Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made
and entered into as of the 16th day of August, 2002, by and among TELS
Corporation, a Utah corporation ("TELS"); TELS Merger, Co., a wholly owned
subsidiary of TELS formed or to be formed under the laws of Minnesota ("Merger
Co"); and Strategic Futures and Options, Inc., a Minnesota corporation
("Strategic"); based on the following:
Recitals
The parties desire to enter into this agreement to set forth the terms
and conditions of the corporate reorganization pursuant to which Merger Co. will
be merged with and into Strategic, with Strategic being the surviving entity,
and the issued and outstanding shares of capital stock of Strategic will be
converted into shares of TELS Common Stock. The merger of Merger Co. with and
into Strategic and the issuance of TELS Common Stock are for the purpose of
effecting a tax-free reorganization pursuant to Section 368(a)(2)(E) of the
Internal Revenue Code of 1986, as amended (the "Code").
Agreement
NOW, THEREFORE, in consideration of the mutual covenants to be
performed and benefits to received under this Agreement and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, TELS, Merger Co. and Strategic agree as
follows:
ARTICLE I
MERGER
1.01 The Merger. At the Effective Time (as defined herein) and subject
to and upon the terms and conditions of this Agreement and in accordance with
the Minnesota Business Corporation Act, Merger Co. shall be merged with and into
Strategic and the separate corporate existence of Merger Co. shall cease.
Strategic shall continue as the surviving corporation (sometimes referred to
herein as the "Surviving Corporation ") in the Merger, and as of the Effective
Time shall be a wholly owned subsidiary of TELS. In connection with the Merger,
the issued and outstanding shares of Strategic Common Stock shall be converted
into shares of TELS Common Stock in the manner provided herein.
1.02. The Closing; Effective Time.
(a) The closing of the Merger (the "Closing ") shall take place (i) at
a mutually agreeable time and place in Salt Lake City, Utah within five business
days following the date on which the last to be satisfied or waived of the
conditions set forth in Articles IV and V (other than those conditions that by
their nature are to be satisfied at the Closing) shall be satisfied or waived in
accordance with this Agreement (the "Closing Date ").
(b) On the Closing Date, TELS, Merger Co. and Strategic shall cause
articles of merger with respect to the Merger to be properly executed, and filed
with the Secretary of State of the State of Minnesota. The Merger shall become
effective at such time as the articles of merger shall be duly filed with the
Secretary of State of Minnesota, or at such later time reflected in such
articles of merger as shall be agreed upon by TELS and Strategic (the time that
the Merger becomes effective, the "Effective Time ").
Section 1.03. Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments, assurances or any other actions or things are
necessary or desirable to continue in, vest, perfect or confirm of record or
otherwise the Surviving Corporation's right, title or interest in, to or under
any of the rights, properties, privileges, franchises or assets of either of its
constituent corporations acquired or to be acquired by the Surviving Corporation
as a result of, or in connection with, the Merger, or otherwise to carry out the
intent of this Agreement, the officers and directors of the Surviving
Corporation shall be authorized to execute and deliver, in the name and on
behalf of either of the constituent corporations of the Merger, all such deeds,
bills of sale, assignments and assurances and to take and do, in the name and on
behalf of each of such corporations or otherwise, all such other actions and
things as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties, privileges,
franchises or assets in the Surviving Corporation or otherwise to carry out the
intent of this Agreement.
Section 1.04. Articles of Incorporation; Bylaws; Directors and Officers
of the Surviving Corporation. Unless otherwise agreed by TELS and Strategic
prior to the Closing, at the Effective Time:
(a) The Articles of Incorporation of Strategic (the "Strategic
Articles of Incorporation") as in effect immediately prior to the
Effective Time shall be at and after the Effective Time (until amended
as provided by law and by such Articles of Incorporation) the articles
of incorporation of the Surviving Corporation.
(b) The Bylaws of Strategic as in effect immediately prior to
the Effective Time shall be at and after the Effective Time (until
amended as provided by law, its Articles of Incorporation and its
Bylaws, as applicable) the Bylaws of the Surviving Corporation;
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(c) The officers of Strategic immediately prior to the
Effective Time shall continue to serve in their respective offices of
the Surviving Corporation from and after the Effective Time, until
their successors are elected or appointed and qualified or until their
resignation or removal; and
(d) The directors of Strategic immediately prior to the
Effective Time shall be the directors of the Surviving Corporation from
and after the Effective Time, until their successors are elected or
appointed and qualified or until their resignation or removal.
Section 1.05. Manner and Basis of Converting Stock. The manner and
basis of converting the shares of capital stock of Strategic and Merger Co., by
virtue of the Merger and without any action on the part of any holder thereof,
shall be as set forth in this Section 1.05.
(a) Subject to the terms and conditions of this Agreement,
each share of Strategic Common Stock issued and outstanding immediately
prior to the Effective Time and all rights in respect thereof, shall at
the Effective Time, without any action on the part of any holder
thereof, forthwith cease to exist and be converted into the right to
receive one share of TELS Common Stock, par value $0.02, for an
aggregate of Eighteen Million Five Hundred Thousand One Hundred
Thirty-Three (18,500,133) TELS Shares being issued to the Strategic
shareholders as a result of the Merger; provided, that any "Dissenting
Shares" of Strategic shall receive payment from Strategic in lieu of
such shares of TELS Common Stock in accordance with the provisions of
the Minnesota Business Corporation Act. Dissenting Shares means any
shares of Strategic for which the holder thereof has exercised his or
her dissenters' rights under the Minnesota Business Corporation Act.
(b) Except as otherwise provided herein, commencing
immediately after the Effective Time, each certificate which,
immediately prior to the Effective Time, represented issued and
outstanding shares of Strategic Common Stock shall evidence the right
to receive the number of whole shares of TELS Common Stock on the basis
set forth in subparagraph (a) above. Upon the surrender by the holders
of Strategic Common Stock to TELS' transfer agent and registrar of
their Strategic stock certificates, together with the investment
representation letter described in Section 6.05(a) and all other
documents and materials reasonably required by such transfer agent to
be delivered in connection therewith, the holders of the Strategic
Common Stock shall be entitled to receive a certificate or certificates
representing the number of whole shares of TELS Common Stock to which
they are entitled. No scrip or fractional share certificates for TELS
Common Stock will be issued and any fractional share shall be rounded
to the nearest whole share.
(c) At the Effective Time, each share of common stock of
Merger Co. issued and outstanding immediately prior to the Effective
Time, and all rights in respect thereof, shall, without any action on
the part of TELS, forthwith cease to exist and be converted into one
validly issued, fully paid and nonassessable share of Strategic Common
Stock.
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(d) If between the date of this Agreement and the Effective
Time, the outstanding shares of TELS Common Stock or Strategic Common
Stock shall be changed into a different number of shares by reason of
any stock split, combination of shares, or if any dividend payable in
stock shall be declared thereon with a record date within such period,
the exchange ratio shall be appropriately adjusted to provide the
holders of Strategic Shares the same economic effect as contemplated by
this Agreement prior to such event.
1.06 Closing Events.
(a) TELS Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article V, TELS shall deliver to Strategic at
Closing all the following:
(i) A certificate of good standing from the Utah
Division of Corporations and Commercial Code, issued as of a
date within five days prior to the Closing Date, certifying
that TELS is in good standing as a corporation in the State of
Utah;
(ii) Incumbency and specimen signature certificates
dated the Closing Date with respect to the officers of TELS
executing this Agreement and any other document delivered
pursuant hereto on behalf of TELS;
(iii) Copies of the resolutions of TELS's board of
directors authorizing the execution and performance of this
Agreement and the contemplated transactions, certified by the
secretary or an assistant secretary of TELS as of the Closing
Date;
(iv) The certificate contemplated by Section 4.01,
duly executed by the president of TELS;
(v) The certificate contemplated by Section 4.02,
dated the Closing Date, signed by the president of TELS; and
(vi) Certificates for the TELS Shares registered in
the names of the Strategic Shareholders or, in lieu thereof,
irrevocable transfer instructions to TELS' transfer agent and
registrar irrevocably instructing it to issue the TELS Shares
to the Strategic Shareholders.
In addition to the above deliveries, TELS shall take all steps and
actions as Strategic may reasonably request or as may otherwise be
reasonably necessary to consummate the transactions contemplated hereby.
(b) Strategic's Deliveries. Subject to fulfillment or waiver
of the conditions set forth in Article V, Strategic shall deliver to
TELS at Closing all the following:
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(i) A certificate of good standing from the secretary
of state of Minnesota, issued as of a date within five days
prior to the Closing Date certifying that Strategic is in good
standing as a corporation in the State of Minnesota;
(ii) Incumbency and specimen signature certificates
dated the Closing Date with respect to the officers of
Strategic executing this Agreement and any other document
delivered pursuant hereto on behalf of Strategic;
(iii) Copies of the resolutions of Strategic's board
of directors and shareholders authorizing the execution and
performance of this Agreement and the contemplated
transactions, certified by the secretary or an assistant
secretary of Strategic as of the Closing Date;
(iv) The certificate contemplated by Section 5.01,
executed by the chief executive officer of Strategic; and
(v) The certificate contemplated by Section 5.02,
dated the Closing Date, and signed by the chief executive
officer of Strategic.
In addition to the above deliveries, Strategic shall take all steps and actions
as TELS may reasonably request or as may otherwise be reasonably necessary to
consummate the transactions contemplated hereby.
1.07 Effect of Merger. On the Effective Date of the merger, Strategic
and Merger Co. shall cease to exist separately, and Merger Co. shall be merged
with and into Strategic, the Surviving Corporation, in accordance with the
provisions of this Agreement and the Articles of Merger, and in accordance with
the provisions of and with the effect provided in the corporation laws of the
State of Minnesota. Strategic, as the Surviving Corporation, shall posses all
the rights, privileges, franchises, and trust and fiduciary duties, powers, and
obligations, of a private as well as of a public nature, and be subject to all
the restrictions, obligations, and duties of each of Strategic and Merger Co.;
all property, real, personal, and mixed, and all debts due to either Strategic
or Merger Co. on whatever account, and all other things belonging to each of
Strategic and Merger Co. shall be vested in Strategic, all property, rights,
privileges, powers, and franchises, and all and every other interest shall be
thereafter the property of Strategic as they were of Strategic and Merger Co.;
the title to any real estate, whether vested by deed or otherwise, in either
Strategic or Merger Co. shall not revert or be in any way impaired by reason of
the merger; provided, however, that all rights of creditors and all liens on any
property of either Strategic or Merger Co. shall be preserved unimpaired, and
all debts, liabilities, and duties of Strategic and Merger Co. shall thenceforth
attach to Strategic and may be enforced against it to the same extent as if such
debts, liabilities, and duties had been incurred or contracted by Strategic.
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1.08 Termination
(a) This Agreement may be terminated by the board of directors
of either TELS or Strategic at any time prior to the Closing Date if:
(i) There shall be any actual or threatened action or
proceeding before any court or any governmental body which
shall seek to restrain, prohibit, or invalidate the
transactions contemplated by this Agreement and which, in the
reasonable judgment of such board of directors, made in good
faith and based upon the advice of its legal counsel, makes it
inadvisable to proceed with the transactions contemplated by
this Agreement; or
(ii) Any of the transactions contemplated hereby are
disapproved by any regulatory authority whose approval is
required to consummate such transactions or in the reasonable
judgment of such board of directors, made in good faith and
based on the advice of counsel, there is substantial
likelihood that any such approval will not be obtained or will
be obtained only on a condition or conditions which would be
unduly burdensome, making it inadvisable to proceed with the
exchange.
In the event of termination pursuant to this paragraph (a) of Section
1.08, no obligation, right, or liability shall arise hereunder, and each party
shall bear all of the expenses incurred by it in connection with the
negotiation, preparation, and execution of this Agreement and the transactions
contemplated hereby.
(b) This Agreement may be terminated at any time prior to the
Closing Date by action of the board of directors of TELS if (i)
Strategic shall fail to comply in any material respect with any of its
covenants or agreements contained in this Agreement or if any of the
representations or warranties of Strategic contained herein shall be
inaccurate in any material respect or (ii) there has been any material
adverse change in the business or financial condition of Strategic. In
the event of termination pursuant to this paragraph (b) of this section
1.08, no obligation, right, remedy, or liability shall arise hereunder,
except that Strategic shall reimburse TELS for all costs and expenses
actually incurred by it in connection with this Agreement, which were
incurred from and after the date hereof.
(c) This Agreement may be terminated at any time prior to the
Closing Date by action of the board of directors of Strategic if (i)
TELS shall fail to comply in any material respect with any of its
covenants or agreements contained in this Agreement or if any of the
representations or warranties of TELS contained herein shall be
inaccurate in any material respect, or (ii) there has been any adverse
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change in the business or financial condition of TELS. In the event of
termination pursuant to this paragraph (c) of this section 1.08, no
obligation, right, remedy, or liability shall arise hereunder except
that TELS shall reimburse Strategic for all costs and expenses actually
incurred by it in connection with this Agreement, which were incurred
from and after the date hereof.
ARTICLE II
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF TELS
As an inducement to, and to obtain the reliance of Strategic, TELS and
Merger Co. represent and warrant as follows:
2.01 Organization.
(a) TELS is, and will be on the Closing Date, a corporation
duly organized, validly existing, and in good standing under the laws
of the State of Utah and has the corporate power and is and will be
duly authorized, qualified, franchised, and licensed under all
applicable laws, regulations, ordinances, and orders of public
authorities to own all of its properties and assets and to carry on its
business in all material respects as it is now being conducted, and
there are no other jurisdictions in which it is not so qualified in
which the character and location of the assets owned by it or the
nature of the material business transacted by it requires
qualification, except where failure to do so would not have a material
adverse effect on its business, operations, properties, assets or
condition. The execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated by this Agreement in
accordance with the terms hereof will not, violate any provision of
TELS's articles of incorporation or bylaws, or other agreement to which
it is a party or by which it is bound.
(b) Merger Co. will be on the Closing Date, a corporation duly
organized, validly existing, and in good standing under the laws of the
State of Minnesota and will have the corporate power and will be duly
authorized, qualified, franchised, and licensed under all applicable
laws, regulations, ordinances, and orders of public authorities to own
all of its properties and assets and to carry on its business in all
material respects as it is now being conducted, and there are no other
jurisdictions in which it is not so qualified in which the character
and location of the assets owned by it or the nature of the material
business transacted by it requires qualification, except where failure
to do so would not have a material adverse effect on its business,
operations, properties, assets or condition. The execution and delivery
of this Agreement does not, and the consummation of the transactions
contemplated by this Agreement in accordance with the terms hereof will
not, violate any provision of Merger Co.'s articles of incorporation or
bylaws, or other agreement to which it is a party or by which it is
bound.
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2.02 Approval of Agreement. TELS and Merger Co. have full power,
authority, and legal right and have taken, or will take, all action required by
law, their articles of incorporation, bylaws, and otherwise to execute and
deliver this Agreement and to consummate the transactions herein contemplated.
The board of directors and shareholders, where required, of TELS and Merger Co.
have authorized and approved the execution, delivery, and performance of this
Agreement and the transactions contemplated hereby; subject to compliance with
state and federal corporate and securities laws.
2.03 Capitalization. The authorized capitalization of TELS consists of
50,000,000 shares of common stock, $0.02 par value, of which 4,191,819 shares
are issued and outstanding, and 10,000,000 shares of preferred stock, par value
$1.00, none of which is issued and outstanding. The authorized capitalization of
Merger Co. consists of 10,000 shares, $0.001 par value, of which 100 shares are
issued and outstanding. All issued and outstanding shares of TELS and Merger Co.
are legally issued, fully paid, and nonassessable and not issued in violation of
the preemptive or other right of any person. There are no dividends or other
distributions due or payable with respect to any of the shares of capital stock
of TELS or Merger Co.
2.04. SEC Reports; Financial Statements.
(a) TELS has filed all forms, reports and documents (including
all Exhibits, Schedules and Annexes thereto) required to be filed by it
with the SEC since it became subject to the reporting requirements of
section 13 or 15(d) of the Exchange Act, including any amendments or
supplements thereto (collectively, including any such forms, reports
and documents filed after the date hereof, the "TELS SEC Reports "),
and, with respect to the TELS SEC Reports filed by TELS after the date
hereof and prior to the Closing Date, will deliver or make available to
Strategic all of its TELS SEC Reports in the form filed with the SEC.
The TELS SEC Reports (i) were (and any TELS SEC Reports filed after the
date hereof will be) in all material respects prepared in accordance
with the requirements of the Securities Act or the Exchange Act, as the
case may be, and the rules and regulations promulgated thereunder, and
(ii) as of their respective filing dates, did not (and any TELS SEC
Reports filed after the date hereof will not) contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. On the Closing Date, TELS shall be current in the
filing of the TELS SEC Reports.
(b) Included in Schedule 2.04 are (i) the audited balance
sheets of TELS as of December 31, 2001 and 2000, and the related
statements of operations, stockholders' equity (deficit), and cash
flows for the fiscal years ended December 31, 2001 and 2000, including
the notes thereto, and the accompanying report of Xxxxxx & Co.,
independent certified public accountant, and (ii) the unaudited balance
sheet of TELS as of June 30, 2002, and the related statements of
operations, stockholders' equity (deficit), and cash flows for the
three months ended June 30, 2002, together with the notes thereto and
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representations by the principal accounting and financial officer of
TELS to the effect that such financial statements contain all
adjustments (all of which are normal recurring adjustments) necessary
to present fairly the results of operations and financial position for
the periods and as of the dates indicated and such unaudited financial
statements shall not reflect any material changes since December 31,
2001.
(c) The financial statements of TELS delivered pursuant to
Section 2.04(b) have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the
periods involved as explained in the notes to such financial
statements. The TELS financial statements present fairly, in all
material respects, as of their respective dates, the financial
condition of TELS. TELS did not have, as of the date of any such
financial statements, except as and to the extent reflected or reserved
against therein, any liabilities or obligations (absolute or
contingent) which should be reflected in any financial statement or the
notes thereto prepared in accordance with generally accepted accounting
principles, and all assets reflected therein present fairly the assets
of TELS in accordance with generally accepted accounting principles.
The statements of operations and cash flows present fairly the
financial position and result of operations of TELS as of their
respective dates and for the respective periods covered thereby.
(d) TELS has filed all tax returns required to be filed by it
from inception to the Closing Date. TELS has no material liabilities
with respect to the payment of any federal, state, county, local, or
other taxes (including any deficiencies, interest, or penalties)
accrued for or applicable to the period ended on the date of the most
recent balance sheet of TELS, except to the extent reflected on such
balance sheet and adequately provided for therein, which are not yet
due and payable. Proper and accurate amounts of taxes have been
withheld by or on behalf of TELS with respect to all material
compensation paid to employees of TELS for all periods ending on or
before the date hereof, and all deposits required with respect to
compensation paid to such employees have been made, in compliance with
the provisions of all applicable federal, state, and local tax and
other laws. TELS has not made any election pursuant to the provisions
of any applicable tax laws (other than elections that relate solely to
methods of accounting, depreciation, or amortization) that would have a
material adverse affect on TELS, its financial condition, its business
as presently conducted or proposed to be conducted, or any of its
properties or material assets. None of such income tax returns has been
examined or is currently being examined by the Internal Revenue Service
and no deficiency assessment or proposed adjustment of any such return
is pending, proposed or contemplated. There are no tax liens upon any
of the assets of TELS. There are no outstanding agreements or waivers
extending the statutory period of limitation applicable to any tax
return of TELS.
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(e) The books and records, financial and otherwise, of TELS
and Merger Co. are in all material respects complete and correct and
have been maintained in accordance with sound business and bookkeeping
practices so as to accurately and fairly reflect, in reasonable detail,
the transactions and dispositions of the assets of TELS and Merger Co.,
and TELS and Merger Co. have maintained a system of internal accounting
controls sufficient to provide reasonable assurances that (i)
transactions have been and are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as
necessary to permit the preparation of financial statements in
conformity with generally accepted accounting principles or any other
criteria applicable to such statements and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with the existing assets at
reasonable intervals, and appropriate action is taken with respect to
any differences.
2.05 Outstanding Warrants and Options. TELS and Merger Co. have no
existing warrants, options, calls, or commitments of any nature relating to the
authorized and unissued shares of TELS or Merger Co. Common Stock, except that
TELS has outstanding common stock purchase options entitling the holders to
purchase 131,500 shares of TELS common stock at exercise prices ranging from
$0.13 to $0.60 for terms expiring from April 18, 2003 to August 11, 2010.
2.06 Information. The information concerning TELS and Merger Co. set
forth in this Agreement and the schedules delivered by TELS pursuant hereto is
complete and accurate in all material respects and does not contain any untrue
statement of a material fact or omit to state a material fact required to make
the statements made, in light of the circumstances under which they were made,
not misleading. TELS and Merger Co. shall cause the schedules delivered by them
pursuant hereto and the instruments delivered to Strategic hereunder to be
updated after the date hereof up to and including the Closing Date.
2.07 Absence of Certain Changes or Events. Except as set forth in this
Agreement or the schedules hereto, since June 30, 2002:
(a) There has not been (i) any adverse change in the business,
operations, properties, level of inventory, assets, or condition of
TELS or (ii) any damage, destruction, or loss to TELS (whether or not
covered by insurance) adversely affecting the business, operations,
properties, assets, or condition of TELS;
(b) TELS has not (i) amended its articles of incorporation or
bylaws; (ii) declared or made, or agreed to declare or make, any
payment of dividends or distributions of any assets of any kind
whatsoever to stockholders or purchased or redeemed, or agreed to
purchase or redeem, any of its capital stock; (iii) waived any rights
of value which in the aggregate are extraordinary or material
considering the business of TELS; (iv) made any change in its method of
management, operation, or accounting; (v) entered into any other
transactions; (vi) made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or
termination payment to any present or former officer or employee; (vii)
increased the rate of compensation payable or to become payable by it
to any of its officers or directors or any of its employees; or (viii)
established any profit-sharing, bonus, deferred compensation,
insurance, pension, retirement, or other employee benefit plan,
payment, or arrangement made to, for, or with its officers, directors,
or employees;
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(c) TELS has not (i) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except liabilities
incurred in the ordinary course of business; (iii) paid any material
obligation or liability (absolute or contingent) other than current
liabilities reflected in or shown on the most recent TELS balance sheet
and current liabilities incurred since that date in the ordinary course
of business; (iv) sold or transferred, or agreed to sell or transfer,
any of its assets, properties, or rights or canceled, or agreed to
cancel, any debts or claims; (v) made or permitted any amendment or
termination of any contract, agreement, or license to which it is a
party if such amendment or termination is material, considering the
business of TELS; or (vi) issued, delivered, or agreed to issue or
deliver any stock, bonds, or other corporate securities including
debentures (whether authorized and unissued or held as treasury stock);
and
(d) To the best knowledge of TELS, it not become subject to
any law or regulation which materially and adversely affects, or in the
future would be reasonably expected to adversely affect, the business,
operations, properties, assets, or condition of TELS.
2.08 Title and Related Matters. Except as provided herein or disclosed
in the TELS balance sheet and the notes thereto, TELS has good and marketable
title to all of its properties, inventory, interests in properties, and assets,
which are reflected in the most recent TELS balance sheet or acquired after that
date (except properties, interests in properties, and assets sold or otherwise
disposed of since such date in the ordinary course of business), free and clear
of all mortgages, liens, pledges, charges, or encumbrances, except (i) statutory
liens or claims not yet delinquent; and (ii) such imperfections of title and
easements as do not, and will not, materially detract from, or interfere with,
the present or proposed use of the properties subject thereto or affected
thereby or otherwise materially impair present business operations on such
properties.
2.09 Litigation and Proceedings. Except as disclosed in the TELS
Schedules, there are no actions, suits, or administrative or other proceedings
pending or threatened by or against TELS or adversely affecting TELS or its
properties, at law or in equity, before any court or other governmental agency
or instrumentality, domestic or foreign, or before any arbitrator of any kind.
There is no default on its part with respect to any judgment, order, writ,
injunction, decree, award, rule, or regulation of any court, arbitrator, or
governmental agency or instrumentality.
2.10 Contracts. Except as included or described in Schedule 2.10:
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(a) There are no material contracts, agreements, franchises,
license agreements, or other commitments to which TELS is a party by
which it or any of the properties of TELS are bound;
(b) All contracts, agreements, franchises, license agreements,
and other commitments to which TELS is a party or by which its
properties are bound and which are material to the operations or
financial condition of TELS are valid and enforceable by TELS in all
material respects;
(c) TELS is not a party to or bound by, and its properties are
not subject to, any material contract, agreement, other commitment or
instrument; any charter or other corporate restriction; or any
judgment, order, writ, injunction, decree, or award which materially
and adversely affects, or in the future may (as far as TELS can now
foresee) materially and adversely affect, the business, operations,
properties, assets, or condition of TELS; and
(d) TELS is not a party to any oral or written (i) contract
for the employment of any officer, director, or employee which is not
terminable on 30 days (or less) notice; (ii) profit-sharing, bonus,
deferred compensation, stock option, severance pay, pension benefit or
retirement plan, agreement, or arrangement covered by Title IV of the
Employee Retirement Income Security Act, as amended; (iii) agreement,
contract, or indenture relating to the borrowing of money; (iv)
guarantee of any obligation, other than one on which TELS is a primary
obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations,
which, in the aggregate do not exceed $1,000; (v) consulting or other
similar contract with an unexpired term of more than one year or
providing for payments in excess of $1,000 in the aggregate; (vi)
collective bargaining agreement; (vii) agreement with any present or
former officer or director of TELS or any subsidiary; or (viii)
contract, agreement, or other commitment involving payments by it of
more than $1,000 in the aggregate.
2.11 Material Contract Defaults. TELS is not in default in any material
respect under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets, or
condition of TELS, and there is no event of default or other event which, with
notice or lapse of time or both, would constitute a default in any material
respect under any such contract, agreement, lease, or other commitment in
respect of which TELS has not taken adequate steps to prevent such a default
from occurring.
2.12 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any indenture, mortgage, deed of trust, or
other contract, agreement, or instrument to which TELS is a party or to which
any of its properties or operations are subject.
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2.13 Compliance With Laws and Regulations. TELS has complied with all
applicable statutes and regulations of any federal, state, or other governmental
entity or agency thereof, except to the extent that noncompliance would not
materially and adversely affect the business, operations, properties, assets, or
condition of TELS or except to the extent that noncompliance would not result in
the occurrence of any material liability for TELS. To the best knowledge of
TELS, the consummation of the transactions contemplated by this Agreement will
comply with all applicable statutes and regulations, subject to the preparation
and filing of any forms required by state and federal security laws.
2.14 Governmental Authorizations. TELS has all licenses, franchises,
permits, and other governmental authorizations that are legally required to
enable it to conduct its business in all material respects as conducted on the
date of this Agreement. Except for compliance with federal and state securities
and corporation laws, as hereinafter provided, no authorization, approval,
consent, or order of, or registration, declaration, or filing with, any court or
other governmental body is required in connection with the execution and
delivery by TELS of this Agreement and the consummation by TELS of the
transactions contemplated hereby.
2.15 Subsidiaries and Predecessors. TELS does not own, beneficially or
of record, any equity securities in any other entity except for Merger Co. which
is a wholly owned subsidiary formed for the sole purpose of completing the
transactions set forth herein. TELS does not have a predecessor as that term is
defined under generally accepted accounting principles or Regulation S-X
promulgated by the Securities and Exchange Commission.
2.16 Insurance. TELS currently has no significant insurable properties
and does not carry insurance on such properties.
2.17 Employee Relations. TELS has complied in respect of its business
in all material respects with all applicable laws, rules, and regulations that
relate to prices, wages, hours, harassment, disabled access, and discrimination
in employment and collective bargaining and to the operation of its business and
is not liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing. TELS has no outstanding liabilities or
obligations with respect to any employee benefit or retirement plan. TELS
believes that its relationship with its employees is satisfactory.
2.18 TELS Schedules. TELS has delivered to Strategic the following
schedules, which are collectively referred to as the "TELS Schedules" and which
consist of the following separate schedules dated as of the date of execution of
this Agreement, all certified by a duly authorized officer of TELS as complete,
true, and accurate:
(a) A schedule including copies of the articles of
incorporation and bylaws of TELS in effect as of the date of this
Agreement;
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(b) A schedule containing copies of resolutions adopted by the
board of directors and shareholders of TELS and Merger Co., where
required, approving this Agreement and the transactions herein
contemplated;
(c) A schedule setting forth TELS' annual report on Form
10-KSB for the years ended December 31, 2001 and 2000, and its
quarterly reports on Form 10-QSB for each fiscal quarter in 2001 and
the first two fiscal quarters of 2002, which include the financial
statements required pursuant to Section 2.04(b) hereof; and
(d) A schedule setting forth a list of all outstanding stock
options of TELS, including the grantee, number of options granted,
exercise price, expiration date, plan under which granted, and a
description of any other material terms of such stock options.
(e) A schedule setting forth a description of any material
adverse change in the business, operations, property, inventory,
assets, or condition of TELS since the most recent TELS balance sheet,
required to be provided pursuant to Section 2.07 hereof;
(f) A schedule setting forth any material contracts required
to be provided or matters to be disclosed pursuant to Section 2.10
hereof; and
(g) A schedule setting forth any other information, together
with any required copies of documents, required to be disclosed in the
TELS Schedules by Sections 2.01 through 2.17.
TELS shall cause the TELS Schedules and the instruments delivered to Strategic
hereunder to be updated after the date hereof up to and including the Closing
Date. Such updated TELS Schedules, certified in the same manner as the original
TELS Schedules, shall be delivered prior to and as a condition precedent to the
obligation of Strategic to close the transactions contemplated by this
Agreement.
ARTICLE III
REPRESENTATIONS, COVENANTS, AND WARRANTIES OF STRATEGIC
As an inducement to, and to obtain the reliance of, TELS and Merger
Co., Strategic represents and warrants as follows:
3.01 Organization. Strategic is, and will be on the Closing Date, a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Minnesota and has the corporate power and is and will be
duly authorized, qualified, franchised, and licensed under all applicable laws,
regulations, ordinances, and orders of public authorities to own all of its
properties and assets and to carry on its business in all material respects as
it is now being conducted, and there are no other jurisdictions in which it is
not so qualified in which the character and location of the assets owned by it
or the nature of the material business transacted by it requires qualification,
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except where failure to do so would not have a material adverse effect on the
business, operations, properties, assets or condition of Strategic. The
execution and delivery of this Agreement does not, and the consummation of the
transactions contemplated by this Agreement in accordance with the terms hereof
will not, violate any provision of Strategic's articles of incorporation or
bylaws, or other material agreement to which it is a party or by which it is
bound.
3.02 Approval of Agreement. Strategic has full power, authority, and
legal right and has taken, or will take, all action required by law, its
articles of incorporation, bylaw, and otherwise to execute and deliver this
Agreement and to consummate the transactions herein contemplated, subject to
approval by the Strategic Shareholders. The board of directors of Strategic have
authorized and approved the execution, delivery, and performance of this
Agreement and the transactions contemplated hereby; subject to compliance with
state and federal corporate and securities laws.
3.03 Capitalization. The authorized capitalization of Strategic
consists of 50,000,000 shares of common stock, par value $0.01, of which
18,500,133 shares are issued and outstanding. All issued and outstanding shares
of Strategic are legally issued, fully paid, and nonassessable and not issued in
violation of the preemptive or other right of any person. There are no dividends
or other payments or distributions due or payable with respect to any of the
shares of capital stock of Strategic.
3.04 Financial Statements.
(a) Included in Schedule 3.04 are the unaudited balance sheets
of Strategic as of September 30, 2001 and June 30, 2002, and the
related unaudited statements of operations and cash flows for the nine
months ended June 30, 2002. As provided in Section 6.09 herein, prior
to Closing Strategic shall deliver to TELS audited financial statements
of Strategic for the year ended September 30, 2001.
(b) The financial statements delivered pursuant to Section
3.04(a), and to be delivered pursuant to Section 6.09, have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved. The financial
statements of Strategic present fairly in all material aspects, as of
their respective dates, the financial condition of Strategic. Strategic
did not have, as of the date of any such balance sheets, except as and
to the extent reflected or reserved against therein, any liabilities or
obligations (absolute or contingent) which should be reflected in any
financial statements or the notes thereto prepared in accordance with
generally accepted accounting principles, and all assets reflected
therein present fairly the assets of Strategic, in accordance with
generally accepted accounting principles. The statements of revenue and
expenses and cash flows present fairly the financial position and
result of operations of Strategic as of their respective dates and for
the respective periods covered thereby.
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(c) Strategic has filed all tax returns required to be filed
by it from inception to the Closing Date. Strategic has no material
liabilities with respect to the payment of any federal, state, county,
local, or other taxes (including any deficiencies, interest, or
penalties) accrued for or applicable to the period ended on the date of
the audited balance sheet of Strategic, except to the extent reflected
on such balance sheet and adequately provided for therein, which are
not yet due and payable. Proper and accurate amounts of taxes have been
withheld by or on behalf of Strategic with respect to all material
compensation paid to employees of Strategic for all periods ending on
or before the date hereof, and all deposits required with respect to
compensation paid to such employees have been made, in compliance with
the provisions of all applicable federal, state, and local tax and
other laws. Strategic has not made any election pursuant to the
provisions of any applicable tax laws (other than elections that relate
solely to methods of accounting, depreciation, or amortization) that
would have a material adverse affect on Strategic, its financial
condition, its business as presently conducted or proposed to be
conducted, or any of its properties or material assets. None of such
income tax returns has been examined or is currently being examined by
the Internal Revenue Service and no deficiency assessment or proposed
adjustment of any such return is pending, proposed or contemplated.
There are no tax liens upon any of the assets of Strategic. There are
no outstanding agreements or waivers extending the statutory period of
limitation applicable to any tax return of Strategic.
(d) The books and records, financial and otherwise, of
Strategic are in all material respects complete and correct and have
been maintained in accordance with sound business and bookkeeping
practices so as to accurately and fairly reflect, in reasonable detail,
the transactions and dispositions of the assets of Strategic. Strategic
has maintained a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions have been and are
executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit the
preparation of financial statements in conformity with generally
accepted accounting principles or any other criteria applicable to such
statements and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals, and
appropriate action is taken with respect to any differences.
3.05 Outstanding Warrants and Options. Strategic has no outstanding
options, warrants, calls or awards of any nature relating to the authorized and
unissued Strategic Shares.
3.06 Information. The information concerning Strategic set forth in
this Agreement and in the schedules delivered by Strategic pursuant hereto is
complete and accurate in all material respects and does not contain any untrue
statement of a material fact or omit to state a material fact required to make
the statements made, in light of the circumstances under which they were made,
not misleading. Strategic shall cause the schedules delivered by Strategic
pursuant hereto to TELS hereunder to be updated after the date hereof up to and
including the Closing Date.
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3.07 Absence of Certain Changes or Events. Except as set forth in this
Agreement since June 30, 2002:
(a) There has not been (i) any material adverse change in the
business, operations, properties, level of inventory, assets, or
condition of Strategic or (ii) any damage, destruction, or loss to
Strategic (whether or not covered by insurance) materially and
adversely affecting the business, operations, properties, assets, or
conditions of Strategic.
(b) Strategic has not (i) amended its articles of
incorporation or bylaws; (ii) declared or made, or agreed to declare or
make, any payment of dividends or distributions of any assets of any
kind whatsoever to its stockholders or purchased or redeemed, or agreed
to purchase or redeem, any of its capital stock; (iii) waived any
rights of value which in the aggregate are extraordinary and material
considering the business of Strategic; (iv) made any material change in
its method of accounting; (v) entered into any other material
transactions other than those contemplated by this Agreement; (vi) made
any material accrual or material arrangement for or payment of bonuses
or special compensation of any kind or any severance or termination pay
to any present or former officer or employee; (vii) increased the rate
of compensation payable or to become payable by it to any of its
officers or directors or any of its employees; or (viii) established
any profit-sharing, bonus, deferred compensation, insurance, pension,
retirement, or other employee benefit plan, payment, or arrangement
made to, for, or with its officers, directors, or employees;
(c) Strategic has not (i) granted or agreed to grant any
options, warrants, or other rights for its Shares, bonds, or other
securities calling for the issuance thereof; (ii) borrowed or agreed to
borrow any funds or incurred, or become subject to, any material
obligation or liability (absolute or contingent) except liabilities
incurred in the ordinary course of business; (iii) paid any material
obligation or liability (absolute or contingent) other than current
liabilities reflected in or shown on the most recent Strategic balance
sheet and current liabilities incurred since that date in the ordinary
course of business; (iv) sold or transferred, or agreed to sell or
transfer, any of its material assets, properties, or rights, or agreed
to cancel, any material debts or claims; (v) made or permitted any
amendment or termination of any contract, agreement, or license to
which it is a party if such amendment or termination is material,
considering the business of Strategic; or (vi) issued, delivered, or
agreed to issue or deliver any stock, bonds, or other company
securities including debentures (whether authorized and unissued or
held as treasury shares); and
(d) To the best knowledge of Strategic, it has not become
subject to any law or regulation which materially and adversely
affects, or in the future would be reasonably expected to adversely
affect, the business, operations, properties, assets, or condition of
Strategic.
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3.08 Title and Related Matters. Except as provided herein or disclosed
in the Strategic balance sheet and the notes thereto, Strategic has good and
marketable title to all of its properties, inventory, interests in properties,
and assets, which are reflected in the most recent Strategic balance sheet or
acquired after that date (except properties, interests in properties, and assets
sold or otherwise disposed of since such date in the ordinary course of
business), free and clear of all mortgages, liens, pledges, charges, or
encumbrances, except (i) statutory liens or claims not yet delinquent; and (ii)
such imperfections of title and easements as do not, and will not, materially
detract from, or interfere with, the present or proposed use of the properties
subject thereto or affected thereby or otherwise materially impair present
business operations on such properties.
3.09 Litigation and Proceedings. Except as otherwise disclosed in the
Strategic Schedules, there are no material actions, suits, or proceedings
pending or, to the knowledge of Strategic, threatened by or against Strategic or
adversely affecting Strategic, at law or in equity, before any court or other
governmental agency or instrumentality, domestic or foreign, or before any
arbitrator of any kind. Strategic does not have any knowledge of any default on
its part with respect to any judgment, order, writ, injunction, decree, award,
rule, or regulation of any court, arbitrator, or governmental agency or
instrumentality.
3.10 Contracts. Except as included or described in Schedule 3.10:
(a) There are no material contracts, agreements, franchises,
license agreements, or other commitments to which Strategic is a party
by which it or any of the properties of Strategic are bound;
(b) All contracts, agreements, franchises, license agreements,
and other commitments to which Strategic is a party or by which its
properties are bound and which are material to the operations or
financial condition of Strategic are valid and enforceable by Strategic
in all material respects;
(c) Strategic is not a party to or bound by, and its
properties are not subject to, any material contract, agreement, other
commitment or instrument; any charter or other corporate restriction;
or any judgment, order, writ, injunction, decree, or award which
materially and adversely affects, or in the future may (as far as
Strategic can now foresee) materially and adversely affect, the
business, operations, properties, assets, or condition of Strategic;
and
(d) Strategic is not a party to any oral or written (i)
contract for the employment of any officer, director, or employee which
is not terminable on 30 days (or less) notice; (ii) profit-sharing,
bonus, deferred compensation, stock option, severance pay, pension
benefit or retirement plan, agreement, or arrangement covered by Title
IV of the Employee Retirement Income Security Act, as amended; (iii)
agreement, contract, or indenture relating to the borrowing of money;
(iv) guarantee of any obligation, other than one on which Strategic is
18
a primary obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations,
which, in the aggregate do not exceed $1,000; (v) consulting or other
similar contract with an unexpired term of more than one year or
providing for payments in excess of $1,000 in the aggregate; (vi)
collective bargaining agreement; (vii) agreement with any present or
former officer or director of Strategic or any subsidiary; or (viii)
contract, agreement, or other commitment involving payments by it of
more than $1,000 in the aggregate.
3.11 Material Contract Defaults. Strategic is not in default in any
material respect under the terms of any outstanding contract, agreement, lease,
or other commitment which is material to the business, operations, properties,
assets, or condition of Strategic, and there is no event of default or other
event which, with notice or lapse of time or both, would constitute a default in
any material respect under any such contract, agreement, lease, or other
commitment in respect of which Strategic has not taken adequate steps to prevent
such a default from occurring.
3.12 No Conflict With Other Instruments. The execution of this
Agreement and the consummation of the transactions contemplated by this
Agreement will not result in the breach of any term or provision of, or
constitute an event of default under, any material indenture, mortgage, deed of
trust, or other material contract, agreement, or instrument to which Strategic
is a party or to which any of its properties or operations are subject.
3.13 Compliance With Laws and Regulations. Strategic has complied with
all applicable statutes and regulations of any federal, state, or other
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations, properties,
assets, or condition of Strategic or except to the extent that noncompliance
would not result in the occurrence of any material liability for Strategic. To
the best knowledge of Strategic, the consummation of the transactions
contemplated by this Agreement will comply with all applicable statutes and
regulations, subject to the preparation and filing of any forms required by
state and federal security laws.
3.14 Governmental Authorizations. Strategic has all licenses,
franchises, permits, and other governmental authorizations that are legally
required to enable it to conduct its business in all material respects as
conducted on the date of this Agreement. Except for compliance with federal and
state securities and corporation laws, as hereinafter provided, no
authorization, approval, consent, or order of, or registration, declaration, or
filing with, any court or other governmental body is required in connection with
the execution and delivery by Strategic of this Agreement and the consummation
by Strategic of the transactions contemplated hereby.
3.15 Subsidiaries and Predecessors. Except as set forth in Schedule
3.15, Strategic does not own, beneficially or of record, any equity securities
in any other entity. Strategic does not have a predecessor as that term is
defined under generally accepted accounting principles or Regulation S-X
promulgated by the Securities and Exchange Commission.
19
3.16 Insurance. The insurable properties of Strategic are insured for
not less than 80% of their replacement value with insurers of recognized
financial standing.
3.17 Employee Relations. Strategic has complied in respect of its
business in all material respects with all applicable laws, rules, and
regulations that relate to prices, wages, hours, harassment, disabled access,
and discrimination in employment and collective bargaining and to the operation
of its business and is not liable for any arrears of wages or any taxes or
penalties for failure to comply with any of the foregoing. Strategic has no
outstanding liabilities or obligations with respect to any employee benefit or
retirement plan. Strategic believes that its relationship with its employees is
satisfactory.
3.18 Strategic Schedules. Strategic has delivered to TELS the following
schedules, which are collectively referred to as the "Strategic Schedules" and
which consist of the following separate schedules dated as of the date of
execution of this Agreement, and instruments and TELS as of such date, all
certified by the chief executive officer of Strategic as complete, true, and
accurate:
(a) A schedule including copies of its articles of
incorporation and bylaws and all amendments thereto in effect as of the
date of this Agreement;
(b) A schedule containing copies of resolutions adopted by the
directors of Strategic approving this Agreement and the transactions
herein contemplated as referred to in Section 3.02 (copies of
resolutions of adopted by the Strategic shareholders approving this
Agreement will be delivered at or prior to Closing);
(c) A schedule setting forth the financial statements required
pursuant to Section 3.04 (a) hereof;
(d) A schedule setting forth a description of any material
adverse change in the business, operations, property, inventory,
assets, or condition of Strategic since the most recent Strategic
balance sheet, required to be provided pursuant to Section 3.07 hereof;
(e) A schedule setting forth any material contracts required
to be provided or matters to be disclosed pursuant to Section 3.10
hereof; and
(f) A schedule setting forth any other information, together
with any required copies of documents, required to be disclosed in the
Strategic Schedules by Sections 3.01 through 3.17.
Strategic shall cause the Strategic Schedules and the instruments delivered to
TELS hereunder to be updated after the date hereof up to and including the
Closing Date. Such updated Strategic Schedules, certified in the same manner as
the original Strategic Schedules, shall be delivered prior to and as a condition
precedent to the obligation of TELS to close the transactions contemplated by
this Agreement.
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ARTICLE IV
CONDITIONS PRECEDENT TO OBLIGATIONS OF STRATEGIC
Strategic shall be bound by the terms and conditions of this Agreement
provided the following conditions are complied with and satisfied by TELS at or
before the Closing Date:
4.01 Accuracy of Representations. The representations and warranties
made by TELS in this Agreement were true when made and shall be true at the
Closing Date with the same force and affect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement), and TELS shall have performed or complied with all
covenants and conditions required by this Agreement to be performed or complied
with by TELS prior to or at the Closing. Strategic shall be furnished with
certificates, signed by duly authorized officers of TELS and dated the Closing
Date, to the foregoing effect.
4.02 Officer's Certificates. Strategic shall have been furnished with
certificates dated the Closing Date and signed by the duly authorized chief
executive officer of TELS and Merger Co. to the effect that to such officers'
best knowledge, no litigation, proceeding, investigation, or inquiry is pending
or, to the best knowledge of TELS or Merger Co. threatened, which might result
in an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement. Furthermore, based on certificates of good
standing, representations of government agencies, and TELS's and Merger Co.'s
own documents and information, the certificate shall represent, to the best
knowledge of the officers, that:
(a) This Agreement has been duly approved by TELS' and Merger
Co.'s boards of directors, and by the sole shareholder of Merger Co.;
approval of this Agreement by the TELS' shareholders is not required;
and this Agreement has been duly executed and delivered in the name and
on behalf of TELS and Merger Co. by their duly authorized officers
pursuant to, and in compliance with, authority granted by the boards of
directors of TELS and Merger Co. pursuant to unanimous written
consents;
(b) Except as provided or permitted herein, there have been no
material adverse changes in TELS or Merger Co. up to and including the
date of the certificate;
(c) All conditions required by this Agreement have been met,
satisfied, or performed by TELS and Merger Co., as appropriate;
(d) All authorizations, consents, approvals, registrations,
and/or filings with any governmental body, agency, or court required in
connection with the execution and delivery of the documents by TELS or
Merger Co. have been obtained and are in full force and effect or, if
not required to have been obtained, will be in full force and effect by
such time as may be required; and
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(e) There is no material action, suit, proceeding, inquiry, or
investigation at law or in equity by any public board or body pending
or threatened against TELS or Merger Co., wherein an unfavorable
decision, ruling, or finding could have an adverse effect on the
financial condition of TELS or Merger Co., the operation of TELS or
Merger Co., or the acquisition and reorganization contemplated herein,
or any agreement or instrument by which TELS or Merger Co. is bound or
in any way contests the existence of TELS or Merger Co.
4.03 No Material Adverse Change. Prior to the Closing Date, there shall
not have occurred any material adverse change in the financial condition,
business, or operations of TELS or Merger Co., nor shall any event have occurred
which, with the lapse of time or the giving of notice, may cause or create any
material adverse change in the financial condition, business, or operations of
TELS or Merger Co.
4.04 Good Standing. Strategic shall have received a certificate of good
standing from the Utah Division of Corporations and Commercial Code, dated as of
the date within five days prior to the Closing Date, certifying that TELS is in
good standing as a corporation in the State of Utah, and a certificate of good
standing from the secretary of state of Minnesota, dated as of the date within
five days prior to the Closing Date, certifying that Merger Co. is in good
standing as a corporation in the State of Minnesota.
4.05 TELS Financial Condition. Strategic shall have received
satisfactory evidence of TELS compliance with the requirements of Section 6.10
with respect to the financial condition of TELS.
4.06 Stock Price. The average bid price per share of TELS common stock
on the OTC Bulletin Board for the five trading days prior to Closing shall have
been at least $0.35.
4.07 Other Items. Strategic shall have received such further documents,
certificates, or instruments relating to the transactions contemplated hereby as
Strategic may reasonably request.
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF TELS
The obligations of TELS under this Agreement are subject to the
satisfaction, at or before the Closing Date, of the following conditions:
5.01 Accuracy of Representations. The representations and warranties
made by Strategic in this Agreement were true when made and shall be true at the
Closing Date with the same force and effect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement), and Strategic shall have performed or complied
with all covenants and conditions required by this Agreement to be performed or
22
complied with by Strategic prior to or at the Closing. TELS shall be furnished
with a certificate, signed by a duly authorized officer of Strategic and dated
the Closing Date, to the foregoing effect.
5.02 Officer's Certificates. TELS shall have been furnished with
certificates dated the Closing Date and signed by the duly authorized chief
executive officer of Strategic to the effect that no litigation, proceeding,
investigation, or inquiry is pending or, to the best knowledge of Strategic,
threatened, which might result in an action to enjoin or prevent the
consummation of the transactions contemplated by this Agreement. Furthermore,
based on certificates of good standing, representations of government agencies,
and Strategic's own documents, the certificate shall represent, to the best
knowledge of the officer, that:
(a) This agreement has been duly approved by Strategic's board
of directors and shareholders and has been duly executed and delivered
in the name and on behalf of Strategic by its duly authorized officers
pursuant to, and in compliance with, authority granted by the board of
directors of Strategic pursuant to a unanimous consent;
(b) Except as provided or permitted herein, there have been no
material adverse changes in Strategic up to and including the date of
the certificate;
(c) All conditions required by this Agreement have been met,
satisfied, or performed by Strategic;
(d) All authorizations, consents, approvals, registrations,
and/or filing with any governmental body, agency, or court required in
connection with the execution and delivery of the documents by
Strategic have been obtained and are in full force and effect or, if
not required to have been obtained will be in full force and effect by
such time as may be required; and
(e) There is no material action, suit, proceeding, inquiry, or
investigation at law or in equity by any public board or body pending
or threatened against Strategic, wherein an unfavorable decision,
ruling, or finding would have a material adverse affect on the
financial condition of Strategic, the operation of Strategic, or the
acquisition and reorganization contemplated herein, or any material
agreement or instrument by which Strategic is bound or would in any way
contest the existence of Strategic.
5.03 No Material Adverse Change. Prior to the Closing Date, there shall
not have occurred any material adverse change in the financial condition,
business or operations of Strategic, nor shall any event have occurred which,
with the lapse of time or the giving of notice, may cause of create any material
adverse change in the financial condition, business, or operations of Strategic.
5.04 Good Standing. TELS shall have received a certificate of good
standing from the secretary of state of Minnesota, dated as of a date with five
days prior to the Closing Date, certifying that Strategic is in good standing as
a corporation in the State of Minnesota.
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5.05 Strategic Financial Statements. TELS shall have received the
audited financial statements of Strategic described in Section 6.09 and the
audited balance sheet at September 30, 2001 shall not indicate any adverse
change from the information contained in the unaudited balance sheet of the same
date described in Section 3.04(a).
5.06 Stock Price. The average bid price per share of TELS common stock
on the OTC Bulletin Board for the five trading days prior to Closing shall have
been at least $0.35.
5.07 Other Items. TELS shall have received such further documents,
certificates, or instruments relating to the transactions contemplated hereby as
TELS may reasonably request.
ARTICLE VI
SPECIAL COVENANTS
6.01 Activities of TELS and Strategic
(a) From and after the date of this Agreement until the
Closing Date and except as set forth in the respective schedules to be
delivered by TELS and Strategic pursuant hereto or as permitted or
contemplated by this Agreement, TELS, Merger Co., and Strategic will
each:
(i) Carry on its business in substantially the same
manner as it has heretofore;
(ii) Maintain in full force and effect insurance
comparable in amount and in scope of coverage to that now
maintained by it;
(iii) Perform in all material respects all of its
obligations under material contracts, leases, and instruments
relating to or affecting its assets, properties, and business;
(iv) Use its best efforts to maintain and preserve
its business organization intact, to retain its key employees,
and to maintain its relationships with its material suppliers
and customers;
(v) Duly and timely file for all taxable periods
ending on or prior to the Closing Date all federal, state,
county, and local tax returns required to be filed by or on
behalf of such entity or for which such entity may be held
responsible and shall pay, or cause to be paid, all taxes
required to be shown as due and payable on such returns, as
well as all installments of tax due and payable during the
period commencing on the date of this Agreement and ending on
the Closing Date.; and
(vi) Fully comply with and perform in all material
respects all obligations and duties imposed on it by all
federal and state laws and all rules, regulations, and orders
imposed by federal or state governmental authorities.
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(b) From and after the date of this Agreement and except as
provided herein until the Closing Date, each of TELS, Merger Co., and
Strategic will not:
(i) Make any change in its articles of incorporation
or bylaws or effect any recapitalization;
(ii) Enter into or amend any material contract,
agreement, or other instrument of any of the types described
in such party's schedules, except that a party may enter into
or amend any contract, agreement, or other instrument in the
ordinary course of business; and
(iii) Enter into any agreement for the sale of
Strategic, TELS or Merger Co.'s securities without the prior
written approval of the other parties.
6.02 Access to Properties and Records. Until the Closing Date,
Strategic, TELS, and Merger Co. will afford to the other party's officers and
authorized representatives full access to the properties, books, and records of
the other party in order that each party may have full opportunity to make such
reasonable investigation as it shall desire to make of the affairs of Strategic
or TELS and will furnish the other party with such additional financial and
other information as to the business and properties of Strategic or TELS as each
party shall from time to time reasonably request.
6.03 Indemnification by Strategic. Strategic will indemnify and hold
harmless TELS, Merger Co. and their respective directors and officers, and each
person, if any, who controls TELS or Merger Co. within the meaning of the
Securities Act, from and against any and all losses, claims, damages, expenses,
liabilities, or actions to which any of them may become subject under applicable
law (including the Securities Act and the Securities Exchange Act) and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any claims or actions, whether or not
resulting in liability, insofar as such losses, claims, damages, expenses,
liabilities, or actions arise out of or are based upon any untrue statement or
alleged untrue statement of material fact contained in any application or
statement filed with a governmental body or arising out of or are based upon the
omission or alleged omission to state therein a material fact required to be
stated therein, or necessary in order to make the statements therein not
misleading, but only insofar as any such statement or omission was made in
reliance upon and in conformity with information furnished in writing by
Strategic expressly for use therein. The indemnity agreement contained in this
Section 6.03 shall remain operative and in full force and effect, regardless of
any investigation made by or on behalf of TELS or Merger Co. and shall survive
the consummation of the transactions contemplated by this Agreement for a period
of one year.
6.04. Indemnification by TELS. TELS will indemnify and hold harmless
Strategic, and its directors and officers, and each person, if any, who controls
Strategic within the meaning of the Securities Act, from and against any and all
losses, claims, damages, expenses, liabilities, or actions to which any of them
may become subject under applicable law (including the Securities Act and the
Securities Exchange Act) and will reimburse them for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
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claims or actions, whether or not resulting in liability, insofar as such
losses, claims, damages, expenses, liabilities, or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a material fact
contained in any application or statement filed with a governmental body or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary in order to make the
statements therein not misleading, but only insofar as any such statement or
omission was made in reliance upon and in conformity with information furnished
in writing by TELS expressly for use therein. The indemnity agreement contained
in this Section 6.04 shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of Strategic and shall
survive the consummation of the transactions contemplated by this Agreement for
a period of one year.
6.05 The Acquisition of TELS Common Stock. TELS and Strategic
understand and agree that the consummation of this Agreement including the
issuance of the TELS Common Stock to Strategic in exchange for the Strategic
Shares as contemplated hereby, constitutes the offer and sale of securities
under the Securities Act and applicable state statutes. TELS and Strategic agree
that such transactions shall be consummated in reliance on exemptions from the
registration and prospectus delivery requirements of such statutes which depend,
among other items, on the circumstances under which such securities are
acquired.
(a) In order to provide documentation for reliance upon the
exemptions from the registration and prospectus delivery requirements
for such transactions, each shareholder of Strategic shall execute and
deliver to TELS an investment representation letter in substantially
the same form as that attached hereto as Exhibit "A."
(b) In connection with the transaction contemplated by this
Agreement, Strategic and TELS shall each file, with the assistance of
the other and their respective legal counsel, such notices,
applications, reports, or other instruments as may be deemed by them to
be necessary or appropriate in an effort to document reliance on such
exemptions, and the appropriate regulatory authority in the states
where the shareholders of Strategic reside unless an exemption
requiring no filing is available in such jurisdictions, all to the
extent and in the manner as may be deemed by such parties to be
appropriate.
(c) In order to more fully document reliance on the exemptions
as provided herein, Strategic, the shareholders of Strategic, and TELS
shall execute and deliver to the other, at or prior to the Closing,
such further letters of representation, acknowledgment, suitability, or
the like as TELS or Strategic and their respective counsel may
reasonably request in connection with reliance on exemptions from
registration under such securities laws.
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6.06 Securities Filings. TELS shall be responsible for the preparation
of a Form D and its filing with the Securities and Exchange Commission and
Strategic will be responsible for any and all filings in any jurisdiction where
its shareholders reside which would require a filing with a governmental agency
as a result of the transactions contemplated in this Agreement.
6.07 Sales of Securities Under Rule 144, If Applicable.
(a) TELS will use its best efforts to at all times satisfy the
current public information requirements of rule 144 promulgated under
the Securities Act so that its shareholders can sell restricted
securities that have been held for one year or more or such other
restricted period as required by rule 144 as it is from time to time
amended.
(b) Upon being informed in writing by any person holding
restricted stock of TELS as of the date of this Agreement that such
person intends to sell any shares under rule 144 promulgated under the
Securities Act (including any rule adopted in substitution or
replacement thereof), TELS will certify in writing to such person that
it is compliance with rule 144 current public information requirement
to enable such person to sell such person's restricted stock under rule
144, as may be applicable under the circumstances.
(c) If any certificate representing any such restricted stock
is presented to TELS's transfer agent for registration or transfer in
connection with any sales theretofore made under rule 144, provided
such certificate is duly endorsed for transfer by the appropriate
person(s) or accompanied by a separate stock power duly executed by the
appropriate person(s) in each case with reasonable assurances that such
endorsements are genuine and effective, and is accompanied by an
opinion of counsel satisfactory to TELS and its counsel that such
transfer has complied with the requirements of rule 144, as the case
may be, TELS will promptly instruct its transfer agent to register such
transfer and to issue one or more new certificates representing such
shares to the transferee and, if appropriate under the provisions of
rule 144, as the case may be, free of any related stop transfer order
or restrictive legend. The provisions of this Section 6.08 shall
survive the Closing and the consummation of the transactions
contemplated by this Agreement for a period of two years.
6.08 New Board of Directors and Officers. Upon closing of the
transactions contemplated by this Agreement, the current directors and officers
of TELS shall resign, seriatim, and the persons designated by Strategic shall be
appointed to fill the vacancies created thereby, subject to the approval of the
suitability and qualifications of such nominees by TELS's board of directors.
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6.09 Strategic Audited Financial Statements. Prior to Closing,
Strategic shall cause to be prepared and delivered to TELS an audited balance
sheet of Strategic at September 30, 2001 together with audited statements of
income, stockholders' equity, and cash flows for the periods then ended, and the
opinion of Strategic's independent certified public accountants with respect
thereto. All such financial statements of Strategic shall be prepared in
accordance with generally accepted accounting principles and shall present
fairly as of their respective dates the financial condition of Strategic. The
balance sheet as of September 30, 2001 included in the audited financial
statements shall not indicate any material adverse change in the financial
position of Strategic from the information set forth in the unaudited balance
sheet of the same date referred to Section 3.04(a). Prior to Closing, Strategic
shall also provide TELS with an unaudited statement of operations for the month
ended July 31, 2002, which statement shall reflect net income after taxes in the
amount of approximately $20,000.
6.10 Strategic Stockholder Approval. Strategic shall have obtained
approval of this Agreement by the Strategic stockholders in accordance with the
requirements of Minnesota law. Strategic has entered into written agreements
with certain shareholders of Strategic who hold a majority of Strategic's issued
and outstanding shares of common stock, pursuant to which such persons have
agreed to vote all shares of Strategic common stock held by them in favor of the
approval of this Agreement.
6.11 Financial Condition of TELS/Cancellation of Contracts. TELS shall
take such actions as may be required so that at the Closing Date, TELS has no
assets and no liabilities (direct or indirect, absolute or contingent) and is
not a party to any contract or agreement. In connection therewith, TELS shall
take such steps as may be required to: (i) cause all its outstanding liabilities
to cancelled or assumed by third parties; and (ii) terminate the employment
agreement with Xxxx Xxxxxx with no obligation or liability to TELS in connection
therewith.
ARTICLE VII
MISCELLANEOUS
7.01 Brokers. TELS and Strategic agree that they are not obligated to
pay any finders or brokers for bringing the parties together or who were
instrumental in the negotiation, execution, or consummation of this Agreement,
except that Strategic has agreed that following consummation of the Merger, it
will cause TELS to register for resale under the Securities Act the TELS shares
to be received in the Merger by Xxxxxx Xxxxxx, Xxx Xxxxxx, Xxxxx Xxxxxxx, Xxxx
Xxxxxxx and Xxxxxxxx Diversified Services, Inc., and the principal shareholder
of TELS has personally agreed to pay a success fee to Xxxxxx Xxxxxx. Except for
the foregoing, TELS and Strategic each agree to indemnify the other against any
claim by any third person for any commission, brokerage, or finder's fee or
other payment with respect to this Agreement or the transactions contemplated
hereby based on any alleged agreement or understanding between such party and
such third person, whether express or implied, from the actions of such party.
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7.02 No Representation Regarding Tax Treatment. No representation or
warranty is being made by any party to any other regarding the treatment of this
transaction for federal or state income taxation. Each party has relied
exclusively on its own legal, accounting, and other tax adviser regarding the
treatment of this transaction for federal and state income tax purposes.
7.03 Governing Law. This Agreement shall be governed by, enforced and
construed under and in accordance with the laws of the State of Utah.
7.04 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered, if sent by
facsimile or telecopy transmission or other electronic communication confirmed
by registered or certified mail, postage prepaid, or if sent by prepaid
overnight courier addressed as follows:
If to TELS, to: If to Strategic, to:
Xxxx X. Xxxxxx Xxxxxx X. Xxxxxxxxx, Xx.
Chairman and President President
TELS Corporation Strategic Futures and Options, Inc.
000 Xxxx Xxxx Xxxxxx 0000 Xxxxxx Xxxxxx Xxxx
Xxxxxxxx Xxxx, Xxxx 00000 Xxxxx, XX 00000
With a copy to: With a copy to:
Xxxxxxx X. Xxxxxxx, Esq. Xxxx X. Xxxxxxxxx, Esq.
Ray, Xxxxxxx & Xxxxxxx Xxxx X. Xxxxxxxxx, A Prof. Corp.
00 Xxxxx Xxxxx Xxxxxx, Xxxxx 0000 000 X. 000 X., Xxxxx 000
Xxxx Xxxx Xxxx, XX 00000 Xxxx Xxxx Xxxx, XX 00000
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices, hereunder, and any such notice or communication shall
be deemed to have been given as of the date so delivered or sent by facsimile or
telecopy transmission or other electronic communication, or one day after the
date so sent by overnight courier.
7.05 Attorney's Fees. In the event that any party institutes any action
or suit to enforce this Agreement or to secure relief from any default hereunder
or breach hereof, the breaching party or parties shall reimburse the
nonbreaching party or parties for all costs, including reasonable attorneys'
fees, incurred in connection therewith and in enforcing or collecting any
judgment rendered therein.
7.06 Schedules; Knowledge. Whenever in any section of this Agreement
reference is made to information set forth in the schedules provided by TELS or
Strategic such reference is to information specifically set forth in such
schedules and clearly marked to identify the section of this Agreement to which
the information relates. Whenever any representation is made to the "knowledge"
of any party, it shall be deemed to be a representation that no officer or
director of such party, after reasonable investigation, has any knowledge of
such matters.
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7.07 Entire Agreement. This Agreement represents the entire agreement
between the parties relating to the subject matter hereof. All previous
agreements between the parties, whether written or oral, have been merged into
this Agreement. This Agreement alone fully and completely expresses the
agreement of the parties relating to the subject matter hereof. There are no
other courses of dealing, understandings, agreements, representations, or
warranties, written or oral, except as set forth herein.
7.08 Survival; Termination. The representations, warranties, and
covenants of the respective parties shall survive the Closing Date and the
consummation of the transactions herein contemplated for a period of one year
from the Closing Date, unless otherwise provided herein.
7.09 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
7.10 Amendment or Waiver. Every right and remedy provided herein shall
be cumulative with every other right and remedy, whether conferred herein, at
law, or in equity, and such remedies may be enforced concurrently, and no waiver
by any party of the performance of any obligation by the other shall be
construed as a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to the Closing Date, this
Agreement may be amended by a writing signed by all parties hereto, with respect
to any of the terms contained herein, and any term or condition of this
Agreement may be waived or the time for performance thereof may be extended by a
writing signed by the party or parties for whose benefit the provision is
intended.
7.11 Public Statements. Subject to their respective legal obligations
(including requirements of stock exchanges and other similar regulatory bodies),
the Parties shall consult with one another, and use reasonable best efforts to
agree upon the text of any press release, before issuing any such press release
or otherwise making public statements with respect to the Merger and in making
any filings with any federal or state governmental or regulatory agency or with
any securities exchange with respect thereto.
[The balance of this page is left blank intentionally.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly authorized, as of the date
first above written.
TELS CORPORATION, STRATEGIC FUTURES AND OPTIONS, INC.,
A Utah corporation a Minnesota corporation
By: /s/ Xxxx X. Xxxxxx By: /s/ Xxxxxx X. Xxxxxxxxx, Xx.
------------------------------- ------------------------------------
Xxxx X. Xxxxxx, Chairman Xxxxxx X. Xxxxxxxxx, Xx., President
and President
TELS MERGER CO.,
a Utah corporation
By: /s/ Xxxx X. Xxxxxx
-------------------------------
Xxxx X. Xxxxxx, President
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