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EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AMONG
MGC COMMUNICATIONS, INC.
LJ. NET, INC.
AND
MGC XX.XXX, INC.
THIS AGREEMENT AND PLAN OF MERGER (hereinafter called the "Agreement") is
dated as of the 15th day of March, 1999, by and among MGC COMMUNICATIONS, INC. ,
a Nevada corporation ("MGC"), LJ. NET, INC., a Nevada corporation ("LJ. Net"),
MGC XX.XXX, INC., a Nevada corporation ("MGC Acquisition"), XXXXXXX XXXXXX
("Chicas") and XXXXX XXXXXXXX ("Xxxxxxxx").
W I T N E S S E T H:
WHEREAS, MGC has formed MGC Acquisition as a wholly-owned subsidiary in
order to effectuate the Merger; and
WHEREAS, Chicas and Xxxxxxxx own 91.5% of the outstanding stock of LJ.
Net; and
WHEREAS, the Boards of Directors of MGC and LJ. Net, deem it advisable and
in the best interests of MGC and LJ. Net and their respective stockholders that
LJ. Net merge with and into MGC Acquisition pursuant to this Agreement and
applicable provisions of the laws of the State of Nevada (such transaction being
hereinafter called the "Merger"); and
WHEREAS, the parties propose to enter into this Agreement and Plan of
Merger which provides, among other things, for the conversion of each share of
LJ. Net common stock, no par value ("LJ. Net Common Stock"), issued and
outstanding immediately prior to the "Effective Date of the Merger" (as herein
defined), into the "Merger Price" as determined in accordance with Section 6.01
of this Agreement; and
WHEREAS, the Boards of Directors of MGC, LJ. Net and MGC Acquisition, have
approved and adopted this Agreement as a plan of merger under the provisions of
Section 78.451 of the Nevada Revised Statutes; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a tax free reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, provisions and covenants herein contained, the parties hereto hereby
agree as follows:
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ARTICLE I
The Merger
1.01 The Merger, Effective Time and Conversion Ratio. Subject to Article V
of this Agreement, Articles of Merger shall be executed and acknowledged by each
of MGC Acquisition and LJ. Net and delivered to the Secretary of State of the
State of Nevada for filing as provided in Section 92A.200 of the Nevada Revised
Statutes as of the "Closing Date" (as herein defined). The effective date of the
Merger shall be the date the Articles of Merger or a Certificate of Merger shall
have been duly filed with the Secretary of State of the State of Nevada and the
Merger shall have become effective under Nevada law (the "Effective Date of the
Merger"). On the Effective Date of the Merger, the separate existence of LJ. Net
shall cease and LJ. Net shall be merged with and into MGC Acquisition. MGC
agrees on the Effective Date of the Merger to pay the Merger Price as determined
in accordance with Section 6.01 of this Agreement and pursuant to the terms of
the Plan of Merger.
1.02 Closing. Subject to the terms and conditions hereof, MGC, LJ. Net and
MGC Acquisition shall communicate and consult with each other with respect to
the fulfillment of the various conditions to their obligations under this
Agreement. The exchange of the certificates, opinions and other documents
contemplated in connection with the consummation of the Merger (the "Closing")
shall take place at the offices of MGC, 0000 X. Xxxxxxx Xxxxx, Xxx Xxxxx, Xxxxxx
00000 on February 26, 1999 or such earlier or later date as may be agreed upon
by LJ. Net and MGC. Such date and time is herein sometimes referred to as the
"Closing" or "Closing Date." In the event that at the Closing no party exercises
any right it may have to terminate this Agreement and no condition to the
obligations of the parties exists that has not been satisfied or waived, the
parties shall (i) deliver to each other the certificates, opinions and other
documents required to be delivered under this Agreement including, the Articles
of Merger and (ii) at the Closing or as soon thereafter as possible, consummate
the Merger by filing the Articles or Certificate of Merger with the Secretary of
State of the State of Nevada.
ARTICLE II
Representations and Warranties of LJ. Net
LJ. Net, Chicas and Xxxxxxxx do hereby jointly and severally represent and
warrant to MGC and MGC Acquisition as follows:
2.01 Organization and Standing; Certificate and By-Laws. LJ. Net is
a corporation duly organized and existing under, and by virtue of, the laws of
the State of Nevada and is in good standing under such laws. LJ. Net has the
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. Except as disclosed on Exhibit 2.01 attached hereto and made a
part hereof, LJ. Net is currently qualified to do business as a foreign
corporation in any jurisdiction in which such qualification is required, except
where the failure to be so qualified will not have a material adverse effect on
LJ. Net's business as now conducted. LJ. Net has furnished MGC or its counsel
with copies of its Certificate of Incorporation and By-Laws, as amended. Said
copies are true, correct and complete and contain all amendments through the
date hereof.
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2.02 Corporate Power. LJ. Net has all requisite legal and corporate power
and authority to execute and deliver this Agreement, to carry out and perform
its obligations under the terms of this Agreement and to consummate the
transactions contemplated hereby.
2.03 Financial Statements.
(a) LJ. Net has previously furnished MGC true and complete copies of
its financial statements as of December 31, 1998. Such financial statements are
true and correct in all material respects and present fairly the financial
condition and results of operations and changes in stockholders' equity and cash
flows as of the dates and for the periods indicated, except as may otherwise be
stated in such financial statements. For purposes of this Agreement, all
financial statements of LJ. Net shall be deemed to include any notes to such
financial statements. The financial statements described in this Section 2.03
are hereinafter referred to as the "Financial Statements".
(b) Since December 31, 1998, there has not been, occurred or arisen
which has not been disclosed on Exhibit 2.03(b) attached hereto and made a part
hereof: (i) any material adverse change in the financial condition or in the
operations of the business of LJ. Net from that shown on the Financial
Statements, or (ii) any event, condition or state of facts (other than the
general state of the national economy and proposed federal legislation or
regulation) of any character which, to the best of the knowledge of LJ. Net,
materially and adversely affects the results of operations, prospects, business
or financial condition or properties of LJ. Net.
(c) As of the date hereof, LJ. Net has no indebtedness which, in
accordance with generally accepted accounting principles, would be included in
determining liabilities as shown on the liability side of the balance sheet of
LJ. Net other than (i) trade payables incurred in the ordinary course of
business, and (ii) liabilities reflected on the Financial Statements. The total
of all such liabilities as of the Closing Date shall not exceed $10,000.
(d) LJ. Net owns all of its assets free and clear of liens, claims
and encumbrances (collectively, "Liens") other than (i) Liens for taxes not yet
due or liens for taxes being contested in good faith and by appropriate
proceedings if adequate reserves with respect thereto are maintained on the
books of LJ. Net in accordance with generally accepted accounting principles,
(ii) Liens on property or assets of LJ. Net that were incurred in the ordinary
course of business, such as carriers', warehousemen's, landlords' and mechanics'
liens and other similar liens arising in the ordinary course of business and
that (x) do not in the aggregate materially detract from the value of the
property or assets subject thereto or materially impair the use thereof in the
operation of the business of LJ. Net or (y) that are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or assets subject to such
lien, and (iii) Liens (other than any lien imposed by ERISA or in connection
with any environmental violation), pledges or deposits incurred or made in
connection with workmen's compensation, unemployment insurance and other social
security benefits, or securing the performance of bids, tenders, leases,
contracts (other than for the repayment of borrowed money), statutory
obligations, progress payments, surety and appeal bonds and other obligations of
like nature, in each case incurred in the ordinary course of business.
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2.04 Capitalization. The authorized capital stock of LJ. Net consists of
25,000 shares of common stock, no par value (the "LJ. Net Common Stock"), of
which 2,000 shares are issued and outstanding. The outstanding shares of LJ. Net
Common Stock are owned as set forth on Exhibit 2.04 attached hereto and made a
part hereof. The outstanding shares have been duly authorized and validly
issued, and are fully paid and nonassessable. LJ. Net does not have any stock
option plan and has not reserved any shares of LJ. Net Common Stock for future
issuance.
2.05 Subsidiaries. LJ. Net has no subsidiaries or affiliated companies and
does not otherwise own or control, directly or indirectly, any equity interest
in any corporation, association or business entity.
2.06 Authorization and Enforceability.
(a) All corporate action on the part of LJ. Net, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of this Agreement by LJ. Net, and the performance of all of LJ.
Net's obligations hereunder has been taken. This Agreement, as well as each of
the other documents executed in conjunction with the Merger, when executed and
delivered by LJ. Net, shall constitute a valid and binding obligation of LJ.
Net, enforceable in accordance with its terms.
(b) Chicas and Xxxxxxxx own, and at all times between the date
hereof and the Closing will own, a majority of the outstanding voting stock and
have voted or hereby agree to vote all of their stock in LJ. Net in favor of the
Merger. The approval of the Merger by Chicas and Xxxxxxxx as shareholders of LJ.
Net is sufficient for the Merger to be implemented under Nevada law.
2.07 Absence of Changes. Except as disclosed in Exhibit 2.07 attached
hereto and made a part hereof, since December 31, 1998, (a) there has been no
material adverse change in the condition (financial or otherwise), business,
property, assets, liabilities or prospects of LJ. Net other than changes in the
ordinary course of business, none of which, individually or in the aggregate,
has been materially adverse; (b) there has been no resignation or termination of
employment of any key officer or employee of LJ. Net, and LJ. Net does not know
of the impending resignation or termination of employment of any such officer or
employee that if consummated would have a material adverse effect on its
business; (c) there has been no labor dispute involving LJ. Net or its employees
and none is pending or, to the knowledge of LJ. Net, threatened; (d) there has
not been any change, except in the ordinary course of business, in the
contingent obligations of LJ. Net, by way of guaranty, endorsement, indemnity,
warranty or otherwise; and (e) there has been no other event or condition of any
character pertaining to and materially adversely affecting the assets or
business of LJ. Net.
2.08 Trademarks, Etc. To the knowledge of LJ. Net, LJ. Net owns, possesses
or has the right to exploit, free of any obligation to make any payment (whether
of a royalty, license fee, compensation or otherwise), all trademarks, service
marks, trade names or copyrights (collectively, the "Marks"), all of which are
the only Marks which are necessary to the conduct of its business. Except as
disclosed on Exhibit 2.08, LJ. Net does not have any knowledge, or reason to
know, that LJ. Net's ownership, possession or other use or exploitation of any
of the Marks conflicts with the rights of any person or entity. LJ. Net has used
reasonable efforts to protect the Marks. To the knowledge of LJ. Net, no present
or former shareholder, officer, director, agent or independent contractor of LJ.
Net
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owns or has any other right in or to, or has claimed any ownership or other
right in or to, any Xxxx which is necessary or desirable in connection with LJ.
Net's business, either as now conducted or as contemplated by management of LJ.
Net.
2.09 Year 2000 Compliance. Exhibit 2.09 attached hereto and made a part
hereof describes, in general, LJ. Net's plan and lists the specific actions
taken by LJ. Net to determine whether, and provide assurance that, LJ. Net's
computer and automated systems will function accurately and without interruption
in processing date-related functions with respect to dates on or after January
1, 2000 ("Year 2000 Compliant"). All computer and automated systems of LJ. Net
that are material to its business and operations as now conducted will be Year
2000 Compliant on a timely basis and without any material additional capital
expenditures. Exhibit 2.09 also sets forth all actions taken by LJ. Net to
determine whether the computer and automated systems of its vendors and
customers are Year 2000 Compliant.
2.10 Taxes. LJ. Net has filed or obtained extensions for all required
federal, state and local tax returns. Each return or report is true and correct
and all taxes, fees and other governmental charges reflected thereon have been
paid or accrued. The balance sheet as of December 31, 1998, contained as a part
of the Financial Statements (the "Current Balance Sheet") reflects an adequate
reserve for any and all taxes relating to the conduct of LJ. Net's business
prior to the date hereof. LJ. Net has appropriately withheld, collected and paid
over all taxes which, under applicable law, it is required to withhold, collect
and pay over.
2.11 Labor Relations, Etc.
(a) LJ. Net is neither a party to nor has any obligations under any
agreement, collective bargaining or otherwise, with any party regarding the
rates of pay or working conditions of any of the employees of LJ. Net. LJ. Net
is not obligated under any agreement to recognize or bargain with any labor
organization or union on behalf of its employees. There is not now any formal
organization activity among any of the employees of LJ. Net, nor has LJ. Net
been charged with, or received notice of, any threatened action with respect to
any unfair labor practice.
(b) LJ. Net has reasonably satisfactory labor relations with its
employees.
(c) LJ. Net has complied with all material applicable federal and
state laws and regulations concerning the employer/employee relationship and
with all of its respective agreements relating to the employment of its
employees, including without limitation provisions thereof relating to wages,
bonuses, hours of work and payment of Social Security taxes. Except as disclosed
on Exhibit 2.11 attached hereto and made a part hereof or reserved for on the
Current Balance Sheet, LJ. Net is not liable for any unpaid wages, bonuses or
commissions, or any tax, penalty, assessment or forfeiture for failure to comply
with any of the foregoing.
2.12 Licenses, Permits, Compliance, Etc. LJ. Net has all material
licenses, franchises, permits and government authorizations (collectively, the
"Permits") necessary for the conduct of its business, none of which will be
terminated or otherwise materially adversely affected by the consummation of the
transactions contemplated by this Agreement. LJ. Net holds each Permit free and
clear of any claims or restrictions. No event has occurred that would allow,
after the giving of notice
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the lapse of time or both, the revocation or termination thereof or that would
result in any other material impairment of the rights of the holder thereof. LJ.
Net currently complies and has complied with all laws, regulations and orders
applicable to it and to LJ. Net's business, the violation of which would have a
material adverse effect on it or its business. The present conduct of LJ. Net's
business does not violate any laws, regulations, ordinances, decrees,
injunctions or orders applicable to health, occupational safety, building codes,
fire codes and consumer protection, in each case, of which LJ. Net is aware.
2.13 Benefit Plans. Except as disclosed in Exhibit 2.13, LJ. Net and each
benefit program are or will be, within the time permitted by law, in compliance
with the provisions of ERISA and the Code applicable to it. No benefit program
which is subject to the minimum funding standards of ERISA or the Code, if any,
has incurred any accumulated funding deficiency within the meaning of ERISA or
the Code. LJ. Net has not incurred any liability to the Pension Benefit Guaranty
Corporation in connection with any benefit program which is subject to Title IV
of ERISA. The assets of each benefit program that is subject to Title IV of
ERISA, if any, are sufficient to provide the benefits under such benefit program
for which the Pension Benefit Guaranty Corporation would guarantee the payment
if such benefit program terminated, and are also sufficient to provide all other
benefits due under the benefit program. No event which constitutes a "reportable
event" (as defined in Section 4043 of ERISA) has occurred and is continuing with
respect to any benefit program covered by ERISA.
2.14 Consents and Approvals. As of the date hereof, LJ. Net has obtained,
in form and substance acceptable to MGC, the waiver, consent and approval (i) of
all persons or entities whose waiver, consent or approval is required and
material for LJ. Net to consummate its obligations with respect to the
transactions contemplated by this Agreement; (ii) of any person or entity which
is required by any material agreement, lease, instrument, arrangement, judgment,
decree, order or license to which LJ. Net is a party or subject as of the date
hereof, and which would prohibit such transactions, or require the waiver,
consent or approval of any person to such transactions; or (iii) under any
material agreement, lease, instrument, arrangement, judgment, decree, order or
license under which, without such waiver, consent or approval, such transactions
would constitute an occurrence of a breach or a default, result in the
acceleration of any material obligation thereunder, or give rise to a right of
any party thereto to terminate its obligations thereunder.
2.15 Compliance with Other Instruments, None Burdensome, etc. LJ. Net is
not in violation of any term of its Certificate of Incorporation or By-Laws, or,
in any material respect, of any term or provision of any mortgage, indebtedness,
indenture, contract, agreement, instrument, judgment or decrees, and is not in
violation of any order, statute, rule or regulation applicable to LJ. Net where
such violation would materially and adversely affect LJ. Net. The execution,
delivery and performance of and compliance with this Agreement have not resulted
and will not result in any violation of, or conflict with, or constitute a
default under, LJ. Net's Certificate or By-laws or, in any material respect, any
of its agreements or result in the creation of any mortgage, pledge, lien,
encumbrance or charge upon any of the properties or assets of LJ. Net; and there
is no such violation or default which materially and adversely affects the
business of LJ. Net or any of its properties or assets.
2.16 Litigation, etc. Except as described in Exhibit 2.16 attached hereto
and made a part hereof, there are no actions, claims, suits, proceedings or
investigations pending against LJ. Net or its properties or stockholders before
any court, governmental agency, arbitration board or other tribunal, nor has LJ.
Net or its stockholders received any written threat thereof.
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2.17 Brokers or Finders. LJ. Net has not incurred, and will not incur,
directly or indirectly, as a result of any action taken by LJ. Net, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or the Merger and other transactions
contemplated hereby.
2.18 Bankruptcy. Neither LJ. Net nor any entities affiliated, related or
controlled by LJ. Net, nor Chicas or Xxxxxxxx has filed a petition or request
for reorganization or protection or relief under the bankruptcy laws of the
United States or any state or territory thereof; made any general assignment for
the benefit of creditors; or consented to the appointment of a receiver or
trustee, including a custodian under the United States bankruptcy laws, whether
such receiver or trustee is appointed in a voluntary or involuntary proceeding
which has not been discharged prior to the date hereof.
2.19 Disclosure. This Agreement, the Exhibits hereto and the other
documents to be executed in connection with the Merger, as well as all other
written materials provided by LJ. Net to MGC, when taken as a whole, do not (as
of the respective dates thereof) contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
2.20 No Impending Material Adverse Event. LJ. Net does not have any
knowledge of any impending material loss of business or of any other condition,
the occurrence of which might have a material adverse effect on the business,
financial condition or prospects of LJ. Net.
ARTICLE III
Representations and Warranties of MGC and MGC Acquisition
MGC and MGC Acquisition represent and warrant to LJ. Net as follows:
3.01 Organization, etc. Each of MGC and MGC Acquisition is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada. Each of MGC and MGC Acquisition has the corporate power to own
its property and to carry on its business as now being conducted; each of MGC
and MGC Acquisition has the corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby.
3.02 Authorization, Execution and Delivery of Agreement. The execution and
delivery and the performance of this Agreement by MGC and MGC Acquisition have
been duly and validly authorized and approved by the Board of Directors of each
of MGC and MGC Acquisition, and each of MGC and MGC Acquisition has taken, or
will use reasonable efforts to take prior to the Effective Date of the Merger,
all other action required by law on the part of MGC and MGC Acquisition, its
respective Articles of Incorporation and bylaws or otherwise to effect the
transactions contemplated by this Agreement.
3.03 SEC Disclosures. MGC has previously furnished LJ. Net true and
complete copies of the following documents which have been filed by MGC with the
XXX xxxxxxxx xx Xxxxxxxx 00(x),
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00(x), (x) or (c) or 15(d) of the Exchange Act (such documents are hereinafter
collectively called the "MGC SEC Filings"): (i) its Annual Report on Form 10-K
for the year ended December 31, 1997, (ii) quarterly reports on Form 10-Q for
the quarters ended March 31, 1998, June 30, 1998 and September 30, 1998, (iii)
all reports on Form 8-K filed by MGC with the SEC during the period from and
after January 1, 1998, and (iv) MGC's S-1 Registration Statement declared
effective as of May 11, 1998. The MGC SEC Filings constitute all reports MGC was
required to file under Sections 13(a), 14(a), (b) or (c) and 15(d) of the
Exchange Act since January 1, 1998. At the time of filing with the SEC, the MGC
SEC Filings (i) were prepared in all material respects in accordance with the
applicable requirements of the Exchange Act, and the rules and regulations
thereunder, (ii) did not contain any untrue statement of a material fact, and
(iii) did not omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent information contained in any MGC SEC Filing has
been revised or superseded by a later filed MGC SEC Filing, the audited and
unaudited financial statements contained in the MGC SEC Filings are true and
correct in all material respects and present fairly the consolidated financial
condition and results of operations and changes in stockholders' equity and cash
flows as of the dates and for the periods indicated, except as may otherwise be
stated in such financial statements.
3.04 Status of MGC Common Stock. All shares of MGC's common stock $.001
par value per share ("MGC Common Stock"), when issued to the stockholders of LJ.
Net pursuant to this Agreement, will be duly and validly authorized and issued,
fully paid and nonassessable.
ARTICLE IV
Covenants and Transactions Prior to the Closing Date
4.01. Investigations; Operation of Business of LJ. Net. Between the date
of this Agreement and the Effective Date of the Merger:
(a) LJ. Net agrees to give to MGC full access to all the premises
and books and records of LJ. Net, and to cause its officers to furnish MGC with
such financial and operating data and other information with respect to its
business and properties as MGC shall from time to time request; provided,
however, that any such investigation shall not affect any of the
representations, warranties or covenants of LJ. Net hereunder. In the event of
termination of this Agreement, MGC will return to LJ. Net or destroy any and all
financial statements, agreements, documents, memoranda or other repositories of
information relating to LJ. Net that MGC has obtained or prepared in connection
with its review of LJ. Net and its operations and MGC agrees that any
information relating to LJ. Net, its financial condition, business, operations
and prospects is strictly confidential and shall not be disclosed to any third
party or used by MGC for its benefit or the benefit of any other person. MGC
shall have the right to have a representative present at all meetings of the
Board of Directors of LJ. Net (the "MGC Observation Rights") and there shall be
no meeting of the Board of Directors of LJ. Net unless (i) a representative of
MGC shall be present in person or by conference telephone call, or (ii) MGC
shall have been given notice in accordance with the by-laws of LJ. Net with
respect to such meeting; provided, however, that failure of LJ. Net to comply
with the terms of this Paragraph shall not affect the validity of action taken
by LJ. Net's Board of Directors. In addition, MGC shall have the right to
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review any consent resolutions of LJ. Net's Board of Directors prior to signing.
Exercise of the MGC Observation Rights shall not be, and shall not be construed
as being, participation by MGC on the Board of Directors of LJ. Net.
(b) LJ. Net will, to the extent required for continued operation of
its business without impairment, use its best efforts to preserve substantially
intact the business organization of LJ. Net, to keep available the services of
the present officers and employees of LJ. Net, and to preserve the present
relationships of LJ. Net with persons having significant business relations
therewith such as suppliers, customers, brokers, agents or otherwise.
(c) LJ. Net will conduct its businesses in a manner consistent with
the current operation of its business and only in the ordinary course and, by
way of amplification and not limitation, LJ. Net will not without the prior
written consent of MGC: (i) issue any capital stock, or (ii) declare, set aside
or pay any dividend or distribution with respect to the capital stock of LJ.
Net, or (iii) directly or indirectly redeem, purchase or otherwise acquire any
capital stock of LJ. Net, or (iv) effect a split or reclassification of any
capital stock of LJ. Net or a recapitalization of LJ. Net, or (v) change the
charter or bylaws of LJ. Net, or (vi) grant any increase in the compensation
payable or to become payable by LJ. Net to officers or salaried employees of LJ.
Net or grant any increase regardless of amount, in any bonus, insurance, pension
or other benefit plan, program, payment or arrangement made to, for or with any
officers or employees, or (vii) adopt any employee benefit plans including but
not limited to stock option plans, or (viii) borrow or agree to borrow any funds
or guarantee or agree to guarantee the obligations of others, or (ix) make any
capital improvement, purchase of equipment or furnishings or lease of any
property, or (x) transfer, pledge, hypothecate or otherwise dispose of any
assets, or (xi) acquire direct or indirect ownership or control of voting shares
of any other corporation, or of any interest in any partnership, joint venture,
association or similar organization, or (xii) waive any rights of substantial
value, or (xiii) enter into any material agreement, contract or commitment, or
(xiv) acquire a fee interest in any real property; or (xv) make any other cash
payments. Notwithstanding the foregoing, LJ. Net may pay to Chicas and Xxxxxxxx,
by way of compensation, expense reimbursement or otherwise, the amounts paid by
MGC to LJ. Net with respect to their respective services pursuant to Section
4.02 of this Agreement, but no other salaries or other distributions shall be
made by LJ. Net to Chicas or Xxxxxxxx prior to the Effective Date of Merger.
(d) Chicas and Xxxxxxxx agree to continue providing services to LJ.
Net in accordance with prior practices except that the amount of hours to be
worked by Xxxxxxxx shall be subject to MGC's approval.
(e) LJ. Net will pay and discharge all taxes, assessments and
governmental charges lawfully imposed upon it, or upon any of its property, or
upon the income and profits thereof to the extent such taxes, assessments and
governmental charges are due and payable on or before the Closing Date.
(f) LJ. Net will maintain its existence as a corporation in good
standing under the laws of the State of Nevada and other states in which LJ. Net
operates and the United States and comply in all material respects with all
laws, governmental regulations, rules and ordinances, and judicial orders,
judgments and decrees applicable to its business or its properties, except while
contesting the validity of any of the foregoing in good faith and by appropriate
proceedings.
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(g) LJ. Net will notify MGC in writing within five (5) days of the
commencement of any litigation against LJ. Net, or against any stockholder of
LJ. Net, or of the existence of any adverse business conditions threatening the
continued, normal business operations of LJ. Net.
(h) LJ. Net shall at all times maintain, preserve and keep its
properties in good repair, working order and condition in all material respects
so that the business carried on in connection therewith may be properly and
advantageously conducted.
(i) LJ. Net will make every reasonable effort to fulfill its
contractual obligations , and to maintain in effect its insurance.
(j) LJ. Net will not enter into or institute any employment
contract, employee policy manual, deferred compensation, non-competition, bonus,
stock option, profit-sharing, pension, retirement, consultation after
retirement, payments upon retirement, incentive, extraordinary vacation accrual,
education payment or benefit, disability insurance (including medical, travel,
group life or other similar insurance plans) agreement, plan or arrangement or
any other similar arrangement or plan, or, except as required by applicable law
or regulation, renew, amend, modify or terminate any such arrangement or plan
now in existence.
(k) LJ. Net will not enter into any agreement, understanding or
commitment, written or oral, with any other person which would be a breach of
the obligations of LJ. Net arising under this Agreement.
(l) LJ. Net will not make any loan, advance or commitment to extend
credit to any of the directors, officers or any affiliated or related persons of
the directors or officers of LJ. Net; renew any outstanding loan or any
outstanding commitment to extend credit to any directors, officers or any
affiliated or related persons of the directors or officers of LJ. Net; increase
any outstanding loan to any of the directors, officers of any affiliated or
related persons of the directors or officers of LJ. Net; or enter into any
agreement, understanding or commitment, written or oral, which obligates LJ. Net
or its successors or assigns to make any loan or advance or payment to any of
the directors or officers or to any affiliated or related persons of any of the
directors or officers of LJ. Net.
4.02. Payments by MGC to LJ. Net. Between November 16, 1998 and the
Effective Date of the Merger, MGC shall pay to LJ. Net $7,500 per month for
Chicas' services and $50 per hour for all services Xxxxxxxx renders to LJ. Net
during such period with MGC's approval.
4.03 LJ. Net Stockholder Approval. LJ. Net agrees to submit this Agreement
to its stockholders for approval, all as provided by law and its Articles of
Incorporation, at a meeting (the "LJ. Net Special Meeting") which shall be held
prior to the Closing Date. The Board of Directors of LJ. Net will recommend that
the stockholders of LJ. Net vote to adopt and approve the Merger. Chicas and
Xxxxxxxx hereby agree that they will not dispose of their shares of LJ. Net
Common Stock and will vote in favor of the Merger.
4.04 No Solicitation. From and after the date hereof, LJ. Net will not,
and shall use its reasonable best efforts not to permit, any of its officers,
directors, employees, attorneys, financial
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advisors, agents or other representatives to, directly or indirectly, solicit,
initiate or knowingly encourage (including by way of furnishing information) any
Acquisition Proposal from any person, or engage in or continue discussions or
negotiations relating thereto. As used in this Agreement, an "Acquisition
Proposal" shall mean any proposal or offer, or any expression of interest by any
third party relating to LJ. Net's willingness or ability to receive or discuss a
proposal or offer, in each case made prior to the stockholder vote at the LJ.
Net Special Meeting, other than a proposal or offer by MGC or any of its
Subsidiaries, for a merger, consolidation or other business combination
involving, or any purchase of, all or substantially all of the assets of LJ. Net
or a majority in interest of the voting securities of LJ. Net.
4.05 No Granting of Options. Prior to the Closing Date, LJ. Net will not,
without the prior written consent of MGC, grant any options, warrants or other
rights to purchase or otherwise acquire any shares of its capital stock or issue
any securities convertible into shares of its capital stock or to accelerate the
vesting of any such option, warrant or right.
4.06 Restricted MGC Common Stock. LJ. Net will deliver to MGC not later
than three business days before the Effective Date of the Merger a schedule
listing all LJ. Net shareholders and the amounts of shares held by each, for the
purpose of permitting MGC to imprint appropriate legends on the certificates
representing the shares of MGC Common Stock to be issued pursuant to the Merger
to LJ. Net shareholders.
4.07 Consents. LJ. Net shall use its best efforts to obtain the consent or
approval of each person whose consent or approval shall be required in order to
permit LJ. Net to consummate the Merger without acceleration of indebtedness of
such party or without breaching any contract to which it is subject. LJ. Net may
not, without MGC's prior written consent, pay or agree to pay more than a
mutually agreed amount to obtain any such consent.
4.08 Best Efforts. Upon the terms and subject to the conditions of this
Agreement, each of MGC and LJ. Net agrees to use its respective best efforts to
take, or cause to be taken, and to assist and cooperate with the other party
hereto in doing, all things reasonably necessary, proper or advisable under
applicable laws and regulations to consummate and make effective, in the most
expeditious manner practicable, the transactions contemplated by this Agreement,
including, without limitation, using such best efforts to obtain any necessary
actions, waivers, consents and approvals from governmental agencies.
4.09 Governmental Reports. Between the date of this Agreement and the
Closing Date, LJ. Net shall furnish or make available to MGC any and all
reports, not heretofore delivered to MGC under this Agreement or which are filed
subsequent to the date of this Agreement, to any state or federal government,
agency or department.
4.10 Fees and Expenses. All fees and expenses incurred in connection with
the Merger and the other transactions contemplated hereby shall be paid by the
party incurring such fees or expenses, whether or not the Merger is consummated.
4.11 Piggyback Registrations.
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(a) Right to Piggyback. Whenever MGC proposes to register any of its
securities under the Securities Act of 1933, as amended (the "Securities Act")
(other than pursuant to a registration on Form S-4 or S-8 or any successor or
similar forms) and the registration form to be used may be used for the
registration of the shares of MGC Common Stock issued to the shareholders of LJ.
Net in connection with the Merger (the "Registrable Securities") (any such
registration to be referred to as a "Piggyback Registration"), whether or not
for sale for its own account, MGC will give prompt written notice to all holders
of Registrable Securities of its intention to effect such a registration and
will include in such registration all Registrable Securities with respect to
which MGC has received written requests for inclusion therein within 20 days
after the receipt of MGC's notice; provided, however, that the rights of a
holder of Registrable Securities under this Section 4.11 shall expire upon such
time as the Registrable Securities of such holder are transferable under Rule
144 under the Securities Act.
(b) Priority on Registrations. If a Piggyback Registration is an
underwritten primary registration on behalf of MGC or an underwritten offering
undertaken by MGC pursuant to a demand registration exercised by a securities
holder of MGC (a "Demanding Party"), and the managing underwriters advise MGC in
writing (with a copy to each stockholder of LJ. Net requesting registration of
Registrable Securities) that in their opinion the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of such offering (the
"Offering Quantity"), MGC will include in such registration securities in the
following priority:
(i) first, the securities MGC proposes to sell and the securities
requested to be included by the Demanding Party in accordance with any
agreement between MGC and the Demanding Party; and
(ii) second, MGC will include all Registrable Securities requested
to be included by any holders thereof and all other holders of registrable
securities, and if the number of such holders' securities requested to be
included exceeds the Offering Quantity, then MGC shall include only each
such requesting holder's pro rata share of the Offering Quantity
(remaining after sales covered by (i) above), based on the amount of
securities held by such holder.
(c) Holdback Agreement. To the extent not inconsistent with
applicable law and as a condition to the grant of the piggyback registration
rights hereunder, each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of MGC, or any securities, options or rights convertible into or
exchangeable or exercisable for such securities that such person owns prior to
the effective date of any underwritten registration, during the seven days prior
to and the 120-day period beginning on the effective date of any underwritten
registration, unless the underwriters managing the registered public offering
otherwise agree; provided that such restrictions shall not be more restrictive
in duration or scope than restrictions imposed on (i) any person which has been
granted registration rights by MGC, (ii) any officer or director of MGC or (iii)
any more than 5% holder of securities of MGC.
(d) Information from Sellers. MGC may require each seller of
Registrable Securities as to which any registration is being effected to furnish
MGC such information regarding such
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seller and the distribution of such securities as MGC may from time to time
reasonably request in writing.
(e) Registrable Expenses. All expenses incident to MGC's performance
of or compliance with this Section 4.11, including, without limitation, all
registration and filing fees, fees and expenses of compliance with securities or
blue sky laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for MGC and all independent certified public
accountants, underwriters (excluding discounts and commissions, which will be
paid by the sellers of Registrable Securities) and other persons retained by MGC
(all such expenses being herein called "Registration Expenses"), will be borne
by MGC, and MGC will, in any event, pay its internal expenses (including,
without limitation, all salaries and expenses of its officers and employees
performing legal or accounting duties), the expense of any annual audit or
quarterly review, the expense of any liability insurance and the expenses and
fees for listing the securities to be registered on each securities exchange on
which similar securities issued by MGC are then listed or on the NASD automated
quotation system. In connection with each Piggyback Registration, MGC will
reimburse the holders of the Registrable Securities covered by such registration
for the reasonable fees and disbursements of one counsel chosen by the holders
of a majority of all registrable securities covered by such registration.
(f) Participation in Underwritten Registrations. No person may
participate in any registration hereunder which is underwritten unless such
person (i) agrees to sell such person's securities on the basis provided in any
underwriting arrangements approved by MGC (including, without limitation,
pursuant to the terms of any over allotment or "green shoe" option requested by
the managing underwriter(s), provided that no holder of Registrable Securities
will be required to sell more than the number of Registrable Securities that
such holder has requested MGC to include in any registration) and (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements.
ARTICLE V
Conditions of Merger; Abandonment of Merger
5.01 Conditions of Obligations of MGC. The obligations of MGC to effect
the Merger shall be subject to the following conditions:
(a) LJ. Net Stockholder and Board of Directors Approvals. LJ. Net
shall have furnished MGC with (i) evidence that the stockholders of LJ. Net
shall have approved the Merger, (ii) certified copies of resolutions duly
adopted by the Board of Directors of LJ. Net authorizing all necessary and
proper corporate action to enable LJ. Net to comply with the terms of this
Agreement and approving the execution and delivery to MGC of this Agreement; and
(iii) an Incumbency Certificate for the appropriate officers of LJ. Net.
(b) Representations and Warranties of LJ. Net to be True. Except to
the extent waived hereunder, (i) the representations and warranties of LJ. Net
herein contained shall be true on the Closing Date with the same effect as
though made at such time as if none of such representations and
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warranties contained any qualifications as to materiality or the absence of a
Material Adverse Effect; provided, however, that notwithstanding the foregoing,
this condition shall be deemed to be satisfied if all breaches of such
representations and warranties, do not cumulatively constitute a Material
Adverse Effect; and (ii) LJ. Net shall have performed all obligations and
complied with all covenants required by this Agreement to be performed or
complied with by it prior to the Effective Date of the Merger. LJ. Net shall
also have delivered to MGC a certificate of LJ. Net, dated the Effective Date of
the Merger and signed by its President to both of the aforementioned effects.
Notwithstanding the foregoing, MGC shall not rely on this Section 5.01(b) to
excuse its performance hereunder unless: (i) MGC shall have given LJ. Net
written notice of any breach of covenants and LJ. Net fails to cure such breach
within a reasonable time (but not more than ten days) after receipt of such
notice, and (ii) the breach of representations, warranties or covenants will
constitute a Material Adverse Effect with respect to LJ. Net.
(c) Third Party Consents. LJ. Net shall have obtained consents to
the transactions contemplated by this Agreement to the extent required from
persons which are parties to material contracts with LJ. Net except to the
extent the failure to obtain one or more consents would not materially affect
the continuing business of LJ. Net.
(d) No Material Adverse Effect. LJ. Net shall not have suffered or
incurred any Material Adverse Effect since December 31, 1998.
(e) Performance of Agreement. There shall not have been issued and
be in effect any order of any court or tribunal of competent jurisdiction or
governmental agency which in effect prohibits the performance of this Agreement
or the Merger and the transactions contemplated hereby, or would impose
limitations on the ability of MGC effectively to exercise and possess all the
rights, privileges, immunities and franchises of LJ. Net as of the Closing Date.
(f) Statutory Requirements; Litigation. All statutory requirements
for the valid consummation by MGC and LJ. Net of the transactions contemplated
by this Agreement shall have been fulfilled; all authorizations, consents and
approvals of all federal, state or local governmental agencies and authorities
required to be obtained in order to permit consummation by MGC and LJ. Net of
the transactions contemplated by this Agreement and to permit the business
presently carried on by LJ. Net to continue unimpaired immediately following the
Effective Date of the Merger shall have been obtained; between the date of this
Agreement and the Effective Date of the Merger, no governmental agency, whether
federal, state or local, shall have instituted (or threatened to institute
either orally or in a writing directed to LJ. Net or MGC) an investigation which
is pending on the Effective Date of the Merger relating to the Merger and
between the date of this Agreement and the Effective Date of the Merger no
action or proceeding shall have been instituted or, to the knowledge of MGC,
shall have been threatened before a court or other governmental body or by any
public authority to restrain or prohibit the transaction contemplated by this
Agreement or to obtain damages in respect thereof.
(g) Opinion of Counsel of LJ. Net. MGC shall have received from
Xxxxx Xxxxxx, counsel to LJ. Net, an opinion, dated the Closing Date, in form
and substance satisfactory to MGC's counsel, Ellis, Funk, Xxxxxxxx, Xxxxxxxx &
Dokson, P.C., to the effect that (i) LJ. Net is a corporation duly organized and
validly existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) LJ. Net is duly qualified or licensed, as may be required,
as a foreign corporation, and
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in good standing in each jurisdiction where the failure to do so would
constitute a Material Adverse Effect, (iii) LJ. Net has the corporate power to
carry on its business as now being conducted, (iv) the authorized capital stock
of LJ. Net is as set forth in Section 2.04 hereof, and stating the number of
such shares which have been issued, and that such issued shares have been duly
authorized, are validly issued and outstanding, and are fully paid and
nonassessable, (v) LJ. Net is not a party to or bound by any outstanding option
or agreement to sell, issue or otherwise dispose of any capital stock of LJ.
Net, (vi) this Agreement has been duly executed and delivered by LJ. Net, Chicas
and Xxxxxxxx and is the valid, binding and enforceable obligation of each such
person (subject to equity principles of general application and to applicable
bankruptcy, reorganization, insolvency and moratorium laws and other laws from
time to time in effect affecting the enforcement of creditor's rights
generally), and (vii) all corporate action by the Board of Directors and
stockholders of LJ. Net required to authorize the Merger has been taken, and LJ.
Net has the corporate power to effect the Merger provided for in this Agreement.
In rendering such opinion such counsel may rely, to the extent such counsel
deems such reliance necessary or appropriate, as to matters of fact, upon
certificates of state officials and of corporate officers of LJ. Net, provided
the extent of such reliance is specified in such opinion.
(h) Articles of Merger. LJ. Net shall have delivered to MGC a duly
executed copy of the Articles of Merger.
(i) Employment/Consulting Agreements. Chicas shall have executed an
Employment Agreement in the form attached hereto as Exhibit 5.01(i)-1 and
Xxxxxxxx shall have executed a Consulting Agreement in the form attached hereto
as Exhibit 5.01(i)-2.
(j) Due Diligence. MGC shall have been satisfied with its due
diligence investigation of LJ. Net and its business.
(k) Minute Books and Stock Ledgers. LJ. Net shall have delivered to
MGC the minute books and stock ledgers for LJ. Net.
5.02 Conditions of Obligation of LJ. Net. The obligation of LJ. Net to
effect the Merger shall be subject to the following conditions:
(a) MGC Boards of Directors Approvals. Each of MGC and MGC
Acquisition shall have furnished LJ. Net with certified copies of resolutions
duly adopted by its Board of Directors authorizing all necessary and proper
corporate action to enable MGC and MGC Acquisition to comply with the terms of
this Agreement and approving the execution and delivery to LJ. Net of this
Agreement.
(b) Representations and Warranties of MGC and MGC Acquisition to be
True. Except to the extent waived hereunder, (i) the representations and
warranties of MGC and MGC Acquisition herein contained shall be true on the
Closing Date with the same effect as though made at such time as if none of such
representations and warranties contained any qualifications as to materiality or
the absence of a Material Adverse Effect; provided, however, notwithstanding the
foregoing this condition shall be deemed to be satisfied if all breaches of such
representations and warranties do not cumulatively constitute a Material Adverse
Effect; and (ii) MGC and MGC Acquisition shall have performed all obligations
and complied with all covenants required by this Agreement to be performed or
complied with by them prior to the Effective Date of the Merger. MGC and MGC
Acquisition shall
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also have delivered to LJ. Net a certificate of MGC and MGC Acquisition, dated
the Effective Date of the Merger and signed by its Chairman of the Board or
President as to both of the aforementioned effects. Notwithstanding the
foregoing, LJ. Net shall not rely on this Section 5.02(b) to excuse its
performance hereunder unless: (i) LJ. Net shall have given MGC written notice of
any breach of covenants and MGC fails to cure such breach within a reasonable
time (but not more than ten days) after receipt of such notice, and (ii) the
breach of representations, warranties or covenants will constitute a Material
Adverse Effect with respect to MGC.
(c) Performance of Agreement. There shall not have been issued and
be in effect any order of any court or tribunal of competent jurisdiction or
governmental agency which in effect prohibits the performance of this Agreement
or the Merger and the transactions contemplated hereby.
(d) Opinion of Counsel of MGC. LJ. Net shall have received from
Ellis, Funk, Xxxxxxxx, Xxxxxxxx & Dokson, P.C., counsel to MGC, an opinion,
dated the Closing Date, in form and substance satisfactory to LJ. Net's counsel,
Xxxxx Xxxxxx, to the effect that (i) each of MGC and MGC Acquisition is a
corporation duly organized and validly existing and in good standing under the
laws of the State of Nevada, (ii) MGC has the corporate power to carry on its
business as now being conducted, (iii) the shares of MGC Common Stock for which
the shares of LJ. Net Common Stock are to be exchanged pursuant to the Merger
have been duly authorized and, immediately after the Effective Date of the
Merger, will be duly and validly issued and will be fully paid and
nonassessable, (iv) this Agreement has been duly executed and delivered by MGC
and MGC Acquisition and this Agreement is the valid, binding and enforceable
(subject to equity principles of general application and to bankruptcy,
reorganization, insolvency and moratorium laws and other laws from time to time
in effect affecting the enforcement of creditors' rights generally and no
opinion shall be required with respect to the enforceability of any liquidated
damage provision contained herein) obligation of MGC and MGC Acquisition, and
(v) all corporate action by the Boards of Directors of MGC and MGC Acquisition
required to authorize the Merger has been taken, and each of MGC and MGC
Acquisition has the corporate power to effect the Merger provided for in this
Agreement. In rendering such opinion such counsel may rely, to the extent such
counsel deems such reliance necessary or appropriate, as to matters of fact,
upon certificates of state officials and of corporate officers of MGC, provided
the extent of such reliance is specified in such opinion.
(e) Employment/Consulting Agreements. MGC shall have executed an
Employment Agreement with Chicas in the form attached hereto as Exhibit 5.01(i)
- 1 and a Consulting Agreement with Xxxxxxxx in the form attached hereto as
Exhibit 5.01(i) - 2.
(f) Articles of Merger. MGC Acquisition shall have delivered to LJ.
Net a duly executed copy of the Articles of Merger.
5.03 Termination of Agreement and Abandonment of Merger. Anything herein
to the contrary notwithstanding, this Agreement and the Merger contemplated
hereby may be terminated at any time before the Effective Date of the Merger,
whether before or after approval of this Agreement by the stockholders of LJ.
Net, as follows, and in no other manner:
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(a) Mutual Consent. By mutual consent of the Boards of Directors of
MGC and LJ. Net.
(b) Conditions of LJ. Net Not Met. By the Board of Directors of MGC
if, by February 28, 1999 or such later date as may be determined by mutual
agreement of MGC and LJ. Net, the conditions set forth in Section 5.01 of this
Agreement shall not have been met (or waived as provided in Article XI of this
Agreement).
(c) Conditions of MGC Not Met. By the Board of Directors of LJ. Net
if, by February 28, 1999 or such later date as may be determined by mutual
agreement of MGC and LJ. Net, the conditions set forth in Section 5.02 of this
Agreement shall not have been met (or waived as provided in Article XI of this
Agreement).
ARTICLE VI
The Merger
6.01 The Merger Price. Upon the Effective Date of the Merger, holders of
LJ. Net Common Stock shall be entitled to receive the portion of the Merger
Price to which each is entitled pursuant to Section 6.05 below. The Merger Price
shall be paid in the form of MGC Common Stock. The total number of shares of MGC
Common Stock to be issued to the stockholders of LJ. Net in the Merger (the
"Merger Price") shall be equal to twenty-seven thousand (27,000) shares of MGC
Common Stock.
6.02 Escrow of Portion of Merger Price. Of the Merger Price, sixteen
thousand two hundred (16,200) shares of MGC Common Stock shall be issued as of
the Closing Date, but shall not be delivered by MGC to the LJ. Net stockholders
until the following dates: (i) on the date that is four (4) months after the
Closing Date, 8,100 shares of such MGC Common Stock shall be delivered to the
LJ. Net stockholders if Chicas' employment agreement and Xxxxxxxx'x consulting
agreement either remain in effect on such date or have been terminated prior to
such date as a result of Chicas' or Xxxxxxxx'x death or disability or as a
result of termination by MGC without cause (as defined therein), and (ii) on the
date that is eight (8) months after the Closing Date, the remaining 8,100 shares
of such MGC Common Stock shall be delivered to the LJ. Net stockholders if
Chicas' employment agreement and Xxxxxxxx'x consulting agreement either remain
in effect on such date or have been terminated prior to such date as a result of
Chicas' or Xxxxxxxx'x death or disability or as a result of termination by MGC
without cause (as defined therein). If the above conditions are not met as of
the respective dates indicated, the shares of MGC Common Stock that would
otherwise have been delivered on such date shall be cancelled and the
stockholders of LJ. Net shall have no further rights thereto.
6.03 Merger. LJ. Net and MGC Acquisition (the "Constituent Corporations")
shall be merged into a single corporation by LJ. Net merging into and with MGC
Acquisition, (the "Surviving Corporation"), which shall survive the Merger,
pursuant to the provisions of the Nevada Revised Statutes. Upon such Merger, the
separate corporate existence of LJ. Net shall cease and the Surviving
Corporation shall become the owner, without transfer, of all rights and property
of the Constituent Corporations, and the Surviving Corporation shall become
subject to all the debt and liabilities of the Constituent Corporations in the
same manner as if the Surviving Corporation had itself incurred them.
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6.04 Governance of MGC Acquisition after Merger.
(a) On the Effective Date of the Merger, the Articles of
Incorporation of MGC Acquisition shall be the Articles of Incorporation of the
Surviving Corporation.
(b) On the Effective Date of the Merger, the bylaws of MGC
Acquisition, as in effect on the Effective Date of the Merger, shall remain the
bylaws of the Surviving Corporation. Subsequent to the Effective Date of the
Merger, such bylaws shall be the bylaws of the Surviving Corporation until they
shall thereafter be duly amended.
(c) On the Effective Date of the Merger, the Directors and officers
of MGC Acquisition shall remain the Directors and officers of the Surviving
Corporation until their successors are elected and qualified in accordance with
the terms of the bylaws of the Surviving Corporation.
6.05 Exchange of Shares.
(a) On the Effective Date of the Merger, each of the then issued and
outstanding shares of Common Stock of MGC Acquisition shall continue to be an
issued and outstanding share of Common Stock of the Surviving Corporation.
(b) On the Effective Date of the Merger, each of the then issued and
outstanding shares of LJ. Net Common Stock shall be converted into the right to
receive the Merger Price per share which shall be thirteen and one-half (13.5)
shares of MGC Common Stock for each share of LJ. Net Common Stock outstanding.
(c) After the Effective Date of the Merger and subject to the escrow
of stock referenced in Section 6.02, each holder of shares of certificates
representing LJ. Net Common Stock which have been converted into MGC Common
Stock pursuant to paragraph (b) above shall be entitled to receive upon the
surrender of such certificates a certificate or certificates representing the
number of shares of MGC Common Stock to which such stockholder is entitled as
provided by paragraph (b) above. Until such time as LJ. Net Common Stock
certificates are presented, surrendered and exchanged, each such certificate of
LJ. Net Common Stock shall be deemed for all purposes to evidence ownership of
the number of shares of MGC Common Stock into which they shall have been
converted pursuant to the Merger.
(d) Prior to receipt of any of the MGC Common Stock to which a
stockholder of LJ. Net is entitled, such LJ. Net stockholder shall represent and
warrant to MGC as follows: (i) that he is acquiring the MGC Common Stock for
investment for his own account, not as a nominee or agent, and not with the view
to, or for resale in connection with, any distribution thereof; (ii) that he
understands that the MGC Common Stock has not been, and will not be, registered
under the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act, the availability of which depends upon, among
other things, the bona fide nature of the investment intent and the accuracy of
the LJ. Net stockholder's representations as expressed herein; (iii) that he
acknowledges that the MGC Common Stock must be held indefinitely unless
subsequently registered
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under the Securities Act or unless an exemption from such registration is
available; and (iv) that he is aware of the provisions of Rule 144 promulgated
under the Securities Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the company, the resale
occurring not less than one (1) year after a party has purchased and paid for
the security to be sold, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the number of
shares being sold during any three-month period not exceeding specified
limitations.
ARTICLE VII
Other Agreements
7.01 Press Releases. Each party shall consult with the other party hereto
before publishing, releasing or otherwise disseminating to the public any
information, publicity or statements concerning this Agreement, the Merger or
any of the transactions herein contemplated.
7.02 Xxxxxx Employment. MGC will enter into an employment agreement with
Xxxx Xxxxxx upon similar terms and conditions as apply to similarly situated
employees of MGC.
7.03 Tax Treatment. Each of MGC and LJ. Net will use its best efforts to
cause the Merger to qualify as a reorganization under the provisions of Section
368(a) of the Code. Neither party nor any affiliate shall take any action that
would cause the Merger not to qualify as a reorganization under Section 368(a)
except to the extent that such action is specifically contemplated by this
Agreement.
7.04 Margin Loan Support. The parties acknowledge that Chicas may seek to
borrow against the shares of MGC Common Stock to be received by him in
connection with the Merger, but only to the extent not then being held in escrow
pursuant to Section 6.02 hereof. MGC agrees to guarantee such margin debt
incurred by Chicas but only until the date that is one (1) year after the
Closing Date. To secure such guarantee, MGC shall be subrogated to the rights of
the lender with respect to the MGC Common Stock pledged to secure the loan.
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ARTICLE VIII
Noncompetition Agreements
8.01 Definitions. For purposes of this Agreement, the following terms and
provisions shall have the following meanings:
(a) "Prohibited Geographic Area" shall mean those areas in which MGC
does business as of the date of this Agreement (i.e., the Las Vegas, Nevada,
Atlanta, Georgia, Southern California, Chicago, Illinois and Southern Florida
areas).
(b) "Prohibited Time Period" shall mean the period beginning on the
date of execution hereof and ending on the date that is three (3) years after
the Closing Date.
(c) "Prohibited Business" shall mean the business conducted by LJ.
Net, Inc. prior to its acquisition by MGC, including Internet access services.
8.02 Noncompetition Agreement. Chicas agrees that during the Prohibited
Time Period, he shall not, for any reason, without the prior written consent of
MGC, on his own behalf or in the service or on behalf of others, participate,
whether as an owner, stockholder, partner, employee, consultant, agent,
independent contractor or otherwise, in any entity involved in the Prohibited
Business in the Prohibited Geographic Area.
8.03 The parties hereto acknowledge and agree that (i) the covenants
contained in Section 8.02 are reasonably necessary to protect the interest of
MGC in whose favor said covenants are imposed; (ii) the restrictions imposed by
Section 8.02 are not greater than are necessary for the protection of MGC in
light of the substantial harm that MGC will suffer should Chicas breach any such
covenant; (iii) the period of restriction and geographical area of restriction
contained in Section 8.02 are fair and reasonable in that they are reasonably
required for the protection of MGC; (iv) the nature, kind and character of the
activities Chicas is prohibited to engage in as described in Section 8.02 are
reasonable and necessary to protect MGC and shall not be interpreted or
construed as prohibiting Chicas from rendering any other services or performing
any other activities not referenced therein, and (v) the covenants and
agreements of Chicas contained in Section 8.02 have been specifically negotiated
by the parties and are material inducements to MGC to enter into this Agreement,
and, but for such covenants made by Chicas herein, MGC would not have entered
into this Agreement.
8.04 Chicas acknowledges and agrees that the covenants and agreements
contained in Section 8.02 of this Agreement are made by him in consequence of
and as a specific inducement to MGC to enter into this Agreement and to protect
and preserve the benefit of this Agreement to MGC; that each of the covenants
contained in Section 8.02 is reasonable and necessary to protect and preserve
the benefits received by MGC under this Agreement; irreparable loss and damage
will be suffered by MGC should Chicas breach any of such covenants and
agreements; each of such covenants and agreements is separate, distinct and
severable not only from the other of such covenants and agreements but also from
the other and remaining provisions of this Agreement; that the unenforceability
of any such covenant or agreement shall not affect the validity or
enforceability of any other such covenant or agreements or any other provision
or provisions of this Agreement; and that, in addition to other
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remedies available to it, MGC shall be entitled to both temporary and permanent
injunctions to prevent a breach or contemplated breach by Chicas of any of such
covenants or agreements. In the event MGC should seek an injunction hereunder,
Chicas hereby waives any requirement that MGC post a bond or any other security.
8.05 If the provisions of Section 8.02 should ever be adjudicated to
exceed the time, geographic or other limitations permitted by applicable law in
any jurisdiction, then such provisions shall be deemed reformed in such
jurisdiction to the maximum time, geographic or other limitation permitted by
applicable law.
8.06 The covenants and agreements on the part of Chicas contained in
Section 8.02 shall be construed as agreements independent of any other agreement
between MGC and Chicas. The existence of any claim or cause of action of Chicas
against MGC, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by MGC of each of such covenants and
agreements.
8.07 Nothing contained in this Item shall restrict Chicas from being a
stockholder of any corporation that directly or indirectly competes with MGC
provided the stock of such competing corporation is publicly held and listed on
a regional or national stock exchange.
8.08 The provisions of this Item shall survive the termination of this
Agreement for any reason whatsoever.
ARTICLE IX
Indemnification By Chicas And Xxxxxxxx
9.01 Agreement to Indemnify. Subject to the terms and conditions of this
Article IX, Chicas and Xxxxxxxx jointly and severally (hereinafter sometimes
referred to in this Article IX collectively as the "Indemnitors" and
individually as an "Indemnitor"), agree to indemnify, defend and hold MGC
harmless, on demand from and against any and all demands, claims, actions,
causes of action, assessments, losses, damages, liabilities, costs and expenses,
including without limitation interest, penalties and reasonable attorneys' fees
and expenses, asserted against, imposed upon or incurred by MGC by reason of, or
resulting from or in connection with:
(a) a breach of any representation or warranty made by, or covenant
of, or other agreements or obligations of LJ. Net or any Indemnitor which is
contained in, or made pursuant to, this Agreement; or
(b) any Undisclosed Liabilities (as hereinafter defined),
(hereinafter referred to in this Article IX individually, as a "Claim" and,
collectively, as "Claims").
As used in this Agreement, "Undisclosed Liabilities" means any liability,
debt or obligation of any nature of LJ. Net, whether liquidated, contingent,
accrued, absolute or otherwise, that is not
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specifically set forth on the LJ. Net Financial Statements, elsewhere in this
Agreement or on the Exhibits to this Agreement or, if so set forth, the amount
by which such liabilities, debts or obligations, as finally determined, exceeds
the amount thereof so disclosed.
9.02 Amount Uncertain. The fact that the amount of indemnification cannot
be determined or established at the time written notice or demand is given
hereunder to an Indemnitor shall not limit or affect the right of MGC to obtain
full indemnification to the extent provided herein.
9.04 Condition to Indemnification. As a condition to indemnification
hereunder, MGC shall be required to provide the Indemnitors with written notice
of the circumstances resulting in the claim for indemnification, which notice
shall be given promptly after first obtaining actual knowledge thereof and in no
event may MGC initiate a claim for indemnification more than six (6) months
after first obtaining actual knowledge thereof.
ARTICLE X
Survival
Any implication in this Agreement to the contrary notwithstanding, all
written statements contained in any Exhibit, document, certificate, memorandum
or other instrument delivered by or on behalf of LJ. Net, Chicas or Xxxxxxxx, xx
the case may be, pursuant hereto, or in connection with the transactions
contemplated hereby, shall be deemed representations and warranties hereunder by
LJ. Net, Chicas or Xxxxxxxx (as the case may be). The representations,
warranties and agreements made by the parties hereto shall survive consummation
of the transactions contemplated hereby. Any inspection or audit by MGC of the
properties, financial condition, books, records or other matters relating to LJ.
Net or its business shall not limit, affect or impair the ability of MGC to
rely, before or after the date hereof, upon the representations, warranties and
agreements of LJ. Net, Chicas or Xxxxxxxx (as the case may be) set forth herein.
ARTICLE XI
Termination of Obligations and Waiver of Conditions
11.01 Termination. In the event that this Agreement shall be terminated
pursuant to Section 5.03 hereof, all further obligations of the parties hereto
under this Agreement shall terminate without further liability of any party to
another and each party hereto will pay all costs and expenses incident to its
negotiation and preparation of this Agreement and to its performance and
compliance with all agreements and conditions contained herein on its part to be
performed or complied with, including the fees, expenses and disbursements of
its counsel.
11.02 Waiver. If any of the conditions specified in Section 5.01 hereof
has not been satisfied, MGC may nevertheless, at the election of MGC, proceed
with the transactions contemplated hereby and, if any of the conditions
specified in Section 5.02 hereof has not been satisfied, LJ. Net may
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nevertheless, at its election, proceed with the transactions contemplated
hereby. Any such election to proceed shall be evidenced by a certificate
executed on behalf of the electing party by its Chairman of the Board or
President.
11.03 Confidentiality. In the event of the termination of the transactions
contemplated by this Agreement, all information acquired by either MGC or LJ.
Net shall be held in the strictest of confidence if not public information, and
neither party shall use such information to the disadvantage of the other.
ARTICLE XII
General
12.01 Amendments. This Agreement and the form of any exhibit attached
hereto may be amended in writing by the parties hereto before or after the
meeting of stockholders referred to in Section 4.03 hereof at any time prior to
the Effective Date of the Merger.
12.02 "Knowledge". Wherever in this Agreement any representation or
warranty is expressed in the terms of "knowledge" or "to the best of its
knowledge" of LJ. Net or MGC, such knowledge shall be deemed to refer to matters
which the respective officers and directors of LJ. Net or MGC, as the case may
be, knew or should have known after diligent inquiry.
12.03 "Material Adverse Effect". With respect to any person or entity
shall mean any event, condition, development or effect which, individually or in
the aggregate, shall have had, or insofar as can reasonably be foreseen will
have, a material adverse effect on the business, operations, assets, liabilities
or condition (financial or otherwise) or prospects of a person and its
subsidiaries (if applicable) taken as a whole.
12.04 Schedules. Each Disclosure Statement described in this Agreement has
been delivered simultaneously with the execution and pursuant to the terms of
this Agreement. Any information supplied to either party in writing between the
date hereof and the Closing Date if accepted by either party shall be made a
part of the Schedules hereto and be deemed to have been disclosed to the other
party for all purposes of this Agreement.
12.05 Governing Law. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of Nevada.
12.06 Notices. All notices hereunder shall be deemed given if in writing
and delivered personally or sent by telecopy (with written evidence of receipt),
telegram, registered mail or certified mail (return receipt requested) to the
parties at the following addresses (or at such other addresses as shall be
specified by like notice):
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(a) If to MGC or
MGC Acquisition, to: 0000 X. Xxxxxxx Xxxxx
Xxx Xxxxx, Xxxxxx 00000
Attn: Xxxxxxx X. Xxxxxxxxx, Xx.
Fax: (000) 000-0000
With a copy to: Ellis, Funk, Xxxxxxxx, Xxxxxxxx &
Dokson, P.C.
0000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxxxx 00000
Attn: Xxxxxx X. Xxxxxxxx
Fax: (000) 000-0000
(b) If to LJ. Net or
Chicas, to: 0000 X. Xxxx Xxxx Xxxxxxxxx
#0-000
Xxx Xxxxx, Xxxxxx 00000
Attn: Xxxxxxx Xxxxxx
Fax:
(c) If to LJ. Net or
Xxxxxxxx, to: 0000 X. Xxxx Xxxx Xxxxxxxxx
#0-000
Xxx Xxxxx, Xxxxxx 00000
Attn: Xxxxxxx Xxxxxx
Any such notice or communication shall be deemed to have been given as of three
days after posting, one day after next day delivery service or upon personal
delivery or confirmed telecopy.
12.07 No Assignment. This Agreement may not be assigned by operation of
law or otherwise without the express written consent of the other parties.
12.08 Headings. The descriptive headings of the several Articles, Sections
and paragraphs of this Agreement are inserted for convenience only and do not
constitute a part of this Agreement.
12.09 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties hereto and delivered to each of the other parties hereto.
12.10 Entire Agreement. This Agreement and the exhibits hereto and other
documents delivered or to be delivered pursuant hereto or incorporated by
reference herein, taken together contain the entire agreement between the
parties hereto concerning the transactions contemplated hereby and supersede all
prior agreements or understandings, written or oral, between the parties hereto
relating to
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the subject matter hereof. No oral representation, agreement or understanding
made by any party hereto shall be valid or binding upon such party or any other
party hereto.
12.11 Severability. The parties intend for this Agreement to be severable.
It is mutually agreed that in the event any paragraph, subparagraph, section,
subsection, sentence, clause or phrase hereof shall be construed as illegal,
invalid or unenforceable for any reason, such determination shall in no manner
affect the other paragraphs, subparagraphs, sections, subsections, sentences,
clauses or phrases hereof which shall remain in full force and effect, as if the
said paragraph, subparagraph, section, subsection, sentence, clause or phrase so
construed as illegal, invalid or unenforceable were not originally a part
hereof, and the enforceability hereof as a whole will not be affected. The
parties hereby declare that they would have agreed to the remaining parts hereof
if they had known that such parts hereof would be construed as illegal, invalid
or unenforceable.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed on its behalf by its officers thereunto duly authorized, all as
of the day and year first above written.
MGC COMMUNICATIONS, INC.
By:
-----------------------------------
MGC XX.XXX, INC.
By:
-----------------------------------
LJ. NET, INC.
By:
-----------------------------------
--------------------------------------
XXXXXXX XXXXXX
--------------------------------------
XXXXX XXXXXXXX
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Defined Terms
Defined Term Section Reference
Acquisition Proposal Section 4.04
Chicas Introductory Paragraph
Claim Section 9.01
Closing Date or Closing Section 1.02
Code Recitals
Constituent Corporations Section 6.03
Current Balance Sheet Section 2.10
Demanding Party Section 4.11(b)
Effective Date of the Merger Section 1.01
Financial Statements Section 2.03(a)
Indemnitors Section 9.01
Knowledge Section 12.02
Liens Section 2.03(d)
LJ. Net Introductory Paragraph
LJ. Net Common Stock Section 2.04
LJ. Net Special Meeting Section 4.03
Marks Section 2.08
Material Adverse Effect Section 12.03
Merger Recitals
Merger Price Section 6.01
MGC Introductory Paragraph
MGC Acquisition Introductory Paragraph
MGC Common Stock Section 3.04
MGC Observation Rights Section 4.01(a)
MGC SEC Filings Section 3.03
Offering Quantity Section 4.11(b)
Permits Section 2.12
Piggyback Registration Section 4.11(a)
Prohibited Business Section 8.01(c)
Prohibited Geographic Area Section 8.01(a)
Prohibited Time Period Section 8.01(b)
Registrable Securities Section 4.11(a)
Registration Expenses Section 4.11(e)
Securities Act Section 4.11(a)
Surviving Corporation Section 6.03
Xxxxxxxx Introductory Paragraph
Undisclosed Liabilities Section 9.01
Year 2000 Compliant Section 2.09
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EXHIBIT 2.04
OUTSTANDING STOCK
Stockholder Number of Shares
----------- ----------------
Xxxxxxx X. Xxxxxx 915
Xxxxx X. Xxxxxxxx 915
Xxxx Xxxxxx 170
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Total 2,000
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