<PAGE>
As filed with the Securities and Exchange Commission on November 15, 1995
Registration No. 33-_______
______________________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
__________
SA TELECOMMUNICATIONS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 75-2258519
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1912 AVENUE K, SUITE 100, PLANO, TEXAS 75074
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
LYNN H. JOHNSON, ESQ. COPY TO:
GENERAL COUNSEL MARK S. SOLOMON, ESQ.
SA TELECOMMUNICATIONS, INC. ARTER, HADDEN, JOHNSON & BROMBERG
1912 AVENUE K, SUITE 100 1717 MAIN STREET, SUITE 4100
PLANO, TEXAS 75074 DALLAS , TEXAS 75201-4605
(214) 516-0662 (214) 761-4365
(Name, address, including zip code,
and telephone number, including
area code, of agent for service)
___________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with the dividend or
interest reinvestment plans, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is filed is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to be Amount to Offering Price Aggregate Offering Amount of
Registered be Registered Per Share (1) Price (1) Registration Fee
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$.0001 par value 4,033,336 shares $2.31 $9,317,006 $1,863.00
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(c) based upon the average of the high and low
sales prices on the Nasdaq SmallCap Market on November 9, 1995.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
<PAGE>
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 1995
PROSPECTUS
4,033,336 SHARES
SA TELECOMMUNICATIONS, INC.
COMMON STOCK
All of the 4,033,336 shares (the "Shares") of common stock, par value
$.0001 per share (the "Common Stock") of SA Telecommunications, Inc. (the
"Company"), offered hereby are being offered on behalf of and for the account
of certain stockholders (the "Selling Stockholders") of the Company. The
Shares include (1) 1,100,000 shares of Common Stock (the "Private Placement
Shares") issued to certain individuals and entities in the Company's
September 20, 1995 private placement (the "Private Placement"), (2) 1,100,000
shares of Common Stock issuable upon the exercise of Common Stock purchase
warrants issued in the Private Placement (the "Private Placement Warrants"),
(3) 500,000 shares of Common Stock issuable upon the exercise of Common Stock
purchase warrants (the "J&L Warrant") issued to Jesup & Lamont Capital
Markets, Inc. ("J&L") in connection with the financing of the acquisition of
U.S. Communications, Inc. by the Company (the "USC Financing"), and (4)
1,333,336 shares of Common Stock (the "J&L Conversion Shares") issuable upon
the conversion of Series A Cumulative Convertible Preferred Stock ("Series A
Preferred Stock") issued by the Company in connection with the USC Financing.
The Company anticipates that (1) the Shares related to the Private Placement
Shares and the Private Placement Warrants will be offered for sale until the
earlier of (a) the sale of all of such Shares or (b) the two year anniversary
of the effective date of the Registration Statement to which this Prospectus
relates, and (2) the Shares related to the J&L Warrant and the J&L Conversion
Shares will be offered for sale until the earlier of (a) the sale of all of
such Shares or (b) 120 days after the effective date of the Registration
Statement to which this Prospectus relates. The Company has agreed to pay
substantially all of the expenses of registration in connection with this
offering (other than commissions, concessions or discounts to broker-dealers
and, with certain exceptions, fees and expenses of counsel or other advisors
to J&L), but will not receive any of the proceeds from the sale of the Shares
offered hereby other than minimal proceeds upon the exercise of the Private
Placement Warrants and the J&L Warrant (collectively, the "Warrants"). All
brokerage commissions and other similar expenses incurred by the Selling
Stockholders will be borne by such Selling Stockholders. The aggregate
proceeds to the Selling Stockholders from the sale of the Shares will be the
purchase price of the Shares sold (less the exercise price of the Warrants
for the Shares resulting therefrom), less the aggregate brokerage commissions
and underwriters' discounts, if any, and other expenses of issuance and
distribution not borne by the Company. See "Use of Proceeds," "Plan of
Distribution" and "Selling Stockholders." The Common Stock is traded on the
Nasdaq SmallCap Market under the trading symbol "STEL." The last reported
sales price of the Common Stock as reported on the Nasdaq SmallCap Market on
November 9, 1995 was $2.31 per share.
This offering is currently not being underwritten. However, the Selling
Stockholders, brokers, dealers or underwriters that participate with the
Selling Stockholders in the distribution of the Shares may be deemed
"underwriters." as that term is defined in the Securities Act of 1933, as
amended (the "Securities Act"), and any commissions received by
broker-dealers, agents or underwriters and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. It is anticipated that all Shares being
offered hereby, when sales thereof are made, will be made in one or more
transactions (which may involve one or more block transactions) through
customary brokerage channels, either through brokers acting as brokers or
agents for the sellers, or through dealers or underwriters acting as
principals who may resell the Shares in the Nasdaq SmallCap Market or in
privately negotiated sales, or otherwise, or by a combination of such methods
of offering. Each sale may be made either at market prices prevailing at the
time of the sales or at negotiated prices. See "Plan of Distribution." To
the extent required, the specific number of Shares to be sold, the names of
the Selling Stockholders, the purchase price, the public offering price, the
names of any agents, dealers or underwriters and any applicable commissions
or discount with respect to a particular offering will be set forth in an
accompanying Prospectus Supplement.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT
SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE COMMISSION NOR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
____________, 1995
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information
with the Securities and Exchange Commission (the "Commission"). Reports,
proxy statements and other information filed by the Company can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Branch of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549.
The Common Stock is included in the Nasdaq SmallCap Market, and reports
and other information concerning the Company may be inspected and copied at
the offices of Nasdaq SmallCap Market at 1735 K Street, N.W., Washington,
D.C. 20006.
The Company has filed with the Commission a registration statement on
Form S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Shares of Common Stock
offered hereby. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain portions of which are omitted as
permitted by the rules and regulations of the Commission. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made
to the copy of such contract or other document filed or incorporated by
reference as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference and the exhibits and
schedules thereto. For further information pertaining to the Company or the
Common Stock offered hereby, reference is made to the Registration Statement
and such exhibits and schedules thereto, which may be inspected without
charge at, and copies thereof may be obtained at prescribed rates from, the
Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents filed by the
Company with the Commission which are not presented herein or delivered
herewith, as indicated below. The Company will provide without charge to
each person to whom a copy of this Prospectus has been delivered, including
any beneficial owner, on the written or oral request of such person, a copy
of any or all of the documents referred to below which are incorporated in
this Prospectus by reference (other than exhibits to such documents unless
they are specifically incorporated by reference into such documents).
Requests for copies should be directed to SA Telecommunications, Inc., 1912
Avenue K, Suite 100, Plano, Texas 75074, Attention: Investor Relations,
telephone number (214) 516-0662.
2
<PAGE>
The following documents filed by the Company (formerly SA Holdings,
Inc.) with the Commission pursuant to the Exchange Act under File No. 0-18048
hereby are incorporated by reference into this Prospectus: (1) the Company's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994; (2)
the Company's Definitive Proxy Statement dated July 5, 1995; (3) the
Company's Quarterly Report as filed with the Commission on Form 10-QSB for
the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995;
(4) the Company's Current Report on Form 8-K dated July 31, 1995 and filed with
the Commission on August 15, 1995 (and amended on Form 8-K/A as filed with the
Commission on October 13, 1995), (5) the Company's Current Report on Form 8-K
dated October 6, 1995 and filed with the Commission on October 11, 1995; and
(6) the description of the Company's Common Stock as contained in Item 1 of the
Company's Registration Statement on Form 8-A dated October 19, 1989, and any
amendment or report filed for updating such description.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act on or after the date of this Prospectus and
prior to the termination of the offering of the Common Stock offered hereby
shall be deemed to be incorporated by reference in this Prospectus and to be
a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus and the Registration Statement of which it is a part to the
extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus or such Registration Statement.
3
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING INFORMATION IS A SUMMARY QUALIFIED IN ITS ENTIRETY BY THE
MORE DETAILED INFORMATION INCLUDED IN THIS PROSPECTUS OR INCORPORATED HEREIN
BY REFERENCE. INVESTORS SHOULD CAREFULLY CONSIDER THE INFORMATION SET FORTH
UNDER THE HEADING "RISK FACTORS."
THE COMPANY
SA Telecommunications, Inc. (the "Company") provides domestic and
international long distance telecommunications services through its operating
subsidiaries (1) U.S. Communications, Inc., a domestic interexchange long
distance carrier located in Levelland, Texas serving customers in Arizona,
Arkansas, Louisiana, New Mexico, Oklahoma and Texas, (2) Long Distance
Network, Inc., a domestic interexchange long distance carrier located in and
serving customers throughout Texas, and (3) North American
Telecommunications Corporation, a telecommunications carrier offering
international telecommunications services to its foreign customers. In
addition to providing competitively priced standard long distance service,
the Company also offers access to operator services, direct access lines,
"800" service, and wholesale long distance service. The Company competes
with other long distance providers primarily on the basis of price and
customer service.
The Company's principal executive offices are located at 1912 Avenue K,
Suite 100, Plano, Texas 75074 and its telephone number is (214) 516-0662.
THE OFFERING
Common Stock Offered by the Selling
Stockholders 1,100,000 shares
Common Stock To Be Issued Upon Exercise of
Warrants 1,600,000 shares
Common Stock To Be Issued Upon Conversion
of Series A Preferred Stock 1,333,336 shares
Percentage of Outstanding Common Stock
Offered by the Selling Stockholders 25.4% (1)
Nasdaq SmallCap Market Symbol STEL
Use of Proceeds The Company will not receive any
proceeds from the sale of the
Shares offered hereby
(1) Percentage indicated is based upon 12,953,763 shares of Common Stock
outstanding as of September 30, 1995 and assumes (i) full exercise of the
Warrants and (ii) full conversion of the Series A Preferred Stock held by
J&L, but does not include shares of Common Stock issued or issuable by the
Company after the date hereof.
4
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE
COMPANY AND ITS BUSINESS BEFORE PURCHASING ANY OF THE SHARES OFFERED HEREBY.
SUBSTANTIAL INDEBTEDNESS OF THE COMPANY
The Company is highly leveraged as a result of the substantial
indebtedness it has incurred to finance the acquisition of U.S.
Communications, Inc. ("USC"), which acquisition became effective as of June
1, 1995. At September 30, 1995, the Company had $9,638,048 of long term debt
(including capital leases and excluding current maturities). In addition,
principal amounts of subordinated notes issued by the Company to former
shareholders of USC in connection with the USC Financing will be due as
follows: $750,000 on January 31, 1996, $750,000 on July 31, 1996, and
$1,650,000 on October 1, 1996. The Company expects that, in light of the
amount of its existing indebtedness, it will continue to have substantial
leverage for the foreseeable future. Substantial leverage will (i) limit the
Company's ability to obtain additional financing in the future, (ii) require
the Company to dedicate a signification portion of the Company's cash flow
from operations to the payment of principal and interest on its indebtedness,
thereby reducing the funds available to the Company for other purposes, (iii)
limit the Company's flexibility in planning for, or reacting to, changes in
its business and market conditions, and (iv) impose additional financial and
operational restrictions on the Company, including restrictions on dividends.
The Company's ability to make scheduled payments on its indebtedness
depends on its financial and operating performance, which is subject to
prevailing economic conditions, and to financial, business and other factors,
some of which are outside the Company's control. There can be no assurance
that the Company's cash flow from operations will be sufficient to repay its
indebtedness. The failure of the Company to comply with the financial and
other restrictive covenants under its credit facility may result in an event
of default, which, if not cured or waived, could have a material adverse
effect on the Company. The Company was recently in default under certain of
its financial and other covenant requirements of its Term Credit Agreement
("Credit Agreement") with Norwest Bank Minnesota, National Association (the
"Bank"). The Company was not in payment default, and all of such defaults
were waived pursuant to the First Amendment to Credit Agreement dated as of
November 10, 1995 (the "Amendment"), which requires, among other things, a
mandatory prepayment of $150,000 on or before November 30, 1995 in addition
to a $10,000 default fee. Should the Company have any future defaults under
the Credit Agreement which are not cured or waived, any action by the Bank
would likely have a material adverse effect on the Company. In addition, any
payment default under the Credit Agreement or other indebtedness for borrowed
money if material to the Company would preclude the Company from using
certain simplified forms to register securities under the Securities Act
(including those sold under the Registration Statement of which this
Prospectus is a part) and would likely increase the cost of the Company's
capital raising activities. In this regard, the Company's interest payments
were not made timely under certain of the subordinated notes issued in the USC
Financing. See "The Company."
5
<PAGE>
INTEREST RATE FLUCTUATIONS; RESTRICTIVE COVENANTS
Borrowings under the Company's Credit Agreement with the Bank bear
interest at rates that fluctuate with prevailing short-term interest rates.
Accordingly, the Company's operations are affected by changes in interest
rates. Increases in interest rates on the Company's obligations could have
an adverse effect upon the Company's reported net income and liquidity. In
addition, the Credit Agreement restricts the payment of cash dividends and
contains financial and other covenants which otherwise limit the Company's
financial flexibility. See "The Company-Credit Agreement."
NET LOSSES SINCE INCEPTION
The Company has reported net operating losses and net losses since its
inception. Specifically, the Company has suffered a net loss of
approximately $1,361,788, $1,075,608 and $2,446,986 in fiscal 1992, 1993 and
1994, respectively, and a net loss of $2,212,946 for the nine months ended
September 30, 1995. Historically, the Company has financed its operations
from proceeds from private placements of Common Stock and the exercise of
stock options. There can be no assurance that such source of funds will
continue to be available in the future.
ACQUISITION INTEGRATION
A substantial portion of the Company's growth in recent years has
resulted from acquisitions, which involve operational and financial risks.
Operational risks include the possibility that an acquisition does not
ultimately provide the benefits originally anticipated by management of the
acquiror, while the acquiror continues to incur operating expenses to provide
the services formerly provided by the acquired company. Financial risks
involve the incurrence of indebtedness by the acquiror in order to effect the
acquisition and the consequent need to service the indebtedness. Although
the Company believes that it will be able to integrate successfully the
business and operations of recent acquisitions, there can be no assurance
that the Company will be able to accomplish such integration with the
Company's operations quickly, or that the efficiencies and growth
opportunities anticipated as a result of the combination of the Company and
the acquired entities will materialize.
DEPENDENCE ON THIRD PARTY TRANSMISSION FACILITIES
The Company does not own all of the transmission facilities needed to
complete long distance telephone calls. Therefore, the Company's operator
services, direct dial long distance, "800" service, wholesale long distance
service and international "call-back" businesses are largely dependent upon
the contractual arrangements with facilities-based carriers for the
transmission of calls on a cost-effective basis. While the Company believes
it has ample access to transmission facilities at competitive rates and
expects to continue to have such access in the foreseeable future,
6
<PAGE>
due to the possibility of unforeseen changes in industry conditions, the
continued availability of transmission facilities at historical rates cannot
be assured.
REGULATORY RISKS
The Company's domestic telephone business is subject to regulation at
the federal level by the Federal Communications Commission ("FCC") and at the
state level by public utility commissions ("PUCs") of the various states in
which the Company operates. Pursuant to regulation by the FCC, the Company's
international call-back business must maintain compliance in jurisdictions in
which the Company services foreign customers.
The regulation of the telecommunications industry is changing rapidly,
and the regulatory environment varies substantially from state to state. FCC
regulatory actions have had, and are expected to continue to have, both
positive and negative effects upon the Company. Decisions by the FCC with
respect to the permissible business activities or pricing practices of the
Company's dominant competitors, such as AT&T Communications, Inc. ("AT&T"),
may also have an adverse impact on the Company's operations. Moreover, any
significant change in regulations by state governmental agencies could
significantly increase the Company's costs or otherwise have an adverse
effect on the Company's activities and on any future expansion efforts.
The FCC is currently considering action on various proposals that may
have an impact on the Company. Recent developments include consideration by
Congress of legislation that would modify the AT&T Divestiture Decree
restrictions on the provision of long distance service between Local Access
and Transport Areas ("LATAs"), as defined in the AT&T Divestiture Decree, by
the local exchange carriers owned by the seven Regional Bell Operating
Companies ("BOCs"), as discussed below; consideration by the Justice
Department and courts of related BOC requests for waiver of the AT&T
Divestiture Decree to permit them to provide significant interLATA services
(such as service outside their respective regions, and in other
circumstances) or for the elimination of the AT&T Divestiture Decree
altogether; action by the FCC or PUCs changing access rates charged by local
exchange carriers ("LECs") and making other related changes to access and
interconnection policies, certain of which could have material adverse
consequences for the Company; related FCC and state regulatory proceedings
considering additional deregulation of LEC access pricing; a pending FCC
rulemaking on "billed party preference" that could adversely affect the
Company's provision of operator services; and various legislative and
regulatory proceedings that could result in new local exchange competition.
The Company will need to comply with the applicable laws and obtain the
approval of the regulatory authority of each state and country in which it
provides or proposes to provide telecommunications services. The laws and
regulatory requirements vary in these jurisdictions. Some have substantially
deregulated various communications services, while other jurisdictions have
maintained strict regulatory regimes. The application procedure can be
time-consuming and costly, and terms of licenses vary for different
jurisdictions.
7
<PAGE>
SERVICE INTERRUPTIONS; EQUIPMENT FAILURES
The Company's business requires transmission and switching facilities
and other equipment to be operational 24 hours per day, 365 days per year.
Long distance telephone companies such as the Company on occasion may
experience temporary service interruptions or equipment failures, in some
cases resulting from causes beyond their control. Any such event experienced
by the Company would impair the Company's ability to service customers and
could have a material adverse effect on the Company's business.
HOLIDAY AND SEASONAL VARIATIONS IN REVENUES
The Company's revenues, and thus its potential earnings, are affected by
holiday and seasonal variations. A substantial portion of the Company's
revenues are generated by direct dial domestic long distance commercial
customers, and, accordingly, the Company experiences decreases in revenues
around national holidays when commercial customers reduce their usage. In
addition, operator services revenue from pay telephone usage declines in the
fall and winter months. Additional factors causing pay telephone usage
declines are inclement weather, schools being in session, and the lack of
vacation travel. Consequently, the Company's fourth fiscal quarter ending
December 31, which includes the Thanksgiving, Hanukkah, Christmas and New
Year's Eve holidays, and the Company's first fiscal quarter ending March 31,
historically have been its slowest revenue periods of the Company's fiscal
year. The Company's fixed operating expenses, however, do not decrease
during these quarters. Accordingly, the Company will likely experience lower
revenues and earnings in its first and fourth fiscal quarters when compared
with the other fiscal quarters.
CUSTOMER ATTRITION
The Company believes that a high level of customer attrition is common
in the direct dial long distance and operator services industries. Although
the Company has not experienced significant attrition in its various
businesses, the Company's historical levels of customer attrition may not be
indicative of future attrition levels, and there can be no assurance that any
steps taken by the Company to counter increased customer attrition would
accomplish the Company's objectives.
COMPETITION RISKS
The Company faces intense competition in providing domestic and
international long distance telecommunications services. Domestically, the
Company competes for interLATA services with other national and regional
interexchange carriers ("IXCs"), including AT&T, MCI Telecommunications
Corporation ("MCI"), and Sprint Corporation ("Sprint"), with respect to
intraLATA long distance services, with AT&T, MCI, Sprint, the LECs and other
IXC's, where permissible; and with respect to operator services, with AT&T
and other operator service providers. Internationally, the Company competes
for services with other IXC's, including AT&T, MCI and
8
<PAGE>
Sprint. Certain of these companies have longer operating histories,
substantially greater market share and financial, sales, marketing and
technical resources than the Company, and some of them are the source of
communications capacity used by the Company to provide its own respective
services. The Company expects to encounter increasing competition from major
and domestic and international communications companies, including AT&T, MCI
and Sprint. In addition, in the future, the Company will be subject to
additional competition due to the development of new technologies and
increased availability of domestic and international transmission capacity.
The telecommunications industry is in a period of rapid technological
evolution, marked by the introduction of new product and service offerings.
DEPENDENCE ON KEY PERSONNEL
The Company believes that its continued success depends to a significant
extent upon the efforts and abilities of its senior management. In
particular, the loss of Jack W. Matz, Jr., the Company's Chairman and Chief
Executive Officer, or Paul Miller, the Company's President and Chief
Operating Officer, could have a material adverse effect on the Company. Mr.
Matz and Mr. Miller have entered into Employment Agreements with the Company
which expire on March 24, 2000 and April 1, 1999, respectively. The Company
currently maintains a $2,000,000 insurance policy on Mr. Matz, of which the
Company is beneficiary of $1,000,000 of the proceeds and the Company's lender
is the beneficiary of the remainder. In addition, the Company believes that
its success will depend on a large part upon its ability to attract, retain
and motivate skilled employees and other senior personnel. Although the
Company expects to continue to attract sufficient numbers of such persons for
the foreseeable future, there can be no assurance that the Company will be
able to do so.
CONCENTRATION OF STOCK OWNERSHIP
As of September 30, 1995, the present directors and executive officers
of the Company beneficially own approximately 54.42% of the Company's Common
Stock. This percentage includes 1,833,336 shares (12.40%) of Common Stock
beneficially owned by Howard Curd, a director of the Company, who is a
representative of Jesup & Lamont Capital Markets, Inc., one of the Selling
Stockholders. The Company's Chairman and Chief Executive Officer, Jack W.
Matz, Jr., possesses the right to vote approximately 31.34% of the Company's
Common Stock as of such date. See "Voting Agreements" and "Description of
Capital Stock-Voting Agreements" for a description of the voting agreements
and voting trusts applicable to certain of such shares of Common Stock. As
a result, these persons will be able to exercise significant influence over
all matters requiring stockholder approval, including the ability to elect
the Company's entire Board of Directors and to approve of significant
corporate transactions. Such concentration of ownership may have the effect
of delaying or preventing a change in control of the Company. See "Selling
Stockholders" for the beneficial ownership of the Selling Stockholders.
9
<PAGE>
VOTING AGREEMENTS
Each of the Selling Stockholders who participated in the Private
Placement has entered into a Voting Agreement with the Company and Jack W.
Matz, Jr., the Company's Chairman and Chief Executive Officer, requiring such
Selling Stockholder to vote all shares of Common Stock held or owned by such
person in a manner designated by Mr. Matz. Under the Subscription Agreement
pursuant to which each Selling Stockholder originally purchased the Private
Placement Shares and the Private Placement Warrants from the Company, each
such Selling Stockholder is not entitled to offer or sell any of such shares
(including the shares of Common Stock issuable upon exercise of the Private
Placement Warrants), irrespective of the registration thereof, except in (1)
bona fide transactions in which there is no intent for such shares to be
acquired by any affiliate of any Selling Stockholder who participated in the
Private Placement or (2) in private transactions of blocks of 400,000 shares
or less to persons not affiliated with any Selling Stockholder who
participated in the Private Placement (who will not have received in such
transactions, when aggregated with other block transactions thereunder by all
Selling Stockholders who participated in the Private Placement, more than
400,000 shares of Common Stock) unless the transferee executes a counterpart
of the Voting Agreement as if it were an initial signatory thereto.
Mr. Matz is trustee under nine separate voting trust agreements, and, as
of September 30, 1995, has the right to vote 1,703,781 shares of the
Company's Common Stock on any matters presented to the stockholders for a
vote. Each of these trust agreements has a duration of five years and will
terminate at various times through April 1999. See "Description of Capital
Stock-Voting Agreements."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS.
Upon the sale of all of the Shares of Common Stock offered hereby, which
assumes (1) such sale was consummated by September 30, 1995, (2) the issuance
of an aggregate of 1,100,000 shares of Common Stock to the Selling
Stockholders who participated in the Private Placement upon the exercise of
the Private Placement Warrants at an exercise price of $1.25 per share, (3)
the issuance of 500,000 shares of Common Stock to J&L upon the exercise of
the J&L Warrant at an exercise price of $1.125 per share, and (4) the full
conversion of the Conversion Shares, 15,887,099 shares of Common Stock would
be outstanding, substantially all of which will be freely tradeable without
restriction. In addition, at September 30, 1995, 2,114,230 shares of Common
Stock were issuable under the Company's various stock option plans (of which
1,827,480 shares were exercisable on such date).
In connection with the USC Financing, (1) certain former shareholders of
USC (the "USC Shareholders") were issued common stock purchase warrants
exercisable at any time until July 31, 2000 for an aggregate of 1,050,000
shares of Common Stock at $1.25 per share and an aggregate of 125,000 shares
of Series B Cumulative Convertible Preferred Stock ("Series B Preferred
Stock") with respect to which conversion rights into Common Stock were
waived, and (2) J&L was issued
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<PAGE>
166,667 shares of Series A Preferred Stock convertible into Common Stock and
common stock purchase warrants exercisable at any time until July 31, 1998
for an aggregate of 500,000 shares of Common Stock at $1.125 per share. In
addition, Mr. Matz, the Company's Chairman and Chief Executive Officer has
been granted demand registration rights on three separate occasions after
April 1, 1996 and until March 23, 2000 with respect to 1,060,000 shares of
Common Stock under stock options granted in Mr. Matz's employment agreement
with the Company. Both J&L and the USC Shareholders have been granted
certain registration rights with respect to a registration statement filed by
the Company for any sales of at least 300,000 shares of Common Stock with
respect to the Common Stock underlying their warrants and J&L has exercised
such rights with respect to the Shares issuable pursuant to the J&L Warrant
and J&L Conversion Shares. If the Shares issuable pursuant to the J&L
Warrant and J&L Conversion Shares are not sold in this offering, after July
31, 1996, J&L or other holders of Series A Preferred Stock and shares of
Common Stock exercisable under the J&L Warrant will be entitled to certain
demand registration rights with respect to shares of Common Stock issuable
upon conversion of Series A Preferred Stock and upon exercise of such J&L
Warrant. If such holders, by exercising their registration rights, cause a
large number of shares to be registered and sold in the public market, such
sales could have an adverse effect on the market price of the Company's
Common Stock. If the Company were required to include in a Company-initiated
registration shares held by such holders pursuant to the exercise of their
piggyback registration rights, such sales may have an adverse effect upon the
Company's ability to raise needed capital. In addition to the factors
affecting the stock market in general, and the market for the Common Stock
discussed above, sales of substantial amounts of Common Stock in the public
market could adversely affect the market price of the Common Stock.
KEY CUSTOMER
The Company is the operator service provider under an agreement with
Teletrust, Inc., which accounted for approximately 9% of the Company's
monthly revenues as of September 30, 1995. Under the terms of such
agreement, such customer may terminate its agreement with the Company at any
time. The termination of, or the unexpected decline in the demand for
operator services provided under, this Agreement could have an adverse effect
on the Company.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS; UNISSUED PREFERRED
STOCK AND DELAWARE LAW
Certain provisions of the Company's Certificate of Incorporation and
Bylaws, Delaware law and employment agreements with certain officers of the
Company may be deemed to have an anti-takeover effect. Such provisions may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in that stockholder's best interests, including attempts
that might result in a premium over the market price for the shares held by
stockholders.
On August 3, 1995, the Company amended its Certificate of Incorporation
to provide for a classified Board of Directors, consisting of three classes.
After the transition period, each class serves for three years with one class
being elected each year. Currently, five members of the Board
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<PAGE>
of Directors were elected to serve for a term expiring at the 1996 Annual
Meeting of Stockholders, and four directors were classified to serve for
extended terms expiring at each of the 1997 and 1998 Annual Meeting of
Stockholders, respectively. Classification of the Board makes it more
difficult and time consuming for the stockholders to change the overall
composition of the Board as at least two stockholder's meetings will be
required to effect a change in majority of the Board of Directors.
In addition to the shares of Series A Preferred Stock and Series B
Preferred Stock outstanding, 12,000,000 additional shares of preferred stock
may be issued by the Company in the future without stockholder approval and
upon such terms as the Board of Directors may determine. The rights of the
holders of the Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any preferred stock that may be issued in
the future. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could
have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from acquiring, a majority of the outstanding
stock of the Company and potentially prevent the payment of a premium to
stockholders in an acquisition transaction. See "Description of Capital
Stock."
MAINTENANCE REQUIREMENTS FOR SECURITIES ON THE NASDAQ SMALLCAP MARKET SYSTEM;
APPLICATION OF THE PENNY STOCK RULES
The Company's Common Stock has been listed on the Nasdaq SmallCap Market
System. However, if the Company is unable to maintain the standards for
continued listing, the Common Stock could be subject to delisting from the
Nasdaq SmallCap Market System. Trading, if any, in the Common Stock would
thereafter be conducted on an electronic bulletin board or in what is
commonly referred to as the "pink sheets" established for securities that do
not meet the Nasdaq listing requirements. As a result, an investor may find
it more difficult to dispose of, or to obtain accurate quotations as to the
price of, the Company's securities.
In addition, if the Company's securities were delisted, they would be
subject to the so-called penny stock rules that impose additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally defined
as an investor with a net worth in excess of $1,000,000 or annual income
exceeding $200,000, or $300,000 together with a spouse). For transactions
covered by this rule, the broker-dealer must make a special suitability
determination for the purchaser and must have received the purchaser's
written consent to the transaction prior to sale. Consequently, delisting, if
it occurred, may affect the ability of broker-dealers to sell the Company's
securities and the ability of purchasers in this offering to sell their
securities in the secondary market.
The Commission has adopted regulations that define a "penny stock" to be
any equity security that has a market price (as defined) of less than $5.00
per share or an exercise price of less than $5.00 per share, subject to
certain exceptions. For any transaction involving penny stock, unless
exempt, the rules require the delivery prior to the transaction, of a
disclosure schedule relating to the penny stock market. The broker-dealer
must also disclose the commissions payable to both
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<PAGE>
the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market-maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed
control over the market. Finally, monthly statements must be sent disclosing
recent price information for the penny stock held in the account and
information on the limited market in penny stocks. As a result, an investor
may find it more difficult to dispose of the Company's Common Stock.
NO DIVIDENDS
To date, the Company has not paid any cash dividends on its Common
Stock, and does not expect to declare or pay any cash or other dividends in
the foreseeable future. Further, the Company's Credit Agreement with the
Bank restricts the Company from declaring or paying dividends or other
distributions on its Common Stock.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price for shares of the Company's Common Stock has varied
significantly and may be volatile depending on news announcements or changes
in general market conditions. In particular, news announcements regarding
quarterly results of operations, competitive developments, litigation or
governmental regulatory action impacting the Company may adversely affect the
Company's stock price. In addition, the sale of a substantial amount of
Shares of Common Stock in a short time period could adversely affect the
market price of the Common Stock. See "Concentration of Stock Ownership" and
"Shares Eligible for Future Sale; Registration Rights."
FUNDING OF LOSSES OF STRATEGIC ABSTRACT AND TITLE CORPORATION
On October 4, 1995, management of the Company determined to sell the
operations of its wholly-owned subsidiary, Strategic Abstract and Title
Corporation ("SATC"). Since 1992, the Company has been funding operating
losses of SATC. The Company currently plans to fund operating losses through
the consummation of such sale. Failure to dispose of at least 80% of the
stock or substantially all of the assets of SATC by February 29, 1996 will
result in an Event of Default under the Credit Agreement with the Bank unless
extended or waived by the Bank. See "The Company."
THE COMPANY
BUSINESS OF THE COMPANY
SA Telecommunications, Inc. (the "Company") is a Delaware corporation
with its principal executive offices located at 1912 Avenue K, Suite 100,
Plano, Texas 75074. The Company provides domestic and international long
distance telecommunications services through its operating subsidiaries: (1)
U.S. Communications, Inc., a domestic interexchange long distance carrier
located in Levelland, Texas serving customers in Arizona, Arkansas,
Louisiana, New Mexico, Oklahoma
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<PAGE>
and Texas, (2) Long Distance Network, Inc., a domestic interexchange long
distance carrier located and serving customers throughout Texas, and (3)
North American Telecommunications Corporation, a telecommunications carrier
offering international telecommunications services to its foreign customers.
In addition to providing competitively priced standard long distance
service, the Company also provides access to operator services, direct access
lines, "800" service, and wholesale long distance service. The primarily
international telecommunication service offered by NATC is the international
"call-back" product "GlobalCom," which utilizes audio response units to
export U.S. dial tones and associated telecommunications services and
products to points around the world. The Company competes with other long
distance providers primarily on the basis of price and customer service.
With respect to the Company's other two businesses, on August 31, 1995,
the management of the Company determined to phase out the activities
associated with its joint ventures in Russia except for any international
telecommunications business. On October 4, 1995, the Company canceled the
previously proposed spin-off and distribution of SATC and determined to sell
the operations of SATC. The Company is actively marketing SATC. SATC has
developed a proprietary information database for the offering of on-line
title abstracting and title insurance and reporting services and operates
title plants in Midland County and Ector County, Texas.
CREDIT AGREEMENT
On July 31, 1995, the Company obtained a $10,000,000 credit facility
with the Bank pursuant to the Credit Agreement, $7,000,000 of which was used
to fund a vast majority of the cash portion of the consideration for the USC
acquisition. Additional advances of the $3,000,000 unused portion of the
Credit Agreement are dependent upon the Company meeting certain predetermined
levels of operating cash flow. The indebtedness under the Credit Agreement
is secured by substantially all of the assets of the Company. Principal
payments are due in quarterly installments commencing on December 31, 1996
with the balance due on June 30, 2000.
Covenants under the Credit Agreement include, without limitation,
provisions which (i) limit the Company's ability to incur indebtedness,
grant liens, merge, pay dividends, consolidate and acquire or sell assets,
(ii) require the Company to satisfy certain ratios relating to operating cash
flow and senior debt service coverage, and (iii) limit the payment of
interest and principal on subordinated debt.
On November 10, 1995, the Company entered into the Amendment with the
Bank, which, among other things: (i) amended certain definitions, agreements
and covenants relating to operating cash flow, senior debt service coverage,
prepayments on subordinated debt and modifications with respect to the
cancellation of the spin-off of SATC to the Company's stockholders, (ii)
extended the period of time the Company has for the sale of SATC and the
delivery of security and other documents to the Bank, and (iii) waived
any breach by the Company of financial covenants with
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<PAGE>
respect to senior debt service coverage and with respect to operating cash
flow as of September 30, 1995 and with respect to the failure to obtain the
prior consent of the Bank to the purchase of certain switching equipment. As
part of such Amendment, the Company paid a default fee of $10,000 and agreed
to make an additional mandatory prepayment of indebtedness of $150,000 under
the Credit Agreement by November 30, 1995, which if not paid on such date,
will constitute an event of default under the Credit Agreement. In addition,
the Bank has agreed to waive an additional default fee of $25,000 payable on
or before January 31, 1996 if the Company proves to have been in compliance
with financial covenants with respect to Senior debt service coverage and
with respect to operating cash flow as of December 31, 1995. On September 21,
1995, the Company made prepayments in the aggregate principal amount of
$1,100,000 and accrued interest on such principal on certain of the
subordinated notes issued in the USC Financing. As a result of the defaults
under the Credit Agreement and the prohibition against payments on the
subordinated debt during such defaults, the remaining $46,887.81 interest
originally due on October 31, 1995 on such subordinated notes was not paid
until November 15, 1995, the date after the Amendment became effective. The
holders of such subordinated debt have signed an agreement acknowledging the
Company is in compliance with the payment terms of such subordinated debt.
USE OF PROCEEDS
The Shares of Common Stock being offered hereby are for the account of
the Selling Stockholders. Accordingly, the Company will not receive any of
the proceeds from the sale of the Shares by the Selling Stockholders. See
"Selling Stockholders."
The Company will receive an aggregate of $1,375,000 as payment for the
exercise of the Private Placements Warrants underlying 1,100,000 of the
Shares of Common Stock offered hereby by the Selling Stockholders who
participated in the Private Placement. The Company will receive an aggregate
of $562,500 as payment for the exercise of the J&L Warrant underlying 500,000
of the Shares offered hereby. These proceeds will be used by the Company
for general corporate purposes.
SELLING STOCKHOLDERS
The following table sets forth the name of each of the Selling
Stockholders and the number of Shares that may be offered by each. The
number of Shares that may be actually sold by each of the Selling
Stockholders will be determined by each such Selling Stockholder, and may
depend upon a number of factors, including, among other things, the market
price of the Common Stock. Because each of the Selling Stockholders may
offer all, some or none of the Shares that each holds, and because the
offering contemplated by this Prospectus is currently not being underwritten,
no estimate can be given as to the number of Shares that will be held by each
of the Selling Stockholders upon or prior to termination of this offering.
See "Plan of Distribution." The table below sets forth information as of
September 30, 1995 concerning the beneficial ownership of the Shares of each
of the Selling Stockholders. All information as to beneficial ownership has
been furnished by each of the Selling Stockholders.
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<PAGE>
<TABLE>
<CAPTION>
Shares of Shares of
Common Common
Stock Stock Owned
Shares of Common Stock Offered In After The
Name of Selling Stockholder Owned Before Offering the Offering Offering*
- --------------------------- ------------------------ ------------ -------------
Number Percent (1) Number Number
------ ----------- ------ ------
<S> <C> <C> <C> <C>
Seth Joseph Antine 160,000 (2) 1.23 (2) 160,000 0
Fred Rudy 80,000 (3) ** (3) 80,000 0
Jules Nordlicht 600,000 (4) 4.53 (4) 600,000 0
Moses Elias 16,000 (5) ** (5) 16,000 0
Harry Adler 80,000 (6) ** (6) 80,000 0
Dr. Seymour Huberfeld 20,000 (7) ** (7) 20,000 0
Connie Lerner 10,000 (8) ** (8) 10,000 0
Mueller Trading L.P. 10,000 (9) ** (9) 10,000 0
Jack Ehrenhaus 10,000(10) ** (10) 10,000 0
Cong. Ahavas Tzedach Vachsed 14,000(11) ** (11) 14,000 0
Laura Huberfeld/Naomi Bodner Partnership 1,200,000(12) 8.85(12) 1,200,000 0
Jesup & Lamont Capital Markets, Inc. 1,833,336(13) 12.40(13) 1,833,336 0
</TABLE>
* Assumes all shares of Common Stock are sold
** Represents less than one percent (1%).
(1) Shares of Common Stock which were not outstanding but which could be
acquired upon exercise of any option or warrant within 60 days of
September 30, 1995, are deemed outstanding for the purpose of computing
the percentage of outstanding shares beneficially owned. However, such
shares are not deemed to be outstanding for any other purpose except as
noted elsewhere herein. There were 12,963,763 shares of Common Stock
outstanding as of September 30, 1995.
(2) Includes 80,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
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<PAGE>
(3) Includes 40,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement
to which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(4) Includes 300,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(5) Includes 8,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(6) Includes 40,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(7) Includes 10,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(8) Includes 5,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(9) Includes 5,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
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<PAGE>
(10) Includes 5,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(11) Includes 7,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(12) Includes 600,000 shares of Common Stock issuable upon exercise of such
Selling Stockholder's Private Placement Warrant, which is immediately
exercisable following the effectiveness of the Registration Statement to
which this Prospectus relates and the Company's notice to such Selling
Stockholder. See "Description of Capital Stock-Private Placement Warrants."
(13) Includes the following number of shares of Common Stock that such entity
had the right to acquire at September 30, 1995 pursuant to exercise or
conversion, but which have not been exercised or converted: 500,000 shares
upon the exercise of the J&L Warrant, and 1,333,336 shares upon the
conversion of 166,667 shares of Series A Preferred Stock.
On September 20, 1995, the Company entered into Subscription Agreements
with each of the Selling Stockholders who participated in the Private
Placement pursuant to which such persons purchased units consisting of an
aggregate of 1,100,000 shares of Common Stock and the Private Placement
Warrants exercisable into an aggregate of 1,100,000 shares of Common Stock
for $1.25 per unit. The Private Placement Warrants are exercisable through
September 11, 1997 except under certain circumstances and have anti-dilution
protection. The holders of the Private Placement Warrants ("Private Placement
Warrantholders") have certain registration rights pursuant to which the
Company has registered for sale in the offering made hereby 1,100,000 shares
of Common Stock to be issued upon exercise of the Private Placement Warrants.
The costs of this registration will be paid by the Company. See
"Description of Capital Stock--Warrants."
On July 31, 1995, the Company entered into (1) a Share Purchase
Agreement with J&L pursuant to which J&L purchased 166,667 shares of Series A
Preferred Stock for $1,500,000 (the "Share Purchase Agreement"), and (2) a
Warrant Purchase Agreement with J&L pursuant to which the Company issued to
J&L the J&L Warrant exercisable into an aggregate of 500,000 shares of
Common Stock (the "Warrant Purchase Agreement"). The J&L Warrant is
exercisable through July 31, 1998 and has anti-dilution protection. J&L has
certain registration rights pursuant to which the Company has registered for
sale in the offering made hereby 500,000 shares of Common Stock to be issued
upon exercise of the J&L Warrant and 1,333,336 shares of Common Stock
issuable upon conversion of the Series A Preferred Stock. The costs of this
registration will be paid by the
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<PAGE>
Company, including up to $20,000 of reasonable fees and expenses of one
counsel for holder of the J&L Warrant and the Series A Preferred Stock. See
"Description of Capital Stock--Warrants."
Other than set forth in the preceding two paragraphs, none of the
Selling Stockholders were affiliated with the Company within the last three
fiscal years.
In connection with the offering made hereby, the Company and the Selling
Stockholders have entered into an agreement that contains certain indemnity
provisions between the Company and such Selling Stockholders and the
controlling persons thereof against certain liabilities, including
liabilities arising under the Securities Act.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED AND OUTSTANDING CAPITAL STOCK
The authorized capital stock of the Company currently consists of
50,000,000 shares of Common Stock, par value $.0001 per share, and 12,500,000
shares of preferred stock, par value $.00001 per share the ("Preferred
Stock"), of which 250,000 shares of Preferred Stock is authorized as Series A
Cumulative Convertible Preferred Stock and 250,000 shares of Preferred Stock
is authorized as Series B Cumulative Convertible Preferred Stock, and
12,000,000 shares are subject to designation and issuance by the Board of
Directors of the Company in the future. On September 30, 1995, there were
(1) 12,953,763 shares of Common Stock outstanding and held of record by
approximately 522 stockholders, (2) 166,667 shares of Series A Preferred
Stock outstanding and held of record by one stockholder, and (3) 125,000
shares of Series B Preferred Stock outstanding and held of record by three
stockholders. All holders of Series B Preferred Stock have waived the
conversion provisions applicable to the Series B Preferred Stock discussed
below.
The following descriptions of capital stock are qualified in all
respects by reference to the Company's Certificate of Incorporation, as
amended (the "Certificate") and the Certificate of Designations, Preferences
and Rights for each of the Series A Preferred Stock (the "Series A
Designation") and the Series B Preferred Stock (the "Series B Designation").
COMMON STOCK
Holders of Common Stock are entitled to receive dividends when, as and
if declared by the Board of Directors of the Company from funds legally
available therefor. Each share of Common Stock entitles the holder thereof
to one vote upon matters voted upon by the stockholders. Cumulative voting
for the election of directors is not permitted, which means that the holders
of a majority of shares voting for the election of directors can elect all
members of each class of the Board. Except as otherwise required by
applicable Delaware law, a majority vote is sufficient for any action that
requires the vote or concurrence of stockholders, except that a plurality
vote is sufficient to elect directors.
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<PAGE>
The holders of Common Stock do not have any preemptive, subscription,
redemption or conversion rights or privileges. Upon liquidation or
dissolution of the Company, the holders of Common Stock are entitled to share
ratably in the net assets of the Company remaining after payment of
liabilities and liquidation preferences of any outstanding shares of
Preferred Stock. All shares of Common Stock now outstanding are, and the
Shares of Common Stock to be sold by the Warrantholders hereby will be, upon
issuance, fully paid and non-assessable.
UNDESIGNATED PREFERRED STOCK
The 12,000,000 shares of undesignated Preferred Stock may be issued from
time to time by the Board of Directors of the Company in one or more series,
without further stockholder approval or action, with such designations,
powers, limitations, restrictions, qualifications, rights, preferences and
privileges as the Board may determine.
SERIES A PREFERRED STOCK
PRIORITY. As stated in the Series A Designation, the Series A Preferred
Stock ranks prior to the Common Stock and to all other capital stock of the
Company except the Series B Preferred Stock, with which it ranks pari passu
as to dividends and liquidation.
VOTING RIGHTS. The Series A Preferred Stock has no voting rights except
as otherwise specifically provided by law and except as noted below. So long
as any shares of Series A Preferred Stock remain outstanding, the affirmative
vote or consent of holders of at least 51% of all of the shares of Series A
Preferred Stock at the time outstanding, voting separately as a class, is
required to (1) create, authorize or issue any class or series of capital
stock ranking prior to the Series A Preferred Stock as to dividends or upon
liquidation, (2) amend the Certificate, or in any other manner alter or
change the powers, rights, privileges or preferences of the Series A
Preferred Stock, if such amendment or action would adversely affect the
powers, rights, privileges and preferences of the holders of the Series A
Preferred Stock (except that the Company may amend the Certificate and or its
bylaws to increase the amount of shares of Common Stock or amend the terms of
any Common Stock, or to create, authorize or issue shares of capital stock
(other than Common Stock) ranking junior as to the Series A Preferred Stock
as to dividends and upon liquidation ("Junior Preferred Stock")); (3) amend
the Series A Designation; and (4) approve and adopt any agreement, plan or
proposal for (A) the sale and other disposition of all or substantially all
of the assets and rights of the Company other than in the ordinary course of
business, (B) the consolidation, merger or dissolution of the Company (other
than the merger of a subsidiary of the Company into the Company in which the
Company is the surviving corporation or any other merger in which the Company
is the surviving corporation),or (c) a share exchange which is submitted to a
vote of the stockholders of the Company.
ADDITIONAL VOTING RIGHTS UPON OCCURRENCE OF EVENT OF DEFAULT. So long
as there are at least 100,000 shares of Series A Preferred Stock then
outstanding (subject to adjustment), upon the occurrence of an Event of
Default, the holders of the Series A Preferred Stock are entitled to elect
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<PAGE>
a number of directors to the Board of Directors of the Company equal to the
number obtained by (1) multiplying (A) a fraction, the numerator of which is
the number of shares of Common Stock obtainable upon conversion of all of the
shares of Series A Preferred Stock then outstanding and the denominator of
which is the total number of shares of Common Stock (on a fully diluted
basis) then outstanding, by (B) the number of directors on the Board of
Directors of the Company and then (2) rounding such number down to the
nearest whole number (except that such number cannot be less than 1). The
size of the Board of Directors of the Company shall be increased by such
number as may be necessary to allow for directors elected by the holders of
the Series A Preferred Stock. During the period commencing upon the
occurrence of such Event of Default (as defined below) and ending at such
time upon which no Event of Default shall continue (the "Class A Voting
Period"), the holders of at least 51% of the then outstanding shares of
Series A Preferred Stock ("Majority of Series A Holders") shall be entitled,
as a class, to the exclusion of all other classes or series of capital stock
of the Company, to elect such directors and each shares of Series A Preferred
Stock will have one vote for such purpose. An "Event of Default" means (x)
the failure by the Company to redeem shares of Series A Preferred Stock in
accordance with the provisions of Section 6(a) or 6(b) of the Series A
Designation for any reason, and such failure in redemption shall have
continued for 180 days or (y) the equivalent of one year's dividend payment
on all outstanding shares of Series A Preferred Stock shall be accrued and
unpaid, if funds are legally available therefor, and such failure has
continued for 60 days.
Any director elected by the holders of Series A Preferred Stock may be
removed at any time during a Class A Voting Period by a Majority of Series A
Holders, voting separately as a class, and may not be removed without the
consent of at least a Majority of Series A Holders. Any vacancy created by
the removal, death or resignation of such a director may be filled during the
Class A Voting Period by a Majority of Series A Holders. During the Class A
Voting Period, the size of the Board of Directors of the Company cannot be
changed without the vote of a Majority of Series A Holders, voting separately
as a class. At the end of the Class A Voting Period, the holders of Series A
Preferred Stock shall be automatically divested of all such additional voting
power, subject to the subsequent vesting of such voting power upon the
occurrence of any subsequent Event of Default.
DIVIDEND RIGHTS. The Company shall pay, when and as declared by the
Company's Board of Directors, to the holders of the Series A Preferred Stock,
out of assets of the Company legally available therefor, stock dividends,
payable in shares of Series A Preferred Stock (or at the election of the
Company, in cash) (provided that upon liquidation or redemption, accrued and
unpaid dividends will be paid in cash), at the times, in the amounts and with
such priorities as noted below. Notwithstanding the foregoing, without the
consent of a majority in interest of the lenders under the Term Credit
Agreement dated as of July 31, 1995 by and between the Company and Norwest
Bank Minnesota, N.A. (the "Credit Agreement"), no dividends may be paid in
cash to the holders of the Series A Preferred Stock so long as indebtedness
is outstanding and unpaid under the Credit Agreement. Dividends accrue
cumulatively on a daily basis from and including the date of issuance at a
rate per annum equal to $.72 per share calculated on the basis of the actual
number of days elapsed in a year. Dividends paid in shares of Series A
Preferred Stock shall be paid assuming each share of Series A Preferred Stock
used to so pay has a value of $9.00. Dividends shall be payable
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annually on the last day of July in each year ("Series A Dividend Payment
Date") beginning July 31, 1996.
Dividends which are not paid for any reason whatsoever on a Series A
Dividend Payment Date cumulate until paid and shall be payable on the next
Series A Dividend Payment Date on which payment can be lawfully made (or upon
liquidation or redemption as provided in the Series A Designation). Holders
of shares of Series A Preferred Stock called for redemption on a redemption
date falling between the close of business on a dividend payment record date
and the opening of business on the corresponding Series A Dividend Payment
Date, shall, in lieu of receiving such dividend payment on the Series A
Dividend Payment Date fixed therefor, receive an amount equal to such
dividend payment (consisting of all accumulated and unpaid dividends through
and including the redemption date) on the date fixed for redemption.
Dividends paid by payment-in-kind shall not be paid in fractional shares.
So long as any shares of Series A Preferred Stock are outstanding if an
Event of Default has occurred and is continuing or if an Event of Default (as
defined in the Credit Agreement) has occurred and is continuing, (A) no
dividends shall be declared or paid or set apart for payment and no other
distribution shall be declared or made or set apart for payment, in each case
upon the Common Stock (other than dividends paid in shares of Common Stock
made to the holders of Common Stock), the Series A Preferred Stock (other
than dividends paid in Series A Preferred Stock) or any Junior Preferred
Stock, and (B) no capital stock of the Company (other than the Series A
Preferred Stock) shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
or otherwise for the purchase or redemption of any shares of any such stock)
by the Company.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company ("Liquidation"), whether voluntary or involuntary,
before any payment or distribution of the assets of the Company (whether from
capital or surplus) shall be made or set apart to the holders of Common Stock
or any other shares of capital stock of the Company, the holders of the
shares of Series A Preferred Stock shall be entitled to receive from the
assets of the Company, whether represented by capital, surplus, reserves or
earnings, payment in cash of an amount (the "Series A Preferred Liquidation
Value") equal to the greater of (1) $9.00 per share plus the value of accrued
and unpaid dividends per share through the date thereof or (2) the amount per
share of Series A Preferred Stock that would have been payable had each such
share been converted to Common Shares immediately prior to such event of
Liquidation. If the assets distributable on Liquidation shall be
insufficient to permit payment of the full preferential amounts on the Series
A Preferred Stock, then such assets shall be distributed ratably among the
shares of Series A Preferred Stock. If the assets distributable on
Liquidation shall be insufficient to permit payment of the Series A Preferred
Liquidation Value and the Series B Preferred Liquidation Value (as defined
below), the respective holders of the Series A Preferred Stock and of the
Series B Preferred Stock shall share ratably in any distribution of assets in
proportion to the full preferred liquidation value to which each such series
of Preferred Stock is entitled. After payment shall have been made in full
to the holders of the Series A Preferred Stock upon Liquidation, the Common
Stock and any other series or class
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or classes of stock of the Company shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all
assets remaining to be paid or distribution upon such Liquidation, and the
holders of the Series A Preferred Stock shall not be entitled to share
therein. Neither the voluntary sale, conveyance, exchange or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all the property or assets of the Company nor the
consolidation, merger, or other business combination of the Company with or
into one or more corporations shall be deemed to be a Liquidation.
MANDATORY REDEMPTION. The Company shall redeem on July 31, 2000 all of
the then outstanding shares of Series A Preferred Stock, in cash at a price
per share equal to the sum of (1) $9.00 plus (2) the value of accrued and
unpaid dividends on such share through such date.
OPTIONAL REDEMPTION. On or after July 31, 1997 (but not before), if
there has been a Qualified Level of Public Trading as of the date of the
notice of redemption, at the option of the Company, the Company may redeem
all or part of the shares of Series A Preferred Stock then outstanding at a
cash price per share equal to the sum of $9.00 plus the value of accrued and
unpaid dividends on such share through the date set for redemption. A
"Qualified Level of Public Trading" shall exist if, and only if, on the date
of notice of the Company's election of its right to redeem the shares of
Series A Preferred Stock, (1) the Series A Common Shares are listed or
admitted to trading on a national securities exchange or are traded on the
National Association of Securities Dealers Inc., Automated Quotation System
Level 1, National Market System ("National Market System") or in the
over-the-counter market, and (2) either (A) the last reported sale price
regular way for the Series A Common Shares on the principal national
securities exchange on which Series A Common Shares are listed or admitted to
trading, or if Series A Common Shares are not listed or admitted to trading
on any national securities exchange, on the National Market Systems, or (B)
if Series A Common Shares are listed or admitted for trading on neither any
national securities exchange nor on the National Market Systems, the average
of the highest reported bid and lowest reported asked prices as furnished by
the National Association of Securities Dealers Inc., Automated Quotation
System Level I, or comparable system, shall (in the case of (A) or (B)) have
equaled or exceeded an amount per share equal to at least 250% of the then
current conversion price for at least 20 consecutive trading days.
Notwithstanding the foregoing, without the consent of a majority in
interest of the lenders under the Credit Agreement, the Company may not
redeem all or any part of the shares of Series A Preferred Stock pursuant to
the optional redemption provisions so long as indebtedness is outstanding and
unpaid under the Credit Agreement. Such option shall be exercised by written
notice to the holders of the Series A Preferred Stock given at any time not
less than 30 and not more than 60 days prior to the date of such redemption.
CONVERSION. Each holder of a share of Series A Preferred Stock shall
have the right, at the option of the holder at any time to convert, one or
more shares of Series A Preferred Stock into shares of Common Stock of the
Company or any capital stock or other securities into which the Common Stock
shall have been changed or any capital stock or other securities resulting
from a
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reclassification thereof (such shares, the "Series A Common Shares"). The
conversion rate therefor shall be one share of Series A Preferred Stock for a
number of Series A Common Shares equal to (1) $9.00 plus the value of accrued
and unpaid dividends on such shares dividend by (2) the then current
conversion price. Every share of Series A Preferred Stock shall continue to
be convertible, in whole or in part, even though the Company or a holder may
have given notice of redemption with respect to such share of Series A
Preferred Stock or any part thereof so long as such share of Series A
Preferred Stock and the holder's election to convert shall have been
delivered to the Company prior to the date fixed for such redemption. Each
conversion of shares shall be deemed to have been effected immediately prior
to the close of business on the business day on which such share of Series A
Preferred Stock shall have been surrendered to the Company as provided in the
Series A Designation. Within five business days after receipt of any share
of Series A Preferred Stock and an election to convert all or a portion of
such share of Series A Preferred Stock, the Company will pay, out of funds
legally available therefor, to the holder of such share of Series A Preferred
Stock in shares of Series A Preferred Stock, or at the option of the Company,
in cash, an amount equal to full cumulative dividends accrued to the
effective date of conversion of such shares of Series A Preferred Stock. No
fractional shares of Common Stock will be issued upon conversion of Series A
Preferred Stock, and in lieu of any fraction of a Series A Common Share, the
holder shall be entitled to receive an amount in cash equal to the same
fraction of the current market price (as defined below) on the effective date
of the conversion.
The term "conversion price" shall mean initially $1.125 per Series A
Common Share, subject to adjustment from time to time as follows:
(1) ADJUSTMENTS FOR STOCK DIVIDENDS, RECAPITALIZATIONS, ETC. If
the Company shall, after August 1, 1995, (A) pay a stock dividend or
make a distribution (on or in respect of its Common Stock) in shares of
its Common Stock, (B) subdivide the outstanding shares of its Common
Stock, (c) combine the outstanding shares of its Common Stock into a
smaller number of shares, or (D) issue by reclassification of shares of
its Common Stock, any shares of capital stock of the Company, then, in
any such case, the current conversion price in effect immediately prior
to such action shall be adjusted to a price such that if the holder of
a share of Series A Preferred Stock were to convert such share of
Series A Preferred Stock in full immediately after such action, such
holder would be entitled to receive the number of shares of capital
stock of the Company which such holder would have owned immediately
following such action had such share of Series A Preferred Stock been
converted immediately prior thereto (with any record date requirement
being deemed to have been satisfied), and, in any such case, such
conversion price shall thereafter be subject to further adjustments
under the Series A Designation. This adjustment shall become effective
immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision, combination or reclassification.
(2) ADJUSTMENTS FOR ISSUANCES OF ADDITIONAL STOCK. If the
Company shall at any time or from time to time after August 1, 1995
issue any additional shares of the Company's
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Common Stock ("Additional Common Stock") for a consideration per share
either (A) less than the then current conversion price immediately
prior to the issuance of such Additional Common Stock or (B) without
consideration, then (in the case of either clause (A) or (B)), and
thereafter successively upon each such issuance, the current conversion
price shall forthwith be reduced to a price equal to the price
determined by multiplying such current conversion price by a fraction,
of which (I) the numerator shall be (x) the number of shares of the
Company's Common Stock outstanding when the then current conversion
price became effective, plus (y) the number of shares of the Company's
Common Stock which the aggregate amount of consideration, if any,
received by the Company upon all issuances of the Company's Common
Stock since the current conversion price became effective (including
the consideration, if any, received for such Additional Common Stock)
would purchase at the then current conversion price per share, and (II)
the denominator shall be (x) the number of shares of the Company's
Common Stock outstanding when the current conversion price became
effective, plus (y) the number of shares of the Company's Common Stock
issued since the current conversion price became effective (including
the number of shares of such Additional Common Stock); provided,
however, that such adjustment shall be made only if such adjustment
results in the current conversion price less than the current
conversion price in effect immediately prior to the issuance of such
Additional Common Stock. The Company may, but shall not be required
to, make any adjustment of the current conversion price if the amount
of such adjustment shall be less than one percent of the current
conversion price immediately prior to such adjustment, but any
adjustment that would otherwise be required then to be made which is
not so made shall be carried forward and shall be made at the time of
(and together with) the next subsequent adjustment which, together with
any adjustments to be carried forward, shall amount to not less than
one percent of the current conversion price immediately prior to such
adjustment.
For purposes of any adjustment for additional stock issuances as
described above:
In the case of the issuance of Additional Common Stock for (A)
cash, the consideration received by the Company therefore shall be
deemed to be the cash proceeds received by the Company for such
Additional Common Stock after deducting any commissions or other
expenses paid or incurred in connection with the issuance of such
Additional Common Stock; and (B) consideration other than cash, or a
consideration a part of which shall be other than cash, the amount of
the consideration other than cash so received or to be received by the
Company shall be deemed to be the value of such consideration at the
time of its receipt by the Company as determined in good faith by the
Board of Directors, except that where the non-cash consideration
consists of the cancellation, surrender or exchange of outstanding
obligations of the Company (or where such obligations are otherwise
converted into shares of the Company's Common Stock), the value of the
non-cash consideration shall be deemed to be the principal amount of
the obligations canceled surrendered, satisfied, exchanged or
converted. If the Company receives consideration, part or all of which
consists of publicly traded securities (i.e., in lieu of cash), the
value of such non-cash consideration shall be the aggregate market
value of such securities (based on the
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latest reported sales price regular way) as of the close of the day
immediately preceding the date of their receipt by the Company.
In the case of the issuance after July 31, 1995, whether by
distribution or sale to the holders of its Common Stock or to others,
by the Company of (A) any security (other than the shares of Series A
Preferred Stock) that is convertible into Common Stock, or (B) any
rights, options or warrants to purchase the Company's Common Stock, if
inclusion thereof in calculating adjustments under Section 8 of the
Series A Designation would result in a current conversion price lower
than if excluded, the Company shall be deemed to have issued, for the
consideration described below, the number of shares of the Company's
Common Stock into which such convertible security may be converted when
first convertible, or the number of shares of the Company's Common
Stock deliverable upon the exercise of such rights, options or warrants
when deemed to be Additional Common Stock for the purposes of Section
8(b) of the Series A Designation. The consideration deemed to be
received by the Company at the time of the issuance of such convertible
securities or such rights, options or warrants shall be the
consideration so received determined as provided with the issuance of
Series A Common Shares (I) upon conversion of the shares of Series A
Preferred Stock or Series B Preferred Stock (or the issuance of any
shares of Series A Preferred Stock or Series B Preferred Stock under
any of the separate Share Purchase Agreements dated as of July 31, 1995
between the Company and each of the original holders of shares of
Series A Preferred Stock, as from time to time assigned, supplemented
or amended or as the terms thereof may be waived, each in accordance
with its terms (the "Purchase Agreements")) or (II) upon exercise or
conversion of the Warrants (as defined in the Series A Designation) or
the stock options granted to employees of the Company on or before July
31, 1995.
ANTIDILUTION ADJUSTMENTS UNDER OTHER SECURITIES. Without limiting
any other rights available under the Series A Designation to the
holders of shares of Series A Preferred Stock, if there is an
antidilution adjustment (A) under any security which is convertible
into Common Stock of the Company whether issued prior to or after July
31, 1995 (except for the shares of Series A Preferred Stock) or (B)
under any right, option or warrant to purchase Common Stock of the
Company whether issued prior to or after July 31, 1995, which (in the
case of clause (A) or (B)) results in a reduction in the exercise or
purchase price with respect to such security, right, option or warrant
to an amount less than the then current conversion price or results in
an increase in the number of shares obtainable under such security,
right, option or warrant which has an effect equivalent to lowering a
conversion or exercise price to an amount less than the then current
conversion price, then an adjustment shall be made under Section 8(f)
of the Series A Designation to the then current conversion price. Such
adjustment shall be whichever of the following results in a lower
current conversion price: (I) a reduction in the current conversion
price equal to the percentage reduction in such exercise or purchase
price with respect to such security, right, option or warrant, or (II)
a reduction in the current conversion price which will result in the
same percentage increase in the number of Series A Common Shares
available under Section 8 of the Series A
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Designation as the percentage increase in the number of shares
available under such security, right, option or warrant. Any such
adjustment shall only be made if it would result in a lower current
conversion price than that which would be determined pursuant to any
other antidilution adjustment otherwise required under Section 8 of the
Series A Designation as a result of the event or circumstance which
triggered the adjustment of the security, right, option or warrant
described in clause (A) or (B) above.
OTHER ADJUSTMENTS. If any event shall occur as to which any
of the provisions of Section 8 of the Series A Designation are not
strictly applicable, but the failure to make any adjustment would not
fairly protect the conversion rights represented by the shares of
Series A Preferred Stock in accordance with the essential intent and
principles of Sections 7 and 8 of the Series A Designation, then, in
each such case, the Company shall appoint a firm of independent public
accountants or recognized national standing selected by the Board of
Directors of the Company (who may be regular auditors of the Company),
which shall give their opinion upon the adjustment, if any, on a basis
consistent with the essential intent and principles established in
Sections 7 and 8 of the Series A Designation, necessary to preserve,
without dilution, the conversion rights represented by the shares of
Series A Preferred Stock.
CONSOLIDATION OR MERGER. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or
substantially all of the Company's assets to another person or entity
or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is an "Organic Change". Prior to the
consummation of an Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to holders of
Series A Preferred Stock representing a majority of the Series A
Preferred Stock then outstanding) to insure that each of the holders of
the Series A Preferred Stock shall thereafter have the right to acquire
and receive in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and
receivable upon the conversion of such holder's Series A Preferred
Stock, such shares of stock, securities or assets as may be issuable or
payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon
conversion of such holder's Series A Preferred Stock had such Organic
Change not taken place.
In any such case, the Company shall make appropriate provision (in form
and substance reasonably satisfactory to the holders of Series A
Preferred Stock representing a majority of the Series A Preferred Stock
then outstanding) with respect to such holders' rights and interest to
insure that the provisions above shall thereafter be applicable to the
Series A Preferred Stock (including, in the case of any consolidation,
merger or sale in which the successor entity or purchasing entity is
other than the Company, an immediate adjustment of the conversion price
to reflect the value for the Series A Preferred Stock reflected by the
terms of such consideration, merger or sale, if the value so reflected
would cause an increase
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to the conversion price in effect immediately prior to such
consolidation, merger or sale). The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting
from such consolidation or merger or the corporation purchasing such
assets assumes by written instrument (which may be the agreement of
consolidation, merger or sale), in form and substance reasonably
satisfactory to the holders of Series A Preferred Stock then
outstanding, the obligation to deliver to each such holder of shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to acquire.
SERIES B PREFERRED STOCK
PRIORITY. As stated in the Series B Designation, the Series B Preferred
Stock ranks prior to the Common Stock and to all other capital stock of the
Company except the Series A Preferred Stock, with which it ranks pari passu
as to dividends and liquidation.
VOTING RIGHTS. The Series B Preferred Stock has no voting rights except
as otherwise specifically provided by law and except as noted below. So long
as any shares of Series B Preferred Stock remain outstanding, the affirmative
vote or consent of holders of at least 51% of all of the shares of Series B
Preferred Stock at the time outstanding, voting separately as a class, is
required to (1) create, authorize or issue any class or series of capital
stock ranking prior to the Series B Preferred Stock as to dividends or upon
liquidation, (2) amend the Certificate, or in any other manner alter or
change the powers, rights, privileges or preferences of the Series B
Preferred Stock, if such amendment or action would adversely affect the
powers, rights, privileges and preferences of the holders of the Series B
Preferred Stock (except that the Company may amend the Certificate and or its
bylaws to increase the amount of shares of Common Stock or amend the terms of
any Common Stock, or to create, authorize or issue shares of capital stock
(other than Common Stock) ranking junior as to the Series B Preferred Stock
as to dividends and upon liquidation ("Junior Preferred Stock")); and (3)
amend the Series B Designation.
ADDITIONAL VOTING RIGHTS UPON OCCURRENCE OF EVENT OF DEFAULT. So long
as there are at least 100,000 shares of Series B Preferred Stock then
outstanding (subject to adjustment), upon the occurrence of an Event of
Default, the holders of the Series B Preferred Stock are entitled to elect a
number of directors to the Board of Directors of the Company equal to the
number obtained by (1) multiplying (A) a fraction, the numerator of which is
the number of shares of Common Stock obtainable upon conversion of all of the
shares of Series B Preferred Stock then outstanding and the denominator of
which is the total number of shares of Common Stock (on a fully diluted
basis) then outstanding, by (B) the number of directors on the Board of
Directors of the Company and then (2) rounding such number down to the
nearest whole number (except that such number cannot be less than 1). The
size of the Board of Directors of the Company shall be increased by such
number as may be necessary to allow for directors elected by the holders of
the Series B Preferred Stock. During the period commencing upon the
occurrence of such Event of Default (as defined below) and ending at such
time upon which no Event of Default shall continue (the "Class B Voting
Period"), the holders of at least 51% of the then outstanding shares of
Series B Preferred Stock ("Majority of
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Series B Holders") shall be entitled, as a class, to the exclusion of all
other classes or series of capital stock of the Company, to elect such
directors and each shares of Series B Preferred Stock will have one vote for
such purpose. An "Event of Default" means (x) the failure by the Company to
redeem shares of Series B Preferred Stock in accordance with the provisions
of Section 6(a) or 6(b) of the Series B Designation for any reason, and such
failure in redemption shall have continued for 180 days or (y) the equivalent
of one year's dividend payment on all outstanding shares of Series B
Preferred Stock shall be accrued and unpaid, if funds are legally available
therefor, and such failure has continued for 60 days.
Any director elected by the holders of Series B Preferred Stock may be
removed at any time during a Class B Voting Period by a Majority of Series B
Holders, voting separately as a class, and may not be removed without the
consent of at least a Majority of Series B Holders. Any vacancy created by
the removal, death or resignation of such a director may be filled during the
Class B Voting Period by a Majority of Series B Holders. During the Class B
Voting Period, the size of the Board of Directors of the Company cannot be
changed without the vote of a Majority of Series B Holders, voting separately
as a class. At the end of the Class B Voting Period, the holders of Series B
Preferred Stock shall be automatically divested of all such additional voting
power, subject to the subsequent vesting of such voting power upon the
occurrence of any subsequent Event of Default.
DIVIDEND RIGHTS. The Company shall pay, when and as declared by the
Company's Board of Directors, to the holders of the Series B Preferred Stock,
out of assets of the Company legally available therefor, stock dividends,
payable in shares of Series B Preferred Stock (or at the election of the
Company, in cash) (provided that upon liquidation or redemption, accrued and
unpaid dividends will be paid in cash), at the times, in the amounts and with
such priorities as noted below. Notwithstanding the foregoing, without the
consent of a majority in interest of the lenders under the Credit Agreement,
no dividends may be paid in cash to the holders of the Series B Preferred
Stock so long as indebtedness is outstanding and unpaid under the Credit
Agreement. Dividends accrue cumulatively on a daily basis from and including
the date of issuance at a rate per annum equal to $.80 per share calculated
on the basis of the actual number of days elapsed in a year. Dividends paid
in shares of Series B Preferred Stock shall be paid assuming each share of
Series B Preferred Stock used to so pay has a value of $10.00. Dividends
shall be payable annually on the last day of July in each year ("Series B
Dividend Payment Date") beginning July 31, 1996.
Dividends which are not paid for any reason whatsoever on a Series B
Dividend Payment Date cumulate until paid and shall be payable on the next
Series B Dividend Payment Date on which payment can be lawfully made (or upon
liquidation or redemption as provided in the Series B Designation). Holders
of shares of Series B Preferred Stock called for redemption on a redemption
date falling between the close of business on a dividend payment record date
and the opening of business on the corresponding Series B Dividend Payment
Date, shall, in lieu of receiving such dividend payment on the Series B
Dividend Payment Date fixed therefor, receive an amount equal to such
dividend payment (consisting of all accumulated and unpaid dividends through
and including the redemption date) on the date fixed for redemption.
Dividends paid by payment-in-kind shall not be paid in fractional shares.
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So long as any shares of Series B Preferred Stock are outstanding if an
Event of Default has occurred and is continuing or if an Event of Default (as
defined in the Credit Agreement) has occurred and is continuing, (A) no
dividends shall be declared or paid or set apart for payment and no other
distribution shall be declared or made or set apart for payment, in each case
upon the Common Stock (other than dividends paid in shares of Common Stock
made to the holders of Common Stock), the Series B Preferred Stock (other
than dividends paid in Series B Preferred Stock) or any Junior Preferred
Stock, and (B) no capital stock of the Company (other than the Series B
Preferred Stock) shall be redeemed, purchased or otherwise acquired for any
consideration (or any moneys be paid to or made available for a sinking fund
or otherwise for the purchase or redemption of any shares of any such stock)
by the Company.
LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company ("Liquidation"), whether voluntary or involuntary,
before any payment or distribution of the assets of the Company (whether from
capital or surplus) shall be made or set apart to the holders of Common Stock
or any other shares of capital stock of the Company, the holders of the
shares of Series B Preferred Stock shall be entitled to receive from the
assets of the Company, whether represented by capital, surplus, reserves or
earnings, payment in cash of an amount (the "Series B Preferred Liquidation
Value") equal to the greater of (1) $10.00 per share plus the value of
accrued and unpaid dividends per share through the date thereof or (2) the
amount per share of Series B Preferred Stock that would have been payable had
each such share been converted to Common Shares immediately prior to such
event of Liquidation. If the assets distributable on Liquidation shall be
insufficient to permit payment of the full preferential amounts on the Series
B Preferred Stock, then such assets shall be distributed ratably among the
shares of Series B Preferred Stock. If the assets distributable on
Liquidation shall be insufficient to permit payment of the Series B Preferred
Liquidation Value and the Series A Preferred Liquidation Value (as defined
below), the respective holders of the Series B Preferred Stock and of the
Series A Preferred Stock shall share ratably in any distribution of assets in
proportion to the full preferred liquidation value to which each such series
of Preferred Stock is entitled. After payment shall have been made in full
to the holders of the Series B Preferred Stock upon Liquidation, the Common
Stock and any other series or class or classes of stock of the Company shall,
subject to the respective terms and provisions (if any) applying thereto, be
entitled to receive any and all assets remaining to be paid or distribution
upon such Liquidation, and the holders of the Series B Preferred Stock shall
not be entitled to share therein. Neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property or assets of the
Company nor the consolidation, merger, or other business combination of the
Company with or into one or more corporations shall be deemed to be a
Liquidation.
OPTIONAL REDEMPTION. On or after July 31, 1997 (but not before), if
there has been a Qualified Level of Public Trading as of the date of the
notice of redemption, at the option of the Company, the Company may redeem
all or part of the shares of Series B Preferred Stock then outstanding at a
cash price per share equal to the sum of $10.00 plus the value of accrued and
unpaid dividends on such share through the date set for redemption. A
"Qualified Level of Public Trading" shall exist if, and only if, on the date
of notice of the Company's election of its right to redeem the
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shares of Series B Preferred Stock, (1) the Series B Common Shares are listed
or admitted to trading on a national securities exchange or are traded on the
National Association of Securities Dealers Inc., Automated Quotation System
Level 1, National Market System ("National Market System") or in the
over-the-counter market, and (2) either (A) the last reported sale price
regular way for the Series B Common Shares on the principal national
securities exchange on which Series B Common Shares are listed or admitted to
trading, or if Series B Common Shares are not listed or admitted to trading
on any national securities exchange, on the National Market Systems, or (B)
if Series B Common Shares are listed or admitted for trading on neither any
national securities exchange nor on the National Market Systems, the average
of the highest reported bid and lowest reported asked prices as furnished by
the National Association of Securities Dealers Inc., Automated Quotation
System Level I, or comparable system, shall (in the case of (A) or (B)) have
equaled or exceeded an amount per share equal to at least 250% of the then
current conversion price for at least 20 consecutive trading days.
Notwithstanding the foregoing, without the consent of a majority in
interest of the lenders under the Credit Agreement, the Company may not
redeem all or any part of the shares of Series B Preferred Stock pursuant to
the optional redemption provisions so long as indebtedness is outstanding and
unpaid under the Credit Agreement. Such option shall be exercised by written
notice to the holders of the Series B Preferred Stock given at any time not
less than 30 and not more than 60 days prior to the date of such redemption.
CONVERSION. The present holders of the Series B Preferred Stock have
waived conversion rights.
PRIVATE PLACEMENT WARRANTS
The Private Placement Warrantholders will acquire their portion of the
Shares offered hereby upon the conversion of the Private Placement Warrants
that were issued to the Private Placement Warrantholders in a private
placement on September 20, 1995. The Private Placement Warrants will not be
exercised by the Private Placement Warrantholders prior to the effective date
of the Registration Statement of which this Prospectus forms a part, but when
exercisable, will be exercised from time to time after effectiveness, at an
exercise price of $1.25 per warrant share, as sales of the shares of Common
Stock underlying such Private Placement Warrants are made.
The Private Placement Warrants may not be exercised prior to September
12, 1996 unless either (1) the "Market Price" of the Common Stock is greater
than $4.00 per share or (2) the Company provides a notice to the Private
Placement Warrantholder that the Private Placement Warrant will expire on the
46th day following such written notice (the "Early Expiration Notice"). The
Company may only issue the Early Expiration Notice if the shares of Common
Stock into which the Private Placement Warrant is exercisable are registered
under the Securities Act. The Private Placement Warrants will expire on the
earlier of September 11, 1997 or the 46th day following the Early Expiration
Notice. For purposes of the Private Placement Warrants, "Market Price"
means the average of the closing prices of sales of a share of Company Common
Stock on all securities
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<PAGE>
exchanges on which such share may at the time be listed, or, if there
have been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day such security is not so listed, the average
of the representative bid and asked prices quoted on the Nasdaq System
as of 4:00 p.m., New York time, or if on any day such security is not
quoted in the Nasdaq System, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 10
days consisting of the day as of which "Market Price" is being
determined and the 9 consecutive business days prior to such day.
The terms of the Subscription Agreement with respect to the Shares
provide that the Company must file with the Commission and use all reasonable
efforts to cause to become effective as soon as practicable a registration
statement covering all of the shares of Common Stock purchased in the private
placement and all shares of Common Stock that would be issuable upon exercise
of the Private Placement Warrants. This prospectus forms a part of that
registration statement. The Subscription Agreements further require that the
Company maintain, at the Company's sole expense, the effectiveness of such
registration statement until the earlier to occur of (1) two years following
the effectiveness of the registration statement or (2) such time as all
shares of Common Stock covered by the registration statement have been sold.
The Private Placement Warrants have antidilution protection in the
event that as a result of reorganization, merger, consolidation,
liquidation, recapitalization, stock split, reverse stock split,
combination of shares or stock dividends payable with respect to such
Common Stock, the outstanding shares of Common Stock of the Company are
at any time increased or decreased or changed into or exchanged for a
different number or kind of share or other security of the Company or
of another corporation.
J&L WARRANT
The holder of the J&L Warrant will acquire its portion of the Shares
offered hereby upon the conversion of the J&L Warrant that was issued to J&L
in connection with the financing of the acquisition of USC by the Company.
The J&L Warrant is exercisable by the holder at any time at an exercise price
of $1.125 per warrant share.
The J&L Warrant is exercisable at any time until July 31, 1998.The terms
of the Warrant Purchase Agreement with respect to the Shares issuable upon
exercise of the J&L Warrant (as well as the Share Purchase Agreement with
respect to the Shares issuable upon conversion of the Series A Preferred
Stock) granted the holder certain demand and other registration rights with
respect to such Shares, pursuant to which the Company is obligated to file a
registration statement. This prospectus forms a part of that registration
statement. The terms of such agreements further require that the Company
maintain, at the Company's sole expense, the effectiveness of such
registration statement until the earlier to occur of (1) 120 days following
the effectiveness of such registration
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<PAGE>
statement or (2) such time as all shares of Common Stock issuable upon
exercise of the J&L Warrant and J&L Conversion Shares covered by the
registration statement have been sold.
The J&L Warrant has antidilution protection in the event that the
Company after August 1, 1995 issues any shares of additional Common Stock
("Additional Common Stock") for a consideration per share either (1) less
than the current exercise price immediately prior to the issuance of such
Additional Common Stock or (2) without consideration. In such event, the
current exercise price of the J&L Warrant shall be reduced to a price equal
to the price determined by multiplying such current exercise by the following
fraction. The numerator of fraction shall be the sum of (a) the number of
shares of the Company's Common Stock outstanding when the current exercise
price becomes effective and (b) the number of shares of the Company's Common
Stock which the aggregate amount of consideration, if any, received by the
Company upon all issuances of the Company's Common Stock since the current
exercise price became effective would purchase at the then current exercise
price per share. The denominator of such fraction shall be the sum of (a)
the number of shares of the Company's Common Stock outstanding when the
current exercise price became effective plus (b) the number of shares of the
Company's Common Stock issued since the current exercise price became
effective.
The J&L Warrant also has antidilution protection in the event that as a
result of a subdivision or combination or issuance by reclassification of
shares or stock dividend or distribution payable in shares of Common Stock,
the outstanding shares of Common Stock of the Company are at any time
increased or decreased.
Prior to any recapitalization, reorganization, merger, or sale of all or
substantially all of the Company's assets or other transaction effected in
such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock (an "Organic Change"), the Company
will be required to make appropriate provision (in form and substance
reasonably satisfactory to the holders of the J&L Warrant representing a
majority of the shares into which such Warrant is exercisable (the "J&L
Majority")) to insure that such holders of the J&L Warrant have the right to
acquire and receive such shares of stock, securities or assets as may be
issuable or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon
exercise of the J&L Warrant had such Organic Change not taken place. In
addition, the Company shall not effect such merger, consolidation or sale
unless prior to the consummation thereof, the successor entity resulting
therefrom assumes by written instrument reasonably satisfactory to the J&L
Majority to deliver such stock, securities or assets.
VOTING AGREEMENTS
Each of the Selling Stockholders who participated in the Private
Placement has entered into a Voting Agreement with the Company and Jack W.
Matz, Jr., the Company's Chairman and Chief Executive Officer, requiring such
Selling Stockholder to vote all shares of Common Stock held or owned by such
person in a manner designated by Mr. Matz. Under the Subscription Agreement
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<PAGE>
pursuant to which each Selling Stockholder originally purchased the Private
Placement Shares and the Private Placement Warrants from the Company, each
such Selling Stockholder is not entitled to offer or sell any of such shares
(including the shares of Common Stock issuable upon exercise of the Private
Placement Warrants), irrespective of the registration thereof, except in (1)
bona fide transactions in which there is no intent for such shares to be
acquired by any affiliate of any Selling Stockholder who participated in the
Private Placement or (2) in private transactions of blocks of 400,000 shares
or less to persons not affiliated with any Selling Stockholder who
participated in the Private Placement (who will not have received in such
transactions, when aggregated with other block transactions thereunder by all
Selling Stockholders who participated in the Private Placement, more than
400,000 shares of Common Stock) unless the transferee executes a counterpart
of the Voting Agreement as if it were an initial signatory thereto.
Mr. Matz is trustee under nine separate voting trust agreements, and, as
of September 30, 1995, has the right to vote 1,703,781 shares of the
Company's Common Stock on any matters presented to the stockholders for a
vote. Each of these trust agreements has a duration of five years and will
terminate at various times through April 1999.
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Securities
Transfer Corporation in Dallas, Texas.
INDEMNIFICATION
Article 10 of the Company's Certificate provides:
The Corporation will, to the fullest extent permitted by the
Delaware General Corporation Law, as the same exists or may
hereafter be amended, indemnify any and all persons who it has power
to indemnify under such law from and against any and all of the
expenses, liabilities or other matters referred to in or covered
by such law. Such indemnification may be provided pursuant to any
Bylaw, agreement, vote of stockholders or disinterested directors
or otherwise, both as to action in his director or officer
capacity and as to action in another capacity while holding such
office, will continue as to a person who has ceased to be a
director, officer, employee or agent, and will inure to the
benefit of the heirs, executors and administrators of such person.
If a claim under the preceding paragraph (a) is not paid in full
by the Corporation within 30 days after a written claim has been
received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant
will be entitled to be paid also the expense of prosecuting such
claim. It will be defense to any such action (other than an action
brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any is required, has been tendered to the
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<PAGE>
Corporation) that the claimant has not met the standards of conduct that
make it permissible under the laws of the State of Delaware for the
corporation to indemnify the claimant for the amount claimed, but the
burden of proving such defense will be on the Corporation.
Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made
a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the
laws of the State of Delaware nor an actual determination by the
Corporation (including its Board of Directors, independent legal
counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, will be a defense to the action or
create a presumption that the claimant has not met the applicable
standard of conduct.
Article V of the Company's Bylaws provide:
SECTION 1. RIGHT TO INDEMNIFICATION
Each person who was or is made a party or is threatened to be
made a party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person for
whom he or she is the legal representative is or was a director or
officer, employee or agent of the corporation or is or was serving
at the request of the corporation as a director or officer, employee or
agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer employee or
agent or in any other capacity while serving as a director,
officer, employee or agent, shall be indemnified and held harmless by
the corporation to the fullest extent authorized by the Delaware
General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent
such amendment permits the corporation to provide broader
indemnification right than said law permitted the corporation to
provide prior to such amendment) against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise
taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith.
Such right shall be a contract right and shall include the right
to be paid by the corporation expense incurred in defending any
such proceeding in advance of its final disposition; provided, however,
that the payment of such expenses incurred by a director or
officer of the corporation in his or her capacity as a director or
officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, shall be made only
upon the delivery to the corporation of an undertaking, by or on
behalf of such director or officer, to repay all amounts so
advanced if it should be determined ultimately that such director or
officer is not entitled to be indemnified under this section or
otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT
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<PAGE>
If a claim under Section 1 is not paid in full by the
corporation within 90 days after a written claim has been received
by the corporation, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim,
and if successful in whole or in part, the claimant shall be
entitled to be paid also the expense of prosecuting the claim. It
shall be a defense to any such action (other than an action brought to
enforce a claim for expense incurred in defending any proceeding
in advance of its final disposition where the required undertaken
has been tendered to the corporation) that the claimant has not met the
standards of conduct which make it permissible under the Delaware
General Corporation Law for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense
shall be on the corporation. Neither the failure of the
corporation (including its Board of Directors, independent legal
counsel, or its stockholders) to have made a determination prior to the
commencement of such action that indemnification of the claimant
is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant had not met such applicable standard
of conduct, shall be a defense to the action or create a
presumption that claimant had not met the applicable standard of
conduct.
SECTION 3. NON-EXCLUSIVITY OF RIGHTS
The rights conferred by Sections 1 and 2 shall not be
exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
SECTION 4. INSURANCE
The corporation may maintain insurance, at its expense, to
protect itself and any such director, officer, employee or agent
of the corporation or another corporation, partnership, joint
venture, trust or other enterprise against any such expense, liability
or loss, whether or not the corporation would have the power to
indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
LIMITATION OF LIABILITY
Section 102 of the Delaware General Corporation Law ("DGCL")
authorizes a Delaware corporation to include a provisions in its
certificate of incorporation limiting or eliminating the personal
liability of its directors to the corporation and its stockholders for
monetary damages for breach of directors' fiduciary duty of care. The
duty of care requires that, when acting on behalf of the corporation,
directors exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations
authorized by such provision, directors are
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<PAGE>
accountable to corporations and their stockholders for monetary damages
for conduct constituting gross negligence in the exercise of their duty
of care. Although Section 102 of the DGCL does not change a director's
duty of care, it enables corporations to limit available relief to
equitable remedies such as injunction or rescission. Pursuant to such
provision, the Company adopted the following provision in Article 10 of
the Company's Certificate on August 10, 1992:
Directors of the Corporation shall not be liable to the
Corporation or its stockholders for damages for breach of
fiduciary duty, unless such breach involves a breach of duty of
loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law or involve
unlawful payment of dividends or unlawful stock purchases or
redemptions, or involve a transaction from which a director
derived an improper personal benefit.
The adoption of this provision may have the effect of reducing the
likelihood of derivative litigation against directors and may
discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an
action, if successful, might otherwise have benefitted the Company and
its stockholders. However, the adoption of this provision, together
with the provision described above that requires the Company to
indemnify officers and directors against certain liabilities, is
intended to enable the Company to attract qualified persons to serve as
directors who might otherwise be reluctant to do so.
PLAN OF DISTRIBUTION
The Company will receive no proceeds from the sale of the Shares
by the Selling Stockholders other than minimal proceeds upon the
exercise of the Warrants. The Shares may be sold from time to time to
purchasers directly by the Selling Stockholders. Alternatively, the
Selling Stockholders may sell the Shares in one or more transactions
(which may involve one or more block transactions) on the Nasdaq
SmallCap Market, in privately negotiated transactions or otherwise or
in a combination of such transactions; each sale may be made either at
market prices prevailing at the time of such sale or at negotiated
prices; some or all of the Shares may be sold through broker-dealers
acting as brokers or agents on behalf of the Selling Stockholders or to
broker-dealers acting as principals for resale by such dealers; and in
connection with such sales, such broker-dealers may receive
compensation in the form of commissions, discounts or fees from the
Selling Stockholders and/or the purchasers of such shares for whom they
may act as broker or agent. It is anticipated that the Selling
Stockholders will offer all of the Shares for sale. All expenses of
registration incurred in connection with this offering are being borne
by the Company other than commissions, concessions or discounts to
broker dealers and fees and expenses of counsel or other advisors to
the Selling Stockholders which will be borne by the Selling
Stockholders (except that the Company has agreed to pay up to $20,000
of reasonable fees and expenses of one counsel to the holder of the J&L
Warrant and the Series A Preferred Stock) .
At the time a particular offer of Shares is made, to the extent
required, a supplement to this Prospectus (the "Prospectus Supplement")
will be distributed that will identify and set forth the
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<PAGE>
aggregate amount of Shares being offered and the terms of the offering,
including the name or names of any underwriters, dealers or agents, the
purchase price paid by any underwriter for Shares purchased from the
Selling Stockholders, any commissions, discounts and other items
constituting compensation from the Selling Stockholders and any
commissions, discounts or concessions allowed or reallowed or paid to
dealers, including the proposed selling price to the public.
Each Selling Stockholder and any dealer acting in connection with
the offering of any of the Shares or any broker executing or selling
orders on behalf of any of the Selling Stockholders may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event
any profit on the sale of any or all of the Shares and any commissions,
discounts or concessions received by any such dealers or brokers may be
deemed to be underwriting commissions and discounts under the
Securities Act. Any dealer or broker participating in any distribution
of the Shares may be required to deliver a copy of this Prospectus,
including the Prospectus Supplement, if any, to any person who
purchases any of the Shares from or through such dealer or broker.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Shares may not simultaneously
engage in market making activities with respect to the Shares for a
period of nine business days prior to the commencement of such
distribution. The Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations
promulgated thereunder, including without limitation rules 10b-6 and
10b-7, which provisions may limit the timing of purchasers and sales of
the Shares by the Selling Stockholders.
In order to comply with certain states' securities laws, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In certain states, the
Shares may not be sold unless the Shares have been registered or
qualify for sale in such state, or unless an exemption from
registration or qualification is available and is obtained.
In connection with the offering made hereby, the Company and each
of the Selling Stockholders have entered into an agreement that
contains certain indemnity provisions between the Company and Selling
Stockholder and the controlling persons thereof against certain
liabilities, including liabilities arising under the Securities Act.
In addition, the Selling Stockholders have agreed to indemnify the
Company with respect to information contained herein and either
furnished by them or confirmed and verified by them. There are no other
indemnification agreements between the Company and the Selling
Stockholders with respect to the distribution of the Shares offered
hereby.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed
upon for the Company by Arter, Hadden, Johnson & Bromberg, Dallas,
Texas.
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EXPERTS
The consolidated financial statements and notes thereto of the
Company appearing in the Company's Annual Report on Form 10-KSB for the
fiscal years ended December 31, 1994 and December 31, 1993, which have
been incorporated in this Registration Statement and Prospectus by
reference, have been audited by Price Waterhouse LLP, independent
accountants, for the period as set forth in their report thereon, and
King, Burns & Company, P.C., for the period as set forth in their
report thereon, both of which are included therein and incorporated
herein by reference. Such consolidated financial statements and notes
are incorporated herein by reference in reliance upon such reports
given upon the authority of such firms as experts in accounting and
auditing.
39
<PAGE>
No dealer, salesperson or other person has been
authorized to give any information or to make any
representations in connection with this offering
other than those contained in this Prospectus,
and, if given or made, such information or
representations must not be relied upon as having
been authorized by the Company, any of the Selling
Stockholders or any other person. This Prospectus
does not constitute an offer to sell, or a
solicitation of an offer to purchase, any
securities other than the Shares of Common Stock
offered by this Prospectus, nor does it constitute
an offer to sell or a solicitation of any offer to
purchase the Shares of Common Stock by anyone in
any jurisdiction where such an offer or
solicitation is not authorized, or in which the
person making such offer or solicitation is not
qualified to do so, or to any person to whom it is
unlawful to make such offer or solicitation.
Neither the delivery of this Prospectus nor any
sale made hereunder shall, under any
circumstances, create any implication that there
has been no change in the affairs of the Company
since the date hereof or that the information
contained herein is correct as of any time
subsequent to the date hereof.
________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information 2
Incorporation of Certain Documents
by Reference 2
Prospectus Summary 4
Risk Factors 5
The Company 13
Use of Proceeds 15
Selling Stockholders 15
Description of Capital Stock 19
Plan of Distribution 37
Legal Matters 38
Experts 39
</TABLE>
4,033,336 SHARES
SA TELECOMMUNICATIONS, INC.
[LOGO]
COMMON STOCK
PROSPECTUS
__________, 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
<TABLE>
<S> <C>
SEC registration fee $ 1,863.00
NASD filing fee 7,500.00
Accounting fees and expenses 2,000.00*
Legal fees and expenses (not including Blue Sky) 5,000.00*
Printing, engraving and EDGARization expenses 2,000.00*
Miscellaneous expenses 1,000.00*
Total $19,363.00*
</TABLE>
____________
* Estimated
All expenses relating to the offering are payable by the Registrant on
behalf of the Selling Stockholders including up to $20,000 of legal fees in
connection with representation of J&L as the holder of the J&L Warrant and
Conversion Shares.
No premium was paid by the Registrant or any Selling Stockholders on any
policy to insure or indemnify directors or officers against any liabilities
they may incur in the registration, offering or sale of the Shares.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The section of the Prospectus entitled "Description of Capital
Stock--Limitation of Liability" is incorporated herein by reference.
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides broad authority for indemnification of officers and directors.
Article 10 of the Company's Certificate of Incorporation, as amended, of the
Registrant provides for indemnification of officers and directors to the
fullest extent permitted by the DGCL. Article V of the Company's Bylaws
contains provisions requiring the indemnification of the Company's directors
and officers upon and pursuant to terms specified therein and under
applicable provisions of the DGCL. The Company believes that these
provisions are necessary to attract and retain qualified persons as directors
and officers.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the
II-1
<PAGE>
Registrant has been informed that in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
The Registrant does not maintain directors' and officers' liability
insurance.
ITEM 16. EXHIBITS.
The exhibits listed below are filed as part of or incorporated by
reference in this Registration Statement. Where such filing is made by
incorporation by reference to a previously filed report or registration
statement, such report or registration statement is identified by asterisk.
See the Index of Exhibits included with the exhibits filed as part of this
Registration Statement.
Exhibit No. Description
2.1 Stock Purchase Agreement, dated as of June 30, 1995, between
the Company, U.S. Communications, Inc. and the shareholders
thereof (the "Stock Purchase Agreement")*
2.2 Supplemental Agreement to the Stock Purchase Agreement,
dated July 31, 1995*
4.1 Certificate of Designations, Preferences and Rights of
Series A Cumulative Convertible Preferred Stock *
4.2 Share Purchase Agreement, dated as of July 31, 1995, by and
between the Company and Jesup & Lamont Capital Markets, Inc.**
4.3 Form of Series A Preferred Stock Certificate*
4.4 Warrant Purchase Agreement, dated July 31, 1995, by and
between the Company and Jesup & Lamont Capital Markets, Inc.*
4.5 Common Stock Purchase Warrant Certificate issued to Jesup &
Lamont Capital Markets, Inc.*
4.6 Certificate of Designations, Preferences and Rights of Series
B Cumulative Convertible Preferred Stock*
4.7 Form of Purchase Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item
601*
4.8 Form of Offset Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to
Item 601*
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<PAGE>
4.9 Form of Note, Preferred Stock & Warrant Purchase Agreement,
dated as of July 31, 1995 between the Company and the
purchasers thereof*
4.10 Form of Series B Preferred Stock Certificate*
4.11 Form of Common Stock Purchase Warrant Certificate issued to
purchasers thereof*
4.12 Term Credit Agreement dated July 31, 1995 between the Company
and Norwest Bank Minnesota, N.A. and related Security
Agreement and Promissory Note**
4.13 Form of Subscription Agreements executed as of September 20,
1995 by and between the Company and each of the Selling
Stockholders who participated in the Private Placement
and schedule of differences thereto pursuant to General
Instructions to Item 601***
4.14 Form of Warrant Certificates issued to each of the Selling
Stockholders who participated in the Private Placement and
schedule of differences thereto pursuant to General
Instructions to Item 601***
4.15 Form of Voting Agreement, executed as of September 20, 1995
by and between the Company and each of the Selling
Stockholders who participated in the Private Placement***
4.16 Agreement, dated as of October 26, 1995 by and between the
Company and each of the Selling Stockholders who participated
in the Private Placement***
4.17 Agreement, dated as of September 21, 1995 by and among the
Company, Howard Maderra, Bill L. Johnson and Marianne Reed
with respect to waiver of conversion privileges on Series B
Preferred Stock***
4.18 Agreement, dated as of October 26, 1995 between the Company
and Jesup & Lamont Capital Markets, Inc.***
4.19 Form of Certificate Evidencing Common Stock***
4.20 First Amendment to Credit Agreement executed as of November
10, 1995 between the Company and Norwest Bank Minnesota,
N.A.***
5.1 Opinion of Arter, Hadden, Johnson & Bromberg as to the
validity of the securities being offered***
23.1 Consent of Arter, Hadden, Johnson & Bromberg (included
in its opinion filed as
II-3
<PAGE>
Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP***
23.3 Consent of King, Burns & Company, P.C.***
24.1 Powers of Attorney (filed on the signature page to this
Registration Statement - Page II-5)
__________________
* Filed as Exhibit indicated to the Registrant's Current Report on Form
8-K/A for the event occurring July 31, 1995, filed with the Commission
on August 15, 1995 and incorporated herein by reference.
** Filed as Exhibit indicated to the Registrant's Current Report on Form
8-K/A for the event occurring on July 31, 1995, filed with the Commission
on October 13, 1995 and incorporated herein by reference.
*** Filed herewith.
ITEM 17. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of
the Securities Act;
(ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most
recent post-effective amendment thereof) which, individually or in
the aggregate, represent a fundamental change in the information
set forth in the Registration Statement;
(iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change of such information in the
Registration Statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the Registration Statement is on Form S-3 or Form S-8, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
Registrant pursuant to Section 13 or 15(d) of the Exchange Act that are
incorporated by reference in the Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement
II-4
<PAGE>
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold
at the termination of the offering.
(b) FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY
REFERENCE. The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the Registration Statement shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(e) REQUEST FOR ACCELERATION OF EFFECTIVE DATE. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the Company's Certificate of Incorporation, Bylaws or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
(f) RULE 430. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of prospectus
filed as part of this Registration Statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this Registration Statement as of the time it was
declared effective.
(2) For purposes of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
[Remainder of Page Intentionally Left Blank]
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
(the "Securities Act"), the Registrant certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form
S-3 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Dallas,
State of Texas, on November 14, 1995.
SA TELECOMMUNICATIONS, INC.
By: /s/ Jack W. Matz, Jr.
------------------------------
Jack W. Matz, Jr.
CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Jack W. Matz, Jr., Paul R. Miller and
J. David Darnell, and each of them, his true and lawful attorneys-in-fact and
agents with full power of substitution and resubstitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to file the same with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, with full
power and authority to do and to perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on
the dates indicated:
Signatures Title Date
/s/ Jack W. Matz, Jr. Chairman of the Board November 14, 1995
- ----------------------------- and Chief Executive Officer
Jack W. Matz, Jr.
/s/ Paul R. Miller Chief Operating Officer, November 14, 1995
- ----------------------------- President and Director
Paul R. Miller
II-6
<PAGE>
/s/ J. David Darnell Chief Financial Officer, November 14, 1995
- ----------------------------- Vice President-Finance
J. David Darnell and Director
/s/ Terry R. Houston Director November 14, 1995
- -----------------------------
Terry R. Houston
/s/ John Q. Ebert Director November 14, 1995
- -----------------------------
John Q. Ebert
/s/ Igor I. Mamantov Director November 14, 1995
- -----------------------------
Igor I. Mamantov
/s/ Dean A. Thomas Director November 14, 1995
- -----------------------------
Dean A. Thomas
/s/ Barry J. Williams Director November 14, 1995
- -----------------------------
Barry J. Williams
/s/ Pete W. Smith Director November 14, 1995
- -----------------------------
Pete W. Smith
/s/ Thomas L. Cunningham Director November 14, 1995
- -----------------------------
Thomas L. Cunningham
/s/ John H. Nugent Director November 14, 1995
- -----------------------------
John H. Nugent
/s/ Bill L. Johnson Director November 14, 1995
- -----------------------------
Bill L. Johnson
/s/ Howard F. Curd Director November 14, 1995
- -----------------------------
Howard F. Curd
II-7
<PAGE>
INDEX TO EXHIBITS
2.1 Stock Purchase Agreement, dated as of June 30, 1995, between the
Company, U.S. Communications, Inc. and the shareholders thereof
(the "Stock Purchase Agreement")*
2.2 Supplemental Agreement to the Stock Purchase Agreement, dated
July 31, 1995*
4.1 Certificate of Designations, Preferences and Rights of Series A
Cumulative Convertible Preferred Stock*
4.2 Share Purchase Agreement, dated as of July 31, 1995, by and between
the Company and Jesup & Lamont Capital Markets, Inc.**
4.3 Form of Series A Preferred Stock Certificate*
4.4 Warrant Purchase Agreement, dated July 31, 1995, by and between
the Company and Jesup & Lamont Capital Markets, Inc.*
4.5 Common Stock Purchase Warrant Certificate issued to Jesup & Lamont
Capital Markets, Inc.*
4.6 Certificate of Designations, Preferences and Rights of Series B
Cumulative Convertible Preferred Stock*
4.7 Form of Purchase Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item 601*
4.8 Form of Offset Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item 601*
4.9 Form of Note, Preferred Stock & Warrant Purchase Agreement, dated
as of July 31, 1995 between the Company and the purchasers thereof*
4.10 Form of Series B Preferred Stock Certificate*
4.11 Form of Common Stock Purchase Warrant Certificate issued to
purchasers thereof*
4.12 Term Credit Agreement dated July 31, 1995 between the Company and
Norwest Bank Minnesota, N.A. and related Security Agreement and
Promissory Note**
4.13 Form of Subscription Agreements executed as of September 20, 1995
by and between the Company and each of the Selling Stockholders who
participated in the Private Placement and schedule of differences
thereto pursuant to General Instructions to Item 601***
4.14 Form of Warrant Certificates issued to each of the Selling
Stockholders who participated in the Private Placement and schedule
of differences thereto pursuant to General Instructions to
Item 601***
II-8
<PAGE>
4.15 Form of Voting Agreement, executed as of September 20, 1995 by and
between the Company and each of the Selling Stockholders who
participated in the Private Placement***
4.16 Agreement, dated as of October 26, 1995 by and between the Company
and each of the Selling Stockholders who participated in the
Private Placement***
4.17 Agreement, dated as of September 21, 1995 by and among the Company,
Howard Maderra, Bill L. Johnson and Marianne Reed with respect to
waiver of conversion privileges on Series B Preferred Stock***
4.18 Agreement, dated as of October 26, 1995 between the Company and
Jesup & Lamont Capital Markets, Inc.***
4.19 Form of Certificate Evidencing Common Stock***
4.20 First Amendment to Credit Agreement executed as of November 10,
1995 between the Company and Norwest Bank Minnesota, N.A.***
5.1 Opinion of Arter, Hadden, Johnson & Bromberg as to the validity of
the securities being offered***
23.1 Consent of Arter, Hadden, Johnson & Bromberg (included in its
opinion filed as Exhibit 5.1)
23.2 Consent of Price Waterhouse LLP***
23.3 Consent of King, Burns & Company, P.C.***
24.1 Powers of Attorney (filed on the signature page to this Registration
Statement - Page II-5)
_________________
* Filed as Exhibit indicated to the Registrant's Current Report on Form
8-K/A for the event occurring July 31, 1995, filed with the Commission
on August 15, 1995 and incorporated herein by reference.
** Filed as Exhibit indicated to the Registrant's Current Report on Form
8-K/A for the event occurring on July 31, 1995, filed with the
Commission on October 13, 1995 and incorporated herein by reference.
*** Filed herewith.
II-9
<PAGE>
CONFIDENTIAL
- ------------
SUBSCRIPTION AGREEMENT
SA TELECOMMUNICATIONS, INC.
THE UNITS (AS DEFINED BELOW) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE.
THERE ARE RESTRICTIONS ON THE TRANSFERABILITY OF THE UNITS AND THE SHARES (AS
DEFINED BELOW) DESCRIBED IN THIS SUBSCRIPTION AGREEMENT.
SA Telecommunications, Inc.
1912 Avenue K, Ste. 100
Plano, TX 75074
Ladies and Gentlemen:
The undersigned (the "Subscriber") has reviewed the most recent report
on Form 10-KSB of SA Telecommunications, Inc. (the "Company"), and all
reports on Forms 10-QSB and 8-K since such report on Form 10-KSB. The Company
represents and warrants to the Subscriber that all such filings (i) are
correct and accurate in all material respects and (ii) state all material
facts necessary to make such filings not misleading in any material respects,
in each case as of the date such filing was made.
The Subscriber acknowledges that it is not acting on the basis of any
representations or warranties other than as set forth herein and understands
that the offer and sale of the Units (as hereinafter defined) hereunder is
being made without registration of such Units under the Securities Act of
1933, as amended (the "Securities Act"), or any securities, "blue sky" or
other similar laws of any state ("State Securities Laws").
1. SUBSCRIPTION. Subject to the terms and conditions hereof, the
Subscriber hereby subscribes for and agrees to purchase the number of Units
set forth opposite its name below (the "Units") at a cash purchase price of
$1.25 per Unit. Each Unit consists of one share of common stock of the
Company, par value $.0001 per share ("Common Stock") and one warrant in the
form of EXHIBIT A hereto which entitles the holder thereof to purchase one
share of Common Stock for the price set forth therein. The warrants in the
preceding sentence are referred to as the "Warrants."
2. THE CLOSING. The closing of the purchase and sale of the Units (the
"Closing") shall take place at the offices of the Company on or before
September 12, 1995.
SUBSCRIPTION AGREEMENT - PAGE 1
<PAGE>
3. PAYMENT FOR UNITS. The Subscriber agrees that the purchase price
for the Units is $1.25 per Unit payable in cash to the Company at Closing.
4. ACCEPTANCE OF SUBSCRIPTION. The Subscriber understands and
acknowledges that (a) the Company has the unconditional right, exercisable in
its sole and absolute discretion, to accept or reject this Subscription
Agreement, (b) no subscription shall be valid unless and until accepted by
the Company, (c) this Subscription Agreement shall be deemed to be accepted
by the Company only when and if it is signed by an authorized officer of the
Company on behalf of the Company, and (d) notwithstanding anything in this
Subscription Agreement to the contrary, the Company shall have no obligation
to issue the Units, or upon exercise of the Warrants, the Shares (as
hereinafter defined) to any person to whom the issuance would constitute a
violation of the Securities Act or any State Securities Laws. The Company
will deliver to the Subscriber certificates representing (i) the shares of
Common Stock and (ii) Warrants comprising the Units purchased by the
Subscriber at or promptly after the Closing.
5. REGISTRATION RIGHTS.
(a) Subject to the provisions hereof, after receiving a written
request by at least a majority of the Purchasers in substantially the form
attached hereto as EXHIBIT B (the "Demand Notice"), the Company shall prepare
and within 45 days after the Closing, file a registration statement (the
"Registration Statement") for the public sale by the Subscriber of the shares
of Common Stock (whether included initially in the Units or acquired upon
exercise of the Warrants comprising a part of the Units) (collectively, the
"Shares") then owned or which at any time then or thereafter may be acquired
upon exercise of the Warrants regardless of any prohibitions on the
exercisability thereof by such Subscriber. The Company shall use all
reasonable efforts to cause the Registration Statement to become effective as
soon as practicable and to remain effective until the earlier of (i) two (2)
years following the effectiveness of the Registration Statement or (ii) such
time as all shares subject to such Registration Statement have been sold
thereunder. The Demand Notice shall be accompanied by a list of blue sky
jurisdictions as Subscriber may reasonably request and the Company shall use
all reasonable efforts to ensure compliance with applicable blue sky laws in
such listed jurisdictions subject to the limitations set forth herein. The
term "Purchasers" means Subscribers acquiring the Units under similar
agreements of even date herewith. Any Demand Notice shall be binding upon all
Purchasers as a group and may not be exercised by any individual Subscriber.
(b) The Company shall pay all expenses of the registration
hereunder. In no event, however, shall the Company pay Subscriber's
underwriting discounts or commissions or any fees or costs of counsel to
Subscriber.
(c) The Company shall supply to Subscriber a reasonable number of
copies of all registration materials and prospectuses. The Company and
Subscriber shall execute and deliver to each other indemnity agreements which
are conventional in registered offerings of this type. The Subscriber shall
reasonably cooperate with the Company in the preparation and filing of the
Registration Statement and appropriate amendments thereto and in connection
therewith provide the Company with a representation letter as requested by
the Company.
SUBSCRIPTION AGREEMENT - PAGE 2
<PAGE>
(d) Subscriber may not transfer the registration rights granted
hereunder.
(e) Notwithstanding the foregoing, the Company shall not be
obligated to effect, or take any action to effect, any such registration
pursuant to this Section 5 in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process
or otherwise qualify to do business in effecting such registration,
qualification, or compliance, unless the Company has already consented to
service or qualify to do business in such jurisdiction or in any jurisdiction
in which the Company is not authorized to offer or sell its securities;
(f) The Registration Statement filed pursuant to the request of the
Purchasers may include other securities of the Company, with respect to which
registration rights have been granted or may be granted and may include
securities of the Company being sold for the account of the Company.
(g) Subscriber shall not have any right to take any action to
restrain, enjoin or otherwise delay any registration as a result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 5.
(h) The Purchasers in the aggregate shall have the right to make
only one Demand Notice under Section 5(a) hereof. The right to request any
such registration shall expire on that date which is one year after the date
of this Subscription Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE SUBSCRIBER. The Subscriber
hereby represents and warrants to and covenants with the Company and to each
officer, director and agent of the Company as follows:
(a) AUTHORITY: The Subscriber has all requisite authority to enter
into this Subscription Agreement and to perform all the obligations required
to be performed by the Subscriber hereunder.
(b) INFORMATION CONCERNING THE COMPANY:
(i) The Subscriber is familiar with the business and financial
condition, properties, operations and prospects of the Company, and, at a
reasonable time prior to the execution of this Subscription Agreement, has
been afforded the opportunity to ask questions of and receive satisfactory
answers from the Company and the Company's officers and directors, or other
persons acting on the Company's behalf, concerning the business and financial
condition, properties, operations and prospects of the Company and concerning
the terms and conditions of the offer of the Units and has asked such
questions as it desires to ask and all such questions have been answered to
the full satisfaction of the Subscriber.
(ii) The Subscriber understands that, unless the Subscriber
notifies the Company in writing to the contrary before the Closing, all the
representations and warranties contained in this Subscription Agreement will
be deemed to have been reaffirmed and confirmed
SUBSCRIPTION AGREEMENT - PAGE 3
<PAGE>
as of the Closing, taking into account all information received by the
Subscriber and will survive the Closing.
(iii) No representations or warranties have been made to the
Subscriber by the Company as to the tax consequences of this investment, or
as to profits, losses or cash flow which may be received or sustained as a
result of this investment.
(iv) All documents, records and books pertaining to a proposed
investment in the Units which the Subscriber has requested have been made
available to Subscriber.
(v) The Subscriber has reviewed with its own tax advisors the
Federal, State, local and foreign tax consequences of its investment in the
Units and the transactions contemplated by this Agreement. The Subscriber is
relying solely on such advisors in making its investment and not on any
statements or representations of the Company, or any of its agents. The
Subscriber has made independent determination that this investment is in
compliance with applicable laws.
(vi) The Subscriber is not purchasing the Units based on any
representation, oral or written, by the Company or any person with respect to
the future value of, or income from, the Units or the Shares, but rather upon
an independent examination and judgment as to the prospects of the Company.
(vii) The Subscriber understands and acknowledges that the
Company has significant outstanding indebtedness and a significant amount of
Preferred Stock issued to investors which such Preferred Stock has rights and
preferences superior to that of Common Stock.
(c) STATUS OF THE SUBSCRIBER: The Subscriber is able to bear the
economic risk of this investment. The Subscriber consulted with the
Subscriber's own attorney, accountant and/or purchaser representative
regarding the Subscriber's investment in the Units and their suitability for
purchase by the Subscriber, and to the extent necessary, the Subscriber has
retained and relied upon, appropriate independent professional advice
regarding the investment, tax and legal merits, risks and consequences of
this Subscription Agreement and of purchasing and owning the Shares and
Units. The Subscriber is an accredited investor as that term is defined under
Regulation D promulgated under the Securities Act.
(d) RESTRICTIONS ON TRANSFER OR SALE OF THE SHARES AND UNITS:
(i) The Subscriber is acquiring the Shares and Units
subscribed for solely for the Subscriber's own beneficial account, for
investment purposes, and not with a view to, or for resale in connection
with, any distribution of the Shares or the Units. The Subscriber understands
that the offer and sale of the Shares and Units have not been registered
under the Securities Act or any State Securities Laws by reason of specific
exemptions under the provisions thereof which depend in part upon the
investment intent of the Subscriber and/or the other representations made by
the Subscriber in this Subscription Agreement. The Subscriber
SUBSCRIPTION AGREEMENT - PAGE 4
<PAGE>
understands that the Company is relying upon the representations, covenants
and agreements contained in this Subscription Agreement (and any supplemental
information) for the purpose of determining whether this transaction meets
the requirements for such exemptions.
(ii) The Subscriber understands that the Shares are
"restricted securities" under applicable federal securities laws and that the
Securities Act and the rules of the Securities and Exchange Commission (the
"Commission") provide in substance that the Subscriber may dispose of the
Shares and Units only pursuant to an effective registration statement under
the Securities Act or an exemption therefrom, and the Subscriber understands
that the Company has no obligation or intention to register any of the Shares
and Units purchased by the Subscriber thereunder, or to take action so as to
permit sales pursuant to the Securities Act (including Rule 144 thereunder)
except as expressly provided hereunder. The Subscriber understands that the
Subscriber may not at any time demand the purchase by the Company, or any
shareholder of the Company of the Shares or Units.
(iii) The Subscriber agrees (a) that the Subscriber will not
sell, assign, pledge, give, transfer or otherwise dispose of the Units or
Shares or any interest therein, or make any offer or attempt to do any of the
foregoing, except pursuant to a registration of the Units or Shares under the
Securities Act and all applicable State Securities Laws or in a transaction
which, in the opinion of counsel satisfactory to the Company, is exempt from
the registration provisions of the Securities Act and all applicable State
Securities Laws; (b) that the Company and any transfer agent for the Shares
or Units shall not be required to give effect to any purported transfer of
any of the Shares or Units except upon compliance with the foregoing
restrictions; and (c) that a legend in substantially the following form will
be placed on the certificates representing the Shares:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN TAKEN WITHOUT A
VIEW TO THE DISTRIBUTION THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR OTHERWISE
DISPOSED OF EXCEPT IN ACCORDANCE WITH SUCH ACT AND THE RULES AND REGULATIONS
THEREUNDER AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THE
ISSUER OF THESE SHARES WILL NOT TRANSFER SUCH SHARES EXCEPT UPON RECEIPT OF
EVIDENCE SATISFACTORY TO THE COMPANY THAT THE REGISTRATION PROVISIONS OF SUCH
ACT HAVE BEEN COMPLIED WITH OR THAT SUCH REGISTRATION IS NOT REQUIRED AND
THAT SUCH TRANSFER WILL NOT VIOLATE ANY APPLICABLE STATE SECURITIES LAWS.
(iv) The Subscriber has not offered or sold any portion of the
subscribed for the Units or Shares and has no present intention of dividing
such Units or Shares with others or of reselling or otherwise disposing of
any portion of such Units or Shares either currently or after the passage of
a fixed or determinable period of time or upon the occurrence or
nonoccurrence of any predetermined event or circumstance.
SUBSCRIPTION AGREEMENT - PAGE 5
<PAGE>
(v) Subscriber acknowledges that (i) in connection herewith
it will execute a voting agreement in the form of EXHIBIT C hereto providing
for the manner in which any Shares may be voted (the "Voting Agreement"),
(ii) it fully understands the terms and conditions of the Voting Agreement
and (iii) it shall not be entitled to offer or sell any of the Shares
(irrespective of the registration thereof pursuant to Section 5) (except in
(i) bona fide broker transactions in which there is no intent for such Shares
to be acquired by any affiliate of any Purchaser or (ii) in private
transactions of blocks of 400,000 Shares or less to persons not affiliated
with any Purchaser (who will not have received in such transactions, when
aggregated with other block transactions hereunder by Subscriber and other
Purchasers, more than 400,000 Shares) unless the transferee executes a
counterpart of the Voting Agreement as if it were an initial signatory hereto.
7. SURVIVAL. All representations, warranties and covenants contained
in this Subscription Agreement and the indemnification contained in this
Section 7 shall survive (i) the acceptance of such Subscription Agreement by
the Company, and (ii) changes in the transactions, documents and instruments
which are not material or which are to the benefit of the Subscriber. The
Subscriber acknowledges the meaning and legal consequences of the
representations, warranties and covenants in paragraph 6 hereof and that the
Company has relied upon such representations, warranties and covenants in
determining the Subscriber's qualification and suitability to purchase the
Units and shall indemnify the Company for any breach thereof.
8. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell the Shares specified herein is subject to the condition that
the representations and warranties of the Subscriber contained in Section 6
hereof shall be true and correct on and as of the Closing in all respects
with the same effect as though such representations and warranties had been
made on and as of the Closing.
9. NOTICES. All notices and other communications provided for herein
shall be in writing and shall be deemed to have been duly given if and when
delivered personally or sent by registered or certified mail, return receipt
requested, postage prepaid:
(a) if to the Company, to it at the following address:
1912 Avenue K, Ste. 100
Plano, TX 75074
Attention: Jack W. Matz, Jr.
(b) if to the Subscriber, to it at the address set forth on the
signature page hereto, or at such other address as either party shall have
specified by notice in writing to the other.
10. NOTIFICATION OF CHANGES. The Subscriber agrees and covenants to
notify the Company immediately upon the occurrence of any event prior to the
Closing which would cause any representation, warranty, covenant or other
statement contained in this Subscription Agreement to be false or incorrect
of any change in any statement made herein occurring prior to the Closing.
SUBSCRIPTION AGREEMENT - PAGE 6
<PAGE>
11. ASSIGNABILITY. This Subscription Agreement is not assignable by
the Subscriber, and may not be modified, waived or terminated except by an
instrument in writing signed by the party against whom enforcement of such
modification, waiver or termination is sought.
12. BINDING EFFECT. Except as otherwise provided herein, this
Subscription Agreement shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and assigns, and the agreements, representations, warranties
and acknowledgements contained herein shall be deemed to be made by and be
binding upon such heirs, executors, administrators, successors, legal
representatives and assigns. If the Subscriber is more than one person, the
obligation of the Subscriber shall be joint and several and the agreements,
representations, warranties and acknowledgements contained herein shall be
deemed to be made by and be binding upon each such person and his heirs,
executors, administrators and successors.
13. OBLIGATIONS IRREVOCABLE. The obligations of the Subscriber shall
be irrevocable, except with the prior written consent of the Company, until
the Closing (provided the Closing occurs within five (5) business days of
Subscriber's tender of this Agreement and appropriate payment for the Units).
14. ENTIRE AGREEMENT. This Subscription Agreement and the agreements
contemplated hereby constitute the entire agreement of the Subscriber and the
Company relating to the matters contained herein, superseding all prior
contracts or agreements, whether oral or written.
15. GOVERNING LAW. This Subscription Agreement shall be governed and
controlled as to validity, enforcement, interpretation, construction and
effect and in all other aspects by the substantive laws of the State of
Texas, without reference to conflicts of laws principles.
16. SEVERABILITY. If any provision of this Subscription Agreement or
the application thereof to any Subscriber or circumstance shall be held
invalid or unenforceable to any extent, the remainder of this Subscription
Agreement and the application of such provision to other subscriptions or
circumstances shall not be affected thereby and shall be enforced to the
greatest extent permitted by law.
17. HEADINGS. The headings in this Subscription Agreement are inserted
for convenience and identification only and are not intended to describe,
interpret, define, or limit the scope, extent or intent of this Subscription
Agreement or any provision hereof.
18. COUNTERPARTS. This Subscription Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which together shall be deemed to be one
and the same agreement.
19. DOCUMENTS BEING TENDERED. The Subscriber hereby tenders two
completed and executed copies of this Subscription Agreement and Voting
Agreement and irrevocably agrees
SUBSCRIPTION AGREEMENT - PAGE 7
<PAGE>
to make the payments set-forth herein upon acceptance of the Subscription
Agreement by the Company.
IN WITNESS WHEREOF, the undersigned Subscriber has executed this
Subscription Agreement this _______ day of _____________, 1995.
SUBSCRIBER:
5,000 Units MUELLER TRADING L.P.
By: __________________________________
Title: _______________________________
120 Madison Avenue
Lakewood, New Jersey 08701
SUBSCRIPTION AGREEMENT - PAGE 8
<PAGE>
Subscription accepted as to _______ Units on ________________, 1995.
SA TELECOMMUNICATIONS, INC.
By: __________________________________
Title: _______________________________
SUBSCRIPTION AGREEMENT - PAGE 9
<PAGE>
SCHEDULE OF DIFFERENCES
Name of Subscriber Number of Units
1. Cong, Ahavas Tzedach Vachsed 7,000
2. Laura Huberfeld/Naomi Booner Partnership 600,000
3. Connie Lerner 5,000
4. Moses Elias 8,000
5. Jules Nordlicht 300,000
6. Fred Rudy 40,000
7. Harry Adler 40,000
8. Dr. Seymour Huberfeld 10,000
9. Seth Joseph Antine 80,000
10. Jack Ehrenhaus 5,000
SUBSCRIPTION AGREEMENT - PAGE 10
<PAGE>
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NONE OF
SUCH SECURITIES MAYBE TRANSFERRED IN THE ABSENCE OF REGISTRATION UNDER SUCH
ACT OR AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED. THIS WARRANT MAY NOT BE TRANSFERRED OR ASSIGNED EXCEPT AS EXPRESSLY
PROVIDED HEREIN.
SA Telecommunications, Inc.
WARRANT
DATED: September 12, 1995
Number of Shares: 80,000
Holder: Seth Joseph Antine
Address: 2120 Bay Avenue
Brooklyn, New York 11210
THIS CERTIFIES THAT the Holder is entitled to purchase from SA
Telecommunications, Inc., a Delaware corporation (hereinafter called the
"Company"), at $1.25 per share the number of shares of the Company's common
stock set forth above ("Common Stock") on the terms and conditions set forth
herein.
1. All rights granted under this Warrant shall expire on the earlier of
(i) September 11, 1997 or (ii) the 46th day following written notice from the
Company to the Holder that this Warrant shall expire on such 46th day (the
"Early Expiration Notice"); and no shares of Common Stock may be acquired
under this Warrant from and after such date. THIS WARRANT SHALL NOT BE
EXERCISABLE UNTIL SEPTEMBER 12, 1996; PROVIDED, HOWEVER, THAT (i) IF THE
COMPANY PROVIDES THE EARLY EXPIRATION NOTICE PRIOR TO SEPTEMBER 12, 1996 THIS
WARRANT SHALL BE IMMEDIATELY EXCISABLE UNTIL ITS EXPIRATION, AND (ii) THE
HOLDER MAY EXERCISE THIS WARRANT PRIOR TO SEPTEMBER 12, 1996 IN THE EVENT THE
MARKET PRICE OF COMMON STOCK IS GREATER THAN $4.00 PER SHARE. The Company may
exercise its right to provide the Early Expiration Notice only if the shares
issuable under this Warrant are registered under the Securities Act of 1933
by giving such notice to the Holder at the address stated above or such other
address as designated in writing to the Company. The Early Expiration Notice
shall be of no further force and effect if the shares issuable under this
Warrant fail to continue to be registered for such period ending on the 46th
day, provided that the Company will not be prohibited from providing
additional Early Expiration Notices in such event. For purposes herein the
term Market Price of a share of Common Stock shall mean the average of the
closing prices of sales of a share of Company Common Stock on all securities
exchanges on which such share may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest bid
and lowest asked prices on all such exchanges at the end of such day, or, if
on any day such security is not so listed, the average of the representative
bid and asked prices quoted in the NASDAQ System as of 4:00 p.m., New
<PAGE>
York time, or if on any day such security is not quoted in the NASDAQ System,
the average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such
case averaged over a period of 10 days consisting of the day as of which
"Market Price" is being determined and the 9 consecutive business days prior
to such day.
2. This Warrant and the Common Stock issuable on exercise of this
Warrant (the "Underlying Shares") may be transferred, sold, assigned or
hypothecated, only if registered by the Company under the Securities Act of
1933 (the "Act") or if the Company has received from counsel to the Company a
written opinion to the effect that registration of the Warrant or the
Underlying Shares is not necessary in connection with such transfer, sale,
assignment of hypothecation. The Warrant and the Underlying Shares shall be
appropriately legended to reflect this restriction and stop transfer
instructions shall apply. The Holder shall through its counsel provide such
information as is reasonably necessary in connection with such opinion.
3. Any permitted assignment of this Warrant shall be effected by the
Holder by (i) executing the form of assignment at the end hereof, (ii)
surrendering the Warrant for cancellation at the office of the Company,
accompanied by the opinion of counsel to the Company referred to above; and
(iii) unless in connection with an effective registration statement which
covers the sale of this Warrant and or the shares underlying the Warrant,
delivery to the Company of a statement by the transferees (in a form
acceptable to the Company and its counsel) that such Warrant is being
acquired by the Holder for investment and not with a view to its distribution
or resale; whereupon the Company shall issue, in the name or names specified
by the Holder (including the Holder) new Warrants representing in the
aggregate rights to purchase the same number of Shares as are purchasable
under the Warrant surrendered. Such Warrants shall be exercisable immediately
upon any such assignment of the number of Warrants assigned. The transferor
will pay all relevant transfer taxes. Replacement warrants shall bear the
same legend as is borne by this Warrant.
4. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
5. The Company covenants and agrees that all shares of Common Stock
which may be issued upon exercise hereof will, upon issuance, be duly and
validly issued, fully paid and non-assessable. The Company further covenants
and agrees that, during the periods within which this Warrant may be
exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Common Stock for issuance upon exercise of
this Warrant.
6. This Warrant shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
7. In the event that as a result of reorganization, merger,
consolidation, liquidation, recapitalization, stock split, reverse stock
split, combination of shares or stock dividends payable with respect to such
Common Stock (other than any such act relating to the proposed spinoff of
- 2 -
<PAGE>
the Company's subsidiary (Strategic Abstract and Title Corporation), the
outstanding shares of Common Stock of the Company are at any time increased
or decreased or changed into or exchanged for a different number or kind of
share or other security of the Company or of an other corporation, then
appropriate adjustments in the number and kind of such securities then
subject to this Warrant shall be made effective as of the date of such
occurrence so that the position of the Holder upon exercise will be the same
as it would have been had it owned immediately prior to the occurrence of
such events the Common Stock subject to this Warrant. Such adjustment shall
be made successively whenever any event listed above shall occur and the
Company will notify the Holder of the Warrant of each such adjustment. Any
fraction of a share resulting from any adjustment shall be eliminated and the
price per share of the remaining shares subject to this Warrant adjusted
accordingly.
8. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal executive
office of the Company (or such other office or agency of the Company as it
may designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company) during normal business hours; (ii)
payment to the Company of the exercise price in cash or immediately available
funds for the number of Shares specified in the above-mentioned purchase form
together with applicable stock transfer taxes, if any; and (iii) unless in
connection with an effective registration statement which covers the sale of
the shares underlying the Warrant, the delivery to the Company of a statement
by the Holder (in a form acceptable to the Company and its counsel) that such
Shares are being acquired by the Holder for investment and not with a view to
their distribution or resale.
9. Holder acknowledges and agrees that any shares of Common Stock
issuable upon exercise of this Warrant shall be subject to a Voting Agreement
of even date herewith between the Holder and Jack W. Matz, Jr., amongst
others (the "Voting Agreement") except as provided in the Voting Agreement.
The certificate for the Common Stock so purchased shall be delivered to
the Holder within a reasonable time, not exceed ten (10) business days after
all requisite documentation has been provided, after the rights represented
by this Warrant shall have been so exercised, and shall bear a restrictive
legend with respect to any applicable securities laws.
11. This Warrant shall be governed by and construed in accordance with
the laws of the State of Delaware. The Delaware courts shall have exclusive
jurisdiction over this instrument and the enforcement thereof. Service of
process shall be effective if by certified mail, return receipt requested.
All notices shall be in writing and shall be deemed given upon receipt by the
party to whom addressed. This instrument shall be enforceable by decrees of
specific performance as well as other remedies.
- 3 -
<PAGE>
IN WITNESS WHEREOF, SA Telecommunications, Inc. has caused this Warrant
to be signed by its duly authorized officers under its corporate seal, and to
be dated as of the date set forth above.
SA TELECOMMUNICATIONS, INC.
By: ________________________________
- 4 -
<PAGE>
PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the registered holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such
Warrant for, and to purchase thereunder, ______ shares of $.001 par value
Common Stock and herewith makes payments of $_____________ thereof, and
requests that the certificates for shares of Common Stock be issued in the
name(s) of, and delivered to ___________________________ whose address(es) is
(are) ______________________________________________________________________.
Dated:______________, 19__.
_______________________________
_______________________________
Address
<PAGE>
TRANSFER FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned registered holder of this Warrant
hereby sells, assigns and transfers unto _____________________________ the
right to purchase shares of Common Stock represented by the foregoing Warrant
to the extent of __________ shares of Common Stock, and appoints
________________________ attorney to transfer such rights on the books of SA
TELECOMMUNICATIONS, INC., with full power of substitution in the premises.
Dated:_______________, 19___.
_______________________________
Holder
_______________________________
Address
In the presence of:
_______________________________
<PAGE>
SCHEDULE OF DIFFERENCES
Warrant Holder Number of Shares
1. Fred Rudy 40,000
2. Jules Nordlicht 300,000
3. Moses Elias 8,000
4. Harry Adler 40,000
5. Dr. Seymour Huberfeld 10,000
6. Connie Lerner 5,000
7. Mueller Trading L.P. 5,000
8. Jack Ehrenhaus 5,000
9. Cong. Ahavas Tzedach Vachsed 7,000
10. Laura Huberfeld/Naomi Bodner Partnership 600,000
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (the "Agreement") made as of the ____ day of
September, 1995, by and among JACK W. MATZ, JR. or his assignee(s)
(collectively, the "Management Stockholder"), MUELLER TRADING L.P. (the
"Investor Stockholder") (the Investor Stockholder and the Management
Stockholder being collectively referred to herein as the "Stockholders") and
SA TELECOMMUNICATIONS, INC., a Delaware company (the "Company")
W I T N E S S E T H:
WHEREAS, Investor Stockholder has acquired certain of the authorized
shares of common stock, par value $0.0001 per share (the "Common Stock") of
the Company and certain warrants to acquire Common Stock; and
WHEREAS, such parties desire to enter into certain agreements
hereinafter set forth with respect to the voting of such shares of Common
Stock (including shares of Common Stock issued upon exercise of any warrant)
in all matters submitted to the stockholders of the Company for a vote or
consent.
NOW, THEREFORE, for and in consideration of the premises and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed:
SECTION 1. This Agreement is made pursuant to the provisions of Article
218 of the Delaware General Corporation Law and shall become effective upon
the Investor Stockholder's acquisition of shares of Common Stock of the
Company. A counterpart of this Agreement shall be deposited with the Company
at its principal offices and shall be subject to the same rights of
examination of any stockholder of the Company, in person or by agent or
attorney, as are the books and records of the Company. A counterpart of this
Voting Agreement has been deposited with the Company at its principal
offices. It is intended that this Agreement shall be specifically enforceable
in accordance with the principles of equity.
SECTION 2. At all meetings of the stockholders of the Company, or with
regard to any action taken pursuant to consent, during the term of this
Agreement, all shares of Common Stock held or owned by the Investor
Stockholder (including without limitation any shares of Common Stock acquired
upon the exercise of any warrant) shall be voted by the Investor Stockholder
in the manner designated by the Management Stockholder.
VOTING AGREEMENT - PAGE 1
<PAGE>
SECTION 3. To the extent necessary for the enforcement hereof, this
Agreement shall be deemed to provide the Management Stockholder an
irrevocable proxy for the term hereof, which such proxy is expressly agreed
between the parties hereto to be coupled with an interest as contemplated by
applicable law.
SECTION 4. Except as set forth in Section 6(d)(v) of the Subscription
Agreement, any share of the Common Stock subject to this Agreement shall
remain so subject, regardless of any conveyance thereof to any party, during
the term of this Agreement, and any party proposing to transfer any shares
shall secure a written agreement form the transferee that such party agrees
to be bound by the terms of this Agreement. The Company shall not permit the
voting of shares of Common Stock in contravention of the terms hereof.
SECTION 5. In case the Company is merged with, into or consolidated
with another corporation or other entity, or all or substantially all of the
assets of the Company are transferred to another corporation or other entity,
then in connection with such transfer, the term "the Company" for all
purposes of this Agreement shall be taken to include such successor
corporation, and any stock of such successor corporation received on the
account of the ownership of the parties hereto of the stock of the Company
subject hereto prior to such merger, consolidation and transfer shall be and
become subject to this Agreement, and the parties hereto shall use their best
efforts to implement the provisions of this Agreement to the maximum extent
their voting power will permit.
SECTION 6. This Agreement shall terminate and expire on August 31, 2005.
SECTION 7. Unless otherwise specifically provided herein, all notices
and other communications required or permitted to be given hereunder shall be
in writing and shall be deemed to have been duly given at the time of
delivery against receipt at the appropriate address set forth below, or at
such other addresses as shall be specified by the parties hereto, by like
notice.
(a) If to the Management Stockholder:
Jack W. Matz, Jr.
1912 Avenue K, Ste. 100
Plano, TX 75074-5959
(b) If to the Investor Stockholder:
Mueller Trading L.P.
120 Madison Avenue
Lakewood, New Jersey 08701
VOTING AGREEMENT - PAGE 2
<PAGE>
(c) If to the Company:
SA Telecommunications, Inc.
1912 Avenue K, Ste. 100
Plano, TX 75074-5959
or at such other address as a party hereto may specify by written notice to
the other parties to this Agreement.
SECTION 8. Except for transferees which under Section 6(d)(v) of the
Subscription Agreement are not required to execute a Voting Agreement as a
condition to transfer, this Agreement shall be binding upon and shall inure
to the benefit of each party hereto and each such party's heirs, legal
representatives, transferees, successors and assigns.
SECTION 9. This Agreement may be executed in multiple counterparts, but
all counterparts taken together shall constitute one and the same agreement,
binding upon all of the parties hereto.
SECTION 10. If any provision of this Agreement is held to be illegal,
invalid and unenforceable under present or future laws effective during the
term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable provision
or by its severance from this Agreement. Furthermore, in lieu of each such
illegal, invalid or unenforceable provision there shall be added
automatically, as part of this Agreement, a provision as similar in terms to
such illegal, invalid, or unenforceable provision as may be possible and be
legal, valid and enforceable.
SECTION 11. Each of the parties to this Agreement will be entitled to
enforce its rights under this Agreement specifically, to recover damages by
reason of any breach of any provision of this Agreement and to exercise all
other rights existing in its favor. The parties hereto agree and acknowledge
that money damages may not be an adequate remedy for any such breach or
threatened breach of the provisions of this Agreement and that any party may
in its sole discretion, in addition to any other available remedies, apply to
any court of law or equity of competent jurisdiction for and be entitled to
specific performance and/or injunctive relief in order to enforce or prevent
any violations of the provisions of this Agreement.
SECTION 12. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF DELAWARE, THE STATE OF INCORPORATION OF THE
COMPANY.
VOTING AGREEMENT - PAGE 3
<PAGE>
IN WITNESS WHEREOF, the parties hereto executed this Agreement as of the
____ day of ________________, 1995.
INVESTOR STOCKHOLDER:
MUELLER TRADING L.P.
By:_________________________________
Title:______________________________
MANAGEMENT STOCKHOLDER:
____________________________________
Jack W. Matz, Jr.
SA TELECOMMUNICATIONS, INC.
By:_________________________________
Title:______________________________
VOTING AGREEMENT - PAGE 4
<PAGE>
SCHEDULE OF DIFFERENCES
Investor Stockholder
1. Cong. Ahavas Tzedach Vachsed
2. Laura Huberfeld/Naomi Bodner Partnership
3. Connie Lerner
4. Moses Elias
5. Jules Nordlicht
6. Fred Rudy
7. Harry Adler
8. Dr. Seymour Huberfeld
9. Seth Joseph Antine
10. Jack Ehrenhaus
VOTING AGREEMENT - PAGE 5
<PAGE>
AGREEMENT
This Agreement ("Agreement") dated as of October 26, 1995 by and between
SA Telecommunications, Inc., a Delaware corporation (the "Company") and the
Persons listed on the signature page hereto (individually, a "Holder" and
collectively, the "Holders").
WHEREAS, the Company and each of the Holders entered into a Subscription
Agreement executed as of September 20, 1995 (the "Subscription Agreements"),
pursuant to which the Holders purchased an aggregate of 1,100,000 shares of
the Company's Common Stock, $.0001 par value (the "Common Stock") and
warrants exercisable into an aggregate of 1,100,000 shares of Common Stock
(the "Warrants");
WHEREAS, pursuant to the Subscription Agreements, the Company granted to
the Holders demand registration rights ("Demand Registration") with respect
to the 1,100,000 shares of Common Stock purchased pursuant to the
Subscription Agreement and the 1,100,000 shares of Common Stock into which
the Warrants are exercisable which have not been previously sold pursuant to
the registration statement or Rule 144 promulgated under the Act (the
"Registrable Securities");
WHEREAS, pursuant to Section 5(c) of the Subscription Agreements, the
Company and each of the Holders is required to enter into indemnification
agreements with respect to the registration of the Registrable Securities;
NOW, THEREFORE, in consideration of the above premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended.
"COMMISSION" means Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust or unincorporated organization.
"PROSPECTUS" means the prospectus which is part of a Registration
Statement, and includes any preliminary prospectus and/or supplemental
prospectus.
"REGISTRATION STATEMENT" means a registration statement filed with the
Commission
1
<PAGE>
under the Act which includes the Registrable Securities being registered
pursuant to the demand registration rights granted pursuant to the
Subscription Agreements.
"SELLING HOLDER" means a Holder whose Registrable Securities are
included in a Registration Statement.
2. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to
indemnify and hold harmless, to the full extent permitted by law, each
Selling Holder in its capacity as a Selling Holder, its officers and
directors and each Person who controls such Selling Holder (within the
meaning of Section 15 of the Act and Section 20(a) of the Exchange Act),
against any losses, claims, damages, liabilities and expenses (including
attorneys fees) caused by any untrue statement of a material fact
contained in any Registration Statement, Prospectus or preliminary
Prospectus or any omission to state therein a material fact necessary to
make the statements therein (in the case of the Prospectus or any
preliminary Prospectus, in light of the circumstances under which they
were made) not misleading, except insofar as the same are (I) caused by
or contained in any information furnished to the Company by such Selling
Holder in its capacity as a Selling Holder expressly for use in the
preparation thereof, (ii) caused by such Selling Holder's failure to
deliver a copy of the Registration Statement or Prospectus or any
amendments or supplements thereto, or (iii) arise out of the Selling
Holders failure to comply with the terms and provisions of this Agreement.
(b) INDEMNIFICATION BY SELLING HOLDERS. Each Selling Holder in its
capacity as a Selling Holder agrees to indemnify, to the full extent
permitted by law, the Company, its directors and officers and each Person
who controls the Company (within the meaning of Section 15 of the Act
and Section 20(a) of the Exchange Act) and its respective agents and
counsel against any losses, claims, damages, liabilities and expenses
(including attorneys' fees) resulting from any untrue statement of a
material fact or any omission to state a material fact necessary to make
the statements in the Registration Statement or Prospectus or preliminary
Prospectus (in the case of the Prospectus or any preliminary Prospectus,
in light of the circumstances under which they were made) not misleading,
to the extent, but only to the extent, that such untrue statement or
omission was made in reliance upon information furnished by, or on behalf
of, such Selling Holder in its capacity as a Selling Holder specifically
for use in the preparation thereof. The Company 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 provided above with respect to
information with respect to such Persons so furnished by such Persons
specifically for use in the preparation of any Prospectus or Registration
Statement.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
2
<PAGE>
indemnification hereunder will (I) give prompt written notice to the
indemnifying party of any claim with respect to which it seeks
indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest may exist between such indemnified and
indemnifying parties with respect to such claim, permit such indemnifying
party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party. Whether or not such defense is
assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent
(but such consent will not be unreasonably withheld). No indemnifying
party will consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect of such claim or litigation. An 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 parties indemnified by such indemnifying party with
respect to such claim, unless in the reasonable judgment of any
indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect
to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If for any reasons the indemnification provided
for in the preceding clauses (a) and (b) is unavailable to an indemnified
party as contemplated by the preceding clauses (a) and (b), then the
indemnifying party shall contribute to the amount paid or payable by the
indemnified party as a result of such loss, claim, damage or liability in
such proportion as is appropriate to reflect not only the relative
benefits received by the indemnified party and the indemnifying party,
but also the relative fault of the indemnified party and indemnifying
party, as well as any other relevant equitable considerations.
3. BLUE SKY STATES. Pursuant to Section 5 of the Subscription
Agreement, the Selling Holders designate the states listed on Exhibit A
hereto as the list of blue sky jurisdictions requested in connection with the
Demand Registration.
4. AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented
without the written consent of the Company and the Holders owning a majority
of the Registrable Securities.
5. NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by hand delivery or registered first-class
mail to the Company or each Holder, as the case may be, at its address set
forth in the Subscription Agreement.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
except that no Holder may
3
<PAGE>
assign its rights hereunder to any Person.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
8. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9. GOVERNING LAW. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, constructions and effect and in all
other aspects by the substantive laws of the State of Texas, without
reference to conflicts of laws principles.
10. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions contained herein shall not be in any
way impaired thereby, it being intended that all of the rights and privileges
established by this Agreement shall be enforceable to the fullest extent
permitted by law.
11. ENTIRE AGREEMENT. This Agreement and the Subscription Agreement
and the agreements contemplated thereby are intended by the parties as a
final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto
in respect of the subject matter contained herein.
12. ATTORNEYS' FEES. In any action or proceeding brought to enforce
any provision of this Agreement or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recovery
reasonable attorneys' fees in addition to any other available remedy.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SA TELECOMMUNICATIONS, INC. ______________________________________
Seth Joseph Antine
By:_________________________________
Jack W. Matz, Jr. ______________________________________
Chairman & Chief Executive Fred Rudy
Officer
____________________________________ ______________________________________
4
<PAGE>
Jules Nordlicht Moses Elias
____________________________________ _____________________________________
Harry Adler Dr. Seymour Huberfeld
5
<PAGE>
____________________________________ _____________________________________
Connie Lerner Jack Ehrenhaus
MUELLER TRADING L.P. CONG. AHAVAS TZEDACH VACHSED
By:________________________________ By:__________________________________
Title:_____________________________ Title:_______________________________
LAURA HUBERFELD/NAOMI BODNER PARTNERSHIP
By:________________________________
Title:_____________________________
6
<PAGE>
EXHIBIT A
BLUE SKY STATES
New York
New Jersey
7
<PAGE>
AGREEMENT
AGREEMENT dated as of September 21, 1995 by and among SA
Telecommunications, Inc., f/k/a/ SA Holdings, Inc., a Delaware corporation
(the "Company"), and Howard Maddera, Bill L. Johnson and Marianne Reed
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company and Purchasers have entered into that certain
Note, Preferred Stock & Warrant Purchase Agreement dated as of July 31,
1995 (the "Purchase Agreement"), pursuant to which the Company issued and
the Purchasers purchased an aggregate of $2,750,000 principal amount of
the Company's Subordinated Notes Due October 1, 1996 (the "Bridge Notes")
and an aggregate of 125,000 shares of Series B Cumulative Convertible
Preferred Stock, $.00001 par value (the "Series B Preferred Stock");
WHEREAS, the Company desires to prepay an aggregate principal amount of
$1,100,000 of the Bridge Notes in exchange for waiver of the conversion
feature of the Series B Preferred Stock and a proxy exercisable in the
event the Company, in its sole discretion, desires to seek an amendment to
the Certificate of Designations, Preferences and Rights of Series B
Cumulative Convertible Preferred Stock ("Series B Designation") deleting
all provisions relating to conversion and adjusting any provisions
dependant upon conversion rights, and Purchasers desire to accept such
prepayment and grant such waiver and proxy;
NOW, THEREFORE, in consideration of the foregoing premises and other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. PREPAYMENT OF BRIDGE NOTES. Pursuant to Section 6 of the Purchase
Agreement, the Company hereby delivers to Purchasers as an aggregate
prepayment of principal of $1,100,000 plus $17,813.83 accrued and unpaid
interest on principal to the date hereof on the Bridge Notes, for a total
of $1,117,813.83 by checks payable to the order of (a) Howard Maderra in
the amount of $447,125.53, (b) Bill L. Johnson in the amount of
$447,125.53, and (c) Marianne Reed in the amount of $223,562.77, and each
of Purchasers hereby accepts such prepayment and waives all notice to
which such Purchaser may be entitled under Section 6 or any other
provision of the Purchase Agreement.
2. WAIVER OF CONVERSION FEATURE.
(a) Each of the Purchasers, being all the holders of the
Series B Preferred Stock, and the Company hereby waive all
provisions giving the holder of such Series B Preferred Stock
the right to convert into the Company's Common Stock.
Accordingly, each of the Purchasers hereby expressly acknowledges
and agrees that the Series B Preferred Stock will not now, nor
ever be, convertible into shares of
1
<PAGE>
Common Stock of the Company, and that any transfer of such Series B
Preferred Stock will not convey conversion rights.
(b) In the event that the Company, in its sole discretion,
desires to amend the Series B Designation to delete all provisions
relating to conversion and adjust any provisions dependent upon
conversion rights, in order to effectuate the covenant set forth
in Section 2(a) above, each of the Purchasers hereby irrevocably
appoints Jack W. Matz, Jr. and J. David Darnell, and both or
either of them, as proxies, each with the power to appoint his
substitute, and hereby authorizes each of them to vote all shares
of capital stock of the Company held by such Purchasers in favor
of such an amendment at any stockholder's meeting at which such
amendment shall be presented for approval.
(c) Each of the Purchasers agrees that such Purchaser will
immediately deliver all stock certificates representing shares
of Series B Preferred Stock held by such Purchaser to the
Company in order that the Company can place a legend on the
reverse side thereof indicating that the holder thereof has
agreed to the waiver of the conversion feature previously
existing with respect to such Series B Preferred Stock.
3. AMENDMENT OF PURCHASE AGREEMENT. The Purchasers and the
Company hereby agree that the Purchase Agreement is hereby amended
as follows:
(a) Section 1(c) of the Purchase Agreement is hereby amended to
delete the second sentence of Section 1(c).
(b) The definition of "Share" in Section 3(a) of the Purchase
Agreement is hereby amended to delete the reference to conversion
of Series B Preferred Stock and is amended and restated as
follows:
"SHARE" or "SHARES" means shares of the Company's Common Stock,
or other securities which can be obtained or have been obtained
by exercise in whole or in part of any Warrant or are obtained
upon an exchange of Shares pursuant to the terms of a Warrant or
are obtained upon an exchange of Shares pursuant to the terms of
the Company's articles of incorporation.
(c) Section 7.1 of the Purchase Agreement is hereby amended to
delete reference to the Series B Preferred Stock and restated as
follows:
7.1 RESERVATION OF SHARES. There has been reserved, and
the Company shall at all times keep reserved, free from
preemptive rights, out of its authorized Common Stock, $.0001 par
value per share, a number of shares of Common Stock, $.0001 par
value per share, sufficient to provide for the exercise of the
Warrants.
2
<PAGE>
(d) Sections 15.2, 15.3, 15.4, 15.5 and 15.6 of the Purchase
Agreement are hereby amended to delete all references to
"Series B Preferred Stock" and "conversion of Series B Preferred
Stock."
4. COUNTERPARTS; BINDING EFFECT. This Agreement may be executed
by the parties hereto in separate counterparts, each of which when so
executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument,
and all signatures need not appear on any one counterpart. The terms
of this Agreement shall be binding upon, and inure to the benefit of,
the parties and their respective successors and permitted assigns
whether so expressed or not.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
SA TELECOMMUNICATIONS, INC. /s/ Howard Maddera
------------------------------
Howard Maddera
By: /s/ Jack W. Matz Jr. /s/ Bill L. Johnson
-------------------------- ------------------------------
Jack W. Matz, Jr. Bill L. Johnson
Chairman and Chief Executive
Officer
/s/ Marianne Reed
------------------------------
Marianne Reed
3
<PAGE>
AGREEMENT
This Agreement ("Agreement") dated as of October 26, 1995 by and between
SA Telecommunications, Inc., a Delaware corporation (the "Company") and Jesup
& Lamont Capital Markets, Inc. (the "Holder").
WHEREAS, the Company and the Holder entered into a Warrant Purchase
Agreement dated as of July 31, 1995 ("Warrant Agreement"), pursuant to which
the Holder purchased a Common Stock Purchase Warrant dated July 31, 1995
exercisable into an aggregate of 500,000 shares (the "Warrant Shares") of
the Company's Common Stock, $.0001 par value (the "Common Stock") (the
"Warrant");
WHEREAS, the Company and the Holder entered into a Share Purchase
Agreement dated as of July 31, 1995 ("Share Agreement"), pursuant to which
the Holder purchased 166,667 shares (the "Conversion Shares") of Series A
Cumulative Convertible Preferred Stock, convertible into 1,333,336 shares of
Common Stock;
WHEREAS, pursuant to the Share Agreement and the Warrant Agreement, the
Company granted to the Holder piggy-back registration rights (" Registration")
with respect to the Conversion Shares and the Warrant Shares (the "Registrable
Securities");
WHEREAS, the Company and the Holder desire to enter into an
indemnification agreement with respect to the registration of the Registrable
Securities;
NOW, THEREFORE, in consideration of the above premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
"ACT" means the Securities Act of 1933, as amended.
"COMMISSION" means Securities and Exchange Commission.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust or unincorporated organization.
"PROSPECTUS" means the prospectus which is part of a Registration
Statement, and includes any preliminary prospectus and/or supplemental
prospectus.
1
<PAGE>
"REGISTRATION STATEMENT" means a registration statement filed with the
Commission under the Act which includes the Registrable Securities being
registered pursuant to the registration rights granted pursuant to the
Share Agreement and the Warrant Agreement.
"SELLING HOLDER" means the Holder whose Registrable Securities are
included in a Registration Statement.
2. INDEMNIFICATION.
(a) INDEMNIFICATION BY SELLING HOLDER. Selling Holder in its
capacity as a Selling Holder agrees to indemnify, to the full extent
permitted by law, the Company, its directors and officers and each
Person who controls the Company (within the meaning of Section 15 of
the Act and Section 20(a) of the Exchange Act) and its respective
agents and counsel against any losses, claims, damages, liabilities and
expenses (including attorneys' fees) resulting from any untrue
statement of a material fact or any omission to state a material fact
necessary to make the statements in the Registration Statement or
Prospectus or preliminary Prospectus (in the case of the Prospectus or
any preliminary Prospectus, in light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent,
that such untrue statement or omission was made in reliance upon
information furnished by, or on behalf of, such Selling Holder in its
capacity as a Selling Holder specifically for use in the preparation
thereof. The Company 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 provided above with respect to information with respect to
such Person so furnished by such Person specifically for use in the
preparation of any Prospectus or Registration Statement.
(b) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder or under Section 10.5 of the Warrant
Agreement or under Section 8.5 of the Share Agreement will (I) give prompt
written notice to the indemnifying party of any claim with respect to
which it seeks indemnification and (ii) unless in such indemnified
party's reasonable judgment a conflict of interest may exist between
such indemnified and indemnifying parties with respect to such claim,
permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party. Whether or not
such defense is assumed by the indemnifying party, the indemnifying party
will not be subject to any liability for any settlement made without its
consent (but such consent will not be unreasonably withheld). No
indemnifying party will consent to entry of any judgment or enter into
any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such indemnified party of a
release from all liability in respect of such claim or litigation. An
indemnifying party who is not entitled to, or elects not to, assume the
defense of a claim will not be obligated to
2
<PAGE>
pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict
of interest may exist between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of
such additional counsel or counsels.
(d) CONTRIBUTION. If for any reasons the indemnification provided
for in the preceding clauses (a) and (b) is unavailable to an
indemnified party as contemplated by the preceding clauses (a) and (b),
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such loss, claim,
damage or liability in such proportion as is appropriate to reflect not
only the relative benefits received by the indemnified party and the
indemnifying party, but also the relative fault of the indemnified
party and indemnifying party, as well as any other relevant equitable
considerations.
3. BLUE SKY STATES. The Selling Holder designates the states listed on
Exhibit A hereto as the list of blue sky jurisdictions requested in
connection with the Registration.
4. AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented
without the written consent of the Company and the Holder.
5. NOTICES. All notices and other communications provided for or
permitted hereunder shall be made by hand delivery or registered first-class
mail to the Company or Holder, as the case may be, at its address set forth
on the signature page hereto.
6. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
except that Holder may not assign its rights hereunder to any Person.
7. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
8. HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
9. GOVERNING LAW. This Agreement shall be governed and controlled as
to validity, enforcement, interpretation, constructions and effect and in all
other aspects by the substantive laws of the State of Texas, without
reference to conflicts of laws principles.
10. SEVERABILITY. In the event that any one or more of the provisions
contained
3
<PAGE>
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and
of the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges established
by this Agreement shall be enforceable to the fullest extent permitted by law.
11. ENTIRE AGREEMENT. This Agreement, the Share Agreement and the
Warrant Agreement and the agreements contemplated thereby are intended by
the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein.
12. ATTORNEYS' FEES. In any action or proceeding brought to enforce any
provision of this Agreement or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recovery reasonable
attorneys' fees in addition to any other available remedy.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
SA TELECOMMUNICATIONS, INC. JESUP & LAMONT CAPITAL
MARKETS, INC.
By:________________________
Jack W. Matz, Jr. BY:_____________________________
Chairman & Chief Executive TITLE:___________________
Officer 650 Fifth Avenue
1912 Avenue K, Suite 100 New York, NY 10019
Plano, TX 75074
4
<PAGE>
EXHIBIT A
BLUE SKY STATES
New York
5
<PAGE>
STOCK CERTIFICATE
S A TELECOMMUNICATIONS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SAH5808 7,000
COMMON STOCK
TRANSFER SUBJECT TO LEGEND ON REVERSE SIDE
Cusip 783942 10 5
This certifies that 001264 CONG, AHAVAS TZEDACH VACHSED
is the owner of SEVEN THOUSAND SHARES OF SA TELECOMMUNICATIONS, INC.
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.0001
PAR VALUE, OF
S A TELECOMMUNICATIONS, INC.
(hereinafter called the "Corporation"), transferable on the books of the
Corporation by the holder hereof in person or by duly authorized attorney, upon
surrender of this Certificate properly endorsed. This Certificate and the
shares represented hereby are issued and shall be held subject to all the
provisions of the Certificate of Incorporation, as amended, and the Bylaws of
the Corporation, as amended (copies of which are on file at the office of the
Transfer Agent), to all of which the holder of this Certificate by acceptance
hereof assents. This Certificate is not valid unless countersigned and
registered by the Transfer Agent and Registrar. Witness the facsimile seal of
the Corporation and the facsimile signatures of its duly authorized officers.
Date: SEPTEMBER 20TH, 1995
SECRETARY (CORPORATE SEAL) CHIEF EXECUTIVE OFFICER
<PAGE>
S A TELECOMMUNICATIONS, INC.
TRANSFER FEE $12.00 PER NEW CERTIFICATE ISSUED
A full statement of the relative rights, interests, preferences and
restrictions of each class of stock will be furnished by the corporation to any
shareholder upon written request, without charge.
The following abbreviations, when used in the inscription on the fact of
this certificate, shall be construed as through they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT - ______Custodian_______
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to
survivorship and not as Minors Act____________
tenants in common (State)
Additional abbreviations may also be used though not in the
above list.
For value received, __________________ hereby sell, assign and transfer
unto
(Please insert Social Security or other identifying number of assignee_______
______________________________________________________________________________
______________________________________________________________________________
(Please print or typewrite name and address including postal zip code of
assignee)
______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________ Shares
of the Common Stock represented by the within Certificate, and do hereby
irrevocably
constitute and appoint________________________________________________________
______________________________________________________________________________
Attorney to transfer the said stock on the books of the within-named
Corporation with full power of substitution in the premises.
Dated: _______________, 199___.
Signature:
X______________________________________
X_______________________________________
<PAGE>
Signature Guarantee:
The Signature(s) should be Medallion Stamp guaranteed by an eligible guarantor
institution pursuant to S.E.C. Rule 17AD-15.
SIGNATURE(S) GUARANTEED BY:
"These securities have not been registered under the Securities Act of 1933.
They may not be sold, offered for sale, pledged or hypothecated in the
absence of an effective registration statement as to the securities under
said Act or pursuant to an exemption from registration or an opinion of
counsel satisfactory to the company that such registration is not required."
<PAGE>
FIRST AMENDMENT TO
TERM CREDIT AGREEMENT
This Amendment is agreed to and effective as of the 1st day of October,
1995, by and between SA Telecommunications, Inc., a Delaware corporation
formerly known as SA Holdings, Inc. (the "Borrower"), and Norwest Bank
Minnesota, National Association, a national banking association (the "Bank").
The Borrower and the Bank have entered into a Term Credit Agreement
dated as of July 31, 1995 (together with all amendments, modifications and
restatements thereof, the "Credit Agreement").
The Borrower and the Bank wish to amend certain provisions of the Credit
Agreement.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement that
are not otherwise defined herein shall have the meanings given them in the
Credit Agreement.
2. AMENDMENT. The Credit Agreement is hereby amended as follows:
(a) The definition of "Adjusted Operating Cash Flow" in Section 1.1
of the Credit Agreement is hereby amended in its entirety to read as
follows:
"Adjusted Operating Cash Flow" means, with respect to any
period, the Operating Cash Flow for such period PLUS the Expense
Reduction Amount, if any, attributable to such period. Adjusted
Operating Cash Flow as of any month-end means (i) with respect to
any month-end occurring on or before the Conversion Date (but after
the Closing Date), the Adjusted Operating Cash Flow during the 6-month
period ending on such date, multiplied by two, and (ii) with respect
to any month-end occurring after the Conversion Date, the Adjusted
Operating Cash Flow during the 12-month period ending on such date.
(b) The phrase, "quarter-end", in the definition of "Borrowing
Certificate" in Section 1.1 of the Credit Agreement is hereby deleted,
and the phrase, "month-end", is substituted therefor.
(c) The table in the definition of "Expense Reduction Amount" in
Section 1.1 of the Credit Agreement is hereby amended in its entirety to
read as follows:
<PAGE>
<TABLE>
<CAPTION>
Month Expense Reduction Amount
----- ------------------------
<S> <C>
August 1995 $163,000
September 1995 107,000
October 1995 49,000
November 1995 47,000
December 1995 2,000
</TABLE>
(d) The phrase, "fiscal quarter-end", in the definitions of "Senior
Debt Service Ratio", "Senior Debt Service Requirements" and "Senior
Leverage Ratio" in Section 1.1 of the Credit Agreement is hereby in each
instance deleted, and the phrase, "month-end", is in each instance
substituted therefor.
(e) The phrase, "during the immediately succeeding four-quarter
period", in the definition of "Senior Debt Service Requirements" in
Section 1.1 of the Credit Agreement is hereby deleted, and the phrase,
"during the immediately succeeding 12-month period", is substituted
therefor.
(f) The phrase, "as at the end of that fiscal quarter", in the
definition of "Senior Leverage Ratio" in Section 1.1 of the Credit
Agreement is hereby deleted, and the phrase, "as of that month-end", is
substituted therefor.
(g) Section 2.4(e) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(e) The Equity Increment shall be o%.
(h) The following new Section 2.16 is hereby inserted at the end of
Article II of the Credit Agreement:
Section 2.16 DEFAULT FEE. The Borrower shall pay the Bank a
default fee in the amount of $25,000 on or before January 31, 1996;
provided, however, that the Bank shall waive the payment of such fee
if the Borrower proves to have been in compliance with Sections 5.9,
5.10 and 5.11 of this Agreement as of December 31, 1995. Such fee
shall be in addition to any other amounts required to be paid by the
Borrower under this Agreement or the Note. Neither the payment nor
acceptance of such fee shall be deemed a waiver or execute of any
Default or Event of Default, including but not limited to any Event
of Default arising from the Borrower s breach of Section 5.9, 5.10
or 5.11 as of December 31, 1995.
(i) The last two sentences of Section 4.4 of the Credit Agreement
are hereby amended in their entirety to read as follows:
2
<PAGE>
The Borrower hereby represents, warrants and agrees with the Bank
that Borrower has filed a Form 15 with the Securities and Exchange
Commission withdrawing SATC's registration statement and has
delivered to the Bank (i) a security agreement, duly executed by
SATC, in the form of the Security Agreements, (ii) such UCC-1
financing statements and other documents as the Bank has required
to perfect the security interest thereunder, and (iii) a guaranty
duly executed by SATC, in the form of Exhibit D; provided, however,
that such security agreement and guaranty, and the security interest
in SATC's stock granted pursuant to the Borrower's Security Agreement,
shall be released and such UCC-1 financing statements terminated by
the Bank concurrent with the sale or other disposition of at least
80% of the stock or substantially all of the assets of SATC.
(i) Section 5.1(b) of the Credit Agreement is hereby amended as
follows:
(i) The phrase, "45 days", is hereby deleted, and the phrase,
"Applicable Period", is substituted therefor.
(ii) The phrase beginning with the words, "and with respect to the
financial statements delivered for any month", and ending immediately
before the period at the end of that Section 5.1(b) is hereby
deleted, and the following is substituted therefor:
and further accompanied by a Compliance Certificate and a
Borrowing Certificate as of the end of such month, each signed
by the president or the chief financial officer of the Borrower.
(iii) The following is hereby inserted at the end of Section 5.1(b):
As used herein, "Applicable Period" means (i) with respect to
the Borrower's financial statements as of October 31, 1995 and
November 30, 1995, 40 days, and (ii) with respect to the
Borrower's financial statements as of each month-end thereafter,
35 days.
(k) Sections 5.9, 5.10 and 5.11 of the Credit Agreement are hereby
amended in their entirety to read as follows:
Section 5.9 SENIOR LEVERAGE RATIO. The Borrower will at all
times maintain its Senior Leverage Ratio, determined as at the end
of each month designated below, at not more than the amount set
forth below opposite such month:
3
<PAGE>
<TABLE>
<CAPTION>
Months Ratio
------ -----
<S> <C>
October 1995 4.85 to 1
November 1995 3.65 to 1
December 1995 3.10 to 1
January 1996 through September 1996 2.50 to 1
October 1996 through June 1997 2.25 to 1
July 1997 through June 1998 1.75 to 1
July 1998 through June 1999 1.25 to 1
July 1999 and thereafter 0.75 to 1
</TABLE>
Section 5.10 SENIOR DEBT SERVICE RATIO. The Borrower will at
all times maintain its Senior Debt Service Ratio, determined at the
end of each calendar month, at no less than 2.0 to 1 through June 30,
1996 and at not less than 1.75 to 1 thereafter.
Section 5.11 OPERATING CASH FLOW. The Borrower shall maintain
its Operating Cash Flow for each period of 12 consecutive calendar
months, determined as of the end of each calendar month, (i) with
respect to each month designated below, in an amount not less than
the amount set forth opposite that month:
<TABLE>
<CAPTION>
Months Operating Cash Flow
------ -------------------
<S> <C>
October 1995 $1,443,299
November 1995 $1,876,712
December 1995 $2,209,677
</TABLE>
and (ii) with respect to each other month, in an amount not less than
the greater of (A) $2,818,141 or (B) 85% of its Operating Cash Flow
during the period of 12 consecutive calendar months ending one year
prior to the date of determination.
(l) Section 7.1(q) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(q) The Borrower shall fail to have sold or otherwise disposed of
at least 80% of the stock or substantially all of the assets of
SATC on or before February 29, 1996.
(m) Schedule 4.12 of the Credit Agreement is hereby amended in its
entirety to read as set forth in Schedule 4.12 hereto.
(n) Exhibit A to this Amendment is hereby inserted at the end of
Schedule 4.15 of the Credit Agreement as page 8 of that Schedule
4.15.
4
<PAGE>
3. WAIVER OF SEPTEMBER 30, 1995 FINANCIAL COVENANT VIOLATIONS.
The Bank hereby waives any Event of Default occurring under Section 7.1(b) of
the Credit Agreement on account of the Borrower's breach of Sections 5.9,
5.10 and 5.11 of the Credit Agreement as of September 30, 1995. Such waiver
shall be effective only as expressly set forth in the preceding sentence, it
shall not constitute or imply a waiver of (i) any Event of Default occurring
on or before September 30, 1995 under any other section of the Credit
Agreement or for any other reason, or (ii) any Event of Default (including
any Event of Default on account of the Borrower's breach of Section 5.9, 5.10
or 5.11 of the Credit Agreement) with respect to any date or period after
September 30, 1995.
4. WAIVER AND CONSENT TO PURCHASE OF SWITCH AND RELATED
EQUIPMENT. The Borrower has indicated to the Bank that Long Distance
Network, Inc. ("LDN") has purchased certain switching and related equipment
(the "Switch Equipment"), as described in a document entitled "Security
Agreement Telecommunications, Inc. Operations/Network Planning" and a Lease
Agreement effective on October 11, 1995 between Telecommunications Finance
Group and LDN (collectively, the "Lease"), copies of which have delivered to
the Bank, for a price equal to $1,194,483 (the "Switch Equipment Purchase").
The Bank has consented and hereby consents to the Switch Equipment Purchase
and waives any Event of Default occurring under Section 7.1(b) of the Credit
Agreement on account of the Borrower's breach of Section 6.11 of the Credit
Agreement for failure of the parties to reduce the prior consent of the Bank
for the Switch Equipment Purchase to a formal writing. For purposes of
Section 6.1 and 6.2 of the Credit Agreement, the Bank further consents to the
incurrence of indebtedness and the granting of liens to facilitate the Switch
Equipment Purchase as set forth in the Lease so long as (i) the aggregate
principal amount of such indebtedness does not exceed $1,194,483, and (ii)
the security interest granted therein does not extend to or cover any
property of the Borrower or any Subsidiary other than the Switch Equipment.
5. WAIVER OF REPORTING DEADLINES. The Bank hereby waives any
Event of Default arising under Section 7.1(c) of the Credit Agreement on
account of the Borrower's failure to deliver the projections required to be
delivered under Section 5.1(c) of the Credit Agreement with respect to the
fiscal year commencing January 1, 1996 and the Borrower's failure to deliver,
by November 15, 1995, various reports required under Section 5.1(d) of the
Credit Agreement as of and for the period ended September 30, 1995, so long
as the Borrower delivers all such projections and reports to the Bank not
later than November 30, 1995.
6. ADDITIONAL MANDATORY PREPAYMENT. Not later than November 30,
1995, the Borrower shall pay to the Bank $150,000 for application as a
prepayment of the Note in accordance with Section 2.7 of the Credit
Agreement. Failure to make such payment when due shall constitute an Event
of Default under the Credit Agreement. No prepayment premium shall be
required under Section 2.8 of the Credit Agreement on account of such
prepayment.
5
<PAGE>
7. DEADLINE FOR ADDITIONAL DOCUMENTS. The Borrower and the Bank
agree that the deadline for delivery of the documents required to be
delivered under paragraphs 2(a) and 3(b) of the closing letter dated August 1,
1995 between the Borrower and the Bank shall be November 30, 1995.
8. WAIVER FEE. In consideration of the Bank's entering into this
Amendment, the Borrower will pay the Bank a waiver fee on the date hereof in
the amount of $10,000. Such fee shall be deemed fully earned by the Bank on
the date hereof and shall be in lieu of any Default Increment required under
Section 2.4(d) of the Credit Agreement on account of the breaches waived
pursuant to this Amendment.
9. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents
and warrants to the Bank as follows:
(a) The Borrower has all requisite power and authority, corporate or
otherwise, to execute and deliver this Amendment, and to perform this
Amendment and the Credit Agreement as amended hereby. This Amendment has
been duly and validly executed and delivered to the Bank by the Borrower,
and this Amendment and the Credit Agreement as amended hereby constitute
the Borrower's legal, valid and binding obligations, enforceable in
accordance with their respective terms.
(b) The execution, delivery and performance by SATC of the guaranty
and security agreement (the "SATC Documents") required under Section 4.4
of the Credit Agreement, as amended hereby, have been duly authorized by
all necessary corporate action and do not and will not (i) require any
authorization, consent or approval by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
(ii) violate SATC's articles of incorporation or bylaws or any provision
of any law, rule, regulation or order presently in effect having
applicability to SATC, or (iii) result in a breach of or constitute a
default under any indenture or agreement to which SATC is a party or by
which SATC or its properties may be bound or affected.
(c) The Borrower has prepaid $1,100,000 in principal and $17,813.83
in interest on Subordinated Debt after July 31, 1995 and on or before
November 13, 1995. Such payment was made from the proceeds of one or
more Qualified Equity Offerings.
(d) SATC has all requisite power and authority, corporate or
otherwise, to execute, deliver and perform the SATC Documents. The SATC
Documents have been duly and validly executed and delivered to the Bank
by SATC and constitute SATC's legal, valid and binding obligations,
enforceable in accordance with their respective terms.
6
<PAGE>
(e) The execution, delivery and performance by the Borrower of this
Amendment, and the performance of the Credit Agreement as amended hereby,
have been duly authorized by all necessary corporate action and do not
and will not (i) require any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate the Borrower's articles
of incorporation or bylaws or any provision of any law, rule, regulation
or order presently in effect having applicability to the Borrower, or
(iii) result in a breach or of constitute a default under any indenture
or agreement to which the Borrower is a party or by which the Borrower
or its properties may be bound or affected.
(f) All of the representations and warranties contained in Article 4
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except, as amended by this First Amendment,
to the extent that such representations and warranties relate solely to
an earlier date.
10. CONDITIONS. The amendments, waivers and consents set forth in
this Amendment shall be effectively only if the Bank has received (or waived
the receipt of) each of the following, in form and substance satisfactory to
the Bank, on or before the date hereof (or such later date as the Bank may
agree in writing):
(a) This Amendment duly executed by the Borrower, each
Telecommunications Subsidiary and the Guarantor below.
(b) The waiver fee required under paragraph 8.
(c) A guaranty, security agreement and UCC-1 financing statement,
each duly executed by SATC, as required by Section 4.4 of the Credit
Agreement.
(d) A copy of the resolutions of the board of directors of the
Borrower evidencing approval of this Amendment, the Credit Agreement as
amended herb, and the other matters contemplated hereby, certified as
accurate by the secretary of the Borrower.
(e) A certificate of the secretary of the Borrower and the
Telecommunications Subsidiaries (i) stating that there have been no
amendments to or restatements of the articles of incorporation or bylaws
of the Borrower or the Telecommunications Subsidiaries as furnished to the
Bank in connection with the execution and delivery of the Credit Agreement
other than those that may be attached to the certificate, and (ii)
certifying the names of the officers of the Borrower and the
Telecommunications Subsidiaries that are authorized to sign the documents
to be delivered pursuant to this Agreement, together with the true
signatures of such officers.
7
<PAGE>
11. MISCELLANEOUS. The consents and waivers granted herein are
limited to the express matters described herein; they do not constitute or
imply any agreement to waive any breach, Default or Event of Default not
expressly described herein, including but not limited to any such breach,
Default or Event of Default hereafter arising. The Borrower shall pay all
costs and expenses of the Bank, including attorneys' fees, incurred in
connection with the drafting and preparation of this Amendment and any
related documents. Except as amended by this Amendment, all of the terms and
conditions of the Credit Agreement shall remain in full force and effect.
This Amendment may be executed in any number of counterparts, each of which
when so executed and delivered shall be deemed to be an original and all of
which counterparts of this Amendment, taken together, shall constitute but
one and the same instrument. This Amendment shall be governed by the
substantive law of the State of Minnesota.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed as of the date first above written, but actually on the dates set
forth under their signature below.
SA TELECOMMUNICATIONS, INC. NORWEST BANK MINNESOTA
NATIONAL ASSOCIATION
By__________________________ By________________________
Its__________________________ Its________________________
Date: November 10, 1995 Date: 11-10-95
8
<PAGE>
CONSENT OF GUARANTORS
Each of the undersigned, as guarantors of all indebtedness of the
Borrower to the Bank under their separate guaranties, each dated July 31,
1995, hereby consents to the foregoing Amendment and acknowledges that all
indebtedness arising under the Credit Agreement, as amended thereby, shall
constitute Indebtedness guarantied under those guaranties. The foregoing
confirmation shall not be deemed to limit the terms of the Guaranties in any
manner. The undersigned acknowledge that this Consent merely confirms the
terms of the Guaranties, and that no such confirmation is required in
connection with this Amendment or any future amendment to or restatement of
the Credit Agreement or any document executed in connection with the Credit
Agreement or this Amendment.
LONG DISTANCE NETWORK, INC. NORTH AMERICAN
TELECOMMUNICATIONS
CORPORATION
By____________________________ By____________________________
Its___________________________ Its____________________________
SOUTHWEST LONG DISTANCE U.S. COMMUNICATIONS, INC.
NETWORK, INC.
By____________________________ By____________________________
Its___________________________ Its____________________________
_______________________________
Jack W. Matz, Jr., individually
9
<PAGE>
Schedule 4.12
REAL PROPERTY
SA HOLDINGS, INC.: NONE, except for:
(1) real property owned by SA Holdings in Midland, Texas that may be
sold along with the sale of SATC in as described in Section 4.4 of the
Agreement. The property is described as:
All of LOT Four (4), and the North One-Half (N/2) of LOT FIVE (5) in BLOCK
TWENTY-TWO (22) of COWDEN ADDITION, an addition to the City of Midland,
Midland County, Texas, according to the map thereof recorded in Volume 36,
Page 447 of the Deed Records of Midland County, Texas.
(2) Lease listed as (A)(1) of Schedule 4.15
LONG DISTANCE NETWORK, INC.:
(1) Leases listed as (B)(1), (B)(8), (B)(9) of Schedule 4.15
(2) Office Lease Agreement dated September 18, 1995 between Long
Distance Network, Inc. and The Equitable Life Assurance Society of the United
States relating to property on the 7th Floor of Allianz Financial Centre,
Dallas, Texas
U.S. COMMUNICATIONS, INC.
(1) Lease Agreement entered into as of October 27, 1995 between McCain
Park IV Offices, Ltd. relating to property located at 3807 McCain Park Drive,
Suite 101, North Little Rock, Arkansas, which lease replaces the Lease listed
as (B)(7) of Schedule 4.15
(2) Leases listed as (D)(10), (D)(11), (D)(12), (D)(13), (D)(14),
(D)(15), D(16), (D)(17), (D)(18), (D)(19), (D)(20), and (D)(21) of Schedule
4.15
10
<PAGE>
Schedule 4.15
Page 8
Additions to Schedule 4.15 as of 11/9/95
(1) Addition to Section (A) for SA Telecommunications, Inc.
(23) First Amendment to Term Credit Agreement between Norwest and SA
Telecommunications, Inc.
(2) Additions to Section (B) for Long Distance Network, Inc.
(13) Lease Agreement effective on October 11, 1995 between
Telecommunications Finance Group and Long Distance Network, Inc.
(14) Software License Agreement effective on October 11, 1995
between Siemens Stromberg-Carlson and Long Distance Network, Inc.
(15) Office Lease Agreement dated September 18, 1995 between Long
Distance Network, Inc. and The Equitable Life Assurance Society of the
United States relating to property on the 7th Floor of Allianz Financial
Centre, Dallas, Texas
(3) Delete Lease Agreement from Section (B)(7) for Long Distance Network,
Inc. relating to Lafayette Building in Little Rock, Arkansas
(4) Addition to Section (D) for U.S. Communications, Inc.
(23) Lease Agreement entered into as of October 27, 1995 between
McCain Park IV Offices, Ltd. relating to property located at 3807 McCain
Park Drive, Suite 101, North Little Rock, Arkansas, which lease replaces
the Lease listed as (B)(7) of Schedule 4.15
11
<PAGE>
November 14, 1995
SA Telecommunications, Inc.
1912 Avenue K, Suite 100
Plano, TX 75074
Re: Offering of Shares of Common Stock of SA Telecommunications, Inc.
Ladies and Gentlemen:
On or about November 15, 1995, SA Telecommunications, Inc., a Delaware
corporation (the "Company"), expects to file with the Securities and Exchange
Commission a Registration Statement on Form S-3 (the "Registration
Statement") under the Securities Act of 1933, as amended (the "Act"). Such
Registration Statement relates to the offering (the "Offering") of up to
4,033,336 shares of common stock, $.0001 par value per share (the "Common
Stock"), consisting of (i) 1,100,000 shares of Common stock held by certain
stockholders of the Company (the "Selling Stockholders"), (ii) 1,333,336
shares of Common Stock issuable to the holders of the Company's Series A
Cumulative Convertible Preferred Stock (the "Preferred Stock") upon the
conversion thereof and (iii) 1,600,000 shares of Common Stock issuable to the
holders of certain Common Stock Purchase Warrants (the "Warrants") upon the
exercise thereof. This firm has acted as counsel to you in connection with
the preparation and filing of the Registration Statement, and you have
requested our opinion with respect to certain legal aspects of the Offering.
In rendering our opinion, we have examined and relied upon the original
or copies, certified to our satisfaction, of (1) the Certificate of
Incorporation, as amended, and the Bylaws, as amended, of the Company; (2)
copies of resolutions of the Board of Directors of the Company authorizing
the Offering, the issuance of the shares to the Selling Stockholders, the
creation, designation and issuance of the Preferred Stock, the issuance of
the Warrants and related matters; (3) the Registration Statement and the
exhibits thereto; and (4) such other documents and instruments as we have
deemed necessary. In our examinations, we have assumed the genuineness of
all signatures and the authenticity of all documents submitted to us as
originals, and the conformity to original documents of all documents
submitted to us as certified or reproduction copies. As to various questions
of fact material to this opinion, we have relied, to the extent we deem
reasonably appropriate, upon representations or certificates of officers or
directors of the Company and upon documents, records and instruments
furnished to us by the Company, without independent check or verification of
their accuracy.
Based upon the foregoing examination and subject to the comments and
assumptions noted below, we are of the opinion that (i) the shares of Common
Stock to be sold by the Selling Stockholders in the Offering were validly
issued and fully paid and are nonassessable, (ii) the Company has at least
2,933,336 shares of authorized but unissued Common Stock and/or treasury
shares of Common Stock from which the 2,933,336 shares of Common Stock
covered by the Registration Statement and proposed to be sold pursuant to the
conversion of the
<PAGE>
SA Telecommunications, Inc.
November 14, 1995
Page 2
Preferred Stock or upon the exercise of the Warrants, as the case may be,
may be issued and (iii) assuming that (1) the outstanding shares of Preferred
Stock were duly issued, (2) the outstanding Warrants were duly issued, (3)
the Company maintains an adequate number of authorized but unissued shares
and/or treasury shares of Common Stock available for issuance to those
persons who convert the shares of Preferred Stock and/or exercise the
Warrants, as the case may be, (4) the shares of Preferred Stock are converted
to shares of Common Stock in accordance with the terms of the Certificate of
Designation and other applicable documents, (5) the Warrants are properly
exercised for shares of Common Stock in accordance with the Warrant
Certificate and other applicable documents and (6) the consideration for the
shares of Common Stock issued pursuant to the Warrants is actually received
by the Company and such amount exceeds the par value of such shares, then the
2,933,336 shares of Common Stock issued pursuant to the conversion of the
Preferred Stock or upon exercise of the Warrants, as the case may be, will be
duly and validly issued, fully paid and nonassessable.
This opinion is limited in all respects to the General Corporation Law
of the State of Delaware as in effect on the date thereof; however, we are
not members of the Bar of the State of Delaware and our knowledge of its
General Corporation Law is derived from a reading of the most recent
compilation of that statute available to us without consideration of any
judicial or administrative interpretations thereof.
We bring to your attention the fact that this legal opinion is an
expression of professional judgement and not a guaranty of result. This
opinion is given as of the date hereof, and we assume no obligation to update
or supplement such opinion to reflect any facts or circumstances that may
hereafter come to our attention or any changes in laws or judicial decisions
that may hereafter occur.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus forming a part of the Registration Statement. In
giving such consent, we do not admit that we have come within the category of
persons whose consent is required by Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
ARTER, HADDEN, JOHNSON & BROMBERG
/s/ Arter, Hadden, Johnson & Bromberg
<PAGE>
EXHIBIT 23.2
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Prospectus
constituting part of this Registration Statement on Form S-3 of our report
dated April 12, 1995 appearing on page F-3 of SA Holdings, Inc.'s (now known
as SA Telecommunications, Inc.) Annual Report on Form 10-KSB for the year
ended December 31, 1994. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Dallas, Texas
November 14, 1995
<PAGE>
EXHIBIT 23.3
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in this Registration Statement of our report dated
March 10, 1994 included in the Form 10-KSB of SA Holdings, Inc. (now known as
SA Telecommunications, Inc.) for the year ended December 31, 1993, and to all
references to our firm included in the Registration Statement.
KING, BURNS & COMPANY, P.C.
Dallas, Texas
November 14, 1995
