UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
Amendment to Form 8-K filed October 6, 1997
Current Report Pursuant
To Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (date of earliest event reported): June 25, 1998
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) (IRS Employer Identification Number)
6167 Bristol Parkway, Suite 100, Culver City, CA 90230, (310) 645-1770
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
<PAGE>
INFORMATION TO BE INCLUDED IN REPORT
ITEM 5 - OTHER EVENTS
This Amendment is filed to incorporate certain financial statements
previously filed on Form S-4 and to add certain exhibits to the Form 8-K
filed October 6, 1997. On October 6, 1997 UStel, Inc., filed a report on Form
8-K regarding a merger (the "Merger") pursuant to a Merger Agreement dated
September 25, 1997 by and among UStel, Inc., its wholly owned subsidiary
Arcada Acquisition Corp. and S.V.V. Sales, Inc., dba Arcada Communications
(the "Merger Agreement"). On October 27, 1997 UStel, Inc., filed a
Registration Statement on Form S-4, Commission file 33-38831, pertaining to
the Merger. As of June 25, 1998 the parties to the Merger Agreement entered
into, Amendment No. 2 to the Agreement for Merger which superseded Amendment
No.1. Pursuant to Amendment No. 2, UStel, Inc., among other things, executed
at 14.75% Convertible Subordinated Debenture in the aggregate amount of
$750,000, in favor of the Arcada Communication shareholders, entered into an
Agreement dated on June 25, 1998 to issue to the former shareholders of Arcada
Communications $750,000 of Series B Preferred Stock on the terms set forth in
the Statement of Designations of Rights & Preferences of the Series B
Convertible Preferred Stock, and entered into a Plan of Merger dated as of
June 25, 1998. The Merger (previously reported on Form 8-K filed October 6,
1997) was consummated as of June 25, 1998.
<PAGE>
ITEM 7 - FINANCIAL STATEMENTS AND EXHIBITS
(a)Financial Statements of business acquired. Filed as part of
registration statement by UStel, Inc., on Form S-4, Commission file 33-38831,
filed October 27, 1997 and by this reference incorporated herein.
(b)Pro forma financial information. Filed as part of registration
statement by UStel, Inc., on Form S-4, Commission file 33-38831, filed
October 27, 1997, and by this reference incorporated herein.
(c)Exhibits, the following exhibits are attached hereto:
Exhibit Numbers Item Description
2(a) Amendment No. 2 to Agreement for Merger, dated as of
June 25, 1998, by and among UStel, Inc., Arcada
Acquisition Corp. and S.V.V. Sales, Inc., dba
Arcada Communications.
4.5 Form of 14.75% Convertible Subordinated Debenture.
4.6 Form of Amended and Restated Statement of Designations,
Preferences & Rights of Series B Convertible
Preferred Stock.
<PAGE>
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.
DATED: July 13, 1998 REGISTRANT
UStel, Inc.
BY: s/Frank
Bonadio
ITS: President and Chief Operating
Officer
<PAGE>
EXHIBIT 2(a) TO FORM 8-K/A
AMENDMENT NO. 2 TO THE AGREEMENT FOR MERGER
This Amendment No. 2 to the Agreement for Merger ("Amendment No. 2") is
made and entered into as of this 25th day of June 1998, by and among UStel,
Inc., a Minnesota corporation ("UStel"), Arcada Acquisition Corp., a
Washington corporation and wholly-owned subsidiary of UStel ("Newco"), and
S.V.V. Sales, Inc., a Washington corporation, d/b/a Arcada Communications
("Arcada").
RECITALS
WHEREAS, UStel , Newco and Arcada desire to amend that certain Agreement
for Merger, dated September 25, 1997 (the "Agreement"), in accordance with
Section 8.4 of the Agreement;
WHEREAS, the parties hereto entered into a Letter Agreement, dated
February, 1998 (the "Letter Agreement"); and
WHEREAS, the parties hereto entered into "Amendment No. 1 to the
Agreement for Merger," dated February 1998 ("Amendment No. 1").
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto hereby agree as follows:
1. Prior Agreements. This Amendment No. 2 supersedes the Letter
Agreement (except for paragraph 6 of the Letter Agreement) and Amendment No.
1.
2. Effective Date. This Amendment No. 2 shall be effective
retroactive to January 31, 1998.
3. Conversion of Arcada Common Stock. Section 1.2(a)(i) of the
Agreement shall be deleted in its entirety and substituted therefor shall be
the following:
(i) an aggregate of 4,200,000 newly issued shares of UStel Common
Stock (the "Merger Shares"),
Section 1.2(a)(ii) shall be deleted in its entirety and substituted
therefor shall be the following:
(ii) an aggregate of $1,500,000 in principal amount of 14.75%
Convertible Subordinated Debentures (the "Convertible Debentures") issued by
UStel and described in further detail below a portion of which (to be
determined as required to provide for a tax free exchange) may be issued as
convertible preferred, voting stock of UStel, Inc., having substantially the
same features as the UStel Series A Preferred Stock, convertible and
subordinated and yielding a dividend on the same basis as the Convertible
Debentures, and voting on an as if converted basis, and
Schedule A attached to this Amendment No. 2 shall replace and be
instead of Schedule A referred to in Section 1.2(a) of the Agreement.
4. Existing Shareholder Loans. Section 1.3 of the Agreement shall
be deleted in its entirety and substituted therefor shall be the following:
The Arcada shareholder loans outstanding at Closing, in the amount
of $520,388.40, shall be paid on or prior one year from July 1, 1998 pursuant
to a Promissory Note dated July 1, 1998 payable to Keith Leppaluoto by UStel,
Inc.
5. Convertible Debentures. Section 1.4 of the Agreement shall be
deleted in its entirety and substituted therefor shall be the following:
The Convertible Debentures shall be substantially in the form as
set forth in Exhibit B hereto and as described herein. From the time of
Closing until the time that the debt raised for UStel by Sutro & Company from
Goldman, Sachs Credit Partners, L.P., as set forth in that certain letter
agreement between UStel, Inc., and Goldman Sachs, Credit Partners, L.P., dated
May 22, 1998 (the "GSCP Debt") in connection with the financing of the Merger
is repaid, converted or otherwise retired, the Convertible Debentures shall be
payable interest only, quarterly in arrears. Upon payment conversion or
retirem
ent of all of the outstanding interest and principal relating to the GSCP
Debt, principal payments shall be paid quarterly in advance, such payments to
be amortized over a two (2) year term. Such principal payments shall include
all amounts due thereunder. The interest on the Convertible Debentures will
continue to be paid quarterly in arrears. Notwithstanding the above,
beginning one (1) year after issuance, the Convertible Debentures may be
convertible, at the option of the holder, dollar for dollar at a conversion
price equal to 150% of the closing price of UStel's Common Stock as of the
Closing Date of the Merger. The number of shares of UStel Common Stock
issuable upon conversion of the Convertible Debentures will be proportionally
adjusted in the event of a change in capitalization of UStel after Closing of
the Merger. UStel shall have the right to prepay, in whole or part, without
penalty, at any time, including the right to pay cash in lieu of Convertible
<Debentures at Closing. In the event of default under the Convertible
Debentures, the conversion price will be equal to 50% of the closing price of
UStel's Common Stock as of the Closing Date of the Merger.
Exhibit B attached to this Amendment No. 2 shall replace Exhibit B
attached to the Agreement.
6. Adjustment. Section 1.5(a) of the Agreement shall be deleted in
its entirety.
7. Covenants of the Parties. Section 6.2 of the Agreement shall be
deleted in its entirety.
8. Covenants of the Parties. Section 6.12(a) of the Agreement shall
be deleted in its entirety and substituted therefor shall be the following:
Employment. UStel and Frank Bonadio shall have entered into a
mutually satisfactory employment agreement to be effective at Closing and in
the form attached hereto as Exhibit C. Such employment contract shall
provide that Mr. Bonadio will become the President and Chief Operating Officer
of UStel, with those duties and responsibilities consistent with the
organizational chart attached to such employment agreement, and Mr. Bonadio
shall become a member of the Board of Directors of UStel. Additionally, Mr.
Bonadio shall have an annual base salary of $175,000 plus options to purchase
100,000 shares of UStel Common Stock pursuant to the vesting requirements and
other provisions of the UStel Stock Option Plan.
Exhibit C attached to this Amendment No. 2 shall replace Exhibit C
attached to the Agreement.
9. Covenants of the Parties. Section 6.16 of the Agreement shall be
deleted in its entirety and substituted therefor shall be the following:
UStel Board of Directors. Simultaneous with the consummation of
the Merger, UStel shall establish a five (5) member board. The initial four
(4) members of the Board of Directors shall be Robert L.B. Diener, Frank
Bonadio, Ann Graham Ehringer and Keith Leppaluoto. The fifth seat shall be
filled by an individual to be agreed upon by the Board of Directors after
Closing of the Merger.
The following shall be added to Section 6 of the Agreement:
Section 6.19. Neither UStel nor any of its directors, officers,
shareholders' representatives, agents or other persons controlled by any of
them, shall, directly or indirectly encourage or solicit, or hold discussions
with or negotiations with, or provide any information to, any person, entity
or group other than Arcada concerning any merger, sale of substantial assets
not in the ordinary course of business, sale of shares of Capital Stock or
similar transactions involving UStel. UStel will communicate within eight
(8) hours to Arcada the terms of any proposal it may receive in respect of any
transaction.
10. Termination, Amendment and Waiver. Section 8.1(b)(i) shall be
amended by changing the date therein from January 31, 1998 to June 30, 1998.
11. Management Services Fee. There shall be added to Section 8.2 of
the Agreement, at the end of said Section, the following provision:
In the event the Merger is not consummated for any reason
including, without limitation, (i) UStel's failure to secure the Financing in
connection with the Merger or (ii) Arcada's discovery, during its due
diligence, of matters which prompt Arcada to terminate the Merger, then UStel
shall pay Arcada a breakup fee of $125,000.
12. Form of Merger. Section 1.1 of the Agreement shall be deemed
amended to provide that Arcada shall be merged with and into Newco, with
Newco being the surviving corporation.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment No. 2 to the Agreement for Merger as of the date first above
written.
UStel, Inc. S.V.V. Sales, Inc.
By: Robert L.B. Diener By: Frank Bonadio
Its: Chairman and Its: President
Chief Executive Officer
Arcada Acquisition Corp.
By: Robert L.B. Diener
Its: President
<PAGE>
SCHEDULE A TO MERGER AGREEMENT
Name Cash Ustel Common Stock Debentures
(and/or Preferred
Stock)
Keith Leppaluoto $ 2,400,000 (1) 2,920,000 (2) $ 100,000 (1)
$ 800,000 (2)
Frank J. Bonadio $ 2,500,000 (3) 1,196,000 (4) $ 570,000 (4)
Tuck Don Jue $ 100,000 (5) 84,000 (5) $ 30,000 (5)
TOTAL $ 5,000,000 4,200,000 $ 1,500,000
Notes:
1.Consideration paid in exchange for the shares of Common Stock of S.V.V.
Sales, Inc. evidenced by Certificate No. 7.
2.Consideration paid in exchange for the shares of Common Stock of S.V.V.
Sales, Inc. evidenced by Certificate No. 14.
3.Consideration paid in exchange for the shares of Common Stock of S.V.V.
Sales, Inc. evidenced by Certificate No. 18.
4.Consideration paid in exchange for the shares of Common Stock of S.V.V.
Sales, Inc. evidenced by Certificate No. 15.
5.Consideration paid in exchange for the shares of Common Stock of S.V.V.
Sales, Inc. evidenced by Certificate No. 16.
<PAGE>
SCHEDULE B TO MERGER AGREEMENT
Shareholder Aggregate Principal Amount of Loan
Keith Leppaluoto $520,388.40
<PAGE>
FORM OF PLAN OF MERGER
This Plan of Merger is made by and among UStel, Inc., a Minnesota corporation
("UStel"), Arcada Acquisition Corp., a Washington corporation and
wholly-owned
subsidiary of UStel ("Newco"), and S.V.V. Sales, Inc., a Washington
corporation, d.b.a. Arcada Communications ("Arcada"), in connection with the
transactions described in an Agreement for Merger dated as of September 25,
1997 as amended, (the "Merger Agreement") by and among UStel, Newco and
Arcada. Capitalized terms used but not otherwise defined herein shall have the
meaning given them in the Merger Agreement. This Plan of Merger, including
related documents, is intended to constitute a "plan of reorganization" as
that term is used in Section 354 of the Internal Revenue Code (the "Code").
Further, this Merger is intended to constitute a "reorganization" as defined
in Section 368 of the Code.
The boards of directors of Arcada, UStel and Arcada have approved this Plan of
Merger (the "Plan of Merger") under which Arcada shall be merged with and into
Newco. The Plan of Merger has been approved by the shareholders of Arcada and
UStel and the shareholders of Newco.
UStel Arcada, and Newco hereby agree as follows:
1. MERGER. At and on the Effective Time of the Merger, Arcada shall be
merged with and into Newco in accordance with the terms hereof. Newco shall
be the surviving corporation and shall be governed by the laws of the State of
Washington.
2. EFFECTIVE TIME. The Merger shall not be effective unless and until
accepted by the Office of the Secretary of State of the State of Washington.
The effective time ("Effective Time") of this Merger shall be June 25, 1998
at 9:00 a.m.
3. NAME. The name of the surviving corporation shall be Arcada
Communications, Inc.
4. DIRECTORS AND PRINCIPAL OFFICERS. Arcada, as the resulting
corporation, shall have one director. There shall be one class of directors
and each such director shall have a one- year term. The name, residential
address and term of each director is as follows: Frank Bonadio, 2033 Sixth
Avenue, Suite 401, Seattle, Washington 98121-2516; term: one year. Frank
Bonadio shall also serve as the President.
5. OFFICES. The location of the office of the surviving corporation
shall be 2033 Sixth Avenue, Suite 401, Seattle, Washington 98121-2516.
6. TERMS AND CONDITIONS OF MERGER. At the Effective Time of the Merger:
A. CONVERSION OF ARCADA COMMON STOCK. Subject to the provisions below and
in the Merger Agreement, at the Effective Time, all of the outstanding shares
of common stock, no par value per share, of Arcada ("Arcada Common Stock")
shall be converted into the right to receive shares of common stock, $.01 par
value per share, of UStel ("UStel Common Stock"), and certain additional
consideration, as described below and in the Merger Agreement.
(a) The total consideration to be paid by UStel to the Arcada
shareholders in connection with the Merger shall consist of (i) an aggregate
of 4,200,000 newly issued shares of UStel Common Stock (the "Merger Shares"),
(ii) an aggregate of $1,500,000 in principal amount of 14.75% Convertible
Subordinated Debentures (the "Convertible Debentures") issued by UStel and
described in further detail below a portion of which (to be determined as
required to provide for a tax free exchange) may be issued as convertible
preferred voting stock of UStel, Inc., having substantially the same features
as the UStel, Inc., Series A Preferred Stock, convertible and subordinated
and yielding a dividend on the same basis as the Convertible Debentures and
voting on an as is converted basis, (iii) an aggregate of $5,000,000 cash and
(iv) the payment by UStel at Closing, of up to the sum of $590,500 owed by
Arcada to Keith Leppaluoto. The Merger Shares, the Convertible Debentures and
the cash payable by UStel at Closing are collectively referred to herein as
the "Merger Consideration" and shall be payable in accordance with the
attached Schedule "A."
(b) No fractional shares of UStel Common Stock shall be issued. In
lieu of any fractional shares, any holder of Arcada Common Stock who would
otherwise be entitled to a fractional share of UStel Common Stock will, upon
surrender of his certificate or certificates representing Arcada Common Stock
outstanding immediately prior to the Effective Time, be paid the cash value
of such fractional share interest, which shall be equal to the product of the
fraction multiplied by the Average Price as defined in the Merger Agreement.
For the purposes of determining any such fractional share interests, all
shares of Arcada Common Stock owned by an Arcada stockholder shall be
combined so as to calculate the maximum number of whole shares of UStel Common
Stock issuable to such Arcada stockholder.
(c) From the time of Closing until the time that the debt raised for
UStel by Sutro & Company from Goldman, Sachs Credit Partners, L.P. as set
forth in that certain letter agreement, dated May 22, 1998 between UStel,
Inc., and Goldman, Sachs Credit Partners, L.P., (the "GSCP Debt") in
connection with the financing of the Merger is repaid, converted or otherwise
retired, the Convertible Debentures shall be payable interest only, quarterly
in arrears. Upon payment conversion or retirement of all of the outstanding
interest and principal relating to the GSCP Debt, principal payments shall be
paid quarterly in advance, such payments to be amortized over a two (2) year
term. Such principal payments shall include all amounts due thereunder. The
interest on the Convertible Debentures will continue to be paid quarterly in
arrears. Notwithstanding the above, beginning one (1) year after issuance,
the Convertible Debentures may be convertible, at the option of the holder,
dollar for dollar at a conversion price equal to 150% of the closing price of
UStel's Common Stock as of the Closing Date of the Merger. The number of
shares of UStel Common Stock issuable upon conversion of the Convertible
Debentures will be proportionally adjusted in the event of a change in
capitalization of UStel after Closing of the Merger. UStel shall have the
right to prepay, in whole or part, without penalty, at any time, including
the right to pay cash in lieu of Convertible Debentures at Closing. In the
event of default under the Convertible Debentures, the conversion price will
be equal to 50% of the closing price of UStel's Common Stock as of the Closing
Date of the Merger.
B. NEWCO COMMON STOCK. The Merger shall effect no change in any of the
issued and outstanding shares of Newco Common Stock and none of its shares
shall be converted as a result of the Merger, but all issued and outstanding
Newco Common Stock shall remain issued and outstanding shares of common stock
of the corporation surviving the Merger.
7. METHOD OF EFFECTUATION OF EXCHANGE OF CERTIFICATES. At the Effective
Time, the holders of record of Arcada Common Stock shall deliver to UStel the
certificates which, immediately prior to the Effective Time, represented
outstanding shares of Arcada Common Stock (the "Certificates") duly endorsed
in blank, or accompanied by blank stock powers. Upon surrender to UStel of
the Certificates, and such other documents as may be reasonably requested,
UStel shall promptly deliver to the person entitled thereto certificates
representing the number of shares of UStel Common Stock (and cash in lieu of
any fractional shares of UStel Common Stock ) and the other Merger
Consideration such holder is entitled to receive pursuant to this Plan of
Merger. All Certificates so surrendered shall be canceled. Until so
surrendered and exchanged, each Certificate shall, after the Effective Time,
be deemed to evidence only the right to receive the number of shares of UStel
Common Stock (and cash in lieu of any fractional shares of UStel Common
Stock) and the other Merger Consideration to which such holder is entitled
pursuant to Section 6 hereof.
No dividends or other distributions declared with respect to shares of UStel
Common Stock and payable to the holders of record thereof after the Effective
Time shall be paid to the holder of any unsurrendered Certificate until the
holder thereof surrenders such Certificate. Subject to the effect of any
applicable escheat laws and unclaimed property laws, after the subsequent
surrender and exchange of a Certificate, the record holder thereof shall be
entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to the
UStel Common Stock for which such Certificate was exchangeable.
If delivery of shares of UStel Common Stock (and any cash in lieu of
fractional shares) and the other Merger Consideration is to be made to a
person other than the person in whose name a surrendered Certificate is
registered, it shall be a condition of such delivery that the Certificate so
surrendered be properly endorsed (or accompanied by an appropriate instrument
of transfer) and otherwise be in proper form for transfer and that the person
requesting such delivery shall have paid any transfer and other taxes
required by reason of such delivery to a person other than the registered
holder of the surrendered Certificate or shall have established to the
satisfaction of UStel that such tax has been paid or is not payable.
At the Effective Time, the stock transfer books of Arcada shall be closed and
there shall be no further registration of transfers of shares of Arcada
Common Stock thereafter on the records of Arcada. From and after the
Effective Time, the holders of Certificates shall cease to have any rights
with respect to the shares of Arcada Common Stock represented thereby
immediately prior to the Effective Time except as provided herein.
No interest shall be paid or accrue on or in respect of any portion of the
UStel Common Stock or the cash in lieu of fractional shares and the other
Merger Consideration, to be delivered in exchange for the surrendered
Certificates.
Notwithstanding anything to the contrary herein, UStel shall not be liable to
a holder of Arcada Common Stock for any amount properly paid to a public
official pursuant to any applicable unclaimed property, escheat or similar
laws.
8. CHARTER AND BYLAWS. At and after the Effective Time, the charter (the
"Charter") and articles of incorporation and the bylaws of Arcada as in
effect immediately prior to the Effective Time shall continue to be the
charter and articles of incorporation and the bylaws of the surviving
corporation until amended in accordance with law.
9. RIGHTS AND DUTIES OF THE SURVIVING CORPORATION. At the Effective
Time, Arcada shall be merged with and into Newco, which shall be the surviving
corporation and which shall continue to be a Washington corporation. The
business of the surviving corporation shall be that of a corporation organized
under the laws of the State of Washington and as provided for in the Articles
of Incorporation of Arcada as now existing. All assets, rights, privileges,
powers, franchises and property (real, personal and mixed, tangible and
intangible, causes in action, rights and credits) of Arcada shall be
automatically vested in Newco as the surviving corporation by virtue of the
Merger without any deed or other document of transfer. The surviving
corporation, without any order or action on the part of any court or otherwise
and without any documents of assumption or assignment, shall hold and enjoy
all of the properties, franchises and interests, including appointments,
powers, designations, nominations and all other rights and interests as agent
or other fiduciary in the same manner and to the same extent as such rights,
franchises and interests and powers were held or enjoyed by Newco and Arcada,
respectively. The surviving corporation shall be responsible for all the
liabilities of every kind and description of both Newco and Arcada immediately
prior to the Effective Time, including liabilities for all debts, savings
accounts, deposits, obligations and contracts of Newco and Arcada,
respectively, matured or unmatured, whether accrued, absolute, contingent or
otherwise and whether or not reflected or reserved against on balance sheets,
books or accounts or records of either Newco or Arcada. All rights of
creditors and other obligees and all liens on property of either Newco or
Arcada shall be preserved and shall not be released or impaired.
10. EXECUTION. This Plan of Merger may be executed in any number of
counterparts each of which shall be deemed an original and all of such
counterparts shall constitute one and the same instrument.
Dated as of June 19, 1998.
USTEL, INC.
By: ______________________________
Its: ______________________________
ARCADA ACQUISITION CORP.
By: ______________________________
Its: ______________________________
S.V.V. SALES, INC. DBA
ARCADA COMMUNICATIONS
By: ______________________________
Its: ______________________________
<PAGE>
SCHEDULE A
Merger Consideration Payable to Shareholders of Arcada
Merger Consideration
Principal Amount*
Arcada Shareholder Cash of Convertible Merger Shares
Debentures
Keith Leppaluoto $ 2,400,000 $ 900,000 2,920,000
Frank Bonadio $ 2,500,000 $ 570,000 1,196,000
Tuck Jue $ 100,000 $ 30,000 84,000
TOTAL $ 5,000,000 $1,500,000 4,200,000
* To the extent necessary to achieve a tax free exchange, the Convertible
Debenture will be reduced and an equivalent amount of Convertible
Preferred Stock will be issued as set forth in the Plan of Merger.
<PAGE>
ARTICLES OF MERGER
S.V.V. Sales, Inc.,
a Washington corporation
WITH AND INTO
Arcada Acquisition Corp.,
a Washington corporation
In accordance with RCW 23B.11.050
The undersigned, Robert L. B. Diener, being the President of Arcada
Acquisition Corp., a Washington corporation ("Arcada") and Frank Bonadio,
being the President of S.V.V. Sales, Inc., a Washington corporation
("S.V.V.")
DO HEREBY CERTIFY as follows:
(1) the constituent corporations in the merger (the "Merger")
are Arcada Acquisition Corp., a Washington corporation, and S.V.V. Sales,
Inc., a Washington corporation; the name of the surviving corporation shall
be Arcada Communications, Inc., a Washington corporation.
(2) a Plan of Merger, dated as of June 19, 1998 (the "Merger
Agreement") has been approved, adopted, and executed by each of the
constituent corporations in accordance with RCW 23B.11.010. The Merger
Agreement is attached hereto as Exhibit A and incorporated herein by
reference.
(3) The Merger was duly approved by the shareholders or each of
the constituent corporations in accordance with Section 23B.011.030 of the
Washington Business Corporation Act.
(4) The Merger shall become effective on June 25, 1998 at 9:00
a.m.
IN WITNESS WHEREOF, the parties hereto have caused these Articles
of Merger to be duly executed as of this 19th day of June, 1998.
Arcada Acquisition Corp.,
a Washington corporation
By:
Its:
S.V.V. Sales, Inc.
a Washington corporation
By:
Frank Bonadio, President
<PAGE>
Exhibit 4.5 to Form 8-K/A
Form of UStel, Inc.
14.75% CONVERTIBLE SUBORDINATED DEBENTURE
$____________
FOR VALUE RECEIVED, UStel, Inc., a Minnesota corporation ("Company")
hereby promises to pay to the order of _________________ ("Holder"), the sum
of _____________ Dollars ($___________), and to pay interest thereon at the
rate of fourteen and three quarters of a percent (14.75%) per annum from the
date hereof until paid. Payments hereunder shall be made on a quarterly
basis, with the first such payment due and payable on the date that is three
months from the day hereof. Thereafter each payment shall be made on the
same day of each succeeding third calendar month. All payments of interest
hereunder shall be payable in arrears. All payments hereunder shall be
interest only until the Company has paid in full or otherwise satisfied the
thirty five million dollar ($35,000,000) Senior Credit Facility (including
any refinancings, refundings, replacements, or substitutions thereof or
therefor, the "Senior Credit Facility") to be entered into in connection with
the merger between S.V.V. Sales, Inc., dba Arcada Communications ("Arcada")
and a wholly owned subsidiary of the Company (the "Merger Subsidiary"), as
provided by that certain Agreement of Merger, dated September 25, 1997, as
amended, (the "Agreement") by and between the Company, the Merger Subsidiary
and Arcada (the "Merger"). Upon payment or satisfaction in full, in cash, of
the interest and principal of the Senior Credit Facility, quarterly payments
to the Holder shall be interest, plus principal, which shall be paid in
advance over a twenty-four (24) month period. Each succeeding payment shall
then be interest, plus principal for the following quarter. This Convertible
Subordinated Debenture (the "Debenture") is issued in connection with the
Merger. This Debenture is one of a series of debentures issued by the
Company in connection with the foregoing transaction.
This Debenture has not been registered under the Securities Act of 1933,
as amended (the "Securities Act") and constitutes a "restricted security" as
defined in Rule 144 promulgated under the Securities Act. This Debenture may
not be sold, offered for sale, pledged, hypothecated, transferred or assigned
except (1) pursuant to a registration statement then in effect under the
Securities Act, (2) in compliance with Rule 144, or (3) pursuant to an
opinion of counsel to the Company, satisfactory in form and substance to the
Company, that such registration or compliance is not required as to such sale,
offer to sell, pledge, hypothecation, transfer or assignment.
<PAGE>
ARTICLE I
SUBORDINATION AND PARITY
1.1 Senior Indebtedness. As used in this Debenture, the term
"Senior Indebtedness" shall mean the principal, interest and premium, if any,
of all indebtedness of the Company regardless of whether incurred on, before
or after the date of this Debenture for money borrowed from (a) any
indebtedness, liabilities, and other obligations now or hereafter owing to
Coast Business Credit, a division of Southern Pacific Bank, as agent
(including any successor agent thereto, "Agent") under that certain Loan and
Security Agreement dated as of June 25, 1998 (as amended from time to time,
the "Loan Agreement"), among the Company and Arcada Communications, Inc. on
the one hand, and Agent and Goldman Sachs Credit Partners L.P., a Bermuda
limited partnership (collectively, the "Lenders") on the other hand entered
into in connection with the Senior Credit Facility including all unpaid
principal of all loans, all interest accrued thereon (including all interest
accrued after any insolvency proceeding or bankruptcy case of the Company,
irrespective of whether allowed as a claim in such proceeding or case), all
fees due under the Loan Agreement, and all other amounts payable by any
Borrower to Agent thereunder or in connection therewith, whether now existing
or hereafter arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined, and (b)
any renewals, modifications, refinancings, refundings, replacements,
substitutions, or extensions of the indebtedness set forth in the preceding
subparagraph (a); provided, however, that the term shall not include
indebtedness by which the terms of the instrument creating or evidencing it is
subordinated to or on a parity with this Debenture.
1.2. Subordination. The Company covenants and agrees and the
Holder, by acceptance hereof, covenants, expressly for the benefit of the
present and future holders of Senior Indebtedness, that the payment of the
principal and interest on this Debenture is expressly subordinated in right of
payment to the payment in full of Senior Indebtedness of the Company in each
circumstance described below in accordance with the provisions of this Article
I.
(a) In the event of any payment or distribution of assets of
the Company of any kind or character, whether in cash, property, or
securities, upon the dissolution, winding up, or total or partial liquidation
or reorganization, readjustment, arrangement, or similar proceeding relating
to the Company or its property, whether voluntary or involuntary, or in
bankruptcy, insolvency, receivership, arrangement or similar proceedings or
upon an assignment for the benefit of creditors, or upon any other marshaling
or composition of the assets and liabilities of the Company, or otherwise
(such events, collectively, the "Insolvency Events"): (i) first, all amounts
owing on account of the Senior Credit Facility (including all interest
accrued after any insolvency proceeding or bankruptcy case of the Company,
irrespective of whether allowed as a claim in such proceeding or case) shall
be paid, in full, in cash, or payment provided for in cash or in cash
equivalents, prior to any payment of principal and interest under this
Debenture to any Holder of this Debenture; (ii) second, to the extent
permitted by applicable law, any payment of principal and interest under this
Debenture that any Holder of this Debenture would be entitled to receive
except for the provisions hereof, shall be paid or delivered by the trustee
in bankruptcy, receiver, assignee for the benefit of creditors, or other
liquidating agent making such payment or distribution directly to Agent for
the benefit of the Lenders for application to the payment of the Senior
Credit Facility in accordance with clause (i), after giving effect to any
concurrent payment or distribution or provision thereof to Agent for the
benefit of the Lenders in respect of any indebtedness under such Senior Credit
Facility; and (iii) third, all amounts owing on account of any other Senior
Indebtedness shall be paid, in full, in cash, or payment provided for in cash
or in cash equivalents, prior to any payment of principal and interest under
this Debenture to any Holder of this Debenture.
(b) Immediately upon the occurrence and continuation of any
Event of Default (as such term is defined in the Loan Agreement), and until
such Event of Default is cured or waived, Company shall not make, and the
Holder of this Debenture shall not accept or receive, any payment of
principal and interest under this Debenture.
(c) In the event that, notwithstanding the provisions of this
Article I, any payments or distributions of or with respect to this Debenture
are received by the Holder of this Debenture contrary to the provisions of
this Article I before all Senior Indebtedness is paid, in full, in cash or
cash equivalents, any and all such payments or distributions shall be held in
trust for the benefit of the Lenders under the Senior Indebtedness and shall
be paid over or delivered to Agent for the benefit to the Lenders in the same
form as so received (with any necessary endorsement) for application to the
payment, in full, in cash or cash equivalents of all Senior Indebtedness
remaining unpaid to the extent necessary to give effect to this Article I.
1.3 Rights Against Company and Others. It is understood that the
provisions of this Article I are, and are intended to be, solely for the
purpose of defining the relative rights of the Holder of this Debenture on
the one hand and the holders of the Senior Indebtedness of the Company on the
other hand. Nothing contained in this Article I or elsewhere in this
Debenture shall or is intended to impair, as between the Company, its
creditors other than the holders of Senior Indebtedness, and the Holder of
the Debenture, the obligation of the Company to pay the Holder of the
Debenture the principal of and interest on the Debenture as and when the same
shall become due and payable in accordance with its terms (subject to the
provisions of Article IV) or affect the relative rights of the Holder of the
Debenture and the creditors of the Company, other than the holders of such
Senior Indebtedness; nor shall anything herein prevent the Holder of this
Debenture from exercising all remedies otherwise permitted by applicable law
upon default under the Debenture, subject to the rights, if any, of the
holders of Senior Indebtedness with respect to cash, property or securities
of the Company received upon the exercise of any such remedy. The
subordination provided herein applies to payments or distributions by the
Company only and shall not affect the right of the Holder to collect and
retain payment from any co-obligor, guarantor or surety. Upon any payment or
distribution of assets of the Company referred to in this Article I, the
Holder of the Debenture shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending, or upon a
certificate of a liquidating trustee or agent or other person making any
distribution to the Holder of the Debenture, for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of
Senior Indebtedness and other indebtedness of the Company, the amounts thereof
or payable thereon, the amount or amounts paid or distributed thereon and all
other facts pertinent thereto or to this Article I.
ARTICLE II
REDEMPTION
2.1 The Company may, at its option at any time prior to maturity,
redeem the Debenture, in whole or in part, without premium or penalty,
together with accrued interest to the date fixed for redemption.
2.2 In case the Company shall desire to exercise such right to
redeem all or any portion of the Debenture, in accordance with the right
reserved so to do, it shall fix a date for redemption and shall give notice of
such redemption to the Holder of the Debenture by mailing and faxing a notice
of such redemption, not less than 30 days prior to the date fixed for
redemption, to Holder's last address. A copy of such notice shall also be
mailed to Frank Bonadio, at
_________________________________________________________. Any
notice which is delivered in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the Holder receives the
notice.
2.3 If the giving of notice of redemption shall have been completed
as provided above, the Debenture (or the portion thereof which is being
redeemed) shall become due and payable on the date and at the place stated in
such notice at the applicable redemption price, together with interest
accrued to said date. Interest on the Debenture so called for redemption (or
such portion which is being redeemed) shall cease to accrue on and after said
date. On presentation and surrender of such Debenture at said place of
payment in said notice specified, such Debenture shall be paid and redeemed
by the Company at the applicable redemption price, together with interest
accrued thereon to the date fixed for redemption. In case the Debenture shall
be redeemed in part, the Company shall execute and deliver a new Debenture or
Debentures in authorized denominations in an aggregate principal amount equal
to the unpaid portion of the surrendered Debenture.
2.4 In the event of a redemption of the Debenture in part, the
proceeds of such redemption shall be aggregated with the proceeds of any
other concurrent partial redemption of other debentures which are part of the
series
of debentures of which this Debenture forms a part, and such total redemption
proceeds shall then be distributed amongst all debenture holders, pro rata,
in the same ratio that unpaid balance of each debenture bears to the total
outstanding indebtedness owed on all debentures which form a part of such
series.
ARTICLE III
CONVERSION
3.1 Conversion Right. Subject to and upon compliance with the
provisions of this Article III, the Holder of this Debenture shall have the
right, at his option, at any time and from time to time after one (1) year
from the date hereof, to convert such Debenture or a portion of the principal
amount thereof into fully-paid and nonassessable shares of Common Stock of
the Company (the "Common Stock"), at the conversion price determined as
hereinafter provided. Notwithstanding the foregoing, in the event that this
Debenture shall be called for redemption, such conversion right shall
terminate at the close of business on the 15th day prior to the date fixed
for redemption, or if the date fixed for redemption is an interest payment
date, on the record date for such interest payment date, unless in either case
the Company shall default in payment of the redemption price.
3.2 Conversion Price. The price at which shares of Common Stock
shall be delivered upon conversion shall be $__________, which is one hundred
and fifty percent (150%) of the closing price of the Common Stock on June 25,
1998 (the "Closing Price") (as presently constituted, subject to proportional
adjustment in the event of any stock split, stock dividend, reverse stock
split, combination, consolidation, reclassification or similar event). Such
conversion price shall not otherwise be subject to adjustment. During the
existence of any Event of Default (as hereafter defined), the price at which
shares of Common Stock shall be delivered upon conversion shall be $______
which is 50% of the Closing Price, (as presently constituted, subject to
proportional adjustment in the event of any stock split, stock dividend,
reverse stock split, combination, consolidation, reclassification or similar
event).
3.3 Exercise of Conversion Privilege.
(a) In order to exercise the conversion privilege set forth
herein, the Holder of this Debenture to be converted in whole or in part
shall surrender such Debenture at the principal office of the Company, and
shall give written notice to the Company at such principal office that the
Holder elects to convert such Debenture or portion thereof as specified in
said notice. Such notice shall also state the name or names (with address) in
which the certificate or certificates for shares of Common Stock issuable on
such conversion shall be issued. The Debenture surrendered for conversion,
unless the shares issuable on conversion are to be issued in the same name as
the registration of such Debenture, shall be duly endorsed by, or be
accompanied instruments of transfer, in form satisfactory to the Company, duly
executed by the Holder or his duly authorized attorney. As promptly as
practicable after the surrender of such Debenture and the receipt of such
notice, the Company shall issue and deliver to such Holder (subject to the
provisions of Article IV), a certificate or certificates for the number of
full shares issuable upon the conversion of such Debenture or portion thereof
in accordance with the provisions of this Article III.
(b) In case the Debenture shall be surrendered for partial
conversion, the Company shall execute and deliver a new Debenture or
Debentures in authorized denominations in an aggregate principal amount equal
to the unconverted part of the surrendered Debenture.
(c) Each conversion shall be deemed to have been effected on
the date on which such Debenture shall have been surrendered and such notice
received by the Company as aforesaid. The person or persons in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become on said date the
holder or holders of record of the shares represented thereby; provided,
however, that any such surrender on any date when the stock transfer books of
the Company shall be closed shall constitute the person or persons whose name
or names the certificates are to be issued as the record holder or holders
thereof for all purposes on the next succeeding day on which such stock
transfer books are open, but such conversion shall be at the conversion rate
in effect on the date upon which such Debenture shall have been surrendered.
(d) In the case of a surrender of the Debenture for conversion
(in whole or in part) after the record date for the payment of any interest
on such Debenture and before the date for payment of such interest, the shares
of Common Stock to be issued upon conversion of such Debenture shall be
accompanied by funds in an amount equal to the interest which would have been
payable on the principal amount thereof surrendered for conversion had the
same not been surrendered for conversion; provided, however, that no such
funds need be deposited in the case of any Debenture (or portion thereof)
which has been previously called for redemption on a redemption date falling
within such period. Except as provided in this paragraph, no adjustment
shall be made for interest accrued on the Debenture that shall be converted or
for dividends on any Common Stock that shall be issued upon the conversion of
such Debenture as provided in this Article III.
ARTICLE IV
DEFAULT
4.1 Remedies. If an Event of Default occurs and is continuing, then
and in every such case, the Holder may declare the principal amount of this
Debenture and accrued interest thereon to be due and payable immediately by
delivery of a notice in writing to the Company, and upon such delivery such
principal and accrued interest thereon shall become immediately due and
payable.
4.2 Events of Default. The term "Event of Default," whenever used
herein, means any one of the following events:
<PAGE>
(a) Failure to pay any amounts owing under this Debenture,
whether of interest or principal, as and when such payment becomes due and
payable;
(b) The breach, in any material respect, by the Company of any
covenant, condition or provision of this Debenture, and continuance of such
breach for a period of 30 days after the Company shall have received a
written notice delivered in person or by registered or certified mail from the
Holder specifying such breach and stating that such notice is a "Notice of
Default" hereunder;
(c) The decree or order by a court having jurisdiction in the matter
has been entered adjudging the Company a bankrupt or insolvent, or approving
a petition seeking reorganization of the Company under the Bankruptcy Code, or
any other similar applicable federal or state law, and such decree or order
has continued undischarged or unstayed for a period of 90 days;
(d) A decree or order of a court having jurisdiction in the matter
for the appointment of a receiver or liquidator, or trustee, or assignee in
bankruptcy or insolvency of the Company, or of all or substantially all of
its property or for the winding up or the liquidation of its affairs, has been
entered and such decree or order has continued in force undischarged or
unstayed for a period of 90 days;
(e) The Company institutes proceedings to be adjudged a voluntary
bankrupt, or consents to the filing of bankruptcy proceedings against it, or
files a petition or answer or consent seeking reorganization under the
Bankruptcy Code or any other similar or applicable federal or state law, or
consents to the filing of any such petition, or consents to the appointment
of a receiver, liquidator, or trustee in bankruptcy, or makes a general
assignment for the benefit of creditors, or admits in writing its inability
to pay its debts generally as they become due; or
(f) If an event of default as defined in any mortgage, indenture or
instrument, under which there may be issued, or by which there may be secured
or evidenced, any indebtedness of the Company for borrowed money, whether
such indebtedness now exists or shall hereafter be created, shall happen and
shall result in such indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise become due and payable, and such
acceleration shall not be rescinded or annulled within 30 days after written
notice to the Company from the creditor giving such notice.
ARTICLE V
REGISTRATION OF TRANSFER
5.1 Register. The Company shall maintain a register for the
recordation of transfers of this Debenture, which shall be transferable in
whole or in part. Upon presentation by the Holder and surrender of this
Debenture, the Company shall register such transfer and issue a new Debenture
or Debentures of like aggregate principal amount and bearing the same date.
5.2 Lost or Destroyed Debenture. Upon receipt by the Company at its
principal office of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of this Debenture, and in the case of any such
loss, theft, or destruction, upon delivery of indemnity satisfactory to the
company or, in case of any such mutilation, upon surrender and cancellation of
this Debenture, the Company will issue a new Debenture of like tenor in lieu
of this Debenture with a notification thereon of the date from which interest
has accrued.
ARTICLE VI
MISCELLANEOUS
6.1 Entire Agreement; Amendment and Waiver. This Debenture,
together with the Agreement, constitutes the entire agreement between the
parties pertaining to the subject matter contained in it and supersede all
prior or contemporaneous agreements, representations and understandings of the
parties. No supplement, modification or amendment of this Debenture shall be
binding unless executed in writing by the company and the Holder. No waiver
of any of the provisions of this Debenture shall be deemed, or shall
constitute, a waiver of any other provision, whether or not similar, nor shall
any waiver constitute a continuing waiver. No waiver shall be binding unless
executed in writing by the party making the waiver.
6.2 Notices. All notices, requests, demand and other communications
pursuant to this Debenture shall be in writing and shall be deemed to be duly
given on the date of service if served personally on the party to whom notice
is to be given, or on the second day after mailing, if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid and properly addressed as follows:
To the Company: UStel, Inc.
6167 Bristol Parkway, Suite 100
Culver City, California 90230
Attn: Robert L.B. Diener
With copy to: Freshman, Marantz, Orlanski,
Cooper & Klein
Eighth Floor, East Tower
9100 Wilshire Boulevard
Beverly Hills, California 90212
Attn: Leib Orlanski, Esq.
To Holder:
With copy to: Frank Bonadio
c/o Arcada Communications, Inc.
2033 Sixth Avenue, Suite 401
Seattle, Washington 98121-2516
Any party may change its address for purposes of this Section by giving the
other parties written notice of the new address in the manner set forth above.
6.3 Binding Effect and Assignability. This Debenture shall be
binding on, and it shall inure to the benefit of, the parties to it, and
their respective permitted transferees, heirs, legal representatives and
successors.
6.4 Governing Law. This Debenture shall be construed in accordance
with, and governed by, the laws of the State of California.
6.5 Cost of Collection. If default is made in the payment of this
Debenture, the Company shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed
in its name by its duly authorized officers.
UStel, Inc.
By: _____________________________
President
ATTEST:
____________________________
Secretary
Dated: __________, 1998
<PAGE>
Exhibit 4.6 to Form 8-K/A
AMENDED AND RESTATED
STATEMENT OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
USTEL, INC.
Pursuant to Section 302A.401 of the Minnesota Business Corporation Act
of the State of Minnesota
INTRODUCTION
On September 30, 1994, UStel, Inc., a Minnesota corporation (the
"Corporation") by action of its Board of Directors created a class of
preferred stock designated as Series B Convertible Preferred Stock which was
subsequently converted in its entirety into 95,000 shares of the
Corporation's Common Stock and as a consequence the Series B Convertible
Preferred Stock is no longer outstanding. The Corporation by action of its
Board of Directors on July 2, 1998, created a new Series B Convertible
Preferred Stock, as described herein below. The Corporation certifies that
pursuant to the authority contained in Article 3 of its Articles of
Incorporation, and in accordance with the provisions of Section 302A.401 of
the Minnesota Business Corporation Act of the State of Minnesota, its Board of
Directors adopted on July 2, 1998, the following resolutions creating a series
of its Preferred Stock, $.01 par value, designated as the Series B
Convertible Preferred Stock:
RESOLVED, that a series of the class of authorized Preferred Stock, $.01
par value per share, of the Corporation be hereby created, and that the
designation and amount thereof and the voting powers, preferences and
relative, participating, optional and other special rights of the shares of
such series, and the qualifications, limitations or restrictions thereof are
as follows:
Designation of Amount.
The shares of such series shall be designated as the "Series B
Convertible Preferred Stock" and the number of shares consisting such series
shall be seven hundred fifty thousand (750,000), which number may not be
decreased or increased by the Board of Directors without the affirmative vote
of all of the holders of the Series B Convertible Preferred Stock.
Voting.
The holder of each share of Series B Convertible Preferred Stock shall be
entitled to vote on all matters submitted or required to be submitted to a
vote of the stockholders of the Corporation and shall be entitled to the
number of votes equal to the largest number of full shares of the
Corporation's Common Stock into which such share of Series B Convertible
Preferred Stock could be converted pursuant to the provisions hereof, at the
record date for the determination of stockholders entitled to vote on such
matters or, if no such record date is established on the date such vote is
taken or any written consent of stockholders is solicited or taken. Except
as otherwise required by law or expressly provided herein, the holders or
shares of Series B and Series A Convertible Preferred Stock and Common Stock
shall vote together and not as separate classes.
Conversion.
(i) At any time subsequent to June 25, 1999, each holder of record
Series B Convertible Preferred Stock may, at the option of the holder,
convert all or part of the shares of Series B Convertible Preferred Stock held
by that recordholder into fully paid nonassessable shares of Common Stock.
(ii) If a holder of record of Series B Convertible Preferred Stock
wishes to convert its shares of Series B Convertible Preferred Stock into
shares of Common Stock pursuant hereto, the holder must (a) surrender the
certificate or certificates evidencing such shares of Series B Convertible
Preferred Stock, duly endorsed in blank for transfer, signature guaranteed,
at the office of the Corporation, or at such other place as the Corporation
shall designated, and (b) give written notice of the Secretary of the
Corporation that the holder of record elects to convert the shares of Series B
Convertible Preferred Stock. Within fifteen (15) days after receiving that
notice and the certificate or certificates, the Corporation will issue and
deliver, or cause to be issued and delivered to the holder or record of the
Series B Convertible Preferred Stock, a certificate or certificates for the
number of shares of Common Stock to which that holder is entitled.
(iii) Each share of Series B Convertible Preferred Stock shall be
convertible into shares of the Corporation's Common Stock, subject to the
provisions set forth in (iv) below, at a price of $1.96 per share of Common
Stock; provided, however, in the event of default in the payment of dividends
or in the mandatory redemption obligations as provided below, the conversion
price shall be $0.65 per share until such default event is cured.
(iv) The number of shares of Common Stock into which the Series B
Convertible Preferred Stock shall be convertible shall be appropriately
adjusted for stock dividends, stock splits, reclassifications or
consolidation of or other distributions to or for the benefit of holders of
the Corporations's Common Stock of record prior to the conversion date,
provided, however, if either of the following shall occur, namely: (a) any
consolidation, reorganization of merger to which the Corporation is a party,
other than a consolidation, reorganization or a merger in which the
Corporation is the continuing corporation and that does not result in any
reclassification, change or exchange (other than changes in par value or from
par value to no par value or from no par value to par value or changes as a
result of a subdivision or combination) in outstanding shares of the Common
Stock, or (b) any sale or conveyance to another corporation of the property
of the Corporation as an entirety or substantially as an entirely, then the
holder of each share of Series B Convertible Preferred Stock then outstanding
shall upon conversion of such share have the right to convert such share only
into the kind and amount of shares of stock and other securities and
property, (including cash) receivable upon such consolidation, reorganization,
merger, sale or conveyance by a holder of the number of shares of Common Stock
issuable upon conversion of such share of Series B Convertible Preferred Stock
immediately prior to such consolidation, reorganization, merger, sale or
conveyance, subject to adjustments which shall be as nearly equivalent as may
be practicable to the adjustments provided for herein. The provisions of this
paragraph shall similarly apply to successive consolidations, reorganizations,
mergers, sales or conveyances.
(v) The Corporation will reserve and keep available out of its
authorized but unissued shares of Common Stock, the full number of shares of
Common Stock into which all shares of Series B Convertible Preferred Stock
are convertible. If at any time the number of authorized but unissued shares
of Common Stock is not sufficient to effect the conversion of all of the then
outstanding shares of Series B Convertible Preferred Stock, the Corporation
shall take such corporate action as it may deem reasonably necessary,
including seeking approval of stockholders to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purpose.
Dividends and Mandatory Redemption.
The holders of the Series B Convertible Preferred Stock shall be
entitled to receive dividends at the rate of 14.75 cents per share per annum
for the date hereof until each share of Series B Convertible Preferred Stock
is redeemed, as set forth below. Payments of dividends hereunder shall be
made on a quarterly basis, with the first such payment due and payable on the
date that is three months from the day hereof. Thereafter each payment shall
be made on the same day of each succeeding third calendar month. All payments
of dividends hereunder shall be payable in arrears. All payments hereunder
shall be dividends only until the Company has paid in full or otherwise
satisfied the Thirty-Five Million Dollar ($35,000,000) Senior Credit Facility
(including any refinancings, refundings, replacements, or substitutions
thereof or therefor, the "Senior Credit Facility") to be entered into in
connection with the merger between S.V.V. Sales, Inc., dba Arcada
Communications ("Arcada") and a wholly owned subsidiary of the Company (the
"Merger Subsidiary"), as provided by that certain Agreement of Merger, dated
September 25, 1997, as amended, by and between the Company, the Merger
Subsidiary and Arcada. Upon payment or satisfaction in full, in cash, of the
interest and principal of the Senior Credit Facility, quarterly redemption
payments shall be paid in advance at a redemption price of $1.00 per share, in
amounts sufficient to redeem all the Series B Convertible Preferred Stock over
a twenty-four (24) month period.
Liquidation Preference.
(i) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of record of the
Series B Convertible Preferred Stock shall collectively be entitled to be
paid, in the aggregate, before any distribution or payment is made upon any
shares of Common Stock of the Corporation, the amount of Seven Hundred Fifty
Thousand Dollars ($750,000.00) to be divided equally among each share of
Series B Convertible Preferred Stock then outstanding, subject to
proportionate reduction for any shares of Series B Convertible Preferred
Stock converted prior to any such event set forth above. The holders of
Series B Convertible Preferred Stock shall not be entitled to any further
payment. If upon any liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of
the Series A and B Convertible Preferred Stock are insufficient to permit
payment to those holders of the aggregate amount they are entitled to be paid,
then the entire assets shall be distributed among the holders of the Series A
Convertible Preferred Stock.
(ii) The merger or consolidation of the Corporation into ow with
another corporation (except if the Corporation is the surviving entity and
the holders of capital stock of the Corporation immediately prior to such
merger or consolidation continue to hold at least 80% by voting power of the
capital stock of the surviving corporation), or the sale of all or
substantially all of the assets of the Corporation, shall be deemed to be a
liquidation, dissolution, or winding up of the Corporation for purposes of
paragraph (i).
(iii) The Corporation will mail written notice of any liquidation,
dissolution, winding up, merger, consolidation or sale of all or
substantially all of the Corporation's assets, not less than thirty (30) days
prior to the record date of any such event, to each holder of record of the
Series B Convertible Preferred Stock.
No Superior Rights.
The Corporation will not create a new class or series of shares having
rights and preferences prior and superior or in parity with the shares of
Series B Convertible Preferred Stock or increase the rights and preferences
or the number or authorized shares of a class or series having rights and
preferences prior or superior to the Series B Convertible Preferred Stock.
The rights of the holders of the Series B Convertible Preferred Stock shall
be subordinate in all respects necessary and not in parity with those of the
Series A Convertible Preferred Stock to the extent required by the provisions
of the Statement of Designation, Preferences and Rights of the Series A
Convertible Preferred Stock.
Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder will be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing
shares of Series B Convertible Preferred Stock, and in the case of any such
loss, theft or destruction, upon receipt of an indemnity reasonably
satisfactory to the Corporation, or, in the case of any such mutilation, upon
surrender of the mutilated certificate, the Corporation shall execute and
deliver in lieu of that certificate a new certificate of like kind
representing the number of shares of Series B Convertible Preferred Stock
evidenced by the lost, stolen, destroyed or mutilated certificate and dated
the date of the lost, stolen, destroyed or mutilated certificate.
Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series B Convertible Preferred Stock. Upon the surrender of
any certificate representing Series B Convertible Preferred Stock at such
place, the Corporation shall, at the request of the recordholder of the
certificate, execute and deliver a new certificate or certificates in
exchange therefor representing in the aggregate the number of shares of Series
B Convertible Preferred Stock represented by the surrendered certificate.
Each new certificate shall be registered in the name and shall represent the
number of shares of Series B Convertible Preferred Stock as is requested by
the holder of the surrendered certificate and shall be substantially identical
in form to the surrendered certificate. In no event, however, shall the
Corporation be required to effectuate any transfer of a certificate
representing Series B Convertible Preferred Stock unless and until the
Corporation shall have received an opinion of counsel reasonably acceptable to
the Corporation (which opinion shall be furnished at the expense of the
certificate) to the effect that any such transfer may be made without
registration under the Securities Act of 1933, as amended, or any applicable
state securities laws.
IN WITNESS WHEREOF, UStel, Inc. has caused this Statement of
Designation, Preferences and Rights of Series B Convertible Preferred Stock
to be duly executed by its President and attested to by its Assistant
Secretary this 2nd day of July, 1998.
UStel, Inc.
By:
Its:
[Corporate Seal]
ATTEST:
