<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
Date of Report (Date of earliest event reported) November 30, 1997
------------------
STAR Telecommunications, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 000-22581 77-0362681
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(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
223 E. De La Guerra, Santa Barbara, California 93101
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (805) 899-1962
---------------
Not applicable
- -------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a) Pursuant to the terms of that certain Amended and Restated Stock
Acquisition Agreement and Plan of Merger dated as of November 30, 1997 (the
"Purchase Agreement") by and among STAR Telecommunications, Inc., a Delaware
corporation ("STAR" or the "Company"), Big Dave's Acquisition Corp., a
California corporation and wholly-owned subsidiary of the Company
("Acquisition"), LCCR, Inc., a California corporation formerly known as L.D.
Services, Inc. ("LCCR"), and the shareholders listed on the signature page
thereof (the "LCCR Shareholders"), on November 30, 1997 (the "Closing") STAR
acquired all of the outstanding shares of the capital stock of LCCR (the "LCCR
Shares") in exchange for shares of the Company's Common Stock, $0.001 par value
per share (the "STAR Common Stock"). This transaction is to be accounted for as
a "pooling of interests." On December 3, 1997, a Certificate of Merger was filed
with the Secretary of State of the State of California, pursuant to which
Acquisition was merged with and into LCCR (the "Merger"), in accordance with the
terms of the Purchase Agreement and with the California Corporations Code, and
LCCR became a wholly-owned subsidiary of STAR.
On the Closing, the LCCR Shareholders received an aggregate of 413,874
shares of STAR Common Stock (the "Merger Shares") in exchange for the 99.20 LCCR
Shares outstanding as of such date, resulting in an exchange ratio of 4,172.12
shares of STAR Common Stock for each LCCR Share. On the Closing, a total of
41,387 of these shares (the "Escrow Shares") were deposited in a one-year escrow
established at Sanwa Bank Trust. Such Escrow Shares may be used, at the option
of STAR, to offset any amounts owed to the Company pursuant to the indemnity
obligations of the LCCR Shareholders set forth in the Purchase Agreement.
In connection with the transactions contemplated by the Purchase
Agreement, at the Closing STAR also acquired (i) certain non-operating entities
owned by certain LCCR Shareholders for an aggregate of 238 shares of STAR Common
Stock and (ii) majority ownership of another entity for 180 shares of STAR
Common Stock.
On December 1, 1997, the first trading date following the Closing, the
closing sales price of the STAR Common Stock on the NASDAQ Stock Market was
$33.625. As such, the aggregate purchase price paid by STAR for LCCR was
$13,916,513. The purchase price was arrived at through arms-length negotiations
between the Company, LCCR and the LCCR Shareholders. Prior to the Closing, none
of the LCCR Shareholders nor any of the officers, directors or employees of LCCR
were affiliates of the Company.
In connection with the transaction contemplated by the Purchase
Agreement, Richard Bishop, an LCCR Shareholder and formerly the Chief Executive
Officer of LCCR, became STAR's Senior Vice President of Commercial Sales and
Marketing. In that
2.
<PAGE> 3
regard, prior to the Closing, Mr. Bishop and STAR entered into a two-year
Employment Agreement calling for the payment of an annual salary of $150,000,
plus an annual bonus. Additionally, on the Closing, the Company and the LCCR
Shareholders entered into a Registration Rights Agreement which provides, among
other things, certain piggyback registration rights relating to the shares of
STAR Common Stock received by the LCCR Shareholders at the Closing.
(b) Prior to the Closing, LCCR was in the business of connecting and
terminating long distance telephone calls. Pursuant to the Merger, LCCR became a
direct wholly-owned subsidiary of the Company. It is the present intention of
the Company that LCCR will continue to engage in such business.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C>
(A) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
(i) Balance sheets of LCCR, Inc. as of December 31, 1996 and
September 30, 1997
(ii) Statements of Operations of LCCR, Inc. for the year ended
December 31, 1996 and the nine-month period ended September 30,
1997
(iii) Statements of Stockholders' Equity (Deficit) for
the year ended December 31, 1996 and for the
nine-month period ended September 30, 1997
(iv) Statements of Cash Flows of LCCR, Inc. for the year ended
December 31, 1996 and the nine-month period ended September 30,
1997
(v) Notes to Financial Statements
(B) PRO FORMA FINANCIAL INFORMATION.
(i) Pro Forma Combined Balance Sheet as of September 30, 1997
(ii) Pro Forma Combined Statements of Operations for the
year ended December 31, 1996 and for the nine-month
period ended September 30, 1997
</TABLE>
3.
<PAGE> 4
<TABLE>
<S> <C>
(iii) Notes to Pro Forma Combined Statements
(C) EXHIBITS.
10.26 Amended and Restated Stock Acquisition Agreement
and Plan of Merger dated as of November 30, 1997 by
and among the Company, Acquisition, LCCR and the
LCCR Shareholders
10.27 Registration Rights Agreement dated as of November
30, 1997 by and among the Company and the LCCR
Shareholders
</TABLE>
4.
<PAGE> 5
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: December 15, 1997
STAR TELECOMMUNICATIONS, INC.
By: /s/ KELLY D. ENOS
---------------------------------------
Kelly D. Enos
Chief Financial Officer
5.
<PAGE> 6
LCCR, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
TOGETHER WITH AUDITORS' REPORT
<PAGE> 7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
LCCR, Inc.:
We have audited the accompanying balance sheets of LCCR, Inc. (a California
corporation) as of December 31, 1996 and September 30, 1997, and the related
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended December 31, 1996 and for the nine-month period ended September 30,
1997. 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of LCCR, Inc. as of December 31,
1996 and September 30, 1997 and the results of its operations and its cash flows
for the year ended December 31, 1996 and for the nine-month period ended
September 30, 1997 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
November 24, 1997
<PAGE> 8
LCCR, INC.
BALANCE SHEETS - DECEMBER 31, 1996
AND SEPTEMBER 30, 1997
ASSETS
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 6,098 $ 355,222
Accounts receivable, net of allowance
of $469,125 and $660,487 at
December 31, 1996 and September 30, 1997 4,772,134 3,952,127
Other receivables 284,479 220,785
Related party receivables -- 120,653
Prepaid expenses and other assets 55,871 112,881
----------- -----------
Total current assets 5,118,582 4,761,668
----------- -----------
PROPERTY AND EQUIPMENT:
Leasehold improvements 34,279 34,279
Furniture, fixtures and equipment 379,027 319,214
----------- -----------
413,306 353,493
Less--Accumulated depreciation and
amortization (205,522) (231,644)
----------- -----------
207,784 121,849
OTHER LONG-TERM ASSETS -- 20,000
----------- -----------
Total assets $ 5,326,366 $ 4,903,517
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 9
LCCR, INC.
BALANCE SHEETS - DECEMBER 31, 1996
AND SEPTEMBER 30, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Revolving line of credit $ -- $ --
Current portion of capital lease obligations 44,939 47,103
Accounts payable 3,131,956 1,486,056
Note payable -- 810,000
Accrued expenses 464,946 1,873,410
Related party payables 268,645 421,633
----------- -----------
Total current liabilities 3,910,486 4,638,202
LONG-TERM LIABILITIES:
Capital lease obligations, net of current
portion 128,219 92,617
Other long-term liabilities 263,650 341,900
----------- -----------
Total liabilities 4,302,355 5,072,719
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY:
Common stock, no par value:
Authorized -- 1,000 shares
Issued and outstanding -- 99.2 shares
at December 31, 1996 and
September 30, 1997 348,000 348,000
Retained earnings (deficit) 676,011 (517,202)
----------- -----------
Stockholders' equity (deficit) 1,024,011 (169,202)
----------- -----------
Total liabilities and stockholders'
equity (deficit) $ 5,326,366 $ 4,903,517
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 10
LCCR, INC.
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
REVENUES $ 29,904,711 $ 21,185,744
COST OF SERVICES 17,154,762 12,612,058
------------ ------------
GROSS PROFIT 12,749,949 8,573,686
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 10,321,833 7,412,127
------------ ------------
INCOME FROM OPERATIONS 2,428,116 1,161,559
OTHER INCOME (EXPENSE):
Interest income 27,535 8,534
Interest expense (11,960) (11,458)
Legal settlements and expenses -- (1,556,816)
Other 38,661 10,078
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES 2,482,352 (388,103)
PROVISION FOR STATE INCOME TAXES 58,055 10,600
------------ ------------
NET INCOME (LOSS) $ 2,424,297 $ (398,703)
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 11
LCCR, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Retained
Shares Amount Earnings Total
------ ------ -------- -----
<S> <C> <C> <C> <C>
BALANCE, at
December 31, 1995 99.2 $ 348,000 $ 2,285,751 $ 2,633,751
Net income -- -- 2,424,297 2,424,297
Cash distributions to
stockholders -- -- (4,034,037) (4,034,037)
---- ----------- ----------- -----------
BALANCE, at
December 31, 1996 99.2 348,000 676,011 1,024,011
Net loss -- -- (398,703) (398,703)
Cash distributions to
stockholders -- -- (794,510) (794,510)
---- ----------- ----------- -----------
BALANCE, at
September 30, 1997 99.2 $ 348,000 $ (517,202) $ (169,202)
==== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 12
LCCR, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
AND THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,424,297 $ (398,703)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 77,920 49,131
Loss on disposal of equipment -- 46,018
Provision for doubtful accounts 192,045 191,362
Decrease (increase) in assets:
Accounts receivable (73,321) 628,645
Prepaid expenses and other assets (10,034) 6,684
Related party receivables -- (120,653)
Increase (decrease) in liabilities:
Accounts payable 986,425 (1,645,900)
Accrued expenses and other liabilities 588,617 1,486,714
Related party payables (51,603) 152,988
----------- -----------
Net cash provided by
operating activities 4,134,346 396,286
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES--
Capital expenditures (13,567) (9,214)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stockholder distributions (4,034,037) (794,510)
Borrowings under bank line of credit 271,800 264,900
Payments under bank line of credit (271,800) (264,900)
Borrowings under long-term debt -- 790,000
Repayments under long-term debt (62,282) --
Payments under capital lease obligations (41,229) (33,438)
----------- -----------
Net cash used in
financing activities (4,137,548) (37,948)
----------- -----------
</TABLE>
<PAGE> 13
-2-
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
INCREASE (DECREASE) IN CASH $(16,769) $349,124
CASH, beginning of period 22,867 6,098
-------- --------
CASH, end of period $ 6,098 $355,222
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 14
LCCR, INC
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
1. Nature of Business
LCCR, Inc. (the Company), is a California corporation in the business of
providing retail long-distance phone service throughout the United States. The
Company, formerly known as L.D. Services, Inc., changed its name to LCCR, Inc.
on July 25, 1997. The Company provides its service through a network of carrier
arrangements with providers and billing arrangements with local exchange
carriers (LEC).
The Company is subject to various risks in connection with the operation of its
business. These risks include, but are not limited to, regulations, dependence
on transmission facilities-based carriers and suppliers, price competition and
competition from larger industry participants.
2. Summary of Significant Accounting Policies
a. Revenue Recognition
The Company records revenues at the placing of calls, as measured by
the minutes of traffic processed. Customer discounts and refunds are
netted against revenues.
b. Cost of Services
Cost of services represent direct charges from vendors that the
Company incurs to deliver service to its customers. These include
carrier costs for the dedicated phone lines which form the Company's
network as well as billing and collection services performed by the
LECs and call rating services.
c. Property and Equipment
Property and equipment are carried at cost. Depreciation and
amortization of property and equipment is computed using
straight-line and accelerated methods over the following estimated
useful lives:
Leasehold improvements life of lease
Furniture and fixtures 5-7 years
Equipment 5-7 years
Property and equipment includes assets financed under capital lease
obligations of $233,428 at December 31, 1996 and $166,400 at
September 30, 1997.
<PAGE> 15
- 2 -
Replacements and betterments, renewals and extraordinary repairs
that extend the life of the asset are capitalized; other repairs and
maintenance are expensed. The cost and accumulated depreciation
applicable to assets sold or retired are removed from the accounts
and any gain or loss on disposition is recognized in other income or
expense.
d. Statements of Cash Flows
During the periods ended December 31, 1996 and September 30, 1997,
cash paid for interest was $4,219 and $13,356, respectively. For the
same periods cash paid for income taxes amounted to $50,959 and
$58,469, respectively.
Non-cash investing and financing activities is as follows for the
year ended December 31, 1996 and the nine-month period ended
September 30, 1997:
<TABLE>
<CAPTION>
1996 1997
======== =======
<S> <C> <C>
Equipment purchased through
capital leases $ 69,027 $ --
======== =======
Deposits on equipment paid
by note payable $ -- $20,000
======== =======
</TABLE>
These non-cash transactions are excluded from the statements of cash
flows.
e. Concentrations of Risk
Purchases from the two largest providers of carrier service for the
year ended December 31, 1996 amounted to 86 percent of total cost of
sales. Purchases from the two largest providers for the nine months
ended September 30, 1997 amounted to 75 percent of total cost of
sales. Although there are a limited number of vendors, management
believes that other suppliers could provide service at similar
rates.
The LECs perform collection services for the Company from numerous
end users. For the year ended December 31, 1996, six LECs accounted
for all revenues and accounts receivable. For the nine months ended
September 30, 1997, six LECs accounted for approximately 89 percent
of revenues and approximately 93 percent of accounts receivable.
f. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principals requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
<PAGE> 16
- 3 -
g. Fair Value of Financial Instruments
The carrying value of the Company's cash, receivables, payables and
accrued liabilities approximate their fair value because of the
short maturities of these instruments. The carrying value of the
Company's debt approximates fair value because of the short
maturities and/or interest rates, which are comparable to those
available to the Company on similar terms.
h. Recently Issued Accounting Standards
SFAS No. 130 "Reporting Comprehensive Income" and SFAS No. 131
"Disclosure about Segments of an Enterprise and Related Information"
are effective for fiscal years beginning after December 15, 1997.
The Company will adopt the new standards in the fiscal year ending
December 31, 1998. The effects of these new standards have not yet
been determined.
3. Line of Credit and Long-Term Debt
a. Bank Line of Credit
The Company has a one-year $250,000 revolving credit facility with a
bank expiring March 10, 1998. Any borrowings under this facility are
secured by certain assets, as defined, and bear interest at the
prime rate plus .75 percent (9.25 percent at September 30, 1997).
The credit facility is guaranteed by the majority stockholders.
There were no borrowings under this line as of December 31, 1996 and
September 30, 1997.
b. Note Payable
In September 1997, the Company entered into an agreement with STAR
Telecommunications, Inc. (STAR) (see Note 7) to borrow up to
$1,500,000 to pay certain fines and expenses to the Public Utilities
Commission (PUC), the Monterey District Attorney or similar
governmental entities. The note matures on June 30, 1998, carries an
interest rate of ten percent and is secured by essentially all
assets of the Company. By September 30, 1997, the Company borrowed
$810,000, of which $760,000 was paid directly by STAR to the PUC in
connection with a settlement agreement (see Note 5) and expensed
interest in the amount of $4,000 relating to this note.
<PAGE> 17
- 4 -
c. Capital Lease Obligation
The Company leases furniture and equipment under capital lease
arrangements. Minimum future lease payments under these capital
leases at September 30, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $54,528
1999 54,528
2000 38,503
2001 5,356
--------
152,915
Less--Amount representing
interest 13,195
--------
139,720
Less--Current portion 47,103
--------
$ 92,617
========
</TABLE>
Accumulated amortization related to assets financed under capital
leases was $67,455 and $102,469 at December 31, 1996 and September
30, 1997, respectively.
4. Related Party Transactions
a. Transactions with Affiliates
The Company derives some of its customer base through affiliated
companies that are partially or fully owned by a control group of
stockholders of the Company. The net assets and income of these
affiliates on a consolidated basis would be less than one percent of
the net assets and net income of the Company on a stand-alone basis.
Included in selling, general and administrative expense is
commission expense relating to these affiliated companies of
approximately $915,000 and $324,000 for the year ended December 31,
1996 and the nine-month period ended September 30, 1997,
respectively.
b. Transactions with Related Parties
In December 1996, the Company entered into a two-year sales agency
agreement with Business Options Inc. (B.O.S.), which is owned by a
minority stockholder. The agreement automatically renews for
one-year periods, unless terminated 30 days prior to the renewal
date by either party. Included in selling, general and
administrative expense is commission expense of $1,444,000 and
$623,000 for 1996 and 1997, respectively. On June 12, 1997, the
Company entered into an additional interim contract with B.O.S. for
the Company to provide underlying transmission carriage service to
B.O.S.'s customers. During 1997, the Company recognized income and
related expense of approximately $174,000 and $156,000 relating to
this
<PAGE> 18
- 5 -
service. On October 1, 1997, the Company entered into a three-year
agreement to provide underlying transmission carriage service to
B.O.S.
5. Commitments and Contingencies
a. Operating Leases
The Company has non-cancelable leases for office space, office
equipment and other items under various agreements expiring through
October 15, 2001. At September 30, 1997, the minimum aggregate
payments under non-cancelable operating leases are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998 $ 63,949
1999 20,400
2000 20,400
2001 17,850
--------
$122,599
========
</TABLE>
Office space and office equipment rent expense for the year ended
December 31, 1996 and the nine-month period ended September 30, 1997
was approximately $180,000 and $177,000, respectively.
b. Service Level Commitments
The Company is obligated under various billing and collection
agreements with LECs to pay minimum service fees of approximately
$273,000, $160,000 and $42,000 for the twelve months ending
September 30, 1998, 1999 and 2000, respectively. The Company
anticipates exceeding the minimum service fees with these LECs.
c. Purchase Commitments
The Company is obligated under an amended carrier agreement dated
September 20, 1997, to continue current usage levels for 6 months
from the date of the agreement. Usage for July, August and September
of 1997 was approximately $736,000, $611,000 and $350,000,
respectively. The Company anticipates meeting the future minimum
usage levels.
d. Telecommunications Legislation Revisions
In the United States, the Federal Communications Commission and
relevant state Public Service Commissions have the authority to
regulate interstate and intrastate rates, respectively, ownership of
transmission facilities, and the terms and conditions under which
the Company's services are provided.
Legislation that substantially revised the U.S. Communications Act
of 1934 was signed into law on February 8, 1996. The legislation has
specific guidelines under which the regional operating companies
(RBOCs) can provide long distance services, which will permit the
RBOCs to compete with the Company in providing domestic and
international long distance services. Further, the legislation,
among other things, opens local service markets
<PAGE> 19
- 6 -
to competition from any entity (including long distance carriers,
such as AT&T, cable television companies and utilities).
Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company's ability to
compete may be affected. Moreover, as a result of and to implement
the legislation, certain federal and other governmental regulations
will be amended or modified. Any such amendment or modification
could have an effect on the Company's business, results of
operations and financial condition.
e. Litigation
On September 4, 1997, the Company entered into a settlement
agreement with the Consumer Services Division of the California
Public Utilities Commission (PUC). The agreement settles the
unauthorized switching of long-distance customers to LCCR's service
("slamming") and includes a payment of $760,000 to the PUC for
restitution to affected customers as defined in the agreement.
Additionally, the settlement revokes the Company's certificate of
public convenience and necessity without the possibility of
reinstatement. Per the agreement, service to all California
customers has to be terminated within 120 days after approval of the
agreement by the PUC. During the year ended December 31, 1996 and
the nine-month period ended September 30, 1997, gross revenues
resulting from customers in California amounted to $13,516,000 and
$6,687,000, respectively. On November 19, 1997, the PUC approved the
agreement.
The Company was also named in a civil suit by the District Attorney
of Monterey, California; similar to the administrative action
conducted by the PUC. Subsequent to September 30, 1997, the Company
agreed to settle this suit for a monetary payment of $700,000 and
various non-monetary concessions as defined in the agreement.
Various other states have inquired into the Company's marketing
plans or asked for cessation of certain marketing policies and
procedures followed by the Company. In addition, certain claims,
suits and complaints arising out of the normal course of business
have been filed or are pending against the Company. Based on the
facts known to the Company, Management believes the outcome of these
matters will not have a material adverse affect on the financial
position of the Company.
6. Income Taxes
The Company has elected to be taxed as an S-Corporation for both
federal and state income tax purposes. While the election is in
effect, all taxable income, deductions, losses and credits of the
Company are included in the tax returns of the stockholders.
Accordingly, for federal income tax purposes, no tax benefit,
liability or provision has been reflected in the accompanying
financial statements at December 31, 1996 and September 30, 1997 and
for the year and nine-month period then ended. For state tax
purposes, an S-Corporation is subject to a 1.5 percent tax on
taxable income, with a minimum tax of approximately $1,000 annually.
Effective
<PAGE> 20
- 7 -
December 1, 1997, the Company will terminate its S-Corporation
election and will be taxed as a C-Corporation.
The Company accounts for income taxes in accordance with SFAS No.
109, "Accounting for Income Taxes," under which deferred assets and
liabilities are provided on differences between financial reporting
and taxable income using enacted tax rates. Deferred income tax
expenses or credits are based on the changes in deferred income tax
assets or liabilities from period to period.
Under SFAS No. 109, deferred tax assets may be recognized for
temporary differences that will result in deductible amounts in
future periods. A valuation allowance is recognized if on the weight
of available evidence, it is more likely than not that some portion
or all of the deferred tax asset will not be realized.
Deferred taxes resulting from timing differences for provision for
doubtful accounts and various accruals are immaterial.
7. Events Subsequent to Date of Auditors' Report
On November 30, 1997, the Company entered into an Amended and
Restated Stock Acquisition Agreement and Plan of Merger with STAR.
STAR will issue 414,292 shares of common stock for all outstanding
shares of the Company and its control group of stockholders in a
merger to be accounted for as a "pooling of interests."
<PAGE> 21
STAR TELECOMMUNICATIONS, INC.
And LCCR, INC.
PRO FORMA COMBINED BALANCE SHEET
September 30, 1997
(In Thousands)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
STAR LCCR ADJUSTMENTS COMBINED
---- ---- ----------- ----------
ASSETS (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,386 $ 355 $ $ 7,741
Marketable securities 20,862 - 20,862
Receivables, net 32,794 4,173 36,967
Receivable from related parties 955 121 (814)(A) 262
Prepaid expenses and other assets 4,981 113 5,094
Deferred income taxes 1,165 - 454 (E) 1,619
-------- ------- ------- ---------
Total current assets 68,143 4,762 (360) 72,545
Property and equipment, net 27,309 122 27,431
Investments 179 - 179
Deposits 3,429 20 3,449
-------- ------- ------- ---------
Total assets $ 99,060 $ 4,904 $ (360) $ 103,604
======== ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current Liabilities:
Revolving lines of credit
with stockholder $ $ 186 $ $ 186
Current portion of long-term debt 888 - 888
Current portion of capital lease
obligations 1,841 47 1,888
Accounts payable 7,808 1,486 9,294
Note payable - 810 (810)(A) -
Accrued network costs 32,536 - 32,536
Accrued expenses 2,704 1,873 (4)(A) 4,573
Related party payables - 422 422
-------- ------- ------- --------
Total current liabilities 45,963 4,638 (814) 49,787
Long-Term Liabilities:
Long-term debt, net of
current portion 3,137 - 3,137
Capital lease obligations,
net of current portion 7,933 93 8,026
Deferred compensation 50 - 50
Other 73 342 415
-------- ------- ------- --------
57,156 5,073 (814) 61,415
-------- ------- ------- --------
Common Stock 16 348 (348)(B) 16
Additional paid-in capital 44,614 - 348 (B) 44,962
Deferred compensation (58) - (58)
Retained deficit (2,668) (517) 454 (E) (2,731)
-------- ------- ------- --------
Stockholders' equity (deficit) 41,904 (169) 454 42,189
-------- ------- ------- --------
Total liabilities and
stockholders' equity (deficit) $ 99,060 $ 4,904 $ (360) $103,604
======== ======= ======== ========
</TABLE>
<PAGE> 22
STAR TELECOMMUNICATIONS, INC.
And LCCR, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED 12-31-96
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
STAR LCCR ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $208,086 $29,905 $237,991
Cost of services 188,430 17,155 205,585
-------- ------- --------
Gross profit 19,656 12,750 32,406
Selling, general and
administrative expenses 25,160 10,322 35,482
-------- ------- --------
Income (loss)
from operations (5,504) 2,428 (3,076)
Other income (expense):
Interest income 83 27 110
Interest expense (589) (12) (601)
Legal settlements (100) - (100)
Other - 39 39
-------- ------- --------
Income (loss) before
provision for income taxes (6,110) 2,482 (3,628)
Provision for income taxes 534 58 943 (C) 1,535
-------- ------- ----- --------
Net income (loss) $ (6,644) $ 2,424 $(943) $ (5,163)
======== ======= ===== ========
Net loss per common share $ (0.54) $ (0.41)
======== ========
Weighted average number of
common shares used to compute
earnings per share 12,198 414 (D) 12,612
======== ===== ========
</TABLE>
<PAGE> 23
STAR TELECOMMUNICATIONS, INC.
And LCCR, INC.
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED 9-30-97
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
STAR LCCR ADJUSTMENTS COMBINED
-------- ------- ----------- ---------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Revenues $242,230 $21,186 $263,416
Cost of services 215,372 12,612 227,984
-------- ------- --------
Gross profit 26,858 8,574 35,432
Selling, general and
administrative expenses 19,696 7,412 27,108
-------- ------- --------
Income from operations 7,162 1,162 8,324
Other income (expense):
Interest income 359 9 (4)(F) 364
Interest expense (1,198) (12) 4 (F) (1,206)
Legal settlements
and expenses - (1,557) (1,557)
Other 48 10 58
-------- ------- ----- --------
Income before provision
for income taxes 6,371 (388) 5,983
Provision for income taxes 2,395 11 45 (C) 2,451
-------- ------- ----- --------
Net income $ 3,976 $ (399) $(45) $ 3,532
======== ======= ===== ========
Net income per common share $ 0.27 $ 0.24
======== ========
Weighted average number of
common shares used to compute
earnings per share 14,489 414 (D) 14,903
======== ===== ========
</TABLE>
<PAGE> 24
STAR TELECOMMUNICATIONS, INC.
And LCCR, INC.
NOTES TO PRO FORMA COMBINED STATEMENTS
(Unaudited)
On November 30, 1997, STAR Telecommunications, Inc. (STAR) acquired all
outstanding stock of LCCR, Inc. in a transaction accounted for as a
pooling-of-interest according to Accounting Principles Board Opinion 16 and the
applicable rules and regulations of the Securities and Exchange Commissions.
STAR issued 413,874 shares of common stock in exchange for the 99.20 LCCR
shares outstanding. In connection with the merger, Star acquired certain
non-operating entities owned by certain LCCR shareholders for 238 shares of
STAR common stock and a majority ownership of another immaterial entity for 180
shares of STAR common stock.
The Pro Forma Combined Statements of Operations of STAR Telecommunications,
Inc. and LCCR, Inc. for the year ended December 31, 1996 and for the nine-month
period ended September 30, 1997 give effect to the transaction as if it was
consummated at the beginning of the period presented. The Pro Forma Combined
Balance Sheet at September 30, 1997 gives effect to the merger as if the
transaction was consummated at the end of the period.
Below are explanations for the lettered notes used in the Pro Forma Statements:
(A) Effect of $810,000 loan by STAR to LCCR including $4,000 accrued interest
(B) Effect of issuing 414,292 shares of STAR common stock for all shares of
LCCR
(C) Increase in tax provision assuming C-Corporation status for LCCR
(D) Additional shares issued in the merger
(E) Cumulative effect of timing differences, assuming that LCCR had always
been a C-Corporation
(F) Interest on Note to LCCR
<PAGE> 25
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
10.26 Amended and Restated Stock Acquisition Agreement and Plan of
Merger dated as of November 30, 1997 by and among the Company,
Acquisition, LCCR and the LCCR Shareholders
10.27 Registration Rights Agreement dated as of November 30, 1997 by
and among the Company and the LCCR Shareholders
</TABLE>
<PAGE> 1
EXIBIT 10.26
AMENDED AND RESTATED
STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER
THIS AMENDED AND RESTATED STOCK ACQUISITION AGREEMENT AND PLAN OF MERGER
(this "Agreement") is made and entered into as of November 30, 1997 (the
"Execution Date") by and among STAR TELECOMMUNICATIONS, INC., a Delaware
corporation ("STAR"); BIG DAVE'S ACQUISITION CORP., a California corporation
("Acquisition Corp."); LCCR, INC., a California corporation formerly known as
L.D. Services, Inc. ("LCCR"); and the Shareholders listed on the signature page
of this Agreement, RICHARD A. BISHOP, individually and in his capacity as
Trustee of the Richard Allen Bishop & Teresa Anne Bishop 1996 Revocable Trust;
JUDITH BOLGER; ELIZABETH CURRIER, individually and in her capacity as Trustee of
the Currier Family Trust; DON CURRIER; THOMAS GUY ELTRINGHAM; JOHN BRENT
MCDANIEL, individually and in his capacity as Trustee of the John Brent McDaniel
Revocable Trust; DONNA J.S. ROBINSON; and HAROLD B. ROBINSON.
RECITALS
A. STAR, LCCR (using the name L.D. Services, Inc.), Acquisition Corp.
and the Shareholders previously executed that certain Stock Acquisition
Agreement and Plan of Merger dated September 3, 1997 (the "Original Merger
Agreement").
B. In order to meet certain objectives of all of the parties, the
parties have agreed to amend and restate the Original Merger Agreement to set
forth the changes to which all of the parties have agreed, and to include
certain new entities in the proposed transaction.
C. LCCR owns and operates a long distance telecommunications business
(the "LCCR Business"). GCC Telecom, Inc., a California corporation ("GCC"),
Phoenix Advertising Agency, Inc., a California corporation ("Phoenix"), Banta
Telecommunications, Inc., a California corporation ("Banta") (GCC, Phoenix and
Banta are described hereunder as the "Wholly-owned Affiliates ") are
corporations which presently do not operate any business. Newlink
Communications, Inc., a Florida corporation ("Newlink") owns and operates a
telecommunications business.
D. The Shareholders own 93.75% of the issued and outstanding shares of
LCCR's common stock, no par value (the "LCCR Stock"), and the remaining
shareholders (the "Non-Control Shareholders") own 6.25% of the issued and
outstanding shares of LCCR Stock, which in the aggregate constitute all of the
outstanding capital stock of LCCR. The Non-Control Shareholders have consented
to sell their shares of LCCR Stock pursuant to Section 2 below according to the
terms of a Waiver and Consent of even date with this Agreement.
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<PAGE> 2
E. The Shareholders also own 100% of the issued and outstanding shares
of the Wholly-owned Affiliates, and 54% of the issued and outstanding shares of
Newlink.
F. STAR desires to acquire all of the capital stock of LCCR and the
Wholly-Owned Affiliates (the "Wholly-Owned Affiliates Stock"), and 54% of the
capital stock of Newlink (the "Newlink Stock"). To accomplish this, STAR shall
(a) cause Acquisition Corp., a wholly owned subsidiary of STAR, to be merged
with and into LCCR (the "Merger") in accordance with this Agreement, and (b)
issue shares of STAR Common Stock (as defined below) in exchange for the
Wholly-Owned Affiliates Stock and the Newlink Stock (the "Exchange"); such that,
after the Merger and the Exchange, LCCR shall be the surviving corporation and a
wholly owned subsidiary of STAR, Acquisition Corp. shall cease to exist, the
Wholly-Owned Affiliates shall be wholly owned subsidiaries of STAR, and Newlink
shall be majority-owned by STAR.
G. In connection with the Merger, the LCCR Stock shall be converted into
a number of shares of STAR Common Stock, upon the terms and subject to
conditions of this Agreement, and in connection with the Exchange, STAR shall
acquire the Wholly-Owned Affiliates Stock and the Newlink Stock.
AGREEMENTS
In consideration of the foregoing recitals and the respective covenants,
agreements, representations and warranties contained herein, the parties,
intending to be legally bound, hereby agree as follows:
1.AB DEFINITIONS
1.1 DEFINED TERMS. For purposes of this Agreement, the following terms
shall have the following meanings:
"Action" shall mean any action, claim, suit, litigation,
proceeding, arbitration, mediation or other dispute.
"Ancillary Agreement" shall mean each other agreement executed in
connection with this Agreement, including, without limitation, the Employment
Agreement, the Escrow Agreement and the Registration Rights Agreement (as
defined below).
"Books and Records" shall mean all books, ledgers, files,
records, manuals and other materials (in any form or medium) related to the
Business, including, but not limited to, all correspondence, personnel records,
vendor lists, operation and quality control records and procedures, research and
development files, Intellectual Property disclosures and documentation,
accounting records and systems, litigation files, sales order files, purchase
order files, advertising materials, catalogs, product brochures, mailing lists,
customer lists, distribution lists, sales and promotional materials and all
other records utilized by LCCR in connection with the Business and all computer
hardware, software and
-2-
<PAGE> 3
data files necessary to access or review or continue to compile or utilize any
of the foregoing.
"Closing" and "Closing Date" shall have the meanings set forth in
Section 9.1.
"Closing Share Price" shall mean the average closing price as
publicly reported by the NASDAQ Stock Market as of 4:00 p.m. Eastern Time of
STAR Common Stock over the last five trading days ending with (and including)
the second business day prior to the Closing Date.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Employee Benefit Plan(s)" shall mean any deferred compensation
plan, bonus plan, profit sharing plan, stock option plan, employee stock
purchase plan and any other employee benefit plan, agreement, arrangement or
commitment (i) which LCCR sponsors or to which LCCR contributes or is required
to contribute, or under which LCCR may incur any liability, and (ii) which
covers an employee or former employee of LCCR.
"Encumbrances" shall mean any claim, lien, pledge, option,
charge, security interest, deed of trust, mortgage, restriction, encumbrance or
other right of third parties, of any kind or nature.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute, including the
rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in the
United States of America as in effect on the date of the Agreement.
"Independent Agents" shall mean those individuals listed as
Independent Agents on the Disclosure Schedule attached hereto, each of which has
been engaged by LCCR for the purpose of selling commercial long distance
telecommunications services under the terms and conditions of an Independent
Agent Agreement signed by such individual with LCCR.
"Intellectual Property" shall mean all of LCCR's intellectual
property rights including, without limitation, all of LCCR's right, title and
interest in and to any (i) trademarks, trademark registrations and applications,
service marks and trade names, copyrights, copyright registrations, patents,
patent applications, trade secrets and business confidential information; (ii)
computer software programs and systems and documentation relating to the
foregoing or used or useable in the Business; and (iii) other proprietary
information owned, controlled, created or used or useable by or on behalf of
LCCR in connection with the conduct of the Business in which LCCR has any
interest whatsoever, whether or not registered, including rights or obligations
under any license agreement with any other person.
-3-
<PAGE> 4
"Laws" shall mean all federal, state or local statutes,
regulations, ordinances, orders, decrees, or any other laws, common law theories
or reported decisions of any state or federal court including, without
limitation, now or at any time hereafter in effect, including, without
limitation, any of the foregoing relating to, or imposing liability or standards
of conduct concerning, any hazardous, toxic or dangerous waste, substance or
material.
"Permits" shall mean all franchises, permits, licenses,
qualifications, rights-of-way, easements, municipal and other approvals,
authorizations, orders, consents and other rights from, and filings with, any
governmental authority of any jurisdiction worldwide relating to the conduct of
the Business.
"Regulatory Approvals" shall mean all necessary regulatory
approvals from the Federal Communications Commission and state public service
commissions, more fully described in Exhibit A attached hereto, required for the
transfer of ownership or control over LCCR.
"Representatives" shall mean any officer, director, principal,
shareholder, partner, attorney, accountant, advisor, agent, employee or other
representative of a party hereto.
"STAR Common Stock" shall mean shares of common stock, par value
$.001 per share, of STAR. The issuance of the STAR Common Stock under this
Agreement shall not be registered under the federal securities laws, and
therefore, shall be "restricted stock" under such laws; provided, however, that
such shares shall be covered by the terms of the Registration Rights Agreement.
"Tax(es)" shall mean all taxes, charges, fees, levies or other
assessments imposed by and required to be paid to any federal, state, local, or
foreign taxing authority, including, without limitation, income, excise,
property, sales, transfer, ad valorem, payroll and franchise taxes (including
any interest, penalties or additions attributable to or imposed on or with
respect to any such assessment) and any estimated payments or estimated Taxes.
"Tax Return" shall mean any return, report, information return or
other document (including any related or supporting information) filed or
required to be filed with any federal, state, local or foreign governmental
entity or other authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on a Shareholder) or
the administration of any Laws, regulations or administrative requirements
relating to any Tax.
2. MERGER AND ACQUISITIONS
2.1 MERGER. On the terms and subject to the conditions of this
Agreement, on the Effective Date (defined below), Acquisition Corp. shall be
merged with and into LCCR in a statutory merger pursuant to the terms and
conditions of this Agreement, in
-4-
<PAGE> 5
accordance with the California General Corporation Law ("CGCL"). On and after
the Effective Date, the separate existence and corporate organization of
Acquisition Corp. shall cease, and LCCR shall succeed to and possess all of the
properties, rights, privileges and powers and be subject to all of the
liabilities and obligations of Acquisition Corp., all without further act or
deed.
2.2 SHAREHOLDER APPROVAL. The Shareholders hereby approve this
Agreement and hereby consent to the Merger described in Section 2.1 above. STAR,
as the sole stockholder of Acquisition Corp., hereby approves this Agreement and
hereby consents to the Merger. Each of the Shareholders and STAR hereby waive
any appraisal rights to which it may be entitled under the CGCL, in accordance
with the provisions of the CGCL.
2.3 EFFECTIVE DATE OF MERGER. As soon as practicable following the
Closing, LCCR and Acquisition Corp. shall cause an agreement of merger with the
required officers' certificates (the "Certificate of Merger") to be filed with
the Secretary of State of the State of California in accordance with the CGCL.
The Merger shall become effective at the time of the filing of the Certificate
of Merger. The time and date on which the Merger shall become effective is
referred to herein as the "Effective Date."
2.4 ARTICLES OF INCORPORATION, BYLAWS, DIRECTORS AND OFFICERS.
2.4.1 Articles of Incorporation. The Articles of Incorporation
of LCCR, as in effect at the Effective Date, shall remain in effect and will be
the Articles of Incorporation of the surviving corporation, until amended in
accordance with the CGCL.
2.4.2 Bylaws. The Bylaws of LCCR, as in effect at the Effective
Date, shall remain in effect and will be the Bylaws of the surviving
corporation, until amended in accordance with the terms of such Bylaws.
2.4.3 Directors and Officers. The directors and officers of
LCCR immediately after the Effective Date shall be as set forth in the
Disclosure Schedule, and shall serve until their respective successors are duly
elected and qualified.
2.5 CONVERSION AND EXCHANGE.
2.5.1 CONVERSION. On the Effective Date and by virtue of the
Merger, (i) each outstanding share of common stock, no par value, of Acquisition
Corp. outstanding as of the Effective Date shall be converted into one share of
common stock, no par value, of LCCR; and (ii) each outstanding share of LCCR
Stock shall be automatically converted, without any action on the part of the
holders thereof, into and represent the right to receive from STAR, the number
of shares of STAR Common Stock listed on attached Exhibit B, such that each
Shareholder and Non-Control Shareholder shall receive the number of shares of
STAR Common Stock (subject to reduction under Section 2.7 below) as are listed
on attached Exhibit B in exchange for the their shares of LCCR presently
outstanding.
-5-
<PAGE> 6
2.5.2 EXCHANGE. On the Effective Date, the Wholly-Owned
Affiliates Stock and the Newlink Stock owned by the Shareholders shall be
exchanged for the number of shares of STAR Common Stock listed on attached
Exhibit B.
2.5.3 ISSUANCE OF SHARES. Subject to the conditions set forth
herein, STAR shall issue as of the Closing Date, and shall deliver certificates
therefore to the Shareholders and Non-Control Shareholders within twenty (20)
days after the Closing, that number of shares of STAR Common Stock set forth on
the attached Exhibit B, less the pro rata portion for each Shareholder and
Non-Control Shareholder of such common shares to be deposited on behalf of the
respective shareholders into escrow under Section 2.7 (also as set forth on the
attached Exhibit B), and less, further, any reduction on a pro rata basis of the
shares to be delivered to the respective shareholders by reason of the potential
reduction specified at Section 2.8 below (the shares to be delivered by STAR to
the holders of LCCR shares, or to the Escrow Agent (defined below), are referred
to as the "Merger Shares").
2.6 ACQUISITION OF WHOLLY-OWNED AFFILIATES AND NEWLINK. At the
Closing, STAR shall acquire all of the Wholly-Owned Affiliates Stock and the
Newlink Stock in accordance with the terms of this Agreement.
2.7 PARTIAL ESCROW OF SHARES. A portion of the Merger Shares equal to
ten percent (10%) of the total Merger Shares to be received by the respective
Shareholders and Non-Control Shareholders shall be deposited at the Closing in
escrow with Santa Barbara Bank & Trust, a California bank (the "Escrow Agent").
The Escrow Agent shall hold such shares (the "Escrowed Shares") until the first
anniversary date of the Closing Date. The Escrowed Shares may be offset pro rata
with respect to shares owned by the Shareholders and Non-Control Shareholders,
at STAR's option, by any amounts required to be paid to STAR by such
shareholders pursuant to Section 10.2. below. With respect to any offset
described in the immediately preceding sentence, the value of the Escrowed
Shares offset shall be equal to the Closing Share Price as determined on the
Closing Date.
2.8 ADJUSTMENT. The Merger Shares to be received by the respective
Shareholders and Non-Control Shareholders under Section 2.5 of this Agreement
may be reduced on a pro rata basis, with respect to the Shareholders and
Non-Control Shareholders, effective as of the Closing Date if and to the extent
that as of the date of the Final Balance Sheet (defined below) the current
assets of LCCR do not exceed its current liabilities by $1.8 million, as
follows:
2.8.1 $1.8 MILLION TEST: CURRENT ASSETS LESS CURRENT
LIABILITIES. At the Closing, LCCR shall provide STAR, for STAR's written
approval, the balance sheet for LCCR for the period ending as of the last day of
the month immediately preceding the Closing Date, which statement shall be
prepared (excluding, however, the STAR Loan, as defined below) on an accrual
basis, using GAAP (the "Final Balance Sheet"). STAR shall also approve, in
writing, the statement prepared by LCCR showing LCCR's net working capital
(current assets less current liabilities) as of the date of the Final Balance
Sheet. LCCR, in preparing the statements required by this Section, agrees that
(a) current assets
-6-
<PAGE> 7
shall include without limitation cash and cash-equivalents, accounts receivable,
prepaid expenses, and similar items; and (b) current liabilities shall include
without limitation notes payable, accounts payable, accrued liabilities and
similar items. In addition, however, the parties agree that such current
liabilities shall not include the proceeds of that certain $1.5 million line of
credit promissory note with STAR as Lender and LCCR as Borrower (the "STAR
Loan").
2.8.2 $1.8 MILLION TEST: REDUCTION IN MERGER SHARES. If such
current assets of LCCR, as reduced by the current liabilities (excluding the
STAR Loan), as reflected on the above statement approved by STAR, are greater
than or equal to $1,800,000, then there shall be no reduction in the number of
Merger Shares to be transferred to the Shareholders and Non-Control Shareholders
in accordance with Section 2.5 of this Agreement. If such current assets of
LCCR, as reduced by the current liabilities, excluding the STAR Loan, as shown
on such statement approved by STAR, are less than $1,800,000, then the number of
Merger Shares to be received by the Shareholders and Non-Control Shareholders at
the Closing under Section 2.5 will be reduced as to each such shareholder on a
pro rata basis as follows:
A. STAR shall determine the Closing Share Price for the
STAR Common Stock comprising the Merger Shares as of the Closing Date;
B. such Closing Share Price shall be divided into:
(1) $1,800,000 less (2) the actual figure representing the excess of current
assets over current liabilities (with such "current liabilities" excluding the
STAR loan) as set forth on the statement approved by STAR; and
C. the resulting share figure shall be deducted on a
pro rata basis from the Merger Shares to be delivered to the respective
Shareholders and Non-Control Shareholders at the Closing pursuant to Section 2.5
of this Agreement. The share figure shall be rounded to the nearest whole share
as required to avoid issuance of fractional shares.
2.8.3 LCCR'S COMMENTS. If LCCR disagrees with the Final Balance
Sheet or with the statement approved by STAR as described above in this Section
2.8, LCCR shall provide its objections in writing to STAR within five (5) days
after the written approval by STAR of the above statements. Within five (5) days
after the receipt by STAR of any written objections from LCCR, the parties will
meet to resolve any perceived differences with such calculation. If the parties
are unable to thereafter resolve any issues related to such calculations within
five (5) days after such meeting of the parties, then all such outstanding
issues shall be referred to Richard Bishop and Christopher E. Edgecomb for joint
final resolution.
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS AND LCCR
The Shareholders and LCCR, jointly and severally, hereby represent and
warrant to STAR that the following statements are true and complete and not
misleading as of the
-7-
<PAGE> 8
date of this Agreement and the Shareholders and LCCR hereby expressly
acknowledge that STAR, in agreeing to consummate the transactions contemplated
by this Agreement, has relied upon the following representations and warranties
in its decision to enter into this Agreement:
3.1 ORGANIZATION AND QUALIFICATION OF LCCR. LCCR is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
California. LCCR has the requisite corporate power and authority to own, lease
and operate its assets and properties and to conduct the Business in the manner
in which it is presently conducted. Except as set forth in the Disclosure
Schedule, LCCR is duly qualified and licensed in each jurisdiction where the
nature of the business conducted by it requires such qualification, except where
the failure to so qualify would not have a material adverse effect upon LCCR's
financial condition or results of operations. LCCR has delivered to STAR true
and complete copies of its Articles of Incorporation and Bylaws. Except as set
forth in the Disclosure Schedule, LCCR has no subsidiaries or affiliated
companies and does not otherwise own or control directly or indirectly, any
equity interest in any corporation, association or business entity.
3.2 CAPITALIZATION OF LCCR. The authorized capital stock of LCCR
consists solely of 1,000 shares of common stock, of which 99.2 shares are issued
and outstanding. The authorized capital stock of Banta, Phoenix, GCC and
Newlink, respectively, consists solely of 1,000, 100,000, 100,000 and 25,000
shares of common stock, of which 100, 100, 100 and 20,000, respectively, are
issued and outstanding. The exact names of all holders of the LCCR Stock, the
Wholly-Owned Affiliates Stock and the Newlink Stock, and the number of shares
they each hold, are set forth on Exhibit B. Other than this Agreement, and
except as set forth on the Disclosure Schedule, there is not outstanding any
subscription, option, warrant, call, right or other agreement or commitment
obligating LCCR or any of the Shareholders to issue, sell, deliver or transfer
(including any right of conversion or exchange under any outstanding security or
other instrument) any shares of the LCCR Stock or any shares of any other
capital stock of LCCR.
3.3 TITLE TO THE LCCR STOCK. Each holder of LCCR Stock owns
beneficially and of record the number of shares of LCCR Stock as set forth for
such Shareholder in the Disclosure Schedule, free and clear of all Encumbrances
affecting his or her ability to transfer such shares to LCCR for cancellation.
All of the shares of the LCCR Stock are duly and validly authorized, issued and
outstanding, fully paid, non-assessable.
3.4 AUTHORIZATION. LCCR has the requisite corporate power and
authority to execute and deliver this Agreement and the Certificate of Merger
and to consummate the transactions contemplated hereby, and to perform any of
its obligations hereunder. Each of the Shareholders has the legal capacity and
the requisite power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby, and to perform all such
Shareholder's obligations hereunder. All actions and proceedings on the part of
LCCR, its officers, directors and shareholders necessary to authorize the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly taken.
-8-
<PAGE> 9
3.5 DUE EXECUTION AND DELIVERY; BINDING OBLIGATIONS. Each of this
Agreement and the Ancillary Agreements has been duly executed and delivered by
LCCR and the Shareholders as the case may be. Each of this Agreement and the
Ancillary Agreements constitutes the legal, valid and binding agreement and
obligation of LCCR and the Shareholders, as the case may be, enforceable against
them in accordance with its terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium, or similar Laws relating to
or limiting creditors' rights generally or by equitable principles relating to
enforceability.
3.6 COMPLIANCE WITH OTHER INSTRUMENTS. LCCR is not in violation of any
term of its Articles of Incorporation or Bylaws, or in any material respect of
any term or provision of any mortgage, indebtedness, indenture, contract,
agreement, instrument, order, writ, injunction, judgment or decree. Except as
set forth on the Disclosure Schedule, LCCR is not in violation of any order,
statute, rule or regulation applicable to LCCR, its officers, directors and
shareholders. Except as set forth on the Disclosure Schedule, LCCR has all
licenses, permits and certificates from governmental agencies necessary for the
conduct of its business as now conducted. Except as set forth on the Disclosure
Schedule, no claim has been made by any governmental authority to the effect
that the business conducted by LCCR fails to comply, in any respect (and no such
claim is anticipated by LCCR), with any Laws.
3.7 NO CONFLICT OR VIOLATION. Neither the execution and delivery of
this Agreement, nor the consummation of the transactions contemplated hereby,
will result in: (i) a violation of, or a conflict with, LCCR's Articles of
Incorporation, Bylaws or any subscription, shareholders' or similar types of
agreements or understandings to which LCCR or a Shareholder is a party thereto;
(ii) a material breach of, or a material default (or an event which, with notice
or lapse of time or both would constitute a material default) under or result in
the termination of, or accelerate the performance required by, or create a right
of termination or acceleration under, any material Contract, Encumbrance or
Permit to which LCCR is a party or by which LCCR or the Business is bound or
affected, other than LCCR's close corporation or S corporation status; (iii) the
payment by, or the creation of any obligation (absolute or contingent) to pay on
behalf of LCCR or any of its current or former shareholders of any severance,
termination, "golden parachute" or other similar payments pursuant to any
employment or other agreements of LCCR or any of its current or former officers,
directors or employees; (iv) a violation by LCCR or the Shareholders of any Law,
order, judgment, writ, injunction decree or award to which LCCR or any of the
Shareholders is a party or by which it is bound; or (v) an imposition of any
material Encumbrance on LCCR or its assets.
3.8 CONSENTS AND APPROVALS. Except as set forth on the Disclosure
Schedule, the execution and delivery of this Agreement by LCCR and the
Shareholders, and the consummation of the transactions contemplated hereby, do
not and will not require LCCR or any Shareholder to obtain any authorization,
registration or filing with, or consent or approval of, any person or entity,
including, without limitation, any federal, state or other governmental
authority or regulatory body (other than the filing of the Certificate of Merger
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as contemplated by Section 2.3 above), and any state and federal filings that
may be required under applicable securities Laws and the Regulatory Approvals.
The Disclosure Schedule sets forth a complete list of the states in which LCCR
conducts business or has customers.
3.9 FINANCIAL STATEMENTS. LCCR has furnished and/or will furnish to
STAR copies of the audited balance sheets of LCCR for the one-year period ending
December 31, 1996, and for the nine-month period ending September 30, 1997,
respectively, and the related statements of income, shareholders' equity and
cash flows for each such period, together with the related notes thereto (the
"1996 and September 30, 1997 Financial Statements"). The 1996 and September 30,
1997 Financial Statements are true, correct and complete, have been prepared in
accordance with GAAP, applied on a consistent basis, and fairly present the
financial condition of LCCR as of the dates thereof and the results of
operations of LCCR for the period covered by the statements of income contained
therein. The Wholly-Owned Affiliates and Newlink shall not furnish any such
financial information.
3.10 UNDISCLOSED LIABILITIES. Except as set forth on the Disclosure
Schedule, LCCR does not have any liabilities or obligations (absolute, accrued,
contingent or otherwise) related to the Business or the LCCR Stock except (i)
liabilities reflected on the Balance Sheet dated December 30, 1996, and (ii)
liabilities incurred since the September 30, 1997 Balance Sheet Date in the
ordinary course of conducting the Business.
3.11 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 30, 1996 and
except as set forth on the Disclosure Schedule there has not been:
3.11.1 Any adverse change in the financial condition, assets,
liabilities, earnings, business or prospects of LCCR, which is material to LCCR,
taken as a whole (a "Material Adverse Change");
3.11.2 Any destruction, damage to, or loss of any of LCCR's
material assets (whether or not covered by insurance) used or useable in the
Business;
3.11.3 Any labor dispute or other event or condition of any
character which constitutes a Material Adverse Change;
3.11.4 Any change in accounting methods or practices by LCCR
(including, without limitation, any change in depreciation, amortization or
valuation policies or rates) or revaluation of any of its assets, liabilities or
reserves reflected on the Balance Sheet, or any change in any assumption
underlying or methods of calculating any bad debt, contingency or other reserves
related to the Business other than the change of LCCR from an S corporation to a
C corporation for tax purposes and a corresponding change from cash to accrual
basis accounting, which should take place at the Closing;
3.11.5 Except as has been expressly approved in writing by
STAR, any of the following: an increase in the salary or other compensation
payable or to become
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payable by LCCR to any of its officers, directors, independent contractors or
employees; the declaration, payment, or commitment or obligation of any kind for
the payment, by LCCR, of a bonus or other additional salary or compensation to
any such person; the repayment by LCCR of any loan from such person; or the
payment by LCCR of any accrued but unpaid salaries, dividends, distributions or
any other payments, whether in cash or property, to any such person;
3.11.6 Other than in the ordinary course of business consistent
with past practice, any amendment or termination of any Contract, Permit or
other agreement related to LCCR's assets or the Business, or by which LCCR or
any of its assets or properties used or useable in connection with the Business
are subject;
3.11.7 Other than in the ordinary course of business consistent
with past practice, any cancellation of indebtedness or waiver or release of any
material right or claim of LCCR related in any way to the Business;
3.11.8 Any declaration of or agreement to declare or make, any
payment or distribution of any assets used or useable in connection with the
Business of any kind whatsoever;
3.11.9 Other than in the ordinary course of business consistent
with past practice, any sales, transfers, disposal of or agreements to sell,
transfer or otherwise dispose of any of the assets, properties or rights of LCCR
related to the Business;
3.11.10 Other than in the ordinary course of business
consistent with past practice, any capital expenditure or incurring of any
obligation to make any capital expenditure in connection with the conduct of the
Business;
3.11.11 Any making of any loan by LCCR to any person or entity;
3.11.12 Any creation or assumption of any mortgage, pledge or
other Encumbrance on any asset of LCCR;
3.11.13 Any failure to pay or satisfy when due any obligation
of LCCR except where such failure would not constitute a Material Adverse
Change;
3.11.14 Other than in the ordinary course of business
consistent with past practice, any disposition or lapsing of any Intellectual
Property or any disclosure to any person (other than persons subject to
confidentiality agreements) of any Intellectual Property not theretofore a
matter of public knowledge;
3.11.15 Any other event or condition of any character which it
is reasonable to expect will, individually or in the aggregate constitute a
Material Adverse Change;
3.11.16 Any agreement by LCCR or the Shareholders to do or
cause any of the things described in clauses 3.11.1 through 3.11.15, above; or
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3.11.17 Any distributions by LCCR to the Shareholders which
exceed accrued earnings.
3.12 PROPERTIES. The Disclosure Schedule sets forth a complete and
correct list of all assets owned by LCCR as of the December 31, 1996 Balance
Sheet Date which have been treated as capital assets. LCCR does not own any real
property. Except as set forth on the Disclosure Schedule, LCCR has good,
indefeasible and marketable title to, or a valid leasehold interest in, or a
valid license to use, all of the personal property used in and material to the
Business, in each case free and clear of all Encumbrances. All personal property
owned or leased by LCCR is in good order and operating condition, ordinary wear
and tear excepted, and free from any defects, except for such minor defects
which do not substantially interfere with the continued use thereof in the
conduct of normal operations in the manner and to the extent such assets are
presently being used.
3.13 INTELLECTUAL PROPERTY.
3.13.1 Set forth in the Disclosure Schedule is a complete and
correct list of all of the Intellectual Property. Except as set forth on the
Disclosure Schedule, (i) the Intellectual Property is owned by LCCR or LCCR has
a valid license or other right to use the same, (ii) neither LCCR nor the
Shareholders have received any notice or claim disputing LCCR's right to own or
use any such Intellectual Property, and (iii) LCCR's right to own or use the
Intellectual Property is not disputed by any third party. Except as set forth on
the Disclosure Schedule, the Intellectual Property is owned by LCCR free and
clear of any Encumbrances. The Intellectual Property constitutes all the
proprietary rights necessary and sufficient for the lawful and efficient
operation of the Business as presently conducted. LCCR is not infringing upon or
otherwise acting adversely to any property owned by any other person with
respect to the Intellectual Property which has been received and used by LCCR,
nor is there any Action by any person pending or threatened with respect
thereto.
3.13.2 The Disclosure Schedule accurately discloses all
licenses, sublicenses or agreements by which LCCR holds or has given to others
the right to use the Intellectual Property. LCCR is not in default and, to the
Shareholder's knowledge, no third party is in default, under any such license,
sublicense or agreement.
3.13.3 LCCR has provided STAR with a copy of the form or forms
of agreements used by LCCR to protect its proprietary information and trade
secrets and otherwise to protect the Intellectual Property, including without
limitation, any non- disclosure agreements. The Disclosure Schedule sets forth a
complete and accurate description of such agreements which have been entered
into by and between LCCR and other persons or entities.
3.14 LEASES. The Disclosure Schedule sets forth a true, correct and
complete list and description of all leases, subleases, licenses and other
occupancy or lease agreements, together with all amendments, supplements and
nondisturbance agreements
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pertaining thereto, under which LCCR leases, subleases, licenses, occupies or
uses any real or personal property (the "Leases"). All of the Leases are in good
standing, legal, valid, binding and in full force and effect, all rents and
additional rents due to date under each such Lease have been paid in full and
there is not under any of such Leases any existing default, violation or breach
by LCCR or event or condition which after notice or lapse of time or both would
constitute a default, violation or breach. The Shareholders have provided STAR
with true and correct copies of all such Leases and none of such Leases have
been or will hereafter be terminated, amended or otherwise modified.
3.15 RECEIVABLES. All receivables of LCCR which are reflected in the
Balance Sheet, and all such receivable which have arisen since the Balance Sheet
Date, have arisen only from bona fide transactions in the ordinary course of
business. Except as set forth in the Disclosure Schedule, to the Shareholders'
knowledge, there are no facts or circumstances which would result in any
material increase in the uncollectability of such receivables as a class in
excess of the reserves therefor set forth on the Balance Sheet.
3.16 CONTRACTS. The Disclosure Schedule contains a complete and
correct list of all material agreements, contracts and commitments
(collectively, the "Contracts"), whether written or oral, (i) to which LCCR is a
party or by which it is bound, or (ii) by which any of the assets, properties or
the Business is bound, and in either case, which constitute:
3.16.1 Mortgages, indentures, security agreements, and other
agreements and instruments relating to the borrowing of money by or from, or any
extension or credit to or from, LCCR;
3.16.2 Sales agency or marketing agreement;
3.16.3 Agreements or commitments for capital expenditures;
3.16.4 Brokerage or finder's agreements;
3.16.5 Partnership, joint venture or other arrangements or
agreements involving a sharing of profits or expenses;
3.16.6 Contracts or commitments to sell, lease or otherwise
dispose of any assets, properties or business other than in the ordinary course
of the Business;
3.16.7 Contracts or commitments limiting the freedom of LCCR to
compete in any line of business or in any geographic area or with any person,
and any nondisclosure or nonsolicitation agreements which limit LCCR;
3.16.8 Other agreements, agents, contracts and commitments
which in any case involve payments or receipts of more than $5,000 per annum;
and
3.16.9 Any other agreements, contracts and commitments material
to the Business, operations or financial condition of LCCR
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3.16.10 LCCR has delivered to STAR or its Representatives
complete and correct copies of all written Contracts, together with all
amendments thereto, and accurate descriptions of all oral Contracts. All of the
Contracts are valid and in full force and effect and LCCR has duly performed all
of its obligations under each Contract to the extent those obligations have
accrued and no default, violation or breach by LCCR under any Contract has
occurred which affects the enforceability of such Contract or any party's rights
thereunder.
3.17 CUSTOMER CONTRACTS. The Disclosure Schedule sets forth a correct
and complete list of the 100 largest customers (by sales volume) (the "Major
Customers") of the Business during the seven months ending July 31, 1997
indicating the sales to such Major Customers within such period. As of December
31, 1996, each Shareholder and LCCR had no outstanding Contracts with customers
requiring payments or credits, except as described on the Disclosure Schedule.
There are no outstanding disputes with any Major Customer and no Major Customer
has refused to do business with LCCR or has stated its intention not to continue
to do business with or increase or reduce its purchases from LCCR upon
consummation of the transactions contemplated hereby.
3.18 EMPLOYMENT MATTERS; EMPLOYEE BENEFITS.
3.18.1 The Disclosure Schedule sets forth a complete and
correct list of all the names, current annual rates of salary, bonuses, employee
benefits, accrued vacation times, sick pay and other compensation of all the
present employees and agents (other than Independent Agents) of LCCR who provide
services in connection with the Business and whose current annual cash
compensation from LCCR (salary and bonus) is expected to equal or exceed $2,000.
No employee or agent of LCCR is in violation of any term of any employment
contract, confidentiality agreement or other contract or agreement relating to
the relationship of such employee with LCCR, or to the best of Shareholders'
knowledge, any other party, because of the nature of the business now conducted
or proposed to be conducted by LCCR. Except as disclosed in the Disclosure
Schedule, there are no employment or consulting contracts or arrangements,
including pensions, bonus or profit sharing plans, or other severance or
termination contracts or arrangements which constitute contractual obligations
of LCCR not terminable on thirty days' notice. No key employee of LCCR
terminated his or her relationship with LCCR since the Balance Sheet Date, and
no current key employee has indicated any present or future intention to
terminate his or her relationship with LCCR.
3.18.2 The Disclosure Schedule contains a complete and correct
list of all Employee Benefit Plans. LCCR has delivered to STAR or its
Representatives complete and correct copies of all written Employee Benefit
Plans, together with all amendments thereto. All such Employee Benefit Plans
comply with the provisions of and have been administered in compliance with the
provisions of the ERISA and LCCR is not in default under or in violation of any
of such Employee Benefit Plans.
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3.18.3 The Disclosure Schedule contains a list of all
Independent Agents of LCCR. The Independent Agent Agreements also listed on the
Disclosure Schedule represent valid and binding agreements and obligations of
each of the Independent Agents fully enforceable by LCCR. No Independent Agent
has terminated his or her relationship with LCCR since the Balance Sheet Date,
and, except as contemplated by this Agreement, no Independent Agent has
indicated any present or future intention to terminate his or her relationship
with LCCR.
3.19 TRANSACTIONS WITH AFFILIATED PARTIES. Set forth in the Disclosure
Schedule is a true and complete list and description of all transactions engaged
in between LCCR and the Shareholders, or any director, officer, employee,
shareholder, partner or agent of LCCR, or any of their respective spouses or
children, any trust of which any such person is the grantor, trustee or
beneficiary, any corporation of which any such person or party is a shareholder,
employee, officer or director, or any partnership or other person in which any
such person or party owns an interest (all such persons, trusts, corporations
and partnerships being herein referred to collectively as "Affiliated Parties"
and individually as an "Affiliated Party"). No Affiliated Party is a party to
any agreement, contract or commitment with LCCR except as set forth in the
Disclosure Schedule.
3.20 CERTAIN PAYMENTS. Neither the Shareholders, LCCR, nor to the
Shareholders' knowledge, any person or other entity has, directly or indirectly,
on behalf of or with respect to LCCR: (i) made an unreported political
contribution; (ii) made or received any payment which was not legal to make or
receive; (iii) engaged in any transaction or made or received any payment which
was not properly recorded in the Books and Records; or (iv) created or used any
"off-book" bank or cash account or "slush fund."
3.21 TAXES. Except as set forth in the Disclosure Schedule, all Taxes
which are due and payable by LCCR have been paid in full and any Taxes that
become due and owing by LCCR before the Closing Date (whether or not shown on
any Tax Return) will be paid, other than Taxes which are not delinquent and
subject to a late payment; all Tax Returns required to be filed in connection
therewith have been accurately prepared and duly and timely filed, or will be
accurately prepared and duly and timely filed, and all deposits required by Law
to be made by LCCR with respect to any such Taxes have been duly made. LCCR is
not delinquent in the payment of any Taxes nor does LCCR have any Tax deficiency
or claim outstanding, proposed or assessed against it, and there is no basis for
any such deficiency of claim. There is not now in force any extension of time
with respect to the date on which any Tax Return was or is due to be filed by or
with respect to LCCR, or any waiver or agreement by LCCR for the extension or
the assessment of any Tax. LCCR has withheld and paid all Taxes required to be
withheld and paid in connection with amounts paid or owing to any employee,
creditor, independent contractor, shareholder or other third parties. There are
no liens on any of the assets of LCCR as a result of any Tax liabilities except
for Taxes not yet due and payable. LCCR has delivered to STAR complete and
correct copies of all federal, state, local and foreign income or franchise Tax
Returns for the last three taxable periods for which such Tax Returns have been
filed and will deliver copies of Tax Returns filed by LCCR after the date hereof
and before the
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Closing Date. LCCR is not required to file a Tax Return in any state or local
jurisdiction for any tax period except in the jurisdiction in which it has
filed. LCCR has delivered to STAR complete and correct copies of all audit
reports (or portions thereof) and statements of deficiencies assessed against or
agreed to by LCCR for any taxable period ending on or after December 31, 1993.
3.22 PENDING LITIGATION. Except as disclosed on the Disclosure
Schedule, there is no pending or, to the Shareholders' knowledge, threatened
Action or investigation, at Law or in equity or otherwise, in, for or by any
court or governmental board, commission, agency, department or office arising
from, relating to or affecting (i) the past, present or proposed operations of
the Business, (ii) any alleged act or omission of LCCR, a Shareholder or any of
LCCR's officers, directors or employees, or (iii) the consummation of the
transactions contemplated hereby.
3.23 COMPLIANCE WITH LAWS. Except as set forth in the Disclosure
Schedule, LCCR has complied with all existing Law now or hereafter applicable to
the Business, as presently conducted, including, without limitation, (i) all
Environmental Laws, and (ii) all provision of Law relating to labor relations,
equal employment practices, fair employment practices, entitlement, prohibited
discrimination, terms and conditions of employment, wages and hours, or other
similar employment practices or acts. Neither the Shareholders nor LCCR has
received any notice from or otherwise been advised that any governmental
authority or other person is claiming any violation or potential violation of
any Law. "Environmental Laws" shall mean any environmental, hazardous or toxic
substance, or health and safety-related laws, regulations, rules, ordinances, or
by-laws at the foreign, federal, state, or local level, whether existing as of
the date hereof, previously enforced, or subsequently enacted.
3.24 PERMITS. The Disclosure Schedule contains a complete and correct
list of all Permits which are necessary for the lawful and efficient operation
of the Business. All such Permits have been duly made or obtained and are in
full force and effect, and there are no proceedings pending or, to any
Shareholder's knowledge, threatened which may result in the revocation,
cancellation or suspension, or any adverse modification, of any such Permit.
3.25 INSURANCE. LCCR maintains insurance with respect to its
properties and the Business of such a nature, with such terms and in such
amounts as a prudent person would maintain with respect to similar properties
and a similar business and maintains insurance on all of its properties of a
character usually insured by persons engaged in the same or similar business
similarly situated against loss or damage or the kinds and in the amounts
customarily insured against, and carries, with such insurers and customary
amounts, such other insurance, including public liability insurance, as is
usually carried by persons engaged in the same or a similar business similarly
situated. The Disclosure Schedule contains a true and complete list of all
insurance maintained by LCCR with respect to the Business during the past three
years.
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3.26 BROKERS, FINDERS, ETC. All negotiations relating to this
Agreement and the transaction contemplated hereby have been carried on without
the intervention of any person acting on behalf of LCCR or any Shareholder in
such manner as to give rise to any claim against STAR, Acquisition Corp., LCCR
or any of their respective Representatives for any brokerage of finders'
commission, fee of similar compensation.
3.27 BOOKS AND RECORDS. LCCR has made and kept (and given STAR's
Representatives access to) the Books and Records, which, in reasonable detail,
accurately and fairly reflect the activities and transactions of LCCR related to
the Business, the dispositions of assets related to the Business, and the
financial condition of LCCR and the Business, including, without limitation, the
existence of any and all liabilities, whether actual or contingent, that are
required to be disclosed in a balance sheet prepared in accordance with GAAP.
3.28 LOAS. LCCR has made available to STAR, true and complete copies
of all customer letters of agency ("LOAs") as of June 30, 1997. All such LOAs
were obtained in accordance with applicable law and were valid as of that date.
3.29 FULL DISCLOSURE. No representation, warranty or other statement
of a Shareholder or LCCR contained in this Agreement, or any other document,
certificate or written statement furnished to STAR in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
fact or omits to state a fact necessary in order to make the statements
contained herein or therein not misleading. There is no fact known to the
Shareholders or LCCR which adversely affects the prospects, earnings, properties
or condition, financial or otherwise, of the Business that has not been
disclosed herein or in such other documents, certificates and statements
furnished to STAR for use in connection with the transactions contemplated
hereby.
3.30 PURCHASE FOR OWN ACCOUNT. Shareholders are acquiring STAR Common
Stock for investment and for their own account, and not with a view to or for
sale in connection with any distribution of any part thereof.
3.31 INVESTMENT EXPERIENCE. Each Shareholder has such knowledge and
experience in financial and business matters that they are capable of evaluating
the risks of their proposed investment in STAR Common Stock and are able to bear
the economic risk of their proposed investment.
3.32 INFORMATION CONCERNING STAR. The Shareholders have received
copies of STAR's Prospectus dated June 12, 1997, and STAR's Quarterly Report on
Form 10-Q for the quarter ending September 30, 1997, as filed with the
Securities and Exchange Commission. The Shareholders have heretofore discussed
STAR and its plans, operations and financial condition with STAR's officers and
have heretofore received all such information as the Shareholders have deemed
necessary and appropriate to enable the Shareholders to evaluate the financial
risk inherent in making an investment in the STAR Common Stock and the
Shareholders have received satisfactory and complete
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information concerning the business and financial condition of STAR in response
to all inquiries in respect thereof.
3.33 RESTRICTED SECURITIES. The Shareholders understand and ]
acknowledge that:
3.33.1 The STAR Common Stock to be issued pursuant to Section
2.5 has not been registered under the Securities Act of 1933, as amended (the
"Act"), and it must be held indefinitely unless the STAR Common Stock is
subsequently registered under the Act or an exemption from such registration is
available. STAR is under no obligation to register the STAR Common Stock, except
as set forth in the Registration Rights Agreement.
3.33.2 The share certificate representing the STAR Common Stock
will be stamped with legends to the effect of the foregoing.
3.33.3 STAR will issue stop transfer instructions to its
transfer agent with respect to such STAR Common Stock.
3.34 WHOLLY-OWNED SUBSIDIARIES AND NEWLINK. The Shareholders, jointly
and severally, hereby represent and warrant to STAR that all of the warranties
and representations set forth in Sections 3.1 through 3.33 are equally true and
complete and not misleading as of the date of this Agreement as to Banta,
Phoenix, GCC and Newlink unless expressly stated to the contrary in this
Agreement, and the Shareholders hereby expressly acknowledge that STAR, in
agreeing to consummate the transactions contemplated by this Agreement, has
relied upon the fact that the representations and warranties set forth in
Sections 3.1 through 3.33 are equally true and complete and not misleading as to
Banta, Phoenix, GCC and Newlink in its decision to enter into this Agreement.
4. REPRESENTATIONS AND WARRANTIES OF STAR AND ACQUISITION CORP.
STAR and Acquisition Corp. hereby, jointly and severally, represent and
warrant to the Shareholders as follows:
4.1 ORGANIZATION. STAR is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware.
Acquisition Corp. is a corporation duly organized, validly existing and in good
standing under the Laws of the State of California. STAR and Acquisition Corp.
each has the requisite corporate power and authority to own, lease and operate
its assets and to conduct its business in the manner in which it is presently
conducted.
4.2 AUTHORIZATION. STAR and Acquisition Corp. each has the requisite
corporate power and authority to execute and deliver this Agreement, and to
consummate the transactions contemplated hereby, and to perform any of its
obligations hereunder. All actions and proceedings on the part of STAR and
Acquisition Corp. necessary to authorize
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the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly taken.
4.3 VALID ISSUANCE OF STAR COMMON STOCK. Each of the shares of STAR
Common Stock when issued, sold and delivered in accordance with the terms
hereof, shall be duly and validly issued, fully paid and nonassessable. The
shares of STAR Common Stock shall not be registered under the Securities Act of
1933, as amended.
4.4 DUE EXECUTION AND DELIVERY; BINDING OBLIGATIONS. This Agreement
has been duly executed and delivered by STAR and Acquisition Corp. This
Agreement constitutes the legal, valid and binding agreement and obligation of
STAR and Acquisition Corp. enforceable against STAR and Acquisition Corp. in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer or conveyance or
similar Laws relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability.
4.5 NO CONFLICT OR VIOLATION. Neither the execution and delivery of
this Agreement, nor STAR's or Acquisition Corp.'s consummation of the
transactions contemplated hereby, will result in: (i) a violation of, or a
conflict with, STAR's or Acquisition Corp.'s charter documents, or any
subscription, stockholders' or similar types of agreements or understandings; or
(ii) a violation by STAR or Acquisition Corp. of any Law, order, judgment, writ,
injunction decree or award to which any of them is a party or by which any of
their assets are bound.
4.6 SEC DOCUMENTS. None of the documents and reports filed by STAR
with the Securities and Exchange Commission contain any untrue statement of
material fact or omit to state any material fact necessary to make the
information contained therein, in light of the circumstances under which they
were made, misleading as of the date of such document or report.
5. SHAREHOLDERS' AND LCCR'S OBLIGATIONS BEFORE CLOSING
LCCR and the Shareholders covenant that during the period from the date
of this Agreement to the Closing Date:
5.1 CONDUCT OF BUSINESS. Except as specifically contemplated by this
Agreement, LCCR will conduct the Business in the ordinary course of business and
consistent with past practice, and will use all reasonable effort to preserve
intact its advantageous business relationships, to keep available the service of
its employees and to maintain satisfactory relationships with its contractors,
distributors, customers and other persons sharing business relationships with
them. Without limiting the generality of the foregoing, LCCR will not, without
the prior written consent of STAR, take or undertake or incur or permit to exist
any of the acts, transactions, events or occurrences specified in Section 5.8,
below, unless such actions are specifically contemplated by this Agreement. LCCR
shall give STAR prompt written notice of any change in any of the information
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contained in the representations and warranties made in Article 3 referred to
herein which occurs prior to the Closing Date.
5.2 ACCESS TO INFORMATION. STAR and its counsel, accountants and other
Representatives shall have full access during normal business hours to all
properties, Books and Records, Contracts, Permits and other documents of or
relating to LCCR and the Business so that STAR may have full opportunity to make
such investigation as it shall desire to make of the affairs of LCCR relating to
the Business. LCCR shall furnish or cause to be furnished to STAR and its
Representatives all data and information concerning the Business, finances and
properties that may reasonably be requested. LCCR shall remain fully liable and
responsible for all of LCCR's representations, warranties, covenants, agreements
and conditions in this Agreement, notwithstanding any such investigation
performed or information received by STAR.
5.3 CONFIDENTIALITY. Each of the Shareholders and LCCR will hold, and
will cause each of LCCR's employees, officers, directors and other
Representatives to hold, in strict confidence, and to not use to the detriment
of STAR or Acquisition Corp., any information or data concerning STAR or
Acquisition Corp. furnished to them in connection with the transaction
contemplated by this Agreement, except for information or data generally known
to the public; and if the transaction contemplated by this Agreement is not
consummated, such confidence shall be maintained and the Shareholders and LCCR
will return to STAR all such information and data as STAR may request.
5.4 NO SOLICITATION. Neither the Shareholders nor LCCR will, directly
or indirectly, through any officer, director, partner, agent or otherwise,
solicit, initiate or encourage submission of proposals or offers from any person
relating to any acquisition or purchase of any equity interest in, or all or a
substantial portion of the assets of, LCCR or any business combination with
LCCR, or participate in any negotiations regarding or furnish to any other
person any information with respect to, or otherwise cooperate in any way with,
or assist or participate in, facilitate or encourage, any effort or attempt by
any other person to do or seek any of the foregoing.
5.5 CONSENTS; REGULATORY APPROVALS; REASONABLE EFFORTS. Each of the
Shareholders and LCCR agree to utilize their respective best efforts and to
cooperate with STAR in every way as may be necessary, reasonable or advisable to
consummate and make effective the transactions contemplated by this Agreement
and each Shareholder and LCCR, as the case may be, will use his or its best
efforts to assist STAR in obtaining the Regulatory Approvals, all waivers,
Permits, consents, other approvals, authorizations and clearances and to effect
all registrations, filings and notices with or to third parties or governmental,
regulatory or public bodies or authorities which are in the opinion of STAR
necessary or desirable in connection with the transactions contemplated by this
Agreement. Until such time as the Regulatory Approvals have been obtained, there
shall be no change in the ownership or management of LCCR and no transfer of
control whatsoever over LCCR's certificates of public convenience and necessity
and daily operations. Pending receipt of the Regulatory Approvals, LCCR, its
current shareholders, officers, directors and employees shall remain directly
and solely responsible for the
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operation of LCCR's telecommunications services and for compliance with all
applicable provisions of federal telecommunications law, state public service
commission laws and all applicable regulations and policies thereunder. Further,
pending receipt of the Regulatory Approvals, LCCR, its current shareholders,
officers, directors and employees shall manage and operate LCCR's
telecommunications services in a manner that is fully consistent with the terms
and conditions of LCCR's certificates of public convenience and necessity, the
public interest and the best interest of LCCR's shareholders.
5.6 FULFILLMENT OF CONDITIONS AND COVENANTS. Neither the Shareholders
nor LCCR shall take any course of action inconsistent with satisfaction of the
requirements or conditions applicable to the Shareholders and LCCR set forth in
this Agreement. The Shareholders and LCCR shall each promptly do all acts and
take all measures as may be appropriate to enable them to perform as early as
possible the obligations herein provided to be performed by them.
5.7 COMPLIANCE WITH OTHER INSTRUMENTS. LCCR will not take any action
which would be in violation of any term of its Articles of Incorporation or
Bylaws, or in any material respect of any term or provision of any mortgage,
indebtedness, indenture, contract, agreement, instrument, order, writ,
injunction, judgment or decree. LCCR will not take any action which would be in
violation of any material order, statute, rule or regulation applicable to LCCR,
its officers, directors and shareholders. LCCR will take all action necessary to
obtain and to maintain in force all licenses, Permits and certificates from
governmental agencies necessary for the conduct of its business as now
conducted.
5.8 CONDUCT PRIOR TO CLOSING. Other than as set forth in the
Disclosure Schedule or expressly approved in writing by STAR, LCCR shall conduct
its business in the ordinary course and shall not take any action which would
cause any of the following:
5.8.1 An increase in the salary or other compensation payable
or to become payable by LCCR to any of its officers, directors or independent
contractors; the declaration, payment, or commitment or obligation of any kind
for the payment, by LCCR, of a bonus or other additional salary or compensation
to any such person; the repayment by LCCR of any loan from such person; or the
payment by LCCR of any accrued but unpaid salaries, dividends, distributions or
any other payments, whether in cash or property, to any such person;
5.8.2 Other than in the ordinary course of business consistent
with past practice, any amendment or termination of any Contract, Permit or
other agreement related to LCCR's assets or the Business, or by which LCCR or
any of its assets or properties used or useable in connection with the Business
are subject;
5.8.3 Any cancellation of indebtedness or waiver or release of
any material right or claim of LCCR related in any way to the Business other
than invoices from LCCR's customers;
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5.8.4 Any declaration of or agreement to declare or make, any
payment or distribution of any assets used or useable in connection with the
Business of any kind whatsoever;
5.8.5 Any sales, transfers, disposal of or agreements to sell,
transfer or otherwise dispose of any of the assets, properties or rights of LCCR
related to the Business that, in the aggregate, exceed $50,000;
5.8.6 Any making of any loan by LCCR to any person or entity;
5.8.7 Any creation or assumption of any Encumbrance on any
asset of LCCR that, in the aggregate, exceed $50,000;
5.8.8 Any failure to pay or satisfy when due any obligation of
LCCR except where such failure would not constitute a Material Adverse Change;
5.8.9 Any disposition or lapsing of any Intellectual Property
or any disclosure to any person (other than persons subject to confidentiality
agreements) of any Intellectual Property not theretofore a matter of public
knowledge;
5.8.10 The issuance of any shares of capital stock or any
options, warrants, convertible securities or other rights to acquire capital
stock without STAR's consent; or
5.8.11 The decrease of LCCR net working capital (net assets
minus current liabilities) below $1.8 million.
5.9 COMPLIANCE WITH LAWS. From and after the date of this Agreement
until the Closing Date, LCCR shall comply with all existing Laws applicable to
the Business, as presently conducted, including, without limitation, (i) all
Environmental Laws, and (ii) all provision of Law relating to labor relations,
equal employment practices, fair employment practices, entitlement, prohibited
discrimination, terms and conditions of employment, wages and hours, or other
similar employment practices or acts.
5.10 MATERIAL CONTRACT. LCCR shall not enter into any material
contract, agreement or commitment other than in the ordinary course of business
without the written consent of STAR.
6. STAR'S AND ACQUISITION CORP.'S OBLIGATIONS BEFORE CLOSING
STAR and Acquisition Corp. covenant that during the period from the date
of this Agreement to the Closing Date:
6.1 CONFIDENTIALITY. STAR and Acquisition Corp. will hold, and will
cause each of their affiliates, employees, officers, directors and other
Representatives to hold, in strict confidence, and to not use to the detriment
of the Shareholders or LCCR, any information or data concerning the Shareholders
or LCCR furnished to them in connection with the
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transaction contemplated by this Agreement, except for information or data
generally known or available to the public; and if the transaction contemplated
by this Agreement is not consummated, such confidence shall be maintained and
STAR will return to the Shareholders and LCCR all such information and data as
the Shareholders and LCCR may request.
6.2 FULFILLMENT OF CONDITIONS AND COVENANTS. STAR and Acquisition
Corp. shall not take any course of action inconsistent with the satisfaction of
the requirements or conditions applicable to it set forth in this Agreement.
STAR and Acquisition Corp. shall promptly do all acts and take all measures as
may be appropriate to enable them to perform as early as possible the
obligations herein provided to be performed by them.
6.3 CONSENTS; REGULATORY APPROVALS; REASONABLE EFFORTS. STAR agrees to
utilize reasonable efforts to take, as promptly as possible, or cause to be
taken, all action and do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by this
Agreement and will use its reasonable efforts to assist LCCR in obtaining the
Regulatory Approvals, all waivers, Permits, consents, other approvals,
authorizations and clearances and to effect all registrations, filings and
notices with or to third parties or governmental, regulatory or public bodies or
authorities which are necessary in connection with the transactions contemplated
by this Agreement.
6.4 SEC DOCUMENTS. Upon request, STAR shall make available to LCCR its
filings with the Securities and Exchange Commission.
6.5 CONSENTS; REGULATORY APPROVALS; REASONABLE EFFORTS. STAR agrees to
use its best efforts to take, as promptly as possible, or cause to be taken, all
action and do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective the transactions contemplated by this Agreement,
and STAR specifically agrees to use its best efforts to obtain the Regulatory
Approvals, all waivers, permits, consents, other approvals, authorizations and
clearances and to effect all registrations, filings and notices with or to third
parties or governmental, regulatory or public bodies or authorities which are in
the opinion of STAR necessary or desirable in connection with the transactions
contemplated by this Agreement. Until such time as the Regulatory Approvals have
been obtained, there shall be no change in the ownership or management of LCCR
and no transfer of control whatsoever over LCCR's certificates of public
convenience and necessity and daily operations. Pending receipt of the
Regulatory Approvals, LCCR, its current shareholders, officers, directors and
employees shall remain directly and solely responsible for the operation of
LCCR's telecommunications services and for compliance with all applicable
provisions of federal telecommunications law, state public service commission
laws and all applicable regulations and policies thereunder. Further, pending
receipt of the Regulatory Approvals, LCCR, its current shareholders, officers,
directors and employees shall manage and operate LCCR's telecommunications
services in a manner that is fully consistent with the terms and conditions of
LCCR's certificates of public convenience and necessity, the public interest and
the best interest of LCCR's shareholders.
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7. CONDITIONS TO OBLIGATIONS OF STAR AND ACQUISITION CORP.
The obligations of STAR and Acquisition Corp. to perform their
obligations under this Agreement are subject to the satisfaction, on or before
to the Closing Date, of each of the following conditions, unless waived in
writing by STAR:
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of the Shareholders and LCCR contained in this Agreement or in
any document delivered pursuant hereto shall be true and correct in all material
respects when made and on and as of the Closing Date as though made on and as of
the Closing Date.
7.2 SHAREHOLDERS' AND LCCR'S PERFORMANCE OF COVENANTS. All covenants,
agreements and obligations required by the terms of this Agreement to be
performed, satisfied or complied with by the Shareholders or LCCR at or before
the Closing Date shall have been duly and properly performed in all material
respects.
7.3 SHAREHOLDERS' AND LCCR'S OFFICER'S CERTIFICATE. STAR shall have
received a certificate, dated the Closing Date, signed and verified by each of
the Shareholders and the President of LCCR, and certifying that the conditions
specified in Sections 7.1 and 7.2, above, have been fulfilled.
7.4 OPINION OF COUNSEL. STAR shall have received from Steven Hayes,
legal counsel for the Shareholders and LCCR, an opinion, dated the Closing Date,
in a form reasonably satisfactory to STAR.
7.5 CONSENTS AND REGULATORY APPROVALS. The Regulatory Approvals, all
licenses, Permits, authorizations, consents and approvals of and filings with
any governmental or regulatory agency required to be obtained or made in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly obtained or made by or on behalf of the
Shareholders or LCCR. All consents of other third-parties required to have been
obtained in connection with the consummation of such transactions shall have
been obtained by or on behalf of the Shareholders or LCCR.
7.6 WAIVER AND CONSENT. STAR shall have obtained the Waiver and
Consent executed by each Non-Control Shareholder.
7.7 CERTIFICATE OF MERGER. STAR shall have received confirmation that
the Certificate of Merger was executed by LCCR and is ready for filing with the
Secretary of State of the State of California.
7.8 EMPLOYMENT OF KEY EMPLOYEES. Richard A. Bishop (a "Key Employee")
shall be employed by LCCR and shall execute an employment agreement in the form
attached as Exhibit C.
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7.9 REGISTRATION RIGHTS AGREEMENT. STAR shall have obtained a fully
executed counterpart to a registration rights agreement from each of the
Shareholders in the form of Exhibit D, attached hereto (the "Registration Rights
Agreement").
7.10 NET CURRENT ASSETS. LCCR's net current assets (current assets
minus current liabilities), as calculated under Section 2.7 of this Agreement,
shall be at least $1.8 million.
7.11 ACCOUNTING TREATMENT. STAR shall have received assurances
satisfactory to STAR that the Merger and related transactions shall be treated
as a "pooling of interests" for financial accounting purposes.
7.12 LCCR BILLINGS. STAR shall have received evidence satisfactory to
STAR that LCCR has total billings of at least $1.8 million as of the end of the
calendar month immediately preceding the Closing Date.
7.13 DISTRIBUTIONS TO SHAREHOLDERS. LCCR shall have made no
distributions to its shareholders in excess of accrued profits.
7.14 DUE DILIGENCE REVIEW. STAR shall have approved to STAR's
satisfaction STAR's due diligence review of LCCR and its business.
8. CONDITIONS TO OBLIGATIONS OF SHAREHOLDERS AND LCCR
The obligations of the Shareholders and LCCR to perform their respective
obligations under this Agreement are subject to the satisfaction, on or before
to the Closing Date, of each of the following conditions, unless waived in
writing by the Shareholders or LCCR:
8.1 ACCURACY OR REPRESENTATIONS AND WARRANTIES. All representations
and warranties of STAR and Acquisition Corp. contained in this Agreement shall
be true and correct in all material respects when made and on and as of the
Closing Date as though made on and as of the Closing Date.
8.2 PERFORMANCE OF COVENANTS. All covenants, agreements and
obligations required by the terms of this Agreement to be performed, satisfied
or complied with by STAR and Acquisition Corp. at or before the Closing Date
shall have been duly and properly performed in all material respects.
8.3 OFFICER'S CERTIFICATE. The Shareholders shall have received a
certificate, dated the Closing Date, signed and verified by the President of
STAR and Acquisition Corp., certifying that the conditions specified in Sections
8.1 and 8.2, above, have been fulfilled.
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8.4 CONSENTS AND REGULATORY APPROVALS. The Regulatory Approvals, all
licenses, Permits, authorizations, consents and other approvals of and filing
with any governmental or regulatory agency required to be obtained or made in
connection with the consummation of the transactions contemplated by this
Agreement shall have been duly obtained or made by or on behalf of STAR or
Acquisition Corp. All consents of other third-parties required to have been
applied for or obtained in connection with the consummation of such transactions
shall have been obtained by or on behalf of STAR or Acquisition Corp.
8.5 CERTIFICATE OF MERGER. LCCR shall have received confirmation that
the Certificate of Merger was executed by Acquisition Corp. and is ready for
filing with the Secretary of State of the State of California.
8.6 REGISTRATION RIGHTS AGREEMENT. The Shareholders shall have
obtained a fully executed counterpart to the Registration Rights Agreement from
STAR.
9. THE CLOSING
9.1 THE CLOSING. On the terms and subject to the satisfaction of the
conditions contained in this Agreement, the closing of the sale and purchase of
the LCCR Stock (the "Closing") shall take place on November 30, 1997, in the
offices of Seed, Mackall & Cole LLP, 1332 Anacapa Street, Suite 200, Santa
Barbara, California commencing at 5:00 p.m. or at such other place, time and
date as may be mutually agreed to by the parties. The date and time at which the
Closing actually occurs is herein referred to as the "Closing Date."
9.2 DELIVERIES BY SHAREHOLDERS. At the Closing, the Shareholders shall
deliver the following:
9.2.1 Certificates representing all of the outstanding shares
of LCCR's capital stock other than these shares held by the Non-Control
Shareholders, and Certificates representing the Wholly-Owned Affiliates Stock
and the Newlink Stock;
9.2.2 The certificates contemplated by Section 7.3, above;
9.2.3 The legal opinion contemplated by Section , above;
9.2.4 Evidence of having obtained consents required to be
obtained by the Shareholders pursuant to Section , above;
9.2.5 The Employment Agreement referred to in Section , above;
9.2.6 The Registration Rights Agreement referred to in Section
above; and
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9.2.7 All other agreements, documents, instruments and writings
required to be delivered by the Shareholders at the Closing pursuant to this
Agreement.
9.3 DELIVERIES BY LCCR. At the Closing, LCCR shall deliver the
following:
9.3.1 Certificates representing all of the outstanding shares
of LCCR's capital stock held by the Non-Control Shareholders;
9.3.2 A stock certificate representing the number of shares of
common stock, no par value of LCCR issued in the name of STAR, required to
consummate the Merger;
9.3.3 Confirmation that the Certificate of Merger has been
executed and is ready to be filed with the Secretary of State of the State of
California;
9.3.4 The certificates contemplated by Section 7.3, above;
9.3.5 Evidence of having obtained consents required to be
obtained by LCCR pursuant to Section , above;
9.3.6 The Waiver and Consent referred to in Section above; and
9.3.7 All other agreements, documents, instruments and writings
required to be delivered by LCCR at the Closing pursuant to this Agreement.
9.4 DELIVERIES BY STAR AND ACQUISITION CORP. At the Closing, STAR and
Acquisition Corp. shall deliver the following:
9.4.1 Stock certificates representing the number of shares of
STAR Common Stock required to be delivered pursuant to Section 2.5, above, less
the number of Escrowed Shares delivered to the Escrow Agent.
9.4.2 The officer's certificate contemplated by Section 8.3,
above;
9.4.3 The Registration Rights Agreement completed by Section
above; and
9.4.4 All other agreements, documents, instruments and writings
required to be delivered by STAR and Acquisition Corp. at the Closing pursuant
to this Agreement.
10. POST CLOSING
10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Regardless of any
investigation at any time made by or on behalf of any party, or of any
information any party may have in respect thereof, all representations and
warranties made hereunder or pursuant hereto or in connection with the
transactions contemplated hereby shall survive
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the Closing for a period of either: (1) the date of the first audit report by
the Auditors of financial statements containing combined operations for those
items expected to be encountered in the audit process, or (2) one year for other
items; except all representations and warranties with respect to tax matters
shall survive until later of (i) the date upon which the liability to which any
claim based upon, arising out of or otherwise in respect of any inaccuracy in or
any breach of any such representation or warranty ("Tax Claim") may relate is
barred by all applicable statutes of limitation and (ii) the date upon which any
claim for refund or credit related to such Tax Claim is barred by all applicable
statutes of limitations.
10.2 INDEMNIFICATION BY THE PARTIES.
10.2.1 Subject to the limitations set forth in Section 10.1 and
Section 10.2.4, each of the Shareholders severally, with, responsibility
proportionate to such Shareholder's percentage interest in the common stock, no
par value of LCCR relative to that held by all the Shareholders in the aggregate
immediately prior to the Closing Date and with, in the case of subparagraphs
10.2.1.A and 10.2.1.C below, 100% of responsibility, (and, if this Agreement is
terminated prior to the Closing Date, LCCR) shall indemnify, defend and hold
harmless STAR and any of its affiliates and Representatives, and shall reimburse
STAR and any of its affiliates and Representatives, on demand, for any claim,
demand, loss, liability, damage or expense (including without limitation, any
claim for breach of contract or for tort which would be allowable under
applicable law if this indemnity provision was not a provision of this
Agreement), including without limitation interest, penalties and reasonable
attorneys', accountants' and experts' fees and costs of investigation incurred
as a result thereof (collectively "Damages"), resulting from any of the
following:
A. Any breach or default in the performance by such
Shareholder of any covenant or agreement of such Shareholder contained herein;
B. Any breach or default in the performance by LCCR
of any covenant or agreement of LCCR to be performed on or prior to the Closing;
C. Any breach of warranty or inaccurate or erroneous
representation made by such Shareholder herein, or pursuant to any certificate
delivered or to be delivered by or on behalf of the Shareholders or LCCR
pursuant hereto to the extent that such representation relates to such
Shareholder individually (including, without limitation, the representations of
each Shareholder contained in Sections 3.3, 3.4, 3.5, 3.7, 3.8, 3.19, 3.20,
3.26, 3.29, 3.30, 3.31, 3.32, 3.33 and 3.34);
D. Any breach of warranty or inaccurate or erroneous
representation made by the Shareholders jointly and severally or LCCR herein, or
pursuant to any certificate delivered or to be delivered by or on behalf of the
Shareholders or LCCR pursuant hereto; or
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E. Any liability arising out of any and all Actions,
demands, judgments, costs and expenses incident to any of the foregoing.
10.2.2 STAR shall indemnify, defend and hold harmless the
Shareholders and any of their affiliates and shall reimburse the Shareholders
and any of their affiliates on demand, for any Damages resulting from (i) any
breach or default in the performance by STAR or Acquisition Corp. of any
covenant or agreement of STAR or Acquisition Corp. contained herein or (ii) any
breach of warranty or inaccurate or erroneous representation made by STAR or
Acquisition Corp. herein, or pursuant to any certificate delivered or to be
delivered by or on behalf of STAR or Acquisition Corp. pursuant hereto.
10.2.3 A party entitled to indemnification hereunder
("Indemnitee") shall promptly notify the other party ("Indemnitor") of any such
liability, breach of warranty, inaccuracy, misrepresentation or any other claim
arising under the foregoing indemnification provision. Indemnitor may contest
and defend in good faith any claim of third parties covered by this Section at
its or their own expense; provided that within thirty days of the Indemnitor's
receipt of notice of such claim, Indemnitor notify Indemnitee of Indemnitor's
desire to defend and contest such claim.
10.2.4 Notwithstanding the foregoing, in the absence of fraud
or willful misconduct, the Shareholders shall have no obligation to indemnify,
defend, hold harmless or reimburse STAR or any of its affiliates or
Representatives with respect to the matters described in Sections 10.2.1.A or
10.2.1.D (or matters described in Section 10.2.1.E that are incident to matters
described in Sections 10.2.1.B or 10.2.1.D), unless and until the aggregate
amount of all Damages with respect to all such matters exceeds $100,000 (the
"Basket"), in which event, such persons or entities shall be entitled to
indemnification for all amounts in excess of the Basket.
10.3 FURTHER ASSURANCES. The Shareholders, at any time on or after the
Closing, will execute, acknowledge and deliver any further assignments and other
assurances, documents and instruments of transfer, reasonably requested by STAR,
and will take any other action that may be requested by STAR, for the purpose of
assigning, transferring, granting, conveying and confirming to STAR, or reducing
to possession, any or all of the LCCR Stock to be conveyed and transferred by
this Agreement.
10.4 EXPENSES. Each of the parties shall pay all costs and expenses
incurred by it or on its behalf in connection with this Agreement and the
transactions contemplated hereby, including, without limiting the generality of
the foregoing, fees and expenses of its own financial consultants, accountants
and counsel.
10.5 RESALE OF STAR COMMON STOCK. Each of the Shareholders shall
comply with any applicable federal and state securities laws and any required
holding periods thereunder in connection with subsequent sales by each of the
Shareholders of the STAR Common Stock acquired hereunder. All of the parties
agree that neither STAR nor LCCR, nor any affiliate of either, may sell any of
their shares of STAR Common Stock within the period beginning thirty (30) days
prior to the Closing and ending when financial results,
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including at least thirty (30) days of post-merger combined operations, have
been published by STAR. Publication may, without limitation, include a Form 10-Q
or 8-K filing, the issuance of a quarterly or monthly earnings report, or any
other public issuance that includes combined sales and net income for thirty
(30) days of post-merger operations.
11. COVENANT NOT TO COMPETE
11.1 NON-COMPETE COVENANT.
11.1.1 During the Applicable Period (as defined below) each
Shareholder will not, without the prior written consent of STAR, directly or
indirectly, in the Territory (as defined below), Compete (as defined below) with
the Business or own any equity interest in, or be a stockholder, partner, owner,
officer, director or employee or agent of, or give financial assistance to, any
person or entity engaged in any business that Competes with the Business;
provided, however, that nothing herein shall prevent any Shareholder from
owning, directly or indirectly, as a passive investor, in the aggregate not more
than 1% of the outstanding publicly traded stock of any corporation engaged in
such competition, or from being employed by, or owning an equity interest in,
STAR.
11.1.2 For purposes of this Article 11, the term "Applicable
Period" shall mean, in the case of a Shareholder, the period beginning on the
Closing Date and ending on the date five years following the Closing Date.
11.1.3 For purposes of this Article 11, the term "Territory"
shall mean Alabama, Arizona, California, Colorado, Delaware, Florida, Georgia,
Idaho, Illinois, Indiana (all counties), Iowa, Kansas, Kentucky, Louisiana,
Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana,
New Jersey, New York, North Carolina, North Dakota, Ohio, Oregon, Pennsylvania,
South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West
Virginia and Wisconsin. The parties acknowledge that LCCR has conducted the
business in all such locations prior to the Closing Date.
11.2 DEFINITION OF COMPETE. For purposes of this Article 11, the term
"Competes" shall mean (i) calling on, soliciting or taking away, as a client or
customer, any individual, partnership, corporation or association that is a
client or customer of LCCR or was a client or customer of LCCR during the 12
calendar month period immediately preceding any such act for the purpose of
competing with LCCR or STAR; (ii) hiring, soliciting, taking away or attempting
to hire, solicit or take away any employee of LCCR or STAR either on behalf of
itself or any other person or entity; or (iii) hiring, soliciting, taking away
or attempting to hire, solicit or take away any independent sales representative
that is engaged in the solicitation of customers on LCCR's behalf or was engaged
in the solicitation of customers on LCCR's behalf during the 12 calendar month
period immediately preceding any such act for the purpose of competing with LCCR
or STAR.
11.3 DIRECT OR INDIRECT COMPETITION. For purposes of this Agreement,
the words "directly or indirectly" as they modify the word "Competes" shall mean
(i) acting as an
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agent, representative, consultant, officer, director, independent contractor or
employee of any entity or enterprise, which Competes (as defined in Section
11.2, above) with the Business; (ii) participating in any such competing entity
or enterprise, or the affiliate of such entity or enterprise, as a holder of an
equity interest or as an owner, partner, limited partner, joint venturer,
creditor or stockholder; or (iii) communicating to any such competing entity or
enterprise the names or addresses or any other information concerning any past,
present or identified prospective client or customer of LCCR.
11.4 CONFIDENTIAL DATA. The Shareholders agree that, during the period
set forth in Section 11.1, above, each of them will keep confidential and not
directly or indirectly divulge, furnish, make accessible to anyone, or
appropriate for their own use any confidential information of LCCR, and that at
no time will either of them divulge, furnish and make accessible to anyone or
appropriate for their own use any trade secrets of LCCR. Each of the
Shareholders and LCCR further acknowledge and agree that STAR has a legitimate
interest in protecting proprietary customer information from misappropriation or
diversion by the Shareholders or any competitor. The Shareholders hereby
acknowledge and agree that the prohibitions against disclosure of confidential
data recited herein are in addition to, and not in lieu of, any rights or
remedies which STAR may have available pursuant to the Laws of any jurisdiction
or at common law to prevent the disclosure of trade secrets and other
confidential proprietary data, and the enforcement by STAR of its rights and
remedies pursuant to this Agreement shall not be construed as a waiver of any
other rights or available remedies which it may possess in Law or equity absent
this Agreement.
11.5 REASONABLENESS OF RESTRICTIONS. The Shareholders recognize that
the territorial and time limitations set forth in Section 11.1, above, are
reasonable, not burdensome and are properly required by Law for the adequate
protection of STAR, and in the event that such territorial or time limitations
are deemed to be unreasonable by a court of competent jurisdiction, then the
Shareholders and STAR agree and submit to the reduction of either said
territorial or time limitation, or both, to such an area or period as said court
shall deem reasonable.
11.6 INJUNCTIVE RELIEF. The Shareholders acknowledge that their
expertise in the Business is of a special, unique, unusual, extraordinary and
intellectual character, which gives said expertise a peculiar value, and that a
breach by either or all of them of the provisions of this Agreement cannot be
reasonably or adequately compensated in damages in an action at Law and that
such breach will cause STAR and LCCR irreparable injury and damage. The
Shareholders further acknowledge that each of them possesses unique skills,
knowledge and ability that competition in violation of this Agreement would be
extremely detrimental to STAR and LCCR. By reason thereof, the Shareholders
agree that STAR and LCCR shall be entitled, in addition to any other remedies
each of them may have under this Agreement or otherwise, to temporary,
preliminary and/or permanent injunctive and other equitable relief to prevent or
curtail any breach of this Agreement, without proof of actual damages that have
been or may be caused to STAR or LCCR by such breach or threatened breach;
provided, however, that no specification in this Agreement of a specific legal
or equitable remedy shall be construed as a waiver or
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prohibition against the pursuing of other legal or equitable remedies in the
event of a breach, by either party.
12. TERMINATION
12.1 TERMINATION. This Agreement may be terminated prior to the
Closing as follows:
12.1.1 at the election of STAR if any one or more of the
conditions to the obligation of STAR to close has not been fulfilled as of the
scheduled Closing Date, despite STAR's compliance with its obligations under
Section 6.2;
12.1.2 at the election of LCCR, if any one or more of the
conditions to the obligation of LCCR to close has not been fulfilled as of the
scheduled Closing Date, despite LCCR's and the Shareholders' compliance with
their obligations under Section 5.6;
12.1.3 at the election of STAR, if STAR is in compliance with
Section 6.2 and LCCR or any of the Shareholders has breached any material
representation, warranty, covenant or agreement contained in this Agreement,
which breach cannot be or is not cured by the Closing Date;
12.1.4 at the election of LCCR, if LCCR and the Shareholders
are in compliance with Section 5.6 and STAR has breached any material
representation, warranty, covenant or agreement contained in this Agreement,
which breach cannot be or is not cured by the Closing Date; or
12.1.5 at any time on or prior to the Closing Date, by mutual
written consent of STAR and LCCR.
12.2 SURVIVAL AFTER TERMINATION. If this Agreement is terminated in
accordance with Section 12.1 and the transactions contemplated hereby are not
consummated, this Agreement shall become void and of no further force and effect
(except for the obligations under Sections 5.3, 6.1 and 10.2); provided,
however, that none of the parties shall have any liability in respect of a
termination of this Agreement.
13. GENERAL PROVISIONS
13.1 ENTIRE AGREEMENT. This Agreement, together with the Ancillary
Agreements, the Certificate of Merger and the Disclosure Schedule, set forth the
entire agreement between the parties with regard to the subject matter of this
Agreement.
13.2 GOVERNING LAW. The validity, construction and performance of this
Agreement, and any Action arising out of or relating to this Agreement or any of
the Ancillary Agreements, shall be governed by the Laws, without regard to the
Laws as to choice or conflict of Laws, of the State of California.
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13.3 INTERPRETATION. The language in all parts of this Agreement and
each of the other Ancillary Agreements shall be in all cases construed simply
according to its fair meaning and not strictly for or against any party.
Whenever the context requires, all words used in the singular will be construed
to have been used in the plural, and vice versa. The captions of the Sections
and Subsections of this Agreement are for convenience only and shall not affect
the construction or interpretation of any of the provisions of this Agreement.
13.4 WAIVER AND AMENDMENT. This Agreement may be amended,
supplemented, modified and/or rescinded only through an express written
instrument signed by all parties or their respective successors and permitted
assigns. Any party may specifically and expressly waive in writing any portion
of this Agreement or any breach hereof, but only to the extent such provision is
for the benefit of the waiving party, and no such waiver shall constitute a
further or continuing waiver of any preceding or succeeding breach of the same
or any other provision. The consent by one party to any act for which such
consent was required shall not be deemed to imply consent or waiver of the
necessity of obtaining such consent for the same or similar acts in the future,
and no forbearance by a party to seek a remedy for noncompliance or breach by
another party shall be construed as a waiver of any right or remedy with respect
to such noncompliance or breach.
13.5 ASSIGNMENT. Except as specifically provided otherwise in this
Agreement, neither this Agreement nor any interest herein shall be assignable
(voluntarily, involuntarily, by judicial process, operation of Law or
otherwise), in whole or in part, by either party without first obtaining the
prior written consent of the non-assigning party. Notwithstanding the foregoing,
this Agreement and any Ancillary Agreement may be assigned without prior notice
or consent to any STAR Affiliate or any entity which merges with or into STAR or
acquires substantially all of the assets of STAR. Any voluntary attempt at such
an assignment, except pursuant to this Section shall be void and, at the option
of the non-assigning party, shall be an incurable breach of this Agreement
resulting in the termination of this Agreement.
13.6 SUCCESSORS AND ASSIGNS. Each of the terms, provisions and
obligations of this Agreement shall be binding upon, shall inure to the benefit
of, and shall be enforceable by the parties and their respective legal
representatives, successors and permitted assigns.
13.7 NOTICES. All notices, requests, demands and other communications
made under this Agreement shall be in writing, correctly addressed to the
recipient at the addresses set forth under such recipient's signature on the
signature page hereto and shall be deemed to have been duly given; (i) upon
delivery, if served personally on the party to whom notice is to be given; or
(ii) on the date or receipt, refusal or non-delivery indicated on the receipt if
mailed to the party to whom notice is to be given by first class mail,
registered or certified, postage prepaid, or by air courier. Any party may give
written notice of a change of address in accordance with the provisions of this
Section and after such notice of change has been received, any subsequent notice
shall be given to such party in the manner described at such new address.
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<PAGE> 34
13.8 SEVERABILITY. Each provision of this Agreement is intended to be
severable. Should any provision of this Agreement or the application thereof be
judicially declared to be or becomes illegal, invalid, unenforceable or void,
the remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such illegal, void or unenforceable provision
of this Agreement with a valid and enforceable provision that will achieve, to
the extent possible, the economic, business and other purposes of such illegal,
void or unenforceable provision.
13.9 WARRANTY OF AUTHORITY. Each of the individuals signing this
Agreement on behalf of a party hereto warrants and represents that such
individual is duly authorized and empowered to enter into this Agreement and
bind such party hereto.
13.10 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 a single agreement.
13.11 ATTORNEY'S FEES. Should any action or proceeding be brought to
construe or enforce the terms and conditions of this Agreement or the rights of
the parties hereunder, the losing party shall pay to the prevailing party all
court costs and reasonable attorneys' fees and costs (at the prevailing party's
attorneys then-current rates) incurred in such action or proceeding. A party
that voluntarily dismisses an action or proceeding shall be considered a losing
party for purposes of this provision. Attorneys fees incurred in enforcing any
judgment in respect of this Agreement are recoverable as a separate item. The
preceding sentence is intended to be severable from the other provisions of this
Agreement and to survive any judgment and, to the maximum extent permitted by
law, shall not be deemed merged into any such judgment.
13.12 TIME. Time is of the essence in the performance of and
compliance with each of the provisions and conditions of this Agreement.
13.13 JURY TRIAL WAIVER. TO THE FULLEST EXTENT PERMITTED BY LAW, AND
AS SEPARATELY BARGAINED-FOR CONSIDERATION, EACH PARTY HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING, OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as
of the date first set forth above.
(Signatures on following pages)
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<PAGE> 35
"STAR"
STAR Telecommunications, Inc., a Delaware corporation
By /s/ MARY CASEY
---------------------------------------------
Mary Casey, President
ADDRESS: 223 East De La Guerra
Santa Barbara, California 93101
"ACQUISITION CORP."
Big Dave's Acquisition Corp., a California corporation
By /s/ MARY CASEY
---------------------------------------------
Mary Casey, President
ADDRESS: 223 East De La Guerra
Santa Barbara, California 93101
"LCCR"
LCCR, Inc., a California corporation
By /s/ RICHARD BISHOP
---------------------------------------------
Richard Bishop, CEO
ADDRESS: 13230 East Firestone Blvd, Suite D-2
Santa Fe Springs, California
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<PAGE> 36
"SHAREHOLDERS"
/s/ RICHARD A. BISHOP
- ---------------------------------------------
Richard A. Bishop, individually and in his
capacity as Trustee of the Richard Allen
Bishop & Teresa Anne Bishop 1996
Revocable Trust
ADDRESS: 575 S. Covered Wagon Trail
Anaheim, California 92807
/s/ JUDITH BOLGER
- ---------------------------------------------
Judith Bolger
ADDRESS: 10838 Betty Lou Lane
Tujunga, California 91042
/s/ ELIZABETH CURRIER
- ----------------------------------------------
Elizabeth Currier, individually and in her
capacity as Trustee of the Currier Family Trust
ADDRESS: 5311 Ocean View Boulevard
La Canada, California 91011
/s/ DON CURRIER
- ---------------------------------------------
Don Currier
ADDRESS: 5311 Ocean View Boulevard
La Canada, California 91011
/s/ THOMAS GUY ELTRINGHAM
- ---------------------------------------------
Thomas Guy Eltringham
ADDRESS: 10425 Glory Avenue
Tujunga, California 91042
/s/ JOHN BRENT MCDANIEL
- ---------------------------------------------
John Brent McDaniel, individually and in
his capacity as Trustee of the John Brent
McDaniel Revocable Trust
ADDRESS: 19232 Parker Circle
Villa Park, California 92861
/S/ DONNA J.S. ROBINSON
- ---------------------------------------------
Donna J.S. Robinson
ADDRESS: 904 Mayo Street
Los Angeles, California 90042
/s/ HAROLD B. ROBINSON
- ---------------------------------------------
Harold B. Robinson
ADDRESS: 904 Mayo Street
Los Angeles, California 90042
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<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
November 30, 1997, between STAR Telecommunications, Inc., a Delaware corporation
("STAR"); and each of the Shareholders listed on the signature page hereof:
Richard A. Bishop, individually and in his capacity as Trustee of the Richard
Allen Bishop & Teresa Anne Bishop 1996 Revocable Trust; Judith Bolger; Elizabeth
Currier, individually and in her capacity as Trustee of the Currier Family
Trust; Don Currier; Thomas Guy Eltringham; John Brent McDaniel, individually and
in his capacity as Trustee of the John Brent McDaniel Revocable Trust; Donna
J.S. Robinson; and Harold B. Robinson (collectively, the "Holders").
RECITALS:
A. Pursuant to the terms and conditions of that certain Amended
and Restated Stock Acquisition Agreement and Plan of Merger (the "Acquisition
Agreement") dated November 30, 1997 (the "Execution Date") by and among STAR
Telecommunications, Inc., a Delaware corporation ("STAR"), Big Dave's
Acquisition Corp., a California corporation ("Acquisition Corp."), L.D.
Services, Inc., a California corporation ("LD Services"), and the Holders, STAR
will issue and deliver to the Holders up to 500,000 shares (the "Shares") of
STAR's common stock ("Common Stock").
B. In connection with the transactions contemplated by the
Acquisition Agreement, STAR has agreed to grant to the Holders the registration
rights set forth herein with respect to the Shares.
AGREEMENTS:
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
and including post-effective amendments and all material incorporated by
reference in such Prospectus.
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in
Section 5.
"Registrable Securities" shall mean (i) the Shares, and (ii) any
securities issued or issuable with respect to such Shares by way of a stock
dividend, stock split, combination of shares, recapitalization, restructuring,
merger, consolidation or other reorganization of STAR, provided that such term
shall not include any such shares of Common Stock sold to the public by the
Holders pursuant to
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<PAGE> 2
a Registration Statement or to Rule 144 under the Securities Act or sold by the
Holders in a private transaction in which the Holders' rights hereunder were not
assigned and shall not include any shares that are eligible for resale to the
public (x) within any three (3)-month period under Rule 144(e) of the Securities
Act, or (y) without any volume restriction under Rule 144(k) of the Securities
Act.
"Registration Statement" shall mean any registration statement of
STAR in compliance with the Securities Act that covers Registrable Securities
pursuant to the provisions of this Agreement, including, without limitation, the
Prospectus, all amendments and supplements to such Registration Statement,
including all post-effective amendments, all exhibits and all material
incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall mean
a registration in which securities of STAR are sold to an underwriter or through
an underwriter as agent for reoffering to the public.
2. STAR REGISTRATION. If STAR shall determine to register any shares
of Common Stock for its own account or for the account of any stockholders
(other than a registration relating either to the sale of securities to
employees of STAR pursuant to a stock option, stock purchase or similar benefit
plan or to an SEC Rule 145 transaction), the Holders shall be entitled to
include Registrable Securities in such registration (and related underwritten
offering, if any) on the following terms and conditions:
(a) STAR shall promptly give written notice of such
determination to the Holders and the Holders shall have the right to request, by
written notice given to STAR within fifteen (15) days of the receipt by the
Holders of such notice, that a specific number of Registrable Securities be
included in such Registration Statement.
(b) If the Registration Statement relates to an underwritten
offering, the notice called for by Section 2(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of STAR and for the account of any of the other
stockholders of STAR.
(c) If the Registration Statement relates to an underwritten
offering, to be included therein, the Holders must sell their Registrable
Securities on the same basis provided in the underwriting arrangements approved
by STAR.
(d) If the managing underwriter for the underwritten offering
under the Registration Statement to be filed by STAR determines that inclusion
of all or any portion of the Registrable Securities in such offering would
adversely affect the ability of the underwriter for such offering to sell all of
the securities requested to be included for sale in such offering, the number of
shares that may be included in such registration in such offering shall be
allocated as follows: first, STAR shall be permitted to include all shares of
capital stock to be registered thereby and second, the Holders shall be allowed
to include such additional amount as the managing underwriter deems appropriate,
such amount to be allocated among the Holders and any other selling stockholders
on a pro rata basis based on the total number of shares of capital stock held
thereby. The foregoing sentence notwithstanding, if the underwritten offering is
being registered by STAR at the instance of another shareholders or shareholders
to whom STAR has granted the right to require that STAR undertake such
registration (hereinafter, "Demand Right Holders"), then the managing
underwriter of such offering may reduce the
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<PAGE> 3
number of the Holders' Registrable Securities included in such offering, or
exclude them entirely, without any reduction of the shares to be included in
such offering by any such Demand Right Holders.
(e) The Holders shall have the right to withdraw their
Registrable Securities from the Registration Statement at any time prior to the
effective date thereof, but if the same relates to an underwritten offering, it
may only do so during the time period and on terms deemed appropriate by the
underwriters for such underwritten offering.
(f) STAR shall have the right to terminate or withdraw any
registration initiated by it under this Section 2 prior to the effective date of
such registration, whether or not the Holders has elected to include such
securities in such registration.
(g) The respective Holders shall have the right to include his or
her Shares in a Registration Statement being filed by STAR as described in this
Agreement only twice during the term of this Agreement.
(h) The participation of the Holders in any of the registrations
described in this Section 2 may be disallowed by STAR in its sole discretion if
STAR in good faith determines that the granting of any such registration rights
would endanger pooling accounting treatment regarding the acquisition
transaction described under the Acquisition Agreement.
(i) For the Holders to participate in any registration described
in this Section 2, the Holders must aggregate a minimum of 50,000 of the Shares
respecting each Registration Statement.
(j) All registration rights expire within two years after the
date of this Agreement.
3. RESTRICTIONS ON PUBLIC SALE BY HOLDERS. If the Holders' Registrable
Securities are included (in whole or in part) in a Registration Statement filed
by STAR under Section 2 for sale in an underwritten offering, the Holders agree,
if requested by the managing underwriter of such offering, not to sell, make any
short sale of, loan, grant any option for the purchase of, dispose of or effect
any public sale or distribution of securities of the same series and class as
(or securities exchangeable or exercisable for or convertible into securities of
the same series and class as) the Registrable Securities included in the
Registration Statement, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration), during the
ten (10)-day period prior to, and during the one hundred eighty (180)-day period
(or shorter period requested by the underwriter) beginning on the closing date
of such underwritten offering, to the extent timely notified in writing by STAR
or the managing underwriter.
4. REGISTRATION PROCEDURES. In connection with STAR's registration
obligations pursuant to Section 2 hereof, subject to Sections 2(d) and 2(f),
STAR will use its best efforts to effect such registration to permit the sale of
the Registrable Securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto STAR will as
expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its best efforts to cause such
Registration Statement to become effective, and, upon the request of the
Holders, keep such registration statement effective for up to ninety (90) days,
provided that, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, STAR will furnish to the Holders of the
Registrable Securities covered by such Registration Statement, their counsel,
and the underwriters, if any, and their counsel, copies of all such documents
proposed to be filed at least ten (10) days prior thereto. STAR will not include
or name Holders in any Registration Statement or Prospectus without the consent
of the Holders, unless required
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<PAGE> 4
to do so by the Securities Act and the rules and regulations thereunder.
(b) prepare and file with the SEC such amendments,
post-effective amendments and supplements to the Registration Statement and the
Prospectus as may be necessary to comply with the provisions of the Securities
Act and the rules and regulations thereunder with respect to the disposition of
all securities covered by such Registration Statement.
(d) promptly notify the selling Holders (i) when the Prospectus
or any Prospectus supplement or post-effective amendment has been filed, and,
with respect to the Registration Statement or any post-effective amendment, when
the same has become effective, (ii) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (iv) of the receipt by STAR of any notification with respect
to the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (v) of the happening of any event which makes any statement made in
the Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading.
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(e) furnish to the selling Holders, without charge, at least
one signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference).
(f) deliver to each selling Holder, without charge, such
reasonable number of conformed copies of the Registration Statement (and any
post-effective amendment thereto) and such number of copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
(and any documents incorporated by reference therein) as such Holders may
reasonably request, all in full conformity with the Securities Act; STAR
consents to the use of the Prospectus or any amendment or supplement thereto by
the selling Holders in connection with the offer and sale of the Registrable
Securities covered by the Prospectus or any amendment or supplement thereto.
(g) prior to any offering of Registrable Securities covered by
a Registration Statement, register or qualify or cooperate with the selling
Holders in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as such selling Holders reasonably request, and use its best
efforts to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective pursuant to the terms of
this Agreement; and do any and all other acts or things necessary or advisable
to enable the disposition in all such jurisdictions reasonably requested by the
Holders of the Registrable Securities covered by such Registration Statement,
provided that under no circumstances shall STAR be required in connection
therewith or as a condition thereof to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(h) upon the occurrence of any event contemplated by Section
4(c)(v) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as
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<PAGE> 5
thereafter delivered to the purchasers of the Registrable Securities, the
Prospectus will not contain an untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein not misleading.
(i) make generally available to its security Holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than sixty (60) days after the end of any twelve (12)-month period (or
ninety (90) days, if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or, if not sold to underwriters in
such an offering or (ii) beginning with the first month of STAR's first fiscal
quarter commencing after the effective date of the Registration Statement, which
statements shall cover said twelve (12)-month period.
(j) use its best efforts to cause all Registrable Securities
covered by each Registration Statement to be listed subject to notice of
issuance, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Common Stock issued by STAR are then listed, and admitted to trading on The
NASDAQ Stock Market, if the Common Stock is then admitted to trading on The
NASDAQ Stock Market.
The Holders agree that, upon receipt of any notice from STAR of the
happening of any event of the kind described in Section 4(c) hereof, the Holders
will forthwith discontinue disposition of Registrable Securities under the
Prospectus related to the applicable Registration Statement until such Holders'
receipt of the copies of the supplemented or amended Prospectus, or until it is
advised in writing by STAR that the use of the Prospectus may be resumed. It
shall be a condition precedent to the obligations of STAR to take any action
pursuant to this Section 4 with respect to the Registrable Securities of the
selling Holders that such Holders shall furnish to STAR such information
regarding themselves and the Registrable Securities held by them as shall be
required by the Securities Act to effect the registration of such Holders'
Registrable Securities.
5. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to STAR's performance of or compliance with
this Agreement, including without limitation all registration and filing fees,
fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, NASD, stock exchange and
qualification fees, fees and disbursements of STAR's counsel and of independent
certified public accountants of STAR (all such expenses being herein called
"Registration Expenses") will be borne by STAR. The Holders shall bear (i) all
underwriting commissions (and transfer taxes, if any) relating to the
Registrable Securities registered and (ii) the fees and expenses of legal
counsel and accountants to the Holders.
6. INDEMNIFICATION.
(a) Indemnification by STAR. STAR agrees to indemnify and hold
harmless the Holders, their officers, directors and employees and each person
who controls the Holders (within the meaning of Section 15 of the Securities
Act) from and against any and all losses, claims, damages and liabilities
(including any investigation, legal or other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which such Holders may become subject under
the Securities Act, the Exchange Act or other federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any violation or alleged violation by STAR of the
Securities Act, the Exchange Act or any state securities or blue sky laws in
connection with the Registration Statement, Prospectus or preliminary
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<PAGE> 6
prospectus or any amendment or supplement thereto, provided that STAR will not
be liable to the Holders to the extent that such loss, claim, damage or
liability arises from or is based upon any untrue statement or omission based
upon written information furnished to STAR by the Holders.
(b) Indemnification by Holders of Registrable Securities. If
the Holders' Registrable Securities are sold under a Prospectus which is a part
of a Registration Statement, the Holders agree to indemnify and hold harmless
STAR, its directors and each officer who signed such Registration Statement and
each person who controls STAR (within the meaning of Section 15 of the
Securities Act), and each other person whose securities are sold under the
Prospectus which is a part of such Registration Statement (and such person's
officers, directors and employees and each person who controls such person
within the meaning of Section 15 of the Securities Act), from and against any
and all losses, claims, damages and liabilities (including any investigation,
legal or other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim asserted) to
which STAR or any other such person may become subject under the Securities Act,
the Exchange Act or other federal or state statutory law or regulation, at
common law or otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement, Prospectus
or preliminary prospectus or any amendment or supplement thereto, (ii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any violation or alleged violation by STAR of the Securities Act, the
Exchange Act or any state securities or blue sky laws in connection with the
Registration Statement, Prospectus or preliminary prospectus or any amendment or
supplement thereto, to the extent that such losses, claims, damages, liabilities
or actions arise out of or are based upon any untrue statement of a material
fact or omission of a material fact that was made in the Prospectus, the
Registration Statement, or any amendment or supplement thereto, in reliance upon
and in conformity with information furnished in writing to STAR by the Holders
expressly for use therein, provided that in no event shall the aggregate
liability of the Holders exceed the amount of the net proceeds received by the
Holders upon the sale of the Registrable Securities giving rise to such
indemnification obligation. STAR and the selling Holders shall be entitled to
receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as customarily furnished by such persons in similar
circumstances.
(c) Conduct of Indemnification Proceedings. Any person entitled
to indemnification hereunder will (i) give prompt notice to the indemnifying
party of any claim with respect to which it seeks indemnification and (ii)
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party, provided that any person
entitled to indemnification hereunder shall have the right to employ separate
counsel and to participate in the defense of such claim, but the fees and
expenses of such counsel shall be at the expense of such person and not of the
indemnifying party unless (A) the indemnifying party has agreed to pay such fees
or expenses, (B) the indemnifying party shall have failed to assume the defense
of such claim and employ counsel reasonably satisfactory to such person, or (C)
in the reasonable judgment of such person, based upon advice of their counsel, a
conflict of interest may exist between such person and the indemnifying party
with respect to such claims (in which case, if the person notifies the
indemnifying party in writing that such person elects to employ separate counsel
at the expense of the indemnifying party, the indemnifying party shall not have
the right to assume the defense of such claim on behalf of such person). If such
defense is not assumed by the indemnifying party, the indemnifying party will
not be subject to any liability for any settlement made without consent (but
such consent will not be unreasonably withheld). No indemnified party will be
required to consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by all claimants or
plaintiffs to such indemnified party of a release from all liability in respect
to such claim or litigation. Any indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all
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<PAGE> 7
parties indemnified by such indemnifying party with respect to such claim. As
used in this Section 6(c), the terms "indemnifying party", "indemnified party"
and other terms of similar import are intended to include only STAR (and its
officers, trustees, directors and control persons as set forth above) on the one
hand, and the Holders (and their officers, directors, employees and control
persons as set forth above) on the other hand, as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, the Holders shall not be required to contribute any amount in excess
of the amount the Holders would have been required to pay to an indemnified
party if the indemnity under Section 6(b) hereof was available. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any person to
contribute pursuant to this Section 6(d) shall be several and not joint.
(e) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 6 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
(f) Survival. The indemnity and contribution agreements
contained in this Section 6 shall remain in full force and effect and shall
survive the transfer of such Registrable Securities by the Holders; provided
that such transfer is in compliance with all agreements between STAR and the
transferring Holders.
7. RULE 144. STAR covenants that it will file, on a timely basis, the
reports required to be filed by it under the Securities Act and the Exchange Act
and the rules and regulations adopted by the SEC thereunder, and it will take
such further action as any of the Holders may reasonably request (including,
without limitation, compliance with the current public information requirements
of Rule 144(c) under the Securities Act), all to the extent required from time
to time to enable such Holders to sell Registrable Securities without
registration under the Securities Act within the limitation of the conditions
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or (b) any similar rule or regulation hereafter adopted by the
SEC. Upon the request of the Holders, STAR will deliver to such Holders a
written statement verifying that it has complied with such information and
requirements.
8. NO INCONSISTENT AGREEMENTS. STAR will not enter into any agreement
offering registration rights to any Holders of Common Stock that conflict with
or violate the rights set forth herein without the consent of the Holders, which
consent may be granted or withheld in the sole discretion of the Holders.
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<PAGE> 8
9. ASSIGNMENT OF RIGHTS. The Holders may assign their rights under
this Agreement to any transferee of the Registrable Securities of the Holders,
if (i) such transfer is in compliance with all agreements between STAR and the
transferring Holders, (ii) such transferee has acquired at least twenty-five
percent (25%) of the Registrable Securities originally held by the Holders, and
(iii) such transferee has executed this Agreement and agreed to be bound by the
terms hereof (it being understood, however, that the transferring Holders shall
retain all of such Holders' rights hereunder with respect to all Registrable
Securities not so transferred by such transferring Holders).
10. SPECIFIC PERFORMANCE. The Holders, in addition to being entitled
to exercise all rights provided herein or granted by law, including without
limitation, the recovery of monetary damages, will be entitled to specific
performance of their rights under this Agreement. STAR agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
11. NOTICES. All notices required or permitted under the terms of this
Agreement shall be delivered in the manner called for in the Stock Acquisition
Agreement.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon STAR and any corporation resulting from any merger or
consolidation of STAR with or into such corporation (in which STAR is not the
surviving corporation) or any corporation whose securities are issued in
exchange for STAR's shares of common stock.
13. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and shall supersede and
preempt any prior understandings, agreements or representations, written or
oral, by or among the parties hereto.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
16. AMENDMENT. Any provision of this Agreement may be amended, waived
or modified only by a writing signed by STAR and by each of the Holders.
17. GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State.
This choice of governing law is made in accordance with Section 1646.5 of the
California Civil Code. Any action with respect to this Agreement may be brought
in any state or federal court located in, or having jurisdiction over, the
County of Santa Barbara, State of California. Each party accepts, for itself and
their permitted successors and assigns, the jurisdiction of the aforesaid
courts.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
"STAR"
STAR TELECOMMUNICATIONS, INC.
By: /s/ MARY CASEY
------------------------------
Mary Casey, President
"HOLDERS"
/s/ RICHARD ALLEN BISHOP
- ------------------------------
Richard Allen Bishop,
individually and in his
capacity as Trustee of the Richard Allen Bishop
& Teresa Anne Bishop 1996 Revocable Trust
Address:
Phone No.:
Fax No.:
/S/ ELIZABETH CURRIER
- ------------------------------
Elizabeth Currier,
individually and in her
capacity as Trustee of the Currier Family Trust
Address:
Phone No.:
Fax No.:
/S/ DON CURRIER
- ------------------------------
Don Currier
Address:
Phone No.:
Fax No.:
/S/ JUDITH BOLGER
- ------------------------------
Judith Bolger
Address:
Phone No.:
Fax No.:
/s/ THOMAS GUY ELTRINGHAM
- ------------------------------
Thomas Guy Eltringham
Address:
Phone No.:
Fax No.:
/s/ JOHN BRENT MCDANIEL
- ------------------------------
John Brent McDaniel,
individually and in his
capacity as Trustee of the John Brent McDaniel
Revocable Trust
Address:
Phone No.:
Fax No.:
/s/ DONNA J.S. ROBINSON
- ------------------------------
Donna J.S. Robinson
Address:
Phone No.:
Fax No.:
/s/ HAROLD B. ROBINSON
- ------------------------------
Harold B. Robinson
Address:
Phone No.:
Fax No.:
