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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
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): February 28, 2000 (February
11, 2000)
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.
On February 11, 2000, World Access Telecommunications Group, Inc., an
indirect, wholly-owned subsidiary of World Access, Inc. ("WAXS"), acquired
substantially all of the assets and assumed substantially all of the liabilities
of Long Distance International Inc. ("LDI"). Operating under the NETnet name
throughout Europe, LDI offers an array of telecommunications services
concentrating on the needs of business customers in Austria, France, Germany,
Italy, Norway, Spain, Sweden, Switzerland and the United Kingdom.
Pursuant to the terms of the Asset Purchase Agreement, dated December
17, 1999, LDI, NETnet International S.A. and the holders of LDI's $225 million
aggregate principal amount of 12.25% Senior Notes due 2008 (the "Notes"),
received approximately $185 million of Convertible Preferred Stock, Series D, of
WAXS (the "Preferred Stock"). Approximately ten percent (10%) of the Preferred
Stock was placed in escrow for six (6) months to satisfy any future
indemnification claims. The consideration paid by WAXS in connection with the
transaction was determined by arm's length negotiations between the parties.
The Preferred Stock bears no dividend and is convertible into shares of
WAXS Common Stock at a conversion rate of $18 per common share, subject to
potential adjustment under certain circumstances. If the closing trading price
of WAXS Common Stock exceeds $18 per share for 60 consecutive trading days, the
Preferred Stock will automatically convert into WAXS Common Stock. The holders
of the Preferred Stock will vote on an as-converted basis with the holders of
WAXS Common Stock.
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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 LDI 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
April 26, 2000.
(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 April 26,
2000.
(c) Exhibits.
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<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C>
2 Asset Purchase Agreement, dated December 17, 1999, by and between World
Access, Inc. and Long Distance International Inc. The following is a
list of omitted exhibits, schedules and other attachments which WAXS
agrees to furnish supplementally to the Commission upon request:
EXHIBITS TO ASSET PURCHASE AGREEMENT:
1.1 The Assets
1.2 Excluded Assets
1.3 Certificate of Designation
1.3(a) Names of Note Holders
4.11 Severance
5.2(d) LDI Plan
6.1(a) Litigation Accruals
SCHEDULES TO ASSET PURCHASE AGREEMENT:
2.1(a) Organization; Standing and Power; Subsidiaries
2.1(b)(2) Capital Structure
2.1(b)(3) Capitalization; Warrants and Options
2.1(c)(3) Consents
2.1(d)(2) Undisclosed Liabilities or Obligations
2.1(d)(3) Consolidating Financial Statements
2.1(e) Liens
2.1(f) Indebtedness
2.1(i) Material Suits and Proceedings
2.1(n)(1) Tax Returns Not Filed
2.1(n)(3) Tax Sharing Agreements
2.1(n)(5) Subsidiary Tax Status
2.1(n)(6) "Group" Taxes
2.1(o) Material Agreements
2.1(q)(1)(a) Employee Benefit Plans and Arrangements
2.1(q)(1)(b) Compliance with ERISA and the Code
2.1(r) Material Licenses
4 Certificate of Designation of Convertible Preferred Stock, Series D.
99 Press Release dated February 14, 2000 announcing the acquisition of
substantially all of the assets of Long Distance International Inc.
</TABLE>
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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: February 28, 2000 By: /s/ MARTIN D. KIDDER
--------------------
Martin D. Kidder
Vice President and Controller
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EXHIBIT 2
================================================================================
ASSET PURCHASE AGREEMENT
DATED AS OF DECEMBER 17, 1999
BETWEEN
WORLD ACCESS, INC., A DELAWARE CORPORATION,
AND
LONG DISTANCE INTERNATIONAL INC., A FLORIDA CORPORATION
================================================================================
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TABLE OF CONTENTS
<TABLE>
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ARTICLE I
PURCHASE AND SALE OF ASSETS...............................................................................2
1.1 Transfer of the Assets..................................................................2
1.2 Excluded Assets.........................................................................2
1.3 Consideration...........................................................................2
1.4 Manner of Effecting Exchange............................................................3
1.5 Liabilities.............................................................................3
1.6 Closing.................................................................................4
1.7 Allocation..............................................................................4
ARTICLE II
REPRESENTATIONS AND WARRANTIES............................................................................5
2.1 Representations and Warranties of LDI...................................................5
2.2 Representations and Warranties of WAXS.................................................17
ARTICLE III
COVENANTS RELATING TO CONDUCT OF BUSINESS................................................................20
3.1 Covenants of LDI.......................................................................20
3.2 Operational Reports....................................................................22
ARTICLE IV
ADDITIONAL AGREEMENTS....................................................................................23
4.1 Access to Information..................................................................23
4.2 Reasonable Efforts.....................................................................23
4.3 Fees and Expenses......................................................................24
4.4 Public Announcements...................................................................24
4.5 Interim Financials.....................................................................24
4.6 Taxes..................................................................................25
4.7 Section 338 Elections..................................................................27
4.8 Bankruptcy.............................................................................29
4.9 Reservation of Shares..................................................................29
4.10 Successor Employer.....................................................................29
4.11 Employment of LDI's Employees; Severance...............................................29
</TABLE>
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<TABLE>
<S> <C>
ARTICLE V
CONDITIONS PRECEDENT.....................................................................................30
5.1 Conditions to Each Party's Obligation to Effect the Transaction........................30
5.2 Additional Conditions to Obligations of WAXS...........................................30
5.3 Additional Conditions to Obligations of LDI............................................32
ARTICLE VI
INDEMNIFICATION..........................................................................................33
6.1 Remedies...............................................................................33
6.2 Indemnity Claims.......................................................................35
6.3 Set-Off Against Escrow.................................................................35
6.4 Exclusive Remedy.......................................................................35
6.5 Notice of Claim........................................................................35
6.6 Defense................................................................................35
ARTICLE VII
TERMINATION AND AMENDMENT................................................................................36
7.1 Termination............................................................................36
7.2 Effect of Termination..................................................................37
7.3 Specific Performance...................................................................38
7.4 Amendment..............................................................................38
7.5 Extension, Waiver......................................................................38
ARTICLE VIII
GENERAL PROVISIONS.......................................................................................38
8.1 Notices................................................................................38
8.2 Interpretation.........................................................................40
8.3 Counterparts...........................................................................40
8.4 Entire Agreement; No Third Party Beneficiaries.........................................40
8.5 Governing Law..........................................................................40
8.6 Severability...........................................................................41
8.7 Assignment.............................................................................41
8.8 Submission to Jurisdiction; Waivers....................................................41
8.9 Enforcement............................................................................41
8.10 Definitions............................................................................42
</TABLE>
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ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") is entered into and
made effective this 17th day of December, 1999 by and between WORLD ACCESS,
INC., a Delaware corporation ("WAXS"), and LONG DISTANCE INTERNATIONAL INC., a
Florida corporation ("LDI").
W I T N E S S E T H:
WHEREAS, LDI is in the business of providing international
telecommunications services in the United States and outside the United States
(the "Business"); and
WHEREAS, upon and subject to the terms and conditions contained herein,
LDI desires to sell to WAXS in a taxable transaction for federal income tax
purposes, and WAXS desires to purchase from LDI, substantially all of the assets
of LDI (the "Transaction"); and
WHEREAS, by December 24, 1999, all holders (the "Note Holders") of the
$225 million aggregate principal amount of 12.25% Senior Notes due 2008 issued
by LDI (the "LDI Notes") shall execute that certain Waiver and Consent (the
"Note Holders Consent") (i) consenting to the Transaction and agreeing to
release their security interest in the Pledged Securities, the Pledge Account
and the other Collateral (each as defined in that certain Collateral Pledge and
Security Agreement (the "Pledge Agreement") dated April 13, 1998, by LDI in
favor of the Bank of New York (the "Trustee") for the ratable benefit of the
Note Holders), subject to the terms and conditions set forth in the Note Holders
Consent, and (ii) agreeing that delivery of the Preferred Shares to the Note
Holders and the Escrow Agent (as defined in Section 1.3(c)) pursuant to this
Agreement shall constitute full satisfaction of LDI's obligations (x) under the
LDI Notes, (y) to the Note Holders and the Trustee under the Indenture dated
April 13, 1998, between LDI and the Trustee and the Pledge Agreement, and (z)
under each other agreement between LDI and the Trustee in its capacity as such;
and
WHEREAS, on or prior to the date hereof, Morgan Stanley has executed
the Note Holders Consent; and
WHEREAS, on or prior to the date hereof, holders of a majority of each
class of the capital stock of LDI have executed voting agreements (the "Voting
Agreements") in which they agree, among other things, to support the Transaction
and not to take any actions whatsoever which might hinder the closing of the
Transaction; and
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WHEREAS, on or prior to the date hereof, NETnet International S.A.
("NETnet") has executed a consent (the "NETnet Consent"), which is subject to
the approval of the shareholders of NETnet at a duly convened shareholders'
meeting, in which it agrees, among other things, to support the Transaction and
not to take any actions whatsoever which might hinder the closing of the
Transaction, and in addition, certain shareholders of NETnet have executed
letters (the "NETnet Shareholders Letters") in which they agree to vote in favor
of the NETnet Consent at such meeting.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
1.1 Transfer of the Assets. Subject to the terms and conditions
set forth in this Agreement, as of the effective time of the Closing (as defined
in Section 1.6) on the Closing Date (as defined in Section 1.6), LDI agrees to
sell, convey, assign and transfer to WAXS, or a Subsidiary of WAXS, and WAXS
shall or shall cause such Subsidiary of WAXS to purchase, accept and take from
LDI, all of the assets, properties and rights of every kind, nature, character
and description, whether tangible or intangible, whether accrued, contingent or
otherwise, relating to or utilized in the Business, 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
LDI and wherever located, and including the assets, properties and rights, set
forth on Exhibit 1.1 attached hereto, but specifically excluding the Excluded
Assets identified in Section 1.2 (collectively, the "Assets").
1.2 Excluded Assets. Notwithstanding the foregoing, the Assets
shall not include the assets, properties or rights listed on Exhibit 1.2
attached hereto (collectively, the "Excluded Assets").
1.3 Consideration. Subject to the terms and conditions set forth
in this Agreement, and in exchange for the transfer of the Assets to WAXS as
described in Section 1.1, on and as of the Closing Date, WAXS shall issue in the
name of LDI, NETnet or the Note Holders an aggregate of 185,000 shares of WAXS's
Convertible Preferred Stock, Series D, (each share having a liquidation
preference of $1,000 per share), with an aggregate liquidation preference of
$185,000,000 (the "Preferred Shares"), or if a subsidiary of WAXS is the
purchaser of the Assets, WAXS shall cause the Preferred Shares to be transferred
to such WAXS Subsidiary and to cause such WAXS Subsidiary to transfer the
Preferred Shares to LDI, NETnet or the Note Holders, in either case as follows:
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(a) At the direction of LDI, 81% of the Preferred Shares
shall be delivered pro rata in the names of the Note Holders as set forth on
Exhibit 1.3(a) to be attached hereto at the Closing.
(b) 3% of the Preferred Shares shall be delivered in the
name of LDI at the Closing.
(c) At the direction of LDI, 6% of the Preferred Shares
shall be delivered in the name of NETnet at the Closing.
(d) 10% of the Preferred Shares (the "Escrow Shares")
shall be deposited with Cauthen & Feldman, P.A., who shall act as escrow agent,
at the Closing. The Escrow Shares shall be available to satisfy LDI's
obligations under Article VI, and shall be held and distributed in accordance
with the terms and conditions set forth in an Escrow Agreement which shall be in
form and substance consistent with this Agreement and shall otherwise be in form
and substance reasonably satisfactory to the parties hereto, to the Note
Holders, and to NETnet (the "Escrow Agreement"). The Escrow Shares (other than
any Escrow Shares which may be issued to WAXS in accordance with the Escrow
Agreement) shall be issued as follows:
(1) At the direction of LDI, 70% of such Escrow
Shares shall be issued pro rata in the names of the Note
Holders as set forth on Exhibit 1.3(a) to be attached hereto
at the Closing.
(2) 10% of such Escrow Shares shall be issued in
the name of LDI.
(3) At the direction of LDI, 20% of such Escrow
Shares shall be issued in the name of NETnet.
The Preferred Shares shall have those powers, preferences,
rights, qualifications, limitations and restrictions as set forth in the
Certificate of Designation therefor in the form of Exhibit 1.3 attached hereto.
The Preferred Shares shall represent all the consideration to be paid in the
Transaction. Without limiting the foregoing, no payment will be made by WAXS (or
any Subsidiary of WAXS) to any of the shareholders of LDI or of NETnet or to
holders of any securities exercisable for or convertible into shares of capital
stock of LDI or of NETnet, and no additional payment will be made by WAXS (or
any Subsidiary of WAXS) to the Note Holders.
1.4 Manner of Effecting Exchange. The conveyance, transfer,
assignment and delivery of the Assets by LDI to WAXS (or a Subsidiary of WAXS)
shall be effected by such deeds, bills of sale, endorsements, assignments,
transfers and other instruments of transfer and conveyance in such form,
including warranties of title, as WAXS or WAXS's counsel shall
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reasonably request (the "Conveyance Documents"), including delivery of
certificates representing the Subsidiary Shares, endorsed to WAXS (or a
Subsidiary of WAXS).
1.5 Liabilities.
(a) Subject to WAXS's possible claim on the Escrow
Shares, it is understood and agreed that effective upon the Closing, WAXS shall
assume and agree to pay, perform and discharge all debts, liabilities, losses
and other obligations of LDI (the "Assumed Liabilities"), but excluding those
debts, liabilities, losses and other obligations set forth below (the "Excluded
Liabilities"):
(1) All debts, liabilities, losses and other
obligations of LDI to NETnet or the shareholders of NETnet;
(2) Any debts, liabilities, losses and other
obligations of LDI or any of its Subsidiaries relating to or arising
out of the LDI Notes or the Pledge Agreement or any funds lent to LDI
by the Note Holders (before or after execution of this Agreement) or
otherwise payable to the Note Holders or to the Trustee.
(3) Amounts, if any, payable to Jeffries &
Company ("Jeffries") in excess of $225,000.
(4) Any liabilities for any Taxes (A) incurred
by LDI as a result of the Transaction or (B) that arise after the
Closing relating to the period following the Closing except in as much
as such liabilities relate to the Assets.
(5) Any liabilities relating to or arising from
the activities of LDI after the Closing.
(6) Any liabilities arising from any disputes
among the shareholders of LDI, the shareholders of NETnet and/or the
Note Holders.
(7) Any liabilities arising from any claims against
WAXS, LDI or their respective officers, directors, employees, agents,
consultants, legal advisors and representatives relating to allocation
of the Preferred Shares.
(b) Effective upon the Closing, WAXS shall, by written
instrument in form reasonably satisfactory to LDI and WAXS, assume and agree to
pay, perform and discharge, and to indemnify LDI against and hold it harmless
from all obligations and liabilities of LDI relating to the Assumed Liabilities.
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1.6 Closing. Subject to the satisfaction or waiver of the
conditions set forth herein, the consummation of the Transaction (the "Closing")
shall take place as soon as practicable after satisfaction or waiver of the
conditions set forth in Article V hereof, in the offices of Long Aldridge &
Norman LLP, Suite 5300, 303 Peachtree Street, Atlanta, Georgia, or at such other
place as the parties shall agree in writing (the "Closing Date").
1.7 Allocation. The consideration paid for the Assets shall be
allocated in a manner mutually acceptable to the parties and as set forth on
Exhibit 1.7 to be attached prior to the Closing. WAXS and LDI agree (a) to file
their federal and state income tax returns (and IRS Form 8594, if applicable) on
the basis of the Allocation, and (b) that neither shall thereafter take a Tax
Return position inconsistent with the Allocation unless such inconsistent
position shall arise out of or through an audit or other inquiry or examination
by the Internal Revenue Service or other Governmental Entity.
1.8 Legending Securities. The Preferred Shares will be issued in a
transaction exempt from registration under the Securities Act by reason of
Section 4(2) thereof or Regulation D promulgated thereunder or other applicable
exemption, together with exemptions under applicable state securities laws. LDI
understands and agrees that there will be placed on the Preferred Shares, a
legend stating in substance the following (along with other appropriate language
under applicable U.S., state and foreign securities laws):
"The securities represented hereby have not been registered under
the Securities Act of 1933, as amended, or any applicable state
securities laws and may not be offered, sold, transferred or
otherwise disposed of unless registered with the Securities and
Exchange Commission of the United States and the securities
regulatory authorities of applicable states or unless an
exemption from registration is available."
The parties agree to reasonably cooperate to ensure that the Preferred
Shares are issued under available exemptions under applicable U.S., state and
foreign securities laws.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of LDI. Except as set forth in
the LDI Disclosure Schedule delivered by LDI to WAXS prior to the execution of
this Agreement (the "LDI Disclosure Schedule") (each section of which qualifies
the correspondingly numbered representation and warranty or covenant to the
extent specified therein), LDI represents and warrants to WAXS as follows:
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(a) Organization; Standing and Power; Subsidiaries.
(1) Each of LDI and each of its Subsidiaries (A)
is a corporation (or business entity in other legal form as set forth
in Section 2.1(a) of the LDI Disclosure Schedule) duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, (B) has the requisite
power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, except where the failure
to be so organized, existing and in good standing or to have such power
and authority would not have a Material Adverse Effect on LDI and (C)
is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or
leasing of its properties makes such qualification necessary, other
than in such jurisdictions where the failure so to qualify or to be in
good standing would not have a Material Adverse Effect on LDI. The
copies of the Articles of Incorporation and bylaws of LDI and the
charter documents of each of the LDI Subsidiaries were previously
furnished or made available to WAXS and are true, complete and correct
copies of such documents as in effect on the date of this Agreement.
(2) Section 2.1(a) of the LDI Disclosure
Schedule sets forth all the Subsidiaries of LDI and each such
Subsidiary's place of incorporation or organization. Except as set
forth in Section 2.1(a) of the LDI Disclosure Schedule, neither LDI nor
any of its Subsidiaries, directly or indirectly, owns any equity or
similar interest in, or any interest convertible into or exchangeable
or exercisable for any equity or similar interest in, any corporation,
partnership, joint venture or other business association or entity
(other than the Subsidiaries of LDI). LDI conducts no business except
through LDI and the LDI Subsidiaries. Subject to the pledge of the
Subsidiary Shares to SE Banken, the Note Holders, WAXS and parties to
that certain Term Loan Agreement dated as of July 20, 1999, by and
among certain Lenders, LDI Acquisition Sub Inc., LDI and Frederick A.
DeLuca, as amended (the "Term Loan") or ownership of those of the
Subsidiary Shares described in Section 2.1(b)(2) of the LDI Disclosure
Schedule by third parties, at the Closing, LDI will deliver to WAXS
good and marketable title to the Subsidiary Shares, free and clear of
any encumbrance. Notwithstanding the foregoing or anything else in this
Agreement, nothing contained in this Section 2.1(a)(2) will affect
LDI's rights or remedies in the event of a breach of this Agreement by
WAXS.
(b) Capital Structure.
(1) The authorized capital stock of LDI consists
of (A) 250,000,000 shares of LDI Common Stock, par value $0.001 per
share ("LDI Common Stock"), of which 26,629,874 shares are issued and
outstanding and no shares are held in the treasury of LDI, (B)
2,600,000 shares of Series A Preferred Stock, par value $0.001 per
share ("LDI Series A Preferred") of which 2,456,556 shares are issued
and outstanding, and (C)
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5,000,000 shares of Series B Preferred Stock, par value $0.001 per
share ("LDI Series B Preferred") of which 2,500,000 shares are issued
and outstanding. LDI has reserved or has available 4,956,556 shares of
LDI Common Stock for issuance upon conversion of the LDI Series A
Preferred and LDI Series B Preferred. Section 2.1(b)(1) of the LDI
Disclosure Schedule sets forth a complete and correct list of the
number of shares of LDI Common Stock, LDI Series A Preferred and LDI
Series B Preferred owned beneficially and of record by each holder
thereof. All issued and outstanding shares of the capital stock of LDI
are duly authorized, validly issued, fully paid and nonassessable.
There are no outstanding options, warrants or other rights to acquire
capital stock from LDI other than options and warrants representing in
the aggregate the right to purchase no more than 50,704,523 shares of
LDI Common Stock (collectively, the "LDI Stock Options") under the
stock option plans and warrant agreements identified in Section
2.1(b)(1) of the LDI Disclosure Schedule. Section 2.1(b)(1) of the LDI
Disclosure Schedule sets forth a complete and correct list of the
number of shares of LDI Common Stock subject to LDI Stock Options or
other rights to purchase or receive LDI Common Stock granted under the
LDI Employee Benefit Plans (as defined in Section 2.1(q)) or otherwise
and the exercise prices thereof. No bonds, debentures, notes or other
indebtedness of LDI having the right to vote on any matters on which
stockholders may vote ("LDI Voting Debt") are issued or outstanding.
(2) The authorized capital stock of, other equity
interest in, or other ownership interest of, each of the Subsidiaries
of LDI is set forth in Section 2.1(b)(2) of the LDI Disclosure
Schedule. Except as disclosed in Section 2.1(b)(2) of the LDI
Disclosure Schedule, all of the Subsidiary Shares are duly authorized,
validly issued, fully paid and nonassessable, and are wholly-owned,
directly or indirectly, by LDI, free and clear of all Liens and free of
any other restriction (including any restriction on the right to vote,
sell or otherwise dispose of such capital stock or other ownership
interests). No class of any of the Subsidiary Shares is entitled to
preemptive rights. Except as set forth in Section 2.1(b)(2) of the LDI
Disclosure Schedule, there are no outstanding options, warrants or
other rights to acquire capital stock from any of the Subsidiaries of
LDI. No bonds, debentures, notes or other indebtedness of any of the
Subsidiaries of LDI having the right to vote on any matters on which
stockholders may vote are issued or outstanding.
(3) Except as otherwise set forth in this Section 2.1(b)
or in related sections of the LDI Disclosure Schedule, as of the date
of this Agreement, there are no securities, options, warrants, calls,
rights, commitments, agreements, arrangements or undertakings of any
kind to which LDI or any of its Subsidiaries is a party or by which any
of them is bound obligating LDI or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other voting securities of LDI or any of its
Subsidiaries or obligating LDI or any of its Subsidiaries to issue,
grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are no
outstanding
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obligations of LDI or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of LDI or any of its
Subsidiaries.
(c) Authority; No Conflicts.
(1) LDI has all requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the actions contemplated hereby have
been duly authorized by all necessary corporate action on the part of
LDI including approval by both the Board of Directors and shareholders
of LDI. This Agreement has been duly executed and delivered by LDI and
constitutes a valid and binding agreement of LDI, enforceable against
LDI in accordance with its terms.
(2) The execution and delivery of this Agreement
by LDI does not or will not, as the case may be, and the consummation
by LDI of the Transaction and the other actions contemplated hereby
will not, conflict with, or result in a Violation pursuant to: (A) any
provision of the Articles of Incorporation or bylaws or other charter
documents of LDI or any Subsidiary of LDI or (B) subject to obtaining
or making the consents, approvals, orders, authorizations,
registrations, declarations and filings referred to in paragraph (3)
below, any loan or credit agreement, note, mortgage, bond, indenture,
material lease, Employee Benefit Plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, Law, ordinance, rule or regulation applicable to LDI,
any Subsidiary of LDI or their respective properties or assets.
(3) No consent, approval order or authorization
of, or registration, declaration or filing with, any Governmental
Entity is required by or with respect to LDI or any Subsidiary of LDI
in connection with the execution and delivery of this Agreement by LDI,
or the consummation of the Transaction and the other transactions
contemplated hereby and thereby, except for the consents of third
parties identified in Section 2.1(c)(3) of the LDI Disclosure Schedule.
(4) The NETnet Consent is in full force and
effect and has not been amended, modified, revoked or rescinded.
(d) Reports and Financial Statements.
(1) LDI has filed all required registration
statements, prospectuses, reports, schedules, forms, statements and
other documents required to be filed by it under the federal securities
laws with the SEC since April 7, 1998 (collectively, including all
exhibits thereto, the "LDI SEC Reports"). No Subsidiary of LDI is
required to file any form, report, registration statement or prospectus
or other document with the SEC, or any
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similar agency of any non-U.S. jurisdiction, which was not otherwise
filed with an LDI SEC Report. None of the LDI SEC Reports, as of their
respective dates, contained any untrue statement of a material fact or
omitted or will 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 were made, not misleading. The LDI SEC
Reports, taken as a whole, do not and as of the Closing will not
contain any untrue statement of a material fact or omit or will omit to
state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances existing as
of the Closing Date, not misleading. Each of the financial statements
(including the related notes) included in the LDI SEC Reports (the "LDI
Financial Statements") presents fairly the consolidated financial
position and consolidated results of operations and cash flows of LDI
and its Subsidiaries as of the respective dates or for the respective
periods set forth therein, and the related results of their operations
for the periods then ended, all in conformity with GAAP consistently
applied during the periods involved except as otherwise noted therein
and subject, in the case of unaudited interim financial statements, to
normal and recurring year-end adjustments that have not been and are
not expected to be material in amount. All of the LDI SEC Reports, as
of their respective dates, complied or will comply as to form in all
material respects with the applicable requirements of the Securities
Act and the Exchange Act and the rules and regulations promulgated
thereunder.
(2) Except (i) as and to the extent reflected
and adequately reserved against in the LDI Financial Statements, (ii)
as shown on Section 2.1(d)(2) of the LDI Disclosure Schedule, (iii) as
shown on Sections 2.1(e), 2.1(f), 2.1(i), 2.1(n)(1) or 2.1(o) of the
LDI Disclosure Schedule, or (iv) pursuant to contractual obligations
entered into in the Ordinary Course of Business, as of September 30,
1999, LDI and its Subsidiaries had no liabilities or obligations
whatsoever, whether accrued, absolute, contingent or otherwise. Since
September 30, 1999, LDI and its Subsidiaries have not incurred any
liabilities or obligations whatsoever except as reflected in the LDI
Plan.
(3) Section 2.1(d)(3) of the LDI Disclosure
Schedule contains the consolidating financial statements of LDI and the
LDI Subsidiaries as of December 31, 1998 and September 30, 1999 (the
"Consolidating Financial Statements"). The Consolidating Financial
Statements present fairly the financial position of the Subsidiaries as
of the date thereof, and the related results of their operations for
the periods then ended. The Consolidating Financial Statements have
been prepared in accordance with GAAP applied on a consistent basis
except that disclosures required by GAAP have been omitted from the
Consolidating Financial Statements of September 30, 1999. All
adjustments, consisting of normal, recurring entries and accruals
necessary for a fair presentation, have been made on the Consolidating
Financial Statements. The unaudited consolidating balance sheet as of
September 30, 1999 included in the Consolidating Financial Statements
is referred to herein as the Interim Subsidiary Balance Sheet.
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<PAGE> 13
(e) Title to Assets.
(1) Subject to paragraph 2 below, LDI and each
of the Subsidiaries of LDI (A) have good and valid title to all the
personal and mixed, tangible and intangible properties and assets which
they purport to own, including all the personal properties and assets
reflected, but not shown as leased or encumbered, in the LDI Financial
Statements (except for inventory and assets sold in the Ordinary Course
of Business or disposed of as permitted by Section 3.1(l) hereof and
supplies consumed in the Ordinary Course of Business); and (B) except
for Permitted Liens (as defined hereafter), owns such personal property
free and clear of all Liens, including any mortgages, leases, chattel
mortgages, conditional sales contracts, collateral security
arrangements and other title or interest retention arrangements.
"Permitted Liens" shall mean (x) (i) purchase money security interests
that individually secure $100,000 or less of indebtedness or (ii) the
security interests, easements or other encumbrances described in
Section 2.1(e) of the LDI Disclosure Schedule; and (y) liens for Taxes
not yet due and payable. Other than the Pledged Securities or
certificates representing shares of LDI Subsidiaries that have been
pledged as described in Section 2.1(b)(2) of the LDI Disclosure
Schedule, the Pledge Account and other Collateral, all properties and
assets of LDI and the Subsidiaries of LDI are in the possession or
control of LDI or the Subsidiaries of LDI.
(2) Except as set forth in Section 2.1(e) of the
LDI Disclosure Schedule, neither LDI nor any Subsidiary of LDI owns any
interest in any real property.
(3) The equipment and fixed assets (including
all telecommunications cable) owned or leased by LDI or the
Subsidiaries of LDI are in good and safe operating condition and repair
and are adequate for the uses to which it is being put.
(4) The rights, properties and other assets
presently owned, leased or licensed by LDI or the Subsidiaries of LDI
include all rights, properties and other assets necessary to permit LDI
and the Subsidiaries of LDI to conduct their business in the same
manner as their business has been conducted in prior periods, without
any immediate need for replacement, refurbishment or extraordinary
repair.
(f) Indebtedness. Section 2.1(f) of the LDI Disclosure
Schedule 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 LDI or any Subsidiary of LDI exceeding $100,000 other than
indebtedness pursuant to the Term Loan or otherwise owed to the Note Holders, as
well as indebtedness by way of lease-purchase arrangements, guarantees
(excluding any guarantee by LDI of any obligations of any LDI Subsidiary or by
any LDI Subsidiary of any obligations of LDI) or any undertakings on which
others rely in extending credit and all conditional sales contracts, chattel
mortgages and other security arrangements with respect to
10
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personal property used or owned by LDI or any Subsidiary of LDI. The aggregate
of all indebtedness for borrowed money of LDI that is not listed on the LDI
Financial Statements that does not arise in the Ordinary Course of Business or
is not reflected in Section 2.1(e) or 2.1(f) of the LDI Disclosure Schedule does
not exceed $250,000.
(g) Board Approval. The Board of Directors of LDI, by
resolutions duly adopted at a meeting, properly called and held, and not
subsequently rescinded or modified in any way (the "LDI Board Approval"), has
duly (i) determined that this Agreement and the Transaction are fair to and in
the best interests of LDI and its shareholders, (ii) approved this Agreement and
the Transaction, (iii) recommended that the shareholders of LDI adopt this
Agreement and approve the Transaction, and (iv) directed that this Agreement and
the transactions contemplated hereby be submitted for consideration by the
shareholders of LDI.
(h) Vote Required. The affirmative vote of the holders of
a majority of the outstanding shares of LDI Common Stock and LDI Series A
Preferred (voting separately and together) and LDI Series B Preferred, voting
separately, to approve the Transaction (the "Required LDI Vote") is the only
vote of the holders of any class or series of LDI capital stock necessary to
approve the Transaction and the other transactions contemplated hereby. An
affirmative vote of all the shareholders who executed the Voting Agreements
would be sufficient to approve the Transaction. Other than the Required LDI
Vote, all corporate action necessary for valid approval of this Agreement and
consummation of the Transaction has been taken, is in full force and effect and
is not subject to amendment, modification or revocation. Neither NETnet nor the
shareholders of NETnet are required, and neither has the right, to vote on the
Transaction, this Agreement or the other transactions contemplated hereby but
NETnet has consented to the Transaction, as set forth in the NETnet Consent. The
shareholders of NETnet who executed the NETnet Shareholders Letters collectively
own at least 36% of the issued and outstanding shares of capital stock of
NETnet.
(i) Litigation; Compliance with Laws.
(1) Except as set forth in Section 2.1(i) of the
LDI Disclosure Schedule or litigation threatened respecting non-payment
for goods or services bought in the Ordinary Course of Business, there
is no suit, investigation, action or proceeding pending or, to the
Knowledge of LDI, threatened, against or affecting LDI or any
Subsidiary of LDI, having, or which would have, a Material Adverse
Effect on the Business, nor is there any judgment, decree, injunction,
rule or order of any Governmental Entity or arbitrator outstanding
against LDI or any Subsidiary of LDI having, or which would have, a
Material Adverse Effect on the Business.
(2) The businesses of LDI and its Subsidiaries
are not being conducted in violation of, and LDI has not received any
notices of violations with respect to, any Law, except where such
violation would not have a Material Adverse Effect.
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<PAGE> 15
(3) There is no litigation, suit or proceeding
pending with respect to the acquisition by LDI of NETnet International
AB (the "NETnet Acquisition").
(j) Absence of Certain Changes or Events. Except for
liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, except as disclosed in the LDI SEC Reports, and except as
permitted by Section 3.1, since September 30, 1999 through and including the
date hereof, (i) LDI and its Subsidiaries have operated only in the Ordinary
Course of Business and (ii) there has not been any change, circumstance or event
which has had, or would reasonably be expected to have, a Material Adverse
Effect on LDI or any of the Subsidiaries of LDI.
(k) Environmental Matters. (i) The operations of LDI and
its Subsidiaries have been and are in material compliance with all Environmental
Laws and with all licenses required by Environmental Laws, (ii) there are no
pending or, to the Knowledge of LDI or any Subsidiary of LDI, threatened,
Actions under or pursuant to Environmental Laws against LDI or its Subsidiaries
or involving any real property currently or, to the Knowledge of LDI or any
Subsidiary of LDI, formerly, owned, operated or leased by LDI or its
Subsidiaries, (iii) LDI and its Subsidiaries are not subject to any
Environmental Liabilities and, to the Knowledge of LDI or any Subsidiary of LDI,
no facts, circumstances or conditions relating to, arising from, associated with
or attributable to any real property currently or, to the Knowledge of LDI or
any Subsidiary of LDI, formerly, owned, operated or leased by LDI or its
Subsidiaries or operations thereon would reasonably be expected to result in
Environmental Liabilities, (iv) all real property owned and, to the Knowledge of
LDI or any Subsidiary of LDI all real property operated or leased by LDI or its
Subsidiaries is free of contamination from Hazardous Material that would have an
adverse effect on human health or the environment and (v) there is not now, nor,
to the Knowledge of LDI or any Subsidiary of LDI, has there been in the past,
on, in or under any real property owned, leased or operated by LDI or its
Subsidiaries or any of their respective predecessors (a) any underground storage
tanks, regulated pursuant to 40 C.F.R. Part 280 or delegated state programs,
dikes or impoundments containing more than a reportable quantity of Hazardous
Materials, (b) any friable asbestos containing materials or (c) any
polychlorinated biphenyls.
(l) Intellectual Property. (i) LDI and each of its
Subsidiaries owns, or is licensed to use (in each case, free and clear of any
Liens), all Intellectual Property used in or necessary for the conduct of the
Business as currently conducted, (ii) the use of any Intellectual Property by
LDI or its Subsidiaries (x) to LDI's Knowledge, does not infringe on or
otherwise violate the rights of any Person and (y) is in accordance with any
applicable license pursuant to which LDI or any Subsidiary acquired the right to
use any such Intellectual Property; (iii) to the Knowledge of LDI or any
Subsidiary of LDI, no Person is challenging, infringing on or otherwise
violating any right of LDI or any of its Subsidiaries with respect to any
Intellectual Property owned by and/or licensed to LDI or any of its
Subsidiaries; and (iv) neither LDI
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nor any of its Subsidiaries has received any written notice of any pending claim
with respect to any Intellectual Property used by LDI or its Subsidiaries and to
LDI's and its Subsidiaries' Knowledge, no Intellectual Property owned and/or
licensed by LDI or any of its Subsidiaries is being used or enforced in a manner
that would result in the abandonment, cancellation or unenforceability of such
Intellectual Property.
(m) Brokers or Finders. Except as otherwise provided in
this Agreement, no agent, broker, investment banker, financial advisor or other
firm or Person (including Jeffries) is or will be entitled to any broker's or
finder's fee or any other similar commission or fee in connection with any of
the transactions contemplated by this Agreement, based upon arrangements made by
or on behalf of LDI.
(n) Taxes.
(1) Except as set forth in Section 2.1(n)(1) of
the LDI Disclosure Schedule, (A) all Tax Returns of LDI and its
Subsidiaries have been filed, or requests for extensions have been
timely filed and have not expired; (B) all Tax Returns filed by LDI and
its Subsidiaries are true, complete and accurate in all material
respects; (C) all Taxes shown to be due on such Tax Returns or on
subsequent assessments with respect thereto have been paid or adequate
reserves have been established for the payment of such Taxes, and no
other Taxes are payable by LDI and any of its Subsidiaries with respect
to items or periods covered by such Tax Returns (whether or not shown
on or reportable on such Tax Returns) or with respect to any period
prior to the date of this Agreement; (D) LDI and its Subsidiaries have
withheld and paid over all Taxes required to have been withheld and
paid over, and complied with all information reporting and withholding
requirements, including maintenance of required records with respect
thereto, in connection with amounts paid or owing to any employee,
creditor, or independent contractor of the Business; (E) there are no
liens on any of the assets of LDI or any of its Subsidiaries with
respect to Taxes, other than liens for Taxes not yet due and payable or
for Taxes that LDI or any of its Subsidiaries is contesting in good
faith through appropriate proceedings and for which appropriate
reserves have been established; (F) there is no audit, examination,
deficiency or refund litigation or matter in controversy with respect
to any Taxes of LDI and its Subsidiaries that might reasonably be
expected to result in a Tax determination which would have a Material
Adverse Effect on LDI or any of its Subsidiaries; (G) no waiver or
extension of any statute of limitations is in effect with respect to
Taxes or Tax Returns of LDI or its Subsidiaries (if such Subsidiaries
file a federal income tax return or are part of a consolidated group
including LDI); and (H) LDI and each of its Subsidiaries have disclosed
on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code.
(2) There are no contracts, agreements, plans or
arrangements, including the provisions of this Agreement, covering any
employee, independent contractor, former
13
<PAGE> 17
employee or former independent contractor of LDI or any of its
Subsidiaries that, individually or collectively, could give rise to the
payment of any amount (or portion thereof) that would not be deductible
pursuant to Sections 280G, 404, or 162 of the Code.
(3) Except as set forth in Section 2.1(n)(3) of
the LDI Disclosure Schedule, neither LDI nor any of its Subsidiaries is
(nor has LDI or any of its Subsidiaries ever been) a party to a Tax
Sharing Agreement.
(4) WAXS will receive from LDI and its
Subsidiaries true and correct copies of (i) the relevant portions of
closing agreements, private letter rulings, advance pricing agreements
and gain recognition agreements received by, or entered into by or on
behalf of, LDI or any of its Subsidiaries, with respect to the Business
relating to Taxes, and (ii) all material separate Tax Returns for its
Subsidiaries.
(5) Except as set forth in Section 2.1(n)(5) of
the LDI Disclosure Schedule, none of the LDI Subsidiaries: (i) is
engaged in a United States trade or business for United States federal
income tax purposes; (ii) does business in or derives income from any
state, local, territorial or non-U.S. taxing jurisdiction other than
those for which Tax Returns have been filed and will be furnished to
WAXS pursuant to Section 2.1(n)(4) hereof; (iii) is a "passive foreign
investment company" within the meaning of the Code; and (iv) has
participated in or cooperated with an international boycott or has been
requested to do so in connection with any prior transaction or the
transactions contemplated by this Agreement.
(6) LDI, DTII and Sub are members of a
consolidated group which files a consolidated federal income Tax Return
(the "Group") and except as set forth in Section 2.1(n)(6) of the LDI
Disclosure Schedule, there are no deferred intercompany gains, losses
or other intercompany items, or excess loss accounts, within the
meaning of Treasury Regulation Sections 1.1502-13 or 1.1502-19 (or any
predecessor regulations or any comparable items for state, local or
non-U.S. Tax purposes) with respect to any member of the Group.
(7) LDI has received no written notice of any
claim made by a Governmental Entity in a jurisdiction where the Group,
LDI or any of its Subsidiaries does not file Tax Returns that it is or
may be subject to Taxes in such jurisdiction.
(o) Material Agreements. Section 2.1(o) of LDI Disclosure
Schedule sets forth all contracts and agreements of LDI or any of its
Subsidiaries that (i) are material to its or their business, operations or
prospects, or contain provisions the breach of which would have a Material
Adverse Effect on LDI, (ii) provide for employee compensation in excess of
$150,000 per annum to any single employee, (iii) are facilities operating leases
with monthly rental of $5,000 or more or which are otherwise material to the
Business, (iv) are of the "take-or-pay" or similar variety, or (v) were entered
into outside the Ordinary Course of Business or obligate LDI
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<PAGE> 18
or any of its Subsidiaries outside the Ordinary Course of Business
(collectively, "Material Agreements"). All of the Material Agreements are valid,
binding, in full force and effect and are enforceable in accordance with their
respective terms. Neither LDI nor any of its Subsidiaries is in material
violation or material breach of or default under any of the Material Agreements
(other than solely as a result of LDI's failure to make payments), nor to LDI's
or any of its Subsidiaries' Knowledge is any other party to any of the Material
Agreements in material violation or material breach or other default under any
such contract. LDI, or each Subsidiary of LDI, as applicable, has fulfilled all
obligations required to have been performed by it under each Material Agreement.
Except as set forth in Section 2.1(o) of the LDI Disclosure Schedule, neither
LDI nor any LDI Subsidiary is a party to or bound by any contract, agreement or
arrangement that (i) materially restricts the conduct of any type of business
activity anywhere in the world.
(p) Labor and Employment Matters. To the Knowledge of LDI
or its Subsidiaries, no key employee, or group of employees, of LDI or any of
its Subsidiaries who WAXS has notified LDI that WAXS wishes to hire has any
plans to terminate employment with LDI or any of the Subsidiaries of LDI other
than employees with plans to retire. There is no legal prohibition against the
employment by LDI or any Subsidiary of LDI of any employee material to the
International Business. None of LDI or any Subsidiary of LDI is party to any
collective bargaining agreement or has any material labor relations problem, and
there is no pending representation question or union organizing activity
respecting employees in the International Business. All accrued obligations of
LDI and each Subsidiary of LDI applicable to employees of the Business, whether
arising by operation of law, by contract, by past custom, or otherwise, for
payments to trusts or other funds or to any authority, with respect to
unemployment compensation, disability, or social security benefits or any other
benefits for its employees with respect to the employment of said employees
through the date hereof have been paid, or adequate accruals therefor have been
made.
(q) Employee Benefits.
(1) All Employee Benefit Plans and Arrangements.
The representations contained in this Section 2(q)(1) apply only to
LDI's United States employees.
(A) List and Description of Plans and
Arrangements. Section 2.1(q)(1)(A) of the LDI Disclosure
Schedule sets forth a complete and accurate list and
description of all agreements, arrangements, commitments,
policies or understandings of any kind (whether written or
oral) (i) which relate to employee benefits for any employees
of LDI or the Subsidiaries of LDI or their predecessor in
interest; (ii) which pertain to present or former employees,
retirees, directors or independent contractors (or their
beneficiaries, dependents or spouses) of LDI or any Subsidiary
of LDI or their predecessors in interest; and (iii) which are
currently or expected to be adopted, maintained by, sponsored
by, or contributed
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to by LDI or any Subsidiary of LDI, any of their predecessors
in interest or any employer which, under Section 414 of the
Code would constitute a single employer with LDI (an "LDI
Affiliate") or as to which LDI, any Subsidiary of LDI, any of
their predecessors in interest or any LDI Affiliate has any
ongoing liability or obligation whatsoever (collectively,
"Employee Benefit Plans"), including all: (A) employee benefit
plans as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"); (B) all
other bonus, incentive compensation, deferred compensation,
early retirement, profit-sharing, thrift, stock ownership,
stock appreciation rights, bonus, stock option, stock
purchase, welfare, severance, supplemental unemployment,
salary continuation, insurance, disability, vacation, fringe
benefit or any other type of nonqualified benefit plans or
arrangements; and (C) trusts, group annuity contracts,
insurance policies or other funding media for the plans and
arrangements described hereinabove.
(B) Compliance with ERISA and the Code.
Except as set forth in Section 2.1(q)(1)(B) of the LDI
Disclosure Schedule, LDI, all Subsidiaries of LDI, their
predecessors in interest and all LDI Affiliates have complied
with all of their respective obligations with respect to all
Employee Benefit Plans and have maintained the Employee
Benefit Plans in compliance with all applicable Laws and
regulations, except for any failure to maintain such Employee
Benefit Plans which would not have a Material Adverse Effect
on LDI.
(C) Agreements to Create, Continue or
Terminate Plans. Neither LDI, any Subsidiary of LDI, their
predecessors in interest nor any LDI Affiliate has any
agreement, arrangement, commitment or understanding, whether
legally binding or not, to create any additional Employee
Benefit Plan or to continue, modify, change in any material
respect, or terminate any existing Employee Benefit Plan.
(D) Agency Review, Taxes and Fiduciary
Liability. None of the Employee Benefit Plans is currently
under investigation, audit or review by the Department of
Labor, the Internal Revenue Service or any other Governmental
Entity or federal, state or non-U.S. agency or is liable for
any federal, state, local or non- U.S. taxes. There is no
transaction in connection with which LDI, any Subsidiary of
LDI, any LDI Affiliate or any fiduciary of any of the Employee
Benefit Plans could be subject to either a civil penalty
assessed pursuant to ERISA Section 502, a tax imposed by Code
Section 4975 or liability for a breach of fiduciary
responsibility under ERISA.
(E) Claims Against Plans and
Fiduciaries. Other than routine claims for benefits payable to
participants or beneficiaries in accordance with the
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terms of the Employee Benefit Plans, there are no claims,
pending or threatened, by any participant or beneficiary
against any of the Employee Benefit Plans or any fiduciary of
any of the Employee Benefit Plans, and no basis for any such
claim or claims exists.
(2) Defined Benefit and Multiemployer Plans.
Neither LDI, any Subsidiary of LDI, their predecessors in interest nor
any LDI Affiliate has at any time maintained, sponsored or contributed
to any "pension plan" as defined in ERISA Section 3(2) which is subject
to Title IV of ERISA or any similar plan under any non-U.S. Law or
contributed to any such pension plan which is a multiemployer plan as
defined in ERISA Section 3(37)(A) or, except as required by local law,
any similar plan under any non-U.S. Law.
(r) Required Licenses and Permits. Section 2.1(r) of the
LDI Disclosure Schedule sets forth all material licenses, interconnect
agreements and other authorizations of all Governmental Entities (i) held by LDI
relating to the provision of telecommunications services or products (whether or
not used in the Business or the business of any of the LDI Subsidiaries), or
(ii) critical for the operation of the Business or the business of any of the
LDI Subsidiaries (collectively, the "LDI Permits"). The LDI Permits are all such
permits material to the operation of the Business and the business of
Subsidiaries of LDI. LDI and its Subsidiaries are in material compliance with
all terms of the LDI Permits.
(s) Disclosure. No representations, warranties,
assurances or statements by LDI in this Agreement and no statement contained in
any document (including the LDI Financial Statements, the Subsidiary Financial
Statements and the LDI Disclosure Schedule), certificates or other writings
furnished or to be furnished by LDI or any of its Subsidiaries (or caused to be
furnished by LDI) to WAXS or any of its representatives pursuant to the
provisions hereof contains 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.
2.2 Representations and Warranties of WAXS. Except as set forth in
the WAXS Disclosure Schedule delivered by WAXS to LDI prior to the execution of
this Agreement (the "WAXS Disclosure Schedule") (each section of which qualifies
the correspondingly numbered representation and warranty or covenant to the
extent specified therein), WAXS represents and warrants to LDI as follows:
(a) Organization; Standing and Power. WAXS is a
corporation organized, validly existing and in good standing under the laws of
the State of Delaware and has the requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted,
except where the failure to be so organized, existing and in good standing or to
have such power and authority would not have a Material Adverse Effect on
17
<PAGE> 21
WAXS, and is duly qualified and in good standing to do business in each
jurisdiction in which the nature of its business or the ownership or leasing of
its properties makes such qualification necessary, other than in such
jurisdictions where the failure to so qualify or to be in good standing would
not have a Material Adverse Effect on WAXS.
(b) Capital Structure.
(1) The authorized capital stock of WAXS
consists of (A) 150,000,000 shares of WAXS Common Stock, par value $.01
per share ("WAXS Common Stock"), of which 51,010,501 shares are issued
and outstanding and 50,000 shares are held in the treasury of WAXS, and
(B) 10,000,000 shares of Preferred Stock, par value $.01 per share, of
which 50,000 shares designated as 4.25% Cumulative Senior Perpetual
Convertible Preferred Stock, Series A, par value $.01 per share (the
"WAXS Series A Preferred"), 23,174 shares designated as 4.25%
Cumulative Junior Convertible Preferred Stock, Series B, par value $.01
per share (the "WAXS Series B Preferred"), and 350,259.875 shares
designated as Convertible Preferred, Series C, par value $.01 per share
(the "WAXS Series C Preferred") are issued and outstanding. Upon filing
of the Certificate of Designation, 185,000 shares of WAXS Series D
Preferred will be issued and outstanding. WAXS has reserved or has
available 4,347,827 shares of WAXS Common Stock for issuance upon
conversion of the WAXS Series A Preferred, 1,448,375 shares of WAXS
Common Stock for issuance upon conversion of the WAXS Series B
Preferred, and 18,027,478 shares of WAXS Common Stock for issuance upon
conversion of the WAXS Series C Preferred. All issued and outstanding
shares of the capital stock of WAXS are duly authorized, validly
issued, fully paid and nonassessable, and no class of capital stock is
entitled to preemptive rights. There are no outstanding options,
warrants or other rights to acquire capital stock from WAXS other than
options representing in the aggregate the right to purchase 8,471,190
shares of WAXS Common Stock (collectively, the "WAXS Stock Options")
under the World Access, Inc. 1991 Stock Option Plan, World Access, Inc.
Outside Directors' Warrant Plan, World Access, Inc. Directors' Warrant
Incentive Plan, World Access, Inc. 1998 Incentive Equity Plan, Telco
Systems, Inc. 1980 Stock Option Plan, Telco Systems, Inc. 1988
Non-Statutory Stock Option Plan and Telco Systems, Inc. 1990 Stock
Option Plan (collectively, the "WAXS Stock Option Plans"). Section
2.2(b) of the WAXS Disclosure Schedule sets forth a complete and
correct list of the number of shares of WAXS Common Stock subject to
WAXS Stock Options or other rights to purchase or receive WAXS Common
Stock granted under the WAXS benefit plans or otherwise and the
exercise prices thereof.
(2) There are no issued or outstanding bonds,
debentures, notes or other indebtedness of WAXS having the right to
vote on any matters on which holders of capital stock of WAXS may vote.
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<PAGE> 22
(3) Except as otherwise set forth in this
Section 2.2(b) and as contemplated by Section 1.3, there are no
securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which WAXS or any of its
Subsidiaries is a party or by which any of them is bound obligating
WAXS or any of its Subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or
other voting securities of WAXS or any of its Subsidiaries or
obligating WAXS or any of its Subsidiaries to issue, grant, extend or
enter into any such security, option, warrant, call right, commitment,
agreement, arrangement or undertaking. There are no outstanding
obligations of WAXS or any of its Subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of WAXS or any of its
Subsidiaries.
(c) Authority; No Conflicts.
(1) WAXS has all requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby and thereby, including the issuance of
the shares of WAXS Preferred Stock to be issued as consideration (the
"Share Issuance"). The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of
WAXS. This Agreement has been duly executed and delivered by WAXS and
constitutes a valid and binding agreement of WAXS, enforceable against
it in accordance with its terms.
(2) The execution and delivery of this Agreement
by WAXS does not or will not, as the case may be, and the consummation
by WAXS of the Transaction and the other actions contemplated hereby
and thereby will not, conflict with, or result in a Violation pursuant
to: (A) any provision of the Certificate of Incorporation or bylaws of
WAXS or any Subsidiary of WAXS, or (B) except as would not have a
Material Adverse Effect on WAXS and subject to obtaining or making the
consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph (3) below, any loan
or credit agreement, note, mortgage, bond, indenture, lease, benefit
plan or other agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance,
rule or regulation applicable to WAXS or any Subsidiary of WAXS or
their respective properties or assets.
(3) Other than as required under the HSR Act, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required by or
with respect to WAXS or any Subsidiary of WAXS in connection with the
execution and delivery of this Agreement by WAXS or the consummation of
the Transaction and the other transactions contemplated hereby and
thereby, except such consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to make or
obtain would not have a Material Adverse Effect on WAXS.
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(d) Validity of Issuance. The Preferred Shares, when issued in
accordance with Section 1.3 hereof, will be duly authorized, validly issued and
fully paid and nonassessable.
(e) Reports and Financial Statements.
(1) WAXS has filed all required registration statements,
prospectuses, reports, schedules, forms, statements and other documents
required to be filed by it under the federal securities laws with the
SEC since January 1, 1998 (collectively, including all exhibits
thereto, the "WAXS SEC Reports"). No Subsidiary of WAXS is required to
file any form, report, registration statement, prospectus or other
document with the SEC not otherwise filed with a WAXS SEC Report. None
of the WAXS SEC Reports, as of their respective dates (or, if amended
or superseded by a filing prior to the date of this Agreement, then on
the date of such filing), contained or will contain any untrue
statement of a material fact or omitted or will 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 were
made, not misleading.
(2) Since December 31, 1998, WAXS and its Subsidiaries
have not incurred any liabilities that are of a nature that would be
required to be disclosed on a balance sheet of WAXS and its
Subsidiaries or the footnotes thereto prepared in conformity with GAAP,
other than (A) liabilities incurred in the Ordinary Course of Business
or (B) liabilities that would not have a Material Adverse Effect on
WAXS.
ARTICLE III
COVENANTS RELATING TO CONDUCT OF BUSINESS
3.1 Covenants of LDI. During the period from the date of this
Agreement and continuing until the Closing Date, LDI agrees as to itself and its
Subsidiaries that (except as expressly required, contemplated or permitted by
this Agreement or the LDI Disclosure Schedule or the LDI Plan or to the extent
that WAXS shall otherwise consent in writing):
(a) Ordinary Course. LDI shall operate and shall cause
its Subsidiaries to operate only in the Ordinary Course of Business in all
material respects, in substantially the same manner as heretofore conducted, and
shall use commercially reasonable efforts under the circumstances to preserve
intact its and their present lines of business, maintain their rights and
franchises and preserve their relationships with customers, suppliers and others
having significant business dealings with them.
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(b) Dividends; Changes in Share Capital. LDI shall not,
and shall not permit any of its Subsidiaries to, and shall not propose to, (i)
declare or pay any dividends on or make other distributions in respect of any of
its or their capital stock or other equity interests or ownership interests,
(ii) split, combine or reclassify any of its or their capital stock or other
equity interests or ownership interests or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for, shares of its or their capital stock or other equity interests or ownership
interests, or (iii) repurchase, redeem or otherwise acquire any shares of
capital stock or other equity interests or ownership interests of LDI or any of
its Subsidiaries or any securities convertible into or exercisable for any
shares of such capital stock or other equity interests or ownership interests.
(c) Issuance of Securities. LDI shall not, and shall not
permit any of its Subsidiaries to, issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its or their capital
stock or other equity interests or ownership interests of any class, any LDI
Voting Debt or any securities convertible into or exercisable for, or any
rights, warrants or options to acquire, any such shares or LDI Voting Debt or
any of the Subsidiary Shares, or enter into any agreement with respect to any of
the foregoing, other than the issuance of LDI Common Stock upon the exercise of
LDI Stock Options or the issuance of up to 1,500,000 options to purchase LDI
Common Stock at a price per share equal to the closing price per share of WAXS
Common Stock on the day immediately preceding the date of issuance of such
options, which options will vest ratably over four (4) years and which otherwise
will be acceptable to WAXS (the "New Options").
(d) Governing Documents. Neither LDI nor any of its
Subsidiaries shall amend or propose to amend their respective certificates or
articles of incorporation, by-laws or other governing documents.
(e) Acquisitions and Sales. LDI shall not, and shall not
permit any of its Subsidiaries to, acquire or sell or agree to acquire or sell
by merging or consolidating with, or by purchasing or selling a substantial
equity interest in or a substantial portion of the assets of, or by any other
manner, any business or any corporation, partnership, association or other
business organization or division thereof or otherwise acquire or sell or agree
to acquire or sell any assets (other than the acquisition or sale of assets used
in the operations of the business of LDI and its Subsidiaries in the Ordinary
Course of Business).
(f) Other Restrictions. LDI shall not, and shall not
permit any of the Subsidiaries of LDI to, (i) mortgage, pledge or subject to
Liens (except for Permitted Liens) any of the Assets or any assets of any of the
Subsidiaries of LDI except immaterial Liens, (ii) increase any salaries, wages
or employee benefits or commit to do any of the foregoing except in the Ordinary
Course of Business, (iii) incur, assume or guarantee any obligation or liability
for borrowed money, or exchange, refund or renew any outstanding indebtedness,
(iv) cancel any debts, or (v) make any loans.
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(g) Correspondence. LDI shall, and shall cause each of
its Subsidiaries to, provide to WAXS copies of any correspondence received from
or sent to any Governmental Entity or lenders relating to any material
unresolved violation of law or lending agreement.
(h) Accounting Methods; Income Tax Matters. LDI shall
not, and shall not permit any of the Subsidiaries of LDI to, change its or their
methods of accounting in effect on September 30, 1999, except as required by
changes in GAAP as concurred in by LDI's independent auditors. LDI shall not,
and shall not permit any of the Subsidiaries of LDI to, (i) change its or their
fiscal year, (ii) except as provided in Section 4.7 hereof, make any material
tax election, (iii) adopt or change any Tax accounting method, (iv) enter into
any closing agreement, (v) surrender any right to claim a refund of Taxes (which
refund shall be for the benefit of WAXS unless it relates to Taxes incurred by
LDI as a result of the Transaction or to Taxes that arise after the Closing
relating to the period following Closing), or (vi) take any other action which
would have the effect of materially increasing the Tax liability or materially
decreasing any Tax Asset of LDI or any of its Subsidiaries, other than in the
Ordinary Course of Business.
(i) Certain Agreements. LDI shall not enter into any
material contract or commitment of any kind relating to LDI, any Subsidiary of
LDI or the Business without the prior written consent of WAXS (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
required to be disclosed in the LDI Disclosure Schedule). Any such contract,
entered into with the prior written consent of WAXS, shall be deemed to have
been disclosed in the LDI Disclosure Schedule. LDI shall not, and shall not
permit any of its Subsidiaries to, enter into any agreement or arrangement that
limits or otherwise restricts LDI or any of its Subsidiaries or any of their
respective affiliates or any successor thereto, or that could, after the
Closing, limit or restrict WAXS from engaging or competing in any line of
business.
(j) Litigation. LDI shall not, and shall not permit any
of its Subsidiaries to settle or, compromise any litigation, except where the
amount paid or payable, in each case, does not exceed $100,000.
(k) Working Capital. LDI shall, and shall cause each of
its Subsidiaries to, 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
and providing services in an orderly and prudent manner and, insofar as
practical, paying outstanding obligations, trade accounts and other indebtedness
as they come due, all in accordance with the LDI Plan (as defined in Section
5.2(e)).
(l) Maintenance of Assets. LDI shall, and shall cause
each of its Subsidiaries to, maintain the Assets and the assets of the
Subsidiaries of LDI, in their present state of repair
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(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. The foregoing shall not prohibit LDI's
returning to lessors equipment leased in the United States or not used in the
Business outside the United States. Nothing in this Agreement shall be deemed to
prohibit LDI from spending up to $180,000 to purchase Directors and Officers
insurance for the period following the Closing ("tail insurance coverage").
3.2 Operational Reports. LDI shall, on a regular and frequent
basis, report to WAXS (to the extent permitted by law or regulation or any
applicable confidentiality agreement) on material operational matters of LDI and
its Subsidiaries.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 Access to Information. Upon reasonable notice, LDI shall (and
shall cause its Subsidiaries to) afford to the officers, employees, accountants,
counsel, financial advisors and other representatives of WAXS reasonable access
during normal business hours, during the period prior to the Closing Date, to
all its properties, books, contracts, commitments, records, officers and
employees and, during such period, LDI shall (and shall cause its Subsidiaries
to) furnish promptly to WAXS (a) a copy of each report, schedule, registration
statement and other document filed, published, announced or received by it
during such period pursuant to the requirements of Federal or state or non-U.S.
securities laws, as applicable (other than documents which LDI is not permitted
to disclose under applicable Law), and (b) consistent with its legal
obligations, all other information concerning LDI, its Subsidiaries and their
business, properties and personnel as WAXS may reasonably request; provided,
however, LDI may restrict the foregoing access to the extent that any Law,
treaty, rule or regulation of any Governmental Entity applicable to such party
requires such party or its Subsidiaries to restrict access to any properties or
information. The parties will hold any such information which is non-public in
confidence to the extent required by, and in accordance with, the provisions of
the Confidentiality Agreement between LDI and WAXS (the "Confidentiality
Agreement"). Any investigation by WAXS shall not affect the representations and
warranties made herein of LDI, if any.
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4.2 Reasonable Efforts.
(a) Subject to the terms and conditions of this
Agreement, each party will use reasonable efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable Laws and regulations to consummate the Transaction
and the other transactions contemplated by this Agreement as soon as practicable
after the date hereof, including (i) preparing and filing as promptly as
practicable all documentation to effect all necessary applications, notices,
petitions, filings, and other documents and to obtain as promptly as practicable
all consents, waivers, licenses, orders, registrations, approvals, permits and
authorizations necessary or advisable to be obtained from any third party and/or
any Governmental Entity in order to consummate the Transaction or any of the
other transactions contemplated by this Agreement and (ii) taking all reasonable
steps as may be necessary to obtain all such material consents (including the
Note Holders Consent), waivers, licenses, registrations, permits,
authorizations, Tax rulings, orders and approvals. The parties each shall keep
the other apprised of the status of matters relating to completion of the
transactions contemplated hereby, including promptly furnishing the other with
copies of notices or other communications received by it or any of its
Subsidiaries or affiliates from any Governmental Entity or third party with
respect to the Transaction or any of the other transactions contemplated by this
Agreement, in each case, to the extent permitted by law or regulation or any
applicable confidentiality agreements existing on the date hereof.
(b) The parties shall promptly prepare and file any
required notifications with the DOJ and the FTC as required by the HSR Act and
with any non-U.S. Governmental Entity as required by European Union antitrust
Laws. The parties shall cooperate with each other in connection with the
preparation of such notifications and related matters, 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 WAXS and LDI 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 the Confidentiality Agreement. WAXS shall
pay any filing fee(s) required under the regulations promulgated pursuant to the
HSR Act with respect to the notification for which WAXS or LDI is the "Acquiring
Person" (as defined in the regulations promulgated to the HSR Act).
4.3 Fees and Expenses. Except as otherwise expressly provided in
this Agreement, all Expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such
Expenses, except if the Transaction is consummated, WAXS shall pay, or cause to
be paid, any and all Expenses incurred by LDI (but not its Shareholders) but
excluding payments owed to Jeffries, if any, other than as provided for
elsewhere in this Agreement.
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4.4 Public Announcements. Neither WAXS nor LDI shall issue a press
release or any other public statement with respect to this Agreement or the
transactions contemplated hereby except pursuant to a joint communications plan,
in the case of WAXS, with LDI's prior consent, and in the case of LDI, with
WAXS's prior consent, unless otherwise required by applicable Law or by
obligations pursuant to any listing agreement with or rules of any securities
exchange, in which case the parties shall use their reasonable best efforts to
consult with each other before issuing any press release or otherwise making any
public statement with respect to this Agreement or the transactions contemplated
hereby.
4.5 Interim Financials. Within forty-five (45) days after each
regular accounting period subsequent to September 30, 1999, and prior to the
Closing Date, LDI will deliver to WAXS periodic financial reports in the form
which it customarily prepares for its internal purposes concerning LDI and its
Subsidiaries and, if available, unaudited statements of the financial position
of LDI and its Subsidiaries as of the last day of each accounting period and
statements of income and changes in financial position of LDI and its
Subsidiaries for the period then ended.
4.6 Taxes.
(a) Except to the extent that Taxes of LDI constitute
Assumed Liabilities, LDI shall be responsible for all Taxes imposed on it with
respect to the consummation of the Transaction, including, but not limited to,
income and other Taxes imposed on the sale of the Assets, document recording
fees, real property transfer taxes and sales and excise taxes, arising out of or
in connection with the consummation of the transactions contemplated hereby.
Furthermore, LDI shall be responsible for and shall pay any Taxes arising as a
result of any Section 338(h)(10) Election, as defined in Section 4.7(a)(1) below
or any comparable or resulting election under state Law filed by WAXS and LDI.
LDI shall also be responsible for and shall pay any Taxes imposed by any state
or local Governmental Entity as a result of any election made for any of the LDI
Subsidiaries under Section 338(h)(10) or Section 338(g) of the Code (or any
comparable or resulting election under state Law) if such state or local
Governmental Entity does not allow or respect a Section 338(h)(10) election (or
any comparable or resulting election under state Law) with respect to the
purchase and sale of any of the Subsidiary Shares contemplated hereby. LDI
shall, within ten (10) business days after receipt of notice of liability from
WAXS or Sub or DTII under this Section 4.6(a), along with proof of WAXS' or
Sub's or DTII's payment of such liability, reimburse WAXS or DTII or Sub for
such Tax payment.
(b) Subject to Section 4.6(a) and except to the extent
such Taxes constitute Assumed Liabilities, LDI and each of its Subsidiaries
shall bear the cost of all Taxes that may be due after the Closing Date with
respect to the Business and the Assets that may relate to the period prior to
and including the Closing Date (the "Pre-Closing Period"). In order
appropriately to apportion any of these Taxes relating to a period that includes
(but that would not, but for this
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Section 4.6(b) close on) the Closing Date the parties hereto will, to the extent
permitted by applicable Law, elect with the relevant Governmental Entities to
treat for all purposes the Closing Date as the last day of a taxable period of
LDI or one of its Subsidiaries, and such period shall be treated as a short
period (a "Short Period") and a "Pre-Closing Period" for purposes of this
Agreement. In any case where applicable Law does not permit LDI or one of its
Subsidiaries to treat the Closing Date as the last day of a Short Period, then,
for purposes of this Agreement, the portion of such Taxes that is attributable
to the operations of LDI or one of its Subsidiaries for such Interim Period (as
defined below in this Section 4.6(b) shall be (i) in the case of Taxes that are
not based on income or gross receipts, the total amount of such Taxes for the
period in question multiplied by a fraction, the numerator of which is the
number of days in the Interim Period, and the denominator of which is the total
number of days in the entire period in question, and (ii) in the case of Taxes
that are based on income or gross receipts, the Taxes that would be due with
respect to the Interim Period, if such Interim Period were a Short Period. For
purposes of this Agreement, "Interim Period" means, with respect to any Taxes
imposed on LDI or one of its Subsidiaries for which the Closing Date is not the
last day of a Short Period, the period of time beginning on the first day of the
actual taxable period that includes (but does not end on) the Closing Date and
ending on and including the Closing Date.
(c) LDI shall prepare or cause its Subsidiaries to
prepare and timely file all Tax Returns required to be filed by LDI and its
Subsidiaries with respect to the Pre-Closing Period. If requested by WAXS, WAXS
shall have a reasonable opportunity to review all such Tax Returns and
amendments thereto. Subject to Section 4.6(a), each Subsidiary of LDI shall pay
and discharge all Taxes and tax, assessments upon or against it or any of the
Assets to be sold or transferred by such Subsidiary of LDI before the same shall
become delinquent and before penalties accrue thereon, except to the extent and
as long as: (a) the same are being contested in good faith and by appropriate
proceedings pursued diligently and in such a manner as not to cause any material
adverse effect upon the condition (financial or otherwise) or operations of the
Subsidiary; and (b) the Subsidiary shall have set aside on its respective books
appropriate reserves, if material.
(d) The Subsidiaries of LDI agree that WAXS (or a WAXS
Subsidiary) shall file and control the Tax Returns required to be filed by the
Subsidiaries of LDI with respect to the period beginning after the Closing Date
(the "Post-Closing Period"). LDI agrees that it shall provide or shall cause the
appropriate LDI Subsidiaries, or its accountants and other representatives to
provide, to WAXS, on a timely basis, the information, including but not limited
to all Tax Return work papers and records relating to its Subsidiaries, that
they or their accountants or other representatives have within their control and
that may be reasonably necessary or related to (i) the preparation of the Tax
Returns referenced in this Section 5.9(d) and (ii) audits or other proceedings,
administrative appeal or litigation with respect to the Tax Returns referenced
in this Section 4.6(d), such information to be provided to WAXS in the form in
which it has in the past been maintained by LDI Subsidiaries, their accountants
or other representatives.
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(e) As of the closing Date, LDI shall cause all Tax
Sharing Agreements to which LDI or any of its Subsidiaries is a party to be
terminated and of no further force or effect after the Closing. LDI shall
indemnify WAXS and hold WAXS harmless from any liability, loss, diminution in
value, cost, claim, consequential damages, or expense, including reasonable
attorney's and accountant's fees and expenses, incurred by WAXS, its successors
or assigns, and their respective officers, employees, consultants and agents
(collectively, "WAXS Protected Parties"), that result from or arise out of the
LDI Subsidiaries or WAXS being liable for any Tax, penalty, or interest pursuant
to Treasury Regulation Sections 1.338(h)(10)-1(e)(5) and 1.1502-6(a) or a
comparable non- U.S., state or local Law or regulation.
(f) LDI shall promptly notify WAXS in writing upon
receipt by LDI or any its Subsidiaries, of notice of any pending or threatened
Tax liabilities which relate to the Business for the Post-Closing Period. WAXS
shall have the sole right to control, after consultation with LDI, any Tax audit
or administrative or court proceeding with respect to such Taxes and LDI agrees
that it will reasonably cooperate (and cause its Subsidiaries to reasonably
cooperate) fully with WAXS, it Subsidiaries, and their respective counsel in the
defense against or compromise of any claim in any said proceeding. After the
Closing Date, LDI and WAXS shall (and shall cause each of their Subsidiaries to)
make available to the other such records as WAXS or LDI, as applicable, may
require for the preparation of any Tax Returns or other similar governmental
reports or forms, and the preparation and defense of any audit or administrative
or court proceeding. All refunds of Taxes attributable to the Post-Closing
Period shall be for the account of WAXS. LDI shall (and shall cause each of its
Subsidiaries to) take such actions as reasonably requested by WAXS to obtain
such refunds and shall deliver to WAXS any such refunds immediately upon receipt
thereof.
(g) LDI (and its Subsidiaries) and WAXS shall cooperate
fully, as and to the extent reasonably requested by the other, in connection
with the preparation and filing of any Tax Return (including LDI or WAXS
providing to the other copies of Tax Returns, balance sheets, and income
statements for the Pre-Closing Period, any audit, litigation or other proceeding
with respect to Taxes). Such cooperation shall include the retention and (upon
the other party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. LDI (and its
Subsidiaries) and WAXS agree (i) to retain all books and records with respect to
Taxes relating to any Pre-Closing Period, and to abide by all record retention
agreements entered into with any Governmental Entity and (ii) to give WAXS or
LDI, as applicable, reasonable written notice prior to destroying or discarding
any such books and records and, if WAXS or LDI so requests, the other shall
allow WAXS or LDI to take possession of such books and records.
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4.7 Section 338 Elections.
(a) Section 338(h)(10) Election for DTII and Sub.
(1) LDI shall join with WAXS in making a timely
election under Section 338(h)(10) of the Code with respect to the
acquisition of DTII and Sub and shall treat the transaction
consistently with such election for state and local income tax purposes
to the extent allowed by law (the "Section 338(h)(10) Election"). As
soon as possible after the Closing Date, WAXS shall prepare a fully
completed Internal Revenue Service Form 8023 including all additional
data and materials required to be attached to such form pursuant to
applicable Treasury Regulations, and shall deliver such Form 8023 and
the accompanying materials to LDI. Any objection by LDI to the Form
8023 or any accompanying materials (which shall be raised within 20
business days after receipt by LDI of the Form 8023) unresolved within
20 business days shall be resolved pursuant to the procedures set forth
in Section 4.7(a)(3), and, if necessary, a revised Form 8023 shall be
prepared as soon as possible by WAXS thereafter. The Form 8023 shall be
executed by each party, and LDI shall attach such Form 8023 and the
accompanying materials to its consolidated federal income Tax Return of
the Group in accordance with Treasury Regulations Section 1.338(h)(10)-
1(e)(6).
(2) WAXS shall prepare and deliver to LDI a
schedule (the "Price Allocation Schedule") within one hundred twenty
(120) days after the Closing Date, allocating, with the consent of LDI,
which consent shall not be unreasonably withheld, an appropriate
portion of the Consideration (based on Exhibit 1.7 referenced in
Section 1.7 hereof) among the assets of DTII and Sub in accordance with
the Treasury Regulations promulgated under Section 338(h)(10). At the
time of delivery of the Price Allocation Schedule, WAXS shall provide
LDI with a copy of the appraisal report, if any, utilized by WAXS in
the preparation of such schedule. The costs of any appraisal obtained
by WAXS in connection with the Price Allocation Schedule will be borne
by WAXS. Any objections by LDI to the Price Allocation Schedule
prepared by WAXS (which shall be raised within twenty (20) business
days after the receipt of LDI of such Schedule) unresolved within
twenty (20) business days shall be resolved pursuant to the procedures
set forth in Section 5.10(a)(3), and, if necessary, a revised Price
Allocation Schedule shall be prepared by WAXS as soon as possible
thereafter. The Price Allocation Schedule shall be binding on the
parties hereto, and LDI and WAXS agree to act in accordance with such
Schedule in the preparation, filing and audit of any income Tax Return.
(3) To the extent provided in this Section
4.7(a), any disputed items shall be resolved by a nationally recognized
accounting firm (the "Accounting Referee") chosen by and mutually
acceptable to both WAXS and LDI. The Accounting Referee shall resolve
any disputed items within fifteen (15) days of having the item referred
to it pursuant to such procedures as it may require. Such resolution
shall be final and binding upon the parties
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hereto, and shall constitute an arbitral award upon which judgment may
be entered in any court having jurisdiction thereof. The costs, fees
and expenses of the Accounting Referee shall be borne equally by WAXS
and LDI.
(b) Potential Section 338(g) Elections for Foreign LDI
Subsidiaries. LDI agrees that WAXS or a WAXS Subsidiary may elect to make one or
more elections under Section 338(g) of the Code with respect to the stock of one
or more of the LDI Subsidiaries that are not incorporated under U.S. law (the
"Foreign Subsidiaries") to be acquired as part of the Assets. To the extent that
WAXS or a WAXS Subsidiary makes a Section 338(g) election with respect to one or
more Foreign Subsidiaries, then to the extent applicable, WAXS and LDI shall
each follow the procedures set forth in this Section 4.7(a) with respect to the
tax compliance aspects of making such Section 338(g) elections for one or more
such Foreign Subsidiaries.
4.8 Bankruptcy. In the event LDI files or has filed against it a
petition pursuant to the United States Bankruptcy Code or other similar U.S. or
non-U.S. law governing reorganization or insolvencies, and LDI thereafter
terminates the Agreement, and so long as WAXS is not breach of any of its
obligations hereunder, LDI shall pay all of the Expenses incurred by WAXS
relating to or arising from this Agreement and negotiation of the Transaction.
4.9 Reservation of Shares. WAXS shall at all times reserve and
keep available out of its authorized WAXS Common Stock, solely for the purpose
of issue or delivery upon conversion or exchange of the Preferred Shares as
provided in the Certificate of Designation, such number of shares of WAXS Common
Stock as shall then be issuable or deliverable upon the conversion or exchange
of all the outstanding Preferred Shares. Such shares of WAXS Common Stock shall,
when issued or delivered in accordance with the Certificate of Designation, be
duly and validly issued and fully paid and non-assessable. WAXS shall issue the
WAXS Common Stock into which the Preferred Shares are convertible or
exchangeable upon the proper surrender of the Preferred Shares in accordance
with the provisions of the Certificate of Designation and shall otherwise comply
with the terms thereof. Within thirty (30) days following the Closing Date, WAXS
shall prepare and file a Form S-3 for the purpose of enabling the Note Holders,
NETnet, LDI or any shareholders (as pro rata distributees) of LDI or NETnet to
resell the WAXS Common Stock (including applicable Escrow Shares) receivable
upon conversion of the Preferred Shares.
4.10 Successor Employer. WAXS shall not 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 LDI or by any member of its controlled group of
corporations. In particular, WAXS shall not assume liability for any group
health continuation coverage or coverage rights under Section 4980B of the Code
and ERISA Section 606 which exist as of the Closing Date or which arise as a
result of LDI's dissolution and/or termination of its group health plan or
plans.
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4.11 Employment of LDI's Employees; Severance. WAXS is not
obligated to hire any employee of LDI, but may interview all such employees. LDI
will provide WAXS reasonable access to its facilities and its personnel records
(including performance appraisals, disciplinary actions, grievances and medical
records) for the purpose of preparing for and conducting employment interviews
with any of LDI's employees. Effective immediately before the Closing Date, LDI
will terminate the employment of those of its employees that WAXS shall have
notified LDI that WAXS wishes to hire. WAXS shall be responsible for any
severance payments set forth on Exhibit 4.11 attached hereto for any employees
of LDI that WAXS does not hire, or that WAXS hires, but only so long as, and to
the extent, such payments are set forth on Exhibit 4.11. It is understood and
agreed by LDI that WAXS's intention to offer employment to some of LDI's
employees shall not constitute any commitment, contract or understanding
(express or implied) or any obligation on the part of LDI to a post-Closing Date
employment relationship of any term or duration or upon any terms or conditions
other than those that WAXS may establish pursuant to individual offers, and
employment offered by WAXS will be "at will" and may be terminated by WAXS or by
an employee at any time for any reason.
ARTICLE V
CONDITIONS PRECEDENT
5.1 Conditions to Each Party's Obligation to Effect the
Transaction. The respective obligations of LDI and WAXS to effect the
Transaction are subject to the satisfaction or waiver on or prior to the Closing
Date of the following conditions:
(a) No Injunctions or Restraints, Illegality. No Laws
shall have been adopted or promulgated, and no temporary restraining order,
preliminary or permanent injunction or other order issued by a court or other
Governmental Entity of competent jurisdiction shall be in effect, having the
effect of making the Transaction illegal or otherwise prohibiting consummation
of the Transaction; provided, however, that the provisions of this Section
5.1(a) shall not be available to any party whose failure to fulfill its
obligations pursuant to Section 4.3 shall have been the cause of, or shall have
resulted in, any such order or injunction.
(b) HSR Act. The waiting period (and any extension
thereof) applicable to the Transaction under the HSR Act shall have been
terminated or shall have expired.
(c) EU Antitrust. Any waiting periods (and any extensions
thereof) applicable to the Transaction under any European Union antitrust laws
or regulations shall have been terminated or shall have expired, and any
requisite approval of European Governmental Entities relating to antitrust
matters shall have been obtained.
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5.2 Additional Conditions to Obligations of WAXS. The obligations
of WAXS to effect the Transaction are subject to the satisfaction of, or waiver
by WAXS, on or prior to the Closing Date of the following conditions:
(a) Representations and Warranties. Each of the
representations and warranties of LDI set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent in either case that such representations and warranties speak as of
another date, in which case any such representations and warranties shall be
true and correct as of such date), and WAXS shall have received a certificate of
LDI signed by the chief executive officer and the chief financial officer of LDI
to such effect.
(b) Performance of Obligations of LDI. LDI shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date, and WAXS shall have received a certificate of the chief executive officer
and the chief financial officer of LDI to such effect, and WAXS shall have
received a certificate of LDI signed by the chief executive officer and the
chief financial officer of LDI to such effect.
(c) Consents and Approvals. The consents listed in
Section 2.1(c)(3) of the LDI Disclosure Schedule shall have been obtained;
provided, however, that the provisions of this Section 5.2(c) shall not be
available to WAXS, if WAXS's failure to fulfill its obligations pursuant to
Section 4.3 shall have been the cause of, or shall have resulted in, the failure
to obtain such consent or approval.
(d) LDI Plan. With respect to the financial and
operational plan set forth as Exhibit 5.2(d) attached hereto (the "LDI Plan"),
(i) LDI shall have met or exceeded the combined revenue targets set forth in the
LDI Plan for the full months that precede the Closing; (ii) based on revenue
information reasonably available on the Closing Date, LDI shall be materially on
target to meet the revenue target for the month that includes the Closing; (iii)
LDI shall have met the combined EBITDA targets set forth in the LDI Plan for the
full months that precede the Closing; and (iv) Working Capital on the last day
of the month proceeding the Closing Date shall be no more than $2,000,000 lower
than projected in the LDI Plan. For purposes of the foregoing, "Working Capital"
shall mean the difference between Total Current Assets and Total Current
Liabilities, each computed in a manner consistent with the LDI Plan.
(e) No Material Adverse Effect. Neither LDI nor any of
its Subsidiaries shall have suffered, since the date hereof, a Material Adverse
Effect (financial or otherwise), provided, however, that as long as LDI is
meeting the performance criteria set forth in paragraph (d) above, no change in
a financial measure covered by the LDI Plan shall constitute a Material Adverse
Effect.
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(f) Opinion of Counsel to LDI. WAXS shall have received
from Fried, Frank, Harris, Shriver & Jacobson and/or Loeb & Loeb an opinion,
dated the Closing Date, in a form reasonably satisfactory to WAXS.
(g) Foreign Counsel Opinion. WAXS shall have received
from foreign legal counsel (which counsel is satisfactory to WAXS) an opinion,
dated the Closing Date and reasonably satisfactory in form and substance to
WAXS, which opines as to the enforceability of the NETnet Consent (and any other
consents, agreements or other documents relating to NETnet that are executed in
connection with this Agreement), the due authorization of the NETnet Consent and
the due authorization of the NETnet Acquisition (including that such acquisition
was duly authorized whether or not the share exchange contemplated thereby is
consummated), or WAXS shall have received other assurances reasonably
satisfactory to WAXS as to such matters.
(h) Reductions in Obligations. LDI shall have been
successful in negotiating agreed settlements (collectively, the "Agreed
Settlements") which result in at least a fifty percent (50%) reduction in the
dollar amount of LDI's U.S. obligations to third parties (the "Obligations").
(i) Note Holders Consent. The Note Holders Consent shall
have been executed by all Note Holders (other than Morgan Stanley, which
executed the Note Holders Consent prior to the date hereof) on or prior to
January 15, 2000, and be in full force and effect on the Closing Date.
(j) No Lawsuit. No lawsuit shall be pending which (i)
seeks to challenge or prohibit the Transaction and (ii) if successful, could
reasonably be expected to have a material adverse effect on the Business and
(iii) has a reasonable likelihood of success.
(k) Required LDI Vote. The Required LDI Vote shall have
been obtained and be in full force and effect.
(l) NETnet Consent. The shareholders of NETnet holding
the greater of (i) a majority of the voting stock or other equity of NETnet, or
(ii) the percentage of voting stock or other equity of NETnet required for
approval by applicable law shall have approved the NETnet Consent in accordance
with all organizational and charter documents of NETnet and in accordance with
Luxembourg and other applicable law, and the NETnet Consent shall be in full
force and effect.
5.3 Additional Conditions to Obligations of LDI. The obligations
of LDI to effect the Transaction are subject to the satisfaction of, or waiver
by, LDI, on or prior to the Closing Date of the following additional conditions:
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(a) Representations and Warranties. Each of the
representations and warranties of WAXS set forth in this Agreement shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent in either case that such representations and warranties speak as of
another date, in which case any such representations and warranties shall be
true and correct as of such date), and LDI shall have received a certificate of
WAXS signed by the chief executive officer and the chief financial officer of
WAXS to such effect.
(b) Performance of Obligations of WAXS. WAXS shall have
performed or complied in all material respects with all agreements and covenants
required to be performed by it under this Agreement at or prior to the Closing
Date, and LDI shall have received a certificate of WAXS signed by the chief
executive officer and the chief financial officer of WAXS to such effect.
(c) No Material Change. WAXS and its Subsidiaries, taken
as a whole, shall not have suffered, since the date hereof, a Material Adverse
Effect, other than any change, circumstance or effect relating (i) to the
economy or financial markets in general, (ii) in general to the industries in
which WAXS operates and not specifically relating to WAXS or (iii) the trading
price of WAXS Common Stock as reported by Nasdaq; provided, however, that in the
event the trading price of WAXS Common Stock as reported by Nasdaq falls below
$8 per share, a Material Adverse Effect will be deemed to have occurred as to
WAXS.
(d) Opinion of Counsel to WAXS. LDI shall have received
from Long Aldridge & Norman LLP an opinion, dated the Closing Date, in a form
reasonably satisfactory to LDI.
(e) Certificate of Designation. The Certificate of
Designation shall have been duly filed by WAXS with the Secretary of State of
the State of Delaware in accordance with the DGCL.
(f) Discharge of Indenture; Releases. (i) The Trustee
shall have delivered to LDI a Discharge of Indenture in form reasonably
satisfactory to LDI, discharging LDI from all of its obligations (A) under the
LDI Notes, (B) to the Note Holders and the Trustee under the Indenture and the
Pledge Agreement and (C) under each other agreement between LDI and the Trustee
in its capacity as such, and (ii) the Trustee and the Note Holders shall have
delivered releases of LDI and its directors, officers, employees and legal,
financial and other advisors respecting any matter arising from or in connection
with any of the agreements or instruments referred to in clause (i) of this
Section 5.3(f).
(g) Delivery of Pledged Securities. The Trustee shall
have reassigned and redelivered to LDI all of the Pledged Securities and other
Collateral then held by the Trustee,
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which Pledged Securities shall constitute a part of the Assets transferred to
WAXS in the Transaction.
(h) New Options. In the event LDI issues New Options to
its employees, effective upon the Closing, WAXS shall have converted such New
Options into options to purchase WAXS Common Stock.
ARTICLE VI
INDEMNIFICATION
6.1 Remedies.
(a) Except as otherwise limited by this Article VI, LDI
shall indemnify and reimburse WAXS for any and all claims, losses, liabilities,
damages, costs (including court costs) and expenses (including reasonable
attorneys' and accountants' fees) (hereinafter "Loss" or "Losses") suffered or
incurred by WAXS, its successors or assigns, and their respective officers,
employees, consultants and agents (the "WAXS Protected Parties") as a result of,
or with respect to, (i) any breach or inaccuracy of any representation or
warranty of LDI 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 LDI set forth in the certificate to be provided to WAXS pursuant to
Section 5.2(a) or (b) hereof, without regard to the materiality qualification
contained in such certificate; (iii) any breach of or noncompliance by LDI with
any covenant or agreement of LDI contained in this Agreement; (iv) any and all
liabilities and obligations of LDI relating to the Excluded Liabilities; (v) any
and all liabilities and obligations arising out of any breach by LDI of any
agreement assumed by WAXS at the Closing; (vi) any and all liabilities arising
out of or relating to the NETnet Acquisition or claims by, or amounts payable
to, NETnet or the shareholders of NETnet; (vii) any and all liabilities and
obligations of WAXS in the event it is deemed by law or otherwise to be liable
as a successor employer to LDI contrary to Section 4.10 hereof; (viii) any and
all liabilities arising under the Worker Adjustment and Retraining Notification
Act, 29 U.S.C. ss.ss.2101-2109 with respect to any employees of LDI whose
termination of employment occurs on or before the Closing Date; (ix) any and all
costs, claims, damages, expenses and liabilities relating to or arising from the
litigation set forth in Section 2.1(r) of the LDI Disclosure Schedule, in excess
of $500,000 in the aggregate (the "Litigation Basket") and, with respect to each
such lawsuit, in excess of the amounts accrued for each such lawsuit as set
forth on Exhibit 6.1(a) attached thereto, and other than relating to or arising
from that certain lawsuit styled, Viatel, Inc. v. Long Distance International;
(x) any claims, losses, liabilities, damages, costs (including court costs) and
expenses relating to or arising from the activities of LDI after the Closing;
and (ix) any and all claims asserted by LDI's creditors except where such claims
are in connection with the Assumed Liabilities (for the purposes of this
Agreement, "creditors" shall mean (1) all persons
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or entities who are known by LDI to assert claims against LDI 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) With respect to Section 6.1(a)(ix), the Litigation
Basket shall be increased by the dollar amount by which the total value of the
Agreed Settlements referred to in Section 5.2(h) is less than 50% of the
Obligations. For example, assuming the Obligations are currently valued at $10
million and LDI is successful in negotiating Agreed Settlements that reduce the
value of the Obligations at Closing to $4 million, the litigation basket will be
increased to $1.5 million ($500,000 + ($5,000,000 - 4,000,000)).
(c) Except as otherwise limited by this Article VI, WAXS
shall indemnify and reimburse LDI for any and all Losses suffered or incurred by
LDI, its successors or assigns, and their respective officers, employees,
consultants and agents (the "LDI Protected Parties") as a result of, or with
respect to, (i) any breach or inaccuracy of any representation or warranty of
WAXS 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
set forth in the certificate to be provided to LDI pursuant to Section 5.3(a) or
(b) hereof, without regard to the materiality qualification contained in such
certificate; (iii) any breach of or non-compliance by WAXS with any covenant or
agreement of WAXS contained in this Agreement; and (iv) any and all liabilities
and obligations of WAXS relating to the Assumed Liabilities.
(d) WAXS shall make no claim against LDI and LDI shall
make no claim against WAXS for indemnification under Section 6.1 unless and
until the aggregate amount of such claims against LDI or WAXS exceeds $500,000,
in which event WAXS or LDI may claim indemnification for the full amount of all
such claims; provided, that this Section 6.1(c) shall not apply to claims made
by any of the WAXS Protected Parties pursuant to Section 6.1(a)(vi).
6.2 Indemnity Claims. The representations and warranties of LDI
and WAXS 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 for, and the covenants and agreements of
LDI and WAXS contained herein shall survive the Closing for, and any claim made
under this Article VI must be made within, six (6) months after the Closing
Date. No investigation or other examination of LDI by WAXS, its 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.
6.3 Set-Off Against Escrow. WAXS may exercise its right of set-off
against the Escrow Shares in accordance with the Escrow Agreement and any other
amounts owed to WAXS to satisfy LDI's obligations pursuant to this Article VI.
For purposes of any such set-off, the Escrow Shares shall be valued at $1,000
per share prior to any conversion of the Preferred
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Shares. In the event of a set-off after conversion of the Preferred Shares, the
Escrow Shares shall be valued at $18 per share.
6.4 Exclusive Remedy. After the Closing Date, indemnification
pursuant to this Article VI (and in the case of indemnification by LDI, set-off
against the Escrow Shares) shall be the sole and exclusive remedy for WAXS and
LDI in the event of a breach of any of LDI's or WAXS's representations and
warranties, or any default by LDI or WAXS of any of the covenants and agreements
contained in this Agreement. In no event shall the aggregate liability of WAXS
under this Article VI for Losses suffered or incurred by LDI or any LDI
Protected Party exceed $185,000,000.
6.5 Notice of Claim. WAXS or LDI shall notify the other 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. WAXS or LDI shall provide to the other 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 providing
party. Any failure by WAXS or LDI to comply with the notification procedure set
forth in this Section 6.5 shall not affect WAXS's or LDI's, as applicable, right
to indemnification hereunder.
6.6 Defense. 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 WAXS, LDI or a WAXS Protected Party or LDI Protected Party) available by
virtue of the circumstances of the Loss, LDI or WAXS, as applicable, may assume
the defense or the prosecution thereof by prompt written notice to the other and
to the affected Protected Party, including the employment of counsel or
accountants, at its cost and expense. WAXS or LDI, as applicable, and the
affected Protected Party shall have the right to employ counsel separate from
counsel employed by the other party in any such action and to participate
therein, but the fees and expenses of such counsel employed by WAXS or LDI, as
applicable, and the affected Protected Party shall be at their expense. Neither
WAXS nor LDI shall be liable for any settlement of any such claim effected
without its prior written consent, which shall not be unreasonably withheld;
provided that if LDI or WAXS, as applicable, does not assume the defense or
prosecution of a claim as provided above within thirty (30) days after notice
thereof from any Protected Party, WAXS or LDI, as applicable, and the affected
Protected Party may settle such claim without the other's consent. Neither WAXS
nor LDI, as applicable, shall 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 LDI's or WAXS's, as applicable, and the affected
Protected Party's prior written consent. Whether or not LDI or WAXS, as
applicable, 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.
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LDI shall be subrogated to all rights and remedies of any WAXS Protected Party
and WAXS shall be subrogated to all rights and remedies of any LDI Protected
Party.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 Termination. This Agreement may be terminated at any time
prior to the Closing, by action taken or authorized by the Board of Directors of
the terminating party or parties:
(a) By mutual written consent of WAXS and LDI;
(b) By either WAXS or LDI, if LDI (in the case of WAXS)
or WAXS (in the case of LDI) shall have failed to comply in any material respect
with any of its material covenants or agreements contained in this Agreement,
which failure to so comply has not been cured within ten (10) business days
following receipt by such other party of written notice of such failure to
comply; provided, however, that if any such breach is curable by the breaching
party through the exercise of the breaching party's reasonable efforts and for
so long as the breaching party shall be so using its best efforts to cure such
breach, the non-breaching party may not terminate this Agreement pursuant to
this paragraph; and provided, further, that no party shall have the right to
terminate this Agreement pursuant to this Section 7.1(b) if such party is then
failing to comply in any material respect with any of its covenants or
agreements contained in this Agreement;
(c) By either WAXS or LDI, if there has been a breach by
LDI (in the case of WAXS) or WAXS (in the case of LDI) of any representations or
warranties, which breach has not been cured within ten (10) business days
following receipt by such other party of written notice of such failure to
comply; provided, however, that if any such breach is curable by the breaching
party through the exercise of the breaching party's reasonable efforts and for
so long as the breaching party shall be so using its reasonable efforts to cure
such breach, the non-breaching party may not terminate this Agreement pursuant
to this paragraph;
(d) By either LDI or WAXS, if the Closing shall not have
occurred on or before February 29, 2000 (the "Termination Date"); provided,
however, that the right to terminate this Agreement under this Section 7.1(d)
shall not be available to any party whose action or failure to fulfill any
obligation under this Agreement has been the cause of, or resulted in, the
failure of the Closing to occur on or before the Termination Date and any such
action or failure constitutes a breach of this Agreement;
(e) By either LDI or WAXS if any Governmental Entity (i)
shall have issued an order, decree or ruling or taken any other action (which
the parties shall have used their
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reasonable best efforts to resist, resolve or lift, as applicable, in accordance
with Section 4.3) permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement, and such order, decree, ruling,
or other action shall have become final and nonappealable or (ii) shall have
failed to issue an order, decree or ruling or to take any other action (which
order, decree, ruling or other action the parties shall have used their
reasonable best efforts to obtain, in accordance with Section 4.3), in the case
of each of (i) and (ii) which is necessary to fulfill the conditions set forth
in subsection 5.1(b) or with respect to WAXS only, 5.2(b) or, with respect to
LDI only, subsection 5.3(b), as applicable, and such denial of a request to
issue such order, decree, ruling or take such other action shall have become
final and nonappealable; provided, however, that the right to terminate this
Agreement under this Section 7.1(e) shall not be available to any party whose
action or failure to fulfill any obligation under this Agreement has been the
cause of such action or inaction and any such action or failure constitutes a
breach of this Agreement; or
(f) By WAXS if LDI shall not have satisfied the closing
conditions set forth in Sections 5.2(i) by the date set forth therein.
7.2 Effect of Termination. In the event of any termination of this
Agreement as permitted by Section 7.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of WAXS or LDI or
their respective officers or directors except with respect to the second
sentence of Section 4.1, Section 4.3, Section 4.4, this Section 7.2, and Article
VIII, which provisions shall survive such termination and except that,
notwithstanding anything to the contrary contained in this Agreement, neither
WAXS nor LDI shall be relieved or released from any liabilities or damages
arising out of its breach of this Agreement.
7.3 Specific Performance. LDI acknowledges that money damages
would not be a sufficient remedy for termination of this Agreement by LDI, and
that in addition to all other remedies available, WAXS shall be entitled to
specific performance and injunctive or other equitable relief as a remedy for
any such termination, and LDI further agrees to waive, and to use its best
efforts to waive, any requirement for the securing or posting of any bond in
connection with such remedy.
7.4 Amendment. This Agreement may be amended by LDI and WAXS, by
action taken or authorized by their respective Boards of Directors or
representatives or authorized officers, at any time before or after approval of
the matters presented in connection with the Transaction by the shareholders of
LDI. This Agreement may not be amended except by an instrument in writing signed
on behalf of each party hereto.
7.5 Extension, Waiver. At any time prior to the Closing, the
parties hereto, by action taken or authorized by their respective Boards of
Directors, representatives or authorized officers, may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, and (ii) waive compliance with any of
the
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agreements or conditions contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in a
written instrument signed on behalf of such party. The failure of any party to
this Agreement to assert any of its rights under this Agreement or otherwise
shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed duly given (a) on the date of delivery if
delivered personally, or by telecopy or facsimile, upon confirmation of receipt,
(b) on the first business day following the date of dispatch if delivered by a
recognized next day courier service, or (c) on the tenth (10th) business day
following the date of mailing if delivered by registered or certified mail
return receipt requested, postage prepaid. All notices hereunder shall be
delivered as set forth below, or pursuant to such other instructions as may be
designated in writing by the party to receive such notice:
(a) If to WAXS, to:
World Access, Inc.
Resurgens Plaza, Suite 2210
945 East Paces Ferry Road
Atlanta, Georgia 30326
Facsimile No.: (404) 233-2280
Attention: John D. Phillips
with a copy to:
Long Aldridge & Norman LLP
303 Peachtree Street, Suite 5300
Atlanta, Georgia 30308
Facsimile No.: (404) 527-4198
Attention: H. Franklin Layson
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(b) If to LDI, to:
Long Distance International Inc.
4150 S.W. 28th Way
Ft. Lauderdale, FL 33312
Facsimile No.: (212) 577-2915
Attention: David R. Hess
with copies to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Facsimile No.: (212) 859-4000
Attention: Lawrence A. First
and
Loeb & Loeb LLP
345 Park Avenue
New York, NY 10154-0037
Facsimile: (212) 407-4990
Attention: David S. Schaefer
and a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
Facsimile No.: (212) 403-2000
Attention: Chaim J. Fortgang
8.2 Interpretation. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of Agreement.
Whenever the words "include", "includes" or "including" are used in this
Agreement, they shall be deemed to be followed by the words "without
limitation".
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8.3 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that both
parties need not sign the same counterpart.
8.4 Entire Agreement; No Third Party Beneficiaries.
(1) This Agreement and the Confidentiality Agreement
constitute the entire agreement and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
(b) This Agreement shall be binding upon and inure solely
to the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or shall confer upon any other Person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement, except
as provided for in Section 4.7.
8.5 Governing Law. This Agreement shall be governed and construed
in accordance with the laws of the State of Georgia (without giving effect to
choice of law principles thereof).
8.6 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any Law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the actions
contemplated hereby is not affected in any manner materially adverse to any
party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner in order that the
transactions contemplated hereby are consummated as originally contemplated to
the greatest extent possible.
8.7 Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other party, and any attempt to make any such
assignment without such consent shall be null and void. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
8.8 Submission to Jurisdiction; Waivers. Each of WAXS and LDI
irrevocably agrees that any legal action or proceeding with respect to this
Agreement or for recognition and enforcement of any judgment in respect hereof
brought by the other party hereto or its successors or assigns may be brought
and determined in state or federal courts sitting in the State of Georgia, and
each of WAXS and LDI hereby irrevocably submits with regard to any such action
or proceeding for itself and in respect to its property, generally and
unconditionally, to the
41
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nonexclusive jurisdiction of the aforesaid courts. Each of WAXS and LDI hereby
irrevocably waives, and agrees not to assert, by way of motion, as a defense,
counterclaim or otherwise, in any action or proceeding with respect to this
Agreement, (i) any claim that it is not personally subject to the jurisdiction
of the above named courts for any reason other than the failure to lawfully
serve process (ii) that it or its property is exempt or immune from jurisdiction
of any such court or from any legal process commenced in such courts (whether
through service of notice, attachment prior to judgment, attachment in aid of
execution of judgment, execution of judgment or otherwise), and (iii) to the
fullest extent permitted by applicable law, that (a) the suit, action or
proceeding in any such court is brought in an inconvenient forum, (b) the venue
of such suit, action or proceeding is improper and (c) this Agreement, or the
subject matter hereof, may not be enforced in or by such courts.
8.9 Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms. It is accordingly agreed that
the parties shall be entitled to specific performance of the terms hereof, this
being in addition to any other remedy to which they are entitled at law or in
equity.
8.10 Definitions. As used in this Agreement:
(a) "Actions" means any actions, suits, claims,
investigations or other proceedings (collectively, "Actions").
(b) "beneficial ownership" or "beneficially own" shall
have the meaning under Section 13(d) of the Exchange Act and the rules and
regulations thereunder.
(c) "Code" means the Internal Revenue Code of 1986, as
amended, and the United States Treasury Regulations issued thereunder.
(d) "DGCL" means the Delaware General Corporation Law.
(e) "DTII" means Dynamic Telecom International Inc., a
Florida corporation which is wholly-owned by LDI.
(f) "DOJ" means the United States Department of Justice.
(g) "Environmental Laws" means any and all federal,
state, local, municipal or non-U.S. laws, rules, orders, regulations, statutes,
ordinances, codes, decisions, injunctions, orders, decrees, requirements of any
Governmental Entity, any and all common law requirements, rules and bases of
liability regulating, relating to or imposing liability or standards of conduct
concerning pollution, Hazardous Materials or protection of human health, safety
or the
42
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environment, as currently in effect and includes the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et seq., the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the Clean Water Act,
33 U.S.C. ss. 1251 et seq., the Clean Air Act, 33 U.S.C. ss. 2601 et seq., the
Toxic Substances Control Act, 15 U.S.C. ss. 2601 et seq., the Federal
Insecticide, Fungicide and Rodenticide Act, 7 U.S.C., ss. 136 et seq.,
Occupational Safety and Health Act 29 U.S.C. ss. 651 et seq. and the Oil
Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq., as such laws have been
amended or supplemented, and the regulations promulgated pursuant thereto, and
all analogous state, local or non-U.S. statutes.
(h) "Environmental Liabilities" means, with respect to
any Person, any and all liabilities of or relating to such person or any of its
Subsidiaries (including any entity which is, in whole or in part, a predecessor
of such person or any of such Subsidiaries), whether vested or unvested,
contingent or fixed, actual or potential, known or unknown, which (i) arise
under or relate to matters covered by Environmental Laws and (ii) relate to
actions occurring or conditions existing on or prior to the Closing Date.
(i) "Exchange Act" means the Securities Exchange Act of
1934, as amended.
(j) "Expenses" means all out-of-pocket expenses
(including all fees and expenses of counsel, accountants, investment bankers,
experts and consultants to a parry hereto and its affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
transactions contemplated hereby.
(k) "FTC" means the Federal Trade Commission.
(l) "GAAP" means United States generally accepted
accounting principles.
(m) "Governmental Entity" means any supranational,
national, state, municipal, local or non-U.S. government, any instrumentality,
subdivision, court, administrative agency or commission or other authority
thereof, or any quasi-governmental or private body exercising any regulatory,
taxing, importing or other governmental or quasi-governmental authority.
(n) "Hazardous Materials" means any hazardous or toxic
substances, materials or wastes, defined, listed, classified or regulated as
such in or under any Environmental Laws which includes petroleum, petroleum
products, friable asbestos, urea formaldehyde and polychlorinated biphenyls.
(o) "HSR Act" means the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
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(p) "Intellectual Property" means trademarks, service
marks, brand names, certification marks, trade dress and other indications of
origin, the goodwill associated with the foregoing and registrations in any
jurisdiction of, and applications in any jurisdiction to register, the
foregoing, including any extension, modification or renewal of any such
registration or application; inventions, discoveries and ideas, whether
patentable or not, in any jurisdiction; patents, applications for patents
(including, without limitation, divisions, continuations, continuations in part
and renewal applications), and any renewals, extensions or reissues thereof, in
any jurisdiction; non-public information, trade secrets and confidential
information and rights in any jurisdiction to limit the use or disclosure
thereof by any person; writings and other works, whether copyrightable or not,
in any jurisdiction; registrations or applications for registration of
copyrights in any jurisdiction, and any renewals or extensions thereof; any
similar intellectual property or proprietary rights; and any claims or causes of
action arising out of or relating to any infringement or misappropriation of any
of the foregoing.
(q) "Known or "Knowledge" means, with respect to any
party, the knowledge of such party's executive officers after reasonable
inquiry.
(r) "Laws" means any law, statute, regulation, rule,
ordinance, order, judgment or decree, or other binding action or pronouncement,
of any Governmental Entity.
(s) "Liens" mean any pledges, claims, liens, title
defects, charges, encumbrances, restrictions, easements, and security interests
of any kind or nature whatsoever.
(t) "Material Adverse Effect" means, with respect to any
entity, any change, circumstance or effect or any breach of the provisions of
this Agreement that, individually or in the aggregate with all other changes,
circumstances and effects or breaches, is or would reasonably be expected to be
materially adverse to (i) the business, financial condition or results of
operations of such entity and its Subsidiaries taken as a whole, or (ii) the
ability of such party to consummate the transactions contemplated by this
Agreement. It is acknowledged that LDI has incurred significant losses and that
performance against the LDI Plan in accordance with Section 5.2(d) shall not
constitute a Material Adverse Effect for any purpose hereof.
(u) "Nasdaq" means the National Market System of the
NASDAQ Stock Market.
(v) "Necessary Consents" means the consents, approvals,
orders, authorizations, registrations, declarations and filings as required
under or in relation to (A) the HSR Act, (B) state securities or "blue sky" laws
(the "Blue Sky Laws"), (C) the Securities Act, (D) the Exchange Act, (E) rules
and regulations of Nasdaq, (F) antitrust or other competition laws of other
jurisdictions, and (G) such consents, approvals, orders, authorizations,
registrations, declarations and filings as are required by applicable laws,
regulations and rules governing the telecommunications business.
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<PAGE> 48
(w) "Ordinary Course of Business" means, with respect to
actions and operations conducted by an entity, actions and operations that are
consistent with the past practices of such entity and are taken in the ordinary
course of the normal day-to-day operations of such entity, are not required to
be authorized by the Board of Directors or other governing body of such entity,
and are similar in nature and magnitude to actions and operations customarily
taken, without any authorization by the Board of Directors or other governing
body of such entity, in the ordinary course of the normal day-to-day operation
of other companies that are in the same line of business as the entity in
question.
(x) "Person" means an individual, corporation, limited
liability company, partnership, association, trust, unincorporated organization,
other entity or group (as defined in the Exchange Act).
(y) "SEC" means the Securities and Exchange Commission.
(z) "Securities Act" means the Securities Act of 1933, as
amended.
(aa) "Sub" means LDI Acquisition Subsidiary, Inc., a
Florida corporation which is wholly-owned by LDI.
(bb) "Subsidiary", when used with respect to any party
means any corporation or other organization, whether incorporated or
unincorporated, (i) of which such party or any other Subsidiary of such party is
a general partner (excluding partnerships, the general partnership interests of
which held by such party or any Subsidiary of such party do not have a majority
of the voting interests in such partnership) or (ii) at least a majority of the
securities or other interests of which having by their terms ordinary voting
power to elect a majority of the Board of Directors or others performing similar
functions with respect to such corporation or other organization is directly or
indirectly owned or controlled by such party or by any one or more of its
Subsidiaries, or by such party and one or more of its Subsidiaries.
(cc) "Subsidiary Shares" means all the capital stock of,
or other equity interest in, or other ownership interest of, the Subsidiaries of
LDI.
(dd) "Tax" (and, with correlative meaning, "Taxes" shall
mean all taxes, charges, fees, levies or other assessments, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local or
non-U.S. Governmental Entity or any agency or political subdivision of any such
Governmental Entity, which taxes shall include, without limiting the generality
of the foregoing, all income or profits taxes (including, but not limited to,
federal income taxes and state income taxes), payroll and employee withholding
taxes, unemployment insurance, social security taxes, sales and use taxes, ad
valorem taxes, excise taxes, employer tax, estimated, severance,
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<PAGE> 49
telecommunications, occupation, goods and services, capital, profits, value
added taxes, franchise taxes, gross receipts taxes, business license taxes,
occupation taxes, real and personal property taxes, stamp taxes, environmental
taxes, transfer taxes, workers' compensation, Pension Benefit Guaranty
Corporation premiums and other governmental charges, and other obligations of
the same or of a similar nature to any of the foregoing, which the Person is
required to pay, withhold or collect.
(ee) "Tax Asset" means any net operating loss, net capital
loss, investment tax credit, foreign tax credit, charitable deduction or any
other credit or tax attribute which could reduce Taxes (including, without
limitation, credits related to alternative minimum Taxes).
(ff) "Tax Return" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns (including any
attached schedules) or similar statement relating to, or required to be filed in
connection with, any Taxes, including information returns or reports with
respect to backup withholding and other payments to third parties.
(gg) "Tax Sharing Agreement" shall mean any and all
existing Tax sharing agreements, or arrangements written or unwritten, express
or implied, binding two or more Persons with respect to the payment of Taxes,
including any agreements or arrangements which afford any other Person the right
to receive any payment from one or more other Persons in respect to any Taxes or
the benefit of any Tax Asset of one or more other Persons or require or permit
the transfer or assignment of any income, revenue, receipts or gains.
(hh) "Trade Names" shall mean the name "NETnet" and any
variations thereof used in connection with the Business.
(ii) "Violation" means any default (with or without notice
or lapse of time, or both) under, or act or omission that gives rise to a right
of termination, amendment, cancellation or acceleration of, any obligation, or
the loss of a material benefit under, or the creation of a Lien on, any assets.
<PAGE> 50
IN WITNESS WHEREOF, WAXS and LDI have caused this Agreement to be
signed by their respective officers there unto duly authorized, all as of the
date first above written.
WAXS:
WORLD ACCESS, INC.
By: /s/ W. Tod Chmar
----------------------------------------
W. Tod Chmar
LDI:
LONG DISTANCE INTERNATIONAL INC.
By: /s/ David R. Hess
----------------------------------------
David R. Hess
(Signature Page to Asset Purchase Agreement)
<PAGE> 1
EXHIBIT 4
WORLD ACCESS, INC.
CERTIFICATE OF DESIGNATION OF
CONVERTIBLE PREFERRED STOCK, SERIES D,
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
December 9, 1999 (the "Adoption Date") duly adopted the following resolution
creating a series of Preferred Stock designated as Convertible Preferred Stock,
Series D, 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) Capitalized terms used herein and not otherwise
defined shall have the meanings set forth in Section 10 below.
(b) The shares of such series shall be designated as
Convertible Preferred Stock, Series D (the "Preferred Stock"). The number of
shares initially constituting the Preferred Stock shall be 185,000, 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.
(c) The Preferred Stock shall, with respect to dividend
rights, rank (i) pari passu with the Common Stock and the Series C Preferred
Stock and (ii) junior to the Series A Preferred Stock, Series B Preferred Stock
and all other classes and series of Senior Stock now or hereafter authorized.
(d) The Preferred Stock shall, with respect to rights on
liquidation, dissolution and winding up, rank (i) prior to the Common Stock,
(ii) pari passu with the
<PAGE> 2
Series B Preferred Stock and the Series C Preferred Stock and (iii) junior to
the Series A Preferred Stock and all other classes and series of Senior Stock
(other than the Series B Preferred Stock) now or hereafter authorized.
Section 2. Dividends and Distributions.
(a) In the event that the Corporation shall declare a
dividend or make any other distribution (including, without limitation, in cash,
in capital stock (which shall include, without limitation, any options, warrants
or other rights to acquire capital stock) of the Corporation, whether or not
pursuant to a shareholder rights plan, "poison pill" or similar arrangement, or
other property or assets) to holders of Common Stock, then the Board of
Directors shall declare, and the holder of each share of Preferred Stock shall
be entitled to receive, a dividend or distribution in an amount equal to the
amount of such dividend or distribution received by a holder of the number of
shares of Common Stock for which such share of Preferred Stock is convertible on
the record date of such dividend or distribution. Any such amount shall be paid
to the holders of shares of Preferred Stock at the same time such dividend or
distribution is made to holders of Common Stock.
(b) 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 the Corporation shall not have converted
shares of Preferred Stock at a time required by Sections 8 or 9, at such time
and thereafter until all conversion obligations provided in Sections 8 or 9 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.
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(b) Whenever the Corporation shall not have converted
shares of Preferred Stock at a time required by Sections 8 or 9, at such time
and thereafter until all conversion obligations provided in Sections 8 or 9 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 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.
The Corporation shall not have any right to redeem any shares
of Preferred Stock.
Section 6. Reacquired Shares.
Any shares of Preferred Stock converted, 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 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
converted.
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
3
<PAGE> 4
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 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-assessable shares of
Common Stock as is equal, subject to Section 8(f), 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. 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(j). 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
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<PAGE> 5
provisions of this Section 8. Subject to the following provisions of this
paragraph and of Section 8(c), 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) The Conversion Price (and the price at which a share
of Common Stock is valued pursuant to Section 9) shall be subject to adjustment
as follows:
(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(c) 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(c)(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
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<PAGE> 6
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 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(c)(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(c)(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
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<PAGE> 7
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 that time; and
(C) no adjustment in the Conversion
Price shall be made pursuant to this Section 8(c)(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(c)(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(c)(i)) or rights or warrants to
subscribe for or purchase securities of the Corporation (excluding those
referred to in Section 8(c)(ii) or those in respect of which an adjustment in
the Conversion Price is made pursuant to Section 8(c)(i) or (ii)), then, and in
each such case, the Conversion Price then in effect shall be adjusted by
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(c)(i) through Section 8(c)(iii), inclusive, or Section 8(g) (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(c) 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
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<PAGE> 8
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(c) 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.
(d) 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 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.
(e) 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.
(f) 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.
(g) 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
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<PAGE> 9
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 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 Person and other than the Corporation, which
controls or is controlled by the successor 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 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 Section 8(g) and any equivalent thereof in any such certificate similarly
shall apply to successive Transactions.
(h) 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,
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<PAGE> 10
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.
(i) The Corporation shall at all times reserve and keep
available for issuance upon the conversion of the Preferred Stock pursuant to
Section 8(a) or 9(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.
(j) The issuance or delivery of certificates for Common
Stock upon the conversion of shares of Preferred Stock pursuant to Section 8(a)
or 9(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 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 Conversion.
(a) If for sixty (60) 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 sixty (60) day period (the "Sixty Day 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(f), 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 Sixty Day
Conversion Date.
(b) Any shares of Preferred Stock that have not been
converted into shares of Common Stock pursuant to the terms of this Certificate
of Designation on that date which is three (3) years following the Issue Date
(the "Three Year Conversion Date") shall automatically be converted into such
number of fully paid and non-assessable shares of Common Stock as is equal,
subject to Section 8(f), to the number of shares of Preferred Stock being so
converted multiplied by the quotient of (i) the Liquidation Preference divided
by (ii) the Current Market Price in effect on the Three Year Conversion Date
(the "Three Year Conversion Price"). Notwithstanding the foregoing, (x) the
Three Year Conversion Price shall in no event be less than $11.50, subject to
adjustment on the same basis as the Conversion Price pursuant to Section 8(c),
and (y) in the event that (A) the Three Year
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Conversion Price is less than the Market Price on the Issue Date, subject to
adjustment on the same basis as the Conversion Price pursuant to Section 8(c),
and (B) the Nasdaq Composite Index ("IXIC") as of the close of business on the
Three Year Conversion Date is seventy percent (70%) or less than the IXIC as of
the close of business on the Issue Date (the difference between one hundred
percent (100%) and such percentage is hereinafter referred to as the "Market
Correction Percentage"), then the Three Year Conversion Price shall be increased
by a percentage equal to that portion of the Market Correction Percentage in
excess of fifteen percent (15%). Notwithstanding the foregoing, in no event,
shall the Three Year Conversion Price be greater than the Conversion Price,
subject to adjustment pursuant to Section 8(c), on the Three Year Conversion
Date.
(c) Within thirty (30) Business Days of the Sixty Day
Conversion Date or the Three Year Conversion Date, as applicable, 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 9. Such conversion shall be deemed to have been made immediately
prior to the close of business on the Sixty Day Conversion Date or the Three
Year Conversion Date, as applicable, 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.
(d) Notice of any conversion of shares of Preferred Stock
pursuant to Section 9(b) 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.
(e) Notwithstanding that any certificates for such shares
shall not have been surrendered for cancellation, from and after the Sixty Day
Conversion Date or the Three Year Conversion Date, as applicable, (i) the shares
represented thereby shall no longer be deemed outstanding and (ii) 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.
Section 10. Definitions.
For the purposes of this Certificate of Designation of
Preferred Stock, the following terms shall have the meanings indicated:
"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.
"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
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<PAGE> 12
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 $18.00, subject to adjustments
as set forth in Section 8(c).
"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.
"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) the closing price per share of the Common Stock on
such date published in The Wall Street Journal, or if no such closing price on
such date is published in The Wall Street Journal, the average of the closing
bid and asked prices on such date as officially reported on the principal
national securities exchange on which the Common Stock is then listed or
admitted to trading; (b) 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 (c) 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), (b) or (c) 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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<PAGE> 13
"NASDAQ" shall mean the National Association of Securities
Dealers Automated Quotations System.
"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 (both as to
dividends and upon liquidation, dissolution or winding up) with the Preferred
Stock.
"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(b) 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.
"Series A Preferred Stock" shall mean the 4.25% Cumulative
Senior Perpetual Convertible Preferred Stock, Series A, of the Corporation.
"Series B Preferred Stock" shall mean the 4.25% Cumulative
Junior Convertible Preferred Stock, Series B, of the Corporation.
"Series C Preferred Stock" shall mean the Convertible
Preferred Stock, Series C, of the Corporation.
"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.
Section 11. 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 10 day of February, 2000.
WORLD ACCESS, INC.
By: /s/ John D. Phillips
--------------------
John D. Phillips
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EXHIBIT 99
WORLD ACCESS COMPLETES ACQUISITION OF
LONG DISTANCE INTERNATIONAL
Retail Acquisition Adds 20,000 NETnet(tm) Corporate Customers in Nine
European Countries
Company Expects to Realize Significant Synergies by Leveraging its
Robust Pan European Network
Morgan Stanley Dean Witter Now the Company's Fourth Largest Shareholder
Atlanta, Georgia - February 14, 2000 - World Access, Inc. (Nasdaq:
WAXS) announced today that it has completed its acquisition of substantially all
of the assets of Long Distance International Inc. ("LDI"), following approval
from NETnet International S.A. shareholders and holders of LDI's Senior Notes.
Operating under the NETnet(tm) name throughout Europe, LDI offers an array of
telecommunications services concentrating on the needs of business customers in
Austria, France, Germany, Italy, Norway, Spain, Sweden, Switzerland, and the
United Kingdom. World Access will continue to market retail services in Europe
under the Netnet name, including bundled voice, data and Internet services.
John D. Phillips, Chairman and Chief Executive Officer of World Access,
said, "This acquisition positions World Access with an impressive number of
business customers in nine European countries, and serves as a first step
towards becoming a premier provider of bundled voice, data and Internet services
to small and medium enterprise ("SME") markets throughout Europe and other
strategic regions of the world. Through direct and indirect sales forces, LDI's
NETnet operations have successfully targeted, acquired and retained business
customers by providing innovative bundled service offerings, customer service
and customizable billing capabilities. World Access intends to utilize LDI's
retail customer development and retention programs as a basis for further retail
account growth.
<PAGE> 2
"Combined with our extensive, highest quality switching and transport
networks in Europe," Mr. Phillips continued, "this acquisition ideally positions
us to continue to rapidly add significant retail traffic volumes onto our
network in an efficient and cost effective manner. We are also pleased that
David Hess and his European management team will continue to manage the NETnet
businesses. David will report directly to Walter Burmeister, President of World
Access."
David Hess, Chief Executive Officer of LDI, commented, "We are excited
to see NETnet become an integral part of World Access, as we now have the
management and financial resources to leverage our salesforce and significantly
expand our business customer base by offering customers integrated voice, data
and Internet services over a state-of-the-art network. In addition, the broad
array of enhanced services provides a tremendous platform for integrating future
acquisitions."
LDI's shareholders and Senior Noteholders, and NETnet International
S.A. shareholders received approximately $185 million in total consideration in
the form of World Access Convertible Preferred Stock, Series D ("Preferred
Stock"). The Preferred Stock bears no dividend and is convertible into
approximately 10 million shares of World Access common stock, subject to
potential adjustment under certain circumstances. Approximately 10% of the
consideration is being held in escrow to satisfy any future indemnification
claims. Morgan Stanley Dean Witter, the largest Senior Noteholder of LDI, has
become the fourth largest shareholder of World Access as a result of the
transaction.
World Access is focused on being a leading provider of bundled voice,
data and Internet services to key regions of the world. The company
competitively provides end-to-end communications services through its redundant
digital network which is capable of supporting voice and data services,
including frame relay, Internet Protocol (IP), asynchronous transfer mode (ATM)
and multimedia applications. Located strategically throughout the U.S. and 13
European countries, World Access' network backbone consists of gateway and
tandem switches, linked by an extensive fiber network encompassing tens of
millions of circuit miles. For additional information regarding World Access,
please refer to the Company's website at www.waxs.com <http://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:
potential inability to identify, complete and integrate acquisitions;
difficulties in expanding into new business activities; delays in new product
developments or introductions; the potential termination of certain service
agreements or the inability to enter into additional service agreements; 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 for the three months ended March 31, 1999, June
30, 1999 and September 30, 1999 and the Company's Registration Statement on Form
S-3 (No. 333-43497), as such filings have been amended, all of which are
incorporated by reference into this press release.
World Access Contact: Nancy L. de Jonge
Michael F. Mies
Director of Investor Relations
Senior Vice President- Finance
Communications & Treasurer
& Corporate
(404-231-2025)
http://www.waxs.com <http://www.waxs.com>
2
