__________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
July 31, 1995
Date of Report (Date of earliest event reported)
SA TELECOMMUNICATIONS, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware 0-18048 75-2258519
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
1912 Avenue K, Suite 100
Plano, Texas 75074
(Address of Principal Executive Offices) (Zip Code)
(214) 516-0662
(Registrant's Telephone Number, Including Area Code)
(Former Name or Former Address, if Changed Since Last Report)
__________________________________________________________________
<PAGE>
ITEM 2. Acquisition or Disposition of Assets.
On July 31, 1995, SA Holdings, Inc., a Delaware corporation
("STEL") consummated the acquisition of 100% of the outstanding
capital stock (the "USC Stock") of U.S. Communications, Inc., a
Texas corporation ("USC"), pursuant to the terms of that amended
Stock Purchase Agreement (the "Stock Purchase Agreement") by and
among STEL, USC, Howard Maddera, Bill L. Johnson, Marianne Reed and
NTS Communications, Inc., the shareholders of USC (collectively,
the "Shareholders"). USC is an interexchange long distance carrier
headquartered in Levelland, Texas.
The aggregate purchase price paid by STEL for the USC Stock
(the "Purchase Price") was $9.6 million paid (i) $4.1 million in
cash, (ii) $2.75 million in notes bearing 11% interest per annum
(the "Purchase Notes"), (iii) $1.5 million in a separate group of
notes also bearing interest at 11% per annum (the "Offset Notes")
and (iv) 125,000 shares of the Series B Cumulative Convertible
Preferred Stock of STEL (the "Series B Preferred Stock"). Certain
of the Shareholders were also issued a warrant, granting the
holders thereof, the right to acquire up to an aggregate of
1,050,000 shares of the Registrant's Common Stock for an exercise
price of $1.25 per share. A form of the Note, Preferred Stock &
Warrant Purchase Agreement dated July 31, 1995 between the
Registrant and the purchasers thereof is attached as an exhibit
hereto and incorporated herein by reference. The Shareholders also
received an aggregate of $2.4 million in nonsolicitation and
noncompetition fees in connection with the terms of the Stock
Purchase Agreement. The terms of the Stock Purchase Agreement were
determined by arms length negotiations between the parties.
In order to satisfy claims by STEL of any breach or
nonperformance of representation, warranty, covenant or other
obligation of the Shareholders contained in the Stock Purchase
Agreement, the parties placed $300,000 of the cash portion of the
Purchase Price in escrow with American State Bank. Additionally,
STEL has the right to offset the amounts payable under the Offset
Notes for any event which it is entitled to indemnification under
the Stock Purchase Agreement.
In order to fund the cash portion of the Purchase Price, STEL
borrowed an aggregate of $7.0 million from Norwest Bank Minnesota,
N.A. ("Norwest") pursuant to that Term Credit Agreement dated July
31, 1995 between Norwest and the Registrant. Additionally, the
Registrant privately placed 166,667 shares of its Series A
Cumulative Convertible Preferred Stock (the "Series A Preferred
Stock") with Jesup & Lamont Capital Markets, Inc. ("Jesup &
Lamont") for $1.5 million, pursuant to that Share Purchase
Agreement, dated July 31, 1995 between the Registrant and Jesup &
Lamont (the "Share Purchase Agreement"). In connection with the
placement of the Series A Preferred Stock, Jesup & Lamont was also
granted a warrant to purchase up to 500,000 shares of the
Registrant's Common Stock for an exercise price of $1.125 per
share, pursuant to that Warrant Purchase Agreement dated July 31,
1995 between the Registrant and Jesup & Lamont (the "Warrant
Purchase Agreement"). The Share Purchase Agreement and the Warrant
Purchase Agreement are each attached as exhibits hereto and are
incorporated individually herein by reference.
<PAGE>
The preferences and relative, participating, optional and
other rights of the Series A Preferred Stock and the Series B
Preferred Stock and the qualifications, limitations and
restrictions appertaining thereto are set forth in the respective
Certificate of Designations, Preferences and Rights attached as
exhibits hereto and incorporated herein by reference.
On September 21, 1995, STEL prepaid an aggregate of $1,100,000
on the Purchase Notes and, in connection therewith, the holders of
such Purchase Notes agreed, among other things, to waive the
convertibility feature of the Series B Preferred Stock.
Prior to the consummation of the transactions contemplated by
the Stock Purchase Agreement, no material relationship existed
between STEL, any officer, director or affiliate of STEL or any
associate of any such officer or director and USC or the
Shareholders. Pursuant to the terms of an Employment Agreement
dated July 31, 1995, Bill L. Johnson has been retained by USC to
act as Vice President for an initial term expiring July 31, 1997.
ITEM 5. Other Events.
On July 24, 1995, the Shareholders of STEL approved an
amendment to the Certificate of Incorporation of STEL changing the
name thereof to SA Telecommunications, Inc. The Certificate of
Amendment to the Certificate of Incorporation affecting this change
was filed with the Secretary of State of the State of Delaware on
August 3, 1995.
ITEM 7. Financial Statements, Pro Forma Financial Information and
Exhibits.
(a) Financial Statements of Business Acquired.
Audited Balance Sheets of U.S. Communications, Inc. as of
December 31, 1994 and 1993 and the related Statements of
Operations, Changes in Retained Earnings and Cash Flows for
the years then ended.
Unaudited Condensed Balance Sheet as of June 30, 1995 and
the related Statements of Operations, Changes in Stockholders'
Equity and Cash Flows for the six months then ended.
(b) Pro Forma Financial Information
Unaudited Consolidated Balance Sheets of SA
Telecommunications, Inc. and Subsidiaries as of June 30, 1995
and the related Unaudited Consolidated Statements of
Operations, Shareholders' Equity and Cash Flows for the three
month and six month periods ended June 30, 1995 and 1994.
<PAGE>
(c) Exhibits.
Exhibit No. Document Description
2.1* Stock Purchase Agreement,
dated as of June 30, 1995,
between SA Holdings, Inc.,
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 July 31, 1995, between
SA Holdings, Inc. and Jesup &
Lamont Capital Markets, Inc.
4.3* Form of Series A Preferred
Stock Certificate
4.4* Warrant Purchase Agreement,
dated July 31, 1995, between SA
Holdings, Inc. 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 SA Holdings, Inc. and
schedule of differences thereto
pursuant to General Instruction
2 to Item 601
4.8* Form of Offset Note, issued by
SA Holdings, Inc. and schedule
of differences thereto pursuant
to General Instruction 2 to
Item 601
4.9** Form of Note, Preferred Stock
& Warrant Purchase Agreement,
dated as of July 31, 1995
between SA Holdings, Inc. 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 SA
Holdings, Inc. and Norwest
Bank-Minnesota, N.A. and
related Security Agreement and
Promissory Note
20.1* SA Holdings, Inc. press
release dated August 1, 1995
23.1** Consent of Price Waterhouse LLP
23.2** Consent of Duff and Anderson
_______________
* Previously filed
** Filed herewith
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly authorized.
SA TELECOMMUNICATIONS, INC.
Date: October 12, 1995 By: /s/ J. David Darnell
J. David Darnell
Vice President-Finance and
Chief Financial Officer
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND UNAUDITED PRO FORMA FINANCIAL
INFORMATION
Audited Financial Statements:
U.S. Communications, Inc.
Report of Independent Accountants
Balance Sheets as of December 31,
1994 and 1993
Statements of Operations for the years
ended December 31, 1994 and 1993
Statements of Changes in Retained
Earnings for the years ended
December 31, 1994 and 1993
Statements of Cash Flows for the
years ended December 31, 1994 and 1993
Notes to Financial Statements
Unaudited Condensed Financial Statements:
U.S. Communications, Inc.
Unaudited Condensed Balance Sheet
as of June 30, 1995
Unaudited Condensed Statement of
Operations for the six months
ended June 30, 1995
<PAGE>
Unaudited Condensed Statement of
Cash Flows for the six months
ended June 30, 1995
Unaudited Condensed Statement of
Changes in Stockholders' Equity
Notes to Unaudited Condensed
Financial Statements
Pro Forma Financial Information
SA Telecommunications, Inc. and Subsidiaries
Unaudited Consolidated Balance Sheet
as of June 30, 1995
Unaudited Consolidated Statements of
Operations for the three and
six month periods ended June 30, 1995
Unaudited Consolidated Statements of Shareholders' Equity
for the three and six month periods
ended June 30, 1995
Unaudited Consolidated Statements of Cash Flows
for the three and six months periods
ended June 30, 1995
Notes to Unaudited Consolidated
Financial Statements
<PAGE>
Duff and Anderson, P.C.
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors
U. S. Communications, Inc.
We have audited the accompanying balance sheets of U.S.
Communications, Inc., DBA: NTS Communications Western Division, as
of December 31, 1994 and 1993 and the related statements of
operations, changes in retained earnings and cash flows for the
years then ended. These financial statements are the
responsibility of U. S. Communications, Inc., DBA: NTS
Communications Western Division. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
As described in Note 14 to these financial statements, the Company
changed its method of accounting for income taxes in 1993 as
required by the provisions of Statement of Financial Accounting
Standards No. 109.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of U. S.
Communications, Inc., DBA: NTS Communications Western Division as
of December 31, 1994 and 1993, and the results of its operations
and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Respectfully submitted,
Duff and Anderson, P.C.
Certified Public Accountants
Levelland, TX 79336
April 21, 1995
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
BALANCE SHEETS
DECEMBER 31, 1994 AND 1993
ASSETS
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Current Assets:
Cash $ 48,554.55 $ 392,143.52
Certificates of Deposit (Note 7) 1,185.72 1,160.89
Accounts Receivable-Trade, net
of allowance for doubtful
accounts of $132,700.00 and
$177,100.00, respectively 2,273,923.58 1,663,506.23
Accounts Receivable-Employees 6,228.20 440.00
Inventories 116,626.27 72,171.89
Prepaid Expenses and Other 53,853.05 46,263.40
Prepaid Income Taxes 128,150.00 .00
------------- -------------
Total Current Assets 2,628,521.37 2,175,685.93
------------- -------------
Property, Plant and Equipment: (Note 2)
Land 22,000.00 15,000.00
Buildings 463,219.60 400,592.65
Furniture and Equipment 2,542,489.30 2,264,454.28
Automobiles 229,110.06 308,697.20
------------- -------------
Total Property, Plant and
Equipment 3,256,818.96 2,988,744.13
Less: Accumulated Depreciation 2,103,010.48 1,733,404.57
------------- -------------
Net Property, Plant and
Equipment 1,153,808.48 1,255,339.56
------------- -------------
Other Non-Current Asset:
Cash Surrender Value of Life
Insurance Policies (Note 9) 18,448.39 16,639.58
------------- -------------
TOTAL ASSETS $3,800,778.24 $3,447,665.07
============= =============
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
BALANCE SHEETS (Continued)
DECEMBER 31, 1994 AND 1993
LIABILITIES
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Current Liabilities:
Accounts Payable $1,008,025.72 $ 762,727.72
Accrued Telecommunications
Expense 748,379.84 677,215.50
Accrued Payroll and Related
Expense (Note 6) 177,487.55 153,047.27
Notes Payable (Note 3) 69,395.34 331,823.66
Notes Payable, Current Maturities
of Long-Term Obligations (Note 3) 277,646.17 140,966.46
State Sales Tax Payable 64,465.44 156,419.11
Federal Excise Tax Payable 119,276.60 100,110.78
Income Tax Payable: Current 245,000.00 136,416.00
------------- -------------
Total Current Liabilities 2,659,676.66 2,458,726.50
------------- -------------
Long-Term Liabilities:
Deferred Income Tax Payable
(Note 14) 43,026.00 56,910.00
Notes Payable, Less Current
Maturities (Note 3 & 4) 386,168.67 683,961.87
Capital Lease Payable, Less
Current Maturities (Note 12) 39,149.05 .00
------------- -------------
Total Long-Term Liabilities 468,343.72 740,871.87
------------- -------------
Total Liabilities $3,128,020.38 $3,199,598.37
------------- -------------
STOCKHOLDERS' EQUITY
Contributed Capital:
Common Stock, authorized 100,000
shares of $10 par value, 9,750
shares issued 97,500.00 97,500.00
------------- -------------
Retained Earnings 590,257.86 165,566.70
------------- -------------
Less: Treasury Common Stock,
at cost 1,500 shares (15,000.00) (15,000.00)
------------- -------------
Total Stockholders' Equity 672,757.86 248,066.70
------------- -------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $3,800,778.24 $3,447,665.07
============= =============
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF OPERATIONS
FOR YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Telecommunications Revenues $16,418,088.39 $13,994,691.90
Cost of Revenues 9,145,840.34 8,306,222.95
-------------- --------------
Gross Profit 7,272,248.05 5,688,468.95
-------------- --------------
Operating Expenses:
General and Administrative 6,184,013.36 5,032,065.15
Depreciation 429,432.27 469,182.67
-------------- --------------
Total Operating Expenses 6,613,445.63 5,501,247.82
-------------- --------------
Income From Operations 658,802.42 187,221.13
-------------- --------------
Other Income (Expense):
Interest Expense (100,454.25) (160,300.22)
Interest Income 99,207.40 148,302.32
Gain (Loss) on Disposal
of Fixed Assets (7,135.52) 56,065.61
Miscellaneous 5,271.11 60.00
-------------- --------------
Total Other Income (Expense) (3,111.26) 44,127.71
-------------- --------------
Income Before Taxes 655,691.16 231,348.84
Provision for Income Taxes (Note 14) (231,000.00) (92,000.00)
-------------- --------------
Income Before Cumulative Effect of
Change in Accounting Principle 424,691.16 139,348.84
Cumulative Effect of Accounting
Change .00 (103,000.00)
-------------- --------------
NET INCOME $ 424,691.16 36,348.84
============== ==============
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF OPERATIONS (Continued)
FOR YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<S> <C> <C>
Earnings Per Common Share:
Income Before Cumulative Effect
of Accounting Change $ 51.48 $ 16.89
Cumulative Effect of Change in
Accounting Principle .00 (12.48)
--------- ---------
Net Income $ 51.48 $ 4.41
========= =========
Weighted Average Number of
Common Shares Outstanding 8,250 8,250
========= =========
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF CHANGES IN RETAINED EARNINGS
FOR YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Retained Earnings at Beginning of Year $165,566.70 $129,217.86
Net Income 424,691.16 36,348.84
----------- -----------
Retained Earnings at End of Year $590,257.86 $165,566.70
=========== ===========
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
Cash Flow from Operating Activities:
Net Income $424,691.16 $ 36,348.84
Adjustments to Reconcile Net Income
to Net Cash:
(Increase) Decrease in Accounts
Receivable (616,205.55) (157,786.63)
(Increase) Decrease in Inventories (44,454.38) (10,247.33)
(Increase) Decrease in Notes
Receivable 13,390.55 213,999.11
Depreciation 429,432.27 469,182.67
(Increase) Decrease in Prepaid
Expenses (149,130.20) 25,538.72
Increase (Decrease) in Accounts
Payable 289,510.57 (56,103.42)
Increase (Decrease) in Accrued
Telecommunication Expense 71,164.34 239,998.05
Increase (Decrease) in Taxes
Payable 2,139.86 125,089.14
(Gain) Loss on Disposition of
Assets 7,135.52 (56,065.61)
----------- -----------
Total Adjustments 2,982.98 793,604.70
----------- -----------
Net Cash Flow from Operating
Activities 427,674.14 829,953.54
----------- -----------
Cash Flow from Investing Activities:
Purchase of Equipment (408,730.27) (270,731.20)
Proceeds from Sale of Equipment 73,693.56 95,465.79
Increase in Certificates of Deposit (24.83) (25.05)
Cash Surrender Value of Life
Insurance Policies (1,808.81) (3,509.22)
----------- -----------
Net Cash Flow from Investing
Activities (336,870.35) (178,799.68)
Cash Flow from Financing Activities:
Increase (Decrease) in Notes Payable (434,392.76) (285,042.79)
----------- -----------
Net Cash Flow from Financing
Activities (434,392.76) (285,042.79)
----------- -----------
Net Increase (Decrease) in Cash (343,588.97) 366,111.07
Cash at the Beginning of the Year 392,143.52 26,032.45
----------- -----------
Cash at the End of the Year $ 48,554.55 $392,143.52
=========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Income Taxes $254,566.00 $ .00
Interest 100,454.25 160,300.22
The accompanying notes are an integral part of these financial
statements.
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
DBA: NTS COMMUNICATIONS WESTERN DIVISION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1993
BACKGROUND:
U.S. Communications, Inc. (the "Company") is a Texas
corporation which was chartered May 7, 1985. Its purpose is
to provide long distance telecommunication services to the
southwestern region of the United States, with the primary
emphasis on the West Texas area. At the present time the
Company does business as NTS Communications Western Division
and Southwest Long Distance Network, Inc. with offices in
Levelland (home), Brownfield, Dallas, El Paso, Lamesa, Big
Spring, Odessa and Snyder, Texas. Additional office locations
include Oklahoma City, Oklahoma, Hobbs, Roswell, Las Cruces
and Albuquerque, New Mexico, Fort Smith and Springdale,
Arkansas, and Phoenix, Arizona.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company maintains cash and short term certificates of
deposit. For financial reporting purposes any certificate of
deposit with a maturity of more than 90 days is not considered
a cash equivalent.
ACCOUNTS RECEIVABLE
Accounts Receivable are stated based on billed and unbilled
long distance services less the current month's discounts
earned for early payment. Past due interest is recorded in
the month earned. Delinquent accounts are recorded as bad
debts after a six months collection period by means of the
direct write-off method of accounting. Additional reserves
are provided for financial purposes at a rate of fifty percent
of ninety day past due accounts.
INVENTORIES
Inventories are stated at the lower of cost (determined on the
last in, first out basis) or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at acquisition cost.
Depreciation of such property and equipment is based on a
straight-line method over the estimated useful lives of the
respective assets for financial reporting purposes and on
methods acceptable and approved by the Internal Revenue
Service for federal income tax reporting.
<PAGE>
CASH SURRENDER OF LIFE INSURANCE POLICIES
The Company has provided life insurance coverage on key
management personnel within the organization. As time passes
these policies accumulated cash value which can be applied to
future premiums, loans or cashed. The Company holds a lien
against such policies and records cash accumulations as a non-
current asset redeemable at some point in the future.
ACCRUED EXPENSES
Amounts shown as accrued telecommunications expense include
accruals for line costs on long distance services which have
been recognized as income and recorded in accounts receivable.
INCOME TAXES
As addressed in Note 14, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS 109), effective January 1, 1993. Deferred income
taxes are calculated using an asset and liability approach
wherein deferred taxes are provided for basis differences for
assets and liabilities arising from differing treatments for
financial and income tax reporting.
NOTE 2. SUMMARY OF PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
Balance Balance
CATEGORY 12-31-94 12-31-93
- -------- ------------- -------------
<S> <C> <C>
Land $ 22,000.00 $ 15,000.00
Buildings 463,219.60 400,592.65
Furniture and Equip. 2,542,489.30 2,264,454.28
Automobiles 229,110.06 308,697.20
------------- -------------
$3,256,818.96 $2,988,744.13
============= =============
ACCUMULATED DEPRECIATION
Balance Balance
CATEGORY 12-31-94 12-31-93
- -------- ------------- -------------
Land $ .00 $ .00
Buildings 47,909.34 33,020.16
Furniture and Equip. 1,888,177.19 1,525,823.04
Automobiles 166,923.95 174,561.37
------------- -------------
$2,103,010.48 $1,733,404.57
============= =============
</TABLE>
<PAGE>
U. S. COMMUNICATIONS, INC.
NOTES TO THE FINANCIAL STATEMENTS (Continued)
Note 3. Notes Payable
The Company's debt consists of several short and long-term notes
with various lenders. The notes were issued in connection with the
purchase of equipment and automobiles, and for working capital
purposes.
Notes issued relating to equipment and automobiles are
collateralized by such assets. The note issued for the building
and additional equipment is secured by such assets. Furthermore,
the building and equipment loan is personally guaranteed by the
stockholders as required by the Small Business Administration.
The largest of the equipment notes is secured by the equipment and
the stockholders have assigned life insurance policies to the
parties participating in the loan origination in accordance with
loan requirements.
All working capital notes are unsecured.
Interest rates vary from a low of 5 percent to a high of 14.728
percent. The majority of notes contain clauses for a "variable"
rate of interest which are adjusted periodically according to
market rates.
Long-term obligations at December 31, consist of:
<TABLE>
<CAPTION>
1994 1993
___________ ___________
<S> <C> <C>
Note payable to a bank (collateralized
by land, building, and equipment) due
in monthly installments of $8,338.00
including interest at 11% (Variable
Rate) with the balance due in 1998 $250,003.70 $322,631.87
Note payable to a bank (collateralized
by land and building) due in monthly
installments of $750.62 including
interest at 11% (Variable Rate) with
the balance due in 1999 53,544.73 .00
Note payable to a bank (collateralized
by equipment) due in monthly
installments of $2,170.55 including
interest at 11% (Variable Rate) with
the balance due in 1996 36,926.06 .00
Note payable to a bank (collateralized
by automobile) due in monthly
installments of $706.16 including
interest at 10.50% (Variable Rate)
with the balance due in 1996 15,147.68 22,409.99
Note payable to a bank (collateralized
by truck) due in monthly installments
of $405.62 including interest at 10%
(Variable Rate) with the balance due
in 1996 5,482.65 9,971.68
<PAGE>
Note payable to finance company
(collateralized by equipment) due
in monthly installments of $596.86
including interest at 14.728% (Fixed)
with the balance due in 1995 .00 10,035.13
Note payable to finance company
(collateralized by equipment) due
in monthly installments of $6,557.00
including interest of 12.50% (Fixed)
with the balance due in 1995 .00 117,515.93
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $317.65 including interest at 8.25%
(Variable Rate) with the balance due
in 1995 .00 5,006.05
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $355.93 including interest at 6.25%
(Variable Rate) with the balance due
in 1995 .00 7,381.41
Note payable to a bank (collateralized
by an automobile) due in monthly
installments of $469.90 including
interest at 6.25% (Variable Rate) with
the balance due in 1995 .00 5,436.44
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $395.31 including interest at 6.25%
(Variable Rate) with the balance due
in 1995 .00 8,897.16
Note payable to a bank (collateralized
by a truck) due in monthly installments
of $421.22 including interest at 10%
(Fixed) with the balance due in 1995 .00 8,444.81
Note payable to a municipality
(collateralized by life insurance policies)
due in monthly installments of $4,915.04
including interest at 5% (Fixed) with
the balance due in 1997 186,265.24 247,524.26
<PAGE>
Note payable to stockholder (unsecured)
due in monthly installments of $590.82
including interest at 8.50% (Variable
Rate) with the balance due in 1996 15,895.56 17,473.92
Note payable to stockholder (unsecured)
due in monthly installments of $636.27
including interest at 8% (Fixed) with
the balance due in 1996 11,877.88 .00
Note payable to individual (unsecured)
due in monthly installments of $620.72
including interest at 8.50% (Variable
Rate) with the balance due in 1996 15,710.81 21,087.25
Note payable to stockholder (unsecured)
due in monthly installments of $471.54
including interest at 8.50% (Variable
Rate) with the balance due in 1996 13,149.38 21,112.43
Capital lease obligation (Note 12) 48,960.20 .00
___________ ___________
652,963.89 824,928.33
Less current maturities:
Long-term debt (217,835.02) (140,966.46)
Capital lease obligations (9,811.15) .00
___________ ___________
Long-term Portion $425,317.72 $683,961.87
=========== ===========
1994 1993
___________ ___________
The Company had short-term notes
due in 1994 and 1993 collateralized
by equipment and trucks, and
unsecured short-term notes for
operating purposes due in monthly
installments of $10,028.53 (including
interest rates ranging from 8.50%
Variable to 14.728% Fixed) and
$18,099.75 (including interest rates
ranging from 8.25% Variable to
13.50% Fixed) $ 69,395.34 $331,823.66
</TABLE>
Cash Requirements for Long-Term Notes and Leases Payable by Year
<TABLE>
<CAPTION>
1994
Principle
Year Due
____ _________
<S> <C>
1995 $227,646.17
1996 225,388.34
1997 141,007.29
1998 18,363.60
Remaining 40,558.49
___________
$652,963.89
</TABLE>
<PAGE>
Note 4. Line of Credit
The Company has a line of credit with a bank in the amount of
$350,000. The note was dated August 22, 1994 with a maturity date
of April 15, 1995. Interest is to be charged at a rate of 10.25%
on a 365 day basis As of December 31, 1994 the Company had
outstanding advances of $500 under this agreement leaving an amount
available for advance of $349,500.
Note 5. Defined Contribution
The Company has available to its employees a Defined Profit Sharing
Plan and Trust (401K). The plan is a "salary reduction plan".
Employees may elect to reduce their compensation and contribute to
this plan provided they are a full-time employee having worked more
than 1,000 hours in that six (6) month period and have attained the
age of twenty (20). Each employee may defer up to ten (10) percent
of their salary not to exceed the limit allowable by law in any one
year. Vesting is twenty (20) percent per year of employment and
the employee must be employed December 31, to receive the last year
of vesting. The Company may at its option contribute matching
contributions not to exceed a maximum of five (5) percent.
Distributions from the plan are not permitted before age fifty-nine
and one-half (59 1/2) except in the event of death, disability,
termination of employment or reasons of proven financial hardship.
The Company contributed $24,000.00 in 1994 and 1993, respectively.
Note 6. Accrued Vacation and Sick Leave Benefits
On termination, retirement or death of employees the Company will
pay any accrued vacation and sick leave allowances in a lump sum
payment to such employee or his/her estate. Vacation pay and sick
leave pay require a minimum of three months continuous employment.
Full-time employees receive allowances at the rate of eight
vacation and four sick leave hours per month. Permanent part-time
employees receive allowances at the rate of four vacation and two
sick leave hours per month. Maximum amounts for payment at
termination are ninety-six vacation hours and forty-eight sick
leave hours. The amount of estimated liability recorded as of
December 31, 1994 was $91,717.
Note 7. Certificates of Deposit
The Company has pledged a certificate in the amount of $1,000 to
the Oklahoma Tax Commission for Sales Tax Reporting purposes.
<PAGE>
Note 8. Contracts
The Company has entered into a contract with Zero Plus Dialing,
Inc., a Delaware corporation, to provide person-to-person, third
party, collect and calling card billing and collection services for
use by the Company in connection with its provisions of operator
services.
Note 9. Subsequent Events
During April 1995, the Board of Directors voted and approved the
distribution of key-man insurance cash value on Split-Dollar life
insurance policies to the owners of the policies. As a result the
$18,448 shown as Cash Surrender Value of Life Insurance Policies
was reduced to zero.
Note 10. Pending Sale
The Company's directors approved and entered into a sales contract
with S.A. Holdings, Inc. of Plano, Texas for all of the stock owned
by U.S. Communications, Inc. shareholders as of October 6, 1994.
Note 11. Related Party Transactions
The Company had the following related party transactions during
1994:
Howard M. Maddera, Chairman of the Board of Directors and a
shareholder, has personally loaned the Company money for operating
purposes and was owed $15,895 as of December 31, 1994.
During 1994, Mr. Maddera purchased and assumed the note of a 1992
Buick automobile from the Company. The transaction was for $8,747.
William L. (Bill) Johnson, President of the Company and a
shareholder, has personally loaned the Company money for operating
purposes and was owed $13,149 as of December 1994.
James T. (Jim) Reed, a former officer and shareholder of the
Company during the first six months of the year, had personally
loaned the Company money for operating purposes and was owed
$15,710 as of December 31, 1994.
Marianne Maddera Reed, a stockholder employed by the Company, sold
her interest in four life insurance policies owned on lives of the
other shareholders to the Company. As a result, the Company has a
note payable to Ms. Reed in the amount of $11,877 as of December
31, 1994.
<PAGE>
Note 12. Capital Leases
During 1994, the Company entered into a capital lease with a bank
for two Duplex Laser Printers. The lease was for 60 months with
monthly payments of $1,269. The original lease was for $57,941
with an interest rate of 12.21%.
Cash requirements for the lease over the next five years is as
follows:
<TABLE>
<CAPTION>
Year Principal Interest Total
____ _________ ________ _____
<S> <C> <C> <C>
1995 $ 9,811.15 $ 5,419.97 $15,231.12
1996 11,076.28 4,154.84 15,231.12
1997 12,508.36 2,722.76 15,231.12
1998 14,123.39 1,107.73 15,231.12
1999 1,441.02 13.39 1,454.41
__________ __________ __________
$48,960.20 $13,418.69 $62,378.89
========== ========== ==========
</TABLE>
Note 13. Operating Leases
The Company has entered into several equipment and building
operating leases. As of December 31, 1994, equipment leases
numbered 18 and totaled $9,355 per month. Building leases
outstanding at December 31, 1994 totaled 16 with monthly lease
payments of $10,588.
Note 14. Income Taxes
Effective January 1, 1993, the Company adopted SFAS 109.
The Company's provision for income taxes was comprised of the
following:
<TABLE>
<CAPTION>
December 31
1994 1993
___________ ___________
<S> <C> <C>
Current
Federal $228,000.00 $128,000.00
State 17,000.00 10,000.00
Deferred
Federal (14,000.00) $46,000.00
___________ ___________
$231,000.00 $ 92,000.00
=========== ===========
</TABLE>
<PAGE>
Note 14. Income Taxes (Continued)
The following is a reconciliation of the provision for income taxes
reflected in the consolidated statements of income:
<TABLE>
<CAPTION>
December 31
1994 1993
___________ ___________
<S> <C> <C>
Income Tax Expense at the
Federal Statutory Rate $206,000.00 $ 79,000.00
State Taxes, net of
Federal Benefit 10,000.00 9,000.00
Other, net 15,000.00 4,000.00
____________ ___________
$231,000.00 $ 92,000.00
=========== ===========
The components of the net deferred tax liability at December 31
were as follows:
December 31
1994 1993
___________ ___________
Deferred Tax Asset
Allowance for Doubtful
Accounts $(47,879.00) $(60,958.00)
Deferred Tax Liability
Property and Equipment 90,905.00 117,868.00
____________ ___________
Net Deferred Tax
Liability $ 43,026.00 $ 56,910.00
=========== ===========
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED BALANCE SHEET
June 30, 1995
<TABLE>
<S> <C>
ASSETS
Accounts Receivable - Trade, net of
allowance for doubtful accounts of $169,700 $2,731,177
Other current assets 336,650
----------
Total current assets 3,067,827
Property and equipment, net 1,117,708
Other assets 18,448
----------
Total assets $4,203,983
----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Cash overdraft $ 56,565
Accounts payable and accrued expenses 2,557,101
Current portion of long-term obligations 710,040
----------
Total current liabilities 3,323,706
Stockholders' equity 880,277
----------
Total liabilities and stockholders' equity $4,203,983
==========
See notes to unaudited condensed financial statements
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
<TABLE>
<S> <C>
Telecommunications revenues $9,684,780
----------
Operating expenses
Cost of revenues 5,605,631
General and administrative 3,515,252
Depreciation and amortization 187,904
----------
9,308,787
----------
Operating income 375,993
Interest expense (44,174)
Income tax expense (124,300)
----------
Net income $ 207,519
==========
See notes to unaudited condensed financial statements
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1995
<TABLE>
<S> <C>
Net cash flow from operating activities $ 32,634
Net cash flow from investing activities
Purchase of equipment (151,804)
Net cash flow from financing activities 14,050
---------
Net (decrease) in cash (105,120)
Cash at the beginning of the period 48,555
---------
Cash (overdraft) at the end of the period $ (56,565)
=========
See notes to unaudited condensed financial statements
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
UNAUDITED CONDENSED STATEMENT OF CHANGES
IN STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
Stockholders' equity at beginning of period $672,758
Net income 207,519
--------
Stockholders' equity at end of period $880,277
========
See notes to unaudited financial statements
</TABLE>
<PAGE>
U.S. COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
These unaudited condensed financial statements at June 30,
1995 and for the six months then ended were derived from the books
and records of the Company, but do not include all disclosures
required by generally accepted accounting principles. In the
opinion of management, these unaudited condensed financial
statements reflect all adjustments of a normal recurring nature
necessary for a fair presentation of the financial condition and
results of operations for interim periods. These results of
operations are not necessarily indicative of the results which
ultimately will be reported for the full fiscal year ending
December 31, 1995.
NOTE B - CHANGE OF OWNERSHIP
Effective June 1, 1995, SA Telecommunications, Inc. a publicly
held global telecommunications carrier, acquired all of the
outstanding common stock of the Company. These unaudited condensed
financial statements do not reflect any adjustments arising from
the acquisition.
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
CURRENT ASSETS
Cash $ 87,101 $ 331,431
Accounts and notes receivable
Trade, net of allowance for
doubtful accounts of $279,793
and $178,368, respectively 3,674,018 985,174
Other, net of allowance for
doubtful accounts of $46,122
and $48,825, respectively 367,228 142,301
Acquisition financing receivable 1,004,486 -
Inventory 242,863 123,790
Prepaid expenses and other 300,991 341,290
Total current assets 5,676,687 1,923,986
NET ASSETS OF DISCONTINUED TITLE
PLANT SERVICES OPERATIONS 3,444,670 3,537,386
PROPERTY AND EQUIPMENT 5,591,214 979,022
Less accumulated amortization (2,570,140) (187,169)
Net property and equipment 3,021,074 791,853
EXCESS OF COST OVER NET ASSETS
ACQUIRED, net of accumulated
amortization 17,181,806 4,943,494
OTHER ASSETS
Employee note receivable - 195,904
Other 548,227 384,211
Total other assets 548,227 580,115
TOTAL ASSETS $ 29,872,464 $ 11,776,834
</TABLE>
- Continued -
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - Continued
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable - trade $ 217,211 $ 223,362
Accrued telecommunications expenses 2,162,089 755,669
Other accrued expenses 1,142,593 163,195
Notes payable 619,846 129,610
Current maturities of long-term debt 838,830 90,248
Total current liabilities 4,980,569 1,362,084
LONG-TERM OBLIGATIONS,
less current maturities 10,921,961 430,393
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE PREFERRED STOCK,
$.00001 par value, 250,000 shares
authorized; 166,667 shares issued
in 1995 1,215,000 -
SHAREHOLDERS' EQUITY
Series B Preferred stock, $.00001
par value, 250,000 shares
authorized; 125,000 shares
issued in 1995 637,874 -
Common stock, $.0001 par value,
50,000,000 shares authorized;
11,751,162 and 10,566,139
issued, respectively 1,175 1,057
Additional paid-in capital 18,964,650 15,629,114
Retained deficit (6,441,846) (5,404,864)
Treasury stock (217,572 shares
and 136,516 shares respectively)
at cost (406,919) (240,950)
Total shareholders' equity 12,754,934 9,984,357
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $ 29,872,464 $ 11,776,834
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
---------------------- ------------------------
<S> <C> <C> <C> <C>
1995 1994 1995 1994
----------- ----------- ----------- -----------
TELECOMMUNICATIONS REVENUES $4,004,348 $ 2,862,105 $ 6,313,575 $ 4,326,767
OPERATING EXPENSES
Cost of revenues 2,818,043 2,494,398 4,630,197 3,730,982
General and administrative 1,387,361 686,812 1,981,381 1,118,758
Depreciation and amortization 243,570 92,717 375,802 148,129
Total operating expenses 4,448,974 3,273,927 6,987,380 4,997,869
LOSS FROM CONTINUING OPERATIONS BEFORE
OTHER INCOME (EXPENSE) (444,626) (411,822) (673,805) (671,102)
OTHER INCOME (EXPENSE)
Interest expense (103,377) (1,000) (118,306) (3,438)
Other 2,585 6,247 5,129 18,899
Total other income (expense) (100,792) 5,247 (113,177) 15,461
LOSS FROM CONTINUING OPERATIONS (545,418) (406,578) (786,982) (655,641)
DISCONTINUED OPERATIONS
Loss from title plant services operations - (108,769) - (223,124)
Provision for operating losses during phase-out period (250,000) - (250,000) -
NET LOSS $(795,418) $ (515,344) $(1,036,982) $ (878,765)
Loss per weighted average
common share outstanding
Continuing operations $ (.05) $ (.04) $ (.07) $ (.08)
Discontinued operations (.02) (.01) (.02) (.02)
Net loss per share $ (.07) $ (.05) $ (.09) $ (.10)
Weighted average number of common shares outstanding 11,098,947 9,223,613 10,801,218 8,581,202
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Series B Additional
Preferred Stock Common Stock Paid-In Retained Treasury
Shares Amount Shares Amount Capital Deficit Stock Total
----------------- --------- ------ ----------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at 7,372,661 $ 737 $ 8,572,764 $(2,957,878) $ (20,000) $ 5,595,623
December 31, 1993
Private placements of 322,317 32 940,436 - - 940,468
common stock
Issuance of common
stock for:
Exercise of options 243,175 25 272,575 - - 272,600
Acquisition of LDN 1,302,086 130 3,749,870 - - 3,750,000
Net loss for the period - - - (668,857) - (668,857)
Balances at June 30, 1994 9,240,239 $ 924 $13,535,645 $(3,626,735) $ (20,000) $ 9,889,834
Balances at December $ - 10,566,139 $1,057 $15,629,114 $(5,404,864) $(240,950) $ 9,984,357
31, 1994
Private placements of 274,792 27 316,025 - - 316,052
common stock
Issuance of common stock for 829,175 91 716,211 (165,969) 550,333
exercise of options
Issuance of Series B 125,000 637,874 637,874
Preferred Stock for
acquisition of USC
Issuance of Common Stock
Purchase Warrants for
acquisition of USC 2,303,300 2,303,300
Net loss for the period - - (1,036,982) - (1,036,982)
Balances at 125,000 $637,874 11,670,106 $1,175 $18,964,650 $(6,441,846) $(406,919) $12,754,934
June 30, 1995
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
<TABLE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
For the three months For the six months
ended June 30, ended June 30,
-------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (795,418) $ (515,344) $(1,036,982 $ (878,765)
Adjustments to reconcile net loss
to net cash used by operating activities
Loss from discontinued operations 250,000 108,769 250,000 223,124
Depreciation and amortization 243,570 92,717 375,801 148,129
Provision for losses on accounts receivable 46,048 11,910 61,894 14,720
Other (17,666) (894) (1,796) (6,608)
(Increase) decrease
Accounts and notes receivable (1,554,558) 32,002 (1,564,351) 4,253
Stock subscription receivable - 900,000 - -
Prepaid expenses and other 170,564 14,621 102,136 39,665
Other assets 35,594 (17,469) 43,614 (54,556)
Increase (decrease) in
Accounts payable and accrued expenses 99,351 203,140 (186,512) (151,728)
Payable to LDN shareholders - (1,354,660) - -
Net cash used in operating activities (1,522,515) (525,208) (1,956,196) (661,766)
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (42,379) (196,381) (45,083) (203,070)
Purchase of USC, net of cash acquired (6,729,203) - (6,729,203) -
Purchase of LDN, net of cash acquired - - - (1,330,397)
Other (14,200) 4,329 (26,108) (1,825)
Net cash used in investing activities (6,785,782) (192,052) (6,800,394) (1,535,292)
CASH FLOWS FROM FINANCING ACTIVITIES
Net changes in short-term loans (27,775) 150,000 117,225 150,000
Increase in long term debt 7,000,000 120,000 7,000,000 120,000
Proceeds from private placement of common stock 157,502 - 307,502 940,468
Proceeds from Series A Preferred Stock 1,000,000 - 1,000,000 -
Proceeds from exercise of options 274,513 55,614 315,142 272,600
Principal payments on long-term obligations (21,311) (586) (46,075) (586)
Net cash provided by financing activities 8,382,929 325,033 8,693,794 1,482,482
NET CASH USED BY DISCONTINUED OPERATIONS (70,957) (164,639) (181,534) (325,294)
DECREASE IN CASH 3,675 (556,866) (244,330) (1,039,870)
Cash at beginning of period 83,426 715,388 331,431 1,198,392
Cash at end of period $ 87,101 $ 158,522 $ 87,101 $ 158,522
The accompanying notes are an integral part of these consolidated
financial statements.
</TABLE>
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
These interim consolidated financial statements are those of
SA Telecommunications, Inc. and subsidiaries (the Company),
formerly SA Holdings, Inc. These interim consolidated financial
statements are prepared pursuant to the requirements for
reporting on Form 10-QSB. The December 31, 1994 consolidated
balance sheet data was derived from audited consolidated
financial statements but does not include all disclosures
required by generally accepted accounting principles. The
interim consolidated financial statements and notes thereto
should be read in conjunction with the consolidated financial
statements and notes included in the Company's latest annual
report on Form 10-KSB. In the opinion of management, the interim
consolidated financial statements reflect all adjustments of a
normal recurring nature necessary for a fair statement of the
consolidated results of operations for interim periods. The
current period consolidated results of operations are not
necessarily indicative of results which ultimately will be
reported for the full fiscal year ending December 31, 1995.
The accompanying consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries
(unless otherwise indicated) listed below.
U. S. Communications, Inc. (USC) - acquired effective
June 1, 1995
Long Distance Network, Inc. (LDN) - acquired effective
March 1, 1994
North American Telecommunications Corporation (NATC)
Baltic States and CIS Ventures, Inc. (BS/CIS)
CIS Intelligence Information Services, Inc. (CIS)
Western Siberia Telecommunications (USA), Inc. (WST)
47.5%
Intertex Trading Corporation (ITC) 50%
Strategic Abstract and Title Corporation (SATC)
(discontinued operation)
All significant intercompany accounts and transactions have
been eliminated. Certain prior period amounts have been
reclassified for comparative purposes.
NOTE B - ACQUISITION OF U. S. COMMUNICATIONS, INC.
Effective June 1, 1995, the Company acquired all of the
outstanding common stock of U.S. Communications, Inc. (USC), a
domestic interexchange long distance carrier located in
Levelland, Texas. The aggregate purchase price was paid (i) $6.5
million in cash, (ii) $2.75 million in notes bearing 11% interest
per annum, (iii) $1.5 million in a separate group of notes also
bearing interest at 11% per annum, (iv) 125,000 shares of Series
B Preferred Stock of the Company, and (v) 1,050,000 common stock
purchase warrants at $1.25 per common share. The parties placed
$300,000 of the cash portion of the purchase price into escrow at
a bank in order to satisfy claims of the Company of any breach or
nonperformance of representation, warranty, covenant or other
obligation of the sellers. Additionally, the Company has the
right to offset the amounts payable under the $1.5 million notes
for any event which it is entitled to indemnification. The
Company has valued the Series B Preferred Stock and common stock
purchase warrants at their fair value as of the date of issuance.
In order to fund the cash portion of the purchase price, the
Company borrowed an aggregate of $7.0 million from Norwest Bank
Minnesota, N.A. and privately placed 166,667 shares of its Series
A Preferred Stock along with 500,000 common stock purchase
warrants at $1.125 per common share with Jesup & Lamont
Securities Corporation for $1.5 million. The Company has valued
the Series A Preferred Stock and common stock purchase warrants
at their fair value as of the date of issuance.
The acquisition was accounted for as a purchase whereby the
excess purchase price over net assets acquired has been recorded
based upon the fair value of assets acquired and liabilities
assumed. The initial purchase price allocations are based on
current estimates and may be subject to change based on final
determination of fair value. As a result, the final purchase
price allocations may differ from the presented estimates.
A summary of the USC excess of cost over net assets acquired
is as follows:
<TABLE>
<CAPTION>
June 30,
1995 Life
-------- ----
<S> <C> <C>
Goodwill $ 9,183,573 25
Covenants not to compete 2,400,000 5
Customer acquisition costs 864,155 10
12,447,728
Accumulated amortization ( 93,126)
$ 12,354,602
</TABLE>
The following unaudited pro forma combined results of
operations for the Company assume that the acquisition of USC was
completed at the beginning of 1994. These proforma amounts
represent the historical operating results of USC combined with
those of the Company with appropriate adjustments which give
effect for interest expense and amortization. These proforma
amounts are not necessarily indicative of consolidated operating
results which would have occurred had USC been included in the
operations of the Company during the periods presented, or which
may result in the future, because these amounts do not reflect
full transmission and switched service cost optimization, and the
synergistic effect on operating, selling, general and
administrative expenses.
<TABLE>
<CAPTION>
For the six months
ended June 30,
------------------
1995 1994
---- ----
<S> <C> <C>
Revenues $14,185,399 $11,886,967
Net loss (1,502,612) (1,437,521)
Loss per share (.14) (.17)
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
During the first six months of 1995, the Company's
discontinued title plant services subsidiary, SATC, incurred a
net loss of $218,466. At December 31, 1994, a $150,000 reserve
for operating losses during the phase-out period was established.
This reserve has become inadequate due to unforeseen delays in
filing the Form 10-SB registration statement necessary for SATC
to become a publicly traded company prior to the distribution of
the stock dividend to shareholders. As a result, an additional
$250,000 reserve was established for SATC losses until the date
of spinoff.
Revenues of SATC for the six months ended June 30, 1995 and
1994 were $161,596 and $59,863, respectively, and for the three
months ended June 30, 1995 and 1994 were $92,481 and $34,830,
respectively.
NOTE D - NOTES PAYABLE
Six members of the Board of Directors have individually made
loans to the Company aggregating $210,610. The loans bear
interest at 12% per annum. In connection with these loans, each
director was granted an option to purchase one share of common
stock for each $1.75 of principal amount loaned to the Company at
a price of $1.75 per share (market value at date of grant) or an
aggregate of 82,857 shares. The options are exercisable for six
months from June 17, 1995.
The notes payable assumed in the USC acquisition aggregating
approximately $365,500 bear interest at rates ranging from 8% to
12 1/2 % per annum.
<PAGE>
NOTE E - LONG TERM OBLIGATIONS
Long term obligations consists of:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
<S> <C> <C>
Senior note payable to a bank $7,000,000 $ -
Subordinated notes payable to
former USC shareholders due
on October 1, 1996 with interest
payable quarterly at 11% per annum 2,750,000 -
Subordinated notes payable to
former USC shareholders due $750,000
each on January 31, 1996 and July 31,
1996 with interest payable on
July 31, 1996 at 11% per annum 1,500,000 -
Note payable to a trust (collateral-
ized by land and building) due in
monthly installments of $1,586
including interest at 10% with the
balance due in 2004 111,992 115,796
Note payable to a finance company
(unsecured) due in monthly installments
of $752. including interest at 7.5%
with the balance due in June, 2000 36,225 -
Capital lease obligation 362,574 404,845
11,760,791 520,641
Less current maturities
Long term debt (756,533) (7,801)
Capital lease obligation (82,297) (82,447)
Long term portion $10,921,961 $430,393
</TABLE>
The Company obtained a $10 million senior credit facility
from a bank to facilitate the acquisition of USC of which $7
million was outstanding at June 30, 1995. Additional advances
under the credit facility are dependent upon the Company meeting
certain predetermined levels of operating cash flow. The
borrowings are secured by principally all of the assets of the
Company. Principal payments will be due in quarterly
installments commencing on December 31, 1996 with the balance due
on June 30, 2000.
The borrowings bear interest at a floating rate of from 1%
to 2% above the bank's prime rate depending on the ratio of
senior debt to operating cash flow. At the Company's option, the
interest rate may be fixed at a floating rate of from 3% to 4%
above the London Interbank Offered Rate (LIBOR) also dependant on
the ratio of senior debt to operating cash flow. Interest is
payable quarterly.
The credit facility agreement contains covenants which,
among other matters (I) limit the Company's ability to incur
indebtedness, merge, consolidate and acquire or sell assets, (ii)
require the Company to satisfy certain ratios related to
operating cash flow and senior debt service coverage, and (iii)
limits the payment of interest and principal on subordinated
debt.
NOTE F - PREFERRED STOCK
Each share of Series A Cumulative Convertible Preferred
Stock entitles its holder to receive an annual dividend of $.72
per share, payable at the option of the Company in either cash or
shares of Series A Preferred Stock; to convert it into 8 shares
of Common Stock as adjusted in the event of future dilution from
stock dividends and recapitalizations; to receive up to $9.00 per
share plus accrued and unpaid dividends in the event of
involuntary or voluntary liquidation; and, subject to certain
conditions in loan agreements, may be redeemed at the option of
the Company on or after July 31, 1997, but must mandatorily be
redeemed no later than July 31, 2000 at a price of $9.00 per
share plus accrued and unpaid dividends.
Each share of Series B Cumulative Convertible Preferred
Stock entitles its holder to receive an annual dividend of $.80
per share payable at the option of the Company in either cash or
shares of Series B Preferred Stock; to convert it into 8 shares
of Common Stock, as adjusted in the event of future distribution
from stock dividends and recapitalizations; to receive up to
$10.00 per share plus accrued and unpaid dividends in the event
of involuntary or voluntary liquidation; and, subject to certain
conditions in loan agreements, may be redeemed at the option of
the Company on or after July 31, 1997 at a price of $10.00 per
share plus accrued and unpaid dividends..
NOTE G - STOCK OPTIONS
On January 17, 1995 and May 12, 1995, the Board of Directors
granted options under the 1994 Employee Stock Option Plan to
purchase up to 426,500 shares and 390,250 shares, respectively,
of the Company's common stock to employees at a price of $1.75
per share (market value of the Company's common stock on the date
of grant). After a six month waiting period from the date of
grant, the shares acquired upon exercise may only be sold over
eighteen months for directors, twenty-four months for officers,
and thirty months for employees.
<PAGE>
EXHIBIT INDEX
EXHIBIT NO. DOCUMENT DESCRIPTION
2.1* Stock Purchase Agreement, dated
June 30, 1995, between SA Holdings,
Inc., 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 July 31,
1995, between SA Holdings, Inc. and
Jesup & Lamont Capital Markets, Inc.
4.3* Form of Series A Preferred Stock Certificate
4.4* Warrant Purchase Agreement, dated July 31,
1995, between SA Holdings, Inc. 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 SA
Holdings, Inc. and schedule of differences
thereto pursuant to General Instruction 2
to Item 601
4.8* Form of Offset Note, issued by SA Holdings,
Inc. and schedule of differences thereto
pursuant to General Instruction 2 to Item 601
4.9** Form of Note, Preferred Stock & Warrant
Purchase Agreement, dated as of July 31,
1995 between SA Holdings, Inc. 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 SA Holdings, Inc. and Norwest Bank
Minnesota, N.A. and related Security
Agreement and Promissory Note
20.1* SA Holdings, Inc. press release dated
August 1, 1995
23.1** Consent of Price Waterhouse LLP
23.2** Consent of Duff and Anderson
_______________
* Previously filed
** Filed herewith
<PAGE>
Exhibit 4.2
Share Purchase Agreement
Dated as of July 31, 1995
Regarding Shares
of
Series A Cumulative Convertible Preferred Stock,
par value $0.00001 per Share,
of
SA Holdings, Inc.
<PAGE>
EXHIBIT A
CERTIFICATE OF DESIGNATIONS
TABLE OF CONTENTS
SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK . . . . . . . 2
SECTION 2. THE CLOSING. . . . . . . . . . . . . . . . . . . . 3
SECTION 3. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 3
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. . . 7
4.1. Corporate Existence and Power. . . . . . . . . . . . 7
4.2. Authorization of Borrowing; No Conflict as to Law
or Agreements. . . . . . . . . . . . . . . . . . . . 7
4.3. Legal Agreements . . . . . . . . . . . . . . . . . . 8
4.4. Stock. . . . . . . . . . . . . . . . . . . . . . . . 8
4.5. Offering of Shares . . . . . . . . . . . . . . . . . 8
4.6. SEC Reports. . . . . . . . . . . . . . . . . . . . . 9
SECTION 5. REPRESENTATIONS AND COVENANTS OF THE PURCHASER. . . 9
5.1. Representations. . . . . . . . . . . . . . . . . . . 9
5.2. Covenants. . . . . . . . . . . . . . . . . . . . . . 10
SECTION 6. RESTRICTIONS ON TRANSFER . . . . . . . . . . . . . 10
SECTION 7. COVENANTS OF THE COMPANY . . . . . . . . . . . . . 11
7.1. Office for Payment, Exchange and Registration;
Location of Office. . . . . . . . . . . . . . . . . 11
7.2. Reservation of Shares . . . . . . . . . . . . . . . 11
7.3. Listing of Shares . . . . . . . . . . . . . . . . . 11
7.4. Securities Exchange Act Registration. . . . . . . . 11
7.5. Private Placement Status. . . . . . . . . . . . . . 12
7.6. Delivery of Information . . . . . . . . . . . . . . 12
7.7. Financial Reports . . . . . . . . . . . . . . . . . 12
SECTION 8. REGISTRATION RIGHTS. . . . . . . . . . . . . . . . 13
SECTION 9. CONDITIONS TO PURCHASER'S OBLIGATIONS. . . . . . . 18
9.1. Certificate of Designations . . . . . . . . . . . . 18
<PAGE>
9.2. Accuracy of Representations and Warranties. . . . . 18
9.3. Proceedings . . . . . . . . . . . . . . . . . . . . 18
9.4. Senior Credit Agreement . . . . . . . . . . . . . . 18
SECTION 10. BROKERS . . . . . . . . . . . . . . . . . . . . . 19
SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND
COVENANTS . . . . . . . . . . . . . . . . . . . . 19
SECTION 12. SPECIFIC PERFORMANCE. . . . . . . . . . . . . . . 19
SECTION 13. HOME OFFICE PAYMENTS. . . . . . . . . . . . . . . 20
SECTION 14. AMENDMENTS AND WAIVERS. . . . . . . . . . . . . . 20
SECTION 15. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED
SHARES; REPLACEMENT . . . . . . . . . . . . . . . 21
SECTION 16. NOTICES . . . . . . . . . . . . . . . . . . . . . 21
SECTION 17. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 21
<PAGE>
SHARE PURCHASE AGREEMENT
SHARE PURCHASE AGREEMENT dated as of July 31, 1995 by and
between SA Holdings, Inc., a Delaware corporation (the "Company"),
and the Purchaser listed on the signature page of this Agreement
(the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to sell to the Purchaser and
the Purchaser desires to purchase from the Company shares of Series
A Cumulative Convertible Preferred Stock, $.00001 par value per
share, of the Company, all upon the terms and provisions
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual covenants
and agreements set forth herein and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
SECTION 1. SALE AND PURCHASE OF PREFERRED STOCK
(a) The Company agrees to sell to the Purchaser and,
subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Company contained herein or
made pursuant hereto, the Purchaser agrees to purchase from the
Company on the Closing Date specified in Section 2 hereof, the
number of shares of the Company's Series A Cumulative Convertible
Preferred Stock, $.00001 par value per share, set forth opposite
the Purchaser's name on Schedule 1 hereto. The shares of such
Series A Convertible Preferred Stock being acquired under this
Agreement and by the other Purchasers under the other Share
Purchase Agreements (as hereinafter defined) are collectively
herein referred to as the "Shares", containing rights and
privileges as more fully set forth in the Certificate of
Designations of the Board of Directors of the Company in the form
attached hereto as Exhibit A (the "Certificate of Designations").
(b) The purchase price to be paid to the Company by the
Purchaser for the Shares to be purchased by the Purchaser pursuant
to this Agreement shall be the amount set forth opposite the
Purchaser's name on Schedule 1 hereto. No further payment shall be
required from the Purchaser for the Shares.
(c) The Shares are being sold to the purchasers listed
on Schedule 1 hereto (the "Purchasers") pursuant to this Agreement
and other substantially identical agreements dated as of the date
hereof (all such agreements collectively, as from time to time
assigned, supplemented or amended or as the terms thereof may be
waived, the "Share Purchase Agreements"). All Share Purchase
Agreements shall be dated the date hereof and shall be
<PAGE>
identical except as to the identities of the respective Purchasers.
The sale of Shares to each Purchaser under each Share Purchase
Agreement is to be a separate sale, and no Purchaser shall have any
liability under any Share Purchase Agreement other than the Share
Purchase Agreement to which it is a party.
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, the
closing of the purchase and sale of the Shares to be purchased by
the Purchaser (the "Closing") will take place at the offices of
Arter & Hadden, Dallas, Texas, on July 31, 1995 or such other time
and date as shall be mutually agreed to by the Company and the
Selling Shareholders (defined below) for the closing of the
acquisition of the stock of U.S. Communications, Inc.; provided
that the Closing shall occur no later than August 3, 1995. Such
time and date are herein referred to as the "Closing Date".
(b) Subject to the terms and conditions hereof, on the
Closing Date (i) the Company will deliver to the Purchaser a
certificate registered in the Purchaser's name (or its nominee, if
any, as specified on Schedule 1 hereto) evidencing the number of
Shares set forth opposite the Purchaser's name on Schedule 1 and
(ii) upon the Purchaser's receipt thereof, the Purchaser will
deliver to the Company a certified or official bank check (or wire
transfer) in an amount equal to the purchase price (as specified in
Section l(b) hereof) for the Shares to be purchased by the
Purchaser payable to the order of the Company in federal or other
immediately available funds.
SECTION 3. DEFINITIONS
For purposes of this Agreement, the following definitions
shall apply (such definitions to be equally applicable to both the
singular and plural forms of the terms defined):
"Acquisition Agreement" means the Stock Purchase
Agreement dated as of June 30, 1995, as amended, between the
Company, U.S. Communications, Inc. and the Selling Shareholders.
"Affiliate" means (a) any director, officer or employee
of the Company, (b) any Person who, individually or with his or her
immediate family or any other Affiliate, directly or indirectly,
beneficially owns or holds 5% or more of the voting interest in the
Company, or (c) any corporation, partnership or other Person in
which any Person described above owns a 5% or greater equity
interest. Without limiting the generality of the foregoing, Jack
W. Matz, Jr. shall at all times be deemed to be an Affiliate of the
Company.
<PAGE>
"Agreement" means this Share Purchase Agreement (together
with exhibits and schedules) as from time to time assigned,
supplemented or amended or as the terms hereof may be waived.
"Board" or "Board of Directors" means with respect to any
Person which is a corporation, a business trust or other entity,
the board of directors or other group, however, designated, which
is charged with legal responsibility for the management of such
Person, or any committee of such board of directors or group,
however designated, which is authorized to exercise the power of
such board or group in respect of the matter in question.
"Business Day" means any day other than a Saturday,
Sunday or a day on which banking institutions in the State of Texas
are authorized or obligated by law or executive order to close.
"Certificate of Designations" has the meaning set forth
in Section l(a) hereof.
"Closing" has the meaning set forth in Section 2(a)
hereof.
"Closing Date" has the meaning set forth in Section 2(a)
hereof.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations and interpretations
thereunder.
"Commission" means the Securities and Exchange Commission
and any other similar or successor agency of the federal government
administering the Securities Act or the Securities Exchange Act.
"Common Stock" of the Company or of a Subsidiary (as the
case may be) shall mean the Company's or a Subsidiary's (as the
case may be) present authorized Common Stock and any stock into
which such Common Stock may hereafter be changed or for which such
Common Stock may be exchanged after giving effect to the terms of
such change or exchange (by way of reorganization,
recapitalization, merger, consolidation or otherwise) and shall
also include any common stock of the Company or of a Subsidiary (as
the case may be) hereafter authorized and any capital stock of the
Company or of a Subsidiary (as the case may be) of any other class
hereafter authorized which is not preferred as to dividends or
assets over any other class of capital stock of the Company or of
a Subsidiary (as the case may be) or which has ordinary voting
power for the election of directors of the Company or of a
Subsidiary (as the case may be).
"Company" means SA Holdings, Inc., a Delaware
corporation, its successors and assigns.
"Conversion Share" or "Conversion Shares" means the
shares of the Company's Common Stock, $.0001 par value per share,
obtained or obtainable upon conversion of
<PAGE>
Shares and shall also include any capital stock or other securities
into which Conversion Shares are changed and any capital stock or
other securities resulting from or comprising a reclassification,
combination or subdivision of, or a stock dividend on, any
Conversion Shares. In the event that any Conversion Shares are
sold either in a public offering pursuant to a registration
statement under Section 6 of the Securities Act or pursuant to a
Rule 144 Transaction, then the transferees of such Conversion
Shares shall not be entitled to any benefits under this Agreement
with respect to such Conversion Shares and such Conversion Shares
shall no longer be considered to be "Conversion Shares" for
purposes of Section 8 hereof, for purposes of the definition of
Majority Shareholders or for purposes of any consent or waiver
provision of this Agreement.
"Convertible Preferred Stock" means the Company's Series
A Cumulative Convertible Preferred Stock, $.00001 par value per
share, which will be duly authorized on the Closing Date and which
will have the rights, powers and privileges on the Closing Date as
more fully set forth in the Certificate of Designations.
The phrase "current conversion price" has the meaning
specified in Section 7(h) of the Certificate of Designations.
"Majority Shareholders" means the holder or holders, at
the time, of at least fifty-one percent (51%) of the Conversion
Shares, including the Conversion Shares then outstanding and the
Conversion Shares then obtainable under outstanding Shares.
"Outstanding" or "outstanding" means
(a) when used with reference to the Shares or the
Conversion Shares as of a particular time, all Shares or
Conversion Shares theretofore duly issued except:
(i) Shares and Conversion Shares theretofore reported as
lost, stolen, mutilated or destroyed or surrendered for
transfer, exchange or replacement, in respect of which
new or replacement Shares or Conversion Shares have been
issued by the Company,
(ii) Shares and Conversion Shares theretofore cancelled
by the Company,
(iii) Shares and Conversion Shares registered in the name
of, as well as Shares and Conversion Shares owned
beneficially by, the Company, any Subsidiary or any of
their Affiliates and
(b) when used with reference to the number of shares of
Common Stock of the Company as at a particular time, the
then issued and outstanding shares of Common Stock of the
Company (not including treasury shares or any other
shares registered in the name of the Company, any
Subsidiary or any of their
<PAGE>
Affiliates), together with shares of Common Stock of the
Company issuable pursuant to any then outstanding
warrants, options, convertible securities or other rights
to acquire Shares of Common Stock of the Company.
For purposes of the preceding sentence, in no event shall
"Affiliates" include (x) the persons which are identified as
"Purchasers" on Schedule 1 hereto or (y) any Affiliates of any such
persons.
"Person" or "person" means an individual, corporation,
partnership, firm, association, joint venture, trust,
unincorporated organization, government, governmental body, agency,
political subdivision or other entity.
"Preferred Stock" means any class of the capital stock of
a corporation (whether or not convertible into any other class of
such capital stock) which has any right, whether absolute or
contingent, to receive dividends or other distributions of the
assets of such corporation (including, without limitation, amounts
payable in the event of the voluntary or involuntary liquidation,
dissolution or winding-up of such corporation), which right is
superior to the rights of another class of the capital stock of
such corporation. "Preferred Stock" includes without limitation
the Convertible Preferred Stock.
"Purchaser" means the person who accepts and agrees to
the terms hereof as indicated by such person's signature (as "the
undersigned Purchaser") on the execution page of this Agreement,
together with successors and assigns.
"Purchasers" has the meaning set forth in Section l(c)
hereof, together with their respective successors and assigns.
"Rule 144" means (i) Rule 144 under the Securities Act as
such Rule is in effect from time to time and (ii) any successor
rule, regulation or law, as in effect from time to time.
"Rule 144A" means (i) Rule 144A under the Securities Act
as,such Rule is in effect from time to time and (ii) any successor
rule, regulation or law, as in effect from time to time.
"Rule 144 Transaction" means a transfer of Shares or
Conversion Shares (A) complying with Rule 144 as such Rule is in
effect on the date of such transfer (but not including a sale other
than pursuant to "brokers' transactions" as defined in clauses (1)
and (2) of paragraph (g) of such Rule as in effect on the date
hereof) and (B) occurring at a time when Shares (in the case of a
transfer of Shares) or Conversion Shares (in the case of a transfer
of Conversion Shares) are registered pursuant to Section 12 of the
Securities Exchange Act.
"Securities Act" means the Securities Act of 1933, as
amended, and the rules, regulations and interpretations thereunder.
<PAGE>
"Securities Exchange Act" means the Securities Exchange
Act of 1934, as amended, and the rules, regulations and
interpretations thereunder.
"Selling Shareholders" means Bill J. Johnson, Howard
Maddera, Marianne Reed and NTS Communications, Inc.
"Senior Credit Agreement" means the Term Credit Agreement
between the Company and Norwest Bank Minnesota, National
Association, dated as of the date hereof.
"Share Purchase Agreements" has the meaning set forth in
Section l(c) hereof.
"Shares" has the meaning set forth in Section l(a)
hereof. In the event that any Shares are sold either in a public
offering pursuant to a registration statement under Section 6 of
the Securities Act or pursuant to a Rule 144 Transaction, then the
transferees of such Shares shall not be entitled to any benefits
under this Agreement with respect to such Shares and such Shares
shall no longer be considered to be "Shares" for purposes of
Section 8 hereof or any consent or waiver provision of this
Agreement.
"Subsidiary", with respect to any Person, means any
corporation, association or other entity of which more than 80% of
the total voting power of shares of stock or other equity interests
(without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is, at the
time as of which any determination is being made, owned or
controlled, directly or indirectly, by such Person or one or more
of its Subsidiaries, or both. The term "Subsidiary" or
"Subsidiaries" when used herein without reference to any particular
Person, means a Subsidiary or Subsidiaries of the Company.
"Transaction Documents" has the meaning provided in
Section 4.1 hereof.
(b) For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise
requires:
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
4.1. Corporate Existence and Power. The Company is a
business corporation duly incorporated, validly existing and in
good standing under the laws of Delaware, and is duly licensed or
qualified to transact business in Texas and Delaware. The Company
has all requisite power and authority, corporate or otherwise, to
conduct its business, to own its properties and to execute and
deliver, and to perform all of its obligations under, the Agreement
or any documents required thereunder (hereinafter, the "Transaction
Documents").
4.2. Authorization of Borrowing; No Conflict as to Law or
Agreements. The execution, delivery and performance by the Company
of the Transaction Documents
<PAGE>
have been duly authorized by all necessary corporate action of the
Company and do not and will not (i) require any consent or approval
of the shareholders of the Company, or any authorization, consent
or approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii)
violate any provision of any law, rule or regulation or of any
order, writ, injunction or decree presently in effect having
applicability to the Company or of its Certificate of Incorporation
or Bylaws or (iii) result in a material breach of or constitute a
default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Company is a
party or by which it or its properties may be bound or affected.
4.3. Legal Agreements. The Transaction Documents
constitute the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to the rights of
creditors generally.
4.4. Stock.
The authorized capital stock of the Company consists of
(i) 50,000,000 shares of Common Stock, $.0001 par value per share,
and (ii) 12,500,000 shares of Convertible Preferred Stock, $.00001
par value per share, of which, after giving effect to the
Certificate of Designations, 166,667 shares have been designated as
Series A Convertible Preferred Stock and 125,000 shares have been
designated as Series B Convertible Preferred Stock. The shares of
the Company's Common Stock issuable upon conversion of the
Convertible Preferred Stock will, when issued, be duly authorized,
validly issued, fully paid and non-assessable.
The Certificate of Designations has been duly adopted by
the Company and is fully effective as an amendment to the Company's
certificate of incorporation. The Shares have all of the rights,
priorities and terms set forth in the Certificate of Designations.
4.5. Offering of Shares. Neither the Company, any
Subsidiary nor any agent nor other person acting on its behalf,
directly or indirectly, (i) offered any of the Shares or any
similar security of the Company (A) by any form of general
solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) or (B) for sale to or
solicited offers to buy any thereof from, or otherwise approached
or negotiated with respect thereto with, any person other than the
Purchasers or not more than 35 other institutional investors each
of which the Company reasonably believed was an "accredited
investor" within the meaning of Regulation D under the Securities
Act or (ii) has done or caused to be done (or has omitted to do or
to cause to be done) any act which act (or which omission) would
result in bringing the issuance or sale of the Shares within the
provisions of Section 5 of the Securities Act or the filing,
notification or reporting provisions of any state securities laws.
<PAGE>
4.6. SEC Reports. The Company has filed all proxy
statements, reports and other documents required to be filed by it
under the Securities Exchange Act. The Company has furnished the
Purchasers copies of its Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 Forms 8-K filed in the calendar year
1995 through the date hereof and Quarterly Reports on Form 10-Q for
the fiscal quarter ended March 31, 1995 (collectively, the "SEC
Reports"). Each SEC Report was in substantial compliance with the
requirements of its respective form and none of the SEC Reports,
nor the financial statements (and the notes thereto) included in
the SEC Reports, as of their respective dates, contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
SECTION 5. REPRESENTATIONS AND COVENANTS OF THE PURCHASER
5.1. Representations. The Purchaser hereby makes the
representations and warranties to the Company contained in this
Section 5.
(a) The Purchaser has all requisite power, authority and
legal right to execute, deliver, enter into, consummate and perform
this Agreement. The execution, delivery and performance of this
Agreement by the Purchaser have been duly authorized by all
required corporate or partnership actions. The Purchaser has duly
executed and delivered this Agreement, and this Agreement
constitutes the legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with its
terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to the rights of
creditors generally.
(b) The Purchaser hereby represents to the Company that
it is capable of evaluating the risk of its investment in the
Shares being purchased by it and is able to bear the economic risk
of such investment, that (except as the Purchaser has otherwise
advised the Company and the Purchaser's special counsel in writing)
it in purchasing the Shares to be purchased by it for its own
account, and that the Shares are being purchased by it for
investment and not with a present view to any distribution thereof
in violation of applicable securities laws. It is understood that
the disposition of the Purchaser's property shall at all times be
within the Purchaser's control. If the Purchaser should in the
future decide to dispose of any of its Shares, it is understood
that it may do so only in compliance with the Securities Act,
applicable state securities laws and this Agreement. The Purchaser
represents that it is an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(c) The Purchaser has received and reviewed copies of
the Company's Forms 10-K (year ending 1994), 10-Q (quarter ending
March 31, 1994), 8-Ks filed in calendar year 1995 prior to the date
hereof, and a copy of the Confidential Information Memorandum dated
March 1995 prepared by Jesup & Lamont Capital Markets, Inc.
<PAGE>
(d) The Purchaser hereby represents that neither it nor
any group (as such term is defined in the Securities Exchange Act)
of persons of which it is a part has any plans or proposals which
relate to or would result in an extraordinary corporate transaction
(such as a merger, reorganization or liquidation) involving the
Company or the acquisition by any person of securities of the
Company enabling such person, such group and/or the Purchaser to
control or own 40% or more of the Common Stock of the Company (on
a fully-diluted basis).
5.2. Covenants.
The Purchaser hereby agrees that it shall not acquire,
alone, or together with a group (as defined in Section 13 of the
Securities Exchange Act), securities of the Company enabling the
Purchaser or such group to control or own 40% or more of the Common
Stock of the Company, unless such acquisition is approved by the
Board of Directors of the Company.
SECTION 6. RESTRICTIONS ON TRANSFER
(a) The Purchaser agrees that it will not sell or
otherwise dispose of any Shares or Conversion Shares unless
(i) such Shares or Conversion Shares have been
registered under the Securities Act and, to
the extent required, under any applicable
state securities laws, or
(ii) such Shares or Conversion Shares are sold
in accordance with the applicable requirements
and limitations of Rule 144 or Rule 144A, or
(iii) the Company has been furnished with an
opinion or opinions from counsel to the
Purchaser (which counsel and which opinion(s)
shall be reasonably satisfactory to the
Company and which counsel may be inside
counsel to the Purchaser) to the effect that
registration under the Securities Act is not
required for the transfer as proposed (which
opinion may be conditioned upon the transferee
assuming the obligations of a holder of Shares
or Conversion Shares under this Section) or
(iv) the Company has been furnished with a
letter from the Division of Corporate Finance
of the Commission to the effect that such
Division would not recommend any action to the
Commission if such proposed transfer were
effected without a registration statement
effective under the Securities Act.
<PAGE>
The Company agrees that within five (5) Business Days after receipt
of any opinion referred to in (iii) above, it will notify the
holder supplying such opinion whether such opinion is satisfactory
to the Company's counsel. Any transfer of Conversion Shares shall
also be subject to the Stockholders' Agreement.
(b) The Company may endorse on all certificates
evidencing Shares or Conversion Shares a legend stating or
referring to the transfer restrictions contained in paragraph (a)
above; provided, that no such legend shall be endorsed on any
certificates which, when issued, are no longer subject to the
restrictions of this Section 6; provided, further, that if a
transfer is made pursuant to clause (i), (ii) (other than pursuant
to Rule 144A) or (iv) of paragraph (a) or if an opinion of counsel
provided pursuant to clause (iii) of paragraph (a) concludes that
the legend is no longer necessary, the Company will deliver upon
transfer, certificates without such legends.
SECTION 7. COVENANTS OF THE COMPANY
The Company covenants and agrees as follows:
7.1. Office for Payment, Exchange and Registration;
Location of Office.
So long as any of the Shares is outstanding, the Company
will maintain an office or agency where Shares may be presented for
payment, exchange, conversion or registration of transfer as
provided in this Agreement. Such office or agency initially shall
be the office of the Company set forth on the signature page
hereto.
7.2. Reservation of Shares. There have 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
conversion rights provided in Sections 7 of the Certificate of
Designations.
7.3. Listing of Shares. If any shares of the Company's
Common Stock or Convertible Preferred Stock are listed on any
national securities exchange (or on the National Association of
Securities Dealers, Inc., Automated Quotation System or comparable
system), then the Company will take such action as may be
necessary, from time to time, to list Shares or Conversion Shares,
as the case may be, on such exchange (or system as the case may
be).
7.4. Securities Exchange Act Registration. As soon as
the Company is either required to or does file a registration
statement with respect to the Company's Common Stock or Convertible
Preferred Stock under Section 6 of the Securities Act or Section
12(b) or Section 12(g), whichever is applicable, of the Securities
Exchange Act, then, thereafter:
<PAGE>
(a) The Company will maintain effective a registration
statement (containing such information and documents as the
Commission shall specify and otherwise complying with the
Securities Exchange Act) under Section 12(b) or Section 12(g),
whichever is applicable, of the Securities Exchange Act, with
respect to the Company's Common Stock or Convertible Preferred
Stock, as the case may be, and will file on time such information,
documents and reports as the Commission may require or prescribe
for companies whose stock has been registered pursuant to such
Section 12(b) or Section 12(g), whichever is applicable.
(b) The Company will, upon the request of any holder of
Shares or Conversion Shares, make whatever other filings with the
Commission, or otherwise make generally available to the public
such financial and other information, as any such holder may deem
reasonably necessary or desirable in order to enable such holder to
be permitted (i) to sell Conversion Shares pursuant to the
provisions of Rule 144 and (ii) if the Company has filed a
Registration Statement with respect to Convertible Preferred Stock
under Section 6 of the Securities Act or Section 12(b) or 12(g) of
the Securities Exchange Act, to sell Shares pursuant to the
provisions of Rule 144.
7.5. Private Placement Status. Neither the Company nor
any agent nor other Person acting on the Company's behalf will do
or cause to be done (or will omit to do or to cause to be done) any
act which act (or which omission) would result in bringing the
issuance or sale of the Shares or the Conversion Shares within the
provisions of Section 5 of the Securities Act or the filing,
notification or reporting requirements of any state securities law
(other than in accordance with a registration and qualification of
Conversion Shares pursuant to Section 8 hereof).
7.6. Delivery of Information. If a holder of Shares or
Conversion Shares proposes to transfer any such Shares or
Conversion Shares pursuant to Rule 144A, the Company agrees to
provide (upon the request of such holder or the prospective
transferee) to such holder and (if requested) to the prospective
transferee any information concerning the Company and its
Subsidiaries which is required to be delivered to any transferee of
such Shares or Conversion Shares pursuant to such Rule 144A.
7.7. Financial Reports. The Company will deliver to the
Purchaser:
(a) as soon as made available, copies of all Forms 10-K,
10-Q, 8-K, financial statements, proxy statements, reports which
the Company has sent to its stockholders or filed with the
Commission or any national securities exchange; and
(b) copies of any notice sent to the Senior Lender
notifying the Senior Lender of the occurrence of a default or event
of default under the terms of the Senior Credit Agreement, together
with any supporting statements attached thereto and delivered to
the Senior Lender.
<PAGE>
7.8. Election of Directors. So long as there are at
least 100,000 shares of Series A Preferred Stock outstanding or so
long as the Purchaser and its affiliates (together with the
directors, officers and employees of the Purchaser and its
affiliates) own beneficially a number of shares of capital stock of
the Corporation which (assuming any conversion rights are
exercised) would give the Purchaser, its affiliates and such
persons, collectively, five percent (5%) or more of the combined
voting power of all shares of capital stock then outstanding (for
this purpose, Common Stock issuable upon conversion of then
outstanding Series A Preferred Stock and Series B Preferred Stock
shall be deemed to be outstanding) entitled to vote generally at
any meeting of stockholders at which directors are to be elected
the Corporation will use its best efforts to cause to be elected to
its board of directors (and in addition to any other directors
elected by the holders of the Series A Preferred Stock), from the
date hereof until the next such meeting of stockholders, one
person, and thereafter, a total of two persons nominated by the
Purchaser or its designee, who shall serve at all times during such
respective periods. In the event a vacancy occurs in the office of
a director so nominated by the Purchaser (or its designee), the
Corporation shall use its best efforts to cause to be elected to
its board of directors a successor nominated by the Purchaser or
its designee who shall serve at all times during such period.
SECTION 8. REGISTRATION RIGHTS
8.1. Registration at the Request of Holders.
(a) The Company agrees that on or after July 31, 1996,
upon receipt by the Company of a Registration Demand satisfying the
conditions under Section 8.1(b) hereof, the Company will (A)
promptly (at least thirty (30) days prior to the filing date) give
written notice of the proposed registration to each holder of a
Share or Conversion Share, and (B) with reasonable promptness, and
in any case not later than ninety (90) days after receipt by the
Company of the Registration Demand, use reasonable efforts to file
as soon as practicable a registration statement with the Commission
relating to the Conversion Shares as to which registration is
requested in the Registration Demand. The Company shall use its
reasonable best efforts to make such registration statement become
effective and to qualify the same under the Blue Sky laws of such
states as may be requested; provided, however, that with respect to
compliance with Blue Sky laws, the Company shall not be obligated
to qualify as a foreign corporation or to execute or file any
general consent to service of process under the laws of any such
state where it is not so subject. The Company shall also include
under such registration statement (and in such state
qualifications) any Conversion Shares requested to be so included
by any other holder of Shares or Conversion Shares by written
notice delivered to the Company within thirty (30) days after the
sending of the notice provided for in (A) above.
(b) A "Registration Demand" means a written notice from
one or more holders of Shares or Conversion Shares stating that
such holder or holders desire to sell all of their Conversion
Shares under circumstances requiring registration under the
Securities
<PAGE>
Act and requesting that the Company effect registration with
respect to all of the Conversion Shares held, or to be held after
conversion of Shares, by such holder or holders; provided, that
such holder or holders giving such notice hold Shares or Conversion
Shares representing, or entitling the holder thereof to obtain upon
conversion, in the aggregate not less than fifty-one percent (51%)
of the number of Conversion Shares then obtainable upon conversion
of all Shares then outstanding; provided that such holder or
holders hold at least 1,000,000 Conversion Shares in the aggregate
(as such number may be adjusted from time to time hereafter as a
result of a stock split, combination, etc.).
(c) The Company is obligated to effect registration and
qualification pursuant to this Section 8.1 no more than two times.
(d) If the holder or holders who gave the Registration
Demand under this Section 8.1 inform the Company by written notice
that they are withdrawing their Registration Demand and pay all of
the Company's out-of-pocket expenses with respect to such
registration and qualification incurred to the date of the notice
under this Section 8.1(d), then the registration statement need not
be filed and the whole effort will not count as a registration and
qualification (or a conversion of rights) under this Section 8.1.
(e) The Company may, upon written notice to the holder
or holders giving a Registration Demand, require such holder or
holders to withdraw such Registration Demand upon the good faith
determination by the Company that such postponement is necessary
(i) to avoid disclosure of non-public information or (ii) as a
result of a pending financial transaction, and in each case, the
holders may not make another Registration Demand for a period of up
to ninety (90) days, as specified by the Company in such notice;
provided that the Company may exercise this right not more than
once in any 12-month period. The Company may only given such a
notice where the giving of such a notice has been specifically
approved by the Company's Board of Directors. Upon receipt of any
such written notice from the Company, such Registration Demand
shall be deemed to be rescinded and retracted (subject to being
given again after any holdback period specified in such notice in
accordance with the second preceding sentence) and shall not be
counted as, or deemed or considered to be or to have been, a
Registration Demand for any purpose.
8.2. Piggyback Rights.
(a) If the Company at any time proposes to file a
registration statement under the Securities Act for any sales of at
least 300,000 shares (as such number may be adjusted from time to
time hereafter as a result of a stock split, combination, etc.) of
the Company's Common Stock (or any warrants, units, convertibles,
rights or other securities related or linked to any shares of the
Company's Common Stock) on behalf of the Company or otherwise, the
Company shall give written notice of such registration no later
than thirty (30) days before its filing with the Commission to all
holders of Shares or Conversion Shares; provided, that
registrations relating solely to securities to be issued by the
Company in connection with any employee stock option or employee
stock purchase or savings plan
<PAGE>
on Form S-8 (or successor forms) under the Securities Act shall not
be subject to this Section 8.2. If holders of Shares or Conversion
Shares so request within thirty (30) days, the Company shall
include in any such registration the Conversion Shares held or to
be held after conversion of Shares by such holders and requested to
be included in such registration, subject to Section 8.2(b) hereof.
(b) The Company shall not be obligated to so include the
Conversion Shares to the extent any underwriter or underwriters of
such securities being otherwise registered by the Company
determines in good faith that the inclusion of such Conversion
Shares would jeopardize the successful sale of such other
securities proposed to be sold by such underwriter or underwriters,
in which case holders of Shares or Conversion Shares desiring to
participate in such registration shall be entitled to participate
in any such reduced number of Conversion Shares (if any) which may
be included in such registration (along with other holders of
Common Stock exercising piggyback rights with respect to such
registration) in proportion to the amount of shares of the
Company's Common Stock held by such holders (whether held directly
or through the right to obtain Conversion Shares upon conversion of
Shares held by such holders).
(c) The obligations and rights of the Company and the
holders under this Section 8.2 shall not affect in any way their
obligations and rights under Section 8.1 hereof.
(d) The Company may propose including Common Stock to be
publicly offered and sold by it in any registration statement to be
filed pursuant to a Registration Demand under Section 8.1. If, in
the written opinion of underwriters selected for the proposed
offering, the inclusion of the securities proposed to be offered
and sold by both the Company and the holders of Shares or
Conversion Shares would jeopardize the success of the offering, the
selling holders may elect (i) to exclude the amount of securities
(up to all of the securities) proposed to be sold by the Company
which, in the opinion of such underwriters, would jeopardize the
success of the offering by the selling holders, or (ii) to convert
their proposed offering to an offering pursuant to this Section
8.2. If the selling holders elect to convert the offering to one
under this Section 8.2, then such registration shall not be deemed
(or counted as) a registration and qualification (or a conversion
of rights) under Section 8.1 hereof.
8.3. Expenses.
Subject to the limitations contained in this Section 8.3
and except as otherwise specifically provided in this Section 8,
the entire costs and expenses of registration and qualification
pursuant to Section 8.1 hereof and of registration and
qualification pursuant to Section 8.2 hereof shall be borne by the
Company. Such costs and expenses shall include, without
limitation, underwriting fees or commissions in connection with the
registration and qualification pursuant to Section 8.1 hereof
(other than with respect to the Conversion Shares to be sold by the
holders of Shares or Conversion Shares, as to which underwriting
<PAGE>
discounts and commissions shall be paid by the selling holders),
the fees and expenses of counsel for the Company and of its
accountants, all other costs, fees and expenses of the Company
incident to the preparation, printing, registration and filing
under the Securities Act of the registration statement and all
amendments and supplements thereto, up to $20,000 of reasonable
fees and expenses of one counsel to the holders of Shares or
Conversion Shares relating to such registration and qualification,
the cost of furnishing copies of each preliminary prospectus, each
final prospectus and each amendment or supplement thereto to
underwriters, dealers and other purchasers of the Conversion Shares
and the costs and expenses (including reasonable fees and
disbursements of counsel) incurred in connection with the
qualification of the Conversion Shares under the Blue Sky laws of
various jurisdictions; provided, however, that if any jurisdiction
in which the Company shall qualify or register in connection with
the proposed sale of the Conversion Shares shall require that
expenses incurred in connection with the qualification or
registration of such Conversion Shares in that jurisdiction be
borne in whole or in part by the holders selling those Conversion
Shares, then such expenses shall be payable by such holders pro
rata to the extent required by such jurisdiction and in the event
that any such holder is required by any such applicable
jurisdiction to bear such expense, the Company shall promptly
reimburse each such holder for the amount paid therefor.
8.4. Procedures.
(a) In the case of each registration or qualification
pursuant to Section 8.1 or 8.2, the Company will keep all holders
of Shares or Conversion Shares advised in writing as to the
initiation of proceedings for such registration and qualification
and as to the completion thereof, and will advise any such holder,
upon request, of the progress of such proceedings.
(b) At the Company's expense, the Company will keep each
registration and qualification under this Section 8 effective (and
in compliance with the Securities Act) by such action as may be
necessary or appropriate for a period of one hundred twenty (120)
days after the effective date of such registration statement,
including, without limitation, the filing of post-effective
amendments and supplements to any registration statement or
prospectus necessary to keep the registration statement current and
the further qualification under any applicable Blue Sky or other
state securities laws to permit such sale or distribution, all as
requested by such holder or holders.
(c) The Company will immediately notify each holder on
whose behalf Conversion Shares have been registered pursuant to
this Section 8, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration-statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
<PAGE>
(d) The Company will furnish to each holder on whose
behalf Conversion Shares have been registered pursuant to this
Section 8 a signed counterpart, addressed to such holder, of an
opinion of counsel for the Company, dated the effective date of
such registration statement.
(e) Without limiting any other provision hereof, in
connection with any registration of Conversion Shares under this
Section 8, the Company will use its reasonable best efforts to
comply with the Securities Act, the Securities Exchange Act and all
applicable rules and regulations of the Commission, and will make
generally available to its securities holders, as soon as
reasonably practicable, an earnings statement covering a period of
at least twelve (12) months, beginning with the first month of the
first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
(f) In connection with any registration of Conversion
Shares under this Section 8, the Company will provide a transfer
agent and registrar for the Conversion Shares not later than the
effective date of such registration statement.
(g) The Company shall not be required to include any of
the holders' Conversion Shares in an underwritten offering of the
Company's securities unless such holders accept the terms of the
underwriting as agreed upon between the Company and the
underwriters selected by it, which terms shall include customary
provisions with respect to indemnification and contribution and
customary representations and warranties by the Company (which
shall be made to and for the benefit of the underwriters and the
holders of Conversion Shares to be sold in such offering).
(h) In connection with the preparation and filing of
each registration statement registering Conversion Shares under
this Section 8, the Company will give the holders of Shares or
Conversion Shares on whose behalf such Conversion Shares are to be
so registered and their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss
the business of the Company with its officers, its counsel and the
independent public accountants who have certified its financial
statements, as shall be reasonably necessary, in the reasonable
opinion of such holders or such underwriters or their counsel, in
order to conduct a reasonable and diligent investigation within the
meaning of the Securities Act.
8.5. Indemnification.
The Company will indemnify and hold harmless each holder
of Shares or Conversion Shares and any underwriter (as defined in
the Securities Act) for such holder and each person, if any, who
controls the holder or underwriter within the meaning of the
<PAGE>
Securities Act against any losses, claims, damages or liabilities,
joint or several, and expenses (including reasonable attorneys'
fees and expenses and reasonable costs of investigation) to which
the holder or underwriter or such controlling person may be
subject, under the Securities Act or otherwise, insofar as any
thereof arise out of or are based upon (a) any untrue statement or
alleged untrue statement of a material fact contained in (i) any
registration statement under which such Conversion Shares were
registered under the Securities Act pursuant to Section 8.1 or 8.2
hereof, any prospectus or preliminary prospectus contained therein,
or any amendment or supplement thereto, or (ii) any other document
incident to the registration of the Conversion Shares under the
Securities Act or the qualification of the Conversion Shares under
any state securities laws applicable to the Company, or (b) the
omission or alleged omission to state in any item referred to in
the preceding clause (a) a material fact required to be stated
therein or necessary to make the statements therein not misleading
or (c) any violation or alleged violation by the Company of the
Securities Act, the Securities Exchange Act or any other federal or
state securities law, rule or regulation applicable to the Company
and relating to action or inaction by the Company in connection
with any such registration or qualification, except insofar as such
losses, claims, damages, liabilities or expenses arise out of or
are based upon any untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished to
the Company in writing by such holder or by any underwriter for
such holder expressly for use therein (with respect to which
information such holder or underwriter shall so indemnify and hold
harmless the Company, any underwriter for the Company and each
person, if any, who controls the Company or such underwriter within
the meaning of the Securities Act).
8.6. Holdback.
Except for transfers made in transactions exempt from the
registration requirements under the Securities Act pursuant to
Section 4(2) thereof or pursuant to Rule 144A, the Company and each
holder of Shares or Conversion Shares agrees not to offer, sell,
contract to sell or otherwise dispose of any of their respective
shares of the Company's Common Stock within seven (7) days before
or one hundred eighty (180) days after the date of any final
prospectus relating to any underwritten public offering of the
Company's Common Stock on behalf of the Company or otherwise, in
each case except pursuant to such prospectus or with the written
consent of underwriters for such offering.
SECTION 9. CONDITIONS TO PURCHASER'S OBLIGATIONS
The Purchaser's obligation to purchase Shares hereunder
is subject to satisfaction of the following conditions at the
Closing (any of which may be waived by the Purchaser):
9.1. Certificate of Designations. The certificate of
incorporation of the Company shall have been duly amended by the
filing of the Certificate of Designations in the form attached
hereto as Exhibit A.
<PAGE>
9.2. Accuracy of Representations and Warranties. The
representations and warranties of the Company in the Share Purchase
Agreements or in any certificate or document delivered pursuant
hereto or thereto shall be correct and complete on and as of the
Closing Date with the same effect as though made on and as of the
Closing Date (after giving effect to transactions contemplated by
this Agreement).
9.3. Proceedings. All corporate and other proceedings
in connection with the transactions contemplated by the Share
Purchase Agreements, and all documents incident thereto, shall be
in form and substance satisfactory to the Purchaser and its
counsel, and the Purchaser shall have received all such originals
or certified or other copies of such documents as the Purchaser or
its counsel may reasonably request.
9.4. Senior Credit Agreement. The Company and Norwest
Bank, National Association, shall have executed and delivered the
Senior Credit Agreement, which shall be in full force and effect
and the Company shall have made a borrowing thereunder sufficient,
together with proceeds from the sale of Series A Preferred Stock,
the Series B Preferred Stock, certain Subordinated Notes due
October 1, 1996 and certain Subordinated Notes due July 30, 1996,
to close under the terms of the Acquisition Agreement.
SECTION 10. BROKERS
Except for certain fees payable to Jesup & Lamont Capital
Markets, Inc. (all of which fees will be paid by the Company), the
Company represents and warrants to the Purchaser that there is no
liability for (and the Company will pay and indemnify the Purchaser
against) any fees or expenses (or claims therefor) of any
investment banker, finder or broker in connection with any Share
Purchase Agreement or any of the transactions contemplated hereby
or thereby. The Company will indemnify the Purchaser against all
such fees or expenses payable to the enumerated persons in the
preceding sentence and against any other such fees, expenses or
claims of any person, unless such person was engaged by the
Purchaser in connection with this Agreement or any of the
transactions contemplated hereby.
SECTION 11. BREACH OF REPRESENTATIONS, WARRANTIES AND COVENANTS
(a) The representations, warranties, covenants and
agreements of the Company and the Purchaser contained in this
Agreement or in any document or certificate delivered pursuant
hereto or thereto or in connection herewith shall survive, and
shall continue in effect following, the execution and delivery of
the Share Purchase Agreements, the closings hereunder and
thereunder, any investigation at any time made by the Purchaser or
on its behalf or by any other Person, the issuance, sale and
delivery of the Shares, any disposition thereof and any payment,
conversion or cancellation of the Shares. All statements contained
in any certificate or other document delivered by or on behalf of
the
<PAGE>
Company pursuant hereto shall constitute representations and
warranties by the Company hereunder.
(b) The Company agrees to indemnify and hold the
Purchaser harmless from and against and will pay to the Purchaser
the full amount of any loss, damage, liability or expense
(including amounts paid in settlement and attorneys' fees and
expenses) to the Purchaser resulting either directly or indirectly
from any breach of the representations, warranties, covenants or
agreements of the Company contained in any Share Purchase
Agreement.
SECTION 12. SPECIFIC PERFORMANCE
The parties agree that irreparable damage will result in
the event that this Agreement is not specifically enforced, and the
parties agree that any damages available at law for a breach of
this Agreement would not be an adequate remedy. Therefore, the
provisions hereof and the obligations of the parties hereunder
shall be enforceable in a court of equity, or other tribunal with
jurisdiction, by a decree of specific performance, and appropriate
injunctive relief may be applied for and granted in connection
therewith. Such remedies and all other remedies provided for in
this Agreement shall, however, be cumulative and not exclusive and
shall be in addition to any other remedies which a party may have
under this Agreement or otherwise.
SECTION 13. HOME OFFICE PAYMENTS
As long as the Purchaser or any institutional holder
which is a direct or indirect transferee (as a result of one or
more transfers) from the Purchaser shall be the holder of any
Share, the Company will make all redemption payments, liquidation
payments and other distributions by wire transfer to the
Purchaser's or such other holder's (or its nominees) account at any
bank or trust company in the United States of America,
notwithstanding any contrary provision herein or in the Company's
certificate of incorporation with respect to the place of payment.
The Purchaser has provided an address on Schedule 1 hereto for
payments by wire transfer and for delivery of pay-in-kind
securities, and such address may be changed for the Purchaser or
any subsequent holder by notice to the Company. All such payments
shall be made in U.S. dollars and in federal or other immediately
available funds.
SECTION 14. AMENDMENTS AND WAIVERS
(a) The terms and provisions of this Agreement may be
amended, waived, modified or terminated only with the written
consent of the Majority Shareholders; provided, however, that no
such amendment, waiver, modification or termination shall (i)
change the
<PAGE>
registration rights under Section 8 hereof, without the consent of
the holder of the Conversion Share or Share so affected or (ii)
reduce the aforesaid percentage of Shares and Conversion Shares,
the holders of which are required to consent to any such amendment,
waiver, modification or termination, without the written consent of
the holders of all the Shares and Conversion Shares then
outstanding.
(b) The Company agrees that all holders of Shares and
Conversion Shares shall be notified by the Company in advance of
any proposed amendment, waiver, modification or termination, but
failure to give such notice shall not in any way affect the
validity of any such amendment, waiver, modification or
termination. In addition, promptly after obtaining the written
consent of the holders as herein provided, the Company shall
transmit a copy of any amendment, waiver, modification or
termination which has been adopted to all holders of Shares and
Conversion Shares then outstanding, but failure to transmit copies
shall not in any way affect the validity of any such amendment,
waiver, modification or termination.
SECTION 15. EXCHANGE OF SHARES; CANCELLATION OF SURRENDERED
SHARES; REPLACEMENT
(a) Any Share certificate which is converted into
Conversion Shares in whole or in part shall be cancelled by the
Company, and no new Share certificates shall be issued in lieu of
any Shares which have been converted into Conversion Shares. The
Company shall issue a new Share certificate with respect to any
Shares which were not converted into Converted Shares and were
represented by a certificate which was converted in part.
(b) Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any Share
certificate and, in the case of any such loss, theft or
destruction, upon delivery of an indemnity agreement reasonably
satisfactory to the Company (if requested by the Company and
unsecured in the case of the Purchaser or an institutional holder),
or in the case of any such mutilation, upon surrender of such Share
certificate (which surrendered Share certificate shall be cancelled
by the Company), the Company will issue a new Share certificate, of
like tenor in lieu of such lost, stolen, destroyed or mutilated
Share certificate as if the lost, stolen, destroyed or mutilated
Share certificate were then surrendered for exchange.
SECTION 16. NOTICES
All notices, requests, demands, consents and other
communications hereunder shall be in writing and shall be delivered
by hand or shall be sent by telex or telecopy (confirmed by
registered, certified or overnight mail or courier, postage and
delivery charges prepaid), if to the Company at the address
indicated on the signature page hereof, or if to the Purchaser at
the address indicated on Schedule 1 hereto, or at such other
address as a
<PAGE>
party may from time to time designate as its address in writing to
the other party to this Agreement. Whenever any notice is required
to be given hereunder, such notice shall be deemed given and such
requirement satisfied only when such notice is delivered or, if
sent by telex or telecopier, when received.
SECTION 17. MISCELLANEOUS
(a) The Share Purchase Agreements and, upon the closing
hereunder, the Certificate of Designations, together with any
further agreements entered into by the Purchaser and the Company at
the closing hereunder, contain the entire agreement between the
Purchaser and the Company, and supersede any prior oral or written
agreements, commitments, terms or understandings, regarding the
subject matter hereof.
(b) Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions
hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such
provision in any other jurisdiction. To the extent permitted by
applicable law, the parties hereby waive any provision of law which
may render any provision hereof prohibited or unenforceable in any
respect.
(c) Any provision of this Agreement relating to the
consent, determination, decision or waiver of a holder or holders
of Shares or Conversion Shares means such holder's consent,
determination, decision or waiver in such holder's sole discretion.
(d) This Agreement shall be binding upon and inure to
the benefit of the parties hereto and its respective successors and
assigns, whether so expressed or not; provided, that the Company
may not assign any of its rights, duties or obligations under this
Agreement, except with the Purchaser's written consent.
(e) In addition to any assignment by operation of law,
the Purchaser may assign, in whole or in part, any or all of its
rights (and/or obligations) under this Agreement to any of its
affiliates or any officer, director or employee of either itself or
any of its affiliates of any or all of its Shares or Conversion
Shares, and (unless such assignment expressly provides otherwise)
any such assignment shall not diminish the rights the Purchaser
would otherwise have under this Agreement or with respect to any
remaining Shares or Conversion Shares held by the Purchaser.
(f) No course of dealing and no delay on the part of any
party hereto in exercising any right, power, or remedy conferred by
this Agreement shall operate as a waiver thereof or otherwise
prejudice such party's rights, powers and remedies. No single or
partial exercise of any rights, powers or remedies conferred by
this Agreement shall preclude any other or further exercise thereof
or the exercise of any other right, power or remedy.
<PAGE>
(g) The headings and captions in this Agreement are for
convenience of reference only and shall not define, limit or
otherwise affect any of the terms or provisions hereof.
(h) This Agreement shall be governed by, and construed
in accordance with, the laws of the State of New York (other than
any conflict of laws rule which might result in the application of
the laws of any other jurisdiction).
(i) 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.
(j) CONSENT TO JURISDICTION. EACH PARTY CONSENTS TO THE
PERSONAL JURISDICTION OF THE STATE AND FEDERAL COURTS LOCATED IN
THE STATE OF TEXAS IN CONNECTION WITH ANY CONTROVERSY RELATED TO
THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT, WAIVES ANY
ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT CONVENIENT, AND AGREES
THAT ANY LITIGATION INITIATED BY ANY OF THEM IN CONNECTION WITH
THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT SHALL BE VENUED IN
EITHER THE DISTRICT COURT OF DALLAS COUNTY, TEXAS, OR THE UNITED
STATES DISTRICT COURT, NORTHERN DISTRICT OF TEXAS.
(k) WAIVER OF JURY TRIAL. THE COMPANY AND THE PURCHASER
HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR
OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY
TRANSACTION DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the date first above written.
Address: SA HOLDINGS, INC.
Attn: General Counsel By_________________________________
Name:
Title:
Accepted and Agreed to as of the date
first above written by the undersigned
Purchaser:
JESUP & LAMONT CAPITAL MARKETS, INC.
By_________________________________
Name:
Title:
<PAGE>
Schedule 1 to the Share Purchase Agreement
<TABLE>
<CAPTION>
Number of Shares
of Convertible Purchase
Name of Purchaser Preferred Stock Price
- ----------------- ---------------- --------
<S> <C> <C>
Name: Jesup & Lamont Capital
Markets, Inc. 166,667 $1,500,000
(a) address for communications:
650 Fifth Avenue
New York, NY 10019
Attn:
(b) address for payments by wire
transfer:
</TABLE>
Exhibit 4.9
<PAGE>
Note, Preferred Stock & Warrant Purchase Agreement
Dated As Of July 31, 1995
Regarding
Subordinated Notes Due October 1, 1996
And
Series B Cumulative Convertible Preferred Stock
Par Value $.00001 Per Share
And
Subordinated Notes Due July 30, 1996
Of
SA Holdings, Inc.
a Delaware corporation
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. SALE AND PURCHASE OF NOTES AND WARRANTS. . . . . . 1
SECTION 2. THE CLOSING. . . . . . . . . . . . . . . . . . . . 2
SECTION 3. DEFINITIONS. . . . . . . . . . . . . . . . . . . . 3
SECTION 4. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . 7
4.1. Corporate Existence and Power. . . . . . . . . . . 7
4.2. Authorization of Borrowing; No Conflict as to Law
or Agreements. . . . . . . . . . . . . . . . . . . 7
4.3. Legal Agreements.. . . . . . . . . . . . . . . . . 7
4.4. Capitalization.. . . . . . . . . . . . . . . . . . 7
SECTION 5. REPRESENTATIONS OF THE PURCHASER . . . . . . . . . 8
SECTION 6. OPTIONAL PREPAYMENTS . . . . . . . . . . . . . . . 9
SECTION 7. AFFIRMATIVE COVENANTS OF THE COMPANY . . . . . . . 9
7.1. Reservation of Shares. . . . . . . . . . . . . . . 9
7.2. Listing of Shares. . . . . . . . . . . . . . . . . 9
7.3. Securities Exchange Act Registration . . . . . . . 9
7.4. Private Placement Status . . . . . . . . . . . . . 10
7.5. Delivery of Information. . . . . . . . . . . . . . 10
SECTION 8. CONDITIONS TO PURCHASER'S OBLIGATIONS. . . . . . . 11
8.1. Security Agreements. . . . . . . . . . . . . . . . 11
8.2. Accuracy of Representations and Warranties . . . . 11
8.3. Proceedings. . . . . . . . . . . . . . . . . . . 11
8.4. Acquisition. . . . . . . . . . . . . . . . . . . 11
SECTION 9. SUBORDINATION. . . . . . . . . . . . . . . . . . . 11
SECTION 10. AMENDMENT; WAIVER; CONSENT. . . . . . . . . . . . 11
SECTION 11. EXCHANGE OF NOTES; ACCRUED INTEREST;
CANCELLATION OF SURRENDERED NOTES; REPLACEMENT . 12
SECTION 12. DEFAULTS. . . . . . . . . . . . . . . . . . . . . 14
SECTION 13. REMEDIES. . . . . . . . . . . . . . . . . . . . . 16
SECTION 14. RESTRICTIONS ON TRANSFER. . . . . . . . . . . . . 16
SECTION 15. REGISTRATION RIGHTS . . . . . . . . . . . . . . . 17
15.1. Intentionally Omitted. . . . . . . . . . . . . . 17
15.2. Piggyback Rights. . . . . . . . . . . . . . . . . 17
15.3. Expenses. . . . . . . . . . . . . . . . . . . . . 18
<PAGE>
15.4. Procedures. . . . . . . . . . . . . . . . . . . . 18
15.5. Indemnification.. . . . . . . . . . . . . . . . . 20
15.6. Holdback. . . . . . . . . . . . . . . . . . . . . 21
SECTION 16. HOME OFFICE PAYMENTS. . . . . . . . . . . . . . . 21
SECTION 17. NOTICES . . . . . . . . . . . . . . . . . . . . . 21
SECTION 18. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 22
18.1. Entire Agreement. . . . . . . . . . . . . . . . . 22
18.2. Survival. . . . . . . . . . . . . . . . . . . . . 22
18.3. Counterparts. . . . . . . . . . . . . . . . . . . 22
18.4. Headings. . . . . . . . . . . . . . . . . . . . . 23
18.5. Binding Effect, Benefit and Assignment. . . . . . 23
18.6. Severability. . . . . . . . . . . . . . . . . . . 23
18.7. Governing Law.. . . . . . . . . . . . . . . . . . 23
18.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. . 24
18.9. WAIVER OF JURY TRIAL. . . . . . . . . . . . . . 24
<PAGE>
EXHIBITS
Exhibit A - Purchasers and Amounts Purchased
Exhibit B - Form of Bridge Note
Exhibit C - Form of Seller Note
Exhibit D - Certificate of Designation for Series B Preferred
Stock
Exhibit E - Form of Warrant
<PAGE>
NOTE, PREFERRED STOCK & WARRANT PURCHASE AGREEMENT
dated as of July 31, 1995 by and between SA Holdings, Inc., a
Delaware corporation (the "Company"), and the Purchaser listed on
the signature page of this Agreement (the "Purchaser").
W I T N E S S E T H:
In consideration of the mutual covenants and agreements
set forth herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties agree as follows:
SECTION 1. SALE AND PURCHASE OF NOTES AND WARRANTS
(a) The Company agrees to sell to the Purchaser and,
subject to the terms and conditions hereof and in reliance upon the
representations and warranties of the Company contained herein or
made pursuant hereto, the Purchaser agrees to purchase from the
Company on the Closing Date specified in Section 2 hereof, (i) a
Note or Notes in the aggregate principal amount set forth opposite
the Purchaser's name on Exhibit A hereto, (ii) a number of shares
of Series B Cumulative Convertible Preferred Stock set forth
opposite the Purchaser's name on Exhibit A and (iii) a Warrant for
the number of shares of the Company's common stock set forth
opposite the Purchaser's name on Exhibit A hereto. The aggregate
purchase price to be paid to the Company by the Purchaser for such
Notes, such Preferred Stock and such Warrants is 100% of the
principal amount of the Notes to be purchased by the Purchaser,
which amount will be allocated in accordance with Section 1(d)
hereof.
(b) As used herein, "Notes" means (i) the aggregate of
up to Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000)
principal amount of the Company's Subordinated Notes Due October 1,
1996 (the "Bridge Notes") and (ii) the aggregate of up to One
Million Five Hundred Thousand Dollars ($1,500,000) principal amount
of the Company's Subordinated Notes Due July 30, 1996 (the "Seller
Notes"), in each case, issued pursuant to the Purchase Agreements
(defined in Section l(d) hereof), together with all Notes issued in
exchange therefor or replacement thereof. Each Bridge Note will be
substantially in the form of the Bridge Note set forth as Exhibit
B hereto and each Seller Note will be substantially in the form of
the Seller Note set forth as Exhibit C hereto. Interest on the
Bridge Notes shall accrue from the Closing Date and shall be
payable in cash on October 31, 1995, January 31, 1996, April 30,
1996, July 31, 1996 and at maturity at the interest rate and in the
manner specified in the
<PAGE>
form of Bridge Note attached hereto as Exhibit B. Interest on the
Seller Notes shall accrue from the Closing Date and shall be
payable in cash on January 31, 1996 and at maturity at the interest
rate and in the manner specified in the form of Seller Note
attached hereto as Exhibit C. All amounts due payable pursuant to
the Seller Notes and all other obligations of the Company
thereunder are subject to the setoff and reduction in accordance
with the provisions of the Stock Purchase Agreement.
(c) As used herein, "Series B Preferred Stock" means the
Series B Cumulative Convertible Preferred Stock, $.00001 par value
per share, of the Company, an aggregate of 125,000 shares of which
are being issued on the date hereof. Each share of the Series B
Preferred Stock is convertible into 8 shares of the Company's
Common Stock at $1.25 per share, such number and such price being
subject to adjustment as provided in the Certificate of
Designations for the Series B Preferred Stock, the form of which is
attached hereto as Exhibit D.
(d) As used herein, "Warrants" means the aggregate of
Common Stock Purchase Warrants evidenced by certificates
substantially in the form of Exhibit D hereto, together with all
Warrants issued in exchange therefor or replacement thereof. Such
Warrants in the aggregate initially entitle the holders thereof to
purchase 1,050,000 shares of the Company's common stock, $.0001 par
value per share, at a exercise price of $1.25 per share, such
number and such price being subject to adjustment as provided in
the form of Warrant attached hereto as Exhibit E. The purchase
price for shares of Common Stock under the Warrant may, at the
option of the holder of a Note or Notes, be payable by exchange of
all or a portion of the principal amount of a Note or Notes.
(e) The Notes, Series B Preferred Stock and Warrants are
being sold to the purchasers listed on Exhibit A hereto (the
"Purchasers") pursuant to this Agreement and other agreements dated
as of the date hereof (collectively, as from time to time assigned,
supplemented or amended or as the terms thereof may be waived, the
"Purchase Agreements"). All the Purchase Agreements are identical
except as to the identities of the respective Purchasers. The sale
of Notes, Series B Preferred Stock and Warrants to each Purchaser
under each Purchase Agreement is a separate sale, and no Purchaser
shall have any liability under any Purchase Agreement other than
the Purchase Agreement to which it is a party.
SECTION 2. THE CLOSING
(a) Subject to the terms and conditions hereof, the
closing of the purchase and sale of the Notes, Series B Preferred
Stock and the Warrants to be purchased by the Purchaser (the
"Closing") will take place at the offices of Arter, Hadden, Johnson
& Bromberg, Dallas, Texas, on July 31, 1995 or such other time and
date as shall be mutually agreed to by the Company and the Selling
Shareholders for the closing of the acquisition of the stock of US
Communications, Inc., a Texas corporation ("USC"), provided that
<PAGE>
the Closing shall occur no later than August 3, 1995. Such date
and time are referred to herein as the "Closing Date.
(b) Subject to the terms and conditions hereof, on the
Closing Date (i) the Company will deliver to the Purchaser (A) a
Note or Notes, substantially in the forms of Exhibits B and C
hereto, payable to the Purchaser (or its nominee as notified to the
Company), and dated the Closing Date, in the aggregate principal
amount set forth opposite the Purchaser's name on Exhibit A, (B) a
certificate registered in the name of the Purchaser (or its nominee
as notified to the Company), evidencing the number of shares of
Series B Preferred Stock set forth opposite the Purchaser's name on
Exhibit A, and (C) a Warrant or Warrants evidenced by certificates
substantially in the form of Exhibit E hereto and dated the Closing
Date, for the number of shares of the Company's Common Stock set
forth opposite the Purchaser's name on Exhibit A, and (ii) upon the
Purchaser's receipt thereof, the Purchaser will deliver to the
Company certificates representing shares of common stock, $10.00
par value par share, of USC (the "USC Common Stock"), having a
value equal to the purchase price for such Notes and Warrants. The
Notes, Series B Preferred Stock and Warrants are being issued as
partial consideration to the Purchaser in accordance with the Stock
Purchase Agreement.
SECTION 3. DEFINITIONS
(a) For purposes of this Agreement and the Notes and the
Warrants, the following definitions shall apply (such definitions
to be equally applicable to both the singular and plural forms of
the terms defined):
"Affiliate" means (a) any director, officer or employee
of the Company, (b) any Person who, individually or with his
or her immediate family or any other Affiliate, directly or
indirectly, beneficially owns or holds 5% or more of the
voting interest in the Company, or (c) any corporation,
partnership or other Person in which any Person described
above owns a 5% or greater equity interest. Without limiting
the generality of the foregoing, Jack W. Matz, Jr. shall at
all times be deemed to be an Affiliate of the Company.
"Agreement" means this Agreement (together with exhibits
and schedules) as from time to time assigned, supplemented or
amended or as the terms hereof may be waived.
"Business Day" means any day, other than a Saturday,
Sunday or legal holiday, on which banks in the State of Texas
are open for business.
"Closing" has the meaning set forth in Section 2 hereof.
<PAGE>
"Closing Date" has the meaning set forth in Section 2
hereof.
"Code" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations and
interpretations thereunder.
"Commission" means the Securities and Exchange Commission
and any other similar or successor agency of the federal
government administering the Securities Act or the Securities
Exchange Act.
"Common Stock" means that class of stock or other
equivalent evidences of ownership of a corporation, the
holders of which are entitled to vote generally to elect the
Board of such corporation. "Common Stock" includes without
limitation the Common Stock, $.0001 par value per share, of
the Company.
"Company" means SA Holdings, Inc., a Delaware
corporation, its successors and assigns.
"Bridge Note" or "Bridge Notes" has the meaning set forth
in Section 1(b) hereof.
"Event of Default" has the meaning set forth in
Section 12(a) hereof.
"Loan Document" has the meaning provided in Section 4.1
hereof.
"Majority Noteholders" means the holder or holders, at
the time, of at least a majority of the aggregate principal
amount of the Notes then outstanding.
"Note" or "Notes" has the meaning set forth in Section
l(b) hereof.
"Outstanding" or "outstanding" means, when used with
reference to the Notes, Series B Preferred Stock or Warrants
as of a particular time, all Notes, shares of Series B
Preferred Stock or Warrants as the case may be, theretofore
duly issued except (i) Notes, shares of Series B Preferred
Stock or Warrants theretofore reported as lost, stolen,
mutilated or destroyed or surrendered for transfer, exchange
or replacement, in respect of which new or replacement Notes,
shares of Series B Preferred Stock or Warrants have been
issued by the Company, (ii) Notes theretofore paid in full,
(iii) shares of Series B Preferred Stock theretofore redeemed
or converted, (iv) Warrants theretofore fully exercised and
(v) Notes theretofore cancelled by the Company, whether upon
exercise of a Warrant in whole or in part or otherwise; except
<PAGE>
that for the purpose of determining whether holders of the
requisite principal amount of Notes, shares of Series B
Preferred Stock or Warrants have made or concurred in any
declaration, waiver, consent, approval, notice, annulment of
acceleration or other communication under this Agreement or
under any Notes, shares of Series B Preferred Stock or
Warrants, any Notes, shares of Series B Preferred Stock or
Warrants registered in the name of, as well as Notes, shares
of Series B Preferred Stock or Warrants owned beneficially by,
the Company, any Subsidiary or any of their Affiliates (other
than one of the Purchasers) shall not be deemed to be
outstanding.
"Payment Default" has the meaning set forth in Section
9.3(b) hereof.
"Person" or "person" means an individual, corporation,
company, partnership, firm, association, joint venture, trust,
unincorporated organization, government, governmental body,
agency, political subdivision or other entity.
"Potential Default" means a condition or event which,
with notice or lapse of time or both, would constitute an
Event of Default.
"Preferred Stock" means any class of the capital stock of
a corporation (whether or not convertible into any other class
of such capital stock) which has any right, whether absolute
or contingent, to receive dividends or other distributions of
the assets of such corporation (including, without limitation,
amounts payable in the event of the voluntary or involuntary
liquidation, dissolution or winding-up of such corporation),
which right is superior to the rights of another class of the
capital stock of such corporation. "Preferred Stock" includes
without limitation (i) the Series A Cumulative Preferred
Stock, $.00001 par value per share, of the Company and (ii)
the Series B Cumulative Preferred Stock, $.00001 par value per
share, of the Company.
"Public Offering" means an underwritten public offering
of equity securities of the Company.
"Purchase Agreements" has the meaning set forth in
Section l(d) hereof.
"Purchaser" means the person who accepts and agrees to
the terms hereof as indicated by such person's signature (as
"the undersigned Purchaser") on the execution page of this
Agreement, together with successors and assigns.
"Purchasers" has the meaning set forth in Section l(d)
hereof, together with successors and assigns.
<PAGE>
"Rule 144" means (i) Rule 144 under the Securities Act as
such Rule is in effect from time to time, and (ii) any
successor rule, regulation or law, as in effect from time to
time.
"Rule 144A" means (i) Rule 144A under the Securities Act
as such Rule is in effect from time to time and (ii) any
successor rule, regulation or law, as in effect from time to
time.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, and the rules, regulations and
interpretations thereunder.
"Security Agreements" means each of the Security
Agreements dated the date hereof between each of the Company
and the subsidiaries of the Company, and Howard Maddera, as
agent for the Purchaser and each of the other holders of the
Notes (as from time to time assigned, supplemented or amended
or as the terms thereof may be waived).
"Securities Exchange Act" means the Securities Exchange
Act of 1934, as amended from time to time, and the rules,
regulations and interpretations thereunder.
"Seller Note" or "Seller Notes" has the meaning set forth
in Section 1(b) hereof.
"Senior Credit Agreement" means the Term Credit Agreement
between the Company and NorWest Bank Minnesota, National
Association, dated as of the date hereof.
"Senior Indebtedness" means the principal of, premium, if
any, and interest on Indebtedness of the Company under the
Senior Credit Agreement, and any renewals, modifications,
refundings or extensions of any such Indebtedness.
"Senior Lender" means Norwest Bank Minnesota, National
Association, its successors and assigns.
"Share" or "Shares" means shares of the Company's Common
Stock, or other securities which can be obtained or have been
obtained by conversion of the Series B Preferred Stock and 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.
"Stock Purchase Agreement" means the Stock Purchase
Agreement by and among the Company, USC, Bill L. Johnson,
Howard Maddera, Marianne Reed and NTS Communications, Inc.,
dated as of June 30, 1995, as amended.
"Subordination Agreement" means the Subordination
Agreement by the Purchasers and NorWest Bank of Minnesota,
National Association, dated as of the date hereof.
"Subsidiary", with respect to any Person, means any
corporation, association or other entity of which more than
80% of the total voting power of shares of stock or other
equity interests entitled (without regard to the occurrence of
any contingency or any pledge of shares) to vote in the
election of directors, managers or trustees thereof is, at the
time as of which any determination is being made, owned or
controlled, directly or indirectly, by such Person or one or
more of its Subsidiaries, or both. The term "Subsidiary" or
"Subsidiaries" when used herein without reference to any
particular Person, means a Subsidiary or Subsidiaries of the
Company.
"USC" means US Communications, Inc., a Texas corporation.
"USC Common Stock" has the meaning set forth in
Section 2(b) hereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchaser as
follows:
4.1. Corporate Existence and Power.
The Company is a business corporation duly incorporated,
validly existing and in good standing under the laws of Delaware,
and is duly licensed or qualified to transact business in Texas and
Delaware. The Company has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its
obligations under, the Agreement, the Warrants and the Notes or any
documents required thereunder (hereinafter the "Loan Documents").
4.2. Authorization of Borrowing; No Conflict as to Law
or Agreements.
The execution, delivery and performance by the Company of
the Loan Documents have been duly authorized by all necessary
corporate action of the Company and do not and will not (i) require
any consent or approval of the shareholders of the Company, or any
authorization, consent or approval by any governmental department,
commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) violate any provision of any law, rule or regulation
or of any order, writ, injunction or decree presently in effect
having applicability to the Company or of its Articles of
Incorporation or Bylaws or (iii) result in a breach of or
<PAGE>
constitute a default under any material indenture or loan or credit
agreement or any other agreement, lease or instrument to which the
Company is a party or by which it or its properties may be bound or
affected.
4.3. Legal Agreements.
The Loan Documents constitute the legal, valid and
binding obligations of the Company enforceable against the Company
in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and other similar laws
relating to the rights of creditors generally.
4.4. Capitalization.
The authorized capital stock of the Company consists of
(i) 50,000,000 shares of Common Stock, $.0001 par value per share,
and (ii) 12,500,000 shares of Convertible Preferred Stock, $.00001
par value per share, of which, after giving effect to the
Certificate of Designations, 166,667 shares have been designated as
Series A Convertible Preferred Stock and 125,000 shares have been
designated as Series B Convertible Preferred Stock. The shares of
the Company's Common Stock issuable upon conversion of the Series
B Preferred Stock and upon exercise or conversion of the Warrants
will, when issued, be duly authorized, validly issued, fully paid
and non-assessable.
SECTION 5. REPRESENTATIONS OF THE PURCHASER
(a) The Purchaser hereby makes the representations and
warranties to the Company contained in this Section 5(a), as of the
date hereof. The Purchaser has all requisite power, authority and
legal right to execute, deliver, enter into, consummate and perform
this Purchase Agreement. For purposes of the application of state
securities laws, each Purchaser represents that it is a resident of
the state set forth in the Purchaser's address on the signature
page of this Agreement. The Purchaser has duly executed and
delivered this Purchase Agreement, and this Purchase Agreement
constitutes the legal, valid and binding obligation of the
Purchaser enforceable against the Purchaser in accordance with its
terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to the rights of
creditors generally.
(b) The Purchaser hereby represents to the Company (as
of the date hereof and as of the Closing Date hereunder) that the
Purchaser is capable of evaluating the risk of its investment in
the Notes, the Series B Preferred Stock and the Warrants being
purchased by it and is able to bear the economic risk of such
investment, that (except as the Purchaser has otherwise advised the
Company and the Purchaser's counsel in writing) it is purchasing
<PAGE>
the Notes, the Series B Preferred Stock and the Warrants to be
purchased by it for its own account, and that the Notes, the Series
B Preferred Stock and the Warrants are being purchased by the
Purchaser for investment and not with a present view to any
distribution thereof in violation of any applicable securities
laws. It is understood that the disposition of the Purchaser's
property shall at all times be within the Purchaser's control. If
the Purchaser should in the future decide to dispose of any of its
Notes, Series B Preferred Stock, Warrants or Shares, it is
understood that it may do so but only in compliance with the
Securities Act and applicable securities laws. The Purchaser
hereby represents to the Company (as of the date hereof and as of
the Closing Date hereunder) that the Purchaser is an "accredited
investor" as defined in Rule 501(a) under the Securities Act.
(c) The Purchaser has received and reviewed copies
of the Company's Forms 10-K (year ending 1994), 10-Q (quarter
ending March 31, 1994), 8-Ks filed in calendar year 1995 prior to
the date hereof, and a copy of the Confidential Information
Memorandum dated March 1995 prepared by Jesup & Lamont Capital
Markets, Inc.
SECTION 6. OPTIONAL PREPAYMENTS
(a) Subject to the other provisions of this Section 6,
at any time, the Company may prepay in cash all or any part of the
principal amount of outstanding Notes. Any prepayment of Notes
under this Section 6 shall be at a price equal to (1) the aggregate
principal amount of the Notes to be prepaid, plus (2) all accrued
and unpaid interest on the principal amount of the Notes to be
prepaid.
(b) The right of the Company to prepay Notes pursuant to
this Section 6 shall be conditioned upon its giving notice of
prepayment to the holders of Notes not less than thirty (30) days
and not more than sixty (60) days prior to the date upon which the
prepayment is to be made specifying (i) the registered holder of
each Note to be prepaid, (ii) the aggregate principal amount being
prepaid, (iii) the date of such prepayment and (iv) the accrued and
unpaid interest (to but not including the date upon which the
prepayment is to be made).
SECTION 7. AFFIRMATIVE COVENANTS OF THE COMPANY
So long as the Notes shall remain unpaid, the Company
will comply with the following requirements, unless the Purchaser
shall otherwise consent in writing:
7.1. Reservation of Shares. There have been reserved,
and the Company shall at all times keep reserved, free from
preemptive rights, out of its authorized Common Stock, $.0001 par
<PAGE>
value per share, a number of shares of Common Stock, $.0001 par
value per share, sufficient to provide for the conversion of the
Series B Preferred Stock and for the exercise of the Warrants.
7.2. Listing of Shares. If any shares of the Company's
Common Stock are listed on any national securities exchange (or on
the National Association of Securities Dealers, Inc., Automated
Quotation System or comparable system), then the Company will take
such action as may be necessary, from time to time, to list Shares,
as the case may be, on such exchange (or system as the case may
be).
7.3. Securities Exchange Act Registration. As soon as
the Company is either required to or does file a registration
statement with respect to the Company's Common Stock under Section
6 of the Securities Act or Section 12(b) or Section 12(g),
whichever is applicable, of the Securities Exchange Act, then,
thereafter:
(a) The Company will maintain effective a registration
statement (containing such information and documents as the
Commission shall specify and otherwise complying with the
Securities Exchange Act) under Section 12(b) or Section 12(g),
whichever is applicable, of the Securities Exchange Act, with
respect to the Company's Common Stock, as the case may be, and will
file on time such information, documents and reports as the
Commission may require or prescribe for companies whose stock has
been registered pursuant to such Section 12(b) or Section 12(g),
whichever is applicable.
(b) The Company will, upon the request of any holder of
Shares, make whatever other filings with the Commission, or
otherwise make generally available to the public such financial and
other information, as any such holder may deem reasonably necessary
or desirable in order to enable such holder to be permitted to sell
Shares pursuant to the provisions of Rule 144.
7.4. Private Placement Status. Neither the Company nor
any agent nor other Person acting on the Company's behalf will do
or cause to be done (or will omit to do or to cause to be done) any
act which act (or which omission) would result in bringing the
issuance or sale of the Notes, the Series B Preferred Stock or the
Warrants within the provisions of Section 5 of the Securities Act
or the filing, notification or reporting requirements of any state
securities law (other than in accordance with a registration and
qualification of Shares pursuant to Section 15 hereof).
7.5. Delivery of Information. If a holder of Shares
proposes to transfer any such Shares pursuant to Rule 144A, the
Company agrees to provide (upon the request of such holder or the
prospective transferee) to such holder and (if requested) to the
prospective transferee any information concerning the Company and
<PAGE>
its Subsidiaries which is required to be delivered to any
transferee of such Shares pursuant to such Rule 144A.
7.6. Financial Reports. The Company will deliver to the
Purchaser:
(a) as soon as made available, copies of all Forms
10-K, 10-Q, 8-K, financial statements, proxy statements, reports
which the Company has sent to its stockholders or filed with the
Commission or any national securities exchange; and
(b) copies of any notice sent to the Senior Lender
notifying the Senior Lender of the occurrence of a default or event
of default under the terms of the Senior Credit Agreement, together
with any supporting statements attached thereto and delivered to
the Senior Lender.
SECTION 8. CONDITIONS TO PURCHASER'S OBLIGATIONS
The Purchaser's obligation to purchase the Notes, the
Series B Preferred Stock and the Warrants hereunder is subject to
satisfaction of the following conditions at the Closing (any of
which may be waived by the Purchaser):
8.1. Security Agreements. The Company and each of its
subsidiaries shall have entered into their respective Security
Agreements satisfactory in form and substance to the Purchaser.
8.2. Accuracy of Representations and Warranties. The
representations and warranties of the Company herein or in any
certificates or document delivered pursuant hereto shall be correct
and complete on and as of the Closing Date with the same effect as
though made on and as of the Closing Date (after giving effect to
the transactions contemplated by this Agreement).
8.3. Proceedings. All corporate and other proceedings
in connection with the transactions contemplated by the Purchase
Agreements, the Notes, the Series B Preferred Stock, the Warrants,
the Security Agreements, and all documents incident thereto, shall
be in form and substance satisfactory to the Purchaser and its
counsel, and the Purchaser shall have received all such originals
or certified or other copies of such documents as the Purchaser or
its counsel may reasonably request.
8.4. Acquisition. The Company and the Senior Lender
shall have executed and delivered the Senior Credit Agreement,
which shall be in full force and effect and the Company shall have
made a borrowing thereunder sufficient, together with proceeds from
the sale of Series A Preferred Stock, Series B Preferred Stock and
the Notes to close under the terms of the Acquisition Agreement.
<PAGE>
SECTION 9. SUBORDINATION
All payments of principal and interest and any other
amounts due pursuant to the Notes shall be payable subject to the
terms and conditions of the Subordination Agreement.
SECTION 10. AMENDMENT; WAIVER; CONSENT
(a) This Agreement, the Notes, the Series B Preferred
Stock and the Warrants may be amended (or any provision hereof or
thereof waived) only with the written consent of the Majority
Noteholders; provided, however, that no such amendment or waiver
shall (i) extend the fixed maturity of any Note, reduce the rate or
change the time of payment of interest thereon, reduce the
principal amount thereof, reduce any premium thereon, change the
currency in which payments are to be made, hereof, change the
provisions of Section 6 hereof, without the consent each holder of
each Note so affected (and the consent of each holder of each Share
so affected in the case of a change to Section 6 hereof) or (ii)
modify the definition in Section 3 hereof of "Majority Noteholders"
or modify clause (i) of this proviso, without the consent of the
holders of all the Notes then outstanding (and the consent of the
holders of all then outstanding Shares with respect to the
parenthetical in clause (i) of this proviso) or (iii) increase the
percentage of the amount of the Notes, the holders of which may
declare the Notes to be due and payable under Section 13 hereof,
without the consent of the holders of all the Notes then
outstanding.
(b) The Company agrees that all holders of Notes, all of
the holders of the Series B Preferred Stock and all holders of
Warrants shall be notified by the Company in advance of any
proposed amendment or waiver, but failure to give such notice shall
not in any way affect the validity of any such amendment or waiver.
In addition, promptly after obtaining the written consent of the
holders herein provided, the Company shall transmit a copy of any
amendment or waiver which has been adopted to all holders of Notes,
all holders of Series B Preferred Stock and all holders of Warrants
then outstanding, but failure to transmit copies shall not in any
way affect the validity of any such amendment or waiver.
(c) The Company and each holder of a Note, Series B
Preferred Stock or Warrants then or thereafter outstanding shall be
bound by any amendment or waiver effected in accordance with the
provisions of this Section 10, whether or not any Note shall have
been marked to indicate such modification, but any Note issued
thereafter shall bear a notation as to any such modification (but
the failure to bear any such notation shall not affect the validity
of any such subsequently issued Note, which shall be enforceable in
accordance with its terms subject to all such modification).
<PAGE>
(d) Any provision of this Agreement relating to the
consent, determination, decision or waiver of a holder or holders
of Notes, Series B Preferred Stock or Warrants or of the Majority
Noteholders, as the case may be, means such holder's or Majority
Noteholders', as the case may be, consent, determination, decision
or waiver, as the case may be, in such holder's or Majority
Noteholders', as the case may be, sole discretion.
SECTION 11. EXCHANGE OF NOTES; ACCRUED INTEREST;
CANCELLATION OF SURRENDERED NOTES; REPLACEMENT
(a) Subject to Section 14 hereof, at any time at the
request of any holder of one or more of the Notes made to the
Company at the Company's office, the Company at its expense will
issue and deliver (insured to such holder's reasonable
satisfaction) to or upon the order of the holder in exchange
therefor new Notes, in such denomination or denominations as such
holder may request (which must be in denominations of $500,000 or
any larger multiple of $500,000, plus one Note in a lesser
denomination, if required), in aggregate principal amount equal to
the unpaid principal amount of the Note or Notes surrendered and
substantially in the form thereof, dated as of the date to which
interest has been paid on the Note or Notes surrendered or; if no
interest has yet been so paid thereon, then dated the date of the
Note or Notes so surrendered) and payable to such person or persons
or order as may be designated by such holder. Any such new Note
shall bear any notation required by Section 10(c), hereof (but any
failure to bear any such notation shall not affect the validity or
enforceability of such Note).
(b) In the event that any Note is surrendered to the
Company upon the conversion of all or a portion of any Note, or
upon a prepayment under Section 6 hereof, the Company shall pay all
accrued and unpaid interest on such Note on such portion thereof
and thereupon interest shall cease to accrue upon that portion of
the principal amount of such Note which was used for conversion or
which was prepaid, and the right to receive, and any right or
obligation to make, any prepayment on such portion of the principal
amount pursuant to Section 6 hereof shall terminate all upon the
date of such conversion or prepayment and upon presentation and
surrender of such Note to the Company.
(c) Upon the conversion in whole or in part of any Note
or upon any prepayment under Section 6 hereof, if only a portion of
the principal amount of a Note is used in such conversion or is
prepaid, then such Note shall be surrendered to the Company and the
Company shall simultaneously execute and deliver to or on the order
of the holder thereof, at the expense of the Company, a new Note or
Notes in principal amount equal to the unused or unpaid portion of
such Note.
<PAGE>
(d) All Notes or portions thereof which have been
converted, or which have been prepaid under Section 6 hereof, shall
be cancelled by the Company and no Notes shall be issued in lieu of
the principal amount so converted or prepaid.
(e) Upon receipt of evidence satisfactory to the Company
of the loss, theft, destruction or mutilation of any Note and, in
the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement reasonably satisfactory to the Company (if
requested by the Company and unsecured in the case of the Purchaser
or an institutional holder), or in the case of any such mutilation,
upon surrender of such Note (which surrendered Note shall be
cancelled by the Company), the Company will issue and deliver
(insured to the holder's reasonable satisfaction) a new Note of
like tenor in lieu of such lost, stolen, destroyed or mutilated
Note as if the lost, stolen, destroyed or mutilated Note were then
surrendered for exchange.
SECTION 12. DEFAULTS
(a) Any of the following shall constitute an "Event of
Default":
(i) the Company defaults in the payment of (A) any
part of the principal of or premium, if any, on any Note, when
the same shall become due and payable, whether at maturity or
by acceleration or otherwise or (B) the interest on any Note,
when the same shall become due and payable, and such default
in the payment of interest shall have continued for five (5)
Business Days; or
(ii) the Company, or, with respect to the Security
Agreements, any of its subsidiaries, defaults in the
performance of any other agreement or covenant contained in
the Purchase Agreements, the Notes, the Certificate of
Designations for the Series B Preferred Stock, the Warrants or
any other agreement or covenant in favor of the holders of the
Notes, the Series B Preferred Stock or the Warrants in the
Security Agreements and such default or violation shall not
have been remedied within thirty (30) days after written
notice thereof shall have been given to the Company by any
holder or holders of the Notes (the Company to give forthwith
to all other holders of the Notes at the time outstanding
written notice of the receipt of such notice, specifying the
default referred to therein); or
(iii) any representation or warranty by the Company
or any of its subsidiaries herein or in their respective
Security Agreements or in any certificate delivered by the
Company pursuant hereto or pursuant to any other Purchase
<PAGE>
Agreement proves to have been incorrect in any material
respect when made; or
(iv) with respect to any Indebtedness of the
Company or any Subsidiary in an aggregate principal amount of
at least One Million dollars ($1,000,000), such Indebtedness
shall become due and payable prior to its stated or scheduled
maturity as a result of acceleration or optional or mandatory
prepayment for any reason; or
(v) a final judgment or order which, either alone
or together with other final judgments or orders against the
Company and its Subsidiaries, exceeds an aggregate of Five
Hundred Thousand dollars ($500,000) is rendered by a court of
competent jurisdiction against the Company or any Subsidiary
and such judgment or order shall have continued undischarged
or unstayed for thirty (30) days after entry thereof,
(vi) the Company or any Subsidiary shall make an
assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts; or a receiver or
trustee is appointed for the Company or any Subsidiary or for
substantially all of its assets and, if appointed without its
consent, such appointment is not discharged or stayed within
thirty (30) days; or proceedings under any law relating to
bankruptcy, insolvency, or the reorganization or relief of
debtors are instituted by or against the Company or any
Subsidiary, and, if contested by it, are not dismissed or
stayed within thirty (30) days; or any writ of attachment or
execution or any similar process is issued or levied against
the Company or any Subsidiary or any significant part of its
property and in not released, stayed, bonded or vacated within
thirty (30) days after its issue or levy; or the Company or
any Subsidiary takes corporate action in furtherance of any of
the foregoing;
(b) If an Event of Default occurs pursuant to any of
clauses (i) through (v) of Section 12(a) hereof, then and in each
such event the Majority Noteholders may at any time (unless all
Events of Default shall theretofore have been waived or remedied)
at its or their option, by written notice or notices to the
Company, declare all the Notes to be due and payable. Upon any
such declaration or upon the occurrence of an Event of Default
pursuant to clause (vi) of Section 12(a) hereof (in which case no
declaration is required), all Notes shall forthwith immediately
mature and become due and payable, together with interest accrued
thereon all without presentment, demand, protest or notice, all of
which are hereby waived. However, if, at any time after the
principal of the Notes shall so become due and payable and prior to
the date of maturity stated in the Notes, all arrears of principal
and interest on the Notes (with interest at the rate specified in
the Notes on (any overdue principal and any overdue premium and, to
<PAGE>
the extent legally enforceable, on an overdue interest) shall be
paid to the holders of Notes by or for the account of the Company,
then the Majority Noteholders, by written notice or notices to the
Company, may waive such Event of Default and its consequences and
rescind or annul such declaration, provided, that at the time of
such waiver, rescission or annulment (x) no judgment or decree
shall have been entered for the payment of any amounts due to any
holder of Notes under the Notes or the Purchase Agreements and (y)
all other Events of Default or Potential Defaults under the
Purchase Agreements shall have been waived pursuant to this Section
12(b) or cured. No waiver pursuant to the preceding sentence shall
extend to or affect any subsequent Event of Default or impair any
right or remedy resulting therefrom.
(c) If any holder of a Note shall give any notice or
take any other action with respect to a claimed Potential Default
or Event of Default, the Company, forthwith upon receipt of such
notice or obtaining knowledge of such other action, will give
written notice thereof to all other Holders of the Notes then
outstanding, describing such notice or other action and the nature
of the claimed Potential Default, or Event of Default.
SECTION 13. REMEDIES
Upon the occurrence of an Event of Default or at any time
thereafter until such Event of Default is cured to the written
satisfaction of the Purchaser, the Purchaser may exercise any or
all of the following rights and remedies:
(a) The Purchaser may, by notice to the Company, declare
the entire unpaid principal amount of the Notes, all interest
accrued and unpaid thereon, and all other amounts payable under
this agreement to be forthwith due and payable, whereupon the
Notes, all such accrued interest and all such amounts shall become
and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby
expressly waived by the Company.
(b) The Purchaser may, without notice to the Company and
without further action, apply any and all money owing by the
Purchaser to the Company to the Payment of the Notes, including
interest accrued thereon, and of all other sums then owing by the
Company hereunder.
(c) The Purchaser may exercise and enforce its rights
and remedies under the other Loan Documents.
(d) The Purchaser may exercise any other rights and
remedies available to it by law or agreement.
<PAGE>
SECTION 14. RESTRICTIONS ON TRANSFER
(a) Each holder of a Note, Series B Preferred Stock or
Warrants by acceptance thereof agrees that it will not sell or
otherwise dispose of any Notes, Series B Preferred Stock, Warrants
or Shares unless (i) such Notes, Series B Preferred Stock, Warrants
or Shares have been registered under the Securities Act and, to the
extent required, under any applicable state securities laws, or
(ii) such Notes, Series B Preferred Stock, Warrants or Shares are
sold in accordance with the applicable requirements and limitations
of Rule 144 or Rule 144A and any applicable state securities laws
or (iii) the Company has been furnished with an opinion or opinions
from counsel to such holder (which counsel and opinion(s) shall be
reasonably satisfactory to the Company and which counsel may be
inside counsel. of such holder) to the effect that registration
under the Securities Act is not required for the transfer as
proposed (which opinion may be conditioned upon the transferee's
assuming the obligations of a holder of Notes, Series B Preferred
Stock, Warrants or Shares under this Section) or (iv) the Company
has been furnished with a letter from the Division of Corporate
Finance of the Commission to the effect that such Division would
not recommend any action to the Commission if such proposed
transfer were effected without a registration statement effective
under the Securities Act. The Company agrees that within five (5)
Business Days after receipt of any opinion referred to in (iii)
above, it will notify the holder supplying such opinion whether
such opinion is satisfactory to the Company's counsel.
(b) The Company may endorse on all Notes, Series B
Preferred Stock certificates, Warrant certificates and Share
certificates a legend stating or referring to the transfer
restrictions contained in paragraph (a) above; provided, that no
such legend shall be endorsed on any Notes, Series B Preferred
Stock certificates, or Share certificates which, when issued, are
no longer subject to the restrictions of this Section 14; provided,
further, that if a transfer is made pursuant to clause (i), (ii)
(other than pursuant to Rule 144A) or (iv) of paragraph (a) or if
an opinion of counsel provided pursuant to clause (iii) of
paragraph (a) concludes that the legend is no longer necessary, the
Company will deliver upon transfer Notes, Series B Preferred Stock
certificates, Warrant certificates or Share certificates, as the
case may be, without such legends.
SECTION 15. REGISTRATION RIGHTS
15.1. Intentionally Omitted.
<PAGE>
15.2. Piggyback Rights.
(a) If the Company at any time proposes to file a
registration statement under the Securities Act for any sales of at
least 300,000 shares (as such number may be adjusted from time to
time hereafter as a result of a stock split, combination, etc.) of
the Company's Common Stock (or any warrants, units, convertibles,
rights or other securities related or linked to any shares of the
Company's Common Stock) on behalf of the Company or otherwise, the
Company shall give written notice of such registration no later
than thirty (30) days before its filing with the Commission to all
holders of Series B Preferred Stock, Warrants and Shares; provided,
that registrations relating solely to securities to be issued by
the Company in connection with any employee stock option or
employee stock purchase or savings plan on Form S-8 (or successor
forms) or on Form S-4 (or successor forms) under the Securities Act
shall not be subject to this Section 15.2. If holders of Series B
Preferred Stock, Warrants or Shares so request within thirty (30)
days, the Company shall include in any such registration the Shares
held or to be held after conversion of the Series B Preferred Stock
or exercise of Warrants by such holders and requested to be
included in such registration, subject to Section 15.2(b) hereof.
(b) The Company shall not be obligated to so include the
Shares to the extent any underwriter or underwriters of such
securities being otherwise registered by the Company determines in
good faith that the inclusion of such Shares would jeopardize the
successful sale of such other securities proposed to be sold by
such underwriter or underwriters, in which case holders of Series
B Preferred Stock, Warrants or Shares desiring to participate in
such registration shall be entitled to participate in any such
reduced number of Shares (if any) which may be included in such
registration (along with other holders of Common Stock exercising
piggyback rights with respect to such registration) in proportion
to the amount of shares of the Company's Common Stock held by such
holders (whether held directly or through the right to obtain
Shares upon conversion of Series B Preferred Stock or upon exercise
of Warrants held by such holders).
15.3. Expenses.
Subject to the limitations contained in this Section 15.3
and except as otherwise specifically provided in this Section 15,
the entire costs and expenses of registration and qualification
pursuant to Section 15.2 hereof shall be borne by the Company.
Such costs and expenses shall include, without limitation,
underwriting fees or commissions in connection with the
registration and qualification pursuant to Section 15.2 hereof
(other than with respect to the Shares to be sold by the holders of
Series B Preferred Stock, Warrants or Shares, as to which
underwriting discounts and commissions shall be paid by the selling
<PAGE>
holders), the fees and expenses of counsel for the Company and of
its accountants, all other costs, fees and expenses of the Company
incident to the preparation, printing, registration and filing
under the Securities Act of the registration statement and all
amendments and supplements thereto, up to $20,000 of reasonable
fees and expenses of one counsel to the holders of Series B
Preferred Stock, Warrants or Shares relating to such registration
and qualification, the cost of furnishing copies of each
preliminary prospectus, each final prospectus and each amendment or
supplement thereto to underwriters, dealers and other purchasers of
the Shares and the costs and expenses (including reasonable fees
and disbursements of counsel) incurred in connection with the
qualification of the Shares under the Blue Sky laws of various
jurisdictions; provided, however, that if any jurisdiction in which
the Company shall qualify or register in connection with the
proposed sale of the Shares shall require that expenses incurred in
connection with the qualification or registration of such Shares in
that jurisdiction be borne in whole or in part by the holders
selling those Shares, then such expenses shall be payable by such
holders pro rata to the extent required by such jurisdiction and in
the event that any such holder is required by any such applicable
jurisdiction to bear such expense, the Company shall promptly
reimburse each such holder for the amount paid therefor.
15.4. Procedures.
(a) In the case of each registration or qualification
pursuant to Section 15.2, the Company will keep all holders of
Series B Preferred Stock, Warrants or Shares advised in writing as
to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise any
such holder, upon request, of the progress of such proceedings.
(b) At the Company's expense, the Company will keep each
registration and qualification under this Section 15 effective (and
in compliance with the Securities Act) by such action as may be
necessary or appropriate for a period of one hundred twenty (120)
days after the effective date of such registration statement,
including, without limitation, the filing of post-effective
amendments and supplements to any registration statement or
prospectus necessary to keep the registration statement current and
the further qualification under any applicable Blue Sky or other
state securities laws to permit such sale or distribution, all as
requested by such holder or holders.
(c) The Company will immediately notify each holder on
whose behalf Shares have been registered pursuant to this
Section 15, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening
of any event as a result of which the prospectus included in such
registration-statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact
<PAGE>
required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing.
(d) The Company will furnish to each holder on whose
behalf Shares have been registered pursuant to this Section 15 a
signed counterpart, addressed to such holder, of an opinion of
counsel for the Company, dated the effective date of such
registration statement.
(e) Without limiting any other provision hereof, in
connection with any registration of Shares under this Section 15,
the Company will use its reasonable best efforts to comply with the
Securities Act, the Securities Exchange Act and all applicable
rules and regulations of the Commission, and will make generally
available to its securities holders, as soon as reasonably
practicable, an earnings statement covering a period of at least
twelve (12) months, beginning with the first month of the first
fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
(f) In connection with any registration of Shares under
this Section 15, the Company will provide a transfer agent and
registrar for the Shares not later than the effective date of such
registration statement.
(g) The Company shall not be required to include any of
the holders' Shares in an underwritten offering of the Company's
securities unless such holders accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by
it, which terms shall include customary provisions with respect to
indemnification and contribution and customary representations and
warranties by the Company (which shall be made to and for the
benefit of the underwriters and the holders of Shares to be sold in
such offering).
(h) In connection with the preparation and filing of
each registration statement registering Shares under this
Section 15, the Company will give the holders of Series B Preferred
Stock, Warrants or Shares on whose behalf such Shares are to be so
registered and their underwriters, if any, and their respective
counsel and accountants, the opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each amendment
thereof or supplement thereto, and will give each of them such
access to its books and records and such opportunities to discuss
the business of the Company with its officers, its counsel and the
independent public accountants who have certified its financial
statements, as shall be reasonably necessary, in the reasonable
opinion of such holders or such underwriters or their counsel, in
order to conduct a reasonable and diligent investigation within the
meaning of the Securities Act.
<PAGE>
15.5. Indemnification.
The Company will indemnify and hold harmless each holder
of Series B Preferred Stock, Warrants or Shares and any underwriter
(as defined in the Securities Act) for such holder and each person,
if any, who controls the holder or underwriter within the meaning
of the Securities Act against any losses, claims, damages or
liabilities, joint or several, and expenses (including reasonable
attorneys' fees and expenses and reasonable costs of investigation)
to which the holder or underwriter or such controlling person may
be subject, under the Securities Act or otherwise, insofar as any
thereof arise out of or are based upon (a) any untrue statement or
alleged untrue statement of a material fact contained in (i) any
registration statement under which such Shares were registered
under the Securities Act pursuant to Section 15.2 hereof, any
prospectus or preliminary prospectus contained therein, or any
amendment or supplement thereto, or (ii) any other document
incident to the registration of the Shares under the Securities Act
or the qualification of the Shares under any state securities laws
applicable to the Company, or (b) the omission or alleged omission
to state in any item referred to in the preceding clause (a) a
material fact required to be stated therein or necessary to make
the statements therein not misleading or (c) any violation or
alleged violation by the Company of the Securities Act, the
Securities Exchange Act or any other federal or state securities
law, rule or regulation applicable to the Company and relating to
action or inaction by the Company in connection with any such
registration or qualification, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are based
upon any untrue statement or alleged untrue statement or omission
or alleged omission based upon information furnished to the Company
in writing by such holder or by any underwriter for such holder
expressly for use therein (with respect to which information such
holder or underwriter shall so indemnify and hold harmless the
Company, any underwriter for the Company and each person, if any,
who controls the Company or such underwriter within the meaning of
the Securities Act).
15.6. Holdback.
Except for transfers made in transactions exempt from the
registration requirements under the Securities Act pursuant to
Section 4(2) thereof or pursuant to Rule 144A, the Company and each
holder of Series B Preferred Stock, Warrants or Shares agrees not
to offer, sell, contract to sell or otherwise dispose of any of
their respective shares of the Company's Common Stock within seven
(7) days before or one hundred eighty (180) days after the date of
any final prospectus relating to any underwritten public offering
of the Company's Common Stock on behalf of the Company or
otherwise, in each case except pursuant to such prospectus or with
the written consent of underwriters for such offering.
<PAGE>
SECTION 16. HOME OFFICE PAYMENTS
As long as the Purchaser or any payee named in the Notes
delivered to the Purchaser on the Closing Date, or any
institutional holder which is a direct or indirect transferee from
the Purchaser or such payee, shall be the holder of any Note or
Series B Preferred Stock, the Company will make payments (whether
at maturity, upon mandatory or optional prepayment, or otherwise)
of principal and interest on the Note and cash payments of
dividends on the Series B Preferred Stock, (i) by check payable to
the order of the holder of any such Note or Series B Preferred
Stock, duly mailed or delivered to the Purchaser at its address
specified in Exhibit A, or at such other address as the Purchaser
or such other holder may designate in writing, or (ii) if requested
by the Purchaser or such other holder, by wire transfer to the
Purchaser's or such other holder's (or its nominees) account at any
bank or trust company in the United States of America,
notwithstanding any contrary provision herein or in any Note with
respect to the place of payment. IF THE PURCHASER HAS PROVIDED AN
ADDRESS ON EXHIBIT A HERETO FOR PAYMENTS BY WIRE TRANSFER, THEN THE
PURCHASER SHALL BE DEEMED TO HAVE REQUESTED WIRE TRANSFER PAYMENTS
UNDER THE PRECEDING CLAUSE (ii). All such payments shall be made
in federal or other immediately available funds.
SECTION 17. NOTICES
Unless otherwise expressly specified or permitted by the
terms hereof, all notices, requests, elections, demands, consents
and other communications hereunder or with respect to any Note
shall be in writing and shall be delivered by hand or shall be sent
by telecopy (and if sent by telecopy, shall be confirmed by
registered mail, return receipt requested, or by overnight mail or
courier, postage and delivery charges prepaid), to the following
addresses:
(a) if to the Purchaser, at the Purchaser's address as
set forth in Exhibit A hereto, or at such other address as may be
furnished to the Company by the Purchaser in writing; or
(b) if to any other holder of a Note, share of Series B
Preferred Stock or Warrant, at such address as the payee or
registered holder thereof shall have designated to the Company in
writing; or
(c) if to the Company, 1912 Avenue K, Suite 100, Plano,
Texas 75074-5959, attention: Chief Executive Officer, or at such
other address as may be furnished in writing by the Company to the
Purchaser and to the other holders of Notes, Series B Preferred
Stock or Warrants.
<PAGE>
Whenever any notice is required to be given hereunder, such notice
shall be deemed given and such requirement satisfied only when such
notice is delivered or, if sent by telecopier, when received.
Addresses may be changed upon notice of such change given as
provided in this Section 18.
SECTION 18. MISCELLANEOUS
18.1. Entire Agreement.
The Purchase Agreements and, upon the closing hereunder,
the Notes and Warrants issued hereunder, the Certificate of
Designations for the Series B Preferred Stock, together with the
Security Agreements and any further agreements entered into by the
Purchaser and the Company and, with respect to the Security
Agreements, its subsidiaries at the closing hereunder, contain the
entire agreement among the Purchaser and the Company and its
subsidiaries, and supersede any prior oral or written agreements,
commitments, terms or understandings, regarding the subject matter
hereof.
18.2. Survival.
All agreements, representations and warranties contained
in this Agreement, the Notes, the Certificate of Designations for
the Series B Preferred Stock, the Warrants, the Security Agreements
or any document or certificate delivered pursuant hereto or thereto
shall survive, and shall continue in effect following, the
execution and delivery of the Purchase Agreements, the closings
hereunder and thereunder, any investigation at any time made by the
Purchaser or on its behalf or by any other Person, the issuance,
sale and delivery of the Notes, the Series B Preferred Stock and
the Warrants, any disposition thereof and any payment or
cancellation of the Notes.
18.3. Counterparts.
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.
18.4. Headings.
The headings and captions in this Agreement and the table
of contents are for convenience of reference only and shall not
define, limit or otherwise affect any of the terms or provisions
hereof.
<PAGE>
18.5. Binding Effect, Benefit and Assignment.
(a) 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.
(b) The Company may not assign any of its obligations,
duties or rights under this Agreement, or under the Notes or
Warrants issued hereunder, except with the Purchaser's consent.
(c) In addition to any assignment by operation of law,
the Purchaser may assign, in whole or in part, any or all of its
rights (and/or obligations) under this Agreement or under the
Notes, under the Certificate of Designations for the Series B
Preferred Stock, under the Warrants to any permitted transferee of
any or all of its Notes, Series B Preferred Stock, Warrants or
Shares, and (unless such assignment expressly provides otherwise)
any such assignment shall not diminish the rights the Purchaser
would otherwise have under this Agreement or with respect to any
remaining Notes, Series B Preferred Stock Warrants or Shares held
by the Purchaser or with respect to any indemnity or reimbursement
rights (or with respect to any other provisions which expressly
provide that they survive any termination of this Agreement).
18.6. Severability.
Any provision hereof or of the Notes, Series B Preferred
Stock or Warrants which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof or thereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the
parties hereby waive any provision of law which may render any
provision hereof prohibited or unenforceable in any respect.
18.7. Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York (other than any
conflict of laws rules which might result in the application of the
laws of any other jurisdiction).
18.8. CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
EACH PARTY CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN THE STATE OF TEXAS IN CONNECTION WITH ANY
CONTROVERSY RELATED TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT,
WAIVES ANY ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT CONVENIENT,
AND AGREES THAT ANY LITIGATION INITIATED BY ANY OF THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT SHALL BE
<PAGE>
VENUED IN EITHER THE DISTRICT COURT OF DALLAS COUNTY, TEXAS, OR THE
UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF TEXAS.
18.9. WAIVER OF JURY TRIAL. THE COMPANY AND THE
PURCHASER HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN
ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
SA HOLDINGS, INC.
By:________________________________
Name:
Title:
Address in Accepted and agreed to as of the date
State of first above written by the undersigned
Residence: Purchaser:
[ ]
By:________________________________
Name:
Title:
<PAGE>
Exhibit A
<TABLE>
<CAPTION>
Shares of
Amount Amount Series B Number of
of of Preferred Shares in
Purchaser Bridge Note Seller Note Stock Warrant
- --------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Howard Maddera $1,100,000 $600,000 50,000 420,000
Bill L. Johnson $1,100,000 $600,000 50,000 420,000
Marianne Reed $550,000 $300,000 25,000 210,000
</TABLE>
Exhibit B
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY APPLICABLE LAW OR REGULATION OF ANY STATE
AND IS NOT TRANSFERABLE EXCEPT UPON THE CONDITIONS SPECIFIED IN
SECTION 14 OF THE PURCHASE AGREEMENT REFERRED TO HEREIN.
SA HOLDINGS, INC.
Subordinated Note
Due October 1, 1996
Dated July 31, 1995
New York, New York
FOR VALUE RECEIVED, the undersigned, SA HOLDINGS, INC.,
a Delaware corporation (herein, together with any successor,
referred to as the "Company"), hereby promises to pay to Howard
Maddera or registered assigns, the principal sum of One Million One
Hundred Thousand Dollars ($1,100,000) on October 1, 1996, with
interest (computed on the basis of the actual number of days
elapsed over a 360-day year) on the unpaid balance of such
principal sum from the date hereof at eleven percent (11%) per
annum (the "Interest Rate") payable in arrears, commencing on the
date hereof and thereafter in arrears on October 31, 1995, January
31, 1996, April 30, 1996, July 31, 1996 and at maturity, commencing
on July 31, 1995, until the entire principal amount hereof shall
have become due and payable.
If any payment of interest due hereunder becomes due and
payable on a day which is not a Business Day (as defined in the
Purchase Agreement referred to below), the due date thereof shall
be the next preceding day which is a Business Day, and the interest
payable on such next preceding Business Day shall be the interest
which would otherwise have been payable on the due date which was
not a Business Day.
Payments of principal and interest shall be made in
lawful money of the United States of America, at the principal
office of the Company at 1912 Avenue K, Suite 100, Plano, Texas
75074-5959, or at such other place as the Purchaser shall have
designated for such purpose to the Company in writing, may be paid
by check
<PAGE>
mailed, or shall be made by wire transfer, to the Purchaser, all as
provided in the Purchase Agreement referred to below, to the
address or account designated by the holder hereof for such
purpose.
This Note is one of a duly authorized issue of Notes
issued pursuant to Note & Warrant Purchase Agreements dated as of
July 31, 1995 between the Company and the Purchaser named in each
such Note & Warrant Purchase Agreement. Such Note & Warrant
Purchase Agreement under which this Note has been issued is herein
referred to as the "Purchase Agreement".
This Note is entitled to the benefits of the security
interests created by the Security Agreements among Howard Maddera,
as agent for the Purchasers, the Company and the subsidiaries of
the Company.
This Note is subject to the provisions of and is entitled
to the benefits of the Purchase Agreement. The Purchase Agreement
provides, inter alia, for prepayments of principal upon the terms
set forth therein. Each holder of this Note, by accepting the
same, agrees to and shall be bound by the provisions of the
Purchase Agreement.
This Note is transferable only upon the terms and
conditions specified in the Purchase Agreement.
In case an Event of Default (as defined in the Purchase
Agreement) shall occur and be continuing, the principal of this
Note may be declared due and payable in the manner and with the
effect provided in the Purchase Agreement.
From and after the occurrence of an Event of Default, the
Company shall pay all costs of collection and reasonable attorney's
fees incurred by the Purchaser in connection with the collection of
amounts due hereunder.
No reference herein to the Purchase Agreement and no
provision hereof or thereof shall alter or impair the obligations
of the Company, which is absolute and unconditional, to pay the
principal hereof and interest hereon at the respective times and
places specified herein and in the Purchase Agreement.
This Note is delivered in and shall be construed and
enforced in accordance with and governed by the laws of the State
of New York (other than any conflict of laws rules which might
result in the application of the laws of any other jurisdiction).
Subject to the provisions of Section 14 of the Purchase
Agreement, the Company may treat the person in whose name this Note
is registered as the owner and holder of this Note for the purpose
of receiving payment of principal of, premium, if any, and interest
<PAGE>
on this Note and for all other purposes whatsoever, and the Company
shall not be affected by any notice to the contrary (except that
the Companies shall comply with the provisions of Section 14 of the
Purchase Agreement regarding the issuance of a new Note or Notes to
permitted transferees).
IN WITNESS WHEREOF, SA Holdings, Inc. has caused this
Note to be dated and to be executed and issued on its behalf by its
duly authorized officer.
SA HOLDINGS, INC.
By_________________________
Name:
Title:
<PAGE>
Exhibit C
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR UNDER ANY APPLICABLE LAW OR REGULATION OF ANY STATE
AND IS NOT TRANSFERABLE EXCEPT UPON THE CONDITIONS SPECIFIED IN
SECTION 14 OF THE PURCHASE AGREEMENT REFERRED TO HEREIN.
SA HOLDINGS, INC.
Subordinated Note
Due July 30, 1996
Dated July 31, 1995
New York, New York
FOR VALUE RECEIVED, the undersigned, SA HOLDINGS, INC.,
a Delaware corporation (herein, together with any successor,
referred to as the "Company"), hereby promises to pay to Howard
Maddera or registered assigns, the principal sum of Six Hundred
Thousand Dollars ($600,000) on July 30, 1996, with interest
(computed on the basis of the actual number of days elapsed over a
360-day year) on the unpaid balance of such principal sum from the
date hereof at eleven percent (11%) per annum (the "Interest Rate")
payable in arrears, commencing on the date hereof and thereafter at
maturity, commencing on July 31, 1995, until the entire principal
amount hereof shall have become due and payable. The Company shall
pay the principal amount in equal installments of $300,000 and
accrued and unpaid interest on January 31, 1996 and at maturity.
If any payment of interest due hereunder becomes due and
payable on a day which is not a Business Day (as defined in the
Purchase Agreement referred to below), the due date thereof shall
be the next preceding day which is a Business Day, and the interest
payable on such next preceding Business Day shall be the interest
which would otherwise have been payable on the due date which was
not a Business Day.
This Note, and the obligations of the Company hereunder,
are subject to setoff and reduction in accordance with the
provisions of that certain Stock Purchase Agreement by and among
the Company,
<PAGE>
U.S. Communications, Inc., Bill L. Johnson, Howard Maddera,
Marianne Reed and NTS Communications, Inc. dated as of June 30,
1995, as amended.
Payments of principal and interest shall be made in
lawful money of the United States of America, at the principal
office of the Company at 1912 Avenue K, Suite 100, Plano, Texas
75074-5959, or at such other place as the Purchaser shall have
designated for such purpose to the Company in writing, may be paid
by check mailed, or shall be made by wire transfer, to the
Purchaser, all as provided in the Purchase Agreement referred to
below, to the address or account designated by the holder hereof
for such purpose.
This Note is one of a duly authorized issue of Notes
issued pursuant to Note & Warrant Purchase Agreements dated as of
July 31, 1995 between the Company and the Purchaser named in each
such Note & Warrant Purchase Agreement. Such Note & Warrant
Purchase Agreement under which this Note has been issued is herein
referred to as the "Purchase Agreement".
This Note is entitled to the benefits of the security
interests created by the Security Agreements among Howard Maddera,
as agent for the Purchasers, the Company and the subsidiaries of
the Company.
This Note is subject to the provisions of and is entitled
to the benefits of the Purchase Agreement. The Purchase Agreement
provides, inter alia, for prepayments of principal upon the terms
set forth therein. Each holder of this Note, by accepting the
same, agrees to and shall be bound by the provisions of the
Purchase Agreement.
This Note is transferable only upon the terms and
conditions specified in the Purchase Agreement.
In case an Event of Default (as defined in the Purchase
Agreement) shall occur and be continuing, the principal of this
Note may be declared due and payable in the manner and with the
effect provided in the Purchase Agreement.
From and after the occurrence of an Event of Default, the
Company shall pay all costs of collection and reasonable attorney's
fees incurred by the Purchaser in connection with the collection of
amounts due hereunder.
No reference herein to the Purchase Agreement and no
provision hereof or thereof shall alter or impair the obligations
of the Company, which is absolute and unconditional, to pay the
principal hereof and interest hereon at the respective times and
places specified herein and in the Purchase Agreement.
<PAGE>
This Note is delivered in and shall be construed and
enforced in accordance with and governed by the laws of the State
of New York (other than any conflict of laws rules which might
result in the application of the laws of any other jurisdiction).
Subject to the provisions of Section 14 of the Purchase
Agreement, the Company may treat the person in whose name this Note
is registered as the owner and holder of this Note for the purpose
of receiving payment of principal of, premium, if any, and interest
on this Note and for all other purposes whatsoever, and the Company
shall not be affected by any notice to the contrary (except that
the Companies shall comply with the provisions of Section 14 of the
Purchase Agreement regarding the issuance of a new Note or Notes to
permitted transferees).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, SA Holdings, Inc. has caused this
Note to be dated and to be executed and issued on its behalf by its
duly authorized officer.
SA HOLDINGS, INC.
By________________________
Name:
Title:
<PAGE>
Exhibit D
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
($.00001 PAR VALUE PER SHARE)
of
SA HOLDINGS, INC.
Pursuant to Section 151(g) of the
General Corporation Law of the
State of Delaware
I, Jack W. Matz, Jr., Chief Executive Officer of SA
Holdings, Inc. (hereinafter called the "Corporation"), a
corporation organized and existing under and by virtue of the
provisions of the General Corporation Law of the State of Delaware,
DO HEREBY CERTIFY:
FIRST: The Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), of the Corporation authorizes the
issuance of 12,500,000 shares of preferred stock, $.00001 par value
per share ("Preferred Stock"), in one or more series, and further
authorizes the Board of Directors of the Corporation to provide by
resolution for the issuance of shares of Preferred Stock in one or
more series not exceeding the aggregate number of shares of
Preferred Stock authorized by the Certificate of Incorporation and
to determine with respect to each such series, the voting powers,
if any (which voting powers if granted may be full or limited),
designations, preferences, the relative, participating, optional
and other rights, and the qualifications, limitations and
restrictions appertaining thereto.
SECOND: A resolution providing for and in connection
with the issuance of the Preferred Stock was duly adopted by the
Board of Directors of the Corporation pursuant to authority
conferred on the Board of Directors by the provisions of the
Certificate of Incorporation as aforesaid, which resolution
provides as follows:
RESOLVED: that the Board of Directors, pursuant to
authority vested in it by the provisions of the Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), of
SA Holdings, Inc. (the "Corporation"), hereby authorizes the
<PAGE>
issuance of a series of convertible preferred stock ("Convertible
Preferred Stock") of the Corporation and hereby establishes the
powers, designations, preferences, the relative, participating,
optional and other rights, and the qualifications, limitations and
restrictions appertaining thereto in addition to those set forth in
such Certificate of Incorporation (or otherwise provided by law) as
follows (the following, referred to hereinafter as "this
resolution" or "this Certificate of Designations", is to be filed
as part of a Certificate of Designations under Section 151(g) of
the General Corporation Law of the State of Delaware):
1. General.
(a) Designation and Number. The designation of
Convertible Preferred Stock created by this resolution shall be
Series B Cumulative Convertible Preferred Stock, $.00001 par value
per share, of the Corporation (hereinafter referred to as the
"Series B Preferred Stock"), and the number of shares of Series B
Preferred Stock which the Corporation shall be authorized to issue
shall be 250,000 shares.
(b) Priority. The Series B Preferred Stock shall rank
prior to the Common Stock (as hereinafter defined), and to all
other capital stock of the Corporation (now or hereafter authorized
or issued), other than the Series A Cumulative Convertible
Preferred Stock of the Corporation (the "Series A Preferred Stock")
with which it shall rank pari passu, in each case as to dividends
or upon liquidation, dissolution or winding up.
2. Certain Definitions.
(a) For purposes of this Certificate of Designations,
the following terms shall have the meanings indicated:
(i) "Business Day" means any day other than a
Saturday, Sunday or a day on which banking institutions
in the State of Texas are authorized or obligated by law
or executive order to close.
(ii) "Commission" means the Securities and Exchange
Commission and any other similar or successor agency of
the federal government administering the Securities Act
or the Securities Exchange Act.
(iii) "Common Shares" has the meaning set forth in
Section 7(a) hereof.
(iv) "Common Stock" means the Corporation's Common
Stock, as presently authorized by the Certificate of
Incorporation and as such Common Stock may hereafter be
changed or for which such Common Stock may be exchanged
after giving effect to the terms of such change or
<PAGE>
exchange (by way of reorganization, recapitalization,
merger, consolidation or otherwise).
(v) The phrase "current conversion price" has the
meaning set forth in Section 7(h) hereof.
(vi) "Event of Default" means (A) the failure by the
Corporation to redeem shares of Series B Preferred Stock
in accordance with the provisions of Section 6(a) or 6(b)
hereof for any reason, and such failure in such
redemption of such shares shall have continued for one
hundred eighty (180) days or (B) the equivalent of one
year's dividend payments on all outstanding shares of
Series B Preferred Stock shall be accrued and unpaid, if
funds are legally available for the payment therefor, and
such failure has continued for sixty (60) days.
(vii) "full cumulative dividends" means as of any
date the amount of accumulated, accrued and unpaid
dividends payable on shares of Series B Preferred Stock
as provided by Section 4 hereof, whether or not earned or
declared and whether or not there shall be funds legally
available for the payment thereof.
(viii) "Junior Preferred Stock" means capital stock
(other than Common Stock) of the Corporation ranking
junior to the Series B Preferred Stock as to dividends
and upon liquidation, dissolution or winding up.
(ix) "Person" or "person" means an individual,
corporation, partnership, firm, association, joint
venture, trust, unincorporated organization, government,
governmental body, agency, political subdivision or other
entity.
(x) "Preferred Liquidation Value", has the meaning
set forth in Section 5(a) hereof.
(xi) "Purchase Agreements" means the separate Share
Purchase Agreements dated as of July 31, 1995 between the
Corporation and each of the original holders of shares of
Series B 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).
(xii) "Qualified Level of Public Trading" shall
exist if, and only if, on the date of notice of the
Corporation's election of its right to redeem the shares
of Series B Preferred Stock pursuant to Section 6(b)
hereof, (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.,
<PAGE>
Automated Quotation System Level 1, National Market
System ("National Market System") or in the over-the-
counter market, and (b) either (i) the last reported sale
price regular way for Common Shares on the principal
national securities exchange on which Common Shares are
listed or admitted to trading or, if Common Shares are
not listed or admitted to trading on any national
securities exchange, on the National Market System, or
(ii) if Common Shares are listed or admitted to trading
on neither any national securities exchange nor on the
National Market System, 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 (i) or (ii))
have equalled or exceeded an amount per share equal to at
least 250% of the then current conversion price for at
least twenty (20) consecutive trading days.
(xiii) "Senior Credit Agreement" means the Term
Credit Agreement between the Corporation and NorWest Bank
Minnesota, National Association, dated as of July 31,
1995.
(xiv) "Subsidiary" means any corporation,
association or other entity of which more than 80% of the
total voting power of shares of stock or other equity
interests entitled (without regard to the occurrence of
any contingency or any pledge of shares) to vote in the
election of directors, managers or trustees thereof is,
at the time as of which any determination is being made,
owned or controlled, directly or indirectly, by the
Corporation or one or more of its Subsidiaries, or both.
The words "hereof", "herein" and "hereunder" and
other words of similar import refer to this Certificate of
Designations as a whole and not to any particular Section or other
subdivision.
(c) References herein to the Certificate of
Incorporation include such Certificate as amended by this
Certificate of Designations.
3. Voting Rights.
(a) Generally No Voting Rights. Except as otherwise
provided specifically herein or by law, each share of Series B
Preferred Stock shall have no voting rights. To the extent holders
of shares of Series B Preferred Stock have the right to vote, each
holder of shares of Series B Preferred Stock shall be entitled to
that number of votes for each share of Series B Preferred Stock
held by such holder equal to the number of Common Shares obtainable
<PAGE>
upon conversion of such share of Series B Preferred Stock pursuant
to Section 7 hereof at the current conversion price on the record
date for the vote which is being taken or, if no such record date
is established, at the date such vote is taken or any written
consent of stockholder is solicited.
(b) Consent Required. So long as any shares of the
Series B Preferred Stock remain outstanding, unless the vote or
consent of the holders of a greater number of shares shall then be
required by law, the affirmative vote or consent of the holders of
at least fifty-one percent (51%) of all of the shares of Series B
Preferred Stock at the time outstanding, voting separately as a
class, given in person or by proxy either in writing (as may be
permitted by law and the Certificate of Incorporation and By-laws
of the Corporation) or at any special or annual meeting, shall be
necessary to permit, effect or validate the taking of any of the
following actions by the Corporation:
(i) 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, dissolution or
winding up;
(ii) amend the Certificate of Incorporation of the
Corporation, 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 or
preferences of the holders of the Series B Preferred
Stock; except that the Corporation may amend the
Certificate of Incorporation and/or the By-laws of the
Corporation 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 Junior Preferred
Stock; or
(iii) amend this Certificate of Designations.
(c) Additional Voting Rights. (i) So long as
there are at least 100,000 shares of Series B Preferred Stock then
outstanding (subject to adjustment after the date hereof for stock
splits, combinations, etc.), upon the occurrence of an Event of
Default, the holders of the Series B Preferred Stock shall be
entitled to elect (as provided below) a number of directors to the
Board of Directors of the Corporation equal to the number obtained
by (x) multiplying the (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 Corporation
and then (y) rounding such number down to the nearest whole number
<PAGE>
(except for any number below the number 1, such number shall be
rounded upwards to 1 and not downward to zero). The size of the
Board of Directors of the Corporation 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
(hereinafter in this Section 3(c) called the "Class Voting Period")
commencing upon the occurrence of such Event of Default and ending
at such time upon which no Event of Default shall continue, the
holders of at least fifty-one percent (51%) of the then outstanding
shares of Series B Preferred Stock, by the affirmative vote in
person or by proxy at a special meeting of stockholders called for
such purpose (or at any adjournment thereof) by holders of at least
25% of the then outstanding shares of Series B Preferred Stock or
at any annual meeting of stockholders, or by written consent
delivered to the Secretary of the Corporation, with the holders of
such Series b Preferred Stock voting as a class and with each such
share of Series B Preferred Stock having one vote, shall be
entitled, as a class, to the exclusion of the holders of all other
classes or series of capital stock of the Corporation, to elect
such directors.
(ii) At any time when such voting right under this
Section 3(c) shall have vested in the holders of shares of
Series B Preferred Stock entitled to vote thereon, and if such
right shall not already have been initially exercised, an
officer of the Corporation shall, upon the written request of
at least 25% of the holders of record of shares of the Series
B Preferred Stock then outstanding, addressed to the Treasurer
(or similar officer) of the Corporation, call a special
meeting of holders of shares of the Series B Preferred Stock.
Such meeting shall be held at the earliest practicable date
upon the notice required for annual meetings of stockholders
at the place for holding annual meetings of stockholders of
the Corporation or, if none, at a place designated by the
Treasurer (or similar officer) of the Corporation. If such
meeting shall not be called by the proper officers of the
Corporation within 30 days after the personal service of such
written request upon the Treasurer (or similar officer) of the
Corporation, or within 30 days after mailing the same within
the United States, by registered mail, addressed to the
Treasurer (or similar Officer) of the Corporation at its
principal office (such mailing to be evidenced by the registry
receipt issued by the postal authorities), then the holders of
record of at least 25% of the shares of Series B Preferred
Stock then outstanding may designate in writing any person to
call such meeting at the expense of the Corporation, and such
meeting may be called by such person so designated upon the
notice required for annual meetings of stockholders and shall
be held at the same place as is elsewhere provided in this
paragraph or, if none, at a place designated by the person
selected to call the meeting. Any holder of shares of Series
B Preferred Stock then outstanding that would be entitled to
<PAGE>
vote at such meeting shall have access to the stock books of
the Corporation for the purpose of causing a meeting of
stockholders to be called pursuant to the provisions of this
paragraph.
(iii) Any director who shall have been elected by the
holders of Series B Preferred Stock pursuant to this Section
3(c) may be removed at any time during a Class Voting Period,
by the vote of the holders of at least fifty-one percent (51%)
of all of the then outstanding shares of Series B Preferred
Stock, voting as a separate class in person or by proxy at a
special meeting of stockholders called for such purpose by
holders of at least 25% of the outstanding shares of Series B
Preferred Stock. Any director who shall have been elected by
the holders of Series B Preferred Stock may not be removed at
any time during a Class Voting Period without the consent of
the holders of at least fifty-one percent (51%) of all of the
outstanding shares of Series B Preferred Stock. Any vacancy
created by the removal, death or resignation of a director
elected by the holders of Series B Preferred Stock may be
filled during such Class Voting Period by the holders of at
least fifty-one percent (51%) of all of the outstanding shares
of Series B Preferred Stock by vote in person or by proxy at
a special meeting of stockholders of the Corporation called
for such purpose by holders of at least 25% of the outstanding
shares of Series B Preferred Stock.
(iv) During the Class Voting Period, other than to
increase the size of the Board of Directors in accordance with
clause (i) of this Section 3(c), the size of the Board of
Directors of the Corporation shall not otherwise be changed
without the vote of the holders of at least fifty-one percent
(51%) of all of the then outstanding shares of Series B
Preferred Stock, voting as a separate class.
(v) At the end of the Class Voting Period, the holders
of Series B Preferred Stock shall be automatically divested of
all voting power vested in them under this Section 3(c) except
as herein or by law expressly provided, subject always to the
subsequent vesting hereunder of such voting power in the
holders of Series B Preferred Stock upon the occurrence of any
subsequent Event of Default. The term of any director elected
pursuant to the provisions of this Section 3(c) shall in all
events expire at the end of the Class Voting Period and the
size of the Board shall be reduced accordingly.
4. Dividend Rights.
(a) General Dividend Obligations. The Corporation shall
pay, when and as declared by the Corporation's Board of Directors,
to the holders of the Series B Preferred Stock, out of the assets
of the Corporation legally available therefor, stock dividends,
<PAGE>
payable in shares of Series B Preferred Stock (or at the election
of the Corporation, 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 are provided
for in this Section 4. Notwithstanding the foregoing, without the
consent of a majority in interest of the lenders under the Senior
Credit Agreement, no dividends may be paid in cash to holders of
the Series A Preferred Stock so long as indebtedness is outstanding
and unpaid under the Senior Credit Agreement.
(b) Accrual of Dividends. Dividends on each share of
Series B Preferred Stock shall accrue cumulatively on a daily basis
from and including the date of issuance of such share. The date on
which the Corporation shall initially issue any share of Series B
Preferred Stock shall be deemed to be its "date of issuance"
regardless of the number of times transfer of such share of
Series B Preferred Stock shall be made on the stock records
maintained by or for the corporation and regardless of the number
of certificates which may be issued to evidence such share of
Series B Preferred Stock (whether by reason of transfer of such
share of Series B Preferred Stock or for any other reason).
(c) Dividend Rates. Dividends shall accrue cumulatively
on each share of Series B Preferred Stock from the date of issuance
at a rate per annum equal to $0.80 per share of Series B Preferred
Stock 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.
(d) Payment Dates. Full cumulative dividends on the
Series B Preferred Stock shall be payable annually, on the last day
of July in each year (each, a "Dividend Payment Date"). The first
Dividend Payment Date shall be July 31, 1996. If any Dividend
Payment Date shall be on a day other than a Business Day, then the
Dividend Payment Date shall be on the next succeeding Business Day.
An amount equal to the full cumulative dividends shall also be
payable (in cash), in satisfaction of such dividend obligation,
upon liquidation as provided under Section 5 hereof, and upon
redemption as provided under Section 6 hereof.
(e) Amounts Payable. The amount of dividends payable on
Series B Preferred Stock on each Dividend Payment Date shall be the
full cumulative dividends which are unpaid through and including
such Dividend Payment Date. Dividends which are not paid for any
reason whatsoever on a Dividend Payment Date shall cumulate until
paid and shall be payable on the next Dividend Payment Date on
which payment can lawfully be made (or upon liquidation or
redemption as provided herein). 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 Dividend Payment Date
<PAGE>
shall, in lieu of receiving such dividend payment on the 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. If for whatever reason all payments have not
been made with respect to any share of Series B Preferred Stock as
required by Section 5 on a distribution date or all payments have
not been made with respect to any share of Series B Preferred Stock
as required by Section 6 on a redemption date (other than because
of a failure by the holder thereof to tender such shares for
payment on such date), then, notwithstanding any other provision
hereof, dividends shall continue to accumulate on such outstanding
shares until paid. Dividends paid by payment-in-kind shall not be
paid in fractional shares (all such fractional shares being rounded
down to the nearest whole number of shares); such dividends so
rounded down shall be deemed paid in full).
(f) Priority. So long as any shares of the 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
Senior 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
shares of Series A Preferred Stock made to the holders of Series A
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 Corporation.
5. Liquidation Rights.
(a) Priority. (i) In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, before any payment or distribution of the assets of
the Corporation (whether from capital or surplus) shall be made to
or set apart for the holders of Common Stock or any other shares of
Junior Preferred Stock of the Corporation, the holders of the
shares of Series B Preferred Stock shall be entitled to receive
from the assets of the Corporation, whether represented by capital,
surplus, reserves or earnings, payment in cash of an amount (the
"Preferred Liquidation Value") equal to the greater of (i) $10.00
per share plus the value of accrued and unpaid dividends per share
through the date thereof or (ii) 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,
<PAGE>
dissolution or winding-up pursuant to Section 7 hereof. If the
assets distributable upon such liquidation, dissolution or winding-
up of the Corporation, whether voluntary or involuntary, shall be
insufficient to permit payment to the holders of the shares of
Series B Preferred Stock of the full preferential amounts as set
forth in this Section 5(a), then such assets shall be distributed
ratably among the shares of Series B Preferred Stock.
(ii) If, in the event of any liquidation, dissolution or
winding up of the Corporation, the Preferred Liquidation Value of
the Series B Preferred Stock and the Preferred Liquidation Value of
the Series A Preferred Stock are not paid in full, 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.
(b) Junior Stock. After payment shall have been made in
full to the holders of Series B Preferred Stock as provided in this
Section 5 upon any liquidation, dissolution or winding up of the
Corporation, the Common Stock and any other series or class or
classes of stock of the Corporation 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
distributed upon such liquidation, dissolution or winding up, and
the holders of Series B Preferred Stock shall not be entitled to
share therein.
(c) Notice of Liquidation. Written notice of any
liquidation, dissolution or winding up of the Corporation, stating
the payment date or dates when and the place or places where the
amounts distributable in such circumstances shall be payable, shall
be given (not less than thirty (30) days prior to any payment date
stated therein), to the holders of record of the Series B Preferred
Stock at their respective addresses as the same shall appear on the
stock register of the Corporation.
(d) Liquidation. 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 Corporation nor the consolidation, merger
or other business combination of the Corporation with or into one
or more corporations shall be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, of the
Corporation.
6. Redemption.
(a) Special 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 provided for below, at
the option of the Corporation, the Corporation may redeem all or
part of the shares of Series B Preferred Stock then outstanding at
<PAGE>
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.
Notwithstanding the foregoing, without the consent of a
majority in interest of the lenders under the Senior Credit
Agreement, the Corporation may not redeem all or any part of the
shares of Series B Preferred Stock pursuant to the preceding
sentence so long as indebtedness is outstanding and unpaid under
the Senior Credit Agreement.
Such option under this Section 6(b) shall be exercised by
written notice to the holders of Series B Preferred Stock given at
any time not less than thirty (30) days and not more than sixty
(60) days prior to the date of such redemption.
(b) Partial Redemption. In any such optional redemption
by the Corporation, if all shares of Series B Preferred Stock are
not being redeemed, then the number of shares of Series B Preferred
Stock to be redeemed shall be allocated among all shares of Series
B Preferred Stock so that the shares of Series B Preferred Stock
are redeemed from such holders in proportion to the respective
number of shares of Series B Preferred Stock held by each such
holder (or in such other proportion as agreed by all such holders
who accept the Corporation's offer).
7. Conversion.
(a) General. Each holder of a share of Series B
Preferred Stock shall have the right, at the option of such holder,
at any time to convert, upon the terms and provisions of this
Section 7, one or more shares of Series B Preferred Stock into
fully paid and nonassessable shares of Common Stock of the
Corporation or any capital stock or other securities into which
such Common Stock shall have been changed or any capital stock or
other securities resulting from a reclassification thereof (such
shares, the "Common Shares"). Such conversion of shares of Series
B Preferred Stock to Common Shares shall be made at a conversion
rate of one share of Series B Preferred Stock for a number of
Common Shares equal to (x) $10.00 per share plus the value of
accrued and unpaid dividends per share divided by (y) the then
current conversion price, as further described below. Every share
of Series B Preferred Stock shall continue to be convertible, in
whole or in part, even though the Corporation or a holder may have
given notice of redemption with respect to such share of Series B
Preferred Stock or any part thereof pursuant to Section 6 hereof,
so long as such share of Series B Preferred Stock and the holder's
election to convert shall have been delivered to the Corporation
pursuant to Section 7(c) hereof prior to the date fixed for such
redemption. The Common Shares issuable upon conversion of the
shares of Series B Preferred Stock, when such Common Shares shall
be issued in accordance with the terms hereof, are hereby declared
<PAGE>
to be and shall be duly authorized, validly issued, fully paid and
nonassessable Common Shares held by the holders thereof.
(b) Reference to "Conversion". For convenience, the
conversion pursuant to this Section 7 of all or a part of the
shares of Series B Preferred Stock into Common Shares is herein
sometimes referred to as the "conversion" of the shares of Series
B Preferred Stock.
(c) Surrender, Election and Payment. Each share of
Series B Preferred Stock may be converted by the holder thereof, in
whole, or in part, during normal business hours on any Business Day
by surrender of the share of Series B Preferred Stock, accompanied
by written evidence of the holder's election to convert the
preferred share of Series B Preferred Stock or portion thereof, to
the Corporation at its office designated pursuant to Section 9
hereof (or, if such conversion is in connection with an
underwritten public offering of Common Shares, at the location at
which the underwriting agreement requires that such Common Shares
(or shares of Series B Preferred Stock) be delivered). Payment of
the conversion price for the Common Shares specified in such
election shall be made by applying an aggregate number of shares of
Series B Preferred Stock equal to the number obtained by dividing
(x) the number of Common Shares specified in such election by (y)
the amount obtained by dividing (A) $10.00 by (B) the then current
conversion price. Such holder shall thereupon be entitled to
receive the number of Common Shares specified in such election
(plus cash in lieu of any fractional share as provided in Section
7(j) hereof).
(d) Effective Date. Each conversion of a share of
Series B Preferred Stock pursuant to Section 7(c) hereof shall be
deemed to have been effected immediately prior to the close of
business on the Business Day on which such share of Series B
Preferred Stock shall have been surrendered to the Corporation as
provided in Section 7(c) hereof (except that if such conversion is
in connection with an underwritten public offering of Common
Shares, then such conversion shall be deemed to have been effected
upon such surrender), and such conversion shall be at the current
conversion price in effect at such time. On each such day that the
conversion of a share of Series B Preferred Stock is deemed
effected, the person or persons in whose name or names any
certificate or certificates for Common Shares are issuable upon
such conversion, as provided in Section 7(e) hereof, shall be
deemed to have become the holder or holders of record of such
Common Shares.
(e) Share Certificates. As promptly as practicable
after the conversion of a share of Series B Preferred Stock, in
whole or in part, and in any event within five (5) Business Days
thereafter (unless such conversion is in connection with an
underwritten public offering of Common Shares, in which event
<PAGE>
concurrently with such conversion), the Corporation at its expense
(including the payment by it of any applicable issue, stamp or
other taxes, other than any income taxes) will cause to be issued
in the name of and delivered to the holder thereof or as such
holder may direct, a certificate or certificates for the number of
Common Shares to which such holder shall be entitled upon such
conversion on the effective date of such conversion plus cash in
lieu of any fractional shares as provided in Section 7(j) hereof.
(f) Acknowledgment of Obligation. The Corporation will,
at the time of or at any time after each conversion of a share of
Series B Preferred Stock, upon the request of the holder thereof or
of any Common Shares issued upon such conversion, acknowledge in
writing its continuing obligation to afford to such holder all
rights, if any, to which such holder shall continue to be entitled;
provided, that if any such holder shall fail to make any such
request, the failure shall not affect the continuing obligations of
the Corporation to afford such rights to such holder.
(g) Payment of Dividends. Within five (5) Business Days
after receipt of any share of Series B Preferred Stock and an
election to convert all or a portion of such share of Series B
Preferred Stock under Section 7(c) hereof, the Corporation will
pay, out of funds legally available therefor, to the holder of such
share of Series B Preferred Stock in shares of Series B 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 B Preferred Stock.
(h) Current Conversion Price. The term "conversion
price" shall mean initially $1.25 per Common Share, subject to
adjustment. The term "current conversion price" as used herein
shall mean the conversion price, as the same may be adjusted from
time to time as hereinafter provided, in effect at any given time.
In determining the current conversion price, the result shall be
expressed to the nearest $0.01, but any such lesser amount shall be
carried forward and shall be considered at the time of (and
together with) the next subsequent adjustment which, together with
any adjustments to be carried forward, shall amount to $0.01 per
Common Share or more.
(i) Reservation of Shares of Common Stock. The
Corporation shall at all times reserve and keep available out of
authorized but unissued the maximum number of shares of Common
Stock into which all shares of Series B Preferred Stock from time
to time outstanding are convertible, but shares of Common Stock
held in the treasury of the Corporation may, in its discretion, be
delivered upon any conversion of shares of Series B Preferred
Stock.
(j) Fractional Shares. No fractional shares of Common
Stock shall be issued upon conversion of Series B Preferred Stock,
<PAGE>
but, in lieu of any fraction of a Common Share which would
otherwise be issuable in respect of the aggregate number of shares
of Series B Preferred Stock surrendered by the holder thereof for
conversion, the holder shall have the right 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 of such
shares of Series B Preferred Stock. Dividends payable pursuant to
Section 7(g) above upon conversion of shares of Series B Preferred
Stock which are paid by payment-in-kind shall be paid with cash in
lieu of fractional shares to the extent of any fractional shares.
8. Adjustment to Conversion Price.
The conversion price shall be adjusted, from time
to time, as follows:
(a) Adjustments for Stock Dividends, Recapitalizations,
Etc. In case the Corporation shall, after August 1, 1995, (w) pay
a stock dividend or make a distribution (on or in respect of its
Common Stock) in shares of its Common Stock (except there shall be
no adjustment with respect to the payment by the Company of a stock
dividend to holders of its Common Stock of the shares of Strategic
Abstract & Title Corporation, a Texas corporation), (x) subdivide
the outstanding shares of its Common Stock, (y) combine the
outstanding shares of its Common Stock into a smaller number of
shares, or (z) issue by reclassification of shares of its Common
Stock, any shares of capital stock of the Corporation, 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 B Preferred Stock were to convert such share
of Series B Preferred Stock in full immediately after such action,
such holder would be entitled to receive the number of shares of
capital stock of the Corporation which such holder would have owned
immediately following such action had such share of Series B
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 this Section 8. An adjustment made
pursuant to this subsection (a) shall become effective
retroactively 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.
(b) Consolidation or Merger. Any recapitalization,
reorganization, reclassification, consolidation, merger, sale of
all or substantially all of the Corporation's assets to another
Person 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 referred to herein as
an "Organic Change." Prior to the consummation of any Organic
<PAGE>
Change, the Corporation shall make appropriate provision (in form
and substance reasonably satisfactory to holders of Series B
Preferred Stock representing a majority of the Series B Preferred
Stock then outstanding) to insure that each of the holders of the
Series B 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 B 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 B Preferred
Stock had such Organic Change not taken place.
In any such case, the Corporation shall make appropriate
provision (in form and substance reasonably satisfactory to the
holders of Series B Preferred Stock representing a majority of the
Series B Preferred Stock then outstanding) with respect to such
holders' rights and interest to insure that the provisions hereof
shall thereafter be applicable to the Series B Preferred Stock
(including, in the case of any such consolidation, merger or sale
in which the successor entity or purchasing entity is other than
the Corporation, an immediate adjustment of the conversion price to
reflect the value for the Series B Preferred Stock reflected by the
terms of such consolidation, merger or sale, if the value so
reflected would cause an increase to the conversion price in effect
immediately prior to such consolidation, merger or sale). The
Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor
entity (if other than the Corporation) 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 B Preferred Stock
representing a majority of the Series B Preferred Stock then
outstanding, the obligation to deliver to each such holder such
shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
(c) Notices. In case at any time
(i) the Corporation shall take any action which would
require an adjustment in the current conversion price pursuant
to Section 8(a); or
(ii) there shall be any reorganization, reclassification
or change of the Corporation's Common Stock (other than a
change in par value or from par value to no par value or from
no par value to par value), or any consolidation or merger to
which the Corporation is a party and for which approval of any
stockholders of the Corporation is required, or any sale,
<PAGE>
transfer or lease of all or substantially all of the assets of
the Corporation; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Corporation;
then, in any one or more of such cases, the Corporation shall give
written notice to the holders of the shares of Series B Preferred
Stock, not less than ten (10) days before any record date or other
date set for definitive action, of the date on which such action,
distribution, reorganization, reclassification, change, sale,
transfer, lease, consolidation, merger, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall
also set forth such facts as shall indicate the effect of any such
action (to the extent such effect may be known at the date of such
notice) on the current conversion price and the kind and amount of
the shares and other securities and property deliverable upon
conversion of the shares of Series B Preferred Stock. Such notice
shall also specify any date as of which the holders of the Common
Stock of record shall be entitled to exchange their Common Stock
for securities or other property deliverable upon any such
reorganization, reclassification, change, sale, transfer, lease,
consolidation, merger, dissolution, liquidation or winding-up, as
the case may be.
9. Notices. Unless otherwise expressly specified or
permitted by the terms hereof, all notices, requests, demands,
consents and other communications hereunder shall be in writing and
shall be delivered by hand or shall be sent by telex or telecopy
(confirmed by registered, certified or overnight mail or courier,
postage and delivery charges prepaid), to the following addresses:
(a) if to the holder of a share of Series B Preferred
Stock, at the holder's address as set forth in the stock register
of the Corporation, or at such other address as may have been
furnished to the Corporation by the holder in writing; or
(b) if to the Corporation, at SA Holdings, Inc., 1912
Avenue K, Suite 100, Plano, TX 75074-5959 or at such other address
as may have been furnished in writing by the Corporation to the
holders of the shares of Series B Preferred Stock.
Whenever any notice is required to be given hereunder, such notice
shall be deemed given and such requirement satisfied only when such
notice is delivered or, if sent by telex or telecopier, when
received, unless otherwise expressly specified or permitted by the
terms hereof.
<PAGE>
IN WITNESS WHEREOF, SA Holdings, Inc. caused this
Certificate of Designations to be signed by its Chief Executive
Officer this 31st day of July, 1995.
SA HOLDINGS, INC.
By_________________________
Jack W. Matz, Jr.
Chief Executive Officer
<PAGE>
Exhibit E
THIS WARRANT CERTIFICATE (AND THE COMMON STOCK OR OTHER SECURITIES
ISSUABLE UPON EXERCISE HEREOF) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE LAW OR REGULATION OF
ANY STATE AND ARE NOT TRANSFERABLE EXCEPT UPON THE CONDITIONS
SPECIFIED IN SECTION 14 OF THE PURCHASE AGREEMENT REFERRED TO
HEREIN.
SA HOLDINGS, INC.
Common Stock Purchase Warrant Certificate
Dated July 31, 1995
New York, New York
FOR VALUE RECEIVED, the undersigned, SA Holdings, Inc.,
a Delaware corporation (herein referred to as the "Company"),
hereby certifies and agrees that Howard Maddera, or its registered
assigns, is entitled to purchase from the Company up to an
aggregate of 420,000 duly authorized, validly issued, fully paid
and non-assessable shares of the Company's Common Stock, or any
stock into which such Common Stock shall have been changed or
converted or any stock or other securities resulting from a
reclassification thereof (the "Shares") at a purchase price per
Share of $1.25 at any time and from time to time from the date
hereof until the Expiration Date (as hereinafter defined). The
foregoing agreement and rights are all subject to the terms,
conditions and adjustments (in both the number of Shares and the
purchase price per Share) set forth below in this Warrant
Certificate.
This Warrant Certificate is one of the Common Stock
Purchase Warrant Certificates (the "Warrants", which term includes
all Warrants issued in substitution therefor) originally issued in
connection with the issue and sale by the Company on the date
hereof of (i) $2,750,000 aggregate principal amount of its
Subordinated Notes due October 1, 1996 and (ii) $1,500,000
aggregate principal amount of its Subordinated Notes due July 30,
1996 (together with all notes issued in substitution or replacement
therefor, the "Notes"). The Warrants and the Notes have been
issued pursuant to separate Note, Preferred Stock & Warrant
Purchase Agreements dated as of July 31, 1995 (collectively, the
"Purchase Agreement") between the Company and the purchasers named
therein (each, a "Purchaser"). The Warrants originally so issued
evidence rights to purchase an aggregate of 1,050,000 Shares at an
exercise price of $1.25 per share, subject to adjustment as
<PAGE>
provided herein. This Warrant is subject to the provisions, and is
entitled to the benefits, of the Purchase Agreement.
Section 1. Exercise of Warrant.
1.1. Surrender, Subscription and Payment. This Warrant
may be exercised by the holder hereof, in whole or in part, at any
time from the date hereof until the close of business on the
Expiration Date, during normal business hours on any Business Day
(as defined in the Purchase Agreement), by surrender of this
Warrant, together with the form of subscription attached as Annex
A hereto (or a reasonable facsimile thereof) duly executed by such
holder in substantially such form, to the Company at its office
designated pursuant to Section 17 of the Purchase Agreement (or, if
such exercise is in connection with an underwritten public offering
of Shares subject to this Warrant or of securities into which
Shares subject to this Warrant may be converted, at the location at
which the underwriting agreement requires that such Shares be
delivered). Payment of the exercise price for the Shares specified
in such subscription shall be made, at the option of the holder,
(a) by applying a principal amount of Notes, in the manner provided
in Section 1.6 hereof, (b) by certified or official bank check (or
wire transfer) payable to the order of the Company in federal or
other immediately available funds, in the case of either (a) or
(b), in an amount equal to (i) the number of Shares specified in
such form of subscription, multiplied by (ii) the then current
exercise price (as hereinafter defined), or (c) by conversion of
this Warrant, or any portion hereof, in the manner provided in
Section 1.7 hereof. Such holder shall thereupon be entitled to
receive the number of Shares specified in such form of subscription
(plus cash in lieu of any fractional share as provided in Section
1.4 hereof).
1.2. Effective Date. Each exercise of this Warrant
pursuant to Section 1.1 hereof shall be deemed to have been
effected immediately prior to the close of business on the Business
Day on which this Warrant shall have been surrendered to the
Company as provided in Section 1.1 hereof (except that if such
exercise is in connection with an underwritten public offering of
Shares subject to this Warrant or of securities into which Shares
subject to this Warrant may be converted, then such exercise shall
be deemed to have been effected upon such surrender of this
Warrant), and such exercise shall be at the current exercise price
in effect at such time. On each such day that an exercise of this
Warrant is deemed effected, the person or persons in whose name or
names any certificate or certificates for Shares are issuable upon
such exercise, as provided in Section 1.4 hereof, shall be deemed
to have become the holder or holders of record thereof.
<PAGE>
1.3. Expiration Date. This Warrant will expire, and
thereafter will not be exercisable, at the close of business on
July 31, 2000 (the "Expiration Date").
1.4. Share Certificates, Cash for Fractional Shares and
Reissuance of Warrants. As promptly as practicable after the
exercise of this Warrant, in whole or in part, and in any event
within five (5) Business Days thereafter (unless such exercise is
in connection with a public offering of Shares subject to this
Warrant or of securities into which Shares subject to this Warrant
may be converted, in which event concurrently with such exercise),
the Company at its expense (including the payment by it of any
applicable issue, stamp or other taxes other than any income taxes)
will cause to be issued in the name of and delivered to the holder
hereof or, subject to Section 14 of the Purchase Agreement, as such
holder may direct:
(i) a certificate or certificates for the number of
Shares to which such holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such
holder would otherwise be entitled, cash in an amount equal to
the same fraction of the Market Price per Share (determined in
accordance with Section 1.7(b) hereof) on the effective date
of such exercise; and
(ii) in case such exercise is in part only, a new
Warrant or Warrants of like tenor, calling in the aggregate on
the face or faces thereof for the number of Shares (without
giving effect to any adjustment therein) equal to the number
of such Shares called for on the face of this Warrant minus
the number of Shares which could have been obtained upon such
exercise for the exercise price paid if the current exercise
price had been $1.25 per Share.
1.5. Acknowledgment of Obligation. The Company will, at
the time of or at any time after each exercise of this Warrant,
upon the request of the holder hereof or of any Shares issued upon
such exercise, acknowledge in writing its continuing obligation to
afford to such holder all rights (including, without limitation,
any rights to registration of any such Shares pursuant to the
Purchase Agreement) to which such holder shall continue to be
entitled under this Warrant, the Purchase Agreement, and the Notes;
provided, that if any such holder shall fail to make any such
request, the failure shall not affect the continuing obligation of
the Company to afford such rights to such holder.
<PAGE>
1.6. Payment by Application of the Notes.
(a) The holder of this Warrant shall have the option,
but not the obligation, upon any exercise of this Warrant, to apply
to the payment required by Section 1.1 hereof all or any part of
the principal amount then unpaid of any one or more Notes at the
time held by such holder. The Company will accept the amount of
principal, if such election is selected, specified in such form of
subscription in satisfaction of the exercise price for such Shares
to be purchased. Within five (5) Business Days after receipt of
any such notice, the Company will pay to the holder of Notes
submitting such subscription, in the manner provided in such Notes
and the Purchase Agreement, any unpaid interest accrued to the date
of exercise of this Warrant on the principal amount so specified in
such form of subscription. In the event that less than the entire
unpaid principal amount of any Note is applied to the payment
required by Section 1.1 hereof, such Note shall be surrendered
together with the form of subscription and cancelled in accordance
with Section 12 of the Purchase Agreement, and the Company will
promptly issue a new Note representing the remaining unpaid
principal balance. In the event that the entire unpaid principal
amount of any Note is applied to the payment required by Section
1.1 hereof, such Note shall be surrendered together with the form
of subscription and cancelled in accordance with the provisions of
Section 12 of the Purchase Agreement.
(b) The holder of this Warrant shall have the right to
apply all or any portion of the principal amount of a Note to
exercise all or any portion of this Warrant (i) whether or not
payment on the Notes is prohibited by the subordination provisions
of the Purchase Agreement and (ii) even though the Company or such
holder may have given notice of prepayment with respect to all or
any portion of the principal amount of such Note pursuant to
Section 6 of the Purchase Agreement, so long as the subscription
form with respect to such principal amount of such Note shall,
together with this Warrant, have been delivered to the Company in
accordance with Section 1.1 hereof prior to the date fixed for such
prepayment.
1.7. Conversion of Warrant. (a) In addition to and
without limiting the rights of the holder under the terms of this
Warrant, the holder of this Warrant shall have the option, but not
the obligation, to convert this Warrant, or any portion hereof (the
"Conversion Right"), into Shares as provided in this Section 1.7 at
any time on or prior to the Expiration Date. Upon exercise of the
Conversion Right with respect to a particular number of shares
subject to this Warrant (the "Converted Warrant Shares"), the
Company shall deliver to the holder (without payment by the holder
of any exercise price or any cash or other consideration) that
<PAGE>
number of Shares equal to the quotient obtained by dividing (i) the
value of this Warrant (or the specified portion hereof) on the
effective date of the exercise of the Conversion Right, as provided
in Section 1.2 hereof (the "Conversion Date"), which value shall be
determined by subtracting (x) the aggregate exercise price of the
Converted Warrant Shares immediately prior to the exercise of the
Conversion Right from (y) the aggregate Market Price of such
Converted Warrant Shares on the Conversion Date by (ii) the Market
Price of one Share on the Conversion Date.
(b) Determination of Market Price. For purposes of this
Warrant, "Market Price" of the Company's Shares shall mean:
(i) if traded on a stock exchange, the Market Price of
the Company's Shares shall be deemed to be the average of the daily
closing selling prices of the Shares on the stock exchange
reasonably determined by the Company's Board of Directors to be the
primary market for the Shares over the ten (10) trading day period
ending on the date prior to the effective date of the exercise or
conversion of this Warrant, as such prices are officially quoted in
the composite tape of transactions on such exchange;
(ii) if traded over-the-counter, the Market Price of
the Shares shall be deemed to be the average of the daily closing
selling prices (or, if such information is not available, the
average of the daily closing bid and asked prices) of the Shares
over the ten (10) trading day period ending on the date prior to
the effective date of the exercise or conversion of this Warrant,
as such prices are reported by the National Association of
Securities Dealers through its NASDAQ system or any successor
system; and
(iii) if there is no public market for the Shares, then
the Market Price shall be determined by mutual agreement of the
holder of the Warrant and the Company, and if the holder and the
Company are unable to so agree within twenty (20) days after the
event giving rise to the need to determine the Market Price, by an
investment banker of national reputation selected by mutual
agreement of the Company and the holder of the Warrant.
Section 2. Exercise Price and Adjustments.
2.1. Current Exercise Price. The term "exercise price",
shall mean initially $1.25 per Share, subject to adjustment. For
purposes of this Section 2.1, the exercise price of $1.25 shall be
deemed to have become effective at the close of business on the
date hereof but shall be subject to adjustment as set forth in
Sections 2.2 and 2.3 hereof. The term "current exercise price" as
used herein shall mean the exercise price, as the same may be
<PAGE>
adjusted from time to time as hereinafter provided, in effect at
any given time. In determining the current exercise price, the
result shall be expressed to the nearest $0.01, but any such lesser
amount shall be carried forward and shall be considered at the time
of and together with the next subsequent adjustment which, together
with any adjustments to be carried forward, shall amount to $0.01
per Share or more.
2.2. Adjustment of Exercise Price. The exercise price
shall be subject to adjustment, from time to time in the event the
Company should at any time or from time to time after the date
hereof (w) pay a stock dividend or make a distribution (or in
respect of its Common Stock) in shares of its Common Stock (except
there shall be no adjustment with respect to the payment by the
Company of a stock dividend to holders of its Common Stock of the
shares of Strategic Abstract & Title Corporation, a Texas
corporation), (x) subdivide its outstanding shares of Common Stock
into a larger number of shares of Common Stock (y) combine its
outstanding shares of Common Stock into a smaller number of shares
of Common Stock, or (z) issue by reclassification of shares of its
Common Stock, any shares of capital stock of the Company, then (i)
the number of Shares for which this Warrant is exercisable
immediately after the occurrence of any such event shall be
adjusted to equal the number of Shares which a record holder of the
same number of Shares for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be
entitled to receive after the happening of such event, and (ii) the
exercise price shall be adjusted to equal (x) the exercise price
multiplied by the number of Shares for which this Warrant is
exercisable immediately prior to such adjustment divided by (y) the
number of Shares for which this Warrant is exercisable immediately
after such adjustment.
2.3. Recapitalization, Consolidation or Merger or Sale
of Assets. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the
Corporation's assets to another Person 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 referred to herein as an "Organic Change." Prior to the
consummation of any Organic Change, the Corporation shall make
appropriate provision (in form and substance reasonably
satisfactory to holders of Warrants representing a majority of the
Shares then outstanding) to insure that each of the holders of the
Warrants 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
exercise of such holder's Warrants, such shares of stock,
<PAGE>
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 such
holder's Warrants had such Organic Change not taken place.
In any such case, the Corporation shall make appropriate
provision (in form and substance reasonably satisfactory to the
holders of Warrants representing a majority of the Warrants then
outstanding) with respect to such holders' rights and interest to
insure that the provisions hereof shall thereafter be applicable to
the Warrants (including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity
is other than the Corporation, an immediate adjustment of the
exercise price to reflect the value for the Warrants reflected by
the terms of such consolidation, merger or sale, if the value so
reflected would cause an increase to the exercise price in effect
immediately prior to such consolidation, merger or sale). The
Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor
entity (if other than the Corporation) 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 Warrants representing a majority of
the shares then outstanding, the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to
acquire.
Section 3. Notice to Holders of Warrants.
In case at any time
(i) the Company shall take any action which would
require an adjustment in the current exercise price pursuant
to Section 2.2 or 2.3; or
there shall be any capital reorganization or
reclassification of the Company's Common Stock (other than a
change in par value or from par value to no par value or from
no par value to par value of the Company's Common Stock), or
any consolidation or merger to which the Company is a party
and for which approval of any stockholders of the Company is
required, or any sale, transfer or lease of all or
substantially all of the assets of the Company; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
<PAGE>
then, in any one or more of such cases, the Company shall give
written notice to the holders of the Warrants, not less than twenty
(20) days before any record date or other date set for definitive
action, of the date on which such action, reorganization,
reclassification, consolidation, merger, sale, transfer, lease,
dissolution, liquidation or winding-up shall take place, as the
case may be. Such notice shall also set forth such facts as shall
indicate the effect of any such action (to the extent such effect
may be known at the date of such notice) on the current exercise
price and the kind and amount of the shares and other securities
and property deliverable upon exercise of the Warrants. Such
notice shall also specify any date as of which the holders of
record of the Company's Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable
upon any such reorganization, reclassification, consolidation,
merger, sale, transfer, lease, dissolution, liquidation or winding-
up, as the case may be.
Section 4. Adjustments to Number of Shares Issuable
Hereunder. The number of Shares called for on the face of this
Warrant is the number of Shares which can be purchased under this
Warrant on the date of original issuance of this Warrant at an
exercise price of $1.25 per Share (subject to reduction from time
to time pursuant to clause (ii) of Section 1.4 hereof). Without
limiting any other provision of this Warrant, notwithstanding the
number of Shares so called for on the face of this Warrant, the
aggregate number of Shares that can be acquired upon an exercise of
this Warrant in whole or in part shall be adjusted from time to
time pursuant to Section 2 hereof.
Section 5. Specific Performance. The Company agrees and
stipulates that the remedies at law of a holder of this Warrant in
the event of any default or threatened default by the Company in
the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate and that, to the fullest
extent permitted by law, such terms may be specifically enforced by
a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms
hereof or otherwise.
Section 6. No Rights or Liabilities as Stockholder.
Nothing contained in this Warrant shall be construed as conferring
upon the holder hereof any rights as a stockholder of the Company
(prior to exercise of all or a portion of this Warrant) or as
imposing any liabilities on such holder to purchase any securities
or any liabilities as a stockholder of the Company, whether such
liabilities are asserted by the Company or by creditors or
stockholders of the Company or otherwise.
<PAGE>
Section 7. Ownership; Transfer. The Company may treat
the person in whose name this Warrant is registered as the owner
and holder of this Warrant for all purposes, and the Company shall
not be affected by any notice to the contrary (except that the
Company shall comply with the provisions of Section 14 of the
Purchase Agreement regarding the issuance of a new Warrant or
Warrants to permitted transferees). This Warrant is transferable
only upon the conditions, and subject to the restrictions,
specified in Section 14 of the Purchase Agreement.
Section 8. Headings. The headings and captions in this
Warrant are for convenience of reference only and shall not define,
limit or otherwise affect any of the terms or provisions hereof.
Section 9. Governing Law. This Warrant shall be
governed by, and construed in accordance with, the laws of the
State of New York (other than any conflict of laws rule which might
result in the application of the laws of any other jurisdiction).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, SA HOLDINGS, INC. has caused this
Warrant to be executed and issued on its behalf by its officer
thereunto duly authorized as of the date first above written.
SA HOLDINGS, INC.
By
Name:
Title:
[Signature page to Common Stock Warrant Certificate]
<PAGE>
ANNEX A
FORM OF SUBSCRIPTION
(To be executed only upon exercise or conversion
of the Warrant in whole or in part)
To SA Holdings, Inc.:
The undersigned registered holder of the accompanying
Warrant hereby exercises such Warrant or portion thereof for, and
purchases thereunder, __________(Fn1) Shares (as defined in such
Warrant) and herewith [makes payment therefor by application
pursuant to Section 1.6 of such Warrant of $__________ aggregate
principal amount of Notes (as defined in such Warrant)] [or]
[makes payment therefor of $ _________] [or] [makes payment
therefor by conversion of ___ Shares represented by such Warrant
pursuant to Section 1.7 of such Warrant]. The undersigned
requests that the certificates for such Shares be issued in the
name of, and delivered to, _________________________ whose
address is __________________________.
Dated: _______________________
_____________________________
(Name must conform to name of
holder as specified on the
face of the Warrant)
By __________________________
Name:
Title:
Address of holder:
______________________________
______________________________
______________________________
_______________________________
(Fn1) [Insert the number of Shares as to which this Warrant is
being exercised. In the case of a partial exercise, a new
Warrant or Warrants will be issued and delivered, representing
the unexercised portion of this Warrant, to the holder
surrendering the same.]
<PAGE>
Exhibit 4.12
______________________________________________
TERM CREDIT AGREEMENT
BETWEEN
SA HOLDINGS, INC.
AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
______________________________________________
Closing Date: July 31, 1995
<PAGE>
TERM CREDIT AGREEMENT
Dated as of July 31, 1995
SA Holdings, Inc., a Delaware corporation (the
"Borrower"), and Norwest Bank Minnesota, National Association, a
national banking association (the "Bank"), agree as follows:
ARTICLE 1
Definitions
Section 1.1 Definitions. For all purposes of this
Agreement, except as otherwise expressly provided or unless the
context otherwise requires:
(a) the terms defined in this Article have the
meanings assigned to them in this Article, and include the
plural as well as the singular; and
(b) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with GAAP.
"Acquisition" means the acquisition by the Borrower of
all of the stock of the Target Company.
"Acquisition Documents" means the purchase agreement
between the Borrower, the Target Company and the
shareholders of the Target Company and any other documents
relating to the Acquisition, together with all deeds, bills
of sale, assignments, approvals and consents required to
consummate the Acquisition, and all UCC and lien searches,
certificates, opinions, documents and agreements related to
or delivered in connection therewith.
"Adjusted Operating Cash Flow" means, with respect to
any 12-month period, the Operating Cash Flow for such period
plus the Expense Reduction Amount, if any, attributable to
such period. Notwithstanding the foregoing, Adjusted
Operating Cash Flow as of any quarter-end occurring on or
before the Conversion Date (but after the Closing Date)
means the Adjusted Operating Cash Flow during the two-
quarter period ending on such date multiplied by two.
"Advance Date" means, with respect to a Term Advance
(other than the initial Term Advance), the date requested
for such Term Advance which must be at least five Bank
Business Days after delivery of a Borrowing Certificate to
the Bank.
"Affiliate" means (a) any director, officer or employee
of the Borrower, (b) any Person who, individually or with
his or her immediate family or any other Affiliate, directly
or indirectly beneficially owns or holds 5% or more of
<PAGE>
the voting interest in the Borrower, or (c) any corporation,
partnership or other Person in which any Person described
above owns a 5% or greater equity interest. Without
limiting the generality of the foregoing, the Guarantor
shall at all times be deemed to be an Affiliate of the
Borrower.
"Agreement" means this Term Credit Agreement.
"Assignment of Deposit Accounts" means an Assignment of
Deposit Accounts duly executed by the Borrower in
substantially the form of Exhibit E, assigning to the Bank
each deposit account of any type now or hereafter held by
the Borrower.
"Bank Business Day" means a day other than a Saturday,
Sunday or day on which banks are not generally open for
business in the State of Minnesota.
"Base Rate" means the rate of interest publicly
announced from time to time by the Bank as its "prime" or
"base" rate of interest or, if the Bank ceases to announce a
rate so designated, any similar successor rate designated by
the Bank.
"Borrowing Certificate" means a certificate in
substantially the form of Exhibit G, or such other form as
the Borrower and the Bank may from time to time agree upon
in writing, setting forth relevant facts in reasonable
detail and the computation as to the Borrower's Adjusted
Operating Cash Flow as of the preceding quarter-end.
"Capital Expenditure" means any expenditure of money
for the purchase or construction of fixed assets or for the
purchase or construction of any other assets, or for
improvements or additions thereto, which are capitalized on
the Borrower's balance sheet.
"Closing Date" means the date of this Agreement.
"Compliance Certificate" means a certificate in
substantially the form of Exhibit H, or such other form as
the Borrower and the Bank may from time to time agree upon
in writing, setting forth relevant facts in reasonable
detail and the computations as to whether or not the
Borrower is in compliance with the requirements set forth in
Section 5.9, 5.10, 5.11, 5.12 and 6.11.
"Conversion Date" means November 15, 1996.
<PAGE>
"Debt" of any Person means (i) all items of
indebtedness or liability which in accordance with GAAP
would be included in determining total liabilities as shown
on the liabilities side of a balance sheet of that Person as
at the date as of which Debt is to be determined, excluding,
however, accounts payable and accrued liabilities incurred
in the ordinary course of that Person's business that are
owed to sellers of goods or services to that Person and are
in an amount not greater than the cost of such goods or
services, and (ii) indebtedness secured by any mortgage,
pledge, lien or security interest existing on property owned
by such Person, whether or not the indebtedness secured
thereby shall have been assumed, and (iii) guaranties and
endorsements (other than for purposes of collection in the
ordinary course of business) by such Person and other
contingent obligations of such Person in respect of, or to
purchase or otherwise acquire, indebtedness of others. For
purposes of determining a Person's aggregate Debt at any
time, "Debt" shall also include the aggregate payments
required to be made by such Person at any time under any
lease that is considered a capitalized lease under GAAP.
For purposes of this Agreement "Debt" shall not include the
Preferred Stock or Cash Obligation of Borrower with respect
thereto.
"Default" means an event that, with the giving of
notice, the passage of time or both, would constitute an
Event of Default.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
"ERISA Affiliate" means any trade or business (whether
or not incorporated) that is, along with the Borrower, a
member of a controlled group of corporations or a controlled
group of trades or businesses, as described in sections
414(b) and 414(c), respectively, of the Internal Revenue
Code of 1986, as amended.
"Environmental Law" means the Comprehensive
Environmental Response, Compensation and Liability Act, 42
U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., the Hazardous
Materials Transportation Act, 49 U.S.C. Section 1802 et
seq., the Toxic Substances Control Act, 15 U.S.C.
Section 2601 et seq., the Clean Water Act, 33 U.S.C.
Section 1252 et seq., the Clean Air Act, 42 U.S.C.
Section 7401 et seq., and any other federal, state, county,
municipal, local or other statute, law, ordinance or
regulation which may relate to or deal with human health or
the environment, all as may be from time to time amended.
<PAGE>
"Eurodollar Business Day" means a Bank Business Day on
which dealings in U.S. dollar deposits are carried on in the
London interbank market.
"Event of Default" has the meaning specified in Section
7.1.
"Excess Cash Flow" means, with respect to any fiscal
year, the Operating Cash Flow of the Borrower and its
Subsidiaries during that fiscal year, minus the sum of
(i) interest expense by the Borrower and its Subsidiaries
during that fiscal year, (ii) scheduled principal payments
made by the Borrower during that fiscal year on the Note and
other indebtedness to the extent such indebtedness and
payments are not prohibited by this Agreement, and
(iii) capital expenditures made by the Borrower and its
Subsidiaries during that fiscal year to the extent that such
capital expenditures do not exceed the amounts permitted
under Section 6.11, all determined in accordance with GAAP.
"Expense Reduction Amount" for any period means the
amount which has been recognized by the Borrower or its
Subsidiaries as an expense for purposes of determining
Operating Cash Flow for such period, which amount was
incurred by the Borrower, its Subsidiaries or the Target
Company prior to the Closing Date and which has been
identified by management of the Borrower and approved by the
Bank, in its sole discretion, as avoidable in future periods
based on the anticipated effect of positive and verifiable
actions taken or identified and to be taken by management of
the Borrower, and verified by the Bank or, at the Bank's
sole option, the Borrower's independent accountants, to
reduce for future periods the types of expenses which were
actually incurred prior to the Closing Date. With respect
to each month prior to the Closing Date, the Expense
Reduction Amount approved by the Bank is $163,000. With
respect to each month set forth below, the Expense Reduction
Amount approved by the Bank is set forth opposite such
month:
<TABLE>
<CAPTION>
Month Expense Reduction Amount
----- ------------------------
<S> <C>
August, 1995 $107,000
September, 1995 $ 49,000
October, 1995 $ 47,000
November, 1995 $ 2,000
</TABLE>
Any Expense Reduction Amount related to an action which is
identified by management to be taken, but which is not
taken, shall be disallowed retroactively and prospectively
for all periods.
<PAGE>
"Floating Rate" means an annual rate equal to the sum
of the Base Rate and the Floating Rate Spread, as determined
in accordance with Section 2.4, which rate shall change when
and as the Base Rate changes.
"Floating Rate Spread" means a percentage, determined
as set forth in Section 2.4.
"GAAP" means generally accepted accounting principles,
consistently applied.
"Guarantor" means Jack W. Matz, Jr.
"Guarantor's Pledge Agreement" means the Collateral
Pledge Agreement of even date herewith executed by the
Guarantor, granting the Bank a security interest in all of
the common stock and stock warrants of the Borrower owned by
the Guarantor to secure payment of all indebtedness arising
under the Guaranty.
"Guaranty" means the guaranty agreement of the
Guarantor in substantially the form of Exhibit B.
"Hazardous Substance" means any pollutant, contaminant,
hazardous substance or waste, solid waste, petroleum or any
fraction thereof, or any other chemical, substance or
material listed or identified in or regulated by any
Environmental Law.
"Interest Period" means a period of 30, 60, 90, 120,
150 or 180 days beginning on a Eurodollar Business Day as
elected by the Borrower.
"Interest Rate Spread" means a Floating Rate Spread or
a LIBO Rate Spread, as determined in accordance with Section
2.4, or such other interest rate spread as may be negotiated
in accordance with Section 2.3.
"LIBO Rate" means the annual rate equal to the sum of
(i) the annual rate obtained by dividing (a) the rate
(rounded up to the nearest 1/8 of 1%) determined by the Bank
to be the average rate at which U.S. dollar deposits are
offered to the Bank by major banks in the London interbank
market for funds to be made available on the first day of
any Interest Period in an amount approximately equal to the
amount for which a LIBO Rate quotation has been requested
and maturing at the end of such Interest Period, as
determined by the Bank prior to 12:00 noon (Minneapolis
time) on the second Eurodollar Business Day prior to the
beginning of such Interest Period, by (b) a percentage equal
to 100% minus the Federal Reserve System reserve requirement
(expressed as a
<PAGE>
percentage) applicable to such deposits, and (ii) the LIBO
Rate Spread, as determined in accordance with Section 2.4.
"LIBO Rate Spread" means a percentage, determined as
set forth in Section 2.4.
"Licenses" means all material authorizations, licenses,
permits and franchises granted or assigned to the Borrower,
or any Subsidiary or the Target Company by any public or
governmental agency, domestic or international, including
but not limited to any licenses issued by a state public
utility commission or the Federal Communications Commission.
"Life Insurance Assignment" means an Assignment of Life
Insurance Policy as Collateral to be executed by the
Borrower, in form and substance satisfactory to the Bank,
granting the Bank a lien on 50% of the proceeds of the Life
Insurance Policy to secure payment of the Note.
"Life Insurance Policy" has the meaning set forth in
Section 5.12.
"Loan Documents" means this Agreement, the Assignment
of Deposit Accounts, the Life Insurance Assignment, the Note
and the Borrower's Security Agreement.
"Material Agreements" means all material agreements
relating to the Licenses, and all other access, termination,
long distance and local exchange carrier agreements, real
estate leases and other material agreements relating to the
operation of the Borrower's, Subsidiaries' and the Target
Company's businesses.
"Maximum Loan Amount" means $10,000,000.
"Multiemployer Plan" means a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA.
"Note" has the meaning specified in Section 2.1
"Operating Cash Flow" means, with respect to any
period, the sum of the following: (i) the consolidated net
after-tax income of the Borrower and its Subsidiaries during
that period, plus (ii) the sum of depreciation, amortization
and interest expenses recognized by the Borrower and its
Subsidiaries with respect to that period, management fees
accrued by the Borrower and its Subsidiaries during that
period, any extraordinary or non-cash losses or expenses
<PAGE>
paid or incurred by the Borrower and its Subsidiaries during
that period, less (iii) the sum of any extraordinary,
non-operating or non-cash income claimed by the Borrower and
its Subsidiaries during that period, all as determined in
accordance with GAAP.
"Person" means any individual, corporation,
partnership, limited liability company, limited liability
partnership, joint venture, association, joint-stock
company, trust, unincorporated organization or government or
any agency or political subdivision thereof.
"Plan" means an employee benefit plan or other plan
maintained for employees of the Borrower or any ERISA
Affiliate and covered by Title IV of ERISA.
"Preferred Stock" means the Preferred Stock of Borrower
described on Schedule 4.11.
"Reportable Event" means (i) a "reportable event"
described in Section 4043 of ERISA and the regulations
issued thereunder, (ii) a withdrawal from any Plan, as
described in Section 4063 of ERISA, (iii) an action to
terminate a Plan for which a notice is required to be filed
under Section 4041 of ERISA, (iv) any other event or
condition that might constitute grounds for termination of,
or the appointment of a trustee to administer, any Plan, or
(v) a complete or partial withdrawal from a Multiemployer
Plan as described in Sections 4203 and 4205 of ERISA.
"SATC" means Strategic Abstract & Title Corporation, a
Texas corporation.
"SEC" means the Securities and Exchange Commission.
"SLDN" means Southwest Long Distance Network, Inc., an
Arkansas corporation.
"Security Agreements" means the security agreements of
the Borrower and its Telecommunications Subsidiaries, each
in substantially the form of Exhibit C.
"Seller Subordination Agreement" means the
Subordination Agreement of even date herewith executed by
Bill L. Johnson, Howard Maderra and Marianne Reed for the
benefit of the Bank.
<PAGE>
"Senior Debt Service Ratio" means, at any fiscal
quarter-end, the ratio of (i) the Adjusted Operating Cash
Flow of the Borrower, to (ii) the Senior Debt Service
Requirements of the Borrower as of that fiscal quarter-end.
"Senior Debt Service Requirements" means, at any fiscal
quarter-end, the sum of all payments of principal and
interest required to be paid by the Borrower on the Note
during the immediately succeeding four-quarter period in
accordance with the terms of the Note (specifically
excluding any mandatory prepayment required under Section
2.9). For purposes of determining Senior Debt Service
Requirements with respect to any portion of the Note bearing
interest at a floating rate, the floating rate shall be
assumed to be fixed for the period in question at the
floating rate in effect on the first day of such period.
"Senior Leverage Ratio" means, at any fiscal quarter-
end of the Borrower, the ratio of (A) the aggregate Debt of
the Borrower as at the end of that fiscal quarter, excluding
Subordinated Debt, to (B) the Adjusted Operating Cash Flow
of the Borrower and its Subsidiaries, all determined in
accordance with GAAP.
"Subordinated Debt" means Debt of the Borrower which is
subordinated in right of payment to all indebtedness of the
Borrower to the Bank, on terms that have been approved in
writing by the Bank and that have been noted by appropriate
legend on all instruments evidencing the Subordinated Debt,
which instruments shall have been delivered to and held by
the Bank.
"Subordinated Notes" has the meaning given it in the
Seller Subordination Agreement.
"Subsidiary" means any corporation of which more than
50% of the outstanding shares of capital stock having
general voting power under ordinary circumstances to elect a
majority of the board of directors of such corporation,
irrespective of whether or not at the time stock of any
other class or classes shall have or might have voting power
by reason of the happening of any contingency, is at the
time directly or indirectly owned by the Borrower, by the
Borrower and one or more other Subsidiaries, or by one or
more other Subsidiaries.
"Subsidiary Guaranties" means, collectively, the
guaranty agreement of each of the Telecommunications
Subsidiaries, in substantially the form of Exhibit D.
"Target Company" means U.S. Communications, Inc., a
Texas corporation.
<PAGE>
"Telecommunications Subsidiaries" means Long Distance
Network, Inc., North American Telecommunications
Corporation, the Target Company and SLDN.
"Term Advances" has the meaning specified in Section
2.1.
"Welfare Plan" means a "welfare plan" as defined in
Section 3(1) of ERISA.
ARTICLE 2
Amount and Terms of the Term Loan
Section 2.1 Term Loan. The Bank agrees, on the terms and
subject to the conditions hereinafter set forth, to make advances
(each a "Term Advance") to the Borrower from time to time during
the period from the Closing Date to and including the Conversion
Date in an aggregate outstanding amount not to exceed the lesser
of (i) 2.5 times Adjusted Operating Cash Flow on the quarter-end
preceding the Advance Date of each such Term Advance or (ii) the
Maximum Loan Amount. Based on the Borrowing Certificate
delivered to the Bank pursuant to Section 3.2(a) hereof, the Bank
agrees that the principal amount of the initial Term Advance on
the Closing Date shall be $7,000,000. The Term Advances shall be
evidenced by and repayable in accordance with the Borrower's
single promissory note of even date herewith in substantially the
form of Exhibit A hereto (the "Note"). Term Advances shall not
be revolving; the Borrower may not reborrow Term Advances that
have been prepaid.
Section 2.2 Making the Term Advances. Each Term Advance,
after the initial Term Advance, shall be made on at least five
Bank Business Days' prior written notice from the Borrower to the
Bank, which notice shall specify the Advance Date of the
requested Term Advance and the amount thereof. Each Term
Advance, after the initial Term Advance, shall be in the amount
of $100,000 or a multiple of $25,000 greater than $100,000. Upon
receipt of a request for a Term Advance hereunder, the Bank shall
verify to its satisfaction whether the Borrower has sufficient
Adjusted Operating Cash Flow for an additional Term Advance based
on the Borrowing Certificate submitted by the Borrower pursuant
to Section 3.2(a). In no event shall the Bank make a Term
Advance if the Bank has not received the monthly financial
statements for the preceding quarter required under
Section 5.1(b). Upon fulfillment of the applicable conditions
set forth in Article 3, including but not limited to the
conditions set forth in Section 3.2, the Bank shall disburse the
amount of the requested Term Advance by crediting the same to the
Borrower's demand deposit account maintained with the Bank or in
such other manner as the Bank and the Borrower may from time to
time agree. The Borrower shall promptly confirm each telephonic
request for a Term Advance by executing and delivering an
appropriate confirmation certificate to the Bank. The
<PAGE>
Borrower shall be obligated to repay all Term Advances
notwithstanding the failure of the Bank to receive such
confirmation and notwithstanding the fact that the person
requesting same was not in fact authorized to do so. Any request
for a Term Advance shall be deemed to be a representation that
the statements set forth in Section 3.2 are correct.
Section 2.3 Interest. Except to the extent that the
Borrower elects a LIBO Rate pursuant to this Section for some
portion or all of the Term Advances, the principal balance of the
Term Advances from time to time outstanding shall bear interest
at the Floating Rate. At the election of the Borrower, which may
be exercised from time to time so long as no Default or Event of
Default has occurred and is then continuing, the Borrower may
request in writing or by telephone that the Bank quote the LIBO
Rate which would be applicable for the portion of the outstanding
principal balance of the Term Advances and for the Interest
Period indicated by the Borrower in its quotation request. The
portion of the outstanding balance of the Term Advances for which
a LIBO Rate quotation is requested (i) must be in the amount of
$500,000 or a higher amount which is an integral multiple of
$500,000, (ii) must not otherwise bear interest at a LIBO Rate at
any time during the designated Interest Period on account of any
other acceptance of a LIBO Rate hereunder, and (iii) must not be
subject to being repaid during the proposed Interest Period by
any regularly scheduled principal payment. No more than five
Interest Periods shall be outstanding at any one time. A request
for a LIBO Rate quotation must be received by the Bank before
10:00 a.m. (Minneapolis time) on the day three (3) Eurodollar
Business Days before the first day of the proposed Interest
Period. The Borrower shall immediately either accept or reject
the quotation by telephone. If the Borrower does not immediately
accept a LIBO Rate quotation, the quotation shall be deemed to
have been rejected. Upon acceptance of a LIBO Rate quotation,
the quoted LIBO Rate shall be the interest rate applicable for
the proposed Interest Period to the portion of the outstanding
principal balance of the Term Advances to which the quotation
related (and the remaining part of the principal balance of the
Term Advances, if any, shall continue to bear interest at the
rate or rates previously applicable to such amounts). At the
termination of such Interest Period, the interest rate applicable
to the portion of the principal balance of the Term Advances to
which the accepted LIBO Rate quotation was applicable shall
revert to the Floating Rate unless a new LIBO Rate quotation is
accepted by the Borrower. Notwithstanding anything contained in
this Section to the contrary, the Bank shall have no obligation
to quote a LIBO Rate for any Interest Period if the Bank, in
accordance with its standard commercial practices, determines
that deposits in amounts equal to the amount for which the
quotation has been requested and maturing at the end of the
proposed Interest Period are not readily available to the Bank
from major banks in the London interbank market. In such event,
the Bank shall offer the Borrower an alternative fixed rate
option with the Interest Rate Spread to be negotiated at such
time.
<PAGE>
Section 2.4 Interest Rate Spreads.
(a) The Floating Rate Spread used in calculating the
Floating Rate at any time shall be the sum of the
then-applicable Floating Increment, the then-applicable
Default Increment, if any, and the then-applicable Equity
Increment, if any, all as determined in accordance with
subsections (c), (d) and (e) below.
(b) The LIBO Rate Spread used in calculating the LIBO
Rate at any time shall be the sum of the then-applicable
LIBO Increment, the then-applicable Default Increment, if
any, and the then-applicable Equity Increment, if any, all
as determined in accordance with subsections (c), (d) and
(e) below.
(c) The Floating Increment and the LIBO Increment
(collectively, the "Basic Rate Increments") shall be
determined as follows:
Through and including September 30, 1995, the Floating
Increment shall be 2.0% and the LIBO Increment shall be
4.0%. The Basic Rate Increments shall thereafter be
adjusted as of the first day of each fiscal quarter of the
Borrower on the basis of the Borrower's Senior Leverage
Ratio as of the end of the preceding fiscal quarter (e.g.
any adjustment to be made as of October 1, 1995 shall be
determined on the basis of the Senior Leverage Ratio as of
September 30, 1995) in accordance with the following table:
<TABLE>
<CAPTION>
Then the And the
If the Senior Floating LIBO
Leverage Increment Increment
Ratio is: shall be shall be
- ------------- --------- ---------
<S> <C> <C>
2.0 to 1 or more 2.0% 4.0%
1.25 to 1 or more, but 1.5% 3.5%
less than 2.0 to 1
less than 1.25 to 1 1.0% 3.0%
</TABLE>
Reductions and increases in the Basic Rate Increments will
be determined quarterly upon receipt of the Borrower's
financial statements and monthly Compliance Certificates
required under Section 5.1(b) (and, in any event, not later
than 45 days after each quarter-end). Such reductions and
increases will be applied retroactively to the beginning of
the quarter in which such determination is made; provided,
however, that if the Borrower fails to deliver any financial
<PAGE>
statements or Compliance Certificates when required under
Section 5.1(b), the Bank may, by notice to the Borrower,
increase the Basic Rate Increments to the highest rates set
forth above until such time as the Bank has received all
such financial statements and Compliance Certificates.
Notwithstanding the foregoing, no reduction in the Basic
Rate Increments will be made if a Default or an Event of
Default has occurred (and written notice thereof has been
given by the Bank to the Borrower) and is continuing at the
time that such reduction would otherwise be made.
(d) Upon written notice of any Default or Event of
Default by the Bank to the Borrower, and so long as such
Default or Event of Default continues without written waiver
thereof by the Bank, a Default Increment shall be added to
the applicable Interest Rate Spread. Such Default Increment
shall be equal to two percent (2.0%). Inclusion of the
Default Increment in calculating the Interest Rate Spreads
shall not be deemed a waiver or excuse of any such Default
or Event of Default.
(e) If the Borrower fails to prepay at least
$1,250,000 in principal of Subordinated Debt after the date
hereof and on or before October 31, 1995 from the proceeds
of one or more Qualified Equity Offerings, as defined in the
Seller Subordination Agreement, the Equity Increment shall
be 100 basis points (1.00%) at all times from and after
November 1, 1995. At all other times, the Equity Increment
shall be 0%.
Section 2.5 Collateral; Guaranty. Payment of the Note and
all other amounts now or hereafter owing by the Borrower to the
Bank (i) shall be secured by a security interest in property
generally described as all of the Borrower's and
Telecommunications Subsidiaries' inventory, accounts, equipment
and general intangibles (including customer lists), as more fully
described in the Security Agreements, (ii) shall be further
secured by the Life Insurance Assignment, (iii) shall be
guaranteed by the Guarantor pursuant to the Guaranty, which
Guaranty shall be secured by a security interest in a portion of
the issued and outstanding capital stock of the Borrower, as set
forth in the Guarantor's Pledge Agreement, (iv) shall be further
guaranteed by the Telecommunications Subsidiaries pursuant to the
Subsidiaries Guaranties, (v) shall be further secured by the
Assignment of Deposit Accounts, and (vi) may also now or
hereafter be secured by one or more other security agreements,
mortgages, deeds of trust, assignments or other instruments or
agreements. Each of the liens and security interests described
above shall be prior to all other liens and security interests of
any kind whatsoever, subject only to such exceptions as the Bank
may expressly approve in writing.
<PAGE>
The Bank hereby agrees that upon receipt of Compliance
Certificates and financial statements of the Borrower which
indicate that the Borrower has maintained its Senior Leverage
Ratio at less than 1.5 to 1 for two consecutive fiscal quarters
after the Conversion Date, as verified by the Bank and provided
that no Default or Event of Default shall have occurred and be
continuing, the Bank will release the Guarantor from his
obligations under the Guaranty and the Pledge Agreement and the
Guaranty and the Pledge Agreement shall forthwith be terminated
and all collateral thereunder returned to the Guarantor.
Section 2.6 Payment of Interest and Principal. Interest
accruing on the principal balance of the Note (including interest
at a LIBO Rate) shall be payable quarterly in arrears on the last
day of each calendar quarter, commencing on September 30, 1995.
The principal balance of the Note shall be due and payable in
fifteen quarterly installments due and payable on the last day of
each calendar quarter, commencing December 31, 1996. The amount
of each quarterly installment due during each period set forth
below shall be equal in amount, and the aggregate amount of the
installments due during each such period shall be equal to the
principal balance of the Note as of the Conversion Date times the
percentage set forth opposite such period:
<TABLE>
<CAPTION>
Percent of
Loan Year Principal Balance
--------- -----------------
<S> <C>
July 1, 1996-June 30, 1997 15%
July 1, 1997-June 30, 1998 25%
July 1, 1998-June 30, 1999 25%
July 1, 1999-June 30, 2000 35%
</TABLE>
Any remaining principal of the Term Note, together with all
accrued but unpaid interest on the Term Note, shall be finally
due and payable in full on June 30, 2000.
Section 2.7 Voluntary Prepayments. The Borrower may prepay
the Note in whole or in part at any time and from time to time;
provided that (i) prepayment of the full amount of the Note shall
include accrued interest thereon, (ii) prepayment shall be
accompanied by the payment of a prepayment premium if required
under Section 2.8, (iii) each partial prepayment of the Note
shall be in the principal amount of $150,000 or a multiple of
$50,000 greater than $150,000, (iv) any prepayment shall be made
only upon five Bank Business Days' notice to the Bank, and
(v) any partial prepayment of the Note shall be applied to the
principal installments of the Note in inverse order of their
maturities.
Section 2.8 Prepayment Premium. Upon prepayment of the
Note (other than mandatory prepayments under Section 2.9) from
the proceeds of any loan made to the
<PAGE>
Borrower by a financial or other lending institution other than
the Bank, or upon acceleration of the maturity of the Note, there
shall be due and payable a sum equal to the Applicable Percentage
of the principal balance of the Note so prepaid or due upon
acceleration, as the case may be. For purposes of this Section,
a prepayment shall be deemed to have been made from the proceeds
of a loan by a financial or other lending institution other than
the Bank if the Borrower obtains any such loan concurrent with
such prepayment or within six (6) months thereafter. If such
loan is obtained after the prepayment of the Note, the prepayment
premium required hereunder shall be due and payable at the time
that such replacement loan is funded.
As used herein, "Applicable Percentage" means, with respect
to any Loan Year, a percentage equal to the amount set forth
below opposite that Loan Year:
<TABLE>
<CAPTION>
Loan Year Applicable Percentage
--------- ---------------------
<S> <C>
1 3.0%
2 2.0%
3 1.0%
</TABLE>
As used herein, "Loan Year" means a twelve-month period, with the
first such Loan Year commencing on the date hereof and ending on
the first anniversary hereof and with each subsequent Loan Year
commencing on the corresponding subsequent anniversary of the
date hereof. No prepayment premium shall be due with respect to
any prepayment or acceleration occurring during the fourth or any
subsequent Loan Year.
Section 2.9 Mandatory Prepayments.
(a) Within 120 days after the end of each fiscal year
of the Borrower beginning with the fiscal year ending
December 31, 1996, the Borrower shall pay to the Bank an
amount equal to 33.33% of its Excess Cash Flow with respect
to that fiscal year; provided, however, that for the fiscal
year ending December 31, 1996, the Excess Cash Flow
calculation will be based upon the period from the Closing
Date through December 31, 1996.
(b) If at any time the outstanding Term Advances
exceed an amount equal to 2.5 times the Adjusted Operating
Cash Flow, as determined by the Bank, the Borrower shall
immediately upon notice from the Bank repay such Term
Advances to the extent necessary to eliminate such excess.
(c) All sums paid under this Section 2.9 shall be
applied to the principal installments of the Note in inverse
order of their maturities in accordance with Section 2.7.
Section 2.10 Computation of Interest and Fees. Interest
under the Note and the fees hereunder shall be computed on the
basis of actual number of days elapsed in a year of 360 days.
<PAGE>
Section 2.11 Payment. All payments of principal and
interest under the Note and of the fees hereunder shall be made
to the Bank in immediately available funds. The Borrower agrees
that the amount shown on the books and records of the Bank as
being the principal balance of the Note shall be prima facie
evidence of such principal amount. The Borrower hereby
authorizes the Bank to charge against the Borrower's account with
the Bank an amount equal to the accrued interest and fees from
time to time due and payable to the Bank under the Note or
hereunder.
Section 2.12 Payment on Nonbusiness Days. Whenever any
payment to be made hereunder or under the Note shall be stated to
be due on a day other than a Bank Business Day, such payment may
be made on the next succeeding Bank Business Day, and such
extension of time shall in each case be included in the
computation of payment of interest on the Note or the fees
hereunder, as the case may be.
Section 2.13 Fees. The Borrower agrees to pay to the Bank
each of the following fees, in addition to all other fees
required to be paid under Section 3.1 and otherwise by this
Agreement:
(a) A commitment fee at the rate of three-eighths of
one percent (.375%) per annum on the average daily unused
amount of the Maximum Loan Amount from the Closing Date to
and including the Conversion Date, payable quarterly in
arrears on the last day of each December, March, June and
September, through the Conversion Date, commencing September
30, 1995; provided that any commitment fee remaining unpaid
shall be due and payable on the Conversion Date.
(b) A supplemental facility fee equal to $100,000,
payable on the earliest of (i) the date of prepayment of the
Term Advances in full, (ii) 30 days after the Borrower's
Senior Leverage Ratio is less than 1.0 to 1.0 for two or
more consecutive fiscal quarters, (iii) the date the
Borrower is sold, or (iv) June 30, 2000.
Section 2.14 Use of Proceeds. The proceeds of the initial
Term Advance hereunder shall be used by the Borrower to pay a
portion of the purchase price of the Acquisition. The proceeds
of subsequent Term Advances hereunder shall be used by the
Borrower to repay principal on the Subordinated Debt portion of
the Acquisition costs in whole or in part. The Bank acknowledges
that the subsequent Term Advances will be made prior to the
maturity of the Subordinated Debt and agrees that the Borrower
may request and receive such Advances (subject to the other terms
and conditions herein) so long as such Term Advances are used for
the immediate prepayment of such Subordinated Debt. Any Term
Advances made after such
<PAGE>
Subordinated Debt has been paid in full shall be used for the
Borrower's general corporate purposes.
Section 2.15 Fees on Fixed Rate Amounts and Indemnity. In
addition to any interest payable on the Note and any fees or
other amounts payable hereunder, the Borrower agrees:
(a) If at any time any applicable law, rule or
regulation or the interpretation or administration thereof
by any governmental authority (including, without
limitation, Regulation D of the Federal Reserve Board)
shall:
(i) subject the Bank to any tax, duty or other charges
(including but not limited to any tax designed to
discourage the purchase or acquisition of foreign
securities or debt instruments by United States
nationals) with respect to this Agreement, or shall
materially change the basis of taxation of payments to
the Bank of the principal of or interest on any portion
of the Note bearing interest at a LIBO Rate (except for
changes in the rate of tax on the overall net income of
the Bank); or
(ii) impose or deem applicable any reserve, special
deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended
by the Bank because of any portion of the principal
balance of the Note bearing interest at a LIBO Rate;
(iii) impose on the Bank any other condition affecting
its making, maintaining or funding of any portion of
the Note at a LIBO Rate;
and the result of any of the foregoing is to increase the
cost to the Bank of making or maintaining any portion of the
Note at a LIBO Rate, or to reduce the amount of any sum
received or receivable by the Bank with respect to such
portion, then within 30 days after demand by the Bank (which
demand shall be accompanied by a statement setting forth the
basis of such demand), the Borrower shall pay directly to
the Bank such additional amount or amounts as will
compensate the Bank for such increased cost or such
reduction.
(b) In addition to any premium required to be paid to
the Bank under Section 2.8 hereof, upon demand by the Bank
(which demand shall be accompanied by a statement setting
forth the basis for the calculations of the among being
claimed) the Borrower will indemnify the Bank against any
loss or expense which the Bank may have sustained or
incurred (including, without limitation, any net loss or
expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by the Bank
to fund or
<PAGE>
maintain any portion of principal of the Note which bears
interest at a LIBO Rate), as reasonably determined by the
Bank, due to any prepayment of any portion of the Note
bearing interest at a LIBO Rate on a date which is not the
expiration date of the relevant Interest Period, or which
causes any portion of the Note bearing interest at a LIBO
Rate to be subject to being repaid during the relevant
Interest Period by any regularly scheduled principal
payment, as a consequence of a voluntary prepayment pursuant
to Section 2.7, mandatory prepayment under Section 2.9 or of
any Event of Default under this Agreement. For this
purpose, all acceptances of LIBO Rate quotations pursuant to
this Agreement shall be deemed to be irrevocable. Any
certificate as to any such loss or expense shall, in the
absence of manifest error, be final and conclusive as to the
amount thereof.
ARTICLE 3
Conditions of Lending
Section 3.1 Initial Conditions Precedent. The obligation
of the Bank to make the initial Term Advance is subject to the
condition precedent that the Bank shall have received on or
before the day of that Term Advance all of the following, each
dated (unless otherwise indicated) as of the Closing Date, in
form and substance satisfactory to the Bank:
(a) The Note, properly executed on behalf of the
Borrower.
(b) The Security Agreements, properly executed on
behalf of the Borrower and the Telecommunications
Subsidiaries.
(c) The Subsidiary Guaranties properly executed on
behalf of the Telecommunications Subsidiaries.
(d) All original certificates evidencing the stock of
the Telecommunications Subsidiaries, together with blank
assignments of that stock duly executed by the Borrower or
(in the case of SLDN's stock) the Target Company.
(e) The Guaranty, properly executed by the Guarantor.
(f) The Guarantor's Pledge Agreement, properly
executed by the Guarantor, together with the original
certificates evidencing the stock covered by the Pledge
Agreement and blank assignments of that stock duly executed
by the Guarantor.
<PAGE>
(g) Financing statements sufficient when filed to
perfect the security interests granted under the Security
Agreements and the Pledge Agreements to the extent such
security interests are capable of being perfected by filing.
(h) Current searches of appropriate filing offices
showing that (i) no state or federal tax liens have been
filed and remain in effect against the Borrower, the Target
Company, the Subsidiaries or the Guarantor, (ii) no
financing statements have been filed and remain in effect
against the Borrower, the Target Company or such
Subsidiaries except financing statements perfecting only
security interests permitted under Section 6.1, and (iii) no
financing statements have been filed and remain in effect
against the Guarantor that cover the collateral described in
the Pledge Agreement.
(i) Copies of all real property leases to which the
Borrower or any Subsidiary is a party, together with consent
agreements signed by the landlord under each such lease
designated by the Bank, confirming such matters as the Bank
may request.
(j) The Life Insurance Assignment, duly executed by
the beneficiary and owner thereof, and the original Life
Insurance Policy, each in form and substance satisfactory to
the Bank, together with such evidence as the Bank may
request that the Life Insurance Policy is subject to no
assignments or encumbrances other than the Life Insurance
Assignment.
(k) The Assignment of Deposit Accounts, duly executed
by the Borrower, and, within 30 days after the Closing Date,
one or more acknowledgments in the form attached thereto,
duly executed by the financial institutions at which the
Borrower maintains any deposit account, as may be required
by the Bank.
(l) Copies of the Borrower's Articles of Incorporation
and Bylaws, certified by the Secretary or Assistant
Secretary of the Borrower as being true and correct copies
thereof.
(m) Copies of the Articles of Incorporation and Bylaws
of each Telecommunications Subsidiary certified by the
Secretary or Assistant Secretary of such Subsidiary as being
true and correct copies thereof.
(n) A certified copy of the resolutions of the
Borrower's Board of Directors evidencing approval of the
matters contemplated hereby, including but not limited to
the Acquisition and the Loan Documents.
<PAGE>
(o) A signed copy of a certificate of the Secretary or
an Assistant Secretary of the Borrower which shall certify
the names of the officers of that Borrower authorized to
sign this Agreement, the Note, the Security Agreement and
the Borrower's Pledge Agreement and the other documents or
certificates to be delivered pursuant to this Agreement by
the Borrower or any of its officers, including requests for
Term Advances, together with the true signatures of such
officers. The Bank may conclusively rely on such
certificate until it shall receive a further certificate of
the Secretary or Assistant Secretary of the Borrower
canceling or amending the prior certificate and submitting
the signatures of the officers named in such further
certificate.
(p) A certified copy of the resolutions of the Board
of Directors of each Telecommunications Subsidiary
evidencing approval of the Security Agreement and Guaranty
of such Subsidiary.
(q) Certificates of Good Standing of the Borrower,
issued by the States of Delaware and Texas; Certificates of
Good Standing of Long Distance Network, Inc. and North
American Communications Corporation issued by the State of
Texas; and Certificates of Good Standing of the Target
Company issued by the State of Texas, Oklahoma, Arkansas,
New Mexico and Arizona and Colorado; with each such
certificate dated not more than ten days before the Closing
Date.
(r) A signed copy of an opinion of counsel for the
Borrower and the Guarantor, addressed to the Bank in
substantially the form of Exhibit D hereto.
(s) A copy of such executed Acquisition Documents as
the Bank shall reasonably require to evidence conveyance of
all stock and assets of the Target Company, free and clear
of any liens, claims or encumbrances, except as may be
permitted by the Bank.
(t) Evidence satisfactory to the Bank with respect to
the amount, source and form of equity contributions to the
Borrower, together with such waivers of conversion or
redemption rights of preferred stockholders as may be
required by the Bank.
(u) Such subordination agreements as the Bank may
require to evidence that all of the Borrower's Debt other
than its indebtedness arising hereunder has been
subordinated to payment of the Borrower's indebtedness
arising hereunder on terms satisfactory to the Bank,
together with copies of all promissory notes or other
documents evidencing such Subordinated Debt, showing that
such notes or
<PAGE>
other documents have been legended with notification of the
subordination thereof.
(v) A pro forma balance sheet of the Borrower after
consummation of the Acquisition, certified by the president
or the chief financial officer of the Borrower.
(w) Copies of all Licenses, together with all
necessary consents of the governmental agencies issuing such
Licenses to the Acquisition.
(x) Copies of all Material Agreements and all
necessary consents of the other parties thereto to the
Acquisition.
(y) A Certificate of the insurance required under the
Security Agreement, naming the Bank as loss payee.
(z) A collateral audit of the Borrower performed by
the Bank.
(aa) A facility fee in the amount of $100,000. The
facility fee shall be deemed fully earned by the Bank's
entering into this Agreement, whether or not any Term
Advance is in fact made.
Section 3.2 Additional Conditions Precedent to Term
Advances. The Bank's obligation to make any Term Advance
(including the initial Term Advance) shall be subject to the
further conditions precedent that on the date of that Term
Advance:
(a) The Borrower shall have delivered to the Bank a
Borrowing Certificate as of the quarter-end preceding the
Term Advance or, with respect to the initial Term Advance,
as of April 30, 1995, certified by the president or chief
financial officer of the Borrower;
(b) The Borrower shall have delivered to the Bank such
evidence as the Bank may reasonably require that the
Borrower has entered into one or more interest rate
protection arrangements acceptable to the Bank, as necessary
to cover at least 50% of the principal amount of such
requested Term Advance, for a period ending at least two
years from the Closing Date, the economic effect of which
arrangements shall be to limit the upward fluctuation in the
Base Rate during the term of such arrangements to not more
than 200 basis points (2.00%), all for purposes of
determining the Borrower's obligation to pay interest on the
requested Term Advance at the Floating Rate;
<PAGE>
(c) The representations and warranties contained in
Article 4 are correct on and as of the date of the Term
Advance as though made on and as of such date, except to the
extent that such representations and warranties relate
solely to an earlier date; and
(c) No event has occurred and is continuing, or would
result from the Term Advance, which constitutes a Default or
an Event of Default.
ARTICLE 4
Representations and Warranties
The Borrower represents and warrants to the Bank as
follows:
Section 4.1 Corporate Existence and Power. The Borrower is
a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware, and is duly licensed or
qualified to transact business in Texas. Long Distance Network,
Inc. and North American Telecommunications Corporation are each
corporations duly incorporated, validly existing and in good
standing under the laws of Texas. The Borrower and its
Subsidiaries are each duly licensed or qualified to do business
in all other jurisdictions where the character of the property
owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary to enable it to
enforce all of its material contracts and other material rights
and to avoid any material penalty or forfeiture. The Borrower
and each Subsidiary has all requisite power and authority,
corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its
obligations under, the Loan Documents and such Subsidiary's
Guaranty and Security Agreement, as the case may be.
Section 4.2 Authorization of Borrowing; No Conflict as to
Law or Agreements. The execution, delivery and performance by
the Borrower of the Loan Documents and the borrowings from time
to time hereunder have been duly authorized by all necessary
corporate action of the Borrower and do not and will not
(i) require any consent or approval of the shareholders of the
Borrower, or any authorization, consent or approval by any
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, (ii) violate any provision
of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve
System) or of any order, writ, injunction or decree presently in
effect having applicability to the Borrower or of its Articles of
Incorporation or Bylaws, (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be
bound or affected, except for defaults under equipment and office
leases to which the Target Company is a party, the effect of
which
<PAGE>
defaults shall not be materially adverse to the Borrower and its
Subsidiaries, or (iv) result in, or require, the creation or
imposition of any mortgage, deed of trust, pledge, lien, security
interest or other charge or encumbrance of any nature (other than
liens and security interests in favor of the Bank) upon or with
respect to any of the properties now owned or hereafter acquired
by the Borrower.
Section 4.3 Legal Agreements. The Loan Documents
constitute the legal, valid and binding obligations of the
Borrower enforceable against the Borrower in accordance with
their respective terms.
Section 4.4 Subsidiaries. Schedule 4.4 hereto is a
complete and correct list of all present Subsidiaries and of the
percentage of ownership of the Borrower or any Subsidiary in each
as of the Closing Date. Except as otherwise indicated in that
Schedule, all shares of each Subsidiary owned by the Borrower or
by any such other Subsidiary are validly issued and fully paid
and nonassessable. The Borrower hereby represents, warrants and
agrees with the Bank that within 30 days of obtaining the SEC's
declaration that the registration statement with respect thereto
is effective, the Borrower will distribute approximately 57% of
the common stock of SATC to the Borrower's shareholders, as set
forth in the Form 10-SB filed with the SEC and previously
delivered to the Bank. If such declaration has not been obtained
by the Borrower on or before September 30, 1995, the Borrower
shall, on or before that date, deliver 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 may require to perfect the security
interest granted 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 by the Bank concurrent with any
distribution of at least 80% of the stock of SATC to the
Borrower's shareholders.
Section 4.5 Financial Condition. The Borrower has
heretofore furnished to the Bank its audited financial statements
as of and for the year ended December 31, 1994, and its unaudited
interim financial statements as of and for the year-to-date
period ended April 30, 1995. The Borrower has also furnished to
the Bank the audited financial statements of the Target Company
as of and for the year ended December 31, 1994, and the Target
Company's unaudited interim financial statements as of and for
the year-to-date period ended April 30, 1995. Those financial
statements fairly present the financial condition of the Borrower
and the Target Company on the dates thereof and the results of
its operations and cash flows for the periods then ended, and
were prepared in accordance with GAAP. The Borrower has also
furnished to the Bank a pro forma balance sheet of the Borrower
and the Target Company after consummation
<PAGE>
of the Acquisition which fairly presents the projected financial
condition of the Borrower and its Subsidiaries after the
Acquisition.
Section 4.6 Adverse Change. There has been no material
adverse change in the business, properties or condition
(financial or otherwise) of the Borrower or its Subsidiaries
since the date of the latest financial statement referred to in
Section 4.5.
Section 4.7 Litigation. Except as set forth in
Schedule 4.7, there are no actions, suits or proceedings pending
or, to the knowledge of the Borrower, threatened against or
affecting the Borrower or any Subsidiary or the properties of the
Borrower or any Subsidiary before any court or governmental
department, commission, board, bureau, agency or instrumentality,
domestic or foreign, which, if determined adversely to the
Borrower or any Subsidiary, would have a material adverse effect
on the financial condition, properties, or operations of the
Borrower or any Subsidiary.
Section 4.8. Hazardous Substances. To the best of the
Borrower's knowledge after reasonable inquiry, neither the
Borrower, any Subsidiary nor any other Person has ever caused or
permitted any Hazardous Substance to be disposed of in any manner
which might result in any material liability to the Borrower or
any Subsidiary on, under or at any real property which is or was
operated by the Borrower or any Subsidiary or in which the
Borrower or any Subsidiary has any interest; and no such real
property has ever been used (either by the Borrower or by any
other Person) as a dump site or permanent or temporary storage
site for any Hazardous Substance.
Section 4.9 Regulation U. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no part of
the proceeds of the Term Advances will be used to purchase or
carry any margin stock or to extend credit to others for the
purpose of purchasing or carrying any margin stock.
Section 4.10 Taxes. The Borrower and each Subsidiary has
paid or caused to be paid to the proper authorities when due all
federal, state and local taxes required to be withheld by it.
The Borrower and each Subsidiary has filed all federal, state and
local tax returns which to the knowledge of the officers of the
Borrower are required to be filed, and the Borrower and each
Subsidiary has paid or caused to be paid to the respective taxing
authorities all taxes as shown on said returns or on any
assessment received by it to the extent such taxes have become
due, except any tax or assessment whose amount, applicability or
validity is being contested in good faith by appropriate
proceedings.
<PAGE>
Section 4.11 Capitalization. Schedule 4.11 constitutes a
correct and complete list of all authorized stock of the
Borrower, including the amount thereof that is issued and
outstanding and the class thereof.
Section 4.12 Real Estate. Schedule 4.12 constitutes a
correct and complete list of all interests (including but not
limited to all fee simple and leasehold interests) of the
Borrower, the Target Company and its Subsidiaries in any real
property or fixtures, wherever located, including complete legal
descriptions of all such real property. The Borrower has
delivered to the Bank correct and complete copies of all leases
or other documents giving rise to any leasehold or similar
interest of the Borrower, the Target Company and the Subsidiaries
in any real property.
Section 4.13 Titles and Liens. The Borrower or one of its
Subsidiaries has good title to each of the properties and assets
reflected in the latest balance sheet referred to in Section 4.5
(other than any sold, as permitted by Section 6.6), free and
clear of all mortgages, security interests, liens and
encumbrances, except for mortgages, security interests and liens
permitted by Section 6.1 and covenants, restrictions, rights,
easements and minor irregularities in title which do not
materially interfere with the business or operations of the
Borrower or such Subsidiary as presently conducted. No financing
statement naming the Borrower or any Subsidiary as debtor is on
file in any office except to perfect only security interests
permitted by Section 6.1.
Section 4.14 Licenses. Schedule 4.14 constitutes a correct
and complete list of all Licenses and the expiration dates
thereof. The Borrower has heretofore furnished the Bank with
correct and complete copies of all Licenses listed in Schedule
4.14. Each License is in full force and effect.
Section 4.15 Material Agreements. Schedule 4.15
constitutes a correct and complete list of all Material
Agreements and the expiration dates thereof. The Borrower has
heretofore furnished the Bank with correct and complete copies of
all Material Agreements listed in Schedule 4.15. Each Material
Agreement is in full force and effect.
Section 4.16. ERISA. No Plan established or maintained by
the Borrower or any ERISA Affiliate or any ERISA Affiliate that
is subject to Part 3 of Subtitle B of Title I of ERISA had an
accumulated funding deficiency (as such term is defined in
Section 302 of ERISA) in excess of $1,000,000 as of the last day
of the most recent fiscal year of such Plan ended prior to the
date hereof, and no liability to the Pension Benefit Guaranty
Corporation or the Internal Revenue Service in excess of such
amount has been, or is expected by the Borrower or any ERISA
Affiliate to be, incurred with respect to any Plan of the
Borrower or any ERISA Affiliate. The Borrower has no
<PAGE>
contingent liability with respect to any post-retirement benefit
under a Welfare Plan, other than liability for continuation
coverage described in Part 6 of Title I of ERISA.
Section 4.17. Representations with respect to Target
Company. Notwithstanding anything to the contrary in this
Article 4, all representations and warranties made in this
Article 4 regarding the Target Company are made to the best of
the Borrower's knowledge in reliance upon representations and
warranties made in connection with the Borrower's purchase of the
Target Company. Nonetheless, to the extent that any
representation or warranty made in this Article 4 regarding the
Target Company proves to have been incorrect or misleading in any
material respect when made, an Event of Default shall be deemed
to have occurred under Section 7.1(d) whether or not the Borrower
had or should have had knowledge of the incorrect or misleading
nature of such warranty or representation.
ARTICLE 5
Affirmative Covenants of the Borrower
So long as the Note shall remain unpaid, the Borrower
will comply with the following requirements, unless the Bank
shall otherwise consent in writing:
Section 5.1 Financial Statements. The Borrower will
deliver to the Bank:
(a) As soon as available, and in any event within 90
days after the end of each fiscal year of the Borrower, a
copy of the annual audit report of the Borrower prepared on
a consolidated basis with the unqualified opinion of
independent certified public accountants selected by the
Borrower and acceptable to the Bank, which annual report
shall include the consolidated and consolidating balance
sheet of the Borrower as at the end of such fiscal year and
the related consolidated and consolidating statements of
income, shareholders' equity and cash flows of the Borrower
and its Subsidiaries for the fiscal year then ended, all in
reasonable detail and all prepared in accordance with GAAP
applied
<PAGE>
on a basis consistent with the accounting practices applied
in the annual financial statements referred to in Section
4.5, together with (A) a report signed by such accountants
stating that in making the investigations necessary for said
opinion they obtained no knowledge, except as specifically
stated, of any Default or Event of Default hereunder and all
relevant facts in reasonable detail to evidence, and the
computations as to, whether or not the Borrower is in
compliance with the requirements set forth in Sections 5.9,
5.10, 5.11 and 6.11; (B) a copy of such accountants'
management letter issued to the Borrower for such year; and
(C) a certificate of the president or chief financial
officer of the Borrower stating that such financial
statements have been prepared in accordance with GAAP
applied on a basis consistent with the accounting practices
reflected in the annual financial statements referred to in
Section 4.5 and whether or not he has knowledge of the
occurrence of any Default or Event of Default hereunder and,
if so, stating in reasonable detail the facts with respect
thereto.
(b) As soon as available and in any event within 45
days after the end of each month, the consolidated and
consolidating balance sheet of the Borrower as at the end of
such month and related consolidated and consolidating
statements of income, shareholders' equity and cash flows of
the Borrower and its Subsidiaries for such month and for the
year to date, in reasonable detail and stating in
comparative form the figures for the corresponding date and
period in the previous year, all prepared in accordance with
GAAP applied on a basis consistent with the accounting
practices reflected in the annual financial statements
referred to in Section 4.5, and subject to year-end audit
adjustments; and accompanied by a certificate of the
president or chief financial officer of the Borrower stating
(i) that such financial statements have been prepared in
accordance with GAAP applied on a basis consistent with the
accounting practices reflected in the annual financial
statements referred to in Section 4.5, and (ii) whether or
not he has knowledge of the occurrence of any Default or
Event of Default hereunder not theretofore reported and
remedied and, if so, stating in reasonable detail the facts
with respect thereto, and with respect to the financial
statements delivered for any month that is the last month of
a fiscal quarter of the Borrower, accompanied by a
Compliance Certificate and a Borrowing Certificate each
signed by the president or the chief financial officer of
the Borrower.
(c) Not less than 45 days prior to the end of each
fiscal year of the Borrower, projections for the Borrower's
and its Subsidiaries' financial performance during the
following fiscal year, including projections of income, cash
flows and balance sheets, all presented on a quarter-by-
quarter basis in such detail as the Bank may request and
certified by the president or chief financial officer of the
Borrower as being identical to the projections used by the
Borrower for internal planning purposes.
(d) Within 45 days after the end of each fiscal
quarter of the Borrower, a cost-of-sales analysis and
accounts payable aging showing the top 20 account vendors
with respect to that quarter, including both a consolidated
analysis and separate figures for each material business
segment or product line, as the case may be, for each
location in which the Borrower and its Subsidiaries
operates.
<PAGE>
(e) Within 120 days after the end of each calendar
year, so long as the Guaranty is in effect, the personal
financial statements of the Guarantor as at the end of such
year, in such detail as the Bank may reasonably request.
(f) Within 30 days after filing thereof, so long as
the Guaranty is in effect, copies of all state and federal
personal income tax returns filed by the Guarantor,
including all schedules and attachments thereto.
(g) Promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the
Borrower shall have sent to its shareholders.
(h) Promptly after the sending or filing thereof,
copies of all regular and periodic financial reports which
the Borrower shall file with the SEC or any national
securities exchange.
(i) Promptly upon becoming available, copies of any
reports or applications filed by the Borrower or any
Subsidiary with the FCC or any other federal, state or local
governmental body, and copies of any material notices and
other communications from any such governmental body that
specifically relate to the Borrower or any License.
(j) Immediately after the commencement thereof, notice
in writing of all litigation and of all proceedings before
any governmental or regulatory agency affecting the Borrower
or any Subsidiary of the type described in Section 4.7 or
which seek a monetary recovery against the Borrower or any
Subsidiary in excess of $250,000.
(k) As promptly as practicable (but in any event not
later than five business days) after an officer of the
Borrower obtains knowledge of the occurrence of any Default
or Event of Default, notice of such occurrence, together
with a detailed statement by a responsible officer of the
Borrower of the steps being taken by the Borrower to cure
the effect of such event.
(l) Promptly upon becoming aware of any Reportable
Event or any prohibited transaction (as defined in Section
4975 of the Internal Revenue Code or Section 406 of ERISA)
in connection with any Plan or any trust created thereunder,
a written notice specifying the nature thereof, what action
the Borrower has taken, is taking or proposes to take with
respect thereto, and, when known, any action taken or
threatened by the Internal Revenue Service, the Pension
Benefit Guaranty Corporation or the Department of Labor with
respect thereto.
<PAGE>
(m) Promptly upon their receipt, copies of (a) all
notices received by the Borrower or any ERISA Affiliate of
the Pension Benefit Guaranty Corporation's intent to
terminate any Plan or to have a trustee appointed to
administer any Plan, (b) the annual report (Form 5500
Series), including any supporting schedules, filed by the
Borrower or any ERISA Affiliate with the Internal Revenue
Service with respect to any Plan, and (c) all notices
received by the Borrower or any ERISA Affiliate from a
Multiemployer Plan concerning the imposition or amount of
withdrawal liability pursuant to Section 4202 of ERISA.
(n) Such other information respecting the financial
condition and results of operations of the Borrower and its
Subsidiaries as the Bank may from time to time reasonably
request.
Section 5.2 Books and Records; Inspection and Examination.
The Borrower will keep, and will cause each Subsidiary to keep,
accurate books of record and account for itself in which true and
complete entries will be made in accordance with GAAP and, upon
request of the Bank, will give any representative of the Bank
access to, and permit such representative to examine, copy or
make extracts from, any and all books, records and documents in
its possession, to inspect any of its properties and to discuss
its affairs, finances and accounts with any of its principal
officers, all at such times during normal business hours and as
often as the Bank may reasonably request.
Section 5.3 Compliance with Laws. The Borrower will, and
will cause each Subsidiary to, comply with the requirements of
applicable laws and regulations, the noncompliance with which
would materially and adversely affect its business or the
financial condition of the Borrower and its Subsidiaries.
Section 5.4 Payment of Taxes and Other Claims. The
Borrower will pay or discharge, and will cause each Subsidiary to
pay or discharge, when due, (a) all taxes, assessments and
governmental charges levied or imposed upon it or upon its income
or profits, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, (b) all federal, state
and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might
by law become a lien or charge upon any properties of the
Borrower or any Subsidiary; provided, that the Borrower or such
Subsidiary shall not be required to pay any such tax, assessment,
charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings.
Section 5.5 Maintenance of Properties. The Borrower will
keep and maintain, and will cause each Subsidiary to keep and
maintain, all of its properties necessary or useful in its
business in good condition, repair and working order, ordinary
wear and tear excepted; provided, however, that nothing in this
Section shall prevent the
<PAGE>
Borrower or such Subsidiary from discontinuing the operation and
maintenance of any of its properties if such discontinuance is,
in the judgment of the Borrower or such Subsidiary, desirable in
the conduct of its business and not disadvantageous in any
material respect to the Bank as holder of the Note.
Section 5.6 Insurance. The Borrower will, and will cause
each Subsidiary to, obtain and maintain insurance with insurers
believed by the Borrower to be responsible and reputable, in such
amounts and against such risks as is usually carried by companies
engaged in similar business and owning similar properties in the
same general areas in which the Borrower or such Subsidiary
operates.
Section 5.7 Preservation of Existence. The Borrower will,
and will cause each Subsidiary to, preserve and maintain its
existence and all of its Licenses, rights, privileges and
franchises; provided, however, that neither the Borrower nor any
Subsidiary shall be required to preserve any of its Licenses,
rights, privileges and franchises if its Board of Directors shall
determine that the preservation thereof is no longer desirable in
the conduct of the business of the Borrower or such Subsidiary
and that the loss thereof is not disadvantageous in any material
respect to the Bank as a holder of the Note.
Section 5.8 Deposit Accounts. The Borrower [and its
Subsidiaries] shall maintain all of its deposit accounts of any
type (whether for working capital or other purposes, and whether
held jointly or individually), excluding the Borrower's and
Subsidiaries' payroll accounts, with the Bank or another
depository institution acceptable to the Bank.
Section 5.9 Senior Leverage Ratio. The Borrower will at
all times maintain its Senior Leverage Ratio, determined as at
the end of each fiscal quarter of the Borrower designated below,
at not more than the amount set forth below opposite such
quarter-end:
<TABLE>
<CAPTION>
Quarters Ending Ratio
--------------- -----
<S> <C>
On or before September 30, 1996 2.50 to 1
October 1, 1996 through June 30, 1997 2.25 to 1
July 1, 1997 through June 30, 1998 1.75 to 1
July 1, 1998 through June 30, 1999 1.25 to 1
July 1, 1999 and thereafter 0.75 to 1
</TABLE>
<PAGE>
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 fiscal quarter of the Borrower, at not 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 four fiscal
quarters, determined as of the end of each fiscal quarter, in an
amount not less than the greater of (i) $2,818,141 or (ii) 85% of
its Operating Cash Flow during the period of four fiscal quarters
ending one year prior to the date of determination.
Section 5.12 Key Person Life Insurance. The Borrower shall
maintain insurance upon the life of the Guarantor with the death
benefit thereunder in an amount not less than $2,000,000 (the
"Life Insurance Policy"). The right to receive 50% of the
proceeds of the Life Insurance Policy shall be assigned to the
Bank by the Life Insurance Assignment. The Borrower shall retain
at all times the right to receive the remaining 50% of the
proceeds.
Section 5.13 Material Agreements. Within 120 days of
the Closing Date, the Borrower or its Subsidiaries shall enter
into an agreement with NTS Communications, Inc. ("NTS"), or with
another similar long distance wholesaler, to provide switched
terminating services on terms at least as favorable as the
existing Telecommunications Agreement between Long Distance
Network, Inc. and NTS, or into such other arrangements acceptable
to the Bank in its reasonable discretion.
ARTICLE 6
Negative Covenants
So long as the Note shall remain unpaid, the Borrower
agrees that, without the prior written consent of the Bank:
Section 6.1 Liens. The Borrower will not, and will not
permit any Subsidiary to, create, incur, assume or suffer to
exist any mortgage, deed of trust, pledge, lien, security
interest, or other charge or encumbrance of any nature on any of
its assets, now owned or hereafter acquired, or assign or
otherwise convey any right to receive income or give its consent
to the subordination of any right or claim of the Borrower or any
Subsidiary to any right or claim of any other Person; excluding,
however, from the operation of the foregoing:
(a) Liens for taxes or assessments or other
governmental charges to the extent not required to be paid
by Section 5.4.
<PAGE>
(b) Materialmen's, merchants', carriers' worker's,
repairer's, or other like liens arising in the ordinary
course of business to the extent not required to be paid by
Section 5.4.
(c) Pledges or deposits to secure obligations under
worker's compensation laws, unemployment insurance and
social security laws, or to secure the performance of bids,
tenders, contracts (other than for the repayment of borrowed
money) or leases or to secure statutory obligations or
surety or appeal bonds, or to secure indemnity, performance
or other similar bonds in the ordinary course of business.
(d) Zoning restrictions, easements, licenses,
restrictions on the use of real property or minor
irregularities in title thereto, which do not materially
impair the use of such property in the operation of the
business of the Borrower or any Subsidiary or the value of
such property for the purpose of such business.
(e) Purchase money mortgages, liens, or security
interests (which term for purposes of this subsection shall
include conditional sale agreements or other title retention
agreements and leases in the nature of title retention
agreements) upon or in property acquired after the date
hereof, or mortgages, liens or security interests existing
in such property at the time of acquisition thereof,
provided that:
(i) no such mortgage, lien or security interest
extends or shall extend to or cover any property
of the Borrower or any Subsidiary other than the
property then being acquired and fixed
improvements then or thereafter erected thereon;
(ii) the aggregate principal amount of all Debt of the
Borrower and its Subsidiaries secured by all
mortgages, liens or security interests described
in this subsection shall not exceed $750,000 at
any one time outstanding (but not including Debt
in connection with the purchase of switch hardware
or software permitted under Section 6.11); and
(iii) the aggregate principal amount of Debt secured by
mortgages, liens and security interests described
in this subsection 6.1(e) at the time of
acquisition of the property subject thereto shall
not exceed 100% of the cost of such property or of
the then fair market value of such property as
determined by the Board of Directors of the
Borrower, whichever shall be less, and the
aggregate amount of payments made thereunder in
any period of 12 consecutive months will not
result in a violation of the restriction contained
in Section 6.11.
<PAGE>
(f) Mortgages, liens, pledges and security interests
on any property of the Borrower and its Subsidiaries (other
than those described in subsection 6.1(e)) securing any
indebtedness for borrowed money in existence on the date
hereof and listed in Schedule 6.1 hereto.
(g) The security interests granted to the Bank under
the Security Agreements.
(h) Liens arising out of a judgment against the
Borrower or any Subsidiary for the payment of money not
exceeding $100,000 with respect to which an appeal is being
prosecuted and a stay of execution pending such appeal has
been secured.
(i) Liens securing the Subordinated Notes, so long as
such liens are junior in priority to the security interests
granted to the Bank.
Section 6.2 Indebtedness. The Borrower will not, and will
not permit any Subsidiary to, incur, create, assume or permit to
exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money, or any other
indebtedness or liability evidenced by notes, bonds, debentures
or similar obligations, except:
(a) Indebtedness to the Bank.
(b) Indebtedness of the Borrower or any Subsidiary in
existence on the date hereof and listed in Schedule 6.2
hereto, but not including any extensions or renewals
thereof, except for extensions or renewals of existing
indebtedness owed to officers, shareholders or directors in
an aggregate amount of $301,438, so long as no such
extension or renewal has the effect of making the final
maturity of the indebtedness so renewed or extended later
than December 31, 1995.
(c) Subordinated Debt, or renewals thereof.
(d) Indebtedness of a Subsidiary to the Borrower or
any Subsidiary or of the Borrower to a Subsidiary on account
of borrowings.
(e) Purchase money indebtedness of the Borrower or any
Subsidiary secured by liens permitted by subsection 6.1(e).
<PAGE>
(f) Indebtedness incurred in connection with a
purchase of switch hardware or software approved by the Bank
pursuant to Section 6.11 hereof.
(g) The Preferred Stock.
Section 6.3 Guaranties. The Borrower will not, and will
not permit any Subsidiary to, assume, guarantee, endorse or
otherwise become directly or contingently liable in connection
with any obligations of any other Person, except:
(a) The endorsement of negotiable instruments by the
Borrower or any Subsidiary for deposit or collection or
similar transactions in the ordinary course of business.
(b) Guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of
other Persons in existence on the date hereof and listed in
Schedule 6.3 hereto.
(c) Guaranties of permitted indebtedness of the
Borrower or any Subsidiary.
Section 6.4 Investments. The Borrower will not, and will
not permit any Subsidiary to, purchase or hold beneficially any
stock or other securities or evidence of indebtedness of, make or
permit to exist any loans or advances to, or make any investment
or acquire any interest whatsoever in, any other Person, except:
(a) investments in direct obligations of the United
States of America or any agency or instrumentality thereof
whose obligations constitute full faith and credit
obligations of the United States of America having a
maturity of one year or less, commercial paper issued by
U.S. corporations rated "A-1" or "A-2" by Standard & Poors
Corporation or "P-1" or "P-2" by Moody's Investors Service
or certificates of deposit or bankers' acceptances having a
maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of
$100,000,000;
(b) loans to officers and employees of the Borrower
not exceeding at any one time an aggregate of $25,000;
(c) indebtedness of employees and officers of the
Borrower (excluding indebtedness described in
paragraph 6.4(b)) arising from the exercise by such
employees and officers of options to purchase stock of the
Borrower directly from the Borrower, provided that neither
the Borrower nor any Subsidiary shall have made any cash
advance in connection with such indebtedness (except to the
<PAGE>
extent that such advance is immediately returned to the
Borrower in payment for the exercise of such options);
(d) travel advances to officers and employees of the
Borrower in the ordinary course of business;
(e) advances in the form of progress payments,
advances against commissions, prepaid rent or security
deposits; and
(f) investment in the stock of the Target Company or
any existing investment by the Borrower or any other
Subsidiary in the stock of any Subsidiary.
Section 6.5 Distributions. The Borrower will not declare
or pay any dividend on any class of its capital stock, or make
any payment on account of the purchase, redemption or other
retirement of any shares of such stock, or make any distribution
in respect thereof, either directly or indirectly; other than (i)
the distribution of stock of SATC as described in Section 4.4
hereof, on terms approved by the Bank; and (ii) distribution of
stock to preferred stockholders pursuant to the agreements
governing the Preferred Stock or otherwise on terms satisfactory
to the Bank.
Section 6.6 Sale of Assets. The Borrower will not, and
will not permit any Subsidiary to, sell, lease, assign, transfer
or otherwise dispose of all or a substantial part of its assets
(whether in one transaction or in a series of transactions) to
any other Person other than in the ordinary course of business
(but not including the sale of SATC stock or assets).
Section 6.7 Consolidation and Merger. The Borrower will
not, and will not permit any Subsidiary to, consolidate with or
merge into any Person, or permit any other Person to merge into
it, or acquire (in a transaction analogous in purpose or effect
to a consolidation or merger) all or substantially all of the
assets of any other Person; provided, however, that the
restrictions contained in this Section shall not apply to or
prevent the consolidation or merger of a Subsidiary with, or a
conveyance or transfer of its assets to, the Borrower (if the
Borrower shall be the continuing or surviving corporation) or any
other then existing wholly owned Subsidiary of the Borrower.
<PAGE>
Section 6.8 Transactions with Affiliates.
(a) The Borrower may not pay management, consulting,
overhead, home office or any other fees or expenses of any
kind to any Affiliate (but not including ordinary
compensation, travel advances and other benefits paid to the
Senior Officers and directors of the Borrower in the
ordinary course), unless the right to receive such fees or
expenses is approved in advance by the Bank and is fully
subordinated to payment of the Note on the terms acceptable
to the Bank.
(b) The Borrower shall not make any loan or capital
contribution to, or any other investment in, any Affiliate,
or make any distribution or other cash transfer of any kind
to, any Affiliate, but not including loans to officers
permitted under Section 6.4. The Borrower shall not engage
in any other transaction (including but not limited to sales
of goods and services) with any Affiliate, except as
permitted by this Section 6.8.
(c) Nothing in this Section 6.8 shall limit the
Borrower's right to grant options for the purchase of its
stock to its officers, directors and employees.
Section 6.9 Sale and Leaseback. The Borrower will not, and
will not permit any Subsidiary to, enter into any arrangement,
directly or indirectly, with any other Person whereby the
Borrower shall sell or transfer any real or personal property,
whether now owned or hereafter acquired, and then or thereafter
rent or lease as lessee such property or any part thereof or any
other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being
sold or transferred.
Section 6.10 Subordinated Debt. The Borrower, and will not
permit any Subsidiary to, (i) make any payment of, or acquire,
any Subordinated Debt except as expressly permitted by the Seller
Subordination Agreement; (ii) give security for all or any part
of such Subordinated Debt except as permitted by Section 6.1(i);
(iii) amend or cancel the subordination provisions of such
Subordinated Debt; (iv) take or omit to take any action whereby
the subordination of such Subordinated Debt or any part thereof
to the Note might be terminated, impaired or adversely affected;
or (v) omit to give the Bank prompt written notice of any default
under any agreement or instrument relating to such Subordinated
Debt by reason whereof such Subordinated Debt might become or be
declared to be immediately due and payable.
Section 6.11 Capital Expenditures. The Borrower will not,
and will not permit any Subsidiary to, make any Capital
Expenditure (including payments under capitalized leases) if,
after giving effect to such expenditure, the aggregate amount of
Capital Expenditures made by the Borrower and the Subsidiaries
combined will exceed
<PAGE>
$275,000 in any period of 12 consecutive months; provided,
however, that the restriction contained in this Section is
subject to the further limitations imposed by Section 6.1(e) if
any asset is acquired under a purchase money mortgage, lien or
security interest referred to in that Section; and, provided
further that such restriction shall not apply to any purchase or
lease of switch hardware or software on terms and conditions and
in an amount approved in advance by the Bank. Such approval
shall not be unreasonably withheld, but the Bank may impose such
terms and conditions on its approval (including but not limited
to the imposition of fees and amendments to the terms of this
Agreement) as the Bank may in its sole discretion require.
Section 6.12 Rental Payments. The Borrower will not, and
will not permit any Subsidiary to, become or be a party as lessee
to any lease (excluding capitalized leases) with respect to real
or personal property if, after giving effect to such lease, the
aggregate amount of rent for any period of 12 consecutive months
payable by the Borrower and the Subsidiaries combined with
respect to all such leases (after deducting the aggregate amount
of rent receivable by the Borrower under any sublease of any such
lease to any Person) will exceed $500,000. For purposes of this
Section, "rent", with respect to any lease or sublease and for
any period, means the aggregate minimum amount payable by the
lessee or sublessee to the lessor or sublessor for such period.
Section 6.13 Hazardous Substances. The Borrower will not,
and will permit any Subsidiary to, cause or permit any Hazardous
Substance to be disposed of, in any manner which might result in
any material liability to the Borrower, on, under or at any real
property which is operated by the Borrower or in which the
Borrower has any interest.
Section 6.14 Restrictions on Nature of Business; Change in
Management. The Borrower will not, and will not permit any
Subsidiary to engage in any line of business materially different
from that presently engaged in by the Borrower or such
subsidiary. The Borrower will not make any material change in
its management.
ARTICLE 7
Events of Default, Rights and Remedies
Section 7.1 Events of Default. "Event of Default",
wherever used herein, means any one of the following events:
(a) Default in the payment of any principal of or
interest on the Note when it becomes due and payable,
including without limitation any mandatory prepayments under
Section 2.9 hereof.
<PAGE>
(b) Default in the performance, or breach, of any
covenant or agreement on the part of the Borrower contained
in Section 5.9, 5.10, 5.11, or 6.11 hereof.
(c) Default in the performance, or breach, of any
covenant or agreement of the Borrower in this Agreement
(other than a covenant or agreement a default in whose
performance or whose breach is elsewhere in this Section
specifically dealt with), or of the Borrower or any
Subsidiary under any Security Agreement, the Pledge
Agreement, the Subsidiaries Guaranties or any other security
agreement, mortgage, deed of trust, assignment or other
instrument or agreement directly or indirectly securing any
obligations of the Borrower hereunder or under any Note or
any guaranty of such obligations, and the continuance of
such default or breach for a period of 30 days after the
Bank has given notice to the Borrower specifying such
default or breach and requiring it to be remedied.
(d) Any representation or warranty made by the
Borrower in this Agreement or by the Borrower, any
Subsidiary or the Guarantor (or any of the officers of the
Borrower or any Subsidiary) in any agreement, certificate,
instrument, or statement contemplated by or made or
delivered pursuant to or in connection with this Agreement,
shall prove to have been incorrect or misleading in any
material respect when made.
(e) A default under any bond, debenture, note or other
evidence of indebtedness with respect to any indebtedness of
the Borrower (other than to the Bank) or under any indenture
or other instrument under which any such evidence of
indebtedness has been issued or by which it is governed and
the expiration of the applicable period of grace, if any,
specified in such evidence of indebtedness, indenture or
other instrument; provided, however, that if such default
shall be cured by the Borrower, or waived by the holders of
such indebtedness, in each case as may be permitted by such
evidence of indebtedness, indenture or other instrument,
then the Event of Default hereunder by reason of such
default shall be deemed likewise to have been thereupon
cured or waived.
(f) The Guarantor or any Subsidiary shall repudiate,
purport to revoke or fail to perform any of his obligations
under his or its Guaranty.
(g) The Life Insurance Policy shall be terminated, by
the Borrower or otherwise; or the Life Insurance Policy
shall be scheduled to terminate within 30 days and the
Borrower shall not have delivered a satisfactory renewal
thereof to the Bank; or the Borrower shall fail to pay any
premium on the Life Insurance
<PAGE>
Policy when due; or the Borrower shall take any other action
that impairs the value of the Life Insurance Policy.
(h) Default in the payment of any amount owed by the
Borrower to the Bank other than hereunder or under the Note,
after notice of such default by the Bank the Borrower and
failure to cure such default within five days of such
notice.
(i) The Borrower or any Subsidiary shall be
adjudicated a bankrupt or insolvent, or admit in writing its
or his inability to pay its debts as they mature, or make an
assignment for the benefit of creditors; or the Borrower or
any Subsidiary shall apply for or consent to the appointment
of any receiver, trustee, or similar officer for it or for
all or any substantial part of its or his property; or such
receiver, trustee or similar officer shall be appointed
without the application or consent of the Borrower or any
Subsidiary and such appointment shall continue undischarged
for a period of 30 days; or the Borrower or any Subsidiary
shall institute (by petition, application, answer, consent
or otherwise) any bankruptcy, insolvency, reorganization,
arrangement, readjustment of debt, dissolution, liquidation
or similar proceeding relating to it under the laws of any
jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or
any Subsidiary; or any judgment, writ, warrant of attachment
or execution or similar process shall be issued or levied
against a substantial part of the property of the Borrower
or any Subsidiary and such judgment, writ, or similar
process shall not be released, vacated or fully bonded
within 30 days after its issue or levy.
(j) A petition shall be filed by or against the
Borrower or any Subsidiary under the United States
Bankruptcy Code naming the Borrower or any Subsidiary as
debtor; provided, however, in the case of an involuntary
petition, no Event of Default shall occur hereunder unless
and until the earlier of (i) 30 days following the filing of
such petition without the petition having been dismissed, so
long as the Person against whom the petition shall have been
filed shall in good faith contest such petition and shall
diligently proceed to obtain dismissal thereof or (ii) entry
of an order by the bankruptcy court granting relief in the
case or consent by such Person to entry of such an order.
(k) Any law, regulation or order of any federal, state
or local governmental body or agency or any court shall be
modified, issued, vacated or rescinded, and the Bank shall
determine in good faith that such modification, issuance,
vacation or rescission will have a material adverse effect
on the Borrower and its Subsidiaries or the position of the
Borrower and its Subsidiaries in its marketplace.
<PAGE>
(l) Any License or Material Agreement shall terminate
(without renewal or replacement by a comparable agreement)
or be suspended or revoked, and the Bank shall determine in
good faith that such termination, suspension or revocation
shall (either alone or in conjunction with one or more other
such terminations, suspensions and revocations of Licenses
or Material Agreements) have a material adverse impact upon
the Borrower or any Subsidiary.
(m) The Borrower shall make any payment prohibited by
any subordination agreement in favor of the Bank.
(n) The rendering against the Borrower or any
subsidiary of a final judgment, decree or order for the
payment of money in excess of $100,000 and the continuance
of such judgment, decree or order unsatisfied and in effect
for any period of 30 consecutive days without a stay of
execution.
(o) A writ of attachment, garnishment, levy or similar
process shall be issued against or served upon the Bank with
respect to (i) any property of the Borrower or any
Subsidiary or the Guarantor in the possession of the Bank,
or (ii) any indebtedness of the Bank to the Borrower or any
Subsidiary.
(p) Any Plan shall have been terminated (other than
termination of the Target Company's 401(k) Plan), or a
trustee shall have been appointed by an appropriate United
States District Court to administer any Plan, or the Pension
Benefit Guaranty Corporation shall have instituted
proceedings to terminate any Plan or to appoint a trustee to
administer any Plan, or withdrawal liability shall have been
asserted against the Borrower or any ERISA Affiliate by a
Multiemployer Plan; or the Borrower or any ERISA Affiliate
shall have incurred liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the
Department of Labor or Plan participants in excess of
$1,000,000 with respect to any Plan; or any Reportable Event
that the Bank may determine in good faith might constitute
grounds for the termination of any Plan, for the appointment
by the appropriate United States District Court of a trustee
to administer any Plan or for the imposition of withdrawal
liability with respect to a Multiemployer Plan, shall have
occurred and be continuing 30 days after written notice to
such effect shall have been given to the Borrower by the
Bank.
(q) The Borrower shall fail to have sold or otherwise
disposed of at least 80% of the stock of SATC on or before
December 31, 1995.
Section 7.2 Rights and Remedies. Upon the occurrence and
during the continuation of an Event of Default or at any time
thereafter, the Bank may exercise any or all of the following
rights and remedies:
<PAGE>
(a) The Bank may, by notice to the Borrower, declare
the entire unpaid principal amount of the Note, all interest
accrued and unpaid thereon, and all other amounts payable
under this Agreement to be forthwith due and payable,
whereupon the Note, all such accrued interest and all such
amounts shall become and be forthwith due and payable,
without presentment, demand, protest or further notice of
any kind, all of which are hereby expressly waived by the
Borrower.
(b) The Bank may, by notice to the Borrower, declare
its commitment to make additional Term Advances to be
terminated, whereupon the same shall forthwith terminate.
(c) The Bank may, without notice to the Borrower and
without further action, apply any and all money owing by the
Bank to the Borrower to the payment of the Note, including
interest accrued thereon, and of all other sums then owing
by the Borrower hereunder.
(d) The Bank may exercise and enforce its rights and
remedies under the other Loan Documents, the Guaranty and
the Pledge Agreement.
(e) The Bank may exercise any other rights and
remedies available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of
Default described in Section 7.1(j) or 7.1(o) hereof, the entire
unpaid principal amount of the Note, all interest accrued and
unpaid thereon, and all other amounts payable under this
Agreement shall be immediately due and payable without
presentment, demand, protest or notice of any kind.
ARTICLE 8
Miscellaneous
Section 8.1 No Waiver; Cumulative Remedies. No failure or
delay on the part of the Bank in exercising any right, power or
remedy under the Loan Documents shall operate as a waiver
thereof; nor shall the Bank's acceptance of payments while any
Default or Event of Default is outstanding operate as a waiver of
such Default or Event of Default, or any right, power or remedy
under the Loan Documents; nor shall any single or partial
exercise of any such right, power or remedy preclude any other or
further exercise thereof or the exercise of any other right,
power or remedy under the Loan Documents. The remedies provided
in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
<PAGE>
Section 8.2 Amendments, Etc. No amendment, modification,
termination or waiver of any provision of any Loan Document or
consent to any departure by the Borrower therefrom shall be
effective unless the same shall be in writing and signed by the
Bank and then such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which
given. No notice to or demand on the Borrower in any case shall
entitle the Borrower to any other or further notice or demand in
similar or other circumstances (unless otherwise required).
Section 8.3 Notice. Except as otherwise expressly provided
herein, all notices and other communications hereunder shall be
in writing and shall be (i) personally delivered, (ii) sent by
registered mail, postage prepaid, or (iii) transmitted by
telecopy, in each case addressed to the party to whom notice is
being given at its address as set forth below and, if telecopied,
transmitted to that party at its telecopier number set forth
below:
If to the Borrower:
SA Holdings, Inc.
1912 Avenue K
Suite 100
Plano, Texas 75074-5959
Attention: Chief Executive Officer
Telecopier: (214) 881-0656
If to the Bank:
Norwest Bank Minnesota, National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479-0058
Attention: Communications Division
Telecopier (612) 667-0505
or, as to each party, at such other address or telecopier number
as may hereafter be designated in a notice by that party to the
other party complying with the terms of this Section. All such
notices or other communications shall be deemed to have been
given on (i) the date received if delivered personally, (ii) the
date of posting if delivered by mail, or (iii) the date of
transmission if delivered by telecopy, except that notices or
requests to the Bank pursuant to any of the provisions of Article
2 shall not be effective until received by the Bank.
Section 8.4. Participations. The Bank may grant
participations in or assign any portion or all of the Note to any
institutional investor without the consent of the
<PAGE>
Borrower, provided, however, that the Bank shall give notice to
the Borrower of any such participation or assignment. The
Borrower shall assist the Bank in granting any such
participations and making any such assignments.
Section 8.5. Disclosure of Information. The Borrower
authorizes the Bank to disclose to any participant or assignee
(each, a "Transferee") and any prospective Transferee any and all
financial and other information in the Bank's possession
concerning the Borrower which has been delivered to the Bank by
the Borrower pursuant to this Agreement or which has been
delivered to the Bank by the Borrower in connection with the
Bank's credit evaluation of the Borrower before entering into
this Agreement.
Section 8.6 Costs and Expenses. The Borrower agrees to pay
on demand all costs and expenses incurred by the Bank in
connection with the negotiation, preparation, execution,
administration, amendment, performance or enforcement of the Loan
Documents and the other instruments and documents to be delivered
hereunder and thereunder, including the reasonable fees and
out-of-pocket expenses of counsel for the Bank with respect
thereto, whether paid to outside counsel or allocated to the Bank
by in-house counsel. The Borrower also agrees to pay and
reimburse the Bank for all of its out-of-pocket and allocated
costs incurred in connection with (i) each audit or examination
conducted by the Bank, its employees or agents, including but not
limited to the pre-closing collateral audit referenced in
Section 3.1(z) and (ii) annual monitoring visits by Bank
personnel, which audits, examinations and monitoring visits shall
be for the sole benefit of the Bank; provided, however, that so
long as no Default or Event of Default has occurred and is
continuing, the Borrower shall pay for no more than four audits
during any calendar year.
Section 8.7. Indemnification by Borrower. The Borrower
hereby agrees to indemnify the Bank and each officer, director,
employee and agent thereof (herein individually each called an
"Indemnitee" and collectively called the "Indemnitees") from and
against any and all losses, claims, damages, reasonable expenses
(including, without limitation, reasonable attorneys' fees) and
liabilities (all of the foregoing being herein called the
"Indemnified Liabilities") incurred by an Indemnitee in
connection with any litigation in which it is alleged that any
Environmental Law has been breached with respect to any activity
or property of the Borrower, except for any portion of such
losses, claims, damages, expenses or liabilities incurred solely
as a result of the gross negligence or willful misconduct of the
applicable Indemnitee. If and to the extent that the foregoing
indemnity may be unenforceable for any reason, the Borrower
hereby agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law. All obligations provided for
in this Section shall survive any termination of this Agreement.
<PAGE>
Section 8.8 Execution in Counterparts. This Agreement and
the Security 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 counterparts of this
Agreement or the Security Agreement, as the case may be, taken
together, shall constitute but one and the same instrument.
Section 8.9 Binding Effect, Assignment. The Loan Documents
shall be binding upon and inure to the benefit of the Borrower
and the Bank and their respective successors and assigns, except
that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the prior written
consent of the Bank.
Section 8.10 Governing Law; Jurisdiction; Venue. The Loan
Documents shall be governed by, and construed in accordance with,
the substantive laws (other than conflicts laws) of the State of
Minnesota. Each party consents to the personal jurisdiction of
the state and federal courts located in the State of Minnesota in
connection with any controversy related to this Agreement or any
other Loan Document, waives any argument that venue in any such
forum is not convenient, and agrees that any litigation initiated
by any of them in connection with this Agreement or any other
Loan Document shall be venued in either the District Court of
Hennepin County, Minnesota, or the United States District Court,
District of Minnesota, Fourth Division.
Section 8.11. WAIVER OF JURY TRIAL. THE BORROWER AND THE
BANK HEREBY IRREVOCABLY WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY
ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED ON CONTRACT,
TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY.
Section 8.12 Severability of Provisions. Any provision of
this Agreement which is prohibited or unenforceable shall be
ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof.
Section 8.13 Prior Agreements. This Agreement and the
other Loan Documents and related documents described herein
restate and supersede in their entirety any and all prior
agreements and understandings, oral or written, between the Bank
and the Borrower.
Section 8.14 Headings. Article and Section headings in
this Agreement are included herein for convenience of reference
only and shall not constitute a part of this Agreement for any
other purpose.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the date first above written.
SA HOLDINGS, INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By:__________________________ By:___________________________
Jack W. Matz, Jr. Jeffrey P. Jacobsen
Its Chief Executive Officer Its Vice President
<PAGE>
EXHIBITS AND SCHEDULES
Exhibit A Note
Exhibit B Guaranty
Exhibit C Security Agreement
Exhibit D Subsidiary Guaranty
Exhibit E Form of Assignment of Deposit
Account
Exhibit F Opinion of Counsel to Borrower and
Guarantor
Exhibit G Borrowing Certificate
Exhibit H Compliance Certificate
__________________________________
Schedule 4.4 Subsidiaries
Schedule 4.7 Litigation
Schedule 4.11 Capitalization
Schedule 4.12 Real Property
Schedule 4.14 Licenses
Schedule 4.15 Material Agreements
Schedule 6.1 Permitted Liens
Schedule 6.2 Permitted Indebtedness
Schedule 6.3 Permitted Guaranties
<PAGE>
EXHIBIT A TO
TERM CREDIT AGREEMENT
TERM NOTE
$10,000,000 Minneapolis, Minnesota
July 31, 1995
For value received, SA Holdings, Inc., a Delaware
corporation (the "Borrower"), promises to pay to the order of
Norwest Bank Minnesota, National Association, a national banking
association (the "Bank"), at its main office in Minneapolis,
Minnesota, or at such other place as the holder hereof may
hereafter from time to time designate in writing, in lawful money
of the United States of America and in immediately available
funds, the principal sum of Ten Million Dollars ($10,000,000) or,
if less, the aggregate principal amount of Term Advances which
may be made by the Bank to the Borrower under the Term Credit
Agreement of even date herewith between the Borrower and the Bank
(the "Credit Agreement"), and to pay interest on the principal
balance of this Note outstanding from time to time at the rate or
rates and otherwise as determined pursuant to the Credit
Agreement; provided, however, that if collection of interest at
such rate or rates would be contrary to applicable law, interest
shall be paid at the maximum rate of interest which, under
applicable law, may then be changed on this Note.
All interest accruing on the principal balance of this Note
shall be due and payable on the last day of each calendar
quarter, commencing on September 30, 1995, and at maturity or
earlier prepayment in full.
The principal balance of this Note shall be due and payable
in quarterly installments due and payable on the last day of each
March, June, September and December commencing December 31, 1996.
The amount of each quarterly installment shall be the amount as
set forth in the Credit Agreement. All outstanding principal and
accrued interest will be due and payable in full on June 30,
2000.
This Note is issued pursuant to, and is subject to, the
Credit Agreement, which provides (among other things) for the
acceleration of the maturity hereof upon the occurrence of an
Event of Default (as defined therein) and for the voluntary and
mandatory prepayment hereof.
The Borrower shall pay all costs of collection, including
reasonable attorneys' fees and legal expenses, if this Note is
not paid when due, whether or not legal proceedings are
commenced.
This Note shall be governed by the internal laws (other than
conflict laws) of the State of Minnesota. It is expressly
stipulated and agreed to be the intent of the
<PAGE>
holder hereof to at all times comply with the usury and other
applicable laws now or hereafter governing the interest payable
on the indebtedness evidenced by this Note. If the applicable
law is ever revised, repealed or judicially interpreted so as to
render usurious any amount called for under this Note or under
any of the other Loan Documents (as defined int he Credit
Agreement), or contracted for, charged, taken, reserved or
received with respect to the indebtedness evidenced by this Note,
or if Bank's exercise of the option to accelerate the maturity of
this Note, or if any prepayment by Borrower results in Borrower
having paid any interest in excess of that permitted by law, then
it is the express intent of Borrower and Bank that all excess
amounts theretofore collected by Bank be credited on the
principal balance of this Note (or, if this Note and all other
indebtedness arising under or pursuant to the other Loan
Documents have been paid in full, refunded to Borrower), and the
provisions of this Note and the other Loan Documents immediately
be deemed reformed and the amounts thereafter collectable
hereunder and thereunder reduced, without the necessity of the
execution of any new document, so as to comply with the then
applicable law, but so as to permit the recovery of the fullest
amount otherwise called for hereunder or thereunder.
Presentment or other demand for payment, notice of dishonor
and protest are expressly waived.
SA HOLDINGS, INC.
By ___________________________________
Jack W. Matz, Jr.
Its Chief Executive Officer
<PAGE>
EXHIBIT B TO
TERM CREDIT AGREEMENT
GUARANTY
This Guaranty is made as of the 31st day of July, 1995,
by JACK W. MATZ, JR. (the "Guarantor"), for the benefit of
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION, a national banking
association (the "Bank").
Recitals
A. Pursuant to a Term Credit Agreement (as may
hereafter be amended, restated or supplemented from time to time,
the "Credit Agreement") of even date herewith by and between SA
Holdings, Inc., a Delaware corporation (the "Borrower"), and the
Bank, the Bank has agreed to make certain loans to the Borrower
upon the fulfillment of the conditions set forth therein.
B. The loans to be made under the Credit Agreement
will be evidenced by the term note of the Borrower of even date
herewith, payable to the order of the Bank in the original
principal amount of $10,000,000 (as the same may hereafter be
renewed, extended, amended, restated or modified from time to
time, or any note or notes issued in substitution therefor, the
"Note").
C. As a condition to making loans to the Borrower
under the Credit Agreement, the Bank has required the execution
and delivery by the Guarantor of the Collateral Pledge Agreement
of even date herewith, granting the Bank a security interest in
all of the issued and outstanding stock of the Borrower owned by
the Guarantor (as the same may hereafter be amended and restated
from time to time, the "Pledge Agreement").
D. As a further condition to making loans to the
Borrower under the Credit Agreement, the Bank has required the
execution and delivery of this Guaranty.
E. The Guarantor is a shareholder of the Borrower and
accordingly expects to derive substantial economic benefit from
the Credit Agreement and the loans and other financial
accommodations to be made thereunder.
ACCORDINGLY, the Guarantor, in consideration of the
premises and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, hereby agrees
as follows:
1. All terms defined in the Credit Agreement that are
not otherwise defined herein shall have the meanings given them
in the Credit Agreement.
2. Subject to the limitations set forth in paragraph
5, the Guarantor hereby absolutely and unconditionally guarantees
to the Bank the full and prompt payment when due, whether at
maturity or earlier by reason of acceleration or otherwise, of
(i) the Note, including all interest thereon, and any extensions
or renewals thereof and substitutions therefor; and (ii) each and
every other sum now or hereafter owing to the Bank under the
Credit Agreement (all of said sums being hereinafter called the
"Indebtedness").
<PAGE>
3. The Guarantor will pay all costs, expenses and
attorneys' fees paid or incurred by the Bank in endeavoring to
enforce this Guaranty.
4. No act or thing need occur to establish the
liability of the Guarantor hereunder, and with the exception of
full payment, no act or thing (including, but not limited to, a
discharge in bankruptcy of the Indebtedness, and/or the running
of the statute of limitations) relating to the Indebtedness which
but for this provision could act as a release of the liabilities
of the Guarantor hereunder, shall in any way exonerate the
Guarantor, or affect, impair, reduce or release this Guaranty and
the liability of the Guarantor hereunder; and this shall be a
continuing, absolute and unconditional guaranty and shall be in
force and be binding upon the Guarantor until the Indebtedness is
fully paid, except as provided in Section 2.5 of the Credit
Agreement.
5. Notwithstanding the aggregate amount of the
Indebtedness which may from time to time be outstanding, the
liability of the Guarantor hereunder shall be limited to a
principal amount of $500,000, plus accrued interest thereon and
all attorneys' fees, collection costs and enforcement expenses
paid or incurred by the Bank in connection with this Guaranty.
Indebtedness may be created and continued in any amount, whether
or not in excess of such principal amount, without affecting or
impairing the liability of the Guarantor hereunder, and the Bank
may pay (or allow for the payment of) the excess out of any sums
received by or available to the Bank on account of the
Indebtedness from the Borrower or any other person (except the
Guarantor), from its property, out of any collateral security or
from any other source, and such payment (or allowance) shall not
reduce, affect or impair the liability of the Guarantor
hereunder. Any payment made by the Guarantor under this Guaranty
shall be effective to reduce or discharge the Guarantor's
liability only if accompanied by a written transmittal document,
received by the Bank, advising the Bank that such payment is made
under this Guaranty for such purpose.
6. The liability of the Guarantor hereunder shall not
be affected or impaired in any way by any of the following acts
or things (which the Bank is hereby expressly authorized to do,
omit or suffer from time to time without notice to or consent of
anyone): (i) any acceptance of collateral security, guarantors,
accommodation parties or sureties for any or all Indebtedness;
(ii) any extension or renewal of any Indebtedness (whether or not
for longer than the original period) or any modification of the
interest rate, maturity or other terms of any Indebtedness;
(iii) any waiver or indulgence granted to the Borrower, any delay
or lack of diligence in the enforcement of the Note or any other
Indebtedness; (iv) any full or partial release of, compromise or
settlement with, or agreement not to sue, the Borrower or any
other guarantor or other person liable on any Indebtedness;
(v) any release, surrender, cancellation or other discharge of
any Indebtedness or the acceptance of any instrument in renewal
or substitution for any instrument evidencing Indebtedness;
(vi) any failure to obtain collateral security (including rights
of setoff) for any Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to
<PAGE>
establish the priority thereof, or to preserve, protect, insure,
care for, exercise or enforce any collateral security for any of
the Indebtedness; (vii) any modification, alteration,
substitution, exchange, surrender, cancellation, termination,
release or other change, impairment, limitation, loss or
discharge of any collateral security for any of the Indebtedness;
(viii) any assignment, sale, pledge or other transfer of any of
the Indebtedness; or (ix) any manner, order or method of
application of any payments or credits on any Indebtedness. The
Guarantor waives any and all defenses and discharges available to
a surety, guarantor, or accommodation co-obligor, dependent on
its character as such.
7. The Guarantor waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge
by payment in full. Without limiting the generality of the
foregoing, the Guarantor will not assert against the Bank any
defense of waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds, anti-deficiency
statute, fraud, ultra vires acts, usury, illegality or
unenforceability which may be available to the Borrower in
respect of the Indebtedness, or any setoff available against the
Bank to the Borrower, whether or not on account of a related
transaction, and the Guarantor expressly agrees that it shall be
and remain liable for any deficiency remaining after foreclosure
of any lien or security interest securing any Indebtedness,
notwithstanding provisions of applicable law that may prevent the
Bank from enforcing such deficiency against the Borrower (subject
to the limitation set forth in paragraph 5). The liability of
the Guarantor shall not be affected or impaired by any voluntary
or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all the assets, marshalling
of assets and liabilities, receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization,
arrangement, composition or readjustment of, or other similar
event or proceeding affecting, the Borrower or any of its assets.
The Guarantor will not assert against the Bank any claim, defense
or setoff available to the Guarantor against the Borrower.
8. The Guarantor also hereby waives:
(i) presentment, demand for payment, notice of dishonor or
nonpayment, and protest of the Indebtedness; (ii) notice of the
acceptance hereof by the Bank and of the creation and existence
of all Indebtedness; and (iii) notice of any amendment to or
modification of any of the terms and provisions of the Note, the
Credit Agreement or any other agreement evidencing or securing
any Indebtedness. The Bank shall not be required first to resort
for payment of the Indebtedness to the Borrower or other persons
or corporations, their properties or estates, or to any
collateral, property, liens or other rights or remedies
whatsoever.
9. Notwithstanding any other provision of this
Guaranty, the Bank hereby acknowledges and agrees that the
indebtedness, liabilities and obligations of the Guarantor under
this
<PAGE>
Guaranty are indebtedness, liabilities and obligations of the
Guarantor only and not a community debt of the Guarantor and his
wife, Nancy Louise Matz ("NLM"). The Bank hereby further agrees
that the Bank, in pursuing its remedies against the Guarantor
under this Guaranty shall have no recourse against any right,
title or interest of the Guarantor or NLM in NLM's computer
software business (currently operated as Dynamic Energy Systems,
Inc.), any successor to such computer software business, or any
other commercial activities of NLM alone.
10. If any payment applied by the Bank to the
Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the
Borrower or any other obligor), the Indebtedness to which such
payment was applied shall for the purposes of this Guaranty be
deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such
Indebtedness as fully as if such application had never been made.
11. The Guarantor hereby will not recover any sums
paid under this Guaranty from, or otherwise be entitled to
payment by, the Borrower or its property, until all of the
Indebtedness (including interest) and all costs, expenses and
attorneys' fees paid or incurred by the Bank have been fully
paid.
12. The Guarantor represents and warrants to the Bank
that (i) the Guarantor is a shareholder of the Borrower, and the
Guarantor accordingly expects to derive substantial economic
benefit from the Credit Agreement and the loans to the Borrower
and any other financial accommodations under the Credit Agreement
or otherwise to the Borrower; (ii) the execution, delivery and
performance of this Guaranty do not and will not violate the
provisions of or constitute a default under any presently
applicable law or any other agreement presently binding upon the
Guarantor; (iii) this Guaranty has been duly executed and
delivered by the Guarantor and constitutes his lawful, binding
and legally enforceable obligation; and (iv) the Guarantor (A) is
not insolvent as of the date hereof, and shall not become
insolvent as a result of the execution and delivery of this
Guaranty, (B) is not engaged in business or a transaction, or
about to engage in business or a transaction, for which his
property is an unreasonably small capital, and (C) does not
intend to incur, or believe that he will incur, debts that would
be beyond his ability to pay as such debts mature.
13. Subject to the provisions of Section 2.5 of the
Credit Agreement relating to the termination of this Guaranty,
this Guaranty shall constitute a continuing and irrevocable
guaranty, and the Bank may continue, without notice to or consent
by the Guarantor, to make loans and extend other credit or
financial accommodation to or for the account of the Borrower in
reliance upon this Guaranty until written notice of revocation of
this Guaranty shall have been received by the Bank from the
Guarantor. Any such notice of revocation shall not affect this
Guaranty in relation to any Indebtedness then existing or created
thereafter pursuant to any previous commitment of the Bank to the
Borrower, or any extensions or renewals of any such Indebtedness,
and as to all such Indebtedness and extensions or renewals
thereof, this Guaranty shall, subject to such provisions of
Section 2.5
<PAGE>
of the Credit Agreement, continue effective until the same have
been fully paid with interest.
14. This Guaranty shall be binding upon the heirs,
representatives, successors and assigns of the Guarantor, and
shall inure to the benefit of the successors and assigns of the
Bank.
15. This Guaranty is secured by the Guarantor's stock
of the Borrower, pursuant to the Pledge Agreement of the
Guarantor.
IN WITNESS WHEREOF, the Guarantor has executed this
Guaranty as of the day and year first above written.
______________________________
Jack W. Matz, Jr.
<PAGE>
EXHIBIT C TO
TERM CREDIT AGREEMENT
SECURITY AGREEMENT
This Agreement is made as of the ____ day of ________,
1995, by and between __________________, a _________________
corporation (the "Debtor"), and NORWEST BANK MINNESOTA, NATIONAL
ASSOCIATION, a national banking association (the "Secured
Party").
[The Debtor] [SA Holdings, Inc. (the "Borrower")] and
the Secured Party have entered into a Term Credit Agreement of
even date herewith (as may hereafter be amended, supplemented or
restated from time to time, the "Credit Agreement"), setting
forth the terms on which the Secured Party may now or hereafter
make certain loans to or other financial accommodations for the
[Debtor] [Borrower].
As a condition to making loans under the Credit
Agreement, the Secured Party has required the execution and
delivery of this Agreement by the Debtor.
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. In addition, the
following terms have the meanings set forth below:
"Accounts" means each and every account and other right
of the Debtor to the payment of money, whether such right to
payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease or other disposition
of goods or other property by the Debtor, out of a rendering
of services by the Debtor, out of a loan by the Debtor, out
of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement,
whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests
(including all liens and security interests) which the
Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such
payment or against any of the property of such account
debtor or other obligor, all including but not limited to
all present and future debt instruments, chattel papers,
accounts, loans and obligations receivable and tax refunds.
"Collateral" means the Accounts, Inventory, Equipment
and General Intangibles, together with all substitutions and
replacements for, products and proceeds of, any of the
foregoing property, all accessions, all accessories,
attachments, parts, equipment and repairs now or hereafter
attached or affixed to or
<PAGE>
used in connection with any of the foregoing, and all
warehouse receipts, bills of lading and other documents of
title now or hereafter covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether
now owned or hereafter acquired and wherever located,
including but not limited to all present and future
machinery, vehicles, receiving and transmitting equipment,
furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping
equipment, parts and tools.
"Event of Default" has the meaning specified in Section
7.
"Franchise" means (i) to the extent a security interest
can be granted therein under applicable law, any
authorization, license, permit or franchise presently held
by or hereafter granted or assigned to the Debtor by any
public or governmental body, any agreement relating thereto,
and (ii) any microwave service agreement, tower lease
agreement, real property lease agreement or other agreement
to which the Debtor is now or hereafter becomes a party,
including but not limited to those Licenses and Material
Agreements specifically identified in Schedules 4.14 and
4.15 to the Credit Agreement.
"General Intangibles" means all general intangibles of
the Debtor, whether now owned or hereafter acquired,
including but not limited to all Franchises, other
franchises, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, trade names, customer
lists, permits, and the right to use the Debtor's names.
"Inventory" means all inventory of the Debtor, whether
now owned or hereafter acquired and wherever located.
"Obligations" means (i) the Note, including interest
thereon and any extensions, renewals or replacements
thereof, [(ii) the Guaranty] and (ii) each and every other
debt, liability and obligation of every type and description
which the Debtor may now or at any time hereafter owe to the
Secured Party, whether such debt, liability or obligation
now exists or is hereafter created or incurred and whether
it is or may be direct or indirect, due or to become due, or
absolute or contingent, including without limitation all
debt, liability and obligation of the Debtor under the
Credit Agreement and extensions, renewals, amendments or
replacements thereof.
"Permitted Lien" means any of the liens, security
interests or other encumbrances permitted under Section 6.1
of the Credit Agreement.
"Security Interest" has the meaning specified in
Section 2.
<PAGE>
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in
the Collateral to secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) Title. The Debtor (i) has absolute title to each
item of Collateral in existence on the date hereof, free and
clear of all security interests, liens and encumbrances,
except the Security Interest and other Permitted Liens,
(ii) will have, at the time the Debtor acquires any rights
in Collateral hereafter arising, absolute title to each such
item of Collateral free and clear of all security interests,
liens and encumbrances, except the Security Interest and
other Permitted Liens, (iii) will keep all Collateral free
and clear of all security interests, liens and encumbrances,
except the Security Interest and Permitted Liens, and
(iv) will defend the Collateral against all claims or
demands (other than claims and demands based on Permitted
Liens) of all persons other than the Secured Party. The
Debtor will not, other than in the ordinary course of its
business, sell or otherwise dispose of the Collateral or any
interest therein without the prior written consent of the
Secured Party.
(b) Corporate Existence and Power. The Debtor is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of
____________________, and is duly licensed or qualified to
transact business in _____________________. The Debtor is
duly licensed or qualified to do business in all the
jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes
its licensing or qualification necessary. The Debtor has
all requisite power and authority, corporate or otherwise,
to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations
under this Security Agreement, [the Guaranty] and all other
documents executed in connection therewith.
(c) Authorization; No Conflict as to Law or
Agreements. The execution, delivery and performance by the
Debtor of this Security Agreement have been duly authorized
by all necessary corporate action of the Debtor and do not
and will not (i) require any consent or approval of the
shareholders of the Debtor, or any authorization, consent or
approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii)
violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect
having applicability to the Debtor or of its articles of
incorporation or bylaws, (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to
which the Debtor is a party or by which it or its properties
may be bound or affected. This Security Agreement
constitutes the legal, valid and binding obligations of the
Debtor enforceable against the Debtor in accordance with its
terms.
<PAGE>
(d) Litigation; Adverse Change. Except as previously
disclosed to the Secured Party, there are no actions, suits
or proceedings pending or, to the knowledge of the Debtor,
threatened against or affecting the Debtor or the property
of the Debtor before any court or governmental department,
commission, board, bureau, agency or instrumentality, which,
if determined adversely to the Debtor, would have a material
adverse effect on the financial condition, properties, or
operations of the Debtor. There has been no material
adverse change in the business, properties or condition
(financial or otherwise) of the Debtor since April 30, 1995.
(e) Chief Executive Office; Identification Number.
The Debtor's chief executive office is located at the
address set forth under its signature below. The Debtor's
federal employer identification number is correctly set
forth under its signature below.
(f) Location of Collateral. As of the date hereof,
the tangible Collateral is located only in the states of
Texas and ___________________________. The Debtor will not
permit any tangible Collateral to be located in any state
(and, if county filing is required, in any county) in which
a financing statement covering such Collateral is required
to be, but has not in fact been, filed in order to perfect
the Security Interest.
(g) Changes in Name or Location. The Debtor will not
change its name or the location of its place of business
without prior written notice to the Secured Party.
(h) Fixtures. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real
property without first assuring to the reasonable
satisfaction of the Secured Party that the Security Interest
will be prior and senior to any interest or lien then held
or thereafter acquired by any mortgagee of such real
property or the owner or purchaser of any interest therein.
If any part or all of the tangible Collateral is now or will
become so related to particular real estate as to be a
fixture, the real estate concerned and the name of the
record owner are accurately set forth in Exhibit A hereto.
(i) Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement
constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally
enforceable obligation, subject to no defense, setoff or
counterclaim (other than those arising in the ordinary
course of business), of the account debtor or other obligor
named therein or in the Debtor's records pertaining thereto
as being obligated to pay such obligation. The Debtor will
not, other than in the ordinary course of business, agree to
any material modification or amendment, or to any
forbearance, release or cancellation, of any such obligation
without the Secured Party's prior written consent, and the
Debtor will not subordinate any such right to payment to
claims of other creditors of such account debtor or other
obligor.
<PAGE>
(j) Miscellaneous Covenants. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation
excepted, and will, from time to time, replace any
worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental
charges levied or assessed upon or against any
Collateral or upon or against the creation,
perfection or continuance of the Security
Interest, except any tax or assessment whose
amount, applicability or validity is being
contested in good faith by appropriate
proceedings;
(iii) at all reasonable times, permit the Secured Party
or its representatives to examine or inspect any
Collateral, wherever located, and to examine,
inspect and copy the Debtor's books and records
pertaining to the Collateral and its business and
financial condition and to send and discuss with
account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records pertaining to
the Collateral and pertaining to the Debtor's
business and financial condition and submit to the
Secured Party such periodic reports concerning the
Collateral and the Debtor's business and financial
condition as the Secured Party may from time to
time reasonably request;
(v) promptly notify the Secured Party of any loss of
or material damage to any Collateral or of any
adverse change, known to the Debtor, in the
prospect of payment of any sums due on or under
any instrument, chattel paper, or account
constituting Collateral;
(vi) if the Secured Party at any time so requests
(whether the request is made before or after the
occurrence of an Event of Default), promptly
deliver to the Secured Party any instrument,
document or chattel paper constituting Collateral,
duly endorsed or assigned by the Debtor;
(vii) at all times keep all tangible Collateral insured
against risks of fire (including so-called
extended coverage), theft, collision (in case of
Collateral consisting of motor vehicles) and such
other risks and in such amounts as the Secured
Party may reasonably request, with any loss
payable to the Secured Party to the extent of its
interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably
require in order to perfect the Security Interest
and, if any Collateral consists of a motor
vehicle, execute such
<PAGE>
documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on
demand for all costs of collection of any of the
Obligations and all other out-of-pocket expenses
(including in each case all reasonable attorneys'
fees) incurred by the Secured Party in connection
with the creation, perfection, satisfaction,
protection, defense or enforcement of the Security
Interest or the creation, continuance, protection,
defense or enforcement of this Agreement or any or
all of the Obligations, including expenses
incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all
instruments, documents, assignments, security
agreements and other agreements and writings which
the Secured Party may at any time reasonably
request in order to secure, protect, perfect or
enforce the Security Interest and the Secured
Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be
used or kept, for any unlawful purpose or in
violation of any federal, state or local law,
statute or ordinance.
(k) Secured Party's Right to Take Action. If the
Debtor at any time fails to perform or observe any agreement
contained in Section 3(j), immediately upon the occurrence
of such failure, without notice or lapse of time the Secured
Party may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of the Debtor
(or, at the Secured Party's option, in the Secured Party's
own name) and may (but need not) take any and all other
actions which the Secured Party may reasonably deem
necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of
security interests, liens, or encumbrances, the performance
of obligations under contracts or agreements with account
debtors or other obligors, the procurement and maintenance
of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that
the effect of such payment would be to render any loan or
forbearance of money usurious or otherwise illegal under any
applicable law, the Debtor shall thereupon pay the Secured
Party on demand the amount of all moneys expended and all
costs and expenses (including reasonable attorneys' fees)
incurred by the Secured Party in connection with or as a
result of the Secured Party's performing or observing such
agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured
Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by
the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its
delegate, as the
<PAGE>
attorney-in-fact of the Debtor with the right (but not the
duty) from time to time to create, prepare, complete,
execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements
and writings required to be obtained, executed, delivered or
endorsed by the Debtor under this Section 3 and Section 4.
4. Rights of Secured Party. At any time and from
time to time, whether before or after an Event of Default, the
Secured Party may take any or all of the following actions:
(a) Account Verification. The Secured Party may
verify any accounts in the name of the Debtor or in its own
name; and the Debtor, whenever requested, shall furnish the
Secured Party with duplicate statements of the accounts,
which statements may be mailed or delivered by the Secured
Party for that purpose.
(b) Collateral Account. The Secured Party may
establish a collateral account for the deposit of checks,
drafts and cash payments made by the Debtor's account
debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for
deposit into said collateral account, all payments on
accounts and chattel paper received by it. All such
payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsements where
necessary). Until so deposited, all payments on accounts
and chattel paper received by the Debtor shall be held in
trust by that Debtor for and as the property of the Secured
Party and shall not be commingled with any funds or property
of the Debtor. All deposits in said collateral account
shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. At its option, the
Secured Party may, at any time, apply finally collected
funds on deposit in said collateral account to the payment
of the Obligations in such order of application as the
Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said
collateral account.
(c) Lock Box. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account
debtors to make payments due under the relevant account or
chattel paper directly to a special lock box to be under the
control of the Secured Party. The Debtor hereby authorizes
and directs the Secured Party to deposit all checks, drafts
and cash payments received in said lock box into the
collateral account established as set forth above.
(d) Direct Collection. The Secured Party may notify
any account debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right
to payment has been assigned or transferred to the Secured
Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the
Debtor will so notify such account debtors and other
obligors in writing and will indicate on all invoices to
such account debtors or
<PAGE>
other obligors that the amount due is payable directly to
the Secured Party. At any time after the Secured Party or
the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own
name or in the Debtor's name, demand, sue for, collect or
receive any money or property at any time payable or
receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any
extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such
account debtor or other obligor.
5. Assignment of Franchises. The security interest
granted hereunder shall constitute an assignment of all of the
Debtor's right, title and interest in and to each and every
Franchise now held or hereafter acquired by the Debtor, to the
extent such assignment is permitted under applicable law. The
Secured Party does not assume any of the obligations or duties of
the Debtor under or with respect to any Franchise unless and
until the Secured Party shall have given the parties thereto
written notice that it has affirmatively exercised its right to
take over the Debtor's position thereunder. The Secured Party
shall have no liability whatsoever for the performance of any of
such obligations and duties to the extent that the Franchises are
sold to a third party by foreclosure pursuant to the Uniform
Commercial Code. This assignment shall constitute a perfected,
absolute and present collateral assignment.
6. Assignment of Insurance. The Debtor hereby
assigns to the Secured Party, as additional security for the
payment of the Obligations, any and all moneys (including but not
limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of
insurance covering the Collateral, and the Debtor hereby directs
the issuer of any such policy to pay any such moneys directly to
the Secured Party. Both before and after the occurrence of an
Event of Default, the Secured Party may (but need not), in its
own name or in the name of the Debtor, execute and deliver proofs
of claim, receive all such moneys, endorse checks and other
instruments representing payment of such moneys, and adjust,
litigate, compromise or release any claim against the issuer of
any such policy.
7. Events of Default. Each of the following
occurrences shall constitute an event of default under this
Agreement (herein called "Event of Default"): (i) an Event of
Default shall occur under the Credit Agreement, or (ii) [the
Borrower or] the Debtor shall fail to pay any or all of the
Obligations when due or (if payable on demand) on demand;
(iii) the Debtor shall fail to observe or perform any covenant or
agreement herein binding on it and the continuance of such
default or breach for a period of 30 days after the Secured Party
has given notice to the Debtor specifying such default or breach
and requiring it to be remedied; or (iv) any representation or
warranty of the Debtor in this Agreement shall prove to have been
false or misleading when made.
<PAGE>
8. Remedies upon Event of Default. Upon the
occurrence of an Event of Default under Section 7 and at any time
thereafter, the Secured Party may exercise any one or more of the
following rights and remedies: (a) declare all unmatured
Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or
other notice or demand; (b) exercise and enforce any or all
rights and remedies available upon default to a secured party
under the Uniform Commercial Code, including but not limited to
the right to take possession of any Collateral, proceeding
without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Debtor hereby expressly
waives), and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral
available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties, and
if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 10) at least 10
calendar days prior to the date of intended disposition or other
action; (c) exercise or enforce any or all other rights or
remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other
person or property. The Secured Party is hereby granted a
nonexclusive, worldwide and royalty-free license to use or
otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems
necessary or appropriate to the disposition of any Collateral.
9. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or
within seven days thereafter, the Debtor gives written notice to
the Secured Party of the existence of any goods, papers or other
property of the Debtor, not affixed to or constituting a part of
such Collateral, but which are located or found upon or within
such Collateral, describing such property, the Secured Party
shall not be responsible or liable to the Debtor for any action
taken or omitted by or on behalf of the Secured Party with
respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
10. Notice. All notices and other communications
hereunder shall be in writing and shall be delivered, and deemed
delivered, in accordance with the Credit Agreement.
11. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary action, corporate or
otherwise. This Agreement does not contemplate a sale of
accounts or of chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by
the Secured Party. A waiver signed by the Secured Party shall be
effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights
or remedies. All rights and remedies of the Secured Party shall
be cumulative and may be
<PAGE>
exercised singularly or concurrently, at the Secured Party's
option, and the exercise or enforcement of any one such right or
remedy shall neither be a condition to nor bar the exercise or
enforcement of any other. The Secured Party's duty of care with
respect to Collateral in its possession (as imposed by law) shall
be deemed fulfilled if the Secured Party exercises reasonable
care in physically safekeeping such Collateral or, in the case of
Collateral in the custody or possession of a bailee or other
third person, exercises reasonable care in the selection of the
bailee or other third person, and the Secured Party need not
otherwise preserve, protect, insure or care for any Collateral.
The Secured Party shall not be obligated to preserve any rights
the Debtor may have against prior parties, to realize on the
Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to
the benefit of the Debtor and the Secured Party and their
respective successors and assigns and shall take effect when
signed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Party's acceptance hereof.
The Secured Party may execute this Agreement if appropriate for
the purpose of filing, but the failure of the Secured Party to
execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other
reproduction of this Agreement or of any financing statement
signed by the Debtor shall have the same force and effect as the
original for all purposes of a financing statement. This
Agreement shall be governed by the internal law of Minnesota. If
any provision or application of this Agreement is held unlawful
or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall
be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby.
All representations and warranties contained in this Agreement
shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
Address:
__________________________________
1912 Avenue K, Suite 100
Plano, Texas 75074-5959 By:
__________________________
Federal Employer Its:
______________________
I.D. No: __-_______
Address: NORWEST BANK MINNESOTA,
Sixth & Marquette Avenue NATIONAL ASSOCIATION
Minneapolis, MN 55479-0058
Attn: Communications Division By:
Federal Employer Its: Vice President
I.D. No: 41-1592157
<PAGE>
EXHIBIT A TO SECURITY AGREEMENT
Legal Descriptions and Record Owners
[To be prepared by the Borrower]
<PAGE>
EXHIBIT C-1 TO
TERM CREDIT AGREEMENT
SECURITY AGREEMENT
[Borrower, Target Company]
This Agreement is made as of the 31st day of July,
1995, by and between ___________________________________, a
_________________ corporation (the "Debtor"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Secured Party").
[The Debtor] [SA Holdings, Inc. (the "Borrower")] and
the Secured Party have entered into a Term Credit Agreement of
even date herewith (as may hereafter be amended, supplemented or
restated from time to time, the "Credit Agreement"), setting
forth the terms on which the Secured Party may now or hereafter
make certain loans to or other financial accommodations for the
[Debtor] [Borrower].
As a condition to making loans under the Credit
Agreement, the Secured Party has required the execution and
delivery of this Agreement by the Debtor.
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. In addition, the
following terms have the meanings set forth below:
"Accounts" means each and every account and other right
of the Debtor to the payment of money, whether such right to
payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease or other disposition
of goods or other property by the Debtor, out of a rendering
of services by the Debtor, out of a loan by the Debtor, out
of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement,
whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests
(including all liens and security interests) which the
Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such
payment or against any of the property of such account
debtor or other obligor, all including but not limited to
all present and future debt instruments, chattel papers,
accounts, loans and obligations receivable and tax refunds.
<PAGE>
"Collateral" means the Accounts, Inventory, Equipment,
General Intangibles and Stock, together with all
substitutions and replacements for, products and proceeds
of, any of the foregoing property, all accessions, all
accessories, attachments, parts, equipment and repairs now
or hereafter attached or affixed to or used in connection
with any of the foregoing, and all warehouse receipts, bills
of lading and other documents of title now or hereafter
covering any of the foregoing.
"Equipment" means all equipment of the Debtor, whether
now owned or hereafter acquired and wherever located,
including but not limited to all present and future
machinery, vehicles, receiving and transmitting equipment,
furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping
equipment, parts and tools.
"Event of Default" has the meaning specified in Section
7.
"Franchise" means (i) to the extent a security interest
can be granted therein under applicable law, any
authorization, license, permit or franchise presently held
by or hereafter granted or assigned to the Debtor by any
public or governmental body, any agreement relating thereto,
and (ii) any microwave service agreement, tower lease
agreement, real property lease agreement or other agreement
to which the Debtor is now or hereafter becomes a party,
including but not limited to those Licenses and Material
Agreements specifically identified in Schedules 4.14 and
4.15 to the Credit Agreement.
"General Intangibles" means all general intangibles of
the Debtor, whether now owned or hereafter acquired,
including but not limited to all Franchises, other
franchises, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, trade names, customer
lists, permits, and the right to use the Debtor's names.
"Inventory" means all inventory of the Debtor, whether
now owned or hereafter acquired and wherever located.
"Obligations" means (i) the Note, including interest
thereon and any extensions, renewals or replacements
thereof, [(ii) the Guaranty] and (ii) each and every other
debt, liability and obligation of every type and description
which the Debtor may now or at any time hereafter owe to the
Secured Party, whether such debt, liability or obligation
now exists or is hereafter created or incurred and whether
it is or may be direct or indirect, due or to become due, or
absolute or contingent, including without limitation all
debt, liability and obligation of the Debtor under the
Credit Agreement and extensions, renewals, amendments or
replacements thereof.
"Permitted Lien" means any of the liens, security
interests or other encumbrances permitted under Section 6.1
of the Credit Agreement.
<PAGE>
"Security Interest" has the meaning specified in
Section 2.
"Specified Shares" means the shares of stock identified
in Exhibit B hereto, said shares being presently evidenced
by the certificates listed therein.
"Stock" means any share of the capital stock of any
corporation now or hereafter owned by the Debtor, including
but not limited to the Specified Shares.
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in
the Collateral to secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) Title. The Debtor (i) has absolute title to each
item of Collateral in existence on the date hereof,
including but not limited to the Specified Shares described
in Exhibit B hereto, free and clear of all security
interests, liens and encumbrances, except the Security
Interest and other Permitted Liens, (ii) will have, at the
time the Debtor acquires any rights in Collateral hereafter
arising, absolute title to each such item of Collateral free
and clear of all security interests, liens and encumbrances,
except the Security Interest and other Permitted Liens, and,
in the case of Stock, any restrictive legend appearing on
the face of the certificates evidencing such Stock,
(iii) will keep all Collateral free and clear of all
security interests, liens and encumbrances, except the
Security Interest and Permitted Liens, and (iv) will defend
the Collateral against all claims or demands (other than
claims and demands based on Permitted Liens) of all persons
other than the Secured Party. The Debtor will not, other
than in the ordinary course of its business, sell or
otherwise dispose of the Collateral or any interest therein
without the prior written consent of the Secured Party.
(b) Corporate Existence and Power. The Debtor is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of
____________________, and is duly licensed or qualified to
transact business in _____________________. The Debtor is
duly licensed or qualified to do business in all the
jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes
its licensing or qualification necessary. The Debtor has
all requisite power and authority, corporate or otherwise,
to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations
under this Security Agreement, [the Guaranty] and all other
documents executed in connection therewith.
<PAGE>
(c) Authorization; No Conflict as to Law or
Agreements. The execution, delivery and performance by the
Debtor of this Security Agreement have been duly authorized
by all necessary corporate action of the Debtor and do not
and will not (i) require any consent or approval of the
shareholders of the Debtor, or any authorization, consent or
approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii)
violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect
having applicability to the Debtor or of its articles of
incorporation or bylaws, (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to
which the Debtor is a party or by which it or its properties
may be bound or affected. This Security Agreement
constitutes the legal, valid and binding obligations of the
Debtor enforceable against the Debtor in accordance with its
terms.
(d) Litigation; Adverse Change. Except as previously
disclosed to the Secured Party, there are no actions, suits
or proceedings pending or, to the knowledge of the Debtor,
threatened against or affecting the Debtor or the property
of the Debtor before any court or governmental department,
commission, board, bureau, agency or instrumentality, which,
if determined adversely to the Debtor, would have a material
adverse effect on the financial condition, properties, or
operations of the Debtor. There has been no material
adverse change in the business, properties or condition
(financial or otherwise) of the Debtor since April 30, 1995.
(e) Chief Executive Office; Identification Number.
The Debtor's chief executive office is located at the
address set forth under its signature below. The Debtor's
federal employer identification number is correctly set
forth under its signature below.
(f) Location of Collateral. As of the date hereof,
the tangible Collateral is located only in the states of
[Texas][Arkansas]. The Debtor will not permit any tangible
Collateral to be located in any state (and, if county filing
is required, in any county) in which a financing statement
covering such Collateral is required to be, but has not in
fact been, filed in order to perfect the Security Interest.
(g) Changes in Name or Location. The Debtor will not
change its name or the location of its place of business
without prior written notice to the Secured Party.
(h) Fixtures. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real
property without first assuring to the reasonable
satisfaction of the Secured Party that the Security Interest
will be prior and senior to any interest or lien then held
or thereafter acquired by any mortgagee of such real
property or the owner or purchaser of any interest therein.
If any part or all of the tangible Collateral is now or will
become so related to particular real estate as to be a
<PAGE>
fixture, the real estate concerned and the name of the
record owner are accurately set forth in Exhibit A hereto.
(i) Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement
constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally
enforceable obligation, subject to no defense, setoff or
counterclaim (other than those arising in the ordinary
course of business), of the account debtor or other obligor
named therein or in the Debtor's records pertaining thereto
as being obligated to pay such obligation. The Debtor will
not, other than in the ordinary course of business, agree to
any material modification or amendment, or to any
forbearance, release or cancellation, of any such obligation
without the Secured Party's prior written consent, and the
Debtor will not subordinate any such right to payment to
claims of other creditors of such account debtor or other
obligor.
(j) Miscellaneous Covenants. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation
excepted, and will, from time to time, replace any
worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or
upon or against the creation, perfection or continuance
of the Security Interest, except any tax or assessment
whose amount, applicability or validity is being
contested in good faith by appropriate proceedings;
(iii) at all reasonable times, permit the Secured Party
or its representatives to examine or inspect any
Collateral, wherever located, and to examine,
inspect and copy the Debtor's books and records
pertaining to the Collateral and its business and
financial condition and to send and discuss with
account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and
financial condition and submit to the Secured Party
such periodic reports concerning the Collateral and the
Debtor's business and financial condition as the
Secured Party may from time to time reasonably request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse
change, known to the Debtor, in the prospect of payment
of any sums due on or under any instrument, chattel
paper, or account constituting Collateral;
<PAGE>
(vi) if the Secured Party at any time so requests (whether
the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured
Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by
the Debtor;
(vii) at all times keep all tangible Collateral insured
against risks of fire (including so-called
extended coverage), theft, collision (in case of
Collateral consisting of motor vehicles) and such
other risks and in such amounts as the Secured
Party may reasonably request, with any loss
payable to the Secured Party to the extent of its
interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably
require in order to perfect the Security Interest
and, if any Collateral consists of a motor
vehicle, execute such documents as may be required
to have the Security Interest properly noted on a
certificate of title;
(ix) pay when due or reimburse the Secured Party on demand
for all costs of collection of any of the Obligations
and all other out-of-pocket expenses (including in each
case all reasonable attorneys' fees) incurred by the
Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or
enforcement of the Security Interest or the creation,
continuance, protection, defense or enforcement of this
Agreement or any or all of the Obligations, including
expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other
agreements and writings which the Secured Party may at
any time reasonably request in order to secure,
protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used
or kept, for any unlawful purpose or in violation of
any federal, state or local law, statute or ordinance.
(k) Secured Party's Right to Take Action. If the
Debtor at any time fails to perform or observe any agreement
contained in Section 3(j), immediately upon the occurrence
of such failure, without notice or lapse of time the Secured
Party may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of the Debtor
(or, at the Secured Party's option, in the Secured Party's
own name) and may (but need not) take any and all other
actions which the Secured Party may reasonably deem
necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of
security interests, liens, or
<PAGE>
encumbrances, the performance of obligations under contracts
or agreements with account debtors or other obligors, the
procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and
the procurement of repairs, transportation or insurance);
and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious
or otherwise illegal under any applicable law, the Debtor
shall thereupon pay the Secured Party on demand the amount
of all moneys expended and all costs and expenses (including
reasonable attorneys' fees) incurred by the Secured Party in
connection with or as a result of the Secured Party's
performing or observing such agreements or taking such
actions, together with interest thereon from the date
expended or incurred by the Secured Party at the highest
rate then applicable to any of the Obligations. To
facilitate the performance or observance by the Secured
Party of such agreements of the Debtor, the Debtor hereby
irrevocably appoints (which appointment is coupled with an
interest) the Secured Party, or its delegate, as the
attorney-in-fact of the Debtor with the right (but not the
duty) from time to time to create, prepare, complete,
execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements
and writings required to be obtained, executed, delivered or
endorsed by the Debtor under this Section 3 and Section 4.
(l) Stock. Exhibit C is a correct and complete list
of the number of authorized and issued shares of each class
of capital stock of each corporation whose shares are
included in the Specified Shares. The Specified Shares are
fully paid for and nonassessable. The Debtor will upon
receipt deliver to the Secured Party in pledge as additional
Collateral all securities distributed on account of the
Stock or any other Collateral, including stock dividends and
securities resulting from stock splits, reorganizations and
recapitalizations, and all other shares of any class of
stock of any corporation now owned or hereafter acquired by
the Debtor for any reason whatsoever [(excluding, however,
any shares of SATC, Baltic States and CIS Ventures, Inc. and
CIS Intelligence Information Services, Inc.)], together in
each case with blank stock powers executed by the Debtor.
4. Rights of Secured Party. At any time and from
time to time, whether before or after an Event of Default, the
Secured Party may take any or all of the following actions:
(a) Account Verification. The Secured Party may
verify any accounts in the name of the Debtor or in its own
name; and the Debtor, whenever requested, shall furnish the
Secured Party with duplicate statements of the accounts,
which statements may be mailed or delivered by the Secured
Party for that purpose.
(b) Collateral Account. The Secured Party may
establish a collateral account for the deposit of checks,
drafts and cash payments made by the Debtor's account
debtors. If a collateral account is so established, the
Debtor shall promptly
<PAGE>
deliver to the Secured Party, for deposit into said
collateral account, all payments on accounts and chattel
paper received by it. All such payments shall be delivered
to the Secured Party in the form received (except for the
Debtor's endorsements where necessary). Until so deposited,
all payments on accounts and chattel paper received by the
Debtor shall be held in trust by that Debtor for and as the
property of the Secured Party and shall not be commingled
with any funds or property of the Debtor. All deposits in
said collateral account shall constitute proceeds of
Collateral and shall not constitute payment of any
Obligation. At its option, the Secured Party may, at any
time, apply finally collected funds on deposit in said
collateral account to the payment of the Obligations in such
order of application as the Secured Party may determine, or
permit the Debtor to withdraw all or any part of the balance
on deposit in said collateral account.
(c) Lock Box. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account
debtors to make payments due under the relevant account or
chattel paper directly to a special lock box to be under the
control of the Secured Party. The Debtor hereby authorizes
and directs the Secured Party to deposit all checks, drafts
and cash payments received in said lock box into the
collateral account established as set forth above.
(d) Direct Collection. The Secured Party may notify
any account debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right
to payment has been assigned or transferred to the Secured
Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the
Debtor will so notify such account debtors and other
obligors in writing and will indicate on all invoices to
such account debtors or other obligors that the amount due
is payable directly to the Secured Party. At any time after
the Secured Party or the Debtor gives such notice to an
account debtor or other obligor, the Secured Party may (but
need not), in its own name or in the Debtor's name, demand,
sue for, collect or receive any money or property at any
time payable or receivable on account of, or securing, any
such chattel paper, account, or other right to payment, or
grant any extension to, make any compromise or settlement
with or otherwise agree to waive, modify, amend or change
the obligations (including collateral obligations) of any
such account debtor or other obligor.
(e) Additional Rights Regarding Stock. The Secured
Party may notify the issuer of any stock to make all
distributions of additional stock of such corporation
directly to the Secured Party. Such additional stock shall
be deemed Stock hereunder. In addition, following the
occurrence of an Event of Default, the Secured Party may (i)
notify the issuer of any Stock to make payments and other
distributions thereon directly to the Secured Party, (ii)
receive all proceeds of the Stock, and (iii) hold any
increase or profits received from the Stock as additional
security for the Indebtedness, except that any money
received from the Collateral may, at the Secured Party's
<PAGE>
option, be applied in reduction of the Indebtedness in such
order of application as the Secured Party may determine or
be remitted to the Debtor. The Debtor hereby irrevocably
authorizes and directs each corporation whose stock is
included in the Stock pledged hereunder to remit any and all
money, distributions and other property described in this
paragraph directly to the Secured Party in the Secured
Party's name alone. Such remittances shall continue to be
made to the Secured Party until the Secured Party otherwise
notifies the applicable corporation in writing. To the
extent that such remittances are made directly to the
Secured Party, the remitting entity shall have no further
liability to the Debtor for the same.
5. Assignment of Franchises. The security interest
granted hereunder shall constitute an assignment of all of the
Debtor's right, title and interest in and to each and every
Franchise now held or hereafter acquired by the Debtor, to the
extent such assignment is permitted under applicable law. The
Secured Party does not assume any of the obligations or duties of
the Debtor under or with respect to any Franchise unless and
until the Secured Party shall have given the parties thereto
written notice that it has affirmatively exercised its right to
take over the Debtor's position thereunder. The Secured Party
shall have no liability whatsoever for the performance of any of
such obligations and duties to the extent that the Franchises are
sold to a third party by foreclosure pursuant to the Uniform
Commercial Code. This assignment shall constitute a perfected,
absolute and present collateral assignment.
6. Assignment of Insurance. The Debtor hereby
assigns to the Secured Party, as additional security for the
payment of the Obligations, any and all moneys (including but not
limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of
insurance covering the Collateral, and the Debtor hereby directs
the issuer of any such policy to pay any such moneys directly to
the Secured Party. Both before and after the occurrence of an
Event of Default, the Secured Party may (but need not), in its
own name or in the name of the Debtor, execute and deliver proofs
of claim, receive all such moneys, endorse checks and other
instruments representing payment of such moneys, and adjust,
litigate, compromise or release any claim against the issuer of
any such policy.
7. Events of Default. Each of the following
occurrences shall constitute an event of default under this
Agreement (herein called "Event of Default"): (i) an Event of
Default shall occur under the Credit Agreement, or (ii) [the
Borrower or] the Debtor shall fail to pay any or all of the
Obligations when due or (if payable on demand) on demand;
(iii) the Debtor shall fail to observe or perform any covenant or
agreement herein binding on it and the continuance of such
default or breach for a period of 30 days after the Secured Party
has given notice to the Debtor specifying such default or breach
and requiring it to be remedied; or (iv) any representation or
warranty of the Debtor in this Agreement shall prove to have been
false or misleading when made.
<PAGE>
8. Remedies upon Event of Default. Upon the
occurrence of an Event of Default under Section 7 and at any time
thereafter, the Secured Party may exercise any one or more of the
following rights and remedies: (a) declare all unmatured
Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or
other notice or demand; (b) exercise all voting and other rights
as a holder of the Stock; (c) exercise and enforce any or all
rights and remedies available upon default to a secured party
under the Uniform Commercial Code, including but not limited to
the right to take possession of any Collateral, proceeding
without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Debtor hereby expressly
waives), and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral
available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties, and
if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 10) at least 10
calendar days prior to the date of intended disposition or other
action; and (d) exercise or enforce any or all other rights or
remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other
person or property. The rights granted under this Section shall
include the right to offer and sell any Stock or similar
Collateral privately to purchasers who will agree to take the
Collateral for investment and not with a view to distribution and
who will agree to the imposition of restrictive legends on the
certificates representing the Collateral, and the right to
arrange for a sale which would otherwise qualify as exempt from
registration under the Securities Act of 1933. The Secured Party
is hereby granted a nonexclusive, worldwide and royalty-free
license to use or otherwise exploit all trademarks, trade
secrets, franchises, copyrights and patents of the Debtor that
the Secured Party deems necessary or appropriate to the
disposition of any Collateral.
9. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or
within seven days thereafter, the Debtor gives written notice to
the Secured Party of the existence of any goods, papers or other
property of the Debtor, not affixed to or constituting a part of
such Collateral, but which are located or found upon or within
such Collateral, describing such property, the Secured Party
shall not be responsible or liable to the Debtor for any action
taken or omitted by or on behalf of the Secured Party with
respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
10. Notice. All notices and other communications
hereunder shall be in writing and shall be delivered, and deemed
delivered, in accordance with the Credit Agreement.
11. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary action, corporate or
otherwise. This Agreement does not contemplate a sale
<PAGE>
of accounts or of chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by
the Secured Party. A waiver signed by the Secured Party shall be
effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights
or remedies. All rights and remedies of the Secured Party shall
be cumulative and may be exercised singularly or concurrently, at
the Secured Party's option, and the exercise or enforcement of
any one such right or remedy shall neither be a condition to nor
bar the exercise or enforcement of any other. The Secured
Party's duty of care with respect to Collateral in its possession
(as imposed by law) shall be deemed fulfilled if the Secured
Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or
possession of a bailee or other third person, exercises
reasonable care in the selection of the bailee or other third
person, and the Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. The Secured Party
shall not be obligated to preserve any rights the Debtor may have
against prior parties, to exercise at all or in any particular
manner any voting rights which may be available with respect to
the Collateral, to realize on the Collateral at all or in any
particular manner or order, or to apply any cash proceeds of
Collateral in any particular order of application. This
Agreement shall be binding upon and inure to the benefit of the
Debtor and the Secured Party and their respective successors and
assigns and shall take effect when signed by the Debtor and
delivered to the Secured Party, and the Debtor waives notice of
the Secured Party's acceptance hereof. The Secured Party may
execute this Agreement if appropriate for the purpose of filing,
but the failure of the Secured Party to execute this Agreement
shall not affect or impair the validity or effectiveness of this
Agreement. A carbon, photographic or other reproduction of this
Agreement or of any financing statement signed by the Debtor
shall have the same force and effect as the original for all
purposes of a financing statement. This Agreement shall be
governed by the internal law of Minnesota. If any provision or
application of this Agreement is held unlawful or unenforceable
in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect
and this Agreement shall be construed as if the unlawful or
unenforceable provision or application had never been contained
herein or prescribed hereby. All representations and warranties
contained in this Agreement shall survive the execution, delivery
and performance of this Agreement and the creation and payment of
the Obligations.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
Address:
__________________________________
1912 Avenue K, Suite 100
Plano, Texas 75074-5959 By
_______________________
Federal Employer Its
___________________
I.D. No: __-_______
Address: NORWEST BANK MINNESOTA,
Sixth & Marquette Avenue NATIONAL ASSOCIATION
Minneapolis, MN 55479-0058
Attn: Communications Division By:
Federal Employer Jeffrey P. Jacobsen
I.D. No: 41-1592157 Its Vice President
<PAGE>
EXHIBIT A TO SECURITY AGREEMENT
Legal Descriptions and Record Owners
[To be prepared by the Borrower]
<PAGE>
EXHIBIT C-2 TO
TERM CREDIT AGREEMENT
SECURITY AGREEMENT
[Other Subsidiaries]
This Agreement is made as of the 31st day of July,
1995, by and between ___________________________________________,
a _________________ corporation (the "Debtor"), and NORWEST BANK
MINNESOTA, NATIONAL ASSOCIATION, a national banking association
(the "Secured Party").
SA Holdings, Inc. (the "Borrower") and the Secured
Party have entered into a Term Credit Agreement of even date
herewith (as may hereafter be amended, supplemented or restated
from time to time, the "Credit Agreement"), setting forth the
terms on which the Secured Party may now or hereafter make
certain loans to or other financial accommodations for the
Borrower.
As a condition to making loans under the Credit
Agreement, the Secured Party has required the execution and
delivery of this Agreement by the Debtor.
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. In addition, the
following terms have the meanings set forth below:
"Accounts" means each and every account and other right
of the Debtor to the payment of money, whether such right to
payment now exists or hereafter arises, whether such right
to payment arises out of a sale, lease or other disposition
of goods or other property by the Debtor, out of a rendering
of services by the Debtor, out of a loan by the Debtor, out
of the overpayment of taxes or other liabilities of the
Debtor, or otherwise arises under any contract or agreement,
whether such right to payment is or is not already earned by
performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests
(including all liens and security interests) which the
Debtor may at any time have by law or agreement against any
account debtor or other obligor obligated to make any such
payment or against any of the property of such account
debtor or other obligor, all including but not limited to
all present and future debt instruments, chattel papers,
accounts, loans and obligations receivable and tax refunds.
"Collateral" means the Accounts, Inventory, Equipment
and General Intangibles, together with all substitutions and
replacements for, products and proceeds of, any of the
foregoing property, all accessions, all accessories,
<PAGE>
attachments, parts, equipment and repairs now or hereafter
attached or affixed to or used in connection with any of the
foregoing, and all warehouse receipts, bills of lading and
other documents of title now or hereafter covering any of
the foregoing.
"Equipment" means all equipment of the Debtor, whether
now owned or hereafter acquired and wherever located,
including but not limited to all present and future
machinery, vehicles, receiving and transmitting equipment,
furniture, fixtures, manufacturing equipment, farm machinery
and equipment, shop equipment, office and recordkeeping
equipment, parts and tools.
"Event of Default" has the meaning specified in Section
7.
"Franchise" means (i) to the extent a security interest
can be granted therein under applicable law, any
authorization, license, permit or franchise presently held
by or hereafter granted or assigned to the Debtor by any
public or governmental body, any agreement relating thereto,
and (ii) any microwave service agreement, tower lease
agreement, real property lease agreement or other agreement
to which the Debtor is now or hereafter becomes a party,
including but not limited to those Licenses and Material
Agreements specifically identified in Schedules 4.14 and
4.15 to the Credit Agreement.
"General Intangibles" means all general intangibles of
the Debtor, whether now owned or hereafter acquired,
including but not limited to all Franchises, other
franchises, applications for patents, patents, copyrights,
trademarks, trade secrets, good will, trade names, customer
lists, permits, and the right to use the Debtor's names.
"Inventory" means all inventory of the Debtor, whether
now owned or hereafter acquired and wherever located.
"Obligations" means (i) the Note, including interest
thereon and any extensions, renewals or replacements
thereof, [(ii) the Guaranty] and (ii) each and every other
debt, liability and obligation of every type and description
which the Debtor may now or at any time hereafter owe to the
Secured Party, whether such debt, liability or obligation
now exists or is hereafter created or incurred and whether
it is or may be direct or indirect, due or to become due, or
absolute or contingent, including without limitation all
debt, liability and obligation of the Debtor under the
Credit Agreement and extensions, renewals, amendments or
replacements thereof.
"Permitted Lien" means any of the liens, security
interests or other encumbrances permitted under Section 6.1
of the Credit Agreement.
"Security Interest" has the meaning specified in
Section 2.
<PAGE>
2. Security Interest. The Debtor hereby grants the
Secured Party a security interest (the "Security Interest") in
the Collateral to secure payment of the Obligations.
3. Representations, Warranties and Agreements. The
Debtor hereby represents, warrants and agrees as follows:
(a) Title. The Debtor (i) has absolute title to each
item of Collateral in existence on the date hereof, free and
clear of all security interests, liens and encumbrances,
except the Security Interest and other Permitted Liens,
(ii) will have, at the time the Debtor acquires any rights
in Collateral hereafter arising, absolute title to each such
item of Collateral free and clear of all security interests,
liens and encumbrances, except the Security Interest and
other Permitted Liens, (iii) will keep all Collateral free
and clear of all security interests, liens and encumbrances,
except the Security Interest and Permitted Liens, and
(iv) will defend the Collateral against all claims or
demands (other than claims and demands based on Permitted
Liens) of all persons other than the Secured Party. The
Debtor will not, other than in the ordinary course of its
business, sell or otherwise dispose of the Collateral or any
interest therein without the prior written consent of the
Secured Party.
(b) Corporate Existence and Power. The Debtor is a
corporation duly incorporated, validly existing and in good
standing under the laws of the State of
____________________, and is duly licensed or qualified to
transact business in _____________________. The Debtor is
duly licensed or qualified to do business in all the
jurisdictions where the character of the property owned or
leased or the nature of the business transacted by it makes
its licensing or qualification necessary. The Debtor has
all requisite power and authority, corporate or otherwise,
to conduct its business, to own its properties and to
execute and deliver, and to perform all of its obligations
under this Security Agreement, the Guaranty and all other
documents executed in connection therewith.
(c) Authorization; No Conflict as to Law or
Agreements. The execution, delivery and performance by the
Debtor of this Security Agreement have been duly authorized
by all necessary corporate action of the Debtor and do not
and will not (i) require any consent or approval of the
shareholders of the Debtor, or any authorization, consent or
approval by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, (ii)
violate any provision of any law, rule or regulation or of
any order, writ, injunction or decree presently in effect
having applicability to the Debtor or of its articles of
incorporation or bylaws, (iii) result in a breach of or
constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to
which the Debtor is a party or by which it or its properties
may be bound or affected. This Security Agreement
constitutes the legal, valid and binding obligations of the
Debtor enforceable against the Debtor in accordance with its
terms.
<PAGE>
(d) Litigation; Adverse Change. Except as previously
disclosed to the Secured Party, there are no actions, suits
or proceedings pending or, to the knowledge of the Debtor,
threatened against or affecting the Debtor or the property
of the Debtor before any court or governmental department,
commission, board, bureau, agency or instrumentality, which,
if determined adversely to the Debtor, would have a material
adverse effect on the financial condition, properties, or
operations of the Debtor. There has been no material
adverse change in the business, properties or condition
(financial or otherwise) of the Debtor since April 30, 1995.
(e) Chief Executive Office; Identification Number.
The Debtor's chief executive office is located at the
address set forth under its signature below. The Debtor's
federal employer identification number is correctly set
forth under its signature below.
(f) Location of Collateral. As of the date hereof,
the tangible Collateral is located only in the states of
Texas and ___________________________. The Debtor will not
permit any tangible Collateral to be located in any state
(and, if county filing is required, in any county) in which
a financing statement covering such Collateral is required
to be, but has not in fact been, filed in order to perfect
the Security Interest.
(g) Changes in Name or Location. The Debtor will not
change its name or the location of its place of business
without prior written notice to the Secured Party.
(h) Fixtures. The Debtor will not permit any tangible
Collateral to become part of or to be affixed to any real
property without first assuring to the reasonable
satisfaction of the Secured Party that the Security Interest
will be prior and senior to any interest or lien then held
or thereafter acquired by any mortgagee of such real
property or the owner or purchaser of any interest therein.
If any part or all of the tangible Collateral is now or will
become so related to particular real estate as to be a
fixture, the real estate concerned and the name of the
record owner are accurately set forth in Exhibit A hereto.
(i) Rights to Payment. Each right to payment and each
instrument, document, chattel paper and other agreement
constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally
enforceable obligation, subject to no defense, setoff or
counterclaim (other than those arising in the ordinary
course of business), of the account debtor or other obligor
named therein or in the Debtor's records pertaining thereto
as being obligated to pay such obligation. The Debtor will
not, other than in the ordinary course of business, agree to
any material modification or amendment, or to any
forbearance, release or cancellation, of any such obligation
without the Secured Party's prior written consent, and the
Debtor will not subordinate any such right to payment to
claims of other creditors of such account debtor or other
obligor.
<PAGE>
(j) Miscellaneous Covenants. The Debtor will:
(i) keep all tangible Collateral in good repair,
working order and condition, normal depreciation
excepted, and will, from time to time, replace any
worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges
levied or assessed upon or against any Collateral or
upon or against the creation, perfection or continuance
of the Security Interest, except any tax or assessment
whose amount, applicability or validity is being
contested in good faith by appropriate proceedings;
(iii) at all reasonable times, permit the Secured Party
or its representatives to examine or inspect any
Collateral, wherever located, and to examine,
inspect and copy the Debtor's books and records
pertaining to the Collateral and its business and
financial condition and to send and discuss with
account debtors and other obligors requests for
verifications of amounts owed to the Debtor;
(iv) keep accurate and complete records pertaining to the
Collateral and pertaining to the Debtor's business and
financial condition and submit to the Secured Party
such periodic reports concerning the Collateral and the
Debtor's business and financial condition as the
Secured Party may from time to time reasonably request;
(v) promptly notify the Secured Party of any loss of or
material damage to any Collateral or of any adverse
change, known to the Debtor, in the prospect of payment
of any sums due on or under any instrument, chattel
paper, or account constituting Collateral;
(vi) if the Secured Party at any time so requests (whether
the request is made before or after the occurrence of
an Event of Default), promptly deliver to the Secured
Party any instrument, document or chattel paper
constituting Collateral, duly endorsed or assigned by
the Debtor;
(vii) at all times keep all tangible Collateral insured
against risks of fire (including so-called
extended coverage), theft, collision (in case of
Collateral consisting of motor vehicles) and such
other risks and in such amounts as the Secured
Party may reasonably request, with any loss
payable to the Secured Party to the extent of its
interest;
(viii) from time to time execute such financing
statements as the Secured Party may reasonably
require in order to perfect the Security Interest
and, if any Collateral consists of a motor
vehicle, execute such
<PAGE>
documents as may be required to have the Security
Interest properly noted on a certificate of title;
(ix) pay when due or reimburse the Secured Party on demand
for all costs of collection of any of the Obligations
and all other out-of-pocket expenses (including in each
case all reasonable attorneys' fees) incurred by the
Secured Party in connection with the creation,
perfection, satisfaction, protection, defense or
enforcement of the Security Interest or the creation,
continuance, protection, defense or enforcement of this
Agreement or any or all of the Obligations, including
expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(x) execute, deliver or endorse any and all instruments,
documents, assignments, security agreements and other
agreements and writings which the Secured Party may at
any time reasonably request in order to secure,
protect, perfect or enforce the Security Interest and
the Secured Party's rights under this Agreement; and
(xi) not use or keep any Collateral, or permit it to be used
or kept, for any unlawful purpose or in violation of
any federal, state or local law, statute or ordinance.
(k) Secured Party's Right to Take Action. If the
Debtor at any time fails to perform or observe any agreement
contained in Section 3(j), immediately upon the occurrence
of such failure, without notice or lapse of time the Secured
Party may (but need not) perform or observe such agreement
on behalf and in the name, place and stead of the Debtor
(or, at the Secured Party's option, in the Secured Party's
own name) and may (but need not) take any and all other
actions which the Secured Party may reasonably deem
necessary to cure or correct such failure (including,
without limitation the payment of taxes, the satisfaction of
security interests, liens, or encumbrances, the performance
of obligations under contracts or agreements with account
debtors or other obligors, the procurement and maintenance
of insurance, the execution of financing statements, the
endorsement of instruments, and the procurement of repairs,
transportation or insurance); and, except to the extent that
the effect of such payment would be to render any loan or
forbearance of money usurious or otherwise illegal under any
applicable law, the Debtor shall thereupon pay the Secured
Party on demand the amount of all moneys expended and all
costs and expenses (including reasonable attorneys' fees)
incurred by the Secured Party in connection with or as a
result of the Secured Party's performing or observing such
agreements or taking such actions, together with interest
thereon from the date expended or incurred by the Secured
Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by
the Secured Party of such agreements of the Debtor, the
Debtor hereby irrevocably appoints (which appointment is
coupled with an interest) the Secured Party, or its
delegate, as the
<PAGE>
attorney-in-fact of the Debtor with the right (but not the
duty) from time to time to create, prepare, complete,
execute, deliver, endorse or file, in the name and on behalf
of the Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements
and writings required to be obtained, executed, delivered or
endorsed by the Debtor under this Section 3 and Section 4.
4. Rights of Secured Party. At any time and from
time to time, whether before or after an Event of Default, the
Secured Party may take any or all of the following actions:
(a) Account Verification. The Secured Party may
verify any accounts in the name of the Debtor or in its own
name; and the Debtor, whenever requested, shall furnish the
Secured Party with duplicate statements of the accounts,
which statements may be mailed or delivered by the Secured
Party for that purpose.
(b) Collateral Account. The Secured Party may
establish a collateral account for the deposit of checks,
drafts and cash payments made by the Debtor's account
debtors. If a collateral account is so established, the
Debtor shall promptly deliver to the Secured Party, for
deposit into said collateral account, all payments on
accounts and chattel paper received by it. All such
payments shall be delivered to the Secured Party in the form
received (except for the Debtor's endorsements where
necessary). Until so deposited, all payments on accounts
and chattel paper received by the Debtor shall be held in
trust by that Debtor for and as the property of the Secured
Party and shall not be commingled with any funds or property
of the Debtor. All deposits in said collateral account
shall constitute proceeds of Collateral and shall not
constitute payment of any Obligation. At its option, the
Secured Party may, at any time, apply finally collected
funds on deposit in said collateral account to the payment
of the Obligations in such order of application as the
Secured Party may determine, or permit the Debtor to
withdraw all or any part of the balance on deposit in said
collateral account.
(c) Lock Box. The Secured Party may, by notice to the
Debtor, require the Debtor to direct each of its account
debtors to make payments due under the relevant account or
chattel paper directly to a special lock box to be under the
control of the Secured Party. The Debtor hereby authorizes
and directs the Secured Party to deposit all checks, drafts
and cash payments received in said lock box into the
collateral account established as set forth above.
(d) Direct Collection. The Secured Party may notify
any account debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right
to payment has been assigned or transferred to the Secured
Party for security and shall be paid directly to the Secured
Party. If the Secured Party so requests at any time, the
Debtor will so notify such account debtors and other
obligors in writing and will indicate on all invoices to
such account debtors or
<PAGE>
other obligors that the amount due is payable directly to
the Secured Party. At any time after the Secured Party or
the Debtor gives such notice to an account debtor or other
obligor, the Secured Party may (but need not), in its own
name or in the Debtor's name, demand, sue for, collect or
receive any money or property at any time payable or
receivable on account of, or securing, any such chattel
paper, account, or other right to payment, or grant any
extension to, make any compromise or settlement with or
otherwise agree to waive, modify, amend or change the
obligations (including collateral obligations) of any such
account debtor or other obligor.
5. Assignment of Franchises. The security interest
granted hereunder shall constitute an assignment of all of the
Debtor's right, title and interest in and to each and every
Franchise now held or hereafter acquired by the Debtor, to the
extent such assignment is permitted under applicable law. The
Secured Party does not assume any of the obligations or duties of
the Debtor under or with respect to any Franchise unless and
until the Secured Party shall have given the parties thereto
written notice that it has affirmatively exercised its right to
take over the Debtor's position thereunder. The Secured Party
shall have no liability whatsoever for the performance of any of
such obligations and duties to the extent that the Franchises are
sold to a third party by foreclosure pursuant to the Uniform
Commercial Code. This assignment shall constitute a perfected,
absolute and present collateral assignment.
6. Assignment of Insurance. The Debtor hereby
assigns to the Secured Party, as additional security for the
payment of the Obligations, any and all moneys (including but not
limited to proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of the
Debtor under or with respect to, any and all policies of
insurance covering the Collateral, and the Debtor hereby directs
the issuer of any such policy to pay any such moneys directly to
the Secured Party. Both before and after the occurrence of an
Event of Default, the Secured Party may (but need not), in its
own name or in the name of the Debtor, execute and deliver proofs
of claim, receive all such moneys, endorse checks and other
instruments representing payment of such moneys, and adjust,
litigate, compromise or release any claim against the issuer of
any such policy.
7. Events of Default. Each of the following
occurrences shall constitute an event of default under this
Agreement (herein called "Event of Default"): (i) an Event of
Default shall occur under the Credit Agreement; (ii) the Borrower
or the Debtor shall fail to pay any or all of the Obligations
when due or (if payable on demand) on demand; (iii) the Debtor
shall fail to observe or perform any covenant or agreement herein
binding on it and the continuance of such default or breach for a
period of 30 days after the Secured Party has given notice to the
Debtor specifying such default or breach and requiring it to be
remedied; or (iv) any representation or warranty of the Debtor in
this Agreement shall prove to have been false or misleading when
made.
<PAGE>
8. Remedies upon Event of Default. Upon the
occurrence of an Event of Default under Section 7 and at any time
thereafter, the Secured Party may exercise any one or more of the
following rights and remedies: (a) declare all unmatured
Obligations to be immediately due and payable, and the same shall
thereupon be immediately due and payable, without presentment or
other notice or demand; (b) exercise and enforce any or all
rights and remedies available upon default to a secured party
under the Uniform Commercial Code, including but not limited to
the right to take possession of any Collateral, proceeding
without judicial process or by judicial process (without a prior
hearing or notice thereof, which the Debtor hereby expressly
waives), and the right to sell, lease or otherwise dispose of any
or all of the Collateral, and in connection therewith, the
Secured Party may require the Debtor to make the Collateral
available to the Secured Party at a place to be designated by the
Secured Party which is reasonably convenient to both parties, and
if notice to the Debtor of any intended disposition of Collateral
or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 10) at least 10
calendar days prior to the date of intended disposition or other
action; (c) exercise or enforce any or all other rights or
remedies available to the Secured Party by law or agreement
against the Collateral, against the Debtor or against any other
person or property. The Secured Party is hereby granted a
nonexclusive, worldwide and royalty-free license to use or
otherwise exploit all trademarks, trade secrets, franchises,
copyrights and patents of the Debtor that the Secured Party deems
necessary or appropriate to the disposition of any Collateral.
9. Other Personal Property. Unless at the time the
Secured Party takes possession of any tangible Collateral, or
within seven days thereafter, the Debtor gives written notice to
the Secured Party of the existence of any goods, papers or other
property of the Debtor, not affixed to or constituting a part of
such Collateral, but which are located or found upon or within
such Collateral, describing such property, the Secured Party
shall not be responsible or liable to the Debtor for any action
taken or omitted by or on behalf of the Secured Party with
respect to such property without actual knowledge of the
existence of any such property or without actual knowledge that
it was located or to be found upon or within such Collateral.
10. Notice. All notices and other communications
hereunder shall be in writing and shall be delivered, and deemed
delivered, in accordance with the Credit Agreement.
11. Miscellaneous. This Agreement has been duly and
validly authorized by all necessary action, corporate or
otherwise. This Agreement does not contemplate a sale of
accounts or of chattel paper. This Agreement can be waived,
modified, amended, terminated or discharged, and the Security
Interest can be released, only explicitly in a writing signed by
the Secured Party. A waiver signed by the Secured Party shall be
effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Secured Party's rights
or remedies. All rights and remedies of the Secured Party shall
be cumulative and may be
<PAGE>
exercised singularly or concurrently, at the Secured Party's
option, and the exercise or enforcement of any one such right or
remedy shall neither be a condition to nor bar the exercise or
enforcement of any other. The Secured Party's duty of care with
respect to Collateral in its possession (as imposed by law) shall
be deemed fulfilled if the Secured Party exercises reasonable
care in physically safekeeping such Collateral or, in the case of
Collateral in the custody or possession of a bailee or other
third person, exercises reasonable care in the selection of the
bailee or other third person, and the Secured Party need not
otherwise preserve, protect, insure or care for any Collateral.
The Secured Party shall not be obligated to preserve any rights
the Debtor may have against prior parties, to realize on the
Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to
the benefit of the Debtor and the Secured Party and their
respective successors and assigns and shall take effect when
signed by the Debtor and delivered to the Secured Party, and the
Debtor waives notice of the Secured Party's acceptance hereof.
The Secured Party may execute this Agreement if appropriate for
the purpose of filing, but the failure of the Secured Party to
execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other
reproduction of this Agreement or of any financing statement
signed by the Debtor shall have the same force and effect as the
original for all purposes of a financing statement. This
Agreement shall be governed by the internal law of Minnesota. If
any provision or application of this Agreement is held unlawful
or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall
be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby.
All representations and warranties contained in this Agreement
shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
[SIGNATURE PAGE TO FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date and year first above written.
Address:
__________________________________
1912 Avenue K, Suite 100
Plano, Texas 75074-5959 By:
__________________________
Federal Employer Its:
______________________
I.D. No: __-_______
Address: NORWEST BANK MINNESOTA,
Sixth & Marquette Avenue NATIONAL ASSOCIATION
Minneapolis, MN 55479-0058
Attn: Communications Division By:
Federal Employer Jeffrey P. Jacobsen
I.D. No: 41-1592157 Its Vice President
<PAGE>
EXHIBIT A TO SECURITY AGREEMENT
Legal Descriptions and Record Owners
[To be prepared by the Borrower]
<PAGE>
EXHIBIT D TO
TERM CREDIT AGREEMENT
GUARANTY BY CORPORATION
This Guaranty is made as of the ____ day of July, 1995,
by _________________________________________, a Texas corporation
(the "Guarantor"), for the benefit of NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION, a national banking association (the
"Bank").
Recitals
A. Pursuant to a Term Credit Agreement (as may
hereafter be amended, restated or supplemented from time to time,
the "Credit Agreement") of even date herewith by and between SA
Holdings, Inc., a Delaware corporation (the "Borrower"), and the
Bank, the Bank has agreed to make certain loans to the Borrower
upon the fulfillment of the conditions set forth therein.
B. The loans to be made under the Credit Agreement
will be evidenced by the term note of the Borrower of even date
herewith, payable to the order of the Bank in the original
principal amount of $10,000,000 (as the same may hereafter be
renewed, extended, amended, restated or modified from time to
time, or any note or notes issued in substitution therefor, the
"Note").
C. As a condition to making loans to the Borrower
under the Credit Agreement, the Bank has required the execution
and delivery by the Guarantor of a Security Agreement of even
date herewith, granting the Bank a security interest in all of
the personal property of the Guarantor (as the same may hereafter
be amended and restated from time to time, the "Security
Agreement").
D. As a further condition to making loans to the
Borrower under the Credit Agreement, the Bank has required the
execution and delivery of this Guaranty.
E. The Guarantor is a subsidiary of the Borrower.
Accordingly, the Guarantor expects to derive substantial economic
benefit from the Credit Agreement and the loans and other
financial accommodations to be made thereunder.
ACCORDINGLY, the Guarantor, in consideration of the
premises and other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, hereby agrees
as follows:
1. All terms defined in the Credit Agreement that are
not otherwise defined herein shall have the meanings given them
in the Credit Agreement.
2. The Guarantor hereby absolutely and
unconditionally guarantees to the Bank the full and prompt
payment when due, whether at maturity or earlier by reason of
<PAGE>
acceleration or otherwise, of (i) the Note, including all
interest thereon, and any extensions or renewals thereof and
substitutions therefor; (ii) each and every other sum now or
hereafter owing to the Bank under the Credit Agreement or under
any other promissory note or agreement hereafter entered into by
the Borrower; and (iii) each and every sum secured by the
Security Agreement (all of said sums being hereinafter called the
"Indebtedness").
3. The Guarantor will pay all costs, expenses and
attorneys' fees paid or incurred by the Bank in endeavoring to
collect the Indebtedness and in enforcing this Guaranty.
4. No act or thing need occur to establish the
liability of the Guarantor hereunder, and with the exception of
full payment, no act or thing (including, but not limited to, a
discharge in bankruptcy of the Indebtedness, and/or the running
of the statute of limitations) relating to the Indebtedness which
but for this provision could act as a release of the liabilities
of the Guarantor hereunder, shall in any way exonerate the
Guarantor, or affect, impair, reduce or release this Guaranty and
the liability of the Guarantor hereunder; and this shall be a
continuing, absolute and unconditional guaranty and shall be in
force and be binding upon the Guarantor until the Indebtedness is
fully paid.
5. Indebtedness may be created and continued in any
amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the Guarantor
hereunder, and the Bank may pay (or allow for the payment of) the
excess out of any sums received by or available to the Bank on
account of the Indebtedness from the Borrower or any other person
(except the Guarantor), from its property, out of any collateral
security or from any other source, and such payment (or
allowance) shall not reduce, affect or impair the liability of
the Guarantor hereunder. Any payment made by the Guarantor under
this Guaranty shall be effective to reduce or discharge the
Guarantor's liability only if accompanied by a written
transmittal document, received by the Bank, advising the Bank
that such payment is made under this Guaranty for such purpose.
6. The liability of the Guarantor hereunder shall not
be affected or impaired in any way by any of the following acts
or things (which the Bank is hereby expressly authorized to do,
omit or suffer from time to time without notice to or consent of
anyone): (i) any acceptance of collateral security, guarantors,
accommodation parties or sureties for any or all Indebtedness;
(ii) any extension or renewal of any Indebtedness (whether or not
for longer than the original period) or any modification of the
interest rate, maturity or other terms of any Indebtedness;
(iii) any waiver or indulgence granted to the Borrower, any delay
or lack of diligence in the enforcement of the Note or any other
Indebtedness; (iv) any full or partial release of, compromise or
settlement with, or agreement not to sue, the Borrower or any
other guarantor or other person liable on any Indebtedness;
(v) any release, surrender, cancellation or other discharge of
any Indebtedness or the acceptance of any instrument in renewal
or substitution for any instrument evidencing Indebtedness;
(vi) any failure to obtain collateral security (including rights
of setoff) for any Indebtedness, or to see to the proper or
sufficient creation and perfection thereof, or to
<PAGE>
establish the priority thereof, or to preserve, protect, insure,
care for, exercise or enforce any collateral security for any of
the Indebtedness; (vii) any modification, alteration,
substitution, exchange, surrender, cancellation, termination,
release or other change, impairment, limitation, loss or
discharge of any collateral security for any of the Indebtedness;
(viii) any assignment, sale, pledge or other transfer of any of
the Indebtedness; or (ix) any manner, order or method of
application of any payments or credits on any Indebtedness. The
Guarantor waives any and all defenses and discharges available to
a surety, guarantor, or accommodation co-obligor, dependent on
its character as such.
7. The Guarantor waives any and all defenses, claims,
setoffs and discharges of the Borrower, or any other obligor,
pertaining to the Indebtedness, except the defense of discharge
by payment in full. Without limiting the generality of the
foregoing, the Guarantor will not assert against the Bank any
defense of waiver, release, discharge in bankruptcy, statute of
limitations, res judicata, statute of frauds, anti-deficiency
statute, fraud, ultra vires acts, usury, illegality or
unenforceability which may be available to the Borrower in
respect of the Indebtedness, or any setoff available against the
Bank to the Borrower, whether or not on account of a related
transaction, and the Guarantor expressly agrees that it shall be
and remain liable for any deficiency remaining after foreclosure
of any lien or security interest securing any Indebtedness,
notwithstanding provisions of applicable law that may prevent the
Bank from enforcing such deficiency against the Borrower. The
liability of the Guarantor shall not be affected or impaired by
any voluntary or involuntary liquidation, dissolution, sale or
other disposition of all or substantially all the assets,
marshalling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors,
reorganization, arrangement, composition or readjustment of, or
other similar event or proceeding affecting, the Borrower or any
of its assets. The Guarantor will not assert against the Bank
any claim, defense or setoff available to the Guarantor against
the Borrower.
8. The Guarantor also hereby waives:
(i) presentment, demand for payment, notice of dishonor or
nonpayment, and protest of the Indebtedness; (ii) notice of the
acceptance hereof by the Bank and of the creation and existence
of all Indebtedness; and (iii) notice of any amendment to or
modification of any of the terms and provisions of the Note, the
Credit Agreement or any other agreement evidencing or securing
any Indebtedness. The Bank shall not be required first to resort
for payment of the Indebtedness to the Borrower or other persons
or corporations, their properties or estates, or to any
collateral, property, liens or other rights or remedies
whatsoever.
9. If any payment applied by the Bank to the
Indebtedness is thereafter set aside, recovered, rescinded or
required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the
Borrower or any other obligor), the Indebtedness to which such
payment was applied shall for the purposes of this Guaranty be
deemed to have continued in existence, notwithstanding such
application, and this Guaranty shall be enforceable as to such
Indebtedness as fully as if such application had never been made.
<PAGE>
10. No payment by the Guarantor pursuant to any
provision hereof shall entitle the Guarantor, by subrogation to
the rights of the Bank or otherwise, to any payment by the
Borrower or out of the property of the Borrower until all of the
Indebtedness (including interest) and all costs, expenses and
attorneys' fees paid or incurred by the Bank in endeavoring to
collect the Indebtedness and enforcing this Guaranty have been
fully paid. The Guarantor will not exercise or enforce any right
of contribution, reimbursement, recourse or subrogation available
to the Guarantor as to any Indebtedness, or against any person
liable therefor, or as to any collateral security therefor,
unless and until all such Indebtedness shall have been fully paid
and discharged.
11. The Guarantor represents and warrants to the Bank
that (i) the Guarantor accordingly expects to derive substantial
economic benefit from the Credit Agreement and the loans to the
Borrower and any other financial accommodations under the Credit
Agreement or otherwise to the Borrower; (ii) the Guarantor is a
corporation duly organized and existing in good standing and has
full power and authority to make and deliver this Guaranty;
(iii) the execution, delivery and performance of this Guaranty
has been duly authorized by all necessary action of its directors
and do not and will not violate the provisions of or constitute a
default under any presently applicable law or its articles of
incorporation or bylaws or any other agreement presently binding
upon the Guarantor; (iii) this Guaranty has been duly executed
and delivered by the Guarantor and constitutes its lawful,
binding and legally enforceable obligation; and (iv) the
Guarantor (A) is not insolvent as of the date hereof, and shall
not become insolvent as a result of the execution and delivery of
this Guaranty, (B) is not engaged in business or a transaction,
or about to engage in business or a transaction, for which its
property is an unreasonably small capital, and (C) does not
intend to incur, or believe that it will incur, debts that would
be beyond its ability to pay as such debts mature.
12. This Guaranty shall constitute a continuing and
irrevocable guaranty, and the Bank may continue, without notice
to or consent by the Guarantor, to make loans and extend other
credit or financial accommodation to or for the account of the
Borrower in reliance upon this Guaranty until written notice of
revocation of this Guaranty shall have been received by the Bank
from the Guarantor. Any such notice of revocation shall not
affect this Guaranty in relation to any Indebtedness then
existing or created thereafter pursuant to any previous
commitment of the Bank to the Borrower, or any extensions or
renewals of any such Indebtedness, and as to all such
Indebtedness and extensions or renewals thereof, this Guaranty
shall continue effective until the same have been fully paid with
interest.
13. This Guaranty shall be binding upon the successors
and assigns of the Guarantor, and shall inure to the benefit of
the successors and assigns of the Bank.
14. This Guaranty is secured pursuant to the Security
Agreement be secured pursuant to one or more other security
agreements, pledge agreements, assignments, mortgages, deeds of
trust or other documents or instruments.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has executed this
Guaranty as of the day and year first above written.
By: ______________________________
Its: _____________________________
<PAGE>
EXHIBIT E TO
TERM CREDIT AGREEMENT
ASSIGNMENT OF DEPOSIT ACCOUNTS
This Assignment is entered into as of the 31st day of
July, 1995, by and between SA HOLDINGS, INC., a Delaware
corporation (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 of even date herewith (the "Credit Agreement"),
setting forth the terms on which the Bank has agreed to make
certain term loans to the Borrower.
As a condition to making the loans contemplated by the
Credit Agreement, the Bank has required that the Borrower execute
and deliver this Assignment.
ACCORDINGLY, in consideration of the advances to be
made under the Credit Agreement, the Borrower hereby agrees as
follows:
1. Assignment and Security Interest. To secure
payment of each and every debt, liability and obligation of every
type and description which the Borrower may now or at any time
hereafter owe to the Bank (whether such debt, liability or
obligation now exists or is hereafter created or incurred and
whether it is or may be direct or indirect, due or to become due,
absolute or contingent, or several or joint and several, all such
debts, liabilities and obligations being herein collectively
referred to as the "Obligations"), including but not limited to
the Note (as defined in the Credit Agreement) and all other
indebtedness arising under the Credit Agreement, the Borrower
hereby assigns, sets over and transfers to the Bank, and grants
the Bank a security interest in, all rights, title and interests
of the Borrower in and to the deposit accounts described in
Exhibit A, and in and to all other deposit and investment
accounts of any type, including but not limited to all checking
and savings accounts, NOW accounts, money market accounts,
collateral accounts, escrow accounts, margin accounts,
certificates of deposit and savings certificates now or hereafter
maintained by the Borrower with the Bank or any other bank,
savings bank, savings and loan association, broker, brokerage
house or other financial institution (each a "Financial
Institution"), and all rights to payment in connection therewith
and all sums or property now or at any time hereafter on deposit
therein, together with all earnings of every kind and description
which may now or hereafter accrue thereon (all of the foregoing
being herein referred to as the "Accounts"). If any Account is
evidenced by a certificate of deposit or is otherwise subject to
Article 9 of the Uniform Commercial Code, the foregoing
assignment shall be construed as a grant of a security interest
subject, to the extent applicable, to the Uniform Commercial Code
as enacted in the State of Minnesota.
<PAGE>
2. Title. The Borrower represents, warrants and
covenants that the Borrower is and will remain the sole owner of
the Accounts described in Exhibit A hereto, free and clear of all
liens, encumbrances, security interests and restrictions, except
the security interest created hereby.
3. Acknowledgments. Concurrent with the opening or
establishment of any Account not listed in Exhibit A hereto, the
Borrower shall deliver to the Bank an acknowledgment, duly
executed by the Borrower and the Financial Institution at which
such Account is maintained, in substantially the form of Exhibit
B hereto.
4. Bank's Rights with Respect to Accounts. Following
the occurrence of an Event of Default, as defined in the Credit
Agreement, the Bank may, in its sole discretion, and the Borrower
hereby irrevocably authorizes and empowers the Bank to, in the
Bank's own name or in the name of the Borrower demand, apply for
withdrawal, receipt and give acquittance for any and all sums or
property which are or will become due and payable under any or
all of the Accounts, to exercise any and all rights and
privileges and receive all benefits accorded to the Accounts, and
to execute any and all instruments required therefor, all without
notice to the Borrower. The Bank shall apply any moneys or
property received thereby toward payment of the Obligations in
such order of application as the Bank may determine. In
addition, the Bank may, in its sole discretion, following the
occurrence of an Event of Default, notify any Financial
Institution that the Borrower shall not be entitled to any
further withdrawal from any Accounts maintained with that
Financial Institution, whereupon the Borrower shall not have any
further right to make such withdrawals. Each Financial
Institution is hereby specifically authorized and directed, on
request by the Bank and without notice to or consent from the
Borrower, to (i) pay the Accounts in the amount specified in the
applicable request from the Bank (including, if requested, the
entire amount of such Accounts), and (ii) transfer any or all of
the Accounts into the Bank's name on that Financial Institution's
books. Following transfer of any Account into Bank's name as
provided above, the Borrower shall not have any right to make any
withdrawals from any of the Accounts with that Financial
Institution, or to the issuance of any new certificates
evidencing any of such Accounts. The Financial Institutions
shall rely solely on the instructions of the Bank in acting under
this paragraph. Without limiting the generality of the
foregoing, the Financial Institutions shall have no duty to
ascertain or inquire as to whether the conditions permitting the
Bank to make any such request under this Agreement have been
satisfied or any other matter whatsoever.
5. Notices. All notices to be given to the Bank or
the Borrower hereunder shall be given in accordance with the
Credit Agreement.
6. Miscellaneous. This Assignment can be waived,
modified, amended, terminated or discharged, and the security
interest granted herein can be released, only explicitly in a
writing signed by the Bank. A waiver signed by the Bank shall be
effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude
the exercise or enforcement of any of the Bank's rights or
remedies. All
<PAGE>
rights and remedies of the Bank shall be cumulative and may be
exercised singularly or concurrently, at the Bank's option, and
the exercise or enforcement of any one such right or remedy shall
neither be a condition to nor bar the exercise or enforcement of
any other. Any rights granted to the Bank hereunder are in
addition to any setoff or other rights that the Bank may
otherwise have. The Bank shall not be obligated to preserve any
rights the Borrower may have against prior parties, to exercise
at all or in any particular manner any voting rights which may be
available with respect to any Collateral, to realize on the
Collateral at all or in any particular manner or order, or to
apply any cash proceeds of Collateral in any particular order of
application. The Borrower agrees to reimburse the Bank for all
expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Bank in the protection, defense or
enforcement of the assignment and security interest granted
herein, including expenses incurred in any litigation or
bankruptcy or insolvency proceedings. This Assignment shall be
binding upon and inure to the benefit of the Borrower and the
Bank and their respective successors and assigns and shall take
effect when signed by the Borrower and delivered to the Bank, and
the Borrower waives notice of the Bank's acceptance hereof. If
any provision or application of this Assignment is held unlawful
or unenforceable in any respect, such illegality or
unenforceability shall not affect other provisions or
applications which can be given effect, and this Assignment shall
be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby.
The paragraph headings herein are for convenience of reference
only and shall not constitute a part of this Assignment for any
other purpose.
IN WITNESS WHEREOF, the Borrower has executed this
Assignment as of the day and year first above-written.
SA HOLDINGS, INC.
By: _________________________
Its: _____________________
<PAGE>
Exhibit A
Depositor Depository Institution Account Number Description
<PAGE>
Exhibit B
___________________, 1995
____________________________
[Depository Financial Institution]
_____________________________
_____________________________
Ladies and Gentlemen:
SA Holdings, Inc., a Delaware corporation, doing
business as SA Telecommunications, Inc. (the "Assignor"), has
granted Norwest Bank Minnesota, National Association, a national
banking association (together with any successor Bank under the
Credit Agreement described and defined herein, the "Bank"), a
security interest in and lien on, and have assigned to the Bank,
all of the Assignor's interest in the account or accounts
maintained with you and described on Attachment I hereto, and in
each and every other deposit or investment account of the
Assignor, now or hereafter maintained with you, together with all
rights to payment in connection therewith and all sums or
property now or at any time hereafter on deposit therein,
together with all earnings of every kind and description which
may now or hereafter accrue thereon. Pursuant to the Assignment,
all such moneys and property are payable directly to the Bank
upon its request.
A true copy of the Assignment is attached as
Attachment II.
The Bank hereby appoints you as its agent to perfect
the security interest, lien and assignment described above.
As a condition to making any advance under the Credit
Agreement described in the Assignment, the Bank has required that
you accept that appointment and agree to certain matters in
connection therewith. We therefore request that you sign the
acknowledgment attached hereto.
NORWEST BANK MINNESOTA, SA HOLDINGS, INC.
NATIONAL ASSOCIATION
By __________________________ By __________________________
Its Vice President Its ______________________
<PAGE>
Acknowledgment of Depository Institution
The undersigned, ___________________________________, a
________________________________, hereby accepts the agency
described above, and agrees in connection therewith to the
following matters:
1. The undersigned hereby waives any and all rights
it may now or hereafter have against SA Holdings, Inc. a Delaware
corporation (the "Assignor"), with respect to any funds, earnings
or other property on deposit in any account maintained by the
Assignor with the undersigned (each an "Account"), including any
right of offset in connection therewith; provided, however, that
the undersigned retains the right to offset any funds, earnings
or other property in any Account against any indebtedness
resulting from inadvertent overdrafts in Accounts, whether such
overdrafts result from internal items or other causes.
2. The undersigned represents and warrants to the
Bank that the undersigned has no knowledge of any other security
interest in, lien on, or assignment of any of the Accounts.
3. The undersigned agrees that, at any time and from
time to time upon receipt of a request for withdrawal from the
Bank in writing or in such other form as the undersigned and the
Bank may agree, the undersigned will remit to the Bank all funds,
earnings, and other property on deposit with the undersigned to
the extent specified in such request. The undersigned further
agrees that, upon receipt of a written notice that an Event of
Default has occurred, the undersigned shall, to the extent
requested in such notice, (i) no longer permit the Assignor or
anyone else, except the Bank, to withdraw funds from or
countermand withdrawals from any of the Accounts, (ii) pay over
to the Bank directly all funds, earnings, and other property of
the Assignor on deposit with the undersigned, and (iii) transfer
each such Account into the Bank's name on the undersigned's
books.
________________________________
[Depository Financial Institution]
By _____________________________
Its _________________________
<PAGE>
Attachment I
Depositor Account Number Description
<PAGE>
Attachment II
[Copy of Assignment]
<PAGE>
EXHIBIT F TO
TERM CREDIT AGREEMENT
[On Arter & Hadden
Washington, D.C. Firm
Letterhead]
(202) 775-7960
July 28, 1995
Norwest Bank of Minnesota
National Association
Sixth Street and Marquette Avenue
Minneapolis, Minnesota 55479
Re: Loan Agreement dated July __, 1995 between SA Holdings,
Inc. and Norwest Bank Minnesota, National Association
Ladies and Gentlemen:
In connection with the above-referenced loan, I have
reviewed certain regulatory filings by North American
Telecommunications Corporation ("NATC"), Long Distance Network,
Inc. ("LDN"), U.S. Communications, Inc. ("USC"), and Southwest
Long Distance Network, Inc. ("SLDN") (collectively "the
Corporations"). My conclusions regarding the status of these
regulatory filings is subject to a number of qualifications and
limitations. I have relied on the factual representations made
by the Corporations and the documents that the Corporations have
provided to me. I have not conducted any search of any indexes,
dockets, or other records of any federal, state, or local court,
governmental agency or tribunal or of any arbitrator. I have not
contacted or otherwise communicated with the Federal
Communications Commission ("FCC") or any state regulatory agency
concerning the status of the filings described below. I do not
represent any of the Corporations on a regular basis and as a
consequence my knowledge of their affairs is based upon
information supplied by them. I have assumed that the business
of the Corporations consists of acting as common carriers
offering long distance telephone service. I have no reason to
believe such assumption is incorrect.
I have ten years of experience in providing state and
federal telecommunications regulatory counsel to long distance
companies. The foregoing provides a summary of the status of the
Corporations' filings with the FCC and state regulatory
authorities with oversight responsibilities similar to the FCC.
However, nothing herein provides an opinion concerning any state
law as I am licensed to practice law in only the State of
Virginia and the District of Columbia.
<PAGE>
U.S. COMMUNICATIONS INC.
A. Federal
USC has filed with the FCC all tariffs required by the
Communications Act of 1934 and the FCC's rules and decisions.
The FCC has granted USC all authorizations required by the
Communications Act of 1934 to provide long distance
telecommunications services.
B. States
1. Arizona
USC has applied for the requisite Certificate of Public
Convenience and Necessity and filed a tariff with the Arizona
Corporation Commission, but no approval has been obtained due to
the back-log at the Arizona Corporation Commission.
2. Arkansas
The Arkansas Public Service Commission has granted USC a
permanent Certificate of Public Convenience and Necessity to
provide competitive telecommunications services to business and
residential customers within the State of Arkansas and has
approved USC's tariff offering same.
3. Colorado
The Colorado Public Utilities Commission has granted USC a
Certificate of Public Convenience and Necessity to provide
intrastate non-optional operator services throughout the State of
Colorado. USC has filed a tariff offering intrastate non-
optional operator services within the State of Colorado as
required by the Colorado Public Utilities Commission.
4. Kansas
The Kansas Corporation Commission has granted USC a
certificate of convenience and authority to operate as an
interexchange/private line/operator services provider within the
State of Kansas. The Kansas Corporation Commission has approved
<PAGE>
USC's tariff for the provision of intrastate resale common
carrier communications services within the State of Kansas.
5. Louisiana
USC has filed an application with the Louisiana Public
Service Commission for authority to provide intrastate long
distance service, operator service, and private line service in
Louisiana. To my knowledge, the Louisiana Public Service
Commission has not yet acted on this application.
6. New Mexico
The New Mexico State Corporation Commission has granted USC
a certificate of public convenience and necessity to provide
operator services and non-facilities based resale of long
distance telecommunications service on an intrastate basis within
the State of New Mexico and approved USC's tariff offering same.
USC also has filed an application for registration as a payphone
provider in New Mexico but I have no knowledge of whether the New
Mexico State Corporation Commission has approved such
registration.
7. Oklahoma
USC has registered with the Oklahoma Corporation Commission
as a non-dominant operator service provider and long distance
telecommunications interexchange carrier. However, new rules
recently adopted by the Oklahoma Corporation Commission require a
certificate of public convenience and necessity and tariffs to be
approved by the Oklahoma Corporation Commission in order to
provide intrastate interexchange telecommunications services or
operator services in Oklahoma. I have no knowledge of whether
USC has filed such an application for a certificate of public
convenience and necessity or tariffs with the Oklahoma
Corporation Commission.
8. Texas
USC has filed the informational tariff required by the Texas
Public Utility Commission.
<PAGE>
LONG DISTANCE NETWORK, INC.
A. Federal
LDN has filed with the FCC all tariffs required by the
Communications Act of 1934 and the FCC's rules and decisions to
provide domestic interstate telecommunications services. LDN has
filed an application with the FCC requesting authorization
pursuant to Section 214 of the Communications Act of 1934 to
provide international resale. When this international resale
authority is granted, LDN will need to revise its international
resale tariff.
B. States
1. LDN has filed the informational tariff required by the
Texas Public Utility Commission.
NORTH AMERICAN TELECOMMUNICATIONS CORPORATION
A. Federal
To my knowledge, NATC does not offer domestic service,
therefore, NATC is not required to file domestic tariffs with the
FCC or intrastate tariffs with state regulators.
NATC has filed an application with the FCC requesting
authorization pursuant to Section 214 of the Communications Act
of 1934 to provide international resale. When this international
resale authority is granted, NATC will be required to file an
international resale tariff with the FCC.
SOUTHWEST LONG DISTANCE NETWORK, INC.
A. Federal
SLDN has filed with the FCC all tariffs required by the
Communications Act of 1934 and the FCC's rules and decisions to
provide domestic interstate telecommunications services.
To my knowledge, SLDN is a wholly-owned subsidiary of USC.
While USC has been granted authorization pursuant to Section 214
of the Communications Act of 1934 and has filed an international
resale tariff with the FCC, SLDN has not separately applied for
<PAGE>
such international authorization or filed an international resale
tariff.
B. States
1. Arkansas
The Arkansas Public Service Commission has granted SLDN a
permanent Certificate of Public Convenience and Necessity to
provide intrastate telecommunications services within the State
of Arkansas and has approved SLDN's tariff offering same.
This status letter may be relied upon by you only in
connection with the above-referenced loan and nay not be relied
upon by, filed with or furnished to, quoted in any manner to, or
referred to in any financial statement, report or related
document, or delivered to, any person or entity without, in each
instance, Arter & Hadden's prior written consent.
Sincerely,
James U. Troup
cc: Mark S. Solomon
<PAGE>
<TABLE>
EXHIBIT G
BORROWING CERTIFICATE
The undersigned Chief Financial Officer of SA Holdings, Inc. (the "Borrower") hereby certifies to the Bank
pursuant to Section [3.2(a][5.1(b)] of the Credit Agreement that the Adjusted Operating Cash Flow of the Borrower for
the quarter ending _______________, 199_ was as follows:
<CAPTION>
Quarter Ending: 06/30/95 9/30/95 12/31/95 03/31/96
(Months) Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
- --------------- ----------------------- --------------------- ------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Operating Cash
Flow (EBITDA) 68,055 68,055 68,055
Expense Reduction
Amount 163,000 163,000 163,000 107,000 49,000 47,000 2,000 0 ____ 0 0 0
Monthly Adjusted
Operating Cash Flow
Two Quarters Ending
__/__/__ __/__/__ ________ _______ ____ ____
Multiple to Annualize 2.0 x 2.0 x 2.0 x 2.0 x
Annualized Adjusted
Operating Cash Flow:
Current Principal Balance:
Borrowing Availability:
__________________________________________
(Chief Financial Officer)
</TABLE>
<PAGE>
Schedule 4.4
Subsidiaries
1. Long Distance Network, Inc., a Texas corporation
2. North American Telecommunications Corporation, a Texas
corporation
3. Strategic Abstract and Title Corporation, a Texas
corporation
4. Baltic States and CIS Ventures, Inc., a Texas corporation
5. CIS Intelligence Information Services, Inc., a Texas
corporation
6. U.S. Communications, Inc., a Texas corporation (after
completion of the Acquisition)
7. Southwest Long Distance Network, Inc., an Arkansas
corporation
All of the above subsidiaries are owned 100% by Borrower,
except for Southwest Long Distance Network, Inc., which is
100% owned by U.S. Communications, Inc.
<PAGE>
Schedule 4.7
Litigation
- - SA Holdings, Inc. and its wholly owned subsidiary, North
American Telecommunications Corporation are Defendants in an
Original Petition with Jury Demand by Plaintiff Silvio Avyam.
The Action was filed in the District court of Dallas County,
Texas July 20, 1995, Silvio Avyam vs. SA Holdings, Inc., et al.
(Cause No. 95-07136-E). Mr. Avyam was previously engaged by the
Company under a Consulting Agreement which was terminated by the
Company in May, 1995 under the provisions of that Agreement.
Mr. Avyam claims unspecified monies owed him by the Company for
wages and commissions; as well as Common Law Fraud; Breach of
Fiduciary Obligation and Breach of Contract. In his Petition,
Mr. Avyam seeks among other things, 170,000 shares of SA Holdings
stock, exemplary damages and attorney's fees.
- - U.S. Communications, Inc. is in the process of settling a
personal injury action brought by a UPS driver who was injured in
a malfunctioning elevator on July 15, 1992 (Cause No. 94-06-
15,823; Gregory Williams et ux. v. U.S. Communications Inc. d/b/a
NTS Communications/Western division, et al., filed in the 286th
Judicial District Court of Hockley County, Texas). The
Plaintiff's attorney has demanded a total settlement offer of
$350,894. U.S. Communications maintains personal injury
liability insurance with up to $500,000 insurance coverage per
occurrence up to an aggregate of $1,000,000 and has made demand
for this settlement payment by the insurance carrier.
<PAGE>
Schedule 4.11
Capitalization
- -SA Holdings, Inc.:
Preferred Stock: $0.00001 par value per share
12,500,000 shares authorized
166,667 shares Series A Preferred Stock
issued and outstanding at August 1, 1995
125,000 shares Series B Preferred Stock
issued and outstanding at August 1, 1995
Common Stock: $0.0001 par value share
50,000,000 share authorized
11,533,590 shares issued and outstanding
at 6/30/95
Treasury Stock: 217,572 shares of Common Stock at
6/30/95
0 shares of Preferred Stock
<PAGE>
Schedule 4.12
Real Property
- -SA Holdings, Inc.: NONE, except for the real property owned by
SA Holdings in Midland, Texas that will be sold to SATC in
December with the distribution of SATC stock 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 of
Records of Midland County, Texas.
<PAGE>
Schedule 4.14
Licenses
Except for the filings and authorizations described in the letter
dated July 28, 1995 from James U. Troup of Arter & Hadden
addressed to Bank, none.
<PAGE>
SCHEDULE 4.15
MATERIAL AGREEMENTS
A. SA HOLDINGS, INC.
1. Lease Agreement relating to 1912 Avenue K, Suite 100,
Plano, Texas.
Expired: November 1993, currently on a month-to-
month basis.
2. Sale and Purchase Agreement between the Company, Long
Distance Network, Inc. and the shareholders of Long
Distance Network, Inc., dated April 12, 1994.
Expires: N/A
3. Stock Purchase Agreement between the Company, U.S.
Communications, Inc. and the shareholders of U.S.
Communications, Inc., dated June 30, 1995 (the
"Purchase Agreement").
Expires: July 31, 1995
4. Side Letter Agreement between NTS Communications, Inc.,
the Company, U.S. Communications, Inc. and the
shareholders thereof relating to the Purchase Agreement
(the "Side Letter Agreement").
Expires: N/A
5. Employment Agreement dated March 24, 1995 by and
between the Company and Jack W. Matz, Jr.
Expires: March 24, 2000
6. 1994 Stock Option Plan for Non-Employee Directors of
the Company ("Non-Employee Director Plan").
Expires: As set forth in the Non-Employee
Director Plan but in no event later than
5 years from the Date of Grant of the
Option.
7. Form of Stock Option Agreement used in connection with
Non-Employee Director Plan.
Expires: No later than five years from the
commencement date.
<PAGE>
8. 1994 Employee Stock Option Plan ("Employee Plan").
Expires: As set forth in the Employee Plan but in
no event later than 10 years from the
Date of Grant of the Option.
9. Form of Incentive Stock Option Agreement used in
connection with the Employee Plan.
Expires: As set forth in the Agreement but in no
event later than 10 years from the date
of the Agreement.
10. Form of Non-Qualified Stock Option Agreement used in
connection with the Employee Plan.
Expires: As set forth in the Agreement but in no
event later than 10 years from the date
of the Agreement.
11. Employment Agreement dated August 8, 1993 and effective
on October 1, 1993 by and between Company and J. David
Darnell.
Expires: October 1, 1998
12. Real Estate Lien Note dated May 12, 1994 in the
principal amount of $120,000 payable by Company to H.
Rex Armstrong and Robert K. Duffield, Trustees, secured
by the Deed of Trust of same date by Company to Stephen
P. Hanger, Trustee.
Matures: May 12, 2004
13. Certificate of Designation of Series A Preferred Stock
of SA Holdings, Inc. filed with the Secretary of State
of the State of Delaware on August 1, 1995.
14. Certificate of Designation of Series B Preferred Stock
of SA Holdings, Inc. filed with the Secretary of State
of the State of Delaware on August 1, 1995.
15. Subordinated Note dated July 31, 1995 payable to Howard
Maddera in the amount of $1,100,000.
16. Subordinated Note dated July 31, 1995 payable to Bill
L. Johnson in the amount of $1,100,000.
17. Subordinated Note dated July 31, 1995 payable to
Marianne Reed in the amount of $550,000.
<PAGE>
18. Subordinated Note dated July 31, 1995 payable to Howard
Maddera in the amount of $600,000.
19. Subordinated Note dated July 31, 1995 payable to Bill
L. Johnson in the amount of $600,000.
20. Subordinated Note dated July 31, 1995 payable to
Marianne Reed in the amount of $300,000.
21. Note and Warrant Purchase Agreement dated July 31, 1995
between the Company and the Purchasers thereunder.
22. Term Credit Agreement dated July 31, 1995 between
Company and Norwest Bank Minnesota, National
Association ("Norwest") and the other Loan Documents
(as such term is defined therein).
B. LONG DISTANCE NETWORK, INC.
1. Lease Agreement relating to 1600 Promenade Center,
Suite 1510, Richardson, Texas.
Expires: August 1996
2. Carrier Termination Services Agreement between LDN and
U.S. Long Distance, Inc. dated February 3, 1995.
Expires: February 20, 1996 (extendable for
additional one year period)
3. Telecommunications Agreement between LDN and NTS
Communications, Inc., dated August 1, 1993.
Expires: Two years after the first day of the
next billing period following the date
NTS receives the signed Agreement.
4. Carrier Termination Service Agreement between LDN and
Long Distance International, Inc. dated May 4, 1995.
Expires: June 5, 1996 (extendable for additional
one year period)
5. Employment Agreement dated April 1, 1994 by and between
LDN and Paul R. Miller.
Expires: April 1, 1999
<PAGE>
6. Employment Agreement dated April 1, 1994 by and between
LDN and Terry R. Houston.
Expires: April 1, 1999
7. Lease Agreement relating to the Lafayette Building at
523 South Louisiana, Suite LL150, Little Rock,
Arkansas.
Expires: September 30, 1996
8. Lease Agreement relating to the Greenwood Office
Center, 2200 West Sunset, Suite B-4, Springdale,
Arkansas.
Expires: October 31, 1995
9. Lease Agreement relating to 104 North 13th, Suites 100,
102 and 104, Fort Smith, Arkansas.
Expires: October 31, 1998
10. Security Agreement and Guaranty by Corporation, each
dated July 31, 1995, given for the benefit of Norwest.
11. Records Processing and Financing Agreement by and
between Teltrust Communications Services, Inc. (TCS)
and LDN dated May 18, 1993 and effective July 1, 1993.
Expires: July 1, 1994 (extendable for additional
one year period)
12. Operator Services Agreement by and between Teletrust,
Inc. and LDN dated May 12, 1994.
Expires: May 12, 1997
C. NORTH AMERICAN TELECOMMUNICATIONS CORPORATION ("NATC")
1. Reseller Services Agreement between NATC and Prairie
Systems, Inc. dated November 12, 1993.
Expires: November 12, 1996 with automatic twelve
month renewal periods.
2. Security Agreement and Guaranty by Corporation, each
dated July 31, 1995, given for the benefit of Norwest.
<PAGE>
D. U.S. COMMUNICATIONS, INC. ("USC")
1. Stock Purchase Agreement by and between SA Holdings,
Inc., USC, and Bill L. Johnson, Howard Maddera,
Marianne Reed, and NTS Communications, Inc., dated
October 6, 1994.
Expires: N/A
2. Side Letter Agreement by and between the Company, NTS
Communications, Inc., and USC dated June 30, 1995.
3. Telecommunications Agreement by and between NTS
Communications, Inc. and USC dated July 18, 1995 to
become effective June 11, 1995 and continue until
November 30, 1995, with successive 30 day renewable
terms.
4. Promissory Note dated July 1, 1991 payable to General
Electric Capital Corporation in the original principal
amount of $320,189.00 and amended on September 11, 1991
to principal amount of $246,689.00.
Matures: July 1, 1995
5. Promissory Note dated June 1, 1993 payable to American
State Bank in the original principal amount of
$25,681.65.
Matures: December 1, 1996
6. Promissory Note dated March 5, 1993 payable to American
State Bank in the original principal amount of
$13,000.00.
Matures: March 1, 1996
7. Promissory Note dated December 15, 1992 payable to
American State Bank in the original principal amount of
$12,946.11.
Matures: December 15, 1995
8. Promissory Note dated October 16, 1992 payable to
American State Bank in the original principal amount of
$11,656.34.
Matures: October 16, 1995
<PAGE>
9. Promissory Note dated September 1, 1994 payable to
Marianne Reed in the original principal amount of
$14,068.40.
Matures: September 1, 1996
10. Lease Agreement relating to 3909 Juan Tabo Blvd., NE,
Suite 2, Albuquerque, New Mexico.
Expires: April 30, 1997
11. Lease Contract relating to 211 Johnson Street, Big
Spring, Texas.
Expires: September 1, 1996
12. Lease Agreement relating to 444 Executive Center
Boulevard, Suite 130, El Paso, Texas.
Expires: July 31, 1998
13. Lease Agreement relating to 2080 State Highway 360,
Suite 130, Grand Prairie, Texas.
Expires: July 31, 1997
14. Lease Agreement relating to 318 West Bender Boulevard,
Hobbs, Texas.
Expires: August 1, 1997
15. Lease Agreement relating to 1100 South Main Street,
Suite 203, Las Cruces, New Mexico.
Expires: December 31, 1995
16. Lease Agreement relating to 3916 Tanglewood, Odessa,
Texas.
Expires: April 30, 1997
17. Lease Agreement relating to 2200 North Classen
Boulevard, Suite 630, Oklahoma City, Oklahoma.
Expires: October 31, 1996
<PAGE>
18. Lease Agreement relating to 100 West Clarendon, Suite
1700, Phoenix, Arizona.
Expires: November 30, 1997
19. Lease Agreement relating to 3905 College Avenue,
Snyder, Texas.
Expires: December 31, 1995
20. Lease Agreement relating to 1580 N. Kolb Road, #200,
Tucson, Arizona.
Expires: February 29, 1996
21. Lease Agreement relating to 313 West Apache,
Farmington, New Mexico.
Expires: April 6, 1996
22. Security Agreement and Guaranty by Corporation, each
dated July 31, 1995, given for the benefit of Norwest.
<PAGE>
SCHEDULE 6.1
<TABLE>
Uniform Commercial Code Financing Statement Filings
<CAPTION>
Secured Party Filing Office Reference
------------- ------------- ---------
<S> <C> <C> <C>
A. SA Holdings, Inc. Eaton Financial Corp. Texas S/S 93-054269
B. Long Distance Network Inc. Aaron Rents, Inc. Texas S/S 92-149136
SA Holdings, Inc. Texas S/S 95-040932
SA Holdings, Inc. ______ County 1256
Telecommunications Finance Group Texas S/S
Telecommunications Finance Group Texas S/S 94-003217
C. North American
Telecommunications Corporation
D. U.S. Communications, Inc. General Electric Capital Corp. Texas S/S 91-132174
NCNB Texas National Bank Texas S/S 91-140467
American State Bank Texas S/S 91-149852
American State Bank Texas S/S 93-110316
Advanta Leasing Company Texas S/S 94-054167
First Security Bank of New Mexico Texas S/S 94-079296
Pitney Bowes Credit Corp. Texas S/S 94-089485
Tilden Financial Corp. Texas S/S 94-179495
Turn-Key Leasing, Ltd. Texas S/S 95-089423
E. Southwest Long Distance
Network, Inc. C&L Communications, Inc. Arkansas S/S 775601
Copystar Processing Center Texas S/S 94-173296
</TABLE>
<PAGE>
Real Estate Filings
Lien created by the Deed of Trust dated May 12, 1994 by SA
Holdings, Inc. to Stephen P. Hanger, Trustee to secure
the Real Estate Lien Note dated May 12, 1994 in the stated
principal amount of $120,000 payable by SA Holdings, Inc. to
H. Rex Armstrong and Robert K. Duffield, Trustees.
<PAGE>
Schedule 6.2
Permitted Indebtedness
(Balance as of 6/30/95)
SA Telecommunications, Inc.:
Notes Payable to Officers & Directors
<TABLE>
<CAPTION>
Payee Due Date Principal Interest Total
- ----- -------- --------- -------- -----
<S> <C> <C> <C> <C>
Jack Matz 6/30/95 25,610 4,217 $ 29,827
(25,000 note converted to options) 1,085 1,085
($100,000 note converted to options) 1,356 1,356
Terry Houston 6/17/95 25,000 1,069 26,069
8/31/95 75,000 173 75,173
Paul Miller 6/17/95 20,000 869 20,869
Barry Williams 6/30/95 15,000 311 15,311
Dean Thomas 6/17/95 25,000 1,069 26,069
Pete Smith 6/17/95 25,000 1,069 26,069
TOTAL $221,828
Mortgage note payable to BMB-BCH Trust/AHB-BCB Trust (SATC
property)
BALANCE $111,992
</TABLE>
1. Subordinated Note dated July 31, 1995 in the stated
principal amount of $1,100,000 payable to the order of Bill
L. Johnson.
2. Subordinated Note dated July 31, 1995 in the stated
principal amount of $1,100,000 payable to the order of
Howard Maddera.
3. Subordinated Note dated July 31, 1995 in the stated
principal amount of $550,000 payable to the order of
Marianne Reed.
4. Subordinated Note dated July 31, 1995 in the stated
principal amount of $600,000 payable to the order of Bill L.
Johnson.
5. Subordinated Note dated July 31, 1995 in the stated
principal amount of $600,000 payable to the order of Howard
Maddera.
6. Subordinated Note dated July 31, 1995 in the stated
principal amount of $300,000 payable to the order of
Marianne Reed.
TOTAL $4,250,000
<PAGE>
Long Distance Network, Inc.:
(a) Capitalized Switching Equipment Lease Obligation
Summary of Terms: Lease Agreement dated November 20, 1993,
between Telecommunications Finance Group (Siemens/Stromberg-
Carlson third-party vendor) and Total National
Telecommunications, Inc., effective May 1, 1994. The Lease
Agreement covers (1) an in place Siemens Stromberg-Carlson
Digital Central Office Carrier Switch equipped for 576 digital
ports and wired for 1152 digital ports with Basic Release 11.1
and AMA (DCO-482027, Issue 01, dated 11/15/93), and the addition
of 576 equipped digital ports, installed at 1530 Main Street,
Suite 900, Dallas, Texas 75201. The original value of the
equipment was $220,000, to be paid in sixty monthly lease
installments (based on a rate factor per $1,000 of $21.867) of
$4,620.44. By Attachment A dated July 7, 1994 (and Addendum to
Lease Agreement dated July 15, 1994) and effective August 1, 1994
(when 57 monthly lease payments were outstanding), upgrades
(primarily of software) costing $220,173.65 were carried out,
bringing the total value of equipment under lease to $440,173.65
and increasing monthly lease payments by $4,814.54 to $9,434.98.
The upgrade included a one-sector upgrade to Basic Release 12.1
per DCO-482096, Issue 1, Dated 02/01/94, including SS7 with 800
Portability, SS7 spares, three additional pairs of "A" links,
Auto Truck Testing, CMF II Spares, and the addition of 300 "800"
Database Tables (S.O. #063782)
Balance $362,574
(b) Note Payable to Commercial Financial Services, Inc.
Summary of Terms: CFS is the holder of a promissory note in
connection with Loan Number 7633910, also referred to as loan
number 01941601, in the original principal amount of $100,000,
originally give by Long Distance Network to Continental Bank,
Dallas, Texas, and dated December 19, 1989 (Exhibit A). Under
the terms of the Compromise, Release, and Settlement Agreement
between Commercial Financial/SPC Acquisitions, Inc. and Long
Distance Network, Inc., LDN agreed to pay CFS, the sum of $37,500
("Amount Financed") plus interest of 7.5% p.a. in sixty monthly
installments of $752.40, commencing on May 1, 1995. There is no
prepayment penalty.
Balance $36,225
(c) Notes Payable to Former LDN Shareholders
Terry Houston $23,725
Paul Miller 3,640
David Hover 7,847
Dan Dziuba 730
Scott Moster 365
Roy Duckworth 183
TOTAL $36,500
U.S. Communications, Inc.:
Notes Payable, June 30, 1995
<PAGE>
<TABLE>
<CAPTION>
Original Maturity Payment
Lender Date Proceeds Date Rate Term Amount Balance
- ------ ---- -------- -------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
GE Capital Corp 7/1/91 $246,689.00 7/1/95 12.5% 48 mo $6,557.00 $12,533.78
(MAX,BOSS,SAGE)
American State Bank 1/13/94 58,306.39 7/1/95 11.5% 43 mo 2,170.55 25,726.45
(Computer Equipment)
American State Bank 6/1/93 25,681.65 12/1/96 11.0% 42 mo 706.16 11,650.83
('92 Cadillac Eld.)
American State Bank 3/5/93 13,000.00 3/1/96 10.5% 38 mo 405.52 3,284.34
('93 Ford Ranger)
American State Bank 12/15/92 12,946.11 12/15/95 9.0% 36 mo 395.31 2,431.57
('92 Chevy S10 PU)
American State Bank 10/16/92 11,656.34 10/16/95 9.0% 36 mo 355.93 1,491.28
('92 Chevy PU)
Howard Maddera 10/7/91 24,431.23 9/7/96 8.5% 60 mo 590.82 12,351.20
(Capital)
Marianne Reed 9/1/94 14,068.40 9/1/96 8.0% 24 mo 636.27 8,473.55
(Note - Ins)
Jim Reed 10/7/91 25,104.17 9/7/96 8.5% 60 mo 620.72 12,069.22
(Capital)
Bill Johnson 10/7/91 25,104.17 9/7/96 8.5% 60 mo 471.54 10,217.32
TOTAL $100,229.54
</TABLE>
<PAGE>
Schedule 6.3
Permitted Guaranties
-NONE-
<PAGE>
Exhibit 23.1
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 dated February 21, 1992 (No.
33-45911), December 3, 1992 (No. 33-55308), January 27, 1993 (No.
33-57712), June 10, 1993 (No. 33-64102) and September 22, 1993 (No.
33-69196) of SA Holdings, Inc. of our report dated April 12, 1995,
appearing on page F-3 of the Company's Annual Report on Form 10-
KSB, which is incorporated by reference in the Company's Form 8-K/A
dated October 12, 1995.
PRICE WATERHOUSE, LLP
Dallas, Texas
October 12, 1995
<PAGE>
Exhibit 23.2
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the
Registration Statements on Form S-8 dated February 21, 1992 (No.
33-45911), December 3, 1992 (No. 33-55308), January 27, 1993 (No.
33-57712), June 10, 1993 (No. 33-64102) and September 22, 1993 (No.
33-69196) of SA Holdings, Inc. of our report on U.S.
Communications, Inc. dated April 21, 1995, appearing in the
Company's Form 8-K/A dated October 12, 1995.
DUFF AND ANDERSON, P.C.
Levelland, Texas
October 12, 1995
