AGREEMENT AND PLAN OF MERGER
By and Among
WS TELECOM, INC.,
XFONE, INC. AND XFONE USA, INC.
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
(not part of the Agreement and Plan of Merger)
ARTICLE I THE MERGER..........................................................2
1.01 The Merger; Effective Time...................................2
1.02 Effect of the Merger.........................................2
1.03 Consideration; Conversion of Shares..........................2
1.04 Dissenting Shares............................................4
1.05 Surrender of Certificates....................................5
1.06 Value of Parent Common Stock.................................6
1.07 Treatment of the Company Options and Warrants................6
1.08 No Further Ownership Rights in the Company Capital Stock.....6
1.09 Lost, Stolen or Destroyed Certificates.......................6
1.10 Taking of Necessary Action; Further Action...................7
1.11 Tax Consequences.............................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
PRINCIPALS..........................................................7
2.01 Corporate Organization.......................................7
2.02 Subsidiaries.................................................7
2.03 Capital Structure............................................8
2.04 Authority....................................................9
2.05 No Conflict.................................................10
2.06 Consents....................................................10
2.07 The Company Financial Statements............................10
2.08 No Undisclosed Liabilities..................................11
2.09 No Changes..................................................11
2.10 Tax Matters.................................................13
2.11 Restrictions on Business Activities.........................14
2.12 Title of Properties; Absence of Liens and Encumbrances;
Condition of Equipment....................................14
2.13 Agreements, Contracts and Commitments.......................15
2.14 Interested Party Transactions...............................17
2.15 Governmental Authorization..................................17
2.16 Litigation..................................................18
2.17 Accounts Receivable.........................................18
2.18 Assets Necessary to Business................................18
2.19 Minute Books................................................18
2.20 Environmental Matters.......................................19
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2.21 Brokers' and Finders' Fees.................................20
2.22 Employee Benefit Plans and Compensation....................20
2.23 Compliance with Laws; Relations with Governmental Entities.24
2.24 Merger Tax Matters.........................................24
2.25 Intellectual Property......................................24
2.26 Customer Contracts.........................................25
2.27 Relationships with Suppliers...............................25
2.28 Investment Representation; Legends.........................25
2.29 Stockholder Matters........................................26
2.30 Banking and Insurance......................................26
2.31 Representations Complete...................................26
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
ACQUISITION SUB ..................................................27
3.01 Organization and Standing..................................27
3.02 Authorization..............................................27
3.03 Binding Obligation.........................................28
3.04 Issuance of Parent Common Stock and Parent Stock Warrants..28
3.05 Litigation.................................................28
3.06 Securities and Exchange Commission Filings.................28
ARTICLE IV COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME..................29
4.01 Preparation of Proxy Statement.............................29
4.02 Restrictions on Transfer; Legends..........................29
4.03 Access to Information......................................30
4.04 Public Disclosure..........................................30
4.05 Conduct Business in Ordinary Course........................31
4.06 Consents and Approvals.....................................31
4.07 Financial Statements.......................................32
4.08 Notification of Certain Matters............................32
4.09 Additional Documents and Further Assurances................33
4.10 Federal and State Securities Exemptions....................33
4.11 Shareholder List...........................................33
4.12 Non-Competition and Non-Solicitation.......................33
4.13 Approval of Shareholders...................................34
4.14 No Shop....................................................35
ARTICLE V CONDITIONS TO THE MERGER..........................................35
5.01 Conditions to Obligations of Each Party to Effect the
Merger...................................................35
5.02 Conditions to the Obligations of Parent and Acquisition
Sub......................................................35
5.03 Conditions to Obligations of the Company and the
Principals...............................................38
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ARTICLE VI SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION...................................................40
6.01 Survival of Representations, Warranties and Covenants......40
6.02 Indemnification by the Principals; Escrow Fund.............41
6.03 Indemnification Procedures.................................44
6.04 Right of Offset............................................45
6.05 No Contribution............................................45
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.................................45
7.01 Termination................................................45
7.02 Effect of Termination......................................45
7.03 Expenses; Termination Fees.................................46
7.04 Amendment..................................................46
7.05 Extension; Waiver..........................................46
ARTICLE VII GENERAL PROVISIONS................................................46
8.01 Notices....................................................46
8.02 Interpretation.............................................48
8.03 Counterparts...............................................48
8.04 Entire Agreement; Assignment...............................48
8.05 No Third Party Beneficiaries...............................48
8.06 Severability...............................................48
8.07 Other Remedies.............................................48
8.08 Governing Law; Dispute Resolution..........................48
8.09 Rules of Construction......................................49
8.10 Attorneys' Fees............................................49
8.11 Principal's Post Closing Sale Restrictions.................49
Exhibits
Exhibit A - Articles of Merger
Exhibit B - Escrow Agreement
Exhibit C - Xxxxxxx Employment Agreement
Exhibit X - Xxxxxxx Employment Agreement
Exhibit E - Release
Schedules
Schedule 2.03 Capital Structure
Schedule 2.07 The Company Financial Statements
Schedule 2.08 No Undisclosed Liabilities
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Schedule 2.09 No Changes
Schedule 2.10 Tax Matters
Schedule 2.12(b) Properties
Schedule 2.13 Agreements, Contracts, Commitments
Schedule 2.15 Governmental Authorization
Schedule 2.16 Litigation
Schedule 2.22 Employee Benefit Plans and Compensation
Schedule 2.25 Intellectual Property
Schedule 2.26 Customer Contracts
Schedule 2.29 Stockholder Matters
Schedule 2.30 Banking and Insurance
Schedule 5.02(b) Third Party Consents Required
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of May __, 2004
by and among WS TELECOM, INC., a corporation organized under the laws of the
State of Mississippi ("WS Telecom" or "the Company"), XFONE, INC., a corporation
organized under the laws of the State of Nevada ("Parent"), XFone USA, Inc., a
corporation organized under the laws of the State of Mississippi, which at the
Closing Date shall be a wholly owned subsidiary of Parent ("Acquisition Sub"),
and Xxxx Xxxxxxx and Xxx Xxxxxxx (the "Principals").
BACKGROUND
A. The Board of Directors of each of Parent, Acquisition Sub, and the
Company believe it is in the best interests of their respective companies and
their respective shareholders that Parent acquire the Company through the
statutory merger of the Company with and into the Acquisition Sub (the "Merger")
and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding capital stock of the Company shall be acquired and converted into
the right to receive the consideration upon the terms and conditions set forth
herein.
C. The Company and each of the Principals, on the one hand, and Parent and
Acquisition Sub, on the other hand, desire to make certain representations,
warranties, covenants and other agreements in connection with the Merger.
D. Concurrently with the execution and delivery of this Agreement, as
material inducements to Parent and Acquisition Sub to enter into this Agreement:
(i) Parent, the Escrow Agent (as defined herein) and the Principals are entering
into an Escrow Agreement, in the form attached as EXHIBIT B (the "Escrow
Agreement"); (ii) Acquisition Sub and Xxxx Xxxxxxx are entering into an
Employment Agreement in the form attached as EXHIBIT C (the "Xxxxxxx Employment
Agreement") and (iii) Acquisition Sub and Xxx Xxxxxxx are entering into an
Employment Agreement in the form attached as EXHIBIT D ("Xxxxxxx Employment
Agreement" and together with the Xxxx Xxxxxxx Employment Agreement, the
"Principals Employment Agreements").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth in this Agreement, the parties agree as follows:
ARTICLE I
THE MERGER
1.01 The Merger; Effective Time. The Company shall be merged with and into
Acquisition Sub, and Acquisition Sub shall be the surviving corporation
(sometimes referred to herein as the "Surviving Corporation"). The Merger shall
be consummated effective at the time Articles of Merger attached hereto as
EXHIBIT A, are completed, executed and filed with the Mississippi Secretary of
State. The date and time of such consummation are referred to as the "Closing
Date" and the "Effective Time," respectively. The "Management Date" shall mean a
date prior to the Closing Date that the Company and the Acquisition Sub enter
into a Management Operating Agreement; provided, however, if the Company and
Acquisition Sub fail to enter into a Management Operating Agreement, the
Management Date shall be the Closing Date.
1.02 Effect of the Merger. At the Effective Time, (i) the separate
existence of the Company shall cease and the Company shall be merged with and
into Acquisition Sub, (ii) Acquisition Sub shall continue to possess all of the
rights, privileges and franchises possessed by it and shall, at the Effective
Time, become vested with and possess all property, rights, privileges, powers
and franchises possessed by and all the property, real or personal, causes of
action and every other asset of the Company, (iii) Acquisition Sub shall be
responsible for all of the liabilities and obligations of the Company in the
same manner as if Acquisition Sub had itself incurred such liabilities or
obligations, and the Merger shall not affect or impair the rights of the
creditors or of any persons dealing with the Company, (iv) the Articles of
Incorporation and the Bylaws of Acquisition Sub shall become the Articles of
Incorporation and the Bylaws of the Company, (vi) the Merger will affect the
tenure in office of all officers and directors of the Company and the existing
officers and directors of Acquisition Sub shall succeed to such positions with
the Company solely by virtue of the Merger, and (vii) the Merger shall have all
the effects provided by applicable Mississippi law.
1.03 Consideration; Conversion of Shares.
(a) Definitions. For all purposes of this Agreement, the following terms
shall have the following respective meanings:
(i) "Aggregate Merger Consideration" shall mean the: (1) the Parent
Stock Consideration, and (2) the Parent Warrant Consideration.
(1) "Parent Stock Consideration" shall mean a number of shares
of the common stock of the Parent Common Stock with an agreed market value of
$2,200,000 determined using the weighted average price of the Parent Common
Stock for the ten (10) trading days preceding the trading day immediately prior
to the Management Date (which weighted average price shall in no event be less
than $3.30 per share or greater than $4.30 per share).
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(2) "Parent Warrant Consideration" shall mean a number of
Parent Stock Warrants with a value of $1,300,000 with the value calculated as of
the Management Date assuming 90% volatility of the underlying Parent Common
Stock pursuant to the Black Scholes option - pricing model.
(ii) "Company Common Stock" shall mean shares of the Company's
common stock.
(iii) "Company Preferred Stock" shall mean shares of the Company's
Series A Preferred Stock.
(iv) "Company Stockholders" or "Company Shareholders" shall mean the
holders of the Total Company Common Stock and Total Company Preferred Stock at
the Effective Time.
(v) "Escrow Agent" shall mean Trustmark National Bank or such other
person or entity mutually agreed to by the parties to serve as an escrow agent
under the Escrow Agreement.
(vi) "GAAP" shall mean U.S. generally accepted accounting
principles.
(vii) "Knowledge" shall mean (i) with respect to the Company, the
knowledge of any of the Company's or any Subsidiary's officers or directors or
either of the Principals and the knowledge that such persons would have obtained
of the matter represented after reasonable inquiry thereof under the
circumstances; and (ii) with respect to the Parent, the actual knowledge of the
Parent's officers and the knowledge that such person would have obtained of the
matter represented after reasonable inquiry thereof under the circumstances.
(viii) "Material Adverse Effect" shall mean any change, event or
effect that is materially adverse to the business, assets, financial condition,
prospects or results of operations of the Company and its Subsidiaries, taken as
a whole.
(ix) "Parent Common Stock" shall mean shares of the common stock of
Parent.
(x) "Parent Stock Warrants" shall mean warrants convertible on a one
to one basis into Parent Common Stock with a term of five (5) years, a strike
price that is 10% above the closing price of the Parent Common Stock on the
Closing Date with the Parent Common Stock into which the warrant is convertible
is restricted stock.
(xi) "SEC" shall mean the U.S. Securities and Exchange Commission.
(xii) "Total Company Common Stock" shall be the aggregate number of
all shares of Company Common Stock issued and outstanding immediately prior to
the Effective Time.
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(xiii) "Total Company Preferred Stock" shall be the aggregate number
of all shares of the Company Preferred Stock issued and outstanding immediately
prior to the Effective Time.
(b) The Aggregate Merger Consideration shall be allocated among the
Company Stockholders as of the Effective Date as follows:
(c) Each share of Company Preferred Stock issued and outstanding
immediately prior to the Effective Time (other than Dissenting Shares as defined
in Section 1.04) will be canceled and extinguished and be converted
automatically into the right to receive upon surrender of certificate(s)
representing Company Preferred Stock (i) an amount of the Parent Stock
Consideration equal to the product of the Parent Stock Consideration times 28.6%
divided by Total Company Preferred Stock and (ii) an amount of the Parent
Warrant Consideration equal to the product of the Parent Warrant Consideration
times 28.6% divided by the Total Company Preferred Stock; and
(d) Each share of Company Common Stock issued and outstanding immediately
prior to the Effective Time (other than Dissenting Shares as defined in Section
1.04) will be canceled and extinguished and be converted automatically into the
right to receive upon surrender of certificate(s) representing Company Common
Stock (i) an amount of the Parent Stock Consideration equal to the product of
the Parent Stock Consideration times 71.4% divided by the Total Company Common
Stock and (ii) an amount of the Parent Warrant Consideration equal to the
product of the Parent Warrant Consideration times 71.4% divided by the Total
Company Common Stock.
1.04 Dissenting Shares.
(a) Notwithstanding any other provisions of this Agreement to the
contrary, any shares of Company Common Stock or Company Preferred Stock held by
a Company Shareholder who has exercised and perfected appraisal rights for such
Company Common Stock or Company Preferred Stock in accordance with the
Mississippi Business Corporation Act and who has not effectively withdrawn or
lost such appraisal rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive the consideration set forth in Section 1.03, but
the holder shall only be entitled to such rights as are provided by the
Mississippi Business Corporation Act.
(b) Notwithstanding the provisions of Section 1.04(a) hereof, if any
holder of Dissenting Shares shall effectively withdraw or lose (through failure
to perfect or otherwise) such holder's appraisal rights under the Mississippi
Business Corporation Act, then, as of the later of the Effective Time and the
occurrence of such event, such holder's shares shall automatically be converted
into and represent only the right to receive the consideration set forth in
Section 1.03 hereof, without interest thereon, upon surrender of the
certificate(s) representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demand
for appraisal received by the Company pursuant to the applicable provisions of
the Mississippi Business Corporation Act; and (ii) the opportunity to
participate in all negotiations and proceedings with respect to such demands.
The Company shall not, except with the prior written consent of Parent
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or as required by the Mississippi Business Corporation Act, make any payment
with respect to any such demands or offer to settle or settle any such demands.
To the extent that Parent or the Company makes any payment or payments to any
Dissenting Shares, Parent shall be entitled to recover under the terms of
Article VI hereof the aggregate amount by which such payment or payments exceed
the aggregate consideration that otherwise would have been payable in respect of
the stock of any Dissenting Shares.
1.05 Surrender of Certificates.
(a) Exchange Agent. Transfer Online, Inc. shall serve as the exchange
agent (the "Exchange Agent") for the Merger.
(b) Parent to Provide Parent Common Stock and Parent Stock Warrants. Upon
the terms and subject to the conditions of Section 1.03, promptly after the
Effective Time, in exchange for outstanding Company Common Stock and Company
Preferred Stock, Parent shall make available to the Exchange Agent for exchange
in accordance with this Article I, the Aggregate Consideration issuable pursuant
to Section 1.03, less the Parent Common Stock and Parent Stock Warrants being
escrowed in accordance with Section 6.02(b) hereof (the "Escrow Shares"), which
Parent shall deposit into the Escrow Fund as defined in Section 6.02(b) hereof.
(c) Exchange Procedures. As promptly as practicable after the Effective
Time, Parent shall cause the Exchange Agent to mail to each holder of record of
a certificate(s) which, immediately prior to the Effective Time, represented
outstanding Company Common Stock or Company Preferred Stock (the
"Certificates"), whose Company Common Stock or Company Preferred Stock was
converted into the right to receive shares of Parent Common Stock and Parent
Stock Warrants pursuant to Section 1.03: (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Parent may
reasonably specify); and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificate(s) representing shares of Parent
Common Stock and for the Parent Stock Warrants. Upon surrender of Certificates
for cancellation to the Exchange Agent or to such other agent or agents as may
be appointed by Parent, together with such letter of transmittal, duly completed
and validly executed in accordance with the instructions thereto, the holders of
such Certificates shall be entitled to receive in exchange therefor
certificate(s) representing the number of whole shares of Parent Common Stock
and Parent Stock Warrants, and the Certificates so surrendered shall forthwith
be canceled. Until so surrendered, outstanding Certificates will be deemed from
and after the Effective Time, for all corporate purposes other than the payment
of dividends, to evidence the ownership of the number of full shares of Parent
Common Stock and Parent Stock Warrants into which such Company Common Stock or
Company Preferred Stock shall have been so converted.
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Stock with
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a record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the Parent Common Stock represented
thereby until the holder of record of such Certificates shall surrender such
Certificates. Subject to applicable law, as promptly as practicable following
surrender of any such Certificates, the Exchange Agent shall deliver to the
record holder thereof, without interest, (i) certificate(s) representing whole
shares of Parent Common Stock and Parent Stock Warrants issued in exchange
therefore, and (ii) the amount of dividends or other distributions with a record
date after the Effective Time but prior to surrender payable with respect to
such whole shares of Parent Common Stock.
(e) No Liability. Notwithstanding anything to the contrary in this Section
1.05, neither the Exchange Agent, the Surviving Corporation nor any party hereto
shall be liable to a holder of shares of Company Common Stock or Company
Preferred Stock for any amount properly paid to a public official pursuant to
any applicable abandoned property, escheat or similar law.
1.06 Value of Parent Common Stock. For purposes of the indemnification
obligations described in Article VI hereof, the parties hereto agree that the
Parent Common Stock and Parent Stock Warrants issued in the Merger shall be
deemed to have a value per share equal to the value per share determined in
accordance with Section 1.03.
1.07 Treatment of the Company Options and Warrants. All outstanding
options, warrants and other rights to purchase Company Common Stock or Company
Preferred Stock or any other equity interest in the Company as set forth in
Section 2.03 that remain unexercised as of the Effective Time will be
terminated, and the rights granted thereunder will be forfeited. Prior to the
Effective Time, the Company shall provide all necessary notifications, and
obtain all necessary consents, releases or cancellation agreements from the
holders of such options, warrants and other rights as Parent may reasonably
require.
1.08 No Further Ownership Rights in the Company Capital Stock. The shares
of Parent Common Stock and Parent Stock Warrants paid in respect of the
surrender for exchange of Company Common Stock and Company Preferred Stock in
accordance with the terms hereof (including any cash paid with respect to
fractional shares of Parent Common Stock or Parent Stock Warrants) shall be
deemed to be in full satisfaction of all rights pertaining to such Company
Common Stock or Company Preferred Stock, and there shall be no further
registration of transfers on the records of the Surviving Corporation of capital
stock that was outstanding immediately prior to the Effective Time. If, after
the Effective Time, Certificates are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
1.09 Lost, Stolen or Destroyed Certificates. In the event any certificates
evidencing shares of Company Common Stock or Company Preferred Stock shall have
been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for
such lost, stolen or destroyed certificates, upon the making of an affidavit of
that fact by the holder thereof, such shares of Parent Common Stock, Parent
Stock Warrants or such cash consideration as may be required pursuant to Section
1.03 hereof; provided, however, that Parent may, in its discretion and as a
condition precedent to the
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issuance thereof, require the owner of such lost, stolen or destroyed
certificates to deliver a bond in such amount as it may reasonably direct
against any claim that may be made against Parent or the Exchange Agent with
respect to the certificates alleged to have been lost, stolen or destroyed.
1.10 Taking of Necessary Action; Further Action. If at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company, then the officers, directors and employees of the
Company, Parent and Acquisition Sub are fully authorized in the name of their
respective companies or otherwise to take, and will take, all such lawful and
necessary action.
1.11 Tax Consequences. It is intended that the Merger shall constitute a
reorganization within the meaning of Section 368(a)(1)(A), by reason of Section
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall constitute a "plan of reorganization" within the
meaning of Section 368 of the Code.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPALS
The Company, and each of the Principals, hereby represent and warrant to
Parent and Acquisition Sub that on the date hereof and as of the Effective Time
as though made on the Effective Date as follows:
2.01 Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Mississippi. The Company has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
is duly licensed or qualified to do business in each jurisdiction in which its
ownership or leasing of its properties or the nature of the business conducted
by the Company makes such licensing or qualification necessary. The copies of
the Articles of Incorporation of the Company and the Subsidiaries and the Bylaws
of the Company and the Subsidiaries, certified by its Secretary as of the date
of this Agreement, which are being delivered to Parent and Acquisition Sub
herewith, are complete and correct copies of such documents in effect as of the
date of this Agreement. The minute books of the Company and the Subsidiaries
contain true and complete records of all meetings and other corporate actions of
its shareholders and their Boards of Directors (including all committees of
their Boards of Directors).
2.02 Subsidiaries. The only corporation, limited liability company,
partnership, association, joint venture or other business entity that the
Company owns or controls, directly or indirectly, is eXpeTel Communications,
Inc., a Mississippi company, and Gulf Coast Utilities, Inc., a Mississippi
company (each, a "Subsidiary" and collectively, the "Subsidiaries") and the
Company owns 100% of the issued and outstanding capital stock of each
Subsidiary. Each Subsidiary is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its
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incorporation and each has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. Each
of the Subsidiaries is duly qualified or licensed to do business and in good
standing in each jurisdiction in which its ownership or leasing of its
properties or the nature of the business conducted by it makes such
qualification or licensing necessary.
2.03 Capital Structure.
(a) The authorized capital stock of the Company consists of (i) 40,000,000
shares of Company Common Stock, 27,056,778 shares of which are issued and
outstanding and (ii) 2,000,000 shares of Company Preferred Stock, 2,000,000
shares of which are issued and outstanding. The capitalization of the Company is
as set forth on SCHEDULE 2.03(A) hereto. The names, addresses, number of shares
held and domiciles of each the Company Shareholder are set forth on SCHEDULE
2.03(A) hereto. Except as set forth on SCHEDULE 2.03(A) hereto, there are no
shares of capital stock of the Company authorized, issued or outstanding. Except
for Company Common Stock and Company Preferred Stock set forth on SCHEDULE
2.03(A) hereto, there are no classes or series of ownership interests of the
Company of any kind authorized, outstanding or issuable. All outstanding shares
of Company Common Stock and Company Preferred Stock are duly authorized, validly
issued, fully paid and non-assessable, and are not subject to preemptive rights
created by statute, the Articles of Incorporation or Bylaws of the Company, or
any agreement to which the Company is a party or by which it is bound. All
shares of Company Common Stock and Company Preferred Stock have been issued in
compliance with all applicable federal and state securities laws. The
designations, powers, preferences, rights, qualifications, limitations and
restrictions in respect of Company Common Stock and Company Preferred Stock are
as set forth in SCHEDULE 2.03(A) hereto. There are no declared or accrued but
unpaid dividends with respect to any shares of the Company capital stock and
none of the Company capital stock is held in treasury.
(b) As of the date hereof, an aggregate of 623,322 shares of Company
Common Stock are issuable upon the exercise of outstanding options, warrants and
similar rights. SCHEDULE 2.03(B) sets forth for each outstanding option,
warrant, or similar right, the name of the holder of such right and the domicile
address of the holder, the number of shares of Company Common Stock issuable
upon the exercise of such right, the exercise price of such right, the vesting
schedule for such right (including any vesting acceleration triggered by this
Agreement, upon events following the Closing, or the transactions contemplated
hereby), and whether such right is intended to qualify as an incentive stock
option as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"). As of the Closing Date, all such options, warrants or
other rights, written or unwritten, to purchase any of the Company's authorized
or unissued capital stock shall have been exercised or will have terminated.
There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
Company Common Stock and Company Preferred Stock. The shareholders of the
Company have good, valid and marketable title to Company Common Stock and
Company Preferred Stock free and clear of any claim, lien, pledge,
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charge, security interest options, charges, assessments or other encumbrance of
any nature whatsoever.
(c) The requisite vote required to approve the Merger under Mississippi
law, the Company's Articles of Incorporation, Bylaws and any other agreement to
which the Company or any Shareholder of the Company is a majority of the Company
Preferred Stock voting as a class and a majority of the Company Common Stock
voting as a class.
(d) The authorized capital stock, membership interests or other ownership
interests (collectively, the "Equity Interests") of each Subsidiary, as well as
the number of such shares issued and outstanding, are set forth on SCHEDULE
2.03(D). All of the issued and outstanding Equity Interests of each Subsidiary
have been duly authorized and are validly issued, fully paid and nonassessable.
The Company holds of record and owns beneficially all of the outstanding Equity
Interests of each Subsidiary, free and clear of any charges, liens, encumbrances
or security interests and no Equity Interests of any Subsidiary are held in
treasury. There are not now, and at the Effective Time there will not be, any
existing options, warrants, calls, subscriptions or other rights or other
agreements or commitments obligating the Company or any Subsidiary to issue,
transfer or sell any of the Equity Interests of any Subsidiary or any other
securities convertible into or evidencing the right to subscribe for any such
shares. Except for interests in the Subsidiaries, neither the Company nor any
Subsidiary has any investment or interest in any entity.
2.04 Authority. The Company and each of the Principals have all requisite
power and authority to enter into this Agreement and any Related Agreement (as
defined below) to which they are party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement,
any Related Agreement to which the Company is party and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company, subject to the approval
of the Company Shareholders. No further action is required on the part of any of
the Principals to authorize the Agreement, any Related Agreement to which they
are a party and the transactions contemplated hereby and thereby. This
Agreement, any Related Agreement to which the Company is a party and the Merger
have been unanimously approved by the board of directors of the Company, and the
Board of Directors will recommend to the Company Shareholders to vote in favor
of this Agreement, the Merger and the transactions contemplated thereby. This
Agreement and any Related Agreement to which the Company and/or any of the
Principals is a party has been duly executed and delivered by the Company and/or
the Principals, as the case may be, and constitute the valid and binding
obligations of the Company and each of the Principals, enforceable against each
such party in accordance with their respective terms, except as such
enforceability may be subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and rules of law governing
specific performance, injunctive relief or other equitable remedies. For the
purposes of this Agreement, the term "Related Agreements" shall mean the Escrow
Agreement, the Xxxxxxx Employment Agreement, the Xxxxxxx Employment Agreement,
the Articles of Merger, and any other agreements to which the Company and/or the
Principals is a party that is entered into in order to consummate the
transactions contemplated hereby or thereby.
9
2.05 No Conflict. The execution and delivery by the Company and each of
the Principals of this Agreement and any Related Agreement to which the Company
and/or any Principal is a party, and the consummation of the transactions
contemplated hereby and thereby, will not conflict with or result in any
violation of or default under (with or without notice or lapse of time, or both)
or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"Conflict"): (i) any provision of the Articles of Incorporation or Bylaws of the
Company, each as amended to date; (ii) the organizational documents of any of
the Subsidiaries; (iii) any contract to which the Company or any Subsidiary is a
party, or to which any of the Principals, is subject; or (iv) any judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company, its Subsidiaries, or any of their respective properties or assets, or
applicable to any of the Principals.
2.06 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency, commission, military division or department,
inspectorate, minister, ministry or public or statutory person (whether
autonomous or not) thereof (or of any political subdivision thereof) (each, a
"Governmental Entity"), is required by or with respect to the Company, any
Subsidiary or any of the Principals in connection with the execution and
delivery of this Agreement, any of the Related Agreements to which the Company,
any Subsidiary or any Principal is a party, or the consummation of the
transactions contemplated hereby or thereby, except for: (i) such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required by the public service commission in the States of
Mississippi, Alabama, Florida, Louisiana and Georgia to approve the change of
ownership/transfer of the Certificates of Public Convenience and Necessity
issued to the Company by each such authority ("PSC Approvals"); (ii) the filing
of the Articles of Merger with the Secretary of State of the State of
Mississippi; (iii) the approval of this Agreement and the transactions
contemplated hereby by the Company Shareholders; (iv) the consents as set forth
in Section 5.02(b); and (v) such other consents, filings, approvals,
registrations or declarations, the failure of which to make or obtain is not
reasonably likely, individually, or in the aggregate, to have a Material Adverse
Effect.
2.07 The Company Financial Statements. Attached as SCHEDULE 2.07 are the
(i) consolidated unaudited balance sheet as of December 31, 2001, 2002 and 2003,
and the consolidated Profit and Loss Statement for the Company and its
Subsidiaries for the years ended December 31, 2001, 2002 and 2003 and (ii) the
consolidated unaudited balance sheet as of March 31, 2004 and the consolidated
Profit and Loss Statement for the Company and its Subsidiaries for the three
months ending March 31, 2004 (collectively, the "Financials"). The Financials
are true, correct and accurate and have been based upon the information
contained in the books and records of the Company and its Subsidiaries and have
been prepared in accordance with GAAP except that the March 31, 2004 Financials
do not have notes thereto and may be subject to normal and recurring year end
adjustments consistently applied throughout the periods covered thereby. The
Financials present fairly the financial condition, operating results and cash
flows of the Company and its Subsidiaries
10
(and their predecessors) as of the dates and during the periods indicated
therein. The Company's unaudited balance sheet as of March 31, 2004 is referred
to hereinafter as the "Current Balance Sheet." The Company maintains and will
continue, prior to the Effective Time, to maintain a standard system of
accounting established and administered in accordance with GAAP.
2.08 No Undisclosed Liabilities. Except as and to the extent reflected or
reserved against in the Financials or as disclosed on SCHEDULE 2.08, which shall
include all the Company's accounts payable and other accrued expenses as of the
date of this Agreement, the Company and its Subsidiaries have no liabilities,
claims or obligations (whether accrued, absolute, contingent, unliquidated or
otherwise, whether or not known to the Company or Principals or any directors,
officers or employees of the Company or its Subsidiaries, whether due to become
payable and regardless of when or by whom asserted) or any unrealized or
anticipated losses from any unrealized or anticipated losses of a contractual
nature.
2.09 No Changes. Except as set forth on SCHEDULE 2.09, since December 31,
2003, there has not been, occurred or arisen any of the following with respect
to the Company or any of its Subsidiaries:
(a) material transaction by the Company or any of its Subsidiaries except
in the ordinary course of business consistent with past practices;
(b) amendments or changes to the organizational documents of the Company
or any of its Subsidiaries;
(c) capital expenditure or capital expenditure commitment exceeding $5,000
individually or $20,000 in the aggregate;
(d) payment, discharge or satisfaction, in any amount in excess of $5,000
in any one case, or $20,000 in the aggregate, of any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than payments, discharges or satisfactions made or given in the ordinary
course of business consistent with past practices;
(e) destruction of, damage to or loss of any material assets or material
business or loss of any material customer (whether or not covered by insurance);
(f) claim of wrongful discharge or other unlawful labor practice or
action;
(g) material change in accounting methods or practices (including any
change in depreciation or amortization policies or rates by the Company or any
of its Subsidiaries) other than as required by GAAP;
(h) change in any election in respect of Taxes (as defined below),
adoption or change in any accounting method in respect of Taxes, agreement or
settlement of any claim or assessment in
11
respect of Taxes, or extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes;
(i) revaluation by the Company or any of its Subsidiaries of any of their
respective assets;
(j) declaration, setting aside or payment of a dividend or other
distribution (whether in cash, stock or property) in respect of any share of
capital stock, or any split, combination or reclassification in respect of any
share of capital stock, or any issuance or authorization of any issuance of any
other securities in respect of, in lieu of or in substitution for any share of
capital stock, or any direct or indirect repurchase or redemption of any share
of capital stock (or options or other rights convertible into, exercisable or
exchangeable therefor), other than a dividend of 200,000 shares of the Company
Common Stock to the holders of the Company Preferred Stock;
(k) increase in the salary or other compensation (cash, equity or
otherwise) payable by the Company or any of its Subsidiaries to any officers,
directors, employees or advisors, or the declaration, or commitment or
obligation of any kind for the payment by the Company or any of its Subsidiaries
of a severance payment, termination payment, bonus or other additional salary or
compensation (cash, equity or otherwise) to any such person;
(l) sale, lease or other disposition of any of the material assets or
material properties or any creation of any security interest in such material
assets or material properties;
(m) loan by the Company or any of its Subsidiaries to any person or
entity, incurring by the Company or any of its Subsidiaries of any indebtedness,
guaranteeing of any indebtedness (in each case, except in the ordinary course of
business and consistent with past practice, including, without limitation,
travel and related expenses advanced to employees), issuance or sale of any debt
securities or guaranteeing of any debt securities of others, except for advances
to employees for travel and business expenses in the ordinary course of business
consistent with past practices;
(n) waiver or release of any material or valuable right or claim of the
Company or any of its Subsidiaries, including any write-off or other compromise
of any account receivable of the Company or any of its Subsidiaries;
(o) the commencement, settlement, notice or threat of any lawsuit or
proceeding or other investigation against the Company or any Subsidiary or its
affairs, or any reasonable basis for any of the foregoing;
(p) notice to the Company, any Subsidiary or their respective directors,
officers or managers or advisors of any claim of ownership by any person other
than the Company of the intellectual property owned by or developed or created
by the Company or of infringement by the Company of any other person's
intellectual property;
12
(q) issuance or sale, or contract to issue or sell, by the Company or any
of its Subsidiaries of any capital stock, or any securities, warrants, options
or rights to purchase any of the foregoing;
(r) agreement or modification to any agreement pursuant to which any other
party was granted marketing, distribution, development or similar rights of any
type or scope with respect to any products or technology of the Company or its
Subsidiaries;
(s) hiring or termination of any employee of the Company or any of its
Subsidiaries;
(t) event or condition of any character that has had or is reasonably
likely to have a Material Adverse Effect; or
(u) agreement by the Company, any Subsidiary, or any officer, manager or
employee thereof on behalf of the Company or any Subsidiary to do any of the
things described in the preceding clauses (a) through (t) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.10 Tax Matters.
(a) Definition of Taxes. For the purposes of this Agreement, the term
"Tax" or, collectively, "Taxes" shall mean: (i) any and all federal, state,
local and foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, capital gains, capital stock, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, stamp, excise and property taxes, together with
all interest, penalties and additions imposed with respect to such amounts
(whether payable directly or by withholding, and whether or not requiring the
filing of a Return (defined below)); (ii) any liability for the payment of any
amounts of the type described in clause (i) above as a result of being a member
of an affiliated, consolidated, combined or unitary group for any period; and
(iii) any liability for the payment of any amounts of the type described in
clauses (i) or (ii) above as a result of any express or implied obligation to
indemnify any other person or as a result of any obligations under any
agreements or arrangements with any other person with respect to such amounts
and including any liability for taxes of a predecessor entity.
(b) Taxes. All Taxes which are due and payable by the Company or its
Subsidiaries and any interest or penalties thereon having been paid in full. All
federal, state and other tax returns of the Company and its Subsidiaries
required by law to be filed have been timely filed, and Seller and its
Subsidiaries have paid or accrued on the balance sheets included in the
Financials (including taxes on properties, income, franchises, licenses, sales
and payrolls) which have become due pursuant to such returns or pursuant to any
assessment. All such tax returns have been prepared in compliance with all
applicable laws and regulations and are true and accurate in all material
respects. The amounts set up as provisions for Taxes (including provision for
deferred income taxes) on the Financials are sufficient for the payment of all
unpaid federal, state, county and local taxes accrued for or applicable to all
periods (or portions thereof) ending on or before the Effective Date. There
13
are no tax liens on any of the property of the Company or its Subsidiaries
except those with respect to taxes not yet due and payable. There are no pending
tax examinations nor has the Company or its Subsidiaries received a revenue
agent's report asserting a tax deficiency. The Company nor its Subsidiaries do
not expect any taxing authority to claim or assess any amount of additional
taxes against it. No claim has ever been made by a taxing authority in a
jurisdiction where the Company or its Subsidiaries does not file tax returns
that the Company or any of its Subsidiaries is or may be subject to taxes
assessed by such jurisdiction.
Copies of Seller's last three federal, state and local income tax returns
are included as SCHEDULE 2.10(B). No waivers of any statute of limitations
relating to the payment of taxes have been given by the Company or its
Subsidiaries and no waivers therefor have been requested by the Internal Revenue
Service from the Company or its Subsidiaries. No extensions have been obtained
to file any tax return which has not heretofore been filed. The Company and its
Subsidiaries have withheld from each payment made to employees of the Company
and its Subsidiaries the amount of all taxes (including, but not limited to,
federal, state and local income taxes, Federal Insurance Contribution Act taxes
and Unemployment Tax Act taxes) required to be withheld therefrom and all
amounts customarily withheld therefrom, and have set aside all other employee
contributions or payments customarily set aside with respect to such wages and
have paid or will pay the same to, or have deposited or will deposit such
payment with, the proper tax receiving officers or other appropriate
authorities. Other than the E911 Fees shown in the Financials under the caption
"Other Fees and Taxes Payable," all Taxes and other amounts required to be
collected and paid to a third party as required by law from customers' payments
have been timely withheld and paid by the Company and its Subsidiaries.
2.11 Restrictions on Business Activities. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or any Subsidiary is a party or otherwise binding upon the
Company or any Subsidiary, which has or may reasonably be expected to have the
effect of prohibiting or impairing in any material respect any business
practice, any acquisition of property, the conduct of business as currently
conducted or otherwise materially limiting the freedom of the Company or any
Subsidiary to engage in any line of business or to compete with any person.
2.12 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) The Company and each Subsidiary has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all of
its properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except: (i) as reflected in the
Financials; (ii) Liens for Taxes not yet due and payable; and (iii) such
imperfections of title and encumbrances, if any, which do not detract materially
from the value of, or interfere materially with the present use of, the property
subject thereto or affected thereby.
(b) SCHEDULE 2.12(B) contains an accurate and complete list and
description of all real property owned by the Company and its Subsidiaries or in
which the Company and its Subsidiaries
14
has a leasehold or other interest or which is used by the Company and its
Subsidiaries in connection with the operation of its business, together with a
description of each lease, sublease, license, or any other instrument under
which the Company and its Subsidiaries claims or holds such leasehold or other
interest or right to the use thereof or pursuant to which the Company and its
Subsidiaries has assigned, sublet or granted any rights therein, identifying the
parties thereto, the rental or other payment terms, expiration date and
cancellation and renewal terms thereof, and all machinery, tools, equipment,
motor vehicles, rolling stock and other tangible personal property (other than
inventory and supplies), owned, leased or used by the Company or its
Subsidiaries except for items having a value of less than $2,000 which do not,
in the aggregate, have a total value of more than $10,000, setting forth with
respect to all such listed property a summary description of all leases, liens,
claims, encumbrances, charges, restrictions, covenants and conditions relating
thereto, identifying the parties thereto, the rental or other payment terms,
expiration date and cancellation and renewal terms thereof.
(c) The Company or its Subsidiaries has not granted to any third party any
right or license to use the Company's customer lists, customer contact
information, customer correspondence or customer licensing and purchasing
histories relating to its current and former customers.
2.13 Agreements, Contracts and Commitments.
(a) Except as set forth on SCHEDULE 2.13(A), neither the Company nor any
of its Subsidiaries is presently party to or bound by:
(i) any employment, consulting or sales agreement with any employee,
consultant or salesperson of the Company or any of its Subsidiaries;
(ii) any agreement or plan relating to employee benefits or
compensation, including without limitation any option plan or purchase plan with
respect to Equity Interests of the Company or any Subsidiary, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(iii) any fidelity or surety bond or completion bond;
(iv) any lease of personal property having an annual rental rate in
excess of $2,000 individually or $20,000 in the aggregate;
(v) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $5,000 individually or
$20,000 in the aggregate;
15
(vi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
(vii) any payables, mortgages, indentures, guarantees, loans or
credit agreements, security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit or evidencing any debt
or any payable, debt or agreement which is secured by any assets of the Company
or its Subsidiaries;
(viii) any purchase order or contract for the purchase of materials
or services involving in excess of $2,000 individually or $20,000 in the
aggregate;
(ix) any construction contracts;
(x) any dealer, distribution, joint marketing or development
agreement or agreements relating to territorial arrangements, sales
representation, operating or consulting agreements;
(xi) any remarketer, reseller or other agreement for use or
distribution of the Company's products, technology or services;
(xii) any supplier or third party provider agreements;
(xiii) any joint venture, partnership or other management
agreements;
(xiv) any advertising, marketing, telemarketing or promotional
agreements;
(xv) any tax sharing agreement with any other party;
(xvi) any non-compete or other agreements restricting the business
in any way;
(xvii) any independent agent or independent contractor agreements;
(xviii) any agreements for the discount of the services or products
offered by the Company or its Subsidiaries;
(xix) any agreements pursuant to which the Company or its
Subsidiaries is obligated to indemnify any party;
(xx) any agreements with any current or former officer, director,
employee, consultant or equity holder or any partnership, corporation, joint
venture or other entity in which any such person has an interest;
16
(xxi) any irrevocable right of use or similar agreements;
(xxii) any agreement providing for the purchase of
telecommunications minutes, services or traffic; or
(xxiii) any other agreement, contract or commitment that involves
$2,000 individually or $20,000 in the aggregate or more and is not cancelable
without penalty within thirty (30) calendar days.
(b) The Company and each Subsidiary is in compliance with and has
breached, violated or defaulted under, or received notice that it has breached,
violated or defaulted under, any of the terms or conditions of any agreement,
contract, lease, license or commitment to which it is a party or by which it is
bound (collectively, the "Contracts"), nor does the Company have knowledge of
any event that would constitute such a material breach, violation or default
with the lapse of time, giving of notice or both. Each Contract is in full force
and effect and is not subject to any material default thereunder, nor, to the
Knowledge of the Company, is any party obligated to the Company or any
Subsidiary pursuant thereto subject to any material default thereunder.
(c) The Company has obtained, or will obtain prior to the Effective Time,
all necessary consents, waivers and approvals of parties to any Contract as are
required thereunder in connection with the Merger or for such Contracts to
remain in effect without modification, limitation or alteration after the
Effective Date. Following the Effective Date, the Company and each Subsidiary
will be permitted to exercise all of its rights under the Contracts without the
payment of any additional amounts or consideration other than amounts or
consideration which the Company or any Subsidiary would otherwise be required to
pay had the transactions contemplated by this Agreement not occurred.
2.14 Interested Party Transactions. No officer, director, employee,
shareholder, manager or member of the Company or any Subsidiary (nor any
ancestor, sibling, descendant or spouse of any such person, or trust,
partnership or corporation in which any such person has or has had an interest)
has or has had, directly or indirectly: (i) an interest in any entity which
furnished or sold, or furnishes or sells, services, products or technology that
the Company or any Subsidiary furnishes or sells; (ii) any interest in any
entity that purchases from or sells or furnishes to the Company or any
Subsidiary, any goods or services; or (iii) a beneficial interest in any
Contract to which the Company or any Subsidiary is a party; provided, however,
that ownership of no more than 1% of the outstanding voting stock of a publicly
traded corporation shall not be deemed to be an "interest in any entity" for
purposes of this Section 2.14.
2.15 Governmental Authorization.
(a) Each consent, license, permit, grant, certificate, approval or other
authorization (i) pursuant to which each of the Company and its Subsidiaries
currently operates or holds any interest in any of their properties, or (ii)
which is required for the operation of its business as currently
17
conducted or the holding of any such interest has been issued or granted and is
listed on SCHEDULE 2.15 (collectively, the "the Company Authorizations"). The
Company and its Subsidiaries are operating in compliance with all Company
Authorizations. Each Company Authorization has been lawfully and validly issued
and no proceeding or investigation is currently pending or threatened, and the
Company or its Subsidiaries has received no notice of any investigation,
revocation, cancellation or modification with respect to any Company
Authorization and knows of no basis therefor. The Company and its Subsidiaries
have timely filed all reports, data and other information required to be filed
with any governmental entity or as required to maintain the Company
Authorizations. The Company Authorizations are in full force and effect, and,
subject to obtaining the PSC Approvals (as defined in Section 2.6) shall remain
in full force and effect without modification after the Effective Time.
2.16 Litigation. Except as set forth on SCHEDULE 2.16, there is no action,
suit, claim or proceeding of any nature pending threatened against the Company
or any Subsidiary or any Principal or their respective properties or any person
or entity whose liability the Company or any Subsidiary or any Principal may
have retained or assumed, either contractually or by operation of law, nor, to
the Knowledge of the Company or Principals, is there any reasonable basis
therefor. There is no investigation or other proceeding pending or threatened
against the Company or any Subsidiary or any Principal, any of their respective
properties or any person or entity whose liability the Company or any Subsidiary
or any Principal may have retained or assumed, either contractually or by
operation of law, by or before any Governmental Entity, nor, to the Knowledge of
the Company or Principals, is there any reasonable basis therefor. Except as set
forth on SCHEDULE 2.16, no Governmental Entity has at any time challenged or
questioned the legal right of the Company or any Subsidiary to conduct their
respective operations as presently or previously conducted.
2.17 Accounts Receivable. All receivables of the Company or any Subsidiary
(including accounts receivable, loans receivable and advances) which are
reflected in the Balance Sheet, and all such receivables which will have arisen
since the date thereof, shall have arisen only from bona fide transactions in
the ordinary course of the business of the Company or any Subsidiary and shall
be (or have been) fully collected when due, or in the case of each account
receivable within 90 days after it arose, without resort to litigation and
without offset or counterclaim, in the aggregate face amounts thereof except to
the extent of the normal allowance for doubtful accounts with respect to
accounts receivable computed as a percentage of sales consistent with the
Company's and the Subsidiaries' prior practices as reflected on the March 31,
2004 Financials.
2.18 Assets Necessary to Business. The Company and its Subsidiaries
presently have and at Closing will have title to all property and assets, real,
personal and mixed, tangible and intangible, and all leases, licenses and other
agreements, necessary to permit Acquisition Sub to carry on the business of the
Company and its Subsidiaries, as currently conducted.
2.19 Minute Books. The minutes of the Company and its Subsidiaries made
available to counsel for Parent are the only minutes of the Company and the
Subsidiaries and contain substantially accurate summaries of all material
meetings of the board of directors (or committees
18
thereof), the board of managers (or committees thereof), the shareholders (or
committees thereof), the members (or committees thereof) of the Company and each
Subsidiary, as applicable, and each action by written consent since the
inception of each such entity.
2.20 Environmental Matters.
(a) Hazardous Material. None of the Company or any Subsidiary has: (i)
operated any underground storage tanks at any property that the Company or any
Subsidiary has at any time owned, operated, occupied or leased; or (ii)
illegally released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including without limitation PCBs, asbestos, petroleum, and
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws (a "Hazardous Material"). To the Knowledge of
the Company, no Hazardous Materials are present in, on or under any property,
including the land and the improvements, ground water and surface water thereof,
that the Company or any Subsidiary has at any time owned, operated, occupied or
leased.
(b) Hazardous Materials Activities. Neither the Company or any Subsidiary
has transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in effect
on or before the Effective Time, nor has the Company or any Subsidiary disposed
of, transported, sold, or manufactured any product containing a Hazardous
Material (any or all of the foregoing being collectively referred to herein as
"Hazardous Materials Activities") in violation of any rule, regulation, treaty
or statute promulgated by any Governmental Entity in effect prior to or as of
the date hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. The Company and each of its Subsidiaries currently holds all
environmental approvals, permits, licenses, clearances and consents (the
"Environmental Permits") necessary for the conduct of Hazardous Material
Activities by them, respectively, and other businesses of the Company or any
Subsidiary as such activities and businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or, to the
Knowledge of the Company, threatened concerning any Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of the Company or any
Subsidiary. The Company has no Knowledge of any fact or circumstance that is
reasonably likely to involve the Company or any Subsidiary in any environmental
litigation or impose upon the Company or any Subsidiary any environmental
liability.
19
2.21 Brokers' and Finders' Fees. The Company or its Subsidiaries has not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agents' commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
2.22 Employee Benefit Plans and Compensation.
(a) Definitions. For all purposes of this Agreement, the following terms
shall have the following respective meanings:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company or Parent, as applicable, within the meaning of Section
414(b), (c), (m) or (o) of the Code, and the regulations issued thereunder.
(ii) "COBRA" shall mean the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended.
(iii) "the Company Employee Plan" shall mean any plan, program,
policy, practice, contract, agreement or other material arrangement providing
for compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written, unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation.
(iv) "DOL" shall mean the United States Department of Labor.
(v) "Employee" shall mean any current or former employee, consultant
or director of the Company or any Affiliate.
(vi) "Employment Agreement" shall mean each management, employment,
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or other agreement, or contract between the Company or any Affiliate and
any Employee.
(vii) "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended.
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
amended.
(ix) "IRS" shall mean the United States Internal Revenue Service.
(x) "Pension Plan" shall mean each the Company Employee Plan, which
is an "employee pension benefit plan," within the meaning of Section 3(2) of
ERISA.
20
(b) Schedule. SCHEDULE 2.22(B) contains an accurate and complete list of
each the Company Employee Plan and each Employment Agreement. The Company has no
plan or commitment to establish any new the Company Employee Plan or Employment
Agreement, to modify any the Company Employee Plan or Employment Agreement
(except to the extent required by law), or to enter into any the Company
Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent correct and complete
copies of: (i) all documents embodying each the Company Employee Plan and each
Employment Agreement including (without limitation) all amendments thereto and
all related trust documents, administrative service agreements, group annuity
contracts, group insurance contracts, and policies pertaining to fiduciary
liability insurance covering the fiduciaries for each Plan; (ii) the most recent
annual actuarial valuations, if any, prepared for each the Company Employee
Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all
schedules and financial statements attached thereto), if any, required under
ERISA or the Code in connection with each the Company Employee Plan; (iv) if the
Company Employee Plan is funded, the most recent annual and periodic accounting
of the Company Employee Plan assets; (v) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each the Company Employee Plan; (vi)
all IRS determination, opinion, notification and advisory letters, and all
applications and correspondence to or from the IRS or the DOL with respect to
any such application or letter; (vii) all communications material to any
Employee or Employees relating to any the Company Employee Plan and any proposed
the Company Employee Plans, in each case, relating to any amendments,
terminations, establishments, increases or decreases in benefits, acceleration
of payments or vesting schedules or other events which would result in any
material liability to the Company; (viii) all correspondence to or from any
governmental agency relating to any the Company Employee Plan; (ix) all COBRA
forms and related notices (or such forms and notices as required under
comparable law); (x) the three (3) most recent plan years discrimination tests
for each the Company Employee Plan; and (xi) all registration statements, annual
reports (Form 11-K and all attachments thereto) and prospectuses prepared in
connection with each the Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on SCHEDULE 2.22(D), (i)
the Company has performed in all material respects all obligations required to
be performed by it under, is not in material default or violation of, and has no
knowledge of any material default or violation by any other party to each the
Company Employee Plan, and each the Company Employee Plan has been established
and maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each the Company Employee
Plan intended to qualify under Section 401(a) of the Code and each trust
intended to qualify under Section 501(a) of the Code has either received a
favorable determination, opinion, notification or advisory letter from the IRS
with respect to each such Company Employee Plan as to its qualified status under
the Code, including all amendments to the Code effected by the Tax Reform Act of
1986 and subsequent legislation, or has remaining a period of time under
applicable Treasury regulations or IRS pronouncements in which
21
to apply for such a letter and make any amendments necessary to obtain a
favorable determination as to the qualified status of each such Company Employee
Plan; (iii) no "prohibited transaction," within the meaning of Section 4975 of
the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under
Section 4975 of the Code or Section 408 of ERISA (or any administrative class
exemption issued thereunder), has occurred with respect to any the Company
Employee Plan; (iv) there are no actions, suits or claims pending, or, to the
Knowledge of the Company, threatened or reasonably anticipated (other than
routine claims for benefits) against any the Company Employee Plan or against
the assets of any the Company Employee Plan; (v) each the Company Employee Plan
(other than any stock option plan) can be amended, terminated or otherwise
discontinued after the Effective Time, without material liability to the Parent,
the Surviving Corporation, the Company or any of its Affiliates (other than
ordinary administration expenses); (vi) there are no audits, inquiries or
proceedings pending or, to the Knowledge of the Company or any Affiliates,
threatened by the IRS or DOL with respect to any the Company Employee Plan; and
(vii) neither the Company nor any Affiliate is subject to any penalty or tax
with respect to any the Company Employee Plan under Section 502(i) of ERISA or
Sections 4975 through 4980 of the Code.
(e) No Pension Plans. Neither the Company nor any Affiliate has ever
maintained, established, sponsored, participated in, or contributed to, any (i)
Pension Plans subject to Title IV of ERISA or Section 412 of the Code; (ii)
"multiemployer plan" within the meaning of Section (3)(37) of ERISA; or (iii)
multiemployer plan, or to any plan described in Section 413 of the Code.
(f) No Post-Employment Obligations. No the Company Employee Plan provides,
or reflects or represents any liability to provide, retiree life insurance,
retiree health or other retiree employee welfare benefits to any person for any
reason, except as may be required by COBRA or other applicable statute, and the
Company has never represented, promised or contracted (whether in oral or
written form) to any Employee (either individually or to Employees as a group)
or any other person that such Employee(s) or other person would be provided with
retiree life insurance, retiree health or other retiree employee welfare
benefit, except to the extent required by statute.
(g) Health Care Compliance. Neither the Company nor any Affiliate has,
prior to the Effective Time and in any material respect, violated any of the
health care continuation requirements of COBRA, the requirements of FMLA, the
requirements of the Health Insurance Portability and Accountability Act of 1996,
the requirements of the Women's Health and Cancer Rights Act of 1998, the
requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any
amendment to each such act, or any similar provisions of state law applicable to
its Employees.
(h) Effect of Transaction.
(i) Execution of this Agreement and the consummation of the
transactions contemplated hereby will not constitute an event under any the
Company Employee Plan, Employment Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Employee.
22
(ii) No payment or benefit which will or may be made by the Company
or its Affiliates with respect to any Employee or any other "disqualified
individual" (as defined in Code Section 280G and the regulations thereunder)
will be characterized as a "parachute payment," within the meaning of Section
280G(b)(2) of the Code.
(i) Employment Matters. The Company and each Subsidiary: (i) is in
compliance with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld and reported all amounts required by law or by agreement to be
withheld and reported with respect to wages, salaries and other payments to
Employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund governed by or maintained by or on
behalf of any governmental authority, with respect to unemployment compensation
benefits, social security or other benefits or obligations for Employees (other
than routine payments to be made in the normal course of business and consistent
with past practice). There are no pending or, to the knowledge of the Company or
Principals, threatened or reasonably anticipated claims or actions against the
Company or any Subsidiary under any worker's compensation policy or long-term
disability policy.
(j) Labor. No work stoppage or labor strike against the Company or any
Subsidiary is pending, or, to the knowledge of the Company or Principals,
threatened or reasonably anticipated. To the knowledge of the Company or
Principals, there are neither any activities nor proceedings of any labor union
to organize any Employees, nor have there ever been. There are no actions,
suits, claims, labor disputes or grievances pending, or, to the knowledge of the
Company or Principals, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including
without limitation charges of unfair labor practices or discrimination
complaints. Neither the Company nor any of its Affiliates has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act.
Neither the Company nor any of its Subsidiaries is presently, or has been in the
past, a party to, or bound by, any collective bargaining agreement or union
contract with respect to Employees and no collective bargaining agreement is
being negotiated by the Company or any of its Subsidiaries.
(k) Employees. SCHEDULE 2.22(K) contains a true and complete list of the
names and current salary rates and bonus commitments to all present employees of
the Company and its Subsidiaries and SCHEDULE 2.22(K) or other Schedules
attached as part of Section 2.22 contains a list of all contracts, agreements,
Company Employee Plans, arrangements, commitments and understanding (formal and
informal) pertaining to terms of employment, compensation, bonuses, profit
sharing, stock purchases, stock repurchases, stock options, commissions,
incentives, loans or loan guarantees, severance pay or benefits, change in
control payments, use of the Company's or its Subsidiaries' property and related
matters of the Company or its Subsidiaries with any current or former officer,
director, employee or consultant, and true and complete copies of all such
contracts, agreements, plans, arrangements and understandings have been
delivered to Parent heretofore.
23
(l) Except for the Principals, the Company will not have any
responsibility for continuing any person in the employ (or retaining any person
as a consultant) of the Surviving Corporation from and after the Effective Time
or have any liability for any severance payments to or similar arrangements with
any such person who shall cease to be an employee or consultant of the Company
at or prior to the Effective Time.
(m) No facts or circumstances are known to exist that could provide a
reasonable basis for a claim of wrongful termination or employment
discrimination by any current or former employee of the Company against the
Company.
2.23 Compliance with Laws; Relations with Governmental Entities. The
Company and each Subsidiary has complied in all respects with, is not in
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation. Neither the Company
nor any Principal or Subsidiary, nor, to the Knowledge of the Company, any of
the Company's or its Subsidiaries' officers, directors, employees or agents (or
shareholders, distributors, representatives or other persons acting on the
express, implied or apparent authority of the Company or any Subsidiary) have
paid, given or received or have offered or promised to pay, give or receive, any
bribe or other unlawful payment of money or other thing of value, any unlawful
discount, or any other unlawful inducement, to or from any person or
Governmental Entity in the United States or elsewhere in connection with or in
furtherance of the business of the Company or its Subsidiaries (including any
offer, payment or promise to pay money or other thing of value (a) to any
foreign official, political party (or official thereof) or candidate for
political office for the purposes of influencing any act, decision or omission
in order to assist the Company or any of its Subsidiaries in obtaining business
for or with, or directing business to, any person or entity, or (b) to any
person or entity, while knowing that all or a portion of such money or other
thing of value will be offered, given or promised to any such official or party
for such purposes). To the knowledge of the the Company, the business of the
Company and its Subsidiaries is not in any manner dependent upon the making or
receipt of such payments, discounts or other inducements. Neither the Company
nor any Principal or Subsidiary has otherwise taken any action that would cause
the Company or any Subsidiary to be in violation of the Foreign Corrupt
Practices Act of 1977, as amended, or any applicable Laws of similar effect.
2.24 Merger Tax Matters. The Company and each Principal represents that
each of them and the Company Shareholders understands that he or she must rely
solely on his or her advisors and not on any statements or representations by
Parent, or its agents, with respect to Tax consequences of the Merger and that
the Company is relying on its own advisors as to such matters. No tax opinions
are being required under Article V of this Agreement.
2.25 Intellectual Property. SCHEDULE 2.25 contains a true, correct and
complete listing of all Intellectual Property owned or licensed by or registered
in the name of the Company and its Subsidiaries and used or held for use in
operations of the Business, all of which are transferable to Buyer by the sole
act and deed of the Company and its Subsidiaries, and no consent on the part of
any other person is necessary to effectuate the transfer to Buyer of such
Intellectual Property. The
24
Company and the Subsidiaries pays no royalty to anyone with respect to the
Intellectual Property and has the right to bring action for the infringement
thereof the Company and its Subsidiaries owns or possesses all rights to use all
such Intellectual Property necessary to or useful for the conduct of the
Business. The Company and the Subsidiaries have not received any notice to the
effect that any service rendered by the Company and its Subsidiaries relating to
the Business may infringe on any Intellectual Property right or other legally
protectable right of another, nor does the Company and its Subsidiaries
otherwise have any knowledge of any such infringement.
2.26 Customer Contracts. The contracts, agreements, understandings and
commitments set forth and described in SCHEDULE 2.26 (the "CUSTOMER CONTRACTS")
are all of the customer contracts, agreements, commitments or understandings
(both written and oral) relating to the business and operations thereof to which
the Company or its Subsidiaries is a party. Separately described in SCHEDULE
2.26 are all Customer Contracts of the Company and its Subsidiaries that have
generated $2,000 or more in revenue in any month since January 1, 2003
("SIGNIFICANT CUSTOMER CONTRACTS").
The Company has not entered into any binding agreement with respect to any
Customer Contract that could adversely affect the Company or its Subsidiaries'
ability to enforce its rights under such Customer Contract. The Company has
delivered true and complete copies of all written Customer Contracts (and all
amendments and modifications thereto) to Parent prior to the execution of this
Agreement, and each Customer Contract represents the entire agreement between
the Company and its Subsidiaries and any other party to such Customer Contract.
Since 120 days prior to the date of this Agreement, (i) no customer (or
group of related customers) purchasing in the aggregate $25,000 in products and
services over the past twelve (12) months-has terminated its relationship with
the Company or its Subsidiaries, and (ii) the Company or its Subsidiaries has
not received any written or oral communication from any customer (or group of
related customers) purchasing in the aggregate $25,000 in products and services
over the past twelve (12) months to the effect that such customer (or group of
related customers) is experiencing financial difficulties which reasonably could
be expected to affect adversely full and timely payment by such customer for
services rendered by the Company or its Subsidiaries.
2.27 Relationships with Suppliers. The Company or its Subsidiaries does
not know of any written or oral communication, fact, event or action which
exists or has occurred within 120 days prior to the date of this Agreement which
would indicate that any current supplier to the Company or its Subsidiaries of
items or services essential to the conduct of the business of the Company and
its Subsidiaries may terminate or materially reduce its business with the
Company or its Subsidiaries.
2.28 Investment Representation; Legends.
(a) The Company understands that because the Parent Common Stock and
Parent Stock Warrants to be issued pursuant to the terms of this Agreement have
not been registered under the Securities Act of 1933 as amended (the "Securities
Act"), the Parent Common Stock and Parent
25
Stock Warrants are "restricted securities" as the term is defined in Rule 144
promulgated by the Securities and Exchange Commission (the "SEC") under the
Securities Act and the Company shareholders cannot transfer any of the Parent
Common Stock and Parent Stock Warrants unless such shares are subsequently
registered under the Securities Act or in a transfer that, in the opinion of
legal counsel to Parent, is exempt from such registration.
(b) Each Company shareholder has been advised that the Parent Common Stock
and Parent Stock Warrants issued hereunder have not been and are not being
registered under the Securities Act or under the Blue Sky laws of any
jurisdiction, and that Parent in issuing such shares is relying upon, among
other things, the representations and warranties of the Company and Principals
contained in this Section in concluding that such issuance is a "private
offering" and does not require compliance with the registration provisions of
the Securities Act.
2.29 Stockholder Matters. Set forth on SCHEDULE 2.29 is a list of all
holders of the Company's capital stock as of the date hereof and SCHEDULE 2.29
identifies each holder of the Company's capital stock that is an accredited
investor as defined in Rule 501(a) under the Securities Act of 1933, as amended.
2.30 Banking and Insurance.
(a) SCHEDULE 2.30(A) contains a true and complete list of the names and
locations of all financial institutions at which the Company or any of its
Subsidiaries maintains a checking account, deposit account, securities account,
safety deposit box or other deposit or safekeeping arrangement, the number or
other identification of all such accounts and arrangements and the names of all
persons authorized to draw against any funds therein.
(b) SCHEDULE 2.30(B) contains a true and complete list of all insurance
policies and bonds and self insurance arrangements currently in force that cover
or purport to cover risks or losses to or associated with the Company's
business, operations, premises, properties, assets, employees, agents and
directors and sets forth, with respect to each such policy, bond and self
insurance arrangement, a description of the insured loss coverage, the
expiration date and time of coverage, the dollar limitations of coverage, a
general description of each deductible feature and principal exclusion and the
premiums paid and to be paid prior to expiration. The Company has no obligation,
liability or other commitment relating to any contract of insurance containing a
provision for retrospective rating or adjustment of the Company's premium
obligation. No facts or circumstances exist that would cause the Company to be
unable to renew its existing insurance coverage as and when the same shall
expire other than possible increases in premiums that do not result from any act
or omission of the Company.
2.31 Representations Complete. None of the representations or warranties
made by the Company or any Principal in this Agreement, or to be furnished in or
in connection with documents mailed or delivered to the Company Shareholders for
use in soliciting their consent to this Agreement and the Merger, contains or,
with respect to documents to be mailed to the Company
26
Shareholders, will when mailed contain, any untrue statement of a material fact
or omits or, with respect to documents to be mailed to the Company Shareholders,
will when mailed omit, to state any material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading. No representations and warranties by the
Company and Principals in this Agreement and no statement in this Agreement or
any document or certificate furnished or to be furnished to Parent or
Acquisition Sub pursuant hereto contains or will contain any untrue statement or
omits or will omit to state a fact necessary in order to make the statements
contained therein not misleading. The Company and Principals have disclosed to
Acquisition Sub all facts known to any of them material to the assets,
liabilities, business, operation and property of the Company or its
Subsidiaries. There are no facts known to the Company or Principals not yet
disclosed which would adversely affect the Company's business, financial
condition or future operations of the Company's and the Subsidiaries' business.
All facts of material importance to the assets and to the business have been
fully and truthfully disclosed to Parent and Acquisition Sub in this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUB
Parent and Acquisition Sub represent and warrant to the Company that on
the date hereof and as of the Effective Date as though made at the Effective
Time as follows:
3.01 Organization and Standing. Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada.
Acquisition Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Mississippi. Each of Parent and
Acquisition Sub has the full and unrestricted corporate power and authority to
carry on its business as currently conducted. Each of Parent and Acquisition Sub
has the full and unrestricted corporate power and authority to execute and
deliver this Agreement, the Related Agreements and each other document required
hereunder and to carry out the transactions contemplated hereby and thereby.
Parent has the full and unrestricted corporate power and authority to issue the
Parent Common Stock and Parent Stock Warrants hereunder and to carry out the
transactions to be carried out by it as contemplated by this Agreement and all
other Related Agreements.
3.02 Authorization. The execution, delivery and performance by each of
Parent and Acquisition Sub of this Agreement and each other Buyer Document, the
fulfillment of and compliance with the respective terms and provisions hereof
and thereof, and the consummation by each of Parent and Acquisition Sub of the
transactions contemplated hereby and thereby have been duly authorized by their
respective Board of Directors and subject to the approval of the shareholders of
the Parent as sole shareholder of the Acquisition Sub (a) will not conflict
with, or violate any term or provision of (i) any law having applicability to
each of Parent and Acquisition Sub, the effect of which would have an adverse
material effect on the business of Parent or Acquisition Sub, or (ii) any
provision of the certificate of incorporation or bylaws of Parent or Acquisition
Sub; (b) will not
27
conflict with, or result in any material breach of, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, any material agreement to which Parent or Acquisition Sub is a party or
by which it is bound; or (c) will not result in or require the creation or
imposition of or result in the acceleration of any indebtedness, or of any
encumbrance of any nature upon, or with respect to, Parent or Acquisition Sub.
No other corporate action on the part of Parent or Acquisition Sub is necessary
for Parent or Acquisition Sub to enter into this Agreement and all other Related
Agreements and to consummate the transactions contemplated hereby and thereby,
other than the approval of the Parent as sole shareholder of the Acquisition
Sub. The issuance by Parent of the Parent Common Stock and Parent Stock Warrants
hereunder and the performance by Parent or Acquisition Sub of the terms and
provisions of this Agreement and each other Related Agreements required to be
performed by it have been duly authorized by all necessary corporate action of
Parent (which authorization has not been modified or rescinded and is in full
force and effect) other than the approval of the Parent as sole shareholder of
the Acquisition Sub.
3.03 Binding Obligation. This Agreement and each other agreement to be
executed by Parent or Acquisition Sub hereunder constitutes a valid and binding
obligation of the Parent or Acquisition Sub, as applicable, enforceable against
the Parent or Acquisition Sub, as applicable, in accordance with its terms,
except as such enforceability may be subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
3.04 Issuance of Parent Common Stock and Parent Stock Warrants. All of the
Parent Common Stock and Parent Stock Warrants to be issued pursuant to this
Agreement have been duly authorized by Parent and, when issued in accordance
with the terms of this Agreement, shall be validly issued, fully paid and
nonassessable.
3.05 Litigation. There are no actions, suits, claims, arbitrations,
proceedings or investigations pending, threatened or reasonably anticipated
against, or involving Parent or Acquisition Sub or the transactions contemplated
by this Agreement or any other Buyer Document, at law or in equity, or before or
by any arbitrator or governmental authority, domestic or foreign, which could
reasonably be expected to have a material adverse effect on the Parent or
Acquisition Sub. Neither Parent nor Acquisition Sub is operating under, subject
to or in default with respect to any order, award, writ, injunction, decree or
judgment of any arbitrator or governmental authority relating to Parent or
Acquisition Sub or their respective employees.
3.06 Securities and Exchange Commission Filings. Parent and Acquisition
Sub has furnished the Company and the Principals with a true and complete copy
of each final annual, quarterly and current report and each final prospectus
filed by Parent with the SEC since January 1, 2002. No such filing with the SEC
by Parent contained to Parent's knowledge, as of the time of such filing, any
untrue statement of a material fact or omitted a material fact necessary in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading.
28
ARTICLE IV
COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME
4.01 Preparation of Proxy Statement.
(a) Immediately after the execution of this Agreement, the Company shall
prepare, with the cooperation of Parent, a Proxy Statement for the Company
Shareholders to approve this Agreement, the Merger and the transactions
contemplated hereby and thereby. The Proxy Statement shall include a disclosure
document for the offer and issuance of the shares of Parent Common Stock and
Parent Stock Warrants to be received by the holders of Company Common Stock and
Company Preferred Stock in the Merger. Parent and the Company shall each use
commercially reasonable efforts to cause the Proxy Statement to comply with
applicable federal and state securities laws requirements. Each of Parent and
the Company agrees to provide promptly to the other such information concerning
its business and financial statements and affairs as, in the reasonable judgment
of the providing party or its counsel, may be required or appropriate for
inclusion in the Proxy Statement, or in any amendments or supplements thereto,
and to cause its counsel, accountants and auditors to cooperate with the other's
counsel, accountants and auditors in the preparation of the Proxy Statement. The
Company will promptly advise Parent, and Parent will promptly advise the
Company, in writing if at any time prior to the Effective Date either the
Company or Parent shall obtain Knowledge of any facts that might make it
necessary or appropriate to amend or supplement the Proxy Statement in order to
make the statements contained or incorporated by reference therein not
misleading or to comply with applicable law. The Proxy Statement shall contain
the recommendation of the Board of Directors of the Company that the Company
Shareholders approve the Merger and this Agreement and the conclusion of the
Board of Directors that the terms and conditions of the Merger are fair and
reasonable to the Company Shareholders, unless the Company's Board of Directors
shall have determined in good faith that the failure to do so would violate the
Board of Directors' fiduciary duties to the Company Shareholders under
applicable law. Anything to the contrary contained herein notwithstanding, the
Company shall not include in the Proxy Statement any information with respect to
Parent or its affiliates or associates, the form and content of which
information shall not have been approved by Parent prior to such inclusion.
4.02 Restrictions on Transfer; Legends. The Parent Common Stock and Parent
Stock Warrants to be issued in the Merger shall be characterized as "restricted
securities" for purposes of Rule 144 under the Securities Act, and each
certificate representing any of such shares shall bear a legend identical or
similar in effect to the following legend (together with any other legend or
legends required by applicable state securities laws or otherwise):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED THE "ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED
OR HYPOTHECATED UNLESS AND UNTIL
29
REGISTERED UNDER THE ACT AND SUCH LAWS OR IN COMPLIANCE WITH AN EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
4.03 Access to Information.
(a) The Company shall afford Parent and its accountants, counsel and other
representatives, reasonable access during the period prior to the Effective Date
and during normal business hours upon reasonable advance notice to (i) all of
the Company's (including the Subsidiaries) properties, books, contracts,
commitments and records; (ii) all other information concerning the business,
properties and personnel (subject to restrictions imposed by applicable law) of
the Company as Parent may reasonably request; and (iii) all employees of the
Company (including the Subsidiaries) as identified by Parent. The Company agrees
to provide to Parent and its accountants, counsel and other representatives
copies of internal financial statements (including Tax returns and supporting
documentation) promptly upon request.
(b) No information or knowledge obtained in any investigation pursuant to
this Section 4.03 shall affect or be deemed to modify: any representation or
warranty contained herein, the conditions to the obligations of the parties to
consummate the Merger in accordance with the terms and provisions hereof, or the
indemnification obligations of the Company and the Principals.
(c) All information furnished by one party to another pursuant hereto
shall be treated as the sole property of the party furnishing the information
until consummation of the Merger contemplated hereby and, if such Merger shall
not occur, the party receiving the information shall retrieve, if necessary, and
return to the party which furnished such information all documents or other
materials containing, reflecting or referring to such information, shall use its
best efforts to keep confidential all of such information, and shall not
directly or indirectly use such information for any competitive or other
commercial purpose. If the Merger is not consummated, the obligation to keep
such information confidential shall continue for two (2) years from the date the
proposed Merger is abandoned and shall not apply to (i) any information which
(a) the party receiving the information can establish by convincing evidence was
already in its possession prior to the disclosure thereof by the party
furnishing the information, (b) was then generally known to the public or set
forth in public records, (c) became known to the public through no fault of the
party receiving the information, or (d) was disclosed to the party receiving the
information by a third party not bound by an obligation of confidentiality, or
(ii) disclosures in accordance with an order of a court of competent
jurisdiction.
4.04 Public Disclosure. The parties hereto agree that prior to the
Effective Time, none of them will make or engage in any press release, publicity
or other public disclosure of the matters which are the subject of this
Agreement without the prior written consent of Parent and the Company, unless
such party believes in good faith upon consultation with counsel that such press
release, publicity or other public disclosure is required by law or legal
process, in which event such party will give Parent and the Company as much
advance notice thereof as is practicable under the circumstances and will give
good faith consideration to any comments made with respect thereto by
30
the other parties hereto prior to the time when such press release, publicity or
other public disclosure is made.
4.05 Conduct Business in Ordinary Course. The Company and its Subsidiaries
shall, through the Closing Date, use its best efforts to preserve its business
and the assets and maintain its existing contracts and licenses and to preserve
for Acquisition Sub's present relationships with customers, employees, lessors
and any other persons having business relations with the Company and its
Subsidiaries. Except as contemplated by this Agreement or as reasonably required
to carry out its obligations hereunder, the Company and its Subsidiaries shall,
through the Closing Date, maintain and service the business and the assets only
in the ordinary course of business and, in addition, shall not (except to the
extent that Parent has consented in advance in writing thereto: (i) enter into
any agreement in connection with the business or assets that may not be
terminated on less than thirty (30) days' notice or that may reasonably be
expected to have a Material Adverse Effect on the business or assets, (ii) make
any capital purchases or commitments relating to the Assets that exceed,
individually or in the aggregate, $10,000; (iii) place, or allow to be placed,
an Encumbrance on any of the assets, (iv) sell, assign, lease or otherwise
transfer or dispose of any interest in any asset (other than in the ordinary
course of business), (v) commit any act or omit to do any act, or engage in any
activity or transaction or incur any obligation (by conduct or otherwise), that
(individually or in the aggregate) reasonably could be expected to have a
Material Adverse Effect on the business or assets; (vi) except for actions taken
or not taken in compliance with SECTION 3.2, do or omit to do any act (or permit
such action or omission) which reasonably could be expected to cause a breach of
any contract or Governmental Authorizations, or (vii) take any action or fail to
take any action that would reasonably be expected to cause any of the
representations, warranties or covenants contained herein to be untrue or
incorrect or incapable of being performed or satisfied on the Closing Date.
Through the Closing Date, the Company and its Subsidiaries shall not (except to
the extent that Parent has consented in advance in writing thereto): (i) provide
service or agree to provide service to any customer at rates that are different
than those that were in effect for such customer (or would have been in effect
for any new customer) as of January 1, 2004, (ii) offer any promotions or
special incentives or arrangements to customers that were not being offered to
all customers at January 1, 2004, including, but not limited to, any promotions
or special incentives or arrangements with respect to pricing or usage, or (iii)
amend or modify any Customer Contract. Prior to and through the day following
the Closing Date, the Company and its Subsidiaries shall maintain in full force
and effect all of its existing casualty, liability, and other insurance in
amounts not less than those in effect on the date hereof, except for changes in
such insurance that are made in the Ordinary Course of Business.
4.06 Consents and Approvals. The Company shall use its best efforts to
obtain, prior to the Closing, all waivers, consents and approvals, including
those as provided in SCHEDULE 5.02(B), that are required in order to effect the
Merger so as to preserve all rights of and benefits of the Company thereunder
for the Surviving Corporation. Parent and Acquisition Sub shall use its best
efforts to assist the Company in the Company's efforts to obtain such waivers,
consents and approvals. In addition, the Company and Parent and Acquisition Sub
shall use their best efforts to obtain all other waivers, consents and approvals
of all Governmental Authorities including the PSC
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Approvals (as defined in Section 2.06) that are required in order for them to
consummate the transactions contemplated by this Agreement or to perform the
other obligations of the Company and Parent and Acquisition Sub hereunder. The
Company and Parent and Acquisition Sub shall: (i) cooperate in the filing of all
forms, notifications, reports and information, if any, required or reasonably
deemed advisable pursuant to applicable statutes, rules, regulations or orders
of any Governmental Authority or supra-governmental authority in connection with
the transactions contemplated by this Agreement; and (ii) use their respective
best efforts to cause any applicable waiting periods thereunder to expire and
any objections to the transactions contemplated hereby to be withdrawn before
the Effective Date. All expenses incurred in obtaining the waivers, consents and
approvals described in this Section 4.06 shall be paid by the Company.
4.07 Financial Statements. The Company shall provide Parent with unaudited
statements of assets and liabilities of the Company and its Subsidiaries, and
statements of revenues and expenses reflecting the results of operations of the
Company and its Subsidiaries for each month beginning with April 2004 within
twenty (20) days of the end of each such month. All of the foregoing financial
statements shall comply with the requirements concerning financial statements
set forth in Section 2.10.
4.08 Notification of Certain Matters.
(a) The Company and each of the Principals, as the case may be, shall give
prompt written notice to Parent of: (i) the occurrence or non-occurrence of any
event, the occurrence or non- occurrence of which is likely to cause any
representation or warranty of the Company or any of the Principals, respectively
and as the case may be, contained in this Agreement to be untrue or inaccurate
in any material respect at or prior to the Effective Date; and (ii) any failure
of the Company or any of the Principals, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 4.08(a) shall not constitute an acknowledgment or admission of a
breach of this Agreement. No disclosure by the Company or any of the Principals
pursuant to this Section 4.08(a) shall be deemed to have cured any breach of any
representation or warranty made in this Agreement for purposes of determining
whether or not the conditions set forth in Article V have been satisfied, or be
deemed to have cured any such breach of a representation or warranty in this
Agreement and to have been disclosed as of the date of this Agreement for
purposes of Article VI hereof.
(b) The Parent shall give prompt written notice to the Company of: (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Parent contained
in this Agreement to be untrue or inaccurate in any material respect at or prior
to the Effective Time; and (ii) any failure of the Parent to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 4.08(b) shall not constitute an acknowledgment or admission of a
breach of this Agreement. No disclosure by the Company or any of the Principals
pursuant to this Section 4.08(b) shall be deemed to have cured any breach of
32
any representation or warranty made in this Agreement for purposes of
determining whether or not the conditions set forth in Article VI have been
satisfied, or be deemed to have cured any such breach of a representation or
warranty in this Agreement and to have been disclosed as of the date of this
Agreement for purposes of Article VI hereof.
4.09 Additional Documents and Further Assurances. Each party hereto, at
the request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of the Merger and the
transactions contemplated hereby.
4.10 Federal and State Securities Exemptions. The parties agree to use
commercially reasonable efforts to ensure that the issuance of the Merger Shares
will be exempt from registration under the Securities Act by reason of Section
4(2) and/or Regulation D thereof (the "Private Placement Exemption").
4.11 Shareholder List. As of a date which is two (2) calendar days prior
to the Effective Date, the Company shall provide Parent and its counsel with a
statement certified by the principal executive officer of the Company and
Principals setting forth any changes which would have been required to be set
forth on SCHEDULE 2.03 or SCHEDULE 2.29 as if such had been made and
certification that there are no outstanding options or other rights to any
equity interest in the Company (the "Updated Capitalization Certificate").
4.12 Non-Competition and Non-Solicitation.
(a) As a material inducement to Parent to enter into and perform its
obligations under this Agreement, and in order to preserve and protect the trade
secrets and proprietary, confidential information of Parent and the Surviving
Corporation after the Closing, for a period of the later of (i) three (3) years
following the Effective Date or (ii) subject to the terms of the Principals
Employment Agreements, two (2) years following the date that the employment by
the Surviving Corporation (or an affiliate thereof) of both Principals ends (the
"Noncompetition Period"), neither Xxxx Xxxxxxx nor Xxx Xxxxxxx will, directly or
indirectly, either for themselves or for any partnership, limited liability
company, individual, corporation, joint venture or any other entity "participate
in" (as defined below) any business (including, without limitation, any
division, group or franchise of a larger organization) which engages in the
"Telecommunications Business" in the States of Mississippi, Alabama, Georgia,
Tennessee, Florida, Kentucky, Louisiana, North Carolina or South Carolina (the
"Restricted Area"). For purposes of this Agreement, "Telecommunications
Business" shall mean the business of providing any type of telecommunication
services or internet access services to any person or customer within the
Restricted Area, including, without limitation, local, long distance, broadband,
dial up data services, wireless, DSL, Voice-over-Internet Protocol (VoIP) and
any other service or product being offered or provided by the Parent or
Acquisition Sub or any of its affiliates. For purposes of this Agreement, the
term "participate in" shall include, without limitation, having any direct or
indirect interest in any corporation, partnership, limited liability company,
joint venture or other entity, whether as a sole proprietor, owner, shareholder,
partner,
33
member, manager, joint venturer, creditor or otherwise, or rendering any direct
or indirect service or assistance to any individual corporation, partnership,
limited liability company, joint venture and other business entity (whether as a
director, officer, manager, supervisor, employee, agent, consultant or
otherwise). Notwithstanding the foregoing, nothing in this Section 4.12 shall
prohibit either Xxxx Xxxxxxx or Xxx Xxxxxxx from owning not more than five
percent (5%) of the debt or equity securities of a publicly traded corporation
which may compete with Parent.
(b) During the Noncompetition Period, and in order to preserve and protect
the trade secrets and proprietary, confidential information of Parent and the
Surviving Corporation after the Effective Date, neither Xxxx Xxxxxxx nor Xxx
Xxxxxxx shall (i) induce or attempt to induce any employee of Parent or the
Surviving Corporation to leave the employ of Parent or the Surviving
Corporation, or in any way interfere with the relationship between Parent and
any employee thereof, (ii) hire directly or through another entity any
individual employed by Parent or the Surviving Corporation who was previously
employed by the Company, or (iii) induce or attempt to induce any customer,
supplier, licensee, distributor or other business relation of Parent or the
Surviving Corporation to cease doing business with Parent or the Surviving
Corporation, or in any way interfere with the relationship between any such
customer, supplier, licensee, distributor or business relation and Parent or the
Surviving Corporation (including, without limitation, making any negative
statements or communications concerning Parent or the Surviving Corporation).
(c) If, at the time of enforcement of this Section 4.12, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties hereto agree that
the maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law. Each of Xxxx Xxxxxxx and Xxx Xxxxxxx agrees
that the restrictions contained in this Section 4.12 are reasonable.
(d) If at any time during the Noncompetition Period Xxxx Xxxxxxx or Xxx
Xxxxxxx desires to participate in an activity that he or she believes might be
prohibited by this Section 4.12, such person may request in writing (a
"Clarification Request") a determination by Parent as to whether such proposed
activity would violate this Section 4.12. Parent shall respond in writing to
such Clarification Request (a "Clarification Response") within thirty (30) days
of receipt thereof from the requesting person.
4.13 Approval of Shareholders. The Company will (i) take all steps
necessary to call, give notice of, convene and hold a special meeting of its
shareholders as soon as practicable for the purpose of approving and adopting
this Agreement and the transactions contemplated thereby and for such other
purposes as may be necessary or desirable, (ii) recommend to its shareholders
the approval of this Agreement and the transactions contemplated thereby and
such other matters as may be submitted to its shareholders in connection with
this Agreement, and (iii) cooperate and consult with Parent and Acquisition Sub
with respect to each of the foregoing matters. The Principals agree to vote all
of their Company Common Stock or Company Preferred Stock in favor of the Merger.
34
4.14 No Shop. Until such time, if any, as this Agreement is terminated
pursuant to Article VII, neither the Company or any Subsidiary or any of the
Principals will and each of their representatives will not directly or
indirectly solicit, initiate, or encourage any inquiries or proposals from,
discuss or negotiate with, provide any non-public information to, or consider
the merits of any unsolicited inquiries or proposals from, any person (other
than Parent) relating to any transaction involving the sale of the business or
assets of the Company or any of its Subsidiaries, or any of the capital stock of
the Company or any of its Subsidiaries, or any merger, consolidation, business
combination, or similar transaction involving the Company or any of its
Subsidiaries.
ARTICLE V
CONDITIONS TO THE MERGER
5.01 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of the Company and Parent to effect the Merger shall be
subject to the satisfaction at or prior to the Effective Date of the following
conditions:
(a) Shareholder Approval. This Agreement and the Merger shall be approved
and adopted (i) by the Company Shareholders by the requisite vote under
applicable law and the Company's Articles of Incorporation, (ii) by the
shareholders of Acquisition Sub by the requisite vote under applicable law and
the Acquisition Sub's Certificate of Incorporation, and (iii) by the
shareholders of the Parent by the requisite vote under applicable law and the
Parent's Certificate of Incorporation.
(b) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any proceeding brought
by an administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, seeking any of the foregoing be pending.
(d) Articles of Merger. The Articles of Merger shall have been filed with
the Secretary of State of the State of Mississippi.
5.02 Conditions to the Obligations of Parent and Acquisition Sub. The
obligation of Parent and Merger Sub to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
35
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of the Company and the
Principals in this Agreement (other than the representations and warranties of
the Company and the Principals as of a specified date, which will be true and
correct as of such date) shall be true and correct on and as of: (A) the date of
this Agreement and (B) the Effective Time as though such representations and
warranties were made on and as of the Effective Time (it being understood that,
for purposes determining the accuracy of each such representation and warranty
pursuant to clauses (A) and (B), any update of or modification to the Disclosure
Schedule made or purported to have been made after the date of this Agreement
shall be disregarded).
(ii) Each of the Company and the Principals shall have performed and
complied with all covenants and obligations under this Agreement required to be
performed and complied with by such parties as of the Effective Time.
(b) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it that the Company has obtained all consents, waivers,
approvals, and assignments listed in SCHEDULE 5.02(B).
(c) No Material Adverse Change. There shall not have occurred any event or
condition of any character since the date of this Agreement that has had or is
reasonably likely to have a material adverse effect on the Company or its
business, assets or prospects.
(d) Company Shareholder Approval. No holder of capital stock of the
Company shall have exercised or given notice of their intent to exercise
appraisal rights in accordance with Mississippi Law.
(e) Certificate of the Company and the Principals. Parent shall have
received a certificate, validly executed by each of the Principals and the
principal executive officer of the Company for and on its behalf, to the effect
that, as of the Closing:
(i) all representations and warranties made by the Company and the
Principals in this Agreement (other than the representations and warranties of
the Company and the Principals as of a specified date, which will be true and
correct as of such date) were true and correct on and as of: (A) the date of
this Agreement and (B) the Effective Date as though such representations and
warranties were made on and as of the Effective Time;
(ii) all covenants and obligations under this Agreement to be
performed by the Company or the Principals on or before the Closing have been so
performed; and
(iii) the conditions to the obligations of Parent and Acquisition
Sub set forth in Section 6.2 have been satisfied (unless otherwise waived in
accordance with the terms hereof).
36
(f) Certificate of Secretary of the Company. Parent shall have received a
certificate, validly executed by the Secretary of the Company, certifying as to
(i) the correct form and effectiveness of the Articles of Incorporation and the
Bylaws of the Company, including all amendments thereto; and (ii) the valid
adoption of resolutions of the board of directors of the Company and the Company
Shareholders approving this Agreement and the consummation of the transactions
contemplated hereby.
(g) Certificate of Good Standing. Parent shall have received certificates
of good standing of the Company from the Secretary of State of the State of
Mississippi, the Secretary of State of the States of Alabama, Louisiana, Florida
and Georgia and any other jurisdiction where the Company is required to qualify
to do business, each dated within ten (10) business days prior to the Closing.
(h) Working Capital Requirement. The Company and its Subsidiaries "Working
Capital" (as defined herein) as of the Management Date shall not be less than
$170,000 ("Working Capital Requirement"), as shown on a consolidated balance
sheet and Profit and Loss Statement and combining worksheet (prepared in
accordance with GAAP and consistent with the March 31, 2004 Financials) as of
the Management Date ("Management Date Financials"). "Working Capital" shall mean
the current assets less the current liabilities as determined in accordance with
GAAP provided the current liabilities shall be reduced by an amount equal to the
sum of the following: (i) the amounts due over the 12 months following the date
of calculation for the following: the Note Payable to Xxxx Xxxxxxx; the Note
Payable to Xxxxx Xxxxxx; the Note Payable to Xxxxxx XxXxxxxx; amounts due under
the Settlement with the Mississippi PSC; amounts due under the Settlement with
BIPCO; amounts due under the Amerifirst debt; plus (ii) amounts owed for e911
fees (including penalties and interest), plus (iii) the disputed charges with
Xxxx South less $60,000. In the event that the Working Capital Requirement is
not met, the Parent and Acquisition Sub may nevertheless elect to close and
reduce the Parent Stock Consideration by an amount equal to the difference
between the Working Capital Requirement and the actual Working Capital.
(i) Special Liabilities. The sum of the Special Liabilities (as defined
below) as of the Management Date shall not exceed $1,028,750 as shown on the
Management Date Financials. Special Liabilities shall mean the amount due for
the following: Note Payable - Taqua; Due to MSPC; Note Payable to BIPCO; Note
Payable - Amerifirst; Note Payable to Xxxx Xxxx; Note Payable to Xxxx Xxxxxxx;
Note Payable to Xxxxx Xxxxxx; Note Payable to Xxxxxx XxXxxxxx, amounts owed for
e911 fees (including any penalties or interest), any debt or amounts due to
AmSouth Bank and any other debt for borrowed money or purchase or lease of
assets. In the event that the sum of the Special Liabilities exceeds $1,028,750
as of the Management Date, the Parent and Acquisition Sub may nevertheless elect
to close and reduce the Parent Stock Consideration by an amount equal to the
amount by which the sum of the Special Liabilities exceeds $1,028,750.
(j) Shareholder List. Parent shall have received from the principal
executive officer of the Company the Updated Capitalization Certificate.
37
(k) Employment Agreements. Acquisition Sub shall have received from each
Principal an executed Employment Agreement substantially in the form attached
hereto as EXHIBITS C AND D.
(l) Releases. Each officer and director of the Company shall have executed
and delivered a Release in substantially the form attached hereto as EXHIBIT E.
(m) Amendments to Certain Documents. The Parent shall have received a duly
executed amendment or restated note on terms satisfactory to the Parent of the
debt of the Company due to the following people:
(i) $200,000 Note to Xxxx Xxxxxxx dated March 31, 2001 ("Xxxxxxx
Note").
(n) Escrow Agreement. The Principals and Escrow Agent shall have entered
into the Escrow Agreement in the form of EXHIBIT B hereto.
(o) Irrevocable Proxy from Principals. Each of the Principals shall have
entered into an Irrevocable Proxy in form reasonably satisfactory to Parent in
which each Principal agrees to irrevocably appoint Xxx Xxxxxxxxx or such other
party designated by Parent as proxy to vote the Principal's Parent Common Stock
or any Parent Common Stock issued to or acquired hereafter by the Principal
whether from the exercise of any of the Parent Stock Warrants or any other stock
options or warrants granted hereafter or otherwise until such time as the
Principal sells all of his Parent Common Stock.
(p) Governmental Approvals. The Public Service Commission ("PSC") of the
States of Mississippi, Florida, Alabama, Louisiana and Georgia shall have issued
such waivers, approvals, orders or consents approving the Merger; provided,
however, that the Parent may elect to proceed with the Merger and waive the
consent requirements from the PSC for any state other than Mississippi and
Louisiana ("PSC Approvals"), and in any event the Parent agrees to close and
waive the required consents from the PSC in Georgia, Alabama and Florida in the
event that the parties are unable, using their best efforts, to obtain the
consent by December 31, 2004.
(q) Management/Operating Agreement. On or before July 1, 2004, the Company
shall have entered into a Management/Operating Agreement with the Parent or
Acquisition Sub in form reasonably satisfactory to Parent appointing the Parent
or Acquisition Sub as Manager of operations with compensation equal to the gross
revenues and providing for the Manager to be responsible for all normal
operating expenses other than the Special Liabilities, provided the Parent shall
agree to make loans to the Company guaranteed by the Principals for the payments
required to be made for the Special Liabilities during the Management Term.
5.03 Conditions to Obligations of the Company and the Principals. The
obligations of the Company and the Principals to consummate and effect this
Agreement and the transactions
38
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants.
(i) The representations and warranties of Parent and Acquisition Sub
in this Agreement (other than the representations and warranties of Parent as of
a specified date, which will be true and correct as of such date) shall be true
and correct on and as of: (A) the date of this Agreement and (B) the Effective
Time as though such representations and warranties were made on and as of the
Effective Time (it being understood that, for purposes determining the accuracy
of each such representation and warranty pursuant to clauses (A) and (B), any
update of or modification to the Parent Disclosure Schedule made or purported to
have been made after the date of this Agreement shall be disregarded).
(ii) Each of Parent and Merger Sub shall have performed and complied
with all covenants and obligations of this Agreement required to be performed
and complied with by it as of the Effective Time.
(b) Certificate of Parent. The Company shall have received a certificate
executed on behalf of Parent by the Chief Executive Officer to the effect that,
as of the Closing:
(i) all representations and warranties made by the Parent and Merger
Sub in this Agreement (other than the representations and warranties of the
Parent and Merger Sub as of a specified date, which will be true and correct as
of such date) were true and correct on and as of: (A) the date of this Agreement
and (B) the Effective Time as though such representations and warranties were
made on and as of the Effective Time;
(ii) all covenants and obligations under this Agreement to be
performed by Parent and Merger Sub on or before the Closing have been so
performed; and
(iii) the conditions to the obligations of the Company and the
Principals set forth in Section 6.3 have been satisfied (unless otherwise waived
in accordance with the terms hereof).
(c) No Material Adverse Change. There shall not have occurred any event or
condition of any character since the date of this Agreement that has had or is
reasonably likely to have a Parent Material Adverse Effect.
(d) Principals Employment Agreements. Each of the Principals shall have
received from Acquisition Sub an executed Employment Agreement substantially in
the form attached hereto as EXHIBITS C AND D and such agreement shall be in full
force and effect.
39
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
6.01 Survival of Representations, Warranties and Covenants.
(a) The representations and warranties of the Company and each of the
Principals contained in this Agreement, or in any certificate or other
instrument delivered pursuant to this Agreement, shall remain in effect until,
and will expire upon the third year following the Closing Date (the "Termination
Date"), except for the representations and warranties set forth in Section 2.10
(Tax Matters) which shall survive the Termination Date until the expiration of
the applicable statute of limitations. The representations and warranties of the
Parent and the Acquisition Sub contained in this Agreement, or in any
certificate or other instrument delivered pursuant to this Agreement will expire
upon the Effective Date. Notwithstanding the foregoing:
(i) the Termination Date shall not apply to claims based upon
intentional fraud; and
(ii) the representation, warranty, covenant or obligation that is
the subject matter of a timely submitted Claim Notice (as defined in Section
6.01(c)) shall not so expire with respect to such Claim Notice or any subsequent
Claim Notice that is reasonably related to the subject matter of such Claim
Notice, but rather shall remain in full force and effect until such time as each
and every claim that is based upon, or that reasonably relates to, any breach or
alleged breach of such representation, warranty, covenant or obligation and that
is reasonably related to the subject matter of such Claim Notice or any such
subsequent Claim Notice has been fully and finally resolved, either by means of
a written settlement agreement executed by the Principals and the Acquisition
Sub or by means of a final, non-appealable judgment issued by a court of
competent jurisdiction.
(b) The representations, warranties, covenants and obligations of the
Company and each of the Principals shall not be limited or otherwise affected by
or as a result of any information furnished to, or any investigation made by or
any knowledge of, any of the Parent Indemnified Parties or any of their
representatives. No disclosure in any Schedule referred to in Article II will be
deemed adequate to disclose an exception to a representation or warranty made in
this Agreement unless the applicable disclosure schedule identifies the
exception with particularity and describes the relevant facts in reasonable
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item will not be deemed adequate to
disclose an exception to a representation or warranty made in this Agreement
(unless the representation or warranty regards the existence of the document or
other item itself).
(c) For purposes of this Agreement, a "Claim Notice" relating to a
particular representation, warranty, covenant or obligation shall be deemed to
have been given if the Parent or Acquisition Sub, acting in good faith, delivers
within the time periods provided in Section 7.1(a) to the Principals and the
Escrow Agent a written notice stating that such Indemnified Party believes that
40
there is or has been a possible breach of such representation, warranty,
covenant or obligation and containing (i) a brief description of the
circumstances supporting such Indemnified Party's belief that there is or has
been such a possible breach; and (ii) a non-binding, preliminary estimate of the
aggregate dollar amount of the actual and potential damages that have arisen and
may arise as a direct or indirect result of such possible breach. For purposes
of this Agreement, "Parent Indemnified Parties" shall mean the following persons
and entities: (a) Parent; (b) Parent's current and future affiliates (including
the Surviving Corporation); (c) the respective officers, directors, employees
and agents of the persons and entities referred to in clauses "(a)" and "(b)"
above; and (d) the respective successors and assigns of the persons and entities
referred to in clauses "(a)" and "(b)" above; provided, however, that none of
Xxxx Xxxxxxx or Xxx Xxxxxxx or any of the Company Shareholders shall be deemed
to be a Parent Indemnified Party.
6.02 Indemnification by the Principals; Escrow Fund.
(a) The Principals, jointly and severally, agree that from and after the
Effective Date, the Principals shall indemnify and hold the Parent Indemnified
Parties harmless against all claims, losses, liabilities, damages, lawsuits,
administrative proceedings, investigations, audits, demands, assessments,
adjustments, judgments, settlement payments, penalties, fines, interest,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses of investigation and defense (individually a "Loss" and collectively
"Losses") incurred by the Parent Indemnified Parties directly or indirectly as a
result of:
(i) any inaccuracy or breach of a representation or warranty of the
Company or any Principal contained in: (A) this Agreement both as of the date of
this Agreement and as of the Effective Time as if made on and as of the
Effective Time; (B) any of the agreements executed in connection with this
Agreement; or (C) or in any certificate, instrument or other document delivered
by the Company or any Principal pursuant to the terms of this Agreement; or
(ii) any failure by the Company or any of the Principals to perform
or comply with any covenant contained in this Agreement or in any of the
agreements executed in connection with this Agreement.
(iii) the amount by which the Xxxx South Disputed Liability exceeds
$60,000 notwithstanding the fact that the amount shown on the Financials is
greater.
(iv) the amount by which the e911 Liability, including any interest
or penalties, exceeds $250,000.
(b) (i) As security for the indemnity provided to the Parent Indemnified
Parties in this Article VI and by virtue of this Agreement and the Articles of
Merger, the Principals agree that an amount of the Parent Company Stock and
Parent Stock Warrants to which they are entitled at the Effective Date of the
Merger equal to fifty percent (50%) of the Aggregate Merger Consideration (the
"Escrow Shares") shall be deposited with the Escrow Agent and held in the name
of the Escrow
41
Agent pursuant to the Escrow Agreement and the Principals direct the Parent to
deposit the Escrow Shares (plus any additional shares as may be issued in
respect of any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time with respect to the Escrow Shares) with the
Escrow Agent, without any act of the Principals, such deposit to constitute an
escrow fund (the "Escrow Fund"). Each Principal shall be required to contribute
the Principal's Pro Rata Portion (as defined herein) of the Escrow Shares with
the escrow to be funded in the same proportions of Parent Company Stock to
Parent Stock Warrant that each Principal received in connection with the Merger.
It is understood and agreed that the portion of the Aggregate Merger
Consideration deposited into the Escrow Fund by each of the Principals shall be
issued and outstanding on the books of Parent, and the Principals shall be the
owners thereof, but registered in the Escrow Agent's name until the Escrow
Agreement is terminated.
Any cash dividends paid on Parent Common Stock in the Escrow Fund shall be
deposited with the Escrow Agent and become part of the Escrow Fund. Each
Principal shall have voting rights with respect to the shares of Parent Common
Stock contributed to the Escrow Fund on behalf of such Principal (and on any
voting securities added to the Escrow Fund in respect of such shares of Parent
Common Stock) so long as such shares of Parent Common Stock or other voting
securities are held in the Escrow Fund. The Escrow Fund shall be in existence
immediately following the Effective Time and shall terminate at 5:00 p.m.,
Central Time, on the third year from the Effective Date, unless sooner
terminated due to the distribution of the Escrow Fund at an earlier date or
unless the termination date is extended due to pending Claims Notice(s) for
indemnification in accordance with this Section 6.03. For purposes of satisfying
the indemnification obligations of this Section 6.02, the shares of Parent
Common Stock and Parent Stock Warrants in the Escrow Fund shall be valued as of
(i) the date that the Parent Indemnified Party sends notice to release a portion
of the Escrow Fund in satisfaction of a Loss as determined in accordance with
this Article VI or (ii) the date that the Principals request a release of a
portion of the Escrow Fund in accordance with Section 6.02(b); provided if there
is a counter-notice to the requested release from the Escrow given disputing the
requested release from the Escrow, then the date for valuation shall be
suspended until such time as the Escrow Agent is requested to make payment upon
a joint instruction or the date of a final non- appealable order of a court of
competent jurisdiction is entered as to the disputed release. The Parent Common
Stock shall be valued at the closing trading price for the ten trading days
immediately preceding the valuation date and the Parent Stock Warrants shall be
valued at the price at which they were valued and issued on the Effective Date
in connection with the Merger. The Escrow Agent shall satisfy any
indemnification obligations first with the Parent Common Stock and then with the
Parent Stock Warrants. The Escrow Fund shall be governed by the terms of this
Agreement and the Escrow Agreement. The Parent Indemnified Parties' right to
recover any property held pursuant to the Escrow Agreement shall be in addition
to and not in limitation of any other rights or remedies of the Parent
Indemnified Parties at law or in equity.
"Principal's Pro Rata Portion" shall mean, with respect to each Principal,
an amount equal to the quotient obtained by dividing (x) the number of shares of
the Parent Common Stock which the Principal is entitled to receive in connection
with the Merger by (y) the total number of shares
42
of the Parent Common Stock that both Principals are entitled to receive in
connection with the Merger.
(ii) The percentage set forth below of each Principal's Pro Rata
Share of the Escrow Fund shall be released upon the happening of the following
events provided that at the date of the required release that there remains
sufficient Escrow Funds to cover the maximum amount of any pending Claims
Notice(s) as provided in this Article VI: (1) one-third (1/3) shall be released
within 60 days after the end of the first full 12 month period following the
Effective Date ("Post Close Year 1" and each succeeding 12 month period is
hereinafter referred to as Post Close Year 2, etc.) if the Surviving
Corporation's stand alone profit and loss statement prepared in accordance with
GAAP shows (x) a positive "Net Profit" and (y) "Revenues" equal to or greater
than Four Million Dollars ($4,000,000), (2) One-third (1/3) shall be released
within 60 days after the end of Post Close Year 2, provided that the Surviving
Corporation's stand alone profit and loss statement as of the end of Post Close
Year 2 shows (x) a positive "Net Income" and "Revenues" of equal to or greater
than Four Million Dollars ($4,000,000), and (3) the remainder of the Escrow
Funds (less an amount equal in value to the maximum amount claimed to satisfy
any Pending Claims Notices) shall be released on the third anniversary date of
the Effective Date. Any calculation of "Net Profit" shall exclude any
extraordinary charges or non-recurring items as required under GAAP. If there
are any Pending Claims outstanding at the third anniversary of the Effective
Date, the Escrow Agreement shall continue until final resolution of any such
Pending Claims in accordance with this Article VI.
(iii) In the event a Parent Indemnified Party elects to satisfy a
Loss from the Escrow Fund, the Parent Indemnified Party agrees that each
Principal shall only be responsible for such Principal's Pro Rata Portion of
such Loss and each Principal's Escrowed Shares in an amount equal to the
Principal's Pro Rata Share of such Loss shall be subject to release to the
Parent Indemnified Party to satisfy such Principal's Pro Rata Share of the Loss.
(c) For purposes of quantifying the amount owing to any Parent Indemnified
Party under this Section 7.2 resulting from a Loss or Losses caused by a breach
of any representation or warranty given in Article II hereof, the term material
adverse effect or other materiality qualification or any similar qualification
contained or incorporated directly or indirectly in such representation or
warranty shall be disregarded.
(d) For purposes of this Agreement and without limitation, a breach of the
representations and warranties included in Sections 2.01, 2.02 and 2.03 hereof
will be deemed a "willful misrepresentation."
(e) Limitation on Indemnification. Notwithstanding any provision of this
Agreement to the contrary, after the Effective Time, no Parent Indemnified Party
shall be entitled to indemnification until such Parent Indemnified Parties
suffer Losses in excess of $25,000 in the aggregate (the "Basket Amount"), in
which case the Parent Indemnified Parties shall be entitled to recover all
Losses including the Basket Amount; provided, however, any amounts required to
be paid resulting from any failure by the Company or any of the Principals to
perform or comply with any
43
covenant contained in this Agreement or any Related Agreement shall not be
subject to such Basket Amount; and provided further, however, that any amounts
required to be paid by the Parent or the Surviving Corporation as a result of
the Company's breach of, or any inaccuracy contained in, Section 2.21 herein
shall not be subject to such Basket Amount.
6.03 Indemnification Procedures. All claims for indemnification under
Section 6.02 shall be asserted and resolved as follows:
(a) Third-Party Claims. In the event any Parent Indemnified Party becomes
aware of a third-party claim that such Parent Indemnified Party believes may
result in a demand under Section 6.02, such Parent Indemnified Party shall
notify the Principals of such claim, and the Principals shall be entitled, at
its expense, to participate in, but not to determine or conduct, the defense of
such claim. The Parent Indemnified Party shall have the right in its sole
discretion to conduct the defense of and settle any such claim; provided,
however, that except with the written consent of the Principals, no settlement
of any such claim with third-party claimants shall alone be determinative of the
amount of Losses relating to such matter. In the event that the Principals has
consented to any such settlement, neither of the Principals shall have the power
or authority to object to the amount of any claim by any Parent Indemnified
Party (either against the Escrow Fund or the Xxxxxxx Note) with respect to such
settlement.
(b) Non-Third Party Claims. In the event a Parent Indemnified Party has a
claim hereunder that does not involve a claim being asserted against or sought
to be collected by a third party, the Parent Indemnified Party shall with
reasonable promptness send a Claim Notice with respect to such claim to the
Principals and the Escrow Agent (if applicable). If both the Principals do not
notify the Parent Indemnified Party within ten (10) calendar days from the date
of receipt of such Claim Notice that indemnifying party disputes such claim, the
amount of such claim shall be conclusively deemed a liability of the
indemnifying party hereunder. In case the Principals shall object in writing to
any claim made in accordance with this Section 6.03(b), the Parent Indemnified
Party shall have fifteen (15) calendar days to respond in a written statement to
the objection of the Principals. If after such fifteen (15) calendar day period
there remains a dispute as to any claim, the parties shall attempt in good faith
for sixty (60) calendar days to agree upon the rights of the respective parties
with respect to each of such claims. If the parties should so agree, a
memorandum setting forth such agreement shall be prepared and signed by all
parties. If the parties do not so agree, and a claim has been made against the
Escrow Fund, the Escrow Agent shall refrain from disbursing any portion of the
Escrow Fund until resolution of such dispute in the form of (i) a final written
decision of an arbitrator or (ii) a final non-appealable order of a court of
competent jurisdiction.
(c) The Parent Indemnified Party's failure to give reasonably prompt
notice to the Shareholder Representative of any actual, threatened or possible
claim or demand which may give rise to a right of indemnification hereunder
shall not relieve any indemnifying party of any liability which the indemnifying
party may have to the Parent Indemnified Party unless the failure to give such
notice materially and adversely prejudiced the indemnifying party.
44
6.04 Right of Offset. Notwithstanding any other provision herein
including, without limitation, Section 6.02(b), the Parent shall have the right
to offset Xxxx Xxxxxxx'x Pro-Rata Share of a Loss from the amounts payable under
the Xxxxxxx Note for any Losses incurred by any Parent Indemnified Party;
provided, the Parent delivers a Claim Notice to the appropriate parties in
accordance within the time periods provided in Section 6.03 and may exercise
such rights of offset without first having to exercise its rights against the
Escrow Fund.
6.05 No Contribution. Each Principal waives, and acknowledges and agrees
that it shall not have and shall not exercise or assert (or attempt to exercise
or assert), any right of contribution, right of indemnity or other right or
remedy against the Surviving Corporation in connection with any indemnification
or other rights any Indemnified Party may have under or in connection with this
Agreement.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.01 Termination. Except as provided in Section 7.02 hereof, this
Agreement may be terminated and the Merger abandoned at any time prior to the
Effective Time:
(a) by mutual agreement of the Company and Parent;
(b) by Parent or the Company if the Effective Time has not occurred by
December 31, 2004; provided, however, that the right to terminate this Agreement
under this Section 7.01(b) shall not be available to any party whose action or
failure to act has been a principal cause of the failure of the Merger to occur
on or before such date and such action or failure to act constitutes a breach of
this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
7.01, it shall be sufficient for such action to be authorized by the Board of
Directors of the party taking such action.
7.02 Effect of Termination.
(a) In the event of termination of this Agreement as provided in Section
7.01 hereof, this Agreement shall forthwith become void and there shall be no
liability or obligation on the part of Parent, Acquisition Sub, the Company, the
Principals, or their respective officers, directors or shareholders; provided,
however, that each party shall remain liable for any breaches of this Agreement
prior to its termination and the Break-Up Fee as set forth in 7.02(b) hereof for
any such breach; and provided further, however, that, the provisions of Sections
4.03(c), 4.04, 7.03 and Article VIII hereof and this Section 7.02 shall remain
in full force and effect and survive any termination of this Agreement.
45
(b) Break-Up Fee. In the event that the actions or failure to act of
either the Company and Principals, on the one hand, or the Parent and
Acquisition Sub, on the other hand (the "Breaching Party"), is a principal cause
of the failure of the Merger to occur, including the failure to use best efforts
to obtain PSC approvals, unless the Parent has waived with respect to any state
other than Mississippi, then in the event the Non-Breaching Party elects to
terminate pursuant to Section 7.01(b), the Breaching Party, jointly and
severally, shall pay the Non-Breaching Party a Break-Up Fee equal to $500,000,
payable immediately.
7.03 Expenses; Termination Fees.
(a) Except as set forth in Section 7.03(b), all fees and expenses incurred
in connection with this Agreement and the transactions contemplated by this
Agreement (i) by the Company and the Principals shall be paid by the Company and
the Principals and (ii) by the Parent and Acquisition Sub shall be paid by the
Parent, whether or not the Merger is consummated, provided however that the
Company agrees to reimburse the Parent for one-half of the cost for any tax
analysis or preparation of the Proxy Statement as contemplated by Section 4.01
and the amount to be reimbursed shall be included as a liability on the
Management Date Financials.
(b) Parent, on the one hand, and the Company, on the other hand, agree
that in the event either party terminates this Agreement prior to the Effective
Time for any reason other than those allowable under Section 7.01, then the
terminating party shall pay to the other party the amount of actual fees and
expenses incurred by such party in connection with this transaction.
7.04 Amendment. This Agreement may be amended by the parties at any time
by execution of an instrument in writing signed on behalf of each of the parties
hereto.
7.05 Extension; Waiver. At any time prior to the Effective Time, Parent
and Acquisition Sub, on the one hand, and the Company, on the other hand, may,
to the extent legally allowed, (i) extend the time for the performance of any of
the obligations of the other party hereto; (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto; and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII
GENERAL PROVISIONS
8.01 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
46
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Parent or Acquisition Sub, to:
XFone, Inc.
Xxxxxxxxx Xxxxx
000 Xxxx Xxxx
Xxxxxx, X000XX
Xxxxxx Xxxxxxx
Attention: Xxx Xxxxxxxxx
Telephone: x00 000-000-0000
Facsimile: x00 000-000-0000
Email: xxx@xxxxx.xxx
with a copy to:
The Oberon Group, LLC
00 Xxxxxxx Xxx., 0xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxx Xxxxxxxxxx
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxx@xxxxxxxxxxx.xxx
Xxxxxxx Xxxxxx Winter & Stennis, P.A.
000 Xxxxx Xxxxx Xxxxxx (39202)
P. O. Xxx 000
Xxxxxxx, XX 00000-0000
Attention: Xxxx X. Xxxxxx
Telephone: 000-000-0000 Facsimile:
601-949-4804
Email: xxxxxxx@xxxxxxxxxxxxx.xxx
(b) if to the Company or the Principals, to:
WS Telecom, Inc.
0000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxx Xxxxxxx, President
Xxx Xxxxxxx, Executive V.P.
Telephone: 000-000-0000
Facsimile: 000-000-0000
Email: xxxxxxxx@xxxxxxx.xxx
+ xxxxxxx@xxxxxxx.xxx
47
8.02 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." References to "property" includes both intangible and tangible
property. References to "assets" includes both intangible and tangible assets.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.03 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original and all of which, when
taken together, shall be considered one and the same agreement.
8.04 Entire Agreement; Assignment. This Agreement and the documents and
instruments and other agreements among the parties hereto referenced herein: (i)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings both written
and oral, among the parties with respect to the subject matter hereof; and (ii)
shall not be assigned by operation of law or otherwise.
8.05 No Third Party Beneficiaries. This Agreement, the schedules and
exhibits hereto and the documents and instruments and other agreements among the
parties hereto referenced herein are not intended to confer upon any person
other than the parties hereto any rights or remedies hereunder.
8.06 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to persons or circumstances other than those with respect to which it
is deemed void will be interpreted so as reasonably to effect the intent of the
parties hereto within the boundaries of applicable law. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent practicable
within applicable law, the economic, business and other purposes of such void or
unenforceable provision.
8.07 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.08 Governing Law; Dispute Resolution. This Agreement shall be governed
by and construed in accordance with the laws of the State of Mississippi,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof. EACH PARTY HEREBY
48
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY
TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR
ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.
8.09 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Attorneys' Fees. If any action or other proceeding relating to the
enforcement of any provision of this Agreement is brought by any party hereto,
the prevailing party shall be entitled to recover reasonable attorneys' fees,
costs and disbursements (in addition to any other relief to which the prevailing
party may be entitled).
8.11 Principal's Post Closing Sale Restrictions. Xxxx Xxxxxxx agrees that
the total shares of common stock of the Parent sold by him in any one month
period shall not exceed 3.5% of the average monthly trading volume of the Parent
Common Stock. Xxx Xxxxxxx agrees that the total shares of common stock of the
Parent sold by him in any one month period shall not exceed 1.5% of the average
monthly trading volume of the Parent Common Stock. Xxxx Xxxxxxx and Xxx Xxxxxxx
agree that this Parent Common Stock sales restriction shall apply to any Parent
Common Stock, whether owned as a result of the Merger or thereafter acquired for
as long as either owns any Parent Common Stock and that this provision shall
survive the consummation of the Merger.
IN WITNESS WHEREOF, Parent, Acquisition Sub, the Company, each of the
Principals and the Shareholder Representative have caused this Agreement to be
signed, all as of the date first written above.
XFONE, INC. WS TELECOM, INC.
By:________________________________ By:_____________________________________
Name: Xxx Xxxxxxxxx Name: Xxxx Xxxxxxx
Title: President and CEO Title: Chairman, President and CEO
XFONE USA, INC. PRINCIPALS
By:________________________________ _________________________________________
Name: Xxx Xxxxxxxxx Xxxx Xxxxxxx, Individually
Title: President
_________________________________________
Xxx Xxxxxxx, Individually
49
EXHIBIT "A"
FORM OF ARTICLES OF MERGER
50
EXHIBIT "B"
FORM OF ESCROW AGREEMENT
51
EXHIBIT "C"
FORM OF XXXXXXX EMPLOYMENT AGREEMENT
52
EXHIBIT "D"
FORM OF XXXXXXX EMPLOYMENT AGREEMENT
53
EXHIBIT "E"
FORM OF RELEASE
54
