STOCK PURCHASE AGREEMENT
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THIS STOCK PURCHASE AGREEMENT ("Agreement") dated as of February 11, 2000
by and among PACIFIC TELCOM, INC., a corporation organized under the laws of
Illinois ("Buyer"), EASYTEL CANADA CORPORATION, a corporation organized under
the laws of the Province of Ontario (the "Corporation") and XXXXXXX X.
XXXXXXXXX, being the duly appointed Sellers' Representative of the Selling
Shareholders ("Sellers" or "Shareholders" or "Selling Shareholders").
WITNESSETH
WHEREAS, the Selling Shareholders collectively own of record and
beneficially one hundred percent (100%) of the issued and outstanding shares of
the common stock of EasyTel Canada consisting of 6,315,000 shares of common
stock, no par value (the "Shares"); and
WHEREAS, the Sellers own in addition to 6,315,000 common shares issued and
outstanding on February 4, 2000, the date of the Letter of Intent between the
parties and the further amount of 2,599,850 common shares representing such
shares derived from outstanding options for common stock exercised and Class A
special shares, nonvoting, converted to common shares pursuant to the Articles
of Corporation and by-laws of the Corporation; and
WHEREAS, it is the intention of the parties hereto that, upon consummation
of the purchase and sale of the Shares pursuant to this Agreement, at Closing
effective as of the date hereof (the "Effective Date") Buyer shall own one
hundred percent (100%) of all of the issued and outstanding shares of common
stock of the Corporation;
NOW, THEREFORE, IT IS AGREED:
Section 1. Sale and Purchase.
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1.1 Sale of the Shares. Subject to the terms and conditions herein stated,
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the Selling Shareholders agree to sell, assign, transfer and deliver
the shares to Buyer on the Effective Date, and Buyer agrees to
purchase the outstanding common shares from the Selling Shareholders
on the Effective Date. The certificates representing the Shares shall
be duly endorsed to the Buyer, or accompanied by Stock Powers and
Assignment Separate from Certificate, duly executed in favor of the
Buyer, by the relevant Selling Shareholder. The Selling Shareholders
agree to cure at any time any deficiencies with respect to the
endorsement of the certificates representing the shares or with
respect to the Stock Power with Assignment Separate from Certificate,
accompanying any such certificates.
Section 2.0 Purchase Price.
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2.1 Payment. In consideration of the transfer, conveyance and assignment
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of the Shares, the Buyer shall pay to the Selling Shareholders the sum
of Two Hundred Fifty Thousand Dollars ($250,000) and One Million
(1,000,000) duly authorized and issued common shares of Pacific
Telcom, Inc., subject to adjustment as described herein, to be paid in
the following manner.
2.2 Payments of Cash. Buyer shall pay One Hundred Fifty Thousand Dollars
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($150,000) payable in the form of check or by wire transfer, at the
direction of the Corporation on the Effective Date as a deposit to be
held by Sellers subject to Section 4.1 hereof. A further sum of One
Hundred Thousand Dollars ($100,000) shall be due to the Corporation
upon the Buyer having its common shares of stock publicly tradable on
or before November 15, 2000 within the price ranges and upon the
conditions as set forth herein in Section 4.1 "Finality". If the
Seller elects not to undo the subject transaction on the Closing Date
upon the occurrence of the events set forth in Section 4.1 "Finality",
the further sum of One Hundred Thousand Dollars ($100,000) shall be
due to Sellers on November 15, 2000.
2.3 Payment in Common Stock. Delivery shall be made by the Buyer to the
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Selling Shareholders on the Effective Date of One Million (1,000,000)
of common shares of authorized and issued stock of Pacific Telcom,
Inc., subject to the terms and conditions of Section 3.3 and 4.1
"Finality".
2.4 Adjustment to Purchase Price. That portion of the Purchase Price paid
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by Buyer to Selling Shareholders in common stock of Buyer is subject
to adjustment, as set forth in Section 4.1 "Finality". It is the
agreement of Buyer and Sellers that adjustments to the Purchase Price,
pursuant to the provisions regarding "Finality" such that the value
received by Sellers from Buyer, after its receipt of common shares
shall be an amount equal to Ten Million Dollars ($10,000,000)
aggregate value of common shares, in the express condition and event
of an adjustment to the Purchase Price thereto.
2.5 Separate Agreements. The Buyer's Agreement herein is intended to be
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made with and effective concerning each and every Selling Shareholder
of the Corporation. In the event that it is necessary for the Buyer to
have a separate Agreement with any such Selling Shareholder, such
separate Agreement shall not be deemed a separate sale and such a
separate Agreement shall not affect or act to construe an adjustment
to the Purchase Price.
Section 3.0 Effective Date; Delivery.
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3.1 Closing. On the Effective Date , the parties shall meet at 10:00 a.m.
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on February 11, 2000 at the offices of Xxxxxxx X. Xxxxx, Esq., 00 X.
XxXxxxx Xx., Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000, or on such later
date as is mutually agreeable to the parties hereto as the parties
hereto shall by a written instrument designate.
3.2 Selling Shareholders' Delivery of Shares. On the Effective Date,
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Selling Shareholders, through their duly appointed Sellers'
Representative, shall deliver to Buyer endorsed Certificates or
endorsed Assignments Separate from Certificate with Stock Powers in
the amount of 100% of the Corporation's Common Stock Representative by
shares constituting 6,315,000 authorized and issued common shares of
the Corporation outstanding on February 4, 2000; 600,000 common shares
representing the exercise of 600,000 options from a total of 600,000
outstanding options of the corporation; and 1,999,850 common shares
representing 540,500 Class A special shares converted from February 4,
2000 to the Effective Date, for a total of 8,914,850 aggregate common
shares of the Corporation.
3.3 Procedures to Deliver Buyer's Shares. Notwithstanding any of the
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foregoing, it is expressly agreed by the parties that the delivery by
Buyer of 1,000,000 common shares of Pacific Telcom, Inc. to Sellers
shall be paid and transferred to the Selling Shareholders pursuant to
the following procedures:
3.3.1Selling Shareholders Duty to Deliver. Selling Shareholders shall
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deliver to the Buyer at the Effective Date a Final Shareholders
List to be affixed to this Agreement as Exhibit A. Said list
shall state, for every Selling Shareholder, the Shareholder's
name and address, the number of shares of the Corporation held on
the Effective Date, and the number of shares of the Buyer to be
received in exchange thereto. No fractional shares or script will
be issued by Buyer. It is understood by the parties that the
aggregate number of shares to be paid to the Selling Shareholders
at the Effective Date shall not exceed 1,000,000 shares of
Pacific Telcom, Inc. regardless of the number of shares of common
stock of the Corporation issued and outstanding at the Effective
Date. On the Effective Date, upon delivery in a form satisfactory
to Buyer of the certificates representing the Shares of the
Corporation to be purchased and acquired hereunder, Buyer, by its
Secretary, will issue and transmit by facsimile to the public
transfer agent of the Buyer, Illinois Stock Transfer Corporation,
a Letter of Instruction, in a form substantially as set forth
herein as Exhibit B, directing Xxxxxx Xxxxxxx, President of
Illinois Stock Transfer Corporation to issue 1,000,000 authorized
shares of Pacific Telcom, Inc. common stock in book form pursuant
to the information set forth in the Corporation's List of
Shareholders presented at the Effective Date.
3.3.2Reserve of Cash on the Effective Date. In the event that on the
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Effective Date, Sellers do not deliver certificates representing
one hundred percent (100%) of the Corporation's common stock
issued and outstanding at the Effective Date, a Reserve of Cash
shall be withheld from the deposit at closing representing a sum
equal to the percentage of Certificates of outstanding common
stock of the Corporation not delivered on the Effective Date.
This Reserve shall be held by Buyer's counsel in a trust account
or client fund account, without interest, to be released to
Sellers upon the delivery of the remaining undelivered endorsed
certificates of common stock of the Corporation or endorsed
assignments separate from certificate with endorsed stock power
equivalent to then constitute the delivery of 100% of the common
shares of the Corporation issued and outstanding on the Effective
Date.
3.3.3Issuance of Certificated Ownership. Subsequent to the Effective
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Date, Selling Shareholders, individually, shall receive
certificated shares upon delivery by the Secretary of Buyer to
Illinois Stock Transfer Corporation, the exchange agent
hereunder, of duly endorsed certificates representing the shares
of common stock of EasyTel Canada acquired hereunder. For each
such certificate of the Corporation received by the Buyer for
each Selling Shareholder in satisfactory form, the Exchange Agent
of the Buyer shall be directed by the Secretary of the Buyer to
convert Selling Shareholders' ownership indicia in Buyer from
book form to certificated form and to transmit such stock
certificates to the Selling Shareholders, individually, with a
transmittal letter substantially in the form as set forth in
Exhibit C attached hereto.
Section 4. Other Agreements.
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4.1 Finality and Attached Rider. On the Effective Date of this transaction
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shall be the date hereof, however, the transaction shall be deemed to
be in escrow pending the Closing Date which shall be the later of the
date the common stock of the Buyer is publicly tradable and neither
the Sellers nor the Buyer has exercised their option to unwind or
terminate the transaction or November 30, 2000, if on such date the
common stock of Buyer is not publicly tradable unless on such date the
Sellers elect not to exercise their right to terminate this Agreement
and undo the subject the transaction. Closing of the intended
transaction shall be conditional upon the condition described
hereinafter in Section 4.1 subsequent to the transaction. It is the
intention of Buyer to have its common shares of stock publicly
tradable on or before November 15, 2000. It is an express condition
precedent to the transaction that the Issue Price of the common shares
of Pacific Telcom, Inc. on its first date of public trading shall be
not less than $5.00 per share. In the event that said Issue Price
shall be not less than $8.00 per share and not more than $12.00 per
share, this transaction shall be deemed complete and irreversible. If
the Issue Price is at least $5.00 per share, but less than $8.00 per
share, the parties agree to adjust the Purchase Price in favor of
Sellers such that Buyer shall pay such further shares of its common
stock to equal $10,000,000 value, based upon such an Issue Price of
less than $8.00 per share of Pacific Telcom, Inc. common shares. In
the event that the common shares of Pacific Telcom, Inc. are publicly
tradable on November 15, 2000 at a trading price or issue price less
than $5.00 per share, the parties agree that either the Buyer or
Seller shall have the option to terminate and undo the subject
transaction, where upon Buyer and Sellers will conduct all steps, take
all actions and execute all documents necessary to restore Buyer and
Sellers to their original position on the date prior to the Effective
Date. In the event that the common shares of Pacific Telcom, Inc. are
not publicly tradable on November 15, 2000, the parties agree that the
Seller's Representative will have the option to deem the subject
transaction terminated whereupon Buyer and Seller agree to undo the
subject transaction, as above or, at the option of Seller's
Representative Seller shall have the right to deem the transaction
finalized, even in the event that the common shares of Pacific Telcom,
Inc. are not publicly tradable on November 15, 2000.
4.2 Goods and Services Tax. Based upon estimates of the Corporation
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received from its Chartered Accountants, on a non-audited basis, the
Corporation is eligible to recover, or be refunded, an amount
estimated to be $12,847 as a result of its prior two fiscal years,
resulting from the Goods and Services Tax. Further, the Corporation,
in good faith, believes it will be entitled to a further amount
recoverable, as and for Goods and Services Tax, for its fiscal year
ending March 31, 2000. Buyer agrees that the Corporation,
notwithstanding the effect of this Purchase Agreement otherwise, shall
be solely entitled to all such sums refunded from, or returnable to
the Corporation as a result of Goods and Services Tax treatments.
4.3 Funding New Territories. Subsequent to the Effective Date, it shall be
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the duty and obligation of the Buyer to make such capital investments
necessary as to allow the capacity and capability for the issuance of
Local Access Numbers for four new Canadian cities, for the purposes of
the subscription of new subscribers to the telecommunications products
and services currently offered separately by Buyer and Sellers.
4.4 Grant of Authority for Certain Continued Operations. The Buyer grants
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to the Corporation, through its President, the limited right to
operate the Corporation for certain essential post Effective Date
duties and responsibilities. This grant of authority to operate
Toronto switches shall continue until April 30, 2000, without further
and additional operating expenses by the Buyer other than the Deposit
herein. From the Effective Date until April 30, 2000, the Corporation
shall continue to be responsible for its routine expenses, overhead
and ordinary expenses of operation, as specifically set forth in
Exhibit D. The Corporation will apply its own sources of business
revenues toward the timely payment of such routine expenses, until
April 30, 2000. This grant of authority is intended to permit the
conclusion of post Effective Date matters, including, by a way of
illustration, filing of tax returns, distribution of cash payments of
the Purchase Price by Buyer to the Selling Shareholders and the
holding of common shares of the Buyer in trust to accommodate the
exercise of outstanding options of employees and certain special
service providers of the Corporation, and the exercise of Class A
special shares. Notwithstanding the foregoing, Buyer shall be
financially responsible for the expenses of capital investment for the
Corporation's Toronto switches and for all attendant charges to that
switch from the Effective Date, forward. Further, subsequent to April
30, 2000, notwithstanding the Corporation's limited grant of authority
to operate certain functions, Buyer shall assume expenses of capital
investment for the Corporation's operations thereafter, pending the
conditions set forth regarding "Finality" in Section 4.1.
4.5 Retention of Management. Buyer agrees to continue to retain the
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services of Xxxxxxx X. Xxxxxxxxx as Chief Executive Officer of the
Corporation, notwithstanding the limited grant of authority to operate
set forth above. Buyer shall tender to him an Employment Agreement
mutually acceptable to Xxxxxxx X. Xxxxxxxxx and Buyer. The parties
acknowledge and agree that the retention of Xx. Xxxxxxxxx shall act as
a benefit to the Buyer during transition and for continued operations
and benefits of the Corporation thereafter, and such hiring shall not
be deemed to constitute an apparent conflict-of-interest on the part
of Xx. Xxxxxxxxx. Buyer further agrees, within 14 days of the
Effective Date to cause its Board of Directors to appoint Xxxxxxx X.
Xxxxxxxxx as a director of Pacific Telcom, Inc. and to have Xx.
Xxxxxxxxx serve on the same terms and conditions as the members of the
existing Board of Directors of the Buyer.
4.6 Repayment of Capital and Sharing of Revenues. It is the understanding
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of Buyer and Sellers, that the Closing of this Purchase Agreement is
in escrow until the Date as described in Section 4.1 "Finality". In
the event that the transaction does not close on the Closing Date,
Buyer and Sellers shall undo the subject transaction of this Purchase
Agreement, pursuant to Section 4.1 "Finality", in such event, the
parties agree that there shall be a resulting Joint Venture between
them concerning the Capital Investment made by the Buyer in having
equipped four new cities with the capacity for the services to be sold
by the parties and the revenues derived from the joint marketing
efforts of the Buyer and Sellers. Under the terms of such a resulting
Joint Venture, revenue, after deduction of Buyer approved operating
costs, will be apportioned as follows: one third of such revenues are
to be apportioned to Buyer to be taken as a credit toward capital
expenditures in new geographical markets, as set forth above;
thereafter remaining revenues shall be divided equally between Buyer
and Sellers. Upon completion of repayment of Buyer for the aforesaid
capital investments, such joint venture revenues shall be shared by
the parties equally, after payment of all pre-approved or budgeted
costs. In the event that Buyer and Sellers undo the subject
transaction to the Purchase Agreement and establish such a resulting
Joint Venture, it is expressly agreed that all prior sources of
revenues of the Corporation and all subsequently developed sources of
revenues exclusively generated by the Corporation shall remain the
sole property of the Corporation and shall not be considered revenues
attributable to the resulting Joint Venture.
4.7 Liabilities. Except as set forth in the un-audited Financial
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Statements of the Corporation of March 31, 1999 (a copy of which is
attached hereto as Exhibit E), copies of which have been delivered to
the Buyer, the Corporation is possessed of liabilities regarding a
loan payable in the current amount due of $25,000. Buyer shall
expressly assume this loan, which carries a monthly debt service of
approximately $3,500.00, and Buyer shall be entitled to ownership and
title of a cash deposit of $32,500.00 as security for the repayment of
the principal amount of the loan in its aggregate amount of
approximately $79,870 as of February 9, 2000.
4.8 Accounts Receivable. With respect to all accounts receivable, the
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Buyer shall be vested with title to all such accounts receivable in
existence on April 30, 2000.
4.9 Employee Benefits. Any and all liability of the Corporation for
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employee benefits or for paid vacations or for any other employee
benefit accruals, shall be paid in full as of the Effective Date.
Sellers' Representative shall provide Buyer with such a certificate
that such actions have taken place as Buyer may reasonably request.
4.10 Tax Returns. Sellers' Representative will timely file, or cause to be
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filed on behalf of the Corporation, any tax returns required to be
filed with respect to any taxes for the fiscal period ending March 31,
2000 to reflect the operations of the Corporation up to and including
that date. All such tax returns shall be prepared and filed using tax
accounting methods and principals which are consistent with those used
in tax returns for preceding tax periods, by the Chartered Accountants
of the Corporation.
4.11 Deposit With Visa. Any and all deposits maintained with Visa as and
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for security for the processing of credit card transactions shall
remain unaffected by the subject transaction, but title to such
deposit shall be transferred to the Buyer, as part of the subject
transaction.
4.12 Other Financial Benefits. It is agreed by the parties that the Buyer
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shall have full rights, title and interest to all accounts receivable
of the Corporation, and shall receive the right to claim non-capital
loss carry forward amounts on the Corporation's balance sheet as other
and further benefits to the Buyer pursuant to the subject transaction.
Section 5.0 Representations and Warranties of the Corporation. Except as may be
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set forth on a Schedule of Exceptions, attached hereto as Schedule Q, to be
presented at the Effective Date, the Corporation hereby represents and
warrants to the Buyer as set forth below. The Schedule of Exceptions shall
be presented by the Corporation to the Buyer prior to the execution of this
Purchase Agreement and shall be attached hereto as an exhibit. The Schedule
of Exceptions shall specifically identify the relevant sub-paragraph of
this Agreement, and the statements made in each Schedule of Exceptions
shall be deemed to be representations and warranties as if made hereunder.
5.1 Organization and Standing; Articles and Bylaws. The Corporation is a
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corporation duly incorporated and validly existing and in good
standing under the laws of the Province of Ontario. The Corporation
has requisite corporate power and authority to own and operate its
properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. The Corporation is duly
qualified and authorized to do business, and is in good standing in
each jurisdiction where the nature of its activities and of its
properties (both owned and leased) makes such qualification necessary
and where a failure to do so qualify would have a material adverse
effect on its business or properties. The Articles in the form
attached hereto as Exhibit F have been filed with the Minister of
Commercial Relations before the date hereof.
5.2 Corporate Power. The Corporation will have at the Effective Date and
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on the Closing Date all requisite legal and corporate power and
authority to execute and deliver this Agreement and to carry out and
perform its obligations under the terms of this Agreement.
5.3 Subsidiaries. The Corporation has no subsidiaries or affiliated
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companies and does not otherwise own or control, directly or
indirectly, any equity interest in any corporation or entity.
5.4 Capitalization. The authorized capital stock of the Corporation on
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February 4, 2000 consists of a) 6,315,000 shares of common stock
issued and outstanding and b) 540,500 Class A special shares
convertible to 3.7 common shares each issued and outstanding on
February 4, 2000. The outstanding shares have been duly authorized and
validly issued, and are fully paid and nonassesable and were issued in
compliance with all relevant securities laws. The Corporation has
reserved: (i) 600,000 shares of common stock for issuance upon
exercise of various options held by directors, employees and service
providers; and (ii) 1,999,850 shares of common stock for issuance upon
conversion of Class A special shares; and there are (i) no other
options, warrants or other rights to purchase any of the Corporation
's authorized and unissued capital stock, or any security directly or
indirectly convertible into or exchangeable for shares of capital
stock of the Corporation, (ii) so far as known to the Corporation, no
voting trust or voting agreements among, or irrevocable proxies
executed by, stockholders of the Corporation, (iii) so far as known to
the Corporation, no agreements among stockholders proving for the
purchase or sale of the Corporation 's capital stock, and (iv) no
obligations (contingent or otherwise) of the Corporation to purchase,
redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution
in respect thereof. All such issued and outstanding options and
warrants have been duly and validly issued in compliance with
applicable federal and state securities laws.
5.5 Authorization. All corporate action on the part of the Corporation,
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its directors and shareholders necessary for the authorization,
execution, delivery and performance of this Agreement and delivery of
the shares has been taken prior to the Effective Date. The shares are
free of any liens, encumbrances, or restrictions and are not subject
to any preemptive rights or rights of first refusal.
5.6 Liabilities. Except as set forth in Corporation's financial statements
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as of March 31, 1999, copies of which have been heretofore delivered
to Buyer, the Corporation has no liabilities or obligations, absolute
or contingent, except liabilities and obligations which have been
incurred in the ordinary course of business none of which, in the
aggregate, exceeds $10,000, except such liabilities as are disclosed
in the financial statements of the Corporation in Exhibit E.
5.7 Title to Properties and Assets; Liens, Etc. Except for purchase and
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lease and similar arrangements covering minor assets such as copiers
and postage meters, the Corporation has good and marketable title to
its material properties and assets, is not in default of any material
lease, in each case subject to no mortgage, pledge, lien, lease,
encumbrance or charge, other than the lien of current taxes not yet
due and payable, except as set forth in Exhibit G.
5.8 Compliance with Other Instruments. Corporation is not in violation of
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any term of its Articles or Bylaws, or in any material respect of any
term or provision of the mortgages, indebtedness, indentures,
contracts, agreements, or instruments or any other material agreement,
or any judgment or decree. The best of its knowledge, the Corporation
is not in violation of any order, statute, rule or regulation
applicable to the Corporation where such violation would materially
and adversely affect the Corporation; to the Corporation's actual
knowledge, the Corporation is not in violation of any order, statute
or regulation applicable to the Corporation. The execution, delivery
and performance of and compliance with this Agreement has not resulted
and will not result in any material violation of, or conflict with, or
constitute a material default under, the Corporation's Articles or
Bylaws or any of such material agreements nor result in the creation
of, or mortgage, pledge, lien, encumbrance or charge upon any of the
material properties or assets of the Corporation.
5.9 Litigation. There are no actions, suits, proceedings or investigations
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pending against the Corporation or its properties or in which the
Corporation is the plaintiff, before any court or governmental agency
nor, to the Corporation's knowledge, is there any threat thereof or
any reasonable basis therefor.
5.10 Employees. To the Corporation's knowledge, no employee of the
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Corporation is in violation of any material term of any employment
contract, if any, exclusive agreement or any other contract or
agreement relating to the relationship of such employee with the
Corporation or any other party because of the nature of the business
conducted or to be conducted by the Corporation. The Corporation is
not aware that any officer or key employee, or that any group of key
employees, intends to terminate his or its employment with the
Corporation, nor does the Corporation have a present intention to
terminate the employment of any key employee. The Corporation has in
all material respects complied with all applicable Provincial and
federal laws related to employment.
5.11 Exclusive Licenses. The Corporation (i) owns and has the right to use,
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free and clear of all liens, charges, claims and restrictions an
Exclusive License Agreement between the Corporation and Infotrust
TELCO and an Exclusive Re-Sellers Agreement with Universal Office
Corporation, attached hereto as Exhibit H and Exhibit I, necessary for
the operation of its business now conducted and proposed to be
conducted, and (ii) the Corporation is not obligated or under any
liability whatsoever to make payments by a way of royalties, fees, or
otherwise to any owner or licensee of the Exclusive License of the
Exclusive License Agreement, with respect to the use thereof or in
connection with the conduct of its business, or otherwise. To the
knowledge of the Corporation, the Corporation has not infringed upon
nor is it infringing such Exclusive License or other intellectual
property of any third party. The Company is not aware of any violation
of the Company's Exclusive License Agreement, or its Exclusive
Re-Sellers Agreement or other proprietary rights.
5.12 Duties to Option Holders. Pursuant to Section 4.4, the Corporation
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holds a grant of authority to hold, in a fiduciary capacity, such
shares of Pacific Telcom, Inc. common stock equivalent to accommodate
the exercise of outstanding options of employees and certain special
service providers of the Corporation. The Corporation agrees to
perform the distribution of such common shares of Buyer to such option
holders promptly upon the exercise of such options and it is agreed
that the Corporation shall be entitled to retain the proceeds of such
exercise. The Corporation agrees to indemnify and hold harmless Buyer
and its officers, directors and agents harmless from any and all
damages, losses, costs, or expenses suffered or incurred, directly or
indirectly, through application of the Corporation's or Buyer's assets
or otherwise, as a result of any and all claims, demands, suits,
causes of action, proceedings, judgments, and liabilities, including
reasonably counsel fees incurred in litigation or otherwise, assessed,
incurred or sustained by or against any of them with respect to or
arising out of any such indicia fiduciary duty by the Corporation to
any such option holder.
5.13 Brokers or Finders. There are no claims for brokerage commissions,
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finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement
or agreement made by or on behalf of the Corporation.
5.14 Operating Rights. The Corporation has all operating authority,
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licenses, franchises, permits, certificates, consents, rights and
privileges (collectively "Authority") as are necessary or appropriate
to the operation of its business as now conducted and as proposed to
be conducted and which the failure to possess would have a material
adverse effect on the assets, operations or financial condition of the
Corporation. Such Authority are in full force and effect, no
violations have been or are expected to have been recorded in respect
of any such authority, and no proceeding is pending or, to the
knowledge of the Corporation, threatened that could result in the
revocation or limitation of any such authority. The Corporation has
conducted its business so as to comply in all material respects with
all such Authority.
5.15 Minute Books. The minute books of the Corporation contain a complete
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summary of all meetings of directors and shareholders since the time
of incorporation and reflect all transactions referred to in such
minutes accurately in all material respects.
5.16 Taxes. All federal and Provincial tax returns required to be filed by
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the Corporation have been filed and are true in all material respects,
and all taxes, assessments, fees, and other governmental charges upon
the Corporation, or upon any of its properties, income, or franchises,
shown in such returns to be due and payable have been paid except
those contested by the Corporation in good faith as described in
Exhibit J and for which adequate reserves have been set up; or if any
such tax returns have not been filed or if any such taxes have not
been paid or so reserved for, the failure to so file or to pay would
not in the aggregate have a material adverse impact on the properties
or business of the Corporation.
5.17 Disclosure. None of the representations or warranties made by the
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Corporation in this Agreement and no written information in the
Exhibits hereto or otherwise furnished to the Buyers in this Agreement
or Exhibits 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. The Corporation is not
aware of any fact which has not been disclosed to the Buyers which
would have a material adverse effect on the Corporation's business,
prospects, condition, affairs or operations. The Corporation
acknowledges that all information set forth in the Exhibits solely
from reliance from information supplied to Buyer by the Corporation
and that the Corporation is not aware of any error, omission, or
untrue statement of a material fact in the information relied upon by
the Buyer in the preparation of the Exhibits.
5.18 Transactions with Affiliates. Except for (i) regular salary payments
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and fringe benefits under an individual's compensation package with
the Corporation, and (ii) certain advances that have been made to the
Corporation by certain key employees as described on Exhibit K, and
(iii) certain related party transactions involving consulting fees and
rent as described in Exhibit L, none of the officers, employees,
directors, or affiliates of the Corporation, or members of their
families is a party to any agreements, understandings, or proposed
transactions with the Company. The Corporation has not guaranteed or
assumed any obligations of the Corporation's officers, directors, or
employees.
5.19 Corporation's Contracts. Except with respect to contracts or
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understandings between the Corporation and its customers entered into
in the ordinary course of business, all material contracts and
agreements of the Corporation (i) with expected receipts or
expenditures in excess of $10,000, or (ii) with provisions restricting
or affecting the development or distribution of the Corporation's
products or services, or (iii)that provide indemnification by the
Corporation with respect to infringements of proprietary rights, to
which the Corporation is a party as of the Effective Date are listed
on Exhibits H and I. All such contracts and agreements are legally
binding, valid, and in full force and effect in all material respects.
The Corporation has received no indication of reduced activity
relating to any contract or agreement with any customer of the
Corporation, and the Corporation has no knowledge of any current
customer of the Corporation that intends to reduce or discontinue its
business with the Corporation.
5.20 Financial Statements. The Corporation has delivered to the Buyers
---------------------
un-audited financial statements for the periods ending March 1, 1999.
All such financial statements fairly present the financial condition
of the Corporation as of such dates and the results of operations of
the Company for such respective periods.
5.21 Absence of Certain Changes. There has not been since January 1, 2000
----------------------------
up to and including the Effective Date, any event or condition of any
character which has materially and adversely affected the
Corporation's business, prospects, conditions, affairs, operations,
properties or assets, including but not limited to:
5.21.1 any material adverse change in the financial condition, assets,
liabilities or business of the Corporation;
5.21.2 any damage, destruction or loss of any of the properties or
assets of the Corporation (whether or not covered by insurance)
materially and adversely affecting the business or plans of the
Corporation; or
5.21.3 any labor trouble, or any other event or condition of any
character, which the Corporation knows or has reason to know
would materially and adversely affect the business or plans of
the Corporation.
5.22 Employee Benefits. Except for stock options outstanding on the
------------------
Effective Date, forth in Exhibit M, the Corporation has no other
currently existing employment, bonus, pension, profit sharing,
deferred compensation, stock bonus, retirement, stock purchase,
phantom stock or similar plans.
5.23 Absence of Undisclosed Liabilities. The Corporation does not have any
-----------------------------------
outstanding claims, liabilities, obligations, or indebtedness, whether
accrued, absolute, contingent, or otherwise, except as set forth in
the Balance Sheet or referred to in the footnotes thereto, other than
liabilities incurred subsequent to the Balance Sheet Date in the
ordinary course of business. The Corporation is not in default in
respect of the terms or conditions of any indebtedness.
Section 6. Representations and Warranties of the Buyer. The Buyer
-------------------------------------------------
represents and warrants to the Corporation with respect to the
purchase of the Shares as follows:
6.1 Organization. Buyer is a Corporation duly organized and existing under
------------
the laws of the State of Illinois, and has all requisite corporate
authority to make, execute, deliver and perform this Agreement and
this Agreement has been duly authorized and approved by all required
corporate action of the Buyer. Buyer has an authorized single class of
common stock in the amount of 25,000,000 shares. On the Effective
Date, Buyer has 8,949,459 outstanding shares.
6.2 No violation. Neither the execution and delivery of this Agreement,
------------
nor the consummation of the transactions contemplated within the
Agreement will constitute a violation of, or be in conflict with, or
result in a cancellation of, or constitute a default under, or create
or cause the acceleration of any debt, obligation or liability
affecting, or resulting in the creation or imposition of any security
interest, lien, or other encumbrance upon any of the assets owned or
used by, or any of the capital stock of the Buyer under: (i) any term
or provision of the Articles of Incorporation or by-laws of Buyer;
(ii) any judgment, decree, order, regulation, or rule of any court or
government authority; (iii) any statute or law; (iv) any contract,
agreement, indenture, lease or other commitment to which Buyer is a
party or by which it is bound; or (v) cause any material change in the
rights or obligations of any party under which such contract,
agreement, indenture, or commitment.
6.3 No Impairment. Buyer is not impaired by any law, regulation or order
-------------
of any court or federal, state, municipal or other governmental
department, commission, board, bureau, agency, or instrumentality and:
(i) there are no law suits, proceedings, claims, or governmental
investigations pending or to the knowledge of Buyer, threatened
against or involving Buyer which could materially impair its business;
and (ii) there are no judgments, consents, decrees, injunctions, or
any other judicial or administrative mandates outstanding against
Buyer which impair and adversely affect its property, assets,
liabilities, financial condition, results of operations, or business
prospects or its right to conduct is business as presently conducted.
6.4 Disclosure. None of the representations or warranties made by the
----------
Buyer in this Agreement and no written information furnished to the
Selling Shareholders in this Agreement or otherwise, 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. The Buyer is not aware of any fact which has not been
disclosed to the Selling Shareholders which would have a material
adverse affect on the rights and obligations of the Selling
Shareholders.
6.5 Shares of the Buyer. The outstanding shares of the Buyer have been
-------------------
duly authorized and validly issued, and are fully paid and
non-assessable and were issued in compliance with all applicable
federal and state securities laws. The issuance of Buyer's shares
transferred to the Selling Shareholders herein are with out the
requirement of regulatory approval from any applicable federal and
state regulatory agency. The common shares of the Buyer paid to the
Selling Shareholders hereunder are, at the Effective Date, not
publicly tradable, have not been registered to be traded publicly on
the Effective Date, and on the Effective Date no public market exists
for the trading of such common shares of the Buyer. Certificates
representing the authorized and issued common shares of the Buyer as
part of the Purchase Price hereunder are issued with a restrictive
legend pursuant to relevant federal securities laws and rule making of
the United States Securities and Exchange Commission including the
Securities and Exchange Act of 1933, the Securities Exchange Act of
1934, Regulation D thereunder and Rule 144 thereunder. As such, shares
of the Buyer acquired by the Selling Shareholders as part of the
Purchase Price herein, are not freely transferable or freely tradable
until such time as a publicly tradable market for the common shares of
the Buyer does exist, whereupon the general counsel of the Buyer
shall, upon the request of a Selling Shareholder, issue such a letter
of opinion to the public transfer agent of the Buyer setting forth
such an opinion regarding the free tradability and transferability of
common shares of the Buyer held by a Selling Shareholder. Thereupon,
such shares are deemed to be freely tradable. Costs of such letter of
opinion shall be paid by the Buyer. The Buyer shall use its best
efforts to register all of its outstanding common shares at the time
of its public offering.
6.6 Dilution. Buyer represents that shares of the Buyer acquired by the
--------
Selling Shareholders pursuant to the subject transaction are subject
to significant and substantial dilution in the future. Buyer hereby
discloses that Selling Shareholders shall not be acquiring a
substantial enough proportion or percentage of the outstanding
issuance of common stock of the Buyer to acquire management control of
the Buyer, elect directors or officers of the Buyer or in other method
or manner prevent such future dilution. Selling Shareholders
acknowledge the representation further of Buyer that, in the event
such dilution occurs, it is foreseeable that such a dilution would be
substantial and would have a significant effect in reducing the
percentage of ownership of the Selling Shareholders, individually and
collectively.
6.7 Access to Data. Buyer has had an opportunity to discuss the
----------------
Corporation's business, management and financial affairs with its
management and the opportunity to review the Corporation's most recent
un-audited financial statement for a complete fiscal year and business
plan. Buyer has also had an opportunity to ask questions of officers
of the Corporation which questions were answered to its satisfaction.
6.8 Brokers or Finders. The Buyer has not, and will not, incur, directly
------------------
or indirectly, as a result of any action taken by such Buyer, any
liability for brokerage or finders' fees or agents' commissions or any
similar charges in connection with this Agreement.
6.9 Tax Liability. To the extent it deems necessary, it has reviewed with
--------------
its own tax advisors the federal, state, local and foreign tax
consequences of this investment and the transactions contemplated by
this Agreement. It relies solely on such advisors and not on any
statements or representations of the Corporation or any of its agents.
It understands that it (and not the Corporation) shall be responsible
for its own tax liability that may arise as a result of this
investment or the transactions contemplated by this Agreement.
Section 7. Representations and Warranties of Selling Shareholders. The Selling
------------------------------------------------------
Shareholders (collectively and individually severally represent and warrant
to the Buyer with respect to the purchase of the shares as follows:
7.1 Access to Data. The Selling Shareholders have had an opportunity to
----------------
discuss the terms and conditions of the Purchase Agreement with the
Corporation's management and have had an opportunity to ask questions
of officers of the Corporation, which questions were answered to their
satisfaction.
7.2 Authority. The Selling Shareholder has all requisite legal power and
---------
authority to execute and deliver this Purchase Agreement and
certificates for the shares of the Corporation hereunder and to carry
out and perform its obligations under the terms of this Agreement.
7.3 Disclosure. To the best of his or her knowledge, this Agreement, with
----------
the Exhibits thereto, when taken as a whole, does not contain any
untrue statement of a material fact concerning the corporation or omit
to state a material fact necessary in order to make the statements
concerning the corporation contained herein not misleading in light of
the circumstances under which they were made.
7.4 Impairment. There are no actions, suits, proceedings, which impair in
----------
any way such Selling Shareholders' ability to enter into and fully
perform its commitments and obligations under this Agreement or the
transactions contemplated hereby.
7.5 Brokers or Finders. The Selling Shareholder has not, and will not,
--------------------
incur, directly, or indirectly, as a result of any action taken by
such Selling Shareholder, any liability for brokerage or finders' fees
or agent's commissions or any similar charges in connection with this
Agreement.
7.6 Compliance With Other Instruments. The execution, delivery and
------------------------------------
performance of and compliance with this Agreement, and the
transference and delivery of shares will not result in any material
violation of, or conflict with, or constitute a material default under
any agreement, lien, mortgage, pledge, encumbrance or
collateralization on the part of the Selling Shareholder.
7.7 General Release. In consideration of the agreements made hereunder,
----------------
each of the Selling Shareholders hereby release and forever discharge
the Buyer and the Corporation, and each of their shareholders,
officers, agents, representatives, attorneys, and employees, past,
present, and future, individually and collectively for any and all
claims, demands, causes of action or liabilities which each of the
Selling Shareholders ever had or now has, apart from vested stock
options, advances to the Corporation or consulting fees accrued, which
each of the Selling Shareholders ever had or now has, or which their
heirs, executors or administrators hereafter can, shall, or may have
upon or by a reason of any matter or cause whatsoever, whether known
or unknown, suspected or unsuspected, arising on or prior to the
Effective Date, arising out of or in any way connected with each of
the Selling Shareholders' relationship to the Corporation.
Notwithstanding the above, this release shall not affect the Selling
Shareholders' rights and obligations otherwise set forth in this
Agreement.
7.8 Tax Returns. The Selling Shareholders will be solely responsible for
------------
any and all taxes incurred as a result of any taxable event to them
generated by the entry into or performance of any term of this
Agreement.
Section 8. Conditions to Buyer's Obligations. The exchange of documents and
-----------------------------------
shares by the parties purchase of the shares on the Effective Date is
conditioned upon and subject to the fulfillment of obligations of the
Sellers at or prior to the Effective Date as contained herein.
8.1 List of Selling Shareholders. The Corporation shall deliver to the
-------------------------------
Purchaser on or before the Effective Date, relative to surviving
shareholders, a list of: (i) unexercised options of the Corporation
setting forth the name of the option holder, the address, the number
of unexercised options, the exercise price of such options and the
expiry date, to be set forth as Exhibit M; (ii) a list of remaining
holders of Class A special shares setting forth the names of such
surviving shareholders, addresses, number of shares on the Effective
Date and the amount of unpaid cumulative dividends stated in US
Dollars and set forth in this Agreement as Exhibit N; and (iii) a true
and correct copy of the terms of the preferences and rights of Class A
special shares, as set forth in the Articles of Incorporation,
by-laws, or corporate minutes, to be attached to this Agreement as
Exhibit O.
8.2 Supplemental Due Diligence. The Corporation shall provide the Buyer
----------------------------
not later than seven days from the Effective Date with a true and
correct copy of the Articles of Incorporation of the Corporation, the
by-laws of the Corporation, the complete corporate minutes of the
Corporation, and a certificate of good standing, or such equivalent as
is applicable to the Corporation.
8.3 Stock Certificates. Buyer shall receive stock certificates of the
-------------------
Selling Shareholders representing all of the common shares of stock of
the Corporation, duly endorsed for transfer as provided herein at the
Effective Date, or accompanied by executed assignments separate from
certificates with a stock power, in a form satisfactory to the Buyer.
All endorsements on certificates, assignments or stock powers shall be
signature guaranteed.
8.4 No Material Adverse Change. Prior to the Effective Date, there shall
--------------------------
be no material adverse change in the assets or liabilities, the
business or condition, financial or otherwise of the Corporation and
the Sellers' representative shall deliver to Buyer a certificate in
the form set forth as Exhibit P, dated the closing date, to such
effect.
Section 9. Conditions to the Sellers' Obligations. The exchange of documents
---------------------------------------
and shares by the parties on the Effective Date is conditioned upon and
subject to the fulfillment of the conditions set forth below.
9.1 Receipt of Purchase Price. The Selling Shareholder(s) shall receive
-------------------------
the Deposit and the shares pursuant to the terms of Section 2.0.
9.2 Proceedings. All proceedings to be taken in connection with the
-----------
transactions contemplated by this Agreement and all documents incident
thereto shall be reasonably satisfactory in form and substance to
Sellers and counsel.
9.3 Performance of Obligations. The Buyer shall have performed and
----------------------------
complied with all agreements and conditions herein required to be
performed or complied with by them on or before the Effective Date.
Section 10. General Provisions.
-------------------
10.1 Amendment and modification. Subject to applicable law, this Agreement
---------------------------
may be amended, modified or supplemented, as the parties mutually
agree, by a written Agreement signed by a duly appointed
representative of the Buyer and a duly appointed representative of the
Selling Shareholders.
10.2 Expenses. The parties hereto shall pay all of their own expenses
--------
relating to the transactions contemplated by this Agreement, including
the fees and expenses of their respective counsel, accountants, and
financial advisers.
10.3 Governing Law. The interpretation and construction of this Agreement
--------------
and all matters relating hereto shall be governed by the laws of the
State of Illinois relating to contracts made and to be performed in
Illinois.
10.4 Waiver of Terms. Any of the terms or conditions of this Agreement may
----------------
be waived at any time by the party or parties entitled to the benefits
thereof, but only by a written notice signed by an authorized
representative of the party or parties waiving such terms or
conditions.
10.5 Captions. The article and section captions used herein are for
--------
reference purposes only, and shall not in any way affect the meaning
or interpretation of this Agreement.
10.6 Publicity. Prior to the Effective Date, none of the parties hereto
---------
shall issue any press release or make any other statement to the media
relating to this Agreement or the matters contained herein without
obtaining the prior approval of the Buyer.
10.7 Notices. All notices, requests, demands and other communications
-------
required or permitted hereunder will be in writing and will be deemed
to have been duly given when delivered by hand or by air express
courier.
If to the Buyer: Pacific Telcom, Inc.
0000 Xxxxx Xx.
Xxx Xxxxx, XX
Attention: Xxxx X. Xxxxxxx
With a copy to: Xxxxxxx X. Xxxxx
General Counsel
00 X. XxXxxxx Xx., Xxx. 0000
Xxxxxxx, XX 00000
If to the Sellers to: Xxxxxxx X. Xxxxxxxxx
EasyTel Canada
00 Xxxx Xxxxxx Xxxx, Xxx. 0000
Xxxxxxx, Xxxxxxx X0X0X0
Xxxxxx
With a copy to: Xxxxx X. Xxxxxxx
Xxxxxxxxx, Xxxxxxxx
0 Xxxxxxxx Xx. Xxxx #0000
Xxxxxxx, XX X0X0X0
10.8 Entire Agreement. This Agreement contains the entire understanding
-----------------
between and among the parties and supersedes any prior understandings
and agreements among them respecting the subject matter of this
Agreement.
10.9 Agreement Binding. This Agreement shall be binding upon the heirs,
------------------
executors, administrators, successors and assigns of the parties
hereto.
10.10Pronouns and Plurals. All pronouns and any variations thereof shall
--------------------
be deemed to refer to the masculine, feminine, neuter, singular, or
plural as the identity of the person or persons may require.
10.11Presumption. This Agreement or any section thereof shall not be
-----------
construed against any party due to the fact that said Agreement or any
section thereof was drafted by said party.
10.12Further Action. The parties hereto shall execute and deliver all
---------------
documents, provide all information and take or forbear from all such
action as may be necessary or appropriate to achieve the purposes of
the Agreement.
10.13Parties in Interest. Nothing herein shall be construed to be to the
-------------------
benefit of any third party, nor is it intended that any provision
shall be for the benefit of any third party.
10.14Savings Clause. If any provision of this Agreement, or the
---------------
application of such provision to any person or circumstance, shall be
held invalid, the remainder of this Agreement, or the application of
such provision to persons or circumstances other than those as to
which it is held invalid, shall not be affected thereby.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
on the day and year first written above.
PACIFIC TELCOM, INC. EASYTEL CANADA CORPORATION
an Illinois Corporation an Ontario Corporation
By:____________________________ By:____________________________
Xxxx X. Xxxxxxx, President Xxxxxxx X. Xxxxxxxxx
President
Selling Shareholders
By:____________________________
Xxxxxxx X. Xxxxxxxxx
Sellers' Representative
