<PAGE>
As filed with the Securities and Exchange Commission on July 20, 1999
Registration No. 333-65133
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
AVERY COMMUNICATIONS, INC.
(Exact name of Small Business Issuer in its Charter)
----------------
Delaware 4899 12-2227079
Primary Standard (I.R.S. Employer
(State or Other Industrial Identification No.)
Jurisdiction of Classification Code
Incorporation or Number
Organization)
----------------
190 South LaSalle Street
Suite 1710
Chicago, Illinois 60603
(312) 419-0077
(Address and telephone number of Principal Executive Offices)
----------------
Scot M. McCormick
Avery Communications, Inc.
190 South LaSalle Street
Suite 1710
Chicago, Illinois 60603
(312) 419-0077
(Name, Address and Telephone Number of Agent for Service)
With a copy to:
Bruce A. Cheatham
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
(214) 745-5213
----------------
Approximate Date of Proposed Sale to the Public: From time to time after
the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [X].
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
Subject to Completion, Dated July 20, 1999
PROSPECTUS
AVERY COMMUNICATIONS, INC.
10,611,650 Shares of Common Stock
This prospectus relates to the 10,611,650 shares of our common stock being
offered by certain of our securityholders. Of such shares, 5,724,857 shares are
currently outstanding and 4,886,793 shares are reserved for issuance upon
exercise of options and warrants that we have granted to these securityholders
or upon conversion of convertible securities held by these securityholders. We
will not receive any proceeds from the sale of the shares by these selling
securityholders. We may, however, receive up to $ in the event all the
options and warrants held by the selling securityholders are exercised.
Our common stock is traded on the OTC Bulletin Board under the trading
symbol "ATEX." On July 19, 1999, the closing bid price for our common stock was
$1.375 and the closing asked price for our common stock was $1.50.
----------------
An investment in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 4.
----------------
The information contained in this prospectus is not complete and may be
changed. The selling securityholders may not sell any shares of the common
stock until our registration statement filed with the Securities and Exchange
Commission is effective. This prospectus is not an offer to sell these
securities in any state where the offer or sale is not permitted.
These securities have not been approved or disapproved by the Securities and
Exchange Commission or any state securities commission nor has the Securities
and Exchange Commission or any state securities commission passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
----------------
The date of this prospectus is , 1999
<PAGE>
ANNUAL REPORTS AND OTHER AVAILABLE INFORMATION
Stockholders Will Receive an Annual Report
We will voluntarily send an annual report to our stockholders. Our annual
reports will include our audited financial statements. Our first annual report
will be for the year ending December 31, 1999, and will be mailed to our
stockholders during the first half of 2000.
Where You Can Find Out More About Us
We are not yet required to file any reports with the Securities and Exchange
Commission. After the registration statement containing this prospectus becomes
effective, however, we will be required to file annual, quarterly and current
reports with the SEC. In addition, our complete registration statement with all
exhibits is filed with the SEC.
You may read and copy any materials we file with the SEC at the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains
reports, proxy and information statements, and other information regarding us
and other issuers that file electronically with the SEC. The address of the
SEC's Internet site is http://www.sec.gov.
Please note that our registration statement, of which this prospectus is
only a part, contains additional information about us. In addition, our
registration statement includes numerous exhibits containing information about
us. Copies of our complete registration statement may be obtained from the SEC
by following the procedures described above.
A NOTE ABOUT FORWARD-LOOKING STATEMENTS
The discussion in this prospectus contains forward-looking statements that
involve risks and uncertainties. A number of important factors could cause our
actual results for 1999 and beyond to differ materially from those expressed in
any forward-looking statements made by us in this prospectus. Factors that
could cause or contribute to such differences include, but are not limited to,
those discussed in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business."
Investors should carefully consider the information set forth under "Risk
Factors" on page 4.
2
<PAGE>
AVERY
We are a telecommunications service company providing billing and collection
services for inter-exchange carriers and long-distance resellers. We provide
local exchange carrier billing services for approximately 29 long-distance
resellers and enhanced service providers and have the capability to bill and
collect through approximately 1,300 telephone companies, including the seven
regional Bell operating companies, GTE and Sprint.
We have recently taken steps to expand our business. In March 1999 we
entered into an agreement to acquire a privately held software development
corporation that designs, develops and supports an integrated suite of
client/server and browser-based software solutions focusing on customer
acquisition and retention in the telecommunications industry, primarily
utilizing decision support software and Internet technologies. This company
also owns a customer care and billing system used in the telecommunications
industry. For more information about this transaction, see "Recent
Transactions."
Our principal executive offices are located at 190 South LaSalle Street,
Suite 1710, Chicago, Illinois 60603, and our telephone number at that address
is (312) 419-0077.
3
<PAGE>
RISK FACTORS
Prospective purchasers of our common stock should consider carefully the
factors set forth below, as well as other information contained in this
prospectus, before making a decision to invest in our common stock.
We have incurred significant historical operating losses and have never had
earnings.
Since 1995, we have incurred operating losses. During the period January 1,
1995, through December 31, 1998, we have incurred a cumulative net loss of
$7,349,225, of which $1,323,478 and $1,480,205 are attributable to the years
ended December 31, 1998 and 1997, respectively. There can be no assurance that
we will be profitable in the future. Our continued failure to operate
profitably may materially and adversely affect the value of our common stock.
Our losses to date have been funded by loans and equity sales. If we
continue to lose money we will likely need additional financing.
Our ability to acquire other software companies and telecommunications services
providers faces substantial obstacles. Our failure to overcome any of these
obstacles may materially and adversely affect our planned growth.
We are actively engaged in an acquisition program, focusing primarily on the
acquisition of customer management software companies and other
telecommunications services providers. One or more of such acquisitions could
result in a substantial change in our operations and financial condition. The
success of our acquisition program will depend, among other things, on the
availability of acquisition candidates, our ability to compete successfully
with other potential acquirors seeking similar acquisition candidates, the
availability of funds to finance acquisitions and the availability of
management resources to oversee the operation of acquired businesses. We have
limited resources and we can offer no assurance that we will succeed in
consummating any additional acquisitions or that we will be able to integrate
and manage any acquisitions successfully.
In March 1999 we entered into an agreement to acquire a privately held
software development company that designs, develops and supports an integrated
suite of client/server and browser-based software solutions focusing on
customer application and retention in the telecommunications and energy
industries. See "Recent Transactions." We have no other present commitments,
understandings or plans to acquire other customer management software companies
or telecommunications service providers.
We will need substantial financing to continue our present business and to fund
our planned growth. There is no assurance that we will be able to obtain such
financing.
We and our competitors in the long-distance billing clearinghouse business
offer an additional service of factoring customers' receivables. We anticipate
we will need to raise additional capital over the next 12 months to continue
providing appropriate factoring services to our customers and to attract new
customers.
We will also need substantial additional financing to fund our planned
growth through additional acquisitions. We have not received any commitments
for any such financing, and we cannot assure you that we will be able to obtain
such financing or that such financing will be adequate to fund our plans. If we
are not able to obtain financing on terms that we determine are economical, we
may not be able to achieve our planned growth.
In addition, we have incurred significant historical operating losses. If we
continue to lose money it is not likely that we will generate sufficient cash
flow to fund our future working capital requirements and growth. We therefore
likely may be required to seek additional financing through additional debt or
equity offerings. There can be no assurance that any such financing will be
available to us, or, if available, that the terms of such financing will be
acceptable to us. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." If we issue additional equity or debt
financing that is convertible into our equity securities, such financing may be
dilutive to the holders of our common stock. If we borrow money, the lenders
4
<PAGE>
will have a higher priority claim on our assets than will the holders of our
common stock. In addition, future investors or lenders may require concessions
that could include, among others, liquidation or dividend preferences,
restrictions on future dividends, pledges of assets or sinking funds.
We have limited management resources to manage future growth.
Our strategy of continued growth and expansion will place additional demands
on our management and other resources and will require additional working
capital, information systems, operational and other financial resources. If we
fail to manage future growth effectively it may have a material adverse effect
on our financial condition and results of operations.
We have incurred substantial financing and debt service costs historically, and
those costs may increase in the future.
One of the reasons that we have not operated profitably in the past is
because we have incurred substantial costs in servicing our indebtedness. We
also paid substantial fees to obtain additional financing. As of March 31,
1991, Avery's current portion of notes payable was $6,667, and Avery's
aggregate long-term portion of notes payable was $318,985. During the calendar
years ended December 31, 1998 and 1997, Avery incurred $627,736 and $412,145,
respectively, in interest expense and incurred $113,785 and $902,350,
respectively, in financing fees. We may need to incur additional debt in
attempting to accomplish our growth objectives through additional acquisitions.
We therefore could incur substantial financing fees and substantially increased
debt-service costs.
We face substantial competition in the billing clearinghouse industry, and many
of our competitors are larger and have more resources than we have.
The local exchange carrier billing clearinghouse industry is a competitive
industry. Our major competitors in the local exchange carrier billing
clearinghouse industry are Billing Concepts Corp. and OAN Services, Inc., a
wholly owned subsidiary of nTeleCom Holdings, Inc. Competition among the local
exchange carrier billing clearinghouses is based on the quality of information
reporting, collection history, the speed of collections, the ability to factor
a long-distance reseller's accounts, and the price of services. Our competitors
have greater name recognition and have, or have access to, substantially
greater financial and personnel resources than those available to us. We may
not be able to compete successfully with existing or future competitors. See
"Business--HBS."
We are a billing clearinghouse. Therefore, our business is dependent both on
the local exchange carriers' continuing to accept our call records, and
continuing to do so on reasonable terms, and our customers' continuing to need
our billing services.
The success of our business to date has been largely attributable to our
having contracts with the regional Bell operating companies, Sprint, GTE and
other local exchange carriers. This permits us to bill for telecommunications
services provided by our customers throughout the United States. If the local
exchange carriers were not to renew our existing contracts, our ability to bill
for our customers on a nation-wide basis could be adversely affected.
If the local exchange carriers were to increase the costs payable by our
customers for including our customers' charges on the local exchange carrier
bills, it could make our customers' operations less profitable or not
profitable. This could result in our customers seeking alternative billing
arrangements. Our customers could enter into billing arrangements with
companies, other than the local exchange carriers, that would bill their
customers directly, or, in some instances, our customers could begin billing
directly for their services without the use of any third party. It is also
possible that some of our customers could determine that it would be
financially beneficial to them to install a direct billing system.
5
<PAGE>
The occurrence of any one or more of these events could adversely affect our
business, financial condition and results of operations.
Our business is dependent on local providers accepting us as a customer.
As regulation of the local telephone industry evolves, greater numbers of
local providers are likely to enter the industry. Our business is dependent
upon these local providers accepting us as a customer. There can be no
assurance that we will be able to contract with additional local providers as
the industry expansion occurs.
We may not have sufficient resources to acquire new technology and introduce
new services.
The telecommunications industry has been characterized by steady
technological change, frequent new service introductions and evolving industry
standards. We believe that our future success depends on our ability to
anticipate such changes and to offer on a timely basis market-responsive
services that meet these evolving industry standards. There can be no assurance
that we will have sufficient resources to make the investments necessary to
acquire new technology or to introduce new services that would satisfy an
expanded range of customer needs.
Our financial results may be adversely affected by increased operating
expenses.
Our personnel and facilities expenses may increase materially if we continue
to grow through new acquisitions. Increases in our overhead and operating
expenses may materially adversely affect our financial condition and results of
operations.
We are dependent on our senior management and skilled personnel.
We depend, and will continue to depend, upon the services of Patrick J.
Haynes, III, Chairman of the Board, Mark J. Nielsen, President and Chief
Executive Officer, Scot M. McCormick, Chief Financial Officer and Harold D.
Box, the Vice President of Operations and Marketing of our billing subsidiary.
The loss of the services of any of such persons, or our inability to attract
additional management personnel in the future, could have a material adverse
effect on our business, financial condition and results of operations. We have
employment agreements with Messrs. Haynes, Nielsen and Box. See "Management--
Employment Agreements."
The marketability of our common stock may be adversely affected by the SEC's
penny stock rules.
Our common stock may be defined as a "penny stock" and subject to the penny
stock rules of the SEC. The penny stock rules generally impose additional sales
practice and disclosure requirements upon broker-dealers who sell our common
stock to persons other than certain "accredited investors" (generally,
institutions with assets in excess of $5,000,000 or individuals with net worth
in excess of $1,000,000 or annual income exceeding $200,000, or $300,000
jointly with spouse) or in transactions not recommended by the broker-dealer.
For transactions covered by the penny stock rules, the broker-dealer must make
a suitability determination for each purchaser and receive the purchaser's
written agreement prior to the sale. In addition, the broker-dealer must make
certain mandated disclosures in penny stock transactions, including the actual
sale or purchase price and actual bid and offer quotations, the compensation to
be received by the broker-dealer and certain associated persons, and deliver
certain disclosures required by the SEC. Consequently, the penny stock rules
may adversely affect the ability of broker-dealers to make a market in or trade
our common stock or may affect your ability to resell those shares in the
public markets.
There is only a limited trading market for our common stock.
Our common stock is traded on the OTC Bulletin Board, a regulated quotation
service operated by The Nasdaq Stock Market, Inc. that displays real-time
quotes, last-sale prices, and volume information in over-the-counter equity
securities. The OTCBB is separate and distinct from The Nasdaq Stock Market.
Most
6
<PAGE>
importantly, we are not required to meet any listing standards for our common
stock to be traded on the OTCBB. On January 4, 1999, the SEC approved the OTCBB
eligibility rule. If we do not become subject to the SEC's periodic reporting
requirements prior to September 1999, our common stock will no longer be
eligible for trading on the OTCBB. Our common stock trades only sporadically
and has experienced in the past, and is expected to experience in the future,
significant price and volume volatility, increasing the risk of ownership to
investors.
The market price of our common stock may be adversely affected by future sales
of the common stock by the selling securityholders.
Sales of a significant number of shares of our common stock into the open
market may have a depressive effect on the market for and trading price of the
common stock, but we cannot predict the likely timing or extent of any such
sales or the long- or short-term market effect of any sales. When our
registration statement becomes effective, substantially all the outstanding
shares of common stock and substantially all shares of common stock reserved
for issuance will be freely tradable.
We have never paid any dividends, and do not anticipate doing so in the near
future.
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we expect to retain any earnings to finance the
operation and expansion of our business. In addition, we anticipate that the
terms of future debt and/or equity financings may restrict the payment of cash
dividends. Therefore, the payment of any cash dividends on the common stock is
unlikely. See "Dividend Policy."
We are required to pay substantial dividends to holders of our preferred stock.
This may adversely affect our financial condition and the rights of holders of
our common stock.
Our obligations to the holders of our preferred stock may limit our ability
to pay dividends on our common stock and to have sufficient funds for future
growth and acquisitions. Holders of our preferred stock are entitled to
preferential quarterly dividends before any common stock dividends are declared
or paid. Upon our liquidation, dissolution or winding-up, holders of our
preferred stock are each entitled to receive a liquidation distribution, plus
any accumulated dividends to date before the holders of common stock receive
any distributions. See "Description of Capital Stock--Senior Preferred Stock"
and "--Junior Preferred Stock."
USE OF PROCEEDS
We will not receive any proceeds from the sale of the common stock by the
selling securityholders. We may, however, receive up to $ in the event
all the options and warrants held by the selling securityholders are exercised.
PLAN OF DISTRIBUTION
We are registering the shares of our common stock described in this
prospectus on behalf of the selling securityholders named below. See "Selling
Securityholders." We are registering the common stock to satisfy our
obligations under agreements with some of the selling securityholders to
register their common stock so that their shares will be freely tradable and to
provide our affiliates with freely tradable shares of our common stock. The
"selling securityholders" also includes donees and pledgees selling shares
received from a named selling securityholder after the date of this prospectus.
All costs, expenses and fees in connection with the registration of the shares
offered hereby will be borne by us. Brokerage commissions and similar selling
expenses, if any, attributable to the sale of the shares will be borne by the
selling securityholders. Sales of the shares may be made by selling
securityholders from time to time in one or more types of transactions, which
may include block transactions, in the over-the-counter market, in negotiated
transactions, through put or call
7
<PAGE>
options transactions relating to the shares, through short sales of the shares,
or a combination of such methods of sale, at market prices prevailing at the
time of sale, or at negotiated prices. Such transactions may or may not involve
brokers or dealers. The selling securityholders have advised us that they have
not entered into any agreements, understandings or arrangements with any
underwriters or broker-dealers regarding the sale of their securities, nor is
there an underwriter or coordinating broker acting in connection with the
proposed sale of the shares by the selling securityholders.
The selling securityholders may sell their shares directly to purchasers or
to or through broker-dealers, which may act as agents or principals. Such
broker-dealers may receive compensation in the form of discounts, concessions,
or commissions from the selling securityholders or the purchasers of the shares
for whom such broker-dealers may act as agents or to whom they sell as
principal, or both. Such compensation as to a particular broker-dealer might be
in excess of customary commissions.
The selling securityholders may enter into hedging transactions with broker-
dealers and the broker-dealers may engage in short sales of the common stock in
the course of hedging the positions they assume with such selling
securityholder, including in connection with distributions of the common stock
by such broker-dealers. The selling securityholders may enter into option or
other transactions with broker-dealers that involve the delivery of their
shares to the broker-dealers, who may then resell or otherwise transfer such
shares. The selling securityholders may also loan or pledge their shares to a
broker-dealer and the broker-dealer may sell the shares so loaned or, upon a
default, may sell or otherwise transfer the pledged shares.
The selling securityholders and any broker-dealers that act in connection
with the sale of their shares might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the shares sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act. We have agreed to indemnify some of the
selling securityholders for liabilities they incur for selling their shares
using this prospectus, including liabilities arising under the Securities Act.
The selling securityholders may agree to indemnify any agent, dealer or broker-
dealer that participates in transactions involving sales of their shares
against certain liabilities, including liabilities arising under the Securities
Act.
Because selling securityholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the selling securityholders
will be subject to the prospectus delivery requirements of the Securities Act.
We have informed the selling securityholders that the anti-manipulative rules
under the Securities Exchange Act, including Regulation M, may apply to their
sales in the market.
Selling securityholders also may resell all or a portion of their common
stock in open market transactions in reliance upon the SEC's Rule 144, provided
they meet the criteria and conform to the requirements of such Rule.
Upon our being notified by a selling securityholder that any material
arrangement has been entered into with a broker-dealer for the sale of such
selling securityholder's shares of common stock through a block trade, special
offering, exchange distribution or secondary distribution or a purchase by a
broker or dealer, we will, if required, file a supplement or an amendment to
this prospectus disclosing the name of each such selling securityholder and of
the participating broker-dealer(s), the number of shares involved, the price at
which such shares were sold, the commissions paid or discounts or concessions
allowed to such broker-dealer(s), where applicable, that such broker-dealer(s)
did not conduct any investigation to verify the information set out in this
prospectus, and the other facts material to the transaction. In addition, upon
our being notified by a selling securityholder that a donee or pledgee intends
to sell more than 500 shares, we will file a supplement to this prospectus.
Sales of a substantial number of shares of the common stock in the public
market by the selling securityholders or even the potential of such sales could
adversely affect the market price for our common stock, which could have a
direct impact on the value of the shares being offered by the selling
securityholder.
8
<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth the name, number of shares of common stock
and the number of shares underlying the warrants and convertible securities
owned by each selling securityholder. Since the selling securityholders may
sell all, a portion or none of their shares, no estimate can be made of the
aggregate number of shares that are offered hereby or that will be owned by
each selling securityholder upon completion of the offering to which this
prospectus relates.
The shares offered by this prospectus may be offered from time to time by
the selling securityholders named below (based on the number of shares of
common stock, warrants and convertible securities held on May 4, 1999).
Common Stock Underlying
<TABLE>
<CAPTION>
Common Stock Underlying
-------------------------- Total
Convertible Common Shares to
Name Warrants Securities Stock be Sold
- ---- ----------- ------------- --------- ---------
<S> <C> <C> <C> <C>
Aguilar, Betty................. 10,000 10,000
Aikman, Robert Edwin........... 8,000 30,000 38,000
Asset Management Partners,
Inc........................... 2,910 2,910
Axelrod, Cecil................. 10,000 10,000
Bank One of Texas(1)........... 1,036,664 1,036,664
Bard, Ralph M. III............. 7,154 7,154
Bellgate Nominees LTDAW II..... 133,333 133,333
Box, Harold D.................. 111,111 111,111
Brown, Eric.................... 7,238 7,238
Brown, Eric and Ian............ 25,000 25,000
Brown, Ian..................... 7,238 7,238
Brown, Spencer................. 75,000 75,000
Brown, Stephen................. 100,000 100,000
Burquin, Mary B................ 6,965 6,965
Burroughs, Anita............... 500 500
Camomille Limited.............. 100,000 100,000
Cannon, Edith.................. 10,000 10,000
Cornerhouse Limited
Partnership................... 30,000 83,419 113,419
Curiel, Giulio................. 9,000 9,000
Danilan Investments Inc........ 133,333 133,333
Davilla, Mercedes.............. 3,500 3,500
Davis, Carol................... 25,000 6,143 31,143
Deloitte & Touche.............. 50,000 50,000
Der Uto Bank................... 40,037 40,037
Dickson, Katharine B........... 6,965 6,965
Dunn, Edward L................. 101,852 101,852
Dunn, Philip S................. 18,518 18,518
Eastern Virginia SBIC(2)....... 91,000 280,000 245,000 616,000
Edelman, Carol................. 10,000 10,000
El Camino Real................. 1,875 1,875
Felberbaum, Roger.............. 20,000 22,619 42,619
Fisher, Mark................... 40,000 9,829 49,829
Franklin Capital Corporation... 350,000 1,383,338 1,733,338
Gaines, John Joseph............ 3,333 5,024 8,357
Goldsmith, Bret................ 1,000 1,000
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Common Stock Underlying Total
--------------------------- Shares
Convertible Common to be
Name Warrants Securities Stock Sold
- ---- ------------ ------------- ------- -------
<S> <C> <C> <C> <C>
Gorum, Renee..................... 2,500 2,500
Goss, Dianne..................... 2,500 2,500
Greenbaum, John.................. 75,000 75,000
Griffith, H. Tom Trustee UTA..... 10,542 10,542
Haberman, Barry.................. 10,000 10,000
Handelsfinaz--CCF Bank........... 33,333 33,333
Hanley, William.................. 10,000 10,000
Harrison, Edward J. III.......... 45,286 92,511 137,797
Hayes, James E. Trustee UTA...... 10,542 10,542
Hickman, Carla................... 500 500
Horkey, Jill..................... 1,500 1,500
Isham, Robert T., Jr............. 120,284 3,333 13,460 137,077
Isham, Robert T., Trustee UTA.... 21,084 21,084
Isham, Robert T. Jr., Trustee
UTA............................. 21,084 21,084
Joseph, Arleen................... 3,333 3,333
Keene, Tom....................... 1,000 1,000
Keil, Bryant L................... 42,168 42,168
Keisel, Christina................ 500 500
Kent, Irwin...................... 3,333 3,333
Koch, Sidney..................... 3,333 3,333
Kownatzki, Vickie................ 1,000 1,000
Lake, Walter J. Sr............... 15,000 15,000
Lennox Property & Trading Co..... 311,049 311,049
Leshman, Henry................... 10,000 10,000
Lindauer, Alan................... 75,000 75,000
Lowy, John....................... 55,000 4,000 59,000
Lyons, Thomas M./Jeffrey P.
Lyons........................... 7,000 7,000
Lyons, Thomas M./Mary M. Lyons... 700 700
Manolita S.A..................... 33,333 33,333
McCormick, Scot.................. 75,000 20,000 95,000
McNitt, Willard.................. 8,000 52,168 60,168
McNitt, Willard FBO.............. 5,000 5,000
Mechler, David W................. 12,500 101,852 114,352
Mendelsohn, Alfred............... 50,000 50,000
Mews, Inc........................ 67,799 67,799
Mitchell United Fin Services..... 1,875 1,875
MJ Capital Partners.............. 17,500 17,500
Muensler, Katherine.............. 2,500 2,500
Musicant, David.................. 10,790 10,790
Nielsen, Mark J.................. 925,000 925,000
Orb, John A...................... 42,168 42,168
Pearlman, Leonard................ 16,000 3,868 19,868
Peipers, David................... 10,000 27,818 37,818
Phipps, Norman................... 55,000 55,000
Ramirez, M.F..................... 1,875 1,875
Roser, Leonard................... 10,000 10,000
Sabina International S.A......... 42,500 60,000 90,632 193,132
Safra Bank....................... 33,333 33,333
Saidel, Larry.................... 12,000 12,000
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Common Stock Underlying
------------------------- Total
Convertible Common Shares to
Name Warrants Securities Stock be Sold
- ---- ----------- ---------------------- ----------
<S> <C> <C> <C> <C>
Salizar, Luz.................... 3,000 3,000
Savage, Stephen................. 20,000 20,000
Schneider, Henry N.............. 16,256 16,256
Schneider, Lawrence I........... 16,256 16,256
Schneider, Henry, Amy , Scot.... 100,000 100,000
Serapioni, Sergio............... 133,333 133,333
Shapiro, Norman................. 10,000 10,000
Smith Barney Custodian for the
IRA of John J. Gaines III...... 8,436 8,436
Smith Barney Custodian for the
IRA of
John Leonard Huff.............. 3,333 13,460 16,793
Stanley Associates.............. 34,000 8,221 42,221
Stern, Russel T., Jr............ 153,036 90,000 103,116 346,152
Stern, William.................. 10,000 5,790 15,790
Swift, Bryan M.................. 42,168 42,168
Swift, John S. III.............. 18,480 23,688 42,168
Swift, Stewart G................ 49,000 35,336 84,336
Teman, Wade..................... 20,000 20,000
Terivian Enterprises, Inc....... 266,666 266,666
Thurston Group, Inc.(3)......... 910,000 219,417 1,129,417
Valle, Beatrice................. 1,500 1,500
Waveland, LLC (4)............... 465,286 101,000 566,286
Weaver, Deborah................. 5,000 5,000
Webb, Joseph W.................. 64,815 64,815
Weidenbaum, Walter.............. 10,000 10,000
Welsh, Mary E................... 625 625
Yael AG Finanz und Handel....... 133,333 133,333
Ybarra, Thresa.................. 1,000 1,000
Young, James A.................. 64,815 64,815
Zavala, Hector.................. 5,000 5,000
----------- ----------- --------- ----------
2,876,794 2,009,999 5,724,857 10,611,650
=========== =========== ========= ==========
</TABLE>
- --------
(1) All of these shares are held in escrow for the benefit of the former owners
of HBS. Mr. Haynes holds an irrevocable proxy for these shares.
(2) Now known as Waterside Capital Corporation.
(3) The ultimate beneficial owners of these shares are Patrick J. Haynes, III
and Russell T. Stern, Jr.
(4) The ultimate beneficial owner of these shares is Patrick J. Haynes, III.
11
<PAGE>
PRICE RANGE OF COMMON STOCK
The common stock is quoted and traded on a limited and sporadic basis on the
OTC Bulletin Board operated by the NASDAQ Stock Market, Inc. under the trading
symbol "ATEX." The limited and sporadic trading does not constitute, nor should
it be considered, an established public trading market for the common stock.
The following table sets forth the high and low closing bid and asked prices
for our common stock for the periods indicated, as reported by the National
Quotation Bureau LLC. Such quotations reflect inter-dealer prices, without
retail mark-up, mark-down or commissions, and may not necessarily represent
actual transactions.
<TABLE>
<CAPTION>
Closing Bid Closing Ask
-------------- --------------
High Low High Low
------- ------ ------ -------
Year Ended December 31, 1997
<S> <C> <C> <C> <C>
First Quarter.................................... 1.9375 1.375 2.25 1.75
Second Quarter................................... 2.25 1.25 2.75 1.625
Third Quarter.................................... 2 0.875 2.25 1
Fourth Quarter................................... 2.5625 1 2.75 1.25
<CAPTION>
Year Ended December 31,
<S> <C> <C> <C> <C>
First Quarter.................................... 3.5625 1.75 3.9375 2.25
Second Quarter................................... 3.1875 2.125 3.375 2.375
Third Quarter.................................... 3.21875 2 3.375 2.25
Fourth Quarter................................... 2.3125 1.1875 2.75 1.3125
<CAPTION>
Year Ending December 31, 1999
<S> <C> <C> <C> <C>
First Quarter.................................... 2 1.3125 2.1875 1.50
Second Quarter................................... 1.75 1.4375 2 1.53125
</TABLE>
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. For
the foreseeable future, we expect to retain any earnings to finance the
operation and expansion of our business. In addition to the terms of our
outstanding preferred stock, it is anticipated that the terms of future debt
and/or equity financings may restrict the payment of cash dividends. Therefore,
the payment of any cash dividends on the common stock is unlikely. See
"Description of Capital Stock."
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements of Avery, the Notes thereto and the other financial
information included elsewhere in this Report.
Selected Financial Information Line Item Explanations
Avery's revenues are primarily derived from the provision of billing
clearinghouse services to direct dial long distance carriers. Revenues are also
derived from billing enhanced services for companies that offer non-regulated
telecommunications equipment and services. HBS's revenues are derived from 29
long distance resellers and enhanced services providers throughout the country.
Local exchange carrier billing fees charged by Avery include processing and
customer service inquiry fees. Processing fees are assessed to customers either
as a fee charged for each telephone call record or other transaction processed
or as a percentage of the customer's revenue that is submitted by Avery to
local telephone companies for billing and collection. Processing fees also
include any charges assessed to Avery by local telephone companies for billing
and collection services that are passed through to the customer. Customer
service inquiry fees are assessed to customers for each billing inquiry made by
end-users.
Cost of revenues includes billing and collection fees charged to Avery by
local telephone companies, as well as all costs associated with the customer
service organization, including staffing expenses and costs associated with
telecommunications services. Billing and collection fees charged by the local
telephone companies include fees that are assessed for each record submitted
and for each bill rendered to its end-user customers. Avery achieves discounted
billing costs due to its aggregated volumes and can pass these discounted costs
on to its customers.
Operating expenses are comprised of sales and marketing costs and general
and administrative costs. Sales and marketing costs include salaries and
benefits, commissions, advertising and promotional and presentation materials.
General and administrative costs consist of general management and support
personnel salaries and benefits, information systems costs, legal and
accounting fees, travel and entertainment costs and other support costs.
Advance funding program income and expense consist of income and expenses
related to Avery's financing certain customers' accounts receivable. Typically,
50% to 75% of the amount receivable from the local exchange carrier is advanced
to the customer upon acceptance of its call records. When the local exchange
carrier remits payment of the receivable, Avery is repaid the advance and
receives a financing fee which generates the "Advance funding program income."
Avery maintains a line of credit to provide the funds to finance the advance
funding program. The costs associated with this line of credit produce the
"Advance funding program expenses." See "Advance Payment Program and Receivable
Financing Facility."
Depreciation and amortization expenses are incurred with respect to certain
assets, including computer hardware, software, office equipment, furniture,
costs incurred in securing contracts with local telephone companies, goodwill
and other intangibles. Asset lives range between three and fifteen years.
Since the components of "Other income, net" change on a period-to-period
basis, the items included in this line are explained in the analysis below.
The results on the "Discontinued operations" lines represent the results of
operations for the respective periods for BorderComm, Inc. and Alternate
Telephone and Communications, Inc., two wholly owned subsidiaries which were
divested effective January 1, 1998.
13
<PAGE>
Results of Operations for the Twelve Months Ended December 31, 1998 and 1997
The following table sets forth selected income statement lines in thousands
of actual dollars. The Statement of Operations Data is derived from Avery's
audited 1998 and 1997 financial statements.
Statement of Operations Data:
<TABLE>
<CAPTION>
December 31,
1997 1998
------- -------
(in thousands)
<S> <C> <C>
Operating revenues........................................... $11,643 $19,634
Cost of revenues............................................. 8,592 13,044
------- -------
Gross profit................................................. 3,051 6,590
Operation expenses (excluding DD&A).......................... 3,105 3,264
Charge in connection with terminated customers............... -- 4,271
Advance funding program income............................... (832) (1,418)
Advance funding program expense.............................. 567 481
Depreciation and amortization expense (DD&A)................. 408 579
------- -------
Operating income............................................. (197) (587)
Other income (expense), net.................................. (1,305) (737)
Discontinued operations...................................... 22 --
------- -------
Net income (loss)............................................ $(1,480) $(1,324)
======= =======
</TABLE>
Operating Revenues
Revenues for calendar 1998 increased $7,991,000 or 68.6% compared to
calendar 1997. The revenue increase is primarily attributable to an increase in
the number of telephone call records processed and billed on behalf of direct
dial long distance customers and to a lesser extent increases in enhanced
billing services and customer service volumes. The number of direct dial long
distance call records processed increased 94% from 57.1 million in calendar
1997 to 110.8 million for 1998. Enhanced billing services records processed
increased 44% from 1.6 million to 2.3 million, respectively, for the same
periods.
Cost of Revenues
Gross profit margin of 33.6% was achieved during calendar 1998, versus 26.2%
for calendar 1997. The increase in gross profit margin was principally higher
margins produced by higher risk customers, which have been terminated, offset
by a higher level of quantity discounts granted as mature customers advanced up
the quantity discount price list. Management currently believes that its gross
profit margin could decrease in subsequent periods as larger volume customers
are added and as current customers continue to mature and advance up the
quantity discount price list. However, the potential gross profit margin
decrease will be fueled by large increases in volume which will tend to offset
the effects of higher quantity discounts.
Operating Expenses
Consolidated operating expense (excluding depreciation and amortization
expense) increased $159,000 from $3,105,000 in 1997 to $3,264,000 in 1998
primarily due to higher corporate office costs.
Charge in Connection with Terminated Customers
Run-off costs associated with terminated customers totaled $4,271,000. This
amount results primarily from charge backs and bad debt costs charged by the
local exchange carriers to Avery which Avery will not be able to recover from
its customers and to a lesser extent other costs associated with the terminated
customers. Charge backs from local exchange carriers can continue for 6 to 9
months after Avery has ceased to process a
14
<PAGE>
customer's records and bad debt costs can continue for up to 18 months. In the
normal course of business, both Avery and the local exchange carriers maintain
reserves to offset these charges. However, due to questionable marketing
programs utilized by these customers, charge backs and bad debt costs for these
customers are estimated to be significantly in excess of normal reserves and
any amounts receivable from the local exchange carriers. The charge includes
Avery's estimate of all future charge backs and bad debt and other costs
related to the terminated customers. Avery has instituted a series of controls
to significantly limit exposure to this type of event in the future. The
controls include a system for offsite management to view a wide variety of
customer data over the Internet.
Advance Funding Program Income and Expense
Advance funding program income was $1,418,000 in 1998 compared with $832,000
in 1997. The period-to-period increase was primarily the result of financing a
higher level of customer receivables under Avery's advance funding program (see
"Advance Funding Program and Receivable Financing Facility" below).
Advance funding program expense was $481,000 in 1998, compared with $567,000
in 1997. In addition to declining in gross dollars between 1997 and 1998,
advance funding expense as a percentage of advance funding income dropped
between the two years, as well. This decrease was primarily attributable to
Avery financing more customer receivables with internally generated funds
rather than with funds borrowed through Avery's revolving credit facility.
Depreciation and Amortization
Depreciation and amortization expense was $579,000 in 1998 compared with
$408,000 in 1997. The increase is due to the effects of capital expenditures in
late 1997 and early 1998 partially offset by local exchange carrier contracts
becoming fully amortized in 1997.
Operating Income (Loss) from Continuing Operations
Operating losses for 1998 and 1997 were $587,000 and $197,000, respectively.
The year-to-year increase results from significant operating expense leverage
being more than offset by costs associated with terminated customers.
Other Income (Expense), Net
Other income (expense), net decreased to $737,000 of net expense in 1998
from $1,305,000 of net expense in 1997. These amounts consist of interest
expense and financing costs. Interest expense for 1998 was $628,000 versus
$412,000 for 1997. The increase is primarily attributable to additional
interest expense resulting from the increase in the line of credit. Financing
costs were $114,000 in 1998 and $902,000 in 1997. Financing costs primarily
consist of expenses recorded in conjunction with issuing warrants attached to
debt and amortization of debt discount. The 1997 expense was warrant related,
while the 1998 expense was attributable to amortization of debt discount and
writing off debt discount upon repayment of loans.
Income Taxes
An income tax benefit has not been recorded for the years ended December 31,
1998 and 1997 since future profitability is not assured.
15
<PAGE>
Results of Operations for the Three Months Ended March 31, 1999 and 1998
The following table sets forth selected income statement lines in thousands
of actual dollars. The Statement of Operations Data is derived from Avery's
unaudited financial statements for the three month periods ended March 31, 1999
and 1998.
Statement of Operations Data:
<TABLE>
<CAPTION>
March 31,
1998 1999
------ ------
(in
thousands)
<S> <C> <C>
Operating revenues............................................. $5,092 $4,384
Cost of revenues............................................... 3,767 3,206
------ ------
Gross profit................................................... 1,325 1,178
Operating expenses (excluding DD&A)............................ 732 1,314
Advance funding program income................................. (342) (175)
Advance funding program expense................................ 135 56
Depreciation and amortization (DD&A)........................... 106 126
------ ------
Operating income (loss)........................................ 694 (143)
Other income (expense), net.................................... (99) (358)
------ ------
Net income (loss).............................................. $ 595 $ (501)
====== ======
</TABLE>
Operating Revenues
Revenues for the three months ended March 31, 1999 decreased by $708,000 or
13.9% as compared to the three months ended March 31, 1998. This decrease was
primarily caused by a decline in costs per record for local exchange carrier
billing services which are passed through to customers of $402,000 and a
decline in customer service revenues of $206,000. The decline in local exchange
carrier costs passed through to customers relates to the volume of business
processed through the various local exchange carriers. More call records were
processed through local exchange carriers with relatively lower billing costs
per record in 1999. The decline in customer service sales relates to
terminating customers with questionable marketing practices discussed in the
1997-1998 section of this narrative. These customers generated a large portion
of the customer service activity in the first quarter of 1998.
In addition, toll records for the first quarter of 1999 increased by 13.9
million records or 59.5% over the records processed in the first quarter of
1998. This did not create a proportional increase in revenues due to an
offsetting reduction in the revenue per record. Avery has eliminated its
questionable customers (which had higher billing costs per record) and only
customers with solid, industry proven marketing programs remain. However, these
larger customers receive quantity discounts generating lower revenue per
record.
Cost of Revenues
Gross profit margin of 26.9% was achieved in the three months ended March
31, 1999, versus 26.0% for the same period in 1998. The improvement resulted
from the decrease in local exchange carrier billing costs, offset by an
increase in customer service costs as a percentage of sales. Management
currently believes that its gross profit margin could decrease in subsequent
periods as larger volume customers are added and as current customers continue
to mature and advance up the quantity discount price list. However, the
potential gross profit margin decrease will be fueled by large increases in
volume which will tend to offset the effects of higher quantity discounts.
Operating Expenses
Operating expenses for the quarter ending March 31, 1999 increased by
$582,000 or 80% over the comparable quarter ending March 31, 1998. The increase
is due to non-recurring costs of $355,000 associated with a warrant repurchase
and SEC registration, additional salaries and associated costs in the corporate
office and to a lesser extent compensation and other costs at HBS.
16
<PAGE>
Advance Funding Program Income and Expense
Advance funding program income declined by $167,000 or 49% for the quarter
ended March 31, 1999 as compared to the same period the prior year. This
decline was primarily the result of financing a lower level of customer
receivables stemming from the reduced customer base.
Advance funding program expense declined by $79,000 or 59% for the period
ending March 31, 1999 as compared to the same period the prior year. This
decrease is primarily attributed to lower levels of customer receivables being
funded and a higher use of internally generated funds as opposed to funds
borrowed through Avery's revolving credit facility.
Depreciation and Amortization
Depreciation and amortization expense was $126,000 in the first quarter of
1999 compared with $106,000 in the same period in 1998. The increase is due to
the capital expenditures in the last three quarters of 1998 and the first
quarter of 1999.
Income (Loss) from Operations
Operating income declined from $694,000 for the quarter ending March 31,
1998 to a loss of $143,000 for the quarter ending March 31, 1999. This $839,000
decline is due primarily to $355,000 of non-recurring costs, higher corporate
costs, lower customer service profitability and lower levels of advance funding
offset by improved gross margins in the billing department of HBS.
Other Income (Expense), Net
Net other expense increased by $259,000 in the quarter ending March 31, 1999
as compared to the same quarter ending March 31, 1998. This increase is
primarily related to financing cost associated with the purchase of warrants
from a related party. There was no such activity in the quarter ending March
31, 1998.
Income Taxes
An income tax benefit has not been recorded for the first quarter of 1999
since future profitability is not assured. No income tax provision has been
recorded for the first three months of 1998 since the taxable income is offset
by a net operating loss carryforward.
Liquidity
Avery's cash balance increased to $8,177,000 at March 31, 1999, from
$689,000 at March 31, 1998. Large fluctuations in daily cash balances are
normal due to the large amount of customer receivables that Avery collects on
behalf of its customers. Avery's working capital position at March 31, 1999 was
a negative $6,800,000 compared to a $1,700,000 deficit as of March 31, 1998.
Hold back reserves of $16,400,000 and $9,200,000 as of March 31, 1999 and 1998,
respectively, were classified as current liabilities. These reserves represent
cash withheld from customers to satisfy future obligations on behalf of
customers. The obligations consist of local exchange carrier billing fees, bad
debts and sales and excise taxes. As HBS bills for its customers, these
obligations are continually incurred and paid. As volume increases, the amount
of the obligations on the balance sheet on average will increase. While proper
accounting treatment dictates classifying these amounts as current liabilities,
a significant permanent payment of these liabilities will not be required
unless Avery experiences a significant permanent decline in volume. Management
expects these reserves to increase in step with higher volume in the future.
Net cash provided by operating activities, excluding discontinued operations,
was $12,800,000 for the first quarter of 1999 versus a use of cash of $800,000
for the first quarter of 1998. The 1999 figure stems from reduced advance
payment receivables produced by shrinking the customer base as discussed above
and an increase in deposits and other payables
17
<PAGE>
resulting from timing and the 59.5% increase in volume between years. The 1998
figure resulted primarily from net income plus non-cash expenses of $700,000
and proceeds from discontinued operations of $1,700,000 offset by working
capital requirements due to increased volume of $1,500,000.
Avery's cash balance increased to $1,086,000 at December 31, 1998, from
$988,000 at December 31, 1997. Large fluctuations in daily cash balances are
normal due to the large amount of customer receivables that Avery collects on
behalf of its customers. Avery's working capital position at December 31, 1998
was a negative $6,800,000 compared to a $2,600,000 deficit as of December 31,
1997. Hold back reserves of $9,900,000 and $6,900,000 million as of December
31, 1998 and 1997, respectively, were classified as current liabilities. These
reserves represent cash withheld from customers to satisfy future obligations
on behalf of the customer. The obligations consist of local exchange carrier
billing fees, bad debts and sales and excise taxes. As HBS bills for its
customers, these obligations are continually incurred and paid. As volume
increases, the amount of these obligations on the balance sheet on average will
increase. While proper accounting treatment dictates classifying these amounts
as current liabilities, they will not require a significant permanent paydown
unless Avery experiences a significant permanent decline in volume. Management
expects these reserves to increase in step with higher volume in the future.
Net cash provided by operating activities, excluding discontinued operations,
was $2,700,000 for calendar 1998 versus a $2,200,000 use of cash for 1997. The
1998 figure resulted primarily from non-cash expenses of $5,700,000, including
$4,400,000 of bad debt expense. The 1997 figure is principally a result of the
large increase in the amount of customers' receivables which were financed in
1997, offset by increases in deposits and other payables and trade and accrued
payables.
In March of 1997, Avery obtained a $7,500,000 revolving line of credit
facility with a certain lender primarily to draw upon to advance funds to its
billing customers prior to collection of the funds from the local telephone
companies. This new credit facility terminates on March 25, 2000. Borrowings
under the credit facility are limited to a portion of Avery's eligible
receivables. Management believes that the capacity of the lender will be
sufficient to fund advances to its billing customers for the foreseeable future
and that the amount of the line will be increased as volume dictates. Effective
March 20, 1998, the line was increased to $10,000,000. The amounts borrowed by
Avery under its credit facility to finance the advance funding program were
$900,000, $5,800,000 and $5,000,000 at March 31, 1999 and December 31, 1998 and
1997, respectively. At March 31, 1999, December 31, 1998 and December 31, 1997,
the amounts available under Avery's credit facility were $6,600,000, $4,300,000
and $2,500,000, respectively. As of December 31, 1998, there was $3,500,000 of
collateral in excess of the $10,000,000 credit line maximum. If the credit
facility were increased to cover the excess collateral, total availability
under the facility would have been $7,800,000.
Avery generated proceeds from the sale of common and preferred stock of
$200,000 and $1,800,000 during 1998 and 1997, respectively. Avery also paid
dividends of and redeemed preferred stock in amounts totaling $1,900,000 and
$800,000 during 1998 and 1997, respectively.
Capital expenditures amounted to $700,000 during 1998 and $300,000 during
1997. Expenditures for both periods relate primarily to the purchase of
computer equipment and software and to a lesser extent furniture and fixtures.
Management believes that Avery will be able to fund future capital expenditures
with internally generated funds and borrowings, but there can be no assurance
that such funds will be available or expended.
Acquisition costs in the first three months of 1999 totaled $300,000. These
costs are comprised of professional fees relating to the Primal acquisition and
the Primal Billing Solutions transaction.
Avery received $1,600,000 during 1998 in connection with the sale of
BorderComm.
Avery's operating cash requirements consist principally of working capital
requirements, requirements under its advance funding program, scheduled
payments of principal on its outstanding indebtedness and capital
18
<PAGE>
expenditures. Avery believes that cash flows generated from operations and
periodic borrowings under its receivable financing facility will be sufficient
to fund capital expenditures, advance funding requirements, working capital
needs and debt repayment requirements for the foreseeable future.
Advance Funding Program and Receivable Financing Facility
Since it generally takes 40 to 90 days to collect receivables from the local
telephone companies, customers can significantly accelerate cash receipts by
utilizing Avery's advance funding program. Avery offers participation in this
program to qualifying customers through its Advance Payment Agreement. Under
the terms of this agreement, Avery purchases the customer's accounts receivable
for an amount equal to the face amount of the billing records submitted to the
local telephone companies by Avery for billing and collection, less certain
deductions. The purchase price is remitted by Avery to its customers in two
payments.
Within five days from receiving a customer's records, an initial payment is
made to the customer based on a percentage of the value of the customer's call
records submitted to the local telephone companies. This percentage is
established by the advance payment agreement and generally ranges between 50%
and 75%. Avery pays the remaining balance of the purchase price upon collection
of funds from the local telephone companies. A portion of the funds used to
make the advance payments may be borrowed under Avery's revolving line of
credit facility. The amount borrowed by Avery under this credit facility to
finance the advance funding program was $900,000 at March 31, 1999, $5,800,000
at December 31, 1998, and $5,000,000 at December 31, 1997.
Service fees charged to customers by Avery are recorded as Advance Funding
Program Income and are computed at a rate above the prime rate on the amount of
advances (initial payments) outstanding to a customer during the period
commencing from the date the initial payment is made until Avery recoups the
full amount of the initial payment from local telephone companies. The rate
charged to the customer by Avery is higher than the interest rate charged to
Avery, in part to cover the administrative expenses incurred in providing this
service. Borrowing costs related to the line of credit are based on the amount
of borrowings outstanding during the period commencing from the date the funds
are borrowed until the loan is repaid by Avery. Borrowing costs are recorded as
advance funding program expense. The result of these financing activities is
the generation of a net amount of advance funding program income that
contributes to the net income of Avery.
As part of the advance payment agreement, Avery contractually purchases the
customer accounts receivable upon which funds are advanced. Further, the
customer may grant a first lien security interest in other customer accounts
and assets and will take other action as may be required to perfect Avery's
first lien security interest in such assets. Under the terms of the credit
facility agreement, Avery is obligated to repay amounts borrowed whether or not
the purchased accounts receivable are actually collected.
New Accounting Standards
Management of Avery does not anticipate the adoption of any new standards
recently issued by the Financial Accounting Standards Board will have a
material impact on Avery's financial position or results of operations.
Year 2000 Contingency
The Year 2000 problem refers to the limitations of the programming code in
certain existing software programs to recognize date-sensitive information for
the Year 2000 and beyond. Unless modified prior to December 31, 1999, such
systems may not properly recognize such information and could generate
erroneous data or cause a system to fail to operate properly.
The operation of Avery's business is highly dependent on its computer
software programs and operating systems. These programs and systems are used in
several key areas of Avery's business, including information management
services, third-party billing clearinghouse services (including the advance
funding program), direct
19
<PAGE>
billing services and financial reporting, as well as in various administrative
functions. In providing information management, third-party billing
clearinghouse and direct billing services, Avery processes telephone call
records which are date sensitive.
Avery is in the process of evaluating its programs and systems to identify
potential Year 2000 readiness problems, as well as manual processes, external
interfaces with customers and services supplied by vendors to coordinate Year
2000 compliance and conversion. Avery's software was developed internally and
management believes that it is Year 2000 compliant, which means that it will be
able to interpret dates beyond the year 1999. Avery plans to test its hardware
during 1999 to determine whether it is Year 2000 compliant. In the event that
these systems are not Year 2000 compliant, Avery will make appropriate upgrades
or replacements. Avery believes that, with its existing software and any
necessary hardware modifications, the Year 2000 problem will not pose a
significant operational problem for Avery's information systems.
However, because Avery's business relies on processing date-sensitive
telephone call records supplied by third parties, it is possible that non-
compliant third-party computer systems may not be able to provide accurate data
for processing through Avery's computer systems. Avery's business, financial
condition and results of operations could be materially adversely affected by
the Year 2000 problem if it or unrelated parties fail to successfully address
this issue. Management of Avery currently anticipates that the total expenses
and capital expenditures associated with its Year 2000 readiness project,
including personnel and other costs associated with modifying or replacing its
programs and systems will not exceed $300,000, most of which will be
capitalized. As of December 1998, Avery has incurred approximately $50,000 in
costs related to its Year 2000 readiness.
Avery also plans to identify any non-information technology systems that may
be vulnerable to the Year 2000 issue during 1999. Such systems include utility
switches and meters, thermostats and alarms. Once the evaluation of these
systems is complete, Avery will make necessary modifications or adjustments to
achieve Year 2000 readiness. Management believes that the costs related to Year
2000 compliance for its non-information systems will not have a material
adverse effect on its operations or financial condition.
The cost of Year 2000 readiness and the expected completion dates are the
best estimates of Avery management and are believed to be reasonably accurate.
In the event Avery's plan to address the Year 2000 problem is not successfully
or timely implemented, Avery may need to devote more resources to the process
and additional costs may be incurred, which could have a material adverse
effect on Avery's financial condition and results of operations. Problems
encountered by Avery's vendors, customers and other third parties also may have
a material adverse effect on Avery's financial condition and results of
operations. Following the Year 2000 date change, in the event Avery determines
that its programs and systems are not Year 2000 compliant, Avery will be unable
to process date-sensitive telephone call records and thus be unable to provide
most of its revenue-producing services, which will have a material adverse
effect on Avery's financial condition and results of operations. Avery will
also likely experience considerable delays in compiling information required
for financial reporting and performing various administrative functions.
Avery is currently developing a contingency plan for implementation in the
event its programs and systems are not Year 2000 ready prior to December 31,
1999.
Obligations Under Employment Agreements
Avery has employment agreements with its management requiring Avery to pay
specified amounts as annual base salaries and certain bonuses. Additional
bonuses are at the sole discretion of Avery's Board of Directors. Avery is also
required to maintain a profit sharing plan for the benefit of its employees.
See "Management--Executive Compensation" and "--Employment Agreements."
20
<PAGE>
BUSINESS
General
Avery is a telecommunications service company which, through its operating
subsidiary Hold Billing Services, is engaged in billing and collection services
for inter-exchange carriers and long-distance resellers.
Recent Transactions
The Corsair Transaction. In February 1999, Corsair Communications, Inc. and
its wholly owned subsidiary, Subscriber Computing, Inc., sold substantially all
of the assets relating to Subscriber's Communication Resource Manager(TM)
billing system and its switch mediation product, Intelligent Message Router, to
Wireless Billing Systems, a wholly owned subsidiary of Primal Systems, Inc.
that conducts its business using the name Primal Billing Solutions. As
consideration for Primal Billing Solutions entering into the Corsair
transaction, Corsair paid $1,000,000 cash to PBS. Corsair also agreed to loan
Primal Billing Solutions the difference between the assets and liabilities
acquired by Primal Billing Solutions, plus $200,000.00 cash. The terms of the
note are 10% annual interest, five year amortization, and payment in full
required in May 2001. In addition, Corsair agreed to allow Primal Billing
Solutions to retain any cash collected from certain accounts receivable
totaling $1.3 million up to a maximum of $1.0 million. Neither the amount
collected nor the $1.3 million will be included in the note described above.
Under the terms of the Corsair acquisition agreement, Avery guaranteed the
obligations of Primal Billing Solutions. The Corsair transaction was entered
into in contemplation of Avery's acquisition of Primal, discussed below.
The Primal Acquisition. In March 1999, Avery entered into a merger agreement
with Primal and principal shareholders of Primal. Primal is a privately held
software development corporation that designs, develops and supports an
integrated suite of client/server and browser-based software solutions focusing
on customer acquisition and retention in the telecommunications industry,
primarily utilizing decision support software and Internet technologies. As
part of this merger, Avery will acquire the billing system and switch mediation
assets acquired by Primal Billing Solutions in the Corsair transaction. For
more information regarding the business of Primal and its software products,
see "Business--Primal Systems and Primal Billing Solutions."
At the time of the merger, Avery will issue up to 4,000,000 shares of
Avery's convertible preferred stock in exchange for all of the issued and
outstanding shares of Primal. Of this amount, 2,000,000 shares will be held in
escrow, to be released to Primal's shareholders based upon the operating
performance of Primal from August 1, 1999 through July 31, 2000. Upon the
meeting of certain operating performance thresholds by Primal during this
period, the Primal shareholders may receive up to a maximum 4,000,000
additional shares of Avery convertible preferred stock as additional
consideration for the merger. In addition, upon Primal's satisfaction of
certain operating performance levels during this period, the principal
shareholders of Primal will have the right during September and October 2000 to
require Avery to repurchase up to 1,550,000 shares of Avery common stock issued
upon the conversion of Avery preferred stock received in the merger for the
purchase price of $2.50 per share.
At the time of the merger, Avery will also enter into employment agreements
with the principals of Primal and will enter into an agreement to register the
underlying shares of Avery common stock to which the Avery convertible
preferred stock is convertible.
Mark J. Nielsen, Avery's President and Chief Executive Officer, is the
Chairman of the Board and a principal shareholder of Primal. You should read
the section entitled "Certain Transactions" for a description of Mr. Nielsen's
interests in the Primal transaction.
Hold Billing Services
General
Hold Billing Services, commonly known as HBS, is a third-party billing
clearinghouse for the telecommunications industry. HBS's customers consist
primarily of direct dial long distance telephone companies. HBS maintains
billing arrangements with approximately 1,300 telephone companies that provide
21
<PAGE>
access lines to, and collect for services from, end-users of telecommunication
services. HBS processes transaction records and collects the related end-user
charges from these telephone companies on behalf of its customers.
HBS's customers use HBS as a billing clearinghouse for processing records
generated by their end-users. Although such carriers can bill end-users
directly, HBS provides these carriers with a cost-effective means of billing
and collecting residential and small commercial accounts.
HBS acts as an aggregator of telephone call records and other transactions
from various sources, and, due to its large volume, receives discounted billing
costs from the telephone companies and can pass on these discounts to its
customers. Additionally, HBS can provide its services to those long distance
resellers that would otherwise not be able to make the investments necessary to
meet the minimum fees, systems, infrastructure and volume commitments required
to establish and maintain relationships with the telephone companies. HBS is
obligated to pay minimum usage charges over the lifetime of most local exchange
carrier billing contracts. Each contract has a minimum usage amount which
relates to HBS's customers' sales volume to be processed through the local
exchange carrier. The remaining minimum usage for significant contracts at
December 31, 1998 totals $7.3 million through 2003. As a frame of reference,
customers' sales processed by HBS relating to all contracts in April 1999 were
approximately $19.1 million. A portion of this amount applies to the minimum
usage requirements. The billing and collection agreements do not provide for
any penalties other than payment of the obligation should the usage levels not
be met. HBS has met all such volume commitments in the past and anticipates
exceeding the minimum usage volumes with all of these vendors.
HBS also provides enhanced billing services for transactions related to
providers of premium services or products that can be billed through the local
telephone companies, such as Internet access, voice mail services, and other
telecommunications charges.
Industry Background
Billing clearinghouses in the telecommunications industry developed out of
the 1984 breakup of AT&T and the Bell System. In connection with the breakup,
the local telephone companies that make up the regional Bell operating
companies, Southern New England Telephone, Cincinnati Bell and GTE, were
required to provide billing and collection services on a nondiscriminatory
basis to all carriers that provided telecommunication services to their end-
user customers. Due to both the cost of acquiring and the minimum charges
associated with many of the local telephone company billing and collection
agreements, only the largest long distance carriers, including AT&T, MCI and
Sprint, could afford the option of billing directly through the local telephone
companies. Several companies, including HBS, entered into these billing and
collection agreements and became aggregators of telephone call records of
third-tier long distance companies, thereby becoming "third-party
clearinghouses." Today, HBS provides billing clearinghouse services to
approximately 29 customers in the telecommunications industry.
Third-party clearinghouses such as HBS process these telephone call records
and other transactions and submit them to the local telephone companies for
inclusion in their monthly bills to end-users. Generally, as the local
telephone companies collect payments from end-users, they remit them to the
third-party clearinghouses who, in turn, remit payments to their customers.
Billing Clearinghouse Services
In general, HBS performs billing clearinghouse services under billing and
collection agreements with local telephone companies. HBS performs direct dial
long distance billing, which is the billing of "1+" long distance telephone
calls to individual residential customers and small commercial accounts. In
addition, HBS performs enhanced billing clearinghouse services for other
telecommunication services, such as Internet access, paging services, and voice
mail services.
22
<PAGE>
Billing Process
Local telephone company billing relates to billing for transactions that are
included in the monthly local telephone bill of the end-user as opposed to a
direct bill that the end-user would receive directly from the
telecommunications or other services provider. HBS's customers submit telephone
call record data in batches on a daily to monthly basis, but typically in
weekly intervals. The data is submitted electronically. HBS, through its
proprietary software, sets up an account receivable for each batch of call
records that it processes and processes the record to determine its validity.
HBS then submits the relevant billable telephone call records and other
transactions to the appropriate local telephone company for billing and
collection. HBS monitors and tracks each account receivable by customer and by
batch throughout the billing and collection process. The local telephone
companies then include the charges for these telephone call records and other
transactions in their monthly local telephone bills, collect the payments and
remit the collected funds to HBS for payment to its customers. The complete
cycle can take up to 18 months from the time the records are submitted for
billing until all bad debt reserves are "trued up" with actual bad debt
experience. However, the billing and collection agreements provide for the
local telephone companies to purchase the accounts receivable, with recourse,
within a 42- to 90-day period. The payment cycle from the time call records are
transmitted to the local telephone companies to the initial receipt of funds by
HBS is, on average, approximately 50 days.
HBS does not record an allowance for doubtful accounts for customer
receivables but does accrue for end-user customer service refunds, holdback
reserves and certain adjustments charged to HBS by the local telephone
companies. HBS reviews the activity of its customer base to detect potential
losses. If there is uncertainty with respect to an account in an amount which
exceeds its holdback reserve, HBS can discontinue paying the customer in order
to hold funds to cover future end-user customer service refunds, bad debt and
unbillable adjustments. If a customer discontinues doing business with HBS and
there are insufficient funds being held to cover future refunds and
adjustments, HBS's only recourse is through legal action. An allowance for
doubtful accounts is not necessary for trade receivables since these
receivables are collected from the funds received from the local telephone
company before remittance is made to the customer.
HBS processes the tax records associated with each customer's submitted
telephone call records and other transactions and files certain federal excise
and state and local telecommunications-related tax returns covering such
records and transactions on behalf of its customers. HBS currently submits
state and local tax returns on behalf of its customers in over 500 taxing
jurisdictions.
HBS provides end-user customer service for billed telephone records. This
service allows end-users to make inquiries regarding transactions for which
they were billed directly to HBS's customer service call center. HBS's customer
service telephone number is included in the local telephone company bill to the
end-user, and HBS's customer service representatives are authorized to resolve
end-user disputes regarding such transactions.
HBS's operating revenues consist of a processing fee that is assessed to
customers either as a fee charged for each telephone call record or other
transaction processed, and a customer service inquiry fee that is assessed to
customers as a fee charged for each billing inquiry made by end-users. Any fees
charged to HBS by local telephone companies for billing and collection services
are also included in revenues and are passed through to the customer.
Through its advance funding program, HBS offers its customers the option to
receive 50-75% of the value of their submitted call records within seven
business days of the customer's submission of records to HBS. The customer pays
interest to HBS for the period of time between the purchase of records by HBS
and the time HBS settles with its customers for the subject records. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Advance Funding Program and Receivable Financing Facility."
23
<PAGE>
Operations
HBS's billing clearinghouse services are highly automated through HBS's
proprietary computer software. The staff required to provide HBS's billing
clearinghouse and information management services is largely administrative and
the number of employees is not directly volume sensitive. Most of the services
offered by HBS are automated and electronic by nature and require a minimal
amount of human intervention. All of HBS's customers submit their records to
HBS using electronic transmission protocols directly into HBS's electronic
bulletin board. These records are automatically accessed by HBS's proprietary
software, processed, and submitted to the local telephone companies. Upon
completion of the billing process, HBS provides reports relating to billable
records and returns any unbillable records to its customers electronically
through the bulletin board.
HBS has made a significant investment in computer systems so that its
customers' call records are processed and ready to be submitted to the local
telephone companies in a timely manner, generally within 24 hours of receipt by
HBS.
HBS's contracts with its customers provide for the billing services required
by the customer, specifying, among other things, the services to be provided
and the cost and term of the services. Once the customer executes an agreement,
HBS updates tables within each of the local telephone companies' billing
systems to control the type of records processed, the products or services
allowed by the local telephone companies, and the printing of the customer's
name on the end-user's monthly bill. While these local telephone company tables
are being updated, HBS's technical support staff tests the customer's records
through its proprietary software to ensure that the records can be transmitted
to the local telephone companies.
HBS maintains a relatively small direct sales force and accomplishes most of
its marketing efforts through active participation in telecommunications
industry trade shows and advertising in trade journals and other industry
publications.
Customers
HBS provides billing and information management services to the following
categories of telecommunications services providers:
. Inter-exchange Carriers or Long Distance Companies: Facilities-based
carriers that possess their own telecommunications switching equipment and
networks and that provide traditional land line direct dial telecommunications
services. Charges for these calls are billed to the end-user by the local
telephone company.
. Switchless Resellers: Marketing organizations, affinity groups, and
aggregator operations that buy direct dial long distance services in volume at
wholesale rates from a facilities-based long distance company and sell it back
to individual customers at market rates. These calls are billed to the end-user
by the local telephone company.
. Information Providers: Companies that provide various forms of
information or voice mail services to subscribers. These services are typically
billed to the end-user by the local telephone company based on a monthly
recurring service fee.
Other customers include suppliers of various forms of telecommunications
equipment, Internet services and paging companies.
HBS has two material customers which represented 31% and 27%, respectively,
of total records processed in the first quarter of 1999.
24
<PAGE>
Competition
HBS operates in a highly competitive segment of the telecommunications
industry. Competition among the clearinghouses is based on the quality of
information reporting, program flexibility, collection history, the speed of
collections, the price of services and availability of an advanced funding
program. Except for Billing Concepts Corp., all other third-party
clearinghouses are either privately held or are part of a larger parent
company. Management believes, based on publicly available independent industry
research reports, that Billing Concepts is presently the largest participant in
the third-party clearinghouse industry in the United States, followed by OAN
Services, Inc. These competitors and other third-party clearinghouses have
greater name recognition than HBS, and have, or have access to, substantially
greater financial and personnel resources than those available to HBS.
As a large user of local exchange carrier billing services, HBS enjoys
favorable rates and passes the benefits of its buying power on to its
customers. Management believes that HBS enjoys a good reputation within the
industry for the timeliness and accuracy of its collections and disbursements
to customers.
Several significant challenges face potential new entrants in the local
telephone company billing services industry. The cost to acquire the necessary
billing and collection agreements is significant, as is the cost to develop and
implement the required systems for processing telephone call records and other
transactions. Additionally, most billing and collection agreements require a
user to make substantial monthly or annual volume commitments. Given these
factors, the average cost of billing and collecting a record could hinder
efforts to compete effectively on price until a new entrant could generate
sufficient volume. The price charged by most local telephone companies for
billing and collection services is based on volume commitments and actual
volumes being processed.
Since most customers in the billing clearinghouse industry are under
contracts with a minimum term of at least one year, penetration of the existing
market will be difficult. In addition, a new entrant must be financially sound
and have system integrity because funds collected by the local telephone
companies flow through the third-party clearinghouse, which then distributes
the funds to the customer whose traffic is being billed.
HBS Business Strategy
As the markets for HBS's services continue to develop and its target market
continues to demand increasingly sophisticated billing clearinghouse services,
significant opportunities exist to continue the expansion of its business base
as new and existing customers seek to outsource these services. HBS's business
strategy contains the following key elements:
Expand existing customer base. HBS intends to market its services to
providers of other telecommunications services and products. These providers
are likely candidates not only for the core services of billing clearinghouse
and information management, but also for the full package of services that
includes customer service and advanced payment for receivables.
Provide new and enhanced services. HBS believes that the market for expanded
customer service offerings will grow in the near term because of the rapid
development of new technologies and the continuing deregulation of the
telecommunications industry.
Maintain respect of communications providers. HBS believes it has developed
the respect of communications providers. Its services include managing
relations with the local telephone companies, developing automated reporting,
providing cost-efficient customer service operations and offering cash flow
alternatives through its advanced payment program. The combination of these
service offerings has positioned HBS as a total solution for the management of
a customer's billing and information management functions. HBS's services are
currently utilized by approximately 29 customers, and management believes that
HBS will maintain and expand its position of respect in the industry.
Insurance
Avery does not maintain errors and omissions insurance for the business
conducted by HBS.
25
<PAGE>
Employees
At March 31, 1999, HBS had 55 full-time employees, including two executive
officers, three sales and marketing personnel, ten technical and operations
personnel, eight accounting, administrative and support personnel, and 32
customer service representatives and related support personnel. None of HBS's
employees are represented by a union. HBS believes that its employee relations
are good.
Avery's Business Strategy
The business strategy of Avery is as follows.
Acquire complementary customer management software/services providers. Avery
will continue to evaluate opportunities to acquire telecommunications services
software providers which are complementary to and augment its existing
operations.
Acquire decision support software. Management is evaluating opportunities in
software designed to mine data from various operational support systems,
including billing. This software, known as decision support software, has many
and varied applications. It is particularly useful in enterprises which
generate huge volumes of data, such as utilities, telecommunications, insurance
companies and consumer products concerns. One of the uses of the software is to
determine patterns in data which are then used to guide decisions concerning
the data, hence the term decision support software. Initially this effort will
be focused on the telecommunications and Internet industries for customer
acquisition and retention, as well as other business intelligence. The
applications will address needs in the fraud management, operations and
marketing areas. Expansion to other industries is planned for the future.
Expand offerings to serve Internet billing and customer care. Avery has
efforts underway to move into electronic customer care and billing with a
product set that will interface with multiple billing systems. The product set
is expected to include Internet-based bill processing and payment, Internet-
based point-of-sale for activations of new customers, and Internet self-service
customer care.
Employees
As of the date of this prospectus, Avery had 59 full-time employees. None of
the employees of Avery are represented by a collective-bargaining agreement.
Management believes that it maintains good relations with its employees.
Properties
HBS leases approximately 8,677 square feet of general and administrative
office space in San Antonio, Texas. HBS's monthly rent is approximately $9,039.
HBS's lease expires December 31, 2002.
DESCRIPTION OF THE PRIMAL COMPANIES
Primal is a private software company that provides intelligent, client-
server and web-enabled applications in a real-time environment to
telecommunications and Internet carriers to manage their customer
relationships. Primal's software products allow users to organize and analyze
customer and usage data from multiple operational systems, such as billing, in
order to reduce customer turnover, or churn, spend marketing dollars more
effectively, and predict customer and business opportunities. Primal's Internet
and e-commerce software products provide carriers with Internet customer care
and service and billing capabilities.
Primal Billing Solutions was formed in early 1999 to acquire the assets in
the Corsair transaction. Primal Billing Solutions provides a convergent billing
and customer care system to wireless carriers and integrated communications
service providers worldwide, including such companies as British Telecom,
MetroCall, and Hutchison Telecom.
26
<PAGE>
As a result of the Corsair transaction, Primal can now combine the direct
billing capability of Primal Billing Solutions with Primal's decision support
and Internet technologies, resulting in an enterprise-wide business
intelligence offering for telecommunications carriers and Internet service
providers, commonly referred to as ISPs.
Direct billing vendors are finding tremendous pressure building from
customers demanding customization of existing software that is ill-suited to
the carrier customer's core billing software. The result is a frustrated
customer base, delayed delivery schedules, and a loss of control by the billing
vendor of its product development plan with ever-increasing maintenance and
research and development costs.
The Primal Outfront(TM) software operating with the carrier customer's core
platform billing system can significantly reduce the maintenance demands and
research and development on the carrier customer's core billing system, while
simultaneously providing the carrier customer with greater responsiveness to
competitive changes and direct control over its critical management information
system needs. Outfront is an integrated suite of Internet-enabled intelligent
decision support software applications that includes customer profiling,
predictive modeling, and analysis and reporting tailored for the specific
requirements of the telecommunications industry. Unlike traditional business
intelligence applications, which rely on one-way data flow, Outfront features a
closed-loop model that can "take action" against business data automatically
gathered from other sources and measure its effectiveness. The application
draws information from traditional business and operational systems, such as
customer care and billing, and uses this data to generate real business
intelligence about a carrier's customers and prospects. Outfront can also
interface directly with an existing data warehouse or data mart. This permits
organization and analysis of previously gathered data without additional costs
of re-entering existing data.
Turnkey and custom configurations are available for both Windows NT and
UNIX. All major relational and decision support-specific databases can be
supported, including Oracle, Sybase and Microsoft SQL.
The Outfront product suite may be utilized for reducing customer churn,
increasing marketing campaign effectiveness, blocking subscription fraud, or
addressing various other major operational challenges facing telecommunications
carriers and ISPs.
"Wizards" are utilized in the Outfront product suite to provide "plain
English" interfaces to the powerful analytical, segmentation and modeling
capabilities of the product. This allows non-technical users in the carrier's
marketing, finance and executive departments to gain real-time information and
perform ad-hoc analyses without putting additional demands on scarce internal
management information systems resources. Even more importantly, however, the
information and analysis can automatically perform actions within various
operational systems, such as prompting calls to customers or placing automatic
messages or credits on a subscriber's next invoice. Most existing decision
support or data mining software products merely provide hard-copy reports that
must be reviewed and acted upon by the carrier customer's personnel before an
end result can be achieved.
The Primal Billing Solutions product lines include the Communications
Resource ManagerTM, commonly known as CRM, and the Intelligent Message Router,
commonly known as IMR, software products. CRM is a complete back office system
for carriers and resellers that includes direct billing, customer service,
accounts receivable and financial reporting, distribution channel management,
inventory and collections. CRM currently supports paging, cellular, ISP and
long-distance direct billing. CRM's modular design currently supports customers
ranging from start-ups to nationwide carriers with over 5 million customers.
IMR is a switch mediation product that connects to a multitude of different
switch types. IMR collects all call traffic off a switch and routes it to
various other systems, including the billing system, either in switch format or
after reformatting the records. The same call records can be copied and routed
to multiple systems. The IMR is available in both a DOS and UNIX version.
27
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth certain information with respect to the
directors and executive officers of Avery.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Patrick J.
Haynes,
III 50 Director, Chairman of the Board
Mark J.
Nielsen 40 Director, President and Chief Executive Officer
Scot M.
McCormick 45 Director, Vice President, Chief Financial Officer and Secretary
Norman M.
Phipps 39 Director
J. Alan
Lindauer 60 Director
Stephen L.
Brown 61 Director and Vice Chairman of the Board
Spencer L.
Brown 33 Director
Robert T.
Isham,
Jr. 46 Director
</TABLE>
Patrick J. Haynes, III has served as a director and Chairman of the Board of
Avery since November 1995. Mr. Haynes was elected President and Chief Executive
Officer of Avery in July 1998, and served in such capacity until December 1,
1998. In 1992, Mr. Haynes founded and became President of American
Communications Services, Inc., a start-up, fiber optic, competitive access
provider telephone company. Mr. Haynes directed development of the strategic
plan, put management in place and operated the company on a day-to-day basis
for 18 months. He also advised and consulted in connection with the placement
of $52 million in equity and $81 million in debt. American Communications is
now a NASDAQ-listed company with a market capitalization in excess of $400
million. Mr. Haynes is the Senior Managing Director of the Thurston Group,
Inc., a private merchant bank in Chicago. Mr. Haynes and Russell T. Stern, Jr.
founded the Thurston Group in 1987. Previously, Mr. Haynes was associated with
Merrill Lynch, Oppenheimer & Company, and Lehman Brothers as an investment
banker.
Mark J. Nielsen has served as President and Chief Executive Officer of Avery
since December 1, 1998, and was elected as a director on December 15, 1998.
From February 1998 until joining Avery, Mr. Nielsen served as the Chairman of
Primal Systems, Inc., a private company engaged in providing software
consulting and decision support systems to the telecommunications industry.
From 1988 to 1997, Mr. Nielsen was President and Chief Executive Officer; and
Chairman until 1998, of Subscriber Computing, Inc., a private company providing
billing and customer care solutions to the telecommunications industry
worldwide. During his tenure at Subscriber Computing, he completed a $15
million private placement, acquired another software company, and positioned
the company for its ultimate sale to Corsair Communications, Inc. in 1998.
Previously, Mr. Nielsen was associated with Cincinnati Bell Information Systems
and Cellular Business Systems, Inc. in executive marketing positions serving
the billing and customer care needs of the telecommunications industry on a
service bureau basis.
Scot M. McCormick has served as Vice President, Chief Financial Officer and
Assistant Secretary of Avery since July 1996. Mr. McCormick was elected as a
director and to the office of Secretary in July 1998. Prior to becoming the
Chief Financial Officer of Avery, Mr. McCormick was a consultant to Avery from
1995 through June 1996. From 1993 to 1995, Mr. McCormick served as Chief
Financial Officer and Secretary of The Park Corporation in Barrington,
Illinois. From 1990 to 1993, he served as Chief Financial and Administrative
Officer and Secretary of Whitestar Graphics, Inc. From 1978 to 1990, Mr.
McCormick was associated with the Crown organization in Chicago, including
Controller of American Envelope Company from 1980 to 1990. From 1976 to 1978,
Mr. McCormick worked for Coopers & Lybrand.
Norman M. Phipps has served as a director of Avery since November 1995, and
has been a principal of PTC, a private investment banking firm since 1993.
Prior to forming PTC, Mr. Phipps served as the Managing General Partner of CP
Capital Partners, a private investment firm, from 1991 to 1993. From 1988 until
1990, Mr. Phipps served as Vice President of Mergers and Acquisitions
Department of Wood Grundy Corp. From 1984 and until 1988, Mr. Phipps served as
a Vice President of Citicorp North America.
28
<PAGE>
J. Alan Lindauer currently serves as President of Waterside Capital and has
served as President of Waterside Management, Inc., a business consulting firm,
since 1986. Mr. Lindauer has also served as a director of Commerce Bank of
Virginia since 1986 and serves as chair of its Loan Committee, Norfolk
Division, and a member of the Executive, Trust, Marketing, Compensation, and
Mergers & Acquisition Committees. Mr. Lindauer served as director of Citizens
Trust Bank from 1982 to 1985 as well as a member of its Trust and Loan
Committees. Mr. Lindauer founded Minute-Man Fuels in 1963 and managed Minute-
Man Fuels until 1985.
Stephen L. Brown has served as Chairman of the Board of Directors and Chief
Executive Officer of Franklin Capital Corporation since October 1986. Since
June 1984, Mr. Brown has been Chairman of SLB & Co., Inc., a private investment
firm. Mr. Brown is a director of Copley Financial Services Corporation, advisor
to Copley Fund, Inc., a mutual fund.
Spencer L. Brown has been Senior Vice President of Franklin Capital since
November 1995, Secretary of Franklin Capital since October 1994 and was Vice
President of Franklin Capital from August 1994 to November 1995. From September
1993 to July 1994 Mr. Brown was an attorney with the firm of Wilson, Elser,
Moskowitz, Edelman & Dicker, and from September 1991 to September 1993 he was
an attorney with the firm of Weil, Gotshal & Manges LLP. Mr. Brown is the son
of Mr. Stephen L. Brown, the Chairman and Chief Executive Officer of Franklin.
Robert T. Isham, Jr. has served as a director of Avery originally from
November 1995 to March 1996, and then rejoined the Board in July 1998. Mr.
Isham is currently a managing director of the Thurston Group, Inc., a private
merchant bank based in Chicago. Previously, he ran his own commercial law
practice in Chicago and, before that, he was a partner with the law firm of
McDermott, Will & Emery.
No arrangement or understanding exists between any director or executive
officer or any other person pursuant to which any director or executive officer
was selected as a director or executive officer of Avery. Executive officers of
Avery are elected or appointed by the Board of Directors and hold office until
their successors are elected, or until the earlier of their death, resignation
or removal.
Significant Employees
Harold D. ("Rick") Box is Vice President of Operations and Marketing of HBS.
Mr. Box has been involved in the telecommunications industry since 1983 in
areas such as paging, long distance and local exchange carrier clearing house
services. He served as Director of Client Relations for HBS's major competitor,
Zero Plus Dialing (a subsidiary of Billing Concepts, Inc.) from 1988 to 1993.
He was a Vice President of Operations of Home Owners Long Distance Incorporated
from 1993 to 1994 and a founding partner of HBS. Mr. Box holds a Bachelor's
Degree in Business Administration from North Texas State University.
Compensation of Directors
Each member of the Board receives a one-time warrant to purchase 75,000
shares of common stock at an exercise price determined by the Board at the time
of issuance. The non-employee directors of Avery also receive $1,000 for each
meeting attended, plus reimbursement of travel expenses.
29
<PAGE>
Executive Compensation
The following table summarizes certain information relating to the
compensation paid or accrued by Avery for services rendered during the year
ended December 31, 1998, to each person serving as its Chief Executive Officer
and each of Avery's other most highly paid executive officers whose total
annual salary and bonus for the year ended December 31, 1998, exceeded
$100,000.
Summary Executive Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
-------------------------------------------------------------
Long-Term
Name and Principal Fiscal Salary Other Annual Compensation
Position Year ($) Bonus ($) Compensation ($) Awards/Options (#)
- ------------------ ------ -------- --------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
Patrick J. Haynes, 1998 $100,000 $ -- $30,000 420,000
III(/1/)...............
Chairman of the Board
Mark J. Nielsen(/2/).... 1998 $ 16,667 $ -- $ -- 925,000
President and Chief
Executive Officer
Scot M. McCormick....... 1998 $122,667 $35,000 $ -- --
Vice President, Chief
Financial Officer
and Secretary
</TABLE>
- --------
(/1/Mr.)Haynes served as the Chief Executive Officer of Avery through November
30, 1998. "Other Annual Compensation" represents monthly automobile
allowance and premiums on health and major medical insurance.
(/2/Mr.)Nielsen became the Chief Executive Officer of Avery on December 1,
1998.
Employment Agreements
Effective July 1, 1998, Mr. Haynes entered into an employment agreement with
Avery. Under his employment agreement, Mr. Haynes will serve as Chairman of the
Board, President and Chief Executive Officer, subject to the Board of Directors
power to elect and remove officers of Avery. The employment agreement expires
June 30, 2003. Mr. Haynes' initial base salary is $200,000 annually. In
addition, Mr. Haynes is entitled to receive bonuses based on performance goals
as established by the Board, to receive stock options, to participate in
applicable incentive plans established by Avery, participate in Avery's
hospitalization and major medical plans, or, at his option, be reimbursed for
amounts paid by Mr. Haynes for comparable coverage, and to an automobile of his
choice. Mr. Haynes also received a ten-year warrant to purchase 420,000 shares
of common stock at $3.00 per share.
Effective December 1, 1998, Mark J. Nielsen entered into an employment and
noncompetition agreement with Avery. Under his employment agreement, Mr.
Nielsen will serve as President and Chief Executive Officer, and will be
elected Chairman of the Board by December 1, 1999, subject to the Board of
Directors power to elect and remove officers of Avery. The employment agreement
expires December 1, 1999, and will automatically be renewed for additional
terms unless either party notifies the other prior to October of a given year
that they do not wish to renew the agreement. Mr. Nielsen's initial base salary
is $200,000 annually. In addition, Mr. Nielsen is entitled to an aggregate
bonus of $100,000 during the first year of his employment ending on December 1,
1999, participate in applicable incentive plans established by Avery,
participate in Avery's hospitalization and major medical plans, or, at his
option, be reimbursed for amounts paid by Mr. Nielsen for comparable coverage,
and such other bonuses as the Board may determine in its sole discretion. Mr.
Nielsen also received a ten-year stock option to purchase 925,000 shares of
Avery's common stock at $2.00 per share.
30
<PAGE>
Effective November 1, 1996, Harold D. Box entered into an employment and
noncompetition agreement with HBS. Under his employment agreement, Mr. Box will
serve as Vice President of Operations and Marketing of HBS, subject to the
general partner's power to elect and remove officers of HBS. The employment
agreement expires on December 31, 2000, and will automatically be renewed for
additional terms of one year unless either party notifies the other prior to
January of a given year that they do not wish to renew this Agreement. Mr. Box
is entitled to receive an annual salary of $100,000, subject to standard
payroll deductions, and is entitled to receive the same benefits as HBS
provides to other employees at comparable salaries and responsibilities to
those of Mr. Box. In addition, Mr. Box is entitled to participate in HBS's
profit sharing plan, entitled to receive up to 83,333 shares of common stock in
each of calendar years 1998, 1999, 2000 and 2001 if HBS's pre-tax earnings
equal or exceed certain specified targets for the respective preceding year,
and such other bonuses as the Board may determine in its sole discretion.
The employment agreements with Mr. Nielsen and Mr. Box contain certain
covenants by such employees not to compete with the business of Avery. A state
court may determine not to enforce, or only partially enforce, these covenants.
Limitation of Liability and Indemnification
Section 145 of the Delaware General Corporation Law
Section 145(a) provides that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145(b) provides that a corporation may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation and except that no indemnification shall
be made in respect of any claim, issue or matter as to which such person shall
have been adjudged to be liable to the corporation unless and only to the
extent that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the Court
of Chancery or such other court shall deem proper.
Section 145(c) provides that to the extent that a present or former
director, officer, employee or agent of a corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred
to in subsections (a) and (b) of Section 145, or in defense of any claim, issue
or matter therein, such person shall be indemnified against expenses, including
attorneys' fees, actually and reasonably incurred by such person in connection
therewith.
Section 145(d) provides that any indemnification under subsections (a) and
(b) of Section 145, unless ordered by a court, shall be made by the corporation
only as authorized in the specific case upon a determination that
indemnification of the present or former director, officer, employee or agent
is proper in the
31
<PAGE>
circumstances because he has met the applicable standard of conduct set forth
in subsections (a) and (b) of Section 145. Such determination shall be made,
with respect to a person who is a director or officer at the time of such
determination:
. by a majority vote of the directors who are not parties to such action,
suit or proceeding, even though less than a quorum, or
. by a committee of such directors designated by majority vote of such
directors, even though less than a quorum, or
. if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or
. by the stockholders.
Section 145(e) provides that expenses, including attorneys' fees, incurred
by an officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such person is not
entitled to be indemnified by the corporation as authorized in Section 145.
Such expenses, including attorneys' fees, incurred by former directors and
officers or other employees and agents may be so paid upon such terms and
conditions, if any, as the corporation deems appropriate.
Certificate of Incorporation
The Certificate of Incorporation of Avery provides that a director of Avery
shall not be liable to Avery or its stockholders for monetary damages for
breach of fiduciary duty as a director, unless the breach involves
. a breach of the director's duty of loyalty to Avery or its stockholders,
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. liability for unlawful dividend payments or stock purchases or
redemptions, or
. a transaction from which the director derived an improper personal
benefit.
The Certificate of Incorporation of Avery provides that Avery shall
indemnify all persons whom it may indemnify to the fullest extent permitted by
law.
Amended and Restated Bylaws
The Amended and Restated Bylaws of Avery generally make mandatory the
provisions of Section 145 of the Delaware General Corporation Law discussed
above, including the advancement of expenses reasonably incurred in defending a
claim prior to its final resolution, and provide that Avery's directors and
officers will at all times be indemnified to the maximum extent permitted by
law.
Indemnification Agreements
Avery has entered into indemnification agreements with each of its directors
and executive officers. These agreements provide the directors and executive
officers of Avery with indemnification to the maximum extent permitted by law.
These agreements also include provisions requiring advancement of expenses,
establishing procedures and standards for resolving claims, and providing for
indemnification following a change of control of Avery.
D&O Insurance
Avery has a directors' and officers' liability insurance policy to insure
its directors and officers against losses resulting from wrongful acts
committed by them in their capacities as directors and officers of Avery,
including liabilities arising under the Securities Act.
32
<PAGE>
CERTAIN TRANSACTIONS
On December 23, 1996, Thurston Bridge Fund L.P. loaned $500,000 to Avery.
The loan bore an interest rate of 10%. Thurston Bridge Fund also received a
seven-year warrant to purchase 350,000 shares of common stock at an exercise
price of $1.50 per share. The loan was secured by the equity interests in all
of Avery's subsidiaries and the accounts that HBS purchases from its customers.
The loan was paid in full with proceeds from the FINOVA financing.
Patrick J. Haynes, III and Robert T. Isham, Jr. own a portion of the general
and limited partnership interests of Thurston Bridge Fund.
On December 23, 1996, Waterside Capital Corporation (then named Eastern
Virginia Small Business Investment Corporation) loaned $350,000 to Avery. The
loan bore an interest rate of 10%. Waterside Capital also received a seven-year
warrant to purchase 245,000 shares of common stock at an exercise price of
$1.50 per share. The loan was guaranteed by HBS and secured by the accounts
that HBS purchases from its customers. The loan was paid in full with proceeds
from the FINOVA financing.
On January 14, 1997, Thurston Bridge Fund loaned $240,000 to HBS. The loan
was guaranteed by Avery and bore interest at the rate of 14% per annum.
Thurston Bridge Fund also received a four-year warrant to purchase 48,000
shares of common stock at an exercise price of $1.50 per share. The loan was
due January 31, 1997, and was paid in full with proceeds from the FINOVA
financing in March 1997. In conjunction with the extension of this loan to
March 1997, an additional four-year warrant to purchase 86,000 shares of common
stock at an exercise price of $1.50 per share was issued to Thurston Bridge
Fund.
In March 1997, Avery negotiated a financing which was not consummated. A
condition of the financing was that a portion of the collateral securing
existing loans be released. Thurston Bridge Fund received warrants to purchase
118,400 shares of common stock in consideration for the release of a portion of
this collateral. Waterside Capital received a warrant to purchase 56,000 shares
of common stock in consideration for the release of a portion of this
collateral.
On June 25, 1997, J. Alan Lindauer was elected to Avery's Board of
Directors. Mr. Lindauer is the President and a director of Waterside Capital.
On July 2, 1997, the exercise price of the Waterside Capital warrant to
purchase 245,000 shares of common stock was reduced to $1.02 per share and the
warrant was fully exercised.
On May 30, 1997, Avery and Franklin Capital Corporation (then named The
Franklin Holding Corporation (Delaware)) entered into an agreement whereby
Franklin Capital made an investment of $2,500,000 in Avery. The investment
partially consisted of a $1,000,000 loan, represented by a note with a maturity
of three years that earns interest at the rate of 10.0% per annum. The first
year's interest payment of $100,000 was made at the time the loan was made. As
additional consideration for this loan, Avery issued to Franklin Capital
warrants to purchase 666,666 shares of common stock at $1.50 per share. These
warrants are immediately exercisable and expire five years from the date of
issuance. The remainder of the $1,500,000 investment purchased 7.5 units. Each
unit consisted of 133,333 shares of common stock and 200,000 shares of Series D
preferred stock. As a condition to Franklin Capital's making the investment,
Messrs. Stephen L. Brown, Spencer L. Brown and John Greenbaum were appointed to
Avery's six person Board of Directors. Franklin Capital was also entitled to a
management fee equal to $150,000 per year if the Series E preferred stock is
automatically converted into common stock following a qualified public offering
(as defined in the Series E preferred stock certificate of designation) until
May 30, 1999. In July 1998, Franklin Capital sold the note evidencing the
$1,000,000 loan, all 1,500,000 shares of the Series D preferred stock and
280,000 of the warrants to the Thurston Group, Inc.
In addition, Haynes Interests LLC, an affiliate of Mr. Haynes, and Lawrence
I. Schneider each received $112,500 in cash for their efforts in arranging
Franklin Capital's investment in Avery.
33
<PAGE>
In December 1998, Avery's Board of Directors authorized Avery to repurchase
any or all of its outstanding warrants for a price of $1.00 per underlying
share. In December 1998, Avery repurchased warrants held by Waveland, LLC to
purchase 100,000 shares of common stock at an exercise price of $1.50 per
share. On January 5, 1999, Avery repurchased warrants held by the Thurston
Group to purchase 300,000 shares of common stock at an exercise price of $1.00
per share and warrants to purchase 200,000 shares of common stock at $1.50 per
share. On March 31, 1998, Avery repurchased warrants held by the Thurston Group
to purchase 80,000 shares of common stock at an exercise price of $1.50 per
share. On April 16, 1999, Avery repurchased warrants held by Thurston
Interests, LLC to purchase 41,746 shares of common stock at an exercise price
of $1.50 per share. Waveland, Thurston Group and Thurston Interests are
affiliates of Mr. Haynes. Thurston Group and Thurston Interests are also
affiliates of Mr. Isham.
Avery has entered into a merger agreement pursuant to which it may acquire
Primal Systems. See "Business--Recent Transactions." Mark J. Nielsen, Avery's
President and Chief Executive Officer, is the Chairman of Primal Systems and
owns approximately 16.04% of the Primal Systems common equity on a fully
diluted basis. If, however, employees of Primal Systems do not exercise their
existing Primal Systems stock options prior to the proposed merger, and Avery
does not grant replacement options to those employees, Mr. Nielsen's interest
in the transaction could be as high as 20.26%. This means that Mr. Nielsen
could receive between 320,800 and 405,200 shares of Avery's convertible
preferred stock that will be issued in the proposed merger. If the maximum
number of shares that could be issued pursuant to the earn-out provisions of
the merger agreement were issued, Mr. Nielsen could receive an additional
320,800 to 1,215,600 shares of Avery's convertible preferred stock. Mr. Nielsen
therefore could receive a minimum of 320,800 shares and a maximum of 1,620,800
shares of Avery's convertible preferred stock to be issued in the proposed
merger. Each share of Avery's convertible preferred stock to be issued in the
proposed merger will initially be immediately convertible into shares of
Avery's common stock on a one-for-one basis. Assuming Avery's proposed
acquisition of Primal Systems were to be completed, Mr. Nielsen's beneficial
ownership of Avery's common stock could increase from 8.6% to a minimum of
11.2% or a maximum of 20.6%. See "Stock Ownership of Directors, Executive
Officers and Principal Holders."
In contemplation of entering into an agreement for the acquisition of Primal
Systems, Avery made a $100,000 working capital loan to Primal Systems on
December 15, 1998. The loan is secured by a first lien on the accounts
receivable of Primal Systems. On January 25, 1999, the working capital loan was
increased to $180,000. This loan has been replaced with the loan described in
the following paragraph.
In contemplation of the Corsair transaction, on February 3, 1999, Avery
agreed to loan Primal Systems up to $1,000,000 on a revolving credit basis in
replacement of the then-outstanding $180,000 loan described above. This loan is
secured by a pledge of all the stock of Primal Billing Solutions, the wholly
owned subsidiary of Primal Systems that acquired the Corsair assets, and by a
security interest in all of the accounts receivable and general intangibles,
including all intellectual property of Primal Systems. In addition,
representatives of Avery will constitute a majority of the members of the board
of directors of Primal Billing Solutions. As of July 19, 1999, there were no
funds loaned to Primal Solutions under this revolving credit facility.
34
<PAGE>
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The table following sets forth information regarding the beneficial
ownership of common stock (i) for each person who is known by Avery to be the
beneficial owner of more than five percent of Avery's voting securities, (ii)
for each director and named executive officer of Avery, and (iii) all directors
and executive officers of Avery as a group. Unless otherwise indicated in the
footnotes, each person named below has sole voting and investment power over
the shares indicated.
<TABLE>
<CAPTION>
Name of Beneficial
Owner(/1/) Number of Shares Percent of Class
- ------------------ ---------------- ----------------
<S> <C> <C> <C>
Franklin Capital
Corporation(/2/)....... 1,733,338 17.0%
Waterside Capital
Corporation(/3/)....... 616,000 6.0%
Thurston Group,
Inc.(/4/).............. 1,129,417 10.5%
Waveland, LLC(/4/)...... 566,286 5.5%
Lamare Investments
Limited(/5/)........... 622,097 6.3%
Bank One, Texas,
N.A.(/6/).............. 1,036,664(/7/) 10.5%
Patrick J. Haynes,
III(/4/)............... 2,735,277(/8/) 24.4%
Mark J. Nielsen(/9/).... 925,000 8.6%
Scot M. McCormick....... 95,000 1.0%
Norman M. Phipps........ 55,000 0.6%
J. Alan Lindauer(/3/)... 691,000(/10/) 6.7%
Stephen L. Brown(/2/)... 1,833,338(/11/) 17.8%
Spencer L. Brown(/2/)... 1,808,338(/11/) 17.6%
Robert T. Isham, Jr..... 158,161 1.6%
All executive officers
and directors as a
group.................. 8,301,114(/4/)(/7/)(/8/)(/10/)(/11/) 52.4%
</TABLE>
- --------
(1) All information is as of July 19, 1999. As of such date, 9,836,529 shares
of common stock were outstanding. For purposes of this table, a person is
deemed to be the "beneficial owner" of the number of shares of common stock
that such person has the right to acquire within 60 days of the date of
this prospectus (i) through the exercise of any option, warrant or right;
(ii) through the conversion of any security; (iii) pursuant to the power to
revoke a trust, discretionary account, or similar arrangement; or
(iv) pursuant to the automatic termination of a trust, discretionary
account or similar arrangement.
(2) The business address for this person is 450 Park Avenue, 10th Floor, New
York, NY 10022.
(3) The business address for this person is 300 East Main Street, Suite 1380,
Norfolk, VA 23510.
(4) The business address for this person is 190 South LaSalle Street, Suite
1710, Chicago, IL 60603. The ultimate beneficial owners of these shares are
Patrick J. Haynes, III and Russell T. Stern, Jr.
(5) The business address for this person is 711 Fifth Avenue, New York, NY
10022-3194. The ultimate beneficial owner of these shares is Paul Downs.
(6) The business address for this person is 8111 Preston Road, 2nd Floor,
Dallas, TX 75225.
(7) All of these shares are held in escrow for the benefit of the former owners
of HBS. These shares are the subject of the earn-out agreements described
under "Management Employment Agreements." Mr. Haynes holds an irrevocable
proxy for these shares.
(8) Includes 1,036,664 shares of common stock beneficially owned by Bank One,
Texas, N.A, for which Mr. Haynes holds an irrevocable proxy.
(9) The business address of this person is 190 South LaSalle Street, Suite
1710, Chicago, Illinois 60603. If Avery completes its acquisition of Primal
Systems, Mr. Nielsen's beneficial ownership could increase to a minimum of
11.2% or a maximum of 20.6%. See "Certain Transactions."
(10) Includes all the shares beneficially owned by Waterside Capital
Corporation, of which Mr. Lindauer is the President.
(11) Includes all the shares beneficially owned by Franklin Capital
Corporation, of which Stephen L. Brown is Chairman of the Board and Chief
Executive Officer and Spencer L. Brown is Senior Vice President.
35
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Avery's Amended Articles of Incorporation authorize 20,000,000 shares of
common stock, par value $0.01 per share, and 20,000,000 shares of preferred
stock, par value $0.01 per share (the "Preferred Stock"). As of July 19, 1999,
Avery had 9,836,529 shares of common stock issued and outstanding held by
approximately 365 record holders. In addition, Avery has issued and outstanding
400,000 shares of Series A Convertible Preferred Stock, 390,000 shares of
Series B Convertible Preferred Stock, 70,000 shares of Series C Convertible
Preferred Stock, 1,500,000 shares of Series D Convertible Preferred Stock and
350,000 shares of Series E Convertible Preferred Stock.
Common Stock
Each holder of common stock is entitled to one vote for each share owned of
record on all matters voted upon by stockholders, and a majority vote of the
outstanding shares present at a stockholders' meeting is required for most
actions to be taken by stockholders. Directors of Avery are elected by a
plurality. The holders of the common stock do not have cumulative voting
rights. Accordingly, the holders of a majority of the voting power of the
shares voting for the election of directors can elect all of the directors if
they choose to do so. See "Management--Directors and Executive Officers" and
"Certain Transactions." The common stock bears no preemptive rights, and is not
subject to redemption, sinking fund or conversion provisions.
Holders of common stock are entitled to receive dividends if, as and when
declared by Avery's Board of Directors out of funds legally available therefor,
subject to the dividend and liquidation rights of the HBS Senior Preferred
Stock, the Junior Preferred Stock and any other series of Preferred Stock that
may be issued (and subject to any dividend restriction contained in any credit
facility which Avery may enter into in the future). Any dividends declared with
respect to shares of common stock will be paid pro rata in accordance with the
number of shares of common stock held by each stockholder. See "Risk Factors--
We have never paid any dividends . . ." and "Dividend Policy."
Senior Preferred Stock
The Board of Directors has designated 1,500,000 shares of preferred stock as
the Series D Senior Cumulative Convertible Redeemable Preferred Stock (the
"Senior Preferred Stock"), all of which are issued and outstanding. The holders
of the Series D senior preferred stock are entitled to preferential quarterly
dividends to the common stock payable at the rate of $.025 per share. Upon
liquidation, dissolution or winding-up of Avery, holders of the Series D senior
preferred stock are each entitled to receive a liquidation distribution of
$1.00, plus any unpaid accumulated dividends to date in preference to the
holders of the common stock, but subject to liquidation preference of the
Series D senior preferred stock and any other senior preferred stock which may
be designated in the future. Avery is obligated to offer to repurchase the
Series D senior preferred stock in the event Avery makes a disposition of HBS.
At the option of the holders of the Series D senior preferred stock or upon the
vote or written consent of the holders of at least two-thirds of the
outstanding shares of the Series D or upon the closing of a firm commitment
underwritten public offering registered under the Securities Act at a price of
$5.00 or more per share and the aggregate proceeds from such offering exceeds
$7 million, the Series D senior preferred stock may be converted into common
stock at a rate equal to .5 share of common stock per share. If the audited
balance sheet of Avery at the ending of any fiscal year ending on or after
December 31, 1997, indicates that the stockholders' equity of Avery is $7
million or more greater than the stockholders' equity as indicated on Avery's
audited balance sheet on December 31, 1996, the Series D senior preferred stock
must be redeemed at its liquidation value plus any unpaid accumulated dividends
to that date. The shares of Series D senior preferred stock are entitled to one
vote per share on all matters submitted to the holders of common stock and vote
with the holders of common stock as a single class, except as otherwise
required by law.
36
<PAGE>
Junior Preferred Stock
The Board of Directors has designated four other series of preferred stock
that remain outstanding: Series A Junior Convertible Redeemable Preferred
Stock, Series B Junior Convertible Redeemable Preferred Stock, Series C Junior
Convertible Redeemable Preferred Stock and the Series E Junior Convertible
Redeemable Preferred Stock. For convenience, the Series A, Series B, Series C
and Series E will sometimes be referred to collectively as junior preferred
stock. The Board of Directors has designated 800,000 shares of preferred stock
to be Series A, 1,050,000 shares of Series B, 340,000 shares of Series C and
350,000 shares of the Series E. The holders of the junior preferred stock are
entitled to preferential dividends to the common stock but subordinate to the
Series D senior preferred stock and any other senior preferred stock that may
be designated in the future. Holders of the Series A are entitled to quarterly
dividends payable at the rate of $0.025 per share. Holders of the Series B,
Series C and Series E are entitled to quarterly dividends payable at the rate
of $.03 per share. Upon liquidation, dissolution or winding-up of Avery,
holders of the junior preferred stock are entitled to receive a liquidation
distribution of $1.00 per share, plus any unpaid accumulated dividends to date
in preference to the holders of the common stock, but subject to liquidation
preference of the Senior Preferred Stock and any other senior Preferred Stock
which may be designated in the future. At the option of the holders of the
Junior Preferred Stock, or upon the vote or written consent of the holders of
at least two-thirds of the outstanding shares of the respective series, or upon
the closing of a firm commitment underwritten public offering registered under
the Securities Act at a price of $5.00 or more per share and the aggregate
proceeds from such offering exceeds $7 million, the Series A and the Series C
may be converted into common stock at a rate equal to .4 share of common stock
per share and the Series B and Series E may be converted into common stock at a
rate equal to one share of common stock per share. If the audited balance sheet
of Avery at the ending of any fiscal year ending on or after December 31, 1997
indicates that the stockholders' equity of Avery is $7 million or more greater
than the stockholders' equity as indicated on Avery's audited balance sheet on
December 31, 1996, the junior preferred stock is to be redeemed at its
liquidation value plus any unpaid accumulated dividends to that date. The
shares of the junior preferred stock do not have any voting rights, except as
otherwise required by law.
LEGAL PROCEEDINGS
Federal Trade Commission v. HOLD Billing Services, Ltd., et al., Civil
Action No. SA-988-CA-0629-FB, pending in the U.S. District Court for the
Western District of Texas in San Antonio, Texas. In July of 1998, HBS and Avery
were named in a complaint for injunctive relief filed by the Federal Trade
Commission ("FTC") against Veterans of America Association ("VOAA") and certain
of its officers. Also named was Thomas M. Lyons, former President of HBS. The
suit alleged that VOAA had caused unauthorized charges to appear on end-users'
bills based on deceptive marketing programs and seeks relief against HBS, Avery
and Mr. Lyons in connection with the billing and collection of those charges.
Several months prior to the filing of the suit, HBS terminated its contract
with VOAA based on suspicion of the same alleged by the FTC in its suit. Since
termination, HBS has voluntarily paid out approximately twice the revenue it
took in from this account in order to reimburse end-users for credits due and
owing. Attorneys for HBS, Avery and Mr. Lyons met with the FTC immediately
after suit was filed and offered full cooperation in its investigation. Without
admitting any liability or complicity in the alleged activities of its former
customer, HBS, Avery and Mr. Lyons agreed to a stipulated preliminary
injunction with terms consistent with existing HBS guidelines as revised before
suit was filed. The suit also seeks monetary fines and/or reimbursement to end-
users from all parties jointly and severally. No trial date has been set by the
Court, and while denying liability, HBS has offered to cooperate with the FTC
in developing new standards for the industry designed to better protect end-
users.
From time to time Avery is party to what it believes is routine litigation
and proceedings that may be considered as part of the ordinary course of its
business. Currently, Avery is not aware of any current or pending litigation or
proceedings that would have a material adverse effect on Avery's business,
results of operations or financial condition.
37
<PAGE>
CHANGES IN ACCOUNTANTS
On June 11, 1999, PricewaterhouseCoopers LLP was dismissed as Avery's
auditors, and King Griffin & Adamson P.C. was engaged on June 11, 1999, to
audit the financial statements of Avery for fiscal year ended December 31,
1998. Avery's Board of Directors unanimously resolved to reappoint King Griffin
& Adamson P.C. as Avery's independent accountants for the fiscal year ended
December 31, 1998. King Griffin & Adamson P.C. had served as Avery's
independent accountants since 1995 and was dismissed on February 10, 1999.
PricewaterhouseCoopers LLP was engaged on February 10, 1999.
PricewaterhouseCoopers LLP has not issued any reports on Avery's financial
statements.
Through the date of their dismissal, June 11, 1999, there were no
disagreements with PricewaterhouseCoopers LLP, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.
Avery has requested that PricewaterhouseCoopers LLP furnish a letter
addressed to the SEC stating whether or not it agrees with the above statements
in the immediately preceding two paragraphs. A copy of such letter is attached
as Exhibit 16.1 to this Form SB-2.
EXPERTS
The audited financial statements of Avery included in this prospectus, to
the extent and for the periods indicated in their report, have been prepared by
King Griffin & Adamson P.C., independent accountants, for the years ended
December 31, 1997 and 1998, and are included herein in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
38
<PAGE>
AVERY COMMUNICATIONS, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
Report of Independent Certified Public Accountants..................... 1
Financial Statements:
Consolidated Balance Sheets at December 31, 1997, 1998 and March 31,
1999 (unaudited).................................................... 2
Consolidated Statements of Operations for the years ended December
31, 1997 and 1998 and the three months ended March 31, 1998
(unaudited) and 1999 (unaudited).................................... 3
Consolidated Statements of Stockholders' Equity (Deficit) for the
years ended December 31, 1997 and 1998 and the three months ended
March 31, 1998 (unaudited) and 1999 (unaudited)..................... 4
Consolidated Statements of Cash Flows for the years ended December
31, 1997 and 1998 and the three months ended March 31, 1998
(unaudited) and 1999 (unaudited).................................... 5
Notes to Consolidated Financial Statements........................... 6-20
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of Avery
Communications, Inc.
We have audited the accompanying consolidated balance sheets of Avery
Communications, Inc., and subsidiaries as of December 31, 1997 and 1998 and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Avery
Communications, Inc. and subsidiaries as of December 31, 1997 and 1998 and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
King Griffin & Adamson P.C.
July 16, 1999
Dallas, Texas
F-1
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1997 1998 1999
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 988,020 $ 1,086,473 $ 8,177,110
Trade accounts receivable................ 790,061 1,090,672 1,172,045
Advance payment receivables.............. 13,545,346 11,893,146 5,801,405
Other receivables, net of allowance for
doubtful accounts of $50,000, $235,000
and $235,000 (unaudited) at December 31,
1997, 1998 and March 31, 1999,
respectively............................ 214,515 486,596 887,098
Net current assets of discontinued
operations.............................. 668,395 -- --
Other.................................... 51,665 11,981 127,156
----------- ----------- -----------
Total current assets..................... 16,258,002 14,568,868 16,164,814
----------- ----------- -----------
Property and equipment:
Furniture, fixtures and equipment........ 541,376 1,224,430 1,264,666
Accumulated depreciation and
amortization............................ (95,092) (249,217) (322,711)
----------- ----------- -----------
Total equipment, net..................... 446,284 975,213 941,955
----------- ----------- -----------
Other assets:
Goodwill, net............................ 3,216,455 2,993,539 2,907,204
Purchased contracts, net................. 104,838 35,092 71,080
Capitalized acquisition costs............ -- -- 322,762
Net long-term assets of discontinued
operations.............................. 1,882,906 -- --
Deposits................................. 547,969 1,570,278 593,238
Other.................................... 277,451 594,850 654,635
----------- ----------- -----------
Total other assets....................... 6,029,619 5,193,759 4,548,919
----------- ----------- -----------
Total assets............................. $22,733,905 $20,737,840 $21,655,688
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Line of credit........................... $ 5,013,859 $ 5,766,832 $ 955,614
Current portion of notes payable
(including $773,544 to related parties
at December 31, 1997.................... 859,461 6,667 6,667
Trade accounts payable (including
$82,430, $16,578 and $0 (unaudited) to
related parties at December 31, 1997,
1998 and March 31, 1999, respectively).. 4,691,095 3,891,070 3,167,357
Accrued liabilities...................... 1,131,459 2,066,035 2,720,735
Deposits and other payables.............. 6,856,424 9,852,399 16,438,494
Other.................................... 200,000 -- --
----------- ----------- -----------
Total current liabilities................ 18,752,298 21,583,003 23,288,867
----------- ----------- -----------
Long-term liabilities:
Long-term portion of notes payables
(including $979,275, $316,915 and
$316,915 (unaudited) to related parties
at December 31, 1997, 1998 and March 31,
1999, respectively)..................... 979,275 316,915 318,985
----------- ----------- -----------
Commitments and contingencies (Notes 8, 9
and 14)
Stockholders' equity (deficit):
Preferred stock (20,000,000 authorized):
HBS Series; cumulative, $0.01 par value,
5,000,000 shares authorized, 600,000
shares issued and outstanding at
December 31, 1997 (liquidation
preference of $600,000)................. 6,000 -- --
HBS Exchange Series; $0.01 par
value,940,000 shares authorized, 640,000
shares issued and outstanding at
December 31, 1997 (liquidation
preference of $640,000)................. 6,400 -- --
Series A; $0.01 par value, 800,000 shares
authorized, 700,000, 400,000 and 400,000
(unaudited) shares issued and
outstanding at December 31, 1997, 1998
and March 31, 1999, respectively
(liquidation preference of $700,000,
$400,000 and $400,000 at December 31,
1997, 1998 and March 31, 1999,
respectively)........................... 7,000 4,000 4,000
Series B; $0.01 par value, 1,050,000
shares authorized, 500,000, 390,000 and
390,000 shares issued and outstanding at
December 31, 1997, 1998 and March 31,
1999, respectively (liquidation
preference of 500,000, 390,000 and
390,000 at December 31, 1997, 1998 and
March 31, 1999, respectively)........... 5,000 3,900 3,900
Series C; $0.01 par value, 340,000 shares
authorized, 276,667, 70,000 and 70,000
shares issued and outstanding at
December 31, 1997, 1998 and March 31,
1999, respectively (liquidation
preference of 276,667, 70,000 and 70,000
at December 31, 1997, 1998 and March 31,
1999, respectively)..................... 2,767 700 700
Series D; $0.01 par value, 1,500,000
authorized, issued and outstanding at
December 31, 1997, 1998 and March 31,
1999 (liquidation preference of
$1,500,000)............................. 15,000 15,000 15,000
Series E; $0.01 par value, 350,000
authorized, issued and outstanding at
December 31, 1997, 1998 and March 31,
1999 (liquidation preference of
$350,000)............................... 3,500 3,500 3,500
Common stock, $0.01 par value, 20,000,000
shares authorized, 8,640,893, 9,803,949
and 9,803,949 shares issued and
outstanding at December 31, 1997, 1998
and March 31, 1999, respectively........ 86,410 98,040 98,040
Additional paid-in capital............... 9,882,156 8,417,991 8,165,091
Accumulated deficit...................... (6,515,364) (7,838,842) (8,340,394)
Treasury stock, 550,000,1,130,250 and
1,150,250 shares at December 31, 1997,
1998 and March 31, 1999, respectively,
at cost................................. (496,537) (1,866,367) (1,902,001)
----------- ----------- -----------
Total stockholders' equity (deficit).... 3,002,332 (1,162,078) (1,952,164)
----------- ----------- -----------
Total liabilities and stockholders'
equity (deficit)....................... $22,733,905 $20,737,840 $21,655,688
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended Three Months ended
December 31, March 31,
------------------------ -----------------------
1997 1998 1998 1999
----------- ----------- ----------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Revenues.................... $11,643,263 $19,633,576 $ 5,092,454 $4,384,359
Cost of revenues............ 8,592,217 13,043,784 3,767,312 3,206,648
----------- ----------- ----------- ----------
Gross profit............ 3,051,046 6,589,792 1,325,142 1,177,711
Operating expenses.......... 3,512,754 3,842,001 837,844 1,440,540
Charge in connection with
terminated customers....... -- 4,271,394 -- --
Advance funding program
income..................... (832,248) (1,417,528) (342,315) (175,216)
Advance funding program
costs...................... 566,859 480,817 134,568 55,887
----------- ----------- ----------- ----------
Operating income
(loss)................. (196,319) (586,892) 695,045 (143,500)
Other income (expense):
Interest expense.......... (412,145) (627,736) (101,472) (93,642)
Financing fees and debt
issuance costs........... (902,350) (113,785) -- (280,000)
Other, net................ 9,046 4,935 2,291 15,590
----------- ----------- ----------- ----------
Total other expense..... (1,305,449) (736,586) (99,181) (358,052)
----------- ----------- ----------- ----------
Net loss from continuing
operations................. (1,501,768) (1,323,478) 595,864 (501,552)
Discontinued operations:
Net earnings from
discontinued operations,
net of income taxes of
$0....................... 163,744 -- -- --
Net loss on disposal, net
of income taxes of $0.... (142,181) -- -- --
----------- ----------- ----------- ----------
Net income (loss)....... $(1,480,205) $(1,323,478) $ 595,864 $ (501,552)
=========== =========== =========== ==========
Per share data
Basic loss per share:
Continuing operations..... $ (0.28) $ (0.19) $ .06 $ (.06)
Discontinued operations:
Earnings from
operations............. 0.02 -- -- --
Estimated loss on
disposal............... (0.02) -- -- --
----------- ----------- ----------- ----------
Net loss.................... $ (0.28) $ (0.19) $ .06 $ (.06)
=========== =========== =========== ==========
Diluted loss per share:
Continuing operations..... $ (0.28) $ (0.19) $ .04 $ (.06)
Discontinued operations
Earnings from
operations............. 0.02 -- -- --
Estimated loss on
disposal............... (0.02) -- -- --
----------- ----------- ----------- ----------
Net loss.................... $ (0.28) $ (0.19) $ .04 $ (.06)
=========== =========== =========== ==========
Weighted average number of
common shares:
Basic common shares....... 7,268,338 8,541,575 8,196,335 9,803,949
=========== =========== =========== ==========
Diluted common shares..... 7,268,338 8,541,575 11,970,928 9,803,949
=========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Treasury Stock
------------------ ----------------- Paid-in -------------------- Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
--------- ------- --------- ------- ---------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... 3,246,667 $32,467 6,350,769 $63,507 $6,731,159 550,000 $ (496,537) $(5,035,159) $1,295,437
Issuance of Units (Units
include common stock and
Series D preferred
stock).................. 1,500,000 15,000 999,997 10,000 1,263,217 1,288,217
Issuance of Units (Units
include common stock and
HBS Series preferred
stock).................. 250,000 2,500 166,666 1,667 245,833 250,000
Issuance of shares for
cash in connection with
warrants exercised...... 257,261 2,573 248,623 251,196
Issuance of shares in
connection with
settlements of accounts
payable................. 73,380 734 171,343 172,077
Partial redemption of
HBS 1996 series......... (640,000) (6,400) (633,600) (640,000)
Payment of preferred
stock dividend.......... (132,929) (132,929)
Issuance of HBS escrow
shares--earn out ....... 470,000 4,700 (4,700)
Financing fees in
connection with issuance
of warrants............. 1,117,585 1,117,585
Interest paid through
issuance of common
stock................... 156,154 1,562 154,592 156,154
Issuance and/or release
of HBS escrow shares.... 166,666 1,667 513,133 514,800
Issuance of preferred
stock for extinguishment
of debt................. 210,000 2,100 207,900 210,000
Net loss................ (1,480,205) (1,480,205)
--------- ------- --------- ------- ---------- --------- ---------- ----------- ----------
Balance at December 31,
1997.................... 4,566,667 45,667 8,640,893 86,410 9,882,156 550,000 (496,537) (6,515,364) 3,002,332
Issuance of shares for
cash in connection with
exercise of warrants.... -- -- 198,705 1,986 224,820 -- -- -- 226,806
Issuance of shares in
connection with exercise
of cashless warrants.... -- -- 196,502 1,965 (1,965) -- -- -- --
Accounts payable paid
through issuance of
common shares........... -- -- 43,184 432 58,946 -- -- -- 59,378
Issuance of HBS escrow
shares--employment
agreements.............. -- -- 499,998 5,000 (5,000) -- -- -- --
Redemption of HBS
Exchange Series......... (640,000) (6,400) -- -- (633,600) -- -- -- (640,000)
Partial redemption of
HBS Series.............. (400,000) (4,000) -- -- (396,000) -- -- -- (400,000)
Partial conversion of
HBS Series.............. (200,000) (2,000) 100,000 1,000 1,000 -- -- -- --
Partial redemption of
Series A................ (300,000) (3,000) -- -- (297,000) -- -- -- (300,000)
Partial conversion of
Series B................ (110,000) (1,100) 110,000 1,100 -- -- -- -- --
Partial redemption of
Series C................ (200,000) (2,000) -- -- (118,000) -- -- -- (120,000)
Partial conversion of
Series C................ (6,667) (67) 2,667 27 40 -- -- -- --
Issuance of common stock
in exchange for debt.... -- -- 12,000 120 29,880 -- -- -- 30,000
Common shares received
into treasury in
connection with sale of
Bordercom and related
company................. -- -- -- -- -- 419,000 (900,000) -- (900,000)
Purchase of common
shares for the
treasury................ -- -- -- -- -- 161,250 (469,830) -- (469,830)
Issuance of compensatory
stock warrants.......... -- -- -- -- 118,590 -- -- -- 118,590
Payment of preferred
stock dividend.......... -- -- -- -- (445,876) -- -- -- (445,876)
Net loss................ -- -- -- -- -- -- -- (1,323,478) (1,323,478)
--------- ------- --------- ------- ---------- --------- ---------- ----------- ----------
Balance at December 31,
1998.................... 2,710,000 27,100 9,803,949 98,040 8,417,991 1,130,250 (1,866,367) $(7,838,842) (1,162,078)
Purchase of common
shares for the treasury
(unaudited)............. -- -- -- -- -- 20,000 (35,634) -- (35,634)
Payment of preferred
stock dividend
(unaudited)............. -- -- -- -- (252,900) -- -- -- (252,900)
Net loss (unaudited).... -- -- -- -- -- -- -- (501,552) (501,552)
--------- ------- --------- ------- ---------- --------- ---------- ----------- ----------
Balance at March 31,
1999 (unaudited)........ 2,710,000 $27,100 9,803,949 $98,040 $8,165,091 1,150,250 $1,902,001 $(8,340,394) $1,952,164
========= ======= ========= ======= ========== ========= ========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended Three Months ended
December 31, March 31,
------------------------ ----------------------
1997 1998 1998 1999
----------- ----------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating
activities:
Net (loss).................. $(1,480,205) $(1,323,478) 595,864 (501,552)
Adjustments to reconcile net
(loss) to net cash used by
operating activities from
continuing operations:
Earnings from discontinued
operations (excluding
intercompany
charges/revenue)........... (112,348) -- -- --
Bad debt expense............ 50,000 185,000 -- --
Charge in connection with
terminated customers....... -- 4,271,394 -- --
Amortization of loan
discounts.................. 99,913 30,166 13,502 2,070
Write-off unamortized loan
discounts.................. -- 83,930 -- --
Write-off debt issuance
costs...................... -- 90,203 -- --
Depreciation and
amortization............... 408,434 578,575 118,314 301,329
Compensation in connection
with issuance of
warrants................... 870,492 118,590 -- --
Common stock issued to
settle interest payable.... 156,154 -- -- --
Common stock issued under
bonus agreement............ 244,000 316,700 -- --
Change in assets and
liabilities, net of effects
of assets and liabilities
acquired and disposed of:
(Increase) decrease in:
Trade accounts
receivable................ 436,986 (300,611) (24,560) (81,373)
Advance payment
receivables............... (9,790,084) 1,652,200 (3,597,014) 6,091,741
Other receivables.......... 13,216 (272,081) 181,116 (400,502)
Other current
liabilities............... 200,000 (200,000) -- --
Trade accounts payable and
accrued liabilities....... 4,049,550 (122,774) (522,993) (314,513)
Deposits and other
payables.................. 3,380,295 (1,460,416) 2,557,835 6,831,594
Other assets............... (743,465) (973,915) (91,635) 882,080
----------- ----------- ---------- ----------
Net cash provided (used)
by operating activities.. (2,217,062) 2,673,483 (769,571) 12,810,874
----------- ----------- ---------- ----------
Net cash provided (used)
in discontinued
operations............... (1,414,219) -- 1,651,301 --
----------- ----------- ---------- ----------
Net cash provided (used)
in operating activities.. (3,631,281) 2,673,483 881,730 12,810,874
----------- ----------- ---------- ----------
Cash flows from investing
activities:
Purchase of property and
equipment.................. (298,295) (683,054) (268,476) (40,236)
Purchases of billing
contracts.................. (47,000) (48,100) (10,000) (177,487)
Acquisition costs........... -- -- -- (322,762)
Cash paid for treasury
stock...................... -- (469,830) -- (35,634)
Cash received in connection
with sale of Bordercomm.... - 1,651,301 - -
----------- ----------- ---------- ----------
Net cash provided (used)
by investing activities.. (345,295) 450,317 (278,476) (576,119)
----------- ----------- ---------- ----------
Cash flows from financing
activities:
Issuance of notes
receivable................. -- (500,000) -- (80,000)
Proceeds from notes
payable.................... 6,147,859 752,973 124,298 --
Principal payments on notes
payable.................... (3,027,273) (1,599,250) (316,038) (4,811,218)
Payment of preferred stock
dividends.................. (132,929) (445,876) (95,615) (252,900)
Redemption of preferred
stock for cash............. (640,000) (1,460,000) (615,000) --
Issuance of shares of common
and preferred stock for
cash....................... 1,789,413 226,806 -- --
----------- ----------- ---------- ----------
Net cash provided (used)
by financing activities.. 4,137,070 (3,025,347) (902,355) (5,144,118)
----------- ----------- ---------- ----------
Increase (decrease) in cash.. 160,494 98,453 (299,101) 7,090,637
Cash at beginning of period.. 827,526 988,020 988,020 1,086,473
----------- ----------- ---------- ----------
Cash at end of period........ $ 988,020 $ 1,086,473 $ 688,917 $8,177,110
=========== =========== ========== ==========
Supplemental disclosures:
Interest paid............... $ 683,291 $ 650,399 $ -- $ --
=========== =========== ========== ==========
Schedule of non-cash
financing and investing
transactions:
Conversion of debt to
preferred to stock......... $ 210,000 $ -- $ -- $ --
=========== =========== ========== ==========
Financing fees in connection
with issuance of warrants.. $ 1,117,585 $ 118,590 $ -- $ --
=========== =========== ========== ==========
Discount on notes........... $ 247,092 $ -- $ -- $ --
=========== =========== ========== ==========
Issuance of common stock in
connection with acquisition
of HBS assumption of assets
and liabilities............ $ 270,800 $ -- $ -- $ --
=========== =========== ========== ==========
Fees paid through issuance
of common stock............ $ 132,077 $ -- $ -- $ --
=========== =========== ========== ==========
Payment of interest through
issuance of common stock... $ 156,154 $ -- $ -- $ --
=========== =========== ========== ==========
Payment of accounts payable
through issuance of common
stock...................... $ 172,077 $ 59,378 $ -- $ --
=========== =========== ========== ==========
Payment of debt through
issuance of common stock... $ -- $ 30,000 $ -- $ --
=========== =========== ========== ==========
Receipt of treasury stock in
connection with sale of
Bordercomm................. $ -- $ 900,000 $ 900,000 $ --
=========== =========== ========== ==========
Acquisition of customer
service department......... $ 125,000 $ -- $ -- $ --
=========== =========== ========== ==========
Loss on disposal of
discontinued operations.... $ 142,181 $ 51,301 $ 51,301 $ --
=========== =========== ========== ==========
Deemed preferred dividend in
connection with below
market conversion feature.. $ 96,600 $ -- $ -- $ --
=========== =========== ========== ==========
</TABLE>
The accompanying financial statements are an integral part of these
consolidated financial statements.
F-5
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General and Summary of Significant Accounting Principles
Business Activity
Avery Communications, Inc. ("Avery") is the parent company of two wholly-
owned subsidiaries, Avery Communications, Inc. a Texas corporation and Hold
Billing Services, LTD ("HBS"). Avery Communications, Inc. and its subsidiaries
are collectively referred to as the "Company". Each subsidiary's operations are
related to the telecommunications industry, providing such services as long
distance reselling and billing and collection services. The significant portion
of the Company's revenues are generated through providing billing and
collection services. Local exchange carriers ("LEC's") pursuant to long-term
contracts with these entities perform billing and collection services. The
Company presently operates under billing contracts with all seven of the
regional bell operating companies and GTE. The contracts give the Company the
capability of providing billing services in 49 states and the District of
Columbia. Effective January 1, 1998, Avery disposed of two of its previously
owned subsidiaries, Alternate Telephone and Communications, Inc. ("ATC") and
BorderComm, Inc. ("Bordercomm").
Consolidation
The accompanying consolidated financial statements include the accounts of
Avery and all of its wholly-owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
Statement of Cash Flows
For purposes of the statement of cash flows, cash equivalents include time
deposits, certificates of deposits, and all highly liquid debt instruments with
original maturities of 3 months or less when purchased.
Property and Equipment
Furniture fixtures and equipment are depreciated straight-line over the
estimated useful lives of the related assets ranging from 5 to 10 years.
Depreciation from continuing operations for the years ended December 31, 1997
and 1998, was $66,077 and $154,125, respectively.
Maintenance and repairs are charged to operations when incurred. Betterments
and renewals are capitalized.
Debt Issuance Costs
Financial advisory, accounting, legal and other expenses associated with the
debt are amortized by the straight-line method over the terms of the loans.
Additional financing costs are recorded for warrants issued as payment for
financing services and in connection with the loans and/or extending these
loans, and is amortized by the straight-line method over the term or extension
period of the loans. Additional financing fees resulting from the decrease in
the exercise price of certain warrants are expensed in the period in which the
decrease in exercise price is granted.
Goodwill
Goodwill is the difference between the purchase price paid and liabilities
assumed over the estimated fair market value of assets acquired from HBS.
Goodwill recorded in connection with the acquisition of HBS amounted to
$3,101,923 and is being amortized using the straight-line method over 15 years.
Additional goodwill resulted from the difference between the purchase price
paid over the estimated fair market value of assets acquired in connection with
the purchase of HBS's customer service department and the earn-out shares
F-6
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
from escrow as provided for in the purchase agreement between Avery and former
partners of HBS. Goodwill from the purchase of the customer service department
amounted to $85,000, and is being amortized over five years. Goodwill from the
earnout agreement amounted to $270,800 and is being amortized over fourteen
years. Amortization expense for the years ended December 31, 1997 and 1998 was
$206,796 and $222,916, respectively. On an on-going basis, management reviews
recoverability, the valuation and amortization of goodwill. As part of this
review, the Company considers the undiscounted projected future cash flow in
evaluating the goodwill. If the undiscounted future cash flow is less than the
stated value, goodwill would be written down to fair value.
Purchased Contracts
The direct cost of acquiring billing and collection contracts with LEC's are
capitalized and amortized straight-line over the contract life, generally three
to five years.
Revenue and Cost Recognition on Contracts, Billing Services, and Advance
Funding Programs
Billing Services--The Company recognizes billing services revenues when its
customers' records are accepted by HBS for billing and collection. Bills are
generated by the LEC's and the collected funds are remitted to the Company,
which in turn remits these funds, net of fees and reserves, to its billing
customers. These reserves represent cash withheld from customers to satisfy
future obligations on behalf of the customer. The obligations consist of local
exchange carrier billing fees, bad debts and sales and excise taxes. The
Company records trade accounts receivable and service revenue for fees charged
for its billing services. When the customers receivables are collected by the
Company from the LEC's, the Company's trade receivables are reduced by the
amount corresponding to the Company's processing fees and the remaining funds
are recorded as amounts due to customers, included in Deposits and other
payables in the accompanying balance sheets. The Company also retains a reserve
from its customers' settlement proceeds, calculated to cover accounts that the
LEC's are unable to collect, LEC billing fees and sales taxes.
Advance Funding Programs--The Company offers participation in advance
funding to qualifying customers through its advance payment program. Under the
terms of the agreements, the Company purchases the customer's accounts
receivable for an amount equal to the face amount of the billing records
submitted to the LEC by the Company less various items including costs and
expenses on previous billing records, financing fees, LEC charges, rejects and
other similar items. The Company advances 50% to 75% of the purchased amount.
The purchased accounts receivable are recorded at the gross amount (as Advance
payment receivables). The amount due to the customer (included in Deposits and
other payables) is recorded as the purchased accounts receivable less amounts
advanced, adjusted for various other reserve items. Financing charges are
assessed until the Company recoups its initial payment.
Stock Based Compensation
The Company measures compensation cost for its stock based compensation
plans under the provisions of Accounting Principles Board Opinion No. 25 ("APB
25"), "Accounting for Stock Issued to Employees". The difference, if any,
between the fair value of the stock on the date of grant over the amount
received for the stock is accrued over the related vesting period. Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based
Compensation," ("SFAS 123") requires companies electing to continue to use APB
25 to account for its stock-based compensation plan to make pro forma
disclosures of net income (loss) and earnings (loss) per share as if SFAS 123
had been applied (See Note 11).
Loss Per Common Share
Loss per common share is computed by dividing the net loss increased by
preferred stock dividends of $528,356 and $338,582 for the years ended December
31, 1997 and 1998, respectively, by the weighted
F-7
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
average number of shares of common stock outstanding during the respective
periods. Preferred stock dividends include deemed dividends of $96,600 for the
year ended December 31, 1997 (see Note 5). The effect of the preferred stock
dividend on the loss per common share was $0.07 and $0.04 per weighted average
common share outstanding for the years ended December 31, 1997 and 1998,
respectively. The effect of outstanding warrants and options on the computation
of net loss per share would be anti-dilutive and, therefore, is not included in
the computation of weighted average shares for the years ended December 31,
1997 and 1998.
Use of Estimates and Assumptions
Management uses estimates and assumptions in preparing financial statements
in accordance with generally accepted accounting principles. Those estimates
and assumptions affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could vary from the estimates that were
used.
Reclassifications
Certain prior year amounts have been reclassified to conform with the 1998
presentation.
Adoption of New Accounting Standards
Effective December 15, 1997, the Company adopted SFAS No. 128 "Earnings Per
Share." This statement requires the replacement of primary earnings per share
with basic earnings per share and fully diluted earnings per share with diluted
earning per share. Management of the Company does not believe that the adoption
of this statement had a material impact on the earnings per share computations.
Prior year amounts have been restated to conform with the new standard.
Effective January 1, 1998, the Company adopted SFAS No. 130 "Reporting
Comprehensive Income." This standard requires the presentation of comprehensive
income and its components for each year in which an income statement is
presented. The Company has no transactions in the current year that would be
included as comprehensive income. The Company's financial statements are
prepared in accordance with SFAS No. 130.
Effective January 1, 1998, the Company adopted SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes the standard for the way business enterprises report information
about operating segments in annual and interim financial statements. The
statement also establishes standards for related disclosures about products and
services, geographic areas, and major customers. The Company currently has only
one operating segment. There is no additional disclosure required.
The FASB has issued SFAS No. 132 "Employers' Disclosures about Pensions and
Other Postretirement Benefits, an amendment of FASB Statements No. 87, 88, and
106." This Statement revises employers' disclosures about pension and other
postretirement benefit plans and standardizes the disclosure requirements for
pensions and other postretirement benefits. This Statement is effective for
fiscal years beginning after December 15, 1997. The Company typically does not
offer the types of benefit programs that fall under the guidelines of Statement
of Financial Accounting Standards No. 132.
The FASB issued Statement of Financial Accounting Standards No. 133
"Accounting for Derivative Instruments and Hedging Activities", during the
second quarter of 1998. SFAS No. 133 becomes effective for the Company's fiscal
year 2000. The statement establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments imbedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that
F-8
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
changes in the derivative's fair value be recognized in earnings unless
specific hedge accounting criteria are met. Management has not determined what
impact this standard, when adopted, will have on the Company's financial
statements.
2. Acquisitions and Dispositions
A wholly-owned subsidiary of the Company acquired the general partnership
interest and 100% of the limited partnership interest of HBS effective in
November, 1996, for a note payable of $1,175,926, cash of $1,296,302, the
issuance of 362,963 common shares at $1.28 per share ($462,963), and cash paid
for acquisition costs of $134,991, resulting in a total purchase price of
$3,070,182.
In connection with the acquisition, the Company held 470,000 common shares
in escrow. On May 15, 1997, 100,000 shares were issued in accordance with the
terms of the purchase agreement. The balance of 370,000 shares were to be
earned, in 1997, 1998 and 1999, subject to HBS achieving future earnings
projections. Shares earned in 1997 and 1998 were 185,000 and 0, respectively,
and were reflected as additional paid-in capital and goodwill effective in the
year earned.
A summary of the fair value of assets acquired and liabilities assumed is as
follows:
<TABLE>
<S> <C>
Receivables............................................... $ 1,553,221
Other assets.............................................. 288,189
Property and equipment.................................... 111,979
Goodwill.................................................. 3,101,923
Accounts payable.......................................... (412,632)
Other payables............................................ (547,401)
Notes payable............................................. (1,025,097)
-----------
3,070,182
Additional goodwill in connection with shares issued for
earn-out................................................. 270,800
-----------
$ 3,340,982
===========
</TABLE>
The consolidated financial statements include the operations of HBS from the
date of acquisition. The acquisitions have been accounted for under the
purchase method of accounting.
Effective in January 1998, the Company disposed of Alternate Telephone and
Communications, Inc. and BorderComm, Inc. and its subsidiaries in exchange for
419,000 shares of the Company's common stock, valued at $900,000, cash of
$1,600,000 and a receivable for $185,000 from a third party. Revenues for the
subsidiaries disposed of for the year ended December 31, 1997 amounted to
$3,942,797. Assets and liabilities disposed of are as follows:
<TABLE>
<S> <C>
Current assets.............................................. $ 2,302,665
Equipment in service and furniture and equipment............ 226,363
Microwave concessions and other assets...................... 1,819,394
Inter-company receivable.................................... 1,321,627
Current liabilities......................................... (2,955,895)
Long-term liabilities....................................... (162,853)
-----------
$ 2,551,301
===========
</TABLE>
F-9
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Short-term Debt Obligations
HBS has a $10,000,000 revolving note payable - line of credit with a capital
corporation. Interest is payable monthly at the prime rate plus 1.5% (9.25% at
December 31, 1998) and the principal is due March 25, 2000. The note is secured
by substantially all the assets of HBS. The line of credit agreement contains
certain covenants that require HBS to maintain a certain financial ratio
related to debt servicing and to limit capital expenditures and additional
indebtedness. During 1998, HBS was in violation of three of these covenants,
including exceeding the capital expenditure limitation, exceeding the advance
funding limit, and notification of pending litigation. HBS has received waivers
from the capital corporation for these violations. At November 30, 1997, HBS
was in violation of one of these covenants, that is, exceeding the capital
expenditure limitations. HBS obtained a waiver from the capital corporation for
this violation. The balance outstanding at December 31, 1997 and 1998 was
$5,013,859 and $5,766,832 leaving an available balance of $2,486,141 and
$4,233,168 as of December 31, 1997 and 1998, respectively.
4. Notes Payable
Notes payable at December 31, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
Notes payable to third parties bearing interest at
12% per annum, payable quarterly, principal and any
unpaid interest originally due September 30, 1996,
now due on demand................................... $ 36,667 $ 6,667
Note payable to related party bearing interest at 12%
per annum, principal due December 10, 2002;
convertible to common stock at a price of $1.25 per
share at any time, unsecured. Principal at December
31, 1997 and 1998 is $350,000 adjusted for a
discount for warrants issued in connection with the
note based on imputed interest rate of 20%.......... 308,644 316,915
Note payable to related party bearing interest at 10%
per annum, principal due March 2, 1998, unsecured... 300,000 --
Note payable to related party bearing interest at 10%
per annum, principal due quarterly beginning May,
1998 with the final payment due in May, 2000,
secured by a second lien on the assets of HBS.
Principal at December 31, 1997 is $1,000,000
adjusted for a discount for warrants issued in
connection with the note based on imputed interest
rate of 20%......................................... 894,175 --
Note payable on demand to a third party bearing
interest at 16% per annum, unsecured................ 49,250 --
Note payable to a related party bearing interest at
14% per annum, payable quarterly, principal and any
unpaid interest due April 1, 1998, secured by second
lien on HBS advance payment receivables............. 250,000 --
--------- --------
1,838,736 323,582
Less current maturities.............................. 859,461 6,667
--------- --------
Long term portion.................................... $ 979,275 $316,915
========= ========
</TABLE>
F-10
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal amounts due on long-term debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999........................................................... $ 6,667
2000........................................................... --
2001........................................................... --
2002........................................................... 350,000
2003........................................................... --
--------
Total........................................................ 356,667
Loan discounts................................................. (33,085)
--------
Total........................................................ $323,582
========
</TABLE>
5. Stockholders' Equity (Deficit)
The Company had seven and five series of preferred stock outstanding as of
December 31, 1997 and 1998, respectively.
The preferred stock Series HBS is cumulative and has a conditional mandatory
redemption feature. Beginning in 1998 and continuing from year to year
thereafter, once audited stockholders' equity increases $7,000,000, as compared
to the December 31, 1996 stockholders' equity balance of $1,295,437, the
Company will redeem the outstanding HBS on or before September 30 first
following that audited balance sheet date. The HBS Series has a liquidation
preference of $1.00 per share together with all unpaid dividends. As of
December 31, 1998, all of the Series HBS has been redeemed.
The preferred stock Series' A, B, C, E and HBS Exchange series contain
identical conditional mandatory redemption features and liquidation preferences
as the HBS Series, and also include a conversion feature. This feature provides
for the preferred stockholder to convert their shares into common shares at a
stated conversion price as follows: Series A--$2.50 per share, Series B--$1.00
per share, Series C--$2.50 per share, Series D--$2.00 per share, and Series E--
$1.00 per share. The HBS Exchange Series was subject to automatic conversion at
$2.00 per share upon the date that the Company's ending stockholders' equity
equaled or exceeded $3,000,000. At December 31, 1997, the stockholders' equity
exceeded that amount, however, the Company redeemed such shares in the first
quarter of 1998 The preferred stock Series D contains the identical conditional
mandatory redemption feature as the HBS series plus other mandatory redemption
provisions which are enacted based upon the sale of HBS. Series A, B, C, D and
E preferred stock is automatically convertible at the earlier of 1) a vote of
2/3 of the shares of the respective series outstanding, or 2) the closing of an
initial public offering of at least $5 per share and at least $7,000,000 in
aggregate proceeds.
The Company accounts for the issuance of preferred stock with below market
conversion features as deemed dividends to the extent that the fair value of
the common stock at the date of issuance of the preferred stock exceeds the
stated conversion price. During 1997, 400,000 and 100,000 HBS Exchange Series
preferred stock was issued on dates when the fair value of the Company's common
stock was $2.18 and $2.25, respectively. During 1997, the Company recognized
deemed dividends totaling $96,600. Such dividends have been considered in the
calculation of loss attributable to common shareholders, but have no effect on
the consolidated statements of changes in stockholders' equity.
Dividends are payable, as and if declared by the Board of Directors at an
annual rate of $0.10 per share (Series HBS, A, D and HBS Exchange) and $0.12
per share (Series B, C and E) all payable quarterly.
F-11
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
6. Income Taxes
A reconciliation of the expected federal income tax benefit based on the
U.S. Corporate income tax rate of 34% for 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Expected income tax benefit............................ $503,270 $449,983
Meals and entertainment................................ 8,280 8,500
Foreign income......................................... 12,262 --
Other.................................................. (23,129) --
Valuation allowance.................................... (500,683) (441,483)
-------- --------
$ -- $ --
======== ========
</TABLE>
Deferred tax assets and liabilities as of December 31, 1997 and 1998 are as
follows:
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Current deferred tax asset...................... $ 51,871 $1,216,766
Current deferred tax liability.................. (51,871) --
Valuation allowance for current deferred tax
asset.......................................... -- (1,216,766)
----------- ----------
Net current deferred tax asset................ $ -- $ --
=========== ==========
Non-current deferred tax asset.................. $ 2,105,157 $1,448,895
Non-current deferred tax liability.............. (36,620) (35,500)
Valuation allowance for non-current deferred tax
asset.......................................... (2,068,537) 1,413,395
----------- ----------
Net non-current deferred tax asset............ $ -- $ --
=========== ==========
</TABLE>
The current deferred tax assets and liability result primarily from
differences in contingency and valuation reserves for financial and federal
income tax reporting purposes. The non-current deferred tax assets results from
differences in amortization of goodwill and the non-compete agreement for
financial and federal income tax reporting purposes and the deferred tax
benefit of net operating losses. The non-current deferred tax liability results
from differences in depreciation of fixed assets for financial reporting
purposes and federal income tax purposes. The net non-current deferred tax
asset has a 100% valuation allowance due to the uncertainty of generating
future taxable income.
The Company has net operating loss carryforwards for federal income tax
purposes of approximately $3,300,000, that begin expiring in the year 2008. The
utilization of the net operating loss is subject to limitations in accordance
with (S)382 of the Internal Revenue Code.
7. Concentration of Credit Risk and Significant Customers
The Company's billing services activities are with customers throughout the
United States. Financial instruments, which potentially expose the Company to
significant credit loss include trade accounts receivable, advance payment
receivables, and cash.
At December 31, 1997, three customers comprised approximately 30% of trade
receivables and six customers accounted for approximately 79% of advanced
payment receivables. At December 31, 1998, 10 customers comprised approximately
82% of trade receivables and 5 customers accounted for approximately 83% of
advanced payment receivables. The significant majority of these receivables
were collected after December 31, 1998.
F-12
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Credit risk with respect to trade accounts receivable generated through
billing services is limited since the Company collects its fees through receipt
of all its customers' cash directly from LEC's. The credit risk with respect to
purchase of accounts receivable is reduced as the Company only advances 50% to
75% of the gross accounts receivable purchased. Management evaluates accounts
receivable balances on an on-going basis and provides allowances as necessary
for amounts estimated to become uncollectible. In case of complete non-
performance of accounts receivable, the maximum exposure to the Company is the
recorded amount shown on the balance sheet.
The Company is at risk to the extent that cash held in banks exceeds the
Federal Deposit Corporation insured amounts. Cash in excess of these limits
amounted to approximately $700,000 and $50,000 at December 31, 1997 and 1998,
respectively. The Company minimizes this risk by placing its cash with high
credit quality financial institutions.
8. Commitments and Contingencies
The Company has entered into various non-cancelable operating leases related
to equipment and office space. Future minimum payments on leases having
remaining terms of more than one year as of December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Year ending December 31,
------------------------
<S> <C>
1999........................................................ $109,614
2000........................................................ 108,462
2001........................................................ 108,462
2002........................................................ 108,462
2003........................................................ --
--------
Total future minimum rentals.............................. $435,000
========
</TABLE>
Rent expense for the years ended December 31, 1997 and 1998 amounted to
$139,228 and $92,231, respectively.
The Company is obligated to pay minimum usage charges over the lifetime of
most LEC billing contracts. Each contract has a minimum usage amount which
relates to the Company's customers' sales volume to be processed through the
LEC. The Company does not expect to incur any losses with respect to these
minimum usage requirements. The remaining minimum usage for significant
contracts at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Amount Expires
---------- -------
<S> <C> <C>
Contract 1...................................... $5,850,000 June 22, 2001
Contract 2...................................... 346,000 January 1, 2001
Others.......................................... 1,156,000 Throughout 2003
----------
$7,352,000
==========
</TABLE>
The Company files consolidated sales and excise tax returns on behalf of its
customers for the various municipal, state and Federal jurisdictions in which
its customers do business. The Company relies on monthly tax reports it
receives from the LEC's in reporting and remitting such taxes. The Company's
customers are contractually obligated to reimburse the Company for any disputes
with taxing authorities that may arise from filing the sales and excise tax
returns on behalf of their customers. The Company is contingently liable for
any
F-13
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
such disputes or assessments if its customers are unable or unwilling to honor
the contract provisions. There were no such disputes at December 31, 1998. The
Company is also contingently liable for chargebacks from the LEC's, to the
extent such charge backs exceed the Company's reserves for such charge backs.
This contingent liability is increased when the Company discontinues business
with a particular customer. See Note 12.
In connection with the acquisition of HBS, the Company entered into a
contingent earnout agreement with the previous partners of HBS under which
666,664 shares are issuable based on HBS achieving certain pre tax income
levels (as defined). During 1997 and 1998, 166,666 and 0 shares, respectively
were issued pursuant to the contingent earnout agreement and are reflected as
compensation and an increase in shareholder equity.
The Company is party to a legal proceeding filed in July 1998. HBS was named
in a complaint for injunctive relief filed by the Federal Trade Commission
("FTC") against Veterans of America Association ("VOAA"). The suit alleges that
VOAA has caused unauthorized charges to appear on end users' bills based on
deceptive marketing programs and seeks relief against HBS and others. Several
months prior to the filing of the suit, HBS terminated its contract with VOAA
based on suspicion of the same activities alleged by the FTC in its suit. Since
termination, HBS has voluntarily paid out approximately twice the revenue it
took in from this account in order to reimburse end-users for credits due and
owing. Attorneys for HBS and Avery met with the FTC immediately after suit was
filed and offered full cooperation in its investigation. Without admitting any
liability or complicity in the alleged activities of its former customer, HBS
and Avery agreed to a stipulated preliminary injunction with terms consistent
with existing HBS guidelines as revised before suit was filed. The suit also
seeks monetary fines and/or reimbursement to end-users from all parties jointly
and severally. No trial date has been set by the Court, and while denying
liability, HBS has offered to cooperate with the FTC in developing new
standards for the industry designed to better protect end-users.
From time to time the Company is party to what it believes is routine
litigation and proceedings that may be considered as part of the ordinary
course of its business. Currently, the Company is not aware of any current or
pending litigation or proceedings that would have a material adverse effect on
the Company's business, results of operations or financial condition.
9. Related Party Transactions and Other Events
During 1996, two employees of the Company (who previously owned HBS) loaned
the Company $250,000 and $100,000, respectively. At December 31, 1998 these
amounts had been repaid. These same employees also signed a promissory note in
1996 with the Company for $540,926 which was paid in 1997.
During 1997, the Company granted an option to purchase 300,000 shares of its
common stock at $1.00 per share to an entity in which the Company's Chairman is
a partner. Another entity, in which the Company's Chairman is a partner, loaned
the Company $240,000, which was subsequently repaid.
In May 1997, the Company entered into an agreement with The Franklin Holding
Corporation (Delaware) ("Franklin"). The transaction provided the Company with
financing to obtain $1,500,000 through the issuance of 7.5 Units (each unit
consists of 133,333 common shares and 200,000 preferred shares) and $1,000,000
through the issuance of a three year note payable. The preferred stock is
convertible to common stock. In accordance with the terms of the agreement,
three Franklin representatives were elected to the board of directors of the
Company.
In December 1997, the Company entered into five-year $350,000 note payable
with a company for which its president is also a member of the board. The note
bears interest at 12%, is convertible to common stock and contains warrants for
175,000 shares of common stock at $1.50 exercise price.
F-14
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1997, an employee loaned the Company $300,000 at 10%. The amount was
subsequently repaid.
In May 1998, the Company granted an option to purchase 100,000 shares of
its common stock at $2.69 per share (fair value at the date of grant) to the
directors of the Company.
During July 1998, the Company repaid a $1,000,000 loan to an entity of
which its chairperson is a partner.
Also during July 1998, the Company entered into an employment agreement
with its chairperson and issued an option to purchase 420,000 shares of common
stock at a price of $3.00 per share (fair value at the date of grant). The
terms of the employment agreement require the Company to pay an annual salary
of $200,000 for five years.
The Company granted another warrant to a director during July 1998 for
25,000 shares at $3.00 per share.
During December 1998, the Company entered into an employment agreement with
its new president and issued an option to purchase 925,000 shares of common
stock at a price of $2.00 per share (which was more than fair value at the
date of grant). One-half of the option vested at the date of the grant, with
the balance vesting during the first six months of 1999. The terms of the
employment agreement require the Company to pay an annual salary of $200,000.
During December 1998, the Company advanced $400,000 to an employee at 9%
interest and advanced $100,000 to a company at 10% for which its president is
a major stockholder.
In December 1998, Avery's Board of Directors authorized Avery to repurchase
any or all of its outstanding warrants for a price of $1.00 per underlying
share. In December 1998, Avery repurchased warrants held by an entity
controlled by its chairperson to purchase 100,000 shares of common stock at an
exercise price of $1.50 per share. The $100,000 amount was recorded as
compensation in 1998.
10. Fair Value of Financial Instruments
SFAS No. 107, ("Disclosure About Fair Value of Financial Instruments"),
requires disclosures about the fair value of all financial assets and
liabilities for which it is practicable to estimate. Cash, trade accounts
receivable, advance payment receivables, accounts payable, accrued liabilities
and deposits and other liabilities are carried at amounts that reasonably
approximate their fair values.
The carrying amount and fair value of notes payable are as follows at
December 31, 1998.
<TABLE>
<CAPTION>
Carrying Fair
Amount Amount
-------- --------
<S> <C> <C>
Fixed rate debt.......................................... $323,582 $354,719
</TABLE>
The fair values of the Company's fixed rate debt have been estimated based
upon relative changes in the Company's borrowing rates since origination of
the fixed rate debt.
F-15
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
11. Stock Options and Warrants
Pursuant to various note agreements and in accordance with agreements for
key employees, the Company has issued certain stock options and warrants. The
options are considered compensatory.
Following is a summary of warrant and option activity:
<TABLE>
<CAPTION>
Weighted
Average
Compensatory Exercise
Options Warrants Total Price Total
------------ --------- --------- -------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding at December
31, 1996............... 217,500 938,356 1,155,856 $1.41 $1,635,268
Reduction in option
prices................ -- -- -- (267,600)
Granted................ 425,000 1,611,828 2,036,828 $1.43 2,918,904
Canceled............... -- (59,000) (59,000) $1.50 (88,500)
Exercised.............. -- (257,261) (257,261) $ .98 (251,126)
--------- --------- --------- ----------
Outstanding at December
31, 1997............... 642,500 2,233,923 2,876,423 $1.37 3,946,946
Purchase of option..... (100,000) -- (100,000) $1.50 (150,000)
Granted................ 1,522,500 -- 1,522,500 $2.32 3,532,502
Exercised.............. (17,500) (567,871) (585,371) $1.76 (806,808)
--------- --------- --------- ----------
Outstanding at December
31, 1998............... 2,047,500 1,666,052 3,713,552 $6,522,640
========= ========= ========= ==========
</TABLE>
The outstanding stock options and warrants expire from August 1998 through
2008.
The following summarizes information about compensatory options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------------------------------------------
Range of Weighted Avg. Weighted Avg. Weighted Avg.
Exercise Number Remaining Exercisable Number Exercisable
Prices Outstanding Contractual Life Price Exercisable Price
-------- ----------- ---------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$.50-
$3.00 2,047,500 7.7 years $2.05 1,305,000 $1.86
</TABLE>
The weighted average grant date fair values of compensatory exercise prices
equal to and below market price at the date of grant are as follows
<TABLE>
<CAPTION>
Equal to Below
-------- -----
<S> <C> <C>
1997...................................................... $ .75 $1.60
1998...................................................... $1.52 $1.37
</TABLE>
Compensation cost totaling $75,500 and $118,590 was recognized for one of
the options granted in 1997 and several options granted in 1998 as the
exercise price was below the fair value at the grant date. The considered fair
value of the Company's common stock on the date of each respective grant was
based upon the quoted NASD closing share price. The remaining options granted
in 1997 and 1998 have exercise prices which approximate fair value (which was
the quoted trading price at the date of grant) and accordingly, no
compensation cost has been recognized for those compensatory stock options in
the consolidated financial statements. Had compensation cost for the Company's
stock options been determined consistent with FASB Statement No. 123, the
Company's net loss and loss per share would have been increased to the pro
forma amounts indicated below.
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1997 1998
------------ ------------
<S> <C> <C> <C>
Net loss............................... As reported $ 1,480,205 $ 1,323,478
Pro forma $ 1,765,812 $ 2,880,877
Loss per common share.................. As reported $ 0.24 $ .19
Pro forma $ 0.28 $ .38
</TABLE>
F-16
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The estimate for the fair value of each option grant is on the date of grant
using the Black-Scholes method option-pricing model. The following assumptions
were used for grants in 1997--dividend yield of 0%, expected volatility of
130%, and an estimated risk free interest rate of 6.0%; 1998--dividend yield of
0%, expected volatility of 89%, and an estimated risk free interest rate of
6.0%.
The model is based on historical stock prices and volatility which, due to
the low volume of transactions, may not be representative of future price
variances.
12. Charge in Connection With Terminated Customers
During the year ended December 31, 1998, the Company recorded a charge of
$4,271,394 in connection with the termination of billing and collection
services for certain customers. This amount results primarily from charge backs
and bad debt costs charged by the LEC's to the Company which the Company will
not be able to recover from its customers and to a lesser extent other costs
associated with the terminated customers. Charge- backs from LEC's can continue
for 6 to 9 months after the Company has ceased to process a customer's records
and bad debt costs can continue for up to 18 months. In the normal course of
business, both the Company and LEC's maintain reserves to offset these charges.
However, due to questionable marketing programs utilized by these customers,
chargebacks and bad debt costs for these customers are estimated to be
significantly in excess of normal reserves and any amounts receivable from the
LEC's. The charge includes the Company's estimate of all future chargebacks and
bad debt and other costs related to the terminated customers, including a
$250,000 estimated settlement with the FTC as further described in Note 8.
13. 401(k) Plan
The Company has a 401(k) Plan ("Plan") which covers substantially all of the
Company's employees. Employees could contribute up to $9,500 for 1997 and
$10,000 for 1998. The Company matched contributions to the Plan at $0.25 per
dollar up to 3% of employees compensation for 1997 and at $0.50 per dollar up
to 8% of the employee's compensation for 1998. In addition, Avery may make
additional discretionary contributions. During the years ended December 31,
1997 and 1998, the Company contributed $4,413 and $16,680 to the Plan,
respectively.
14. Year 2000 Contingency
The Year 2000 problem refers to the limitations of the programming code in
certain existing software programs to recognize date-sensitive information for
the Year 2000 and beyond. Unless modified prior to December 31, 1999, such
systems may not properly recognize such information and could generate
erroneous data or cause a system to fail to operate properly.
The operation of the Company's business is highly dependent on its computer
software programs and operating systems. These programs and systems are used in
several key areas of the Company's business, including information management
services, third-party billing clearinghouse services (including the advance
funding program), direct billing services and financial reporting, as well as
in various administrative functions. In providing information management,
third-party billing clearinghouse and direct billing services, the Company
processes telephone call records which are date sensitive.
The Company is in the process of evaluating its programs and systems to
identify potential Year 2000 readiness problems, as well as manual processes,
external interfaces with customers and services supplied by vendors to
coordinate Year 2000 compliance and conversion. The Company's software was
developed internally and management believes that it is Year 2000 compliant,
which means that it will be able to interpret
F-17
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
dates beyond the year 1999. The Company plans to test its hardware during 1999
to determine whether it is
Year 2000 compliant. In the event that these systems are not Year 2000
compliant, the Company will make appropriate upgrades or replacements. The
Company believes that, with its existing software and any necessary hardware
modifications, the Year 2000 problem will not pose a significant operational
problem for the Company's information systems.
However, because the Company's business relies on processing date sensitive
telephone call records supplied by third parties, it is possible that non-
compliant third-party computer systems may not be able to provide accurate data
for processing through the Company's computer systems. The Company's business,
financial condition and results of operations could be materially adversely
affected by the Year 2000 problem if it or unrelated parties fail to
successfully address this issue. The Company plans to obtain written assurance
of Year 2000 compliance from its customers during 1999. Management of the
Company currently anticipates that the total expenses and capital expenditures
associated with its Year 2000 readiness project, including personnel and other
costs associated with modifying or replacing its programs and systems will not
exceed $300,000, most of which will be capitalized. As of December 1998, the
Company has incurred approximately $50,000 in costs related to its Year 2000
readiness.
The Company also plans to identify any non-information technology systems
that may be vulnerable to the Year 2000 issue during 1999. Such systems include
utility switches and meters, thermostats and alarms. Once the evaluation of
these systems is complete, the Company will make necessary modifications or
adjustments to achieve Year 2000 readiness. Management believes that the costs
related to Year 2000 compliance for its non-information systems will not have a
material adverse effect on its operations or financial condition.
The cost of Year 2000 readiness and the expected completion dates are the
best estimates of the Company's management and are believed to be reasonably
accurate. In the event the Company's plan to address the Year 2000 problem is
not successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's
financial condition and results of operations. Following the Year 2000 date
change, in the event the Company determines that its programs and systems are
not Year 2000 compliant, the Company will be unable to process date-sensitive
telephone call records and thus be unable to provide most of its revenue-
producing services, which will have a material adverse effect on the Company's
financial condition and results of operations. The Company will also likely
experience considerable delays in compiling information required for financial
reporting and performing various administrative functions.
The Company is currently developing a contingency plan for implementation in
the event its programs and systems are not Year 2000 ready prior to December
31, 1999.
15. Subsequent Events
The Corsair Transaction
In February 1999, Corsair Communications, Inc. and its wholly owned
subsidiary, Subscriber Computing, Inc., sold substantially all of the assets
relating to Subscriber's Communication Resource Manager billing system and
Intelligent Message Router to Wireless Billing Systems, ("Wireless"), a wholly
owned subsidiary of Primal Systems, Inc. As consideration for Wireless entering
into the Corsair transaction, Corsair paid $1,000,000 cash to Wireless. Corsair
also agreed to loan Wireless the difference between the assets and liabilities
acquired by Wireless, plus $200,000 cash. The terms of the Note are 10% annual
interest, five year amortization, and payment in full required in May 2001. In
F-18
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
addition, Corsair agreed to allow Wireless to retain any cash collected from
certain accounts receivable totaling $1.3 million up to a maximum of $1.0
million. Neither the amount collected nor the $1.3 million will be included in
the Note described above. Under the terms of the Corsair acquisition agreement,
Avery guaranteed the obligations of Wireless. The Corsair transaction was
entered into in contemplation of Avery's acquisition of Primal, discussed
below.
The Primal Acquisition
In March 1999, Avery entered into a merger agreement with Primal and certain
shareholders of Primal. Primal is a privately held software development
corporation that designs, develops and supports an integrated suite of
client/server and browser-based software solutions focusing on customer
acquisition and retention in the telecommunications industry, primarily
utilizing decision support software and internet technologies. As part of this
merger, Avery will acquire the Wireless Billing Systems subsidiary which
acquired billing system assets in the Corsair transaction.
At the time of the merger, Avery will issue up to 4,000,000 shares of
Avery's convertible preferred stock in exchange for all of the issued and
outstanding shares of Primal. Of this amount, 2,000,000 shares will be held in
escrow, to be issued to Primal's shareholders based upon the operating
performance of Primal from August 1, 1999 through July 31, 2000. Upon the
meeting of certain operating performance thresholds by Primal during this
period, the Primal shareholders may receive up to a maximum of 4,000,000
additional shares of Avery convertible preferred stock as additional
consideration for the merger. In addition, upon Primal's satisfaction of
certain operating performance levels during this period, certain shareholders
of Primal will have the right in September through October, 2000 to require
Avery to repurchase up to 1,550,000 shares of Avery common stock issued upon
the conversion of Avery preferred stock received in the merger for the purchase
price of $2.50 per share.
At the time of the merger, Avery will also enter into employment agreements
with the principals of Primal and will enter into an agreement to register the
underlying shares of Avery common stock to which the Avery convertible
preferred stock is convertible.
Mark J. Nielsen, Avery's President and Chief Executive Officer, is the
Chairman of the Board and a significant shareholder of Primal.
16. Unaudited Interim Financial Information
The unaudited interim financial information as of March 31, 1999 and for the
three months ended March 31, 1998 and 1999, has been prepared on the same basis
as the audited financial statements. In the opinion of management, such
unaudited information includes all adjustments (consisting only of normal
recurring accruals) necessary for a fair presenation of this interim
information. Operating results for the three months ended March 31, 1999 are
not necessarily indicative of the results that may be expected for the entire
year ending December 31, 1999.
Loss Per Common Share
Loss per share for the three months ended March 31, 1998 and 1999 is
computed by dividing the net loss increased by the preferred stock dividends of
$110,317 and $71,800, respectively, by the weighted average number of shares of
common stock outstanding during the respective periods. The effect of the
preferred stock dividend on the basic loss per common share was $0.01 and $0.01
per weighted average common share outstanding for the three months ended March
31, 1998 and 1999, respectively. The effect of outstanding
F-19
<PAGE>
AVERY COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
warrants and options on the computation of net loss per share for the three
months ended March 31, 1999 would be antidilutive and, therefore, is not
included in the computation of weighted average shares for that period.
Warrants
During the three months ended March 31, 1999 the Company repurchased an
additional 580,000 warrants from entities controlled by its chairperson, for
$580,000. The warrant exercise prices ranged from $1.00 to $1.50 per share.
$280,000 was recorded as financing fees and debt issuance costs as the
underlying warrants were originally issued in connection with debt
transactions. The balance of $300,000 was recorded as compensation.
F-20
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the securities offered hereby, but only under circumstances
and in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
-------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Annual Reports and Other Available Information........................... 2
A Note About Forward-Looking Statements.................................. 2
Avery.................................................................... 3
Risk Factors............................................................. 4
Use of Proceeds.......................................................... 7
Plan of Distribution..................................................... 7
Selling Securityholders.................................................. 9
Price Range of Common Stock.............................................. 12
Dividend Policy.......................................................... 12
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 13
Business................................................................. 21
Description of the Primal Companies...................................... 26
Management............................................................... 28
Certain Transactions..................................................... 33
Stock Ownership of Directors, Executive Officers and Principal Holders... 35
Description of Capital Stock............................................. 36
Legal Proceedings........................................................ 37
Changes in Accountants................................................... 38
Experts.................................................................. 38
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
10,611,650 Shares
Avery Communications, Inc.
Common Stock
-------------
[LOGO]
-------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Delaware General Corporation Law
Section 145(a) of the Delaware General Corporation Law (the "DGCL") provides
that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
Section 145(b) of the DGCL provides that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee or agent of the corporation, or is or was
serving at the request of the corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 145(c) of the DGCL provides that to the extent that a present or
former director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in subsections (a) and (b) of Section 145, or in defense
of any claim, issue or matter therein, such person shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by such
person in connection therewith.
Section 145(d) of the DGCL provides that any indemnification under
subsections (a) and (b) of Section 145 (unless ordered by a court) shall be
made by the corporation only as authorized in the specific case upon a
determination that indemnification of the present or former director, officer,
employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of Section
145. Such determination shall be made, with respect to a person who is a
director or officer at the time of such determination, (1) by a majority vote
of the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors designated
by majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
Section 145(e) of the DGCL provides that expenses (including attorneys'
fees) incurred by an officer or director in defending any civil, criminal,
administrative or investigative action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined
II-1
<PAGE>
that such person is not entitled to be indemnified by the corporation as
authorized in Section 145. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the corporation deems appropriate.
Certificate of Incorporation
The Certificate of Incorporation of Avery, as amended, a copy of which is
filed as Exhibit 3.1 to the Registration Statement, provides that a director of
Avery shall not be liable to Avery or its stockholders for monetary damages for
breach of fiduciary duty as a director, unless the breach involves (i) a breach
of the director's duty of loyalty to Avery or its stockholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) liability for unlawful dividend payments or
stock purchases or redemptions or (iv) for a transaction from which the
director derived an improper personal benefit. The Amended Certificate of
Incorporation provides Avery will indemnify all persons whom it may indemnify
to the fullest extent permitted by the DGCL.
Amended and Restated Bylaws
The Amended and Restated Bylaws of Avery, a copy of which is filed as
Exhibit 3.2 to the Registration Statement, provide that each person who at any
time is or was a director of Avery, and is threatened to be or is made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative, arbitrative or investigative (a "Proceeding"),
by reason of the fact that such person is or was a director of Avery, or is or
was serving at the request of Avery as a director, officer, partner, venturer,
proprietor, member, employee, trustee, agent or similar functionary of another
domestic or foreign corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan or other for-profit or non-profit
enterprise, whether the basis of a Proceeding is alleged action in such
person's official capacity or in another capacity while holding such office,
shall be indemnified and held harmless by Avery, against costs, charges,
expenses (including without limitation, court costs and attorneys' fees),
judgments, fines and amounts paid or to be paid in settlement actually and
reasonably incurred or suffered by such person in connection with a Proceeding,
so long as a majority of a quorum of disinterested directors, the stockholders
or legal counsel through a written opinion do not determine that such person
did not act in good faith or in a manner he reasonably believed to be in or not
opposed to the best interests of Avery, and in the case of a criminal
Proceeding, such person had reasonable cause to believe his conduct was
unlawful. The Amended and Restated Bylaws also contain certain provisions
designed to facilitate receipt of such benefits by any such persons, including
the prepayment of any such benefits.
Indemnification Agreements
Avery has entered into Indemnification Agreements pursuant to which it will
indemnify certain of its directors and officers against judgments, claims,
damages, losses and expenses incurred as a result of the fact that any director
or officer, in his capacity as such, is made or threatened to be made a party
to any suit or proceeding. Such persons will be indemnified to the fullest
extent now or hereafter permitted by the DGCL. The Indemnification Agreements
also provide for the advancement of certain expenses to such directors and
officers in connection with any such suit or proceeding.
Insurance
Avery has a directors' and officers' liability insurance policy to insure
its directors and officers against losses resulting from wrongful acts
committed by them in their capacities as directors and officers of Avery,
including liabilities arising under the Securities Act.
II-2
<PAGE>
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered hereby, other than the
underwriting discount. All amounts are estimated except the Commission
registration fee.
<TABLE>
<S> <C>
SEC registration fee.............................................. $8,249
Blue Sky fees and expenses........................................
Accounting fees and expenses......................................
Printing and engraving expenses...................................
Legal fees and expenses...........................................
Registrar and transfer agent's fees...............................
Miscellaneous fees and expenses...................................
Total........................................................... $
</TABLE>
Item 26. Recent Sales of Unregistered Securities
On January 31, 1996, Avery engaged Phipps, Teman & Company, L.L.C. ("PTC")
to deliver to the Board of Directors a letter of recommendation with respect to
the feasibility of recapitalizing Avery's balance sheet and restructuring
certain financial arrangements, by means, among others, of (i) converting
certain debt instruments into equity and/or equity-linked securities, and (ii)
reducing the exercise prices of certain classes of warrants then outstanding.
By letter dated February 14, 1996 (the "PTC Recommendation"), PTC recommended
that Avery should offer the following: (i) to the holders of Avery's $800,000
secured bridge loan note (the "Bridge Loan Note") with warrants (the "Bridge
Loan Warrants"), the right to exchange the Bridge Loan Note for a new series of
cumulative convertible redeemable preferred stock that would pay cumulative
preferential dividends at the rate of 10% per annum, and a reduction in the
exercise price of the Bridge Loan Warrants from $0.875 to $0.60 per share; (ii)
to the holders of Avery's working capital notes in the aggregate principal
amount of $340,000 (the "WC Notes") with warrants (the "WC Warrants"), the
right to exchange the WC Notes for a new series of cumulative convertible
redeemable preferred stock that would pay cumulative preferential dividends at
the rate of 12% per annum, and a reduction in the exercise price of the WC
Warrants from $3.00 to $1.50 per share; (iii) to the holders of Avery's
$1,050,000 secured promissory note (the "BC Note") with warrants (the "BC
Warrants"), the right to exchange the BC Note for a new series of cumulative
convertible redeemable preferred stock that would pay a cumulative preferential
dividend at the rate of 12% per annum, and no reduction in the $0.10 per share
exercise price of the BC Warrants; and (iv) to the holders of all other
existing options and warrants with an exercise price per share greater than
$0.50 per share (304,000 warrants (the "$1.31 Warrants") at $1.31 per share;
150,000 warrants at $1.50 per share; 150,000 warrants (the "$2.50 Warrants") at
$2.50 per share; and 50,000 warrants at $1.50 per share), a reduction of the
exercise price to $0.50 per share.
The Board of Directors of Avery accepted the PTC Recommendation, and
authorized the proposed recapitalization upon the terms hereinafter described
(the"Avery Recapitalization").
In July 1996, Avery entered into agreements with certain of the holders of
the Bridge Loan Note, the WC Notes and the BC Note to exchange such notes on
terms substantially similar to those set forth in the PTC Recommendation. The
Bridge Loan Note was exchanged for 800,000 shares of Avery's Series A Junior
Convertible Redeemable Preferred Stock. The exercise price of the Bridge Loan
Warrant was reduced from $0.875 per share to $0.60 per share, and the Bridge
Loan Warrant was exercised by the holders of the Bridge Loan Warrant, resulting
in Avery's issuing 720,500 shares of Common Stock which are included in the
Secondary Shares and receiving gross proceeds of $432,300. The WC Notes have
been exchanged for 76,667 shares of Avery's Series C Junior Convertible
Redeemable Preferred Stock. The exercise price of the WC Warrants was reduced
from $3.00 per share to $1.50 per share, and the WC Warrants have been
exercised by the holders of the WC Warrants, resulting in Avery's issuing
38,333 shares of Common Stock which are included in the Secondary Shares and
receiving $57,500 gross proceeds. The BC Note was exchanged for
II-3
<PAGE>
850,000 shares of Avery's Series B Junior Convertible Redeemable Preferred
Stock. The exercise price of the BC Warrants remained at $0.10 per share, and
the BC Warrants were exercised by the holders of the BC Warrants, resulting in
Avery's issuing 475,000 shares of Common Stock which are included in the
Secondary Shares and receiving gross proceeds of $47,500.
Each of the persons who acquired the securities described in the Avery
Recapitalization was an accredited investor who acquired such new securities
for investment. The transactions constituting the recapitalization of Avery
involved the exchange by Avery with its existing security holders exclusively
where no commission or remuneration was paid or given directly or indirectly
for soliciting such exchange, and therefore constituted an exempt transaction
under Section 3(a)(9) of the Securities Act of 1933.
In November 1996, Avery acquired HBS. In connection with such acquisition,
Avery issued an aggregate of 1,499,627 shares of Common Stock to the former
partners of HBS. Each of such persons was an "accredited investor," as defined
in Rule 501 of Regulation D under the Securities Act, who acquired the shares
of Common Stock for investment. Avery issued such shares in a transaction not
involving a public offering in reliance upon the exemption set forth in Section
4(2) of the Securities Act.
In November 1996, Avery sold units consisting of an aggregate of 1,880,000
shares of Preferred Stock and 1,253,330 shares of Common Stock to finance the
acquisition of HBS. Each of the purchasers of such units was an accredited
investor who acquired such units for investment. At the time of such purchase,
each of the purchasers was also a beneficial owner of securities of Avery.
Avery issued the units in a transaction not involving a public offering in
reliance upon the exemption set forth in Section 4(2) of the Securities Act.
In March 1997, Avery issued an aggregate of 73,380 shares of Common Stock in
settlement of certain accounts payable. The recipients of these shares of
Common Stock were accredited investors who acquired such shares for investment.
Avery issued these shares in a transaction not involving a public offering in
reliance upon the exemptions set forth in Section 3(a)(9) and Section 4(2) of
the Securities Act.
In November 1997, Avery issued an aggregate of 156,154 shares of Common
Stock in payment of interest due on certain notes payable of Avery. The persons
who received such shares were accredited investors who acquired such shares for
investment. Avery issued these shares in a transaction not involving a public
offering in reliance upon the exemption set forth in Section 4(2) of the Act.
This transaction also constituted an exchange of the Common Stock by Avery with
its existing security holders exclusively where no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange, and therefore constituted an exempt transaction under Section 3(a)(9)
of the Securities Act.
In November 1997, Avery issued an aggregate of 10,000 shares of Preferred
Stock in exchange for certain outstanding debt of Avery. The recipient of such
stock was an accredited investor who acquired such shares for investment. Avery
issued such shares in a transaction not involving a public offering in reliance
upon the exemption set forth in Section 4(2) of the Act. This transaction also
constituted an exchange of the Preferred Stock by Avery with its existing
security holders exclusively where no commission or other remuneration was paid
or given directly or indirectly for soliciting such exchange, and therefore
constituted an exempt transaction under Section 3(a)(9) of the Securities Act.
Since January 1, 1996, Avery issued an aggregate of 2,000,881 shares of
Common Stock to approximately 20 persons upon exercise of outstanding warrants
previously issued by Avery to such persons. Each of the purchasers of such
shares upon exercise of such warrants was an accredited investor who acquired
such shares for investment. Avery issued such shares upon exercise of such
warrants in transactions not involving a public offering in reliance upon the
exemption set forth in Section 4(2) of the Securities Act.
The information set forth in the prospectus constituting a part of this
Registration Statement under the caption "Certain Transactions" is incorporated
herein by reference. Each of the persons who acquired the securities described
thereunder was an accredited investor who acquired such securities for
investment. Each of such persons was also either a director of Avery or an
affiliate of a director of Avery. Avery issued such securities in transactions
not involving a public offering in reliance upon the exemption set forth in
Section 4(2) of the Securities Act.
II-4
<PAGE>
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
2.1 Partnership Interest Purchase Agreement dated as of May 3, 1996, by
and among Avery Communications, Inc., Avery Acquisition Sub, Inc.,
Hold Billing Services, Ltd., Hold Billing & Collection, L.C., Joseph
W. Webb, James A. Young, Edward L. Dunn, Philip S. Dunn,
Harold D. Box, and David W. Mechler, Jr.
2.2 First Amendment to Partnership Interest Purchase Agreement by and
between Avery Communications, Inc., Avery Acquisition Sub, Inc., Hold
Billing Services, Ltd., Hold Billing & Collection, L.C., Joseph W.
Webb, James A. Young, Edward L. Dunn, Philip S. Dunn, Harold D. Box
and David W. Mechler, Jr.
2.3 Partnership Interest Option Agreement dated as of May 3, 1996, by and
among Avery Communications, Inc., Avery Acquisition Sub, Inc., Harold
D. Box and David W. Mechler, Jr.
2.4 First Amendment to Partnership Interest Option Agreement dated as of
October 15, 1996, by and among Avery Communications, Inc., Avery
Acquisition Sub, Inc., Harold D. Box, and David W. Mechler, Jr.
2.5 Agreement and Plan of Merger, dated as of March 19, 1999, by and among
Avery Communications, Inc., ACI Telecommunications Financial Services
Corporation, Primal Systems, Inc., Mark J. Nielsen, John Faltys,
Joseph R. Simrell and David Haynes
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated Bylaws
4.1 Specimen Common Stock Certificate
4.2 Form of Warrant Exchange and Exercise Agreement
4.3 Form of Warrant Exercise and Securities Exchange Agreement for
$800,000 Bridge Loan Notes
4.4 Form of Warrant Exercise and Securities Exchange Agreement for
$1,050,000 Promissory Note
4.5 Form of Warrant Exercise and Securities Exchange Agreement for
$340,000 Promissory Notes
4.6 Registration Rights Agreement by and among Avery Communications, Inc.
and Joseph W. Webb, James A. Young, Edward L. Dunn, Philip S. Dunn,
Harold D. Box, and David W. Mechler, Jr. dated November 15, 1996
4.7 Registration Rights Agreement by and between Avery Communications,
Inc. and The Franklin Holding Corporation (Delaware) dated May 30,
1997
4.8 Registration Rights Agreement by and between Avery Communications,
Inc. and Roger Felberbaum dated December 5, 1996
4.9 Registration Rights Agreement by and between Avery Communications,
Inc. and Giulio Curiel dated December 31, 1996
4.10 Registration Rights Agreement by and between Avery Communications,
Inc. and Sabina International S.A. dated December 31, 1996
4.11 Form of Investor Warrant
4.12 Registration Rights Agreement by and between Avery Communications,
Inc. and Thomas A. Montgomery dated January 24, 1997
4.13 Registration Rights Agreement by and between Avery Communications,
Inc. and Thurston Bridge Fund, L.P. dated December 6, 1996
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
4.14 Registration Rights Agreement by and between Avery Communications,
Inc. and Eastern Virginia Small Business Investment Corporation dated
December 23, 1996
4.15 Securities Exchange Agreement for 1996 HBS Series
4.16 $350,000 Promissory Note payable to Eastern Virginia Small Business
Investment Corporation dated December 23, 1996
4.17 $50,000 Promissory Note to Global Capital Resources, Inc. dated
September 30, 1996
4.18 Loan and Security Agreement, by and between Hold Billing Services,
Ltd. and FINOVA Capital Corporation dated March 25, 1997
4.19 Schedule to Loan and Security Agreement, by and between Hold Billing
Services, Ltd. and FINOVA Capital Corporation dated March 25, 1997
4.20 Amendment to Loan and Security Agreement and Schedule to Loan and
Security Agreement, by and between Hold Billing Services, Ltd. and
FINOVA Capital Corporation dated February 1998
4.21 Second Amendment to Loan and Security Agreement and Schedule to Loan
and Security Agreement, by and between Hold Billing Services, Ltd. and
FINOVA Capital Corporation dated April 1998
4.22 $7,500,000 Secured Revolving Credit Note to FINOVA Capital Corporation
from Hold Billing Services dated March 25, 1997
5.1 Opinion of Winstead Sechrest & Minick P.C.
10.1 Employment Agreement by and between Avery Communications, Inc. and
Patrick J. Haynes, III dated July 1, 1998
10.2 Stock Warrant Certificate to Patrick J. Haynes, III dated July 1, 1998
10.3 Employment and Noncompetition Agreement by and between Hold Billing
Services, Ltd. and Harold D. Box dated November 15, 1996
10.4 Employment Agreement by and between Avery Communications, Inc. and
Mark J. Nielsen dated December 1, 1998
10.5 Avery Communications, Inc. Stock Option to Mark J. Nielsen dated
December 1, 1998
10.6 Investment Agreement by and between The Franklin Holding Corporation
(Delaware) and Avery Communications, Inc. dated May 30, 1997
10.7 Warrant to the Thurston Group, Inc. dated May 27, 1997
10.8 Avery Communications, Inc. Stock Purchase Warrant to Thurston Bridge
Fund, L.P. dated December 6, 1996
10.9 Avery Communications, Inc. Stock Purchase Warrant to Eastern Virginia
Small Business Investment Corporation dated December 23, 1996
10.10 Avery Communications, Inc. Stock Purchase Warrant to The Franklin
Holding Corporation (Delaware) dated May 30, 1997
10.11 Form of Billing Services Agreement
10.12 Form of Supplemental Advance Purchase Agreement
10.13 Form of Director and Officer Indemnification Agreement
11.1 Statement Regarding Computation of Earnings per Share
16.1 Letter from PricewaterhouseCoopers LLP on change in certifying
accountant
21.1 Subsidiaries of Registrant
23.1 Consent of King Griffin & Adamson P.C.
23.2 Consent of Winstead Sechrest & Minick P.C. (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page of this Registration
Statement as originally filed)
24.2 Power of Attorney for Mark J. Nielsen
24.3 Power of Attorney for Robert T. Isham, Jr.
27.1 Financial Data Schedule for Twelve Months Ended December 31, 1998
27.2 Financial Data Schedule for Three Months Ended March 31, 1999
</TABLE>
II-6
<PAGE>
Item 28. Undertakings
Rule 415
Avery will:
(1) File, during any period in which it offers or sells securities, a post-
effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the securities offered,
and the offering of the securities at that time to be the initial bona fide
offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
Commission Policy on Indemnification
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Avery pursuant to the foregoing provisions, or otherwise, Avery has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the small business issuer of expenses incurred or
paid by a director, officer or controlling person of the small business issuer
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, Avery will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
Rule 430A
Avery will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Avery under Rule 424(b)(1), or (4) or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration
statement, and that offering of the securities at that time as the initial bona
fide offering of those securities.
II-7
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Chicago, State of Illinois, on July 19, 1999.
AVERY COMMUNICATIONS, INC.
By: /s/ Scot M. McCormick
---------------------------
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Patrick J. Haynes, III* Director, Chairman of the Board July 19, 1999
- ---------------------------------
Patrick J. Haynes, III
/s/ Mark J. Nielsen* Director, President and Chief July 19, 1999
- --------------------------------- Executive Officer (Principal
Mark J. Nielsen Executive Officer)
/s/ Scot M. McCormick Director, Vice President, Chief
- --------------------------------- Financial Officer and Secretary July 19, 1999
Scot M. McCormick (Principal Accounting Officer)
/s/ Norman M. Phipps* Director July 19, 1999
- ---------------------------------
Norman M. Phipps
/s/ J. Alan Lindauer* Director July 19, 1999
- ---------------------------------
J. Alan Lindauer
/s/ Stephen L. Brown* Director July 19, 1999
- ---------------------------------
Stephen L. Brown
/s/ Robert T. Isham, Jr.* Director July 19, 1999
- ---------------------------------
Robert T. Isham, Jr.
*By: /s/ Scot M. McCormick July 19, 1999
------------------------------
Scot M. McCormick
Attorney-in-Fact
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
2.1 Partnership Interest Purchase Agreement dated as of May 3,
1996, by and among Avery Communications, Inc., Avery
Acquisition Sub, Inc., Hold Billing Services, Ltd., Hold
Billing & Collection, L.C., Joseph W. Webb, James A. Young,
Edward L. Dunn, Philip S. Dunn, Harold D. Box, and David W.
Mechler, Jr.
2.2 First Amendment to Partnership Interest Purchase Agreement by
and between Avery Communications, Inc., Avery Acquisition Sub,
Inc., Hold Billing Services, Ltd., Hold Billing & Collection,
L.C., Joseph W. Webb, James A. Young, Edward L. Dunn, Philip
S. Dunn, Harold D. Box and David W. Mechler, Jr.
2.3 Partnership Interest Option Agreement dated as of May 3, 1996,
by and among Avery Communications, Inc., Avery Acquisition
Sub, Inc., Harold D. Box and David W. Mechler, Jr.
2.4 First Amendment to Partnership Interest Option Agreement dated
as of October 15, 1996, by and among Avery Communications,
Inc., Avery Acquisition Sub, Inc., Harold D. Box, and David W.
Mechler, Jr.
2.5 Agreement and Plan of Merger, dated as of March 19, 1999, by
and among Avery Communications, Inc., ACI Telecommunications
Financial Services Corporation, Primal Systems, Inc., Mark J.
Nielsen, John Faltys, Joseph R. Simrell and David Haynes
3.1 Certificate of Incorporation, as amended
3.2 Amended and Restated Bylaws
4.1 Specimen Common Stock Certificate
4.2 Form of Warrant Exchange and Exercise Agreement
4.3 Form of Warrant Exercise and Securities Exchange Agreement for
$800,000 Bridge Loan Notes
4.4 Form of Warrant Exercise and Securities Exchange Agreement for
$1,050,000 Promissory Note
4.5 Form of Warrant Exercise and Securities Exchange Agreement for
$340,000 Promissory Notes
4.6 Registration Rights Agreement by and among Avery
Communications, Inc. and Joseph W. Webb, James A. Young,
Edward L. Dunn, Philip S. Dunn, Harold D. Box, and David W.
Mechler, Jr. dated November 15, 1996
4.7 Registration Rights Agreement by and between Avery
Communications, Inc. and The Franklin Holding Corporation
(Delaware) dated May 30, 1997
4.8 Registration Rights Agreement by and between Avery
Communications, Inc. and Roger Felberbaum dated December 5,
1996
4.9 Registration Rights Agreement by and between Avery
Communications, Inc. and Giulio Curiel dated December 31, 1996
4.10 Registration Rights Agreement by and between Avery
Communications, Inc. and Sabina International S.A. dated
December 31, 1996
4.11 Form of Investor Warrant
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S> <C>
4.12 Registration Rights Agreement by and between Avery
Communications, Inc. and Thomas A. Montgomery dated January 24,
1997
4.13 Registration Rights Agreement by and between Avery
Communications, Inc. and Thurston Bridge Fund, L.P. dated
December 6, 1996
4.14 Registration Rights Agreement by and between Avery
Communications, Inc. and Eastern Virginia Small Business
Investment Corporation dated December 23, 1996
4.15 Securities Exchange Agreement for 1996 HBS Series
4.16 $350,000 Promissory Note payable to Eastern Virginia Small
Business Investment Corporation dated December 23, 1996
4.17 $50,000 Promissory Note to Global Capital Resources, Inc. dated
September 30, 1996
4.18 Loan and Security Agreement, by and between Hold Billing
Services, Ltd. and FINOVA Capital Corporation dated March 25,
1997
4.19 Schedule to Loan and Security Agreement, by and between Hold
Billing Services, Ltd. and FINOVA Capital Corporation dated
March 25, 1997
4.20 Amendment to Loan and Security Agreement and Schedule to Loan
and Security Agreement, by and between Hold Billing Services,
Ltd. and FINOVA Capital Corporation dated February 1998
4.21 Second Amendment to Loan and Security Agreement and Schedule to
Loan and Security Agreement, by and between Hold Billing
Services, Ltd. and FINOVA Capital Corporation dated April 1998
4.22 $7,500,000 Secured Revolving Credit Note to FINOVA Capital
Corporation from Hold Billing Services dated March 25, 1997
5.1 Opinion of Winstead Sechrest & Minick P.C.
10.1 Employment Agreement by and between Avery Communications, Inc.
and Patrick J. Haynes, III dated July 1, 1998
10.2 Stock Warrant Certificate to Patrick J. Haynes, III dated July
1, 1998
10.3 Employment and Noncompetition Agreement by and between Hold
Billing Services, Ltd. and Harold D. Box dated November 15, 1996
10.4 Employment Agreement by and between Avery Communications, Inc.
and Mark J. Nielsen dated December 1, 1998
10.5 Avery Communications, Inc. Stock Option to Mark J. Nielsen dated
December 1, 1998
10.6 Investment Agreement by and between The Franklin Holding
Corporation (Delaware) and Avery Communications, Inc. dated May
30, 1997
10.7 Warrant to the Thurston Group, Inc. dated May 27, 1997
10.8 Avery Communications, Inc. Stock Purchase Warrant to Thurston
Bridge Fund, L.P. dated December 6, 1996
10.9 Avery Communications, Inc. Stock Purchase Warrant to Eastern
Virginia Small Business Investment Corporation dated December
23, 1996
10.10 Avery Communications, Inc. Stock Purchase Warrant to The
Franklin Holding Corporation (Delaware) dated May 30, 1997
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Document Number
------- ----------------------- ------
<C> <S> <C>
10.11 Form of Billing Services Agreement
10.12 Form of Supplemental Advance Purchase Agreement
10.13 Form of Director and Officer Indemnification Agreement
11.1 Statement Regarding Computation of Earnings per Share
16.1 Letter from PricewaterhouseCoopers LLP on change in
certifying accountant
21.1 Subsidiaries of Registrant
23.1 Consent of King Griffin & Adamson P.C.
23.2 Consent of Winstead Sechrest & Minick P.C. (included in
Exhibit 5.1)
24.1 Power of Attorney (included on signature page of this
Registration Statement as originally filed)
24.2 Power of Attorney for Mark J. Nielsen
24.3 Power of Attorney for Robert T. Isham, Jr.
27.1 Financial Data Schedule for Twelve Months Ended December 31,
1998
27.2 Financial Data Schedule for Three Months Ended March 31, 1999
</TABLE>
<PAGE>
EXHIBIT 2.1
FINAL SIGNATURE COPY
PARTNERSHIP INTEREST PURCHASE AGREEMENT
BY AND AMONG
AVERY COMMUNICATIONS, INC.,
AVERY ACQUISITION SUB, INC.,
HOLD BILLING SERVICES, LTD.,
HOLD BILLING & COLLECTION, L.C.,
JOSEPH W. WEBB,
JAMES A. YOUNG,
EDWARD L. DUNN,
PHILIP S. DUNN,
HAROLD D. BOX,
AND
DAVID W. MECHLER, JR.
--------------------------------------------------------------
DATED AS OF MAY 3, 1996
--------------------------------------------------------------
<PAGE>
FINAL SIGNATURE COPY
TABLE OF CONTENTS
ARTICLE 1
PURCHASE AND SALE OF PARTNERSHIP INTERESTS
Section 1.1 Purchase and Sale of Partnership Interests...................... 2
Section 1.2 Purchase Price.................................................. 2
Section 1.3 Closing......................................................... 2
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
Section 2.1 Representations and Warranties of Billing, General Partner and
Selling Partners........................................................ 2
2.1.1 Authorization.................................................. 2
2.1.2 Partnership Status............................................. 3
2.1.3 No Conflicts................................................... 3
2.1.4 Financial Statements........................................... 4
2.1.5 Absence of Undisclosed Liabilities............................. 4
2.1.6 Taxes.......................................................... 5
2.1.7 Absence of Changes............................................. 6
2.1.8 Litigation..................................................... 8
2.1.9 Compliance with Laws; Governmental Approvals and Consents;
Governmental Contracts......................................... 9
2.1.10 Operation of the Business...................................... 10
2.1.11 Assets......................................................... 10
2.1.12 Contracts...................................................... 10
2.1.13 Territorial Restrictions....................................... 13
2.1.14 Inventories.................................................... 13
2.1.15 Customers and Pricing.......................................... 13
2.1.16 Suppliers; Raw Materials....................................... 13
2.1.17 Product Warranties............................................. 14
2.1.18 Absence of Certain Business Practices.......................... 14
2.1.19 Intellectual Property.......................................... 15
(a) Title.................................................... 15
(b) Transfer................................................. 15
(c) No Infringement.......................................... 15
(d) Licensing Arrangements................................... 15
(e) No Intellectual Property Litigation...................... 16
(f) Due Registration......................................... 16
(g) Use of Name and Mark..................................... 16
2.1.20 Insurance...................................................... 16
2.1.21 Real Property.................................................. 17
(a) Owned Real Property................................... 17
-i-
<PAGE>
FINAL SIGNATURE COPY
(b) Leases................................................... 17
(c) Fee and Leasehold Interests.............................. 17
(d) No Proceedings........................................... 17
(e) Current Use.............................................. 18
(f) Compliance with Real Property Laws....................... 18
2.1.22 Environmental Matters.......................................... 18
(a) Permits.................................................. 18
(b) No Violations............................................ 18
(c) No Actions............................................... 19
(d) Full Disclosure.......................................... 19
2.1.23 Employees and Labor Matters.................................... 19
2.1.24 Employee Benefit Plans and Related Matters..................... 20
(a) Employee Benefit Plans................................... 20
(b) Qualification............................................ 21
(c) Compliance; Liability.................................... 21
2.1.25 Confidentiality................................................ 22
2.1.26 No Guarantees.................................................. 22
2.1.27 Records........................................................ 22
2.1.28 Brokers and Finders............................................ 22
2.1.29 Business Description and Review................................ 23
2.1.30 Receivables.................................................... 23
2.1.31 Transactions with Affiliates................................... 23
2.1.32 Disclosure..................................................... 24
Section 2.2 Title to Partnership Interests.................................. 24
Section 2.3 Representations and Warranties of ACI and Merger Sub............ 24
2.3.1 Corporate Status and Authorization............................. 24
2.3.2 No Conflicts, Etc.............................................. 25
2.3.3 Litigation..................................................... 25
2.3.4 Brokers and Finders............................................ 26
2.3.5 Disclosure..................................................... 26
ARTICLE 3
COVENANTS
Section 3.1 Covenants of Billing, General Partner and Selling Partner....... 26
3.1.1 Conduct of Business............................................ 26
3.1.2 No Solicitation................................................ 27
3.1.3 Access and Information......................................... 28
3.1.4 Financial Statements........................................... 28
3.1.5 Public Announcements........................................... 29
3.1.6 Further Actions................................................ 29
3.1.7 Partner Consents............................................... 30
3.1.8 Further Assurances............................................. 30
3.1.9 Disclosure Memorandum.......................................... 30
-ii-
<PAGE>
FINAL SIGNATURE COPY
3.1.10 Conveyance of General Partner.................................. 32
Section 3.2 Covenants of ACI and Merger Sub................................. 32
3.2.1 Public Announcements........................................... 32
3.2.2 Further Actions................................................ 32
3.2.3 Further Assurances............................................. 33
ARTICLE 4
CONDITIONS PRECEDENT
Section 4.1 Conditions to Obligations of Each Party......................... 33
4.1.1 HSR Act Notification........................................... 33
4.1.2 No Injunction, Etc............................................. 33
Section 4.2 Conditions to Obligations of ACI and Merger Sub................. 34
4.2.1 Representations, Performance................................... 34
4.2.2 Financing...................................................... 34
4.2.3 Consents....................................................... 34
4.2.4 No Material Adverse Effect..................................... 34
4.2.5 Collateral Agreements.......................................... 35
4.2.6 Subsequent Monthly Financial Statements........................ 35
4.2.7 Proceedings.................................................... 35
4.2.8 HOLD Closing................................................... 35
Section 4.3 Conditions to Obligations of Selling Partners................... 36
4.3.1 Representations, Performance................................... 36
4.3.2 Corporate Proceedings.......................................... 36
4.3.3 HOLD Closing................................................... 36
4.3.4 Consents and Approvals......................................... 37
ARTICLE 5
TERMINATION
Section 5.1 Termination..................................................... 37
Section 5.2 Effect of Termination........................................... 38
ARTICLE 6
INDEMNIFICATION
Section 6.1 By Billing and the Selling Partners............................. 38
Section 6.2 By Merger Sub and ACI........................................... 38
Section 6.3 Limitation on Indemnification................................... 39
Section 6.4 Maximum Liability of Young...................................... 39
Section 6.5 Adjustments to Indemnification Payments......................... 39
Section 6.6 Indemnification Procedures...................................... 39
Section 6.7 Time Limitation................................................. 40
Section 6.8 Indemnification Not Exclusive................................... 40
-iii-
<PAGE>
FINAL SIGNATURE COPY
ARTICLE 7
DEFINITIONS AND CONSTRUCTION
Section 7.1 Definition of Certain Terms..................................... 41
Section 7.2 Rules of Construction........................................... 48
ARTICLE 8
GENERAL PROVISIONS
Section 8.1 Survival of Representations and Warranties...................... 50
Section 8.2 Expenses........................................................ 50
Section 8.3 Severability.................................................... 50
Section 8.4 Notices......................................................... 50
Section 8.5 Headings........................................................ 51
Section 8.6 Entire Agreement................................................ 51
Section 8.7 Counterparts.................................................... 52
Section 8.8 Governing Law, Etc.............................................. 52
Section 8.9 Binding Effect.................................................. 52
Section 8.10 Assignment..................................................... 52
Section 8.11 No Third Party Beneficiaries................................... 52
Section 8.12 Amendment; Waivers, Etc........................................ 52
LIST OF EXHIBITS
Exhibit A - Form of Non-Competition Agreement
Exhibit B - Form of Mechler Employment Agreement
Exhibit C - Form of Box Employment Agreement
-iv-
<PAGE>
FINAL SIGNATURE COPY
INDEX OF DEFINED TERMS
ACI .........................................................1, 41
ACI Indemnitees ............................................................38
Affiliate ............................................................41
Agreement .........................................................1, 41
Applicable Law ............................................................41
Balance Sheet ............................................................41
Balance Sheet Date.........................................................4, 41
Benefit Liabilities...........................................................41
Billing .........................................................1, 41
Billing Business Plan.........................................................23
Billing Group ........................................................38, 42
Billing Indemnitees.......................................................39, 42
Box .........................................................1, 42
Box Employment Agreement......................................................35
Business Day ............................................................42
CERCLA ............................................................42
Closing .........................................................2, 42
Closing Date .........................................................2, 42
Code ............................................................42
Collateral Agreements.........................................................42
Consent ............................................................42
Contracts ........................................................10, 42
Control ............................................................41
Covered Returns .........................................................5, 42
Covered Taxes ............................................................42
Disclosure Memorandum.....................................................30, 42
Dollars ............................................................42
E. Dunn .........................................................1, 42
employee benefit plan.....................................................20, 42
Employees ........................................................20, 43
Environmental Assessment......................................................43
Environmental Laws............................................................43
Environmental Liabilities and Costs...........................................43
Environmental Permits.........................................................43
ERISA ............................................................43
Financial Statements.......................................................4, 44
GAAP ............................................................44
General Partner .........................................................1, 44
Government Approval...........................................................44
Governmental Authority........................................................44
Hazardous Substances..........................................................44
HOLD Business Plan............................................................42
-i-
<PAGE>
FINAL SIGNATURE COPY
HOLD Merger Agreement..........................................................1
HSR Act ............................................................44
Indemnified Party ........................................................39, 44
Indemnifying Party........................................................40, 44
Intellectual Property.........................................................44
Inventories ............................................................45
IRS ............................................................45
Leased Real Property..........................................................45
Leases ............................................................45
Lien ............................................................45
Losses ........................................................38, 45
Material Adverse Effect.......................................................45
Mechler .........................................................1, 45
Mechler Employment Agreement..................................................35
Merger Sub .........................................................1, 45
Merger Sub Indemnitees........................................................45
Monthly Unaudited Financial Statements.....................................4, 45
Multiemployer Plan........................................................21, 45
Multiple Employer Plan....................................................21, 46
Non-Competition Agreement.................................................35, 46
Owned Intellectual Property...............................................15, 46
Owned Real Property...........................................................46
P. Dunn .........................................................1, 46
Partner .........................................................1, 46
Partners .........................................................1, 46
Partnership .........................................................1, 46
Partnership Interest..........................................................46
Permitted Liens ............................................................46
Person ............................................................46
Plans ........................................................20, 47
Purchase Price .............................................................2
Real Property ............................................................47
Real Property Laws........................................................18, 47
Reimbursable Expenses.........................................................47
Related Persons ........................................................20, 47
Release ............................................................47
Remedial Action ............................................................47
Review Termination Date.......................................................47
Rights ............................................................47
Securities Act ............................................................47
Security ........................................................23, 47
Selling Partner .........................................................1, 47
Selling Partners .........................................................1, 47
Subsequent Monthly Financial Statements...................................28, 48
-ii-
<PAGE>
FINAL SIGNATURE COPY
Subsidiaries ............................................................48
Supporting Documents......................................................31, 48
Tax ............................................................48
Tax Return ............................................................48
Termination Date ............................................................48
Treasury Regulations..........................................................48
TRLPA ............................................................48
Unaudited Financial Statements.............................................4, 48
Webb .........................................................1, 48
Withholding Taxes .........................................................5, 48
Young .........................................................1, 48
-iii-
<PAGE>
FINAL SIGNATURE COPY
LIST OF SCHEDULES
Schedule 2.1.2(b)............................................................ 3
Schedule 2.1.2(d)............................................................ 3
Schedule 2.1.3............................................................... 4
Schedule 2.1.5............................................................... 4
Schedule 2.1.6(a)............................................................ 5
Schedule 2.1.6(b)............................................................ 5
Schedule 2.1.6(c)............................................................ 5
Schedule 2.1.6(d)............................................................ 6
Schedule 2.1.7............................................................... 6
Schedule 2.1.8............................................................... 8
Schedule 2.1.9(a)............................................................ 9
Schedule 2.1.9(b)............................................................ 9
Schedule 2.1.9(c)............................................................ 9
Schedule 2.1.10.............................................................. 10
Schedule 2.1.11.............................................................. 10
Schedule 2.1.12(a)........................................................... 10
Schedule 2.1.12(c)........................................................... 13
Schedule 2.1.14.............................................................. 13
Schedule 2.1.16.............................................................. 13
Schedule 2.1.17.............................................................. 14
Schedule 2.1.19(a)........................................................... 15
Schedule 2.1.19(d)........................................................... 15
Schedule 2.1.19(g)........................................................... 16
Schedule 2.1.20.............................................................. 16
Schedule 2.1.22(a)........................................................... 18
Schedule 2.1.22(c)........................................................... 19
Schedule 2.1.23.............................................................. 19
Schedule 2.1.23.............................................................. 19
Schedule 2.1.24(a)........................................................... 20
Schedule 2.1.26.............................................................. 22
Schedule 2.1.29.............................................................. 23
Schedule 2.1.30.............................................................. 23
Schedule 2.1.31.............................................................. 23
Schedule 2.3.2............................................................... 25
-i-
<PAGE>
FINAL SIGNATURE COPY
LIST OF EXHIBITS
Exhibit A.................................................................... 35
Exhibit B.................................................................... 35
Exhibit C.................................................................... 35
-i-
<PAGE>
FINAL SIGNATURE COPY
PARTNERSHIP INTEREST PURCHASE AGREEMENT
This PARTNERSHIP INTEREST PURCHASE AGREEMENT (this "Agreement") is
---------
dated as of May 3, 1996, and is being entered by and among AVERY COMMUNICATIONS,
INC., a Delaware corporation ("ACI"), AVERY ACQUISITION SUB, INC., a Texas
---
corporation ("Merger Sub"), HOLD BILLING SERVICES, LTD., a Texas limited
-----------
partnership ("Billing" or the "Partnership"), HOLD BILLING & COLLECTION, L.C., a
------- -----------
Texas limited liability company and the General Partner (the "General Partner")
----------------
of Billing, JOSEPH W. WEBB ("Webb"), JAMES A. YOUNG ("Young"), EDWARD L. DUNN
---- -----
("E. Dunn"), PHILIP S. DUNN ("P. Dunn," and, collectively with Webb, Young and
-------
E. Dunn, the "Selling Partners," or individually, a "Selling Partner"), HAROLD
---------------- ---------------
D. BOX ("Box"), DAVID W. MECHLER, JR. ("Mechler," and, collectively with the
--- -------
General Partner, Webb, Young, E. Dunn, P. Dunn and Box, the "Partners," or
---------
individually, a "Partner"), with reference to the following RECITALS:
-------
R E C I T A L S
A. Contemporaneously herewith, ACI, Merger Sub, Home Owners Long
Distance Incorporated, a Texas corporation, the Selling Partners and others are
entering into an Agreement and Plan of Merger (the "HOLD Merger Agreement")
-----------------------
pursuant to which, subject to the terms and conditions set forth therein, Merger
Sub will merge with and into Home Owners Long Distance Incorporated and Home
Owners Long Distance Incorporated will become a wholly owned subsidiary of ACI.
B. The Selling Partners own an aggregate of 54% of the Partnership
Interests of the Partnership. Subject only to the limitations and exclusions
contained in this Agreement, and on the terms and conditions hereinafter set
forth, each of the Selling Partners desires to sell, and Merger Sub, as a
condition to its consummating the transactions contemplated by the HOLD Merger
Agreement, desires to purchase, the Partnership Interest of each of the Selling
Partners. Box and Mechler desire to join in this Agreement for the limited
purposes of facilitating certain acts required to be taken by the Partnership to
consummate the transactions contemplated hereby and to induce the Partnership to
enter the employment agreements with each of them for which provisions are made
herein.
C. Each capitalized term used herein is defined in Section 7.1 hereof.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
<PAGE>
FINAL SIGNATURE COPY
ARTICLE 1
PURCHASE AND SALE OF PARTNERSHIP INTERESTS
SECTION 1.1 PURCHASE AND SALE OF PARTNERSHIP INTERESTS. On the basis of
the representations, warranties and agreements contained in this Agreement, and
subject to the terms and conditions of this Agreement, each Selling Partner
shall sell, assign, transfer, and convey to Merger Sub at the Closing all of
Selling Partner's Rights in the Selling Partner's Partnership Interest, free and
clear of any and all Liens.
SECTION 1.2 PURCHASE PRICE. The aggregate purchase price for the
Partnership Interests of the Selling Partners shall be $2,970,000 (the "Purchase
--------
Price"). The Purchase Price shall be paid to the Selling Partners, pro rata in
- -----
accordance with their respective Partnership Interests, at the Closing by wire
transfer of immediately available funds against delivery of the Partnership
Interests.
SECTION 1.3 CLOSING. Subject to the terms and conditions of this
Agreement, the closing (the "Closing") of this Agreement and the transactions
-------
contemplated hereby, shall take place at the offices of Winstead Sechrest &
Minick P.C., 5400 Renaissance Tower, 1201 Elm Street, Dallas, Texas 75270, at
10:00 A.M., local time, on the later of (i) August 1, 1996, or (ii) the date
which is three Business Days after the satisfaction or waiver of all conditions
to the consummation of the transactions contemplated hereby, or at such other
time or place or on such other date, in each case as may be mutually agreed upon
in writing by ACI and the Selling Partners. The date of the Closing is sometimes
herein referred to as the "Closing Date."
------------
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
SECTION 2.1 REPRESENTATIONS AND WARRANTIES OF BILLING, GENERAL PARTNER
AND SELLING PARTNERS. Billing and the General Partner, jointly and severally
with each other, and Selling Partners, jointly and severally with each other
Selling Partner and (except as to 2.1.1, 2.1.2(a), (c) and (d), 2.1.28 and
2.1.32 below) to the best of Selling Partners' knowledge, represent and warrant
to ACI and Merger Sub that, except as set forth in the Disclosure Memorandum
delivered to ACI and Merger Sub as provided in Section hereof, each of which
exceptions shall specifically identify the relevant subsection hereof to which
it relates and shall be deemed to be representations and warranties as if made
hereunder:
2.1.1 AUTHORIZATION. Billing and the Selling Partners have the
power and authority to execute and deliver this Agreement and each of
the Collateral Agreements, to perform fully their respective
obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby.
-2-
<PAGE>
FINAL SIGNATURE COPY
The execution and delivery by Billing of this Agreement, and the
consummation of the transactions contemplated hereby, have been, and on
the Closing Date the execution and delivery by Billing of each of the
Collateral Agreements and the consummation of the transactions
contemplated thereby will have been, duly authorized by all requisite
action of Billing. Billing and the Selling Partners have duly executed
and delivered this Agreement and on the Closing Date Billing and the
Selling Partners will have duly executed and delivered each of the
Collateral Agreements. This Agreement is, and on the Closing Date each
of the Collateral Agreements will be, legal, valid and binding
obligations of Billing and the Selling Partners, enforceable against
them in accordance with their respective terms.
2.1.2 PARTNERSHIP STATUS.
(a) Billing is a limited partnership duly organized,
validly existing and in good standing under the laws of the
State of Texas, with full power and authority to carry on its
business and to own or lease and to operate its properties as
and in the places where such business is conducted and such
properties owned, leased or operated.
(b) Billing is duly qualified to do business as a
foreign limited partnership and is in good standing under the
laws of each state or other jurisdictions specified opposite
its name in Schedule 2.1.2(b), which are the only
jurisdictions in which the operation of its business or the
character of the properties owned, leased or operated by it in
connection with its business makes such qualification or
licensing necessary.
(c) Billing has delivered to Merger Sub complete and
correct copies of its agreement of limited partnership or
other organizational documents, in each case, as amended and
in effect on the date hereof. Billing is not in violation of
any of the provisions of its agreement of limited partnership
or other organizational documents.
(d) The Partners own beneficially and of record the
Partnership Interests set forth beside their respective names
on Schedule .
2.1.3 NO CONFLICTS. The execution, delivery and performance by
Billing and the Selling Partners of this Agreement and each of the
Collateral Agreements, and the consummation of the transactions
contemplated hereby and thereby, do not and will not conflict with or
result in a violation of or a default under (with or without the giving
of notice or the lapse of time or both) (i) any Applicable Law
-3-
<PAGE>
FINAL SIGNATURE COPY
applicable to Billing or any Affiliate thereof or any of the properties
or assets of Billing, (ii) the agreement of limited partnership or
other organizational documents of Billing or (iii) except as set forth
in Schedule 2.1.3, any Contract or other contract, agreement or other
instrument to which Billing or any Affiliate thereof is a party or by
which Billing or any of their properties or assets may be bound or
affected. Except as specified in Schedule 2.1.3, no Governmental
Approval or other Consent is required to be obtained or made by Billing
in connection with the execution and delivery of this Agreement and the
Collateral Agreements or the consummation of the transactions
contemplated hereby or thereby.
2.1.4 FINANCIAL STATEMENTS. Billing has delivered to ACI (a)
unaudited consolidated financial statements of Billing as at and for
the 12-month period ended December 31, 1995 (the "Unaudited Financial
--------------------
Statements"), and (b) unaudited consolidated financial statements of
----------
Billing as at and for the monthly periods ended January 31, February
29, and March 31, 1996 (the "Monthly Unaudited Financial Statements"),
---------------------------------------
and related statements of income for the periods then ended (the
Unaudited Financial Statements and the Monthly Unaudited Statements,
and, from and after the date of delivery thereof, the Subsequent
Monthly Financial Statements, being hereinafter referred to
collectively as the "Financial Statements"). The Unaudited Financial
---------------------
Statements and the Monthly Unaudited Financial Statements are complete
and correct in all material respects and have been prepared and, when
delivered, the Subsequent Monthly Financial Statements will have been
prepared, in accordance with GAAP, except that the Unaudited Financial
Statements, the Monthly Unaudited Financial Statements and the
Subsequent Monthly Financial Statements do not contain statements of
cash flows or changes in financial position or notes and may be subject
to normal audit adjustments and, in the case of the Monthly Unaudited
Financial Statements and the Subsequent Monthly Financial Statements,
normal annual adjustments, which audit and annual adjustments, will
not, individually or in the aggregate have or result in a Material
Adverse Effect. The balance sheets included in the Financial Statements
present fairly the financial condition of Billing as at their
respective dates. The statements of income and retained earnings and
statements of cash flows included in the Financial Statements present
fairly the results of operations and cash flows for the periods
indicated. As used herein, the term "Balance Sheet Date" means December
------------------
31, 1995.
2.1.5 ABSENCE OF UNDISCLOSED LIABILITIES. Billing has no
liabilities or obligations of any nature, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become
due, except (a) as set forth in Schedule 2.1.5, (b) as and to the
extent disclosed or reserved against in the Balance Sheet (excluding
the notes thereto) and (c) for liabilities and obligations that (i)
were incurred after the date of the Balance Sheet in the ordinary
course of business consistent with prior practice and (ii) individually
and in the aggregate are not material and have not had or resulted in,
and will not have or result in, a
-4-
<PAGE>
FINAL SIGNATURE COPY
Material Adverse Effect. None of Billing's employees is now or will by
the passage of time become entitled to receive any vacation time,
vacation pay or severance pay attributable to services rendered prior
to such date except as disclosed on the Balance Sheet (excluding the
notes thereto).
2.1.6 TAXES.
(a) Billing has (or by the Closing will have) duly
and timely filed all Tax Returns with respect to Covered Taxes
required to be filed on or before the Closing Date ("Covered
-------
Returns"). Except for Covered Taxes set forth on Schedule
-------
2.1.6(a), which are being contested in good faith and by
appropriate proceedings, the following Covered Taxes have (or
by the Closing Date will have) been duly and timely paid: (i)
all Covered Taxes shown to be due on the Covered Returns, (ii)
all deficiencies and assessments of Covered Taxes of which
notice has (or by the Closing Date will have) been received by
Billing that are or may become payable or chargeable as a lien
upon the business of Billing, and (iii) all other Covered
Taxes due and payable on or before the Closing Date for which
neither filing of Covered Returns nor notice of deficiency or
assessment is required, of which Billing or any Selling
Partner is or reasonably should be (or by the Closing Date
will be or reasonably should be) aware that are or may become
payable by Billing. All Taxes required to be withheld by or on
behalf of Billing in connection with amounts paid or owing to
any employee, independent contractor, creditor or other party
("Withholding Taxes") have been withheld, and such withheld
------------------
Taxes have either been duly and timely paid to the proper
Governmental Authorities or set aside in accounts for such
purpose.
(b) Except as set forth on Schedule 2.1.6(b), no
agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any
Covered Taxes or Withholding Taxes, and no power of attorney
with respect to any such Taxes, has been filed with the IRS or
any other Governmental Authority.
(c) Except as set forth on Schedule 2.1.6(c), (i)
there are no Covered Taxes or Withholding Taxes asserted in
writing by any Governmental Authority to be due and (ii) no
issue has been raised in writing by any Governmental Authority
in the course of any audit with respect to Covered Taxes or
Withholding Taxes. Except as set forth on Schedule 2.1.6(c) ,
no Covered Taxes and no Withholding Taxes are currently under
audit by any Governmental
-5-
<PAGE>
FINAL SIGNATURE COPY
Authority. Except as set forth on Schedule 2.1.6(c), neither
the IRS nor any other Governmental Authority is now asserting
or, to the knowledge of any Selling Partner, threatening to
assert against Billing any deficiency or claim for additional
Covered Taxes or any adjustment of Covered Taxes that would
have a Material Adverse Effect, and there is no reasonable
basis for any such assertion of which Billing or any Selling
Partner is or reasonably should be aware.
(d) Except as set forth on Schedule 2.1.6(d), there
is no litigation or administrative appeal pending or, to the
knowledge of any Selling Partner, threatened against or
relating to Billing in connection with Covered Taxes.
2.1.7 ABSENCE OF CHANGES. Except as set forth on Schedule
2.1.6(d), since the Balance Sheet Date, Billing has conducted
its business only in the ordinary course consistent with prior
practice and has not:
(a) suffered any Material Adverse Effect;
(b) amended its agreement of limited partnership or
equivalent organizational documents;
(c) incurred any obligation or liability, absolute,
accrued, contingent or otherwise, whether due or to become
due, except current liabilities for trade or business
obligations incurred in connection with the purchase of goods
or services in the ordinary course of business consistent with
prior practice, none of which liabilities, in any case or in
the aggregate, could have a Material Adverse Effect;
(d) discharged or satisfied any Lien other than those
then required to be discharged or satisfied, or paid any
obligation or liability, absolute, accrued, contingent or
otherwise, whether due or to become due, other than current
liabilities shown on the Balance Sheet and current liabilities
incurred since the date thereof in the ordinary course of
business consistent with prior practice;
(e) mortgaged, pledged or subjected to any Lien, any
property, business or assets, tangible or intangible, held in
connection with its business;
(f) sold, transferred, leased to others or otherwise
disposed of any of its assets, except for inventory sold in
the
-6-
<PAGE>
FINAL SIGNATURE COPY
ordinary course of business consistent with prior practice, or
cancelled or compromised any debt or claim, or waived or
released any right of substantial value;
(g) made, entered into or assumed, or suffered any
amendment or termination of, any agreement, contract,
commitment, lease or Plan to which it is a party or by which
it or any of its assets is bound, or received any notice of
termination of any contract, lease or other agreement or
suffered any damage, destruction or loss (whether or not
covered by insurance);
(h) transferred or granted any rights under, or
entered into any settlement regarding the breach or
infringement of, any Intellectual Property, or modified any
existing rights with respect thereto;
(i) made any change in the rate of compensation,
commission, bonus or other direct or indirect remuneration
payable, or paid or agreed or orally promised to pay,
conditionally or otherwise, any bonus, incentive, retention or
other compensation, retirement, welfare, fringe or severance
benefit or vacation pay, to or in respect of any Selling
Partner, director, officer, employee, salesman, distributor or
agent, or made any other changes to its personnel practices;
(j) encountered any labor union organizing activity,
had any actual or threatened employee strikes, work stoppages,
slowdowns or lockouts, or had any material change in its
relations with its employees, agents, customers or suppliers;
(k) failed to replenish its inventories and supplies
in a normal and customary manner consistent with its prior
practice and prudent business practices prevailing in the
industry, or made any purchase commitment in excess of the
normal, ordinary and usual requirements of its business or at
any price in excess of the then current market price or upon
terms and conditions more onerous than those usual and
customary in the industry;
(l) failed to maintain in full force and effect
substantially the same level and types of insurance coverage
as in effect on the Balance Sheet Date for destruction, damage
to, or loss of any of its assets;
-7-
<PAGE>
FINAL SIGNATURE COPY
(m) suffered any material damage, destruction or
loss, whether or not covered by insurance, affecting its
business, as currently conducted or as proposed to be
conducted, or to its assets;
(n) made any change in its selling, pricing or
advertising practices;
(o) changed its accounting principles, methods or
practices or investment practices, including such changes as
were necessary to conform to GAAP, written up the value of any
of its assets on its books and records, or increased, reduced,
drawn down or reversed any of its reserves (other than in
accordance with GAAP);
(p) made any capital expenditures or capital
additions or improvements in excess of an aggregate of $5,000;
(q) instituted, settled or agreed to settle any
litigation, action or proceeding before any court or
governmental body other than in the ordinary course of
business consistent with past practices but not in any case
involving amounts in excess of $1,000;
(r) entered into any transaction, contract or
commitment other than in the ordinary course of business
consistent with prior practice, or paid or agreed to pay any
legal, accounting, brokerage, finder's fee, Taxes or other
expenses in connection with, or incurred any severance pay
obligations by reason of, this Agreement or the transactions
contemplated hereby; or
(s) taken any action or omitted to take any action
that would result in the occurrence of any of the foregoing.
2.1.8 LITIGATION. Except as set forth on Schedule 2.1.8, there
is no action, claim, demand, suit, proceeding, arbitration, grievance,
citation, summons, subpoena, inquiry or investigation of any nature,
civil, criminal, regulatory or otherwise, in law or in equity, pending
or threatened against or relating to Billing or against or relating to
the transactions contemplated by this Agreement, and no Selling Partner
knows or has reason to be aware of any basis for the same. Except as
set forth on Schedule 2.1.8, no citations, fines or penalties have been
asserted against Billing under any Environmental Law or any foreign,
federal, state or local law relating to occupational health or safety.
-8-
<PAGE>
FINAL SIGNATURE COPY
2.1.9 COMPLIANCE WITH LAWS; GOVERNMENTAL APPROVALS AND
CONSENTS; GOVERNMENTAL CONTRACTS.
(a) Except as disclosed on Schedule 2.1.9(a), Billing
has complied in all material respects with all Applicable Laws
the violation of which has not had or resulted in, and will
not have or result in, a Material Adverse Effect, either
before or after Closing, and Billing has not received any
notice alleging any such conflict, violation, breach or
default.
(b) Schedule 2.1.9(b) sets forth all Governmental
Approvals and other Consents necessary for, or otherwise
material to, the conduct of its business or the ownership and
use of its assets, including all licenses, permits or similar
authorizations required or necessary for the billing and
collection for long distance services. Except as set forth on
Schedule 2.1.9(b), all such Governmental Approvals and
Consents have been duly obtained and are in full force and
effect, and Billing is in compliance with each of such
Governmental Approvals and Consents held by it. Billing owns,
holds, possesses or lawfully uses in the operation of its
business all the Governmental Approvals set forth on Schedule
2.1.9(b), free and clear of all Liens and in compliance with
all Applicable Laws. Billing is not in default, nor has it
received any notice of any claim of default, with respect to
any such Governmental Approvals. All such Governmental
Approvals are renewable by their terms or in the ordinary
course of business without the need to comply with any special
qualification procedures or to pay any amounts other than
routine filing fees. None of such Governmental Approvals will
be adversely affected by consummation of the transactions
contemplated hereby. No Selling Partner, director, officer,
employee or former employee of Billing or any Affiliates of
Billing, or any other Person owns or has any proprietary,
financial or other interest (direct or indirect) in any
Governmental Approvals which Billing owns, possesses or uses
in the operation of its business as now or previously
conducted.
(c) Schedule 2.1.9(c) sets forth all Contracts with
any Governmental Authority.
(d) There are no proposed laws, rules, regulations,
ordinances, orders, judgments, decrees, governmental takings,
condemnations or other proceedings which would be applicable
to
-9-
<PAGE>
FINAL SIGNATURE COPY
Billing and which might have a Material Adverse Effect, either
before or after the Closing Date.
2.1.10 OPERATION OF THE BUSINESS. Except as set forth in
Schedule 2.1.10, (a) Billing has not conducted its business through any
divisions or any direct or indirect Subsidiary or Affiliate of Billing
and (b) no part of the business is operated by Billing through any
entity other than Billing.
2.1.11 ASSETS. Except as disclosed in Schedule 2.1.11, Billing
has good title to all its assets, free and clear of any and all Liens
other than Permitted Liens. The assets reflected on the Balance Sheet,
taken as a whole, constitute all the properties and assets relating to
or used or held for use in connection with the business of Billing
during the past twelve months (except Inventory sold, cash disposed of,
accounts receivable collected, prepaid expenses realized, Contracts
fully performed, and properties or assets replaced by equivalent or
superior properties or assets, in each case in the ordinary course of
business consistent with prior practice. There are no assets or
properties used in the operation of the business of Billing and owned
by any Person other than Billing that will not on the Closing Date be
leased or licensed to Billing under valid, current leases or license
arrangements. The assets reflected on the Balance Sheet are in all
material respects adequate for the purposes for which such assets are
currently used or are held for use, and are in reasonably good repair
and operating condition (subject to normal wear and tear) and, to the
knowledge of Billing and the Selling Partners, there are no facts or
conditions affecting the assets which could, individually or in the
aggregate, interfere in any material respect with the use, occupancy or
operation thereof as currently used, occupied or operated, or their
adequacy for such use.
2.1.12 CONTRACTS.
(a) Schedule 2.1.12(a) contains a complete and
correct list of all agreements, contracts, commitments and
other instruments and arrangements (whether written or oral)
of the types described below (x) by which any of the assets of
Billing are bound or affected or (y) to which Billing is a
party or by which it is bound (the "Contracts"):
---------
(i) agreements, contracts, commitments, and
other instruments and arrangements pursuant to which
Billing serves as a billing and collection service
for long distance carriers and resellers;
(ii) agreements, contracts, commitments,
and other instruments and arrangements relating to
-10-
<PAGE>
FINAL SIGNATURE COPY
the solicitation of new customers or additional
business for or on behalf of Billing;
(iii) leases, licenses, permits, franchises,
insurance policies, Governmental Approvals and other
contracts concerning or relating to the Real
Property;
(iv) employment, consulting, agency,
collective bargaining or other similar contracts,
agreements, and other instruments and arrangements
relating to or for the benefit of current, future or
former employees, officers, directors, sales
representatives, distributors, dealers, agents,
independent contractors or consultants;
(v) loan agreements, indentures, letters of
credit, mortgages, security agreements, pledge
agreements, deeds of trust, bonds, notes, guarantees,
and other agreements and instruments relating to the
borrowing of money or obtaining of or extension of
credit;
(vi) licenses, licensing arrangements and
other contracts providing in whole or in part for the
use of, or limiting the use of, any Intellectual
Property;
(vii) brokerage or finder's agreements;
(viii) joint venture, partnership and
similar contracts involving a sharing of profits or
expenses (including joint research and development
and joint marketing contracts);
(ix) asset purchase agreements and other
acquisition or divestiture agreements, including any
agreements relating to the sale, lease or disposal of
any assets (other than sales of inventory in the
ordinary course of business) or involving continuing
indemnity or other obligations;
(x) orders and other contracts for the
purchase or sale of materials, supplies, products or
-11-
<PAGE>
FINAL SIGNATURE COPY
services, each of which involves aggregate payments
in excess of $5,000 in the case of purchases or
$5,000 in the case of sales;
(xi) contracts with respect to which the
aggregate amount that could reasonably be expected to
be paid or received thereunder in the future exceeds
$10,000 per annum or $10,000 in the aggregate;
(xii) sales agency, manufacturer's
representative, marketing or distributorship
agreements;
(xiii) contracts, agreements or arrangements
with respect to the representation of Billing or its
business in states other than Texas and foreign
countries;
(xiv) master lease agreements providing for
the leasing of both (A) personal property primarily
used in, or held for use primarily in connection
with, the business of Billing and (B) other personal
property;
(xv) contracts, agreements or commitments
with any employee, director, officer, Selling Partner
or Affiliate of Billing; and
(xvi) any other contracts, agreements or
commitments that are material to Billing or its
business.
(b) Billing has delivered to ACI complete and correct
copies of all written Contracts, together with all amendments
thereto, and accurate descriptions of all material terms of
all oral Contracts, set forth or required to be set forth in
Schedule 2.1.12(a).
(c) All Contracts are in full force and effect and
enforceable against each party thereto. There does not exist
under any Contract any event of default or event or condition
that, after notice or lapse of time or both, would constitute
a violation, breach or event of default thereunder on the part
of Billing or, to the
-12-
<PAGE>
FINAL SIGNATURE COPY
knowledge of Billing or any Selling Partner, any other party
thereto except as set forth in Schedule 2.1.12(c) and except
for such events or conditions that, individually and in the
aggregate, (i) has not had or resulted in, and will not have
or result in, a Material Adverse Effect, and (ii) has not and
will not materially impair the ability of Billing or any
Selling Partner to perform their respective obligations under
this Agreement and under the Collateral Agreements. Except as
set forth in Schedule 2.1.12(c), no consent of any third party
is required under any Contract as a result of or in connection
with, and the enforceability of any Contract will not be
affected in any manner by, the execution, delivery and
performance of this Agreement or any of the Collateral
Agreements or the consummation of the transactions
contemplated hereby or thereby.
(d) Billing does not have outstanding any power of attorney.
2.1.13 TERRITORIAL RESTRICTIONS. Billing is not restricted by
any written agreement or understanding with any other Person from
carrying on its business anywhere in the world. Merger Sub, solely as a
result of the Merger, will not thereby become restricted in carrying on
any business anywhere in the world.
2.1.14 INVENTORIES. All Inventories are of good, usable and
merchantable quality in all material respects and, except as set forth
on Schedule 2.1.14, do not include obsolete or discontinued items.
Except as set forth on Schedule 2.1.14, (a) all Inventories are of such
quality as to meet the quality control standards of Billing and any
applicable governmental quality control standards, (b) all Inventories
that are finished goods are saleable as current inventories at the
current prices thereof in the ordinary course of business, (c) all
Inventories are recorded on the books of Billing at the lower of cost
or market value determined in accordance with GAAP and (d) no
write-down in inventory has been made or should have been made pursuant
to GAAP during the past two years. Schedule 2.1.14 lists the locations
of all Inventories.
2.1.15 CUSTOMERS AND PRICING. Billing has previously delivered
to ACI a true, complete and correct copy of its customer database. Such
database completely and accurately sets forth the prices charged by
Billing to its customers (and any applicable discounts by customer
name) for its services.
2.1.16 SUPPLIERS; RAW MATERIALS. Schedule 2.1.16 sets forth
(a) the names and addresses of all suppliers from which Billing ordered
supplies, merchandise and other goods and services with an aggregate
purchase price for each such supplier of $10,000 or more during the
twelve-month period ended January 31,
-13-
<PAGE>
FINAL SIGNATURE COPY
1996, (b) the amount for which each such supplier invoiced Billing
during such period, and (c) a list of each Contract that is a
"requirements contract," "take or pay contract," or similar Contract
pursuant to which Billing is or may be required to purchase any minimum
amount of supplies, merchandise or other goods and services during any
applicable period of time, or pay for such supplies, merchandise or
other goods and services even though not actually used by, received by
or delivered to Billing, and a complete description of the terms
thereof. Billing has not received any notice and has no reason to
believe that there has been any material adverse change in the price of
such supplies, merchandise or other goods or services, or that any such
supplier will not sell supplies, merchandise and other goods to Merger
Sub at any time after the Closing Date on terms and conditions similar
to those used in its current sales to Billing, subject to general and
customary price increases. To the best knowledge of Billing and the
Selling Partners, no supplier of Billing described in clause (a) of the
first sentence of this section has otherwise threatened to take any
action described in the preceding sentence as a result of the
consummation of the transactions contemplated by this Agreement and the
Collateral Agreements.
2.1.17 PRODUCT WARRANTIES. Except as set forth in Schedule
2.1.17 and for warranties under Applicable Law, (a) there are no
warranties express or implied, written or oral, with respect to the
products and services of Billing and (b) there are no pending or
threatened claims with respect to any such warranty, and Billing has no
liability with respect to any such warranty, whether known or unknown,
absolute, accrued, contingent or otherwise and whether due or to become
due.
2.1.18 ABSENCE OF CERTAIN BUSINESS PRACTICES. Billing has not,
nor has any officer, employee or agent of Billing, or any other Person
acting on behalf of Billing or any officer, employee or agent of
Billing, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other Person who is or may be in a position to
help or hinder the business of Billing (or assist Billing in connection
with any actual or proposed transaction relating to the business of
Billing) (i) which subjected or might have subjected Billing to any
damage or penalty in any civil, criminal or governmental litigation or
proceeding, (ii) which if not given in the past, might have had a
Material Adverse Effect, (iii) which if not continued in the future,
might have a Material Adverse Effect or subject Billing, Merger Sub or
ACI to suit or penalty in any private or governmental litigation or
proceeding, (iv) for any of the purposes described in Section 162(c) of
the Code or (v) for the purpose of establishing or maintaining any
concealed fund or concealed bank account.
-14-
<PAGE>
FINAL SIGNATURE COPY
2.1.19 INTELLECTUAL PROPERTY.
(A) TITLE. Schedule 2.1.19(a) contains a complete and
correct list of all Intellectual Property that is owned by
Billing and primarily related to, used in, held for use in
connection with, or necessary for the conduct of, or otherwise
material to the business of Billing (the "Owned Intellectual
-------------------
Property"). Billing owns or has the exclusive right to use
--------
pursuant to license, sublicense, agreement or permission all
Intellectual Property Assets, free from any Liens (other than
Permitted Liens) and free from any requirement of any past,
present or future royalty payments, license fees, charges or
other payments, or conditions or restrictions whatsoever. The
Intellectual Property Assets comprise all of the Intellectual
Property necessary for the Partnership to conduct and operate
the business of Billing as now being conducted by Billing.
(B) TRANSFER. Immediately after the Closing, the
Partnership will own all of the Owned Intellectual Property
and will have a right to use all other Intellectual Property
Assets, free from any Liens (other than Permitted Liens) and
on the same terms and conditions as in effect prior to the
Closing.
(C) NO INFRINGEMENT. The conduct of the business of
Billing does not infringe or otherwise conflict with any
rights of any Person in respect of any Intellectual Property.
To the knowledge of the Selling Partners, none of the
Intellectual Property Assets is being infringed or otherwise
used or available for use, by any other Person.
(D) LICENSING ARRANGEMENTS. Schedule 2.1.19(d) sets
forth all agreements, arrangements or laws (i) pursuant to
which Billing has licensed Intellectual Property Assets to, or
the use of Intellectual Property Assets is otherwise permitted
(through non-assertion, settlement or similar agreements or
otherwise) by, any other Person and (ii) pursuant to which
Billing has had Intellectual Property licensed to it, or has
otherwise been permitted to use Intellectual Property (through
non-assertion, settlement or similar agreements or otherwise).
All of the agreements or arrangements set forth on Schedule
2.1.19(d) (x) are in full force and effect in accordance with
their terms and no default exists thereunder by Billing, or to
the knowledge of the Selling Partners, by any other party
thereto, (y) are free and clear of all Liens, and (z) do not
contain any change in control or other terms or conditions
that will become applicable or inapplicable as a result
-15-
<PAGE>
FINAL SIGNATURE COPY
of the consummation of the transactions contemplated by this
Agreement. Billing has delivered to ACI true and complete
copies of all licenses and arrangements (including amendments)
set forth on Schedule 2.1.19(d). All royalties, license fees,
charges and other amounts payable by, on behalf of, to, or for
the account of, Billing in respect of any Intellectual
Property are disclosed in the Financial Statements.
(E) NO INTELLECTUAL PROPERTY LITIGATION. No claim or
demand of any Person has been made nor is there any proceeding
that is pending, or to the knowledge of the Selling Partners,
threatened, nor is there a reasonable basis therefor, which
(i) challenges the rights of Billing in respect of any
Intellectual Property Assets, (ii) asserts that Billing is
infringing or otherwise in conflict with, or is, except as set
forth in Schedule 2.1.19(d), required to pay any royalty,
license fee, charge or other amount with regard to, any
Intellectual Property, or (iii) claims that any default exists
under any agreement or arrangement listed on Schedule
2.1.19(d). None of the Intellectual Property Assets is subject
to any outstanding order, ruling, decree, judgment or
stipulation by or with any court, arbitrator, or
administrative agency, or has been the subject of any
litigation within the last five years, whether or not resolved
in favor of Billing.
(F) DUE REGISTRATION. The Owned Intellectual Property
has been duly registered with, filed in or issued by, as the
case may be, the United States Patent and Trademark Office,
United States Copyright Office or such other filing offices,
domestic or foreign, and Billing has taken such other actions,
to ensure full protection under any applicable laws or
regulations, and such registrations, filings, issuances and
other actions remain in full force and effect, in each case to
the extent material to the business of Billing.
(G) USE OF NAME AND MARK. Except as set forth in
Schedule 2.1.19(g), there are, and immediately after the
Closing will be, no contractual restrictions or limitations
pursuant to any orders, decisions, injunctions, judgments,
awards or decrees of any Governmental Authority on the
Partnership's right to use the name "Hold Billing Service" and
the name and mark "HOLD" in the conduct of its business.
2.1.20 INSURANCE. Schedule 2.1.20 contains a complete and
correct list and summary description of all insurance policies
maintained by Billing. Billing
-16-
<PAGE>
FINAL SIGNATURE COPY
has delivered to ACI complete and correct copies of all such policies,
together with all riders and amendments thereto. Such policies are in
full force and effect, and all premiums due thereon have been paid.
Billing has complied in all material respects with the terms and
provisions of such policies. The insurance coverage provided by such
policies is adequate and customary for the business conducted by
Billing. Schedule 2.1.20 sets out all claims made by Billing under any
policy of insurance during the past two years, and there is no basis on
which a claim should or could be made under any such policy. There are
no pending or asserted claims outstanding under any such policies as to
which any insurer has denied liability, and there are no pending or
asserted claims outstanding under any insurance policy or binder that
have been disallowed or improperly filed.
2.1.21 REAL PROPERTY.
(A) OWNED REAL PROPERTY. Billing has no Owned Real
Property.
(B) LEASES. Schedule 2.1.21(b) contains a complete
and correct list of all Leases setting forth the address,
landlord and tenant for each Lease. Billing has delivered to
ACI correct and complete copies of the Leases. Each Lease is
legal, valid, binding, enforceable, and in full force and
effect, except as may be limited by bankruptcy, insolvency,
reorganization and similar Applicable Laws affecting creditors
generally and by the availability of equitable remedies.
Neither Billing nor any other party is in default, violation
or breach in any respect under any Lease, and no event has
occurred and is continuing that constitutes or, with notice or
the passage of time or both, would constitute a default,
violation or breach in any respect under any Lease. Each Lease
grants the tenant under the Lease the exclusive right to use
and occupy the demised premises thereunder. Billing has good
and valid title to the leasehold estate under each Lease free
and clear of all Liens other than Permitted Liens. Billing
enjoys peaceful and undisturbed possession under its
respective Leases for the Leased Real Property.
(C) FEE AND LEASEHOLD INTERESTS. The Real Property
constitutes all the fee and leasehold interests in real
property held for use in connection with, necessary for the
conduct of, or otherwise material to, the business of Billing.
(D) NO PROCEEDINGS. There are no eminent domain or
other similar proceedings pending or threatened affecting any
portion of the Real Property. There is no writ, injunction,
decree,
-17-
<PAGE>
FINAL SIGNATURE COPY
order or judgment outstanding, nor any action, claim, suit or
proceeding, pending or threatened, relating to the ownership,
lease, use, occupancy or operation by any Person of any Real
Property.
(E) CURRENT USE. The use and operation of the Real
Property in the conduct of the business of Billing does not
violate in any material respect any instrument of record or
agreement affecting the Real Property. There is no violation
of any covenant, condition, restriction, easement or order of
any Governmental Authority having jurisdiction over such
property or of any other Person entitled to enforce the same
affecting the Real Property or the use or occupancy thereof.
No damage or destruction has occurred with respect to any of
the Real Property since the Balance Sheet Date that would,
individually or in the aggregate, have a Material Adverse
Effect.
(F) COMPLIANCE WITH REAL PROPERTY LAWS. The Real
Property is in full compliance with all applicable building,
zoning, subdivision and other land use and similar Applicable
Laws affecting the Real Property (collectively, the "Real
----
Property Laws"), and Billing has not received any notice of
--------------
violation or claimed violation of any Real Property Law. There
is no pending or, or to the knowledge of the Selling Partners,
anticipated change in any Real Property Law that will have or
result in a material adverse effect upon the ownership,
alteration, use, occupancy or operation of the Real Property
or any portion thereof. No current use by Billing of the Real
Property is dependent on a nonconforming use or other
Governmental Approval the absence of which would materially
limit the use of such properties or assets held for use in
connection with, necessary for the conduct of, or otherwise
material to, the business of Billing.
2.1.22 ENVIRONMENTAL MATTERS.
(A) PERMITS. All Environmental Permits are identified
in Schedule 2.1.22(a), and Billing currently holds, and at all
times has held, all such Environmental Permits necessary to
the business of Billing. Billing has not been notified by any
relevant Governmental Authority that any Environmental Permit
will be modified, suspended, cancelled or revoked, or cannot
be renewed in the ordinary course of business.
(B) NO VIOLATIONS. Billing and its Affiliates have
complied and are in compliance in all material respects with
all
-18-
<PAGE>
FINAL SIGNATURE COPY
Environmental Permits and all applicable Environmental Laws
pertaining to the Real Property (and the use, ownership or
transferability thereof) and the business of Billing. No
Person has alleged any violation by Billing or its Affiliates
of any Environmental Permits or any applicable Environmental
Law relating to the conduct of the business of Billing or the
use, ownership or transferability of the Real Property.
(C) NO ACTIONS. Except as set forth in Schedule
2.1.22(c), neither Billing nor any of its Affiliates has
caused or taken any action that has resulted or may result in,
or has been or is subject to, any liability or obligation on
the part of Billing relating to (i) the environmental
conditions on, under, or about any Real Property, the
properties or assets owned, leased or used by Billing held for
use in connection with, necessary for the conduct of, or
otherwise material to, the business of Billing, or (ii) the
past or present use, management, handling, transport,
treatment, generation, storage or Release of any Hazardous
Substances.
(D) FULL DISCLOSURE. Billing has disclosed and made
available to ACI all information, including all studies,
analyses and test results, in the possession, custody or
control of Billing or any of its Affiliates relating to (i)
the environmental conditions on, under or about the Real
Property, and (ii) Hazardous Substances used, managed,
handled, transported, treated, generated, stored or Released
by Billing or any other Person at any time on any Real
Property, or otherwise in connection with the use or operation
of the properties or assets used in or held for use in
connection with the business of Billing.
2.1.23 EMPLOYEES AND LABOR MATTERS. Schedule 2.1.23 sets forth
the name, title and salary of each employer of Billing as of the date
of this Agreement. Except as set forth in Schedule 2.1.23, Billing is
not a party to or bound by any collective bargaining agreement and
there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees
employed in the operation of the business of Billing. Since January 1,
1991, there has not occurred or, to the best knowledge of any Selling
Partner, been threatened any material strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor
activity with respect to any employees employed in the operation of the
business of Billing. There are no labor disputes currently subject to
any grievance procedure, arbitration or litigation and there is no
representation petition pending or, to the best knowledge of Billing or
any Selling Partner, threatened with respect to any employee employed
in the operation of the business of Billing. Billing has complied in
all
-19-
<PAGE>
FINAL SIGNATURE COPY
material respects with all provisions of Applicable Law pertaining to
the employment of employees, including all such Laws relating to labor
relations, equal employment, fair employment practices, entitlements,
prohibited discrimination or other similar employment practices or
acts, except for any failure so to comply that, individually or
together with all such other failures, has not and will not result in a
material liability or obligation on the part of Billing, and has not
had or resulted in, and will not have or result in, a Material Adverse
Effect.
2.1.24 EMPLOYEE BENEFIT PLANS AND RELATED MATTERS.
(A) EMPLOYEE BENEFIT PLANS. Schedule 2.1.24(a) sets
forth a true and complete list of each "employee benefit
plan," as such term is defined in section 3(3) of the ERISA,
whether or not subject to ERISA, and each bonus, incentive or
deferred compensation, severance, termination, retention,
change of control, stock option, stock appreciation, stock
purchase, phantom stock or other equity-based, performance or
other employee or retiree benefit or compensation plan,
program, arrangement, agreement, policy or understanding,
whether written or unwritten, that provides or may provide
benefits or compensation in respect of any employee or former
employee employed or formerly employed by Billing or the
beneficiaries or dependents of any such employee or former
employee (such employees, former employees, beneficiaries and
dependents collectively, the "Employees") or under which any
---------
Employee is or may become eligible to participate or derive a
benefit and that is or has been maintained or established by
Billing or any other trade or business, whether or not
incorporated, which, together with Billing is or would have
been at any date of determination occurring within the
preceding six years treated as a single employer under section
414 of the Code (such other trades and businesses
collectively, the "Related Persons"), or to which Billing or
---------------
any Related Person contributes or is or has been obligated or
required to contribute or with respect to which Billing may
have any liability or obligation (collectively, the "Plans").
-----
With respect to each such Plan, Billing has, if applicable,
provided ACI complete and correct copies of: all written
Plans; descriptions of all unwritten Plans; all trust
agreements, insurance contracts or other funding arrangements;
the two most recent actuarial and trust reports; the two most
recent Forms 5500 and all schedules thereto; the most recent
IRS determination letter; current summary plan descriptions;
all material communications received from or sent to the IRS,
the Pension Benefit Guaranty Corporation or the Department of
Labor (including a written description of any oral
communication); an actuarial study of any post-employment life
or
-20-
<PAGE>
FINAL SIGNATURE COPY
medical benefits provided under any such Plan, if any;
statements or other communications regarding withdrawal or
other multiemployer plan liabilities, if any; and all
amendments and modifications to any such document. Billing has
not communicated to any Employee any intention or commitment
to modify any Plan or to establish or implement any other
employee or retiree benefit or compensation arrangement.
(B) QUALIFICATION. Each Plan intended to be qualified
under section 401(a) of the Code, and the trust (if any)
forming a part thereof, has received a favorable determination
letter from the IRS as to its qualification under the Code and
to the effect that each such trust is exempt from taxation
under section 501(a) of the Code, and nothing has occurred
since the date of such determination letter that could
adversely affect such qualification or tax-exempt status.
(C) COMPLIANCE; LIABILITY. No Plan is subject to
section 412 of the Code or section 302 or Title IV of ERISA.
No liability has been or is expected to be incurred by
Billing, any Related Person (either directly or indirectly,
including as a result of an indemnification obligation) under
or pursuant to Title I or IV of ERISA or the penalty, excise
tax or joint and several liability provisions of the Code
relating to employee benefit plans, and, to the knowledge of
the Selling Partners, no event, transaction or condition has
occurred or exists that could result in any such liability to
the business of Billing. Each of the Plans has been operated
and administered in all respects in compliance with all
Applicable Laws, except for any failure so to comply that,
individually or together with all other such failures, has not
and will not result in a material liability or obligation on
the part of the business of Billing, and has not had or
resulted in, and will not have or result in, a Material
Adverse Effect. There are no material pending or, to the best
knowledge of Billing and the Selling Partners, threatened
claims by or on behalf of any of the Plans, by any Employee or
otherwise, involving any such Plan or the assets of any Plan
(other than routine claims for benefits). No Plan is a
"multiemployer plan" within the meaning of Section 4001(a)(3)
-------------------
of ERISA or is a "multiple employer plan" within the meaning
------------------------
of section 4063 or 4064 of ERISA. All contributions required
to have been made by Billing and each Related Person to any
Plan under the terms of any such Plan or pursuant to any
applicable collective bargaining agreement or Applicable Law
have been made within the earliest time prescribed by any such
Plan, agreement or
-21-
<PAGE>
FINAL SIGNATURE COPY
Applicable Law. No Employee is or may become entitled to
post-employment benefits of any kind by reason of such
employment, including death or medical benefits (whether or
not insured), other than (a) coverage provided pursuant to the
terms of any Plan specifically identified as providing such
coverage in Schedule 2.1.24(a) or mandated by section 4980B of
the Code, (b) retirement benefits payable under any Plan
qualified under section 401(a) of the Code or (c) deferred
compensation accrued as a liability on the Balance Sheet, or
incurred after the Balance Sheet Date in the ordinary course
of business consistent with the prior practice of Billing,
pursuant to the terms of a Plan. The consummation of the
transactions contemplated by this Agreement or the Collateral
Agreements will not result in an increase in the amount of
compensation or benefits or the acceleration of the vesting or
timing of payment of any compensation or benefits payable to
or in respect of any such Employee.
2.1.25 CONFIDENTIALITY. Billing has taken all steps necessary
to preserve the confidential nature of all material confidential
information (including any proprietary information) with respect to
Billing and the business of Billing.
2.1.26 NO GUARANTEES. None of the obligations or liabilities
of Billing is guaranteed by or subject to a similar contingent
obligation of any other Person. Billing has not guaranteed or become
subject to a similar contingent obligation in respect of the
obligations or liabilities of any other Person. Except as disclosed in
Schedule 2.1.26, There are no outstanding letters of credit, surety
bonds or similar instruments of Billing or any of its Affiliates.
2.1.27 RECORDS. The books of account of Billing are sufficient
to prepare the Financial Statements in accordance with GAAP and to
prepare audited financial statements for the two years ended December
31, 1995, in accordance with the rules and regulations of the
Securities and Exchange Commission applicable to any registration
statements, reports or other documents required to be filed therewith.
Such financial statements of Billing can be audited and such audited
financial statements prepared within 90 days following the Closing
Date.
2.1.28 BROKERS AND FINDERS. All negotiations relating to this
Agreement, the Collateral Agreements, and the transactions contemplated
hereby and thereby, have been carried on without the participation of
any Person acting on behalf of Billing or its Affiliates or any Selling
Partner in such manner as to give rise to any valid claim against the
Partnership, ACI, or any of the Subsidiaries or Affiliates of ACI for
any brokerage or finder's commission, fee or similar compensation.
-22-
<PAGE>
FINAL SIGNATURE COPY
2.1.29 BUSINESS DESCRIPTION AND REVIEW. Schedule 2.1.29
attached hereto contains an accurate and substantially complete summary
description of the business of Billing and the general development of
the business of Billing during the past five years. Billing has
previously presented and delivered to ACI Billing's Financial Plan
entitled "Budget," dated March 15, 1996 (the "Billing Business Plan").
---------------------
The pro forma income statements, pro forma balance sheets, and pro
forma statement of cash flows attached as Annex I to Schedule and the
other estimates contained in the Billing Business Plan are based upon
factual assumptions that were reasonably made by Billing and the
Selling Partners and were made in good faith at the time such
projections and estimates were made, and such factual assumptions
remain reasonable and good faith assumptions. There has been no
material change in the business prospects of Billing or in any other
fact or circumstance, known to any Selling Partner, which would or
could reasonably be expected to render any such projections or
estimates, or the assumptions upon which they were based, unreasonable
or not made in good faith in any material respect.
2.1.30 RECEIVABLES. All of Billing's receivables (including
accounts receivable, loans receivable and advances) and which are
reflected on the Balance Sheet, and all such receivables which will
have arisen since the Balance Sheet Date, are valid and genuine and
have arisen solely from bona fide transactions in the ordinary course
of business consistent with past practices. All such receivables are
collectible within 90 days of billing, and none of such receivables is
subject to valid defenses, set-offs or counterclaims. Schedule 2.1.30
hereto accurately lists as of February 29, 1996, all receivables, the
amount owing and the aging of such receivable, the name and last known
address of the party from whom such receivable is owing, and any
security in favor of Billing for the repayment of such receivable which
such Billing purports to have. Billing has delivered to ACI complete
and correct copies of all instruments, documents and agreements
evidencing such receivables and of all instruments, documents or
agreements creating security therefor ("Security"). Billing has valid
--------
and perfected security interests in such Security (to the extent such
priority may be obtained under applicable law by possession of such
Security or the filing of financing statements or similar documents
with respect thereto).
2.1.31 TRANSACTIONS WITH AFFILIATES. Except for the ownership
of Home Owners Long Distance Incorporated by E. Dunn, P. Dunn, Webb and
Young, and except as described on Schedule 2.1.31, no partner or
employee of Billing, or any member of such Person's immediate family or
any other of such Person's Affiliates, owns or has a 5% or more
ownership interest in any corporation or other entity that is or was
during the last three years a party to, or in any property which is or
was during the last three years the subject of, any material contract,
agreement or understanding, business arrangement or relationship with
Billing.
-23-
<PAGE>
FINAL SIGNATURE COPY
2.1.32 DISCLOSURE. No representation or warranty by any
Selling Partner contained in this Agreement or any statement or
certificate furnished or to be furnished by or on behalf of Billing or
any Selling Partner to ACI or Merger Sub or their representatives in
connection herewith or pursuant hereto contains or will contain any
untrue statement of a material fact, or omits or will omit to state any
material fact required to make the statements contained herein or
therein not misleading. There is no fact (other than matters of a
general economic or political nature which do not affect the business
of Billing uniquely) known to any Selling Partner that has not been
disclosed by Selling Partner to ACI that might reasonably be expected
to have or result in a Material Adverse Effect. The representations and
warranties of the Selling Partners in this Section 2.1.32 are several
and not joint.
SECTION 2.2 TITLE TO PARTNERSHIP INTERESTS. Each Selling Partner
represents and warrants, severally and not jointly, and solely on behalf of such
Person individually, to ACI and Merger Sub that: (i) Selling Partner owns the
Partnership Interest set forth on Schedule 2.1.2(d) beneficially and of record,
free and clear of any and all Liens, and has full power and authority to convey
the Partnership Interest, free and clear of any and all Liens, and, upon
delivery of the Assignment by Partner conveying its Partnership Interest and
payment for such Partnership Interest as herein provided, Merger Sub (or its
designee) will acquire good and marketable title thereto, free and clear of any
and all Liens; (ii) when this Agreement has been executed as contemplated by
Section 3.1.7 hereof, the Partners will have given their unconditional consent
to the sale of Selling Partner's Partnership Interest to Merger Sub in
accordance with the terms of this Agreement as required by Section 10 of the
Partnership Agreement; (iii) when this Agreement has been executed as
contemplated by Section 3.1.7 hereof, the Partners will have given their
unconditional consent to admit Merger Sub to the Partnership as a Limited
Partner (as defined in the Partnership Agreement) pursuant to the Partnership
Agreement; (iv) when this Agreement has been executed as contemplated by Section
3.1.7 hereof, the Partners will have waived compliance with each of the
requirements of Section 10 of the Partnership Agreement, including each of those
provisions requiring any action on the part of Merger Sub prior to the sale of
Selling Partner's Partnership Interest to Merger Sub in accordance with the
terms hereof; (v) when this Agreement has been executed as contemplated by
Section 3.1.7 hereof, the Partners will have duly elected Merger Sub as the
General Partner of the Partnership in compliance with each of the requirements
of Section 14 of the Partnership Agreement; and (vi) Selling Partner's
Partnership Interest has been duly and validly issued and Partner has funded (or
will fund before the same is past due) all capital contributions and advances to
the Partnership that are required by the Partnership Agreement to be funded or
advanced prior to the date hereof and the Closing Date.
SECTION 2.3 REPRESENTATIONS AND WARRANTIES OF ACI AND MERGER SUB. ACI
and Merger Sub, jointly and severally, represent and warrant to the Selling
Partners that:
2.3.1 CORPORATE STATUS AND AUTHORIZATION. Merger Sub is a
corporation duly organized, validly existing and in good standing,
under the laws of the State
-24-
<PAGE>
FINAL SIGNATURE COPY
of Texas, the jurisdiction of its incorporation, with full corporate
power and authority to execute and deliver this Agreement and the
Collateral Agreements, to perform its obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby and
thereby. ACI is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware, with full
corporate power and authority to execute and deliver this Agreement and
the Collateral Agreements, to perform its obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Merger Sub and ACI of this
Agreement, and the consummation of the transactions contemplated
hereby, have been, and on the Closing Date, the execution and delivery
by the Merger Sub and ACI of the Collateral Agreements will have been,
duly authorized by all requisite corporate action. Merger Sub and ACI
have duly executed and delivered this Agreement and on the Closing Date
will have duly executed and delivered the Collateral Agreements. This
Agreement is, and on the Closing Date each of the Collateral Agreements
will be, valid and legally binding obligations of Merger Sub and ACI,
enforceable against Merger Sub and ACI in accordance with their
respective terms.
2.3.2 NO CONFLICTS, ETC. The execution, delivery and
performance by Merger Sub of this Agreement and each of the Collateral
Agreements, and the consummation of the transactions contemplated
hereby and thereby, do not and will not conflict with or result in a
violation of or under (with or without the giving of notice or the
lapse of time, or both) (i) the articles of incorporation or bylaws or
other organizational documents of Merger Sub or ACI, (ii) any
Applicable Law applicable to Merger Sub, ACI or any of their Affiliates
or any of their properties or assets or (iii) any contract, agreement
or other instrument applicable to the Merger Sub, ACI or any of their
Affiliates or any of their properties or assets, except, in the case of
clause (iii), for violations and defaults that, individually and in the
aggregate, have not and will not materially impair the ability of the
Merger Sub to perform its obligations under this Agreement or under any
of the Collateral Agreements or to consummate the transactions
contemplated hereby or thereby. Except as specified in Schedule 2.3.2,
no Governmental Approval or other Consent is required to be obtained or
made by Merger Sub or ACI in connection with the execution and delivery
of this Agreement or the Collateral Agreements or the consummation of
the transactions contemplated hereby and thereby.
2.3.3 LITIGATION. There is no action, claim, suit or
proceeding pending, or to Merger Sub's or ACI's knowledge threatened,
by or against or affecting Merger Sub or ACI in connection with or
relating to the transactions contemplated by this Agreement or of any
action taken or to be taken in connection herewith or the consummation
of the transactions contemplated hereby.
-25-
<PAGE>
FINAL SIGNATURE COPY
2.3.4 BROKERS AND FINDERS. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on
without the participation of any Person acting on behalf of Merger Sub,
ACI or any of their Affiliates in such manner as to give rise to any
valid claim against any Selling Partner or the Partnership for any
brokerage or finder's commission, fee or similar compensation.
2.3.5 DISCLOSURE. No representation or warranty by ACI or
Merger Sub contained in this Agreement or any statement or certificate
furnished or to be furnished by or on behalf of ACI or Merger Sub to
the Selling Partners or their representatives in connection herewith or
pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact
required to make the statements contained herein or therein not
misleading. There is no fact (other than matters of a general economic
or political nature which do not affect its business uniquely) known to
ACI or Merger Sub that has not been disclosed by ACI and Merger Sub to
the Selling Partners that might reasonably be expected to have or
result in a Material Adverse Effect.
ARTICLE 3
COVENANTS
SECTION 3.1 COVENANTS OF BILLING, GENERAL PARTNER AND SELLING PARTNER.
Billing, the General Partner and the Selling Partners, to the extent, if any,
indicated below, shall do each of the following:
3.1.1 CONDUCT OF BUSINESS. From the date hereof to the Closing
Date, except as expressly permitted or required by this Agreement or as
otherwise consented to by ACI in writing, Billing will:
(a) carry on the business of Billing in, and only in,
the ordinary course, in substantially the same manner as
heretofore conducted, and use all reasonable efforts to
preserve intact its present business organization, maintain
its properties in good operating condition and repair, keep
available the services of its present officers and significant
employees, and preserve its relationship with customers,
suppliers and others having business dealings with it, to the
end that its goodwill and going business shall be in all
material respects unimpaired following the Closing;
-26-
<PAGE>
FINAL SIGNATURE COPY
(b) pay accounts payable and other obligations of the
business of Billing when they become due and payable in the
ordinary course of business consistent with prior practice;
(c) perform in all material respects all of its
obligations under all Contracts and other agreements and
instruments, and comply in all material respects with all
Applicable Laws applicable to it;
(d) not enter into or assume any material agreement,
contract or instrument, or enter into or permit any material
amendment, supplement, waiver or other modification in respect
thereof;
(e) not grant (or commit to grant) any increase in
the compensation (including incentive or bonus compensation)
of any employee, or institute, adopt or amend (or commit to
institute, adopt or amend) any compensation or benefit plan,
policy, program or arrangement or collective bargaining
agreement applicable to any such employee; and
(f) not take any action or omit to take any action,
which action or omission would cause to be inaccurate or
result in a breach of any of the representations and
warranties set forth in Section 2.1.7.
3.1.2 NO SOLICITATION. During the term of this Agreement,
neither Billing, the General Partner, any Selling Partner, any of their
respective Affiliates nor any Person acting on their behalf shall (i)
solicit or encourage any inquiries or proposals for, or enter into any
discussions with respect to, the acquisition of any properties and
assets held for use in connection with, necessary for the conduct of,
or otherwise material to, the business of Billing or (ii) furnish or
cause to be furnished any non-public information concerning the
business of Billing to any Person (other than ACI, Merger Sub and their
respective agents and representatives), other than in the ordinary
course of business or pursuant to Applicable Law and after prior
written notice to ACI. Billing shall not sell, transfer or otherwise
dispose of, grant any option or proxy to any Person with respect to,
create any Lien upon, or transfer any interest in, any of its assets,
other than in the ordinary course of business consistent with prior
practice and in accordance with each and every term of this Agreement.
-27-
<PAGE>
FINAL SIGNATURE COPY
3.1.3 ACCESS AND INFORMATION.
(a) So long as this Agreement remains in effect,
Billing and the General Partner will (and will cause each of
their Affiliates and their Affiliates' respective accountants,
counsel, consultants, employees and agents) give ACI, ACI's
prospective lenders and investors, and their respective
accountants, counsel, consultants, employees and agents, full
access during normal business hours to, and furnish them with
all documents, records, work papers and information with
respect to, all of such Person's properties, assets, books,
contracts, commitments, reports and records relating to the
business and the assets of Billing, as ACI shall from time to
time reasonably request. In addition, Billing will permit ACI,
ACI's prospective lenders and investors, and their respective
accountants, counsel, consultants, employees and agents,
reasonable access to such personnel of Billing during normal
business hours as may be necessary or useful to ACI in its
review of the properties, assets and business affairs of
Billing and the above-mentioned documents, records and
information. Billing will keep ACI generally informed as to
the affairs of the business of Billing.
(b) Billing will retain all books and records
relating to the business of Billing in accordance with
Billing's record retention policies as presently in effect.
During the seven-year period beginning on the Closing Date,
the Selling Partners shall not dispose of or permit the
disposal of any such books and records not required to be
retained under such policies without first giving 60 days'
prior written notice to ACI offering to surrender the same to
ACI at ACI's expense.
(c) From and after the Closing Date, Billing and the
Selling Partners will cooperate with Merger Sub and ACI in the
preparation of audited financial statements for Billing for
the three years ended December 31, 1995, and shall make
available to ACI and its auditors all information necessary
for the preparation thereof.
3.1.4 FINANCIAL STATEMENTS. Until the Closing, on or before
the 21st day of each month, Billing shall deliver to ACI unaudited
consolidated financial statements of Billing as at and for the monthly
period ending the last day of the preceding month (the "Subsequent
----------
Monthly Financial Statements"), which shall include a balance sheet and
----------------------------
statement of income. At the time that the Subsequent Monthly Financial
Statements are delivered to ACI, Billing and the Selling Partners shall
by such delivery be deemed to have made the representations and
-28-
<PAGE>
FINAL SIGNATURE COPY
warranties to ACI and Merger Sub with respect to such Subsequent
Monthly Financial Statements set forth in Section 2.1.4.
3.1.5 PUBLIC ANNOUNCEMENTS. Except as required by Applicable
Law, Billing shall not, and shall not permit any Affiliate to, make any
public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of ACI.
3.1.6 FURTHER ACTIONS.
(a) Billing and the Selling Partners shall use all
reasonable good faith efforts to take all actions and to do
all things necessary, proper or advisable to consummate the
transactions contemplated hereby by the expected Closing Date.
(b) Billing and the Selling Partners will, as
promptly as practicable, file or supply, or cause to be filed
or supplied, all applications, notifications and information
required to be filed or supplied by any of them pursuant to
Applicable Law in connection with this Agreement, the
Collateral Agreements, the consummation of the Merger and the
other transactions contemplated hereby and thereby, including
filings pursuant to the HSR Act, if any.
(c) Billing and the Selling Partners, as promptly as
practicable, will use all reasonable efforts to obtain, or
cause to be obtained, all Consents (including all Governmental
Approvals and any Consents required under any Contract)
necessary to be obtained in order to consummate the Merger and
the other transactions contemplated hereby.
(d) Billing and the Selling Partners will, and will
cause each of their Affiliates to, coordinate and cooperate
with ACI and Merger Sub in exchanging such information and
supplying such assistance as may be reasonably requested by
ACI or Merger Sub in connection with the filings and other
actions contemplated by Section 3.2.2.
(e) At all times prior to the Closing, Billing and
the Selling Partners shall promptly notify ACI in writing of
any fact, condition, event or occurrence that will or may
result in the failure of any of the conditions contained in
Sections 4.1 and 4.2 to be satisfied, promptly upon any of
them becoming aware of the same.
-29-
<PAGE>
FINAL SIGNATURE COPY
3.1.7 PARTNER CONSENTS. Pursuant to Section 10 of the
Partnership Agreement, each Partner unconditionally consents to the
sale and transfer of the Partnership Interests of the Selling Partners
to Merger Sub as contemplated by this Agreement. Each Partner
unconditionally consents to the admission of Merger Sub as a Limited
Partner of the Partnership. Effective on and as of the Closing Date,
the General Partner resigns as the General Partner of the Partnership,
and each Partner of the Partnership consents to the General Partner's
Partnership Interest thereafter becoming a Limited Partnership Interest
for all purposes. Pursuant to Section 14 of the Partnership Agreement,
each Partner consents to the election of Merger Sub as the General
Partner of the Partnership, such election to be effective on and as of
the Closing Date and contemporaneously with the resignation of the
General Partner contemplated hereby. Each Partner consents to Merger
Sub's making after the Closing, for and in the name and on behalf of
the Partnership, in its capacity as the General Partner of the
Partnership, the election permitted by section 754 of the Code.
3.1.8 FURTHER ASSURANCES. Following the Closing, Billing and
the Selling Partners shall, and shall cause each of their Affiliates
to, from time to time, execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as
shall be necessary, or otherwise reasonably requested by ACI or Merger
Sub, to confirm and assure the rights and obligations provided for in
this Agreement and in the Collateral Agreements and render effective
the consummation of the transactions contemplated hereby and thereby.
3.1.9 DISCLOSURE MEMORANDUM. Billing, the General Partner and
the Selling Partners shall prepare a Disclosure Memorandum (the
"Disclosure Memorandum") (i) in which Billing, the General Partner and
----------------------
the Selling Partners, as the case may be, shall list or describe, by
means of Schedules attached to the Disclosure Memorandum and numbered
to correspond to the particular Section of this Agreement to which it
relates, each of the Contracts, Financial Statements, Tax Returns,
documents, instruments, or other writings of any nature whatsoever, and
each of the events or other occurrences of any nature whatsoever,
required by the provisions of this Agreement to be listed or described,
and (ii) in which Billing, the General Partner and Selling Partners, as
the case may be, may disclose, by means of Schedules attached to the
Disclosure Memorandum and numbered to correspond to the particular
Section of this Agreement to which it relates, exceptions to the
representations, warranties, covenants and agreements of Billing, the
General Partner and the Selling Partners, as the case may be, set forth
in this Agreement. The Disclosure Memorandum shall (i) state that it is
being delivered pursuant to the provisions of this Section 3.1.9 of
this Agreement; (ii) contain a representation and warranty of Billing,
the General Partner and each Selling Partner to the effect that (A) the
Table of Contents attached as Annex I to the Disclosure Memorandum
lists each and every Schedule to the Disclosure
-30-
<PAGE>
FINAL SIGNATURE COPY
Memorandum delivered pursuant to this Agreement, and (B) true,
complete, correct and legible copies of each of the Contracts,
Financial Statements, Tax Returns, documents, instruments and writings,
including all amendments, supplements or modifications thereof and all
consents and waivers currently in effect thereunder (collectively, the
"Supporting Documents") have been furnished to ACI with, and as part
---------------------
of, the Disclosure Memorandum; and (iii) be executed for Billing by the
General Partner, for the General Partner by a duly authorized officer,
and for the Selling Partners by either Webb or E. Dunn. The Disclosure
Memorandum, the Schedules to the Disclosure Memorandum, and the
Supporting Documents shall be bound together (on the left side or
stitching margin in such manner as to leave the reading matter
legible), in one or more parts, to form one complete document, and each
page of the complete document shall be numbered sequentially (in
addition to any numbering which otherwise may be present) by any
legible form of notation from the first page of the Disclosure
Memorandum through the last page of any Schedule forming a part
thereof, or otherwise identified with such other notation format or
tabbing as will permit indexing and locating as hereinafter provided.
The Table of Contents attached as Annex I to the Disclosure Memorandum
shall indicate, by any legible form of notation, the page number in the
sequential numbering system, or otherwise identified with such other
notation form or tabbing, where each Schedule thereto and Supporting
Document delivered therewith is located in the bound Disclosure
Memorandum. If any Schedule to the Disclosure Memorandum lists
documents that are required to be disclosed on any other Schedule to
the Disclosure Memorandum, the Disclosure Memorandum may
cross-reference to such other Schedule if the sequential page numbers,
or other notation format or tabbing, of the listed documents are
reflected on such Schedule. Billing, the General Partner and the
Selling Partners shall prepare and deliver three copies of the
Disclosure Memorandum to ACI or its counsel on or before 5:00 p.m.,
Central Standard or Daylight Savings Time, as the case may be, on the
twentieth calendar day following the date of this Agreement, but, in
any event, at least one copy of the Disclosure Memorandum shall be
delivered to counsel for ACI in Dallas, Texas. The statements of the
Selling Partners contained in the Disclosure Memorandum and each
Schedule to the Disclosure Memorandum shall be deemed to constitute
representations and warranties made by the Selling Partners in this
Agreement as fully and completely and to the same extent as if the
contents of each were set forth in full in Section 2.1 of this
Agreement.
ACI shall have through 5:00 p.m., Central Standard or Daylight
Savings Time, as the case may be, on the tenth Business Day following
the date on which the Disclosure Memorandum is delivered to ACI and its
counsel as herein provided (such day being referred to herein as the
"Review Termination Date") to review the contents of and disclosures in
-----------------------
the Disclosure Memorandum and to complete its review of the books,
records and operations of Billing. At any time through and including
the Review Termination Date, ACI shall have the right to
-31-
<PAGE>
FINAL SIGNATURE COPY
terminate this Agreement. In the event ACI elects to terminate this
Agreement, the provisions of Article 5 hereof shall govern and apply
for all purposes, and, in addition, in the event the Selling Partners
shall fail to deliver the Disclosure Memorandum as herein provided, or
in the event that ACI terminates this Agreement pursuant to this
Section 3.1.9 because the Disclosure Memorandum sets forth information
not previously disclosed to ACI which has resulted in or could
reasonably be expected to result in a Material Adverse Effect on the
Partnership, the Selling Partners shall pay all Reimbursable Expenses.
3.1.10 CONVEYANCE OF GENERAL PARTNER. Contemporaneously with
the Closing, the Selling Partners shall jointly purchase, on a pro rata
basis, and Mechler and Box shall sell, the General Partner, in
consideration of the transfer by the Selling Partners collectively and
in pro rata shares of one percent (1%) of the total outstanding
Partnership Interests of the Partnership owned by the Selling Partners
on the Closing Date. If these transactions be consummated as herein
contemplated, then, in such event, the General Partner shall be deemed
to be a Selling Partner hereunder for all purposes, and shall sell its
one percent general Partnership Interest to Merger Sub at the Closing
in accordance with the terms and provisions of this Agreement. There
shall be no adjustment to the Purchase Price as a result of the
transactions contemplated in this Section, and the Purchase Price shall
be paid to the Selling Partners, including the General Partner, pro
rata in accordance with their respective Partnership Interests, as
herein provided.
SECTION 3.2 COVENANTS OF ACI AND MERGER SUB. ACI and Merger Sub, to the
extent, if any, indicated below, shall do each of the following:
3.2.1 PUBLIC ANNOUNCEMENTS. Prior to the Closing, except as
required by Applicable Law, ACI and Merger Sub shall not, and shall not
permit its Affiliates to, make any public announcement in respect of
this Agreement or the transactions contemplated hereby without the
prior written consent of Billing.
3.2.2 FURTHER ACTIONS.
(a) ACI and Merger Sub agree to use all reasonable
good faith efforts to take all actions and to do all things
necessary, proper or advisable to consummate the transactions
contemplated hereby by the expected Closing Date.
(b) ACI and Merger Sub will, as promptly as
practicable, file or supply, or cause to be filed or supplied,
all applications, notifications and information required to be
filed or supplied by Merger Sub or ACI, or both, pursuant to
Applicable Law in connection with this Agreement, the
Collateral Agreements, the Merger pursuant to this Agreement,
and the consummation of
-32-
<PAGE>
FINAL SIGNATURE COPY
the other transactions contemplated hereby and thereby,
including filings pursuant to the HSR Act, if any.
(c) ACI and Merger Sub will coordinate and cooperate
with Billing and the Selling Partners in exchanging such
information and supplying such reasonable assistance as may be
reasonably requested by Billing and the Selling Partners in
connection with the filings and other actions contemplated by
Section .
(d) At all times prior to the Closing, ACI and Merger
Sub shall promptly notify Billing and the Selling Partners in
writing of any fact, condition, event or occurrence that will
or may result in the failure of any of the conditions
contained in Sections and to be satisfied, promptly upon
becoming aware of the same.
3.2.3 FURTHER ASSURANCES. Following the Closing, ACI shall,
and shall cause Merger Sub and its Affiliates to, from time to time,
execute and deliver such additional instruments, documents, conveyances
or assurances and take such other actions as shall be necessary, or
otherwise reasonably requested by the Selling Partners, to confirm and
assure the rights and obligations provided for in this Agreement and in
the Collateral Agreements and render effective the consummation of the
transactions contemplated hereby and thereby.
ARTICLE 4
CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The obligations of
the parties to consummate the transactions contemplated hereby shall be subject
to the fulfillment on or prior to the Closing Date of the following conditions:
4.1.1 HSR ACT NOTIFICATION. In respect of the notifications
pursuant to the HSR Act, if any, the applicable waiting period and any
extensions thereof shall have expired or been terminated.
4.1.2 NO INJUNCTION, ETC. Consummation of the transactions
contemplated hereby shall not have been restrained, enjoined or
otherwise prohibited by any Applicable Law, including any order,
injunction, decree or judgment of any court or other Governmental
Authority. No court or other Governmental Authority shall have
determined any Applicable Law to make
-33-
<PAGE>
FINAL SIGNATURE COPY
illegal the consummation of the transactions contemplated hereby or by
the Collateral Agreements, and no proceeding with respect to the
application of any such Applicable Law to such effect shall be pending.
SECTION 4.2 CONDITIONS TO OBLIGATIONS OF ACI AND MERGER SUB. The
obligations of ACI and Merger Sub to consummate the transactions contemplated
hereby shall be subject to the fulfillment (or waiver by ACI) on or prior to the
Closing Date of the following additional conditions, which Billing and the
Selling Partners agree to use reasonable good faith efforts to cause to be
fulfilled:
4.2.1 REPRESENTATIONS, PERFORMANCE. The representations and
warranties of the Selling Partners contained in this Agreement and in
the Collateral Agreements shall be true and correct in all respects (in
the case of any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) at
and as of the date hereof, and (ii) shall be repeated and shall be true
and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any
materiality qualification) on and as of the Closing Date with the same
effect as though made on and as of the Closing Date. Billing and each
of the Selling Partners shall have duly performed and complied in all
material respects with all agreements and conditions required by this
Agreement and each of the Collateral Agreements to be performed or
complied with by them prior to or on the Closing Date. The Selling
Partners shall have delivered to ACI a certificate, dated the Closing
Date and signed by each of the Selling Partners, to the foregoing
effect.
4.2.2 FINANCING. ACI shall have obtained funds sufficient to
enable ACI to consummate the transactions contemplated by this
Agreement on such terms as are satisfactory to ACI in its reasonable
judgment.
4.2.3 CONSENTS. Billing and the Selling Partners shall have
obtained and shall have delivered to ACI copies of (i) all Governmental
Approvals required to be obtained by Billing in connection with the
execution and delivery of this Agreement and the Collateral Agreements
and the consummation of the transactions contemplated hereby or thereby
and (ii) all Consents (including all Consents required under any
Contract) necessary to be obtained in order to consummate the
transactions contemplated by this Agreement and by the Collateral
Agreements.
4.2.4 NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact,
condition, change, development or effect shall have occurred, exist or
come to exist that, individually or in the aggregate, has constituted
or resulted in, or could reasonably be expected to constitute or result
in, a Material Adverse Effect on Billing.
-34-
<PAGE>
FINAL SIGNATURE COPY
4.2.5 COLLATERAL AGREEMENTS. ACI and Merger Sub shall have
received each of the following agreements, in each case duly executed
by the other parties thereto:
(a) a Non-Competition Agreement a "Non-Competition
---------------
Agreement"), in the form attached hereto as Exhibit A,
--------- ----------
pursuant to which each Selling Partner who will not enter into
an Employment Agreement with the Partnership agrees not,
directly or indirectly, to engage, either directly or
indirectly, in any business competitive with Billing or its
business anywhere in the world for a period of five years;
(b) an Employment Agreement (the "Mechler Employment
------------------
Agreement"), in the form attached hereto as Exhibit B,
--------- ----------
pursuant to which Mechler shall be employed by the
Partnership;
(c) an Employment Agreement (the "Box Employment
---------------
Agreement"), in the form attached hereto as Exhibit C,
--------- ----------
pursuant to which Box shall be employed by the Partnership;
and
(d) Releases, in the form attached as Exhibit G to
---------
the HOLD Merger Agreement, executed by each Selling Partner.
4.2.6 SUBSEQUENT MONTHLY FINANCIAL STATEMENTS. ACI shall have
received Subsequent Monthly Financial Statements. The Subsequent
Monthly Financial Statements shall (a) contain no liabilities different
in kind or in scope from the liabilities set forth in the Balance
Sheet, (b) confirm and be consistent with the information concerning
Billing (including the projected results of operations) previously
provided to ACI by Billing and the Selling Partners in the Billing
Business Plan prior to the date hereof and otherwise be satisfactory to
ACI.
4.2.7 PROCEEDINGS. All partnership and other proceedings of
Billing and the Selling Partners in connection with this Agreement and
the Collateral Agreements and the transactions contemplated hereby and
thereby, and all documents and instruments incident hereto and thereto,
shall be reasonably satisfactory in substance and form to ACI and its
counsel, and ACI and its counsel shall have received all such documents
and instruments, or copies thereof, certified if requested, as may be
reasonably requested.
4.2.8 HOLD CLOSING. The conditions to the obligations of ACI
and Merger Sub under the HOLD Merger Agreement to consummate the
transactions contemplated by the HOLD Merger Agreement shall have been
fulfilled (or
-35-
<PAGE>
FINAL SIGNATURE COPY
waived by ACI and Merger Sub) and, concurrently with the Closing, the
transactions contemplated by the HOLD Merger Agreement shall have been
consummated.
SECTION 4.3 CONDITIONS TO OBLIGATIONS OF SELLING PARTNERS. The
obligation of the Selling Partners to consummate the transactions contemplated
hereby shall be subject to the fulfillment (or waiver by the Selling Partners),
on or prior to the Closing Date, of the following additional conditions, which
ACI and Merger Sub agree to use reasonable good faith efforts to cause to be
fulfilled.
4.3.1 REPRESENTATIONS, PERFORMANCE. The representations and
warranties of Merger Sub and ACI contained in this Agreement and the
Collateral Agreements shall be true and correct in all respects (in the
case of any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) at
and as of the date hereof and (ii) shall be repeated and shall be true
and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any
materiality qualification) on and as of the Closing Date with the same
effect as though made at and as of such time. Merger Sub and ACI shall
have duly performed and complied in all material respects with all
agreements and conditions required by this Agreement and the Collateral
Agreements to be performed or complied with by them prior to or on the
Closing Date. Merger Sub and ACI shall have delivered to Billing and
the Selling Partners a certificate, dated the Closing Date and signed
by the duly authorized officers of Merger Sub and ACI, to the foregoing
effect.
4.3.2 CORPORATE PROCEEDINGS. All corporate proceedings of
Merger Sub and ACI in connection with this Agreement, the Collateral
Agreements and the transactions contemplated hereby and thereby, and
all documents and instruments incident hereto and thereto, shall be
reasonably satisfactory in substance and form to Billing and the
Selling Partners, and their counsel, and Billing and the Selling
Partners and their counsel shall have received all such documents and
instruments, or copies thereof, certified if requested, as may be
reasonably requested.
4.3.3 HOLD CLOSING. The conditions to the obligations of the
Stockholders (as defined in the HOLD Merger Agreement) under the HOLD
Merger Agreement to consummate the transactions contemplated by the
HOLD Merger Agreement shall have been fulfilled (or waived by the
Stockholders thereunder), and, concurrently with the Closing, the
transactions contemplated by the HOLD Merger Agreement shall have been
consummated.
-36-
<PAGE>
FINAL SIGNATURE COPY
4.3.4 CONSENTS AND APPROVALS. Billing and the Selling Partners
shall have obtained all Governmental Approvals necessary to consummate
the transactions contemplated hereby.
ARTICLE 5
TERMINATION
SECTION 5.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date:
(a) by ACI pursuant to Section hereof;
(b) by the written agreement of ACI, Merger Sub and the
Selling Partners;
(c) by either the Selling Partners, on the one hand, or ACI,
on the other hand, by written notice to the other party if, without
fault of the terminating party, the Effective Time shall not have
occurred by 5:00 p.m. Central Standard or Daylight Savings Time, as the
case may be, on or before September 30, 1996, unless such date shall be
extended by the mutual written consent of ACI and the Selling Partners;
(d) by ACI by written notice to the Selling Partners if (i)
the representations and warranties of Billing and the Selling Partners
shall not have been true and correct in all respects (in the case of
any representation or warranty containing any materiality
qualification) or in all material respects (in the case of any
representation or warranty without any materiality qualification) as of
the date when made or (ii) if any of the conditions set forth in
Section 4.1 or 4.2 shall not have been, or if it becomes apparent that
any of such conditions will not be, fulfilled by 5:00 p.m. Central
Standard or Daylight Savings Time, as the case may be, on September 30,
1996, unless such failure shall be due to the failure of either ACI or
Merger Sub to perform or comply with any of the covenants, agreements
or conditions hereof to be performed or complied with by either of them
prior to the Closing; or
(e) by the Selling Partners by written notice to ACI if (i)
the representations and warranties of ACI and Merger Sub shall not have
been true and correct in all respects (in the case of any
representation or warranty containing any materiality qualification) or
in all material respects (in the case of any representation or warranty
without any materiality qualification) as of the date when made or (ii)
if any of the conditions set forth in Section 4.1 or 4.3 shall not
-37-
<PAGE>
FINAL SIGNATURE COPY
have been, or if it becomes apparent that any of such conditions will
not be, fulfilled by 5:00 p.m. Central Standard or Daylight Savings
Time on September 30, 1996, unless such failure shall be due to the
failure of Billing or any Selling Partner to perform or comply with any
of the covenants, agreements or conditions hereof to be performed or
complied with by any of them prior to the Closing.
SECTION 5.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to the provisions of Section 5.1, this Agreement shall
become void and have no effect, without any liability to any Person in respect
hereof or of the transactions contemplated hereby on the part of any party
hereto, or any of its directors, officers, employees, agents, consultants,
representatives, advisers, stockholders or Affiliates, except as specified in
Sections 8.2 and 3.1.9, and except for any liability resulting from such party's
breach of this Agreement.
ARTICLE 6
INDEMNIFICATION
SECTION 6.1 BY BILLING AND THE SELLING PARTNERS. Billing and the
General Partner (the "Billing Group"), jointly and severally, as to each
--------------
representation, warranty and covenant made by the Billing Group herein, and the
Selling Partners, jointly and severally as to each representation, warranty and
covenant made by the Selling Partners herein, shall defend, indemnify and hold
harmless ACI, Merger Sub, the Partnership, and their respective officers,
directors, partners, employees, agents, advisers, representatives and Affiliates
(collectively, the "ACI Indemnitees") from and against, and pay or reimburse the
---------------
ACI Indemnitees for, any and all claims, liabilities, obligations, losses,
fines, costs, royalties, proceedings, deficiencies or damages (whether absolute,
accrued, conditional or otherwise and whether or not resulting from third party
claims), including out-of-pocket expenses and reasonable attorneys' and
accountants' fees incurred in the investigation or defense of any of the same or
in asserting any of their respective rights hereunder (collectively, "Losses"),
------
resulting from or arising out of:
(i) any inaccuracy of any representation or warranty
made by the Billing, the General Partner or any of the Selling
Partners herein or under any Collateral Agreement or in
connection herewith or therewith; or
(ii) any failure of the Billing, the General Partner
or any of the Selling Partners to perform any covenant or
agreement hereunder or under any Collateral Agreement or
fulfill any other obligation in respect hereof or of any
Collateral Agreement.
SECTION 6.2 BY MERGER SUB AND ACI. Merger Sub and ACI, jointly and
severally, shall defend, indemnify and hold harmless Billing and the Selling
Partners and their respective officers,
-38-
<PAGE>
FINAL SIGNATURE COPY
directors, partners, employees, agents, advisers, representatives and Affiliates
(collectively, the "Billing Indemnitees") from and against any and all Losses
--------------------
resulting from or arising out of:
(i) any inaccuracy in any representation or warranty
by any Merger Sub or ACI made or contained in any Acquisition
Agreement or any Collateral Agreement or in connection
herewith or therewith; or
(ii) any failure of Merger Sub or ACI to perform any
covenant or agreement hereunder or under any Collateral
Agreement or fulfill any other obligation in respect hereof or
of any Collateral Agreement.
SECTION 6.3 LIMITATION ON INDEMNIFICATION. The ACI Indemnitees shall be
entitled to indemnification hereunder only when, and only with respect to
amounts by which, the aggregate of all Losses incurred by the ACI Indemnitees
hereunder and under the HOLD Merger Agreement exceeds $40,000. The Billing
Indemnitees shall be entitled to indemnification hereunder only when, and only
with respect to amounts by which, the aggregate of all Losses incurred by the
Billing Indemnitees hereunder and under the HOLD Merger Agreement exceeds
$40,000.
SECTION 6.4 MAXIMUM LIABILITY OF YOUNG. Young shall have no liability
hereunder for any amount in excess of Young's pro rata amount of the Purchase
Price received by Young pursuant to this Agreement.
SECTION 6.5 ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Any payment made
by Billing and the Selling Partners, or any of them to ACI Indemnities, on the
one hand, or by ACI and Merger Sub, or either of them, to the Billing
Indemnities, on the other hand, pursuant to this Article in respect of any claim
(i) shall be net of any insurance proceeds realized by and paid to the
Indemnified Party in respect of such claim and (ii) shall be (A) reduced by an
amount equal to any Tax benefits attributable to such claim and (B) increased by
an amount equal to any Taxes attributable to the receipt of such payment, but
only to the extent that such Tax benefits are actually realized, or such Taxes
are actually paid, as the case may be, by Billing or by any consolidated,
combined or unitary group of which Billing is a member. The Indemnified Party
shall use its reasonable efforts to make insurance claims relating to any claim
for which it is seeking indemnification pursuant to this Article 6; provided
--------
that the Indemnified Party shall not be obligated to make such an insurance
claim if the Indemnified Party in its reasonable judgment believes that the cost
of pursuing such an insurance claim together with any corresponding increase in
insurance premiums or other chargebacks to the Indemnified Party, as the case
may be, would exceed the value of the claim for which the Indemnified Party is
seeking indemnification.
SECTION 6.6 INDEMNIFICATION PROCEDURES. In the case of any claim
asserted by a third party against a party entitled to indemnification under this
Agreement (the "Indemnified Party"),
-----------------
-39-
<PAGE>
FINAL SIGNATURE COPY
notice shall be given by the Indemnified Party to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
------------------
has actual knowledge of any claim as to which indemnity may be sought, and the
Indemnified Party shall permit the Indemnifying Party (at the expense of such
Indemnifying Party) to assume the defense of any claim or any litigation
resulting therefrom, provided that (i) the counsel for the Indemnifying Party
--------
who shall conduct the defense of such claim or litigation shall be reasonably
satisfactory to the Indemnified Party, (ii) the Indemnified Party may
participate in such defense at such Indemnified Party's expense, and (iii) the
omission by any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its indemnification obligation under this
Agreement except to the extent that such omission results in a failure of actual
notice to the Indemnifying Party and such indemnifying Party is materially
damaged as a result of such failure to give notice. Except with the prior
written consent of the Indemnified Party, no Indemnifying Party, in the defense
of any such claim or litigation, shall consent to entry of any judgment or enter
into any settlement that provides for injunctive or other nonmonetary relief
affecting the Indemnified Party or that does not include as an unconditional
term thereof the giving by each claimant or plaintiff to such Indemnified Party
of a release from all liability with respect to such claim or litigation. In the
event that the Indemnified Party shall in good faith determine that the conduct
of the defense of any claim subject to indemnification hereunder or any proposed
settlement of any such claim by the Indemnifying Party might be expected to
affect adversely the Indemnified Party's Tax liability or the ability of ACI or
the Partnership to conduct its business, or that the Indemnified Party may have
available to it one or more defenses or counterclaims that are inconsistent with
one or more of those that may be available to the Indemnifying Party in respect
of such claim or any litigation relating thereto, the Indemnified Party shall
have the right at all times to take over and assume control over the defense,
settlement, negotiations or litigation relating to any such claim at the sole
cost of the Indemnifying Party, provided that if the Indemnified Party does so
--------
take over and assume control, the Indemnified Party shall not settle such claim
or litigation without the written consent of the Indemnifying Party, such
consent not to be unreasonably withheld. In the event that the Indemnifying
Party does not accept the defense of any matter as above provided, the
Indemnified Party shall have the full right to defend against any such claim or
demand and shall be entitled to settle or agree to pay in full such claim or
demand. In any event, the Indemnifying Party and the Indemnified Party shall
cooperate in the defense of any claim or litigation subject to this Section and
the records of each shall be available to the other with respect to such
defense.
SECTION 6.7 TIME LIMITATION. All claims for indemnification under
clause (i) of the first sentence of Section 8.3(a) or clause (i) of the first
sentence of Section 8.3(b) must be asserted within 30 days of the termination of
the respective survival periods set forth in Section 8.1.
SECTION 6.8 INDEMNIFICATION NOT EXCLUSIVE. The foregoing
indemnification provisions are in addition to, and not in derogation or
limitation of, any statutory, equitable or common-law remedy any party may have
for breach of representation, warranty, covenant or agreement or any other
remedy for which provision is made in this Agreement.
-40-
<PAGE>
FINAL SIGNATURE COPY
ARTICLE 7
DEFINITIONS AND CONSTRUCTION
SECTION 7.1 DEFINITION OF CERTAIN TERMS. Except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Section 7.1, whenever used in this Agreement (including in the Schedules), shall
have the respective meanings assigned to them in this Section for all purposes
of this Agreement, and include the plural as well as the singular.
ACI: as defined in the first paragraph of this Agreement.
ACI INDEMNITEES: as defined in Section 6.2.
AFFILIATE: of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person. "Control"
-------
(including the terms "controlled by" and "under common control with")
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
AGREEMENT: this instrument as originally executed, including
the Schedules hereto, or as it may be from time to time supplemented or
amended by one or more supplements or amendments hereto entered
pursuant to the applicable provisions hereof.
APPLICABLE LAW: all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances, codes or orders of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Authority.
BALANCE SHEET: the balance sheet contained in the Unaudited
Financial Statements.
BALANCE SHEET DATE: as defined in Section 2.1.4.
BENEFIT LIABILITIES: liabilities, obligations, commitments,
costs and expenses, including reasonable fees and disbursements of
attorneys and other advisors, including any such expenses incurred in
connection with the enforcement of any applicable provision of this
Agreement.
BILLING: as defined in the Recitals to this Agreement.
-41-
<PAGE>
FINAL SIGNATURE COPY
BILLING BUSINESS PLAN: as defined in Section 2.1.29.
BILLING GROUP: collectively, Billing and the General Partner.
BILLING INDEMNITEES: as defined in Section ?.
BOX: as defined in the first paragraph of this Agreement.
BOX EMPLOYMENT AGREEMENT: as defined in Section 4.2.5(c).
BUSINESS DAY: shall mean a day other than a Saturday, Sunday
or other day on which commercial banks in New York City or the State of
Texas are authorized or required to close.
CERCLA: the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq.
-- ---
CLOSING: as defined in Section 1.3.
CLOSING DATE: as defined in Section 2.1.
CODE: the Internal Revenue Code of 1986.
COLLATERAL AGREEMENTS: the agreements and other documents and
instruments described in Sections 4.2.5.
CONSENT: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order
of, registration, certificate, declaration or filing with, or report or
notice to, any Person, including any Governmental Authority.
CONTRACTS: as defined in Section 2.1.12(a).
COVERED RETURNS: as defined in Section 2.1.6(a).
COVERED TAXES: all Taxes.
DISCLOSURE MEMORANDUM: as defined in Section 3.1.9.
DOLLARS OR $: lawful money of the United States.
E. DUNN: as defined in the first paragraph of this Agreement.
EMPLOYEE BENEFIT PLAN: as defined in Section 2.1.24(a).
-42-
<PAGE>
FINAL SIGNATURE COPY
EMPLOYEES: as defined in Section 2.1.24(a).
ENVIRONMENTAL ASSESSMENT: any environmental assessment of the
Real Property and the other assets, equipment and facilities owned,
leased, operated or used by Billing.
ENVIRONMENTAL LAWS: all Applicable Laws relating to the
protection of the environment, to human health and safety, or to any
emission, discharge, generation, processing, storage, holding,
abatement, existence, Release, threatened Release or transportation of
any Hazardous Substances, including (i) CERCLA, the Resource
Conservation and Recovery Act, and the Occupational Safety and Health
Act, (ii) all other requirements pertaining to reporting, licensing,
permitting, investigation or remediation of emissions, discharges,
releases or threatened releases of Hazardous Materials into the air,
surface water, groundwater or land, or relating to the manufacture,
processing, distribution, use, sale, treatment, receipt, storage,
disposal, transport or handling of Hazardous Substances, and (iii) all
other requirements pertaining to the protection of the health and
safety of employees or the public.
ENVIRONMENTAL LIABILITIES AND COSTS: all Losses, whether
direct or indirect, known or unknown, current or potential, past,
present or future, imposed by, under or pursuant to Environmental Laws,
including all Losses related to Remedial Actions, and all fees,
disbursements and expenses of counsel, experts, personnel and
consultants based on, arising out of or otherwise in respect of: (i)
the ownership or operation of the business, Real Property or any other
real properties, assets, equipment or facilities, by Billing, or any of
their predecessors or Affiliates; (ii) the environmental conditions
existing on the Closing Date on, under, above, or about any Real
Property or any other real properties, assets, equipment or facilities
currently or previously owned, leased or operated by the Billing, or
any of their predecessors or Affiliates; and (iii) expenditures
necessary to cause any Real Property or any aspect of the business to
be in compliance with any and all requirements of Environmental Laws as
of the Closing Date, including all Environmental Permits issued under
or pursuant to such Environmental Laws, and reasonably necessary to
make full economic use of any Real Property.
ENVIRONMENTAL PERMITS: any federal, state and local permit,
license, registration, consent, order, administrative consent order,
certificate, approval or other authorization with respect to the
Billing necessary for the conduct of the business as currently
conducted or previously conducted under any Environmental Law.
ERISA: the Employee Retirement Income Security Act of 1974.
-43-
<PAGE>
FINAL SIGNATURE COPY
FINANCIAL STATEMENTS: each of the financial statements
required to be provided by Section 2.1.4.
GAAP: generally accepted accounting principles as in effect in
the United States.
GENERAL PARTNER: Hold Billing & Collection, L.C., a Texas
limited liability company.
GOVERNMENT APPROVAL: any Consent of, with or to any
Governmental Authority.
GOVERNMENTAL AUTHORITY: any nation or government, any state or
other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, including any government authority, agency,
department, board, commission or instrumentality of the United States,
any State of the United States or any political subdivision thereof,
and any tribunal or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization.
HAZARDOUS SUBSTANCES: any substance that: (i) is or contains
asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum or petroleum-derived substances or wastes, radon gas or
related materials, (ii) requires investigation, removal or remediation
under any Environmental Law, or is defined, listed or identified as a
"hazardous waste" or "hazardous substance" thereunder, or (iii) is
toxic, explosive, corrosive, flammable, infectious, radioactive,
carcinogenic, mutagenic, or otherwise hazardous and is regulated by any
Governmental Authority or Environmental Law.
HOLD MERGER AGREEMENT: as defined in Paragraph A of the
Recitals.
HSR ACT: the Hart-Scott-Rodino Anti-Trust Improvements Act of
1976.
INDEMNIFIED PARTY: as defined in Section 6.6.
INDEMNIFYING PARTY: as defined in Section 6.6.
INTELLECTUAL PROPERTY: any and all United States and foreign:
(a) patents (including design patents, industrial designs and utility
models) and patent applications (including docketed patent disclosures
awaiting filing, reissues, divisions, continuations-in-part and
extensions), patent disclosures awaiting filing determination,
inventions and improvements thereto; (b) trademarks, service marks,
trade names, trade dress, logos, business and product names, slogans,
and registrations and applications for registration thereof; (c)
copyrights (including
-44-
<PAGE>
FINAL SIGNATURE COPY
software) and registrations thereof; (d) inventions, processes,
designs, formulae, trade secrets, know-how, industrial models,
confidential and technical information, manufacturing, engineering and
technical drawings, product specifications and confidential business
information; (e) mask work and other semiconductor chip rights and
registrations thereof; (f) intellectual property rights similar to any
of the foregoing; (g) copies and tangible embodiments thereof (in
whatever form or medium, including electronic media).
INVENTORIES: all inventories of raw materials, work in
process, finished products, goods, spare parts, replacement and
component parts, and office and other supplies, including Inventories
held at any location controlled by Billing and Inventories previously
purchased and in transit to Billing at such locations.
IRS: the Internal Revenue Service.
LEASED REAL PROPERTY: means all interests leased pursuant to
the Leases.
LEASES: means the real property leases, subleases, licenses
and occupancy agreements pursuant to which Billing is the lessee,
sublessee, licensee or occupant.
LIEN: any mortgage, pledge, hypothecation, right of others,
claim, security interest, encumbrance, lease, sublease, license,
occupancy agreement, adverse claim or interest, easement, covenant,
encroachment, burden, title defect, title retention agreement, voting
trust agreement, interest, equity, option, lien, right of first
refusal, charge or other restrictions or limitations of any nature
whatsoever, including such as may arise under any Contracts.
LOSSES: as defined in Section 6.1.
MATERIAL ADVERSE EFFECT: any event, occurrence, fact,
condition, change or effect that is materially adverse to the business,
operations, results of operations, condition (financial or otherwise),
properties (including intangible properties), assets (including
intangible assets) or liabilities of Billing, or of ACI and its
Subsidiaries, taken as a whole, as the case may be.
MECHLER: as defined in the first paragraph of this Agreement.
MERGER SUB: as defined in the first paragraph of this
Agreement.
MERGER SUB INDEMNITEES: as defined in Section 6.1.
MONTHLY UNAUDITED FINANCIAL STATEMENTS: as defined in Section
2.1.4.
MULTIEMPLOYER PLAN: as defined in Section 2.1.24(c).
-45-
<PAGE>
FINAL SIGNATURE COPY
MULTIPLE EMPLOYER PLAN: as defined in Section 2.1.24(c).
NON-COMPETITION AGREEMENT: as defined in Section 4.2.5(a).
OWNED INTELLECTUAL PROPERTY: as defined in Section 2.1.19(a).
OWNED REAL PROPERTY: the real property owned by Billing,
together with all other structures, facilities, improvements, fixtures,
systems, equipment and items of property presently or hereafter located
thereon, attached or appurtenant thereto, or owned by the Billing and
located on Leased Real Property, and all easements, licenses, rights
and appurtenances relating to the foregoing.
P. DUNN: as defined in the first paragraph of this Agreement.
PARTNER: as defined in the first paragraph of this Agreement.
PARTNERS: as defined in the first paragraph of this Agreement.
PARTNERSHIP: as defined in the first paragraph of this
Agreement.
PARTNERSHIP AGREEMENT: the Limited Partnership Agreement of
Hold Billing Services, Ltd., effective as May 13, 1994.
PARTNERSHIP INTEREST: all of a Partner's interest in the
Partnership, including (a) the right to receive distributions of the
assets of the Partnership, (b) the right to receive allocations of
income, gain, loss, deduction, or credit of the Partnership, (c) the
right, if any, to participate in the affairs of the Partnership
pursuant to the Partnership Agreement or the TRLPA, (d) the right to
any and all benefits to which a Partner is entitled under the
Partnership Agreement or the TRLPA, and (e) the obligation to comply
with the terms and provisions of the Partnership Agreement.
PERMITTED LIENS: (i) Liens reserved against in the Balance
Sheet, to the extent so reserved, (ii) Liens for Taxes not yet due and
payable or which are being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on
Billing's books in accordance with GAAP, or (iii) Liens that,
individually and in the aggregate, do not and would not materially
detract from the value of any of the property or assets of Billing or
materially interfere with the use thereof as currently used or
contemplated to be used or otherwise.
PERSON: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Authority or
other entity.
-46-
<PAGE>
FINAL SIGNATURE COPY
PLANS: as defined in Section 2.1.24(a).
PURCHASE PRICE: as defined in Section 1.2.
REAL PROPERTY: the Owned Real Property and the Leased Peal
Property.
REAL PROPERTY LAWS: as defined in Section 2.1.21(f).
REIMBURSABLE EXPENSES: all out-of-pocket expenses and fees,
including legal and accounting fees and fees payable to banks and other
financial institutions and advisors, incurred by ACI or Merger Sub, or
both, or on their behalf in connection with the negotiation,
preparation, execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby, or the
financing of such transactions, or incurred by banks, financial
institutions or advisors and assumed by ACI or Merger Sub, or both, in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement or any related financing.
RELATED PERSONS: as defined in Section 2.1.24(a).
RELEASE: any releasing, disposing, discharging, injecting,
spilling, leaking, leaching, pumping, dumping, emitting, escaping,
emptying, seeping, dispersal, migration, transporting, placing and the
like, including the moving of any materials through, into or upon, any
land, soil, surface water, ground water or air, or otherwise entering
into the environment.
REMEDIAL ACTION: all actions required to (i) clean up, remove,
treat or in any other way remediate any Hazardous Substances; (ii)
prevent the release of Hazardous Substances so that they do not migrate
or endanger or threaten to endanger public health or welfare or the
environment; or (iii) perform studies, investigations and care related
to any such Hazardous Substances.
REVIEW TERMINATION DATE: as defined in Section 3.1.9.
RIGHTS: when used with respect to a Partner's Partnership
Interest, all of a Partner's right, title, and interest in, to, and
under the Partnership Interest.
SECURITIES ACT: the Securities Act of 1933.
SECURITY: as defined in Section 2.1.30.
SELLING PARTNER: as defined in the first paragraph of this
Agreement.
SELLING PARTNERS: as defined in the first paragraph of this
Agreement.
-47-
<PAGE>
FINAL SIGNATURE COPY
SUBSEQUENT MONTHLY FINANCIAL STATEMENTS: as defined in Section
3.1.4.
SUBSIDIARIES: each corporation or other Person in which a
Person owns or controls, directly or indirectly, capital stock or other
equity interests representing at least 50% of the outstanding voting
stock or other equity interests.
SUPPORTING DOCUMENTS: as defined in Section 3.1.9.
TAX: any federal, state, provincial, local, foreign or other
income, alternative, minimum, accumulated earnings, personal holding
company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care,
withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest
and penalties thereon and additions thereto whether disputed or not).
TAX RETURN: any return, report, declaration, form, claim for
refund or information return or statement relating to Taxes, including
any schedule or attachment thereto, and including any amendment
thereof.
TERMINATION DATE: the date on which this Agreement is
terminated pursuant to Section 7.1.
TREASURY REGULATIONS: the regulations prescribed pursuant to
the Code.
TRLPA: the Texas Revised Limited Partnership Act.
UNAUDITED FINANCIAL STATEMENTS: as defined in Section 2.1.4.
WEBB: as defined in the first paragraph of this Agreement.
WITHHOLDING TAXES: as defined in Section 2.1.6(a).
YOUNG: as defined in the first paragraph of this Agreement.
SECTION 7.2 RULES OF CONSTRUCTION.
(a) "This Agreement" means this instrument as originally
executed, including the Exhibits and Schedules hereto, or as it may be
from time to time supplemented or
-48-
<PAGE>
FINAL SIGNATURE COPY
amended by one or more supplements or amendments hereto entered
pursuant to the applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include all amendments,
modifications or supplements thereof or thereto from time to time, and
unless the context otherwise requires, include all rules and
regulations promulgated thereunder or pursuant thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision;
(i) all terms used herein which are defined in the Securities
Act, or the rules and regulations promulgated, thereunder have the
meanings assigned to them therein unless otherwise defined herein; and
(j) all accounting terms not otherwise defined herein have the
meaning assigned to them in accordance with GAAP.
-49-
<PAGE>
FINAL SIGNATURE COPY
ARTICLE 8
GENERAL PROVISIONS
SECTION 8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement, any examination by or on behalf of the
parties hereto and the completion of the transactions contemplated herein, but
only to the extent specified below:
(a) except as set forth in clauses (b) and (c) below, the
representations and warranties contained in Section 2.1 and Section 2.3
shall survive for a period of one year following the Closing Date;
(b) the representations and warranties contained in Sections
2.1.1, 2.1.2, 2.1.3, 2.1.22, 2.1.24 and 2.3.1 shall survive without
limitation; and
(c) the representations and warranties contained in Section
2.1.6 shall survive as to any Tax covered by such representations and
warranties for so long as any statute of limitations for such Tax
remains open, in whole or in part, including by reason of waiver of
such statute of limitations.
SECTION 8.2 EXPENSES. Except as provided in Section 3.1.9, the Selling
Partners, on the one hand, and ACI and Merger Sub, on the other hand, shall bear
their respective expenses, costs and fees (including attorneys', auditors' and
financing commitment fees) in connection with the transactions contemplated
hereby, including the preparation, execution and delivery of this Agreement and
compliance herewith, whether or not the transactions contemplated hereby shall
be consummated.
SECTION 8.3 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 8.4 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram,
-50-
<PAGE>
FINAL SIGNATURE COPY
(i) if to Merger Sub or ACI, to
Avery Communications, Inc.
801 Greenview Drive
Grand Prairie, Texas 75050
Attention: Patrick J. Haynes, III
with a copy to:
Bruce A. Cheatham, Esq.
Winstead Sechrest & Minick P.C.
1201 Elm Street, Suite 5400
Dallas, Texas 75270
(ii) if to Billing or the Selling Partners, to
Hold Billing Services, Ltd.
800 Vantage Drive, Suite 2100
San Antonio, Texas 78230
Attention: Joseph W. Webb
with a copy to:
Byron L. LeFlore, Jr., Esq.
Gresham, Davis, Gregory, Worthy & Moore
112 East Pecan Street, Ninth Floor
San Antonio, Texas 78205-1542
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 8.5 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 8.6 ENTIRE AGREEMENT. This Agreement (including the Schedules
hereto) and the Collateral Agreements (when executed and delivered) constitute
the entire agreement and supersede all prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
-51-
<PAGE>
FINAL SIGNATURE COPY
SECTION 8.7 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 8.8 GOVERNING LAW, ETC. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof. ACI, Merger Sub, Billing and each Selling Partner hereby irrevocably
submit to the jurisdiction of the courts of the State of Texas and the Federal
courts of the United States of America located in the State of Texas, City and
County of Dallas, solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any of such document may not be
enforced in or by said courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a Texas State or Federal court. ACI, Merger Sub, Billing and each
Selling Partner hereby consent to and grant any such court jurisdiction over the
person of such parties and over the subject matter of any such dispute and agree
that mailing of process or other papers in connection with any such action or
proceeding in the manner provided in Section 8.4, or in such other manner as may
be permitted by law, shall be valid and sufficient service thereof.
SECTION 8.9 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 8.10 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto; provided, however, that ACI and Merger Sub may assign
-------- -------
this Agreement to any Subsidiary of ACI, and ACI and Merger Sub may assign this
Agreement to any lender to ACI or any Subsidiary or Affiliate thereof as
security for obligations to such lender in respect of the financing arrangements
entered into in connection with the transactions contemplated hereby and any
refinancings, extensions, refundings or renewals thereof; and, provided,
--------
further, that no assignment to any such lender shall in any way affect ACI's or
- -------
Merger Sub's obligations or liabilities under this Agreement.
SECTION 8.11 NO THIRD PARTY BENEFICIARIES. Except as provided in
Section with respect to indemnification of Indemnified Parties hereunder,
nothing in this Agreement shall confer any rights upon any person or entity
other than the parties hereto and their respective heirs, successors and
permitted assigns.
SECTION 8.12 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge
-52-
<PAGE>
FINAL SIGNATURE COPY
or waiver is sought. Any such waiver shall constitute a waiver only with respect
to the specific matter described in such writing and shall in no way impair the
rights of the party granting such waiver in any other respect or at any other
time. Neither the waiver by any of the parties hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure by any of
the parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in respect of any
inaccuracy or breach of any representation, warranty, covenant or agreement or
failure to fulfill any condition shall in no way be limited by the fact that the
act, omission, occurrence or other state of facts upon which any claim of any
such inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach. The representations and warranties of Billing and the
Selling Partners shall not be affected or deemed waived by reason of any
investigation made by or on behalf of Merger Sub or ACI (including by any of
their respective advisors, consultants or representatives) or by reason of the
fact that Merger Sub or ACI or any of such advisors, consultants or
representatives knew or should have known that any such representation or
warranty is or might be inaccurate. The representations and warranties of Merger
Sub and ACI shall not be affected or deemed waived by reason of any
investigation made by or on behalf of Billing or the Selling Partners (including
by any of their respective advisors, consultants or representatives) or by
reason of the fact that Billing or the Selling Partners or any of such advisors,
consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
-53-
<PAGE>
FINAL SIGNATURE COPY
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
AVERY ACQUISITION SUB, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
HOLD BILLING SERVICES, LTD.
By: HOLD BILLING & COLLECTION, L.C.
By:___________________________
Harold D. Box
Managing Member
By:___________________________
David W. Mechler
Managing Member
HOLD BILLING & COLLECTION, L.C.
By:________________________________
Harold D. Box
Managing Member
By:________________________________
David W. Mechler, Jr.
Managing Member
-54-
<PAGE>
FINAL SIGNATURE COPY
SELLING PARTNERS
___________________________________
Joseph W. Webb
___________________________________
James A. Young
___________________________________
Edward L. Dunn
___________________________________
Philip S. Dunn
PARTNERS
___________________________________
Harold D. Box
___________________________________
David W. Mechler, Jr.
<PAGE>
EXHIBIT 2.2
FIRST AMENDMENT
TO
PARTNERSHIP INTEREST PURCHASE AGREEMENT
This First Amendment to Partnership Interest Purchase Agreement (this
"First Amendment"), dated and effective as of October ___, 1996, constitutes the
---------------
first amendment to that certain Partnership Interest Purchase Agreement (the
"Agreement"), dated as of May 3, 1996, by and among Avery Communications, Inc.,
---------
a Delaware corporation ("ACI"), Avery Acquisition Sub, Inc., a Texas corporation
---
("Merger Sub"), HOLD Billing Services, Ltd. a Texas limited partnership
-----------
("Billing" or the "Partnership"), HOLD Billing & Collection, L.C., a Texas
------- -----------
limited liability company and the General Partner (the "General Partner") of
----------------
Billing, Joseph W. Webb ("Webb"), James A. Young ("Young"), Edward L. Dunn ("E.
----- --
Dunn"), Philip S. Dunn ("P. Dunn," and, collectively with Webb, Young and E.
- ---- -------
Dunn, the "Selling Partners," or individually, a "Selling Partner"), Harold D.
---------------- ---------------
Box ("Box"), David W. Mechler, Jr. ("Mechler," and collectively with the General
--- -------
Partner, Webb, Young, E. Dunn, P. Dunn and Box, the "Partners," or individually,
--------
a "Partner").
-------
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
SECTION 1.1 DEFINITIONS OF CERTAIN TERMS. Except as otherwise expressly
provided or unless the context otherwise requires, the all terms defined in the
Agreement, whenever used in this First Amendment, shall have the respective
meanings assigned to them in the Agreement for all purposes of this First
Amendment, and include the plural as well as the singular.
SECTION 1.2 RULES OF CONSTRUCTION. The rules of construction set forth
in Section 7.2 of the Agreement are incorporated by reference herein to the same
extent and as fully as if set forth in their entirety in this First Amendment.
ARTICLE 2
AMENDMENTS TO AGREEMENT
SECTION 2.1 AMENDMENT OF SECTION 1.2. Section 1.2 of the Agreement is
hereby amended and restated to read in its entirety as follows:
SECTION 1.2 PURCHASE PRICE. In consideration for the sale,
assignment, transfer and conveyance by the Selling Partners of the
Selling Partners' Partnership Interests to Merger Sub as herein
provided, Merger Sub shall deliver, or cause to be delivered, to the
Selling Partners, pro rata in accordance with their respective
Partnership Interests, at the Closing (as hereinafter defined) the
following:
(i) certified or bank cashiers' checks in the
aggregate amount of $700,000.00;
-1-
<PAGE>
(ii) promissory notes (collectively, the "Notes"), in
-----
the form attached hereto as Annex I, in the aggregate
principal amount of $635,000.00, which Notes will bear
interest at the rate of 10% per annum from and after the
Closing Date until maturity, and which Notes will provide that
the principal and all interest accrued thereon will be due and
payable in full in one installment of principal and all
accrued interest on the date which is six months following the
Closing Date; and
(iii) 250,000 shares (collectively, the "ACI Shares")
----------
of the Common Stock, par value $0.01 per share (the "ACI
Common Stock"), of ACI.
------------
In addition, Merger Sub shall deliver, or cause to be delivered, to
Bank One, Texas, N.A., as escrow agent (the "Escrow Agent"), an additional
-------------
200,000 shares (collectively, the "Escrow Shares") of ACI Common Stock to be
--------------
held in escrow (the "Escrow") pursuant to the terms of the Escrow Agreement (the
------
"Escrow Agreement") in the form attached hereto as Annex II. The Escrow Shares
-----------------
will be released to the Selling Partners, pro rata in accordance with their
respective Partnership Interests, on April 30, 1998, 1999, and 2000 (each a
"Release Date"), in accordance with the provisions hereinafter set forth. For
-------------
the purpose of determining the number of Escrow Shares to be released on any
Release Date, the following definitions shall apply: the term "AFTER-TAX
---------
EARNINGS" shall be deemed to mean the product obtained by multiplying (i) the
- --------
result obtained by subtracting (A) the lesser of (1) the sum of clause (B)(2)
plus clause (B)(3), or (2) $250,000, from (B) the sum of (1) the Partnership's
- ---- ----
audited pre-tax earnings (as determined by ACI's Auditors, whose determination
shall be final and binding on the parties) for any applicable year, plus (2) any
----
amortization of goodwill included in such earnings, plus (3) any allocation of
----
ACI's corporate overhead or similar corporate charges of ACI included in such
earnings, by (ii) .60; the term "MULTIPLE OF EARNINGS VALUE" shall mean, for any
-- --------------------------
applicable period, the product obtained by multiplying (i) 15 by (ii) the
Partnership's AFTER-TAX EARNINGS for the applicable year; the term "BASE VALUE"
----------
shall mean (i) for the year ending December 31, 1997 - $3,861,000; (ii) for the
year ending December 31, 1998 - the greater of (A) the MULTIPLE OF EARNINGS
VALUE for the year ending December 31, 1997, or (B) $3,861,000; and (iii) for
the year ending December 31, 1999 - the greater of (A) the MULTIPLE OF EARNINGS
VALUE for the year ending December 31, 1997, (B) the MULTIPLE OF EARNINGS VALUE
for the year ending December 31, 1998, or (C) $3,861,000; and the term "TARGET
------
VALUE" shall mean, for any applicable year, the result, if a positive number,
- -----
obtained by subtracting (i) the BASE VALUE for the applicable year from (ii) the
----
MULTIPLE OF EARNINGS VALUE for the applicable year. On the 1998 and 1999 Release
Dates up to a maximum of 100,000 Escrow Shares shall be eligible for release
from Escrow. If on either the 1998 or 1999 Release Date less than 100,000 Escrow
Shares shall be released from Escrow pursuant to the provisions hereof, then, in
each such event, a number of Escrow Shares equal to the difference between
-2-
<PAGE>
100,000 Escrow Shares and the actual number of Escrow Shares released from
Escrow on each such Release Date pursuant to the provisions hereof shall be
eligible for release from Escrow pursuant to the provisions hereof on the 2000
Release Date. On the 2000 Release Date the maximum number Escrow Shares that
shall be eligible for release from Escrow pursuant to the provisions hereof
shall be the lesser of the sum of the Escrow Shares not released from Escrow
pursuant to the provisions hereof on the 1998 and 1999 Release Dates, or 200,000
Escrow Shares. If, in performing the calculations hereinafter set forth for any
applicable year, the MULTIPLE OF EARNINGS VALUE shall be less than the BASE
VALUE, then no Escrow Shares shall be released from Escrow on the applicable
Release Date.
The actual number of Escrow Shares to be released on any Release Date
shall be equal to the lesser of 100,000 Escrow Shares, or the number of Escrow
Shares determined by multiplying (i) .54 by (ii) the result obtained by dividing
--
(A) the result obtained by multiplying (1) .08 by (2) the TARGET VALUE for the
applicable year by (B) $3.00. By way of illustration, the formula would be
--
applied as set forth in the examples on Annex I hereto.
In the event the Partnership shall cease to be a direct or indirect
subsidiary of ACI, whether through the disposition of ACI's ownership of the
Partnership, the sale of all or substantially all the assets of the Partnership
as a going concern, spinoff, or otherwise, the Selling Partners shall, on the
day preceding the effective date of any such transaction, immediately become
fully vested in any and all shares of ACI Common Stock still held in escrow at
such time for release based upon the audited pre-tax earnings for years not then
completed, and all such fully vested shares of ACI Common Stock shall be
released from escrow to the Selling Partners on or before the consummation of
any such transaction. Any Escrow Shares not released to the Selling Partners
pursuant hereto shall be released from Escrow and delivered to ACI on or before
the 2000 Release Date.
SECTION 2.2 AMENDMENT OF SECTION 1.3. Clause (i) of Section 1.3 of the
Agreement is hereby amended to change the reference therein to "August 1" to
"November 15."
SECTION 2.3 AMENDMENT OF SECTION 4.2.5. Section 4.2.5 of the Agreement
is hereby amended by (i) deleting paragraphs (b) and (c) therefrom in their
entirety; (ii) redesignating paragraph (d) thereof as paragraph (b), and
deleting the period at the end of such paragraph and replacing such period with
"; and"; and (iii) adding the following paragraphs thereto:
(c) an amendment to the Option Agreement, in form, scope and
substance satisfactory to ACI in its sole and absolute discretion,
pursuant to which ACI may exercise the option provided therein
contemporaneously with the Closing of the transactions contemplated by
the Agreement; and
-3-
<PAGE>
(d) either a new agreement or agreements between the
Partnership and HOLD, or amendments to the Partnership's existing
agreement or agreements with HOLD, in each case, are substantially in
the same form and containing substantially similar terms as the present
agreement, but in form, scope and substance satisfactory to ACI in its
sole and absolute discretion, providing that, for a period of no less
than four calendar years following the Closing Date, the Partnership
will be the exclusive billing agent for HOLD's long distance services
(except for those local exchange carriers with which the Partnership
does not presently have an agreement to provide such services);
provided, however, if, after two years, HOLD shall be disposed of as a
going concern, either through the transfer of its outstanding
securities or through the sale of all or substantially all its assets,
to a single acquiror, then, in such event, the exclusivity provisions
of such contract shall automatically terminate.
SECTION 2.4 AMENDMENT OF SECTION 4.2.8. Section 4.2.8 of the Agreement
is hereby amended and restated to read in its entirety as follows:
SECTION 4.2.8 OPTION CLOSING. The conditions to the
obligations of ACI and Merger Sub under the Option Agreement to
consummate the transactions contemplated by the Option Agreement shall
have been fulfilled (or waived by ACI and Merger Sub) and, concurrently
with the Closing, the transactions contemplated by the Option Agreement
shall have been consummated.
SECTION 2.5 AMENDMENT OF SECTION 4.3. Section 4.3 of the Agreement is
hereby amended to delete Section 4.3.3 therefrom in its entirety, and to
renumber Section 4.3.4 as Section 4.3.3.
SECTION 2.6 AMENDMENT OF SECTION 5.1. Section 5.1 of the Agreement is
hereby amended to change all references therein to "September 30, 1996" to
"November 15, 1996."
SECTION 2.7 AMENDMENT OF SECTION 6.7. Section 6.7 of the Agreement is
hereby amended to change the reference therein to "Section 8.3(a)" to "Section
6.1," and the reference therein to "Section 8.3(b)" to "Section 6.2."
SECTION 2.8 AMENDMENT TO ADD ANNEXES. The Agreement is hereby amended
to add the form of the Notes thereto as Annex I, and to add the form of the
Escrow Agreement thereto as Annex II.
SECTION 2.9 AMENDMENT OF SECTION 7.1. Section 7.1 of the Agreement is
hereby amended to add the following terms, in each case in its appropriate
alphabetical order, to those terms defined therein:
ACI COMMON STOCK: as defined in Section 1.2.
-4-
<PAGE>
ACI SHARES: as defined in Section 1.2.
AFTER-TAX EARNINGS: as defined in Section 1.2.
BASE VALUE: as defined in Section 1.2.
ESCROW: as defined in Section 1.2.
ESCROW AGENT: as defined in Section 1.2.
ESCROW AGREEMENT: as defined in Section 1.2.
ESCROW SHARES: as defined in Section 1.2.
MULTIPLE OF EARNINGS VALUE: as defined in Section 1.2.
NOTES: as defined in Section 1.2.
OPTION AGREEMENT: that certain Partnership Interest Option Agreement
made as of May 3, 1996, by and among ACI, Merger Sub, Box and Mechler.
RELEASE DATE: as defined in Section 1.2.
TARGET VALUE: as defined in Section 1.2.
The definition of the term TERMINATION DATE in Section 7.1 of the
Agreement is hereby amended to change the cross-reference therein from "SECTION
-------
7.1" to "SECTION 5.1."
- --- -----------
Section 7.1 of the Agreement is hereby amended to delete the definition
of the term PURCHASE PRICE therefrom in its entirety.
ARTICLE 3
AGREEMENT; MISCELLANEOUS
SECTION 3.1 AGREEMENT RATIFIED AND CONFIRMED. Except as expressly
amended by this First Amendment, the Agreement is in full force and effect, no
party has notice of any event of default or breach of any representation,
warranty or covenant by any other party, and the Agreement, as amended by this
First Amendment, is hereby ratified, confirmed and reaffirmed for all purposes
and in all respects.
SECTION 3.2 HEADINGS. The headings contained in this First Amendment
are for purposes of convenience only and shall not affect the meaning or
interpretation of this First Amendment.
-5-
<PAGE>
SECTION 3.3 COUNTERPARTS. This First Amendment may be executed in
several counterparts, each of which shall be deemed an original and all of which
together constitute one and the same instrument.
SECTION 3.4 GOVERNING LAW, ETC. This First Amendment shall be governed
by in all respects, including as to validity, interpretation and effect, by the
internal laws of the State of Texas, without giving effect to the conflict of
laws rules thereof.
SECTION 3.5 AMENDMENT. No amendment or modification of this First
Amendment shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment or modifications
sought.
SECTION 3.6 AMENDMENT OF OPTION AGREEMENT. This First Amendment shall
not become effective until such time as the Option Agreement shall have been
amended in form, scope and substance satisfactory to ACI in its sole and
absolute discretion.
SECTION 3.7 TEXSTAR NOTE. For so long as there is no default under the
Agreement or the Texstar Note, Webb, E. Dunn and Young shall remain as
guarantors of the Texstar Note, and any renewals or extensions thereof, up to a
maximum of $600,000. ACI, Mechler and Box shall cause Webb, E. Dunn and Young to
be released from such guaranty on or before 12 months following the Closing
Date.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. THE
SIGNATURES OF THE PARTIES BEGIN ON THE FOLLOWING PAGE.]
-6-
<PAGE>
SIGNATURE PAGE
TO
FIRST AMENDMENT
TO
PARTNERSHIP INTEREST PURCHASE AGREEMENT
IN WITNESS WHEREOF, the parties have duly executed this First Amendment
as of the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
AVERY ACQUISITION SUB, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
HOLD BILLING SERVICES, LTD.
By: HOLD BILLING & COLLECTION, L.C.
By:___________________________
Harold D. Box
Managing Member
By:___________________________
David W. Mechler, Jr.
Managing Member
S-1
<PAGE>
SIGNATURE PAGE
TO
FIRST AMENDMENT
TO
PARTNERSHIP INTEREST PURCHASE AGREEMENT
HOLD BILLING & COLLECTION, L.C.
By:________________________________
Harold D. Box
Managing Member
By:________________________________
David W. Mechler, Jr.
Managing Member
SELLING PARTNERS
___________________________________
Joseph W. Webb
___________________________________
James A. Young
___________________________________
Edward L. Dunn
___________________________________
Philip S. Dunn
PARTNERS
___________________________________
Harold D. Box
___________________________________
David W. Mechler, Jr.
S-2
<PAGE>
EXHIBIT 2.3
FINAL SIGNATURE COPY
PARTNERSHIP INTEREST OPTION AGREEMENT
This PARTNERSHIP INTEREST OPTION AGREEMENT (this "Agreement") is made
---------
as of May 3, 1996, by and among AVERY COMMUNICATIONS, a Delaware corporation
("ACI"), AVERY ACQUISITION SUB, INC., a Texas corporation ("Merger Sub"), and
--- ----------
HAROLD D. BOX and DAVID W. MECHLER (collectively, "Partners").
--------
RECITALS
A. Contemporaneously herewith, ACI, Merger Sub and Home Owners Long
Distance Incorporated, a Texas corporation ("HOLD"), the Partners and others are
----
entering into an Agreement and Plan of Merger (the "HOLD Merger Agreement")
-----------------------
pursuant to which, subject to the terms and conditions set forth therein, Merger
Sub will merge with and into HOLD, and HOLD will become a wholly owned
subsidiary of ACI.
B. Contemporaneously herewith, ACI, Merger Sub, Hold Billing Services,
Ltd., a Texas limited partnership ("Billing" or the "Partnership"), Hold Billing
------- -----------
& Collection, L.C., a Texas limited liability company and the general partner of
Billing, the Partners and the other limited partners of the Partnership are
entering into a Partnership Interest Purchase Agreement (the "Partnership
-----------
Interest Purchase Agreement") pursuant to which, subject to the terms and
- -----------------------------
conditions set forth therein, Merger Sub will buy 54% of the Partnership
Interest of the Partnership. As used herein, the term "Partnership Interest"
---------------------
means all of a Partner's interest in the Partnership, including, without
limitation, (i) the right to receive distributions of the assets of the
Partnership, (ii) the right to receive allocations of income, gain, loss,
deduction, or credit of the Partnership, (iii) the right, if any, to participate
in the affairs of the Partnership pursuant to the Limited Partnership Agreement
of Hold Billing Services, Ltd. effective May 13, 1994 (the "Partnership
-----------
Agreement") or the Texas Revised Limited Partnership Act ("TRLPA"), (v) the
- --------- -----
right to any and all benefits to which a Partner is entitled under the
Partnership Agreement or TRLPA, and (v) the obligations to comply with the
Partnership Agreement; and the term "Partner's Rights" means all of a Partner's
----------------
right, title, and interest in, to, and under the Partnership Interest.
C. The Partners own an aggregate of 46% of the Partnership Interests of
the Partnership. Subject only to the limitations and exclusions contained in
this Agreement, and on the terms and conditions hereinafter set forth, each of
the Partners desires to grant to Merger Sub an option to purchase all of
Partner's Partnership Interest and Partner's Rights in the Partnership Interest
upon the terms, and subject to the conditions, herein set forth.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
<PAGE>
FINAL SIGNATURE COPY
ARTICLE 1
OPTIONS
SECTION 1.1 GRANT OF OPTION TO PURCHASE PARTNERSHIP INTEREST. Subject
to the terms and conditions of this Agreement, Partners hereby grant to ACI an
option (the "Option") to purchase from Partners all of Partners' Partnership
------
Interest and the Partners' Rights in the Partnership Interest, free and clear of
any and all (i) liens, (ii) security interests, (iii) pledges, (iv) mortgages,
(v) deeds of trust, (vi) charges, (vi) claims, (vii) conditional sales
agreements, (viii) rights of assignment, (ix) rights to purchase, (x) rights of
first offer or refusal, (xi) options, (xii) warrants, (xiii) other rights of
third parties of any type, description or nature whatsoever, or (xiv) other
encumbrances of any type, description or nature whatsoever (collectively,
"Liens").
-----
SECTION 1.2 CONSIDERATION FOR OPTION. In consideration for the grant of
the Option, ACI shall pay to the Partners the sum of $10.00 (the "Option
------
Price,").
- -----
SECTION 1.3. EXERCISE PRICE. If ACI exercises the Option during the
Option Term (as hereinafter defined), the exercise price (the "Exercise Price")
--------------
shall be the Partnership Interest Value. As used herein, "Partnership Interest
---------------------
Value" shall mean the value of the Partners Partnership Interest, determined by
- -----
a nationally recognized investment banking firm (the "Initial Banker"), to be
--------------
mutually agreed upon by the Partners and ACI (or if the Partners and ACI are
unable to agree, the New York office of Merrill Lynch & Co.), in light of such
investment banking firm's evaluation of Billing's current earnings as of the
date the Option Exercise Notice (as hereinafter defined) and such other similar
matters that such investment banking firm shall deem relevant less the aggregate
amount of distributions received by the either Partner that was not made pro
rata to all the limited and general partners of the Partnership; provided,
--------
however, such investment banker shall not consider the following factors in
- -------
determining the Partnership Interest Value:
(i) minority interest discounts or controlling interest premiums;
(ii) fees or overhead paid to or allocated from ACI; or
(iii) amortization of intangibles resulting from acquisitions.
Upon ACI's receipt of the Initial Banker's determination of the
Partnership Interest Value, it shall promptly notify the Partners of such
determination and the assumptions and methodology utilized in arriving at such
determination and provide the written opinion of the Initial Banker as to its
determination. If within 30 Business Days of receipt of such determination, the
Partners shall not object thereto, ACI will consummate the exercise of the
Option. If within such 30-day period the Partners shall object in writing to
such determination, the Partners may appoint, at its sole cost and expense, a
nationally recognized investment banking firm (the "Partners' Banker") to
-----------------
undertake separately the evaluation prescribed above. Not later than 60 days
following its written notice to ACI of its objection to the Initial Banker's
determination, the Partners shall provide ACI with the Partners' Banker's
determination, including the assumptions and methodology utilized in arriving at
such determination and provide the written opinion of the Partners' Banker as to
its determination. If the Partners do not provide ACI with these materials
-2-
<PAGE>
FINAL SIGNATURE COPY
within the 60-day period prescribed above, ACI shall be entitled to consummate
the exercise of its option pursuant hereto. The fees and expenses of the Initial
Banker shall be borne by ACI. The time limits herein may be extended by the
parties to provide the investment bankers such additional time as they may
request.
If within 30 days of the delivery of the determination of the Partners'
Banker, the Partners' Banker and the Initial Banker are unable to resolve their
differing determinations and arrive at an agreed upon value, then a third
nationally recognized investment banking firm, selected by the agreement of the
Initial Banker and the Partners' Banker, shall undertake to make the
determinations prescribed above. Such investment banker's determination as to
the Partnership Interest Value shall be delivered to ACI and the Partners along
with the assumptions and methodology utilized in arriving at such determination
as well as the written opinion of such investment banker as to its
determination. At such time, the Partnership Interest Value shall be deemed to
be the simple average of the two closest determinations by the three investment
bankers, which determination shall be final and binding upon ACI and the
Partners. The fees and expenses of such third investment banker shall be borne
equally by ACI, on the one hand, and the Partners, on the other hand, and shall
be paid in advance of the performance of such service.
SECTION 1.4 PAYMENTS. The Exercise Price may be paid in (i) cash, (ii)
shares of ACI common stock, par value $.01 per share ("ACI Common Stock") or
------------------
(iii) any combination of cash and shares of ACI Common Stock as ACI, in its sole
discretion, determines; provided however, ACI shall pay sufficient consideration
----------------
in cash to permit the Partners to pay applicable federal income tax (if any)
that is payable as a result of the exercise of the Option. If the Exercise Price
is paid, in whole or in part, with shares of ACI Common Stock, the value of ACI
Common Stock shall be its Current Market Value. As used herein, the term
"Current Market Value" means, if on such date ACI Common Stock is listed or
----------------------
admitted to trading on any national securities exchange or quoted on the Nasdaq
Stock Market ("NASDAQ") or otherwise traded in the over-the-counter market in
------
the United States, the mean average closing price for the 50 consecutive days
before the fifth business day preceding the Closing Date; or if on such date ACI
Common Stock is not listed or admitted to trading on any national securities
exchange or quoted on the NASDAQ or otherwise traded in the over-the-counter
market in the United States, the amount that a willing buyer would pay a willing
seller in an arm's length transaction on such date (neither being under any
compulsion to buy or sell) for such security as determined on the same basis as
the Exercise Prices is determined under Section 1.3. The Partners shall have
registration rights with respect to the ACI Common Stock by becoming parties to
that Registration Rights Agreement attached as Exhibit B to the HOLD Merger
Agreement; provided however, the piggy back registration rights of the Partners
----------------
shall be effective at the date of the Exercise Option Notice and shall expire on
the earlier of (i) three years from the Option Closing Date (as hereinafter
defined) and (ii) the date on which any Holder (as defined in the Registration
Rights Agreement) may sell shares of Registrable Stock (as defined in the
Registration Rights Agreement) under section k of Rule 144, promulgated under
the Securities Act of 1933, (or any successor provision).
-3-
<PAGE>
FINAL SIGNATURE COPY
SECTION 1.5 EXERCISE OF OPTION;TERM. The Option shall become fully
exercisable on the second anniversary of the closing of the merger of ACI with
and into HOLD and shall remain fully exercisable for a period of two years
thereafter (the "Option Term"). ACI may exercise the Option in whole, but not in
-----------
part, at any time before the expiration of the Option Term by giving written
notice of exercise (the "Option Exercise Notice") to the Partners.
----------------------
SECTION 1.6 OFFER TO PURCHASE OF MERGER SUB'S PARTNERSHIP INTEREST. If
ACI does not exercise the Option during the Option Term, the Partners may offer
(the "Offer") to purchase Merger Sub's Partnership Interest and its rights in
-----
its Partnership Interest by giving written notice of the Offer to Merger Sub
within 120 days after the expiration of the Option Term. Such notice shall
contain the purchase price (the "Offer Price") and the other terms and
------------
conditions of the Offer, together with such information or documentation as is
reasonably satisfactory to ACI to demonstrate the financial capacity of the
Partners to consummate the purchase of the Partnership Interest. Merger Sub may,
in its sole discretion, accept or reject the Offer.
SECTION 1.7 SECOND OPTION. If Merger Sub rejects the Offer, ACI shall
purchase all of the Partners' Partnership Interest and Partners Rights in the
Partnership Interest on the same terms and conditions as contained in the Offer,
except the Offer Price for the Partners' Partnership Interest and Partners
Rights in the Partnership Interest of the Partners shall be reduced pro rata to
reflect the aggregate Partnership Interest then owned by the Partners. The Offer
Price shall be payable upon the same terms and conditions as set forth in
Section 1.4.
ARTICLE 2
CLOSING
SECTION 2.1 CLOSING UPON EXERCISE OF OPTION. The exercise of the Option
(the "Closing") shall take place (i) at the offices of Winstead Sechrest &
-------
Minick P.C., 5400 Renaissance Tower, Dallas, Texas, at 10:00 a.m., local time,
on the third business day immediately following the day on which the Exercise
Price is determined, or (ii) at such other place, time or date and by such means
as ACI and Partners may agree. The date on which the Option Closing takes place
is referred to herein as the "Closing Date."
------------
SECTION 2.2 FURTHER ASSURANCES. At the Closing, the Partners shall
execute and deliver to ACI all such instruments and documents, and take or cause
to be taken all such action, as ACI may reasonably request in order to effect
the acquisition by ACI of the Partnership Interest upon exercise of the Option
or the Second Option, as the case may be, and as contemplated by this Agreement,
including instruments or documents deemed necessary or desirable by ACI to
effect and evidence the conveyance of the Partners' Partnership Interests and
Partners' Rights in the Partnership Interests upon exercise of the Option or the
Second Option, as the case may be, by ACI in accordance with the terms of this
Agreement. In the event the Partners effect the acquisition of Merger Sub's
Partnership Interest as contemplated by this Agreement, Merger Sub shall execute
and deliver to the Partners all such instruments and documents, and take or
cause
-4-
<PAGE>
FINAL SIGNATURE COPY
to be taken all such action, as the Partners may reasonably request in order to
effect the acquisition by the Partners of Merger Sub's Partnership Interest.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF LIMITED PARTNERS. Each
Partner jointly and severally, represent and warrant to ACI and Merger Sub that:
3.1.1 AUTHORITY. Each Partner has all requisite power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary action on the part of each
Partner. This Agreement has been duly executed and delivered by each
Partner and constitutes a valid and binding obligation of each Partner
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general equity principles. The execution and delivery of
this Agreement does not, and the consummation of the transactions
contemplated hereby will not, result in any Violation of any loan or
credit agreement, note, mortgage, indenture, lease, employee benefit
plan or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to either Partner or either Partner's
properties or assets, which Violation would prohibit, impair or
restrict the ability of either Partner to execute and deliver this
Agreement, perform in accordance with the terms hereof, or convey the
Partnership Interest to Merger Sub upon exercise of the Option or the
Second Option as contemplated hereby, or would materially and adversely
affect the rights or benefits, or both, hereunder of ACI or Merger Sub.
No consent, approval, order or authorization of, or registration,
declaration or filing with, any governmental entity is required by or
with respect to either Partner in connection with the execution and
delivery of this Agreement by either Partner or the consummation by
either Partner of the transactions contemplated hereby.
3.1.2 TITLE TO PARTNERSHIP INTEREST. Each Partner represents
and warrants, severally and not jointly, and solely on behalf of such
Person individually, to Merger Sub and ACI that: (i) Partner owns the
Partnership Interest set forth on Schedule 3.1.2 hereto beneficially
and of record, free and clear of any and all Liens, and has full power
and authority to convey the Partnership Interest, free and clear of any
and all Liens, and, upon delivery of the Assignment by Partner
conveying its Partnership Interest and payment for such Partnership
Interest as herein provided, Merger Sub (or its designee) will acquire
good and marketable title thereto, free and clear of any and all Liens;
and (ii) Partner's Partnership Interest has been duly and validly
issued and Partner has funded (or will fund before the same is past
due) all capital contributions and advances to the Partnership that are
required by the Partnership Agreement to be funded or advanced prior to
the date hereof and the Closing Date.
-5-
<PAGE>
FINAL SIGNATURE COPY
3.1.3 LITIGATION. Except as disclosed in the Partnership
Interest Purchase Agreement and the schedules thereto, there is no
action, claim, demand, suit, proceeding, arbitration, grievance,
citation, summons, subpoena, inquiry or investigation of any nature,
civil, criminal, regulatory or otherwise, in law or in equity, pending
or threatened against or relating to Billing or against or relating to
the transactions contemplated by this Agreement, and the Partners do
not know or have reason to be aware of any basis for the same. Except
as disclosed in the Partnership Interest Purchase Agreement and the
schedules thereto, no citations, fines or penalties have been asserted
against Billing under any Environmental Law (as defined in the
Partnership Interest Purchase Agreement) or any foreign, federal, state
or local law relating to occupational health or safety.
3.1.4 BROKERS AND FINDERS. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on
without the participation of any person acting on behalf of Partners in
such manner as to give rise to any valid claim against ACI or Merger
Sub for any brokerage or finder's commission, fee or similar
compensation.
3.1.5 DISCLOSURE. No representation or warranty by either
Partner in this Agreement or by Billing or any Selling Partner (as
defined in the Partnership Interest Purchase Agreement) in the
Partnership Interest Purchase Agreement or any statement or certificate
furnished or to be furnished by or on behalf of Partner, Billing or any
Selling Partner to ACI or Merger Sub or their representatives in
connection herewith or therewith or pursuant hereto or thereto contains
or will contain any untrue statement of a material fact, or omits or
will omit to state any material fact required to make the statements
contained herein or therein not misleading. There is no fact (other
than matters of a general economic or political nature which do not
affect the business of Billing uniquely) known to any Partner that has
not been disclosed by Billing or any Selling Partner to ACI that might
reasonably be expected to have or result in a Material Adverse Effect
(as defined in the Partnership Interest Purchase Agreement).
SECTION 3.2 REPRESENTATIONS AND WARRANTIES OF MERGER SUB. Merger Sub
and ACI, jointly and severally, represent and warrant to the Partners that:
3.2.1 CORPORATE STATUS AND AUTHORIZATION. Merger Sub is a corporation
duly organized, validly existing and in good standing, under the laws
of the State of Texas, the jurisdiction of its incorporation, with full
corporate power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the transactions
contemplated hereby. ACI is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware,
with full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery by Merger
Sub and ACI of this Agreement, and the consummation of the transactions
contemplated hereby, have been, and on the Closing Date, the execution
and delivery by the Merger Sub and ACI of the Collateral Agreements
will have been, duly authorized
-6-
<PAGE>
FINAL SIGNATURE COPY
by all requisite corporate action. Merger Sub and ACI have duly
executed and delivered this Agreement. This Agreement is, valid and
legally binding obligations of Merger Sub and ACI, enforceable against
Merger Sub and ACI in accordance with their respective terms.
3.2.2 NO CONFLICTS, ETC. The execution, delivery and
performance by Merger Sub of this Agreement and the consummation of the
transactions contemplated hereby, do not and will not conflict with or
result in a violation of or under (with or without the giving of notice
or the lapse of time, or both) (i) the articles of incorporation or
by-laws or other organizational documents of Merger Sub or ACI, (ii)
any applicable law applicable to Merger Sub, ACI or any of their
affiliates or any of their properties or assets or (iii) any contract,
agreement or other instrument applicable to Merger Sub, ACI or any of
their affiliates or any of their properties or assets, except, in the
case of clause (iii), for violations and defaults that, individually
and in the aggregate, have not and will not materially impair the
ability of ACI or Merger Sub to perform their obligations under this
Agreement or to consummate the transactions contemplated hereby. No
governmental approval is required to be obtained or made by Merger Sub
or ACI in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby.
3.2.3 LITIGATION. There is no action, claim, suit or
proceeding pending, or to Merger Sub's or ACI's knowledge threatened,
by or against or affecting Merger Sub or ACI in connection with or
relating to the transactions contemplated by this Agreement or of any
action taken or to be taken in connection herewith or the consummation
of the transactions contemplated hereby.
3.2.4 BROKERS AND FINDERS. All negotiations relating to this
Agreement and the transactions contemplated hereby have been carried on
without the participation of any person acting on behalf of Merger Sub,
ACI or any of their affiliates in such manner as to give rise to any
valid claim against any Partner for any brokerage or finder's
commission, fee or similar compensation.
3.2.5 DISCLOSURE. No representation or warranty by ACI or
Merger Sub contained in this Agreement or any statement or certificate
furnished or to be furnished by or on behalf of ACI or Merger Sub to
the Partners or their representatives in connection herewith or
pursuant hereto contains or will contain any untrue statement of a
material fact, or omits or will omit to state any material fact
required to make the statements contained herein or therein not
misleading. There is no fact (other than matters of a general economic
or political nature which do not affect its business uniquely) known to
ACI or Merger Sub that has not been disclosed by ACI and Merger Sub to
the Partners that might reasonably be expected to have or result in a
Material Adverse Effect.
-7-
<PAGE>
FINAL SIGNATURE COPY
ARTICLE 4
ADDITIONAL AGREEMENTS
SECTION 4.1 INDEMNIFICATION. Each Partner agrees to indemnify, defend
and hold harmless ACI and Merger Sub and each of its partners, shareholders,
directors, officers and affiliates, on demand, for any damage, loss, cost, or
expense (including attorneys' fees and costs of investigation incurred in
defending against or settling such damage, loss, cost or expense) reasonably
incurred by ACI or Merger Sub arising out of or in connection with any breach of
any representation, warranty, agreement or covenant of either Partner under this
Agreement. ACI and Merger Sub agree to indemnify, defend and hold harmless the
Partners and each of their partners, shareholders, directors, officers and
affiliates, on demand, for any damage, loss, cost, or expense (including
attorneys' fees and costs of investigation incurred in defending against or
settling such damage, loss, cost or expense) reasonably incurred by the Partners
arising out of or in connection with any breach of any representation, warranty,
agreement or covenant of ACI or Merger Sub under this Agreement.
SECTION 4.2 CLOSING DOCUMENTS; REASONABLE EFFORTS. Subject to the terms
and conditions of this Agreement, the Partners and Merger Sub shall use all
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 carry out the purposes and intent of this Agreement in
accordance with the terms hereof, including cooperating fully with the other
party, providing information reasonably required, and making of all necessary
filings, in each case, as expeditiously as is reasonably practicable. In case at
any time after the Closing any further action is required or reasonably
necessary or desirable to carry out the purposes and intent of this Agreement,
the Partners and Merger Sub shall take all such actions required or reasonably
necessary or desirable to the extent permitted under applicable laws and
regulations.
SECTION 4.3 NOTICE OF BREACH. In the event of, and promptly after, the
taking of any action or the impending or threatened occurrence of any event, the
taking or occurrence of which would make untrue, inaccurate or misleading, or
would constitute or result in a breach or violation of, any of the
representations, warranties, covenants or agreements set forth in this
Agreement, the breaching party shall promptly give detailed written notice
thereof to the other party hereto. The breaching party shall promptly correct in
writing any such untrue, inaccurate or misleading representation warranty,
covenant or agreement, and shall use its best efforts to prevent or remedy
promptly any such breach, and, in any event, shall promptly complete or correct
in writing any information affected by any such breach.
SECTION 4.4 SALE OR ENCUMBRANCE OF PARTNERSHIP INTERESTS. Neither
Partner shall sell, transfer, assign or allow any Lien to be placed on such
Partner's Partnership Interest prior to the expiration of the Option Term and
during any time period thereafter that Merger Sub could acquire the Partnership
Interests under the Second Option.
SECTION 4.5 TAX ALLOCATION DISTRIBUTION. Subject to the partnership
agreement and applicable laws and so long as ACI shall directly or indirectly
elect the general partner, ACI shall
-8-
<PAGE>
FINAL SIGNATURE COPY
cause the general partner of the Partnership to distribute an amount of cash
sufficient to enable each partner to pay its portion of federal income tax
arising from its allocable share of Partnership activities, assuming the highest
marginal tax rate under Section 1 of the Internal Revenue Code of 1986, as
amended from time to time.
SECTION 4.6 WITHDRAWAL OF CAPITAL. In connection with the consummation
of the HOLD Merger Agreement, a balance sheet of the Partnership is to be
prepared and is to contain a separate statement detailing the capital accounts
of the Partners as at the closing of HOLD Merger Agreement (the "Merger Closing
--------------
Date"), in accordance with the regulations of the Internal Revenue Code of 1986,
- ----
as amended. Merger Sub shall cause the Partnership to distribute to the Partners
cash in the amount equal to their respective positive capital account balances,
if any, on the Merger Closing Date. Such distributions shall be made by the
Partnership in four equal installments beginning on the first day of the
calendar quarter beginning after the date of the balance sheet referred to
herein is provided to ACI, and on the first day of the next three calendar
quarters thereafter. The Partnership shall not be required to make a
distribution to the Partners if (i) such distribution would reduce either of the
capital accounts of the Partners to less than zero, or (ii) if to do so would
materially adversely affect the cash flow requirements of the Partnership. If
either condition shall exist on any distribution date, that distribution date
and all future distribution dates shall be automatically extended for one
calendar quarter.
SECTION 4.7 LINE OF CREDIT. ACI shall use its reasonable best efforts
to (i) maintain Billings existing line of credit or (ii) replace such line of
credit with comparable financing.
ARTICLE 5
GENERAL PROVISIONS
SECTION 5.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement, any examination by or on behalf of the
parties hereto and the completion of the transactions contemplated herein and
shall be true and correct on the Closing Date and the closing date of the Second
Option.
SECTION 5.2 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 5.3 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or
-9-
<PAGE>
FINAL SIGNATURE COPY
certified mail, return receipt requested, postage prepaid, or (c) sent by
next-day or overnight mail or delivery or (d) sent by telecopy or telegram,
(a) if to Merger Sub or ACI, to:
Avery Communications, Inc.
801 Greenview Drive
Grand Prairie, Texas 75050
Attention: Patrick J. Haynes, III
with a copy to:
Bruce A. Cheatham, Esq.
Winstead Sechrest & Minick P.C.
1201 Elm Street, Suite 5400
Dallas, Texas 75270
(b) if to Partners, to:
Harold D. Box or
David W. Mechler, Jr.
8000 Vantage Building A, Suite 2001
San Antonio, Texas 78230
with a copy to:
David Turlington, Esq.
P. O. Box 46068
San Antonio, Texas 78246
(210)342-0257
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 5.4 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 5.5 ENTIRE AGREEMENT. This Agreement and the Partnership
Interest Purchase Agreement and the schedules hereto constitute the entire
agreement and supersede all prior
-10-
<PAGE>
FINAL SIGNATURE COPY
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof.
SECTION 5.6 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 5.7 GOVERNING LAW, ETC. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof. ACI, Merger Sub, and each Partner hereby irrevocably submit to the
jurisdiction of the courts of the State of Texas and the Federal courts of the
United States of America located in the State of Texas, City and County of
Dallas, solely in respect of the interpretation and enforcement of the
provisions of this Agreement and of the documents referred to in this Agreement,
and hereby waive, and agree not to assert, as a defense in any action, suit or
proceeding for the interpretation or enforcement hereof or of any such document,
that it is not subject thereto or that such action, suit or proceeding may not
be brought or is not maintainable in said courts or that the venue thereof may
not be appropriate or that this Agreement or any of such document may not be
enforced in or by said courts, and the parties hereto irrevocably agree that all
claims with respect to such action or proceeding shall be heard and determined
in such a Texas State or Federal court. ACI, Merger Sub, and each Partner hereby
consent to and grant any such court jurisdiction over the person of such parties
and over the subject matter of any such dispute and agree that mailing of
process or other papers in connection with any such action or proceeding in the
manner provided in Section 5.3, or in such other manner as may be permitted by
law, shall be valid and sufficient service thereof.
SECTION 5.8 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 5.9 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto; provided, however, that ACI may assign this Agreement
-------- -------
to Merger Sub and its successors and assigns, and ACI and Merger Sub may assign
this Agreement to any lender to ACI or any subsidiary or affiliate thereof as
security for obligations to such lender in respect of the financing arrangements
entered into in connection with the transactions contemplated hereby and any
refinancings, extensions, refundings or renewals thereof; and, provided,
--------
further, that no assignment to any such lender shall in any way affect ACI's or
- -------
Merger Sub's obligations or liabilities under this Agreement.
SECTION 5.10 NO THIRD PARTY BENEFICIARIES. Except as provided in
Section 4.1 with respect to indemnification, nothing in this Agreement shall
confer any rights upon any person or entity other than the parties hereto and
their respective heirs, successors and permitted assigns.
SECTION 5.11 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge
-11-
<PAGE>
FINAL SIGNATURE COPY
or waiver is sought. Any such waiver shall constitute a waiver only with respect
to the specific matter described in such writing and shall in no way impair the
rights of the party granting such waiver in any other respect or at any other
time. Neither the waiver by any of the parties hereto of a breach of or a
default under any of the provisions of this Agreement, nor the failure by any of
the parties, on one or more occasions, to enforce any of the provisions of this
Agreement or to exercise any right or privilege hereunder, shall be construed as
a waiver of any other breach or default of a similar nature, or as a waiver of
any of such provisions, rights or privileges hereunder. The rights and remedies
herein provided are cumulative and are not exclusive of any rights or remedies
that any party may otherwise have at law or in equity. The rights and remedies
of any party based upon, arising out of or otherwise in respect of any
inaccuracy or breach of any representation, warranty, covenant or agreement or
failure to fulfill any condition shall in no way be limited by the fact that the
act, omission, occurrence or other state of facts upon which any claim of any
such inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach. The representations and warranties of Partners shall not
be affected or deemed waived by reason of any investigation made by or on behalf
of Merger Sub or ACI (including by any of their respective advisors, consultants
or representatives) or by reason of the fact that Merger Sub or ACI or any of
such advisors, consultants or representatives knew or should have known that any
such representation or warranty is or might be inaccurate. The representations
and warranties of Merger Sub and ACI shall not be affected or deemed waived by
reason of any investigation made by or on behalf of Partners (including by any
of their respective advisors, consultants or representatives) or by reason of
the fact that Partners or any of such advisors, consultants or representatives
knew or should have known that any such representation or warranty is or might
be inaccurate.
SECTION 5.12 CONVEYANCE OF GENERAL PARTNER. If the transactions
contemplated by Section 3.1.10 of the Partnership Interest Purchase Agreement be
consummated as therein provided, each and every representation, warranty, term,
condition and other provision of this Agreement affected thereby shall be deemed
to be automatically modified to reflect properly and give effect to the
consummation of such transactions.
-12-
<PAGE>
FINAL SIGNATURE COPY
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
AVERY ACQUISITION SUB, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
PARTNERS:
___________________________________
Harold D. Box
___________________________________
David W. Mechler, Jr.
-13-
<PAGE>
EXHIBIT 2.4
FIRST AMENDMENT
TO
PARTNERSHIP INTEREST OPTION AGREEMENT
This First Amendment to Partnership Interest Option Agreement (this
"First Amendment"), dated and effective as of October ___, 1996, constitutes the
---------------
first amendment to that certain Partnership Interest Option Agreement (the
"Agreement"), dated as of May 3, 1996, by and among Avery Communications, Inc.,
---------
a Delaware corporation ("ACI"), Avery Acquisition Sub, Inc., a Texas corporation
---
("Merger Sub"), Harold D. Box ("Box"), David W. Mechler, Jr. ("Mechler," and
---------- --- -------
collectively with Box, the "Partners," or individually, a "Partner").
-------- -------
ARTICLE 1
DEFINITIONS AND CONSTRUCTION
SECTION 1.1 DEFINITIONS OF CERTAIN TERMS. Except as otherwise expressly
provided or unless the context otherwise requires, the all terms defined in the
Agreement, whenever used in this First Amendment, shall have the respective
meanings assigned to them in the Agreement for all purposes of this First
Amendment, and include the plural as well as the singular.
SECTION 1.2 RULES OF CONSTRUCTION. The rules of construction set forth
in Section 7.2 of the Agreement are incorporated by reference herein to the same
extent and as fully as if set forth in their entirety in this First Amendment.
ARTICLE 2
AMENDMENTS TO AGREEMENT
SECTION 2.1 AMENDMENT OF SECTION 1.3. Section 1.3 of the Agreement is
hereby amended and restated to read in its entirety as follows:
SECTION 1.3 EXERCISE PRICE. Upon exercise of the Option as herein
provided, and in consideration for the sale, assignment, transfer and conveyance
by the Partners of the Partners' Partnership Interests to Merger Sub pursuant
thereto as herein provided, Merger Sub shall deliver, or cause to be delivered,
to the Partners, pro rata in accordance with their respective Partnership
Interests, at the Closing (as hereinafter defined) the following:
(i) certified or bank cashiers' checks in the aggregate amount
of $596,296.00;
-1-
<PAGE>
(ii) promissory notes (collectively, the "Notes"), in the form
-----
attached hereto as Annex I, in the aggregate principal amount of
$540,926.00, which Notes will bear interest at the rate of 10% per
annum from and after the Closing Date until maturity, and which Notes
will provide that the principal and all interest accrued thereon will
be due and payable in full in one installment of principal and all
accrued interest on the date which is six months following the Closing
Date; and
(iii) 212,963 shares (collectively, the "ACI Shares") of the
----------
Common Stock, par value $0.01 per share (the "ACI Common Stock"), of
-----------------
ACI.
In addition, Merger Sub shall deliver, or cause to be delivered, to
Bank One, Texas, N.A., as escrow agent (the "Escrow Agent"), an additional
-------------
170,000 shares (collectively, the "Escrow Shares") of ACI Common Stock to be
--------------
held in escrow (the "Escrow") pursuant to the terms of the Escrow Agreement (the
------
"Escrow Agreement") in the form attached hereto as Annex II. The Escrow Shares
-----------------
will be released to the Partners, pro rata in accordance with their respective
Partnership Interests, on April 30, 1998, 1999, and 2000 (each a "Release
-------
Date"), in accordance with the provisions hereinafter set forth. For the purpose
- ----
of determining the number of Escrow Shares to be released on any Release Date,
the following definitions shall apply: the term "AFTER-TAX EARNINGS" shall be
-------------------
deemed to mean the product obtained by multiplying (i) the result obtained by
subtracting (A) the lesser of (1) the sum of clause (B)(2) plus clause (B)(3),
----
or (2) $250,000, from (B) the sum of (1) the Partnership's audited pre-tax
----
earnings (as determined by ACI's Auditors, whose determination shall be final
and binding on the parties) for any applicable year, plus (2) any amortization
of goodwill included in such earnings, plus (3) any allocation of ACI's
----
corporate overhead or similar corporate charges of ACI included in such
earnings, by (ii) .60; the term "MULTIPLE OF EARNINGS VALUE" shall mean, for any
-- --------------------------
applicable period, the product obtained by multiplying (i) 15 by (ii) the
--
Partnership's AFTER-TAX EARNINGS for the applicable year; the term "BASE VALUE"
----------
shall mean (i) for the year ending December 31, 1997 - $3,861,000; (ii) for the
year ending December 31, 1998 - the greater of (A) the MULTIPLE OF EARNINGS
VALUE for the year ending December 31, 1997, or (B) $3,861,000; and (iii) for
the year ending December 31, 1999 - the greater of (A) the MULTIPLE OF EARNINGS
VALUE for the year ending December 31, 1997, (B) the MULTIPLE OF EARNINGS VALUE
for the year ending December 31, 1998, or (C) $3,861,000; and the term "TARGET
------
VALUE" shall mean, for any applicable year, the result, if a positive number,
- -----
obtained by subtracting (i) the BASE VALUE for the applicable year from (ii) the
----
MULTIPLE OF EARNINGS VALUE for the applicable year. On the 1998 and 1999 Release
Dates up to a maximum of 85,000 Escrow Shares shall be eligible for release from
Escrow. If on either the 1998 or 1999 Release Date less than 85,000 Escrow
Shares shall be released from Escrow pursuant to the provisions hereof, then, in
each such event, a number of Escrow Shares equal to the difference between
85,000 Escrow
-2-
<PAGE>
Shares and the actual number of Escrow Shares released from Escrow on each such
Release Date pursuant to the provisions hereof shall be eligible for release
from Escrow pursuant to the provisions hereof on the 2000 Release Date. On the
2000 Release Date the maximum number Escrow Shares that shall be eligible for
release from Escrow pursuant to the provisions hereof shall be the lesser of the
sum of the Escrow Shares not released from Escrow pursuant to the provisions
hereof on the 1998 and 1999 Release Dates, or 170,000 Escrow Shares. If, in
performing the calculations hereinafter set forth for any applicable year, the
MULTIPLE OF EARNINGS VALUE shall be less than the BASE VALUE, then no Escrow
Shares shall be released from Escrow on the applicable Release Date.
The actual number of Escrow Shares to be released on any Release Date
shall be equal to the lesser of 85,000 Escrow Shares, or the number of Escrow
Shares determined by multiplying (i) .46 by (ii) the result obtained by dividing
--
(A) the result obtained by multiplying (1) .08 by (2) the TARGET VALUE for the
--
applicable year by (B) $3.00. By way of illustration, the formula would be
--
applied as set forth in the examples on Annex III hereto.
In the event the Partnership shall cease to be a direct or indirect
subsidiary of ACI, whether through the disposition of ACI's ownership of the
Partnership, the sale of all or substantially all the assets of the Partnership
as a going concern, spinoff, or otherwise, the Partners shall, on the day
preceding the effective date of any such transaction, immediately become fully
vested in any and all shares of ACI Common Stock still held in escrow at such
time for release based upon the audited pre-tax earnings for years not then
completed, and all such fully vested shares of ACI Common Stock shall be
released from escrow to the Partners on or before the consummation of any such
transaction. Any Escrow Shares not released to the Partners pursuant hereto
shall be released from Escrow and delivered to ACI on or before the 2000 Release
Date.
To secure the Partners' obligations under Section 4.1 of this
Agreement, at the Closing, 100,000 shares of the ACI Shares shall be delivered
by ACI to the Escrow Agent to be held in escrow for a period of six months
following the Closing. The terms of such escrow shall be set forth in a separate
escrow agreement in substantially the form of the Escrow Agreement attached as
Exhibit A to the HOLD Merger Agreement, appropriately modified as herein
contemplated. ACI will cause its auditors to prepare financial statements for
the Partnership as of the Closing Date to determine compliance with
representations and warranties and to determine whether the Partnership has
suffered any material adverse change to its financial or business condition.
Attached hereto as Annex IV are true and correct copies of the balance sheet of
the Partnership as at September 30, 1996, and the statement of income for the
Partnership for the nine months then ended.
-3-
<PAGE>
SECTION 2.2 AMENDMENT OF SECTION 1.4. Section 1.4 of the Agreement is
hereby amended and restated to read in its entirety as follows:
SECTION 1.4 REGISTRATION RIGHTS. The Partners shall have
"piggy-back" registration rights upon the terms, and subject to the
conditions, as those set forth in the form of Registration Rights
Agreement attached as Exhibit B to the HOLD Merger Agreement. At the
Closing, the parties will execute and deliver a separate form of
Registration Rights Agreement containing substantially equivalent
provisions.
SECTION 2.3 AMENDMENT OF SECTION 1.5. Section 1.5 of the Agreement is
hereby amended and restated in its entirety to read as follows:
SECTION 1.5 EXERCISE OF OPTION; TERM. The Option shall become
fully exercisable on and as of the date hereof and shall remain fully
exercisable until 6:00 p.m., Central Standard Time, on November 15,
1996 (the "Option Term"). Upon the terms, and subject to the
------------
conditions, hereof, ACI may exercise the Option in whole, but not in
part, at any time before the expiration of the Option Term by giving
written or oral notice (the "Option Exercise Notice") to the Partners.
----------------------
SECTION 2.4 AMENDMENT OF SECTION 1.6. The Agreement is hereby amended
to delete Section 1.6 in its entirety.
SECTION 2.5 AMENDMENT OF SECTION 1.7. The Agreement is hereby amended
to delete Section 1.7 in its entirety.
SECTION 2.6 AMENDMENT OF SECTION 2.2. The first sentence of Section 2.2
of the Agreement is hereby amended to delete the words "or the Second Option, as
the case may be," therefrom. Section 2.2 of the Agreement is also hereby amended
to delete the last sentence of Section 2.2 in its entirety therefrom.
SECTION 2.7 AMENDMENT OF SECTION 3.1.1. The fourth sentence of Section
3.1.1 of the Agreement is hereby amended to delete the words "or the Second
Option" therefrom.
SECTION 2.8 AMENDMENT OF SECTION 4.4. The first sentence of Section 4.4
of the Agreement is hereby amended by inserting a period after the word "Option"
and deleting the balance of the sentence.
SECTION 2.9 AMENDMENT OF SECTION 4.5. The Agreement is hereby amended
by deleting Section 4.5 in its entirety therefrom.
SECTION 2.10 AMENDMENT OF SECTION 4.6. The Agreement is hereby amended
by deleting Section 4.6 in its entirety therefrom.
-4-
<PAGE>
SECTION 2.11 AMENDMENT OF SECTION 4.7. Section 4.7 of the Agreement is
hereby renumbered as Section 4.5 and is hereby amended and restated to read in
its entirety as follows:
SECTION 4.7 LINE OF CREDIT. ACI will use its reasonable best
efforts to arrange for a minimum $10,000,000 revolving credit facility
to be used primarily for factoring and in the growth of the
Partnership, $2,000,000 of which will be available to the Partnership
within one month following the Closing Date, and the remainder of which
will be available to the Partnership within six months following the
Closing Date. As a condition to arranging such financing, the Partners,
together with the other partners of the Partnership, shall have made,
or caused to be made, a subordinated loan to the Partnership of
$1,000,000, which loan shall not be payable on or before a date that is
one year following the Closing Date, and which loan shall bear interest
at a rate not to exceed prime plus 2% per annum.
SECTION 2.12 AMENDMENT TO ADD A NEW SECTION 4.6. The Agreement is
hereby amended to add a new Section 4.6 thereto, which shall read in its
entirety as follows:
SECTION 4.6 CONDITIONS TO OBLIGATIONS OF ACI AND MERGER SUB.
The obligations of ACI and Merger Sub to consummate the transactions
contemplated hereby shall be subject to the fulfillment (or waiver by
ACI) on or prior to the Closing Date of the following conditions, which
the Partners agree to use reasonable good faith efforts to cause to be
fulfilled. The conditions to the obligations of ACI and Merger Sub
under the Partnership Interest Purchase Agreement to consummate the
transactions contemplated by the Partnership Interest Purchase
Agreement shall have been fulfilled (or waived by ACI and Merger Sub)
and, concurrently with the Closing, the transactions contemplated by
the Partnership Interest Purchase Agreement shall have been
consummated. ACI and Merger Sub shall have received each of the
following agreements, in each case duly executed by the other parties
thereto: (i) an Employment Agreement (the "Mechler Employment
--------------------
Agreement"), in the form attached hereto as Exhibit A, pursuant to
--------- ---------
which Mechler shall be employed by the Partnership; (ii) an Employment
Agreement (the "Box Employment Agreement"), in the form attached hereto
------------------------
as Exhibit B, pursuant to which Box shall be employed by the
----------
Partnership; and (iii) Releases, in substantially the form attached as
Exhibit G to the HOLD Merger Agreement, appropriately modified to
----------
reflect the transactions contemplated hereby, executed by each Partner.
ARTICLE 3
AGREEMENT; MISCELLANEOUS
SECTION 3.1 AGREEMENT RATIFIED AND CONFIRMED. Except as expressly
amended by this First Amendment, the Agreement is in full force and effect, no
party has notice of any event or default or breach of any representation,
warranty or covenant by any other party, and the
-5-
<PAGE>
Agreement, as amended by this First Amendment, is hereby ratified, confirmed and
reaffirmed for all purposes and in all respects.
SECTION 3.2 HEADINGS. The headings contained in this First Amendment
are for purposes of convenience only and shall not affect the meaning or
interpretation of this First Amendment.
SECTION 3.3 COUNTERPARTS. This First Amendment may be executed in
several counterparts, each of which shall be deemed an original and all of which
together constitute one and the same instrument.
SECTION 3.4 GOVERNING LAW, ETC. This First Amendment shall be governed
by in all respects, including as to validity, interpretation and effect, by the
internal laws of the State of Texas, without giving effect to the conflict of
laws rules thereof.
SECTION 3.5 AMENDMENT. No amendment or modification of this First
Amendment shall be valid or binding unless set forth in writing and duly
executed by the party against whom enforcement of the amendment or modifications
sought.
SECTION 3.6 AMENDMENT OF PARTNERSHIP INTEREST PURCHASE AGREEMENT. This
First Amendment shall not become effective until such time as the Partnership
Interest Purchase Agreement shall have been amended in form, scope and substance
satisfactory to ACI in its sole and absolute discretion.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK. THE
SIGNATURES OF THE PARTIES BEGIN ON THE FOLLOWING PAGE.]
-6-
<PAGE>
SIGNATURE PAGE
TO
FIRST AMENDMENT
TO
PARTNERSHIP INTEREST OPTION AGREEMENT
IN WITNESS WHEREOF, the parties have duly executed this First Amendment
as of the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
AVERY ACQUISITION SUB, INC.
By:________________________________
Patrick J. Haynes, III
Chairman of the Board
PARTNERS
___________________________________
Harold D. Box
___________________________________
David W. Mechler, Jr.
S-1
<PAGE>
________________________________________________________________________________
| Exhibit 2.5 |
| |
| |
| |
| |
| |
| Agreement and Plan of Merger |
| |
| |
| By and Among |
| |
| |
| Avery Communications, Inc. |
| |
| |
| ACI Telecommunications Financial Services Corporation |
| |
| |
| Primal Systems, Inc. |
| |
| |
| Mark J. Nielsen |
| |
| |
| John Faltys |
| |
| |
| Joseph R. Simrell |
| |
| |
| and |
| |
| |
| David Haynes |
| |
| |
| ______________________________________ |
| |
| DATED AS OF MARCH 19, 1999 |
| |
| ______________________________________ |
| |
| |
| |
| |
| |
|______________________________________________________________________________|
<PAGE>
Table of Contents
PAGE
----
1. TERMS OF THE MERGER.......................................................2
1.1 Statutory Merger...................................................2
1.2 Effective Time.....................................................2
1.3 Effects of the Merger..............................................2
1.4 Certificate of Incorporation.......................................3
1.5 Bylaws.............................................................3
1.6 Directors and Officers.............................................3
2. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES........................3
2.1 Merger Consideration; Conversion and Cancellation of Securities....3
2.2 Dissenting Shares..................................................4
2.3 Exchange of Certificates...........................................5
2.4 Stock Transfer Books...............................................8
3. CLOSING...................................................................8
3.1 Closing............................................................8
3.2 Closing Obligations................................................8
3.3 Adjustment of Merger Consideration; Contingent Merger C
Consideration.....................................................9
3.4 Contingent Pay-Out Procedures.....................................11
4. REPRESENTATIONS AND WARRANTIES OF PRIMAL.................................11
4.1 Organization and Good Standing....................................11
4.2 Authority; No Conflict............................................12
4.3 Capitalization....................................................13
4.4 Financial Statements..............................................14
4.5 Books and Records.................................................14
4.6 Title to Properties; Encumbrances.................................15
4.7 Condition and Sufficiency of Assets...............................16
4.8 Accounts Receivable...............................................16
4.9 Inventory.........................................................16
4.10 No Undisclosed Liabilities........................................16
4.11 Taxes.............................................................17
4.12 No Material Adverse Change........................................17
4.13 Employee Benefits.................................................18
4.14 Compliance with Legal Requirements; Governmental Authorizations...19
4.15 Legal Proceedings; Orders.........................................20
4.16 Absence of Certain Changes and Events.............................21
4.17 Contracts; No Defaults............................................22
4.18 Insurance.........................................................25
(i)
<PAGE>
Table of Contents
(Continued)
PAGE
----
4.19 Environmental Matters.............................................27
4.20 Employees.........................................................28
4.21 Labor Relations; Compliance.......................................29
4.22 Intellectual Property.............................................29
4.23 Relationships with Related Persons................................31
4.24 Projections of Financial Performance..............................32
4.25 Tax Matters.......................................................32
4.26 Certain Business Practices........................................32
4.27 Interest Rate and Foreign Exchange Contracts......................32
4.28 Year 2000 Matters.................................................32
4.29 Proxy Statement...................................................33
4.30 Brokers or Finders................................................33
4.31 Disclosure........................................................33
5. REPRESENTATIONS AND WARRANTIES OF AVERY..................................34
5.1 Organization and Good Standing....................................34
5.2 Authority; No Conflict............................................34
5.3 Capitalization....................................................35
5.4 Financial Statements..............................................36
5.5 Books and Records.................................................37
5.6 Title to Properties; Encumbrances.................................37
5.7 Accounts Receivable...............................................38
5.8 No Undisclosed Liabilities........................................38
5.9 Taxes.............................................................38
5.10 No Material Adverse Change........................................38
5.11 Compliance with Legal Requirements; Governmental Authorizations...39
5.12 Legal Proceedings; Orders.........................................39
5.13 Absence of Certain Changes and Events.............................40
5.14 Contracts; No Defaults............................................41
5.15 Insurance.........................................................42
5.16 Proxy Statement...................................................42
5.17 Tax Matters.......................................................43
5.18 Brokers or Finders................................................43
5.19 Disclosure........................................................43
(ii)
<PAGE>
Table of Contents
(Continued)
PAGE
----
6. COVENANTS OF PRIMAL PRIOR TO CLOSING DATE................................43
6.1 Access and Investigation..........................................43
6.2 Delivery of Primal Disclosure Letter..............................44
6.3 Operation of the Businesses of the Acquired Companies.............44
6.4 Negative Covenant.................................................45
6.5 Required Approvals................................................45
6.6 Notification......................................................45
6.7 No Negotiation....................................................46
6.8 Best Efforts......................................................46
7. COVENANTS OF AVERY PRIOR TO CLOSING DATE.................................46
7.1 Access and Investigation..........................................46
7.2 Approvals of Governmental Bodies..................................46
7.3 Notification......................................................47
7.4 Best Efforts......................................................47
8. CONDITIONS PRECEDENT TO AVERY'S OBLIGATION TO CLOSE......................47
8.1 Accuracy of Representations.......................................47
8.2 Primal's Performance..............................................48
8.3 Consents..........................................................48
8.4 Additional Documents..............................................48
8.5 No Proceedings....................................................48
8.6 No Claim Regarding Stock Ownership or Merger Consideration........49
8.7 No Prohibition....................................................49
9. CONDITIONS PRECEDENT TO PRIMAL'S OBLIGATION TO CLOSE.....................49
9.1 Accuracy of Representations.......................................49
9.2 Avery's Performance...............................................49
9.3 Consents..........................................................50
9.4 Additional Documents..............................................50
9.5 No Injunction.....................................................50
10. ADDITIONAL AGREEMENTS....................................................50
10.1 Meeting of Stockholders...........................................50
10.2 Tax Treatment.....................................................50
10.3 Conveyance Taxes..................................................51
10.4 Voting Agreement..................................................51
(iii)
<PAGE>
Table of Contents
(Continued)
PAGE
----
11. TERMINATION..............................................................51
11.1 Termination Events................................................51
11.2 Effect of Termination.............................................52
11.3 Purchase of 20% of the Shares of Primal of Primal Common Stock....52
12. INDEMNIFICATION; REMEDIES................................................53
12.1 Survival; Right to Indemnification Not Affected By Knowledge......53
12.2 Indemnification and Payment of Damages By Stockholders............53
12.3 Time Limitations..................................................54
12.4 Limitations on Amount-- Stockholders..............................54
12.5 Escrow; Right of Set-Off..........................................55
12.6 Procedure for Indemnification--Third-Party Claims.................57
12.7 Procedure for Indemnification--Other Claims.......................58
13. DEFINITIONS; CONSTRUCTION................................................58
"Acquired Companies".....................................................58
"Applicable Contract"....................................................58
"Avery"..................................................................58
"Avery Applicable Contract"..............................................58
"Avery Common Stock".....................................................58
"Avery Disclosure Letter"................................................58
"Avery Material Adverse Effect"..........................................58
"Avery Preferred Stock"..................................................59
"Avery Stock"............................................................59
"Balance Sheet"..........................................................59
"Best Efforts"...........................................................59
"Breach".................................................................59
"CGCL"...................................................................59
"Closing"................................................................59
"Closing Date"...........................................................59
"Consent"................................................................59
"Constituent Corporations"...............................................60
"Contemplated Transactions"..............................................60
"Contract"...............................................................60
"Corsair Agreement"......................................................60
"Damages"................................................................60
"DGCL"...................................................................60
(iv)
<PAGE>
Table of Contents
(Continued)
PAGE
----
"Employment Agreements"..................................................60
"Encumbrance"............................................................60
"End-User Licenses"......................................................60
"Environment"............................................................60
"Environmental Law"......................................................61
"Environmental Liabilities"..............................................61
"ERISA"..................................................................62
"Escrow Agreement".......................................................62
"GAAP"...................................................................62
"Governmental Authorization".............................................62
"Governmental Body"......................................................62
"Hazardous Materials"....................................................63
"HSR Act"................................................................63
"Intellectual Property Assets"...........................................63
"Interim Balance Sheet"..................................................63
"IRC"....................................................................63
"IRS"....................................................................63
"Knowledge"..............................................................63
"Legal Requirement"......................................................64
"Material Avery Contract"................................................64
"Merger".................................................................64
"Merger Sub".............................................................64
"Occupational Safety and Health Law".....................................64
"Order"..................................................................64
"Ordinary Course of Business"............................................64
"Organizational Documents"...............................................64
"Outfront Software"......................................................65
"Person".................................................................65
"Plan"...................................................................65
"Primal Disclosure Letter"...............................................65
"Primal Intellectual Property Asset".....................................65
"Primal Material Adverse Effect..........................................65
"Proceeding".............................................................65
"Related Person".........................................................66
"Release"................................................................66
"Representative".........................................................67
"Securities Act".........................................................67
"Securityholder Agent"...................................................67
(v)
<PAGE>
Table of Contents
(Continued)
PAGE
----
"Software" ............................................................67
"Source Code"............................................................67
"Stockholders"...........................................................67
"Stockholders' Releases".................................................67
"Subscriber Assets"......................................................67
"Subsidiary" ............................................................67
"Surviving Corporation"..................................................68
"Tax" ............................................................68
"Tax Return" ............................................................68
"Threatened" ............................................................68
"Trading Day"............................................................68
"Value" ............................................................68
"WBS" ............................................................69
"WBS Transaction"........................................................69
14. GENERAL PROVISIONS.......................................................69
14.1 Expenses..........................................................69
14.2 Public Announcements..............................................69
14.3 Confidentiality...................................................69
14.4 Notices...........................................................70
14.5 Jurisdiction; Service of Process..................................71
14.6 Further Assurances................................................71
14.7 Waiver............................................................71
14.8 Entire Agreement and Modification.................................72
14.9 Disclosure Letters................................................72
14.10 Assignments, Successors, and Third-Party Rights...................72
14.11 Severability......................................................73
14.12 Interpretation....................................................73
14.13 Time of Essence...................................................73
14.14 Governing Law.....................................................74
14.15 Counterparts......................................................74
Annex A Form of Voting Agreement
Annex B Certificate of Designations of Series F Junior Participating
Convertible Preferred Stock
(vi)
<PAGE>
Table of Contents
(Continued)
PAGE
----
Exhibit 3.2(a)(i) Form of Stockholders' Releases
Exhibit 3.2(a)(ii) Form of Employment Agreements
Exhibit 3.2(a)(iii) Form of Lockup Letters
Exhibit 3.2(b) Escrow Agreement
Exhibit 3.2(d) Investors Rights Agreement
Exhibit 8.4(b) Form of Estoppel Certificates
(vii)
<PAGE>
Agreement and Plan of Merger
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made as of March
19, 1999, by and among Avery Communications, Inc., a Delaware corporation
("Avery"), ACI Telecommunications Financial Services Corporation, a Delaware
corporation and wholly owned subsidiary of Avery ("Merger Sub"), Primal Systems,
Inc., a California corporation (the "Primal"), Mark J. Nielsen, an individual
resident in San Juan Capistrano, California ("Nielsen"), John Faltys, an
individual resident in Orange, California ("Faltys"), Joseph R. Simrell, an
individual resident in Aliso Viejo, California ("Simrell"), and David Haynes, an
individual resident in Irvine, California ("Haynes," and, collectively with
Nielsen, Faltys, and Simrell, the "Stockholders").
Recitals
A. The Boards of Directors of Avery, Merger Sub and Primal deem it
advisable and in the best interests of their respective companies and their
respective stockholders to enter into a business combination by means of the
merger of Primal with and into Merger Sub under the terms of this Agreement and
have approved and adopted this Agreement.
B. Concurrently with the execution and delivery of this Agreement and as
a condition and inducement to the willingness of Avery and Merger Sub to enter
into this Agreement, certain holders of common stock, with no par value per
share (the "Primal Common Stock"), of Primal have each entered into a Voting
Agreement in the form attached hereto as Annex A (the "Voting Agreement") dated
-------
as of the date hereof pursuant to which such holders have agreed to vote their
shares of Primal Common Stock in the manner set forth therein.
C. Upon the terms and subject to the conditions of this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and the General Corporation Law of the State of California (the "CGCL"),
Primal will merge with and into Merger Sub (the "Merger") and Merger Sub will
survive (the "Surviving Corporation").
D. For United States federal income tax purposes, it is intended that the
Merger will qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement shall be, and is hereby, adopted as a plan of reorganization for
purposes of Section 368 of the Code.
E. For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in Section
13 have the meanings assigned to them or referred to in Section 13, and include
the plural as well as the singular.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto, intending to be legally bound, agree as follows:
<PAGE>
Agreement
1. TERMS OF THE MERGER
1.1 Statutory Merger
Subject to the terms and conditions and in reliance upon the representations,
warranties, covenants and agreements contained herein, Primal will merge with
and into Merger Sub at the Effective Time. The terms and conditions of the
Merger and the mode of carrying the same into effect will be as set forth in
this Agreement. As a result of the Merger, the separate corporate existence of
Primal will cease and Merger Sub will continue as the surviving corporation and
as a wholly owned subsidiary of Avery. Merger Sub as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2 Effective Time
Subject to the terms and conditions set forth in this Agreement (a) an agreement
of merger and accompanying officers' certificates (together, the "CA Agreement
of Merger") shall be duly executed and acknowledged by Avery, Merger Sub and
Primal and thereafter delivered to the Secretary of State of the State of
California for filing pursuant to the CGCL on the Closing Date, and (b) a
Certificate of Merger (the "Merger Certificate") shall be duly executed and
acknowledged by Merger Sub and thereafter delivered to the Secretary of State of
the State of Delaware for filing pursuant to the DGCL on the Closing Date. The
Merger shall become effective at such time as a properly executed copy of the CA
Agreement of Merger is duly filed with the Secretary of State of the State of
California in accordance with the CGCL, or such later time as Merger Sub and
Primal may agree upon and set forth in the CA Agreement of Merger and the Merger
Certificate (the time the Merger becomes effective being referred to herein as
the "Effective Time").
1.3 Effects of the Merger
On and after the Effective Time (a) the Merger in all respects shall have the
effect provided for in Section 259 of the DGCL, in Section 1107 of the CGCL and
in this Agreement; (b) the Surviving Corporation shall possess all the rights,
privileges, powers and franchises of a public as well as of a private nature of
each of the Constituent Corporations; (c) the Surviving Corporation shall be
subject to all of the restrictions, disabilities and duties of each of the
Constituent Corporations; (d) all property, real, personal and mixed, and all
debts due to either of the Constituent Corporations on whatever account, as well
as all other things in action or belonging to each of the Constituent
Corporations, shall be vested in the Surviving Corporation; (e) all property,
rights, privileges, powers and franchises and all and every other interest of
each of the Constituent Corporations shall be thereafter the property of the
Surviving Corporation as they were of the respective Constituent Corporations,
and the title to real estate (if any) vested by deed or otherwise, in either of
the Constituent Corporations, shall not revert or be in any way impaired; (f)
all rights of creditors and all liens upon any property of either of the
Constituent Corporations shall be preserved unimpaired;
-2-
<PAGE>
and (g) all debts, liabilities and duties of the Constituent Corporations shall
thenceforth attach to the Surviving Corporation and may be enforced against it
to the same extent as if said debts, liabilities and duties had been incurred by
it.
1.4 Certificate of Incorporation
Unless otherwise determined by Avery prior to the Effective Time, at the
Effective Time, the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation, except that Article I of the
Certificate of Incorporation of the Surviving Corporation shall be amended to
read in its entirety as follows: "The name of the corporation is Primal
Solutions, Inc."
1.5 Bylaws
Unless otherwise determined by Avery, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.6 Directors and Officers
The director(s) of Merger Sub immediately prior to the Effective Time shall be
the director(s) of the Surviving Corporation, each to hold office in accordance
with the Certificate of Incorporation and Bylaws of the Surviving Corporation.
The officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, each to hold office in accordance
with the Bylaws of the Surviving Corporation.
2. CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.1 Merger Consideration; Conversion and Cancellation of Securities
The maximum number of shares of Avery Preferred Stock to be issued in exchange
for the acquisition by Avery of all outstanding shares of Primal Common Stock
shall not exceed the result of (i) 4,000,000 shares of Avery Preferred Stock
minus (ii) such number of shares of the Avery Preferred Stock as would, at the
- -----
Effective Time, be convertible into the number of shares of Avery Common Stock
to be reserved for issuance upon the exercise of options to be granted by Avery
to former employees of Primal (such result being herein referred to as the
"Merger Consideration"). At the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any of the following
securities:
(a) Subject to the other provisions of this Section 2, each share of Primal
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding any Primal Common Stock described in Section 2.1(c) will be converted
into the right to receive that fraction of a share of Avery Preferred Stock
equal to the product (the "Preferred Exchange Ratio") of (1) one share
-3-
<PAGE>
of Primal Common Stock multiplied by (2) a fraction, the numerator of which is
the Merger Consideration and the denominator of which is the lesser of (A)
11,311,196 or (B) the actual number of shares of Primal Common Stock outstanding
immediately prior to the Effective Time. Notwithstanding the foregoing, if
between the date of this Agreement and the Effective Time the outstanding shares
of Avery Stock or Primal Common Stock shall have been changed into a different
number of shares or a different class, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split, conversion,
consolidation, combination or exchange of shares, the Preferred Exchange Ratio
will be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, conversion, consolidation,
combination or exchange of shares.
(b) Subject to the other provisions of this Section 2, all shares of Primal
Common Stock will, upon conversion thereof into shares of Avery Preferred Stock
at the Effective Time, cease to be outstanding and will automatically be
canceled and retired, and each certificate previously evidencing Primal Common
Stock outstanding immediately prior to the Effective Time (other than Primal
Common Stock described in Section 2.1(c) will thereafter represent only the
right to receive (i) the number of whole shares of Avery Preferred Stock and
(ii) as provided in Section 3.2(e), cash in lieu of fractional shares into which
the shares of Primal Common Stock represented by such certificate have been
converted pursuant to this Section 2.1(b). The holders of certificates
previously evidencing Primal Common Stock will cease to have any rights with
respect to such Primal Common Stock except as otherwise provided herein or by
Law.
(c) Notwithstanding any provision of this Agreement to the contrary, each
share of Primal Common Stock held in the treasury of Primal and each share of
Primal Common Stock, if any, owned by Avery or any direct or indirect wholly
owned Subsidiary of Avery or of Primal immediately prior to the Effective Time
will be canceled.
(d) Each share of common stock, par value $.01 per share, of Merger Sub
issued and outstanding immediately prior to the Effective Time shall be
converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
2.2 Dissenting Shares
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Primal Common Stock held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with the CGCL and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("Dissenting Shares") shall not be converted
into or represent a right to receive Avery Preferred Stock pursuant to Section
2.1, but the holder thereof shall only be entitled to such rights as are granted
by the CGCL.
(b) Notwithstanding the provisions of subsection (a), if any holder of
shares of Primal Common Stock who demands appraisal of such shares under the
CGCL shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the
-4-
<PAGE>
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Avery
Preferred Stock and payment for any fractional share as provided in Section
2.3(e), without interest thereon, upon surrender of the certificate representing
such shares.
(c) Primal shall give Avery (i) prompt notice of any written demands for
appraisal of any shares of Primal Common Stock, withdrawals of such demands, and
any other instruments served pursuant to the CGCL and received by Primal and
(ii) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under the CGCL. Primal shall not, except with
the prior written consent of Avery, voluntarily make any payment with respect to
any demands for appraisal of capital stock of Primal or offer to settle or
settle any such demands.
2.3 Exchange of Certificates
(a) Exchange Fund; Escrow. On the day of the Effective Time, Avery will
deposit, or cause to be deposited, with the Exchange Agent, for the benefit of
the former holders of Primal Common Stock, for exchange in accordance with this
Section 2, through the Exchange Agent, certificates representing no more than
2,000,000 shares of Avery Preferred Stock issuable pursuant to Section 2.1 in
exchange for certificates representing Primal Common Stock immediately prior to
the Effective Time (such shares of Avery Preferred Stock so deposited, together
with cash realized and held by the Exchange Agent for the benefit of such former
holders of Primal Common Stock in accordance with Section 2.3(e), being referred
to as the "Exchange Fund"). Thereafter, Avery will deposit, or cause to be
deposited, with the Exchange Agent, for the benefit of any former holders of
Primal Common Stock who have not yet surrendered their shares of Primal Common
Stock for exchange, at the appropriate payment date, the amount of dividends or
other distributions, with a record date after the Effective Time but prior to
surrender, payable with respect to any shares of Avery Preferred Stock remaining
in the Exchange Fund on such record date. The Exchange Agent will, pursuant to
irrevocable instructions from Avery, deliver Avery Preferred Stock and any such
dividends or distributions related thereto, in exchange for certificates
theretofore evidencing Primal Common Stock surrendered to the Exchange Agent
pursuant to Section 2.3(c).
On the day of the Effective Time, Avery will deposit, or cause to be deposited,
with the Escrow Agent 2,000,000 shares of the Avery Preferred Stock (the "Escrow
Shares") to be held by the Escrow Agent pursuant to the terms of this Agreement
and the Escrow Agreement.
(b) Letter of Transmittal. Promptly after the Effective Time, Avery will
cause the Exchange Agent to mail to each record holder of a certificate or
certificates representing Primal Common Stock immediately prior to the Effective
Time (i) a letter of transmittal which shall specify that delivery shall be
effected, and risk of loss and title to the certificates formerly representing
Primal Common Stock shall pass, only upon delivery of such certificates to the
Exchange Agent and shall be in such form and have such other provisions,
including appropriate provisions with respect to back-up withholding, as Avery
may reasonably specify, and (ii) instructions for use in effecting the surrender
of the certificates formerly representing Primal Common Stock. Upon surrender
of
-5-
<PAGE>
a certificate formerly representing Primal Common Stock for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed and
completed in accordance with the instructions thereto, the holder thereof shall
be entitled to receive in exchange therefor that portion of the Exchange Fund
which such holder has the right to receive pursuant to the provisions of this
Section 2, after giving effect to any required withholding Tax, and the
certificate formerly representing Primal Common Stock so surrendered shall
forthwith be canceled. No interest will be paid or accrued on the cash to be
paid which is in the Exchange Fund.
(c) Exchange Procedures. Promptly after the Effective Time, the Exchange
Agent will distribute to each former holder of Primal Common Stock, upon
surrender to the Exchange Agent for cancellation of one or more certificates,
accompanied by a duly executed letter of transmittal, that theretofore evidenced
shares of Primal Common Stock, certificates evidencing the appropriate number of
shares of Avery Preferred Stock into which such shares of Primal Common Stock
were converted pursuant to the Merger, less such holder's pro rata share of the
Escrow Shares, and any dividends or distributions related thereto which such
former holder of Primal Common Stock is entitled to receive pursuant to the
provisions of this Section 2. If shares of Avery Preferred Stock are to be
issued to a Person other than the Person in whose name the surrendered
certificate or certificates are registered, it will be a condition of issuance
of Avery Preferred Stock that the surrendered certificate or certificates shall
be properly endorsed, with signatures guaranteed by a member firm of the New
York Stock Exchange or a bank chartered under the Laws of the United States, or
otherwise in proper form for transfer and that the Person requesting such
payment shall pay any transfer or other Taxes required by reason of the issuance
of Avery Preferred Stock to a Person other than the registered holder of the
surrendered certificate or certificates or such Person shall establish to the
satisfaction of Avery that any such Tax has been paid or is not applicable.
Notwithstanding the foregoing, neither the Exchange Agent nor any party hereto
will be liable to any former holder of Primal Common Stock for any Avery
Preferred Stock or cash or dividends or distributions thereon delivered to a
public official pursuant to any applicable escheat Law.
(d) Distributions with Respect to Unexchanged Shares of Primal Common
Stock. No dividends or other distributions declared or made with respect to
Avery Preferred Stock on or after the Effective Time will be paid to the holder
of any certificate that theretofore evidenced shares of Primal Common Stock
until the holder of such certificate shall surrender such certificate. Subject
to the effect of any applicable abandoned property, escheat or other similar
Laws, following surrender of any such certificate, there will be paid from the
Exchange Fund to the holder of the certificates evidencing whole shares of Avery
Preferred Stock issued in exchange therefor, without interest, (i) promptly, the
amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Avery
Preferred Stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of Avery Preferred Stock.
-6-
<PAGE>
(e) No Fractional Shares. No certificates or scrip representing fractional
shares of Avery Preferred Stock shall be issued upon the surrender for exchange
of certificates formerly representing shares of Primal Common Stock pursuant to
this Section 2; no dividend, stock split or other change in the capital
structure of Avery shall relate to any fractional security; and such fractional
interests shall not entitle the owner thereof to vote or to any rights of a
security holder. In lieu of a fraction of a share of Avery Preferred Stock,
each holder of shares of Primal Common Stock who would otherwise be entitled to
a fraction of a share of Avery Preferred Stock shall be entitled to receive,
except as provided below, that number of whole shares of Avery Preferred Stock
determined, to the extent reasonably practicable, by rounding such fraction
upward or downward to the nearest whole number of shares of Avery Preferred
Stock. Notwithstanding the foregoing, however, appropriate adjustments, either
upward or downward, and in no event in an amount equal to or exceeding one whole
share of Avery Preferred Stock, shall be made as necessary to the determination
of the number of whole shares of Avery Preferred Stock to which a holder of
Primal Common Stock is entitled so that a total of 2,000,000 shares of the Avery
Preferred Stock are issued to the holders of the Primal Common Stock at the
Effective Time and so that a total 2,000,000 shares of Avery Preferred Stock are
deposited with the Escrow Agent pursuant to the terms of this Agreement and the
Escrow Agreement on the day of the Effective Time.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains unclaimed by the former holders of Primal Common Stock for twelve months
after the Effective Time will be delivered to Avery, upon demand, and any former
holders of Primal Common Stock who have not theretofore complied with this
Section 2 will, subject to applicable abandoned property, escheat and other
similar Laws, thereafter look only to Avery for Avery Preferred Stock and any
cash to which they are entitled.
(g) Withholding of Tax. Avery or the Exchange Agent will be entitled to
deduct and withhold from the consideration otherwise payable pursuant to this
Agreement to any former holder of Primal Common Stock such amounts as Avery (or
any Affiliate thereof) or the Exchange Agent are required to deduct and withhold
with respect to the making of such payment under the Code, or any provision of
state, local or foreign Tax Law. To the extent that amounts are so withheld by
Avery or the Exchange Agent, such withheld amounts will be treated for all
purposes of this Agreement as having been paid to the former holder of Primal
Common Stock in respect of whom such deduction and withholding was made by Avery
or the Exchange Agent.
(h) Lost Certificates. If any certificate evidencing Primal Common Stock
shall have been lost, stolen or destroyed, upon the making of an affidavit of
that fact by the Person claiming such certificate to be lost, stolen or
destroyed and, if required by Avery, the posting by such Person of a bond, in
such reasonable amount as Avery or its transfer agent may direct, as indemnity
against claims that may be made against it with respect to such certificate, the
Exchange Agent will issue in exchange for such lost, stolen or destroyed
certificate that number of shares of Avery Preferred Stock to which the holder
may be entitled pursuant to this Section 2 and cash and any dividends or other
distributions to which the holder thereof may be entitled pursuant to Section
2.3(d) or Section 2.3(e).
-7-
<PAGE>
2.4 Stock Transfer Books
At the Effective Time, the stock transfer books of Primal will be closed and
there will be no further registration of transfers of shares of Primal Common
Stock thereafter on the records of Primal. If, after the Effective Time,
certificates formerly representing Primal Common Stock are presented to the
Surviving Corporation, they shall be canceled and exchanged for certificates
representing Avery Stock and such other cash and property as are then in the
Exchange Fund.
3. CLOSING
3.1 Closing
The Closing will take place at the offices of Winstead Sechrest & Minick P.C.,
5400 Renaissance Tower, 1201 Elm Street, Dallas, Texas, at 10:00 a.m. on the
tenth Business Day following the date on which the conditions to the Closing
have been satisfied or waived and Avery notifies Primal of its election, which
Avery may make in its sole and absolute discretion, to cause the Merger and the
Closing to occur, or at such other place, time and date as the parties hereto
may agree. At the conclusion of the Closing on the Closing Date, the parties
hereto will cause the Merger Certificate to be filed with the Secretary of State
of the State of Delaware and the CA Agreement of Merger to be filed with the
Secretary of State of the State of California. Subject to the provisions of
Section 11, failure to consummate the Merger provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 3.1 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
3.2 Closing Obligations
At the Closing:
(a) Primal will deliver to Avery:
(i) releases in the form of Exhibit 3.2(a)(i) executed by
-----------------
Stockholders (collectively, "Stockholders' Releases");
(ii) employment agreements in the form of Exhibit 3.2(a)(ii) executed
------------------
by Faltys, Simrell and Haynes (collectively, "Employment Agreements"); and
(iii) letters in the form of Exhibit 3.2(a)(iii) executed by the
-------------------
Stockholders (collectively, the "Lockup Letters").
(b) Avery and Stockholders will enter into an escrow agreement in the form
of Exhibit 3.2(b) (the "Escrow Agreement") with Bank One, Texas, NA (the "Escrow
--------------
Agent").
(c) Avery will deliver, or cause to be delivered, the Escrow Shares to the
Escrow Agent.
-8-
<PAGE>
(d) Avery and Stockholders will enter into an investors rights agreement in
the form of Exhibit 3.2(d) (the "Investors Rights Agreement").
--------------
3.3 Adjustment of Merger Consideration; Contingent Merger Consideration
In addition to the Merger Consideration, the holders of Primal Common Stock at
the Effective Time shall be entitled to a release of the Escrow Shares and to
receive additional merger consideration consisting of shares of the Avery
Preferred Stock (the "Additional Merger Consideration") based upon the aggregate
revenues and earnings of the Surviving Corporation for the period commencing
August 1, 1999, and ending on July 31, 2000 (the "Earn-Out Period"), as follows:
<TABLE>
<CAPTION>
August 1, 1999 to July 31, 2000
-------------------------------
Loss Shares of
Differential Avery Preferred Stock/1/
Revenues Base Loss Multiplier (Subject to Adjustment/2/)
------------- ------------- ---------------- ------------------------------
<S> <C> <C> <C>
$2,550,000 $1,082,000 100% 0
$3,060,000 $1,082,000 120% 300,000
$3,825,000 $1,082,000 150% 850,000
$4,080,000 $1,082,000 160% 1,250,000
$4,590,000 $1,082,000 180% 2,000,000
$5,100,000 $1,082,000 200% $1,250,000
$5,610,000 $1,122,000 220% $2,250,000
$6,375,000 $1,275,000 250% $4,000,000
$6,885,000 $1,377,000 270% $5,250,000
$7,650,000 $1,530,000 300% $6,900,000
$8,160,000 $1,632,000 320% $8,000,000
</TABLE>
---------------------------------
/1/ Numbers expressed in shares in Escrow Shares. Numbers expressed in
dollars in this column will be paid in additional shares of Avery
Preferred Stock, such number of shares being determined as provided
below.
/2/ The shares of Avery Preferred Stock are subject to reduction as
provided below.
-9-
<PAGE>
The number of shares of Avery Preferred Stock eligible for release from the
Escrow Agreement or that may be issued as Additional Merger Consideration, in
each case as set forth in the table above, will be reduced if Primal's loss for
the Earn-Out Period, determined without any reduction for taxes, depreciation or
amortization (the "Actual Operating Loss"), were to be more than the Base Loss.
The Base Loss for the Earn-Out Period for all revenue amounts up to $5,100,000
set forth in the table above shall be deemed to be $1,082,000. For revenues
greater than $5,100,000 set forth in the table above, the Base Loss shall be
deemed to equal to 20% of Primal's actual revenues for the Earn-Out Period. If
the Actual Operating Loss is greater than the Base Loss, then the amount by
which the Actual Operating Loss exceeds the Base Loss shall be multiplied by the
"Loss Differential Multiplier" specified in the table above. The resulting
dollar amount will be deducted from the earn-out amounts expressed in dollars in
the table above, or reduce the number of Escrow Shares eligible for release from
the Escrow Agreement set forth in the table above, such number of shares being
determined by first dividing (i) the resulting dollar amount by (ii) the Value
of a share of Avery Common Stock on the Determination Date, and then multiplying
that result by the "Current Conversion Price" for the Avery Preferred Stock on
the Determination Date.
The maximum number of shares of Avery Preferred Stock that may be issued as
Additional Merger Consideration shall not exceed 4,000,000 shares of Avery
Preferred Stock.
For purposes of determining the number of shares of Avery Preferred Stock to be
issued as Additional Merger Consideration, the Value of a share of Avery Common
Stock shall be equal to the greater of (i) the Value of a share of Avery Common
Stock on the Determination Date or (ii) $2.00. The amounts expressed in dollars
in the table above shall be divided by the Value of a share of Avery Common
Stock as so determined. The number of shares of Avery Preferred Stock, if any,
to be issued as Additional Merger Consideration shall be determined by
multiplying such number by the "Current Conversion Price" for the Avery
Preferred Stock on the Determination Date.
To the extent that less than all the Escrow Shares are entitled to be released
from the Escrow Agreement because the thresholds set forth in the table above
are not met, such Escrow Shares not released shall be returned to Avery for
cancellation and the holders of shares of the Primal Common Stock at the
Effective Time shall have no rights thereto whatsoever.
Notwithstanding the foregoing, if between the date of this Agreement and the
Determination Date the outstanding shares of Avery Preferred Stock shall have
been changed into a different number of shares or a different class, by reason
of any stock dividend, subdivision, reclassification, recapitalization, split,
conversion, consolidation, combination or exchange of shares, the provisions for
determining the Additional Merger Consideration will be correspondingly adjusted
to reflect such stock dividend, subdivision, reclassification, recapitalization,
split, conversion, consolidation, combination or exchange of shares.
-10-
<PAGE>
3.4 Contingent Pay-Out Procedures
(a) Avery will prepare and will cause PricewaterhouseCoopers LLP, Avery's
certified public accountants, to review financial statements ("Closing Financial
Statements") of Primal for the Earn-Out Period. Avery will deliver the Closing
Financial Statements to the Stockholders within forty-five days after the last
day of the Earn-Out Period. If within thirty days following delivery of the
Closing Financial Statements, the Stockholders have not given Avery notice of
their objection to the Closing Financial Statements (such notice must contain a
statement of the basis of such objection), then the revenues and earnings or
losses reflected in the Closing Financial Statements will be used in computing
the Additional Merger Consideration. If Avery gives such notice of objection,
then the issues in dispute will be submitted to Ernst & Young LLP, certified
public accountants (the "Accountants"), for resolution. If issues in dispute
are submitted to the Accountants for resolution, (i) each party will furnish to
the Accountants such workpapers and other documents and information relating to
the disputed issues as the Accountants may request and are available to that
party or its Subsidiaries (or its independent public accountants), and will be
afforded the opportunity to present to the Accountants any material relating to
the determination and to discuss the determination with the Accountants; (ii)
the determination by the Accountants, as set forth in a notice delivered to both
parties by the Accountants, will be binding and conclusive on the parties; and
(iii) Avery and Stockholders will each bear 50% of the fees of the Accountants
for such determination. The date on which the final determination of the
Additional Merger Consideration is made is herein called the "Determination
Date."
(b) On the tenth business day following the Determination Date, Avery will
cause to be released from the Escrow Agreement, or will issue, or cause to be
issued, or both, shares of Avery Preferred Stock equal to the Additional Merger
Consideration.
4. REPRESENTATIONS AND WARRANTIES OF PRIMAL
WBS is expressly excluded from any representation and warranty of Primal
contained herein. Subject to the foregoing, Primal represents and warrants to
Avery as follows:
4.1 Organization and Good Standing
(a) Part 4.1 of the Primal Disclosure Letter contains a complete and
accurate list for each Acquired Company of its name, its jurisdiction of
incorporation, other jurisdictions in which it is authorized to do business, and
its capitalization (including the identity of each stockholder and the number of
shares held by each). Each Acquired Company is a corporation duly organized,
validly existing, and in good standing under the laws of its jurisdiction of
incorporation, with full corporate power and authority to conduct its business
as it is now being conducted, to own or use the properties and assets that it
purports to own or use, and to perform all its obligations under Applicable
Contracts. Each Acquired Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each state or other
jurisdiction in which either the ownership or use of the properties owned or
used by it, or the nature of the activities conducted
-11-
<PAGE>
by it, requires such qualification, except for such failures to be so qualified
and in good standing that would not have a Primal Material Adverse Effect.
(b) Primal has delivered to Avery copies of the Organizational Documents of
each Acquired Company, as currently in effect.
4.2 Authority; No Conflict
(a) This Agreement constitutes the legal, valid, and binding obligation of
Primal, enforceable against Primal in accordance with its terms. Primal has the
absolute and unrestricted right, power, authority, and capacity to execute and
deliver this Agreement and to perform its obligations under this Agreement.
(b) Except as set forth in Part 4.2 of the Primal Disclosure Letter,
neither the execution and delivery of this Agreement nor the consummation or
performance of any of the Contemplated Transactions will, directly or indirectly
(with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of the Acquired Companies, or (B) any
resolution adopted by the board of directors or the stockholders of any Acquired
Company;
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which any Acquired Company, or any of the
assets owned or used by any Acquired Company, may be subject;
(iii) contravene, conflict with, or result in a violation of any of the
terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by any Acquired Company or that otherwise relates to the business
of, or any of the assets owned or used by, any Acquired Company;
(iv) cause Avery or any Acquired Company to become subject to, or to
become liable for the payment of, any Tax;
(v) cause any of the assets owned by any Acquired Company to be
reassessed or revalued by any taxing authority or other Governmental Body;
(vi) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; or
-12-
<PAGE>
(vii) result in the imposition or creation of any Encumbrance upon or
with respect to any of the assets owned or used by any Acquired Company.
Except as set forth in Part 4.2 of the Primal Disclosure Letter, no Acquired
Company is or will be required to give any notice to or obtain any Consent from
any Person in connection with the execution and delivery of this Agreement or
the consummation or performance of any of the Contemplated Transactions.
4.3 Capitalization
(a) The authorized equity securities of Primal consist of 50,000,000
shares of common stock, no par value per share, of which 8,956,003 shares are
issued and outstanding and constitute the Shares. The Primal Common Stock is
held of record by the persons, with the addresses of record and in the amounts
set forth on Part 4.3(a) of the Primal Disclosure Letter, along with the vesting
schedule for such shares, if any. Except as set forth on Part 4.3(a) of the
Primal Disclosure Letter, all outstanding shares of Primal Common Stock are duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
the Company or any agreement to which the Company is a party or by which it is
bound.
(b) The Company has reserved 2,750,000 shares of Common Stock for issuance
to employees and consultants pursuant to the 1998 Stock Option Plan (the "Primal
Option Plan") of Primal, of which 2,355,193 shares are subject to outstanding,
unexercised options (each, a "Primal Option"), 644,413 shares remain available
for future grant and no shares have been issued pursuant to the exercise of
options issued under the Primal Option Plan. Part 4.3(b) of the Primal
Disclosure Letter sets forth for each outstanding Primal Option the name of the
holder of such Primal Option, the domicile address of such holder, the number of
shares of Primal Common Stock subject to such Primal Option, the exercise price
of such Primal Option, and the vesting schedule for such Primal Option,
including the extent vested to date and whether the exercisability of such
Primal Option will be accelerated and become exercisable by reason of the
transactions contemplated by this Agreement. Except for the Primal Option Plan
and the Primal Options granted, issued and outstanding thereunder, no shares of
Primal Common Stock are reserved for issuance, and there are no contracts,
agreements, commitments or arrangements obligating Primal to offer, sell, issue
or grant any shares of, or any options, warrants or rights of any kind to
acquire any shares of, or any securities that are convertible into or
exchangeable for any shares of, capital stock of Primal, to redeem, purchase or
acquire, or offer to purchase or acquire, any outstanding shares of, or any
outstanding options, warrants or rights of any kind to acquire any shares of, or
any outstanding securities that are convertible into or exchangeable for any
shares of, capital stock of Primal or to grant any Encumbrance on any shares of
capital stock of Primal.
(c) The authorized, issued and outstanding capital stock of, or other
equity interests in, each of Primal's Subsidiaries and the names of the holders
of record of the capital stock or other equity interests of each such
Subsidiary, in each case, as of the date hereof, are set forth in Part 4.3(c)
-13-
<PAGE>
of the Primal Disclosure Letter. The issued and outstanding shares of capital
stock of, or other equity interests in, each of the Subsidiaries of Primal that
are owned by Primal or any of its Subsidiaries have been duly authorized and are
validly issued, and, with respect to capital stock, are fully paid and
nonassessable, and were not issued in violation of any preemptive or similar
rights of any Person. All such issued and outstanding shares or other equity
interests, that are indicated as owned by Primal or one of its Subsidiaries in
Part 4.3(c) of Primal's Disclosure Letter, are owned beneficially as set forth
therein and free and clear of all Encumbrances. No shares of capital stock of,
or other equity interests in, any Subsidiary of Primal are reserved for
issuance, and there are no contracts, agreements, commitments or arrangements
obligating Primal or any of its Subsidiaries (i) to offer, sell, issue, grant,
pledge, dispose of or encumber any shares of capital stock of, or other equity
interests in, or any options, warrants or rights of any kind to acquire any
shares of capital stock of, or other equity interests in, or any securities that
are convertible into or exchangeable for any shares of capital stock of, or
other equity interests in, any of the Subsidiaries of Primal, (ii) to redeem,
purchase or acquire, or offer to purchase or acquire, any outstanding shares of
capital stock of, or other equity interests in, or any outstanding options,
warrants or rights of any kind to acquire any shares of capital stock of, or
other equity interest in, or any outstanding securities that are convertible
into or exchangeable for, any shares of capital stock of, or other equity
interests in, any of the Subsidiaries of Primal or (iii) to grant any
Encumbrance on any outstanding shares of capital stock of, or other equity
interest in, any of the Subsidiaries of Primal.
4.4 Financial Statements
Primal has delivered to Avery: (a) an unaudited balance sheet of Primal as at
December 31, 1998 (the "Balance Sheet"), and the related unaudited statements of
income, changes in stockholders' equity, and cash flows for the fiscal year then
ended, and (b) an unaudited balance sheet of Primal as at February 28, 1999 (the
"Interim Balance Sheet"), and the related unaudited statements of income,
changes in stockholders' equity, and cash flows for the two-months then ended,
including in each case the notes thereto. Such financial statements and notes
fairly present the financial condition and the results of operations, changes in
stockholders' equity, and cash flows of Primal as at the respective dates of and
for the periods referred to in such financial statements, all in accordance with
GAAP, subject, in the case of interim financial statements, to normal recurring
year-end adjustments (the effect of which will not, individually or in the
aggregate, be materially adverse) and the absence of notes (that, if presented,
would not differ materially from those included in the Balance Sheet); the
financial statements referred to in this Section 4.4 reflect the consistent
application of such accounting principles throughout the periods involved.
4.5 Books and Records
The books of account, minute books, stock record books, and other records of the
Acquired Companies, all of which have been made available to Avery, are complete
and correct and have been maintained in accordance with sound business practices
and the requirements of Section 13(b)(2) of the Securities Exchange Act of 1934,
as amended (regardless of whether or not the Acquired Companies are subject to
that Section), including the maintenance of an adequate system of internal
-14-
<PAGE>
controls. The minute books of the Acquired Companies contain accurate and
complete records of all meetings held of, and corporate action taken by, the
stockholders, the Boards of Directors, and committees of the Boards of Directors
of the Acquired Companies, and no meeting of any such stockholders, Board of
Directors, or committee has been held for which minutes have not been prepared
and are not contained in such minute books. At the Closing, all of those books
and records will be in the possession of the Acquired Companies.
4.6 Title to Properties; Encumbrances
Part 4.6 of the Primal Disclosure Letter contains a complete and accurate list
of all real property, leaseholds, or other interests therein owned by any
Acquired Company. The Acquired Companies own (with good and marketable title in
the case of real property, subject only to the matters permitted by the
following sentence) all the properties and assets (whether real, personal, or
mixed and whether tangible or intangible) that they purport to own located in
the facilities owned or operated by the Acquired Companies or reflected as owned
in the books and records of the Acquired Companies, including all of the
properties and assets reflected in the Balance Sheet and the Interim Balance
Sheet (except for assets held under capitalized leases disclosed or not required
to be disclosed in Part 4.6 of the Primal Disclosure Letter and personal
property sold since the date of the Balance Sheet and the Interim Balance Sheet,
as the case may be, in the Ordinary Course of Business), and all of the
properties and assets purchased or otherwise acquired by the Acquired Companies
since the date of the Balance Sheet (except for personal property acquired and
sold since the date of the Balance Sheet in the Ordinary Course of Business and
consistent with past practice). All material properties and assets reflected in
the Balance Sheet and the Interim Balance Sheet are free and clear of all
Encumbrances and are not, in the case of real property, subject to any rights of
way, building use restrictions, exceptions, variances, reservations, or
limitations of any nature except, with respect to all such properties and
assets, (a) mortgages or security interests shown on the Balance Sheet or the
Interim Balance Sheet as securing specified liabilities or obligations, with
respect to which no default (or event that, with notice or lapse of time or
both, would constitute a default) exists, (b) mortgages or security interests
incurred in connection with the purchase of property or assets after the date of
the Interim Balance Sheet (such mortgages and security interests being limited
to the property or assets so acquired), with respect to which no default (or
event that, with notice or lapse of time or both, would constitute a default)
exists, (c) liens for current taxes not yet due, and (d) with respect to real
property, (i) minor imperfections of title, if any, none of which is substantial
in amount, materially detracts from the value or impairs the use of the property
subject thereto, or impairs the operations of any Acquired Company, and (ii)
zoning laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto. All buildings, plants, and
structures owned by the Acquired Companies lie wholly within the boundaries of
the real property owned by the Acquired Companies and do not encroach upon the
property of, or otherwise conflict with the property rights of, any other
Person.
-15-
<PAGE>
4.7 Condition and Sufficiency of Assets
The buildings, plants, structures, and equipment of the Acquired Companies are
sufficient for the continued conduct of the Acquired Companies' businesses after
the Closing in substantially the same manner as conducted prior to the Closing.
4.8 Accounts Receivable
All accounts receivable of the Acquired Companies that are reflected on the
Balance Sheet or the Interim Balance Sheet or on the accounting records of the
Acquired Companies as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible net of the respective reserves shown
on the Balance Sheet or the Interim Balance Sheet or on the accounting records
of the Acquired Companies as of the Closing Date (which reserves are adequate
and calculated consistent with past practice and, in the case of the reserve as
of the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the Interim
Balance Sheet represented of the Accounts Receivable reflected therein and will
not represent a material adverse change in the composition of such Accounts
Receivable in terms of aging). Subject to such reserves, and except as set
forth in Part 4.8 of the Primal Disclosure Letter, each of the Accounts
Receivable either has been or will be collected in full, without any set-off,
within ninety days after the day on which it first becomes due and payable.
There is no contest, claim, or right of set-off, other than returns in the
Ordinary Course of Business, under any Contract with any obligor of an Accounts
Receivable relating to the amount or validity of such Accounts Receivable. Part
4.8 of the Primal Disclosure Letter contains a complete and accurate list of all
Accounts Receivable as of the date of the Interim Balance Sheet, which list sets
forth the aging of such Accounts Receivable.
4.9 Inventory
None of the Acquired Companies has or owns any inventory, whether or not
required to be reflected in the Balance Sheet or the Interim Balance Sheet.
4.10 No Undisclosed Liabilities
Except as set forth in Part 4.10 of the Primal Disclosure Letter, the Acquired
Companies have no liabilities or obligations of any nature (whether known or
unknown and whether absolute, accrued, contingent, or otherwise) except for
liabilities or obligations reflected or reserved against in the Balance Sheet or
the Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
-16-
<PAGE>
4.11 Taxes
(a) The Acquired Companies have filed or caused to be filed (on a timely
basis since June 17, 1996) all Tax Returns that are or were required to be filed
by or with respect to any of them, either separately or as a member of a group
of corporations, pursuant to applicable Legal Requirements. Primal has
delivered to Avery copies of, and Part 4.11 of the Primal Disclosure Letter
contains a complete and accurate list of, all such Tax Returns filed since June
17, 1996. The Acquired Companies have paid, or made provision for the payment
of, all Taxes that have or may have become due pursuant to those Tax Returns or
otherwise, or pursuant to any assessment received by any Acquired Company,
except such Taxes, if any, as are listed in Part 4.11 of the Primal Disclosure
Letter and are being contested in good faith and as to which adequate reserves
(determined in accordance with GAAP) have been provided in the Balance Sheet and
the Interim Balance Sheet.
(b) None of the United States federal and state income Tax Returns of any
Acquired Company subject to such Taxes has been audited by the IRS or relevant
state tax authorities. Except as described in Part 4.11 of the Primal Disclosure
Letter, no Acquired Company has given or been requested to give waivers or
extensions (or is or would be subject to a waiver or extension given by any
other Person) of any statute of limitations relating to the payment of Taxes of
any Acquired Company or for which any Acquired Company may be liable.
(c) The charges, accruals, and reserves with respect to Taxes on the
respective books of each Acquired Company are adequate (determined in accordance
with GAAP) and are at least equal to that Acquired Company's liability for
Taxes. There exists no proposed tax assessment against any Acquired Company
except as disclosed in the Balance Sheet or in Part 4.11 of the Primal
Disclosure Letter. No consent to the application of Section 341(f)(2) of the IRC
has been filed with respect to any property or assets held, acquired, or to be
acquired by any Acquired Company. All Taxes that any Acquired Company is or was
required by Legal Requirements to withhold or collect have been duly withheld or
collected and, to the extent required, have been paid to the proper Governmental
Body or other Person.
(d) All Tax Returns filed by (or that include on a consolidated basis) any
Acquired Company are true, correct, and complete. There is no tax sharing
agreement that will require any payment by any Acquired Company after the date
of this Agreement. No Acquired Company is, or within the five-year period
preceding the Closing Date has been, an "S" corporation.
4.12 No Material Adverse Change
Since the date of the Balance Sheet, there has not been any Primal Material
Adverse Effect, and no event has occurred or circumstance exists that may result
in any Primal Material Adverse Effect.
-17-
<PAGE>
4.13 Employee Benefits
(a) Part 4.13 of the Primal's Disclosure Letter contains a true and
complete list of each deferred compensation, incentive compensation, stock
purchase, stock option and other equity compensation plan, "welfare" plan, fund
or program (within the meaning of ERISA (S) 3(1)); each "pension" plan, fund or
program (within the meaning of ERISA (S) 3(2)); each employment, termination or
severance agreement with individuals whose annual compensation is at a base rate
exceeding $50,000, and each other material employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to by Primal or any entity, that
together with Primal would be deemed a "single employer" within the meaning of
ERISA (S) 4001(b) or under IRC (S) 414 (an "ERISA Affiliate"), or to which
Primal or an ERISA Affiliate is a party, whether written or oral, for the
benefit of any employee or former employee of Primal or any of its Subsidiaries
(the "Primal Plans").
(b) With respect to each Primal Plan, Primal has heretofore delivered or
made available to Avery true and complete copies of the Primal Plan and any
amendments thereto (or if the Primal Plan is not a written Primal Plan, a
description thereof), any related trust or other funding vehicle, any reports or
summaries required under ERISA or the Code and the most recent determination
letter received from the Internal Revenue Service with respect to each Primal
Plan intended to qualify under IRC (S) 401.
(c) No material liability under ERISA Title IV or (S) 302 has been
incurred by Primal or any ERISA Affiliate that has not been satisfied in full,
and no condition exists that presents a material risk to Primal or any ERISA
Affiliate of incurring any such liability.
(d) No Primal Plan is subject to ERISA Title IV or IRC (S) 412, nor is any
Primal Plan a "multiemployer pension plan," as defined in ERISA (S) 3(37), or
subject to ERISA (S) 302.
(e) Each Primal Plan has been operated and administered in all material
respects in accordance with its terms and applicable Law, including ERISA and
the IRC.
(f) Each Primal Plan intended or required to be "qualified" within the
meaning of IRC (S) 401(a) is so qualified and the applicable trust or trusts
maintained thereunder are exempt from taxation under IRC (S) 501(a).
(g) No Primal Plan provides material medical, surgical, hospitalization,
death or similar benefits (whether or not insured) for employees or former
employees of Primal or any of its Subsidiaries for periods extending beyond
their retirement or other termination of service, other than (i) coverage
mandated by applicable Law, (ii) death benefits under any "pension plan", or
(iii) benefits the full cost of which is borne by the current or former employee
(or his beneficiary). No Primal Plans are self-insured "multiple employer
welfare arrangements," as such term is defined in ERISA (S) 3(40).
-18-
<PAGE>
(h) No amounts payable under the Primal Plans will fail to be deductible
for federal income Tax purposes by virtue of IRC (S) 162(a)(1) or IRC (S) 280G
or would require the payment of an excise Tax imposed by IRC (S) 4999.
(i) The execution, delivery and performance of, and consummation of the
transactions contemplated by, this Agreement or the Voting Agreement will not
(i) entitle any current or former employee or officer of Primal or any ERISA
Affiliate to severance pay, unemployment compensation or any other payment, (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or officer, or (iii) except for the
outstanding Primal Options, accelerate the vesting of any stock option or of any
shares of restricted stock.
(j) Except as would not be material in any respect to Primal, there are no
pending or, to the Knowledge of Primal, any threatened or anticipated claims by
or on behalf of any Primal Plan, by any employee or beneficiary covered under
any such Primal Plan, or otherwise involving any such Primal Plan (other than
routine claims for benefits).
4.14 Compliance with Legal Requirements; Governmental Authorizations
(a) Except as set forth in Part 4.14 of the Primal Disclosure Letter:
(i) each Acquired Company is, and at all times since June 17, 1996,
has been, in compliance in all material respects with each Legal Requirement
that is or was applicable to it or to the conduct or operation of its business
or the ownership or use of any of its assets, and no failure to comply with any
such Legal Requirement has had or could have a Primal Material Adverse Effect;
(ii) to the Knowledge of Primal, no event has occurred or
circumstance exists that (with or without notice or lapse of time) (A) may
constitute or result in a violation by any Acquired Company of, or a failure on
the part of any Acquired Company to comply with, any Legal Requirement, or (B)
may give rise to any obligation on the part of any Acquired Company to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature; and
(iii) no Acquired Company has received, at any time since June 17,
1996, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of, or failure to comply with, any Legal
Requirement, or (B) any actual, alleged, possible, or potential obligation on
the part of any Acquired Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature.
(b) Part 4.14 of the Primal Disclosure Letter contains a complete and
accurate list of each Governmental Authorization that is held by any Acquired
Company or that otherwise relates to the business of, or to any of the assets
owned or used by, any Acquired Company. Each Governmental Authorization listed
or required to be listed in Part 4.14 of the Primal Disclosure Letter is valid
and in full force and effect. Except as set forth in Part 4.14 of the Primal
Disclosure Letter:
-19-
<PAGE>
(i) each Acquired Company is, and at all times since June 17, 1996,
has been, in full compliance with all of the terms and requirements of each
Governmental Authorization identified or required to be identified in Part 4.14
of the Primal Disclosure Letter;
(ii) no event has occurred or circumstance exists that may (with or
without notice or lapse of time) (A) constitute or result directly or indirectly
in a violation of or a failure to comply with any term or requirement of any
Governmental Authorization listed or required to be listed in Part 4.14 of the
Primal Disclosure Letter, or (B) result directly or indirectly in the
revocation, withdrawal, suspension, cancellation, or termination of, or any
modification to, any Governmental Authorization listed or required to be listed
in Part 4.14 of the Primal Disclosure Letter;
(iii) no Acquired Company has received, at any time since June 17,
1996, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding (A) any actual, alleged,
possible, or potential violation of or failure to comply with any term or
requirement of any Governmental Authorization, or (B) any actual, proposed,
possible, or potential revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental Authorization; and
(iv) all applications required to have been filed for the renewal of
the Governmental Authorizations listed or required to be listed in Part 4.14 of
the Primal Disclosure Letter have been duly filed on a timely basis with the
appropriate Governmental Bodies, and all other filings required to have been
made with respect to such Governmental Authorizations have been duly made on a
timely basis with the appropriate Governmental Bodies.
To the Knowledge of Primal, the Governmental Authorizations listed in Part 4.14
of the Primal Disclosure Letter collectively constitute all of the Governmental
Authorizations necessary to permit the Acquired Companies lawfully to conduct
and operate their businesses in the manner they currently conduct and operate
such businesses and to permit the Acquired Companies to own and use their assets
in the manner in which they currently own and use such assets.
4.15 Legal Proceedings; Orders
(a) Except as set forth in Part 4.15 of the Primal Disclosure Letter,
there is no pending Proceeding:
(i) that has been commenced by or against any Acquired Company or,
to the Knowledge of Primal, that otherwise relates to or may affect the business
of, or any of the assets owned or used by, any Acquired Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, the Merger, Avery's
exercise of control over any Acquired Company, or any of the other Contemplated
Transactions.
-20-
<PAGE>
To the Knowledge of the Acquired Companies, (1) no such Proceeding has been
Threatened, and (2) no event has occurred or circumstance exists that may give
rise to or serve as a basis for the commencement of any such Proceeding. Primal
has delivered to Avery copies of all pleadings, correspondence, and other
documents relating to each Proceeding listed in Part 4.15 of the Primal
Disclosure Letter. The Proceedings listed in Part 4.15 of the Primal Disclosure
Letter will not have a Primal Material Adverse Effect on any Acquired Company.
(b) Except as set forth in Part 4.15 of the Primal Disclosure Letter:
(i) there is no Order to which any of the Acquired Companies, or
any of the assets owned or used by any Acquired Company, is subject; and
(ii) to the Knowledge of Primal, no officer, director, agent, or
employee of any Acquired Company is subject to any Order that prohibits such
officer, director, agent, or employee from engaging in or continuing any
conduct, activity, or practice relating to the business of any Acquired Company.
(c) Except as set forth in Part 4.15 of the Primal Disclosure Letter:
(i) each Acquired Company is, and at all times since June 17, 1996,
has been, in full compliance with all of the terms and requirements of each
Order to which it, or any of the assets owned or used by it, is or has been
subject;
(ii) no event has occurred or circumstance exists that may
constitute or result in (with or without notice or lapse of time) a violation of
or failure to comply with any term or requirement of any Order to which any
Acquired Company, or any of the assets owned or used by any Acquired Company, is
subject; and
(iii) no Acquired Company has received, at any time since June 17,
1996, any notice or other communication (whether oral or written) from any
Governmental Body or any other Person regarding any actual, alleged, possible,
or potential violation of, or failure to comply with, any term or requirement of
any Order to which any Acquired Company, or any of the assets owned or used by
any Acquired Company, is or has been subject.
4.16 Absence of Certain Changes and Events
Except as set forth in Part 4.16 of the Primal Disclosure Letter, and except for
the WBS Transaction, since the date of the Balance Sheet, the Acquired Companies
have conducted their businesses only in the Ordinary Course of Business and
there has not been any:
(a) change in any Acquired Company's authorized or issued capital stock;
grant of any stock option or right to purchase shares of capital stock of any
Acquired Company; issuance of any security convertible into such capital stock;
grant of any registration rights; purchase, redemption,
-21-
<PAGE>
retirement, or other acquisition by any Acquired Company of any shares of any
such capital stock; or declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of any Acquired Company;
(c) payment or increase by any Acquired Company of any bonuses, salaries,
or other compensation to any stockholder, director, officer, or (except in the
Ordinary Course of Business) employee or entry into any employment, severance,
or similar Contract with any director, officer, or employee;
(d) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement, or other employee benefit plan for or with any employees of any
Acquired Company;
(e) damage to or destruction or loss of any asset or property of any
Acquired Company, whether or not covered by insurance, materially and adversely
affecting the properties, assets, business, financial condition, or prospects of
the Acquired Companies, taken as a whole;
(f) entry into, termination of, or receipt of notice of termination of (i)
any license, distributorship, dealer, sales representative, joint venture,
credit, or similar agreement, or (ii) any Contract or transaction involving a
total remaining commitment by or to any Acquired Company of at least $10,000;
(g) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or except for the Avery Loan, imposition of any
lien or other encumbrance on any material asset or property of any Acquired
Company, including the sale, lease, or other disposition of any of the
Intellectual Property Assets;
(h) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $10,000;
(i) material change in the accounting methods used by any Acquired
Company; or
(j) agreement, whether oral or written, by any Acquired Company to
do any of the foregoing.
4.17 Contracts; No Defaults
(a) Part 4.17(a) of the Primal Disclosure Letter contains a complete and
accurate list, and Primal has delivered to Avery true and complete copies, of:
-22-
<PAGE>
(i) each licensing agreement or other Applicable Contract with
respect to the Software (collectively, the "Software Licenses");
(ii) each Applicable Contract with respect to the providing of
consulting services by one or more of the Acquired Companies or any of their
employees or agents (collectively, the "Consulting Contracts");
(iii) each Applicable Contract (other than the Software Licenses and
the Consulting Contracts) that involves performance of services or delivery of
goods or materials by one or more Acquired Companies of an amount or value in
excess of $10,000;
(iv) each Applicable Contract that involves performance of services
or delivery of goods or materials to one or more Acquired Companies of an amount
or value in excess of $10,000;
(v) each Applicable Contract that was not entered into in the
Ordinary Course of Business and that involves expenditures or receipts of one or
more Acquired Companies in excess of $10,000;
(vi) each lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Applicable Contract
affecting the ownership of, leasing of, title to, use of, or any leasehold or
other interest in, any real or personal property (except personal property
leases and installment and conditional sales agreements having a value per item
or aggregate payments of less than $10,000 and with terms of less than one
year);
(vii) each licensing agreement or other Applicable Contract (other
than the Software Licenses) with respect to patents, trademarks, copyrights, or
other intellectual property, including agreements with current or former
employees, consultants, or contractors regarding the appropriation or the non-
disclosure of any of the Intellectual Property Assets;
(viii) each collective bargaining agreement and other Applicable
Contract to or with any labor union or other employee representative of a group
of employees;
(ix) each joint venture, partnership, and other Applicable Contract
(however named) involving a sharing of profits, losses, costs, or liabilities by
any Acquired Company with any other Person;
(x) each Applicable Contract containing covenants that in any way
purport to restrict the business activity of any Acquired Company or any
Affiliate of an Acquired Company or limit the freedom of any Acquired Company or
any Affiliate of an Acquired Company to engage in any line of business or to
compete with any Person;
-23-
<PAGE>
(xi) each Applicable Contract providing for payments to or by any
Person based on sales, purchases, or profits, other than direct payments for
goods;
(xii) each power of attorney that is currently effective and
outstanding;
(xiii) each Applicable Contract entered into other than in the
Ordinary Course of Business that contains or provides for an express undertaking
by any Acquired Company to be responsible for consequential damages;
(xiv) each Applicable Contract for capital expenditures in excess of
$10,000;
(xv) each written warranty, guaranty, and or other similar
undertaking with respect to contractual performance extended by any Acquired
Company other than in the Ordinary Course of Business; and
(xvi) each amendment, supplement, and modification (whether oral or
written) in respect of any of the foregoing.
Part 4.17(a) of the Primal Disclosure Letter sets forth reasonably complete
details concerning such Contracts, including the parties to the Contracts, the
amount of the remaining commitment of the Acquired Companies under the
Contracts, and the Acquired Companies' office where details relating to the
Contracts are located.
(b) Except as set forth in Part 4.17(b) of the Primal Disclosure Letter:
(i) no stockholder of Primal (and no Related Person of any
stockholder of Primal) has or may acquire any rights under, and no stockholder
of Primal has or may become subject to any obligation or liability under, any
Contract that relates to the business of, or any of the assets owned or used by,
any Acquired Company; and
(ii) to the Knowledge of the Acquired Companies, no officer,
director, agent, employee, consultant, or contractor of any Acquired Company is
bound by any Contract that purports to limit the ability of such officer,
director, agent, employee, consultant, or contractor to (A) engage in or
continue any conduct, activity, or practice relating to the business of any
Acquired Company, or (B) assign to any Acquired Company or to any other Person
any rights to any invention, improvement, or discovery.
(c) Except as set forth in Part 4.17(c) of the Primal Disclosure Letter,
each Contract identified or required to be identified in Part 4.17(a) of the
Primal Disclosure Letter is in full force and effect and, to the Knowledge of
Primal, is valid and enforceable in accordance with its terms.
-24-
<PAGE>
(d) Except as set forth in Part 4.17(d) of the Primal Disclosure Letter:
(i) each Acquired Company is, and at all times since June 17, 1996,
has been, in full compliance with all applicable terms and requirements of each
Contract under which such Acquired Company has or had any obligation or
liability or by which such Acquired Company or any of the assets owned or used
by such Acquired Company is or was bound;
(ii) to the Knowledge of Primal, each other Person that has or had
any obligation or liability under any Contract under which an Acquired Company
has or had any rights is, and at all times since June 17, 1996, has been, in
full compliance with all applicable terms and requirements of such Contract;
(iii) to the Knowledge of Primal, no event has occurred or
circumstance exists that (with or without notice or lapse of time) may
contravene, conflict with, or result in a violation or breach of, or give any
Acquired Company or other Person the right to declare a default or exercise any
remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Applicable Contract; and
(iv) no Acquired Company has given to or received from any other
Person, at any time since June 17, 1996, any written notice or other written
communication regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Contract.
(e) There are no renegotiations of, attempts to renegotiate, or
outstanding rights to renegotiate any material amounts paid or payable to any
Acquired Company under current or completed Contracts with any Person and, to
the Knowledge of the Acquired Companies, no such Person has made written demand
for such renegotiation.
(f) The Contracts relating to the sale, design, manufacture, or provision
of products or services by the Acquired Companies have been entered into in the
Ordinary Course of Business and, to the Knowledge of Primal, have been entered
into without the commission of any act alone or in concert with any other
Person, or any consideration having been paid or promised, that is or would be
in violation of any Legal Requirement.
4.18 Insurance
(a) Primal has delivered to Avery:
(i) true and complete copies of all policies of insurance to which
any Acquired Company is a party or under which any Acquired Company, or any
director of any Acquired Company, is or has been covered at any time within the
three years preceding the date of this Agreement;
-25-
<PAGE>
(ii) true and complete copies of all pending applications for
policies of insurance; and
(iii) any statement by the auditor of any Acquired Company's
financial statements with regard to the adequacy of such entity's coverage or of
the reserves for claims.
(b) Part 4.18(b) of the Primal Disclosure Letter describes:
(i) any self-insurance arrangement by or affecting any Acquired
Company, including any reserves established thereunder;
(ii) any contract or arrangement, other than a policy of insurance,
for the transfer or sharing of any risk by any Acquired Company; and
(iii) all obligations of the Acquired Companies to third parties with
respect to insurance (including such obligations under leases and service
agreements) and identifies the policy under which such coverage is provided.
(c) Part 4.18(c) of the Primal Disclosure Letter sets forth, by year, for
the current policy year and each of the three preceding policy years:
(i) a summary of the loss experience under each policy;
(ii) a statement describing each claim under an insurance policy for
an amount in excess of $10,000, which sets forth:
(A) the name of the claimant;
(B) a description of the policy by insurer, type of insurance,
and period of coverage; and
(C) the amount and a brief description of the claim; and
(iii) a statement describing the loss experience for all claims that
were self-insured, including the number and aggregate cost of such claims.
(d) Except as set forth on Part 4.18(d) of the Primal Disclosure Letter:
(i) All policies to which any Acquired Company is a party or that
provide coverage to any Acquired Company, or any director or officer of an
Acquired Company:
-26-
<PAGE>
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially sound and
reputable;
(C) taken together, provide adequate insurance coverage for
the assets and the operations of the Acquired Companies for all risks normally
insured against by a Person carrying on the same business or businesses as the
Acquired Companies;
(D) are sufficient for compliance with all Legal Requirements
and Contracts to which any Acquired Company is a party or by which any of them
is bound;
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions; and
(F) do not provide for any retrospective premium adjustment or
other experienced-based liability on the part of any Acquired Company.
(ii) No Acquired Company has received (A) any refusal of coverage or
any notice that a defense will be afforded with reservation of rights, or (B)
any notice of cancellation or any other indication that any insurance policy is
no longer in full force or effect or will not be renewed or that the issuer of
any policy is not willing or able to perform its obligations thereunder.
(iii) The Acquired Companies have paid all premiums due, and have
otherwise performed all of their respective obligations, under each policy to
which any Acquired Company is a party or that provides coverage to any Acquired
Company or director thereof.
(iv) The Acquired Companies have given notice to the insurer of all
claims that may be insured thereby.
4.19 Environmental Matters
Except as set forth in Part 4.19 of the Primal Disclosure Letter:
(a) All of the current operations of the Acquired Companies and their
respective assets, businesses and real property, including any operations at or
from any real property presently owned, used, leased, occupied, managed or
operated by any Acquired Company (collectively, the "Real Property"), comply and
have at all times complied with all applicable Environmental Laws.
(b) To the knowledge of Primal, none of the assets of the Acquired
Companies, nor any of the Real Property, contains any Hazardous Materials in,
on, over, under or at it, in concentrations which would violate any applicable
Environmental Laws or reasonably would be likely to result in the imposition of
liability or obligations on any of the Acquired Companies under any applicable
-27-
<PAGE>
Environmental Laws, including any liability or obligations for the
investigation, corrective action, remediation or monitoring of Hazardous
Materials in, on, over, under or at the Real Property.
(c) None of the Real Property is listed or proposed for listing on the
National Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), 42 U.S.C. (S) 9601 et seq., as
amended, or any similar inventory of sites requiring investigation or
remediation maintained by any state or locality. None of the Acquired Companies
has received any notice, whether oral or written, from any Governmental Body or
third party of any actual or threatened Environmental Liabilities.
(d) To the Knowledge of Primal, each of the Acquired Companies has all the
permits, licenses, authorizations and approvals necessary for the conduct of
their businesses and for the operations on, in or at the Real Property (the
"Environmental Permits"), which are required under applicable Environmental Laws
and they are in compliance in all material respects with the terms and
conditions of all such Environmental Permits. To the Knowledge of Primal, no
reason exists why any of the Acquired Companies would not be capable of
continued operation of their businesses in compliance in all material respects
with the Environmental Permits all applicable Environmental Laws.
(e) None of the Acquired Companies has incurred any Environmental
Liabilities, or has contractually assumed or succeeded to, or received any
written notice that it has assumed or succeeded to by operation of Law,
including Environmental Laws and common law, or otherwise, any Environmental
Liabilities of any other Person.
4.20 Employees
(a) Part 4.20 of the Primal Disclosure Letter contains a complete and
accurate list of the following information for each employee or director of the
Acquired Companies, including each employee on leave of absence or layoff
status: employer; name; social security number; job title; current compensation
paid or payable and any change in compensation since January 1, 1998; vacation
accrued; and service credited for purposes of vesting and eligibility to
participate under any Acquired Company's pension, retirement, profit-sharing,
thrift-savings, deferred compensation, stock bonus, stock option, cash bonus,
employee stock ownership (including investment credit or payroll stock
ownership), severance pay, insurance, medical, welfare, or vacation plan, other
Primal Plan, or any other employee benefit plan.
(b) No employee or director of any Acquired Company is a party to, or, to
the Knowledge of Primal, is otherwise bound by, any agreement or arrangement,
including any confidentiality, noncompetition, or proprietary rights agreement,
between such employee or director and any other Person ("Proprietary Rights
Agreement") that in any way adversely affects or will affect (i) the performance
of such employee's duties as an employee or director of the Acquired Companies,
or (ii) the ability of any Acquired Company to conduct its business, including
any Proprietary Rights Agreement with the Acquired Companies by any such
employee or director. To Primal's
-28-
<PAGE>
Knowledge, no director, officer, or other key employee of any Acquired Company
intends to terminate his or her employment with such Acquired Company.
(c) Part 4.20 of the Primal Disclosure Letter also contains a complete and
accurate list of the following information for each retired employee or director
of the Acquired Companies, or their dependents, receiving benefits or scheduled
to receive benefits in the future: name, pension benefit, pension option
election, retiree medical insurance coverage, retiree life insurance coverage,
and other benefits.
4.21 Labor Relations; Compliance
Since June 17, 1996, no Acquired Company has been or is a party to any
collective bargaining or other labor Contract. Since June 17, 1996, there has
not been, there is not presently pending or existing, and to Primal's Knowledge
there is not Threatened, (a) any strike, slowdown, picketing, work stoppage, or
employee grievance process, (b) any Proceeding against or affecting any Acquired
Company relating to the alleged violation of any Legal Requirement pertaining to
labor relations or employment matters, including any charge or complaint filed
by an employee or union with the National Labor Relations Board, the Equal
Employment Opportunity Commission, or any comparable Governmental Body,
organizational activity, or other labor or employment dispute against or
affecting any of the Acquired Companies or their premises, or (c) any
application for certification of a collective bargaining agent. To Primal's
Knowledge, no event has occurred or circumstance exists that could provide the
basis for any work stoppage or other labor dispute. There is no lockout of any
employees by any Acquired Company, and no such action is contemplated by any
Acquired Company. Each Acquired Company has complied in all respects with all
Legal Requirements relating to employment, equal employment opportunity,
nondiscrimination, immigration, wages, hours, benefits, collective bargaining,
the payment, except as set forth in Part 4.21 of the Primal Disclosure Letter,
of social security and similar taxes, occupational safety and health, and plant
closing. Except as set forth in Part 4.21 of the Primal Disclosure Letter, no
Acquired Company is liable for the payment of any compensation, damages, taxes,
fines, penalties, or other amounts, however designated, for failure to comply
with any of the foregoing Legal Requirements.
4.22 Intellectual Property
(a) Part 4.22(a) of the Primal Disclosure Letter sets forth a complete and
accurate description of the Outfront Software, the specifications for the
Outfront Software and a list of each Applicable Contract relating to the
Outfront Software, including each license granted by Primal to any Person to use
the Outfront Software. Part 4.22(a) also separately sets forth a complete and
accurate list of all Software licensed by Primal from other Persons and used in,
and delivered as an integral part of, the Outfront Software ("Third Party
Software"), and a brief description of such Third Party Software and the terms
of the licenses or other Applicable Contract (collectively, the "Third Party
Licenses") governing the use of such Third Party Software by Primal in the
Outfront Software, including the royalties or other fees required thereby.
Subject only to the terms of the
-29-
<PAGE>
Third Party Licenses requiring the payment of royalties or other fees to the
owners of the Third Party Software, Primal has the unrestricted right to use the
Third Party Software in the Outfront Software and to furnish the Third Party
Software to the customers of Primal as part of the Outfront Software system. No
Person not subject to a valid and enforceable non-disclosure agreement in favor
of Primal is authorized to have access to, or to alter, modify or make any other
changes or revisions to, the Source Code for the Outfront Software, except as
provided in, and subject to the terms and provisions of, those Applicable
Contracts pursuant to which the Source Code for the Outfront Software has been
placed in escrow ("Source Code Escrow Agreements"). A complete and accurate list
of all Source Code Escrow Agreements to which any Acquired Company is a party is
set forth separately in Part 4.22(a) of the Primal Disclosure Letter.
(b) No Primal Intellectual Property Asset has been registered with any
Governmental Body and no application for such registration has been filed with
any Governmental Body. Part 4.22(b) of the Primal Disclosure Letter identifies
and provides a brief description of all other Primal Intellectual Property
Assets not described in Part 4.22(a) of the Primal Disclosure Letter that are
owned by Primal and are necessary to the conduct of the business of any of the
Acquired Companies. Part 4.22(b) of the Primal Disclosure Letter identifies and
provides a brief description of each Primal Intellectual Property Asset licensed
to Primal by any Person (except for the Third Party Licenses and End-User
Licenses) and identifies the license agreement or other Applicable Contract
under which such Primal Intellectual Property Asset is being licensed to Primal.
Primal has good, valid and marketable title to all of the Primal Intellectual
Property Assets owned by Primal, free and clear of all Encumbrances, and has a
valid right to use all Primal Intellectual Property Assets licensed to Primal
and identified in Part 4.22(b) of the Primal Disclosure Letter. Except as set
forth in Part 4.22(a) of the Primal Disclosure Letter with respect to the Third
Party Software, and except for one-time payments to purchase End-User Licenses,
none of the Acquired Companies is obligated to make any payment to any Person
for the use of any Intellectual Property Asset used in the business of any of
the Acquired Companies. Except as set forth in Part 4.22(b) of the Primal
Disclosure Letter, Primal is free to use, and, except for the Third Party
Software and Software licensed to Primal under an End-User License, Primal is
free to modify, copy, distribute, sell, license or otherwise exploit each of the
Primal Intellectual Property Assets on an exclusive basis (other than the Third
Party Software and End-User Licenses, with respect to which Primal's rights are
not exclusive).
(c) Primal has not disclosed or delivered to any Person not subject to a
valid and enforceable non-disclosure agreement in favor of Primal, or permitted
the disclosure or delivery to any Person not subject to a valid and enforceable
non-disclosure agreement in favor of Primal, of the Source Code, or any portion
or aspect of the Source Code, of any Primal Intellectual Property Asset. Primal
has not disclosed or delivered to any Person, or permitted the disclosure or
delivery to any Person, of the object code of any Primal Intellectual Property
Asset except pursuant to valid and enforceable license agreements or pursuant to
valid and enforceable non-disclosure agreements.
(d) To the Knowledge of Primal, none of the Primal Intellectual Property
Assets infringe or conflict with any Intellectual Property Asset owned or used
by any other Person. Primal has not
-30-
<PAGE>
at any time received any written notice or other written communication, or to
the Knowledge of Primal, any oral notice or other oral communication, of any
such infringement or conflict. Primal is not infringing, misappropriating or
making any unlawful use of, and Primal has not at any time infringed,
misappropriated or made any unlawful use of, or received any notice or other
communication of any actual, alleged, possible or potential infringement,
misappropriation or unlawful use of, any Intellectual Property Asset owned or
used by any other Person. To the Knowledge of Primal, no other Person is
infringing, misappropriating or making any unlawful use of, and no Intellectual
Property Asset owned or used by any other Person infringes or conflicts with,
any Primal Intellectual Property Asset.
(e) The Primal Intellectual Property Assets constitute all the
Intellectual Property Assets necessary to enable Primal to conduct its business
in the manner in which such business has been and is being conducted. Except as
set forth in Part 4.22(a) of the Primal Disclosure Letter, (i) Primal has not
licensed any of the Primal Intellectual Property Assets to any Person and (ii)
Primal has not entered into any covenant not to compete or any Contract limiting
its ability to exploit fully any of its Intellectual Property Assets or to
transact business in any market or geographical area or with any Person.
(f) Except in the Ordinary Course of Business, Primal has not entered into
and is not bound by any Contract under which any Person has the right to
distribute or license, on a commercial basis, any Primal Intellectual Property
Asset, including Source Code, object code or any versions, modifications or
derivative works of Source Code or object code in any Primal Intellectual
Property Asset.
4.23 Relationships with Related Persons
No Stockholder or any Related Person of Stockholders or of any Acquired Company
has, or since the first day of the next to last completed fiscal year of the
Acquired Companies has had, any interest in any property (whether real,
personal, or mixed and whether tangible or intangible), used in or pertaining to
the Acquired Companies' businesses. No Stockholder or any Related Person of
Stockholders or of any Acquired Company is, or since the first day of the next
to last completed fiscal year of the Acquired Companies has owned (of record or
as a beneficial owner) an equity interest or any other financial or profit
interest in, a Person that has (i) had business dealings or a material financial
interest in any transaction with any Acquired Company other than business
dealings or transactions conducted in the Ordinary Course of Business with the
Acquired Companies at substantially prevailing market prices and on
substantially prevailing market terms, or (ii) engaged in competition with any
Acquired Company with respect to any line of the products or services of such
Acquired Company (a "Competing Business") in any market presently served by such
Acquired Company except for less than one percent of the outstanding capital
stock of any Competing Business that is publicly traded on any recognized
exchange or in the over-the-counter market. Except as set forth in Part 4.23 of
the Primal Disclosure Letter, no Stockholder or any Related Person of
Stockholders or of any Acquired Company is a party to any Contract with, or has
any claim or right against, any Acquired Company.
-31-
<PAGE>
4.24 Projections of Financial Performance
Primal has previously presented and delivered to Avery Primal's business plan
entitled "Confidential Business Plan" (the "Primal Business Plan"). The 3-year
pro forma projected income statements, 3-year pro forma projected balance
sheets, and 3-year pro forma projected statements of cash flows and the other
projections and estimates contained in Primal Business Plan are based upon
factual assumptions that were reasonably made by Primal and were made in good
faith at the time such projections and estimates were made, and such factual
assumptions remain reasonable and good faith assumptions on and as of the date
of this Agreement. There has been no material change in the business prospects
of Primal or in any other fact or circumstance which would or could reasonably
be expected to render any such projections or estimates, or the assumptions upon
which they were based, unreasonable or not made in good faith in any material
respect. The budgeted operating loss for Primal for the Earn-Out Period is
$1,082,000.
4.25 Tax Matters
To the Knowledge of Primal, neither Primal nor any of its Affiliates has taken
or agreed to take any action or failed to take any action that would prevent the
Merger from constituting a reorganization within the meaning of IRC (S) 368(a).
4.26 Certain Business Practices
Neither Primal nor any of its Subsidiaries nor any director, officer, employee
or agent of Primal or any of its Subsidiaries has (i) used any funds for
unlawful contributions, gifts, entertainment or other unlawful payments relating
to political activity, (ii) made any unlawful payment to any foreign or domestic
government official or employee or to any foreign or domestic political party or
campaign or violated any provision of the Foreign Corrupt Practices Act of 1977,
as amended, (iii) consummated any transaction, made any payment, entered into
any agreement or arrangement or taken any other action in violation of Section
1128B(b) of the Social Security Act, as amended, or (iv) made any other unlawful
payment except for the foregoing matters that are not material in any respect to
Primal.
4.27 Interest Rate and Foreign Exchange Contracts
No Acquired Company is a party to or otherwise bound by any Contract relating to
interest rate swaps, caps, floors or option agreements or other interest rate
risk management arrangements or foreign exchange contracts to hedge its
investments in foreign currencies.
4.28 Year 2000 Matters
Except as set forth in Part 4.28 of the Primal Disclosure Letter, the Outfront
Software, the computer programs and the technical systems owned, leased,
licensed or used by the Acquired Companies are year 2000 compliant, will
function and operate prior to, during and after the calendar year 2000 in
-32-
<PAGE>
accordance with their specifications and will provide the required output
without experiencing abnormal ending dates and/or invalid or incorrect years and
shall incorporate century recognition date data, calculations that use same
century and multi-century formulas and date values that reflect the current
century in all transactions. In addition, all such computer programs and
technical systems will process, manage and manipulate data involving dates,
including single century and multi-century formulas, and will not cause an
abnormally ending scenario within the application or generate incorrect values
or invalid results involving such dates.
4.29 Proxy Statement
The information supplied by Primal or required to be supplied by Primal (except
to the extent revised or superseded by amendments or supplements) for inclusion
in the proxy statement or any amendment or supplement thereto to be sent to the
stockholders of Primal in connection with the meeting of Primal's stockholders
to consider the Merger (the "Primal Stockholders' Meeting") (such proxy
statement, as amended or supplemented, is referred to herein as the "Proxy
Statement") shall not, on the date the Proxy Statement is first mailed to
Primal's stockholders, at the time of the Primal Stockholders' Meeting and at
the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies by or on behalf of
Primal for the Primal Stockholders' Meeting which has become false or
misleading. Notwithstanding the foregoing, Primal makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by Avery which is contained in or omitted from any of the foregoing
documents.
4.30 Brokers or Finders
Primal and its agents have incurred no obligation or liability, contingent or
otherwise, for brokerage or finders' fees or agents' commissions or other
similar payment in connection with this Agreement.
4.31 Disclosure
(a) No representation or warranty of Primal in this Agreement and no
statement in the Primal Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 6.6 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) There is no fact known to any of the Acquired Companies that has
specific application to any Acquired Company (other than general economic or
industry conditions) and that
-33-
<PAGE>
materially adversely affects or, as far as Primal can reasonably foresee,
materially threatens, the assets, business, financial condition, or results of
operations of the Acquired Companies (on a consolidated basis) that has not been
set forth in this Agreement or the Primal Disclosure Letter.
5. REPRESENTATIONS AND WARRANTIES OF AVERY
Avery represents and warrants to Primal as follows:
5.1 Organization and Good Standing
(a) Avery is a corporation duly organized, validly existing, and in good
standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Avery is
duly qualified to do business as a foreign corporation and is in good standing
under the laws of each state or other jurisdiction in which either the ownership
or use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except for such failures to be so
qualified or in good standing that would not have an Avery Material Adverse
Effect.
(b) Merger Sub is a corporation duly organized, validly existing, and in
good standing under the laws of its jurisdiction of incorporation, with full
corporate power and authority to conduct its business as it is now being
conducted, to own or use the properties and assets that it purports to own or
use, and to perform all its obligations under Applicable Contracts. Merger Sub
is duly qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in which either the
ownership or use of the properties owned or used by it, or the nature of the
activities conducted by it, requires such qualification, except for such
failures to be so qualified or in good standing that would not have an Avery
Material Adverse Effect.
5.2 Authority; No Conflict
(a) This Agreement constitutes the legal, valid, and binding obligation of
Avery and Merger Sub, enforceable against Avery and Merger Sub in accordance
with its terms. Avery and Merger Sub have the absolute and unrestricted right,
power, authority, and capacity to execute and deliver this Agreement.
(b) Neither the execution and delivery of this Agreement nor the
consummation or performance of any of the Contemplated Transactions will,
directly or indirectly (with or without notice or lapse of time):
(i) contravene, conflict with, or result in a violation of (A) any
provision of the Organizational Documents of Avery or Merger Sub, or (B) any
resolution adopted by the board of directors or the stockholders of Avery or
Merger Sub;
-34-
<PAGE>
(ii) contravene, conflict with, or result in a violation of, or give
any Governmental Body or other Person the right to challenge any of the
Contemplated Transactions or to exercise any remedy or obtain any relief under,
any Legal Requirement or any Order to which Avery or Merger Sub, or any of the
assets owned or used by Avery or Merger Sub, may be subject;
(iii) contravene, conflict with, or result in a violation of any of
the terms or requirements of, or give any Governmental Body the right to revoke,
withdraw, suspend, cancel, terminate, or modify, any Governmental Authorization
that is held by Avery or Merger Sub or that otherwise relates to the business
of, or any of the assets owned or used by, Avery or Merger Sub; or
(iv) contravene, conflict with, or result in a violation or breach of
any provision of, or give any Person the right to declare a default or exercise
any remedy under, or to accelerate the maturity or performance of, or to cancel,
terminate, or modify, any Avery Applicable Contract; the effect of which would
cause an Avery Material Adverse Effect or would prevent or delay the Merger or
otherwise prevent Avery or Merger Sub from performing their respective
obligations under this Agreement.
Except as set forth in Part 5.2 of the Avery Disclosure Letter, neither Avery
nor Merger Sub is or will be required to give any notice to or obtain any
Consent from any Person in connection with the execution and delivery of this
Agreement or the consummation or performance of any of the Contemplated
Transactions.
5.3 Capitalization
The authorized capital stock of Avery consists solely of 20,000,000 shares of
common stock, par value $0.01 per share ("Common Stock"), and 20,000,000 shares
of preferred stock, par value $0.01 per share ("Preferred Stock"). As of
February 7, 1999, there were 9,836,526 shares of Common Stock issued and
outstanding and 2,826,667 shares of Preferred Stock issued and outstanding. The
shares of Preferred Stock are divided into eight series, of which 800,000 shares
have been designated as the Series A Junior Convertible Redeemable Preferred
Stock (the "Series A Preferred Stock"), 1,050,000 shares have been designated as
the Series B Junior Convertible Redeemable Preferred Stock (the "Series B
Preferred Stock"), 340,000 have been designated as the Series C Junior
Convertible Redeemable Preferred Stock (the "Series C Preferred Stock"),
5,000,000 shares have been designated as the Senior Cumulative Redeemable
Preferred Stock, 1996 HBS Series (the "HBS Senior Preferred Stock"), 1,500,000
shares have been designated as the Series D Senior Convertible Redeemable
Preferred Stock (the "Series D Preferred Stock"), 350,000 shares have been
designated as the Series E Junior Convertible Redeemable Preferred Stock (the
"Series E Preferred Stock"), 940,000 shares have been designated as the Senior
Cumulative Redeemable Convertible Preferred Stock, 1997 HBS Exchange Series (the
"1997 HBS Senior Preferred Stock"), and 1,050,000 shares have been designated as
the Junior Convertible Redeemable Preferred Stock, Series B Exchange Series (the
"Series B Exchange Preferred Stock"). As of February 7, 1999, Avery had issued
and outstanding 400,000 shares of the Series A Preferred Stock, 500,000 shares
of the Series B Preferred
-35-
<PAGE>
Stock,76,667 shares of the Series C Preferred Stock, 1,500,000 shares of the
Series D Preferred Stock, and 350,000 shares of the Series E Preferred Stock.
All such issued and outstanding shares of Common Stock and Preferred Stock have
been duly authorized and validly issued, and are fully paid, nonassessable and
free of preemptive rights. Except for options, warrants and convertible
securities that on February 7, 1999, were exercisable for or convertible into an
aggregate of 3,213,552 shares of Avery Common Stock, and except as contemplated
by this Agreement, there are no options, warrants, calls, subscriptions,
convertible securities, phantom stock rights, or other rights, Contracts,
agreements or commitments which obligates Avery or any of its Subsidiaries to
issue, transfer or sell any shares of capital stock of Avery or any of its
Subsidiaries, or, except as set forth in the Organizational Documents of Avery
relating to the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock, the Series D Preferred Stock, and the Series E
Preferred Stock, any obligation of Avery or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any outstanding capital stock of Avery
or any of its Subsidiaries, or otherwise entitle the holder thereof to receive
or exercise any benefits or rights similar to any rights enjoyed by or accruing
to the holder of shares of capital stock of Avery or any of its Subsidiaries.
5.4 Financial Statements
Avery has delivered to Stockholders: (a) consolidated balance sheets of Avery as
at December 31 in each of the years 1996 through 1997, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the fiscal years then ended, together with the report thereon
of King Griffin & Adamson, LLP, independent certified public accountants, (b) a
consolidated balance sheet of Avery as at December 31, 1997 (including the notes
thereto, the "Avery Balance Sheet"), and the related consolidated statements of
income, changes in stockholders' equity, and cash flow for the fiscal year then
ended, together with the report thereon of King Griffin & Adamson, LLP,
independent certified public accountants, and (c) an unaudited consolidated
balance sheet of Avery as at September 30, 1998 (the "Avery Interim Balance
Sheet") and the related unaudited consolidated statements of income, changes in
stockholders' equity, and cash flow for the nine months then ended, including in
each case the notes thereto. Such financial statements and notes fairly present
the financial condition and the results of operations, changes in stockholders'
equity, and cash flow of the Acquired Companies as at the respective dates of
and for the periods referred to in such financial statements, all in accordance
with GAAP, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the Avery Balance
Sheet); the financial statements referred to in this Section 5.4 reflect the
consistent application of such accounting principles throughout the periods
involved, except as disclosed in the notes to such financial statements.
-36-
<PAGE>
5.5 Books and Records
The books of account, minute books, stock record books, and other records of
Avery, all of which have been made available to Primal, are complete and correct
and have been maintained in accordance with sound business practices and the
requirements of Section 13(b)(2) of the Securities Exchange Act of 1934, as
amended (regardless of whether or not the Acquired Companies are subject to that
Section), including the maintenance of an adequate system of internal controls.
The minute books of Avery contain accurate and complete records of all meetings
held of, and corporate action taken by, the stockholders, the Boards of
Directors, and committees of the Boards of Directors of Avery, and no meeting of
any such stockholders, Board of Directors, or committee has been held for which
minutes have not been prepared and are not contained in such minute books.
5.6 Title to Properties; Encumbrances
Avery owns (with good and marketable title in the case of real property, subject
only to the matters permitted by the following sentence) all the properties and
assets (whether real, personal, or mixed and whether tangible or intangible)
that they purport to own, including all of the properties and assets reflected
in the Avery Balance Sheet and the Avery Interim Balance Sheet (except for
assets held under capitalized leases disclosed and personal property sold since
the date of the Balance Sheet and the Interim Balance Sheet, as the case may be,
in the Ordinary Course of Business), and all of the properties and assets
purchased or otherwise acquired by Avery since the date of the Balance Sheet
(except for personal property acquired and sold since the date of the Balance
Sheet in the Ordinary Course of Business and consistent with past practice).
All material properties and assets reflected in the Avery Balance Sheet and the
Avery Interim Balance Sheet are free and clear of all Encumbrances and are not,
in the case of real property, subject to any rights of way, building use
restrictions, exceptions, variances, reservations, or limitations of any nature
except, with respect to all such properties and assets, (a) mortgages or
security interests shown on the Avery Balance Sheet or the Avery Interim Balance
Sheet as securing specified liabilities or obligations, with respect to which no
default (or event that, with notice or lapse of time or both, would constitute a
default) exists, (b) mortgages or security interests incurred in connection with
the purchase of property or assets after the date of the Interim Balance Sheet
(such mortgages and security interests being limited to the property or assets
so acquired), with respect to which no default (or event that, with notice or
lapse of time or both, would constitute a default) exists, (c) liens for current
taxes not yet due, and (d) with respect to real property, (i) minor
imperfections of title, if any, none of which is substantial in amount,
materially detracts from the value or impairs the use of the property subject
thereto, or impairs the operations of Avery or any of its Subsidiaries, and (ii)
zoning laws and other land use restrictions that do not impair the present or
anticipated use of the property subject thereto. All buildings, plants, and
structures owned by Avery and its Subsidiaries lie wholly within the boundaries
of the real property owned by Avery and its Subsidiaries and do not encroach
upon the property of, or otherwise conflict with the property rights of, any
other Person.
-37-
<PAGE>
5.7 Accounts Receivable
All accounts receivable of Avery that are reflected on the Avery Balance Sheet
or the Avery Interim Balance Sheet (collectively, the "Avery Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the Ordinary Course of Business.
Unless paid prior to the Closing Date, the Accounts Receivable are or will be as
of the Closing Date current and collectible net of the respective reserves shown
on the Avery Balance Sheet or the Interim Balance Sheet (which reserves are
adequate and calculated consistent with past practice). There is no contest,
claim, or right of set-off, other than in the Ordinary Course of Business, under
any Contract with any obligor of an Accounts Receivable relating to the amount
or validity of such Accounts Receivable.
5.8 No Undisclosed Liabilities
Except as set forth in Part 5.8 of the Avery Disclosure Letter, Avery has no
liabilities or obligations of any nature (whether known or unknown and whether
absolute, accrued, contingent, or otherwise) except for liabilities or
obligations reflected or reserved against in the Avery Balance Sheet or the
Avery Interim Balance Sheet and current liabilities incurred in the Ordinary
Course of Business since the respective dates thereof.
5.9 Taxes
(a) Avery has filed or caused to be filed (on a timely basis since January
1, 1996) all Tax Returns that are or were required to be filed by or with
respect to any of them, either separately or as a member of a group of
corporations, pursuant to applicable Legal Requirements. Avery has paid, or made
provision for the payment of, all Taxes that have or may have become due
pursuant to those Tax Returns or otherwise, or pursuant to any assessment
received by Avery, except such Taxes, if any, as are being contested in good
faith and as to which adequate reserves (determined in accordance with GAAP)
have been provided in the Avery Balance Sheet and the Avery Interim Balance
Sheet.
(b) The charges, accruals, and reserves with respect to Taxes on the
respective books of Avery are adequate (determined in accordance with GAAP) and
are at least equal to Avery's liability for Taxes. There exists no proposed tax
assessment against Avery except as disclosed in the Avery Balance Sheet. All
Taxes that Avery is or was required by Legal Requirements to withhold or collect
have been duly withheld or collected and, to the extent required, have been paid
to the proper Governmental Body or other Person.
5.10 No Material Adverse Change
Since the date of the Avery Balance Sheet, there has not been an Avery Material
Adverse Effect, and no event has occurred or circumstance exists that may result
in an Avery Material Adverse Effect.
-38-
<PAGE>
5.11 Compliance with Legal Requirements; Governmental Authorizations
Except as set forth in Part 5.11 of the Avery Disclosure Letter or except as
have not had and would not reasonably be expected to have an Avery Material
Adverse Effect:
(i) Avery is, and at all times since January 1, 1998, has been, in
compliance in all material respects with each Legal Requirement that is or was
applicable to it or to the conduct or operation of its business or the ownership
or use of any of its assets;
(ii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) (A) may constitute or result in a violation by
Avery of, or a failure on the part of Avery to comply with, any Legal
Requirement, or (B) may give rise to any obligation on the part of Avery to
undertake, or to bear all or any portion of the cost of, any remedial action of
any nature; and
(iii) Avery has not received, at any time since January 1, 1998, any
notice or other communication (whether oral or written) from any Governmental
Body or any other Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any Legal Requirement, or (B)
any actual, alleged, possible, or potential obligation on the part of any
Acquired Company to undertake, or to bear all or any portion of the cost of, any
remedial action of any nature.
5.12 Legal Proceedings; Orders
(a) Except as set forth in Part 5.12 of the Avery Disclosure Letter, there
is no pending Proceeding:
(i) that has been commenced by or against Avery or that otherwise
relates to or may affect the business of, or any of the assets owned or used by,
Avery, which, if adversely determined, would have an Avery Material Adverse
Effect; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the Contemplated
Transactions.
To the Knowledge of Avery, (1) no such Proceeding has been Threatened, and (2)
no event has occurred or circumstance exists that may give rise to or serve as a
basis for the commencement of any such Proceeding.
(b) Except as set forth in Part 5.12 of the Avery Disclosure Letter:
(i) there is no Order to which Avery or any of its Subsidiaries, or
any of the assets owned or used by Avery or any of its Subsidiaries, is subject;
and
-39-
<PAGE>
(ii) to the Knowledge of Avery, no officer, director, agent, or
employee of Avery or any of its Subsidiaries is subject to any Order that
prohibits such officer, director, agent, or employee from engaging in or
continuing any conduct, activity, or practice relating to the business of Avery
or any of its Subsidiaries.
(c) Except as set forth in Part 5.12 of the Avery Disclosure Letter or
except as have not had and would not reasonably be expected to have an Avery
Material Adverse Effect:
(i) Avery and its Subsidiaries are, and at all times since January
1, 1998, have been, in full compliance with all of the terms and requirements of
each Order to which any of them, or any of the assets owned or used by them, is
or has been subject;
(ii) no event has occurred or circumstance exists that may constitute
or result in (with or without notice or lapse of time) a violation of or failure
to comply with any term or requirement of any Order to which Avery or any of its
Subsidiaries, or any of the assets owned or used by Avery or any of its
Subsidiaries, is subject; and
(iii) Neither Avery nor any of its Subsidiaries has received, at any
time since January 1, 1998, any notice or other communication (whether oral or
written) from any Governmental Body or any other Person regarding any actual,
alleged, possible, or potential violation of, or failure to comply with, any
term or requirement of any Order to which Avery or any of its Subsidiaries, or
any of the assets owned or used by Avery or any of its Subsidiaries, is or has
been subject.
5.13 Absence of Certain Changes and Events
Except as set forth in Part 5.13 of the Avery Disclosure Letter, since the date
of the Avery Balance Sheet, Avery and its Subsidiaries have conducted their
businesses only in the Ordinary Course of Business and there has not been any:
(a) change in Avery's authorized or issued capital stock; grant of any
stock option or right to purchase shares of capital stock of Avery; issuance of
any security convertible into such capital stock; grant of any registration
rights; purchase, redemption, retirement, or other acquisition by Avery of any
shares of any such capital stock; or declaration or payment of any dividend or
other distribution or payment in respect of shares of capital stock;
(b) amendment to the Organizational Documents of Avery;
(c) damage to or destruction or loss of any asset or property of Avery,
whether or not covered by insurance, materially and adversely affecting the
properties, assets, business, financial condition, or prospects of Avery and its
Subsidiaries, taken as a whole;
-40-
<PAGE>
(d) sale (other than sales of inventory in the Ordinary Course of
Business), lease, or other disposition of any asset or property of any Acquired
Company or mortgage, pledge, or imposition of any lien or other encumbrance on
any material asset or property of Avery;
(e) cancellation or waiver of any claims or rights with a value to any
Acquired Company in excess of $100,000;
(f) material change in the accounting methods used by Avery; or
(g) agreement, whether oral or written, by Avery to do any of the
foregoing.
5.14 Contracts; No Defaults
(a) Each Material Avery Contract is in full force and effect and is valid
and enforceable in accordance with its terms.
(b) Except as set forth in Part 5.14(b) of the Avery Disclosure Letter:
(i) Avery and its Subsidiaries are, and at all times since January 1,
1996, have been, in full compliance with all applicable terms and requirements
of each Material Avery Contract under which Avery or any of its Subsidiaries has
or had any obligation or liability or by which such Avery or any of its
Subsidiaries or any of the assets owned or used by Avery or any of its
Subsidiaries is or was bound;
(ii) each other Person that has or had any obligation or liability
under any Material Avery Contract under which Avery or any of its Subsidiaries
has or had any rights is, and at all times since January 1, 1996, has been, in
full compliance with all applicable terms and requirements of such Material
Avery Contract;
(iii) no event has occurred or circumstance exists that (with or
without notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give Avery or any of its Subsidiaries or other Person
the right to declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or to cancel, terminate, or modify, any Material
Avery Contract; and
(iv) neither Avery nor any of its Subsidiaries has given to or
received from any other Person, at any time since January 1, 1996, any notice or
other communication (whether oral or written) regarding any actual, alleged,
possible, or potential violation or breach of, or default under, any Material
Avery Contract.
-41-
<PAGE>
5.15 Insurance
(a) Except as set forth on Part 5.15 of the Avery Disclosure Letter:
(i) All policies of insurance to which Avery is a party or that
provide coverage to Avery, any of its Subsidiaries, or any director or officer
of Avery or any of its Subsidiaries:
(A) are valid, outstanding, and enforceable;
(B) are issued by an insurer that is financially sound and
reputable;
(C) taken together, provide adequate insurance coverage for the
assets and the operations of Avery for all risks normally insured against by a
Person carrying on the same business or businesses as Avery and its
Subsidiaries;
(D) are sufficient for compliance with all Legal Requirements and
Contracts to which Avery or any of its Subsidiaries is a party or by which any
of them is bound; and
(E) will continue in full force and effect following the
consummation of the Contemplated Transactions.
(ii) Avery has paid all premiums due, and have otherwise performed all
of its obligations, under each policy to which Avery is a party or that provides
coverage to Avery, its Subsidiaries, or any director or officer of Avery or any
of its Subsidiaries.
5.16 Proxy Statement
The information supplied by Avery or required to be supplied by the Avery
(except to the extent revised or superseded by amendments or supplements) for
inclusion in the Proxy Statement shall not, on the date the Proxy Statement is
first mailed to Primal's stockholders, at the time of the Primal Stockholders'
Meeting and at the Effective Time, contain any statement which, at such time, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made therein, in light
of the circumstances under which they were made, not false or misleading, or
omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies by or on
behalf of Primal for the Primal Stockholders' Meeting which has become false or
misleading. Notwithstanding the foregoing, Avery makes no representation,
warranty or covenant with respect to any information supplied or required to be
supplied by Primal which is contained in or omitted from any of the foregoing
documents.
-42-
<PAGE>
5.17 Tax Matters
To the Knowledge of Avery, neither Avery nor any of its Affiliates has taken or
agreed to take any action or failed to take any action that would prevent the
Merger from constituting a reorganization within the meaning of IRC (S) 368(a).
5.18 Brokers or Finders
Neither Avery nor its agents have incurred any obligation or liability,
contingent or otherwise, for brokerage or finders' fees or agents' commissions
or other similar payment in connection with this Agreement.
5.19 Disclosure
(a) No representation or warranty of Avery in this Agreement and no
statement in the Avery Disclosure Letter omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances in which they were made, not misleading.
(b) No notice given pursuant to Section 7.3 will contain any untrue
statement or omit to state a material fact necessary to make the statements
therein or in this Agreement, in light of the circumstances in which they were
made, not misleading.
(c) There is no fact known to Avery that has specific application to Avery
(other than general economic or industry conditions) and that materially
adversely affects the assets, business, prospects, financial condition, or
results of operations of Avery (on a consolidated basis) that has not been set
forth in this Agreement or the Avery Disclosure Letter.
6. COVENANTS OF PRIMAL PRIOR TO CLOSING DATE
6.1 Access and Investigation
Between the date of this Agreement and the Closing Date, each Acquired Company
and its Representatives will, (a) afford Avery and its Representatives and
prospective lenders and their Representatives (collectively, "Avery's Advisors")
full and free access to each Acquired Company's personnel, properties (including
subsurface testing), contracts, books and records, and other documents and data,
(b) furnish Avery and Avery's Advisors with copies of all such contracts, books
and records, and other existing documents and data as Avery may reasonably
request, and (c) furnish Avery and Avery's Advisors with such additional
financial, operating, and other data and information as Avery may reasonably
request.
-43-
<PAGE>
6.2 Delivery of Primal Disclosure Letter
Primal shall deliver the Primal Disclosure Letter to Avery or its counsel on or
before 5:00 p.m., Central Standard or Daylight Savings Time, as the case may be
on April 8, 1999. At least one copy of the Primal Disclosure Letter shall be
delivered to counsel for Avery at their offices in Dallas, Texas.
Avery shall have through 5:00 p.m., Central Standard or Daylight Savings Time,
as the case may be, on the fourteenth calendar day (or, if not a Business Day,
the next Business Day after such fourteenth calendar day) following the date on
which the Primal Disclosure Letter is delivered to Avery and its counsel as
herein provided (such day being referred to herein as the "Review Termination
Date") to review the contents of and disclosures in the Primal Disclosure Letter
and to complete its review of the books, records and operations of Primal. At
any time through and including the Review Termination Date, Avery shall have the
right to notify Primal whether it elects to proceed with the transactions
contemplated by this Agreement, or to terminate this Agreement. In the event
Avery elects to terminate this Agreement, the provisions of Section 11 shall
govern and apply for all purposes, except that (i) the provisions of Section
11.3 shall not be thereafter applicable and Avery shall have no obligation
whatsoever to purchase the 20% Investment Shares, and (ii) the provisions of the
second sentence of Section 14.1 shall not be thereafter applicable and Avery
shall have no obligation whatsoever to reimburse Primal for legal fees as
therein provided. The termination of this Agreement by Avery pursuant to this
Section 6.2 shall in no event or under any circumstance be or be deemed to be a
termination of this Agreement to which the proviso of the second sentence of
Section 11.2 refers.
6.3 Operation of the Businesses of the Acquired Companies
Between the date of this Agreement and the Closing Date, each Acquired Company
will:
(a) conduct the business of such Acquired Company only in the Ordinary
Course of Business;
(b) use its Best Efforts to preserve intact the current business
organization of such Acquired Company, keep available the services of the
current officers, employees, and agents of such Acquired Company, and maintain
the relations and good will with suppliers, customers, landlords, creditors,
employees, agents, and others having business relationships with such Acquired
Company;
(c) take commercially reasonable measures and precautions necessary to
protect the confidentiality and value of each Primal Intellectual Property Asset
(except Primal Intellectual Property Assets whose value would be unimpaired by
public disclosure) and otherwise to maintain and protect the value of all Primal
Intellectual Property Assets;
(d) confer with Avery concerning operational matters of a material nature;
and
-44-
<PAGE>
(e) otherwise report periodically to Avery concerning the status of the
business, operations, and finances of such Acquired Company.
6.4 Negative Covenant
Except as otherwise expressly permitted by this Agreement, between the date of
this Agreement and the Closing Date, each Acquired Company will not, without the
prior written consent of Avery, take any affirmative action, or fail to take any
reasonable action within its control, as a result of which any of the changes or
events listed in Section 4.16 is likely to occur, except that Primal may enter
into any Contract or transaction involving a total remaining commitment to
Primal of $10,000 or more if such Contract would be either a Software License or
a Consulting Contract and it is entered in the Ordinary Course of Business.
6.5 Required Approvals
As promptly as practicable after the date of this Agreement, each Acquired
Company will make all filings required by Legal Requirements to be made by it in
order to consummate the Contemplated Transactions (including all filings under
the HSR Act). Between the date of this Agreement and the Closing Date, each
Acquired Company will (a) cooperate with Avery with respect to all filings that
Avery elects to make or is required by Legal Requirements to make in connection
with the Contemplated Transactions, and (b) cooperate with Avery in obtaining
all consents identified in Part 4.2 of the Primal Disclosure Letter (including
taking all actions requested by Avery to cause early termination of any
applicable waiting period under the HSR Act).
6.6 Notification
Between the date of this Agreement and the Closing Date, Primal will promptly
notify Avery in writing if any Acquired Company becomes aware of any fact or
condition that causes or constitutes a Breach of any of Primal's representations
and warranties as of the date of this Agreement, or if any Acquired Company
becomes aware of the occurrence after the date of this Agreement of any fact or
condition that would (except as expressly contemplated by this Agreement) cause
or constitute a Breach of any such representation or warranty had such
representation or warranty been made as of the time of occurrence or discovery
of such fact or condition. Should any such fact or condition require any change
in the Primal Disclosure Letter if the Primal Disclosure Letter were dated the
date of the occurrence or discovery of any such fact or condition, Primal will
promptly deliver to Avery a supplement to the Primal Disclosure Letter
specifying such change. During the same period, Primal will promptly notify
Avery of the occurrence of any Breach of any covenant of Primal in this Section
6 or of the occurrence of any event that may make the satisfaction of the
conditions in Section 8 impossible or unlikely. For so long as representatives
of Avery constitute a majority of the members of the board of directors of WBS,
Primal shall have no obligation to notify Avery as herein provided with respect
to changes in the business operations of WBS that would, but for this sentence,
be required by this Section 6.6.
-45-
<PAGE>
6.7 No Negotiation
Until such time, if any, as this Agreement is terminated pursuant to Section 11,
each Acquired Company and each of their Representatives will not, directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any Person (other
than Avery) relating to any transaction involving the sale of the business or
assets (other than in the Ordinary Course of Business) of any Acquired Company,
or any of the capital stock of any Acquired Company, or any merger,
consolidation, business combination, or similar transaction involving any
Acquired Company.
6.8 Best Efforts
Between the date of this Agreement and the Closing Date, Primal will use its
Best Efforts to cause the conditions in Sections 8 and 9 to be satisfied.
7. COVENANTS OF AVERY PRIOR TO CLOSING DATE
7.1 Access and Investigation
Between the date of this Agreement and the Closing Date, each Acquired Company
and its Representatives will, (a) afford Primal and its Representatives
(collectively, "Primal's Advisors") full and free access to each Acquired
Company's personnel, properties (including subsurface testing), contracts, books
and records, and other documents and data, (b) furnish Primal and Primal's
Advisors with copies of all such contracts, books and records, and other
existing documents and data as Primal may reasonably request, and (c) furnish
Primal and Primal's Advisors with such additional financial, operating, and
other data and information as Primal may reasonably request.
7.2 Approvals of Governmental Bodies
As promptly as practicable after the date of this Agreement, Avery will, and
will cause each of its Related Persons to, make all filings required by Legal
Requirements to be made by them to consummate the Contemplated Transactions
(including all filings under the HSR Act). Between the date of this Agreement
and the Closing Date, Avery will, and will cause each of its Related Persons to,
cooperate with Primal with respect to all filings that Primal is required by
Legal Requirements to make in connection with the Contemplated Transactions, and
(ii) cooperate with Primal in obtaining all consents identified in Part 4.2 of
the Primal Disclosure Letter; provided, however, that this Agreement will not
require Avery to dispose of or make any change in any portion of its business or
to incur any other burden to obtain a Governmental Authorization.
-46-
<PAGE>
7.3 Notification
Between the date of this Agreement and the Closing Date, Avery will promptly
notify Primal in writing if Avery becomes aware of any fact or condition that
causes or constitutes a Breach of any of Avery's representations and warranties
as of the date of this Agreement, or if Avery becomes aware of the occurrence
after the date of this Agreement of any fact or condition that would (except as
expressly contemplated by this Agreement) cause or constitute a Breach of any
such representation or warranty had such representation or warranty been made as
of the time of occurrence or discovery of such fact or condition. Should any
such fact or condition require any change in the Avery Disclosure Letter if the
Avery Disclosure Letter were dated the date of the occurrence or discovery of
any such fact or condition, Avery will promptly deliver to Primal a supplement
to the Avery Disclosure Letter specifying such change. During the same period,
Avery will promptly notify Primal of the occurrence of any Breach of any
covenant of Avery in this Section 7 or of the occurrence of any event that may
make the satisfaction of the conditions in Section 9 impossible or unlikely.
7.4 Best Efforts
Except as set forth in the proviso to Section 7.2, between the date of this
Agreement and the Closing Date, Avery will use its Best Efforts to cause the
conditions in Sections 8 and 9 to be satisfied.
8. CONDITIONS PRECEDENT TO AVERY'S OBLIGATION TO CLOSE
Avery's obligation to consummate the Merger and to take the other actions
required to be taken by Avery at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Avery, in whole or in part):
8.1 Accuracy of Representations
(a) All of Primal's representations and warranties in this Agreement
(considered collectively), and each of these representations and warranties
(considered individually), must have been accurate in all material respects as
of the date of this Agreement, and must be accurate in all material respects as
of the Closing Date as if made on the Closing Date, without giving effect to any
supplement to the Primal Disclosure Letter, and Primal shall have delivered to
Avery a certificate, executed by the President of Primal, to such effect.
(b) Each of Primal's representations and warranties in Sections
4.2(b)(iv), 4.3, 4.4, 4.12, and 4.31 and in the penultimate sentence of Section
4.24 must have been accurate in all respects as of the date of this Agreement,
and must be accurate in all respects as of the Closing Date as if made on the
Closing Date, without giving effect to any supplement to the Primal Disclosure
Letter, and Primal shall have delivered to Avery a certificate, executed by the
President of Primal, to such effect.
-47-
<PAGE>
8.2 Primal's Performance
(a) All of the covenants and obligations that Primal is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been duly performed and complied with in
all material respects, and Primal shall have delivered to Avery a certificate,
executed by the President of Primal, to such effect.
(b) Each document required to be delivered pursuant to Section 3.2 must
have been delivered, and each of the other covenants and obligations in Sections
6.5 and 6.8 must have been performed and complied with in all respects, and
Primal shall have delivered to Avery a certificate, executed by the President of
Primal, to such effect.
8.3 Consents
Each of the Consents identified in Part 4.2 of the Primal Disclosure Letter must
have been obtained and must be in full force and effect.
8.4 Additional Documents
Each of the following documents must have been delivered to Avery:
(a) estoppel certificates executed on behalf of the landlord for Primal's
office space on the Closing Date, dated as of a date not more than five days
prior to the Closing Date, each in the form of Exhibit 8.4(b); and
----------
(b) such other certificates and documents as Avery may reasonably request
for the purpose of (i) evidencing the accuracy of any of Primal's
representations and warranties, (ii) evidencing the performance by Primal of, or
the compliance by Primal with, any covenant or obligation required to be
performed or complied with by Primal, (iii) evidencing the satisfaction of any
condition referred to in this Section 8, or (iv) otherwise facilitating the
consummation or performance of any of the Contemplated Transactions.
8.5 No Proceedings
Since the date of this Agreement, there must not have been commenced or
Threatened against Avery, or against any Person affiliated with Avery, any
Proceeding (a) involving any challenge to, or seeking damages or other relief in
connection with, any of the Contemplated Transactions, or (b) that may have the
effect of preventing, delaying, making illegal, or otherwise interfering with
any of the Contemplated Transactions.
-48-
<PAGE>
8.6 No Claim Regarding Stock Ownership or Merger Consideration
There must not have been made or Threatened by any Person any claim asserting
that such Person (a) is the holder or the beneficial owner of, or has the right
to acquire or to obtain beneficial ownership of, any stock of, or any other
voting, equity, or ownership interest in, any of the Acquired Companies, or (b)
is entitled to all or any portion of the Merger Consideration.
8.7 No Prohibition
Neither the consummation nor the performance of any of the Contemplated
Transactions will, directly or indirectly (with or without notice or lapse of
time), materially contravene, or conflict with, or result in a material
violation of, or cause Avery or any Person affiliated with Avery to suffer any
material adverse consequence under, (a) any applicable Legal Requirement or
Order, or (b) any Legal Requirement or Order that has been published,
introduced, or otherwise proposed by or before any Governmental Body.
9. CONDITIONS PRECEDENT TO PRIMAL'S OBLIGATION TO CLOSE
Primal's obligation to consummate the Merger and to take the other actions
required to be taken by Primal at the Closing is subject to the satisfaction, at
or prior to the Closing, of each of the following conditions (any of which may
be waived by Primal, in whole or in part):
9.1 Accuracy of Representations
All of Avery's representations and warranties in this Agreement (considered
collectively), and each of these representations and warranties (considered
individually), must have been accurate in all material respects as of the date
of this Agreement and must be accurate in all material respects as of the
Closing Date as if made on the Closing Date.
9.2 Avery's Performance
(a) All of the covenants and obligations that Avery is required to perform
or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of these covenants and obligations
(considered individually), must have been performed and complied with in all
material respects, and Avery shall have delivered to Primal a certificate,
executed by an executive officer of Avery, to such effect.
(b) Avery must have delivered each of the documents required to be
delivered by Avery pursuant to Section 3.2, and Avery shall have delivered to
Primal a certificate, executed by an executive officer of Avery, to such effect.
-49-
<PAGE>
9.3 Consents
Each of the Consents identified in Part 4.2 of the Primal Disclosure Letter must
have been obtained and must be in full force and effect.
9.4 Additional Documents
Avery must have caused the following documents to be delivered to Primal:
(a) such other certificates and documents as Primal may reasonably request
for the purpose of (i) evidencing the accuracy of any representation or warranty
of Avery, (ii) evidencing the performance by Avery of, or the compliance by
Avery with, any covenant or obligation required to be performed or complied with
by Avery, (iii) evidencing the satisfaction of any condition referred to in this
Section 9, or (iv) otherwise facilitating the consummation of any of the
Contemplated Transactions.
9.5 No Injunction
There must not be in effect any Legal Requirement or any injunction or other
Order that (a) prohibits the Merger, and (b) has been adopted or issued, or has
otherwise become effective, since the date of this Agreement.
10. ADDITIONAL AGREEMENTS
10.1 Meeting of Stockholders
Primal, acting through its Board of Directors, shall, in accordance with the
CGCL and its Organizational Documents, promptly and duly call, give notice of,
convene and hold as soon as practicable following the date hereof, the Primal
Stockholders' Meeting, and Primal shall consult with Avery in connection
therewith. The Board of Directors of Primal shall declare that this Agreement
is advisable and recommend that the Agreement and the transactions contemplated
hereby be approved and adopted by the stockholders of Primal and include in the
Proxy Statement a copy of such recommendations. Primal shall use reasonable
efforts to secure the vote or consent of stockholders required by the CGCL and
its Organizational Documents to approve and adopt this Agreement and the Merger.
10.2 Tax Treatment
Avery and Primal will each use reasonable efforts before and after the Closing
to cause the Merger to qualify as a reorganization within the meaning of IRC (S)
368(a), and will not take, and will use reasonable efforts to prevent any
Affiliate of such party from taking, any actions which could prevent the Merger
from qualifying as such a reorganization, and will take such action as is
available and may be reasonably required to negate the impact of any past
actions by such party or its respective
-50-
<PAGE>
Affiliates which would reasonably be expected to adversely impact the
qualification of the Merger as a reorganization within the meaning of IRC (S)
368(a).
10.3 Conveyance Taxes
Avery and Primal shall cooperate in the preparation, execution and filing of all
returns, questionnaires, applications, or other documents regarding (i) any real
property transfer gains, sales, use, transfer, value-added, stock transfer, and
stamp Taxes (ii) any recording, registration and other fees, and (iii) any
similar Taxes or fees that become payable in connection with the transactions
contemplated hereby. The Taxes described in clause (i) above shall be paid by
Primal.
10.4 Voting Agreement
Primal shall use reasonable efforts, on behalf of Avery and pursuant to the
request of Avery, to cause each Stockholder to execute and deliver to Avery the
Voting Agreement concurrently with the execution of this Agreement.
11. TERMINATION
11.1 Termination Events
This Agreement may, by notice given prior to or at the Closing, be terminated:
(a) by Avery, in its sole and absolute discretion, at any time from and
after the date of this Agreement through and including the date that is 270
calendar days after the date of this Agreement (the date of this Agreement being
excluded from such 270-day period);
(b) by either Avery or Primal if a material Breach of any provision of this
Agreement has been committed by the other party and such Breach has not been
waived;
(c) (i) by Avery if any of the conditions in Section 8 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is or
becomes impossible (other than through the failure of Avery to comply with its
obligations under this Agreement) and Avery has not waived such condition on or
before the Closing Date; or (ii) by Primal, if any of the conditions in Section
9 has not been satisfied as of the Closing Date or if satisfaction of such a
condition is or becomes impossible (other than through the failure of the
Acquired Companies to comply with their obligations under this Agreement) and
Primal has not waived such condition on or before the Closing Date;
(d) by mutual consent of Avery and Primal; or
-51-
<PAGE>
(e) by either Avery or Primal if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to comply
fully with its obligations under this Agreement) on or before March 31, 2000, or
such later date as the parties may agree upon.
11.2 Effect of Termination
Each party's right of termination under Section 11.1 is in addition to any other
rights it may have under this Agreement or otherwise, and the exercise of a
right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 11.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
11.3, 14.1 and 14.3 will survive; provided, however, that if this Agreement is
terminated by a party because of the Breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
11.3 Purchase of 20% of the Shares of Primal of Primal Common Stock
If Avery terminates this Agreement pursuant to Section 11.1(a), or pursuant to
Section 11.1(c)(ii) because of the non-fulfillment of a condition specified in
Sections 9.1, 9.2 or 9.4, then, in such event, Primal agrees to sell, and Avery
agrees to purchase, that number of shares of Primal Common Stock (collectively,
the "20% Investment Shares") as shall equal the quotient obtained by dividing
(i) the sum, without duplication, of (A) the number of outstanding shares of
Primal Common Stock on the date of the termination of this Agreement, plus (B)
the number of shares of Primal Common Stock reserved for issuance on the date of
the termination of this Agreement upon the exercise of any outstanding options,
warrants or rights of any kind to acquire any shares of, or upon the conversion
or exchange of any securities convertible into or exchangeable for any shares
of, Primal Common Stock, plus (C) the number of shares of Primal Common Stock
reserved for issuance on the date of the termination of this Agreement pursuant
to any contract, agreement, commitment or arrangement obligating Primal to
offer, sell, issue or grant any shares of, or any options, warrants or rights of
any kind to acquire any shares of, or any securities convertible into or
exchangeable for any shares of, Primal Common Stock, excluding those shares
reserved for issuance included in clause (C) hereof, plus (D) the number of
shares of Primal Common Stock reserved for issuance on the date of the
termination of this Agreement pursuant to future awards that could be granted
under the Primal Option Plan, by (ii) eight-tenths (0.8). The purchase price
(the "20% Investment Purchase Price") for the 20% Investment Shares shall be
$2,000,000. The 20% Investment Purchase Price shall be payable as follows:
first, by the cancellation of indebtedness owed by Primal to Avery for money
borrowed, including accrued and unpaid interest thereon; and second, by the wire
transfer of immediately available funds for the difference, if any, between the
20% Investment Purchase Price and the amount credited toward the 20% Investment
Purchase Price by the cancellation of such indebtedness and accrued and unpaid
interest. The consummation of the purchase and sale contemplated hereby (the
"Investment Closing") shall take place as provided in Section 3.1 on the
thirtieth Business Day following the date on which notice of termination of this
Agreement is
-52-
<PAGE>
delivered by Avery to Primal pursuant to Section 11.1. Avery's obligation to
purchase the Investment Shares and to take the other actions required to be
taken at the Investment Closing is subject to the satisfaction, at or prior to
the Investment Closing, of each of the conditions (any of which may be waived by
Avery, in whole or in part) set forth in Section 8. At the Investment Closing,
payment of the 20% Investment Purchase Price shall be made against delivery of a
certificate representing the 20% Investment Shares, and such payment and
delivery shall be evidenced by the delivery of an appropriate cross-receipt
signed by Avery and Primal.
12. INDEMNIFICATION; REMEDIES
12.1 Survival; Right to Indemnification Not Affected By Knowledge
All representations, warranties, covenants, and obligations in this Agreement,
the Primal Disclosure Letter, the supplements to the Primal Disclosure Letter,
the certificates delivered pursuant to Section 8, and any other certificate or
document delivered pursuant to this Agreement will survive the Closing for a
period of two years. The right to indemnification, payment of Damages or other
remedy based on such representations, warranties, covenants, and obligations
will not be affected by any investigation conducted with respect to, or any
Knowledge acquired (or capable of being acquired) at any time, whether before or
after the execution and delivery of this Agreement or the Closing Date, with
respect to the accuracy or inaccuracy of or compliance with, any such
representation, warranty, covenant, or obligation. The waiver of any condition
based on the accuracy of any representation or warranty, or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages, or other remedy based on such
representations, warranties, covenants, and obligations.
12.2 Indemnification and Payment of Damages By Stockholders
Stockholders, jointly and severally, will indemnify and hold harmless Avery, the
Acquired Companies, and their respective Representatives, stockholders,
controlling persons, and affiliates (collectively, the "Indemnified Persons")
for, and will pay to the Indemnified Persons the amount of, any loss, liability,
claim, damage (including incidental and consequential damages), expense
(including costs of investigation and defense and reasonable attorneys' fees) or
diminution of value, whether or not involving a third-party claim, in all cases,
net of aggregate tax benefits or aggregate third party recoveries actually
received by the indemnified party or estimated in good faith to be received by
the indemnified party on or before the second anniversary of the Closing Date
(collectively, "Damages"), arising, directly or indirectly, from or in
connection with:
(a) any Breach of any representation or warranty made by Primal in this
Agreement (without giving effect to any supplement to the Primal Disclosure
Letter), the Primal Disclosure Letter, the supplements to the Primal Disclosure
Letter, or any other certificate or document delivered by Primal pursuant to
this Agreement;
-53-
<PAGE>
(b) any Breach of any representation or warranty made by Primal in this
Agreement as if such representation or warranty were made on and as of the
Closing Date without giving effect to any supplement to the Primal Disclosure
Letter, other than any such Breach that is disclosed in a supplement to the
Primal Disclosure Letter and is expressly identified in the certificates
delivered pursuant to Section 8.1 as having caused the condition specified in
Section 8.1 not to be satisfied;
(c) any Breach by Primal of any covenant or obligation of Primal in this
Agreement;
(d) any services provided by any Acquired Company prior to the Closing
Date;
(e) any matter disclosed in Parts 4.2(b)(iv) and 4.15 of the Primal
Disclosure Letter; or
(f) any claim by any Person for brokerage or finder's fees or commissions
or similar payments based upon any agreement or understanding alleged to have
been made by any such Person with either Stockholder or any Acquired Company (or
any Person acting on their behalf) in connection with any of the Contemplated
Transactions.
The remedies provided in this Section 12.2 will not be exclusive of or limit any
other remedies that may be available to Avery or the other Indemnified Persons.
12.3 Time Limitations
If the Closing occurs, Stockholders will have no liability (for indemnification
or otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, other
than those in Sections 4.2(b)(iv), 4.3, 4.11, 4.13, and 4.19, unless on or
before two years following the Closing Date Avery notifies Stockholders of a
claim specifying the factual basis of that claim in reasonable detail to the
extent then known by Avery; a claim with respect to Sections 4.2(b)(iv), 4.3,
4.11, 4.13, and 4.19, or a claim for indemnification or reimbursement not based
upon any representation or warranty or any covenant or obligation to be
performed and complied with prior to the Closing Date, may be made at any time.
If the Closing occurs, Avery will have no liability (for indemnification or
otherwise) with respect to any representation or warranty, or covenant or
obligation to be performed and complied with prior to the Closing Date, unless
on or before two years following the Closing Date Primal, acting through the
Securityholder Agent, notifies Avery of a claim specifying the factual basis of
that claim in reasonable detail to the extent then known by Primal.
12.4 Limitations on Amount -- Stockholders
Stockholders will have no liability (for indemnification or otherwise) with
respect to the matters described in clause (a), clause (b) or, to the extent
relating to any failure to perform or comply prior to the Closing Date, clause
(c) of Section 12.2 until the total of all Damages with respect to such matters
exceeds $50,000.00, and then only for the amount by which such Damages exceed
$50,000.00. Stockholders will have no liability (for indemnification or
otherwise) with respect to
-54-
<PAGE>
the matters described in clause (a) or clause (b), other than, in each case, for
a Breach of the representations and warranties in Sections 4.2(b)(iv), 4.3 and
4.11, or, to the extent relating to any failure to perform or comply prior to
the Closing Date, clause (c) of Section 12.2, in an amount that is greater than
the sum of the Value of the Merger Consideration as of the Effective Time and
the Value of the Additional Merger Consideration, if any, as of the
Determination Date. Stockholders will have no liability (for indemnification or
otherwise) with respect to a Breach of the representations and warranties in
Sections 4.2(b)(iv) and 4.11 in an amount that is greater than the aggregate
liability for Taxes that the stockholders of Primal would have incurred if they
had sold their respective shares of the Primal Common Stock for cash on the
Effective Date. Stockholders' liability (for indemnification or otherwise) with
respect to a Breach of the representations and warranties in Section 4.3 will
not be limited in amount. The foregoing notwithstanding, however, this Section
12.4 will not apply to any Breach of any of Primal's representations and
warranties of which any Stockholder had actual knowledge at any time prior to
the date on which such representation and warranty is made or any intentional
Breach by Primal of any covenant or obligation, and Stockholders will be jointly
and severally liable for all Damages with respect to such Breaches.
12.5 Escrow; Right of Set-Off
At the Effective Time, Primal's stockholders will be deemed to have received and
deposited with the Escrow Agent the Escrow Shares (plus any additional shares as
may be issued upon any stock split, stock dividend or recapitalization effected
by Avery after the Effective Time) without any act of any stockholder. The
portion of the Escrow Shares contributed on behalf of each stockholder of Primal
shall be in proportion to the aggregate Merger Consideration to which such
holder would otherwise be entitled at the Effective Time. The Escrow Shares
shall be available to compensate Avery and its a Affiliates for any Damages
pursuant to Section 12.2.
Upon notice to Stockholders specifying in reasonable detail the basis for such
set-off, Avery may set off any amount to which it may be entitled under this
Section 12, determined in the same manner as claims under the Escrow Agreement,
against amounts otherwise payable hereunder as Additional Merger Consideration
or may give notice of a claim in such amount under the Escrow Agreement, or
both. The exercise of such right of set-off by Avery in good faith, whether or
not ultimately determined to be justified, will not constitute an event of
default hereunder. Neither the exercise of nor the failure to exercise such
right of set-off or to give a notice of a claim under the Escrow Agreement will
constitute an election of remedies or limit Avery in any manner in the
enforcement of any other remedies that may be available to it.
In the event that the Merger is approved, effective upon such vote, and without
further act of any stockholder, a committee comprised of Faltys, Simrell and
Haynes shall be appointed as agent and attorney-in-fact (such committee, the
"Securityholder Agent") for each stockholder of Primal (except such
stockholders, if any, as shall have perfected their appraisal or dissenters'
rights under the CGCL), for and on behalf of each stockholder of Primal, to give
and receive notices and communications, to authorize delivery to Avery of shares
of Avery Preferred Stock from the Escrow
-55-
<PAGE>
Shares in satisfaction of claims by Avery, to object to such deliveries, to
agree to, negotiate, enter into settlements and compromises of, and, if
permitted, to demand arbitration and to comply with orders of courts and awards
of arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of the Securityholder Agent for the accomplishment
of the foregoing. The majority vote of the three members of such committee shall
be deemed to be the act of the Securityholder Agent. Such Securityholder Agent
may be changed by the stockholders of Primal from time to time upon not less
than thirty (30) days' prior written notice to Avery; provided that the
Securityholder Agent may not be removed unless holders of a two-thirds interest
of the Escrow Shares agree to such removal and to the identity of the
substituted agent. Any vacancy in the position of Securityholder Agent may be
filled by approval of the holders of a majority in interest of the Escrow
Shares. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notice or communications to or from the Securityholder Agent shall constitute
notice to or form each of the stockholders of Primal. In performing any duties
under the Agreement, the Securityholder Agent shall not be liable to any party
for damages, losses, or expenses, except for gross negligence or willful
misconduct on the part of the Securityholder Agent. The Securityholder Agent
shall not incur any such liability for (A) any act or failure to act made or
omitted in good faith, or (B) any action taken or omitted in reliance upon any
instrument, including any written statement or affidavit provided for in this
Agreement that the Securityholder Agent shall in good faith believe to be
genuine, nor will the Securityholder Agent be liable or responsible for
forgeries, fraud, impersonations, or determining the scope of any representative
authority. In addition, the Securityholder Agent may consult with the legal
counsel in connection with Securityholder Agent's duties under this Agreement
and shall be fully protected in any act taken, suffered, or permitted by it in
good faith in accordance with the advice of counsel. The Securityholder Agent is
not responsible for determining and verifying the authority of any Person acting
or purporting to act on behalf of any party to this Agreement. Each stockholder
of Primal on whose behalf the Escrow Shares were delivered to the Escrow Agent
pursuant to the Escrow Agreement shall indemnify the Securityholder Agent and
hold the Securityholder Agent harmless against any loss, liability or expense
incurred without gross negligence or willful misconduct on the part of the
Securityholder Agent and arising out of or in connection with the acceptance or
administration of the Securityholder Agent's duties hereunder. A decision, act,
consent or instruction of the Securityholder Agent shall constitute a decision
of all the stockholders for whom a portion of the Escrow Shares otherwise
issuable to them are deposited with the Escrow Agent pursuant to the Escrow
Agreement, and shall be final, binding and conclusive upon each of such
stockholders, and the Escrow Agent and Avery may rely upon any such decision,
act, consent or instruction of the Securityholder Agent as being the decision,
act, consent or instruction of each every such stockholder of Primal. The Escrow
Agent and Avery are hereby relieved from any liability to any Person for any
acts done by them in accordance with such decision, act, consent or instruction
of the Securityholder Agent.
-56-
<PAGE>
12.6 Procedure for Indemnification--Third-Party Claims
(a) Promptly after receipt by an indemnified party under Section 12.2 of
notice of any Threatened Proceeding against it or the commencement of any
Proceeding against it, such indemnified party will, if a claim is to be made
against an indemnifying party under such Section, give notice to the
indemnifying party of the commencement of such claim, but the failure to notify
the indemnifying party will not relieve the indemnifying party of any liability
that it may have to any indemnified party, except to the extent that the
indemnifying party demonstrates that the defense of such action is prejudiced by
the indemnifying party's failure to give such notice.
(b) If any Proceeding referred to in Section 12.6(a) is brought against an
indemnified party and it gives notice to the indemnifying party of the
commencement of such Proceeding, the indemnifying party will be entitled to
participate in such Proceeding and, to the extent that it wishes (unless (i) the
indemnifying party is also a party to such Proceeding and the indemnified party
determines in good faith that joint representation would be inappropriate, or
(ii) the indemnifying party fails to provide reasonable assurance to the
indemnified party of its financial capacity to defend such Proceeding and
provide indemnification with respect to such Proceeding), unless the claim
involves Taxes, to assume the defense of such Proceeding with counsel
satisfactory to the indemnified party and, after notice from the indemnifying
party to the indemnified party of its election to assume the defense of such
Proceeding, the indemnifying party will not, as long as it diligently conducts
such defense, be liable to the indemnified party under this Section 12 for any
fees of other counsel or any other expenses with respect to the defense of such
Proceeding, in each case subsequently incurred by the indemnified party in
connection with the defense of such Proceeding, other than reasonable costs of
investigation. If the indemnifying party assumes the defense of a Proceeding,
(i) it will be conclusively established for purposes of this Agreement that the
claims made in that Proceeding are within the scope of and subject to
indemnification; (ii) no compromise or settlement of such claims may be effected
by the indemnifying party without the indemnified party's consent unless (A)
there is no finding or admission of any violation of Legal Requirements or any
violation of the rights of any Person and no effect on any other claims that may
be made against the indemnified party, and (B) the sole relief provided is
monetary damages that are paid in full by the indemnifying party; and (iii) the
indemnified party will have no liability with respect to any compromise or
settlement of such claims effected without its consent. If notice is given to
an indemnifying party of the commencement of any Proceeding and the indemnifying
party does not, within ten days after the indemnified party's notice is given,
give notice to the indemnified party of its election to assume the defense of
such Proceeding, the indemnifying party will be bound by any determination made
in such Proceeding or any compromise or settlement effected by the indemnified
party.
(c) Notwithstanding the foregoing, if an indemnified party determines in
good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its Affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
indemnified party may, by notice to the indemnifying party, assume the exclusive
right to defend, compromise, or settle such Proceeding, but the indemnifying
party will not be bound
-57-
<PAGE>
by any determination of a Proceeding so defended or any
compromise or settlement effected without its consent (which may not be
unreasonably withheld).
(d) Stockholders hereby consent to the non-exclusive jurisdiction of any
court in which a Proceeding is brought against any Indemnified Person for
purposes of any claim that an Indemnified Person may have under this Agreement
with respect to such Proceeding or the matters alleged therein, and agree that
process may be served on Stockholders with respect to such a claim anywhere in
the world.
12.7 Procedure for Indemnification--Other Claims
A claim for indemnification for any matter not involving a third-party claim may
be asserted by notice to the party from whom indemnification is sought.
13. DEFINITIONS; CONSTRUCTION
For all purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires, the terms defined in this Section 13
have the meanings assigned to them or referred to in this Section 13, and
include the plural as well as the singular:
"Acquired Companies"--Primal and its Subsidiaries (other than WBS),
collectively.
"Applicable Contract"--any Contract (a) under which any Acquired Company has
or may acquire any rights, (b) under which any Acquired Company has or may
become subject to any obligation or liability, or (c) by which any Acquired
Company or any of the assets owned or used by it is or may become bound.
"Avery"--as defined in the first paragraph of this Agreement.
"Avery Applicable Contract"--any Contract (a) under which Avery or any of its
Subsidiaries has or may acquire any rights, (b) under which Avery or any of its
Subsidiaries has or may become subject to any obligation or liability, or (c) by
which Avery or any of its Subsidiaries or any of the assets owned or used by any
of them is or may become bound.
"Avery Common Stock"--the common stock, par value $0.01 per share, of Avery.
"Avery Disclosure Letter"--the disclosure letter delivered by Avery to Primal
concurrently with the execution of this Agreement or, at Avery's option, on or
before 5:00 p.m., California time, on April 8, 1999.
"Avery Material Adverse Effect"--any change or effect that, individually or
when taken together with all other such changes or effects that have occurred
prior to the date of determination of the occurrence of the Avery Material
Adverse Effect, is materially adverse to the business, results of
-58-
<PAGE>
operations, or financial condition of Avery and its Subsidiaries, taken as a
whole; provided, however, that in determining whether there has been a Avery
Material Adverse Effect, any adverse effect attributable to the following shall
be disregarded: (i) general economic or business conditions; (ii) general
industry conditions; (iii) the taking of any action permitted or required by
this Agreement; (iv) the announcement or pendency of the Merger or any of the
other transactions contemplated by this Agreement; (v) the Breach by the Primal
or the Stockholders of this Agreement; and (vi) a decline in Avery's stock
price; in each case, to the extent that such adverse effect is attributable to
such event.
"Avery Preferred Stock"--the non-voting Series F Junior Participating
Convertible Preferred Stock, par value $0.01 per share, having the preferences,
limitations and rights set forth in the Certificate of Designations attached
hereto as Annex B.
-------
"Avery Stock"--collectively, the Avery Common Stock and the Avery Preferred
Stock.
"Balance Sheet"--as defined in Section 4.4(a).
"Best Efforts"--the efforts that a prudent Person desirous of achieving a
result would use in similar circumstances to ensure that such result is achieved
as expeditiously as possible; provided, however, that an obligation to use Best
Efforts under this Agreement does not require the Person subject to that
obligation to take actions that would result in a materially adverse change in
the benefits to such Person of this Agreement and the Contemplated Transactions.
"Breach"--a "Breach" of a representation, warranty, covenant, obligation, or
other provision of this Agreement or any instrument delivered pursuant to this
Agreement will be deemed to have occurred if there is or has been (a) any
inaccuracy in or breach of, or any failure to perform or comply with, such
representation, warranty, covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or circumstance that is or was
inconsistent with such representation, warranty, covenant, obligation, or other
provision, and the term "Breach" means any such inaccuracy, breach, failure,
claim, occurrence, or circumstance.
"CGCL"--the General Corporation Law of the State of California.
"Closing"--means a meeting, which will be held in accordance with Section 3.3,
of all Persons interested in the transactions contemplated by this Agreement at
which all documents necessary to evidence the fulfillment or waiver of all
conditions precedent to the consummation of the transactions contemplated by
this Agreement are executed and delivered.
"Closing Date"--the date on which the Closing actually takes place.
"Consent"--any approval, consent, ratification, waiver, or other authorization
(including any Governmental Authorization).
-59-
<PAGE>
"Constituent Corporations"--Merger Sub and Primal.
"Contemplated Transactions"--all of the transactions contemplated by this
Agreement, including:
(a) the Merger;
(b) the execution, delivery, and performance of the Employment
Agreements, the Registration Rights Agreement, the Stockholders' Releases,
and the Escrow Agreement;
(c) the performance by Avery, Merger Sub, Primal and the Stockholders
of their respective covenants and obligations under this Agreement; and
(d) Avery's exercise of control over the Acquired Companies;
provided, however, that, when used in any representation, warranty or agreement
herein, the term shall refer only to those matters applicable to the Person
making such representation, warranty or agreement, the intent being that, unless
otherwise expressly provided in this Agreement, no party to this Agreement is
making or shall have been deemed to have made any representations, warranties or
agreements for any other party to this Agreement by using this defined term.
"Contract"--any agreement, contract, obligation, promise, or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"Corsair Agreement"--Asset Purchase Agreement, dated as of February 3, 1999,
by and between Corsair Communications, Inc., a Delaware corporation, Subscriber
Computing, Inc., a Delaware corporation, WBS and Avery, and the Schedules and
Exhibits thereto.
"Damages"--as defined in Section 12.2.
"DGCL"--the General Corporation Law of the State of Delaware.
"Employment Agreements"--as defined in Section 3.2(a)(ii).
"Encumbrance"--any charge, claim, community property interest, condition,
equitable interest, lien, option, pledge, security interest, right of first
refusal, or restriction of any kind, including any restriction on use, voting,
transfer, receipt of income, or exercise of any other attribute of ownership.
"End-User Licenses"--object code end-user licenses granted to end users in the
ordinary course of business that permit use of Software products generally
available to the public without a right to modify, distribute or sublicense such
Software products.
"Environment"--soil, land surface or subsurface strata, surface waters
(including navigable waters, ocean waters, streams, ponds, drainage basins, and
wetlands), groundwaters, drinking water supply,
-60-
<PAGE>
stream sediments, ambient air (including indoor air), plant and animal life, and
any other environmental medium or natural resource.
"Environmental Law"--any Legal Requirement that requires or relates to:
(a) advising appropriate authorities, employees, and the public of
intended or actual Releases of pollutants or Hazardous Materials,
violations of discharge limits, or other prohibitions and of the
commencements of activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the Release of
pollutants or Hazardous Materials into the Environment;
(c) reducing the quantities, preventing the release, or minimizing the
hazardous characteristics of wastes that are generated;
(d) assuring that products are designed, formulated, packaged, and
used so that they do not present unreasonable risks to human health or the
Environment when used or disposed of;
(e) protecting resources, species, or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil, or other
potentially harmful substances;
(g) cleaning up pollutants that have been Released, preventing the
threat of release, or paying the costs of such clean up or prevention; or
(h) making responsible parties pay private parties, or groups of them,
for damages done to their health or the Environment, or permitting self-
appointed representatives of the public interest to recover for injuries
done to public assets.
"Environmental Liabilities"--any cost, damages, expense, liability,
obligation, or other responsibility arising from or under Environmental Law or
Occupational Safety and Health Law and consisting of or relating to:
(a) any environmental, health, or safety matters or conditions
(including on-site or off-site contamination, occupational safety and
health, and regulation of chemical substances or products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims, demands and response,
investigative, remedial, or
-61-
<PAGE>
inspection costs and expenses arising under Environmental Law or
Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or Occupational
Safety and Health Law for cleanup costs or corrective action, including any
investigation, cleanup, removal, containment, or other remediation or
response actions ("Cleanup") required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not such Cleanup has been
required or requested by any Governmental Body or any other Person) and for
any natural resource damages; or
(d) any other compliance, corrective, investigative, or remedial
measures required under Environmental Law or Occupational Safety and Health
Law.
The terms "removal," "remedial," and "response action," include the types of
activities covered by the United States Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. (S) 9601 et seq., as amended
("CERCLA").
"ERISA"--the Employee Retirement Income Security Act of 1974 or any successor
law, and regulations and rules issued pursuant to that Act or any successor law.
"Escrow Agreement"--as defined in Section 3.2(b).
"GAAP"--generally accepted United States accounting principles.
"Governmental Authorization"--any approval, consent, license, permit, waiver,
or other authorization issued, granted, given, or otherwise made available by or
under the authority of any Governmental Body or pursuant to any Legal
Requirement.
"Governmental Body"--any:
(a) nation, state, county, city, town, village, district, or other
jurisdiction of any nature;
(b) federal, state, local, municipal, foreign, or other government;
(c) governmental or quasi-governmental authority of any nature
(including any governmental agency, branch, department, official, or entity
and any court or other tribunal);
(d) multi-national organization or body; or
(e) body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, regulatory, or taxing authority
or power of any nature.
-62-
<PAGE>
"Hazardous Materials"--any waste or other substance that is listed, defined,
designated, or classified as, or otherwise determined to be, hazardous,
radioactive, or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law, including any admixture or solution thereof, and specifically
including petroleum and all derivatives thereof or synthetic substitutes
therefor and asbestos or asbestos-containing materials.
"HSR Act"--the Hart-Scott-Rodino Antitrust Improvements Act of 1976 or any
successor law, and regulations and rules issued pursuant to that Act or any
successor law.
"Intellectual Property Assets"-- any (i) patent, patent application, trademark
(whether registered or unregistered), trademark application, trade name,
fictitious business name, service mark (whether registered or unregistered),
service mark application, copyright (whether registered or unregistered),
copyright application, maskwork, maskwork application, trade secret, know-how,
customer list, franchise, system, Software, Source Code, computer program,
domain name or registration for any Internet site, invention, design (including
any design forming any part of any Internet site), blueprint, engineering
drawing, proprietary product, technology, proprietary right or other
intellectual property right or intangible asset; or (ii) right to use or exploit
any of the foregoing.
"Interim Balance Sheet"--as defined in Section 4.4(b).
"IRC"--the Internal Revenue Code of 1986 or any successor law, and regulations
issued by the IRS pursuant to the Internal Revenue Code or any successor law.
"IRS"--the United States Internal Revenue Service or any successor agency,
and, to the extent relevant, the United States Department of the Treasury.
"Knowledge"--an individual will be deemed to have "Knowledge" of a particular
fact or other matter if:
(a) such individual is actually aware of such fact or other matter; or
(b) a prudent individual serving in the same or similar capacity as
such individual would or could be expected to discover or otherwise become
aware of such fact or other matter in the course of serving in the same or
similar capacity as such individual.
An individual is under no obligation to make any investigation for the purposes
of this definition.
A Person (other than an individual) will be deemed to have "Knowledge" of a
particular fact or other matter if any individual who is serving, or who has at
any time served, as a director, officer, partner, executor, or trustee of such
Person (or in any similar capacity) has, or at any time had, Knowledge of such
fact or other matter.
-63-
<PAGE>
"Legal Requirement"--any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, regulation, statute, or treaty.
"Material Avery Contract"--an Avery Applicable Contract that is material to
Avery and its Subsidiaries taken as a whole.
"Merger"--the merger of Primal with and into Merger Sub for which provision is
made in this Agreement.
"Merger Sub"--ACI Telecommunications Financial Services Corporation, a
Delaware corporation.
"Occupational Safety and Health Law"--any Legal Requirement designed to
provide safe and healthful working conditions and to reduce occupational safety
and health hazards, and any program, whether governmental or private (including
those promulgated or sponsored by industry associations and insurance
companies), designed to provide safe and healthful working conditions.
"Order"--any award, decision, injunction, judgment, order, ruling, subpoena,
or verdict entered, issued, made, or rendered by any court, administrative
agency, or other Governmental Body or by any arbitrator.
"Ordinary Course of Business"--an action taken by a Person will be deemed to
have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of such Person
and is taken in the ordinary course of the normal day-to-day operations of
such Person;
(b) such action is not required to be authorized by the board of
directors of such Person (or by any Person or group of Persons exercising
similar authority) and is not required to be specifically authorized by the
parent company (if any) of such Person; and
(c) such action is similar in nature and magnitude to actions
customarily taken, without any authorization by the board of directors (or
by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that
are in the same line of business as such Person.
"Organizational Documents"--(a) the articles or certificate of incorporation
and the bylaws of a corporation; (b) the partnership agreement and any statement
of partnership of a general partnership; (c) the limited partnership agreement
and the certificate of limited partnership of a limited partnership; (d) any
charter or similar document adopted or filed in connection with the creation,
formation, or organization of a Person; and (e) any amendment to any of the
foregoing.
-64-
<PAGE>
"Outfront Software"--the current version of the Software system developed by
Primal known as "Outfront," including any and all Software implementations of
algorithms, models and methodologies, whether in Source Code or object code,
interfaces, navigational devices, menus, menu structures or arrangements, icons,
help and other operational instructions and the literal expressions of ideas
that operate, cause, create, direct, manipulate, access or otherwise affect the
operation of such Software system, and all documentation, including user manuals
and training materials, relating to such Software system.
"Person"--any individual, corporation (including any non-profit corporation),
general or limited partnership, limited liability company, joint venture,
estate, trust, association, organization, labor union, or other entity or
Governmental Body.
"Plan"--as defined in Section 4.24.
"Primal Disclosure Letter"--the disclosure letter delivered by Primal to Avery
concurrently with the execution and delivery of this Agreement or, at Primal's
option, as provided in Section 6.2.
"Primal Intellectual Property Asset"--means any Intellectual Property Asset
owned by or licensed to any of the Acquired Companies, including the Outfront
Software and the Source Code for the Outfront Software and the names "Primal
Systems," Primal Billing Systems" and "Wireless Billing Systems."
"Primal Material Adverse Effect"--any change or effect that, individually or
when taken together with all other such changes or effects that have occurred
prior to the date of determination of the occurrence of the Primal Material
Adverse Effect, is materially adverse to the business, results of operations, or
financial condition of the Primal and its Subsidiaries (excluding WBS for all
purposes), taken as a whole; provided, however, that in determining whether
there has been a Primal Material Adverse Effect, any adverse effect attributable
to the following shall be disregarded: (i) general economic or business
conditions; (ii) general industry conditions; (iii) the taking of any action
permitted or required by this Agreement; (iv) the announcement or pendency of
the Merger or any of the other transactions contemplated by this Agreement; (v)
the Breach by Avery or Merger Sub of this Agreement; in each case, to the extent
that such adverse effect is attributable to such event.
"Proceeding"--any action, arbitration, audit, hearing, investigation,
litigation, or suit (whether civil, criminal, administrative, investigative, or
informal) commenced, brought, conducted, or heard by or before, or otherwise
involving, any Governmental Body or arbitrator.
-65-
<PAGE>
"Related Person"--with respect to a particular individual:
(a) each other member of such individual's Family;
(b) any Person that is directly or indirectly controlled by such
individual or one or more members of such individual's Family;
(c) any Person in which such individual or members of such
individual's Family hold (individually or in the aggregate) a Material
Interest; and
(d) any Person with respect to which such individual or one or more
members of such individual's Family serves as a director, officer, partner,
executor, or trustee (or in a similar capacity).
With respect to a specified Person other than an individual:
(a) any Person that directly or indirectly controls, is directly or
indirectly controlled by, or is directly or indirectly under common control
with such specified Person;
(b) any Person that holds a Material Interest in such specified
Person;
(c) each Person that serves as a director, officer, partner, executor,
or trustee of such specified Person (or in a similar capacity);
(d) any Person in which such specified Person holds a Material
Interest;
(e) any Person with respect to which such specified Person serves as a
general partner or a trustee (or in a similar capacity); and
(f) any Related Person of any individual described in clause (b) or
(c).
For purposes of this definition, (a) the "Family" of an individual includes (i)
the individual, (ii) the individual's spouse and former spouses, (iii) any other
natural person who is related to the individual or the individual's spouse
within the second degree, and (iv) any other natural person who resides with
such individual, and (b) "Material Interest" means direct or indirect beneficial
ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934)
of voting securities or other voting interests representing at least 5% of the
outstanding voting power of a Person or equity securities or other equity
interests representing at least 5% of the outstanding equity securities or
equity interests in a Person.
"Release"--any spilling, leaking, emitting, discharging, depositing, escaping,
leaching, dumping, or other releasing into the Environment, whether intentional
or unintentional.
-66-
<PAGE>
"Representative"--with respect to a particular Person, any director, officer,
employee, agent, consultant, advisor, or other representative of such Person,
including legal counsel, accountants, and financial advisors.
"Securities Act"--the Securities Act of 1933 or any successor law, and
regulations and rules issued pursuant to that Act or any successor law.
"Securityholder Agent"--as defined in Section 12.5.
"Software"--any and all (i) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code, interfaces, navigational devices, menus, menu structures or
arrangements, icons, help and other operational instructions and the literal
expressions of ideas that operate, cause, create, direct, manipulate, access or
otherwise affect the operation of such computer programs, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, and
(iv) all documentation, including user manuals and training materials, relating
to any of the foregoing.
"Source Code"--the complete instruction set for any Software, including all
comments and procedural code, such as compilation switches, job control language
statements and a description of the system/program generation procedure, in a
form intelligible to human programmers and capable of being readily translated
by such programmers into object code for execution on computer equipment through
assembly or compiling, together with all documentation to facilitate such
translation, assembly and compiling; including, without limitation, programmers'
notes, technical and functional specifications, flow charts, schematics, test
programs, statements of principles of operations, architectural and design
standards, and descriptions of data flows, data structures and control logic.
"Stockholders"--as defined in the first paragraph of this Agreement.
"Stockholders' Releases"--as defined in Section 3.2(a)(i).
"Subscriber Assets"--the "Assets" as defined in the Corsair Agreement.
"Subsidiary"--with respect to any Person (the "Owner"), any corporation or
other Person of which securities or other interests having the power to elect a
majority of that corporation's or other Person's board of directors or similar
governing body, or otherwise having the power to direct the business and
policies of that corporation or other Person (other than securities or other
interests having such power only upon the happening of a contingency that has
not occurred) are held by the Owner or one or more of its Subsidiaries; when
used without reference to a particular Person, "Subsidiary" means a Subsidiary
of Primal.
-67-
<PAGE>
"Surviving Corporation"--Merger Sub.
"Tax"--any tax (including any income tax, capital gains tax, value-added tax,
sales tax, property tax, gift tax, or estate tax), levy, assessment, tariff,
duty (including any customs duty), deficiency, or other fee, and any related
charge or amount (including any fine, penalty, interest, or addition to tax),
imposed, assessed, or collected by or under the authority of any Governmental
Body or payable pursuant to any tax-sharing agreement or any other Contract
relating to the sharing or payment of any such tax, levy, assessment, tariff,
duty, deficiency, or fee.
"Tax Return"--any return (including any information return), report,
statement, schedule, notice, form, or other document or information filed with
or submitted to, or required to be filed with or submitted to, any Governmental
Body in connection with the determination, assessment, collection, or payment
of any Tax or in connection with the administration, implementation, or
enforcement of or compliance with any Legal Requirement relating to any Tax.
"Threatened"--a claim, Proceeding, dispute, action, or other matter will be
deemed to have been "Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given (orally or in writing), or
if any other event has occurred or any other circumstances exist, that would
lead a prudent Person to conclude that such a claim, Proceeding, dispute,
action, or other matter is likely to be asserted, commenced, taken, or otherwise
pursued in the future.
"Trading Day"--a day on which the principal national securities exchange on
which the shares of the Avery Common Stock are listed or admitted to trading is
open for the transaction of business or, if the shares of the Avery Common Stock
are not listed or admitted to trading, means a Business Day.
"Value"--with respect to a share of the Avery Common Stock as of any date,
the average of the "closing price" for the ten (10) consecutive Trading Days
immediately preceding such date. The "closing price" for each such Trading Day
means the last sale price, regular way on such day, or, if no such sale takes
place on that day, the average of the closing bid and asked prices on that day,
regular way, in either case as reported on the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on the New York Stock Exchange, or if the shares of the Avery Common
Stock are not so listed or admitted to trading, as reported in the principal
consolidated transaction reporting system with respect to securities listed on
the principal national securities exchange (including the National Market System
of The Nasdaq Stock Market) on which the shares of the Avery Common Stock are
listed or admitted to trading or, if the shares of the Avery Common Stock are
not so listed or admitted to trading, the last quoted price or, if not quoted,
the average of the high bid and low asked prices in the over-the-counter market,
as reported by the National Association of Securities Dealers, Inc. Automated
Quotation System or, if such system is no longer in use, the principal automated
quotation system then in use or, if the shares of the Avery Common Stock are not
so quoted by any such system, the average of the closing bid and asked prices as
furnished by a professional market maker selected by the board of directors of
Avery making a market in the shares of the Avery Common Stock, or, if there is
no such market maker or
-68-
<PAGE>
such closing prices otherwise are not available, the fair market value of the
shares of the Avery Common Stock as of such day, as determined by the board of
directors of Avery in good faith. In the event Avery issues to all holders of
the shares of the Avery Common Stock rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or purchase
shares of the Avery Stock or any other property, then the Value of a share of
the Avery Common Stock shall include the value of such rights, as determined by
the board of directors of Avery acting in good faith on the basis of such
quotations and other information as it considers, in its reasonable judgment,
appropriate.
"WBS"--Wireless Billing Systems, a California corporation.
"WBS Transaction"--the acquisition of the Subscriber Assets by WBS pursuant to
the Corsair Agreement.
14. GENERAL PROVISIONS
14.1 Expenses
Except as otherwise expressly provided in this Agreement, each party to this
Agreement will bear its respective expenses incurred in connection with the
preparation, execution, and performance of this Agreement and the Contemplated
Transactions, including all fees and expenses of agents, representatives,
counsel, and accountants. Avery will reimburse Primal for all legal fees
incurred by Primal in connection with the preparation, execution, and
performance of this Agreement and the Contemplated Transactions. In the event
of termination of this Agreement, the obligation of each party to pay its own
expenses will be subject to any rights of such party arising from a Breach of
this Agreement by another party.
14.2 Public Announcements
Any public announcement or similar publicity with respect to this Agreement or
the Contemplated Transactions will be issued, if at all, at such time and in
such manner as Avery determines. Unless consented to by Avery in advance or
required by Legal Requirements, prior to the Closing the Acquired Companies
shall keep this Agreement strictly confidential and may not make any disclosure
of this Agreement to any Person. Primal and Avery will consult with each other
concerning the means by which the Acquired Companies' employees, customers, and
suppliers and others having dealings with the Acquired Companies will be
informed of the Contemplated Transactions, and Avery will have the right to be
present for any such communication.
14.3 Confidentiality
Between the date of this Agreement and the Closing Date, Avery, Primal and
Stockholders will maintain in confidence, and will cause the directors,
officers, employees, agents, and advisors of Avery and the Acquired Companies to
maintain in confidence, and not use to the detriment of
-69-
<PAGE>
another party or an Acquired Company any written, oral, or other information
obtained in confidence from another party or an Acquired Company in connection
with this Agreement or the Contemplated Transactions, unless (a) such
information is already known to such party or to others not bound by a duty of
confidentiality or such information becomes publicly available through no fault
of such party, (b) the use of such information is necessary or appropriate in
making any filing or obtaining any consent or approval required for the
consummation of the Contemplated Transactions, or (c) the furnishing or use of
such information is required by or necessary or appropriate in connection with
legal proceedings.
If the Contemplated Transactions are not consummated, each party will return or
destroy as much of such written information as the other party may reasonably
request. Whether or not the Closing takes place, the Acquired Companies and
Avery waive any cause of action, right, or claim arising out of the access of
Avery or its Representatives or Primal and its Representatives, as the case may
be, to any trade secrets or other confidential information of the Acquired
Companies or Avery, as the case may be, except for the intentional competitive
misuse by Avery or Primal, as the case may be, of such trade secrets or
confidential information.
14.4 Notices
All notices, consents, waivers, and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (a) delivered
by hand (with written confirmation of receipt), (b) sent by telecopier (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when received by the addressee, if sent
by a nationally recognized overnight delivery service (receipt requested), in
each case to the appropriate addresses and telecopier numbers set forth below
(or to such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
If to Avery or Merger Sub, to:
Avery Communications, Inc.
190 South LaSalle Street, Suite 1710
Chicago, Illinois 60603
Fax No.: (312) 419-0172
Attention: Patrick J. Haynes, III, Chairman
With Copy to:
Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Fax No.: (214) 745-5390
Attention: Bruce A. Cheatham, Esq.
-70-
<PAGE>
If to Primal or the Stockholders, to:
Primal Systems, Inc.
1500 Quail Street, Suite 700
Newport Beach, California 92660
Fax No.: (949) 724-9208
Attention: John Faltys, President
With copy to:
Arter & Hadden LLP
Five Park Plaza, 10th Floor
Jamboree Center
Irvine, California 92614
Fax No.: (949) 833-9604
Attention: Stephen H. LaCount, Esq.
14.5 Jurisdiction; Service of Process
Courts within the state of Delaware will have jurisdiction over any and all
disputes between the parties hereto, whether in law or equity, arising out of or
relating to this Agreement, the Contemplated Transactions or the agreements,
instruments and documents contemplated hereby. The parties consent to and agree
to submit to the jurisdiction of such courts. Each of the parties hereby
waives, and agrees not to assert in any such dispute, to the fullest extent
permitted by applicable Law, any claim that (i) such party is not personally
subject to the jurisdiction of such courts, (ii) such party and such party's
property is immune from any legal process issued by such courts or (iii) any
Proceeding commenced in such courts is brought in an inconvenient forum. Process
in any action or proceeding referred to in the preceding sentence may be served
on any party anywhere in the world.
14.6 Further Assurances
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
14.7 Waiver
The rights and remedies of the parties to this Agreement are cumulative and not
alternative. Neither the failure nor any delay by any party in exercising any
right, power, or privilege under this Agreement or the documents referred to in
this Agreement will operate as a waiver of such right, power, or privilege, and
no single or partial exercise of any such right, power, or privilege will
-71-
<PAGE>
preclude any other or further exercise of such right, power, or privilege or the
exercise of any other right, power, or privilege. To the maximum extent
permitted by applicable Law, (a) no claim or right arising out of this Agreement
or the documents referred to in this Agreement can be discharged by one party,
in whole or in part, by a waiver or renunciation of the claim or right unless
in writing signed by the other party; (b) no waiver that may be given by a party
will be applicable except in the specific instance for which it is given; and
(c) no notice to or demand on one party will be deemed to be a waiver of any
obligation of such party or of the right of the party giving such notice or
demand to take further action without notice or demand as provided in this
Agreement or the documents referred to in this Agreement.
14.8 Entire Agreement and Modification
This Agreement supersedes all prior agreements between the parties with respect
to its subject matter and constitutes (along with the documents referred to in
this Agreement) a complete and exclusive statement of the terms of the agreement
between the parties with respect to its subject matter. This Agreement may not
be amended except by a written agreement executed by the party to be charged
with the amendment.
14.9 Disclosure Letters
(a) The disclosures in the Primal Disclosure Letter and the Avery
Disclosure Letter, and those in any Supplement thereto, must relate only to the
representations and warranties in the Section of the Agreement to which they
expressly relate and not to any other representation or warranty in this
Agreement.
(b) In the event of any inconsistency between the statements in the body of
this Agreement and those in the Primal Disclosure Letter or the Avery Disclosure
Letter (other than an exception expressly set forth as such in either such
Disclosure Letter with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will control.
14.10 Assignments, Successors, and Third-Party Rights
No party may assign any of its rights under this Agreement without the prior
consent of the other parties, which will not be unreasonably withheld, except
that Avery may assign any of its rights under this Agreement to any Subsidiary
of Avery. Subject to the preceding sentence, this Agreement will apply to, be
binding in all respects upon, and inure to the benefit of the successors and
permitted assigns of the parties. Nothing expressed or referred to in this
Agreement will be construed to give any Person other than the parties to this
Agreement and the Indemnified Persons any legal or equitable right, remedy, or
claim under or with respect to this Agreement or any provision of this
Agreement. This Agreement and all of its provisions and conditions are for the
sole and exclusive benefit of the parties to this Agreement, the Indemnified
Persons and their successors and assigns.
-72-
<PAGE>
14.11 Severability
If any provision of this Agreement is held invalid or unenforceable by any court
of competent jurisdiction, the other provisions of this Agreement will remain in
full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
14.12 Interpretation
(a) When a reference is made in this Agreement to a section or article,
such reference shall be to a section or article of this Agreement unless
otherwise clearly indicated to the contrary.
(b) Whenever the words "include", "includes" or "including" are used in
this Agreement they shall be deemed to be followed by the words "without
limitation."
(c) The words "hereof," "hereby," "herein" and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole and not to any particular provision of this Agreement, and
article, section, paragraph, exhibit and schedule references are to the
articles, sections, paragraphs, exhibits and schedules of this Agreement unless
otherwise specified.
(d) The plural of any defined term shall have a meaning correlative to such
defined term, and words denoting any gender shall include all genders. Where a
word or phrase is defined herein, each of its other grammatical forms shall have
a corresponding meaning.
(e) A reference to any legislation or to any provision of any legislation
shall include any amendment, modification or re-enactment thereof, any
legislative provision substituted therefor and all rules, regulations and
statutory instruments issued thereunder or pursuant thereto.
(f) The parties have participated jointly in the negotiation and drafting
of this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as if drafted jointly
by the parties, and no presumption or burden of proof shall arise favoring or
disfavoring any party by virtue of the authorship of any provisions of this
Agreement.
14.13 Time of Essence
With regard to all dates and time periods set forth or referred to in this
Agreement, time is of the essence.
-73-
<PAGE>
14.14 Governing Law
This Agreement will be governed by the laws of the State of Delaware without
regard to conflicts of laws principles.
14.15 Counterparts
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement.
[The remainder of this page has been left blank intentionally.
Signatures of the parties appear on the following page.]
-74-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
AVERY COMMUNICATIONS, INC.
By:_____________________________
Scot M. McCormick
Vice President
ACI TELECOMMUNICATIONS FINANCIAL
SERVICES CORPORATION
By:_____________________________
Scot M. McCormick
Vice President
PRIMAL SYSTEMS, INC.
By:_____________________________
John Faltys
President
S-1
<PAGE>
STOCKHOLDERS:
________________________________
Mark J. Nielsen
________________________________
John Faltys
________________________________
Joseph R. Simrell
________________________________
David Haynes
S-2
<PAGE>
Index of Defined Terms
1997 HBS Senior Preferred Stock..............................................35
20% Investment Purchase Price................................................52
20% Investment Shares........................................................52
Accountants..................................................................11
Accounts Receivable..........................................................16
Acquired Companies...........................................................58
Actual Operating Loss........................................................10
Additional Merger Consideration...............................................9
Agreement.....................................................................1
Applicable Contract..........................................................58
Avery.....................................................................1, 58
Avery Accounts Receivable....................................................38
Avery Applicable Contract....................................................58
Avery Balance Sheet..........................................................36
Avery Common Stock...........................................................58
Avery Disclosure Letter......................................................58
Avery Interim Balance Sheet..................................................36
Avery Material Adverse Effect................................................58
Avery Preferred Stock........................................................59
Avery Stock..................................................................59
Avery's Advisors.............................................................43
Balance Sheet............................................................14, 59
Best Efforts.................................................................59
Breach.......................................................................59
CA Agreement of Merger........................................................2
CERCLA...................................................................28, 62
CGCL......................................................................1, 59
Closing......................................................................59
Closing Date.................................................................59
Closing Financial Statements.................................................11
closing price................................................................68
Code..........................................................................1
Common Stock.................................................................35
Competing Business...........................................................31
Consent......................................................................59
Constituent Corporations.....................................................60
Consulting Contracts.........................................................23
Contemplated Transactions....................................................60
Contract.....................................................................60
Corsair Agreement............................................................60
Damages..................................................................53, 60
(i)
<PAGE>
Determination Date...........................................................11
DGCL......................................................................1, 60
Dissenting Shares.............................................................4
Earn-Out Period...............................................................9
Effective Time................................................................2
Employment Agreements.....................................................8, 60
Encumbrance..................................................................60
End-User Licenses ...........................................................60
Environment..................................................................60
Environmental Law............................................................61
Environmental Liabilities....................................................61
Environmental Permits........................................................28
ERISA........................................................................62
ERISA Affiliate..............................................................18
Escrow Agent..................................................................8
Escrow Agreement..........................................................8, 62
Escrow Shares.................................................................5
Exchange Fund.................................................................5
Faltys........................................................................1
Family.......................................................................66
GAAP.........................................................................62
Governmental Authorization...................................................62
Governmental Body............................................................62
Haynes........................................................................1
Hazardous Materials..........................................................63
HBS Senior Preferred Stock...................................................35
HSR Act......................................................................63
Indemnified Persons..........................................................53
Intellectual Property Assets.................................................63
Interim Balance Sheet....................................................14, 63
Investment Closing...........................................................52
Investors Rights Agreement....................................................9
IRC..........................................................................63
IRS..........................................................................63
Knowledge....................................................................63
Legal Requirement............................................................64
Lockup Letters................................................................8
Material Avery Contract......................................................64
Material Interest ...........................................................66
Merger....................................................................1, 64
Merger Certificate............................................................2
Merger Consideration..........................................................3
Merger Sub................................................................1, 64
(ii)
<PAGE>
Nielsen.......................................................................1
Occupational Safety and Health Law...........................................64
Order........................................................................64
Ordinary Course of Business..................................................64
Organizational Documents.....................................................64
Outfront Software............................................................65
Owner........................................................................67
Person.......................................................................65
Plan.........................................................................65
Preferred Exchange Ratio......................................................3
Preferred Stock..............................................................35
Primal........................................................................1
Primal Business Plan.........................................................32
Primal Common Stock...........................................................1
Primal Disclosure Letter.....................................................65
Primal Intellectual Property Asset...........................................65
Primal Material Adverse Effect...............................................65
Primal Option................................................................13
Primal Option Plan...........................................................13
Primal Plans.................................................................18
Primal Stockholders' Meeting.................................................33
Primal's Advisors............................................................46
Proceeding...................................................................65
Proprietary Rights Agreement.................................................28
Proxy Statement..............................................................33
Real Property................................................................27
Related Person...............................................................66
Release......................................................................66
Representative...............................................................67
Review Termination Date......................................................44
Securities Act...............................................................67
Securityholder Agent.....................................................55, 67
Series A Preferred Stock.....................................................35
Series B Exchange Preferred Stock............................................35
Series B Preferred Stock.....................................................35
Series C Preferred Stock.....................................................35
Series D Preferred Stock.....................................................35
Series E Preferred Stock.....................................................35
Simrell.......................................................................1
Software.....................................................................67
Software Licenses............................................................23
Source Code..................................................................67
Source Code Escrow Agreements................................................30
(iii)
<PAGE>
Stockholders..............................................................1, 67
Stockholders' Releases....................................................8, 67
Subscriber Assets............................................................67
Subsidiary...................................................................67
Surviving Corporation..................................................1, 2, 68
Tax..........................................................................68
Tax Return...................................................................68
Third Party Licenses.........................................................29
Third Party Software.........................................................29
Threatened...................................................................68
Trading Day..................................................................68
Value........................................................................68
Voting Agreement..............................................................1
WBS..........................................................................69
WBS Transaction..............................................................69
1997 HBS Senior Preferred Stock..............................................35
20% Investment Purchase Price................................................52
20% Investment Shares........................................................52
Accountants..................................................................11
Accounts Receivable..........................................................16
Acquired Companies...........................................................58
Actual Operating Loss........................................................10
Additional Merger Consideration...............................................9
Agreement.....................................................................1
Applicable Contract..........................................................58
Avery.....................................................................1, 58
Avery Accounts Receivable....................................................38
Avery Applicable Contract....................................................58
Avery Balance Sheet..........................................................36
Avery Common Stock...........................................................58
Avery Disclosure Letter......................................................58
Avery Interim Balance Sheet..................................................36
Avery Material Adverse Effect................................................58
Avery Preferred Stock........................................................59
Avery Stock..................................................................59
Avery's Advisors.............................................................43
Balance Sheet............................................................14, 59
Best Efforts.................................................................59
Breach.......................................................................59
CA Agreement of Merger........................................................2
CERCLA...................................................................28, 62
CGCL......................................................................1, 59
Closing......................................................................59
(iv)
<PAGE>
Closing Date.................................................................59
Closing Financial Statements.................................................11
closing price................................................................68
Code..........................................................................1
Common Stock.................................................................35
Competing Business...........................................................31
Consent......................................................................59
Constituent Corporations.....................................................60
Consulting Contracts.........................................................23
Contemplated Transactions....................................................60
Contract.....................................................................60
Corsair Agreement............................................................60
Damages..................................................................53, 60
Determination Date...........................................................11
DGCL......................................................................1, 60
Dissenting Shares.............................................................4
Earn-Out Period...............................................................9
Effective Time................................................................2
Employment Agreements.....................................................8, 60
Encumbrance..................................................................60
End-User Licenses............................................................60
Environment..................................................................60
Environmental Law............................................................61
Environmental Liabilities....................................................61
Environmental Permits........................................................28
ERISA........................................................................62
ERISA Affiliate..............................................................18
Escrow Agent..................................................................8
Escrow Agreement..........................................................8, 62
Escrow Shares.................................................................5
Exchange Fund.................................................................5
Faltys........................................................................1
Family.......................................................................66
GAAP.........................................................................62
Governmental Authorization...................................................62
Governmental Body............................................................62
Haynes........................................................................1
Hazardous Materials..........................................................63
HBS Senior Preferred Stock...................................................35
HSR Act......................................................................63
Indemnified Persons..........................................................53
Intellectual Property Assets.................................................63
Interim Balance Sheet....................................................14, 63
(v)
<PAGE>
Investment Closing...........................................................52
Investors Rights Agreement....................................................9
IRC..........................................................................63
IRS..........................................................................63
Knowledge....................................................................63
Legal Requirement............................................................64
Lockup Letters................................................................8
Material Avery Contract......................................................64
Material Interest............................................................66
Merger....................................................................1, 64
Merger Certificate............................................................2
Merger Consideration..........................................................3
Merger Sub................................................................1, 64
Nielsen.......................................................................1
Occupational Safety and Health Law...........................................64
Order........................................................................64
Ordinary Course of Business..................................................64
Organizational Documents.....................................................64
Outfront Software............................................................65
Owner........................................................................67
Person.......................................................................65
Plan.........................................................................65
Preferred Exchange Ratio......................................................3
Preferred Stock..............................................................35
Primal........................................................................1
Primal Business Plan.........................................................32
Primal Common Stock...........................................................1
Primal Disclosure Letter.....................................................65
Primal Intellectual Property Asset...........................................65
Primal Material Adverse Effect...............................................65
Primal Option................................................................13
Primal Option Plan...........................................................13
Primal Plans.................................................................18
Primal Stockholders' Meeting.................................................33
Primal's Advisors............................................................46
Proceeding...................................................................65
Proprietary Rights Agreement.................................................28
Proxy Statement..............................................................33
Real Property................................................................27
Related Person...............................................................66
Release......................................................................66
Representative...............................................................67
Review Termination Date......................................................44
(vi)
<PAGE>
Securities Act...............................................................67
Securityholder Agent.....................................................55, 67
Series A Preferred Stock.....................................................35
Series B Exchange Preferred Stock............................................35
Series B Preferred Stock.....................................................35
Series C Preferred Stock.....................................................35
Series D Preferred Stock.....................................................35
Series E Preferred Stock.....................................................35
Simrell.......................................................................1
Software.....................................................................67
Software Licenses............................................................23
Source Code..................................................................67
Source Code Escrow Agreements................................................30
Stockholders..............................................................1, 67
Stockholders' Releases....................................................8, 67
Subscriber Assets............................................................67
Subsidiary...................................................................67
Surviving Corporation......................................................1, 2
Tax..........................................................................68
Tax Return...................................................................68
Third Party Licenses.........................................................29
Third Party Software.........................................................29
Threatened...................................................................68
Trading Day..................................................................68
Value........................................................................68
Voting Agreement..............................................................1
WBS..........................................................................69
WBS Transaction..............................................................69
(vii)
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
FINE ART CORPORATION OF AMERICA, INC.
* * * * *
1. The name of the corporation is
FINE ART CORPORATION OF AMERICA, INC.
2. The address of its registered office in the State of Delaware
is No. 100 West Tenth Street, in the City of Wilmington, County of New Castle.
The name of its registered agent at such address is The Corporation Trust
Company.
3. The nature of the business or purposes to be conducted or
promoted is:
To print, bind, publish, circulate, distribute, buy, sell and
deal in, books, pamphlets, circulars, posters, newspapers, magazines,
literature, music, pictures, tickets, cards, advertisements, letters and bill
heads, envelopes, legal, commercial and financial forms and blanks of every
kind. To acquire, by purchase or otherwise, turn to account, license the use of,
assign and deal with, copyrights and intellectual properties of every kind. To
carry on a general printing, engraving, lithographing, electrotyping and
publishing business in all the branches thereof.
To conduct a publishing business in all of its phases,
including, without limiting the generality of the foregoing, printing,
bookbinding, engraving, photo-engraving, lithographing, duplicating, offsetting,
facsimile and image, color, line, word, shadow and other reproduction and
dealing in paper and stationery, and editing, preparing, creating, publishing,
printing, binding, buying, selling, copyrighting, licensing the use of,
importing, exporting, franchising, marketing, syndicating, distributing, making,
manufacturing and generally dealing in or with respect to, any and
<PAGE>
all kinds of written or oral matter (whether or not printed or reproduced),
including without limitation, books, magazines, pamphlets, publications,
stories, articles, features, columns and other items of interest to men, women
and children, and in any and all equipment, machinery, plants, facilities and
properties (whether real, personal or mixed, improved or unimproved), and
materials and supplies in connection with the foregoing; and to do anything
necessary or convenient in furtherance thereof.
To conduct the business of engraving on wood, steel, copper,
brass and jewelry, silver and goldware of all kinds, photographing and engraving
and to make engraved plates for the production of pictures, names, designs and
other things upon paper, wood or metal and generally to conduct the business of
engravers, embossers and electrotypers.
To manufacture, buy and sell and generally deal in frames for
pictures, certificates, drawings and other things and to conduct the business of
framing pictures, certificates, drawings and other things.
To buy, sell, import and export and to exhibit paintings,
drawings, etchings, photographs, enlargements, statuary and other things of art.
To conduct the business of commercial artists, decorators, and
painters. To design lettering, make drawings, to take photographs and make cuts
therefrom for catalogues and for other purposes. To make drawings, paintings,
serigraphs, silk screens, for use in advertising matter, magazines, periodicals
and for any other purpose whatsoever. To manufacture, buy, sell, import and
export materials and supplies of all kinds used by or that may be used by
artists.
- 2 -
<PAGE>
To manufacture, buy, sell, import and export all materials and
supplies used by commercial artists, portrait painters, sculptors, photographers
and other artists, including crayons, paints, canvasses, brushes, easels,
colors, oils and all other material that may be used by artists.
To create, manufacture, purpose, repair, restore, reconstruct,
exhibit, sell and generally deal in, as principal or agent, on commission or
otherwise, pictures, ornaments, statues, carvings, china, pottery, glassware,
jewelry, articles made from precious and other metals, tapestries, rugs,
furniture, antique, works of art of every class, kind and description, and
copies or reproductions thereof. To do interior decorating, to supply advice,
plans and materials for the decoration and furnishing of houses, rooms,
apartments and private and public buildings of al kinds, and to supply the
services of experts in and about the same.
To manufacture, buy, sell and deal in art materials and
artists and cabinetmakers' supplies of all kinds.
To manufacture, buy, own, sell, import, export, trade and deal
in any and all kinds of machinery, apparatus, appliances, chemicals, metals and
materials used for typing, lithographing, photoengraving, photostating,
photo-lithographing and similar methods and processes; to manufacture, buy, own,
sell, import, trade and deal in any and all kinds of printed electro-plate,
electrotype, lithograph, photo-engraved, photostated, photo-lithographed and
similar products, materials, goods, and articles, and to perform printing,
electroplating, electro-typing, lithographing, photo-engraving, photostating and
photo-lithographing operations of every kind and description and in general to
do a printing and lithographing business in all its phases and branches, and to
buy and sell and generally deal in all goods or articles incidental or
pertaining to the printing and lithographing business.
- 3 -
<PAGE>
To do job or general printing and lithography of all kinds,
and generally to do all things that those engaged in a similar business
customarily do.
To act as art appraisers and consultants in all forms of fine
and graphic art. To deal in any form of antiquity or antiques, old coins, metal,
porcelains and related objects.
To auction all types of art and antiques.
To engage in any lawful act or activity for which corporations
may be organized under the General Corporation Laws of Delaware.
4. The total number of shares of stock which the corporation
shall have authority to issue is three million (3,000,000) common; and the par
value of each of such shares is One Cent ($.01), amounting in the aggregate to
Thirty Thousand Dollars ($30,000.00).
5. The name and mailing address of each incorporator is as
follows:
NAME MAILING ADDRESS
---- ---------------
S. S. Simpson 100 West Tenth Street
Wilmington, Delaware 19801
M.A. Ferrucci 100 West Tenth Street
Wilmington, Delaware 19801
R.F. Andrews 100 West Tenth Street
Wilmington, Delaware 19801
6. The corporation is to have perpetual existence.
7. In furtherance and not in limitation of the powers
conferred by statute, the board of directors is expressly authorized:
To make, alter or repeal the by-laws of the corporation.
- 4 -
<PAGE>
8. Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the board of directors or in the by-laws of the corporation. Elections or
directors need not be by written ballot unless the by-laws of the corporation
shall so provide.
9. The corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. 1.
WE, THE UNDERSIGNED, being each of the incorporators
hereinbefore named, for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware, do make this certificate,
hereby declaring and certifying that this is our act and deed and the facts
herein stated are true, and accordingly have hereunto set our hands this 3rd day
of August ____, 1977.
----------------------------------------------
S. S. Simpson
----------------------------------------------
M. A. Ferrucci
----------------------------------------------
R. F. Andrews
- 5 -
<PAGE>
Certificate
for Renewal and Revival of Charter
FINE ART CORPORATION OF AMERICA, INC., a corporation organized under
the laws of Delaware, the certificate of incorporation of which was filed in the
office of the Secretary of State on the 3rd day of August, 1977, and recorded in
the office of the Recorder of Deeds for New Castle County, in Certificate of
Incorporation Record ___________ Vol. ____________ Page _________ on the 1st day
of March, 1980, the charter of which was voided for non-payment of taxes, now
desires to procure a restoration, renewal and revival of its charter, and hereby
certifies as follows:
1. The name of this corporation is FINE ART CORPORATION OF AMERICA,
INC.
2. Its registered office in the State of Delaware is located at 101
West Tenth Street, City of Wilmington, Zip Code 19899, County of New Castle and
the name and address of registered agent is The Corporation Trust Company
3. The date when the restoration, renewal, and revival of the charter
of this company is to commence is the 29th day of February, 1980, same being
prior to the date of the expiration of the charter. This renewal and revival of
the charter of this corporation is to be perpetual.
4. This corporation was duly organized and carried on the business
authorized by its charter until the 1st day of March A.D., 1980 at which time
its charter became inoperative and void for non-payment of taxes and this
certificate for renewal and revival is filed by authority of the duly elected
directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section
312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension
<PAGE>
and restoration of charters. Charles J. Lombardo, the last and acting President,
and Christopher Forest, the last and acting Secretary of Fine Art Corporation of
America, Inc., have hereunto set their hands to this certificate this 18th day
of May, 1981.
/S/ Charles J. Lombardo
--------------------------------
LAST AND ACTING PRESIDENT
ATTEST:
/S/ Christopher Forest
--------------------------------
LAST AND ACTING SECRETARY
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
FINE ART CORPORATION OF AMERICA, INC.
* * * *
FINE ART CORPORATION OF AMERICA, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: At a meeting of the Board of Directors of FINE ART CORPORATION
OF AMERICA, INC., resolutions were duly adopted setting forth proposed
amendments to the Certificate of Incorporation of said corporation, declaring
said amendments to be advisable and calling a meeting of the stockholders of
said corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
(a) RESOLVED, that Article 1. of the Certificate of
Incorporation of this corporation is hereby amended
to read as follows:
"1. The name of the corporation is PETRO-ART LIMITED,
INC."
(b) RESOLVED, that Article 3 of the Certificate of
Incorporation is hereby amended by adding a new
subparagraph, which new subparagraph shall read as
follows:
"To engage in any and all aspects of the oil and gas business,
including, but not limited to buying, holding, leasing,
developing, selling and otherwise dealing in and with leases,
properties, drilling and operating equipment, and syndicating
oil and gas, artistic properties and any other assets and
properties, acting as a general partner in any endeavor
related to oil and gas, other minerals, artistic properties
and any other assets and properties and in general doing and
performing all acts necessary or desirable in the oil and gas
business and artistic properties."
<PAGE>
(c) RESOLVED, that Article 4. of the Certificate of
Incorporation of this corporation is hereby amended
to read as follows:
"4. The total number of shares which the corporation shall
have authority to issue is twenty million (20,000,000), all of
which shall be Common Stock, par value one cent ($.01) per
share".
SECOND: Thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation as duly called and held,
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the necessary number of shares as required
by statute were voted in favor of the amendments.
THIRD: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IT WITNESS WHEREOF, said corporation has caused this Certificate to be
signed by CHARLES J. LOMBARDO, its President, and attested by CHRISTOPHER
FOREST, its Secretary, this 22nd day of June, 1981.
FINE ART CORPORATION OF AMERICA, INC.
By_____________________________________
Charles J. Lombardo, President
ATTEST:
By_________________________________
Christopher Forest, Secretary
<PAGE>
CERTIFICATE FOR RENEWAL AND REVIVAL OF CHARTER
PETRO-ART LIMITED, INC., a corporation organized under the laws of Delaware, the
certificate of incorporation of which was filed in the office of the Secretary
of State on the 3rd day of August, 1977, and recorded in the Record ___________
Vol. ____________ Page __________ on the ______ day of ________________, 19___,
the charter of which was voided for non-payment of taxes, now desires to procure
a restoration, renewal and revival of charter, and hereby certifies as follows:
1. The name of this corporation is PETRO-ART LIMITED, INC.
2. Its registered office in the State of Delaware is located at 201 N.
Walnut Street, City of Wilmington, County of New Castle, Delaware 19801 and the
name and address of its registered agent is THE COMPANY CORPORATION, address
same as above.
3. The date when the restoration, renewal and revival of the charter of
this company is to commence is the 28th day of February 1989, same being prior
to the date of the expiration of the charter. This renewal and revival of the
charter of this corporation is to be perpetual.
4. This corporation was duly organized and carried on the business
authorized by its charter until the first day of March A.D. 1989, at which time
its charter became inoperative and void for non-payment of taxes and this
certificate for renewal and revival is filed by authority of the duly elected
directors of the corporation in accordance with the laws of the State of
Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section
312 of the General Corporation Law of the State of Delaware, as amended,
providing for the renewal, extension and restoration of charters.
CHARLES J. LOMBARDO, the last and acting President and CHARLES J. LOMBARDO, the
last and acting Secretary of PETRO-ART LIMITED, INC., have hereunto set their
hands to this certificate this ____ day of December, 1992.
___________________________
CHARLES J. LOMBARDO
LAST AND ACTING PRESIDENT
ATTEST:
___________________________
CHARLES J. LOMBARDO
LAST AND ACTING SECRETARY
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
PETRO-ART LIMITED, INC.
Under Section 242 of the
Corporation Law of the State of Delaware
----------------------------------------
PETRO-ART LIMITED, INC. (the "corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written consent filed
with the minutes of the Board, adopted the following resolution proposing and
declaring advisable the following amendment to the Certificate of Incorporation
of said corporation:
"1. That Article FIRST of the Certificate of Incorporation be amended
and, as amended, read as follows:
'FIRST: The name of the corporation is CLASS, INC.'"
SECOND: That the aforesaid amendment was duly adopted in accordance with the
applicable provisions of section 242 of the General Corporation Law of the State
of Delaware.
THIRD: Prompt notice of the taking of this corporation action is being given to
all stockholders who did not consent in writing, in accordance with Section 228
of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the corporation has caused this certificate to be
signed by Charles J. Lombardo, its sole officer, and attested by Charles J.
Lombardo, its sole officer, this _____ day of May, 1993.
PETRO-ART LIMITED, INC.
By:____________________________________
Charles J. Lombardo, sole officer
<PAGE>
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CHARTER
CLASS, INC., a corporation organized under the laws of the State of Delaware,
the charter of which was voided for non-payment of taxes, now desires a
restoration, renewal and revival of its charter.
1. The name of this corporation is CLASS, INC.
2. Its registered office in the State of Delaware is located at Three
Christina Centre, 201 N. Walnut St., Wilmington DE 19801, County of New
Castle. The name and address of its registered agent is The company
Corporation, address "same as above".
3. The date of filing of the original Certificate of Incorporation in
Delaware was August 3, 1977.
4. The date when restoration, renewal, and revival of the charter of this
company is to commence is the 28th day of February, 1994, same being
prior to the date of the expiration of the charter. This renewal and
revival of the charter of this corporation is to be perpetual.
5. This corporation was duly organized and carried on the business
authorized by its charter until the 1st day of March, 1994 at which
time its charter became inoperative and void for non-payment of taxes
and this certificate for renewal and revival is filed by authority of
the duly elected directors of the corporation in accordance with the
laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions of Section 312 of
the General Corporation Law of the State of Delaware, as amended, providing for
the renewal, extension and restoration of Charters, KEVIN KADING the lasting and
acting President and Secretary of CLASS, INC. has hereunto set his hand to this
certificate this 18th day of November, 1994.
CLASS, INC.
By: _______________________________________
Kevin Kading, Last and Acting President
ATTEST:
CLASS, INC.
By: _______________________________________
Kevin Kading, Last and Acting Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
CLASS, INC.
Under Section 242 of the
Corporation Law of the State of Delaware
----------------------------------------
CLASS, INC. (the "Corporation"), a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by written
consent filed with the minutes of the Board, adopted the following resolutions
proposing and declaring advisable the following amendments to the Certificate of
Incorporation of said corporation:
"1. That Article FIRST of the Certificate of Incorporation be amended
and, as amended, read as follows:
'FIRST: The name of the Corporation is AVERY COMMUNICATIONS, INC.'"
"2. That Article THIRD of the Certificate of Incorporation be amended
and, as amended, read as follows:
'THIRD: The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.'"
"3. That three new Articles, Article TENTH, Article ELEVENTH and
Article TWELFTH respectively, be added to the Certificate of Incorporation and,
as amended, read as follows:
'TENTH: Directors of the Corporation shall not be liable to either the
Corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchases or
redemption by the Corporation; or (4) transaction from which the director
derived an improper personal benefit.'
'ELEVENTH: The Corporation elects not to be governed by Section 203 of
the General Corporation Law of Delaware.'
'TWELFTH: The Corporation shall indemnify all persons whom it may
indemnify to the fullest extent allowed by the General Corporation Law of
Delaware.'"
<PAGE>
SECOND: That the aforesaid amendments were duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
THIRD: Prompt notice of the taking of this corporate action is being
given to all stockholders who did not consent in writing, in accordance with
Section 228 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by Kevin Kading, its President, and attested by Kevin Kading, its
Secretary, this 30th day of November, 1994.
CLASS, INC.
By: ______________________________________
Kevin Kading, President
ATTEST:
By: ___________________________
Kevin Kading, Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * *
AVERY COMMUNICATIONS, INC. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of AVERY
COMMUNICATIONS, INC. be amended by changing the Fourth Article thereof
so that, as amended, said Article shall be and read as follows:
"4. The total number of shares which the Corporation shall have
authority to issue is 40,000,000 shares of Capital Stock, which shall be divided
into 20,000,000 shares of Common Stock, par value $.01 per share, and 20,000,000
shares of Preferred Stock, par value $.01 per share.
The Board of Directors is expressly vested with the authority, subject
to limitations prescribed by law and the provisions of this Article Four, to
provide for the issuance of the shares of Preferred Stock in series, and by
filing a certificate in accordance with Section 151(g) of the General
Corporation Law of the State of Delaware, to establish in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The authority of the Board with respect to each series shall include,
but not be limited to, determination of the following:
(a) The number of shares constituting that series and the
distinctive designation of that series;
(b) The dividend rate on the shares of that series, whether
dividends shall be cumulative, and, if so, from which date or dates,
and the relative rights of priority, if any, of payment of dividends on
shares of that series;
<PAGE>
(c) Whether that series shall have voting rights, in addition
to the voting rights provided by law, and, if so, the terms of such
voting rights;
(d) Whether that series shall have conversion privileges, and,
if so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events as the
Board of Directors shall determine;
(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption,
including the date or date upon or after which they shall be
redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates;
(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms
and amount of such sinking fund;
(g) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of
shares of that series;
(h) Any other relative rights, preferences and limitations of
that series."
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said amendment in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware, and written notice of the adoption of the amendment has
been given as provided in Section 228 of the General Corporation Law of the
State of Delaware to every stockholder entitled to such notice.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 242 and 228 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said Corporation has caused this certificate to be
signed by Thomas M. Lyons, its President, this 30th day of June, 1995.
AVERY COMMUNICATIONS, INC.
By___________________________________
Thomas M. Lyons, President
<PAGE>
AVERY COMMUNICATIONS, INC.
CERTIFICATE OF CORRECTION
AVERY COMMUNICATIONS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
1. The name of the corporation is Avery Communications, Inc.
2. That a Certificate of Amendment of Certificate of Incorporation was
filed by the Secretary of State of Delaware on July 21, 1995, and that said
Certificate requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected is as
follows: Article Second incorrectly stated that amendment was approved by a
unanimous written consent of the stockholders, and should have stated that the
amendment was approved by a written consent of the holders a majority of the
outstanding stock entitled to vote thereon.
4. Article Second of the Certificate is corrected to read as follows:
SECOND: That in lieu of a meeting of the stockholders, the
stockholders holding in excess of the majority of the outstanding stock
entitled to vote thereon, approved the amendment by a written consent
in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware, and written notice of the
adoption of the amendment has been given to every stockholder to such
notice as provided in Section 228 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, said Avery Communications, Inc. has caused this
Certificate to be signed by Thomas M. Lyons, its President this 22nd day of
March, 1996.
AVERY COMMUNICATIONS, INC.,
By:_____________________________
Thomas M. Lyons, President
::ODMA\PCDOCS\DALLAS_1\3077366\1
1071998
1036:15722-1
<PAGE>
STATEMENT OF CHANGE OF REGISTERED OFFICE
OR REGISTERED AGENT OR BOTH BY
A CORPORATION
1. The name of the corporation is Avery Communications, Inc.
The corporation's file number is 0841723.
2. The address of the registered office as PRESENTLY shown in the
records of the Delaware Secretary of State is 1313 North
Market Street, Wilmington, New Castle County, Delaware 19801.
3. The address of the NEW registered office is 1209 Orange
Street, Wilmington, Delaware, New Castle County, 19801.
4. The name of the registered agent as PRESENTLY shown in the
records of the Delaware Secretary of State is The Company
Corporation.
5. The name of the NEW registered agent is The Corporation Trust
Company.
6. Following the changes shown above, the address of the
registered office and the address of the office of the
registered agent will continue to be identical, as required by
law.
7. The changes shown above were authorized by the board of
directors.
AVERY COMMUNICATIONS, INC.
By: S/Thomas M. Lyons
----------------------------------
Thomas M. Lyons, President
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
AVERY COMMUNICATIONS, INC.,
A DELAWARE CORPORATION
<PAGE>
TABLE OF CONTENTS
ARTICLE 1
OFFICES
Section 1.1. Registered Office............................................1
Section 1.2. Other Offices................................................1
ARTICLE 2
STOCKHOLDERS
Section 2.1. Place of Meetings............................................1
Section 2.2. Annual Meeting...............................................1
Section 2.3. List of Stockholders.........................................1
Section 2.4. Special Meetings.............................................2
Section 2.5. Notice.......................................................2
Section 2.6. Quorum.......................................................2
Section 2.7. Voting.......................................................2
Section 2.8. Method of Voting.............................................2
Section 2.9. Record Date..................................................3
Section 2.10. Action by Consent............................................3
ARTICLE 3
BOARD OF DIRECTORS
Section 3.1. Management...................................................3
<PAGE>
Section 3.2. Qualification; Election; Term................................3
Section 3.3. Number.......................................................3
Section 3.4. Removal......................................................4
Section 3.5. Vacancies....................................................4
Section 3.6. Place of Meetings............................................4
Section 3.7. Annual Meeting...............................................4
Section 3.8. Regular Meetings.............................................4
Section 3.9. Special Meetings.............................................4
Section 3.10. Quorum.......................................................4
Section 3.11. Interested Directors.........................................5
Section 3.12. Committees...................................................5
Section 3.13. Action by Consent............................................5
Section 3.14. Compensation of Directors....................................5
ARTICLE 4
NOTICE
Section 4.1. Form of Notice...............................................6
Section 4.2. Waiver.......................................................6
i
<PAGE>
ARTICLE 5
OFFICERS AND AGENTS
Section 5.1. In General...................................................6
Section 5.2. Election.....................................................6
Section 5.3. Other Officers and Agents....................................6
Section 5.4. Compensation.................................................6
Section 5.5. Term of Office and Removal...................................6
Section 5.6. Employment and Other Contracts...............................7
Section 5.7. Chairman of the Board of Directors...........................7
Section 5.8. President....................................................7
Section 5.9. Vice Presidents..............................................7
Section 5.10. Secretary....................................................7
Section 5.11. Assistant Secretaries........................................8
Section 5.12. Treasurer....................................................8
Section 5.13. Assistant Treasurers.........................................8
Section 5.14. Bonding......................................................8
ARTICLE 6
CERTIFICATES REPRESENTING SHARES
Section 6.1. Form of Certificates.........................................8
Section 6.2. Lost Certificates............................................9
Section 6.3. Transfer of Shares...........................................9
Section 6.4. Registered Stockholders......................................9
ARTICLE 7
INDEMNIFICATION
Section 7.1. Actions, Suits or Proceedings Other Than by or in
the Right of the Corporation ................................9
Section 7.2. Actions or Suits by or in the Right of the Corporation......10
Section 7.3. Indemnification for Costs, Charges and Expenses of
Successful Party............................................10
Section 7.4. Determination of Right to Indemnification...................10
Section 7.5. Advance of Costs, Charges and Expenses......................10
Section 7.6. Procedure for Indemnification...............................11
Section 7.7. Other Rights; Continuation of Right to Indemnification......11
Section 7.8. Construction................................................12
Section 7.9. Savings Clause..............................................13
Section 7.10. Insurance...................................................13
ARTICLE 8
GENERAL PROVISIONS
Section 8.1. Dividends...................................................13
i
<PAGE>
Section 8.2. Reserves....................................................13
Section 8.3. Telephone and Similar Meetings..............................14
Section 8.4. Books and Records...........................................14
Section 8.5. Fiscal Year.................................................14
Section 8.6. Seal........................................................14
Section 8.7. Resignation.................................................14
Section 8.8. Amendment of Bylaws.........................................14
Section 8.9. Invalid Provisions..........................................14
Section 8.10. Relation to the Certificate of Incorporation................14
iii
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
AVERY COMMUNICATIONS, INC.
ARTICLE 1
OFFICES
Section 1.1. REGISTERED OFFICE. The registered office and registered
agent of Avery Communications, Inc. (the "Corporation") will be as from time to
time set forth in the Corporation's Certificate of Incorporation or in any
certificate filed with the Secretary of State of the State of Delaware, and the
appropriate county Recorder or Recorders, as the case may be, to amend such
information.
Section 1.2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE 2
STOCKHOLDERS
Section 2.1. PLACE OF MEETINGS. All meetings of the stockholders for
the election of Directors will be held at such place, within or without the
State of Delaware, as may be fixed from time to time by the Board of Directors.
Meetings of stockholders for any other purpose may be held at such time and
place, within or without the State of Delaware, as may be stated in the notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2.2. ANNUAL MEETING. An annual meeting of the stockholders will
be held at such time as may be determined by the Board of Directors, at which
meeting the stockholders will elect a Board of Directors, and transact such
other business as may properly be brought before the meeting.
Section 2.3. LIST OF STOCKHOLDERS. At least ten days before each
meeting of stockholders, a complete list of the stockholders entitled to vote at
said meeting, arranged in alphabetical order, with the address of and the number
of voting shares registered in the name of each, will be prepared by the officer
or agent having charge of the stock transfer books. Such list will be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place will be specified in the notice of the meeting, or if not so
specified at the place where the meeting is to be held. Such list will be
produced and kept open at the time and place of the meeting during the whole
time thereof, and will be subject to the inspection of any stockholder who may
be present.
<PAGE>
Section 2.4. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes, unless otherwise prescribed by law, the Certificate
of Incorporation or these Bylaws, may be called by the Chairman of the Board,
the President or the Board of Directors. Business transacted at all special
meetings will be confined to the purposes stated in the notice of the meeting
unless all stockholders entitled to vote are present and consent.
Section 2.5. NOTICE. Written or printed notice stating the place, day
and hour of any meeting of the stockholders and, in case of a special meeting,
the purpose or purposes for which the meeting is called, will be delivered not
less than ten nor more than sixty days before the date of the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
President, the Secretary, or the officer or person calling the meeting, to each
stockholder of record entitled to vote at the meeting. If mailed, such notice
will be deemed to be delivered when deposited in the United States mail,
addressed to the stockholder at the stockholder's address as it appears on the
stock transfer books of the Corporation, with postage thereon prepaid.
Section 2.6. QUORUM. At all meetings of the stockholders, the presence
in person or by proxy of the holders of a majority of the shares issued and
outstanding and entitled to vote will be necessary and sufficient to constitute
a quorum for the transaction of business except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws. If, however, such quorum is
not present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, will have
power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting will
be given to each stockholder of record entitled to vote at the meeting. At such
adjourned meeting at which a quorum is present or represented, any business may
be transacted that might have been transacted at the meeting as originally
notified.
Section 2.7. VOTING. When a quorum is present at any meeting of the
Corporation's stockholders, the vote of the holders of a majority of the shares
entitled to vote on, and voted for or against, any matter will decide any
questions brought before such meeting, unless the question is one upon which, by
express provision of law, the Certificate of Incorporation or these Bylaws, a
different vote is required, in which case such express provision will govern and
control the decision of such question. The stockholders present in person or by
proxy at a duly organized meeting may continue to transact business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum.
Section 2.8. METHOD OF VOTING. Each outstanding share of the
Corporation's capital stock, regardless of class, will be entitled to one vote
on each matter submitted to a vote at a meeting of stockholders, except to the
extent that the voting rights of the shares of any class or classes are limited
or denied by the Certificate of Incorporation, as amended from time to time. At
any meeting of the stockholders, every stockholder having the right to vote will
be entitled to vote in person, or by proxy appointed by an instrument in writing
subscribed by such stockholder and bearing a date not more than three years
prior to such meeting, unless such instrument provides for a longer period. Each
proxy will be revocable unless expressly provided therein to be irrevocable and
if, and only as long as, it is coupled with an interest sufficient in
- 2 -
<PAGE>
law to support an irrevocable power. A proxy may be made irrevocable regardless
of whether the interest with which it is coupled is an interest in the stock
itself or an interest in the Corporation generally. Such proxy will be filed
with the Secretary of the Corporation prior to or at the time of the meeting.
Voting on any question or in any election, other than for directors, may be by
voice vote or show of hands unless the presiding officer orders, or any
stockholder demands, that voting be by written ballot.
Section 2.9. RECORD DATE. The Board of Directors may fix in advance a
record date for the purpose of determining stockholders entitled to notice of or
to vote at a meeting of stockholders, which record date will not precede the
date upon which the resolution fixing the record date is adopted by the Board of
Directors, and which record date will not be less than ten nor more than sixty
days prior to such meeting. In the absence of any action by the Board of
Directors, the close of business on the date next preceding the day on which the
notice is given will be the record date, or, if notice is waived, the close of
business on the day next preceding the day on which the meeting is held will be
the record date.
Section 2.10. ACTION BY CONSENT. Any action required or permitted by
law, the Certificate of Incorporation or these Bylaws to be taken at a meeting
of the stockholders of the Corporation may be taken without a meeting if a
consent or consents in writing, setting forth the action so taken, is signed by
the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and will be
delivered to the Corporation by delivery to its registered office in Delaware,
its principal place of business or an officer or agent of the Corporation having
custody of the minute book.
ARTICLE 3
BOARD OF DIRECTORS
Section 3.1. MANAGEMENT. The business and affairs of the Corporation
will be managed by or under the direction of its Board of Directors who may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law, by the Certificate of Incorporation or by these Bylaws
directed or required to be exercised or done by the stockholders.
Section 3.2. QUALIFICATION; ELECTION; TERM. None of the Directors need
be a stockholder of the Corporation or a resident of the State of Delaware. The
Directors will be elected by plurality vote at the annual meeting of the
stockholders, except as hereinafter provided, and each Director elected shall
hold office until such Director's successor is elected and qualified or until
such Director's earlier resignation, removal or death.
Section 3.3. NUMBER. Until such date as the Corporation shall have more
than one stockholder of record, the number of Directors constituting the whole
Board of Directors of the Corporation will be at least one (1) and not more than
nine (9). The number of Directors constituting the whole Board of Directors of
the Corporation shall be fixed from time to time by the Board of Directors in a
resolution adopted by vote of a majority of the then authorized number of
Directors, or if no such designation has been made, the number of Directors
constituting the whole Board of Directors shall be the same as the number of
Directors of the initial Board of Directors as set forth in the Corporation's
Certificate of Incorporation. Effective on such date as the Corporation shall
have more than one stockholder of record, the number of Directors constituting
the whole Board of Directors of the Corporation shall be not less than three (3)
nor more than nine (9), and the number of Directors constituting the whole Board
of Directors
- 3 -
<PAGE>
of the Corporation shall, within such range, be fixed from time to time by the
Board of Directors in a resolution adopted by vote of a majority of the then
authorized number of Directors.
Section 3.4. REMOVAL. Any Director may be removed either for or without
cause, at any special meeting of stockholders by the affirmative vote of a
majority in number of shares of the stockholders present in person or
represented by proxy at such meeting and entitled to vote for the election of
such Director; provided that notice of the intention to act upon such matter has
been given in the notice calling such meeting.
Section 3.5. VACANCIES. Newly created directorships resulting from any
increase in the authorized number of Directors and any vacancies occurring in
the Board of Directors caused by death, resignation, retirement,
disqualification or removal from office of any Directors or otherwise, may be
filled by the vote of a majority of the Directors then in office, though less
than a quorum, or a successor or successors may be chosen at a special meeting
of the stockholders called for that purpose, and each successor Director so
chosen will hold office until the next election of the class for which such
Director has been chosen or until such Director's successor is elected and
qualified or until such Director's earlier resignation, removal or death.
Section 3.6. PLACE OF MEETINGS. Meetings of the Board of Directors,
regular or special, may be held at such place within or without the State of
Delaware as may be fixed from time to time by the Board of Directors.
Section 3.7. ANNUAL MEETING. The first meeting of each newly elected
Board of Directors will be held without further notice immediately following the
annual meeting of stockholders and at the same place, unless by unanimous
consent, the Directors then elected and serving change such time or place.
Section 3.8. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice at such time and place as is from time to
time determined by resolution of the Board of Directors.
Section 3.9. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President on oral or
written notice to each Director, given either personally, by telephone, by
telegram or by mail; special meetings will be called by the Chairman of the
Board, President or Secretary in like manner and on like notice on the written
request of at least two Directors. The purpose or purposes of any special
meeting will be specified in the notice relating thereto.
Section 3.10. QUORUM. At all meetings of the Board of Directors the
presence of a majority of the number of Directors fixed by these Bylaws will be
necessary and sufficient to constitute a quorum for the transaction of business,
and the affirmative vote of at least a majority of the Directors present at any
meeting at which there is a quorum will be the act of the Board
- 4 -
<PAGE>
of Directors, except as may be otherwise specifically provided by law, the
Certificate of Incorporation or these Bylaws. If a quorum is not present at any
meeting of the Board of Directors, the Directors present thereat may adjourn the
meeting from time to time without notice other than announcement at the meeting,
until a quorum is present.
Section 3.11. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its Directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of the Corporation's Directors or officers are
directors or officers or have a financial interest, will be void or voidable
solely for this reason, solely because the Director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof that
authorizes the contract or transaction, or solely because the Director's or
Directors' votes are counted for such purpose, if: (i) the material facts as to
the relationship or interest of the Director or officer and as to the contract
or transaction are disclosed or are known to the Board of Directors or the
committee, and the Board of Directors or committee in good faith authorizes the
contract or transaction by the affirmative vote of a majority of the
disinterested Directors, even though the disinterested Directors be less than a
quorum, (ii) the material facts as to the relationship or interest of the
Director or officer and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee that authorizes the contract or transaction.
Section 3.12. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board, designate committees, each committee
to consist of two or more Directors of the Corporation, which committees will
have such power and authority and will perform such functions as may be provided
in such resolution. Such committee or committees will have such name or names as
may be designated by the Board and will keep regular minutes of their
proceedings and report the same to the Board of Directors when required.
Section 3.13. ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board of Directors or any committee of the Board of
Directors may be taken without such a meeting if a consent or consents in
writing, setting forth the action so taken, is signed by all the members of the
Board of Directors or such committee, as the case may be.
Section 3.14. COMPENSATION OF DIRECTORS. Directors will receive such
compensation for their services and reimbursement for their expenses as the
Board of Directors, by resolution, may establish; provided that nothing herein
contained will be construed to preclude any Director from serving the
Corporation in any other capacity and receiving compensation therefor.
- 5 -
<PAGE>
ARTICLE 4
NOTICE
Section 4.1. FORM OF NOTICE. Whenever by law, the Certificate of
Incorporation or of these Bylaws, notice is to be given to any Director or
stockholder, and no provision is made as to how such notice will be given, such
notice may be given in writing, by mail, postage prepaid, addressed to such
Director or stockholder at such address as appears on the books of the
Corporation. Any notice required or permitted to be given by mail will be deemed
to be given at the time the same is deposited in the United States mails.
Section 4.2. WAIVER. Whenever any notice is required to be given to any
stockholder or Director of the Corporation as required by law, the Certificate
of Incorporation or these Bylaws, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated in such notice, will be equivalent to the giving of such notice.
Attendance of a stockholder or Director at a meeting will constitute a waiver of
notice of such meeting, except where such stockholder or Director attends for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business on the ground that the meeting has not been lawfully
called or convened.
ARTICLE 5
OFFICERS AND AGENTS
Section 5.1. IN GENERAL. The officers of the Corporation shall consist
of a President, one or more Vice Presidents (who shall have such additional
titles or designations, if any, as may be determined by the Board of Directors),
a Secretary and a Treasurer. The Board of Directors may also elect a Chairman of
the Board, Assistant Vice Presidents and one or more Assistant Secretaries and
Assistant Treasurers. Any two or more offices may be held by the same person. In
its discretion, the Board of Directors may leave unfilled any office except
those of President and Secretary.
Section 5.2. ELECTION. The Board of Directors shall elect the officers
of the Corporation, none of whom need be a member of the Board of Directors.
Section 5.3. OTHER OFFICERS AND AGENTS. The Board of Directors may also
elect and appoint such other officers and agents as it deems necessary, who will
be elected and appointed for such terms and will exercise such powers and
perform such duties as may be determined from time to time by the Board.
Section 5.4. COMPENSATION. The compensation of all officers and agents
of the Corporation will be fixed by the Board of Directors or any committee of
the Board, if so authorized by the Board.
Section 5.5. TERM OF OFFICE AND REMOVAL. Each officer of the
Corporation shall hold such person's office until such person's successor is
elected and qualified or until such person's earlier resignation, removal or
death. Any officer or agent elected or appointed by the Board of Directors may
be removed at any time, for or without cause, by the affirmative vote of a
majority of the entire Board of Directors, but such removal will not prejudice
the contract rights,
- 6 -
<PAGE>
if any, of the person so removed. If the office of any officer becomes vacant
for any reason, the vacancy may be filled by the Board of Directors.
Section 5.6. EMPLOYMENT AND OTHER CONTRACTS. The Board of Directors may
authorize any officer or officers or agent or agents to enter into any contract
or execute and deliver any instrument in the name or on behalf of the
Corporation, and such authority may be general or confined to specific
instances. The Board of Directors may, when it believes the interest of the
Corporation will best be served thereby, authorize executive employment
contracts that will have terms no longer than ten years and contain such other
terms and conditions as the Board of Directors deems appropriate. Nothing herein
will limit the authority of the Board of Directors to authorize employment
contracts for shorter terms.
Section 5.7. CHAIRMAN OF THE BOARD OF DIRECTORS. If the Board of
Directors has elected a Chairman of the Board, the Chairman of the Board will
preside at all meetings of the stockholders and the Board of Directors. The
Chairman of the Board will have such other powers and perform such other duties
as the Board of Directors may from time to time prescribe.
Section 5.8. PRESIDENT. The President will be the chief executive
officer of the Corporation and, subject to the control of the Board of
Directors, will supervise and control all of the business and affairs of the
Corporation. The President will, in the absence of the Chairman of the Board and
the Chief Executive Officer, preside at all meetings of the stockholders and the
Board of Directors. The President will have all powers and perform all duties
incident to the office of President and will have such other powers and perform
such other duties as the Board of Directors may from time to time prescribe.
Section 5.9. VICE PRESIDENTS. Vice Presidents may be designated as
"Executive," "Senior" or as otherwise prescribed by the Board of Directors or
any committee thereof. Each Vice President will have the usual and customary
powers and perform the usual and customary duties incident to the office of Vice
President, and will have such other powers and perform such other duties as the
Board of Directors or any committee thereof may from time to time prescribe or
as the President may from time to time delegate to him. In the absence or
disability of the President and the Chairman of the Board, a Vice President
designated by the Board of Directors, or in the absence of such designation the
Vice Presidents in the order of their seniority in office, will exercise the
powers and perform the duties of the President.
Section 5.10. SECRETARY. The Secretary will attend all meetings of the
stockholders and record all votes and the minutes of all proceedings in a book
to be kept for that purpose. The Secretary will perform like duties for the
Board of Directors and committees thereof when required. The Secretary will
give, or cause to be given, notice of all meetings of the stockholders and
special meetings of the Board of Directors. The Secretary will keep in safe
custody the seal of the Corporation. The Secretary will be under the supervision
of the President. The Secretary will have such other powers and perform such
other duties as the Board of Directors may from time to time prescribe or as the
President may from time to time delegate to the Secretary.
- 7 -
<PAGE>
Section 5.11. ASSISTANT SECRETARIES. The Assistant Secretaries in the
order of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Secretary, exercise the
powers and perform the duties of the Secretary. They will have such
other powers
and perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to them.
Section 5.12. TREASURER. The Treasurer will have responsibility for the
receipt and disbursement of all corporate funds and securities, will keep full
and accurate accounts of such receipts and disbursements, and will deposit or
cause to be deposited all moneys and other valuable effects in the name and to
the credit of the Corporation in such depositories as may be designated by the
Board of Directors. The Treasurer will render to the Directors whenever they may
require it an account of the operating results and financial condition of the
Corporation, and will have such other powers and perform such other duties as
the Board of Directors may from time to time prescribe or as the President may
from time to time delegate to the Treasurer.
Section 5.13. ASSISTANT TREASURERS. The Assistant Treasurers in the
order of their seniority in office, unless otherwise determined by the Board of
Directors, will, in the absence or disability of the Treasurer, exercise the
powers and perform the duties of the Treasurer. They will have such other powers
and perform such other duties as the Board of Directors may from time to time
prescribe or as the President may from time to time delegate to them.
Section 5.14. BONDING. The Corporation may secure a bond to protect the
Corporation from loss in the event of defalcation by any of the officers, which
bond may be in such form and amount and with such surety as the Board of
Directors may deem appropriate.
ARTICLE 6
CERTIFICATES REPRESENTING SHARES
Section 6.1. FORM OF CERTIFICATES. Certificates, in such form as may be
determined by the Board of Directors, representing shares to which stockholders
are entitled will be delivered to each stockholder. Such certificates will be
consecutively numbered and will be entered in the stock book of the Corporation
as they are issued. Each certificate will state on the face thereof the holder's
name, the number, class of shares, and the par value of such shares or a
statement that such shares are without par value. They will be signed by the
President or a Vice President and the Secretary or an Assistant Secretary, and
may be sealed with the seal of the Corporation or a facsimile thereof. If any
certificate is countersigned by a transfer agent, or an assistant transfer agent
or registered by a registrar, either of which is other than the Corporation or
an employee of the Corporation, the signatures of the Corporation's officers may
be facsimiles. In case any officer or officers who have signed, or whose
facsimile signature or signatures have been used on such certificate or
certificates, ceases to be such officer or officers of the Corporation, whether
because of death, resignation or otherwise, before such certificate or
certificates have been delivered by the Corporation or its agents, such
certificate or certificates may nevertheless be adopted by the Corporation and
be issued and delivered as though the person or persons who signed such
certificate or certificates or whose facsimile signature or signatures have been
used thereon had not ceased to be such officer or officers of the Corporation.
- 8 -
<PAGE>
Section 6.2. LOST CERTIFICATES. The Board of Directors may direct that
a new certificate be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or such
owner's legal representative, to advertise the same in such manner as it may
require and/or to give the Corporation a bond, in such form, in such sum, and
with such surety or sureties as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost or destroyed. When a certificate has been lost, apparently
destroyed or wrongfully taken, and the holder of record fails to notify the
Corporation within a reasonable time after such holder has notice of it, and the
Corporation registers a transfer of the shares represented by the certificate
before receiving such notification, the holder of record is precluded from
making any claim against the Corporation for the transfer of a new certificate.
Section 6.3. TRANSFER OF SHARES. Shares of stock will be transferable
only on the books of the Corporation by the holder thereof in person or by such
holder's duly authorized attorney. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate representing shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it will be the duty of the Corporation or the transfer
agent of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
Section 6.4. REGISTERED STOCKHOLDERS. The Corporation will be entitled
to treat the holder of record of any share or shares of stock as the holder in
fact thereof and, accordingly, will not be bound to recognize any equitable or
other claim to or interest in such share or shares on the part of any other
person, whether or not it has express or other notice thereof, except as
otherwise provided by law.
ARTICLE 7
INDEMNIFICATION
Section 7.1. ACTIONS, SUITS OR PROCEEDINGS OTHER THAN BY OR IN THE
RIGHT OF THE CORPORATION. The Corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that such person is or was or has agreed to become a
Director, officer, employee or agent of the Corporation, or is or was serving or
has agreed to serve at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person or on such person's behalf in connection with such
action, suit or proceeding and any appeal therefrom, if such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe such person's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment,
- 9 -
<PAGE>
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
meet the standards of conduct set forth in this Section 7.1.
Section 7.2. ACTIONS OR SUITS BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that such person is or was or has agreed to become a
Director, officer, employee or agent of the Corporation, or is or was serving or
has agreed to serve at the request of the Corporation as a Director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, against costs, charges and expenses (including
attorneys' fees) actually and reasonably incurred by such person or on such
person's behalf in connection with the defense or settlement of such action or
suit and any appeal therefrom, if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the Corporation, except that no indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for gross negligence or misconduct in the performance of
such person's duty to the Corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of such
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such costs, charges and expenses
which the Court of Chancery or such other court shall deem proper.
Section 7.3. INDEMNIFICATION FOR COSTS, CHARGES AND EXPENSES OF
SUCCESSFUL PARTY. Notwithstanding the other provisions of this Article 7, to
the extent that a Director, officer, employee or agent of the Corporation has
been successful on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Sections 7.1 and 7.2 of this Article 7, or in the
defense of any claim, issue or matter therein, such person shall be indemnified
against all costs, charges and expenses (including attorneys' fees) actually and
reasonably incurred by such person or on such person's behalf in connection
therewith.
Section 7.4. DETERMINATION OF RIGHT TO INDEMNIFICATION. Any
indemnification under Sections 7.1 and 7.2 of this Article 7 (unless ordered by
a court) shall be paid by the Corporation unless a determination is made (i) by
the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (ii) if such a
quorum is not obtainable, or even if obtainable a quorum of disinterested
Directors so directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders, that indemnification of the Director, officer,
employee or agent is not proper in the circumstances because such person has not
met the applicable standards of conduct set forth in Sections 7.1 and 7.2 of
this Article 7.
Section 7.5. ADVANCE OF COSTS, CHARGES AND EXPENSES. Costs, charges and
expenses (including attorneys, fees) incurred by a person referred to in
Sections 7.1 and 7.2 of this Article 7 in defending a civil or criminal action,
suit or proceeding (including investigations by any government agency and all
costs, charges and expenses incurred in preparing for any
- 10 -
<PAGE>
threatened action, suit or proceeding) shall be paid by the Corporation in
advance of the final disposition of such action, suit or proceeding; provided,
however, that the payment of such costs, charges and expenses incurred by a
Director or officer in such person's capacity as a Director or officer (and not
in any other capacity in which service was or is rendered by such person while a
Director or officer) in advance of the final disposition of such action, suit or
proceeding shall be made only upon receipt of an undertaking by or on behalf of
the Director or officer to repay all amounts so advanced in the event that it
shall ultimately be determined that such Director or officer is not entitled to
be indemnified by the Corporation as authorized in this Article 7. No security
shall be required for such undertaking and such undertaking shall be accepted
without reference to the recipient's financial ability to make repayment. The
repayment of such charges and expenses incurred by other employees and agents of
the Corporation which are paid by the Corporation in advance of the final
disposition of such action, suit or proceeding as permitted by this Section may
be required upon such terms and conditions, if any, as the Board of Directors
deems appropriate. The Board of Directors may, in the manner set forth above,
and subject to the approval of such Director, officer, employee or agent of the
Corporation, authorize the Corporation's counsel to represent such person, in
any action, suit or proceeding, whether or not the Corporation is a party to
such action, suit or proceeding.
Section 7.6. PROCEDURE FOR INDEMNIFICATION. Any indemnification under
Sections 7.1, 7.2 or 7.3 or advance of costs, charges and expenses under Section
7.5 of this Article 7 shall be made promptly, and in any event within 30 days,
upon the written request of the Director, officer, employee or agent directed to
the Secretary of the Corporation. The right to indemnification or advances as
granted by this Article 7 shall be enforceable by the Director, officer,
employee or agent in any court of competent jurisdiction if the Corporation
denies such request, in whole or in part, or if no disposition thereof is made
within 30 days. Such person's costs and expenses incurred in connection with
successfully establishing such person's right to indemnification or advances, in
whole or in part, in any such action shall also be indemnified by the
Corporation. It shall be a defense to any such action (other than an action
brought to enforce a claim for the advance of costs, charges and expenses under
Section 7.5 of this Article 7 where the required undertaking, if any, has been
received by the Corporation) that the claimant has not met the standard of
conduct set forth in Sections 7.1 or 7.2 of this Article 7, but the burden of
proving that such standard of conduct has not been met shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, its independent legal counsel, and its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because such person has met the
applicable standard of conduct set forth in Sections 7.1 and 7.2 of this Article
7, nor the fact that there has been an actual determination by the Corporation
(including its Board of Directors, its independent legal counsel, and its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that the claimant has
not met the applicable standard of conduct.
Section 7.7. OTHER RIGHTS; CONTINUATION OF RIGHT TO INDEMNIFICATION.
The indemnification provided by this Article 7 shall not be deemed exclusive of
any other rights to which a person seeking indemnification may be entitled under
any law (common or statutory), agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in such person's official capacity and
as to action in another capacity while holding office or while employed by or
acting as agent for the Corporation, and shall continue as to a person who has
- 11 -
<PAGE>
ceased to be a Director, officer, employee or agent and shall inure to the
benefit of the estate, heirs, executors and administrators of such person. All
rights to indemnification under this Article 7 shall be deemed to be a contract
between the Corporation and each Director, officer, employee or agent of the
Corporation who serves or served in such capacity at any time while this Article
7 is in effect. No amendment or repeal of this Article 7 or of any relevant
provisions of the Delaware General Corporation Law or any other applicable laws
shall adversely affect or deny to any Director, officer, employee or agent any
rights to indemnification which such person may have, or change or release any
obligations of the Corporation, under this Article 7 with respect to any costs,
charges, expenses (including attorneys' fees), judgments, fines, and amounts
paid in settlement which arise out of an action, suit or proceeding based in
whole or substantial part on any act or failure to act, actual or alleged, which
takes place before or while this Article 7 is in effect. The provisions of this
Section7.7 shall apply to any such action, suit or proceeding whenever
commenced, including any such action, suit or proceeding commenced after any
amendment or repeal of this Article 7.
Section 7.8. CONSTRUCTION. For purposes of this Article 7:
(i) "the Corporation" shall include any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its Directors,
officers, and employees or agents, so that any person who is or was a
Director, officer, employee or agent of such constituent corporation,
or is or was serving at the request of such constituent corporation as
a Director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in
the same position under the provisions of this Article 7 with respect
to the resulting or surviving corporation as such person would have
with respect to such constituent corporation if its separate existence
had continued;
(ii) "other enterprises" shall include employee benefit plans,
including, but not limited to, any employee benefit plan of the
Corporation;
(iii) "serving at the request of the Corporation" shall
include any service which imposes duties on, or involves services by, a
Director, officer, employee, or agent of the Corporation with respect
to an employee benefit plan, its participants, or beneficiaries,
including acting as a fiduciary thereof;
(iv) "fines" shall include any penalties and any excise or
similar taxes assessed on a person with respect to an employee benefit
plan;
(v) A person who acted in good faith and in a manner such
person reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have
acted in a manner "not opposed to the best interests of the
Corporation" as referred to in Sections 7.1 and 7.2 of this Article 7;
(vi) Service as a partner, trustee or member of management or
similar committee of a partnership or joint venture, or as a Director,
officer, employee or agent of a corporation which is a partner, trustee
or joint venturer, shall be considered service
- 12 -
<PAGE>
as a Director, officer, employee or agent of the partnership, joint
venture, trust or other enterprise.
Section 7.9. SAVINGS CLAUSE. If this Article 7 or any portion hereof
shall be invalidated on any ground by a court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Director, officer, employee
and agent of the Corporation as to costs, charges and expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement with respect
to any action, suit or proceeding, whether civil, criminal, administrative or
investigative, including an action by or in the right of the Corporation, to the
full extent permitted by any applicable portion of this Article 7 that shall not
have been invalidated and to the full extent permitted by applicable law.
Section 7.10. INSURANCE. The Corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
Director, officer, employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a Director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against any liability asserted against such person and incurred by such person
or on such person's behalf in any such capacity, or arising out of such person's
status as such, whether or not the Corporation would have the power to indemnify
such person against such liability under the provisions of this Article 7,
provided that such insurance is available on acceptable terms as determined by a
vote of a majority of the entire Board of Directors.
ARTICLE 8
GENERAL PROVISIONS
Section 8.1. DIVIDENDS. Dividends upon the outstanding shares of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Dividends may be declared and paid in cash, in property, or in shares
of the Corporation, subject to the provisions of the General Corporation Law of
the State of Delaware and the Certificate of Incorporation. The Board of
Directors may fix in advance a record date for the purpose of determining
stockholders entitled to receive payment of any dividend, such record date will
not precede the date upon which the resolution fixing the record date is
adopted, and such record date will not be more than sixty days prior to the
payment date of such dividend. In the absence of any action by the Board of
Directors, the close of business on the date upon which the Board of Directors
adopts the resolution declaring such dividend will be the record date.
Section 8.2. RESERVES. There may be created by resolution of the Board
of Directors out of the surplus of the Corporation such reserve or reserves as
the Directors from time to time, in their discretion, deem proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the Directors may deem
beneficial to the Corporation, and the Directors may modify or abolish any such
reserve in the manner in which it was created. Surplus of the Corporation to the
extent so reserved will not be available for the payment of dividends or other
distributions by the Corporation.
- 13 -
<PAGE>
Section 8.3. TELEPHONE AND SIMILAR MEETINGS. Stockholders, directors
and committee members may participate in and hold meetings by means of
conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Participation in such a
meeting will constitute presence in person at the meeting, except where a person
participates in the meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business on the ground that
the meeting has not been lawfully called or convened.
Section 8.4. BOOKS AND RECORDS. The Corporation will keep correct and
complete books and records of account and minutes of the proceedings of its
stockholders and Board of Directors, and will keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 8.5. FISCAL YEAR. The fiscal year of the Corporation will be
fixed by resolution of the Board of Directors.
Section 8.6. SEAL. The Corporation may have a seal, and the seal may be
used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise. Any officer of the Corporation will have authority to
affix the seal to any document requiring it.
Section 8.7. RESIGNATION. Any director, officer or agent may resign by
giving written notice to the President or the Secretary. Such resignation will
take effect at the time specified therein or immediately if no time is specified
therein. Unless otherwise specified therein, the acceptance of such resignation
will not be necessary to make it effective.
Section 8.8. AMENDMENT OF BYLAWS. These Bylaws may be altered, amended,
or repealed at any meeting of the Board of Directors at which a quorum is
present, by the affirmative vote of a majority of the Directors present at such
meeting, except that the first sentence of Section 3.2 of Article 3 of these
Bylaws may not be altered, amended, rescinded or revoked without the unanimous
vote of all Directors.
Section 8.9. INVALID PROVISIONS. If any part of these Bylaws is held
invalid or inoperative for any reason, the remaining parts, so far as possible
and reasonable, will be valid and operative.
Section 8.10. RELATION TO THE CERTIFICATE OF INCORPORATION. These
Bylaws are subject to, and governed by, the Certificate of Incorporation of the
Corporation.
- 14 -
<PAGE>
EXHIBIT 4.1
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP NO. 053605 10 1
NUMBER SHARE
Avery Communications, Inc.
PAR VALUE $.01 PER SHARE
THIS CERTIFIES THAT MEWS, INC.
IS THE RECORD HOLDER OF
**FORTY THREE THOUSAND ONE HUNDRED EIGHTY FOUR**
-- Shares of AVERY COMMUNICATIONS, INC. Common Stock --
Transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers
Dated: 10/27/98
AVERY COMMUNICATIONS, INC.
CORPORATE SEAL
1997
DELAWARE
*****
/S/ Scot McCormick /S/ Patrick Haynes
- ---------------------------- -----------------------------
SECRETARY CHAIRMAN
<PAGE>
NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a savings
bank), or a trust company. The following abbrevations, when used in the
inscription on the face of this certificate, shall be construed as
though they were written out in full according to applicable laws or
regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entirety (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants ACT..........................
in common (State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________ hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ------------------------------------
| |
| |
- ------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________Shares
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated _________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended (the "Act"). Such shares have been acquired
for investment and may not be publicly offered or sold in the absence of (1) an
effective registration statement for such shares under the Act; (2) opinion of
counsel to the Company prior to any proposed transfer to the effect that
registration is not required under the Act; or (3) a letter presented to the
Company, prior to any proposed transfer, from the staff of the Securities and
Exchange Commission to the effect that it will not take any enforcement action
if the proposed tranfer is made without registration under the Act"
<PAGE>
EXHIBIT 4.2
WARRANT EXCHANGE AND EXERCISE AGREEMENT
This WARRANT EXCHANGE AND EXERCISE AGREEMENT is dated and effective as
of March 12, 1996, and is being entered by and between AVERY COMMUNICATIONS,
INC., a Delaware corporation, and the person or persons whose name or names, as
the case may be, is or are set forth on the signature page hereto, with
reference to the following RECITALS:
RECITALS
Each of the Investors owns the Current Warrants set forth in Column B
of Exhibit A.
Each of the Investors desires to exchange the Current Investments for
New Warrants.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
SECTION 1. DEFINITIONS.
For convenience and brevity, certain terms used in various parts of
this Agreement are listed in alphabetical order and defined or referred to below
(such terms to be equally applicable to both singular and plural forms of the
terms defined).
"Agreement" means this Warrant Exchange and Exercise
Agreement.
"Business Day" means any calendar day which is not a Saturday,
Sunday or other day on which commercial banks in Dallas, Texas, or New
York, New York, are authorized or required to close by applicable law.
"Closing" and "Closing Date" are defined in Section 3.1.
"Common Stock" means the 20,000,000 authorized shares of
Common Stock, par value $0.01 per share, of the Company.
"Company" means Avery Communications, Inc., a Delaware
corporation.
"Contract" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement,
undertaking, practice or authorization that is or may be binding on any
person or its property under applicable law.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or
regulatory body or authority that is binding on any person or its
property under applicable law.
<PAGE>
"Current Investments" means the Current Warrants.
"Current Warrants" means the warrants to purchase shares of
the Common Stock of the Company owned by each of the Investors as set
forth in Column B of Exhibit A.
"Default" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under
any Contract, or (3) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to
a right of termination, renegotiation or acceleration under any
Contract.
"Governmental Authority" means any federal, state, local or
other governmental agency or body or of any other type of regulatory
body, including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage
control matters.
"Investor" or "Investors" means the person or persons listed
on Exhibit A, who is or who are the owner or the owners, as the case
may be, of all of the Current Investments.
"Licenses" means licenses, franchises, permits, easements,
rights and other authorizations.
"Lien" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever on any property or property interest.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry involving or affecting any party
hereto or any Contracts to which any party hereto is a party or by
which such party or any of such party's assets may be bound or
affected.
"New Warrants" means the Current Warrants, the exercise prices
of which have been reduced as herein provided.
"Person" or "person" means any natural person, firm,
partnership, association, corporation, company, business trust, trust,
Governmental Authority or other entity.
-2-
<PAGE>
"Preferred Stock" means the 20,000,000 authorized shares of
Preferred Stock, par value $0.01 per share, of the Company.
"Regulation" means any statute, law, ordinance, regulation,
order or rule of any Governmental Authority.
"Regulation D" means Regulation D promulgated by the SEC under
the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities" means the shares of Common Stock issuable to each
of the Investors upon the exercise of the New Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Transactions" means the exchange of all of the Current
Investments by each of the Investors for the Securities of the Company
and the simultaneous exercise of the New Warrants by each of the
Investors as herein provided, and all related transactions provided for
in or contemplated by this Agreement or any Exhibit hereto.
SECTION 2. THE TRANSACTIONS.
2.1 EXCHANGE OF CURRENT INVESTMENTS FOR SECURITIES. Subject to
the terms and conditions hereinafter set forth and on the basis of and in
reliance upon the representations, warranties, obligations and agreements set
forth herein, at the Closing each Investor shall sell, transfer, assign and
convey to the Company, and the Company shall purchase from each Investor, all of
the Current Investments owned by such Investor in exchange for the New Warrants
as set forth after such Investor's name in Column C of Exhibit A.
2.2 REDUCTION OF EXERCISE PRICE OF CURRENT WARRANTS; EXERCISE
PRICE OF NEW WARRANTS. Subject to the terms and conditions hereinafter set forth
and on the basis of the representations, warranties, obligations and agreements
set forth herein, at the Closing, the exercise price of the Current Warrants
shall be reduced to $0.50 per share of Common Stock.
2.3 EXERCISE OF NEW WARRANTS. At the Closing, and in
consideration of the reduction of the exercise price of the Current Warrants as
herein provided, the Investors shall exercise all the New Warrants. The full
purchase price therefor shall be paid to the Company at the Closing by wire
transfer of immediately available funds to the Company's bank account in Dallas,
Texas, or by delivery at the Closing of a cashier's check payable to the order
of the Company.
-3-
<PAGE>
2.4 POST-CLOSING ADJUSTMENT OF EXERCISE PRICE. If, subsequent
to the Closing, the exercise price of any warrants to purchase shares of Common
Stock of the Company issued and outstanding on the date hereof with an exercise
price equal to or greater than $0.50 per share, or the conversion price of any
convertible debt securities of the Company convertible into or exchangeable for
shares of Common Stock of the Company issued and outstanding on the date hereof
with a conversion price equal to or greater than $0.50 per share, shall be
reduced to an exercise price or a conversion price, as the case may be, of less
than $0.50 per share for one share of Common Stock of the Company, then the
exercise price set forth in Section 2.2 shall be reduced to such lower price.
Upon the occurrence of such an event or events, the Company shall promptly
refund to each of the Investors the difference obtained by subtracting such
lower price from $0.50. The adjustments required hereby shall be made at any
time and from time to time as necessary to assure that the exercise price of the
New Warrants hereunder is never greater than the exercise price or the
conversion price paid by the holders the warrants and convertible securities of
the Company issued and outstanding on the date hereof with an exercise or a
conversion price equal to or greater than $0.50 per share for one of share of
Common Stock of the Company. For the purposes hereof, in determining whether the
exercise or conversion price is less than $0.50 for one share of Common Stock of
the Company, the actual exercise or conversion price, as the case may be, shall
be reduced on a per share basis by any consideration given to the holder thereof
by the Company upon or in connection with the exercise or conversion, as the
case may be, thereof.
2.5 DEFAULT BY ANY INVESTOR AT THE CLOSING. Notwithstanding
the provisions of Section 2.1, if any of the Investors shall fail or refuse to
deliver any of the Current Investments as provided in Section 2.1, or if any of
the Investors shall fail or refuse to consummate the transactions described in
this Agreement prior to or on the Closing Date, such failure or refusal shall
not relieve the other Investors of any obligations under this Agreement, and the
Company, at its option and without prejudice to its rights against any such
defaulting Investor, may either (1) acquire the remaining Current Investments
which it is entitled to acquire hereunder, or (2) refuse to make such
acquisition and thereby terminate all of its obligations hereunder. Each of the
Investors acknowledges that the Current Investments are unique and otherwise not
available and agree that in addition to any other remedies, the Company may
invoke any equitable remedies to enforce delivery of the Current Investments
hereunder, including, without limitation, an action or suit for specific
performance.
SECTION 3. CLOSING.
3.1 CLOSING DATE. The consummation of the sale and purchase of
the Current Investments and the exercise of the Current Warrants (the "Closing")
shall take place at the offices of the Company at 10:00 A.M. local time, on
March 14, 1996, or at such other time or place or on such other date as the
Company and the Investors may agree in writing. The date of the Closing is
hereinafter sometimes referred to as the "Closing Date." In lieu of the
foregoing, the Investors and the Company may conduct the Closing by exchanging
the Closing documents required hereby by mail, express delivery service, or
facsimile or other electronic media, or by such other means as they may mutually
agree. If the parties hereto choose to
-4-
<PAGE>
exchange the Closing documents without meeting in person, the Closing shall be
deemed to have taken place in Dallas, Texas, the parties hereto shall be deemed
to have been present in person thereat for all purposes, and the Closing Date
shall be deemed to be the date on which the Company receives the full purchase
price for the exercise of the New Warrants as herein provided.
3.2 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, each Investor shall deliver to the Company, free and clear of
all Liens, the Current Warrants, in negotiable form, duly endorsed in blank, or
with separate notarized stock transfer powers attached thereto and signed in
blank, and, with a properly completed notice of exercise in the form, if any,
attached to the Current Warrants, in exchange for the New Warrants set forth
opposite each Investor's name in Column C on Exhibit A. At the Closing, each of
the Investors shall also deliver to the Company, and the Company shall deliver
to each of the Investors, the certificates, opinions and other instruments and
documents referred to in Sections 8 and 9.
3.3 TERMINATION. In the event that the Closing shall not have
taken place on or before ten Business Days following the date of this Agreement,
or such later date as shall be mutually agreed to in writing by the Company and
each of the Investors, all of the rights and obligations of the parties under
this Agreement shall terminate without liability, except for liability in the
event the Closing does not occur and this Agreement terminates by reason of a
default or breach by any party hereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants to the Company, severally and not
jointly, and solely on each Investor's own behalf, as follows:
4.1 AUTHORITY AND BINDING EFFECT. Investor has the full power
and authority to execute, deliver and perform this Agreement and has taken all
actions necessary to secure all approvals required in connection therewith. This
Agreement constitutes the legal, valid and binding obligation of Investor,
enforceable against such Investor in accordance with its terms.
4.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by Investor nor the consummation of the
Transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to Investor, or will result in a Default under,
or require the consent or approval of any party to, any Contract to or by which
Investor is a party or otherwise bound or affected, or require Investor to
notify or obtain any License from any Governmental Authority. Investor is not a
party to any Contract or subject to any restriction or any Court Order or
Regulation which affects or restricts the ability of Investor to consummate the
Transactions contemplated hereby.
4.3 TITLE TO SECURITIES. Investor owns outright and has good
and marketable title to all of the Current Warrants set forth in Column B of
Exhibit A as being owned by Investor, free and clear of all Liens.
-5-
<PAGE>
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor as follows:
5.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, having all requisite corporate power and authority to perform
its obligations under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
has taken all actions necessary to secure all approvals required in connection
therewith. The execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporation action. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Company nor the consummation of
the Transactions contemplated hereby by the Company will contravene or violate
any Regulation or Court Order which is applicable to the Company, or the
Certificate of Incorporation or By-Laws of the Company, or will result in a
Default under, or require the consent or approval of any party to, any Contract
to or by which the Company is a party or by which it is otherwise bound or
affected, or require the Company to notify or obtain any License from any
Governmental Authority. The Company is not a party to any Contracts or subject
to any restriction or any Court Order or Regulation which affects or restricts
the ability of the Company to consummate the Transactions contemplated hereby.
5.4 CAPITALIZATION. The Company's authorized capital stock
consists of 40,000,000 shares of capital stock, which are divided into
20,000,000 shares of Common Stock, par value $0.01 per share, and 20,000,000
shares of Preferred Stock, par value $0.01 per share. There are 2,934,566 shares
of the Company's Common Stock presently outstanding. No shares of the Company's
Preferred Stock are presently outstanding. All of the shares of the Company's
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, were not issued in violation of any Contract binding upon the
Company, and were issued in compliance with all applicable charter documents of
the Company. Except as contemplated by this Agreement and as set forth on
Exhibit B, there are no (i) existing Contracts, subscriptions, options,
warrants, calls, commitments or rights of any character to purchase or otherwise
acquire any capital shares or other securities of the Company, whether or not
presently issued or outstanding, from the Company, at any time, or upon the
happening of any stated event; (ii) outstanding securities that are convertible
into or exchangeable for capital shares or other securities of the Company; and
(iii) Contracts, subscriptions, options, warrants, calls, commitments or rights
to purchase or otherwise acquire from the Company any such convertible or
exchangeable securities. On the Closing Date, the Securities and the New
Warrants will be duly authorized, and, when issued as herein provided, will be
validly issued, fully paid and nonassessable, will not be issued in violation of
any Contract binding upon the Company, and will be issued in compliance with
applicable charter documents of the Company.
-6-
<PAGE>
SECTION 6. INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Investor
acknowledges that the Securities are being acquired for each Investor's own
account as part of a private offering, exempt from registration under the
Securities Act and all applicable state securities or blue sky laws, for
investment only and not with a view to the distribution or other sale thereof,
and that an exemption from registration under the Securities Act or any
applicable state securities laws may not be available if the Securities are
acquired by Investor with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the Securities
within the meaning and purview of the Securities Act or the applicable state
securities laws. Accordingly, each Investor represents and warrants to the
Company, severally and not jointly, and solely on each Investor's own behalf, as
follows:
6.1 OWN ACCOUNT. No other person will acquire, directly or
indirectly, any interest in the Securities (or any portion thereof) as a result
of Investor's acquisition of the Securities pursuant to this Agreement.
6.2 SECURITIES TO BE HELD FOR INVESTMENT. It is Investor's
intention to acquire and hold the Securities solely for Investor's private
investment and for Investor's own account and with no view or intention to
distribute (including, without limitation, any distribution to the shareholders
of Investor pursuant to the terms of its governing instruments), sell, resell,
assign, pledge, mortgage, hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof) except pursuant to a valid exception from
registration or a registered offering under the Securities Act.
6.3 NO TRANSFERS OF SECURITIES CONTEMPLATED. Investor has no
contract, undertaking, agreement, or arrangement with any person to sell or
otherwise transfer to any person, or to have any person sell on behalf of
Investor, the Securities (or any portion thereof), and Investor is not engaged
in and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of the Securities (or any
portion thereof).
6.4 NO EVENTS REQUIRING TRANSFER OF SECURITIES. Investor is
not aware of any occurrence, event, or circumstance upon the happening of which
Investor intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the Securities (or any portion
thereof), and Investor does not have any present intention of selling,
transferring, or otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
6.5 ACCREDITED INVESTOR STATUS. Investor is, and will be on
the Closing Date, an "accredited investor," as such term is defined in the
Securities Act or Regulation D, and under the securities laws of certain states,
because Investor is described in one of the categories set forth below, the
designation of which category is set forth opposite the Investor's signature on
the signature pages of this Agreement:
-7-
<PAGE>
(A) a bank as defined in Section 3(a)(2) of the
Securities Act, whether acting in its individual or fiduciary capacity;
(B) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity;
(C) a broker or dealer registered under Section 15 of
the Securities Exchange Act of 1934, as amended;
(D) an insurance company as defined in Section 2(13)
of the Securities Act;
(E) an investment company registered under the
Investment Company Act of 1940, as amended, or a business development company as
defined in section 2(a)(48) of that Act;
(F) a Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
(G) a plan established by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, and such plan has total assets
in excess of $5,000,000;
(H) (i) an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974, with the
investment decisions being made by a plan fiduciary, as defined in section 3(21)
of such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or (ii) an employee benefit plan that
has total assets in excess of $5,000,000, or (iii) a self-directed employee
benefit plan and the investment decisions are made solely by persons that are
accredited investors;
(I) a private business development company as defined
in section 202(a)(22) of the Investment Advisors Act of 1940, as amended;
(J) an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or
similar business trust, or partnership, in each case, not newly formed, actively
engaged in a trade or business, and having total assets in excess of $5,000,000;
(K) a natural person with an individual net worth, or
joint net worth with Investor's spouse, in excess of $1,000,000;
-8-
<PAGE>
(L) a natural person who had an individual income in
excess of $200,000 or joint income with Investor's spouse of $300,000 in each of
the two most recent years, and reasonably expects to reach the same income level
in the current year;
(M) a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring any securities to
be offered in the future, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that such person is
capable of evaluating the merits and risks of the prospective investment, as
described in Rule 506(b)(2)(ii) of Regulation D; or
(N) an entity in which all the equity owners are
accredited investors.
6.6 SOPHISTICATED INVESTOR STATUS. Investor is, and will be on
the Closing Date, a sophisticated investor which has the capacity to protect
Investor's own interests in investments of this nature, and has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of this investment.
6.7 ALL NECESSARY INFORMATION RECEIVED. Investor has had all
documents, records, books and due diligence materials pertaining to this
acquisition made available to Investor and Investor's accountants and advisors;
Investor has also had an opportunity to ask questions and receive answers
concerning this acquisition; and Investor has all of the information deemed by
Investor to be necessary or appropriate to evaluate this investment and the
risks and merits thereof.
6.8 NO RELIANCE ON OTHER INFORMATION. Investor is acquiring
the Securities solely upon the information provided to Investor as specified in
Section 6.7, above, together with information obtained by Investor through
Investor's independent investigation, and has not relied on any oral
representations as to the risks or merits of this investment.
6.9 INVESTOR AWARE OF RISKS. Investor is aware of the
following:
(A) the Securities are speculative, with no assurance
of any income from the Securities;
(B) no federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(C) transferability of the Securities is highly
restricted and, accordingly, it may not be possible for Investor to liquidate
the Securities in case of emergency; and
(D) with respect to the tax aspects of an investment
in the Securities, Investor in making Investor's investment decision is not
relying to any degree upon the advice of the Company, or any person affiliated
therewith, but rather solely upon Investor's own legal, financial and tax
advisors.
-9-
<PAGE>
SECTION 7. SURVIVAL OF REPRESENTATION AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, Exhibit, certificate, document or list delivered
by any such party pursuant hereto or in connection with the Transactions
contemplated hereby shall survive the Closing and each party hereto (taking the
Investors as a single party) shall be entitled to rely upon the representations
and warranties of the other party set forth in this Agreement.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. Subject
to waiver as set forth in Section 10.8, the obligations of the Company under
this Agreement are subject to the fulfillment prior to or at the Closing of each
of the following conditions:
8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Investors set forth in Sections and shall be true and correct
on the Closing Date with the same effect as if made at that time.
8.2 PERFORMANCE BY THE INVESTORS. The Investors shall have
performed and satisfied all agreements and conditions which each of them is
required by this Agreement to perform or satisfy prior to or on the Closing
Date.
8.3 CERTIFICATES. The Company shall have received certificates
from each of the Investors dated the Closing Date certifying in such detail as
the Company may reasonably request that each of the conditions described in
Sections 8.1 and 8.2 has been fulfilled.
8.4 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Investors
shall be reasonably satisfactory to the Company.
8.5 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the Transactions contemplated by this Agreement and no Litigation shall be
pending against the Company or any Subsidiary.
8.6 REGULATORY COMPLIANCE AND APPROVALS. The Company shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties shall have complied
with all Regulations applicable to the Transactions.
8.7 CONSENTS AND APPROVALS. The Investors and the Company
shall have obtained all consents and approvals necessary to complete the
Transactions and related transactions.
-10-
<PAGE>
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS.
Subject to waiver as set forth in Section 10.8, the obligations of the Investors
under this Agreement are subject to the fulfillment prior to or at the Closing
of each of the following conditions:
9.1 COMPANY REPRESENTATIONS TRUE AT CLOSING. The
representations and warranties of the Company set forth in Section 5 shall be
true and correct on the Closing Date with the same effect as if made at that
time.
9.2 PERFORMANCE BY THE COMPANY. The Company shall have
performed and satisfied all agreements and conditions which it is required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.3 OFFICER'S CERTIFICATE. The Investors shall have received a
certificate from an appropriate officer of the Company dated the Closing Date
certifying in such detail as the Investors may reasonably request that each of
the conditions described in Sections 9.1 and 9.2 has been fulfilled.
9.4 INCUMBENCY CERTIFICATE. The Investors shall have received
a certificate of the Secretary or an Assistant Secretary of the Company dated
the Closing Date certifying to the incumbency of the officers of the Company
signing for it and as to the authenticity of their signatures.
9.5 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Company
shall be reasonably satisfactory to the Investors.
9.6 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the Transactions contemplated by this Agreement.
9.7 REGULATORY COMPLIANCE AND APPROVAL. The Investors shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties have complied with
all Regulations applicable to the Transactions.
SECTION 10. MISCELLANEOUS.
10.1 NO TRANSFER OF SECURITIES BY INVESTOR. None of the
Investors will distribute (including, without limitation, any distribution to
the shareholders or partners of any Investor pursuant to the terms of its
governing instruments or any distribution in connection with the dissolution of
any Investor), sell, resell, assign, pledge, mortgage, hypothecate, or otherwise
transfer or dispose of the Securities (or any portion thereof) (any such event
or combination thereof being hereinafter referred to as a "Transfer") without
--------
first furnishing to the Company an
-11-
<PAGE>
opinion of counsel, which opinion shall be satisfactory in form, scope and
substance to the Company in sole discretion, that registration under the
Securities Act or any applicable state securities laws is not required in
connection with any proposed Transfer.
10.2 LEGEND ON CERTIFICATES. Each certificate representing the
Securities shall bear a legend consistent with the representations, warranties
and agreements set forth herein, which shall read substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY
THE ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B)
THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER
AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO
COUNSEL FOR THE COMPANY OR A 'NO-ACTION' OR INTERPRETIVE LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR
TRANSFER."
10.3 PAYMENT OF EXPENSES. Each of the Investors and the
Company will pay all legal, accounting and other fees and expenses which such
party incurs in connection with this Agreement and the Transactions contemplated
hereby, and none of the expenses of the Investors shall be paid by the Company.
However, if this Agreement is terminated pursuant to Section 10.5 or if the
failure to satisfy a condition of Closing arises out of the breach, existing at
the time of the execution of this Agreement, of a representation or warranty
contained in this Agreement, the party terminating this Agreement shall be
entitled to receive from the breaching party or parties the expenses of the
terminating party incurred between the date of this Agreement and the date of
termination.
10.4 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Investors and the Company.
10.5 TERMINATION FOR BREACH. The Company may terminate its
obligations under this Agreement at any time prior to the Closing Date if any of
the Investors shall have breached any of their representations, warranties or
other obligations under this Agreement in any material respect. The Investors
may likewise terminate their obligations under this Agreement at any time prior
to the Closing Date if the Company shall have breached any of its
representations, warranties or other obligations under this Agreement in any
material respect. Such termination may be effected by written notice from either
the Company or the Investors, as appropriate, citing the reasons for termination
and shall not subject the terminating party to any liability for any valid
termination.
-12-
<PAGE>
10.6 BROKERS' AND FINDERS' FEES. Except for the advisory fee
paid by the Company to Phipps, Teman & Company, L.L.C., the payment of which fee
is the sole responsibility of the Company, the Investors as a group and the
Company each to the other represents and warrants that all negotiations relative
to this Agreement have been carried on by them directly without the intervention
of any person, firm, corporation or other entity who or which may be entitled to
any brokerage fee or other commission in respect of the execution of this
Agreement or the consummation of the Transactions contemplated hereby, and each
of them shall indemnify and hold the other or any affiliate of them harmless
against any and all claims, losses, liabilities or expenses which may be
asserted against any of them as a result of any dealings, arrangements or
agreements by the indemnifying party with any such person, firm, corporation or
other entity.
10.7 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of each of the Investors and by the successors and assigns of the
Company.
10.8 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
10.9 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally to the
address set forth below (to the attention of the person identified below) or
sent by telegram or by registered or certified mail, postage prepaid, if to
Company, to: Avery Communications, Inc., 801 Greenview Drive, Grand Prairie,
Texas 75050, Attention: Thomas M. Lyons; and if to any of the Investors, to
their addresses set forth on Exhibit A hereto, or to such other address as the
addressee may have specified in a notice duly given to the sender and to counsel
as provided herein. Such notice, request, demand, waiver, consent, approval or
other communication will be deemed to have given as of the date so delivered or
telegraphed or, if mailed, three business days after the date so mailed.
10.10 TEXAS LAW TO GOVERN. This Agreement shall be governed by
and interpreted and enforced in accordance with the substantive laws of the
State of Texas, without giving effect to the conflict of law rules thereof.
10.11 REMEDIES NOT EXCLUSIVE. Nothing in this Agreement shall
be deemed to limit or restrict in any manner other rights or remedies that any
party may have against any other party at law, in equity or otherwise.
10.12 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer any rights on any other persons.
-13-
<PAGE>
10.13 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the Transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom or which such claimed
amendment, modification, termination or waiver is sought to be enforced.
10.14 SECTION HEADINGS AND GENDER. All section headings and
the use of a particular gender are for convenience only and shall in no way
modify or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section or Exhibit shall be deemed to be a reference to a Section
or Exhibit of this Agreement unless the context otherwise expressly requires.
10.15 COOPERATION. Subject to the provisions hereof, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement and under
applicable law to consummate and make effective the Transactions contemplated by
this Agreement.
10.16 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
10.17 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties, it not being necessary that any counterpart
hereof be executed by more than one of the parties hereto. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
-14-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above, and, in connection therewith, each
of the Investors hereby certifies that it is an "accredited investor" because
such Investor is described in the subparagraph of Section 6.5 indicated next to
such Investor's signature below.
INSTRUCTIONS: PLEASE MANUALLY INSERT THE APPROPRIATE
SUBPARAGRAPH OF SECTION 6.5 IN THE SPACE PROVIDED TO INDICATE WHY
EACH INVESTOR IS AN "ACCREDITED INVESTOR" AND SIGN AND COMPLETE
THE SIGNATURE BLOCKS AS NECESSARY.
THE INVESTORS
-------------
RILAR FAMILY ASSOCIATES LIMITED PARTNERSHIP
Section 6.5, subparagraph ____ By:________________________________________
Print Name:________________________________
Title: General Partner
Section 6.5, subparagraph ____ ___________________________________________
Russell T. Stern, Jr.
EDWARD J. HARRISON IRA
Section 6.5, subparagraph ____ By: NORWEST BANK MINNESOTA, N.A., TRUSTEE
By:________________________________________
Print Name:________________________________
Title:_____________________________________
Section 6.5, subparagraph ____ ___________________________________________
Henry N. Schneider
-15-
<PAGE>
WAVELAND LIMITED LIABILITY CORP.
Section 6.5, subparagraph ____ By:________________________________________
Print Name: Patrick J. Haynes, III
Title: Manager
THE COMPANY
-----------
AVERY COMMUNICATIONS, INC.
By:________________________________________
Print Name: Thomas M. Lyons
Title: President
-16-
<PAGE>
EXHIBIT A
INVESTORS
(A) (B) (C)
New Warrants
Name and Address Number of Current to be
of Investor Warrants Owned Received
----------- -------------- --------
Rilar Family Associates 71,000 @ $1.098 101,000 @ $0.50
Limited Partnership 30,000 @ $1.886
c/o Global Capital Resources, Inc.
450 Park Avenue,
Suite 1000
New York, NY 10022
Russell T. Stern 20,000 @ $1.098 50,000 @ $0.50
c/o The Thurston Group 30,000 @ $1.886
190 South LaSalle Street,
Suite 1410
Chicago, IL 60603
Edward J. Harrison IRA 71,000 @ $1.098 101,000 @ $0.50
c/o Investment Management 30,000 @ $1.886
& Trust
Norwest Bank Minnesota, N.A.
Norwest Center
6th & Marquette
Minneapolis, MN 55479
Henry N. Schneider 71,000 @ $1.098 101,000 @ $0.50
c/o Global Capital Resources, Inc. 30,000 @ $1.886
450 Park Avenue,
Suite 1000
New York, NY 10022
Waveland Limited Liability Corp. 71,000 @ $1.098 101,000 @ $0.50
c/o The Thurston Group 30,000 @ $1.886
190 South LaSalle Street,
Suite 1410
Chicago, IL 60603
-17-
<PAGE>
EXHIBIT 4.3
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
This WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT is dated
and effective as of July ____, 1996, and is being entered by and between or
among, as the case may be, AVERY COMMUNICATIONS, INC., a Delaware corporation,
and the person or persons whose name or names, as the case may be, is or are set
forth on the signature page hereto, with reference to the following RECITALS:
RECITALS
Each of the Investors owns the Notes or Current Warrants, or both, set
forth on Exhibit A.
Each of the Investors desires to exercise the Modified Warrants and to
exchange the Notes for shares of the Series A.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
SECTION 1. DEFINITIONS.
For convenience and brevity, certain terms used in various parts of
this Agreement are listed in alphabetical order and defined or referred to below
(such terms to be equally applicable to both singular and plural forms of the
terms defined).
"Agreement" means this Warrant Exercise and Securities
Exchange Agreement.
"Business Day" means any calendar day which is not a Saturday,
Sunday or other day on which commercial banks in Dallas, Texas, or New
York, New York, are authorized or required to close by applicable law.
"Closing" and "Closing Date" are defined in Section 3.1.
"Common Stock" means the 20,000,000 authorized shares of
Common Stock, par value $0.01 per share, of the Company.
"Company" means Avery Communications, Inc., a Delaware
corporation.
"Contract" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement,
undertaking, practice or authorization that is or may be binding on any
person or its property under applicable law.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or
regulatory body or authority that is binding on any person or its
property under applicable law.
<PAGE>
"Current Investments" means the Notes or the Current Warrants,
or both, as the case may be.
"Current Warrants" means the warrants to purchase shares of
the Common Stock of the Company, if any, constituting a part of the
Current Investments owned by each of the Investors as set forth in
Column B of Exhibit A.
"Default" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under
any Contract, or (3) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to
a right of termination, renegotiation or acceleration under any
Contract.
"Governmental Authority" means any federal, state, local or
other governmental agency or body or of any other type of regulatory
body, including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage
control matters.
"HOLD Closing Date" means the "Closing Date," as defined in
the HOLD Merger Agreement.
"HOLD Merger Agreement" means that certain Agreement and Plan
of Merger, dated as of May 3, 1996, among the Company, Avery
Acquisition Sub, Inc., Home Owners Long Distance Incorporated, Joseph
W. Webb, James A. Young, Edward L. Dunn, Dunn Stock Trust Fund No. 1,
and Philip S. Dunn.
"Investor" or "Investors" means the person or persons listed
on Exhibit A, who is or who are the owner or the owners, as the case
may be, of all of the Current Investments.
"Licenses" means licenses, franchises, permits, easements,
rights and other authorizations.
"Lien" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever on any property or property interest.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry involving or affecting any party
hereto or any Contracts to which any party hereto is a party or by
which such party or any of such party's assets may be bound or
affected.
-2-
<PAGE>
"Modified Warrants" means the Current Warrants, the exercise
prices of which have been reduced as herein provided.
"Notes" means the promissory notes, if any, or interests in
promissory notes, if any, constituting a part of the Current
Investments owned by each of the Investors as set forth in Column E of
Exhibit A.
"Person" or "person" means any natural person, firm,
partnership, association, corporation, company, business trust, trust,
Governmental Authority or other entity.
"Preferred Stock" means the 20,000,000 authorized shares of
Preferred Stock, par value $0.01 per share, of the Company.
"Registrable Securities" means the shares of Common Stock
issuable to each of the Investors upon the exercise of the Modified
Warrants or the conversion of the Series A Stock, or both.
"Regulation" means any statute, law, ordinance, regulation,
order or rule of any Governmental Authority.
"Regulation D" means Regulation D promulgated by the SEC under
the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities" means the shares of the Series A Stock to be
issued to each of the Investors pursuant to the terms and conditions of
this Agreement, and the shares of Common Stock issuable to each of the
Investors upon the exercise of the Modified Warrants or the conversion
of the Series A Stock, or both.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Stock" means the Series A Junior Convertible
Redeemable Preferred Stock of the Company, a copy of the Certificate of
Designation for which is attached hereto as Exhibit B.
"Transactions" means the contemporaneous exercise of the
Modified Warrants by each of the Investors upon the signing of this
Agreement and the exchange of the Notes by each of the Investors for
the Securities of the Company at the Closing, in each case as herein
provided, and all related transactions provided for in or contemplated
by this Agreement or any Exhibit hereto.
-3-
<PAGE>
SECTION 2. THE TRANSACTIONS.
2.1 EXCHANGE OF NOTES FOR PREFERRED STOCK. Subject to the
terms and conditions hereinafter set forth, and on the basis of and in reliance
upon the representations, warranties, obligations and agreements set forth
herein, at the Closing each Investor shall sell, transfer, assign and convey to
the Company, and the Company shall purchase from each Investor, all of the Notes
owned by such Investor in exchange for the shares of the Series A Stock as set
forth after such Investor's name in Column F of Exhibit A.
2.2 REDUCTION OF EXERCISE PRICE OF CURRENT WARRANTS; EXERCISE
PRICE OF MODIFIED WARRANTS. Subject to the terms and conditions hereinafter set
forth, and on the basis of the representations, warranties, obligations and
agreements set forth herein, simultaneously with the execution and delivery of
this Agreement, the exercise price of the Current Warrants shall be reduced to
$0.60 per share of Common Stock.
2.3 EXERCISE OF MODIFIED WARRANTS. In consideration of the
reduction of the exercise price of the Current Warrants as herein provided, the
Investors shall exercise all the Modified Warrants contemporaneously with the
execution and delivery of this Agreement. The full purchase price therefor, as
set forth after such Investor's name in Column D of Exhibit A, shall be paid to
the Company contemporaneously with the execution and delivery of this Agreement
by wire transfer of immediately available funds to the Company's bank account in
Dallas, Texas, or by delivery to the Company of a cashier's check payable to the
order of the Company.
2.4 DEFAULT BY ANY INVESTOR AT THE CLOSING. Notwithstanding
the provisions of Section 2.1, if any of the Investors shall fail or refuse to
deliver any of the Notes as provided in Section 2.1, or if any of the Investors
shall have failed or refused to exercise the Modified Warrants as provided in
Section 2.3, or if any of the Investors shall fail or refuse to consummate the
other transactions described in this Agreement prior to or on the Closing Date,
such failure or refusal shall not relieve the other Investors of any obligations
under this Agreement, and the Company, at its option and without prejudice to
its rights against any such defaulting Investor, may either (1) acquire the
remaining Notes which it is entitled to acquire hereunder, or (2) refuse to make
such acquisition and thereby terminate all of its obligations hereunder. Each of
the Investors acknowledges that the Notes are unique and otherwise not available
and agree that in addition to any other remedies, the Company may invoke any
equitable remedies to enforce delivery of the Notes hereunder, including,
without limitation, an action or suit for specific performance.
SECTION 3. CLOSING.
3.1 CLOSING DATE. The consummation of the exchange of the
Notes for the Series A Stock (the "Closing") shall take place on such date, and
at such time and place, or as the Company shall hereafter specify by notice to
the Investors. The Closing may take place at such other time or place on such
other date as the Company and the Investors may agree to in writing. In either
event, at the option of the Company, the Closing may occur by the Company's
-4-
<PAGE>
and the Investors' exchanging facsimile copies of the executed originals of the
documents, certificates, opinions and other instruments referred to in Section
3.2 hereof, the executed originals of which shall be delivered by such means as
the Company and the Investors may mutually agree. In the event that the Company
exercises its option to have the Closing occur in this manner, the Closing shall
be deemed to have occurred on the date and time specified by the Company in
Dallas, Texas, for all purposes. The date of the Closing is hereinafter
sometimes referred to as the "Closing Date."
3.2 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, each Investor shall deliver to the Company, free and clear of
all Liens, the Notes, in negotiable form, duly endorsed in blank, or with
separate notarized stock or bond transfer powers attached thereto and signed in
blank, in exchange for the shares of the Series A Stock set forth opposite each
Investor's name in Column F on Exhibit A. At the Closing, each of the Investors
shall also deliver to the Company, and the Company shall deliver to each of the
Investors, the certificates, opinions and other instruments and documents
referred to in Sections 8 and 9.
3.3 TERMINATION. In the event that the Closing shall not have
taken place on or before five Business Days following the HOLD Closing Date, or
such later date as shall be mutually agreed to in writing by the Company and
each of the Investors, all of the rights and obligations of the parties under
this Agreement to exchange the Notes for the Series A Stock shall terminate
without liability, except for liability in the event the Closing does not occur
and this Agreement terminates by reason of a default or breach by any party
hereto. The exercise of the Modified Warrants as herein provided shall not be
affected in any manner whatsoever by a termination of this Agreement after the
date hereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants to the Company, severally and not
jointly, and solely on each Investor's own behalf, as follows:
4.1 AUTHORITY AND BINDING EFFECT. Investor has the full power
and authority to execute, deliver and perform this Agreement and has taken all
actions necessary to secure all approvals required in connection therewith. This
Agreement constitutes the legal, valid and binding obligation of Investor,
enforceable against such Investor in accordance with its terms.
4.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by Investor nor the consummation of the
transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to Investor, or will result in a Default under,
or require the consent or approval of any party to, any Contract to or by which
Investor is a party or otherwise bound or affected, or require Investor to
notify or obtain any License from any Governmental Authority. Investor is not a
party to any Contract or subject to any restriction or any Court Order or
Regulation which affects or restricts the ability of Investor to consummate the
transactions contemplated hereby.
4.3 TITLE TO SECURITIES. Investor owns outright and has good
and marketable title to all of the Current Investments, and on the Closing Date
will own outright and have good and
-5-
<PAGE>
marketable title to the Notes, set forth in Column E of Exhibit A as being owned
by Investor, free and clear of all Liens.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor as follows:
5.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, having all requisite corporate power and authority to perform
its obligations under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
has taken all actions necessary to secure all approvals required in connection
therewith. The execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Company nor the consummation of
the transactions contemplated hereby by the Company will contravene or violate
any Regulation or Court Order which is applicable to the Company, or the
Certificate of Incorporation or Bylaws of the Company, or will result in a
Default under, or require the consent or approval of any party to, any Contract
to or by which the Company is a party or by which it is otherwise bound or
affected, or require the Company to notify or obtain any License from any
Governmental Authority. The Company is not a party to any Contracts or subject
to any restriction or any Court Order or Regulation which affects or restricts
the ability of the Company to consummate the transactions contemplated hereby.
SECTION 6. INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Investor
acknowledges that the Securities are being acquired for each Investor's own
account as part of a private offering, exempt from registration under the
Securities Act and all applicable state securities or blue sky laws, for
investment only and not with a view to the distribution or other sale thereof,
and that an exemption from registration under the Securities Act or any
applicable state securities laws may not be available if the Securities are
acquired by Investor with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the Securities
within the meaning and purview of the Securities Act or the applicable state
securities laws. Accordingly, each Investor represents and warrants to the
Company, severally and not jointly, and solely on each Investor's own behalf, as
follows:
6.1 OWN ACCOUNT. No other person will acquire, directly or
indirectly, any interest in the Securities (or any portion thereof) as a result
of Investor's acquisition of the Securities pursuant to this Agreement.
6.2 SECURITIES TO BE HELD FOR INVESTMENT. It is Investor's
intention to acquire and hold the Securities solely for Investor's private
investment and for Investor's own account
-6-
<PAGE>
and with no view or intention to distribute (including, without limitation, any
distribution to the shareholders of Investor pursuant to the terms of its
governing instruments), sell, resell, assign, pledge, mortgage, hypothecate, or
otherwise transfer or dispose of the Securities (or any portion thereof) except
pursuant to a valid exception from registration or a registered offering under
the Securities Act.
6.3 NO TRANSFERS OF SECURITIES CONTEMPLATED. Investor has no
contract, undertaking, agreement, or arrangement with any person to sell or
otherwise transfer to any person, or to have any person sell on behalf of
Investor, the Securities (or any portion thereof), and Investor is not engaged
in and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of the Securities (or any
portion thereof).
6.4 NO EVENTS REQUIRING TRANSFER OF SECURITIES. Investor is
not aware of any occurrence, event, or circumstance upon the happening of which
Investor intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the Securities (or any portion
thereof), and Investor does not have any present intention of selling,
transferring, or otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
6.5 ACCREDITED INVESTOR STATUS. Investor is, and will be on
the Closing Date, an "accredited investor," as such term is defined in the
Securities Act or Regulation D, and under the securities laws of certain states,
because Investor is described in one of the categories set forth below:
(A) a bank as defined in Section 3(a)(2) of the
Securities Act, whether acting in its individual or fiduciary capacity;
(B) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity;
(C) a broker or dealer registered under Section 15 of
the Securities Exchange Act of 1934, as amended;
(D) an insurance company as defined in Section 2(13)
of the Securities Act;
(E) an investment company registered under the
Investment Company Act of 1940, as amended, or a business development company as
defined in section 2(a)(48) of that Act;
(F) a Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
-7-
<PAGE>
(G) a plan established by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, and such plan has total assets
in excess of $5,000,000;
(H) (i) an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974, with the
investment decisions being made by a plan fiduciary, as defined in section 3(21)
of such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or (ii) an employee benefit plan that
has total assets in excess of $5,000,000, or (iii) a self-directed employee
benefit plan and the investment decisions are made solely by persons that are
accredited investors;
(I) a private business development company as defined
in section 202(a)(22) of the Investment Advisors Act of 1940, as amended;
(J) an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or
similar business trust, or partnership, in each case, not newly formed, actively
engaged in a trade or business, and having total assets in excess of $5,000,000;
(K) a natural person with an individual net worth, or
joint net worth with Investor's spouse, in excess of $1,000,000;
(L) a natural person who had an individual income in
excess of $200,000 or joint income with Investor's spouse of $300,000 in each of
the two most recent years, and reasonably expects to reach the same income level
in the current year;
(M) a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring any securities to
be offered in the future, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that such person is
capable of evaluating the merits and risks of the prospective investment, as
described in Rule 506(b)(2)(ii) of Regulation D; or
(N) an entity in which all the equity owners are
accredited investors.
6.6 SOPHISTICATED INVESTOR STATUS. Investor is, and will be on
the Closing Date, a sophisticated investor which has the capacity to protect
Investor's own interests in investments of this nature, and has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of this investment.
6.7 ALL NECESSARY INFORMATION RECEIVED. Investor has had all
documents, records, books and due diligence materials pertaining to the Company
and the Securities and the transactions contemplated by this Agreement made
available to Investor and Investor's accountants and advisors; Investor has also
had an opportunity to ask questions and receive answers concerning the Company
and the Securities and the transactions contemplated by this Agreement; and
Investor has all of the information deemed by Investor to be necessary or
-8-
<PAGE>
appropriate to evaluate the Company and the Securities and the transactions
contemplated by this Agreement and the risks and merits thereof and an
investment in the Securities.
6.8 NO RELIANCE ON OTHER INFORMATION. Investor is acquiring
the Securities solely upon the information provided to Investor as specified in
Section , together with information obtained by Investor through Investor's
independent investigation, and has not relied on any oral representations.
6.9 INVESTOR AWARE OF RISKS. Investor is aware of the
following:
(A) the Securities are speculative, with no assurance
of any income from the Securities;
(B) no federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(C) transferability of the Securities is highly
restricted and, accordingly, it may not be possible for Investor to liquidate
the Securities in case of emergency; and
(D) with respect to the tax aspects of an investment
in the Securities, Investor in making Investor's investment decision is not
relying to any degree upon the advice of the Company, or any person affiliated
therewith, but rather solely upon Investor's own legal, financial and tax
advisors.
SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, Exhibit, certificate, document or list delivered
by any such party pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing, and each party hereto (taking the
Investors as a single party) shall be entitled to rely upon the representations
and warranties of the other party set forth in this Agreement.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. Subject
to waiver as set forth in Section , the obligations of the Company to exchange
the Series A Stock for the Notes under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions:
8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Investors set forth in Sections and shall be true and correct
on the Closing Date with the same effect as if made at that time.
8.2 PERFORMANCE BY THE INVESTORS. The Investors shall have
exercised the Modified Warrants as required by this Agreement and performed and
satisfied all agreements and conditions which each of them is required by this
Agreement to perform or satisfy prior to or on the Closing Date.
-9-
<PAGE>
8.3 RELEASE OF LIENS; DELIVERY OF COLLATERAL. The Investors
shall have delivered to the Company any and all documents and other instruments
(including, without limitation, Form UCC-3's or comparable documents) necessary,
advisable or desirable, and in proper form for filing with the appropriate
Governmental Authority, to release and discharge fully any and all Liens on any
assets of the Company or any of its subsidiaries constituting collateral for, or
otherwise securing the payment of, the Notes, and shall have delivered any and
all such assets of the Company or its subsidiaries to the Company or its
subsidiaries, as the case may be.
8.4 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Investors
shall be reasonably satisfactory to the Company and its counsel.
8.5 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement and no Litigation shall be
pending against the Company or any Subsidiary.
8.6 REGULATORY COMPLIANCE AND APPROVALS. The Company shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties shall have complied
with all Regulations applicable to the Transactions.
8.7 CONSENTS AND APPROVALS. The Investors and the Company
shall have obtained all consents and approvals necessary to complete the
Transactions and related transactions.
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS.
Subject to waiver as set forth in Section , the obligations of the Investors to
exchange the Notes for the Series A Stock under this Agreement are subject to
the fulfillment prior to or at the Closing of each of the following conditions:
9.1 COMPANY REPRESENTATIONS TRUE AT CLOSING. The
representations and warranties of the Company set forth in Section shall be true
and correct on the Closing Date with the same effect as if made at that time.
9.2 PERFORMANCE BY THE COMPANY. The Company shall have
performed and satisfied all agreements and conditions which it is required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.3 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Company
shall be reasonably satisfactory to the Investors.
-10-
<PAGE>
9.4 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
9.5 REGULATORY COMPLIANCE AND APPROVAL. The Investors shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties have complied with
all Regulations applicable to the Transactions.
SECTION 10. REGISTRATION RIGHTS. The Company shall use its reasonable
best efforts to file a registration statement with the SEC to register the
Registrable Securities for sale by the Investors under the Securities Act within
180 days following the Closing Date, and to have such registration statement
declared effective. The Company shall use its reasonable best efforts to keep
such registration statement effective for a period of two years after the
Closing Date, or until the Registrable Securities may be sold by the Investors
without registration pursuant to Rule 144(k) under the Securities Act or
otherwise, whichever period is shorter. All costs of such registration shall be
borne by the Company except underwriting discounts and commissions incurred by
the Investors and fees and expenses of counsel for the Investors. Each of the
Investors agrees not to sell any of the Securities pursuant to such registration
statement at any time or from time to time and for such period or periods as the
Company may have a registration statement on file with the SEC for the sale of
securities of the Company for its own account until the completion of the
distribution of such securities by the Company. The registration rights set
forth herein supersede and replace in their entirety any other registration
rights that any of the Investors may have, all of which registration rights, if
any, are hereby terminated.
SECTION 11. MISCELLANEOUS.
11.1 NO TRANSFER OF SECURITIES BY INVESTOR. None of the
Investors will distribute (including, without limitation, any distribution to
the shareholders or partners of any Investor pursuant to the terms of its
governing instruments or any distribution in connection with the dissolution of
any Investor), sell, resell, assign, pledge, mortgage, hypothecate, or otherwise
transfer or dispose of the Securities (or any portion thereof) (any such event
or combination thereof being hereinafter referred to as a "Transfer") without
--------
first furnishing to the Company an opinion of counsel, which opinion shall be
satisfactory in form, scope and substance to the Company and its counsel in
their sole discretion, that registration under the Securities Act or any
applicable state securities laws is not required in connection with any proposed
Transfer.
11.2 LEGEND ON CERTIFICATES. Each certificate representing the
Securities shall bear a legend consistent with the representations, warranties
and agreements set forth herein, which shall read substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND HAVE BEEN ACQUIRED BY THE ISSUEE FOR INVESTMENT
-11-
<PAGE>
PURPOSES. SAID SHARES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THEY
HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER
A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A
'NO-ACTION' OR INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER."
11.3 PAYMENT OF EXPENSES. Each of the Investors and the
Company will pay all legal, accounting and other fees and expenses which such
party incurs in connection with this Agreement and the transactions contemplated
hereby, and none of the expenses of the Investors shall be paid by the Company.
However, if this Agreement is terminated pursuant to Section or if the failure
to satisfy a condition of Closing arises out of the breach, existing at the time
of the execution of this Agreement, of a representation or warranty contained in
this Agreement, the party terminating this Agreement shall be entitled to
receive from the breaching party or parties the expenses of the terminating
party incurred between the date of this Agreement and the date of termination.
11.4 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Investors and the Company. No termination of this Agreement shall affect the
exercise of the Modified Warrants as herein provided.
11.5 TERMINATION FOR BREACH. The Company may terminate its
obligations under this Agreement at any time prior to the Closing Date if any of
the Investors shall have breached any of their representations, warranties or
other obligations under this Agreement in any material respect. The Investors
may likewise terminate their obligations under this Agreement at any time prior
to the Closing Date if the Company shall have breached any of its
representations, warranties or other obligations under this Agreement in any
material respect. Such termination may be effected by written notice from either
the Company or the Investors, as appropriate, citing the reasons for termination
and shall not subject the terminating party to any liability for any valid
termination. No termination of this Agreement shall affect the exercise of the
Modified Warrants as herein provided.
11.6 BROKERS' AND FINDERS' FEES. The Investors as a group and
the Company each to the other represent and warrant that all negotiations
relative to this Agreement have been carried on by them directly without the
intervention of any person, firm, corporation or other entity who or which may
be entitled to any brokerage fee or other commission from the other in respect
of the execution of this Agreement or the consummation of the transactions
contemplated hereby, and each of them shall indemnify and hold the other or any
affiliate of them harmless against any and all claims, losses, liabilities or
expenses which may be asserted against any of them as a result of any dealings,
arrangements or agreements by the indemnifying party with any such person, firm,
corporation or other entity.
-12-
<PAGE>
11.7 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of each of the Investors and by the successors and assigns of the
Company.
11.8 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.9 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally to the
address set forth below (to the attention of the person identified below) or
sent by telegram or by registered or certified mail, postage prepaid, if to
Company, to: Avery Communications, Inc., 801 Greenview Drive, Grand Prairie,
Texas 75050, Attention: Thomas M. Lyons; and if to any of the Investors, to
their addresses set forth on Exhibit A hereto, or to such other address as the
addressee may have specified in a notice duly given to the sender and to counsel
as provided herein. Such notice, request, demand, waiver, consent, approval or
other communication will be deemed to have been given as of the date so
delivered or telegraphed or, if mailed, three Business Days after the date so
mailed.
11.10 TEXAS LAW TO GOVERN. This Agreement shall be governed by
and interpreted and enforced in accordance with the substantive laws of the
State of Texas, without giving effect to the conflict of law rules thereof.
11.11 REMEDIES NOT EXCLUSIVE. Nothing in this Agreement shall
be deemed to limit or restrict in any manner other rights or remedies that any
party may have against any other party at law, in equity or otherwise.
11.12 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer any rights on any other persons.
11.13 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom or which such claimed
amendment, modification, termination or waiver is sought to be enforced.
11.14 SECTION HEADINGS AND GENDER. All section headings and
the use of a particular gender are for convenience only and shall in no way
modify or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section or Exhibit shall be deemed to be a reference to a Section
or Exhibit of this Agreement unless the context otherwise expressly requires.
-13-
<PAGE>
11.15 COOPERATION. Subject to the provisions hereof, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement and under
applicable law to consummate and make effective the transactions contemplated by
this Agreement.
11.16 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.17 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties, it not being necessary that any counterpart
hereof be executed by more than one of the parties hereto. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
[THIS SPACE INTENTIONALLY LEFT BLANK.
PLACES FOR SIGNATURES BEGIN ON THE FOLLOWING PAGE.]
-14-
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
AVERY COMMUNICATIONS, INC.
By:________________________________
Thomas M. Lyons
President
SIGNATURES CONTINUE ON FOLLOWING PAGE
S-1
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
GLOBAL CAPITAL RESOURCES, INC., as Agent for Bridge
Lenders as described in the document
entitled "Private Offering Memorandum Avery
Communications, Inc." dated November 4, 1994
By:_________________________________________
Print Name: Patrick J. Haynes, III
---------------------------------
Print Title:
--------------------------------
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
SABINA INTERNATIONAL S.A.
By:_________________________________________
Print Name:_________________________________
Print Title:________________________________
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
____________________________________________
Joseph Pontarelli
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
STANLEY ASSOCIATES
By:_________________________________________
Print Name:_________________________________
Print Title:________________________________
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
THE CORNERHOUSE LIMITED PARTNERSHIP
By:_________________________________________
Print Name:_________________________________
Print Title: General Partner
By:_________________________________________
Print Name:_________________________________
Print Title:________________________________
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
____________________________________________
Leonard Pearlman
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
____________________________________________
David Peipers
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
____________________________________________
Robert T. Isham, Jr.
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
____________________________________________
John Joseph Gains
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$800,000 BRIDGE LOAN NOTES]
INVESTOR SIGNATURE PAGE
______________________________________________
Smith Barney, as Custodian for the IRA of John
Leonard Huff
S-2
<PAGE>
EXHIBIT 4.4
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
This WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT is dated and
effective as of July ___, 1996, and is being entered by and between or among, as
the case may be, AVERY COMMUNICATIONS, INC., a Delaware corporation, and the
person or persons whose name or names, as the case may be, is or are set forth
on the signature page hereto, with reference to the following RECITALS:
RECITALS
Each of the Investors owns the Notes or Current Warrants, or both, set
forth on Exhibit A.
Each of the Investors desires to exercise the Current Warrants and to
exchange the Notes for shares of the Series B.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
SECTION 1. DEFINITIONS.
For convenience and brevity, certain terms used in various parts of
this Agreement are listed in alphabetical order and defined or referred to below
(such terms to be equally applicable to both singular and plural forms of the
terms defined).
"Agreement" means this Warrant Exercise and Securities
Exchange Agreement.
"Business Day" means any calendar day which is not a Saturday,
Sunday or other day on which commercial banks in Dallas, Texas, or New
York, New York, are authorized or required to close by applicable law.
"Closing" and "Closing Date" are defined in Section 3.1.
"Common Stock" means the 20,000,000 authorized shares of
Common Stock, par value $0.01 per share, of the Company.
"Company" means Avery Communications, Inc., a Delaware
corporation.
"Contract" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement,
undertaking, practice or authorization that is or may be binding on any
person or its property under applicable law.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or
regulatory body or authority that is binding on any person or its
property under applicable law.
<PAGE>
"Current Investments" means the Notes or the Current Warrants,
or both, as the case may be.
"Current Warrants" means the warrants to purchase shares of
the Common Stock of the Company, if any, constituting a part of the
Current Investments owned by each of the Investors as set forth in
Column B of Exhibit A.
"Default" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under
any Contract, or (3) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to
a right of termination, renegotiation or acceleration under any
Contract.
"Governmental Authority" means any federal, state, local or
other governmental agency or body or of any other type of regulatory
body, including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage
control matters.
"HOLD Closing Date" means the "Closing Date," as defined in
the HOLD Merger Agreement.
"HOLD Merger Agreement" means that certain Agreement and Plan
of Merger, dated as of May 3, 1996, among the Company, Avery
Acquisition Sub, Inc., Home Owners Long Distance Incorporated, Joseph
W. Webb, James A. Young, Edward L. Dunn, Dunn Stock Trust Fund No. 1,
and Philip S. Dunn.
"Investor" or "Investors" means the person or persons listed
on Exhibit A, who is or who are the owner or the owners, as the case
may be, of all of the Current Investments.
"Licenses" means licenses, franchises, permits, easements,
rights and other authorizations.
"Lien" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever on any property or property interest.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry involving or affecting any party
hereto or any Contracts to which any party hereto is a party or by
which such party or any of such party's assets may be bound or
affected.
-2-
<PAGE>
"Notes" means the convertible promissory notes, if any, or
interests in convertible promissory notes, if any, constituting a part
of the Current Investments owned by each of the Investors as set forth
in Column E of Exhibit A.
"Person" or "person" means any natural person, firm,
partnership, association, corporation, company, business trust, trust,
Governmental Authority or other entity.
"Preferred Stock" means the 20,000,000 authorized shares of
Preferred Stock, par value $0.01 per share, of the Company.
"Registrable Securities" means the shares of Common Stock
issuable to each of the Investors upon the exercise of the Current
Warrants or the conversion of the Series B Stock, or both.
"Regulation" means any statute, law, ordinance, regulation,
order or rule of any Governmental Authority.
"Regulation D" means Regulation D promulgated by the SEC under
the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities" means the shares of the Series B Stock to be
issued to each of the Investors pursuant to the terms and conditions of
this Agreement, and the shares of Common Stock issuable to each of the
Investors upon the exercise of the Current Warrants or the conversion
of the Series B Stock, or both.
"Securities Act" means the Securities Act of 1933, as amended.
"Series B Stock" means the Series B Junior Convertible
Redeemable Preferred Stock of the Company.
"Transactions" means the contemporaneous exercise of the
Current Warrants by each of the Investors upon the signing of this
Agreement and the exchange of the Notes by each of the Investors for
the Securities of the Company at the Closing, in each case as herein
provided, and all related transactions provided for in or contemplated
by this Agreement or any Exhibit hereto.
SECTION 2. THE TRANSACTIONS.
2.1 EXCHANGE OF NOTES FOR PREFERRED STOCK. Subject to the
terms and conditions hereinafter set forth, and on the basis of and in reliance
upon the representations, warranties, obligations and agreements set forth
herein, at the Closing each Investor shall sell, transfer, assign and convey to
the Company, and the Company shall purchase from each Investor, all of the
-3-
<PAGE>
Notes owned by such Investor in exchange for the shares of the Series B Stock as
set forth after such Investor's name in Column F of Exhibit A.
2.2 EXERCISE OF CURRENT WARRANTS. The Investors shall exercise
all the Current Warrants contemporaneously with the execution and delivery of
this Agreement. The full purchase price therefor shall be paid to the Company
contemporaneously with the execution and delivery of this Agreement by wire
transfer of immediately available funds to the Company's bank account in Dallas,
Texas, or by delivery to the Company of a cashier's check payable to the order
of the Company.
2.3 DEFAULT BY ANY INVESTOR AT THE CLOSING. Notwithstanding
the provisions of Section 2.1, if any of the Investors shall fail or refuse to
deliver any of the Notes as provided in Section 2.1, or if any of the Investors
shall have failed or refused to exercise the Current Warrants as provided in
Section 2.2, or if any of the Investors shall fail or refuse to consummate the
other transactions described in this Agreement prior to or on the Closing Date,
such failure or refusal shall not relieve the other Investors of any obligations
under this Agreement, and the Company, at its option and without prejudice to
its rights against any such defaulting Investor, may either (1) acquire the
remaining Notes which it is entitled to acquire hereunder, or (2) refuse to make
such acquisition and thereby terminate all of its obligations hereunder. Each of
the Investors acknowledges that the Notes are unique and otherwise not available
and agree that in addition to any other remedies, the Company may invoke any
equitable remedies to enforce delivery of the Notes hereunder, including,
without limitation, an action or suit for specific performance.
SECTION 3. CLOSING.
3.1 CLOSING DATE. The consummation of the exchange of the
Notes for the Series A Stock (the "Closing") shall take place on such date, and
at such time and place, or as the Company shall hereafter specify by notice to
the Investors. The Closing may take place at such other time or place on such
other date as the Company and the Investors may agree to in writing. In either
event, at the option of the Company, the Closing may occur by the Company's and
the Investors' exchanging facsimile copies of the executed originals of the
documents, certificates, opinions and other instruments referred to in Section
3.2 hereof, the executed originals of which shall be delivered by such means as
the Company and the Investors may mutually agree. In the event that the Company
exercises its option to have the Closing occur in this manner, the Closing shall
be deemed to have occurred on the date and time specified by the Company in
Dallas, Texas, for all purposes. The date of the Closing is hereinafter
sometimes referred to as the "Closing Date."
3.2 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, each Investor shall deliver to the Company, free and clear of
all Liens, the Notes, in negotiable form, duly endorsed in blank, or with
separate notarized stock or bond transfer powers attached thereto and signed in
blank, in exchange for the shares of the Series B Stock set forth opposite each
Investor's name in Column F on Exhibit A. At the Closing, each of the Investors
shall also
-4-
<PAGE>
deliver to the Company, and the Company shall deliver to each of the Investors,
the certificates, opinions and other instruments and documents referred to in
Sections 8 and 9.
3.3 TERMINATION. In the event that the Closing shall not have
taken place on or before five Business Days following the HOLD Closing Date, or
such later date as shall be mutually agreed to in writing by the Company and
each of the Investors, all of the rights and obligations of the parties under
this Agreement to exchange the Notes for the Series B Stock shall terminate
without liability, except for liability in the event the Closing does not occur
and this Agreement terminates by reason of a default or breach by any party
hereto. The exercise of the Current Warrants as herein provided shall not be
affected in any manner whatsoever by a termination of this Agreement after the
date hereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants to the Company, severally and not
jointly, and solely on each Investor's own behalf, as follows:
4.1 AUTHORITY AND BINDING EFFECT. Investor has the full power
and authority to execute, deliver and perform this Agreement and has taken all
actions necessary to secure all approvals required in connection therewith. This
Agreement constitutes the legal, valid and binding obligation of Investor,
enforceable against such Investor in accordance with its terms.
4.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by Investor nor the consummation of the
transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to Investor, or will result in a Default under,
or require the consent or approval of any party to, any Contract to or by which
Investor is a party or otherwise bound or affected, or require Investor to
notify or obtain any License from any Governmental Authority. Investor is not a
party to any Contract or subject to any restriction or any Court Order or
Regulation which affects or restricts the ability of Investor to consummate the
transactions contemplated hereby.
4.3 TITLE TO SECURITIES. Investor owns outright and has good
and marketable title to all of the Current Investments, and on the Closing Date
will own outright and have good and marketable title to the Notes, set forth in
Column E of Exhibit A as being owned by Investor, free and clear of all Liens.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor as follows:
5.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, having all requisite corporate power and authority to perform
its obligations under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
has taken all actions necessary to secure all approvals required in connection
therewith. The execution, delivery and performance
-5-
<PAGE>
of this Agreement by the Company has been duly authorized by all necessary
corporate action. This Agreement constitutes the legal, valid and binding
obligation of the Company, enforceable against it in accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Company nor the consummation of
the transactions contemplated hereby by the Company will contravene or violate
any Regulation or Court Order which is applicable to the Company, or the
Certificate of Incorporation or Bylaws of the Company, or will result in a
Default under, or require the consent or approval of any party to, any Contract
to or by which the Company is a party or by which it is otherwise bound or
affected, or require the Company to notify or obtain any License from any
Governmental Authority. The Company is not a party to any Contracts or subject
to any restriction or any Court Order or Regulation which affects or restricts
the ability of the Company to consummate the transactions contemplated hereby.
SECTION 6. INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Investor
acknowledges that the Securities are being acquired for each Investor's own
account as part of a private offering, exempt from registration under the
Securities Act and all applicable state securities or blue sky laws, for
investment only and not with a view to the distribution or other sale thereof,
and that an exemption from registration under the Securities Act or any
applicable state securities laws may not be available if the Securities are
acquired by Investor with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the Securities
within the meaning and purview of the Securities Act or the applicable state
securities laws. Accordingly, each Investor represents and warrants to the
Company, severally and not jointly, and solely on each Investor's own behalf, as
follows:
6.1 OWN ACCOUNT. No other person will acquire, directly or
indirectly, any interest in the Securities (or any portion thereof) as a result
of Investor's acquisition of the Securities pursuant to this Agreement.
6.2 SECURITIES TO BE HELD FOR INVESTMENT. It is Investor's
intention to acquire and hold the Securities solely for Investor's private
investment and for Investor's own account and with no view or intention to
distribute (including, without limitation, any distribution to the shareholders
of Investor pursuant to the terms of its governing instruments), sell, resell,
assign, pledge, mortgage, hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof) except pursuant to a valid exception from
registration or a registered offering under the Securities Act.
6.3 NO TRANSFERS OF SECURITIES CONTEMPLATED. Investor has no
contract, undertaking, agreement, or arrangement with any person to sell or
otherwise transfer to any person, or to have any person sell on behalf of
Investor, the Securities (or any portion thereof), and Investor is not engaged
in and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of the Securities (or any
portion thereof).
-6-
<PAGE>
6.4 NO EVENTS REQUIRING TRANSFER OF SECURITIES. Investor is
not aware of any occurrence, event, or circumstance upon the happening of which
Investor intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the Securities (or any portion
thereof), and Investor does not have any present intention of selling,
transferring, or otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
6.5 ACCREDITED INVESTOR STATUS. Investor is, and will be on
the Closing Date, an "accredited investor," as such term is defined in the
Securities Act or Regulation D, and under the securities laws of certain states,
because Investor is described in one of the categories set forth below:
(A) a bank as defined in Section 3(a)(2) of the
Securities Act, whether acting in its individual or fiduciary capacity;
(B) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity;
(C) a broker or dealer registered under Section 15 of
the Securities Exchange Act of 1934, as amended;
(D) an insurance company as defined in Section 2(13)
of the Securities Act;
(E) an investment company registered under the
Investment Company Act of 1940, as amended, or a business development company as
defined in section 2(a)(48) of that Act;
(F) a Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
(G) a plan established by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, and such plan has total assets
in excess of $5,000,000;
(H) (i) an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974, with the
investment decisions being made by a plan fiduciary, as defined in section 3(21)
of such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or (ii) an employee benefit plan that
has total assets in excess of $5,000,000, or (iii) a self-directed employee
benefit plan and the investment decisions are made solely by persons that are
accredited investors;
(I) a private business development company as defined
in section 202(a)(22) of the Investment Advisors Act of 1940, as amended;
-7-
<PAGE>
(J) an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or
similar business trust, or partnership, in each case, not newly formed, actively
engaged in a trade or business, and having total assets in excess of $5,000,000;
(K) a natural person with an individual net worth, or
joint net worth with Investor's spouse, in excess of $1,000,000;
(L) a natural person who had an individual income in
excess of $200,000 or joint income with Investor's spouse of $300,000 in each of
the two most recent years, and reasonably expects to reach the same income level
in the current year;
(M) a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring any securities to
be offered in the future, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that such person is
capable of evaluating the merits and risks of the prospective investment, as
described in Rule 506(b)(2)(ii) of Regulation D; or
(N) an entity in which all the equity owners are
accredited investors.
6.6 SOPHISTICATED INVESTOR STATUS. Investor is, and will be on
the Closing Date, a sophisticated investor which has the capacity to protect
Investor's own interests in investments of this nature, and has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of this investment.
6.7 ALL NECESSARY INFORMATION RECEIVED. Investor has had all
documents, records, books and due diligence materials pertaining to the Company
and the Securities and the transactions contemplated by this Agreement made
available to Investor and Investor's accountants and advisors; Investor has also
had an opportunity to ask questions and receive answers concerning the Company
and the Securities and the transactions contemplated by this Agreement; and
Investor has all of the information deemed by Investor to be necessary or
appropriate to evaluate the Company and the Securities and the transactions
contemplated by this Agreement and the risks and merits thereof and an
investment in the Securities.
6.8 NO RELIANCE ON OTHER INFORMATION. Investor is acquiring
the Securities solely upon the information provided to Investor as specified in
Section , together with information obtained by Investor through Investor's
independent investigation, and has not relied on any oral representations.
6.9 INVESTOR AWARE OF RISKS. Investor is aware of the
following:
(A) the Securities are speculative, with no assurance
of any income from the Securities;
-8-
<PAGE>
(B) no federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(C) transferability of the Securities is highly
restricted and, accordingly, it may not be possible for Investor to liquidate
the Securities in case of emergency; and
(D) with respect to the tax aspects of an investment
in the Securities, Investor in making Investor's investment decision is not
relying to any degree upon the advice of the Company, or any person affiliated
therewith, but rather solely upon Investor's own legal, financial and tax
advisors.
SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, Exhibit, certificate, document or list delivered
by any such party pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing, and each party hereto (taking the
Investors as a single party) shall be entitled to rely upon the representations
and warranties of the other party set forth in this Agreement.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. Subject
to waiver as set forth in Section 11.8, the obligations of the Company to
exchange the Series B Stock for the Notes under this Agreement are subject to
the fulfillment prior to or at the Closing of each of the following conditions:
8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Investors set forth in Sections 4 and 6 shall be true and
correct on the Closing Date with the same effect as if made at that time.
8.2 PERFORMANCE BY THE INVESTORS. The Investors shall have
exercised the Current Warrants as required by this Agreement and performed and
satisfied all agreements and conditions which each of them is required by this
Agreement to perform or satisfy prior to or on the Closing Date.
8.3 RELEASE OF LIENS; DELIVERY OF COLLATERAL. The Investors
shall have delivered to the Company any and all documents and other instruments
(including, without limitation, Form UCC-3's or comparable documents) necessary,
advisable or desirable, and in proper form for filing with the appropriate
Governmental Authority, to release and discharge fully any and all Liens on any
assets of the Company or any of its subsidiaries constituting collateral for, or
otherwise securing the payment of, the Notes, and shall have delivered any and
all such assets of the Company or its subsidiaries to the Company or its
subsidiaries, as the case may be.
8.4 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Investors
shall be reasonably satisfactory to the Company and its counsel.
-9-
<PAGE>
8.5 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement and no Litigation shall be
pending against the Company or any Subsidiary.
8.6 REGULATORY COMPLIANCE AND APPROVALS. The Company shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties shall have complied
with all Regulations applicable to the Transactions.
8.7 CONSENTS AND APPROVALS. The Investors and the Company
shall have obtained all consents and approvals necessary to complete the
Transactions and related transactions.
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS.
Subject to waiver as set forth in Section 11.8, the obligations of the Investors
to exchange the Notes for the Series B Stock under this Agreement are subject to
the fulfillment prior to or at the Closing of each of the following conditions:
9.1 COMPANY REPRESENTATIONS TRUE AT CLOSING. The
representations and warranties of the Company set forth in Section shall be true
and correct on the Closing Date with the same effect as if made at that time.
9.2 PERFORMANCE BY THE COMPANY. The Company shall have
performed and satisfied all agreements and conditions which it is required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.3 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Company
shall be reasonably satisfactory to the Investors.
9.4 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
9.5 REGULATORY COMPLIANCE AND APPROVAL. The Investors shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties have complied with
all Regulations applicable to the Transactions.
SECTION 10. REGISTRATION RIGHTS. The Company shall use its reasonable
best efforts to file a registration statement with the SEC to register the
Registrable Securities for sale by the
-10-
<PAGE>
Investors under the Securities Act within 180 days following the Closing Date,
and to have such registration statement declared effective. The Company shall
use its reasonable best efforts to keep such registration statement effective
for a period of two years after the Closing Date, or until the Registrable
Securities may be sold by the Investors without registration pursuant to Rule
144(k) under the Securities Act or otherwise, whichever period is shorter. All
costs of such registration shall be borne by the Company except underwriting
discounts and commissions incurred by the Investors and fees and expenses of
counsel for the Investors. Each of the Investors agrees not to sell any of the
Securities pursuant to such registration statement at any time or from time to
time and for such period or periods as the Company may have a registration
statement on file with the SEC for the sale of securities of the Company for its
own account until the completion of the distribution of such securities by the
Company. The registration rights set forth herein supersede and replace in their
entirety any other registration rights that any of the Investors may have, all
of which registration rights, if any, are hereby terminated.
SECTION 11. MISCELLANEOUS.
11.1 NO TRANSFER OF SECURITIES BY INVESTOR. None of the
Investors will distribute (including, without limitation, any distribution to
the shareholders or partners of any Investor pursuant to the terms of its
governing instruments or any distribution in connection with the dissolution of
any Investor), sell, resell, assign, pledge, mortgage, hypothecate, or otherwise
transfer or dispose of the Securities (or any portion thereof) (any such event
or combination thereof being hereinafter referred to as a "Transfer") without
--------
first furnishing to the Company an opinion of counsel, which opinion shall be
satisfactory in form, scope and substance to the Company and its counsel in
their sole discretion, that registration under the Securities Act or any
applicable state securities laws is not required in connection with any proposed
Transfer.
11.2 LEGEND ON CERTIFICATES. Each certificate representing the
Securities shall bear a legend consistent with the representations, warranties
and agreements set forth herein, which shall read substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY
THE ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B)
THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER
AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION SATISFACTORY TO
COUNSEL FOR THE COMPANY OR A 'NO-ACTION' OR INTERPRETIVE LETTER FROM
THE SECURITIES AND EXCHANGE COMMISSION TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES OF SUCH SALE OR
TRANSFER."
11.3 PAYMENT OF EXPENSES. Each of the Investors and the
Company will pay all legal, accounting and other fees and expenses which such
party incurs in connection with this
-11-
<PAGE>
Agreement and the transactions contemplated hereby, and none of the expenses of
the Investors shall be paid by the Company. However, if this Agreement is
terminated pursuant to Section 11.5 or if the failure to satisfy a condition of
Closing arises out of the breach, existing at the time of the execution of this
Agreement, of a representation or warranty contained in this Agreement, the
party terminating this Agreement shall be entitled to receive from the breaching
party or parties the expenses of the terminating party incurred between the date
of this Agreement and the date of termination.
11.4 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Investors and the Company. No termination of this Agreement shall affect the
exercise of the Current Warrants as herein provided.
11.5 TERMINATION FOR BREACH. The Company may terminate its
obligations under this Agreement at any time prior to the Closing Date if any of
the Investors shall have breached any of their representations, warranties or
other obligations under this Agreement in any material respect. The Investors
may likewise terminate their obligations under this Agreement at any time prior
to the Closing Date if the Company shall have breached any of its
representations, warranties or other obligations under this Agreement in any
material respect. Such termination may be effected by written notice from either
the Company or the Investors, as appropriate, citing the reasons for termination
and shall not subject the terminating party to any liability for any valid
termination. No termination of this Agreement shall affect the exercise of the
Current Warrants as herein provided.
11.6 BROKERS' AND FINDERS' FEES. The Investors as a group and
the Company each to the other represent and warrant that all negotiations
relative to this Agreement have been carried on by them directly without the
intervention of any person, firm, corporation or other entity who or which may
be entitled to any brokerage fee or other commission from the other in respect
of the execution of this Agreement or the consummation of the transactions
contemplated hereby, and each of them shall indemnify and hold the other or any
affiliate of them harmless against any and all claims, losses, liabilities or
expenses which may be asserted against any of them as a result of any dealings,
arrangements or agreements by the indemnifying party with any such person, firm,
corporation or other entity.
11.7 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of each of the Investors and by the successors and assigns of the
Company.
11.8 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.9 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed
-12-
<PAGE>
given only if delivered personally to the address set forth below (to the
attention of the person identified below) or sent by telegram or by registered
or certified mail, postage prepaid, if to Company, to: Avery Communications,
Inc., 801 Greenview Drive, Grand Prairie, Texas 75050, Attention: Thomas M.
Lyons; and if to any of the Investors, to their addresses set forth on Exhibit A
hereto, or to such other address as the addressee may have specified in a notice
duly given to the sender and to counsel as provided herein. Such notice,
request, demand, waiver, consent, approval or other communication will be deemed
to have been given as of the date so delivered or telegraphed or, if mailed,
three Business Days after the date so mailed.
11.10 TEXAS LAW TO GOVERN. This Agreement shall be governed by
and interpreted and enforced in accordance with the substantive laws of the
State of Texas, without giving effect to the conflict of law rules thereof.
11.11 REMEDIES NOT EXCLUSIVE. Nothing in this Agreement shall
be deemed to limit or restrict in any manner other rights or remedies that any
party may have against any other party at law, in equity or otherwise.
11.12 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer any rights on any other persons.
11.13 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom or which such claimed
amendment, modification, termination or waiver is sought to be enforced.
11.14 SECTION HEADINGS AND GENDER. All section headings and
the use of a particular gender are for convenience only and shall in no way
modify or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section or Exhibit shall be deemed to be a reference to a Section
or Exhibit of this Agreement unless the context otherwise expressly requires.
11.15 COOPERATION. Subject to the provisions hereof, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement and under
applicable law to consummate and make effective the transactions contemplated by
this Agreement.
11.16 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof,
-13-
<PAGE>
and any such invalidity or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other jurisdiction.
11.17 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties, it not being necessary that any counterpart
hereof be executed by more than one of the parties hereto. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
[THIS SPACE INTENTIONALLY LEFT BLANK.
PLACES FOR SIGNATURES BEGIN ON THE FOLLOWING PAGE.]
-14-
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
AVERY COMMUNICATIONS, INC.
By:________________________________
Thomas M. Lyons
President
SIGNATURES CONTINUE ON FOLLOWING PAGE
S-1
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
GLOBAL CAPITAL RESOURCES, INC.,
as Agent for the Payees Listed on the
Signature Page of the Promissory Note
By:________________________________
Print Name: Patrick J. Haynes, III
------------------------
Print Title:_______________________
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
Eric Brown
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
Carol Davis
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
Roger H. Felberbaum
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
Mark Fisher
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
David Musicant
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
Rodney M. Propp
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
RILAR FAMILY ASSOCIATES, L.P.
By:________________________________
Lawrence I. Schneider
General Partner
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
Russell T. Stern, Jr.
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
___________________________________
William Stern
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
THURSTON GROUP, INC.
By:________________________________
Patrick J. Haynes, III
Title:________________________
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
THE FRANKLIN HOLDING CORP.
By:________________________________
___________________________________
Print Name
___________________________________
Print Title
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
der UTO BANK
By:________________________________
___________________________________
Print Name
___________________________________
Print Title
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$1,050,000 PROMISSORY NOTE]
INVESTOR SIGNATURE PAGE
THE OLYMPIC CAPITAL GROUP
By:________________________________
___________________________________
Print Name
___________________________________
Print Title
S-2
<PAGE>
EXHIBIT 4.5
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
This WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT is dated and
effective as of July ___, 1996, and is being entered by and between or among, as
the case may be, AVERY COMMUNICATIONS, INC., a Delaware corporation, and the
person or persons whose name or names, as the case may be, is or are set forth
on the signature page hereto, with reference to the following RECITALS:
RECITALS
Each of the Investors owns the Notes or Current Warrants, or both, set
forth on Exhibit A.
Each of the Investors desires to exercise the Modified Warrants and to
exchange the Notes for shares of the Series C Stock.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
SECTION 1. DEFINITIONS.
For convenience and brevity, certain terms used in various parts of
this Agreement are listed in alphabetical order and defined or referred to below
(such terms to be equally applicable to both singular and plural forms of the
terms defined).
"Agreement" means this Warrant Exercise and Securities
Exchange Agreement.
"Business Day" means any calendar day which is not a Saturday,
Sunday or other day on which commercial banks in Dallas, Texas, or New
York, New York, are authorized or required to close by applicable law.
"Closing" and "Closing Date" are defined in Section 3.1.
"Common Stock" means the 20,000,000 authorized shares of
Common Stock, par value $0.01 per share, of the Company.
"Company" means Avery Communications, Inc., a Delaware
corporation.
"Contract" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement,
undertaking, practice or authorization that is or may be binding on any
person or its property under applicable law.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or
regulatory body or authority that is binding on any person or its
property under applicable law.
<PAGE>
"Current Investments" means the Notes or the Current Warrants,
or both, as the case may be.
"Current Warrants" means the warrants to purchase shares of
the Common Stock of the Company, if any, constituting a part of the
Current Investments owned by each of the Investors as set forth in
Column B of Exhibit A.
"Default" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under
any Contract, or (3) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to
a right of termination, renegotiation or acceleration under any
Contract.
"Governmental Authority" means any federal, state, local or
other governmental agency or body or of any other type of regulatory
body, including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage
control matters.
"HOLD Closing Date" means the "Closing Date," as defined in
the HOLD Merger Agreement.
"HOLD Merger Agreement" means that certain Agreement and Plan
of Merger, dated as of May 3, 1996, among the Company, Avery
Acquisition Sub, Inc., Home Owners Long Distance Incorporated, Joseph
W. Webb, James A. Young, Edward L. Dunn, Dunn Stock Trust Fund No. 1,
and Philip S. Dunn.
"Investor" or "Investors" means the person or persons listed
on Exhibit A, who is or who are the owner or the owners, as the case
may be, of all of the Current Investments.
"Licenses" means licenses, franchises, permits, easements,
rights and other authorizations.
"Lien" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever on any property or property interest.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry involving or affecting any party
hereto or any Contracts to which any party hereto is a party or by
which such party or any of such party's assets may be bound or
affected.
-2-
<PAGE>
"Modified Warrants" means the Current Warrants, the exercise
prices of which have been reduced as herein provided.
"Notes" means the promissory notes, if any, or interests in
promissory notes, if any, constituting a part of the Current
Investments owned by each of the Investors as set forth in Column E of
Exhibit A.
"Person" or "person" means any natural person, firm,
partnership, association, corporation, company, business trust, trust,
Governmental Authority or other entity.
"Preferred Stock" means the 20,000,000 authorized shares of
Preferred Stock, par value $0.01 per share, of the Company.
"Registrable Securities" means the shares of Common Stock
issuable to each of the Investors upon the exercise of the Modified
Warrants or the conversion of the Series C Stock, or both.
"Regulation" means any statute, law, ordinance, regulation,
order or rule of any Governmental Authority.
"Regulation D" means Regulation D promulgated by the SEC under
the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities" means the shares of the Series C Stock to be
issued to each of the Investors pursuant to the terms and conditions of
this Agreement, and the shares of Common Stock issuable to each of the
Investors upon the exercise of the Modified Warrants or the conversion
of the Series C Stock, or both.
"Securities Act" means the Securities Act of 1933, as amended.
"Series C Stock" means the Series C Junior Convertible
Redeemable Preferred Stock of the Company.
"Transactions" means the contemporaneous exercise of the
Modified Warrants by each of the Investors upon the signing of this
Agreement and the exchange of the Notes by each of the Investors for
the Securities of the Company at the Closing, in each case as herein
provided, and all related transactions provided for in or contemplated
by this Agreement or any Exhibit hereto.
-3-
<PAGE>
SECTION 2. THE TRANSACTIONS.
2.1 EXCHANGE OF NOTES FOR PREFERRED STOCK. Subject to the
terms and conditions hereinafter set forth, and on the basis of and in reliance
upon the representations, warranties, obligations and agreements set forth
herein, at the Closing each Investor shall sell, transfer, assign and convey to
the Company, and the Company shall purchase from each Investor, all of the Notes
owned by such Investor in exchange for the shares of the Series C Stock as set
forth after such Investor's name in Column F of Exhibit A.
2.2 REDUCTION OF EXERCISE PRICE OF CURRENT WARRANTS; EXERCISE
PRICE OF MODIFIED WARRANTS. Subject to the terms and conditions hereinafter set
forth, and on the basis of the representations, warranties, obligations and
agreements set forth herein, simultaneously with the execution and delivery of
this Agreement, the exercise price of the Current Warrants shall be reduced to
$1.50 per share of Common Stock.
2.3 EXERCISE OF MODIFIED WARRANTS. In consideration of the
reduction of the exercise price of the Current Warrants as herein provided, the
Investors shall exercise all the Modified Warrants contemporaneously with the
execution and delivery of this Agreement. The full purchase price therefor shall
be paid to the Company contemporaneously with the execution and delivery of this
Agreement by wire transfer of immediately available funds to the Company's bank
account in Dallas, Texas, or by delivery to the Company of a cashier's check
payable to the order of the Company.
2.4 DEFAULT BY ANY INVESTOR AT THE CLOSING. Notwithstanding
the provisions of Section 2.1, if any of the Investors shall fail or refuse to
deliver any of the Notes as provided in Section 2.1, or if any of the Investors
shall have failed or refused to exercise the Modified Warrants as provided in
Section 2.3, or if any of the Investors shall fail or refuse to consummate the
other transactions described in this Agreement prior to or on the Closing Date,
such failure or refusal shall not relieve the other Investors of any obligations
under this Agreement, and the Company, at its option and without prejudice to
its rights against any such defaulting Investor, may either (1) acquire the
remaining Notes which it is entitled to acquire hereunder, or (2) refuse to make
such acquisition and thereby terminate all of its obligations hereunder. Each of
the Investors acknowledges that the Notes are unique and otherwise not available
and agree that in addition to any other remedies, the Company may invoke any
equitable remedies to enforce delivery of the Notes hereunder, including,
without limitation, an action or suit for specific performance.
SECTION 3. CLOSING.
3.1 CLOSING DATE. The consummation of the exchange of the
Notes for the Series C Stock (the "Closing") shall take place on such date, and
at such time and place, or as the Company shall hereafter specify by notice to
the Investors. The Closing may take place at such other time or place on such
other date as the Company and the Investors may agree to in writing. In either
event, at the option of the Company, the Closing may occur by the Company's and
the Investors' exchanging facsimile copies of the executed originals of the
documents,
-4-
<PAGE>
certificates, opinions and other instruments referred to in Section 3.2 hereof,
the executed originals of which shall be delivered by such means as the Company
and the Investors may mutually agree. In the event that the Company exercises
its option to have the Closing occur in this manner, the Closing shall be deemed
to have occurred on the date and time specified by the Company in Dallas, Texas,
for all purposes. The date of the Closing is hereinafter sometimes referred to
as the "Closing Date."
3.2 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, each Investor shall deliver to the Company, free and clear of
all Liens, the Notes, in negotiable form, duly endorsed in blank, or with
separate notarized stock or bond transfer powers attached thereto and signed in
blank, in exchange for the shares of the Series C Stock set forth opposite each
Investor's name in Column F on Exhibit A. At the Closing, each of the Investors
shall also deliver to the Company, and the Company shall deliver to each of the
Investors, the certificates, opinions and other instruments and documents
referred to in Sections 8 and 9.
3.3 TERMINATION. In the event that the Closing shall not have
taken place on or before five Business Days following the HOLD Closing Date, or
such later date as shall be mutually agreed to in writing by the Company and
each of the Investors, all of the rights and obligations of the parties under
this Agreement to exchange the Notes for the Series C Stock shall terminate
without liability, except for liability in the event the Closing does not occur
and this Agreement terminates by reason of a default or breach by any party
hereto. The exercise of the Modified Warrants as herein provided shall not be
affected in any manner whatsoever by a termination of this Agreement after the
date hereof.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants to the Company, severally and not
jointly, and solely on each Investor's own behalf, as follows:
4.1 AUTHORITY AND BINDING EFFECT. Investor has the full power
and authority to execute, deliver and perform this Agreement and has taken all
actions necessary to secure all approvals required in connection therewith. This
Agreement constitutes the legal, valid and binding obligation of Investor,
enforceable against such Investor in accordance with its terms.
4.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by Investor nor the consummation of the
transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to Investor, or will result in a Default under,
or require the consent or approval of any party to, any Contract to or by which
Investor is a party or otherwise bound or affected, or require Investor to
notify or obtain any License from any Governmental Authority. Investor is not a
party to any Contract or subject to any restriction or any Court Order or
Regulation which affects or restricts the ability of Investor to consummate the
transactions contemplated hereby.
4.3 TITLE TO SECURITIES. Investor owns outright and has good
and marketable title to all of the Current Investments, and on the Closing Date
will own outright and have good and
-5-
<PAGE>
marketable title to the Notes, set forth in Column E of Exhibit A as being owned
by Investor, free and clear of all Liens.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor as follows:
5.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, having all requisite corporate power and authority to perform
its obligations under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
has taken all actions necessary to secure all approvals required in connection
therewith. The execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Company nor the consummation of
the transactions contemplated hereby by the Company will contravene or violate
any Regulation or Court Order which is applicable to the Company, or the
Certificate of Incorporation or Bylaws of the Company, or will result in a
Default under, or require the consent or approval of any party to, any Contract
to or by which the Company is a party or by which it is otherwise bound or
affected, or require the Company to notify or obtain any License from any
Governmental Authority. The Company is not a party to any Contracts or subject
to any restriction or any Court Order or Regulation which affects or restricts
the ability of the Company to consummate the transactions contemplated hereby.
SECTION 6. INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Investor
acknowledges that the Securities are being acquired for each Investor's own
account as part of a private offering, exempt from registration under the
Securities Act and all applicable state securities or blue sky laws, for
investment only and not with a view to the distribution or other sale thereof,
and that an exemption from registration under the Securities Act or any
applicable state securities laws may not be available if the Securities are
acquired by Investor with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the Securities
within the meaning and purview of the Securities Act or the applicable state
securities laws. Accordingly, each Investor represents and warrants to the
Company, severally and not jointly, and solely on each Investor's own behalf, as
follows:
6.1 OWN ACCOUNT. No other person will acquire, directly or
indirectly, any interest in the Securities (or any portion thereof) as a result
of Investor's acquisition of the Securities pursuant to this Agreement.
6.2 SECURITIES TO BE HELD FOR INVESTMENT. It is Investor's
intention to acquire and hold the Securities solely for Investor's private
investment and for Investor's own account
-6-
<PAGE>
and with no view or intention to distribute (including, without limitation, any
distribution to the shareholders of Investor pursuant to the terms of its
governing instruments), sell, resell, assign, pledge, mortgage, hypothecate, or
otherwise transfer or dispose of the Securities (or any portion thereof) except
pursuant to a valid exception from registration or a registered offering under
the Securities Act.
6.3 NO TRANSFERS OF SECURITIES CONTEMPLATED. Investor has no
contract, undertaking, agreement, or arrangement with any person to sell or
otherwise transfer to any person, or to have any person sell on behalf of
Investor, the Securities (or any portion thereof), and Investor is not engaged
in and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of the Securities (or any
portion thereof).
6.4 NO EVENTS REQUIRING TRANSFER OF SECURITIES. Investor is
not aware of any occurrence, event, or circumstance upon the happening of which
Investor intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the Securities (or any portion
thereof), and Investor does not have any present intention of selling,
transferring, or otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
6.5 ACCREDITED INVESTOR STATUS. Investor is, and will be on
the Closing Date, an "accredited investor," as such term is defined in the
Securities Act or Regulation D, and under the securities laws of certain states,
because Investor is described in one of the categories set forth below:
(A) a bank as defined in Section 3(a)(2) of the
Securities Act, whether acting in its individual or fiduciary capacity;
(B) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity;
(C) a broker or dealer registered under Section 15
of the Securities Exchange Act of 1934, as amended;
(D) an insurance company as defined in Section 2(13)
of the Securities Act;
(E) an investment company registered under the
Investment Company Act of 1940, as amended, or a business development company as
defined in section 2(a)(48) of that Act;
(F) a Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the
Small Business Investment Act of 1958;
-7-
<PAGE>
(G) a plan established by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, and such plan has total assets
in excess of $5,000,000;
(H) (i) an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974, with the
investment decisions being made by a plan fiduciary, as defined in section 3(21)
of such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or (ii) an employee benefit plan that
has total assets in excess of $5,000,000, or (iii) a self-directed employee
benefit plan and the investment decisions are made solely by persons that are
accredited investors;
(I) a private business development company as defined
in section 202(a)(22) of the Investment Advisors Act of 1940, as amended;
(J) an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or
similar business trust, or partnership, in each case, not newly formed, actively
engaged in a trade or business, and having total assets in excess of $5,000,000;
(K) a natural person with an individual net worth, or
joint net worth with Investor's spouse, in excess of $1,000,000;
(L) a natural person who had an individual income in
excess of $200,000 or joint income with Investor's spouse of $300,000 in each of
the two most recent years, and reasonably expects to reach the same income level
in the current year;
(M) a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring any securities to
be offered in the future, whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that such person is
capable of evaluating the merits and risks of the prospective investment, as
described in Rule 506(b)(2)(ii) of Regulation D; or
(N) an entity in which all the equity owners are
accredited investors.
6.6 SOPHISTICATED INVESTOR STATUS. Investor is, and will be on
the Closing Date, a sophisticated investor which has the capacity to protect
Investor's own interests in investments of this nature, and has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of this investment.
6.7 ALL NECESSARY INFORMATION RECEIVED. Investor has had all
documents, records, books and due diligence materials pertaining to the Company
and the Securities and the transactions contemplated by this Agreement made
available to Investor and Investor's accountants and advisors; Investor has also
had an opportunity to ask questions and receive answers concerning the Company
and the Securities and the transactions contemplated by this Agreement; and
Investor has all of the information deemed by Investor to be necessary or
-8-
<PAGE>
appropriate to evaluate the Company and the Securities and the transactions
contemplated by this Agreement and the risks and merits thereof and an
investment in the Securities.
6.8 NO RELIANCE ON OTHER INFORMATION. Investor is acquiring
the Securities solely upon the information provided to Investor as specified in
Section 6.7, together with information obtained by Investor through Investor's
independent investigation, and has not relied on any oral representations.
6.9 INVESTOR AWARE OF RISKS. Investor is aware of the
following:
(A) the Securities are speculative, with no assurance
of any income from the Securities;
(B) no federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(C) transferability of the Securities is highly
restricted and, accordingly, it may not be possible for Investor to liquidate
the Securities in case of emergency; and
(D) with respect to the tax aspects of an investment
in the Securities, Investor in making Investor's investment decision is not
relying to any degree upon the advice of the Company, or any person affiliated
therewith, but rather solely upon Investor's own legal, financial and tax
advisors.
SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, Exhibit, certificate, document or list delivered
by any such party pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing, and each party hereto (taking the
Investors as a single party) shall be entitled to rely upon the representations
and warranties of the other party set forth in this Agreement.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. Subject
to waiver as set forth in Section , the obligations of the Company to exchange
the Series C Stock for the Notes under this Agreement are subject to the
fulfillment prior to or at the Closing of each of the following conditions:
8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Investors set forth in Sections and shall be true and correct
on the Closing Date with the same effect as if made at that time.
8.2 PERFORMANCE BY THE INVESTORS. The Investors shall have
exercised the Modified Warrants as required by this Agreement and performed and
satisfied all agreements and conditions which each of them is required by this
Agreement to perform or satisfy prior to or on the Closing Date.
-9-
<PAGE>
8.3 RELEASE OF LIENS; DELIVERY OF COLLATERAL. The Investors
shall have delivered to the Company any and all documents and other instruments
(including, without limitation, Form UCC-3's or comparable documents) necessary,
advisable or desirable, and in proper form for filing with the appropriate
Governmental Authority, to release and discharge fully any and all Liens on any
assets of the Company or any of its subsidiaries constituting collateral for, or
otherwise securing the payment of, the Notes, and shall have delivered any and
all such assets of the Company or its subsidiaries to the Company or its
subsidiaries, as the case may be.
8.4 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Investors
shall be reasonably satisfactory to the Company and its counsel.
8.5 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement and no Litigation shall be
pending against the Company or any Subsidiary.
8.6 REGULATORY COMPLIANCE AND APPROVALS. The Company shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties shall have complied
with all Regulations applicable to the Transactions.
8.7 CONSENTS AND APPROVALS. The Investors and the Company
shall have obtained all consents and approvals necessary to complete the
Transactions and related transactions.
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS.
Subject to waiver as set forth in Section 11.8, the obligations of the Investors
to exchange the Notes for the Series C Stock under this Agreement are subject to
the fulfillment prior to or at the Closing of each of the following conditions:
9.1 COMPANY REPRESENTATIONS TRUE AT CLOSING. The
representations and warranties of the Company set forth in Section shall be true
and correct on the Closing Date with the same effect as if made at that time.
9.2 PERFORMANCE BY THE COMPANY. The Company shall have
performed and satisfied all agreements and conditions which it is required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.3 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Company
shall be reasonably satisfactory to the Investors.
-10-
<PAGE>
9.4 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
9.5 REGULATORY COMPLIANCE AND APPROVAL. The Investors shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties have complied with
all Regulations applicable to the Transactions.
SECTION 10. REGISTRATION RIGHTS. The Company shall use its reasonable
best efforts to file a registration statement with the SEC to register the
Registrable Securities for sale by the Investors under the Securities Act within
180 days following the Closing Date, and to have such registration statement
declared effective. The Company shall use its reasonable best efforts to keep
such registration statement effective for a period of two years after the
Closing Date, or until the Registrable Securities may be sold by the Investors
without registration pursuant to Rule 144(k) under the Securities Act or
otherwise, whichever period is shorter. All costs of such registration shall be
borne by the Company except underwriting discounts and commissions incurred by
the Investors and fees and expenses of counsel for the Investors. Each of the
Investors agrees not to sell any of the Securities pursuant to such registration
statement at any time or from time to time and for such period or periods as the
Company may have a registration statement on file with the SEC for the sale of
securities of the Company for its own account until the completion of the
distribution of such securities by the Company. The registration rights set
forth herein supersede and replace in their entirety any other registration
rights that any of the Investors may have, all of which registration rights, if
any, are hereby terminated.
SECTION 11. MISCELLANEOUS.
11.1 NO TRANSFER OF SECURITIES BY INVESTOR. None of the
Investors will distribute (including, without limitation, any distribution to
the shareholders or partners of any Investor pursuant to the terms of its
governing instruments or any distribution in connection with the dissolution of
any Investor), sell, resell, assign, pledge, mortgage, hypothecate, or otherwise
transfer or dispose of the Securities (or any portion thereof) (any such event
or combination thereof being hereinafter referred to as a "Transfer") without
--------
first furnishing to the Company an opinion of counsel, which opinion shall be
satisfactory in form, scope and substance to the Company and its counsel in
their sole discretion, that registration under the Securities Act or any
applicable state securities laws is not required in connection with any proposed
Transfer.
11.2 LEGEND ON CERTIFICATES. Each certificate representing the
Securities shall bear a legend consistent with the representations, warranties
and agreements set forth herein, which shall read substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY
THE ISSUEE FOR INVESTMENT
-11-
<PAGE>
PURPOSES. SAID SHARES MAY NOT BE SOLD OR TRANSFERRED UNLESS (A) THEY
HAVE BEEN REGISTERED UNDER SAID ACT, OR (B) THE TRANSFER AGENT (OR THE
COMPANY IF THEN ACTING AS ITS TRANSFER AGENT) IS PRESENTED WITH EITHER
A WRITTEN OPINION SATISFACTORY TO COUNSEL FOR THE COMPANY OR A
'NO-ACTION' OR INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE CIRCUMSTANCES OF SUCH SALE OR TRANSFER."
11.3 PAYMENT OF EXPENSES. Each of the Investors and the
Company will pay all legal, accounting and other fees and expenses which such
party incurs in connection with this Agreement and the transactions contemplated
hereby, and none of the expenses of the Investors shall be paid by the Company.
However, if this Agreement is terminated pursuant to Section 11.5 or if the
failure to satisfy a condition of Closing arises out of the breach, existing at
the time of the execution of this Agreement, of a representation or warranty
contained in this Agreement, the party terminating this Agreement shall be
entitled to receive from the breaching party or parties the expenses of the
terminating party incurred between the date of this Agreement and the date of
termination.
11.4 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Investors and the Company. No termination of this Agreement shall affect the
exercise of the Modified Warrants as herein provided.
11.5 TERMINATION FOR BREACH. The Company may terminate its
obligations under this Agreement at any time prior to the Closing Date if any of
the Investors shall have breached any of their representations, warranties or
other obligations under this Agreement in any material respect. The Investors
may likewise terminate their obligations under this Agreement at any time prior
to the Closing Date if the Company shall have breached any of its
representations, warranties or other obligations under this Agreement in any
material respect. Such termination may be effected by written notice from either
the Company or the Investors, as appropriate, citing the reasons for termination
and shall not subject the terminating party to any liability for any valid
termination. No termination of this Agreement shall affect the exercise of the
Modified Warrants as herein provided.
11.6 BROKERS' AND FINDERS' FEES. The Investors as a group and
the Company each to the other represent and warrant that all negotiations
relative to this Agreement have been carried on by them directly without the
intervention of any person, firm, corporation or other entity who or which may
be entitled to any brokerage fee or other commission from the other in respect
of the execution of this Agreement or the consummation of the transactions
contemplated hereby, and each of them shall indemnify and hold the other or any
affiliate of them harmless against any and all claims, losses, liabilities or
expenses which may be asserted against any of them as a result of any dealings,
arrangements or agreements by the indemnifying party with any such person, firm,
corporation or other entity.
-12-
<PAGE>
11.7 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of each of the Investors and by the successors and assigns of the
Company.
11.8 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.9 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally to the
address set forth below (to the attention of the person identified below) or
sent by telegram or by registered or certified mail, postage prepaid, if to
Company, to: Avery Communications, Inc., 801 Greenview Drive, Grand Prairie,
Texas 75050, Attention: Thomas M. Lyons; and if to any of the Investors, to
their addresses set forth on Exhibit A hereto, or to such other address as the
addressee may have specified in a notice duly given to the sender and to counsel
as provided herein. Such notice, request, demand, waiver, consent, approval or
other communication will be deemed to have been given as of the date so
delivered or telegraphed or, if mailed, three Business Days after the date so
mailed.
11.10 TEXAS LAW TO GOVERN. This Agreement shall be governed by
and interpreted and enforced in accordance with the substantive laws of the
State of Texas, without giving effect to the conflict of law rules thereof.
11.11 REMEDIES NOT EXCLUSIVE. Nothing in this Agreement shall
be deemed to limit or restrict in any manner other rights or remedies that any
party may have against any other party at law, in equity or otherwise.
11.12 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer any rights on any other persons.
11.13 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom or which such claimed
amendment, modification, termination or waiver is sought to be enforced.
11.14 SECTION HEADINGS AND GENDER. All section headings and
the use of a particular gender are for convenience only and shall in no way
modify or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section or Exhibit shall be deemed to be a reference to a Section
or Exhibit of this Agreement unless the context otherwise expressly requires.
-13-
<PAGE>
11.15 COOPERATION. Subject to the provisions hereof, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement and under
applicable law to consummate and make effective the transactions contemplated by
this Agreement.
11.16 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.17 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties, it not being necessary that any counterpart
hereof be executed by more than one of the parties hereto. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
[THIS SPACE INTENTIONALLY LEFT BLANK.
PLACES FOR SIGNATURES BEGIN ON THE FOLLOWING PAGE.]
-14-
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
AVERY COMMUNICATIONS, INC.
By:________________________________
Thomas M. Lyons
President
SIGNATURES CONTINUE ON FOLLOWING PAGE
S-1
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Carol Edelman
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Norman Shapiro
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
William Hanley
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Walter Weidenbaum
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Willard McNitt
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Robert Edwin Aikman
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
SIDNEY KOCH RETIREMENT PLAN
By:________________________________
Print Name:________________________
Title:_____________________________
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Walter T. Lake, Sr.
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Joseph Arleen
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Larry Saidel
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Irwin Kent
S-3
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Henry Leshman
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Cecile Axelrod
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Edith Cannon
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Leonard Rosen
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Barry J. Haberman
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Stephen M. Savage
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
___________________________________
Margeret H. Fay, as Trustee of the
Margeret H. Fay Living Trust
S-2
<PAGE>
WARRANT EXERCISE AND SECURITIES EXCHANGE AGREEMENT
[$340,000 RULE 504 NOTES]
INVESTOR SIGNATURE PAGE
JOHN B. LOWEY, P.C.
By:________________________________
John B. Lowey
Title:________________________
S-2
<PAGE>
EXHIBIT 4.6
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
November ___, 1996, and is being made and entered into by and among AVERY
COMMUNICATIONS INC., a Delaware corporation ("ACI"), and the individuals
---
executing this Agreement (each, a "Holder," and collectively, the "Holders"),
------ -------
with reference to the following RECITALS:
R E C I T A L S
A. Pursuant to that certain Partnership Interest Purchase Agreement,
dated as of May 3, 1996, by and among ACI, Avery Acquisition Sub, Inc., a Texas
corporation and a wholly owned subsidiary of ACI ("Merger Sub"), Hold Billing
-----------
Services, Ltd., a Texas limited partnership ("Billing"), Hold Billing &
-------
Collection, L.C., a Texas limited liability company, and the Holders, as amended
by that certain First Amendment to Partnership Interest Purchase Agreement dated
as of November 7, 1996 by and among the same (the "Purchase Agreement") and
-------------------
pursuant to that certain Partnership Interest Option Agreement dated as of May
3, 1996 by and among ACI, Merger Sub, Harold D. Box and David W. Mechler, Jr.,
as amended by that certain First Amendment to Partnership Interest Option
Agreement dated as of November 7, 1996 by and among the same (the "Option
------
Agreement"), the Holders have been, or will be, issued shares (collectively, the
- ---------
"ACI Shares") of the common stock, par value $.01 per share (the "ACI Common
----------- ----------
Stock"), of ACI.
- -----
B. To insure that the Holders will have liquidity in the future with
respect to their Registrable Stock (as defined below) the Holders wish to have
certain registration rights and ACI wishes to grant such rights to the Holders.
C. Unless the context otherwise requires, each capitalized term used
herein that is not defined herein shall have the same meaning as set forth in
the Purchase Agreement.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDERS. If at any time or times
from and after the first anniversary of the Closing Date, ACI intends
to file prior to the Expiration Date a Registration Statement on Form
S-1, S-2 or S-3 (or other appropriate form) for the
<PAGE>
registration of equity securities of ACI with the Commission (other
than a (i) Registration Statement on Form S-4 (or any successor form)
or relating to a corporate reorganization or other transaction under
Rule 145, (ii) Registration Statement relating to securities issued
pursuant to, or interests in, an employee benefit plan for the
employees of ACI or its affiliates or (iii) Registration Statement on a
form which does not permit the inclusion of securities sold in a
secondary offering), then ACI shall notify each Holder at least 30 days
prior to each such filing of ACI's intention to file such a
Registration Statement. Such notice shall state the amount and type of
securities proposed to be registered thereby. Upon the written request
of a Holder or Holders (each, a "Holder Request," and collectively, the
--------------
"Holder Requests") given within 20 days after receipt of any such
----------------
notice stating the number of shares of Registrable Stock to be disposed
of by such Holder or Holders and the intended method of disposition,
ACI will use reasonable efforts to cause the aggregate of the
Registrable Stock designated in the Holder Requests to be included in
such registration so as to permit the disposition (in accordance with
the methods specified in the Holder Request(s)) by such Holder or
Holders of the Registrable Stock so registered, subject to the
reductions specified in Sections 1.1.2 and 1.1.3, as applicable. The
------------------------
Holders shall be entitled, subject to such reductions, to participate
in an unlimited number of such registrations.
1.1.2 REDUCTIONS REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
ACI Securities, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the ACI Securities will adversely affect the
distribution of such ACI Securities by such underwriters, then ACI may
require, by written notice to each such Holder, that the distribution
of all or a specified portion of such Registrable Stock be excluded
from such registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holders, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls such Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement (as declared effective) or
prospectus filed under Rule 424(b) under the Securities Act (and
- 2 -
<PAGE>
as amended or supplemented if ACI shall have furnished any amendments
or supplements thereto) or any preliminary prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by such Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from such Holder selling Registrable Stock to a Person
asserting the existence of an untrue statement or alleged
untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
such Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but only if
such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and such Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify any Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 1.2(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which a
Holder is participating, each such Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or such underwriter within the meaning of Section
15 of the Securities Act, each other Holder and Other Stockholder, and
each of their officers, directors, and partners, and each Person
controlling such other Holder or Other Stockholder against any losses,
claims, damages, liabilities (or proceedings in respect thereof) and
expenses (under the Securities Act or common law or otherwise)
resulting from any untrue statement or alleged untrue statement of a
material fact or any omission or alleged omission of a material fact
required to be stated in the Registration Statement (as declared
effective) or prospectus filed under Rule 424(b) under the Securities
Act or preliminary prospectus or
- 3 -
<PAGE>
any amendment thereof or supplement thereto, or necessary to make the
statements therein not misleading, but only to the extent that:
(i) such untrue statement is made in reliance on or
in conformity with any information furnished in writing by
such Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from such Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
such Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and such Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus;
provided, however, that the obligations of such Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which
consent has not been unreasonably withheld); and provided further that
such Holder's obligations under this Section 1.2.(b) shall be limited
---------------
to an amount equal to the gross proceeds to such Holder of the
Registrable Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such
- 4 -
<PAGE>
indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of a participating Holder, its
officers, directors or any Person, if any, who controls such Holder as
aforesaid, and shall survive the transfer of such securities by such
Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. Notwithstanding the foregoing, no Holder shall be
required to contribute any amount in excess of the amount such Holder
would have been required to pay to an indemnified party if the
indemnity under Section 1.2.(a) or (b), as applicable, was available.
-----------------------
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. The relative fault of the indemnifying party and of
the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holders have properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of such Registrable Stock in accordance with the intended method
of disposition thereof, and in connection with any such request ACI
will:
- 5 -
<PAGE>
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
(iii) use reasonable efforts to register or qualify
such Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of such Registrable Stock;
(v) (A) notify each seller of such Registrable
Stock, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus
included in such Registration Statement contains an untrue
statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the
statements therein not misleading, and (B) prepare a
supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Registrable
Stock, such prospectus will not contain an untrue statement of
a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading;
- 6 -
<PAGE>
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise their due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
(b) In connection with any registration effected pursuant to
this Section 1.1, the Holders who have requested that their securities
-----------
be registered pursuant to such Registration Statement shall provide to
ACI such information as may be reasonably requested by ACI to be
required for inclusion in such Registration Statement pursuant to the
Securities Act and the rules and regulations thereunder.
(c) Each Holder agrees by acquisition of such Registrable
Stock and the registration rights thereunder that, upon receipt of any
notice from ACI of the happening of any event of the kind described in
Section 1.3(a)(v), such Holder will forthwith discontinue disposition
-----------------
of Registrable Stock pursuant to the Registration Statement covering
such Registrable Stock until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, such Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by such Holders, pro rata according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holders of such
Registrable Stock.
- 7 -
<PAGE>
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holders or other selling stockholders ("Other Stockholders") cannot be so
------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be allocated
among the Holders and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by such Holders and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of Registrable Stock and Other Shares to be included in such
registration, if any Holder or Other Stockholder does not request inclusion of
the maximum number of shares of Registrable Stock and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holders and Other
Stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Stock and Other Shares which would
be held by such Holders and Other Stockholders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Stock and
Other Shares which may be included in the registration on behalf of the Holders
and Other Stockholders have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all questionnaires, indemnities, underwriting
agreements and other reasonable documents which must be executed under the terms
of such underwriting arrangements.
- 8 -
<PAGE>
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
ARTICLE 3
DEFINITION AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section 3.1, whenever used in this
Agreement, shall have the respective meanings assigned to them in this Section
for all purposes of this Agreement, and include the plural as well as the
singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI COMMON STOCK: as defined in the Recitals to this Agreement.
ACI SECURITIES: securities issued by ACI.
ACI SHARES: as defined in the Recitals to this Agreement.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
ACQUISITION: the acquisition by ACI of Billing pursuant to the Purchase
Agreement and Option Agreement.
- 9 -
<PAGE>
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
EXPIRATION DATE: the earlier of (i) three years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLD: as defined in the Recitals to this Agreement.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDERS: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section 1.1.1.
HOLDER REQUESTS: as defined in Section 1.1.1.
MERGER SUB: as defined in the Recitals to this Agreement.
NASDAQ: The Nasdaq Stock Market, including both the National Market
System and the Small Cap System.
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section 1.6.
OTHER STOCKHOLDERS: as defined in Section 1.6.
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
PURCHASE AGREEMENT: as defined in the Recitals to this Agreement.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: the ACI Shares held by the Holders from time to time
and all shares of Common Stock issued by ACI in respect of such ACI
Shares.
- 10 -
<PAGE>
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holders and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
- 11 -
<PAGE>
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holders, to their respective addresses listed on
the signature pages,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by
- 12 -
<PAGE>
next-day or overnight mail or delivery, on the day delivered, (z) if by telecopy
or telegram, on the next day following the day on which such telecopy or
telegram was sent, provided that a copy is also sent by certified or registered
mail.
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW, ETC. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof. ACI and each Holder hereby irrevocably submit to the jurisdiction of
the courts of the State of Texas and the Federal courts of the United States of
America located in the State of Texas, City and County of Dallas, solely in
respect of the interpretation and enforcement of the provisions of this
Agreement and of the documents referred to in this Agreement, and hereby waive,
and agree not to assert, as a defense in any action, suit or proceeding for the
interpretation or enforcement hereof or of any such document, that it is not
subject thereto or that such action, suit or proceeding may not be brought or is
not maintainable in said courts or that the venue thereof may not be appropriate
or that this Agreement or any of such document may not be enforced in or by said
courts, and the parties hereto irrevocably agree that all claims with respect to
such action or proceeding shall be heard and determined in such a Texas State or
Federal court. ACI and each Holder hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 4.2, or in
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
- 13 -
<PAGE>
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach.
[Balance of Page Intentionally Left Blank]
- 14 -
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC. HOLDERS
By:______________________________ __________________________
Patrick J. Haynes, III Joseph W. Webb
Chairman of the Board Address:__________________
__________________________
__________________________
James A. Young
Address:__________________
__________________________
__________________________
Edward L. Dunn
Address:__________________
__________________________
__________________________
Philip S. Dunn
Address:__________________
__________________________
__________________________
Harold D. Box
Address:__________________
__________________________
__________________________
David W. Mechler, Jr.
Address:__________________
__________________________
-15-
<PAGE>
EXHIBIT 4.7
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
May 30, 1997, and is being made and entered into by and among AVERY
COMMUNICATIONS, INC., a Delaware corporation ("ACI"), and THE FRANKLIN HOLDING
---
CORPORATION (DELAWARE), a Delaware corporation (the "Holder"), with reference to
------
the following RECITALS:
R E C I T A L S:
---------------
A. For the convenience of the parties, certain capitalized words and
phrases used herein are defined or referred to in Section 3.1.
B. To provide the Holder with greater liquidity in the future with
respect to the Registrable Stock, the Holder wishes to have certain registration
rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 DEMAND REGISTRATION.
1.1.1 REQUEST FOR REGISTRATION. At any time after April 1,
1998, until the Expiration Date, Holder may make a written request (the
"Demand Notice") for registration under the Securities Act (a "Demand
------------- ------
Registration") of all or part of Holder's Demand Registrable Stock,
------------
subject to the conditions of this Agreement. The Demand Notice will
specify the number of shares of Demand Registrable Stock proposed to be
sold and will also specify the intended method of disposition thereof.
Subject to Section 1.1.4 hereof, ACI will include in the Demand
--------------
Registration all Demand Registrable Stock specified in the Demand
Notice. The Demand Registration shall be on such appropriate
registration form of the Commission as ACI shall determine.
1.1.2 LIMITATION ON DEMAND REGISTRATION. ACI shall not be
obligated to effect more than one Demand Registration under this
Section 1.1.2.
-------------
Notwithstanding any provision of this Agreement to the
contrary, ACI shall not be obligated to honor any Demand Notice
requesting a Demand Registration, or otherwise cause a Demand
Registration to become effective, hereunder if (i) the Demand Notice is
delivered to ACI during the period commencing 90 days before the
estimated effective date of a registration statement pursuant to which
ACI proposes to offer shares of any class of equity securities of ACI
in an underwritten offering and ending 180 days after
<PAGE>
the closing date of any such offering. If ACI determines not to proceed
with such proposed offering, ACI shall promptly notify the Holder who
made the Demand Notice that (i) ACI's proposed offering has been
cancelled and (ii) ACI will file the Demand Registration as soon as
practicable as requested by the Holder who delivered the Demand Notice.
1.1.3 EFFECTIVE REGISTRATION AND EXPENSES. Upon receipt of a
Demand Notice, ACI will (i) take appropriate action, on a reasonable,
timely basis, to prepare and file a registration statement covering the
Demand Registrable Stock requested to be included in the Demand
Registration (subject to Section 1.1.4 below) and (ii) use its
--------------
commercially reasonable efforts to cause the Demand Registration to
become effective under the Securities Act. A registration will not
count as a Demand Registration unless a registration statement with
respect thereto has become effective (unless the Holders whose Demand
Registrable Stock are included in such Demand Registration withdraw
their shares of Demand Registrable Stock, in which case such demand
shall count as the Demand Registration). ACI will pay all Registration
Expenses in connection with the Demand Registration.
1.1.4 PRIORITY ON DEMAND REGISTRATIONS. In the event the
offering of shares pursuant to a Demand Registration shall be in the
form of an underwritten offering by or through one or more
underwriters, and the managing underwriter or underwriters of such
underwritten offering advise ACI in writing that, in their opinion, the
number of Demand Registrable Stock and any other securities requested
to be included in such offering is sufficiently large to affect
materially and adversely the success of such offering (a "Material
--------
Adverse Effect"), ACI shall include in such registration the aggregate
--------------
number of shares of Demand Registrable Stock which in the opinion of
such managing underwriter or underwriters can be sold without any such
Material Adverse Effect. Other securities requested to be included in
such offering shall only be included if (i) all shares of Demand
Registrable Stock are included and (ii) the inclusion of such other
securities will not result in a Material Adverse Effect.
SECTION 1.2 INCIDENTAL REGISTRATION.
1.2.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the date hereof, ACI intends to file prior to the Expiration
Date a Registration Statement on Form S-1, S-2 or S-3 (or other
appropriate form) for the registration of Common Stock with the
Commission (other than a (i) Registration Statement on Form S-4 (or any
successor form) relating to a corporate reorganization or other
transaction under Rule 145, (ii) Registration Statement relating to
securities issued pursuant to, or interests in, an employee benefit
plan for the employees of ACI or its affiliates or (iii) Registration
Statement on a form which does not permit the inclusion of securities
sold in a secondary offering), then ACI shall notify the Holder at
least 30 days prior to each such filing of ACI's intention to file such
a Registration Statement. Such notice shall state the amount and type
of securities proposed to be registered thereby. Upon the written
request of the Holder (a "Holder Request") given within 20 days after
---------------
receipt of any such notice stating the number of shares of Registrable
Stock to be disposed of by the Holder and the intended method of
disposition, ACI will use reasonable efforts to cause the aggregate of
the Registrable Stock designated in the Holder Requests to be included
in such
-2-
<PAGE>
registration so as to permit the disposition (in accordance with the
methods specified in the Holder Request(s)) by the Holder of the
Registrable Stock so registered, subject to the reductions specified in
Sections 1.2.2 and 1.2.3, as applicable. The Holder shall be entitled,
------------------------
subject to such reductions, to participate in an unlimited number of
such registrations.
1.2.2 REDUCTIONS OF REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.7.
-----------
1.2.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.2 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.3 INDEMNITY.
(a) ACI will, and hereby does, indemnify and hold harmless, to
the extent permitted by law, each Holder, its partners,
representatives, shareholders, officers and directors, if any, and each
Person, if any, who controls the Holder within the meaning of Section
15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, resulting
from any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or
-3-
<PAGE>
omission or alleged omission in a preliminary prospectus and
to whom there was not given or sent, at or prior to the
written confirmation of the sale of the Registrable Stock, a
copy of the final prospectus or the final prospectus as then
amended or supplemented but only if such statement or omission
was corrected in such final prospectus or amended or
supplemented final prospectus prior to such written
confirmation and the Holder was given notice, prior to such
written confirmation, of the availability of, or that ACI was
preparing, such final prospectus or amended or supplemented
final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 13 (a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify and hold harmless,
to the extent permitted by law, ACI, its officers, directors, partners,
legal counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or any such underwriter within the meaning of
Section 15 of the Securities Act, and each of the Other Stockholders,
and each of their respective officers, directors, and partners, and
each Person controlling any of the Other Stockholders against any
losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses (under the Securities Act or common law or
otherwise) resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement (as
declared effective) or prospectus filed under Rule 424(b) under the
Securities Act or preliminary prospectus or any amendment thereof or
supplement thereto, or necessary to make the statements therein not
misleading, but only to the extent that:
(i) such untrue statement is made in reliance on
or in conformity with any information furnished in writing by
the Holder expressly for use therein; or
(ii) in the case of any registration that is not
an underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation,
-4-
<PAGE>
of the availability of, or that ACI was preparing, such final
prospectus or amended or supplemented final prospectus;
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and, provided further, that the
Holder's obligations under this Section 1.3.(b) shall be limited to an
---------------
amount equal to the net proceeds to the Holder of the Registrable Stock
sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.3.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. Notwithstanding the foregoing, no Holder shall be
required to contribute any amount in excess of the amount the Holder
would have been required to pay to an indemnified party if the
indemnity under Section 1.3.(a) or (b), as applicable, was
----------------------
-5-
<PAGE>
available. 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. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.3 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.4 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Sections 1.1 or 1.2, ACI
-------------------
will use reasonable efforts to effect the registration in furtherance
of the sale of the Registrable Stock in accordance with the intended
method of disposition thereof, and in connection with any such request
ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other applicable securities
or blue sky laws of such jurisdictions as any
-6-
<PAGE>
seller reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to
enable such seller to consummate the disposition in such
jurisdictions of the Registrable Stock owned by such seller;
provided, however, that ACI will not be required to (A)
qualify generally to do business or subject itself to taxation
in any jurisdiction where it would not otherwise be required
to qualify or be subject but for this subparagraph (iii), or
(B) consent to general service of process in any such
jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
(b) In connection with any registration effected pursuant to
Sections 1.1 or 1.2, that the Holder has requested that its securities
-------------------
be registered pursuant to such Registration Statement shall provide to
ACI such information as may be reasonably requested by ACI
-7-
<PAGE>
to be required for inclusion in such Registration Statement pursuant to
the Securities Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.4(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.4(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.4(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.4(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.4(a)(v).
-----------------
SECTION 1.5 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
SECTION 1.6 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.7 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of Common Stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, other than as
provided in Section 1.1.4 and Section 1.2.2, the number of shares of Registrable
------------- -------------
Stock and Other Shares that may be so included shall be allocated among the
Holder and Other Stockholders requesting inclusion of shares pro rata on the
basis of the number of shares of Registrable Stock and Other Shares that would
be held by the Holder and Other Stockholders, assuming conversion; provided,
however, that such allocation shall not operate to reduce the aggregate number
of shares of Registrable Stock and Other Shares to be included in such
registration. If the Holder or any Other Stockholder does not request inclusion
of the maximum number of shares of Registrable Stock and Other Shares allocated
to such Person pursuant to the above-described procedure, the remaining portion
of any such Person's allocation shall be reallocated among those requesting
Holder and Other Stockholders whose allocations did not satisfy their requests
pro rata on the basis of the number of shares of
-8-
<PAGE>
Registrable Stock and Other Shares which would be held by the Holder and Other
Stockholders, assuming conversion, and this procedure shall be repeated until
all of the shares of Registrable Stock and Other Shares which may be included in
the registration on behalf of the Holder and Other Stockholders have been so
allocated.
SECTION 1.8 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Article 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all questionnaires, indemnities, underwriting
agreements and other reasonable documents which must be executed under the terms
of such underwriting arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. Notwithstanding any other provision of
the Agreement, if any registration pursuant to this Agreement shall be in
connection with an underwritten public offering, each Holder agrees, if so
required by the managing underwriter, not to effect any public sale or
distribution of Registrable Stock (other than as part of such underwritten
public offering) within 30 days prior to the effective date of such Registration
Statement or 180 days after the effective date of such Registration Statement.
-9-
<PAGE>
ARTICLE 3
DEFINITIONS AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section 3.1, whenever used in this
Agreement, shall have the respective meanings assigned to them in this Section
for all purposes of this Agreement, and include the plural as well as the
singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this Agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
COMMON STOCK: the Common Stock, par value $0.01 per share, of ACI.
DEMAND NOTICE: as defined in Section 1.1.1.
-------------
DEMAND REGISTRATION: as defined in Section 1.1.1.
-------------
DEMAND REGISTRABLE STOCK: collectively, the Holder Original Common
Shares and the Holder Conversion Shares, and all shares of Common Stock
issued by ACI in respect of such Shares.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which the Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement, and any
Person who (i) subsequently becomes the owner of record of any
Registrable Stock and (ii) enters into an amendment or supplement to
this Agreement pursuant to which such subsequent holder of Registrable
Stock agrees to be bound by each and every provision of this Agreement
-10-
<PAGE>
except for the provisions of Section 1.1, it being expressly understood
-----------
and agreed that no subsequent owner of Registrable Stock shall have any
demand registration rights hereunder without the express prior written
consent of ACI.
HOLDER CONVERSION SHARES: all shares of Common Stock issued to Holder
upon conversion of the Holder Preferred Shares.
HOLDER ORIGINAL COMMON SHARES: the 999,997 shares of the Common Stock
purchased by Holder pursuant to the Investment Agreement.
HOLDER PREFERRED SHARES: all shares of ACI's Series D Senior Voting
Cumulative Convertible Redeemable Preferred Stock and Series E Junior
Convertible Redeemable Preferred Stock issued by ACI to Holder pursuant
to the Investment Agreement.
HOLDER REQUEST: as defined in Section 1.2.1.
-------------
HOLDER WARRANT SHARES: all shares of Common Stock received by Holder
from ACI upon exercise of the Warrant.
INVESTMENT AGREEMENT: the Investment Agreement dated as of May 30,
1997, by and between the Holder and ACI.
MATERIAL ADVERSE EFFECT: as defined in Section 1.1.4.
-------------
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section 1.7.
-----------
OTHER STOCKHOLDERS: as defined in Section 1.7.
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: collectively, the Holder Original Common Shares, the
Holder Conversion Shares and the Holder Warrant Shares, and all shares
of Common Stock issued by ACI in respect of such Shares. Except as used
in Section 1.2, the term "Registrable Stock" shall include all "Demand
----------- ------------------ ------
Registrable Stock."
------------------
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
-11-
<PAGE>
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
WARRANT: the Warrant to purchase 666,666 shares of Common Stock at an
exercise price of $1.50 per share granted by ACI to the Holder pursuant
to the Investment Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement
-12-
<PAGE>
thereof, include any amendment, modification or supplements thereof or
thereto from time to time, and, include all rules and regulations
promulgated thereunder or pursuant thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(a) if to ACI, to
Avery Communications, Inc.
190 South LaSalle Street, Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III, Chairman
(b) if to the Holder, to
The Franklin Holding Corporation (Delaware)
450 Park Avenue, 10th Floor
New York, New York 10022
Attention: Stephen L. Brown, Chairman
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by
-13-
<PAGE>
next-day or overnight mail or delivery, on the day delivered, (z) if by telecopy
or telegram, on the next day following the day on which such telecopy or
telegram was sent, provided that a copy is also sent by certified or registered
mail.
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter
-14-
<PAGE>
of any other representation, warranty, covenant or agreement as to which there
is no inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-15-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Thomas M. Lyons, President
HOLDER
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
By:________________________________
Stephen L. Brown, Chairman
-16-
<PAGE>
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
December 5, 1996, and is being made and entered into by and among AVERY
COMMUNICATIONS, INC., a Delaware corporation ("ACI"), and ROGER FELBERBAUM (the
---
"Holder"), with reference to the following RECITALS:
------
R E C I T A L S:
---------------
A. ACI has issued the Holder a warrant (the "Warrant") to purchase
-------
20,000 shares (the "Shares") of common stock, par value $0.01 per share (the
"Common Stock"), of ACI.
------------
B. To provide the Holder with greater liquidity in the future with
respect to the Registrable Stock (as defined below), the Holder wishes to have
certain registration rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the first anniversary of the date hereof, ACI intends to file
prior to the Expiration Date a Registration Statement on Form S-1, S-2
or S-3 (or other appropriate form) for the registration of Common Stock
with the Commission (other than a (i) Registration Statement on Form
S-4 (or any successor form) relating to a corporate reorganization or
other transaction under Rule 145, (ii) Registration Statement relating
to securities issued pursuant to, or interests in, an employee benefit
plan for the employees of ACI or its affiliates or (iii) Registration
Statement on a form which does not permit the inclusion of securities
sold in a secondary offering), then ACI shall notify the Holder at
least 30 days prior to each such filing of ACI's intention to file such
a Registration Statement. Such notice shall state the amount and type
of securities proposed to be registered thereby. Upon the written
request of the Holder (a "Holder Request") given within 20 days after
---------------
receipt of any such notice stating the number of shares of Registrable
Stock to be disposed of by the Holder and the intended method of
disposition, ACI will use reasonable efforts to cause the aggregate of
the Registrable Stock designated in the Holder Requests to be included
in such registration so as to permit the disposition (in accordance
with the methods specified in the Holder Request(s)) by the Holder of
the Registrable Stock so registered, subject to the reductions
specified in Sections 1.1.2 and 1.1.3, as applicable. The Holder shall
------------------------
be entitled, subject to such reductions, to participate in an unlimited
number of such registrations.
<PAGE>
1.1.2 REDUCTIONS OF REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or omission or alleged omission in
a preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but only if
such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to
-2-
<PAGE>
such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 12(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or any such underwriter within the meaning of
Section 15 of the Securities Act, and each of the Other Stockholders,
and each of their respective officers, directors, and partners, and
each Person controlling any of the Other Stockholders against any
losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses (under the Securities Act or common law or
otherwise) resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement (as
declared effective) or prospectus filed under Rule 424(b) under the
Securities Act or preliminary prospectus or any amendment thereof or
supplement thereto, or necessary to make the statements therein not
misleading, but only to the extent that:
(i) such untrue statement is made in reliance on or
in conformity with any information furnished in writing by the
Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus;
-3-
<PAGE>
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and provided further that the
Holder's obligations under this Section 1.2.(b) shall be limited to an
---------------
amount equal to the gross proceeds to the Holder of the Registrable
Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. Notwithstanding the foregoing, no Holder shall be
required to contribute any amount in excess of the amount the Holder
would have been required to pay to an indemnified party if the
indemnity under Section 1.2.(a) or (b), as applicable, was available.
-----------------------
No person guilty of fraudulent misrepresentation (within the meaning of
-4-
<PAGE>
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of the Registrable Stock in accordance with the intended method of
disposition thereof, and in connection with any such request ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
-5-
<PAGE>
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
-6-
<PAGE>
(b) In connection with any registration effected pursuant to
Section 1.1, that the Holder has requested that its securities be
------------
registered pursuant to such Registration Statement shall provide to ACI
such information as may be reasonably requested by ACI to be required
for inclusion in such Registration Statement pursuant to the Securities
Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.3(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be
allocated
among the Holder and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by the Holder and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of shares of Registrable Stock and Other Shares to be included in such
registration. If the Holder or any
-7-
<PAGE>
Other Stockholder does not request inclusion of the maximum number of shares of
Registrable Stock and Other Shares allocated to such Person pursuant to the
above-described procedure, the remaining portion of any such Person's allocation
shall be reallocated among those requesting Holder and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Stock and Other Shares which would be held by the
Holder and Other Stockholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Stock and Other Shares which may
be included in the registration on behalf of the Holder and Other Stockholders
have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all questionnaires, indemnities, underwriting
agreements and other reasonable documents which must be executed under the terms
of such underwriting arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
-8-
<PAGE>
ARTICLE 3
DEFINITIONS AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section , whenever used in this Agreement,
shall have the respective meanings assigned to them in this Section for all
purposes of this Agreement, and include the plural as well as the singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
COMMON STOCK: as defined in the Recitals to this Agreement.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section 1.1.1.
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section 1.6.
OTHER STOCKHOLDERS: as defined in Section 1.6.
-9-
<PAGE>
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: the Shares held by the Holder from time to time and
all shares of Common Stock issued by ACI in respect of such Shares.
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SHARES: as defined in the Recitals to this Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
-10-
<PAGE>
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
-11-
<PAGE>
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holder, to its address listed on the
signature page,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
-12-
<PAGE>
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes
Chairman
HOLDER
ROGER FELBERBAUM
___________________________________
Roger Felberbaum
-14-
<PAGE>
EXHIBIT 4.9
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
December 31, 1996, and is being made and entered into by and among AVERY
COMMUNICATIONS, INC., a Delaware corporation ("ACI"), and GIULIO CURIEL (the
---
"Holder"), with reference to the following RECITALS:
------
R E C I T A L S:
---------------
A. ACI has issued the Holder a warrant (the "Warrant") to purchase
-------
4,500 shares (the "Shares") of common stock, par value $0.01 per share (the
------
"Common Stock"), of ACI.
------------
B. To provide the Holder with greater liquidity in the future with
respect to the Registrable Stock (as defined below), the Holder wishes to have
certain registration rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the first anniversary of the date hereof, ACI intends to file
prior to the Expiration Date a Registration Statement on Form S-1, S-2
or S-3 (or other appropriate form) for the registration of Common Stock
with the Commission (other than a (i) Registration Statement on Form
S-4 (or any successor form) relating to a corporate reorganization or
other transaction under Rule 145, (ii) Registration Statement relating
to securities issued pursuant to, or interests in, an employee benefit
plan for the employees of ACI or its affiliates or (iii) Registration
Statement on a form which does not permit the inclusion of securities
sold in a secondary offering), then ACI shall notify the Holder at
least 30 days prior to each such filing of ACI's intention to file such
a Registration Statement. Such notice shall state the amount and type
of securities proposed to be registered thereby. Upon the written
request of the Holder (a "Holder Request") given within 20 days after
---------------
receipt of any such notice stating the number of shares of Registrable
Stock to be disposed of by the Holder and the intended method of
disposition, ACI will use reasonable efforts to cause the aggregate of
the Registrable Stock designated in the Holder Requests to be included
in such registration so as to permit the disposition (in accordance
with the methods specified in the Holder Request(s)) by the Holder of
the Registrable Stock so registered, subject to the reductions
specifiedin Sections 1.1.2 and 1.1.3, as applicable. The Holder shall
------------------------
be entitled, subject to such reductions, to participate in an unlimited
number of such registrations.
<PAGE>
1.1.2 REDUCTIONS OF REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or omission or alleged omission in
a preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but only if
such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to
-2-
<PAGE>
such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 1.2(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or any such underwriter within the meaning of
Section 15 of the Securities Act, and each of the Other Stockholders,
and each of their respective officers, directors, and partners, and
each Person controlling any of the Other Stockholders against any
losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses (under the Securities Act or common law or
otherwise) resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement (as
declared effective) or prospectus filed under Rule 424(b) under the
Securities Act or preliminary prospectus or any amendment thereof or
supplement thereto, or necessary to make the statements therein not
misleading, but only to the extent that:
(i) such untrue statement is made in reliance on
or in conformity with any information furnished in writing by
the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus;
-3-
<PAGE>
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and provided further that the
Holder's obligations under this Section 1.2.(b) shall be limited to an
---------------
amount equal to the gross proceeds to the Holder of the Registrable
Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. Notwithstanding the foregoing, no Holder shall be
required to contribute any amount in excess of the amount the Holder
would have been required to pay to an indemnified party if the
indemnity under Section 1.2.(a) or (b), as applicable, was available.
-----------------------
No person guilty of fraudulent misrepresentation (within the meaning of
-4-
<PAGE>
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of the Registrable Stock in accordance with the intended method of
disposition thereof, and in connection with any such request ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
-5-
<PAGE>
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
-6-
<PAGE>
(b) In connection with any registration effected pursuant to
Section 1.1, that the Holder has requested that its securities be
------------
registered pursuant to such Registration Statement shall provide to ACI
such information as may be reasonably requested by ACI to be required
for inclusion in such Registration Statement pursuant to the Securities
Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.3(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be allocated
among the Holder and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by the Holder and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of shares of Registrable Stock and Other Shares to be included in such
registration. If the Holder or any
-7-
<PAGE>
Other Stockholder does not request inclusion of the maximum number of shares of
Registrable Stock and Other Shares allocated to such Person pursuant to the
above-described procedure, the remaining portion of any such Person's allocation
shall be reallocated among those requesting Holder and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Stock and Other Shares which would be held by the
Holder and Other Stockholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Stock and Other Shares which may
be included in the registration on behalf of the Holder and Other Stockholders
have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all questionnaires, indemnities, underwriting
agreements and other reasonable documents which must be executed under the terms
of such underwriting arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
-8-
<PAGE>
ARTICLE 3
DEFINITIONS AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section , whenever used in this Agreement,
shall have the respective meanings assigned to them in this Section for all
purposes of this Agreement, and include the plural as well as the singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
COMMON STOCK: as defined in the Recitals to this Agreement.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section.
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section.
OTHER STOCKHOLDERS: as defined in Section.
-9-
<PAGE>
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: the Shares held by the Holder from time to time and
all shares of Common Stock issued by ACI in respect of such Shares.
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SHARES: as defined in the Recitals to this Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
-10-
<PAGE>
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
-11-
<PAGE>
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holder, to its address listed on the
signature page,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
-12-
<PAGE>
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes
Chairman
HOLDER
GIULIO CURIEL
___________________________________
Giulio Curiel
-14-
<PAGE>
EXHIBIT 4.10
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
December 31, 1996, and is being made and entered into by and among AVERY
COMMUNICATIONS, INC., a Delaware corporation ("ACI"), and SABINA INTERNATIONAL
---
S.A. (the "Holder"), with reference to the following RECITALS:
------
R E C I T A L S:
---------------
A. ACI has issued the Holder a warrant (the "Warrant") to purchase
-------
42,500 shares (the "Shares") of common stock, par value $0.01 per share (the
"Common Stock"), of ACI.
------------
B. To provide the Holder with greater liquidity in the future with
respect to the Registrable Stock (as defined below), the Holder wishes to have
certain registration rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the first anniversary of the date hereof, ACI intends to file
prior to the Expiration Date a Registration Statement on Form S-1, S-2
or S-3 (or other appropriate form) for the registration of Common Stock
with the Commission (other than a (i) Registration Statement on Form
S-4 (or any successor form) relating to a corporate reorganization or
other transaction under Rule 145, (ii) Registration Statement relating
to securities issued pursuant to, or interests in, an employee benefit
plan for the employees of ACI or its affiliates or (iii) Registration
Statement on a form which does not permit the inclusion of securities
sold in a secondary offering), then ACI shall notify the Holder at
least 30 days prior to each such filing of ACI's intention to file such
a Registration Statement. Such notice shall state the amount and type
of securities proposed to be registered thereby. Upon the written
request of the Holder (a "Holder Request") given within 20 days after
---------------
receipt of any such notice stating the number of shares of Registrable
Stock to be disposed of by the Holder and the intended method of
disposition, ACI will use reasonable efforts to cause the aggregate of
the Registrable Stock designated in the Holder Requests to be included
in such registration so as to permit the disposition (in accordance
with the methods specified in the Holder Request(s)) by the Holder of
the Registrable Stock so registered, subject to the reductions
specified in Sections 1.1.2 and 1.1.3, as applicable. The Holder shall
------------------------
be entitled, subject to such reductions, to participate in an
unlimited number of such registrations.
<PAGE>
1.1.2 REDUCTIONS OF REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent
-----------
to its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or omission or alleged omission in
a preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but only if
such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to
-2-
<PAGE>
such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 12(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or any such underwriter within the meaning of
Section 15 of the Securities Act, and each of the Other Stockholders,
and each of their respective officers, directors, and partners, and
each Person controlling any of the Other Stockholders against any
losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses (under the Securities Act or common law or
otherwise) resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement (as
declared effective) or prospectus filed under Rule 424(b) under the
Securities Act or preliminary prospectus or any amendment thereof or
supplement thereto, or necessary to make the statements therein not
misleading, but only to the extent that:
(i) such untrue statement is made in reliance on
or in conformity with any information furnished in writing by
the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus;
-3-
<PAGE>
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and provided further that the
Holder's obligations under this Section 1.2.(b) shall be limited to an
---------------
amount equal to the gross proceeds to the Holder of the Registrable
Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. Notwithstanding the foregoing, no Holder shall be
required to contribute any amount in excess of the amount the Holder
would have been required to pay to an indemnified party if the
indemnity under Section 1.2.(a) or (b), as applicable, was available.
-----------------------
No person guilty of fraudulent misrepresentation (within the meaning of
-4-
<PAGE>
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of the Registrable Stock in accordance with the intended method of
disposition thereof, and in connection with any such request ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
-5-
<PAGE>
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
-6-
<PAGE>
(b) In connection with any registration effected pursuant to
Section 1.1, that the Holder has requested that its securities be
-----------
registered pursuant to such Registration Statement shall provide to ACI
such information as may be reasonably requested by ACI to be required
for inclusion in such Registration Statement pursuant to the Securities
Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.3(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be allocated
among the Holder and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by the Holder and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of shares of Registrable Stock and Other Shares to be included in such
registration. If the Holder or any
-7-
<PAGE>
Other Stockholder does not request inclusion of the maximum number of shares of
Registrable Stock and Other Shares allocated to such Person pursuant to the
above-described procedure, the remaining portion of any such Person's allocation
shall be reallocated among those requesting Holder and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Stock and Other Shares which would be held by the
Holder and Other Stockholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Stock and Other Shares which may
be included in the registration on behalf of the Holder and Other Stockholders
have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all questionnaires, indemnities, underwriting
agreements and other reasonable documents which must be executed under the terms
of such underwriting arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
-8-
<PAGE>
ARTICLE 3
DEFINITION AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section , whenever used in this Agreement,
shall have the respective meanings assigned to them in this Section for all
purposes of this Agreement, and include the plural as well as the singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be
from time to time supplemented or amended by one or more supplements
or amendments hereto entered pursuant to the applicable provisions
hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
COMMON STOCK: as defined in the Recitals to this Agreement.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section .
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section .
OTHER STOCKHOLDERS: as defined in Section .
-9-
<PAGE>
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration
effected by filing a Registration Statement in compliance with the
Securities Act, and the declaration or ordering by the Commission of
the effectiveness of such Registration Statement.
REGISTRABLE STOCK: the Shares held by the Holder from time to time and
all shares of Common Stock issued by ACI in respect of such Shares.
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SHARES: as defined in the Recitals to this Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
-10-
<PAGE>
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
-11-
<PAGE>
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holder, to its address listed on the
signature page,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
-12-
<PAGE>
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:_____________________________________
Patrick J. Haynes
Chairman
HOLDER
SABINA INTERNATIONAL S.A.
By:_____________________________________
________________________________________
PRINT NAME
________________________________________
PRINT TITLE
-14-
<PAGE>
EXHIBIT 4.11
[Form of Investor Warrant]
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION
FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
AVERY COMMUNICATIONS, INC.
STOCK PURCHASE WARRANT
THIS IS TO CERTIFY THAT _________________________ (the "Holder") is
------
entitled to purchase _________ shares (the "Shares") of common stock, $.01 par
------
value per share ("Common Stock"), of Avery Communications Inc., a Delaware
-------------
corporation (the "Company"), at a price of $_________ per share (the "Exercise
------- --------
Price"), at any time or from time to time after the date hereof until 5:00 p.m.,
- -----
Dallas, Texas time, on _________________________.
To exercise this Warrant, in whole or in part, the Holder shall deliver
to the Company, at the Company's executive offices (i) a written notice of the
Holder's election to exercise this Warrant, which notice will specify the number
of Shares to be purchased pursuant to such exercise, (ii) payment of the
Exercise Price, in an amount equal to the aggregate purchase price for all
shares to be purchased pursuant to such exercise, and (iii) this Warrant. Such
notice will be substantially in the form of the Subscription Form appearing at
the end of this Warrant. Upon receipt of such notice, the Company will, as
promptly as practicable execute, or cause to be executed, and deliver to the
Holder a certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise, as provided in this Warrant.
The stock certificate or certificates so delivered will be in such denominations
as may be specified in such notice and will be registered in the name of the
Holder. This Warrant will be deemed to have been exercised, such certificate or
certificates will be deemed to have been issued, and the Holder will be deemed
to have become a holder of record of such shares for all purposes, as of the
date that such notice, together with payment of the such Exercise Price and the
Warrant, is received by the Company. If the Warrant has been exercised in part,
the Company will, at the time of delivery of such certificate or certificates,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase a number of Shares with respect to which the Warrant has not been
exercised, which new Warrant will, in all other respects, be identical with this
Warrant, or, at the request of the Holder, appropriate notation may be made on
this Warrant and this Warrant returned to the Holder.
Payment of the Exercise Price will be made, at the option of the
Holder, by a certified or official bank check or federal funds wire transfer.
<PAGE>
The number of Shares and the Exercise Price shall be adjusted
proportionately to reflect any stock dividend with respect to or stock-split of
the Common Stock
Subject to the provisions of the Securities Act of 1933, this Warrant
and all rights hereunder are transferable only as provided in the Warrant
Agreement. Until transfer hereof on the books of the Company, the Company may
treat the registered holder as the owner hereof for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
as of the _____ day of _____________, 199__.
Avery Communications, Inc.
ATTEST:
__________________________ By:___________________________________
Scot M. McCormick Patrick J. Haynes, III
Secretary Chairman of the Board
- 2 -
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO AVERY COMMUNICATIONS INC.:
Pursuant to that Certain Stock Purchase Warrant, the undersigned, the
holder of the within Warrant, hereby irrevocably elects to exercise the purchase
right represented by such Warrant for, and to purchase thereunder, ________
Shares, herewith makes payment of $________ therefor, and requests that the
certificate or certificates for such shares be issued in the name of and
delivered to the undersigned.
Dated: _____________
_______________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the Warrant)
_______________________________________
_______________________________________
(Address)
<PAGE>
EXHIBIT 4.12
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
January 24, 1997, and is being made and entered into by and among AVERY
COMMUNICATIONS INC., a Delaware corporation ("ACI"), and THOMAS A. MONTGOMERY
---
(the "Holder"), with reference to the following RECITALS:
------
R E C I T A L S:
A. ACI has issued the Holder a warrant (the "Warrant") to purchase
-------
90,000 shares (the "Shares") of common stock, par value $0.01 per share (the
------
"Common Stock"), of ACI.
------------
B. To provide the Holder with greater liquidity in the future with
respect to the Registrable Stock (as defined below), the Holder wishes to have
certain registration rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the first anniversary of the date hereof, ACI intends to file
prior to the Expiration Date a Registration Statement on Form S-1, S-2
or S-3 (or other appropriate form) for the registration of Common Stock
with the Commission (other than a (i) Registration Statement on Form
S-4 (or any successor form) relating to a corporate reorganization or
other transaction under Rule 145, (ii) Registration Statement relating
to securities issued pursuant to, or interests in, an employee benefit
plan for the employees of ACI or its affiliates or (iii) Registration
Statement on a form which does not permit the inclusion of securities
sold in a secondary offering), then ACI shall notify the Holder at
least 30 days prior to each such filing of ACI's intention to file such
a Registration Statement. Such notice shall state the amount and type
of securities proposed to be registered thereby. Upon the written
request of the Holder (a "Holder Request") given within 20 days after
---------------
receipt of any such notice stating the number of shares of Registrable
Stock to be disposed of by the Holder and the intended method of
disposition, ACI will use reasonable efforts to cause the aggregate of
the Registrable Stock designated in the Holder Requests to be included
in such registration so as to permit the disposition (in accordance
with the methods specified in the Holder Request(s)) by the Holder of
the Registrable Stock so registered, subject to the reductions
specified in Sections 1.1.2 and 1.1.3, as applicable. The Holder shall
------------------------
be entitled, subject to such reductions, to participate in an unlimited
number of such registrations.
<PAGE>
1.1.2 REDUCTIONS OF REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or omission or alleged omission in
a preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but only if
such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to
-2-
<PAGE>
such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 1.2(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or any such underwriter within the meaning of
Section 15 of the Securities Act, and each of the Other Stockholders,
and each of their respective officers, directors, and partners, and
each Person controlling any of the Other Stockholders against any
losses, claims, damages, liabilities (or proceedings in respect
thereof) and expenses (under the Securities Act or common law or
otherwise) resulting from any untrue statement or alleged untrue
statement of a material fact or any omission or alleged omission of a
material fact required to be stated in the Registration Statement (as
declared effective) or prospectus filed under Rule 424(b) under the
Securities Act or preliminary prospectus or any amendment thereof or
supplement thereto, or necessary to make the statements therein not
misleading, but only to the extent that:
(i) such untrue statement is made in reliance on or
in conformity with any information furnished in writing by the
Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus;
-3-
<PAGE>
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and provided further that the
Holder's obligations under this Section 1.2.(b) shall be limited to an
---------------
amount equal to the gross proceeds to the Holder of the Registrable
Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other but also the relative fault of the indemnifying party and the
indemnified party as well as any other relevant equitable
considerations. Notwithstanding the foregoing, no Holder shall be
required to contribute any amount in excess of the amount the Holder
would have been required to pay to an indemnified party if the
indemnity under Section 1.2.(a) or (b), as applicable, was available.
-----------------------
No person guilty of fraudulent misrepresentation (within the meaning of
-4-
<PAGE>
Section 11(f) of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent
misrepresentation. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of the Registrable Stock in accordance with the intended method of
disposition thereof, and in connection with any such request ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
-5-
<PAGE>
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
-6-
<PAGE>
(b) In connection with any registration effected pursuant to
Section 1.1, that the Holder has requested that its securities be
------------
registered pursuant to such Registration Statement shall provide to ACI
such information as may be reasonably requested by ACI to be required
for inclusion in such Registration Statement pursuant to the Securities
Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.3(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be allocated
among the Holder and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by the Holder and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of shares of Registrable Stock and Other Shares to be included in such
registration. If the Holder or any
-7-
<PAGE>
Other Stockholder does not request inclusion of the maximum number of shares of
Registrable Stock and Other Shares allocated to such Person pursuant to the
above-described procedure, the remaining portion of any such Person's allocation
shall be reallocated among those requesting Holder and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Stock and Other Shares which would be held by the
Holder and Other Stockholders, assuming conversion, and this procedure shall be
repeated until all of the shares of Registrable Stock and Other Shares which may
be included in the registration on behalf of the Holder and Other Stockholders
have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all questionnaires, indemnities, underwriting
agreements and other reasonable documents which must be executed under the terms
of such underwriting arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
-8-
<PAGE>
ARTICLE 3
DEFINITION AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section , whenever used in this Agreement,
shall have the respective meanings assigned to them in this Section for all
purposes of this Agreement, and include the plural as well as the singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
COMMON STOCK: as defined in the Recitals to this Agreement.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section 1.1.1.
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section 1.6.
OTHER STOCKHOLDERS: as defined in Section 1.6.
-9-
<PAGE>
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: the Shares held by the Holder from time to time and
all shares of Common Stock issued by ACI in respect of such Shares.
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SHARES: as defined in the Recitals to this Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
-10-
<PAGE>
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
-11-
<PAGE>
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holder, to its address listed on the signature
page,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of Texas, without giving effect to the conflict of laws rules
thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
-12-
<PAGE>
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
AVERY COMMUNICATIONS, INC.
By:________________________________
Thomas M. Lyons
President
HOLDER
___________________________________
Thomas A. Montgomery
-14-
<PAGE>
EXHIBIT 4.13
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
December 6, 1996, and is being made and entered into by and among AVERY
COMMUNICATIONS INC., a Delaware corporation ("ACI"), and the party executing
---
this Agreement (the "Holder"), with reference to the following RECITALS:
------
R E C I T A L S:
A. ACI has issued the Holder a warrant (the "Warrant") to purchase
-------
350,000 shares (the "Shares") of common stock, par value $.01 per share (the
------
"Common Stock").
------------
B. To insure that the Holder will have liquidity in the future with
respect to the Registrable Stock (as defined below) the Holder wishes to have
certain registration rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the first anniversary of the date hereof, ACI intends to file
prior to the Expiration Date a Registration Statement on Form S-1, S-2
or S-3 (or other appropriate form) for the registration of Common Stock
with the Commission (other than a (i) Registration Statement on Form
S-4 (or any successor form) or relating to a corporate reorganization
or other transaction under Rule 145, (ii) Registration Statement
relating to securities issued pursuant to, or interests in, an employee
benefit plan for the employees of ACI or its affiliates or (iii)
Registration Statement on a form which does not permit the inclusion of
securities sold in a secondary offering), then ACI shall notify each
Holder at least 30 days prior to each such filing of ACI's intention to
file such a Registration Statement. Such notice shall state the amount
and type of securities proposed to be registered thereby. Upon the
written request of the Holder (a "Holder Request") given within 20 days
--------------
after receipt of any such notice stating the number of shares of
Registrable Stock to be disposed of by the Holder and the intended
method of disposition, ACI will use reasonable efforts to cause the
aggregate of the Registrable Stock designated in the Holder Requests to
be included in such registration so as to permit the disposition (in
accordance with the methods specified in the Holder Request(s)) by the
Holder of the Registrable Stock so registered, subject to the
reductions specified in Sections 1.1.2 and 1.1.3, as applicable. The
------------------------
Holder shall be entitled, subject to such reductions, to participate in
an unlimited number of such registrations.
<PAGE>
1.1.2 REDUCTIONS REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or omission or alleged omission in
a preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but
- 2 -
<PAGE>
only if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 1.2(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or such underwriter within the meaning of Section
15 of the Securities Act and Other Stockholder, and each of their
officers, directors, and partners, and each Person controlling such
other Holder or Other Stockholder against any losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise) resulting from any untrue
statement or alleged untrue statement of a material fact or any
omission or alleged omission of a material fact required to be stated
in the Registration Statement (as declared effective) or prospectus
filed under Rule 424(b) under the Securities Act or preliminary
prospectus or any amendment thereof or supplement thereto, or necessary
to make the statements therein not misleading, but only to the extent
that:
(i) such untrue statement is made in reliance on or
in conformity with any information furnished in writing by the
Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended
- 3 -
<PAGE>
or supplemented final prospectus prior to such written
confirmation and the Holder was given notice, prior to such
written confirmation, of the availability of, or that ACI was
preparing, such final prospectus or amended or supplemented
final prospectus;
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and provided further that the
Holder's obligations under this Section 1.2.(b) shall be limited to an
---------------
amount equal to the gross proceeds to the Holder of the Registrable
Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
----------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the
- 4 -
<PAGE>
relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of
the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. Notwithstanding the foregoing, no
Holder shall be required to contribute any amount in excess of the
amount the Holder would have been required to pay to an indemnified
party if the indemnity under Section 1.2.(a) or (b), as applicable, was
----------------------
available. 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. The relative fault of the indemnifying party and of
the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of the Registrable Stock in accordance with the intended method of
disposition thereof, and in connection with any such request ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
- 5 -
<PAGE>
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
- 6 -
<PAGE>
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
(b) In connection with any registration effected pursuant to
Section 1.1, that the Holder has requested that its securities be
------------
registered pursuant to such Registration Statement shall provide to ACI
such information as may be reasonably requested by ACI to be required
for inclusion in such Registration Statement pursuant to the Securities
Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.3(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant
to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
- 7 -
<PAGE>
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be allocated
among the Holder and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by the Holder and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of Registrable Stock and Other Shares to be included in such
registration, if any Holder or Other Stockholder does not request inclusion of
the maximum number of shares of Registrable Stock and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holder and Other
Stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Stock and Other Shares which would
be held by the Holder and Other Stockholders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Stock and
Other Shares which may be included in the registration on behalf of the Holder
and Other Stockholders have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all
- 8 -
<PAGE>
questionnaires, indemnities, underwriting agreements and other reasonable
documents which must be executed under the terms of such underwriting
arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
ARTICLE 3
DEFINITION AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section , whenever used in this Agreement,
shall have the respective meanings assigned to them in this Section for all
purposes of this Agreement, and include the plural as well as the singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
- 9 -
<PAGE>
COMMON STOCK: as defined in the Recitals to this Agreement.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section 1.1.1.
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section 1.6.
OTHER STOCKHOLDERS: as defined in Section 1.6.
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: the Shares held by the Holder from time to time and
all shares of Common Stock issued by ACI in respect of such Shares.
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
- 10 -
<PAGE>
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SHARES: as defined in the Recitals to this Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
- 11 -
<PAGE>
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holder, to its address listed on the signature
page,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
- 12 -
<PAGE>
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the Commonwealth of Virginia, without giving effect to the conflict of
laws rules thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission,
- 13 -
<PAGE>
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement as to which there is no inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
- 14 -
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
HOLDER
AVERY COMMUNICATIONS, INC. THURSTON BRIDGE FUND, L.P.
By:_____________________________,
Its General Partner
By:__________________________
Name:________________________ By:_____________________________
Title:_______________________ Name:___________________________
Title:__________________________
<PAGE>
EXHIBIT 4.14
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this "Agreement") is dated as of
---------
December 23, 1996, and is being made and entered into by and among AVERY
COMMUNICATIONS INC., a Delaware corporation ("ACI"), and the party executing
---
this Agreement (the "Holder"), with reference to the following RECITALS:
------
R E C I T A L S:
---------------
A. ACI has issued the Holder a warrant (the "Warrant") to purchase
-------
245,000 shares (the "Shares") of common stock, par value $.01 per share (the
------
"Common Stock").
------------
B. To insure that the Holder will have liquidity in the future with
respect to the Registrable Stock (as defined below) the Holder wishes to have
certain registration rights and ACI wishes to grant such rights to the Holder.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto hereby agree as
follows:
ARTICLE 1
REGISTRATION RIGHTS
SECTION 1.1 INCIDENTAL REGISTRATION.
1.1.1 PIGGYBACK RIGHTS OF HOLDER. If at any time or times from
and after the first anniversary of the date hereof, ACI intends to file
prior to the Expiration Date a Registration Statement on Form S-1, S-2
or S-3 (or other appropriate form) for the registration of Common Stock
with the Commission (other than a (i) Registration Statement on Form
S-4 (or any successor form) or relating to a corporate reorganization
or other transaction under Rule 145, (ii) Registration Statement
relating to securities issued pursuant to, or interests in, an employee
benefit plan for the employees of ACI or its affiliates or (iii)
Registration Statement on a form which does not permit the inclusion of
securities sold in a secondary offering), then ACI shall notify each
Holder at least 30 days prior to each such filing of ACI's intention to
file such a Registration Statement. Such notice shall state the amount
and type of securities proposed to be registered thereby. Upon the
written request of the Holder (a "Holder Request") given within 20 days
--------------
after receipt of any such notice stating the number of shares of
Registrable Stock to be disposed of by the Holder and the intended
method of disposition, ACI will use reasonable efforts to cause the
aggregate of the Registrable Stock designated in the Holder Requests to
be included in such registration so as to permit the disposition (in
accordance with the methods specified in the Holder Request(s)) by the
Holder of the Registrable Stock so registered, subject to the
reductions specified in Sections 1.1.2 and 1.1.3, as applicable. The
------------------------
Holder shall be entitled, subject to such reductions, to participate in
an unlimited number of such registrations.
<PAGE>
1.1.2 REDUCTIONS REGISTRABLE STOCK TO BE INCLUDED. If the
registration proposed by ACI involves an underwritten offering of the
Common Stock, whether or not for sale for the account of ACI, to be
distributed (on a best efforts or firm commitment basis) by or through
one or more underwriters, and the managing underwriter of such
underwritten offering shall advise ACI in writing that, in its opinion,
the registration of all or a specified portion of Registrable Stock
concurrently with the Common Stock will adversely affect the
distribution of such Common Stock by such underwriters, then ACI may
require, by written notice to the Holder, that the distribution of all
or a specified portion of the Registrable Stock be excluded from such
registration in accordance with Section 1.6.
-----------
1.1.3 WITHDRAWALS. ACI may in its discretion withdraw any
Registration Statement filed pursuant to this Section 1.1 subsequent to
-----------
its filing and prior to its effective date without liability to the
Holder, other than to pay expenses pursuant to Section 1.4.
-----------
SECTION 1.2 INDEMNITY.
(a) ACI will, and hereby does, indemnify, to the extent
permitted by law, each Holder, its officers and directors, if any, and
each Person, if any, who controls the Holder within the meaning of
Section 15 of the Securities Act, against all losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise), joint or several, caused by
any untrue or misleading statement or alleged untrue or misleading
statement of a material fact contained in any Registration Statement
(as declared effective) or prospectus filed under Rule 424(b) under the
Securities Act (and as amended or supplemented if ACI shall have
furnished any amendments or supplements thereto) or any preliminary
prospectus or caused by 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, except insofar as:
(i) such losses, claims, damages, liabilities (or
proceedings in respect thereof) or expenses are caused by any
untrue statement or alleged untrue statement made in reliance
on or in conformity with any information furnished in writing
to ACI by the Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
result from the Holder selling Registrable Stock to a Person
asserting the existence of an untrue or misleading statement
or alleged untrue statement or omission or alleged omission in
a preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or the
final prospectus as then amended or supplemented but
- 2 -
<PAGE>
only if such statement or omission was corrected in such final
prospectus or amended or supplemented final prospectus prior
to such written confirmation and the Holder was given notice,
prior to such written confirmation, of the availability of, or
that ACI was preparing, such final prospectus or amended or
supplemented final prospectus.
If the offering pursuant to any Registration Statement provided for
under this Agreement is made through underwriters, no action or failure
to act on the part of such underwriters (whether or not such
underwriter is an Affiliate of any Holder) shall affect ACI's
obligations to indemnify the Holder or any other Person pursuant to the
preceding sentence. It is agreed that the indemnity agreement contained
in this Section 1.2(a) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability, or action if such settlement
is effected without the consent of ACI (which consent has not been
unreasonably withheld).
(b) In connection with any Registration Statement in which the
Holder is participating, the Holder will indemnify, to the extent
permitted by law, ACI, its officers, directors, partners, legal
counsel, and accountants, and each underwriter, if any, of ACI
Securities covered by such Registration Statement, and each Person, if
any, who controls ACI or such underwriter within the meaning of Section
15 of the Securities Act and Other Stockholder, and each of their
officers, directors, and partners, and each Person controlling such
other Holder or Other Stockholder against any losses, claims, damages,
liabilities (or proceedings in respect thereof) and expenses (under the
Securities Act or common law or otherwise) resulting from any untrue
statement or alleged untrue statement of a material fact or any
omission or alleged omission of a material fact required to be stated
in the Registration Statement (as declared effective) or prospectus
filed under Rule 424(b) under the Securities Act or preliminary
prospectus or any amendment thereof or supplement thereto, or necessary
to make the statements therein not misleading, but only to the extent
that:
(i) such untrue statement is made in reliance on or
in conformity with any information furnished in writing by the
Holder expressly for use therein; or
(ii) in the case of any registration that is not an
underwritten offering, such losses, claims, damages,
liabilities (or proceedings in respect thereof) or expenses
resulting from the Holder selling Registrable Stock to a
Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission in a
preliminary prospectus and to whom there was not given or
sent, at or prior to the written confirmation of the sale of
the Registrable Stock, a copy of the final prospectus or of
the final prospectus as then amended or supplemented but only
if such statement or omission was corrected in such final
prospectus or amended
- 3 -
<PAGE>
or supplemented final prospectus prior to such written
confirmation and the Holder was given notice, prior to such
written confirmation, of the availability of, or that ACI was
preparing, such final prospectus or amended or supplemented
final prospectus;
provided, however, that the obligations of the Holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses,
damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of the Holder (which consent
has not been unreasonably withheld); and provided further that the
Holder's obligations under this Section 1.2.(b) shall be limited to an
---------------
amount equal to the gross proceeds to the Holder of the Registrable
Stock sold pursuant to such Registration Statement.
(c) Any Person entitled to indemnification under the
provisions of Section 1.2.(a) or (b) shall (i) give prompt notice to
-----------------------
the indemnifying party of any claim with respect to which it seeks
indemnification, and (ii) unless in the opinion of counsel reasonably
satisfactory to the indemnifying party a conflict of interest between
such indemnified and indemnifying parties may exist in respect of such
claim, permit such indemnifying party to assume the defense of such
claim, with counsel reasonably satisfactory to the indemnified party
(who shall not, except with the consent of the indemnified party, be
counsel to the indemnifying party); and if such defense is so assumed,
such indemnifying party shall not enter into any settlement without the
consent of the indemnified party if such settlement attributes
liability to the indemnified party and such indemnifying party shall
not be subject to any liability for any settlement made without its
consent (which shall not be unreasonably withheld); and any
underwriting agreement entered into with respect to any Registration
Statement provided for under this Agreement shall so provide. In the
event an indemnifying party shall not be entitled, or elects not, to
assume the defense of a claim, such indemnifying party shall not be
obligated to pay the fees and expenses of more than one counsel or firm
of counsel for all parties indemnified by such indemnifying party in
respect of such claim. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of a
participating Holder, its officers, directors or any Person, if any,
who controls the Holder as aforesaid, and shall survive the transfer of
such securities by the Holder.
(d) If for any reason the foregoing indemnity is unavailable,
then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims,
damages, liabilities or expenses (i) in such proportion as is
appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the
other or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law or provides a lesser sum to the indemnified
party than the amount hereinafter calculated, in such proportion as is
appropriate to reflect not only the
- 4 -
<PAGE>
relative benefits received by the indemnifying party on the one hand
and the indemnified party on the other but also the relative fault of
the indemnifying party and the indemnified party as well as any other
relevant equitable considerations. Notwithstanding the foregoing, no
Holder shall be required to contribute any amount in excess of the
amount the Holder would have been required to pay to an indemnified
party if the indemnity under Section 1.2.(a) or (b), as applicable, was
----------------------
available. 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. The relative fault of the indemnifying party and of
the Indemnified Party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material
fact or the omission to state a material fact relates to information
supplied by the indemnifying party or by the indemnified party and the
parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) An indemnifying party shall make payments of all amounts
required to be made pursuant to the foregoing provisions of this
Section 1.2 to or for the account of the indemnified party from time to
-----------
time promptly upon receipt of bills or invoices relating thereto or
when otherwise due and payable.
(f) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall control.
SECTION 1.3 REGISTRATION PROCEDURES.
(a) Whenever the Holder has properly requested that any
Registrable Stock be registered pursuant to Section 1.1, ACI will use
-----------
reasonable efforts to effect the registration in furtherance of the
sale of the Registrable Stock in accordance with the intended method of
disposition thereof, and in connection with any such request ACI will:
(i) prepare and file with the Commission 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
such period (not to exceed 90 days) as will terminate when all
Registrable Stock covered by such Registration Statement have
been sold and 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 the sellers
thereof set forth in such Registration Statement;
- 5 -
<PAGE>
(ii) furnish to each seller of Registrable Stock such
number of copies of such Registration Statement, each
amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary
prospectus), each amendment and supplement thereto and such
other documents as such seller may reasonably request in order
to facilitate the disposition of the Registrable Stock owned
by such seller;
(iii) use reasonable efforts to register or qualify
the Registrable Stock under such other securities or blue sky
laws of such jurisdictions as any seller reasonably requests
and do any and all other acts and things which may be
reasonably necessary or advisable to enable such seller to
consummate the disposition in such jurisdictions of the
Registrable Stock owned by such seller; provided, however,
that ACI will not be required to (A) qualify generally to do
business or subject itself to taxation in any jurisdiction
where it would not otherwise be required to qualify or be
subject but for this subparagraph (iii), or (B) consent to
general service of process in any such jurisdiction;
(iv) use reasonable efforts to cause the Registrable
Stock covered by such Registration Statement to be registered
with or approved by such other Governmental Authorities as may
be reasonably necessary by virtue of the business and
operations of ACI to enable the seller or sellers thereof to
consummate the disposition of the Registrable Stock;
(v) (A) notify each seller of the Registrable Stock,
at any time when a prospectus relating thereto is required to
be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in such
Registration Statement contains an untrue statement of a
material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading, and (B) prepare a supplement or amendment to
such prospectus so that, as thereafter delivered to the
purchasers of the Registrable Stock, such prospectus will not
contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading;
(vi) (A) use reasonable efforts to cause all
Registrable Stock to be listed on each securities exchange or
stock market on which the Common Stock is then listed or
quoted, and (B) unless the same already exists, provide a
transfer agent, registrar and CUSIP number for all Registrable
Stock not later than the effective date of the Registration
Statement;
- 6 -
<PAGE>
(vii) make available for inspection at the offices of
ACI during regular business hours by any seller of Registrable
Stock, any underwriter participating in any disposition
pursuant to such Registration Statement and any attorney,
accountant or other agent retained by any such seller or
underwriter, such financial and other records, pertinent
corporate documents and properties of ACI as shall be
reasonably requested by them and be necessary to enable them
to exercise its due diligence responsibility; and
(viii) use its reasonable efforts to otherwise comply
with all applicable rules and regulations of the Commission.
(b) In connection with any registration effected pursuant to
Section 1.1, that the Holder has requested that its securities be
------------
registered pursuant to such Registration Statement shall provide to ACI
such information as may be reasonably requested by ACI to be required
for inclusion in such Registration Statement pursuant to the Securities
Act and the rules and regulations thereunder.
(c) Holder agrees by acquisition of the Registrable Stock and
the registration rights thereunder that, upon receipt of any notice
from ACI of the happening of any event of the kind described in Section
-------
1.3(a)(v), the Holder will forthwith discontinue disposition of
---------
Registrable Stock pursuant to the Registration Statement covering the
Registrable Stock until the Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by such Section
-------
1.3(a)(v), and, if so directed by ACI, the Holder will deliver to ACI
---------
(at ACI's expense) all copies, other than permanent file copies then in
the Holder's possession, of the prospectus covering the Registrable
Stock current at the time of receipt of such notice. In the event ACI
shall give any such notice, the period mentioned in Section 1.3(a)(i)
------------------
shall be extended by the number of days during the period from and
including the date of the giving of such notice pursuant to Section
-------
1.3(a)(v) to and including the date when each seller of Registrable
---------
Stock covered by such Registration Statement shall have received the
copies of the supplemented or amended prospectus contemplated by such
Section 1.3(a)(v).
-----------------
SECTION 1.4 EXPENSES. All Registration Expenses incurred in effecting
any registration, qualifications or compliance pursuant to this Agreement, shall
be borne by ACI. All Selling Expenses relating to Registrable Stock so
registered shall be borne by the Holder, according to the quantity of
Registrable Stock included in such registration along with any other expenses in
connection with the registration required to be borne by the Holder of the
Registrable Stock.
- 7 -
<PAGE>
SECTION 1.5 LIMITATION ON REGISTRATION. Notwithstanding the foregoing,
under no circumstances will ACI be obligated to cause any registration effected
pursuant to this Agreement to remain effective after the Expiration Date or to
include any Registrable Stock in a Registration Statement which becomes
effective after the Expiration Date.
SECTION 1.6 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any
circumstance in which the Registrable Stock and other shares of ACI Common Stock
(including shares of common stock issued or issuable upon conversion of shares
of any currently unissued series of preferred stock of ACI) with registration
rights (the "Other Shares") requested to be included in a registration on behalf
------------
of the Holder or other selling stockholders ("Other Stockholders") cannot be so
-------------------
included as a result of limitations of the aggregate number of shares of
Registrable Stock and Other Shares that may be so included, the number of shares
of Registrable Stock and Other Shares that may be so included shall be allocated
among the Holder and Other Stockholders requesting inclusion of shares pro rata
on the basis of the number of shares of Registrable Stock and Other Shares that
would be held by the Holder and Other Stockholders, assuming conversion;
provided, however that such allocation shall not operate to reduce the aggregate
number of Registrable Stock and Other Shares to be included in such
registration, if any Holder or Other Stockholder does not request inclusion of
the maximum number of shares of Registrable Stock and Other Shares allocated to
him pursuant to the above-described procedure, the remaining portion of his
allocation shall be reallocated among those requesting Holder and Other
Stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Stock and Other Shares which would
be held by the Holder and Other Stockholders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Stock and
Other Shares which may be included in the registration on behalf of the Holder
and Other Stockholders have been so allocated.
SECTION 1.7 DELAY OF REGISTRATION. No Holder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as the
result of any controversy that might arise with respect to the interpretation or
implementation of this Section 1.
ARTICLE 2
UNDERWRITTEN OFFERINGS
SECTION 2.1 UNDERWRITING ARRANGEMENTS. If ACI or holders of securities
initially requesting or demanding such registration have determined to enter
into an underwriting agreement in connection therewith, all shares constituting
Registrable Stock to be included in such registration shall be subject to such
underwriting agreement and no Person may participate in such registration unless
such Person agrees to sell such Person's securities on the basis provided in the
underwriting arrangements approved by such Persons so determining to enter
therein and completes and executes all
- 8 -
<PAGE>
questionnaires, indemnities, underwriting agreements and other reasonable
documents which must be executed under the terms of such underwriting
arrangements.
If requested by the underwriters for any underwritten offering of
Registrable Stock, ACI will enter into an underwriting agreement that shall
contain such representations and warranties by ACI and such other terms and
provisions as are customarily contained in underwriting agreements with respect
to secondary distributions.
SECTION 2.2 SELECTION OF UNDERWRITERS. If ACI at any time proposes to
register any ACI Securities for sale for its own account and such securities are
to be distributed by or through one or more underwriters, the selection of the
underwriter(s), including, without limitation, the managing underwriter(s),
shall be made by ACI.
SECTION 2.3 HOLDBACK AGREEMENTS. If any registration pursuant to this
Agreement shall be in connection with an underwritten public offering, each
Holder agrees, if so required by the managing underwriter, not to effect any
public sale or distribution of Registrable Stock (other than as part of such
underwritten public offering) within 30 days prior to the effective date of such
Registration Statement or 18 months after the effective date of such
Registration Statement.
ARTICLE 3
DEFINITION AND CONSTRUCTION
SECTION 3.1 DEFINITION OF CERTAIN TERMS.
Except as otherwise expressly provided or unless the context otherwise
requires, the terms defined in this Section 3.1, whenever used in this
Agreement, shall have the respective meanings assigned to them in this Section
for all purposes of this Agreement, and include the plural as well as the
singular.
As used herein, the following terms have the following meanings:
ACI: as defined in the first paragraph of this agreement.
ACI SECURITIES: securities issued by ACI.
AGREEMENT: this instrument as originally executed, or as it may be from
time to time supplemented or amended by one or more supplements or
amendments hereto entered pursuant to the applicable provisions hereof.
COMMISSION: the United States Securities and Exchange Commission and
any successor federal agency having similar powers.
- 9 -
<PAGE>
COMMON STOCK: as defined in the Recitals to this Agreement.
EXPIRATION DATE: the earlier of (i) eight years from the date hereof,
or (ii) the earliest date on which any Holder may sell shares of
Registrable Stock under Section (k) of Rule 144 (or any successor
provision).
GOVERNMENTAL AUTHORITY: the United States of America, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government within any such jurisdiction.
HOLDER: as defined in the first paragraph of this Agreement.
HOLDER REQUEST: as defined in Section 1.1.1.
OPTION AGREEMENT: as defined in the Recitals to this Agreement.
OTHER SHARES: as defined in Section 1.6.
OTHER STOCKHOLDERS: as defined in Section 1.6.
PERSON: any individual, corporation (including a business trust) joint
stock company, partnership, joint venture, trust, estate, limited
liability company, unincorporated association, unincorporated
organization, Governmental Authority or any other entity.
REGISTER, REGISTERED AND REGISTRATION: refer to a registration effected
by filing a Registration Statement in compliance with the Securities
Act, and the declaration or ordering by the Commission of the
effectiveness of such Registration Statement.
REGISTRABLE STOCK: the Shares held by the Holder from time to time and
all shares of Common Stock issued by ACI in respect of such Shares.
REGISTRATION EXPENSES: all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation,
all registration, qualification, and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for ACI, blue sky fees
and expenses, and expenses of any regular or special audits incident to
or required by any such registration, but shall not include Selling
Expenses, fees and disbursements of counsel for the Holder and the
compensation of regular employees of ACI, which shall be paid in any
event by ACI.
REGISTRATION STATEMENT: a registration statement prepared on an
appropriate form promulgated under the Securities Act.
- 10 -
<PAGE>
RULE 144: Rule 144 (or any successor provision) under the Securities
Act.
RULE 145: Rule 145 (or any successor provision) under the Securities
Act.
SECURITIES ACT: the Securities Act of 1933.
SELLING EXPENSES: all underwriting discounts, selling commissions and
stock transfer taxes applicable to the sale of Registrable Stock and
fees and disbursements of counsel for any Holder (other than the fees
and disbursements of counsel included in Registration Expenses).
SHARES: as defined in the Recitals to this Agreement.
SECTION 3.2 RULES OF CONSTRUCTION
(a) "This Agreement" means this instrument as originally
executed or as it may be from time to time supplemented or amended by
one or more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(b) "includes" and "including" are not limiting, and, in each
case, shall be construed as if followed by the words "without
limitation," "but not limited to" or words of similar import;
(c) "may not" is prohibitive, and not permissive;
(d) "shall" is mandatory, and not permissive;
(e) "or" is not exclusive [i.e., if a party "may do (a), (b)
or (c)," then the party may do all of, any one of, or any combination
of, (a), (b) or (c)] unless the context expressly provides otherwise;
(f) all references in this instrument to designated Articles,
Sections, Exhibits, and Schedules are to the designated Articles,
Sections, Exhibits, and Schedules of this instrument as originally
executed;
(g) all references herein to constitutions, treaties,
statutes, laws, rules, regulations, ordinances, codes or orders include
any successor thereto or replacement thereof, include any amendment,
modification or supplements thereof or thereto from time to time, and,
include all rules and regulations promulgated thereunder or pursuant
thereto;
- 11 -
<PAGE>
(h) the words "herein," "hereof," "hereto" and "hereunder" and
other words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(i) all terms used herein which are defined in the Securities
Act, the Exchange Act or the rules and regulations promulgated
thereunder have the meanings assigned to them therein unless otherwise
defined herein.
ARTICLE 4
GENERAL PROVISIONS
SECTION 4.1 SEVERABILITY. If any provision of this Agreement, including
any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 4.2 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram.
(a) if to ACI, to,
Avery Communications, Inc.
190 S. LaSalle Street
Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III
(b) if to the Holder, to its address listed on the signature
page,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
- 12 -
<PAGE>
SECTION 4.3 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 4.4 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
SECTION 4.5 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 4.6 GOVERNING LAW. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the Commonwealth of Virginia, without giving effect to the conflict of
laws rules thereof.
SECTION 4.7 BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 4.8 ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 4.9 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
SECTION 4.10 AMENDMENT; WAIVERS, ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission,
- 13 -
<PAGE>
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement as to which there is no inaccuracy or breach.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK]
- 14 -
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
HOLDER
AVERY COMMUNICATIONS, INC. EASTERN VIRGINIA SMALL BUSINESS
INVESTMENT CORPORATION
By:__________________________ By:_____________________________
Name:________________________ Name:___________________________
Title:_______________________ Title:__________________________
<PAGE>
EXHIBIT 4.15
SECURITIES EXCHANGE AGREEMENT
[1996 HBS SERIES]
This SECURITIES EXCHANGE AGREEMENT is dated and effective as of June
____, 1997, and is being entered by and between or among, as the case may be,
AVERY COMMUNICATIONS, INC., a Delaware corporation, and the person or persons
whose name or names, as the case may be, is or are set forth on the signature
pages hereto, with reference to the following RECITALS:
RECITALS
Each of the Investors owns the shares of HBS Series set forth on
Exhibit A.
Each of the Investors desires to exchange TWO SHARES OF HBS SERIES for
(I) cash in the amount of $1.00 PER SHARE and (II) ONE SHARE OF THE EXCHANGE
STOCK upon the terms and subject to the conditions hereinafter set forth (i.e.,
each share of HBS Series would be exchanged for $0.50 cash and one-half [1/2]
share of Exchange Stock).
The Exchange Stock is identical in all respects to the HBS Series
except that each share of the Exchange Stock will be automatically converted
into Common Stock at the initial conversion price of $2.00 per share, which
conversion price shall be adjusted in the future for normal anti-dilution
events, at such time as the audited stockholders' equity of the Company shall
equal or exceed $3,000,000.
Each of the Investors who decides not to exchange such Investor's HBS
Series for the Exchange Stock as hereinafter provided shall keep such HBS Series
as now in effect.
NOW, THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained, and
intending to be legally bound hereby, the parties hereto do hereby agree as
follows:
SECTION 1. DEFINITIONS.
For convenience and brevity, certain terms used in various parts of
this Agreement are listed in alphabetical order and defined or referred to below
(such terms to be equally applicable to both singular and plural forms of the
terms defined).
"Agreement" means this Securities Exchange Agreement.
"Business Day" means any calendar day which is not a Saturday,
Sunday or other day on which commercial banks in Dallas, Texas, or New
York, New York, are authorized or required to close by applicable law.
"Closing" and "Closing Date" are defined in Section 3.1.
"Common Stock" means the 20,000,000 authorized shares of
Common Stock, par value $0.01 per share, of the Company.
<PAGE>
"Company" means Avery Communications, Inc., a Delaware
corporation.
"Contract" means any written or oral contract, agreement,
lease, plan, instrument or other document, commitment, arrangement,
undertaking, practice or authorization that is or may be binding on any
person or its property under applicable law.
"Court Order" means any judgment, decree, injunction, order or
ruling of any federal, state or local court or governmental or
regulatory body or authority that is binding on any person or its
property under applicable law.
"Default" means (1) a breach of or default under any Contract,
(2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under
any Contract, or (3) the occurrence of an event that with or without
the passage of time or the giving of notice or both would give rise to
a right of termination, renegotiation or acceleration under any
Contract.
"Exchange Stock" means the Senior Cumulative Redeemable
Convertible Preferred Stock, 1997 HBS Exchange Series, of the Company.
"Governmental Authority" means any federal, state, local or
other governmental agency or body or of any other type of regulatory
body, including, without limitation, those covering environmental,
energy, safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust, wage and hour, and price and wage
control matters.
"HBS Series" means the Senior Cumulative Redeemable Preferred
Stock, 1996 HBS Series, of the Company.
"Investor" or "Investors" means the person or persons listed
on Exhibit A, who is or who are the owner or the owners, as the case
may be, of the shares of the HBS Series.
"Licenses" means licenses, franchises, permits, easements,
rights and other authorizations.
"Lien" means any mortgage, lien, security interest, pledge,
encumbrance, restriction on transferability, defect of title, charge or
claim of any nature whatsoever on any property or property interest.
"Litigation" means any lawsuit, action, arbitration,
administrative or other proceeding, criminal prosecution or
governmental investigation or inquiry involving or affecting any party
hereto or any Contracts to which any party hereto
-2-
<PAGE>
is a party or by which such party or any of such party's assets may be
bound or affected.
"Person" or "person" means any natural person, firm,
partnership, association, corporation, company, business trust, trust,
Governmental Authority or other entity.
"Preferred Stock" means the 20,000,000 authorized shares of
Preferred Stock, par value $0.01 per share, of the Company.
"Regulation" means any statute, law, ordinance, regulation,
order or rule of any Governmental Authority.
"Regulation D" means Regulation D promulgated by the SEC under
the Securities Act.
"SEC" means the United States Securities and Exchange
Commission.
"Securities" means the shares of the Exchange Stock to be
issued to each of the Investors pursuant to the terms and conditions of
this Agreement, and the shares of Common Stock issuable to each of the
Investors upon the conversion of the Exchange Stock.
"Securities Act" means the Securities Act of 1933, as amended.
"Transactions" means the exchange of the HBS Series by each of
the Investors for the Exchange Stock at the Closing as herein provided,
and all related transactions provided for in or contemplated by this
Agreement or any Exhibit hereto.
SECTION 2. THE TRANSACTIONS.
2.1 EXCHANGE OF HBS SERIES FOR EXCHANGE STOCK. Subject to the
terms and conditions hereinafter set forth, and on the basis of and in reliance
upon the representations, warranties, obligations and agreements set forth
herein, at the Closing each Investor shall sell, transfer, assign and convey to
the Company, and the Company shall purchase from each Investor, all of the
shares of the HBS Series owned by such Investor as set forth after such
Investor's name on Exhibit A in exchange for the cash and the shares of the
Exchange Stock. Each Investor shall be entitled to receive U.S. $0.50 and
one-half [1/2] share of Exchange Stock for each share of HBS Series sold,
transferred, assigned and conveyed to the Company at the Closing.
2.2 DEFAULT BY ANY INVESTOR AT THE CLOSING. Notwithstanding
the provisions of Section 2.1, if any of the Investors shall fail or refuse to
deliver any of the shares of the HBS Series as provided in Section 2.1, or if
any of the Investors shall fail or refuse to consummate the other transactions
described in this Agreement prior to or on the Closing Date, such failure
-3-
<PAGE>
or refusal shall not relieve the other Investors of any obligations under this
Agreement, and the Company, at its option and without prejudice to its rights
against any such defaulting Investor, may either (1) acquire the remaining
shares of the HBS Series which it is entitled to acquire hereunder, or (2)
refuse to make such acquisition and thereby terminate all of its obligations
hereunder. Each of the Investors acknowledges that the shares of the HBS Series
are unique and otherwise not available and agree that in addition to any other
remedies, the Company may invoke any equitable remedies to enforce delivery of
the shares of the HBS Series hereunder, including, without limitation, an action
or suit for specific performance.
SECTION 3. CLOSING.
3.1 CLOSING DATE. The consummation of the exchange of the
shares of the HBS Series for the Exchange Stock (the "Closing") shall take place
on such date, and at such time and place, or as the Company shall hereafter
specify by notice to the Investors. The Closing may take place at such other
time or place on such other date as the Company and the Investors may agree to
in writing. In either event, at the option of the Company, the Closing may occur
by the Company's and the Investors' exchanging facsimile copies of the executed
originals of the documents, certificates, opinions and other instruments
referred to in Section 3.2 hereof, the executed originals of which shall be
delivered by such means as the Company and the Investors may mutually agree. In
the event that the Company exercises its option to have the Closing occur in
this manner, the Closing shall be deemed to have occurred on the date and time
specified by the Company in Dallas, Texas, for all purposes. The date of the
Closing is hereinafter sometimes referred to as the "Closing Date."
3.2 DELIVERIES. At the Closing, subject to the provisions of
this Agreement, each Investor shall deliver to the Company, free and clear of
all Liens, the number of shares of the HBS Series, in negotiable form, duly
endorsed in blank, or with separate notarized stock transfer powers attached
thereto and signed in blank, in exchange for the number of shares of the
Exchange Stock set forth opposite each Investor's name in Column F on Exhibit A.
At the Closing, each of the Investors shall also deliver to the Company, and the
Company shall deliver to each of the Investors, the certificates, opinions and
other instruments and documents referred to in Sections 8 and 9.
3.3 TERMINATION. In the event that the Closing shall not have
taken place on or before June 30, 1997, or such later date as shall be mutually
agreed to in writing by the Company and each of the Investors, all of the rights
and obligations of the parties under this Agreement to exchange the shares of
the HBS Series for the shares of the Exchange Stock shall terminate without
liability, except for liability in the event the Closing does not occur and this
Agreement terminates by reason of a default or breach by any party hereto.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each
Investor hereby represents and warrants to the Company, severally and not
jointly, and solely on each Investor's own behalf, as follows:
-4-
<PAGE>
4.1 AUTHORITY AND BINDING EFFECT. Investor has the full power
and authority to execute, deliver and perform this Agreement and has taken all
actions necessary to secure all approvals required in connection therewith. This
Agreement constitutes the legal, valid and binding obligation of Investor,
enforceable against such Investor in accordance with its terms.
4.2 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by Investor nor the consummation of the
transactions contemplated hereby will contravene or violate any Regulation or
Court Order which is applicable to Investor, or will result in a Default under,
or require the consent or approval of any party to, any Contract to or by which
Investor is a party or otherwise bound or affected, or require Investor to
notify or obtain any License from any Governmental Authority. Investor is not a
party to any Contract or subject to any restriction or any Court Order or
Regulation which affects or restricts the ability of Investor to consummate the
transactions contemplated hereby.
4.3 TITLE TO SECURITIES. Investor owns outright and has good
and marketable title to all of the shares of the HBS Series, and on the Closing
Date will own outright and have good and marketable title to the shares of the
HBS Series, set forth in Column E of Exhibit A as being owned by Investor, free
and clear of all Liens.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Investor as follows:
5.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, having all requisite corporate power and authority to perform
its obligations under this Agreement.
5.2 AUTHORITY AND BINDING EFFECT. The Company has the
corporate power and authority to execute, deliver and perform this Agreement and
has taken all actions necessary to secure all approvals required in connection
therewith. The execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action. This
Agreement constitutes the legal, valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
5.3 VALIDITY OF CONTEMPLATED TRANSACTIONS. Neither the
execution and delivery of this Agreement by the Company nor the consummation of
the transactions contemplated hereby by the Company will contravene or violate
any Regulation or Court Order which is applicable to the Company, or the
Certificate of Incorporation or Bylaws of the Company, or will result in a
Default under, or require the consent or approval of any party to, any Contract
to or by which the Company is a party or by which it is otherwise bound or
affected, or require the Company to notify or obtain any License from any
Governmental Authority. The Company is not a party to any Contracts or subject
to any restriction or any Court Order or Regulation which affects or restricts
the ability of the Company to consummate the transactions contemplated hereby.
-5-
<PAGE>
SECTION 6. INVESTMENT REPRESENTATIONS AND WARRANTIES. Each Investor
acknowledges that the Securities are being acquired for each Investor's own
account as part of a private offering, exempt from registration under the
Securities Act and all applicable state securities or blue sky laws, for
investment only and not with a view to the distribution or other sale thereof,
and that an exemption from registration under the Securities Act or any
applicable state securities laws may not be available if the Securities are
acquired by Investor with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the Securities
within the meaning and purview of the Securities Act or the applicable state
securities laws. Accordingly, each Investor represents and warrants to the
Company, severally and not jointly, and solely on each Investor's own behalf, as
follows:
6.1 OWN ACCOUNT. No other person will acquire, directly or
indirectly, any interest in the Securities (or any portion thereof) as a result
of Investor's acquisition of the Securities pursuant to this Agreement.
6.2 SECURITIES TO BE HELD FOR INVESTMENT. It is Investor's
intention to acquire and hold the Securities solely for Investor's private
investment and for Investor's own account and with no view or intention to
distribute (including, without limitation, any distribution to the shareholders
of Investor pursuant to the terms of its governing instruments), sell, resell,
assign, pledge, mortgage, hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof) except pursuant to a valid exception from
registration or a registered offering under the Securities Act.
6.3 NO TRANSFERS OF SECURITIES CONTEMPLATED. Investor has no
contract, undertaking, agreement, or arrangement with any person to sell or
otherwise transfer to any person, or to have any person sell on behalf of
Investor, the Securities (or any portion thereof), and Investor is not engaged
in and does not plan to engage within the foreseeable future in any discussion
with any person relative to the sale or any transfer of the Securities (or any
portion thereof).
6.4 NO EVENTS REQUIRING TRANSFER OF SECURITIES. Investor is
not aware of any occurrence, event, or circumstance upon the happening of which
Investor intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the Securities (or any portion
thereof), and Investor does not have any present intention of selling,
transferring, or otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
6.5 ACCREDITED INVESTOR STATUS. Investor is, and will be on
the Closing Date, an "accredited investor," as such term is defined in the
Securities Act or Regulation D, and under the securities laws of certain states,
because Investor is described in one of the categories set forth below:
(A) a bank as defined in Section 3(a)(2) of the
Securities Act, whether acting in its individual or fiduciary capacity;
-6-
<PAGE>
(B) a savings and loan association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act, whether
acting in its individual or fiduciary capacity;
(C) a broker or dealer registered under Section 15 of
the Securities Exchange Act of 1934, as amended;
(D) an insurance company as defined in Section 2(13)
of the Securities Act;
(E) an investment company registered under the
Investment Company Act of 1940, as amended, or a business development company as
defined in section 2(a)(48) of that Act;
(F) a Small Business Investment Company licensed by
the U.S. Small Business Administration under section 301(c) or (d) of the Small
Business Investment Act of 1958;
(G) a plan established by a state, its political
subdivisions or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, and such plan has total assets
in excess of $5,000,000;
(H) (i) an employee benefit plan within the meaning
of Title I of the Employee Retirement Income Security Act of 1974, with the
investment decisions being made by a plan fiduciary, as defined in section 3(21)
of such Act, which is either a bank, savings and loan association, insurance
company, or registered investment adviser, or (ii) an employee benefit plan that
has total assets in excess of $5,000,000, or (iii) a self-directed employee
benefit plan and the investment decisions are made solely by persons that are
accredited investors;
(I) a private business development company as defined
in section 202(a)(22) of the Investment Advisors Act of 1940, as amended;
(J) an organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended, corporation, Massachusetts or
similar business trust, or partnership, in each case, not newly formed, actively
engaged in a trade or business, and having total assets in excess of $5,000,000;
(K) a natural person with an individual net worth, or
joint net worth with Investor's spouse, in excess of $1,000,000;
(L) a natural person who had an individual income in
excess of $200,000 or joint income with Investor's spouse of $300,000 in each of
the two most recent years, and reasonably expects to reach the same income level
in the current year;
(M) a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring any securities to
be offered in the future, whose purchase is directed
-7-
<PAGE>
by a person who has such knowledge and experience in financial and business
matters that such person is capable of evaluating the merits and risks of the
prospective investment, as described in Rule 506(b)(2)(ii) of Regulation D; or
(N) an entity in which all the equity owners are
accredited investors.
6.6 SOPHISTICATED INVESTOR STATUS. Investor is, and will be on
the Closing Date, a sophisticated investor which has the capacity to protect
Investor's own interests in investments of this nature, and has such knowledge
and experience in financial and business matters that Investor is capable of
evaluating the merits and risks of this investment.
6.7 ALL NECESSARY INFORMATION RECEIVED. Investor has had all
documents, records, books and due diligence materials pertaining to the Company
and the Securities and the transactions contemplated by this Agreement made
available to Investor and Investor's accountants and advisors; Investor has also
had an opportunity to ask questions and receive answers concerning the Company
and the Securities and the transactions contemplated by this Agreement; and
Investor has all of the information deemed by Investor to be necessary or
appropriate to evaluate the Company and the Securities and the transactions
contemplated by this Agreement and the risks and merits thereof and an
investment in the Securities.
6.8 NO RELIANCE ON OTHER INFORMATION. Investor is acquiring
the Securities solely upon the information provided to Investor as specified in
Section 6.7, together with information obtained by Investor through Investor's
independent investigation, and has not relied on any oral representations.
6.9 INVESTOR AWARE OF RISKS. Investor is aware of the
following:
(A) the Securities are speculative, with no assurance
of any income from the Securities;
(B) no federal or state agency has made any finding
or determination as to the fairness of the acquisition, or any recommendation or
endorsement of such acquisition;
(C) transferability of the Securities is highly
restricted and, accordingly, it may not be possible for Investor to liquidate
the Securities in case of emergency; and
(D) with respect to the tax aspects of an investment
in the Securities, Investor in making Investor's investment decision is not
relying to any degree upon the advice of the Company, or any person affiliated
therewith, but rather solely upon Investor's own legal, financial and tax
advisors.
-8-
<PAGE>
SECTION 7. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties, covenants and agreements made by each party in this
Agreement or in any attachment, Exhibit, certificate, document or list delivered
by any such party pursuant hereto or in connection with the transactions
contemplated hereby shall survive the Closing, and each party hereto (taking the
Investors as a single party) shall be entitled to rely upon the representations
and warranties of the other party set forth in this Agreement.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY. Subject
to waiver as set forth in Section 11.8, the obligations of the Company to
exchange the shares of the Exchange Stock for the shares of the HBS Series under
this Agreement are subject to the fulfillment prior to or at the Closing of each
of the following conditions:
8.1 REPRESENTATIONS TRUE AT CLOSING. The representations and
warranties of the Investors set forth in Sections 4 and 6 shall be true and
correct on the Closing Date with the same effect as if made at that time.
8.2 PERFORMANCE BY THE INVESTORS. The Investors shall have
performed and satisfied all agreements and conditions which each of them is
required by this Agreement to perform or satisfy prior to or on the Closing
Date.
8.3 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Investors
shall be reasonably satisfactory to the Company and its counsel.
8.4 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement and no Litigation shall be
pending against the Company or any Subsidiary.
8.5 REGULATORY COMPLIANCE AND APPROVALS. The Company shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties shall have complied
with all Regulations applicable to the Transactions.
8.6 CONSENTS AND APPROVALS. The Investors and the Company
shall have obtained all consents and approvals necessary to complete the
Transactions and related transactions.
SECTION 9. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE INVESTORS.
Subject to waiver as set forth in Section 11.8, the obligations of the Investors
to exchange the shares of the HBS Series for the shares of the Exchange Stock
under this Agreement are subject to the fulfillment prior to or at the Closing
of each of the following conditions:
-9-
<PAGE>
9.1 PERFORMANCE BY THE COMPANY. The Company shall have
performed and satisfied all agreements and conditions which it is required by
this Agreement to perform or satisfy prior to or on the Closing Date.
9.2 FORM AND CONTENT OF DOCUMENTS. The form and content of all
documents, certificates and other instruments to be delivered by the Company
shall be reasonably satisfactory to the Investors.
9.3 LITIGATION AFFECTING CLOSING. No Court Order shall have
been issued or entered which would be violated by the completion of the
Transactions. No person who or which is not a party to this Agreement shall have
commenced or threatened to commence any Litigation seeking to restrain or
prohibit, or to obtain substantial damages in connection with, this Agreement or
the transactions contemplated by this Agreement.
9.4 REGULATORY COMPLIANCE AND APPROVAL. The Investors shall be
satisfied that all approvals required under any Regulations to carry out the
Transactions shall have been obtained and that the parties have complied with
all Regulations applicable to the Transactions.
SECTION 10. REGISTRATION RIGHTS. The registration rights that are in
effect for the shares of the HBS Series now held by each of the Investors shall
continue to apply the shares of the Exchange Stock received by each of the
Investors pursuant hereto.
SECTION 11. MISCELLANEOUS.
11.1 NO TRANSFER OF SECURITIES BY INVESTOR. None of the
Investors will distribute (including, without limitation, any distribution to
the shareholders or partners of any Investor pursuant to the terms of its
governing instruments or any distribution in connection with the dissolution of
any Investor), sell, resell, assign, pledge, mortgage, hypothecate, or otherwise
transfer or dispose of the Securities (or any portion thereof) (any such event
or combination thereof being hereinafter referred to as a "Transfer") without
--------
first furnishing to the Company an opinion of counsel, which opinion shall be
satisfactory in form, scope and substance to the Company and its counsel in
their sole discretion, that registration under the Securities Act or any
applicable state securities laws is not required in connection with any proposed
Transfer.
11.2 LEGEND ON CERTIFICATES. Each certificate representing the
Securities shall bear a legend consistent with the representations, warranties
and agreements set forth herein, which shall read substantially as follows:
"THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED BY
THE ISSUEE FOR INVESTMENT PURPOSES. SAID SHARES MAY NOT BE SOLD OR
TRANSFERRED UNLESS (A) THEY HAVE BEEN REGISTERED UNDER SAID ACT, OR (B)
THE TRANSFER AGENT (OR THE COMPANY IF THEN ACTING AS ITS TRANSFER
AGENT) IS PRESENTED WITH EITHER A WRITTEN OPINION
-10-
<PAGE>
SATISFACTORY TO COUNSEL FOR THE COMPANY OR A 'NO-ACTION' OR
INTERPRETIVE LETTER FROM THE SECURITIES AND EXCHANGE COMMISSION TO THE
EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE CIRCUMSTANCES
OF SUCH SALE OR TRANSFER."
11.3 PAYMENT OF EXPENSES. Each of the Investors and the
Company will pay all legal, accounting and other fees and expenses which such
party incurs in connection with this Agreement and the transactions contemplated
hereby, and none of the expenses of the Investors shall be paid by the Company.
however, if this Agreement is terminated pursuant to Section 11.5 or if the
failure to satisfy a condition of Closing arises out of the breach, existing at
the time of the execution of this Agreement, of a representation or warranty
contained in this Agreement, the party terminating this Agreement shall be
entitled to receive from the breaching party or parties the expenses of the
terminating party incurred between the date of this Agreement and the date of
termination.
11.4 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time on or prior to the Closing Date by mutual consent of the
Investors and the Company.
11.5 TERMINATION FOR BREACH. The Company may terminate its
obligations under this Agreement at any time prior to the Closing Date if any of
the Investors shall have breached any of their representations, warranties or
other obligations under this Agreement in any material respect. The Investors
may likewise terminate their obligations under this Agreement at any time prior
to the Closing Date if the Company shall have breached any of its
representations, warranties or other obligations under this Agreement in any
material respect. Such termination may be effected by written notice from either
the Company or the Investors, as appropriate, citing the reasons for termination
and shall not subject the terminating party to any liability for any valid
termination.
11.6 BROKERS' AND FINDERS' FEES. The Investors as a group and
the Company each to the other represent and warrant that all negotiations
relative to this Agreement have been carried on by them directly without the
intervention of any person, firm, corporation or other entity who or which may
be entitled to any brokerage fee or other commission from the other in respect
of the execution of this Agreement or the consummation of the transactions
contemplated hereby, and each of them shall indemnify and hold the other or any
affiliate of them harmless against any and all claims, losses, liabilities or
expenses which may be asserted against any of them as a result of any dealings,
arrangements or agreements by the indemnifying party with any such person, firm,
corporation or other entity.
11.7 ASSIGNMENT AND BINDING EFFECT. This Agreement may not be
assigned prior to the Closing by any party hereto without the prior written
consent of the other parties. Subject to the foregoing, all of the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the heirs, executors, legal representatives, successors
and assigns of each of the Investors and by the successors and assigns of the
Company.
-11-
<PAGE>
11.8 WAIVER. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.9 NOTICES. Any notice, request, demand, waiver, consent,
approval or other communication which is required or permitted hereunder shall
be in writing and shall be deemed given only if delivered personally to the
address set forth below (to the attention of the person identified below) or
sent by telegram or by registered or certified mail, postage prepaid, if to
Company, to: Avery Communications, Inc., 14677 Midway Road, Suite 111, Dallas,
Texas 75244, Attention: Thomas M. Lyons; and if to any of the Investors, to
their addresses set forth on Exhibit A hereto, or to such other address as the
addressee may have specified in a notice duly given to the sender and to counsel
as provided herein. Such notice, request, demand, waiver, consent, approval or
other communication will be deemed to have been given as of the date so
delivered or telegraphed or, if mailed, three Business Days after the date so
mailed.
11.10 ILLINOIS LAW TO GOVERN. This Agreement shall be governed
by and interpreted and enforced in accordance with the substantive laws of the
State of Illinois, without giving effect to the conflict of law rules thereof.
11.11 REMEDIES NOT EXCLUSIVE. Nothing in this Agreement shall
be deemed to limit or restrict in any manner other rights or remedies that any
party may have against any other party at law, in equity or otherwise.
11.12 NO BENEFIT TO OTHERS. The representations, warranties,
covenants and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Company and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed as
conferring and are not intended to confer any rights on any other persons.
11.13 CONTENTS OF AGREEMENT. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the parties
hereto with respect to the transactions contemplated hereby. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto,
and no claimed amendment, modification, termination or waiver shall be binding
unless in writing and signed by the party against whom or which such claimed
amendment, modification, termination or waiver is sought to be enforced.
11.14 SECTION HEADINGS AND GENDER. All section headings and
the use of a particular gender are for convenience only and shall in no way
modify or restrict any of the terms or provisions hereof. Any reference in this
Agreement to a Section or Exhibit shall be deemed to be a reference to a Section
or Exhibit of this Agreement unless the context otherwise expressly requires.
11.15 COOPERATION. Subject to the provisions hereof, the
parties hereto shall use their best efforts to take, or cause to be taken, such
action, to execute and deliver, or cause to be executed and delivered, such
additional documents and instruments and to do, or cause to be done, all things
necessary, proper or advisable under the provisions of this Agreement and under
-12-
<PAGE>
applicable law to consummate and make effective the transactions contemplated by
this Agreement.
11.16 SEVERABILITY. Any provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.17 COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which is an original and all of which together shall
be deemed to be one and the same instrument. This Agreement shall become binding
when one or more counterparts taken together shall have been executed and
delivered by all of the parties, it not being necessary that any counterpart
hereof be executed by more than one of the parties hereto. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to produce
or account for any of the other counterparts.
[THIS SPACE INTENTIONALLY LEFT BLANK.
PLACES FOR SIGNATURES BEGIN ON THE FOLLOWING PAGE.]
-13-
<PAGE>
SECURITIES EXCHANGE AGREEMENT
[1996 HBS SERIES]
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first written above.
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes, III
Chairman
SIGNATURES CONTINUE ON FOLLOWING PAGE
S-1
<PAGE>
SECURITIES EXCHANGE AGREEMENT
[1996 HBS SERIES]
INVESTOR SIGNATURE PAGE - NATURAL PERSONS
___________________________________
___________________________________
PRINT NAME
S-2
<PAGE>
SECURITIES EXCHANGE AGREEMENT
[1996 HBS SERIES]
INVESTOR SIGNATURE PAGE - ENTITIES
___________________________________
PRINT FULL LEGAL NAME OF ENTITY
By:________________________________
___________________________________
PRINT NAME
___________________________________
PRINT TITLE OR CAPACITY IN WHICH SIGNING
S-2
<PAGE>
EXHIBIT 4.16
PROMISSORY NOTE
---------------
$350,000.00 December 23, 1996
FOR VALUE RECEIVED, the undersigned, Avery Communications, Inc., a
Delaware corporation, d/b/a ACI Communications, Inc. ("Maker"), hereby promises
to pay to the order of Eastern Virginia Small Business Investment Corporation, a
Virginia corporation ("Payee"), at its offices at 300 E. Main Street, Suite
1380, Norfolk, Virginia 23510 in lawful money of the United States of America,
the principal sum of THREE HUNDRED FIFTY THOUSAND AND NO/100 DOLLARS
($350,000.00), or so much thereof as may be advanced and outstanding hereunder,
together with interest on the outstanding principal balance from day to day
remaining as herein specified, in twenty (20) installments as follows:
(a) Nineteen (19) installments in the amount of accrued and
unpaid interest each shall be due and payable quarterly, the first such
installment to be due and payable on March 23, 1997, with like
successive installments to be due and payable on the 23rd day of each
succeeding June, September, December, and March thereafter until and
including September 23, 2001; and thereafter
(b) A final installment in the amount of all outstanding
principal, plus accrued and unpaid interest, shall be due and payable
on December 23, 2001.
Notwithstanding the foregoing, all of the outstanding principal, plus
accrued and unpaid interest shall be due and payable on demand if the value of
the good and collectible accounts that make up the Collateral, as defined in
that certain Loan and Security Agreement (the "Security Agreement") dated as of
December 23, 1996, by and among Hold Billing Services, Ltd., a Texas limited
partnership, the Maker and Payee, is less than $1,325,000.
The outstanding principal balance hereof shall bear interest prior to
maturity at the fixed rate of ten percent (10%) per annum. Interest on the
indebtedness evidenced by this Note shall be computed on the basis of a year of
360 days.
A late payment charge equal to 5% of all amounts owed may be charged on
any installment not received by the Payee within 10 calendar days after the
installment due date, but acceptance by Payee of payment of the charge shall not
waive any Default under this Note.
This Note is issued under and secured by a Loan and the Security
Agreement.
<PAGE>
As used in this Note, the following terms shall have the respective
meanings indicated below:
"Maximum Rate" means the maximum rate of nonusurious interest
------------
permitted from day to day by applicable law and calculated after taking
into account any and all relevant fees, payments, and other charges in
respect of this Note which are deemed to be interest under applicable
law.
Maker shall have the right to prepay, at any time and from time to time
without premium or penalty, the entire unpaid principal balance of this Note or
any portion thereof, any such partial prepayments to be applied first to any
accrued and unpaid interest and the remaining portion to any unpaid principal.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this Note or otherwise in connection with this loan transaction, the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this Note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker. In determining whether or not the interest paid or
payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted
by applicable law, (i) characterize any non-principal payment as an expense,
fee, or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal
or unequal parts the total amount of interest throughout the entire contemplated
term of the indebtedness evidenced by this Note so that the interest for the
entire term does not exceed the Maximum Rate.
Maker shall be in default hereunder upon the happening of any of the
following events or conditions (each such event or condition hereinafter
referred to as an "Event of Default"):
(a) Maker shall fail to pay when due any principal of or
accrued and unpaid interest on this Note.
(b) Maker shall commence a voluntary proceeding seeking
liquidation, reorganization, or other relief with respect to itself or
its debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official
-2-
<PAGE>
for it or a substantial part of its property or shall consent to any
such relief or to the appointment of or taking possession by any such
official in an involuntary case or other proceeding commenced against
it or shall make a general assignment for the benefit of creditors or
shall generally fail to pay its debts as they become due or shall take
any corporate action to authorize any of the foregoing.
(c) Any involuntary proceeding shall be commenced against
Maker seeking liquidation, reorganization, or other relief with respect
to it or its debts under any bankruptcy, insolvency, or other similar
law now or hereafter in effect, or seeking the appointment of a
trustee, receiver, liquidator, custodian, or other similar official for
it or a substantial part of its property, and such involuntary
proceeding shall remain undismissed and unstayed for a period of thirty
(30) days.
Upon the occurrence of any Event of Default, the holder hereof may, at
its option, declare the entire unpaid principal of and accrued interest on this
Note immediately due and payable without notice of dishonor, acceleration or
protest, demand or presentment, all of which are hereby waived, and upon such
declaration, the same shall become and shall be immediately due and payable, and
the holder hereof shall have the right to foreclose or otherwise enforce all
liens or security interests securing payment hereof, or any part hereof, and
offset against this Note any sum or sums owed by the holder hereof to Maker.
Failure of the holder hereof to exercise this option shall not constitute a
waiver of the right to exercise the same upon the occurrence of a subsequent
Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees.
THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED
AND DELIVERED BY MAKER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS
NOTE EMBODY THE FINAL, ENTIRE AGREEMENT OF MAKER AND PAYEE WITH RESPECT TO THE
INDEBTEDNESS EVIDENCED BY THIS NOTE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND MAY NOT BE CONTRADICTED
OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF MAKER AND PAYEE. THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND
PAYEE.
This Note shall be governed and construed in accordance with the laws
of the Commonwealth of Virginia.
-3-
<PAGE>
AVERY COMMUNICATIONS, INC.,
By:________________________________
Thomas M. Lyons, President
-4-
<PAGE>
EXHIBIT 4.17
PROMISSORY NOTE
---------------
$50,000.00 Dallas, Texas September 30, 1996
FOR VALUE RECEIVED, the undersigned, AVERY COMMUNICATIONS, INC., a
Delaware corporation ("Maker"), hereby promises to pay to the order of GLOBAL
-----
CAPITAL RESOURCES, INC., a Delaware corporation ("Payee"), at its offices at 190
-----
South LaSalle Street, Suite 1410, Chicago Illinois 60603, in lawful money of the
United States of America, the principal sum of Fifty-Thousand and 00/100 Dollars
($50,000.00), together with interest IN ARREARS on the UNPAID principal balance
at an annual rate equal to lesser of (a) the Maximum Rate (hereinafter defined),
or (b) twelve and one-half percent (12.5%), in the manner provided below.
Interest shall be calculated on the basis of a year of 365 or 366 days, as
applicable, and charged for the actual number of days elapsed.
The outstanding principal amount of this Note, together with all
accrued and unpaid interest thereon, shall be due and payable in full upon
demand of the Payee, or, if no such demand is made on or before December 31,
1997, on December 31, 1997. In addition, Maker shall make mandatory payments of
principal, together with all accrued and unpaid interest on the unpaid principal
balance of this Note, from time to time after the date hereof on the day
following the day on which Maker receives any payment on or with respect to the
indebtedness evidenced by that certain Promissory Note dated June 28, 1996, in
the original principal amount of $50,000.00 payable by Telco Group, Inc, a Texas
corporation, to the order of Maker.
All payments of principal and interest on this Note shall be made by
certified or bank cashier's check at the offices of Payee, 190 South LaSalle
Street, Suite 1410, Chicago Illinois 60603, or at such other place in the United
States of America as Payee shall designate to Maker in writing, or by wire
transfer of immediately available funds to an account designated by Payee in
writing. If any payment of principal or interest on this Note is due on a day
which is not a Business Day, such payment shall be due on the next succeeding
Business Day, and such extension of time shall be taken into account in
calculating the amount of interest payable under this Note. "Business Day" means
any day other than a Saturday, Sunday or legal holiday in the State of Illinois.
Maker may, without premium or penalty, at any time and from time to
time, prepay all or any portion of the outstanding principal balance due under
this Note, provided that each such prepayment is accompanied by accrued interest
on the amount of principal prepaid calculated to the date of such prepayment.
As used in this Note, the following terms shall have the respective
meanings indicated below:
"Default Rate" means the Maximum Rate.
------------
<PAGE>
"Maximum Rate" means the maximum rate of nonusurious interest
------------
permitted from day to day by applicable law, including as to Article
5069-1.04, Vernon's Texas Civil Statutes (and as the same may be
incorporated by reference in other Texas statutes), but otherwise
without limitation, that rate based upon the "indicated rate ceiling"
and calculated after taking into account any and all relevant fees,
payments, and other charges in respect of this Note which are deemed to
be interest under applicable law.
Notwithstanding anything to the contrary contained herein, no
provisions of this Note shall require the payment or permit the collection of
interest in excess of the Maximum Rate. If any excess of interest in such
respect is herein provided for, or shall be adjudicated to be so provided, in
this Note or otherwise in connection with this loan transaction, the provisions
of this paragraph shall govern and prevail, and neither Maker nor the sureties,
guarantors, successors or assigns of Maker shall be obligated to pay the excess
amount of such interest, or any other excess sum paid for the use, forbearance
or detention of sums loaned pursuant hereto. If for any reason interest in
excess of the Maximum Rate shall be deemed charged, required or permitted by any
court of competent jurisdiction, any such excess shall be applied as a payment
and reduction of the principal of indebtedness evidenced by this Note; and, if
the principal amount hereof has been paid in full, any remaining excess shall
forthwith be paid to Maker. In determining whether or not the interest paid or
payable exceeds the Maximum Rate, Maker and Payee shall, to the extent permitted
by applicable law, (i) characterize any non-principal payment as an expense,
fee, or premium rather than as interest, (ii) exclude voluntary prepayments and
the effects thereof, and (iii) amortize, prorate, allocate, and spread in equal
or unequal parts the total amount of interest throughout the entire contemplated
term of the indebtedness evidenced by this Note so that the interest for the
entire term does not exceed the Maximum Rate.
Maker shall be in default hereunder upon the happening of any of the
following events or conditions (each such event or condition hereinafter
referred to as an "Event of Default"):
----------------
(a) Maker shall fail to pay when due any principal of or
accrued and unpaid interest on this Note.
(b) Maker shall commence a voluntary proceeding seeking
liquidation, reorganization, or other relief with respect to itself or
its debts under any bankruptcy, insolvency, or other similar law now or
hereafter in effect, or seeking the appointment of a trustee, receiver,
liquidator, custodian, or other similar official for it or a
substantial part of its property or shall consent to any such relief or
to the appointment of or taking possession by any such official in an
involuntary case or other proceeding commenced against it or shall make
a general assignment for the benefit of creditors or shall generally
fail to pay its debts as they become due or shall take any corporate
action to authorize any of the foregoing.
(c) Any involuntary proceeding shall be commenced against
Maker seeking liquidation, reorganization, or other relief with respect
to it or its debts under any bankruptcy, insolvency, or other similar
law now or hereafter in effect, or seeking the
-2-
<PAGE>
appointment of a trustee, receiver, liquidator, custodian, or other
similar official for it or a substantial part of its property, and such
involuntary proceeding shall remain undismissed and unstayed for a
period of thirty (30) days.
(d) This Note shall cease to be in full force and effect or
shall be declared null and void or the validity or enforceability
hereof shall be contested or challenged by Maker or any of its
shareholders, or Maker shall deny that it has any further liability or
obligation under this Note.
Upon the occurrence of any Event of Default, the holder hereof may, at
its option, declare the entire unpaid principal of and accrued interest on this
Note immediately due and payable without notice, demand or presentment, all of
which are hereby waived, and upon such declaration, the same shall become and
shall be immediately due and payable, and the holder hereof shall have the right
to foreclose or otherwise enforce all liens or security interests securing
payment hereof, or any part hereof, and offset against this Note any sum or sums
owed by the holder hereof to Maker. Failure of the holder hereof to exercise
this option shall not constitute a waiver of the right to exercise the same upon
the occurrence of a subsequent Event of Default.
If the holder hereof expends any effort in any attempt to enforce
payment of all or any part or installment of any sum due the holder hereunder,
or if this Note is placed in the hands of an attorney for collection, or if it
is collected through any legal proceedings, Maker agrees to pay all collection
costs and fees incurred by the holder, including reasonable attorneys' fees,
plus accrued and unpaid interest hereunder.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS AND THE APPLICABLE LAWS OF THE UNITED STATES OF
AMERICA. ANY ACTION OR PROCEEDING UNDER OR IN CONNECTION WITH THIS NOTE AGAINST
MAKER OR ANY OTHER PARTY EVER LIABLE FOR PAYMENT OF ANY SUMS OF MONEY PAYABLE ON
THIS NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT IN COOK COUNTY, ILLINOIS.
MAKER HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH
COURTS, AND (II) WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE
VENUE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN SUCH COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL AFFECT THE RIGHT OF PAYEE TO
BRING ANY ACTION OR PROCEEDING AGAINST MAKER OR ANY OTHER PARTY LIABLE HEREUNDER
OR WITH RESPECT TO ANY COLLATERAL IN ANY STATE OR FEDERAL COURT IN ANY OTHER
JURISDICTION. ANY ACTION OR PROCEEDING BY MAKER OR ANY OTHER PARTY LIABLE
HEREUNDER AGAINST PAYEE SHALL BE BROUGHT ONLY IN A COURT LOCATED IN COOK COUNTY,
ILLINOIS.
The rights and remedies of Payee under this Note shall be cumulative
and not alternative. No waiver by Payee of any right or remedy under this Note
shall be effective unless in a writing signed by Payee. Neither the failure nor
any delay in exercising any right, power or privilege under this Note will
operate as a waiver of such right, power or privilege and no single or partial
exercise of any such right, power or privilege by Payee will preclude any other
or further exercise of such right, power or privilege or the exercise of any
other right, power or privilege. To the maximum extent permitted by applicable
law, (a) no claim or right of Payee arising out
-3-
<PAGE>
of this Note can be discharged by Payee, in whole or in part, by a waiver or
renunciation of the claim or right unless in a writing, signed by Payee; (b) no
waiver that may be given by Payee will be applicable except in the specific
instance for which it is given; and (c) no notice to or demand on Maker will be
deemed to be a waiver of any obligation of Maker or of the right of Payee to
take further action without notice or demand as provided in this Note. Maker
hereby waives presentment, demand, protest and notice of dishonor and protest.
Maker and each surety, guarantor, endorser, and other party ever liable for
payment of any sums of money payable on this Note, jointly and severally waive
notice, presentment, demand for payment, protest, notice of protest and
non-payment or dishonor, notice of acceleration, notice of intent to accelerate,
notice of intent to demand, diligence in collecting, grace, and all other
formalities of any kind, waive and agree not to assert any right of offset or
similar right with respect to any payments due hereunder, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, and any impairment of any collateral
securing this Note, all without prejudice to the holder of this Note. The holder
of this Note shall similarly have the right to deal in any way, at any time,
with one or more of the foregoing parties without notice to any other party, and
to grant any such party any extensions of time for payment of any of said
indebtedness, or to release or substitute part or all of the collateral securing
this Note, or to grant any other indulgences or forbearances whatsoever, without
notice to any other party and without in any way affecting the personal
liability of any party hereunder.
THIS NOTE AND ALL OTHER INSTRUMENTS, DOCUMENTS AND AGREEMENTS EXECUTED
AND DELIVERED BY MAKER IN CONNECTION WITH THE INDEBTEDNESS EVIDENCED BY THIS
NOTE EMBODY THE FINAL, ENTIRE AGREEMENT OF MAKER AND PAYEE WITH RESPECT TO THE
INDEBTEDNESS EVIDENCED BY THIS NOTE AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS,
AGREEMENTS, REPRESENTATIONS AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
RELATING TO THE INDEBTEDNESS EVIDENCED BY THIS NOTE AND MAY NOT BE CONTRADICTED
OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR
DISCUSSIONS OF MAKER AND PAYEE. THERE ARE NO ORAL AGREEMENTS BETWEEN MAKER AND
PAYEE.
IN WITNESS WHEREOF, this Promissory Note is executed as of the date
first above written.
AVERY COMMUNICATIONS, INC.
By: ____________________________
Thomas M. Lyons, President
<PAGE>
EXHIBIT 4.18
Borrower: HOLD BILLING SERVICES, LTD.
---------------------------
Address: 11550 IH-10 West, Suite 285
---------------------------
San Antonio, Texas 78230
-------------------------
Date: March __, 1997
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and between the Borrower named above (the "Borrower"), whose
address is set forth above and FINOVA Capital Corporation ("FINOVA"), whose
address is 355 South Grand Avenue, Suite 2400, Los Angeles, California 90071.
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth herein and provided
--------------
that no Event of Default or event which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default, shall have
occurred, FINOVA shall, upon Borrower's request, make advances to Borrower from
time to time in an aggregate outstanding principal amount not to exceed the
Total Facility amount (the "Total Facility") set forth on the schedule hereto
(the "Schedule"), subject to deduction of reserves for accrued interest and such
other reserves (in each case to the extent not already considered in the
Borrowing Base), including, without limitation, reserves with respect to (i)
past due federal excise taxes, state taxes or public utility charges; (ii)
billing and collection charges payable to Eligible LECs; (iii) other sums
chargeable against Borrower's Loan Account as Loans under any section of this
Agreement; (iv) untrued up volume by Eligible LECs; (v) LEC access charges; (vi)
up to three (3) months of any sums due and owing to any landlord or mortgagee
from whom FINOVA has not obtained a landlord's or mortgagee's waiver; and (vii)
such other matters, events, conditions, or contingencies as FINOVA deems proper
from time to time, and less amounts FINOVA may be obligated to pay in the future
on behalf of Borrower. The Schedule is an integral part of this Agreement and
all references to "herein", "herewith" and words of similar import shall for all
purposes be deemed to include the Schedule.
1.2 Loans. Advances under the Total Facility ("Loans") shall be comprised of the
-----
amounts and at the advance rates shown on the Schedule. FINOVA may, after an
Event of Default, in its sole discretion, adjust the advance rates set forth on
the Schedule.
1.3 Overadvance. If at any time or for any reason the outstanding amount of
-----------
advances made pursuant hereto exceeds any of the dollar or percentage
limitations contained in the Schedule (any such excess, an "Overadvance"), then
Borrower shall, upon FINOVA's demand, immediately pay to FINOVA, in cash, the
full amount of such Overadvance. Without limiting Borrower's obligation to repay
to FINOVA on demand the amount of any Overadvance, Borrower agrees to pay FINOVA
interest on the outstanding principal amount of any Overadvance, on demand, at
the rate set forth on the Schedule.
1.4. Loan Account. All advances made hereunder shall be added to and deemed part
------------
of the Obligations when made. FINOVA may from time to time charge all
Obligations of Borrower to Borrower's loan account with FINOVA.
2. CONDITIONS PRECEDENT.
2.1 Initial Advance. The obligation of FINOVA to make the initial advance
----------------
hereunder is subject to the fulfillment and satisfaction of FINOVA and its
counsel, of each of the following conditions on or prior to the date set forth
on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the following Loan
---------------
Documents: (i) the Secured Revolving Credit Note, in such amount and on such
terms and conditions as FINOVA shall specify, executed by Borrower; (ii) such
security agreements, intellectual property assignments and deeds of trust as
FINOVA may require with respect to this Agreement executed by Borrower and, if
applicable, duly acknowledged for recording or filing in the appropriate
governmental offices; (iii) Subordination Agreements on FINOVA's standard form,
executed by each of the Subordinating Creditors, together with copies of all
instruments subject thereto showing a legend indicating such subordination; (iv)
Validity and Support Agreements on FINOVA's standard form, executed by Harold
Box and David Mechler, Jr.; (v) such Blocked Account or Dominion Account
agreements as FINOVA shall determine; and (vi) such other documents, instruments
and agreements in connection herewith as FINOVA shall require, executed,
certified and/or acknowledged by such parties as FINOVA shall designate;
<PAGE>
(b) Terminations by Existing Lender(s). Borrower's existing lender(s) shall have
----------------------------------
executed and delivered UCC termination statements and other documentation
evidencing the termination of its liens and security interests in the assets of
Borrower or a subordination agreement in form and substance satisfactory to
FINOVA in its sole discretion;
(c) Charter Documents. FINOVA shall have received copies of Borrower's
------------------
certificate of limited partnership and limited partnership agreement, as
amended, modified or supplemented to the Closing Date and its sole general
partner's, HBS, Inc.'s ("HBS"), By-laws and Articles or Certificate of
Incorporation, as amended, modified, or supplemented to the Closing Date,
certified by the Secretary of Borrower;
(d) Good Standing. FINOVA shall have received a certificate of limited
--------------
partnership status with respect to Borrower and a certificate of corporate
status with respect to HBS, each dated within ten (10) days of the Closing Date,
by the Secretary of State of the state of registration of Borrower and the state
of incorporation of HBS, which certificates shall indicate that HBS and Borrower
are in good standing in such states;
(e) Foreign Qualification. FINOVA shall have received certificates of limited
----------------------
partnership status with respect to Borrower dated within ten (10) days of the
Closing Date, issued by the Secretary of State of each state in which such
party's failure to be duly qualified or licensed would have a material adverse
effect on its financial condition or assets indicating that such party is in
good standing;
(f) Authorizing Resolutions and Incumbency. FINOVA shall have received a
-----------------------------------------
certificate from the Secretaries of Borrower and HBS attesting to (i) the
adoption of resolutions of Borrower's and HBS's Board of Directors and/or
shareholders and/or partners, as appropriate, authorizing the execution and
delivery of this Agreement and the other Loan Documents to which Borrower is a
party, and authorizing specific officers of Borrower and HBS to execute same,
and (ii) the authenticity of original specimen signatures of such officers;
(g) Insurance. FINOVA shall have received the insurance certificates and
---------
certified copies of policies required by Section 4.4 hereof, all in form and
substance satisfactory to FINOVA and its counsel;
(h) Title Insurance. Not Applicable.
---------------
(i) Searches; Certificates of Title. FINOVA shall have received searches
---------------------------------
reflecting the filing of its financing statements and fixture filings in such
jurisdictions as it shall determine, and shall have received certificates of
title with respect to the Collateral which shall have been duly executed in a
manner sufficient to perfect all of the security interests granted to FINOVA;
(j) Landlord and Mortgagee Waivers. FINOVA shall have received landlord,
---------------------------------
warehouseman and mortgagee waivers from the lessors and mortgagees of all
locations where any Collateral is located.
(k) Fees. Borrower shall have paid all fees payable by it on the Closing Date
----
pursuant to this Agreement;
(l) Opinion of Counsel. FINOVA shall have received an opinion of Borrower's
------------------
counsel covering such matters as FINOVA shall determine in its sole discretion;
(m) Officer Certificate. FINOVA shall have received a certificate of the
--------------------
President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(n) Solvency Certificate. If requested by FINOVA, a signed certificate of the
---------------------
Borrower's duly elected Chief Financial Officer concerning the solvency and
financial condition of Borrower, on FINOVA's standard form;
(o) Blocked Account/Dominion Account. The Blocked Account or Dominion Account
----------------------------------
referred to in Section 7.2 and 7.3 hereof shall have been established to the
satisfaction of FINOVA in its sole discretion;
(p) Environmental Assessment. Not applicable;
------------------------
(q) Environmental Certificate. FINOVA shall have received an Environmental
--------------------------
Certificate from Borrower, in form and substance satisfactory to FINOVA in its
sole and absolute discretion, with respect to all locations of Collateral; and
(r) Other Matters. All other documents and legal matters in connection with the
-------------
transactions contemplated by this Agreement shall have been delivered, executed
or recorded and shall be in form and substance satisfactory to FINOVA and its
counsel.
2.2 Subsequent Advances. The obligation of FINOVA to make any advance hereunder
-------------------
shall be subject to the further conditions precedent that, on and as of the date
of such advance:
(a) the representations and warranties of Borrower set forth in this Agreement
shall be accurate, before and after giving effect to such advance or issuance
and to the application of any proceeds thereof;
(b) no Event of Default and no event which, with notice or passage of time or
both, would constitute an Event of Default has occurred, or would result from
such advance
- 2 -
<PAGE>
or issuance or from the application of any proceeds thereof;
(c) no material adverse change has occurred in the Borrower's business,
operations, financial condition, or assets or in the prospect of repayment of
the Obligations; and
(d) FINOVA shall have received such other approvals, opinions or documents as
FINOVA shall reasonably request, including without limitation, written
confirmations from all applicable LECs confirming their acceptance of all LEC
Receivables which are included in the Borrowing Base at the time of the
applicable advance.
3. INTEREST RATE AND OTHER CHARGES.
3.1 Interest; Fees. Borrower shall pay FINOVA interest on the daily outstanding
--------
balance of Borrower's loan account at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.
3.2 Default Interest Rate. Upon the occurrence and during the continuation of an
---------------------
Event of Default, Borrower shall pay FINOVA interest on the daily outstanding
balance of Borrower's loan account at a rate per annum which is two percent (2%)
in excess of the rate which would otherwise be applicable thereto pursuant to
the Schedule. All such default interest shall be payable upon demand of FINOVA.
3.3 Examination Fees. Borrower agrees to pay to FINOVA an examination fee in the
----------------
amount set forth on the Schedule in connection with each audit or examination of
Borrower performed by FINOVA prior to or after the date hereof.
3.4 Excess Interest. The contracted for rate of interest of the loan
----------------
contemplated hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to the principal
balance of the Obligations in accordance with the provisions of this Agreement;
(ii) interest after an Event of Default, calculated and applied to the amount of
the Obligations in accordance with the provisions hereof; and (iii) all
Additional Sums (as herein defined), if any. Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The examination fees, attorneys' fees, expert witness fees, letter of
credit fees, Collateral Management Fees, closing fees, Loan Fees, Termination
Fees, Unused Line fees, other charges, goods, things in action or any other sums
or things of value paid or payable by Borrower (collectively, the "Additional
Sums"), whether pursuant to this Agreement or any other documents or instruments
in any way pertaining to this lending transaction, or otherwise with respect to
this lending transaction, that under any applicable law may be deemed to be
interest with respect to this lending transaction, for the purpose of any
applicable law that may limit the maximum amount of interest to be charged with
respect to this lending transaction, shall be payable by Borrower as, and shall
be deemed to be, additional interest and for such purposes only, the agreed upon
and "contracted for rate of interest" of this lending transaction shall be
deemed to be increased by the rate of interest resulting from the inclusion of
the Additional Sums.
It is the intent of the parties to comply with the usury laws of the State
of Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a) any such
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the Loans evidenced hereby, (b) the
maturity of the Obligations is accelerated in whole or in part, or (c) all or
part of the Obligations shall be prepaid, so that under any of such
circumstances, the amount of interest contracted for, shared or received in
connection with the Loans evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall govern
and control, (2) neither Borrower nor any other Person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Maximum
Interest Rate, (3) any such excess which may have been collected shall be either
applied as a credit against the then unpaid principal amount of the Obligations
or refunded to Borrower, at FINOVA's sole option, and (4) the effective rate of
interest shall be automatically reduced to the Maximum Interest Rate. It is
further agreed, without limiting the generality of the foregoing, that to the
extent permitted by the Applicable Usury Law; (x) all calculations of interest
which are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the Loans evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such Loans; and (y) in the event that
the effective rate of interest on the Loans should at any time exceed the
Maximum Interest Rate, such excess interest that would otherwise have been
collected had there been no
- 3 -
<PAGE>
ceiling imposed by the Applicable Usury Law shall be paid to FINOVA from time to
time, if and when the effective interest rate on the loan otherwise falls below
the Maximum Interest Rate, to the extent that interest paid to the date of
calculation does not exceed the Maximum Interest Rate, until the entire amount
of interest which would otherwise have been collected had there been no ceiling
imposed by the Applicable Usury Law has been paid in full. Borrower further
agrees that should the Maximum Interest Rate be increased at any time hereafter
because of a change in the Applicable Usury Law, then to the extent not
prohibited by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
4. COLLATERAL.
4.1 Security Interest in the Collateral. To secure the payment and performance
------------------------------------
of the Obligations when due, Borrower hereby grants to FINOVA a first priority
security interest in all of Borrower's now owned or hereafter acquired or
arising Inventory, Equipment, Receivables, investment property (as such term is
defined in the Code) and General Intangibles, including, without limitation, all
of Borrower's Deposit Accounts, money, any and all property now or at any time
hereafter in FINOVA's possession (including claims and credit balances), and all
proceeds (including, without limitation, proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which FINOVA may be granted a lien, mortgage
or security interest, is referred to herein, collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. Borrower shall, at its
-------------------------------------------------
expense, take all actions requested by FINOVA at any time to perfect, maintain,
protect and enforce FINOVA's security interest and other rights in the
Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as FINOVA shall require, all in form and
substance satisfactory to FINOVA, (ii) maintaining a perpetual inventory
reporting system and complete and accurate stock records, (iii) delivering to
FINOVA warehouse receipts covering any portion of the Collateral located in
warehouses and for which warehouse receipts are issued, and, after an Event of
Default, transferring Inventory to warehouses designated by FINOVA, (iv) placing
notations on Borrower's books of account to disclose FINOVA's security interest
therein, and (v) delivering to FINOVA all letters of credit on which Borrower is
named beneficiary. FINOVA may file, without Borrower's signature, one or more
financing statements disclosing FINOVA's security interest under this Agreement.
Borrower agrees that a carbon, photographic, photostatic or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. If any Collateral is at any time in the possession or control of any
warehouseman, bailee or any of Borrower's agents or processors, Borrower shall
notify such Person of FINOVA's security interest in such Collateral and, upon
FINOVA's request, instruct them to hold all such Collateral for FINOVA's account
subject to FINOVA's instructions. From time to time, Borrower shall, upon
FINOVA's request, execute and deliver confirmatory written instruments pledging
the Collateral to FINOVA, but Borrower's failure to do so shall not affect or
limit FINOVA's security interest or other rights in and to the Collateral. Until
the Obligations have been fully satisfied and FINOVA's obligation to make
further advances hereunder has terminated, FINOVA's security interest in the
Collateral shall continue in full force and effect.
4.3 Preservation of Collateral. FINOVA may, in its sole discretion, at any time
--------------------------
discharge any lien or encumbrance on the Collateral or bond the same, pay any
insurance, maintain guards, pay any service bureau, obtain any record or take
any other action to preserve the Collateral and charge the cost thereof to
Borrower's loan account as an Obligation.
4.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of such
---------
insurance required, written by insurers and in amounts satisfactory to FINOVA.
All premiums shall be paid by Borrower as and when due. Accurate and complete
copies of the policies shall be delivered by Borrower to FINOVA. If Borrower
fails to do so, FINOVA may (but shall not be required to) procure such insurance
at Borrower's expense and charge the cost thereof to Borrower's loan account as
an obligation. Each policy shall include a provision requiring thirty days'
prior written notice to FINOVA of any cancellation or substantial modification.
5. EXAMINATION OF RECORDS; FINANCIAL REPORTING.
5.1 Examinations. FINOVA shall at all times have full access to and the right to
------------
examine, audit, make abstracts and copies from and inspect Borrower's records,
files, books of account and all other documents, instruments and agreements
relating to the Collateral and the right to check, test and appraise the
Collateral provided, however, that prior to the occurrence of an Event of
Default, FINOVA shall not perform such examinations more than once each calendar
quarter. Borrower shall deliver to FINOVA any instrument necessary for FINOVA to
obtain records from any service bureau maintaining records for Borrower. All
instruments and certificates prepared by Borrower showing the value of any of
the Collateral shall be accompanied, upon FINOVA's request, by copies of related
purchase orders and invoices. FINOVA may, at
- 4 -
<PAGE>
any time after the occurrence of an Event of Default, remove (to the extent
deemed necessary by FINOVA to exercise its rights and remedies hereunder) from
Borrower's premises Borrower's books and records (or copies thereof) or require
Borrower to deliver such books and records (to the extent deemed necessary by
FINOVA to exercise its rights and remedies hereunder) or copies to FINOVA.
FINOVA may, without expense to FINOVA, use such of Borrower's personnel,
supplies, copiers, facsimiles, other equipment, and premises as may be
reasonably necessary for maintaining or enforcing FINOVA's security interest and
rights hereunder.
5.2 Reporting Requirements. Borrower shall furnish FINOVA, upon request, such
-----------------------
information and statements as FINOVA shall request from time to time regarding
Borrower's business affairs, financial condition and the results of its
operations. Without limiting the generality of the foregoing, Borrower shall
provide FINOVA with (i) upon request, copies of sales invoices, all
correspondence and other information between Borrower and any LEC (including,
without limitation, all commitment reports), customer statements and credit
memoranda issued purchase of accounts receivable reports for LECS, remittance
advices and reports and copies of deposit slips; (ii) on or prior to the date
set forth on the Schedule, monthly agings and reconciliations of Receivables
with listings of concentrated accounts, payables reports, and unaudited
financial statements with respect to the prior month prepared on a basis
consistent with such statements prepared in prior months; (iii) audited annual
financial statements, prepared in accordance with generally accepted accounting
principles applied on a basis consistent with the most recent Prepared
Financials provided to FINOVA by Borrower, including balance sheets, income and
cash flow statements of Borrower and its Affiliates, accompanied by the
unqualified report thereon of independent certified public accountants
acceptable to FINOVA as soon as available, and in any event, within ninety (90)
days after the end of each of Borrower's fiscal years; and (iv) such
certificates relating to the foregoing as FINOVA may request, including, without
limitation, a monthly certificate from the president and the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
has occurred or event which, with giving of notice or the passage of time, or
both, would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default.
6. COLLATERAL REPORTING.
6.1 Invoices. Borrower shall not re-date any invoice or sale from the original
--------
date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Receivable.
If Borrower becomes aware of any matter affecting any Receivable, including
information affecting the credit of the account debtor thereon, Borrower shall
promptly notify FINOVA in writing.
6.2 Instruments. In the event any Receivable is or becomes evidenced by a
-----------
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any presentment,
demand, notice of dishonor, protest or notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
7. PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
7.1 Principal Payments. Except where evidenced by notes or other instruments
-------------------
issued or made by Borrower to FINOVA specifically containing payment provisions
which are in conflict with this Section 7.1 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), that
portion of the Obligations consisting of principal payable on account of Loans
shall be payable by Borrower to FINOVA immediately upon the earliest of (i) the
receipt by FINOVA or Borrower of any proceeds of any of the Collateral, to the
extent of said proceeds, (ii) the occurrence of an Event of Default in
consequence of which FINOVA elects to accelerate the maturity and payment of
such loans, or (iii) any termination of this Agreement pursuant to Section 16
hereof; provided, however, that any Overadvance shall be payable on demand
pursuant to the provisions of Section 1.3 hereof.
7.2 Collections. Until FINOVA notifies Borrower to the contrary, Borrower shall
-----------
direct all LECs to direct all payments (except payments made by check by
Southwestern Bell, which shall be made payable to Borrower but sent to FINOVA or
to a lockbox if FINOVA shall so direct) to a "blocked account" as FINOVA may
require (each, a "Blocked Account") pursuant to an arrangement with such bank as
may be selected by Borrower and be acceptable to FINOVA. Borrower shall hold any
payments received by it as trustee of FINOVA and immediately deliver all
payments to FINOVA in their original form as set forth below, duly endorsed in
blank. FINOVA or its designee may, at any time after the occurrence of an Event
of Default, pursuant to a Notice of Assignment in the form attached hereto as
Exhibit "7.2", notify all other account debtors that the Receivables have been
assigned to FINOVA and of FINOVA's security interest therein, and may collect
the Receivables directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that, in computing the charges under
this Agreement, all items of payment shall be deemed applied by FINOVA on
account of the Obligations one (1) Business Day after receipt by FINOVA of good
funds which have been
- 5 -
<PAGE>
finally credited to FINOVA's account, whether such funds are received directly
from Borrower or from the Blocked Account bank or the Dominion Account bank,
pursuant to Section 7.3 hereof. FINOVA is not, however, required to credit
Borrower's account for the amount of any item of payment which is unsatisfactory
to FINOVA in its sole discretion and FINOVA may charge Borrower's loan account
for the amount of any item of payment which is returned to FINOVA unpaid. In
this Agreement or in any Loan Document, whenever, there is a reference to
"receipt by FINOVA of funds," or language of similar effect regarding the
receipt of funds by FINOVA, in order to be credited to the applicable account on
the date that good funds were received by FINOVA (either directly or through a
bank account or lockbox arrangement, etc . . . ) the funds must reach FINOVA no
later than 12:00 noon, Philadelphia, Pennsylvania time, on that date. Any funds
reaching FINOVA after 12:00 noon, Philadelphia, Pennsylvania time, will be
credited to the applicable account on the next immediately following Business
Day.
7.3 Management of a Blocked Account or Dominion Account. On a daily basis,
------------------------------------------------------
Borrower shall report to FINOVA the amount of proceeds in the Blocked Account
from the Collateral (net of amounts collected for taxes) and the amount of any
funds received with respect to customers other than Approved Customers and shall
provide FINOVA with such supporting information as FINOVA may request. Provided
that FINOVA agrees with Borrower's calculation of such amounts, Borrower and
FINOVA shall execute a joint disbursement authorization in the form attached as
Exhibit "A". Borrower shall obtain the agreement by the bank where the Blocked
Account is maintained to waive any offset rights against the funds so deposited.
FINOVA assumes no responsibility for any Blocked Account arrangement, including,
without limitation, any claim of accord and satisfaction or release with respect
to deposits accepted by any bank thereunder. Alternatively, FINOVA may establish
depository accounts in the name of FINOVA at a bank or banks for the deposit of
such funds (each, a "Dominion Account") and Borrower shall deposit all proceeds
of Receivables and all cash proceeds of any sale of Inventory or, to the extent
permitted herein, Equipment, or cause same to be deposited, in kind, in such
Dominion Accounts of FINOVA in lieu of depositing same to Blocked Accounts.
7.4 Payments Without Deductions. Borrower shall pay principal, interest, and all
---------------------------
other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event Borrower repays the Obligations
------------------------------
in full at any time hereafter, such payment in full shall be credited
(conditioned upon final collection) to Borrower's loan account one (1) Business
Day after FINOVA's receipt thereof.
7.6 Monthly Accountings. FINOVA shall provide Borrower with an account of
--------------------
advances, charges, expenses and payments and other transactions made pursuant to
this Agreement on a monthly basis. Such account shall be deemed correct,
accurate and binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by FINOVA),
unless Borrower notifies FINOVA in writing to the contrary within thirty (30)
days after each account is rendered, describing the nature of any alleged errors
or admissions.
7.7 Collections and Administration. FINOVA may, (i) at any time, whether or not
------------------------------
an Event of Default has occurred, without notice to or assent of Borrower,
notify any LEC of the fact that the Receivables and other Collateral have been
assigned to FINOVA by Borrower and that payment thereof is to be made to the
Blocked Account, and (ii) at any time after an Event of Default has occurred,
without notice to or assent of Borrower, notify any other account debtor of the
fact that the Receivables and other Collateral have been assigned to FINOVA by
Borrower and that payment thereof is to be made to the order of FINOVA, and
(iii) at any time after an Event of Default has occurred, without notice to or
assent of Borrower, demand, collect or enforce payment of any Receivables or
such other Collateral, but without any duty to do so, and FINOVA shall not be
liable for any failure to collect or enforce payment thereof. At FINOVA's
request, all invoices, or bills and statements sent to any account debtor, other
obligor or bailee, shall state that the Receivables and such Collateral shall
have been assigned to FINOVA and are payable directly and only to FINOVA. FINOVA
shall have the right, at any time, in FINOVA's name or in the name of a nominee
of the FINOVA, to verify the validity, amount or any other matter relating to
the Receivables or the other Collateral, by mail, telephone or otherwise.
8. POWER OF ATTORNEY.
Borrower irrevocably appoints FINOVA and its officers, agents and designees as
Borrower's attorney, with the power to endorse Borrower's name on any checks,
notes, acceptances, money orders or other forms of payment or security that come
into FINOVA's possession; to sign Borrower's name on any invoice or bill of
lading relating to any Receivable, on drafts against customers, on assignments
of Receivables, on notices of assignment, financing statements and other public
records, on verifications of accounts and on notices to customers or account
debtors; to send requests for verification of Receivables to customers or
account debtors; and after the occurrence of any Event of Default, to notify the
post office authorities to change the address for delivery of Borrower's mail to
an address designated by FINOVA and
- 6 -
<PAGE>
to open and dispose of all mail addressed to Borrower; and to do all other
things FINOVA deems necessary or desirable to carry out the terms of this
Agreement. Borrower hereby ratifies and approves all acts of such attorney.
Neither FINOVA nor any of its officers, agents and designees shall be liable for
any acts or omissions nor for any error of judgment or mistake of fact or law
while acting as Borrower's attorney except for any acts or omissions which
constitute fraud. This power, being coupled with an interest, is irrevocable
until the Obligations have been fully satisfied and FINOVA's obligation to
provide loans hereunder shall have terminated.
9. RECEIVABLES.
9.1 Representations and Warranties.
------------------------------
(a) Receivables. Borrower hereby represents and warrants to FINOVA that: (A)
-----------
with respect to each existing and future LEC Receivable (i) each such Receivable
is genuine and in all respects what it purports to be and is not evidenced by a
judgment; (ii) each such Receivable arises out of the sale, assignment, transfer
or delivery of End User Accounts (for which all of the representations and
warranties set forth in clause 9.1(a)(B) below are true, accurate and complete)
by the Borrower, on behalf of a Customer, to a LEC in the ordinary course of
Borrower's business and in accordance with the terms and conditions of an
Agreement for Billing Services and a Billing Services Agreement; (iii) to the
best of Borrower's knowledge, each such Receivable is, for a specific liquidated
amount due and owing (without defense, set-off or counterclaim of any nature) as
such amount is reflected on the Billing Tape covering the applicable LEC
Receivable, a copy of which is available to FINOVA, (iv) no payment will be
received with respect to any such Receivable, and no credit, discount (other
than those discounts given in the ordinary course of business), or extension, or
agreement therefor will be granted on any such Receivable, except as reported to
FINOVA in accordance with this Agreement; (v) there are no facts, events or
occurrences which in any way impair the validity or enforceability thereof or
tend to reduce the amount payable thereunder from the amount reflected on the
Billing Tape therefor; (vi) to the best of Borrower's knowledge, the LEC
thereunder (1) had the capacity to contract at the time any contract or other
document giving rise to the Receivable was executed and (2) such LEC is solvent;
(vii) Borrower has no knowledge of any fact or circumstances which would impair
the validity or collectibility by Borrower of such Receivable, and to the best
of Borrower's knowledge, there are no proceedings or actions which are
threatened or pending against the associated LEC which might result in any
material adverse change in such LEC's financial condition or collectibility of
such LEC Receivable; (viii) all supporting documents (including all Billing
Services Agreements and Agreements for Billing Services) and other evidence of
such Receivable delivered to FINOVA are complete and correct and valid and
enforceable in accordance with their terms, and all signatures and endorsements
that appear thereon are genuine, and all signatories and endorsers have full
capacity to contract; (ix) Borrower has filed all necessary UCC-1 financing
statements against, and has executed all necessary security agreements with,
each of its Approved Customers as required by applicable law for Borrower to
obtain a first priority perfected security interest in all of such Approved
Customer's LEC Receivables for LEC's where the LEC Receivables are purchased by
Borrower and Accounts which give rise to such LEC Receivables and all customer
lists related thereto and all such UCC-1 financing statements have been assigned
to FINOVA by the filing of UCC-3 assignment forms or by indicating FINOVA as
assignee on such financing statements, all in form and substance acceptable to
FINOVA; and (x) such Receivable is not subject to any prohibition or limitation
upon assignment except as may be set forth in the applicable Agreement for
Billing Services or Billing Services Agreement; and
(B) with respect to each existing and future End User Account (i) each such
Receivable is genuine and in all respects what it purports to be and is not
evidenced by a judgment; (ii) each such Receivable arises out of the completed
delivery of telephone services in the ordinary course of a Customer's business
and in the name of such Customer, unless otherwise approved by FINOVA, and in
accordance with the terms and conditions of any contracts or other documents
relating thereto; (iii) each such receivable is for a specific amount due and
owing as reflected on the Billing Tapes or billing transmission covering such
End User Account; (iv) to the best of Borrower's knowledge, such End User
Account is not subject to any offset Lien, deduction, defense, dispute,
counterclaim or any other adverse condition, and is absolutely owing to a
Customer or LEC and is not contingent in any respects or for any reason except
for matters for which discounts, credits or allowances are granted by Borrower
in the ordinary course of Borrower's business consistent with past practices;
(v) neither Borrower nor the applicable Customer or LEC has made any agreement
with any End User thereunder for any deduction therefor, except discounts,
credits or allowances which are granted by such Customer in the ordinary course
of business; (vi) there are no facts, events or circumstances which in any way
impair the validity or enforceability thereof or tend to reduce the amount
payable thereunder from the amount reflected on the Billing Tape therefor; (vii)
the account debtor thereunder (1) had the capacity to contract at the time any
contract or other document relating to the End User Account was executed and (2)
to the best of Borrower's knowledge, the account debtor on such End User Account
is solvent; (viii) Borrower has no knowledge of any facts or circumstances which
would impair the validity or collectibility by Borrower, the applicable Customer
or the applicable LEC of the End User Account and, to the best
- 7 -
<PAGE>
of Borrower's knowledge, there are no proceedings or actions which are
threatened or pending against the account debtor thereunder which might result
in any material adverse changes in such account debtor's financial condition or
the collectibility of such End User Account; (ix) all supporting documents and
other evidence of End User Accounts delivered to Lender are complete and correct
and valid and enforceable in accordance with their terms, and all signatures and
endorsements that appear thereon are genuine, and all signatories and endorsers
have full capacity to contract; (x) the Customer from whom such receivable was
purchased was approved by Borrower in conformity with its Underwriting
Guidelines; and (xi) the End User Account is not subject to any prohibition or
limitation upon assignment except as provided in the applicable Billing Services
Agreement.
(b) Invoices. Borrower represents and warrants that Borrower shall not
--------
re-date any invoice or sale or make sales on extended dating beyond that
customary in Borrower's business or extend or modify any Receivable. If Borrower
becomes aware of any matter adversely affecting any Receivable, including,
without limitation, information regarding the account debtor's creditworthiness,
Borrower will immediately so advise FINOVA in writing.
9.2 Breach of Warranty or Representation. If any representation or warranty
--------------------------------------
herein or in any report submitted to FINOVA is breached as to any Receivable or
any Receivable ceases to be an Eligible Receivable for any reason other than
payment thereof, then FINOVA may, in addition to its other rights hereunder,
designate any and all Receivables owing by that account debtor as not Eligible
Receivables; provided, that FINOVA shall in any such event retain its security
interest in all Receivables, whether or not Eligible Receivables, until the
Obligations have been fully satisfied and FINOVA's obligation to provide loans
hereunder has terminated.
9.3 Disputes. Borrower shall notify FINOVA promptly of all disputes or claims
--------
which singly, or in the aggregate, involve amounts exceeding $10,000 and settle
or adjust all disputes or claims at no expense to FINOVA, but no discount,
credit or allowance shall be granted to any account debtor and no returns of
merchandise shall be accepted by Borrower without FINOVA's consent, except for
discounts, credits and allowances made or given in the ordinary course of
Borrower's business. FINOVA may, at any time after the occurrence of an Event of
Default, settle or adjust disputes or claims directly with account debtors for
amounts and upon terms which FINOVA considers advisable in its reasonable credit
judgment and, in all cases, FINOVA shall credit Borrower's loan account with
only the net amounts received by FINOVA in payment of any Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating condition and
repair and make all necessary replacements thereto to maintain and preserve the
value and operating efficiency thereof at all times consistent with Borrower's
past practice, ordinary wear and tear excepted. Borrower shall not permit any
item of Equipment to become a fixture (other than a trade fixture) to real
estate or an accession to other property.
11. OTHER LIENS; NO DISPOSITION OF COLLATERAL.
Borrower represents, warrants and covenants that (a) all Collateral (including
with limitation all End User Accounts and LEC Receivables) is and shall continue
to be owned by it free and clear of all liens, claims and encumbrances
whatsoever (except for FINOVA's security interest, Permitted Encumbrances, and
such other liens, claims and encumbrances as may be permitted by FINOVA in its
sole discretion from time to time in writing), and (b) Borrower shall not,
without FINOVA's prior written approval, sell, encumber or dispose of or permit
the sale, encumbrance or disposal of any Collateral or any interest of Borrower
therein, except for (i) the sale of Inventory or the sale of Receivables to
Eligible LECs in the ordinary course of Borrower's business, provided that any
such sale of Receivables shall be subject to FINOVA's security interest in the
Receivables sold to the extent the Receivable is due from an End User or (ii)
the sale of obsolete Equipment in the ordinary course of Borrower's business.
The proceeds of any such sales shall be remitted to FINOVA pursuant to this
Agreement for application to the Obligations.
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
12.1 Due Organization. It is a limited partnership duly organized, validly
-----------------
existing and in good standing under the laws of the State set forth on the
Schedule, is qualified and authorized to do business and is in good standing in
all states in which such qualification and good standing are necessary in order
for it to conduct its business and own its property, and has all requisite power
and authority to conduct its business as presently conducted, to own its
property and to execute and deliver each of the Loan Documents to which it is a
party and perform all of its Obligations thereunder;
12.2 Other Names. It has not, during the preceding five (5) years, been known by
-----------
or used any other partnership or fictitious name except as set forth on the
Schedule, nor has it been the surviving entity of a merger or consolidation or
acquired all or substantially all of the assets of any person during such time
except as set forth on the Schedule;
- 8 -
<PAGE>
12.3 Due Authorization. The execution, delivery and performance by Borrower of
-----------------
the Loan Documents to which it is a party have been authorized by all necessary
limited partnership action and do not and shall not constitute a violation of
any applicable law or of Borrower's Certificate of Limited Partnership or
Limited Partnership Agreement or any other document, agreement or instrument to
which Borrower is a party or by which Borrower or its assets are bound;
12.4 Binding Obligation. Each of the Loan Documents to which Borrower is a party
------------------
is the legal, valid and binding obligation of Borrower enforceable against
Borrower in accordance with its terms;
12.5 Intangible Property. Borrower possesses adequate assets, licenses, permits,
-------------------
approvals, patents, patent applications, copyrights, trademarks, trademark
applications and trade names for the present and planned future conduct of its
business without any known conflict with the rights of others, and each is valid
and has been duly registered or filed with the appropriate governmental
authorities;
12.6 Capital. Borrower has capital sufficient to conduct its business and is
-------
able to pay its debts as they mature and owns property having a fair salable
value greater than the amount required to pay all of its debts (including
contingent debts);
12.7 Material Litigation. Borrower has no pending or, to its knowledge, overtly
-------------------
threatened litigation, actions or proceedings which would materially and
adversely affect its business, assets, operations, prospects or condition,
financial or otherwise, or the Collateral or any of FINOVA's interests therein;
12.8 Title; Security Interests of FINOVA. Borrower has good, indefeasible and
------------------------------------
merchantable title to the Collateral and, upon the filing of UCC-1 Financing
Statements and the recording of any mortgages or deeds of trust with respect to
real property, in each case in the appropriate offices, this Agreement and such
documents shall create valid and perfected first priority liens in the
Collateral, subject only to Permitted Encumbrances;
12.9 Restrictive Agreements; Labor Contracts. Borrower is not a party or subject
---------------------------------------
to any contract or subject to any charge, corporate restriction, judgment,
decree or order materially and adversely affecting its business, assets,
operations, prospects or condition, financial or otherwise, or which restricts
its right or ability to incur Indebtedness, and it is not party to any labor
dispute except as disclosed on the Schedule. In addition, no labor contract is
scheduled to expire during the Initial Term of this Agreement, except as
disclosed to FINOVA in writing prior to the date hereof.
12.10 Laws. Borrower is not in violation of any applicable statute, regulation,
----
ordinance or any order of any court, tribunal or governmental agency, in any
respect materially and adversely affecting the Collateral or its business,
assets, operations, prospects or condition, financial or otherwise;
12.11 Consents. Borrower has obtained or caused to be obtained or issued any
--------
required consent of a governmental agency or other Person in connection with the
financing contemplated hereby;
12.12 Defaults. Borrower is not in default with respect to any note, indenture,
--------
loan agreement, mortgage, lease, deed or other agreement to which it is a party
or by which it or its assets are bound, nor has any event occurred which, with
the giving of notice or the lapse of time, or both, would cause such a default;
12.13 Financial Condition. The Prepared Financials fairly present Borrower's
--------------------
financial condition and results of operations and those of such other Persons
described therein as of the date thereof; there are no material omissions from
the Prepared Financials or other facts or circumstances not reflected in the
Prepared Financials; and there has been no material and adverse change in such
financial condition or operations since the date of the initial Prepared
Financials delivered to FINOVA hereunder;
12.14 ERISA. Neither Borrower, any ERISA Affiliate, or any Plan is or has been
-----
in violation of any of the provisions of ERISA, any of the qualification
requirements of IRC Section 401(a) or any of the published interpretations
thereunder, nor has Borrower or any ERISA Affiliate received any notice to such
effect. No notice of intent to terminate a Plan has been filed under Section
4041 of ERISA, nor has any Plan been terminated under ERISA. The PBGC has not
instituted proceedings to terminate, or appointed a trustee to administer, a
Plan. No lien upon the assets of Borrower has arisen with respect to a Plan. No
prohibited transaction or Reportable Event has occurred with respect to a Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived;
12.15 Taxes. Borrower has filed all tax returns and such other reports as it is
-----
required by law to file and has paid or made adequate provision for the payment
on or prior to the date when due of all taxes, assessments and similar charges
that are due and payable other than those contested in good faith and for which
adequate reserves have been established in accordance with GAAP;
- 9 -
<PAGE>
12.16 Locations. Borrower's chief executive office and the offices and locations
---------
where it keeps the Collateral (except for Inventory in transit) are at the
locations set forth on the Schedule, except to the extent that such locations
may have been changed after notice to FINOVA in accordance with Section 13.5
below;
12.17 Business Relationships. There exists no actual or, to Borrower's
-----------------------
knowledge, threatened termination, cancellation or limitation of, or any
modification or change in, the business relationship between Borrower and any
customer or any group of customers whose purchases individually or in the
aggregate are material to the business of Borrower, or with any material
supplier, and there exists no present condition or state of facts or
circumstances which would materially and adversely affect Borrower or prevent
Borrower from conducting such business after the consummation of the
transactions contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted; and
12.18 Reaffirmations. Each request for a loan made by Borrower pursuant to this
--------------
Agreement shall constitute (i) an automatic representation and warranty by
Borrower to FINOVA that there does not then exist any Event of Default and (ii)
a reaffirmation as of the date of said request of all of the representations and
warranties of Borrower contained in this Agreement and the other Loan Documents.
12.19 Deferred Compensation. As of the Closing Date, Borrower owes no deferred
----------------------
compensation to any of its officers or directors.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains outstanding and this
Agreement is in effect, it shall:
13.1 Expenses. Promptly reimburse FINOVA for all costs, fees and expenses
--------
incurred by FINOVA in connection with the negotiation, preparation, execution,
delivery, administration and enforcement of each of the Loan Documents,
including, but not limited to, the attorneys' and paralegals' fees of outside
counsel, expert witness fees, lien, title search and insurance fees, appraisal
fees, all charges and expenses incurred in connection with any and all
environmental reports and environmental remediation activities, and all other
costs, expenses, taxes and filing or recording fees payable in connection with
the transactions contemplated by this Agreement, including without limitation,
all such costs, fees and expenses as FINOVA shall incur or for which FINOVA
shall become obligated in connection with (i) any inspection or verification of
the Collateral, (ii) any proceeding relating to the Loan Documents or the
Collateral, (iii) actions taken with respect to the Collateral and FINOVA's
security interest therein, including, without limitation, the defense or
prosecution of any action involving FINOVA and Borrower or any third party, (iv)
enforcement of any of FINOVA's rights and remedies with respect to the
Obligations or Collateral, and (v) consultation with FINOVA's attorneys and
participation in any workout, bankruptcy or other insolvency or other proceeding
involving any Loan Party or any Affiliate, whether or not suit is filed.
Borrower shall also pay all FINOVA charges in connection with bank wire
transfers, forwarding of loan proceeds, deposits of checks and other items of
payment, returned checks, establishment and maintenance of lockboxes and other
Blocked Accounts, and all other bank and administrative matters, in accordance
with FINOVA's schedule of bank and administrative fees and charges in effect
from time to time;
13.2 Taxes. File all tax returns and pay or make adequate provision for the
-----
payment of all taxes, assessments and other charges on or prior to the date when
due;
13.3 Notice of Litigation. Notify FINOVA in writing within five (5) Business
---------------------
Days of becoming aware of any litigation, suit or administrative proceeding
which may materially and adversely affect the Collateral or Borrower's business,
assets, operations, prospects or condition, financial or otherwise, whether or
not the claim is covered by insurance;
13.4 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence of any
-----
event described in Section 4043 of ERISA, other than a termination, partial
termination or merger of a Plan or a transfer of a Plan's assets and (ii) prior
to any termination, partial termination or merger of a Plan or a transfer of a
Plan's assets;
13.5 Change in Location. Notify FINOVA in writing forty-five (45) days prior to
------------------
any change in the location of Borrower's chief executive office or the location
of any Collateral, or Borrower's opening or closing of any other place of
business;
13.6 Partnership Existence. Maintain its limited partnership existence and its
----------------------
qualification to do business and good standing in all states necessary for the
conduct of its business and the ownership of its property and maintain adequate
assets, licenses, patents, copyrights, trademarks and trade names for the
conduct of its business;
13.7 Labor Disputes. Promptly notify FINOVA in writing of any labor dispute to
---------------
which Borrower is or may become subject and the expiration of any labor contract
to which Borrower is a party or bound;
13.8 Violations of Law. Notify FINOVA in writing within five (5) Business Days
-----------------
of becoming aware of any violation of any law, statute, regulation or ordinance
of
- 10 -
<PAGE>
any governmental entity, or of any agency thereof, applicable to Borrower which
may materially and adversely affect the Collateral or Borrower's business,
assets, prospects, operations or condition, financial or otherwise;
13.9 Defaults. Notify FINOVA in writing within five (5) Business Days of
--------
Borrower's default under any note, indenture, loan agreement, mortgage, lease or
other agreement to which Borrower or any of its Affiliates is a party or by
which Borrower or any of its Affiliates is bound, or of any other default under
any Indebtedness of Borrower which has a then outstanding principal balance of
more than $50,000;
13.10 Capital Expenditures. Promptly notify FINOVA in writing of the making of
---------------------
any Capital Expenditure materially affecting Borrower's business, assets,
prospects, operations or condition, financial or otherwise;
13.11 Books and Records. Keep adequate records and books of account with respect
-----------------
to its business activities in which proper entries are made in accordance with
past practice consistently applied, reflecting all of its financial
transactions;
13.12 Leases; Warehouse Agreements. Provide FINOVA with (i) copies of all
------------------------------
agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Collateral may, from time to time, be located, and (ii)
without limiting the landlord and mortgagee waivers to be provided pursuant to
Section 2.1(j) above, landlord and mortgagee waivers in form acceptable to
FINOVA with respect to all locations where any Collateral is hereafter located;
and
13.13 Additional Documents. At FINOVA's request, promptly execute or cause to be
--------------------
executed and delivered to FINOVA any and all documents, instruments or
agreements deemed necessary by FINOVA to facilitate the collection of the
Obligations or the Collateral or otherwise to give effect to or carry out the
terms or intent of this Agreement or any of the other Loan Documents.
13.14 Financial Covenants. Comply with the financial covenants set forth on the
-------------------
Schedule.
14. NEGATIVE COVENANTS.
Without FINOVA's prior written consent, which consent FINOVA may withhold in its
sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, Borrower shall not:
14.1 Mergers. Merge or consolidate with or acquire any other Person, or make any
-------
other material change in its capital structure or in its business or operations
which might adversely affect the repayment of the Obligations;
14.2 Loans. Make advances, loans or extensions of credit to, or invest in, any
-----
Person provided, however, that Borrower may purchase LEC Receivables and make
advances and loans in the ordinary course of its business not to exceed the
aggregate amount of $5,000.00 outstanding at any one time;
14.3 Dividends. Declare or pay cash dividends upon any of its stock or
---------
distribute any of its property or redeem, retire, purchase or acquire directly
or indirectly any of its stock or make any other distributions except, provided
no Event of Default has occurred and is continuing or would result after taking
into effect the results of making the applicable distribution and no event has
occurred and is continuing which, with the giving of notice, passage of time or
both, would become an Event of Default (a) annual distributions to Avery to
reimburse Avery for the amount of taxes actually paid by Avery during the
applicable year which were attributable to Borrower's income, which dividends
shall in no event exceed the lesser of (i) the total income taxes paid by Avery
during the period covered by the distribution or (ii) the amount of income taxes
directly attributable to Borrower's income during the period covered by the
distribution; (b) on the Closing Date, a distribution to Avery in an amount to
be determined by Borrower, provided, that taking into account the effect of such
distribution, Borrower shall have excess availability under the Borrowing Base
("Excess Availability") of not less than $700,000 and (c) quarterly
distributions payable after FINOVA has verified the applicable Total Debt
Service Coverage Ratio measurement for the quarter ending immediately prior to
the date of the proposed distribution (which quarter ends shall correspond with
the measurement dates set forth on the Schedule for measuring Total Debt Service
Coverage Ratio), in an amount to be determined based on the following formula:
(i) if Borrower's Total Debt Service Coverage Ratio is greater than 1.1 to 1.0
for the quarter ending immediately prior to the date of the proposed
distribution and Borrower had an average Excess Availability of $500,000 or more
over the 60 day period immediately preceding the date of measurement of
Borrower's Total Debt Service Coverage Ratio for the applicable quarter, in both
cases after taking into account the effect of the proposed distribution; then up
to $200,000; or (ii) if Borrower's Total Debt Service Coverage Ratio is greater
than 1.5 to 1.0 for the quarter ending immediately prior to the date of the
proposed distribution and Borrower had an average Excess Availability of
$1,500,000 or more over the 60 day period immediately preceding the date of
measurement of Borrower's Total Debt Service Coverage Ratio for the applicable
quarter, in both cases after taking into account the effect of the proposed
distribution; then $200,000 or more.
- 11 -
<PAGE>
14.4 Adverse Transactions. Enter into any transaction which materially and
---------------------
adversely affects the Collateral or its ability to repay the Obligations in full
as and when due;
14.5 Indebtedness of Others. Become directly or contingently liable for the
----------------------
Indebtedness of any Person except by endorsement of instruments for deposit;
14.6 Repurchase. Make a sale to any customer on a bill-and-hold, guaranteed
----------
sale, sale and return, sale on approval, consignment, or any other repurchase or
return basis;
14.7 Name. Use any corporate or fictitious name other than its corporate name as
----
set forth in its Articles or Certificate of Incorporation on the date hereof or
as set forth on the Schedule;
14.8 Prepayment. Prepay any Indebtedness other than trade payables and other
----------
than the Obligations except for prepayments of Subordinated Debt to the extent
permitted by the terms of the subordination agreements applicable thereto;
14.9 Capital Expenditure. Make or incur any Capital Expenditure if, after giving
-------------------
effect thereto, the aggregate amount of all Capital Expenditures by Borrower in
any fiscal year would exceed the amount set forth on the Schedule;
14.10 Compensation. Pay total compensation, including salaries, withdrawals,
------------
fees, bonuses, commissions, drawing accounts and other payments, whether
directly or indirectly, in money or otherwise, during any fiscal year to all of
Borrower's executives, officers and directors (or any relative thereof), in an
amount in excess of the amount set forth on the Schedule;
14.11 Indebtedness. Create, incur, assume or permit to exist any Indebtedness
------------
(including Indebtedness in connection with Capital Leases) in excess of the
amount set forth on the Schedule, other than (i) the Obligations, (ii) trade
payables and other contractual obligations to suppliers and customers incurred
in the ordinary course of business, (iii) Indebtedness which is secured by
Permitted Encumbrances and (iv) other Indebtedness existing on the date of this
Agreement and reflected in the Prepared Financials (except Indebtedness paid on
the date of this Agreement from proceeds of the initial advances hereunder);
14.12 Affiliate Transactions. Except as set forth below, sell, transfer,
-----------------------
distribute or pay any money or property to any Affiliate, or invest in (by
capital contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any Affiliate.
Notwithstanding the foregoing, Borrower may pay compensation permitted by
Section 14.10 to employees who are Affiliates and, if no Event of Default has
occurred, Borrower may (i) pay the dividends permitted pursuant to Section 14.3
above and (ii) Borrower may engage in transactions with Affiliates in the normal
course of business, in amounts and upon terms which are fully disclosed to
FINOVA and which are no less favorable to Borrower than would be obtainable in a
comparable arm's length transaction with a Person who is not an Affiliate.
Borrower may also make payments to Subordinating Creditors in accordance with
the terms of the subordination agreements approved by FINOVA.
14.13 Nature of Business. Enter into any new business other than providing
-------------------
customer service and billing and collection services for, and contracting for
such services on behalf of, Customers and other providers of telecommunications,
internet, enhanced and convergent services or make any material change in any of
Borrower's business objectives, purposes or operations;
14.14 FINOVA's Name. Use the name of FINOVA in connection with any of Borrower's
-------------
business or activities, except in connection with internal business matters or
as required in dealings with governmental agencies and financial institutions or
with trade creditors of Borrower, solely for credit reference purposes and
except in connection with the public recording of financing statements and other
Loan Documents recorded by FINOVA in connection with this Agreement;
14.15 Margin Security. Own, purchase or acquire (or enter into any contract to
---------------
purchase or acquire) any "margin security" as defined by any regulation of the
Federal Reserve Board as now in effect or as the same may hereafter be in
effect; or
14.16 Change of Ownership. Permit or suffer the occurrence of any transfer of
--------------------
more than ten percent (10%) of the issued and outstanding shares of common stock
or other evidence of ownership of Borrower.
15. ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the provisions of this
-----------
Section 15:
(a) the term "Applicable Law" shall include, but shall not be limited to, each
statute named or referred to in this Section 15.1 and all rules and regulations
thereunder, and any other local, state and/or federal laws, rules, regulations
or ordinances, whether currently in existence or hereafter enacted, which
govern, to the extent applicable to the Property or to Borrower, (i) the
existence, cleanup and/or remedy of contamination on real property; (ii) the
protection of the environment from soil, air or water pollution, or from
spilled, deposited or otherwise emplaced contamination; (iii) the emission or
- 12 -
<PAGE>
discharge of hazardous substances into the environment; (iv) the control of
hazardous wastes; or (v) the use, generation, transport, treatment, removal or
recovery of Hazardous Substances;
(b) The term "Hazardous Substance" shall mean (i) any oil, flammable substance,
explosives, radioactive materials, hazardous wastes or substances, toxic wastes
or substances or any other wastes, materials or pollutants which either pose a
hazard to the Property or to persons on or about the Property or cause the
Property to be in violation of any Applicable Law; (ii) asbestos in any form
which is or could become friable, urea formaldehyde foam insulation,
transformers or other equipment which contain dielectric fluid containing levels
of polychlorinated biphenyls, or radon gas; (iii) any chemical, material or
substance defined as or included in the definition of "hazardous substances,"
"waste," "hazardous wastes," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," or "toxic substances" or words of similar import
under any Applicable Law, including, but not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), 42 USC 9601
et seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 USC 6901 et
- -- --- --
seq.; the Hazardous Materials Transportation Act, 49 USC 1801 et seq.; the
- --- -- ---
Federal Water Pollution Control Act, 33 USC 1251 et seq.; (iv) any other
-- ---
chemical, material or substance, exposure to which is prohibited, limited or
regulated by any governmental authority which may or could pose a hazard to the
health or safety of the occupants of the Property or the owners and/or occupants
of property adjacent to or surrounding the Property, or any other person coming
upon the Property or adjacent property; and (v) any other chemical, materials or
substance which may or could pose a hazard to the environment; and
(c) the term "Property" shall mean all real property, wherever located, in which
Borrower or any Affiliate of Borrower has any right, title or interest, whether
now existing or hereafter arising, and including, without limitation, as owner,
lessor or lessee.
15.2 Covenants and Representations.
-----------------------------
(a) Borrower represents and warrants that there have not been during the period
of Borrower's possession of any interest in the Property and, to the best of its
knowledge after reasonable inquiry, there have not been at any other times, any
activities on the Property involving, directly or indirectly, the use,
generation, treatment, storage or disposal of any Hazardous Substances except in
compliance with Applicable Law (i) under, on or in the land included in the
Property, whether contained in soil, tanks, sumps, ponds, lagoons, barrels, cans
or other containments, structures or equipment, (ii) incorporated in the
buildings, structures or improvements included in the Property, including any
building material containing asbestos, or (iii) used in connection with any
operations on or in the Property.
(b) Without limiting the generality of the foregoing and to the extent not
included within the scope of this Section 15.2, Borrower represents and warrants
that it is in full compliance with Applicable Law and has received no notice
from any person or any governmental agency or other entity of any violation by
Borrower or its Affiliates of any Applicable Law.
(c) Borrower shall be solely responsible for and agrees to indemnify FINOVA,
protect and defend FINOVA with counsel and experts reasonably acceptable to
FINOVA, and hold FINOVA harmless from and against any claims, actions,
administrative proceedings, judgments, damages, punitive damages, penalties,
fines, costs, liabilities (including sums paid in settlements of claims),
interest or losses, attorneys' fees (including any fees and expenses incurred in
enforcing this indemnity), consultant fees, expert fees, and other out-of-pocket
costs or expenses actually incurred by FINOVA (collectively, the "Environmental
Costs"), that may, at any time or from time to time, arise directly or
indirectly from or in connection with: (i) the presence, suspected presence,
release or suspected release of any Hazardous Substance whether into the air,
soil, surface water or groundwater of or at the Property, or any other violation
of Applicable Law, or (ii) any breach of the foregoing representations and
covenants; except to the extent any of the foregoing result from the actions of
FINOVA, its employees, agents and representatives. All Environmental Costs
incurred or advanced by FINOVA shall be deemed to be made by FINOVA in good
faith and shall constitute Obligations hereunder.
16. TERM; TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set forth on the
----
Schedule (the "Initial Term") and may, in the sole discretion of FINOVA, be
renewed for successive periods of one (1) year (each, a "Renewal Term"), unless
earlier terminated as provided herein.
16.2 Prior Notice. Each party shall have the right to terminate this Agreement
------------
at the end of the Initial Term or at the end of any Renewal Term by giving the
other party written notice not less than sixty (60) days prior to the effective
date of such termination, by registered or certified mail.
16.3 Payment in Full. Upon the effective date of termination, the Obligations
---------------
shall become immediately due and payable in full in cash.
16.4 Early Termination; Termination Fee. In addition to the procedure set forth
-----------------------------------
in Section 16.2, Borrower may terminate this Agreement at any time but only upon
sixty
- 13 -
<PAGE>
(60) days' prior written notice and prepayment of the Obligations in full in
immediately available funds. Upon any such early termination by Borrower or any
termination of this Agreement by FINOVA upon the occurrence of an Event of
Default, then, and in any such event, Borrower shall pay to FINOVA upon the
effective date of such termination a fee (the "Termination Fee") in an amount
equal to the amount shown on the Schedule.
17. DEFAULT.
17.1 Events of Default. Any one or more of the following events shall constitute
-----------------
an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of the Obligations at
stated maturity, upon acceleration or otherwise;
(b) Borrower or any other Loan Party fails or neglects to perform, keep, or
observe any term, provision, covenant or agreement contained in any Loan
Document to which Borrower or such other Loan Party is a party;
(c) Any material adverse change occurs in Borrower's business, assets,
operations, prospects or condition, financial or otherwise;
(d) Any material portion of Borrower's assets is seized, attached, subjected to
a writ or distress warrant, is levied upon or comes into the possession of any
judicial officer;
(e) Borrower shall generally not pay its debts as they become due or shall enter
into any agreement (whether written or oral), or offer to enter into any
agreement, with all or a significant number of its creditors regarding any
moratorium or other indulgence with respect to its debts or the participation of
such creditors or their representatives in the supervision, management or
control of the business of Borrower;
(f) Any bankruptcy or other insolvency proceeding is (i) commenced by Borrower,
or (ii) commenced against Borrower and remains undischarged or unstayed for
forty-five (45) days from the date of the involuntary petition;
(g) Any notice of a valid lien, levy or assessment is filed of record with
respect to any of Borrower's assets;
(h) Any final judgments are entered against Borrower in an aggregate amount
exceeding $100,000 which are not covered by insurance and which remain
unsatisfied for five (5) business days;
(i) Any default by Borrower shall occur under any capital lease, loan or other
agreement for the payment of money where Borrower is indebted for an amount in
excess of $50,000, between Borrower and any third party including, without
limitation, any default which would result in a right by such third party to
accelerate the maturity of any such Indebtedness of Borrower to such third
party;
(j) Any representation or warranty made or deemed to be made by Borrower, any
Affiliate or any other Loan Party in any Loan Document or any other statement,
document or report made or delivered to FINOVA in connection therewith shall
prove to have been misleading in any material respect; or
(k) Any Prohibited Transaction or Reportable Event shall occur with respect to a
Plan which could have a material adverse effect on the financial condition of
Borrower; any lien upon the assets of Borrower in connection with any Plan shall
arise; Borrower or any of its ERISA Affiliates shall fail to make full payment
when due of all amounts which Borrower or any of its ERISA Affiliates may be
required to pay to any Plan or any Multiemployer Plan as one or more
contributions thereto; Borrower or any of its ERISA Affiliates creates or
permits the creation of any accumulated funding deficiency, whether or not
waived.
17.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may, at its
--------
option and in its sole discretion and in addition to all of its other rights
under the Loan Documents, terminate this Agreement and declare all of the
Obligations to be immediately payable in full. FINOVA shall also have all of its
rights and remedies under applicable law, including, without limitation, the
default rights and remedies of a secured party under the Code. Further, FINOVA
may, at any time, take possession of the Collateral and keep it on Borrower's
premises, at no cost to FINOVA, or remove any part of it to such other place(s)
as FINOVA may desire, or Borrower shall, upon FINOVA's demand, at Borrower's
sole cost, assemble the Collateral and make it available to FINOVA at a place
reasonably convenient to FINOVA. FINOVA may sell and deliver any Collateral at
public or private sales, for cash, upon credit or otherwise, at such prices and
upon such terms as FINOVA deems advisable, at FINOVA's discretion, and may, if
FINOVA deems it reasonable, postpone or adjourn any sale of the Collateral by an
announcement at the time and place of sale or of such postponed or adjourned
sale without giving a new notice of sale. Borrower agrees that FINOVA has no
obligation to preserve rights to the Collateral or marshall any Collateral for
the benefit of any Person. FINOVA is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, name, trade
secrets, trade names, trademarks and advertising matter, or any similar
property, in completing production, advertising or selling any Collateral and
Borrower's rights under all licenses and all franchise agreements shall inure to
FINOVA's benefit. Any requirement of reasonable notice shall be met if such
notice is mailed postage prepaid to Borrower at its
- 14 -
<PAGE>
address set forth in the heading to this Agreement at least five (5) days before
sale or other disposition. The proceeds of sale shall be applied, first, to all
attorneys fees and other expenses of sale, and second, to the Obligations in
such order as FINOVA shall elect, in its sole discretion. FINOVA shall return
any excess to Borrower and Borrower shall remain liable for any deficiency to
the fullest extent permitted by law. FINOVA shall also have the right to reduce
the Total Facility amount, the Borrowing Base or any portion thereof or the
advance rates or to modify the terms and conditions upon which FINOVA is willing
to consider making advances under the Total Facility or to take additional
reserves in the Borrowing Base for any reason.
17.3 Standards for Determining Commercial Reasonableness. Borrower and FINOVA
-----------------------------------------------------
agree that the following conduct by FINOVA with respect to any disposition of
Collateral shall conclusively be deemed commercially reasonable (but other
conduct by FINOVA, including, but not limited to, FINOVA's use in its sole
discretion of other or different times, places and manners of noticing and
conducting any disposition of Collateral shall not be deemed unreasonable): Any
public or private disposition as to which on no later than the fifth calendar
day prior thereto written notice thereof is mailed or personally delivered to
Borrower and, with respect to any public disposition, on no later than the fifth
calendar day prior thereto notice thereof describing in general non-specific
terms, the Collateral to be disposed of is published once in a newspaper of
general circulation in the county where the sale is to be conducted. The public
disposition shall be at any place designated by FINOVA, with or without the
Collateral being present, and which commences at any time between 8:00 a.m. and
5:00 p.m. (PROVIDED THAT NO NOTICE OF ANY PUBLIC OR PRIVATE DISPOSITION NEED BE
GIVEN TO THE BORROWER IF THE COLLATERAL IS PERISHABLE OR THREATENS TO DECLINE
SPEEDILY IN VALUE OR IS OF A TYPE CUSTOMARILY SOLD ON A RECOGNIZED MARKET).
Without limiting the generality of the foregoing, Borrower expressly agrees
that, with respect to any disposition of accounts, instruments and general
intangibles, it shall be commercially reasonable for FINOVA to direct any
prospective purchaser thereof to ascertain directly from Borrower any and all
information concerning the same, including, but not limited to, the terms of
payment, aging and delinquency, if any, the financial condition of any obligor
or account debtor thereon or guarantor thereof, and any collateral therefor.
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following terms have the
--------------
definitions set forth below:
"Accounts" or "accounts" has the meaning ascribed thereto in the Code.
-------- --------
"Advance Date" means, with respect to a Receivable, the date on which Borrower
------------
pays the initial payment to the applicable Customer in connection with the
purchase of such Receivable from such Customer.
"Affiliate" means any Person controlling, controlled by or under common control
---------
with Borrower. For purposes of this definition, "control" means the possession,
directly or indirectly, of the power to direct or cause direction of the
management and policies of any Person, whether through ownership of common or
preferred stock or other equity interests, by contract or otherwise. Without
limiting the generality of the foregoing, each of the following shall be an
Affiliate: any officer, director, employee or other agent of Borrower, any
shareholder or subsidiary of Borrower, and any other Person with whom or which
Borrower has common shareholders, officers or directors.
"Agreements for Billing Services" means the billing services agreements in the
--------------------------------
form delivered by Borrower to FINOVA prior to the date hereof, executed and
delivered by and between Borrower and an Eligible LEC or billing aggregators
acceptable to FINOVA, as the same may from time to time be amended, with such
changes therein as shall be acceptable to FINOVA, and any other billing services
agreement between Borrower and an Eligible LEC entered into after the date
hereof and approved by FINOVA in its sole discretion.
"Approved Customer" means any Customer which meets each of the following
------------------
requirements to FINOVA's satisfaction in the exercise of its sole discretion:
(i) the Customer has a minimum period of operating history acceptable to FINOVA;
(ii) FINOVA shall have reviewed the dilution applicable to such Customer's
Accounts and determined that such dilution rates are acceptable to FINOVA; (iii)
the Customer has management background and experience acceptable to FINOVA and
experience in the telecommunications industry which is also acceptable to
FINOVA; (iv) such Customer shall have executed and delivered the Billing
Services Agreement, and, if it is selling its accounts, or any portion thereof,
to Borrower pursuant to a Supplemental Advance Purchase Agreement, UCC-1
financing statements and security agreements to perfect Borrower's interest in
such Customer's Accounts and Customer lists which financing statements shall
also indicate that FINOVA is the assignee thereof; (v) FINOVA shall have
received copies of the Uniform Commercial Code search and judgment and federal
tax lien searches against such Customer where such Customer's principal place of
business is located, indicating that there are no liens against any of the
accounts of such Customer which Borrower is purchasing; (vi) FINOVA shall have
the right, as assignee of Borrower's rights under the Billing Services
Agreement, to at any time conduct an examination of such Customer's financial
condition, the results of which must be acceptable to FINOVA (the costs of which
examination shall be borne by Borrower at the rate of $1,000.00 per day plus
expenses); (vii) FINOVA shall have approved in
- 15 -
<PAGE>
writing the financing of such Customer's Accounts under the credit facility
established pursuant to this Agreement; and (viii) Borrower shall have submitted
all information and met all conditions on the appropriate Collateral and Credit
Criteria List and shall have submitted a completed Customer Background Form for
such Customer both in form and substance satisfactory to FINOVA in its sole
discretion.
"ATAC" means Alternative Telephone Communications, Inc.
----
"ATAC Receivable" means a LEC Receivable which arises from the submission by
----------------
Borrower to LECs of Accounts purchased from ATAC.
"Avery" means Avery Communications, Inc.
-----
"Billing Services Agreements" means the Billing Services Agreements in the form
----------------------------
delivered by Borrower to FINOVA prior to the date hereof, executed and delivered
by and between Borrower and Approved Customers, as the same may from time to
time be amended, with such changes therein as shall be acceptable to FINOVA, and
any other Billing Services Agreement between Borrower and an Approved Customer
entered into after the date hereof and approved by FINOVA in its sole
discretion.
"Billing Tape" means a billing tape in EMI or other format designated by an
-------------
Eligible LEC and presentable to a LEC in accordance with the applicable
Agreement for Billing Services.
"Borrowing Base" has the meaning set forth in the Schedule.
--------------
"Business Day" means any day on which commercial banks in both Philadelphia,
-------------
Pennsylvania and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred in
---------------------
connection with entering an Agreement for Billing Services and for the
acquisition of any fixed asset or improvement, replacement, substitution or
addition thereto which has a useful life of more than one year and including,
without limitation, those arising in connection with Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance with
-------------
generally accepted accounting principles, should be capitalized for financial
reporting purposes and reflected as a liability on the balance sheet of
Borrower.
"Closing Date" means the date on which this Agreement is executed.
------------
"Code" means the Uniform Commercial Code as adopted and in effect in the State
----
of Arizona from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
----------
"Collateral and Credit Criteria List" means Collateral and credit information
------------------------------------
provided by Borrower to FINOVA for each Customer submitted for approval,
substantially in the form attached hereto as Exhibit "A".
"Customer" means any client of Borrower which is a party to a Billing Services
--------
Agreement.
"Customer Background Form" means a document prepared by a Customer and presented
------------------------
by Borrower to FINOVA for each Customer submitted for approval, substantially in
the form attached hereto as Exhibit "C" as may be modified by FINOVA from time
to time.
"Deposit Accounts" has the meaning set forth in Section 9105 of the Code.
----------------
"Eligible LEC" means any LEC set forth on the Schedule and any other LEC
-------------
hereafter expressly approved by FINOVA in writing.
"Eligible Receivables" means: a LEC Receivable due from an Eligible LEC in each
---------------------
case arising in the ordinary course of the "0+", "1+", operator, internet,
enhanced or convergent services rendered by an Approved Customer which FINOVA,
in its sole judgment, deems to be an Eligible Receivable; provided, however,
that no such Receivable shall be an Eligible Receivable if: (i) such LEC
Receivable is unpaid more than ninety (90) days after the applicable LEC
Confirmation Date; or (ii) with respect to LEC Receivables from a particular
LEC, if twenty-five percent (25%) or more of the LEC Receivables from the LEC
that is the account debtor are not deemed Eligible Receivables of such LEC
hereunder; or (iii) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached; or (iv) the LEC has
disputed liability with respect to a Receivable or has made any claim with
respect to any other LEC Receivable due from the LEC to Borrower, to the extent
of any dispute or claim, or (v) such Receivable is due from or processed by an
account debtor that has commenced a voluntary case under the federal bankruptcy
laws, as now constituted or hereafter amended, or made assignment for the
benefit of creditors, or a decree or order for relief has been entered by a
court having jurisdiction over such account debtor in an involuntary case under
the federal bankruptcy laws, as now constituted or hereafter amended, or any
other petition or other application for relief under the federal bankruptcy laws
has been filed against the account debtor, or if the account debtor has failed,
suspended business, ceased to be solvent, or consented to or suffered a
receiver, trustee, liquidator, or custodian to be appointed for it or for all or
a significant portion of its assets or
- 16 -
<PAGE>
affairs; or (vi) FINOVA believes, in its reasonable judgment, that collection of
such Receivable is insecure or that payment thereof is doubtful or will be
delayed by reason of the LEC's or other account debtor's financial condition; or
(vii) the Receivable is subject to a Lien other than FINOVA's; or (viii) the
Receivable is evidenced by chattel paper or an instrument of any kind or has
been reduced to judgment; or (ix) Borrower has made any agreement with a LEC or
any other account debtors for any deduction therefrom, except for post-billing
adjustments which are made in the ordinary course of business and except as
provided in the applicable Agreement for Billing Services, but only to the
extent of such deduction; or (x) Borrower has made an agreement with the LEC to
extend the time of payment thereof, unless, notwithstanding such agreement,
payment is made within ninety (90) days of the applicable LEC Confirmation Date;
or (xi) such Receivable is subject to setoff, carve-out or other adjustment
under a contract other than a Billing Services Agreement or telecommunications
service contract between an Approved Customer and an End User, to the extent of
such setoff, carve-out or other adjustment; or (xii) such Receivable is a
duplicate billing; or (xiii) such Receivable has not been confirmed by a LEC and
FINOVA has not been supplied with written evidence of such confirmation, in form
and substance acceptable to FINOVA; or (xiv) such LEC Receivable does not arise
from the purchase by Borrower from the Approved Customer originating the End
User Account which has been sold, assigned or transferred to a LEC to create
such LEC Receivable pursuant to the terms set forth in the Agreement for Billing
Services; or (xv) call records for such Receivable have not been subject to
validation acceptable to FINOVA or have dilution rates which are unacceptable to
FINOVA.
"End Users" means Persons to whom a Customer renders telecommunication services.
---------
"End User Accounts" means Receivables arising from services rendered by a
------------------
Customer to End Users of telecommunications services, which accounts have been
purchased by a LEC, from Borrower on behalf of the applicable Customer pursuant
to a Billing Services Agreement, and which have been processed and formatted for
billing on a Billing Tape to be submitted to a LEC. Each End User Account shall
cease to be an End User Account and become a LEC Receivable upon its sale,
assignment, or transfer by Borrower, on behalf of the applicable Customer, to a
LEC for billing and collection pursuant to an Agreement for Billing Services.
"Equipment" means all of Borrower's present and hereafter acquired machinery,
---------
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Borrower's operations or owned by Borrower and any interest in any of the
foregoing, and all attachments, accessories, accessions, replacements,
substitutions, additions or improvements to any of the foregoing, wherever
located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as amended,
-----
and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated and
----------------
whether or not foreign) which is or may hereafter become a member of a group of
which Borrower is a member and which is treated as a single employer under ERISA
Section 4001(b)(1), or IRC Section 414.
"Event of Default" means any of the events set forth in Section 17.1 of this
-----------------
Agreement.
"General Intangibles" means all general intangibles of Borrower, whether now
--------------------
owned or hereafter created or acquired by Borrower, including, without
limitation, any moneys due or to become due and other sums due Borrower from any
LEC under any Agreement for Billing Services or from any billing company under
an Agreement for Billing Services to which Borrower is now or may hereafter
become a party, all monies due or to become due and other sums due Borrower from
a Customer under any Billing Services Agreement to which Borrower is now or
hereafter becomes a party (including, without limitation, all processing fees),
all choses in action, rights under judgments, rights under tort claims, causes
of action, corporate or other business records (including, without limitation,
Billing Tapes), Deposit Accounts, inventions, designs, drawings, blueprints,
patents, patent applications, trademarks and the goodwill of the business
symbolized thereby, names, trade names, trade secrets, goodwill, copyrights,
registrations, licenses, franchises, customer lists, security and other
deposits, rights in all litigation presently or hereafter pending for any cause
or claim (whether in contract, tort or otherwise), and all judgments now or
hereafter arising therefrom, all claims of Borrower against FINOVA, rights to
purchase or sell real or personal property, rights as a licensor or licensee of
any kind, royalties, telephone numbers, proprietary information, purchase
orders, and all insurance policies and claims (including without limitation
credit, liability, property and other insurance) tax refunds and claims,
computer programs, discs, tapes and tape files, claims under guaranties,
security interests or other security held by or granted to Borrower to secure
payment of any of the Receivables by an account debtor, all rights to
indemnification and all other intangible property of every kind and nature
(other than Receivables).
- 17 -
<PAGE>
"Indebtedness" means all of Borrower's present and future obligations,
------------
liabilities, debts, claims and indebtedness, contingent, fixed or otherwise,
however evidenced, created, incurred, acquired, owing or arising, whether under
written or oral agreement, operation of law or otherwise, and includes, without
limiting the foregoing (i) the Obligations, (ii) obligations and liabilities of
any Person secured by a lien, claim, encumbrance or security interest upon
property owned by Borrower, even though Borrower has not assumed or become
liable therefor, (iii) obligations and liabilities created or arising under any
lease (including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower, even
though the rights and remedies of the lessor, seller or lender are limited to
repossession, (iv) all unfunded pension fund obligations and liabilities and (v)
deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
------------
"Intangible Assets" means all assets of any Person which would be classified in
------------------
accordance with GAAP as intangible assets including, without limitation (a) all
franchises, licenses, permits, patents, applications, copyrights, trademarks,
tradenames, goodwill, experimental or organizational expenses and other like
intangibles and (b) investments in and loans to shareholders, directors,
employees, Subsidiaries and Affiliates.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
---------
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease, all raw materials, work in
process, finished goods and materials and supplies of any kind, nature or
description which are or might be used or consumed in Borrower's business or
used in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, merchandise or other personal property, and all
documents of title or other documents representing them.
"IRC" means the Internal Revenue Code of 1986, as amended, and the regulations
---
thereunder.
"LEC" means any Regional Bell Operating Company, Bell Operating Company,
---
independent local exchange company, credit card company or provider of local
telephone services which is a party to any Billing Services Agreements.
"LEC Confirmation Date" means, with respect to a Receivable, the date on which
----------------------
Borrower receives written confirmation of acceptance of such Receivable from the
applicable LEC.
"LEC Receivables" means all Receivables and General Intangibles for money due or
---------------
to become due, and all other debts and any other amounts payable to Borrower by
any LEC.
"Loan Documents" means, collectively, this Agreement, any note or notes executed
--------------
by Borrower and payable to FINOVA, and any other agreement entered into in
connection with this Agreement, together with all alterations, amendments,
changes, extensions, modifications, refinancings, refundings, renewals,
replacements, restatements, or supplements, of or to any of the foregoing.
"Loan Party" means Borrower, each Subordinating Creditor and each other party
----------
(other than FINOVA) to any Loan Document.
"Month-end Reports" means all reports prepared by Borrower on a monthly basis,
------------------
which reports shall include, without limitation, general ledger, trial balance,
financial statements, Receivables and accounts payable agings, agings of
accounts payable accruals and sales and cash receipts journals and a monthly
reconciliation of Receivables and accounts payable and cash.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA Sections
-------------------
3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees of Borrower or
any ERISA Affiliate.
"Notice of Assignment" shall mean, with respect to any Agreement for Billing
---------------------
Services, a letter, in the form attached as Exhibit 7.2 or as may otherwise be
satisfactory in the sole discretion of FINOVA, sent to the applicable LEC, in
which the LEC is notified with respect to the assignment and grant of a security
interest by Borrower to FINOVA of and in all of Borrower's right, title, and
interest in and to all LEC Receivables relating to such Agreement for Billing
Services and directing such LEC to make all payments to the lockbox or Dominion
Account.
"Obligations" means all present and future loans, advances, debts, liabilities,
-----------
obligations, covenants, duties and indebtedness at any time owing by Borrower to
FINOVA, whether evidenced by this Agreement, any note or other instrument or
document, whether arising from an extension of credit, opening of a letter of
credit, banker's acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment and any participation by FINOVA in Borrower's debts owing to others),
absolute or contingent, due or to become due, including, without limitation, all
interest, charges, expenses, fees, attorney's fees, expert witness fees,
examination fees, letter of credit fees, Examination Fees, closing fees, Loan
Fees, Termination Fees, Unused Line Fees, Collateral Management Fees and any
other sums chargeable to
- 18 -
<PAGE>
Borrower hereunder or under any other agreement with FINOVA.
"Overadvance" has the meaning set forth in Section 1.3 hereof.
-----------
"PBGC" means the Pension Benefit Guarantee Corporation.
----
"Permitted Encumbrance" means each of the liens, mortgages and other security
----------------------
interests set forth on the Schedule and incorporated herein by this reference.
"Person" means any individual, sole proprietorship, partnership, joint venture,
------
trust, unincorporated organization, association, corporation, limited liability
entity, government, or any agency or political division thereof, or any other
entity.
"Plan" means any plan described in ERISA Section 3(2) maintained for employees
----
of Borrower or any ERISA Affiliate, other than a Multiemployer Plan.
"Prepared Financials" means the balance sheets of Borrower as of the date set
-------------------
forth in the Schedule, and as of each subsequent date on which audited balance
sheets are delivered to FINOVA from time to time hereunder, and the related
statements of operations, changes in stockholder's equity and changes in cash
flow for the periods ended on such dates.
"Prohibited Transaction" means any transaction described in Section 406 of ERISA
----------------------
which is not exempt by reason of Section 408 of ERISA, and any transaction
described in Section 4975(c) of the IRC which is not exempt by reason of Section
4975(c)(2) of the IRC.
"Receivables" means al of Borrower's now owned and hereafter acquired Accounts
-----------
(whether or not earned by performance or processed and formatted for billing),
proceeds of any letters of credit naming Borrower as beneficiary, contract
rights, chattel paper, instruments, documents (as such terms are defined in the
Code) and all other forms of obligations at any time owing to Borrower, all
guaranties and other security therefor, whether secured or unsecured, all
merchandise returned to or repossessed by Borrower, and all rights of stoppage
in transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.
"Renewal Term" has the meaning set forth on the Schedule.
------------
"Reportable Event" means a reportable event described in Section 4043 of ERISA
or the regulations thereunder, a withdrawal from a Plan described in Section
4063 of ERISA, or a cessation of operations described in Section 4068(f) of
ERISA.
"Shareholder" means any Person who is an owner of any of Borrower's stock.
-----------
"Subordinated Debt" means liabilities of Borrower, the repayment of which is
------------------
subordinated to the payment and performance of the Obligations, pursuant to a
subordination agreement on FINOVA's standard form.
"Subordinating Creditor" means the Persons set forth on the Schedule.
----------------------
"Supplemental Advance Purchase Agreement" means a Hold Billing Services, Ltd.
-----------------------------------------
Supplemental Advance Purchase Agreement in form and substance acceptable to
FINOVA.
"Total Facility" has the meaning set forth on the Schedule.
--------------
"Underwriting Guidelines" means Borrower's procedures for approving a Customer
------------------------
for factoring as set forth on Exhibit "D" attached hereto.
18.2 Other Terms. All accounting terms used in this Agreement, unless otherwise
-----------
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated herein or in the
Schedule, shall have the meanings provided by the Code, to the extent such terms
are defined therein.
19. MISCELLANEOUS.
19.1 Recourse to Security; Certain Waivers. All Obligations shall be payable by
--------------------------------------
Borrower as provided for herein and, in full, at the termination of this
Agreement; recourse to security shall not be required at any time. Borrower
waives presentment and protest of any instrument and notice thereof, notice of
default and, to the extent permitted by applicable law, all other notices to
which Borrower might otherwise be entitled.
19.2 No Waiver by FINOVA. Neither FINOVA's failure to exercise any right, remedy
-------------------
or option under this Agreement, any supplement, the Loan Documents or other
agreement between FINOVA and Borrower nor any delay by FINOVA in exercising the
same shall operate as a waiver. No waiver by FINOVA shall be effective unless in
writing and then only to the extent stated. No waiver by FINOVA shall affect its
right to require strict performance of this Agreement. FINOVA's rights and
remedies shall be cumulative and not exclusive.
19.3 Binding on Successor and Assigns. All terms, conditions, promises,
------------------------------------
covenants, provisions and warranties shall inure to the benefit of and bind
FINOVA's and Borrower's representatives, successors and assigns.
- 19 -
<PAGE>
19.4 Severability. If any provision of this Agreement shall be prohibited or
------------
invalid under applicable law, it shall be ineffective only to such extent,
without invalidating the remainder of this Agreement.
19.5 Amendments; Assignments. This Agreement may not be modified, altered or
------------------------
amended, except by an agreement in writing signed by Borrower and FINOVA.
Borrower may not sell, assign or transfer any interest in this Agreement or any
other Loan Document, or any portion thereof, including, without limitation, any
of Borrower's rights, title, interests, remedies, powers and duties hereunder or
thereunder. Borrower hereby consents to FINOVA's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement and any of the other Loan Documents, or of any portion hereof or
thereof, including, without limitation, FINOVA's rights, title, interests,
remedies, powers and duties hereunder or thereunder (provided any such party to
whom such interest is sold, assigned or transferred assumes FINOVA's obligations
with respect thereto). In connection therewith, FINOVA may disclose all
documents and information which FINOVA now or hereafter may have relating to
Borrower's businesses provided that any such party to whom such information may
be provided shall be under a duty of non-disclosure with respect to such
information. To the extent that FINOVA assigns its rights and obligations
hereunder to a third party, FINOVA shall thereafter be released from such
assigned obligations to Borrower and such assignment shall effect a novation
between Borrower and such third party.
19.6 Integration. This Agreement, together with the Schedule (which is a part
-----------
hereof) and the other Loan Documents, reflect the entire understanding of the
parties with respect to the transactions contemplated hereby.
19.7 Governing Law; Waivers. THIS AGREEMENT SHALL BE INTERPRETED IN ACCORDANCE
-----------------------
WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF THE STATE OF
ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. BORROWER
HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF ARIZONA OR, AT THE SOLE
OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH FINOVA SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. BORROWER WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE.
BORROWER WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS
THAT ALL SUCH SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN SECTION
19.13 HEREOF FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT IT MAY
OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
19.8 Survival. All of the representations and warranties of Borrower contained
--------
in this Agreement shall survive the execution, delivery and acceptance of this
Agreement by the parties. No termination of this Agreement or of any guaranty of
the Obligations shall affect or impair the powers, obligations, duties, rights,
representations, warranties or liabilities of the parties hereto and all shall
survive any such termination.
19.9 Evidence of Obligations. Each Obligation may, in FINOVA's discretion, be
-----------------------
evidenced by notes or other instruments issued or made by Borrower to FINOVA. If
not so evidenced, such Obligation shall be evidenced solely by entries upon
FINOVA's books and records.
19.10 Collateral Security. The Obligations shall constitute one loan secured by
-------------------
the Collateral. FINOVA may, in its sole discretion, (i) exchange, enforce, waive
or release any of the Collateral, (ii) apply Collateral and direct the order or
manner of sale thereof as it may determine, and (iii) settle, compromise,
collect or otherwise liquidate any Collateral in any manner without affecting
its right to take any other action with respect to any other Collateral.
19.11 Application of Collateral. FINOVA shall have the continuing and exclusive
-------------------------
right to apply or reverse and re-apply any and all payments to any portion of
the Obligations. To the extent that Borrower makes a payment or FINOVA receives
any payment or proceeds of the Collateral for Borrower's benefit which is
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, debtor in possession, receiver or any
other party under any bankruptcy law, common law or equitable cause, then, to
such extent, the Obligations or part thereof intended to be satisfied shall be
revived and continue as if such payment or proceeds had not been received by
FINOVA.
19.12 Loan Requests. Each oral or written request for a loan by any Person who
-------------
purports to be any employee, officer or authorized agent of Borrower shall be
made to FINOVA on or prior to 11:00 a.m., Philadelphia time, on the Business Day
on which the proceeds thereof are requested to be paid to Borrower and shall be
conclusively presumed to be made by a Person authorized by Borrower to do so and
the crediting of a loan to Borrower's operating account shall conclusively
establish Borrower's obligation to repay such loan. Unless and until Borrower
otherwise directs FINOVA in writing, all loans shall be wired to Borrower's
operating account set forth on the Schedule.
- 20 -
<PAGE>
19.13 Notices. Any notices or consents required or permitted by this Agreement
-------
shall be deemed given if delivered in person with receipt, sent by telegram
(with messenger service specified) or sent by nationally recognized overnight
courier service, or sent by certified or registered mail postage prepaid, return
receipt requested, or sent by facsimile transmission as follows, unless such
address is changed by written notice hereunder:
If to FINOVA:
FINOVA Capital Corporation
1060 First Avenue
Suite 100
King of Prussia, PA 19406
Attn: Jeffrey D. Weiss
FAX: 610/354-8476
FINOVA Capital Corporation
355 South Grand Avenue
Suite 2400
Los Angeles, CA 90071
Attn: John Bonano
FAX: 213/625-3729
FINOVA Capital Corporation
1850 N. Central Avenue
P.O. Box 2209
Phoenix, AZ 85002-2209
Attn: Joseph D'Amore, Esq.
FAX: 602/207-5036
With copies to:
Blank Rome Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Attn: Lawrence F. Flick, II, Esquire
FAX: 215/569-5555
If to Borrower:
Hold Billing Services, Ltd.
11550 IH-10 West, Suite 285
San Antonio, TX 78230
Attn: David Mechler, Jr.
FAX: 210/690-5165
Avery Communications, Inc.
190 S. LaSalle, Suite 1410
Chicago, IL 60603
Attn: Scot McCormick, CFO
FAX: 312/419-0172
with copies to:
Winstead, Sechrest & Minick
5400 Rennaissance Tower
1201 Elm Street
Dallas, TX 75270
Attn: Bruce Cheatham, Esquire
FAX: 214/745-5390
19.14 Brokerage Fees. Borrower represents and warrants to FINOVA that, with
---------------
respect to the financing transaction herein contemplated, no Person is entitled
to any brokerage fee or other commission and Borrower agrees to pay any fee or
commission due to such Person and to indemnify and hold FINOVA harmless against
any and all such claims.
19.15 Disclosure. No representation or warranty made by Borrower in this
----------
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to Borrower
or which reasonably should be known to Borrower which Borrower has not disclosed
to FINOVA in writing with respect to the transactions contemplated by this
Agreement which materially and adversely affects the business, assets,
operations, prospects or condition (financial or otherwise), of Borrower.
19.16 Publicity. FINOVA is hereby authorized to issue appropriate press releases
---------
and to cause a tombstone to be published announcing the consummation of this
transaction and the aggregate amount thereof.
19.17 Captions. The Section titles contained in this Agreement are without
--------
substantive meaning and are not part of this Agreement.
19.18 Injunctive Relief. Borrower recognizes that, in the event Borrower fails
-----------------
to perform, observe or discharge any of its Obligations under this Agreement,
any remedy at law may prove to be inadequate relief to FINOVA. Therefore,
FINOVA, if it so requests, shall be entitled to temporary and permanent
injunctive relief in any such case without the necessity of proving actual
damages.
19.19 Counterparts. This Agreement may be executed in one or more counterparts,
------------
each of which taken together shall constitute one and the same instrument.
19.20 Construction. The parties acknowledge that each party and its counsel have
------------
reviewed this Agreement and that the normal rule of construction to the effect
that any ambiguities are to be resolved against the drafting party shall not be
employed in the interpretation of this Agreement or any amendments or exhibits
hereto.
19.21 Time of Essence. Time is of the essence for the performance by Borrower of
---------------
the Obligations set forth in this Agreement.
19.22 Limitation of Actions. Borrower agrees that any claim or cause of action
---------------------
by Borrower against FINOVA, or any of FINOVA's directors, officers, employees,
agents, accountants or attorneys, based upon, arising from, or relating to this
Agreement, or any other present or future agreement with FINOVA, or any other
transaction
- 21 -
<PAGE>
contemplated hereby or thereby or relating hereto or thereto, or any other
matter, cause or thing whatsoever, whether or not relating hereto or thereto,
occurred, done, omitted or suffered to be done by FINOVA, or by FINOVA's
directors, officers, employees, agents, accountants or attorneys, whether
sounding in contract or in tort or otherwise, shall be barred unless asserted by
Borrower by the commencement of an action or proceeding in a court of competent
jurisdiction by the filing of a complaint within one year after the first act,
occurrence or omission upon which such claim or cause of action, or any part
thereof, is based and service of a summons and complaint on an officer of FINOVA
or any other person authorized to accept service of process on behalf of FINOVA,
within 60 days thereafter. Borrower agrees that such one-year period of time is
a reasonable and sufficient time for Borrower to investigate and act upon any
such claim or cause of action. The one-year period provided herein shall not be
waived, tolled, or extended except by a specific written agreement of FINOVA.
This provision shall survive any termination of this Loan Agreement or any other
agreement.
19.23 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable for any
---------
indirect, special, incidental or consequential damages in connection with any
breach of contract, tort or other wrong relating to this Agreement or the
Obligations or the establishment, administration or collection thereof
(including without limitation damages for loss of profits, business
interruption, or the like), whether such damages are foreseeable or
unforeseeable, even if FINOVA has been advised of the possibility of such
damages. Neither FINOVA, nor any FINOVA Affiliate shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by the Borrower through the ordinary negligence of FINOVA,
or any FINOVA Affiliate. "FINOVA Affiliate" shall mean FINOVA's directors,
officers, employees, agents, attorneys or other person or entity affiliated with
or representing FINOVA.
19.24 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written notice
--------------------------
of (i) any action or inaction by FINOVA or any attorney of FINOVA in connection
with any Loan Documents that may be actionable against FINOVA or any attorney of
FINOVA or (ii) any defense to the payment of the Obligations for any reason,
including, but not limited to, commission of a tort or violation of any
contractual duty or duty implied by law. Borrower agrees that unless such notice
is fully given as promptly as possible (and in any event within thirty (30)
days) after Borrower has knowledge, or with the exercise of reasonable diligence
should have had knowledge, of any such action, inaction or defense, Borrower
shall not assert, and Borrower shall be deemed to have waived, any claim or
defense arising therefrom.
19.25 Withholding and Other Tax Liabilities: FINOVA shall have the right to
---------------------------------------
refuse to make any advances from time to time unless Borrower shall, at FINOVA's
request, have given to FINOVA evidence, reasonably satisfactory to FINOVA, that
Borrower has properly deposited or paid, as required by law, all withholding
taxes and all federal, state, city, county or other taxes due up to and
including the date of the loan. Until all of Borrower's liabilities and
obligations to FINOVA have been indefeasibly paid and satisfied in full, FINOVA
shall be entitled to continue to hold any and all of the Collateral until
Borrower has given to FINOVA evidence, reasonably satisfactory to FINOVA, that
Borrower has properly deposited or paid, as required by law, all federal
withholding taxes due up to and including the date of such expiration or
termination. Copies of validated deposit slips showing payment shall likewise
constitute satisfactory evidence for such purpose. In the event that any lien,
assessment or tax liability against Borrower shall arise in favor of any taxing
authority, whether or not notice thereof shall be filed or recorded as may be
required by law, FINOVA shall have the right (but shall not be obligated, nor
shall FINOVA hereby assume the duty) upon reasonable prior notice to Borrower to
pay any such lien, assessment or tax liability by virtue of which such charge
shall have arisen; provided, however, that FINOVA shall not pay any such tax,
assessment or lien if the amount, applicability or validity thereof is being
contested in good faith and by appropriate proceedings by Borrower and further
provided that Borrower's title to and its right to use, the Collateral is not
adversely affected and FINOVA's lien and priority in the Collateral are not
affected, altered or impaired thereby. In order to pay any such lien, assessment
or tax liability, FINOVA shall not be obliged to wait until said lien,
assessment or tax liability is filed before taking such action as hereinabove
set forth. Any sum or sums which FINOVA shall have paid for the discharge of any
such lien shall be added to the Revolving Loans and shall be paid by Borrower to
FINOVA with interest thereon, upon demand, and FINOVA shall be subrogated to all
rights of such taxing authority against Borrower. FINOVA may establish reserves
against the Borrowing Base for any amounts paid by FINOVA pursuant to this
paragraph or for any amounts being contested in good faith under this paragraph.
- 22 -
<PAGE>
19.26 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH HEREBY
-------------------------------------
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; (ii) ANY OTHER
PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND BORROWER; OR (iii)
ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR ANY OF THEIR DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH
FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT
OR TORT OR OTHERWISE.
Borrower:
HOLD BILLING SERVICES, LTD.
By: HBS, Inc., its sole general partner
By: _______________________________
Scot McCormick, Vice President
Attest:____________________________
Secretary or Ass't Secretary
Tax I.D. No. 74-2719274
FINOVA CAPITAL CORPORATION
By_______________________________
Title____________________________
<PAGE>
EXHIBIT 4.19
FINOVA
Schedule to
Loan and Security Agreement
Borrower: HOLD BILLING SERVICES, LTD
Address: 11550 IH-10 West, Suite 285
San Antonio, Texas 78230
Date: March __, 1997
This Schedule forms an integral part of the Loan and Security Agreement between
the above Borrower and FINOVA Capital Corporation ("FINOVA") dated the above
date, and all references herein and therein to "this Agreement" shall be deemed
to refer to said Agreement and to this Schedule.
TOTAL FACILITY (Section 1.1):
SEVEN MILLION FIVE HUNDRED THOUSAND DOLLARS ($7,500,000)
LOANS (Section 1.2):
Revolving Loans: a revolving line of credit consisting of loans against
---------------
Borrower's Eligible Receivables in an aggregate outstanding principal amount not
to exceed the lesser of:
(a) an amount equal to the amount of the Total Facility,
or
(b) an amount equal to a maximum of seventy five percent
(75%)of the net amount of Eligible Receivables ("LEC Advance Percentage");
provided, however, that the amount available under the foregoing formula with
respect to any given Eligible Receivable shall in no event exceed the amount
advanced by Borrower to the Approved Customer in connection with Borrower's
purchase of the applicable LEC Receivable (the "Borrowing Base").
Notwithstanding the foregoing, in the event that FINOVA shall deem ATAC
to be an Approved Customer, loans against Eligible Receivables which are ATAC
Receivables shall in no event exceed the lesser of (a) $200,000 or (b) an amount
which is equal to seventy-five percent (75%) of the face amount of all ATAC
Receivables which are Eligible Receivables.
For the purposes of this section, absent an Event of Default, the LEC
Advance Percentage shall initially be seventy three percent (73%). Provided,
however, that for every increase in the LEC Dilution Factor by one percentage
point (1.0%) in excess of fifteen percent (15%), the LEC Advance Percentage
shall decrease by up to two percentage points (2.0%). If the LEC Dilution Factor
decreases to fourteen percent (14%) or lower, FINOVA may, in its sole
discretion, increase the LEC Advance Percentage to seventy-five (75%) percent.
<PAGE>
In addition, FINOVA shall determine the LEC Dilution Factor, in its
reasonable discretion, based on the results of its periodic field examinations
or on such other information as may be available to FINOVA from time to time.
CONDITIONS PRECEDENT (Section 2.1):
The obligation of FINOVA to make the initial advance hereunder is
subject to the fulfillment, to the satisfaction of FINOVA and its counsel, of
each of the following conditions, in addition to the conditions set forth in
Sections 2.1 and 2.2 of the Agreement: (a) Borrower shall have excess borrowing
availability under the Borrowing Base of not less than $500,000, after giving
effect to the initial advance hereunder and after having paid in full or making
provision for payment in full of all of Borrower's accounts payable outstanding
beyond thirty (30) days of their due date and all book overdrafts; (b) Borrower
shall have delivered to FINOVA those certain Validity and Support Agreements in
form and substance satisfactory to FINOVA signed by Harold D. Box and David W.
Mechler, Jr., respectively; (c) FINOVA must have reviewed all Agreements for
Billing Services and Billing Services Agreements and related arrangements and
found such contracts and arrangements satisfactory in form and substance to
FINOVA; (d) there shall have been no material adverse change, as of the Closing
Date, in the business, operations, profits or prospects of Borrower, or in the
condition of the assets of Borrower from that which was represented by the
financial information, dated December 31, 1996, delivered by Borrower to FINOVA;
(e) FINOVA shall have reviewed and found acceptable, in its sole discretion, the
Partnership Interest Purchase Agreement dated as of May 3, 1996 among Avery
Communications, Inc., Avery Acquisition Sub, Inc., Hold Billing & Collection,
L.C., Joseph W. Webb, James A. Young, Edward L. Dunn, Philip S. Dunn, Harold D.
Box and David W. Mechler, Jr. and all amendments thereto and FINOVA will have
received evidence satisfactory to FINOVA, in its sole discretion, that present
and former owners have invested (and continues to have invested) in Borrower at
least One Million ($1,000,000) Dollars in cash equity; (f) Borrower shall have
provided FINOVA with Subordination Agreements, in form and substance acceptable
to FINOVA, executed respectively by Harold D. Box, David W. Mechler, Jr. and
Home Owners Long Distance Incorporated; (g) Borrower shall have delivered duly
executed and recordable UCC-3 assignment forms assigning to FINOVA all UCC-1
financing statements filed by Borrower against its Customers; and (h) Borrower
shall have delivered to FINOVA employment contracts, in form and substance
acceptable to FINOVA, covering David W. Mechler, Jr. and Harold D. Box. Borrower
shall cause the conditions precedent set forth in Section 2.1 of this Agreement
and set forth above in this Schedule to be satisfied on or before the date of
the initial advance hereunder.
S-2
<PAGE>
INTEREST AND FEES (Section 3.1):
Interest. Borrower shall pay FINOVA interest on the daily outstanding
--------
balance of Borrower's Revolving Loans at the "Contract Rate." The Contract Rate
shall equal one and one half percentage points (1.50%) in excess of the Base
Rate. The Base Rate shall equal the "prime rate" of Citibank, N.A. as announced
from time to time by Citibank, N.A. as its "prime rate". The interest rate
chargeable hereunder shall be increased or decreased, as the case may be,
without notice or demand of any kind, upon any change in the Base Rate. Each
change in the Base Rate shall be effective hereunder on the day of any change in
Citibank, N.A.'s "prime rate". Interest charges and all other fees and charges
herein shall be computed on the basis of a year of 360 days and actual days
elapsed and shall be payable to FINOVA in arrears on the first day of each
month. Upon the occurrence and continuance of an Event of Default, interest
shall accrue at two percentage points (2.0%) in excess of the rate set forth
above.
Unused Line Fee. Borrower shall pay to FINOVA an unused line fee equal
---------------
to one-half of one percent (.50%) per annum of the unused portion of the Total
Facility. The unused line fee shall be deemed fully earned at the time when due
and is payable monthly commencing upon the first day of the month after the date
of this Agreement and continuing on the first day of every month thereafter.
Loan Fee. Borrower shall pay to FINOVA a loan fee in an amount equal to
--------
Seventy Five Thousand Dollars ($75,000), which has been fully earned as of the
Closing. The Loan Fee shall be payable in thirty-six (36) equal, consecutive
monthly installments of $2,083.34 each commencing on the Closing Date and
continuing on the first day of each month thereafter, provided, however, that if
an Event of Default shall occur, the Loan Fee shall become immediately due and
payable in full without notice or demand. In the event of any early termination
of the Agreement the entire balance of the Loan Fee shall be due and owing on
the date of termination without notice or demand of any nature.
Examination Fees. Borrower agrees to pay to FINOVA a fee in the amount
----------------
of Six Hundred Dollars ($600) per person per day, plus all costs and expenses of
such persons, in connection with each examination, audit or visitation by FINOVA
prior to or after the date hereof (which, absent the occurrence of an Event of
Default, will be limited to one examination per calendar quarter).
Collateral Management Fee. Borrower agrees to pay to FINOVA a
----------------------------
collateral management fee in the amount of $1,000.00 per month payable monthly
in arrears on the first day of each month commencing with the first month after
the date of this Agreement and continuing on the first day of every month
thereafter.
S-3
<PAGE>
REPORTING REQUIREMENTS (Section 5.2)(all to be in form and substance acceptable
to FINOVA):
1. Borrower shall provide FINOVA with monthly schedules of open advances by LEC
and Customer aged by Advance Date within ten (10) days after the end of each
month.
2. Borrower shall provide FINOVA with monthly accounts payable agings aged by
invoice date, and outstanding or held check registers within ten (10) days after
the end of each month.
3. Borrower shall provide FINOVA with internally prepared monthly unaudited
financial statements within thirty (30) days after the end of each month.
4. Borrower shall provide FINOVA with annual operating budgets (including income
statements, balance sheets and cash flow statements, by month, together with a
list of all material assumptions made by Borrower in preparing such annual
operating budgets) for the upcoming fiscal year of Borrower, in draft form, not
more than thirty (30) days after the end of each fiscal year of Borrower and
upon approval of Borrower's Board of Directors, not more than thirty (60) days
after the end of each fiscal year of Borrower.
5. Borrower shall, upon FINOVA's request, provide FINOVA with certified Federal
excise tax receipts and state and local utility tax receipts.
BORROWER INFORMATION:
Borrower's State of Registration (Section 12.1): Texas
Fictitious Names/Prior Names/Mergers (Section 12.2): HBC Financial Services,
Ltd. is a trade name
Borrower and Collateral Locations (Section 12.16): 11550 IH-10 West, Suite 285,
San Antonio, TX 78230
Eligible LECs (Section 18.1): New England Telephone and Telegraph Company
Bell South
Bell Atlantic Operating Telephone Companies
Nevada Bell
Sprint Operating Telephone Company
Southwestern Bell Telephone Company
Pacific Bell
U.S. West Communications, Inc.
Ameritech
GTE Telephone Operations
New York Telephone Company
FINANCIAL COVENANTS (Section 13.14):
Borrower shall comply with all of the following covenants. Compliance shall
be determined as of the end of each quarter, except as otherwise specifically
provided below:
S-4
<PAGE>
Total
Debt Service Borrower shall have and maintain at all times a Total Debt
Coverage Ratio. Service Coverage ratio greater than the ratio set forth below
- --------------
for the periods corresponding thereto:
Ratio Quarter Ending
1.1 to 1.0 November 30, 1997 and all fiscal
quarters thereafter (which end on the
last day of each February, May, August
and November of each year)
As used in this section and throughout the Agreement,
Total Debt Service Coverage Ratio shall equal the
ratio of (A) Operating Cash Flow-Actual; to (B) Total
Debt Service.
The calculation of Total Debt Service Coverage Ratio
shall be performed quarterly on a twelve (12) month
rolling basis (except for any period prior to
February 28, 1998 for which measurements shall be on
a cumulative basis relating back to April 1, 1997).
All calculations shall be based on the profit and
loss statements of Borrower, prepared in accordance
with generally accepted accounting principles.
NEGATIVE COVENANTS (Section 14):
Capital Expenditures: Borrower shall not make or incur any Capital
- --------------------
Expenditure if, after giving effect thereto, the
aggregate amount of all Capital Expenditures by
Borrower in any fiscal year would exceed $150,000.
Indebtedness: Borrower shall not, other than as permitted in
Section 14.11 of the Agreement, create, incur, assume
or permit to exist any additional Indebtedness
(including Indebtedness in connection with Capital
Leases).
TERM (Section 16.1):
The initial term of this Agreement shall be three (3) years from the date
hereof (the "Initial Term") and may automatically be renewed for successive
periods of one (1) year each upon the express written agreement of FINOVA (each,
a "Renewal Term"), unless earlier terminated as provided in Section 16 or 17
above or elsewhere in this Agreement.
TERMINATION FEE (Section 16.4):
The Termination Fee provided in Section 16.4 shall be an amount equal to
the following percentage of the Total Facility:
(i) three percent (3%), if such termination occurs prior to the first
anniversary of this Agreement;
(ii) two percent (2%), if such termination occurs on or after the first
anniversary of this Agreement but prior to the second anniversary of this
Agreement; and
S-5
<PAGE>
(iii) one percent (1%), if such termination occurs on or after the
second anniversary of this Agreement but prior to the third anniversary of this
Agreement.
Notwithstanding the foregoing, provided no Event of Default has occurred
and is continuing and no event has occurred and is continuing which, with the
giving of notice, passage of time or both, will become an Event of Default, and
provided further that there has not occurred any material adverse change in
Borrower's business or financial condition from the date of the Closing,
Borrower may request in writing that the Total Facility amount be increased,
with all other terms and conditions set forth in the Agreement to remain
unchanged (including, without limitation, provisions regarding pricing, fees and
the expiry date of the credit facility). If FINOVA elects not to increase the
Total Facility amount when the conditions set forth in the immediately preceding
sentence are satisfied, in the reasonable judgment of FINOVA, then the
Termination Fee described above will be waived by FINOVA provided Borrower
obtains a new credit facility in the amount of the requested increased Total
Facility amount or in a greater amount on terms and conditions substantially the
same as contained in the Agreement within 90 days of FINOVA's rejection of such
request. If Borrower terminates the facility but has not replaced FINOVA in
compliance with the foregoing by the end of the aforementioned 90 day period,
the Termination Fee shall be immediately due and payable at the expiration of
such period. Borrower shall be liable for the full Termination Fee if
termination occurs for any other reason other than as expressly set forth above.
ADDITIONAL DEFINITIONS (Section 18.1):
"EBITDA" means the following, without duplication, for any period, each
------
calculated for such period: (A) net income plus (B) any
----
provision for (or less any benefit from ) income and franchise
taxes included in the determination of net income; plus (C)
----
interest expense deducted in the determination of net income;
plus (D) amortization and depreciation deducted in the
----
determination of net income; plus (E) losses (or less gains)
----
from asset dispositions or other non-cash items (excluding
sales, expenses or losses related to Current Assets) included
in the determination of net income; less (F) after tax
----
extraordinary gains (or plus after tax extraordinary losses);
less (G) all management fees and distributions to Avery to the
----
extent not deducted in the calculation of net income above,
each of the above as calculated in accordance with generally
accepted accounting principles, consistently applied.
"Fiscal Year" Borrower's fiscal years each ending December 31.
-----------
"GAAP" means generally accepted accounting principles as set forth in
----
statements from Auditing Standards No. 69 entitled "The
Meaning of "Present Fairly in Conformance with Generally
Accepted Accounting Principles in the Independent Auditors
Reports" issued by the Auditing Standards Board of the
American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting
Standards Board (or any successor authority) that are
applicable to the circumstances as of the date of
determination.
"Investment" means, with respect to any Person, any loan, advance,
----------
extension of credit, capital contribution to, investment in or
purchase of the stock or other securities of, or interests in,
any other Person; provided, that "Investment" shall not
include current customer and trade accounts which are payable
in accordance with customary trade terms.
"LEC Dilution
Factor" means the average, as calculated by FINOVA, of the dilution
- ------
factors charged by LECs to Borrower, calculated as a
percentage, (a) the numerator of which is all non-cash
reductions to LEC Receivables made by LECs; (b) the
denominator of which
S-6
<PAGE>
is equal to confirmed billings under the Billing Tapes
transmitted by Borrower directly to LECs.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary
(including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement
to give any security interest).
"Operating Cash
Flow-Actual" for any period, Borrower's EBITDA less (A) all Capital
- -----------
Expenditures actually made by Borrower during such period not
financed; and (B) any income or franchise taxes actually paid
by Borrower.
"Permitted
Encumbrances" means the following types of Liens:
- ------------
(a) Liens or deposits for taxes, assessments or other
governmental charges not yet due and payable or, if due and
payable, which are being contested in good faith and for which
adequate reserves have been established in accordance with
GAAP but only if such Liens have not been filed or recorded;
(b) Statutory Liens of landlords, carriers, warehouseman,
mechanics, materialmen and other similar liens imposed by law,
which are incurred in the ordinary course of business for sums
not more than thirty (30) days delinquent or which are being
contested in good faith; provided, that a reserve or other
appropriate provision, if any, as shall be required by GAAP,
shall have been made therefor;
(c) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation,
unemployment insurance and other types of social security, or
to secure the performance of tenders, statutory obligations,
surety, stay, customs and appeal bonds, bids, leases,
government contracts, trade contracts, performance and
return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);
(d) Deposits, in an aggregate amount not to exceed $100,000
made in the ordinary course of business to secure liability to
insurance carriers;
(e) Liens for purchase money obligations permitted hereunder
not to exceed $50,000 in the aggregate;
(f) Leases or subleases granted to others and licenses of
intellectual property granted to others, in any such case not
interfering in any material respect with the business or
property of any Loan Party;
(g) Easements, rights-of-way, restrictions, zoning
restrictions, encroachments, protrusions and other similar
charges or encumbrances or other Liens which appear on the
title policies, commitments or surveys delivered to and
approved by FINOVA, with respect to easements, rights of way,
restrictions, encroachments, protrusions, other similar
charges or encumbrances, which are hereafter replaced on the
property, in each case (i) not interfering in any material
respect with the ordinary conduct of the business of any Loan
Party or the value of any collateral, (ii) not affecting the
perfection or the priority of the Liens granted in favor of
FINOVA, and (iii)
S-7
<PAGE>
otherwise not interfering in any material respect with the
Liens granted in favor of FINOVA.
(h) Any interest or title of a lessor or sublessor under any
lease permitted by this Agreement; and
(i) Liens arising from filing Uniform Commercial Code
financing statements regarding leases permitted by this
Agreement.
"Prepared
Financials" means the balance sheets of Borrower as of December 31, 1996,
- ----------
and as of each subsequent date on which audited balance sheets
are delivered to FINOVA from time to time hereunder, and the
related statements of operations, changes in stockholder's
equity and changes in cash flow for the periods ended on such
dates.
"Senior Debt
Service" for any period, the sum of payments made or required to be
- -------
made by Borrower during such period for the following (i)
interest on the Loans; (ii) fees payable to FINOVA pursuant to
this Agreement; and (iii) payments associated with a Capital
Lease.
"Subordinating
Creditors" means Harold D. Box, David W. Mechler, Jr. and Home Owners
- ---------
Long Distance Incorporated.
"Total Debt
Service" for any period, the sum of payments made (or, as to clause (i)
- -------
of this sentence, required to be made) by Borrower during such
period for the following: (i) Senior Debt Service and (ii)
principal and interest payments on the Subordinated Debt.
DISBURSEMENT (Section 19.12):
Unless and until Borrower otherwise directs FINOVA in writing, all loans
shall be wired to Borrower's following operating account: NationsBank of Texas
ABA#___________, Account #186-1142-108 To Credit HOLD BILLING SERVICES, LTD.
S-8
<PAGE>
Borrower:
HOLD BILLING SERVICES, LTD.
By: HBS, Inc.
By:________________________________
Scot McCormick, Vice President
Attest:____________________________
Secretary or Ass't Secretary
Borrower's Tax I.D. No.: _________
FINOVA CAPITAL CORPORATION
By:______________________________
Title:____________________________
<PAGE>
EXHIBIT 4.20
AMENDMENT TO LOAN AND SECURITY AGREEMENT AND
SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------
This Amendment to Loan and Security Agreement and Schedule to Loan and
Security Agreement ("Amendment") dated as of the ____ day of February 1998 is by
and between HOLD BILLING SERVICES, LTD., a Texas limited partnership
("Borrower") and FINOVA CAPITAL CORPORATION ("FINOVA").
BACKGROUND
----------
A. On March 25, 1997, Borrower and FINOVA entered into a certain Loan
and Security Agreement ("Loan Agreement"), a certain Schedule to Loan and
Security Agreement ("Schedule") and certain related agreements and instruments
to reflect financing arrangements between the parties thereto (collectively the
"Loan Documents"). All capitalized terms used herein without definition shall
have the meanings ascribed thereto in the Loan Agreement and the Schedule
B. The Borrower and FINOVA have agreed, subject to the terms and
conditions of this Amendment, to modify and amend certain terms of their
financing arrangements.
NOW THEREFORE, with the foregoing Background deemed incorporated by
reference herein and made a part hereof, the parties hereto, intending to be
legally bound, hereby promise and agree as follows:
1. AMENDMENTS:
----------
1.1 The definition of "Total Facility" set forth in the
Schedule is deleted and replaced with the following:
Ten Million Dollars ($10,000,000).
2. PAYMENT TO SUBORDINATED CREDITOR
--------------------------------
Notwithstanding the terms of that certain Subordination
Agreement dated March 25, 1997 among FINOVA, Borrower and Home Owners Long
Distance Incorporated ("Subordinated Creditor"), FINOVA hereby consents to
Borrower's repayment of the principal amount of Six Hundred Fifty Thousand
Dollars ($650,000.00), or such lesser amount outstanding on the date hereof,
plus all accrued but unpaid interest thereon, owing to Subordinated Creditor.
Borrower represents and warrants to FINOVA that after such payment is made to
Subordinated Creditor, it shall no longer be indebted to Subordinated Creditor.
Borrower agrees that it shall not incur any additional indebtedness owing to
Subordinated Creditor without the written consent of FINOVA.
3. FURTHER ASSURANCES
------------------
Borrower hereby agrees to take all such actions and to execute
and/or deliver to FINOVA all such documents, assignments, financing statements
and other documents as FINOVA may reasonably require from time to time, to
effectuate and implement the purposes of this Amendment.
<PAGE>
4. CONFIRMATION OF COLLATERAL
--------------------------
Borrower hereby confirms its existing grant to FINOVA of a
security interest in the Collateral. Borrower hereby confirms that all security
interests at any time granted by them to FINOVA continue in full force and
effect and secure and shall continue to secure the liabilities and obligations
of Borrower so long as any such liabilities or obligations remain outstanding
and that all assets subject thereto remain free and clear of any liens or
encumbrances other than those in favor of FINOVA or as specifically set forth in
the Agreement and exhibits thereto.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby reaffirms all representations and warranties
made to FINOVA under the Loan Agreement and all of the other Loan Documents and
confirms that all are true and correct as of the date hereof. Borrower further
represents and warrants that it has the authority and legal right to execute,
deliver and carry out the terms of this Amendment, that such actions were duly
authorized by all necessary limited partnership action on the part of Borrower
and that the parties executing this Amendment on its behalf were similarly
authorized and empowered, and that this Amendment does not contravene any
provisions of its Agreement of Limited partnership or Certificate of Limited
Partnership, or of any contract or agreement to which it is a party or by which
any of its properties is bound. Borrower reaffirms all of the covenants
contained in the Agreement and covenants to abide thereby until all of the Loans
and other liabilities and obligations of Borrower to FINOVA, of whatever nature
and whenever incurred, are satisfied and/or released by FINOVA.
6. CONDITIONS PRECEDENT
--------------------
The Amendment shall not be effective until the following
conditions have been met to the sole satisfaction of FINOVA:
(a) Borrower shall have executed and delivered to FINOVA this
Amendment;
(b) Borrower shall have furnished to FINOVA appropriate
resolutions adopted by the Board of Directors of its corporate general partner
authorizing the execution and delivery of this Amendment and all such other
documents as are required hereunder or which FINOVA shall reasonably require in
addition hereto;
(c) FINOVA shall have received from Borrower an additional
facility fee in an amount equal to Twenty-five Thousand Dollars ($25,000) in
good cleared funds; and
(d) Borrower shall have executed and delivered to FINOVA a
restated promissory note in the principal amount of $10,000,000 in form and
substance acceptable to FINOVA.
7. PAYMENT OF EXPENSES
-------------------
- 2 -
<PAGE>
Borrower shall pay or reimburse FINOVA for its reasonable
attorneys' fees and expenses in connection with the preparation, negotiation and
execution of this Amendment and the documents provided for herein or related
hereto.
8. REAFFIRMATION OF EXISTING AGREEMENT
-----------------------------------
Except as modified by the terms hereof, all of the terms and
conditions of the Loan Agreement, and Schedule and all of the other Loan
Documents are hereby reaffirmed and shall continue in full force and effect as
therein written. In the event of any express inconsistency between the terms of
this Amendment and the terms of any of the Loan Documents, the terms hereof
shall govern.
9. MISCELLANEOUS
-------------
(a) Third Party Rights. No rights are intended to be created
-------------------
hereunder for the benefit of any third party donee, creditor, or incidental
beneficiary.
(b) Headings. The headings of any paragraph of this Amendment
--------
are for convenience only and shall not be used to interpret any provision
hereof.
(c) Other Instruments. Borrower agrees to execute any other
------------------
documents, instruments and writings, in form satisfactory to FINOVA, as FINOVA
may reasonably request to carry out the intentions of the parties hereunder.
(d) Modifications. No modification hereof or any agreement
-------------
referred to herein shall be binding or enforceable unless in writing and signed
on behalf of the party against whom enforcement is sought.
(e) Governing Law. The terms and conditions of this Amendment
--------------
shall be governed by the laws of the State of Arizona.
(f) Counterparts. This Amendment may be executed in one or
------------
more counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date above
written.
HOLD BILLING SERVICES, LTD. FINOVA CAPITAL CORPORATION
By: HBS, INC., its sole general partner By:____________________________
By:__________________________
- 3 -
<PAGE>
Scott McCormick, Vice President
Attest:________________________________
Secretary or Assistant Secretary
- 4 -
<PAGE>
By their execution hereof, each of the undersigned acknowledge and agree that
the Validity and Support Agreements executed by them on March 25, 1997 in favor
of FINOVA continue in full force and effect.
- -----------------------------------------
Harold Box
- -----------------------------------------
David Mechler
<PAGE>
EXHIBIT 4.21
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT AND
SCHEDULE TO LOAN AND SECURITY AGREEMENT
---------------------------------------
This Second Amendment to Loan and Security Agreement and Schedule to
Loan and Security Agreement ("Amendment") dated as of the ____ day of April,
1998 is by and between HOLD BILLING SERVICES, LTD., a Texas limited partnership
("Borrower") and FINOVA CAPITAL CORPORATION ("FINOVA").
BACKGROUND
----------
A. On March 25, 1997, Borrower and FINOVA entered into a certain Loan
and Security Agreement (as amended from time to time, "Loan Agreement"), a
certain Schedule to Loan and Security Agreement (as amended from time to time,
"Schedule") and certain related agreements and instruments to reflect financing
arrangements between the parties thereto (collectively the "Loan Documents").
All capitalized terms used herein without definition shall have the meanings
ascribed thereto in the Loan Agreement and the Schedule.
B. The Borrower and FINOVA have agreed, subject to the terms and
conditions of this Amendment, to modify and amend certain terms of their
financing arrangements.
NOW THEREFORE, with the foregoing Background deemed incorporated by
reference herein and made a part hereof, the parties hereto, intending to be
legally bound, hereby promise and agree as follows:
1. AMENDMENTS:
----------
1.1 The limit on Capital Expenditures referenced in Section
14.9 of the Loan Agreement and described in Section 14 of the Schedule is
increased by replacing the description in Section 14 of the Schedule as follows:
Capital Expenditures: Borrower shall not make or
---------------------
incur any Capital Expenditure if, after giving effect
thereto, the aggregate amount of all Capital
Expenditures by Borrower in its fiscal year ending
December 31, 1998 would exceed $600,000 or, in each
fiscal year thereafter, $150,000.
2. DISTRIBUTIONS TO AVERY
----------------------
Notwithstanding the terms of Section 14.3 of the Loan
Agreement, FINOVA consents to a distribution by Borrower to Avery of $1,450,000,
to occur prior to August 10, 1998 and upon prior written notice to FINOVA, to
enable Avery to purchase certain investors' equity interests in Avery, provided
that not less than $1,150,000 of the proceeds of such distribution are used
solely for such purposes and the balance to be used for working capital and no
Event of Default is outstanding at the time of such distribution or would occur
after taking into account the effects of such distribution.
<PAGE>
3. FURTHER ASSURANCES
------------------
Borrower hereby agrees to take all such actions and to execute
and/or deliver to FINOVA all such documents, assignments, financing statements
and other documents as FINOVA may reasonably require from time to time, to
effectuate and implement the purposes of this Amendment.
4. CONFIRMATION OF COLLATERAL
--------------------------
Borrower hereby confirms its existing grant to FINOVA of a
security interest in the Collateral. Borrower hereby confirms that all security
interests at any time granted by them to FINOVA continue in full force and
effect and secure and shall continue to secure the liabilities and obligations
of Borrower so long as any such liabilities or obligations remain outstanding
and that all assets subject thereto remain free and clear of any liens or
encumbrances other than those in favor of FINOVA or as specifically set forth in
the Agreement and exhibits thereto.
5. REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower hereby reaffirms all representations and warranties
made to FINOVA under the Loan Agreement and all of the other Loan Documents and
confirms that all are true and correct as of the date hereof. Borrower further
represents and warrants that it has the authority and legal right to execute,
deliver and carry out the terms of this Amendment, that such actions were duly
authorized by all necessary limited partnership action on the part of Borrower
and that the parties executing this Amendment on its behalf were similarly
authorized and empowered, and that this Amendment does not contravene any
provisions of its Agreement of Limited partnership or Certificate of Limited
Partnership, or of any contract or agreement to which it is a party or by which
any of its properties is bound. Borrower reaffirms all of the covenants
contained in the Agreement and covenants to abide thereby until all of the Loans
and other liabilities and obligations of Borrower to FINOVA, of whatever nature
and whenever incurred, are satisfied and/or released by FINOVA.
6. CONDITIONS PRECEDENT
--------------------
The Amendment shall not be effective until the following
conditions have been met to the sole satisfaction of FINOVA:
(a) Borrower shall have executed and delivered to FINOVA this
Amendment and FINOVA shall have executed this Amendment; and
(b) FINOVA shall have received from Borrower an amendment fee
in an amount equal to Twenty Thousand Two Hundred Dollars ($20,200) in good
cleared funds.
7. PAYMENT OF EXPENSES
-------------------
- 2 -
<PAGE>
Borrower shall pay or reimburse FINOVA for its reasonable
attorneys' fees and expenses in connection with the preparation, negotiation and
execution of this Amendment and the documents provided for herein or related
hereto.
8. REAFFIRMATION OF EXISTING AGREEMENT
-----------------------------------
Except as modified by the terms hereof, all of the terms and
conditions of the Loan Agreement, and Schedule and all of the other Loan
Documents are hereby reaffirmed and shall continue in full force and effect as
therein written. In the event of any express inconsistency between the terms of
this Amendment and the terms of any of the Loan Documents, the terms hereof
shall govern.
9. ADDITIONAL FEE
--------------
Borrower acknowledges that it has already made a distribution
to Avery of the type described in Section 2 of this Amendment in the amount of
$450,000. Contemporaneously with the making of any further distributions to
Avery as permitted in Section 2 hereof, Borrower shall pay to FINOVA a
non-refundable fee in the amount of $44,800.00, in good cleared funds.
10. MISCELLANEOUS
-------------
(a) Third Party Rights. No rights are intended to be created
-------------------
hereunder for the benefit of any third party donee, creditor, or incidental
beneficiary.
(b) Headings. The headings of any paragraph of this Amendment
--------
are for convenience only and shall not be used to interpret any provision
hereof.
(c) Other Instruments. Borrower agrees to execute any other
------------------
documents, instruments and writings, in form satisfactory to FINOVA, as FINOVA
may reasonably request to carry out the intentions of the parties hereunder.
(d) Modifications. No modification hereof or any agreement
-------------
referred to herein shall be binding or enforceable unless in writing and signed
on behalf of the party against whom enforcement is sought.
(e) Governing Law. The terms and conditions of this Amendment
--------------
shall be governed by the laws of the State of Arizona.
- 3 -
<PAGE>
(f) Counterparts. This Amendment may be executed in one or
------------
more counterparts, each of which shall be deemed an original, and all of which
taken together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed and delivered by their duly authorized officers as of the date above
written.
HOLD BILLING SERVICES, LTD. FINOVA CAPITAL CORPORATION
By: HBS, INC., its sole general partner By:____________________________
By:____________________________________
Scott McCormick, Vice President
Attest:________________________________
Secretary or Assistant Secretary
- 4 -
<PAGE>
By their execution hereof, each of the undersigned acknowledge and agree that
the Validity and Support Agreements executed by them on March 25, 1997 in favor
of FINOVA continue in full force and effect.
- -----------------------------------------
Harold Box
- -----------------------------------------
David Mechler
<PAGE>
EXHIBIT 4.22
FINOVA
SECURED REVOLVING CREDIT NOTE
$7,500,000 March , 1997
--
FOR VALUE RECEIVED, the undersigned, HOLD BILLING SERVICES, LTD. (the
"Undersigned"), a Texas limited partnership with a principal place of business
at 11550 IH-10 West, Suite 285, San Antonio, Texas 78230, hereby promises to pay
to FINOVA CAPITAL CORPORATION ("FINOVA"), or order, at 355 South Grand Avenue,
Suite 2400, Los Angeles, California 90071 or at such other address as the holder
may specify in writing, the principal sum of Seven Million Five Hundred Thousand
Dollars ($7,500,000), or such lesser sum which represents the principal balance
of Loans outstanding under the Total Facility established pursuant to the
provisions of that certain Loan and Security Agreement dated of even date
herewith, between the Undersigned and FINOVA (as amended from time to time, the
"Agreement"), plus interest in the manner and upon the terms and conditions set
forth below. This Secured Revolving Credit Note ("Note") is made pursuant to the
Agreement, the provisions of which are incorporated herein by this reference.
Capitalized terms herein, unless otherwise noted, shall have the meaning set
forth in the Agreement. The actual amount due and owing hereunder shall be
evidenced by FINOVA's records of receipts and disbursements with respect to
Loans, which records shall be conclusive of such amount due and owing under the
Agreement.
1.0 RATE AND PAYMENT OF INTEREST.
The outstanding principal balance of this Note shall bear interest at a
per annum rate of one and one-half percentage points (1.5%) in excess of the
Base Rate. The interest rate chargeable hereunder shall be increased or
decreased, as the case may be, without notice or demand of any kind, upon the
announcement of any change in the Base Rate. Each change in the Base Rate shall
be effective hereunder on the first day following the announcement of such
change. Interest charges and all other fees and charges herein shall be computed
on the basis of a year of 360 days and actual days elapsed and shall be payable
to FINOVA in arrears on the first day of each month hereafter at its address set
forth above. Accrued but unpaid interest under this Note shall be due and
payable on the first day of each month, commencing April 1, 1997, and at
maturity, on which date all interest remaining unpaid shall be due and payable.
<PAGE>
2.0 SCHEDULE OF PRINCIPAL PAYMENTS.
A final installment of all outstanding principal, accrued and unpaid
interest and all other sums payable pursuant to the Loan Documents on the
expiration of the Initial Term or any Renewal Term as agreed to by FINOVA
pursuant to the Loan Documents, unless due earlier pursuant to the terms of the
Agreement.
3.0 PREPAYMENT.
Prepayment may be made under this Note in whole or in part, subject to
the Termination Fee, as applicable, as set forth in the Agreement.
4.0 HOLDER'S RIGHT OF ACCELERATION.
If the Agreement is terminated for any reason whatsoever, or if there
shall occur an Event of Default or if this Note is not paid when due, the entire
remaining principal balance and all accrued and unpaid interest and other fees
and charges with respect to this Note shall, at FINOVA's option, become
immediately due and payable.
5.0 HOLDER'S RIGHTS UPON DEFAULT.
If any Event of Default occurs, then from the date such Event of
Default occurs, in addition to any agreed upon charges, the principal balance of
this Note shall thereafter, at FINOVA's option, bear interest at two percentage
points (2.0%) per annum in excess of the rate set forth in Section 1.0, computed
on the basis of a year of three hundred sixty (360) days and the actual number
of days elapsed.
6.0 ADDITIONAL RIGHTS OF HOLDER.
If any installment of principal or interest hereunder is not paid when
due, the holder shall have, in addition to the rights set forth herein, in the
Agreement and under law, the right to compound interest by adding the unpaid
interest to principal, with such amount thereafter bearing interest at the rate
provided in this Note.
7.0 General Provisions.
- 2 -
<PAGE>
7.1 If this Note is not paid when due or upon the occurrence of an
Event of Default, the Undersigned further promises to pay all costs of
collection, foreclosure fees, reasonable attorneys' fees and expert
witness fees incurred by the holder, whether or not suit is filed
hereon, and the fees, costs and expenses as provided in the Agreement.
7.2 The Undersigned hereby consents to any and all renewals,
replacements and/or extensions of time for payment of this Note before,
at or after maturity.
7.3 The Undersigned hereby consents to the acceptance, release or
substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest and notice of
protest are hereby expressly waived by the Undersigned.
7.5 The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to the
principal balance of this Note in accordance with the provisions of
this Note; (ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance with the
provisions hereof including, without limitation, after entry of a
judgment; and (iii) all Additional Sums (as herein defined), if any.
The Undersigned agrees to pay an effective contracted for rate of
interest which is the sum of the above-referenced elements. All
examination fees, attorneys' fees, expert witness fees, letter of
credit fees, collateral monitoring fees, closing fees, Loan Fees,
Termination Fees, Unused Line Fees, minimum interest charges, other
charges, goods, things in action or any other sums or things of value
paid or payable by the Undersigned (collectively, the "Additional
Sums), whether pursuant to this Note, the Agreement or any other
documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction,
that under any applicable law may be deemed to be interest with respect
to this lending transaction, for the purpose of any applicable law that
may limit the maximum amount of interest to be charged with respect to
this lending transaction, shall be payable by the Undersigned as, and
shall be deemed to be, additional interest and for such purposes only,
the agreed upon and "contracted for rate of interest" of this lending
transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
- 3 -
<PAGE>
It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is
agreed that notwithstanding any provisions to the contrary in this
Note, or in any of the documents securing payment hereof or otherwise
relating hereto, in no event shall this Note or such documents require
the payment or permit the collection of interest in excess of the
maximum contract rate permitted by the Applicable Usury Law (the
"Maximum Interest Rate"). In the event (a) any such excess of interest
otherwise would be contracted for, charged or received from the
Undersigned or otherwise in connection with the Loans evidenced hereby,
(b) the maturity of indebtedness evidenced by this Note is accelerated
in whole or in part, or (c) all or part of the principal or interest of
this Note shall be prepaid, so that under any of such circumstances the
amount of interest contracted for, shared or received in connection
with the Loans evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1) the provisions of this paragraph shall
govern and control, (2) neither the Undersigned nor any other person or
entity now or hereafter liable for the payment hereof shall be
obligated to pay the amount of such interest to the extent that it is
in excess of the Maximum Interest Rate, (3) any such excess which may
have been collected shall be either applied as a credit against the
then unpaid principal amount hereof or refunded to the Undersigned, at
FINOVA's option, and (4) the effective rate of interest shall be
automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the
extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such
rate would exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the period of
the full stated term of the Loans evidenced hereby, all interest at any
time contracted for, charged or received from the Undersigned or
otherwise in connection with such Loans; and (y) in the event that the
effective rate of interest on the Loans should at any time exceed the
Maximum Interest Rate, such excess interest that would otherwise have
been collected had there been no ceiling imposed by the Applicable
Usury Law shall be paid to FINOVA from time to time, if and when the
effective interest rate on the Loans otherwise falls below the Maximum
Interest Rate, to the extent that interest paid to the date of
calculation does not exceed the Maximum Interest Rate, until the entire
amount of interest which would otherwise have been collected had there
been no ceiling imposed by the Applicable Usury Law has been paid in
full. The Undersigned further agrees that should the Maximum Interest
Rate be increased at any time hereafter because of a
- 4 -
<PAGE>
change in the Applicable Usury Law, then to the extent not prohibited
by the Applicable Usury Law, such increases shall apply to all
indebtedness evidenced hereby regardless of when incurred; but, again
to the extent not prohibited by the Applicable Usury Law, should the
Maximum Interest Rate be decreased because of a change in the
Applicable Usury Law, such decreases shall not apply to the
indebtedness evidenced hereby regardless of when incurred.
7.6 No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other
right.
7.7 No waiver by the holder of this Note upon any one occasion shall be
effective unless in writing nor shall it be construed as a bar or
waiver of any right or remedy on any future occasion.
7.8 Time is of the essence for the performance by the Undersigned of
the obligations set forth in this Note.
7.9 Should any one or more of the provisions of this Note be determined
illegal or unenforceable, all other provisions shall nevertheless
remain effective.
7.10 This Note cannot be changed, modified, amended or terminated
orally.
7.11 This Note shall be governed by, construed and enforced in
accordance with the laws of the State of Arizona, without reference to
the principles of conflicts of laws thereof.
7.12 THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS NOTE AND ACKNOWLEDGES THAT FINOVA ALSO WAIVES SUCH
RIGHT.
8.0 SECURITY FOR THIS NOTE.
This Note is secured pursuant to the Agreement and is subject to all of
the terms and conditions thereof, including, but not limited to, the remedies
specified therein.
IN WITNESS WHEREOF, this Secured Revolving Credit Note has been
executed and delivered as of the date first set forth above.
HOLD BILLING SERVICES, LTD.
- 5 -
<PAGE>
By: HBS, Inc., its sole
general partner
By:_____________________________
Name: Title:
Attest:_________________________
Tax I.D. No.:
- 6 -
<PAGE>
EXHIBIT 5.1
[Letterhead of Winstead Sechrest & Minick P.C.]
July 20, 1999
Avery Communications, Inc.
190 South LaSalle Street, Suite 1710
Chicago, Illinois, 60603
Re: Opinion re Legality
Avery Communications, Inc.
10,611,650 Shares of Common Stock
Registration Statement on Form SB-2 (File No. 333-65133)
Ladies and Gentlemen:
We have acted as counsel to Avery Communications, Inc., a Delaware
corporation (the "Company"), in connection with the Company's registration
statement on Form SB-2 (as the same may be amended or supplemented from time to
time, the "Registration Statement") filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Act"), to register for resale from time to time up to 11,788,186 shares (the
"Shares") of common stock, par value $0.01 per share (the "Common Stock") of the
Company by the selling securityholders named therein.
This opinion is being furnished in accordance with the requirements of
Item 601(b)(5) of Regulation S-B under the Act.
In rendering the opinions expressed herein, we have examined originals
or copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement, (ii) the Company's Certificate of Incorporation and all
amendments thereto, (iii) the Company's Amended and Restated Bylaws, as amended,
(iv) minutes of meetings or consents in lieu of meetings of the Company's Board
of Directors and stockholders, and (v) such other corporate records and
documents, certificates of corporate and public officials and statutes as we
have deemed necessary for the purposes of this opinion.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and the
authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have
<PAGE>
Avery Communications, Inc.
July 20, 1999
Page 2
assumed that such parties had or will have the power, corporate or others, to
enter into and perform all obligations thereunder and have also assumed the due
authorization by all requisite action, corporate or other, and execution and
delivery by such parties of such documents and the validity and binding effect
thereof. As to any facts material to the opinions expressed herein which we have
not independently established or verified, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon such examination and in reliance thereon, we are of the
opinion that, when the Registration Statement becomes effective under the Act,
the Shares, when sold, will be duly authorized, validly issued, fully paid and
nonassessable.
Our opinions herein are limited in all respects to the substantive law
of the State of Texas, the General Corporation Law of the State of Delaware, and
the federal laws of the United States of America, and we do not express any
opinion as to the applicability of or the effect thereon of the laws of any
jurisdiction. We express no opinion as to any matter other than as set forth
herein, and no opinion may be inferred or implied herefrom.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement. In giving our consent, we do not hereby admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or the rules and regulations of the Commission thereunder.
Very truly yours,
/s/ WINSTEAD SECHREST & MINICK P.C.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (this "Agreement"), made as of July 1, 1998,
by and among Avery Communications, Inc., a Delaware corporation (hereinafter
referred to as the "Company"), and Patrick J. Haynes, III (hereinafter referred
to as "Employee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Company desires to employ the services of Employee as its
Chairman of the Board, President and Chief Executive Officer under the terms and
conditions set forth herein; and
WHEREAS, Employee desires to provide such services for the Company
under the terms and conditions set forth herein.
THEREFORE, in consideration of the mutual covenants undertaken herein,
and with the intent to be legally bound hereby, the parties hereby agree as
follows:
1. Employment. The Company hereby agrees to employ Employee and
----------
Employee hereby agrees to said employment in accordance with the terms and
conditions hereinafter set forth.
2. Term. Employment herewith shall commence as of July 1, 1998 (the
----
"Effective Date"), and continue through June 30, 2003 (the "Termination Date"),
unless otherwise terminated pursuant to the terms hereof. This Agreement may be
extended for additional one year periods upon the mutual agreement of Employee
and the Company.
3. Location. Employer's duties hereunder shall be performed in the
--------
Chicago, Illinois, area. Employer agrees to maintain offices for the Company at
190 South LaSalle Street, Suite 1910, Chicago, Illinois 60603, or such other
address in the financial district of downtown Chicago as is selected by the
Board of Directors as the principal executive offices of the Company, and to
provide all equipment, supplies and other items required for the performance of
the Employee's duties under this Agreement at such address.
4. Duties. From and after the Effective Date through the Termination
------
Date, Employee shall serve as Chairman of the Board, President and Chief
Executive Officer and as a member of the Board of Directors of the Company, and
with Employee's consent, each operating affiliate, provided that Employee shall
not be obligated to become or remain an officer of any Company affiliate (i)
whose organization documents do not provide indemnification provisions
reasonably satisfactory to Employee and (ii) which is not covered by the
directors' and officers' liability policy referred to in Paragraph 8 hereof.
Employee shall be responsible for the overall business of the Company and its
subsidiaries, including strategic planning, management recruiting, strategic
relationships, capital formation, operations reviews and oversight, and investor
and financial community relations.
<PAGE>
5. Compensation.
------------
(a) For all services rendered by Employee in any capacity during his
employment under this Agreement (including, without limitation, services as an
executive, officer, or director of the Company, or any subsidiary or affiliate
of the Company, or as a member of any committee of the Board of Directors of the
Company ("Board") or any subsidiary or affiliate of the Company), the Company
shall pay Employee as compensation an annual salary ("Base Salary"). Effective
the Effective Date and until adjusted in accordance with the provisions hereof,
Base Salary shall be paid at the rate of not less than $200,000.00 per year.
(b) Employee shall be eligible for annual cash bonuses of up to 100% of
Employee's Base Salary, the amount of such bonus to be determined by the Board
based on Employee's attainment of certain performance goals as established by
the Board or a committee designated by the Board relating to the Company's
annual business plan/budget, such as the consummation of strategic business
relationships, the raising of additional debt and equity capital, the level of
appreciation in the publicly traded price of the Company's common stock, and
such other performance goals as may be specified by the Board. Such annual cash
bonuses determined by the Board shall be paid no later than 90 days following
the close of the fiscal year to which such bonus relates.
(c) Employee's Base Salary shall be payable in accordance with the
customary payroll practices of the Company, but in no event less frequently than
monthly. All salary and bonus compensation paid to Employee pursuant to this
Agreement shall be subject to the usual and customary federal and state tax
withholding and other employment taxes as required with respect to compensation
paid by Employer to its salaried personnel.
(d) Employee's Base Salary shall be reviewed on an annual basis. Such
review shall be conducted by the Board or a committee designated by the Board.
Such review shall take into consideration the Employee's performance, duties,
and responsibilities. As a result of such review, the Board may increase but not
decrease Employee's base salary. At the end of Employee's first employment
anniversary (June 30, 1999), Employee shall be eligible for a Base Salary
increase of ten percent provided Employee is performing at a satisfactory level.
6. Stock Warrants and Options.
--------------------------
(a) Employee will be granted warrants (the "Stock Warrants") to
purchase up to 420,000 shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), which Stock Warrants will be exercisable as to each
tranche of shares through the day immediately preceding the third (3rd)
anniversary of the vesting date of such tranche at a price of $3.00 per share,
and the Stock Options shall become vested in accordance with the following
schedule: 140,000 shares upon signing of this Employment Agreement, and an
additional 140,000 shares on July 1, 1999 and 2000.
- 2 -
<PAGE>
Employee shall also be entitled to participate in any other stock
option or stock incentive plans adopted from time to time by the Company
(collectively, the "Stock Plans"). The resale of the Common Stock issued or to
be issued on exercise of the Stock Warrants and such other options that may be
granted to Employee under the Stock Plans (collectively, "Options") shall be
registered on a Registration Statement on Form S-8 (including a "reoffer
Prospectus" prepared in accordance with Part I of Form S-3) filed with the
Securities and Exchange Commission ("SEC") pursuant to the applicable provisions
of the Securities Act of 1933, as amended (the "1933 Act"), within sixty (60)
days following the date the Company is eligible to file a Registration Statement
on Form S-8 with the SEC; provided, however, that such Registration Statement
shall be amended, or a new Registration Statement shall be filed, so as to
permit Employee to sell such shares of Common Stock without regard to the volume
requirements specified in Rule 144(e) under the 1933 Act, which amendment or new
Registration Statement shall be filed with the SEC within thirty (30) days of
the time that the Company satisfies the registrant requirements for use of Form
S-3. The Company will use its best efforts to cause the grant of the Options and
other awards under the Stock Plans (collectively, "Awards"), and the sale of
shares of Common Stock to the Company in payment of the exercise price thereof
or in payment of withholding or other taxes in connection with such Awards, to
be exempt from liability under Section 16(b) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), pursuant to Rule 16b-3 thereunder.
The Stock Warrants and the Awards and the shares of Common Stock issued
or to be issued pursuant to the Stock Warrants and the Awards shall have the
registration rights referred to in, and the Stock Warrants shall be subject to
the anti-dilution adjustments set forth in, the Stock Warrant Certificate
attached hereto as Exhibit A.
Notwithstanding anything else to the contrary contained herein, the
Stock Warrants and the Awards, whether or not vested or earned at the time,
shall be vested and earned in their entirety immediately upon a "Change in
Control" (as such term is defined in subparagraph (b) of this Paragraph 6
below).
(b) Change in Control. For purposes of this Agreement, a "Change in
-----------------
Control" shall mean the occurrence, after the Effective Date, of any of the
following events, directly or indirectly or in one or more series of
transactions: (i) approval by the Board of a consolidation or merger of the
Company with any third party (which includes a single person or entity or a
group of persons or entities acting in concert, other than those persons and
entities who or which are included within the definition of the "Shareholder
Group" set forth in subparagraph (f) of this Paragraph 6 below, and the group
created thereby (collectively, the "Existing Group")) not wholly owned directly
or indirectly by the Company (any such third party, other than the Existing
Group or a member thereof, being hereinafter referred to as a "Third Party"),
unless the Company is the entity surviving such merger or consolidation; (ii)
approval by the Board of a transfer, in one or a series of transactions, of all
or substantially all of the assets of the Company to a Third Party or a complete
liquidation or dissolution of the Company; (iii) a Third Party (other than an
employee benefit plan or related trust sponsored or maintained by the Company or
one of its subsidiaries), directly or indirectly, through one or more
subsidiaries or transactions or acting in concert with one or more persons or
entities: (A) acquires beneficial ownership of more than 30% of the classes of
stock of the Company entitled
- 3 -
<PAGE>
to vote generally in the election of directors of the Company ("Voting Stock");
(B) acquires irrevocable proxies representing more than 30% of the Voting Stock;
(C) acquires any combination of beneficial ownership of Voting Stock and
irrevocable proxies representing more than 30% of the Voting Stock; (D) acquires
the ability to control in any manner the election of a majority of the directors
of the Company; or (E) acquires the ability to directly or indirectly exercise a
controlling influence over the management or policies of the Company; (iv) any
election has occurred of persons to the Board that causes a majority of the
Board to consist of persons other than (A) persons who were members of the Board
on the Effective Date and/or (B) persons who were nominated for election as
members of the Board by the Board (or a committee of the Board) at a time when
the majority of the Board (or of such committee) consisted of persons who were
members of the Board on the Effective Date; provided, however, that any persons
nominated for election by the Board (or a committee of the Board), a majority of
whom are persons described in clauses (A) and/or (B), or are persons who were
themselves nominated by such Board (or a committee of such Board), shall for
this purpose be deemed to have been nominated by a Board composed of persons
described in clause (A); or (v) a determination is made by the Securities and
Exchange Commission ("SEC") or any similar agency having regulatory control over
the Company that a change in control, as defined in the securities laws or
regulations then applicable to the Company, has occurred. Notwithstanding any
provision contained herein, a Change in Control shall not include any of the
above described events if they are the result of a Third Party's inadvertently
acquiring beneficial ownership or irrevocable proxies or a combination of both
for 30% or more of the Voting Stock, and the Third Party as promptly as
practicable thereafter divests itself of beneficial ownership or irrevocable
proxies for a sufficient number of shares so that the Third Party no longer has
beneficial ownership or irrevocable proxies or a combination of both for 30% or
more of the Voting Stock.
7. Fringe Benefit Plans. The payments provided for in this Agreement,
--------------------
except where specifically provided otherwise, are in addition to any other
benefits to which Employee may be, or may become, entitled under any of the
Company's or Employer's group hospitalization, health, dental care, and/or
sick-leave plans; provided, however, that if no such plans are then in full
force and effect, or if the Employee is not eligible, or does not elect, to
participate therein, the Company shall reimburse or pay on behalf of Employee
any costs and expenses incurred by the Employee in providing such coverage for
himself and his dependents; life, other insurance and/or death benefit plans;
travel and/or accident insurance plans; deferred compensation plans; capital
accumulation programs; restricted and/or stock purchase plans; stock option
plans; retirement income and/or pension plans; supplemental pension plans;
excess benefit plans; short- and long-term disability programs; and other
present and future group employee benefit plans and programs for which Company
or Employer executives are or shall become eligible. Employee shall be eligible
to receive, during the period of his employment under this Agreement and during
any subsequent period for which he shall be entitled to receive payments from
the Company or Employer under Paragraph 12, all of the foregoing benefits and
emoluments for which executives are eligible under every such plan and program
to the extent permissible under the general terms and provisions of such plans
and programs and in accordance with the provisions thereof. Nothing contained in
this Agreement shall prevent the Board from amending or otherwise altering any
such plan, program, or arrangement as long as such amendment or alteration
equitably affects all the Company's executive officers (of the level of vice
president or above). Employer will provide the Employee with, or
- 4 -
<PAGE>
reimburse Employee for, any and all costs of purchasing or leasing an automobile
of his choice during the term of this Agreement.
8. Employee and Employer Representations. Employee hereby represents
--------------------------------------
and warrants to the Company that (i) the execution, delivery and performance of
this Agreement by Employee do not and will not conflict with, breach, violate or
cause a default under any contract, agreement, instrument, order, judgment or
decree to which Employee is a party or is presently bound, and (ii) Employee is
not a party to or bound by any employment agreement, non-competition agreement
or confidentiality agreement with any other person or entity, and the execution
and delivery by Employee of this Agreement and the performance by Employee of
his duties and obligations hereunder will not conflict with, breach, violate or
cause a default under the terms and provisions of any such agreement. The
Company hereby represents that it will maintain directors' and officers'
liability insurance in an amount of no less than $3,000,000, and that Employee
will be covered under such policy while serving in all capacities contemplated
hereby.
9. Business Expenses. Employer shall reimburse Employee for all
------------------
reasonable business and professional expenses incurred by Employee in connection
with his employment within thirty (30) days of Employer's receipt of vouchers,
receipts or other appropriate documentation.
10. Vacation. Employee shall be entitled to an annual vacation of not
--------
more than four (4) weeks. Scheduling of each vacation shall be with the
reasonable consent of Employer.
11. Professional Education. Employee's attendance at professional
-----------------------
seminars shall be decided on an ad hoc basis by Employer and Employee.
12. Term of Employment. The term of the Employee's employment shall
-------------------
commence on the Effective Date and shall continue for the period set forth in
Paragraph 2 above unless sooner terminated as hereunder provided:
a. By Employer, "For Cause," as that term is defined below, upon
ten (10) days' written notice to Employee.
b. Upon the death of Employee.
c. By Employee, up to ten (10) days after written notice to
Employer of resignation by Employee (which time period shall
be in the sole discretion of Employer).
d. If Employee fails to perform his duties under this Agreement
on account of Disability (as hereinafter defined), Employer
may give notice to Employee to terminate this Agreement on a
date not less than thirty (30) days thereafter ("Notice
Period"), and, if Employee has not resumed full performance of
his duties under this Agreement within such Notice Period,
then Employee's employment under this Agreement will terminate
on the date provided in the notice. As used in this Agreement,
the term "Disability" shall mean the complete inability of
Employee to perform his duties
- 5 -
<PAGE>
under this Agreement by reason of his total and permanent
disability, as determined by an independent physician selected
with the approval of the Board and Employee. During any period
of Disability, Employer shall maintain and pay for health
insurance benefits for Employee at least equal to those he had
at the commencement of such Disability.
e. By Employee, in the event Employer is in material breach of
any of its obligations hereunder and such breach is not cured
within thirty (30) days of written notice thereof from
Employee. A material breach of Employer's obligations under
this Agreement includes, without limitation, (i) a material
change in Employee's reporting structure, responsibilities or
obligations under this Agreement without Employee's prior
written consent, or (ii) Employee's Base Salary, as in effect
on the Effective Date or as the same may be increased by the
Board from time to time, is reduced unless such reduction is
agreed to by Employee in writing; or (iii) the Company
requires Employee to be based somewhere other than Chicago,
Illinois.
f. By Employee if there shall occur a Change in Control.
For purposes of this Agreement, "For Cause" shall mean (i) the
conviction of Employee of either (A) a felony (excluding traffic violations) or
(B) any crime in connection with Employee's employment by the Company that
causes the Company a substantial and material financial detriment; (ii) the
commission of any other act involving dishonesty or fraud with respect to
Employer; (iii) substantial and repeated failure to perform duties as reasonably
directed by Employer that are permitted by law and necessary to implement
policies or procedures or other actions adopted, authorized or approved by the
Board of Directors of the Company and which, if Employee is not a member of the
Board of Directors of the Company, have been communicated to Employee in
writing, which failure is not cured within fifteen (15) days after written
notice thereof to Employee from Employer; (iv) gross negligence or willful
misconduct with respect to Employee's performance hereunder which results in a
substantial and material financial detriment to the Company; provided, however,
that the Company's failure to achieve certain results shall not be deemed to
constitute "For Cause" so long as Employee uses his reasonable best efforts to
perform such duties; or (v) any other material breach of this Agreement by
Employee which is not cured within thirty (30) days after written notice thereof
to Employee from Employer.
Anything in this Agreement to the contrary notwithstanding, Employer
reserves the right to terminate the term of Employee's employment at any time in
its sole discretion other than For Cause. If Employee's employment is terminated
(i) pursuant to subparagraphs (b), (c) or (d) of this Paragraph 12, Employee or
Employee's estate shall be entitled to exercise all of the Stock Warrants and
the Options and retain all Awards, which have then vested, in accordance with
their terms; and (ii) if Employee's employment is terminated by Employer other
than For Cause, or by Employee pursuant to subparagraph (e) or (f) of this
Paragraph 12, Employee or Employee's estate shall be entitled to exercise all of
the Stock Warrants and the Options and retain all Awards, regardless of whether
they have then vested, in accordance with their terms. If Employee's employment
is terminated pursuant to subparagraphs (b), (d), (e) or (f) of this Paragraph
12 or by Employer other
- 6 -
<PAGE>
than For Cause, Employee or Employee's estate shall be entitled to receive, as a
severance payment, a lump sum equal to the greater of (i) the Employee's then
current Base Salary through and including the Termination Date, or (ii) an
amount equal to 2.99 times the Employee's then current Base Salary, and
continuation of Employee's then current health, disability, medical and other
fringe benefits under Paragraph 7 at Employer's expense for one (1) year from
the date of such termination. Such lump sum payments payable hereunder shall be
payable within thirty (30) days of such termination. Notwithstanding anything
herein to the contrary, if the aggregate amount payable hereunder to the
Employee in respect of a Change of Control (the "Base Payment") would constitute
an "excess parachute payment" (as such term is defined in Section 280G of the
Internal Revenue Code of 1986, as amended (the "Code")) subjecting the Employee
to an excise tax under Code Section 4999, then the Employee shall receive an
additional "Gross Up Payment" such that the net amount payable hereunder, after
reduction for the payment of such excise tax and for the payment of all other
excise, income, payroll, or other taxes payable in respect of the Gross Up
Payment, shall equal the Base Payment.
13. Termination of Compensation. Except as otherwise provided in
-----------------------------
Paragraph 12 hereof, if the term of Employee's employment terminates Employee
shall not be entitled to any compensation hereunder after the date of such
termination. Notwithstanding the foregoing, the parties shall be required to
carry out any provisions hereof which contemplate performance by them subsequent
to such termination, including: (i) the payment of any amounts of compensation
and fringe benefits under Paragraphs 5 and 7 hereof then accrued but unpaid;
(ii) the ability of Employee to exercise all Stock Warrants and Options and to
retain all Awards under Paragraph 6 and the Stock Plan; (iii) the covenants
regarding confidential information under Paragraph 15 hereof, the covenants
regarding work product under Paragraph 16 hereof; (iv) the registration rights
provisions contained in or referred to in subparagraph (a) of Paragraph 6 hereof
and in the Stock Warrant Certificate; (v) amounts reimbursable pursuant to
Paragraph 9 hereof; and amounts payable for unused vacation pursuant to
Paragraph 10 hereof. In addition, termination of this Agreement shall not affect
any liability or other obligation which shall have accrued prior to termination,
including, but not limited to, any liability for loss or damage on account of
default under this Agreement.
14. Loyalty. Employee shall devote his best efforts to the performance
-------
of services under this Agreement. During the term of this Agreement, Employee
shall not at any time or place whatsoever, either directly or indirectly, engage
in business or render services to any extent whatsoever to any third party,
except under and pursuant to this Agreement, and except that Employee may
participate in investments, volunteer, charitable, civic or similar activities
without Employer's consent, provided that such activities do not unreasonably
interfere with Employer's business or violate the provisions of this Agreement.
Employer hereby acknowledges that Employee has a broad and varied range of
investment interests and that Employee must devote such reasonable time and
attention to the proper and judicious management of such interests as may be
reasonably required from time to time. Accordingly, nothing contained in this
Agreement shall limit or be deemed to limit Employee's personal investment
activities, and Employee's engaging in such activities shall not be or be deemed
to be a breach or violation of this Agreement. In addition, and notwithstanding
contained herein to the contrary, Employee shall be entitled to receive
compensation payments subsequent to the effective date of this Agreement in
connection with services performed
- 7 -
<PAGE>
by Employee for Thurston Group, Inc. and NetDox, Inc. and their respective
affiliates, and Employee may continue to serve as the Chairman of the Board
and/or officer of Thurston Group, Inc. and NetDox, Inc. and to sit on the board
of directors or advisors of Thurston Group, Inc. and NetDox, Inc. and other
companies, provided such companies do not compete with Employer or interfere
with Employee's duties to Employer. Employer consents to Employee's continuing
to perform such services.
15. Confidential Information. Employee acknowledges that the
--------------------------
proprietary information, observations and data obtained by Employee while
employed by Employer concerning the business or affairs of Employer, or any
affiliate or subsidiary thereof ("Confidential Information") is the property of
Employer or such affiliate or subsidiary; provided, however, that the term
"Confidential Information" does not include information that (a) at the time it
was received by Employee was generally available to the public; (b) prior to its
use by Employee, becomes generally available to the public through no act or
failure of Employee; (c) is received by Employee from a person who is not a
party to this Agreement and who is not under an obligation of confidence with
respect to such information; or (d) is generally known by Employee on the
Effective Date, including, without limitation, information gained by virtue of
his past experience and know how and his personal records and notes. Therefore,
Employee agrees not to disclose to any unauthorized person or use for the
Employee's account any Confidential Information without the prior written
consent of Employer. Upon request, Employee shall deliver to Employer at the
termination of this Agreement all memoranda, notes, plans, records, reports and
other documents (and copies thereof) relating to the Confidential Information.
16. Work Product. Employee agrees that all methods, analyses, reports,
------------
plans and all similar or related information which (i) relate to Employer or any
of its affiliates or subsidiaries and which (ii) are conceived, developed or
made by Employee in the course of his employment by Employer ("Work Product")
belong to Employer or its affiliates or subsidiaries. Employee will promptly
disclose such Work Product to Employer and perform all actions reasonably
requested by Employer to establish and confirm such ownership by Employer.
17. Non-Assignability. Except as otherwise provided herein, neither
-----------------
this Agreement nor any right or interest under this Agreement shall be
assignable or subject to any encumbrances, pledge, hypothecation, attachment, or
anticipation of any kind by Employee, his spouse, his estate or his legal
representatives without the Company's written consent or by the Company without
Employee's written consent. This Agreement shall inure upon the Company, and its
successors and permitted assigns, and Employee and his estate, beneficiaries,
legal representatives and permitted assigns.
18. Entire Agreement. This Agreement expresses the entire agreement and
----------------
understanding of the parties relating to the subject matter hereof, cancels and
supersedes any prior negotiations, promises, agreements, representations,
warranties, or understandings relating to the same subject matter, and, except
as expressly provided herein, shall be subject to subsequent modification only
by another mutually signed written instrument which by its terms evidences an
intention to modify or amend the provisions hereof.
- 8 -
<PAGE>
19. Choice of Law. This Agreement shall be construed in accordance with
-------------
the internal laws of the State of Illinois.
20. Cost of Enforcement. Each party shall bear its own costs and
--------------------
attorneys' fees in connection with any suit or proceeding against the other to
enforce any provision of this Agreement or to recover damages resulting from a
breach of this Agreement; provided, however, the party which prevails in any
such suit or proceeding shall be entitled to receive from the nonprevailing
party the costs and reasonable attorneys' fees of the prevailing party incurred
in such suit or proceeding.
21. Severability. In the event that any provision hereof is determined
------------
to be illegal or unenforceable, such determination shall not affect the validity
or enforceability of the remaining provisions hereof, all of which shall remain
in full force and effect.
22. 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. This Agreement shall
become effective upon the execution of a counterpart hereof by each of the
parties hereto.
23. Interpretation. All captions are included only for reference and
--------------
shall not constitute substantive provisions hereof.
24. Notices. Any notice, request, claim, demand, document and other
-------
communication hereunder to any party hereto shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent by
telecopy (with such telecopy confirmed promptly in writing sent by first class
mail) or other similar means of communications, as follows:
(i) if to the Company, addressed to 190 South LaSalle Street,
Suite 1710, Chicago, Illinois 60603, Attention: Board of
Directors and Secretary, Fax No. (312) 419-0172; or
(ii) if to Employee, addressed to him at 190 South LaSalle Street,
Suite 1710, Chicago, Illinois 60603, Fax No. (312) 419-0172;
or, in each case, to such other address or telecopy number as such party may
designate in writing to the other by written notice given in the manner
specified herein.
All such communications shall be deemed to have been given, delivered
or made when so delivered personally or sent by telecopy or express mail service
(with confirmation received).
25. Waiver. Employee on the one hand or the Company on the other hand
------
may by written notice to the other party or parties hereto (i) extend the time
for the performance of any of the obligations or other actions of the other
under this Agreement; (ii) waive compliance with any of the conditions or
covenants of the other contained in this Agreement; and (iii) waive or modify
performance of any of the obligations of the other under this Agreement. Except
as provided in the
- 9 -
<PAGE>
preceding sentence, no action taken pursuant to this Agreement, including,
without limitation, any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
any representation, warranty, covenant, or agreement contained herein. The
waiver by any party hereto of a breach of any provision of this Agreement shall
not operate or be construed as a waiver of any preceding or succeeding breach,
and no failure by any party hereto to exercise any right or privilege hereunder
shall be deemed a waiver of such party's rights or privileges hereunder or shall
be deemed a waiver of such party's rights to exercise that right or privilege at
any subsequent time or times hereunder.
INTENDING TO BE LEGALLY BOUND BY THIS AGREEMENT, the parties sign below
as of the date first written above.
EMPLOYEE: EMPLOYERS:
____________________________ Avery Communications, Inc.
Patrick J. Haynes, III
By:______________________________________
Name: Scot M. McCormick
Title: Vice President
ATTEST:__________________________________
Name: Mercedes Fehsel
Title: Assistant Secretary
- 10 -
<PAGE>
EXHIBIT 10.2
STOCK WARRANT CERTIFICATE
A. STOCK WARRANT ("Warrant") for the purchase of a total of 420,000
shares of the common stock, par value $0.01 per share (the "Common Stock"), of
Avery Communications, Inc., a Delaware corporation (the "Company"), has been
granted to Patrick J. Haynes, III (the "Warrant Holder") pursuant to an
Employment Agreement dated as of July 1, 1998, by and among the Warrant Holder
and the Company. This Warrant shall be governed by the Employment Agreement,
and, except as otherwise specifically set forth herein, the provisions of the
Employment Agreement shall control in the event of any conflict between the
terms set forth herein and the provisions of the Employment Agreement.
B. The exercise price of this Warrant is $3.00 per share (the "Exercise
Price").
C. This Warrant may not be exercised if the issuance of shares of
Common Stock of the Company upon such exercise would constitute a violation of
any applicable Federal or state securities or other law or regulation. The
Warrant Holder, as a condition to his exercise of this Warrant, shall (i)
represent to the Company that the shares of Common Stock of the Company that he
acquires upon exercise of this Warrant are being acquired by him for investment
and not with a view to distribution or resale, and that he will not sell or
otherwise transfer such shares unless such shares are then registered under a
currently effective registration statement under the Securities Act of 1933, as
amended (the "Act"), or counsel for the Company is then of the opinion that such
registration is not required under the Act or any other applicable law,
regulation, or rule of any governmental agency, and (ii) if the shares of Common
Stock underlying this Warrant are not registered under the Act, acknowledge that
the certificate evidencing such shares may be stamped
- 1 -
<PAGE>
with a restrictive legend and such shares will be "restricted securities" as
defined in Rule 144 promulgated under the Act.
D. This Warrant may not be transferred in any manner otherwise than by
will or the laws of descent and distribution, and may be exercised during the
lifetime of the Warrant Holder only by the Warrant Holder. The terms of this
Warrant shall be binding upon the executors, administrators, heirs, successors,
and assigns of the Warrant Holder.
E. This Warrant shall be exercisable as follows:
(i) This Warrant shall not be exercisable, and to the
extent not exercised prior to such date, shall
terminate and be of no further effect as of 5:00 p.m.
New York City time on the respective expiration dates
set forth below.
(ii) This Warrant shall be exercisable as to 140,000
shares commencing as of July 1, 1998, and shall
expire on June 30, 2008.
(iii) This Warrant shall be exercisable as to an additional
140,000 shares commencing on July 1, 1999, and shall
expire on June 30, 2008.
(iv) This Warrant shall be exercisable as to the remaining
140,000 shares commencing on July 15, 2000, and shall
expire on June 30, 2008.
F. Notwithstanding anything else to the contrary contained herein, this
Warrant, whether or not vested at the time, shall be fully vested in its
entirety immediately upon a "Change in Control" (as such term is defined in
subparagraph (b) of Paragraph 6 of the Employment Agreement. Notwithstanding the
foregoing, this Warrant shall not become exercisable as to a tranche of shares
if the Warrant Holder voluntarily leaves the Company's employ or if the Warrant
Holder is
- 2 -
<PAGE>
terminated For Cause (as defined in Paragraph 12 of the Employment Agreement)
prior to the date this Warrant became exercisable as to such shares as set forth
in Paragraph E hereof.
G. Subject to the provisions of Paragraphs E and F, the rights
represented by this Warrant may be exercised by the Warrant Holder by delivery
of:
1. The exercise form annexed hereto (the "Exercise Form") duly executed
and specifying the number of shares to be purchased, to the Company at the
offices of the Company located at 190 South LaSalle Street, Suite 1710, Chicago,
Illinois 60603 (or such other office or agency of the Company as it may
designate by written notice to the Warrant Holder at the address of such the
Warrant Holder appearing on the books of the Company) during normal business
hours on any day other than a Saturday, Sunday or day on which national banks
are authorized to close in the City of New York, State of New York (a "Business
Day").
2. The exercise price of shares purchased upon exercise of this Warrant
shall be paid in full, within 5 business days of receipt of the Exercise Form by
the Company, (a) in cash, (b) by delivery to the Company of already owned shares
of Common Stock, or shares issuable to the Warrant Holder on exercise of this
Warrant, (c) in any combination of cash and already owned or issuable shares of
Common Stock, or (d) by delivery of such other consideration as the Company
deems appropriate and in compliance with applicable law (including payment by
means of a promissory note or in accordance with a cashless exercise program).
In the event that any shares of Common Stock shall be transferred to the Company
to satisfy all or any part of the exercise price or any federal, state or local
taxes required by law to be withheld in connection with such exercise, the part
of the exercise price or withholding taxes deemed to have been satisfied by such
transfer of shares of Common Stock shall be equal to the product derived by
multiplying the current market
- 3 -
<PAGE>
price (as defined in Paragraph H.1(d) hereof) as of the date of exercise times
the number of shares of Common Stock transferred to the Company, less the amount
due to the Company if issuable shares are transferred to the Company, which
amount due to the Company shall equal the product of the number of shares
issuable to the Warrant Holder times the exercise price of the issuable shares.
The Warrant Holder may not transfer to the Company in satisfaction of the
exercise price any fraction of a share of Common Stock, and any portion of the
exercise price that would represent less than a full share of Common Stock must
be paid in cash by the Warrant Holder. The Warrant Holder shall have the right
to pay the exercise price of this Warrant and any related withholding taxes by
delivery to the Company of an amount of cash equal to the par value per share of
Common Stock purchased on exercise and a recourse promissory note. Each such
recourse promissory note shall have the following terms and conditions: (a) such
promissory note shall bear interest at 2% over the prime rate of Citibank, (b)
interest shall be due and payable quarterly in arrears, (c) the principal amount
shall be due in full on the second anniversary date, (d) principal and accrued
interest may be prepaid at any time, in whole or in part, without penalty, and
(e) in the event of a default in the payment of principal or interest when due
and the continuance of such default for ten (10) days, the full principal amount
of the promissory note plus accrued and unpaid interest shall become immediately
due and payable. As a condition precedent to the Warrant Holder's being
permitted to pay a portion of the exercise price with a promissory note, the
Warrant Holder must exercise the Warrant with respect to not less than 50% of
the tranche of shares of which the shares of Common Stock being purchased form a
part. The Warrant Holder shall pledge to the Company, and grant the Company a
perfected first priority security interest in, all shares of Common Stock
purchased using a promissory note. The Warrant Holder shall have the right at
any time or from time to time to sell
- 4 -
<PAGE>
any or all of the shares pledged to the Company to secure the payment of any
such promissory note if, prior to the making of any such sale, the Warrant
Holder makes arrangements, satisfactory to the Company, that a sufficient
portion of the proceeds received from any such sale shall be delivered to the
Company in repayment of all of the outstanding principal and unpaid accrued
interest owing with respect to such promissory note. The Warrant Holder agrees
that, in the event of default in the payment of principal or interest when due
on any promissory note secured by shares of the Common Stock as herein
contemplated, and the continuance of such default for ten (10) days, the
Company, in addition to any other rights and remedies available to the Company,
shall have, and may exercise, any and all rights of a secured party under the
provisions of the Uniform Commercial Code.
The Company agrees that such shares shall be deemed to be issued to the
Warrant Holder as the record owner of such shares as of the commencement of
business on the date on which the Exercise Form for this Warrant shall have been
received by the Company and this Warrant surrendered and payment made for the
shares as aforesaid. Certificates for the shares specified in the Exercise Form
shall be delivered to the Warrant Holder as promptly as practicable, and in any
event within ten (10) days thereafter. If this Warrant shall have been exercised
only in part, the Company shall, at the time of delivery of the certificate or
certificates for the shares delivered to the Warrant Holder, deliver a new
option certificate evidencing the right to purchase the remaining shares
issuable under this Warrant, which new option shall in all other respects be
identical to this Warrant. No adjustment shall be made on shares issuable on
exercise of this Warrant for any cash dividends paid or payable to holders of
record of Common Stock out of consolidated earnings or earned surplus prior to
the date as of which the Warrant Holder shall be deemed to be the recordholder
of such shares.
- 5 -
<PAGE>
H. Certain Adjustments.
-------------------
H.1 The number of shares issuable upon the exercise of this Warrant and
the Exercise Price shall be subject to adjustment as follows:
(a) In case the Company shall (i) pay a dividend in shares of
Common Stock or make a distribution in shares of Common Stock, (ii) subdivide
its outstanding shares of Common Stock (including, without limitation, by way of
stock splits and the like), (iii) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company
(including any such reclassification in connection with a consolidation or
merger in which the Company is the surviving corporation), the number of shares
issuable upon exercise of this Warrant immediately prior thereto shall be
adjusted so that the Warrant Holder shall be entitled to receive the kind and
number of shares or other securities of the Company that he would have owned or
have been entitled to receive after the happening of any of the events described
above had this Warrant been exercised immediately prior to the happening of such
event or any record date with respect thereto. An adjustment made pursuant to
this Paragraph (a) shall become effective immediately after the effective date
of each such event retroactive to the record date, if any, for such event,
without amendment or modification required to this Warrant.
(b) In case the Company shall issue rights, options or
warrants to all or substantially all holders of its outstanding Common Stock,
without any charge to such holders, entitling them to subscribe for or purchase
shares of Common Stock at a price per share which is lower at the record date
mentioned below than the then current market price per share of Common Stock (as
defined in subparagraph (d) below), the number of shares thereafter issuable
upon the
- 6 -
<PAGE>
exercise of this Warrant shall be determined by multiplying the number of shares
theretofore issuable upon exercise of this Warrant by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the date
of issuance of such rights, options or warrants plus the number of additional
shares of Common Stock offered by subscription or purchase, and of which the
denominator shall be the number of shares of Common Stock outstanding on the
date of issuance of such rights, options or warrants plus the number of shares
that the aggregate offering price of the total number of shares of Common Stock
so offered would purchase at the current market price per share of Common Stock
(as defined in subparagraph (d) below) as of such record date. Such adjustment
shall be made whenever such rights, options or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights, options or warrants.
(c) In case the Company shall distribute to all or
substantially all holders of its shares of Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions payable out of
consolidated earnings or earned surplus and dividends or distributions referred
to in subparagraph (a) above) or rights, options or warrants, or convertible or
exchangeable securities containing the right to subscribe for or purchase shares
of Common Stock (excluding those referred to in subparagraph (b) above), then in
each case the number of shares thereafter issuable upon the exercise of this
Warrant shall be determined by multiplying the number of shares theretofore
issuable upon the exercise of this Warrant by a fraction, of which the numerator
shall be the then current market price per share of Common Stock (as defined in
subparagraph (d) below) on the date of such distribution, and of which the
denominator shall be the then current market price per share of Common Stock,
less the then fair value (as determined in good faith by the Board of
- 7 -
<PAGE>
Directors of the Company, or if requested by the Warrant Holder, by a leading
firm of investment bankers selected by the Warrant Holder and reasonably
acceptable to the Company and whose reasonable fees and expenses shall be paid
by the Company or as otherwise agreed upon by the Company and the Warrant
Holder), of the portion of the assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities, applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to the record date for
the determination of shareholders entitled to receive such distribution.
(d) For the purpose of computation under subparagraphs (b) and (c) of
this Paragraph H.1 and Paragraph G.2, the current market price per share of
Common Stock at any date shall be:
(x) the average of the daily closing prices for the 30
consecutive trading days immediately preceding such computation. The
closing price for each day shall be the last reported sales price
regular way or, in case no such reported sale takes place on such day,
the average of the closing bid and asked prices regular way for such
day, in each case on the principal national securities exchange on
which the shares of Common Stock are listed or admitted to trading, or,
if reported on Nasdaq National Market, the last reported sales price,
or, if not so listed or admitted to trading or reported, the average of
the closing bid and asked prices of the Common Stock in the
over-the-counter market as reported by Nasdaq or any comparable system;
or
- 8 -
<PAGE>
(y) on or prior to the expiration of the 30 trading day period
set forth in clause (x) above, the fair market value per share of
Common Stock determined by a leading firm of investment bankers
selected by the Warrant Holder and reasonably acceptable to the Company
and whose reasonable fees and expenses shall be paid by the Company.
(e) No adjustment in the number of shares issuable hereunder shall be
required unless such adjustment would require an increase or decrease of at
least one percent (1%) in the number of shares issuable upon the exercise of
this Warrant; provided, however, that any adjustments which by reason of this
subparagraph (e) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations shall be made to the
nearest one-thousandth of a share.
(f) Whenever the number of shares issuable upon the exercise of this
Warrant is adjusted as herein provided, the Exercise Price payable upon the
exercise of this Warrant shall be adjusted by multiplying such Exercise Price
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of shares issuable upon the exercise of this Warrant immediately
prior to such adjustment, and of which the denominator shall be the number of
shares issuable immediately thereafter.
(g) No adjustment in the number of shares issuable upon the
exercise of this Warrant need be made under Paragraphs (b) and (c) if the
Company issues or distributes to the Warrant Holder the rights, options,
warrants, or convertible or exchangeable securities, or evidences of
indebtedness or assets referred to in those Paragraphs which the Warrant Holder
would have been entitled to receive had this Warrant been exercised prior to the
happening of such event or the record
- 9 -
<PAGE>
date with respect thereto. No adjustment in the number of shares issuable upon
the exercise of this Warrant may be made for sale of shares pursuant to a
Company plan for reinvestment of dividends or interest. No adjustment need be
made for a change in the par value of the shares.
(h) The Company shall not, by amendment of its Certificate of
Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities, rights,
options or warrants or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed under
this Paragraph H.1 by the Company, but will at all times in good faith assist in
carrying out all of the provisions of this Paragraph H.1 and take such actions
as may be necessary or appropriate in order to protect the rights of the Warrant
Holder under this Paragraph H.1 against impairment.
(i) For the purpose of this Paragraph H.1, the term "shares of Common
Stock" shall mean (i) the class of stock designated as the common stock of the
Company at the date of this Certificate or (ii) any other class of stock
resulting from successive changes or reclassification of such shares consisting
solely of changes in par value, or from par value to no par value. In the event
that at any time, as a result of an adjustment made pursuant to Paragraph (a)
above, the Warrant Holder shall become entitled to purchase any securities of
the Company other than shares of Common Stock, thereafter the number of such
other shares so issuable upon exercise of this Warrant, and the Exercise Price
of such shares, shall be subject to adjustment from time to time in a manner and
on terms as nearly equivalent as practicable to the provisions with respect to
the shares contained in subparagraphs (a) through (h), inclusive, above, and the
Paragraphs H.2 through H.4, inclusive, with respect to the shares, shall apply
on like terms to any such other securities.
- 10 -
<PAGE>
(j) Upon the expiration of any rights, options, warrants or conversion
or exchange privileges, if any thereof shall not have been exercised, the
Exercise Price and the number of shares shall, upon such expiration, be
readjusted and shall thereafter be such as it would have been had it been
originally adjusted (or had the original adjustment not been required, as the
case may be), and if (A) the only shares of Common Stock so issued were the
shares of Common Stock, if any, actually issued or sold upon the exercise of
such rights, options, warrants or conversion or exchange rights and (B) such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise plus the aggregate
consideration, if any, actually received by the Company for the issuance, sale
or grant of all such rights, options, warrants or conversion or exchange rights
whether or not exercised; provided, however, that no such readjustment shall
have the effect of increasing the Exercise Price or decreasing the number of
shares by an amount in excess of the amount of the adjustment initially made in
respect to the issuance, sale or grant or such rights, options, warrants or
conversion or exchange rights.
H.2 Notice of Adjustment. Whenever the number of shares or the Exercise
--------------------
Price payable upon exercise of this Warrant is adjusted as herein provided, the
Company shall promptly mail by first class, postage prepaid, to the Warrant
Holder, notice of such adjustment or adjustments and a certificate of a firm of
independent public accountants selected by the Board of Directors of the Company
(who may be the regular accountants employed by the Company) setting forth the
number of shares and the Exercise Price payable upon exercise of this Warrant
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting forth the computation by which such adjustment was
made.
- 11 -
<PAGE>
H.3 No Adjustment for Dividends. Except as provided in Paragraph H.1,
----------------------------
no adjustment in respect of any dividends shall be made during the term of this
Warrant or upon the exercise of this Warrant.
H.4 Preservation of Purchase Rights Upon Merger, Consolidation, etc. In
---------------------------------------------------------------
case of any consolidation of the Company with or merger of the Company into
another corporation or otherwise or in case of any sale, transfer or lease to
another corporation of all or substantially all the property of the Company, the
Company or such successor or purchasing corporation, as the case may be, shall
execute with the Warrant Holder an agreement that the Warrant Holder shall have
the right thereafter upon payment of the Exercise Price in effect immediately
prior to such action to purchase upon exercise of this Warrant the kind and
amount of shares and other securities and property which such holder would have
owned or have been entitled to receive after the happening of such
consolidation, merger, sale, transfer or lease had this Warrant been exercised
immediately prior to such action, provided that such agreement shall provide for
adjustments thereafter, which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Paragraph H. The provisions
of this Paragraph H shall similarly apply to successive consolidations, mergers,
sales, transfers or leases.
I. Registration Rights. The Company hereby covenants and agrees with
--------------------
the Warrant Holder that the Warrant Holder shall be entitled to piggy-back
registration rights with respect to the shares that are issuable on exercise of
this Warrant, in each case, upon the terms and subject to the conditions set
forth in the form of Registration Rights Agreement attached hereto as Exhibit A.
- 12 -
<PAGE>
Avery Communications, Inc.
By:___________________________________
Scot M. McCormick
Vice President
Dated: As of July 1, 1998
- 13 -
<PAGE>
EXERCISE FORM
Date:___________________________
TO: Chief Financial Officer
The undersigned hereby irrevocable elects to exercise the attached Stock Warrant
Certificate to the extent of options to purchase _______ shares and hereby makes
payment of $_________ in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:______________________________________________
Address:____________________________________________
____________________________________________
____________________________________________
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This EMPLOYMENT AND NONCOMPETITION AGREEMENT (this "Agreement") is
---------
entered into as of November ___, 1996, by and between HOLD BILLING SERVICES,
LTD., a Texas limited partnership ("Employer"), and HAROLD D. BOX ("Employee").
-------- --------
RECITALS
A. Employer desires to employ Employee as provided herein, and Employee
desires to accept such employment; and
B. Employee will, as an employee of Employer, have access to
confidential information with respect to Employer and its affiliates;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. DEFINITIONS. Capitalized terms used and not otherwise defined herein
shall have the same meanings as set forth in that certain Partnership Interest
Option Agreement, dated as of May 3, 1996, among Avery Communications, Inc., a
Delaware corporation, Avery Acquisition Sub, Inc., a Delaware corporation, David
W. Mechler, Jr., and Employee, as amended.
2. EMPLOYMENT. Employer, at the Closing, will, without further action
on the part of Employee or Employer, employ Employee, and Employee hereby
accepts employment with Employer upon the terms and conditions hereinafter set
forth.
3. DUTIES. Subject to the power of the general partner of Employer (the
"General Partner") to elect and remove officers, Employee will serve Employer as
---------------
Vice President - Sales (or in such other office as Employer or the General
Partner may determine) and will perform, faithfully and diligently, the services
and functions relating to such office or otherwise reasonably incident to such
office as may be designated from time to time by the General Partner or the
President of the Employer, including without limitation, responsibility for the
growth, operations and performance of the business of Employer and the execution
of the strategic business plan developed with the President of ACI. Employee
will devote his full time, attention, skills, benefits and best efforts to the
performance of his duties hereunder and to the promotion of the business and
interests of Employer and its affiliates and will not, without the prior written
consent of the General Partner or the President of the Employer, become engaged
in any other activity requiring significant time or personal services by
Employee that will conflict with the proper performance of any such duties under
this Agreement. Employer acknowledges Employee may continue to occasionally act
as a telecommunication consultant provided such actions shall not interfere with
or impair Employee's ability to perform Employee's duties and responsibilities
required by Employer and such actions shall be performed on Employee's personal
time.
4. TERM. Unless sooner terminated pursuant to the provisions hereof,
the term of this Agreement (together with any renewals pursuant to this Section,
the "Term") shall be for a term commencing on the date of this Agreement and
----
terminating December 31, 2000; provided that this Agreement will be
automatically renewed for additional terms of one year unless either party
<PAGE>
notifies the other prior to December 1 of a given year that they do not wish to
renew this Agreement.
5. COMPENSATION. As compensation for services of Employee rendered
under this Agreement, Employee will be entitled to receive the following:
5.1 Salary. During the Term, Employee will be paid an annual
salary of $100,000, payable monthly (the "Salary"). At any time and
------
from time to time the Salary may be increased if so determined by the
General Partner or its Compensation Committee after a review of
Employee's performance of his duties hereunder.
5.2 Incentive Compensation. Employer currently has an employee
profit sharing plan, pursuant to which Employer contributes 5% of
Employer's pre-tax profit (exclusive of (i) any management fees and
overhead allocations payable to ACI or its Subsidiaries and (ii)
goodwill and acquisition expenses) into the plan and is paid to
Employer's employees. During the Term of the Agreement, Employer shall
continue such plan or a similar plan with the same basic economic
benefits to such employees. Employee currently participates in such
plan and shall continue to participate in such Plan during the Term of
this Agreement, consistent with past practices.
In addition to the foregoing, Employer has deposited 666,664
shares of ACI Common Stock into escrow. Employee shall be entitled to
receive 83,333 shares of the ACI Common Stock from escrow on April 30,
1998, 1999, 2000, and 2001 if the "PRE-TAX EARNINGS" (as defined below)
of Employer equal or exceed the amounts set forth below for the years
ending December 31 set forth below:
1997 $1,000,000
1998 $1,500,000
1999 $2,100,000
2000 $3,000,000
As used in this paragraph, the term "PRE-TAX EARNINGS" shall be deemed
----------------
to mean the result obtained by subtracting (A) the lesser of (1) the
sum of clause (B)(2), plus clause (B)(3), or (2) $250,000, from (B) the
---- ----
sum of (1) the Partnership's audited pre-tax earnings (as determined by
ACI's auditors for inclusion in the audited consolidated financial
statements of ACI, whose determination shall be final and binding on
the parties in all respects) for any applicable year, plus (2) any
----
amortization of goodwill included in such earnings, plus (3) any
----
allocation of ACI's corporate overhead or similar corporate charges of
ACI included in such earnings. There shall be no carryovers between or
among years or prorations for any year. In the event Employer shall
cease to be a direct or indirect subsidiary of ACI, whether through the
disposition of ACI's ownership of Employer, the sale of all or
substantially all the assets of Employer as a going concern, spinoff,
or otherwise, Employee shall, on the day preceding the effective date
of any such transaction, immediately become fully vested in any and all
shares of ACI Common Stock still held in escrow at such time for
release based upon the audited pre-tax earnings for years not then
completed, and all such fully vested shares of ACI Common Stock shall
-2-
<PAGE>
be released from escrow to Employee on or before the consummation of
any such transaction. All shares of ACI Common Stock not released to
Employee pursuant to the terms hereof shall be immediately released
from escrow to ACI on each April 30 set forth above for cancellation.
5.3 Bonus. In addition to the Salary, Employee will be
entitled to receive such bonuses as may be determined by the General
Partner or its Compensation Committee.
5.4 Benefits. During the Term, Employee will be entitled to
receive such group benefits as Employer may provide to its other
employees at comparable salaries and responsibilities to those of
Employee, including, without limitation, providing healthcare benefits
for Employee's dependents consistent with past practices.
5.5 Expenses. Employer will reimburse Employee for all
reasonable and necessary out-of-pocket travel and other expenses
incurred by Employee in rendering services required under this
Agreement, on a monthly basis upon submission of a detailed monthly
statement and reasonable documentation.
6. CONFIDENTIALITY; NON-COMPETITION.
6.1 Acknowledgment of Proprietary Interest. Subject to the
terms and conditions hereof, Employer will permit Employee to have
access to the Confidential Information (as hereinafter defined).
Employee recognizes the proprietary interest of Employer and its
affiliates in any Confidential Information of Employer and its
affiliates. Employee acknowledges and agrees that during the course of
Employee's engagement by Employer Employee will learn Confidential
Information of Employer and its affiliates and any and all Confidential
Information learned by Employee during the course of Employee's
engagement by Employer or otherwise, whether developed by Employee
alone or in conjunction with others or otherwise, will be and is the
property of Employer and its affiliates. Employee further acknowledges
and understands that Employee's disclosure of any Confidential
Information and/or proprietary information will result in irreparable
injury and damage to Employer and its affiliates. As used herein,
"Confidential Information" means all confidential and proprietary
-------------------------
information of Employer and its affiliates, including without
limitation information derived from reports, investigations,
experiments, research, drawing, designs, plans, proposals, codes,
marketing and sales programs, client lists, client mailing lists,
financial projections, cost summaries, pricing formula, and all other
concepts, ideas, materials, or information prepared or performed for or
by Employer or its affiliates. "Confidential Information" also includes
------------------------
information related to the business, products or sales of Employer or
its affiliates, or any of their respective customers, other than
information that is otherwise publicly available.
6.2 Covenant Not-to-Divulge Confidential Information. Employee
acknowledges and agrees that Employer and its affiliates are entitled
to prevent the disclosure of Confidential Information. As a portion of
the consideration for the employment of Employee and for the
compensation being paid to Employee by Employer, Employee agrees at all
times during the Term and thereafter to hold in strict confidence
-3-
<PAGE>
and not to disclose or allow to be disclosed to any person, firm or
corporation, other than to persons engaged by Employer and its
affiliates to further the business of Employer and its affiliates, and
not to use except in the pursuit of the business of Employer and its
affiliates, the Confidential Information, without the prior written
consent of Employer, including Confidential Information developed by
Employee.
6.3 Return of Materials at Termination. In the event of any
termination or cessation of his employment with Employer for any reason
whatsoever, Employee will promptly deliver to Employer all documents,
data and other information pertaining to Confidential Information.
Employee will not take any documents or other information, or any
reproduction or excerpt thereof, containing or pertaining to any
Confidential Information.
6.4 Noncompetition. In consideration of employment or
continued employment with Employer and the Confidential Information
learned and to be learned by Employee (the "Noncompetition
--------------
Consideration"), and of the other promises and covenants of Employer
-------------
contained herein, Employee hereby agrees that Employee will not,
directly or indirectly (including without limitation as an owner,
partner, shareholder, investor, lender, consultant or advisor; other
than as a 5% or less shareholder in a corporation registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934 or a 1% or
less shareholder in any other company), alone or with others, engage in
any business or lines of business that Employer is currently engaged or
in which it engages during the term of this Agreement within the state
of Texas for a period of two years following the termination of
Employee's employment with Employer or any of its affiliates (the
"Noncompetition Period"). Employer acknowledges that Employee's actions
---------------------
under Section 3 shall not violate this Section 6.4; provided, however,
that Employer may limit Employee's ability to act as a consultant for
any person that Employee deems a competitor, and, provided further,
that Employee fully honors Employee's obligations under this Section 6.
6.5 Agreement Concerning Employees. In further consideration
of the Noncompetition Consideration and of the other promises and
covenants of Employer contained herein, Employee hereby agrees that
during the Noncompetition Period, he will not, directly or indirectly
(including without limitation as an owner, partner, shareholder,
investor, lender, consultant or advisor), alone or with others, solicit
for employment, hire, retain, employ or otherwise provide compensation
for or to any employee of Employer or any of its affiliates, or any
person who is or was an employee of Employer or any of its affiliates
during the thirty (30) days immediately prior to the date hereof,
without the prior written consent of ACI.
6.6 Reasonableness of Restrictions. Employee acknowledges that
Employer has carefully read and considered the provisions of this
Agreement and, having done so, agrees that the restrictions are
reasonable and necessary restrictions for purposes of protecting the
value received by ACI, which includes the expectation of Employer and
its affiliates of expanding their business throughout the State of
Texas, without competition from Employee during the Noncompetition
Period. Employee further agrees
-4-
<PAGE>
that the State of Texas is a reasonable geographic description of the
market in which Employer and its affiliates currently compete. The
parties specifically agree that Employer and its affiliates shall not
be limited to the value allocated to the foregoing agreements for tax
purposes as damages in any legal action by Employer or its affiliates
against Employee for breach of such covenants.
6.7 Remedies for Breach by Employee. Employee expressly
acknowledges and agrees that Employer and its affiliates would be
irreparably damaged by reason of any violation of the provisions of
this Agreement and that any remedy at law for a breach of the
provisions of this Agreement would be inadequate. Therefore, Employee
or its affiliates shall be entitled to seek injunctive or other
equitable relief in a court of competent jurisdiction against Employee,
and his agents, employees, affiliates, partners or other associates,
for any breach or threatened breach of this Agreement without the
necessity of proving actual monetary loss. It is expressly understood
that the remedy described in this Section 6.7 shall not be the
exclusive remedy of Employer or its affiliates for any breach of this
Agreement, and Employer and its affiliates shall be entitled to seek
such other relief or remedy, at law or in equity, to which it may be
entitled as a consequence of any breach of this Agreement. In the event
Employer or its affiliates seek to specifically enforce performance of
this Agreement, Employee hereby irrevocably waives any bonds and any
surety or security relating thereto that may be required by applicable
law as an incident to such action.
7. TERMINATION. This Agreement and the employment relationship created
hereby will terminate upon the occurrence of any of the following events:
(a) The expiration of the Term as set forth in Section 4
above;
(b) The death of Employee;
(c) The "disability" (as hereinafter defined) of Employee; or
----------
(d) Written notice to Employee from Employer of termination
for "just cause" (as hereinafter defined).
----------
For purposes of Section 7(c), the "disability" of Employee will mean
----------
his inability, because of mental or physical illness or incapacity, to perform
his duties under this Agreement for a continuous period of 180 days or for 180
days out of a 210-day period. For purposes of Section 7(d), "just cause" shall
----------
mean Employee shall commit any act in bad faith and to the detriment of Employer
or shall omit to take any action in bad faith and to the detriment of Employer.
Notwithstanding anything to the contrary in this Agreement, the
provisions of Section 6 will survive any termination, for whatever reason, of
Employee's employment under this Agreement. In the event of the termination of
Employee's employment prior to the completion of the Term, Employee or his
estate, as the case may be, will be entitled only to the Salary payable pursuant
to Section 5 hereof through the end of the calendar month in which termination
occurs.
-5-
<PAGE>
8. REMEDIES. Employee recognizes and acknowledges that in the event of
any default in, or breach of any of, the terms, conditions or provisions of this
Agreement by Employee, Employer's and its affiliates remedies at law will be
inadequate. Accordingly, Employee agrees that in such event, Employer and its
affiliates will have the right of specific performance and/or injunctive relief
in addition to any and all other remedies and rights at law or in equity, and
such rights and remedies will be cumulative.
9. ACKNOWLEDGMENTS. Employee acknowledges and recognizes that the
enforcement of any of the provisions set forth in Section 6 by Employer and its
affiliates will not interfere with Employee's ability to pursue a proper
livelihood. Employee recognizes and agrees that the enforcement of this
Agreement is necessary to ensure the preservation and continuity of the business
and good will of Employer and its affiliates.
10. SEVERABILITY. In the event that, notwithstanding the foregoing, any
part of any covenant set forth in this Agreement shall be held to be invalid or
unenforceable, the remaining parts thereof shall nevertheless continue to be
valid and enforceable as though the invalid or unenforceable parts had not been
included therein. In the event that any provision of this Agreement relating to
time periods and/or areas of restriction shall be declared by a court of
competent jurisdiction to exceed the maximum time period or areas such court
deems reasonable and enforceable, said time period and/or areas of restriction
shall be deemed modified so as to become and thereafter be the maximum time
period and/or areas which such court deems reasonable and enforceable. Any
provision of this Agreement otherwise prohibited by or unenforceable under any
applicable law or public policy in any jurisdiction which cannot be reformed in
accordance with the provisions hereof shall, as to such jurisdiction, be
ineffective without affecting any other provision of this Agreement or shall be
deemed to be severed or otherwise modified to conform with such law or public
policy, and the remaining provisions of this Agreement shall remain in force,
provided that the purpose of this Agreement can be effected. To the full extent,
however, that the provisions of such applicable law or public policy may be
waived, this Agreement shall be deemed to be a waiver thereof. The parties
understand and agree that all of the covenants set forth herein are and shall be
separately enforceable, and the parties shall promptly attempt in good faith to
negotiate a substitute for any invalid provision in order to preserve, to the
extent legally possible, the original intent of the parties with respect to this
Agreement.
11. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram,
-6-
<PAGE>
if to Employer, to
HOLD Billing Services, Ltd.
c/o Avery Communications, Inc.
190 South LaSalle, Suite 1410
Chicago, IL 60603
Attention: Patrick J. Haynes, III; and,
if to Employee, to
Harold D. Box
11550 IH 10 West, Suite 285
San Antonio, Texas 78230,
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
12. OTHER OBLIGATIONS. Employee represents and warrants that he has not
as of the execution of this Agreement assumed any obligations inconsistent with
those contained herein.
13. MISCELLANEOUS.
13.1 Headings. The headings contained in this Agreement are
for purposes of convenience only and shall not affect the meaning or
interpretation of this Agreement.
13.2 Entire Agreement. This Agreement (including the Schedules
hereto) and the Collateral Agreements (when executed and delivered)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect
to the subject matter hereof.
13.3 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of
which shall together constitute one and the same instrument.
13.4 Governing Law, Etc. THIS AGREEMENT SHALL BE GOVERNED IN
ALL RESPECTS, INCLUDING AS TO VALIDITY, INTERPRETATION AND EFFECT, BY
THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS RULES THEREOF. EMPLOYER AND EMPLOYEE HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF
TEXAS AND THE FEDERAL COURTS OF THE
-7-
<PAGE>
UNITED STATES OF AMERICA LOCATED IN THE STATE OF TEXAS, CITY AND COUNTY
OF BEXAR SOLELY IN RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE
PROVISIONS OF THIS AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS
AGREEMENT, AND HEREBY WAIVE, AND AGREE NOT TO ASSERT, AS A DEFENSE IN
ANY ACTION, SUIT OR PROCEEDING FOR THE INTERPRETATION OR ENFORCEMENT
HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT SUBJECT THERETO OR THAT
SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS NOT
MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE
APPROPRIATE OR THAT THIS AGREEMENT OR ANY OF SUCH DOCUMENT MAY NOT BE
ENFORCED IN OR BY SAID COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE
THAT ALL CLAIMS WITH RESPECT TO SUCH ACTION OR PROCEEDING SHALL BE
HEARD AND DETERMINED IN SUCH A TEXAS STATE OR FEDERAL COURT. EMPLOYER
AND EMPLOYEE HEREBY CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION
OVER THE PERSON OF SUCH PARTIES AND OVER THE SUBJECT MATTER OF ANY SUCH
DISPUTE AND AGREE THAT MAILING OF PROCESS OR OTHER PAPERS IN CONNECTION
WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER PROVIDED IN SECTION
11, OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW, SHALL BE VALID
AND SUFFICIENT SERVICE THEREOF.
13.5 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
13.6 Assignment. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written
consent of the other party hereto.
13.7 No Third Party Beneficiaries. Nothing in this Agreement
shall confer any rights upon any person or entity other than the
parties hereto and their respective heirs, successors and permitted
assigns, and any and all current or future affiliates of Employer,
including, without limitation, ACI and its affiliates, which are
intended third-party beneficiaries of this Agreement.
13.8 Amendment; Waivers, Etc. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or
binding unless set forth in writing and duly executed by the party
against whom enforcement of the amendment, modification, discharge or
waiver is sought. Any such waiver shall constitute a waiver only with
respect to the specific matter described in such writing and shall in
no way impair the rights of the party granting such waiver in any other
respect or at any other time. Neither the waiver by any of the parties
hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more
occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a
waiver of any other breach or default of a similar nature, or as a
waiver of any of such provisions, rights or privileges
-8-
<PAGE>
hereunder. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may
otherwise have at law or in equity.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.
SIGNATURES OF THE PARIES ARE ON THE FOLLOWING PAGE.]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
HOLD BILLING SERVICES, LTD.
By: Avery Acquisition Sub, Inc.
Its General Partner
By:________________________
Patrick J. Haynes, III
Chairman
___________________________________
Harold D. Box
-10-
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made and entered into by
and between AVERY COMMUNICATIONS, INC., a Delaware corporation (the "Company"),
and MARK NIELSEN, an individual resident of San Juan Capistrano, California (the
"Executive"), effective for all purposes as of the 1st day of December, 1998.
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company desires to employ the Executive as the President
and Chief Executive Officer of the Company, and the Executive desires to accept
such employment, on the terms and conditions set forth in this Agreement.
WHEREAS, the Executive acknowledges that as the President and Chief
Executive Officer of the Company, he is one of the officers of the Company
charged with primary responsibility for the implementation of the Company's
business plans, and that he will have regular access to various confidential
and/or proprietary information relating to the Company. Further, the Executive
acknowledges that the Executive's proprietary covenants to the Company
hereinafter set forth, specifically including, but not limited to, the
Executive's covenant not to compete with any business of the Avery Companies
(hereinafter defined), are being made in partial consideration for the Company's
compensation and severance benefit undertakings to the Executive created by the
provisions of this Agreement.
A G R E E M E N T:
- - - - - - - - -
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and the Executive agree as follows:
1. EMPLOYMENT. Subject to the terms and conditions set forth in this
----------
Agreement, the Company agrees to employ and does hereby employ the Executive,
and the Executive agrees to accept such employment and does hereby accept such
employment.
2. TERM. Subject to earlier termination as hereinafter provided, the
----
Executive's employment hereunder shall be for an initial term (the "Initial
Term") commencing on the effective date hereof and continuing for a period of
one (1) year; provided, however, that the term of Executive's employment
hereunder shall be automatically extended for successive one (1) year periods
(each, a "Renewal Term") unless either party gives the other written notice of
termination at least sixty (60) days prior to the expiration of the Initial Term
or the then current Renewal Term. The Initial Term and the Renewal Terms are
collectively referred to herein as the "Term."
<PAGE>
3. CAPACITY AND PERFORMANCE.
------------------------
(a) During the Term hereof, the Executive shall serve as
President and Chief Executive Officer of the Company and shall have the
responsibilities, duties and authorities reasonably assigned to him by
the Board of Directors of the Company (the "Board"). The Executive
shall report directly to the Board.
(b) During the Term hereof, the Executive shall devote the
Executive's full business time and the Executive's best efforts,
business judgment, skill and knowledge to the advancement of the
business and interests of the Company and its consolidated subsidiaries
(collectively, the "Avery Companies") and to the discharge of the
Executive's duties and responsibilities hereunder; provided, however,
that the Executive shall be allowed a reasonable amount of time to meet
the Executive's obligations to Primal Systems, Inc. and Wireless21,
Inc. However, if the Company at any time identifies a conflict of
interest with respect to either Primal Systems, Inc. or Wireless21,
Inc., or both, and any of the Avery Companies, the Company shall so
notify the Executive and, if a mutual agreement cannot be reached, this
Agreement may be terminated by the Company, provided that such
termination shall be deemed to be without Cause. In addition, the
Company encourages reasonable participation by the Executive in
community, industry, trade, professional, governmental, academic and
charitable activities generally considered to be in the Company's
and/or the public interest, but the Company shall have the right to
approve or disapprove the Executive's participation in such activities
if, in the reasonable judgment of the Company, such participation may
conflict with the Company's interests or with the Executive's duties or
responsibilities or the time required for the discharge of those duties
and responsibilities. The Executive shall use the Executive's best
efforts and skills to preserve the business of the Avery Companies and
the goodwill of each of their employees and persons having business
relations with any of the Avery Companies.
4. COMPENSATION AND BENEFITS. As compensation for all services
---------------------------
performed by the Executive under and during the Term hereof:
(a) Base salary. The Company shall pay the Executive a base
-----------
salary at the rate of not less than Two Hundred Thousand and No/100
Dollars ($200,000.00) per annum, payable in equal installments in
accordance with the payroll practices of the Company for its
executives, but not less frequently than monthly in arrears and subject
to federal, state and other tax withholdings.
(b) Additional Compensation. The Executive will be entitled to
-----------------------
receive an aggregate bonus in an amount equal to $100,000 payable as
follows: $50,000 on the date which is the six (6) month anniversary of
the date of this Agreement and $50,000 on the date which is the twelve
(12) month anniversary of the date of this Agreement.
The Executive shall also be entitled to receive each year
additional bonus compensation as may be determined by the Board in its
sole discretion.
- 2 -
<PAGE>
(c) Other benefits. During the Term hereof and subject to any
--------------
contribution therefor generally required of executives of the Avery
Companies, the Company shall either procure for the Executive health
insurance coverage, life insurance coverage and disability insurance
coverage in such amounts as the Board shall determine in its absolute
discretion, or, at the option of the Executive if the Executive elects
to provide the Executive's own comparable insurance coverage, reimburse
the Executive in an amount not to exceed $1,200.00 per month for
premiums paid by the Executive for providing such health insurance
coverage, life insurance coverage and disability insurance coverage;
provided, however, that in either event, the types and amounts of such
coverage shall be of a type and in the amounts which are comparable to
the types and amounts of such coverages which are provided by the Avery
Companies to similarly situated executives. Further, the Executive
shall be entitled to receive such of the Company's other fringe
benefits as are being provided to other employees of the Company who
are officers of the Company. The Company may alter, modify, add to or
delete its benefit plans at any time as it determines to be
appropriate, without recourse by the Executive.
(d) Vacations. During the Term hereof, the Executive shall be
---------
entitled to four (4) weeks of vacation per annum, to be taken at such
times and intervals as shall be determined by the Executive, with the
consent of the Company, which consent shall not unreasonably be
withheld. Up to a maximum of two (2) weeks of unused vacation may be
carried forward to the next year.
(e) Business Expenses. The Company shall pay or reimburse the
-----------------
Executive for all reasonable and customary expenses incurred or paid by
the Executive in the performance of the Executive's duties and
responsibilities hereunder (including, payment of "mileage" for
business use of Executive's personal automobile, in accordance with the
policy of the Avery Companies), subject to periodic review of the
amount of such expenses from time to time by the Company, and subject
to such reasonable substantiation and documentation as may be specified
by the Company from time to time.
(f) Options. Simultaneously with the execution of this
-------
Agreement, the Executive and the Company shall enter into an Option
Agreement, in form and substance satisfactory to the Executive and the
Company, providing for the issuance to the Executive of options to
purchase an aggregate of 925,000 shares of the common stock, par value
$0.01 per share, of the Company, on such terms and conditions as shall
be contained therein.
(g) California Office. The Company shall provide the Executive
-----------------
with a suitable office located in the Orange County metropolitan area
and such administrative support as the Company in its sole discretion
may deem necessary or appropriate. The location of such office in the
Orange County metropolitan area shall be reasonably geographically
convenient to the Executive's home as of the date of this Agreement.
The Company's obligation under this Paragraph shall be satisfied for
the first three calendar months of the Initial Term by the Company's
paying the rent on the Executive's existing office space for the first
three calendar months of the Initial Term, which rent shall not exceed
$1,500 per month.
- 3 -
<PAGE>
5. TERMINATION.
------------
(a) Death or Disability. This Agreement shall terminate upon
-------------------
the death or Disability (as hereinafter defined) of the Executive. The
term "Disability" shall mean the Executive is unable to perform the
Executive's duties under this Agreement on a full-time basis for 180
consecutive days or for 180 days out of 360 consecutive days due to the
Executive's physical or mental illness.
(b) Termination by the Company for Cause. The Company may
---------------------------------------
terminate the Executive's employment hereunder for Cause, and, upon
such termination of Executive's employment for Cause, this Agreement
shall terminate. The following, as determined by the Company in its
reasonable judgment, shall constitute Cause for termination:
(i) The Executive's gross negligence or willful
misconduct in the performance of the Executive's duties and
responsibilities to any of the Avery Companies, such duties
and responsibilities not to be unreasonably imposed;
(ii) Material breach by the Executive of any
provision of this Agreement;
(iii) Fraud, embezzlement or other dishonesty by the
Executive with respect to any of the Avery Companies;
(iv) Conviction of, or a plea of nolo contendere to,
a felony by the Executive; or
(v) The Executive's intentional failure to comply
with any instructions of the Board, such instructions not to
be unreasonably imposed;
provided, however, in the case of subparagraphs (i), (ii) and (v), the
Executive shall have been informed in writing of the act, or failure to
act, constituting Cause for termination, and shall have been provided
with a reasonable opportunity, but in no event greater than sixty (60)
days, to cure such act or failure to act. Notwithstanding the foregoing
sentence, the Executive shall be entitled to written notification and
opportunity to cure an act, or failure to act, constituting Cause for
termination no more than one time. Subsequent to such initial
notification and cure period, the Executive shall have no right to cure
any subsequent act, or failure to act, and the Company may proceed with
termination for Cause as defined herein without further notice to the
Executive.
(c) Termination by Executive With or Without Good Reason. The
----------------------------------------------------
Executive may terminate the Executive's employment with the Company for
"Good Reason" or without "Good Reason" at any time, and, upon the
termination by the Executive of Executive's employment with the Company
for "Good Reason" or without "Good Reason," this Agreement shall
terminate. For purposes of this Agreement, "Good Reason" shall mean (i)
any breach by the Company of any material provision of this Agreement
or any failure by
- 4 -
<PAGE>
the Company to carry out any of its material obligations hereunder, and
the failure to cure such breach or failure within sixty (60) days'
written notice thereof from the Executive; (ii) relocation of the
Executive outside of the Orange County metropolitan area; (iii) a
reduction in the Executive's annual base salary; (iv) assignment to the
Executive of duties materially inconsistent with the Executive's role
as President and Chief Executive Officer of the Company; (v)the removal
(but not the resignation) from the Board; or (vi) the failure to elect
the Executive to the position of Chairman of the Board of the Company
within twelve (12) months following the date of this Agreement.
(d) Notice of Termination. Any termination of the Executive's
---------------------
employment under this Agreement, other than as a result of the
Executive's death, including, without limitation, any termination of
Executive's employment under this Paragraph 6, other than as a result
of the Executive's death, or Paragraph 7, shall be communicated by a
"Notice of Termination" to the other parties to this Agreement. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice in writing given pursuant to Paragraph 13, which shall indicate
the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's
employment under the provisions so indicated.
(e) Date of Termination. If the Executive's employment under
-------------------
this Agreement is terminated for any reason other than a non-renewal of
this Agreement after the Term of this Agreement has expired, the date
of termination of this Agreement (the "Date of Termination") shall mean
(i) if the Executive's employment is terminated under this Agreement as
a result of death, the date of the Executive's death; (ii) if the
Executive's employment is terminated as a result of the Executive's
Disability, or if Executive's employment with the Company is terminated
by the Company without Cause or for Cause, the date Notice of
Termination is delivered to the Executive; (iii) if the Executive
terminates the Executive's employment with the Company, the earlier of
ten (10) days following the date on which a Notice of Termination is
delivered pursuant to Paragraph 13 or the date specified in the Notice
of Termination; or (iv) if the Executive's employment is terminated for
any other reason, then ten (10) days following the date on which a
Notice of Termination is delivered pursuant to Paragraph 13.
6. EFFECTS ON COMPENSATION UPON DEATH, DISABILITY OR TERMINATION
--------------------------------------------------------------
OF EMPLOYMENT.
--------------
(a) Death. If the employment of the Executive terminates
-----
because of the Executive's death, the Company shall pay the Executive's
estate the Executive's base salary pursuant to Paragraph 4(a) through
the date of the Executive's death.
(b) Disability. During any period in which the Executive fails
----------
to perform the Executive's duties under this Agreement as a result of a
Disability, the Company shall continue to pay the Executive the
Executive's base salary pursuant to Paragraph 4(a) until the Date of
Termination.
- 5 -
<PAGE>
(c) Termination for Cause or Without Good Reason. If the
------------------------------------------------
Executive voluntarily terminates employment with the Company without
Good Reason or if the Executive's employment is terminated by the
Company for Cause, the Company shall pay the Executive the Executive's
base salary pursuant to Paragraph 4(a) through the Date of Termination.
(d) Termination for Good Reason, without Cause or Non-Renewal
----------------------------------------------------------
Following the Initial Term. If the Executive terminates employment with
--------------------------
the Company for Good Reason, if employment of the Executive is
terminated without Cause by the Company, or if this Agreement is not
renewed by the Company following the Initial Term pursuant to the
provisions of Paragraph 2, then, unless otherwise mutually agreed by
the parties, the Executive shall be entitled to the continuation of
base salary and benefits pursuant to Paragraphs 4(a) and (c) for a
period of twelve (12) months following the Date of Termination. If such
termination occurs within the Initial Term, the Executive shall be
entitled to receive the additional compensation provided pursuant to
the first paragraph of Paragraph 4(b) in accordance with its terms.
(e) Additional Compensation. Following the Initial Term,
------------------------
should the employment of the Executive terminate as a result of a death
or Disability, or should the Executive terminate employment for Good
Reason, or if the employment of the Executive is terminated by the
Company without Cause, in addition to the compensation set forth in
subparagraphs (a), (b) or (d) of this Paragraph 6, whichever is
applicable, the Executive (or the Executive's estate, if applicable)
shall also be entitled to the additional compensation, if any, under
Paragraph 4(b), calculated on the Partial Period Amount (hereinafter
defined) of the year in which the Date of Termination occurs. For
purposes of this Agreement, the term "Partial Period Amount" shall be
an amount equal to the additional compensation to which the Executive
would have otherwise been entitled had the employment of the Executive
not terminated, times a fraction, the numerator of which is the number
of days from the first day of the year in which such termination occurs
to and including the Date of Termination, and the denominator of which
is 365.
7. CHANGE IN CONTROL.
------------------
(a) Definitions. For purposes of this Paragraph 7, the
-----------
following terms have the meanings set forth below:
(i) "Change in Control" shall mean (A) the
acquisition of more than 50% of the outstanding voting stock
of the Company by any person or group (other than stockholders
of the Company on the date of this Agreement) which is
accompanied by a change in the composition of the Board (as
constituted on the day immediately preceding such acquisition)
as to a majority of its members within thirty (30) days
following the occurrence of such acquisition or (B) a
transaction in which substantially all of the consolidated
assets of the Company are sold.
- 6 -
<PAGE>
(ii) "Justification" means that, following a Change
in Control and without the Executive's written consent, there
has been (A) any breach by the Company of any material
provision of this Agreement or any failure by the Company to
carry out any of its material obligations hereunder, and the
failure to cure such breach or failure within sixty (60) days'
written notice thereof from the Executive; (B) a relocation of
the Executive outside of the Orange County metropolitan area;
(C) a reduction in the Executive's annual base salary; (D) an
assignment to the Executive of duties materially inconsistent
with the Executive's role as President and Chief Executive
Officer of the Company; (E) the removal (but not the
resignation) of the Executive from the Board; or (F) if the
Executive has been elected as Chairman of the Board of the
Company, the removal of the Executive from the position of
Chairman of the Board of the Company.
(b) Termination Following a Change in Control. If a Change in
------------------------------------------
Control occurs prior to the Date of Termination, and, within twelve
(12) months after such Change in Control, (i) the Executive's
employment is terminated by the Company without Cause or (ii) the
Executive terminates employment with Justification, then the Executive
shall be entitled to the continuation of base salary and benefits
pursuant to Paragraphs 4(a) and (c) for a period of twelve (12) months
from the Date of Termination and to the payment of any additional
compensation, in accordance with the terms of Paragraph 4(b) or as
shall have been determined by the Board pursuant to Paragraph 4(b), to
which the Executive is entitled pursuant to Paragraph 4(b).
8. NONDISCLOSURE COVENANTS. During the Term of this Agreement, the
------------------------
Executive will have access to and become familiar with various trade secrets and
other sensitive information belonging to any of the Avery Companies consisting
of, but not limited to, processes, computer programs, compilations of
information, records, sales procedures, customer requirements, pricing
techniques, customer lists, technical data, know-how, market reports, consumer
investigations, methods of doing business and other confidential and proprietary
information (collectively, the "Confidential Information"), which are acquired,
developed and used by any of the Avery Companies and regularly used in the
operation of any of their businesses. The Executive acknowledges and agrees all
Confidential Information is and shall remain the property of the Avery
Companies. Except as hereinafter set forth in this Paragraph 8, the Executive
further agrees he shall not use in any way or disclose any of the Confidential
Information, directly or indirectly, either during the Term of this Agreement
and for a period of three (3) years after following the Date of Termination,
except as required in the course of the Executive's employment under this
Agreement or to the extent such Confidential Information is publicly known. All
files, records, documents, information, data, and similar items, which in any
way relate to the business of any of the Avery Companies and are either
furnished to the Executive by the Avery Companies, or prepared, compiled or
otherwise acquired by the Executive while the Executive was employed by the
Company, shall remain the exclusive property of the Avery Companies and shall
not be removed from the premises of the Avery Companies under any circumstances
without the prior written consent of the Board (except in the ordinary course of
business during the Executive's period of active employment under this
Agreement), and in any event shall be promptly delivered to the Company (without
the
- 7 -
<PAGE>
Executive retaining any copies) upon termination of this Agreement. The Company
expressly acknowledges and agrees that the term "Confidential Information"
excludes information which is (i) in the public domain or otherwise generally
known to the trade, or (ii) disclosed to third parties other than by reason of
the Executive's breach of the Executive's confidentiality obligation hereunder
or (iii) learned of by the Executive either prior to the commencement of or
subsequent to the termination of the Executive's employment hereunder from any
other party not then under an obligation of confidentiality to the Company.
9. NONCOMPETITION COVENANT. Upon the termination of the Executive's
------------------------
employment hereunder (except in the cases of the Executive's terminating
employment Executive's employment with the Company for Good Reason or with
Justification, or the termination of Executive's employment with the Company by
the Company without Cause), the Executive shall not, without the prior written
consent of the Company, for the period ending one (1) year following the Date of
Termination, directly or indirectly, as a director, officer, agent, employer,
employee, principal, proprietor, partner, consultant or independent contractor,
or in any other individual or representative capacity, (i) invest (other than
investments in publicly-owned companies which constitute not more than five
percent (5%) of the outstanding securities of any such company) or engage in any
business or activity that is directly competitive with any business of the Avery
Companies as of the Date of Termination, or (ii) accept employment with or
render services to a direct competitor of any business of any of the Avery
Companies.
10. COVENANT NOT TO HIRE. For a period of one (1) year following the
--------------------
Date of Termination, the Executive shall not, on the Executive's own behalf or
on behalf of any other person, partnership, association, corporation or other
entity, hire, or solicit for employment, any employee of any of the Avery
Companies, or in any manner attempt to influence or induce any employee of any
of the Avery Companies to leave the employment of any of the Avery Companies,
nor shall the Executive use or disclose to any person, partnership, association,
corporation or other entity any information obtained while an employee of the
Company concerning the names and addresses of the Avery Companies' employees.
11. MEMBER OF BOARD. The Company agrees that the Executive shall be
---------------
elected as a member of the Board on or before December 15, 1998, and shall
continue in such position through and including the Date of Termination.
12. SEVERABILITY. If any provision of this Agreement is held to be
------------
illegal, invalid or unenforceable under present or future laws effective during
the Term hereof, such provision shall be fully severable and this Agreement
shall be construed and enforced as if such illegal, invalid or unenforceable
provision never comprised a part of this Agreement; and the remaining provisions
of this Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid or unenforceable
provision, there shall be added automatically as part of this Agreement a
provision as similar in its terms to such illegal, invalid or unenforceable
provision as may be possible and be legal, valid and enforceable.
- 8 -
<PAGE>
13. NOTICE. All notices, demands, requests or other communications
------
which may be or are required to be given, served or sent by any party to any
other party pursuant to this Agreement shall be in writing and shall be mailed
by first-class, registered or certified mail, return receipt requested, postage
prepaid, or transmitted by hand delivery, telegram or facsimile transmission
addressed as set forth on the signature pages hereof. Each party may designate
by notice in writing a new address to which any notice, demand, request or
communication may thereafter be so given, served or sent. Each notice, demand,
request or communication which is mailed, delivered or transmitted in the manner
described above shall be deemed sufficiently given, served, sent and received
for all purposes at such time as it is delivered to the addressee with the
return receipt, the delivery receipt, the affidavit of messenger or (with
respect to a facsimile transmission) the answer back being deemed conclusive
evidence of such delivery, or at such time as delivery is refused by the
addressee upon presentation.
14. AMENDMENT; WAIVER. No provisions of this Agreement may be modified,
-----------------
waived or amended unless such waiver, modification or amendment is agreed to in
writing and signed by the Executive and such officers as may be specifically
designated by the Board, and such provisions shall be modified, waived or
amended only to the extent set forth in such writing.
15. VALIDITY. The invalidity or unenforceability of any provision of
--------
this Agreement shall not effect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
17. GENERAL CREDITOR. Nothing contained in this Agreement and no action
----------------
taken pursuant to the provisions of this Agreement shall create or be construed
to create a trust relationship between the Company and the Executive or any
other person, nor shall any money or property of the Company be segregated for
the benefit of the Executive to satisfy the obligations of the Company
hereunder.
18. NO ASSIGNMENT. The right of the Executive or any other person to
--------------
the payment of amounts or other benefits under this Agreement shall not be
assigned, alienated, hypothecated, placed in trust, disposed of, transferred,
pledged or encumbered (except by will or by the laws of descent and
distribution), and, to the extent permitted by law, no such amount or payment
shall in any way be subject to any legal process to subject the same to the
payments of any claim against the Executive or any other person.
19. INJUNCTIVE RELIEF. If there is a breach or threatened breach by a
------------------
party to this Agreement of the provisions of this Agreement, any other party to
this Agreement shall be entitled to seek an injunction to prevent irreparable
injury to said party.
20. INTEGRATION. This Agreement represents the entire understanding and
-----------
agreement between the parties with respect to the subject matter of this
Agreement, and all other written or oral agreements relating to the subject
matter hereof are hereby superseded.
- 9 -
<PAGE>
21. GOVERNING LAW. The terms and provisions of this Agreement shall be
-------------
construed in accordance with, and governed by, the laws of the State of
Delaware.
22. EXECUTIVE'S LEGAL FEES. The Company shall reimburse the legal fees
-----------------------
and related expenses incurred by the Executive in connection with the
negotiation, preparation and review of this Agreement and the related stock
options contemplated hereby in an amount not to exceed $5,000.00.
23. SURVIVAL. Notwithstanding the termination of this Agreement or the
--------
Executive's termination of employment, the provisions of Paragraphs 8 through 23
shall survive and continue in full force and effect in accordance with their
terms.
IN WITNESS WHEREOF, the parties have executed this Agreement to be
effective as of the date first written above.
THE COMPANY:
-----------
AVERY COMMUNICATIONS, INC.
a Delaware corporation
By: /s/ PATRICK J. HAYNES, III
--------------------------------------------
Patrick J. Haynes, III
Chairman of the Board, President and Chief
Executive Officer
190 South LaSalle Street, Suite 1710
Chicago, IL 60603
Telecopy No.: (312) 419-0172
EXECUTIVE:
---------
/s/ MARK NIELSEN
--------------------------------------------------
Mark Nielsen
31621 Via Quixote
San Juan Capistrano, CA 92675
Telecopy No.: (949) 248-1421
<PAGE>
EXHIBIT 10.5
AVERY COMMUNICATIONS, INC.
STOCK OPTION
FOR
925,000 SHARES
OF
COMMON STOCK, PAR VALUE $0.01 PER SHARE
____________________________________________________________
MARK NIELSEN
____________________________________________________________
DECEMBER 1, 1998
<PAGE>
NONQUALIFIED STOCK OPTION AGREEMENT
This Nonqualified Stock Option Agreement (this "Agreement") is entered
into between Avery Communications, Inc., a Delaware corporation (the "Company"),
and Mark Nielsen (the "Optionee") as of the December 1, 1998. This Agreement is
the Stock Option to which reference is made in that certain Employment Agreement
(the "Employment Agreement") dated as of December 1, 1998, by and between the
Company and the Optionee. All terms defined in the Employment Agreement are used
in this Agreement with the same meanings as assigned to such terms in the
Employment Agreement unless otherwise defined herein or the context clearly
otherwise requires.
In consideration of the mutual promises and covenants made herein, the
parties hereby agree as follows:
1. GRANT OF OPTION. The Company grants to the Optionee an option (this
"Option") to purchase from the Company all or any part of a total of 925,000
shares (collectively, the "Option Shares") of the Company's Common Stock (as
hereinafter defined), par value $0.01 per share (the "Common Stock"), at an
initial purchase price of $2.00 per share (the "Initial Purchase Price"). The
Initial Purchase Price is subject to adjustment as hereinafter provided. The
Initial Purchase Price at any time in effect or, in the case of any such
adjustment, such Initial Purchase Price as most recently so adjusted, is herein
called the "Current Purchase Price." The Option is granted as of December 1,
1998.
2. CHARACTER OF OPTION. This Option is not an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code").
3. TERM. This Option will expire at 5:00 p.m., Chicago time, on
November 30, 2008 (the "Option Termination Date").
4. CONDITIONS PRECEDENT. The Company will not issue or deliver any
certificate for Option Shares pursuant to the exercise of this Option prior to
fulfillment of all of the following conditions:
(a) The admission of the Option Shares to listing on all stock
exchanges on which the Common Stock is then listed, unless the Committee (as
hereinafter defined) determines in its sole discretion that such listing is
neither necessary nor advisable;
(b) The completion of any registration or other qualification
of the sale of the Option Shares under any federal or state law or under the
rulings or regulations of the Securities and Exchange Commission or any other
governmental regulatory body that the Committee in its sole discretion deems
necessary or advisable; and
(c) The obtaining of any approval or other clearance from any
federal or state governmental agency that the Committee in its sole discretion
determines to be necessary or advisable.
<PAGE>
Anything in this Agreement to the contrary notwithstanding, if the Company is
unable to issue or deliver certificates for Option Shares for any reason set
forth in (a), (b) or (c) above, then the period of time within which this Option
may be exercised under the applicable provisions of Sections 3 and 10 hereof
shall, with respect to all Option Shares for which certificates cannot be so
issued or delivered ("Applicable Option Shares"), be extended by an interval of
time equal to the interval of time elapsing between the date of the Optionee's
exercise made in respect of those Applicable Option Shares and the date that
certificates evidencing those Applicable Option Shares are issued and delivered
to the Optionee.
5. VESTING. Subject to the provisions of this Agreement, the Option may
be exercised according to the following schedule:
NUMBER OF OPTION SHARES DATE OF VESTING
----------------------- ---------------
462,500 December 1, 1998
231,250 March 1, 1999
231,250 June 1, 1999
From and after the dates set forth above on which this Option becomes
exercisable, the number of Option Shares set forth to the left of such dates
shall be deemed to be fully vested in the Optionee (all of such fully vested
Option Shares being hereinafter referred to collectively as the "Vested
Shares"). Except as provided in Section 10 hereof, the Optionee shall have the
----------
right to exercise this Option with respect to all or any part of the Vested
Shares at any time and from time to time until the Option Termination Date. The
unexercised portion of this Option from one period may be carried over to a
subsequent period or periods, and the right of the Optionee to exercise the
Option as to such unexercised portion shall continue through and until the
earlier of the dates hereinafter set forth or the Option Termination Date.
6. PROCEDURE FOR EXERCISE. Exercise of this Option or a portion hereof
shall be effected by the Optionee's giving of written notice to the Company at
the offices of the Company located at 190 South LaSalle Street, Suite 1710,
Chicago, Illinois 60603, and paying the Current Purchase Price for the Option
Shares to be acquired pursuant to the exercise.
7. PAYMENT OF PURCHASE PRICE. The Current Purchase Price for any Option
Shares purchased will be paid at the time of exercise of this Option either (i)
in cash; (ii) by certified or cashier's check; (iii) by delivery to the Company
of shares of Common Stock already owned by the Optionee having a Fair Market
Value (as hereinafter defined) equal to the exercise price, if permitted by the
Committee in its sole discretion at the time of exercise; or (iv) in any other
form of valid consideration, as permitted by the Committee in its sole
discretion at the time of exercise.
8. ACCELERATION IN CERTAIN EVENTS. Notwithstanding any provision of
this Agreement to the contrary, the following provisions will apply:
- 2 -
<PAGE>
(a) Mergers and Reorganizations. If the Company or its
shareholders enter into an agreement to dispose of all or substantially all of
the assets of the Company, on a consolidated basis, by means of a sale, merger
or other reorganization, liquidation or otherwise in a transaction in which the
Company is not the surviving corporation, all Option Shares shall thereupon
become Vested Shares and this Option will become immediately exercisable with
respect to the full number of shares subject to this Option during the period
commencing as of the date of the agreement to dispose of all or substantially
all of the assets of the Company and ending when the disposition of assets
contemplated by that agreement is consummated; provided, however, that no Option
Shares will become Vested Shares under this Section on account of any agreement
of merger or other reorganization when the shareholders of the Company
immediately before the consummation of the transaction will own at least fifty
percent of the total combined voting power of all classes of stock entitled to
vote of the surviving entity immediately after the consummation of the
transaction. This Option will not become immediately exercisable if the
transaction contemplated in the agreement is a merger or reorganization in which
the Company will survive.
(b) Change in Control. In the event of a Change in Control of
the Company, this Option will become immediately exercisable and all Option
Shares shall become Vested Shares. This Option may be fully exercised, to the
extent that it remains unexercised on the date of a Change in Control, by the
Optionee, by the Optionee's personal representative or by the distributees to
whom the Optionee's rights under this Option shall pass by will or by the laws
of descent and distribution through and including the Option Termination Date.
9. TAX WITHHOLDING.
(a) Condition Precedent. The issuances of Option Shares
pursuant to the exercise of this Option are subject to the condition that if at
any time the Committee determines, in its discretion, that the satisfaction of
withholding tax or other withholding liabilities under any federal, state or
local law is necessary or desirable as a condition of, or in connection with
such issuances, then the issuances will not be effective unless the withholding
has been effected or obtained in a manner acceptable to the Committee.
(b) Manner of Satisfying Withholding Obligation. When the
Optionee is required to pay to the Company an amount required to be withheld
under applicable income tax laws in connection with the purchase of Option
Shares upon exercise of this Option, such payment may be made at the Optionee's
election (i) in cash; (ii) by check; (iii) by delivery to the Company of shares
of Common Stock already owned by the Optionee having a Fair Market Value (as
hereinafter defined) on the date the amount of tax to be withheld is to be
determined (the "Tax Date") equal to the amount required to be withheld; (iv)
through the withholding by the Company of a portion of the Option Shares
acquired upon the exercise of the Options having a Fair Market Value on the Tax
Date equal to the amount required to be withheld; or (v) in any other form of
valid consideration permitted by the Committee in its sole discretion.
- 3 -
<PAGE>
10. RIGHTS OF OPTIONEE UPON TERMINATION OF EMPLOYMENT. If the
Optionee's employment with the Company under the Employment Agreement is
terminated, this Option may be exercised as follows:
(a) Death. If the Optionee dies during the Term of the
Employment Agreement, this Option shall become fully exercisable with respect to
all Option Shares on the date of Optionee's death and all Option Shares shall
thereafter be Vested Shares. This Option may be fully exercised, to the extent
that it remains unexercised on the date of death, by the Optionee's personal
representative or by the distributees to whom the Optionee's rights under this
Option shall pass by will or by the laws of descent and distribution through and
including the Option Termination Date.
(b) Disability. If the Optionee's employment with Company
pursuant to the Employment Agreement is terminated as a result of Optionee's
Disability, this Option shall become fully exercisable with respect to all
Option Shares and all Option Shares shall thereafter be Vested Shares. This
Option may be fully exercised, to the extent that it remains unexercised on the
Date of Termination for Disability, by the Optionee, the Optionee's personal
representative or by the distributees to whom the Optionee's rights under this
Option shall pass by will or by the laws of descent and distribution through and
including the Option Termination Date.
(c) Termination Without Good Reason or for Cause. If the
Optionee voluntarily terminates employment with the Company under the Employment
Agreement without Good Reason during the Initial Term of the Employment
Agreement, or if the Optionee's employment with the Company under the Employment
Agreement is terminated for Cause during the Initial Term of the Employment
Agreement, this Option shall automatically expire on and as of the Date of
Termination and shall not be exercisable thereafter with respect to any of the
Option Shares, regardless of whether such Option Shares are Vested Shares.
(d) Termination for Good Reason, Without Cause, Non-Renewal
Following Initial Term or Without Good Reason During a Renewal Term. If (i) the
Optionee terminates employment with the Company under the Employment Agreement
for Good Reason, (ii) employment of the Optionee with the Company under the
Employment Agreement is terminated without Cause by the Company, (iii) the term
of Optionee's employment under the Employment Agreement is not automatically
extended following the expiration of the Initial Term of the Employment
Agreement pursuant to the provisions of Paragraph 2 thereof, or (iv) the
Optionee terminates Optionee's employment with the Company under the Employment
Agreement without Good Reason during any Renewal Term, this Option shall become
fully exercisable with respect to all Option Shares and all Option Shares shall
thereafter be Vested Shares. This Option may be fully exercised, to the extent
that it remains unexercised on the Date of Termination, by the Optionee, the
Optionee's personal representative or by the distributees to whom the Optionee's
rights under this Option shall pass by will or by the laws of descent and
distribution through and including 5:00 p.m., Chicago time, on the second
anniversary of the Date of Termination of the Employment Agreement.
- 4 -
<PAGE>
11. TRANSFERABILITY. This Option shall not be transferable other than
pursuant to a qualified domestic relations order, by will or by the laws of
descent and distribution.
12. ADJUSTMENT. If the outstanding Common Stock is increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities through merger, consolidation, combination, exchange of shares, other
reorganization, recapitalization, reclassification, stock dividend, stock split
or reverse stock split, an appropriate and proportionate adjustment will be made
in the number or kind of shares purchasable under any unexercised portion of
this Option. Any such adjustment will be made without change in the aggregate
Current Purchase Price applicable to the unexercised portion of this Option, but
with a corresponding adjustment in the Current Purchase Price as then in effect
for each Option Share purchasable under this Option. The foregoing adjustments
and the manner of application of the foregoing provisions will be determined
solely by the Committee, and any such adjustment may provide for the elimination
of fractional share interests.
13. AMENDMENT. This Agreement may be amended by an instrument in
writing signed by both the Company and the Optionee.
14. EMPLOYMENT OF PARTICIPANT. Nothing in this Agreement confers upon
the Optionee any right to continued employment by the Company or any of its
Subsidiaries or limit in any way the right of the Company or any Subsidiary at
any time to terminate or alter the terms of the Optionee's employment.
15. COMPLIANCE WITH SECURITIES LAWS. Option Shares will not be issued
unless the issuance and delivery of the Option Shares (and the exercise of this
Option, if applicable) complies with all relevant provisions of federal and
state law, including, without limitation, the Securities Act, the rules and
regulations promulgated thereunder and the requirements of any stock exchange
upon which the Option Shares may then be listed, and will be further subject to
the approval of counsel for the Company with respect to such compliance. The
Optionee agrees to furnish evidence satisfactory to the Company, including,
without limitation, a written and signed representation letter and consent to be
bound by any transfer restrictions imposed by law, legend, condition or
otherwise, and a representation that the Option Shares are being acquired only
for investment and without any present intention to sell or distribute the
Option Shares in violation of any federal or state law, rule or regulation.
Further, the Optionee consents to the imposition of a legend on the certificate
representing the Option Shares issued pursuant to the exercise of this Option
restricting their transferability as required by law or by this Section.
16. DEFINITIONS. As used herein with initial capital letters, the
following terms have the meanings set forth unless the context clearly indicates
to the contrary:
- 5 -
<PAGE>
"Business Day" means any day except a Saturday, Sunday or
other day on which banking institutions in the State of New York are authorized
or obligated by law or executive order to close.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Board, or, if established by the
Board, any committee of the Board delegated with the responsibility of
administering this Agreement or the Company's employee benefit plans, or both.
"Common Stock" means the Common Stock, par value $.01 per
share, of the Company or, in the event that the outstanding shares of such
Common Stock are hereafter changed into or exchanged for shares of a different
stock or security of the Company or some other corporation, such other stock or
security.
"Fair Market Value" means, with respect to a share of the
Common Stock (a "Share") as of any date, the average of the "closing price" per
Share for the ten (10) consecutive Trading Days immediately preceding such date.
The "closing price" for each such Trading Day means the last sale price for a
Share, or, if there is no reported last sale price on that day, the average of
the closing bid and asked prices, on the principal registered national
securities exchange on which the Shares are listed or admitted to unlisted
trading privileges, in either case as reported in the consolidated transaction
reporting system with respect to securities listed or admitted to unlisted
trading privileges on such exchange, or, if the Shares are not so listed or
admitted to trading, the last sale price, or, if there is no reported last sale
price on that day, the average of the closing bid and asked prices, on The
Nasdaq Stock Market, in either case as reported in the consolidated transaction
reporting system with respect to securities listed on The Nasdaq Stock Market,
or, if the Shares are not so listed, the last sale price, or if is no reported
last sale price on that day, the average of the high bid and low asked prices on
that day, in the over-the-counter market, as reported by the electronic
inter-dealer quotation system owned and operated by NASDAQ, Inc., a subsidiary
of the National Association of Securities Dealers, Inc., or, if such system is
no longer in use, the principal automated quotation system then in use, or, if
the Shares are not so quoted by any such system, the average of the high bid and
low asked prices on that day, as furnished by a registered market maker for the
Shares selected by the Board, or, if there is no such market maker or such
prices otherwise are not available, the fair market value of the Shares on that
day, as determined by the Board in its sole discretion. In the event the Company
issues to all holders of Shares rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or purchase
Shares or any other property, then the Fair Market Value of a Share shall
include the value of such rights, as determined by the Board acting in good
faith on the basis of such quotations and other information as it considers, in
its reasonable judgment, appropriate.
"Securities Act" means the Securities Act of 1933, as amended.
- 6 -
<PAGE>
"Subsidiary" means a subsidiary of the Company, as defined in
Section 424(f) of the Code.
"Trading Day" means a day on which the principal registered
national securities exchange or The Nasdaq Stock Market, as the case may be, on
which the Shares are listed or admitted to unlisted trading privileges is open
for the transaction of business, or, if the Shares are not so listed or admitted
to trading, means a Business Day.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
18. MISCELLANEOUS. This Agreement will be construed and enforced in
accordance with the laws of the State of Illinois and will be binding upon and
inure to the benefit of any successor or assign of the Company and any executor,
administrator, trustee, guarantor or other legal representative of the Optionee.
Executed as of the December 1, 1998.
THE COMPANY:
AVERY COMMUNICATIONS, INC.
By:/s/ PATRICK J. HAYNES, III
-----------------------------------------------
Patrick J. Haynes, III
Chairman of the Board, President and Chief
Executive Officer
THE OPTIONEE:
/s/ MARK NIELSEN
--------------------------------------------------
Mark Nielsen
###-##-####
--------------------------------------------------
Social Security Number of Optionee
- 7 -
<PAGE>
EXERCISE FORM
Date:___________________________
TO: Chief Financial Officer
The undersigned hereby irrevocably elects to exercise the attached Stock Option
to the extent of options to purchase _______ shares and hereby makes payment of
$_________ in payment of the purchase price thereof.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name:___________________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Social Security or Taxpayer Identification Number:______________________________
<PAGE>
EXHIBIT 10.6
INVESTMENT AGREEMENT
BY AND BETWEEN
THE FRANKLIN HOLDING CORPORATION (DELAWARE)
AND
AVERY COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
DATED AS OF MAY 30, 1997
- --------------------------------------------------------------------------------
<PAGE>
INVESTMENT AGREEMENT
TABLE OF CONTENTS
PAGE
----
ARTICLE 1
PURCHASE AND SALE OF UNITS AND RELATED TRANSACTIONS
Section 1.1. Purchase and Sale of Units.................................... 2
Section 1.2. Purchase Price................................................ 2
Section 1.3. Preferred Stock Exchange...................................... 2
Section 1.4. Loan.......................................................... 2
Section 1.5. Franklin Warrant.............................................. 2
Section 1.6. Board of Directors of the Company............................. 2
Section 1.7. Management Fee................................................ 3
Section 1.8. Use of Proceeds............................................... 3
ARTICLE 2
THE CLOSING
Section 2.1. The Closing................................................... 3
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company................. 4
3.1.1. Existence; Good Standing; Corporate Authority;
Compliance with Law........................................ 4
3.1.2. Authorization, Validity and Effect of Agreements........... 4
3.1.3. Capitalization............................................. 5
3.1.4. Subsidiaries............................................... 6
3.1.5. Other Interests............................................ 6
3.1.6. No Violation............................................... 6
3.1.7. Books and Records.......................................... 7
3.1.8. Financial Statements....................................... 7
3.1.9. Litigation................................................. 8
3.1.10. Absence of Certain Changes................................ 8
3.1.11. Tax Returns............................................... 10
3.1.12. Employee Benefit Plans.................................... 10
3.1.13. Labor Matters............................................. 11
3.1.14. No Brokers................................................ 11
3.1.15. Contracts; No Defaults.................................... 11
-i-
<PAGE>
PAGE
----
3.1.16. Title to Assets........................................... 14
3.1.17. Insurance................................................. 14
3.1.18. Environmental Matters..................................... 14
3.1.19. Intellectual Property..................................... 14
3.1.20. Licenses.................................................. 14
3.1.21. Shares to be Delivered to Purchaser....................... 15
3.1.22. Disclosure................................................ 15
3.1.23. No Undisclosed Liabilities................................ 15
Section 3.2. Representations and Warranties of Purchaser................... 15
3.2.1. Existence; Good Standing; Ownership........................ 15
3.2.2. Corporate Authority; Compliance with Law................... 16
3.2.3. No Violation............................................... 16
3.2.4. No Brokers................................................. 17
3.2.5. Investment Intent.......................................... 17
ARTICLE 4
COVENANTS
Section 4.1. Terms of Franklin New Preferred Stock......................... 19
Section 4.2. Loan.......................................................... 20
Section 4.3. Registration Rights........................................... 21
Section 4.4. Expenses...................................................... 21
Section 4.5. Other Action.................................................. 21
Section 4.6. Inspection of Records......................................... 22
Section 4.7. Publicity..................................................... 22
Section 4.8. Filing of Certificates of Designation......................... 22
ARTICLE 5
CONDITIONS
Section 5.1. Conditions to Each Party's Obligation to Close................ 22
5.1.1. Conditions to Obligation of the Company to Close........... 23
5.1.2. Conditions to Obligation of Purchaser to Close............. 23
ARTICLE 6
DEFINITIONS AND CONSTRUCTION
Section 6.1. Definition of Certain Terms................................... 24
Section 6.2. Rules of Construction......................................... 30
-ii-
<PAGE>
PAGE
----
ARTICLE 7
GENERAL PROVISIONS
Section 7.1. Severability.................................................. 31
Section 7.2. Notices....................................................... 31
Section 7.3. Headings...................................................... 32
Section 7.4. Entire Agreement.............................................. 32
Section 7.5. Counterparts.................................................. 32
Section 7.6. Governing Law, Etc............................................ 32
Section 7.7. Binding Effect................................................ 33
Section 7.8. Assignment.................................................... 33
Section 7.9. No Third Party Beneficiaries.................................. 33
Section 7.10. Amendment; Waivers; Etc....................................... 33
EXHIBIT LIST
------------
Exhibit A - Form of Certificate of Designation for Series D
Exhibit B - Form of Certificate of Designation for Series E
Exhibit C - Form of Franklin Subordinated Note
Exhibit D - Form of Franklin Security Agreement
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Franklin Warrant
-iii-
<PAGE>
INVESTMENT AGREEMENT
This INVESTMENT AGREEMENT (this "AGREEMENT") is dated as of May 30,
1997, and is being entered into by and between THE FRANKLIN HOLDING CORPORATION
(DELAWARE), a Delaware corporation ("PURCHASER"), and AVERY COMMUNICATIONS,
INC., a Delaware corporation (the "COMPANY").
RECITALS
A. The Company desires to sell to Purchaser, and Purchaser desires to
purchase from the Company, 7.5 units (collectively, the "UNITS"), upon the terms
and subject to the conditions hereinafter set forth. Each of the Units shall
consist of (i) 200,000 shares of a new series of the Company's Preferred Stock,
par value $0.01 per share (the "PREFERRED STOCK"), which new series of the
Preferred Stock shall be designated as the Series D Senior Voting Cumulative
Convertible Preferred Stock (the "FRANKLIN NEW PREFERRED STOCK"), and (ii)
133,333 shares of the Company's Common Stock, par value $0.01 per share (the
"COMMON STOCK"). The 0.5 Unit shall consist of 100,000 shares of the Franklin
New Preferred Stock and 66,666 shares of the Common Stock. The 1,500,000 shares
of the Franklin New Preferred Stock to be issued by the Company to the Purchaser
pursuant to this Agreement are hereinafter referred to collectively as the
"FRANKLIN PREFERRED SHARES," and the 999,997 shares of the Common Stock to be
issued by the Company to the Purchaser pursuant to this Agreement are
hereinafter referred to collectively as the "FRANKLIN COMMON SHARES."
B. Purchaser desires to exchange the 350,000 shares of the Company's
Series B Junior Convertible Redeemable Preferred Stock (the "SERIES B PREFERRED
STOCK") presently owned by it for 350,000 shares of a new series of the
Company's Preferred Stock, which new series shall be identical in all respects
to the Series B Preferred Stock, except that such new series of Preferred Stock
shall be designated as the Series E Junior Convertible Redeemable Voting
Preferred Stock (the "FRANKLIN EXCHANGE PREFERRED STOCK") and shall have voting
rights as hereinafter provided. The 350,000 shares of the Franklin Exchange
Preferred Stock to be issued by the Company to the Purchaser pursuant to this
Agreement are hereinafter referred to collectively as the "FRANKLIN EXCHANGE
SHARES." The Franklin Preferred Shares, the Franklin Common Shares and the
Franklin Exchange Shares to be issued by the Company to the Purchaser pursuant
to this Agreement are hereinafter referred to collectively as the "FRANKLIN
SHARES."
C. The Purchaser desires to make a $1,000,000 subordinated loan (the
"LOAN") to the Company, upon the terms and subject to the conditions hereinafter
set forth. As additional consideration for the making of the Loan, the Company
will issue to the Purchaser, upon the terms and subject to the conditions
hereinafter set forth, a five-year warrant to purchase 666,666 shares of the
Common Stock at an exercise price of $1.50 per share (the "FRANKLIN WARRANT").
D. For the convenience of the parties, except as otherwise expressly
provided or unless the context otherwise requires, the defined terms used in
this Agreement have the respective meanings assigned to them or referred to in
Section 6.1, and include the plural as well as the singular, and an Index of
- ------------
Defined Terms is attached hereto as Annex I.
-------
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and of the mutual
representations, warranties, covenants and agreements contained herein, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF UNITS AND RELATED TRANSACTIONS
SECTION 1.1. PURCHASE AND SALE OF UNITS. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions hereof, the Company shall sell and deliver to the Purchaser, and the
Purchaser shall purchase from the Company, at the Closing, 7.5 Units.
SECTION 1.2. PURCHASE PRICE. The purchase price for each of the whole
Units shall be $200,000, and the purchase price for the 0.5 Unit shall be
$100,000. Accordingly, in consideration of the sale by the Company of the Units,
and in full and complete payment therefor, at the Closing the Purchaser shall
pay to the Company the sum of $1,500,000.00 (the "PURCHASE PRICE"). The Purchase
Price, less the $50,000 expense reimbursement contemplated by Section 4.4, shall
-----------
be paid to the Company at the Closing in currently available funds by federal
funds wire transfer to the account specified by the Company.
SECTION 1.3. PREFERRED STOCK EXCHANGE. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions hereof, at the Closing, the Company shall deliver to Purchaser the
Franklin Exchange Shares. In consideration therefor, and in full and complete
payment therefor, the Purchaser shall sell, convey, transfer and deliver to the
Company good and valid title in and to 350,000 shares of the Series B Preferred
Stock, free and clear of all Liens. The certificates representing the 350,000
shares of the Series B Preferred Stock shall be duly endorsed (or accompanied by
stock powers), with signatures guaranteed by a commercial bank or by a member of
the New York Stock Exchange, for transfer to the Company.
SECTION 1.4. LOAN. On the basis of the representations and warranties
herein contained, and subject to the terms and conditions hereof, at the
Closing, the Purchaser shall make the Loan to the Company. The Loan proceeds
shall be paid to the Company at the Closing in currently available funds by
federal funds wire transfer to the account specified by the Company.
SECTION 1.5. FRANKLIN WARRANT. On the basis of the representations and
warranties herein contained, and subject to the terms and conditions hereof, at
the Closing, the Company shall issue and deliver to Purchaser the Franklin
Warrant.
SECTION 1.6. BOARD OF DIRECTORS OF THE COMPANY. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions hereof, at the Closing, the Company shall cause the number of
directors constituting the whole Board of Directors of the Company to be
increased to six, and shall cause the three individuals identified by Purchaser
and the three individuals identified by the Company on Annex II hereto to be
--------
elected to the
-2-
<PAGE>
Board of Directors of the Company. Each such director shall hold office until
the next annual meeting of shareholders of the Company and until such Person's
successor is elected and qualified or until such Person's earlier death,
resignation or removal. The Chairman of the Board shall be selected from among
the three individuals identified by the Company on Annex II hereto, and the Vice
--------
Chairman of the Board shall be selected from among the three individuals
identified by Purchaser on Annex II hereto.
--------
SECTION 1.7. MANAGEMENT FEE. For the period beginning on the date the
Franklin Preferred Shares have been automatically converted upon the occurrence
of a Qualified Public Offering as provided in the Series D Certificate of
Designation and ending on the second anniversary of the date of this Agreement,
the Company shall pay to Purchaser a management fee of $150,000 per year (the
"MANAGEMENT FEE"). The Management Fee shall be paid in arrears in equal
quarterly installments on the last day of each calendar quarter. The Management
Fee shall be paid by either bank check or wire transfer, or, at the option of
Purchaser, in shares of Common Stock of the Company. The Management Fee shall be
pro rated for any period less than one full calendar quarter. Notwithstanding
the foregoing, if the Franklin Preferred Shares are redeemed at any time during
said two-year period, the Company shall have no obligation to pay the Management
Fee.
SECTION 1.8. USE OF PROCEEDS. Purchaser acknowledges that the Purchase
Price and Loan proceeds will be used by the Company as set forth on Annex III
---------
hereto.
ARTICLE 2
THE CLOSING
SECTION 2.1. THE CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated hereby (the "CLOSING")
shall take place at the offices of the Company, 190 South LaSalle Street, Suite
1410, Chicago, Illinois 60603 at 10:00 a.m., local time, or at such other time,
date or place as the Company and Purchaser may agree. The date on which the
Closing occurs is referred to herein as the "CLOSING DATE." At the Closing, the
Company will issue and transfer to Purchaser good and valid title in and to the
Franklin Shares, free and clear of all Liens, by delivering to Purchaser a
certificate or certificates representing the Franklin Shares, in genuine and
unaltered form registered in the name of Purchaser. At the Closing, there shall
also be delivered to Purchaser and the Company the other Transaction Documents,
certificates and other instruments to be delivered under Article 5. At the
---------
option of the Company and Purchaser, the Closing may occur by the Company's and
the Purchasers' exchanging facsimile copies of the certificate or certificates
representing the Franklin Shares and of the executed originals of the other
Transaction Documents, certificates and other instruments referred to in Article
-------
5 , the executed originals of which shall be delivered by such means as the
- -
Company and Purchaser may mutually agree. In the event the Closing occurs by
exchanging facsimile copies of the certificate or certificates representing the
Franklin Shares and of the executed originals of the other Transaction
Documents, certificates and other instruments referred to in Article 5, the
---------
Closing shall be deemed to have occurred for all purposes in Chicago, Illinois,
on and as of the date and time specified by the Company and Purchaser, or, if
not so specified, on and as of the date of this Agreement.
-3-
<PAGE>
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
SECTION 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as
set forth in the disclosure letter delivered at or prior to the execution hereof
to Purchaser (the "DISCLOSURE LETTER"), the Company represents and warrants to
Purchaser as follows:
3.1.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY;
COMPLIANCE WITH LAW. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of State of
Delaware. The Company is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of those
jurisdictions specified in Section 3.1.1 of the Disclosure Letter,
which are the only jurisdictions in which the character of the
properties owned, used or leased by it therein or in which the
transaction of its business makes such qualification necessary, except
where the failure to be so qualified would not, individually or in the
aggregate, have or reasonably be expected to have a material adverse
effect on the business, properties, assets, results of operations or
financial or other condition or prospects of the Company and its
Subsidiaries taken as a whole (a "COMPANY MATERIAL ADVERSE EFFECT").
The Company has all requisite corporate power and authority to own,
operate and lease its properties and carry on its business as now
conducted. Each of the Company's Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, has the corporate power and authority to
own, operate and lease its properties and to carry on its business as
it is now being conducted, and is duly qualified to do business and is
in good standing in those jurisdictions in which the ownership of its
property or the conduct of its business requires such qualification,
except where the failure to be so qualified would not have a Company
Material Adverse Effect. To the Knowledge of the Company, neither the
Company nor any of its Subsidiaries is in violation of any order, writ,
judgment, decree, injunction or similar pronouncement (each, an
"ORDER"), of any court, governmental authority or arbitration board or
tribunal, or any law, statute, ordinance, governmental rule or
regulation (each, a "LAW") to which the Company or any of its
Subsidiaries or any of their respective properties or assets is
subject, and the Company and its Subsidiaries have conducted their
businesses and operations in substantial compliance with all Laws
applicable thereto. The copies of the Company's Organizational
Documents previously delivered to Purchaser are true and correct and
are the Organizational Documents as in effect on the date hereof.
3.1.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS. The
Company has the requisite corporate power and authority to execute and
deliver this Agreement, the Loan Documents, the Franklin Warrant and
the Registration Rights Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and, subject to filing the Certificates of Designation
with the Secretary of State of the State of Delaware, to perform its
obligations hereunder and thereunder and to consummate the
-4-
<PAGE>
transactions contemplated hereby and thereby. The execution and
delivery by the Company of this Agreement and the other Transaction
Documents and the performance and consummation by the Company of the
transactions contemplated hereby and thereby have been duly and validly
authorized by all requisite corporate action on the part of the
Company. This Agreement has been duly and validly executed and
delivered by the Company and constitutes, and the other Transaction
Documents (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of
the Company, enforceable against the Company in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar
laws relating to creditors' rights generally or general principles of
equity (whether considered in a proceeding in equity or at law) or by
public policy applicable to securities laws.
3.1.3. CAPITALIZATION. The authorized capital stock of the
Company consists solely of 20,000,000 shares of Common Stock and
20,000,000 shares of Preferred Stock. As of May 23, 1997, there were
6,879,482 shares of Common Stock issued and outstanding and 3,496,667
shares of Preferred Stock issued and outstanding. The shares of
Preferred Stock are divided into four series, of which 800,000 shares
have been designated as the Series A Junior Convertible Redeemable
Preferred Stock (the "SERIES A PREFERRED STOCK"), 1,050,000 shares have
been designated as the Series B Preferred Stock, 340,000 have been
designated as the Series C Junior Convertible Redeemable Preferred
Stock (the "SERIES C PREFERRED STOCK"), and 5,000,000 shares have been
designated as the Senior Cumulative Redeemable Preferred Stock, 1996
HBS Series (the "HBS SENIOR PREFERRED STOCK"). As of May 23, 1997, the
Company had issued and outstanding 700,000 shares of the Series A
Preferred Stock, 850,000 shares of the Series B Preferred Stock, 66,667
shares of the Series C Preferred Stock, and 1,880,000 shares of the HBS
Senior Preferred Stock. All such issued and outstanding shares of
Common Stock and Preferred Stock have been duly authorized and validly
issued, and are fully paid, nonassessable and free of preemptive
rights. The Certificates of Designation for the Series D Preferred
Stock and the Series E Preferred Stock are attached hereto as Exhibits
A and B, respectively. Except as specified on Section 3.1.3 of the
-------------
Disclosure Letter, neither the Company nor any Subsidiary has
outstanding bonds, debentures, notes or other obligations the holders
of which have the right to vote (or which are convertible into or
exercisable for securities having the right to vote) with the
stockholders of the Company or any Subsidiary on any matters. Other
than as contemplated by this Agreement or except as specified on
Section 3.1.3 of the Disclosure Letter, there are no options, warrants,
-------------
calls, subscriptions, convertible securities (other than the Series A
Preferred Stock, the Series B Preferred Stock, and the Series C
Preferred Stock), phantom stock rights, or other rights, Contracts,
agreements or commitments (each a "WARRANT") which obligate the Company
or any Subsidiary to issue, transfer or sell any shares of capital
stock of the Company or any Subsidiary, or, except as set forth in the
Organizational Documents of the Company relating to the Series A
Preferred Stock, the Series B Preferred Stock,
-5-
<PAGE>
the Series C Preferred Stock, and the HBS Senior Preferred Stock, any
obligation of the Company or any Subsidiary to repurchase, redeem or
otherwise acquire any outstanding capital stock of the Company or any
Subsidiary, or otherwise entitle the holder thereof to receive or
exercise any benefits or rights similar to any rights enjoyed by or
accruing to the holder of shares of capital stock of the Company or any
Subsidiary. Other than as contemplated by this Agreement or except as
specified on Section 3.1.3 of the Disclosure Letter, since May 23,
-------------
1997, no additional shares of capital stock of the Company or any
Subsidiary have been authorized or issued and no additional Warrants
have been authorized or issued. Other than as contemplated by this
Agreement or except as specified on Section 3.1.3 of the Disclosure
-------------
Letter, no Person has any right to cause the Company to register any
capital stock or Warrant of the Company or any Subsidiary for sale or
other distribution under the Securities Act, or any right to cause the
Company or any Subsidiary to include any capital sock or Warrant of the
Company in any registration statement filed by the Company to register
securities under the Securities Act (each an "AVERY REGISTRATION
RIGHT"). The delivery of a certificate or certificates at the Closing
representing the Franklin Shares in the manner provided in Section 2.1
-----------
will transfer to Purchaser good and valid title to the Franklin Shares,
free and clear of all Liens.
3.1.4. SUBSIDIARIES. Section 3.1.4 of the Disclosure Letter
-------------
lists the name of each Subsidiary. Section 3.1.4 of the Disclosure
-------------
Letter also lists for each Subsidiary the amount of its authorized
capital stock or partnership interests, the amount of its outstanding
capital stock or partnership interests, and the record owners of such
outstanding capital stock or partnership interests. The Company owns
directly or indirectly each of the outstanding shares of capital stock
or partnership interests of each Subsidiary. Each of the outstanding
shares of capital stock or partnership interests of each Subsidiary has
been duly authorized and validly issued and is fully paid and
nonassessable, and, except as disclosed in Section 3.1.4 of the
-------------
Disclosure Letter, is owned, directly or indirectly, by the Company,
free and clear of all Liens. The name of each director and officer of
each Subsidiary on the date hereof, and the position with such
Subsidiary held by each, are listed in Section 3.1.4 of the Disclosure
-------------
Letter.
3.1.5. OTHER INTERESTS. Except for interests in the Company's
Subsidiaries, neither the Company nor any Subsidiary owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity
(other than investments in short-term investment securities).
3.1.6. NO VIOLATION. Neither the execution and delivery by
the Company of this Agreement or of the other Transaction Documents,
nor the consummation by the Company of the transactions contemplated
hereby or thereby in accordance with the terms hereof and thereof, will
(i) result in a breach or violation of any provisions of the
Organizational Documents of the Company or any Subsidiary; (ii) violate
or result in a breach of any provision of, or constitute a default (or
an
-6-
<PAGE>
event which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required
by, or result in the creation of any Lien upon any property of the
Company or its Subsidiaries under, or result in any additional rights
under or in being declared void, voidable, or without further binding
effect, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise,
permit, lease, Contract, agreement or other instrument, commitment or
obligation to which the Company or any of its Subsidiaries is a party,
or by which the Company or any of its Subsidiaries or any of their
respective properties is bound or affected; (iii) require any consent,
approval or authorization of, or declaration, filing or registration
with, any third party or any domestic or foreign governmental or
regulatory authority; or (iv) result in a violation or breach of any
term or provision of any Law or Order applicable to the Company or any
Subsidiary or any of their respective assets and properties. All
securities issued by the Company since November 1994 have been issued
in compliance with the Securities Act or have been issued in
transactions exempt from the provisions thereof.
3.1.7. BOOKS AND RECORDS. Except as set forth in Section
-------
3.1.7 of the Disclosure Letter, the minute books and other similar
-----
records of the Company and its Subsidiaries as made available to
Purchaser prior to the execution of this Agreement contain a true and
complete record, in all material respects, of all action taken at all
meetings and by all written consents in lieu of meetings of the
stockholders, the boards of directors and committees of the boards of
directors of the Company and its Subsidiaries.
3.1.8. FINANCIAL STATEMENTS. The Company has delivered to the
Purchaser audited consolidated balance sheets of the Company and its
Subsidiaries as at December 31 in each of the years 1995 and 1996, and
the related audited consolidated statements of income, changes in
stockholders' equity, and cash flow for each of the fiscal years then
ended, together with the report thereon of King Griffin & Adamson P.C.,
independent certified public accountants, including the notes thereto.
Such financial statements and notes fairly present the consolidated
financial condition and the consolidated results of operations, changes
in stockholders' equity, and cash flow of the Company and its
Subsidiaries as at the respective dates of and for the periods referred
to in such financial statements, all in accordance with GAAP. The
financial statements referred to in this Section 3.1.8 reflect the
-------------
consistent application of such accounting principles throughout the
periods involved, except as disclosed in the notes to such financial
statements. No financial statements of any Person other than the
Company's Subsidiaries are required by GAAP to be included in the
consolidated financial statements of the Company and its Subsidiaries.
Except as and to the extent set forth on the audited consolidated
balance sheet of the Company and its Subsidiaries as at December 31,
1996, including the notes thereto, or as set forth in Section 3.1.8 of
-------------
the Disclosure Letter, neither the Company nor any of its Subsidiaries
has any material liabilities or obligations of any nature (whether
-7-
<PAGE>
accrued, absolute, contingent or otherwise) that would be required to
be reflected on, or reserved against in, a consolidated balance sheet
of the Company and its Subsidiaries or in the notes thereto, prepared
in accordance with GAAP consistently applied, except liabilities
arising in the ordinary course of business since such date consistent
(in amount and kind) with past practice (none of which is a liability
resulting from a breach of contract, breach of warranty, or from any
other Action) and which do not exceed $50,000 in the aggregate.
3.1.9. LITIGATION. Except as disclosed in Section 3.1.9 of
-------------
the Disclosure Letter, there are no Actions pending against, relating
to or affecting the Company or any of its Subsidiaries or any of their
respective assets and properties or, to the Knowledge of the Company,
threatened against the Company or any of its Subsidiaries, at law or in
equity, or before or by any federal or state commission, board, bureau,
agency or instrumentality. There are no Orders outstanding against the
Company or any Subsidiary.
3.1.10. ABSENCE OF CERTAIN CHANGES. Since December 31, 1996,
there has been no event or condition of any character (whether actual,
threatened or contemplated) that has had, or can reasonably be
anticipated to have, individually or together with such other events or
conditions, a Company Material Adverse Effect. Without limiting the
generality of the foregoing, except as set forth in Section 3.1.10 of
------
the Disclosure Letter (with paragraph references corresponding to those
set forth below), neither the Company nor any Subsidiary has, since
December 31, 1996 :
(A) borrowed any funds or, except in the ordinary course of
the Company's business consistent with past practices, (i)
mortgaged or otherwise subjected to any Lien or other liability
any of its assets or properties, (ii) sold, assigned or
transferred any of its assets in excess of $25,000 in the
aggregate, or (iii) incurred any liability, commitment,
indebtedness or obligation (of any kind whatsoever, whether
accrued or contingent, matured or unmatured) in an amount,
individually or in the aggregate, in excess of $25,000;
(B) suffered any damage, destruction or loss, whether or
not covered by insurance in an amount, individually or in the
aggregate, in excess of $25,000, except for losses adequately
reserved against on the date of this Agreement;
(C) received notice or had knowledge or reasonable grounds
to believe that any labor unrest exists among any of its employees
or that any group, organization or union has attempted to organize
any of its employees;
-8-
<PAGE>
(D) received notice or had knowledge or reasonable grounds
to believe that any of its customers or suppliers has terminated
or intends to terminate its relationship with the Company or any
Subsidiary the result of which would be a Company Material Adverse
Effect;
(E) failed to operate its business in the ordinary course
consistent with past practices, or failed to preserve its business
organization intact or to preserve the goodwill of its suppliers,
customers and others with whom it has business relations;
(F) incurred any loss in an amount in excess of $25,000,
except for losses adequately reserved against on the date of this
Agreement or losses incurred in the ordinary course of the
operation of the businesses of the Company and its Subsidiaries,
or waived any material right in connection with any aspect of its
business, whether or not in the ordinary course of its business;
(G) cancelled any debt owed to it, or cancelled any of its
claims, or paid any of its noncurrent obligations or liabilities;
(H) made any capital expenditure or capital addition
or betterment in an amount in excess of $25,000 individually
or $100,000 in the aggregate;
(I) entered into any agreement requiring the payment,
conditionally or otherwise, of any salary, bonus, extra
compensation, pension or severance payment to any of its present
or former directors, officers or employees, except such agreements
as are terminable at will without any penalty or other payment by
it, or increased the compensation (including salaries, fees,
bonuses, profit sharing, incentive, pension, retirement or other
similar payments) of any such person whose annual compensation
would, following such increase, exceed $100,000;
(J) declared, set aside, increased or paid any dividend, or
declared or made any distribution on, or directly or indirectly
combined, redeemed, reclassified, purchased or otherwise acquired,
any shares of capital stock;
(K) authorized, issued, sold or otherwise disposed of any
shares of capital stock of or Warrant with respect to the Company
or any Subsidiary, or modified or amended any right of any holder
of any outstanding shares of capital stock or Warrant with respect
to the Company or any Subsidiary;
-9-
<PAGE>
(L) changed any accounting, financial reporting or tax
practice or policy or any method of calculating any bad debt,
contingency or other reserve of the Company or any Subsidiary for
accounting, financial reporting or tax purposes, or any change in
the fiscal year of the Company or any Subsidiary;
(M) engaged in any transaction with any officer, director
or Affiliate of the Company or any Subsidiary; or
(N) entered into any agreement, contract or commitment to
do any of the foregoing after the date hereof.
3.1.11. TAX RETURNS. Except as disclosed in Section 3.1.11 of
--------------
the Disclosure Letter, the Company and each Subsidiary has accurately
and timely filed all federal, state and other tax returns which are
required to be filed and has timely paid all taxes covered by such
returns which have become due and payable. Neither the Company nor any
Subsidiary has been advised that any of its returns, federal, state or
other, have been or are being audited as of the date hereof. Neither
the Company nor any Subsidiary is delinquent in the payment of taxes or
assessments and has no tax deficiency proposed or assessed.
3.1.12. EMPLOYEE BENEFIT PLANS. All material employee benefit
plans, programs, policies, or arrangements (including, without
limitation, each employee benefit plan within the meaning of Section
3(3) of ERISA) that are sponsored, maintained or contributed to or
required to be contributed to by the Company or any Subsidiary for the
benefit of any active, former, or retired employee of the Company or
its Subsidiaries are listed in Section 3.1.12 of the Disclosure Letter
--------------
(the "COMPANY PLANS"). Each Company Plan has been maintained and
administered in all material respects with its terms and applicable
law, including ERISA and the Code. Any Company Plan intended to be
qualified under Section 401(a) of the Code has either obtained a
favorable determination letter as to its qualified status from the IRS
or still has a remaining period of time under applicable Treasury
regulations or IRS pronouncements in which to apply for such
determination letter and to make any amendments necessary to obtain a
favorable determination. No Company Plan is covered by Title IV of
ERISA or Section 412 of the Code. To the Knowledge of the Company,
neither the Company nor any officer or director of the Company has
incurred any liability or penalty under Sections 4975 through 4980 of
the Code or Title I of ERISA. No suit, action, or other litigation has
been brought or, to the Knowledge of the Company, is threatened against
or with respect to any such Company Plan. All material contributions,
reserves, or premium payments required to be made or accrued as of the
date hereof to the Company Plans have been made or accrued.
-10-
<PAGE>
3.1.13. LABOR MATTERS. Section 3.1.13 of the Disclosure Letter
--------------
contains a list of names of each officer and employee of the Company or
its Subsidiaries having an annual base salary or wages of at least
$100,000 at the date hereof, together with each such person's position
or function, annual base salary or wages and any incentive or bonus
arrangement with respect to such person in effect on such date. No
employee of the Company or any of its Subsidiaries is a party to, or
bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization.
There is no unfair labor practice, sex, age, race or other
discrimination or labor arbitration proceeding pending or, to the
Knowledge of the Company, threatened against the Company or its
Subsidiaries relating to their business. To the Knowledge of the
Company, there are no organizational efforts with respect to the
formation of a collective bargaining unit presently being made or
threatened involving employees of the Company or any of its
Subsidiaries. To the Knowledge of the Company, the Company and the
Subsidiaries have complied in all material respects with all applicable
Laws relating to the employment of labor, including, without
limitation, those relating to wages, hours and collective bargaining.
3.1.14. NO BROKERS. Except as disclosed in Section 3.1.14 of
--------------
the Disclosure Letter, neither the Company nor any Subsidiary has
entered into any Contract, arrangement or understanding with any person
or firm which may result in the obligation of the Company, any
Subsidiary or Purchaser to pay any finder's fees, brokerage or agent's
commission, or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions
contemplated hereby. Except as disclosed in Section 3.1.14 of the
--------------
Disclosure Letter, the Company is not aware of any claim for payment of
any finder's fees, brokerage or agent's commissions or other like
payments by the Company or any Subsidiary in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby.
3.1.15. CONTRACTS; NO DEFAULTS.
(A) Section 3.1.15 of the Disclosure Letter sets
forth a list of the following Applicable Contracts
(collectively, the "MATERIAL APPLICABLE CONTRACTS"), true and
complete copies of which have been made available to
Purchaser:
(I) each Applicable Contract relating to the
Company's acquisition of BorderComm, Inc., a Texas
corporation, and Hold Billing Services, Ltd., a Texas
limited partnership;
(II) each Applicable Contract defining the
rights of holders of long-term debt of the Company
and each Subsidiary;
-11-
<PAGE>
(III) each Applicable Contract to which any
director or officer of the Company and each
Subsidiary, or any Affiliate of any such director or
officer, are parties other than Contracts involving
only the purchase or sale of current assets having a
determinable market price, at such price;
(IV) each Applicable Contract upon which the
business of the Company and its Subsidiaries, taken
as a whole, is substantially dependent, such as
continuing Contracts to sell the major part of the
Company's or any Subsidiary's products or services or
to purchase the major part of the Company's or any
Subsidiary's requirements of goods, services or raw
materials;
(V) each Applicable Contract relating to the
management of the Company, or any compensatory plan,
Contract or arrangement, including, but not limited
to, plans relating to options, warrants or rights,
pension, retirement or deferred compensation or
bonus, incentive or profit sharing, (or if not set
forth in any formal document, a written description
thereof), in which any director or officer of the
Company or any Subsidiary participates;
(VI) each collective-bargaining agreement
and other Applicable Contract to or with any labor
union or other employee representative of a group of
employees;
(VII) each joint venture, partnership, and
other Applicable Contract (however named) involving a
sharing of profits, losses, costs, or liabilities by
any of the Companies with any other Person;
(VIII) Each Warrant of the Company;
(IX) Each Applicable Contract that contains
an Avery Registration Right;
(X) each other Applicable Contract not made
in the ordinary course of business which is material
to the Company and its Subsidiaries, taken as a
-12-
<PAGE>
whole, and is to be performed in whole or in part
after the Closing; and
(XI) each amendment, supplement, and
modification (whether oral or written) in respect of
any of the foregoing.
(B) Except as set forth in Section 3.1.15(b) of the
------------------
Disclosure Letter, each Material Applicable Contract has been
fully performed or is in full force and effect and is valid
and enforceable in accordance with its terms.
(C) Except as set forth in Section 3.1.15(c) of the
-----------------
Disclosure Letter:
(I) each of the Companies is, and at all
times since January 1, 1996, has been, in full
compliance with all applicable terms and requirements
of each Material Applicable Contract under which each
of such Companies has or had any obligation or
liability or by which each of such Companies or any
of the assets owned or used by each of such Companies
is or was bound;
(II) to the Knowledge of the Company, each
other Person that has or had any obligation or
liability under any Material Applicable Contract
under which any of the Companies has or had any
rights is, and at all times since January 1, 1996,
has been, in full compliance with all applicable
terms and requirements of such Material Applicable
Contract;
(III) no event has occurred or circumstance
exists that (with or without notice or lapse of time)
may result in a violation or breach of, or give any
of the Companies or, to the Knowledge of the Company,
other Person the right to declare a default or
exercise any remedy under, or to accelerate the
maturity or performance of, or to cancel, terminate,
or modify, any Material Applicable Contract; and
(IV) none of the Companies has given to or
received from any other Person, at any time since
January 1, 1996, any notice or other communication
(whether oral or written) regarding any actual,
-13-
<PAGE>
alleged, possible, or potential violation or breach
of, or default under, any Material Applicable
Contract.
(D) The Material Applicable Contracts relating to the
sale or provision of products or services by the Companies
have been entered into in the ordinary course of business and
have been entered into without the commission of any act alone
or in concert with any other Person, or any consideration
having been paid or promised, that is or would be in violation
of any Law.
3.1.16. TITLE TO ASSETS. The Company and each Subsidiary has
good and marketable title to its properties and assets, and has good
title to all of its leasehold interests, in each case subject to no
mortgage, pledge, lien, lease, encumbrance or charge, other than (i)
the lien of current taxes not yet due and payable, and (ii) possible
minor liens and encumbrances that do not in any case materially detract
from the value of the property subject thereto or materially impair the
operations of the Company and which have not arisen otherwise than in
the ordinary course of business.
3.1.17. INSURANCE. Except as set forth in Section 3.1.17 of
---------------
the Disclosure Letter, the Company and each of its Subsidiaries
maintain in force insurance policies and bonds in such amounts and
against such liabilities and hazards as are reasonable and customary
for persons engaged in such business and operations and having such
assets and properties. All policies are valid and enforceable and in
full force and effect, no premiums due thereunder have not been paid
and neither the Company nor any of its Subsidiaries has received any
notice of a material premium increase or cancellation with respect to
any of its insurance policies or bonds or of any default thereunder.
The insurance coverage provided by any of the policies will not
terminate or lapse by reason of the transactions contemplated by this
Agreement.
3.1.18. ENVIRONMENTAL MATTERS. To the Knowledge of the
Company, neither the Company nor any Subsidiary is in violation of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety, and, to the Knowledge of the Company,
no material expenditures by the Company or any Subsidiary are or will
be required in order to comply with any such existing statute, law or
regulation.
3.1.19. INTELLECTUAL PROPERTY. Neither the Company nor any
Subsidiary owns or uses any material Intellectual Property.
3.1.20. LICENSES. To the Knowledge of the Company, each of the
Company and its Subsidiaries has all necessary Licenses required to
conduct its respective business lawfully as presently conducted,
including all material Licenses, permits, certifications, and other
regulatory authorizations required for each of the Company and its
Subsidiaries to operate as they currently operate and
-14-
<PAGE>
in accordance with all Applicable Laws or Orders of any Governmental
Authority, and, to the Knowledge of the Company, (a) each such License
is valid, binding and in full force and effect, (b) no such License is
subject to revocation or forfeiture by virtue of any existing
circumstance, (c) there is no pending or, to the Knowledge of the
Company, threatened proceeding to modify in any material respect or
revoke any material License, (d) no such License is subject to any
outstanding Order, decree, judgment, stipulation, or investigation
known to the Company that would materially affect such License, and (e)
neither the Company nor any Subsidiary is, or has received any notice
that it is, in default (or with the giving of notice or lapse of time
or both, would be in default) under any such License.
3.1.21. SHARES TO BE DELIVERED TO PURCHASER. The issuance and
delivery by the Company to Purchaser of the Franklin Shares and the
Franklin Warrant Shares have been duly and validly authorized by all
necessary corporate action on the part of the Company and have been
reserved for issuance pursuant to this Agreement or upon exercise of
the Franklin Warrant, as the case may be. The Franklin Shares and the
Franklin Warrant Shares, if and when issued in accordance with the
terms of the Warrant, will be validly issued, fully paid and
nonassessable and free of all Liens.
3.1.22. DISCLOSURE. None of the representations or warranties
made by the Company in this Agreement, and no information in the
Disclosure Letter or Exhibits hereto, contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements contained herein and therein not misleading.
3.1.23. NO UNDISCLOSED LIABILITIES. To the Knowledge of the
Company, except as reflected or reserved for or against in the balance
sheet or in the notes thereto included in the financial statements of
the Company referred to in Section 3.1.8, or as disclosed in Section
-------------- -------
3.1.23 of the Disclosure Letter or any other Section of the Disclosure
------
Letter, there are no indebtedness of any kind or obligations or other
liabilities (whether absolute, accrued, contingent, fixed or otherwise,
or whether due or to become due) against, relating to or affecting the
Company or any Subsidiary or any of their respective assets and
properties, other than such indebtedness and liabilities incurred in
the ordinary course of business consistent with past practice (in
amount and kind) which in the aggregate do not exceed $25,000.
SECTION 3.2. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser
represents and warrants to the Company as follows:
3.2.1. EXISTENCE; GOOD STANDING; OWNERSHIP. Purchaser is a
corporation duly incorporated, validly existing and in good standing
under the laws of the State of Delaware. To the Knowledge of Purchaser,
neither Purchaser nor any of its Subsidiaries is in violation of any
Order of any court, Governmental Authority
-15-
<PAGE>
or arbitration board or tribunal, or any Law to which Purchaser or any
of its Subsidiaries or any of their respective properties or assets is
subject.
3.2.2. CORPORATE AUTHORITY; COMPLIANCE WITH LAW. Purchaser has
the requisite corporate power and authority to execute and deliver this
Agreement and the other Transaction Documents. The consummation by
Purchaser of the transactions contemplated hereby and thereby has been
duly authorized by all requisite corporate action on the part of
Purchaser. This Agreement constitutes, and the other Transaction
Documents (when executed and delivered pursuant hereto for value
received) will constitute, the valid and legally binding obligations of
Purchaser, enforceable against Purchaser in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other similar
laws relating to creditors' rights generally or general principles of
equity (whether considered in a proceeding in equity or at law) or by
public policy applicable to securities laws.
3.2.3. NO VIOLATION. Neither the execution and delivery by
Purchaser of this Agreement nor the consummation by Purchaser of the
transactions contemplated hereby in accordance with the terms hereof,
will (i) result in a breach or violation of any provisions of the
Organizational Documents of Purchaser; (ii) violate or result in a
breach of any provision of, or constitute a default (or an event which,
with notice or lapse of time or both, would constitute a default)
under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any material license, franchise,
permit, lease, Contract, agreement or other instrument, commitment or
obligation to which Purchaser is a party, or by which either Purchaser
or any of its properties is bound or affected, (iii) require the
consent or approval of the shareholders of Purchaser under the laws of
the State of Delaware or under the Investment Company Act, or require
any consent, approval or authorization of, or declaration, filing or
registration with, any third party or any domestic or foreign
governmental or regulatory authority, or (iv) result in a violation of
any Law, including the Investment Company Act, or Order applicable to
Purchaser or any of its Subsidiaries or any of their respective assets
or properties. Purchaser is an "investment company" (as such term is
defined in the Investment Company Act), and is registered with the
Commission under Section 8 of the Investment Company Act. To the
Knowledge of Purchaser, Purchaser is in compliance with and has not
violated any of the provisions of the Investment Company Act. Purchaser
has delivered to the Company a true and complete copy of each report,
schedule, registration statement and definitive proxy statement filed
by Purchaser with the Commission from January 1, 1996, through the date
of this Agreement (as such documents have been amended since the time
of their filing through the date of this Agreement, the "FRANKLIN SEC
DOCUMENTS"), which, except for Purchaser's Annual Report to
Stockholders for the year ended December 31, 1996, which was required
to be filed with the Commission on or before March 11, 1997, are all
the documents (other than preliminary material) that Purchaser was
required
-16-
<PAGE>
to file and has filed with the Commission since such date. The
transactions contemplated by this Agreement do not deviate from
Purchaser's policy in respect of concentration of investments in any
particular industry or group of industries as recited in its
registration statement filed under the Investment Company Act, deviate
from any investment policy which is changeable only if authorized by
shareholder vote, or deviate from any policy recited in its
registration statement under the Investment Company Act pursuant to
Section 8(b)(3) of the Investment Company Act. The execution and
delivery of this Agreement by Purchaser, and the consummation by
Purchaser of the transactions contemplated hereby, will not violate the
provisions of Section 7 of the Investment Company Act.
3.2.4. NO BROKERS. Neither Purchaser nor any of its Affiliates
has entered into any contract, arrangement or understanding with any
person or firm which may result in the obligation of Purchaser, any
Affiliate of Purchaser or the Company to pay any finder's fees,
brokerage or agent's commission or like payments in connection with the
negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby. Purchaser is not aware of any claim
for payment of any finder's fees, brokerage or agent's commissions or
other like payments by Purchaser or any of its Affiliates in connection
with the negotiations leading to this Agreement or the consummation of
the transactions contemplated hereby.
3.2.5. INVESTMENT INTENT. Purchaser acknowledges that the
Franklin Shares and the Franklin Warrant are being, and, upon exercise
of the Franklin Warrant, the Franklin Warrant Shares will be, acquired
for Purchaser's own account as part of a private offering, exempt from
registration under the Securities Act and all applicable state
securities or blue sky laws, for investment only and not with a view to
the distribution or other sale thereof, and that an exemption from
registration under the Securities Act or any applicable state
securities laws may not be available if the Franklin Shares, the
Franklin Conversion Shares, the Franklin Warrant or the Franklin
Warrant Shares (collectively, the "SECURITIES") are acquired by
Purchaser with a view to resale or distribution thereof under any
conditions or circumstances as would constitute a distribution of the
Securities within the meaning and purview of the Securities Act or the
applicable state securities laws. The reliance by the Company upon such
exemptions is based in part upon the representations and warranties set
forth in this Section 3.2.5.
-------------
(A) Purchaser is an Accredited Investor.
(B) It is Purchaser's intention to acquire and hold
the Securities solely for Purchaser's private investment and
for Purchaser's own account and with no view or intention to
distribute (including, without limitation, any distribution to
the shareholder of Purchaser pursuant to the terms of its
governing instruments), sell, resell, assign, pledge,
mortgage, hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof) except
-17-
<PAGE>
pursuant to a valid exception from registration or a
registered offering under the Securities Act.
(C) No other Person (other than Purchaser's
shareholders) will acquire, directly or indirectly, any
interest in the Securities (or any portion thereof) as a
result of Purchaser's acquisition of the Securities pursuant
to this Agreement or the Franklin Warrant.
(D) Purchaser understands that the Securities have
not been registered under the Securities Act, and that it has
no right, except as provided in the Registration Rights
Agreement, to cause the Securities to be so registered.
(E) Purchaser has no contract, undertaking,
agreement, or arrangement with any Person to sell or otherwise
transfer to any Person, or to have any Person sell on behalf
of Purchaser, the Securities (or any portion thereof), and
Purchaser is not engaged in and does not plan to engage within
the foreseeable future in any discussion with any Person
relative to the sale or any transfer of the Securities (or any
portion thereof). Purchaser is not aware of any occurrence,
event, or circumstance upon the happening of which Purchaser
intends to attempt to sell, resell, assign, pledge, mortgage,
hypothecate, or otherwise transfer or dispose of the
Securities (or any portion thereof), and Purchaser does not
have any present intention of selling, transferring, or
otherwise disposing of the Securities (or any portion thereof)
after the lapse of any particular period of time.
(F) Purchaser is, and will be on the Closing Date, a
sophisticated investor which has the capacity to protect
Purchaser's own interests in investments of this nature, and
has such knowledge and experience in financial and business
matters that Purchaser is capable of evaluating the merits and
risks of this investment and of making an informed investment
decision.
(G) To the Knowledge of Purchaser, Purchaser has had
all documents, records, books and due diligence materials
pertaining to this acquisition made available to Purchaser and
Purchaser's accountants and advisors; Purchaser has also had
an opportunity to ask questions and receive answers concerning
the acquisition of the Securities pursuant to this Agreement
and the Franklin Warrant; and Purchaser has all of the
information deemed by Purchaser to be necessary or appropriate
to evaluate this investment and the risks and merits thereof.
-18-
<PAGE>
(H) Purchaser is acquiring the Securities solely upon
the information provided to Purchaser as specified in Section
3.2.5(g) , above, together with information obtained by
Purchaser through Purchaser's independent investigation.
(I) Purchaser is aware of the following:
(i) the Securities are speculative, with no
assurance of any income from the Securities;
(ii) no federal or state agency has made any
finding or determination as to the fairness of the
acquisition, or any recommendation or endorsement of
such acquisition;
(iii) transferability of the Securities is
highly restricted and, accordingly, it may not be
possible for Purchaser to liquidate the Securities in
case of emergency; and
(iv) with respect to the tax aspects of an
investment in the Securities, Purchaser in making
Purchaser's investment decision is not relying to any
degree upon the advice of the Company, or any Person
Affiliated therewith, but rather solely upon
Purchaser's own legal, financial and tax advisors.
(J) The certificates representing the Franklin Shares
issued to Purchaser or any subsequent holder thereof who
acquires the Franklin Shares (and the Franklin Warrant Shares,
if any) in a transaction exempt from registration under the
Securities Act may be imprinted with an appropriate
restrictive legend concerning registration.
(K) The Company's stock records may be marked to
indicate the provisions of this Section 3.2.5 and the Company
-------------
may direct any transfer agent to enter a stop transfer order
in its records with respect to the Shares in accordance with
this Section 3.2.5.
-------------
ARTICLE 4
COVENANTS
SECTION 4.1. TERMS OF FRANKLIN NEW PREFERRED STOCK. The terms of the
Franklin New Preferred Stock shall be as set forth in the Series D Certificate
of Designation. Such terms shall include the following:
-19-
<PAGE>
(A) Pay annual cumulative dividend of $0.10 per
share, payable $0.025 quarterly in arrears in cash.
(B) Have one vote per share on all matters submitted
to a vote of the holders of the Company's Common Stock, with
such shares voting with the shares of Common Stock as a single
class.
(C) Be convertible initially into 0.5 share of Common
Stock, subject to normal anti-dilution provisions. The shares
shall be convertible at any time at the option of the holder
thereof. The shares shall be automatically converted into
Common Stock immediately prior to the completion of a
Qualified Public Offering.
(D) Except as otherwise expressly provided in the
Series D Certificate of Designation, rank pari passu with the
HBS Senior Preferred Stock.
(E) Have a liquidation preference with respect to the
Company's interest in Hold Billing Services, Ltd., a Texas
limited partnership, and a secondary liquidation preference in
the Company's interest in BorderComm, Inc., a Texas
corporation, in each case as specifically set forth in the
Series D Certificate of Designation.
SECTION 4.2. LOAN. The terms of the Loan shall be as set forth in the
Loan Documents. Such terms shall include the following:
(A) Have a term of three years from the Closing Date.
(B) Bear interest at the rate of 10% per annum,
payable quarterly in cash, with the first four payments
pre-paid on the Closing Date solely from the proceeds of the
Loan.
(C) Require no principal payments during the first
year of the Loan. After the first year, principal will be
required to paid in equal quarterly installments provided cash
flow permits.
(D) Be subordinate to all indebtedness of the
Companies owing to FINOVA Capital Corporation.
(E) Be secured by a security interest in the
Companies' partnership interests in Hold Billing Services,
Ltd., a Texas limited partnership, and all the Companies'
equity interest in HBS, Inc., a Texas corporation.
-20-
<PAGE>
SECTION 4.3. REGISTRATION RIGHTS. At the Closing, the Company and
Purchaser will enter into a Registration Rights Agreement in substantially the
form of Exhibit E (the "REGISTRATION RIGHTS AGREEMENT"). Purchaser shall have
---------
the registration rights set forth in the Registration Rights Agreement. Such
rights shall include one demand registration right for the Franklin Common
Shares and the shares of Common Stock issuable upon conversion of the Franklin
Preferred Shares effective no earlier than April 1, 1998, and unlimited
"piggy-back" registration rights for the Franklin Common Shares, the Franklin
Warrant Shares and the shares of Common Stock issuable upon conversion of the
Franklin Exchange Shares.
SECTION 4.4. EXPENSES. At the Closing, the Company shall reimburse
Purchaser for that portion of its estimated actual out-of-pocket costs and
expenses incurred and paid in connection with this Agreement and the
transactions contemplated hereby by deducting $50,000 from the Purchase Price.
The obligation of the Company to reimburse Purchaser for that portion of its
actual out-of-pocket costs and expenses incurred and paid in connection with
this Agreement and the transactions contemplated hereby shall be limited to and
shall not exceed the amount by which $50,000 exceeds the total fees and expenses
incurred by the Company in connection with the negotiation, preparation,
execution and delivery of that certain letter dated March 24, 1997, from
Purchaser to the Company, which sets forth the basic terms of the transactions
contemplated hereby (the "LETTER OF INTENT"). After the Closing, Purchaser shall
reimburse the Company for its actual out-of-pocket costs and expenses incurred
in connection with the negotiation, preparation, execution and delivery of the
Letter of Intent. As a condition precedent to such reimbursements, Purchaser
shall furnish to the Company, and the Company shall furnish to Purchaser, such
invoices and other evidence of payment as is customary to document such payments
properly for the accounting and tax records of the Company or Purchaser, as the
case may be. Any such reasonable expenses incurred by Purchaser in excess of the
amount to which Purchaser is entitled to reimbursement hereunder would be
reimbursed by the Company only if approved by the Company's Board of Directors.
Except as otherwise provided in this Section 4.4, whether or not the Closing
------------
hereunder shall occur, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such cost or expense.
SECTION 4.5. OTHER ACTION. Subject to the terms and conditions herein
provided, the Company and Purchaser shall (a) use all reasonable efforts to
cooperate with one another in (i) determining whether any filings are required
to be made prior to the Closing with, and whether any consents, approvals,
permits or authorizations are required to be obtained prior to the Closing from,
governmental or regulatory authorities of the United States, the several states
and foreign jurisdictions in connection with the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and (ii)
timely making any such filings and timely seeking any such consents, approvals,
permits or authorizations; and (b) use all reasonable efforts to take, or cause
to be taken, all other action and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement. If at any time after the Closing,
any further action is necessary or desirable to carry out the purpose of or to
consummate the transactions contemplated by this Agreement, the Purchaser and
the Company shall use all reasonable efforts to cooperate with one another in
taking all such necessary action.
-21-
<PAGE>
SECTION 4.6. INSPECTION OF RECORDS. From the date hereof through the
Closing, the Company shall allow, upon reasonable notice, all designated
officers, attorneys, accountants and other representatives of Purchaser access
at all reasonable times during normal business hours to the records and files,
correspondence, audits, properties and personnel, as well as to all information
relating to commitments, contracts, titles, franchise compliance and financial
position, or otherwise pertaining to the business and affairs, of the Company
and its Subsidiaries.
SECTION 4.7. PUBLICITY. The initial press release relating to this
Agreement shall be a joint press release and thereafter the Company and
Purchaser shall, subject to their respective legal obligations, consult with
each other, and use reasonable efforts to agree upon the text of any press
release, before issuing any such press release or otherwise making public
statements with respect to the transactions contemplated hereby and in making
any filings with any federal or state governmental or regulatory agency or with
any national securities exchange with respect thereto.
SECTION 4.8. FILING OF CERTIFICATES OF DESIGNATION. The Company shall
file the Certificates of Designation with the Secretary of State of the State of
Delaware on or before Closing.
ARTICLE 5
CONDITIONS
SECTION 5.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO CLOSE. The
respective obligation of each party to close the transactions contemplated
hereby shall be subject to the fulfillment at or prior to the Closing of the
following conditions:
(A) Neither of the parties hereto shall be subject to
any Order or injunction of a court of competent jurisdiction
which prohibits the consummation of the transactions
contemplated by this Agreement or any of the other Transaction
Documents or which could reasonably be expected to otherwise
result in a material diminution of the benefits of the
transactions contemplated hereby or thereby to Purchaser. In
the event any such Order or injunction shall have been issued,
each party agrees to use its reasonable efforts to have any
such Order or injunction lifted. There shall not be pending or
threatened on the Closing Date any Action which could
reasonably be expected to result in the issuance of any such
Order or injunction.
(B) 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 and the other Transaction
Documents shall have been obtained or made, except
-22-
<PAGE>
for any other documents required to be filed after the Closing
Date, which are set forth in the Disclosure Letter.
5.1.1. CONDITIONS TO OBLIGATION OF THE COMPANY TO CLOSE. The
obligation of the Company to close the transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing Date of
the following conditions (which may be waived in whole or in part by
the Company in its sole discretion):
(A) The Company shall have received a certificate,
dated the Closing Date, of the Secretary of Purchaser,
certifying as to the incumbency of the officers of Purchaser
executing this Agreement, the validity and effect of the
resolutions of the directors of Purchaser authorizing and
approving this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby, and such
other matters as Purchaser or its counsel may reasonably
request.
(B) Purchaser shall have delivered to the Company a
certificate, dated as of a recent date, from the Secretary of
State of the State of Delaware certifying that Purchaser is
duly incorporated under the laws of the State of Delaware and
is in good standing and has a legal corporate existence at
such date.
(C) The Company shall have received such other
documents, instruments or certificates incident to the
transactions contemplated by this Agreement or by the other
Transaction Documents as it or its counsel may reasonably
request.
5.1.2. CONDITIONS TO OBLIGATION OF PURCHASER TO CLOSE. The
obligations of Purchaser to close the transactions contemplated hereby
shall be subject to the fulfillment at or prior to the Closing Date of
each of the following conditions (all or any of which may be waived in
whole or in part by Purchaser in its sole discretion):
(A) Purchaser shall have received a certificate,
dated the Closing Date, of the Secretary of the Company,
certifying as to the incumbency of the officers of the Company
executing this Agreement, the validity and effect of the
resolutions of the directors of the Company authorizing and
approving this Agreement and the other Transaction Documents
and the transactions contemplated hereby and thereby, the
validity and effect of the Certificate of Incorporation and
Bylaws of the Company, and such other matters as Purchaser or
its counsel may reasonably request.
-23-
<PAGE>
(B) The Company shall have delivered to Purchaser a
certificate, dated as of a recent date, from the Secretary of
State of the State of Delaware certifying that the Company is
duly incorporated under the laws of the State of Delaware and
is in good standing and has a legal corporate existence at
such date.
(C) The Company shall have filed the Certificates of
Designation with the Secretary of State of the State of
Delaware.
(D) Purchaser shall have received such other
documents, instruments or certificates incident to the
transactions contemplated by this Agreement or by the other
Transaction Documents as it or its counsel may reasonably
request.
ARTICLE 6
DEFINITIONS AND CONSTRUCTION
SECTION 6.1. DEFINITION OF CERTAIN TERMS. Except as otherwise expressly
provided or unless the context otherwise requires, the terms defined in this
Section 6.1, whenever used in this Agreement (including in the Schedules), shall
- -----------
have the respective meanings assigned to them in this Section for all purposes
of this Agreement, and include the plural as well as the singular.
"ACCREDITED INVESTOR" -- as defined in Regulation D
promulgated under the Securities Act.
"ACTION" -- any claim, action, suit, proceeding, arbitration
or investigation that could reasonably be expected to have a Company
Material Adverse Effect.
"AFFILIATE" -- of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person. "CONTROL"
(including the terms "CONTROLLED BY" and "UNDER COMMON CONTROL WITH")
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management policies of a person, whether
through the ownership of voting securities, by contract or credit
arrangement, as trustee or executor, or otherwise.
"AGREEMENT" -- this instrument as originally executed,
including the Schedules hereto, or as it may be from time to time
supplemented or amended by one or more supplements or amendments hereto
entered pursuant to the applicable provisions hereof.
"APPLICABLE CONTRACT" -- any Contract (a) under which any of
the Companies has or may acquire any rights, (b) under which any of the
Companies has or may become subject to any obligation or liability, or
(c) by which any of the Companies or any of the assets owned or used by
it is or may become bound.
-24-
<PAGE>
"APPLICABLE LAW" -- all applicable provisions of all (i)
constitutions, treaties, statutes, laws (including the common law),
rules, regulations, ordinances, codes or orders of any Governmental
Authority, (ii) Governmental Approvals and (iii) orders, decisions,
injunctions, judgments, awards and decrees of or agreements with any
Governmental Authority.
"AVERY REGISTRATION RIGHT" -- as defined in Section 3.1.3.
-------------
"BUSINESS DAY" -- a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or
required to close.
"CERTIFICATES OF DESIGNATION" -- collectively, the Series D
Certificate of Designation and the Series E Certificate of Designation.
"CLOSING" -- as defined in Section 2.1.
-----------
"CLOSING DATE" -- as defined in Section 2.1.
-----------
"CODE" -- the Internal Revenue Code of 1986, as amended, or
any successor law, and all regulations issued by the IRS pursuant to
the Internal Revenue Code of 1986 or any successor law.
"COMMISSION" -- Securities and Exchange Commission of the
United States of America and any successor commission, service, agency
or bureau.
"COMMON STOCK" -- as defined in the Recitals hereto.
"COMPANIES" -- collectively, the Company and its Subsidiaries.
"COMPANY" -- as defined in the first paragraph of this
Agreement.
"COMPANY MATERIAL ADVERSE EFFECT" -- as defined in Section
-------
3.1.1.
-----
"COMPANY PLANS" -- as defined in Section 3.1.12.
--------------
"CONSENT" -- any consent, approval, authorization, waiver,
permit, grant, franchise, concession, agreement, license, exemption or
order of, registration, certificate, declaration or filing with, or
report or notice to, any Person, including but not limited to any
Governmental Authority.
"CONTRACT" -- any agreement, contract, obligation, promise, or
undertaking (whether written or oral and whether express or implied)
that is legally binding.
"DISCLOSURE LETTER" -- as defined in Section 3.1.
-----------
"DOLLARS" or "$" -- lawful money of the United States.
-25-
<PAGE>
"ERISA" -- the Employee Retirement Income Security Act of
1974, as amended, or any successor law, and regulations and rules
issued pursuant to that Act or any successor law.
"FRANKLIN COMMON SHARES" -- as defined in the Recitals hereto.
"FRANKLIN CONVERSION SHARES" -- the shares of Common Stock
issuable upon conversion of the Franklin Preferred Shares.
"FRANKLIN EXCHANGE PREFERRED STOCK" -- as defined in the
Recitals hereto.
"FRANKLIN EXCHANGE SHARES" -- as defined in the Recitals
hereto.
"FRANKLIN NEW PREFERRED STOCK" -- as defined in the Recitals
hereto.
"FRANKLIN PREFERRED SHARES" -- as defined in the Recitals
hereto.
"FRANKLIN SEC DOCUMENTS" -- as defined in Section 3.2.3.
-------------
"FRANKLIN SECURITY AGREEMENT" -- The Security Agreement
attached hereto as Exhibit D pursuant to which the Company will grant a
---------
security interest to Purchaser in its partnership interests in Hold
Billing Services, Ltd. a Texas limited partnership, in connection with
the Loan.
"FRANKLIN SHARES" -- as defined in the Recitals hereto.
"FRANKLIN SUBORDINATED NOTE" -- the form of Subordinated
Promissory Note attached hereto as Exhibit C, which will evidence the
---------
Loan.
"FRANKLIN WARRANT" -- as defined in the Recitals hereto, the
form of which is attached hereto as Exhibit F.
---------
"FRANKLIN WARRANT SHARES" -- the shares of Common Stock
issuable upon exercise of the Franklin Warrant.
"GAAP" -- generally accepted accounting principles as in
effect in the United States.
"GOVERNMENT APPROVAL" -- any Consent of, with or to any
Governmental Authority.
"GOVERNMENTAL AUTHORITY" -- any nation or government, any
state or other political subdivision thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including, without
limitation, any government authority, agency, department,
-26-
<PAGE>
board, commission or instrumentality of the United States, any State of
the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, and any
self-regulatory organization.
"HBS SENIOR PREFERRED STOCK" -- as defined in the Section
3.1.3.
"INTELLECTUAL PROPERTY" -- any and all United States and
foreign: (a) patents (including design patents, industrial designs and
utility models) and patent applications (including docketed patent
disclosures awaiting filing, reissues, divisions, continuations-in-part
and extensions), patent disclosures awaiting filing determination,
inventions and improvements thereto; (b) trademarks, service marks,
trade names, trade dress, logos, business and product names, slogans,
and registrations and applications for registration thereof; (c)
copyrights (including software) and registrations thereof; (d)
inventions, processes, designs, formulae, trade secrets, know-how,
industrial models, confidential and technical information,
manufacturing, engineering and technical drawings, product
specifications and confidential business information; (e) mask work and
other semiconductor chip rights and registrations thereof; (f)
intellectual property rights similar to any of the foregoing; (g)
copies and tangible embodiments thereof (in whatever form or medium,
including electronic media).
"INVESTMENT COMPANY ACT" -- the Investment Company Act of
1940, as amended, or any successor law, and regulations and rules
issued pursuant to that Act or any successor law.
"IRS" -- the Internal Revenue Service of the United States of
America and any successor commission, service, agency or bureau.
"KNOWLEDGE" -- an individual will be deemed to have
"KNOWLEDGE" of a particular fact or other matter if: (a) such
individual is actually aware of such fact or other matter; or (b) a
prudent individual could be expected to discover or otherwise become
aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such
fact or other matter. A Person (other than an individual) will be
deemed to have "KNOWLEDGE" of a particular fact or other matter if any
individual who is serving as a director, officer, partner, executor, or
trustee of such Person (or in any similar capacity) has Knowledge of
such fact or other matter.
"LAW" -- as defined in Section 3.1.1.
-------------
"LETTER OF INTENT" -- as defined in Section 4.4.
-----------
"LICENSE" -- any permit, license and other authorization,
approval, registration and similar consent.
-27-
<PAGE>
"LIEN" -- any mortgage, pledge, hypothecation, right of
others, claim, security interest, encumbrance, lease, sublease,
license, occupancy agreement, adverse claim or interest, easement,
covenant, encroachment, burden, title defect, title retention
agreement, voting trust agreement, interest, equity, option, lien,
right of first refusal, charge or other restrictions or limitations of
any nature whatsoever, including but not limited to such as may arise
under any Contracts.
"LOAN" -- as defined in the Recitals hereto.
"LOAN DOCUMENTS" -- collectively, the Franklin Subordinated
Note and the Franklin Security Agreement.
"MANAGEMENT FEE" -- as defined in Section 1.7.
-----------
"MATERIAL APPLICABLE CONTRACTS" -- as defined in Section
-------
3.1.15(a).
---------
"ORDER" -- as defined in Section 3.1.1.
-------------
"ORGANIZATIONAL DOCUMENTS" -- (a) the articles or certificate
of incorporation and the bylaws of a corporation; (b) the partnership
agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited
partnership of a limited partnership; (d) any charter or similar
document adopted or filed in connection with the creation, formation,
or organization of a Person; and (e) any amendment to any of the
foregoing.
"PERSON" -- any natural person, firm, partnership,
association, corporation, company, trust, business trust, Governmental
Authority or other entity.
"PREFERRED STOCK" -- as defined in the Recitals hereto.
"PURCHASE PRICE" -- as defined in Section 1.2.
-----------
"PURCHASER" -- as defined in the first paragraph of this
Agreement.
"QUALIFIED PUBLIC OFFERING" -- the closing of the sale of the
Common Stock in a firm commitment, underwritten public offering
registered under the Securities Act, other than a registration relating
solely to a transaction under Rule 145 under the Securities Act or to
an employee benefit plan of the Company, at a public offering price
(prior to underwriters' discounts and expenses) equal to or exceeding
$5.00 per share of Common Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares after the Closing
Date) and the aggregate proceeds to the Company or any selling
stockholders, or both (after deduction for underwriters' discounts and
expenses relating to the issuance, including, without limitation, fees
of the Company's counsel) of which exceed $7,000,000.
-28-
<PAGE>
"REGISTRATION RIGHTS AGREEMENT" -- as defined in Section 4.3.
-----------
"SECURITIES" -- collectively, the Franklin Shares, the
Franklin Conversion Shares, the Franklin Warrant and the Franklin
Warrant Shares.
"SECURITIES ACT" -- the Securities Act of 1933, as amended, or
any successor law, and regulations and rules issued pursuant to that
Act or any successor law.
"SERIES A PREFERRED STOCK" -- as defined in Section 3.1.3.
-------------
"SERIES B PREFERRED STOCK" -- as defined in the Recitals
hereto.
"SERIES C PREFERRED STOCK" -- as defined in the Section 3.1.3.
-------------
"SERIES D CERTIFICATE OF DESIGNATION" -- the Certificate of
Designations of the Franklin New Preferred Stock, to be filed with the
Secretary of State of the State of Delaware in the form attached hereto
as Exhibit A.
---------
"SERIES E CERTIFICATE OF DESIGNATION" -- the Certificate of
Designations of the Franklin Exchange Preferred Stock, to be filed with
the Secretary of State of the State of Delaware in the form attached
hereto as Exhibit B.
---------
"SUBSIDIARY" -- with respect to any Person (the "OWNER"), any
corporation or other Person of which securities or other interests
having the power to elect a majority of that corporation's or other
Person's board of directors or similar governing body, or otherwise
having the power to direct the business and policies of that
corporation or other Person (other than securities or other interests
having such power only upon the happening of a contingency that has not
occurred) are held by the Owner, by one or more of its Subsidiaries, or
by the Owner and one or more of its Subsidiaries. When used without
reference to a particular Person, "Subsidiary" means a Subsidiary of
the Company.
"TAX" -- any federal, state, provincial, local, foreign or
other income, alternative, minimum, accumulated earnings, personal
holding company, franchise, capital stock, net worth, capital, profits,
windfall profits, gross receipts, value added, sales, use, goods and
services, excise, customs duties, transfer, conveyance, mortgage,
registration, stamp, documentary, recording, premium, severance,
environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy,
license, occupational, employment, unemployment insurance, social
security, disability, workers' compensation, payroll, health care,
withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest
and penalties thereon and additions thereto whether disputed or not).
-29-
<PAGE>
"TAX RETURN" -- any return, report, declaration, form, claim
for refund or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any
amendment thereof.
"TRANSACTION DOCUMENTS" -- as defined in Section 3.1.2.
-------------
"UNITS" -- as defined in the Recitals hereto.
"WARRANT" -- as defined in Section 3.1.3.
-------------
SECTION 6.2. RULES OF CONSTRUCTION.
(A) "THIS AGREEMENT" means this instrument as
originally executed, including the Exhibits hereto, or as it
may be from time to time supplemented or amended by one or
more supplements or amendments hereto entered pursuant to the
applicable provisions hereof;
(B) "INCLUDES" and "INCLUDING" are not limiting, and,
in each case, shall be construed as if followed by the words
"without limitation," "but not limited to" or words of similar
import;
(C) "MAY NOT" is prohibitive, and not permissive;
(D) "SHALL" is mandatory, and not permissive;
(E) "OR" is not exclusive [i.e., if a party "may do
(a), (b) or (c)," then the party may do all of, any one of, or
any combination of, (a), (b) or (c)] unless the context
expressly provides otherwise;
(F) all references in this instrument to designated
"ARTICLES," "SECTIONS" and other subdivisions are to the
designated Articles, Sections and other subdivisions of this
instrument as originally executed;
(G) the words "HEREIN," "HEREOF," "HERETO" and
"HEREUNDER" and other words of similar import refer to this
Agreement as a whole and not to any particular Article,
Section or other subdivision;
(H) all terms used herein which are defined in the
Securities Act, the Exchange Act or the rules and regulations
promulgated thereunder have the meanings assigned to them
therein unless otherwise defined herein; and
-30-
<PAGE>
(I) all accounting terms not otherwise defined herein
have the meaning assigned to them in accordance with GAAP.
ARTICLE 7
GENERAL PROVISIONS
SECTION 7.1. SEVERABILITY. If any provision of this Agreement,
including any phrase, sentence, clause, Section or subsection is inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering the provision in question inoperative or unenforceable in any other
case or circumstance, or of rendering any other provision or provisions herein
contained invalid, inoperative, or unenforceable to any extent whatsoever.
SECTION 7.2. NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram:
(i) if to Purchaser, to:
The Franklin Holding Corporation (Delaware)
450 Park Avenue, 10th Floor
New York, New York 10022
Attention: Stephen L. Brown, Chairman
Fax No. (212) 755-5451
with copy to:
Jeffrey Weinberg, Esq.
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Fax No. (212) 310-8007
(ii) if to the Company, to:
Avery Communications, Inc.
190 South LaSalle, Suite 1410
Chicago, Illinois 60603
Attention: Patrick J. Haynes, III, Chairman
Fax No. (312) 419-0172
-31-
<PAGE>
with a copy to:
Bruce A. Cheatham, Esq.
Winstead Sechrest & Minick P.C.
1201 Elm Street, Suite 5400
Dallas, Texas 75270
Fax No. (214) 745-5390
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
SECTION 7.3. HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
SECTION 7.4. ENTIRE AGREEMENT. This Agreement (including the Exhibits
hereto) and the other Transaction Documents (when executed and delivered)
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
SECTION 7.5. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
SECTION 7.6. GOVERNING LAW, ETC. This Agreement shall be governed in
all respects, including as to validity, interpretation and effect, by the
internal laws of the State of Delaware, without giving effect to the conflict of
laws rules thereof. Purchaser and the Company hereby irrevocably submit to the
jurisdiction of the courts of the State of Delaware and the Federal courts of
the United States of America located in the State of Delaware, solely in respect
of the interpretation and enforcement of the provisions of this Agreement and of
the documents referred to in this Agreement, and hereby waive, and agree not to
assert, as a defense in any action, suit or proceeding for the interpretation or
enforcement hereof or of any such document, that it is not subject thereto or
that such action, suit or proceeding may not be brought or is not maintainable
in said courts or that the venue thereof may not be appropriate or that this
Agreement or any of such document may not be enforced in or by said courts, and
the parties hereto irrevocably agree that all claims with respect to such action
or proceeding shall be heard and determined in such a Delaware State or Federal
court. Purchaser and the Company hereby consent to and grant any such court
jurisdiction over the person of such parties and over the subject matter of any
such dispute and agree that mailing of process or other papers in connection
with any such action or proceeding in the manner provided in Section 7.6, or in
-----------
such other manner as may be permitted by law, shall be valid and sufficient
service thereof.
-32-
<PAGE>
SECTION 7.7. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
successors and permitted assigns.
SECTION 7.8. ASSIGNMENT. This Agreement shall not be assignable or
otherwise transferable by any party hereto without the prior written consent of
the other parties hereto.
SECTION 7.9. NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement
shall confer any rights upon any person or entity other than the parties hereto
and their respective heirs, successors and permitted assigns.
SECTION 7.10. AMENDMENT; WAIVERS; ETC. No amendment, modification or
discharge of this Agreement, and no waiver hereunder, shall be valid or binding
unless set forth in writing and duly executed by the party against whom
enforcement of the amendment, modification, discharge or waiver is sought. Any
such waiver shall constitute a waiver only with respect to the specific matter
described in such writing and shall in no way impair the rights of the party
granting such waiver in any other respect or at any other time. Neither the
waiver by any of the parties hereto of a breach of or a default under any of the
provisions of this Agreement, nor the failure by any of the parties, on one or
more occasions, to enforce any of the provisions of this Agreement or to
exercise any right or privilege hereunder, shall be construed as a waiver of any
other breach or default of a similar nature, or as a waiver of any of such
provisions, rights or privileges hereunder. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The rights and remedies of any
party based upon, arising out of or otherwise in respect of any inaccuracy or
breach of any representation, warranty, covenant or agreement or failure to
fulfill any condition shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or agreement as to which there is no
inaccuracy or breach. The representations and warranties of the Company shall
not be affected or deemed waived by reason of any investigation made by or on
behalf of Purchaser (including but not limited to by any of their respective
advisors, consultants or representatives) or by reason of the fact that
Purchaser or any of such advisors, consultants or representatives knew or should
have known that any such representation or warranty is or might be inaccurate.
The representations and warranties of Purchaser shall not be affected or deemed
waived by reason of any investigation made by or on behalf of the Company
(including but not limited to by any of their respective advisors, consultants
or representatives) or by reason of the fact that the Company or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
[THIS SPACE LEFT BLANK INTENTIONALLY.]
[SIGNATURES ON FOLLOWING PAGE.]
-33-
<PAGE>
INVESTMENT AGREEMENT
Signature Page
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.
THE FRANKLIN HOLDING CORPORATION
(DELAWARE)
By:________________________________
Stephen L. Brown
Chairman
AVERY COMMUNICATIONS, INC.
By:________________________________
Patrick J. Haynes, III
Chairman
-34-
<PAGE>
ANNEX I
-------
INDEX OF DEFINED TERMS
PAGE
----
Accredited Investor...........................................................24
Action ............................................................24
Affiliate ............................................................24
Agreement .........................................................1, 24
Applicable Contract...........................................................24
Applicable Law ............................................................25
Avery Registration Right...................................................6, 25
Business Day ............................................................25
Certificates of Designation...................................................25
Closing .........................................................3, 25
Closing Date .........................................................3, 25
Code ............................................................25
Commission ............................................................25
Common Stock .........................................................1, 25
Companies ............................................................25
Company .........................................................1, 25
Company Material Adverse Effect............................................4, 25
Company Plans ........................................................10, 25
Consent ............................................................25
Contract ............................................................25
Disclosure Letter .........................................................4, 25
Dollars or $ ............................................................25
ERISA ............................................................26
Franklin Common Shares.....................................................1, 26
Franklin Conversion Shares....................................................26
Franklin Exchange Preferred Stock..........................................1, 26
Franklin Exchange Shares...................................................1, 26
Franklin New Preferred Stock...............................................1, 26
Franklin Preferred Shares..................................................1, 26
Franklin SEC Documents....................................................16, 26
Franklin Security Agreement...................................................26
Franklin Shares .........................................................1, 26
Franklin Subordinated Note....................................................26
Franklin Warrant .........................................................1, 26
Franklin Warrant Shares.......................................................26
GAAP ............................................................26
Government Approval...........................................................26
Governmental Authority........................................................26
HBS Senior Preferred Stock.................................................5, 27
Intellectual Property.........................................................27
I-1
<PAGE>
PAGE
----
Investment Company Act........................................................27
IRS ............................................................27
Knowledge ............................................................27
Law .........................................................4, 27
Letter of Intent ........................................................21, 27
License ............................................................27
Lien ............................................................28
Loan .........................................................1, 28
Loan Documents ............................................................28
Management Fee .........................................................3, 28
Material Applicable Contracts.............................................11, 28
Order .........................................................4, 28
Organizational Documents......................................................28
Person ............................................................28
Preferred Stock .........................................................1, 28
Purchase Price .........................................................2, 28
Purchaser .........................................................1, 28
Qualified Public Offering.....................................................28
Registration Rights Agreement.............................................21, 29
Securities ........................................................17, 29
Securities Act ............................................................29
Series A Preferred Stock...................................................5, 29
Series B Preferred Stock...................................................1, 29
Series C Preferred Stock...................................................5, 29
Series D Certificate of Designation...........................................29
Series E Certificate of Designation...........................................29
Subsidiary ............................................................29
Tax ............................................................29
Tax Return ............................................................30
Transaction Documents......................................................4, 30
Units .........................................................1, 30
Warrant .........................................................5, 30
I-2
<PAGE>
ANNEX II
--------
MEMBERS OF THE BOARD OF DIRECTORS
IDENTIFIED BY PURCHASER
- -----------------------
Stephen L. Brown
Spencer L. Brown
John Greenbaum
IDENTIFIED BY THE COMPANY
- -------------------------
Patrick J. Haynes, III
Norman Phipps
Robert T. Isham, Jr.
II-1
<PAGE>
ANNEX III
---------
USE OF PROCEEDS
III-1
<PAGE>
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATION FOR SERIES D
<PAGE>
EXHIBIT B
FORM OF CERTIFICATE OF DESIGNATION FOR SERIES E
<PAGE>
EXHIBIT C
FORM OF FRANKLIN SUBORDINATED NOTE
<PAGE>
EXHIBIT D
FORM OF FRANKLIN SECURITY AGREEMENT
<PAGE>
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
<PAGE>
EXHIBIT F
FORM OF FRANKLIN WARRANT
<PAGE>
EXHIBIT 10.7
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER SECURITIES LAWS. THEY MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN EXEMPTION THEREFROM UNDER SUCH
ACT AND OTHER APPLICABLE SECURITIES LAWS.
WARRANT
To Purchase 300,000 Shares of
Common Stock,
par value $0.01 per share, of
Avery Communications, Inc., a Delaware corporation
Warrant No. ________ May 27, 1997
THIS IS TO CERTIFY that, for value received, The Thurston Group, Inc.,
or registered assigns, is entitled upon the due exercise hereof at any time
after the Exercise Date (as hereinafter defined) and prior to the Termination
Date (as hereinafter defined) to purchase 300,000 shares (adjusted for stock
dividends, stock splits, subdivisions, combinations or other similar
transactions) of Common Stock, par value $0.01 per share ("Common Stock"), of
-------------
Avery Communications, Inc., a Delaware corporation (the "Company"), at an
-------
Exercise Price per share equal to $1.00.
1. Definitions.
-----------
1.1 Definitions of other Capitalized Terms. The terms defined in this
----------------------------------------
Section 1.1, whenever used and capitalized in this Warrant, shall, unless the
context otherwise requires, have the following respective meanings:
"Act" shall mean the Securities Act of 1933, as amended.
---
"Assignment" shall mean the form of Assignment appearing at the end of
----------
this Warrant.
<PAGE>
"Common Stock" shall mean the Common Stock, par value $0.01 per share,
------------
of the Company.
"Company" shall mean Avery Communications, Inc., a Delaware
-------
corporation, and any successor corporation.
"Exercise Date" shall mean May 27, 1997.
-------------
"Exercise Price" shall mean the price per share of Common Stock set
---------------
forth in the preamble to this Warrant.
"Notice of Exercise" shall mean the form of Notice of Exercise
--------------------
appearing at the end of this Warrant.
"Person" shall mean any individual, firm, corporation, partnership,
------
trust, incorporated or unincorporated association, limited liability company,
joint venture, joint stock company or any other entity of any kind, and shall
include any successor, by merger or otherwise, of such entity.
"Termination Date" shall mean May 27, 2002.
----------------
"Warrant Register" shall have the meaning specified in Section 3.1.
----------------
"Warrant Shares" shall mean the shares of Common Stock issued or
---------------
issuable, as case may be, from time to time upon exercise of this Warrant,
including, without limitation, any securities issuable with respect thereto by
way of conversion, stock dividend or stock split or in connection with a
subdivision or combination of shares, recapitalization, merger, consolidation,
other reorganization or otherwise.
1.2 Other Definitions. The terms defined in this Section 1.2, whenever
-----------------
used in this Warrant, shall, unless the context otherwise requires, have the
following respective meanings:
"corporation" shall include an association, joint stock company,
-----------
business trust or other similar organization.
"shares" of any Person shall include any and all shares of capital
------
stock of such Person of any class or other shares, interests, participations or
other equivalents (however designated) in the capital of such Person.
"this Warrant" shall mean, and the words "herein," "hereof,"
------------- ------ ------
"hereunder" and words of similar import shall refer to, this instrument as it
---------
may from time to time be amended or supplemented.
-2-
<PAGE>
2. Exercise of Warrant.
-------------------
2.1 Right to Exercise; Notice. On the terms and subject to the
-------------------
conditions of this Section , the holder hereof shall have the right, at its
option, to exercise this Warrant in whole or in part at any time or from time to
time on or after the Exercise Date and prior to the Termination Date, provided
that a partial exercise of this Warrant for less than the entire remaining
amount of Warrant Shares issuable under this Warrant shall be made only for a
whole number of shares.
2.2 Manner of Exercise; Issuance of Common Stock. To exercise this
-----------------------------------------------
Warrant, the holder hereof shall deliver to the Company (a) a Notice of Exercise
duly executed by the holder hereof specifying the number of Warrant Shares to be
purchased, (b) an amount equal to the aggregate Exercise Price for all Warrant
Shares to be purchased (the "Aggregate Exercise Price") and (c) this Warrant.
--------------------------
Payment of the Aggregate Exercise Price shall be made (i) by certified or
official bank check payable to the order of the Company and drawn on a member of
the New York Clearing House, (ii) by wire transfer of immediately available
funds to an account specified by the Company or (iii) by converting an
unexercised portion of this Warrant representing the entitlement to purchase a
number of shares of Common Stock determined by dividing (x) the Aggregate
Exercise Price by (y) the excess of (I) the market price on the date of exercise
of one share of Common Stock over (II) the Exercise Price.
The current market price per share of Common Stock on any date is the
average of the Quoted Prices of the Common Stock for the five consecutive
trading days commencing ten trading days before the date in question. The
"Quoted Price" of the Common Stock on any date is the last reported sales price
-------------
of the Common Stock as reported by NASDAQ, National Market System, or if the
Common Stock is listed on a securities exchange, the last reported sales price
of the Common Stock on such exchange which shall be for consolidated trading if
applicable to such exchange. In the absence of any such quotations, the Board of
Directors of the Company shall determine the current market price on the basis
of such factors as it in reasonable good faith considers appropriate, which
determination shall be binding on the Company and the holder hereof and, if
applicable, its assignee or transferee.
Upon receipt of the items referred to in the first paragraph of this
Section 2.2, the Company shall, as promptly as practicable, and in any event
within five days thereafter, cause to be issued and delivered to the holder
hereof (or its nominee) or the transferee designated in the Notice of Exercise,
a certificate or certificates representing the Warrant Shares equal in the
aggregate to the number of Warrant Shares specified in the Notice of Exercise
(but not exceeding the maximum number of shares issuable upon exercise of this
Warrant). Such certificates shall be registered in the name of the holder hereof
(or its nominee) or in the name of such transferee, as the case may be. If such
certificates are to be issued in the name or names of anyone other than the
registered holder (as shown on the books of the Company) of the Warrant being
surrendered for exercise, then, if required by the Company, the holder thereof
shall deliver with such Notice of Exercise an opinion of counsel to the effect
that the sale, transfer, or assignment of such Warrant Shares is exempt from the
requirements of the Act and applicable state securities
-3-
<PAGE>
laws, which opinion shall be addressed to the Company, provided at the expense
of the holder of the Warrant Shares to be transferred and provided by counsel
reasonably satisfactory to the Company and in the form and substance reasonably
satisfactory to the Company.
If this Warrant is exercised in part, the Company shall, at the time of
delivery of such certificate or certificates, issue and deliver to the holder
hereof or the transferee so designated in the Notice of Exercise, a new Warrant
evidencing the right of the holder hereof or such transferee to purchase at the
Exercise Price the aggregate number of Warrant Shares which the holder is then
entitled to purchase hereunder, and this Warrant shall be cancelled.
2.3 Effectiveness of Exercise. This Warrant shall be deemed to have
--------------------------
been exercised and such certificate or certificates representing Warrant Shares
shall be deemed to have been issued, and the holder or transferee so designated
in the Notice of Exercise shall be deemed to have become the holder of record of
such Warrant Shares for all purposes, as of the close of business on the date on
which the last of the Notice of Exercise, the Aggregate Exercise Price and this
Warrant shall have been received by the Company.
2.4 Fractional Shares. The Company shall not issue fractional Warrant
------------------
Shares or scrip representing fractional Warrant Shares upon any exercise of this
Warrant. As to any fractional Warrant Shares which the holder hereof would
otherwise be entitled to purchase from the Company upon such exercise, the
holder hereof would otherwise be entitled to purchase from the Company one share
of Common Stock at a price equal to the Exercise Price. Payment of such amount
shall be made in any manner permitted under Section at the time of delivery of
any certificate or certificates deliverable upon such exercise.
3. Registration, Transfer and Exchange; Legends.
--------------------------------------------
3.1 Maintenance of Registration Books. The Company shall keep at its
----------------------------------
principal executive office a register (the "Warrant Register") in which, subject
----------------
to such reasonable regulations as it may prescribe, the Company shall provide
for the registration, transfer and exchange of this Warrant; provided that a
partial exercise of the Warrant for less than the entire remaining amount of
Warrant Shares issuable under this Warrant shall be made only for a whole number
of shares. The Company shall not at any time close the Warrant Register so as to
result in preventing or delaying the exercise or transfer of this Warrant.
3.2 Transfer and Exchange. Upon surrender for registration of transfer
---------------------
of this Warrant at such office, the Company shall, subject to applicable federal
and state securities laws, execute and deliver in the name of the designated
transferee or transferees one or more new Warrants representing the right to
purchase at the Exercise Price a like aggregate number of Warrant Shares. At the
option of the Holder hereof, subject to applicable federal and state securities
laws, this Warrant may be exchanged for other Warrants representing the right to
purchase at the Exercise Price a like aggregate number of Warrant Shares upon
surrender of this Warrant at such office. Whenever this Warrant is so
surrendered for exchange, the Company shall execute and deliver the Warrants
which the holder making the exchange is entitled to receive; provided that
--------
-4-
<PAGE>
Warrant Shares issuable pursuant to the exchanged Warrants shall be issuable in
an amount representing a whole number of Warrant Shares. Every Warrant presented
or surrendered for registration of transfer or exchange shall be accompanied by
an Assignment duly executed by the holder thereof or its attorney duly
authorized in writing. All Warrants issued upon any registration or transfer or
exchange of other Warrants shall be the valid obligations of the Company,
evidencing the same rights, and entitled to the same benefits, as the Warrants
surrendered upon such registration of transfer or exchange.
3.3 Replacement. Upon receipt of evidence reasonably satisfactory to
-----------
the Company of the loss, theft, destruction or mutilation of this Warrant and
(a) in the case of any such loss, theft or destruction, upon delivery of
indemnity reasonably satisfactory to the Company in form and amount or (b) in
the case of any such mutilation, upon surrender of this Warrant for cancellation
at the office of the Company at which the Warrant Register is kept, the Company,
at its expense, will execute and deliver, in lieu thereof, a new Warrant
representing the right to purchase at the Exercise Price a like aggregate number
of Warrant Shares.
3.4 Ownership. The Company and any agent of the Company may treat the
---------
Person in whose name this Warrant is registered on the Warrant Register as the
owner and holder hereof for all purposes, notwithstanding any notice to the
contrary, except that, if and when this Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer hereof as the
owner of this Warrant for all purposes, notwithstanding any notice to the
contrary. This Warrant, if properly assigned, may be exercised by a new holder
without first having a new Warrant issued.
3.5 Legend on Warrant Shares. The Warrant Shares, when issued, shall
------------------------
bear the following legends:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
-------------------------------------------------------------
SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER SECURITIES LAWS. THEY
-----------------------------------------------------------------------
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
-----------------------------------------------------------------------
A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER
-----------------------------------------------------------------------
SUCH ACT OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND OTHER APPLICABLE
-----------------------------------------------------------------------
SECURITIES LAWS."
---------------
3.6 Certain Matters With Respect to Exercise.
----------------------------------------
(a) If:
(i) the Company consolidates or merges with, or transfers all
or substantially all of its assets to, another Person, and stockholders of the
Company must approve the transaction; or
(ii) there is a dissolution or liquidation of the Company;
-5-
<PAGE>
the holder of this Warrant may want to exercise it for shares of Common Stock
prior to the record date for or the effective date of the transaction so that he
may receive the rights, warrants, securities or assets which a holder of shares
of Common Stock on that date may receive. Therefore, the Company shall mail to
such holder, first class, postage prepaid, a notice stating the proposed record
or effective date, as the case may be. The Company shall mail the notice at
least thirty (30) days before such date.
(b) If the Company is party to a consolidation or merger which
reclassifies or changes its Common Stock or to the sale of all or substantially
all of the assets of the Company, upon consummation of such transaction this
Warrant shall automatically become exercisable for the kind and amount of
securities, cash or other assets which the holder of this Warrant would have
owned immediately after the sale, consolidation or merger, if such holder had
exercised the Warrant immediately before the effective date of the transaction,
and an appropriate adjustment (as determined by the Board of Directors of the
Company) shall be made in the application of the provisions herein set forth
with respect to the rights and interests thereafter of the holder of this
Warrant, to the end that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be, in relation to any shares of stock
or other securities or property thereafter deliverable upon the exercise of the
Warrant.
4. Various Covenants of the Company.
--------------------------------
4.1 No Impairment or Amendment. The Company shall not by any action,
----------------------------
including, without limitation, amending its Certificate of Incorporation, any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate to protect
the rights of the holder hereof against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any Warrant Shares above the amount payable therefor upon such exercise, (b)
will take all such action as may be necessary or appropriate in order that the
Company may validly issue fully paid and nonassessable Warrant Shares, (c) will
obtain and maintain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction as may be necessary to enable the
Company to perform its obligations under this Warrant and (d) will not issue any
capital stock or enter into any agreement, the terms of which would have the
effect, directly or indirectly, of preventing the Company from honoring its
obligations hereunder.
So long as this Warrant is outstanding, the Company will acknowledge in
writing, in form satisfactory to the holder hereof, the continued validity of
the Company's obligations hereunder.
4.2 Reservation of Common Stock. The Company will at all times reserve
---------------------------
and keep available, solely for issuance, sale and delivery upon the exercise of
this Warrant, such number of shares of Common Stock equal to the number of
shares of Common Stock issuable upon the exercise of this Warrant. All such
shares of Common Stock shall be duly authorized and, when
-6-
<PAGE>
issued upon exercise of this Warrant and payment of the Exercise Price
hereunder, will be validly issued and fully paid and nonassessable with no
liability on the part of the holders thereof.
4.3 Certain Expenses. The Company and the holder of this Warrant shall
----------------
each pay its own expenses in connection with the issue, sale and delivery of
this Warrant and any Warrant Shares.
5. Miscellaneous.
-------------
5.1 Amendment and Waiver.
--------------------
(a) No failure or delay on the part of the Company, or the
holder hereof in exercising any right, power or remedy hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy. The remedies provided for herein are
cumulative and are not exclusive of any remedies that may be available to the
Company or the holder hereof at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any
provision of this Warrant, any waiver of arty provision of this Warrant and any
consent to any departure by any party from the terms of any provision of this
Warrant, shall be effective (i) only if it is made or given in writing and
signed by the Company and by the holder hereof, and (ii) only in the specific
instance for the specific purpose for which made or given. Except where notice
is specifically required by this Warrant, no notice to or demand on any party in
any case shall entitle any party hereto to any other or further notice or demand
or similar or other circumstances.
5.2 Notices. Except as otherwise expressly set forth herein, all
-------
notices, demands and other communications provided for or permitted hereunder
shall be made in writing and shall be by registered or certified first-class
mail, return receipt requested, courier service or personal delivery at the
addresses set forth below:
(a) if to the holder of this Warrant:
The Thurston Group, Inc.
190 South LaSalle Street, Suite 1410
Chicago, IL 60603
Attention: Robert T. Isham, Jr.
-7-
<PAGE>
(b) if to the Company:
Avery Communications, Inc.
190 South LaSalle Street, Suite 1410
Chicago, IL 60603
Attention: Patrick J. Haynes, III
Except as otherwise expressly set forth herein, all such notices,
demands and communications shall be deemed to have been duly given: when
delivered by hand, if personally delivered; when delivered by courier, if
delivered by courier service; and five business days after being deposited in
the mail, postage prepaid, if mailed. Any Person may, from time to time, change
its address set forth in this Section 5.2 by sending a notice of the new address
to the Persons set forth above.
5.3 Remedies. The Company stipulates that the remedies at law of the
--------
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of the Warrant
are not and will not be adequate and that, to the fullest extent permitted by
law, such terms may be specifically enforced by a decree for the specific
performance of any agreement contained herein or by an injunction against a
violation of any of the terms hereof, or otherwise.
5.4 Successors and Assigns. Subject to the restrictions on transfer set
----------------------
forth herein, this Warrant and the rights evidenced hereby shall inure to the
benefit of and be binding upon the successors and assigns of the Company and the
holder of this Warrant, to the extent provided herein, and shall be enforceable
by such holder.
5.5 Modification and Severability. If, in any action before any court
------------------------------
or agency legally empowered to enforce any provision contained herein, any
provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court or
agency. If any such provision is unenforceable as set forth in the preceding
sentence, the unenforceability of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
5.6 Entire Agreement. This Warrant is intended by the Company and the
-----------------
holder hereof as a final expression of their agreement and intended to be a
complete and exclusive statement of the understanding of the parties hereto in
respect of the subject matter contained herein. This Warrant supersedes all
prior agreements and understandings between the Company and the holder hereof
with respect to such subject matter.
5.7 Headings. The headings of the Sections of this Warrant are for
--------
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
-8-
<PAGE>
5.8 Governing Law. This Warrant shall be governed by and construed in
--------------
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of law of such state.
5.9 Jurisdiction. The Company and the holder hereof hereby irrevocably
------------
agree that any legal action or proceeding arising out of or relating to this
Warrant or any agreements or transactions contemplated hereby shall be brought
in the courts of the State of Delaware or of the United States of America for
the District of Delaware and hereby expressly submit to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waive any claim of improper venue and any claim that such courts are an
inconvenient forum. The Company and the holder hereof hereby irrevocably consent
to the service of process of any of the aforementioned courts in any such suit,
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the address set forth in Section , such service to
become effective 10 days after such mailing.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
as an instrument under seal by its duly authorized officer as of the date first
above written
AVERY COMMUNICATIONS, INC.
By:________________________________
Name: Patrick J. Haynes, III
Title: Chairman
-9-
<PAGE>
FORM OF NOTICE OF EXERCISE
(To be executed only upon partial or full exercise
of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably exercises
the within Warrant for and purchases ________________ shares of Common Stock of
Avery Communications, Inc., a Delaware corporation, and herewith makes payment
therefor in the amount of $_________ all at the price and on the terms and
conditions specified in the within Warrant and in the manner elected below, and
requests that a certificate for such shares hereby purchased be issued in the
name of and delivered to [(a) the undersigned or (b) __________________,] whose
address is ____________________ and, if such shares shall not include all the
Warrant Shares issuable as provided in the within Warrant, that a new Warrant of
like tenor for the number of remaining Warrant Shares be issued in the name of
and delivered to [(a) the undersigned or (b) __________________] whose address
is ___________________________________.
Check one:
_
|_| The undersigned elects to pay the Exercise Price in cash.
_
|_| The undersigned elects to pay the Exercise Price by conversion on the date
this Notice of Exercise is given.
Dated:_________________________.
[ ]
By:________________________________
(Signature of Registered Holder)
NOTICE: The signature on this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
-10-
<PAGE>
EXHIBIT 10.8
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
THE DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR
EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
AVERY COMMUNICATIONS, INC.
STOCK PURCHASE WARRANT
----------------------
THIS IS TO CERTIFY THAT Thurston Bridge Fund, L.P., a Delaware limited
partnership (the "Holder"), is entitled to purchase 350,000 shares (the
------
"Shares") of common stock, $.01 par value per share ("Common Stock"), of Avery
------ -------------
Communications Inc., a Delaware corporation (the "Company"), at a price of $1.50
-------
per share (the "Exercise Price"), at any time or from time to time after the
---------------
date hereof until 5:00 p.m., Dallas, Texas time, on December ___, 2003.
To exercise this Warrant, in whole or in part, the Holder shall deliver
to the Company, at the Company's executive offices (i) a written notice of the
Holder's election to exercise this Warrant, which notice will specify the number
of Shares to be purchased pursuant to such exercise, (ii) payment of the
Exercise Price, in an amount equal to the aggregate purchase price for all
shares to be purchased pursuant to such exercise, and (iii) this Warrant. Such
notice will be substantially in the form of the Subscription Form appearing at
the end of this Warrant. Upon receipt of such notice, the Company will, as
promptly as practicable execute, or cause to be executed, and deliver to the
Holder a certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise, as provided in this Warrant.
The stock certificate or certificates so delivered will be in such denominations
as may be specified in such notice and will be registered in the name of the
Holder. This Warrant will be deemed to have been exercised, such certificate or
certificates will be deemed to have been issued, and the Holder will be deemed
to have become a holder of record of such shares for all purposes, as of the
date that such notice, together with payment of the such Exercise Price and the
Warrant, is received by the Company. If the Warrant has been exercised in part,
the Company will, at the time of delivery of such certificate or certificates,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase a number of Shares with respect to which the Warrant has not been
exercised, which new Warrant will, in all other respects, be identical with this
Warrant, or, at the request of the Holder, appropriate notation may be made on
this Warrant and this Warrant returned to the Holder.
Payment of the Exercise Price will be made, at the option of the
Holder, by a certified or official bank check or federal funds wire transfer.
-1-
<PAGE>
The number of Shares and the Exercise Price shall be adjusted
proportionately to reflect any stock dividend with respect to or stock-split of
the Common Stock
Subject to the provisions of the Securities Act of 1933, this Warrant
and all rights hereunder are transferable only as provided in the Warrant
Agreement. Until transfer hereof on the books of the Company, the Company may
treat the registered holder as the owner hereof for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
as of the ____ day of December , 1996.
Avery Communications, Inc.
ATTEST:
________________________________ By:_____________________________
Scot M. McCormick, Assistant Secretary Patrick J. Haynes, III, Chairman
of the Board
-2-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO AVERY COMMUNICATIONS INC.:
Pursuant to that Certain Stock Purchase Warrant, the undersigned, the
holder of the within Warrant, hereby irrevocably elects to exercise the purchase
right represented by such Warrant for, and to purchase thereunder, ________
Shares, herewith makes payment of $________ therefor, and requests that the
certificate or certificates for such shares be issued in the name of and
delivered to the undersigned.
Dated: _____________
_____________________________________________
(Signature must conform in all respects to the name of holder as
specified on the face of the Warrant)
_________________________________
_________________________________
(Address)
<PAGE>
EXHIBIT 10.9
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION
WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE PLEDGED, SOLD,
OFFERED FOR SALE, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
REGISTRATION UNDER OR EXEMPTION FROM SUCH ACT AND ALL APPLICABLE STATE
SECURITIES LAWS.
AVERY COMMUNICATIONS, INC.
STOCK PURCHASE WARRANT
----------------------
THIS IS TO CERTIFY THAT Eastern Virginia Small Business Investment
Corporation (the "Holder") is entitled to purchase 245,000 shares (the "Shares")
------ ------
of common stock, $.01 par value per share ("Common Stock"), of Avery
------------
Communications Inc., a Delaware corporation (the "Company"), at a price of $1.50
-------
per share (the "Exercise Price"), at any time or from time to time after the
--------------
date hereof until 5:00 p.m., Chicago, Illinois time, on December 23, 2003.
To exercise this Warrant, in whole or in part, the Holder shall deliver
to the Company, at the Company's executive offices (i) a written notice of the
Holder's election to exercise this Warrant, which notice will specify the number
of Shares to be purchased pursuant to such exercise, (ii) payment of the
Exercise Price, in an amount equal to the aggregate purchase price for all
shares to be purchased pursuant to such exercise, and (iii) this Warrant. Such
notice will be substantially in the form of the Subscription Form appearing at
the end of this Warrant. Upon receipt of such notice, the Company will, as
promptly as practicable execute, or cause to be executed, and deliver to the
Holder a certificate or certificates representing the aggregate number of full
shares of Common Stock issuable upon such exercise, as provided in this Warrant.
The stock certificate or certificates so delivered will be in such denominations
as may be specified in such notice and will be registered in the name of the
Holder. This Warrant will be deemed to have been exercised, such certificate or
certificates will be deemed to have been issued, and the Holder will be deemed
to have become a holder of record of such shares for all purposes, as of the
date that such notice, together with payment of the such Exercise Price and the
Warrant, is received by the Company. If the Warrant has been exercised in part,
the Company will, at the time of delivery of such certificate or certificates,
deliver to the Holder a new Warrant evidencing the rights of the Holder to
purchase a number of Shares with respect to which the Warrant has not been
exercised, which new Warrant will, in all other respects, be identical with this
Warrant, or, at the request of the Holder, appropriate notation may be made on
this Warrant and this Warrant returned to the Holder.
Payment of the Exercise Price will be made, at the option of the
Holder, by a certified or official bank check or federal funds wire transfer.
-1-
<PAGE>
To prevent dilution of the rights granted under this Warrant, the
Exercise Price and the number of Shares issuable on exercise of this Warrant
shall be subject to adjustment from time to time as provided herein.
At all times this Warrant remains outstanding, the Company shall
reserve and have available for issuance a number of shares of Common Stock, as
may be adjusted from time to time as provided in this Warrant, equal to the
number of shares of such Warrant Stock, as may be adjusted from time to time as
provided in this Warrant, available to be purchased pursuant to this Warrant. If
the Company at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately before such
subdivision will be proportionately reduced and the number of Shares obtainable
on exercise of this Warrant will be proportionately increased. If the Company at
any time combines (by reverse stock split or otherwise) its outstanding shares
of Common Stock into a smaller number of shares, the Exercise Price in effect
immediately before such combination will be proportionately increased and the
number of Shares obtainable on exercise of this Warrant will be proportionately
decreased.
Subject to the provisions of the Securities Act of 1933, applicable
state laws and the regulations promulgated thereunder, this Warrant and all
rights hereunder are transferable. Until transfer hereof on the books of the
Company, the Company may treat the registered holder as the owner hereof for all
purposes.
[Balance of this Page Intentionally Left Blank]
-2-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
as of the 23rd day of December , 1996.
AVERY COMMUNICATIONS, INC.
ATTEST:
By:
- -------------------------------- ---------------------------
Scot M. McCormick, Assistant Secretary Patrick J. Haynes, III, Chairman
of the Board
-3-
<PAGE>
FORM OF SUBSCRIPTION
(To be signed only upon exercise of Warrant)
TO AVERY COMMUNICATIONS INC.:
Pursuant to that Certain Stock Purchase Warrant, the undersigned, the
holder of the within Warrant, hereby irrevocably elects to exercise the purchase
right represented by such Warrant for, and to purchase thereunder, ________
Shares, herewith makes payment of $________ therefor, and requests that the
certificate or certificates for such shares be issued in the name of and
delivered to the undersigned.
Dated:
-----------
- ----------------------------------------
(Signature must conform in all respects to the name of holder as specified on
the face of the Warrant)
- ------------------------------
- ------------------------------
(Address)
<PAGE>
EXHIBIT 10.10
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE BEEN
ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO OR FOR SALE IN
CONNECTION WITH THE DISTRIBUTION HEREOF. THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS,
AND MAY NOT BE PLEDGED, SOLD, OFFERED FOR SALE, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER OR EXEMPTION
FROM SUCH ACT AND ALL APPLICABLE STATE SECURITIES LAWS.
AVERY COMMUNICATIONS, INC.
STOCK PURCHASE WARRANT
----------------------
THIS IS TO CERTIFY THAT The Franklin Holding Corporation (Delaware), a
Delaware corporation (the "Holder"), is entitled to purchase 666,666 shares (the
------
"Shares") of common stock, $.01 par value per share ("Common Stock"), of Avery
------ -------------
Communications Inc., a Delaware corporation (the "Company"), at a price of $1.50
-------
per share (the "Exercise Price"), at any time or from time to time after the
---------------
date hereof until 5:00 p.m., Chicago, Illinois time, on May 31, 2002.
To exercise this Warrant, the holder hereof shall deliver to the Company (a) a
notice of exercise duly executed by the holder hereof specifying the number of
Shares to be purchased, (b) an amount equal to the aggregate Exercise Price for
all Shares to be purchased (the "Aggregate Exercise Price") and (c) this
--------------------------
Warrant. Payment of the Aggregate Exercise Price shall be made (i) by certified
or official bank check payable to the order of the Company and drawn on a member
of the New York Clearing House, (ii) by wire transfer of immediately available
funds to an account specified by the Company or (iii) by converting an
unexercised portion of this Warrant representing the entitlement to purchase a
number of shares of Common Stock determined by dividing (x) the Aggregate
Exercise Price by (y) the excess of (I) the current market price on the date of
exercise of one share of Common Stock over (II) the Exercise Price. The current
market price per share of Common Stock on any date is the average of the Quoted
Prices of the Common Stock for the five consecutive trading days commencing ten
trading days before the date in question. The "Quoted Price" of the Common Stock
------------
on any date is the last reported sales price of the Common Stock as reported by
NASDAQ, National Market System, or if the Common Stock is listed on a securities
exchange, the last reported sales price of the Common Stock on such exchange
which shall be for consolidated trading if applicable to such exchange. In the
absence of any such quotations, the Board of Directors of the Company shall
determine the current market price on the basis of such factors as it in
reasonable good faith considers appropriate, which determination shall be
binding on the Company and the holder hereof and, if applicable, its assignee or
transferee. Such notice of exercise will be substantially in the form of the
Subscription Form appearing at the end of this Warrant. Upon receipt of such
notice, the Company will, as promptly as practicable execute, or cause to be
executed, and deliver to the Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
as provided in this Warrant. The stock certificate or certificates so delivered
will be in such denominations as may be specified in such notice and will be
registered in the name of the Holder. This Warrant will be deemed to have been
<PAGE>
exercised, such certificate or certificates will be deemed to have been issued,
and the Holder will be deemed to have become a holder of record of such shares
for all purposes, as of the date that such notice, together with payment of the
such Exercise Price, and the Warrant, is received by the Company. If the Warrant
has been exercised in part, the Company will, at the time of delivery of such
certificate or certificates, deliver to the Holder a new Warrant evidencing the
rights of the Holder to purchase a number of Shares with respect to which the
Warrant has not been exercised, which new Warrant will, in all other respects,
be identical with this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant and this Warrant returned to the Holder.
Payment of the Exercise Price will be made, at the option of the
Holder, by a certified or official bank check or federal funds wire transfer.
The number of Shares and the Exercise Price shall be adjusted
proportionately to reflect any stock dividend with respect to or stock-split of
the Common Stock
Subject to the provisions of the Securities Act of 1933, this Warrant
and all rights hereunder are freely transferable. Until the transfer hereof on
the books of the Company, the Company may treat the registered holder as the
owner hereof for all purposes.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
as of the ____ day of May, 1997.
AVERY COMMUNICATIONS, INC.,
a Delaware corporation
ATTEST:
________________________________ By:_____________________________
David N. Curioni, Thomas M. Lyons,
Assistant Secretary President
-2-
<PAGE>
FORM OF NOTICE OF EXERCISE
(To be executed only upon partial or full exercise
of the within Warrant)
The undersigned registered holder of the within Warrant irrevocably exercises
the within Warrant for and purchases ________________ shares of Common Stock of
Avery Communications, Inc., a Delaware corporation, and herewith makes payment
therefor in the amount of $_________ all at the price and on the terms and
conditions specified in the within Warrant and in the manner elected below, and
requests that a certificate for such shares hereby purchased be issued in the
name of and delivered to (a) the undersigned or (b)__________________________,
whose address is ___________________________________________, and, if such
shares shall not include all the Shares issuable as provided in the within
Warrant, that a new Warrant of like tenor for the number of remaining Shares be
issued in the name of and delivered to (a) the undersigned or (b)______________,
whose address is ___________________________________________.
Check one:
__
|__| The undersigned elects to pay the Exercise Price in cash.
__
|__| The undersigned elects to pay the Exercise Price by conversion on the
date this Notice of Exercise is given.
Dated:______________________________.
[ ]
By:_____________________________________
(Signature of Registered Holder)
NOTICE: The signature on this Notice of Exercise must correspond with the
name as written upon the face of the within Warrant in every
particular, without alteration or enlargement or any change
whatever.
<PAGE>
EXHIBIT 10.11
BILLING SERVICES AGREEMENT
BETWEEN
HBS BILLING SERVICES, LTD.
AND
---------------------
THIS AGREEMENT is entered into as of this ___day of ________, 199_
between HBS Billing Services, Ltd. ("HBS"), a Texas Limited Partnership with
headquarters located at 4242 Medical Drive, Suite 2100, San Antonio, Texas 78229
and ________________________ ("Customer") a_____________ Corporation with
offices located at ____________________________________.
WHEREAS, Customer markets telecommunications services; and
WHEREAS, HBS is a provider of Billing and Collection services for the
telecommunications industry; and
WHEREAS, Customer desires to utilize HBS' Billing and Collection
services;
NOW, THEREFORE, in consideration of the foregoing and other good and
valuable consideration, the sufficiency of which the parties herein acknowledge,
the parties agree as follows:
I.
DEFINITIONS
All terms and phrases used within this Agreement shall be defined in
accordance with the everyday meaning used in the telecommunication industry
unless such term has been defined in this Agreement.
<PAGE>
II.
TERM
The Agreement shall be effective for an initial term beginning on the
effective date shown above and ending on December 31st of the following year
(the "Initial Term"). Unless terminated in accordance with the terms herein,
this Agreement shall automatically renew for successive one (1) year terms
beyond its Initial Term until the earlier of (i) termination as provided in the
Agreement, or (ii) December 31st of any year in which notice of intent to
terminate is given in writing by either party on or before October 1st of the
same year.
III.
BASIC BILLING AND COLLECTION SERVICES
The following describes the billing and collection services that HBS
will provide to Customer:
3.1 HBS'S PREBILLING PROCESS.
a. Customer will submit call detail records only for those
NPA-NXX's that are billable by the LEC's enumerated in Exhibit
B. Such records will be submitted in the format specified by
HBS.
b. HBS will reformat Customer's records into Electronic Message
Interface ("EMI") records as required by the LEC's (Local
Exchange Carriers).
c. HBS will subject Customer's records to various Up-front Edits.
Records failing to pass these edits, referred to as "HBS
Up-front Rejects", will not be submitted to the LEC's.
d. HBS will submit records passing the Up-front Edits to the
appropriate LEC for Billing and Collection. Submission to the
LEC's will take place within five (5) business days after HBS'
receipt of Customer records. Customer will be charged fees and
reserves for such records as enumerated in Exhibits A through
D of this Agreement at the then prevailing rates.
e. HBS will furnish Customer with a Commitment Report summarizing
the records that were accepted and submitted to the LEC.
3.2 LEC BILLING PROCESS.
a. After HBS submits Customer's records to the LEC, the LEC
subjects the records to detail screening and editing tests.
Such tests are referred to as "LEC Up-front Edits", and
records rejected by the LEC as a result of these edits are
referred to as "LEC Up-front Rejects".
- 2 -
<PAGE>
b. Records passing the LEC Up-front Edits are technically correct
and eligible for billing by the LEC. The LEC notifies HBS of
its "Acceptance" (i.e. its "Purchase") of the records and
provides an accounting of the number and value of the records
accepted.
3.3 LEC COLLECTION, SETTLEMENT AND PAYMENT PROCESS
Generally, forty to sixty days after LEC's Acceptance of Customer's
records, the LEC will remit payment to HBS. The payment to HBS is typically net
of "Settlement Items" such as:
a. LEC billing costs;
b. Unbillable records which passed the LEC Up-front Edit Process;
c. Adjustments issued to End Users by the LEC and by HBS;
d. Bad Debt Reserve Holdback;
e. Bad Debt Reserve Trueup;
f. Other charges or credits made by the LEC under its Agreement
with HBS, including but not limited to any fines or penalties
or assements whatsoever billed to HBS by the LEC attributable
to the Customer based on customer complaints, regulatory
complaints, marketing practices or based on any other act or
omission by the Customer in violation of the LEC's contract
with HBS.
Payments from LEC's are made into an FDIC insured bank account
established for the purpose of disbursing LEC remittances to the proper parties.
3.4 HBS'S SETTLEMENT PROCESS
Within five (5) business days after funds are deposited into HBS' bank
account, HBS will prepare and distribute a Remittance Summary listing all
Remittance Advices scheduled for payment and any HBS invoices that will be
offset against them. Deductions will include:
- Service Fees (Exhibits A and D);
- Billing Costs (Exhibit B);
- Bad Debt Reserves (Exhibit C);
- HBS Reserve;
- Pass-through of chargebacks and credits invoiced to Customer as
enumerated in Para 3.3 (b.) through Para 3.3 (f.) above ;
- Termination and Contingency Reserves (Section VI);
- 3 -
<PAGE>
To the extent possible, HBS will chargeback (or credit) customer for
items related specifically to its end-user accounts. Where this is not possible,
customer will be chargedback (or credited) with settlement items based on the
relative volume that its chargebacks, credits, or shipment volumes bear to all
HBS customers' chargebacks, credits, or shipment volumes.
The Remittance Summary that HBS will distribute to Customer will set
forth the date on which HBS will wire funds to the following Customer bank
account:
Account Name __________________________________________
Account # __________________________________________
Bank Name __________________________________________
City, State __________________________________________
ABA# __________________________________________
The remittance date will generally be on the last business day of the
week and will be no longer than five (5) business days after HBS receives the
LEC's payment.
3.5 INFORMATION REQUIRED FROM CUSTOMER PRIOR TO BILLING
Customer will be required to provide the following information before
submitting records for billing and collection:
a. Provider Information as set forth in Exhibit "F"
b. Service Information as set forth in Exhibit "G"
c. Completed HBS Questionnaire as set forth in Exhibit "H"
IV.
OTHER SERVICES
4.1 ENHANCED SERVICE RECORD BILLING
a. HBS offers billing of non-toll telecommunication records
("Enhanced Records") to the extent authorized by the
individual LEC's. HBS will bill Enhanced Records for Customer
in accordance with the terms specified in Exhibit D.
b. HBS's fee schedule for Enhanced Records is specified in
Exhibit D.
c. LEC fee schedules for such billing are attached as Exhibit B-2
and are subject to change in accordance with the LEC `s
contract with HBS.
- 4 -
<PAGE>
4.2 OTHER SERVICES
HBS performs services other than Billing and Collection for its
customers including customer service inquiry, LEC unbillable and adjustment
processing and custom data processing reports. Exhibits "A" through "D" specify
the fees HBS will charge during the contract term except that LEC Billing Costs
and Bad Debt Reserve Holdbacks (Exhibits B and C) are subject to change in
accordance with the LEC's contract with HBS.
V.
RESERVES
5.1 LEC BAD DEBT RESERVES AND BAD DEBT RESERVE TRUEUPS
LEC Bad Debt Reserve Rates in effect at the date of this Agreement and
Bad Debt Reserve policies are set forth in Exhibit C.
5.2 HBS RESERVE
a. HBS will deduct 1% of Customer's Accepted Revenues from
settlements in the first twelve months of this Agreement to
protect itself against abnormal levels of chargebacks and/or
Bad Debt Trueups. This deduction is called the "HBS Reserve".
b. After twelve months HBS will advise Customer of the HBS
Reserve deduction and Reserve balance that it will require for
the next twelve months of the Agreement.
VI.
TERMINATION AND CONTINGENCY RESERVES
Customer understands that LEC charges for Unbillable Records, Bad Debt
Trueups and Customer Adjustments frequently are not fully known to HBS or to the
LEC's for up to eighteen months after Customer's records are billed. Customer
also understands that Customer and HBS have a mutual interest in ensuring that
adequate Customer funds are available when such charges become known. To ensure
that sufficient funds are available to repay such "Chargebacks", HBS will
require Reserves under the following circumstances:
a. Termination Reserve. At the termination of this Agreement, or
-------------------
when Customer's Accepted Revenue volume declines by 25% or
more for a 30 day period compared with the prior 90 day
average Accepted Revenue volume, in either case, Customer will
deposit with HBS an amount equal to ten percent (10%) of the
prior 90 days gross Accepted Revenues. In
- 5 -
<PAGE>
addition, HBS may require an increase in the Contingency
Reserve as described in subparagraph b. below.
The Termination Reserve will be returned to Customer beginning
in the fourth month following the assessment in monthly
amounts that cause the remaining Termination Reserve balance
to equal the following percentages of the original assessment:
PERCENTAGE OF
THE ORIGINAL
MONTHS ASSESSMENT
------ ----------
1 to 3 100%
4 to 6 75%
7 to 15 25%
16 to 18 15%
19 and over to be determined by HBS
Realized Chargebacks will reduce the monthly refund dollar for
dollar.
b. Contingency Reserve. When HBS, in its sole discretion,
determines that it has reason to suspect that Customer's
Chargebacks over the next eighteen month period will require
funds greater than Customer has accumulated in its Bad Debt
Reserves and its Termination Reserve, HBS may require such
amount as it determines is reasonably needed to protect it
from future Chargebacks. The Contingency Reserve will be
returned to Customer at such time and in such amounts as HBS,
in its sole discretion, determines is appropriate under the
circumstances.
VII.
TAXES
7.1 TAXES BILLED AND COLLECTED BY THE LEC'S
a. In the normal course of the Billing and Collection process,
LEC's will bill and collect various Federal, state and local
taxes and tax-like charges on HBS' customers' records
according to their understanding of the various statutory
requirements.
b. Each month the LEC's provide HBS an accounting of taxes billed
and collected on behalf of HBS' customers and remit adequate
funds to enable HBS to report and pay to each taxing authority
the taxes they have determined are due.
- 6 -
<PAGE>
c. As a service to HBS' customers, HBS will cause consolidated
tax returns to be prepared and filed for records accepted by
the LEC's. Customer acknowledges that HBS prepares and files
tax returns based solely on information provided by the LEC's
and makes no attempt to independently verify the accuracy or
appropriateness of the LEC's accountings.
d. Customer authorizes HBS to combine its taxes with other HBS
Customers' taxes in order to file consolidated tax returns on
its behalf. Customer agrees to indemnify and hold harmless, as
set forth in Article XI of this Agreement, in its entirety
regarding any tax-related services provided by HBS.
e. Customer will advise HBS of any tax or tax-like charges that
it believes are unique to Customer's products that might
otherwise be taxed at erroneous rates by the LEC's. HBS will
evaluate Customer's proposed charges(s) and determine in its
sole discretion regarding any request to the LEC to change its
standard taxing procedures. HBS will cause the LEC's to bill
End Users for taxes when not specifically excluded by their
contract with HBS.
f. Customer acknowledges and agrees that HBS is acting merely as
Customer's agent with respect to arranging for the billing and
collection of taxes, and in no event shall HBS be entitled to
retain or receive from Customer (or from any End User) any
statutory fee or share of taxes to which the person collecting
the same may be entitled under applicable law.
7.2 TAXES NOT BILLED AND COLLECTED BY LEC'S
Customer acknowledges that it is responsible for reporting state and
local taxes and tax-like charges applicable to Message Toll Service ("MTS")
calls that originate and terminate in the same state but that are billed to an
End User in a different state. Taxes on such calls are known as "Foreign Taxes".
7.3 TAXES ON HBS AND LEC SERVICES
Customer acknowledges that certain services performed by HBS and by the
LEC's are subject to state and local taxes. HBS will add such taxes to the
amounts due HBS under the terms of this agreement and cause such taxes to be
reported and paid to the appropriate taxing authorities.
VIII.
INDEPENDENT CONTRACTOR STATUS
In rendering services to Customer it is intended that HBS will function
as an Independent Contractor. HBS will not:
- 7 -
<PAGE>
a. Assume any responsibility for the manner in which Customer
conducts its business;
b. Be deemed an agent, employee, joint venturer or partner of
Customer;
c. Take title to Customer's records nor assume any liability or
enjoy any benefit that may attach to the ownership of said
records. Customer understands that under terms of the LEC
billing and collection agreements, the LEC's will purchase
Customer's records simultaneously with accepting them. While
the billing and collections agreements belong to HBS, Customer
agrees that HBS will serve as a conduit by which title to
Customer's records are passed to the LEC's.
Customer appoints HBS its attorney-in-fact to cause its records to be
accepted and purchased by the LEC's, to collect and hold LEC remittances
relating to the records, to disburse proceeds to Customer, to cause taxes to be
reported and paid in accordance with this Agreement, and to take all other
actions that HBS deems necessary to fulfill its duties and responsibilities
under this Agreement. Customer hereby ratifies and confirms all that HBS does in
good faith to fulfill its duties and responsibilities hereunder.
IX.
HBS REPRESENTATIONS AND OBLIGATIONS
9.1) HBS hereby represents and warrants to Customer as follows:
a. HBS is a duly registered Limited Partnership, validly
existing, and in good standing under the laws of the State of
Texas, and has the power and authority to enter into this
Agreement and to perform its obligations hereunder.
b. Neither the execution and delivery of this Agreement by HBS
nor the performance by HBS of its obligations hereunder will
(i) conflict with or result in a breach of any provision of
the Articles of Partnership of HBS, (ii) result in a violation
of or default under any of the terms, conditions, or
provisions of any material license, agreement, lease, or other
obligation to which HBS is a party or by which it is bound or
(iii) violate any material order, writ, injunction, decree,
statue, rule, or regulation applicable to HBS or its
properties or assets.
c. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, HBS
------ -- --------- --------- -------- -- ---- ---------- ---
MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO
----- -- --------------- -- ---------- ------- -- -------- --
CUSTOMER OR TO ANY OTHER PERSON, INCLUDING WITHOUT LIMITATION
-------- -- -- --- ----- ------- --------- ------- ----------
ANY WARRANTIES REGARDING TITLE TO OR THE MERCHANTABILITY,
--- ---------- --------- ----- -- -- --- ----------------
SUITABILITY, ORIGINALITY, FITNESS FOR A PARTICULAR PURPOSE, OR
------------ ------------ ------- --- - ---------- -------- --
OTHERWISE
---------
- 8 -
<PAGE>
IRRESPECTIVE OF ANY PREVIOUS COURSE OF DEALING BETWEEN THE
------------ -- --- -------- ------ -- ------- ------- ---
PARTIES OR CUSTOMER OR USAGE OF TRADE OF ANY SOFTWARE,
------- -- -------- -- ----- -- ----- -- --- ---------
SERVICES, OR MATERIALS PROVIDED UNDER THIS AGREEMENT.
--------- -- --------- -------- ----- ---- ---------
d. That this Agreement constitutes a legal, valid, and binding
agreement of HBS, enforceable against HBS in accordance with
its terms.
X.
CUSTOMER'S REPRESENTATIONS, WARRANTIES AND OBLIGATIONS
10.1 CUSTOMER HEREBY REPRESENTS AND WARRANTS TO HBS AS FOLLOWS:
a. Customer is duly organized, validly existing, and in good
standing under the laws of its state of organization and has
the power and authority to enter into this Agreement and to
perform its obligations hereunder.
b. Neither the execution and delivery of this Agreement by
Customer nor the performance by Customer of its obligations
hereunder will (i) conflict with or result in a breach of any
provision of the organizational or other governing documents
of Customer, (ii) result in a violation of or default under
any of the terms, conditions, or provisions of any material
license, agreement, lease, or other obligation to which
Customer is a party or by which it is bound or (iii) violate
any material order, writ, injunction, decree, statute, rule,
or regulation applicable to Customer or its properties or
assets.
c. Customer has filed all tariffs and has obtained all
governmental and regulatory authorizations, approvals, and
other consents, all of which are in full force and effect,
that are required by law or any Governmental Authority for the
provision by Customer of telecommunications services to End
Users.
d. Customer's EMI billing records submitted pursuant to this
Agreement are not subject to any other valid or existing
billing and collection agreement, and have not been billed
previously and will not be billed by another party following
submission to HBS.
e. All information contained in the HBS Questionnaire is true and
accurate in all respect.
10.2 CUSTOMER HEREBY ACKNOWLEDGES THE FOLLOWING OBLIGATIONS:
a. This Agreement constitutes the legal, valid, and binding
agreement of Customer, enforceable against Customer in
accordance with its terms, except as the same may be limited
by bankruptcy, insolvency,
- 9 -
<PAGE>
reorganization, moratorium, or similar laws now or hereafter
in effect relating to creditors' rights and general principles
of equity.
b. Customer shall limit the number of EMI billing records for
Casual Zero Plus telephone traffic to not more than ten
percent (10%) of the total EMI billing records submitted to
HBS in any given transmission.
c. Customer will:
i. Obtain and maintain all licenses, franchises,
privileges, permits, consents, exemptions,
certificates, registrations, orders, approvals,
authorizations and similar documents and instruments
(collectively, the "Certifications") that are
required by any Governmental Authority having
jurisdiction over the business and operations of
Customer, and
ii. Comply with all laws and all applicable rules,
regulations and other requirements of any
Governmental Authority, and
iii. Comply with all rules and requirements of the LEC's
in whose jurisdiction records are submitted for
billing and collections.
iv. Update the HBS Questionnaire and any other
information required of Customer under this Agreement
within five (5) days of each written request from
HBS.
Customer will, upon execution of this Agreement, provide HBS
with a copy of each Certification or other written evidence of
compliance with such requirements by Customer. Customer will
promptly notify HBS in writing of any expiration, amendment,
or renewal of any such Certification. Customer will comply in
all respects with the Certifications and laws, rules,
regulations, and other requirements of any Governmental
Authority related thereto. HBS may terminate this Agreement
upon failure of Customer to obtain or maintain in full force
and effect, or to comply with any such Certification.
d. Customer will designate the name of, and at all times during
the Term, maintain a representative ("Customer
Representative") who will be an officer or employee of
Customer and who will be authorized to act as the primary
point of contact for HBS in dealing with Customer with respect
to the Services. Customer will notify HBS in writing of any
change in the person acting as the Customer Representative at
least ten days prior to the effectiveness of such change. The
Customer Representative will be responsible for directing,
insofar as HBS is concerned, all activities of Customer
affecting the provision of HBS services. HBS will be entitled
to rely upon any instructions or information provided to HBS
by the Customer
- 10 -
<PAGE>
Representative or other Customer representative, and HBS will
incur no liability in so relying.
e. Customer will inspect and review all reports and remittance
information prepared by HBS and will notify HBS of its
rejection of any incorrect reports and remittance information
within thirty (30) days after receipt thereof. Failure to
reject any such report or information will constitute
acceptance thereof, and waiver of any objections thereto.
f. Customer will be required to employ one of the following forms
of authorization as to each record submitted for billing:
i. Independent Third Party Verification, or
ii. Written Letter of Authorization or Sales Order, or
Voice recording of telephone sales authorization if
allowed by law in the jurisdiction(s) being served as
a substitute or supplement to independent third party
verification.
A valid authorization must include:
i. The name, address and telephone number of the
consumer.
ii. Assurance that the consumer is qualified to authorize
billing.
iii. A description of the product or service.
iv. A description of the applicable charges.
v. An explicit consumer acknowledgment that the charges
for the product or service will appear on the
telephone bill and acceptance by the consumer of the
offer.
g. Customer will comply with all numbered HBS Policy Statements
as issued during the contract period, and each such HBS Policy
Statement shall be deemed to be a part of this contract as if
fully set forth herein. Customer acknowledges receipt of all
numbered HBS Policy Statements issued as of the effective date
of this contract, if any, and agrees to be bound by same.
10.3 INDEMNITY
Customer shall indemnify and hold harmless HBS from and against any and
all losses, claims, damages, liabilities or lawsuits asserted by third
parties and/or Customer or to which HBS may become subject, and to
reimburse HBS for any legal or other expenses (including the cost of
any investigation and preparation)
- 11 -
<PAGE>
incurred by HBS, whether or not resulting in any liability, based upon
the Agreement and related Exhibits and/or arising out of Customer's
breach of any representation, warranty or obligation provided in this
Agreement.
XI.
LIMITATION OF LIABILITY
11.1 LIMITATION OF LIABILITY
a. LIMITATION OF LIABILITY. Excluding gross negligence, HBS will
-----------------------
not be liable to Customer or to any third party for any actual
or exemplary damages or lost profits, lost savings,
professional fees, incidental or consequential damages,
arising out of acts or omissions, including any mistakes,
accidents or errors in performance by HBS, which relate to
this Agreement or the goods and services provided hereunder.
b. CORRECTION OF ERRORS. HBS will use its best efforts to correct
--------------------
any alleged acts or omissions as described above in a timely
fashion upon written notice from Customer, although HBS shall
not be liable for specific performance or in any other way
become liable to Customer for any of the acts, omissions or
losses stated above as a result of its correction efforts. In
this regard, HBS will reprocess or resubmit records,
recalculate sums receivable or payable, or refile returns as
needed (but not more than once as to each such corrective
action), but HBS does not guarantee its correction effort, nor
does HBS represent or warrant that all acts or omissions as
described above will be corrected. Customer agrees that its
sole remedy for any of the above referenced acts or omissions
or losses shall be limited to the corrective actions described
herein.
c. LIMITED WARRANTY. THE EXPRESS WARRANTIES STATED IN THIS
-----------------
AGREEMENT REGARDING CORRECTIVE ACTION BY HBS ARE IN LIEU OF
ANY OTHER WARRANTIES, EXPRESS OR IMPLIED OR STATUTORY, AND HBS
MAKES NO OTHER WARRANTY, EXPRESS OR IMPLIED OR STATUTORY, AS
TO THE DESCRIPTION, QUALITY, MERCHANTABILITY, COMPLETENESS OR
FITNESS OF ITS SERVICES, ALL OF WHICH WARRANTIES ARE HEREBY
EXCLUDED AND DISCLAIMED.
d. REMEDY FOR GROSS NEGLIGENCE. Customer further agrees that in
----------------------------
the event of gross negligence on the part of HBS, the total
amount of damages for all purposes, (including actual or
exemplary or consequential or incidental damages or
professional fees), will not exceed, in the aggregate, an
amount equal to the total charges for services paid to HBS
during the three month period immediately preceding the
occurrence of the event, act or omission giving rise to the
claim. Any action or claim by Customer for gross
- 12 -
<PAGE>
negligence must be made within three months of the event, act
or omission giving rise to such claim.
e. HOLD HARMLESS AND INDEMNITY. Customer and HBS expressly
------------------------------
acknowledge that HBS' limited liability described above
represents the understanding of how the risks and liabilities
between Customer and HBS are to be allocated. The parties
reached this understanding by weighing the fees charged by HBS
for its services under this Agreement against the recovery
that Customer would be entitled to in the event that any of
the acts, omissions or losses described above were to occur.
XII.
DEFAULT AND TERMINATION
12.1 DEFAULT
Default hereunder shall be:
a. Failure to make any payment when due and such failure
continues for ten (10) business days after written notice;
b. Breaches of any duties or obligations under this Agreement,
provided that o the extent that LEC and/or regulatory time
constraints permit, Customer will be provided thrity (30) days
written notice from HBS to cure any such breach or default.
c. Customer elected to perform primary customer service functions
but failed to perform in accordance with the standards
specified in Exhibit E;
d. A party files for bankruptcy, is declared bankrupt, or is the
subject of any proceedings relating to liquidation,
insolvency, or for the appointment of a receiver or similar
officer for such a party, makes an assignment for the benefit
of all or substantially all of its creditors, or enters into
an agreement for the composition, extension, or readjustment
of all or substantially all of its obligations;
e. HBS reasonably determines that Customer's marketing and/or
business practices damage HBS' business reputation;
f. Customer misrepresents its product or its manner of marketing
or sales verification processes.
g. Breach of any covenant, condition or represenation contained
in any Exhibit to this Agreement.
- 13 -
<PAGE>
If either party defaults in the performance of any of its duties or
obligations under this Agreement and does not cure such default within the time
allowed herein above, then the non-defaulting party shall have the following
rights and remedies by giving written notice to the defaulting party:
1. To terminate this Agreement immediately;
2. To declare all amounts due under the Agreement from the
defaulting party to be immediately due and payable;
3. To seek damages, except as limited per this Agreement, from
the defaulting party;
4. To obtain all rights and remedies allowed by the Uniform
Commercial Code;
5. To seek injunctive relief to enforce the Agreement or obtain
equity from the defaulting party.
6. To invoke any remedy provided for in Exhibits attached to this
Agreement.
12.2 REGULATORY OR FORCE MAJEURE EVENTS.
Either party shall be excused without penalty from performing the
services contemplated by this Agreement if for a period not to exceed thirty
(30) consecutive days per event either party is unable to perform the duties
specified in this Agreement because:
a. Governmental enactment or interpretation of any statute, rule,
regulation, judgment, order or similar impediment to performance
of the services contemplated by this Agreement materially affects
the risks or financial results that were reasonably anticipated at
the date this Agreement was executed;
b. Acts of God, acts or omissions of the other party, civil
hostilities, court orders, third party acts or nonperformance,
utility or telecommunications failures or any other cause beyond
the reasonable control of Customer or HBS. Such events will not be
considered grounds for termination of this Agreement if the
affected party can reasonably be expected to resume its
contractual obligations within thirty (30) days from the date of
the event.
c. Unilateral changes or amendments by any LEC to a contract upon
which HBS relies to provide services to Customer, including any
amendment proposed by the LEC which, if not accepted by HBS, could
result in termination or early cancellation of any contract
between LEC and HBS.
- 14 -
<PAGE>
XIII.
REMEDIES AND DISPUTE RESOLUTION
13.1 REMEDIES OF HBS.
The parties specifically agree that any breach of this Agreement by
Customer which results in a violation of state or federal laws or regulations,
or constitues a breach or event of default on the part of HBS under any contract
with any LEC, will be difficult to compensate in damages and would jeopardize
the ability of HBS to continue providing services to other customers. It is
agreed, therefore, that in event of such material breach of this Agreement, HBS
shall be entitled to seek and obtain injunctive or any other relief available in
a court having appropriate jurisdiction without further proof than as offered in
this paragraph, and that the sum of $10,000 shall be good and sufficient bond
for such relief.
Notwithstanding this paragraph, HBS may also elect any or all other
remedies available, including actions for damages, at law or in equity.
13.2 ARBITRATION AT SOLE OPTION OF HBS.
Any controversy between the Parties to this Agreement may, at the
election and written request of HBS, be settled by arbitration in San Antonio,
Texas, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association. The award of the arbitrators, or of a majority of them
shall be final and judgment upon the award rendered may be entered in any court,
state or federal, having jurisdiction. Arbitrable disputes include any
controversy or claim between the Parties, including, without limitation, any
claim based on contract, tort, or statute, arising out of or relating to this
Agreement or any transaction related to this Agreement. HBS may serve a written
demand for arbitration to any and all opposing Parties within 180 days after
dispute has arisen or within 30 days after HBS receives service of process from
any court or regulatory body of competent jurisdiction relating to Customer. A
dispute is defined as having arisen upon receipt of a written demand or service
of judicial process. Failure to serve a demand for arbitration within the time
specified above shall be deemed a waiver of HBS right to compel arbitration of
such claim.
Customer and HBS will each bear its own fees, costs, and expenses of
the arbitration, including, without limitation, its own legal expenses,
attorney's fees, and costs of all experts and witnesses. The parties will each
be severally responsible for one-half of the fees, costs, and expenses of the
Arbitration Panel. Notwithstanding the foregoing, if the claim of either party
is upheld by the Arbitration Panel in all material respects, the Arbitration
Panel may apportion between the parties as the Arbitration Panel may deem
equitable the costs incurred by the prevailing party.
When invoked by HBS in writing, and except with regard to matters
involving any action necessary to enforce the award of the Arbitration Panel,
the parties agree that the
- 15 -
<PAGE>
provisions of this Section are a complete defense to any suit, action, or other
proceeding instituted in any court or before any administrative tribunal with
respect to any dispute, controversy, or claim arising under or in connection
with this Agreement or the provision of services by HBS. Nothing in this Section
will prevent HBS from exercising its rights to terminate this Agreement in
accordance with the terms of this Agreement.
XIV.
NOTICES
Any written notice, demand or request, required or authorized by this
Agreement, shall be deemed properly given to or served on HBS if mailed by
United States mail, certified, return receipt requested to:
HBS Billing Services, Ltd. (Attn. Rick Box)
4242 Medical Drive, Suite 2100
San Antonio, TX 78229
Any written notice, demand or request, required or authorized by this
Agreement, shall be deemed properly given to or served on Customer if mailed by
United States mail, certified, return receipt requested or sent via facsimile
transmission to:
Address:
Fax:
XV.
DISCLOSURE TO REGULATORS AND RELATED PARTIES BY HBS
AND MEDIA RELEASES
15.1 Customer agrees that the following information regarding Customer's
account may be shared with any member of the Coalition to Ensure
Responsible Billing practices and,upon request, with any LEC or any
state or federal law regulatory or law enforcement agencies:
a. Identifying information with respect to Customer's account and
programs if terminated for cause or terminated while any
investigation by any private or
- 16 -
<PAGE>
public entity regarding violation of state or federal laws or
regulations or contractual restrictions under any contract between
HBS and any LEC.
b. A description of specific practices relating to possible
violations of state or federal laws or regulations or contractual
restrictions under any contract between HBS and any LEC that have
been observed in Customer's account or otherwise disclosed to HBS
by Customer and any corrective or remedial action regarding same.
c. Aggregate data with regard to complaints filed with federal and
state government authorities or LECs received by HBS regarding
Customer.
d. Copies of this agreement and all correspondence relating to same.
15.2 All public announcements by either of the parties relating to this
Agreement except for announcements intended solely for internal
distribution to directors, officers and employees or any disclosures
required by legal, accounting, regulatory or stock exchange
requirements beyond the reasonable control of such parties will be
coordinated with and approved by both parties prior to the release
thereof.
XVI.
SEVERABILITY
If any provision of this Agreement is declared judicially invalid,
unenforceable or void, such decision will not have the effect of invalidating or
voiding the remainder of this Agreement, it being the intent and agreement of
the parties that this Agreement will be deemed amended by modifying such
provision to the extent necessary to render it valid, legal and enforceable
while preserving its intent. If such modification is not possible, another
provision that is legal and enforceable and that achieves the same objective
will be substituted.
XVII.
WAIVERS
No delay or omission on the part of any party in exercising any right
or privilege under this Agreement will operate as a waiver thereof.
XVIII.
ENTIRE AGREEMENT
This Agreement (including schedules and exhibits hereto) constitute the
entire agreement between the parties and supersedes all prior and
contemporaneous agreements and understandings, whether written or oral, between
the parties. There are no representations, understandings or agreements relating
to this Agreement that are not fully expressed herein.
- 17 -
<PAGE>
XIX.
ASSIGNMENT
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns, however, Customer
shall not have the right to assign or transfer its obligations under this
Agreement without the prior written consent of HBS, which consent shall not be
unreasonably withheld.
XX.
NO THIRD PARTY BENEFICIARY
This Agreement will be binding upon and inure to the benefit of the
parties to this Agreement and their respective successors and assigns. This
Agreement is not intended, nor will it be construed, to create or convey any
right upon any entity not a party to this Agreement. HBS will not be responsible
for the services provided hereunder to any party other than Customer.
XXI.
GOVERNING LAW AND VENUE
This Agreement shall be deemed to be a contract made under the laws of
the State of Texas, and the construction, interpretation and performance of this
Agreement and all transactions hereunder shall be governed by the civil laws of
such state, except those laws regarding choice of law which would result in
application of the law of another jurisdiction. Venue for any action arising out
of or related to this Agreement or the conduct of the parties hereunder shall be
fixed in Bexar County, Texas by agreement of the parties.
XXII.
HEADINGS
The Article and Paragraph headings in this Agreement are for
convenience of reference only and in no way define, extend, or describe any of
the terms herein or affect the meaning or interpretation of the provisions of
this Agreement.
XXIII.
CONFIDENTIALITY
Each party agrees that all confidential information and trade secrets
communicated to it by the other party will be deemed to have been received in
strict confidence and will be used only for the purposes of carrying out the
prior written consent of the other party. Neither party will disclose any such
information received from the other party.
- 18 -
<PAGE>
XXIV.
COUNTERPARTS
This Agreement may be executed in multiple counterparts, each of which
will be deemed an original and all of which taken together will constitute one
instrument.
* * * * *
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first set forth above.
CUSTOMER: HOLD BILLING SERVICES, LTD.
d/b/a HBS Billing Services, Ltd.
_______________________________ By: Avery-HBS, Inc.
Its: General Partner
By: ____________________________ By: ___________________________
Rick Box
Title: __________________________ Title: Vice President
<PAGE>
EXHIBIT 10.12
HOLD BILLING SERVICES, LTD.
SUPPLEMENTAL ADVANCE PURCHASE AGREEMENT
This Supplemental Advance Purchase Agreement ("Supplemental Agreement") is
entered into as of the ___day of ________________________ 199____ (the
"Effective Date"), between HOLD Billing Services, Ltd. ("HBS"), a Texas limited
partnership with its principal office at 4242 Medical Drive, Suite 2100, San
Antonio, TX 78229 (hereinafter "HBS"), and ___________________
__________________________________ ("CUSTOMER"), a _______________ corporation
with its principal office at.
WITNESSETH:
WHEREAS, CUSTOMER and HBS have previously entered into a Billing Services
Agreement dated________ ("Billing Services Agreement"); and
WHEREAS, CUSTOMER wishes to sell its interest in LEC Accounts (as hereinafter
defined) to HBS to accelerate payment;
NOW, THEREFORE, CUSTOMER and HBS hereby consent to the terms of this
Supplemental Agreement and acknowledge that it is an integral part of their
Billing Services Agreement. The parties acknowledge that the terms of the
Supplemental Agreement will control if there are inconsistencies between the two
documents.
Section 1
CERTAIN DEFINITIONS
The following definitions apply to the corresponding terms used in this
Supplemental Agreement:
1. "End-User Accounts" means accounts receivable generated
when CUSTOMER provides telecommunications services to End-
Users.
2. "LEC Accounts" means CUSTOMER's receivables from Billing
Entities generated by the sale of CUSTOMER's End-User Accounts
to a Billing Entity through HBS.
3. "Affiliate" or "Affiliates" of a party to this Agreement
means any direct parent or subsidiary, or any other entity
under common control with the applicable party.
4. "Billing Entity" means any regional Bell operating
company, independent local exchange carrier or other provider
of local telephone services through which HBS has billing and
collection agreements.
5. "Business Day" means Monday through Friday excluding
nationally recognized holidays observed by the Billing
Entities.
<PAGE>
6. "End-User" means a customer of CUSTOMER who has used
telecommunication services of CUSTOMER.
7. "Call Detail Record" means the documentation of an
individual telecommunications transaction between CUSTOMER and
an End-User evidencing an End-User Account.
8. "Shipment" means a batch of Call Detail Records submitted
to HBS for billing and collection.
9. "Amount Accepted" means the value of Call Detail Records
accepted by HBS for billing and collection.
10. "Initial Payment" means the down payment that HBS will pay
CUSTOMER for the Amount Accepted.
11. "Final Payment" means amounts that are payable by HBS to
CUSTOMER under terms of the Billing Services Agreement net of
Initial Payments repayable on Amounts Accepted that are
related thereto and net of any invoices outstanding.
12. "Advance Payable Schedule" means a schedule detailing the
amount of the funds that HBS will transfer to CUSTOMER.
13. "Factoring Fee" is the amount the CUSTOMER is charged for
Initial Payments. Such fees are invoiced to CUSTOMER
periodically.
14. "Chargebacks" mean Call Detail Records which are returned
as either uncollectible or unbillable, or are adjusted by
either the Billing Entity or by HBS.
15. "Maximum Advance Percentage" means the maximum percentage
of the Amount Accepted that is eligible for an Initial
Payment.
16. "Initial Payment Lag Time" means the number of Business
Days between the day on which the End-User Accounts are
processed by HBS and the day on which the Initial Payment is
made.
17. "Maximum Amount of Initial Payments" means the cumulative
outstanding Initial Payments set forth on Exhibit "A" attached
hereto.
18. "Collateral" shall have the meaning ascribed thereto in
Section 6 hereof.
19. "Agreements" means the Billing Services Agreement and this
Supplemental Agreement, collectively.
<PAGE>
20. "Prime Rate" means the prime rate of NationsBank.
Section 2
AGREEMENT
CUSTOMER'S End-User Accounts are purchased by a Billing Entity at the time they
are accepted for billing and collection by the Billing Entity. Such purchase
gives rise to LEC Accounts owing to CUSTOMER. The proceeds of CUSTOMER's LEC
Accounts are typically collected 45 to 60 days after Billing Entity acceptance
of the End-User Accounts sold to the Billing Entity which give rise to such LEC
Accounts. During the term of this Agreement, HBS will purchase CUSTOMER's LEC
Accounts to accelerate CUSTOMER's cash flow. Title to CUSTOMER's LEC Accounts
shall pass to HBS upon payment of the Initial Payment for such LEC Accounts.
While such sale will be without recourse, CUSTOMER shall be liable to repurchase
LEC Accounts which are subsequently subject to Chargebacks and LEC Accounts
which remain unpaid by the applicable LEC for more than ninety (90) days after
the End-User Accounts related thereto were submitted to the LEC. CUSTOMER shall
also be liable to HBS in cases of breached representations and warranties in the
Agreements, including without limitation, representations and warranties
pertaining to the LEC Accounts and the other Collateral.
Section 3
PURCHASE PROCEDURES
The parties hereby agree that HBS' purchase of CUSTOMER's LEC Accounts shall
take place in accordance with the following provisions:
1. At least weekly, the following events will occur:
a. HBS will determine which Amounts
Accepted, if any, are eligible for Initial Payments
by reference to the parameters specified in Exhibit A
hereof.
b. HBS will calculate the amount of the
Initial Payment due by multiplying the eligible
Amounts Accepted by the Maximum Advance Percentage
specified in Exhibit A. The Maximum Advance
Percentage will be reevaluated periodically and may
be changed if HBS, at its sole discretion, determines
that it is at risk because of unexpectedly high
levels of Chargebacks or End-User complaints.
c. HBS will provide an Advance Payable
Schedule to CUSTOMER in a format that clearly sets
forth the calculation of the Initial Payment. The
calculated Initial Payment, when added to the
cumulative Initial Payments outstanding, may not
exceed the Maximum Amount of Initial Payments.
Cumulative Initial Payments outstanding is calculated
as
<PAGE>
cumulative Initial Payments advanced minus cumulative
Initial Payments repaid.
2. Subject to the Maximum Amount of Initial
Payments, the Maximum Advance Percentage, and all
other conditions set forth herein, HBS will transfer
funds to the CUSTOMER'S bank account that is
specified in the Billing Services Agreement. The
transfer of funds will include the Initial Payment as
determined from the Amount Accepted during the
payment period as well as any Final Payments due to
Customer
3. If HBS has reason to suspect that a
Billing Entity may experience Chargebacks or other
pass through charges of a magnitude that might impair
HBS's ability to recoup its Initial Payments and
Factoring Fees, HBS shall have the right, at its sole
discretion, to suspend Initial Payments until it is
assured of collecting all monies due it hereunder.
4. The Factoring Fee will be calculated
monthly and invoiced to Customer. The daily fee is
calculated by multiplying the Factoring Fee Rate set
forth on Exhibit A by 1/365 and then by each day's
outstanding Initial Payments. The monthly fee is
calculated by summing all daily fees not previously
paid to HBS.
5. HBS has the right to set-off sums owed
by CUSTOMER against sums HBS owes to CUSTOMER and
sums HBS receives on CUSTOMER's behalf from Billing
Entities.
Section 4
PROCESSING OF ACCOUNTS
CUSTOMER will be responsible for all operational
matters regarding the End-User Accounts including,
but not limited to, customer inquiries, customer
adjustments, interaction with regulators, and all tax
matters. HBS's sole function under this Supplemental
Agreement shall be to purchase CUSTOMER's LEC
Accounts and any related obligations specifically
enumerated herein.
Section 5
GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS
In connection with the factoring of LEC Accounts
hereunder, CUSTOMER and HBS represent, warrant and
covenant to and with one another, as of the date
hereof and as of the date of each subsequent
Shipment, as follows:
1. Both parties will promptly and
efficiently discharge their obligations under this
Supplemental Agreement.
<PAGE>
2. Both parties have the financial
capability to perform their obligations hereunder and
shall maintain such ability at all times during the
term of this Supplemental Agreement.
3. Neither HBS nor CUSTOMER has entered
into any agreement or commitments which would
prohibit either party from performing their
obligations imposed hereunder or prevent either party
from enjoying the rights granted hereunder.
4. HBS will have the right of access to
CUSTOMER's facilities if necessary to facilitate
liquidation of the Collateral and collection of the
LEC Accounts and the End-User Accounts and, at
reasonable times, to audit and copy CUSTOMER's books
and records with respect to the Collateral. A
representative of HBS's lender may accompany HBS
during such inspections.
5. CUSTOMER represents that all information
about CUSTOMER's financial condition provided to HBS
was accurate when submitted, as will be any
information subsequently provided.
6. CUSTOMER represents to HBS that its
chief executive office is the location set forth on
page 1 hereof and that none of its books and records
with respect to the Collateral shall be moved without
at least 20 days prior written notice to HBS.
Section 6
COLLATERAL
1. As collateral security for any and all
of CUSTOMER's obligations and liabilities to HBS
under the Agreements, CUSTOMER hereby grants to HBS a
continuing first lien and security interest in all of
the following property of CUSTOMER, whether now owned
or hereafter acquired or arising (collectively
"Collateral"):
a. LEC Accounts and general
intangibles due or to become due from any
Billing Entity which HBS has purchased or
hereafter purchases from CUSTOMER;
b. All accounts, general
intangibles and other amounts due or to
become due from HBS to CUSTOMER in
connection with the LEC Accounts described
above;
c. All End-User accounts, due or to
become due, which heretofore have and may
now or hereafter give rise to a LEC Account
<PAGE>
purchased by HBS, whether as a result of a
sale, pledge or granting of a lien in an End
User Account to a Billing Entity;
d. All reserves and other amounts
due or to become due from HBS to CUSTOMER
under the terms of any agreement, document
or instrument between CUSTOMER and HBS;
e. All general intangibles relating
to any of the foregoing, including without
limitation all books and records and
customer lists relating to the customers
obligated on the foregoing LEC Accounts and
End-User Accounts; and
f. All cash and noncash proceeds of
any of the foregoing.
2. LEC Accounts are presently paid by the
applicable Billing Entity directly to HBS. HBS has
authorized its lender to collect directly from the
Billing Entity as its assignee.
3. HBS consents to CUSTOMER's sale of End-
User Accounts to the Billing Entities. Such consent
is conditioned upon the sale being subject to HBS'
lien and security interest continuing in the End-User
Accounts. Such continuing lien will be subordinate
and subject in all respects to the rights of the
Billing Entities in such End-User Accounts.
4. While it is intended that the sale of
LEC Accounts to HBS constitute a true sale of such
LEC Accounts, in the event that any such sale is
found to be a financing transaction or a loan, it is
the intention of the parties that such financing or
loan be secured by a perfected security interest in
the LEC Accounts as well as the other Collateral.
5. With respect to the Collateral, CUSTOMER
represents and warrants to HBS as follows:
a. Except for financing statements
in favor of HBS, no financing statement
covering the Collateral is filed in any
public office;
b. None of the Collateral is
affixed to real estate, is an accession to
any goods, is commingled with other goods,
or will become a fixture, accession, or part
of a product or mass with other goods; and
c. No End-User or Billing Entity or
other obligors whose debts or obligations
are part of the Collateral have any right to
setoffs, counterclaims, or adjustment or any
defenses in connection with their debts or
obligations; and
<PAGE>
d. CUSTOMER owns all of its End-
User Accounts, LEC Accounts and other
Collateral free and clear of all liens,
claims and encumbrances of any nature.
6. With respect to the Collateral, CUSTOMER
covenants with HBS as follows:
a. CUSTOMER will defend the
Collateral against all claims and demands
adverse to HBS' interest in such property
and will keep the Collateral free from all
liens, claims and other encumbrances except
those for taxes not yet due and the security
interests created hereunder. The Collateral
will remain in CUSTOMER's possession or
control at all times, except as otherwise
provided in this Supplemental Agreement.
CUSTOMER will maintain the Collateral in
good condition and protect it against
misuse, abuse, waste, and deterioration;
b. CUSTOMER will pay all expenses
incurred by HBS in obtaining, preserving,
perfecting, defending, and enforcing the
security interests granted herein and in
preserving and protecting the Collateral and
in collecting or enforcing the obligations
of CUSTOMER to HBS under the Agreements.
Expenses for which CUSTOMER is liable
include, but are not limited to, taxes,
assessments, reasonable attorneys' fees and
other legal expenses. These expenses will
bear interest from the date of demand by HBS
for their payment to the date of payment at
the rate of Prime plus 4% per annum, and
CUSTOMER will pay HBS this interest on
demand at a time and place reasonably
specified by HBS. These expenses and
interest will be part of the obligations
secured hereby and will be recoverable as
such in all respects;
c. CUSTOMER will immediately notify
HBS of: (i) any material change in the
Collateral; (ii) change in CUSTOMER's name,
address, or location; (iii) change in any
matter warranted or represented in this
Supplemental Agreement; (iv) change that may
affect the security interest granted herein;
and (v) any Event of Default;
d. CUSTOMER will not sell,
transfer, or encumber any of the Collateral
(except sales of End-User Accounts to
Billing Entities) without the prior written
consent of HBS;
e. At the time and in the form
specified by HBS, CUSTOMER will furnish HBS
any requested information related to the
Collateral, which may include all
information necessary to identify any of the
Collateral;
<PAGE>
f. CUSTOMER will preserve the
liability of all obligors on the Collateral
and preserve HBS's first priority lien
position in all Collateral;
g. Without the written consent of
HBS, CUSTOMER will not agree to any
modification of terms in any writing related
to the Collateral;
h. Upon written notice of default
to CUSTOMER regarding any obligation under
this Supplemental Agreement, HBS may demand
that CUSTOMER will immediately deposit all
payments received as proceeds of Collateral
in a special bank account designated by HBS,
who alone will have power of withdrawal.
CUSTOMER will deposit the payments on
receipt, in the form received, and with any
necessary endorsements. HBS may make any
endorsements in CUSTOMER's name and behalf.
Between receiving and depositing these
payments, CUSTOMER will not commingle them
with any of CUSTOMER's other funds or
property but will hold them separate and in
an express trust for HBS. HBS shall apply
all or part of these funds against
CUSTOMER's obligations;
i. Unless notified otherwise in
writing by HBS, CUSTOMER will:
(i) inform HBS immediately of
the rejection of goods, delay in delivery or
performance, or claim made in regard to any
Collateral; and
(ii) pay HBS the unpaid
amount of any LEC Account under any of these
conditions: if the LEC Account is
Chargedback or not paid within 90 days of
submission of the associated End-User
Accounts to the applicable Billing Entity;
if the Billing Entity rejects the goods or
services covered by the LEC Account; or if
HBS rejects the LEC Account as
unsatisfactory. HBS may retain the LEC
Account in Collateral and may charge any
deposit account of CUSTOMER, or set-off
against any amount payable by HBS to
CUSTOMER, with the unpaid amount;
j. CUSTOMER will maintain accurate
books and records covering the Collateral
and showing the assignment of accounts in
Collateral to HBS. Only undisputed and
unpaid amounts will be shown as owed to
CUSTOMER on the books;
k. Each LEC Account and End-User
Account will represent the valid, legally
enforceable obligation of third parties and
will not be evidenced by any instrument or
chattel paper; and
<PAGE>
l. If any Collateral or proceeds
include obligations of third parties to
CUSTOMER, the transactions creating those
obligations will conform in all respects to
applicable state and federal law.
7. Each of the following conditions is an
"Event of Default":
a. If CUSTOMER defaults in timely
payment or performance of any obligation,
covenant, or liability in any written
agreement between CUSTOMER and HBS or in any
other transaction described in any of the
Agreements;
b. If any warranty, covenant, or
representation made to HBS by or on behalf
of CUSTOMER proves to have been false in any
material respect when made;
c. If a receiver is appointed for
CUSTOMER or any of the Collateral;
d. If the Collateral is assigned
for the benefit of creditors or, to the
extent permitted by law, if bankruptcy or
insolvency proceedings are commenced against
or by any of the following parties:
CUSTOMER; any partnership of which CUSTOMER
is a general partner; and any maker, drawer,
acceptor, endorser, guarantor, surety,
accommodation party, or other person liable
on or for any part of the obligations and
liabilities of CUSTOMER to HBS;
e. If any financing statement
regarding the Collateral and not favoring
HBS is filed;
f. If any lien attaches to any of
the Collateral; and
g. If any of the Collateral is
lost, stolen, damaged, or destroyed, unless
it is promptly replaced with Collateral of
like quality or restored to its former
condition.
8. In addition to all other rights and
remedies available to HBS at law or in equity or
under the terms of any of the Agreements, HBS may
exercise the following rights and remedies after the
occurrence of an Event of Default (as defined below):
a. Notify account debtors to make all
payments on Collateral directly to HBS (it being
understood that Billing Entities shall always make
payments to HBS directly regardless of the occurrence
of an Event of Default);
<PAGE>
b. Take control of any funds generated by
the Collateral, such as refunds from any proceeds of
insurance, and reduce any part of the obligations
secured hereby in such order as HBS shall determine
or, in HBS's sole discretion, permit CUSTOMER to use
such funds to repair or replace damaged or destroyed
Collateral covered by insurance;
c. Demand, collect, convert, redeem, settle,
compromise, receipt for, realize on, adjust, sue for,
and foreclose on the Collateral, either in HBS's or
CUSTOMER's name, as HBS desires;
d. Declare all obligations and liabilities
of CUSTOMER hereunder immediately due and payable and
enforce such obligations;
e. Require CUSTOMER to deliver to HBS all
books and records relating to the Collateral;
f. Require CUSTOMER to assemble the
Collateral and make it available to HBS at a place
reasonably convenient to both parties;
g. Take possession of any of the Collateral
and for this purpose enter any premises where it is
located if this can be done without breach of the
peace;
h. Sell, lease, or otherwise dispose of any
of the Collateral in accordance with the rights,
remedies, and duties of a secured party under
chapters 2 and 9 of the Texas Uniform Commercial Code
after giving notice as required by those chapters;
unless the Collateral threatens to decline speedily
in value, is perishable, or would typically be sold
on a recognized market, HBS will give CUSTOMER
reasonable notice of any public sale of the
Collateral or of a time after which it may be
otherwise disposed of without further notice to
CUSTOMER; in this event, notice will be deemed
reasonable if it is mailed, postage prepaid, to
CUSTOMER at the address specified in this
Supplemental Agreement at least ten (10) days before
any public sale or ten (10) days before the time when
the Collateral may be otherwise disposed of without
further notice to CUSTOMER;
i. Apply any proceeds from disposition of
the Collateral after default in the manner specified
in chapter 9 of the Texas Uniform Commercial Code,
including payment of HBS's reasonable attorneys' fees
and court expenses; and
j. If disposition of the Collateral leaves
the obligations and liabilities of CUSTOMER under the
Agreements unsatisfied, collect the deficiency from
CUSTOMER.
<PAGE>
9. A carbon, photographic, or other
reproduction of this Supplemental Agreement or any
financing statement covering the Collateral is
sufficient as a financing statement.
10. If the Collateral is sold after default,
recitals in the bill of sale or transfer will be
prima facie evidence of their truth, and all
prerequisites to the sale specified by this
Supplemental Agreement and by the Texas Uniform
Commercial Code will be presumed satisfied.
11. This security interest shall neither
affect nor be affected by any other security for any
of the obligations and liabilities of CUSTOMER to
HBS. Neither extensions of any of the obligations nor
releases of any of the Collateral will affect the
priority or validity of the security interests
granted herein with reference to any third person.
12. Foreclosure of the security interests
granted herein by suit does not limit HBS's remedies,
including the right to sell the Collateral under the
terms of this Supplemental Agreement. All remedies of
HBS may be exercised at the same or different time,
and no remedy shall be a defense to any other. HBS's
rights and remedies include all those granted by law
or otherwise, in addition to those specified in this
Supplemental Agreement.
Section 7
TERM AND TERMINATION
The term of this Supplemental Agreement shall
commence on the Effective Date and will run
concurrent with the Billing Services Agreement which
this contract supplements. This Supplemental
Agreement may be terminated in accordance with the
following provisions upon the occurrence of any of
the following events:
1. In the event that either party
materially or repeatedly defaults in the performance
of any of its duties or obligations set forth herein
and such default is not substantially cured within
thirty (30) days after written notice is given to the
defaulting party specifying the default, then the
party not in default may, by giving written notice
thereof to the defaulting party, terminate this
Supplemental Agreement as of a date specified in such
notice of termination;
2. Failure to reimburse HBS for a
deficiency in a Final Payment or to pay Factoring
Fee(s) when due;
3. Termination of the underlying Billing
Services Agreement; or
<PAGE>
4. Upon the occurrence of an Event of
Default.
Termination of this Supplemental Agreement shall not
relieve either party of any obligations which have
accrued prior to the date of such termination,
including without limitation, the respective
obligations of the parties to make payments
hereunder.
Section 8
DOLLAR AMOUNT OF COMMITMENT
HBS agrees to purchase CUSTOMER's LEC Accounts up to
the Maximum Amount of Initial Payments at any one
time outstanding. At HBS' sole discretion, the
cumulative dollar amount of Initial Payments may be
increased or decreased from time to time, but in no
event will HBS be obligated to make Initial Payments
in excess of the Maximum Amount of Initial Payments
unless this Section is amended in writing.
Section 9
DOCUMENTS REQUIRED
CUSTOMER agrees to furnish the following documents to
HBS as conditions of funding:
1. Financial Statements within 90 days of
the end of CUSTOMER'S fiscal year and within 45 days
of the end of each of the CUSTOMER'S first three
fiscal quarters. Such statements will be prepared in
accordance with generally accepted accounting
principles and will be certified by the CUSTOMER's
chief financial officer or its independent Certified
Public Accountants;
2. Revenue projections within 30 days of
the close of the CUSTOMER's fiscal year;
3. Copy of Federal Form 941 and proof of
payment of tax deposits within 30 days after the
close of each calendar quarter;
4. UCC-1 Financing Statements in form,
number and substance acceptable to HBS; and
5. UCC-1 financing statement, judgment and
state and federal tax lien searches verifying that
HBS will possess a first priority perfected lien
position with respect to the Collateral.
If HBS has reason to question the accuracy of the
above documents or the collectibility of the LEC
Accounts, HBS will have the right to audit (and
<PAGE>
HBS' lendor shall have the right to accompany HBS on
such audits) the documents, LEC Accounts, and/or the
systems by which LEC Accounts and End-User Accounts
are generated. The cost of such audit will be borne
50% by each of the parties to this Supplemental
Agreement.
CUSTOMER shall, from time to time, furnish to HBS all
documents, instruments and agreements reasonably
requested by HBS to facilitate the terms hereof
including without limitation, additional UCC-1
financing, continuation and amendment statements.
Section 10
LIMITATION OF LIABILITY
The parties agree that in the event of any failure,
defect in the services provided hereunder by HBS, or
in the event of any negligence on the part of HBS or
otherwise in performing this Supplemental Agreement
that neither HBS, nor its general partner, nor any
employee or agent thereof shall be liable to CUSTOMER
for injury or loss to CUSTOMER or CUSTOMER's business
or property arising out of or occasioned by, directly
or indirectly, such failure, defect or negligence,
and CUSTOMER agrees to save HBS harmless from all
claims for any such damages, except as follows in
this Section 10.
The amount of damages recoverable against HBS for any
and all acts or omissions related to this
Supplemental Agreement shall not exceed the amount of
Factoring Fees collected by HBS for the six-month
period immediately preceding the first occurrence of
such event, act or omission. In no event will the
measure of damage recoverable by CUSTOMER against HBS
include any amounts for indirect, consequential or
punitive damages or for the loss of anticipated
profits or other alleged economic loss. CUSTOMER may
not assert a cause of action that occurred more than
two (2) years prior to filing of suit.
Section 11
OTHER PROVISIONS
1. Provisions contained in the Billing
Services Agreement that are applicable but are not
addressed in this Supplemental Agreement will be
considered to be an integral part hereof. Such
provisions include, but are not limited to, Notices,
Assignment, Counterparts, Headings, Relationships
<PAGE>
between Parties, Media Releases, Disputes Resolution,
Severability, Waivers, Remedies, Governing Law,
Confidentiality and Entire Agreement.
2. HBS' lendor will be deemed a third-party
beneficiary of this Supplemental Agreement. Neither
the Supplemental Agreement nor any of the Agreements
or documents related to the Collateral may be
modified or amended in any manner which would
materially and adversely affect any of lendor's
rights without lendor's prior written consent.
3. HBS's rights under this Supplemental
Agreement shall inure to the benefit of its
successors and assigns. Assignment of any part of the
obligations and liabilities of CUSTOMER to HBS and
delivery by HBS of any part of the Collateral will
fully discharge HBS from responsibility for that part
of Collateral. If CUSTOMER is more than one person or
entity, all representations, warranties and
agreements contained herein are joint and several.
CUSTOMER's obligations under this Supplemental
Agreement shall bind CUSTOMER's personal
representatives, successors and assigns.
4. Neither delay in exercise nor partial
exercise of any of HBS's remedies or rights shall
waive further exercise of those remedies or rights.
HBS's failure to exercise remedies or rights does not
waive subsequent exercise of those remedies or
rights. HBS's waiver of any default does not waive
further defaults. HBS's waiver of any rights in this
Supplemental Agreement or any of the other Agreements
or of any default or Event of Default is binding only
if it is in writing.
HBS may remedy any default without waiving it.
5. If CUSTOMER fails to perform any of
CUSTOMER's obligations and liabilities, HBS may
(without obligation to do so) perform such
obligations on CUSTOMER's behalf and be reimbursed by
CUSTOMER on demand for any sum so paid, including
without limitation, attorney's fees and other legal
expenses, plus interest on those sums from the date
of demand for payment therefor to the date of payment
at the rate of Prime plus 4% per annum. Sums to be
reimbursed shall be secured by the Collateral.
6. Although no interest is contemplated as
part of the obligations and liabilities except as
expressly set forth herein, to the extent that
interest is imputed or deemed by a court of competent
jurisdiction to have been charged, interest shall not
exceed the maximum amount of non-usurious interest
that may be contracted for, taken, reserved, charged,
or received under law; any interest in excess of that
maximum amount shall be credited to the non-interest
obligations and liabilities of CUSTOMER to HBS under
the Agreements, and if they have all been paid in
full, refunded.
<PAGE>
7. No provision of this Supplemental
Agreement shall be modified or limited except by
written agreement of the parties hereto.
8. The unenforceability of any provision of
this Supplemental Agreement will not affect the
enforceability or validity of any other provision.
9. This Supplemental Agreement will be
construed according to the internal laws of the State
of Texas without regard to those laws relating to
choice of law or choice of forum.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Agreement
to be executed and delivered by their duly authorized officers as of the
Effective Date.
CUSTOMER: HOLD BILLING SERVICES, LTD.
a Texas Limited Partnership
By: HBS, Inc.
- -----------------------------------
By: By:
-------------------------------- --------------------------------
David W. Mechler, Jr.
Vice President - Finance
<PAGE>
Exhibit 10.13
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement (this "Agreement") is made and entered into
as of the 1st day of June, 1999, by and between Avery Communications, Inc., a
Delaware corporation (the "Company"), and _______________ (the "Indemnitee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the interpretation of ambiguous statutes, regulations and bylaws
regarding indemnification of directors and officers may be too uncertain to
provide such directors and officers with adequate notice of the legal, financial
and other risks to which they may be exposed by virtue of their service as such;
and
WHEREAS, damages sought against directors and officers in shareholder or
similar litigation by class action plaintiffs may be substantial, and the costs
of defending such actions and of judgments in favor of plaintiffs or of
settlement therewith may be prohibitive for individual directors and officers,
without regard to the merits of a particular action and without regard to the
culpability of, or the receipt of improper personal benefit by, any named
director or officer to the detriment of the corporation; and
WHEREAS, the issues in controversy in such litigation usually relate to the
knowledge, motives and intent of the director or officer, who may be the only
person with firsthand knowledge of essential facts or exculpating circumstances
who is qualified to testify in such person's defense regarding matters of such a
subjective nature, and the long period of time which may elapse before final
disposition of such litigation may impose undue hardship and burden on a
director or officer or on such person's estate in launching and maintaining a
proper and adequate defense for a director or officer or for such person's
estate against claims for damages; and
WHEREAS, the Company is organized under the Delaware General Corporation
Law (the "DGCL") and Section 145 of the DGCL empowers corporations to indemnify
and advance expenses to a person serving as a director, officer, employee or
agent of a corporation and to persons serving at the request of the corporation
as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, other enterprise or employee
benefit plan, and further provides that the indemnification and advancement of
expenses provided by, or granted pursuant to, said section "shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in such
person's official capacity and as to action in another capacity while holding
such office"; and
<PAGE>
WHEREAS, the Certificate of Incorporation of the Company (as it may be
amended or amended and restated from time to time, the "Certificate of
Incorporation") provides that the Company "shall indemnify all persons whom it
may indemnify to the fullest extent permitted by the DGCL"; and
WHEREAS, the Board of Directors and stockholders of the Company (the
"Board") have concluded that it is reasonable and prudent for the Company
contractually to obligate itself to indemnify in a reasonable and adequate
manner the Indemnitee and to assume for itself maximum liability for expenses
and damages in connection with claims lodged against the Indemnitee for such
person's decisions and actions as a director, officer, employee or agent of the
Company and its subsidiaries;
NOW, THEREFORE, in consideration of the foregoing, and of other good and
valuable consideration, the receipt and sufficiency of which are acknowledged by
each of the parties hereto, the parties agree as follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement, the following terms shall have the meanings
set forth below:
A. "Board" shall mean the Board of Directors of the Company.
B. "Change in Control" shall mean a change in the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of the Company, whether through the ownership of Voting Securities, by
contract, or otherwise.
C. "Corporate Status" shall mean the status of a person who is or was a
director, officer, employee or agent of the Company, or is or was a member of
any committee of the Board, and the status of a person who is or was serving at
the request of the Company as a director, officer, partner (including service as
a general partner of any limited partnership), member, trustee, employee, or
agent of another foreign or domestic corporation, partnership, limited liability
company, joint venture, trust, other incorporated or unincorporated entity or
enterprise or employee benefit plan. For the purposes of this Agreement, any
person serving as a director, officer, partner, member, trustee, employee, or
agent of any subsidiary of the Company or any employee benefit plan of the
Company or any of its subsidiaries shall be deemed to be so serving at the
request of the Company, and no corporate or other action shall be or be deemed
to be required to evidence any such request.
D. "Disinterested Director" shall mean a director of the Company who is
not a party to the Proceeding in respect of which indemnification is being
sought by the Indemnitee.
-2-
<PAGE>
E. "Expenses" shall mean any and all expenses actually and reasonably
incurred directly or indirectly in connection with a Proceeding, including,
without limitation, all attorneys' fees, retainers, court costs, transcript
costs, fees of experts, investigation fees and expenses, accounting and witness
fees, travel expenses, duplicating costs, printing and binding costs, telephone
charges, postage, delivery service fees and all other disbursements or expenses
of the types customarily incurred in connection with prosecuting, defending,
preparing to prosecute or defend, investigating or being or preparing to be a
witness in a Proceeding.
F. "Good Faith" shall mean, when used with reference to an act or
omission of the Indemnitee, an act or omission other than (i) an act or omission
committed in bad faith and in a manner the Indemnitee believed to be opposed to
the best interests of the Company; (ii) an act or omission that was the result
of intentional misconduct involving active or deliberate dishonesty; (iii) an
act or omission from which the Indemnitee actually received an improper personal
benefit in money, property or services; or (iv) in the case of a criminal
Proceeding, an act or omission which involves a knowing violation of law.
G. "Liabilities" shall mean liabilities of any type whatsoever,
including, without limitation, any judgments, fines, excise taxes and penalties
under the Employee Retirement Income Security Act of 1974, as amended, penalties
and amounts paid in settlement (including all interest, assessments and other
charges paid or payable in connection with or in respect of such judgments,
fines, penalties or amounts paid in settlement) actually and reasonably incurred
directly or indirectly in connection with the investigation, defense, settlement
or appeal of any Proceeding or any claim, issue or matter therein.
H. "Proceeding" shall mean any threatened, pending or completed action,
suit, proceeding, arbitration, alternate dispute resolution mechanism,
investigation, administrative hearing or any other actual, threatened or
completed proceeding, whether civil, criminal, administrative, arbitrative or
investigative, any appeal or appeals therefrom, and any inquiry or investigation
that could lead to any of the foregoing.
I. "Voting Securities" shall mean any securities of the Company that are
entitled to vote generally in the election of directors.
ARTICLE II
TERM OF AGREEMENT
This Agreement shall continue until, and terminate upon the later to occur
of (i) the death of the Indemnitee; or (ii) the final termination of all
Proceedings (including possible Proceedings) in respect of which the Indemnitee
is granted rights of indemnification or advancement of Expenses hereunder and of
any Proceeding commenced by the Indemnitee regarding the interpretation or
enforcement of this Agreement. This Agreement shall govern the indemnification
rights of the
-3-
<PAGE>
Indemnitee for all Liabilities and Expenses in connection with any Proceeding
instituted or commenced on or after the date hereof notwithstanding that any
alleged act or omission of the Indemnitee occurred prior to the date hereof.
ARTICLE III
NOTICE OF PROCEEDINGS; DEFENSE OF CLAIMS
Section 3.1 Notice of Proceedings. The Indemnitee will notify the Company
promptly in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder, but the Indemnitee's failure to so notify the Company shall
not relieve the Company from any liability to the Indemnitee under this
Agreement.
Section 3.2 Defense of Claims. The Company will be entitled to
participate, at the expense of the Company, in any Proceeding of which the
Company has notice. The Company jointly with any other indemnifying party
similarly notified of any Proceeding will be entitled to assume the defense of
the Indemnitee therein, with counsel reasonably satisfactory to the Indemnitee;
provided, however, that the Company shall not be entitled to assume the defense
of the Indemnitee in any Proceeding if there has been a Change in Control or if
the Indemnitee has reasonably concluded that there may be a conflict of interest
between the Company and the Indemnitee with respect to such Proceeding. The
Company will not be liable to the Indemnitee under this Agreement for any
Expenses incurred by the Indemnitee in connection with the defense of any
Proceeding, other than reasonable costs of investigation or as otherwise
provided below, after notice from the Company to the Indemnitee of its election
to assume the defense of the Indemnitee therein. The Indemnitee shall have the
right to employ his or her own counsel in any such Pro ceeding, but the fees and
expenses of such counsel incurred after notice from the Company of its
assumption of the defense thereof shall be at the expense of the Indemnitee
unless (i) the employ ment of counsel by the Indemnitee has been authorized by
the Company; (ii) the Indemnitee shall have reasonably concluded that counsel
employed by the Company may not adequately represent the Indemnitee and shall
have so informed the Company; or (iii) the Company shall not in fact have
employed counsel to assume the defense of the Indemnitee in such Proceeding or
such counsel shall not, in fact, have assumed such defense or such counsel shall
not be acting, in connection therewith, with reasonable diligence; and in each
such case the fees and expenses of the Indemnitee's counsel shall be advanced by
the Company.
Section 3.3 Settlement of Claims. The Company shall not settle any
Proceeding in any manner which would impose any Liability, penalty or limitation
on the Indemnitee, or cause the Indemnitee to become subject to or bound by any
injunction, order, judgment or decree, without the written consent of the
Indemnitee, which consent shall not be unreasonably withheld or delayed. The
Company shall not be liable to indemnify the Indemnitee under this Agreement or
otherwise for
-4-
<PAGE>
any amounts paid in settlement of any Proceeding effected by the Indemnitee
without the Company's written consent, which consent shall not be unreasonably
withheld or delayed.
ARTICLE IV
INDEMNIFICATION
Section 4.1 In General. Upon the terms and subject to the conditions set
forth in this Agreement, the Company shall hold harmless and indemnify the
Indemnitee against any and all Liabilities and Expenses actually incurred by or
for the Indemnitee in connection with any Proceeding (whether the Indemnitee is
or becomes a party, a witness or otherwise is a participant in any role) to the
fullest extent required or permitted by applicable law in effect on the date
hereof and to such greater extent as applicable law may hereafter from time to
time require or permit. To the extent that the Indemnitee has at any time
heretofore served or at any time hereafter serves as a director, officer,
employee, partner, trustee or agent of, for, or on behalf of any subsidiary of
the Company, the Company expressly agrees and acknowledges that Indemnitee was
or is serving in each such capacity at the request of the Company.
Section 4.2 Proceeding other Than a Proceeding by or in the Right of the
Company. Without limiting the generality of 4.1, if the Indemnitee was or is a
party or is threatened to be made a party to any Proceeding (whether the
Indemnitee is or becomes a party, a witness or otherwise is a participant in any
role) (other than a Proceeding by or in the right of the Company) by reason of
the Indemnitee's Corporate Status, or by reason of any alleged act or omission
by the Indemnitee in any such capacity, the Company shall, subject to the
limitations set forth in 46 below, hold harmless and indemnify the Indemnitee
against any and all Liabilities and Expenses of the Indemnitee in connection
with the Proceeding if the Indemnitee acted in Good Faith.
Section 4.3 Proceeding by or in the Right of the Company. Without
limiting the generality of 4.1, if the Indemnitee was or is a party or is
threatened to be made a party to any Proceeding (whether the Indemnitee is or
becomes a party, a witness or otherwise is a participant in any role) by or in
the right of the Company to procure a judgment in its favor by reason of the
Indemnitee's Corporate Status, or by reason of any alleged act or omission by
the Indemnitee in any such capacity, the Company shall, subject to the
limitations set forth in Section 4.6 below, hold harmless and indemnify the
Indemnitee against any and all Expenses of the Indemnitee in connection with the
Proceeding if the Indemnitee acted in Good Faith; except that no indemnification
under this Section 4.3 shall be made in respect of any claim, issue or matter as
to which the Indemnitee shall have been finally adjudged, pursuant to a judgment
or other adjudication which is final and has become nonappealable, to be liable
to the Company, unless a court of appropriate jurisdiction (including, but not
limited to, the court in which such Proceeding was brought) shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, the Indemnitee is fairly and reasonably entitled to
indemnification for such Expenses which such court shall deem proper.
-5-
<PAGE>
Section 4.4 Indemnification of a Party Who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that the
Indemnitee is or has been successful on the merits or otherwise in defense of
any Proceeding, the Indemnitee shall be indemnified by the Company to the
maximum extent consistent with law against all Expenses of the Indemnitee in
connection therewith. If the Indemnitee is not wholly successful in such
Proceeding but is or has been successful on the merits or otherwise in defense
of one or more but less than all claims, issues or matters in such Proceeding,
the Company shall hold harmless and indemnify the Indemnitee to the maximum
extent consistent with law against all Expenses of the Indemnitee in connection
with each successfully resolved claim, issue or matter in such Proceeding.
Resolution of a claim, issue or matter by dismissal, with or without prejudice,
shall be deemed a successful result as to such claim, issue or matter.
Section 4.5 Indemnification for Expenses of Witness. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee, by reason
of the Indemnitee's Corporate Status, has prepared to serve or has served as a
witness in any Proceeding, or has participated in discovery proceedings or other
trial preparation, the Indemnitee shall be held harmless and indemnified against
all Expenses of the Indemnitee in connection therewith.
Section 4.6 Specific Limitations on Indemnification. In addition to the
other limitations set forth in this Article IV, and notwithstanding anything in
this Agreement to the contrary, the Company shall not be obligated under this
Agreement to make any payment to the Indemnitee for indemnification of
Liabilities or Expenses, or both, in connection with any Proceeding:
1. To the extent that payment of any of the Liabilities or Expenses
of the Indemnitee is actually made to the Indemnitee under any insurance
policy or is made on behalf of the Indemnitee by or on behalf of the
Company otherwise than pursuant to this Agreement; or
2. For an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Company within the meaning of section 16(b)
of the Securities Exchange Act of 1934, as amended, or similar provisions
of any federal, state or local statute or regulation.
ARTICLE V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI hereof, the
Company shall pay or reimburse all Expenses of the Indemnitee incurred by or for
the Indemnitee in connection with any Proceeding in advance of the final
disposition of such Proceeding, provided that the Company receives an
undertaking by or on behalf of the Indemnitee to repay such amounts if it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Company under applicable
-6-
<PAGE>
law (the "Undertaking"). The Undertaking shall reasonably evidence the Expenses
incurred by or for the Indemnitee. The Company shall pay all such Expenses
within five (5) business days after the receipt by the Company of the
Undertaking. The Undertaking shall be unsecured and interest free, and shall be
made and accepted by the Company without reference to the Indemnitee's financial
ability to make repayment.
ARTICLE VI
PROCEDURE FOR PAYMENT;
DETERMINATION OF RIGHT TO INDEMNIFICATION
Section 6.1 Procedure for Payment. To obtain indemnification for
Liabilities under this Agreement, and to obtain indemnification for Expenses not
paid in advance of the final disposition of any Proceeding pursuant to Article
V, the Indemnitee shall submit to the Company a written request for payment,
including with such request such documentation as is reasonably available to the
Indemnitee and reasonably necessary to determine whether, and to what extent,
the Indemnitee is entitled to indemnification and payment hereunder. The
Secretary of the Company, or such other person as shall be designated by the
Board of Directors, promptly upon receipt of a request for indemnification shall
advise the Board of Directors, in writing, of such request. Any indemnification
payment due hereunder shall be paid by the Company no later than five (5)
business days following the determination, pursuant to this Article VI, that
such indemnification payment is proper hereunder.
Section 6.2 No Determination Necessary when the Indemnitee was Successful.
To the extent the Indemnitee is or has been successful on the merits or
otherwise in defense of any Proceeding, or in defense of any claim, issue or
matter therein, the Company shall indemnify the Indemnitee against Expenses of
the Indemnitee in connection with any such Proceeding or any claim, issue or
matter therein as provided in Section 4.4.
Section 6.3 Determination of Good Faith Act or Omission. In the event that
Section 6.2 is inapplicable with respect to any Proceeding, or any claim, issue
or matter therein, the Company shall hold harmless and indemnify the Indemnitee
as provided herein unless the Company shall prove by clear and convincing
evidence to a forum listed in Section 6.4 that the Indemnitee did not act in
Good Faith.
Section 6.4 Forum for Determination. If the Indemnitee is serving as a
director or officer of the Company at the time the determination is to be made,
the Indemnitee shall be entitled to select from among the following the forum in
which the validity of the Company's claim under Section 6.3 that the Indemnitee
is not entitled to indemnification will be heard:
1. A majority vote of the Directors who are Disinterested Directors,
even though less than a quorum;
-7-
<PAGE>
2. By a committee of Disinterested Directors designated by a majority
vote of the Directors who are Disinterested Directors, even though less
than a quorum;
3. If there are no Disinterested Directors, or if such Directors so
direct, independent legal counsel selected by the Indemnitee, subject to
the approval of the Board, which approval shall not be unreasonably delayed
or denied, which counsel shall make such determination in a written
opinion; or
4. The stockholders of the Company, by the affirmative vote of the
majority of the Voting Securities present in person or by proxy and
entitled to vote on the subject matter.
If the Indemnitee is not serving as a director or officer at the time the
determination is to be made, the Indemnitee shall be entitled to select from
among the forums set forth above, or to select any other person or persons
having corporate authority to act on the matter, including, without limitation,
the Board or any committee thereof or those persons who are authorized by
statute to determine whether to indemnify directors and officers.
As soon as practicable, and in no event later than thirty (30) days after
written notice of the Indemnitee's choice of forum pursuant to this Section 6.4,
the Company shall, at the expense of the Company, submit to the selected forum,
in such manner as the Indemnitee or the Indemnitee's counsel may reasonably
request, its claim that the Indemnitee is not entitled to indemnification, and
the Company shall act in the utmost good faith to assure the Indemnitee a
complete opportunity to defend against such claim. The fees and expenses of the
selected forum in connection with making the determination contemplated
hereunder shall be paid by the Company. If the Company shall fail to submit the
matter to the selected forum within thirty (30) days after the Indemnitee's
written notice, or if the forum so empowered to make the determination shall
have failed to make the requested determination within thirty (30) days after
the matter has been submitted to it by the Company, the requisite determination
that the Indemnitee has the right to indemnification hereunder shall be deemed
to have been made by a majority vote of the Directors who are Disinterested
Directors, even though less than a quorum.
Section 6.5 Right to Appeal. Notwithstanding a determination by any forum
listed in Section 6.4 that the Indemnitee is not entitled to indemnification
with respect to a specific Proceeding, or any claim, issue or matter therein,
the Indemnitee shall have the right to apply to the court in which that
Proceeding is or was pending, or to any other court of competent jurisdiction,
for the purpose of enforcing the Indemnitee's right to indemnification pursuant
to this Agreement. Such enforcement action shall consider the Indemnitee's
entitlement to indemnification de novo, and the Indemnitee shall not be
prejudiced by reason of a prior determination that the Indemnitee is not
entitled to indemnification. The Company shall be precluded from asserting that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable. The Company further agrees to stipulate in any such judicial
proceeding that the Company is bound by all the provisions of this Agreement and
is precluded from making any assertion to the contrary.
-8-
<PAGE>
Section 6.6 Right to Seek Judicial Determination. Notwithstanding any
other provision of this Agreement to the contrary, at any time after sixty (60)
days after a request for indemnification has been made to the Company (or upon
earlier receipt of written notice that a request for indemnification has been
rejected or the expiration of time within which any such payment must be made
hereunder) and before the third (3rd) anniversary of the making of such
indemnification request, the Indemnitee may petition a court of competent
jurisdiction, whether or not such court has jurisdiction over, or is the forum
in which is pending, the Proceeding, to determine whether the Indemnitee is
entitled to indemnification hereunder, and such court thereupon shall have the
exclusive authority to make such determination, unless and until such court
dismisses or otherwise terminates the Indemnitee's action without having made
such determination. The court, as petitioned, shall make an independent
determination of whether the Indemnitee is entitled to indemnification
hereunder, without regard to any prior determination in any other forum as
provided hereby.
Section 6.7 Expenses under this Agreement. Notwithstanding any other
provision in this Agreement to the contrary, the Company shall indemnify the
Indemnitee against all Expenses incurred by the Indemnitee in connection with
any hearing, action, suit or proceeding under this Article VI involving the
Indemnitee and against all Expenses incurred by the Indemnitee in connection
with any other hearing, action, suit or proceeding between the Company and the
Indemnitee involving the interpretation or enforcement of the rights of the
Indemnitee under this Agreement, even if it is finally determined that the
Indemnitee is not entitled to indemnification in whole or in part hereunder.
ART VII
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
Section 7.1 Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person, persons, entity or
entities making such determination shall presume that the Indemnitee is entitled
to indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption.
Section 7.2 Standards for Determining if Expenses Reasonably Incurred. It
is a purpose of this Agreement to induce the most highly qualified individuals
to accept positions of responsibility with the Company and, in so doing, to
serve as directors, officers, employees and agents of the Company. Accordingly,
the Company desires to provide the Indemnitee with the highest quality
professional services available if the Indemnitee becomes a party to or is
otherwise involved in a Proceeding because of the Indemnitee's Corporate Status
without the Indemnitee's incurring any personal Expense in connection therewith.
The Company therefore agrees that the Indemnitee may retain attorneys,
accountants, investment bankers, and other
-9-
<PAGE>
professionals and experts anywhere within the United States to represent the
Indemnitee in any Proceeding in the United States, that the Indemnitee may
retain attorneys, accountants, investment bankers, and other professionals
without regard to location if the Proceeding is not in the United States, and
that the Company will not deny any request for indemnification hereunder on the
basis that the Expenses of any such attorneys, accountants, investment bankers,
or other professionals and experts are not or have not been reasonably incurred
because of the location of any such attorneys, accountants, investment bankers,
or other professionals and experts. The Company further agrees that, for the
purpose of determining if an Expense for professional services, including,
without limitation, fees of attorneys, accountants, investment bankers, and
other professionals and experts, is or has been reasonably incurred, or for the
purpose of determining the reasonableness of any such Expense, the standard to
be used shall be the highest rates per hour or fees charged by attorneys
specializing in the defense of individuals in Proceedings similar to the
Proceeding to which the Indemnitee is a party or otherwise involved in the city
or cities in which such attorneys are located, and the highest rates per hour or
fees charged by accountants, investment bankers, and other professionals and
experts assisting or participating in the defense of individuals in Proceedings
similar to the Proceeding to which the Indemnitee is a party or otherwise
involved in the city or cities in which such accountants, investment bankers,
and other professionals and experts are located. In addition to the foregoing,
the Company has determined that it is in the Company's best interests that any
director, officer, employee or agent of Company who is involved in any
Proceeding because of such person's Corporate Status maintain to the greatest
extent possible the confidentiality of matters pertaining to such Proceeding,
and that such person's participation in such Proceeding be on conditions as
similar as reasonably possible to conditions as if such person were
participating in the city of such person's personal residence. Due to the
continuing deterioration in commercial travel conditions, however, it is
increasingly more difficult to achieve this result, and, accordingly, the
Company desires to provide the Indemnitee with travel arrangements that come
most closely to achieving this result. The Company therefore agrees that, for
the purpose of determining whether any Expense hereunder for travel related
items is or has been reasonably incurred, or for the purpose of determining the
reasonableness of any such Expense, the standards to be used shall be the non-
stop first class airfare between destinations and the daily non-discounted room
rates charged by the highest rated hotel in the destination city. Any Expense
actually incurred for or on behalf of the Indemnitee by any firm providing
professional services, including, without limitation, attorneys, accountants,
investment bankers, and other professionals and experts, to the Indemnitee in
any Proceeding shall be deemed to be reasonably incurred and reasonable. In
determining whether any other Expense is or has been reasonably incurred, or
whether any such other Expense is reasonable, the standard to be used shall be
commensurate with the foregoing. In the event the Company determines not to
indemnify the Indemnitee hereunder for any Expense on the basis that any such
Expense was or has not been reasonably incurred, the Company agrees that it must
prove by clear and convincing evidence that the professional or other services
rendered for and on behalf of the Indemnitee, or the goods or services received
by or provided for or on behalf of the Indemnitee, provided (i) no value
whatsoever, and (ii) bore no reasonable relationship whatsoever, to the defense
of the Indemnitee in the Proceeding. In the event the Company determines not to
indemnify the Indemnitee hereunder for any Expense on the basis that any such
Expense is or was not reasonable, the Company agrees that it must prove by clear
and convincing evidence that the challenged Expense is so grossly in excess of
the fair market value for the same or similar Expense as to be manifestly
unfair.
-10-
<PAGE>
Section 7.3 Effect of other Proceedings. The termination of any
Proceeding or of any claim, issue or matter therein, by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Indemnitee did not act in
Good Faith.
Section 7.4 Reliance as Safe Harbor. For purposes of any determination of
whether any act or omission of the Indemnitee was done or made in Good Faith,
each act or omission of the Indemnitee shall be deemed to be in Good Faith if
the Indemnitee's act or omission is based on the records or books of accounts of
the Company, including financial statements, or on information supplied to the
Indemnitee by the officers of the Company in the course of their duties, or on
the advice of legal counsel for the Company, or on information or records given
or reports made to the Company by an independent certified public accountant or
by an appraiser or other expert selected with reasonable care by the Company.
The provisions of this section 7.3 shall not be deemed to be exclusive or to
limit in any way the other circumstances in which the Indemnitee may be deemed
to have met the applicable standard of conduct set forth in this Agreement or
under applicable law.
Section 7.5 Actions of Others. The knowledge and/or actions, or failure
to act, of any other director, officer, agent or employee of the Company shall
not be imputed to the Indemnitee for purposes of determining the right to
indemnification under this Agreement.
ART VIII
INSURANCE; OTHER INDEMNIFICATION ARRANGEMENTS
Section 8.1 Insurance. In the event that the Company maintains officers'
and directors' or similar liability insurance to protect itself and any director
or officer of the Company against any expense, liability or loss, such insurance
shall cover the Indemnitee to at least the same degree as each other director
and/or officer of the Company.
Section 8.2 Other Arrangements. The Certificate of Incorporation and
Bylaws of the Company and the DGCL permit the Company to purchase and maintain
insurance on behalf of the Indemnitee against any Liability asserted against or
incurred by him or any Expenses incurred by him or on his behalf in connection
with actions taken or omissions by the Indemnitee in his Corporate Status,
whether or not the Company would have the power to indemnify the Indemnitee
under this Agreement or under the DGCL, as they may be in effect from time to
time. The purchase of any such insurance shall in no way affect or limit the
rights and obligations of the Indemnitee and the Company hereunder, except as
expressly provided herein, and the execution and delivery of this Agreement by
the Indemnitee and the Company shall in no way affect or limit the rights and
obligations of such parties under or with respect to any other such
Indemnification Arrangement (as defined in Section 10.1).
-11-
<PAGE>
ART IX
OBLIGATIONS OF THE COMPANY UPON A CHANGE IN CONTROL
In the event of a Change in Control, upon written request of the Indemnitee
the Company shall establish a trust for the benefit of the Indemnitee hereunder
(a "Trust") and from time to time, upon written request from the Indemnitee,
shall fund the Trust in an amount sufficient to satisfy all amounts that may
from time to time be payable to the Indemnitee hereunder as indemnification for
Liabilities or Expenses (including those that are required to be paid in advance
hereunder). The amount or amounts to be deposited in the Trust shall be
determined by legal counsel selected by the Indemnitee and approved by the
Company, which approval shall not be unreasonably withheld. The terms of the
Trust shall provide that (i) the Trust shall not be dissolved or the principal
thereof invaded without the written consent of the Indemnitee; (ii) the trustee
of the Trust (the "Trustee") shall be selected by the Indemnitee; (iii) the
Trustee shall make advances to the Indemnitee for Expenses within five (5)
business days following receipt of a written request therefor and the
Undertaking; (iv) the Company shall continue to fund the Trust from time to time
in accordance with its funding obligations hereunder; (v) the Trustee promptly
shall pay to the Indemnitee all amounts as to which indemnification is due under
this Agreement; (vi) unless the Indemnitee agrees otherwise in writing, the
Trust for the Indemnitee shall be kept separate from any other trust established
for any other person to whom indemnification might be due by the Company; and
(vii) all unexpended funds in the Trust shall revert to the Company upon final,
nonappealable determination by a court of competent jurisdiction that the
Indemnitee has been indemnified to the full extent required under this
Agreement.
ART X
NON-EXCLUSIVITY, SUBROGATION AND MISCELLANEOUS
Section 10.1 Non-Exclusivity. The rights of the Indemnitee hereunder
shall not be deemed exclusive of any other rights to which the Indemnitee may at
any time be entitled under any provision of law, the Certificate of
Incorporation, the Bylaws of the Company, as the same may be in effect from time
to time, any other agreement, a vote of stockholders of the Company or a
resolution of directors of the Company or otherwise (each an "Indemnification
Arrangement"), and to the extent that during the term of this Agreement the
rights of the then-existing directors and officers of the Company are more
favorable to such directors or officers than the rights currently provided to
the Indemnitee under this Agreement, the Indemnitee shall be entitled to the
full benefits of such more favorable rights. No amendment, alteration,
rescission or replacement of this Agreement or any provision hereof which would
in any way limit the benefits and protections afforded to an Indemnitee hereby
shall be effective as to such Indemnitee with respect to any act or omission by
such Indemnitee in the Indemnitee's Corporate Status prior to such amendment,
alter ation, rescission or replacement.
-12-
<PAGE>
Section 10.2 Subrogation. In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who shall execute all documents
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring suit
to enforce such rights.
Section 10.3 Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given (i) if delivered by hand, by courier or by telegram and receipted for
by the party to whom said notice or other communication shall have been directed
at the time indicated on such receipt; (ii) if by facsimile, at the time shown
on the confirmation of such facsimile transmission; or (iii) if by U.S.
certified or registered mail, with postage prepaid, on the third business day
after the date on which it is so mailed: if to the Indemnitee, to the address
shown with the Indemnitee's signature below; if to the Company to: Avery
Communications, Inc., 190 South LaSalle Street, Suite 1710, Chicago, Illinois
60603, Attention: Chairman, Facsimile No. (312) 419-0172; or to such other
address as may have been furnished to the Indemnitee by the Company or to the
Company by the Indemnitee, as the case may be.
Section 10.4 Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the substantive
laws of the State of Delaware, without regard to the principles of choice of
laws thereof.
Section 10.5 Consolidation, Merger or Sale of Assets. The Company shall
not consolidate with or merge into any other corporation, partnership, limited
liability company or other entity or convey or transfer its properties and
assets substantially as an entirety to any individual, corporation, partnership,
limited liability company or other entity, unless (i) the entity formed by such
consolidation or into which the Company is merged or the individual or entity
who or which acquires by conveyance or transfer the properties and assets of the
Company substantially as an entirety (in either case, a "Successor") shall be a
citizen of or entity organized under the laws of the United States of America,
or any state thereof or the District of Columbia, and shall by written agreement
executed and delivered to the Indemnitee, in form, scope and substance
satisfactory to the Indemnitee and the Indemnitee's legal counsel, expressly
assume and agree to be bound by and to perform this Agreement in the same manner
and to the same extent as the Company would be required to perform absent such
consolidation, merger, conveyance or transfer, and (ii) the Indemnitee shall
have received an opinion, in form, scope and substance satisfactory to the
Indemnitee and the Indemnitee's legal counsel, from counsel acceptable to the
Indemnitee, that such written agreement to assume and be bound by and perform
this Agreement has been duly authorized by all requisite actions, has been duly
executed and delivered by the Successor and is enforceable against the Successor
(except to the extent enforceability may be limited by bankruptcy or similar
laws, general principles of equity or the federal securities laws).
Section 10.6 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their heirs, executors,
administrators, legal representatives,
-13-
<PAGE>
successors and permitted assigns. This Agreement cannot be assigned by the
Company, either directly or indirectly, by purchase, merger, consolidation or
otherwise, without the express written consent of the Indemnitee unless the
Company shall have received, prior to such assignment, from any successor or
assignee (whether direct or indirect, by purchase, merger, consolidation or
otherwise) a written agreement, in form, scope and substance reasonably
satisfactory to the Indemnitee, expressly to assume and agree to be bound by and
to perform this Agreement in the same manner and to the same extent as the
Company would be required to perform absent such succession or assignment.
Section 10.7 Severability. If any provision of this Agreement is held
invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any provision
of this Agreement held invalid or unenforceable only in part or degree will
remain in full force and effect to the extent not held invalid or unenforceable.
It is the express intention and agreement of the Company and the Indemnitee that
any court of competent jurisdiction that interprets or enforces this Agreement
have full power and authority to reform any provision of this Agreement to
modify the invalid or unenforceable provision to achieve the parties' intent to
provide the Indemnitee with indemnification for Liabilities and Expenses to the
maximum extent permitted by applicable law.
Section 10.8 Waiver. No termination, cancellation, modification,
amendment, deletion, addition or other change in this Agreement, or any
provision hereof, or waiver of any right or remedy herein, shall be effective
for any purpose unless specifically set forth in a writing signed by the party
or parties to be bound thereby. The waiver of any right or remedy with respect
to any occurrence on one occasion shall not be deemed a waiver of such right or
remedy with respect to such occurrence on any other occasion.
Section 10.9 Entire Agreement. This Agreement constitutes the entire
agreement and understanding among the parties hereto in reference to the subject
matter hereof; provided, however, that the parties acknowledge and agree that
the DGCL and the Certificate of Incorporation and Bylaws of the Company and each
of its subsidiaries contain provisions on the subject matter hereof and that
this Agreement is not intended to, and does not, limit the rights or obligations
of the parties hereto pursuant to the DGCL or such instruments, or under any
other contract, agreement, insurance policy or other instrument or document
heretofore or hereafter existing which provides to the Indemnitee any right of
indemnification or reimbursement of any nature whatsoever.
Section 10.10 Titles. The titles to the articles and sections of this
Agreement are inserted for convenience of reference only and should not be
deemed a part hereof or affect the construction or interpretation of any
provisions hereof.
Section 10.11 Pronouns and Plurals. Whenever the context may require, any
pronoun used in this Agreement shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns, pronouns and verbs
shall include the plural and vice versa.
---- -----
-14-
<PAGE>
Section 10.12 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one agreement binding on all the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
AVERY COMMUNICATIONS, INC.
By:
------------------------------
Mark J. Nielsen
President
---------------------------------
as INDEMNITEE
Name:
----------------------------
Address:
-------------------------
---------------------------------
Facsimile No.:
-------------------
-15-
<PAGE>
EXHIBIT 11.1
Avery Communications, Inc.
Exhibit 1
Statement regarding computation of per share data
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1998
------------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ----------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net loss from continuing operations (1,323,478)
Preferred stock dividend (338,582)
----------------
Net loss from continuing operations available to
common stockholders (1,662,060) 8,541,575 -.19
Gain from discontinued operations - 8,541,575 -
Estimated loss on disposal - 8,541,575 -
----------------
Net loss available to common stockholders (1,662,060) 8,541,575 -.19
================ =========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants -
Convertible Preferred Stock -
Convertible Debt -
-----------------
DILUTED EPS
Net loss from continuing operations (1,323,478)
Preferred stock dividend (338,582)
----------------
Net loss from continuing operations available to
common stockholders (1,662,060) 8,541,575 -.19
Gain from discontinued operations - 8,541,575 -
Estimated loss on disposal - 8,541,575 -
----------------
Net loss available to common stockholders
including assumed conversions (1,662,060) 8,541,575 -.19
================ ================= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1997
------------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ------------------ ---------
<S> <C> <C> <C>
BASIC EPS
Net loss from continuing operations (1,501,768)
Preferred stock dividend (528,356)
----------------
Net loss from continuing operations available to
common stockholders (2,030,124) 7,268,338 (0.28)
Gain from discontinued operations 163,744 7,268,338 0.02
Estimated loss on disposal (142,181) 7,268,338 (0.02)
----------------
Net income available to common stockholders (2,008,561) 7,268,338 (0.28)
================ =========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants - -
Convertible Preferred Stock - -
Convertible Debt - -
------------------
DILUTED EPS
Net loss from continuing operations (1,501,768)
Preferred stock dividend (528,356)
----------------
Net loss from continuing operations available to
common stockholders (2,030,124) 7,268,338 (0.28)
Gain from discontinued operations 163,744 7,268,338 0.02
Estimated loss on disposal (142,181) 7,268,338 (0.02)
Net loss available to common stockholders
including assumed conversions (2,008,561) 7,268,338 (0.28)
================ ================= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1998
----------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
--------------- ----------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net income from continuing operations 595,864
Preferred stock dividend (110,317)
---------------
Net income from continuing operations available to
common stockholders 485,547 8,196,335 0.06
Loss on disposal - 8,196,335 0.00
---------------
Net Income available to common stockholder 485,547 8,196,335 0.06
===============
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants 3,774,593
Convertible Preferred Stock -
Convertible Debt -
-----------------
DILUTED EPS
Net income from continuing operations 595,864
Preferred stock dividend (110,317)
---------------
Net income from continuing operations available to
common stockholders 485,547 11,970,928 0.04
Loss on disposal - 11,970,928 0.00
---------------
Net Income available to common stockholder
including assumed conversions 485,547 11,970,928 0.04
=============== ================= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1999
------------------------------------------------
PER
INCOME SHARES SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
---------------- ----------------- ---------
<S> <C> <C> <C>
BASIC EPS
Net loss from continuing operations (501,552)
Preferred stock dividend (71,800)
----------------
Net loss from continuing operations available to
common stockholders (573,352) 9,803,949 (0.06)
Gain from discontinued operations _ 9,803,949 0.00
----------------
Net loss available to common stockholders (573,352) 9,803,949 (0.06)
================ =========
EFFECT OF POTENTIALLY DILUTIVE SECURITIES
Warrants - -
Convertible Preferred Stock - -
Convertible Debt - -
-----------------
DILUTED EPS
Net loss from continuing operations (501,552)
Preferred stock dividend (71,800)
----------------
Net loss from continuing operations available to
common stockholders (573,352) 9,803,949 (0.06)
Gain from discontinued operations - 9,803,949 0.00
----------------
Net loss available to common stockholders
including assumed conversions (573,352) 9,803,949 (0.06)
================ ================= =========
</TABLE>
<PAGE>
Exhibit 16.1
July 20, 1999
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Ladies and Gentlemen:
We have read the statements made by Avery Communications, Inc. (copy attached),
which we understand will be filed with the Commission, as paragraphs under the
caption "Changes in Accountants" included in pre-effective Amendment No. 1 to
the Registration Statement on Form SB-2 (Registration No. 333-65133) of Avery
Communications, Inc. We agree with the statements concerning our Firm in such
Form SB-2.
Very truly yours,
/s/ PricewaterhouseCoopers LLP
Copy to: Mr. Scot M. McCormick
Vice President and Chief Financial Officer
Avery Communications, Inc.
<PAGE>
CHANGES IN ACCOUNTANTS
On June 11, 1999, PricewaterhouseCoopers LLP was dismissed as Avery's
auditors, and King Griffin & Adamson P.C. was engaged on June 11, 1999, to
audit the financial statements of Avery for fiscal year ended December 31,
1998. Avery's Board of Directors unanimously resolved to reappoint King Griffin
& Adamson P.C. as Avery's independent accountants for the fiscal year ended
December 31, 1998. King Griffin & Adamson P.C. had served as Avery's
independent accountants since 1995 and was dismissed on February 10, 1999.
PricewaterhouseCoopers LLP was engaged on February 10, 1999.
PricewaterhouseCoopers LLP has not issued any reports on Avery's financial
statements.
Through the date of their dismissal, June 11, 1999, there were no
disagreements with PricewaterhouseCoopers LLP, whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure.
The Company has requested that PricewaterhouseCoopers LLP furnish a letter
addressed to the SEC stating whether or not it agrees with the above statements
in the immediately preceding two paragraphs. A copy of such letter is attached
as Exhibit 16.1 to this Form SB-2.
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
--------------------------
Avery-HBS, Inc., a Texas corporation
Hold Billing Services, Ltd., a Texas limited partnership
Avery Communications, Inc., a Texas corporation
ACI Telecommunications Financial Services Corporation, a Delaware corporation
<PAGE>
EXHIBIT 23.1
CONSENT FOR INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in Form SB-2, Registration Statement under the Securities
Act of 1933, of Avery Communications, Inc. of our report dated July 16, 1999,
on the financial statements of Avery Communications, Inc. as of and for the
years ended December 31, 1997 and 1998, accompanying the financial statements
contained in Form SB-2, and to the use of our name and the statements with
respect to us as appearing under the heading "Experts" in Form SB-2.
/s/ King Griffin & Adamson P.C.
_____________________________________
KING GRIFFIN & ADAMSON P.C.
Dallas, Texas
July 19, 1999
<PAGE>
EXHIBIT 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Haynes, III, Mark J. Nielsen and Scot
M. McCormick, and each of them (with full power to each of them to act alone),
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign on his behalf individually and in each capacity stated below
any amendment (including pre- and post-effective amendments) to the Registration
Statement on Form SB-2 (Registration No. 333-65133) of Avery Communications,
Inc. filed with the Securities and Exchange Commission on September 30, 1998,
and any Registration Statement (including any amendment thereto) for this
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in fact and agents, and each
of them (with full power to each of them to act alone), full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in fact and agents and either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated May 12, 1999 /s/ MARK J. NIELSEN
------------------------
Mark J. Nielsen
<PAGE>
EXHIBIT 24.3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Patrick J. Haynes, III, Mark J. Nielsen and Scot
M. McCormick, and each of them (with full power to each of them to act alone),
his true and lawful attorney-in-fact and agent, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities to sign on his behalf individually and in each capacity stated below
any amendment (including pre- and post-effective amendments) to the Registration
Statement on Form SB-2 (Registration No. 333-65133) of Avery Communications,
Inc. filed with the Securities and Exchange Commission on September 30, 1998,
and any Registration Statement (including any amendment thereto) for this
offering that is to be effective upon filing pursuant to Rule 462(b) under the
Securities Act of 1933, as amended, and to file the same, with all exhibits
thereto and other documents in connection therewith with the Securities and
Exchange Commission, granting unto said attorneys-in fact and agents, and each
of them (with full power to each of them to act alone), full power and authority
to do and perform each and every act and thing requisite and necessary to be
done in and about the premises, as fully to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in fact and agents and either of them, or their substitutes, may
lawfully do or cause to be done by virtue hereof.
Dated May 12, 1999 /s/ ROBERT T. ISHAM, JR.
------------------------
Robert T. Isham, Jr.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 988,020 1,086,473
<SECURITIES> 0 0
<RECEIVABLES> 14,335,407 12,983,818
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 16,258,002 14,568,868
<PP&E> 541,376 1,224,430
<DEPRECIATION> 95,092 249,217
<TOTAL-ASSETS> 22,733,905 20,737,840
<CURRENT-LIABILITIES> 18,752,298 21,583,003
<BONDS> 0 0
45,667 27,100
0 0
<COMMON> 86,410 98,040
<OTHER-SE> 2,870,255 (1,287,218)
<TOTAL-LIABILITY-AND-EQUITY> 22,733,905 20,737,840
<SALES> 11,643,263 19,633,576
<TOTAL-REVENUES> 11,643,263 19,633,576
<CGS> 8,592,217 13,043,784
<TOTAL-COSTS> 11,830,536 20,215,533
<OTHER-EXPENSES> 902,350 113,785
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 412,145 627,736
<INCOME-PRETAX> (1,501,768) (1,323,478)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,501,768) (1,323,478)
<DISCONTINUED> 21,563 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,480,205) (1,323,478)
<EPS-BASIC> (0.28) (0.19)
<EPS-DILUTED> (0.28) (0.19)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> MAR-31-1998 MAR-31-1999
<CASH> 688,924 8,177,110
<SECURITIES> 0 0
<RECEIVABLES> 17,956,981 6,973,450
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 18,695,972 16,164,814
<PP&E> 809,852 1,264,666
<DEPRECIATION> 122,410 322,711
<TOTAL-ASSETS> 23,563,996 21,655,688
<CURRENT-LIABILITIES> 20,371,861 23,288,867
<BONDS> 0 0
37,517 27,100
0 0
<COMMON> 92,409 98,040
<OTHER-SE> 1,845,888 (2,077,304)
<TOTAL-LIABILITY-AND-EQUITY> 23,563,996 21,655,688
<SALES> 5,092,454 4,384,359
<TOTAL-REVENUES> 5,092,454 4,384,359
<CGS> 3,767,312 3,206,648
<TOTAL-COSTS> 4,395,118 4,512,269
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 101,472 373,642
<INCOME-PRETAX> 595,864 (501,552)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 595,864 (501,552)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 595,864 (501,552)
<EPS-BASIC> 0.06 (0.06)
<EPS-DILUTED> 0.05 (0.06)
</TABLE>
