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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant
To Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): August 14, 1996
USTEL, INC.
(Exact Name of Registrant as Specified in its Charter)
Minnesota
(State or Other Jurisdiction of Incorporation)
0-24098 95-4362330
(Commission File Number) (I.R.S. Employer Identification No.)
2775 South Rainbow Blvd., #102
Las Vegas, Nevada 89102
(Address of Principal Executive Offices, Including Zip Code)
(702) 247-7400
(Registrant's Telephone Number, Including Area Code)
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 1. Change and Control of Registrant.
A change of control of UStel may be deemed to have occurred on August
14, 1996, as a result of a stock purchase and the appointment of new Board
members, both effective that date.
Royce Diener, as trustee of the Palisades USTL Trust (the "Trust"),
purchased an aggregate of 612,750 UStel shares from the TAD 1993 Family Trust
and the RGB 1993 Family Trust. The consideration for the shares consisted of
cash and purchase money notes. The cash came from the personal resources of the
beneficiaries of the Trust. The notes are payable in installments over a
two-year period and are secured by the shares purchased.
Mr. Diener, as trustee, will vote the Trust's shares during the term
(coinciding with the repayment period of the notes) of the Trust. He is
obligated to consult with beneficiaries and to vote the shares in accordance
with the wishes of a majority in interest thereof. When, however, such
consultation is impracticable, Mr. Diener may vote the shares in such manner as
he reasonably believes to be in the best interest of a majority in interest.
In addition to his voting power as aforesaid over the 612,750 UStel
shares (approximately 30% of the UStel shares outstanding) purchased on August
14, 1996, Mr. Diener beneficially owns an additional 236,000 UStel shares
consisting of 53,000 shares and warrants to purchase an additional 183,333 such
shares.
While not a group for the purpose of acquiring, holding or disposing of
UStel shares, the new members of UStel's seven-person Board, Robert L.B. Diener,
Jerry Dackerman and Wouter van Biene, are related to or share common interests
with Royce Diener. Robert Diener is the son of Royce Diener, and Messrs.
Dackerman and van Biene, both founders of and substantial shareholders in
Consortium 2000, Inc. (See Item 2) sit on the Consortium 2000, Inc. Board with
Royce Diener. Coincident with their appointments as directors, Messrs. Robert
Diener, Dackerman and van Biene agreed to serve as President and Chief Executive
Officer, Executive Vice President and Chief Financial Officer, respectively, of
UStel.
Item 2. Acquisition or Disposition of Assets.
Pursuant to a Merger Agreement and Plan or Reorganization (the "Merger
Agreement") entered into as of August 14, 1996 by and among UStel, Inc.,
Consortium Acquisition Corporation and Consortium 2000, Inc., UStel created a
wholly-owned subsidiary, Consortium Acquisition Corporation which will be merged
with and into Consortium 2000, Inc., with Consortium 2000, Inc. being the
surviving corporation in the merger. Pursuant to the Merger Agreement, all of
the capital stock of Consortium 2000, Inc. will be converted into an aggregate
of 1,076,923 shares of the common stock of UStel. As a result of the merger
Consortium 2000, Inc. will become a wholly-owned
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subsidiary of UStel. Consortium 2000, Inc. currently has a marketing agreement
with UStel, Inc. pursuant to which it markets telephone services on behalf of
UStel, Inc. Royce Diener, a director of UStel, Inc. is also a director and a
principal shareholder of Consortium 2000, Inc. The merger will be effective upon
the vote on the merger by the shareholders of UStel, Inc.
The Merger Agreement is subject to certain conditions including that
shareholder approval be obtained, and other conditions as are more fully set
forth in the Merger Agreement a copy of which is attached as an exhibit to this
report.
Item 5. Other Events.
On August 14, 1996 UStel entered into a Registration Rights Agreement
in favor of the shareholders of Consortium 2000, Inc. (the "Consortium 2000
Registration Rights Agreement"). The Consortium 2000 Registration Rights
Agreement covers all or any part of the 1,076,923 shares of common stock of
UStel, Inc. to be issued pursuant to the merger described above in Item 2.
Pursuant to the Consortium 2000 Registration Rights Agreement, the beneficiaries
of the Registration Rights Agreement have the right to demand registration of
the shares covered by the Agreement. The expenses of such registration would be
borne by UStel. A copy of the Consortium 2000 Registration Rights Agreement is
attached hereto as an exhibit to this report.
Also, on August 14, 1996 UStel entered into a Registration Rights
Agreement with Noam Schwartz, David Schwartz, the RGB 1993 Family Trust and the
TAD 1993 Family Trust covering 950,000 shares of common stock of UStel
(hereinafter, the "Schwartz Registration Rights Agreement"). Pursuant to the
Schwartz Registration Rights Agreement, the beneficiaries of the Agreement have
demand registration rights at company expense covering 950,000 shares. Of these
shares, 612,750 shares together with the registration rights were transferred to
the Palisades USTL Trust (see Item 1 above). A copy of the Schwartz Registration
Rights Agreement is attached hereto as an exhibit to this report.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
It is impracticable to provide the required financial
statements for the acquired business referred to in Item 2
above. The registrant intends to file such financial
statements as soon as practicable but not later than 60 days
after the report on Form 8-K must be filed with respect to
such acquisition.
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(b) Proforma Financial Information.
See (a) above of this Item.
(c) Exhibits.
There is attached hereto the following exhibits:
Exhibits
Exhibit No. Description of Exhibits
2 Merger Agreement and Plan of Reorganization
By and Among UStel, Inc., Consortium
Acquisition Corporation and Consortium 2000,
Inc. dated August 14, 1996
10.1 Registration Rights Agreement dated August
14, 1996 Between UStel, Inc. and the
Consortium 2000 Shareholders (the Consortium
2000 Registration Rights Agreement)
10.2 Registration Rights Agreement dated August
14, 1996 Between UStel, Inc. and Noam
Schwartz, David Schwartz, the RGB 1993
Family Trust and the TAD 1993 Family Trust
(the Schwartz Registration Rights Agreement)
SIGNATURES:
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
UStel, Inc.
By: /s/ Robert L.B. Diener
______________________________________
(Print name and title of signing officer)
Robert L.B. Diener, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
Dated: August 26, 1996
_______________________________
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Exhibit 2
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
* * * * *
BY AND AMONG
USTEL, INC.,
CONSORTIUM ACQUISITION CORPORATION
AND
CONSORTIUM 2000, INC.
Dated: AUGUST 14, 1996
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TABLE OF CONTENTS
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ARTICLE I. Plan of Reorganization.............................................................................. 1
1.1 Incorporation of Recital...................................................................... 1
1.2 Adoption of Plan.............................................................................. 1
1.3 Merger of Newco into the Company.............................................................. 1
1.4 Conversion of the Company Shares into UStel Shares............................................ 1
1.5 Certificate of Incorporation.................................................................. 2
1.6 Bylaws........................................................................................ 2
1.7 Directors..................................................................................... 2
1.8 Officers...................................................................................... 2
1.9 Effective Time................................................................................ 2
1.10 Pooling of Interests.......................................................................... 2
ARTICLE II. Conversion Rights and Procedures................................................................... 3
2.1 Conversion.................................................................................... 3
2.2 Fractional Shares............................................................................. 3
2.3 Dissenting Shares............................................................................. 4
2.4 Stock Certificates............................................................................ 4
ARTICLE III. Representations and Warranties of UStel and Newco................................................. 4
3.1 Organization and Good Standing of UStel and Newco............................................. 5
3.2 Capitalization................................................................................ 5
3.3 UStel Subsidiaries............................................................................ 6
3.4 Authority; No Conflicts....................................................................... 7
3.5 UStel Reports................................................................................. 7
3.6 UStel Financial Statements.................................................................... 8
3.7 Accuracy of Securities Documents.............................................................. 8
3.8 Properties.................................................................................... 8
3.9 Contracts..................................................................................... 9
3.10 Absence of Undisclosed Liabilities............................................................ 10
3.11 No Litigation................................................................................. 10
3.12 Environmental Matters......................................................................... 10
3.13 Taxes......................................................................................... 11
3.14 Permits and Licenses.......................................................................... 13
3.15 No Labor Problems............................................................................. 13
3.16 Affiliate Transactions........................................................................ 14
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3.17 Employee Benefit Plans........................................................................ 14
3.17.1 Definition of Benefit Plans........................................................ 14
3.17.2 ERISA Affiliate.................................................................... 14
3.17.3 Identification of Benefit Plans.................................................... 14
3.17.4 MEPPA Liability/Post-Retirement Medical Benefits/ Defined
Benefit Plans/Supplemental Retirement Plans........................................ 15
3.17.5 Documentation...................................................................... 15
3.17.6 Qualified Status................................................................... 15
3.17.7 Compliance......................................................................... 15
3.17.8 Funding............................................................................ 16
3.17.10 Amendment/New Plans................................................................ 16
3.18 Insurance..................................................................................... 17
3.19 Interest in Competitors, Suppliers, etc....................................................... 17
3.20 Indebtedness with Insiders.................................................................... 17
3.21 Consents...................................................................................... 17
3.22 Patents, Trademarks and Other Intangibles..................................................... 17
3.23 Purchases and Sales........................................................................... 18
3.24 Brokerage and Finder's Fees................................................................... 18
3.25 Absence of Certain Changes.................................................................... 18
3.26 Compliance with Laws.......................................................................... 20
3.27 No Material Misstatements or Omissions........................................................ 20
ARTICLE IV. Additional Obligations and Covenants of UStel...................................................... 21
4.1 Conduct of Business........................................................................... 21
4.2 Access and Information........................................................................ 22
4.3 Efforts to Satisfy Conditions................................................................. 22
4.4 Corporate Matters............................................................................. 23
4.5 No Distributions to Shareholders.............................................................. 23
4.6 Capital Expenditures.......................................................................... 23
4.7 Indebtedness.................................................................................. 23
4.8 Authorization by UStel Shareholders........................................................... 23
4.9 Compliance with Securities Laws............................................................... 24
4.10 Reservation of Stock.......................................................................... 24
4.11 Press Releases................................................................................ 24
4.12 Additional Agreements......................................................................... 24
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ARTICLE V. Representations and Warranties of the Company....................................................... 25
5.1 Organization and Good Standing......................................................................... 25
5.2 Capital Stock................................................................................. 25
5.3 Authority; No Conflicts....................................................................... 26
5.4 Financial Statements.......................................................................... 26
5.5 Properties.................................................................................... 27
5.6 Contracts..................................................................................... 27
5.7 Absence of Undisclosed Liabilities............................................................ 28
5.8 No Litigation................................................................................. 29
5.9 Environmental Matters......................................................................... 29
5.10 Taxes......................................................................................... 30
5.11 Permits and Licenses.......................................................................... 31
5.12 No Labor Problems............................................................................. 32
5.13 Affiliate Transactions........................................................................ 32
5.14 The Company Benefit Plans..................................................................... 32
5.14.1 Definition of Benefit Plans........................................................ 32
5.14.2 ERISA Affiliate.................................................................... 33
5.14.3 Identification of Benefit Plans.................................................... 33
5.14.4 MEPPA Liability/Post-Retirement Medical Benefits/ Defined
Benefit Plans/Supplemental Retirement Plans........................................ 33
5.14.5 Documentation...................................................................... 33
5.14.6 Qualified Status................................................................... 34
5.14.7 Compliance......................................................................... 34
5.14.8 Funding............................................................................ 34
5.14.10 Amendment/New Plans................................................................ 35
5.15 Insurance..................................................................................... 35
5.16 Interest in Competitors, Suppliers, etc....................................................... 35
5.17 Indebtedness with Insiders.................................................................... 35
5.18 Consents...................................................................................... 36
5.19 Patents, Trademarks and Other Intangibles..................................................... 36
5.20 Purchases and Sales........................................................................... 36
5.21 Brokerage and Finder's Fees................................................................... 36
5.22 Absence of Certain Changes.................................................................... 36
5.23 Compliance with Laws.......................................................................... 38
5.24 Accuracy of Information Provided.............................................................. 38
5.25 No Material Misstatements or Omissions........................................................ 39
ARTICLE VI. Additional Obligations and Covenants of the Company................................................ 39
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6.1 Conduct of Business........................................................................... 39
6.2 Access and Information........................................................................ 40
6.3 Efforts to Satisfy Conditions................................................................. 40
6.4 Corporate Matters............................................................................. 41
6.5 No Distributions to Shareholders.............................................................. 41
6.6 Capital Expenditures.......................................................................... 41
6.7 Indebtedness.................................................................................. 41
6.8 Authorization by Shareholders................................................................. 41
ARTICLE VII. Conditions to Each Party's Obligations............................................................ 42
7.1 Securities Laws............................................................................... 42
7.2 The Company's Shareholder Approval............................................................ 42
7.3 UStel's Stockholder Approval.................................................................. 42
7.4 Consents...................................................................................... 42
7.5 Injunction.................................................................................... 42
ARTICLE VIII. Conditions Precedent to Obligations of UStel and Newco........................................... 43
8.1 Accuracy of Warranties and Representations.................................................... 43
8.2 Authorization of Merger....................................................................... 43
8.3 No Material Adverse Change.................................................................... 43
8.4 Officers' Certificate......................................................................... 43
8.5 Material Contracts............................................................................ 43
8.6 Opinion of the Company's Counsel.............................................................. 44
8.7 Other Legal Matters........................................................................... 44
ARTICLE IX. Conditions Precedent to Obligation of the Company.................................................. 44
9.1 Accuracy of Warranties and Representations.................................................... 44
9.2 Authorization of Merger....................................................................... 44
9.3 No Material Adverse Change.................................................................... 44
9.4 Officers' Certificate of UStel................................................................ 44
9.5 Material Contracts............................................................................ 45
9.6 Opinion of UStel's Counsel.................................................................... 45
9.7 Other Legal Matters........................................................................... 45
9.8 Tax Opinion................................................................................... 45
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ARTICLE X. Closing............................................................................................. 45
ARTICLE XI. Termination........................................................................................ 46
ARTICLE XII. Notices........................................................................................... 46
ARTICLE XIV. Miscellaneous Provisions.......................................................................... 50
14.1 Applicable Law; Jurisdiction.................................................................. 50
14.2 Remedies Not Exclusive........................................................................ 50
14.3 Attorneys' Fees............................................................................... 50
14.4 Payment of Expenses........................................................................... 50
14.5 Successors and Assigns........................................................................ 50
14.6 Counterparts.................................................................................. 50
14.7 Headings; Severability........................................................................ 50
14.8 Amendments.................................................................................... 51
14.9 Waivers....................................................................................... 51
14.10 Assignments................................................................................... 51
14.11 Effect of Due Diligence....................................................................... 51
14.12 No Third Party Beneficiaries.................................................................. 51
14.13 Entire Agreement.............................................................................. 52
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MERGER AGREEMENT AND PLAN OF REORGANIZATION
THIS MERGER AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is made and
entered into on August 14, 1996, by and among USTEL, INC., a Minnesota
corporation ("UStel"), CONSORTIUM ACQUISITION CORPORATION, a California
corporation ("Newco"), which is a wholly-owned subsidiary of UStel, and
CONSORTIUM 2000, INC., a California corporation (the "Company"), with reference
to the following facts:
A. The parties intend that this Agreement shall constitute a plan of
reorganization (the "Plan") of the type described in Sections 368(a)(1)(A) and
368(a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code"). The
Plan comprises the merger (the "Merger") of Newco into the Company in accordance
with the applicable provisions of the California General Corporation Law (the
"CGCL"), with Newco disappearing and the Company surviving as a wholly-owned
subsidiary of UStel, and the conversion of all outstanding capital stock of the
Company into newly-issued shares of Common Stock of UStel.
B. UStel, Newco and the Company each believes that it is in its best
interests to adopt and consummate the Plan.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties agree as follows:
ARTICLE I.
PLAN OF REORGANIZATION
1.1 Incorporation of Recitals. Recitals A and B above are incorporated
herein by reference.
1.2 Adoption of Plan. UStel, Newco and the Company hereby adopt the
plan of reorganization herein set forth.
1.3 Merger of Newco into the Company. Subject to the provisions of this
Agreement, and the CGCL, at the "Effective Time" (as defined in Section 1.9)
Newco will be merged with and into the Company, and the separate corporate
existence of Newco shall cease. The Company, which will retain its name, will be
the "Surviving Corporation" in the Merger and shall continue its corporate
existence under the laws of the State of California as a wholly-owned subsidiary
of UStel. The Merger will have the effects set forth in Section 1107 of the
CGCL.
1.4 Conversion of the Company Shares into UStel Shares. At the
Effective Time, 5,298,031 shares of the Class A Common Stock, no par value, and
1,454,978 shares of the Class B Common Stock, no par value, of the Company
(collectively, the "Company Shares"), which
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constitute all of the outstanding capital stock of the Company, will be
converted into an aggregate of 1,076,923 shares of the Common Stock, $.01 par
value, of UStel (the "UStel Shares"), in accordance with the conversion rights
and procedures of Article II below.
1.5 Certificate of Incorporation. The Certificate of Incorporation of
the Company, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter duly
amended in accordance with its terms and the CGCL.
1.6 Bylaws. The Bylaws of the Company, as in effect immediately prior
to the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter duly amended in accordance with their terms and the CGCL.
1.7 Directors. The directors of the Company immediately prior to the
Effective Time shall be the directors of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected and qualified.
1.8 Officers. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation and will hold
office from the Effective Time until their respective successors are duly
elected and qualified.
1.9 Effective Time. If all of the conditions precedent to the parties'
obligations to consummate the Merger under this Agreement are satisfied or
waived and this Agreement has not been terminated in accordance with the
provisions hereof, the parties shall cause an agreement of merger (the
"Agreement of Merger") in form and substance as set forth in EXHIBIT 1.9
attached hereto to be duly executed and filed with the Secretary of State of
California on the "Closing Date" (as defined in Article X below). The Merger
shall become effective as of the time the Agreement of Merger is accepted for
filing and officially filed in the State of California. The date and time when
the Merger becomes effective is referred to herein as the "Effective Time." This
Agreement and the Agreement of Merger are sometimes collectively referred to
herein as the "Merger Agreements."
1.10 Pooling of Interests. Between the date hereof and the Effective
Time, neither UStel nor the Company nor any of their respective subsidiaries or
other Affiliates shall (a) knowingly take any action, or knowingly fail to take
any action, that would jeopardize the treatment of UStel's acquisition of the
Company as a "pooling of interests" for accounting purposes; (b) knowingly take
any action, or knowingly fail to take any action, that would jeopardize
qualification of the Merger as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code; or (c) enter into any contract,
agreement, commitment or arrangement with respect to either of the foregoing.
Following the Effective Time, UStel shall use its best efforts to conduct the
business of the Company and shall cause the Company to use its best efforts to
conduct its business in a manner that would not jeopardize the characterization
of the Merger as a "pooling of interests" for
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accounting purposes or as a reorganization within the meaning of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Code.
ARTICLE II.
CONVERSION RIGHTS AND PROCEDURES
2.1 Conversion. Subject to the terms and conditions of this Agreement,
at the Effective Time, by virtue of the Merger and without any action on the
part of the Company or its shareholders (the "Shareholders"):
2.1.1 Subject to Section 2.2 below, each of the Company Shares
issued and outstanding immediately prior to the Effective Time, except for
"Dissenting Shares" (as defined in Section 2.3), shall be converted into .159473
of a UStel Share (the "Conversion Amount").
2.1.2 Each share of capital stock of Newco that is issued and
outstanding immediately prior to the Effective Time shall be converted into one
share of the Surviving Corporation.
2.1.3 In the event of any change in UStel stock between the
date of this Agreement and the Effective Time by reason of any stock dividend,
subdivision, reclassification, recapitalization, combination, exchange of
shares, stock issuance, or the grant of any option, warrant, subscription or
other right for the purchase of, or issuance of any securities convertible into
or exchangeable for, capital stock of UStel (an "Adjustment Event"), the
Conversion Amount shall be appropriately adjusted so that each holder of the
Company Shares will receive in the Merger the amount of UStel Shares such holder
would have been entitled to receive if the Effective Time had been immediately
prior to such event.
2.2 Fractional Shares. No scrip or fractional shares of UStel Shares
shall be issued in the Merger. All fractional shares of UStel Shares to which a
holder of the Company Shares immediately prior to the Effective Time would
otherwise be entitled at the Effective Time shall be aggregated. If a fractional
share results from such aggregation, such stockholders shall be entitled, after
the later of (a) the Effective Time or (b) the surrender of such stockholder's
certificate representing the Company Shares, to receive from UStel an amount of
cash in lieu of such fractional share of UStel Common Stock, based on the
"Average Closing Price" of "UStel Common Stock" (as defined in Section 3.2.1
below). As used herein, the term "Average Closing Price" means the average price
per share of UStel Common Stock, during the ten consecutive trading days ending
two days before the Effective Time, based on the closing price or, in case no
sale takes place on any such day, the average of the closing bid and asked
prices on such day, in either case on the principal securities exchange on which
the shares of the UStel Common Stock are listed or, if such shares are not so
listed, reported on The NASDAQ Stock Market or any comparable system or, if the
UStel Common
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Stock is not reported on The NASDAQ Stock Market or a comparable
system, the average of the closing bid and asked prices as furnished by two
members of the National Association of Securities Dealers, Inc. reasonably
selected by UStel for that purpose.
2.3 Dissenting Shares. To the extent that appraisal rights are
available under Section 1300 of the CGCL, Company Shares that are issued and
outstanding immediately prior to the Effective Time and that have not been voted
for adoption of the Merger and with respect to which appraisal rights have been
properly demanded in accordance with Section 1300, et seq. of the CGCL
("Dissenting Shares") shall not be converted into the right to receive the
consideration provided for in Sections 2.1 and 2.2 at or after the Effective
Time unless and until the holder of such shares withdraws his demand for such
appraisal (in accordance with Section 1300, et seq. of the CGCL) or becomes
ineligible for such appraisal. If a holder of Dissenting Shares withdraws his
demand for such appraisal (in accordance with Section 1300, et seq. of the CGCL)
or becomes ineligible for such appraisal, then, as of the Effective Time or the
occurrence of such event, whichever later occurs, such holder's Dissenting
Shares shall cease to be Dissenting Shares and shall be converted into and
represent the right to receive the consideration provided for in Sections 2.1
and 2.2. If any holder of Company Shares shall assert the right to be paid the
fair value of such Company Shares as described above, the Company shall give
UStel notice thereof and UStel shall have the right to participate in all
negotiations and proceedings with respect to any such demands.
2.4 Stock Certificates. At the Closing and after the Effective Time,
each holder of a certificate that prior thereto represented outstanding Company
Shares shall be entitled to receive, upon surrender thereof to UStel, in
exchange therefore a certificate or certificates representing the number of
UStel Shares into which the Company Shares so surrendered shall have been
converted as provided in this Agreement, of such denominations and registered in
such names as such holder may request. Until so surrendered, each certificate
that, prior to the Effective Time, represented outstanding Company Shares shall
be deemed as of and from the Effective Time, for all corporate purposes, other
than payment of earlier dividends and distributions, to evidence the ownership
of the number of full UStel Shares into which the Company Shares shall have been
converted pursuant to Section 2.1.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF USTEL AND NEWCO
UStel and Newco hereby jointly and severally warrant and
represent the following (the truth and accuracy of each of which shall
constitute a condition precedent to the Company's obligations to consummate the
Merger) to the Company:
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3.1 Organization and Good Standing of UStel and Newco.
3.1.1 UStel is a corporation duly organized and in good
standing under the laws of the State of Minnesota, has full corporate power and
authority to carry on its business as now conducted by it and is entitled to own
or lease and operate its properties and assets now owned or leased and operated
by it. UStel is duly qualified and in good standing as a foreign corporation in
each jurisdiction where the character or location of the assets owned by UStel
or the nature of the business transacted by UStel require such qualification,
except where failure to be so qualified would not have a "Material Adverse
Effect" (as defined in Article XIII). SCHEDULE 3.1.1 hereto includes a list of
the jurisdictions in which UStel is qualified to do business.
3.1.2 UStel has furnished to the Company complete and correct
copies of UStel's Articles of Incorporation and Bylaws as in effect on the date
hereof.
3.1.3 UStel has heretofore made available to the Company for
its examination copies of the minute books and corporate seal of UStel. Said
minute books are accurate in all material respects and reflect all resolutions
adopted and all material actions expressly authorized or ratified by the
shareholders and directors of UStel.
3.1.4 Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of California. Newco has not
engaged in any business and has no properties or assets.
3.2 Capitalization.
3.2.1 The authorized capital stock of UStel consists of
40,000,000 shares of Common Stock, par value $0.01 per share (the "UStel Common
Stock"), of which 2,024,000 shares are issued and outstanding as of the date
hereof, and 5,000,000 shares of Preferred Stock, par value $0.01 per share of
which 550,000 shares of Series A Preferred Stock and 95,000 shares of Series B
Preferred Stock are issued and outstanding as of the date hereof. All such
issued and outstanding shares are validly issued, fully paid and nonassessable
with the following exceptions: (a) Robert Diener is obligated to pay $25,000 in
connection with 5,000 shares of UStel Common Stock issued to him; and (b)
Integrated Financial Consultants, Inc. executed a $95,000 Promissory Note in
consideration for the issuance of 95,000 shares of Series B Preferred Stock.
3.2.2 SCHEDULE 3.2 HERETO lists all options, warrants,
subscriptions or other rights outstanding for the purchase of, and all
securities convertible into, capital stock of UStel (collectively, the
"Rights"), and there are no other understandings, plans, contracts or
commitments providing for the issuance of, or the granting of rights to acquire,
shares of capital stock of any class of UStel or any securities or other
instruments convertible into or exchangeable for shares of capital stock of any
class of UStel or rights to acquire the same. No shares of capital stock of
UStel are subject to any restriction on transferability, including grants of
first refusal, other than restrictions on transfer under applicable federal and
state securities laws. UStel is not a party to, and has no
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knowledge of, any voting agreement, voting trust, or similar agreement or
arrangement relating to any class or series of its capital stock, or, except as
identified on SCHEDULE 3.2, any agreement or arrangement providing for
registration rights with respect to any capital stock or other securities of
UStel. No shares of UStel are held as treasury stock.
3.2.3 All UStel Shares to be issued pursuant to the Merger,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable and will not violate the preemptive rights of any Person.
3.2.4 The authorized capital stock of Newco consists of 1,000
shares of Common Stock, no par value, of which 1,000 shares are issued and
outstanding and held by UStel as of the date hereof.
3.3 UStel Subsidiaries.
3.3.1 SCHEDULE 3.3 hereto includes a true and complete list of
all corporations in which UStel has a material equity interest (each a "UStel
Subsidiary" and collectively the "UStel Subsidiaries"), the jurisdiction in
which each UStel Subsidiary is incorporated and all shares of capital stock that
each UStel Subsidiary has authorized, issued or outstanding, together with the
beneficial and record owners of all outstanding shares. Except for UStel's
interest in the UStel subsidiaries, neither UStel nor any UStel Subsidiary has
any equity interest in any corporation or in any partnership or other
non-corporate entity. The shares of capital stock of each UStel Subsidiary have
been duly authorized and are validly issued, fully paid and nonassessable. All
shares of capital stock of the UStel Subsidiaries owned by UStel and any UStel
Subsidiary are listed in SCHEDULE 3.3 and are owned by the UStel or such UStel
Subsidiary free and clear of all liens, encumbrances and adverse claims.
3.3.2 Each UStel Subsidiary is duly organized and in good
standing under the laws of the jurisdiction in which it was incorporated, has
full corporate power and authority to carry on its business as now conducted by
it and is entitled to own or lease and operate its properties and assets now
owned or leased and operated by it. Each UStel Subsidiary is duly qualified and
in good standing as a foreign corporation in each jurisdiction where the
character or location of the assets owned by it or the nature of the business
transacted by it require such qualification, except where failure to be so
qualified would not have a Material Adverse Effect. SCHEDULE 3.3 includes a list
of the jurisdictions in which each UStel Subsidiary is qualified to do business.
3.3.3 UStel has heretofore made available to the Company for
its examination copies of the minute books, stock certificate books and
corporate seal of each UStel Subsidiary. Said minute books are accurate in all
material respects and reflect all resolutions adopted and all material actions
expressly authorized or ratified by the shareholders and directors of each such
UStel Subsidiary. The stock certificate books reflect all issuances, transfers
and cancellation of capital stock of each UStel Subsidiary.
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3.4 Authority; No Conflicts. UStel has all requisite corporate power
and authority to enter into this Agreement and the other documents and
agreements to be entered into by UStel in connection herewith and to perform its
obligations under this Agreement and all such other documents and agreements.
The execution and delivery of this Agreement by UStel and the consummation of
the transactions contemplated thereby have been duly authorized by the Board of
Directors of UStel, and the execution and delivery of the Merger Agreements by
Newco and the consummation of the transactions contemplated thereby have been
duly authorized by the Board of Directors of Newco and by UStel in its
stockholder capacity. This Agreement has been duly executed and delivered by
UStel and Newco and, when this Agreement and the Merger have been approved by
the shareholders of UStel, no further corporate action will be necessary on the
part of UStel or Newco to make this Agreement valid and binding upon UStel and
Newco in accordance with its terms, subject to the "Bankruptcy Exception," as
defined in Article XIII. The Board of Directors of UStel has authorized its
management to solicit its shareholders to authorize and approve this Agreement
and the Merger on or before December 31, 1996. The execution, delivery and
performance of this Agreement by UStel and Newco (a) do not violate or conflict
with the Articles of Incorporation or By-Laws of UStel or Newco, (b) will not
result in a violation or breach of any term or provision or constitute a default
or give any party a right to accelerate the due date of any indebtedness under,
or, except as set forth in SCHEDULE 3.4, result in the loss of any material
benefit of, any indenture, mortgage, deed of trust or other material contract or
agreement to which UStel, any UStel Subsidiary, or any of them, are parties or
by which UStel, any UStel Subsidiary, or any of them, are bound, including, but
not limited to, any agreement pursuant to which UStel leases lines from any
long-distance carrier (the "UStel Telecommunications Contracts"), (c) do not
result in the creation or imposition of any Lien on any of the property or
assets of UStel or any of the UStel Subsidiaries, and (d) do not violate any
law, statute, ordinance, regulation, judgment, writ, injunction, rule, decree,
order or other restriction of any kind to which UStel, Newco or any of the UStel
Subsidiaries or the property or assets of UStel or any of the UStel Subsidiaries
are subject other than violations that would not materially and adversely effect
the ability of UStel or Newco to consummate the transactions contemplated by
this Agreement or result in any material limitation on the ability of UStel or
any of the UStel Subsidiaries to operate its business in the manner heretofore
operated.
3.5 UStel Reports. UStel has delivered to the Company copies of (a)
UStel's Final Prospectus dated June 22, 1994, (b) UStel's Registration Statement
on Form 8-A dated June 23, 1994, (c) UStel's Annual Reports on Form 10-K for the
years ended December 31, 1994 and 1995 and (d) UStel's Quarterly Reports on Form
10-Q for each quarter (other than its last quarter of each fiscal year) since
June 23, 1994. All of said documents are called the "UStel Reports" herein and
constitute all filings required to be made by UStel with the Securities and
Exchange Commission (the "Commission"). The UStel Reports have been duly and
timely filed with the Commission and are in compliance with the Rules and
Regulations. As of their respective dates, none of the UStel Reports contained
any untrue statement of a material fact or omitted to state a material fact
required
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<PAGE> 14
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.
3.6 UStel Financial Statements.
3.6.1 The financial statements contained in the UStel Reports
(the "UStel Financial Statements") have been prepared in accordance with the
books and records of UStel and the UStel Subsidiaries and, except as set forth
in SCHEDULE 3.6.1, in accordance with "GAAP" (as defined in Article XIII), all
as more particularly set forth in such financial statements and the Notes
thereto. Each of the balance sheets included in the UStel Financial Statements
presents fairly, as of its date, the consolidated financial condition and assets
and liabilities of UStel and the UStel Subsidiaries. Except as and to the extent
reflected or reserved against in such balance sheets (including the Notes
thereto), UStel (including the UStel Subsidiaries) did not have, as of the dates
of such balance sheets, any material liabilities or obligations (absolute or
contingent) of a nature customarily reflected in a balance sheet or the notes
thereto prepared in accordance with GAAP. The consolidated statements of
earnings and stockholders' equity and consolidated statements of changes in
financial position included in the UStel Financial Statements present fairly the
results of operations, stockholders' equity and changes in financial position of
UStel and the UStel Subsidiaries for the periods indicated.
3.6.2 Neither UStel nor any of the UStel Subsidiaries has any
liability or obligation that could have a Material Adverse Effect, whether
accrued, absolute, contingent or otherwise, except as set forth in the UStel
Financial Statements. To the extent that the existence of such a liability or
obligation is disclosed in the UStel Financial Statements or elsewhere in this
Agreement and the financial effect of such liability or obligation is not stated
or is greater than that stated, UStel will be held to have represented and
warranted that such liability or obligation has no Material Adverse Effect,
except to the extent so stated.
3.7 Accuracy of Securities Documents. None of the information contained
in "Proxy Materials", "Filings" or "Disclosure Materials," (as such terms are
defined in Sections 4.8 and 4.9 below) will, as of the date that such Proxy
Materials or Disclosure Materials are delivered or such Filings are filed, or at
the time of the meeting of the shareholders of UStel to be held for approval of
the Merger, contain or will contain any untrue statement of a material fact or
omit or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein in light of the circumstances
under which they were made, not misleading. The Proxy Materials will comply, in
all material respects, as to form with the provisions of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") and the Rules and Regulations
thereunder. The Disclosure Materials and the Filings will comply, in all
material respects, as to form with the provisions of the Securities Act of 1933,
as amended (the "Securities Act"), and any applicable Blue Sky or securities
laws of the various states.
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<PAGE> 15
3.8 Properties. UStel and the UStel Subsidiaries have, and on the
Closing Date will have, good title to the assets and properties shown in the
UStel Financial Statements or acquired since the date of the latest balance
sheet included therein, except as since sold or otherwise disposed of in the
ordinary course of business. At the Closing, such title will be free and clear
of all liens, charges, security interests, encumbrances, leases, covenants,
conditions, mortgage, pledge, claim and restrictions (collectively, "Liens")
other than "Permitted Liens" as defined in Article XIII or except as set forth
in SCHEDULE 3.8 attached hereto. The plants, structures, leasehold improvements,
machinery, equipment, furniture and other tangible assets owned or leased by
UStel and the UStel Subsidiaries are in good operating condition and repair,
subject only to ordinary wear and tear, taking into account the respective ages
of the assets involved, and constitute all the fixed tangible assets necessary
for the operation of the business of UStel and the UStel Subsidiaries in
accordance with their current methods of operation in all material respects.
3.9 Contracts.
3.9.1 SCHEDULE 3.9 includes a listing of all oral or written
(a) contracts, commitments, sales orders or purchase orders, whether or not
entered into in the ordinary course of business, which involve future payments,
performance of services or delivery of goods and/or materials, to or by UStel or
any UStel Subsidiary of an amount or value in excess of $20,000; (b) bonus,
incentive compensation, pension, profit sharing, stock option, group insurance,
medical reimbursement or employee welfare or benefit plans of any nature
whatsoever; (c) leases, contracts or commitments affecting ownership of, title
to, use of or any material interest in real estate; (d) employment contracts and
other contracts, agreements, or commitments to or with individual employees,
officers, consultants or agents extending for a period of more than thirty days
from the date hereof or providing for earlier termination only upon payment of a
penalty or the equivalent thereof; (e) equipment leases providing (in any one
lease or group of related leases) for payments in excess of $20,000 per year;
(f) contracts under which the performance of any obligation of UStel or any
UStel Subsidiary is guaranteed by a shareholder of UStel or other third party,
including performance bonding arrangements; (g) contracts or commitments
providing for payments based in any manner upon the revenues, purchases or
profits of UStel or any UStel Subsidiary; (h) bank credit, factoring and loan
agreements, indentures, promissory notes and other documents representing
indebtedness for borrowed money; (i) patent licensing agreements and all other
agreements with respect to patents, patent applications, trademarks, service
marks, trade names, technical assistance, special processes, know-how, copyright
or other like items; (j) UStel Telecommunications Contracts; and (k) other
contracts and agreements to which UStel or any UStel Subsidiary is a party and
which have not been fully performed, involving consideration having a value in
excess of $20,000 or having a value in excess of $10,000 and a remaining period
for performance in excess of six months (all such items being collectively
referred to herein as "Material Contracts"). UStel has furnished to the Company
true and complete copies of all such Material Contracts.
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<PAGE> 16
3.9.2 All Material Contracts are valid and binding obligations
of UStel or UStel Subsidiaries that are party thereto and, to the best of the
"knowledge of UStel", as defined in Article XIII, of the other parties thereto
in accordance with their respective terms, subject to the Bankruptcy Exception;
there have been no amendments to or modifications to any Material Contract
(except as set forth in the copies furnished to the Company); no event has
occurred which is, or, following any grace period or required notice, would
become a material default by UStel or any UStel Subsidiary under the terms of
any Material Contract; except to the extent specifically reserved against on the
latest balance sheet included in UStel Financial Statements, neither UStel nor
any UStel Subsidiary is a party to any contract on which it anticipates expenses
materially in excess of revenues or which is otherwise onerous or materially
adverse; and neither UStel nor any UStel Subsidiary has expressly waived any
material rights under any Material Contract.
3.10 Absence of Undisclosed Liabilities. Except for liabilities and
obligations reflected on the latest balance sheet included in UStel Financial
Statements, or as set forth in SCHEDULE 3.10 hereto, or arising in the ordinary
course of business since the date of such balance sheet, none of which latter
items, individually or in the aggregate, have a Materially Adverse Effect: (a)
UStel and the UStel Subsidiaries do not have, and none of their properties are
subject to, any debts, liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, which are of a type normally shown
or reflected on financial statements prepared in a manner consistent with GAAP;
and (b) to the best knowledge of UStel and the UStel Subsidiaries do not have,
and none of their properties are subject to, any material debts, liabilities or
obligations of any nature, whether accrued, absolute, contingent or otherwise,
whether or not of a type normally shown or reflected on financial statements
prepared in a manner consistent with GAAP. Neither UStel nor any UStel
Subsidiary is in default with respect to any material term or condition of any
indebtedness.
3.11 No Litigation. Except as identified on SCHEDULE 3.11 attached
hereto, there are no actions, suits or proceedings (whether or not purportedly
on behalf of UStel or any UStel Subsidiary) pending or, to the knowledge of
UStel, threatened against or affecting UStel or any UStel Subsidiary, at law or
in equity or before or by any governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, or before any arbitrator
of any kind. Neither UStel nor any UStel Subsidiary is in default with respect
to any judgment, order, writ, injunction, decree, award of any court,
arbitrator, governmental department, commission, bureau, board, agency or
instrumentality.
3.12 Environmental Matters.
3.12.1 Neither UStel or any UStel Subsidiary nor, to the best
of the knowledge of UStel, any previous owner, lessee, tenant, occupant or user
of any real property owned or leased on or prior to the date hereof by UStel or
any UStel Subsidiary (such real property and any and all buildings and other
improvements thereon being herein referred to as the "Property") used,
generated, manufactured, treated, handled, refined, processed, released,
discharged, stored or
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<PAGE> 17
disposed of any "Hazardous Materials" (as defined in Article XIII) on, under, in
or about the Property, or transported any Hazardous Materials to or from the
Property in violation of any Hazardous Materials Laws (as defined in Article
XIII). To the best of the knowledge of UStel, no underground tanks or
underground deposits or Hazardous Materials the existence of which would have a
Material Adverse Effect existed on, under, in or about any Property previously
owned or leased by UStel or any UStel Subsidiary on or prior to the date that
fee or leasehold title to such Property was transferred to a third party by
UStel or any UStel Subsidiary. To the best of the knowledge of UStel, no
underground tanks or underground deposits or Hazardous Materials the existence
of which would have a Material Adverse Effect exist on, under, in or about any
Property that is currently owned or leased by UStel or any UStel Subsidiary.
3.12.2 While any Property was owned or leased by UStel or any
UStel Subsidiary, it did not violate to an extent that would have a Material
Adverse Effect any applicable federal, state and local laws, ordinances or
regulations, now or previously in effect, relating to environmental conditions,
industrial hygiene or Hazardous Materials on, under, in or about such Property
(including without limitation the Hazardous Materials Laws).
3.12.3 As of the date hereof, to the best of the knowledge of
UStel, there are no (a) enforcement, clean-up, removal, mitigation or other
governmental or regulatory actions instituted, contemplated or threatened
pursuant to any Hazardous Materials Laws against UStel or any UStel Subsidiary,
or any Property presently owned or leased by UStel or any UStel Subsidiary, (b)
claims made or threatened by any person or governmental body relating to the
Property against UStel or any UStel Subsidiary or any Property presently owned
or leased by UStel or any UStel Subsidiary or relating to damage, contribution,
cost recovery, compensation, loss or injury resulting from any Hazardous
Materials or (c) any occurrence or condition known to UStel on any Property that
is currently owned or leased by UStel or any UStel Subsidiary that can
reasonably be expected to subject UStel, any UStel Subsidiary or such Property
to any material restrictions on occupancy, transferability or use of any
Property under any Hazardous Materials Laws. SCHEDULE 3.12 hereto includes a
list of all complaints, notices of violation and claims relating to Hazardous
Materials Laws which, to the knowledge of UStel, have been received by or
asserted against UStel or any of the UStel Subsidiaries.
3.13 Taxes.
3.13.1 UStel and the UStel Subsidiaries have each filed all
income, franchise and other "Tax Returns" (as defined in Article XIII) required
to be filed by it by the date hereof. All "Taxes" (as defined in Article XIII)
imposed by the United States, the State of Minnesota and by any other state,
municipality, subdivision, or other taxing authority, which are due and payable
by UStel and any UStel Subsidiary have been paid in full or are adequately
provided for by reserves reflected on the latest balance sheet included in the
UStel Financial Statements.
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3.13.2 All contributions due from UStel and the UStel
Subsidiaries pursuant to any unemployment insurance or workers compensation laws
and all sales or use Taxes which are due or payable by UStel and the UStel
Subsidiaries have been paid in full and will be so paid through the Closing
Date. UStel and each UStel Subsidiary have withheld and paid to, or will cause
to be paid to, the appropriate taxing authorities all amounts required to be
withheld from the wages of their employees under state law and the applicable
provisions of the Code, and UStel and UStel Subsidiaries will continue to do so
with respect to all wages paid by them through the Closing Date.
3.13.3 UStel has furnished to the Company true and complete
copies of the federal income Tax Returns and comparable state Tax Returns of
UStel and the UStel Subsidiaries covering the last three (3) full fiscal years
of UStel and constituting complete and accurate representations in all material
respects of the Tax liabilities of UStel and the UStel Subsidiaries for the
relevant periods stated therein and accurately setting forth all relevant
material items, including the Tax bases of all assets, where required to be set
forth in such Tax Returns.
3.13.4 Further, (a) there are no Liens for Taxes due and
payable upon any assets of UStel or of any of the UStel Subsidiaries; (b)
SCHEDULE 3.13 contains a complete and accurate list of all Tax Returns in
respect to UStel and the Ustel Subsidiaries that have been, or, to the best of
the knowledge of UStel, are being or are proposed to be audited by the IRS or
any state, local or foreign governmental agency charged with administering tax
laws and with respect to which the statue of limitations has not expired or has
been extended, and, except as completely and accurately set forth in SCHEDULE
3.13, all adjustments currently pending in such audits have been reflected in
the UStel Financial Statements; (c) except as completely and accurately set
forth in SCHEDULE 3.13, there is no action, suit, proceeding, investigation,
audit or claim pending, or, to the knowledge of UStel, proposed against or with
respect to UStel or any of the UStel Subsidiaries in respect of any Taxes; (d)
none of the Tax Returns filed by or on behalf of UStel or any of the UStel
Subsidiaries contains a disclosure statement under Section 6662 of the Code (or
Section 6661 of the Code for Tax Returns the due date for which, not including
extensions, was prior to January 1, 1990), or any comparable provision of state,
local or foreign law; (e) UStel and the UStel Subsidiaries have made timely
payment to the proper governmental authorities of all Taxes required to be
withheld from wages paid to their employees; (f) no deficiencies for any Taxes
of UStel or any of the UStel Subsidiaries have been claimed or proposed by any
governmental authority (whether orally or in writing, definitively or
tentatively); (g) no requests for waivers of the time to assess any deficiency
for any material amount of Taxes are pending with respect to UStel or any of the
UStel Subsidiaries; and (h) except as completely and accurately set forth in
SCHEDULE 3.13, there are no pending or, to the knowledge of UStel, threatened
Tax audits, investigations or claims with respect to UStel or any of the UStel
Subsidiaries for or relating to (A) the assessment or collection of Taxes or (B)
a claim for refund made with respect to Taxes previously paid, and there are no
matters under discussion or dispute with any governmental authorities with
respect to Taxes that are likely to result in a further liability for Taxes; (i)
except as provided in SCHEDULE 3.13, no extension of time has been requested or
granted with respect to the Tax Returns of UStel or any of the UStel
Subsidiaries which will extend
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<PAGE> 19
the due date for such Tax Returns beyond the Closing Date; (j) the consummation
of this Agreement and the other transactions contemplated in connection
therewith will not result in any "excess parachute payments" within the meaning
of Section 280G of the Code; (k) except as completely and accurately set forth
in SCHEDULE 3.13, neither UStel nor any of the UStel Subsidiaries is required to
include in income any adjustment pursuant to Section 481(a) of the Code (or
similar provisions of other laws or regulations) by reason of a change in
accounting method, and the IRS (or other taxing authority) has not proposed,
and, to the knowledge of UStel, is not considering proposing, any such change in
accounting method; and (l) neither UStel nor any of the UStel Subsidiaries has
consented to the application of Section 341(f) of the Code.
3.14 Permits and Licenses. UStel and the UStel Subsidiaries have all
licenses, franchises, permits and other governmental authorizations that are
legally required to enable them to conduct their businesses in all material
respects as conducted on the date hereof, and UStel and the UStel Subsidiaries
are in compliance in all material respects with all applicable federal, state
and local laws, rules, regulations and orders relating to their businesses,
except where failure to have any such license, franchise, permit or
authorization or failure to comply with any such laws, rules, regulations and
orders would not have a Material Adverse Effect. The execution and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not violate any provision of or constitute a default under any law, rule or
regulation, order, writ, injunction or decree of any court or other
"Governmental Authority" (as defined in Article XIII) applicable to UStel or any
UStel Subsidiary, where such violation or default would have a Material Adverse
Effect. No fact, error or omission relevant to any such franchise, license,
permit, certificate or other authorization exists that would permit the
revocation or withdrawal thereof. To the knowledge of UStel, UStel and each of
the UStel Subsidiaries will continue to have the use and benefit thereof and the
rights granted thereby pursuant to their terms after the transactions
contemplated hereby have occurred. Set forth in SCHEDULE 3.14 is a complete and
accurate list of all certificates of public convenience and the corresponding
jurisdiction held by UStel or any of the UStel Subsidiaries, and no proceedings
for the revocation of such certificates of such public convenience have been
instituted or, to the knowledge of UStel, have been threatened by any
Governmental Authority.
3.15 No Labor Problems. There is no collective bargaining agreement or
other labor agreement to which UStel or any of the UStel Subsidiaries is a party
or by which it is bound. No labor union or organization has been certified or
recognized as a representative of any employees of UStel or any of the UStel
Subsidiaries. There are no current or, to the knowledge of UStel, threatened
organizational activities or demands for recognition by a labor organization
seeking to represent employees of UStel or any of the UStel Subsidiaries, labor
strike, material arbitration or material labor grievance of difficulty and to
the knowledge of UStel, no such activities have occurred during the past 24
months. Neither UStel nor any UStel Subsidiary has been charged with any
unresolved unfair labor practices. There are no material controversies pending
or threatened between UStel or the UStel Subsidiaries and any of their
employees. UStel and each UStel Subsidiary have complied in all material
respects with all laws relating to wages, hours, collective bargaining and
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similar employment matters the noncompliance with which would have a Material
Adverse Effect, and UStel and the UStel Subsidiaries have paid all social
security and similar Taxes that are due and payable and are not liable for any
arrears or wages or any Taxes or material penalties for failure to comply with
any of the foregoing.
3.16 Affiliate Transactions. Except as completely and accurately set
forth in SCHEDULE 3.16, there is no transaction, and no transaction is now
proposed, to which UStel or any of the UStel Subsidiaries is or is to be a party
in which any Person who is currently or within the past twelve months has been a
director or officer or other Affiliate of UStel or any of the UStel Subsidiaries
has a direct or indirect interest.
3.17 Employee Benefit Plans.
3.17.1 Definition of Benefit Plans. For purposes of this
Section 3.17, the term "Benefit Plan" means any plan, program, arrangement,
practice or contract which provides benefits or compensation to or on behalf of
employees or former employees of UStel or any UStel Subsidiary or any "ERISA
Affiliate" (as hereinafter defined), whether formal or informal, whether or not
written, including but not limited to the following:
(a) Arrangements - any bonus, incentive compensation,
stock option, deferred compensation, commission, severance, golden parachute or
other compensation plan, rabbi trust, program, contract, arrangement or
practice;
(b) ERISA Plans - any "employee benefit plan" (as
defined in Section 3(3) of the Employment Retirement Income Securities Act of
1974, as amended, hereinafter referred to as "ERISA"), including, but not
limited to, any multi-employer plan (as defined in Section 3(37) and Section
4001(a)(3) of ERISA), defined benefit pension plan, profit sharing plan, money
purchase pension plan, 401(k) plan, savings or thrift plan, stock bonus plan,
employee stock ownership plan, or any plan, fund, program, arrangement or
practice providing for medical (including post-retirement medical),
hospitalization, accident, sickness, disability, or life insurance benefits; and
(c) Other Employee Fringe Benefits - any stock
purchase, vacation, scholarship, day care, prepaid legal services, severance pay
or other fringe benefit plan, program, arrangement, contract or practice.
3.17.2 ERISA Affiliate. For purposes of this Section 3.17, the
term "ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with UStel or any UStel Subsidiary is treated as
single employer under Section 414(b), (c), (m) or (o) of the Code.
3.17.3 Identification of Benefit Plans. Except as set forth in
SCHEDULE 3.17 hereto and except for Benefit Plans which have been terminated and
with respect to which neither UStel
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<PAGE> 21
nor any UStel Subsidiary nor any ERISA Affiliate has any liability or
obligation, neither UStel nor any UStel Subsidiary nor any ERISA Affiliate
maintains, or has at any time established or maintained, or has at any time been
obligated to make contributions to or under or otherwise participate in, any
Benefit Plan.
3.17.4 MEPPA Liability/Post-Retirement Medical Benefits/
Defined Benefit Plans/Supplemental Retirement Plans. Except as set forth in
SCHEDULE 3.17 hereto, neither UStel or any UStel Subsidiary nor any ERISA
Affiliate maintains, or has at any time established or maintained, or has at any
time been obligated to make contributions to or under any multi-employer plan
(as defined in Section 3(37) and Section 4001(a)(3) of ERISA). Neither UStel nor
any UStel Subsidiary maintains, or has at any time established or maintained, or
has at any time been obligated to make contributions to or under (i) any plan
which provides post-retirement medical or health benefits, (ii) any organization
described in Sections 501(c)(9) or 501(c)(20) of the Code, (iii) any defined
benefit pension plan subject to Title IV of ERISA or (iv) any plan which
provides retirement benefits in excess of the limitations of Section 415 of the
Code.
3.17.5 Documentation. UStel has made available to the Company
a true and complete copy of the following documents, if applicable, with respect
to each Benefit Plan identified in SCHEDULE 3.17 hereto: (1) all documents,
including any insurance contracts and trust agreements, setting forth the terms
of the Benefit Plan, or if there are no such documents evidencing the Benefit
Plan, a full description of the Benefit Plan, (2) the ERISA summary plan
description and any other summary of plan provisions provided to participants or
beneficiaries for each such Benefit Plan, (3) the annual reports filed for the
most recent three plan years and most recent financial statements or periodic
accounting of related plan assets with respect to each Benefit Plan, (4) each
favorable determination letter, opinion or ruling from the IRS for each Benefit
Plan which is intended to satisfy the requirements of Section 401(a) or Section
501 of the Code or which is dependent on such letter, ruling or opinion to avoid
current federal come tax to the beneficiaries of such Benefit Plan, and in (5)
each opinion or ruling from the Department of Labor or the Pension Benefit
Guaranty Corporation ("PBGC") with respect to such Benefit Plans.
3.17.6 Qualified Status. Each Benefit Plan that is funded
through a trust or insurance contract and is intended to satisfy the
requirements of Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service, has at all times
satisfied in all material respects, by its terms and to UStel's knowledge in its
operation, all applicable requirements under Section 401(a) and related sections
of the Code, and any such trust has been and shall be exempt from federal income
taxation under Section 501(a) of the Code.
3.17.7 Compliance. Each Benefit Plan maintained by UStel or
any UStel Subsidiary or ERISA Affiliate has at all times been maintained, to
UStel's knowledge, by its terms and in operation, in accordance with all
applicable laws in all material respects, including (to the extent applicable)
Code Section 4980B. Further, there has been no failure to comply with applicable
ERISA or other requirements concerning the filing of reports, documents and
notices with the
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Secretary of Labor and Secretary of Treasury or the furnishing of such documents
to participants or beneficiaries that could subject any Benefit Plan, UStel, any
UStel Subsidiary or any ERISA Affiliate to any material civil or any criminal
sanction or could require any such person to indemnify any other person for such
a sanction. There are no claims known to UStel which are pending or threatened
against any Benefit Plan except claims for benefits made in the ordinary course
of the operation of such plans.
3.17.8 Funding. UStel and each UStel Subsidiary and ERISA
Affiliate has made full and timely payment of all amounts required to be
contributed under the terms of each Benefit Plan and applicable law or required
to be paid as expenses under such Benefit Plan including, but not limited to,
PBGC premiums and amounts required to be contributed under Section 412 of the
Code, and no excise taxes are assessable as a result of any nondeductible or
other contributions made or not made to a Benefit Plan. To the knowledge of
UStel, the most recent actuarial valuations were based on accurate facts and
information, and UStel has no reason to believe that the conclusions set forth
in such valuations are incorrect. Since September 2, 1974, no Benefit Plan has
been completely or partially terminated, nor has any notice of intent to
terminate been filed or given, other than in accordance with ERISA or at a time
when such Benefit Plan was not sufficiently funded.
3.17.9 Liabilities. Neither UStel nor any UStel Subsidiary nor
any ERISA Affiliate is subject to any material liability, Tax or penalty
whatsoever to any person whomsoever as a result of engaging in a prohibited
transaction under ERISA or the Code, and neither UStel nor any UStel Subsidiary
nor any ERISA Affiliate has any knowledge of any circumstances which reasonably
might result in any material liability, Tax or penalty, including, but not
limited to, a penalty under Section 502 of ERISA, as a result of a breach of any
duty under ERISA or any other applicable law. Other than routine claims for
benefits under the Benefit Plans, there are no pending or threatened
investigations, proceedings, claims, lawsuits, disputes, actions, audits or
controversies involving the Benefit Plans, or the fiduciaries, administrators,
or trustees of any of the Benefit Plans, or UStel, any UStel Subsidiary or any
ERISA Affiliate as the employer or sponsor under any Benefit Plan, with any of
the Internal Revenue Service, Department of Labor, PBGC, any participant in or
beneficiary of the Benefit Plans or any other person whatsoever. UStel knows of
no reasonable basis for any such claim, lawsuit, dispute, action or controversy.
Except as set forth in SCHEDULE 3.17 hereto, the execution and performance of
the transactions contemplated by this Agreement will not create, accelerate or
increase any obligations under any Benefit Plan, including any obligation to
make any payment which would not be deductible as an "excess parachute payment"
under Section 280G of the Code.
3.17.10 Amendment/New Plans. Prior to the Closing Date, no
amendment shall be made to any Benefit Plan, no commitment shall be made to
amend any Benefit Plan and no commitment shall be made to continue any Benefit
Plan or to adopt any new compensatory plan, fund or program for the benefit of
any employees of UStel, any UStel Subsidiary or any ERISA Affiliate without the
express written consent of the Company.
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3.18 Insurance. UStel has furnished to the Company a complete list of
all insurance policies (the "Existing Policies") that UStel and UStel
Subsidiaries maintain, indicating risks insured against, carrier, policy number,
amount of coverage, premiums and expiration date. There was not and will not be
prior to the Closing any material inaccuracy in any application for any such
insurance coverage. UStel and each of the UStel Subsidiaries are and will be as
of the Closing in material compliance with all conditions contained in each
Existing Policy. All premiums required to be paid for insurance coverage under
all of the Existing Policies have been paid or accrued. UStel and each of the
UStel Subsidiaries will maintain through the Closing Date all insurance coverage
available under the Existing Policies.
3.19 Interest in Competitors, Suppliers, etc. Except as set forth on
SCHEDULE 3.19 and except for ownership of shares of capital stock of any
corporation which do not aggregate more than 3% of the outstanding shares of
that class of capital stock, neither any officer or director of UStel nor any
Family Member (as defined in Article XIII) of any such Person owns, directly or
indirectly, individually or collectively, any interest in any corporation,
partnership, proprietorship, firm or association which (a) is a competitor,
customer or supplier of UStel or any UStel Subsidiary, or (b) has an existing
contractual relationship with UStel or any UStel Subsidiary, including but not
limited to lessors of real or personal property leased to UStel or any UStel
Subsidiary and entities against whom rights or options are exercisable by UStel
or any UStel Subsidiary.
3.20 Indebtedness with Insiders. Except as set forth on SCHEDULE 3.20
and except for accrued salaries for one payroll period, vacation pay and
business expense reimbursements, neither UStel nor any UStel Subsidiary is, and,
on the Closing Date, neither UStel nor any UStel Subsidiary will be, indebted to
any of the shareholders, directors or officers of UStel or any Affiliate of any
such person. Except as set forth on SCHEDULE 3.20, none of such persons is or
will be on the Closing Date indebted to UStel or any UStel Subsidiary.
3.21 Consents. No authorizations, approvals or consents of any
governmental department, commission, bureau, agency or other public body or
authority are required for consummation by UStel and the UStel Subsidiaries of
the transactions contemplated by this Agreement, except such registrations or
qualifications as may be required under the federal or state securities or Blue
Sky laws relating to the UStel Shares.
3.22 Patents, Trademarks and Other Intangibles. SCHEDULE 3.22 includes
a list of all patents, patent applications, trade names, trademark registrations
and applications therefor, copyrights, licenses, franchises and other assets of
like kind ("Intangible Assets") and all interests in Intangible Assets which are
owned in whole or in part by or registered in the name of UStel or any UStel
Subsidiary. UStel and UStel Subsidiaries own or have the right to use all
Intangible Assets now used in the conduct of their businesses. Neither UStel nor
any UStel Subsidiary is obligated to pay any royalty or other fee to any
licensor or other third party with respect to any Intangible Assets. UStel has
no knowledge of any claim received by UStel or by any UStel Subsidiary alleging
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any conflict between any aspect of the business of UStel and UStel Subsidiaries
and any Intangible Assets claimed to be owned by others which, if determined
adversely to UStel or UStel Subsidiary, would have a Material Adverse Effect. No
officer or director of UStel, and no person or entity that is an Affiliate of
any such Person, has any interest in any Intangible Assets which are presently
used by UStel or any UStel Subsidiary or which infringe upon, conflict with or
relate to improvements or modifications of any Intangible Assets presently used
by UStel or any UStel Subsidiary. No licenses, sublicenses, covenants or
agreements have been granted or entered into by UStel or any of the UStel
Subsidiaries in respect of such Intangible Assets except as noted on SCHEDULE
3.22. The consummation of the transactions contemplated by this Agreement will
not result in the loss of any Intangible Assets listed in SCHEDULE 3.22.
3.23 Purchases and Sales. Since March 31, 1996, neither UStel nor any
UStel Subsidiary has placed any orders for materials, merchandise or supplies in
exceptional or unusual quantities based upon past operating practices or has
entered into contracts with customers under conditions relating to price, terms
of payment, time of performance or like matters materially different from the
conditions regularly and usually specified in contracts for similar engagements
from customers similarly situated.
3.24 Brokerage and Finder's Fees. Neither UStel nor any of its
Affiliates has incurred any liability to any broker, finder or agent for any
brokerage fees, finder's fees or commissions with respect to the transactions
contemplated by this Agreement.
3.25 Absence of Certain Changes. Since March 31, 1996, UStel and the
UStel Subsidiaries, taken as a whole, have conducted their business in the
ordinary course, in a good manner and consistent with the standards of a
reasonably prudent telecommunications service provider, have paid all of their
respective trade and other payables and debt in full as such have become due,
and have maintained their assets and properties in good order and condition
(normal wear and tear excepted) and as is necessary to continue so to conduct
its business and, except as set forth on SCHEDULE 3.25 have not:
3.25.1 suffered any Material Adverse Effect;
3.25.2 borrowed or agreed to borrow any funds except
borrowings under their bank lines of credit in the ordinary course of business,
or incurred or become subject to any obligation or liability (absolute or
contingent), except obligations and liabilities incurred in the ordinary course
of business consistent with past practice;
3.25.3 mortgaged, pledged, hypothecated or otherwise
encumbered any of their properties or assets except for Permitted Liens;
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3.25.4 made or agreed to make any distribution of any funds or
assets of any kind whatsoever, or any loan or extension of credit or security to
or on behalf of, to any past or present shareholder of UStel or any Affiliate of
any such Person, whether by way of dividend, redemption or purchase of capital
stock, or any other type of distribution on or with respect to its capital
stock, whether or not similar to the foregoing;
3.25.5 made any payment of principal or interest on any
indebtedness owed to any past or present shareholder of UStel or any Affiliate
of any such Person;
3.25.6 sold or agreed to sell any of their assets, properties
or rights or canceled or agreed to cancel any debts or claims, except for fair
value in the ordinary course of business and consistent with past practice;
3.25.7 entered or agreed to enter into any agreement or
arrangement granting any preferential right to purchase a material part of their
assets, properties or rights;
3.25.8 increased the rate of compensation of or paid or
accrued bonuses to or for any of their officers, employees, consultants or
agents, except for normal merit or cost of living increases;
3.25.9 suffered any damage, destruction or loss, whether or
not covered by insurance, which could have a Material Adverse Effect;
3.25.10 assigned or agreed to assign any of their Intangible
Assets;
3.25.11 suffered any adverse amendment or termination of any
Material Contract (or any contract that would have been a Material Contract if
not amended or terminated) to which any of them is a party;
3.25.12 paid any commissions or similar fees to brokers or
finders for arranging the transactions contemplated by this Agreement or any
similar proposed transaction with any other party;
3.25.13 entered into any other material transaction other than
in the ordinary course of business;
3.25.14 discharged or satisfied any lien, or paid or satisfied
any obligation or liability (accrued, absolute, contingent or otherwise), other
than in the ordinary course of business and consistent with past practice;
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<PAGE> 26
3.25.15 made or authorized any capital expenditure for
additions to facilities or equipment of UStel or of any of the UStel
Subsidiaries;
3.25.16 split, combined, reclassified, issued, sold, offered
to sell, transferred, pledged, encumbered or delivered or agreed to issue, sell,
offer for sale or transfer, pledge, encumber or deliver any stock, bond,
debenture or other security or interest of UStel or of any of the UStel
Subsidiaries or any right of any kind to acquire any stock, bond, debenture or
other security of UStel or of any of the UStel Subsidiaries;
3.25.17 experienced any material adverse change in the
business, assets, prospects, financial condition or results of operations of
UStel and the UStel Subsidiaries taken as a whole;
3.25.18 except for changes, if any, contemplated by this
Agreement or required by GAAP and reflected in the UStel Financial Statements,
made any change in accounting methods or practices; or
3.25.19 entered into any agreement, commitment or
understanding, whether in writing or otherwise, except as contemplated by this
Agreement, with respect to any of the foregoing.
3.26 Compliance with Laws. Each of UStel and the UStel Subsidiaries:
(a) is in compliance with all laws, regulations, reporting and licensing
requirements, and orders applicable to its business or employees conducting its
business; (b) has received no notification or communication from any agency or
department of any federal, state, local or foreign Governmental Authority or the
staff thereof (i) asserting that UStel or any of the UStel Subsidiaries is not
in compliance with any of the statutes, regulations or ordinances which such
Governmental Authority enforces, or (ii) threatening to revoke any license,
franchise, permit, or governmental authorization; and (c) is not a party to any
written order, decree, agreement or memorandum of understanding with, or a
commitment letter or similar submission to, or a recipient of any extraordinary
supervisory letter from, any federal or state Governmental Authority which
restricts in any material respect the conduct of business of UStel or any of
UStel Subsidiaries; and neither UStel nor any of the UStel Subsidiaries has been
advised by any such regulatory Governmental Authority that such authority is
contemplating issuing or requesting any such order, decree, agreement,
memorandum of understanding, extraordinary supervisory letter, commitment letter
or similar submission.
3.27 No Material Misstatements or Omissions. No representation or
warranty by UStel or Newco in this Agreement, and no document, statement,
certificate, exhibit or schedule furnished or to be furnished to the Company
pursuant hereto, or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state a material fact necessary to make the statements or facts
stated therein, in light of the circumstances under which they were made, not
misleading.
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ARTICLE IV.
ADDITIONAL OBLIGATIONS AND COVENANTS OF USTEL
UStel hereby covenants and agrees with the Company as follows (the
fulfillment of each such covenant and agreement being a condition precedent to
the Company's obligations to consummate the Merger):
4.1 Conduct of Business. Between the date hereof and the Closing Date:
4.1.1 The business of UStel and the UStel Subsidiaries, taken
as a whole, shall be conducted diligently and only in the ordinary course, and
UStel will use reasonable efforts to preserve the organization of UStel and the
UStel Subsidiaries intact, to keep available to UStel and the UStel Subsidiaries
their present key employees and to maintain the relationships of UStel and the
UStel Subsidiaries with their suppliers, customers and others. UStel and the
UStel Subsidiaries will not, without the Company's prior written approval,
increase the rate of compensation payable or to become payable to, or make or
agree to any bonus or retirement or similar benefit or arrangement with, any of
their officers, employees, consultants or agents over the rate being paid to
them at the date hereof, except for normal merit or cost of living increases to
employees other than officers of UStel.
4.1.2 UStel and the UStel Subsidiaries will not, without the
Company's prior written approval, enter into, terminate, amend or modify any
Material Contract other than in the ordinary course of business or enter into
contracts with customers under conditions relating to price, terms of payment,
time of performance or like matters materially different from the conditions
regularly and usually specified in contracts for similar engagements from
customers similarly situated.
4.1.3 UStel and the UStel Subsidiaries will not, without the
Company's prior written approval, sell or dispose of any of their material
properties or assets except for sales at fair value in the ordinary course of
business.
4.1.4 UStel and the UStel Subsidiaries will not, without the
Company's prior written approval, acquire or enter into any agreement to
acquire, by merger, consolidation, purchase of stock or assets or otherwise, any
business or entity, or enter into any joint venture, partnership or similar
arrangement.
4.1.5 UStel and the UStel Subsidiaries will use reasonable
diligence to maintain their properties in their condition as of the date of this
Agreement, ordinary wear and tear excepted.
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4.1.6 UStel and the UStel Subsidiaries will continue to carry
their Existing Policies subject only to variations in amounts required by the
ordinary operations of its business.
4.1.7 UStel shall, and shall cause the UStel Subsidiaries to,
comply with all legal and regulatory requirements applicable to it and to the
conduct of their respective businesses.
4.1.8 UStel shall not, and shall not permit any of the UStel
Subsidiaries to, take any action that would, or that reasonably could be
expected to, result in any of the representations and warranties set forth in
this Agreement becoming untrue or any of the conditions to the Closing set forth
in Articles VII, VIII or IX not being satisfied. UStel promptly shall advise the
Company orally and in writing of any change or event having, or which could
have, a Material Adverse Effect.
4.2 Access and Information. UStel will afford to the Company and the
Company's counsel, accountants and other representatives reasonable access,
throughout the period from the date hereof to the Closing Date, to all of
UStel's properties, books, contracts, commitments, and records and shall furnish
the Company during such period with all information that the Company reasonably
may request, including copies and/or extracts of pertinent records, documents
and contracts. UStel agrees that all information, documents and details
concerning the business of the Company which UStel or any of its directors,
officers, employees, agents or Affiliates has heretofore received, or which any
of such Persons receives between the date of this Agreement and the Closing, are
strictly confidential and agrees that it will not, nor will it allow any of its
officers, directors, employees, agents or Affiliates to, reproduce, distribute
or disclose any matters relating to the business of the Company or this
Agreement, except for disclosure to its professional advisors (with instructions
that they shall not reproduce or disclose the same) which is reasonably
necessary to effectuate the transactions contemplated hereby.
4.3 Efforts to Satisfy Conditions. UStel agrees to use reasonable
efforts to satisfy or cause to be satisfied all of the conditions precedent to
the Company's obligations under this Agreement, to the extent that their action
or inaction can control or influence the satisfaction of such conditions.
Without limiting the generality of the foregoing, UStel will refrain from all
discussions, negotiations and transactions (or the initiation or solicitation
thereof), the consummation of which would be inconsistent with the transactions
contemplated by this Agreement, including, without limitation, any transaction
providing for the sale of any capital stock of UStel or any UStel Subsidiary,
any merger or other business combination involving UStel or any UStel
Subsidiary, the acquisition of a substantial equity interest in UStel or any
UStel Subsidiary by a third party or the sale of a substantial portion of the
assets of UStel or any UStel Subsidiary. UStel shall promptly notify the Company
if any communications or proposals relating to such a transaction are received
by UStel or any of the UStel Subsidiaries, or any of their respective officers,
directors, investment bankers, financial advisors, attorneys, accountants or
other representatives.
4.4 Corporate Matters. Between the date hereof and the Closing Date,
UStel will not, without the Company's prior written approval: (a) amend its
Articles of Incorporation or Bylaws;
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(b) issue any shares of its capital stock except on the exercise of outstanding
Rights; (c) issue or create any warrants, obligations, subscriptions, options,
convertible securities or other commitments under which any additional shares of
its capital stock of any class might be directly or indirectly authorized,
issued or transferred from treasury; (d); split, combine or reclassify any
outstanding capital stock of UStel or any of the UStel Subsidiaries; or (e)
enter into any agreement requiring it to do any of the foregoing prohibited
acts.
4.5 No Distributions to Shareholders. Between the date hereof and the
Closing Date, UStel will not, without the Company's prior written approval: (a)
declare, set aside or pay any dividend or make any distribution in respect of
its capital stock; (b) directly or indirectly purchase, redeem or otherwise
acquire any shares of its capital stock for consideration; (c) pay or distribute
any cash or property to any shareholder as a loan or in payment of principal of
or interest on any indebtedness to any shareholder; or (d) enter into any
agreement requiring it to do any of the foregoing prohibited acts.
4.6 Capital Expenditures. Between the date hereof and the Closing Date,
UStel will not, without the Company's prior written approval, make any
expenditure or commitment for the purchase or other acquisition of fixed or
capital assets, except for any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current operations.
4.7 Indebtedness. Between the date hereof and the Closing Date, neither
UStel nor any UStel Subsidiary will, without the Company's prior written
approval: (a) create, incur or assume any long-term debt (including capital
leases or, except in the ordinary course of business under existing lines of
credit, create, incur or assume any short-term debt for borrowed money; (b)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person
other than UStel Subsidiaries (except in the ordinary course of business and
consistent with past practice); (c) make any loans or advances to any other
person other than UStel Subsidiaries except in the ordinary course of business
and consistent with past practice; or (d) make any capital contributions to, or
investments in, any Person other than UStel Subsidiaries except in the ordinary
course of business and consistent with past practice.
4.8 Authorization by UStel Shareholders. UStel shall call a meeting of
its shareholders to be held as promptly as practicable after the date of this
Agreement for the purpose of voting on the Merger and the "Reincorporation" (as
defined in Section 7.3 below). UStel shall consult with the Company with respect
to the setting of a record date for determining stockholders that may vote at
the meeting and with respect to setting the date for the meeting. UStel shall
call the meeting to order on the date that has been set for the meeting. UStel
shall, through its board of directors, recommend to its shareholders approval of
the Merger and the Reincorporation. Upon approval thereof by the UStel
shareholders, UStel shall take all other necessary corporate action required on
its part hereunder to effect the closing of this Agreement and the consummation
of the transactions
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contemplated hereby, and the Reincorporation. UStel shall comply fully with the
Exchange Act, and any other applicable federal or state laws, with respect to
such meeting of shareholders, including, without limitation, preparing and
delivering to its shareholders proxy materials in conformity with the Exchange
Act and the Rules and Regulations promulgated thereunder (the "Proxy
Materials").
4.9 Compliance with Securities Laws. UStel shall promptly take or cause
to be taken all actions necessary, proper or advisable under the Securities Act,
and any applicable Blue Sky or securities laws of the various states, to ensure
that the offer and issuance of UStel Shares to the Shareholders in connection
with the Merger is exempt from registration under the Securities Act and from
registration or qualification under the applicable Blue Sky or securities laws
of the various states. Without limiting the foregoing, UStel shall promptly
prepare and file all applications and notices (collectively, the "Filings")
required in connection therewith, promptly prepare and deliver to the
Shareholders any disclosure or offering materials required in connection
therewith (collectively, the "Disclosure Materials") and use all reasonable
efforts to promptly obtain any other consent, approval or action by, or notice
to a registration or filing with, any Governmental Authority required and
necessary to be made, obtained or complied with in connection with the Merger
and the confirmation of the transactions contemplated thereby.
4.10 Reservation of Stock. UStel has reserved for issuance, and, as and
when required by the provisions of the Merger Agreements, will issue the UStel
Shares to the Shareholders, and the UStel Shares, when so issued, will be
validly issued, fully paid and nonassessable.
4.11 Press Releases. UStel and the Company shall consult with each
other as to the form and substance of any press release or other public
disclosure of matters related to this Agreement or any of the transactions
contemplated by this Agreement; provided, however, that nothing in this Section
4.11 shall be deemed to prohibit any party to this Agreement from making any
disclosure that is required to fulfill that party's disclosure obligations
imposed by law.
4.12 Additional Agreements. Subject to the terms and conditions
provided in this Agreement, each of the Parties hereto agrees to use all
commercially reasonable efforts to take, or cause to be taken, all action and to
do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective, as soon as
reasonably practicable, the transactions contemplated by this Agreement. In case
at any time after the Closing Date any further action is necessary, proper or
advisable to carry out the purposes of this Agreement, as soon as reasonably
practicable each party to this Agreement shall cause its proper officers and
directors to take all such necessary action.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants the following (the truth and
accuracy of each of which shall constitute a condition precedent to UStel's
obligations to consummate the Merger) to UStel:
5.1 Organization and Good Standing.
5.1.1 The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. The
Company has corporate power and authority to carry on its business as presently
conducted by it and is entitled to own or lease and operate its properties and
assets now owned or leased and operated by it. The Company is duly qualified and
in good standing as a foreign corporation in every jurisdiction in which the
character and location of the assets owned by it or the nature of the business
transacted by it or both require qualification, except where failure to be so
qualified would not have a Material Adverse Effect.
5.1.2 The Company has furnished to UStel complete and correct
copies of the Company's Articles of Incorporation and Bylaws as in effect on the
date hereof.
5.1.3 The Company has heretofore made available to UStel for
its examination copies of the minute books, stock certificate books and
corporate seal of the Company. Said minute books are accurate in all material
respects and reflect all resolutions adopted and all material actions expressly
authorized or ratified by the shareholders and directors of the Company. The
stock certificate books reflect all issuances, transfers and cancellations of
capital stock of the Company.
5.2 Capital Stock.
5.2.1 The authorized capital stock of the Company consists of
15,000,000 shares of Class A Common Stock, no par value, of which 5,298,031
shares are issued and outstanding as of the date hereof, and 15,000,000 shares
of Class B Common Stock, no par value, of which 1,454,978 shares are issued and
outstanding as of the date hereof. All such issued and outstanding shares are
validly issued, fully paid and nonassessable.
5.2.2 SCHEDULE 5.2 HERETO lists all options, warrants,
subscriptions or other rights outstanding for the purchase of, and all
securities convertible into, capital stock of the Company (collectively, the
"Company Rights"), and there are no other understandings, plans, contracts or
commitments providing for the issuance of, or the granting of rights to acquire,
shares of capital stock of any class of the Company or any securities or other
instruments convertible into or exchangeable for shares of capital stock of any
class of the Company or rights to acquire the same.
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No shares of capital stock of the Company are subject to any restriction on
transferability, including grants of first refusal, other than restrictions on
transfer under applicable federal and state securities laws. The Company is not
a party to, and has no knowledge of, any voting agreement, voting trust, or
similar agreement or arrangement relating to any class or series of its capital
stock, or, except as identified on SCHEDULE 5.2, any agreement or arrangement
providing for registration rights with respect to any capital stock or other
securities of the Company. No shares of the Company are held as treasury stock.
5.3 Authority; No Conflicts. The Company has all requisite corporate
power and authority to enter into this Agreement and the other documents and
agreements to be entered into by the Company in connection herewith and to
perform its obligations under this Agreement and all such other documents and
agreements. The execution and delivery of the Merger Agreements by the Company
and the consummation of the transactions contemplated thereby have been duly
authorized by the Board of Directors of the Company. This Agreement has been
duly executed and delivered to UStel and, when this Agreement and the Merger
have been approved by the shareholders of the Company, no further corporate
action will be necessary on the part of the Company to make this Agreement valid
and binding upon the Company in accordance with its terms. The Board of
Directors of the Company has authorized its management to solicit its
stockholders to authorize and approve this Agreement and the Merger on or before
December 31, 1996. The execution, delivery and performance of the Merger
Agreements by the Company (a) do not violate or conflict with the Articles of
Incorporation or By-Laws of the Company, (b) will not result in a violation or
breach of any term or provision or constitute a default or give any party a
right to accelerate the due date of any indebtedness under, or result in the
loss of any material benefit of, any indenture, mortgage, deed of trust or other
material contract or agreement to which the Company is a party or by which the
Company is bound including, but not limited to, any agreement pursuant to which
the Company leases lines from any long-distance carrier (the "Company
Telecommunications Contracts"), (c) do not result in the creation or imposition
of any Lien on any of the property or assets of the Company, (d) do not violate
any law, statute, ordinance, regulation, judgment, writ, injunction, rule,
decree, order or other restriction of any kind to which the Company or the
property or assets of the Company are subject other than violations that would
not materially and adversely affect the ability of the Company to consummate the
transactions contemplated by this Agreement or result in any material limitation
on the ability of the Company to operate its business in the manner heretofore
operated.
5.4 Financial Statements.
5.4.1 The balance sheet of the Company as of June 30, 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for the year ended June 30, 1995, accompanied by the report of independent
certified public accountants prepared on a review basis, copies of which have
heretofore been delivered to UStel, were prepared in accordance with the books
and records of the Company and in accordance with GAAP, subject to year end
audit adjustments and except as otherwise set forth therein, all as more
particularly set forth in such Company Financial Statements and the Notes
thereto, and the balance sheet of the Company
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as of April 30, 1996, and the related statements of income, stockholders' equity
and cash flows for the ten-month period ended on said date, copies of which have
been heretofore delivered to UStel, were prepared in accordance with the books
and records of the Company (all of the foregoing financial statements are
hereinafter collectively referred to as the "Company Financial Statements").
Each of the balance sheets included in the Company Financial Statements presents
fairly, as of its date, the financial condition and assets and liabilities of
the Company. Except as and to the extent reflected or reserved against in such
balance sheet (including the Notes thereto), the Company did not have, as of the
dates of such balance sheets, any material liabilities or obligations (absolute
or contingent) of a nature customarily reflected in a balance sheet or the notes
thereto prepared, in the case of its balance sheet as of June 30, 1995, in
accordance with GAAP and, in the case of its balance sheet as of April 30, 1996,
in accordance with the Company's books and records. The statements of earnings
and stockholders' equity and statements of changes in financial position
included in the Company Financial Statements present fairly the results of
operation, stockholders' equity and changes in financial position of the Company
for the periods indicated.
5.4.2 The Company does not have any liability or obligation
that could have a Material Adverse Effect, whether accrued, absolute, contingent
or otherwise, except as set forth in the Company Financial Statements or the
Notes thereto. To the extent that the existence of such a liability or
obligations is disclosed in the Company Financial Statements, or elsewhere in
this Agreement and the financial effect of such liability or obligation is not
stated or is greater than that stated, the Company will be held to have
represented and warranted that such liability or obligation has no Material
Adverse Effect, except to the extent so stated.
5.5 Properties. The Company has, and on the Closing Date will have,
good title to the assets and properties shown in the Company Financial
Statements or acquired since the date of the latest balance sheet included
therein, except as since sold or otherwise disposed of in the ordinary course of
business. At the Closing, such title will be free and clear of all Liens, other
than Permitted Liens or as set forth in SCHEDULE 5.5. The plants, structures,
leasehold improvements, machinery, equipment, furniture and other tangible
assets owned or leased by the Company are in good operating condition and
repair, subject only to ordinary wear and tear, taking into account the
respective ages of the assets involved, and constitute all the fixed tangible
assets necessary for the operation of the business of the Company in accordance
with its current methods of operation in all material respects.
5.6 Contracts.
5.6.1 SCHEDULE 5.6 includes a listing of all oral or written
(a) contracts, commitments, sales orders or purchase orders, whether or not
entered into in the ordinary course of business, which involve future payments,
performance of services or delivery of goods and/or materials, to or by the
Company of an amount or value in excess of $20,000; (b) bonus, incentive
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compensation, pension, profit sharing, stock option, group insurance, medical
reimbursement or employee welfare or benefit plans of any nature whatsoever; (c)
leases, contracts or commitments affecting ownership of, title to, use of or any
material interest in real estate; (d) employment contracts and other contracts,
agreements, or commitments to or with individual employees, officers,
consultants or agents extending for a period of more than thirty days from the
date hereof or providing for earlier termination only upon payment of a penalty
or the equivalent thereof; (e) equipment leases providing (in any one lease or
group of related leases) for payments in excess of $20,000 per year; (f)
contracts under which the performance of any obligation of the Company is
guaranteed by a shareholder of the Company or other third party, including
performance bonding arrangements; (g) contracts or commitments providing for
payments based in any manner upon the revenues, purchases or profits of the
Company; (h) bank credit, factoring and loan agreements, indentures, promissory
notes and other documents representing indebtedness for borrowed money; (i)
patent licensing agreements and all other agreements with respect to patents,
patent applications, trademarks, service marks, trade names, technical
assistance, special processes, know-how, copyright or other like items; (j) the
Company Telecommunications Contracts; and (l) other contracts and agreements to
which the Company is a party and which have not been fully performed, involving
consideration having a value in excess of $20,000 or having a value in excess of
$10,000 and a remaining period for performance in excess of six months (all such
items being collectively referred to herein as "Material Contracts"). The
Company has furnished to UStel true and complete copies of all such Material
Contracts.
5.6.2 All Material Contracts are valid and binding obligations
of the Company and, to the best of the "knowledge of the Company", as defined in
Article XIII, of the other parties thereto in accordance with their respective
terms, subject to the Bankruptcy Exception; there have been no amendments to or
modifications to any Material Contract (except as set forth in the copies
furnished to UStel); no event has occurred which is, or, following any grace
period or required notice, would become a material default by the Company under
the terms of any Material Contract; except to the extent specifically reserved
against on the latest balance sheet included in the Company's Financial
Statements, the Company is not a party to any contract on which it anticipates
expenses materially in excess of revenues or which is otherwise onerous or
materially adverse; and the Company has not expressly waived any material rights
under any Material Contract.
5.7 Absence of Undisclosed Liabilities. Except for liabilities and
obligations reflected on the latest balance sheet included in the Company's
Financial Statements or omitted therefrom in accordance with GAAP, and except
for liabilities and obligations arising in the ordinary course of business since
the date of such balance sheet, none of which latter items, individually or in
the aggregate, have a Material Adverse Effect: (a) the Company does not have,
and none of its properties are subject to, any debts, liabilities or obligations
of any nature, whether accrued, absolute, contingent or otherwise, which are of
a type normally shown or reflected on financial statements prepared in a manner
consistent with generally accepted accounting principles; and (b) to the best of
the knowledge of the Company, the Company does not have, and none of its
properties are subject
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to, any material debts, liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise, whether or not of a type normally
shown or reflected on financial statements prepared in a manner consistent with
generally accepted accounting principles. The Company is not in default with
respect to any material term or condition of any indebtedness.
5.8 No Litigation. Except as disclosed in SCHEDULE 5.8 hereto: (a)
there are no actions, suits or proceedings (whether or not purportedly on behalf
of the Company) pending or, to the knowledge of the Company, threatened against
or affecting the Company, at law or in equity or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind; and (b) to the best of the
knowledge of the Company, the Company is not in default with respect to any
judgment, order, writ, injunction, decree, award of any court, arbitrator,
governmental department, commission, bureau, board, agency or instrumentality.
5.9 Environmental Matters.
5.9.1 To the best of the knowledge of the Company, neither the
Company nor any previous owner, lessee, tenant, occupant or user of any real
property owned or leased on or prior to the date hereof by the Company (such
real property and any and all buildings and other improvements thereon being
herein referred to as the "Company Property") used, generated, manufactured,
treated, handled, refined, processed, released, discharged, stored or disposed
of any Hazardous Materials on, under, in or about the Company Property, or
transported any Hazardous Materials to or from the Company Property in violation
of any Hazardous Materials Laws. To the best of the knowledge of the Company, no
underground tanks or underground deposits or Hazardous Materials the existence
of which would have a Material Adverse Effect existed on, under, in or about any
Company Property previously owned or leased by the Company on or prior to the
date that fee or leasehold title to such Company Property was transferred to a
third party by the Company. To the best of the knowledge of the Company, no
underground tanks or underground deposits or Hazardous Materials the existence
of which would have a Material Adverse Effect exist on, under, in or about any
Company Property that is currently owned or leased by the Company.
5.9.2 While any Company Property was owned or leased by the
Company, it did not violate to an extent that would have a Material Adverse
Effect any applicable federal, state and local laws, ordinances or regulations,
now or previously in effect, relating to environmental conditions, industrial
hygiene or Hazardous Materials on, under, in or about such Company Property
(including, without limitation, the Hazardous Materials Laws).
5.9.3 As of the date hereof, to the best of the knowledge of
the Company, there are no (a) enforcement, clean-up, removal, mitigation or
other governmental or regulatory actions instituted, contemplated or threatened
pursuant to any Hazardous Materials Laws against the Company, or any Company
Property presently owned or leased by the Company, (b) claims made
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or threatened by any person or governmental body relating to the Company
Property against the Company or any Company Property presently owned or leased
by the Company or relating to damage, contribution, cost recovery, compensation,
loss or injury resulting from any Hazardous Materials or (c) any occurrence or
condition known to the Company on any Company Property that is currently owned
or leased by the Company that can reasonably be expected to subject the Company
or such Company Property to any material restrictions on occupancy,
transferability or use of any Company Property under any Hazardous Materials
Laws. SCHEDULE 5.9 hereto includes a list of all complaints, notices of
violation and claims relating to Hazardous Materials Laws which, to the
knowledge of the Company, have been received by or asserted against the Company.
5.10 Taxes.
5.10.1 The Company has filed all income, franchise and other
Tax Returns required to be filed by it by the date hereof. All Taxes imposed by
the United States, the State of California and by any other state, municipality,
subdivision, or other taxing authority, which are due and payable by the Company
have been paid in full or are adequately provided for by reserves reflected on
the latest balance sheet included in the Company Financial Statements.
5.10.2 All contributions due from the Company pursuant to any
unemployment insurance or workers compensation laws and all sales or use Taxes
which are due or payable by the Company have been paid in full and will be so
paid through the Closing Date. The Company has withheld and paid to, or will
cause to be paid to, the appropriate taxing authorities all amounts required to
be withheld from the wages of its employees under state law and the applicable
provisions of the Code, and the Company will continue to do so with respect to
all wages paid by it through the Closing Date.
5.10.3 The Company has furnished to UStel true and complete
copies of the federal income Tax Returns and comparable state Tax Returns of the
Company covering the last three (3) full fiscal years of the Company and
constituting complete and accurate representations in all material respects of
the Tax liabilities of the Company for the relevant periods stated therein and
accurately setting forth all relevant material items, including the Tax bases of
all assets, where required to be set forth in such Tax Returns.
5.10.4 Further, (a) there are no Liens for Taxes due and
payable upon any assets of the Company; (b) SCHEDULE 5.10 contains a complete
and accurate list of all Tax Returns in respect to the Company that have been,
or, to the best knowledge of the Company, are being or are proposed to be
audited by the IRS or any state, local or foreign governmental agency charged
with administering tax laws and with respect to which the statue of limitations
has not expired or has been extended, and, except as completely and accurately
set forth in SCHEDULE 5.10, all adjustments currently pending in such audits
have been reflected in the Financial Statements; (c) except as completely and
accurately set forth in SCHEDULE 5.10, there is no action, suit, proceeding,
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investigation, audit or claim pending, or, to the knowledge of the Company,
proposed against or with respect to the Company in respect of any Taxes; (d)
none of the Tax Returns filed by or on behalf of the Company contains a
disclosure statement under Section 6662 of the Code (or Section 6661 of the Code
for Tax Returns the due date for which, not including extensions, was prior to
January 1, 1990), or any comparable provision of state, local or foreign law;
(e) the Company has made timely payment to the proper governmental authorities
of all Taxes required to be withheld from wages paid to its employees; (f) no
deficiencies for any Taxes of the Company have been claimed or proposed by any
governmental authority (whether orally or in writing, definitively or
tentatively; (g) no requests for waivers of the time to assess any deficiency
for any material amount of Taxes are pending with respect to the Company; and
(h) except as completely and accurately set forth in SCHEDULE 5.10, there are no
pending or, to the knowledge of the Company, threatened Tax audits,
investigations or claims with respect to the Company for or relating to (A) the
assessment or collection of Taxes or (B) a claim for refund made with respect to
Taxes previously paid, and there are no matters under discussion or dispute with
any governmental authorities with respect to Taxes of the Company that are
likely to result in a further liability of Taxes; (i) except as provided in
SCHEDULE 5.10, no extension of time has been requested or granted with respect
to the Tax Returns of the Company which will extend the due date for such Tax
Returns beyond the Closing Date; (j) the consummation of this Agreement and the
other transactions contemplated in connection therewith will not result in any
"excess parachute payments" within the meaning of Section 280G of the Code; (k)
except as completely and accurately set forth in SCHEDULE 5.10, the Company is
not required to include in income any adjustment pursuant to Section 481(a) of
the Code (or similar provisions of other laws or regulations) by reason of a
change in accounting method, and the IRS (or other taxing authority) has not
proposed, and, to the knowledge of the Company, is not considering proposing,
any such change in accounting method; and (l) the Company has not consented to
the application of Section 341(f) of the Code.
5.11 Permits and Licenses. The Company has all licenses, franchises,
permits and other governmental authorizations that are legally required to
enable it to conduct its business in all material respects as conducted on the
date hereof, and the Company is in compliance in all material respects with all
applicable federal, state and local laws, rules, regulations and orders relating
to its business, except where failure to have any such license, franchise,
permit or authorization or failure to comply with such laws, rules, regulations
and orders would not have a Material Adverse Effect. The execution and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not violate any provision of or constitute a default
under any law, rule or regulation, order, writ, injunction or decree of any
court or other Governmental Authority applicable to the Company, where such
violation or default would have a Material Adverse Effect. No fact, error or
omission relevant to any such franchise, license, permit, certificate or other
authorization exists that would permit the revocation or withdrawal thereof. To
the knowledge of the Company, the Company will continue to have the use and
benefit thereof and the rights granted thereby pursuant to their terms after the
transactions contemplated hereby have occurred. Set forth in SCHEDULE 5.11 is a
complete and accurate list of all certificates of public convenience in the
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corresponding jurisdiction held by the Company, and no proceedings for the
revocation of such certificates of such public convenience have been instituted
or, to the knowledge of the Company, have been threatened by any Governmental
Authority.
5.12 No Labor Problems. There is no collective bargaining agreement or
other labor agreement to which the Company is a party or by which it is bound.
No labor union or organization has been certified or recognized as a
representative of any employees of the Company. There are no current or, to the
knowledge of the Company, threatened organizational activities or demands for
recognition by a labor organization seeking to represent employees of the
Company, labor strike, material arbitration or material labor grievance of
difficulty and to the knowledge of the Company, no such activities have occurred
during the past 24 months. the Company has not been charged with any unresolved
unfair labor practices. There are no material controversies pending or
threatened between the Company and any of its employees. the Company has
complied in all material respects with all laws relating to wages, hours,
collective bargaining and similar employment matters the noncompliance with
which would have a Material Adverse Effect, and the Company has paid all social
security and similar Taxes that are due and payable and are not liable for any
arrears or wages or any Taxes or material penalties for failure to comply with
any of the foregoing.
5.13 Affiliate Transactions. Except as completely and accurately set
forth in SCHEDULE 5.13, there is no transaction, and no transaction is now
proposed, to which the Company is or is to be a party in which any Person who is
currently, or within the past twelve months has been, a director or officer or
other Affiliate of the Company has a direct or indirect interest.
5.14 The Company Benefit Plans.
5.14.1 Definition of Benefit Plans. For purposes of this
Section 5.14, the term "Benefit Plan" means any plan, program, arrangement,
practice or contract which provides benefits or compensation to or on behalf of
employees or former employees of the Company or any "ERISA Affiliate" (as
hereinafter defined), whether formal or informal, whether or not written,
including but not limited to the following:
(a) Arrangements - any bonus, incentive compensation,
stock option, deferred compensation, commission, severance, golden parachute or
other compensation plan, rabbi trust, program, contract, arrangement or
practice;
(b) ERISA Plans - any "employee benefit plan" (as
defined in Section 3(3) of the Employment Retirement Income Securities Act of
1974, as amended, hereinafter referred to as "ERISA"), including, but not
limited to, any multi-employer plan (as defined in Section 3(37) and Section
4001(a)(3) of ERISA), defined benefit pension plan, profit sharing plan, money
purchase pension plan, 401(k) plan, savings or thrift plan, stock bonus plan,
employee stock ownership plan,
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or any plan, fund, program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization, accident, sickness,
disability, or life insurance benefits; and
(c) Other Employee Fringe Benefits - any stock
purchase, vacation, scholarship, day care, prepaid legal services, severance pay
or other fringe benefit plan, program, arrangement, contract or practice.
5.14.2 ERISA Affiliate. For purposes of this Section 5.14, the
term "ERISA Affiliate" means each trade or business (whether or not
incorporated) which together with the Company is treated as single employer
under Section 414(b), (c), (m) or (o) of the Code.
5.14.3 Identification of Benefit Plans. Except as set forth in
SCHEDULE 5.14 hereto and except for Benefit Plans which have been terminated and
with respect to which neither the Company nor any ERISA Affiliate has any
liability or obligation, neither the Company nor any ERISA Affiliate maintains,
or has at any time established or maintained, or has at any time been obligated
to make contributions to or under or otherwise participate in, any Benefit Plan.
5.14.4 MEPPA Liability/Post-Retirement Medical Benefits/
Defined Benefit Plans/Supplemental Retirement Plans. Except as set forth in
SCHEDULE 5.14 hereto, neither the Company nor any ERISA Affiliate maintains, or
has at any time established or maintained, or has at any time been obligated to
make contributions to or under any multi-employer plan (as defined in Section
3(37) and Section 4001(a)(3) of ERISA). The Company maintains, or has at any
time established or maintained, or has at any time been obligated to make
contributions to or under (i) any plan which provides post-retirement medical or
health benefits, (ii) any organization described in Sections 501(c)(9) or
501(c)(20) of the Code, (iii) any defined benefit pension plan subject to Title
IV of ERISA or (iv) any plan which provides retirement benefits in excess of the
limitations of Section 415 of the Code.
5.14.5 Documentation. The Company has made available to UStel
a true and complete copy of the following documents, if applicable, with respect
to each Benefit Plan identified in SCHEDULE 5.14 hereto: (1) all documents,
including any insurance contracts and trust agreements, setting forth the terms
of the Benefit Plan, or if there are no such documents evidencing the Benefit
Plan, a full description of the Benefit Plan, (2) the ERISA summary plan
description and any other summary of plan provisions provided to participants or
beneficiaries for each such Benefit Plan, (3) the annual reports filed for the
most recent three plan years and most recent financial statements or periodic
accounting of related plan assets with respect to each Benefit Plan, (4) each
favorable determination letter, opinion or ruling from the IRS for each Benefit
Plan which is intended to satisfy the requirements of Section 401(a) or Section
501 of the Code or which is dependent on such letter, ruling or opinion to avoid
current federal come tax to the beneficiaries of such Benefit Plan, and in
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(5) each opinion or ruling from the Department of Labor or the PBGC with respect
to such Benefit Plans.
5.14.6 Qualified Status. Each Benefit Plan that is funded
through a trust or insurance contract and is intended to satisfy the
requirements of Section 401(a) of the Code, has received a favorable
determination letter from the Internal Revenue Service, has at all times
satisfied in all material respects, by its terms and to the Company's knowledge
in its operation, all applicable requirements under Section 401(a) and related
sections of the Code, and any such trust has been and shall be exempt from
federal income taxation under Section 501(a) of the Code.
5.14.7 Compliance. Each Benefit Plan maintained by the Company
or ERISA Affiliate has at all times been maintained, to the Company's knowledge,
by its terms and in operation, in accordance with all applicable laws in all
material respects, including (to the extent applicable) Code Section 4980B.
Further, there has been no failure to comply with applicable ERISA or other
requirements concerning the filing of reports, documents and notices with the
Secretary of Labor and Secretary of Treasury or the furnishing of such documents
to participants or beneficiaries that could subject any Benefit Plan, the
Company, or any ERISA Affiliate to any material civil or any criminal sanction
or could require any such person to indemnify any other person for such a
sanction. There are no claims known to the Company which are pending or
threatened against any Benefit Plan except claims for benefits made in the
ordinary course of the operation of such plans.
5.14.8 Funding. The Company and ERISA Affiliate has made full
and timely payment of all amounts required to be contributed under the terms of
each Benefit Plan and applicable law or required to be paid as expenses under
such Benefit Plan including, but not limited to, PBGC premiums and amounts
required to be contributed under Section 412 of the Code, and no excise taxes
are assessable as a result of any nondeductible or other contributions made or
not made to a Benefit Plan. To the knowledge of the Company, the most recent
actuarial valuations were based on accurate facts and information, and the
Company has no reason to believe that the conclusions set forth in such
valuations are incorrect. Since September 2, 1974, no Benefit Plan has been
completely or partially terminated, nor has any notice of intent to terminate
been filed or given, other than in accordance with ERISA or at a time when such
Benefit Plan was not sufficiently funded.
5.14.9 Liabilities. Neither the Company nor ERISA Affiliate is
subject to any material liability, Tax or penalty whatsoever to any person
whomsoever as a result of engaging in a prohibited transaction under ERISA or
the Code, and neither the Company nor ERISA Affiliate has any knowledge of any
circumstances which reasonably might result in any material liability, Tax or
penalty, including, but not limited to, a penalty under Section 502 of ERISA, as
a result of a breach of any duty under ERISA or any other applicable law. Other
than routine claims for benefits under the Benefit Plans, there are no pending
or threatened investigations, proceedings, claims,
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lawsuits, disputes, actions, audits or controversies involving the Benefit
Plans, or the fiduciaries, administrators, or trustees of any of the Benefit
Plans, or the Company, or any ERISA Affiliate as the employer or sponsor under
any Benefit Plan, with any of the Internal Revenue Service, Department of Labor,
PBGC, any participant in or beneficiary of the Benefit Plans or any other person
whatsoever. The Company knows of no reasonable basis for any such claim,
lawsuit, dispute, action or controversy. Except as set forth in SCHEDULE 5.14
hereto, the execution and performance of the transactions contemplated by this
Agreement will not create, accelerate or increase any obligations under any
Benefit Plan, including any obligation to make any payment which would not be
deductible as an "excess parachute payment" under Section 280G of the Code.
5.14.10 Amendment/New Plans. Prior to the Closing Date, no
amendment shall be made to any Benefit Plan, no commitment shall be made to
amend any Benefit Plan and no commitment shall be made to continue any Benefit
Plan or to adopt any new compensatory plan, fund or program for the benefit of
any employees of the Company, or any ERISA Affiliate without the express written
consent of UStel.
5.15 Insurance. The Company has furnished to UStel a complete list of
all insurance policies (the "Existing Company Policies") that the Company
maintains, indicating risks insured against, carrier, policy number, amount of
coverage, premiums and expiration date. There was not and will not be prior to
the Closing any material inaccuracy in any application for any such insurance
coverage. The Company is and will be as of the Closing in material compliance
with all conditions contained in each Existing Company Policy. All premiums
required to be paid for insurance coverage under all of the Existing Company
Policies have been paid or accrued. The Company will maintain through the
Closing Date all insurance coverage available under the Existing Company
Policies.
5.16 Interest in Competitors, Suppliers, etc. Except as set forth on
SCHEDULE 5.16 and except for ownership of shares of capital stock of any
corporation which do not aggregate more than 3% of the outstanding shares of
that class of capital stock, neither any officer or director of the Company nor
any Family Member of any such Person owns, directly or indirectly, individually
or collectively, any interest in any corporation, partnership, proprietorship,
firm or association which (a) is a competitor, customer or supplier of the
Company, or (b) has an existing contractual relationship with the Company,
including but not limited to lessors of real or personal property leased to the
Company and entities against whom rights or options are exercisable by the
Company.
5.17 Indebtedness with Insiders. Except as set forth on SCHEDULE 5.17
and except for accrued salaries for one payroll period, vacation pay and
business expense reimbursements, the Company is not, and, on the Closing Date,
the Company will not be, indebted to any of the shareholders, directors or
officers of the Company or any Affiliate of any such person. None of such
persons is or will be on the Closing Date indebted to the Company.
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5.18 Consents. No authorizations, approvals or consents of any
governmental department, commission, bureau, agency or other public body or
authority are required for consummation by the Company of the transactions
contemplated by this Agreement.
5.19 Patents, Trademarks and Other Intangibles. SCHEDULE 5.19 includes
a list of all Intangible Assets and all interests in Intangible Assets which are
owned in whole or in part by or registered in the name of the Company. The
Company owns or has the right to use all Intangible Assets now used in the
conduct of its business. The Company is not obligated to pay any royalty or
other fee to any licensor or other third party with respect to any Intangible
Assets. The Company has no knowledge of any claim received by the Company
alleging any conflict between any aspect of the business of the Company and any
Intangible Asset claimed to be owned by others which, if determined adversely to
the Company, would have a Material Adverse Effect. No officer or director of the
Company, and no person or entity that is an Affiliate of any such person, has
any interest in any Intangible Assets which are presently used by the Company or
which infringe upon, conflict with or relate to improvements or modifications of
any Intangible Assets presently used by the Company. No licenses, sublicenses,
covenants or agreements have been granted or entered into by the Company in
respect of such Intangible Assets. The consummation of the transactions
contemplated by this Agreement will not result in the loss of any Intangible
Assets listed in SCHEDULE 5.19.
5.20 Purchases and Sales. Since April 30, 1996, the Company has not
placed any orders for materials, merchandise or supplies in exceptional or
unusual quantities based upon past operating practices or has entered into
contracts with customers under conditions relating to price, terms of payment,
time of performance or like matters materially different from the conditions
regularly and usually specified in contracts for similar engagements from
customers similarly situated.
5.21 Brokerage and Finder's Fees. The Company has not incurred any
liability to any broker, finder or agent for any brokerage fees, finder's fees
or commissions with respect to the transactions contemplated by this Agreement.
5.22 Absence of Certain Changes. Except as set forth on SCHEDULE 5.22,
since April 30, 1996, the Company has not:
5.22.1 suffered any Material Adverse Effect;
5.22.2 borrowed or agreed to borrow any funds except
borrowings under their bank lines of credit in the ordinary course of business
or incurred or become subject to any obligation or liability (absolute or
contingent), except obligations and liabilities incurred in the ordinary course
of business consistent with past practice;
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5.22.3 mortgaged, pledged, hypothecated or otherwise
encumbered any of its properties or assets except for Permitted Liens;
5.22.4 made or agreed to make any distribution of any funds or
assets of any kind whatsoever, or any loan or extension of credit or security to
or on behalf of, to any past or present shareholder of the Company or any
Affiliate of any such Person, whether by way of dividend, redemption or purchase
of capital stock, or any other type of distribution on or with respect to its
capital stock, whether or not similar to the foregoing;
5.22.5 made any payment of principal or interest on any
indebtedness owed to any past or present shareholder of the Company or any
Affiliate of any such person;
5.22.6 sold or agreed to sell any of its assets, properties or
rights or canceled or agreed to cancel any debts or claims, except for fair
value in the ordinary course of business and consistent with past practices;
5.22.7 entered or agreed to enter into any agreement or
arrangement granting any preferential right to purchase a material part of its
assets, properties or rights;
5.22.8 increased the rate of compensation of or paid or
accrued bonuses to or for any of their officers, employees, consultants or
agents, except for normal merit or cost of living increases, except for bonuses
which may be earned with respect to the fiscal year ending June 30, 1996 in
accordance with the Company's Executive Bonus Plan;
5.22.9 suffered any damage, destruction or loss, whether or
not covered by insurance, which could have a Material Adverse Effect;
5.22.10 assigned or agreed to assign any of its Intangible
Assets;
5.22.11 suffered any adverse amendment or termination of any
Material Contract (or any contract that would have been a Material Contract if
not amended or terminated) to which it is a party;
5.22.12 paid any commissions or similar fees to brokers or
finders for arranging the transactions contemplated by this Agreement or any
similar proposed transaction with any other party;
5.22.13 entered into any other material transaction other than
in the ordinary course of business;
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5.22.14 discharged or satisfied any lien, or paid or satisfied
any obligation or liability (accrued, absolute, contingent or otherwise), other
than in the ordinary course of business and consistent with past practice;
5.22.15 made or authorized any capital expenditure for
additions to facilities or equipment of the Company;
5.22.16 split, combined, reclassified, issued, sold, offered
to sell, transferred, pledged, encumbered or delivered or agreed to issue, sell,
offer for sale or transfer, pledge, encumber or deliver any stock, bond,
debenture or other security or interest of the Company or any right of any kind
to acquire any stock, bond, debenture or other security of the Company;
5.22.17 experienced any material adverse change in the
business, assets, prospects, financial condition or results of operations of the
Company taken as a whole;
5.22.18 except for changes, if any, contemplated by this
Agreement or required by GAAP and reflected in the Company's Financial
Statements, made any change in accounting methods or practices; or
5.22.19 entered into any agreement, commitment or
understanding, whether in writing or otherwise, except as contemplated by this
Agreement, with respect to any of the foregoing.
5.23 Compliance with Laws. The Company: (a) is in compliance with all
laws, regulations, reporting and licensing requirements, and orders applicable
to its business or employees conducting its business; (b) has received no
notification or communication from any agency or department of any federal,
state, local or foreign Governmental Authority or the staff thereof (i)
asserting that the Company is not in compliance with any of the statutes,
regulations or ordinances which such Governmental Authority, or (ii) threatening
to revoke any license, franchise, permit, or governmental authorization; and (c)
is not a party to any written order, decree, agreement or memorandum of
understanding with, or a commitment letter or similar submission to, or a
recipient of any extraordinary supervisory letter from, any federal or state
Governmental Authority which restricts in any material respect the conduct of
business of the Company; and the Company has not been advised by any such
Governmental Authority that such authority is contemplating issuing or
requesting any such order, decree, agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter or similar submission.
5.24 Accuracy of Information Provided. None of the information provided
by the Company expressly for inclusion in the Proxy Materials, Filings or
Disclosure Materials will, as of the date that such Proxy Materials or
Disclosure Materials are delivered or such Filings are filed, or at the time of
the meeting of the shareholders of UStel to be held for approval of the Merger
as
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contemplated by Section 4.8 above, contained or will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein in light of
the circumstances under which they were made not misleading.
5.25 No Material Misstatements or Omissions. No representation or
warranty by the Company in this Agreement, and no document, statement,
certificate, exhibit or schedule furnished or to be furnished to UStel pursuant
hereto, or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact, or omits or will omit to
state a material fact necessary to make the statements or facts contained
therein, in light of the circumstances under which they were made, not
misleading.
ARTICLE VI.
ADDITIONAL OBLIGATIONS AND COVENANTS OF THE COMPANY
The Company hereby covenants and agrees with UStel as follows (the
fulfillment of each such covenant and agreement is a condition precedent to
UStel's obligations to consummate the Merger):
6.1 Conduct of Business. Between the date hereof and the Closing Date:
6.1.1 The business of the Company shall be conducted
diligently and only in the ordinary course, and the Company will use reasonable
efforts to preserve the organization of the Company intact, to keep available to
the Company its present key employees and to maintain the relationships of the
Company with its suppliers, customers and others. The Company will not, without
UStel's prior written approval, increase the rate of compensation payable or to
become payable to, or make or agree to any bonus or retirement or similar
benefit or arrangement with, any of its officers, employees, consultants or
agents over the rate being paid to them at the date hereof, except for normal
merit or cost of living increases to employees other than officers of the
Company.
6.1.2 The Company will not, without UStel's prior written
approval, enter into, terminate, amend or modify any Material Contract other
than in the ordinary course of business or enter into contracts with customers
under conditions relating to price, terms of payment, time of performance or
like matters materially different from the conditions regularly and usually
specified in contracts for similar engagements from customers similarly
situated.
6.1.3 The Company will not, without UStel's prior written
approval, sell or dispose of any of its material properties or assets except for
sales at fair value in the ordinary course of business.
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6.1.4 The Company will not, without UStel's prior written
approval, acquire or enter into any agreement to acquire, by merger,
consolidation, purchase of stock or assets or otherwise, any business or entity,
or enter into any joint venture, partnership or similar arrangement.
6.1.5 The Company will use reasonable diligence to maintain
its properties in their condition as of the date of this Agreement, ordinary
wear and tear excepted.
6.1.6 The Company will continue to carry the Existing Company
Policies, subject only to variations in amounts required by the ordinary
operations of its business.
6.1.7 The Company shall comply with all legal and regulatory
requirements applicable to it and to the conduct of its business.
6.1.8 The Company shall not take any action that would, or
that reasonably could be expected to, result in any of the representations and
warranties set forth in this Agreement becoming untrue or any of the conditions
to the Closing set forth in Articles VII, VIII or IX not being satisfied. The
Company promptly shall advise UStel orally and in writing of any change or event
having, or which could have, a Material Adverse Effect.
6.2 Access and Information. The Company will afford to UStel and its
counsel, accountants and other representatives reasonable access, throughout the
period from the date hereof to the Closing Date, to all of the Company's
properties, books, contracts, commitments, and records and shall furnish UStel
during such period with all information that UStel reasonably may request,
including copies and/or extracts of pertinent records, documents and contracts.
The Company agrees that all information, documents and details concerning the
business of UStel which the Company or any of its directors, officers,
employees, agents or Affiliates has heretofore received, or which any of such
Persons receives between the date of this Agreement and the Closing, are
strictly confidential and agrees that it will not, nor will it allow any of its
officers, directors, employees, agents or Affiliates to, reproduce, distribute
or disclose any matters relating to the business of the Company or this
Agreement, except for disclosure to its professional advisors (with instructions
that they shall not reproduce or disclose the same) which is reasonably
necessary to effectuate the transactions contemplated hereby.
6.3 Efforts to Satisfy Conditions. The Company agrees to use reasonable
efforts to satisfy or cause to be satisfied all of the conditions precedent to
the Company's obligations under this Agreement, to the extent that their action
or inaction can control or influence the satisfaction of such conditions.
Without limiting the generality of the foregoing, the Company will refrain from
all discussions, negotiations and transactions (or the initiation or
solicitation thereof), the consummation of which would be inconsistent with the
transactions contemplated by this Agreement, including, without limitation, any
transaction providing for the sale of any capital stock of the Company, any
merger or other business combination involving the Company, the
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acquisition of a substantial equity interest in the Company by a third party or
the sale of a substantial portion of the assets of the Company. The Company
shall promptly notify UStel if any communications or proposals are received by
the Company, or any of its respective officers, directors, investment bankers,
financial advisors, attorneys, accountants or other representatives.
6.4 Corporate Matters. Between the date hereof and the Closing Date,
the Company will not, without UStel's prior written approval: (a) amend its
Articles of Incorporation or Bylaws; (b) issue shares of its capital stock
except on exercise of outstanding Company Rights; (c) issue or create any
warrants, obligations, subscriptions, options, convertible securities or other
commitments under which any additional shares of its capital stock of any class
might be directly or indirectly authorized, issued or transferred from treasury,
(d) split, combine or reclassify any outstanding capital stock of the Company;
or (e) enter into any agreement requiring it to do any of the foregoing
prohibited acts.
6.5 No Distributions to Shareholders. Between the date hereof and the
Closing Date, the Company will not, without UStel's prior written approval: (a)
declare, set aside or pay any dividend or make any distribution in respect of
its capital stock, except for cash dividends regularly declared in September and
April consistent with past practice and except for the distribution to its
shareholders of 20,000 shares of UStel Common Stock owned by the Company as of
the date of this Agreement; (b) directly or indirectly purchase, redeem or
otherwise acquire any shares of its capital stock for consideration; (c) pay or
distribute any cash or property to any Shareholder as a loan or in payment of
principal of or interest on any indebtedness to any Shareholder; or (d) enter
into any agreement requiring it to do any of the foregoing prohibited acts.
6.6 Capital Expenditures. Between the date hereof and the Closing Date,
the Company will not, without UStel's prior written approval, make any
expenditure or commitment for the purchase or other acquisition of fixed or
capital assets, except for any such asset acquired in connection with normal
replacement and maintenance programs properly charged to current operations.
6.7 Indebtedness. Between the date hereof and the Closing Date, the
Company will not, without UStel's prior written approval: (a) create, incur or
assume any long-term debt (including capital leases) or, except in the ordinary
course of business under existing lines of credit, create, incur or assume any
short-term debt for borrowed money; (b) assume, guarantee, endorse or otherwise
become liable or responsible (whether directly, contingently or otherwise) for
the obligations of any other person other than the Company (except in the
ordinary course of business and consistent with past practice); (c) make any
loans or advances to any other person other than the Company except in the
ordinary course of business and consistent with past practice; or (d) make any
capital contributions to, or investments in, any Person other than the Company
except in the ordinary course of business and consistent with past practice.
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6.8 Authorization by Shareholders. The Company shall promptly arrange
for the Merger to be "approved by the outstanding shares" of the Company's
capital stock (as required by Section 1201 of the CGCL). Upon approval thereof
by its shareholders, the Company shall take all other necessary corporate action
required on its part hereunder to effect the closing of this Agreement and the
consummation of the transactions contemplated hereby.
ARTICLE VII.
CONDITIONS TO EACH PARTY'S OBLIGATIONS
The respective obligations of each party to consummate the Merger under
this Agreement shall be subject to the satisfaction on or before the Closing
Date of each of the following conditions except to the extent the parties may
waive any of such conditions in writing:
7.1 Securities Laws. The Securities Act and all applicable Blue Sky and
state securities laws shall have been complied with in connection with the
issuance of the UStel Shares as provided in Section 2.1 above, and no stop order
suspending the qualification or registration of such UStel Shares under the
Securities Act or the Blue Sky or securities laws of any jurisdiction shall have
been issued and no proceeding for that purpose shall have been initiated or
shall be threatened by the Commission or the authorities of any such
jurisdiction.
7.2 The Company's Shareholder Approval. The Merger and this Agreement
shall have been approved in accordance with the CGCL by "the outstanding shares"
of the Company's capital stock.
7.3 UStel's Stockholder Approval. The (a) Merger and this Agreement and
the issuance of the UStel Shares in accordance with this Agreement and (b) the
reincorporation of UStel in Nevada (the "Reincorporation") so that it shall
become a corporation duly organized and existing under the laws of the State of
Nevada, rather than under the laws of the State of Minnesota each shall have
been duly approved at the shareholders' meeting of UStel duly called and held in
accordance with the Minnesota Business Corporation Act and the Exchange Act by
the shareholders of UStel.
7.4 Consents. All consents, authorizations, orders and approvals of (or
filings or registrations with) any governmental commission, board or other
regulatory body required in connection with the execution, delivery and
performance of this Agreement shall have been obtained or made, except for
filing of the Agreement of Merger and any other documents required to be filed
after the Effective Time and except where the failure to have obtained or made
any such consent, authorization,order, approval, filing or registration would
not have a Material Adverse Effect following the Effective Time.
7.5 Injunction. At the Effective Time, there shall be no effective
injunction, writ or preliminary restraining order or any order of any nature
issued by a court or governmental agency
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of competent jurisdiction to the effect that the Merger may not be consummated
as herein provided, no proceeding or lawsuit shall have been commenced by any
governmental or regulatory agency for the purpose of obtaining any such
injunction, writ or preliminary restraining order and no written notice shall
have been received from any such agency indicating an intent to restrain,
prevent, materially delay or restructure the transactions contemplated by this
Agreement.
ARTICLE VIII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF USTEL AND NEWCO
The obligations of UStel and Newco to consummate the Merger and issue
the UStel Shares are subject to the satisfaction of each of the additional
following conditions at or prior to the Closing, unless waived in writing by
UStel:
8.1 Accuracy of Warranties and Representations. The representations and
warranties of the Company herein shall be true and correct in all material
respects on and as of the Closing Date, with the same force and effect, except
as to transactions to which UStel may have consented in writing, or its
properties, prospects, or financial condition, as though such representations
and warranties had been made on and as of the Closing Date, and the Company
shall have performed in all material respects all covenants required by this
Agreement to be performed by them at or prior to the Closing.
8.2 Authorization of Merger. All corporate action necessary by the
Company to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken.
8.3 No Material Adverse Change. There shall have been no changes after
the date of this Agreement in the results of operations, assets, liabilities,
financial condition or affairs of the Company which have a Material Adverse
Effect on the Company.
8.4 Officers' Certificate. The Company shall have delivered to UStel a
certificate, dated the Closing Date, executed by the President and the Chief
Financial Officer of the Company, stating that, to the best knowledge of each,
(a) all the representations and warranties of the Company contained in this
Agreement are true and accurate, (b) all of the conditions precedent to the
obligations of UStel hereunder have been fulfilled and (c) the Company has duly
performed all obligations and covenants to be performed by it hereunder.
8.5 Material Contracts. The Company shall have received consents to
assignment of all Material Contracts or written waivers of the provisions of any
Material Contracts requiring the consents of third parties.
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8.6 Opinion of the Company's Counsel. UStel shall have received an
opinion of Ervin, Cohen & Jessup, dated the Closing Date, acceptable to UStel in
form and substance.
8.7 Other Legal Matters. All legal matters in connection with this
Agreement and the transactions contemplated hereby shall have been approved by
counsel for UStel, and there shall have been furnished to such counsel by the
Company certified copies of such corporate records of the Company (including
Board of Directors and shareholder resolutions approving the Merger Agreements)
and copies of such other documents as such counsel may reasonably have requested
for such purpose.
ARTICLE IX.
CONDITIONS PRECEDENT TO OBLIGATION OF THE COMPANY
The obligations of the Company to consummate the Merger are subject to
the satisfaction of each of the following additional conditions at or prior to
the Closing, unless waived in writing by the Company:
9.1 Accuracy of Warranties and Representations. The representations and
warranties of UStel and Newco contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except as to
transactions to which the Company may have consented in writing, with the same
force and effect as though such representations and warranties had been made on
and as of the Closing Date, and UStel and Newco shall have performed in all
material respects all of the covenants required by this Agreement to be
performed by them on or before the Closing.
9.2 Authorization of Merger. All corporate action necessary by UStel
and Newco to authorize the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken.
9.3 No Material Adverse Change. There shall have been no changes after
the date of this Agreement, in the results of operations, financial condition,
liquidity, assets, properties or business of UStel or the UStel Subsidiaries
which have a Material Adverse Effect on UStel and the UStel Subsidiaries, taken
as a whole.
9.4 Officers' Certificate of UStel. UStel shall have delivered to the
Company a certificate dated the Closing, signed by the President and Chief
Financial Officer of UStel stating that, to the best knowledge of each, (a) all
the representations and warranties of UStel and Newco contained in this
Agreement are true and accurate, (b) all of the conditions precedent to the
obligations of the Company hereunder have been fulfilled and (c) UStel and Newco
have duly performed all obligations and covenants to be performed by them
hereunder.
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9.5 Material Contracts. UStel, Newco and the UStel Subsidiaries shall
have received consents to assignment of all Material Contracts or written
waivers of the provisions of any Material Contracts requiring the consents of
third parties.
9.6 Opinion of UStel's Counsel. The Company shall have received an
opinion of Freshman, Marantz, Orlanski, Cooper & Klein dated the Closing Date,
acceptable to the Company in form and substance.
9.7 Other Legal Matters. All legal matters in connection with this
Agreement and the transactions contemplated hereby shall have been approved by
counsel for the Company, and there shall have been furnished to such counsel by
UStel certified copies of such corporate records of UStel (including Board of
Directors and shareholder resolutions approving the Merger Agreements) and
copies of such other documents as such counsel may reasonably have requested for
such purpose.
9.8 Tax Opinion. The Company shall have received a written opinion of
Ervin, Cohen & Jessup, in form reasonably satisfactory to UStel and the Company
(the "Tax Opinion"), to the effect that (a) the Merger will constitute a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code, (b) the conversion in the Merger of the Company Shares into UStel
Shares will not give rise to gain or loss to the Shareholders, and (c) the basis
of UStel Shares received in the Merger by a Shareholder will be the same as the
basis of such Shareholder in the Company Shares converted into such UStel
Shares. In connection with such tax opinion, Ervin, Cohen & Jessup shall be
entitled to make factual assumptions as are customary in similar tax opinions,
and such factual assumptions shall be confirmed by certificates signed by
responsible officers of UStel and the Company.
ARTICLE X.
CLOSING
The closing ("Closing") of the transactions covered by this Agreement
shall take place at the offices of Ervin, Cohen & Jessup, 9401 Wilshire Blvd.,
Ninth Floor, Beverly Hills, California as soon as practicable following the
satisfaction or waiver of all conditions to the obligations of the parties set
forth in Articles VII, VIII and IX hereof and, in any event, not later than
December 31, 1996. Regardless of the actual time of the Closing, the Closing
shall be deemed to have occurred effective at the opening of business on the day
the Closing occurs. In the event that the conditions specified in this Agreement
have not been fulfilled by that date, any party may postpone the Closing for the
minimum reasonably necessary period or periods, in any event not exceeding an
aggregate of 30 days, by written notice to the other parties. Any party
exercising such right shall deliver written notice to the other parties
specifying in reasonable detail the condition which has not been fulfilled, and
the other parties will have the right to cure or correct the matter within the
30-day
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period. The term "Closing Date" herein shall mean the last date fixed by mutual
agreement or otherwise under this Article X.
ARTICLE XI.
TERMINATION
In addition to any party's right to terminate this Agreement
if any condition precedent to its obligations is not satisfied on the Closing
Date, subject to the provisions of this Agreement relating to the postponement
of the Closing Date, either UStel or the Company may
forthwith terminate this Agreement: (a) subject to clause (b) below, without
liability to the other of them if a bona fide action or proceeding (by and at
the sole instance of a party or parties not an Affiliate or Affiliates of UStel
or the Company) shall be pending against either party on the Closing Date
wherein an unfavorable judgment, decree or order would prevent or make unlawful
the carrying out of the transactions contemplated by this Agreement; or (b)
without prejudice to other rights and remedies which either party may have, if a
material default shall be made by the other of them in the observance or in the
due and timely performance of its covenants and agreements herein contained, or
if there shall have been a material breach of the warranties and representations
herein contained.
ARTICLE XII.
NOTICES
Any and all notices, demands, requests or other communications
hereunder shall be in writing and shall be deemed duly given when personally
delivered to or transmitted by overnight express delivery or by facsimile to and
received by the party to whom such notice is intended, or in lieu of such
personal delivery or overnight express delivery or facsimile transmission, 48
hours after deposit in the United States mail, first-class, certified or
registered, postage prepaid, return receipt requested, addressed to the
applicable party at the address provided below. The parties may change their
respective addresses for the purpose of this Article XIII by giving notice of
such change to the other party in the manner which is provided in this Article
XIII
UStel or Newco: UStel, Inc.
2775 S. Rainbow Boulevard
Las Vegas, Nevada 89102
Attention: Ronnie Schwartz
Facsimile Number: (702) 247-7447
Telephone Number: (702) 247-7400
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With a copy to:
Freshman, Marantz, Orlanski, Cooper & Klein
9100 Wilshire Boulevard
Eighth Floor, East Tower
Beverly Hills, California 90212
Attention: Leib Orlanski, Esq.
Facsimile Number: (310) 273-1870
Telephone Number: (310) 274-8293
C-2000: Consortium 2000, Inc.
6167 Bristol Parkway, Suite 300
Culver City, California 90230
Attention: Wouter van Biene
Senior Vice President
Facsimile Number: (310) 645-5562
Telephone Number: (310) 645-4200
With a copy to:
Ervin, Cohen & Jessup
9401 Wilshire Boulevard, 9th Floor
Beverly Hills, CA 90212
Attention: Kenneth A. Luer, Esq.
Facsimile Number: (310) 859-2325
Telephone Number: (310) 273-6333
ARTICLE XIII.
CERTAIN DEFINITIONS
As used herein, the following terms have the following meanings:
"Affiliate" or "affiliate" means, with respect to any Person, any other
Person directly or indirectly controlling, controlled by or under common control
with such Person and, without limiting the generality of the foregoing, includes
(a) any director or officer of such Person or of any Affiliate of such Person,
(b) any such director's or officer's Family Members, (c) any group, acting in
concert, of one or more of such directors, officers or Family Members, and (d)
any Person controlled by any such director, officer, Family Member or group
which beneficially owns or holds 25% or more of any class of equity securities
or profits interest. The term "control" means the possession, directly
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or indirectly, of the power to direct or cause the direction of the management
and policies of an entity, whether through the ownership of voting securities,
by contract or otherwise.
"Bankruptcy Exception" means the limitation on enforceability imposed
by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
of general application relating to or affecting the enforcement of the rights of
creditors or by equitable principles, whether enforcement is sought in equity or
at law.
"Code" means the Internal Revenue Code of 1986, as amended, or any
amending or superseding tax laws of the United States of America.
"Family Member" means, in the case of a Person who is an individual,
any parent, spouse or lineal descendant (including legally adopted descendants)
of such Person, or the spouse of any such descendant.
"GAAP" means generally accepted accounting principles consistently
applied.
"Governmental Authority" means any entity of or pertaining to
government, including any federal, state, local, other governmental or
administrative authority, agency, court, tribunal, arbitrator, commission, board
or bureau.
"Hazardous Materials Laws" means any and all federal, state and local
laws in effect at or before the Effective Time that relate to or impose
liability or standards of conduct concerning the environment, as now or
hereafter in effect and as have been or hereafter may be amended or
reauthorized, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. Section 9601, et seq.), the
Hazardous Materials Transportation Act (42 U.S.C. Section 1802, et seq.), the
Resource Conservation and Recovery Act (42 U.S.C. Section 6901, et seq.), the
Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.), the Toxic
Substances Control Act (14 U.S.C. Section 2601, et seq.), the Clean Air Act (42
U.S.C., Section 7901 et seq.), the National Environmental Policy Act (42 U.S.C.
Section 4231, et seq.), the Refuse Act (33 U.S.C. Section 407, et seq.), the
Safe Drinking Water Act (42 U.S.C. Section 300(f), et seq.), and all rules,
regulations, codes, ordinances and guidance documents promulgated or published
thereunder, and the provisions of any licenses, permits, orders and decrees
issued pursuant to any of the foregoing.
"Hazardous Materials," means any flammable explosives, radioactive
materials, asbestos, compounds known as polychlorinated byphenyls, chemicals now
known to cause cancer or reproductive toxicity, pollutants, contaminants,
hazardous wastes, toxic substances or related materials, including, without
limitation, any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," or "toxic
substances" under the Hazardous Materials Laws.
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"IRS" means the Internal Revenue Service of the United States of
America.
"Knowledge of the Company" (and similar terms such as "to the best of
the knowledge of the Company") means the actual knowledge of any director or
officer of the Company.
"Knowledge of UStel" (and similar terms such as "to the best of the
knowledge of UStel") means the actual knowledge of any director or officer of
UStel.
"Material Adverse Effect" means a material adverse effect on the
financial condition, results of operations, business or prospects of the entity
referred to (i.e., the Company or UStel) and its subsidiaries (i.e., the Company
Subsidiaries), taken as a whole.
"Permitted Lien(s)" means (a) all liens and encumbrances consented to
in writing by the other party hereto, (b) landlords', mechanics', carriers',
workers' and similar statutory liens arising in the ordinary course of business
for sums not delinquent, for which adequate reserves or other appropriate
provisions have been made in, as the case may be, the UStel Financial Statements
or the Company Financial Statements, (c) deed restrictions and similar
exceptions to clear title not incurred in connection with indebtedness that do
not materially impair the existing use or materially detract from the value of
the assets or property subject thereto, and (d) liens for current taxes not
delinquent, for which adequate reserves or other appropriate provisions have
been made in, as the case may be, the UStel Financial Statements or the Company
Financial Statements.
"Person" or "person" means an individual, a corporation, a partnership,
an association, a trust or any other entity or organization, including a
government or political subdivision or any agency or instrumentality thereof.
"Proceeding" means any action, suit, claim, investigation, review or
other judicial or administrative proceeding, at law or in equity, before any
Governmental Authority;
"Rules and Regulations" means the rules and regulations adopted by the
Commission under the Securities Act and the Exchange Act.
"Tax" (including with correlative meaning, the terms "Taxes" and
"Taxable") means any income, gross receipts, ad valorem, premium, excise,
value-added, sales, use, transfer, franchise, license, severance, stamp,
occupation, service, lease, withholding, employment, payroll, premium, property
or windfall profits tax, alternative or add-on-minimum tax, or other tax, fee or
assessment, together with any interest and any penalty, addition to tax or
additional amount imposed by any governmental authority responsible for the
imposition of any such tax.
"Tax Return" means any return, report, statement, information statement
and the like required to be filed with any authority with respect to Taxes.
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ARTICLE XIV.
MISCELLANEOUS PROVISIONS
14.1 Applicable Law; Jurisdiction. The provisions of this Agreement and
all rights and obligations hereunder and under all documents, instruments and
agreements executed under or in connection with this Agreement shall be governed
and construed in accordance with the internal laws of the State of California
applicable to contracts made and to be wholly performed within said State.
14.2 Remedies Not Exclusive. The parties agree that (a) no remedy
conferred by any of the specific provisions of this Agreement is intended to be
exclusive of any other remedy, (b) each and every remedy shall be cumulative and
shall be in addition to every other remedy given hereunder or now or hereafter
existing at law, in equity, or otherwise and (c) the election of any one or more
remedies by either party hereto shall not constitute a waiver of the right to
pursue other available remedies.
14.3 Attorneys' Fees. In any litigation relating to this Agreement,
including litigation with respect to any instrument, document or agreement made
under or in connection with this Agreement, the prevailing party shall be
entitled to recover its costs and reasonable attorneys' fees.
14.4 Payment of Expenses. Whether or not the Merger is consummated,
UStel will pay and be responsible for all costs and expenses incurred by UStel
and Newco in connection with this Agreement and the transactions contemplated
hereby, and the Company will pay and be responsible for all costs and expenses
incurred by the Company in connection with this Agreement and the transactions
contemplated hereby.
14.5 Successors and Assigns. All covenants, representations, warranties
and agreements of the parties contained herein shall be binding upon and inure
to the benefit of the parties, their respective heirs, personal representatives
and permitted successors and assigns.
14.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.7 Headings; Severability. Captions and section headings used herein
are for convenience only and are not a part of this Agreement and shall not be
used in construing it. The provisions of this Agreement are severable, and, if
any one or more provisions may be determined to be judicially unenforceable, in
whole or in part, the remaining provisions, and any partially unenforceable
provisions, to the extent enforceable, shall nevertheless be binding and
enforceable upon the parties hereto.
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14.8 Amendments. No provision or term of this Agreement or any
agreement contemplated herein between the parties hereto may be supplemented,
amended, modified, waived or terminated except in a writing duly executed by the
party to be charged. This Agreement may be amended by the corporate parties
hereto by or pursuant to action taken by their respective Boards of Directors at
any time before or after the approval of the Merger by their shareholders, but
after such approval, no amendment or modification shall be made that reduces the
amount or changes the form of the consideration to be paid to Shareholders or
that in any way materially adversely affects the rights of the shareholders of
the Company or of UStel without the further approval of the adversely affected
shareholders.
14.9 Waivers. At any time prior to the Effective Time, the parties
hereto, may, to the extent legally permitted: (i) extend the time for the
performance of any of the obligations or other acts or any other party; (ii)
waive any inaccuracies in the representations or warranties of any other party
contained in this Agreement or in any document or certificate delivered pursuant
hereto; (iii) waive compliance or performance by any other party with any of the
covenants, agreements or obligations of such party contained herein; and (iv)
waive the satisfaction of any condition that is precedent to the performance by
the party so waiving of any of its obligations hereunder. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. A waiver
by one party of the performance of any covenant, agreement, obligation,
condition, representation or warranty shall not be construed as a waiver of any
other covenant, agreement, obligation, condition, representation or warranty. A
waiver by any party of the performance of any act shall not constitute a waiver
of the performance of any other act or an identical act required to be performed
at a later time.
14.10 Assignments. Rights hereunder shall not be assignable and duties
hereunder shall not be delegable by UStel, the Company or Newco without the
prior written consent of the other; consent may be withheld for any reason or
without reason. Nothing contained in or implied from this Agreement is intended
to confer any rights or remedies upon any person or entity, other than the
parties hereto and their successors in interest and permitted assignees, unless
expressly stated herein to the contrary.
14.11 Effect of Due Diligence. No investigation by any party hereto
into the business, operations and condition of any other party hereto shall
diminish in any way the effect of any representations or warranties made by such
other party in this Agreement or shall relieve such other party of any of its
obligations under this Agreement.
14.12 No Third Party Beneficiaries. Nothing in this Agreement, whether
express or implied, is intended to confer any rights or remedies under or by
reason of this Agreement on any Person other than the parties hereto and their
respective permitted successors and assigns.
14.13 Entire Agreement. All schedules, exhibits and financial
statements provided for herein are a part of this Agreement. This Agreement and
the other agreements and documents
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provided for in this Agreement comprise the entire agreement of the parties and
supersede all earlier understandings of the parties with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
The Company: UStel:
CONSORTIUM 2000, INC. USTEL, INC.
By:__________________________ _____________________________
Jerry Dackerman, President Noam Schwartz, President
Newco:
CONSORTIUM
ACQUISITION CORPORATION
By:_____________________
Andrew J. Grey, President
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<PAGE> 1
Exhibit 10.1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of
August 14, 1996, is made and entered into by UStel, Inc., a Minnesota
corporation (the "Company"), in favor of the parties listed on Schedule A hereto
(each a "Holder" and collectively, the "Consortium Holders"), with reference to
the following facts:
A. The Company intends in the near future to re-incorporate in Nevada,
and intends that this Agreement be binding upon the Nevada corporation as its
successor.
B. Following its reincorporation, the Company anticipates that it will
issue an aggregate of 1,076,923 shares (the "Shares") of its common stock, $.01
par value (the "Common Stock"), to the Consortium Holders pursuant to the Merger
Agreement and Plan of Reorganization, dated August 14, 1996 (the "Plan"), by and
among the Company, Consortium Acquisition Corporation, and Consortium 2000, Inc.
The Shares are anticipated to be issued pursuant to an exemption from the
registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"), and the resale of the Shares without registration under the
Securities Act will therefore be subject to certain restrictions.
C. This Agreement grants certain registration rights to each Holder as
contemplated by the parties to the Plan.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. As used in this Agreement, the capitalized terms set
forth below shall have the following meanings:
Affiliate - An Affiliate of a Holder means (i) any Person that
directly, or indirectly through one or more intermediaries, is controlled by
such Holder, (ii) the spouse, siblings, ancestors and lineal descendants of such
Holder, and (iii) the spouses of the siblings, ancestors and lineal descendants
of such Holder.
Common Stock - As defined in Paragraph A above.
Consortium Holders - One or more holders of Consortium Shares.
Consortium Shares - All or any part of the 1,076,923 shares of Common
Stock which are anticipated to be issued pursuant to the Plan to former
shareholders of Consortium 2000, Inc.
Demand Period - A period commencing on the first anniversary date of
the Merger contemplated under the Plan and terminating 180 days thereafter.
Holder - As defined in the introductory paragraph of this Agreement.
NASD - National Association of Securities Dealers, Inc.
<PAGE> 2
Person - An individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
any other entity or organization, including, without limitation, any government
or department or agency thereof.
Registrable Shares - Consortium Shares issued to each Holder
pursuant to the Plan; provided, however, that Registrable Shares shall not
include any Shares which previously have been registered under the Securities
Act or which have been sold to the public either pursuant to a registration
statement or Rule 144 or which have been sold or transferred in a private
transaction in which the transferor's rights under this Agreement may not be
assigned.
Registration Expenses - Any and all expenses incident to
performance of or compliance with this Agreement, including without limitation:
(i) all SEC and stock exchange or NASD registration and filing fees, (ii) all
fees and expenses of complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Shares), (iii) all printing,
messenger and delivery expenses, (iv) the fees and disbursements of counsel for
the Company and of its independent public accountants, (v) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, and (vi) the fees and disbursements of any special experts retained
by the Company in connection with the requested registration, but excluding
underwriting discounts and commissions, fees, discounts and commissions of
brokers and dealers, transfer taxes and the fees and disbursements of counsel
for any Consortium Holders.
Rule 144 - Rule 144 as promulgated under the Securities Act,
as such rule may be amended from time to time, or any similar successor rule
that may be promulgated by the SEC.
Securities Act - As defined in Paragraph A above.
SEC - The Securities and Exchange Commission.
Shares - As defined in Paragraph A above.
2. Demand Registration Rights.
(a) Demand by Consortium Holders. Subject to the further terms
and conditions of this Agreement, if, at any time within the Demand Period, any
or all of the Consortium Holders notify the Company in writing that they
collectively desire to sell or distribute to the public at least 323,077 of the
Consortium Shares which then constitute Registrable Shares (which request shall
specify the number of Registrable Shares intended to be disposed of by each such
Consortium Holder and the intended method of disposition thereof, and a consent
by each such Consortium Holder to, and an agreement to be bound by, the terms,
obligations and conditions of this Agreement), the Company shall use its
reasonable efforts to cause the Registrable Shares for which each such
Consortium Holder has requested registration to be registered under the
Securities Act; provided that each such Consortium Holder has at the time of
such request, consented in writing to, and agreed to be bound by, the terms,
obligations and conditions of this Agreement.
(b) Priorities in Demand Registrations. The Company may
include in any registration statement filed in response to the request by such
Consortium Holders other shares of Common Stock for sale by the Company or by
other stockholders; provided, however, if such registration statement relates to
an underwritten offering and the managing underwriter or underwriters advise the
Company in writing that,
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<PAGE> 3
in its or their opinion, the number of securities requested to be included in
such registration would adversely affect such offering (including, without
limitation, a decrease in the price at which such securities can be sold), then
the amount of the shares of Common Stock included in the offering shall be
reduced, and the Registrable Shares and the other shares of Common Stock to be
included in the offering shall participate in such offering as follows: (i) the
Registrable Shares to be sold by the Consortium Holders shall have priority over
all shares to be offered by the Company and other stockholders of the Company,
except to the extent that any shares held by such other stockholders have either
demand or incidental registration rights granted on or before the date hereof
which specify that they shall have priority or pari passu rights, in which event
the Registrable Shares shall not have priority over such shares offered by such
other stockholders, and instead the number of Registrable Shares of each Holder
to be included in the offering shall be reduced in accordance with such other
registration rights provisions; and (ii) all Registrable Shares which are
Consortium Shares for which Consortium Holders have requested registration shall
be treated pari passu, together with the "Schwartz Shares" as provided in the
Registration Rights Agreement dated August 14, 1996 relating to such shares, for
purposes of inclusion in any such registration. In connection with this
provision, the Company hereby reaffirms the registration rights of Kamel B.
Nasif as set forth in the Securities Purchase Agreement dated as of September
30, 1994 and the Agreement dated February 29, 1996 entered into with the
Company.
(c) Limitations. The following limitations shall apply to the
obligation of the Company to effect the registration of Registrable Shares
pursuant to the provisions of this Paragraph 2:
(i) The Consortium Holders collectively shall not be
entitled to make a request pursuant to this Paragraph 2 more than once, provided
that the registration so requested is actually effected and remains in effect in
accordance with Paragraph 4.1(b).
(ii) The Company shall not be required to prepare and
file a registration statement pursuant to this Paragraph 2 within 90 days of the
effective date of any registration statement pertaining to securities of the
Company, other than a registration of securities pertaining to an employee
benefit plan or dividend reinvestment plan.
(iii) The Company shall not be required to prepare
and file a registration statement under this Paragraph 2 during any period of
time when: (x) the Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time,
and, in the opinion of counsel to the Company, such information would have to be
disclosed if a registration statement was filed at that time; or (y) the Company
determines, in its reasonable judgment, that such registration would interfere
with any financing or acquisition involving the registration of securities of
the Company under the Securities Act.
In the event the Company elects not to prepare and file a registration statement
based upon a reason stated in subsection (ii) or (iii) above, the Company will
thereafter attempt in good faith to prepare and file a registration statement as
soon as reasonably possible thereafter when it determines that such limitation
no longer is applicable.
3. Registration Not Required. Notwithstanding the provisions of
Paragraph 2 of this Agreement:
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<PAGE> 4
(a) The Company shall not be required to effect or cause the
registration of any Registrable Shares pursuant to Paragraph 2 if, within
forty-five (45) days after its receipt of a request to register such shares, the
Company delivers to sufficient requesting Holders such that there are not left
without such a an opinion requesting Holders holding at least the number of
Registrable Shares necessary to request registration under Paragraph 2(a) (i.e.,
323,077 Registrable Shares), an opinion of counsel in form and substance
satisfactory to counsel to such Holder, that the entire number of Registrable
Shares proposed to be sold by such Holder may be sold without registration under
the Securities Act, whether pursuant to Rule 144 or otherwise, within a period
of not more than 90 days. The Company shall not discontinue such registration
process under this Paragraph 3(a) until at least twenty (20) days have passed
since it sent notice of the registration request to the other non-requesting
Consortium Holders under Paragraph 3(b) below, and any additional requests for
registration as a result thereof shall be included in the calculation whether
there are at least 323,077 Registrable Shares requesting registration as to
which no such opinion has been provided.
(b) The Company shall not be required to effect or cause the
registration of any Registrable Shares pursuant to the provisions of Paragraph 2
unless the Consortium Holder thereof has properly requested such registration in
accordance with Paragraph 2(a) within twenty (20) days after the Company shall
have sent any non-requesting Consortium Holder written notice that other
Consortium Holders holding at least 323,077 Consortium Shares have exercised
their right to request registration hereunder; provided, however, that if the
end of the Demand Period falls within such 20-day period, then the Company shall
not be required to effect or cause the registration of such Consortium Holder's
Registrable Shares unless the Consortium Holder thereof has requested such
registration in writing as provided hereinabove before the end of the Demand
Period.
4. Registration Procedures.
4.1 Company Obligations. If and whenever the Company is
required to use its reasonable efforts to effect the registration of any
Registrable Shares under the Securities Act as provided in this Agreement, the
Company shall, as promptly as practicable:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Shares and use its reasonable efforts to cause
such registration statement to become effective as soon thereafter as reasonably
practicable. The Company will promptly notify each requesting Holder and, if
requested by each such Holder, confirm such advice in writing, (i) when such
registration statement becomes effective, (ii) when any post-effective amendment
to such registration statement becomes effective, and (iii) of any request by
the SEC for any amendment or supplement to such registration statement or any
prospectus relating thereto or for additional information;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least six months (or for such shorter period in which each participating
Holder has sold all of the Registrable Shares included in such registration
statement) and to comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such registration statement
during such period in accordance with the intended methods of disposition by
each such Holder set forth in such registration statement;
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<PAGE> 5
(c) furnish to each requesting Holder at least one copy of
such registration statement and of each amendment and supplement thereto (in
each case including all exhibits) and such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus)
and of each supplement thereto and of such other documents as each such Holder
may reasonably request in order to facilitate the disposition of the Registrable
Shares by each such Holder;
(d) use its reasonable efforts to register or qualify the
Registrable Shares covered by the registration statement under such securities
or blue sky laws of any State of the United States as each Holder or the
managing underwriter, if any, shall reasonably request, and do any and all other
acts and things which may be reasonably necessary or advisable to enable each
Holder and each underwriter, if any, to consummate the disposition in such
jurisdictions of the Registrable Shares to be sold by each Holder, except that
the Company shall not for any such purpose be required to qualify generally to
do business as a foreign corporation in any jurisdiction where, but for the
requirements of this Paragraph 4.1(d), it would not be obligated to be so
qualified, to subject itself to taxation in any such jurisdiction or to consent
to general service of process in any such jurisdiction;
(e) promptly notify each participating Holder at any time when
a prospectus is required to be delivered under the Securities Act during the
period mentioned in Paragraph 4.1(b) and the Company becomes aware that the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and, at the request
of any such Holder, promptly prepare and furnish to such Holder a reasonable
number of copies of an amended or supplemental prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Shares, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing; and
(f) make available for inspection by each Holder, by any
underwriter participating in any disposition to be effected pursuant to such
registration statement and by any attorney, accountant or other agent retained
by such Holder or any such underwriter, in each case upon receipt of an
appropriate confidentiality agreement, all financial and other records,
corporate documents and properties of the Company and its subsidiaries, and
cause the Company's officers and employees to supply all information, as may be
reasonably requested by any such Holder or any such underwriter, attorney,
accountant or agent in connection with such registration statement.
4.2 Holder Obligations.
(a) In connection with any registration of Registrable Shares
pursuant to this Agreement, each requesting Holder shall furnish the Company in
writing such information and documents regarding Holder and the distribution of
the Registrable Shares as the Company may reasonably request (including without
limitation a written consent to, and agreement to be bound by, the terms,
obligations and conditions of this Agreement), and each requesting Holder shall
execute all questionnaires, powers of attorney, indemnities, standstill
agreements, hold-back agreements, underwriting agreements and other documents
required under the terms of this Agreement or any underwriting agreements as may
be necessary or appropriate to effect the registration of the Registrable Shares
under the Securities Act and state securities or blue sky laws, as reasonably
determined by the Company.
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<PAGE> 6
(b) The Company shall have no obligation to proceed with any
registration requested pursuant to Paragraph 2(a) if requesting Holders holding
at least the number of Registrable Shares necessary to request registration
under Paragraph 2(a) (i.e., 323,077 Registrable Shares) do not furnish the
Company with such information or documents as the Company may reasonably request
under Paragraph 4.2(a) within a reasonable period of time after such request.
(c) Upon receipt of any notice from the Company of the
happening of any event of the kind described in Paragraph 4.1(e), each Holder
shall forthwith discontinue disposition of Registrable Shares pursuant to the
registration statement covering such Registrable Shares until such Holder's
receipt of copies of the supplemented or amended prospectus contemplated by
Paragraph 4.1(e), and, if so directed by the Company, each Holder shall deliver
to the Company all copies, other than permanent file copies then in such
Holder's possession, of the prospectus covering such Registrable Shares in
effect at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in Paragraph 4.1(b) shall be extended
by the number of days during the period from and including the date of the
giving of such notice pursuant to Paragraph 4.1(e) to and including the date
when such Holder shall have received the copies of the supplemented or amended
prospectus contemplated by Paragraph 4.1(e).
(d) If requested by the managing underwriter of any
underwritten offering of securities of the Company, each Holder shall agree not
to effect any public sale or distribution of any Shares (except pursuant to the
registration statement), including any sale pursuant to Rule 144, during the
ten-day period prior to and the 90-day period following the effectiveness of the
registration statement relating to such offering.
4.3 Expenses. The Company shall pay all Registration Expenses
in connection with each registration of Registrable Shares pursuant to Paragraph
2; provided, however, that (a) all underwriting discounts and commissions and
fees, discounts and commissions of brokers and dealers attributable to the
Registrable Shares shall be borne and paid by each applicable Holder, and (b)
any other fees or expenses incurred by any of the parties, including fees and
expenses of attorneys and accountants, shall be borne by the party that incurred
them.
5. Selection of Underwriters.
If any Registrable Securities are to be sold in an
underwritten offering pursuant to the provisions of Paragraph 2, the managing
underwriter of such offering shall be determined by the mutual agreement of
requesting Consortium Holders (acting by majority vote based upon their
respective stock interests) and the Company; provided, however, in any event the
designation of such underwriter shall be reasonably satisfactory to the Company.
6. Indemnification.
6.1 Indemnification by the Company. In the event of any
registration of Registrable Shares under the Securities Act pursuant to this
Agreement, the Company shall indemnify and hold harmless, to the extent
permitted by law, each Holder, each Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls any such underwriter within the meaning of the Securities Act, against
any and all losses, claims, damages or liabilities to which such Holder or such
underwriter or controlling Person may become subject under the Securities Act,
common law or otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof)
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<PAGE> 7
arise out of or are based upon (a) any untrue statement or alleged untrue
statement of any material fact contained in any registration statement under
which such securities were registered under the Securities Act, any preliminary,
final or summary prospectus contained therein, or any amendment or supplement
thereto, or (b) 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, and the Company shall reimburse each such Holder and each such
underwriter and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding; provided, however, that the
Company shall not be liable in any such case to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) arises out
of or is based upon any breach by the indemnified person of its obligations
under this Agreement, including, without limitation, those contained in
Paragraph 4.2, or any untrue statement or alleged untrue statement or omission
or alleged omission made in such registration statement or amendment or
supplement thereto or in any such preliminary, final or summary prospectus, or
amendment or supplement thereto, in reliance upon and in conformity with
information furnished to the Company by or on behalf of any such Holder or any
such underwriter or controlling Person for use in the preparation thereof; and
provided further, that the Company shall not be liable to any Holder or any
Person who participates as an underwriter in the offering or sale of Registrable
Shares, or to any other Person who controls such underwriter within the meaning
of the Securities Act, under the indemnity agreement set forth in this Paragraph
6.1, with respect to any such untrue statement or omission in any preliminary
prospectus or the final prospectus, or the final prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, claim,
damage or liability of such Holder or such underwriter or controlling Person
results from the fact that such Holder or such underwriter sold Shares to a
person to whom there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the final prospectus (including any
documents incorporated by reference therein) or of the final prospectus as then
amended or supplemented (including any documents incorporated by reference
therein), whichever is most recent, if the Company has previously furnished
copies thereof to such Holder or such underwriter and such final prospectus, as
then amended or supplemented, has corrected any such untrue statement or
omission. The indemnity provided for herein shall remain in full force and
effect regardless of any investigation made by or on behalf of any such Holder
or any such underwriter or controlling Person.
6.2 Indemnification by Each Holder. In the event of any
registration of Registrable Shares under the Securities Act pursuant to this
Agreement, each requesting Holder shall indemnify and hold harmless (in the same
manner and to the same extent as set forth in Paragraph 6.1) the Company, each
director of the Company, each officer of the Company who shall sign the
registration statement and its controlling Persons, if any, and all other
prospective sellers and their respective directors, officers and controlling
Persons with respect to any untrue statement or alleged untrue statement in or
omission or alleged omission from such registration statement, any preliminary,
final or summary prospectus contained therein, or any amendment or supplement
thereto, if such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with information
furnished to the Company by or on behalf of such Holder for use in the
preparation of such registration statement, preliminary, final or summary
prospectus or amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any of the other prospective sellers or any of their respective directors,
officers or controlling Persons.
6.3 Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall (a) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (b) permit such indemnifying party to assume the defense of such claim with
counsel
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reasonably satisfactory to the indemnified party; provided, however, that any
Person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such Person and not of
the indemnifying party unless (a) the indemnifying party has agreed to pay such
fees or expenses, (b) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such Person,
or (c) the Person to be indemnified shall have been advised by counsel in
writing that a conflict of interest exists between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). The indemnifying party will not be subject to any liability for
any settlement made without its consent (but such consent will not be
unreasonably withheld). No indemnified party will be required to consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by all claimants or plaintiffs to such
indemnified party and its Affiliates of a release from all liability in respect
to such claim or litigation. Any indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim.
6.4 Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Paragraph 6 (with appropriate
modifications) shall be given by the Company to each Holder and each underwriter
of Registrable Shares, and by each Holder to the Company, with respect to any
required registration or other qualification of securities under any federal or
state law or regulation other than the Securities Act.
6.5 Contribution. If the indemnification provided for in
Paragraphs 6.1, 6.2 or 6.4 is unavailable to a party that would have been an
indemnified party under any such Paragraph in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each party that would have been an indemnifying party thereunder shall, in lieu
of indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
such indemnified party, on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statements of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company agrees
that it would not be just and equitable if contribution pursuant to this
Paragraph 6.5 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Paragraph 6.5. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to in this Paragraph 6.5 shall include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in Paragraph 6.3). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7. General.
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<PAGE> 9
7.1 Assignment. The registration rights granted pursuant to
this Agreement are personal to each Holder and may not be assigned by such
Holder to any person or entity other than an Affiliate of such Holder who agrees
in writing to be bound by the terms hereof.
7.2 Notices. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be delivered
by hand or facsimile or mailed by first-class certified or registered mail,
return receipt requested, postage prepaid, as follows:
(a) If to the Company, at 2775 Rainbow Boulevard, Suite 102,
Las Vegas, Nevada, Attention: Secretary, or facsimile no. (702) 247-7447, or at
such other address or addresses as may have been furnished in writing by the
Company to each Holder; or
(b) If to any Holder, at the Holder's last known address on
the shareholder records of the Company, or such other address or addresses as
may have been furnished to the Company in writing by such Holder.
All such notices shall be deemed given when actually delivered by hand or
facsimile, or, if sent by FedEx or other overnight delivery service, one (1)
business day after sending, or, if mailed, three (3) business days after deposit
in the U.S. mail properly addressed in accordance with this Paragraph.
7.3 Registrable Shares. Any references in this Agreement to a
specified number of Registrable Shares shall be adjusted to give effect to any
stock dividends, stock splits or like capital adjustments effected after the
date hereof with respect to the Common Stock of the Company.
7.4 Delay of Registration. No Holder shall take, and by
accepting this Agreement each Holder hereby acknowledges and agrees that he
shall not have any right to take, any action to restrain, enjoin or otherwise
delay any registration of securities of the Company as a result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement.
7.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their permitted
successors and assigns. Except as otherwise specifically provided herein, this
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any Person not a party to this Agreement.
7.6 General. This Agreement may be modified only by an
agreement in writing signed by all parties hereto. This Agreement constitutes
the final agreement of the parties concerning the matters herein and supersedes
all prior and contemporaneous agreements and understandings, whether oral or
written, between them respecting the subject matter hereof. This Agreement may
be executed in any number of counterparts, each of which shall constitute an
original and all of which together shall constitute one and the same instrument.
Terms used herein in any number or gender include other numbers or genders, as
the contest may require. If any of the provisions of this Agreement are
determined to be illegal, invalid or otherwise unenforceable, in whole or in
part, they shall be deemed severable from, and shall in no way affect the
validity or enforceability of, the remaining provisions of this Agreement. This
Agreement shall be governed by and construed, interpreted and enforced under the
laws of the State of Nevada. Captions and
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<PAGE> 10
paragraph headings used herein are for convenience only and are not a part of
this Agreement and shall not be used in construing it.
IN WITNESS WHEREOF, UStel has executed this Agreement for the
benefit of each Holder as of the date set forth on the first page hereof, and
each Holder shall be entitled to rely upon and legally enforce the terms hereof.
UStel, Inc.
By:___________________________
Name:_________________________
Title:________________________
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<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement"), dated as of
August 14, 1996, is made and entered into by UStel, Inc., a Minnesota
corporation (the "Company"), and Noam Schwartz, David Schwartz, the RGB 1993
Family Trust for which David Schwartz is trustee, and the TAD 1993 Family Trust
for which Yoel Iny is trustee (each refereed to herein as a "Schwartz
Shareholder" and collectively referred to herein as the "Schwartz
Shareholders"), with reference to the following facts:
A. The Schwartz Shareholders hold an aggregate of 950,000 shares of
Common Stock, $.01 par value per share (the "Common Stock") of the Company as
set forth in Schedule A attached to hereto.
B. Noam Schwartz, Haskel Iny and Ronnie Schwartz personally guaranteed
the payment of performance of the Company of its obligations to Jeflor, Inc., a
Panamanian corporation ("Jeflor"), in connection with a certain loan by Jeflor
to the Company in the aggregate amount of $1,200,000.
C. The Company granted the Schwartz Shareholders registration rights
pursuant to a Unanimous Written Consent of the Board of Directors of the Company
dated as of June 10, 1996.
B. This Agreement grants certain registration rights to each Schwartz
Shareholder as contemplated by the parties to the Plan.
NOW, THEREFORE, the parties agree as follows:
1. Definitions. As used in this Agreement, the capitalized terms set
forth below shall have the following meanings:
Affiliate - An Affiliate of a Schwartz Shareholder means (i)
any Person that directly, or indirectly through one or more intermediaries, is
controlled by such Schwartz Shareholder, (ii) the spouse, siblings, ancestors
and lineal descendants of such Schwartz Shareholder, and (iii) the spouses of
the siblings, ancestors and lineal descendants of such Schwartz Shareholder.
Common Stock - As defined in Paragraph A above.
Demand Period - A period commencing on August 15, 1996 and
terminating on August 14, 1999.
NASD - National Association of Securities Dealers, Inc.
Person - An individual, partnership, joint venture,
corporation, limited liability company, trust, unincorporated organization or
any other entity or organization, including, without limitation, any government
or department or agency thereof.
Registrable Shares - Schwartz Shares owned by each Schwartz
Shareholder.
<PAGE> 2
Registration Expenses - Any and all expenses incident to
performance of or compliance with this Agreement, including without limitation:
(i) all SEC and stock exchange or NASD registration and filing fees, (ii) all
fees and expenses of complying with state securities or blue sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with blue sky qualifications of the Registrable Shares), (iii) all printing,
messenger and delivery expenses, (iv) the fees and disbursements of counsel for
the Company and of its independent public accountants, (v) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, and (vi) the fees and disbursements of any special experts retained
by the Company in connection with the requested registration, but excluding
underwriting discounts and commissions, fees, discounts and commissions of
brokers and dealers, transfer taxes and the fees and disbursements of counsel
for any Schwartz Shareholders.
Rule 144 - Rule 144 as promulgated under the Securities Act,
as such rule may be amended from time to time, or any similar successor rule
that may be promulgated by the SEC.
Securities Act - The Securities Act of 1933, as amended.
SEC - The Securities and Exchange Commission.
Schwartz Shareholder - As defined in the introductory
paragraph of this Agreement.
Schwartz Shares - All or any part of the 950,000 shares of
Common Stock as described in paragraph A above.
2. Demand Registration Rights.
(a) Demand by Schwartz Shareholders. Subject to the further
terms and conditions of this Agreement, if, at any time within the Demand
Period, any or all of the Schwartz Shareholders notify the Company in writing
that they collectively or individually desire to sell or distribute to the
public any of the Schwartz Shares which then constitute Registrable Shares
(which request shall specify the number of Registrable Shares intended to be
disposed of by each such Schwartz Shareholder and the intended method of
disposition thereof, and a consent by each such Schwartz Shareholder to, and an
agreement to be bound by, the terms, obligations and conditions of this
Agreement), the Company shall use its best efforts to cause the Registrable
Shares for which each such Schwartz Shareholder has requested registration to be
registered under the Securities Act; provided that each such Schwartz
Shareholder has at the time of such request, consented in writing to, and agreed
to be bound by, the terms, obligations and conditions of this Agreement.
(b) Priorities in Demand Registrations. The Company may
include in any registration statement filed in response to the request by such
Schwartz Shareholder other shares of Common Stock for sale by the Company or by
other stockholders; provided, however, if such registration statement relates to
an underwritten offering and the managing underwriter or underwriters advise the
Company in writing that, in its or their opinion, the number of securities
requested to be included in such registration would adversely affect such
offering (including, without limitation, a decrease in the price at which such
securities can be sold), then the amount of the shares of Common Stock included
in the offering shall be reduced, and the Registrable Shares and the other
shares of Common Stock to be included in the offering shall participate in such
offering as follows: (i) the Registrable Shares to be sold by the Schwartz
Shareholders shall have priority over all shares to be offered by the Company
and other stockholders of the Company, except to the extent that any shares held
by such other stockholders have either demand or incidental registration rights
granted on or before June 10, 1996 which specify that they shall have priority
or pari passu rights, in which event the Registrable Shares shall not have
priority over such shares offered by such other stockholders, and instead the
number of Registrable Shares of each Schwartz Shareholder to be included in the
offering shall be reduced in accordance with such other registration rights
provisions; and (ii) all Registrable Shares which are Schwartz Shares for which
Schwartz Shareholders have requested registration shall be treated pari passu,
along with the shares with registration rights
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<PAGE> 3
granted pursuant to the Registration Rights Agreement, dated as of August 14,
1996, with the Company regarding the Consortium Shares (as defined in that
Agreement), for purposes of inclusion in any such registration. In connection
with this provision, the Company hereby reaffirms the registration rights of
Kamel B. Nacif as set forth in the Securities Purchase Agreement dated as of
September 30, 1994 and the Agreement dated February 29, 1996 entered into with
the Company.
(c) Limitations. The following limitations shall apply to the
obligation of the Company to effect the registration of Registrable Shares
pursuant to the provisions of this Paragraph 2:
(i) The Schwartz Shareholders collectively shall not
be entitled to make a request pursuant to this Paragraph 2 more than once,
provided that the registration so requested is actually effected and remains in
effect in accordance with Paragraph 4.1(b), and at least 50% of the Schwartz
Shares have been included in the demanded registration.
(ii) The Company shall not be required to prepare and
file a registration statement pursuant to this Paragraph 2 within 90 days of the
effective date of any registration statement pertaining to securities of the
Company, other than a registration of securities pertaining to an employee
benefit plan or dividend reinvestment plan.
(iii) The Company shall not be required to prepare
and file a registration statement under this Paragraph 2 during any period of
time when: (x) the Company is in possession of material non-public information
which it reasonably believes would be detrimental to be disclosed at such time,
and, in the opinion of counsel to the Company, such information would have to be
disclosed if a registration statement was filed at that time; or (y) the Company
determines, in its reasonable judgment, that such registration would interfere
with any financing or acquisition involving the registration of securities of
the Company under the Securities Act.
In the event the Company elects not to prepare and file a registration statement
based upon a reason stated in subsection (ii) or (iii) above, the Company will
thereafter attempt in good faith to prepare and file a registration statement as
soon as reasonably possible thereafter when it determines that such limitation
no longer is applicable.
3. Registration Not Required. Notwithstanding the provisions of
Paragraph 2 of this Agreement:
(a) The Company shall not be required to effect or cause the
registration of any Registrable Shares pursuant to Paragraph 2 if, within
forty-five (45) days after its receipt of a request to register such shares, the
Company delivers to the requesting Schwartz Shareholders an opinion of counsel
in form and substance satisfactory to counsel to such Schwartz Shareholder, that
the entire number of Registrable Shares proposed to be sold by such Schwartz
Shareholder may be sold without registration under the Securities Act, whether
pursuant to Rule 144 or otherwise, within a period of not more than 90 days. The
Company shall not discontinue such registration process under this Paragraph
3(a) until at least twenty (20) days have passed
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<PAGE> 4
since it sent notice of the registration request to the other non-requesting
Schwartz Shareholders under Paragraph 3(b) below.
(b) The Company shall not be required to effect or cause the
registration of any Registrable Shares pursuant to the provisions of Paragraph 2
unless the Schwartz Shareholder thereof has properly requested such registration
in accordance with Paragraph 2(a) within twenty (20) days after the Company
shall have sent any non-requesting Schwartz Shareholder written notice that
other Schwartz Shareholders have exercised their right to request registration
hereunder; provided, however, that if the end of the Demand Period falls within
such 20-day period, then the Company shall not be required to effect or cause
the registration of such Schwartz Shareholder's Registrable Shares unless the
Schwartz Shareholder thereof has requested such registration in writing as
provided hereinabove before the end of the Demand Period.
4.Registration Procedures.
4.1 Company Obligations. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Shares under the Securities Act as provided in this Agreement, the Company
shall, within 30 days, as promptly as practicable:
(a) prepare and file with the SEC a registration statement
with respect to such Registrable Shares and use its best efforts to cause such
registration statement to become effective as soon thereafter as reasonably
practicable. The Company will promptly notify each requesting Schwartz
Shareholder and, if requested by each such Schwartz Shareholder, confirm such
advice in writing, (i) when such registration statement becomes effective, (ii)
when any post-effective amendment to such registration statement becomes
effective, and (iii) of any request by the SEC for any amendment or supplement
to such registration statement or any prospectus relating thereto or for
additional information;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
at least six months (or for such shorter period in which each participating
Schwartz Shareholder has sold all of the Registrable Shares included in such
registration statement) and to comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by each such Schwartz Shareholder set forth in such registration
statement;
(c) furnish to each requesting Schwartz Shareholder at least
one copy of such registration statement and of each amendment and supplement
thereto (in each case including all exhibits) and such number of copies of the
prospectus included in such registration statement (including each preliminary
prospectus) and of each supplement thereto and of such other documents as each
such Schwartz Shareholder may reasonably request in order to facilitate the
disposition of the Registrable Shares by each such Schwartz Shareholder;
(d) use its best efforts to register or qualify the
Registrable Shares covered by the registration statement under such securities
or blue sky laws of any State of the United States as each Schwartz Shareholder
or the managing underwriter, if any, shall reasonably request, and do any and
all other acts and things which may be reasonably necessary or advisable to
enable each Schwartz Shareholder and each underwriter, if any, to consummate the
disposition in such jurisdictions of the Registrable Shares to be
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<PAGE> 5
sold by each Schwartz Shareholder, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
Paragraph 4.1(d), it would not be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general service of
process in any such jurisdiction;
(e) promptly notify each participating Schwartz Shareholder at
any time when a prospectus is required to be delivered under the Securities Act
during the period mentioned in Paragraph 4.1(b) and the Company becomes aware
that the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and, at the
request of any such Schwartz Shareholder, promptly prepare and furnish to such
Schwartz Shareholder a reasonable number of copies of an amended or supplemental
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
the light of the circumstances then existing; and
(f) make available for inspection by each Schwartz
Shareholder, by any underwriter participating in any disposition to be effected
pursuant to such registration statement and by any attorney, accountant or other
agent retained by such Schwartz Shareholder or any such underwriter, in each
case upon receipt of an appropriate confidentiality agreement, all financial and
other records, corporate documents and properties of the Company and its
subsidiaries, and cause the Company's officers and employees to supply all
information, as may be reasonably requested by any such Schwartz Shareholder or
any such underwriter, attorney, accountant or agent in connection with such
registration statement.
4.2 Schwartz Shareholder Obligations.
(a) In connection with any registration of Registrable Shares
pursuant to this Agreement, each requesting Schwartz Shareholder shall furnish
the Company in writing such information and documents regarding Schwartz
Shareholder and the distribution of the Registrable Shares as the Company may
reasonably request (including without limitation a written consent to, and
agreement to be bound by, the terms, obligations and conditions of this
Agreement), and each requesting Schwartz Shareholder shall execute all
questionnaires, powers of attorney, indemnities, standstill agreements, holdback
agreements, underwriting agreements and other documents required under the terms
of this Agreement or any underwriting agreements as may be necessary or
appropriate to effect the registration of the Registrable Shares under the
Securities Act and state securities or blue sky laws, as reasonably determined
by the Company.
(b) The Company shall have no obligation to proceed with any
registration requested pursuant to Paragraph 2(a) if requesting Schwartz
Shareholders do not furnish the Company with such information or documents as
the Company may reasonably request under Paragraph 4.2(a) within a reasonable
period of time after such request.
(c) Upon receipt of any notice from the Company of the
happening of any event of the kind described in Paragraph 4.1(e), each Schwartz
Shareholder shall forthwith discontinue disposition of Registrable Shares
pursuant to the registration statement covering such Registrable Shares until
such Schwartz Shareholder's receipt of copies of the supplemented or amended
prospectus contemplated by
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<PAGE> 6
Paragraph 4.1(e), and, if so directed by the Company, each Schwartz Shareholder
shall deliver to the Company all copies, other than permanent file copies then
in such Schwartz Shareholder's possession, of the prospectus covering such
Registrable Shares in effect at the time of receipt of such notice. In the event
the Company shall give any such notice, the period mentioned in Paragraph 4.1(b)
shall be extended by the number of days during the period from and including the
date of the giving of such notice pursuant to Paragraph 4.1(e) to and including
the date when such Schwartz Shareholder shall have received the copies of the
supplemented or amended prospectus contemplated by Paragraph 4.1(e).
(d) If requested by the managing underwriter of any
underwritten offering of securities of the Company, each Schwartz Shareholder
shall agree not to effect any public sale or distribution of any Shares (except
pursuant to the registration statement), including any sale pursuant to Rule
144, during the ten-day period prior to and the 90-day period following the
effectiveness of the registration statement relating to such offering.
4.3 Expenses. The Company shall pay all Registration Expenses
in connection with each registration of Registrable Shares pursuant to Paragraph
2; provided, however, that (a) all underwriting discounts and commissions and
fees, discounts and commissions of brokers and dealers attributable to the
Registrable Shares shall be borne and paid by each applicable Schwartz
Shareholder, and (b) any other fees or expenses incurred by any of the parties,
including fees and expenses of attorneys and accountants, shall be borne by the
party that incurred them.
5. Selection of Underwriters.
If any Registrable Securities are to be sold in an
underwritten offering pursuant to the provisions of Paragraph 2, the managing
underwriter of such offering shall be determined by the mutual agreement of
requesting Schwartz Shareholders (acting by majority vote based upon their
respective stock interests) and the Company; provided, however, in any event the
designation of such underwriter shall be reasonably satisfactory to the Company.
6. Indemnification.
6.1 Indemnification by the Company. In the event of any
registration of Registrable Shares under the Securities Act pursuant to this
Agreement, the Company shall indemnify and hold harmless, to the extent
permitted by law, each Schwartz Shareholder, each Person who participates as an
underwriter in the offering or sale of such securities and each other Person, if
any, who controls any such underwriter within the meaning of the Securities Act,
against any and all losses, claims, damages or liabilities to which such
Schwartz Shareholder or such underwriter or controlling Person may become
subject under the Securities Act, common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
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<PAGE> 7
thereof) arise out of or are based upon (a) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary, final or summary prospectus contained therein, or any amendment or
supplement thereto, or (b) 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, and the Company shall reimburse each such Schwartz
Shareholder and each such underwriter and controlling Person for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) arises out of or is based upon any breach by the indemnified person of
its obligations under this Agreement, including, without limitation, those
contained in Paragraph 4.2, or any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or amendment
or supplement thereto or in any such preliminary, final or summary prospectus,
or amendment or supplement thereto, in reliance upon and in conformity with
information furnished to the Company by or on behalf of any such Schwartz
Shareholder or any such underwriter or controlling Person for use in the
preparation thereof; and provided further, that the Company shall not be liable
to any Schwartz Shareholder or any Person who participates as an underwriter in
the offering or sale of Registrable Shares, or to any other Person who controls
such underwriter within the meaning of the Securities Act, under the indemnity
agreement set forth in this Paragraph 6.1, with respect to any such untrue
statement or omission in any preliminary prospectus or the final prospectus, or
the final prospectus as amended or supplemented, as the case may be, to the
extent that any such loss, claim, damage or liability of such Schwartz
Shareholder or such underwriter or controlling Person results from the fact that
such Schwartz Shareholder or such underwriter sold Shares to a person to whom
there was not sent or given, at or prior to the written confirmation of such
sale, a copy of the final prospectus (including any documents incorporated by
reference therein) or of the final prospectus as then amended or supplemented
(including any documents incorporated by reference therein), whichever is most
recent, if the Company has previously furnished copies thereof to such Schwartz
Shareholder or such underwriter and such final prospectus, as then amended or
supplemented, has corrected any such untrue statement or omission. The indemnity
provided for herein shall remain in full force and effect regardless of any
investigation made by or on behalf of any such Schwartz Shareholder or any such
underwriter or controlling Person.
6.2 Indemnification by Each Schwartz Shareholder. In the event
of any registration of Registrable Shares under the Securities Act pursuant to
this Agreement, each requesting Schwartz Shareholder shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in Paragraph
6.1) the Company, each director of the Company, each officer of the Company who
shall sign the registration statement and its controlling Persons, if any, and
all other prospective sellers and their respective directors, officers and
controlling Persons with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from such registration statement,
any preliminary, final or summary prospectus contained therein, or any amendment
or supplement thereto, if such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of such Schwartz
Shareholder for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any of the other prospective sellers or
any of their respective directors, officers or controlling Persons.
6.3 Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder shall (a) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification,
and (b) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party; provided, however,
that any Person entitled to indemnification hereunder shall have the right to
employ separate counsel and to participate in the defense of such claim, but the
fees and expenses of such counsel shall be at the expense of such Person and not
of the indemnifying party unless (a) the indemnifying party has agreed to pay
such fees or expenses, (b) the indemnifying party shall have failed to assume
the defense of such claim and employ counsel reasonably satisfactory to such
Person, or (c) the Person to be indemnified shall have been advised by counsel
in writing that a conflict of interest exists between such Person and the
indemnifying party with respect to such claims
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<PAGE> 8
(in which case, if the Person notifies the indemnifying party in writing that
such Person elects to employ separate counsel at the expense of the indemnifying
party, the indemnifying party shall not have the right to assume the defense of
such claim on behalf of such Person). The indemnifying party will not be subject
to any liability for any settlement made without its consent (but such consent
will not be unreasonably withheld). No indemnified party will be required to
consent to entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by all claimants or
plaintiffs to such indemnified party and its Affiliates of a release from all
liability in respect to such claim or litigation. Any indemnifying party who is
not entitled to, or elects not to, assume the defense of a claim will not be
obligated to pay the fees and expenses of more than one counsel for all parties
indemnified by such indemnifying party with respect to such claim.
6.4 Other Indemnification. Indemnification similar to that
specified in the preceding subdivisions of this Paragraph 6 (with appropriate
modifications) shall be given by the Company to each Schwartz Shareholder and
each underwriter of Registrable Shares, and by each Schwartz Shareholder to the
Company, with respect to any required registration or other qualification of
securities under any federal or state law or regulation other than the
Securities Act.
6.5 Contribution. If the indemnification provided for in
Paragraphs 6.1, 6.2 or 6.4 is unavailable to a party that would have been an
indemnified party under any such Paragraph in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each party that would have been an indemnifying party thereunder shall, in lieu
of indemnifying such indemnified party, contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party, on the one hand, and
such indemnified party, on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statements of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or such indemnified
party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company agrees
that it would not be just and equitable if contribution pursuant to this
Paragraph 6.5 were determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable considerations referred
to in this Paragraph 6.5. The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in respect
thereof) referred to in this Paragraph 6.5 shall include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim (which shall be limited as
provided in Paragraph 6.3). No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
7. General.
7.1 Assignment. Any purchaser or transferee of the Schwartz
Shares shall be entitled to the registration rights granted to the Schwartz
Shareholders, pursuant to this Agreement.
7.2 Notices. All notices, requests, consents and other
communications under this Agreement shall be in writing and shall be delivered
by hand or facsimile or mailed by first-class certified or registered mail,
return receipt requested, postage prepaid, as follows:
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(a) If to the Company, at 2775 Rainbow Boulevard, Suite 102,
Las Vegas, Nevada 89102, Attention: Secretary, or facsimile no. (702) 247-7447,
or at such other address or addresses as may have been furnished in writing by
the Company to each Schwartz Shareholder; or
(b) If to any Schwartz Shareholder, at the Schwartz
Shareholder's last known address on the shareholder records of the Company, or
such other address or addresses as may have been furnished to the Company in
writing by such Schwartz Shareholder.
All such notices shall be deemed given when actually delivered by hand or
facsimile, or, if sent by FedEx or other overnight delivery service, one (1)
business day after sending, or, if mailed, three (3) business days after deposit
in the U.S. mail properly addressed in accordance with this Paragraph.
7.3 Registrable Shares. Any references in this Agreement to a
specified number of Registrable Shares shall be adjusted to give effect to any
stock dividends, stock splits or like capital adjustments effected after the
date hereof with respect to the Common Stock of the Company.
7.4 Delay of Registration. No Schwartz Shareholder shall take,
and by accepting this Agreement each Schwartz Shareholder hereby acknowledges
and agrees that he shall not have any right to take, any action to restrain,
enjoin or otherwise delay any registration of securities of the Company as a
result of any controversy that might arise with respect to the interpretation or
implementation of this Agreement.
7.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their permitted
successors and assigns. Except as otherwise specifically provided herein, this
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any Person not a party to this Agreement.
7.6 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.6 General. This Agreement may be modified only by an
agreement in writing signed by all parties hereto. This Agreement constitutes
the final agreement of the parties concerning the matters herein and supersedes
all prior and contemporaneous agreements and understandings, whether oral or
written, between them respecting the subject matter hereof. This Agreement may
be executed in any number of counterparts, each of which shall constitute an
original and all of which together shall constitute one and the same instrument.
Terms used herein in any number or gender include other numbers or genders, as
the contest may require. If any of the provisions of this Agreement are
determined to be illegal, invalid or otherwise unenforceable, in whole or in
part, they shall be deemed severable from, and shall in no way affect the
validity or enforceability of, the remaining provisions of this Agreement. This
Agreement shall be governed by and construed, interpreted and enforced under the
laws of the State of Nevada. Captions and
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paragraph headings used herein are for convenience only and are not a part
of this Agreement and shall not be used in construing it.
IN WITNESS WHEREOF, UStel has executed this Agreement for the
benefit of each Schwartz Shareholder as of the date set forth on the first page
hereof, and each Schwartz Shareholder shall be entitled to rely upon and legally
enforce the terms hereof.
UStel, Inc.
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Noam Schwartz
-------------------------------------
David Schwartz, on behalf of himself,
and as trustee of the RGB 1993
Family Trust
------------------------------------
Yoel Iny, as trustee of the TAD 1993
Family Trust
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SCHEDULE A
TAD 1993 Family Trust 270,750 shares
RGB 1993 Family Trust 342,000 shares
Noam Schwartz 200,750 shares
David Schwartz 66,500 shares
TOTAL 950,000
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