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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): June 30, 1999
WORLD ACCESS, INC.
(Exact Name of Registrant as Specified in Charter)
DELAWARE 0-29782 58-2398004
(State of (Commission File No.) (I.R.S. Employer
Incorporation) Identification No.)
945 E. PACES FERRY ROAD, SUITE 2200
ATLANTA, GEORGIA 30326
(Address of principal executive offices, including zip code)
(404) 231-2025
(Registrant's telephone number, including area code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
Effective June 30, 1999, WA Telcom Products Co., Inc., a wholly-owned
subsidiary of World Access, Inc. ("WAXS"), acquired substantially all of the
assets and assumed certain liabilities of Comm/Net Holding Corporation and its
wholly-owned subsidiaries, Enhanced Communications Corporation, Comm/Net
Services Corporation and Long Distance Exchange Corporation (Comm/Net Holding
Corporation and each of its wholly-owned subsidiaries are referred to herein
collectively as "Comm/Net"). Comm/Net, headquartered in Plano, Texas, is a
facilities-based provider of wholesale international long distance and
wholesale prepaid calling card services, primarily to the Texas and Mexico
telecommunications markets. Comm/Net had revenues of approximately $38 million
during the year ended December 31, 1998.
Pursuant to the terms of an Agreement and Plan of Reorganization,
dated May 27, 1999, WAXS paid a total consideration of approximately $27
million, primarily in the form of newly issued shares of 4.25% Cumulative
Junior Convertible Preferred Stock, Series B (the "Preferred Stock"). The
consideration was determined through arms-length negotiations between the
parties and estimated values of the assets and liabilities of Comm/Net and is
subject to adjustment based on the receipt by WAXS of Comm/Net's 1998 audited
financial statements, which shall be satisfactory to WAXS in its reasonable
judgment. The Preferred Stock pays dividends on a quarterly basis and is
convertible into shares of WAXS common stock at a conversion rate of $16.00 per
common share, subject to standard antidilution adjustments. If the closing
trading price of WAXS common stock exceeds $16.00 per share for 45 consecutive
trading days, the Preferred Stock will automatically convert into WAXS common
stock. The closing price of WAXS common stock on June 30, 1999 was $14.125 per
share. Each holder of Preferred Stock has the right to vote, on an as-converted
basis, on all matters voted on by the holders of WAXS common stock, voting
together as a single class with the holders of WAXS common stock and other
holders of preferred stock of WAXS. The acquisition is intended to qualify as a
tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue Code
of 1986, as amended. The foregoing description of the transaction is qualified
in its entirety by reference to the press release attached hereto as Exhibit
No. 99 and incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
In accordance with Item 7(a)(4) of Form 8-K, the historical
financial statements of Comm/Net required to be filed with the Commission will
be filed as an amendment to this report under cover of Form 8-K/A on or before
September 13, 1999.
(b) Pro Forma Financial Information.
In accordance with Item 7(b)(2) of Form 8-K, any pro forma
financial information required to be filed with the Commission will be filed as
an amendment to this report under cover of Form 8-K/A on or before September
13, 1999.
(c) Exhibits.
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EXHIBIT
NUMBER DESCRIPTION
2 Agreement and Plan of Reorganization, dated May 27, 1999, by and among
WA Telcom Products Co., Inc., World Access, Inc., Comm/Net Holding
Corporation, Enhanced Communications Corporation, Comm/Net Services
Corporation, Long Distance Exchange Corporation, Gregory A. Somers,
Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc.,
Jeff Becker, Michael Billingsly, Chris Johns and Denny D. Somers. The
following is a list of omitted schedules, exhibits and other
attachments which World Access, Inc. agrees to furnish supplementally
to the Commission upon request:
SCHEDULES TO AGREEMENT
1.1(a) Assets
1.1(b) Excluded Assets
1.4 Assumed Liabilities
3.1(a) Qualification; Good Standing
3.1(b) Subsidiaries
3.1(d) Officers and Directors
3.2 Authorized and Outstanding Stock
3.4 Financial Statements
3.5 Undisclosed Liabilities
3.7(a) Real and Personal Property
3.7(b)(1) Permitted Liens
3.7(b)(2) Off-Premise Property
3.7(c) Other Property Restrictions
3.8 Leases
3.9 Indebtedness
3.10(a) Patents, Trademarks, etc.
3.10(b) Software and Databases
3.11 Litigation
3.12 Salaried Employees
3.13 Employee Benefit Plans
3.14 Collective Bargaining
3.16 Bank Accounts
3.17 Investments
3.18 Tax Matters
3.20 Licenses and Permits
3.21 Insurance Policies
3.22 Major Suppliers and Customers
3.23 Contracts and Commitments
3.24 No Conflict
3.25 Agreements in Full Force and Effect
3.26 Required Consents and Approvals
3.27 Certain Changes and Events
3.28 Accounts Receivable
4.3 No Conflict
4.5 Capitalization
11.11(a) Brokerage
11.11(b) Brokerage
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EXHIBITS TO AGREEMENT
C Non-Competition Agreements
OTHER ATTACHMENTS
Letter dated June 30, 1999 regarding post-closing purchase
price adjustments
4.1 Certificate of Designation of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B.
4.2 Registration Rights Agreement, dated June 30, 1999, by and
among Comm/Net Holding Corporation, Gregory A Somers, Kelli
J. Somers, R. Scott Birdwell, Teleplus Telecommunications,
Inc., Chris Johns, Jeff Becker, Michael Billingsly and World
Access, Inc.
99 Press Release dated July 1, 1999 announcing the acquisition
of substantially all of the assets of the Comm/Net group of
companies.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on behalf of the
undersigned hereunto duly authorized.
WORLD ACCESS, INC.
Date: July 14, 1999 By: /s/ MARTIN D. KIDDER
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Martin D. Kidder
Vice President and Controller
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EXHIBIT INDEX
Exhibit No. Document
2 Agreement and Plan of Reorganization, dated May 27, 1999, by
and among WA Telcom Products Co., Inc., World Access, Inc.,
Comm/Net Holding Corporation, Enhanced Communications
Corporation, Comm/Net Services Corporation, Long Distance
Exchange Corporation, Gregory A. Somers, Kelli J. Somers, R.
Scott Birdwell, Teleplus Telecommunications, Inc., Jeff
Becker, Michael Billingsly, Chris Johns and Denny D. Somers.
The following is a list of omitted schedules, exhibits and
other attachments which World Access, Inc. agrees to furnish
supplementally to the Commission upon request:
SCHEDULES TO AGREEMENT
1.1(a) Assets
1.1(b) Excluded Assets
1.4 Assumed Liabilities
3.1(a) Qualification; Good Standing
3.1(b) Subsidiaries
3.1(d) Officers and Directors
3.2 Authorized and Outstanding Stock
3.4 Financial Statements
3.5 Undisclosed Liabilities
3.7(a) Real and Personal Property
3.7(b)(1) Permitted Liens
3.7(b)(2) Off-Premise Property
3.7(c) Other Property Restrictions
3.8 Leases
3.9 Indebtedness
3.10(a) Patents, Trademarks, etc.
3.10(b) Software and Databases
3.11 Litigation
3.12 Salaried Employees
3.13 Employee Benefit Plans
3.14 Collective Bargaining
3.16 Bank Accounts
3.17 Investments
3.18 Tax Matters
3.20 Licenses and Permits
3.21 Insurance Policies
3.22 Major Suppliers and Customers
3.23 Contracts and Commitments
3.24 No Conflict
3.25 Agreements in Full Force and Effect
3.26 Required Consents and Approvals
3.27 Certain Changes and Events
3.28 Accounts Receivable
4.3 No Conflict
4.5 Capitalization
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11.11(a) Brokerage
11.11(b) Brokerage
EXHIBITS TO AGREEMENT
C Non-Competition Agreements
OTHER ATTACHMENTS
Letter dated June 30, 1999 regarding post-closing purchase
price adjustments
4.1 Certificate of Designation of 4.25% Cumulative Junior
Convertible Preferred Stock, Series B.
4.2 Registration Rights Agreement, dated June 30, 1999, by and
among Comm/Net Holding Corporation, Gregory A. Somers, Kelli
J. Somers, R. Scott Birdwell, Teleplus Telecommunications,
Inc., Chris Johns, Jeff Becker, Michael Billingsly and World
Access, Inc.
99 Press Release dated July 1, 1999 announcing the acquisition
of substantially all of the assets of the Comm/Net group of
companies.
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EXHIBIT 2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective
as of the 27th day of May, 1999, by and among World Access, Inc., a Delaware
corporation ("WAXS"), WA Telcom Products Co., Inc., a Delaware corporation and
wholly-owned subsidiary of WAXS ("Buyer"), Comm/Net Holding Corporation, a
Texas corporation ("Comm/Net Holding"), Enhanced Communications Corporation, a
Texas corporation ("Encom"), Long Distance Exchange Corporation, a Texas
corporation ("LDEC"), Comm/Net Services Corporation, a Texas corporation
("Comm/Net Services" and collectively with Comm/Net Holding, Encom and LDEC,
the "Companies"), Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell,
Teleplus Telecommunications, Inc., an Iowa corporation ("Teleplus"), Jeff
Becker, Michael Billingsly and Chris Johns (each, a "Shareholder" and
collectively, the "Shareholders"), and Denny D. Somers ("D. Somers").
W I T N E S S E T H:
WHEREAS, the Companies are in the business of providing a variety of
telecommunications services (the "Business");
WHEREAS, the Shareholders own all of the issued and outstanding capital
stock of Comm/Net Holding;
WHEREAS, Encom, LDEC and Comm/Net Services are wholly-owned, directly
or indirectly, by Comm/Net Holding;
WHEREAS, the Companies desire to transfer substantially all of their
assets to Buyer solely in exchange for voting convertible preferred stock of
WAXS and the assumption by Buyer of certain of the liabilities of the
Companies, as more specifically provided herein;
WHEREAS, WAXS desires that Buyer acquire the Business and substantially
all of the assets of the Companies on the terms and conditions set forth
herein;
WHEREAS, in order to facilitate the transactions contemplated by this
Agreement, each of Encom, LDEC and Comm/Net Services shall be liquidated
immediately prior to the Closing (as defined in Section 1.5) so that, upon such
liquidation, Comm/Net Holding will directly hold all of the assets and
liabilities comprising the Companies; and
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WHEREAS, the parties expressly intend that the transactions
contemplated by this Agreement shall qualify as a "reorganization" within the
meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as
amended (the "Code"), and accordingly, as an integral part of such
reorganization, Comm/Net Holding shall promptly after the Closing distribute
the voting convertible preferred stock of WAXS (and any remaining assets other
than those retained to pay liabilities) to the Shareholders in complete
liquidation of Comm/Net Holding and dissolve;
NOW, THEREFORE, in consideration of the mutual representations,
warranties and covenants contained herein, and upon and subject to the terms
and the conditions hereinafter set forth, the parties do hereby agree as
follows:
ARTICLE I
THE EXCHANGE
1.1 Transfer of the Assets. Subject to the terms and conditions set
forth in this Agreement, on and as of the Closing Date, Comm/Net Holding agrees
to convey, assign, and transfer to Buyer, and Buyer agrees to acquire, accept
and take from Comm/Net Holding all of the assets, properties and rights of
every kind, nature, character and description, whether real, personal or mixed,
whether tangible or intangible, whether accrued, contingent or otherwise
relating to or utilized by the Companies, directly or indirectly, in whole or
in part, in existence on the date hereof and any additions thereto on or before
the Closing Date, whether or not carried on the books and records of the
Companies and wherever located, including, without limitation, the assets,
properties and rights set forth on SCHEDULE 1.1(A) (the "Assets"), except for
those assets, properties and rights set forth on SCHEDULE 1.1(B) (the "Excluded
Assets").
1.2 Exchange Consideration. Subject to the terms and conditions set
forth in this Agreement, and in exchange for the transfer of the Assets to
Buyer as described in Section 1.1, on and as of the Closing Date, WAXS shall
cause Buyer to deliver to Comm/Net Holding a certificate or certificates
representing 23,174 shares of WAXS's 4.25% Cumulative Junior Convertible
Preferred Stock, Series B (the "Preferred Shares"), having such powers,
preferences, rights, qualifications, limitations and restrictions as set forth
in the Certificate of Designation therefor attached hereto as EXHIBIT A.
1.3 Manner of Effecting Exchange. The conveyance, transfer,
assignment and delivery of the Assets by Comm/Net Holding to Buyer shall be
effected by such deeds, bills of sale, endorsements, assignments, transfers and
other instruments of transfer and conveyance in such form, including, without
limitation, warranties of title, as Buyer or Buyer's attorney shall reasonably
request (the "Conveyance Documents").
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1.4 Liabilities. It is understood and agreed that Buyer shall not
assume or become liable for the payment of any debts, liabilities, losses,
accounts payable, bank indebtedness, mortgages, or other obligations of the
Companies, whether the same are known or unknown, now existing or hereafter
arising, of whatever nature or character, whether absolute or contingent,
liquidated or disputed, except as expressly set forth on SCHEDULE 1.4 hereto
(the "Assumed Liabilities"). Effective upon the Closing, Buyer shall, by
written instrument in form and substance reasonably satisfactory to Comm/Net
Holding, assume and agree to pay, perform and discharge, and to indemnify
Comm/Net Holding against and hold it harmless from all obligations and
liabilities of Comm/Net Holding relating to the Assumed Liabilities. WAXS shall
not assume or become liable for the payment of any debts, liabilities, losses,
accounts payable, bank indebtedness, mortgages or other obligations of the
Companies including, without limitation, the Assumed Liabilities; provided
however, that, effective upon the Closing and subject to any and all defenses
and rights of offset against claims or actions by the Shareholders, D. Somers
or Comm/Net Holding which Buyer would have if such claims or actions were made
or brought against Buyer, WAXS shall, by written instrument in form and
substance reasonably satisfactory to Comm/Net Holding, guarantee the
obligations of Buyer set forth in this Section 1.4.
1.5 Closing. Subject to the satisfaction or waiver of the conditions
set forth herein, the consummation of the transfer of the Assets (the
"Closing") shall take place at 9:00 a.m. on June 30, 1999 in the offices of
Long Aldridge & Norman LLP, Suite 5300, 303 Peachtree Street, Atlanta, Georgia,
or on such other date at such other time and place as the parties shall agree
in writing (the "Closing Date").
1.6 Deliveries at Closing. Subject to satisfaction or waiver of the
conditions set forth herein, the parties shall take the following actions at
the Closing:
(a) Comm/Net Holding and the Shareholders shall deliver, or
cause to be delivered, (i) the Registration Rights Agreement substantially in
the form of EXHIBIT B hereto; (ii) the Conveyance Documents; (iii) the
certificate more fully described in Section 8.1 hereof; (iv) a certificate,
executed by a duly authorized officer of Comm/Net Holding and dated the Closing
Date, to the effect that the 1998 Audited Financial Statements (as defined in
Section 5.10) have been prepared in accordance with GAAP, are true, correct and
complete in all material respects and present fairly the financial position of
Encom, LDEC and Comm/Net Services as of December 31, 1998, and the related
results of their operations for the periods then ended; (v) the opinion more
fully described in Section 8.6 hereof; and (vi) any other documents or
agreements contemplated hereunder.
(b) The Shareholders and D. Somers shall deliver (i) the
non-competition agreements substantially in the form of EXHIBIT C hereto; and
(ii) any other documents or agreements contemplated hereunder.
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(c) Buyer and WAXS shall deliver, or cause to be delivered, (i)
the Registration Rights Agreement substantially in the form of EXHIBIT B; (ii)
the certificate more fully described in Section 7.1; and (iii) any other
documents or agreements contemplated hereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER AND D. SOMERS
Each Shareholder and D. Somers jointly and severally represent and
warrant to Buyer and WAXS as follows:
2.1 Organization. Teleplus is a corporation, duly organized, validly
existing and in good standing under the laws of the State of Iowa and has all
requisite power and authority, corporate or otherwise, to carry on and conduct
its business as it is now being conducted and to own or lease its properties
and assets, and is duly qualified and in good standing in every state or other
jurisdiction (within or outside of the United States of America (the "US")) in
which its conduct of business or ownership of property requires it to be so
qualified.
2.2 Capitalization of Teleplus. D. Somers and Gregory A. Somers own
all of the issued and outstanding capital stock of Teleplus. All of the issued
and outstanding shares of capital stock of Teleplus are validly issued, fully
paid and non-assessable. There is not outstanding, nor is Teleplus bound by,
any subscriptions, options, preemptive rights, warrants, calls, commitments or
agreements or rights of any character requiring Teleplus to issue or entitling
any person or entity to acquire any additional share of capital stock or any
other equity security of Teleplus. Teleplus is not obligated to issue or
transfer any shares of its capital stock for any purpose.
2.3 Power and Authority. The Shareholders and D. Somers have the
right, power and capacity to execute, deliver and perform this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery and
performance of this Agreement, and the consummation of the transactions
contemplated hereby, have been duly and validly authorized by all necessary
action, corporate or otherwise, on the part of the Shareholders and D. Somers.
This Agreement has been duly and validly executed and delivered by the
Shareholders and D. Somers and constitutes their legal, valid and binding
obligation, enforceable in accordance with its terms. The execution and
delivery of this Agreement by the Shareholders and D. Somers, the consummation
of the transactions contemplated herein by the Shareholders and D. Somers, and
the performance of the covenants and agreements of the Shareholders and D.
Somers will not, with or without the giving of notice or the lapse of time, or
both, (i) violate or conflict with any of the provisions of any charter
document or bylaw of any Shareholder; (ii) violate, conflict with or result in
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a breach or default under or cause termination of any term or condition of any
mortgage, indenture, contract, license, permit, instrument, trust document, or
other agreement, document or instrument to which any Shareholder or D. Somers
is a party or by which any Shareholder or D. Somers or any of its or their
properties may be bound; or (iii) violate any provision of law, statute, rule,
regulation, court order, judgment or decree, or ruling of any governmental
authority, to which any Shareholder or D. Somers is a party or by which any
Shareholder or D. Somers or its or their properties may be bound.
2.4 Securities Law Representations of the Shareholders.
(a) The Preferred Shares to be received by the Shareholders
upon consummation of the transactions contemplated hereby are being acquired
for the Shareholders' own account; not as a nominee or agent, and not with a
view to the direct or indirect sale or distribution of any part thereof and the
Shareholders have no present intention of selling, granting any participation
in, or otherwise distributing the same, except in compliance with the
Securities Act of 1933, as amended (the "Securities Act").
(b) The Shareholders understand and acknowledge that (i) the
Preferred Shares (X) have not been registered under the Securities Act or any
state securities laws, (Y) are being sold in reliance upon an exemption or
exemptions from the registration and prospectus delivery requirements of the
Securities Act and applicable state securities laws, and (Z) must be held by
the Shareholders indefinitely unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities laws or is
exempt therefrom, and (ii) there is not currently a trading market for the
Preferred Shares and there can be no assurances that the Preferred Shares will
be listed on any exchange or quoted on any quotation system.
(c) The Shareholders, together with their advisors, have
knowledge, skill and experience in financial, business and investment matters
relating to an investment of this type and are capable of evaluating the merits
and risks of such investment and protecting their interests in connection with
the acquisition of the Preferred Shares. The Shareholders understand that the
acquisition of the Preferred Shares is a speculative investment and involves
substantial risks and that each Shareholder could lose its entire investment in
the Preferred Shares. To the extent deemed necessary by a Shareholder, such
Shareholder has retained, at its own expense, and has relied upon appropriate
professional advice regarding the investment, tax and legal merits and
consequences of purchasing and owning the Preferred Shares. Each Shareholder
has the ability to bear the economic risk of investment in WAXS, including a
complete loss of investment, and such Shareholder has no need for liquidity in
such investment.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER, D. SOMERS
AND THE COMPANIES REGARDING THE COMPANIES
The Shareholders, D. Somers and the Companies hereby, jointly and
severally, represent and warrant to Buyer as set forth below. For purposes of
the following representations and warranties, the term the "Company" shall
refer to Comm/Net Holding, Encom, LDEC and/or Comm/Net Services, and any
Subsidiary (as defined below) of Comm/Net Holding, Encom, LDEC and/or Comm/Net
Services.
3.1 Organization and Authorization.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas and has all
requisite power and authority, corporate or otherwise, to carry on and conduct
its business as it is now being conducted and to own or lease its properties
and assets, and is duly qualified and in good standing in the states or other
jurisdictions (within or outside of the US) set forth on SCHEDULE 3.1(A). The
Company is duly qualified and in good standing in every state of the US and in
such other jurisdictions (within or outside of the US) in which the conduct of
the Business or the ownership of the Company's properties and assets requires
it to be so qualified, except where the failure to be so qualified would not
have a material adverse effect on the Company.
(b) SCHEDULE 3.1(B) sets forth (i) every entity in which the
Company owns, or will own prior to the Closing, fifty percent (50%) or more of
the outstanding equity, directly or indirectly (each a "Subsidiary" and
collectively, the "Subsidiaries"), and (ii) the equity interest in such entity
that is owned by the Company. Except as noted on SCHEDULE 3.1(B), all
outstanding shares of capital stock of the Subsidiaries (the "Subsidiary
Shares") are owned by the Company, directly or indirectly, free and clear of
all liens, restrictions, claims, equities, charges, options, rights of first
refusal or encumbrances, with no defects of title whatsoever. The Company has
full power, right and authority to vote all of the outstanding shares of
capital stock of each Subsidiary. The Company is not a party to or bound by any
agreement affecting or relating to its right to transfer or vote the
outstanding shares of capital stock of any Subsidiary.
(c) The copies of the charter documents and bylaws of the
Company that have been previously delivered to Buyer are the complete, true and
correct charter documents and bylaws of the Company in effect as of the date
hereof. The minutes of directors' and shareholders' meetings and the stock
books of the Company that have previously been delivered to Buyer are the
complete, true and correct records of directors' and shareholders' meetings and
stock issuances through and including the date hereof and reflect all
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transactions and other matters required to be reflected in such records, as
well as such other matters customarily contained in records of such type.
(d) The current officers and directors of the Company are
listed on SCHEDULE 3.1(D).
(e) The Company has the right, power and capacity to execute,
deliver and perform this Agreement and to consummate the transactions
contemplated hereby. The execution, delivery and performance of this Agreement,
and the consummation of the transactions contemplated hereby, have been duly
and validly authorized by all necessary action, corporate or otherwise, on the
part of the Company. This Agreement has been duly and validly executed and
delivered by the Company and constitutes the Company's legal, valid and binding
obligation, enforceable in accordance with its terms.
3.2 Authorized and Outstanding Stock. The authorized capital stock of
the Company, the number of issued and outstanding shares thereof and the record
holders of such issued and outstanding shares of the Company's capital stock
are set forth in SCHEDULE 3.2. All of such issued and outstanding shares of
capital stock of the Company are validly issued, fully paid and nonassessable.
3.3 Absence of Other Claims. There is not outstanding, nor is the
Company bound by, any subscriptions, options, preemptive rights, warrants,
calls, commitments or agreements or rights of any character requiring the
Company to issue or entitling any person or entity to acquire any additional
shares of capital stock or any other equity security of the Company, including
any right of conversion or exchange under any outstanding security or other
instrument, and the Company is not obligated to issue or transfer any shares of
its capital stock for any purpose. There are no outstanding obligations of the
Company to repurchase, redeem or otherwise acquire any outstanding shares of
capital stock of the Company.
3.4 Financial Statements. SCHEDULE 3.4 contains (i) the unaudited
balance sheet of each of Encom, LDEC and Comm/Net Services as of December 31,
1996, and the related unaudited statements of income, retained earnings, and
cash flows for the year then ended, and the related notes thereto; (ii) the
audited balance sheet of each of Encom, LDEC and Comm/Net Services as of
December 31, 1997, and the related audited statements of income, retained
earnings, and cash flows for the year then ended, and the related notes
thereto; (iii) the unaudited balance sheet of each of Encom, LDEC and Comm/Net
Services as of December 31,1998, and the related unaudited statements of
income, retained earnings, and cash flows for the year then ended, and the
related notes thereto; and (iv) the unaudited balance sheet of each of Encom,
LDEC, Comm/Net Services and Comm/Net Holding as of April 30, 1999, and the
related unaudited profit and loss statements for the four-month period then
ended, and the related notes thereto (the "Interim Financial Statements")
(collectively, the "Financial Statements"). The Financial Statements are true,
correct and complete in all
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material respects and present fairly the financial position of Encom, LDEC,
Comm/Net Services and Comm/Net Holding, as the case may be, as of the dates
thereof, and the related results of their operations for the periods then
ended. The Financial Statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") on a basis consistent with prior
periods subject, in the case of the Interim Financial Statements, to normal and
recurring year-end audit adjustments, which adjustments will not, individually
or in the aggregate, be material in amount. All adjustments (including, without
limitation, all adjustments related to billing services provided on behalf of
the Company), consisting of normal, recurring accruals necessary for a fair
presentation, have been made in the Financial Statements.
3.5 No Undisclosed Liabilities. Except as and to the extent reflected
and adequately reserved against in the Financial Statements or as shown on
SCHEDULE 3.5, as of December 31, 1998, the Company had no material liabilities
or obligations whatsoever, whether accrued, absolute, contingent or otherwise.
Since December 31, 1998, the Company has not incurred any liability or
obligation whatsoever, except for (i) liabilities and obligations incurred in
the ordinary course of business consistent with past practice which do not in
any event exceed $50,000 in the aggregate or (ii) as reflected on SCHEDULE 3.5
(which Schedule shall describe the character and amount of such liability and
obligation).
3.6 No Violation of Law. The Company is not, has not been and will
not be (by virtue of any past or present action, omission to act, contract to
which it is a party or any occurrence or state of facts whatsoever) in
violation of any applicable local, state, federal or international law,
ordinance, regulation, order, injunction or decree, or any other requirement of
any governmental body, agency or authority or court binding on it, or relating
to its property or the Business or its advertising, sales or pricing practices
(including, without limitation, any antitrust laws and regulations), nor will
the Company hereafter suffer or incur any loss, liability, penalty or expense
(including, without limitation, attorneys' fees) by virtue of any such
violation.
3.7 Property.
(a) SCHEDULE 3.7(A) sets forth a complete and accurate list and
description of all the real and personal property that the Company owns or
leases, has agreed (or has an option) to purchase, sell or lease, or may be
obligated to purchase, sell or lease, and with respect to personal property the
net book value of which, as properly reflected in the books and records of the
Company, on an individual item-by-item basis, exceeds $25,000. The Company has
made available to Buyer true, correct, and complete copies of, with respect to
each parcel of real property listed or described in SCHEDULE 3.7 (A), the deed
evidencing the Company's ownership of such property, each mortgage or other
encumbrance thereon reflected in a written instrument, each instrument (if any)
evidencing a grant by or to the Company of an option to purchase or lease such
property, each lease and leasehold
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mortgage (if any) with respect to such property, and any title policies or
commitments and surveys with respect to such property.
(b) Subject to Section 3.7(c) hereof, the Company (i) has good
and marketable fee simple title to all of its real property and has good and
valid title to all the personal and mixed, tangible and intangible properties
and assets which it purports to own, including all the real and personal
properties and assets reflected, but not shown as leased or encumbered, in the
Financial Statements (except for inventory and assets sold in the ordinary
course of business consistent with past practice and supplies consumed in the
ordinary course of business consistent with past practice); and (ii) except for
Permitted Liens (as defined hereafter), owns such real and personal property
free and clear of all title defects or objections, liens, restrictions, claims,
charges, security interests, easements or other encumbrances of any nature
whatsoever, including any mortgages, leases, chattel mortgages, conditional
sales contracts, collateral security arrangements and other title or interest
retention arrangements. "Permitted Liens" shall mean (x) the security
interests, easements or other encumbrances described in SCHEDULE 3.7(B)(1); and
(y) liens for Taxes not yet due and payable. All properties and assets of the
Company are in the possession or control of the Company. SCHEDULE 3.7(B)(2)
sets forth a general description and the location of any personal property
(including all improvements on any real property owned by the Company) and
leasehold improvements which are not located on the premises of the principal
business operations of the Company.
(c) Except for Permitted Liens and other matters set forth in
SCHEDULE 3.7(C), no real property owned or leased by the Company is subject to
(i) any governmental decree or order (or threatened or proposed order known to
the Company) to be sold or taken by public authority; or (ii) any rights of
way, building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever.
(d) The plants, structures and equipment owned or leased by the
Company are structurally sound with no known material defects, are in good and
safe operating condition and repair and are adequate for the uses to which they
are being put.
(e) The rights, properties and other assets presently owned,
leased or licensed by the Company and described in SCHEDULE 3.7(A) include all
rights, properties and other assets necessary to permit the Company to conduct
its business in the same manner as its business has been conducted in prior
periods, without any need for replacement, refurbishment or extraordinary
repair.
(f) All of the inventory is merchantable and of a quality and
quantity usable and saleable in the ordinary and usual course of the business
of the Company, and the quantities of each type of inventory (whether raw
materials, work-in-process, or finished goods) are not excessive, but are
reasonable, adequate and appropriate in the present
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circumstances of the Company. All of the inventory included on the Financial
Statements are valued for the purposes thereof at the lower of cost or market.
3.8 Leases. SCHEDULE 3.8 contains a complete and accurate list of
all leases (including any capital leases) and lease-purchase arrangements
pursuant to which the Company leases real or personal property from others.
SCHEDULE 3.8 specifies which of such leases, if any, are capital leases. All
leases that are required to be capitalized by GAAP have been so accounted for
in the Financial Statements. The Company has provided to Buyer a true, correct,
and complete copy of each of the items listed on SCHEDULE 3.8.
3.9 Indebtedness. SCHEDULE 3.9 sets forth a complete and accurate
list and description of all instruments or other documents relating to any
direct or indirect indebtedness for borrowed money of the Company, as well as
indebtedness by way of lease-purchase arrangements, guarantees, undertakings on
which others rely in extending credit and all conditional sales contracts,
chattel mortgages and other security arrangements with respect to personal
property used or owned by the Company. The Company has provided to Buyer a
true, correct, and complete copy of each of the items listed on SCHEDULE 3.9.
3.10 Intellectual Property.
(a) Generally. SCHEDULE 3.10(A) sets forth a complete and
accurate list and description of (i) all patents, trademarks, service marks,
trademark and service mark registrations, trademark and service mark
registration applications, label filings, copyrights, inventions, patents and
patent applications owned or used by the Company and all agreements with
respect thereto, and the jurisdiction (within or outside of the US) in or by
which such trademarks, service marks, trademark and service mark registrations,
trademark and service mark registration applications, label filings,
copyrights, patents and patent applications have been registered, filed or
issued; (ii) all trade names owned or used by the Company, and, in the case of
each trade name owned by the Company, the jurisdiction (within or outside of
the US) in which such trade name has been registered or filed; and (iii) all
contracts, agreements or understandings pursuant to which the Company has
authorized any person to use or any person has the right to use, in any
business or commercial activity, any of the items listed in clauses (i) and
(ii) above that are owned or used by the Company. The Company has not
heretofore infringed upon, and it is not now infringing upon, any patent,
service mark, trade name, trademark, copyright, trade secret, or other
intellectual property belonging to any other person. The Company does not know
of any person infringing upon any of the Company's patents, service marks,
trademarks, copyrights, trade secrets, or other intellectual property. The
Company has provided to Buyer true, correct and complete copies of each
trademark and service mark registration or application therefor, patent or
patent application or other item listed in SCHEDULE 3.10(A) and each assignment
or license with respect to any thereof.
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(b) Computer Software and Databases. SCHEDULE 3.10(B)
accurately identifies, and describes the functions of, all computer software
and databases owned, licensed, leased, internally developed or otherwise used
in connection with the Business. The Company has, and upon consummation of the
transactions contemplated by this Agreement, Buyer will have, all computer
software and databases that are necessary to conduct the Business as presently
conducted by the Company and all documentation relating to all such computer
software and databases. The computer software and databases perform in
accordance with the documentation related thereto or used in connection
therewith and are free of defects in programming and operation. SCHEDULE
3.10(B) identifies each person to whom the Company, in the last two (2) years,
has sold, licensed, leased or otherwise transferred or granted any interest or
rights to any of the computer software and databases and the date of each such
sale, license, lease or other transfer or grant. The Company has previously
delivered to Buyer complete and accurate copies of all documents relating to
each such sale, license, lease or other transfer or grant. Except as set forth
in SCHEDULE 3.10(B), to the best of the Company's knowledge (after reasonable
inquiry), all computer hardware and software (including all computer hardware
and software contained in imbedded systems) used in the Business or included in
products previously or currently manufactured by the Company (whether such
hardware and software is owned by the Company or is licensed from third
parties) (collectively, the "Technology Systems") is designed to be used prior
to, during and after the calendar year 2000 and such hardware and software will
continue to operate during each such time period to accurately process date
data (including, but not limited to calculating, comparing and sequencing)
from, into and between the twentieth and twenty-first centuries, including leap
year calculations ("Year 2000 Compliance"). To the best of the Company's
knowledge (after reasonable inquiry), the occurrence of the calendar year 2000
will not adversely affect the Technology Systems of the Company or of third
parties using products manufactured, or services provided, by the Company. To
the best of the Company's knowledge (after reasonable inquiry), no expenditures
in excess of currently budgeted items is necessary to cause Technology Systems
to operate properly prior to, during and after the calendar year 2000. The
Company has taken reasonable steps to determine whether the failure of any
third parties with which the Company has a material relationship to achieve
Year 2000 Compliance could have a material adverse effect on the Company. To
the best of the Company's knowledge (after reasonable inquiry), all computer
hardware and software embedded in products manufactured, or services provided,
by the Company, when used in combination with, or interfacing with computer
hardware and software of any other person, shall accurately accept, release and
exchange date data, and shall continue to function in the same manner as it
performs today and shall not otherwise impair the accuracy or function ability
of such person's computer hardware or software.
3.11 Litigation. Schedule 3.11 sets forth all litigation, claims,
suits, actions, investigations, indictments or informations, proceedings or
arbitrations, grievances or other procedures (including grand jury
investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) pending, or to the knowledge of the
Shareholders or the Company, threatened, before any court, commission,
arbitration tribunal,
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or judicial, governmental or administrative department, body, agency,
administrator or official, grand jury, or any other forum for the resolution of
grievances, against the Company or involving any of the Assets or the Business,
and (ii) indicates which of such matters are being defended by an insurance
carrier, and which of the matters being so defended are being defended under a
reservation of rights. Further, except as set forth in SCHEDULE 3.11, there are
no judgments, orders, writs, injunctions, decrees, indictments or informations,
grand jury subpoenas or civil investigative demands, plea agreements,
stipulations or awards (whether rendered by a court, commission, arbitration
tribunal, or judicial, governmental or administrative department, body, agency,
administrator or official, grand jury or any other forum for the resolution of
grievances) against or relating to the Company or involving any of the Assets
or the Business. The Company has provided to Buyer true, correct, and complete
copies of pleadings, briefs and other documents filed in each pending
litigation, claim, suit, action, investigation, indictment or information,
proceeding, arbitration, grievance or other procedure listed in SCHEDULE 3.11,
and the judgements and informations, grand jury subpoenas and civil
investigative demands, plea agreements, stipulations and awards listed in said
Schedule.
3.12 Salaried Employees. SCHEDULE 3.12 sets forth the names, titles and
current compensation (broken down by category, e.g., salary, bonus, commission)
of all employees of the Company, together with the date and amount of the last
increase in compensation for each such person.
3.13 Employee Benefit Plans. Except as described on SCHEDULE 3.13, the
Company does not now have, maintain or contribute (and has not previously had,
maintained or contributed to) any employee benefit plans, as defined in Section
3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any other type of retirement, deferred compensation, insurance,
bonus, medical, stock option or other plan to benefit any employees or former
employees of the Company (collectively, "Employee Benefit Plans"). The Company
warrants and represents that neither it nor any member of its controlled group
of corporations (as defined in Code Section 414) contributes or has contributed
to a pension plan (as defined in Section 3(2) of ERISA) or a multiemployer plan
(as defined in Section 3(37) of ERISA) which is subject to Title IV of ERISA.
The Company warrants and represents that the Employee Benefit Plans have been
maintained in material compliance with all applicable laws and regulations
(including ERISA and the Code). The Company has received no notice that any of
the Assets are currently subject to a lien or other process under Title IV of
ERISA and knows of no threatened or pending action related to the Employee
Benefit Plans by an employee or former employee, a plan participant, the
Department of Labor, Internal Revenue Service or Pension Benefit Guaranty
Corporation.
3.14 Collective Bargaining. Except as set forth on SCHEDULE 3.14, there
are no labor contracts, collective bargaining agreements, letters of
understanding or other arrangements, formal or informal, with any union or
labor organization covering any of the Company's employees and none of said
employees are represented by any union or labor
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organization. The Company has made available to Buyer a true, correct, and
complete copy of each agreement listed on SCHEDULE 3.14.
3.15 Labor Disputes. The Company is in compliance with all federal
and state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours. The Company is not and has not been
engaged in any unfair labor practice, and no unfair labor practice complaint
against the Company is pending before the National Labor Relations Board.
Neither the Company nor the Shareholders know or have reason to know of any
labor strike or other labor trouble actually pending, being threatened against,
or affecting the Company. Relations between management and labor are amicable
and there have not been, nor are there presently, any attempts to organize
non-union employees, nor are there plans for any such attempts.
3.16 Bank Accounts. SCHEDULE 3.16 sets forth a complete and accurate
list of each bank or financial institution in which the Company has an account
or safe deposit box (giving the address and account numbers) and the names of
the persons authorized to draw thereon or to have access thereto.
3.17 Investments. Except for the Subsidiary Shares and as disclosed
on SCHEDULE 3.17, the Company does not own any capital stock or other
securities or have any other investment in any person or other entity.
3.18 Tax Matters. Except as set forth on SCHEDULE 3.18:
(a) The Company has timely filed all Tax Returns or extensions
that it was required to file. All such Tax Returns were true, correct and
complete in all material respects. Except for those Taxes which constitute
Assumed Liabilities, all Taxes (including penalties and interest in respect
thereof, if any) owed by the Company (whether or not shown on any Tax Return)
have been or will be by the Closing Date timely paid. The Company is not the
beneficiary of any extension of time within which to file any Tax Return. The
Company has not been notified by any taxing authority in a jurisdiction where
it did file any Tax Returns that it is or may be subject to Taxation by that
jurisdiction. There are no security interests on any of the Assets that arose
in connection with any failure (or alleged failure) to pay any Tax.
(b) All Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, shareholder, or other third party for income, social security,
payroll or other Taxes have been properly withheld and, if required prior to
the Closing Date, have been deposited with the appropriate taxing authority.
(c) The Company and the Shareholders do not expect any taxing
authority to assess any additional Taxes for any period for which Tax Returns
have been
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filed. There is no dispute or claim concerning any Tax liability of the Company
either (i) claimed, threatened or raised by any authority in writing or (ii) as
to which either the Company or any Shareholder has knowledge. SCHEDULE 3.18
lists with respect to the Company all currently pending Tax audits or other Tax
examinations, all completed audits or Tax examinations for periods ending on or
after December 31, 1994, and all jurisdictions in which the Company has filed
Tax Returns for any period ending on or after December 31, 1994. The Company
has delivered to Buyer correct and complete copies of all federal and state
income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by the Company for Taxable periods ended on or
after December 31, 1994.
(d) The Company has not waived any statute of limitations in
respect to Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has disclosed on its federal income Tax Returns
all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code Section 6662.
Neither the Company nor any of its Subsidiaries (i) has been a member of an
affiliated group filing a consolidated federal income Tax Return (other than
the affiliated group the common parent of which is Comm/Net Holding that was
created as of January 27, 1999), or (ii) has any liability for the Taxes of any
individual, trust, corporation, partnership or any other entity under Treasury
Regulations Section 1.1502-6 (or any similar provision of state, local, or
foreign law), as a transferee or successor, by contract, or otherwise. The
Company has not agreed to, nor is it required to make, any adjustment under
Code Section 481(a) by reason of a change in accounting method or otherwise.
(f) The unpaid Taxes of the Company (i) did not, as of the most
recent fiscal month end, exceed the reserve for Tax liability (exclusive of any
reserve for deferred Taxes) set forth in the Financial Statements (rather than
in any notes thereto), and (ii) do not exceed that reserve as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company in filing its Tax Returns.
(g) For purposes of this Agreement, "Tax" means any federal,
state, local, or foreign income, gross receipts, license, payroll, employment,
excise, severance, stamp, occupation, premium, windfall profits, environmental
(including Taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar), unemployment,
disability, real property, personal property, sales, use transfer,
registration, value added, alternative or add-on minimum, estimated, or other
Tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not. "Tax Returns" means any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
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3.19 Environmental, Health and Safety Matters. No claims have been
made by any governmental authority, and to the knowledge of the Company and the
Shareholders, no such claim is anticipated, to the effect that the Company
fails or may fail to comply with any applicable governmental, public utility,
health, safety and environmental laws, regulations, orders, permits, licenses,
approvals, ordinances and directives.
3.20 Required Licenses and Permits. The Company has all licenses,
tariffs, permits or other authorizations of governmental authorities necessary
for the production and sale of its products and provision of its services and
all other licenses, tariffs, permits or other authorizations of governmental
authorities necessary for the conduct of the Business. A correct and complete
list of all such licenses, tariffs, permits and other authorizations is set
forth on Schedule 3.20. The Company has provided to Buyer true, correct, and
complete copies of all written licenses, tariffs, permits and other
authorizations listed on SCHEDULE 3.20.
3.21 Insurance Policies. SCHEDULE 3.21 sets forth a complete and
accurate list and description of all insurance policies in force naming the
Company, or any employees thereof in their capacity as such, as an insured or
beneficiary or as a loss payable payee, or for which the Company has paid or is
obligated to pay all or part of the premiums. The Company has not received
notice of any pending or threatened termination or premium increase
(retroactive or otherwise) with respect thereto, and the Company is in
compliance with all conditions contained therein. There have been no lapses
(whether cured or not) in the coverage provided under the insurance policies,
referenced herein and as set forth on SCHEDULE 3.21, during the term of such
policies, as extended or renewed. The Company has provided to Buyer true,
correct, and complete copies of each of the policies listed on SCHEDULE 3.21.
3.22 Major Suppliers and Customers. SCHEDULE 3.22 sets forth a list of
each supplier of goods or services to, and each customer of, the Company, to
whom the Company paid or billed in the aggregate more than $100,000 during the
12-month period ended March 31, 1999, together, in each case, with the amount
paid or billed during such period. The Company is not engaged in any dispute
with any of such suppliers or customers. Neither the Company nor any
Shareholder knows or has any reason to believe that the consummation of the
transactions contemplated hereunder will have any adverse effect on the
business relationship of the Company with any such supplier or customer.
3.23 Contracts and Commitments. Except as set forth in SCHEDULES 3.8,
3.9, 3.13, 3.14, 3.21, and 3.23:
(a) The Company does not have any agreement or contract that is
material to its business, operations or prospects;
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(b) No contracts or commitments of the Company continue for
a period of more than six (6) months from the date hereof or may require
payments, in the aggregate, in excess of $10,000;
(c) The Company does not have any outstanding contract, written
or oral, with any officer, employee, agent, consultant, advisor, salesman,
manufacturer's representative, distributor, dealer, subcontractor, or broker
that is not cancelable by the Company, on notice of not longer than thirty (30)
days and without liability, penalty or premium of any kind, except liabilities
which arise as a matter of law upon termination of employment, or any agreement
or arrangement providing for the payment of any bonus or commission based on
sales or earnings;
(d) The Company is not under any liability or obligation under
any agreement pursuant to which third parties have been provided with products
that can be returned to the Company or a Subsidiary in the event they are not
sold and which could involve a liability of the Company of $10,000 or more in
the aggregate;
(e) The Company does not have (i) any outstanding loan or loan
commitment (excluding credit extended in the ordinary course of business
consistent with past practice to purchasers of inventory) to any person, or
(ii) any factoring, credit line or subordination agreement;
(f) Except as noted on SCHEDULE 3.9 and except for negotiable
instruments in the process of collection, the Company does not have any power
of attorney outstanding or any contract, commitment or liability (whether
absolute, accrued, contingent or otherwise), as guarantor, surety, co-signer,
endorser, co-maker, indemnitor in respect of the contract or commitment of any
other person, corporation, partnership, joint venture, association,
organization or other entity;
(g) There are no contracts or agreements with any director,
officer or shareholder of the Company, or with any person related to any such
person or with any company or other organization in which any director,
officer, or shareholder of the Company, or anyone related to any such person,
has a direct or indirect financial interest;
(h) The Company is not subject to any contract or agreement
containing covenants limiting the freedom of the Company to compete in any line
of business in any geographic area or requiring the Company to share any
profits;
(i) To the knowledge of the Shareholders and the Company, the
Company is not a party to or bound by any presently existing contract,
agreement or other arrangement that has had or may in the future have a
material adverse effect upon the business, earnings, prospects or financial
condition of the Company;
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(j) There is no contract, agreement or other arrangement
entitling any person or other entity to any profits, revenues or cash flows of
the Company or requiring any payments or other distributions based on such
profits, revenues, or cash flows; and
(k) The Company has provided to Buyer true, correct and
complete copies of each of the agreements listed on SCHEDULE 3.23.
3.24 No Conflict. The execution and delivery of this Agreement by the
Company, the consummation of the transactions contemplated herein by the
Company, and the performance of the covenants and agreements of the Company
will not, with or without the giving of notice or the lapse of time, or both,
(i) violate or conflict with any of the provisions of any charter document or
bylaw of the Company; or (ii) except as set forth in SCHEDULE 3.24, violate,
conflict with or result in a breach or default under or cause termination of
any term or condition of any mortgage, indenture, contract, license, permit,
instrument, trust document, will, or other agreement, document or instrument to
which the Company is a party or by which the Company or its properties may be
bound; or (iii) violate any provision of law, statute, regulation, court order
or ruling of any governmental authority, to which the Company is a party or by
which it or its properties may be bound; or (iv) result in the creation or
imposition of any lien, claim, charge, restriction, security interest or
encumbrance of any kind whatsoever upon any Asset.
3.25 Agreements in Full Force and Effect. Except as expressly set
forth in SCHEDULE 3.25, all contracts, agreements, plans, leases, policies,
licenses, permits, tariffs, or other authorizations referred to, or required to
be referred to, in any Schedule delivered hereunder are valid and binding, and
are in full force and effect and are enforceable in accordance with their
terms, except to the extent that the validity or enforceability thereof may be
limited by bankruptcy, insolvency, reorganization and other similar laws
affecting creditors' rights generally. Neither the Shareholders nor the Company
has any knowledge of any pending or threatened bankruptcy, insolvency or
similar proceeding with respect to any party to such agreements, and no event
has occurred which (whether with or without notice, lapse of time or the
happening or occurrence of any other event) would constitute a default
thereunder by the Company or to the knowledge of the Shareholders and the
Company any other party thereto.
3.26 Required Consents and Approvals. Except as set forth in SCHEDULE
3.26, no consent or approval is required by virtue of the execution hereof by
the Company or the consummation of any of the transactions contemplated herein
by the Company to avoid the violation or breach of, or the default under, or
the creation of a lien on any Asset of the Company pursuant to the terms of,
any regulation, order, decree or award of any court or governmental agency or
any lease, agreement, contract, mortgage, note, license, permit, tariff,
authorization or any other instrument to which the Company is a party or to
which it or any of its property or any of its capital stock is subject.
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3.27 Absence of Certain Changes and Events. Except as set forth in
SCHEDULE 3.27, since December 31, 1998, the Company has conducted its business
only in the ordinary course, and has not:
(a) suffered any damage or destruction adversely affecting the
Assets or the Business;
(b) made any declaration, setting aside or payment of any
dividend or other distribution of assets (whether in cash, stock or property)
with respect to the capital stock of the Company, or any direct or indirect
redemption, purchase or other acquisition of such stock, or otherwise made any
payment of cash or any transfer of other assets, to any shareholder or
affiliate thereof (including, without limitation, the repayment of or on any
indebtedness or other obligation); or transferred any assets from a Subsidiary
to the Company;
(c) suffered any material adverse change in its working
capital, assets, liabilities, financial condition, business prospects, or
relationships with any suppliers or customers listed on SCHEDULE 3.22;
(d) except for customary increases based on term of service or
regular promotion of non-officer employees, increased (or announced any
increase in) the compensation payable or to become payable to any employee, or
increased (or announced any increase in) any bonus, insurance, pension or other
employee benefit plan, payment or arrangement for such employees, or entered
into or amended any employment, consulting, severance or similar agreement;
(e) incurred, assumed or guaranteed any liability or obligation
(absolute, accrued, contingent or otherwise) other than in the ordinary course
of business consistent with past practice;
(f) paid, discharged, satisfied or renewed any claim, liability
or obligation other than payment in the ordinary course of business and
consistent with past practice;
(g) permitted any Asset to be subjected to any mortgage, lien,
security interest, restriction, charge or other encumbrance of any kind except
for Permitted Liens;
(h) waived any material claims or rights;
(i) sold, transferred or otherwise disposed of any Asset, except
in the ordinary course of business consistent with past practice;
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(j) made any single capital expenditure or investment in excess
of $10,000;
(k) made any change in any method, practice or principle of
financial or tax accounting;
(l) managed working capital components, including cash,
receivables, other current assets, trade payables and other current liabilities
in a fashion inconsistent with past practice, including failing to sell
inventory and other property in an orderly and prudent manner or failing to
make all budgeted and other normal capital expenditures, repairs, improvements
and dispositions;
(m) paid, loaned, advanced, sold, transferred or leased any Asset
to any employee, except for normal compensation involving salary and benefits;
(n) issued or sold any of its capital stock or issued any
warrant, option or other right to purchase shares of its capital stock, or any
security convertible into its capital stock;
(o) entered into any material commitment or transaction, other
than in the ordinary course of business consistent with past practice,
affecting the Business; or
(p) agreed in writing, or otherwise, to take any action described
in this Section 3.27.
3.28 Accounts Receivable.
(a) All accounts receivable owed to the Company by any
director, officer, shareholder or employee of the Company or any relative of
any such person (including those accounts receivable reflected on the Financial
Statements and incurred since the dates thereof ) have been paid in full prior
to the date hereof or shall have been paid in full prior to the Closing Date.
(b) All accounts receivable of the Company (i) are valid,
existing and fully collectible (subject to an allowance for doubtful accounts
in the amount of $76,000 (in the case of LDEC); $126,282.86 (in the case of
Encom); and $701,162.61 (in the case of Comm/Net Services)) without resort to
legal proceedings or collection agencies, (ii) represent monies due for goods
sold or services rendered in the ordinary course of business, and (iii) are not
subject to any defenses, rights of set-off, assignment, restrictions, security
interests or other encumbrances. Except as shown on SCHEDULE 3.28, as of the
date of such Schedule, all such accounts receivable were less than ninety (90)
days past due from the date the customer therefor was billed, and neither the
Company nor any Shareholder is aware of any dispute regarding the
collectibility of any such accounts receivable. All reserves shown on
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the Financial Statements were adequate as of such dates calculated consistent
with past practice.
3.29 Disclosure. No representations, warranties, assurances or
statements by any Shareholder or the Company in this Agreement and no statement
contained in any document (including the Financial Statements and the
Schedules), certificates or other writings furnished or to be furnished by any
Shareholder or the Company (or caused to be furnished by any Shareholder or the
Company) to Buyer or any of its representatives pursuant to the provisions
hereof contains or will contain any untrue statement of material fact, or omits
or will omit to state any fact necessary, in light of the circumstances under
which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND WAXS
Buyer and WAXS hereby represent and warrant to the Companies, D. Somers
and the Shareholders as follows:
4.1 Organization. Buyer and WAXS are corporations duly organized,
validly existing and in good standing under the laws of the State of Delaware
and have all requisite corporate power and authority to effect the transactions
contemplated hereunder.
4.2 Authorization. Buyer and WAXS have the right, power and capacity
to execute, deliver and perform this Agreement and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement, and the consummation of the transactions contemplated hereby,
have been duly and validly authorized by all necessary corporate action on the
part of Buyer and WAXS. This Agreement has been duly and validly executed and
delivered by Buyer and WAXS and constitutes a legal, valid and binding
obligation of Buyer and WAXS, enforceable in accordance with its terms.
4.3 No Conflict. The execution and delivery of this Agreement by
Buyer and WAXS, the consummation of the transactions contemplated herein by
Buyer and WAXS, and the performance of the covenants and agreements of Buyer or
WAXS will not, with or without the giving of notice or the lapse of time, or
both, (i) violate or conflict with any of the provisions of any charter
document or bylaw of Buyer or WAXS; (ii) subject to obtaining the consents set
forth on SCHEDULE 4.3, violate, conflict with or result in a breach or default
under or cause termination of any term or condition of any mortgage, indenture,
contract, license, permit, instrument, trust document, or other agreement,
document or instrument to which Buyer or WAXS is a party or by which Buyer or
WAXS or any of its or their properties may be bound; or (iii) violate any
provision of law, statute, rule, regulation,
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court order, judgment or decree, or ruling of any governmental authority, to
which Buyer or WAXS is a party or by which Buyer or WAXS or any of its or their
properties may be bound.
4.4 Validity of Issuance. The Preferred Shares, when issued in
accordance with Section 1.2 hereof, will be duly authorized, validity issued,
fully paid and nonassessable.
4.5 Capitalization. As of the date hereof, the authorized capital
stock of WAXS consists of 150,000,000 shares of common stock, par value $0.01
per share ("Common Stock"), and 10,000,000 shares of preferred stock, par value
$.01 per share ("Preferred Stock"), of which as of the date hereof, 44,802,809
shares of Common Stock and 50,000 shares of Preferred Stock are issued and
outstanding. Except as set forth on SCHEDULE 4.5, there is not outstanding, nor
is WAXS bound by, any subscriptions, options, preemptive rights, warrants,
calls, commitments or agreements or rights of any character requiring WAXS to
issue or entitling any person or entity to acquire any additional shares of
capital stock or any other equity security of WAXS, including any right of
conversion or exchange under any outstanding security or other instrument, and
WAXS is not obligated to issue or transfer any shares of its capital stock for
any purpose.
4.6 Reports and Financial Statements.
(a) WAXS has filed all reports required to be filed by it with
the SEC since December 31, 1998 pursuant to Sections 13, 14 and 15 of the
Securities Exchange Act of 1934, as amended. None of the WAXS SEC Reports, as
of their respective dates, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading. For purposes of this Section 4.6, "WAXS SEC Reports"
means, with respect to WAXS, its (i) Annual Report on Form 10-K for the year
ended December 31, 1998, filed with the Securities and Exchange Commission
("SEC"), (ii) proxy statement relating to a meeting of stockholders scheduled
to occur on June 15, 1999, as filed with the SEC on April 30, 1999, (iii)
Quarterly Reports on Form 10-Q filed by WAXS with the SEC since December 31,
1998, and (iv) Current Reports on Form 8-K filed by WAXS with the SEC since
December 31, 1998.
(b) Except as disclosed in the WAXS SEC Reports filed prior to
the date hereof, since March 31, 1999, WAXS has not incurred any liabilities
that are of a nature that would be required to be disclosed on a balance sheet
of WAXS, other than (i) liabilities incurred in the ordinary course of
business, or (ii) liabilities that would not have a material adverse effect on
WAXS.
4.7 Employee Benefit Plans. The WAXS Employee Benefit Plans have been
maintained in material compliance with all applicable laws and regulations
(including ERISA and the Code). For purposes of this Section 4.7, "WAXS
Employee Benefit Plans" shall mean any employee benefit plans, as defined in
Section 3(3) of ERISA, or any other type of
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retirement, deferred compensation, insurance, bonus, medical, stock option or
other plan to benefit any employees or former employees of WAXS.
ARTICLE V
COVENANTS OF THE SHAREHOLDERS AND THE COMPANIES
5.1 Pre-Closing Operations of the Companies. The Shareholders and the
Companies hereby covenant and agree that, except as consented to in writing by
Buyer, pending the Closing, the Companies will operate and conduct the
Business, and the Shareholders shall cause the Companies to conduct the
Business, only in the ordinary course in accordance with prior practice, and
carry on the Business diligently and substantially in the manner as heretofore
conducted and not make or institute any methods of manufacture, purchase, sale,
lease, management, accounting or operation except in the ordinary course of
business consistent with past practice. Pursuant thereto and not in limitation
of the foregoing (for purposes of this Section 5.1, the term the "Company"
shall refer to Comm/Net Holding, Encom, LDEC, Comm/Net Services and/or any
Subsidiary thereof):
(a) The Company shall manage its working capital, including
cash, receivables, other current assets, trade payables and other current
liabilities, in a fashion consistent with past practice, including by selling
inventory and other property in an orderly and prudent manner and paying
outstanding obligations, trade accounts and other indebtedness as they come
due.
(b) No material contract or commitment of any kind relating to
the Company or the Business shall be entered into without the prior written
consent of Buyer (for purposes hereof, the word "material" shall refer to any
contract or commitment which, if it had been entered into prior to execution of
this Agreement, would have been disclosed in Schedules 3.8, 3.9, 3.13, 3.14,
3.21 or 3.23). Any such contract, entered into with the prior written consent
of the Buyer, shall be deemed to have been disclosed in the appropriate
schedule.
(c) The Company shall maintain the Assets in their present
state of repair (ordinary wear and tear excepted), shall use its best efforts
to keep available the services of its employees, and preserve the goodwill of
its business and relationships with the customers, licensors, suppliers,
distributors and brokers with whom it has business relations.
(d) Except as otherwise provided for herein, the Company shall
not take any of the following actions after the date of this Agreement without
the prior written consent of Buyer:
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(i) Dispose of any Assets other than in the ordinary
course of business consistent with past practice;
(ii) Mortgage, pledge or subject to liens or other
encumbrances any Assets, except by incurring Permitted Liens;
(iii) Purchase or commit to purchase any capital asset
for a price exceeding $10,000;
(iv) Increase (or announce any increase of) any
salaries, wages or employee benefits or hire or commit to hire any employee for
a salary or wage or with benefits in excess of those paid or provided by the
Company in the ordinary course of business;
(v) Amend any charter document or bylaw;
(vi) Issue, sell or repurchase any of its capital stock,
or make any change in its issued and outstanding capital stock, or issue any
warrant, option or other right to purchase shares of its capital stock or any
security convertible into its capital stock, or redeem, purchase or otherwise
acquire any shares of its capital stock, or declare any dividends or make any
other distribution with respect to its stock;
(vii) Incur, assume or guarantee any obligation or
liability for borrowed money, or exchange, refund or renew any outstanding
indebtedness in such a manner as to reduce the principal amount of such
indebtedness and increase the interest rate or balance outstanding;
(viii) Cancel any debts;
(ix) Amend or terminate any material agreement (except
as otherwise contemplated by this Agreement) or any insurance policy, in force
on the date hereof;
(x) Make any changes in accounting methods, principles
or practices;
(xi) Do any act, omit to do any act or permit any act
within the Shareholders' or the Company's control which will cause a breach of
any representation, warranty or obligation contained in this Agreement or any
obligations contained in any contract; or
(xii) Issue substitute stock certificates to replace
certificates which have been lost, misplaced, destroyed, stolen or are
otherwise irretrievable, unless an adequate
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bond or indemnity agreement approved by Buyer has been duly executed and
delivered to the Company.
5.2 Access. From the date of this Agreement through the Closing Date,
the Companies shall (i) provide Buyer and its designees (i.e., officers,
counsel, accountants, actuaries, and other authorized representatives) with
such information as Buyer may from time to time reasonably request with respect
to the Companies and the transactions contemplated by this Agreement; (ii)
provide Buyer and its designees, access during regular business hours and upon
reasonable notice to the books, records, offices, personnel, counsel,
accountants and actuaries of the Companies, as Buyer or its designees may from
time to time reasonably request; and (iii) permit Buyer and its designees to
make such inspections thereof as Buyer and its designees may reasonably
request. Any investigation shall be conducted in such a manner so as not to
interfere unreasonably with the operation of the business of the Companies. No
such investigation shall limit or modify in any way the Shareholders' or the
Companies' obligations with respect to any breach of their representations,
warranties, covenants or agreements contained herein.
5.3 Interim Financials. As promptly as practicable after each regular
accounting period subsequent to April 30, 1999, and prior to the Closing Date,
each Company will deliver to Buyer periodic financial reports in the form which
it customarily prepares for its internal purposes concerning the Company and,
if available, unaudited statements of the financial position of the Company as
of the last day of each accounting period and statements of income and changes
in financial position of the Company for the period then ended.
5.4 Taxes. Except to the extent that Taxes of the Companies
constitute Assumed Liabilities, Comm/Net Holding and the Shareholders shall be
severally responsible for all Taxes imposed separately on each of them,
including but not limited to, document recording fees, real property transfer
taxes, sales and excise taxes, arising out of or in connection with the
consummation of the transactions contemplated hereby.
5.5 Exclusivity. Pending the Closing, the Companies, D. Somers and
the Shareholders (including their respective representatives, agents and/or
advisors) will not, and the Shareholders will not cause or permit the Companies
(including their respective representatives, agents and/or advisors) to, (i)
solicit, initiate, or encourage the submission of any proposal or offer from
any person relating to the acquisition of any capital stock or other voting
securities of the Companies, or any substantial portion of the Assets
(including, any acquisition structured as a merger, consolidation,
reorganization or share exchange) or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist or
participate in, or facilitate in any other manner any effort or attempt by any
person to do or seek any of the foregoing. The Companies, D. Somers and the
Shareholders, as applicable, will notify Buyer immediately if any person makes
any proposal, offer, inquiry or contact with respect to any of the foregoing.
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5.6 Termination of Employee Benefit Plans. As soon as practical
following the Closing Date, Comm/Net Holding shall terminate, or cause to be
terminated, each Employee Benefit Plan listed on SCHEDULE 3.13. Neither Buyer
nor WAXS shall adopt, assume or otherwise become responsible for, either
primarily or as a successor employer, any assets or liabilities of any employee
benefit plans, arrangements, commitments or policies currently provided by any
of the Companies (including but not limited to those identified on SCHEDULE
3.13); and if and to the extent that Buyer or WAXS is deemed by law or
otherwise to be liable as a successor employer for such purposes, Comm/Net
Holding and the Shareholders shall jointly and severally indemnify Buyer and
WAXS for the full and complete costs, fees and other liabilities which result
therefrom.
5.7 Liquidation of Encom, LDEC, and Comm/Net Services. Unless this
Agreement is earlier terminated pursuant to Article XI hereof, on or before the
Closing Date, Comm/Net Holding shall cause each of Encom, LDEC and Comm/Net
Services to be completely liquidated into Comm/Net Holding pursuant to their
respective articles of incorporation, bylaws, and the applicable provisions of
the Texas Business Corporation Act (including, without limitation, Sections
6.02 or 6.03, 6.04, 6.06, 6.07 and 7.12 thereof), intending in each case that
such liquidations shall constitute a "complete liquidation" by Comm/Net Holding
of Encom, LDEC and Comm/Net Services within the meaning of Section 332 of the
Code.
5.8 Tax-Free Reorganization. The parties hereto have structured the
transactions contemplated in this Agreement intending that such transactions
qualify as a "reorganization" within the meaning of Section 368(a)(1)(C) of the
Code and hereby agree not to take any action with the intention of causing the
transactions contemplated hereunder to fail to so qualify; provided however,
that the foregoing is not intended in any way to limit a party's exercise of
its rights under this Agreement. From and after the Closing and as required by
Section 368(a)(2)(G) of the Code, Comm/Net Holding shall cease to engage in any
business and, in accordance with its articles of incorporation, bylaws, the
Texas Business Corporation Act and other applicable Texas statutes, shall
promptly liquidate and dissolve as a corporation and shall distribute to the
Shareholders in complete liquidation all of its remaining assets (including the
Preferred Shares received by it pursuant to the terms and conditions hereof),
other than assets retained to satisfy its liabilities. Comm/Net Holding shall
not transfer any of the Preferred Shares (or any interest or right therein),
except to the Shareholders as part of the liquidation described in this Section
5.8; provided, however, that Comm/Net Holding may transfer such number of
Preferred Shares to Buis & Co. as are necessary to compensate Buis & Co. for
services provided to Comm/Net Holding in connection with the transactions
contemplated hereby. The Companies shall timely file all remaining unfiled Tax
Returns required to be filed by them, including the final Tax Returns
reflecting their complete liquidation, and shall pay all Taxes reflected on all
such Tax Returns, except for those Taxes which constitute Assumed Liabilities.
All of the parties hereto agree that the books and records of Comm/Net Holding,
Buyer, WAXS and the Shareholders shall be maintained and their respective Tax
Returns filed in a manner
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consistent with qualification as a "reorganization," and each party shall
provide to each other party such tax information, reports or schedules as may
be reasonably required to assist such party in accounting for and reporting the
transactions contemplated in this Agreement as so qualified. Comm/Net Holding
and the Shareholders expressly acknowledge and agree that WAXS and Buyer shall
have no liability whatsoever to any party or taxing authority in the event that
the transactions contemplated by this Agreement do not qualify as a
"reorganization" under the Code, and Comm/Net Holding and the Shareholders
hereby jointly and severally indemnify and agree to hold WAXS and Buyer
harmless with respect to any such claim or assertion; provided, however, that
Comm/Net Holding and the Shareholders shall have no obligation to jointly and
severally indemnify WAXS and Buyer with respect to any such claim or assertion
where the failure of the transactions contemplated by this Agreement to qualify
as a "reorganization" under the Code is expressly identified as having been
caused by a breach by WAXS or Buyer of their respective obligations under this
Agreement.
5.9 Post-Closing Drop-Down of Assets. After the Closing and pursuant
to the plan of reorganization set forth in this Agreement, Buyer intends to
transfer the Assets (and some or all of the Assumed Liabilities) to World
Access Telecommunications Group, Inc. and shall effectuate any such transfer in
a manner permitted under Section 368(a)(2)(C) of the Code and Treasury
Regulation Section 1.368-2(k). WAXS shall continue the historic business of
Comm/Net Holding or use a significant portion of Comm/Net Holding's historic
business assets in a business, in each case, within the meaning of Treasury
Regulation Section 1.368-1(d).
5.10 Preparation of Financial Statements. Comm/Net Holding shall
prepare, or cause to be prepared, the audited balance sheet of each of Encom,
LDEC and Comm/Net Services as of December 31, 1998, and the related audited
statements of income, retained earnings, and cash flows for the year then
ended, and the related notes thereto (the "1998 Audited Financial Statements").
5.11 Preparation of Supporting Documents. In addition to such actions
as the Companies may otherwise be required to take under this Agreement or
applicable law in order to consummate this Agreement and the transactions
contemplated hereby, the Shareholders and the Companies shall take such action,
shall furnish such information, and shall prepare, or cooperate in preparing,
and execute and deliver such certificates, agreements and other instruments as
Buyer may reasonably request from time to time, before, at or after the
Closing, with respect to compliance with the obligations of Buyer, the
Shareholders or the Companies in connection with the transactions contemplated
herein. Any information furnished by the Shareholders or the Companies before
or at the Closing shall be true, current and complete in all material respects
and shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading.
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5.12 Notification. Between the date hereof and the Closing Date, the
Shareholders, the Companies and D. Somers shall promptly notify Buyer in
writing if any of the Shareholders, the Companies or D. Somers become aware of
any fact, matter or condition that causes or constitutes a breach of any
representation or warranty contained in this Agreement, or if the Shareholders,
the Companies or D. Somers become aware of the occurrence after the date hereof
of any fact, matter or condition that, had it existed on the date hereof, would
cause or constitute a breach of any representation or warranty had such
representation or warranty been made as of the time of the occurrence or
discovery of such fact, matter or condition. If any such fact, matter or
condition would require a change in a Schedule if such Schedule were dated as
of the occurrence or discovery of such fact, matter or condition, the
Shareholders, the Companies and D. Somers shall promptly deliver to Buyer a
supplemented Schedule specifying such change. During the same period, the
Shareholders, the Companies and D. Somers shall promptly notify Buyer of any
breach of any covenant or agreement in this Agreement or of the occurrence of
any event that may make the satisfaction of the conditions in Section 8
impossible or unlikely. Except with respect to the disclosure on a supplemental
Schedule of actions taken after the date hereof by the Shareholders, the
Companies and/or D. Somers which are expressly permitted under Sections 5.1(b)
or (d) of this Agreement, no disclosure or supplement pursuant to this Section
5.12 shall be deemed to prevent or cure any breach of representation or
warranty or failure to perform any covenant or agreement hereunder for purposes
of Section 8.1.
ARTICLE VI
COVENANTS OF THE PARTIES
The Companies, the Shareholders and Buyer, respectively, hereby
covenant to and agree with one another as follows:
6.1 Approvals of Third Parties; Satisfaction of Conditions to
Closing. The Companies, the Shareholders and Buyer will use their reasonable,
good faith efforts, and will cooperate with one another, to secure all
necessary consents, approvals, authorizations and exemptions from governmental
agencies and other third parties, including, without limitation, all consents
required by Sections 8.4 and 8.5. If any consent or approval is not obtained
prior to or on the Closing Date, and such consent or approval relates to the
transfer or assignment to Buyer of a lease, contract, mortgage, note, Remaining
License (as defined in Section 6.6) or other agreement or arrangement to which
one or more of the Companies is a party (a "Company Instrument"), Comm/Net
Holding shall hold such Company Instrument in trust for the use and benefit of
Buyer, and shall take such other action as may be reasonably requested by Buyer
in order to place Buyer in the same position as if such consents or approvals
had been obtained. The Companies and the Shareholders will use their
reasonable, good faith efforts to obtain the satisfaction of the conditions
specified in Article
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VIII. Buyer will use its reasonable, good faith efforts to cause or obtain the
satisfaction of the conditions specified in Article VII.
6.2 Confidentiality. In connection with this Agreement the parties
may have access to information which is nonpublic, confidential or proprietary
in nature. All of such information, in whole or in part, together with any
analyses, compilations, studies or other documents prepared by any party, which
contain or otherwise reflect any such information is hereinafter referred to as
the "Information". Each party hereby agrees that the Information will be kept
confidential and shall not, without the prior mutual written consent of the
parties, be disclosed, in any manner whatsoever, in whole or in part, and shall
not be used by any party following the termination of this Agreement. Each
party agrees to transmit the Information only to its respective employees and
representatives who need to know the Information and who shall agree to be
bound by the terms and conditions of this Agreement. In any event, each party
shall be responsible for any breach of this Agreement by its respective
employees or representatives. If the transactions contemplated hereunder are
not consummated, the Information, except for that portion of the Information
which consists of analyses, compilations, studies or other documents prepared
by each party's respective employees and representatives, will be returned to
the other promptly upon request and no party shall retain any copies. That
portion of the Information, and all copies thereof, which consists of analyses,
compilations, studies or other documents prepared by each party's respective
employees and representatives will be kept confidential and subject to the
terms of this Agreement or destroyed. In the event any party becomes legally
compelled to disclose any of the Information, such party will provide to the
other parties prompt notice so that each other party may seek a protective
order or other appropriate remedy and/or waive compliance with the provisions
of this Agreement. In the event that such protective order or other remedy is
not obtained, or compliance with the provisions of this Agreement is waived, a
party will furnish only that portion of the Information which is legally
required, and to the extent requested by the other parties, will exercise its
best efforts to obtain a protective order or other reliable assurance that
confidential treatment will be accorded the Information. The term "Information"
does not include information which (i) was known to any party about another
party prior to its disclosure, provided that such information was lawfully
obtained or developed, (ii) becomes generally available to the public other
than as a result of a disclosure by a party in violation of this Agreement, or
(iii) becomes available from a source other than a party to this Agreement, if
the source is not bound by a confidentiality agreement and such source lawfully
obtained such information.
6.3 Casualty. The Companies shall bear the risk of any loss or damage
or destruction to any of the Assets from fire or other casualty or cause at all
times prior to the Closing. Upon the occurrence of any loss or damage to any
portion of the Assets as a result of fire, casualty, or other cause prior to
the Closing, the Companies shall immediately notify Buyer of the same in
writing, stating with particularly the extent of loss or damage incurred, the
cause thereof, if known, and the extent to which restoration, replacement, and
repair of the Assets lost or destroyed will be reimbursed under any insurance
policy with respect
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thereto. Buyer shall have the option, but not the obligation, exercisable
within ten (10) days after receipt of such notice from the Company to:
(a) Elect to consummate the Closing and accept the Assets in
their "then" condition, in which event the Companies shall assign to Buyer all
rights under any insurance claim covering the loss and pay over to Buyer any
proceeds under any such insurance policy theretofore received by the Companies
with respect thereto; or
(b) Terminate this Agreement, whereupon this Agreement shall be
of no further force or effect and neither the Companies nor Buyer shall have
any further rights, duties, or obligations hereunder.
6.4 Hart-Scott-Rodino Notifications. The parties shall promptly
prepare and file any required notifications with the United States Justice
Department (the "Justice Department") and the Federal Trade Commission (the
"FTC") as required by the Hart-Scott- Rodino Antitrust Improvements Act of
1976, as amended ("H-S-R"). The parties shall cooperate with each other in
connection with the preparation of such notifications, including sharing
information concerning sales and ownership and such other information as may be
needed to complete such notification, and providing a copy of such
notifications to the other prior to filing; provided, that Buyer and WAXS shall
have the right to redact any dollar revenue information from the copies of such
notifications provided to the other parties. The parties shall keep all
information about the other obtained in connection with the preparation of such
notification confidential pursuant to the terms of Section 6.2. Each party
shall pay the filing fee required by the regulations promulgated pursuant to
H-S-R with respect to the notification for which such party is the "Acquiring
Person" (as defined in the regulations promulgated pursuant to H-S-R). In the
event that any party shall receive any request for additional information or
documentary material from the Justice Department or the FTC (i) Buyer shall be
primarily responsible for responding to such request, (ii) the other parties
shall provide Buyer with all information, documents and other assistance as
Buyer may request in connection with responding to such request, and (iii)
Comm/Net Holding shall not respond to such request or furnish any additional
information or documentary material except as consented to or requested by
Buyer or as required by applicable law.
6.5 Shareholder Promissory Notes.
(a) As of the date hereof, the aggregate outstanding amount owed
under (i) that certain Promissory Note, dated January 27, 1999, by Comm/Net
Holding, as maker, in favor of R. Scott Birdwell, as holder, (ii) that certain
Promissory Note, dated January 27, 1999, by Comm/Net Holding, as maker, in
favor of Gregory A. Somers, as holder, (iii) that certain Promissory Note,
dated January 27, 1999, by Comm/Net Holding, as maker, in favor of Teleplus, as
holder, and (iv) that certain Promissory Note, dated January 27, 1999, by
Comm/Net Holding, as maker, in favor of Kelli J. Somers, as holder, is
$3,478,670.90, of which $78,670.90 represents accrued but unpaid interest and
$3,400,000 represents the
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outstanding principal amount (collectively, the "Notes"; individually, a
"Note"). Prior to the Closing, (a) interest shall accrue under the Notes in
accordance with their terms and (b) no amendment or modification shall be made
to the Notes and no payments shall be made under or with respect thereto.
(b) Pursuant to Section 1.4, at the Closing, Buyer shall assume
the outstanding balance due under each Note. Immediately following the Closing,
Buyer shall pay off the outstanding balance due under each Note pursuant to
written instructions delivered by R. Scott Birdwell, Gregory A. Somers,
Teleplus and Kelli J. Somers at least three (3) business days prior to the
Closing. Immediately upon receipt of such payment, the original Notes marked
"Paid in Full" shall be delivered to Buyer and all obligations thereunder or
with respect thereto shall be satisfied.
6.6 Governmental Authorizations.
(a) Upon execution of this Agreement, the Companies shall, and
the Shareholders shall cause the Companies to, take all reasonable actions to
secure any and all necessary consents or approvals required to transfer to
Buyer or its ultimate designee, World Access Telecommunications Group, Inc., as
well as one or more controlled subsidiaries in order to effectuate the
post-Closing drop-down of the Assets contemplated by Section 5.9 hereof
(hereinafter, "Buyer or its designee"), the licenses, permits or other
authorizations of governmental authorities which regulate the conduct of
business within the telecommunications industry (the "Licenses"), including,
without limitation, those Licenses set forth on SCHEDULE 3.20, except for those
Licenses which are set forth on SCHEDULE 1.1(B); provided, however, that
neither the Companies nor the Shareholders shall be required to make any
expenditure of funds in connection therewith.
(b) If all of the conditions to Buyer's obligations to
consummate the transactions contemplated hereunder have been satisfied (or
waived by Buyer) except that all consents or approvals required to transfer any
License have not been obtained (the "Remaining Licenses"), Buyer may, in its
sole discretion, waive any relevant closing condition and proceed to consummate
the transactions contemplated hereunder; provided however, that:
(i) Comm/Net Holding shall, and the Shareholders shall
cause Comm/Net Holding to, continue to take all reasonable actions to secure
any and all consents or approvals required to transfer the Remaining Licenses
to Buyer or its designee; provided, however, that neither Comm/Net Holding nor
the Shareholders shall be required to make any expenditure of funds in
connection therewith;
(ii) Until such consents or approvals have been
obtained, Comm/Net Holding shall grant to Buyer or its designee an irrevocable,
non-royalty bearing
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license and right to use the Remaining Licenses in connection with the
operation of the Business, subject to obtaining any applicable regulatory
approval;
(iii) Pending the receipt of such consents or approvals,
Comm/Net Holding shall, and the Shareholders shall cause Comm/Net Holding to,
maintain the Remaining Licenses in full force and effect; provided, however,
that neither Comm/Net Holding nor the Shareholders shall be required to make
any expenditure of funds in connection therewith; and
(iv) If, after six (6) months from the Closing Date, all
of the Remaining Licenses which are legally transferrable have not been
transferred to Buyer or its designee, the parties shall, in good faith,
determine the value of the Remaining Licenses which have not been transferred
to Buyer or its designee as of such time, and Comm/Net Holding or the
Shareholders, as applicable, shall deliver to Buyer an appropriate number of
Preferred Shares based upon such valuation; provided, however, that Comm/Net
Holding or the Shareholders, as appropriate, shall not be required to deliver
to Buyer more than 50 Preferred Shares. If the parties are unable to agree on
the value of the Remaining Licenses not transferred to Buyer or its designee in
accordance with this Section 6.6 or the number of Preferred Shares to be
delivered to Buyer, if any, the parties shall resolve such dispute by
arbitration.
6.7 Schedules. The parties acknowledge that the Shareholders, D.
Somers and the Companies have not delivered to Buyer, as of the date hereof,
the following Schedules (the "Post-Signing Schedules"): 1.1(b); 1.4; 3.1(a);
3.4; 3.7(a); 3.8; 3.9; 3.18; 3.20; 3.23; 3.24; 3.26; 3.28; and 11.11(a). The
Shareholders, D. Somers and the Companies shall deliver all of the Post-Signing
Schedules to Buyer not later than June 4, 1999. If all of the Post-Signing
Schedules (i) are not delivered to Buyer by June 4, 1999, or (ii) are not
satisfactory to Buyer (in its sole discretion) in form and substance, then
Buyer shall have the right to terminate this Agreement, without liability, by
written notice to the Shareholders, D. Somers and the Companies on or before
June 18, 1999.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF COMM/NET HOLDING
AND THE SHAREHOLDERS
The obligations of Comm/Net Holding and the Shareholders to consummate
the transactions to be performed by them in connection with the Closing shall
be subject to the satisfaction (or waiver by Comm/Net Holding or the
Shareholders) at or prior to the Closing Date of each of the following
conditions:
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7.1 Representations and Warranties True at Closing Date. Each of
Buyer's representations and warranties contained in this Agreement which are
qualified by materiality shall be true in all respects and each of Buyer's
representations and warranties which are not qualified by materiality shall be
true in all material respects, in each case, on and as of the Closing Date with
the same force and effect as though made on and as of such date; Buyer shall
have complied in all material respects with the covenants and agreements set
forth herein to be performed or complied with by it on or before the Closing
Date; and Buyer shall have delivered to Comm/Net Holding and the Shareholders a
certificate dated the Closing Date and signed by its duly authorized officer to
all such effects, and confirming such other matters as may be reasonably
requested by Comm/Net Holding and the Shareholders.
7.2 Litigation. No suit, investigation, action or other proceeding
shall be pending or overtly threatened against the Companies before any court
or governmental agency which has resulted in the restraint or prohibition of
Comm/Net Holding, or, could in the reasonable opinion of counsel for Comm/Net
Holding, result in the obtaining of material damages or other relief from
Comm/Net Holding, in connection with this Agreement or the consummation of the
transactions contemplated hereby.
7.3 Registration Rights Agreement. WAXS shall have executed and
delivered to Comm/Net Holding and the Shareholders a Registration Rights
Agreement in the form of Exhibit B attached hereto.
7.4 Required Governmental Approvals. All governmental authorizations,
consents and approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements, including expiration of all
applicable waiting periods pursuant to H-S-R, shall have been met or such
compliance shall have been waived by the governmental authority having
authority to grant such waivers.
7.5 Other Necessary Consents. Either (i) all consents and approvals
listed on SCHEDULE 3.26 shall have been obtained, or (ii) Buyer shall have
agreed to defend, indemnify and hold harmless the Companies and the
Shareholders from and against any Losses (as defined in Section 9.1) suffered
or incurred by the Companies with respect to each Company Instrument, except
Losses related to claims, obligations and liabilities, actual or contingent,
arising out of (A) events prior to the Closing, (B) any Company's default or
breach of a Company Instrument prior to the Closing, or (C) any act or omission
of a Company after the Closing which results in a default or breach of a
Company Instrument.
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ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer and WAXS to consummate the transactions to be
performed by them in connection with the Closing shall be subject to the
satisfaction (or waiver by Buyer or WAXS) on or before the Closing Date of each
of the following conditions:
8.1 Representations and Warranties True at Closing Date. Each of the
representations and warranties of the Shareholders, D. Somers and the Companies
contained in this Agreement which are qualified by materiality shall be true in
all respects and each of the representations and warranties of the
Shareholders, D. Somers and the Companies which are not qualified by
materiality shall be true in all material respects, in each case, on and as of
the Closing Date with the same force and effect as though made on and as of
such date (provided that, solely for the purpose of determining the foregoing,
any representation or warranty contained herein and otherwise limited to the
Shareholders', D. Somers' or the Companies' knowledge shall not be limited to
such knowledge); the Shareholders, D. Somers and the Companies shall have
performed and complied in all material respects with the respective covenants
and agreements set forth herein to be performed or complied with by each of
them on or before the Closing Date; and the Shareholders, D. Somers and
Comm/Net Holding shall have delivered to Buyer a certificate signed by D.
Somers, on behalf of Comm/Net Holding by its President and on behalf of the
Shareholders by a duly authorized representative to all such effects, and
confirming such other matters as may be reasonably requested by Buyer or WAXS.
8.2 No Material Change. The Companies shall not have suffered any
material adverse change since December 31, 1998 in their business, prospects,
financial condition, working capital, assets, liabilities (absolute, accrued,
contingent or otherwise), reserves or operations.
8.3 Litigation. No suit, investigation, action or other proceeding
shall be pending or overtly threatened against Buyer, WAXS, any Shareholder, D.
Somers or the Companies before any court or governmental agency, which has
resulted in the restraint or prohibition of any such party, or, in the
reasonable opinion of counsel for Buyer and WAXS, could result in the obtaining
of material damages or other relief from any such party, in connection with
this Agreement or the consummation of the transactions contemplated hereby.
8.4 Required Governmental Approvals. All governmental authorizations,
consents and approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. Buyer or its designee shall have obtained all governmental
authorizations, consents and approvals necessary for the conduct of the
Business in the State of Texas by Buyer or its designee and
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such authorizations, consents and approvals shall be in full force and effect;
provided however, that Buyer or its designee shall have taken commercially
reasonable efforts to apply for such authorizations, consents and approvals, or
the transfer or assignment thereof to Buyer or its designee, by June 18, 1999.
All applicable governmental pre-acquisition filing, information furnishing and
waiting period requirements, including expiration of all applicable waiting
periods pursuant to H-S-R, shall have been met or such compliance shall have
been waived by the governmental authority having authority to grant such
waivers.
8.5 Other Necessary Consents. All consents and approvals listed on
SCHEDULES 3.26 AND 4.3 shall have been obtained. With respect to each such
consent or approval, Buyer shall have received written evidence, satisfactory
to it, that such consent or approval has been duly and lawfully filed, given,
obtained or taken and is effective, valid and subsisting.
8.6 Opinion of Counsel to the Shareholders, D. Somers and the
Companies. Buyer shall have received from counsel to the Shareholders, D.
Somers and the Companies an opinion, dated the Closing Date, in a form
reasonably satisfactory to Buyer.
8.7 Shareholder Approval. The transactions contemplated by this
Agreement, including, without limitation, the ultimate liquidation and
dissolution of Comm/Net Holding pursuant to the terms hereof, shall have
received the requisite Shareholders' approval under Texas law and there shall
not be any dissenters.
8.8 Due Diligence Review. Representatives of Buyer shall have
completed the due diligence review of the operations, condition (financial and
other), prospects, assets and liabilities of, and other matters related to, the
Companies, the Assets and the Business and the results of such due diligence
shall have been satisfactory to Buyer.
8.9 Financial Statements. Buyer shall have received the 1998 Audited
Financial Statements, which statements shall be satisfactory to Buyer in its
reasonable judgment.
8.10 Non-competition Agreements. Each of the Shareholders and D.
Somers shall have executed and delivered to Buyer a non-competition agreement
in the form of EXHIBIT C hereto.
8.11 Liquidation of Comm/Net Subsidiaries. Buyer shall have received
such documentary evidence as is satisfactory to it that the liquidation of
Encom, LDEC and Comm/Net Services pursuant to Section 5.7 hereof has been duly
and validly authorized and that each of Encom, LDEC and Comm/Net Services has
been validly dissolved under Texas law.
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ARTICLE IX
INDEMNIFICATION
9.1 Remedies.
(a) Except as otherwise limited by this Article IX, Comm/Net
Holding, D. Somers and each Shareholder shall jointly and severally indemnify
and reimburse Buyer and WAXS for any and all claims, losses, liabilities,
damages, costs (including court costs) and expenses (including reasonable
attorneys' and accountants' fees) suffered or incurred by Buyer or WAXS, its
successors or assigns, and their respective officers, employees, consultants
and agents (the "Buyer Protected Parties") (hereinafter "Loss" or "Losses"), as
a result of, or with respect to, (i) any breach or inaccuracy of any
representation or warranty of the Companies, D. Somers or any Shareholder set
forth in this Agreement or in any certificate or other document delivered
pursuant hereto or in connection herewith, whether such breach or inaccuracy
exists or is made on the date of this Agreement or as of the Closing Date; (ii)
any breach or inaccuracy of any representation or warranty of the Companies, D.
Somers or any Shareholder set forth in the certificate to be provided to Buyer
pursuant to Section 8.1 hereof, without regard to the materiality qualification
contained in such certificate; (iii) any breach of or noncompliance by the
Companies, D. Somers or any Shareholder with any covenant or agreement of the
Companies, D. Somers or any Shareholder contained in this Agreement; (iv) any
and all liabilities and obligations of the Companies other than the Assumed
Liabilities; (v) any and all liabilities and obligations arising out of any
breach by the Companies of any agreement assumed by Buyer at the Closing by
written instrument executed by Buyer pursuant to this Agreement; and (vi) any
and all claims asserted by the Companies' creditors, except where such claims
are in connection with the Assumed Liabilities (for the purposes of this
Agreement, "creditors" shall mean (1) all persons or entities who are known by
the Companies, D. Somers or the Shareholders to assert claims against the
Companies even though such claims are disputed, as well as (2) all general
creditors, all secured creditors, all lien creditors, and all representatives
of creditors).
(b) Except as otherwise limited by this Article IX, WAXS and
Buyer shall jointly and severally indemnify and reimburse Comm/Net Holding, D.
Somers and each Shareholder for any and all Losses suffered or incurred by
Comm/Net Holding, D. Somers and each Shareholder, its or their successors or
assigns, and their respective officers, employees, consultants and agents (the
"Seller Protected Parties") as a result of, or with respect to (i) any breach
or inaccuracy of any representation or warranty of WAXS or Buyer set forth in
this Agreement or in any certificate or other document delivered pursuant
hereto or in connection herewith, whether such breach or inaccuracy exists or
is made on the date of this Agreement or as of the Closing Date; (ii) any
breach or inaccuracy of any representation or warranty of WAXS or Buyer set
forth in the certificate to be provided to Comm/Net Holding and the
Shareholders pursuant to Section 7.1 hereof, without regard to
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the materiality qualification contained in such certificate; and (iii) any
breach of or noncompliance by WAXS or Buyer with any covenant or agreement of
WAXS or Buyer contained in this Agreement.
9.2 Indemnity Claims.
(a) Survival. The representations and warranties of the parties
hereto contained herein or in any certificate or other document delivered
pursuant hereto or in connection herewith shall not be extinguished by the
Closing but shall survive the Closing, subject to the limitations set forth in
Section 9.2(b) hereof with respect to the time periods within which claims for
indemnity must be asserted, and the covenants and agreements of the parties
contained herein shall survive without limitation as to time except as may be
otherwise specified herein. No investigation or other examination of the
Companies by Buyer, its designees or representatives or of WAXS or Buyer by
Comm/Net Holding, the Shareholders or D. Somers, or their designees or
representatives, shall affect the term of survival of any representation or
warranty contained herein or in any certificate or other document delivered
pursuant hereto or in connection herewith, or the term of the right of the
Buyer Protected Parties or the Seller Protected Parties, as applicable, to seek
indemnification with respect to any of the Surviving Matters (as defined in
subsection 9.2(b) hereof).
(b) Time to Assert Claims. All claims for indemnification
hereunder shall be asserted no later than two (2) years after the Closing Date,
except as follows:
(i) claims by a Buyer Protected Party with respect to
Losses arising out of or related in any way to the matters described in
Sections 9.1(a) (iii), (iv), (v) and (vi) may be made without limitation,
except as limited by law;
(ii) claims by a Buyer Protected Party with respect to
Losses arising out of or related in any way to any breach of or inaccuracy in
the representations and warranties contained in Sections 3.7(b), 3.18 or 3.19
hereof may be made until, and shall be made no later than, thirty (30) days
after the expiration of the applicable statute of limitations relative to the
liability relating to such representation or warranty; and
(iii) claims by a Seller Protected Party with respect to
Losses arising out of or related in any way to the matters described in Section
9(b)(iii) may be made without limitation, except as limited by law.
(The matters cited in clauses (i), (ii) and (iii) above being hereinafter
collectively referred to as the "Surviving Matters").
Nothing herein shall be deemed to prevent Buyer, Comm/Net Holding, the
Shareholders or D. Somers from making a claim for a Loss hereunder for
potential or contingent claims or demands provided the notice of Loss sets
forth the specific basis for any such potential or
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contingent claim or demand to the extent then feasible and the party making the
claim has reasonable grounds to believe that such a claim or demand may become
actual.
9.3 Deductible.
(a) Except for claims made in connection with a breach of the
provisions of Section 11.11 hereof, the Buyer Protected Parties shall make no
claim against Comm/Net Holding, D. Somers or the Shareholders for
indemnification under Section 9.1(a)(i) or (ii) hereof for a breach of
representation or warranty contained herein unless and until the aggregate
amount of such claims exceeds $100,000 (the "Deductible Amount"), in which
event the Buyer Protected Parties may claim indemnification for the amount of
such claims in excess of the Deductible Amount.
(b) Except for claims made in connection with a breach of the
provisions of Section 11.11 hereof, none of the Seller Protected Parties shall
make any claim against Buyer of WAXS for indemnification under Section
9.1(b)(i) or (ii) hereof for a breach of representation or warranty contained
herein unless and until the aggregate amount of such claims exceeds the
Deductible Amount, in which event the Seller Protected Parties may claim
indemnification for the amount of claims in excess of the Deductible Amount.
9.4 Notice of Claim. Buyer, WAXS, Comm/Net Holding, the Shareholders
or D. Somers, as applicable (the "Indemnified Party"), shall notify Comm/Net
Holding, D. Somers, the Shareholders, Buyer or WAXS, as applicable (the
"Indemnifying Party"), in writing, of any claim for indemnification, specifying
in reasonable detail the nature of the Loss, and, if known, the amount, or an
estimate of the amount, of the liability arising therefrom. The Indemnified
Party shall provide to the Indemnifying Party as promptly as practicable
thereafter such information and documentation as may be reasonably requested to
support and verify the claim asserted, so long as such disclosure would not
violate the attorney-client privilege of the Indemnified Party.
9.5 Defense. For purposes of this Section 9.5, a "Protected Party"
shall refer to a Buyer Protected Party or a Seller Protected Party, as
appropriate. If the facts pertaining to a Loss arise out of the claim of any
third party, or if there is any claim against a third party (other than an
Indemnified Party or a Protected Party) available by virtue of the
circumstances of the Loss, the Indemnifying Party may assume the defense or the
prosecution thereof by prompt written notice to the Indemnified Party and the
affected Protected Party, including the employment of counsel or accountants,
at its cost and expense. The Indemnified Party and the affected Protected Party
shall have the right to employ counsel separate from counsel employed by the
Indemnifying Party in any such action and to participate therein, but the fees
and expenses of such counsel employed by the Indemnified Party and the affected
Protected Party shall be at their expense. The Indemnifying Party shall not be
liable for any settlement of any such claim effected without its prior written
consent, which shall not be unreasonably withheld; provided that if the
Indemnifying Party does not
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assume the defense or prosecution of a claim as provided above within thirty
(30) days after notice thereof from any Protected Party, the Indemnified Party
and the affected Protected Party may settle such claim without the Indemnifying
Party's consent. The Indemnifying Party shall not agree to a settlement of any
claim which provides for any relief other than the payment of monetary damages
or which could have a material precedential impact or effect on the business or
financial condition of any Protected Party without the Indemnified Party's and
the affected Protected Party's prior written consent. Whether or not the
Indemnifying Party chooses to so defend or prosecute such claim, all the
parties hereto shall cooperate in the defense or prosecution thereof and shall
furnish such records, information and testimony, and attend such conferences,
discovery proceedings, hearings, trials and appeals, as may be reasonably
requested in connection therewith. The Indemnifying Party shall be subrogated
to all rights and remedies of any Protected Party.
9.6 Satisfaction of Obligations. Subject to the provisions of this
Section 9.6, WAXS shall, at the request of Buyer, pay directly to Buyer the
amounts or obligations otherwise payable or owed with respect to the Preferred
Shares under the Certificate of Designation attached hereto as EXHIBIT A, in
satisfaction of any and all obligations of Comm/Net Holding, D. Somers or the
Shareholders arising under or related to this Agreement (each, a "Seller
Obligation"), including but not limited to, the indemnification obligations set
forth in this Article IX, until such obligations are fully satisfied or
resolved through negotiations between Buyer and the Obligor (as defined
herein). Buyer agrees that any exercise of its rights under this Section 9.6
must be made in good faith. If a Seller Obligation is not fully satisfied or
resolved through negotiations between Buyer and the Obligor within six (6)
months of the date Comm/Net Holding, D. Somers and/or the Shareholders, as
applicable (the "Obligor"), received notice from Buyer of its or their
non-compliance with such obligation (or in the case of a Loss, within six (6)
months of the date the Indemnifying Party was provided notice of such Loss
pursuant to Section 9.4), Buyer shall offer to resolve by arbitration any
disputes between Buyer and the Obligor related to such Seller Obligation. If
the Obligor rejects such offer, Buyer shall continue to hold the applicable
amounts or obligations otherwise payable or owed with respect to the Preferred
Shares until the Seller Obligation is fully satisfied or resolved through
negotiations between Buyer and the Obligor. All arbitration pursuant to this
Section 9.6 shall be before the American Arbitration Association ("AAA") in
accordance with the Commercial Arbitration Rules of the AAA as in effect from
time to time.
ARTICLE X
TERMINATION PRIOR TO CLOSING
10.1 Termination of Agreement. This Agreement may be terminated at any
time prior to the Closing:
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(a) By the mutual written consent of Buyer, WAXS, the
Companies, D. Somers and the Shareholders;
(b) By the Companies, D. Somers and the Shareholders in
writing, without liability, if Buyer or WAXS shall (i) fail to perform in any
material respect its agreements contained herein required to be performed by it
on or prior to the Closing Date, or (ii) materially breach any of its
representations, warranties or covenants contained herein, which failure or
breach is not cured within ten (10) days after the Companies, D. Somers and the
Shareholders have notified Buyer of their intent to terminate this Agreement
pursuant to this subparagraph (b);
(c) By Buyer or WAXS in writing, without liability, if any of
the Companies, D. Somers or any Shareholder shall (i) fail to perform in any
material respect their agreements contained herein required to be performed by
them on or prior to the Closing Date, or (ii) materially breach any of their
representations, warranties or covenants contained herein, which failure or
breach is not cured within ten (10) days after Buyer has notified the
Companies, D. Somers and the Shareholders of its intent to terminate this
Agreement pursuant to this subparagraph (c);
(d) By either the Companies, D. Somers, the Shareholders, Buyer
or WAXS in writing, without liability, if there shall be any order, writ,
injunction or decree of any court or governmental or regulatory agency binding
on Buyer, WAXS, the Shareholders, D. Somers or the Companies, which prohibits
or restrains Buyer, WAXS, the Shareholders, D. Somers or the Company from
consummating the transactions contemplated hereby, provided that Buyer, WAXS,
the Shareholders, D. Somers and the Companies shall have used their reasonable,
good faith efforts to have any such order, writ, injunction or decree lifted
and the same shall not have been lifted within 30 days after entry, by any such
court or governmental or regulatory agency;
(e) By either the Companies, the Shareholders, D. Somers, Buyer
or WAXS in writing, without liability, if for any reason the Closing has not
occurred by August 31, 1999, other than as a result of the breach of this
Agreement by the party attempting to terminate the Agreement; or
(f) By Buyer or WAXS in writing, without liability, pursuant to
Section 6.7 hereof.
10.2 Termination of Obligations. Termination of this Agreement
pursuant to this Article X shall terminate all obligations of the parties
hereunder, except for the obligations under Sections 6.2, 10.2, 11.9 and 11.13
hereof; provided, however, that termination pursuant to subparagraphs (b), (c),
(e) or (f) of Section 10.1 hereof shall not relieve a defaulting or breaching
party from any liability to the other party hereto.
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ARTICLE XI
MISCELLANEOUS
11.1 Bulk Sales Law. Buyer hereby waives compliance by Comm/Net
Holding with the provisions of the bulk sales law of any state, and Comm/Net
Holding covenants and agrees to pay and discharge when due all claims of
creditors which could be asserted against Buyer or WAXS by reason of such
non-compliance to the extent such liabilities are not assumed by Buyer under
this Agreement.
11.2 No Liens Created. This Agreement shall not be construed to create
any lien or encumbrance on any of the Assets, or to create any rights in any
third persons.
11.3 Entire Agreement. This Agreement (including the Schedules and
Exhibits) constitutes the sole understanding of the parties with respect to the
subject matter hereof; provided, however, that this provision is not intended
to abrogate any other written agreement between the parties executed with or
after this Agreement.
11.4 Amendment. No amendment, modification or alteration of the terms
or provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
11.5 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof. Without the prior written consent of Buyer, neither the Shareholders
nor D. Somers nor the Companies may assign their rights, duties or obligations
hereunder or any part thereof to any other person or entity. Buyer may assign
its rights and duties hereunder in whole or in part (before or after the
Closing) to one or more affiliates but if it does so, it shall remain liable
for all Buyer's obligations hereunder.
11.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
11.7 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
11.8 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled
to the benefits thereof.
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No waiver of any of the provisions of this Agreement shall be deemed to or
shall constitute a waiver of any other provision hereof (whether or not
similar).
11.9 Expenses. Except as otherwise provided herein, (a) the
Shareholders, on their behalf and on behalf of the Companies, shall pay all
costs and expenses incurred by each of them or the Companies, or on their
behalf, and (b) WAXS and Buyer shall pay all costs and expenses incurred by
each of them or on their behalf, in each case in connection with this Agreement
and the transactions contemplated hereby, including fees and expenses of their
own brokers, financial consultants, accountants and counsel. Furthermore, the
Shareholders agree that any cost or expense which they have agreed to pay (on
their behalf or on behalf of the Companies) or which has been allocated to them
under this Agreement shall be paid using personal funds and not the funds of
the Companies; provided, however, that the Shareholders shall be entitled to
use Company funds for the payment of all reasonable accountants' expenses
incurred in connection with the preparation of the 1998 Audited Financial
Statements.
11.10 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally (including by overnight courier or express
mail service) or sent by registered or certified mail, postage or fees prepaid,
if to the Shareholders, D. Somers or the Companies to:
Comm/Net Holding Corporation
2301 Ohio Drive, Suite 285
Plano, Texas 75093
Attention: Gregory A. Somers
with a copy to:
B. Bruce Johnson, Esq.
5550 LBJ Freeway, Suite 550
Dallas, Texas 75240
if to Buyer or WAXS to:
World Access, Inc.
945 E. Paces Ferry Road, Suite 2200
Atlanta, Georgia 30326
Attention: W. Tod Chmar
with a copy to:
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Long Aldridge & Norman LLP
Suite 5300
303 Peachtree Street
Atlanta, Georgia 30308
Attention: H. Franklin Layson, Esq.
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon actual
receipt by such party or the office of such party. Any notice which is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the fourth business day
after the day it is so placed in the mail or, if earlier, the time of actual
receipt.
11.11 Brokerage. Except as set forth on SCHEDULE 11.11(A) (in the case
of the Companies, the Shareholders and D. Somers) or SCHEDULE 11.11(B) (in the
case of WAXS and Buyer), the Companies, the Shareholders, D. Somers, WAXS and
Buyer do hereby expressly warrant and represent, each to the other, that no
broker, agent, or finder has rendered services in connection with the
transactions contemplated under this Agreement. D. Somers, the Companies and
the Shareholders hereby jointly and severally indemnify and agree to hold
harmless Buyer and WAXS from and against any and all losses, costs, damages,
and expenses (including reasonable attorneys' fees) arising or resulting, or
sustained or incurred by Buyer or WAXS, by reason of any claim by any broker,
agent, finder, or other person or entity based upon any arrangement or
agreement made or alleged to have been made by the Companies, the Shareholders
and D. Somers in connection with the transactions contemplated under this
Agreement. WAXS and Buyer do hereby jointly and severally indemnify and agree
to hold harmless the Companies, D. Somers and the Shareholders from and against
any and all losses, costs, damages, and expenses (including reasonable
attorneys' fees) arising or resulting, or sustained or incurred by the
Companies, D. Somers and the Shareholders, by reason of any claim by any
broker, agent, finder, or other person or entity based upon any arrangement or
agreement made or alleged to have been made by Buyer in connection with the
transactions contemplated under this Agreement.
11.12 Governing Law. This Agreement is executed by Buyer in, and shall
be construed in accordance with and governed by the laws of the State of
Georgia without giving effect to the principles of conflicts of law thereof.
11.13 Public Announcements. No public announcement shall be made by any
person with regard to the transactions contemplated by this Agreement without
the prior consent of the parties hereto; provided that any party may make such
disclosure if advised by counsel that it is legally required to do so. The
parties will discuss any public announcements or disclosures concerning the
transactions contemplated by this Agreement with the other parties prior to
making such announcements or disclosures.
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11.14 Shareholders' and the Company's Knowledge. As used herein, the
terms "the Shareholders' knowledge" and "to the knowledge of the Shareholders"
with respect to Shareholders shall mean the knowledge of any Shareholder (and
where Shareholder is a corporation any director or officer of Shareholder), and
the terms "the Companies' knowledge" or "to the knowledge of the Company" shall
mean the knowledge of any Shareholder, director or officer of Comm/Net Holding,
Encom, LDEC or Comm/Net Services, as the case may be, or any Subsidiary
thereof.
11.15 No Third-Party Beneficiaries. With the exception of the parties
to this Agreement, the Buyer Protected Parties and the Seller Protected
Parties, there shall exist no right of any person to claim a beneficial
interest in this Agreement or any rights occurring by virtue of this Agreement.
11.16 "Including." Words of inclusion shall not be construed as terms
of limitation herein, so that references to "included" matters shall be
regarded as non-exclusive, non-characterizing illustrations.
11.17 Schedules and Exhibits. Each of the Schedules and Exhibits
referred to in this Agreement are and shall be incorporated herein and made a
part hereof.
11.18 Buyer's Receipt of Preferred Shares. Pursuant to the plan of
reorganization set forth in this Agreement, and in a transfer by WAXS to Buyer
intended by WAXS to come under Section 351 of the Code, WAXS shall transfer to
Buyer a certificate or certificates representing the requisite number of
Preferred Shares needed by Buyer which upon such receipt from WAXS, Buyer shall
immediately deliver to Comm/Net Holding to satisfy its obligations under this
Agreement.
(Signatures appear on following pages)
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<PAGE> 44
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be duly executed on its behalf as of the date indicated on the
first page hereof.
BUYER:
WA Telcom Products Co., Inc.
By: /s/ A. Lindsay Wallace
---------------------------------------
Name: A. Lindsay Wallace
----------------------------------
Title:
---------------------------------
WAXS:
World Access, Inc.
By: /s/ W. Tod Chmar
---------------------------------------
Name: W. Tod Chmar
----------------------------------
Title: Executive V.P.
---------------------------------
SHAREHOLDERS:
/s/ Gregory A. Somers
------------------------------------------
Gregory A. Somers
/s/ Kelli J. Somers
------------------------------------------
Kelli J. Somers
/s/ R. Scott Birdwell
------------------------------------------
R. Scott Birdwell
/s/ Jeff Becker
------------------------------------------
Jeff Becker
/s/ Michael Billingsley
------------------------------------------
Michael Billingsley
/s/ Chris Johns
------------------------------------------
Chris Johns
44
<PAGE> 45
Teleplus Telecommunications, Inc.
By: /s/ Denny Somers
---------------------------------------
Name: Denny Somers
----------------------------------
Title: President
---------------------------------
THE COMPANIES:
Comm/Net Holding Corporation
By: /s/ Gregory A. Somers
---------------------------------------
Name: Gregory A. Somers
----------------------------------
Title: President
---------------------------------
Long Distance Exchange Corporation
By: /s/ Gregory A. Somers
---------------------------------------
Name: Gregory A. Somers
----------------------------------
Title: President
---------------------------------
Enhanced Communications Corporation
By: /s/ R. Scott Birdwell
---------------------------------------
Name: R. Scott Birdwell
----------------------------------
Title: President
---------------------------------
Comm/Net Services Corporation
By: /s/ Gregory A. Somers
---------------------------------------
Name: Gregory A. Somers
----------------------------------
Title: President
---------------------------------
D. SOMERS:
/s/ Denny D. Somers
-------------------------------------
Denny D. Somers
45
<PAGE> 1
EXHIBIT 4.1
WORLD ACCESS, INC.
CERTIFICATE OF DESIGNATION OF
4.25% CUMULATIVE JUNIOR CONVERTIBLE
PREFERRED STOCK, SERIES B, SETTING FORTH THE POWERS,
PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND
RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCK
Pursuant to Section 151 of the Delaware General Corporation
Law, World Access, Inc., a Delaware corporation (the "Corporation"), DOES HEREBY
CERTIFY:
That pursuant to the authority conferred upon the Board of
Directors of the Corporation by the Certificate of Incorporation of the
Corporation (the "Charter"), the Board of Directors of the Corporation on May
24, 1999 (the "Adoption Date") duly adopted the following resolution creating a
series of Preferred Stock designated as 4.25% Cumulative Junior Convertible
Preferred Stock, Series B, and such resolution has not been modified and is in
full force and effect on the date hereof:
RESOLVED that, pursuant to the authority vested in the Board
of Directors of the Corporation in accordance with the provisions of the
Charter, a series of the class of authorized Preferred Stock, par value $0.01
per share, of the Corporation is hereby created and that the designation and
number of shares thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations and restrictions thereof are as follows:
Section 1. Designation and Number.
(a) The shares of such series shall be designated as 4.25%
Cumulative Junior Convertible Preferred Stock, Series B (the "Preferred Stock").
The number of shares initially constituting the Preferred Stock shall be 23,174,
which number may be decreased (but not increased) by the Board of Directors
without a vote of stockholders; provided, however, that such number may not be
decreased below the number of then outstanding shares of Preferred Stock.
(b) The Preferred Stock shall, with respect to dividend rights
and rights on liquidation, dissolution or winding up, rank (i) prior to all
other classes and series of Junior Stock (as defined below) of the Corporation
now or hereafter authorized including, without limitation, the Common Stock, and
(ii) junior to the 4.25% Cumulative Senior Perpetual Convertible Preferred
Stock, Series A, and all other classes and series of Senior Stock.
(c) Capitalized terms used herein and not otherwise defined
shall have the meanings set forth in Section 12 below.
<PAGE> 2
Section 2. Dividends and Distributions.
(a) The holders of shares of Preferred Stock, in preference to
the holders of shares of Common Stock and of any shares of other Junior Stock of
the Corporation, shall be entitled to receive, when, as and if declared by the
Board of Directors, out of the assets of the Corporation legally available
therefor, cumulative cash dividends at an annual rate on the Liquidation
Preference thereof equal to 4.25%, calculated on the basis of a 360-day year
consisting of twelve 30-day months, accruing and payable in equal quarterly
payments, in immediately available funds, on the last day of March, June,
September and December or, if any such day is not a Business Day, the next
succeeding Business Day, in each year (each such date being referred to herein
as a "Quarterly Dividend Payment Date"), commencing September 30, 1999.
(b) If as of any Quarterly Dividend Payment Date there is a
Dividend Arrearage (as hereinafter defined), an additional dividend (the
"Additional Dividend") shall accrue on each share of the Preferred Stock for the
period from such Quarterly Dividend Payment Date through the earlier of (x) the
date on which such Dividend Arrearage is paid in full and (y) the next
succeeding Quarterly Dividend Payment Date, in an amount equal to the product of
(i) the dividend rate (calculated for such period in accordance with Section
2(a)) and (ii) the amount of such Dividend Arrearage as of such Quarterly
Dividend Payment Date. For purposes of this Section 2(b), "Dividend Arrearage"
shall mean, with respect to each share of Preferred Stock, as of any Quarterly
Dividend Payment Date, the excess, if any of (i) the sum of all dividends
theretofore accrued on such share in accordance with Section 2(a) (including
those accrued as of and including such Quarterly Dividend Payment Date) plus all
Additional Dividends, if any, theretofore accrued on such share in accordance
with this Section 2(b) (including those accrued as of and including such
Quarterly Dividend Payment Date), over (ii) all dividends actually paid with
respect to such share on or before such Quarterly Dividend Payment Date. Except
as provided in this Section 2(b) no dividend shall accrue and no other sums
shall be payable with respect to any Dividend Arrearage.
(c) Dividends payable pursuant to Section 2(a) shall begin to
accrue and be cumulative from the Issue Date, and shall accrue on a daily basis,
in each case whether or not declared. Dividends paid on the shares of Preferred
Stock in an amount less than the total amount of such dividends at the time
accrued and payable on such shares shall be allocated pro rata on a
share-by-share basis among all such shares of Preferred Stock at the time
outstanding. The Board of Directors may fix a record date for the determination
of holders of shares of Preferred Stock entitled to receive payment of a
dividend declared thereon, which record date shall be no more than sixty (60)
days or less than ten (10) days prior to the date fixed for the payment thereof.
Accumulated but unpaid dividends for any past quarterly dividend periods may be
declared and paid at any time, without reference to any regular Quarterly
Dividend Payment Date, to holders of record on such date, not more than sixty
(60) nor less than ten (10) days preceding the payment date thereof, as may be
fixed by the Board of Directors.
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<PAGE> 3
(d) The holders of shares of Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3. Voting Rights.
In addition to any voting rights provided by law, so long as
the Preferred Stock is outstanding, each share of Preferred Stock shall entitle
the holder thereof to vote, in person or by proxy, at a special or annual
meeting of stockholders, on all matters voted on by holders of Common Stock
voting together as a single class with other shares entitled to vote thereon.
With respect to any such vote, each share of Preferred Stock shall entitle the
holder thereof to cast that number of votes per share as is equal to the number
of votes that such holder would be entitled to cast had such holder converted
his shares of Preferred Stock into Common Stock on the record date for
determining the stockholders of the Corporation eligible to vote on any such
matters.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends payable on shares of
Preferred Stock as provided in Section 2(a) are not paid in full, at such time
and thereafter until all unpaid dividends payable, whether or not declared, on
the outstanding shares of Preferred Stock shall have been paid in full or
declared and set apart for payment, or whenever the Corporation shall not have
converted or exchanged shares of Preferred Stock at a time required by Section
8, 9 or 10, at such time and thereafter until all conversion and exchange
obligations provided in Section 8, 9 or 10 that have come due shall have been
satisfied or all necessary funds have been set apart for payment, the
Corporation shall not: (A) declare or pay dividends, or make any other
distributions, on any shares of Junior Stock or (B) declare or pay dividends, or
make any other distributions, on any shares of Parity Stock, except dividends or
distributions paid ratably on the Preferred Stock and all Parity Stock on which
dividends are payable or in arrears, in proportion to the total amounts to which
the holders of all shares of the Preferred Stock and such Parity Stock are then
entitled.
(b) Whenever dividends payable on shares of Preferred Stock as
provided in Section 2(a) are not paid in full, at such time and thereafter until
all unpaid dividends payable, whether or not declared, on the outstanding shares
of Preferred Stock shall have been paid in full or declared and set apart for
payment, or whenever the Corporation shall not have converted or exchanged
shares of Preferred Stock at a time required by Section 8, 9 or 10, at such time
and thereafter until all conversion and exchange obligations provided in Section
8, 9 or 10 that have come due shall have been satisfied or all necessary funds
have been set apart for payment, the Corporation shall not redeem, purchase or
otherwise acquire for consideration any shares of Junior Stock or Parity Stock;
provided, however, that (A) the Corporation may accept shares of any Senior
Stock, Parity Stock or Junior Stock for conversion into Junior Stock and (B) the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
Parity Stock pursuant to any mandatory redemption, put, sinking fund or other
similar obligation contained in such Parity Stock, pro rata with the
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<PAGE> 4
Preferred Stock in proportion to the total amount then required to be applied by
the Corporation to redeem, repurchase, convert, exchange or otherwise acquire
shares of Preferred Stock and shares of such Parity Stock.
(c) The Corporation shall not permit any Subsidiary of the
Corporation, or cause any other Person, to purchase or otherwise acquire for
consideration any shares of capital stock of the Corporation unless the
Corporation could, pursuant to Section 4(b), purchase such shares at such time
and in such manner.
Section 5. Redemption.
(a) Except as otherwise set forth in this Section 5, the
Corporation shall not have any right to redeem any shares of Preferred Stock
prior to June 30, 2004. On and after June 30, 2004, the Corporation shall have
the right, at its sole option and election, to redeem the shares of Preferred
Stock, in whole or in part, on not less than ninety (90) days notice of the date
of redemption (any such date an "Optional Redemption Date") at a price per share
(the "Optional Redemption Price") equal to (A) the Liquidation Preference plus
(B) an amount per share equal to all accrued and unpaid dividends thereon,
whether or not declared or payable, to the applicable Optional Redemption Date,
in immediately available funds.
(b) Notice of any redemption of shares of Preferred Stock
pursuant to Section 5(a) shall be mailed at least ten (10), but not more than
sixty (60), days prior to the applicable Optional Redemption Date to each holder
of shares of Preferred Stock to be redeemed, at such holder's address as it
appears on the transfer books of the Corporation. In order to facilitate the
redemption of shares of Preferred Stock, the Board of Directors may fix a record
date for the determination of shares of Preferred Stock to be redeemed, or may
cause the transfer books of the Corporation for the Preferred Stock to be
closed, not more than sixty (60) days or less than ten (10) days prior to the
applicable Optional Redemption Date.
(c) Notice of redemption having been given as aforesaid,
notwithstanding that any certificates for such shares shall not have been
surrendered for cancellation, from and after the Optional Redemption Date
designated in the notice of redemption (i) the shares represented thereby shall
no longer be deemed outstanding, (ii) the rights to receive dividends thereon
shall cease to accrue and (iii) all rights of the holders of shares of Preferred
Stock to be redeemed shall cease and terminate, excepting only the right to
receive the Optional Redemption Price therefor and the right to convert such
shares into shares of Common Stock until the close of business on such Optional
Redemption Date, in accordance with Section 8.
Section 6. Reacquired Shares.
Any shares of Preferred Stock converted, exchanged, redeemed,
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares of Preferred Stock shall
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<PAGE> 5
upon their cancellation become authorized but unissued shares of preferred
stock, par value $.01 per share, of the Corporation and, upon the filing of an
appropriate Certificate of Designation with the Secretary of State of the State
of Delaware, may be reissued as part of another series of preferred stock, par
value $.01 per share, of the Corporation subject to the conditions or
restrictions on issuance set forth therein, but in any event may not be reissued
as shares of Preferred Stock or other Parity Stock unless all shares of the
Preferred Stock issued on the Issue Date shall have already been redeemed,
converted or exchanged.
Section 7. Liquidation, Dissolution or Winding Up.
(a) If the Corporation shall commence a voluntary case under
the United States bankruptcy laws or any applicable bankruptcy, insolvency or
similar law of any other country, or consent to the entry of an order for relief
in an involuntary case under any such law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the United States
bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any
other country, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and on account of any such event the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up, no distribution shall be made:
(i) to the holders of shares of Junior Stock unless,
prior thereto, the holders of shares of Preferred Stock, subject to Section 8,
shall have received the Liquidation Preference, plus all accrued and unpaid
dividends, whether or not declared or currently payable, to the date of
distribution, with respect to each share, or
(ii) to the holders of shares of Parity Stock, except
distributions made ratably on the Preferred Stock and all other Parity Stock in
proportion to the total amounts to which the holders of all shares of the
Preferred Stock and other Parity Stock are entitled upon such liquidation,
dissolution or winding up.
(b) Neither the consolidation or merger of the Corporation
with or into any other Person nor the sale or other distribution to another
Person of all or substantially all the assets, property or business of the
Corporation shall be deemed to be a liquidation, dissolution or winding up of
the Corporation for purposes of this Section 7.
Section 8. Voluntary Conversion.
(a) Any holder of Preferred Stock shall have the right, at its
option, at any time and from time to time, to convert, subject to the terms and
provisions of this Section 8, any or all of such holder's shares of Preferred
Stock into such number of fully paid and non-
5
<PAGE> 6
assessable shares of Common Stock as is equal, subject to Section 8(g), to the
product of the number of shares of Preferred Stock being so converted multiplied
by the quotient of (i) the Liquidation Preference divided by (ii) the Conversion
Price (as defined below) then in effect, except that with respect to any shares
which shall be called for exchange or redemption, such right shall terminate at
the close of business on the date of exchange or redemption for such shares,
unless in any such case the Corporation shall default in performance or payment
due upon exchange or redemption thereof. Such conversion right shall be
exercised by the surrender of the shares to be converted to the Corporation at
any time during usual business hours at its principal place of business to be
maintained by it, accompanied by written notice that the holder elects to
convert such Shares and (if so required by the Corporation) by a written
instrument or instruments of transfer in form reasonably satisfactory to the
Corporation duly executed by the holder or its duly authorized legal
representative and transfer tax stamps or funds therefor, if required pursuant
to Section 8(k). All shares of Preferred Stock surrendered for conversion shall
be delivered to the Corporation for cancellation and canceled by it and no
shares of Preferred Stock shall be issued in lieu thereof.
(b) As promptly as practicable after the surrender, as herein
provided, of any shares of Preferred Stock for conversion pursuant to Section
8(a), the Corporation shall deliver to or upon the written order of the holder
of such shares so surrendered a certificate or certificates representing the
number of fully paid and non-assessable shares of Common Stock into which such
shares of Preferred Stock have been converted in accordance with the provisions
of this Section 8. Subject to the following provisions of this paragraph and of
Section 8(d), such conversion shall be deemed to have been made immediately
prior to the close of business on the date that such shares of Preferred Stock
shall have been surrendered in satisfactory form for conversion, and the
converting holder of shares of Preferred Stock shall be treated for all purposes
as having become the record holder of such Common Stock at such time, and such
conversion shall be at the Conversion Price in effect at such time; provided,
however, that no surrender shall be effective to constitute the converting
holder of shares of Preferred Stock as the record holder of such Common Stock
while the share transfer books of the Corporation shall be closed (but not for
any period in excess of five (5) days), but such surrender shall be effective to
constitute the converting holder of shares of Preferred Stock as the record
holder thereof for all purposes immediately prior to the close of business on
the next succeeding day on which such share transfer books are open, and such
conversion shall be deemed to have been made at, and shall be made at the
Conversion Price in effect at, such time on such next succeeding day.
(c) To the extent permitted by law, when shares of Preferred
Stock are converted, all dividends accrued and unpaid (whether or not declared
or currently payable) on the Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the shares of
Common Stock issued upon such conversion.
(d) The Conversion Price (and the price at which a share of
Common Stock is valued pursuant to Section 9(a) or Section 10) shall be subject
to adjustment as follows:
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<PAGE> 7
(i) In case the Corporation shall at any time or from
time to time (A) pay a dividend or make a distribution on the outstanding shares
of Common Stock in capital stock (which, for purposes of this Section 8(d) shall
include, without limitation, any options, warrants or other rights to acquire
capital stock) of the Corporation, (B) subdivide the outstanding shares of
Common Stock into a larger number of shares, (C) combine the outstanding shares
of Common Stock into a smaller number of shares, (D) issue any shares of its
capital stock in a reclassification of the Common Stock or (E) pay a dividend or
make a distribution on the outstanding shares of Common Stock in securities of
the Corporation pursuant to a shareholder rights plan, "poison pill" or similar
arrangement, then, and in each such case, the Conversion Price in effect
immediately prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Corporation) so that the holder of any share of
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive the number of shares of Common Stock or other securities of the
Corporation that such holder would have owned or would have been entitled to
receive upon or by reason of any of the events described above, had such share
of Preferred Stock been converted immediately prior to the occurrence of such
event. An adjustment made pursuant to this Section 8(d)(i) shall become
effective retroactively (A) in the case of any such dividend or distribution, to
a date immediately following the close of business on the record date for the
determination of holders of Common Stock entitled to receive such dividend or
distribution or (B) in the case of any such subdivision, combination or
reclassification, to the close of business on the day upon which such corporate
action becomes effective.
(ii) In case the Corporation shall at any time or from
time to time issue shares of Common Stock (or securities convertible into or
exchangeable for Common Stock, or any options, warrants or other rights to
acquire shares of Common Stock) for a consideration per share less than the
lower of the (A) Current Market Price per share of Common Stock or (B) Market
Price per share of Common Stock then in effect at the record date or issuance
date, as the case may be (the "Date"), referred to in the following sentence
(treating the price per share of any security convertible or exchangeable or
exercisable into Common Stock as equal to (A) the sum of the price for such
security convertible, exchangeable or exercisable into Common Stock plus any
additional consideration payable (without regard to any anti-dilution
adjustments) upon the conversion, exchange or exercise of such security into
Common Stock divided by (B) the number of shares of Common Stock initially
underlying such convertible, exchangeable or exercisable security), then, and in
each such case, the Conversion Price then in effect shall be adjusted by
dividing the Conversion Price in effect on the day immediately prior to the Date
by a fraction (x) the numerator of which shall be the sum of the number of
shares of Common Stock outstanding on the Date plus the number of additional
shares of Common Stock issued or to be issued (or the maximum number into which
such convertible or exchangeable securities initially may convert or exchange or
for which such options, warrants or other rights initially may be exercised) and
(y) the denominator of which shall be the sum of the number of shares of Common
Stock outstanding on the Date plus the number of shares of Common Stock which
the aggregate consideration for the total number of such additional shares of
Common Stock so issued or to be issued upon the conversion, exchange or exercise
of such convertible or exchangeable securities or options, warrants or other
rights (plus the aggregate amount of any
7
<PAGE> 8
additional consideration initially payable upon such conversion, exchange or
exercise of such security) would purchase at the Current Market Price or the
Market Price, as applicable.
Such adjustment shall be made whenever such shares, securities, options,
warrants or other rights are issued, and shall become effective retroactively to
a date immediately following the close of business (1) in the case of issuance
to stockholders of the Corporation, as such, on the record date for the
determination of stockholders entitled to receive such shares, securities,
options, warrants or other rights and (2) in all other cases, on the date
("issuance date") of such issuance; provided that:
(A) the determination as to whether an adjustment
is required to be made pursuant to this Section 8(d)(ii) shall be made upon the
issuance of such shares or such convertible or exchangeable securities, options,
warrants or other rights;
(B) if any convertible or exchangeable securities,
options, warrants or other rights (or any portions thereof) which shall have
given rise to an adjustment pursuant to this Section 8(d)(ii) shall have expired
or terminated without the exercise thereof and/or if by reason of the terms of
such convertible or exchangeable securities, options, warrants or other rights
there shall have been an increase or increases, with the passage of time or
otherwise, in the price payable upon the exercise or conversion thereof, then
the Conversion Price hereunder shall be readjusted (but to no greater extent
than originally adjusted) on the basis of (x) eliminating from the computation
any additional shares of Common Stock corresponding to such convertible or
exchangeable securities, options, warrants or other rights as shall have expired
or terminated, (y) treating the additional shares of Common Stock, if any,
actually issued or issuable pursuant to the previous exercise of such
convertible or exchangeable securities, options, warrants or other rights as
having been issued for the consideration actually received and receivable
therefor and (z) treating any of such convertible or exchangeable securities,
options, warrants or other rights which remain outstanding as being subject to
exercise or conversion on the basis of such exercise or conversion price as
shall be in effect at this time; and
(C) no adjustment in the Conversion Price shall be
made pursuant to this Section 8(d)(ii) as a result of any issuance of securities
by the Corporation in respect of which an adjustment to the Conversion Price is
made pursuant to Section 8(d)(i).
(iii) In case the Corporation shall at any time or from
time to time distribute to all holders of shares of its Common Stock (including
any such distribution made in connection with a consolidation or merger in which
the Corporation is the resulting or surviving corporation and the Common Stock
is not changed or exchanged) cash, evidences of indebtedness of the Corporation
or another issuer, securities of the Corporation or another issuer or other
assets (excluding dividends payable in shares of Common Stock for which
adjustment is made under Section 8(d)(i)) or rights or warrants to subscribe for
or purchase securities of the Corporation (excluding those referred to in
Section 8(d)(ii) or those in respect of which an adjustment in the Conversion
Price is made pursuant to Section 8(d)(i) or (ii)), then, and in each such case,
the Conversion Price then in effect shall be adjusted by
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<PAGE> 9
dividing the Conversion Price in effect immediately prior to the date of such
distribution by a fraction (x) the numerator of which shall be the Market Price
of the Common Stock on the record date referred to below and (y) the denominator
of which shall be such Market Price of the Common Stock less the then Fair
Market Value (as determined by the Board of Directors of the Corporation) of the
portion of the cash, evidences of indebtedness, securities or other assets so
distributed or of such subscription rights or warrants applicable to one share
of Common Stock (but such denominator not to be less than one). Such adjustment
shall be made whenever any such distribution is made and shall become effective
retroactively to a date immediately following the close of business on the
record date for the determination of stockholders entitled to receive such
distribution.
(iv) In case the Corporation, at any time or from
time to time, shall take any action affecting its Common Stock similar to or
having an effect similar to any of the actions described in any of Section
8(d)(i) through Section 8(d)(iii), inclusive, or Section 8(h) (but not including
any action described in any such Section) and the Board of Directors of the
Corporation in good faith determines that it would be equitable in the
circumstances to decrease the Conversion Price as a result of such action, then,
and in each such case, the Conversion Price shall be decreased in such manner
and at such time as the Board of Directors of the Corporation in good faith
determines would be equitable in the circumstances (such determination to be
evidenced in a resolution, a certified copy of which shall be mailed to the
holders of the Preferred Stock).
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 8(d) need be made to the Conversion Price unless
such adjustment would require an increase or decrease of at least $0.05 in the
Conversion Price then in effect. Any lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment, which, together with any adjustment or adjustments so carried
forward, shall amount to an increase or decrease of at least $0.05 in such
Conversion Price. Any adjustment to the Conversion Price carried forward and not
theretofore made shall be made immediately prior to the conversion of any shares
of Preferred Stock pursuant hereto.
(vi) Notwithstanding anything herein to the contrary, no
adjustment under this Section 8(d) shall be made upon (A) the grant of not more
than 2,000,000 options to employees or directors of the Corporation pursuant to
benefit plans approved by the Board of Directors of the Corporation or upon the
issuance of shares of Common Stock upon exercise of such options, (B) the
issuance of any Common Stock (or securities convertible into or exchangeable for
capital stock or options, warrants or other rights to acquire capital stock) in
exchange for professional or other services rendered to the Corporation up to a
maximum of 500,000 shares of Common Stock per annum, but no more than 1,000,000
shares of Common Stock in the aggregate, (C) the issuance of any Common Stock
pursuant to this Certificate, or (D) the sale of Common Stock by the Corporation
in an underwritten public offering.
(e) If the Corporation shall take a record of the holders of
its Common Stock for the purpose of entitling them to receive a dividend or
other distribution, and shall
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<PAGE> 10
thereafter and before the distribution to stockholders thereof legally abandon
its plan to pay or deliver such dividend or distribution, then thereafter no
adjustment in the Conversion Price then in effect shall be required by reason of
the taking of such record.
(f) Upon any increase or decrease in the Conversion Price,
then, and in each such case, the Corporation promptly shall deliver to each
registered holder of Preferred Stock a certificate, signed by the President or a
Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary
or an Assistant Secretary of the Corporation, setting forth in reasonable detail
the event requiring the adjustment and the method by which such adjustment was
calculated and specifying the increased or decreased Conversion Price then in
effect following such adjustment.
(g) No fractional shares or scrip representing fractional
shares shall be issued upon the conversion of any shares of Preferred Stock. If
more than one share of Preferred Stock shall be surrendered for conversion at
one time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Preferred Stock so surrendered. If the conversion of any share or
shares of Preferred Stock results in a fraction, an amount equal to such
fraction multiplied by the Market Price of the Common Stock on the Business Day
preceding the day of conversion shall be paid to such holder in cash by the
Corporation.
(h) In case of any capital reorganization or reclassification
or other change of outstanding shares of Common Stock (other than a change in
par value, or from par value to no par value, or from no par value to par
value), or in case of any consolidation or merger of the Corporation with or
into another Person (other than a consolidation or merger in which the
Corporation is the resulting or surviving Person and which does not result in
any reclassification or change of outstanding Common Stock) (any of the
foregoing, a "Transaction"), the Corporation, or such successor or purchasing
Person, as the case may be, shall execute and deliver to each holder of
Preferred Stock at least ten (10) Business Days prior to effecting any of the
foregoing Transactions a certificate that the holder of each share of Preferred
Stock then outstanding shall have the right thereafter to convert such share of
Preferred Stock into the kind and amount of shares of stock or other securities
(of the Corporation or another issuer) or property or cash receivable upon such
Transaction by a holder of the number of shares of Common Stock into which such
share of Preferred Stock could have been converted immediately prior to such
Transaction. Such certificate shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 8. If, in the case of any such Transaction, the stock, other securities,
cash or property receivable thereupon by a holder of Common Stock includes
shares of stock or other securities of a Person other than the successor or
purchasing Person and other than the Corporation, which controls or is
controlled by the successor or purchasing Person or which, in connection with
such Transaction, issues stock, securities, other property or cash to holders of
Common Stock, then such certificate also shall be executed by such Person, and
such Person shall, in such certificate, specifically acknowledge the obligations
of such successor or purchasing Person and acknowledge its obligations to issue
such stock, securities, other property or cash to the holders of Preferred Stock
upon conversion of the shares of Preferred Stock as provided above. The
provisions of this
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Section 8(h) and any equivalent thereof in any such certificate similarly shall
apply to successive Transactions.
(i) In case at any time or from time to time:
(i) the Corporation shall declare a dividend (or any
other distribution) on its Common Stock;
(ii) the Corporation shall authorize the granting to the
holders of its Common Stock of rights or warrants to subscribe for or purchase
any shares of stock of any class or of any other rights or warrants;
(iii) there shall be any reclassification of the
Common Stock, or any consolidation or merger to which the Corporation is a party
and for which approval of any shareholders of the Corporation is required, or
any sale or other disposition of all or substantially all of the assets of the
Corporation; or
(iv) there shall be any voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation shall mail to each holder of shares of Preferred Stock at
such holder's address as it appears on the transfer books of the Corporation, as
promptly as possible but in any event at least ten (10) days prior to the
applicable date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution or rights
or warrants or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend, distribution or
rights are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, conveyance, dissolution, liquidation or winding up
is expected to become effective. Such notice also shall specify the date as of
which it is expected that holders of Common Stock of record shall be entitled to
exchange their Common Stock for shares of stock or other securities or property
or cash deliverable upon such reclassification, consolidation, merger, sale,
conveyance, dissolution, liquidation or winding up.
(j) The Corporation shall at all times reserve and keep
available for issuance upon the conversion or exchange of the Preferred Stock
pursuant to Section 8(a), 9(a) or 10(a), such number of its authorized but
unissued shares of Common Stock as will from time to time be sufficient to
permit the conversion of all outstanding shares of Preferred Stock, and shall
take all action required to increase the authorized number of shares of Common
Stock if at any time there shall be insufficient authorized but unissued shares
of Common Stock to permit such reservation or to permit the conversion of all
outstanding shares of Preferred Stock.
(k) The issuance or delivery of certificates for Common Stock
upon the conversion or exchange of shares of Preferred Stock pursuant to Section
8(a), 9(a) or 10(a) shall be made without charge to the converting holder of
shares of Preferred Stock for such certificates or for any tax in respect of the
issuance or delivery of such certificates or the
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securities represented thereby, and such certificates shall be issued or
delivered in the respective names of the holders of the shares of Preferred
Stock converted.
Section 9. Mandatory Exchange.
(a) If at any time on or after the fifth anniversary of the
Issue Date to and including the tenth anniversary of the Issue Date, the holders
of more than 50% of the shares of Preferred Stock shall deliver to the
Corporation a notice demanding that the Corporation exchange the shares of
Preferred Stock pursuant to this Section 9, then the Corporation shall exchange
all (but not less than all) of the outstanding shares of Preferred Stock for
shares of Common Stock no later than the fortieth day following the date of such
notice (the "Demand Notice Date") on thirty (30) days notice of such date of
exchange (the "Mandatory Exchange Date"), at a price per share equal (subject to
Section 8(g)) to (i) the Liquidation Preference plus (ii) an amount per share
equal to all accrued and unpaid dividends thereon, whether or not declared or
currently payable, to the Mandatory Exchange Date. Any shares of Common Stock to
be issued pursuant to this Section 9(a) shall be valued for such purpose at
ninety-five percent (95%) of the average Market Price as of the ten (10)
consecutive Trading Days immediately preceding the Mandatory Exchange Date. For
all exchanges:
(I) any shares of Common Stock to be exchanged shall in
no event be valued at more than the Conversion Price then in effect; and
(II) if less than all shares of Preferred Stock
outstanding on the Mandatory Exchange Date are to be exchanged, the shares to be
exchanged shall be determined pro rata or, if the shares of Preferred Stock are
then publicly held, by lot.
(b) Nothing in this Section 9 shall restrict or limit (i) the
Corporation's right to redeem shares of Preferred Stock pursuant to Section 5(a)
or convert such shares pursuant to Section 10 or (ii) the holders' right to
convert shares of the Preferred Stock pursuant to Section 8(a) at any time prior
to the Mandatory Exchange Date under this Section 9.
(c) Notice of any exchange of shares of Preferred Stock
pursuant to Section 9(a) shall be mailed at least thirty (30) days prior to the
Mandatory Exchange Date fixed for exchange to each holder of shares of Preferred
Stock to be exchanged, at such holder's address as it appears on the transfer
books of the Corporation. In order to facilitate the exchange of shares of
Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Preferred Stock to be exchanged, or may cause the
transfer books of the Corporation for the Preferred Stock to be closed, not less
than thirty (30) days prior to the date fixed for such exchange.
(d) Notice of mandatory exchange having been given as
aforesaid, notwithstanding that any certificates for such shares shall not have
been surrendered for cancellation, from and after the Mandatory Exchange Date
(i) the shares represented thereby shall no longer be deemed outstanding, (ii)
the rights to receive dividends thereon shall cease to accrue and (iii) all
rights of the holders of shares of Preferred Stock to be exchanged shall
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cease and terminate, excepting only the right to receive the shares of Common
Stock and the right to convert such Preferred Stock into shares of Common Stock
until the close of business on the Mandatory Exchange Date, in accordance with
Section 8.
Section 10. Mandatory Conversion.
(a) If for forty-five (45) consecutive Trading Days the Market
Price of the Common Stock for each day of such period exceeds the Conversion
Price in effect on each such Trading Day, then on the Business Day next
succeeding such forty-five (45) day period (the "Mandatory Conversion Date"),
the outstanding shares of Preferred Stock shall automatically be converted into
such number of fully paid and non-assessable shares of Common Stock as is equal,
subject to Section 8(g), to the product of the number of shares of Preferred
Stock being so converted multiplied by the quotient of (i) the Liquidation
Preference divided by (ii) the Conversion Price in effect on the Mandatory
Conversion Date.
(b) Within thirty (30) Business Days of the Mandatory
Conversion Date, the Corporation shall deliver to each holder of Preferred Stock
being converted (i) an officer's certificate attesting to the satisfaction of
the condition precedent to mandatory conversion and (ii) a certificate or
certificates representing the number of fully paid and non-assessable shares of
Common Stock into which such shares of Preferred Stock have been converted in
accordance with this Section 10. Such conversion shall be deemed to have been
made immediately prior to the close of business on the Mandatory Conversion
Date, and the converting holder of shares of Preferred Stock shall be treated
for all purposes as having become the record holder of such Common Stock at such
time, and such conversion shall be at the Conversion Price in effect at such
time.
(c) To the extent permitted by law, when shares of Preferred
Stock are converted, all dividends accrued and unpaid (whether or not declared
or currently payable) on the Preferred Stock so converted to the date of
conversion shall be immediately due and payable and must accompany the shares of
Common Stock issued upon such conversion.
(d) Notice of any conversion of shares of Preferred Stock
pursuant to Section 9(a) shall be mailed at least ten (10), but not more than
sixty (60), days prior to the date fixed for conversion to each holder of shares
of Preferred Stock to be converted, at such holder's address as it appears on
the transfer books of the Corporation. In order to facilitate the conversion of
shares of Preferred Stock, the Board of Directors may fix a record date for the
determination of shares of Preferred Stock to be converted, or may cause the
transfer books of the Corporation for the Preferred Stock to be closed, not more
than sixty (60) days or less than ten (10) days prior to the date fixed for such
conversion.
(e) Notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, from and after the Mandatory
Conversion Date (i) the shares represented thereby shall no longer be deemed
outstanding, (ii) the rights to receive dividends thereon shall cease to accrue,
and (iii) all rights of the holders of shares of Preferred Stock to be converted
shall cease and terminate, excepting only the right to receive the shares of
Common Stock and dividends.
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<PAGE> 14
Section 11. Right to Offset.
Pursuant and subject to Section 9.6 of the Agreement and Plan
of Reorganization by and among the Corporation, WA Telcom Products Co., Inc.
("Buyer"), Comm/Net Holding Corporation ("Comm/Net Holding"), Enhanced
Communications Corporation, Long Distance Exchange Corporation, Comm/Net
Services Corporation, Gregory A. Somers ("G. Somers"), Kelli J. Somers ("K.
Somers"), R. Scott Birdwell ("R. Birdwell"), Jeff Becker ("J. Becker"), Chris
Johns ("C. Johns"), Michael Billingsly ("M. Billingsly"), Teleplus
Telecommunications, Inc. ("Teleplus," and together with G. Somers, K. Somers, J.
Becker, C. Johns, M. Billingsly and R. Birdwell, the "Shareholders") and Denny
D. Somers ("D. Somers"), dated May 27, 1999 (the "Purchase Agreement"), the
Corporation shall, at the request of Buyer, pay directly to Buyer the amounts or
obligations otherwise payable or owed with respect to the Preferred Stock under
this Certificate of Designation in satisfaction of any and all obligations of
Comm/Net Holding, D. Somers or the Shareholders arising under or related to the
Purchase Agreement (each, a "Seller Obligation"), including but not limited to,
the indemnification obligations set forth in Article IX thereof, until such
obligations are fully satisfied or resolved through negotiations between Buyer
and the Obligor (as defined herein). Buyer agrees that any exercise of its
rights under Section 9.6 of the Purchase Agreement must be made in good faith.
If a Seller Obligation is not fully satisfied or resoled through negotiations
between Buyer and the Obligor within six (6) months of the date Comm/Net
Holding, D. Somers and/or the Shareholders, as applicable (the "Obligor"),
received notice from Buyer of its or their non-compliance with such obligation
(or in the case of a Loss (as defined in Section 9.1 of the Purchase Agreement),
within six (6) months of the date the Indemnifying Party (as defined in Section
9.4 of the Purchase Agreement) received notice of such Loss pursuant to Section
9.4 of the Purchase Agreement), Buyer shall offer to resolve by arbitration any
disputes between Buyer and the Obligor related to such Seller Obligation. If the
Obligor rejects such offer, Buyer shall continue to hold the applicable amounts
or obligations otherwise payable or owed with respect to the Preferred Shares
until the Seller Obligation is fully satisfied or resolved through negotiations
between Buyer and the Obligor. All arbitration pursuant to Section 9.6 of the
Purchase Agreement shall be before the American Arbitration Association ("AAA")
in accordance with the Commercial Arbitration Rules of the AAA as in effect from
time to time.
Section 12. Definitions.
For the purposes of this Certificate of Designation of
Preferred Stock, the following terms shall have the meanings indicated:
"Affiliate" shall have the meaning ascribed to such term in
Rule 12b-2 of the General Rules and Regulations under the Exchange Act.
"Business Day" shall mean any day other than a Saturday,
Sunday or other day on which commercial banks in Atlanta, Georgia are authorized
or required by law or executive order to close.
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"Common Stock" shall mean and include the Common Stock, par
value $.01 per share, of the Corporation and each other class of capital stock
of the Corporation that does not have a preference over any other class of
capital stock of the Corporation as to dividends or upon liquidation,
dissolution or winding up of the Corporation and, in each case, shall include
any other class of capital stock of the Corporation into which such stock is
reclassified or reconstituted.
"Conversion Price" shall mean $16.00, subject to adjustments
as set forth in Section 8(d).
"Current Market Price" per share shall mean, on any date
specified herein for the determination thereof, (a) the average daily Market
Price of the Common Stock for those days during the period of twenty (20) days,
ending on such date, which are Trading Days, and (b) if the Common Stock is not
then listed or admitted to trading on any national securities exchange or quoted
in the over-the-counter market, the Market Price on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Securities and Exchange
Commission thereunder.
"Fair Market Value" shall mean the amount which a willing
buyer, under no compulsion to buy, would pay a willing seller, under no
compulsion to sell, in an arm's-length transaction.
"Issue Date" shall mean the original date of issuance of
shares of Preferred Stock to the holders pursuant to the Purchase Agreement.
"Junior Stock" shall mean any capital stock of the corporation
ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Preferred Stock including, without limitation, the Common
Stock.
"Liquidation Preference" with respect to a share of Preferred
Stock shall mean $1,000.00.
"Market Price" shall mean, per share of Common Stock on any
date specified herein: (a) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the last trading price of the Common Stock on such date;
or (b) if there shall have been no trading on such date or if the Common Stock
is not so designated, the average of the reported closing bid and asked prices
of the Common Stock on such date as shown by NASDAQ and reported by any member
firm of the NYSE, selected by the Corporation. If neither (a) or (b) is
applicable, Market Price shall mean the Fair Market Value per share determined
in good faith by the Board of Directors of the Corporation unless holders of at
least fifty-one percent (51%) of the outstanding shares of Preferred Stock
request that the Corporation obtain an opinion of a nationally recognized
investment banking firm chosen by such holders and the Corporation (at the
Corporation's expense), in which event Fair Market Value shall be determined by
such investment banking firm.
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"NASDAQ" shall mean the National Market System of the NASDAQ
Stock Market.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Parity Stock" shall mean any capital stock of the
Corporation, including the Preferred Stock, ranking on a par (either as to
dividends or upon liquidation, dissolution or winding up) with the Preferred
Stock.
"Per Share Equity Value" of a share of Common Stock shall mean
the quotient obtained by dividing (a) the "as if fully distributed value" of all
the Corporation's outstanding shares of Common Stock (on a fully diluted basis)
without consideration of any minority investment discounts or discounts related
to illiquidity or restrictions on transferability, by (b) the number of
outstanding shares of Common Stock on a fully diluted basis.
"Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind, and shall include
any successor (by merger) of such entity.
"Preferred Stock" shall have the meaning set forth in Section
1(a) hereof.
"Senior Stock" shall mean any capital stock of the Corporation
ranking senior to the Preferred Stock (either as to dividends or upon
liquidation, dissolution or winding up), including, without limitation, the
4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A.
"Subsidiary" shall mean, with respect to any Person, a
corporation or other entity of which 50% or more of the voting power of the
voting equity securities or equity interest is owned, directly or indirectly, by
such Person.
"Trading Days" shall mean a day on which the national
securities exchanges are open for trading.
13. Modification or Amendment.
Except as specifically set forth herein, modifications or amendments to
this Certificate of Designation may be made by the Corporation with the consent
of the holders of more than 50% of the outstanding shares of Preferred Stock.
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IN WITNESS WHEREOF, World Access, Inc. has caused this Certificate to
be duly executed in its corporate name on this 29 day of June, 1999.
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
------------------------------
Name: W. Tod Chmar
Title: Executive V.P.
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EXHIBIT 4.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June
30, 1999, is by and among Comm/Net Holding Corporation, a Texas corporation
("Comm/Net Holding"), Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell,
Teleplus Telecommunications, Inc., an Iowa corporation, Chris Johns, Jeff Becker
and Michael Billingsly (collectively, the "Stockholders"), and World Access,
Inc., a Delaware corporation ("WAXS").
WHEREAS, pursuant to an Agreement and Plan of Reorganization, dated May
27, 1999 (the "Reorganization Agreement"), between WAXS, WA Telcom Products Co.,
Inc., a Delaware corporation and wholly-owned subsidiary of WAXS ("Buyer"), the
Stockholders, Enhanced Communications Corporation ("Encom"), Long Distance
Exchange Corporation ("LDEC"), Comm/Net Services Corporation ("Comm/Net
Services") and Denny D. Somers, Buyer will acquire certain of the assets (the
"Assets") of Comm/Net Holding, Encom, LDEC and Comm/Net Services;
WHEREAS, the Reorganization Agreement provides that a form of
consideration to be paid to Comm/Net Holding for the Assets shall include shares
of 4.25% Cumulative Junior Convertible Preferred Stock, Series B of WAXS (the
"Preferred Stock"), which are convertible into shares of WAXS common stock, par
value $.01 per share ("WAXS Stock"), pursuant to the terms of the Certificate of
Designation setting forth the rights and preferences of the Preferred Stock;
WHEREAS, promptly following the consummation of the transactions
contemplated by the Reorganization Agreement, Comm/Net Holding will liquidate
and dissolve as a corporation and distribute to the Stockholders all of its
remaining assets (including the Preferred Stock); and
WHEREAS, in the event that the shares of Preferred Stock held by the
Stockholders are converted into shares of WAXS Stock, WAXS has agreed to grant
to the Stockholders certain rights with respect to the sale of the Stockholders'
Registrable Securities (as defined below) in accordance with the terms of this
Agreement;
NOW THEREFORE, for and in consideration of the premises, the mutual
promises herein contained, and for other good and valuable consideration, the
receipt and adequacy of which are acknowledged, the parties agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
initially capitalized terms shall have the following meanings:
(a) "Affiliate" means, with respect to any person, any other
person who, directly or indirectly, is in control of, is controlled by or is
under common control with such person.
(b) "Holder(s)" means the Stockholders who are holders of
Registrable Securities.
(c) "Registrable Securities" means the shares of WAXS Stock
issued to the Stockholders upon the conversion of shares of Preferred Stock held
by the Stockholders, any stock or other securities into which or for which such
shares of WAXS Stock may hereafter be changed, converted
<PAGE> 2
or exchanged, and any other securities issued to the Holders of such shares of
WAXS Stock (or such shares into which or for which such shares are so changed,
converted or exchanged) upon any reclassification, share combination, share
subdivision, share dividend, merger, consolidation or similar transactions or
events; provided that any such securities shall cease to be Registrable
Securities if (i) a registration statement with respect to the sale of such
securities shall have become effective under the Securities Act (as defined
below) and such securities shall have been disposed of in accordance with the
plan of distribution set forth in such registration statement, (ii) such
securities shall have been transferred pursuant to Rule 144 (as defined below),
(iii) the rights and obligations related thereto under this Agreement shall have
been transferred in violation of Section 9, or (iv) at any time the total number
of Registrable Securities held by the Holder may then be distributed by the
Holder in one transaction pursuant to Rule 144.
(d) "Registration Expenses" means all reasonable expenses
incurred by WAXS in connection with any registration of Registrable Securities
pursuant to this Agreement including, without limitation, the following: (i) SEC
filing fees; (ii) the fees, disbursements and expenses of WAXS's counsel(s) and
accountants in connection with the registration of the Registrable Securities to
be disposed of under the Securities Act; (iii) all expenses of WAXS and its
agents and representatives in connection with the preparation, printing and
filing of the registration statement, any preliminary prospectus or final
prospectus and amendments and supplements thereto and the mailing and delivering
of a reasonable number of copies thereof to any Holders, underwriters and
dealers and all actual expenses incidental to delivery of the Registrable
Securities; (iv) the cost of producing blue sky memoranda (but specifically not
including legal investment or foreign blue sky memoranda); (v) all expenses in
connection with the qualification of the Registrable Securities to be disposed
of for offering and sale under state securities laws; (vi) the filing fees
incident to securing any required review by the National Association of
Securities Dealers, Inc. of the terms of the sale of the Registrable Securities
to be disposed of; (vii) the expenses of WAXS's transfer agent and registrar
appointed in connection with such offering; (viii) all engraving and printing
expenses for the WAXS securities being offered; and (ix) all fees and expenses
payable in connection with the listing of the Registrable Securities on each
securities exchange or inter-dealer quotation system on which a class of common
equity securities of WAXS is then listed.
(e) "Rule 144" means Rule 144 promulgated under the Securities
Act (as defined below), or any successor rule to similar effect.
(f) "SEC" means the United States Securities and Exchange
Commission.
(g) "Securities Act" means the Securities Act of 1933, as
amended, or any successor statute.
2. DEMAND REGISTRATION.
(a) At any time following the date of this Agreement and upon
written notice from a Holder or Holders of at least 51% of the Registrable
Securities in the manner set forth in Section 10(h) hereof requesting that WAXS
effect the registration under the Securities Act of any or all of the
Registrable Securities held by such Holder as described in Section 2(b) (which
notice shall specify the intended method or methods of disposition of such
Registrable Securities), WAXS shall use its reasonable best efforts to effect,
in the manner set forth in Section 5, the registration under the Securities Act
of such Registrable Securities for disposition in accordance with the intended
method or methods of disposition stated in such request; provided that:
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<PAGE> 3
(i) if, prior to receipt of a registration request
pursuant to this Section 2(a), WAXS had commenced a financing plan and
held or identified a date to hold a formal "all hands" meeting with
outside advisors, including an underwriter if such financing plan is an
underwritten offering, and, in the good faith business judgment of
WAXS's underwriter (or outside advisors, if no underwriter), a
registration at the time and on the terms requested could materially
and adversely affect or interfere with such financing plan of WAXS or
its subsidiaries (a "Transaction Blackout"), WAXS shall not be required
to effect a registration pursuant to this Section 2(a) until the
earliest of (A) the abandonment of such offering or (B) sixty (60) days
after the termination of such offering; provided that WAXS shall only
be permitted to delay a requested registration under this Section 2(a),
whether in reliance on this subsection (i) or on subsection (ii) below,
twice during the term of this Agreement.
(ii) if, while a registration request is pending
pursuant to this Section 2(a), WAXS has determined in good faith that
(A) the filing of a registration statement could jeopardize or delay
any contemplated material transaction other than a financing plan
involving WAXS or would require the disclosure of material information
that WAXS had a bona fide business purpose for preserving as
confidential; or (B) WAXS then is unable to comply with SEC
requirements applicable to the requested registration (notwithstanding
its reasonable best efforts to so comply), WAXS shall not be required
to effect a registration pursuant to this Section 2(a) until the
earlier of (A) the date upon which such contemplated transaction is
completed or abandoned or such material information is otherwise
disclosed to the public or ceases to be material or WAXS reasonably is
able to so comply with applicable SEC requirements, as the case may be,
and (B) thirty (30) days after WAXS makes such good-faith
determination; provided that WAXS shall only be permitted to delay a
requested registration under this Section 2(a), whether in reliance on
this subsection (ii) or on subsection (i) above, twice during the term
of this Agreement.
(iii) WAXS shall not be obligated to file more than
one (1) registration statement under the Securities Act relating to a
registration request pursuant to this Section 2(a) and shall not be
obligated in any event if such registration request is for a number of
Registrable Securities which have an aggregate market value less than
$1 million. If such request shall be for an underwritten offering, such
request must be for a number of Registrable Securities which have an
aggregate market value of at least $5 million.
(b) Notwithstanding any other provision of this Agreement to
the contrary, a registration requested by a Holder pursuant to this Section 2
shall not be deemed to have been effected (and, therefore, not requested for
purposes of Section 2(a): (A) if it is withdrawn based upon material adverse
information relating to WAXS that is different from the information (x) known to
the Holder requesting registration at the time of their request for
registration, or (y) promptly disclosed by WAXS to the Holder at the time of
their request for registration; (B) if, when effective, it includes fewer than
ninety (90%) percent of the number of shares of Registrable Securities which
were the subject matter of the request; (C) if after it has become effective
such registration is interfered with by any stop order, injunction or other
order or requirement of the SEC or other governmental agency or court for any
reason other than a misrepresentation or an omission by such Holder and, as a
result thereof, less than ninety (90%) percent of the Registrable Securities
requested to be registered can be completely distributed in accordance with the
plan of distribution set forth in the related registration statement.
(c) In the event that any registration pursuant to this
Section 2 shall involve, in whole or in part, an underwritten offering, WAXS
shall have the right to designate the underwriter or underwriters, including the
lead managing underwriter of such underwritten offering.
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(d) Holders other than the Holder initiating the demand
pursuant to Section 2(a) and holders of other registrable securities with the
right to participate in a WAXS registration statement shall have the right to
include their shares of Registrable Securities or other registrable securities,
as the case may be, in any registration pursuant to Section 2(a). In connection
with those registrations in which multiple Holders or holders of other
registrable securities with the right to participate in such registration
("piggy-back rights holders") participate, in the event the facilitating
broker/dealer or, in an underwritten offering, the lead managing underwriter
advises that marketing factors require a limitation on the number of shares to
be sold, the number of shares to be included in the sale or underwriting and
registration shall be allocated pro rata among the Holders and the holders
seeking registration pursuant to piggy-back registration rights otherwise
granted by WAXS on the basis of the estimated proceeds from the sale of the
securities covered by such registration.
(e) WAXS shall have the right to cause the registration of
additional securities for sale for the account of WAXS in any registration of
Registrable Securities requested by a Holder pursuant to Section 2(a) which
involves an underwritten offering; provided that WAXS shall not have the right
to cause the registration of such additional securities if such Holder is
advised in writing (with a copy to WAXS) by the lead managing underwriter
designated pursuant to Section 2(c) that, in such firm's good faith opinion,
registration of such securities in addition to those securities included
pursuant to Sections 2(a)-(d) hereof would materially adversely affect the
offering and sale of the Registrable Securities then contemplated by such
Holder.
3. PIGGY-BACK REGISTRATION. At any time during the term of this
Agreement if WAXS proposes to register any of its WAXS Stock or any other of its
common equity securities (but not including debt instruments or preferred stock
convertible into its common equity securities) (collectively, "Other
Securities") under the Securities Act (other than a registration on Form S-4 or
S-8 or any successor form thereto), whether or not for sale for its own account,
in a manner which would permit registration of Registrable Securities for sale
for cash to the public under the Securities Act, it will each such time give
prompt written notice to each Holder of its intention to do so at least ten (10)
days prior to the anticipated filing date of the registration statement relating
to such registration. Such notice shall offer each such Holder the opportunity
to include in such registration statement such number of Registrable Securities
as each such Holder may request. Upon the written request of any such Holder,
made no later than 5:00 p.m. Dallas, Texas time on the fifth (5th) day after the
receipt of WAXS's notice (which request shall specify the number of Registrable
Securities intended to be disposed of and the intended method of disposition
thereof), WAXS shall use its reasonable best efforts to effect, in the manner
set forth in Section 5, in connection with the registration of the Other
Securities, the registration under the Securities Act of all Registrable
Securities which WAXS has been so requested to register, to the extent required
to permit the disposition (in accordance with such intended methods thereof) of
the Registrable Securities so requested to be registered; provided that:
(a) if at any time after giving written notice of its
intention to register any securities and prior to the effective date of such
registration, WAXS shall determine for any reason not to register or to delay
registration of such securities, WAXS may, at its election, give written notice
of such determination to the Holder and, thereupon, (A) in the case of a
determination not to register, WAXS shall be relieved of its obligation to
register any Registrable Securities in connection with such registration and (B)
in the case of a determination to delay such registration, WAXS shall be
permitted to delay registration of any Registrable Securities requested to be
included in such registration for the same period as the delay in registering
such Other Securities;
(b) if the registration referred to in the first sentence of
this Section 3 is to be an underwritten registration, and the managing
underwriter advises WAXS in writing that, in such firm's
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<PAGE> 5
opinion, such offering would be materially and adversely affected by the
inclusion therein of the Registrable Securities requested to be included
therein, WAXS shall include in such registration: (1) first, all securities WAXS
proposes to sell for its own account ("WAXS Securities") if WAXS Securities are
proposed to be included in such registration, (2) second, up to the full number
of Registrable Securities in excess of the number or dollar amount of WAXS
Securities, which, in the good faith opinion of such managing underwriter, can
be so sold without materially and adversely affecting such offering (and, if
less than the full number of such Registrable Securities, allocated among the
Holders of such Registrable Securities and holders (other than WAXS) of Other
Securities to be included in such registration pursuant to agreements with WAXS
("Other Holders") pro rata on the basis of the net proceeds from the sale
thereof), and (3) third, all other securities proposed to be registered.
Notwithstanding any other provision in this Agreement to the contrary, WAXS
shall not be required to include Registrable Securities in any registration
statement if the inclusion of such Registrable Securities would violate the
provisions of any agreements or arrangements pursuant to which such registration
is being effected or entered into in connection with such registration;
(c) WAXS shall not be required to effect any registration of
Registrable Securities under this Section 3 incidental to the registration of
any of its securities in connection with mergers, acquisitions, dividend
reinvestment plans or stock option or award or other executive or employee
benefit or compensation plans; and
(d) no registration of Registrable Securities effected under
this Section 3 shall relieve WAXS of its obligation to effect a registration of
Registrable Securities pursuant to Section 2 hereof.
4. EXPENSES. WAXS agrees to pay all Registration Expenses with
respect to an offering pursuant to Section 2 and Section 3 hereof (but not any
fees or expenses of counsel to any Holder or the Holders or commissions or
underwriting discount in connection with an offering which shall be the expense
of the Holder(s)).
5. REGISTRATION AND QUALIFICATION. If and whenever WAXS is
required to use its reasonable best efforts to effect the registration of any
Registrable Securities under the Securities Act as provided in Section 2 or 3
hereof, WAXS shall:
(a) prepare and file a registration statement under the
Securities Act relating to the Registrable Securities to be offered as soon as
practicable, but in no event later than forty-five (45) days (ninety (90) days
if the applicable registration form is other than Form S-3) after the date
notice is given, and use its reasonable best efforts to cause the same to become
effective as promptly as practicable;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
thirty (30) days (or, in the case of an underwritten offering, such shorter time
period as the underwriters may require);
(c) furnish to the Holders and to any underwriter of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included in
such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the Securities Act,
and such other documents, as the Holders or such underwriter may reasonably
request in order to facilitate the public sale of the Registrable Securities,
and a copy of any and all transmittal letters or other correspondence to, or
received from, the SEC or any other
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<PAGE> 6
governmental agency or self-regulatory body or other body having jurisdiction
(including any domestic or foreign securities exchange) relating to such
offering;
(d) use its reasonable best efforts to register or qualify all
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such United States jurisdictions as the Holders
or any underwriter of such Registrable Securities shall request, and use its
best efforts to obtain all appropriate registrations, permits and consents
required in connection therewith, and do any and all other acts and things which
may be necessary or advisable to enable the Holders or any such underwriter to
consummate the disposition in such jurisdictions of its Registrable Securities
covered by such registration statement; provided that WAXS shall not for any
such purpose be required to register or qualify generally to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified, or to
subject itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) in connection with any underwritten offering, (i) use its
reasonable best efforts to furnish an opinion of counsel for WAXS addressed to
the underwriters and each Holder of Registrable Securities included in such
registration (each a "Selling Holder") and dated the date of the closing under
the underwriting agreement (if any) (or if such offering is not underwritten,
dated the effective date of the registration statement), and (ii) use its
reasonable best efforts to furnish a "cold comfort" letter addressed to each
Selling Holder, if permissible under applicable accounting practices, and signed
by the independent public accountants who have audited WAXS's financial
statements included in such registration statement, in each such case covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and such other matters as the
Selling Holders may reasonably request and, in the case of such accountants'
letter, with respect to events subsequent to the date of such financial
statements;
(f) immediately notify the Selling Holders in writing (i) at
any time when a prospectus relating to a registration pursuant to Section 2 or 3
hereof is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of any request by the SEC or any other regulatory
body or other body having jurisdiction for any amendment of or supplement to any
registration statement or other document relating to such offering, and in
either such case (i) or (ii) at the request of the Selling Holders, subject to
Section 4 hereof, prepare and furnish to the Selling Holders a reasonable number
of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not include an untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
are made, not misleading;
(g) list all such Registrable Securities covered by such
registration on each national securities exchange and United States inter-dealer
quotation system on which a class of common equity securities of WAXS is then
listed, with expenses in connection therewith to be paid in accordance with
Section 4 hereof; and
(h) furnish unlegended certificates representing ownership of
the Registrable Securities being sold in such denominations as shall be
requested by the Selling Holders or the underwriters with expenses therewith to
be paid in accordance with Section 4 hereof.
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<PAGE> 7
6. UNDERWRITING, DUE DILIGENCE.
(a) If requested by the underwriters for any underwritten
offering of Registrable Securities pursuant to a registration requested under
this Agreement, WAXS shall enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by WAXS and such other terms and provisions as are customarily
contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities and contribution substantially to the
effect and to the extent provided in Section 7 hereof and the provision of
opinions of counsel and accountants' letters to the effect and to the extent
provided in Section 5(e) hereof. The Selling Holders on whose behalf the
Registrable Securities are to be distributed by such underwriters shall be
parties to any such underwriting agreement and the representations and
warranties by, and the other agreements on the part of, WAXS to and for the
benefit of such underwriters, shall also be made to and for the benefit of such
Selling Holders. Such underwriting agreement shall also contain such
representations and warranties by the Selling Holders on whose behalf the
Registrable Securities are to be distributed as are customarily contained in
underwriting agreements with respect to secondary distributions. Selling Holders
may require that any additional securities included in an offering proposed by a
Holder be included on the same terms and conditions as the Registrable
Securities that are included therein.
(b) In the event that any registration pursuant to Section 3
shall involve, in whole or in part, an underwritten offering, WAXS may require
the Registrable Securities requested to be registered pursuant to Section 3 to
be included in such underwriting on the same terms and conditions as shall be
applicable to the other securities being sold through underwriters under such
registration. If requested by the underwriters for such underwritten offering,
the Selling Holders on whose behalf the Registrable Securities are to be
distributed shall enter into an underwriting agreement with such underwriters,
such agreement to contain such representations and warranties by the Selling
Holders and such other terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities and contribution substantially to the effect and
to the extent provided in Section 7 hereof. Such underwriting agreement shall
also contain such representations and warranties by WAXS and such other person
or entity for whose account securities are being sold in such offering as are
customarily contained in underwriting agreements with respect to secondary
distributions.
(c) In connection with the preparation and filing of each
registration statement registering Registrable Securities under the Securities
Act, WAXS shall give, subject to all parties executing confidentiality
agreements with WAXS on terms reasonably acceptable to WAXS, the Holders of such
Registrable Securities and the underwriters, if any, and their respective
counsel and accountants, such reasonable and customary access to its books and
records and such opportunities to discuss the business of WAXS with its officers
and the independent public accountants who have certified WAXS's financial
statements as shall be necessary, in the opinion of such Holder and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the Securities Act.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) In the case of each offering of Registrable Securities
made pursuant to this Agreement, WAXS agrees to indemnify and hold harmless each
Holder, its officers and directors, managers and members, as the case may be,
each underwriter of Registrable Securities so offered and each person, if any,
who controls any of the foregoing persons within the meaning of the Securities
Act, from and against any and all claims, liabilities, losses, damages, expenses
and judgments, joint or several, to which they or any of them may become
subject, under the Securities Act or otherwise, including any
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<PAGE> 8
amount paid in settlement of any litigation commenced or threatened, and shall
promptly reimburse them, as and when incurred, for any reasonable legal or other
expenses incurred by them in connection with investigating any claims and
defending any actions, insofar as such losses, claims, damages, liabilities or
actions shall arise out of, or shall be based upon, any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement (or in any preliminary or final prospectus included therein) or any
amendment thereof or supplement thereto, or in any document incorporated by
reference therein, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that WAXS shall not be liable to a
particular Holder in any such case to the extent that any such loss, claim,
damage, liability or action arises out of, or is based upon, any untrue
statement or alleged untrue statement, or any omission, if such statement or
omission shall have been made in reliance upon and in conformity with
information relating to such Holder furnished to WAXS in writing by or on behalf
of such Holder specifically for use in the preparation of the registration
statement (or in any preliminary or final prospectus included therein) or any
amendment thereof or supplement thereto. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of a
Holder and shall survive the transfer of such securities. The foregoing
indemnity agreement is in addition to any liability which WAXS may otherwise
have to each Holder, its officers and directors, members and managers, as the
case may be, underwriters of the Registrable Securities or any controlling
person of the foregoing; provided, further, that, as to any underwriter or any
person controlling any underwriter, this indemnity does not apply to any loss,
liability, claim, damage or expense arising out of or based upon any untrue
statement or alleged untrue statement or omission or alleged omission in any
preliminary prospectus if a copy of a prospectus was not sent or given by or on
behalf of an underwriter to such person asserting such loss, claim, damage,
liability or action at or prior to the written confirmation of the sale of the
Registrable Securities as required by the Securities Act and such untrue
statement or omission had been corrected in such prospectus.
(b) In the case of each offering made pursuant to this
Agreement, each Holder of Registrable Securities included in such offering, by
exercising its registration rights hereunder, agrees to indemnify and hold
harmless WAXS, its officers, directors, agents and Affiliates and each person,
if any, who controls any of the foregoing within the meaning of the Securities
Act (and if requested by the underwriters, each underwriter who participates in
the offering and each person, if any, who controls any such underwriter within
the meaning of the Securities Act), from and against any and all claims,
liabilities, losses, damages, expenses and judgments, joint or several, to which
they or any of them may become subject under the Securities Act or otherwise,
including any amount paid in settlement of any litigation commenced or
threatened, and shall promptly reimburse them, as and when incurred, for any
reasonable legal or other expenses incurred by them in connection with
investigating any claims and defending any actions, insofar as any such losses,
claims, damages, liabilities or actions shall arise out of, or shall be based
upon, any untrue statement or alleged untrue statement of a material fact
contained in the registration statement (or in any preliminary or final
prospectus included therein) or any amendment thereof or supplement thereto, or
any omission or alleged omission to state therein a material fact relating to
the Holder required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement of a material fact is contained in, or such material fact relating to
the Holder is omitted from, information relating to such Holder furnished in
writing to WAXS by or on behalf of such Holder specifically for use in the
preparation of such registration statement (or in any preliminary or final
prospectus included therein). The foregoing indemnity is in addition to any
liability which such Holder may otherwise have to WAXS, or any of its directors,
officers or controlling persons; provided, however, that, as to any underwriter
or any person controlling any underwriter, this indemnity does not apply to any
loss, liability, claim, damage or expense arising out of or based upon any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary prospectus if a copy of a prospectus was not sent to or given by
or on behalf of an underwriter to such person asserting such loss, claim,
damage, liability or action at or prior to the
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<PAGE> 9
written confirmation of the sale of the Registrable Securities as required by
the Securities Act and such untrue statement or omission had been corrected in
such prospectus.
(c) Procedure for Indemnification. Each party indemnified
under paragraph (a) or (b) of this Section 7 shall, promptly after receipt of
notice of any claim or the commencement of any action against such indemnified
party in respect of which indemnity may be sought, notify the indemnifying party
in writing of the claim or the commencement thereof; provided that the failure
to notify the indemnifying party shall not relieve it from any liability which
it may have to an indemnified party on account of the indemnity agreement
contained in paragraph (a) or (b) of this Section 7, except to the extent the
indemnifying party was prejudiced by such failure, and in no event shall relieve
the indemnifying party from any other liability which it may have to such
indemnified party. If any such claim or action shall be brought against an
indemnified party, and it shall notify the indemnifying party thereof, the
indemnifying party shall be entitled to participate therein, and, to the extent
that it wishes, jointly with any other similarly notified indemnifying party, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the indemnifying party to the indemnified
party of its election to assume the defense of such claim or action, the
indemnifying party shall not be liable to the indemnified party under this
Section 7 for any legal or other expenses subsequently incurred by the
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; provided that each indemnified party, its officers and
directors, if any, and each person, if any, who controls such indemnified party
within the meaning of the Securities Act, shall have the right to employ
separate counsel reasonably approved by the indemnifying party to represent them
if the named parties to any action (including any impleaded parties) include
both such indemnified party and an indemnifying party or an affiliate of an
indemnifying party, and such indemnified party shall have been advised by
counsel either (i) that there are one or more legal defenses available to such
indemnified party that are different from or additional to those available to
such indemnifying party or such affiliate or (ii) a conflict may exist between
such indemnified party and such indemnifying party or such affiliate, and in
that event the fees and expenses of one such separate counsel for all such
indemnified parties shall be paid by the indemnifying party. An indemnified
party will not enter into any settlement agreement which is not approved by the
indemnifying party, such approval not to be unreasonably withheld. The
indemnifying party may not agree to any settlement of any such claim or action
which provides for any remedy or relief other than monetary damages for which
the indemnifying party shall be responsible hereunder, without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld. In any action hereunder as to which the indemnifying party has assumed
the defense thereof with counsel reasonably satisfactory to the indemnified
party, the indemnified party shall continue to be entitled to participate in the
defense thereof, with counsel of its own choice, but, except as set forth above,
the indemnifying party shall not be obligated hereunder to reimburse the
indemnified party for the costs thereof. In all instances, the indemnified party
shall cooperate fully with the indemnifying party or its counsel in the defense
of each claim or action.
If the indemnification provided for in this Section 7 shall for any
reason be unavailable to an indemnified party in respect of any loss, claim,
damage or liability, or any action in respect thereof, referred to herein, then
each indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage or liability, or action in respect thereof, in such
proportion as shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and the indemnified party on the other with
respect to the statements or omissions which resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference to
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by the
indemnifying party on the one hand
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or the indemnified party on the other, the intent of the parties and their
relative knowledge, access to information and opportunity to correct or prevent
such statement or omission, but not by reference to any indemnified party's
stock ownership in WAXS. The amount paid or payable by an indemnified party as a
result of the loss, claim, damage or liability, or action in respect thereof,
referred to above in this paragraph shall be deemed to include, for purposes of
this paragraph, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation.
8. RULE 144. WAXS shall take such measures and timely file such
information, documents and reports as shall be required by the SEC as a
condition to the availability of Rule 144 and to remain in compliance with the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
9. TRANSFER OF REGISTRATION RIGHTS. A Holder may not transfer
all or any portion of its rights and obligations under this Agreement to any
transferee without the prior written consent of WAXS, which consent shall not be
unreasonably withheld.
10. MISCELLANEOUS.
(a) Injunctions. Each party acknowledges and agrees that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. Therefore, each party shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court having
jurisdiction, such remedy being in addition to any other remedy to which such
party may be entitled at law or in equity.
(b) Severability. If any term or provision of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions set forth herein shall
remain in full force and effect and shall in no way be affected, impaired or
invalidated, and each of the parties shall use its best efforts to find and
employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term or provision.
(c) Further Assurances. Subject to the specific terms of this
Agreement, each of the parties hereto shall make, execute, acknowledge and
deliver such other instruments and documents, and take all such other actions,
as may be reasonably required in order to effectuate the purposes of this
Agreement and to consummate the transactions contemplated hereby.
(d) Waivers, etc. No failure or delay on the part of either
party (or the intended third-party beneficiaries referred to herein) in
exercising any power or right hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or power preclude
any other or further exercise thereof or the exercise of any other right or
power. No modification or waiver of any provision of this Agreement nor consent
to any departure therefrom shall in any event be effective unless the same shall
be in writing and signed by an authorized officer of each of the parties, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given.
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(e) Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to its subject matter. This Agreement
supersedes all prior agreements and understandings between the parties, whether
written or oral, with respect to the subject matter hereof. The paragraph
headings contained in this Agreement are for reference purposes only, and shall
not affect in any manner the meaning or interpretation of this Agreement.
(f) Counterparts. For the convenience of the parties, this
Agreement may be executed in any number of counterparts, each of which shall be
deemed to be an original but all of which together shall be one and the same
instrument.
(g) Amendment. This Agreement may be amended only by a written
instrument duly executed by an authorized officer of each of WAXS and the
Holders of at least 51% of the Registrable Securities.
(h) Notices. Unless expressly provided herein, all notices,
claims, certificates, requests, demands and other communications hereunder shall
be in writing and shall be deemed to be duly given (i) when personally
delivered, (ii) if mailed by registered or certified mail, postage prepaid,
return receipt requested, on the date the return receipt is executed or the
letter refused by the addressee or its agent, (iii) if given by telex or
telecopier, once such notice or other communication is transmitted to the telex
or telecopier number specified below and the appropriate answer back or
telephonic confirmation is received; provided that such notice or other
communication is mailed in accordance with clause (ii) hereof or (iv) if sent by
overnight courier which delivers only upon the signed receipt of the addressee,
on the date the receipt acknowledgment is executed or refused by the addressee
or its agent:
if to the Stockholders:
Comm/Net Holding Corporation
2301 Ohio Drive, Suite 285
Plano, Texas 75093
Attention: Gregory A. Somers
with a copy to:
B. Bruce Johnson
5550 LBJ Freeway, Suite 550
Dallas, Texas 75240
if to WAXS to:
World Access, Inc.
945 E. Paces Ferry Road, Suite 2200
Atlanta, Georgia 30326
Attn: W. Tod Chmar
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with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street
Suite 5300
Atlanta, Georgia 30308
Attn: H. Franklin Layson, Esq.
(i) Governing Law. This Agreement is executed by WAXS in, and
shall be construed in accordance with and governed by the laws of the State of
Georgia without giving effect to the principles of conflicts of laws thereof.
(j) Term. This Agreement shall be effective as to each
Stockholder that is a party to this Agreement upon the issuance of any
Registrable Securities to such Stockholder and shall remain in full force and
effect until there are no Registrable Securities outstanding or until terminated
by the mutual agreement of WAXS and the Holders of at least 51% of the
Registrable Securities.
(k) Assignment. Without the prior written consent of WAXS
(which consent shall not be unreasonably withheld), the Stockholders may not
assign their rights, duties or obligations hereunder or any part thereof to any
other person or entity. WAXS may assign its rights and duties hereunder in whole
or in part to one or more entities but if it does so, it shall remain liable for
all of its obligations hereunder. This Agreement, and all of the obligations
hereunder, shall be binding upon and enforceable against all permitted assigns
and transferees.
[Signatures on next page]
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IN WITNESS WHEREOF, the Stockholders and WAXS have caused this
Agreement to be duly executed by their authorized representatives as of the date
first above written.
STOCKHOLDERS:
COMM/NET HOLDING CORPORATION
By: /s/ Gregory A. Somers
-----------------------------------------
Name: Gregory A. Somers
---------------------------------------
Title: President
--------------------------------------
/s/ Gregory A. Somers
--------------------------------------------
Gregory A. Somers
/s/ Kelli J. Somers
--------------------------------------------
Kelli J. Somers
/s/ R. Scott Birdwell
--------------------------------------------
R. Scott Birdwell
/s/ Chris Johns
--------------------------------------------
Chris Johns
/s/ Jeff Becker
--------------------------------------------
Jeff Becker
/s/ Michael Billingsley
--------------------------------------------
Michael Billingsley
TELEPLUS TELECOMMUNICATIONS, INC.
By: /s/ Denny D. Somers
-----------------------------------------
Name: Denny D. Somers
---------------------------------------
Title: President
--------------------------------------
WAXS:
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
-----------------------------------------
Name: W. Tod Chmar
---------------------------------------
Title: Executive V.P.
--------------------------------------
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Exhibit 99
(WORLD ACCESS LOGO)
WORLD ACCESS COMPLETES ACQUISITION OF THE COMM/NET
GROUP OF COMPANIES
Acquisition Will Strengthen Telecommunications Group Network Through Dedicated
Bandwidth Agreements to Mexico
Comm/Net Platform is Expected to Facilitate Telecommunication Group's Expansion
Plans into Latin America
ATLANTA, GEORGIA - July 1, 1999 -- World Access, Inc. (Nasdaq:WAXS),
announced today that it has completed its acquisition of the assets of Comm/Net
Holding Corporation and its wholly-owned subsidiaries, Enhanced Communications
Corporation, Comm/Net Services Corporation and Long Distance Exchange
Corporation, effective June 30, 1999.
Pursuant to the terms of the agreement, World Access will pay a total
consideration of approximately $27 million, primarily in the form of newly
issued shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B
(the "Preferred Stock"). The Preferred Stock is convertible into shares of World
Access common stock at a conversion rate of $16.00 per common share, subject to
standard anti-dilution adjustments. If the closing trading price of World Access
common stock exceeds $16.00 per share for 45 consecutive trading days, the
Preferred Stock will automatically convert into common stock. The acquisition is
intended to qualify as a tax-free "reorganization" under Section 368(a)(1)(C) of
the Internal Revenue Code of 1986, as amended.
John D. Phillips, Chairman, Chief Executive Officer and President of
World Access, stated, "We are pleased to be acquiring the operations of
Comm/Net, as its facilities and dedicated bandwidth agreements will
significantly expand our dedicated network facilities into Mexico and serve as a
foundation for network development in other Latin American countries. Comm/Net
has an excellent track record of performing in this market in recent years and
is poised for continued growth in revenues and EBITDA during 1999. We are
optimistic that, backed by the financial resources of World Access and as an
integral component of our Telecommunications Group, Comm/Net will continue to
prosper."
Comm/Net, headquartered in Plano, Texas, is a facilities-based provider
of wholesale international long distance and wholesale prepaid calling card
services, primarily to the Mexican telecommunications markets. Comm/Net had
revenues of approximately $38 million during the year ended December 31, 1998.
Greg Somers, former President of Comm/Net, has been named Senior Vice President
of Operations, World Access Telecommunications Group.
World Access provides wholesale international long distance services
and designs a broad range of wireline and wireless telecommunications products
for service providers worldwide. Through its facilities based network and
various termination and resale relationships, The World Access
Telecommunications Group provides international long distance services to more
than 200 countries. The World Access Equipment Group develops and markets a
suite of solutions ranging from single products to comprehensive network
solutions including intelligent multiplexers, digital microwave radio systems,
digital switches, billing and network telemanagement systems, cellular base
stations, fixed wireless local loop systems and engineering services. For more
information regarding World Access and its divisions, please refer to the
Company's website at www.waxs.com.
THIS PRESS RELEASE MAY CONTAIN FINANCIAL PROJECTIONS OR OTHER
FORWARD-LOOKING STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS
OF THE SECURITIES REFORM ACT OF 1995. SUCH STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY.
THESE RISKS INCLUDE THE COMPANY'S ABILITY TO IDENTIFY, COMPLETE AND
INTEGRATE ACQUISITIONS AND OTHER RISKS DESCRIBED IN THE COMPANY'S SEC
FILINGS, INCLUDING THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE
YEAR ENDED DECEMBER 31, 1998, THE COMPANY'S QUARTERLY REPORT ON FORM
10-Q AND THE COMPANY'S REGISTRATION STATEMENT ON FORM S-3 (NO.
333-43497) INCORPORATED BY REFERENCE IN THIS PRESS RELEASE.
WORLD ACCESS CONTACT: NANCY L. DE JONGE
(404-231-2025) DIRECTOR OF INVESTOR RELATIONS
http://www.waxs.com
