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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [Fee Required] For the fiscal year ended December 31, 1995
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [No Fee Required] For the transition period from _____ to _____
Commission file number 0-18048
SA TELECOMMUNICATIONS, INC.
(Name of small business issuer in its charter)
DELAWARE 75-2258519
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1600 PROMENADE CENTER, 15TH FLOOR
RICHARDSON, TEXAS 75080
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (214) 690-5888
Securities registered under Section 12(b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
None N/A
Securities registered under Section 12(g) of the Exchange Act:
COMMON SHARES, $.0001 PAR VALUE PER SHARE
(Title of Class)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes X No
----- -----
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
The issuer's revenues for its most recent fiscal year were $20,748,021.
The aggregate market value of the voting stock held by non-affiliates
computed by reference to the closing price of the registrant's common stock
as March 28, 1996 was $25,470,188.
There were 14,179,104 shares of the registrant's common stock outstanding as
of March 28, 1996.
_________________________
The following document is incorporated by reference to the indicated parts of
this Annual Report to the extent specified in such parts:
Part III of this Annual Report incorporates by reference information in the
Proxy Statement for the Annual Meeting of Stockholders of SA
Telecommunications, Inc. to be held on May 31, 1996.
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SA TELECOMMUNICATIONS, INC. & SUBSIDIARIES
TABLE OF CONTENTS
PART I PAGE
- ------ ----
Item 1. Description of Business. . . . . . . . . . . . . . . 1
Item 2. Description of Property. . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . 12
Item 4. Submission of Matters to a Vote of Security Holders. 12
PART II
Item 5. Market for Common Equity and
Related Stockholders Matters. . . . . . . . . . . . 13
Item 6. Management's Discussion and Analysis or Plan
of Operations . . . . . . . . . . . . . . . . . . . 13
Item 7. Financial Statements . . . . . . . . . . . . . . . . 21
Item 8. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure . . . . . . . . 21
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the
Exchange Act. . . . . . . . . . . . . . . . . . . . 22
Item 10. Executive Compensation . . . . . . . . . . . . . . . 22
Item 11. Security Ownership of Certain Beneficial Owners
and Management. . . . . . . . . . . . . . . . . . . 22
Item 12. Certain Relationships and Related Transactions . . . 22
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . 22
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PART I
ITEM 1. - DESCRIPTION OF BUSINESS
GENERAL
SA Telecommunications, Inc. (the "Company") is a regional interexchange
carrier which provides domestic long distance telecommunications services
through its network of owned and leased facilities. The Company's customer
base is primarily composed of small and medium sized commercial accounts and
residential customers concentrated in the southwestern United States. In
addition to providing domestic long distance services, the Company also
offers international long distance services, access to operator services and
other long distance products such as direct access private lines, "800"
service, travel cards and wholesale long distance service. The Company's
common stock, par value $.0001 per share (the "Common Stock") is traded on
the Nasdaq Stock SmallCap Market under the symbol "STEL." The Company's
executive offices are located at 1600 Promenade Center, 15th Floor,
Richardson, Texas 75080.
HISTORY
The Company's predecessor, Mineral Leasing Corporation, was incorporated
in Texas on September 16, 1981 and was originally engaged in the oil and gas
leasing business. In connection with a shift in the focus of its services to
developing an on-line proprietary data base for title and abstract
information in Midland County, Texas, in 1988 its name was changed to
Strategic Abstract & Title Corporation. In April 1989, this company merged
into Coquina Search Corp, a Delaware corporation, and continued as a publicly
held corporation under the name Strategic Abstract & Title Corporation.
Effective December 1991, the business of the Company further diversified
through the acquisition of all of the stock of North American
Telecommunications Corporation ("NATC"), a telecommunications carrier
offering international telecommunications services to foreign customers. In
February 1992, the Company changed its name to SA Holdings, Inc. and
contributed the title and abstract business into a subsidiary which continued
under the name Strategic Abstract & Title Corporation ("SATC"). From 1991 to
1993, NATC was the Company's primary business activity. Also during this
period, the Company organized another subsidiary, Baltic States/CIS Ventures,
Inc. ("BSCV") to engage in international long distance business primarily in
Russia through joint ventures or contractual arrangements. The BSCV
operations have historically not resulted in significant revenues for the
Company. Although NATC's international business continues under the product
name "GlobalCOM," its significance to total revenues has diminished largely
as a result of the Company's entry into the domestic telephone business.
This expansion began with the acquisition of the stock of Long Distance
Network, Inc. ("LDN"), a domestic interexchange carrier located in Dallas,
Texas effective March 1, 1994. LDN's customer base was concentrated in Texas
and consisted primarily of small to medium-sized commercial business accounts.
In October 1994, the Company decided to focus its long-term strategy and
resources on the expansion of its domestic telecommunications services
business, ultimately resulting in the sale of SATC on February 29, 1996.
Similarly, in October 1995, the Company discontinued the operations of BSCV.
See "MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION -
Discontinued Operations".
The Company continued the growth of its domestic telecommunications
services through the acquisition in 1995 of U.S. Communications, Inc.
("USC"), a domestic interexchange carrier located in Levelland, Texas, with a
customer base located in Arizona, Arkansas, New Mexico, Oklahoma and
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Texas. The Company is highly leveraged as a result of the substantial
indebtedness incurred to finance the USC acquisition. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION." After the USC acquisition,
the Company consolidated the former LDN and USC sales forces and began
marketing new customer accounts under the "USC" and "USI" product names.
BUSINESS OF THE COMPANY
DOMESTIC LONG DISTANCE SERVICES. The Company provides its customers
with 24-hour long distance telephone services to all points in the United
States and to any foreign country. The Company's primary services are
switched "1+" domestic long distance service, in-bound domestic 800 service,
and domestic travel card service. The Company's "1+" domestic service is
provided through equal access to the network of the local exchange company
("LEC") with the Company as the customer's primary long distance carrier.
In-bound 800 service allows a customer to receive calls at a specified number
from the general public. This service is utilized for a variety of purposes,
and it enables businesses to provide an entrance to their company for
information and other product services. Travel card service allows an
individual to call another destination while outside of their office or home.
These offerings also include several related domestic long distance services.
They include the ability to call foreign countries from a domestic location
(international calling) and domestic long distance directory assistance.
Further, the Company also provides private line service, data service, and
dedicated "1+" domestic long distance service, as well as a domestic operator
assistance service.
The Company owns central office type switches located in Dallas, Texas
and Phoenix, Arizona and an operator service type switch located in
Levelland, Texas. The Company also leases long distance transmission
facilities from various providers. These transmission facilities connect the
Company's switches with each other and with switching equipment owned by
third parties in other geographic areas. Together, the Company's switches
and long distance transmission facilities comprise the Company's network.
Utilizing its network, the Company provides domestic long distance telephone
service principally to small and medium sized commercial accounts and
residences in Arizona, Arkansas, New Mexico, Oklahoma and Texas. Revenues
are primarily generated from commercial customers. Long distance telephone
calls placed by the Company's customers are routed by the respective
customer's LEC to one of the Company's central office type switches in Dallas
or Phoenix. The Company utilizes transmission facilities between the
Company's switches and the LECs in its market area, permitting the routing of
a customer's telephone call directly from the LEC's switch to the Company's
switch and ultimately to the destination number. The call is routed either
over the Company's network, to the extent that the Company's long distance
transmission facilities terminate in the appropriate geographic region, or
over the transmission facilities of third parties with whom the Company has a
contractual relationship. The Company's digital switches in Dallas and
Phoenix permit the Company to route calls to the least expensive alternative
available to the Company.
Profit margins attributable to the Company's long distance telephone
business are affected by the Company's ability to charge rates in excess of
the Company's cost of transmitting calls over the transmission facilities
selected by its switching equipment. The Company regularly reviews its
pricing structure so that prices for its customers remain competitive. Under
its service options, the Company charges its customers on the basis of
minutes of usage at rates that vary with the distance, duration and/or time
of day of the call.
The Company's customers may access the Company's network in several
ways. If a customer is located in an area that has been converted to equal
access (meaning that all long distance carriers are
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provided with equal access to the LEC's network) and that customer has
selected the Company as its primary long distance carrier, access is gained
by dialing "1" plus the area code and number desired. The Company also
provides access to its switch through dedicated access lines which are
private-leased lines dedicated to one customer. Finally, customers in both
equal access areas and non-equal access areas may access the Company's
network by dialing a Company provided access number.
The Company also offers its subscribers billing and information
benefits. These include summary reports and billing breakouts by individuals,
departments, or projects. This allows the subscriber to be very flexible in
designing how their statements will be prepared. The Company also offers the
ability to provide billing information in an electronic format as well as
paper format.
OPERATOR SERVICES. The Company provides operator services to pay
telephone owners, hotels and other persons who make telephone equipment
available to the public. These services consist of directory assistance and
assistance in placing long distance telephone calls, including collect calls
or person-to-person calls. Operator services represented approximately 60%
of the Company's domestic long distance revenues in 1994 and 24% in 1995.
Total revenues relating to operator services were $4,482,615 in 1994 and
$4,639,382 in 1995. Management of the Company anticipates that operator
service revenues will continue to decline due to increased use of telephone
credit cards and other methods permitting callers direct access to a
particular long distance carrier. The Company does not anticipate spending
significant additional capital or otherwise devoting the Company's resources
to expanding its operator service business.
INTERNATIONAL SERVICES. To a lesser extent, the Company also provides
international service to individuals originating long distance telephone
calls from outside the United States under the "GlobalCOM" product name.
Long distance telephone calls that originate outside of the United States and
terminate in a different foreign country are often more expensive than calls
originating in the United States and terminating in each of the respective
foreign countries. The differences in rate structures between the United
States and foreign countries result from differing regulatory environments in
various countries and from the greater sophistication of the
telecommunications infrastructure and the higher level of call volume in the
United States. Utilizing the Company's GlobalCOM service, a foreign customer
is often able to reduce its international long distance telephone charges by
arranging for its calls to originate in the United States and terminate in a
foreign country. The Company provides international services primarily to
foreign commercial customers in Central America and South America.
Utilizing the GlobalCOM service, a foreign customer dials a U.S.
telephone number and directs the Company's equipment to call him back at a
foreign number. Once the customer receives the call from the United States,
access is provided, by the Company's international provider. Utilizing this
provider, the foreign customer is able to place a telephone call to another
location, either inside the United States or elsewhere.
During 1993 international revenues constituted approximately 98% of the
Company's revenues. Following the acquisitions of LDN in 1994 and USC in
1995, international revenues comprised 22% and 8% of the Company's annual
total revenues. Management of the Company does not expect significant growth
in the international business in the foreseeable future. Although call
volumes originating in Central America and South America are likely to grow
as economic growth occurs in those regions, the regulatory structures that
make the Company's international business possible are likely to be modified.
As a result, the Company will likely face effective competition from long
distance providers located in the various countries where customers currently
make use of GlobalCOM.
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WHOLESALE SERVICES. The Company also provides transport and switch
services through its network to resellers. Management has determined to
de-emphasize this product line due to low profit margins when compared to
domestic long distance services.
INDUSTRY OVERVIEW
The competitive long distance telecommunications industry in the United
States has evolved principally as a result of the divesture in 1984 by AT&T
Communications, Inc. ("AT&T") of its local exchange operations. These local
telephone operations are collectively known as the Regional Bell Operating
Companies ("RBOCs"). AT&T divested itself of seven RBOCs (NYNEX, Bell
Atlantic, Bell South, Ameritech, U.S.West, Southwestern Bell and Pacific
Telesis). The RBOCs are the principal providers of local telephone service
to the approximately 200 geographic areas known as Local Access Transport
Areas ("LATAs"), although other entities, such as General Telephone and
Electronics ("GTE") and numerous smaller companies also provide such
services. Under a court decree between AT&T and the United States Department
of Justice known as the Modification of Final Judgment ("AT&T Decree"), the
RBOCs were permitted to provide telephone service originating and terminating
within a single LATA ("intra-LATA service"). The AT&T Decree required that
the transmission of telephone calls between LATAs ("inter-LATA service") be
done by long distance companies which operate both switching equipment and
long distance transmission facilities (known as interexchange carriers or
"IXCs"), including companies such as AT&T, MCI Communications, Inc. ("MCI"),
Sprint Corporation ("Sprint"), WorldCom, Inc. ("WorldCom") and the Company.
INDUSTRY BACKGROUND
The AT&T Decree required the divestiture by AT&T of its twenty-two
operating companies and divided the United States into approximately 200
LATAs. AT&T's twenty-two operating companies were combined into seven RBOCs,
which were given the exclusive right to provide local telephone service,
local access service to long distance carriers and intra-LATA toll service,
but were prohibited from providing inter-LATA service. The AT&T business of
providing inter-LATA service was retained by AT&T. In addition, the AT&T
Decree contained a number of provisions designed to encourage the development
of competition in the inter-LATA market. Prior to the AT&T Decree, AT&T
controlled the vast majority of the domestic long distance (inter-LATA)
market. Since 1984, the domestic long distance market has roughly doubled to
an estimated $81 billion in annual revenues in 1994. AT&T's share of this
market has declined to approximately 55%, while other large long distance
IXCs, including MCI, Sprint and WorldCom increased their market shares in
1994 to approximately 17%, 10% and 3% of the market, respectively. Numerous
smaller competitors, including the Company, shared the remaining 15% of the
1994 United States domestic long distance market. These IXCs, including the
Company, Cable & Wireless Communications, Inc., LCI International, Allnet and
other long distance carriers of varying size own or lease switching
equipment and transmission facilities permitting them to handle all aspects
of inter-LATA traffic over all or part of the United States. Other companies
offering long distance service act as resellers for the services of long
distance companies and do not own or lease any switching equipment or
transmission facilities themselves ("switchless resellers"). A third group
of companies owns or leases switching equipment but does not own or lease
transmission facilities ("switched resellers").
The AT&T Decree, together with a separate court decree ("GTE Decree")
entered in 1984, helped create the foundation for smaller companies, such as
the Company, to emerge as competitive
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alternatives to AT&T, MCI, Sprint and WorldCom for long distance
telecommunications services. The AT&T Decree required that the RBOCs provide
all IXCs with access to local exchange service for the purpose of accepting
and completing inter-LATA calls. The access provided must be "equal in type,
quality and price" to that provided to AT&T. In addition, RBOCs are required
to maintain a subscription process that gives a telephone customer the right
to select an IXC for carrying such customer's inter-LATA telephone calls.
These so-called "equal access" and related provisions were intended to
prevent preferential treatment of AT&T by the RBOCs and to regulate charges
that the RBOCs could charge the IXCs, regardless of their volume of traffic.
Similar access requirements have been imposed upon the subsidiaries of GTE,
which provide local telephone service, and upon other independent LECs.
Notwithstanding the AT&T Decree, the GTE Decree and certain Federal
Communications Commission ("FCC") regulations, there are limited "nonequal
access" areas in the United States where local access providers are not
required to provide "equal access" and where the competitive market in long
distance services has not developed to the degree it has elsewhere. Equal
access is also not required for wireless calls. The equal access rules have
resulted in IXCs, such as the Company, being able to offer "1+" dialing
(i.e., by dialing "1" (plus the area code when necessary) and the telephone
number of the person being called) rather than the customer dialing access
codes or identification numbers and codes in order to utilize the Company's
long distance telephone services.
PROCESSING OF A LONG DISTANCE TELEPHONE CALL. A long distance telephone
call is processed in three basic phases: origination (access), long distance
(transport) and termination (egress). When placing a call, a customer obtains
the dial tone provided by such customer's LEC, such as an RBOC. A customer
who has chosen a primary long distance provider may initiate a long distance
telephone call by dialing "1" (plus the area code when necessary) and the
telephone number of the person being called. If a customer has chosen a long
distance provider which, like the Company, is an IXC, or which is a switched
reseller, the long distance call is routed to the switching equipment
maintained by that long distance provider. If the customer has designated a
long distance carrier which is a switchless reseller, the call is routed to a
switch owned by the IXC providing switching service to the switchless
reseller. In either case, the switch deciphers the call and switches it to
the long distance transmission lines for transport to the appropriate region
of the country. Calls handled by the Company's switches are routed to the
Company's transmission lines, where available, or to the transmission lines
of others, depending upon the destination of the call. Currently, the
Company utilizes various telecommunications carriers to carry long distance
calls that cannot be carried by the Company's own transmission facilities.
A long distance call leaves the long distance process when it reaches a
switch owned by a LEC providing local access service to the destination
telephone. This switch routes the long distance call onto the LEC's local
network and to the destination telephone.
For each long distance call, the originating LEC receives an access fee
from the switched reseller or IXC providing long distance service to the
local customer. A switched reseller or IXC builds this fee and any
termination fees into the fees it charges its customers for long distance
telephone service.
The Company's switches and long distance transmission facilities are
located primarily in the southwestern United States. In order to complete a
telephone call outside of the area covered by the Company's network
facilities, the Company must utilize transmission facilities maintained by
third parties. The Company pays a fee to these companies, either on a per
minute or other basis, depending upon the contractual arrangement involved.
The Company's switches are capable of routing calls to the provider of long
distance transmission facilities for the call in question with the least cost
to the Company, based upon pre-coded instructions.
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Prior to November 1995, AT&T was classified as a "dominant" carrier for
certain domestic long distance and long distance related services. As a
result, AT&T was limited in its ability to change its pricing for these
services or to discriminate among customers other than by reasons of
specifically described volume levels and categories of service. In November
1995, the FCC terminated AT&T's status as a "dominant" carrier for the
following domestic services: commercial and residential, operator, 800,
directory assistance and private line services. As a result, like other
non-dominant carriers such as the Company, AT&T is now allowed to file
tariffs for all of its domestic services on one (1) day notice, and such
tariffs are presumed lawful. As a non-dominant carrier, AT&T also will no
longer have to submit cost support data with certain of its tariff filings.
In addition, AT&T will no longer have to file carrier-to-carrier contracts
and will be relieved of certain annual reporting requirements and will
automatically be authorized to extend service to any domestic point. The FCC
has deferred consideration of AT&T's status as a "dominant" international
carrier, although there can be no assurance that the FCC will not similarly
terminate AT&T's status in that market. As a result of AT&T's new status as
a non-dominant carrier, AT&T will be able to more rapidly respond to
competitive conditions in the long distance market, including price and
service innovations implemented by other non-dominant carriers such as the
Company. AT&T will also be able to implement agreements with other long
distance service providers, such as the Company and its competitors, on a
case by case basis, depending upon competitive conditions at the time of
negotiation.
STATUTORY AND REGULATORY CHANGES. On February 8, 1996, President
Clinton signed into law the Telecommunications Act of 1996 (the "1996 Act").
The 1996 Act is intended to foster additional competition in the United
States domestic telecommunications market. The legislation opens, for the
first time, the local access service market to competition, by requiring that
LECs permit interconnection to their networks and, among other things, to
provide unbundled access, resale, number portability, dialing parity, access
to rights of way and mutual compensation. In effect, the 1996 Act seeks to
foster competition in the local telephone market as the AT&T Decree and GTE
Decree did in the long distance market by requiring LECs to allow the resale
by third parties, of some or all of the services now being provided to
residential and business customers. The legislation also codifies the LECs'
equal access and non-discrimination obligations and preempts inconsistent
state regulation. Finally, the legislation also contains special provisions
which eliminate the AT&T Decree and the GTE Decree, which restrict the RBOCs
and GTE operating companies, respectively, from providing long distance
service and engaging in telecommunications equipment manufacturing. These
new provisions permit RBOCs to enter the long distance market under certain
conditions. An RBOC will no longer be restricted from providing inter-LATA
long distance service outside of those markets in which it provides local
access service (referred to as "out-of-region" long distance service). An
RBOC may provide long distance service within the regions in which it also
provides local exchange service (referred to as "in-region" service) if it
satisfies several procedural and substantive requirements, including
obtaining FCC approval. FCC approval is to be granted upon a showing that
(i) facilities-based competition is present in the state in question, (ii)
the RBOC has entered into interconnection agreements in those states in which
it seeks long distance relief and (iii) the interconnection agreements
satisfy a 14-point "checklist" of competitive requirements, and if the FCC is
satisfied that the RBOC's entry into the long distance market in question is
in the public interest. Before making its ruling the FCC is instructed to
consult with the United States Department of Justice ("DOJ"), but the FCC is
not bound by recommendations of the DOJ.
As a result of the 1996 Act, the RBOCs will be permitted to enter into
the out-of-region long distance market immediately and will be able to enter
the in-region long distance market subject to FCC approval. There is
expected to be no uniformity in the RBOCs' approach to entering in-region or
out-of-region service, although eventually it is likely that one or more of
the RBOCs will provide long
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distance service throughout their respective in-region markets and
nationally. Importantly for the Company, the 1996 Act defines in-region
service to include every state, in its entirety, in which the RBOC provides
local exchange service, even if the RBOC is not the incumbent local service
provider in all points of that state. Southwestern Bell (Texas, Oklahoma and
Arkansas) and U.S. West (New Mexico and Arizona) are the principal RBOCs
serving the states in which the Company's customers are concentrated.
Operating subsidiaries of GTE also provide local exchange service in portions
of Texas, New Mexico and Arkansas. As a result of the 1996 Act, the Company
is likely to face competition from RBOCs seeking to provide out-of-market
services within Arizona, Arkansas, New Mexico, Oklahoma and Texas. Bell
Atlantic has already announced plans to provide out of region long distance
service within the state of Texas. Depending on the exact nature and timing
of entry by U.S. West, Southwestern Bell and other LECs into the in-region
long distance market, competition from those companies could have a material
adverse effect upon the Company's results of operations. It can be
anticipated that some or all of these RBOCs will establish switches and
transmission facilities competitive with those of the Company, to the extent
that they have not already done so in connection with other business
activities (such as cellular telephone services). In addition, although the
1996 Act provides for certain safeguards to protect against anti-competitive
abuse by the RBOCs, it is unknown whether these safeguards will provide
adequate protection and the impact of anti-competitive conduct on the
Company, if such conduct occurs, is necessarily uncertain.
The 1996 Act also addresses a wide range of other telecommunications
issues, some of which will potentially impact the Company's operations,
including the payment of universal service support discounts on long distance
rates charged to hospitals, schools and libraries; the elimination of equal
access for all wireless phones; a sunset provision pertaining to when
safeguards designed to prevent the RBOCs from capitalizing on their local
exchange monopolies will cease to apply; provisions pertaining to regulatory
forbearance by the FCC; the imposition of liability for the unauthorized
switching of customer's long distance carriers; the creation of new
opportunities for competitive local service providers; and requirements
pertaining to the treatment and confidentiality of subscriber network
information. It is unknown at this time what impact such legislation will
have on the Company, if any.
In addition to the 1996 Act, a variety of other regulatory approaches
are being considered by state and federal authorities with regard to
deregulating local access services. Competitive access providers have
installed local networks in many parts of the country, primarily large urban
areas, that allow subscribers to route their long distance traffic directly
to a designated IXC, thereby bypassing the LEC. In certain instances, the
LECs have been afforded a degree of pricing flexibility in differentiating
among markets and carriers in setting access charges and other rates in areas
where adequate competition has emerged. Competitive access providers exist
in a limited number of the Company's markets, including the Dallas and
Phoenix markets. A substantial majority of the Company's customers, however,
are concentrated outside of markets served by competitive access carriers.
As local exchange carriers become free to set rates and to discriminate
between customers, the ability of IXCs which are larger than the Company to
obtain volume discounts for access and termination charges could adversely
affect the Company by reducing the operating costs of its larger competitors
relative to those of the Company. In particular, it is expected that the
largest players in the long distance market, such as AT&T, MCI, Sprint and
WorldCom will be able to guarantee substantially larger volumes to LECs than
will the Company. As deregulation of the local exchange market occurs, LECs
may be willing to grant large IXCs significant discounts in return for
guarantees of volume. There can be no assurance that the Company will be
able to obtain similar discounts. See "-- GOVERNMENT REGULATION".
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THE COMPANY'S NETWORK
The Company currently operates a network consisting of two central
office type switches, located in Dallas, Texas and Phoenix, Arizona and an
operator service switch located in Levelland, Texas. The Company's switches
in Dallas, Levelland and Phoenix are linked together by leased transmission
facilities. In addition, the Company has contractual arrangements providing
it with direct access to LEC switches in the states of Arizona, Arkansas, New
Mexico, Oklahoma and Texas. The Company will continue to provide long
distance service to areas in which it does not maintain transmission
facilities through contracts with other IXCs. Generally, the Company will
acquire additional switching and leased transmission facilities as the call
volume generated by customers in that region or by other customers placing
calls to that region makes it possible for the Company to do so at a lower
cost than paying another IXC to carry that traffic.
The Company currently utilizes Siemens Stromberg Carlsen DCO Class
4/Class 5 switches for its network platform. These switches are connected
through leased fiber-optic transmission lines, which are connected to LEC's
tandem switches in LATA's in Arkansas, Arizona, New Mexico, Oklahoma and
Texas. These switches are fully digital and utilize SS7 routing for enhanced
transmission quality.
The Company's business requires transmission and switching facilities
and other equipment to be operational 24 hours per day, 365 days per year.
Long distance telephone companies, including the Company, have on occasion
and may in the future experience temporary service interruptions or equipment
failures, in some cases resulting from causes beyond their control. Any such
event experienced by the Company would impair the Company's ability to
service customers and could have a material adverse effect on the Company's
business.
MARKETING AND SALES
As of December 31, 1995, the Company had approximately 50 employees in
its domestic sales force. The Company's international sales force consists
of 8 persons who are independent contractors and not employees. The Company
focuses its domestic marketing efforts in smaller cities and towns outside of
the major metropolitan areas of the southwestern United States. Generally,
the Company focuses its marketing efforts on small commercial accounts with
one or two business locations. The Company attempts to focus its domestic
efforts on developing a cluster of customers within a single LEC market.
The Company has recently determined to expand its domestic sales efforts
by increasing its domestic employee sales force and is currently in the
process of recruiting, hiring and training additional employees. The Company
is also developing a major domestic accounts sales force that will market
commercial long distance services to medium and large commercial accounts.
Also, the Company is currently recruiting domestic independent sales agents
within the Company's network area.
COMPETITION
The domestic long distance telecommunications industry is intensely
competitive, and the Company expects it to remain so for the foreseeable
future. As a result of the AT&T Decree, numerous competitors entered the
domestic long distance telecommunications market, resulting in, among other
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<PAGE>
things, a significant drop in the consumer or retail price of long distance
service. The 1996 Act can be expected to increase competition in the
domestic long distance market as the RBOCs begin providing both in region and
out of region long distance service. The Company competes directly with
other IXCs and with switchless resellers of long distance service, some of
which have substantially greater financial marketing and product development
resources than the Company.
In recent years, increased competition among long distance carriers has
resulted in an overall reduction in the retail price of long distance
service. At the same time, technological change and the rapid expansion of
circuit capacity in the United States as a result of the installation of
fiber-optic transmission facilities have resulted in increased efficiency of
the long distance network, also contributing to the declining prices. The
Company's target market, primarily small and medium sized businesses, is
believed by the Company to be motivated primarily by cost in its choice of a
long distance provider. As a result, the Company's target market is believed
to exhibit lower customer loyalty than other segments of the market.
The 1996 Act is expected to result in the entry of some or all of the
RBOCs into the domestic long distance market. It is not clear whether the
RBOCs will build their national networks, lease facilities from others or
acquire smaller domestic long distance service providers. To the extent that
the RBOCs enter the domestic long distance market by acquiring other IXCs,
the domestic long distance service industry can be expected to consolidate,
resulting in increased competition for the Company from a relatively small
number of very large, nationwide providers. No assurance can be given that
the Company will be able to compete effectively with the RBOCs or other
owners of nationwide long distance networks. For a further discussion of the
impact on competition arising from the 1996 Act see "INDUSTRY BACKGROUND."
The Company believes that customer attrition is common in the direct
dial long distance and operator services industries. Although the Company
has not experienced significant attrition in its various businesses (except
attrition of its international business when the Company ceased utilizing
agents in 1994), the Company's historical levels of customer attrition may
not be indicative of future attrition levels, and there can be no assurance
that any steps taken by the Company to counter increased customer attrition
would accomplish the Company's objectives.
EMPLOYEES
At December 31, 1995, the Company employed 165 individuals on a
full-time equivalent basis. Of these, 14 were involved in senior management
and support staff, 19 in administration and finance, 64 in domestic sales and
marketing, 15 in technical/operations, 55 in customer service and operator
functions and 17 international administrative employees. None of the
Company's employees is represented by a labor union. The Company considers
its relations with its employees to be good and has not experienced any
interruption of operations as a result of labor disagreements. The Company's
future success will depend on its ability to attract, motivate and retain
highly skilled employees.
GOVERNMENT REGULATION
The Company's domestic telephone business is subject to regulation at
the federal level by the FCC and at the state level by public utility
commissions ("PUCs") of the various states in which the Company operates.
Pursuant to regulation by the FCC, the Company's international business must
maintain compliance in jurisdictions in which the Company services foreign
customers.
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<PAGE>
The FCC has regulatory jurisdiction over interstate and international
telecommunications common carriers, like the Company. Under Section 214 of
the Federal Communications Act, the FCC must certify a communications common
carrier before it may provide international services. The Company's
subsidiaries, LDN, USC and NATC, have obtained Section 214 authorization to
provide international switched services by means of resale. The FCC has
ruled that "non-dominant" common carriers, like the Company, need not apply
for Section 214 authorization for the provision of domestic U.S. interstate
services.
An issue under consideration by the FCC which is of potential
significance to the Company is that of "Billed Party Preference", or BPP.
This term refers to a concept in which any long distance call outside the
local telephone company's calling area carried from a publicly available
telephone would be completed over the long distance carrier network of the
billed party's previously expressed preference. If such a system were
implemented successfully, the market niche of operator services, such as that
of the Company, would be rendered ineffectual, because an owner of publicly
available telephones would be unable to direct operator assisted calls over
the network of such owner's desired carrier. The Company derives revenues
from such "payphone" business wherein the Company is the desired carrier of
the pay telephone owner. Given the inherent technical problems of
implementing BPP and the indication by the local telephone companies
that approximately two to four years would be required to reconfigure their
networks to BPP's specifications, the Company believes that it is not likely
that BPP will be implemented in the near term.
The regulation of the telecommunications industry is changing rapidly,
and the regulatory environment varies substantially from state to state. FCC
regulatory actions have had, and are expected to continue to have, both
positive and negative effects upon the Company. Decisions by the FCC with
respect to the permissible business activities or pricing practices of the
Company's dominant competitors, such as AT&T, may also have an adverse impact
on the Company's operations. Moreover, any significant change in regulations
by state governmental agencies could significantly increase the Company's
costs or otherwise have an adverse effect on the Company's activities and on
any future expansion efforts.
The FCC is currently considering action on various proposals that may
have an impact on the Company. Recent developments include implementation of
the 1996 Act discussed above; action by the FCC or PUCs changing access rates
charged by LECs and making other related changes to access and
interconnection policies, certain of which could have material adverse
consequences for the Company; related FCC and state regulatory proceedings
considering additional deregulation of LEC access pricing; a pending FCC
rulemaking on BPP as described above that could adversely affect the
Company's provision of operator services; and various legislative and
regulatory proceedings that could result in new local exchange competition.
The Company will need to comply with the applicable laws and obtain the
approval of the regulatory authority of each state and country in which it
provides or proposes to provide telecommunications services. The laws and
regulatory requirements vary in these jurisdictions. Some have substantially
deregulated various communications services, while other jurisdictions have
maintained strict regulatory regimes. The application procedure can be
time-consuming and costly, and terms of licenses vary for different
jurisdictions.
The Company must file tariffs with the FCC which define the eligibility
for, and the rate structures and the other items and conditions of, its long
distance services. The Company is entitled to
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modify these tariffs on a single day's notice. Absent a modification of a
tariff, however, the Company is obligated to offer services and to price such
services only in accordance with a tariff on file. The Company's tariffs
generally define volume discounts and special services available to
customers. Because the Company's tariffs on file with the FCC are public
documents, it is possible that contractual relationships with certain
customers will not be confidential. In such event, any pricing or service
innovations adopted by the Company which prove successful could be adopted by
other IXCs. This may change, however, as the FCC has proposed to mandate
detariffing resulting in contracts with individual customers which, absent
other legal requirements, would not be publicly available.
IXCs providing long distance service to the Company where the Company
does not maintain its own transmission facilities are similarly obligated to
file tariffs with the FCC. As with the Company's tariffs, these tariffs
define the eligibility for, and the rate structures and the other terms and
conditions of, long distance service. High volume customers, such as the
Company, may be able to utilize such IXC's tariffs or contracts which provide
discounted long distance rates. These tariffs or contracts are generally
available to any similarly situated customer; however, since customer needs
may vary substantially, contracts created specifically for a customer may
have little utility to others. The Company believes that it has been
successful in negotiating contracts with IXCs to provide transmission
facilities at advantageous rates. These contracts generally have a term of
one year or more and can be extended by mutual agreement. No IXC is under
any obligation to structure tariffs specifically for the Company, and there
can be no assurance that tariffs created for other customers will meet the
Company's needs in the future.
For a description of the AT&T Decree and the 1996 Act see - "Industry
Background."
ITEM 2. - DESCRIPTION OF PROPERTY
PROPERTIES
As of April 1996, the executive offices of the Company and its
subsidiaries were located at 1600 Promenade Center, 15th Floor, Richardson,
Texas. The Richardson facility, consisting of two floors aggregating
approximately 17,500 square feet, also includes the Company's sales
operations, and is leased under a five (5) year term expiring on February 28,
2001 and April 30, 2001. The Company purchased during 1995 a 14,000 square
foot facility at 1107 Austin St., Levelland, Texas, in which the operator
services and customer service functions are located. The purchase involved
the assumption by the Company of a promissory note, which had a principal
amount outstanding of $181,232 as of December 31, 1995 and which is secured
by a deed of trust. The Company also purchased a 4,100 square foot facility
in Midland, Texas for $170,000 in 1994, which is subject to a deed of trust
and vendor's lien note having $107,994 in principal amount outstanding as of
December 31, 1995. This space was formerly utilized by the abstract and
title business of the Company's subsidiary, SATC, part of which remains
leased to SATC through February 28, 1997 and the remainder of which is
presently intended to be converted into a sales office for the Company's long
distance business. The Company also leases 940 square feet of space in
Dallas, Texas and 880 square feet of space in Phoenix, Arizona for the
switches which route long distance calls. These leases expire in September
2000 and November 2000, respectively.
The Company leases an aggregate of approximately 22,000 square feet of
space for sales offices in Fort Smith and Little Rock, Arkansas, Phoenix and
Tucson, Arizona, Albuquerque, Farmington,
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Hobbs, Las Cruces and Roswell, New Mexico, Oklahoma City, Oklahoma, and Big
Spring, Brownfield, El Paso, Grand Prairie, Lamesa, Odessa and Snyder, Texas.
The Company paid a total of $263,480 in lease expense in fiscal 1995.
The Company considers its owned and leased properties adequate to meet its
current and reasonably foreseeable needs. The Company believes that
additional or alternative space will be available as needed to accommodate
any expansion.
ITEM 3. - LEGAL PROCEEDINGS
On July 20, 1995, a suit was filed in the 101st Judicial District Court
for Dallas County, Texas, Cause No. 95-07136-E (SILVIO AVYAM V. SA HOLDINGS,
INC. AND NORTH AMERICAN TELECOMMUNICATIONS CORPORATION) against the Company
and its wholly-owned subsidiary, NATC, in which the plaintiff is seeking
damages in excess of $1,500,000 for alleged breach of contract, breach of
fiduciary duty, conspiracy and fraud arising out of the termination of the
consulting agreement between NATC and the plaintiff. The plaintiff is also
seeking an accounting with respect to his relationship with NATC, the
issuance of shares of the Company's Common Stock allegedly owed to him and
exemplary damages and attorney's fees. The Company believes it has
meritorious defenses to the alleged claims and intends to vigorously defend
the lawsuit. However, if the Company were required to pay the alleged
damages in such lawsuit, it could have a material adverse effect on the
Company's financial condition and results of operations. On February 5,
1996, the Company and NATC filed a counterclaim against the plaintiff for
breach of his consulting agreement and other related claims alleging an
unspecified amount of damages. On March 7, 1996, the plaintiff filed a
general denial in such counterclaim.
The Company filed suit on January 23, 1996 against Dickinson & Co., an
investment banking firm ("Dickinson"), its parent, Dickinson Holding Corp.
and Polish Telephone and Microwave Corporation ("PTMC") in the 298th Judicial
District Court for Dallas County, Texas, Cause No. 96-00768-M (SA
TELECOMMUNICATIONS, INC. F/K/A SA HOLDINGS V. DICKINSON CO. & DICKINSON
HOLDING CORP. AND POLISH TELEPHONE AND MICROWAVE CORPORATION). The Company
has alleged, among other claims, that Dickinson intentionally and wilfully
breached its fiduciary duty to the Company under its financial consulting
agreement with the Company and that it interfered with the business
relationship between the Company and PTMC in conspiracy with the other two
defendants. The Company is seeking an unspecified amount of actual and
exemplary damages and recovery of attorneys fees.
The Company is a party, from time to time, in routine litigation or
employment litigation incident to its business. Management believes it is
unlikely that the final outcome of any of the claims or proceedings to which
the Company is a party would have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE FOR SECURITY HOLDERS
During the fourth quarter of fiscal 1995, no matter was submitted by the
Company to a vote of its shareholders through the solicitation of proxies or
otherwise.
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PART II
ITEM 5. - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the NASDAQ Stock
Market's Small Cap Market under the symbol "STEL." Prior to January 1995,
the Company's Common Stock had been traded on the same market under the
symbol "SAHI". The following table sets forth the high and low closing sales
prices from January 1, 1994 through December 31, 1995, based upon information
obtained from NASDAQ. All price quotations represent prices between dealers,
without retail mark-ups, mark-downs or commissions and may not represent
actual transactions.
<TABLE>
<CAPTION>
1994 1995
-------------------- --------------------
HIGH LOW HIGH LOW
----- ----- ----- -----
<S> <C> <C> <C> <C>
First Quarter $5.25 $3.00 $2.38 $1.19
Second Quarter $5.00 $2.19 $2.50 $1.50
Third Quarter $4.00 $2.31 $2.94 $1.56
Fourth Quarter $3.63 $2.13 $3.03 $1.81
</TABLE>
According to the records of the Company's transfer agent, the Company
had approximately 502 holders of record of the Common Stock at March 28, 1996.
The Company has never paid cash dividends on its Common Stock and does
not anticipate doing so in the foreseeable future. The Company's credit
agreement with Norwest Bank Minnesota, N.A. (the "Credit Agreement")
restricts the payment of cash dividends. In addition, the Board of Directors
of the Company has determined to utilize earnings in the expansion of the
Company's business. Such policy is subject to change based on current
industry and market conditions, as well as other factors beyond the control
of the Company.
ITEM 6. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following is a discussion of the consolidated financial condition
and results of operations of the Company for the three years ended December
31, 1995. It should be read in conjunction with the Company's Consolidated
Financial Statements and the notes thereto included elsewhere in this report.
GENERAL
The Company is a regional IXC which provides domestic long distance
telecommunications services through its network of owned and leased
facilities. The Company's customer base is primarily comprised of small and
medium-sized commercial accounts and residential customers concentrated in
the southwestern United States. In addition to providing direct dial long
distance services, the Company also offers a variety of other services
including access to operator services, travel cards, direct access lines,
"800" service and wholesale long distance service.
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<PAGE>
Because the Company has higher gross profit margins on long distance
calls originating on its network than on calls outside of its network, it
concentrates its marketing and sales efforts on potential customers within
the geographic regions served by its network.
In 1994 and 1995, the Company acquired two switchless resellers, LDN and
USC, based in the southwestern United States. The geographic concentration
of LDN's and USC's customers allowed the Company to add significant call
volume to its network and provided the Company with the opportunity to expand
its network into adjacent geographic areas. Following the LDN and USC
acquisitions, the Company purchased and installed switching equipment in
Dallas and Phoenix, respectively, to consolidate call volume and volume
originating and terminating on its network.
In addition, commencing in October 1994, the Company modified its
marketing efforts to focus on building revenues derived from "1+" dialing and
related services such as private line services, 800 service and travel cards,
and reduced its marketing of pay telephone operator assistance, wholesale
long distance services and international call-back.
RESULTS OF OPERATIONS
The following table sets forth certain items in the Company's
Consolidated Statements of Operations as a percentage of its revenue for the
years ended December 31, 1993, 1994 and 1995. For purposes of this
Management's Discussion and Analysis, the term "revenues" refers to the
Company's telecommunications revenues as reflected in the Company's
Consolidated Statement of Operations, exclusive of any revenues attributable
to discontinued operations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
--------- ----------- --------
<S> <C> <C> <C>
Operating revenue 100% 100% 100%
Cost of revenue 92 85 68
--------- ----------- --------
Gross profit 8 15 32
Operating expenses:
General and administrative 42 30 32
Depreciation and amortization 6 4 6
--------- ----------- --------
Loss from continuing operations
before other (40) (19) (6)
Other income (expense) 3 - (3)
--------- ----------- --------
Loss from continuing operations (37) (19) (9)
Loss from discontinued operations (4) (6) (22)
--------- ----------- --------
Net loss (41)% (25)% (31)%
--------- ----------- --------
--------- ----------- --------
EBITDA, as defined(1) (loss) $(899,333) $(1,397,324) $153,514
--------- ----------- --------
--------- ----------- --------
</TABLE>
__________________
(1) Earnings (loss) before interest, taxes, depreciation, amortization,
nonrecurring charges, and other income (expense) or "EBITDA," is a
commonly used measure of performance in the telecommunications industry.
As used herein, EBITDA is not intended as either a substitute or
replacement for operating income (as presented according to generally
accepted accounting principles ("GAAP")) as a measure of the financial
results of operations or for cash flows from operations (as presented
according to GAAP).
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<PAGE>
YEAR ENDED DECEMBER 31, 1995 VERSUS YEAR ENDED DECEMBER 31, 1994
Revenues increased by $10,992,678 from $9,755,343 in 1994 to $20,748,021
in 1995. This represents an overall 113% increase over the prior year. Of
the total increase, $11,435,972 was attributable to the increase in "1+"
revenues, including $10,906,044 from the USC acquisition effective June 1,
1995. Existing "1+" revenue (excluding USC) increased by $529,928 while
operator services and wholesale call revenues exclusive of the USC
acquisition decreased by $711,630 and $38,535, respectively. The USC
acquisition contributed $868,397 and $59,368 of operator services and
wholesale call revenues, respectively, in 1995. The increase in "1+" revenue
and decrease in operator services and wholesale call revenue results from
management's marketing strategy put in place in October 1994 to aggressively
market "1+" services, which have a higher gross profit margin, and to
de-emphasize operator services and wholesale calls which are less profitable
product lines. International telecommunications revenue decreased by
$466,996 because of the increased competition and the Company's de-emphasis
of this market.
Gross profit increased by $5,174,995 from $1,456,913 in 1994 to
$6,631,908 in 1995 principally due to the USC acquisition. The gross profit
margin increased by 17% from 15% in 1994 to 32% in 1995. This increase was
principally due to the improved mix of call traffic provided by the USC
revenue. The percentage of "1+" calls, which have a higher gross profit
margin, has increased as compared to the lower margin operator service and
wholesale calls. Management continues to de-emphasize operator services and
wholesale calls because they are less profitable product lines.
General and administrative expense increased by $3,624,157 from
$2,854,237 in 1994 to $6,478,394 in 1995, and, as a percentage of revenue,
increased from 30% in 1994 to 32% in 1995. The increase in total general and
administrative expense was primarily attributable to the USC acquisition.
The increase as a percentage of revenue was indicative of the duplicity of
costs experienced when USC was first acquired. These costs consisted
primarily of personnel related costs. The Company focused on decreasing the
relative percentage of these costs and, in the fourth quarter of 1995, such
costs decreased to 28% of revenues.
Depreciation and amortization expense increased by $873,908 from
$413,317 in 1994 to $1,287,225 in 1995 and, as a percentage of revenue,
increased from 4% in 1994 to 6% in 1995. This increase resulted from the
higher depreciation and amortization charges arising from the acquisition of
USC and increased depreciation from the acquisition of switching equipment in
December 1994.
The Company incurred a loss from continuing operations before other
income (expense) of $1,810,641 in 1994 versus a $1,277,110 loss in 1995.
This decrease was principally attributable to an improvement in gross profit
margins but was partially offset by small percentage increases in general and
administrative expense and depreciation and amortization expense.
The Company had other expense of $8,429 in 1994 as compared to other
expense of $658,111 in 1995. This increase was primarily due to an increase
in interest expense related to the increased debt incurred in connection with
the USC acquisition.
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<PAGE>
The loss from discontinued operations increased by $3,902,826 from
$627,916 in 1994 to $4,530,742 in 1995. The provision for operating losses
of the discontinued operations during the phase-out period was increased by
$475,000 in 1995. The $150,000 reserve established at December 31, 1994
became inadequate due to unforeseen delays in the proposed spin off of SATC
and the ultimate decision to cancel the spin-off and sell the subsidiary
after the SATC president's death in September 1995. On February 29, 1996,
SATC was sold to a key member of SATC management for a $500,000 note, payable
over ten years bearing interest at 7% per annum. At December 31, 1995, the
Company recorded an impairment loss of $4,055,742, including a reserve
against the note, to reflect the net realizable value of SATC.
The Company incurred a net loss of $2,446,986 for 1994 as compared to
$6,465,693 in 1995. The increased net loss was principally attributable to
the loss from discontinued operations and increased interest expense related
to the debt incurred in connection with the USC acquisition.
YEAR ENDED DECEMBER 31, 1994 VERSUS YEAR ENDED DECEMBER 31, 1993
Revenues increased by $7,162,820 from $2,592,473 in 1993 to $9,755,343
in 1994. This represented an overall 276% increase over the prior year. Of
the total increase, $7,450,273 (or more than 100%) was attributable to the
increase in revenue arising from the LDN acquisition in 1994, of which
$2,118,156 was "1+", $4,482,615 was operator services and $849,502 was
wholesale call revenue. In October 1994, management made the decision to
aggressively market "1+" services which have a higher gross profit margin and
de-emphasize operator services and wholesale calls which are less profitable
lines of business. The international telecommunications revenue decreased by
$287,853 because of the phasing out of agent run offices and transitioning
into Company owned offices. Additionally, a wholesaling arrangement with a
reseller in Brazil was discontinued because of the lack of adequate profit
margins and the cost of administration.
Gross profit increased by $1,259,484 from $197,429 in 1993 to $1,456,913
in 1994 principally due to the LDN acquisition. The gross profit margin
increased by 7% from 8% in 1993 to 15% in 1994. This improvement is
principally due to the Company's success in negotiating rate reductions with
transmission carriers and switched service providers. Additionally, the
Company experienced a more favorable mix of call traffic in 1994 with the
increase in higher margin domestic revenue from the LDN acquisition.
General and administrative expense increased by $1,757,475 from
$1,096,762 in 1993 to $2,854,237 in 1994, and as a percentage of revenue,
decreased from 42% in 1993 to 30% in 1994. The increase in total expense
reflects the increase in the revenue base from the LDN acquisition and the
increased costs required to evaluate a number of acquisition candidates. The
decrease as a percentage of revenue reflects management's continued focus on
cost containment. Additionally, an extensive review of foreign customer
accounts receivable at the end of the third quarter of 1994 revealed several
areas of exposure related to foreign customers loyal to ex-agents which
required reserving. Accordingly, bad debt expense increased from $61,552 in
1993 to $318,583 in 1994.
Depreciation and amortization expense increased by $270,521 from
$142,796 in 1993 to $413,317 in 1994; however, this represented a decrease
from 6% of revenues in 1993 to 4% of revenues in 1994. The increased total
of such expense in 1994 resulted from amortization of intangible assets from
the acquisition of LDN.
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<PAGE>
The Company incurred a loss from continuing operations before other
income (expenses) of $1,042,129 in 1993 versus a $1,810,641 loss in 1994.
The increase is principally attributable to an increase in general and
administrative expense and depreciation and amortization expense partially
offset by improved profit margins.
The Company had other income of $72,725 in 1993 as compared to other
expense of $8,429 in 1994. Other income in 1993 is principally comprised of
a $100,417 litigation settlement offset by interest expense of $11,721.
Other expense in 1994 is principally comprised of interest expense of
$29,903.
The loss from discontinued operations increased by $520,712 from
$106,204 in 1993 (loss from operations) to $627,916 in 1994 ($477,916 loss
from operations and $150,000 provision for operating losses during the phase
out period) . The increased loss from title plant services operations is
attributable to a decline in revenues, increased costs associated with
maintaining existing data bases, and the emphasis on completing the second
title plant in 1994 instead of focusing on marketing.
The Company incurred a net loss of $1,075,608 for 1993 as compared to a
net loss of $2,446,986 for 1994. This increased net loss is attributable to
increased depreciation and amortization expense related to intangible assets
from the LDN acquisition, increased bad debt expenses related to foreign
customers loyal to ex-agents, and expenses related to phasing out agent run
offices and transitioning into Company-owned offices. Also contributing to
the net loss were increased losses from discontinued title plant services
operations due to focusing on building the second title plant in 1994 instead
of marketing efforts, plus required reserves for losses during the phase out
period. Additionally, significant general and administrative expenses were
incurred in connection with the acquisition related activities conducted by
the Company.
LIQUIDITY AND CAPITAL RESOURCES
The Company experienced negative cash flow from operating activities of
$1,069,303, $2,289,481 and $1,224,486 in 1993, 1994 and 1995, respectively.
The improvement in 1995 over 1994 is primarily due to the improvement in
operations resulting from the USC acquisition and subsequent optimization of
the combined operations. Management expects the improvements in operating
cash flow (which may not be indicative of profitability) experienced in the
fourth quarter of 1995 to continue into 1996.
The increased loss in 1994, which was compounded by an overall increase
in accounts receivable and decreases in accounts payable and accrued
expenses, contributed to the increase in negative cash flow from 1993 to
1994. In 1994, accounts receivable expanded due to a growth in revenues
without proportionate increases in accounts payable and accrued expenses,
which caused working capital to be expended. Domestic accounts receivable
are generally collected in 45 days and foreign accounts receivable are
generally collected in 65 days. However, accounts payable for contracts with
transmission carriers and switched service providers must generally be paid
in 30 days.
Cash used in investing activities was $373,343, $1,743,558 and
$7,141,820 in 1993, 1994 and 1995, respectively. Of the total in 1995,
$6,974,685 was utilized in the acquisition of USC and of the total in 1994,
$1,330,397 was utilized in the acquisition of LDN.
Cash provided by financing activities was $2,615,466, $3,166,078 and
$8,858,613 in 1993, 1994 and 1995, respectively. Proceeds generated from the
issuance of $7,000,000 of long term debt and $1,000,000 of Series A Preferred
Stock were utilized in the 1995 acquisition of USC. Proceeds from
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<PAGE>
private placements of common stock were the principal source of the
$1,330,397 of cash used for the 1994 acquisition of LDN.
The Company is highly leveraged as a result of the substantial
indebtedness it incurred to finance the USC acquisition. In connection with
the USC acquisition, the Company (i) paid $6,500,000 in cash (including
$2,400,000 paid in connection with certain agreements pertaining to
non-competition and confidentiality), (ii) issued promissory notes in the
aggregate amount of $4,250,000 and bearing interest at the rate of 11% per
annum (the "USC Notes"); (iii) issued an aggregate of 125,000 shares of
Series B Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock"); and (iv) issued a warrant ("USC Warrant") exercisable into an
aggregate of 1,050,000 shares of the Company's Common Stock at any time prior
to July 31, 2000 at a per share exercise price of $1.25. The Company
recently entered into an agreement to acquire all of the shares of the Series
B Preferred Stock, the USC Warrant and the USC Notes for an aggregate of
$3,085,000. Such transaction is presently scheduled to close on or before
April 15, 1996, but is predicated on the Company obtaining necessary
financing and the consent of the Company's lender, Norwest Bank Minnesota
N.A. ("Norwest").
In order to provide the cash portion of the purchase price to be paid to
the stockholders of USC, the Company entered into a series of related
transactions which were consummated concurrently with the closing of the USC
acquisition on July 31, 1995. The primary transaction was the $10,000,000
Credit Agreement with Norwest under which $7,000,000 was advanced to fund a
majority of the cash proceeds utilized in the acquisition. Additional
advances of the $3,000,000 unused portion of the credit facility are
predicated upon the Company meeting certain predetermined levels of operating
cash flow which have not been met.
In addition, in consideration of the payment of $1,000,000 in cash and
services provided in connection with the USC acquisition by Jessup & Lamont
Capital Markets, Inc. ("JLCM"), the Company placed privately with JLCM an
aggregate of 166,667 shares of Series A Cumulative Convertible Preferred
Stock ("Series A Preferred Stock") and issued to JLCM a warrant (the
"Warrant") entitling JLCM to purchase an additional 500,000 shares of the
Company's Common Stock at a price of $1.125 per share.
The terms and provisions relating to the Series A Preferred Stock
provided for the conversion of such shares into an aggregate of 1,333,336
shares of Common Stock of the Company at any time prior to redemption by the
Company (either through optional redemption at any time after July 31, 1997,
or through mandatory redemption on July 3, 2000), which number of shares were
subject to adjustment in certain circumstances, including the issuance by the
Company of shares of Common Stock at prices below the $1.125 stipulated
conversion price.
On November 10, 1995 and March 13, 1996, the Company entered into
amendments to its Credit Agreement with Norwest, which, among other things:
(i) amended certain definitions, agreements, and covenants relating to
operating cash flow, senior debt service coverage, and prepayments on
subordinated debt, and (ii) waived any breach of financial covenants with
respect to senior debt service coverage and with respect to operating cash
flow at September 30, 1995 and December 31, 1995. As part of such
amendments, the Company paid default fees of $35,000 and prepaid $150,000 of
indebtedness on November 30, 1995. Management anticipates that the Company
will be in compliance with such covenants, as so amended, at all future
measurement dates.
The indebtedness under the Credit Agreement is secured by substantially
all of the assets of the Company, and the Credit Agreement contains various
covenants that restrict the Company's ability to take
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<PAGE>
certain actions relating to such material events as mergers, incurrence of
additional indebtedness and the payment of cash dividends. Principal
payments under the Credit Agreement are due quarterly, commencing on December
31, 1996, with the balance being due and payable in full on June 30, 2000.
At December 31, 1995, the Company has $11,193,886 of long term debt of
which $3,795,216 is the current portion. Although management believes that
cash flows generated from operations will improve with the integration of USC
and expansion of the Company's telecommunications network, the Company must
either refinance the existing indebtedness, borrow additional funds on more
favorable terms, or sell additional equity securities for cash in order to
meet its current debt obligations. The Company has been successful in
financing its operations and expansion needs from proceeds from private
placements of Common Stock and the exercise of stock options. There can be
no assurances that such sources of funds will continue to be available.
At December 31, 1995, the Company had cash balance of $823,738 as
compared to $331,431 at December 31, 1994. As of December 31, 1995, working
capital was a negative $2,841,834 as compared to a positive $561,902 at
December 31, 1994. This decline in working capital is due to the $3,150,000
of USC Notes which comes due in 1996.
In March 1996, the Company entered into private placements whereby it
sold an aggregate of $600,000 of its 9% convertible subordinated debentures
due in March 1997. All such debentures are convertible into Common Stock of
the Company at the lower of $1.75 per share or the five day average closing
price of the Company's shares of Common Stock prior to the date of
conversion. In connection with these transactions, the Company paid a
$75,000 finders fee and issued to certain finders a warrant exercisable into
300,000 shares of Common Stock at $1.40 per share and a warrant to purchase
250,000 shares of Common Stock at $2.125 per share.
CAPITAL EXPENDITURES
Capital expenditures for 1995 totaled $693,977 of which $500,701 was
financed. Capital expenditures for 1994 totaled $679,210 of which $404,845
was financed. The majority of these capital expenditures relate to switching
equipment purchased in December 1995 and December 1994.
Other than additional switching equipment requirements as the network
expands, future capital expenditures are expected to be minimal. Additional
switching equipment would require significant capital expenditures by the
Company and could only be made to the extent of the availability of such
capital.
DISCONTINUED OPERATIONS
In October 1994, the Company made the determination to focus its
long-term strategy and resources on the expansion of its domestic
telecommunications services business, ultimately resulting in the sale of all
of the issued and outstanding capital stock of SATC described below as well
as the discontinuation of the operations of BSCV.
Management of the Company determined to sell SATC in October 1995, after
the death of SATC's president, resulting in the cancellation of the
previously proposed spin-off and distribution of SATC to the Company's
stockholders. A corporation formed by a key member of SATC's management
purchased SATC on February 29, 1996. SATC had developed a proprietary
information database for
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<PAGE>
the offering of on-line title abstracting and title insurance and reporting
services and operates title plants in Midland County and Ector County, Texas.
The consideration received by the Company for such sale was a promissory note
in the original principal amount of $500,000 with interest at 7% per annum
payable over 10 years, secured by a pledge of the stock of and guaranty by
SATC and a security interest in the assets of SATC. The Company has retained
the benefits of certain net operating losses incurred by SATC.
HOLIDAY AND SEASONAL VARIATIONS IN REVENUES
The Company's revenues, and thus its potential earnings, are affected by
holiday and seasonal variations. A substantial portion of the Company's
revenues are generated by direct dial domestic long distance commercial
customers, and, accordingly, the Company experiences decreases in revenues
around national holidays when commercial customers reduce their usage. In
addition, operator services revenue from pay telephone usage declines in the
fall and winter months. Additional factors causing pay telephone usage
declines are inclement weather, schools being in session, and the lack of
vacation travel. Consequently, the Company's fourth fiscal quarter ending
December 31, which includes the Thanksgiving, Hanukkah, Christmas and New
Year's Eve holidays, and the Company's first fiscal quarter ending March 31,
historically have been the slowest revenue periods of the Company's fiscal
year. The Company's fixed operating expenses, however, do not decrease
during these quarters. Accordingly, the Company will likely experience lower
revenues and earnings in its first and fourth fiscal quarters when compared
with the other fiscal quarters.
International telecommunications revenues are generated by foreign
commercial customers and, accordingly, the Company experiences general
decreases in revenues around holidays in foreign countries when commercial
traffic is reduced. Also, to a lesser extent, holidays in the United States
cause a general decrease in revenues for calls originating in foreign
countries which terminate in the United States.
EFFECT OF INFLATION
Inflation is not a material factor affecting the Company's business.
Historically, transmission and switched service costs per minute have
decreased as the volume of minutes increased. General operating expenses
such as salaries, employee benefits and occupancy costs are, however, subject
to normal inflationary pressures. Management has been able to contain these
expenses through cost control measures.
NEW ACCOUNTING STANDARDS
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS 123), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation
expense in the income statement, or the pro forma effect on net income and
earnings per share of such compensation expense to be disclosed in the
footnotes to the Company's financial statements commencing with the Company's
1996 fiscal year. This Company expects to adopt SFAS 123 on a disclosure
basis only. As such, implementation of SFAS 123 is not expected to impact
the Company's consolidated balance sheet or statement of operations.
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<PAGE>
ITEM 7. - FINANCIAL STATEMENTS
The consolidated financial statements of the Company, notes to
consolidated financial statements and the related reports of the Company's
independent accountants thereon are included in this report at the page
indicated and annexed hereto.
ITEM PAGE
---- ----
Report of Independent Accountants for the Years Ended
December 31, 1995 and 1994 F-2
Report of Independent Certified Public Accountants for
the Year Ended December 31, 1993 F-3
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-4
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1995, 1994 and 1993 F-7
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 F-8
Notes to Consolidated Financial Statements F-9
ITEM 8. - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
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<PAGE>
PART III
ITEM 9. - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Information with respect to directors and executive officers of the
Company is incorporated herein by reference to the information under the
caption "MANAGEMENT - Executive Officers and Directors" and "Section 16(a)
Reporting" contained in the Proxy Statement for the 1996 Annual Meeting of
Stockholders of the Company tentatively scheduled to be held on May 31, 1996
(the "Proxy Statement").
ITEM 10. - EXECUTIVE COMPENSATION
Information with respect to compensation of directors and executive
officers of the Company is incorporated herein by reference to the
information under the captions "EXECUTIVE COMPENSATION" and "MANAGEMENT -
Committees, Meetings and Compensation of the Board of Directors" contained in
the Proxy Statement.
ITEM 11. - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership by persons known to the
Company to beneficially own more than five percent of the Common Stock, by
each director of the Company and by all directors and executive officers as a
group is incorporated herein by reference to the information under the
captions "VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS" and "PROPOSAL NO. 1 -
ITEM NO. 1 ON PROXY - Election of Directors" contained in the Proxy Statement.
ITEM 12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related
transactions is incorporated herein by reference to the information under the
caption "Certain Relationships and Related Transactions" contained in the
Proxy Statement.
ITEM 13. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The exhibits listed below are filed as part of or incorporated by
reference in this report. Where such filing is made by incorporation
by reference to a previously filed document, such document is
identified in parentheses. See the Index of Exhibits included with
the exhibits filed as part of this report.
-22-
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company, as amended through
December 31, 1994 (filed as Exhibit 3.1 to the Company's
Form 10-KSB for the year ended December 31, 1994 and incorporated
hereby by reference)
3.2 Certificate of Designation, Preferences and Rights of Series A
Cumulative Convertible Preferred Stock (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K/A for the event occurring July
31, 1995, filed with the Commission on August 15, 1995 and
incorporated herein by reference)
3.3 Certificate of Designation, Preferences and Rights of Series B
Cumulative Convertible Preferred Stock (filed as Exhibit 4.6 to the
Company's Current Report on Form 8-K/A for the event occurring July
31, 1995, filed with the Commission on August 15, 1995 and
incorporated hereby by reference)
3.4 Certificate of Amendment filed with the Delaware Secretary of State
on August 3, 1995 (filed herewith)
3.5 Amended and Restated Bylaws of the Company (filed herewith)
4.1 Form of Certificate Evidencing Common Stock (filed as Exhibit 4.19
to the original filing of the Company's Registration Statement No.
33-64271 on November 15, 1995 and incorporated herein by reference)
4.2 Form of Series A Preferred Stock Certificate (filed as Exhibit 4.3
to the Company's Current Report on Form 8-K/A for the event
occurring July 31, 1995, filed with the Commission on August 15,
1995, and incorporated herein by reference)
4.3 Form of Series B Preferred Stock Certificate (filed as Exhibit 4.10
to the Company's Current Report on Form 8-K/A for the event
occurring July 31, 1995, filed with the Commission on August 15,
1995, and incorporated herein by reference)
9.1 Voting Trust Agreement between Jack Matz as trustee and ITEX
Corporation, dated June 30, 1992 (filed as Exhibit 9.1 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
9.2 Voting Trust Agreement between Jack Matz as trustee and Gerald
McMillan, dated October 4, 1991 (filed as Exhibit 9.2 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
9.3 Voting Trust Agreement between Jack Matz as trustee and William A.
Shepherd, dated November 18, 1991 (filed as Exhibit 9.3 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
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<PAGE>
9.4 Voting Trust Agreement between Jack Matz as trustee and Terry R.
Houston, dated April 12, 1994 (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated May 16, 1994 and
incorporated herein by reference)
9.5 Voting Trust Agreement between Jack Matz as trustee and Scott G.
Moster, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.6 Voting Trust Agreement between Jack Matz as trustee and Roy D.
Duckwork, dated April 12, 1994 (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated May 16, 1994 and
incorporated herein by reference)
9.7 Voting Trust Agreement between Jack Matz as trustee and Daniel J.
Dziuba, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.8 Voting Trust Agreement between Jack Matz as trustee and Paul R.
Miller, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.9 Voting Trust Agreement between Jack Matz as trustee and David L.
Hover, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.10 Form of Voting Agreement, executed as of September 20, 1995 by
and between the Company and each of Seth Joseph Antine, Fred
Rudy, Jules Nordlicht, Moses Elias, Harry Adler, Dr. Seymour
Huberfeld, Connie Lerner, Mueller Trading L.P., Jack Ehrenhaus,
Cong. Ahavas Tzedach Vachsed and Laura Huberfeld/Naomi Bodner
Partnership (the "Investors") filed as Exhibit 4.15 to the original
filing of the Company's Registration Statement No. 33-64271 on
November 15, 1995 and incorporated herein by reference)
10.1 Stock Purchase Agreement, dated as of June 30, 1995 between the
Company and U. S. Communications, Inc. and the shareholders thereof
(the "Stock Purchase Agreement") (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K/A for the event occurring July
31, 1995, filed with the Commission on August 15, 1995 and
incorporated herein by reference)
10.2 Supplement Agreement to the Stock Purchase Agreement, dated July
31, 1995 (filed as Exhibit 2.2 to the Company's Current Report on
Form 8-K/A for the event occurring July 31, 1995, filed with the
Commission on August 15, 1995 and incorporated herein by reference)
10.3 Share Purchase Agreement dated as of July 31, 1995 by and between
the Company and JLCM (filed as Exhibit 4.2 to the Company's Current
Report on Form 8-K/A for the event occurring July 31, 1995, filed
with the Commission on October 13, 1995 and incorporated herein
by reference)
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<PAGE>
10.4 Warrant Purchase Agreement, dated as of July 31, 1995 by and
between the Company and JLCM (filed as Exhibit 4.4 to the Company's
Current Report on Form 8-K/A for the event occurring July 31, 1995,
filed with the Commission on August 15, 1995 and incorporated
herein by reference)
10.5 Common Stock Purchase Warrant Certificate issued to JLCM (filed as
Exhibit 4.5 to the Company's Current Report on Form 8-K/A for the
event occurring July 31, 1995, filed with the Commission on August
15, 1995 and incorporated herein by reference)
10.6 Form of Purchase Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item 601
(filed as Exhibit 4.7 to the Company's Current Report on Form 8-K/A
for the event occurring July 31, 1995, filed with the Commission on
August 15, 1995 and incorporated herein by reference)
10.7 Form of Offset Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item 601
(filed as Exhibit 4.8 to the Company's Current Report on Form 8-K/A
for the event occurring July 31, 1995, filed with the Commission on
August 15, 1995 and incorporated herein by reference)
10.8 Form of Note, Preferred Stock & Warrant Purchase Agreement, dated
as of July 31, 1995 between the Company and the purchasers thereof
(filed as Exhibit 4.9 to the Company's Current Report on Form 8-K/A
for the event occurring July 31, 1995, filed with the Commission on
August 15, 1995 and incorporated herein by reference)
10.9 Form of Common Stock Purchase Warrant Certificate issued to
purchasers thereof (filed as Exhibit 4.11 to the Company's Current
Report on Form 8-K/A for the event occurring July 31, 1995, filed
with the Commission on August 15, 1995 and incorporated herein by
reference)
10.10 Term Credit Agreement dated July 31, 1995 between the Company
and Norwest Bank Minnesota, N.A. (the "Bank") and related
Security Agreement and Promissory Note (filed as Exhibit 4.12
to the Company's Current Report on Form 8-K/A for the event
occurring July 31, 1995, filed with the Commission on October
13, 1995 and incorporated herein by reference)
10.11 First Amendment to Credit Agreement executed as of November
10, 1995 between the Company and the bank (filed as Exhibit
4.20 to the original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.12 Second Amendment to Term Credit Agreement dated as of March 13,
1996 between the Company and the Bank (filed herewith)
10.13 Agreement dated as of October 26, 1995 between the Company and
JLCM (filed as Exhibit 4.18 to the original filing of the
Company's Registration Statement No. 33-
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<PAGE>
64271 filed with the Commission on November 15, 1995 and
incorporated herein by reference)
10.14 Agreement, dated as of September 21, 1995 by and among the
Company, Howard Maddera, Bill L. Johnson and Marianne Reed
with respect to the waiver of conversion privileges on Series
B Preferred Stock (filed as Exhibit 4.17 to the original
filing of the Company's Registration Statement No. 33-64271
filed with the Commission on November 15, 1995 and
incorporated herein by reference)
10.15 Agreement, dated as of October 26, 1995 by and between the
Company and each of the Investors (filed as Exhibit 4.16 to
the Company's original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.16 Form of Warrant Certificates issued to each of the Investors
and schedule of differences thereto pursuant to General
Instructions to Item 601 (filed as Exhibit 4.14 to the
Company's original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.17 Form of Subscription Agreements executed as of September 20,
1995 by and between the Company and each of the Investors and
schedule of differences thereto pursuant to General
Instructions to Item 601 (filed as Exhibit 4.13 to the
Company's original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.18 Employment Agreement dated March 24, 1995 by and between the
Company and Jack Matz (filed as Exhibit 10.8 to the Company's
Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
10.19 Amendment to Employment Contract dated as of March 13, 1996 by
and between the Company and Jack Matz (filed herewith)
10.20 Employment Contract dated March 13, 1996 by and between the
Company and Paul R. Miller (filed herewith)
10.21 Employment Agreement dated April 1, 1994 by and between LDN
and Terry Houston (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and
incorporated herein by reference)
10.22 Severance Agreement dated as of March 18, 1996 by and between
the Company and J. David Darnell (filed herewith)
10.23 1994 Stock Option Plan for Non-Employee Directors of the
Company ("Non-Employee Director Plan") (filed as Item 2 of the
Company's Proxy Statement dated June 29, 1994 and incorporated
herein by reference)
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<PAGE>
10.24 Form of Stock Option Agreement used in connection with Non-
Employee Director Plan (filed as Exhibit 10.12 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
10.25 1994 Employee Stock Option Plan ("Employee Plan") (filed as
Item 3 of the Company's Proxy Statement, dated June 29, 1994
and incorporated herein by reference)
10.26 Form of Incentive Stock Option Agreement used in connection
with the Employee Plan (filed as Exhibit 10.14 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
10.27 Form of Non-Qualified Stock Option Agreement used in
connection with the Employee Plan (filed as Exhibit 10.15 to
the Company's Form 10-KSB for the year ended December 31, 1994
and incorporated herein by reference)
10.28 Stock Purchase Agreement dated February 29, 1996 between the
Company and Permian Basin Title Services, Inc. (filed as
Exhibit 2.1 to the Company's Current Report Form 8-K dated
February 29, 1996 and incorporated herein by reference)
10.29 Purchase Agreement dated March 8, 1996 between the Company,
Howard Maddera, William J. Johnson and Marianne Reed (filed
as Exhibit 2.2 to the Company's Current Report on Form 8-K
dated February 29, 1996 and incorporated herein by reference)
10.30 Letter Agreement dated February 28, 1996 by and among the
Company and VistaQuest, Inc. and Mark Kabbash (filed herewith)
10.31 Common Stock Purchase Warrant dated March 7, 1996 issued to
Mark Kabbash (filed herewith)
10.32 Letter Agreement dated February 28, 1996 by and between the
Company and Mueller Trading L.P. (filed herewith)
10.33 Common Stock Purchase Warrant dated March 7, 1996 issued to
Mueller Trading L.P. (filed herewith)
10.34 Purchase Agreement dated as of March 7, 1996 between the
Company and Killeba Holdings, Ltd. (filed herewith)
10.35 Amended and Restated 9% Convertible Subordinated Debenture
dated as of March 18, 1996 issued to Killeba Holdings, Ltd.
(filed herewith)
10.36 Subscription Agreement executed as of March 18, 1996 by and
between the Company and Phillip and Rae Huberfeld (filed
herewith)
10.37 9% Convertible Subordinated Debenture dated as of March 18,
1996 issued to Phillip and Rae Huberfeld (filed herewith)
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<PAGE>
10.38 Settlement Agreement dated March 25, 1996 between the Company
and JLCM (filed herewith)
10.39 Subscription Agreement dated as of March 18, 1996 by and
between the Company and Moses Elias (filed herewith)
10.40 9% Convertible Subordinated Debenture dated as of March 18,
1996 issued to Moses Elias (filed herewith)
10.41 Amendment to Purchase Agreement dated as of March 18, 1996 by
and between the Company and Killeba Holdings, Ltd. (filed
herewith)
21.1 Subsidiaries of the Company (filed herewith)
23.1 Consent of Price Waterhouse L.L.P. (filed herewith)
23.2 Consent of King, Burns & Company (filed herewith)
27 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K
On October 13, 1995, the Company amended its Form 8-K dated July 31,
1995 and filed with the Commission on August 15, 1995 with respect to the
transactions occurring in connection with the Company's acquisition and
financing of the acquisition of USC, through the filing of an amended Form
8-KA, and further amended such report by the filing of an amended Form 8-KA-2
on December 11, 1995.
On October 11, 1995, the Company filed a Form 8-K dated October 6, 1995,
which reported the cancellation of the proposed spin-off of, and decision to
sell, SATC.
On December 11, 1995, the Company amended its Form 8-K dated May 12,
1994 with respect to the acquisition of LDN by the filing of Form 8-KA-2.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned, thereto duly authorized.
SA TELECOMMUNICATIONS, INC.
By: /s/ Jack W. Matz, Jr.
--------------------------------------------
Jack W. Matz, Jr.
Chairman and Chief Executive Officer
Dated: March , 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the Company
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
TITLE DATE
----- ----
<S> <C> <C>
/s/ Jack W. Matz, Jr.
- ------------------------------- Director, Chairman and Chief Executive Officer March 31, 1996
Jack W. Matz, Jr.
/s/ Paul R. Miller
- ------------------------------- Director, President and Chief Operating Officer March 31, 1996
Paul R. Miller
/s/ J. David Darnell
- ------------------------------- Director and Vice President-Finance and Chief March 31, 1996
J. David Darnell Financial Officer
/s/ Terry R. Houston
- ------------------------------- Director and Vice President, Telecom Acquisitions March 31, 1996
Terry R. Houston
/s/ John Q. Ebert
- ------------------------------- Director March 31, 1996
John Q. Ebert
/s/ Igor I. Mamantov
- ------------------------------- Director and Vice President March 31, 1996
Igor I. Mamantov
- ------------------------------- Director
Howard F. Curd
- ------------------------------- Director
Reuben F. Richards
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<PAGE>
/s/ Dean A. Thomas
- ------------------------------- Director March 31, 1996
Dean A. Thomas
/s/ Barry J. Williams
- ------------------------------- Director March 31, 1996
Barry J. Williams
/s/ Pete W. Smith
- ------------------------------- Director March 31, 1996
Pete W. Smith
/s/ Thomas L. Cunningham
- ------------------------------- Director March 31, 1996
Thomas L. Cunningham
/s/ John H. Nugent
- ------------------------------- Director March 31, 1996
John H. Nugent
</TABLE>
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<PAGE>
SA TELECOMMUNICATIONS,
INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL
STATEMENTS AND REPORTS OF
INDEPENDENT ACCOUNTANTS
DECEMBER 31, 1995, 1994 AND 1993
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants for the years ended December 31,
1995 and 1994 F-2
Report of Independent Certified Public Accountants for the year ended
December 31, 1993 F-3
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and 1994 F-4
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994 and 1993 F-6
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993 F-7
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 F-8
Notes to Consolidated Financial Statements F-9
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
March 21, 1996
To the Board of Directors and Shareholders
of SA Telecommunications, Inc.
In our opinion, the accompanying consolidated financial statements listed in
the accompanying index present fairly, in all material respects, the
financial position of SA Telecommunications, Inc. and its subsidiaries at
December 31, 1995 and 1994 and the results of their operations and their cash
flows for the years then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted auditing
standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
SA Holdings, Inc. and Subsidiaries
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of SA Holdings, Inc. (now known as SA
Telecommunications, Inc.) (a Delaware corporation) and Subsidiaries for the
year ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit also 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 of the
consolidated statements of operations, shareholders' equity, and cash flows
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of SA Holdings, Inc. (now known as SA Telecommunications, Inc.) and
Subsidiaries for the year ended December 31, 1993, in conformity with
generally accepted accounting principles.
As described in Note 2 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.
/s/ KING, BURNS & COMPANY, P. C.
KING, BURNS & COMPANY, P. C.
Dallas, Texas
March 10, 1994
F-3
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 823,738 $ 331,431
Accounts and notes receivable:
Trade, net of allowance for doubtful accounts
of $475,845 and $178,368, respectively 4,022,131 985,174
Other, net of allowance for doubtful accounts
of $46,122 and $48,825, respectively 407,550 142,301
Inventory 146,037 123,790
Prepaid expenses and other 292,439 341,290
----------- -----------
Total current assets 5,691,895 1,923,986
----------- -----------
Net assets of discontinued title plant services
operations - 3,537,386
----------- -----------
Property and equipment 3,911,652 979,022
Less accumulated depreciation and amortization (495,613) (187,169)
----------- -----------
Net property and equipment 3,416,039 791,853
----------- -----------
Excess of cost over net assets acquired, net
of accumulated amortization 16,869,648 4,943,494
----------- -----------
Other assets:
Employee note receivable - 195,904
Other 63,221 384,211
----------- -----------
Total other assets 63,221 580,115
----------- -----------
Total assets $26,040,803 $11,776,834
----------- -----------
----------- -----------
</TABLE>
(Continued)
The accompanying notes are an integral part
of these consolidated financial statements.
F-4
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
----------- -----------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 761,880 $ 223,362
Accrued telecommunications expenses 2,337,420 755,669
Other accrued expenses 1,163,603 163,195
Short-term notes payable 475,610 129,610
Current maturities of long-term obligations 3,795,216 90,248
----------- -----------
Total current liabilities 8,533,729 1,362,084
----------- -----------
Long-term obligations, less current maturities 7,398,670 430,393
----------- -----------
Commitments and contingencies
Series A redeemable preferred stock, $.00001
par value, 250,000 shares authorized; 166,667
shares issued in 1995 1,129,459 -
----------- -----------
Shareholders' equity:
Series B preferred stock, $.00001 par value,
250,000 shares authorized; 125,000 shares
issued in 1995 575,280 -
Common stock, $.0001 par value, 50,000,000
shares authorized; 13,462,120 and 10,566,139
issued, respectively 1,346 1,057
Additional paid-in capital 20,855,099 15,629,114
Retained deficit (11,996,179) (5,404,864)
Treasury stock (240,072 shares and 136,516
shares, respectively) at cost (456,601) (240,950)
----------- -----------
Total shareholders' equity 8,978,945 9,984,357
----------- -----------
Total liabilities and shareholders' equity $26,040,803 $11,776,834
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-5
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------
1995 1994 1993
------------- ------------ ------------
<S> <C> <C> <C>
Telecommunications revenues $ 20,748,021 $ 9,755,343 $ 2,592,473
Cost of revenue 14,116,113 8,298,430 2,395,044
------------- ------------ ------------
Gross profit 6,631,908 1,456,913 197,429
------------- ------------ ------------
Operating expenses:
General and administrative 6,478,394 2,854,237 1,096,762
Depreciation and amortization 1,287,225 413,317 142,796
Nonrecurring Russian venture
charges 143,399 - -
------------- ------------ ------------
Total operating expenses 7,909,018 3,267,554 1,239,558
------------- ------------ ------------
Loss from continuing operations
before other income (expense) (1,277,110) (1,810,641) (1,042,129)
Other income (expense):
Interest expense (682,796) (29,903) (11,721)
Litigation settlement - - 100,417
Other, net 24,685 21,474 (15,971)
------------- ------------ ------------
Total other income (expense) (658,111) (8,429) 72,725
------------- ------------ ------------
Loss from continuing operations (1,935,221) (1,819,070) (969,404)
Discontinued operations:
Loss from title plant services
operations - (477,916) (106,204)
Provision for operating losses
during phase-out period (475,000) (150,000) -
Loss from impairment (4,055,742) - -
------------- ------------ ------------
Loss from discontinued
operations (4,530,742) (627,916) (106,204)
------------- ------------ ------------
Net loss (6,465,963) (2,446,986) (1,075,608)
Preferred dividend
requirements, including
accretion (125,352) - -
------------- ------------ ------------
Net loss applicable to common
shareholders $ (6,591,315) $ (2,446,986) $ (1,075,608)
------------- ------------ ------------
------------- ------------ ------------
Loss per weighted average
common share outstanding:
Continuing operations $ (0.17) $ (0.20) $ (0.18)
Discontinued operations (0.39) (0.07) (0.02)
------------- ------------ ------------
Net loss per share $ (0.56) $ (0.27) $ (0.20)
------------- ------------ ------------
------------- ------------ ------------
Net loss per share applicable to
common shareholders $ (0.57) $ (0.27) $ (0.20)
------------- ------------ ------------
------------- ------------ ------------
Weighted average number of
common shares outstanding 11,639,186 9,199,720 5,479,752
------------- ------------ ------------
------------- ------------ ------------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-6
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
-------------------------------------------------------------------------------------------
SERIES B
PREFERRED STOCK COMMON STOCK ADDITIONAL
------------------ ------------------ PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT STOCK TOTAL
-------- ------- -------- -------- ----------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 - - 5,471,411 $ 547 $ 8,357,488 $ (1,882,270) $ (20,000) $6,455,765
Private placements of common stock - - 1,407,274 141 1,621,358 - - 1,621,499
Issuance of common stock for
exercise of options - - 1,511,236 151 1,093,816 - - 1,093,967
Cancellation of shares held in
escrow for:
Foreign trade license
agreements - - (567,260) (57) (249,943) - - (250,000)
Coal methane gas leases
agreement - - (450,000) (45) (2,249,955) - - (2,250,000)
Net loss for the year - - - - - (1,075,608) - (1,075,608)
------- -------- ---------- ------- ----------- ------------ --------- ----------
Balances at December 31, 1993 - - 7,372,661 737 8,572,764 (2,957,878) (20,000) 5,595,623
Private placements of common
stock - - 834,317 84 1,885,264 - - 1,885,348
Issuance of common stock for:
Exercise of options - - 1,057,075 106 1,421,216 - (220,950) 1,200,372
Acquisition of LDN - - 1,302,086 130 3,749,870 - - 3,750,000
Net loss for the year - - - - - (2,446,986) - (2,446,986)
------- -------- ---------- ------- ----------- ------------ --------- ----------
Balances at December 31, 1994 - - 10,566,139 1,057 15,629,114 (5,404,864) (240,950) 9,984,357
Private placements of common
stock - - 1,981,120 197 2,379,464 - (44,057) 2,335,604
Issuance of common stock for
exercise of options - - 914,861 92 633,521 - (171,594) 462,019
Issuance of Series B Preferred
Stock for acquisition of USC 125,000 $575,280 - - - - - 575,280
Issuance of warrants for
acquisition and financing of
USC - - - - 2,213,000 - - 2,213,000
Dividends on preferred stock - - - - - (91,667) - (91,667)
Accretion of discount on
preferred stock - - - - - (33,685) - (33,685)
Net loss for the year - - - - - (6,465,963) - (6,465,963)
------- -------- ---------- ------- ----------- ------------ --------- ----------
Balances at December 31, 1995 125,000 $575,280 13,462,120 $ 1,346 $20,855,099 $(11,996,179) $(456,601) $8,978,945
------- -------- ---------- ------- ----------- ------------ --------- ----------
------- -------- ---------- ------- ----------- ------------ --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(6,465,963) $(2,446,986) $(1,075,608)
Adjustments to reconcile net loss to net cash
used by operating activities:
Loss from discontined operations - 477,916 106,204
Provision for discontined operations 4,530,742 150,000 -
Depreciation and amortization 1,287,225 413,317 142,796
Provision for losses on accounts receivable 455,793 318,583 61,552
Litigation settlement - - (100,417)
Cash used for discontinued SATC business (263,320) (441,864) (113,319)
Other (44,587) 15,280 28,494
(Increase) decrease, net of effect of acquisition:
Accounts and notes receivable (862,288) (150,480) (510,206)
Prepaid expenses and other 394,822 (63,759) (62,468)
Other assets 320,990 (16,581) (53,434)
Increase (decrease), net of effect of acquisition:
Accounts payable and accrued expense (577,900) (544,907) 507,103
----------- ----------- -----------
Net cash used in operating activities (1,224,486) (2,289,481) (1,069,303)
----------- ----------- -----------
Cash flows from investing activities:
Additions to property and equipment (193,276) (208,317) (101,396)
Purchase of USC, net of cash acquired (6,974,685) - -
Purchase of LDN, net of cash acquired - (1,330,397) -
Cash used for discontinued SATC business (34,481) (195,393) (286,127)
Sale of assets 60,622 - -
Other - (9,451) 14,180
----------- ----------- -----------
Net cash used in investing activities (7,141,820) (1,743,558) (373,343)
----------- ----------- -----------
Cash flows from financing activities:
Borrowings 7,450,000 120,000 -
Principal payments on obligations (1,971,510) (39,642) (100,000)
Proceeds from private placements of common
stock 2,073,104 1,885,348 1,621,499
Proceeds from exercise of options 307,019 1,200,372 1,093,967
Proceeds from Series A Preferred Stock 1,000,000 - -
----------- ----------- -----------
Net cash provided by financing activities 8,858,613 3,166,078 2,615,466
----------- ----------- -----------
Increase (decrease) in cash 492,307 (866,961) 1,172,820
Cash at beginning of year 331,431 1,198,392 25,572
----------- ----------- -----------
Cash at end of year $ 823,738 $ 331,431 $ 1,198,392
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
F-8
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
1. DESCRIPTION OF BUSINESS AND ORGANIZATION
SA Telecommunications, Inc. (STEL or the Company) is a full-service,
switch-based global telecommunications carrier that provides intrastate,
interstate and international service, as well as a variety of operator and
other services. In 1995, the Company changed its name to SA
Telecommunications, Inc. from SA Holdings, Inc. to better reflect the focus
on its core telecommunications business.
The Company conducts its domestic telecommunication operations through U.S.
Communications, Inc. (USC) (acquired effective June 1, 1995 - See Note 3)
and Long Distance Network, Inc. (LDN) (acquired effective March 1, 1994 -
See Note 4). USC and LDN provide direct dial long distance services to
small and medium-sized commercial customers and, to a lesser extent,
residential customers. Additionally, operator services (telephone calling
card, collect, third party billing, and credit card calls requiring
operator assistance) are provided to hotels, motels, hospitals,
universities, private pay telephone owners, and residences. Domestic
telecommunications revenue comprised approximately 92%, 76% and 0% of
consolidated revenues in 1995, 1994 and 1993, respectively.
The Company conducts its international telecommunications operations mainly
in Central and South America through North America Telecommunications
Corporation (NATC). NATC is a private telecommunications carrier which
provides various long distance telecommunications services to its foreign
customers, including interchange services, operator services, international
long distance, voice mail, conference calling, and facsimile distribution.
Foreign revenues comprised approximately 8%, 22% and 98% of total
consolidated revenues in 1995, 1994 and 1993, respectively. NATC conducts
business under the product name of "GlobalCOM."
Until September 1995, the Company participated in various joint ventures in
the Baltic States and Commonwealth of Independent States (formerly the
Soviet Union). At September 30, 1995, the Company terminated its
participation in these joint ventures to focus on its telecommunications
business. These operations had no significant impact on the consolidated
balance sheets at December 31, 1995 and 1994 or the consolidated statements
of operations for the three years ended December 31, 1995.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain prior period
amounts have been reclassified for comparative purposes.
F-9
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Financial Instruments
The fair market value of financial instruments is determined by reference
to various market data and other valuation techniques as appropriate. The
Company believes that the fair values of financial instruments approximate
their recorded values.
F-10
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
Business and Credit Concentrations
In the normal course of business, the Company extends unsecured credit to
its customers. All international telecommunications services are billed
and principally paid in U.S. dollars. Management has provided an allowance
for doubtful accounts to provide for amounts which may eventually become
uncollectible and to provide for any disputed charges. Two domestic
telecommunications customers accounted for approximately 31% and 8%,
respectively, of total consolidated revenues in 1994. No customers
individually accounted for more than 10% of consolidated revenues
in 1995 or 1993.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and investments with
purchased original maturities of three months or less. The Company has
approximately $365,547 of cash and cash equivalents in excess of FDIC
insured limits at December 31, 1995. The Company has not experienced any
losses on its cash and cash equivalents.
Inventory
Inventory is valued at the lower of cost or market with the cost determined
using the first-in, first-out method. Inventory consists of automatic
dialers for installation in customers' telephone equipment at December 31,
1995 and prepaid travel vouchers held for resale at December 31, 1994.
Property and Equipment
Property and equipment are stated at cost. Depreciation for financial
statement purposes is provided by the straight-line method over the
estimated useful lives of the depreciable assets. Maintenance and repairs
are expensed as incurred while replacements and betterments are
capitalized.
Goodwill and Related Intangibles
Goodwill and related intangibles reflect the acquired cost of goodwill,
customer lists, noncompete agreements, and related items. These
intangibles are amortized by the straight-line method over their estimated
useful lives. It is the Company's policy to periodically review the net
realizable value of its intangible assets through an assessment of the
estimated future cash flows related to such assets. The specific business
to which these intangible assets relate is reviewed to determine whether
future cash flows, over the remaining estimated life of the asset, provide
for recovery of the assets. In the event that total assets (including
property and equipment) are found to be stated at amounts in excess of
estimated future cash flows, the assets are adjusted for impairment to a
level commensurate with a discounted cash flow analysis of the underlying
assets.
F-11
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Revenue recognition
The Company recognizes revenue as services are performed based on customer
usage, net of an estimate for uncollectible revenue. The Company sells its
services to its customers primarily on a measured time basis.
Accounting for stock-based compensation
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation" (SFAS 123), was issued. This
statement requires the fair value of stock options and other stock-based
compensation issued to employees to either be included as compensation
expense in the income statement, or the pro forma effect on net income and
earnings per share of such compensation expense to be disclosed in the
footnotes to the Company's financial statements commencing with the
Company's 1996 fiscal year. This Company expects to adopt SFAS 123 on a
disclosure basis only. As such, implementation of SFAS 123 is not expected
to impact the Company's consolidated balance sheet or statement of
operations.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of assets and liabilitites and
disclosure of contingent liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Loss per share
Loss per share is computed by dividing the net loss by the weighted average
number of shares of common stock outstanding during the periods. The
effect of outstanding options and warrants on the computation of net loss
per share is antidilutive and, therefore, is not included in the
computation for the years ended December 31, 1995, 1994 and 1993.
Federal income taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109).
Deferred income taxes are calculated utilizing an asset and liability
approach whereby deferred taxes are provided for tax effects of basis
differences for assets and liabilities arising from differing treatments
for financial and income tax reporting purposes. Valuation allowances
against deferred tax assets are provided where appropriate. There was no
impact on the consolidated financial statements upon adoption of SFAS 109.
F-12
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
Statement of cash flows
Cash paid for interest for the years ended December 31, 1995, 1994 and 1993
was $374,249, $21,896 and $13,463, respectively.
3. 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 stated purchase price of
$12 million for the USC common stock and the covenants not to compete were
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 11% interest per annum, (iv) 125,000 shares of Series B Preferred
Stock of the Company, and (v) common stock purchase warrants exercisable
into 1,050,000 shares of stock 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 representations, warrants, covenants or other obligations
of the sellers. Additionally, the Company has the right to offset the
amounts payable under the $1.5 million notes for any event for which the
Company is entitled to indemnification. The Company has recorded the
Series B Preferred Stock and common stock purchase warrants at their
respective fair values 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
a common stock purchase warrant exercisable into 500,000 shares of stock at
$1.125 per share with Jesup & Lamont Capital Markets, Inc. for $1.5
million. The Company has recorded the Series A Preferred Stock and common
stock purchase warrants at their respective fair values as of the date of
issuance.
The acquisition was accounted for as a purchase whereby the excess purchase
price over the net assets acquired has been recorded based upon the fair
values of assets acquired and liabilities assumed. The initial purchase
price allocations are based on current estimates and may change based on
final determination of fair value. As a result, the final purchase price
allocations may differ from the presented estimates.
The Company's consolidated statements of operations include the results of
operations of USC since June 1, 1995. The Company will also include USC in
its 1995 consolidated federal income tax return for the period it was owned
in 1995 for tax purposes.
A summary of the USC excess of cost for financial reporting purposes over
net assets acquired is as follows:
F-13
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1995 LIFE
----------- ----
<S> <C> <C>
Goodwill $ 9,325,892 25
Covenants not to compete 2,400,000 5
Customer acquisition costs 1,036,946 10
------------
12,762,838
Accumulated amortization (558,104)
------------
$ 12,204,734
------------
------------
</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 pro forma amounts represent the historical operating
results of USC combined with those of the Company with appropriate
adjustments which give effect to interest expense, amortization and
utilization of consolidated net operating loss carryforwards. These pro
forma 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 YEARS ENDED
DECEMBER 31,
-------------------------------
1995 1994
------------- -------------
<S> <C> <C>
Revenues $ 28,694,683 $ 26,173,431
Net loss (7,083,441) (3,864,545)
Net loss per share outstanding (0.61) (0.42)
</TABLE>
4. ACQUISITION OF LONG DISTANCE NETWORK, INC.
Effective March 1, 1994, the Company acquired all of the outstanding common
stock of Long Distance Network, Inc. (LDN), a domestic interexchange long
distance carrier located in Dallas, Texas. The acquisition was
accomplished through the payment of $1,354,660 in cash and the issuance of
1,302,086 shares of unregistered, restricted common stock of the Company to
the shareholders of LDN. The Company utilized working capital and funds
generated from private placements of unregistered, restricted common stock
to complete the cash portion of the transaction. Of the total 1,302,086
shares of unregistered, restricted common stock issued, 1,041,666 shares
related to the acquisition of LDN stock and 260,420 shares related to
"Covenants Not to Compete."
The acquisition was accounted for as a purchase whereby the excess purchase
price over the net assets acquired has been recorded based upon the fair
values of assets acquired and liabilities assumed. The fair value of the
stock issued in connection with the acquisition was estimated to be
approximately $3,750,000, which
F- 14
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
reflects a discount of approximately 25% from the market price of the
Company's publicly traded stock and, in management's view, is reasonable
given its restricted nature.
The Company's consolidated statements of operations include the results of
operations of LDN since March 1, 1994.
F-15
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------
A summary of the LDN excess of cost over net assets acquired is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 1994 LIFE
------------- ------------- ---------
<S> <C> <C> <C>
Goodwill $ 3,983,080 $ 3,983,080 25 Years
Covenants not to compete 750,000 750,000 10 Years
Customer acquisition costs 442,563 442,563 10 Years
------------- -------------
5,175,643 5,175,643
Accumulated amortization (510,729) (232,149)
------------- -------------
$ 4,664,914 $ 4,943,494
------------- -------------
------------- -------------
</TABLE>
The following unaudited pro forma combined results of operations for the
Company assume that the acquisition of LDN was completed at the beginning
of 1993. These pro forma amounts represent the historical operating
results of LDN combined with those of the Company with appropriate
adjustments which give effect to amortization and shares of common stock
issued. These pro forma amounts are not necessarily indicative of
consolidated operating results which would have occurred had LDN 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 YEARS ENDED
DECEMBER 31,
---------------------------------
1994 1993
-------------- --------------
<S> <C> <C>
Revenues $ 11,136,615 $ 11,097,986
Net loss (2,474,726) (1,346,915)
Net loss per share outstanding (0.26) (0.17)
</TABLE>
5. DISCONTINUED OPERATIONS
On December 28, 1994, the Company's board of directors approved a spinoff
of the Company's title plant services subsidiary, Strategic Abstract and
Title Corporation (SATC), in the form of a stock dividend to shareholders.
During 1995, SATC filed a Form 10-SB registration statement with the
Securities and Exchange Commission to become a publicly traded company
prior to the distribution to shareholders. Subsequent to this filing, a
decision was made to cancel the spinoff and sell 100% of the stock of the
subsidiary, due in large part to the SATC president's death in September
1995. As a result, an additional $475,000 reserve was established for SATC
losses until the expected date of disposal.
F-16
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
On February 29, 1996, SATC was sold to a key member of SATC management for
a $500,000 note, payable over ten years, bearing interest at 7% per annum.
At December 31, 1995, the Company recorded an impairment loss of
$4,055,742, including a reserve against the note, to reflect the net
realizable value of SATC. Included among the SATC total assets are other
assets, primarily trade credits with a book value of $362,000, of which the
Company retained a minority portion at a de minimus value.
Revenues for SATC for the years ended December 31, 1995, 1994 and 1993 were
$354,892, $142,212 and $315,078, respectively.
6. PROPERTY AND EQUIPMENT
Property and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1995 1994 LIFE
---------- -------- -----------
<S> <C> <C> <C>
Land $ 49,000 $ 34,000
Buildings 605,826 136,596 30-40 Years
Switching equipment 2,244,450 470,893 3-5 Years
Software 30,505 37,584 5 Years
Office equipment 779,116 230,039 5 Years
Furniture and fixtures 202,755 69,910 5-7 Years
---------- --------
$3,911,652 $979,022
---------- --------
---------- --------
</TABLE>
Switching equipment totaling $500,701 and $470,893 was acquired under
capital leases in 1995 and 1994, respectively. The Company has the option
to purchase the switching equipment upon the expiration of the lease.
Total depreciation expense, including amortization of equipment under
capital leases, charged to operations for the years ended December 31,
1995, 1994 and 1993 was $449,402, $158,612 and $122,082, respectively.
7. SHORT-TERM NOTES PAYABLE
Short-term notes payable consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Convertible, subordinated debentures with
interest at 8% due in June 1996 $450,000 $ -
Note payable to an officer and director with
interest at 12% due in June 1996 25,610 30,610
Note payable to a financing institution - 99,000
-------- --------
$475,610 $129,610
-------- --------
-------- --------
</TABLE>
F-17
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
On February 9, 1996, the convertible, subordinated debentures were
converted into 267,856 shares of the Company's common stock.
8. LONG-TERM OBLIGATIONS
Long-term obligations consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- --------
<S> <C> <C>
Senior note payable to a bank $ 6,850,000 $ -
Subordinated notes payable to former USC
shareholders due on October 1, 1996 with
interest payable quarterly at 11% per annum 1,650,000 -
Subordinated notes payable to former USC
shareholders with $308,500 due on March 8,
1996, $441,500 due on April 15, 1996 and
$750,000 due on July 31, 1996 plus interest
at 11% per annum 1,500,000 -
Notes payable to former USC shareholders due
in monthly installments of $2,319 including
interest at 8.5% with the balances due in 1996
and 1997 32,638 -
Note payable to a trust (collateralized by
land and building) due in monthly installments
of $1,586 including interest at 10% with the
balance due in 2004 107,994 115,796
Note payable to a bank (collateralized by land,
building and equipment) due in monthly install-
ments of $8,338 including interest at 9.75% with
the balance due in 1998 181,232 -
Note payable to a finance company (unsecured)
due in monthly installments of $752, including
interest at 7.5% with the balance due in 2000 33,019 -
Note payable to a bank (collateralized by
equipment) due in monthly installments of $2,170
including interest at 9.75% with the balance due
in 1996 15,904 -
Capital lease obligations 823,099 404,845
----------- --------
11,193,886 520,641
Less current maturities:
Long-term debt (3,632,035) (7,801)
Capital lease obligations (163,181) (82,447)
----------- --------
Long-term portion $ 7,398,670 $430,393
----------- --------
----------- --------
</TABLE>
F-18
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The Company obtained a $10 million senior credit facility from a bank to
facilitate the acquisition of USC of which $6,850,000 was outstanding at
December 31, 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 (9.75% at December 31, 1995) 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) which is also dependent on the ratio of
senior debt to operating cash flow. Interest is payable quarterly.
The credit facility agreement contains covenants which, among other
restrictions, (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) limit the payment of interest and principal on
subordinated debt.
At September 30, and December 31, 1995, the Company was not in compliance
with the senior leverage ratio and operating cash flow maintenance
requirements contained in the senior credit agreement. On November 10,
1995 and March 13, 1996, respectively, the Company entered into amendments
with the bank to waive these events of default and reset the ratio and
maintenance requirements for periods subsequent to the default after the
actual USC results of operations were determined. The Company expects to
be in compliance with the covenant requirements at all future measurement
dates. Under these amendments, the Company was required to pay one-time
waiver fees to the bank of $35,000 and to pay down the principal by
$150,000.
On March 8, 1996, the Company entered into an agreement with the former USC
shareholders to purchase debt and equity securities of the Company issued
to the USC shareholders in connection with the acquisition of USC for a
$3,085,000 purchase price. The securities to be purchased by the Company
consist of promissory notes of the Company in an aggregate principal amount
of $3,150,000, 125,000 shares of the Company's Series B Cumulative
Convertible Preferred Stock and warrants exercisable into 1,050,000 shares
of the Company's Common Stock.
F-19
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
The closing of the agreement is subject to, among other things, the
completion of financing by the Company.
F-20
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
9. CAPITAL STOCK
At December 31, 1995, the Chairman and Chief Executive Officer of the
Company voted an aggregate 1,703,781 shares of common stock (13% of
voting control) pursuant to various voting trust agreements. The
agreements were established in conjunction with the LDN acquisition,
private placements and other operating activities of the Company where
terms of the transactions included securities of the Company.
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 eight 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 be mandatorily redeemed no later than July 31,
2000, at a price of $9.00 per share plus accrued and unpaid dividends. Due
to the mandatory redemption requirements, the Series A Preferred Stock was
recorded at its fair value at the date of issuance, with increases to its
carrying value via periodic accretions up to the mandatory redemption
date.
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 eight shares of Common Stock, as adjusted in the event
of future dilution 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. The Series B Preferred Stock was recorded at its fair value
at the date of issuance. Present holders of the Series B Cumulative
Convertible Preferred Stock have waived their conversion rights.
In September 1995, the Company sold 1,100,000 shares of unregistered,
restricted Common Stock in a private placement transaction ($1,374,890).
In conjunction with this transaction, the purchasers received common stock
purchase warrants exercisable into an aggregate of 1,100,000 shares of
stock at $1.25 per share.
In 1991, the Company acquired approximately 24,110 net acres of coal
methane gas leases located in Johnson and Campbell Counties, Wyoming. The
Company issued 450,000 shares of unregistered, restricted common stock as
consideration for the purchase, valued at $2,250,000. Effective
December 31, 1993, all parties mutually agreed that it would be in their
best interests to dissolve this agreement and did so accordingly. The
Company recorded the dissolution by removing the properties from its books
and canceling the 450,000 shares of common stock. This dissolution
resulted in the reduction of total assets by $2,250,000, shareholders'
equity by $2,250,000, and common shares outstanding by 450,000 shares.
There was no impact on the Company's consolidated results of operations.
F-21
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
In 1993, the Company canceled its agreement to acquire certain foreign
trade license agreements because of defaults by the seller. In connection
with this cancelation, the Company canceled a $25,000 note payable and
567,260 shares of the Company's common stock held in escrow at a value of
$250,000, with a corresponding $275,000 reduction of license agreements.
There was no impact on the Company's consolidated results of operations.
10. STOCK OPTIONS
The Company has several stock option plans under which options to acquire
up to 8,000,000 shares may be granted to directors, officers and employees
of the Company. The options are nontransferable and forfeitable if the
holder resigns or leaves the Company for any reason. After a six-month
waiting period from the date of grant, the shares acquired upon exercise
may only be sold over periods of from eighteen to thirty months. An
aggregate of 4,571,750 options had been granted under these plans as of
December 31, 1995.
Additional information regarding options granted and outstanding is
summarized below:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
---------- -------------
<S> <C> <C>
Outstanding at December 31, 1992 2,131,200 $0.58 - $2.53
Granted 2,170,847 $0.43 - $0.80
Exercised (1,511,236) $0.43 - $2.53
Canceled/Expired (448,500) $0.43 - $2.53
----------
Outstanding at December 31, 1993 2,342,311 $0.43 - $2.53
Granted 1,089,500 $2.63 - $3.56
Exercised (1,057,075) $0.43 - $2.53
Canceled/Expired (259,936) $0.43 - $2.53
----------
Outstanding at December 31, 1994 2,114,800 $0.43 - $3.56
Granted 994,250 $1.75 - $1.88
Exercised (914,861) $0.43 - $1.25
Canceled/Expired (70,719) $0.43 - $3.56
----------
Outstanding at December 31, 1995 2,123,470 $0.43 - $3.56
----------
----------
</TABLE>
All of the options outstanding at December 31, 1995 were exercisable at
prices ranging from $0.43 to $3.56. All stock options were granted at
exercise prices not less than the fair market value of the underlying stock
on the date of grant.
F-22
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
11. FEDERAL INCOME TAXES
The components of the net deferred tax asset were as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
---------- ------------
<S> <C> <C>
Deferred tax assets:
Trade credits $ - $ 192,613
Allowance for doubtful accounts 126,210 77,246
Other reserves 123,931 -
Amortization on excess of cost over
net assets acquired 100,541 -
Net operating loss carryforwards 3,047,698 1,297,033
----------- -----------
Gross deferred tax asset 3,398,380 1,566,892
Deferred tax liabilities:
Depreciation on other assets 40,235 44,345
Other deferred costs 9,958 54,762
----------- -----------
Gross deferred tax liabilities 50,193 99,107
----------- -----------
3,348,187 1,467,785
Valuation allowance (3,348,187) (1,467,785)
----------- -----------
Net deferred tax asset $ - $ -
----------- -----------
----------- -----------
</TABLE>
The following is a reconciliation of the provision for income taxes at the
U.S. federal income tax rate to the income taxes reflected in the
consolidated statements of operations:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Income tax benefit at Federal
statutory rate $(657,975) $(618,484) $(329,597)
Net operating losses not benefited 657,975 611,117 328,084
Other - 7,367 1,513
---------- --------- ---------
Income tax benefit provided $ - $ - $ -
---------- --------- ---------
---------- --------- ---------
</TABLE>
At December 31, 1995, the Company had net operating loss carryforwards
aggregating approximately $8,963,815 which expire in various years between
2003 and 2010. If certain changes in the Company's ownership should occur
as defined by Internal Revenue Code Section 382, there would be an annual
limitation on the amount of tax carryforwards which can be utilized.
F-23
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
12. EMPLOYMENT CONTRACTS
Effective March 24, 1995, the Company entered into a new Employment
Agreement with the Chairman of the Board and Chief Executive Officer, Mr.
Jack W. Matz, Jr. In connection with this agreement, the parties agreed to
terminate Mr. Matz's previous Employment Agreement dated November 1, 1992.
The current Employment Agreement with Mr. Matz covers a period of five
years at an annual salary of $150,000 and contains a bonus schedule ranging
from 1% to 8% of audited consolidated net income on an annual basis. In
addition to the salary and cash bonuses, Mr. Matz can earn an aggregate of
60,000 shares of unregistered, restricted common stock for meeting certain
earnings per share goals. As a condition for Mr Matz's agreement to
release any and all claims under his previous Employment Agreement, Mr.
Matz received an option to acquire up to 1,000,000 shares of unregistered,
restricted common stock at an exercise price of $1.25 per share (fair value
of the underlying stock at the date of grant). This stock option is
exercisable for up to five years and vests 200,000 shares upon execution of
the agreement and 160,000 shares annually over five years. However, if
Mr. Matz is terminated prior to the option fully vesting, the number of
shares exercisable will be the greater of 500,000 shares or the number of
shares fully vested at the date of termination.
13. LEASES
The Company leases certain office facilities and equipment under capital
leases and noncancellable operating leases expiring through 2000. Minimum
annual rentals under these leases are as follows:
<TABLE>
<CAPTION>
YEARS ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ ---------- ----------
<S> <C> <C>
1996 $ 248,397 $ 411,007
1997 248,397 382,872
1998 248,397 310,330
1999 172,917 282,160
2000 135,177 279,964
---------- ----------
Total minimum lease payments 1,053,285 $1,666,333
----------
----------
Amounts representing interest 230,182
----------
Present value of net minimum lease payments $ 823,103
----------
----------
</TABLE>
The total rent expense incurred during the years ended December 31, 1995,
1994 and 1993 was $319,758, $165,429 and $78,261, respectively.
F-24
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
14. RELATED PARTY TRANSACTIONS
During 1993, five members of the board of directors individually made loans
to the Company in amounts ranging from $25,000 to $72,000. All loans were
repaid during the year ended December 31, 1993, including accrued interest
at 12% per annum. As an inducement for making the loans, each director was
granted an option at $.75 per share (fair market value of the underlying
stock at date of grant) and a warrant at $.94 per share to purchase one
share of the Company's unregistered, restricted common stock, for each $.75
of principal loaned to the Company, representing an aggregate of 552,030
shares. The options expire on April 1, 1998 and the warrants expire on
April 1, 2003. No options or warrants were exercised during 1995, 1994 or
1993.
In 1995, six members of the board of directors made loans to the Company
aggregating $293,610 with interest at 12% per annum. All loans were repaid
during the year with the exception of $25,610 outstanding at December 31,
1995. In connection with such loans, four directors accepted options to
purchase 54,287 shares of the Company's unregistered, restricted common
stock, all exercisable between June 17, 1995 and December 17, 1995 at $1.75
per share. All of such options expired unexercised.
A $195,904 note receivable due from an officer and director bearing
interest at 10% and due in April 1996 is reflected on the consolidated
balance sheet in other notes receivable at December 31, 1995 and in
employee note receivable at December 31, 1994.
15. COMMITMENTS AND CONTINGENCIES
The Company is involved in various claims and legal actions arising in the
ordinary course of business. Management believes it is unlikely that the
final outcome of any of the claims or proceedings to which the Company is a
party would have a materially adverse effect on the Company's financial
position or results of operations.
16. BENEFIT PLAN
The Company has adopted the USC 401K Retirement Plan (the Plan) effective
January 1, 1996. Employees may elect to reduce their compensation and
contribute to the Plan provided they are a full-time employee having worked
more than 1,000 hours in a six-month period and have attained the age of
twenty. Each employee may defer up to 10% of their salary not to exceed
the limit allowable by law in any one year. Vesting is 20% per year of
employment and the employee must be employed at December 31 to receive that
year's vesting. The Company may, at its option, make discretionary
matching contributions not to exceed a maximum of 5%. No Company
contributions were made during 1995. Distributions from the Plan are not
permitted before the age of 59 1/2 except in the event of death,
disability, termination of employment or reason of proven financial
hardship.
F-25
<PAGE>
SA TELECOMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE QUARTERS ENDED
---------------------------------------------------------
MARCH 31, JUNE 30,
------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 2,309,227 $1,464,662 $4,004,348 $2,862,105
Loss from continuing
operations (241,562) (249,066) (545,418) (406,578)
Loss from discontinued
operations - (114,355) (250,000) (108,766)
Net loss (241,562) (363,421) (795,418) (515,344)
Loss per share (0.02) (0.05) (0.07) (0.05)
FOR THE QUARTERS ENDED
---------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
Revenues $ 7,459,367 $2,769,182 $6,975,079 $2,659,394
Loss from continuing
operations (950,965) (759,457) (197,275) (403,969)
Loss from discontinued
operations (225,000) (106,371) (4,055,742) (298,421)
Net loss (1,175,965) (865,828) (4,253,017) (702,393)
Loss per share (0.10) (0.09) (0.36) (0.08)
</TABLE>
F-26
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Certificate of Incorporation of the Company, as amended through
December 31, 1994 (filed as Exhibit 3.1 to the Company's
Form 10-KSB for the year ended December 31, 1994 and incorporated
hereby by reference)
3.2 Certificate of Designation, Preferences and Rights of Series A
Cumulative Convertible Preferred Stock (filed as Exhibit 4.1 to the
Company's Current Report on Form 8-K/A for the event occurring July
31, 1995, filed with the Commission on August 15, 1995 and
incorporated herein by reference)
3.3 Certificate of Designation, Preferences and Rights of Series B
Cumulative Convertible Preferred Stock (filed as Exhibit 4.6 to the
Company's Current Report on Form 8-K/A for the event occurring July
31, 1995, filed with the Commission on August 15, 1995 and
incorporated hereby by reference)
3.4 Certificate of Amendment filed with the Delaware Secretary of State
on August 3, 1995 (filed herewith)
3.5 Amended and Restated Bylaws of the Company (filed herewith)
4.1 Form of Certificate Evidencing Common Stock (filed as Exhibit 4.19
to the original filing of the Company's Registration Statement No.
33-64271 on November 15, 1995 and incorporated herein by reference)
4.2 Form of Series A Preferred Stock Certificate (filed as Exhibit 4.3
to the Company's Current Report on Form 8-K/A for the event
occurring July 31, 1995, filed with the Commission on August 15,
1995, and incorporated herein by reference)
4.3 Form of Series B Preferred Stock Certificate (filed as Exhibit 4.10
to the Company's Current Report on Form 8-K/A for the event
occurring July 31, 1995, filed with the Commission on August 15,
1995, and incorporated herein by reference)
9.1 Voting Trust Agreement between Jack Matz as trustee and ITEX
Corporation, dated June 30, 1992 (filed as Exhibit 9.1 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
9.2 Voting Trust Agreement between Jack Matz as trustee and Gerald
McMillan, dated October 4, 1991 (filed as Exhibit 9.2 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
9.3 Voting Trust Agreement between Jack Matz as trustee and William A.
Shepherd, dated November 18, 1991 (filed as Exhibit 9.3 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
<PAGE>
9.4 Voting Trust Agreement between Jack Matz as trustee and Terry R.
Houston, dated April 12, 1994 (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated May 16, 1994 and
incorporated herein by reference)
9.5 Voting Trust Agreement between Jack Matz as trustee and Scott G.
Moster, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.6 Voting Trust Agreement between Jack Matz as trustee and Roy D.
Duckwork, dated April 12, 1994 (filed as Exhibit 2.2 to the
Company's Current Report on Form 8-K, dated May 16, 1994 and
incorporated herein by reference)
9.7 Voting Trust Agreement between Jack Matz as trustee and Daniel J.
Dziuba, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.8 Voting Trust Agreement between Jack Matz as trustee and Paul R.
Miller, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.9 Voting Trust Agreement between Jack Matz as trustee and David L.
Hover, dated April 12, 1994 (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and incorporated
herein by reference)
9.10 Form of Voting Agreement, executed as of September 20, 1995 by
and between the Company and each of Seth Joseph Antine, Fred
Rudy, Jules Nordlicht, Moses Elias, Harry Adler, Dr. Seymour
Huberfeld, Connie Lerner, Mueller Trading L.P., Jack Ehrenhaus,
Cong. Ahavas Tzedach Vachsed and Laura Huberfeld/Naomi Bodner
Partnership (the "Investors") filed as Exhibit 4.15 to the original
filing of the Company's Registration Statement No. 33-64271 on
November 15, 1995 and incorporated herein by reference)
10.1 Stock Purchase Agreement, dated as of June 30, 1995 between the
Company and U. S. Communications, Inc. and the shareholders thereof
(the "Stock Purchase Agreement") (filed as Exhibit 2.1 to the
Company's Current Report on Form 8-K/A for the event occurring July
31, 1995, filed with the Commission on August 15, 1995 and
incorporated herein by reference)
10.2 Supplement Agreement to the Stock Purchase Agreement, dated July
31, 1995 (filed as Exhibit 2.2 to the Company's Current Report on
Form 8-K/A for the event occurring July 31, 1995, filed with the
Commission on August 15, 1995 and incorporated herein by reference)
10.3 Share Purchase Agreement dated as of July 31, 1995 by and between
the Company and JLCM (filed as Exhibit 4.2 to the Company's Current
Report on Form 8-K/A for the event occurring July 31, 1995, filed
with the Commission on October 13, 1995 and incorporated herein
by reference)
<PAGE>
10.4 Warrant Purchase Agreement, dated as of July 31, 1995 by and
between the Company and JLCM (filed as Exhibit 4.4 to the Company's
Current Report on Form 8-K/A for the event occurring July 31, 1995,
filed with the Commission on August 15, 1995 and incorporated
herein by reference)
10.5 Common Stock Purchase Warrant Certificate issued to JLCM (filed as
Exhibit 4.5 to the Company's Current Report on Form 8-K/A for the
event occurring July 31, 1995, filed with the Commission on August
15, 1995 and incorporated herein by reference)
10.6 Form of Purchase Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item 601
(filed as Exhibit 4.7 to the Company's Current Report on Form 8-K/A
for the event occurring July 31, 1995, filed with the Commission on
August 15, 1995 and incorporated herein by reference)
10.7 Form of Offset Note, issued by the Company and schedule of
differences thereto pursuant to General Instructions to Item 601
(filed as Exhibit 4.8 to the Company's Current Report on Form 8-K/A
for the event occurring July 31, 1995, filed with the Commission on
August 15, 1995 and incorporated herein by reference)
10.8 Form of Note, Preferred Stock & Warrant Purchase Agreement, dated
as of July 31, 1995 between the Company and the purchasers thereof
(filed as Exhibit 4.9 to the Company's Current Report on Form 8-K/A
for the event occurring July 31, 1995, filed with the Commission on
August 15, 1995 and incorporated herein by reference)
10.9 Form of Common Stock Purchase Warrant Certificate issued to
purchasers thereof (filed as Exhibit 4.11 to the Company's Current
Report on Form 8-K/A for the event occurring July 31, 1995, filed
with the Commission on August 15, 1995 and incorporated herein by
reference)
10.10 Term Credit Agreement dated July 31, 1995 between the Company
and Norwest Bank Minnesota, N.A. (the "Bank") and related
Security Agreement and Promissory Note (filed as Exhibit 4.12
to the Company's Current Report on Form 8-K/A for the event
occurring July 31, 1995, filed with the Commission on October
13, 1995 and incorporated herein by reference)
10.11 First Amendment to Credit Agreement executed as of November
10, 1995 between the Company and the bank (filed as Exhibit
4.20 to the original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.12 Second Amendment to Term Credit Agreement dated as of March 13,
1996 between the Company and the Bank (filed herewith)
10.13 Agreement dated as of October 26, 1995 between the Company and
JLCM (filed as Exhibit 4.18 to the original filing of the
Company's Registration Statement No. 33-
<PAGE>
64271 filed with the Commission on November 15, 1995 and
incorporated herein by reference)
10.14 Agreement, dated as of September 21, 1995 by and among the
Company, Howard Maddera, Bill L. Johnson and Marianne Reed
with respect to the waiver of conversion privileges on Series
B Preferred Stock (filed as Exhibit 4.17 to the original
filing of the Company's Registration Statement No. 33-64271
filed with the Commission on November 15, 1995 and
incorporated herein by reference)
10.15 Agreement, dated as of October 26, 1995 by and between the
Company and each of the Investors (filed as Exhibit 4.16 to
the Company's original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.16 Form of Warrant Certificates issued to each of the Investors
and schedule of differences thereto pursuant to General
Instructions to Item 601 (filed as Exhibit 4.14 to the
Company's original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.17 Form of Subscription Agreements executed as of September 20,
1995 by and between the Company and each of the Investors and
schedule of differences thereto pursuant to General
Instructions to Item 601 (filed as Exhibit 4.13 to the
Company's original filing of the Company's Registration
Statement No. 33-64271 filed with the Commission on November
15, 1995 and incorporated herein by reference)
10.18 Employment Agreement dated March 24, 1995 by and between the
Company and Jack Matz (filed as Exhibit 10.8 to the Company's
Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
10.19 Amendment to Employment Contract dated as of March 13, 1996 by
and between the Company and Jack Matz (filed herewith)
10.20 Employment Contract dated March 13, 1996 by and between the
Company and Paul R. Miller (filed herewith)
10.21 Employment Agreement dated April 1, 1994 by and between LDN
and Terry Houston (filed as Exhibit 2.2 to the Company's
Current Report on Form 8-K, dated May 16, 1994 and
incorporated herein by reference)
10.22 Severance Agreement dated as of March 18, 1996 by and between
the Company and J. David Darnell (filed herewith)
10.23 1994 Stock Option Plan for Non-Employee Directors of the
Company ("Non-Employee Director Plan") (filed as Item 2 of the
Company's Proxy Statement dated June 29, 1994 and incorporated
herein by reference)
<PAGE>
10.24 Form of Stock Option Agreement used in connection with Non-
Employee Director Plan (filed as Exhibit 10.12 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
10.25 1994 Employee Stock Option Plan ("Employee Plan") (filed as
Item 3 of the Company's Proxy Statement, dated June 29, 1994
and incorporated herein by reference)
10.26 Form of Incentive Stock Option Agreement used in connection
with the Employee Plan (filed as Exhibit 10.14 to the
Company's Form 10-KSB for the year ended December 31, 1994 and
incorporated herein by reference)
10.27 Form of Non-Qualified Stock Option Agreement used in
connection with the Employee Plan (filed as Exhibit 10.15 to
the Company's Form 10-KSB for the year ended December 31, 1994
and incorporated herein by reference)
10.28 Stock Purchase Agreement dated February 29, 1996 between the
Company and Permian Basin Title Services, Inc. (filed as
Exhibit 2.1 to the Company's Current Report Form 8-K dated
February 29, 1996 and incorporated herein by reference)
10.29 Purchase Agreement dated March 8, 1996 between the Company,
Howard Maddera, William J. Johnson and Marianne Reed (filed
as Exhibit 2.2 to the Company's Current Report on Form 8-K
dated February 29, 1996 and incorporated herein by reference)
10.30 Letter Agreement dated February 28, 1996 by and among the
Company and VistaQuest, Inc. and Mark Kabbash (filed herewith)
10.31 Common Stock Purchase Warrant dated March 7, 1996 issued to
Mark Kabbash (filed herewith)
10.32 Letter Agreement dated February 28, 1996 by and between the
Company and Mueller Trading L.P. (filed herewith)
10.33 Common Stock Purchase Warrant dated March 7, 1996 issued to
Mueller Trading L.P. (filed herewith)
10.34 Purchase Agreement dated as of March 7, 1996 between the
Company and Killeba Holdings, Ltd. (filed herewith)
10.35 Amended and Restated 9% Convertible Subordinated Debenture
dated as of March 18, 1996 issued to Killeba Holdings, Ltd.
(filed herewith)
10.36 Subscription Agreement executed as of March 18, 1996 by and
between the Company and Phillip and Rae Huberfeld (filed
herewith)
10.37 9% Convertible Subordinated Debenture dated as of March 18,
1996 issued to Phillip and Rae Huberfeld (filed herewith)
<PAGE>
10.38 Settlement Agreement dated March 25, 1996 between the Company
and JLCM (filed herewith)
10.39 Subscription Agreement dated as of March 18, 1996 by and
between the Company and Moses Elias (filed herewith)
10.40 9% Convertible Subordinated Debenture dated as of March 18,
1996 issued to Moses Elias (filed herewith)
10.41 Amendment to Purchase Agreement dated as of March 18, 1996 by
and between the Company and Killeba Holdings, Ltd. (filed
herewwith)
21.1 Subsidiaries of the Company (filed herewith)
23.1 Consent of Price Waterhouse L.L.P. (filed herewith)
23.2 Consent of King, Burns & Company (filed herewith)
27 Financial Data Schedule (filed herewith)
<PAGE>
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF SA HOLDINGS, INC.
- --------------------------------------------------------------------------------
SA HOLDINGS, INC. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"DGCL"),
DOES HEREBY CERTIFY THAT:
FIRST: On May 23, 1995, the Board of Directors of the Corporation
executed a Written Consent adopting resolutions which, among other things, set
forth certain proposed amendments to the Certificate of Incorporation of the
Corporation, declaring said amendments advisable and submitting them to the
stockholders of the Corporation for their consideration. The resolutions
setting forth the proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by striking Article 1 thereof and replacing therefor in its
entirety, the following:
"1. The name of the corporation is:
SA TELECOMMUNICATIONS, INC."
; and be it
FURTHER RESOLVED, that the Certificate of Incorporation of the
Corporation be further amended by striking Article 8 thereof and
replacing therefor, in its entirety, the following:
"8. Elections of directors need not be by written ballot
unless the Bylaws of the Corporation shall so provide.
The members of the Board of Directors shall be
classified, with respect to the time for which they
severally hold office, into three classes, as nearly equal
in number as possible, and shall be provided in the manner
specified in the Corporation's Bylaws, one class to hold
office initially for a term expiring at the Annual Meeting
of Stockholders to be held in 1996, another to hold office
initially for a term expiring at the Annual Meeting of
Stockholders to be held in 1997, and another to hold office
initially for a term expiring at the Annual Meeting of
Stockholders to be held in 1998, with the members of each
new class to hold office until their successors have been
duly elected and have qualified. At each Annual Meeting of
the
<PAGE>
Stockholders of the Corporation, the successors to the
class of directors whose term expires at the meeting shall
be elected to hold office for a term expiring at the Annual
Meeting held in the third year following the year of their
election."
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, a meeting of the stockholders of said Corporation was duly called and
held, upon notice in accordance with Section 222 of the DGCL at which meeting
the necessary number of shares required by statute were voted in favor of the
amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the DGCL.
IN WITNESS WHEREOF, SA HOLDINGS, INC. has caused this Certificate to be
signed and attested by its duly authorized officers, this 24th day of July,
1995.
SA HOLDINGS, INC.
By: /s/ Jack W. Matz, Jr.
-----------------------
Name: Jack W. Matz, Jr.
Title: Chairman & Chief Executive
Officer
ATTEST:
By: /s/ John Q. Ebert
------------------
Name: John Q. Ebert
Title: Secretary
<PAGE>
EXHIBIT 3.5
AMENDED AND RESTATED BY-LAWS
OF
SA TELECOMMUNICATIONS, INC.
ARTICLE I - STOCKHOLDERS
SECTION 1. ANNUAL MEETING
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
SECTION 2. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes
prescribed in the notice of the meeting, may be called by the Board of Directors
or the Chief Executive Officer and shall be held at such place, on such date,
and at such time as they or he shall fix.
SECTION 3. NOTICE OF MEETINGS
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than sixty days before
the date on which the meeting is to be held, to each stockholder entitled to
vote at such meeting, except as otherwise provided herein or required by law
(meaning, here and hereinafter, as required from time to time by the General
Corporation Law of the State of Delaware or the Certificate of Incorporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date, and time thereof
are announced at the meeting at which the adjournment is taken, provided,
however, that if the date of any adjourned meeting is more than thirty days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
SECTION 4. QUORUM
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy, shall constitute a quorum for all purposes, unless or except to the
extent that the presence of a larger number may be required by law.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the meeting
or the holders of a majority of the shares of the stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present constituting a quorum, then except as otherwise required by law, those
present at such adjourned meeting shall constitute a quorum, and all matters
shall be determined by a majority of the votes cast at such meeting.
SECTION 5. ORGANIZATION
Such person as the Board of Directors may have designated or, in the
absence of such a person, the highest ranking officer of the corporation who is
present shall call to order any meeting of the stockholders and act as chairman
of the meeting. In the absence of the Secretary of the corporation, the
secretary of the meeting shall be such person as the chairman appoints.
SECTION 6. CONDUCT OF BUSINESS
The chairman of any meeting of stockholders shall determine the order of
business and the procedure at the meeting, including such regulation of the
manner of voting and the conduct of discussion as seem to him in order.
SECTION 7. PROXIES AND VOTING
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting.
Each stockholder shall have one vote for every share of stock entitled to
vote which is registered in his name on the record date for the meeting, except
as otherwise provided herein or required by law.
All voting, except on the election of directors and where otherwise
required by law, may be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or his proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may be
required under the procedure established for the meeting. Every vote taken by
ballots shall be counted by an inspector or inspectors appointed by the chairman
of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law, all other matters shall be determined by a
majority of the votes cast.
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<PAGE>
SECTION 8. STOCK LIST
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
name, shall be open to the examination of any such stockholder, for any purpose
germane to the meeting, during ordinary business hours for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or if not so specified, at the place where the meeting is to be held.
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held By
each of them.
ARTICLE II - BOARD OF DIRECTORS
SECTION 1. NUMBER AND TERM OF OFFICE
The number of directors who shall constitute the whole board shall be such
number not less than five nor more than twenty as the Board of Directors shall
at the time have designated. The number of directors shall be fixed from time
to time exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorship at the time any such
resolution is presented to the Board for adoption). Effective immediately upon
the filing of a Certificate of Amendment to the Certificate of Incorporation
effecting same, the directors shall be divided into three classes, as nearly
equal in number as reasonably possible, with the term of office of the first
class to expire at the 1996 Annual Meeting of Stockholders, the term of office
of the second class to expire at the 1997 Annual Meeting of Stockholders and the
term of office of the third class to expire at the 1998 Annual Meeting of
Stockholders. At each Annual Meeting of Stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding Annual Meeting of Stockholders after their election.
Whenever the authorized number of directors is increased between annual
meetings of the stockholders, a majority of the directors then in office shall
have the power to elect such new directors for the balance of a term and until
their successors are elected and qualified. Any decrease in the authorized
number of directors shall not become effective until the expiration of the term
of the directors then in office unless, at the time of such decrease, there
shall be vacancies on the board which are being eliminated by the decrease.
-3-
<PAGE>
SECTION 2. VACANCIES
If the office of any director becomes vacant by reason of death,
resignation, disqualification, removal or other cause, a majority of the
directors remaining in office, although less than a quorum, may elect a
successor for the unexpired term and until his successor is elected and
qualified.
SECTION 3. REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
SECTION 4. SPECIAL MEETINGS
Special meetings of the Board of Directors may be called by one-third of
the directors then in office or by the Chief Executive Officer and shall be held
at such place, on such date, and at such time as they or he shall fix. Notice
of the place, date and time of each such special meeting shall be given each
director by whom it is not waived by mailing written notice not less than three
days before the meeting or by telegraphing the same not less than eighteen hours
before the meeting. Unless otherwise indicated in the notice thereof, any and
all business may be transacted at a special meeting.
SECTION 5. QUORUM
At any meeting of the Board of Directors, one-third of the total number of
the whole board, but not less than two, shall constitute a quorum for all
purposes. If a quorum shall fail-to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
SECTION 6. PARTICIPATION IN MEETING BY CONFERENCE TELEPHONE
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such board or committee by means of conference
telephone or similar communications equipment that enables all persons
participating in the meeting to hear each other. Such participation shall
constitute presence in person at such meeting.
SECTION 7. CONDUCT OF BUSINESS
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the board may from time to time determine, and all
matters shall be determined by
-4-
<PAGE>
the vote of a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of Directors
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
SECTION 8. POWERS
The board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the corporation, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or privileges on
such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as it may
determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the corporation with or without cause, and
from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(5) To confer upon any officer of the corporation the power to appoint,
remove and suspend subordinated officers and agents;
(6) To adopt from time to time such stock, option, stock purchase, bonus
or other compensation plans for directors, officers and agents of the
corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers and agents of the corporation
and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent with these
by-laws, for the management of the corporation's business and affairs.
-5-
<PAGE>
ARTICLE III - COMMITTEES
SECTION 1. COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors, by a vote of a majority of the whole board, may
from time to time designate committees of the board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the board and shall, for those committees and any others provided for herein,
elect a director of directors to serve as the member or members, designating, if
it desires, other directors as alternative members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend or to authorize the issuance of stock if the resolution which
designates the committee or a supplemental resolution of the Board of Directors
shall so provide. In the absence or disqualification of any member of any
committee and any alternate member in his place, the member or members of the
committee present at the meeting and not disqualified from voting, whether or
not he or they constitute a quorum, may by unanimous vote appoint another member
of the Board of Directors to act at the meeting in place of the absent or
disqualified member.
SECTION 2. CONDUCT OF BUSINESS
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
provided herein or required by law. Adequate provision shall be made for notice
to members of all meetings; one-third of the members shall constitute a quorum
unless the committee shall consist of one or two members, in which event one
member shall constitute a quorum; and all matters shall be determined by a
majority vote of the members present. Action may be taken by any committee
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of such
committee.
ARTICLE IV - OFFICERS
SECTION 1. GENERALLY
The officers of the corporation shall consist of a Chairman of the Board,
President, one or more Vice-Presidents, a Secretary, a Treasurer and such other
subordinate officers as may from time to time be appointed by the Board of
Directors. Officers shall be elected by the Board of Directors, which shall
consider that subject at its first meeting after every annual meeting of
stockholders. Each officer shall hold his office until his successor is elected
and qualified or until his earlier resignation or removal. The Chief Executive
Officer shall be a member of the Board of Directors. Any number of offices may
be held by the same person.
-6-
<PAGE>
SECTION 2. CHAIRMAN OF THE BOARD
The Chairman of the Board, shall preside at all meetings of the
stockholders of the corporation and the Board of Directors and shall have such
other powers and duties as may from time to time be prescribed by the Board of
Directors upon written directions given to him pursuant to resolutions duly
adopted by the Board of Directors.
SECTION 3. CHIEF EXECUTIVE OFFICER
The Chief Executive Officer of the Corporation shall have the powers and
duties of supervision and management of the business and affairs of the
corporation relating to, among other things, market relations,
telecommunications acquisitions, corporate finance and Russian ventures and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. He shall preside at all meetings of the stockholders and at all
meetings of the Board of Directors unless a Chairman of the Board has been
elected, in which event the Chief Executive Officer shall preside at meetings of
the Board of Directors in the absence or disability of the Chairman of the
Board. He shall have power to sign all stock certificates, contracts and other
instruments of the corporation which are authorized.
SECTION 4. PRESIDENT
The President shall be the chief operating officer of the corporation.
Subject to the provisions of these by-laws and to the direction of the Chief
Executive Officer and the Board of Directors, he shall have the responsibility
for the general management and control of the affairs and business of the
corporation and shall perform all duties and have all powers which are commonly
incident to the office of President or which are delegated to him by the Board
of Directors. Except with respect to the Chief Executive Officer, the President
shall have general supervision and direction of all of the other officers and
agents of the corporation. He shall have power to sign all stock certificates,
contracts and other instruments of the corporation which are authorized.
SECTION 5. VICE-PRESIDENT
Each Vice-President shall perform such duties as the Board of Directors or
the President shall prescribe. In the absence or disability of the President,
the Vice-President who has served in such capacity for the longest time shall
perform the duties and exercise the powers of the President.
-7-
<PAGE>
SECTION 6. TREASURER
The Treasurer shall have the custody of all monies and securities of the
corporation and shall keep regular books of account. He shall make such
disbursements of the funds of the corporation as are proper and shall render
from time to time an account of all such transactions and of the financial
condition of the corporation.
SECTION 7. SECRETARY
The Secretary shall issue all authorized notices for, and shall keep
minutes of, all meetings of the stockholders and the Board of Directors. He
shall have charge of the corporate books.
SECTION 8. DELEGATION OF AUTHORITY
The Board of Directors may from time to time delegate the powers or duties
of any officer to any other officers or agents, notwithstanding any provision
hereof.
SECTION 9. REMOVAL
Any officer of the corporation may be removed at any time, with or without
cause, by the Board of Directors.
SECTION 10. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS
Unless otherwise directed by the Board of Directors, the President shall
have power to vote and otherwise act on behalf of the corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this corporation may hold
securities and otherwise to exercise any and all rights and powers which this
corporation may possess by reason of its ownership of securities in such other
corporation.
ARTICLE V - RIGHT OF INDEMNIFICATION OF
DIRECTORS, OFFICERS AND OTHERS
SECTION 1. RIGHT TO INDEMNIFICATION
Each person who was or is made a party or is threatened to be made a party
to or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative ("proceeding"), by reason of the fact that he or
she or a person for whom he or she is the legal representative is or was a
director or officer, employee or agent of the corporation
-8-
<PAGE>
or is or was serving at the request of the corporation as a director or officer,
employee or agent of another corporation, or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent such amendment
permits the corporation to provide broader indemnification right than said law
permitted the corporation to provide prior to such amendment) against all
expenses, liability and loss (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith. Such
right shall be a contract right and shall include the right to be paid by the
corporation expense incurred in defending any such proceeding in advance of its
final disposition; provided, however, that the payment of such expenses incurred
by a director or officer of the corporation in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of such
proceeding, shall be made only upon delivery to the corporation of an
undertaking, by or on behalf of such director or officer, to repay all amounts
so advanced if it should be determined ultimately that such director or officer
is not entitled to be indemnified under this section or otherwise.
SECTION 2. RIGHT OF CLAIMANT TO BRING SUIT
If a claim under Section 1 is not paid in full by the corporation within 90
days after a written claim has been received by the corporation, the claimant
may at any time thereafter bring suit against the corporation to recover the
unpaid amount of the claim, and if successful in whole or in part, the claimant
shall be entitled to be paid also the expense of prosecuting such claim. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expense incurred in defending any proceeding in advance of its final
disposition where the required undertaking has been tendered to the corporation)
that the claimant has not met the standards of conduct which make it permissible
under the Delaware General Corporation Law for the corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the corporation. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant had
not met such applicable standard of conduct, shall be a defense to the action or
create a presumption that claimant had not met the applicable standard of
conduct.
-9-
<PAGE>
SECTION 3. NON-EXCLUSIVITY OF RIGHTS
The rights conferred by Sections 1 and 2 shall not be exclusive of any
other right which such person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 4. INSURANCE
The corporation may maintain insurance, at its expense, to protect itself
and any such director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether.or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
Delaware General Corporation Law.
ARTICLE VI- STOCK
SECTION 1. CERTIFICATES OF STOCK
Each stockholder shall be entitled to a certificate signed by, or in the
name of the corporation by, the President or a vice-president, and by the
secretary or an assistant secretary, or the treasurer or an assistant treasurer,
certifying the number of shares owned by him. Any of or all the signatures on
the certificate may be facsimile.
SECTION 2. TRANSFERS OF STOCK
Transfers of stock shall be made only upon the transfer books of the
corporation kept at an office of the corporation or by transfer agents
designated to transfer shares of the stock of the corporation. Except where a
certificate is issued in accordance with Section 4 of Article VI of these
by-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
SECTION 3. RECORD DATE
The Board of Directors may fix a record date, which shall not be more than
60 nor less than 10 days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for the other action hereinafter described,
as of which there shall be determined the stockholders who are entitled: to
notice of or to vote at any meeting of stockholders or any adjournment thereof;
to express consent to corporate action in writing without a meeting; to receive
payment of any dividend or other distribution or allotment of any rights; or to
exercise any rights with respect to any change, conversion or exchange of stock
or with respect to any other lawful action.
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<PAGE>
SECTION 4. LOST, STOLEN OR DESTROYED CERTIFICATES
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning
SECTION 5. TIME PERIODS
In applying any provision of these by-laws which requires that an act be
done or not done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.
ARTICLE IX - AMENDMENTS
These by-laws may be amended or repealed by the Board of Directors at any
meeting or by the stockholders at any meeting.
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<PAGE>
EXHIBIT 10.12
SECOND AMENDMENT TO
TERM CREDIT AGREEMENT
This Amendment is agreed to and effective as of the 13th day of March,
1996, by and between SA Telecommunications, Inc., a Delaware corporation
formerly known as SA Holdings, Inc. (the "Borrower"), and Norwest Bank
Minnesota, National Association, a national banking association (the "Bank").
The Borrower and the Bank have entered into a Term Credit Agreement dated
as of July 31, 1995, as amended by a First Amendment to Term Credit Agreement
effective as of dated October 1, 1995, (together with all amendments,
modifications and restatements thereof, the "Credit Agreement").
The Borrower and the Bank wish to amend certain provisions of the Credit
Agreement.
ACCORDINGLY, in consideration of the mutual covenants contained in the
Credit Agreement and herein, the parties hereby agree as follows:
1. DEFINITIONS. All terms defined in the Credit Agreement that are
not otherwise defined herein shall have the meanings given them in the
Credit Agreement.
2. AMENDMENT. The Credit Agreement is hereby amended as follows:
(a) The last sentence of Section 5.1(b) of the Credit Agreement
is hereby deleted, and the following is substituted therefor:
As used herein, "Applicable Period" means (i) with respect to the
Borrower's financial statements as of October 31, 1995, November
30, 1995, and December 31, 1995, 40 days, (ii) with respect to
the Borrower's financial statements as of January 31, 1996, 48
days, (iii) with respect to the Borrower's financial statements
as of February 29, 1996, 40 days, and (iv) with respect to the
Borrower's financial statements as of each month-end thereafter,
35 days. The Borrower shall pay to the Bank on demand, as
compensation for any delay in the delivery of documents required
under this paragraph (b), a late reporting fee in the amount of
$1,500 for each deadline under this paragraph as to which the
Borrower fails to deliver all documents required hereunder.
Neither the charging nor the payment of such fee shall excuse
such breach of this paragraph (b) or constitute or imply any
waiver of any Default or Event of Default arising therefrom.
(b) The table in Section 5.9 of the Credit Agreement is hereby
amended in its entirety to read as follows:
<PAGE>
MONTHS RATIO
------ -----
October 1995. . . . . . . . . . . . . . 4.85 to 1
November 1995 . . . . . . . . . . . . . 3.65 to 1
December 1995 . . . . . . . . . . . . . 3.65 to 1
January 1996. . . . . . . . . . . . . . 3.55 to 1
February 1996 . . . . . . . . . . . . . 3.50 to 1
March 1996. . . . . . . . . . . . . . . 2.70 to 1
April 1996. . . . . . . . . . . . . . . 3.00 to 1
May 1996 through September 1996 . . . . 2.50 to 1
October 1996 through June 1997. . . . . 2.25 to 1
July 1997 through June 1998 . . . . . . 1.75 to 1
July 1998 through June 1999 . . . . . . 1.25 to 1
July 1999 and thereafter. . . . . . . . 0.75 to 1
(c) Section 5.10 of the Credit Agreement is hereby amended in its
entirety to read as follows:
Section 5.10 SENIOR DEBT SERVICE RATIO. The Borrower will at all
times maintain its Senior Debt Service Ratio, determined at the end of
each calendar month designated below, at not less than the amount set
forth below opposite such month:
MONTHS RATIO
------ -----
Through December 1995 . . . . . . . . . 2.00 to 1
January 1996 through February 1996. . . 1.65 to 1
March 1996. . . . . . . . . . . . . . . 1.15 to 1
April 1996. . . . . . . . . . . . . . . 1.45 to 1
May 1996 through June 1996. . . . . . . 1.65 to 1
July 1996 and thereafter. . . . . . . . 1.75 to 1
(d) The table in Section 5.11 of the Credit Agreement is hereby
amended in its entirety to read as follows:
MONTH OPERATING CASH FLOW
----- -------------------
October 1995. . . . . . . . . . . .$1,443,299
November 1995 . . . . . . . . . . .$1,876,712
December 1995 . . . . . . . . . . .$1,875,000
January 1996. . . . . . . . . . . .$1,950,000
February 1996 . . . . . . . . . . .$2,000,000
March 1996. . . . . . . . . . . . .$1,840,000
April 1996. . . . . . . . . . . . .$2,300,000
May 1996. . . . . . . . . . . . . .$2,740,000
2
<PAGE>
3. WAIVER AND CONSENT TO LIEN AND INDEBTEDNESS RELATED TO HEADQUARTERS.
U.S. Communications, Inc. presently occupies a building at 1107 Austin Street,
Levelland, Texas (such building, together with the land on which such building
is located, being herein called the "Customer Service Property") pursuant to a
sale-and-leaseback arrangement. Effective as of December 31, 1995, the Borrower
has (i) assumed the promissory notes of Howard Maderra and Bill Johnson dated as
of August 15, 1995 payable to the order of American State Bank, Lubbock, Texas
in the original principal amount of $206,992.56 (the "Note") pursuant to the
Assumption Agreement dated as of February 29, 1996, (the "Assumption Agreement")
and (ii) become the owner of the Customer Service Property pursuant to a Special
Warranty Deed from Howard Maderra and Bill Johnson as grantors, subject to a
Deed of Trust dated August 16, 1995, securing the Note. For purposes of
Sections 6.1 and 6.2 of the Credit Agreement, the Bank hereby consents to the
incurrence of indebtedness and the granting of a lien to facilitate the
Borrower's purchase of the Customer Service Property so long as (i) the
aggregate principal amount of such indebtedness does not exceed $173,753, and
(ii) the lien securing such indebtedness does not extend to or cover any
property of the Borrower or any Subsidiary other than the real property
constituting the Customer Service Property.
4. DEADLINE FOR ADDITIONAL DOCUMENTS. The Borrower and the Bank agree
that the deadline for delivery of the documents required to be delivered under
paragraph 3(b) of the closing letter dated August 1, 1995, between the Borrower
and the Bank shall be March 4, 1996.
5. WAIVER FEE. In consideration of the Bank's entering into this
Amendment, the Borrower will pay the Bank a waiver fee on the date hereof in the
amount of $25,000. Such fee shall be deemed fully earned by the Bank on the
date hereof and shall be in lieu of any Default Increment required under Section
2.4(d) of the Credit Agreement on account of the breaches waived pursuant to
this Amendment; provided, however, that the foregoing shall not limit the Bank's
right to impose the Default Increment on account of any Default or Event of
Default arising or continuing after the date hereof.
6. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Bank as follows:
(a) The Borrower has all requisite power and authority, corporate or
otherwise, to execute and deliver this Amendment, and to perform this
Amendment and the Credit Agreement as amended hereby. This Amendment has
been duly and validly executed and delivered to the Bank by the borrower,
and this Amendment and the Credit Agreement as amended herein constitute
the Borrower's legal, valid and binding obligations, enforceable in
accordance with their respective terms.
(b) The execution, delivery and performance by the Borrower of this
Amendment, and the performance of the Credit Agreement as amended hereby,
have been duly authorized by all necessary corporate action and do not and
will not (i) require any authorization, consent or approval by any
governmental department, commission, board,
3
<PAGE>
bureau, agency or instrumentality, domestic or foreign, (ii) violate the
Borrower's articles of incorporation or bylaws or any provision of any
law, rule, regulation or order presently in effect having applicability
to the Borrower, or (iii) result in a breach of or constitute a default
under any indenture or agreement to which the Borrower is a party or by
which the Borrower or its properties may be bound or affected.
(c) All of the representations and warranties contained in Article 4
of the Credit Agreement are correct on and as of the date hereof as though
made on and as of such date, except to the extent that such representations
and warranties relate solely to an earlier date.
7. CONDITIONS. The amendments, waivers and consents set forth in this
Amendment shall be effective only if the Bank has received (or waived the
receipt of) each of the following, in form and substance satisfactory to the
Bank, on or before the date hereof (or such later date as the Bank may agree to
in writing):
(a) This Amendment, duly executed by the Borrower, each
Telecommunications Subsidiary and the Guarantor below.
(b) The waiver fee required under paragraph 5.
(c) A copy of the resolutions of the board of directors of the
Borrower evidencing approval of this Amendment, the Credit Agreement as
amended hereby, and the other matters contemplated hereby, certified as
accurate by the secretary of the Borrower.
(d) A certificate of the secretary of the Borrower and the
Telecommunications Subsidiaries (i) stating that there have been no
amendments to or restatements of the articles of incorporation or bylaws of
the Borrower or the Telecommunications Subsidiaries as furnished to the
Bank in connection with the execution and delivery of the Credit Agreement
other than those that may be attached to the certificate, and (ii)
certifying the names of the officers of the Borrower and the
Telecommunications Subsidiaries that are authorized to sign the documents
to be delivered pursuant to this Agreement, together with the true
signatures of such officers.
8. MISCELLANEOUS. The consents and waivers granted herein are limited
to the express matters described herein; they do not constitute or imply any
agreement to waive any breach, Default or Event of Default not expressly
described herein, including but not limited to any such breach, Default or Event
of Default hereafter arising. The Borrower shall pay all costs and expenses of
the Bank, including attorneys' fees, incurred in connection with the drafting
and preparation of this Amendment and any related documents. Except as amended
by this Amendment, all of the terms and conditions of the Credit Agreement shall
remain in full force and effect. This Amendment may be executed in any number
of counterparts, each of which when so executed and delivered shall be deemed to
be an original and all of which counterparts of this Amendment, taken together,
shall constitute but one and the same instrument. This Amendment shall be
governed by the substantive
4
<PAGE>
law of the State of Minnesota.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first above written, but actually on the dates set forth
under their signature below.
SA TELECOMMUNICATIONS, INC. NORWEST BANK MINNESOTA,
NATIONAL ASSOCIATION
By /s/ J. David Darnell By /s/ Karen Dorn
---------------------------------- ----------------------
Its Vice President, Finance Its Vice President
---------------------------- ----------------
and Chief Financial Officer
----------------------------
Date: 03/13/96 Date: 03/14/96
----------------------------- --------------------------
CONSENT OF GUARANTORS
Each of the undersigned, as guarantors of all indebtedness of the Borrower to
the Bank under their separate guaranties, each dated July 31, 1995, (except in
the case of Strategic Abstract & Title Corporation, whose Guaranty is dated
November 1, 1995), hereby consents to the foregoing Amendment and acknowledges
that all indebtedness arising under the Credit Agreement, as amended thereby,
shall constitute Indebtedness guarantied under those guaranties. The foregoing
confirmation shall not be deemed to limit the terms of the Guaranties in any
manner. The undersigned acknowledge that this Consent merely confirms the terms
of the Guaranties, and that no such confirmation is required in connection with
this Amendment or any future amendment to or restatement of the Credit Agreement
or any document executed in connection with the Credit Agreement or this
Amendment.
LONG DISTANCE NETWORK, INC. NORTH AMERICAN
TELECOMMUNICATIONS CORP.
By /s/ J. David Darnell By /s/ J. David Darnell
---------------------------- -----------------------------
Its Chief Financial Officer Its Vice President and
----------------------- ------------------------
Chief Financial Officer
------------------------
SOUTHWEST LONG DISTANCE U.S. COMMUNICATIONS, INC.
NETWORK, INC.
By /s/ J. David Darnell By /s/ J. David Darnell
----------------------------- -------------------------------
Its Vice President and Its Vice President and
------------------------ --------------------------
Chief Financial Officer Chief Financial Officer
---------------------- --------------------------
/s/ Jack W. Matz, Jr.
-------------------------------
Jack W. Matz, Jr., Individually
5
<PAGE>
EXHIBIT 10.19
AMENDMENT TO EMPLOYMENT CONTRACT
This Amendment to Employment Contract ("Agreement") is made as of March 13,
1996 and effective as of January 1, 1996 between SA Telecommunications, Inc., a
Delaware corporation with offices at 1912 Avenue K, Suite 100, Plano, Texas
75074 (the "Company") and Jack W. Matz, Jr., residing at 3612 Arbuckle, Plano,
Texas 75075.
WHEREAS, Employee and the Company entered into that certain Employment
Contract dated as of March 24, 1995 (the "Employment Agreement");
WHEREAS, Employee and the Company desire to make certain modifications to
the Employment Agreement;
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Executive hereby agree as follows:
1. AMENDMENT. Section 5(a) of the Employment Agreement is hereby deleted
and replaced in its entirety as follows:
(a) NET INCOME. If the Company, during any fiscal year which ends during
the Employment Period, shall have positive Net Income in the amount set forth
below, Executive shall be entitled to an amount equal to the following
percentage of such Net Income as bonus compensation:
<TABLE>
<CAPTION>
Percentage To Be Paid
Net Income As Bonus Compensation
---------- ---------------------
<S> <C>
$0 - $200,000 1.0% of Net Income up to
and including $200,000
$200,001 - $1,200,000 4.0% of Net Income from $200,001
up to and including $1,200,000
$1,200,001 and above 8.0% of Net Income above
$1,200,000
</TABLE>
For purposes of this subsection, Net Income of the Company shall be the
consolidated net income of the Company and subsidiaries determined in accordance
with generally accepted accounting principles and as reflected on the Company's
audited financial statements for such year with the following adjustments: (1)
excluding the effect of any provision for income taxes for such year, (2)
including any cash bonuses payable to any employee or consultant (excluding
Executive) as a result of the financial results of operations of the Company and
its subsidiaries for such fiscal year, and (3) including 50% of goodwill
amortization expense for such year. The payment of any bonus to
1
<PAGE>
Executive shall be accounted for in accordance with generally accepted
accounting principles and will be paid to Executive within thirty (30) days
after the Company's independent auditors deliver the audited financial
statements to the Board of Directors of the Company with respect to any fiscal
year for which such bonus is earned. Any bonus to Executive hereunder shall be
payable in cash.
2. COUNTERPARTS. This 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, taken together,
shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first above written.
SA TELECOMMUNICATIONS, INC.
----------------------------
JACK W. MATZ, JR.
BY:
--------------------------------
Paul R. Miller
President & Chief Operating Officer
2
<PAGE>
EXHIBIT 10.20
EMPLOYMENT CONTRACT
EMPLOYMENT CONTRACT ("Agreement") dated as of March 13, 1996, effective
January 1, 1996, between SA TELECOMMUNICATIONS, INC., a Delaware corporation
with offices at 1912 Avenue K, Suite 100, Plano, Texas 75074 (the "Company"),
and PAUL R. MILLER, residing at 3140 Oakview Drive, Hurst, Texas 76054-2028 (the
"Executive").
RECITALS:
A. The Company desires to continue to employ Executive as an executive
officer of the Company.
B. Executive has agreed to continue his employment with the Company
pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Company and Executive hereby agree as follows:
1. TERM AND RENEWAL.
The Company agrees to employ Executive, and the Executive agrees to serve,
on the terms and conditions of this Agreement for a period commencing on January
1, 1996, and ending December 31, 1998, or such shorter period as may be provided
for herein. Notwithstanding the foregoing, on each December 31 (the "Renewal
Date") while this Agreement is in effect, the term of this Agreement shall be
automatically extended one (1) additional year from the Renewal Date unless and
until terminated by the Company or Executive, upon notice on or prior to
November 1 immediately preceding the Renewal Date, in which case there shall be
no automatic extension and the agreement shall end on December 31 of the year
following the year in which the termination notice is given. The period during
which Executive is employed under this Agreement is referred to in this
Agreement as the "Employment Period."
2. DUTIES AND SERVICES.
During the Employment Period, Executive shall be employed as President and
Chief Operating Officer of the Company and shall also perform services in a
responsible executive or managerial capacity for any of the Company's subsidiary
corporations when and as requested by the Company. In performance of his
duties, Executive shall be subject to the direction of the Board of Directors of
the Company and the Chief Executive Officer of the Company. As Chief Operating
Officer, Executive shall be the officer of the Company with the highest
authority for the management
Employment Contract - Page 1
<PAGE>
of the Company's business, second only to the Chief Executive Officer. All
corporate officers other than the Chief Executive Officer shall report to the
Chief Operating Officer provided that the foregoing shall not limit any
officer's responsibilities to the Board of Directors and the Chief Executive
Officer, and the Company or the ability of the Board or Chief Executive Officer
to dictate the responsibilities of any officer including, without limitation,
causing an officer to report to the Board or Chief Executive Officer directly.
Executive agrees to his employment as described in this SECTION 2 and agrees to
devote all of his business time and efforts to the performance of his duties
under this Agreement. Executive shall be available to travel as the needs of
the business require within reason. The duties of Executive may be changed from
time to time by the Board of Directors or the Chief Executive Officer and the
employment of the Executive shall be construed as continuing under this
Agreement as modified, provided that no such change will result in a change of
Executive's title or to any compensation payable to Executive, except as
contemplated by SECTION 3 hereof.
3. COMPENSATION.
As compensation for his services hereunder, the Company shall pay
Executive, during the Employment Period, a base salary payable in equal
semi-monthly installments at the annual rate of $160,000; provided, however,
that the Compensation Committee of the Board of Directors of the Company may
increase this annual amount at its sole discretion. Executive will also be
eligible to participate in the regular employee benefit programs now or
hereafter established by the Company.
4. BONUS PLAN.
(a) NET INCOME. If the Company, during any fiscal year which ends during
the Employment Period, shall have positive Net Income in the amount set forth
below, Executive shall be entitled to an amount equal to the following
percentage of such Net Income as bonus compensation:
<TABLE>
<CAPTION>
Percentage To Be Paid
Net Income As Bonus Compensation
---------- ---------------------
<S> <C>
$0 - $250,000 None
$250,001 - $500,000 1.0% of Net Income up to
and including $500,000
$500,001 - $1,200,000 2.0% of Net Income from $500,001 up
to and including $1,200,000
$1,200,001 and above 5.0% of Net Income above
$1,200,000
</TABLE>
For purposes of this subsection, Net Income of the Company shall be the
consolidated net income of the Company and subsidiaries determined in accordance
with generally accepted accounting principles and as reflected on the Company's
audited financial statements for such year with the
Employment Contract - Page 2
<PAGE>
following adjustments: (1) excluding the effect of any provision for income
taxes for such year, (2) including any cash bonuses payable to any employee or
consultant (excluding Executive) as a result of the financial results of
operations of the Company and its subsidiaries for such fiscal year, and (3)
including 50% of goodwill amortization expense for such year. The payment of
any bonus to Executive shall be accounted for in accordance with generally
accepted accounting principles and will be paid to Executive within thirty (30)
days after the Company's independent auditors deliver the audited financial
statements to the Board of Directors of the Company with respect to any fiscal
year for which such bonus is earned.. Any bonus to Executive hereunder shall be
payable in cash up to a maximum of $160,000, with the balance of such bonus
payable in restricted Common Stock of the Company based on the Closing Price of
the Company' Common Stock on December 31 of the year preceding the year in which
the bonus is paid. For purposes of this subsection (a), Closing Price of the
Common Stock shall be (i) if the Common Stock is listed or admitted for trading
on any United States national securities exchange, the last reported sales price
of Common Stock on such exchange, as reported in any newspaper of general
circulation, (ii) if actual transactions in the Common Stock are included in the
National Association of Securities Dealers Automated Quotation National Market
System ("NASDAQ-NMS") or are reported on a consolidated transaction reporting
system, the last sales price of the Common Stock on such system, (iii) if Common
Stock is otherwise quoted on the National Association of Securities Dealers
Automated Quotation System ("NASDAQ"), or any similar system of automated
dissemination of quotations of securities prices in common use, the mean between
the closing high bid and low asked quotations for such date of Common Stock on
such system, (iv) if none of clause (i), (ii), or (iii) is applicable, the mean
between the high bid and low asked quotations for Common Stock as reported by
the National Daily Quotation Service if at least two securities dealer have
inserted both bid and asked quotations for Common Stock on at least five (5) of
the ten (10) preceding days.
(b) ADDITIONAL BONUSES. The Executive may also receive such other bonus
for outstanding services rendered to the Company in the form of cash, stock or
stock options, as the Company, through its Board of Directors, may from time to
time grant to the Executive in its sole discretion.
5. STOCK OPTIONS.
(a) STOCK OPTIONS. The Company has determined that it is in its best
interests to provide the Executive with certain incentives in the event the
Company achieves substantially improved performance. In connection therewith,
the first time that the Company and its wholly-owned subsidiaries' earnings per
share (on a consolidated basis) for any fiscal year ending during the Employment
Period shall exceed each of the earnings per share thresholds listed below, the
Executive shall be entitled to receive stock options (exercisable at the fair
market value on the date of grant) for the number of shares of Common Stock
listed below. Such stock options shall be exercisable for five (5) years from
the date of grant and shall be granted pursuant to a stock option agreement in
substantially the form of EXHIBIT A attached hereto. In no event may the
aggregate number of shares issued to the Executive pursuant to this subparagraph
(i) exceed 60,000 share of Common Stock.
Employment Contract - Page 3
<PAGE>
<TABLE>
<CAPTION>
Number of Shares
Earnings of Common Stock
Per Share Threshold Underlying Option
------------------- -----------------
<S> <C>
$.01 20,000
$.15 20,000
$.25 20,000
</TABLE>
For purposes hereof, earnings per share for any year ending during the
Employment Period shall be determined for the Company and its
wholly-owned subsidiaries on a consolidated basis in accordance with
generally accepted accounting principles and shall be as reflected on
the Company's audited financial statements for such year. Any option
issuable hereunder shall be issued within thirty (30) days after the
Company's independent auditors deliver the audited financial
statements to the Board of Directors of the Company with respect to
any fiscal year for which such stock option is earned.
(b) REGISTRATION RIGHTS. The Executive shall have on two (2) separate
occasions after January 1, 1997, and until the later to occur of (i) December
31, 1998 or (ii) if this Agreement is automatically extended in accordance with
SECTION 1 hereof, the date of termination of this Agreement as so extended (the
"Final Termination Date"), the right to cause the Company to register for sale
any or all of the shares (including any shares being acquired contemporaneously
with an exercise) of the Company's Common Stock that he has acquired as a result
of the exercise of the options contemplated above on an appropriate form of
registration statement pursuant to the Securities Act of 1933, as amended. All
expenses relating to such registration statement (excluding commissions and
discounts) shall be payable by the Company.
(c) RIGHT OF REPURCHASE. Any or all shares of Common Stock acquired by
the Executive pursuant to the provisions of this SECTION 5 and not previously
sold or otherwise disposed of by Executive may be repurchased by the Company in
the event that, for any reason, the Executive is no longer employed by the
Company at any time prior to the Final Termination Date. The purchase price for
any such shares repurchased by the Company shall be the fair market value of the
shares determined by reference to the average closing price of the Company's
Common Stock on any national securities exchange or on any NASDAQ quotation
system for the thirty (30) days prior to the exercise of the option. In the
event the Company's Common Stock is not publicly traded on any national
securities exchange or on any NASDAQ quotation system at the time of any
proposed repurchase by the Company pursuant to this SECTION 5(c), then the fair
market value of the Common Stock shall be determined by an appraiser mutually
selected by the parties. The Company shall exercise this right of repurchase by
providing written notice thereof to the Executive which such written notice must
be given within sixty (60) days of termination. The Company, in its sole
discretion (as evidenced by an appropriate resolution of a majority of the whole
Board of Directors of the Company), may purchase any shares of Common Stock
acquired subject to this provision, by (i) a lump sum payment of 100% of the
purchase price, in cash or (ii) a cash down payment equal
Employment Contract - Page 4
<PAGE>
to 40% of the purchase price together with a promissory note executed by the
Company on the date of the repurchase and evidencing a principal amount equal to
the remainder of the purchase price (the "Promissory Note"). The Promissory
Note shall bear interest at the rate of 10% per annum on the outstanding
principal amount and shall be payable in a lump sum of principal and interest
one year after the date of such Promissory Note. The Promissory Note shall be
secured by the pledge of the shares of Common Stock purchased thereby, with
executed security instruments covering such pledged shares of Common Stock,
unless such pledge arrangement is waived by the Executive or his
representatives, as the case may be.
6. BUSINESS EXPENSES.
The Company will, in accordance with its rules and regulations, reimburse
the Executive for business expenses incurred in the performance of his duties.
Such reimbursement shall occur within forty-five (45) days of submission by the
Executive of such business expenses with corresponding receipts. No
reimbursement will be given by policy of the Board unless it is in strict
compliance with applicable provisions of the Internal Revenue Code and the
regulations promulgated thereunder.
7. INVENTIONS AND PATENTS.
Executive agrees that he will promptly from time to time fully inform and
disclose to the Company all inventions, designs, improvements, and discoveries
which he now has or may hereafter have during the term of this Agreement which
pertain or relate to the business of the Company or to any experimental work
carried on by the Company, whether conceived by the Executive alone or with
others whether or not conceived during regular working hours. All such
inventions, designs, improvements and discoveries shall be the exclusive
property of the Company. The Executive shall assist the Company to obtain
patents on all such inventions, designs, improvements, and discoveries deemed
patentable by the Company and shall execute all documents and do all things
necessary to obtain the patent, vest the Company with full and exclusive title
thereto, and protect the same against infringement by others.
8. NONCOMPETITION.
Executive agrees that (a) he will not during the Employment Period engage
in, or otherwise directly or indirectly be employed by, or act as a consultant
or lender to, or be a director, officer, employee, owner or partner of, any
other business or organization that directly or indirectly competes with the
business of the Company or any of its subsidiaries and (b) for a period of three
(3) years after he voluntarily terminates this Agreement, Executive shall not
directly or indirectly compete with or be engaged in the same business as the
Company or any of its subsidiaries or be employed by, or act as consultant or
lender to, or be a director, officer, employee, owner, or partner of, any
business or organization which, at the time of such cessation, directly or
indirectly competes with or is engaged in the same business as the Company or
any of its subsidiaries; provided, however, that notwithstanding the foregoing,
the provisions of this SECTION 8 will not be deemed breached merely because
Executive (i) owns not more than one (1) percent of the outstanding equity
Employment Contract - Page 5
<PAGE>
securities of an entity, if, at the time of its acquisition by Executive, such
securities are listed on a national securities exchange, is reported on NASDAQ,
or is regularly traded in the over-the-counter market by a member of a national
securities exchange, or (ii) Executive becomes employed by a company or other
entity which manufacturers, sells or distributes products which compete with
products of the Company if such company or other entity has total revenues of
more than $100,000,000 and the products produced by such company or other entity
which compete with the products of the Company constitute less than 15% of the
total revenues of such company or other entity and Executive's duties and
responsibilities are completely segregated from the competitive products, or
(iii) Executive becomes employed by a company or other entity which
manufactures, sells or distributes products which compete with the products
manufactured, sold or distributed by the Company provided that such products
contribute less than 15% of the total revenues of the Company.
9. CONFIDENTIAL INFORMATION.
All confidential information which Executive may now possess, may obtain
from the Company or its subsidiaries during or after the Employment Period, or
may create prior to the end of the Employment Period or otherwise relating to
the financial condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company or of any customer or supplier
of any of them shall not be published, disclosed, or made accessible by him to
any other person or entity either during or after the termination of his
employment or used by him except during the Employment Period in the business
and for the benefit of the Company and its subsidiaries, in each case without
prior written permission of the Company. Executive shall deliver to the Company
all tangible evidence of such confidential information prior to or at the
termination of his employment. The provisions of this SECTION 9 shall survive
the termination of this Agreement by either party.
10. BEST EFFORTS.
(a) BEST EFFORTS. Executive agrees that he will be at all times
faithfully, industriously, and to the best of his ability, experience, and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms hereof, to the reasonable satisfaction of
Company. Such duties shall be rendered at the home office of Company, and at
such other place or places as the Executive shall in good faith require or as
the interest, needs, business or opportunity of Company shall require.
(b) RECOMMENDATIONS FOR IMPROVING OPERATIONS. Executive shall make
available to Company all information of which Executive shall have any knowledge
and shall make all suggestions and recommendations that will be of mutual
benefit to Company and himself.
11. TERMINATION.
(a) EXECUTIVE'S DEATH. If Executive shall die during the Employment
Period, this
Employment Contract - Page 6
<PAGE>
Agreement shall terminate, except that Executive's estate shall be entitled to
receive the base salary payable to Executive, accrued to the last day of the
month in which his death occurs, together with any death benefits provided under
employee benefit plans maintained by the Company.
(b) EXECUTIVE'S DISABILITY. If, during the Employment Period, Executive
shall become physically or mentally disabled, whether totally or partially, so
that he is prevented from performing his usual duties and services hereunder for
a period of six (6) consecutive or nonconsecutive months during any twelve (12)
month period, this Agreement shall terminate effective on such incapacity, and
Executive (or his legal representatives) shall be entitled only to the base
compensation earned PRO RATA to the date of termination with no entitlement to
any base salary after the date of termination; provided, however, that Executive
shall be entitled to receive all benefits to which he may be entitled pursuant
to the Company's employee benefit plans.
(c) TERMINATION BY THE COMPANY WITHOUT CAUSE. This Agreement may be
terminated by the Company without cause upon thirty (30) days' prior written
notice thereof given to Executive. In the event of termination without cause,
the Company shall for a period of two and one-half (2-1/2) years continue to pay
Executive the base salary effective at the time of termination in accordance
with the Company's regular payroll cycle (provided that in no event shall such
benefit continue beyond the later of the Final Termination Date). Additionally,
Executive shall be entitled to continue to participate in all regular employee
benefit plans of the Company for a period of two and one-half (2-1/2) years
following termination without cause.
(d) TERMINATION BY THE COMPANY FOR CAUSE. This Agreement may be
terminated by the Company "for cause," as defined below, by delivering to
Executive written notice describing the cause and granting Executive thirty (30)
days to respond to the Board of Directors. If this Agreement is terminated by
the Company for cause, Executive shall only be entitled to the base salary
earned by him to the date of termination with no entitlement to any base salary
continuation payments or benefits continuation (except as otherwise provided by
the terms of an employee benefit plan of the Company) or other awards pursuant
to SECTION 5 hereof which have not previously vested. Termination of this
Agreement by the Company for cause shall be deemed to have occurred only if:
(i) termination shall have been the result of an act or acts of
dishonesty on the Executive's part constituting a felony or intended to
result directly or indirectly in substantial gain or personal enrichment to
him at the expense of the Company; or
(ii) termination shall have been the result of the Executive's willful
and continued failure to perform his duties and responsibilities as an
officer of the Company (other than such failure resulting from his
incapacity due to physical or mental illness) after a written demand for
substantial performance is delivered to the Executive by the Board of
Directors of the Company which specifically identifies the manner in which
such Board believes that the Executive has not substantially performed his
duties and the Executive is given a reasonable time after such demand
substantially to perform his duties;
Employment Contract - Page 7
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(Provided that Executive's employment shall in no event be considered to have
been terminated by the Company for cause under (i) or (ii) above if the act or
failure to act upon which the termination is based is an act or failure to act
in respect of which the Executive meets the applicable standard of conduct
prescribed for indemnification or reimbursement of expenses under the By-laws of
the Company or the laws of the state of incorporation); or
(iii) at least 75% of the members of the Board of Directors
determine to terminate this Agreement.
(e) VOLUNTARY TERMINATION BY EXECUTIVE. Executive may terminate this
Agreement at any time upon delivering thirty (30) days' written notice to the
Company. In the event of such voluntary termination, Executive shall be
entitled to his base salary earned to the date of his resignation, but no base
salary continuation payment or benefits continuation (except as provided by the
terms of the Company's employee benefit plans) or any stock or other bonus
awards which have not been vested on the date of termination. On or after the
date the Company receives notice of Executive's resignation, the Company may, at
its option, pay Executive his base salary through the effective date of his
resignation and terminate his employment immediately.
(f) TERMINATION BY END OF TERM. This Agreement shall terminate and
Executive's employment hereunder shall terminate on the Final Termination Date.
(g) LIMITATION OF PAYMENTS. Any payments or grants provided upon
termination as set forth herein shall be in lieu of any other obligations of the
Company that may arise hereunder and Executive shall have no right to any
subsequent payments or bonuses hereunder.
12. CHANGE OF CONTROL.
(a) CHANGE OF CONTROL. If a Change of Control of the Company occurs in
which the Company does not continue, Executive shall be entitled to have this
Agreement assumed by the Company's successor or purchaser or be compensated in
accordance with the terms hereof even if relieved of his duties.
(b) DEFINITION OF CHANGE OF CONTROL. For purposes of this Agreement, a
Change of Control shall be deemed to exist upon the occurrence of any of the
following:
(i) any "Person" (as such term is used in Section 13(d) and Section
14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), other than Executive or person acquiring securities directly or
indirectly in connection with any financing or capital raising activity
undertaken by the Company in connection with its proposed acquisition of
U.S. Communications, Inc., is or becomes a "beneficial owner" (as defined
in Rule 13d-3 promulgated under the exchange Act), directly or indirectly,
of securities of the Company representing more than twenty-five percent
(25%) of the combined voting power of the Company's outstanding securities;
Employment Contract - Page 8
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(ii) at any time during the twenty-four (24) month period following a
merger, tender offer, consolidation, sale of assets or contested election,
or any combination of such transactions, at least a majority of the
Company's Board of Directors shall cease to be "continuing directors"
(meaning directors of the Company prior to such transaction or who
subsequently became directors and whose election or nomination for election
by the Company's stockholders, was approved by a vote of at least two-thirds
of the directors then still in office prior to such transaction);
(iii) the Company's stockholders approve a plan of complete
liquidation of the Company or an agreement of sale or disposition by the
Company of all or substantially all of the Company's assets.
13. SURVIVAL.
The covenants, agreements, representations, and warranties contained in or
made pursuant to this Agreement shall survive Executive's termination of
employment and the termination of this Agreement.
14. MODIFICATION.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreement (whether
written or oral) between the Company and any of its previous or current
subsidiaries on the one hand and Executive on the other concerning such subject
matter (including without limitation, the Employment Agreement dated as of April
1, 1994 between Long Distance Network, Inc. and Executive), and may be modified
only by a written instrument duly executed by each party. Executive and the
Company release any and all claims which each may have against the other arising
out of any prior agreements concerning the subject matter hereof.
15. ATTORNEYS' FEES AND COSTS.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which he may be entitled.
16. NOTICES.
Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or by Federal Express, Express Mail, or similar overnight
delivery or courier service or delivered (in person or by telecopy, telex, or
similar telecommunications equipment) against receipt to the party to whom it is
to be given at the address of such party set forth in the preamble to this
Agreement (or to such other address as the party shall have furnished in writing
in accordance with the provisions of this SECTION 16). Any
Employment Contract - Page 9
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notice given to the Company shall be addressed to the attention of the Corporate
Secretary. Notice to the estate of Executive shall be sufficient if addressed
to Executive as provided in this SECTION 16. Any notice or other communication
given by certified mail shall be deemed given at the time of certification
thereof, except for a notice changing a party's address which shall be deemed
given at the time of receipt thereof. Any notice given by other means permitted
by this SECTION 16 shall be deemed given at the time of receipt thereof.
17. WAIVER.
Any waiver by either party of a breach of any provision of this Agreement
shall not operate as or be construed to be a waiver of any other breach of that
provision or of any breach of any other provision of this Agreement. The
failure of a party to insist upon strict adherence to any term of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other term of this Agreement. Any waiver must be in writing.
18. BINDING EFFECT.
Executive's rights and obligations under this Agreement shall not be
transferable by assignment or otherwise, such rights shall not be subject to
commutation, encumbrance, or the claims of Executive's creditors, and any
attempt to do any of the foregoing shall be void. The provisions of this
Agreement shall be binding upon and inure to the benefit of Executive and his
heirs and personal representatives, shall be binding upon and inure to the
benefit of the Company and its successors and assigns.
19. HEADINGS.
The headings of this Agreement are solely for the convenience of reference
and shall be given no effect in the construction or interpretation of this
Agreement.
20. COUNTERPARTS; GOVERNING LAW.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. It shall be governed by and construed in accordance with
the laws of the State of Texas, without giving effect to the conflict of laws
rules. Any action, suit, or proceeding arising out of, based on, or in
connection with this Agreement, any document or instrument delivered pursuant
to, in connection with, or simultaneously with this Agreement, any breach of
this Agreement or any such document or instrument, or any transaction
contemplated hereby or thereby may be brought only in the District Courts of
Dallas County, Texas, or the United States District Court for the Northern
District of Texas, Dallas Division and each party covenants and agrees not to
assert, by way of motion, as a defense, or otherwise, in any such action, suit,
proceeding, any claim that such party is not subject
Employment Contract - Page 10
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personally to the jurisdiction of such court, that such party's property is
exempt or immune from attachment or execution, that the action, suit or
proceeding is brought in an inconvenient forum, that the venue of the action,
suit, or proceeding is improper, or that this Agreement or the subject matter
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
COMPANY:
SA TELECOMMUNICATIONS, INC.
By:
------------------------------------------
Jack W. Matz, Jr.
Chairman and Chief Executive Officer
EXECUTIVE:
---------------------------------------------
PAUL R. MILLER
Employment Contract - Page 11
<PAGE>
SEVERANCE AGREEMENT
This Severance Agreement ("Agreement") effective as of March 18, 1996 by
and between SA Telecommunications, Inc. (the "Company") and J. David Darnell
("Employee").
WHEREAS, Employee is employed by the Company on the date hereof and
considered to be a key employee of the Company;
WHEREAS, the Company desires to enter into this Agreement to provide for
a separately bargained for benefit to Employee not applicable to all
employees of the Company;
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated:
BENEFICIAL OWNER shall have the meaning given such term in Rule 13D-3 of
the Exchange Act.
BOARD shall mean the Board of Directors of the Company.
CHANGE OF CONTROL OF THE COMPANY shall be deemed to have occurred if:
(a) there shall be consummated (i) any consolidation or merger of the
Company in which the Company is not the continuing or surviving corporation
or pursuant to which shares of the Common Stock would be converted into
cash, securities or other property, other than a merger of the Company in
which the holders of the Common Stock immediately prior to the merger have
the same proportionate ownership of Common Stock of the surviving
corporation immediately after the merger, or (ii) any sale, lease, exchange
or other transfer (in one transaction or a series of related transactions)
of all, or substantially all, of the assets of the Company; or
(b) the stockholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(c) any Person shall become the Beneficial Owner of thirty percent
(30%) or more of the Company's outstanding Common Stock, except for any
Person who had such beneficial ownership prior to the date hereof; or
(d) during any period of two (2) consecutive years, individuals who
at the beginning of such period constitute the entire Board shall cease
for any reason to constitute a majority hereof;
PROVIDED, HOWEVER, that an event or series of events described in (a),
(b), (c) or (d) above shall not constitute a Change in Control if a
majority of the directors in office who were also directors on the date
which is three (3) years prior to the occurrence of such an event shall
so determine.
COMMON STOCK shall mean the Company's Common Stock, par value $.0001 per
share.
EXCHANGE ACT means the Securities Exchange Act of 1934, as it may be
amended from time to time.
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PERSON shall have the meaning for such term used in Section 13(d) and
Section 14(d) of the Exchange Act.
2. CHANGE OF CONTROL OF THE COMPANY. In the event of a Change of
Control of the Company, if Employee is terminated for any reason (other than
by death, voluntarily or termination due to a conviction of a felony
involving a crime of moral turpitude) within one year after such Change of
Control of the Company, Employee shall be entitled to receive as severance
under this Agreement an amount equal to one hundred fifty percent (150%) of
Employee's annual salary in effect on the date of such Change of Control of
the Company (the "Severance Amount'). The Severance Amount shall be payable,
at the option of the Company, in a lump sum or in accordance with payroll
practices of the Company existing on the date of such Change of Control of
the Company. For purposes of this SECTION 2, termination shall not be
voluntary if (a) Employee is requested to relocate more than 30 miles from
the office of the Company in which such Employee works on the date of such
Change of Control of the Company, or (b) Employee does not continue in a
position or office with the Company with duties substantially the same as
Employee held before such Change of Control of the Company.
3. TERMINATION PRIOR TO CHANGE OF CONTROL OF THE COMPANY. If Employee
ceases to be an employee of the Company prior to a Change of Control of the
Company, whether termination is as a result of termination by the Company
with or without cause, voluntary termination by Employee or death of
Employee, the severance arrangements provided in this Agreement shall
automatically and without notice terminate and become null and void on the
date on which Employee ceases to be an employee of the Company.
4. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas without regard to conflicts
of law principles.
5. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which together constitute one and the same instruments.
6. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the paries with respect to the subject matter hereof, and supersedes
all previously written or oral negotiations, commitments, representations and
agreements with respect thereto.
7. NO EVIDENCE OF EMPLOYMENT. Nothing contained in this Agreement shall
confer upon the Employee any right to continue in the employ of the Company
or any of its subsidiaries or to interfere in any way with the right of the
Company or its subsidiaries to terminate the Employee's employment or to
increase or decrease the Employee's compensation at any time.
SA TELECOMMUNICATIONS, INC. Employee:
By:
----------------------------------- --------------------------------
Title: Jack W. Matz, Jr. (Signature)
Chairman & Chief Executive Officer
--------------------------------
(Name Printed)
<PAGE>
EXHIBIT 10.30
VISTAQUEST, INC.
380 LEXINGTON AVENUE, SUITE 1700
NEW YORK, NEW YORK 10022
February 28, 1996
SA Telecommunications, Inc.
1912 Avenue K, Suite 100
Plano, Texas 75074
Attention: Jack W. Matz, Jr.
Chairman and Chief Executive Officer
Gentlemen:
This letter is to confirm the understanding of VistaQuest, Inc.
("VistaQuest"), Mark Kabbash, and SA Telecommunications, Inc. (the "Company") as
set forth below with respect to a financing of the Company in the gross
aggregate amount of approximately $1,000,000 to be made by the persons listed on
ANNEX A to this letter (the "Investors"), which persons were introduced by
VistaQuest to the Company.
1. In the event such financing (the "Financing") is closed on or before
the first anniversary of the date of this letter, the Company shall,
concurrently with the closing of the Financing, deliver to (1) VistaQuest
$75,000 by wire transfer (in accordance with the instructions set forth on ANNEX
A hereto) or bank certified check, and (2) VistaQuest's designee, Mark Kabbash
(the "Holder") a warrant (the "Warrant") in form and substance substantially the
same as the form of warrant attached to this letter as ANNEX B, which Warrant
shall be exercisable at any time after the date of issuance to the close of
business on the second anniversary of such date, for up to 250,000 shares of the
Company's Common Stock (the "Shares").
2. It is the Company's understanding that the only role VistaQuest or
Holder has played with respect to the Financing has been to introduce the
Company to the Investors and that neither VistaQuest nor Holder has any further
responsibility of any kind with respect to the Financing, including but not
limited to, assisting the Company in causing the Investors to participate in the
Financing.
3. Holder understands that neither the Warrant nor the Shares are
registered under the Securities Act of 1933, as amended (the "Act"), and hereby
makes the following representations to the Company, with the understanding that
the Company will be relying on such representations in issuing the Warrant to
Holder pursuant to an exemption from registration under the Act:
(a) Holder is familiar with the business and financial condition,
properties,
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operations and prospects of the Company, and, at a reasonable time prior to
the execution of this letter, has been afforded the opportunity to ask
questions of and receive satisfactory answers from the Company and its
officers and directors, or other persons acting on the Company's behalf,
concerning the business and financial condition, properties, operations and
prospects of the Company and concerning the terms and conditions of the
offer of the Warrant and the Shares and has asked such questions as Holder
desires to ask and all such questions have been answered to the full
satisfaction of Holder. Holder has received and reviewed copies of the
Company's (i) Annual Report on Form 10-KSB for the year ended December 31,
1994, (ii) Quarterly Reports on Form 10-QSB (and all amendments thereto)
for the quarters ended March 31, 1995, June 30, 1995, and September 30,
1995, (iii) Current Reports on Form 8-K (and all amendments thereto) dated
July 31, 1995, October 6, 1995, December 11, 1995, and (iv) Prospectus
dated January 3, 1996 pursuant to the Form S-3 Registration Statement filed
with the Securities and Exchange Commission (the "Commission"). All
documents, records and books pertaining to a proposed investment in the
Shares which Holder has requested have been made available to Holder.
(b) No representations or warranties have been made to Holder by the
Company as to the tax consequences of an investment in the Warrant or the
Shares, or as to profits, losses or cash flow which may be received or
sustained as a result of an investment in the Warrant or the Shares.
(c) Holder has reviewed with his own tax advisors the federal, state,
and local tax consequences of its investment in the Warrant and the Shares
and the transactions contemplated by the Agreement, and is relying solely
on such advisors in making its investment and not on any statements or
representations of the Company or any of its agents.
(d) Holder is not purchasing the Warrant or the Shares based on any
representation, oral or written, by the Company or any person with respect
to the future value of, or income from, the Warrant or the Shares, but
rather upon an independent examination and judgment as to the prospects of
the Company.
(e) Holder understands and acknowledges that the Company has
significant outstanding indebtedness and a significant amount of Preferred
Stock issued to other investors which such Preferred Stock has rights and
preferences superior to that of the Company's Common Stock.
(f) Holder has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of
the acquisition of the Warrant and the Shares.
(g) Holder will be acquiring the Warrant and the Shares solely for
Holder's own account, for investment purposes, and not with a view to, or
for resale in connection
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with, any distribution of the Warrant or the Shares. Holder understands
that: (i) the offer and sale of the Warrant and the Shares have not been
registered under the Act or any state securities laws by reason of specific
exemptions under the provisions thereof which depend in part upon the
investment intent of Holder and/or the other representations made by Holder
in this letter, (ii) the Company is relying upon the representations,
covenants and agreements contained in this letter (and any supplemental
information) for the purpose of determining whether this transaction meets
the requirements for such exemptions; (iii) the Warrant and the Shares are
"restricted securities" under applicable federal securities laws and that
the Act and the rules of the Securities and Exchange Commission (the
"Commission") provide in substance that the Holder may dispose of the
Warrant and the Shares only pursuant to an effective registration statement
under the Act or an exemption therefrom; (iv) the Company has no obligation
to register the Warrant or any of the Shares, or to take action so as to
permit sales pursuant to the Act (including Rule 144 thereunder) except as
expressly provided in this letter; and (v) Holder may not at any time
demand the purchase by the Company or any shareholder of the Company of the
Warrant or the Shares.
(h) Holder agrees (i) that Holder will not sell, assign, pledge,
give, transfer or otherwise dispose of the Warrant or the Shares or any
interest therein, or make any offer or attempt to do any of the foregoing,
except pursuant to a registration of the Warrant or the Shares under the
Act and all applicable state securities laws or in a transaction which, in
the opinion of counsel of Holder (the substance of such opinion and the
identity of such counsel being satisfactory to the Company), is exempt from
the registration provisions of the Act and all applicable state securities
laws; (ii) that the Company and any transfer agent for the Warrant and/or
Shares shall not be required to give effect to any purported transfer of
any of the Warrant and/or the Shares except upon compliance with the
foregoing restrictions; and (iii) that a legend in substantially the
following form will be placed on the certificates representing the Warrant
and/or the Shares:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION OR AN OPINION OF COUNSEL OF HOLDER
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(i) Holder has not offered or sold any portion of the Warrant or the
Shares and has no present intention of dividing the Warrant or the Shares
with others or of reselling or otherwise disposing of any portion of such
Warrant or the Shares either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or nonoccurrence of any
predetermined event or circumstance.
(j) Holder is able to bear the economic risk of losing his entire
investment in
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the Warrant and the Shares.
(k) Holder acknowledges neither the Warrant nor the Shares nor any
other offering material has been filed or reviewed by the Attorney General
of the State of New York prior to its issuance and use and that the
Attorney General of the State of New York has not passed on or endorsed the
merits of the Warrant or the Shares.
4. The Company hereby agrees that if the Warrant is issued, Holder shall
have piggy-back registration rights with respect to the Shares underlying the
Warrant as follows:
(a) If the Company proposes to register any of its securities under
the Act (except registration solely for registration of shares in
connection with an employee benefit plan or a merger, consolidation or
business combination or exchange offer or offering of securities solely to
the Company's existing security holders), whether or not for sale for its
own account, it will each such time give prompt written notice to Holder of
its intention to do so in order that Holder may include the Shares in such
registration. Upon the written request of Holder within ten (10) days
after the receipt of any such notice (which request shall specify the
Shares intended to be disposed of by Holder, the intended method of
disposition thereof, and, if Holder intends to dispose of any or all of the
shares in such registration statement other than through the Company's
underwriter, a list of blue sky jurisdictions reasonably proposed by
Holder), the Company will use its reasonable best efforts to effect the
registration under the Act of all Shares which the Company has been so
requested to register by Holder, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid)
of the Shares so to be registered, provided that if the Company shall
determine for any reason not to register or to delay the registration of
such securities the Company may, at its sole election, give written notice
of such determination to Holder and, thereupon, (i) in the case of a
determination not to register, shall be relieved of its obligation to
register any Shares in connection with such registration, and (ii) in the
case of a determination to delay registering, shall be permitted to delay
registering any Shares for the same period as the delay in registering such
other securities. The Company shall pay all reasonable expenses of Holder
in connection with a registration (other than underwriting discounts and
commissions, and the fees and disbursements of Holder's legal counsel)
whether or not such registration becomes effective; provided, however, the
Company shall not be obligated to pay such expenses if the failure of the
registration to become effective results solely from the action of Holder.
(b) If, in any incidental registration referred to in subsection 4(a)
above, the Company or underwriter, if any, determines that the number of
securities proposed to be sold in such registration exceeds the number that
can be sold in such offering without having a material effect on the
success of the offering (including, without limitation, an impact on the
selling price or the number of shares that any participant may sell), the
Company will include in such registration only the number of securities
that, in the opinion of the Company or such underwriter, as the case may
be, can be sold without having a material adverse effect on the
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success of the offering as follows: (1) first, all of the shares to be
issued and sold by the Company, (2) second, all of the shares to be
registered pursuant to a demand made under any contract or contracts giving
the holder thereof the right to demand such registration, and (3) third,
the Shares requested to be included in such registration by Holder and the
shares of Common Stock of the Company requested to be included by any other
person, pro rata, on the basis of the aggregate number of shares of Common
Stock, including Shares, requested to be included.
(c) In the event that the Company shall take action to permit a
public offering or sale or other distribution of the Shares pursuant to
Subsections 4(a) or 4(b) above, the Company shall:
(i) supply to Holder an executed copy of each registration
statement and a reasonable number of copies of the preliminary, final
and other prospectus of offering circular in conformity with
requirements of the Act and the Rules and Regulations promulgated
thereunder and such other documents as Holder shall reasonably
request.
(ii) cooperate in taking such action as may be necessary to
register or qualify the Shares under such other securities acts or
blue sky laws of such jurisdictions as Holder shall reasonably request
and to do any and all other acts and things which may be necessary or
advisable to enable Holder to consummate such proposed sale or other
disposition of the Shares in any such jurisdiction; provided, however,
that in no event shall the Company be obligated, in connection
therewith, to qualify to do business or to file a general consent to
service of process in any jurisdiction where it shall not then be
qualified;
(iii) keep effective for a period of not less than three (3)
months after the initial effectiveness thereof all such registrations
or notifications under the Act and cooperate in taking such action as
may be necessary to keep effective such other registrations and
qualifications, and do any and all other acts and things for such
period;
(iv) indemnify and hold harmless Holder and each underwriter,
if any, within the meaning of the Act, who may purchase from or sell
for Holder, any Shares, from and against any and all losses, claims,
damages, and liabilities (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing,
defending or settling any claim) arising from (I) any untrue statement
or allegedly untrue statement of a material fact contained in a
registration statement furnished pursuant to subsection 4(c)(i), or
any prospectus or offering circular included therein, or (II) any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading (unless such untrue statement or omission was
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based upon information furnished or required to be furnished in
writing to the Company by or on behalf of Holder or such underwriter
expressly for use therein), which indemnification shall include each
person, if any, who controls Holder or such underwriter, within the
meaning of the Act; provided, however, that the Company shall not be
so obligated to indemnify Holder or such underwriter or controlling
person unless Holder and such underwriter shall at the same time, and
Holder by accepting the Warrant, and any transferee of such Warrant,
by accepting the transfer of the same, do hereby agree to, indemnify
the Company, its directors, officers, any and each person, if any, who
controls the Company within the meaning of the Act, from and against
any and all losses, claims, damages and liabilities (including, but
not limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim) arising
from (III) any untrue statement or allegedly untrue statement of a
material fact contained in any registration statement or any amendment
to any registration statement or prospectus or offering circular
furnished pursuant to subsection 4(c)(i), or (IV) any omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but the indemnity of Holder, such underwriter or
controlling person shall be limited to liability based upon
information furnished, in writing to the Company by or on behalf of
Holder or such underwriter or controlling person expressly for use
therein. The indemnity agreement of Holder herein shall not inure to
the benefit of the Company or such underwriter (or to the benefit of
any person who controls the Company or underwriter) on account of any
losses, claims, damages, liabilities (or actions or proceedings in
respect thereof) arising from the sale of any of such shares by the
Company or such underwriter to any person if the Company or
underwriter failed to send or give a copy of the prospectus or
offering circular furnished pursuant to Section 4(c)(i), as the same
may be supplemented or amended, to such person with or prior to the
written confirmation of the sale involved, and the indemnity agreement
of the Company herein shall not inure to the benefit of Holder or such
underwriter (or to the benefit of any person who controls Holder or
underwriter) on account of any losses, claims, damages, liabilities
(or actions or proceedings in respect thereof) arising from the sale
of any of such Shares by Holder or such underwriter to any person if
Holder or underwriter failed to send or give a copy of the prospectus
or offering circular furnished pursuant to subsection 4(c)(i), as the
same may then be supplemented or amended, to such person with or prior
to the written confirmation of the sale involved.
(e) The Company's obligations under this Section 4 shall be
conditioned upon a timely receipt by the Company in writing of: (i) the
information required by Section 4(a) hereof as to the terms of such public
offering to be furnished by or on behalf of Holder if and to the extent
Holder intends to make a public distribution of his shares; and (ii) such
other information as the Company may reasonably require from Holder or any
such underwriter for inclusion in such registration statement or post-
effective amendment.
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5. The agreements contained in this letter shall be construed and
enforced in accordance with the laws of the State of Texas without regard to the
conflicts of law rules thereof.
6. This letter may be executed on facsimile copies in two or more
counterparts, each of which is deemed to be an original, but all of which
together constitute one and the same instrument.
7. This letter and the Annexes hereto constitute the entire agreement of
the Company, Holder and VistaQuest with respect to the subject matter of this
letter.
8. All notices and other communications provided for herein shall be in
writing and shall be deemed to have been duly given if and when delivered
personally or sent by prepaid nationally recognized overnight courier service as
follows:
(a) if to the Company, to it at the following address:
1912 Avenue K, Suite 100
Plano, TX 75074
Attention: Jack W. Matz, Jr.
(b) if to the VistaQuest or to Holder, to them at the following
address listed above
or at such other address as any party shall have specified by notice in writing
to the other.
9. Holder and VistaQuest agree and covenant to notify the Company
immediately upon the occurrence of any event prior to the closing of the
Financing which would cause any representation, warranty, covenant or other
statement contained in this letter to be false or incorrect or of any change in
any statement made herein occurring prior to the Closing.
10. This letter is not assignable by any part hereto, and may not be
modified, waived or terminated except by an instrument in writing signed by the
party against whom enforcement of such modification, waiver or termination is
sought.
11. This letter shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and assigns, and the agreements, representations, warranties and
acknowledgments contained herein shall be deemed to be made by and be binding
upon such heirs, executors, administrators, successors, legal representatives
and assigns.
12. All representations, warranties and covenants contained herein shall
survive the acceptance of this letter by the Company and the closing of the
Financing. VistaQuest and Holder acknowledge that the Company has relied upon
such representations and warranties and covenants
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in determining Holder's qualification and suitability to purchase the Warrant
and shall indemnify the Company for any breach thereof.
8
<PAGE>
If the foregoing correctly sets forth our agreement and is acceptable to
you, please sign this letter where indicated below, telecopy it to VistaQuest
and send VistaQuest an executed letter at your earliest convenience.
Very truly yours,
VISTAQUEST, INC.
By:____________________
Mark Kabbash
President
________________________
MARK KABBASH
ACCEPTED AND AGREED:
SA TELECOMMUNICATIONS, INC.
BY:_______________________
Jack W. Matz, Jr.
Chairman & Chief Executive Officer
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ANNEX A
Millennium Trading Co., L.P.
111 Broadway, 20th Floor
New York, NY 10006
Killeba Holdings, Ltd.
102 Langerherrentalse
Antwerp, Belgium 2018
Wire Transfer Instructions:_____________________________________________________
________________________________________________________________________________
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<PAGE>
EXHIBIT 10.31
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. NONE OF SUCH SECURITIES MAY BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION UNDER
SUCH ACT OR AN OPINION OF COUNSEL OF THE HOLDER SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT MAY NOT BE
TRANSFERRED OR ASSIGNED EXCEPT AS EXPRESSLY PROVIDED HEREIN.
SA Telecommunications, Inc.
WARRANT
DATED: March 7, 1996
No. 12
Number of Shares: 250,000
Holder: Mark Kabbash
Address: 264 Water Street, 7C
New York, New York 10038
THIS CERTIFIES THAT the Holder is entitled to purchase from SA
Telecommunications, Inc., a Delaware corporation (hereinafter called the
"Company"), at $2.125 per share the number of shares of the Company's common
stock set forth above ("Common Stock") on the terms and conditions set forth
herein.
1. All rights granted under this Warrant shall expire on March 6, 1998.
2. This Warrant and the Common Stock issuable on exercise of this Warrant
(the "Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Securities Act of 1933 (the "Act")
or if the Company has received from counsel to Holder a written opinion to the
effect that registration of the Warrant or the Underlying Shares is not
necessary in connection with such transfer, sale, assignment of hypothecation.
The Warrant and the Underlying Shares shall be appropriately legended to reflect
this restriction and stop transfer instructions shall apply.
3. Any permitted assignment of this Warrant shall be effected by the
Holder by (i) executing the form of assignment at the end hereof, (ii)
surrendering the Warrant for cancellation at the office of the Company, 1600
Promenade Center, Suite 1510, Richardson, Texas 75080,
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accompanied by the opinion of counsel to the Holder referred to above; and (iii)
unless in connection with an effective registration statement which covers the
sale of this Warrant and or the shares underlying the Warrant, delivery to the
Company of a statement by the transferees (in a form acceptable to the Company
and its counsel) that such Warrant is being acquired by the Holder for
investment and not with a view to its distribution or resale; whereupon the
Company shall issue, in the name or names specified by the Holder (including the
Holder) new Warrants representing in the aggregate rights to purchase the same
number of Shares as are purchasable under the Warrant surrendered. Such
Warrants shall be exercisable immediately upon any such assignment of the number
of Warrants assigned. The transferor will pay all relevant transfer taxes.
Replacement warrants shall bear the same legend as is borne by this Warrant.
4. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
5. The Company covenants and agrees that all shares of Common Stock which
may be issued upon exercise hereof will, upon issuance, be duly and validly
issued, fully paid and non-assessable. The Company further covenants and agrees
that, during the periods within which this Warrant may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Warrant.
6. This Warrant shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
7. In the event that as a result of reorganization, merger,
consolidation, liquidation, recapitalization, stock split, reverse stock split,
combination of shares or stock dividends payable with respect to such Common
Stock, the outstanding shares of Common Stock of the Company are at any time
increased or decreased or changed into or exchanged for a different number or
kind of share or other security of the Company or of an other corporation, then
appropriate adjustments in the number and kind of such securities then subject
to this Warrant shall be made effective as of the date of such occurrence so
that the position of the Holder upon exercise will be the same as it would have
been had it owned immediately prior to the occurrence of such events the Common
Stock subject to this Warrant. Such adjustment shall be made successively
whenever any event listed above shall occur and the Company will notify the
Holder of the Warrant of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Warrant adjusted accordingly.
8. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company) during normal business hours; (ii)
payment to the Company of the exercise price in cash or immediately available
funds for the number of
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Shares specified in the above-mentioned purchase form together with applicable
stock transfer taxes, if any; and (iii) unless in connection with an effective
registration statement which covers the sale of the shares underlying the
Warrant, the delivery to the Company of a statement by the Holder (in a form
acceptable to the Company and its counsel) that such Shares are being acquired
by the Holder for investment and not with a view to their distribution or
resale. Each exercise hereunder must be in a minimum amount of at least 50,000
shares of the Company's Common Stock.
9. The certificate for the Common Stock so purchased shall be delivered
to the Holder within a reasonable time, not exceed ten (10) business days after
all requisite documentation has been provided, after the rights represented by
this Warrant shall have been so exercised, and shall bear a restrictive legend
with respect to any applicable securities laws.
10. This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware. The Delaware courts shall have exclusive
jurisdiction over this instrument and the enforcement thereof. Service of
process shall be effective if by certified mail, return receipt requested. All
notices shall be in writing and shall be deemed given upon receipt by the party
to whom addressed. This instrument shall be enforceable by decrees of specific
performance as well as other remedies.
IN WITNESS WHEREOF, SA Telecommunications, Inc. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal, and to be
dated as of the date set forth above.
SA TELECOMMUNICATIONS, INC.
By:_______________________________________________
Jack W. Matz, Jr.
Chairman & Chief Executive Officer
[seal]
Attest:
____________________________
Lynn H. Johnson, Secretary
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PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the registered holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ______ shares of $.0001 par value Common Stock
and herewith makes payments of $_____________ thereof, and requests that the
certificates for shares of Common Stock be issued in the name(s) of, and
delivered to ___________________________ whose address(es) is (are)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________.
(Print Address(es) and Social Security Number(s) or
Employer Identification Number(s) as applicable)
Dated:________________, 19__.
_______________________________
(Signature)
______________________________
(Printed Name)
Address:_____________________________
____________________________________
____________________________________
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<PAGE>
TRANSFER FORM
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
For value received, the undersigned registered holder of this Warrant
hereby sells, assigns and transfers unto _____________________________ the right
to purchase shares of Common Stock represented by the foregoing Warrant to the
extent of __________ shares of Common Stock, and appoints
________________________ attorney to transfer such rights on the books of SA
TELECOMMUNICATIONS, INC., with full power of substitution in the premises.
Dated:________________, 19___.
Holder:_________________________________
(Signature)
_________________________________
(Printed name)
Address:________________________________
________________________________
In the presence of:
______________________________
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<PAGE>
EXHIBIT 10.32
MUELLER TRADING L.P.
120 MADISON AVENUE
LAKEWOOD, NEW JERSEY 08701
February 28, 1996
SA Telecommunications, Inc.
1912 Avenue K, Suite 100
Plano, Texas 75074
Attention: Jack W. Matz, Jr.
Chairman and Chief Executive Officer
Gentlemen:
This letter is to confirm the understanding of Mueller Trading L.P.
("Holder") and SA Telecommunications, Inc. (the "Company") as set forth below
with respect to a financing of the Company in the gross aggregate amount of
$1,000,000 to be made by the persons listed on ANNEX A to this letter (the
"Investors"), which persons were introduced by Holder to the Company.
1. In the event such financing (the "Financing") is closed on or before
the first anniversary of the date of this letter, the Company shall,
concurrently with the closing of the Financing, deliver to Holder a warrant
(the "Warrant") in form and substance substantially the same as the form of
warrant attached to this letter as ANNEX B, which Warrant shall be exercisable
at any time after the date of issuance to the close of business on the second
anniversary of such date, for up to 300,000 shares of the Company's Common Stock
(the "Shares").
2. It is the Company's understanding that the only role Holder has
played with respect to the Financing has been to introduce the Company to the
Investors and that Holder has no further responsibility of any kind with respect
to the Financing, including but not limited to, assisting the Company in causing
the Investors to participate in the Financing.
3. Holder understands that neither the Warrant nor the Shares are
registered under the Securities Act of 1933, as amended (the "Act"), and hereby
makes the following representations to the Company, with the understanding that
the Company will be relying on such representations in issuing the Warrant to
Holder pursuant to an exemption from registration under the Act:
(a) Holder is familiar with the business and financial condition,
properties, operations and prospects of the Company, and, at a reasonable
time prior to the execution of this letter, has been afforded the
opportunity to ask questions of and receive satisfactory answers from the
Company and its officers and directors, or other persons acting on the
Company's behalf, concerning the business and financial condition,
properties, operations
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<PAGE>
and prospects of the Company and concerning the terms and conditions of the
offer of the Warrant and the Shares and has asked such questions as Holder
desires to ask and all such questions have been answered to the full
satisfaction of Holder. Holder has received and reviewed copies of the
Company's (i) Annual Report on Form 10-KSB for the year ended December 31,
1994, (ii) Quarterly Reports on Form 10-QSB (and all amendments thereto)
for the quarters ended March 31, 1995, June 30, 1995, and September 30,
1995, (iii) Current Reports on Form 8-K (and all amendments thereto) dated
July 31, 1995, October 6, 1995, December 11, 1995, and (iv) Prospectus
dated January 3, 1996 pursuant to the Form S-3 Registration Statement filed
with the Securities and Exchange Commission (the "Commission"). All
documents, records and books pertaining to a proposed investment in the
Shares which Holder has requested have been made available to Holder.
(b) No representations or warranties have been made to Holder by the
Company as to the tax consequences of an investment in the Warrant or the
Shares, or as to profits, losses or cash flow which may be received or
sustained as a result of an investment in the Warrant or the Shares.
(c) Holder has reviewed with his own tax advisors the federal, state,
and local tax consequences of its investment in the Warrant and the Shares
and the transactions contemplated by the Agreement, and is relying solely
on such advisors in making its investment and not on any statements or
representations of the Company or any of its agents.
(d) Holder is not purchasing the Warrant or the Shares based on any
representation, oral or written, by the Company or any person with respect
to the future value of, or income from, the Warrant or the Shares, but
rather upon an independent examination and judgment as to the prospects of
the Company.
(e) Holder understands and acknowledges that the Company has
significant outstanding indebtedness and a significant amount of Preferred
Stock issued to other investors which such Preferred Stock has rights and
preferences superior to that of the Company's Common Stock.
(f) Holder is an accredited investor as that term is defined under
Regulation D promulgated under the Act.
(g) Holder will be acquiring the Warrant and the Shares solely for
Holder's own account, for investment purposes, and not with a view to, or
for resale in connection with, any distribution of the Warrant or the
Shares. Holder understands that: (i) the offer and sale of the Warrant and
the Shares have not been registered under the Act or any state securities
laws by reason of specific exemptions under the provisions thereof which
depend in part upon the investment intent of Holder and/or the other
representations made by Holder in this letter, (ii) the Company is relying
upon the representations, covenants and
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<PAGE>
agreements contained in this letter (and any supplemental information) for
the purpose of determining whether this transaction meets the requirements
for such exemptions; (iii) the Warrant and the Shares are "restricted
securities" under applicable federal securities laws and that the Act and
the rules of the Securities and Exchange Commission (the "Commission")
provide in substance that the Holder may dispose of the Warrant and the
Shares only pursuant to an effective registration statement under the Act
or an exemption therefrom; (iv) the Company has no obligation or intention
to register the Warrant or any of the Shares, or to take action so as to
permit sales pursuant to the Act (including Rule 144 thereunder) except as
expressly provided in this letter; and (v) Holder may not at any time
demand the purchase by the Company or any shareholder of the Company of the
Warrant or the Shares.
(h) Holder agrees (i) that Holder will not sell, assign, pledge,
give, transfer or otherwise dispose of the Warrant or the Shares or any
interest therein, or make any offer or attempt to do any of the foregoing,
except pursuant to a registration of the Warrant or the Shares under the
Act and all applicable state securities laws or in a transaction which, in
the opinion of counsel of Holder (the substance of such opinion and the
identity of such counsel being satisfactory to the Company), is exempt from
the registration provisions of the Act and all applicable state securities
laws; (ii) that the Company and any transfer agent for the Warrant and/or
Shares shall not be required to give effect to any purported transfer of
any of the Warrant and/or the Shares except upon compliance with the
foregoing restrictions; and (iii) that a legend in substantially the
following form will be placed on the certificates representing the Warrant
and/or the Shares:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION OR AN OPINION OF COUNSEL OF HOLDER
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
(i) Holder has not offered or sold any portion of the Warrant or the
Shares and has no present intention of dividing the Warrant or the Shares
with others or of reselling or otherwise disposing of any portion of such
Warrant or the Shares either currently or after the passage of a fixed or
determinable period of time or upon the occurrence or nonoccurrence of any
predetermined event or circumstance.
(j) Holder is able to bear the economic risk of losing his entire
investment in the Warrant and the Shares.
(k) Holder acknowledges neither the Warrant nor the Shares nor any
other offering material has been filed or reviewed by the Attorney General
of the State of New York prior to its issuance and use and that the
Attorney General of the State of New York
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<PAGE>
has not passed on or endorsed the merits of the Warrant or the Shares.
4. The Company hereby agrees that if the Warrant is issued, Holder shall
have registration rights with respect to the Shares underlying the Warrant as
follows:
(a) If the Company at any time prior to March 6, 1997 proposes to
register any of its securities under the Act (except registration solely
for registration of shares in connection with an employee benefit plan or a
merger, consolidation or business combination or exchange offer or offering
of securities solely to the Company's existing security holders), whether
or not for sale for its own account, it will each such time give prompt
written notice to Holder of its intention to do so in order that Holder may
include the Shares in such registration. Upon the written request of
Holder within ten (10) days after the receipt of any such notice (which
request shall specify the Shares intended to be disposed of by Holder and
the intended method of disposition thereof and a list of blue sky
jurisdictions reasonably proposed by Holder), the Company will use its
reasonable best efforts to effect the registration under the Act of all
Shares which the Company has been so requested to register by Holder, to
the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Shares so to be registered,
provided that if the Company shall determine for any reason not to register
or to delay the registration of such securities the Company may, at its
sole election, give written notice of such determination to Holder and,
thereupon, (i) in the case of a determination not to register, shall be
relieved of its obligation to register any Shares in connection with such
registration, and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Shares for the same period as
the delay in registering such other securities. The registration expenses
(and underwriting discounts and commission and transfer taxes, if any) in
connection with each registration requested under this Section 4 shall be
allocated among all persons (including the Company) on whose behalf
securities of the Company are included in such registration on the basis of
the respective amounts of the securities then being registered on their
behalf, except that all fees and expenses of counsel to Holder shall be
paid by Holder; and
(b) If, in any incidental registration referred to in subsection 4(a)
above, the Company or underwriter, if any, determines that the number of
securities proposed to be sold in such registration exceeds the number that
can be sold in such offering without having a material effect on the
success of the offering (including, without limitation, an impact on the
selling price or the number of shares that any participant may sell), the
Company will include in such registration only the number of securities
that, in the opinion of the Company or such underwriter, as the case may
be, can be sold without having a material adverse effect on the success of
the offering as follows: (1) first, all of the shares to be issued and sold
by the Company, (2) second, all of the shares to be registered pursuant to
a demand made under any contract or contracts giving the holder thereof the
right to demand such registration, and (3) third, the Shares requested to
be included in such registration by Holder and the shares of Common Stock
of the Company requested to be included by any other person, pro rata, on
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<PAGE>
the basis of the aggregate number of shares of Common Stock, including
Shares, requested to be included.
(c) In addition, if there is not a registration statement effective
with respect to the Shares pursuant to Section 4(a) hereof on or prior to
June 30, 1996, after June 30, 1996, upon written notice from the Holder
that it contemplates the transfer of all or any of the Shares under
circumstances that a public offering within the meaning of the Act, of the
Shares will be involved, the Company shall at the expense of Holder (as set
forth below), as promptly as possible after receipt of such notice, file a
new registration statement with respect to such offering and sale or other
disposition of the Shares, provided, however, that Holder may exercise the
foregoing demand registration right on one occasion only. In the event
that the Company gives notice to other holders of the Company's securities
advising that the Company is proceeding with such registration statement
and offering to include therein the securities of such holders, the Company
shall obtain from any such holder who accepts such offer by notice in
writing to the Company the agreement of such holder to pay such holder's
pro rata cost of such registration statement to the extent the Company has
not already agreed to the contrary with such holder.
(d) In the event that the Company shall take action to permit a
public offering or sale or other distribution of the Shares pursuant to
Subsections 4(a), 4(b) or 4(c) above, the Company shall:
(i) supply to Holder an executed copy of each registration
statement and a reasonable number of copies of the preliminary, final
and other prospectus of offering circular in conformity with
requirements of the Act and the Rules and Regulations promulgated
thereunder and such other documents as Holder shall reasonably
request.
(ii) cooperate in taking such action as may be necessary to
register or qualify the Shares under such other securities acts or
blue sky laws of such jurisdictions as Holder shall reasonably request
and to do any and all other acts and things which may be necessary or
advisable to enable Holder to consummate such proposed sale or other
disposition of the Shares in any such jurisdiction; provided, however,
that in no event shall the Company be obligated, in connection
therewith, to qualify to do business or to file a general consent to
service of process in any jurisdiction where it shall not then be
qualified;
(iii) keep effective for a period of not less than three (3)
months after the initial effectiveness thereof all such registrations
or notifications under the Act and cooperate in taking such action as
may be necessary to keep effective such other registrations and
qualifications, and do any and all other acts and things for such
period;
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(iv) indemnify and hold harmless Holder and each underwriter,
if any, within the meaning of the Act, who may purchase from or sell
for Holder, any Shares, from and against any and all losses, claims,
damages, and liabilities (including, but not limited to, any and all
expenses whatsoever reasonably incurred in investigating, preparing,
defending or settling any claim) arising from (I) any untrue statement
of a material fact contained in a registration statement furnished
pursuant to subsection 4(d)(i), or any prospectus or offering circular
included therein, or (II) any omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading (unless such untrue statement or omission was
based upon information furnished or required to be furnished in
writing to the Company by or on behalf of Holder or such underwriter
expressly for use therein), which indemnification shall include each
person, if any, who controls Holder or such underwriter, within the
meaning of the Act; provided, however, that the Company shall not be
so obligated to indemnify Holder or such underwriter or controlling
person unless Holder and such underwriter shall at the same time, and
Holder by accepting the Warrant, and any transferee of such Warrant,
by accepting the transfer of the same, do hereby agree to, indemnify
the Company, its directors, officers, any and each person, if any, who
controls the Company within the meaning of the Act, from and against
any and all losses, claims, damages and liabilities (including, but
not limited to, any and all expenses whatsoever reasonably incurred in
investigating, preparing, defending or settling any claim) arising
from (III) any untrue statement of a material fact contained in any
registration statement or any amendment to any registration statement
or prospectus or offering circular furnished pursuant to subsection
4(d)(i), or (IV) any omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but the indemnity of Holder, such underwriter
or controlling person shall be limited to liability based upon
information furnished, in writing to the Company by or on behalf of
Holder or such underwriter or controlling person expressly for use
therein. The indemnity agreement of the Company herein shall not
inure to the benefit of Holder or such underwriter (or to the benefit
of any person who controls Holder or underwriter) on account of any
losses, claims, damages, liabilities (or actions or proceedings in
respect thereof) arising from the sale of any of such Shares by Holder
or such underwriter to any person if Holder or underwriter failed to
send or give a copy of the prospectus or offering circular furnished
pursuant to subsection 4(d)(i), as the same may then be supplemented
or amended, to such person with or prior to the written confirmation
of the sale involved.
(e) The Company's obligations under this Section 4 shall be
conditioned upon a timely receipt by the Company in writing of: (i)
information as to the terms of such public offering furnished by or on
behalf of Holder intending to make a public distribution of his shares; and
(ii) such other information as the Company may reasonably require from
Holder or any such underwriter for inclusion in such registration statement
or post-effective amendment.
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5. The agreements contained in this letter shall be construed and
enforced in accordance with the laws of the State of Texas without regard to the
conflicts of law rules thereof.
6. This letter may be executed on facsimile copies in two or more
counterparts, each of which is deemed to be an original, but all of which
together constitute one and the same instrument.
7. This letter and the Annexes hereto constitute the entire agreement of
the Company, and Holder with respect to the subject matter of this letter.
8. All notices and other communications provided for herein shall be in
writing and shall be deemed to have been duly given if and when delivered
personally or sent by prepaid nationally recognized overnight courier service as
follows:
(a) if to the Company, to it at the following address:
1912 Avenue K, Suite 100
Plano, TX 75074
Attention: Jack W. Matz, Jr.
(b) if to Holder, to them at the following address listed above
or at such other address as any party shall have specified by notice in writing
to the other.
9. Holder agrees and covenants to notify the Company immediately upon the
occurrence of any event prior to the closing of the Financing which would cause
any representation, warranty, covenant or other statement contained in this
letter to be false or incorrect or of any change in any statement made herein
occurring prior to the Closing.
10. This letter is not assignable by any part hereto, and may not be
modified, waived or terminated except by an instrument in writing signed by the
party against whom enforcement of such modification, waiver or termination is
sought.
11. This letter shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and assigns, and the agreements, representations, warranties and
acknowledgments contained herein shall be deemed to be made by and be binding
upon such heirs, executors, administrators, successors, legal representatives
and assigns.
12. All representations, warranties and covenants contained herein shall
survive the acceptance of this letter by the Company and the closing of the
Financing. Holder acknowledges that the Company has relied upon such
representations and warranties and covenants in determining Holder's
qualification and suitability to purchase the Warrant and shall indemnify the
Company for any breach thereof.
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If the foregoing correctly sets forth our agreement and is acceptable to
you, please sign this letter where indicated below, telecopy it to Holder and
send Holder an executed letter at your earliest convenience.
Very truly yours,
MUELLER TRADING L.P.
By:____________________
General Partner
ACCEPTED AND AGREED:
SA TELECOMMUNICATIONS, INC.
BY:_______________________
Jack W. Matz, Jr.
Chairman & Chief Executive Officer
8
<PAGE>
ANNEX A
Millennium Trading Co., L.P.
111 Broadway, 20th Floor
New York, NY 10006
Killeba Holdings, Ltd.
102 Langerherrentalse
Antwerp, Belgium 2018
9
<PAGE>
EXHIBIT 10.33
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE ON EXERCISE OF THIS
WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES
LAWS OF ANY STATE OR OTHER JURISDICTION. NONE OF SUCH SECURITIES MAY BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF REGISTRATION UNDER
SUCH ACT OR AN OPINION OF COUNSEL OF THE HOLDER SATISFACTORY TO THE COMPANY TO
THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED. THIS WARRANT MAY NOT BE
TRANSFERRED OR ASSIGNED EXCEPT AS EXPRESSLY PROVIDED HEREIN.
SA Telecommunications, Inc.
WARRANT
DATED: March 7, 1996
No. 13
Number of Shares: 300,000
Holder: Mueller Trading L.P.
Address: 120 Madison Avenue
Lakewood, New Jersey 08701
THIS CERTIFIES THAT the Holder is entitled to purchase from SA
Telecommunications, Inc., a Delaware corporation (hereinafter called the
"Company"), at $1.40 per share the number of shares of the Company's common
stock set forth above ("Common Stock") on the terms and conditions set forth
herein.
1. All rights granted under this Warrant shall expire on March 6, 1998.
2. This Warrant and the Common Stock issuable on exercise of this Warrant
(the "Underlying Shares") may be transferred, sold, assigned or hypothecated,
only if registered by the Company under the Securities Act of 1933 (the "Act")
or if the Company has received from counsel to Holder a written opinion to the
effect that registration of the Warrant or the Underlying Shares is not
necessary in connection with such transfer, sale, assignment of hypothecation.
The Warrant and the Underlying Shares shall be appropriately legended to reflect
this restriction and stop transfer instructions shall apply.
3. Any permitted assignment of this Warrant shall be effected by the
Holder by (i) executing the form of assignment at the end hereof, (ii)
surrendering the Warrant for cancellation at the office of the Company, 1600
Promenade Center, Suite 1510, Richardson, Texas 75080,
1
<PAGE>
accompanied by the opinion of counsel to the Holder referred to above; and (iii)
unless in connection with an effective registration statement which covers the
sale of this Warrant and or the shares underlying the Warrant, delivery to the
Company of a statement by the transferees (in a form acceptable to the Company
and its counsel) that such Warrant is being acquired by the Holder for
investment and not with a view to its distribution or resale; whereupon the
Company shall issue, in the name or names specified by the Holder (including the
Holder) new Warrants representing in the aggregate rights to purchase the same
number of Shares as are purchasable under the Warrant surrendered. Such
Warrants shall be exercisable immediately upon any such assignment of the number
of Warrants assigned. The transferor will pay all relevant transfer taxes.
Replacement warrants shall bear the same legend as is borne by this Warrant.
4. The term "Holder" should be deemed to include any permitted record
transferee of this Warrant.
5. The Company covenants and agrees that all shares of Common Stock which
may be issued upon exercise hereof will, upon issuance, be duly and validly
issued, fully paid and non-assessable. The Company further covenants and agrees
that, during the periods within which this Warrant may be exercised, the Company
will at all times have authorized and reserved a sufficient number of shares of
Common Stock for issuance upon exercise of this Warrant.
6. This Warrant shall not entitle the Holder to any voting rights or
other rights as a stockholder of the Company.
7. In the event that as a result of reorganization, merger,
consolidation, liquidation, recapitalization, stock split, reverse stock split,
combination of shares or stock dividends payable with respect to such Common
Stock, the outstanding shares of Common Stock of the Company are at any time
increased or decreased or changed into or exchanged for a different number or
kind of share or other security of the Company or of an other corporation, then
appropriate adjustments in the number and kind of such securities then subject
to this Warrant shall be made effective as of the date of such occurrence so
that the position of the Holder upon exercise will be the same as it would have
been had it owned immediately prior to the occurrence of such events the Common
Stock subject to this Warrant. Such adjustment shall be made successively
whenever any event listed above shall occur and the Company will notify the
Holder of the Warrant of each such adjustment. Any fraction of a share
resulting from any adjustment shall be eliminated and the price per share of the
remaining shares subject to this Warrant adjusted accordingly.
8. The rights represented by this Warrant may be exercised at any time
within the period above specified by (i) surrender of this Warrant (with the
purchase form at the end hereof properly executed) at the principal executive
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company) during normal business hours; (ii)
payment to the Company of the exercise price in cash or immediately available
funds for the number of
2
<PAGE>
Shares specified in the above-mentioned purchase form together with applicable
stock transfer taxes, if any; and (iii) unless in connection with an effective
registration statement which covers the sale of the shares underlying the
Warrant, the delivery to the Company of a statement by the Holder (in a form
acceptable to the Company and its counsel) that such Shares are being acquired
by the Holder for investment and not with a view to their distribution or
resale. Each exercise hereunder must be in a minimum amount of at least
50,000 shares of the Company's Common Stock.
9. The certificate for the Common Stock so purchased shall be delivered
to the Holder within a reasonable time, not exceed ten (10) business days after
all requisite documentation has been provided, after the rights represented by
this Warrant shall have been so exercised, and shall bear a restrictive legend
with respect to any applicable securities laws.
10. This Warrant shall be governed by and construed in accordance with the
laws of the State of Delaware. The Delaware courts shall have exclusive
jurisdiction over this instrument and the enforcement thereof. Service of
process shall be effective if by certified mail, return receipt requested. All
notices shall be in writing and shall be deemed given upon receipt by the party
to whom addressed. This instrument shall be enforceable by decrees of specific
performance as well as other remedies.
IN WITNESS WHEREOF, SA Telecommunications, Inc. has caused this Warrant to
be signed by its duly authorized officers under its corporate seal, and to be
dated as of the date set forth above.
SA TELECOMMUNICATIONS, INC.
By:
-----------------------------------------------
Jack W. Matz, Jr.
Chairman & Chief Executive Officer
[seal]
Attest:
- --------------------------
Lynn H. Johnson, Secretary
3
<PAGE>
PURCHASE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the registered holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase rights represented by such Warrant
for, and to purchase thereunder, ______ shares of $.0001 par value Common Stock
and herewith makes payments of $_____________ thereof, and requests that the
certificates for shares of Common Stock be issued in the name(s) of, and
delivered to ___________________________ whose address(es) is (are)
_____________________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________.
(Print Address(es) and Social Security Number(s) or
Employer Identification Number(s) as applicable)
Dated:_______________, 19__.
_______________________________
(Signature)
______________________________
(Printed Name)
Address:_____________________________
____________________________________
____________________________________
4
<PAGE>
TRANSFER FORM
(TO BE SIGNED ONLY UPON TRANSFER OF WARRANT)
For value received, the undersigned registered holder of this Warrant
hereby sells, assigns and transfers unto _____________________________ the right
to purchase shares of Common Stock represented by the foregoing Warrant to the
extent of __________ shares of Common Stock, and appoints
________________________ attorney to transfer such rights on the books of SA
TELECOMMUNICATIONS, INC., with full power of substitution in the premises.
Dated:________________, 19___.
Holder:____________________________
(Signature)
____________________________
(Printed name)
Address:____________________________
____________________________________
In the presence of:
________________________________
5
<PAGE>
EXHIBIT 10.34
PURCHASE AGREEMENT
This Purchase Agreement ("Agreement"), made as of March 7, 1996 and effective as
set forth herein, by (i) the undersigned purchaser ("Purchaser"), on the one
hand, and (ii) SA Telecommunications, Inc., a Delaware corporation ("Seller"),
on the other hand, will confirm the complete understanding and agreement among
the parties with respect to the following.
1. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) Upon the terms and conditions herein set forth, and on the basis of
the respective representations herein contained, Purchaser agrees to purchase
from the Seller, and the Seller agrees to issue and sell to Purchaser, 9%
convertible subordinated debentures ("Debentures") of Seller in the form of, and
containing the terms set forth in the debenture set forth in Exhibit "A"
attached hereto and made a part hereof. The amount of the Debentures to be so
issued and sold by the Seller, purchased by Purchaser, the purchase price to be
paid by Purchaser ("Purchase Price") and the conversion price for the shares of
common stock ("Shares") into which the Debentures are convertible (Debentures
and Shares sometimes hereinafter collectively referred to as "Securities") are
set forth in Schedule 1 annexed hereto and Exhibit "A" hereto (the "Schedule").
(b) As more fully provided in Paragraph 4 hereof, a certificate evidencing
the Debentures shall be delivered by the Seller to the Escrow Agent hereafter
named, for the account of Purchaser, against remittance to the account of the
Seller, of immediately available funds in U.S. Dollars in an amount equal to the
aggregate Purchase Price for the Debentures. Provided such delivery and payment
shall have been timely and properly made, title to the Debentures shall vest in
Purchaser, at 10:00 a.m., New York City time, on the Closing Date specified in
the Schedule.
2. REPRESENTATIONS AND COVENANTS OF PURCHASER. Purchaser hereby represents,
warrants and covenants to the Seller as follows:
(a) Purchaser has been advised, acknowledges and agrees: (i) that neither
the Debentures nor the Shares have been or will be registered under the U.S.
Securities Act of 1933, as amended (the "Securities Act"), the securities laws
of any state of the United States or the securities laws of any other country;
(ii) that in selling the Debentures to Purchaser pursuant hereto, the Seller is
relying upon the "safe harbor" provided by Regulation S promulgated under the
Securities Act by the U.S. Securities and Exchange Commission ("Commission") for
offers and sales of securities occurring outside the United States ("Regulation
S"); (iii) that it is a condition to the availability of such safe harbor that
the Debentures not be offered or sold in the United States to or for the account
of a U.S. Person until the expiration of a period of 40 days following the
Closing Date (the "Restricted Period"); (iv) that the Debentures may be offered
and sold during the Restricted Period only (1) in accordance with the provisions
of Regulation S, (2) pursuant to registration of the Debentures under the
Securities Act, or (3) pursuant to an available exemption from the registration
requirements of the Securities Act; and (v) that following the Restricted
Period, neither the Debentures nor the Shares may be offered or sold in the
United States or to a U.S. Person unless the Debentures or the Shares are
registered under the Securities Act and any applicable state securities laws or
an exemption from the registration requirements of the Securities Act and such
state securities laws is available. As used herein, the term "United States"
means and includes the United States of America, its territories and
possessions, any State of the United States, and the District of Columbia, and
the term "U.S. Person" means: (i) a natural person (regardless of citizenship)
resident in the United States; (ii) any partnership or corporation organized or
incorporated under the laws of the United States; (iii) any estate or trust of
which any
<PAGE>
executor, administrator or trustee is a U.S. Person; (iv) any agency
or branch of a foreign entity located in the United States; (v) any non-
discretionary or similar account (other than an estate or trust) held by a
dealer or other fiduciary for the benefit or account of a U.S. Person (whether
or not the dealer or other fiduciary is a U.S. Person); (vi) any discretionary
or similar account (other than an estate or trust) held by a dealer or other
fiduciary that is a U.S. Person UNLESS the account holder is a professional
fiduciary and the account beneficiary is not a U.S. Person; and (vii) a
corporation or partnership organized under the laws of any jurisdiction other
than the United States by a U.S. Person principally for the purpose of investing
in securities that have not been registered under the Securities Act unless
organized and owned entirely by organizations or entities that come within any
of the categories described in clauses (1), (2) or (3) of Rule 501(a) under the
Securities Act;
(b) Purchaser agrees that, until the expiration of the Restricted Period,
it will not solicit offers to buy, offer for sale or sell any of the Debentures
or Shares, or any beneficial interest therein: (i) in the United States; or (ii)
to or for the account of a U.S. Person;
(c) Purchaser understands that the proceeds will be used for the payment
of certain indebtedness of Seller and/or for working capital purposes;
(d) Purchaser: (i) is domiciled and has its principal place of business
outside the United States; and (ii) is not a U.S. Person;
(e) at the time the Debentures were offered to Purchaser by Seller, the
Purchaser and the person acting on Purchaser's behalf to whom the Seller
communicated such offer was located outside the United States when such offer
was communicated;
(f) at the time of the communication to Seller of Purchaser's order to
purchase the Debentures, and at the time of Purchaser's execution of this
Agreement, the Purchaser and the persons acting on Purchaser's behalf in
connection therewith were located outside the United States at such times;
(g) the purchase and sale of securities, whether as principal or as agent,
is a regular part of the ordinary business of Purchaser;
(h) Purchaser is purchasing the Debentures and will acquire the Shares
either: (i) for its own account; or (ii) for the account and benefit of clients
of whom none is a U.S. Person and for whom the Purchaser has, and for the entire
Restricted Period will continue to have, full investment discretion with respect
to the purchase, holding and disposition of the Shares;
(i) Purchaser has made its own investigation of Seller and its business
prospects and of the risks associated with an investment in Seller's Securities,
has had an opportunity to ask questions of the Seller's officers regarding the
same, and has received, read and understands the information contained in the
various documents and reports delivered by Seller to Purchaser, which documents
and reports include, without limitation, the Seller's Annual Report on Form 10-
KSB for the fiscal year ended December 31, 1994, the Quarterly Report on Form
10-QSB, as amended, for the quarterly periods ended March 31, 1995, June 30,
1995, and September 30, 1995, the Definitive Proxy Statement dated July 5, 1995,
all current reports, as amended, filed under the Securities and Exchange Act of
1934, as amended, from December 31, 1994 through the date hereof and that
certain Prospectus dated January 3, 1996 which prospectus is included in
Seller's currently effective Registration Statement on Form S-3 filed with the
Securities and Exchange Commission, and acknowledges that no representation or
warranty with respect to Seller's business prospects has been made in this
Agreement by or on behalf of Seller;
(2)
<PAGE>
(j) Purchaser has full power and lawful authority to execute and deliver
this Agreement and to purchase the Debentures in accordance with the terms
hereof and this Agreement constitutes the legally valid and binding agreement of
Purchaser; and
(k) the execution and delivery of this Agreement and the consummation of
the sale of the Debentures and the transactions contemplated hereby do not and
will not conflict with or result in the breach by Purchaser of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other material agreement or instrument to which the Purchaser is a
party or by which Purchaser or any of the Purchaser's properties or assets are
bound, or any existing applicable law, rule or regulation or any applicable
decree, judgment or order of any court, regulatory body, administrative agency
or other governmental body having jurisdiction over any of Purchaser's
properties or assets.
3. REPRESENTATIONS OF SELLER. Seller represents and warrants to Purchaser
that:
(a) Seller is an issuer (other than an investment company registered or
required to register under the U.S. Investment Company Act of 1940, as amended)
that (i) has a class of securities registered pursuant to Section 12(b) or 12(g)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
is required to file reports pursuant to Section 15(d); and (ii) has filed all
material required to be filed by it pursuant to Paragraph 13(a) or 15(d) of the
Exchange Act for at least the twelve (12) months immediately preceding the date
hereof;
(b) The Seller presently has, and as of the Closing Date will have, full
legal right, power and capacity and all necessary consents, approvals and
authorizations as may be required to execute and deliver this Agreement and to
issue and sell the Debentures to Purchaser pursuant hereto and thereto and in
the manner contemplated hereby and thereby;
(c) When delivered pursuant hereto, the Debentures will be duly and
validly authorized and issued, free and clear of any and all liens, charges,
restrictions (except as may be imposed by U.S. federal and state securities
laws), claims and encumbrances and will not subject the holders thereof to any
liability by reason of holding such securities;
(d) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware;
(e) When executed and delivered by Seller, this Agreement will be duly and
validly executed and delivered by Seller and will be Seller's legally binding
obligation enforceable against Seller in accordance with its terms, except to
the extent that: (i) such enforcement may be limited by bankruptcy, insolvency
or similar laws now or hereafter in effect relating to creditors' rights and
remedies generally; and (ii) the remedy of specific performance and injunctive
and other forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought;
(f) The execution and delivery of this Agreement and the consummation of
the issuance of the Debentures and the transactions contemplated hereby do not
and will not conflict with or result in the breach by Seller of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other material agreement or instrument to which such Seller is a
party or by which Seller or any of such Seller's properties or assets are bound,
or any existing applicable law, rule or regulation or any applicable decree,
judgment or order of any court, Federal or State regulatory body, administrative
agency or other governmental body having jurisdiction over any of Seller's
properties or assets;
(3)
<PAGE>
(g) There are no preemptive rights, rights of first refusal, repurchase
rights or any other right of Seller or any third party as to the Debentures,
except as set forth in the Debentures;
(h) Provided that Purchaser has complied with all of the requirements and
conditions under Regulation S, there will be no restrictions in any respect on
the resale of the Debentures or the Shares, except as set forth in Paragraph
2(a) hereof; and
(i) Seller and Purchaser have not engaged nor are Seller or Purchaser
aware that any party has engaged and Seller and Purchaser will not engage nor
cause any third party to engage in any directed selling efforts (as such term is
defined in Regulation S) in the United States with respect to the Debentures or
the Shares.
4. THE CLOSING.
(a) Mesirov Gelman Jaffe Cramer & Jamieson, 1735 Market Street,
Philadelphia, Pennsylvania, is hereby appointed by the parties to act as escrow
agent (the "Escrow Agent") in connection with the closing of the sale of the
Debentures to Purchaser. The fees and expenses of the Escrow Agent are to be
borne equally by Purchaser, on the one hand, and Seller, on the other hand.
Purchaser and the Seller mutually agree to the appointment of Mesirov Gelman
Jaffe Cramer & Jamieson as the Escrow Agent.
(b) On or prior to 12:00 noon, New York City time, on the Closing Date as
set forth in the Schedule:
(i) Purchaser shall remit by wire transfer to the Seller immediately
available funds in an amount equal to the aggregate Purchase Price for the
Debentures. Such funds shall be wired in accordance with the specific wire
instructions set forth in the Schedule; and
(ii) Seller shall issue a certificate evidencing the Debentures (the
"Certificate"), which Certificate shall have a restrictive legend referencing
Regulation S and the specific date after which the shares of Seller's Common
Stock into which the Certificate is convertible will be unrestricted. The
Certificate shall be registered in the name and address of the Purchaser
specified in the Schedule, and Seller shall deliver the Certificate to the
Escrow Agent.
(c) Upon receipt of the Certificate by the Escrow Agent from the Seller as
provided above, the Escrow Agent shall deliver to the Purchaser, at its address
specified in the Schedule, a photocopy of the Certificate. The Escrow Agent
shall continue to hold the Certificate in escrow for the duration of the
Restricted Period and on the forty-first (41st) day following the Closing Date
provided in the Schedule shall deliver the Certificate to such party at such
address as is given to Escrow Agent by the Purchaser.
5. EFFECTIVE DATE/CLOSING DATE. This Agreement shall become effective upon,
and the Closing Date will occur as promptly as practicable following the
approval by Seller's Board of Directors of this Agreement and the transactions
contemplated herein.
6. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas of the United States without
regard to the conflicts of laws rules thereof.
7. PRESUMPTION. In interpreting the terms of this Agreement, no presumption
shall arise as a result of the role of any party in the drafting of this
Agreement.
8. LIABILITY OF ESCROW AGENT. The Escrow Agent shall not be liable for any
action taken or omitted by it in good faith unless a court of competent
jurisdiction determines that Escrow Agent's willful misconduct was the primary
cause of any loss to the Purchaser or Seller. The Escrow Agent may consult with
counsel of its own choice
(4)
<PAGE>
and shall have full and complete authorization and protection for any action
taken or omitted by it hereunder in good faith and in accordance with the
opinion of such counsel.
9. COUNTERPARTS AND FACSIMILE. This Agreement may be executed on facsimile
copies in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10. ACCEPTANCE BY ESCROW AGENT. Mesirov Gelman Jaffe Cramer & Jamieson
joins in this Agreement for the purpose of accepting the position of Escrow
Agent and agrees to follow the instructions to the Escrow Agent set forth in
Paragraph 4(c) hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
"Purchaser"
KILLEBA HOLDINGS, LTD.
By:_______________________________________
"Seller"
SA TELECOMMUNICATIONS, INC.
a Delaware corporation
By: _______________________________________
Jack W. Matz, Jr., Chairman and
Chief Executive Officer
"Escrow Agent"
MESIROV GELMAN JAFFE CRAMER & JAMIESON
By: _________________________________________
(5)
<PAGE>
SCHEDULE 1
TO THE
PURCHASE AGREEMENT
1. Principal Amount of Debentures: $500,000
2. Purchase Price for Debentures: $500,000
3. Name and Address of Purchaser: Killeba Holdings, Ltd.
102 Langemerrenthse St.
Antwerp, Belgium 2018
4. Maturity Date: March 7, 1997
5. Conversion Price: Equal to the lower of (i) 75%
of the average closing price
of the Common Stock of the
Seller as traded in the
NASDAQ-STEL for the five days
immediately preceding the date
of Purchaser's notice to
Seller of the exercise of its
right to convert the
Debentures into shares of
Common Stock or (ii) $2.125
per Share.
6. Number of certificates: One
7. Denominations: $500,000
8. Name appearing on Certificates: Killeba Holdings, Ltd.
9. Delivery method for Certificates: Bonded Courier
10. Wire transfer instructions for
remittance of Aggregate Purchase
Price by Purchaser to Seller: ABA# 111 907 455
Account #010-08143 operating
Compass Bank, Dallas, Texas
1-800-239-2265, Ext. 3851
Account name: SA Holdings, Inc.
11. Closing Date: March 7, 1997
12. Subordinated As provided in Exhibit B hereto
<PAGE>
EXHIBIT 10.35
EXHIBIT "A"
THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A)
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL OF HOLDER ACCEPTABLE TO COUNSEL
FOR THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED
TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAW. NOTWITHSTANDING THE FOREGOING, THIS DEBENTURE, AND ANY
SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE BEEN OR WILL BE ISSUED PURSUANT
TO REGULATION D PROMULGATED UNDER THE ACT. THE INDEBTEDNESS EVIDENCED HEREBY
IS SUBJECT TO THE PROVISIONS OF A SUBORDINATION AGREEMENT BETWEEN HOLDER AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION.
No. D-6
$500,000 March 18, 1996
SA TELECOMMUNICATIONS, INC.
AMENDED AND RESTATED 9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MARCH 7, 1997
SA TELECOMMUNICATIONS, INC. (the "Company"), a Delaware corporation, for
value received, and intending to be legally bound, hereby promises to pay to
the order of KILLEBA HOLDINGS, LTD. or registered assigns, the principal
amount of Five Hundred Thousand Dollars ($500,000.00) on March 7, 1997 or
such earlier date as provided in Paragraph (a) under the heading "Conversion
of Debenture" below ("Maturity Date"), with interest from the date hereof
(computed on the basis of a 360-day year of twelve 30-day months) payable on
the Maturity Date on the unpaid principal balance at the rate of 9% per annum
until such unpaid principal balance shall become due and payable (whether at
maturity or by acceleration or otherwise). Overdue principal payments and
(to the extent permitted by applicable law) any overdue interest shall accrue
interest at the foregoing rate per annum until paid, which interest shall be
payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable
in New York Clearing House funds to the address provided by the payee as
shown on the Debenture Register provided neither the Company or the Holder
have exercised its conversion rights. The Company may treat the person in
whose name this Debenture is registered (the "Holder") on the Debenture
Register kept by the Company as the owner of this Debenture for the purpose
of receiving payment and for all other purposes, and the Company shall not be
affected by any notice to the contrary. This Debenture is transferable only
(i) in accordance with the terms hereof and (ii) by surrender thereof at an
office or agency of the Company where this Debenture is payable, duly
endorsed or accompanied by a written instrument duly executed by the Holder
of this Debenture or his attorney duly authorized in writing.
<PAGE>
CONVERSION OF DEBENTURE. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) CONVERSION. Subject to and upon compliance with the
provisions of this section captioned "Conversion of Debenture", at the option
of the Holder, at any time following the date hereof, the Debenture may be
converted in whole, or from time to time in part, into fully-paid and
non-assessable shares of Common Stock, of the Company (the "Shares"), at a
conversion price per Share equal to the lower of (i) seventy-five percent
(75%) of the average closing price of the Common Stock of the Company as
traded on the NASDAQ-STEL for the five days immediately preceding the date of
Holder's notice to Company of Holder's intention to exercise its right of
conversion as set forth herein or (ii) $1.75 per Share (the "Conversion
Price"). The conversion as set forth herein shall be subject to such
adjustment or adjustments, if any, of such Conversion Price and of the
securities or other property issuable upon such conversion as set forth
below, and, (i) in the case of an election by Holder to convert, upon
delivery of the Debenture to the offices of the Company, together with the
form of conversion notice attached thereto (the "Holder's Conversion
Notice"), duly executed by the Holder thereof, and (ii) in the case of an
election by Company to convert, upon receipt by the Holder of a notice from
Company delivered to Holder's address set forth on the register of the
Company of Company's election to convert, which notice shall be similar in
form to the form of Holder's Conversion Notice attached hereto and made a
part hereof ("Company's Conversion Notice"). Upon receipt of the Company's
Conversion Notice, the Holder shall deliver the Debenture to the offices of
the Company as directed by Company. The Holder's Conversion Notice and the
Company's Conversion Notice shall state the principal amount thereof to be so
converted and shall include or be accompanied by representations as to the
Holder's investment intent substantially similar to those contained in this
Debenture. Shares issuable upon conversion of the Debenture shall be issued
in the name of the Holder and shall be transferable only in accordance with
all of the terms and restrictions contained herein and in the Subscription
Agreement of even date hereof to which the original Holder hereof is a party.
Upon such conversion, Company shall pay all accrued and unpaid interest
through the conversion date on the Debenture or such part thereof delivered
for conversion in Company's Shares of Common Stock at the Conversion Price.
No fractional Shares shall be issued or delivered upon conversion of the
Debenture. In case the Debenture shall be surrendered for the conversion of
only a portion of the principal amount thereof, the Company shall, at the
time of issuing the Shares of Common Stock issuable upon the conversion of
such portion, execute and deliver to the Holder of the Debenture so
surrendered a new note equal in principal amount to the unconverted portion
of the surrendered Debenture, dated the most recent date to which interest
shall have been paid on the surrendered Debenture. HOLDER HEREBY
ACKNOWLEDGES THAT IT HAS RECEIVED AND READ THE DOCUMENTS REFERENCED IN
PARAGRAPH 2(c) OF THAT CERTAIN SUBSCRIPTION AGREEMENT OF EVEN DATE HEREWITH
BY AND BETWEEN HOLDER AND COMPANY.
(b) ADJUSTMENTS.
(i) SHARES INCLUDED IN COMPUTATION. The number of shares of
Common Stock at any time outstanding for any purpose hereunder shall not
include any shares of Common Stock then owned or held by or for the account
of the Company.
(ii) SUBDIVISION OR COMBINATION. Whenever the Company shall
subdivide or combine the outstanding shares of Common Stock issuable upon
conversion of this Debenture, including stock dividends and stock splits, the
Conversion Price in effect immediately prior to such subdivision or
combination shall be proportionately decreased in the case of subdivision or
increased in the case of combination effective at the time of such
subdivision or combination.
(2)
<PAGE>
(iii) RECLASSIFICATION OR CHANGE. Whenever any
reclassification or change of the outstanding shares of Common Stock shall
occur (other than a change in par value, or from par value to no par, or from
no par to par value, or as a result of a subdivision or combination)
effective provision shall be made whereby the Holder shall have the right, at
any time thereafter, to receive upon conversion of this Debenture the kind of
stock, other securities or property receivable upon such reclassification or
change by a holder of the number of shares of Common Stock issuable upon
conversion of this Debenture immediately prior to such reclassification or
change. Thereafter, the rights of the Holder with respect to the adjustment
of the amount of securities or other property obtainable upon conversion of
this Debenture shall be appropriately continued and preserved, so as to
afford as nearly as may be possible protection of the nature afforded by this
paragraph (b). The provisions of this clause (iii) shall apply to successive
transactions of the nature to which it relates.
(iv) MINIMAL ADJUSTMENTS. The Company shall not be required
to make any adjustment of the Conversion Price the amount of which shall be
less than $.10, but in such case any adjustment that would otherwise be
required to be made shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, when aggregated with
any adjustment or adjustments so carried forward, shall amount to not less
than $.10.
(c) NOTICES OF RECORD DATE. In case
(i) the Company shall declare a dividend (or make any other
distribution) on its shares of Common Stock payable otherwise than in cash
out of its earned surplus; or
(ii) the Company shall grant the holders of its Common Stock
the right to subscribe for or purchase any shares of its capital stock of any
class; or
(iii) the Company shall make any distribution on or in
respect of the Common Stock in connection with the dissolution, liquidation
or winding up of the Company; or
(iv) there is to be a reclassification or change of the Common
Stock of the Company (other than the subdivision or combination of its
outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the
property of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to
the Holder a notice specifying the date on which any record is to be taken
for the purpose of such dividend, distribution or granting of rights, or the
date on which such reclassification, consolidation or merger is expected to
become effective, and the time, if any, as of which the holders of record of
Common Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reorganization or
reclassification. Such notice shall be mailed at least 30 days prior to the
record or effective date therein specified.
(d) NOTICE OF ADJUSTMENT OF CONVERSION PRICE, ETC. If there shall
be any adjustment as provided in (b) hereof, or if securities or property
other than shares of Common Stock of the Company shall become issuable or
deliverable in lieu of shares of such Common Stock upon the conversion of
this Debenture, the Company shall forthwith cause written notice thereof to
be sent by registered or certified mail, postage prepaid, to the Holder,
which notice shall be accompanied by a certificate of the principal financial
officer of the Company setting forth in reasonable detail the facts requiring
any such adjustment and the Conversion Price and number of shares issuable
upon the conversion of this Debenture after such adjustment, or the kind and
amount of any such securities or property so issuable or deliverable upon the
conversion of this Debenture, as the case may be.
(3)
<PAGE>
SUBORDINATION. Company and Holder acknowledge and agree that the
indebtedness evidenced by this Debenture is subject to the provisions of a
Subordination Agreement of even date herewith by and between Holder and
Norwest Bank Minnesota, National Association and acknowledged by the Company.
REDEMPTION OF DEBENTURE. This Debenture is subject to redemption at the
option of the Company upon 30 days prior written notice (subject to the
Holder's prior exercise of its right of conversion as set forth above) as a
whole at any time, or in part from time to time, upon payment by the Company
of 100% of the unpaid principal amount or such portion thereof so redeemed,
plus accrued interest thereon through the date of redemption. Notwithstanding
the foregoing, the Company cannot exercise its right of redemption unless
there is an effective registration statement with respect to the underlying
shares of Common Stock in accordance with the Securities Act of 1933, as
amended.
By accepting this Debenture, the Holder hereby acknowledges that neither
this Debenture nor any shares issuable upon conversion hereof have been, or
will be at the time of acquisition of any shares upon conversion hereof,
registered under the Securities Act of 1933, as amended, or any state
securities laws and represents for himself and his legal representative that
he is acquiring this Debenture, and will acquire any shares issued upon
conversion hereof, for his own account, for investment purposes only and not
with a view to, or for sale in connection with, any distribution of such
securities, and agrees to reaffirm in writing this investment representation
at the time of exercise of the conversion right set forth above.
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within thirty days after
written notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have
been remedied within thirty days after written notice thereof from the Holder
to the Company; or
(d) if the Company shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or a voluntary petition for reorganization under Title 11 of the
United States Code ("Title 11") shall be filed by the Company or an order
shall be entered granting relief to the Company under Title 11 or a petition
shall be filed by the Company in bankruptcy, or the Company shall be
adjudicated a bankrupt or insolvent, or shall file any petition or answer
seeking for itself any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, or shall file any answer admitting or not
contesting the material allegations of a petition filed against the Company
in any such proceeding, or shall seek or consent to or acquiesce in the
appointment of any trustee, receiver or liquidator of the Company or of all
or any substantial part of the properties of the Company or if the Company or
its directors or majority shareholders shall take any action looking to the
dissolution or liquidation of the Company; or
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
statute, law or regulation, such action shall not have been dismissed or
nullified or all orders or proceedings thereunder affecting the operations or
the business of the Company stayed, or if the stay of any such order or
proceeding shall thereafter be set aside, or if, within 120 days after the
appointment without the consent or acquiescence of the Company of any
trustee, receiver or liquidator of the Company or of all or any substantial
part of the properties of the Company such appointment shall not have been
vacated;
(4)
<PAGE>
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written
notice to the Company, declare the Debenture to be due and payable, whereupon
the Debenture shall forthwith mature and become due and payable, together
with interest accrued thereon, and thereafter interest shall be due, at the
rate per annum hereinabove provided, on the entire principal balance until
the same is fully paid, and on any overdue interest (but only to the extent
permitted by law), without presentment, demand, protest or notice, all of
which are hereby waived.
In case of a default in the payment of any principal of or interest on
the Debenture, the Company will pay to the Holder such further amount as
shall be sufficient to cover the cost and expenses of collection, including,
without limitation, reasonable attorney's fees, expenses and disbursements.
No course of dealing and no delay on the part of Holder in exercising any
right shall operate as a waiver thereof or otherwise prejudice such Holder's
rights, powers or remedies. No right, power or remedy conferred by this
Debenture upon Holder shall be exclusive of any other right, power or remedy
referred to herein or now or hereafter available at law, in equity, by
statute or otherwise.
Notwithstanding any provision contained in this Debenture to the
contrary, the Company's liability for payment of interest shall not exceed
the limits imposed by applicable usury law. If any provision hereof requires
interest payments in excess of the then legally permitted maximum rate, such
provision shall automatically be deemed to require such payment at the then
legally-permitted maximum rate.
All notices required or permitted to be given under this Debenture shall
be in writing (delivered by hand or sent certified or registered mail, return
receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 1912 Avenue K
Suite 100
Plano, TX 75054
Attn: J. David Darnell,
Chief Financial Officer
All notices shall be deemed given upon personal delivery or upon deposit of
such notice in the United States mails, with all postage affixed.
This Debenture shall be governed by the laws of the State of Texas.
SA TELECOMMUNICATIONS, INC.
By:____________________________
JACK W. MATZ, JR., Chairman
and Chief Executive Officer
(5)
<PAGE>
CONVERSION NOTICE
TO: SA TELECOMMUNICATIONS, INC.
1912 Avenue K, Suite 100
Plano, TX 75054
The undersigned Holder of this Debenture hereby irrevocably exercises
his right to convert [all] [or $ ] of this Debenture into
shares of Common Stock of SA TELECOMMUNICATIONS, INC. at the
Conversion Price of $ per share in accordance with the terms
of this Debenture, and directs that the Shares issuable and deliverable upon
such conversion be registered in the name of the undersigned and delivered to
the undersigned, together with a Debenture for the balance of the principal
amount of this Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been
and will not be at the time of acquisition by the undersigned registered
under the Securities Act of 1933, as amended, or under any state securities
laws, and hereby represents and warrants to the Company that he is acquiring
the Shares for his own account, for investment, and not with a view to, or
for sale in connection with, any distribution of such Shares; and (ii) are
transferable only in accordance with all the terms and restrictions contained
in the Debenture and in the Subscription Agreement dated March 7, 1996, as
amended, to which the Holder is, or hereby agrees to become, a party.
Dated: 19
-------------------- --
- ------------------------------- -----------------------------
Witness Signature of Holder
-----------------------------
(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:
----------
-----------------------------
-----------------------------
-----------------------------
Address
<PAGE>
EXHIBIT 10.36
THE DEBENTURE, AND ANY SHARES OF COMMON STOCK ACQUIRED UPON CONVERSION
THEREOF, HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY
PROVIDED IN PARAGRAPH 5 OF THIS SUBSCRIPTION AGREEMENT, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL ACCEPTABLE TO COUNSEL FOR
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED TRANSFER
MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW.
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement"), made as of March 18, 1996 and
effective as set forth herein, by (i) the undersigned subscriber ("Subscriber"),
on the one hand, and (ii) SA Telecommunications, Inc., a Delaware corporation
("Seller"), on the other hand, will confirm the complete understanding and
agreement among the parties with respect to the following.
1. PURCHASE, SALE AND DELIVERY OF DEBENTURES.
(a) Upon the terms and conditions herein set forth, and on the basis of
the respective representations herein contained, Subscriber hereby subscribes
for and agrees to purchase from the Seller, 9% convertible subordinated
debentures ("Debentures") of Seller in the form of the certificate, and
containing the terms set forth in, Exhibit "A" attached hereto. The Debentures
subscribed for by Subscriber, the purchase price to be paid by Subscriber
("Purchase Price") and the conversion price for the shares of common stock of
Seller ("Shares") into which the Debentures are convertible are set forth in
Schedule 1 annexed hereto and Exhibit "A" attached hereto (the "Schedule")
(Debentures, Shares, the Redemption Shares referred to in the Debentures (the
"Redemption Shares") and Penalty Shares referred to in Section 5(c) hereto are
sometimes hereinafter collectively referred to as "Securities").
(b) The Subscriber agrees to pay the Purchase Price and shall deliver to
Seller herewith a check in the full amount of the Purchase Price payable to
Seller, which sum represents full payment for the Debentures.
(c) The Subscriber understands and agrees that such check delivered by him
pursuant to this Paragraph 1 will be held by Seller until a closing ("Closing")
on the Debentures has occurred, and that the amount of such check will be
returned without interest, if such Closing does not occur on or before the
Closing Date specified on the Schedule or Subscriber withdraws its subscription
for the Debentures prior to the Closing Date by written notice of such
withdrawal to Seller.
(d) The Subscriber understands that the proceeds will be used for the
payment of certain indebtedness of Seller and/or for working capital purposes.
(e) Upon Closing, a certificate in the form of Exhibit "A" evidencing the
Debentures shall be delivered by the Seller to the Subscriber.
2. REPRESENTATIONS AND COVENANTS OF SUBSCRIBER. Subscriber hereby represents,
warrants and covenants to the Seller as follows:
(a) Subscriber has full power and lawful authority to execute and deliver
this Agreement and to purchase the Debentures in accordance with the terms
hereof and this Agreement constitutes the legally valid and binding agreement of
Subscriber;
<PAGE>
(b) The execution and delivery of this Agreement and the consummation of
the sale of the Debentures and the transactions contemplated hereby do not and
will not conflict with or result in the breach by Subscriber of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other material agreement or instrument to which the Subscriber is a
party or by which Subscriber or any of the Subscriber's properties or assets are
bound, or any existing applicable law, rule or regulation or any applicable
decree, judgment or order of any court, regulatory body, administrative agency
or other governmental body having jurisdiction over any of Subscriber's
properties or assets;
(c) Subscriber has made its own investigation of Seller and its business
prospects and of the risks associated with an investment in Seller's Securities
and has received, read and understands the information contained in the Seller's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994, the
Quarterly Reports on Form 10-QSB (as amended) for the quarterly periods ended
March 31, 1995, June 30, 1995, and September 30, 1995, the Definitive Proxy
Statement dated July 5, 1995, all current reports (as amended) filed under the
Securities and Exchange Act of 1934, as amended, from December 31, 1994 through
the date hereof and that certain prospectus dated January 3, 1996 which
prospectus is included in Seller's currently effective Registration Statement on
Form S-3 filed with the Securities and Exchange Commission, all delivered by
Seller to Subscriber, and acknowledges that no representation or warranty with
respect to Seller's business prospects has been made in this Agreement by or on
behalf of Seller;
(d) Subscriber is acquiring the Debentures for his own account, for
investment only, and not with a view toward resale or distribution in a manner
that would require registration under the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws, and that he
will not sell or otherwise transfer the Securities, except in compliance with
state and federal law;
(e) Subscriber has, either alone or together with his Purchaser
Representative, if any, such knowledge and experience in financial and business
matters that he (or they) is (are) capable of evaluating the merits and risks of
his investment in the Securities;
(f) Subscriber is able to bear the economic risk of losing his entire
investment in the Securities;
(g) Subscriber's overall commitment to investments which are not readily
marketable is not disproportionate to his net worth and current and foreseeable
needs, and his investment in the Securities will not cause such overall
commitment to become excessive;
(h) That (i) if a natural person, Subscriber is at least twenty-one (21)
years of age, (ii) he has adequate means of providing for his current and
foreseeable needs and personal contingencies, (iii) he is aware that no market
exists or may exist for the resale of the Securities and he has no need for
liquidity in his investment in the Securities, (iv) he maintains his domicile
(and is not a transient or temporary resident) at the address shown on the
Schedule, (v) all of his investments in and commitments to non-liquid
investments are, and after his purchase of the Debentures will be, reasonable in
relation to the undersigned's net worth and current and foreseeable needs and
(vi) the personal financial information provided by the undersigned accurately
reflects his financial condition, with respect to which he does not anticipate
any material adverse changes;
(i) Subscriber agrees and understands that Seller shall have the right, in
its sole discretion, to accept or reject this subscription, in whole or in part,
at any time prior to Closing, or to allocate to him only part of the Debentures
for which he has subscribed. Seller will notify him whether this subscription
is accepted or rejected. In the event his subscription is rejected, his payment
will be returned to him, without interest, and all of his obligations hereunder
shall terminate;
2
<PAGE>
(j) Subscriber agrees, acknowledges and understands that none of the
Securities have been registered under the Securities Act of 1933, as amended, or
the securities law of any state and, as the result thereof, is subject to
substantial restrictions on transfer, which restrictions are described herein;
(k) Subscriber agrees and understands that he will not sell or otherwise
transfer any Securities or any interest therein except pursuant to an effective
registration statement under the Securities Act and applicable state law or
unless the Subscriber provides Seller with an opinion of counsel which is
satisfactory to counsel for Seller (both as to the issuer of the opinion and the
form and substance thereof) that the transfer of Securities: (i) may be effected
without registration under the Securities Act, and (ii) does not cause the
violation of any state securities law (including any investment suitability
standards) applicable to Seller.
(l) Subscriber may be precluded from selling or otherwise transferring or
disposing of any Securities, or any portion thereof for an indefinite period of
time or at any particular time and may, therefore, have to bear the economic
risk of investment in the Securities for an indefinite period;
(m) Subscriber understands that an investment in Seller involves certain
risks and has taken full cognizance of and understands all of the risk factors
relating to the purchase of Securities;
(n) Subscriber understands that no federal or state agency has approved or
disapproved the Securities, passed upon or endorsed the merits of the offering
thereof, or made any finding or determination as to the fairness of the
Securities for investment;
(o) Subscriber acknowledges that Seller has made available to him and his
Purchaser Representative, if any, the opportunity to ask questions of, and
receive answers from, Seller concerning the terms and conditions of the offering
and to obtain any additional information, to the extent that Seller or any
officer thereof possesses such information, or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information given to him or otherwise to make an informed investment decision;
(p) Subscriber acknowledges that, if he has used the services of a
Purchaser Representative in connection with his investment in Seller, his
Purchaser Representative has disclosed, by submitting to him a Purchaser
Representative's Letter, in the form approved by Seller, any material
relationship between such Purchaser Representative or his affiliates and Seller
and its affiliates, which now exists or mutually is understood to be
contemplated or which has existed at any time during the previous two (2) years,
and further setting forth any compensation received or to be received as a
result of such relationship;
(q) SUBSCRIBER ACKNOWLEDGES THAT IF HE IS A NEW YORK RESIDENT, NEITHER
THIS SUBSCRIPTION AGREEMENT NOR ANY OTHER OFFERING MATERIAL HAS BEEN FILED WITH
OR REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS
ISSUANCE AND USE AND THAT THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THE OFFERING;
(r) Subscriber does not own, directly or indirectly (within the meaning of
the attribution rules set forth in Section 318 of the Internal Revenue Code of
1986, as amended), any stock or other interests in Seller or any member of its
affiliated group as that term is defined in Section 1504(a) of the Internal
Revenue Code of 1986, as amended;
(s) Subscriber is an "accredited investor" as such term is defined in
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act;
3
<PAGE>
(t) If the Subscriber is a corporation, trust, partnership or other
entity, it was not formed for the specific purpose of acquiring the Securities;
(u) Subscriber agrees and understands that he is entitled to withdraw his
subscription hereunder prior to the Closing Date, provided that he provides the
notice set forth in Paragraph 1(c) hereof;
(v) Subscriber has relied solely upon his own knowledge and experience, or
that of his personal advisors, in determining the economic and tax benefits, if
any, of the investment with respect to his individual economic and tax situation
and in determining the tax consequences to him of being an investor in Seller;
(w) Subscriber understands that the Securities are being offered and sold
in reliance on specific exemptions from the registration requirements of federal
and state securities laws and that Seller and controlling persons thereof are
relying upon the truth and accuracy of the representations, warranties,
covenants, agreements, acknowledgements, and understandings set forth herein in
order to determine the applicability of such exemptions and the suitability of
the Subscriber to acquire such Securities;
(x) Subscriber acknowledges that, if he is purchasing the Securities
subscribed for hereby in a fiduciary capacity, the above representations,
warranties, covenants, agreements, acknowledgements and understandings in this
Section 2 shall be deemed to have been made on behalf of the person or persons
for whom he is so purchasing.
3. REPRESENTATIONS OF SELLER. Seller represents and warrants to Subscriber
that:
(a) Seller is an issuer (other than an investment company registered or
required to register under the U.S. Investment Company Act of 1940, as amended)
that (i) has a class of securities registered pursuant to Section 12(b) or 12(g)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
is required to file reports pursuant to Section 15(d); and (ii) has filed all
material required to be filed by it pursuant to Section 13(a) or 15(d) of the
Exchange Act for at least the twelve (12) months immediately preceding the date
hereof;
(b) The Seller presently has, and as of the Closing will have, full legal
right, power and capacity and all necessary consents, approvals and
authorizations as may be required to execute and deliver this Agreement and to
issue and sell the Debentures to Subscriber pursuant hereto and thereto and in
the manner contemplated hereby and thereby;
(c) When delivered pursuant hereto, the Debentures will be duly and
validly authorized and issued, and free and clear of any and all liens, charges,
restrictions (except as may be imposed by U.S. federal and state securities laws
and those pursuant to the Subordination Agreement of even date herewith between
Norwest Bank Minnesota, National Association and Subscriber (the "Subordination
Agreement"), claims and encumbrances and will not subject the holders thereof to
any liability by reason of holding such securities;
(d) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware;
(e) When executed and delivered by Seller, this Agreement will be duly and
validly executed and delivered by Seller and will be Seller's legally binding
obligation enforceable against Seller in accordance with its terms, except to
the extent that: (i) such enforcement may be limited by bankruptcy, insolvency
or similar laws now or hereafter in effect relating to creditors' rights and
remedies generally;
4
<PAGE>
and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought;
(f) The execution and delivery of this Agreement and the consummation of
the issuance of the Debentures and the transactions contemplated hereby do not
and will not conflict with or result in the breach by Seller of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other material agreement or instrument to which such Seller is a
party or by which Seller or any of such Seller's properties or assets are bound,
or any existing applicable law, rule or regulation or any applicable decree,
judgment or order of any court, Federal or State regulatory body, administrative
agency or other governmental body having jurisdiction over any of Seller's
properties or assets; and
(g) There are no preemptive rights, rights of first refusal, repurchase
rights or any other right of Seller or any third party as to the Debentures,
except as described in the Debentures.
4. INDEMNIFICATION. The Subscriber acknowledges that he understands the
meaning of the representations, warranties, covenants, agreements,
acknowledgments and understandings made by him in this Subscription Agreement
and hereby agrees to indemnify and hold harmless Seller any subsidiary of
Seller, and each shareholder, officer, director, employee, legal counsel or
agent of any of the foregoing, from and against any and all losses, costs,
expenses, damages, liabilities and interest (including, without limitation,
court costs and attorneys' fees) arising out of or due to a breach by the
Subscriber or any inaccuracy or incompleteness, of any such representations,
warranties, covenants, agreements, acknowledgments or understandings. The
Seller acknowledges that it understands the meaning of the representations,
warranties, covenants, agreements, acknowledgments and understandings made by it
in this Subscription Agreement and hereby agrees to indemnify and hold harmless
Subscriber, any subsidiary of Subscriber, and each shareholder, officer,
director, employee, legal counsel or agent of any of the foregoing, from and
against any and all losses, costs, expenses, damages, liabilities and interest
(including, without limitation, court costs and attorneys' fees) arising out of
or due to a breach by the Seller or any inaccuracy or incompleteness, of any
such representations, warranties, covenants, agreements, acknowledgments or
understandings. Seller represents and warrants to Subscriber that: (i) the
filed materials provided to Subscriber described in Section 2(c) hereof,
contain, as of the date each such filing was made, no untrue statement of
material fact or an omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and since
the date of such filings there has been no material adverse change in the
financial condition of the Seller; and (ii) the information provided to
Subscriber described in Section 2(o) hereof is true and correct in all material
respects as of the date such information was provided to Subscriber. All such
representations, warranties, covenants, agreements, acknowledgments and
understandings shall survive the delivery of this Subscription Agreement and the
purchase by the undersigned of any Debentures.
5. REGISTRATION RIGHTS.
(a) If the Seller at any time prior to March 18, 1999 proposes to register
any of its securities under the Act (except registration solely for registration
of shares in connection with an employee benefit plan or a merger, consolidation
or business combination or exchange offer or offering of securities solely to
Seller's existing security holders), whether or not for sale for its own
account, it will each such time give prompt written notice to the Subscriber of
its intention to do so that Subscriber may include the Shares, the Redemption
Shares, if any, and the Penalty Shares, if any (collectively, the "Debenture
Securities"), in such registration. Upon the written request of the Subscriber
within 10 days after the receipt of any such notice (which request shall specify
the Debenture Securities, if any, intended to be disposed of by the Subscriber
and the intended method of disposition thereof and a list of blue sky
5
<PAGE>
jurisdictions reasonably proposed by Subscriber), the Seller will use its
reasonable best efforts to effect the registration under the Act of all
Debenture Securities, if any, which the Seller has been so requested to register
by the Subscriber, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Debenture
Securities so to be registered, provided that if the Seller shall determine for
any reason not to register or to delay the registration of such securities the
Seller may, at its sole election, give written notice of such determination to
the Subscriber and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Debenture
Securities, if any, in connection with such registration, and (ii) in the case
of a determination to delay registering, shall be permitted to delay registering
any Debenture Securities, for the same period as the delay in registering such
other securities. The registration expenses (and transfer taxes, if any) in
connection with each registration requested under this Section 5 shall be paid
by the Seller, except that all fees and expenses of counsel to the Subscriber,
and any underwriting discounts and sales commissions attributed to Subscriber,
shall be paid by the Suscriber. The provisions of this Section 5(a) are subject
to the provisions of Section 5(c).
(b) If, in any incidental registration referred to in Section 5(a) above,
the Seller or underwriter, if any, determines that the number of securities
proposed to be sold in such registration exceeds the number that can be sold in
such offering without having a material effect on the success of the offering
(including, without limitation, an impact on the selling price or the number of
shares that any participant may sell), the Seller will include in such
registration only the number of securities that, in the opinion of the Seller or
such underwriter, as the case may be, can be sold without having a material
adverse effect on the success of the offering as follows: (1) first, all of the
shares to be issued and sold by the Seller, (2) second, all of the shares to be
registered pursuant to a demand made under any contract or contracts giving the
holder thereof the right to demand such registration, and (3) third, the
Debenture Securities requested to be included in such registration by the
Subscriber and the shares of Common Stock of the Seller requested to be included
by any other person, pro rata, on the basis of the aggregate number of shares of
common stock, including the Debenture Securities requested to be included.
(c) Notwithstanding the provisions of Section 5(a) hereof, if on or before
July 31, 1996, no registration statement with respect to the offering and sale
of the Shares which may be acquired by Subscriber upon conversion of the
Debentures purchased hereunder has been declared effective, the Seller shall
make a penalty payment in the form of delivery of 2,353 shares of Seller's
restricted common stock within three business days following July 31, 1996 (the
"Penalty Shares"). Notwithstanding the foregoing, the penalty set forth in this
Section 5(c) shall not be payable if Subscriber chooses not to be included in a
registration statement filed by Seller pursuant to Section 5(a) hereof.
(d) In the event that the Seller shall take action to permit a public
offering or sale or other distribution of the Shares pursuant to Subparagraphs
5(a) and 5(b) above, the Seller shall:
(i) Supply to the Subscriber two executed copies of each registration
statement and a reasonable number of copies of the preliminary, final and other
prospectus or offering circular in conformity with requirements of the Act and
the Rules and Regulations promulgated thereunder and such other documents as the
Subscriber shall reasonably request.
(ii) Cooperate in taking such action as may be necessary to register
or qualify the Shares under such other securities acts or blue sky laws of such
jurisdictions as the Subscriber shall reasonably request and to do any and all
other acts and things which may be necessary or advisable to enable the
Subscriber of such Shares to consummate such proposed sale or other disposition
of the Shares in any such jurisdiction; provided, however, that in no event
shall the Seller be obligated, in connection therewith, to qualify to do
business or to file a general consent to service of process in any jurisdiction
where it shall not then be qualified, except in the State of New York;
6
<PAGE>
(iii) Keep effective for a period of not less than nine (9)
months after the initial effectiveness thereof all such registrations or
Notifications under the Act and cooperate in taking such action as may be
necessary to keep effective such other registrations and qualifications, and
do any and all other acts and things for such period, except that Seller's
registration statements filed on Form SB-2 shall not be subject to the
provisions of this Clause (d) (iii);
(iv) Indemnify and hold harmless Subscriber and each underwriter,
within the meaning of the Act, who may purchase from or sell for Subscriber, any
Shares, from and against any and all losses, claims, damages, and liabilities
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing, defending or settling any claim) arising
from (1) any untrue statement of a material fact contained in a registration
statement furnished pursuant to Clause (d)(i) of this Subparagraph, or any
prospectus or offering circular included therein, or (2) any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or omission was
based upon information furnished or required to be furnished in writing to the
Seller by or on behalf of such Subscriber or underwriter expressly for use
therein), which indemnification shall include each person, if any, who controls
any such Subscriber or underwriter, within the meaning of the Act; provided,
however, that the Seller shall not be so obligated to indemnify any such
Subscriber or underwriter or controlling person unless such Subscriber and
underwriter shall at the same time, and the Subscriber of the Debentures , by
accepting the same, and any transferee of such Debentures, by accepting the
transfer of the same, do hereby agree to, indemnify the Seller, its directors,
officers, and each person, if any, who controls the Seller within the meaning of
the Act, from and against any and all losses, claims, damages and liabilities
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing, defending or settling any claim) arising
from (3) any untrue statement of a material fact contained in any registration
statement or any amendment to any registration statement or prospectus or
offering circular furnished pursuant to Clause (d)(i) of this Subparagraph, or
(4) any omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but the indemnity of
such Subscriber, underwriter or controlling person shall be limited to liability
based upon information furnished, in writing to the Seller by or on behalf of
such Subscriber or underwriter or controlling person expressly for use therein.
The indemnity agreement of the Seller herein shall not inure to the benefit of
any such Subscriber or underwriter (or to the benefit of any person who controls
such Subscriber or underwriter) on account of any losses, claims, damages,
liabilities (or actions or proceedings in respect thereof) arising from the sale
of any of such Shares by such Subscriber or underwriter to any person if such
Subscriber or underwriter failed to send or give a copy of the prospectus or
offering circular furnished pursuant to Clause (d)(i) of this Subparagraph, as
the same may then be supplemented or amended, to such person with or prior to
the written confirmation of the sale involved.
(e) The Seller's obligations under Subparagraphs 5(a) and 5(b) shall be
conditioned upon the receipt by the Seller in writing within five business days
following the Seller's request therefor of:
(i) Information as to the terms of such public offering furnished by
or on behalf of Subscriber intending to make a public distribution of his
Debenture Securities, if any; and
(ii) Such other information as the Seller may reasonably require from
Subscriber or any underwriter for inclusion in such registration statement or
post-effective amendment.
6. EFFECTIVE DATE/CLOSING DATE. This Agreement shall become effective upon,
and the Closing Date shall be, the date set forth in the initial paragraph of
this Agreement.
7. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas of the United States without
regard to the conflicts of laws rules thereof.
7
<PAGE>
8. PRESUMPTION. In interpreting the terms of this Agreement, no presumption
shall arise as a result of the role of any party in the drafting of this
Agreement.
9. COUNTERPARTS AND FACSIMILE. This Agreement may be executed on facsimile
copies in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10. NO ASSIGNMENT. The undersigned agrees not to transfer or assign this
Subscription Agreement or any interest of the undersigned in the subscription in
the Debentures hereunder. Any attempted transfer or assignment shall be void
and without force or effect.
11. BINDING AGREEMENT; SURVIVAL. This Subscription Agreement (a) shall be
binding upon the undersigned and the heirs, executors, administrators, personal
representatives and successors of the undersigned, (b) shall survive the
purchase of the Debentures, and (c) shall, if the undersigned consists of more
than one person, be the joint and several obligation of all such persons. For
purposes of this Subscription Agreement, the singular shall include the plural
and the plural shall include the singular, and the masculine shall include the
feminine and the neuter, as the context may require.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
"Subscriber"
___________________________
PHILIP HUBERFELD
___________________________
RAE HUBERFELD
"Seller"
SA TELECOMMUNICATIONS, INC., a Delaware corporation
By:______________________________________
Jack W. Matz, Jr., Chairman and
Chief Executive Officer
9
<PAGE>
SCHEDULE 1
TO THE
SUBSCRIPTION AGREEMENT
1. Principal Amount of Debentures: $50,000
2. Purchase Price for
Debentures: $50,000
3. Name and Address of Subscriber: Philip and Rae Huberfeld
c/o Broad Capital Associates
152 West 57th Street
54th Floor
New York, NY 10019
4. Maturity Date: March 18, 1997
5. Conversion Price: Equal to the lower of (i) 75% of the
average closing price of
the Common Stock of the Seller
as traded on NASDAQ-STEL for the five
days immediately preceding the date of
Subscriber's notice to Seller of
the exercise of its right to convert
the Debentures into shares of
Common Stock or (ii) $1.75 per Share.
6. Number of certificates: One
7. Denominations: $50,000
8. Name appearing on Debentures: Philip Huberfeld and Rae Huberfeld
9. Delivery method for Debentures: Bonded Courier
10. Closing Date: March 18, 1996
11. Wire Transfer Instructions for
Remittance of Purchase Price
of Debentures: ABA# 111 907 455
Account #010-08143 Operating
Compass Bank, Dallas, Texas
1-800-239-2265, Ext. 3851
Account Name: SA Holdings, Inc.
12. Subordinated As provided in Exhibit B hereto
10
<PAGE>
EXHIBIT 10.37
EXHIBIT "A"
THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL OF HOLDER ACCEPTABLE TO COUNSEL
FOR THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED
TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAW. NOTWITHSTANDING THE FOREGOING, THIS DEBENTURE, AND ANY SHARES
ACQUIRED UPON CONVERSION HEREOF, HAVE BEEN OR WILL BE ISSUED PURSUANT TO
REGULATION D PROMULGATED UNDER THE ACT. THE INDEBTEDNESS EVIDENCED HEREBY IS
SUBJECT TO THE PROVISIONS OF A SUBORDINATION AGREEMENT BETWEEN HOLDER AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION.
No. D-4
$50,000 March 18, 1996
SA TELECOMMUNICATIONS, INC.
9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MARCH 18, 1997
SA TELECOMMUNICATIONS, INC. (the "Company"), a Delaware corporation, for
value received, and intending to be legally bound, hereby promises to pay to the
order of PHILIP HUBERFELD AND RAE HUBERFELD or registered assigns, the aggregate
principal amount of Fifty Thousand Dollars ($50,000.00) on March 18, 1997 or
such earlier date as provided in Paragraph (a) under the heading "Conversion of
Debenture" below ("Maturity Date"), with interest from the date hereof (computed
on the basis of a 360-day year of twelve 30-day months), payable on April 1,
1996 and the first day of each calendar quarter thereafter, on the unpaid
principal balance at the rate of 9% per annum until such unpaid principal
balance shall become due and payable (whether at maturity or by acceleration or
otherwise). Overdue principal payments and (to the extent permitted by
applicable law) any overdue interest shall accrue interest at 11% per annum
until paid, which interest shall be payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable in
New York Clearing House funds to the address provided by the payee as shown on
the Debenture Register provided neither the Company or the Holder have exercised
its conversion rights. The Company may treat the person in whose name this
Debenture is registered (the "Holder") on the Debenture Register kept by the
Company as the owner of this Debenture for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary. This Debenture is transferable only (i) in accordance with the
terms hereof and (ii) by surrender thereof at an office or agency of the Company
where this Debenture is payable, duly endorsed or accompanied by a written
instrument duly executed by the Holder of this Debenture or his attorney duly
authorized in writing.
<PAGE>
CONVERSION OF DEBENTURE. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) CONVERSION. Subject to and upon compliance with the provisions
of this section captioned "Conversion of Debenture", at the option of the
Holder, at any time following the date hereof, the Debenture may be converted in
whole, or from time to time in part, into fully-paid and non-assessable shares
of Common Stock, of the Company (the "Shares"), at a conversion price per Share
equal to the lower of (i) seventy-five percent (75%) of the average closing
price of the Common Stock of the Company as traded on the NASDAQ-STEL for the
five days immediately preceding the date of Holder's notice to Company of
Holder's intention to exercise its right of conversion as set forth herein or
(ii) $1.75 per Share (the "Conversion Price"). The conversion as set forth
herein shall be subject to such adjustment or adjustments, if any, of such
Conversion Price and of the securities or other property issuable upon such
conversion as set forth below, and, (i) in the case of an election by Holder to
convert, upon delivery of the form of conversion notice attached thereto (the
"Holder's Conversion Notice"), duly executed by the Holder thereof, and (ii) in
the case of an election by Company to convert, upon receipt by the Holder of a
notice from Company delivered to Holder's address set forth on the register of
the Company of Company's election to convert, which notice shall be similar in
form to the form of Holder's Conversion Notice attached hereto and made a part
hereof ("Company's Conversion Notice"). Holder agrees that in the event it
exercises its right of conversion hereunder, it shall deliver the original
Debenture to the Company as promptly as practicable following the date of such
conversion. Upon receipt of the Company's Conversion Notice, the Holder shall
deliver the Debenture to the offices of the Company as directed by Company. The
Holder's Conversion Notice and the Company's Conversion Notice shall state the
principal amount thereof to be so converted and shall include or be accompanied
by representations as to the Holder's investment intent substantially similar to
those contained in this Debenture. Shares issuable upon conversion of the
Debenture shall be issued in the name of the Holder and shall be transferable
only in accordance with all of the terms and restrictions contained herein and
in the Subscription Agreement of even date hereof to which the original Holder
hereof is a party. Company agrees that it shall promptly direct its transfer
agent to prepare the stock certificates for the Shares within three business
days following its receipt of Holder's Conversion Notice, and shall use its best
efforts to ensure that such certificates are issued by said transfer agent and
delivered to Holder as promptly as practicable. Upon such conversion, Company
shall pay all accrued and unpaid interest through the conversion date on the
Debenture or such part thereof delivered for conversion in Company's Shares of
Common Stock at the Conversion Price. No fractional Shares shall be issued or
delivered upon conversion of the Debenture. In case the Debenture shall be
surrendered for the conversion of only a portion of the principal amount
thereof, the Company shall, at the time of issuing the Shares of Common Stock
issuable upon the conversion of such portion, execute and deliver to the Holder
of the Debenture so surrendered a new note equal in principal amount to the
unconverted portion of the surrendered Debenture, dated the most recent date to
which interest shall have been paid on the surrendered Debenture. HOLDER HEREBY
ACKNOWLEDGES THAT IT HAS RECEIVED AND READ THE DOCUMENTS REFERENCED IN PARAGRAPH
2(c) OF THAT CERTAIN SUBSCRIPTION AGREEMENT OF EVEN DATE HEREWITH BY AND BETWEEN
HOLDER AND COMPANY.
(b) ADJUSTMENTS.
(i) SHARES INCLUDED IN COMPUTATION. The number of shares of
Common Stock at any time outstanding for any purpose hereunder shall not include
any shares of Common Stock then owned or held by or for the account of the
Company.
(ii) SUBDIVISION OR COMBINATION. Whenever the Company shall
subdivide or combine the outstanding shares of Common Stock issuable upon
conversion of this Debenture, including
(2)
<PAGE>
stock dividends and stock splits, the Conversion Price in effect immediately
prior to such subdivision or combination shall be proportionately decreased
in the case of subdivision or increased in the case of combination effective
at the time of such subdivision or combination.
(iii) RECLASSIFICATION OR CHANGE. Whenever any
reclassification or change of the outstanding shares of Common Stock shall occur
(other than a change in par value, or from par value to no par, or from no par
to par value, or as a result of a subdivision or combination) effective
provision shall be made whereby the Holder shall have the right, at any time
thereafter, to receive upon conversion of this Debenture the kind of stock,
other securities or property receivable upon such reclassification or change by
a holder of the number of shares of Common Stock issuable upon conversion of
this Debenture immediately prior to such reclassification or change.
Thereafter, the rights of the Holder with respect to the adjustment of the
amount of securities or other property obtainable upon conversion of this
Debenture shall be appropriately continued and preserved, so as to afford as
nearly as may be possible protection of the nature afforded by this paragraph
(b). The provisions of this clause (iii) shall apply to successive transactions
of the nature to which it relates.
(c) NOTICES OF RECORD DATE. In case
(i) the Company shall declare a dividend (or make any other
distribution) on its shares of Common Stock payable otherwise than in cash out
of its earned surplus; or
(ii) the Company shall grant the holders of its Common Stock the
right to subscribe for or purchase any shares of its capital stock of any class;
or
(iii) the Company shall make any distribution on or in
respect of the Common Stock in connection with the dissolution, liquidation or
winding up of the Company; or
(iv) there is to be a reclassification or change of the Common
Stock of the Company (other than the subdivision or combination of its
outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the property
of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying the date on which any record is to be taken for the
purpose of such dividend, distribution or granting of rights, or the date on
which such reclassification, consolidation or merger is expected to become
effective, and the time, if any, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization or reclassification.
Such notice shall be mailed at least 30 days prior to the record or effective
date therein specified.
(d) NOTICE OF ADJUSTMENT OF CONVERSION PRICE, ETC. If there shall be
any adjustment as provided in (b) hereof, or if securities or property other
than shares of Common Stock of the Company shall become issuable or deliverable
in lieu of shares of such Common Stock upon the conversion of this Debenture,
the Company shall forthwith cause written notice thereof to be sent by
registered or certified mail, postage prepaid, to the Holder, which notice shall
be accompanied by a certificate of the principal financial officer of the
Company setting forth in reasonable detail the facts requiring any such
adjustment and the Conversion Price and number of shares issuable upon the
conversion of this Debenture after such adjustment, or the kind and amount of
any such securities or property so issuable or deliverable upon the conversion
of this Debenture, as the case may be.
(3)
<PAGE>
SUBORDINATION. Company and Holder acknowledge and agree that the
indebtedness evidenced by this Debenture is subject to the provisions of a
Subordination Agreement of even date herewith by and between Holder and Norwest
Bank Minnesota, National Association and acknowledged by the Company.
REDEMPTION OF DEBENTURE. This Debenture is subject to redemption at the
option of the Company upon 30 days prior written notice (provided that Holder
may choose to exercise its right of conversion hereunder at any time prior to
the expiration of such 30-day period) as a whole at any time, or in part from
time to time, upon payment by the Company of 100% of the unpaid principal amount
or such portion thereof so redeemed, plus accrued interest thereon through the
date of redemption. Notwithstanding the foregoing, the Company cannot exercise
its right of redemption unless there is an effective registration statement with
respect to the underlying shares of Common Stock in accordance with the
Securities Act of 1933, as amended. In addition, Company shall pay to Holder on
the date of such redemption a redemption fee in the form of delivery to Holder
of 14,000 shares of Holder's restricted common stock (the "Redemption Shares")
within three business days following the date of redemption (the "Redemption
Fee").
By accepting this Debenture, the Holder hereby acknowledges that neither
this Debenture nor any shares issuable upon conversion hereof have been, or will
be at the time of acquisition of any shares upon conversion hereof, registered
under the Securities Act of 1933, as amended, or any state securities laws and
represents for himself and his legal representative that he is acquiring this
Debenture, and will acquire any shares issued upon conversion hereof, for his
own account, for investment purposes only and not with a view to, or for sale in
connection with, any distribution of such securities, and agrees to reaffirm in
writing this investment representation at the time of exercise of the conversion
right set forth above.
REGISTRATION RIGHTS. With respect to the Shares issuable to Holder upon
the conversion of this Debenture, the Redemption Shares and the Penalty Shares
(as defined in Section 5(c) of that certain Subscription Agreement of even date
herewith by and between Company and Holder (the "Subscription Agreement"), a
copy of which is appended hereto), Holder possesses those registration rights
set forth in Section 5 of the Subscription Agreement, and Section 5 of the
Subscription Agreement is incorporated herein by reference.
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within ten days after written
notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have been
remedied within ten days after written notice thereof from the Holder to the
Company; or
(d) if the Company shall make an assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due, or
a voluntary petition for reorganization under Title 11 of the United States Code
("Title 11") shall be filed by the Company or an order shall be entered granting
relief to the Company under Title 11 or a petition shall be filed by the Company
in bankruptcy, or the Company shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file any
answer admitting or not contesting the material allegations of a petition filed
against the Company in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company or if
the Company or its directors or majority shareholders shall take any action
looking to the dissolution or liquidation of the Company; or
(4)
<PAGE>
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or nullified or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within 120 days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company such
appointment shall not have been vacated;
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written notice
to the Company, declare the Debenture to be due and payable, whereupon the
Debenture shall forthwith mature and become due and payable, together with
interest accrued thereon, and thereafter interest shall be due, at the rate per
annum hereinabove provided, on the entire principal balance until the same is
fully paid, and on any overdue interest (but only to the extent permitted by
law), without presentment, demand, protest or notice, all of which are hereby
waived.
In case of a default in the payment of any principal of or interest on the
Debenture, the Company will pay to the Holder such further amount as shall be
sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorney's fees, expenses and disbursements. No course
of dealing and no delay on the part of Holder in exercising any right shall
operate as a waiver thereof or otherwise prejudice such Holder's rights, powers
or remedies. No right, power or remedy conferred by this Debenture upon Holder
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise.
Notwithstanding any provision contained in this Debenture to the contrary,
the Company's liability for payment of interest shall not exceed the limits
imposed by applicable usury law. If any provision hereof requires interest
payments in excess of the then legally permitted maximum rate, such provision
shall automatically be deemed to require such payment at the then legally-
permitted maximum rate.
All notices required or permitted to be given under this Debenture shall be
in writing (delivered by hand or sent certified or registered mail, return
receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 1912 Avenue K
Suite 100
Plano, TX 75054
Attn: J. David Darnell,
Chief Financial Officer
All notices shall be deemed given upon personal delivery or upon deposit of such
notice in the United States mails, with all postage affixed.
(5)
<PAGE>
This Debenture shall be governed by the laws of the State of Texas.
SA TELECOMMUNICATIONS, INC.
By:---------------------------
JACK W. MATZ, JR., Chairman
and Chief Executive Officer
(6)
<PAGE>
CONVERSION NOTICE
TO: SA TELECOMMUNICATIONS, INC.
1912 Avenue K, Suite 100
Plano, TX 75054
The undersigned Holder of this Debenture hereby irrevocably exercises his
right to convert [all] [or $ ] of this Debenture into
shares of Common Stock of SA TELECOMMUNICATIONS, INC. at the Conversion Price of
$ per share in accordance with the terms of this Debenture, and
directs that the Shares issuable and deliverable upon such conversion be
registered in the name of the undersigned and delivered to the undersigned,
together with a Debenture for the balance of the principal amount of this
Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been and
will not be at the time of acquisition by the undersigned registered under the
Securities Act of 1933, as amended, or under any state securities laws, and
hereby represents and warrants to the Company that he is acquiring the Shares
for his own account, for investment, and not with a view to, or for sale in
connection with, any distribution of such Shares; and (ii) are transferable only
in accordance with all the terms and restrictions contained in the Debenture and
in the Subscription Agreement dated March 18, 1996, to which the Holder is, or
hereby agrees to become, a party.
Dated: 19
--------------------- --
- ------------------------------- ----------------------------------
Witness Signature of Holder
----------------------------------
(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:
----------
----------------------------------
----------------------------------
----------------------------------
Address
<PAGE>
EXHIBIT 10.38
SETTLEMENT AGREEMENT
This Settlement Agreement ("Agreement") is made as of March 25, 1996
between Jesup & Lamont Capital Markets, Inc. ("Jesup & Lamont") and SA
Telecommunications, Inc., formerly known as SA Holdings, Inc. ("SATel").
WHEREAS, Jesup & Lamont and SATel have entered into that certain letter
agreement dated as of March 3, 1995 with respect to the retention of Jesup &
Lamont as SATel's financial advisor (the "Prior Engagement Agreement"), and a
dispute has arisen regarding certain payment obligations under such Prior
Engagement Agreement;
WHEREAS, Jesup & Lamont and SATel have entered into that certain (1) Share
Purchase Agreement dated as of July 31, 1995 ("Share Agreement"), pursuant to
which SATel issued to Jesup & Lamont shares of SATel's Series A Cumulative
Convertible Preferred Stock presently convertible into 1,333,336 shares of
SATel's Common Stock ("J&L Conversion Shares"), and Warrant Purchase Agreement
dated as of July 31, 1995 ("Warrant Agreement"), pursuant to which SATel issued
to Jesup & Lamont a Common Stock Purchase Warrant presently exercisable into
500,000 shares of SATel's Common Stock (the "J&L Exercise Shares");
WHEREAS, a dispute has arisen regarding the interpretation of Section
8.4(b) of the Share Agreement and Section 10.4(b) of the Warrant Agreement;
WHEREAS, the execution of a release by Jesup & Lamont is required in
connection with the execution by SATel of this Agreement;
WHEREAS, Jesup & Lamont and SATel desire to settle all disputes with
respect to the Prior Engagement Agreement, the Share Agreement, and the Warrant
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and obligations
set forth herein and for other good and valuable consideration, the sufficiency
and receipt of which is hereby acknowledged, the parties hereto agree as
follows:
1. SATEL CONSIDERATION. In satisfaction of all amounts due and owing to
Jesup & Lamont prior to the date hereof, pursuant to the Prior Engagement
Agreement or otherwise, SATel hereby agrees to (a) simultaneously with the
execution of this Agreement or within five business days thereafter, (i) pay to
Morgan, Lewis & Bockius ("MLB") the final invoice for legal fees and expenses
of MLB incurred in connection with the financing of the acquisition by SATel of
U.S. Communications, Inc. on July 31, 1995 in an aggregate amount of $50,000,
(ii) pay to Jesup & Lamont $13,000 of expenses incurred by Jesup & Lamont in
connection with the Prior Engagement Agreement, and (iii) issue to Jesup &
Lamont 50,000 shares of restricted Common Stock, $.0001 par value, of SATel (the
"Shares"), and (b) use its best efforts to have Jesup & Lamont included in the
underwriting syndicate in connection with a presently proposed underwriting of
SATel's Common Stock (the "Public Offering"), which syndicate will be led by
Rauscher, Pierce, Refsnes,
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Inc. ("RPR") (all such consideration described in this SECTION 1 being
hereinafter referred to as the SATel Consideration).
2. MUTUAL RELEASE.
(a) Jesup & Lamont, in consideration of the SATel Consideration and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, does hereby forever release, acquit, relinquish and
discharge SATel, each of SATel's present and past officers, directors,
stockholders, employees, parent and subsidiary corporations, affiliates,
partners, legal counsel, agents, servants, successors and assigns
(collectively, the "SATel Released Parties"), of and from any and all
claims, duties, debts, demands, sums of money, contracts, agreements,
obligations, indemnities, liabilities, costs, expenses, actions and causes
of action of whatever kind or character (collectively, "Claims"), whether
known or unknown, vested or contingent, both in law and in equity, arising
previously or which may arise in the future from any and all events, acts,
conduct, transactions, matters, causes or things occurring prior to the
date this Agreement is executed by Jesup & Lamont, arising out of or
related to (1) the Prior Engagement Agreement, including without
limitation, all obligations (other than SATel's indemnity obligations set
forth in Exhibit B to the Prior Engagement Agreement), and liabilities,
fees, success fees, and other amounts payable pursuant to such Prior
Engagement Agreement by any of the Released Parties other than the SATel
Consideration set forth in SECTION 1(a) of this Agreement, (2) SATel's
obligations to maintain the effectiveness of the Form S-3 Registration
Statement filed with the Securities and Exchange Commission and effective
on January 3, 1996 (the "S-3 Registration Statement") with respect to the
J&L Conversion Shares and the J&L Exercise Shares under Section 8.4(b) of
the Share Agreement and Section 10.4(b) of the Warrant Agreement (the
"Registration Obligations"), and (3) any actions taken by any of the
Released Parties in connection with SATel's obligations under the Prior
Engagement Agreement and the Registration Obligations (collectively, the
"SATel Released Matters").
(b) SATel, in consideration of the release of Jesup & Lamont set
forth IN SECTION 2(a) hereof (the "Jesup & Lamont Release") and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, does hereby forever release, acquit, relinquish and discharge
Jesup & Lamont, each of Jesup & Lamont's present and past officers,
directors, stockholders, employees, parent and subsidiary corporations,
affiliates, partners, legal counsel, agents, servants, successors and
assigns (collectively, the "Jesup & Lamont Released Parties"), of and from
any and all Claims, whether known or unknown, vested or contingent, both
in law and in equity, arising previously or which may arise in the future
from any and all events, acts, conduct, transactions, matters, causes or
things occurring prior to the date this Agreement is executed by SATel,
arising out of or related to (1) the Prior Engagement Agreement, including
without limitation, all obligations and liabilities performable or payable
pursuant to such Prior Engagement Agreement by any of the Jesup & Lamont
Released Parties other than the Jesup & Lamont Release, (2) the
Registration Obligations, and (3) any actions taken by any of the Jesup &
Lamont Released Parties in
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connection with SATel's obligations under the Prior Engagement Agreement
and the Registration Obligations (collectively, the "Jesup & Lamont
Released Matters").
(c) The Jesup & Lamont Release is intended to be binding upon Jesup &
Lamont, its legal representatives, employees, officers, directors, agents
and successors and assigns and shall inure to the benefit of each of the
SATel Released Parties and their respective successors and assigns. Nothing
in the Jesup & Lamont Release is intended to, or does modify, limit, or
release SATel from any continuing obligations under (i) the indemnity
obligations set forth in Exhibit B to the Prior Engagement Agreement, (ii)
the Share Agreement, (iii) the Warrant Agreement, or (iv) any of its
obligations under this Agreement. In connection with the Jesup & Lamont
Release:
(i) Jesup & Lamont represents and warrants to SATel that Jesup &
Lamont (A) is the sole legal and equitable holder of the Claims
asserted against SATel by Jesup & Lamont or its legal counsel with
respect to the SATel Released Matters, (B) has not assigned or
transferred all or part of any such Claims, or any of the Jesup &
Lamont Preferred Shares and the Jesup & Lamont Warrant (collectively,
the "Jesup & Lamont Shares"), (C) has not filed, commenced or
initiated any legal proceeding of any nature by or on its behalf
against any of the SATel Released Parties, and (D) has been fully
advised by its legal counsel with respect to its rights and
obligations under the Jesup & Lamont Release.
(ii) Jesup & Lamont hereby agrees (A) that the Jesup & Lamont
Release represents a compromise settlement of various matters, and
that the promises and payments in consideration of the Jesup & Lamont
Release shall not be construed to be an admission of any liability or
obligation by any of the SATel Released Parties, and (B) not to
introduce the Jesup & Lamont Release or the fact of settlement into
evidence in any action for the purpose of establishing or attempting
to provide liability against any of the SATel Released Parties.
(d) The release set forth in SECTION 2(b) above (the "SATel Release")
is intended to be binding upon SATel, its legal representatives, employees,
officers, directors, agents and successors and assigns and shall inure to
the benefit of each of the Jesup & Lamont Released Parties and their
respective successors and assigns. Nothing in the SATel Release is
intended to, or does modify, limit, or release Jesup & Lamont from any
continuing obligations under (i) the Share Agreement, (ii) the Warrant
Agreement, or (iii) any of its obligations under this Agreement. In
connection with the SATel Release:
(i) SATel represents and warrants to Jesup & Lamont that SATel
(A) is the sole legal and equitable holder of the Claims asserted
against Jesup & Lamont by SATel or its legal counsel with respect to
the Jesup & Lamont Released Matters, (B) has not assigned or
transferred all or part of any such Claims, (C) has not filed,
commenced or initiated any legal proceeding of any nature by or on its
behalf against
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any of the Jesup & Lamont Released Parties, and (D) has been fully
advised by its legal counsel with respect to its rights and
obligations under the SATel Release.
(ii) SATel hereby agrees (A) that the SATel Release represents a
compromise settlement of various matters, and that the promises and
payments in consideration of the SATel Release shall not be construed
to be an admission of any liability or obligation by any of the Jesup
& Lamont Released Parties, and (B) not to introduce the SATel Release
or the fact of settlement into evidence in any action for the purpose
of establishing or attempting to provide liability against any of the
Jesup & Lamont Released Parties.
(e) SATel and Jesup & Lamont hereby agree that each of them shall
bear their own legal fees and legal expenses incurred by them through the
date hereof in connection with the disputes which are the subject matter of
this Agreement.
3. AMENDMENTS TO SHARE AGREEMENT AND WARRANT AGREEMENT. SATel and Jesup
and Lamont hereby agree that:
(a) SATel shall, at its expense, keep the S-3 Registration Statement
effective and in compliance with the Securities Act of 1933, as amended
(the "Securities Act") with respect to the Jesup & Lamont Shares by such
action as may be necessary or appropriate until the earliest to occur of
(A) the sale of all of the 1,100,000 shares of SATel Common Stock to, and
1,100,000 shares of SATel Common Stock issuable upon exercise of warrants
issued to, the persons and entities in the September 20, 1995 private
placement of SATel Common Stock, (B) the sale of all of the Jesup & Lamont
Shares, or (c) January 2, 1998;
(b) the registration rights set forth in Sections 8.2, 8.3, 8.4, 8.5
and 8.6 of the Share Agreement (as the same shall be amended by this
SECTION 3) shall apply to the Shares from and after the date hereof;
(c) SATel shall not be obligated to keep any registration statement
other than the S-3 Registration Statement effective with respect to the
Jesup & Lamont Shares and the Shares beyond 120 days after the effective
date of such registration statement (and for the Public Offering only to
the extent agreed to with RPR for such Public Offering);
(d) Jesup & Lamont understands that as a condition to the Public
Offering, RPR may require that sales by Jesup & Lamont of the Jesup &
Lamont Shares and the Shares may be suspended other than pursuant to sales
as a selling stockholder under the registration statement related to the
Public Offering pursuant to an agreement to be negotiated between RPR and
Jesup & Lamont, and the Company's obligations with respect to the
registration rights on the Jesup & Lamont Shares and the Shares will be
suspended with respect to all other registration obligations during the
period set forth in such agreement.
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(d) Section 8.4 of the Share Agreement and Section 10.4 of the
Warrant Agreement are hereby automatically amended to the extent necessary
to accommodate the changed terms set forth in this SECTION 3.
4. AMENDMENTS TO JESUP & LAMONT WARRANT. SATel and Jesup & Lamont hereby
agree that Section 2.2(a) of the Common Stock Purchase Warrant dated July 31,
1995 issued by SATel to Jesup & Lamont entitling Jesup & Lamont to purchase
500,000 shares of Common Stock of SATel (the "Warrant") is hereby restated in
its entirety 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) subdivided its outstanding shares of Common Stock, (y)
combine its outstanding shares of Common Stock into a smaller number of
shares, or (z) issue by reclassification of its shares of Common Stock, any
shares of capital stock of the Corporation, then in any such case, (i) the
number of shares of Common Stock for which this Warrant is exercisable
immediately after the occurrence of any such event shall be adjusted to
equal the number of shares of Common Stock which a record holder of the
same number of shares of Common Stock 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 of Common Stock for which this Warrant is exercisable immediately
prior to such adjustment divided by (y) the number of shares of Common
Stock for which this Warrant is exercisable immediately after such
adjustment.
Jesup & Lamont hereby agrees to promptly deliver to SATel the original Warrant
to SATel so that SATel may reissue the Warrant to Jesup & Lamont with such
amended and restated Section 2.2(a).
5. CONSENT TO AMEND SERIES A CUMULATIVE PREFERRED STOCK. Jesup & Lamont,
as the sole holder of all 166,667 shares of SATel's issued and outstanding
Series A Cumulative Preferred Stock ("Series A Stock") hereby agrees the terms
relating to the conversion of the Series A Stock in the event of a stock
dividend, recapitalization, subdivision, combination or reclassification of
SATel's Common Stock as set forth in Section 8(a) of SATel's Certificate of
Designation with respect to the Series A Stock ("Series A Designation") shall be
amended in its entirety 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 that 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
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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, (i) the number of
shares of Common Stock into which a share of Series A Preferred Stock is
convertible immediately after the occurrence of any such event shall be
adjusted to equal the number of shares of Common Stock which a record
holder of the same number of shares of Common Stock for which a shares of
Series A Preferred Stock is convertible immediately prior to the
occurrence of such event would own or be entitled to receive after the
happening of such event, and (ii) the conversion price shall be adjusted to
equal (x) the conversion price multiplied by the number of shares of Common
Stock for which a shares of Series A Preferred Stock is convertible
immediately prior to such adjustment divided by (y) the number of shares of
Common Stock for which a shares of Series A Preferred Stock is convertible
immediately after such adjustment.
Jesup & Lamont hereby agrees that it will promptly deliver all stock
certificates representing the Series A Stock held by Jesup & Lamont to SATel in
order that SATel may place a legend on the reverse side thereof indicating that
the holder thereof has agreed to the above amendment with respect to conversion.
In the event that SATel, in its sole discretion, desires to amend the Series A
Designation to amend and restate such Section 8(a) as above provided, Jesup &
Lamont hereby irrevocably appoints Jack W. Matz, Jr. and Lynn H. Johnson, and
both or either of them, as proxies, each with the power to appoint his or her
substitute, and hereby authorizes each of them to vote all shares of Series A
Stock held by Jesup & Lamont in favor of such an amendment at any stockholder's
meeting at which such amendment shall be presented for approval and they are
appointed as proxies for no other purpose.
6. SATEL REPRESENTATIONS. SATel represents and warrants that (a) it has
full right, power and authority to enter into this Agreement and to perform all
of its obligations hereunder, and (b) this Agreement has been duly authorized
and executed and constitutes a valid and binding agreement of SA
Telecommunications, Inc. enforceable in accordance with its terms (subject to
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
relating to the rights of creditors generally and to general principles of
equity).
7. JESUP & LAMONT REPRESENTATIONS. Jesup & Lamont represents and
warrants that (a) it has full right, power and authority to enter into this
Agreement and to perform all of its obligations hereunder, (b) this Agreement
has been duly authorized and executed and constitutes a valid and binding
agreement of Jesup & Lamont enforceable in accordance with its terms (subject to
bankruptcy, insolvency, reorganization, moratorium, and other similar laws
relating to the rights of creditors generally and to general principles of
equity), (c) 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, (d) it is purchasing the Shares for its own investment and not with
a present view to any distribution thereof in violation of any applicable
securities laws, (e) it understands that if it should in the future to decide to
dispose of any of the Shares, it may do so only in compliance with the
Securities Act and applicable state securities laws, (f) it is an "accredited
investor" as defined in Rule 501(a) under the Securities Act, and (g) it has
received and reviewed copies of SATel's prospectus
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dated January 3, 1996 and all reports on Form 10-KSB, Form 10-QSB and Form 8-K
incorporated by reference therein or filed since such date through the date
hereof.
8. COVENANTS WITH RESPECT TO THE SHARES. Jesup & Lamont agrees that it
will not sell or otherwise dispose of the Shares unless (a) such Shares have
been registered under the Securities Act and, to the extent required, under any
applicable state securities laws, or (ii) such 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) SATel has been furnished with an
opinion or opinions of counsel to Jesup & Lamont (which counsel and opinion(s)
shall be reasonably satisfactory to SATel) to the effect that registration under
the Securities Act is not required for the transfer as proposed. SATel may
endorse on all stock certificates representing the Shares a legend stating or
referring to the transfer restrictions in this paragraph; provided, however,
that no such legend shall be endorsed on any certificates which, when issued,
are no longer subject to the restrictions of this paragraph; provided further,
that if a transfer is made pursuant to clause (i) or (ii) (other than Rule 144A)
of this SECTION 8 or if an opinion of counsel provided pursuant to clause (iii)
of this SECTION 8 concludes that the legend is no longer necessary, SATel will
deliver upon transfer certificates without such legends.
9. NO THIRD PARTY BENEFICIARIES. This Agreement has been and is made
solely for the benefit of Jesup & Lamont and SATel and each of the persons,
agents, employees, officers, directors and controlling persons referred to in
SECTION 2 hereof and their respective heirs, executors, personal
representatives, successors and assigns, and nothing contained in this Agreement
shall confer any rights upon, nor shall this agreement be construed to create
any rights in, any person who is not a party to such agreement, other than as
set forth in this SECTION 9.
10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of New York excluding conflict of law rules which might
result in the application of the laws of any other jurisdiction. If all
provisions cannot be validated and made legal and enforceable by application of
the laws of one or more such jurisdictions, then the provisions hereof shall be
severable, and the illegal, invalid or unenforceable provisions shall be deemed
stricken, and all remaining provisions shall remain in full force and effect and
shall not be affected by the provision so stricken and shall be enforceable to
the greatest extent possible.
11. ENTIRE AGREEMENT. This Agreement constitutes the entire understanding
and agreement between the parties with respect to its subject matter and there
are no agreements or understanding with respect to the subject matter which are
not contained in the Agreement. This Agreement may be modified only in writing
signed by the party to be charged hereunder.
12. COUNTERPARTS. This Agreement may be executed in multiple
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.
13. FORUM AND VENUE. EACH PARTY CONSENTS TO THE PERSONAL JURISDICTION OF
THE STATE AND FEDERAL COURTS LOCATED IN THE STATE
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OF TEXAS IN CONNECTION WITH ANY CONTROVERSY RELATED TO THIS AGREEMENT (OTHER
THAN THE INDEMNIFICATION OBLIGATIONS OF SATEL UNDER EXHIBIT B OF THE PRIOR
ENGAGEMENT AGREEMENT (THE "INDEMNIFICATION OBLIGATIONS"), WHICH SHALL REMAIN IN
NEW YORK) AND WAIVES ANY ARGUMENT THAT VENUE IN ANY SUCH FORUM IS NOT
CONVENIENT. EACH PARTY AGREES THAT ANY LITIGATION INITIATED BY EITHER OF THEM
IN CONNECTION WITH THIS AGREEMENT (OTHER THAN THE INDEMNIFICATION OBLIGATIONS)
SHALL BE VENUED IN A COURT OF COMPETENT JURISDICTION LOCATED IN DALLAS COUNTY,
TEXAS.
14. NOTICES. All statements, requests, notices and advices hereunder
shall be in writing, and shall be sufficient in all respects when delivered
personally or by nationally recognized overnight courier service or sent by
certified or registered mail postage or delivery fee prepaid to the address and
persons stated below:
if to SATel, to SA Telecommunications, Inc., 1912 Avenue K, Suite 100,
Plano, Texas 75074, Attention: Jack W. Matz, Jr., Chairman and Chief
Executive Officer, with a copy to Vice President and General Counsel at
1600 Promenade Center, Suite 1510, Richardson, TX 75080,
if to Jesup & Lamont or any Indemnified Party, to Jesup & Lamont Capital
Markets, Inc., 650 Fifth Avenue, New York, New York 10019, Attention:
Howard F. Curd and Reuben F. Richards, with a copy to Ronald D. Lefton,
Esq., Camhy, Karlinsky & Stein LLP, 1740 Broadway, 16th Floor, New York,
New York 10019,
or to such other persons or to such other addresses as one party shall
furnish to the other party hereafter. Any such statements, requests,
notices or advices shall be deemed effective when delivered in person or by
overnight courier service or if sent by registered or certified mail, on
the third business day after such communication is deposited in the mail as
provided above.
15. PERMISSION TO DISCLOSE. The parties hereto acknowledge and agree that
this Agreement may be described in and/or filed as an exhibit to any
registration statements and any reports and proxy statements filed by SATel
pursuant to the Securities Act or the Securities Exchange Act of 1934.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
first above written.
SA TELECOMMUNICATIONS, INC.
By:
-----------------------
Jack W. Matz, Jr.
Chairman and Chief
Executive Officer
JESUP & LAMONT CAPITAL MARKETS, INC.
BY:
-----------------------
TITLE:
--------------------
Howard F. Curd
Managing Director
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EXHIBIT 10.39
THE DEBENTURE, AND ANY SHARES OF COMMON STOCK ACQUIRED UPON CONVERSION
THEREOF, HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") OR ANY STATE SECURITIES LAWS, EXCEPT AS EXPRESSLY
PROVIDED IN PARAGRAPH 5 OF THIS SUBSCRIPTION AGREEMENT, AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF (A) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE
STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL ACCEPTABLE TO COUNSEL FOR
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED TRANSFER
MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE SECURITIES
LAW.
SUBSCRIPTION AGREEMENT
This Subscription Agreement ("Agreement"), made as of March 18, 1996 and
effective as set forth herein, by (i) the undersigned subscriber ("Subscriber"),
on the one hand, and (ii) SA Telecommunications, Inc., a Delaware corporation
("Seller"), on the other hand, will confirm the complete understanding and
agreement among the parties with respect to the following.
1. PURCHASE, SALE AND DELIVERY OF DEBENTURES.
(a) Upon the terms and conditions herein set forth, and on the basis of
the respective representations herein contained, Subscriber hereby subscribes
for and agrees to purchase from the Seller, 9% convertible subordinated
debentures ("Debentures") of Seller in the form of the certificate, and
containing the terms set forth in, Exhibit "A" attached hereto. The Debentures
subscribed for by Subscriber, the purchase price to be paid by Subscriber
("Purchase Price") and the conversion price for the shares of common stock of
Seller ("Shares") into which the Debentures are convertible are set forth in
Schedule 1 annexed hereto and Exhibit "A" attached hereto (the "Schedule")
(Debentures, Shares, the Redemption Shares referred to in the Debentures (the
"Redemption Shares") and Penalty Shares referred to in Section 5(c) hereto are
sometimes hereinafter collectively referred to as "Securities").
(b) The Subscriber agrees to pay the Purchase Price and shall deliver to
Seller herewith a check in the full amount of the Purchase Price payable to
Seller, which sum represents full payment for the Debentures.
(c) The Subscriber understands and agrees that such check delivered by him
pursuant to this Paragraph 1 will be held by Seller until a closing ("Closing")
on the Debentures has occurred, and that the amount of such check will be
returned without interest, if such Closing does not occur on or before the
Closing Date specified on the Schedule or Subscriber withdraws its subscription
for the Debentures prior to the Closing Date by written notice of such
withdrawal to Seller.
(d) The Subscriber understands that the proceeds will be used for the
payment of certain indebtedness of Seller and/or for working capital purposes.
(e) Upon Closing, a certificate in the form of Exhibit "A" evidencing the
Debentures shall be delivered by the Seller to the Subscriber.
2. REPRESENTATIONS AND COVENANTS OF SUBSCRIBER. Subscriber hereby represents,
warrants and covenants to the Seller as follows:
(a) Subscriber has full power and lawful authority to execute and deliver
this Agreement and to purchase the Debentures in accordance with the terms
hereof and this Agreement constitutes the legally valid and binding agreement of
Subscriber;
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(b) The execution and delivery of this Agreement and the consummation of
the sale of the Debentures and the transactions contemplated hereby do not and
will not conflict with or result in the breach by Subscriber of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other material agreement or instrument to which the Subscriber is a
party or by which Subscriber or any of the Subscriber's properties or assets are
bound, or any existing applicable law, rule or regulation or any applicable
decree, judgment or order of any court, regulatory body, administrative agency
or other governmental body having jurisdiction over any of Subscriber's
properties or assets;
(c) Subscriber has made its own investigation of Seller and its business
prospects and of the risks associated with an investment in Seller's Securities
and has received, read and understands the information contained in the Seller's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1994, the
Quarterly Reports on Form 10-QSB (as amended) for the quarterly periods ended
March 31, 1995, June 30, 1995, and September 30, 1995, the Definitive Proxy
Statement dated July 5, 1995, all current reports (as amended) filed under the
Securities and Exchange Act of 1934, as amended, from December 31, 1994 through
the date hereof and that certain prospectus dated January 3, 1996 which
prospectus is included in Seller's currently effective Registration Statement on
Form S-3 filed with the Securities and Exchange Commission, all delivered by
Seller to Subscriber, and acknowledges that no representation or warranty with
respect to Seller's business prospects has been made in this Agreement by or on
behalf of Seller;
(d) Subscriber is acquiring the Debentures for his own account, for
investment only, and not with a view toward resale or distribution in a manner
that would require registration under the Securities Act of 1933, as amended
(the "Securities Act"), or any applicable state securities laws, and that he
will not sell or otherwise transfer the Securities, except in compliance with
state and federal law;
(e) Subscriber has, either alone or together with his Purchaser
Representative, if any, such knowledge and experience in financial and business
matters that he (or they) is (are) capable of evaluating the merits and risks of
his investment in the Securities;
(f) Subscriber is able to bear the economic risk of losing his entire
investment in the Securities;
(g) Subscriber's overall commitment to investments which are not readily
marketable is not disproportionate to his net worth and current and foreseeable
needs, and his investment in the Securities will not cause such overall
commitment to become excessive;
(h) That (i) if a natural person, Subscriber is at least twenty-one (21)
years of age, (ii) he has adequate means of providing for his current and
foreseeable needs and personal contingencies, (iii) he is aware that no market
exists or may exist for the resale of the Securities and he has no need for
liquidity in his investment in the Securities, (iv) he maintains his domicile
(and is not a transient or temporary resident) at the address shown on the
Schedule, (v) all of his investments in and commitments to non-liquid
investments are, and after his purchase of the Debentures will be, reasonable in
relation to the undersigned's net worth and current and foreseeable needs and
(vi) the personal financial information provided by the undersigned accurately
reflects his financial condition, with respect to which he does not anticipate
any material adverse changes;
(i) Subscriber agrees and understands that Seller shall have the right, in
its sole discretion, to accept or reject this subscription, in whole or in part,
at any time prior to Closing, or to allocate to him only part of the Debentures
for which he has subscribed. Seller will notify him whether this subscription
is accepted or rejected. In the event his subscription is rejected, his payment
will be returned to him, without interest, and all of his obligations hereunder
shall terminate;
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(j) Subscriber agrees, acknowledges and understands that none of the
Securities have been registered under the Securities Act of 1933, as amended, or
the securities law of any state and, as the result thereof, is subject to
substantial restrictions on transfer, which restrictions are described herein;
(k) Subscriber agrees and understands that he will not sell or otherwise
transfer any Securities or any interest therein except pursuant to an effective
registration statement under the Securities Act and applicable state law or
unless the Subscriber provides Seller with an opinion of counsel which is
satisfactory to counsel for Seller (both as to the issuer of the opinion and the
form and substance thereof) that the transfer of Securities: (i) may be effected
without registration under the Securities Act, and (ii) does not cause the
violation of any state securities law (including any investment suitability
standards) applicable to Seller.
(l) Subscriber may be precluded from selling or otherwise transferring or
disposing of any Securities, or any portion thereof for an indefinite period of
time or at any particular time and may, therefore, have to bear the economic
risk of investment in the Securities for an indefinite period;
(m) Subscriber understands that an investment in Seller involves certain
risks and has taken full cognizance of and understands all of the risk factors
relating to the purchase of Securities;
(n) Subscriber understands that no federal or state agency has approved or
disapproved the Securities, passed upon or endorsed the merits of the offering
thereof, or made any finding or determination as to the fairness of the
Securities for investment;
(o) Subscriber acknowledges that Seller has made available to him and his
Purchaser Representative, if any, the opportunity to ask questions of, and
receive answers from, Seller concerning the terms and conditions of the offering
and to obtain any additional information, to the extent that Seller or any
officer thereof possesses such information, or can acquire it without
unreasonable effort or expense, necessary to verify the accuracy of the
information given to him or otherwise to make an informed investment decision;
(p) Subscriber acknowledges that, if he has used the services of a
Purchaser Representative in connection with his investment in Seller, his
Purchaser Representative has disclosed, by submitting to him a Purchaser
Representative's Letter, in the form approved by Seller, any material
relationship between such Purchaser Representative or his affiliates and Seller
and its affiliates, which now exists or mutually is understood to be
contemplated or which has existed at any time during the previous two (2) years,
and further setting forth any compensation received or to be received as a
result of such relationship;
(q) SUBSCRIBER ACKNOWLEDGES THAT IF HE IS A NEW YORK RESIDENT, NEITHER
THIS SUBSCRIPTION AGREEMENT NOR ANY OTHER OFFERING MATERIAL HAS BEEN FILED WITH
OR REVIEWED BY THE ATTORNEY GENERAL OF THE STATE OF NEW YORK PRIOR TO ITS
ISSUANCE AND USE AND THAT THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THE OFFERING;
(r) Subscriber does not own, directly or indirectly (within the meaning of
the attribution rules set forth in Section 318 of the Internal Revenue Code of
1986, as amended), any stock or other interests in Seller or any member of its
affiliated group as that term is defined in Section 1504(a) of the Internal
Revenue Code of 1986, as amended;
(s) Subscriber is an "accredited investor" as such term is defined in
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act;
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(t) If the Subscriber is a corporation, trust, partnership or other
entity, it was not formed for the specific purpose of acquiring the Securities;
(u) Subscriber agrees and understands that he is entitled to withdraw his
subscription hereunder prior to the Closing Date, provided that he provides the
notice set forth in Paragraph 1(c) hereof;
(v) Subscriber has relied solely upon his own knowledge and experience, or
that of his personal advisors, in determining the economic and tax benefits, if
any, of the investment with respect to his individual economic and tax situation
and in determining the tax consequences to him of being an investor in Seller;
(w) Subscriber understands that the Securities are being offered and sold
in reliance on specific exemptions from the registration requirements of federal
and state securities laws and that Seller and controlling persons thereof are
relying upon the truth and accuracy of the representations, warranties,
covenants, agreements, acknowledgements, and understandings set forth herein in
order to determine the applicability of such exemptions and the suitability of
the Subscriber to acquire such Securities;
(x) Subscriber acknowledges that, if he is purchasing the Securities
subscribed for hereby in a fiduciary capacity, the above representations,
warranties, covenants, agreements, acknowledgements and understandings in this
Section 2 shall be deemed to have been made on behalf of the person or persons
for whom he is so purchasing.
3. REPRESENTATIONS OF SELLER. Seller represents and warrants to Subscriber
that:
(a) Seller is an issuer (other than an investment company registered or
required to register under the U.S. Investment Company Act of 1940, as amended)
that (i) has a class of securities registered pursuant to Section 12(b) or 12(g)
of the Securities and Exchange Act of 1934, as amended (the "Exchange Act"), or
is required to file reports pursuant to Section 15(d); and (ii) has filed all
material required to be filed by it pursuant to Section 13(a) or 15(d) of the
Exchange Act for at least the twelve (12) months immediately preceding the date
hereof;
(b) The Seller presently has, and as of the Closing will have, full legal
right, power and capacity and all necessary consents, approvals and
authorizations as may be required to execute and deliver this Agreement and to
issue and sell the Debentures to Subscriber pursuant hereto and thereto and in
the manner contemplated hereby and thereby;
(c) When delivered pursuant hereto, the Debentures will be duly and
validly authorized and issued, and free and clear of any and all liens, charges,
restrictions (except as may be imposed by U.S. federal and state securities laws
and those pursuant to the Subordination Agreement of even date herewith between
Norwest Bank Minnesota, National Association and Subscriber (the "Subordination
Agreement"), claims and encumbrances and will not subject the holders thereof to
any liability by reason of holding such securities;
(d) Seller is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Delaware;
(e) When executed and delivered by Seller, this Agreement will be duly and
validly executed and delivered by Seller and will be Seller's legally binding
obligation enforceable against Seller in accordance with its terms, except to
the extent that: (i) such enforcement may be limited by bankruptcy, insolvency
or similar laws now or hereafter in effect relating to creditors' rights and
remedies generally;
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and (ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought;
(f) The execution and delivery of this Agreement and the consummation of
the issuance of the Debentures and the transactions contemplated hereby do not
and will not conflict with or result in the breach by Seller of any of the terms
or provisions of, or constitute a default under, any indenture, mortgage, deed
of trust or other material agreement or instrument to which such Seller is a
party or by which Seller or any of such Seller's properties or assets are bound,
or any existing applicable law, rule or regulation or any applicable decree,
judgment or order of any court, Federal or State regulatory body, administrative
agency or other governmental body having jurisdiction over any of Seller's
properties or assets; and
(g) There are no preemptive rights, rights of first refusal, repurchase
rights or any other right of Seller or any third party as to the Debentures,
except as described in the Debentures.
4. INDEMNIFICATION. The Subscriber acknowledges that he understands the
meaning of the representations, warranties, covenants, agreements,
acknowledgments and understandings made by him in this Subscription Agreement
and hereby agrees to indemnify and hold harmless Seller any subsidiary of
Seller, and each shareholder, officer, director, employee, legal counsel or
agent of any of the foregoing, from and against any and all losses, costs,
expenses, damages, liabilities and interest (including, without limitation,
court costs and attorneys' fees) arising out of or due to a breach by the
Subscriber or any inaccuracy or incompleteness, of any such representations,
warranties, covenants, agreements, acknowledgments or understandings. The
Seller acknowledges that it understands the meaning of the representations,
warranties, covenants, agreements, acknowledgments and understandings made by it
in this Subscription Agreement and hereby agrees to indemnify and hold harmless
Subscriber, any subsidiary of Subscriber, and each shareholder, officer,
director, employee, legal counsel or agent of any of the foregoing, from and
against any and all losses, costs, expenses, damages, liabilities and interest
(including, without limitation, court costs and attorneys' fees) arising out of
or due to a breach by the Seller or any inaccuracy or incompleteness, of any
such representations, warranties, covenants, agreements, acknowledgments or
understandings. Seller represents and warrants to Subscriber that: (i) the
filed materials provided to Subscriber described in Section 2(c) hereof,
contain, as of the date each such filing was made, no untrue statement of
material fact or an omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and since
the date of such filings there has been no material adverse change in the
financial condition of the Seller; and (ii) the information provided to
Subscriber described in Section 2(o) hereof is true and correct in all material
respects as of the date such information was provided to Subscriber. All such
representations, warranties, covenants, agreements, acknowledgments and
understandings shall survive the delivery of this Subscription Agreement and the
purchase by the undersigned of any Debentures.
5. REGISTRATION RIGHTS.
(a) If the Seller at any time prior to March 18, 1999 proposes to register
any of its securities under the Act (except registration solely for registration
of shares in connection with an employee benefit plan or a merger, consolidation
or business combination or exchange offer or offering of securities solely to
Seller's existing security holders), whether or not for sale for its own
account, it will each such time give prompt written notice to the Subscriber of
its intention to do so that Subscriber may include the Shares, the Redemption
Shares, if any, and the Penalty Shares, if any (collectively, the "Debenture
Securities"), in such registration. Upon the written request of the Subscriber
within 10 days after the receipt of any such notice (which request shall specify
the Debenture Securities, if any, intended to be disposed of by the Subscriber
and the intended method of disposition thereof and a list of blue sky
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jurisdictions reasonably proposed by Subscriber), the Seller will use its
reasonable best efforts to effect the registration under the Act of all
Debenture Securities, if any, which the Seller has been so requested to register
by the Subscriber, to the extent requisite to permit the disposition (in
accordance with the intended methods thereof as aforesaid) of the Debenture
Securities so to be registered, provided that if the Seller shall determine for
any reason not to register or to delay the registration of such securities the
Seller may, at its sole election, give written notice of such determination to
the Subscriber and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Debenture
Securities, if any, in connection with such registration, and (ii) in the case
of a determination to delay registering, shall be permitted to delay registering
any Debenture Securities, for the same period as the delay in registering such
other securities. The registration expenses (and transfer taxes, if any) in
connection with each registration requested under this Section 5 shall be paid
by the Seller, except that all fees and expenses of counsel to the Subscriber,
and any underwriting discounts and sales commissions attributed to Subscriber,
shall be paid by the Suscriber. The provisions of this Section 5(a) are subject
to the provisions of Section 5(c).
(b) If, in any incidental registration referred to in Section 5(a) above,
the Seller or underwriter, if any, determines that the number of securities
proposed to be sold in such registration exceeds the number that can be sold in
such offering without having a material effect on the success of the offering
(including, without limitation, an impact on the selling price or the number of
shares that any participant may sell), the Seller will include in such
registration only the number of securities that, in the opinion of the Seller or
such underwriter, as the case may be, can be sold without having a material
adverse effect on the success of the offering as follows: (1) first, all of the
shares to be issued and sold by the Seller, (2) second, all of the shares to be
registered pursuant to a demand made under any contract or contracts giving the
holder thereof the right to demand such registration, and (3) third, the
Debenture Securities requested to be included in such registration by the
Subscriber and the shares of Common Stock of the Seller requested to be included
by any other person, pro rata, on the basis of the aggregate number of shares of
common stock, including the Debenture Securities requested to be included.
(c) Notwithstanding the provisions of Section 5(a) hereof, if on or before
July 31, 1996, no registration statement with respect to the offering and sale
of the Shares which may be acquired by Subscriber upon conversion of the
Debentures purchased hereunder has been declared effective, the Seller shall
make a penalty payment in the form of delivery of 2,353 shares of Seller's
restricted common stock within three business days following July 31, 1996 (the
"Penalty Shares"). Notwithstanding the foregoing, the penalty set forth in this
Section 5(c) shall not be payable if Subscriber chooses not to be included in a
registration statement filed by Seller pursuant to Section 5(a) hereof.
(d) In the event that the Seller shall take action to permit a public
offering or sale or other distribution of the Shares pursuant to Subparagraphs
5(a) and 5(b) above, the Seller shall:
(i) Supply to the Subscriber two executed copies of each registration
statement and a reasonable number of copies of the preliminary, final and other
prospectus or offering circular in conformity with requirements of the Act and
the Rules and Regulations promulgated thereunder and such other documents as the
Subscriber shall reasonably request.
(ii) Cooperate in taking such action as may be necessary to register
or qualify the Shares under such other securities acts or blue sky laws of such
jurisdictions as the Subscriber shall reasonably request and to do any and all
other acts and things which may be necessary or advisable to enable the
Subscriber of such Shares to consummate such proposed sale or other disposition
of the Shares in any such jurisdiction; provided, however, that in no event
shall the Seller be obligated, in connection therewith, to qualify to do
business or to file a general consent to service of process in any jurisdiction
where it shall not then be qualified, except in the State of New York;
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(iii) Keep effective for a period of not less than nine (9) months
after the initial effectiveness thereof all such registrations or Notifications
under the Act and cooperate in taking such action as may be necessary to keep
effective such other registrations and qualifications, and do any and all other
acts and things for such period, except that Seller's registration statements
filed on Form SB-2 shall not be subject to the provisions of this Clause (d)
(iii);
(iv) Indemnify and hold harmless Subscriber and each underwriter,
within the meaning of the Act, who may purchase from or sell for Subscriber, any
Shares, from and against any and all losses, claims, damages, and liabilities
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing, defending or settling any claim) arising
from (1) any untrue statement of a material fact contained in a registration
statement furnished pursuant to Clause (d)(i) of this Subparagraph, or any
prospectus or offering circular included therein, or (2) any omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading (unless such untrue statement or omission was
based upon information furnished or required to be furnished in writing to the
Seller by or on behalf of such Subscriber or underwriter expressly for use
therein), which indemnification shall include each person, if any, who controls
any such Subscriber or underwriter, within the meaning of the Act; provided,
however, that the Seller shall not be so obligated to indemnify any such
Subscriber or underwriter or controlling person unless such Subscriber and
underwriter shall at the same time, and the Subscriber of the Debentures , by
accepting the same, and any transferee of such Debentures, by accepting the
transfer of the same, do hereby agree to, indemnify the Seller, its directors,
officers, and each person, if any, who controls the Seller within the meaning of
the Act, from and against any and all losses, claims, damages and liabilities
(including, but not limited to, any and all expenses whatsoever reasonably
incurred in investigating, preparing, defending or settling any claim) arising
from (3) any untrue statement of a material fact contained in any registration
statement or any amendment to any registration statement or prospectus or
offering circular furnished pursuant to Clause (d)(i) of this Subparagraph, or
(4) any omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but the indemnity of
such Subscriber, underwriter or controlling person shall be limited to liability
based upon information furnished, in writing to the Seller by or on behalf of
such Subscriber or underwriter or controlling person expressly for use therein.
The indemnity agreement of the Seller herein shall not inure to the benefit of
any such Subscriber or underwriter (or to the benefit of any person who controls
such Subscriber or underwriter) on account of any losses, claims, damages,
liabilities (or actions or proceedings in respect thereof) arising from the sale
of any of such Shares by such Subscriber or underwriter to any person if such
Subscriber or underwriter failed to send or give a copy of the prospectus or
offering circular furnished pursuant to Clause (d)(i) of this Subparagraph, as
the same may then be supplemented or amended, to such person with or prior to
the written confirmation of the sale involved.
(e) The Seller's obligations under Subparagraphs 5(a) and 5(b) shall be
conditioned upon the receipt by the Seller in writing within five business days
following the Seller's request therefor of:
(i) Information as to the terms of such public offering furnished by
or on behalf of Subscriber intending to make a public distribution of his
Debenture Securities, if any; and
(ii) Such other information as the Seller may reasonably require from
Subscriber or any underwriter for inclusion in such registration statement or
post-effective amendment.
6. EFFECTIVE DATE/CLOSING DATE. This Agreement shall become effective upon,
and the Closing Date shall be, the date set forth in the initial paragraph of
this Agreement.
7. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Texas of the United States without
regard to the conflicts of laws rules thereof.
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8. PRESUMPTION. In interpreting the terms of this Agreement, no presumption
shall arise as a result of the role of any party in the drafting of this
Agreement.
9. COUNTERPARTS AND FACSIMILE. This Agreement may be executed on facsimile
copies in two (2) or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
10. NO ASSIGNMENT. The undersigned agrees not to transfer or assign this
Subscription Agreement or any interest of the undersigned in the subscription in
the Debentures hereunder. Any attempted transfer or assignment shall be void
and without force or effect.
11. BINDING AGREEMENT; SURVIVAL. This Subscription Agreement (a) shall be
binding upon the undersigned and the heirs, executors, administrators, personal
representatives and successors of the undersigned, (b) shall survive the
purchase of the Debentures, and (c) shall, if the undersigned consists of more
than one person, be the joint and several obligation of all such persons. For
purposes of this Subscription Agreement, the singular shall include the plural
and the plural shall include the singular, and the masculine shall include the
feminine and the neuter, as the context may require.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first written above.
"Subscriber"
___________________________
MOSES ELIAS
"Seller"
SA TELECOMMUNICATIONS, INC., a Delaware corporation
By:______________________________________
Jack W. Matz, Jr., Chairman and
Chief Executive Officer
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SCHEDULE 1
TO THE
SUBSCRIPTION AGREEMENT
1. Principal Amount of Debentures: $50,000
2. Purchase Price for
Debentures: $50,000
3. Name and Address of Subscriber: Moses Elias
c/o Broad Capital Associates
152 West 57th Street
54th Floor
New York, NY 10019
4. Maturity Date: March 18, 1997
5. Conversion Price: Equal to the lower of (i) 75% of the
average closing price of
the Common Stock of the Seller
as traded on NASDAQ-STEL for the five
days immediately preceding the date of
Subscriber's notice to Seller of
the exercise of its right to convert
the Debentures into shares of
Common Stock or (ii) $1.75 per Share.
6. Number of certificates: One
7. Denominations: $50,000
8. Name appearing on Debentures: Moses Elias
9. Delivery method for Debentures: Bonded Courier
10. Closing Date: March 18, 1996
11. Wire Transfer Instructions for
Remittance of Purchase Price
of Debentures: ABA# 111 907 455
Account #010-08143 Operating
Compass Bank, Dallas, Texas
1-800-239-2265, Ext. 3851
Account Name: SA Holdings, Inc.
12. Subordinated As provided in Exhibit B hereto
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EXHIBIT 10.40
EXHIBIT "A"
THIS DEBENTURE, AND ANY SHARES ACQUIRED UPON CONVERSION HEREOF, HAVE NOT
BEEN AND WILL NOT BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(THE "ACT") OR ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL OF HOLDER ACCEPTABLE TO COUNSEL
FOR THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED AND THAT THE PROPOSED
TRANSFER MAY BE MADE WITHOUT VIOLATION OF THE ACT AND ANY APPLICABLE STATE
SECURITIES LAW. NOTWITHSTANDING THE FOREGOING, THIS DEBENTURE, AND ANY SHARES
ACQUIRED UPON CONVERSION HEREOF, HAVE BEEN OR WILL BE ISSUED PURSUANT TO
REGULATION D PROMULGATED UNDER THE ACT. THE INDEBTEDNESS EVIDENCED HEREBY IS
SUBJECT TO THE PROVISIONS OF A SUBORDINATION AGREEMENT BETWEEN HOLDER AND
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION.
No. D-5
$50,000 March 18, 1996
SA TELECOMMUNICATIONS, INC.
9% CONVERTIBLE SUBORDINATED DEBENTURE
DUE MARCH 18, 1997
SA TELECOMMUNICATIONS, INC. (the "Company"), a Delaware corporation, for
value received, and intending to be legally bound, hereby promises to pay to the
order of MOSES ELIAS or registered assigns, the aggregate principal amount of
Fifty Thousand Dollars ($50,000.00) on March 18, 1997 or such earlier date as
provided in Paragraph (a) under the heading "Conversion of Debenture" below
("Maturity Date"), with interest from the date hereof (computed on the basis of
a 360-day year of twelve 30-day months), payable on April 1, 1996 and the first
day of each calendar quarter thereafter, on the unpaid principal balance at the
rate of 9% per annum until such unpaid principal balance shall become due and
payable (whether at maturity or by acceleration or otherwise). Overdue
principal payments and (to the extent permitted by applicable law) any overdue
interest shall accrue interest at 11% per annum until paid, which interest shall
be payable on demand.
Payments of principal and interest on this Debenture shall be made in
lawful money of the United States of America by delivery of a check payable in
New York Clearing House funds to the address provided by the payee as shown on
the Debenture Register provided neither the Company or the Holder have exercised
its conversion rights. The Company may treat the person in whose name this
Debenture is registered (the "Holder") on the Debenture Register kept by the
Company as the owner of this Debenture for the purpose of receiving payment and
for all other purposes, and the Company shall not be affected by any notice to
the contrary. This Debenture is transferable only (i) in accordance with the
terms hereof and (ii) by surrender thereof at an office or agency of the Company
where this Debenture is payable, duly endorsed or accompanied by a written
instrument duly executed by the Holder of this Debenture or his attorney duly
authorized in writing.
<PAGE>
CONVERSION OF DEBENTURE. This Debenture may be converted into shares of
Common Stock of the Company, as follows:
(a) CONVERSION. Subject to and upon compliance with the provisions
of this section captioned "Conversion of Debenture", at the option of the
Holder, at any time following the date hereof, the Debenture may be converted in
whole, or from time to time in part, into fully-paid and non-assessable shares
of Common Stock, of the Company (the "Shares"), at a conversion price per Share
equal to the lower of (i) seventy-five percent (75%) of the average closing
price of the Common Stock of the Company as traded on the NASDAQ-STEL for the
five days immediately preceding the date of Holder's notice to Company of
Holder's intention to exercise its right of conversion as set forth herein or
(ii) $1.75 per Share (the "Conversion Price"). The conversion as set forth
herein shall be subject to such adjustment or adjustments, if any, of such
Conversion Price and of the securities or other property issuable upon such
conversion as set forth below, and, (i) in the case of an election by Holder to
convert, upon delivery of the form of conversion notice attached thereto (the
"Holder's Conversion Notice"), duly executed by the Holder thereof, and (ii) in
the case of an election by Company to convert, upon receipt by the Holder of a
notice from Company delivered to Holder's address set forth on the register of
the Company of Company's election to convert, which notice shall be similar in
form to the form of Holder's Conversion Notice attached hereto and made a part
hereof ("Company's Conversion Notice"). Holder agrees that in the event it
exercises its right of conversion hereunder, it shall deliver the original
Debenture to the Company as promptly as practicable following the date of such
conversion. Upon receipt of the Company's Conversion Notice, the Holder shall
deliver the Debenture to the offices of the Company as directed by Company. The
Holder's Conversion Notice and the Company's Conversion Notice shall state the
principal amount thereof to be so converted and shall include or be accompanied
by representations as to the Holder's investment intent substantially similar to
those contained in this Debenture. Shares issuable upon conversion of the
Debenture shall be issued in the name of the Holder and shall be transferable
only in accordance with all of the terms and restrictions contained herein and
in the Subscription Agreement of even date hereof to which the original Holder
hereof is a party. Company agrees that it shall promptly direct its transfer
agent to prepare the stock certificates for the Shares within three business
days following its receipt of Holder's Conversion Notice, and shall use its best
efforts to ensure that such certificates are issued by said transfer agent and
delivered to Holder as promptly as practicable. Upon such conversion, Company
shall pay all accrued and unpaid interest through the conversion date on the
Debenture or such part thereof delivered for conversion in Company's Shares of
Common Stock at the Conversion Price. No fractional Shares shall be issued or
delivered upon conversion of the Debenture. In case the Debenture shall be
surrendered for the conversion of only a portion of the principal amount
thereof, the Company shall, at the time of issuing the Shares of Common Stock
issuable upon the conversion of such portion, execute and deliver to the Holder
of the Debenture so surrendered a new note equal in principal amount to the
unconverted portion of the surrendered Debenture, dated the most recent date to
which interest shall have been paid on the surrendered Debenture. HOLDER HEREBY
ACKNOWLEDGES THAT IT HAS RECEIVED AND READ THE DOCUMENTS REFERENCED IN PARAGRAPH
2(c) OF THAT CERTAIN SUBSCRIPTION AGREEMENT OF EVEN DATE HEREWITH BY AND BETWEEN
HOLDER AND COMPANY.
(b) ADJUSTMENTS.
(i) SHARES INCLUDED IN COMPUTATION. The number of shares of
Common Stock at any time outstanding for any purpose hereunder shall not include
any shares of Common Stock then owned or held by or for the account of the
Company.
(ii) SUBDIVISION OR COMBINATION. Whenever the Company shall
subdivide or combine the outstanding shares of Common Stock issuable upon
conversion of this Debenture, including
(2)
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stock dividends and stock splits, the Conversion Price in effect immediately
prior to such subdivision or combination shall be proportionately decreased
in the case of subdivision or increased in the case of combination effective
at the time of such subdivision or combination.
(iii) RECLASSIFICATION OR CHANGE. Whenever any
reclassification or change of the outstanding shares of Common Stock shall occur
(other than a change in par value, or from par value to no par, or from no par
to par value, or as a result of a subdivision or combination) effective
provision shall be made whereby the Holder shall have the right, at any time
thereafter, to receive upon conversion of this Debenture the kind of stock,
other securities or property receivable upon such reclassification or change by
a holder of the number of shares of Common Stock issuable upon conversion of
this Debenture immediately prior to such reclassification or change.
Thereafter, the rights of the Holder with respect to the adjustment of the
amount of securities or other property obtainable upon conversion of this
Debenture shall be appropriately continued and preserved, so as to afford as
nearly as may be possible protection of the nature afforded by this paragraph
(b). The provisions of this clause (iii) shall apply to successive transactions
of the nature to which it relates.
(c) NOTICES OF RECORD DATE. In case
(i) the Company shall declare a dividend (or make any other
distribution) on its shares of Common Stock payable otherwise than in cash out
of its earned surplus; or
(ii) the Company shall grant the holders of its Common Stock the
right to subscribe for or purchase any shares of its capital stock of any class;
or
(iii) the Company shall make any distribution on or in
respect of the Common Stock in connection with the dissolution, liquidation or
winding up of the Company; or
(iv) there is to be a reclassification or change of the Common
Stock of the Company (other than the subdivision or combination of its
outstanding shares of Common Stock), a consolidation or merger to which the
Company is a party and in connection with which approval of any class of
stockholders of the Company is required, or a sale or conveyance of the property
of the Company as an entirety or substantially as an entirety,
then and in each such event, the Company shall mail or cause to be mailed to the
Holder a notice specifying the date on which any record is to be taken for the
purpose of such dividend, distribution or granting of rights, or the date on
which such reclassification, consolidation or merger is expected to become
effective, and the time, if any, as of which the holders of record of Common
Stock shall be entitled to exchange their shares of Common Stock for securities
or other property deliverable upon such reorganization or reclassification.
Such notice shall be mailed at least 30 days prior to the record or effective
date therein specified.
(d) NOTICE OF ADJUSTMENT OF CONVERSION PRICE, ETC. If there shall be
any adjustment as provided in (b) hereof, or if securities or property other
than shares of Common Stock of the Company shall become issuable or deliverable
in lieu of shares of such Common Stock upon the conversion of this Debenture,
the Company shall forthwith cause written notice thereof to be sent by
registered or certified mail, postage prepaid, to the Holder, which notice shall
be accompanied by a certificate of the principal financial officer of the
Company setting forth in reasonable detail the facts requiring any such
adjustment and the Conversion Price and number of shares issuable upon the
conversion of this Debenture after such adjustment, or the kind and amount of
any such securities or property so issuable or deliverable upon the conversion
of this Debenture, as the case may be.
(3)
<PAGE>
SUBORDINATION. Company and Holder acknowledge and agree that the
indebtedness evidenced by this Debenture is subject to the provisions of a
Subordination Agreement of even date herewith by and between Holder and Norwest
Bank Minnesota, National Association and acknowledged by the Company.
REDEMPTION OF DEBENTURE. This Debenture is subject to redemption at the
option of the Company upon 30 days prior written notice (provided that Holder
may choose to exercise its right of conversion hereunder at any time prior to
the expiration of such 30-day period) as a whole at any time, or in part from
time to time, upon payment by the Company of 100% of the unpaid principal amount
or such portion thereof so redeemed, plus accrued interest thereon through the
date of redemption. Notwithstanding the foregoing, the Company cannot exercise
its right of redemption unless there is an effective registration statement with
respect to the underlying shares of Common Stock in accordance with the
Securities Act of 1933, as amended. In addition, Company shall pay to Holder on
the date of such redemption a redemption fee in the form of delivery to Holder
of 14,000 shares of Holder's restricted common stock (the "Redemption Shares")
within three business days following the date of redemption (the "Redemption
Fee").
By accepting this Debenture, the Holder hereby acknowledges that neither
this Debenture nor any shares issuable upon conversion hereof have been, or will
be at the time of acquisition of any shares upon conversion hereof, registered
under the Securities Act of 1933, as amended, or any state securities laws and
represents for himself and his legal representative that he is acquiring this
Debenture, and will acquire any shares issued upon conversion hereof, for his
own account, for investment purposes only and not with a view to, or for sale in
connection with, any distribution of such securities, and agrees to reaffirm in
writing this investment representation at the time of exercise of the conversion
right set forth above.
REGISTRATION RIGHTS. With respect to the Shares issuable to Holder upon
the conversion of this Debenture, the Redemption Shares and the Penalty Shares
(as defined in Section 5(c) of that certain Subscription Agreement of even date
herewith by and between Company and Holder (the "Subscription Agreement"), a
copy of which is appended hereto), Holder possesses those registration rights
set forth in Section 5 of the Subscription Agreement, and Section 5 of the
Subscription Agreement is incorporated herein by reference.
If any of the following conditions or events ("Events of Default") shall
occur and be continuing:
(a) if the Company shall default in the payment of principal of this
Debenture when the same becomes due and payable, whether at maturity or by
declaration of acceleration or otherwise; or
(b) if the Company shall default in the payment of any interest on this
Debenture and shall fail to cure such default within ten days after written
notice thereof from the Holder to the Company; or
(c) if the Company shall materially default in the performance of or
compliance with any term contained herein and such default shall not have been
remedied within ten days after written notice thereof from the Holder to the
Company; or
(d) if the Company shall make an assignment for the benefit of creditors,
or shall admit in writing its inability to pay its debts as they become due, or
a voluntary petition for reorganization under Title 11 of the United States Code
("Title 11") shall be filed by the Company or an order shall be entered granting
relief to the Company under Title 11 or a petition shall be filed by the Company
in bankruptcy, or the Company shall be adjudicated a bankrupt or insolvent, or
shall file any petition or answer seeking for itself any reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future statute, law or regulation, or shall file any
answer admitting or not contesting the material allegations of a petition filed
against the Company in any such proceeding, or shall seek or consent to or
acquiesce in the appointment of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company or if
the Company or its directors or majority shareholders shall take any action
looking to the dissolution or liquidation of the Company; or
(4)
<PAGE>
(e) if within 120 days after the commencement of an action against the
Company seeking a reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future statute,
law or regulation, such action shall not have been dismissed or nullified or all
orders or proceedings thereunder affecting the operations or the business of the
Company stayed, or if the stay of any such order or proceeding shall thereafter
be set aside, or if, within 120 days after the appointment without the consent
or acquiescence of the Company of any trustee, receiver or liquidator of the
Company or of all or any substantial part of the properties of the Company such
appointment shall not have been vacated;
then, and in any such event, the Holder may at any time (unless such Event of
Default shall theretofore have been remedied) at its option, by written notice
to the Company, declare the Debenture to be due and payable, whereupon the
Debenture shall forthwith mature and become due and payable, together with
interest accrued thereon, and thereafter interest shall be due, at the rate per
annum hereinabove provided, on the entire principal balance until the same is
fully paid, and on any overdue interest (but only to the extent permitted by
law), without presentment, demand, protest or notice, all of which are hereby
waived.
In case of a default in the payment of any principal of or interest on the
Debenture, the Company will pay to the Holder such further amount as shall be
sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorney's fees, expenses and disbursements. No course
of dealing and no delay on the part of Holder in exercising any right shall
operate as a waiver thereof or otherwise prejudice such Holder's rights, powers
or remedies. No right, power or remedy conferred by this Debenture upon Holder
shall be exclusive of any other right, power or remedy referred to herein or now
or hereafter available at law, in equity, by statute or otherwise.
Notwithstanding any provision contained in this Debenture to the contrary,
the Company's liability for payment of interest shall not exceed the limits
imposed by applicable usury law. If any provision hereof requires interest
payments in excess of the then legally permitted maximum rate, such provision
shall automatically be deemed to require such payment at the then legally-
permitted maximum rate.
All notices required or permitted to be given under this Debenture shall be
in writing (delivered by hand or sent certified or registered mail, return
receipt requested) addressed to the following addresses:
If to Holder: At its address on the Debenture
Register of the Company
If to Company: 1912 Avenue K
Suite 100
Plano, TX 75054
Attn: J. David Darnell,
Chief Financial Officer
All notices shall be deemed given upon personal delivery or upon deposit of such
notice in the United States mails, with all postage affixed.
(5)
<PAGE>
This Debenture shall be governed by the laws of the State of Texas.
SA TELECOMMUNICATIONS, INC.
By:
---------------------------------
JACK W. MATZ, JR., Chairman
and Chief Executive Officer
(6)
<PAGE>
CONVERSION NOTICE
TO: SA TELECOMMUNICATIONS, INC.
1912 Avenue K, Suite 100
Plano, TX 75054
The undersigned Holder of this Debenture hereby irrevocably exercises his
right to convert [all] [or $ ] of this Debenture into
shares of Common Stock of SA TELECOMMUNICATIONS, INC. at the Conversion Price of
$ per share in accordance with the terms of this Debenture, and
directs that the Shares issuable and deliverable upon such conversion be
registered in the name of the undersigned and delivered to the undersigned,
together with a Debenture for the balance of the principal amount of this
Debenture, if any.
The undersigned hereby acknowledges that the Shares (i) have not been and
will not be at the time of acquisition by the undersigned registered under the
Securities Act of 1933, as amended, or under any state securities laws, and
hereby represents and warrants to the Company that he is acquiring the Shares
for his own account, for investment, and not with a view to, or for sale in
connection with, any distribution of such Shares; and (ii) are transferable only
in accordance with all the terms and restrictions contained in the Debenture and
in the Subscription Agreement dated March 18, 1996, to which the Holder is, or
hereby agrees to become, a party.
Dated: ------------------- 19---
- --------------------------------- -----------------------------
Witness Signature of Holder
-----------------------------
(Print Name of Holder)
Social Security Number or
Taxpayer ID Number:
----------
-----------------------------
-----------------------------
-----------------------------
Address
<PAGE>
EXHIBIT 10.41
AMENDMENT TO PURCHASE AGREEMENT
This Amendment to Purchase Agreement is entered into as of the 18th day
of March, 1996 by and between SA Telecommunications, Inc., a Delaware
corporation ("Seller") and Killeba Holdings, Ltd. ("Purchaser").
BACKGROUND
A. Seller and Purchaser entered into that certain Purchase Agreement
dated March 7, 1996 (the "Purchase Agreement") pursuant to which Purchaser
purchased certain 9% convertible subordinated debentures from Seller.
B. Seller and Purchaser wish to amend certain terms of the Purchase
Agreement.
NOW, THEREFORE, in consideration of the foregoing preambles and other
valuable consideration the receipt of which is hereby acknowledged, the
parties hereto agree as follows:
1. Exhibit "A" to the Purchase Agreement is hereby amended and restated
in its entirety so that the Exhibit "A" attached to this amendment shall,
from the date hereof, constitute Exhibit "A" under the Purchase Agreement.
2. Clause (ii) of Item 5 of Schedule 1 to the Purchase Agreement, i.e.
"$2.125 per Share", is hereby replaced with "$1.75 per Share".
3. Exhibit "B" to the Purchase Agreement is hereby amended and restated
in its entirety so that the Exhibit "B" attached to this amendment shall,
from the date hereof, constitute Exhibit "B" under the Purchase Agreement.
4. All other terms and provisions of the Purchase Agreement not
inconsistent with the amendments set forth herein shall remain in full force
and effect.
5. This Amendment to the Purchase Agreement may be executed in
counterparts, and each such counterpart shall be deemed an original and
together shall constitute one document.
1
<PAGE>
IN WITNESS WHEREOF, the parties hereto execute this Amendment to
Purchase Agreement as of the day and year first set forth above.
SA TELECOMMUNICATIONS, INC.
By:_________________________
JACK W. MATZ, JR., Chairman
and Chief Executive Officer
KILLEBA HOLDINGS, LTD.
By:___________________________
2
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF SA TELECOMMUNICATIONS, INC., A DELAWARE CORPORATION:
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION
NAME OF INCORPORATION
- ----- ---------------------------
<S> <C>
Long Distance Network, Inc. Texas
U.S. Communications, Inc. Texas
North American Telecommunications
Corporation Texas
Baltic States & CIS Ventures, Inc. Texas
Intertex Trading Corporation Texas
Western Siberia Telecommunications, Inc. Texas
CIS Intelligence Information Services, Inc. Texas
Southwest Long Distance Network, Inc. Arkansas
Strategic Abstract & Title Corporation Texas (Sold February 29, 1996)
</TABLE>
<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), September 22, 1993 (No. 33-69196), March 7, 1996 (No. 333-01549),
and March 7, 1996 (No. 333-01547) and in the Registration Statement on
Form S-3 dated January 3, 1996 (No. 33-64271) of SA Telecommunications, Inc.
of our report dated March 21, 1996 appearing elsewhere in this Form 10-KSB.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Dallas, Texas
April 1, 1996
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-KSB for the year ended
December 31, 1993, into SA Telecommunications, Inc.'s (formerly SA Holding,
Inc.) previously filed Registration Statements (SEC File No. 33-64271, and
33-64102, 33-6916, 33-64102, 33-57712, 33-55308, and 33-45911, 333-01547
and 333-01549).
/s/ KING, BURNS & COMPANY, P.C.
KING, BURNS & COMPANY, P.C.
Dallas, Texas
March 31, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SA
TELECOMMUNICATIONS, INC. AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 823,738
<SECURITIES> 0
<RECEIVABLES> 4497976
<ALLOWANCES> 475845
<INVENTORY> 146037
<CURRENT-ASSETS> 5691895
<PP&E> 3911652
<DEPRECIATION> 495613
<TOTAL-ASSETS> 26040803
<CURRENT-LIABILITIES> 8533729
<BONDS> 0
1129459
575280
<COMMON> 1346
<OTHER-SE> 8402319
<TOTAL-LIABILITY-AND-EQUITY> 26040803
<SALES> 20748021
<TOTAL-REVENUES> 20748021
<CGS> 14116113
<TOTAL-COSTS> 22683242
<OTHER-EXPENSES> 658111
<LOSS-PROVISION> 455,793
<INTEREST-EXPENSE> 682,796
<INCOME-PRETAX> (1,277,110)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,935,221)
<DISCONTINUED> (4,530,742)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,465,963)
<EPS-PRIMARY> (0.56)
<EPS-DILUTED> 0.00
</TABLE>
