt, that the Seller may disclose the Confidential
Information to the tribunal; provided, however, that the Seller shall use
-----------------
his or its reasonable best efforts to obtain, at the reasonable request of
the Buyer, an order or other assurance that confidential treatment will be
accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate. The foregoing provisions shall not
apply to any Confidential Information which is generally available to the
public immediately prior to the time of disclosure.
(e) Covenant Not to Compete. For a period of two years from and after
------------------------
the Closing Date, the Seller will not engage directly or indirectly in any
business that any of the Target and its
10
<PAGE>
Subsidiaries conducts as of the Closing Date in any geographic area in
which any of the Target and its Subsidiaries conducts that business as of
the Closing Date; provided, however, that no owner of less than 1% of the
-----------------
outstanding stock of any publicly traded corporation shall be deemed to
engage solely by reason thereof in any of its businesses. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this Sec.6(e) is invalid or unenforceable, the Parties agree that
the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or
provision, to delete specific words or phrases, or to replace any invalid
or unenforceable term or provision with a term or provision that is valid
and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which
the judgment may be appealed.
(f) Certificates. Each certificate representing the Shares will be
-------------
imprinted with a legend substantially in the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT FOR THESE SECURITIES UNDER THE
SECURITIES ACT OF 1933 OR AN OPINION OF THE COMPANY'S COUNSEL THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
Each holder desiring to transfer any of the Shares first must furnish the
Buyer with (i) a written opinion reasonably satisfactory to the Buyer in
form and substance from counsel reasonably satisfactory to the Buyer by
reason of experience to the effect that the holder may transfer the Shares
as desired without registration under the Securities Act and (ii) a written
undertaking executed by the desired transferee reasonably satisfactory to
the Buyer in form and substance agreeing to be bound by the recoupment
provisions and the restrictions on transfer contained herein.
7. Conditions to Obligation to Close.
----------------------------------
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer
--------------------------------------
to consummate the transactions to be performed by it in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in Sec.3(a) and Sec.4
above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing;
11
<PAGE>
(iii) the Target and its Subsidiaries shall have procured all of
the third party consents specified in Sec.5(b) above;
(iv) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement, (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, (C) affect adversely the right of the Buyer to own the
Target Shares and to control the Target and its Subsidiaries, or (D)
affect adversely the right of any of the Target and its Subsidiaries
to own its assets and to operate its businesses (and no such
injunction, judgment, order, decree, ruling, or charge shall be in
effect);
(v) the Buyer shall have received the resignations, effective as
of the Closing, of each director and officer of the Target and its
Subsidiaries other than those whom the Buyer shall have specified in
writing prior to the Closing;
(vi) the Board of Directors of the Target shall have adopted a
resolution approving the transfer, in accordance with the provisions
of this Agreement, of the Target Shares owned by the Seller, and such
resolution shall be in full force and effect on and as of the Closing
Date;
(vii) Each of the holders of the Non-Buyer Target Shares shall
have entered into assignment of right agreements and/or other
appropriate trust documents pursuant to which the Buyer shall have
been assigned the voting rights of the Non-Buyer Target Shares, all
such agreements to be in form and substance satisfactory to the Buyer;
and
(ix) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will, unless otherwise set
forth in this Agreement, be reasonably satisfactory in form and
substance to the Buyer.
The Buyer may waive any condition specified in this Sec.7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the
---------------------------------------
Seller to consummate the transactions to be performed by the Seller in
connection with the Closing is subject to satisfaction of the following
conditions:
(i) the representations and warranties set forth in Sec.3(b) above
shall be true and correct in all material respects at and as of the
Closing Date;
12
<PAGE>
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending or
threatened before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction or before any
arbitrator wherein an unfavorable injunction, judgment, order, decree,
ruling, or charge would (A) prevent consummation of any of the
transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling,
or charge shall be in effect); and
(v) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all
certificates, opinions, instruments, and other documents required to
effect the transactions contemplated hereby will, unless otherwise set
forth in this Agreement, be reasonably satisfactory in form and
substance to the Seller.
The Seller may waive any condition specified in this Sec.7(b) if he executes a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
----------------------------------------
(a) Survival of Representations and Warranties.
-------------------------------------------
All of the representations and warranties of the Parties contained in
this Agreement shall survive the Closing hereunder (even if the damaged
Party knew or had reason to know of any misrepresentation or breach of
warranty or covenant at the time of Closing) and continue in full force and
effect forever thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------
(i) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean any of the Seller has
breached) any of their representations, warranties, and covenants
contained herein (other than the covenants in Sec.2(a) above and the
representations and warranties in Sec.3(a) above), and, if there is an
applicable survival period pursuant to Sec.8(a) above, provided that the
Buyer makes a written claim for indemnification against any of the
Seller pursuant to Sec.11(h) below within such survival period, then the
Seller agrees to indemnify the Buyer from and against the entirety of
any Adverse Consequences the Buyer may suffer through and after the
date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
13
<PAGE>
(ii) In the event the Seller breaches (or in the event any third
party alleges facts that, if true, would mean any of the Seller has
breached) any of his covenants in Sec.2(a) above or any of his
representations and warranties in Sec.3(a) above, and, if there is an
applicable survival period pursuant to Sec.8(a) above, provided that the
Buyer makes a written claim for indemnification against the Seller
pursuant to Sec.11(h) below within such survival period, then the Seller
agrees to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer through and after the date
of the claim for indemnification (including any Adverse Consequences
the Buyer may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(iii) The Seller agrees to indemnify the Buyer from and against
the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or
caused by any Liability of any of the Target and its Subsidiaries (x)
for any Taxes of the Target and its Subsidiaries with respect to any
Tax year or portion thereof ending on or before the Closing Date (or
for any Tax year beginning before and ending after the Closing Date to
the extent allocable (determined in a manner consistent with Sec.9(c)) to
the portion of such period beginning before and ending on the Closing
Date), to the extent such Taxes are not reflected in the reserve for
Tax Liability (rather than any reserve for deferred Taxes established
to reflect timing differences between book and Tax income) shown on
the face of the Targets most recent financial statements (rather than
in any notes thereto), as such reserve is adjusted for the passage of
time through the Closing Date in accordance with the past custom and
practice of the Target and its Subsidiaries in filing their Tax
Returns.
(c) Indemnification Provisions for Benefit of the Seller. In the event
-----------------------------------------------------
the Buyer breaches (or in the event any third party alleges facts that, if
true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained herein, and, if there is an applicable
survival period pursuant to Sec.8(a) above, provided that the Seller makes a
written claim for indemnification against the Buyer pursuant to Sec.11(h)
below within such survival period, then the Buyer agrees to indemnify the
Seller from and against the entirety of any Adverse Consequences the Seller
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Seller may suffer after the end of
any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
--------------------------------
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may
------ -------------------
give rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Sec.8, then the Indemnified Party shall
--------------------
promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in
-------
notifying any
14
<PAGE>
Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its
choice reasonably satisfactory to the Indemnified Party so long as (A)
the Indemnifying Party notifies the Indemnified Party in writing
within 15 days after the Indemnified Party has given notice of the
Third Party Claim that the Indemnifying Party will indemnify the
Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party
Claim, (B) the Indemnifying Party provides the Indemnified Party with
evidence reasonably acceptable to the Indemnified Party that the
Indemnifying Party will have the financial resources to defend against
the Third Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief, (D) settlement
of, or an adverse judgment with respect to, the Third Party Claim is
not, in the good faith judgment of the Indemnified Party, likely to
establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim
actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense
of the Third Party Claim in accordance with Sec.8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B)
the Indemnified Party will not consent to the entry of any judgment or
enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Indemnifying Party (not to be
withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably).
(iv) In the event any of the conditions in Sec.8(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not
consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Parties will reimburse the
Indemnified Party promptly and periodically for the costs of defending
against the Third Party Claim (including reasonable attorneys' fees
and expenses), and (C) the Indemnifying Parties will remain
responsible for any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim to the fullest extent provided in
this Sec.8.
(e) Other Indemnification Provisions. The foregoing indemnification
---------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party
15
<PAGE>
may have for breach of representation, warranty, or covenant. The Seller
hereby agrees that he will not make any claim for indemnification against
any of the Target and its Subsidiaries by reason of the fact that he or it
was a director, officer, employee, or agent of any such entity or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such claim is pursuant to any
statute, charter document, bylaw, agreement, or otherwise) with respect to
any action, suit, proceeding, complaint, claim, or demand brought by the
Buyer against the Seller (whether such action, suit, proceeding, complaint,
claim, or demand is pursuant to this Agreement, applicable law, or
otherwise).
9. Tax Matters. The following provisions shall govern the allocation
------------
of responsibility as between the Buyer and the Seller for certain tax
matters following the Closing Date:
(a) Section 338(h)(10) Election. The Seller agrees, if so directed by
----------------------------
the Buyer, to join with Buyer in making an election under Section
338(h)(10) of the Code (and any corresponding elections under state, local,
or foreign tax law) (collectively, a "Section 338(h)(10) Election") with
respect to the purchase and sale of the stock of the Target hereunder.
Seller will pay any Tax, including any liability of Target for Tax
resulting from the application to it of Treasury Regulation Sec.
1.338(h)(10)-1(f)(5), attributable to the making of the Section 338(h)(10)
Election and will indemnify the Buyer, Target, and its Subsidiaries against
any Adverse Consequences arising out of any failure to pay such Tax. The
Seller will also pay any state, local, or foreign Tax (and indemnify the
Buyer, and the Target, and its Subsidiaries against any Adverse
Consequences arising out of any failure to pay such Tax) attributable to an
election under state, local or foreign law similar to the election
available under Section 338(g) of the Code (or which results from the
making of an election under Section 338(g) of the Code) with respect to the
purchase and sale of the stock of the Target hereunder.
(b) Tax Periods Ending on or Before the Closing Date. The Buyer shall
-------------------------------------------------
prepare or cause to be prepared and file or cause to be filed all Tax
Returns for the Target and its Subsidiaries for all periods ending on or
prior to the Closing Date which are filed after the Closing Date other than
income Tax Returns with respect to periods for which a consolidated,
unitary or combined income Tax Return of Seller will include the operations
of the Target and its Subsidiaries. The Buyer shall permit the Target and
its Subsidiaries to review and comment on each such Tax Return described in
the preceding sentence prior to filing. The Seller shall reimburse the
Buyer for Taxes of the Target and its Subsidiaries with respect to such
periods within fifteen (15) days after payment by the Buyer or the Target
and its Subsidiaries of such Taxes to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) shown on the face of the last balance sheet of the Target
prepared prior to the Closing Date.
(c) Tax Periods Beginning Before and Ending After the Closing Date.
---------------------------------------------------------------
The Buyer shall prepare or cause to be prepared and file or cause to be
filed any Tax Returns of the Target and
16
<PAGE>
its Subsidiaries for Tax periods which begin before the Closing Date and
end after the Closing Date. Seller shall pay to Buyer within fifteen (15)
days after the date on which Taxes are paid with respect to such periods an
amount equal to the portion of such Taxes which relates to the portion of
such Taxable period ending on the Closing Date to the extent such Taxes are
not reflected in the reserve for Tax Liability (rather than any reserve for
deferred Taxes established to reflect timing differences between book and
Tax income) shown on the face of the last balance sheet of the Target
prepared prior to the Closing Date. For purposes of this Section, in the
case of any Taxes that are imposed on a periodic basis and are payable for
a Taxable period that includes (but does not end on) the Closing Date, the
portion of such Tax which relates to the portion of such Taxable period
ending on the Closing Date shall (x) in the case of any Taxes other than
Taxes based upon or related to income or receipts, be deemed to be the
amount of such Tax for the entire Taxable period multiplied by a fraction
the numerator of which is the number of days in the Taxable period ending
on the Closing Date and the denominator of which is the number of days in
the entire Taxable period, and (y) in the case of any Tax based upon or
related to income or receipts be deemed equal to the amount which would be
payable if the relevant Taxable period ended on the Closing Date. Any
credits relating to a Taxable period that begins before and ends after the
Closing Date shall be taken into account as though the relevant Taxable
period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Target and its Subsidiaries.
(d) Cooperation on Tax Matters.
---------------------------
(i) The Buyer, the Target and its Subsidiaries and the Seller
shall cooperate fully, as and to the extent reasonably requested by
the other party, in connection with the filing of Tax Returns pursuant
to this Section and any audit, litigation or other proceeding with
respect to Taxes. Such cooperation shall include the retention and
(upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Target and its
Subsidiaries and the Seller agree (A) to retain all books and records
with respect to Tax matters pertinent to the Target and its
Subsidiaries relating to any taxable period beginning before the
Closing Date until the expiration of the statute of limitations (and,
to the extent notified by the Buyer or the Seller, any extensions
thereof) of the respective taxable periods, and to abide by all record
retention agreements entered into with any taxing authority, and (B)
to give the other party reasonable written notice prior to
transferring, destroying or discarding any such books and records and,
if the other party so requests, the Target and its Subsidiaries or
Seller, as the case may be, shall allow the other party to take
possession of such books and records.
(ii) Buyer and Seller further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person
17
<PAGE>
as may be necessary to mitigate, reduce or eliminate any Tax that
could be imposed (including, but not limited to, with respect to the
transactions contemplated hereby).
(iii) The Buyer and the Seller further agree, upon request, to
provide the other party with all information that either party may be
required to report pursuant to Section 6043 of the Code and all
Treasury Department Regulations promulgated thereunder.
(e) Tax Sharing Agreements. All tax sharing agreements or similar
-----------------------
agreements with respect to or involving the Target and its Subsidiaries
shall be terminated as of the Closing Date and, after the Closing Date, the
Target and its Subsidiaries shall not be bound thereby or have any
liability thereunder.
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
--------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New
York State Gains Tax, New York City Transfer Tax and any similar tax
imposed in other states or subdivisions), shall be paid by Seller when due,
and Seller will, at their own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales,
use, stamp, registration and other Taxes and fees, and, if required by
applicable law, the Buyer will, and will cause its affiliates to, join in
the execution of any such Tax Returns and other documentation.
10. Termination.
------------
(a) Termination of Agreement. The Parties may terminate this Agreement
-------------------------
as provided below:
(i) the Buyer and the Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written
notice to the Seller at any time prior to the Closing (A) in the event
any of the Seller has breached any material representation, warranty,
or covenant contained in this Agreement in any material respect, the
Buyer has notified the Seller of the breach, and the breach has
continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall not have occurred within 60 days of
the date of this Agreement, by reason of the failure of any condition
precedent under Sec.7(a) hereof (unless the failure results primarily
from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iii) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event
the Buyer has breached any material representation, warranty, or
covenant contained in this Agreement in any material respect, the
Seller has notified the Buyer of the breach, and the breach has
continued without cure for a period of 30 days after the notice of
breach or (B) if the Closing shall
18
<PAGE>
not have occurred within 60 days of the date of this Agreement, by
reason of the failure of any condition precedent under Sec.7(b) hereof
(unless the failure results primarily from any of the Seller
themselves breaching any representation, warranty, or covenant
contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement
----------------------
pursuant to Sec.10(a) above, all rights and obligations of the Parties
hereunder shall terminate without any Liability of any Party to any other
Party (except for any Liability of any Party then in breach).
11. Miscellaneous.
--------------
(a) Press Releases and Public Announcements. No Party shall issue any
----------------------------------------
press release or make any public announcement relating to the subject
matter of this Agreement prior to the Closing without the prior written
approval of the Buyer and the Seller; provided, however, that any Party may
-----------------
make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its
reasonable best efforts to advise the other Parties prior to making the
disclosure).
(b) No Third-Party Beneficiaries. This Agreement shall not confer any
-----------------------------
rights or remedies upon any Person other than the Parties and their
respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred
-----------------
to herein) constitutes the entire agreement among the Parties and
supersedes any prior understandings, agreements, or representations by or
among the Parties, written or oral, to the extent they related in any way
to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement
or any of his or its rights, interests, or obligations hereunder without
the prior written approval of the Buyer and the Seller; provided, however,
-----------------
that the Buyer may (i) assign any or all of its rights and interests
hereunder to one or more of its Affiliates and (ii) designate one or more
of its Affiliates to perform its obligations hereunder (in any or all of
which cases the Buyer nonetheless shall remain responsible for the
performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are
---------
inserted for convenience only and shall not affect in any way the meaning
or interpretation of this Agreement.
19
<PAGE>
(g) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing. Any notice, request, demand,
claim, or other communication hereunder shall be deemed duly given if (and
then two business days after) it is sent by registered or certified mail,
return receipt requested, postage prepaid, and addressed to the intended
recipient at the addresses set forth on the signature page hereto. Any
Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set on the signature
page hereto using any other means (including personal delivery, expedited
courier, messenger service, telecopy, telex, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the address to
which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other Parties notice in the
manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed
----------------------------------------------------------------
in accordance with the domestic laws of the State of Delaware without
- ---------------------------------------------------------------------
giving effect to any choice or conflict of law provision or rule (whether
- -------------------------------------------------------------------------
of the State of Delaware or any other jurisdiction) that would cause the
- ------------------------------------------------------------------------
application of the laws of any jurisdiction other than the State of
- -------------------------------------------------------------------
Delaware.
- ---------
(i) Amendments and Waivers. No amendment of any provision of this
-----------------------
Agreement shall be valid unless the same shall be in writing and signed by
the Buyer and the Seller. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent
such occurrence.
(j) Severability. Any term or provision of this Agreement that is
-------------
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and provisions
hereof or the validity or enforceability of the offending term or provision
in any other situation or in any other jurisdiction.
(k) Expenses. Each of the Parties, the Target, and its Subsidiaries
---------
will bear his or its own costs and expenses (including legal fees and
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby. The Seller agrees that none of the Target and its
Subsidiaries has borne or will bear any of the Seller's costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the
-------------
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to
refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise. The word "including" shall mean including
without limitation. The
20
<PAGE>
Parties intend that each representation, warranty, and covenant contained
herein shall have independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(m) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
--------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein
by reference and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees
---------------------
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each of the Parties
agrees that the other Parties 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 provisions hereof in
any action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter (subject to the
provisions set forth in Sec.10(o) below), in addition to any other remedy to
which they may be entitled, at law or in equity.
(o) Submission to Jurisdiction. Each of the Parties submits to the
---------------------------
jurisdiction of any state or federal court sitting in Kent County,
Delaware, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or proceeding
may be heard and determined in any such court. Each Party also agrees not
to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so
brought and waives any bond, surety, or other security that might be
required of any other Party with respect thereto.
21
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
BUYER: UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
-------------------------------------
Name:
Title:
Address for notice:
_________________________________
_________________________________
_________________________________
_________________________________
With a copy to:
Walter M. Epstein, Esq.
Rubin Baum Levin Constant & Friedman
30 Rockefeller Plaza
29th Floor
New York, New York 10112
SELLER: \s\ Tom Combrinck
-------------------------------------
Name:Tom Combrinck
Address for notice:
_________________________________
_________________________________
_________________________________
_________________________________
With a copy to:
_________________________________
_________________________________
_________________________________
_________________________________
22
<PAGE>
DISCLOSURE SCHEDULE
Section 4(a):
- ------------
United Telegroup Holding AG and United Telegroup AG:
Tom Combrick - Chairman of the Board
Peter Kundig - Member of the Board
Franco Reinschmidt - Member of the Board
Andreas Popovici - Officer
Section 4(b):
- ------------
Tom Combrick - 9,998 shares
Peter Kundig - 1 share
Franco Reinschmidt - 1 share
Exhibit 10.2
UNITED TELEGROUP INTERNATIONAL, INC.
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of April 30, 1996, by and between
United Telegroup International, Inc., a Delaware corporation (the
"Company"), having an address at c/o Walter M. Epstein, Esq., 30
Rockefeller Plaza, 29th Floor, New York, New York, and the subscriber
signatory hereto (the "Subscriber").
1. Subscription. The Subscriber agrees with the Company to
------------
subscribe for and agrees to purchase and pay for 183,333 shares (the
"Shares") of the Company's Common Stock, par value $.00001 (the "Common
Stock") for an aggregate purchase price of $200,000 cash. This
subscription is submitted to the Company in accordance with and subject to
the terms and conditions described in this Subscription Agreement.
The Subscriber acknowledges that this subscription for the Shares
is subject to acceptance by the Company. The Subscriber acknowledges that
the Company reserves the right to accept or reject any subscriptions in
whole or in part. Subject to the terms hereof, this subscription will
become effective upon its acceptance by the Company.
The check of the Subscriber payable to the Company in the amount
of $200,000 accompanies the delivery of this Subscription Agreement.
In the event this subscription is not accepted by the Company,
any consideration tendered will be promptly refunded in full without
interest.
2. Representations of the Subscriber. The Subscriber hereby
---------------------------------
represents and warrants to the Company that:
(a) the subscription hereunder is being made by the Subscriber as
principal for the Subscriber's own account and not for the
benefit of any other person;
(b) the Subscriber is a resident of the jurisdiction set out on the
signature page hereof;
(c) this agreement constitutes a legal, valid, binding and
enforceable obligation of the Subscriber;
(d) the Subscriber will not make any offers to sell the Shares or
sell any of the Shares except in accordance with the terms of
this Subscription Agreement;
<PAGE>
2
(e) the Subscriber has such knowledge, sophistication and experience
in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Shares,
and at the present time, it could afford a complete loss of such
investment;
(f) the Subscriber acknowledges that the Company and counsel for the
Company will rely upon the accuracy and truth of the Subscriber's
representations in Sections 2 and 3 hereof and the Subscriber
hereby consents to such reliance;
(g) the Subscriber has access to the same kind of information which
would be available in registration statements filed by the
Company under the Securities Act;
(h) neither the United States ("U.S.") Securities and Exchange
Commission (the "SEC") nor any state securities commission has
approved any of the Shares offered or passed upon or endorsed the
merits of the offering;
(i) the Subscriber acknowledges that all documents, records, and
books pertaining to the investment in the Shares have been made
available for inspection by him, his attorney, accountant,
purchaser representative or tax advisor (collectively, the
"Advisors");
(j) the Subscriber and the Advisors have had a reasonable opportunity
to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the offering of the
Shares and all such questions have been answered to the full
satisfaction of the Subscriber and his Advisors;
(k) in evaluating the suitability of an investment in the Company,
the Subscriber has not relied upon any representation or other
information (oral or written) other than as contained in
documents or answers to questions so furnished to the Subscriber
or his Advisors by the Company;
(l) the Subscriber is unaware of, and in no way relying on, any form
of general solicitation or general advertising in connection with
the offer and sale of the Shares;
(m) the Subscriber has such knowledge and experience in financial,
tax, and business matters so as to enable him to utilize the
information made available to him in connection with the offering
of the Shares to
<PAGE>
3
evaluate the merits and risks of an investment in the Shares and
to make an informed investment decision with respect thereto;
(n) the Subscriber is not relying on the Company respecting the tax
and other economic considerations of an investment in the Shares,
and the Subscriber has relied on the advice of, or has consulted
with, only his own Advisors;
(o) the Subscriber is acquiring the Shares solely for his own account
for investment and not with a view to distribution, other than in
accordance with the terms hereof;
(p) the Subscriber must bear the economic risk of the investment
indefinitely because none of the Shares may be sold, hypothecated
or otherwise disposed of unless subsequently registered under the
Act and applicable state securities laws or an exemption from
registration is available;
(q) the Subscriber has adequate means of providing for its current
needs and foreseeable contingencies and has no need for its
investment in the Shares to be liquid;
(r) the Subscriber has completed accurately the Subscriber
Questionnaire attached hereto as Exhibit A and meets the
---------
requirements of at least one of the suitability standards for an
"accredited investor;" and
(s) the Subscriber: (i) if a natural person represents that the
Subscriber has reached the age of 21 and has full power and
authority to execute and deliver this Subscription Agreement and
all other related agreements or certificates and to carry out the
provisions hereof and thereof; (ii) if a corporation,
partnership, association, joint stock company, trust,
unincorporated organization or other entity represents that such
entity was not formed for the specific purpose of acquiring the
Shares, such entity is validly existing under the laws of the
state of its organization, the consummation of the transactions
contemplated hereby is authorized by, and will not result in a
violation of state law or its charter or other organizational
documents, such entity has full power and authority to execute
and deliver this Subscription Agreement and all other related
agreements or certificates and to carry out the provisions hereof
and thereof, this Subscription Agreement has been duly authorized
by all necessary action, this Subscription Agreement has been
duly executed and delivered on behalf of such entity and is a
legal, valid and binding obligation of such entity; and (iii) if
executing this Subscription
<PAGE>
4
Agreement in a representative or fiduciary capacity, represents
that it has full power and authority to execute and deliver this
Subscription Agreement in such capacity and on behalf of the
subscribing individual, ward, partnership, trust, estate,
corporation, or other entity for whom the Subscriber is executing
this Subscription Agreement, and such individual, ward,
partnership, trust, estate, corporation, or other entity has full
right and power to perform pursuant to this Subscription
Agreement and make an investment in the Company, and that this
Subscription Agreement constitutes a legal, valid and binding
obligation of such entity; and
3. Acknowledgments; representations and covenants of the Subscriber
----------------------------------------------------------------
with respect to U.S. securities laws; securities transfers.
- ----------------------------------------------------------
(a) The Subscriber understands that the Shares and Common Stock have
not been registered (i) under the U.S. Securities Act of 1933, as
amended (the "Securities Act") with the SEC in reliance upon the
exemption from such registration requirements afforded by
Regulation S under the Securities Act, governing the offer and
sale of securities that occur outside the U.S., or (ii) with any
state securities commission. the Subscriber understands that the
Shares may not be offered, sold, transferred or otherwise
disposed of in the U.S., its territories or possessions, or to
persons known to be residents of the U.S. or to a "U.S. person"
within the meaning of Regulation S under the Securities Act
("U.S. Person"; see the definition of U.S. Person annexed hereto
as Exhibit B) until the earlier to occur of the effectiveness of
---------
a registration statement registering the Shares under the
Securities Act or the expiration of the restricted period (as
defined by Regulation S under the Securities Act) and thereafter
only if the Shares are registered under the Securities Act or an
exemption from the registration requirements under the Securities
Act is available.
(b) The Subscriber hereby represents and warrants that the Subscriber
is not a resident of the U.S. and is not otherwise deemed to be a
U.S. Person.
(c) The Subscriber agrees that if it should resell or transfer the
Securities within three years after the original issuance of the
Shares it will do so only (a) outside the United States in
compliance with Rule 904 under the Securities Act, (b) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available) or other applicable exemption under
the Securities Act and state securities laws; (c) in a
transaction that does not require registration under the
<PAGE>
5
Securities Act or any applicable state laws, or (d) pursuant to a
registration statement that has been declared effective under the
Securities Act.
(d) The Subscriber agrees that it will give each person to whom it
transfers such Securities notice of any restrictions on transfer
of such Securities, if then applicable. If a transfer of
Securities is proposed to be made within three years after the
original issuance of the Shares, the holder (or beneficial
holder, as the case may be) will be required to furnish to the
Company (or, in the case of the Common Stock, the transfer agent
for the Common Stock), such certifications, legal opinions, or
other information as the Company may reasonably require to
confirm that the proposed transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(e) Each certificate representing the Shares will bear the following
legend (unless such Shares have been transferred pursuant to a
registration statement that has been declared effective under the
Securities Act):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF U.S. PERSON EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SHARES: (1) IT
WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED
HEREBY EXCEPT (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (B) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR OTHER THEN APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT AND STATE SECURITIES LAWS, (C) IN A TRANSACTION
THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE LAWS, OR (D) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES
ACT (AND WHICH CONTINUES TO BE EFFECTIVE AT THE TIME OF SUCH
TRANSFER); (2) PRIOR TO ANY SUCH TRANSFER
<PAGE>
6
(OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D) ABOVE), IT WILL
FURNISH TO THE COMPANY OR THE TRANSFER AGENT FOR THE COMMON STOCK
SUCH CERTIFICATIONS, LEGAL OPINIONS, OR OTHER INFORMATION AS THE
COMPANY OR SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM
THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM,
OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR STATE SECURITIES LAWS, AND (3) IT WILL
DELIVER TO EACH PERSON TO WHOM THE COMMON STOCK EVIDENCED HEREBY
IS TRANSFERRED (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D)
ABOVE) A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. THIS
LEGEND MAY BE REMOVED UPON THE EARLIER OF THE TRANSFER OF THE
COMMON STOCK EVIDENCED HEREBY PURSUANT TO CLAUSE 1(D) ABOVE OR
THE EXPIRATION OF THREE YEARS FROM THE ORIGINAL ISSUANCE OF THE
SHARES UPON THE CONVERSION OF WHICH THE COMMON STOCK EVIDENCED
HEREBY WAS ISSUED OR UPON THE EARLIER SATISFACTION OF THE COMPANY
OR THE TRANSFER AGENT FOR THE COMMON STOCK THAT THE COMMON STOCK
HAS BEEN OR IS BEING OFFERED AND SOLD IN COMPLIANCE WITH RULE 904
UNDER THE SECURITIES ACT OR SUCH OTHER THEN APPLICABLE EXEMPTION
OR TRANSACTION THAT LEGENDING IS NO LONGER REQUIRED. AS USED
HEREIN, THE TERMS "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE SECURITIES ACT.
(f) The Subscriber understands and agrees that any disposition of the
Shares in violation of this Agreement shall be null and void, and
that no transfer of the Shares likely will be made by the Company
or the Company's transfer agent upon the Company's stock transfer
books unless there has been compliance with the terms of this
Agreement. The Subscriber also understands and agrees that the
Company likely will issue stop transfer instructions to the
Company's transfer agent instructing such transfer agent, prior
to the effectiveness of the Registration Statement, during the
restricted period (as defined by Regulation S under the
Securities Act), not to transfer the or certificate(s) evidencing
the Shares to U.S. Persons.
<PAGE>
7
(g) The Subscriber (i) acknowledges that the Shares have not been
registered under the Securities Act and that the Company has no
obligation to so register any of the Shares, (ii) represents and
warrants that the Subscriber is acquiring beneficial ownership of
the Shares for the Subscriber's own account and not for the
account or benefit of a U.S. Person or other person, and (iii)
agrees that the Subscriber will not transfer or otherwise dispose
of any of the Shares unless such transfer or other disposition is
registered under the Securities Act or is in accordance with
Regulation S under the Securities Act or otherwise is exempt from
registration under the Securities Act.
4. Covenants. The Subscriber acknowledges that in making its
---------
decision to subscribe for the Shares, it has not relied upon the advice of
any adviser to the Company or of any other third party.
5. Further Assurances. Each of the parties hereto agrees to execute
------------------
and deliver such documents, make such filings and do all such things as are
required by, and to comply with the provisions of the Securities Act, any
other applicable securities legislation and any orders, policies, rules or
regulations of the SEC, the National Association of Securities Dealers,
Inc. or other relevant regulatory authorities concerning the issuance by
the Company and the purchase, holding and resale by the Subscriber of the
Shares.
6. Modification. This Subscription Agreement shall not be modified
------------
or waived except by an instrument in writing signed by the party against
whom any such modification or waiver is sought.
7. Assignability. This Subscription Agreement and the rights and
-------------
obligations hereunder are not transferable or assignable by the Subscriber.
8. Blue Sky Qualification. The Subscriber's right to purchase
----------------------
Shares under this Subscription Agreement are expressly conditioned upon the
exemption from qualification of the offer and sale of the Shares from
applicable Federal and state securities laws. The Company shall not be
required to qualify this transaction under the securities laws of any
jurisdiction and, should qualification be necessary, the Company shall be
released from any and all obligations to maintain its offer, and may
rescind any sale contracted, in the jurisdiction.
9. Survival Indemnification. All of the covenants, representations
------------------------
and warranties contained herein shall survive the closing of the purchase
and sale of the Shares hereunder. The Subscriber agrees to indemnify and
hold harmless the Company and each director, officer, employee, agent or
representative thereof from and against any and all loss, damage or
liability and related costs and expenses
<PAGE>
8
(including but not limited to, reasonable attorneys' fees and costs of
investigation) due to or arising out of a breach of any covenant,
representation or warranty made by him in this Agreement.
10. Agreement. The Subscriber agrees that by executing this
---------
subscription agreement an irrevocable agreement of purchase and sale of the
Shares shall be created upon its acceptance by the Company. This Agreement
constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof and may be amended only by a writing executed by
all parties.
11. Notices. All notices or other communications given or made
-------
hereunder shall be in writing and shall be delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid to
the Subscriber at the address set forth on the signature page hereof, and
to the Company at the address set forth in the first paragraph hereof.
12. Offering Restrictions. The Shares have not been registered under
---------------------
the Securities Act and the Subscriber agrees that during the restricted
period (as such term is defined in Regulation S) it will not sell any of
the Shares within the U.S. or to, or for the account or benefit of, U.S.
Persons except pursuant to an effective registration statement registering
the Shares under the Securities Act, in accordance with Regulation S under
the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Neither the Subscriber, its affiliates
nor any persons acting on its behalf have engaged or will engage in any
directed selling efforts (as such term is defined in Regulation S) with
respect to the Shares and the Subscriber has complied with and will comply
with the offering restrictions requirement of Regulation S for as long as
such requirement is applicable. If any sales of the Shares are made by the
Subscriber during the restricted period (as defined in Regulation S)
pursuant to Regulation S then the Subscriber hereby agrees to make such
sales in compliance with Regulation S.
13. Governing Law. Notwithstanding the place where this Agreement
-------------
may be executed by any of the parties hereto, the parties expressly agree
that all the terms and provisions hereof shall be governed by, and
constituted in accordance with, the laws of the State of Delaware without
regard to the choice of law principles thereof.
14. Validity. The holding of any provision of this Subscription
--------
Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Subscription
Agreement, which shall remain in full force and effect.
15. Time. Time shall be of the essence hereof.
----
<PAGE>
9
16. Inurement. This agreement shall inure to the benefit of and be
---------
binding upon the respective legal representatives and successors of the
parties.
17. Counterparts. This Subscription Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute this
subscription by signing any of such counterpart and delivering the same by
telex, telecopy, telegraph, cable or otherwise in writing (each delivery by
any of such means to be deemed to be "in writing" for purposes of this
subscription agreement).
Witness: Subscriber:
Interfinance Inv. Co. Ltd.
By: \s\ Ulrich Ernst
------------------------------ -------------------------
Name: Name:
Title:
Primary Residence of the
Subscriber:
----------------------------
----------------------------
the Subscriber's Address for
Notices and Delivery of
Securities:
----------------------------
----------------------------
Subscription accepted as of April 30, 1996
UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
------------------------------
Name:
Title:
<PAGE>
EXHIBIT A TO SUBSCRIPTION AGREEMENT
INVESTOR QUESTIONNAIRE
----------------------
ALL INVESTORS MUST INITIAL THE FOLLOWING:
- ----------------------------------------
___ The undersigned understands that the representations contained in this
Investor Questionnaire qualifying or disqualifying it as an accredited
investor as that term is defined in Rule 501 of Regulation D
promulgated under the Act are made for the purpose of inducing a sale
of securities to the undersigned. The undersigned understands and
acknowledges that the Company will rely upon such representations.
The undersigned hereby represents that the statement or statements
initialed below are true and correct in all respects, and the
undersigned will notify the Company immediately of any material change
in any of the information contained in such statement or statements.
The undersigned understands that any false representations may
constitute a violation of law and that any company or person who
suffers damages as a result of such false representations may have a
claim against it for damages.
AN INVESTOR SHOULD INITIAL ANY OF THE FOLLOWING STATEMENTS THAT APPLY TO IT:
- ---------------------------------------------------------------------------
___ (a) The undersigned certifies that it is an accredited investor
because it is either (i) a bank as defined in Section 3(a)(2) of the
Act, or savings and loan association or other institution as defined
in Section 3(a)(5)(a) of the Act whether acting in its individual or
fiduciary capacity, (ii) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, (iii) an insurance
company as defined in Section 2(13) of the Act, (iv) an investment
company registered under the Investment Company Act of 1940 or a
business development company registered under the Investment Company
Act of 1940 or a business development company as defined in Section
2(a)(48) of such Act, (v) a small business investment company licensed
by the United States Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958, (v) a plan
established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivi-
sions, for the benefit of its employees, if such plan has total assets
in excess of $5,00,000, or (vii) an employee benefit plan within the
meaning of the Employee Retirement Income Security Act of 1974 if
investment decisions are made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or
an employee benefit plan that has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors.
___ (b) The undersigned certifies that it is an accredited investor
because it is a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
<PAGE>
2
___ (c) The undersigned certifies that it is an accredited investor
because it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, business trust, or partnership
with total assets in excess of $5,000,000.
___ (d) The undersigned certifies that it is an accredited investor
because it is a trust, with total asses in excess of $5,000,000, whose
purchases of securities are directed by a person who has such
knowledge and experience in financial and business matters that he/she
is capable of evaluating the merits and risks of an investment in the
Company.
___ (e) The undersigned certifies that it is an accredited investor
because it is an entity in which all of the equity owners are
accredited investors. Each such equity owner must also properly
complete and submit a Investor Questionnaire as if such equity owner
was a shareholder. If this section applies a questionnaire for
individuals is available upon request from the Company.
<PAGE>
1
EXHIBIT B TO SUBSCRIPTION AGREEMENT
Definition of "U.S. Person"
---------------------------
Regulation S. Rule 902(o) provides:
(1) "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is a
U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the
United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B)
formed by a U.S. person principally for the purpose of investing
in securities not registered under the Act, unless it is
organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a) who are not natural persons, estates or
trusts.
(2) Notwithstanding paragraph (o)(1), of this rule, any discretionary
account or similar account (other than an estate or trust) held for the
benefit or account of a non-U.S. person by a dealer or other professional
fiduciary organized, incorporated, or (if an individual) resident in the
United States shall not be deemed a "U.S. person."
<PAGE>
2
(3) Notwithstanding paragraph (o)(1), any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect
to the assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1), any trust of which any
professional fiduciary acting as trustee is a U.S. person shall not be
deemed a U.S. person if a trustee who is not a U.S. person has sole or
shared investment discretion with respect to the trust assets, and no
beneficiary of the trust (and no settlor if the trust is revocable) is a
U.S. person.
(5) Notwithstanding paragraph (o)(1), an employee benefit plan
established and administered in accordance with the law of a country other
than the United States and customary practices and documentation of such
country shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1), any agency or branch of a U.S.
person located outside the United States shall not be deemed a "U.S.
person" if:
(i) The agency or branch operates for valid business
reasons; and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or
banking regulations, respectively, in jurisdictions where
located.
(7) The International Monetary Fund, the International Bank of
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations,
and their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
For the purposes of the foregoing "United States" means the
United States of America, its territories and possessions, any State of the
United States, and the District of Columbia.
Exhibit 10.3
UNITED TELEGROUP INTERNATIONAL, INC.
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of April 30, 1996, by and between
United Telegroup International, Inc., a Delaware corporation (the
"Company"), having an address c/o Walter M. Epstein, Esq., 30 Rockefeller
Plaza, 29th Floor, New York, New York, and the subscriber signatory hereto
(the "Subscriber").
1. Subscription. The Subscriber agrees with the Company to
------------
subscribe for and agrees to purchase and pay for 2,566,667 shares (the
"Shares") of the Company's Common Stock, par value $.00001 (the "Common
Stock") for an aggregate purchase price of $2,800,000 consisting of $26.00
in cash and a secured promissory note in the amount of $2,799,974 (the
"Note"). This subscription is submitted to the Company in accordance with
and subject to the terms and conditions described in this Subscription
Agreement.
The Subscriber acknowledges that this subscription for the Shares
is subject to acceptance by the Company. The Subscriber acknowledges that
the Company reserves the right to accept or reject any subscriptions in
whole or in part. Subject to the terms hereof, this subscription will
become effective upon its acceptance by the Company.
The check of the Subscriber payable to the Company in the amount
of $26.00 and the Note manually executed by the Subscriber accompanies the
delivery of this Subscription Agreement.
In the event this subscription is not accepted by the Company,
any consideration tendered will be promptly refunded in full without
interest.
2. Representations of the Subscriber. The Subscriber hereby
---------------------------------
represents and warrants to the Company that:
(a) the subscription hereunder is being made by the Subscriber as
principal for the Subscriber's own account and not for the
benefit of any other person;
(b) the Subscriber is a resident of the jurisdiction set out on the
signature page hereof;
(c) this agreement constitutes a legal, valid, binding and
enforceable obligation of the Subscriber;
<PAGE>
2
(d) the Subscriber will not make any offers to sell the Shares or
sell any of the Shares except in accordance with the terms of
this Subscription Agreement;
(e) the Subscriber has such knowledge, sophistication and experience
in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Shares,
and at the present time, it could afford a complete loss of such
investment;
(f) the Subscriber acknowledges that the Company and counsel for the
Company will rely upon the accuracy and truth of the Subscriber's
representations in Sections 2 and 3 hereof and the Subscriber
hereby consents to such reliance;
(g) the Subscriber has access to the same kind of information which
would be available in registration statements filed by the
Company under the Securities Act;
(h) neither the United States ("U.S.") Securities and Exchange
Commission (the "SEC") nor any state securities commission has
approved any of the Shares offered or passed upon or endorsed the
merits of the offering;
(i) the Subscriber acknowledges that all documents, records, and
books pertaining to the investment in the Shares have been made
available for inspection by him, his attorney, accountant,
purchaser representative or tax advisor (collectively, the
"Advisors");
(j) the Subscriber and the Advisors have had a reasonable opportunity
to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the offering of the
Shares and all such questions have been answered to the full
satisfaction of the Subscriber and his Advisors;
(k) in evaluating the suitability of an investment in the Company,
the Subscriber has not relied upon any representation or other
information (oral or written) other than as contained in
documents or answers to questions so furnished to the Subscriber
or his Advisors by the Company;
(l) the Subscriber is unaware of, and in no way relying on, any form
of general solicitation or general advertising in connection with
the offer and sale of the Shares;
<PAGE>
3
(m) the Subscriber has such knowledge and experience in financial,
tax, and business matters so as to enable him to utilize the
information made available to him in connection with the offering
of the Shares to evaluate the merits and risks of an investment
in the Shares and to make an informed investment decision with
respect thereto;
(n) the Subscriber is not relying on the Company respecting the tax
and other economic considerations of an investment in the Shares,
and the Subscriber has relied on the advice of, or has consulted
with, only his own Advisors;
(o) the Subscriber is acquiring the Shares solely for his own account
for investment and not with a view to distribution, other than in
accordance with the terms hereof;
(p) the Subscriber must bear the economic risk of the investment
indefinitely because none of the Shares may be sold, hypothecated
or otherwise disposed of unless subsequently registered under the
Act and applicable state securities laws or an exemption from
registration is available;
(q) the Subscriber has adequate means of providing for its current
needs and foreseeable contingencies and has no need for its
investment in the Shares to be liquid;
(r) the Subscriber has completed accurately the Subscriber
Questionnaire attached hereto as Exhibit A and meets the
---------
requirements of at least one of the suitability standards for an
"accredited investor;" and
(s) the Subscriber: (i) if a natural person represents that the
Subscriber has reached the age of 21 and has full power and
authority to execute and deliver this Subscription Agreement and
all other related agreements or certificates and to carry out the
provisions hereof and thereof; (ii) if a corporation,
partnership, association, joint stock company, trust,
unincorporated organization or other entity represents that such
entity was not formed for the specific purpose of acquiring the
Shares, such entity is validly existing under the laws of the
state of its organization, the consummation of the transactions
contemplated hereby is authorized by, and will not result in a
violation of state law or its charter or other organizational
documents, such entity has full power and authority to execute
and deliver this Subscription Agreement and all other related
agreements or certificates and to carry out the provisions hereof
and thereof, this Subscription Agreement has been duly authorized
by all
<PAGE>
4
necessary action, this Subscription Agreement has been duly
executed and delivered on behalf of such entity and is a legal,
valid and binding obligation of such entity; and (iii) if
executing this Subscription Agreement in a representative or
fiduciary capacity, represents that it has full power and
authority to execute and deliver this Subscription Agreement in
such capacity and on behalf of the subscribing individual, ward,
partnership, trust, estate, corporation, or other entity for whom
the Subscriber is executing this Subscription Agreement, and such
individual, ward, partnership, trust, estate, corporation, or
other entity has full right and power to perform pursuant to this
Subscription Agreement and make an investment in the Company, and
that this Subscription Agreement constitutes a legal, valid and
binding obligation of such entity; and
3. Acknowledgments; representations and covenants of the Subscriber
----------------------------------------------------------------
with respect to U.S. securities laws; securities transfers.
- ----------------------------------------------------------
(a) The Subscriber understands that the Shares and Common Stock have
not been registered (i) under the U.S. Securities Act of 1933, as
amended (the "Securities Act") with the SEC in reliance upon the
exemption from such registration requirements afforded by
Regulation S under the Securities Act, governing the offer and
sale of securities that occur outside the U.S., or (ii) with any
state securities commission. the Subscriber understands that the
Shares may not be offered, sold, transferred or otherwise
disposed of in the U.S., its territories or possessions, or to
persons known to be residents of the U.S. or to a "U.S. person"
within the meaning of Regulation S under the Securities Act
("U.S. Person"; see the definition of U.S. Person annexed hereto
as Exhibit B) until the earlier to occur of the effectiveness of
---------
a registration statement registering the Shares under the
Securities Act or the expiration of the restricted period (as
defined by Regulation S under the Securities Act) and thereafter
only if the Shares are registered under the Securities Act or an
exemption from the registration requirements under the Securities
Act is available.
(b) The Subscriber hereby represents and warrants that the Subscriber
is not a resident of the U.S. and is not otherwise deemed to be a
U.S. Person.
(c) The Subscriber agrees that if it should resell or transfer the
Securities within three years after the original issuance of the
Shares it will do so only (a) outside the United States in
compliance with Rule 904 under the Securities Act, (b) pursuant
to the exemption from registration
<PAGE>
5
provided by Rule 144 under the Securities Act (if available) or
other applicable exemption under the Securities Act and state
securities laws; (c) in a transaction that does not require
registration under the Securities Act or any applicable state
laws, or (d) pursuant to a registration statement that has been
declared effective under the Securities Act.
(d) The Subscriber agrees that it will give each person to whom it
transfers such Securities notice of any restrictions on transfer
of such Securities, if then applicable. If a transfer of
Securities is proposed to be made within three years after the
original issuance of the Shares, the holder (or beneficial
holder, as the case may be) will be required to furnish to the
Company (or, in the case of the Common Stock, the transfer agent
for the Common Stock), such certifications, legal opinions, or
other information as the Company may reasonably require to
confirm that the proposed transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(e) Each certificate representing the Shares will bear the following
legend (unless such Shares have been transferred pursuant to a
registration statement that has been declared effective under the
Securities Act):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF U.S. PERSON EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SHARES: (1) IT
WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED
HEREBY EXCEPT (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE SECURITIES ACT, (B) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT
(IF AVAILABLE) OR OTHER THEN APPLICABLE EXEMPTION UNDER THE
SECURITIES ACT AND STATE SECURITIES LAWS, (C) IN A TRANSACTION
THAT DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES ACT OR
ANY APPLICABLE STATE LAWS, OR (D) PURSUANT TO A REGISTRATION
STATEMENT WHICH HAS BEEN
<PAGE>
6
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES
TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY
SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D)
ABOVE), IT WILL FURNISH TO THE COMPANY OR THE TRANSFER AGENT FOR
THE COMMON STOCK SUCH CERTIFICATIONS, LEGAL OPINIONS, OR OTHER
INFORMATION AS THE COMPANY OR SUCH TRANSFER AGENT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR STATE
SECURITIES LAWS, AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM
THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 1(D) ABOVE) A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THIS LEGEND MAY BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY
PURSUANT TO CLAUSE 1(D) ABOVE OR THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE SHARES UPON THE CONVERSION OF
WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR UPON THE
EARLIER SATISFACTION OF THE COMPANY OR THE TRANSFER AGENT FOR THE
COMMON STOCK THAT THE COMMON STOCK HAS BEEN OR IS BEING OFFERED
AND SOLD IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR
SUCH OTHER THEN APPLICABLE EXEMPTION OR TRANSACTION THAT
LEGENDING IS NO LONGER REQUIRED. AS USED HEREIN, THE TERMS
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
(f) The Subscriber understands and agrees that any disposition of the
Shares in violation of this Agreement shall be null and void, and
that no transfer of the Shares likely will be made by the Company
or the Company's transfer agent upon the Company's stock transfer
books unless there has been compliance with the terms of this
Agreement. The Subscriber also understands and agrees that the
Company likely will issue stop transfer instructions to the
Company's transfer agent instructing such transfer agent, prior
to the effectiveness of the Registration Statement, during the
restricted period (as defined by
<PAGE>
7
Regulation S under the Securities Act), not to transfer the or
certificate(s) evidencing the Shares to U.S. Persons.
(g) The Subscriber (i) acknowledges that the Shares have not been
registered under the Securities Act and that the Company has no
obligation to so register any of the Shares, (ii) represents and
warrants that the Subscriber is acquiring beneficial ownership of
the Shares for the Subscriber's own account and not for the
account or benefit of a U.S. Person or other person, and (iii)
agrees that the Subscriber will not transfer or otherwise dispose
of any of the Shares unless such transfer or other disposition is
registered under the Securities Act or is in accordance with
Regulation S under the Securities Act or otherwise is exempt from
registration under the Securities Act.
4. Covenants. The Subscriber acknowledges that in making its
---------
decision to subscribe for the Shares, it has not relied upon the advice of
any adviser to the Company or of any other third party.
5. Further Assurances. Each of the parties hereto agrees to execute
------------------
and deliver such documents, make such filings and do all such things as are
required by, and to comply with the provisions of the Securities Act, any
other applicable securities legislation and any orders, policies, rules or
regulations of the SEC, the National Association of Securities Dealers,
Inc. or other relevant regulatory authorities concerning the issuance by
the Company and the purchase, holding and resale by the Subscriber of the
Shares.
6. Modification. This Subscription Agreement shall not be modified
------------
or waived except by an instrument in writing signed by the party against
whom any such modification or waiver is sought.
7. Assignability. This Subscription Agreement and the rights and
-------------
obligations hereunder are not transferable or assignable by the Subscriber.
8. Blue Sky Qualification. The Subscriber's right to purchase
----------------------
Shares under this Subscription Agreement are expressly conditioned upon the
exemption from qualification of the offer and sale of the Shares from
applicable Federal and state securities laws. The Company shall not be
required to qualify this transaction under the securities laws of any
jurisdiction and, should qualification be necessary, the Company shall be
released from any and all obligations to maintain its offer, and may
rescind any sale contracted, in the jurisdiction.
9. Survival Indemnification. All of the covenants, representations
------------------------
and warranties contained herein shall survive the closing of the purchase
and sale of the
<PAGE>
8
Shares hereunder. The Subscriber agrees to indemnify and hold harmless the
Company and each director, officer, employee, agent or representative
thereof from and against any and all loss, damage or liability and related
costs and expenses (including but not limited to, reasonable attorneys'
fees and costs of investigation) due to or arising out of a breach of any
covenant, representation or warranty made by him in this Agreement.
10. Agreement. The Subscriber agrees that by executing this
---------
subscription agreement an irrevocable agreement of purchase and sale of the
Shares shall be created upon its acceptance by the Company. This Agreement
constitutes the entire agreement between the parties hereto with respect to
the subject matter hereof and may be amended only by a writing executed by
all parties.
11. Notices. All notices or other communications given or made
-------
hereunder shall be in writing and shall be delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid to
the Subscriber at the address set forth on the signature page hereof, and
to the Company at the address set forth in the first paragraph hereof.
12. Offering Restrictions. The Shares have not been registered under
---------------------
the Securities Act and the Subscriber agrees that during the restricted
period (as such term is defined in Regulation S) it will not sell any of
the Shares within the U.S. or to, or for the account or benefit of, U.S.
Persons except pursuant to an effective registration statement registering
the Shares under the Securities Act, in accordance with Regulation S under
the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Neither the Subscriber, its affiliates
nor any persons acting on its behalf have engaged or will engage in any
directed selling efforts (as such term is defined in Regulation S) with
respect to the Shares and the Subscriber has complied with and will comply
with the offering restrictions requirement of Regulation S for as long as
such requirement is applicable. If any sales of the Shares are made by the
Subscriber during the restricted period (as defined in Regulation S)
pursuant to Regulation S then the Subscriber hereby agrees to make such
sales in compliance with Regulation S.
13. Governing Law. Notwithstanding the place where this Agreement
-------------
may be executed by any of the parties hereto, the parties expressly agree
that all the terms and provisions hereof shall be governed by, and
constituted in accordance with, the laws of the State of Delaware without
regard to the choice of law principles thereof.
14. Validity. The holding of any provision of this Subscription
--------
Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Subscription
Agreement, which shall remain in full force and effect.
<PAGE>
9
15. Time. Time shall be of the essence hereof.
----
16. Inurement. This agreement shall inure to the benefit of and be
---------
binding upon the respective legal representatives and successors of the
parties.
17. Counterparts. This Subscription Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute this
subscription by signing any of such counterpart and delivering the same by
telex, telecopy, telegraph, cable or otherwise in writing (each delivery by
any of such means to be deemed to be "in writing" for purposes of this
subscription agreement).
Witness: Subscriber:
Interfinance Inv. Co. Ltd.
By: \s\ Ulrich Ernst
------------------------------ -------------------------
Name: Name:
Title:
Primary Residence of the
Subscriber:
----------------------------
----------------------------
the Subscriber's Address for
Notices and Delivery of
Securities:
----------------------------
----------------------------
Subscription accepted as of April 30, 1996
UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A TO SUBSCRIPTION AGREEMENT
INVESTOR QUESTIONNAIRE
----------------------
ALL INVESTORS MUST INITIAL THE FOLLOWING:
- ----------------------------------------
___ The undersigned understands that the representations contained in this
Investor Questionnaire qualifying or disqualifying it as an accredited
investor as that term is defined in Rule 501 of Regulation D
promulgated under the Act are made for the purpose of inducing a sale
of securities to the undersigned. The undersigned understands and
acknowledges that the Company will rely upon such representations.
The undersigned hereby represents that the statement or statements
initialed below are true and correct in all respects, and the
undersigned will notify the Company immediately of any material change
in any of the information contained in such statement or statements.
The undersigned understands that any false representations may
constitute a violation of law and that any company or person who
suffers damages as a result of such false representations may have a
claim against it for damages.
AN INVESTOR SHOULD INITIAL ANY OF THE FOLLOWING STATEMENTS THAT APPLY TO IT:
- ---------------------------------------------------------------------------
___ (a) The undersigned certifies that it is an accredited investor
because it is either (i) a bank as defined in Section 3(a)(2) of the
Act, or savings and loan association or other institution as defined
in Section 3(a)(5)(a) of the Act whether acting in its individual or
fiduciary capacity, (ii) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, (iii) an insurance
company as defined in Section 2(13) of the Act, (iv) an investment
company registered under the Investment Company Act of 1940 or a
business development company registered under the Investment Company
Act of 1940 or a business development company as defined in Section
2(a)(48) of such Act, (v) a small business investment company licensed
by the United States Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958, (v) a plan
established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivi-
sions, for the benefit of its employees, if such plan has total assets
in excess of $5,00,000, or (vii) an employee benefit plan within the
meaning of the Employee Retirement Income Security Act of 1974 if
investment decisions are made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or
an employee benefit plan that has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors.
___ (b) The undersigned certifies that it is an accredited investor
because it is a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
<PAGE>
2
___ (c) The undersigned certifies that it is an accredited investor
because it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, business trust, or partnership
with total assets in excess of $5,000,000.
___ (d) The undersigned certifies that it is an accredited investor
because it is a trust, with total asses in excess of $5,000,000, whose
purchases of securities are directed by a person who has such
knowledge and experience in financial and business matters that he/she
is capable of evaluating the merits and risks of an investment in the
Company.
___ (e) The undersigned certifies that it is an accredited investor
because it is an entity in which all of the equity owners are
accredited investors. Each such equity owner must also properly
complete and submit a Investor Questionnaire as if such equity owner
was a shareholder. If this section applies a questionnaire for
individuals is available upon request from the Company.
<PAGE>
1
EXHIBIT B TO SUBSCRIPTION AGREEMENT
Definition of "U.S. Person"
---------------------------
Regulation S. Rule 902(o) provides:
(1) "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is a
U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the
United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B)
formed by a U.S. person principally for the purpose of investing
in securities not registered under the Act, unless it is
organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a) who are not natural persons, estates or
trusts.
(2) Notwithstanding paragraph (o)(1), of this rule, any discretionary
account or similar account (other than an estate or trust) held for the
benefit or account of a non-U.S. person by a dealer or other professional
fiduciary organized, incorporated, or (if an individual) resident in the
United States shall not be deemed a "U.S. person."
<PAGE>
2
(3) Notwithstanding paragraph (o)(1), any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect
to the assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1), any trust of which any
professional fiduciary acting as trustee is a U.S. person shall not be
deemed a U.S. person if a trustee who is not a U.S. person has sole or
shared investment discretion with respect to the trust assets, and no
beneficiary of the trust (and no settlor if the trust is revocable) is a
U.S. person.
(5) Notwithstanding paragraph (o)(1), an employee benefit plan
established and administered in accordance with the law of a country other
than the United States and customary practices and documentation of such
country shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1), any agency or branch of a U.S.
person located outside the United States shall not be deemed a "U.S.
person" if:
(i) The agency or branch operates for valid business
reasons; and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or
banking regulations, respectively, in jurisdictions where
located.
(7) The International Monetary Fund, the International Bank of
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations,
and their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
For the purposes of the foregoing "United States" means the
United States of America, its territories and possessions, any State of the
United States, and the District of Columbia.
Exhibit 10.4
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE RESOLD BY HOLDER UNLESS IT IS
SUBSEQUENTLY REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENT IS AVAILABLE IN CONNECTION WITH SUCH RESALE.
7% PROMISSORY NOTE
U.S. $2,799,974 As of April 30, 1996
FOR VALUE RECEIVED the undersigned, INTERFINANCE INV. CO. LTD. a
Panamanian corporation, having an address at Limmattalstr 10, CH-8954
Geroldswil, Switzerland ("Maker"), promises to pay, on April 30, 1997, in
lawful money of the United States, to UNTIED TELEGROUP INTERNATIONAL, INC.,
a Delaware corporation, having an address at 30 Rockefeller Plaza ("Hold-
er"), or assigns, the principal amount of TWO MILLION SEVEN HUNDRED NINETY
NINE THOUSAND NINE HUNDRED SEVENTY FOUR (U.S. $2,799,974.00) UNITED STATES
DOLLARS, together with interest thereon at an annual rate of 7% from the
date of this Note until this Note is paid in full.
All payments due and payable on this Note shall be made directly by
wire transfer of immediately available funds to an account designated by
Holder to Maker in writing, or at such other bank or agency or, in such
other manner as Holder shall have designated by written notice to Maker.
Maker represents and warrants as follows:
(i) Maker is a company duly incorporated, validly existing and
in good standing under the laws of its place of organization and each other
jurisdiction where the character of the property owned or leased by Maker,
or the nature of the business conducted by Maker, makes such qualification
necessary;
(ii) Maker has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of
its business as now conducted and as proposed to be conducted;
(iii) Maker has all necessary corporate power and has taken, or
caused to be taken, all corporate and shareholder action required to make
all the provisions of this Note and any other agreements and instruments
executed in connection herewith and therewith the valid and enforceable
obligations they purport to be; and
(iv) No authorization, consent, approval, license, exemption of
or filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
is or will be necessary for, or in connection with, the offer, issuance,
sale, execution or delivery by Maker, or for the performance by it of its
obligations under, this Note.
1
<PAGE>
This Note shall, at the option of the Holder, without notice or
demand, forthwith become due and payable if any one or more of the
following events (which events are hereinafter referred to individually as
an "Event of Default" and collectively as "Events of Default") shall occur:
(i) Any payment of principal, interest or any other amount due
under the Note is not made when and as such payment is due;
(ii) Any covenant, warranty, representation or other statement
made by or on behalf of Maker in this Note, or in any instrument furnished
in compliance with this Note, is false in any material respect when made;
(iii) Maker shall commence any case, proceeding or other action
(a) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (b) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets,
or Maker shall make a general assignment for the benefit of its creditors;
(iv) There shall be commenced against Maker, any case, proceeding
or other action of a nature referred to in clause (iii) above which (a)
results in the entry of an order for relief or any such adjudication or
appointment and (b) remains undismissed, undischarged or unbonded for a
period of 60 days;
(v) There shall be commenced against Maker any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets;
(vi) Maker shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth
in clause (iii), (iv) or (v) above; or
(vii) Maker shall default under any agreement or instrument for
borrowed money or for the deferred purchase price of property or services
or evidenced by notes, bonds or other instruments.
If this Note is past due and is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceedings, then Maker shall pay to Holder all attorneys' fees, costs and
expenses incurred in connection therewith in addition to all other amounts
due hereunder.
Maker and any and all others who are now or may become liable for all
or any part of the obligations of Maker under this Note (all of the
foregoing being referred to collectively herein as the "Obligors") agree to
be jointly and severally bound hereby and jointly and severally (i) waive
presentment and demand for payment, notices of nonpayment and dishonor,
protest of dishonor and notice of protest; (ii) waive all notices in
connection with the delivery and
2
<PAGE>
acceptance hereof and all other notices in connection with the performance,
default or enforcement of the payment hereof or hereunder; (iii) waive any
and all lack of diligence and delays in enforcement of the payment hereof;
(iv) agree that the liability of each of the Obligors shall be
unconditional and without regard to the liability of any other person or
entity for the payment hereof and shall not in any manner be affected by
any indulgence or forbearance granted or consented to by Holder to any of
them with respect hereto; (v) consent to any and all extensions of time,
renewals, waivers or modifications which may be granted by the Holder with
respect to the payment or other provisions hereof, and to the release of
any security at any time given for the payment hereof or any part hereof,
with or without substitution, and to the release of any person or entity
liable for the payment hereof; and (vi) consent to the addition of any and
all other makers, endorsers, guarantors and other obligors for the payment
hereof, and agree that the addition of any such Obligors or security shall
not affect the liability of any of the Obligors for the payment hereof.
Maker may prepay this Note in whole or in part, together with all
accrued and unpaid interest hereon, without the prior consent of Holder and
without penalty or premium. All payments and prepayments of the principal
hereof and interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached hereto and made a
part hereof, or on a continuation thereof which shall be attached hereto
and made a part hereof, or otherwise recorded by such holder in its
internal records; provided, however, that the failure of the holder hereof
-------- -------
to make such a notation or any error in such a notation shall not in any
manner affect the obligation of the Maker to make payments of principal and
interest in accordance with the terms of this Note.
The obligations of Maker hereunder are absolute and unconditional and
are not subject to any advances, offsets or counterclaims which Maker, its
successors or assigns, or any subsidiary or affiliate of any of them, may
now or hereafter have against the Holder.
Maker agrees that in any litigation arising out of or relating to this
Note, it will waive trial by jury and not impose any setoff or counterclaim
of any nature or description, and Maker shall be absolutely and
unconditionally liable hereunder.
This Note shall be binding upon any successor to Maker.
Maker agrees that this Note and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the
laws and decisions of the State of Delaware, without reference to the
principles of conflicts of laws.
INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
-----------------------
Name:
Title:
3
<PAGE>
Payments
Payments Unpaid Principal Balance Name of Person
Date Principal Interest of Note Making Notation
- ---- -------------------- -------------------------- ---------------
4
Exhibit 10.5
SECURITY AND PLEDGE AGREEMENT
This SECURITY AND PLEDGE AGREEMENT made as of April 30, 1996
between INTERFINANCE INV. CO. LTD. a Panamanian corporation, having an
address at Limmattalstr 10, CH-8954 Geroldswil (the "Pledgor") and UNTIED
-------
TELEGROUP INTERNATIONAL, INC., a Delaware corporation, having an address at
c/o Walter M. Epstein, 30 Rockefeller Plaza, 29th Floor, New York, New
York, 10112 (the "Pledgee").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Pledgor, on the date of execution of this Security
and Pledge Agreement has entered into a Promissory Note of the Pledgor
payable to the order of the Pledgee (the "Note;" capitalized terms used
----
herein without definition shall have the meanings assigned to them in the
Note);
WHEREAS, in connection with the execution of the Note the Pledgor
has agreed to enter into this Security and Pledge Agreement to secure the
indebtedness represented by the Note as provided herein;
WHEREAS, the Pledgor is pledging the amount of shares of capital
stock owned by the Pledgor set forth on Schedule A, attached hereto and
----------
made a part hereof (the "Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, and in order to induce Pledgee to enter
into the Note Purchase Agreement and to accept the Note, the parties hereto
agree as follows:
SECTION 1. Pledge. As collateral security for the due and
------
punctual payment of the Note, together with accrued interest thereon, the
Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto the Pledgee, and grants to the Pledgee a security interest in
(in each case, for the benefit of the Pledgee and any other holder of the
Note), the following collateral (the "Pledged Collateral"):
------------------
(i) the Pledged Shares and the certificates representing
the Pledged Shares; and
(ii) all cash, securities, dividends and other property and
proceeds at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the foregoing;
<PAGE>
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgee, its successors and assigns, forever, subject,
--------
however, to the terms, covenants and conditions herein set forth.
- --------
SECTION 2. Representations, Warranties and Agreements. The
------------------------------------------
Pledgor hereby represents, warrants and agrees as follows:
(a) The Pledged Shares are duly authorized, validly issued,
fully paid and non-assessable.
(b) The Pledgor is the legal and equitable owner of the
Pledged Shares free and clear of all liens, security interests,
charges and encumbrances of every kind and nature (other than
those created by this Security and Pledge Agreement); the Pledgor
has good and lawful authority to pledge, assign and deliver the
Pledged Shares in the manner hereby done or contemplated; and no
consent or approval of any governmental body or regulatory
authority, or of any securities exchange, is or will be necessary
to the validity of the rights created hereunder.
SECTION 3. Registration in Nominee Name. the Pledgee shall have
----------------------------
the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the certificates or instruments representing or
evidencing the Pledged Collateral, which may be held (in the discretion of
the Pledgee) in the name of the pledgor, endorsed or assigned in blank or
in favor of the Pledgee, or in the name of the Pledgee or any nominee or
nominees of the Pledgee or a sub-agent appointed by the Pledgee. In
addition, the Pledgee shall at all times have the right to exchange
certificates or instruments representing or evidencing Pledged Collateral
for certificates or instruments of smaller or larger denominations for any
purpose consistent with its performance of this Security and Pledge
Agreement. All certificates representing the Pledged Collateral shall bear
a legend indicating that the shares are subject to this Security and Pledge
Agreement.
SECTION 4. Voting Rights; Dividends, Etc. (a) So long as an
------------------------------
Event of Default does not exist:
(i) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to
the Pledged Collateral or any part thereof for any purpose.
(ii) The Pledgor shall be entitled to receive and retain any
and all cash dividends payable on the Pledge Collateral.
(iii) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of
attorney, dividend orders, and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting
and/or consensual rights and powers which it is entitled to exercise
-2-
<PAGE>
pursuant to subsection (i) above and/or to receive the dividends which
it is authorized to receive and retain pursuant to subsection (ii)
above.
(b) If an Event of Default shall exist, all rights of the
Pledgor to exercise the voting and/or consensual rights and powers which it
is entitled to exercise pursuant to Section 4(a)(i) and/or to receive the
dividends which it is authorized to receive and retain pursuant to Section
4(a)(ii) shall cease, and all such rights shall thereupon become vested in
the Pledgee who shall have the sole and exclusive right and authority to
exercise such voting and/or consensual rights and powers and/or to receive
and retain the dividends which the Pledgor would otherwise be authorized to
retain pursuant to Section 4(a)(ii). Any and all money and other property
paid over to or received by the Pledgee pursuant to the provisions of this
subsection (b) shall be retained by the Pledgee as part of the Pledged
Collateral and be applied in accordance with the provisions hereof.
SECTION 5. Remedies With Respect to the Pledged Collateral Upon
----------------------------------------------------
Default. Upon the occurrence and continuance of an Event of Default:
- -------
(a) The Pledgee shall have and may exercise all of the rights
and remedies of a secured party under the Uniform Commercial Code of the
State of Delaware (the "Code") in effect at such time. The Pledgee may
----
sell any of the Pledged Collateral at any public or private sale for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as the Pledgee may deem commercially reasonable, and apply the
proceeds realized thereby, after first deducting all costs and expenses of
the Pledgee (including reasonable counsel fees) incurred in the realization
of such proceeds, to the amounts due under the Note. The Pledgor agrees
that, to the extent any notices shall be required by law with respect to
the Pledgee's exercise of its rights and remedies as a secured creditor,
ten days' prior written notice shall be sufficient for such purposes. The
Pledgee shall not be obligated to make any sale of Pledged Collateral
regardless of any notice therefor having been given. The Pledgee may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor or by other means, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
To the extent permitted by the Code, the Pledgee may bid in for the Pledged
Collateral at any public or private sale and apply in payment of such bid,
all or any part of the Note.
(b) The Pledgee shall be authorized at any such sale (if, on the
advice of counsel, it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree
that they are purchasing such portion of the Pledged Collateral for their
account for investment.
(c) In view of the position of the Pledgee in relation to any
securities or instruments now or hereafter included in the Pledged
Collateral, or because of other present or future circumstances, a question
may arise under the Securities Act of 1933, as amended, as now or hereafter
in effect, or any similar statute hereafter enacted analogous in purpose or
effect (such Act and any such similar statute as from time to time in
effect being hereinafter called the
-3-
<PAGE>
Federal Securities Laws) with respect to any disposition of the Pledged
Collateral permitted hereunder. The Pledgor understands that compliance
with the Federal Securities Laws may strictly limit the course of conduct
of the Pledgee if the Pledgee were to attempt to dispose of all or any part
of the Pledged Collateral and may also limit the extent to which or the
manner in which any subsequent transferee of any Pledged Collateral may
dispose of the same. Similarly, there may be other legal restrictions or
limitations affecting the Pledgee in any attempt to dispose of all or any
part of the Pledged Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or effect. Under
applicable laws, in the absence of an agreement to the contrary, the
Pledgee may perhaps be held to have certain general duties and obligations
to the Pledgor to make some effort towards obtaining a fair price even
though the Note may be discharged or reduced by the proceeds of a sale at a
lesser price. The Pledgor clearly understands that the Pledgee is to have
any such general duty and obligation to the Pledgor and the Pledgor will
not attempt to hold the Pledgee responsible for selling all or any part of
the Pledged Collateral at any particular price even if the Pledgee shall
accept the first offer received or does not approach more than one possible
purchaser. Without limiting the generality of the foregoing, the
provisions of this Section would apply if, for example, the Pledgee were to
place all or any part of the Pledged Collateral for its own account, or if
the Pledgee placed all or any part of the Pledged Collateral privately with
a purchaser or purchasers. The provisions of this Section will apply
notwithstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which the
Pledgee sells.
SECTION 6. Release and Termination. (a) Simultaneously with the
-----------------------
whole or partial repayment of the Note, the Pledgee shall release and
deliver to Rubin Baum Levin Constant & Friedman, as agent of the Pledgor,
in accordance with the provisions of this Agreement, the percentage of
Pledged Shares determined by dividing the amount of the Note which is
prepaid by the principal outstanding balance of the Note immediately prior
to such prepayment. All amounts of Pledged Shares to be released in
accordance with this Section 6(a) shall be rounded down to the nearest
whole amount of Pledged Shares.
(b) This Security and Pledge Agreement shall terminate when all
indebtedness secured hereby and all obligations of the pledgor hereunder
have been fully paid and performed, at which time the Pledgee shall
reassign and redeliver (or cause to be so reassigned and redelivered),
without recourse upon or warranty by the Pledgee except for acts or
omissions of Pledgee or anyone holding under Pledgee and a the expense of
the Pledgor (for taxes and other expenses not caused by the Pledgee or
anyone holding under Pledgee), to the Pledgor, or to such person or persons
as the Pledgor shall designate, against receipt, such of the Pledged
Collateral (if any) as shall not have been previously released pursuant to
(a) above or sold or otherwise applied by the Pledgee pursuant to the terms
hereof and shall still be held by it hereunder, together with the
appropriate instruments of reassignment and release.
-4-
<PAGE>
SECTION 7. Further Assurances. The Pledgor agrees to do such
------------------
further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Pledgee may at
any time reasonably request in connection with the administration or
enforcement of this Security and Pledge Agreement or related to the Pledged
Collateral or any part thereof or in order to better assure and confirm
unto the Pledgee its rights, powers and remedies hereunder. The Pledgor
hereby consents and agrees that the issuer of the Pledged Collateral or any
registrar or transfer agent or trustees for any of the pledged Collateral
shall be entitled to accept the provisions hereof as conclusive evidence of
the rights of the Pledgee to effect any transfer pursuant to Section 3,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by the Pledgor or any other person to such issuer or to any
such registrar or transfer agent or trustees.
SECTION 8. Binding Agreement; Assignment. This Security and
-----------------------------
Pledge Agreement, and the terms, covenants and conditions hereof, shall be
binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, except that the Pledgor shall not be
permitted to assign this Security and Pledge Agreement or any interest
herein or in the Pledged Collateral, or any part hereof, or otherwise
pledge, encumber or grant any option with respect to the Pledged
Collateral, or any part thereof, or any cash or property held by the
Pledgee as collateral under this Security and Pledge Agreement.
SECTION 9. Governing Law; Terms. This Security and Pledge
--------------------
Agreement shall be governed by, and construed and enforced in accordance
with, the law of the State of Delaware without regard to conflict of law
principles. Unless otherwise defined herein, terms defined in Article 9 of
the Uniform Commercial Code in the State of Delaware are used herein as
therein defined.
SECTION 10. Notices. All notices, claims, requests, demands,
-------
deliveries and other communications hereunder shall be in writing and shall
be given as set forth in the Note Purchase Agreement to the addresses set
forth in the Note Purchase Agreement.
SECTION 11. Miscellaneous. Neither this Security and Pledge
-------------
Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated orally nor may any of the Pledged Collateral be
released or the pledge or the security interest created hereby extended,
except by an instrument in writing duly signed by or on behalf of the
Pledgee. Any consent or waiver given hereunder by Pledgee shall be binding
upon its successors and assigns. Each successor or assign of the Pledgee
agrees that the Pledgee is constituted such successor's or assign's agent
for the purpose of executing any waivers or consents with respect to this
Security and Pledge Agreement. The Section headings used herein are for
convenience of reference only and shall not define or limit the provisions
of this Security and Pledge Agreement.
-5-
<PAGE>
SECTION 12. Counterparts. This Security and Pledge Agreement
------------
may be executed in counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Security
and Pledge Agreement to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
---------------------------
Name:
Title:
INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
---------------------------
Name:
Title:
-6-
<PAGE>
Schedule A
- ----------
NAME OF COMPANY CERTIFICATE NO. AMOUNT OF SHARES
United Telegroup _______________ 2,566,667
International, Inc.
-7-
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, INTERFINANCE INV. CO. LTD.
-------------------------------------------------------
PLEASE INSERT
SOCIAL SECURITY OR
OTHER IDENTIFICATION
NUMBER OF ASSIGNEE
does hereby sell, assign and transfer unto --------------
--------------
- ----------------------------------------------------------------------------
(2,566,667) Shares of the Capital Stock of United
- ------------- ------------- --------
Telegroup International, Inc. standing in its name on the books of
- -------------------------------------
said Corporation represented by Certificate No. herewith, and do
----
hereby irrevocably constitute and appoint
---------------------------------
- ----------------------------------------------------------------------------
attorney to transfer the said stock on the
- ----------------------------
books of said Corporation with full power of substitution in the premises.
Dated
---------------------
INTERFINANCE INV. CO. LTD.
By:__________________________
Name:
Title:
-8-
Exhibit 10.6
REGISTRATION RIGHTS AGREEMENT
-----------------------------
AGREEMENT, dated as of April 30, 1996, between UNITED TELEGROUP
INTERNATIONAL, INC., a Delaware corporation (the "Company"), having an
-------
address c/o Walter M. Epstein, Esq., 30 Rockefeller Plaza, 29th Floor, New
York, New York, and INTERFINANCE INV. CO. LTD., a Panamanian corporation,
having an address at Limmattalstrasse 10/P.O. Box 13, CH 8954 Geoldswil,
Switzerland ("Interfinance").
------------
WHEREAS, simultaneously with the execution and delivery of this
Agreement, Interfinance is purchasing (the "Private Placement") from the
-----------------
Company an aggregate of 2,750,000 shares (the "Shares") of the Company's
------
Common Stock, $.00001 par value per share (the "Common Stock"), 183,333 of
------------
which will be issued in exchange for $200,000 in cash and 2,566,667 of
which will be issued in exchange for $26 in cash and a secured Promissory
Note due on April 30, 1997 in the principal amount of $2,799,974; and
WHEREAS, in connection with the Private Placement the Company has
agreed to register the Shares pursuant to the terms of this Agreement.
NOW, THEREFORE, for good and valuable consideration, the parties
hereto mutually agree as follows:
1. Registration of the Shares.
--------------------------
(a) Within 180 days of the date of this Agreement, the Company
shall file a registration statement (the "Registration Statement") under
----------------------
the Securities Act of 1933, as amended (the "Act"), with the Securities and
---
Exchange Commission (the "SEC"). The Registration Statement shall
---
register the Shares for resale under the Act and shall include Interfinance
and any Transferees as selling shareholders. A "Transferee" shall be any
----------
person or entity that is included on a list delivered by Interfinance to
the Company prior to the effective date of the Registration Statement (the
"Effective Date"), which list shall name all persons or entities to whom
--------------
Interfinance has, prior to the Effective Date, validly transferred Shares.
Collectively, Interfinance and the Transferees are referred to herein as
the "Holders."
-------
(b) Once filed, the Company will use its best efforts to cause
the Registration Statement to become effective as promptly as possible and,
if any stop order shall be issued by the SEC in connection therewith, to
use its reasonable efforts to obtain the removal of such order. Following
the effective date of the Registration Statement, the Company shall, upon
the request of a Holder, forthwith supply such reasonable number of copies
of the Registration Statement, prospectus and other documents necessary or
incidental to the registration as shall be reasonably requested by such
Holder to permit such Holder to make a public distribution of such Holder's
Shares. The Company will use its reasonable efforts to qualify the Shares
for sale in such states as the Holders of such securities shall reasonably
request, provided that no such qualification will be required in any
jurisdiction where, solely as a result thereof, the Company would be
subject to general service of process or to taxation or qualification as a
foreign corporation doing business in such jurisdiction. The obligations
of the Company hereunder with respect to the Shares of each Holder are
<PAGE>
expressly conditioned on each Holder furnishing to the Company such
appropriate information concerning such Holder, such Holder's Shares and
the terms of each such Holder's offering of such Shares as the Company may
reasonably request.
(c) The Company shall bear the entire cost and expense of the
registration of the Shares; provided, however, that each Holder shall be
solely responsible for the fees of any counsel retained by such Holder in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Shares sold by such Holder
pursuant thereto.
(d) Neither the filing of the Registration Statement by the
Company pursuant to this Agreement nor the making of any request for
prospectuses by any Holder shall impose upon any Holder any obligation to
sell such Holder's Shares.
(e) A Holder, upon receipt of notice from the Company that an
event has occurred which requires a post-effective amendment to the
Registration Statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of Shares until the Holder receives a
copy of a supplemented or amended prospectus from the Company, which the
Company shall provide as soon as practicable after such notice.
2. Indemnification.
---------------
(a) The Company shall indemnify and hold harmless the Holders
from and against any and all losses, claims, damages and liabilities caused
by any untrue statement of a material fact contained in the Registration
Statement, any other registration statement filed by the Company under the
Act, any post-effective amendment to such registration statements, or any
prospectus included therein required to be filed or furnished by reason of
this Agreement or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, except, with respect to each Holder, insofar as such
losses, claims, damages or liabilities are caused by any such untrue
statement or omission based upon information furnished or required to be
furnished in writing to the Company by such Holder expressly for use
therein, which indemnification shall include each person, if any, who
controls each Holder within the meaning of the Act and each officer, direc-
tor, employee and agent of each Holder; provided, however, that the
indemnification in this paragraph (c) with respect to any prospectus shall
not inure to the benefit of any Holder (or to the benefit of any person
controlling any Holder) on account of any such loss, claim, damage or
liability arising from the sale of Shares by any Holder, if a copy of a
subsequent prospectus correcting the untrue statement or omission in such
earlier prospectus was provided to such Holder by the Company prior to the
subject sale and the subsequent prospectus was not delivered or sent by
such Holder to the purchaser prior to such sale; and provided further, that
the Company shall not be obligated to so indemnify any Holder or other
person referred to above unless such Holder or other person, as the case
may be, shall at the same time indemnify the Company, its directors, each
officer signing the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, from and against any
and all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in the Registration Statement, any
registration statement or any prospectus required to be filed or furnished
by reason of
-2-
<PAGE>
this Agreement or caused by any omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading, insofar as such losses, claims, damages or liabilities are
caused by any untrue statement or omission based upon information furnished
in writing to the Company by such Holder expressly for use therein.
(b) If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim,
damage, liability or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations.
3. Governing Law.
-------------
(a) The Shares, when issued will be, delivered in New York.
This Agreement shall be deemed to have been made and delivered in the State
of New York and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the
State of New York.
(b) The Company and Interfinance each (a) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement, or
any other agreement entered into between the Company and pursuant to the
Private Placement or the Registration Statement shall be instituted
exclusively in New York State Supreme Court, County of New York, or in the
United States District Court for the Southern District of New York, (b)
waives any objection which the Company or Interfinance may have now or
hereafter to the venue of any such suit, action or proceeding, and (c)
irrevocably consents to the jurisdiction of the New York State Supreme
Court, County of New York and the United States District Court for the
Southern District of New York in any such suit, action or proceeding. The
Company and Interfinance each further agrees to accept and acknowledge
service of any and all process which may be served in any such suit, action
or proceeding in the New York State Supreme Court, County of New York or in
the United States District Court for the Southern District of New York.
4. Amendment. This Agreement may only be amended by a written
---------
instrument executed by the Company and Interfinance.
5. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements and understandings of the parties, oral
and written, with respect to the subject matter hereof.
6. Execution in Counterparts. This Agreement may be executed in one
-------------------------
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same document.
-3-
<PAGE>
7. Notices. All notices, requests, demands and other communications
-------
hereunder shall be in writing and shall be deemed duly given when delivered
by hand or five days after such notice mailed by registered or certified
mail, postage prepaid, return receipt requested to the address set forth on
the first page of this Agreement.
8. Headings. The headings contained herein are for the sole purpose
--------
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this
Agreement.
9. Severability. Any provision of this Agreement which is held by a
------------
court of competent jurisdiction to be prohibited or unenforceable in any
jurisdiction(s) shall be, as to such jurisdiction(s), ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions of this Agreement or affecting the validity or
enforceability of such provision in any other jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto as of the date first above written.
UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
---------------------------------
David Schlecht, President
INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
--------------------------------
-4-
Exhibit 10.7
AGREEMENT
This Agreement made on this 21st day of December 1995
BETWEEN
TellMedia International Ltd., a corporation whose registered
office is in London 8-10 New Fetter Lane, London EC4A1AP, hereinafter
called "TMI".
AND
United Telegroup Limited, a corporation whose registered office
is 11 Golden Square London W1R3AF, hereinafter called "Client".
The expressions "Client" and "TMI" shall include their successors
and assignees.
WHEREAS, Client needs to be provided with telecommunications and
value added services specified below.
WHEREAS, TMI owns a worldwide and widespread communications
network which is able to furnish the services required by the Client.
NOW, the Parties hereto agree as follows:
<PAGE>
ARTICLE 1
---------
Duration of Agreement
- ---------------------
This contract between TMI and the Client shall have a duration of 5
year(s). The enactment of the duration of this contract shall be deemed to
commence once the service is deemed operational by TMI.
Purpose of the agreement
- ------------------------
TMI agrees to provide to the Client:
1.1 Network Services
- ---------------------
Such service may include:
1.1.1 - Provision of International Managed Link (hereinafter
IML.) routed via TMI's proprietary network, that is defined as the
interconnection at an agreed speed of two TMI Facilities Management
Centres. This service is monitored by the Network Management Service.
1.1.2 - Provision of circuits routed via local providers'
networks to interconnect locations which the Client request,
respectively to the nearest TMI Facilities Management Centre.
1.1.3 - Provision of other managed services offered by TMI as
defined in the order form (Annex 1).
1.1.4 - Network Management will be performed according to the
following services to be provided by TMI:
a) Network Maintenance
- Network monitoring (24 hrs a day)
- Circuit fault management
- Network configuration
b) Maintenance Service
- Fault Reporting
- Customer assistance
1.1.5 - The network set-up will be carried out by the TMI
personnel or any duly assigned personnel, who will also co-ordinate
with the various Administrations involved in supplying the various
domestic circuits.
-2-
<PAGE>
1.1.6 Housing and Maintenance
The TMI Facilities Management Centres are secure, environmentally
controlled centres, with full technical support facilities and
safeguards such as UPS, Back-up Generators etc.
1.1.7 Cost of Service
The Client shall be charged for the services offered by TMI as
referred to in Service Charges (Annex 3) and as shown in The Order
Form (Annex 1 and all further orders in the form of supplementary
annexes). TMI reserves the right to offer different tariffs for any
future services to it provides to the Client.
1.1.8 Use of Service
The Client shall ensure that the purpose of the use of the service
provided by TMI within this agreement shall conform to all relevant
national and international Telecommunications Regulations and laws.
1.1.9 Description of TMI Service
An overview outlining how TMI provides services to the Client is shown
in Services Description (Annex 2).
1.2 Account Management
- -----------------------
TMI will provide the Client, where and how it would be suitable at its
own discretion, with local personnel assistance which will overview
the network design and the project management for the implementation
of the Client's requirements acting in accordance with the Client,
with information and liaison concerning the most appropriate method of
Implementation of the services described within this agreement.
ARTICLE 2
---------
Conditions of payment
---------------------
All payments for services described under Article 1 above, shall be
effective in Pounds Sterling through bank transfer or otherwise agreed
means, to Barclays Bank PLC, Hatton Garden Business Centre, 99 Hatton
Garden, London, EC1N 8DN, account n. 50349707 beneficiary name TMI Tele
Media International Ltd.
-3-
<PAGE>
ARTICLE 3
---------
Guarantee for service failure
-----------------------------
4.1 TMI service objectives is to offer an average availability percentage
of 99.6% on IML. The guarantee for service failure is only applicable for
failures on IML, routed via TMI's proprietary international network and not
caused by the Client.
For each resulting aggregated full hour of cumulative disruption per month,
the Client will be refunded with 1/720 of the monthly rate of the circuit;
any fraction of an hour will be refunded if it exceeds 30 minutes.
TMI reserves the right to interrupt the service for routine maintenance,
giving not less than 24 hours notice to the Client and as far as possible
providing written information about the time and length of interruption and
shall look where possible to undertake such interruptions outside standard
working hours.
4.2 Notwithstanding the above, TMI shall not be liable toward the Client
and/or to any third parties, for any direct and indirect loss or damage
and/or consequential loss or damage whatever sustained by reason of any
failure in or breakdown of the communication facility employed in the
execution of the present Agreement, or for any interruption or degradation
of services whatsoever shall be the cause of such breakdown interruption or
degradation and however long it shall last.
ARTICLE 4
---------
Delivery and supply
-------------------
Supply time is specified on the Order Form (Annex 1). It is the Client's
responsibility to ensure that the service provided within this agreement
will be accepted by all relevant parties and should the service not be
accepted then TMI reserves the right to deem that the service is
operational and that invoicing can commence.
ARTICLE 5
---------
Cessation of the Agreement
--------------------------
The condition relating to the service provision shown here in the Agreement
is valid for both parties as of when written acceptance is given by the
Client by signing the Agreement. Variations to the terms and conditions of
the Agreement may be made in writing by TMI, 1 month in advance, except
where otherwise indicated in this document, in particular with reference to
price-variations in the exchange rate. TMI has the right to terminate the
Agreement with one months notice if the Client does not meet all of
-4-
<PAGE>
the conditions described in the Agreement. The Client may decide to cease
the service giving written notice 30 days in advance.
If the Client agrees to cease all or part of the service that is provided
within the Agreement before the duration of this Agreement has expired, TMI
shall require the Client to immediately pay any hardware/installation
(including cancellation) charges that have not been recouped by TMI, any
outstanding invoices, and the annual rental costs for the remaining part of
the service (if any) shall be based upon the Client's official tariff for
that remaining bandwidth and an additional payment shall be immediately
required as detailed below for any canceled IML, the cancellation taking
effect from the end of the month in which it was requested.
The additional payment immediately required for canceling all or part of
the IML is calculated as follows:
Taking the tariff applied at the implementation of the service up to the
cancellation date excluding any discounts set at the start, but including
the discount for the period expired as follows:
Tariff increased by 10% for periods of less than one year;
Full Tariff or periods of less than 3 years;
4% discount tariff for periods of minimum 3 years and less than 5
years.
8% discount tariff for periods of a minimum of 5 years.
The Client shall be invoiced the difference between the initial tariff and
that calculated as explained above for the period the canceled part of the
service was used.
An additional month will be invoiced and calculated according to the above
explanations.
Cancellation charges for any full or part terminated local loop
rental/management/ housing/maintenance fees, shall take effect from the end
of the month in which it was requested and an additional month will be
invoiced and calculated according to the above explanations.
Should the Client wish to cancel the service after the duration of the
agreement has expired, the Client shall be required to give 30 days prior
written notice, for which there shall be not cancellation charge.
ARTICLE 6
---------
Force Majeure
-------------
Neither party shall be liable to the other party for a failure to perform
or a delay in performance under this Agreement to the extent such failure
or delay is due to cause
-5-
<PAGE>
beyond the control of the party affected; provided, however, that any party
so affected, to obtain the benefit of this article, must take reasonable
steps to correct by alternative means the action affected by the force
Majeure and must immediately notify the other party of the force Majeure
and the corrective steps being taken. In the event a force Majeure delays
a party's performance more than thirty (30) days beyond its scheduled date,
the other party may terminate this Agreement.
ARTICLE 7
---------
Amendment to the Agreement
--------------------------
This Agreement shall not be amended without the previous written consent by
both Parties. No act of the Parties performed during the execution of this
Agreement shall be considered as an express or tacit modification of the
whole Agreement or of any of its clauses.
ARTICLE 8
---------
Confidentiality
---------------
All information and administrative and technical documentation, - including
but not limited to information regarding TMI's organization, personnel
facilities, assets, fiances, costs, revenues, technology, rights,
obligations, liabilities, charges and discounts applicable the Client -,
which shall be provided to the Client for appropriate use of the services
shall remain exclusively property of TMI. This information shall be kept
strictly confidential and shall not be transferred to third parties without
previous written approval of TMI. All of the above mentioned documentation
shall be returned to TMI upon expiry of this Agreement.
Furthermore each Party shall treat as confidential any business or
technical information, whether recorded or unrecorded, received from the
other Party with the purposes of performing the activities of this
Agreement. They shall not use such information for any other purpose than
those contemplated herein, treating such information with the same degree
of care and confidentiality with which it treats its own trade secrets;
provided that neither Party shall have any restrictive obligation with
respect to any information which:
- - is contained in a printed publication available to the general public;
- - is or becomes publicly known through no wrongful act of either Party;
- - is known by the receiving Party without any proprietary restriction at
the time of receipt of such information or becomes rightfully known to
the receiving Party without proprietary restriction from a source
other than the furnishing or disclosing Party;
-6-
<PAGE>
- - is necessary or proper to be disclosed under any applicable law, rule
or regulation or pursuant to the discretion of any Governmental Entity
or Agency having jurisdiction in the Country of each Party.
These obligations shall however survive for a period of three years
following the expiry of this Agreement.
ARTICLE 9
---------
Governing Law
-------------
This Agreement shall be governed by and interpreted in accordance with the
laws of England.
ARTICLE 10
----------
Arbitration
-----------
Any disputes arising hereunder, shall be submitted for arbitration that
will resolve with a final judgment according to the composition an arbitral
rules of the London Court of Arbitration, by appointment of three
arbitrators selected in accordance to these rules.
ARTICLE 11
----------
Entire agreement
----------------
This agreement expresses the entire understanding between the Parties and
supersedes all previous agreements and understandings between the parties
hereto and between TMI and the Client's controlled companies, in particular
for the agreement referred in the recitals, whether oral or written, with
respect to the subject matter of this agreement and no other agreement or
understanding varying or extending the same shall be binding upon either
party unless in a written document signed by both parties.
ARTICLE 12
----------
Assignment of the Agreement
---------------------------
Neither party hereto shall, without prior written consent of the other,
sell, assign, transfer or dispose of its rights or obligations thereunder,
except to a legal successor or subsidiary of, or a body or corporation
controlling or under the same control as such party, such consent not to be
unreasonably withheld. No such transfer or assignment shall relieve the
assigning party of its obligations thereunder. Timely notification of such
assignment should be given.
-7-
<PAGE>
ARTICLE 13
----------
Exchange rate
-------------
All payments for services provided on the basis of the present agreement
shall be effect in Pound Sterling at the official rate of exchange
applicable at the date of invoice. For reference the exchange rate taken
when calculating the tariffs shown is 1.80 SFr:Pound.
ARTICLE 14
----------
Invoicing
---------
Invoicing will be made three months in advance for all services unless
otherwise stated. A service shall be deemed operational once TMI confirms
to the Client that the contracted service is ready. As a matter of
formality the Client at this time shall be asked to sign a service
acceptance form. Initial connection/installation costs will be invoiced as
soon as the installation has been completed. Any hardware costs shall be
immediately due payable upon placement of order unless otherwise agreed in
writing. Housing charges for any equipment shall commence being due
payable once the equipment is delivered, unless otherwise agreed in
writing. A Standing Order instruction may be used for advance payment by
the Client upon the written agreement of TMI, for which TMI shall reserve
the right at its discretion to only require payment 1 month in advance for
all services for the duration of this contract agreement.
The Client shall pay within 30 days from the invoice date, 7 days after
which time an annual percentage rate of 5% above the base rate of the
National Westminster Bank will be applied to all late payments.
Al prices quoted in this document and on its relevant Annexes are exclusive
of V.A.T. 4% administration fees shall be added to all local loop costs
ordered for the Client by TMI within this agreement.
ARTICLE 15
----------
Premises and annexes
--------------------
The premises and the annexes (including subsequent supplementary Annexes)
form integral and substantial part of this agreement.
-8-
<PAGE>
In witness whereof the Parties have affixed hereto their respective hands
and seals on this day, month and year hereinabove written.
For and on behalf of For and on behalf of
United Telegroup Ltd. TMI
---------------------
------------------------
------------------------
------------------------
Date Date
-------------------- --------------------
-9-
<PAGE>
Attn: Tom Combrinck
United Telegroup
11 Golden Square
London
W1R 3AF
1st July, 1996
Dear Sir,
With respect to contract numbers CT/LDN-047/95, 075/95, 093/95,
114/96, 121/96, 122/96, 139/96, 142/96, 143/96, 146/96, and 158/96, both
parties hereby agree that all the above contracts, effective as of 1st
July, 1996, shall be changed from United Telegroup Limited, of 11 Golden
Square, London, W1R 3AF and TMI Tele Media International Limited of 2nd
Floor, 8-10 New Fetter Lane, London EC4A 1AP, to United Telegroup AG
Europe, of Baarerstrasse 75, Postfach 2046, 6302 Zug, Switzerland and TMI
Telemedia International Limited being represented by TMI Geneva of First
Floor, 18/20 Place de Cornavin, 1201 Geneva, Switzerland. All invoicing is
to be to United Telegroup, Switzerland. All other existing terms and
conditions of the above contracts shall still remain valid.
Signed and agreed:
\s\ Tom Combrinck \s\ Tom Combrinck \s\ Massino Trippetti \s\ Mr. Scrofan
Tom Combrinck United Telegroup Massino Trippetti Mr. Scrofani
United AG Europe TMI Telemedia TMI Geneva
Telegroup International Ltd.
Limited
Date: Date: Date: Date:
----------- ---------- ------------ -------
-10-
Exhibit 10.8
RENGGLI IMMOBILIEN AG
Baarerstrasse 79
CH - 6300 Zug
Telephone: (042) 21 99 77
LEASE
LANDLORD: Dr. Guido M. Renggli
represented by: Renggli Immobilien AG, Baarerstrasse 79, 6300 Zug
TENANT: United Telegroup AG
previous address: Alte Steinhauserstrasse 33, 6330 Cham
OBJECT OF THE LEASE: RENTAL PROPERTY: Baarerstrasse 75, 6300 Zug
Office space
No. 75-300, 4th Floor
PURPOSE: For use as an office
CO-UTILIZATION: /no entry/
ONSET, LENGTH, AND TERMINATION OF LEASE:
The lease shall begin on 04/01/96; however, the landlord does not guarantee
that the tenant can move in on time. The lease shall end subject to notice
effective March 31st/June 30th/September 30th. The period of notice shall
be six months.
The lease may be terminated effective June 30, 1997, at the earliest.
RENT AND UTILITIES:
Quarterly rent 10,833.00 Sfr.
Utilities
(to the extent not included in the rent)
Flat fee On account
Heat X 420.00 Sfr.
Hot water X 120.00 Sfr.
General electricity X 60.00 Sfr.
Building maintenance X 240.00 Sfr.
/no entries/ Sfr.
(Please check appropriate boxes)
Total PER MONTH QUARTER, payable in advance by the first of each month
----- -----
quarter; the first payment is due at the time this lease is executed.
11,673.00 Sfr.
OTHER AGREEMENTS:
<PAGE>
1. The key inventory on page 2a [of the original Swiss text] is part
and parcel of this lease and shall be updated as necessary.
2. The tenant shall pay a cash security deposit in the amount of
5,000.00 Sfr. This security deposit shall earn interest at the
rate applicable to passbook savings accounts. /Anlagesparhefte/
The undersigned parties have read this lease, including the Guidelines for
Compliance with the House Rules. They agree to the content of this lease
and they executed the lease in two copies. Each party received one copy of
the lease.
United Telegroup (Europe) AG
Baarerstrasse 15, Postfach
CH - 6302 Zug
Place and Date: Zug, 03/28/96 - be/bs Tenant: /signature/
RENGGLI IMMOBILIEN AG
Landlord: /signature/
2
<PAGE>
GUIDELINES FOR COMPLIANCE WITH THE HOUSE RULES
The residence of several families in a multi-family building requires
mutual consideration. The following recommendations are intended to ensure
that living in said building is pleasant for all parties concerned.
1. For security reasons, the first floor tenants shall be responsible on
a revolving weekly basis for locking the front door at nightfall.
Tenants returning home at a later time shall also lock the front door.
2. All tenants shall exhibit mutual consideration for each other by
avoiding any and all objectionable conduct, in particular the
operation of phonographs, radios, or television sets in a manner that
disturbs others, or that interferes with nighttime quiet.
3. The building contains specific areas, rooms, and equipment for
cleaning rugs and for hanging laundry to dry.
4. The laundry room, as well as the drying facilities within and outside
of the rental property, may be used subject to a separate set of
guidelines.
5. To prevent noise and property damage during storms, the tenant shall
pay special attention to the windows, blinds, and shutters by closing
and/or securely fastening same.
6. At the onset of the heating period, all facilities containing heating
elements and water pipes shall be closed, to prevent cold air from
entering same. Rental property may be aired by briefly opening as many
windows as possible.
7. The stairwells and landings are pleasant to behold only if they are
well kept and clean.
8. It is expected that tenants who cause unusual dirt shall clean up
after themselves.
9. Garbage disposal bags and cans shall be placed in the special
designated areas on garbage pick-up days, unless this takes place in a
public area.
10. The tenants agree not to store smelly items in the rental property, in
the basement, or in the attic, to prevent any and all unpleasant and
annoying odors.
11. The tenants shall ensure that all stairwells, landings, and other
spaces designated for general use remain unobstructed.
3
<PAGE>
12. Mutual consideration and mutual tolerance shall govern the
relationships between the tenants. Each tenant shall ensure that the
atmosphere among tenants is pleasant and shall maintain a considerate
and respectful manner toward the other tenants in the building.
/Page 3 of original/
1. TERMINATION
This lease shall be terminated via registered mail subject to the
period of notice stipulated herein. Service of a notice of termination
by an official shall remain unaffected thereby.
Both the landlord and the tenant reserve the right to make claims
under the provisions of the Obligationenrechtes (OR) regarding
immediate or early withdrawal from the lease and regarding early
termination of the lease (Art. 254, 255, 261, 265, 268, 269, and 270
OR).
If the tenant wishes to terminate the lease in non-compliance with the
stipulated period of notice and the termination dates, the tenant
shall be responsible for damages (rent and other costs payable by the
tenant, as well as appropriate costs for advertising the apartment)
until the premises are rented again, but not beyond the next earliest
permissible termination date. If the tenant moves out early, and if
the apartment can be rented to a replacement tenant, the current
tenant shall be released from his obligations hereunder as of the
effective date of the replacement tenant's lease to the extent that
his obligations are assumed by such tenant.
If the landlord rejects a potential and suitable replacement tenant
suggested by the current tenant, without good reason the latter shall
be released from his obligations hereunder from the time the
replacement tenant would have commenced his lease subject to the
provisions of a hypothetical lease. If the tenant vacates the rental
property prematurely, the landlord shall have the right to rent the
property to someone else.
2. SECURITY DEPOSIT
If the parties stipulate a security deposit, such deposit may be
tendered in cash or in the form of valuables (securities etc.). The
security deposit may not exceed the aggregate of three months' rent. A
cash security deposit shall earn interest, at least at the interest
rate applicable to savings accounts maintained with the Zug
Kantonalbank.
3. OFFSETTING
4
<PAGE>
The tenant shall not have the right to offset any counterclaims -- even
counterclaims arising under the lease or from challenges to the lease
-- against the landlord's demand for payment of rent and utilities,
provided that such counterclaims are not set forth in an official
document or represent an admission of fault on the part of the
landlord as evidenced by the latter's signature. However, the tenant
shall have the right to place any disputed amounts in an escrow
account.
4. RENT ADJUSTMENTS AND OTHER MODIFICATIONS OF THE LEASE
Any and all rent adjustments and modifications of other lease
provisions are subject to applicable laws. At present, the following
laws apply:
If the landlord intends to raise the rent stipulated in this lease, he
shall notify the tenant in writing, without threatening to terminate
the lease, of the extent and the date of the rent increase and of his
reasons therefor. The landlord shall comply with the legal provisions
governing the time frame within which such lease adjustments may be
made. The notification shall be effected on an official form and shall
reach the tenant at least ten days prior to the period of notice,
otherwise the rent increase shall be null and void. The same applies
to other demands requiring a modification of the lease.
5. RENT AND UTILITIES
The rent shall include all utilities costs unless expressly and
separately enumerated in the lease.
If a single flat fee is set forth under the heading "Utilities," this
shall mean that said flat fee covers the provision of heat, as well as
of hot and cold water. The flat fee shall be calculated on the basis
of projected use. The tenant shall have the right to inspect the
landlord's documents relating thereto.
6. HEAT AND HOT WATER
The tenant is entitled to appropriate heating of the rental property.
The landlord shall provide an annual accounting of the costs for
central heating and hot water, unless the lease stipulates a flat fee.
This accounting shall be effected as of July 1 of each year. The costs
for heat and hot water shall be evenly allotted to the twelve
preceding months.
The accounting shall be sent to the tenant by the end of the current
calendar year. The tenant shall pay his own costs for central heating
and hot water, calculated on the basis of the cubic volume of the
rental property.
5
<PAGE>
The following costs are considered heating costs: Expenses for fuel
and energy; electricity for operating the pumps and burners; gas for
operating the pilot; all operating expenses; periodic inspections
(excluding repairs); chimney sweepers; expenses for cleaning the
heating system; operation of the heating system (to the extent that
this is carried out by third parties under contract); cleaning of the
tank (distributed over a period of at least five years after such
cleaning); slag removal; service of heat counters; premiums for
insurance policies relating specifically to the heating system;
administrative fee of three percent of the heating costs. The costs of
cleaning the chimney flue shall be borne by the respective tenant. Any
and all repairs to the heating system shall be borne by the landlord.
The following costs shall be considered hot water costs in the case of
a combined heat and hot water system: Costs for fuel; removal of lime
deposits in the boiler (distributed over at least four years following
such removal); electricity, provided a separate meter has been
installed for this purpose.
Additional claims for the provision of heat and hot water shall be
paid within eighty (80) days after the invoice date. Excess payments
shall be reimbursed to the tenant within the same time period. The
tenant shall have the right to inspect the originals of the vouchers
relating thereto at the landlord's office or to have same inspected by
a third party.
7. PROVISION OF RENTAL PROPERTY AND DEFECTS
The landlord shall provide the premises set forth in this lease in
good and clean condition.
The rental property shall be considered as having been in proper
condition at the time the tenant moved in, unless defects, if any, are
set forth in a separate list or are brought to the attention of the
landlord in writing (list of defects) within 14 days of the
commencement of the lease. If a list of defects and/or a work order is
drawn up, same shall be deemed part and parcel of this lease.
8. USE OF THE RENTAL PROPERTY
The tenant shall exercise due care in using the rental property and to
keep same cleaned (irrespective of whether it is used) and aired, to
prevent damages thereto, and to be considerate toward the other
tenants in the building.
The radiators may not be turned off completely during the heating
season.
6
<PAGE>
Appropriate protection shall be placed under heavy furniture to
prevent damage to the floors. The tenant shall be liable for any and
all damage to floor coverings and wall-to-wall carpeting, in
particular from shoe imprints (e.g. women's high heels). In the case
of damage, the tenant shall bear the costs for repairing such damage
and shall pay damages for the depreciation caused thereby in
consideration of usual wear and tear.
Furthermore, the tenant shall use the rental property exclusively for
the purposes stipulated in the lease. Any modification of this
provision is subject to the landlord's written approval.
9. MAINTENANCE OF THE RENTAL PROPERTY; CHANGES AND ALTERATIONS
The tenant shall demand in writing that the landlord effect
immediately any and all urgent repairs for which the latter is
responsible. If the tenant neglects this obligation, he shall be
liable for any and all damage resulting therefrom, in the same way as
the landlord shall be liable if he does not effect the repairs in a
timely fashion. In emergencies, e.g. in the case of water pipe breaks
or flooding due to back-ups, the tenant shall carry out the necessary
measures himself immediately, if damage resulting therefrom can be
avoided or reduced thereby.
The landlord shall have the right to carry out repairs and new
installations in both the rental property and the attendant
facilities, i.e. installation of central heating, cold and hot water
systems, or kitchen and bathroom appliances, with a written 30-day
notice. If the stipulated use of the rental property is restricted
thereby, the landlord shall reimburse the tenant as appropriate.
Any minor cleaning and repair tasks in connection with the daily use
of the rental property shall be effected by the tenant, especially
maintaining all switches, outlets, door locks, shutter opening and
closing devices, and sun shades, all of which were provided to the
tenant in working order; replacing the washers of water faucets,
fuses, oven grates, as well as the burner plates of the gas or
electrical range; declogging all drains leading to the main pipe,
unless the tenant can prove construction defects; replacing cracked
and defective windows, even if same were damaged by third parties.
Excluded therefrom is the tenant's responsibility to replace windows
in the event of expansion breaks. The required measures shall be
carried out during the term of the lease by professionals. If the
tenant neglects to do so, he shall be liable for any and all further
damage.
7
<PAGE>
Lime deposits in the hot water appliances contained in the rental
property shall be removed by and at the expense of the landlord,
unless stipulated otherwise.
The tenant may effect repairs that are not his responsibility only if
his written requests that the landlord effect such repairs have been
unsuccessful and if he has threatened to carry out such repairs at the
landlord's expense.
10. TENANT'S FURNISHINGS; IMPROVEMENTS AND ALTERATIONS OF THE RENTAL
PROPERTY
The tenant may not effect any structural changes and/or improvements
of any kind to the rental property; nor may he affix signs and
antennas without the express written consent of the landlord. If the
tenant makes such alterations without the landlord's written consent,
the tenant shall not be entitled to any claims for damages relative to
the landlord. Moreover, the landlord shall have the right to demand
that the rental property be returned to its original condition at the
tenant's expense. Furnishings, installations, and alterations of the
rental property, which are effected by the tenant with the landlord's
written consent at his own expense and which cannot be removed without
reducing the property's value but which, at the same time, represent a
useful appreciation of the rental property's value, shall be
reimbursed to the tenant.
11. SUBLETTING, PETS
The tenant shall obtain the landlord's written consent for all of the
following:
a) subletting; assignments of the rent; and acceptance of boarders
and of additional adult residents who are not family members;
b) the keeping of pets;
c) the provision of music lessons;
d) voluntary and publicly announced liquidation of the furnishings
in the rental property.
Any of the above may be tolerated by the landlord; however, after
having sent two written reminders, he shall have the right to prohibit
any of the above effective at the end of a month for important
reasons, subject to a 30-day notice.
12. DAMAGE TO COMMON BUILDING FACILITIES
In the case of damage to the common facilities accessible to and
provided for the convenience of all tenants -- such as the laundry
room, the stairwells, and pipes of any
8
<PAGE>
kind -- and if the perpetrator of such damage cannot be ascertained,
one half of the cost of repairing such damage shall be allotted to all
tenants in the building.
13. MUTUAL CONSIDERATION
The tenant shall use the rental property in a manner that is
considerate toward other tenants in the building.
Any and all objectionable conduct that significantly disturbs other
tenants, as well as excessive noise, is prohibited. Nighttime quiet
shall be maintained between the hours of 10:00 p.m. and 06:30 a.m.
If tenants and/or their relatives, subletters, employees, or guests
violate the above obligation to considerate conduct, despite having
been reminded thereof in writing by the landlord, the landlord may
terminate the lease effective immediately and demand appropriate
damages (Art. 261 OR).
14. RIGHT TO INSPECT
The landlord or his representatives shall have the right to inspect
the rental property for purposes of maintaining the landlord's
ownership rights and for other justified purposes. The landlord and
the tenant shall agree to the time at which such inspection is to take
place. If the tenant cannot be notified thereof in advance, and in
case of emergencies, the inspection may also be carried out in the
tenant's absence.
If the tenant intends not to use the rental property for any extended
length of time, he shall provide to the landlord the name of a tenant
in the same building or in the vicinity thereof who shall have the
keys to the rental property. The keys may also be provided to the
landlord in a sealed envelope.
If the lease has been terminated, the tenant shall provide access to
the rental property to potential tenants in the company of the
landlord or his representative. In absence of any agreements to the
contrary, such inspections may occur between the following hours:
Business days (incl. Saturdays)
Mornings: 09:00 a.m. to 11:00 a.m.
Afternoons: 5:00 p.m. to 7:00 p.m.
15. SALE OF THE BUILDING
In case the building is sold together with the leases effective at
such time, the new owner shall only take over written leases or
agreements which the tenant can prove beyond a doubt. Existing leases
shall be considered taken over in any event, unless the new owner of
the building
9
<PAGE>
terminates the respective lease effective on the earliest possible
statutory termination date following the acquisition of the building.
16. END OF LEASE AND MOVING OUT
The lease shall end at 12:00 p.m. on the day following the end of the
period of notice. The parties to this lease shall make timely
arrangements for returning the rental property. However, the rental
property shall be returned to the landlord at the latest upon
termination of the lease.
If the date for returning the rental property falls on a Sunday or a
legal holiday, the rental property shall be returned to the landlord
on the preceding business day by 12:00 p.m. at the latest.
The rental property, including all keys, shall be returned in good
condition, subject to the usual wear and tear, as well as defects set
forth in the list of defects at the time the lease began; the rental
property shall have been emptied, cleaned, and professionally repaired
(to the extent that such work is required by the tenant under item 9.
The repair and cleaning work to be undertaken by the tenant shall
commence in timely fashion to ensure that it is completed upon
termination of the lease. Shutters shall be cleaned and lubricated.
The landlord shall notify the tenant within 14 days of any defects not
attended to by the tenant (in the case of hidden defects within 14
days upon the discovery of same), if the landlord intends to hold the
tenant responsible for the costs of repairing same.
17. KEYS
Any missing keys shall be replaced at the tenant's expense. The
landlord shall have the right to replace or change the locks and, if
necessary, the front door lock, including keys, at the tenant's
expense. The tenant may copy keys only with the landlord's permission.
All keys shall be returned to the landlord at no cost at the time the
tenant moves out.
18. HOUSE RULES
The "Guidelines for Compliance with the House Rules" are appended to
this lease and form part and parcel of same. The tenant shall comply
with the House Rules, as well as with a detailed set of regulations
set forth by the landlord. If the tenant fails to comply with the
provisions of this lease or with the House Rules, despite repeated
written reminders to this effect, the landlord shall have the right to
terminate the lease pursuant to Art. 261 para 2 OR without notice and
to demand damages.
10
<PAGE>
19. JURISDICTION
The exclusive place of jurisdiction for all disputes arising from this
lease shall be the place at which the rental property is located.
20. OTHER PROVISIONS
To the extent that this lease does not contain any provisions, this
lease shall be governed by the respective regulations of the Swiss OR
regarding rentals, in due consideration of the mandatory standards set
forth in the Federal Resolution concerning measures against abuse in
the rental market or of other promulgated laws, as well as of locally
applicable laws.
11
Exhibit 10.9
MANAGEMENT AGREEMENT
BETWEEN
UNITED TELEGROUP AG
ALTSTEINHAUSERSTRASSE 33, 6330 CHAM
(HEREINAFTER REFERRED TO AS THE COMPANY)
AND
DIPL. ING. ANDREAS POPOVICI
ALTE LANDSTRASSE 104, CH-8803 RUSCHLIKON
(HEREINAFTER REFERRED TO AS THE MANAGER)
IT IS HEREBY AGREED
Sec. 1 AREA OF RESPONSIBILITY
1.The responsibility of the Manager is:
a) to plan, search for financing, organize and co-ordinate, manage and
control the start-up activity and the ongoing development, marketing
and commercial activities of the Company, and its services in
according with the business plan.
b) to manage the Company and establish the corporate business network
operation in Switzerland, Germany, Austria and other territories as
the parties may agree.
c) to create synergy between the corporate business network operation an
other fixed and/or mobile telecommunication services.
d) to submit the regular requested reports to the Board of Directors and
further exceptional report as may requested by the Board of Directors
of the Company.
2. The Manager is nominated to be the Managing Director of the Company.
3. The Manager is nominated to be a member of the Board of Directors of
the Company.
4. The Manager will put at the disposal of the Company 200 working days
per year including absence due to sickness. The overtime work is
included in the compensation paid under the and conditions of this
contract.
<PAGE>
Sec. 2 REMUNERATION
1. The Company hereby agrees to pay to the consultant an annual fee of
CHF 260'000,- payable in 13 equal installments of CHF 20'000,- at the
25th of each month.
2. The Company will pay to the Manager for every new business network
customer a provision of CHF 1'000,- per customer in the first year of
operation and CHF 750,- in year 2 (two) and in year 3 of operation.
The payment will be on a quarterly basis at the 15th of the next
month.
Sec. 3 CONTINUATION OF PAYMENT
1. Should the Manager be unable to perform his duties due to sickness for
more than three consecutive days, he must provide the Company with a
medical certificate attesting his health condition so as to conform
with the requirements of the insurers.
2. If the Manager is unable to perform his duties through sickness the
Company will continue to pay the fixed monthly installments as
described under Sec.2 for a period of six months after disability began.
3. In case of death of the Manager during the Term of this Agreement, his
widow and minor children shall be entitled to claim six installments
of the fixed monthly installments as described under Sec.2.
Sec. 4 INSURANCE
1. The Company will maintain adequate insurance cover indemnifying the
Manager against claims by third parties and/or that claims which may
arise in connection with the Company Callcom AG fur Telekommuncation,
Technoparkstr. 1,8005 Zurich, Switzerland.
2. The Company will maintain adequate insurance cover protecting against
loss of the business of the Company for any reason (inter alia war,
confiscation, nationalization, fire, theft, and so on.).
3. The Company will insure the Manager against accidents related to the
Manager. The insurance will cover death and invalidity as follows:
- - for invalidity CHF 1'000'000,- Beneficiary is the Manager
- - in case of death CHF 500'000,- Beneficiary are the legal heirs of the
Manager.
-2-
<PAGE>
Sec. 5 TERM
1. The initial term of this agreement is three (3) years, commencing on
the date of its signature.
2. After the initial Term, the agreement shall automatically be renewed
for successive one year term, unless it is terminated by the Manager
or by the Company upon a written notice six (6) months before the end
of the initial term.
Sec. 6 TERMINATION
1. Notwithstanding the foregoing, the agreement may be terminated by
either the Manager or the Company like follows:
a) The Company terminate the agreement if:
- The Manager violates the restrictions imposed on him under this
contract.
2. Notwithstanding the foregoing, if the Manager is discharged from his
duties by the Company will pay the Manager a lump sum, equal to the
annual remuneration for remaining initial term, or to the remaining
additional term, but not less than a compensation of nine (9) months
of salary.
3. During a period of six month after the termination of this contract,
the Manager will not take an engagement with a competitor active in
the same field of activities as Company in Switzerland.
Sec. 7 BUSINESS EXPENSES
1. The Manager shall be reimbursed for reasonable and budgeted travel and
other expenses incurred by the Manager in connection with the
performance of his duties hereunder, upon submission by him to the
Company of statements and bills in respect thereof, and according to
the relevant tax laws.
2. The Manager is entitled to use first class railway and business class
on flights and hotels.
Sec. 8 COMPANY CAR
1. The Company provides the manager with a Company car up to a maximum
price of CHF 50'000 (excluding VAT) and agrees to pay the related
expenses i.e. maintenance, repairs, gasoline charges in connection
therewith upon presentation of the supporting statements and bills.
-3-
<PAGE>
2. The Manager and related persons are entitled to use the car for
business and private use.
Sec. 9 DUTY OF SECRECY
1. During and after the Term of this Agreement, the Manager has to
maintain secrecy with respect to the business, transactions, know-how
and other relevant information of the Company.
2. After termination of the Agreement the Manager has to return all
documents, files drawing contracts client list including names,
addresses etc.
Sec. 10 PROVISIONS
1. Alterations of and/or amendments to this contract must be in writing
and upon mutual agreements between the parties.
2. The governing law is the Swiss law, and Swiss court (Zurich) has
exclusive jurisdiction.
3. Should any provision of this contract be or become invalid or
unenforceable, this shall nor affect the validity of the remainder of
this contract. In place of such provisions the parties are to agree
on an amendment which approximates the purpose of the invalid or
unenforceable provision. The same applies in case that there should
be any gap in this Agreement.
Place:
---------------------------
Date: March 14, 1996
---------------------------
For the Company
-----------------
For the Manager
-----------------
-4-
Exhibit 10.10
MANAGEMENT AGREEMENT
BETWEEN
UNITED TELEGROUP AG
BAARERSTRASSE 75, POSTFACH, CH-6302 ZUG
(HEREINAFTER REFERRED TO AS THE COMPANY)
AND
LIC. OEC. PUBL. FRANCO REINSCHMIDT
CHAMERSTRASSE 45, CH-6300 ZUG
(HEREINAFTER REFERRED TO AS THE MANAGER)
IT IS HEREBY AGREED
1. AREA OF RESPONSIBILITY
1.1 The responsibility of the Manager is:
a) Planning, finance management, insurance, tax, personnel, reporting,
legal
b) support in, coordinating, managing and controlling the start-up
activity and the ongoing development, commercial activities of the
Company in coordination with another Managing Director
c) to manage the Company and establish the corporate business network
operation in Switzerland, Germany, Austria nd other territories with
another Managing Director as the parties may agree
d) to submit the regular requested reports to the Board of Directors and
further exceptional report as may be requested by the Board of
Directors of the Company and the UNITED TELEGROUP HOLDING AG
(hereinafter called "Parent Company").
1.2 The Manager is nominated to be one of the Managing Directors of the
Company and of the Parent Company.
1.3 The Manager is nominated to be a member of the Board of Directors of
the Company and the Parent Company.
<PAGE>
1.4 The Manager will put at the disposal of the Company 200 working days
per year including absence due to sickness. The overtime work is
included in the compensation paid under the and conditions of this
contract.
2. REMUNERATION
2.1 The Company hereby agrees to pay to the consultant an annual fee of
CHF 195'000,- payable in 13 equal installments of CHF 15'000,- at the
25th of each month.
2.2 The Company will pay to the Manager for every new business network
customer a provision of CHF 1'000,- per customer in the first year of
operation and CHF 750,- in year 2 (two) and in year 3 of operation.
The payment will be on a quarterly basis at the 15th of the next
month.
3. CONTINUATION OF PAYMENT
3.1 Should the Manager be unable to perform his duties due to sickness for
more than three consecutive days, he must provide the Company with a
medical certificate attesting his health condition so as to conform
with the requirements of the insurers.
3.2 If the Manager is unable to perform his duties through sickness the
Company will continue to pay the fixed monthly installments as
described under 2 for a period of six months after disability began.
3.3 In case of death of the Manager during the Term of this Agreement, his
widow and minor children shall be entitled to claim six installments
of the fixed monthly installments as described under 2.
4. INSURANCE
4.1 The Company will maintain adequate insurance cover indemnifying the
Manager against claims by third parties.
4.2 The Company will maintain adequate insurance cover protecting against
loss of the business of the Company for any reason (inter alia war,
confiscation, nationalization, fire, theft, and so on.).
4.3 The Company will insure the Manager against accidents related to the
Manager. The insurance will cover death and invalidity as follows:
- - for invalidity CHF 1'000'000,- Beneficiary is the Manager
- - in case of death CHF 500'000,- Beneficiary are the legal heirs of the
Manager.
-2-
<PAGE>
5. TERM
5.1 The initial term of this agreement is three (3) years, commencing on
the date of its signature.
5.2 After the initial Term, the agreement shall automatically be renewed
for successive one year term, unless it is terminated by the Manager
or by the Company upon a written notice six (6) months before the end
of the initial term.
6. TERMINATION
6.1 Notwithstanding the foregoing, the agreement may be terminated by
either the Manager or the Company like follows:
a) The Company terminate the agreement if:
- The Manager violates the restrictions imposed on him under this
contract.
6.2 Notwithstanding the foregoing, if the Manager is discharged from his
duties by the Company will pay the Manager a lump sum, equal to the
annual remuneration for remaining initial term, or to the remaining
additional term, but not less than a compensation of six (6) months of
salary.
6.3 During a period of six month after the termination of this contract,
the Manager will not take an engagement with a competitor active in
the same field of activities as Company in Switzerland.
7. BUSINESS EXPENSES
7.1 The Manager shall be reimbursed for reasonable and budgeted travel and
other expenses incurred by the Manager in connection with the
performance of his duties hereunder, upon submission by him to the
Company of statements and bills in respect thereof, and according to
the relevant tax laws.
7.2 The Manager is entitled to use first class railway and business class
on flights and hotels.
8. COMPANY CAR
8.1 The Company provides the manager with a Company car up to a maximum
price of CHF 50'000 (excluding VAT) and agrees to pay the related
expenses i.e. maintenance, repairs, gasoline charges in connection
therewith upon presentation of the supporting statements and bills.
-3-
<PAGE>
8.2 The Manager and related persons are entitled to use the car for
business and private use.
9. DUTY OF SECRECY
9.1 During and after the Term of this Agreement, the Manager has to
maintain secrecy with respect to the business, transactions, know-how
and other relevant information of the Company.
9.2 After termination of the Agreement the Manager has to return all
documents, files drawing contracts client list including names,
addresses etc.
10. GENERAL PROVISIONS
10.1 Alterations of and/or amendments to this contract must be in writing
and upon mutual agreements between the parties.
10.2 The governing law is the Swiss law, and Swiss court (Zurich) has
exclusive jurisdiction.
10.3 Should any provision of this contract be or become invalid or
unenforceable, this shall nor affect the validity of the remainder of
this contract. In place of such provisions the parties are to agree
on an amendment which approximates the purpose of the invalid or
unenforceable provision. The same applies in case that there should
be any gap in this Agreement.
Place:
---------------------------------------------------------------------
Date: April 4, 1996
----------------------------------------------------------------------
For the Company
------------------------------------------------------------
Place:
---------------------------------------------------------------------
Date: April 4, 1996
----------------------------------------------------------------------
For the Manager
------------------------------------------------------------
-4-
Exhibit 10.11
UNITED TELEGROUP (EUROPE) AG
================================================================================
CUSTOMER SERVICE AGREEMENT (*)
================================================================================
(*) Includes the General Terms and Conditions of United
Telegroup (Europe) AG
- --------------------------------------------------------------------------------
CUSTOMER DETAILS:
- --------------------------------------------------------------------------------
Name: Billing Details:
-----------------
- -----------------------------------------------------------
Contact:
- -----------------------------------------------------------
Address:
-----------------
-----------------
-----------------
-----------------
- --------------------------------------------------------------------------------
Post Code City Registered Office (If
Different)
- -----------------------------------------------------------
Tel.:
- -----------------------------------------------------------
Fax.:
- -----------------------------------------------------------
No. of Channels:
================================================================================
SITE DETAILS:
-----------------
Software Rev.
Type No.:
-----------------
Work req.
-----------------
Ordered By UT
AG/
Customer
================================================================================
TRAFFIC DETAILS:
- --------------------------------------------------------------------------------
National: __ __% International: __
__%
- --------------------------------------------------------------------------------
Destinations:
================================================================================
(*) Delete as appropriate.
================================================================================
SPECIAL CONDITIONS (if any)
- --------------------------------------------------------------------------------
================================================================================
Agreed by United Agreed by Customer:
- ---------------------------- ----------------------------------------
Telegroup AG
Signature Signature
- ---------------------------- ----------------------------------------
Name A. Popovici Name
- ---------------------------- ----------------------------------------
Position Director Position
Date Date
Place Place
============================ ========================================
<PAGE>
TERMS AND CONDITIONS
--------------------
The Service to be provided by UT AG to the Customer is further
specified in the Agreement. These standard terms and conditions constitute
an integral part of the Customer Service Agreement and are applicable to
the provisions of the Service.
1. DEFINITIONS
For the defintions see clause 13.
2. PROVISION OF SERVICE
2.1. UT AG undertakes to provide the service from the Ready For
Service Date subject to the Agreement.
2.2. UT AG undertakes to exercise appropriate care in the
provision and operation of the service.
2.3. UT AG shall endeavor to ensure that the Service conforms to
the relevant CCITT recommendations concerning international telephony.
3. DELIVERY AND INSTALLATION OF THE CUSTOMER ACCESS LINE
3.1. UT AG shall procure the installment of the customer Access
Line with the Customers co-operation. It is the Customer's obligation to
follow UT AG or its authorized representative's specifications regarding
any construction work at the Premises necessary for the installation of the
Customer Access Line and for the Customer's use of the service.
3.2. UT AG shall endeavor to procure the instalment of the
Customer Access Line within six weeks from the date of the Agreement. UT
AG will provide the Customer with regular reports concerning the
installation of the Customer Access Line and following installation of the
Customer Access Line will inform the Customer when the Customer Access Line
is ready for provision of the Service.
3.3. At UT AG's request, the Customer shall provide at the
Customer's expense, a suitable mains electricity supply, with connection
where UT AG requires, to enable UT AG to provide the Service.
4. USE OF SERVICE
4.1. As per the Agreement overleaf the Customer and UT AG shall
agree all the traffic destinations to which the Service is to be provided.
Any change made by the Customer in the traffic destinations other than
those covered in UT AG price list or other diversion of traffic, without
the prior written consent of UT AG shall be a breach of the Agreement.
4.2. The Customer undertakes to use the Service as the first
choice for the transfer of traffic to those destinations agreed and in
accordance with such instructions and conditions as may be notified in
writing to the Customer by UT AG from time to time and in accordance with
the relevant provisions of the Act and any license granted thereunder. The
use of the Customer Access Line shall be subject to such terms and
conditions of the third party telecommunications operator providing the
Customer Access Line as UT AG shall notify the Customer from time to time.
-2-
<PAGE>
4.3. Without limiting clause 4.2 the Customer undertakes not to
use the Service:
4.3.1. For the transmission of material which is
defamatory, offensive or of an obscene or menacing character, or
4.3.2. In a manner which constitutes a violation or
infringement of the rights of any person, firm or company (including
but not limited to rights of copyright and confidentiality).
4.4. The Customer shall not attach or cause any equipment to be
attached other than those approved for connection under the Act to be
equipment providing the service and the customer shall comply with all the
other applicable provisions of the Act and relevant regulations and
licenses. The customer undertakes not to alter or move the Customer Access
Line or any part thereof without UT AG's prior written consent. UT AG may
require the Customer to provide from time to time all information
concerning any equipment (including any software) connected to the Customer
Access Line.
4.5. The Customer shall indemnify and keep indemnified UT AG
against any claims or legal proceedings brought against UT AG by any party
arising from the Customer's use of the Service in breach of the Agreement.
5. DURATION OF CONTRACT
5.1. The term of the Agreement shall be for a period of twenty-
four months commencing from the Ready for Service Date. Thereafter the
term shall continue for further twelve month periods unless and until
terminated by either party of not less than six months notice prior to the
expiry of the relevant twelve month period.
5.2. If UT AG sends the Customer a revised version of UT AG's
current standard terms and conditions of service, together with a notice
stating when such revised terms and conditions will come into force, and
the Customer continues to make use of the Service after such date, the
Customer will be deemed to have accepted such revised terms with effect
from such date and such revised terms and conditions will be deemed to
constitute part of the Agreement in place of the previous standard terms
and conditions.
6. USAGE CHARGES AND PAYMENT
6.1. In consideration of the Service provided by UT AG the
Customer shall pay Usage Charges as set out in UT AG's Price List.
6.2. Usage Charges shall be payable in arrears. UT AG shall send
bills for Usage Charges due at the end of each Billing Period i.e., at the
25th of every month.
6.3. All invoices from UT AG to the Customer s hall be in the
form agreed between UT AG and the Customer. Usage Charges shall be
calculated by reference to data recorded or logged by UT AG and not by
reference to any data recorded or logged by the Customer.
6.4. All sums due to UT AG under the Agreement sh all be payable
by the Customer within fifteen (15) days of the date of the relevant
invoice but UT AG shall have the right to request payment on demand if the
Customer fails to make timely payment of any previous invoices. The time
of payment of all sums due to UT AG shall be of the essence of the
Agreement.
6.5. UT AG reserves the right to charge daily interest on
outstanding amounts until payment in full is received at a rate equal to 2%
per annum above Union bank of Switzerland (UBS) Base Lending Rate as
-3-
<PAGE>
current from time whether before or after judgment interest shall accrue
notwithstanding termination of the Agreement for any cause whatsoever.
6.6. All charges payable by the Customer for the Service are
exclusive of Value Added Tax for which, if it is applicable, an amount will
be added to the Customers invoice.
6.7. Payment of all sums due to UT AG by the Customer shall be
made without any set-off whatsoever.
6.8. UT AG shall have the right to increase or decrease the rates
of Usage Charges in the UT AG Price List time to time by giving the
Customer not less than four (4) weeks notice in writing. The Customer
shall have the right within 14 days of written notification of an increase
in the rate of Usage Charges to terminate the Agreement on one month's
written notice to UT AG.
7. TERMINATION
7.1. UT AG shall have the right (notwithstanding) anything to the
contrary expressed or implied elsewhere in the Agreement to terminate the
Agreement if the Customer:
7.1.1. fails to make any payment when it becomes due to
UT AG; or
7.1.2. is in breach of the Agreement (and in the case of
a remediable breach, fails to remedy the breach within a reasonable
period of time specified by UT AG; or
7.1.3. is subject to Bankruptcy proceedings.
7.2. If the Agreement is terminated by UT AG pursuant to 7.1 the
Customer shall pay to UT AG all arrears of Usage Charges and Customer
Access Line costs reason ably incurred in providing the Service.
7.3. If the Customer wishes to terminate the Agreement for any
reason (other than as a result of a material breach by UT AG which UT AG
has failed to remedy within a reasonable period of time on written notice
by the Customer. UT AG shall have the right to recover any Customer Access
Line costs and usage costs reasonably incurred in providing the Service.
7.4. On termination of the Agreement the Customer shall cooperate
with UT AG, and UT AG's request, in the dismantling of the Customer Access
Line.
8. SUSPENSION OF THE SERVICE
8.1. UT AG may add at its sole discretion upon giving the
Customer 14 days written notice elect to suspend forthwith provision of the
Service until further notice on notifying the Customer in the event that:
-- UT AG is entitled to terminate the Agreement pursuant
to clause 8.1.
-- UT AG needs to carry out any maintenance services to
equipment necessary to provide the Service in which
event UT AG shall use its reasonable endeavors to
ensure there is minimum disruption to the Service.
8.2. The Customer shall reimburse UT AG for all reasonable costs
and expenses incurred in the implementation of such suspension or
recommencement of the Service as appropriate save that such reimbursement
shall only apply where UT AG is entitled to terminate the Agreement
pursuant to clause 7.1.
-4-
<PAGE>
9. FAULT REPORTING
Fault reports and enquiries can be directed to UT AG's support
centre.
10. ACCESS PREMISES
The Customer shall permit UT AG and its authorized
representatives to reasonably access the Premises and Customer Access Line
during office time to enable UT AG or its authorized representative to
deliver, install, inspect, maintain, connect, trace faults, repair faults
or renew or dismantle the customer Access Line or any part thereof.
11. LIMITATION OF LIABILITY
11.1. Neither party shall be liable under or in connection
with the Agreement whether in Agreement, tort, or otherwise (including
liability, negligence) for any indirect or consequential loss, corruption
or destruction of data, any loss or business, revenue or profits,
anticipated savings or for any financial loss whatsoever.
11.2. Nothing in the Agreement shall exclude or restrict UT
AG's liability for a death or personal injury resulting from the negligence
of UT AG or of its employees.
11.3. In the event UT AG fails to provide the Service and the
Customer diverts traffic to another service provider UT AG shall not be
responsible for any cost or expenses arising as a result of such diversion
of traffic including, without limitation, such service providers charges.
11.4. Neither the Customer nor UT AG shall be liable to the
other for any loss or damage which may be suffered by the other party due
to any cause beyond the first party's reasonable control including without
limitation, any act of God, inclement weather, failure or shortage of power
supplies, flood, drought, lightening or fire, strike, lockout, trade
dispute or labor dispute, the act or omission of Government highways
authorities, other telecommunications operators or administrations or other
competent authority , war or military operations.
11.5. The provisions of this clause 11 shall continue to
apply notwithstanding termination of the Agreement.
12. GENERAL
12.1. The customer shall not be entitled to assign the
Agreement without UT AG's prior written consent not to be unreasonably
withheld nor shall the Customer be entitled to sub-contract the Service to
any third party unless such third party is a subsidiary or holding company
of the Customer or in the same group of companies as the Customer.
12.2. Any notice given under the Agreement, except a notice
of a fault, must be in writing and shall be delivered by mail to the
address of UT AG.
12.3. The Agreement represents the entire Agreement between
UT AG and the customer and supersedes all other agreements and
representations made by either party whether oral and/or written.
12.4. Failure by either party to exercise or enforce any
right conferred by the Agreement shall not be deemed to be a waiver of any
such right nor operate so to bar the exercise or enforcement thereof or of
any other right or any later occasion.
-5-
<PAGE>
12.5. The Agreement shall be governed by and construed and
interpreted in accordance with Swiss laws and the parties hereby submit to
the jurisdiction of the Swiss court in ZUG.
12.6. UT AG shall have the right to sub-contract any part of
the service to independent sub-contractors selected by UT AG. Any
reference to UT AG herein includes sub-contractors and UT AG sh all remain
liable to the Customer for Provision of the Service by such sub-contractor.
13. DEFINITIONS
The "ACT" means the Telecommunications Act of 1984 and any
replacement, amendment or re-enactment thereof for the time being in force.
The "AGREEMENT" means the agreement between UT AG and the Customer for
the provision of the Service including the standard terms and conditions.
"BILLING PERIOD" means the period of time of one month.
"CUSTOMER ACCESS LINE" means any telecommunication equipment,
communication channel and other equipment provided by third party
telecommunications operators and used by UT AG in order to provide the
Service.
"SERVICE AVAILABILITY DATE" means the date on which the Customer first
makes use of the Service, or if earlier, the date on which UT AG first
notifies the Customer that the Customer Access Line is ready to provide the
Service.
"SERVICE" means the international direct dialing (IDD)
telecommunications service provided by UT AG.
"UT AG" means United Telegroup (Europe) AG.
"UT AG PRICE LIST" means the price list issued to the Customer by UT
AG from time to time.
-6-
Exhibit 10.12
UNITED TELEGROUP INTERNATIONAL, INC.
SUBSCRIPTION AGREEMENT
THIS AGREEMENT is made as of August 15, 1996, by and between
United Telegroup International, Inc., a Delaware corporation (the
"Company"), having an address at 18 Cattano Avenue, Morristown, New Jersey
07960, and the subscriber signatory hereto (the "Subscriber").
1. Subscription. The Subscriber agrees with the Company to
------------
subscribe for and agrees to purchase and pay for 400,000 shares (the
"Shares") of the Company's Common Stock, par value $.00001 (the "Common
Stock") for an aggregate purchase price of $1,000,000 consisting of $10,000
in cash and a secured promissory note (the "Note") in the amount of
$990,000. This subscription is submitted to the Company in accordance with
and subject to the terms and conditions described in this Subscription
Agreement.
The Subscriber acknowledges that this subscription for the Shares
is subject to acceptance by the Company. The Subscriber acknowledges that
the Company reserves the right to accept or reject any subscriptions in
whole or in part. Subject to the terms hereof, this subscription will
become effective upon its acceptance by the Company.
A check of the Subscriber payable to the Company in the amount of
$10,000, or a wire transfer to the Company's designated account, and the
Note manually executed by the Subscriber accompany the delivery of this
Subscription Agreement. It is agreed by the parties hereto that the stock
certificate representing the Shares shall be issued by the Company within
10 days of the effective date of a registration statement covering the
Shares and naming the holders thereof as selling stockholders. Shares will
only be released by the Company to the Subscriber in accordance with the
terms of the Security and Pledge Agreement to be executed by the
Subscriber.
In the event this subscription is not accepted by the Company,
any consideration tendered will be promptly refunded in full without
interest.
2. Representations of the Subscriber. The Subscriber hereby
---------------------------------
represents and warrants to the Company that:
(a) the subscription hereunder is being made by the Subscriber as
principal for the Subscriber's own account and not for the
benefit of any other person;
<PAGE>
2
(b) the Subscriber is a resident of the jurisdiction set out on the
signature page hereof;
(c) this Subscription Agreement constitutes a legal, valid, binding
and enforceable obligation of the Subscriber;
(d) the Subscriber will not make any offers to sell the Shares or
sell any of the Shares except in accordance with the terms of
this Subscription Agreement;
(e) the Subscriber has such knowledge, sophistication and experience
in business and financial matters that it is capable of
evaluating the merits and risks of an investment in the Shares,
and at the present time, it could afford a complete loss of such
investment;
(f) the Subscriber acknowledges that the Company and counsel for the
Company will rely upon the accuracy and truth of the Subscriber's
representations in Sections 2 and 3 hereof and the Subscriber
hereby consents to such reliance;
(g) the Subscriber has access to the same kind of information which
would be available in registration statements filed by the
Company under the United States ("U.S.") Securities Act of 1933,
as amended (the "Securities Act");
(h) neither the U.S. Securities and Exchange Commission (the "SEC")
nor any state securities commission has approved any of the
Shares offered or passed upon or endorsed the merits of the
offering;
(i) the Subscriber acknowledges that all documents, records, and
books pertaining to the investment in the Shares have been made
available for inspection by him, his attorney, accountant,
purchaser representative or tax advisor (collectively, the
"Advisors");
(j) the Subscriber and the Advisors have had a reasonable opportunity
to ask questions of and receive answers from a person or persons
acting on behalf of the Company concerning the offering of the
Shares and all such questions have been answered to the full
satisfaction of the Subscriber and his Advisors;
(k) in evaluating the suitability of an investment in the Company,
the Subscriber has not relied upon any representation or other
information (oral or written) other than as contained in
documents or answers to
<PAGE>
3
questions so furnished to the Subscriber or his Advisors by the
Company;
(l) the Subscriber is unaware of, and is in no way relying on, any
form of general solicitation or general advertising in connection
with the offer and sale of the Shares;
(m) the Subscriber has such knowledge and experience in financial,
tax, and business matters so as to enable him to utilize the
information made available to him in connection with the offering
of the Shares to evaluate the merits and risks of an investment
in the Shares and to make an informed investment decision with
respect thereto;
(n) the Subscriber is not relying on the Company respecting the tax
and other economic considerations of an investment in the Shares,
and the Subscriber has relied on the advice of, or has consulted
with, only his own Advisors;
(o) the Subscriber is acquiring the Shares solely for his own account
for investment and not with a view to distribution, other than in
accordance with the terms hereof;
(p) the Subscriber must bear the economic risk of the investment
indefinitely because none of the Shares may be sold, hypothecated
or otherwise disposed of unless subsequently registered under the
Act and applicable state securities laws or an exemption from
registration is available;
(q) the Subscriber has adequate means of providing for its current
needs and foreseeable contingencies and has no need for its
investment in the Shares to be liquid;
(r) the Subscriber has completed accurately the Subscriber
Questionnaire attached hereto as Exhibit A and meets the
---------
requirements of at least one of the suitability standards for an
"accredited investor;" and
(s) the Subscriber: (i) if a natural person represents that the
Subscriber has reached the age of 21 and has full power and
authority to execute and deliver this Subscription Agreement and
all other related agreements or certificates and to carry out the
provisions hereof and thereof; (ii) if a corporation,
partnership, association, joint stock company, trust,
unincorporated organization or other entity represents that such
entity was not formed for the specific purpose of acquiring the
Shares, such
<PAGE>
4
entity is validly existing under the laws of the state of its
organization, the consummation of the transactions contemplated
hereby is authorized by, and will not result in a violation of
state law or its charter or other organizational documents, such
entity has full power and authority to execute and deliver this
Subscription Agreement and all other related agreements or
certificates and to carry out the provisions hereof and thereof,
this Subscription Agreement has been duly authorized by all
necessary action, this Subscription Agreement has been duly
executed and delivered on behalf of such entity and is a legal,
valid and binding obligation of such entity; and (iii) if
executing this Subscription Agreement in a representative or
fiduciary capacity, represents that it has full power and
authority to execute and deliver this Subscription Agreement in
such capacity and on behalf of the subscribing individual, ward,
partnership, trust, estate, corporation, or other entity for whom
the Subscriber is executing this Subscription Agreement, and such
individual, ward, partnership, trust, estate, corporation, or
other entity has full right and power to perform pursuant to this
Subscription Agreement and make an investment in the Company, and
that this Subscription Agreement constitutes a legal, valid and
binding obligation of such entity; and
3. Acknowledgments; representations and covenants of the Subscriber
----------------------------------------------------------------
with respect to U.S. securities laws; securities transfers.
- ----------------------------------------------------------
(a) The Subscriber understands that the Shares have not been
registered (i) under the Securities Act in reliance upon the
exemption from such registration requirements afforded by
Regulation S under the Securities Act, governing the offer and
sale of securities that occur outside the U.S., or (ii) with any
state securities commission. the Subscriber understands that the
Shares may not be offered, sold, transferred or otherwise
disposed of in the U.S., its territories or possessions, or to
persons known to be residents of the U.S. or to a "U.S. person"
within the meaning of Regulation S under the Securities Act
("U.S. Person"; see the definition of U.S. Person annexed hereto
as Exhibit B) until the earlier to occur of the effectiveness of
---------
a registration statement registering the Shares under the
Securities Act or the expiration of the restricted period (as
defined by Regulation S under the Securities Act) and thereafter
only if the Shares are registered under the Securities Act or an
exemption from the registration requirements under the Securities
Act is available.
<PAGE>
5
(b) The Subscriber hereby represents and warrants that the Subscriber
is not a resident of the U.S. and is not otherwise deemed to be a
U.S. Person.
(c) The Subscriber agrees that if it should resell or transfer the
Securities within three years after the original issuance of the
Shares it will do so only (a) outside the United States in
compliance with Rule 904 under the Securities Act, (b) pursuant
to the exemption from registration provided by Rule 144 under the
Securities Act (if available) or other applicable exemption under
the Securities Act and state securities laws; (c) in a
transaction that does not require registration under the
Securities Act or any applicable state laws, or (d) pursuant to a
registration statement that has been declared effective under the
Securities Act.
(d) The Subscriber agrees that it will give each person to whom it
transfers such Securities notice of any restrictions on transfer
of such Securities, if then applicable. If a transfer of
Securities is proposed to be made within three years after the
original issuance of the Shares, the holder (or beneficial
holder, as the case may be) will be required to furnish to the
Company (or, in the case of the Common Stock, the transfer agent
for the Common Stock), such certifications, legal opinions, or
other information as the Company may reasonably require to
confirm that the proposed transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act.
(e) Each certificate representing the Shares will bear the following
legend (unless such Shares have been transferred pursuant to a
registration statement that has been declared effective under the
Securities Act):
THE COMMON STOCK EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR
SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING
SENTENCE. THE HOLDER HEREOF AGREES THAT UNTIL THE EXPIRATION OF
THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SHARES: (1) IT
WILL NOT RESELL OR OTHERWISE TRANSFER THE COMMON STOCK EVIDENCED
HEREBY EXCEPT (A) OUTSIDE THE UNITED STATES IN COMPLIANCE WITH
RULE 904 UNDER THE
<PAGE>
6
SECURITIES ACT, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR
OTHER THEN APPLICABLE EXEMPTION UNDER THE SECURITIES ACT AND
STATE SECURITIES LAWS, (C) IN A TRANSACTION THAT DOES NOT REQUIRE
REGISTRATION UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE
LAWS, OR (D) PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT (AND WHICH CONTINUES
TO BE EFFECTIVE AT THE TIME OF SUCH TRANSFER); (2) PRIOR TO ANY
SUCH TRANSFER (OTHER THAN A TRANSFER PURSUANT TO CLAUSE 1(D)
ABOVE), IT WILL FURNISH TO THE COMPANY OR THE TRANSFER AGENT FOR
THE COMMON STOCK SUCH CERTIFICATIONS, LEGAL OPINIONS, OR OTHER
INFORMATION AS THE COMPANY OR SUCH TRANSFER AGENT MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO
AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR STATE
SECURITIES LAWS, AND (3) IT WILL DELIVER TO EACH PERSON TO WHOM
THE COMMON STOCK EVIDENCED HEREBY IS TRANSFERRED (OTHER THAN A
TRANSFER PURSUANT TO CLAUSE 1(D) ABOVE) A NOTICE SUBSTANTIALLY TO
THE EFFECT OF THIS LEGEND. THIS LEGEND MAY BE REMOVED UPON THE
EARLIER OF THE TRANSFER OF THE COMMON STOCK EVIDENCED HEREBY
PURSUANT TO CLAUSE 1(D) ABOVE OR THE EXPIRATION OF THREE YEARS
FROM THE ORIGINAL ISSUANCE OF THE SHARES UPON THE CONVERSION OF
WHICH THE COMMON STOCK EVIDENCED HEREBY WAS ISSUED OR UPON THE
EARLIER SATISFACTION OF THE COMPANY OR THE TRANSFER AGENT FOR THE
COMMON STOCK THAT THE COMMON STOCK HAS BEEN OR IS BEING OFFERED
AND SOLD IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT OR
SUCH OTHER THEN APPLICABLE EXEMPTION OR TRANSACTION THAT
LEGENDING IS NO LONGER REQUIRED. AS USED HEREIN, THE TERMS
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM
BY REGULATION S UNDER THE SECURITIES ACT.
(f) The Subscriber understands and agrees that any disposition of the
Shares in violation of this Subscription Agreement shall be null
and
<PAGE>
7
void, and that no transfer of the Shares likely will be made by
the Company or the Company's transfer agent upon the Company's
stock transfer books unless there has been compliance with the
terms of this Subscription Agreement. The Subscriber also
understands and agrees that the Company likely will issue stop
transfer instructions to the Company's transfer agent instructing
such transfer agent, prior to the effectiveness of the
Registration Statement, during the restricted period (as defined
by Regulation S under the Securities Act), not to transfer the or
certificate(s) evidencing the Shares to U.S. Persons.
(g) The Subscriber (i) acknowledges that the Shares have not been
registered under the Securities Act and that the Company has no
obligation to so register any of the Shares, (ii) represents and
warrants that the Subscriber is acquiring beneficial ownership of
the Shares for the Subscriber's own account and not for the
account or benefit of a U.S. Person or other person, and (iii)
agrees that the Subscriber will not transfer or otherwise dispose
of any of the Shares unless such transfer or other disposition is
registered under the Securities Act or is in accordance with
Regulation S under the Securities Act or otherwise is exempt from
registration under the Securities Act.
4. Covenants. The Subscriber acknowledges that in making its
---------
decision to subscribe for the Shares, it has not relied upon the advice of
any adviser to the Company or, other than the Advisors, of any other third
party.
5. Further Assurances. Each of the parties hereto agrees to execute
------------------
and deliver such documents, make such filings and do all such things as are
required by, and to comply with the provisions of the Securities Act, any
other applicable securities legislation and any orders, policies, rules or
regulations of the SEC, the National Association of Securities Dealers,
Inc. or other relevant regulatory authorities concerning the issuance by
the Company and the purchase, holding and resale by the Subscriber of the
Shares.
6. Modification. This Subscription Agreement shall not be modified
------------
or waived except by an instrument in writing signed by the party against
whom any such modification or waiver is sought.
7. Assignability. This Subscription Agreement and the rights and
-------------
obligations hereunder are not transferable or assignable by the Subscriber.
8. Blue Sky Qualification. The Subscriber's right to purchase
----------------------
Shares under this Subscription Agreement are expressly conditioned upon the
exemption from qualification of the offer and sale of the Shares from
applicable Federal and state
<PAGE>
8
securities laws. The Company shall not be required to qualify this
transaction under the securities laws of any jurisdiction and, should
qualification be necessary, the Company shall be released from any and all
obligations to maintain its offer, and may rescind any sale contracted, in
the jurisdiction.
9. Survival Indemnification. All of the covenants, representations
------------------------
and warranties contained herein shall survive the closing of the purchase
and sale of the Shares hereunder. The Subscriber agrees to indemnify and
hold harmless the Company and each director, officer, employee, agent or
representative thereof from and against any and all loss, damage or
liability and related costs and expenses (including but not limited to,
reasonable attorneys' fees and costs of investigation) due to or arising
out of a breach of any covenant, representation or warranty made by him in
this Subscription Agreement.
10. Agreement. The Subscriber agrees that by executing this
---------
Subscription Agreement an irrevocable agreement of purchase and sale of the
Shares shall be created upon its acceptance by the Company. This
Subscription Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and may be amended only by
a writing executed by all parties.
11. Notices. All notices or other communications given or made
-------
hereunder shall be in writing and shall be delivered or mailed by
registered or certified mail, return receipt requested, postage prepaid to
the Subscriber at the address set forth on the signature page hereof, and
to the Company at the address set forth in the first paragraph hereof.
12. Offering Restrictions. The Shares have not been registered under
---------------------
the Securities Act and the Subscriber agrees that during the restricted
period (as such term is defined in Regulation S) and thereafter it will not
sell any of the Shares within the U.S. or to, or for the account or benefit
of, U.S. Persons except pursuant to an effective registration statement
registering the Shares under the Securities Act or pursuant to an exemption
from the registration requirements of the Securities Act. Neither the
Subscriber, its affiliates nor any persons acting on its behalf have
engaged or will engage in any directed selling efforts (as such term is
defined in Regulation S) with respect to the Shares and the Subscriber has
complied with and will comply with the offering restrictions requirement of
Regulation S for as long as such requirement is applicable. If any sales
of the Shares are made by the Subscriber during the restricted period (as
defined in Regulation S) pursuant to Regulation S then the Subscriber
hereby agrees to make such sales in compliance with Regulation S.
13. Governing Law. Notwithstanding the place where this Subscription
-------------
Agreement may be executed by any of the parties hereto, the parties
expressly agree that all the terms and provisions hereof shall be governed
by, and constituted in
<PAGE>
9
accordance with, the laws of the State of Delaware without regard to the
choice of law principles thereof.
14. Validity. The holding of any provision of this Subscription
--------
Agreement to be invalid or unenforceable by a court of competent
jurisdiction shall not affect any other provision of this Subscription
Agreement, which shall remain in full force and effect.
15. Time. Time shall be of the essence hereof.
----
16. Inurement. This Subscription Agreement shall inure to the
---------
benefit of and be binding upon the respective legal representatives and
successors of the parties.
17. Registration of the Shares.
--------------------------
(a) The Company has filed a registration statement (the
"Registration Statement") under the Securities Act with the SEC. An
----------------------
amendment to The Registration Statement shall be filed registering the
Shares of the Subscriber and any Transferees as selling shareholders. A
"Transferee" shall be any person or entity that is included on a list
----------
delivered by the Subscriber to the Company prior to the effective date of
the Registration Statement (the "Effective Date"), which list shall name
--------------
all persons or entities to whom the Subscriber has, prior to the Effective
Date, validly transferred Shares. Collectively, the Subscriber and the
Transferees are referred to herein as the "Holders."
-------
(b) Once filed, the Company will use its best efforts to cause
the Registration Statement as amended to become effective as promptly as
possible and, if any stop order shall be issued by the SEC in connection
therewith, to use its reasonable efforts to obtain the removal of such
order. Following the effective date of the Registration Statement, the
Company shall, upon the request of a Holder, forthwith supply such
reasonable number of copies of the Registration Statement, prospectus and
other documents necessary or incidental to the registration as shall be
reasonably requested by such Holder to permit such Holder to make a public
distribution of such Holder's Shares. The Company will use its reasonable
efforts to qualify the Shares for sale in such states as the Holders of
such securities shall reasonably request, provided that no such
qualification will be required in any jurisdiction where, solely as a
result thereof, the Company would be subject to general service of process
or to taxation or qualification as a foreign corporation doing business in
such jurisdiction. The obligations of the Company hereunder with respect
to the Shares of each Holder are expressly conditioned on each Holder
furnishing to the Company such appropriate information concerning such
Holder, such Holder's Shares and the terms of each such Holder's offering
of such Shares as the Company may reasonably request.
<PAGE>
10
(c) The Company shall bear the entire cost and expense of the
registration of the Shares; provided, however, that each Holder shall be
solely responsible for the fees of any counsel retained by such Holder in
connection with such registration and any transfer taxes or underwriting
discounts, commissions or fees applicable to the Shares sold by such Holder
pursuant thereto.
(d) Neither the filing of the Registration Statement by the
Company pursuant to this Subscription Agreement nor the making of any
request for prospectuses by any Holder shall impose upon any Holder any
obligation to sell such Holder's Shares.
(e) A Holder, upon receipt of notice from the Company that an
event has occurred which requires a post-effective amendment to the
Registration Statement or a supplement to the prospectus included therein,
shall promptly discontinue the sale of Shares until the Holder receives a
copy of a supplemented or amended prospectus from the Company, which the
Company shall provide as soon as practicable after such notice.
(f) The Company shall indemnify and hold harmless the Holders
from and against any and all losses, claims, damages and liabilities caused
by any untrue statement of a material fact contained in the Registration
Statement, any other registration statement filed by the Company under the
Act, any post-effective amendment to such registration statements, or any
prospectus included therein required to be filed or furnished by reason of
this Subscription Agreement or caused by any omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except, with respect to each Holder,
insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission based upon information furnished or
required to be furnished in writing to the Company by such Holder expressly
for use therein, which indemnification shall include each person, if any,
who controls each Holder within the meaning of the Act and each officer,
director, employee and agent of each Holder; provided, however, that the
indemnification in this paragraph (c) with respect to any prospectus shall
not inure to the benefit of any Holder (or to the benefit of any person
controlling any Holder) on account of any such loss, claim, damage or
liability arising from the sale of Shares by any Holder, if a copy of a
subsequent prospectus correcting the untrue statement or omission in such
earlier prospectus was provided to such Holder by the Company prior to the
subject sale and the subsequent prospectus was not delivered or sent by
such Holder to the purchaser prior to such sale; and provided further, that
the Company shall not be obligated to so indemnify any Holder or other
person referred to above unless such Holder or other person, as the case
may be, shall at the same time indemnify the Company, its directors, each
officer signing the Registration Statement and each person, if any, who
controls the Company within the meaning of the Act, from and against any
and all losses, claims, damages and
<PAGE>
11
liabilities caused by any untrue statement of a material fact contained in
the Registration Statement, any registration statement or any prospectus
required to be filed or furnished by reason of this Subscription Agreement
or caused by any omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission based upon information furnished in writing to
the Company by such Holder expressly for use therein.
(g) If for any reason the indemnification provided for in the
preceding subparagraph is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, claim,
damage, liability or expense referred to therein, then the indemnifying
party, in lieu of indemnifying such indemnified party thereunder, shall
contribute to the amount paid or payable by the indemnified party as a
result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnified party and the indemnifying party, but also the relative fault
of the indemnified party and the indemnifying party, as well as any other
relevant equitable considerations.
18. Counterparts. This Subscription Agreement may be executed in any
------------
number of counterparts, all of which taken together shall constitute one
and the same instrument and any of the parties hereto may execute this
subscription by signing any of such counterpart and delivering the same by
telex, telecopy, telegraph, cable or otherwise in writing (each delivery by
any of such means to be deemed to be "in writing" for purposes of this
Subscription Agreement).
Witness: Subscriber:
Interfinance Inv. Co. Ltd.
By: \s\ Ulrich Ernst
------------------------------ --------------------------
Name: Ulrich Ernst
President
<PAGE>
12
Primary Residence of the
Subscriber:
----------------------------
----------------------------
the Subscriber's Address for
Notices and Delivery of
Securities:
----------------------------
----------------------------
Subscription accepted as of August 15, 1996
UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
-----------------------------
David E. Schlecht
President
<PAGE>
EXHIBIT A TO SUBSCRIPTION AGREEMENT
INVESTOR QUESTIONNAIRE
----------------------
ALL INVESTORS MUST INITIAL THE FOLLOWING:
- ----------------------------------------
___ The undersigned understands that the representations contained in this
Investor Questionnaire qualifying or disqualifying it as an accredited
investor as that term is defined in Rule 501 of Regulation D
promulgated under the Act are made for the purpose of inducing a sale
of securities to the undersigned. The undersigned understands and
acknowledges that the Company will rely upon such representations.
The undersigned hereby represents that the statement or statements
initialed below are true and correct in all respects, and the
undersigned will notify the Company immediately of any material change
in any of the information contained in such statement or statements.
The undersigned understands that any false representations may
constitute a violation of law and that any company or person who
suffers damages as a result of such false representations may have a
claim against it for damages.
AN INVESTOR SHOULD INITIAL ANY OF THE FOLLOWING STATEMENTS THAT APPLY TO
- ------------------------------------------------------------------------
IT:
- --
___ (a) The undersigned certifies that it is an accredited investor
because it is either (i) a bank as defined in Section 3(a)(2) of the
Act, or savings and loan association or other institution as defined
in Section 3(a)(5)(a) of the Act whether acting in its individual or
fiduciary capacity, (ii) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, (iii) an insurance
company as defined in Section 2(13) of the Act, (iv) an investment
company registered under the Investment Company Act of 1940 or a
business development company registered under the Investment Company
Act of 1940 or a business development company as defined in Section
2(a)(48) of such Act, (v) a small business investment company licensed
by the United States Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958, (v) a plan
established and maintained by a state, its political subdivisions, or
any agency or instrumentality of a state or its political subdivi-
sions, for the benefit of its employees, if such plan has total assets
in excess of $5,00,000, or (vii) an employee benefit plan within the
meaning of the Employee Retirement Income Security Act of 1974 if
investment decisions are made by a plan fiduciary, as defined in
Section 3(21) of such Act, which is either a bank, savings and loan
association, insurance company, or registered investment adviser, or
an employee benefit plan that has total assets in excess of $5,000,000
or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors.
___ (b) The undersigned certifies that it is an accredited investor
because it is a private business development company as defined in
Section 202(a)(22) of the Investment Advisers Act of 1940.
<PAGE>
2
___ (c) The undersigned certifies that it is an accredited investor
because it is an organization described in Section 501(c)(3) of the
Internal Revenue Code, a corporation, business trust, or partnership
with total assets in excess of $5,000,000.
___ (d) The undersigned certifies that it is an accredited investor
because it is a trust, with total asses in excess of $5,000,000, whose
purchases of securities are directed by a person who has such
knowledge and experience in financial and business matters that he/she
is capable of evaluating the merits and risks of an investment in the
Company.
___ (e) The undersigned certifies that it is an accredited investor
because it is an entity in which all of the equity owners are
accredited investors. Each such equity owner must also properly
complete and submit a Investor Questionnaire as if such equity owner
was a shareholder. If this section applies a questionnaire for
individuals is available upon request from the Company.
<PAGE>
1
EXHIBIT B TO SUBSCRIPTION AGREEMENT
Definition of "U.S. Person"
---------------------------
Regulation S. Rule 902(o) provides:
(1) "U.S. Person" means:
(i) Any natural person resident in the United States;
(ii) Any partnership or corporation organized or
incorporated under the laws of the United States;
(iii) Any estate of which any executor or administrator is a
U.S. person;
(iv) Any trust of which any trustee is a U.S. person;
(v) Any agency or branch of a foreign entity located in the
United States;
(vi) Any non-discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary for
the benefit or account of a U.S. person;
(vii) Any discretionary account or similar account (other
than an estate or trust) held by a dealer or other fiduciary
organized, incorporated, or (if an individual) resident in the
United States; and
(viii) Any partnership or corporation if: (A) organized or
incorporated under the laws of any foreign jurisdiction; and (B)
formed by a U.S. person principally for the purpose of investing
in securities not registered under the Act, unless it is
organized or incorporated, and owned, by accredited investors (as
defined in Rule 501(a) who are not natural persons, estates or
trusts.
(2) Notwithstanding paragraph (o)(1), of this rule, any discretionary
account or similar account (other than an estate or trust) held for the
benefit or account of a non-U.S. person by a dealer or other professional
fiduciary organized, incorporated, or (if an individual) resident in the
United States shall not be deemed a "U.S. person."
<PAGE>
2
(3) Notwithstanding paragraph (o)(1), any estate of which any
professional fiduciary acting as executor or administrator is a U.S. person
shall not be deemed a U.S. person if:
(i) An executor or administrator of the estate who is not a
U.S. person has sole or shared investment discretion with respect
to the assets of the estate; and
(ii) The estate is governed by foreign law.
(4) Notwithstanding paragraph (o)(1), any trust of which any
professional fiduciary acting as trustee is a U.S. person shall not be
deemed a U.S. person if a trustee who is not a U.S. person has sole or
shared investment discretion with respect to the trust assets, and no
beneficiary of the trust (and no settlor if the trust is revocable) is a
U.S. person.
(5) Notwithstanding paragraph (o)(1), an employee benefit plan
established and administered in accordance with the law of a country other
than the United States and customary practices and documentation of such
country shall not be deemed a U.S. person.
(6) Notwithstanding paragraph (o)(1), any agency or branch of a U.S.
person located outside the United States shall not be deemed a "U.S.
person" if:
(i) The agency or branch operates for valid business
reasons; and
(ii) The agency or branch is engaged in the business of
insurance or banking and is subject to substantive insurance or
banking regulations, respectively, in jurisdictions where
located.
(7) The International Monetary Fund, the International Bank of
Reconstruction and Development, the Inter-American Development Bank, the
Asian Development Bank, the African Development Bank, the United Nations,
and their agencies, affiliates and pension plans, and any other similar
international organizations, their agencies, affiliates and pension plans
shall not be deemed "U.S. persons."
For the purposes of the foregoing "United States" means the
United States of America, its territories and possessions, any State of the
United States, and the District of Columbia.
Exhibit 10.13
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE RESOLD BY HOLDER UNLESS IT IS
SUBSEQUENTLY REGISTERED UNDER THE ACT OR AN EXEMPTION FROM SUCH
REGISTRATION REQUIREMENT IS AVAILABLE IN CONNECTION WITH SUCH RESALE.
7% SECURED PROMISSORY NOTE
U.S. $990,000 August 15, 1996
FOR VALUE RECEIVED the undersigned, INTERFINANCE INV. CO. LTD. a
Panamanian corporation, having an address at Limmattalstr 10, CH-8954
Geroldswil, Switzerland ("Maker"), promises to pay, on or before February
1, 1997, in lawful money of the United States, to UNITED TELEGROUP
INTERNATIONAL, INC., a Delaware corporation, having an address at 18
Cattaro Avenue, Morristown, NJ 07960 ("Holder"), or assigns, the principal
amount of NINE HUNDRED NINETY THOUSAND (U.S. $990,000.00) UNITED STATES
DOLLARS, together with interest thereon at an annual rate of 7% from the
date of this Note until this Note is paid in full.
All payments due and payable on this Note shall be made directly by
wire transfer of immediately available funds to an account designated by
Holder to Maker in writing, or at such other bank or agency or, in such
other manner as Holder shall have designated by written notice to Maker.
This Note is secured by certain collateral pledged under the terms of a
Security and Pledge Agreement dated the date hereof.
Maker represents and warrants as follows:
(i) Maker is a company duly incorporated, validly existing and
in good standing under the laws of its place of organization and each other
jurisdiction where the character of the property owned or leased by Maker,
or the nature of the business conducted by Maker, makes such qualification
necessary;
(ii) Maker has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of
its business as now conducted and as proposed to be conducted;
(iii) Maker has all necessary corporate power and has taken, or
caused to be taken, all corporate and shareholder action required to make
all the provisions of this Note and any other agreements and instruments
executed in connection herewith and therewith the valid and enforceable
obligations they purport to be; and
(iv) No authorization, consent, approval, license, exemption of
or filing or registration with any court or governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
is or will be necessary for, or in connection with, the offer, issuance,
sale, execution or delivery by Maker, or for the performance by it of its
obligations under, this Note.
<PAGE>
This Note shall, at the option of the Holder, without notice or
demand, forthwith become due and payable if any one or more of the
following events (which events are hereinafter referred to individually as
an "Event of Default" and collectively as "Events of Default") shall occur:
(i) Any payment of principal, interest or any other amount due
under the Note is not made when and as such payment is due;
(ii) Any covenant, warranty, representation or other statement
made by or on behalf of Maker in this Note, or in any instrument furnished
in compliance with this Note, is false in any material respect when made;
(iii) Maker shall commence any case, proceeding or other action
(a) under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or (b) seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its assets,
or Maker shall make a general assignment for the benefit of its creditors;
(iv) There shall be commenced against Maker, any case, proceeding
or other action of a nature referred to in clause (iii) above which (a)
results in the entry of an order for relief or any such adjudication or
appointment and (b) remains undismissed, undischarged or unbonded for a
period of 60 days;
(v) There shall be commenced against Maker any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its
assets;
(vi) Maker shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth
in clause (iii), (iv) or (v) above; or
(vii) Maker shall default under any agreement or instrument for
borrowed money or for the deferred purchase price of property or services
or evidenced by notes, bonds or other instruments.
If this Note is past due and is placed in the hands of an attorney for
collection or enforcement or is collected or enforced through any legal
proceedings, then Maker shall pay to Holder all attorneys' fees, costs and
expenses incurred in connection therewith in addition to all other amounts
due hereunder.
Maker and any and all others who are now or may become liable for all
or any part of the obligations of Maker under this Note (all of the
foregoing being referred to collectively herein as the "Obligors") agree to
be jointly and severally bound hereby and jointly and severally (i) waive
presentment and demand for payment, notices of nonpayment and dishonor,
protest of dishonor and notice of protest; (ii) waive all notices in
connection with the delivery and
2
<PAGE>
acceptance hereof and all other notices in connection with the performance,
default or enforcement of the payment hereof or hereunder; (iii) waive any
and all lack of diligence and delays in enforcement of the payment hereof;
(iv) agree that the liability of each of the Obligors shall be
unconditional and without regard to the liability of any other person or
entity for the payment hereof and shall not in any manner be affected by
any indulgence or forbearance granted or consented to by Holder to any of
them with respect hereto; (v) consent to any and all extensions of time,
renewals, waivers or modifications which may be granted by the Holder with
respect to the payment or other provisions hereof, and to the release of
any security at any time given for the payment hereof or any part hereof,
with or without substitution, and to the release of any person or entity
liable for the payment hereof; and (vi) consent to the addition of any and
all other makers, endorsers, guarantors and other obligors for the payment
hereof, and agree that the addition of any such Obligors or security shall
not affect the liability of any of the Obligors for the payment hereof.
Maker may prepay this Note in whole or in part, together with all
accrued and unpaid interest hereon, without the prior consent of Holder and
without penalty or premium. All payments and prepayments of the principal
hereof and interest hereon and the respective dates thereof shall be
endorsed by the holder hereof on the schedule attached hereto and made a
part hereof, or on a continuation thereof which shall be attached hereto
and made a part hereof, or otherwise recorded by such holder in its
internal records; provided, however, that the failure of the holder hereof
-------- -------
to make such a notation or any error in such a notation shall not in any
manner affect the obligation of the Maker to make payments of principal and
interest in accordance with the terms of this Note.
The obligations of Maker hereunder are absolute and unconditional and
are not subject to any advances, offsets or counterclaims which Maker, its
successors or assigns, or any subsidiary or affiliate of any of them, may
now or hereafter have against the Holder.
Maker agrees that in any litigation arising out of or relating to this
Note, it will waive trial by jury and not impose any setoff or counterclaim
of any nature or description, and Maker shall be absolutely and
unconditionally liable hereunder.
This Note shall be binding upon any successor to Maker.
Maker agrees that this Note and the rights and obligations of the
parties hereunder shall be governed by and construed in accordance with the
laws and decisions of the State of Delaware, without reference to the
principles of conflicts of laws.
INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
-----------------------------
Ulrich Ernst
President
3
<PAGE>
Payments
Payments Unpaid Principal Balance Name of Person
Date Principal Interest of Note Making Notation
- ---- -------------------- -------------------------- ---------------
4
Exhibit 10.14
SECURITY AND PLEDGE AGREEMENT
This SECURITY AND PLEDGE AGREEMENT made August 15, 1996 between
INTERFINANCE INV. CO. LTD. a Panamanian corporation, having an address at
Limmattalstr 10, CH-8954 Geroldswil (the "Pledgor") and UNITED TELEGROUP
-------
INTERNATIONAL, INC., a Delaware corporation, having an address at 18
Cattano Avenue, Morristown, New Jersey, 07960 (the "Pledgee").
-------
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Pledgor, on the date of execution of this Security
and Pledge Agreement has entered into a Promissory Note of the Pledgor
payable to the order of the Pledgee (the "Note;" capitalized terms used
----
herein without definition shall have the meanings assigned to them in the
Note);
WHEREAS, in connection with the execution of the Note the Pledgor
has agreed to enter into this Security and Pledge Agreement to secure the
indebtedness represented by the Note as provided herein;
WHEREAS, the Pledgor is pledging the amount of shares of capital
stock owned by the Pledgor set forth on Schedule A, attached hereto and
----------
made a part hereof (the "Pledged Shares").
--------------
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, and in order to induce Pledgee to enter
into the Note Purchase Agreement and to accept the Note, the parties hereto
agree as follows:
SECTION 1. Pledge. As collateral security for the due and
------
punctual payment of the Note, together with accrued interest thereon, the
Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and
delivers unto the Pledgee, and grants to the Pledgee a security interest in
(in each case, for the benefit of the Pledgee and any other holder of the
Note), the following collateral (the "Pledged Collateral"):
------------------
(i) the Pledged Shares and the certificates representing
the Pledged Shares; and
(ii) all cash, securities, dividends and other property and
proceeds at any time and from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of
the foregoing;
<PAGE>
TO HAVE AND TO HOLD the Pledged Collateral, together with all rights,
titles, interests, privileges and preferences appertaining or incidental
thereto, unto the Pledgee, its successors and assigns, forever, subject,
--------
however, to the terms, covenants and conditions herein set forth.
- --------
SECTION 2. Representations, Warranties and Agreements. The
------------------------------------------
Pledgor hereby represents, warrants and agrees as follows:
(a) The Pledged Shares are duly authorized, validly issued,
fully paid and non-assessable.
(b) The Pledgor is the legal and equitable owner of the
Pledged Shares free and clear of all liens, security interests,
charges and encumbrances of every kind and nature (other than
those created by this Security and Pledge Agreement); the Pledgor
has good and lawful authority to pledge, assign and deliver the
Pledged Shares in the manner hereby done or contemplated; and no
consent or approval of any governmental body or regulatory
authority, or of any securities exchange, is or will be necessary
to the validity of the rights created hereunder.
SECTION 3. Registration in Nominee Name. the Pledgee shall have
----------------------------
the right to appoint one or more sub-agents for the purpose of retaining
physical possession of the certificates or instruments representing or
evidencing the Pledged Collateral, which may be held (in the discretion of
the Pledgee) in the name of the pledgor, endorsed or assigned in blank or
in favor of the Pledgee, or in the name of the Pledgee or any nominee or
nominees of the Pledgee or a sub-agent appointed by the Pledgee. In
addition, the Pledgee shall at all times have the right to exchange
certificates or instruments representing or evidencing Pledged Collateral
for certificates or instruments of smaller or larger denominations for any
purpose consistent with its performance of this Security and Pledge
Agreement. All certificates representing the Pledged Collateral shall bear
a legend indicating that the shares are subject to this Security and Pledge
Agreement.
SECTION 4. Voting Rights; Dividends, Etc. (a) So long as an
------------------------------
Event of Default does not exist:
(i) The Pledgor shall be entitled to exercise any and all
voting and/or consensual rights and powers relating or pertaining to
the Pledged Collateral or any part thereof for any purpose.
(ii) The Pledgor shall be entitled to receive and retain any
and all cash dividends payable on the Pledge Collateral.
(iii) The Pledgee shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such proxies, powers of
attorney, dividend orders, and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to exercise the voting
and/or consensual rights and powers which it is entitled to exercise
-2-
<PAGE>
pursuant to subsection (i) above and/or to receive the dividends which
it is authorized to receive and retain pursuant to subsection (ii)
above.
(b) If an Event of Default shall exist, all rights of the
Pledgor to exercise the voting and/or consensual rights and powers which it
is entitled to exercise pursuant to Section 4(a)(i) and/or to receive the
dividends which it is authorized to receive and retain pursuant to Section
4(a)(ii) shall cease, and all such rights shall thereupon become vested in
the Pledgee who shall have the sole and exclusive right and authority to
exercise such voting and/or consensual rights and powers and/or to receive
and retain the dividends which the Pledgor would otherwise be authorized to
retain pursuant to Section 4(a)(ii). Any and all money and other property
paid over to or received by the Pledgee pursuant to the provisions of this
subsection (b) shall be retained by the Pledgee as part of the Pledged
Collateral and be applied in accordance with the provisions hereof.
SECTION 5. Remedies With Respect to the Pledged Collateral Upon
----------------------------------------------------
Default. Upon the occurrence and continuance of an Event of Default:
- -------
(a) The Pledgee shall have and may exercise all of the rights
and remedies of a secured party under the Uniform Commercial Code of the
State of Delaware (the "Code") in effect at such time. The Pledgee may
----
sell any of the Pledged Collateral at any public or private sale for cash,
on credit or for future delivery, and at such price or prices and upon such
other terms as the Pledgee may deem commercially reasonable, and apply the
proceeds realized thereby, after first deducting all costs and expenses of
the Pledgee (including reasonable counsel fees) incurred in the realization
of such proceeds, to the amounts due under the Note. The Pledgor agrees
that, to the extent any notices shall be required by law with respect to
the Pledgee's exercise of its rights and remedies as a secured creditor,
ten days' prior written notice shall be sufficient for such purposes. The
Pledgee shall not be obligated to make any sale of Pledged Collateral
regardless of any notice therefor having been given. The Pledgee may
adjourn any public or private sale from time to time by announcement at the
time and place fixed therefor or by other means, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
To the extent permitted by the Code, the Pledgee may bid in for the Pledged
Collateral at any public or private sale and apply in payment of such bid,
all or any part of the Note.
(b) The Pledgee shall be authorized at any such sale (if, on the
advice of counsel, it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree
that they are purchasing such portion of the Pledged Collateral for their
account for investment.
(c) In view of the position of the Pledgee in relation to any
securities or instruments now or hereafter included in the Pledged
Collateral, or because of other present or future circumstances, a question
may arise under the Securities Act of 1933, as amended, as now or hereafter
in effect, or any similar statute hereafter enacted analogous in purpose or
effect (such Act and any such similar statute as from time to time in
effect being hereinafter called the
-3-
<PAGE>
Federal Securities Laws) with respect to any disposition of the Pledged
Collateral permitted hereunder. The Pledgor understands that compliance
with the Federal Securities Laws may strictly limit the course of conduct
of the Pledgee if the Pledgee were to attempt to dispose of all or any part
of the Pledged Collateral and may also limit the extent to which or the
manner in which any subsequent transferee of any Pledged Collateral may
dispose of the same. Similarly, there may be other legal restrictions or
limitations affecting the Pledgee in any attempt to dispose of all or any
part of the Pledged Collateral under applicable Blue Sky or other state
securities laws or similar laws analogous in purpose or effect. Under
applicable laws, in the absence of an agreement to the contrary, the
Pledgee may perhaps be held to have certain general duties and obligations
to the Pledgor to make some effort towards obtaining a fair price even
though the Note may be discharged or reduced by the proceeds of a sale at a
lesser price. The Pledgor clearly understands that the Pledgee is to have
any such general duty and obligation to the Pledgor and the Pledgor will
not attempt to hold the Pledgee responsible for selling all or any part of
the Pledged Collateral at any particular price even if the Pledgee shall
accept the first offer received or does not approach more than one possible
purchaser. Without limiting the generality of the foregoing, the
provisions of this Section would apply if, for example, the Pledgee were to
place all or any part of the Pledged Collateral for its own account, or if
the Pledgee placed all or any part of the Pledged Collateral privately with
a purchaser or purchasers. The provisions of this Section will apply
notwithstanding the existence of a public or private market upon which the
quotations or sales prices may exceed substantially the price at which the
Pledgee sells.
SECTION 6. Release and Termination. (a) Simultaneously with the
-----------------------
whole or partial repayment of the Note, the Pledgee shall release and
deliver to Rubin Baum Levin Constant & Friedman, as agent of the Pledgor,
in accordance with the provisions of this Agreement, the percentage of
Pledged Shares determined by dividing the amount of the Note which is
prepaid by the principal outstanding balance of the Note immediately prior
to such prepayment. All amounts of Pledged Shares to be released in
accordance with this Section 6(a) shall be rounded down to the nearest
whole amount of Pledged Shares.
(b) This Security and Pledge Agreement shall terminate when all
indebtedness secured hereby and all obligations of the pledgor hereunder
have been fully paid and performed, at which time the Pledgee shall
reassign and redeliver (or cause to be so reassigned and redelivered),
without recourse upon or warranty by the Pledgee except for acts or
omissions of Pledgee or anyone holding under Pledgee and a the expense of
the Pledgor (for taxes and other expenses not caused by the Pledgee or
anyone holding under Pledgee), to the Pledgor, or to such person or persons
as the Pledgor shall designate, against receipt, such of the Pledged
Collateral (if any) as shall not have been previously released pursuant to
(a) above or sold or otherwise applied by the Pledgee pursuant to the terms
hereof and shall still be held by it hereunder, together with the
appropriate instruments of reassignment and release.
-4-
<PAGE>
SECTION 7. Further Assurances. The Pledgor agrees to do such
------------------
further acts and things, and to execute and deliver such additional
conveyances, assignments, agreements and instruments, as the Pledgee may at
any time reasonably request in connection with the administration or
enforcement of this Security and Pledge Agreement or related to the Pledged
Collateral or any part thereof or in order to better assure and confirm
unto the Pledgee its rights, powers and remedies hereunder. The Pledgor
hereby consents and agrees that the issuer of the Pledged Collateral or any
registrar or transfer agent or trustees for any of the pledged Collateral
shall be entitled to accept the provisions hereof as conclusive evidence of
the rights of the Pledgee to effect any transfer pursuant to Section 3,
notwithstanding any other notice or direction to the contrary heretofore or
hereafter given by the Pledgor or any other person to such issuer or to any
such registrar or transfer agent or trustees.
SECTION 8. Binding Agreement; Assignment. This Security and
-----------------------------
Pledge Agreement, and the terms, covenants and conditions hereof, shall be
binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, except that the Pledgor shall not be
permitted to assign this Security and Pledge Agreement or any interest
herein or in the Pledged Collateral, or any part hereof, or otherwise
pledge, encumber or grant any option with respect to the Pledged
Collateral, or any part thereof, or any cash or property held by the
Pledgee as collateral under this Security and Pledge Agreement.
SECTION 9. Governing Law; Terms. This Security and Pledge
--------------------
Agreement shall be governed by, and construed and enforced in accordance
with, the law of the State of Delaware without regard to conflict of law
principles. Unless otherwise defined herein, terms defined in Article 9 of
the Uniform Commercial Code in the State of Delaware are used herein as
therein defined.
SECTION 10. Notices. All notices, claims, requests, demands,
-------
deliveries and other communications hereunder shall be in writing and shall
be given as set forth in the Note Purchase Agreement to the addresses set
forth in the Note Purchase Agreement.
SECTION 11. Miscellaneous. Neither this Security and Pledge
-------------
Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated orally nor may any of the Pledged Collateral be
released or the pledge or the security interest created hereby extended,
except by an instrument in writing duly signed by or on behalf of the
Pledgee. Any consent or waiver given hereunder by Pledgee shall be binding
upon its successors and assigns. Each successor or assign of the Pledgee
agrees that the Pledgee is constituted such successor's or assign's agent
for the purpose of executing any waivers or consents with respect to this
Security and Pledge Agreement. The Section headings used herein are for
convenience of reference only and shall not define or limit the provisions
of this Security and Pledge Agreement.
-5-
<PAGE>
SECTION 12. Counterparts. This Security and Pledge Agreement
------------
may be executed in counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Security
and Pledge Agreement to be duly executed by their respective officers
thereunto duly authorized as of the date first above written.
UNITED TELEGROUP INTERNATIONAL, INC.
By: \s\ David E. Schlecht
------------------------------------------------
David E. Schlecht
President
INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
------------------------------------------------
Ulrich Ernst
President
-6-
<PAGE>
Schedule A
- ----------
NAME OF COMPANY CERTIFICATE NO. AMOUNT OF SHARES
United Telegroup _______________ _______________
International, Inc.
-7-
<PAGE>
STOCK POWER
FOR VALUE RECEIVED, INTERFINANCE INV. CO. LTD.
-------------------------------------------------------
PLEASE INSERT
SOCIAL SECURITY OR
OTHER IDENTIFICATION
NUMBER OF ASSIGNEE
does hereby sell, assign --------------
and transfer unto
--------------
- ----------------------------------------------------------------------------
Shares of the Capital Stock of United
- ------------- ------------- --------
Telegroup International, Inc. standing in its name on the books of
- -------------------------------------
said Corporation represented by Certificate No. herewith, and do
----
hereby irrevocably constitute and appoint
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attorney to transfer the said stock on the
- ----------------------------
books of said Corporation with full power of substitution in the premises.
Dated
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INTERFINANCE INV. CO. LTD.
By: \s\ Ulrich Ernst
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Ulrich Ernst
President
-8-
Exhibit 21.1
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LIST OF SUBSIDIARIES
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1) UTG Communications Holding, AG *
2) UTG Communications AG **
* Wholly-owned, other than for qualifying shares
** Wholly-owned by UTG Communications Holding, AG
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
UTG Communications, Inc.
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in this prospectus.
MERDINGER, FRUCHTER, ROSEN & CORSO,
P.C.
August 15, 1996
New York, New York
