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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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<S> <C>
Filed by the Registrant / /
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-12
INTELLICALL, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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<S> <C> <C>
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock
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(2) Aggregate number of securities to which transaction
applies:
16,426,420
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
.90625
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(4) Proposed maximum aggregate value of transaction:
14,886,443
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(5) Total fee paid:
2,978.00
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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INTELLICALL, INC.
2155 CHENAULT, SUITE 410
CARROLLTON, TEXAS 75006
(972) 416-0022
, 2001
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Intellicall, Inc., a Delaware corporation, to be held at 10:00 a.m. CST on
, 2001, at the Addison Conference and Theater Center, 15650 Addison
Road, Addison, Texas 75248. All stockholders of record as of January 18, 2001,
are entitled to vote at the meeting. I urge you to be present in person or
represented by proxy at the meeting.
The attached Notice of Annual Meeting and Proxy Statement fully describe the
formal business to be transacted at the meeting, including the following:
- the approval of the issuance of shares of common stock of Intellicall
pursuant to an Agreement and Plan of Merger, as amended, between
Intellicall, Wireless WebConnect!, Inc. and a wholly-owned subsidiary of
Intellicall;
- an amendment to Intellicall's certificate of incorporation to change
Intellicall's name to Wireless WebConnect!, Inc., assuming approval of the
merger by the stockholders;
- an amendment to Intellicall's Certificate of Incorporation to increase the
number of authorized shares of common stock to 60,000,000, which is a
condition to the closing of the merger;
- an amendment to the Intellicall 1991 Stock Option Plan to increase the
aggregate shares authorized to 9,495,000 and to modify the terms of
options issuable to nonemployee directors;
- the election of eight directors; and
- such other matters as may properly come before the meeting or any
adjournment thereof.
Intellicall and Wireless WebConnect! are merging, and as a result of the
merger, Wireless WebConnect! will become a subsidiary of Intellicall. As
consideration for the merger, Intellicall will issue 16,426,420 shares or 56% of
its outstanding stock to Wireless WebConnect!. This issuance will result in a
change in control of Intellicall. Additionally, if the proposal for electing
directors is approved, nominees from Wireless WebConnect! will control
Intellicall's board of directors.
Intellicall's board of directors believes that a favorable vote on each of
the matters to be considered at the meeting is in the best interest of
Intellicall and its stockholders and unanimously recommends a vote "FOR" each
such matter. Accordingly, we urge you to review the attached material carefully
and to return the enclosed proxy promptly.
Directors and officers of Intellicall will be present to help host the
meeting and to respond to any questions that our stockholders may have. I hope
that you will be able to attend. Even if you expect to attend the meeting,
please complete, sign, date and return your proxy in the enclosed envelope
without delay. If you attend the meeting, you may vote in person even if you
have previously mailed your proxy. However, if your shares are held of record by
a broker, bank or other nominee and you wish to vote at the meeting, you must
obtain from the record holder a proxy issued in your name.
On behalf of your board of directors, thank you for your support.
Sincerely,
[LOGO]
William O. Hunt
Chairman of the Board of Directors
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INTELLICALL, INC.
2155 CHENAULT, SUITE 410
CARROLLTON, TEXAS 75006
(972) 416-0022
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
, 2001
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Intellicall, Inc. will be held at 10:00 a.m., Dallas time, on , 2001,
at the Addison Conference and Theater Center, 15650 Addison Road, Addison, Texas
75248, for the purpose of considering and acting upon:
1. The approval of the issuance of 16,426,420 shares of common stock of
Intellicall, par value $0.01 per share, pursuant to an Agreement and Plan of
Merger, as amended, by and among Intellicall, Wireless WebConnect!, Inc., and a
wholly-owned subsidiary of Intellicall;
2. A proposal to amend Intellicall's certificate of incorporation to change
Intellicall's name to Wireless WebConnect!, Inc., assuming approval of the
merger by the stockholders;
3. A proposal to amend Intellicall's certificate of incorporation to
increase the number of authorized shares of common stock to 60,000,000, which is
a condition to the closing of the merger;
4. A proposal to amend the Intellicall 1991 Stock Option Plan to increase
the aggregate shares of common stock authorized for issuance thereunder from
2,254,400 to 9,495,000 and to modify the terms of options issuable to
nonemployee directors;
5. The election of eight members of the board of directors; and
6. Such other matters as may properly come before the meeting or any
adjournments thereof.
Intellicall and Wireless WebConnect! are merging, and as a result of the
merger, Wireless WebConnect! will become a subsidiary of Intellicall. As
consideration for the merger, Intellicall will issue 16,426,420 shares or 56% of
its outstanding stock to Wireless WebConnect!. This issuance will result in a
change in control of Intellicall. Additionally, if the proposal for electing
directors is approved, nominees from Wireless WebConnect! will control
Intellicall's board of directors.
The close of business on January 18, 2001, has been fixed as the record date
for determining stockholders entitled to notice of and to vote at the meeting or
any adjournments thereof. For a period of at least 10 days prior to the meeting,
a complete list of stockholders entitled to vote at the meeting will be open for
examination by any stockholder during ordinary business hours at the offices of
Intellicall, Inc., at 2155 Chenault, Suite 410, Carrollton, Texas 75006.
Information concerning the matters to be acted upon at the meeting is set forth
in the accompanying Proxy Statement.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND
SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE
(WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES). EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING.
HOWEVER, IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE
AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A
PROXY ISSUED IN YOUR NAME.
By Order of the Board of Directors
[LOGO]
William O. Hunt
Chairman of the Board of Directors
Dallas, Texas
, 2001
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INTELLICALL, INC.
2155 CHENAULT, SUITE 410
CARROLLTON, TEXAS 75006
972-416-0022
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 2001
This Proxy Statement is being first mailed on or about , 2001, to
stockholders of Intellicall, Inc., a Delaware corporation, by the board of
directors to solicit proxies for use at the Annual Meeting of Stockholders to be
held at 10:00 a.m. Dallas, Texas time, on , , 2001 at the
Addison Conference and Theater Center, 15650 Addison Road, Addison, Texas 75248,
or at such other time and place to which the meeting may be adjourned.
The purpose of the meeting is to consider and act upon:
- the approval of the issuance of 16,426,420 shares of common stock of
Intellicall, par value $.01 per share, pursuant to an Agreement and Plan
of Merger, as amended, between Intellicall, a wholly-owned subsidiary of
Intellicall and Wireless WebConnect!, Inc., whereby Wireless WebConnect!
will become a wholly-owned subsidiary of Intellicall and the former
shareholders of Wireless WebConnect! will own approximately 56% of the
outstanding common stock of Intellicall;
- the approval of an amendment to Intellicall's certificate of incorporation
to change its name to Wireless WebConnect!, Inc. assuming approval of the
merger by the stockholders;
- the approval of an amendment to Intellicall's certificate of incorporation
to increase the number of authorized shares of common stock to 60,000,000
which is a condition to the closing of the merger;
- the approval of an amendment to Intellicall's 1991 Stock Option Plan to
increase the aggregate shares of common stock authorized for issuance
thereunder from 2,254,400 to 9,495,000 and to modify the terms of options
issuable to nonemployee directors;
- the election of eight members of the board of directors, which if elected
will result in nominees of Wireless WebConnect! holding a majority of
seats on the board; and
- such other matters as may properly come before the meeting or any
adjournments thereof.
All shares represented by valid proxies, unless the stockholder otherwise
specifies, will be voted:
- FOR the issuance of 16,426,420 shares of common stock with respect to the
merger;
- FOR the amendment to the certificate of incorporation to change the name
to Wireless WebConnect! assuming the stockholders approve the merger;
- FOR the amendment to the certificate of incorporation to increase the
number of shares of authorized common stock;
- FOR the amendments to the 1991 Stock Option Plan;
- FOR each of the nominated directors; and
- at the discretion of the proxy holders with regard to any other matter
that may properly come before the meeting or any adjournments thereof.
Where a stockholder has appropriately specified how a proxy is to be voted,
it will be voted accordingly. A proxy may be revoked by providing written notice
of such revocation to our stock transfer agent, ChaseMellon Shareholder
Services, 2323 Bryan Street, Suite 2300, Dallas, Texas 75201, Attention: Tim
Reagan, which notice must be received by , 2001. If notice of
revocation is not received before , 2001, a stockholder may
nevertheless revoke a proxy by attending the meeting and voting in person;
however, if your shares are held of record by a broker, bank or other nominee
and you wish to vote at the meeting, you must obtain from the record holder a
proxy issued in your name.
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SUMMARY TERM SHEET FOR THE MERGER
SUMMARY INFORMATION
This summary term sheet relates to the merger discussed in more detail below
under the section entitled "The Merger." This summary does not contain all of
the information that is important to you. To understand fully the issuance of
common stock in the merger and for a more complete description of the legal
terms of the merger, you should read carefully this entire proxy statement and
the other documents we have referred you to, including the Agreement and Plan of
Merger which is attached hereto as APPENDIX A and Amendment No. 1 and Amendment
No. 2 to the merger agreement which are attached hereto as APPENDIX B and
APPENDIX C, respectively. See "Where You Can Find More Information." The other
proposals to be voted upon at the meeting are described in more detail elsewhere
in this Proxy Statement.
THE COMPANIES
INTELLICALL, INC.
2155 Chenault, Suite 410
Carrollton, Texas 75006
(972) 416-0022
Intellicall designs and manufactures public access telecommunications
systems. It is the intent of Intellicall to seek strategic alternatives to exit
that business, including the sale of that business. Intellicall does not
currently have an agreement to sell its current business.
WIRELESS WEBCONNECT!, INC.
620 Lakeview Drive
Clearwater, Florida 33756
(727) 445-1500
Wireless WebConnect! is a reseller of high-speed, mobile wireless Internet
service for mobile professionals and secure wireless access to corporate
computer networks through Virtual Private Networking, or VPN services.
WWC ACQUISITION, INC.
2155 Chenault, Suite 410
Carrollton, Texas 75006
(972) 416-0022
WWC Acquisition, Inc. is a Florida corporation recently formed by
Intellicall for use in the merger. This is the only business of WWC Acquisition,
Inc.
RECORD DATE AND VOTING SECURITIES (PAGE 15)
The record date for determining stockholders entitled to vote at the meeting
is the close of business on January 18, 2001.
QUORUM AND VOTING (PAGE 15)
The affirmative vote of a majority of the shares of Intellicall common stock
present or represented by proxy at the meeting is required to approve the
issuance of shares of Intellicall common stock with respect to the merger and to
approve the amendments to the 1991 Stock Option Plan. The affirmative vote of a
majority of the shares of Intellicall common stock issued and outstanding is
required to approve the amendments to the certificate of incorporation for the
name change and to increase the authorized common stock. Abstentions and broker
non-votes will be counted as shares present for
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determining a quorum, but will have the same effect as a vote against these
proposals. The election of a nominee to serve as director requires the
affirmative vote of a plurality of Intellicall's shares represented and entitled
to vote. Votes withheld will be counted toward a quorum, but will be excluded
entirely from the tabulation for this proposal. Our affiliates own 2,748,736
shares of common stock and are expected to vote FOR each of the matters
presented at the meeting.
Properly executed proxies that Intellicall receives before the vote at the
meeting that are not revoked will be voted in accordance with the instructions
indicated on the proxies. An Intellicall stockholder who has given a proxy may
revoke it at any time prior to its exercise at the meeting by:
- Giving written notice of revocation to the Secretary of Intellicall;
- Properly submitting to Intellicall a duly executed proxy bearing a later
date; or
- Attending the meeting and voting in person.
All written notices of revocation and other communications with respect to
revocation of proxies should be sent to Chase Mellon Shareholder Services, 2323
Bryan Street, Suite 2300, Dallas, Texas 75201, Attention: Tim Reagan and
received by , 2001. Other than the votes of our affiliates,
Intellicall is not aware of any votes that have already been committed to vote
in a particular manner.
At the annual meeting, Intellicall stockholders will be asked to:
- approve a proposal for the issuance of common stock in connection with the
merger with Wireless WebConnect! wherein Wireless WebConnect! will become
a wholly-owned subsidiary of Intellicall and the former shareholders of
Wireless WebConnect! will own approximately 56% of the outstanding common
stock of Intellicall. The Intellicall board of directors recommends a vote
FOR this proposal;
- approve a proposal for the amendment to Intellicall's certificate of
incorporation to change its name to Wireless Webconnect!. This proposal is
a condition precedent to the closing of the merger. Assuming the
stockholders approve the merger, the Intellicall board of directors
recommends a vote FOR this proposal;
- approve a proposal for the amendment to Intellicall's certificate of
incorporation to increase the number of authorized shares to 60 million.
This proposal is a condition precedent to the closing of the merger. The
Intellicall board of directors recommends a vote FOR this proposal whether
or not the merger is approved;
- approve a proposal to amend Intellicall's 1991 Stock Option Plan. The
Intellicall board of directors recommends a vote FOR this proposal; and
- approve a proposal to elect eight (8) members to the Intellicall board of
directors. The Intellicall board of directors recommends a vote FOR each
of the nominees.
DISSENTERS' RIGHTS (PAGE 15)
Under Delaware law, the Intellicall stockholders do not have any right to an
appraisal of the value of their shares in connection with the issuance of shares
in the merger.
THE MERGER (PAGE 16)
Intellicall and Wireless WebConnect! are merging; and, as a result, Wireless
WebConnect! will become a wholly-owned subsidiary of Intellicall. The merger
agreement is attached as APPENDIX A and amendments to the merger agreement are
attached as APPENDIX B and APPENDIX C, respectively, to this
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Proxy Statement. We encourage you to read the merger agreement, as amended,
which is the legal document that governs the merger.
Under the merger agreement, Intellicall will issue 16,426,420 shares of
common stock, or 56%, of Intellicall's outstanding common stock. The issuance of
common stock will result in a change of control of Intellicall. We expect the
merger to be completed on or before February 28, 2001. Additionally, Intellicall
has agreed to issue options to purchase an aggregate of 1.5 million shares of
common stock under the 1991 Stock Option Plan to former Wireless WebConnect!
employees who became Intellicall employees after the merger. These employees
have not been identified. This issuance of options will require approval of
Proposal No. 4 to increase the shares authorized under the 1991 Stock Option
Plan.
REASONS FOR THE MERGER (PAGE 18)
Intellicall's business plan has been to initiate a strategic move to create
opportunity for growth. This was necessary due to the rapid decline in
Intellicall's traditional business. A primary focus of Intellicall's strategy
was to enter into a business field with sustained growth potential. The board
has determined that the terms of the merger agreement are fair to and in the
best interests of Intellicall and its stockholders. The board considered all
material factors in reaching this decision, including the following:
- The merger facilitates the transition of Intellicall from a manufacturer
of low margin, capital intensive products wherein revenue and income is
dependent on the ability to sell into an ever decreasing payphone market.
The combined entity will move from its capital intensive, low margin
manufacturing model to a service entity model with greater margins
resulting from a recurring subscriber based revenue stream.
- The merger allows Intellicall early entry into an emerging wireless
Internet market, providing Intellicall with the opportunity to move
quickly and decisively in establishing a competitive advantage. Given the
infancy of wireless Internet access, there is currently no dominate
provider of similar products and services. Accordingly, Intellicall has
the opportunity to establish itself as a premier provider within this
market.
- The merger will capitalize on synergies of the respective entities and the
strengths of their respective management teams. Specifically, Wireless
WebConnect! has a proven track record in identifying prospective mobile
consumers and successfully selling its Metricom offering to those
customers. Wireless WebConnect! has demonstrated the ability to establish
and grow its subscriber base within this market and is recognized as a
premier provider of the Metricom product line.
- Intellicall provides experience and access to capital markets through its
well established relationships with lenders, finance companies and
underwriters. The ability to raise capital maybe necessary during the
expansion of the business and the execution of the combined business plan.
Furthermore, Intellicall management compliments and augments the expertise
of Wireless WebConnect!'s management team in the areas of telephonic
network communications, sales and marketing, accounting and finance and
customer service and support.
It is recognized that benefits of the merger may not be realized, and that
the following risks are associated with the merger, including:
- difficulty in transitioning Intellicall from a manufacturing entity to a
service based entity and disposing under-performing or non-performing
assets in the transition period;
- entry of competition into the emerging wireless Internet market by
entities that are better financed and capitalized, which may enable such
entities to gain significant market share quicker and more effectively
than the merged company;
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- reluctance of the wireless Internet consumer to accept products and
services offered by the merged company;
- difficulty of assimilating the operations and personnel of the companies
in order to realize the consolidation benefit and synergies of the merger;
- reluctance or inability of external financing sources to provide needed
financing for working capital and business expansion;
- the possibility that the merger may not be completed, resulting in the
public's negative response;
- the issuance of common stock could dilute the currently outstanding shares
of common stock;
- we will be engaging in a business in which we have not previously been
engaged;
- Wireless WebConnect! has only one product which it receives from a sole
source provider;
- our failure to respond to rapid technological changes could impair our
operating results;
- the merger will result in a change of control of Intellicall and the
interests and direction of the post-merger management of Intellicall could
differ dramatically from the current management;
- the merger may cause potentially significant limitations on the ability of
Intellicall to fully use its tax net operating loss carry forward; and
- we may be required to file an application to re-list our common stock on
the American Stock Exchange, and such re-listing efforts may be
unsuccessful.
Additionally, there are risks associated with the wireless Internet market
that were considered by the board. Our future success depends heavily on the
acceptance and wide use of the Internet for electronic business. If electronic
business does not continue to grow or grows more slowly than expected, demand
for our products and services will be reduced.
Intellicall's management believes that the benefits derived by completing
the merger as identified outweigh the potential risks associated with the
merger. Failure to reconstitute Intellicall and move into a recognized growth
market, such as wireless Internet access, increases the risk that Intellicall
will not survive in the long term.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AGREEMENT (PAGE 20)
Some of Intellicall's directors and officers have interests in the merger
that are different from, or are in addition to, their interests as stockholders
in Intellicall. The members of the board knew about these additional interests,
and considered them, when they approved the merger agreement. The interests
include a new employment agreement with Mr. McDonald to be executed upon the
closing of the merger. See "Intellicall Management--CEO Compensation" below for
a description of that employment agreement. Additionally, in exchange for
Mr. McDonald's agreement to forego a change of control payment due upon the
closing of the merger contained in Mr. McDonald's existing employment agreement,
the Intellicall board agreed to vest nonqualified stock options issued to
Mr. McDonald to purchase up to 565,000 shares of Intellicall common stock
immediately upon the closing of the merger.
ACCOUNTING TREATMENT OF THE MERGER (PAGE 20)
The business combination will be accounted for under the provisions of
Accounting Principles Board Opinion Number 16, Accounting for Business
Combinations as a purchase business combination. Wireless WebConnect! will be
considered the accounting acquirer since the former Wireless WebConnect!
shareholders will control Intellicall through their holdings of approximately
56% of the combined outstanding shares of Intellicall common stock and will have
control over the Board of
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Directors of Intellicall after the merger is effective. Accordingly, the assets
acquired and liabilities assumed will be recorded at their respective fair
values, and any excess purchase price will be recorded as goodwill. Because
Intellicall is the legal acquirer, this is considered a "reverse acquisition."
Alternatively, if Intellicall's remaining business operations are sold prior
to the combination or if a decision is made to discontinue such operations, the
combination would be accounted for as an acquisition of assets (primarily cash)
rather than as a business combination and no goodwill would be recorded. This
accounting treatment would occur because Intellicall (the acquiree) would have
no continuing operations and Wireless WebConnect! would only be acquiring
tangible net assets consisting primarily of cash. Accordingly, the assets
acquired would be recorded at their estimated fair value with a corresponding
entry to equity for the shares issued.
Options granted to Wireless WebConnect! employees that become employees of
Intellicall will be accounted for as options granted to employees under the
Intellicall 1991 Stock Option Plan, applying the provisions of APB No. 25.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 21)
The merger is structured as a tax-free reorganization so that neither
Intellicall, the stockholders of Intellicall or Wireless WebConnect! will
recognize any gain or loss for federal income tax purposes in the merger. The
merger is conditioned on receipt of a legal opinion from Jackson Walker, L.L.P.,
Intellicall's counsel, stating that the merger is a tax-free reorganization.
Intellicall has received a tax opinion from Jackson Walker L.L.P. to that
effect.
FAIRNESS OPINION (PAGE 22)
Houlihan, Lokey, Howard & Zukin Financial Advisors, Inc. have issued a
fairness opinion to the Intellicall board dated , 2001 to the effect
that the merger is fair, from a financial point of view, to Intellicall. The
fairness opinion is attached to this proxy statement as APPENDIX F.
CONVERSION OF SHARES--EXCHANGE RATIO (PAGE 24)
When the merger closes, the six common shareholders of Wireless WebConnect!
will receive 1,642,642 shares of Intellicall common stock in exchange for each
share of Wireless WebConnect! common stock they hold. Each holder otherwise
entitled to receive fractional shares will have the fractional share rounded up
to the next whole share.
Intellicall will issue 16,426,420 shares of Intellicall common stock to the
six common shareholders of Wireless WebConnect! in the merger. These shares will
represent approximately 56% of the outstanding Intellicall common stock after
the merger, which is based on the number of shares of Intellicall and Wireless
WebConnect!, Inc. common stock outstanding on August 28, 2000, and does not take
into account shares issuable upon the exercise of stock options, warrants or
convertible securities.
CONDITIONS PRECEDENT TO THE MERGER (PAGE 29)
Intellicall's, and Wireless WebConnect!'s obligations under the merger
agreement are subject to the following:
- obtaining approval of the stockholders of Intellicall for the issuance of
the common stock, the increase in the authorized shares of stock and the
corporate name change to "Wireless WebConnect!;"
- obtaining approval of the common stock for listing on the American Stock
Exchange;
- obtaining any governmental or regulatory notices or approvals; and
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- the absence of any governmental actions or injunction (or threat of an
injunction) which have the effect of prohibiting consummation of the
merger.
In addition to the mutual conditions described above, Intellicall's
obligations under the merger agreement are subject to the following:
- there cannot have been any change that is materially adverse to the
financial condition, operations or current business of Wireless
WebConnect!;
- the receipt by Intellicall of a written opinion from tax counsel to the
effect that the merger will constitute a tax free reorganization under
Section 368(a) of the code;
- the shareholders have executed and delivered the Escrow Agreement and the
Security Agreement;
- the receipt by Intellicall of a fairness opinion; and
- Wireless WebConnect!'s reasonable efforts to cause to be delivered to
Intellicall a current dated letter from Wireless WebConnect!'s auditors
regarding certain financial matters.
In addition to the mutual conditions described above, Wireless WebConnect!'s
obligations under the merger agreement are subject to the following:
- there cannot have been any change that is materially adverse to the
financial condition, operations or current business of Intellicall;
- the bylaws of Intellicall have been amended with respect to the election
of new directors and officers;
- the receipt by Intellicall of a fairness opinion;
- Wireless WebConnect! has obtained all necessary consents; and
- Wireless WebConnect! shall have received a legal opinion from
Intellicall's tax counsel to the effect that the merger will constitute a
tax free reorganization under Section 368(a) of the code.
Additionally, any or all of the conditions precedent to the merger may be
waived in writing by the parties to the merger agreement, in whole or in part,
to the extent permitted by applicable law. If the parties waive any material
conditions precedent to the merger, the board intends to resolicit stockholder
approval.
REGULATORY APPROVALS (PAGE 21)
At any time before or after the completion of the merger, the Antitrust
Division of the Justice Department, the Federal Trade Commission or another
third party could seek to enjoin or rescind the merger on antitrust grounds.
Additionally, any state could take action under state antitrust laws that it
deems necessary or desirable in the public interest. While we believe that the
merger will not violate any antitrust laws, that no federal state regulatory
requirements must be complied with and that no federal or state regulatory
approval must be obtained in connection with the merger, we cannot assure you
that there will be no challenge, or what the result will be if a challenge is
made.
TERMINATION OF THE MERGER AGREEMENT (PAGE 31)
Either Intellicall or Wireless WebConnect! can terminate the merger
agreement if both companies' boards of directors mutually agree or if the
closing has not occurred by February 28, 2001.
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Intellicall may terminate the merger agreement if:
- a material breach of a representation, warranty or covenant of Wireless
WebConnect! has occurred;
- the Intellicall board has withdrawn, modified or changed its approval or
recommendation of the issuance of common stock;
- Wireless WebConnect!'s deliveries or financial statements are not
reasonably satisfactory to Intellicall and no agreement is reached
regarding changes within a specified period; or
- the issuance of the common shares or the increase in the number of
authorized shares fails to receive the required stockholder vote.
Additionally, Wireless WebConnect! may terminate the merger agreement if:
- a material breach of a representation, warranty or covenant of Intellicall
has occurred;
- the Wireless WebConnect! board has withdrawn, modified or changed its
approval or recommendation of the merger; or
- Intellicall's deliveries or financial statements are not reasonably
satisfactory to Wireless WebConnect! and no agreement is reached regarding
changes within a specified period.
If either party terminates the merger agreement, the party terminating the
agreement must pay to the other party a termination fee equal to the reasonable
expenses of such other party.
LISTING OF INTELLICALL COMMON STOCK (PAGE 29)
The Intellicall common stock is currently listed on the American Stock
Exchange. It is a condition precedent to the closing of the merger that
Intellicall list the shares of its common stock to be issued in the merger on
the American Stock Exchange.
8
<PAGE>
SUMMARY HISTORICAL FINANCIAL INFORMATION
The following table sets forth certain summary historical financial data for
Intellicall and Wireless WebConnect! for each of the two years in the period
ended December 31, 1999, and for the nine months ended September 30, 2000 and
1999, respectively. The data presented below has been derived from and should be
read in conjunction with the financial statements of Intellicall and the
financial statements of Wireless WebConnect!, and the related notes thereto set
forth elsewhere in this Proxy Statement. Summary financial data at
September 30, 2000 and for the nine months ended September 30, 2000 and 1999,
respectively, for Intellicall and Wireless WebConnect! are derived from the
unaudited financial statements of the Intellicall and Wireless WebConnect! and
include all adjustments (consisting only of normally recurring adjustments) that
Intellicall and Wireless WebConnect! each consider necessary for a fair
presentation of operating results for such interim periods. Results for interim
periods are not necessarily indicative of results for the full year. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations of Intellicall" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations of Wireless WebConnect!" for a
discussion of matters that affect the comparability of the information
presented. All of the statements are in United States dollars.
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF INTELLICALL
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------------
1999 1998 2000 1999
-------- -------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues............................... $ 11,131 $ 13,859 $ 3,282 $ 9,210
Net income (loss)............................ (9,988) (1,856) 5,032 (7,277)
Basic net income (loss) per share............ (.82) (.19) .38 (.60)
Diluted net income (loss) per share.......... (.82) (.19) .35 (.60)
Weighted average number of basic shares
outstanding................................ 12,132 9,927 13,056 12,045
Weighted average number of diluted shares
outstanding................................ 12,132 9,927 14,404 12,045
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------- -----------------
1999 1998 2000
-------- -------- -----------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Working capital (CA-CL)...................... $ (1,886) $ 4,363 $ 5,191
Total assets................................. 12,117 24,884 8,640
Accounts payable and accrued expenses........ 2,408 3,137 1,223
Short-term borrowings........................ 7,630 3,811 200
Long-term debt............................... 1,557 7,312 1,745
Accumulated deficit.......................... (61,697) (51,709) (56,665)
Total stockholders' equity (deficit)......... $ (338) $ 8,526 $ 4,812
</TABLE>
9
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA OF WIRELESS WEBCONNECT!
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
------------------- -------------------------
1999 1998 2000 1999
-------- -------- ------------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................... $1,853 $1,402 $1,116 $1,447
Net income (loss)................................ 34 120 (84) 117
Net loss per common share........................ (a) (a) (8.40) (a)
<CAPTION>
AT DECEMBER 31, AT SEPTEMBER 30,
------------------- -----------------
1999 1998 2000
-------- -------- -----------------
(UNAUDITED)
BALANCE SHEET DATA:
<S> <C> <C> <C> <C>
Total assets..................................... $ 231 $ 240 $1,180
Owner's equity................................... 174 206 46
</TABLE>
(a) Income per common share is not presented for the periods the entity operated
as a partnership.
10
<PAGE>
SUMMARY PRO FORMA FINANCIAL INFORMATION
The following summary pro forma financial information has been derived from
and should be read in conjunction with the pro forma financial information and
notes thereto included elsewhere in this Proxy Statement. The following summary
pro forma consolidated statements of operations for the year ended December 31,
1999 and the nine months ended September 30, 2000 combine the historical
information of Intellicall adjusted to give effect to the merger and the related
pro forma adjustments. The pro forma statements of operations for the year ended
December 31, 1999 and the nine months ended September 30, 2000 reflect the
consolidated operations of Intellicall and Wireless WebConnect! as if the merger
had been consummated on January 1, 1999. The pro forma balance sheet as of
September 30, 2000 is presented as if the merger had been consummated on that
date. All of the statements are in United States dollars. This summary pro forma
financial information is presented for illustrative purposes only and is not
necessarily indicative of the results of operations and financial condition that
would have been achieved if the transactions included in the pro forma
adjustments had been consummated in accordance with the assumptions set forth
below under "Pro Forma Adjustments" nor is it necessarily indicative of future
operating results or financial condition.
SUMMARY PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
------------------ -------------------
<S> <C> <C>
Selected Statement of Operations Data:
Total revenues........................................... $12,984 $ 4,398
Net income (loss) from continuing operations............. (12,999) 2,293
Basic net income (loss) per share from continuing
operations............................................... (.46) .08
Diluted net income (loss) per share from continuing
operations............................................... (.46) .07
Weighted average number of basic shares outstanding...... 28,558 29,482
Weighted average number of diluted shares outstanding.... 28,558 30,830
</TABLE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 2000
---------------------
<S> <C>
BALANCE SHEET DATA:
Working capital (CA-CL)................................... $ 5,450
Total assets.............................................. 20,713
Accounts payable and accrued expenses..................... 1,687
Short-term borrowings..................................... 200
Long-term debt............................................ 1,745
Accumulated deficit....................................... (328)
Total stockholders' equity................................ $16,001
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE DATA
Set forth below are the comparative net income (loss) and book value per
common share data of (i) each of Intellicall and Wireless WebConnect! on an
historical basis, (ii) the market value per share of Intellicall and (iii) the
Surviving Corporation on a pro forma combined basis giving effect to the merger
assuming it had occurred as of January 1, 1999, in each case giving effect to
the merger as a purchase by Wireless WebConnect! of all of the assets and
liabilities of Intellicall, all on the basis described in the unaudited pro
forma financial information and notes thereto included elsewhere in this Proxy
Statement. The net income (loss) and book value per common share of Intellicall
common stock on an equivalent pro forma combined basis giving effect to the
merger would be the same as is shown for the Surviving Corporation since the
Exchange Ratio is one-for-one. Neither company paid any dividends to their
shareholders during the periods presented.
The information set forth below should be read in conjunction with the
respective audited and unaudited financial statements and related notes of
Intellicall and Wireless WebConnect! included elsewhere in this Proxy Statement
and the unaudited summary pro forma financial information and notes thereto
included elsewhere in this Proxy Statement.
PER SHARE COMMON STOCK DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1999 SEPTEMBER 30, 2000
------------------ -------------------
<S> <C> <C>
INTELLICALL--HISTORICAL:
Book value per common share -- basic..................... $ (.03) $ .37
Book value per common share -- diluted................... (.03) .33
Basic net income (loss) per share from continuing
operations............................................... (.76) .40
Diluted net income (loss) per share from continuing
operations............................................... (.76) .37
Market value per share................................... $ 1.13 $ 1.00
Weighted average number of basic shares outstanding...... 12,132 13,056
Weighted average number of diluted shares outstanding.... 12,132 14,404
WIRELESS WEBCONNECT!--HISTORICAL:
Book value per common share.............................. (b) $ 4.60
Net income (loss) per common share....................... (b) $ (8.40)
Average number of shares outstanding..................... (b) 10
SURVIVING CORPORATION--PRO FORMA:
Book value per share -- basic............................ (a) $ .54
Book value per share -- diluted.......................... (a) .52
Basic net income (loss) per share from continuing
operations............................................... $ (.46) .08
Diluted net income (loss) per share from continuing
operations............................................... $ (.46) $ .07
Weighted average number of basic shares outstanding...... 28,558 29,482
Weighted average number of diluted shares outstanding.... 28,558 30,830
</TABLE>
------------------------
(a) A pro forma balance sheet as of December 31, 1999 is not presented.
(b) Per common share historical data is not presented for the periods the entity
operated as partnership.
12
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Summary Term Sheet.......................................... 2
Record Date and Voting Securities........................... 15
Quorum and Voting........................................... 15
Cautionary Statement Concerning Forward-Looking
Statements................................................ 16
Proposal No. 1 Approval of the Merger Agreement............. 16
The Merger.................................................. 16
History of the Merger..................................... 16
Reasons For The Merger.................................... 18
Interest Of Certain Persons In The Merger Agreement....... 20
Accounting Treatment Of The Merger........................ 20
Regulatory Approvals...................................... 21
Material Federal Income Tax Consequences.................. 21
Fairness Opinion.......................................... 22
Summary of the Merger Agreement............................. 24
The Merger................................................ 25
Effective Time Of The Merger.............................. 25
Conversion Of Shares--Exchange Ratio...................... 25
Creation Of Escrow........................................ 25
Representations And Warranties............................ 26
Other Agreements And Covenants............................ 27
Assets, Liabilities, Business or Prospects................ 28
Closing................................................... 29
Conditions Precedent...................................... 29
Registration Rights....................................... 30
Indemnification........................................... 30
Appointment Of Directors.................................. 30
Non-Solicitation.......................................... 31
Termination............................................... 31
Unaudited Pro Forma Consolidated Statement of Operations and
Balance Sheet of the Surviving Corporation................ 32
Proforma Combined Condensed Statement of Operations for the
Nine Months Ended September 30, 2000...................... 33
Proforma Combined Condensed Statement of Operations for the
Year Ended December 31, 1999.............................. 34
Proforma Combined Balance Sheet as of September 30, 2000.... 35
Notes to Pro Forma Consolidated Statements of Operations and
Balance Sheet............................................. 36
Comparative Per Share Data.................................. 36
Per Share Common Stock Data............................... 37
Description of Intellicall.................................. 37
Selected Historical Financial Information of
Intellicall............................................. 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Intellicall...... 42
Changes in Certifying Accountant.......................... 48
Intellicall Management.................................... 49
Section 16(a) Beneficial Ownership Reporting Compliance... 50
Committees and Meetings of the Board of Directors......... 50
Compensation Committee Interlock, and Insider
Participation........................................... 51
Organization and Compensation Committee Report on Executive
Compensation.............................................. 51
CEO Compensation.......................................... 51
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Executive Compensation.................................... 53
Option Grants in Last Fiscal Year......................... 53
Aggregated Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values.................................. 54
Director Compensation..................................... 54
Indemnification Arrangements.............................. 54
1991 Stock Option Plan.................................... 54
Stock Performance Chart................................... 55
Security Ownership of Certain Beneficial Owners and
Management of Intellicall................................. 56
Certain Relationships and Related Transactions of
Intellicall............................................... 57
Description of Wireless WebConnect! ........................ 58
Selected Historical Financial Data of Wireless
WebConnect!............................................. 58
Management's Discussion and Analysis of Financial
Condition and Results of Operations of Wireless
WebConnect!............................................. 60
Market Price, Dividends and Stockholder Matters............. 63
Proposal No. 2 Amendment to the Certificate of Incorporation
to Change the Name to Wireless WebConnect!................ 65
Proposal No. 3 Amendment to the Certificate of Incorporation
to Increase the Number of Authorized Shares of Common
Stock..................................................... 65
Proposal No. 4 Amendment of the Plan........................ 66
General................................................... 67
Administration of the 1991 Plan........................... 67
Eligibility............................................... 67
Grant, Term, and Restrictions on Awards................... 67
Purchase Price for Incentive Options...................... 68
Termination of Awards..................................... 68
Certain Events............................................ 68
Amendments................................................ 69
Options Granted in 1999................................... 69
Federal Income Tax Consequences........................... 69
Proposal No. 5 Election of Directors........................ 70
Where You Can Find More Information......................... 71
Stockholder Proposals....................................... 72
Relationship with Independent Public Accountants............ 72
Other Business.............................................. 72
Incorporation of Certain Information by Reference...........
Miscellaneous............................................... 72
Index to Financial Statements and Financial Statement
Schedules................................................. F-1
</TABLE>
<TABLE>
<S> <C>
Agreement and Plan of Merger................................ Appendix A-1
Amendment No. 1 to Agreement and Plan of Merger............. Appendix B-1
Amendment No. 2 to Agreement and Plan of Merger............. Appendix C-1
Intellicall, Inc. 1991 Stock Option Plan.................... Appendix D-1
Audit Committee Charter..................................... Appendix E-1
Fairness Opinion............................................ Appendix F-1
</TABLE>
14
<PAGE>
RECORD DATE AND VOTING SECURITIES
The record date for determining the stockholders entitled to vote at the
meeting is the close of business on January 18, 2001, at which time we had
issued and outstanding [13,081,889] shares of common stock. Common stock is our
only class of outstanding voting securities.
QUORUM AND VOTING
The presence at the meeting, in person or by proxy, of the holders of a
majority of the issued and outstanding shares of common stock is necessary to
constitute a quorum to transact business. Each share represented at the meeting
in person or by proxy will be counted toward a quorum. In deciding all questions
and other matters, a holder of common stock on the record date shall be entitled
to cast one vote for each share of common stock registered in such holder's
name.
Nominees, such as banks and brokers who hold shares in street name, have the
discretionary authority to vote on certain routine matters on which they have
not received instructions from beneficial owners. However, brokers do not have
discretionary authority and may not vote shares held for customers on approval
of certain other matters without specific instructions from such customers.
"Broker non-votes" on any such proposal (where a broker submits a proxy but does
not have discretionary authority to vote a customer's shares on such proposal
when specific instructions are not received) will not be included in the vote
totals on that proposal.
The approval of the issuance of common stock with respect to the merger
requires the affirmative vote of a majority of the shares of common stock
represented in person or by proxy at the meeting, entitled to vote thereon,
provided a quorum is present. Brokers do not have discretionary authority to
vote on the issuance. Abstentions and broker non-votes will be counted as shares
present for purposes of determining the presence of a quorum but will have the
same effect as a vote against such proposal.
The approval of the amendment to the certificate of incorporation to change
our name to Wireless WebConnect! and increase of the number of shares authorized
for issuance requires the affirmative vote of a majority of the shares of common
stock issued and outstanding and entitled to vote thereon, provided a quorum is
present. Brokers have discretionary authority to vote on the amendments to the
certificate of incorporation. Abstentions on such proposal may be specified and
will be counted as shares present for purposes of determining a quorum but will
have the same effect as a vote against such proposal.
The approval of the amendment to the 1991 Stock Option Plan requires the
affirmative vote of a majority of the shares of common stock represented in
person or by proxy at the meeting, entitled to vote thereon, provided a quorum
is present. Brokers do not have discretionary authority to vote on the amendment
to the plan. Abstentions and broker non-votes will be counted as shares present
for purposes of determining the presence of a quorum but will have the same
effect as a vote against such proposal.
The election of a nominee to serve as a director requires the affirmative
vote of a plurality of the shares of common stock represented in person or by
proxy at the meeting, entitled to vote thereon, provided a quorum is present.
Votes may be cast in favor or withheld with respect to each nominee. Votes that
are withheld will be counted toward a quorum, but will be excluded entirely from
the tabulation for such proposal and, therefore, will not affect the outcome of
the vote on this proposal. Brokers have discretionary authority to vote for
nominees.
The holders of common stock are not entitled to dissenters' appraisal rights
under the Delaware General Corporation Law with respect to any of the proposals
set forth in this Proxy Statement.
Properly executed proxies that Intellicall receives before the vote at the
meeting, which are not revoked, will be voted in accordance with the
instructions indicated on the proxies. If no instructions are indicated, the
proxies will be voted FOR each of the proposals.
If there are not sufficient votes to approve the proposals at the time of
the meeting, if necessary, the proxy holders may vote to adjourn and postpone
the meeting in order to permit further solicitation of proxies.
15
<PAGE>
CAUTIONARY STATEMENT CONCERNING
FORWARD-LOOKING STATEMENTS
This Proxy Statement contains forward-looking statements we believe are
within the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995 with respect to Intellicall's financial condition, results of
operations and business, and on the expected impact of the merger on
Intellicall's financial performance. Words such as "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions
identify forward-looking statements. These forward-looking statements are not
guarantees of future performance and are subject to risks and uncertainties that
could cause actual results to differ materially from the results contemplated by
the forward-looking statements.
PROPOSAL NO. 1
APPROVAL OF ISSUANCE OF COMMON STOCK
On August 29, 2000, Intellicall, Wireless WebConnect! and WWC
Acquisition, Inc., a wholly-owned subsidiary of Intellicall ("Merger Sub")
entered into the merger agreement, whereby Merger Sub will merge with and into
Wireless WebConnect!. Wireless WebConnect! will survive the merger and will be a
wholly-owned subsidiary of Intellicall. Holders of Wireless WebConnect! common
stock will be entitled to receive shares of Intellicall common stock in the
merger. Intellicall will issue an aggregate of 16,426,420 shares of common stock
to the six common shareholders of Wireless WebConnect!, who will then own
collectively approximately 56% of the issued and outstanding shares of
Intellicall common stock. The value of the transaction is based on Intellicall's
average closing price per share for three days before and after August 29, 2000,
or $.9643 per share. Based on that price per share, the value of the transaction
is approximately $16.0 million. In addition, after the merger is closed,
Intellicall has agreed that the former Wireless WebConnect! employees who become
Intellicall employees will be eligible to receive options to purchase an
aggregate of 1.5 million shares of Intellicall common stock under Intellicall's
1991 Stock Option Plan. Proposal No. 4 to increase the shares authorized under
that plan must be approved in order to satisfy that agreement.
The issuance of the shares of Intellicall common stock in connection with
the merger is subject to the approval of the stockholders of Intellicall.
This section of the Proxy Statement describes aspects of the merger
agreement and the proposed merger. To fully understand the discussion of the
merger in this document and the discussion of the principal terms of the merger
agreement, please read the entire merger agreement and each of the amendments to
the merger agreement, copies of which are attached to this Proxy Statement in
APPENDIX A, APPENDIX B and APPENDIX C, respectively. All references to the
merger agreement are deemed to include the amendments to the merger agreement.
OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL OF
THE ISSUANCE OF 16,426,420 SHARES OF INTELLICALL COMMON STOCK WITH RESPECT TO
THE MERGER.
THE MERGER
HISTORY OF THE MERGER
Although Intellicall's traditional business was the manufacture of payphones
and related customer services, the payphone industry has been in a steady
decline over recent years due to several factors, including:
- the rise in low cost long distance, which forced payphone operators to
reduce long distance fees and resulted in a loss of a major source of
substantial revenue;
- the increase in low cost single rate plan cellphones, which allowed many
traditional payphone users to cost effectively move to cell phones; and
16
<PAGE>
- the advent of 800 numbers and prepaid calling cards, which allowed
traditional payphone users to bypass the long distance service provided by
payphone operators.
Industry changes and changes in user dynamics resulted in a decline in the
total number of payphones used in the U.S. market. Although we attempted to size
our operations to the industry, the decline was continuous and the weaknesses of
the industry continued. As a result, we began exploring strategic alternatives
to exit the payphone business. We considered several options, including attempts
to consolidate with the following:
- other payphone manufacturers;
- a retail Internet sales company;
- a custom aluminum manufacturing company; and
- international 800 by-pass opportunities.
While all of these possibilities were investigated, none possessed the
combination of a reasonable growth opportunity as well as a fair exchange to our
stockholders. We are continuing to explore strategic alternatives with respect
to our pay phone business. These alternatives include, without limitation, a
sale of such business or a liquidation thereof. We do not currently have an
agreement to sell our pay phone business.
To assist us with our efforts, we hired Houlihan, Lokey, Howard & Zukin
Financial Advisors, Inc., an investment banking firm, to assist us in
identifying strategic opportunities. Initially, we structured a merger with
Heads Up Technologies, Inc. However, Intellicall and Heads Up mutually agreed to
cancel the proposed merger. The business opportunities presented by the merger,
including anticipated cost reductions and the ability to expand in new markets,
did not justify the cost of combining the two companies. Heads Up also
experienced difficulty in obtaining a critical vote pledge from its
stockholders. After terminating the merger agreement with Heads Up, we continued
to pursue strategic alternatives. Houlihan, Lokey, introduced us to the current
opportunity with Wireless WebConnect!.
On or about July 11, 2000, Houlihan Lokey contacted John McDonald, President
and Chief Executive Officer of Intellicall, relating to an opportunity in the
wireless Internet area with Wireless WebConnect!. During this call,
Mr. McDonald received a brief history of Wireless WebConnect! and its current
activities and business plan. The Chief Executive Officer of Wireless
WebConnect!, G.T. Finn, contacted Mr. McDonald the following day, and invited
him to visit Wireless WebConnect! to determine if there was any interest in a
possible strategic relationship.
Mr. McDonald determined there was value in having an introductory meeting to
better understand Wireless WebConnect!'s business model and determine if there
could be a future strategic fit. Mr. McDonald discussed this with Bill Hunt,
Intellicall's chairman of the board of directors, and both agreed to meet with
Wireless WebConnect! on July 18, 2000, in San Jose, California.
Messrs. McDonald and Hunt visited Wireless WebConnect! and also met with the
network service provider, Metricom, Inc., for which Wireless WebConnect! is a
reseller. Both concluded this was a very interesting business model, and would
keep it in mind as Intellicall moved ahead with its strategic realignment. In
attendance at the meeting were Mr. Finn, Mike Campbell, Sr. Vice President of
Wireless WebConnect!, Bob Cefoil of RC&A Group, investment banker for Wireless
WebConnect!, and Tracy Albert from Houlihan Lokey.
On the afternoon of July 20, 2000, Mr. McDonald called a special telephonic
board meeting to inform the Intellicall board of the inquiry regarding Wireless
WebConnect! and subsequent introductory meeting with Wireless WebConnect!. The
board agreed that Intellicall should aggressively pursue additional discussions
with Wireless WebConnect! to determine if an opportunity existed.
During the period from July 20 through July 25, 2000, Intellicall performed
preliminary due diligence with respect to Wireless WebConnect! and Metricom, and
participated in several telephone
17
<PAGE>
conversations and exchanged informational material with the companies. Toward
the end of this period, the board discussed a strategic relationship, including
the possibility of a merger. The parties also discussed in general terms, how a
merger would be structured. During these discussions, it was agreed that the
parties should immediately meet to discuss details of a merger. All parties
agreed to meet at Intellicall's offices on July 26, 2000.
Attending the July 26, 2000 meeting were Mr. Finn, Mr. Campbell, Philip
Jepsen, Vice President Operations for Wireless WebConnect!, Mr. Cefoil,
Mr. McDonald, Mr. Hunt, Phil Boyd, Chief Financial Officer of Intellicall, and
Mr. Albert. At this meeting the parties continued their discussion relating to a
merger. The parties reached general agreement on a structure for the merger; as
well as discussed operational and sales plans and other possible strategic
opportunities. At the close of the meeting, all parties agreed there were
compelling reasons to proceed with the merger, including:
- the continued decline of the payphone industry coupled with the strong
trend among businesses and consumers toward mobile access;
- the potential to enter the growing wireless data/Internet industry at an
early stage;
- the opportunity to capitalize on Wireless WebConnect!'s track record in
selling the previous Metricom offering as well as its knowledge of the
mobile consumer and the mobile market; and
- the synergies of the respective management teams.
All of these factors contributed to our decision to enter the wireless Internet
market and go forward with the merger. All parties agreed to begin developing a
definitive agreement and exchange initial due diligence material.
On August 1, 2000 the parties met at Intellicall's offices to finalize
several matters relating to the structure of the merger and a more definitive
agreement. In attendance were Mr. Campbell, Steven Hayes, attorney for Wireless
WebConnect!, Mr. Cefoil, Mr. McDonald, Mr. Hunt, Mr. Boyd, Richard Dahlson,
attorney for Intellicall, and Mr. Albert. Valuation, organization, operating,
financial, sales and other matters were discussed. General agreement was reached
on all matters relating to the structure of the merger and definitive agreement.
It was agreed the parties would immediately complete development of a merger
agreement and continue the exchange of due diligence material.
From August 2 through August 23, 2000, negotiations continued with respect
to the merger agreement and due diligence continued. On August 23, 2000, the
merger agreement was essentially complete and was sent to the Intellicall board
members for review, comments and questions.
On August 29, 2000 a special telephonic board meeting was held. At this
meeting the Intellicall board unanimously voted to approve the merger agreement
and the transactions contemplated thereby and recommended that the issuance of
common stock relating to the merger be submitted to the stockholders for
approval. The merger agreement was executed by the parties on August 29, 2000.
REASONS FOR THE MERGER
Intellicall's business plan has been to initiate a strategic move to create
opportunity for growth. This was necessary due to the rapid decline in
Intellicall's traditional business. A primary focus of Intellicall's strategy
was to enter into a business field with sustained growth potential. The board
has determined that the terms of the merger agreement are fair to and in the
best interests of Intellicall and its stockholders. The board considered all
material factors in reaching this decision, including the following:
- The merger facilitates the transition of Intellicall from a manufacturer
of low margin, capital intensive products wherein revenue and income is
dependent on the ability to sell into an ever decreasing payphone market.
The combined entity will move from its capital intensive, low
18
<PAGE>
margin manufacturing model to a service entity model with greater margins
resulting from a recurring subscriber based revenue stream.
- The merger allows Intellicall early entry into an emerging wireless
Internet market, providing Intellicall with the opportunity to move
quickly and decisively in establishing a competitive advantage. Given the
infancy of wireless Internet access, there is currently no dominate
provider of similar products and services. Accordingly, Intellicall has
the opportunity to establish itself as a premier provider within this
market.
- The merger will capitalize on synergies of the respective entities and the
strengths of their respective management teams. Specifically, Wireless
WebConnect! has a proven track record in identifying prospective mobile
consumers and successfully selling its Metricom offering to those
customers. Wireless WebConnect! has demonstrated the ability to establish
and grow its subscriber base within this market and is recognized as a
premier provider of the Metricom product line.
- Intellicall provides experience and access to capital markets through its
well established relationships with lenders, finance companies and
underwriters. The ability to raise capital may be necessary during the
expansion of the business and the execution of the combined business plan.
Furthermore, Intellicall management compliments and augments the expertise
of Wireless WebConnect!'s management team in the areas of telephonic
network communications, sales and marketing, accounting and finance and
customer service and support.
It is recognized that benefits of the merger may not be realized, and that
the following risks are associated with the merger, including:
- difficulty in transitioning Intellicall from a manufacturing entity to a
service based entity and disposing under-performing or non-performing
asset in the transition period;
- entry of competition into the emerging wireless Internet market by
entities that are better financed and capitalized, which may enable such
entities to gain significant market share quicker and more effectively
than the merged company;
- reluctance of the wireless Internet consumer to accept products and
services offered by the merged company;
- difficulty of assimilating the operations and personnel of the companies
in order to realize the consolidation benefit and synergies of the merger;
- reluctance or inability of external financing sources to provide needed
financing for working capital and business expansion;
- the possibility that the merger may not be completed, resulting in the
public's negative response;
- the issuance of common stock could dilute the currently outstanding shares
of common stock;
- we will be engaging in a business in which we have not previously been
engaged;
- Wireless WebConnect! has only one product which it receives from a sole
source provider;
- our failure to respond to rapid technological changes could impair our
operating results;
- the merger will result in a change of control of Intellicall and the
interests and direction of the post-merger management of Intellicall could
differ dramatically from the current management;
- the merger may cause potentially significant limitations on the ability of
Intellicall to fully use its tax net operating loss carry forward; and
- we may be required to file an application to re-list our common stock on
the American Stock Exchange and such re-listing efforts may be
unsuccessful.
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Additionally, there are risks associated with the wireless Internet market
that were considered by the board. Our future success depends heavily on the
acceptance and wide use of the Internet for electronic business. If electronic
business does not continue to grow or grows more slowly than expected, demand
for our products and services will be reduced.
Intellicall's management believes that the benefits derived by completing
the merger as identified outweigh the potential risks associated with the
merger. Failure to reconstitute Intellicall and move into a recognized growth
market such as wireless Internet access, increases the risk that Intellicall
will not survive in the long term.
We expect the merger to be complete on or before February 28, 2001. As a
result of the merger, Wireless WebConnect! will become a subsidiary of
Intellicall. Moreover, the issuance of 56% of Intellicall's outstanding stock in
the merger will result in a change in control. The ratio of Intellicall common
stock to be issued for each share of Wireless WebConnect! common stock was
considered to be in the best interests of Intellicall and its stockholders in
consideration of the opportunity that existed for growth in the wireless market.
Wireless WebConnect! had the experience and customer service expertise to allow
rapid deployment and development of sales and service. Intellicall's future in
the public access arena was bleak and possessed no viable growth options.
Intellicall's contribution to the merger was personnel experienced in
several areas where Wireless WebConnect! needed to be strengthened, including
the areas of finance, contract administration, marketing, strategic development.
The Intellicall board believes there is a strong synergy between the two
companies.
INTERESTS OF CERTAIN PERSONS IN THE MERGER AGREEMENT
Some of Intellicall's directors and officers have interests in the merger
that are different from, or are in addition to, their interests as stockholders
in Intellicall. The members of the board knew about these additional interests,
and considered them, when they approved the merger agreement. The interests
include a new employment agreement with Mr. McDonald to be executed upon the
closing of the merger. See "Intellicall Management--CEO Compensation" below for
a description of that employment agreement. Additionally, in exchange for
Mr. McDonald's agreement to forego a change of control payment due upon the
closing of the merger contained in Mr. McDonald's existing employment agreement,
the Intellicall board agreed to vest nonqualified stock options issued to
Mr. McDonald to purchase up to 565,000 shares of Intellicall common stock
immediately upon the closing of the merger.
ACCOUNTING TREATMENT OF THE MERGER
The business combination will be accounted for under the provisions of
Accounting Principles Board Opinion Number 16, Accounting for Business
Combinations, as a purchase business combination. Wireless WebConnect! will be
considered the accounting acquirer since the former Wireless WebConnect!
shareholders will control Intellicall through their holdings of approximately
56% of the combined outstanding shares of Intellicall common stock and will have
control over the Board of Directors of Intellicall after the merger is
effective. Accordingly, the assets acquired and liabilities assumed will be
recorded at their respective fair values, and any excess purchase price will be
recorded as goodwill. Because Intellicall is the legal acquirer, this is
considered a "reverse acquisition."
Alternatively, if Intellicall's remaining business operations are sold prior
to the combination or if a decision is made to discontinue such operations, the
combination would be accounted for as an acquisition of assets (primarily cash)
rather than as a business combination and no goodwill would be recorded. This
accounting treatment would occur because Intellicall (the acquiree) would have
no continuing operations and Wireless WebConnect! would only be acquiring
tangible net assets consisting
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primarily of cash. Accordingly, the assets acquired would be recorded at their
estimated fair value with a corresponding entry to equity for the shares issued.
Options granted to Wireless WebConnect! employees that become employees of
Intellicall will be accounted for as options granted to employees under the
Intellicall 1991 Stock Option Plan, applying the provisions of APB No. 25.
REGULATORY APPROVALS
At any time before or after the completion of the merger, the Antitrust
Division of the Justice Department, the Federal Trade Commission or another
third party could seek to enjoin or rescind the merger on antitrust grounds. In
addition, at any time before or after the completion of the merger, any state
could take action under state antitrust laws that it deems necessary or
desirable in the public interest. We believe that the merger will not violate
any antitrust laws, that no federal or state regulatory requirements must be
complied with and that no federal or state regulatory approval must be obtained
in connection with the merger. However, we cannot assure you that there will be
no challenge to the merger on antitrust grounds, or if such a challenge is made,
what the result will be.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of all material federal income tax consequences
of the merger, based on the Internal Revenue Code of 1986, as amended, the
corresponding Treasury Regulations, administrative rulings and court decisions,
all as in effect as of the date of this Proxy Statement and all of which are
subject to change at any time, possibly with retroactive effect. This summary
does not address any applicable foreign, state or local laws.
The merger is intended to qualify as a tax-free reorganization under Section
368 of the Code, with the following consequences:
- neither Intellicall nor its stockholders will recognize gain or loss for
federal income tax purposes solely as a result of the merger;
- Wireless WebConnect! will not recognize gain or loss solely as a result of
the merger; and
- the parties are not requesting a ruling from the Internal Revenue Service
in connection with the merger. It is a condition to Intellicall's
obligations under the merger agreement to deliver a legal opinion from its
counsel, confirming that, based on certain assumptions and subject to
certain qualifications, the merger will constitute a reorganization within
the meaning of Section 368(a) of the Code. Jackson Walker L.L.P.,
Intellicall's counsel, has issued a legal opinion regarding the tax
consequences in connection with the merger.
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FAIRNESS OPINION
Intellicall engaged Houlihan Lokey Howard & Zukin Financial Advisors, Inc.,
to act as its financial advisor in connection with the merger.
Intellicall instructed Houlihan Lokey, in its role as a financial advisor,
to evaluate the fairness from a financial point of view, of the merger to
Intellicall. On January 5, 2001, Houlihan Lokey delivered its oral opinion to
Intellicall's Board (confirmed in writing on January 5, 2001) to the effect that
as of such date and based upon and subject to certain matters stated therein,
from a financial point of view, the merger is fair to the stockholders of
Intellicall.
Intellicall imposed no limitations on the scope of Houlihan Lokey's
investigation or the procedures to be followed by Houlihan Lokey in rendering
its fairness opinion. Houlihan Lokey's fairness opinion is for the use and
benefit of the board and was rendered to the board in connection with the
merger.
Houlihan Lokey's fairness opinion addresses only fairness from a financial
point of view of the merger to the stockholders of Intellicall, and does not
constitute a recommendation as to how such holders or any other person should
vote with respect to the merger. Houlihan Lokey has not been requested and does
not intend to further update, revise or reaffirm its fairness opinion in
connection with the merger, unless requested to do so by the board. Events that
could affect the fairness of the merger, from a financial point of view, include
adverse changes in industry performance or market conditions and changes to the
business, financial condition and results of operations of Intellicall or
Wireless WebConnect!.
Houlihan Lokey did not, and was not requested by us to make any
recommendations as to the form or terms of the merger, and does not express any
opinion as to the fairness of any aspect of the merger not expressly addressed
in its fairness opinion. Houlihan Lokey was not asked to opine on and does not
express any opinion as to the tax consequences of the merger, the public market
values or realizable value of Intellicall's common stock or the prices at which
its common stock may trade following the merger.
Houlihan Lokey is a nationally recognized investment banking firm that
provides financial advisory services in connection with mergers and
acquisitions, leveraged buyouts, business valuations for a variety of regulatory
and planning purposes, recapitalizations, financial restructurings, and private
placements of debt and equity securities. Intellicall agreed to pay Houlihan
Lokey a fee of $200,000 for the preparation and delivery of its fairness
opinion. No portion of Houlihan Lokey's fee is contingent upon the successful
completion of the merger. Intellicall agreed to indemnify Houlihan Lokey and its
affiliates against certain liabilities, including liabilities under federal
securities laws that may arise out of the engagement of Houlihan Lokey. During
1999, Intellicall first engaged Houlihan Lokey to identify persons who might
have an interest in acquiring Intellicall. Intellicall selected Houlihan Lokey
because it specializes in telecommunications companies similar to Intellicall.
Intellicall paid Houlihan Lokey a retainer fee of $75,000, with an additional
fee payable upon a sale of Intellicall. In addition, during 2000 Intellicall
engaged Houlihan Lokey to evaluate the fairness of the Heads Up transaction from
a financial point of view to the shareholders of Intellicall. Prior to Houlihan
Lokey completing that fairness opinion, the Heads Up transaction was cancelled
as management of both Heads Up and Intellicall felt the business opportunities
and cost savings did not justify the cost of combining the two companies.
Houlihan Lokey was paid a fee of $250,000 for the work it performed prior to
cancellation.
THE FULL TEXT OF HOULIHAN LOKEY'S WRITTEN FAIRNESS OPINION, WHICH SETS FORTH
THE ASSUMPTIONS MADE, GENERAL PROCEDURES FOLLOWED, FACTORS CONSIDERED AND
LIMITATIONS ON THE REVIEW UNDERTAKEN BY HOULIHAN LOKEY IN RENDERING ITS FAIRNESS
OPINION IS ATTACHED AS APPENDIX F AND IS INCORPORATED HEREIN BY REFERENCE. THE
DISCUSSION OF THE FAIRNESS OPINION BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH OPINION. PLEASE READ THE FAIRNESS OPINION IN ITS ENTIRETY.
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In order to determine the fairness, from a financial point of view, of the
merger to the stockholders of Intellicall, Houlihan Lokey conducted several
analyses, including the following:
- a liquidation approach, whereby Intellicall's management estimated the
likely recovery associated with a liquidation of Intellicall;
- consideration of Intellicall's publicly traded stock price;
- a market valuation approach whereby Wireless WebConnect!'s 9-month
annualized revenues and its subscribers were multiplied by risk adjusted
multiples based upon a comparison of Wireless WebConnect! and comparable
publicly traded companies;
- a market valuation approach whereby Wireless WebConnect!'s 9-month
annualized revenues were multiplied by risk adjusted multiples based upon
a comparison of Wireless WebConnect! and the targets in certain merger and
acquisition transactions; and
- various other analyses, studies or inquiries as they deemed appropriate.
INTELLICALL
LIQUIDATION APPROACH: Management of Intellicall provided estimates of the
fair market values of Intellicall's assets and liabilities, and the costs that
would be incurred in ceasing operations in an orderly liquidation. Houlihan
Lokey considered the liquidation approach to be the appropriate one for valuing
Intellicall based upon management's representations, the reference in the report
of independent accountants on Intellicall's 1999 audited financial statements to
Note 4 addressing Intellicall's ability to operate after December 31, 2000, and
the reference in this Proxy Statement under the discussion of Intellicall's
liquidity and capital resources suggesting that Intellicall's future is, in
part, dependent on its ability to execute the merger. Houlihan Lokey also noted
that during its engagement in 1999 to find an acquirer for Intellicall, Houlihan
Lokey received only two bids, both of which were based on balance sheet items,
as opposed to the value of Intellicall as an operating business.
CONSIDERATION OF PUBLICLY TRADED PRICE: Houlihan Lokey reviewed the
historical market prices and trading volumes for Intellicall's publicly traded
common stock. Houlihan Lokey determined, in view of its valuation using the
liquidation approach, that the market price did not accurately indicate the fair
market value of Intellicall's common stock as of a current date, as if it were a
stand-alone entity.
WIRELESS WEBCONNECT!
COMPARABLE COMPANY MARKET MULTIPLE APPROACH: Using publicly available
information, Houlihan Lokey compared selected financial data of Wireless
WebConnect! to similar data of various companies engaged in businesses
considered by Houlihan Lokey to be comparable to Wireless WebConnect!,
including: GoAmerica, Inc., Omnisky Corp., Aether Systems, Inc., and
Metricom, Inc. For each of the comparable companies, Houlihan Lokey calculated,
reviewed and analyzed numerous financial and operating performance ratios, as
well as numerous market capitalization ratios, such as enterprise value
(aggregate equity plus total interest-bearing debt, referred to herein as "EV")
to revenue and subscribers for 2000, 2001, and 2002.
There are significant inherent differences between Wireless WebConnect!'s
business, operations and prospects and those of the comparable companies,
including Wireless WebConnect!'s start-up nature, dependence on one network
provider (i.e., Metricom), and smaller cash position when compared to the
comparable companies. Accordingly, Houlihan Lokey believed that it was
inappropriate to, and therefore did not, rely solely on the above-described
quantitative results of the comparable company analysis. Houlihan Lokey also
made qualitative judgments concerning differences between Wireless WebConnect!'s
financial and operating characteristics and prospects and those of the
comparable companies that would, in Houlihan Lokey's opinion, affect the
valuation of Wireless
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WebConnect! relative to such public companies. Taking into account the
aforementioned analyses, Houlihan Lokey applied a range of selected multiples of
historical and projected revenues and subscribers to Wireless WebConnect!'s
current revenues and subscriber base.
TRANSACTION APPROACH: Using publicly available information, Houlihan Lokey
searched for transactions of comparable companies. Houlihan Lokey identified
13 transactions involving primarily private target companies in the wireless
telecommunications industry. Similar to the comparable company market multiple
approach, Houlihan Lokey applied a selected range of multiples indicted in the
comparable transactions to historical revenue data for Wireless WebConnect!.
CONCLUSION
In conclusion, Houlihan Lokey's analyses indicated that the merger is fair,
from a financial point of view, to the stockholders of Intellicall.
In arriving at its fairness opinion, Houlihan Lokey reviewed key economic
and market indicators, including growth in gross domestic product, inflation
rates, interest rates, consumer spending levels, manufacturing productivity
levels, unemployment rates and general stock market performance. Houlihan
Lokey's opinion is based on the business, economic, market and other conditions
as they existed as of January 5, 2001 and on the projected financial information
provided to Houlihan Lokey as of such date. In rendering its opinion, Houlihan
Lokey has relied upon and assumed, without independent verification, that the
historical and projected financial information provided to Houlihan Lokey by us
was reasonably and accurately prepared based upon the best current available
estimates of the financial results and condition of Intellicall and Wireless
WebConnect! taken as a whole. Houlihan Lokey did not independently verify the
accuracy or completeness of the information supplied to it with respect to
Intellicall and Wireless WebConnect! and does not assume responsibility for it.
Houlihan Lokey did not make any independent appraisal of Intellicall's or
Wireless WebConnect!'s properties or assets.
The summary set forth herein describes the material points of more detailed
analyses performed by Houlihan Lokey in arriving at its fairness opinion. The
preparation of a fairness opinion is a complex analytical process involving
various determinations as to the most appropriate and relevant methods of
financial analysis and application of those methods to the particular
circumstances and is therefore not readily susceptible to summary description.
In arriving at its opinion, Houlihan Lokey made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
Houlihan Lokey believes that its analyses and summary set forth herein must be
considered as a whole. In its analyses, Houlihan Lokey made numerous assumptions
with respect to Intellicall and Wireless WebConnect!, industry performance,
general business, economic, political, market and financial conditions and other
matters, many of which are beyond the control of Intellicall. The estimates
contained in such analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be more or less favorable than
suggested by such analyses. However, there were no specific factors reviewed by
Houlihan Lokey that did not support its opinion. Additionally, analyses relating
to the value of businesses or securities are not appraisals. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
SUMMARY OF THE MERGER AGREEMENT
The following is a brief summary of the provisions of the merger agreement
and the first and second amendments to the merger agreement, copies of which are
attached as APPENDIX A, APPENDIX B and APPENDIX C, respectively, to this Proxy
Statement. Please read the entire merger agreement and the amendments to the
merger agreement to fully understand the merger.
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THE MERGER
According to the terms of the merger agreement, at the effective time of the
merger, a wholly owned subsidiary of Intellicall, Merger Sub, will be merged
with Wireless WebConnect!. Wireless WebConnect! will be the surviving
corporation and will become a wholly owned subsidiary of Intellicall.
EFFECTIVE TIME OF THE MERGER
The closing of the transactions contemplated by the merger agreement will
take place as soon as practicable after the date of the merger agreement, which
we expect to occur on or before February 28, 2001. The closing cannot take place
until after the stockholders of Intellicall approve the merger, the name change
(see Proposal No. 2) and the increase in the authorized common stock (see
Proposal No. 3). See "The Merger Agreement--Conditions to the Obligations of the
Company, Parent and Merger Sub" for a description of the conditions that
Intellicall, Merger Sub and Wireless WebConnect! must satisfy prior to
completion of the merger.
As soon as practicable after the closing, a plan of merger will be filed
with the Secretary of State of the State of Florida, as provided in the Florida
Business Corporation Act. The time at which the plan of merger is filed in
Florida is referred to as the "effective time" of the merger.
LOAN TO WIRELESS WEBCONNECT!
Pursuant to a promissory note, dated as of August 29, 2000 and attached as
Exhibit C to APPENDIX A, Intellicall loaned Wireless WebConnect! $1.5 million
dollars, which loan is secured by a security interest in certain property of
Wireless WebConnect! covered by a security agreement, which is attached to this
proxy statement as Exhibit D to APPENDIX A.
CONVERSION OF SHARES--EXCHANGE RATIO
Intellicall will issue a total of 16,426,420 shares of common stock in the
merger. As a result of the merger, each share of Wireless WebConnect!'s common
stock will be automatically converted into 1,642.642 shares of Intellicall
common stock. This exchange ratio is based on 10,000 shares of Wireless
WebConnect! common stock outstanding at the time of the merger. After the merger
is completed, the former six common shareholders of Wireless WebConnect! common
stock will own approximately 56% of Intellicall's issued and outstanding common
stock and after the merger is effective the former employees of Wireless
WebConnect! who become employees of Intellicall will be eligible to receive
options to acquire in the aggregate an additional 1.5 million shares of
Intellicall common stock. The Intellicall common stock is not entitled to
preemptive rights.
CREATION OF ESCROW
The Wireless WebConnect! stockholders have authorized the creation of an
escrow with respect to indemnification matters in connection with the merger
agreement. At the closing of the merger, 1,642,642, or 10% of the 16,426,420
shares of common stock to be issued to the Wireless WebConnect! stockholders,
will be placed in escrow. The escrow agreement, which is attached as Exhibit B
to APPENDIX A will govern the terms under which shares of common stock issued to
Wireless WebConnect! stockholders in the merger may be returned to Intellicall
in the event of certain breaches of representations and warranties by Wireless
WebConnect! and the Wireless WebConnect! stockholders.
The escrowed shares will be held for the indemnification period, which is
the earlier of March 1, 2002 or 30 days following the date of delivery of
certain financial statements to the Intellicall board. The escrowed shares will
not be available for resale during the escrow period. During the escrow period,
the former Wireless WebConnect! shareholders will be entitled to exercise voting
power with respect to their proportionate escrowed shares and will be entitled
to all dividends paid on such shares.
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The escrowed shares will be returned to Intellicall if Intellicall incurs
damages for breach of various material terms contained in the merger agreement.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties by Wireless
WebConnect! relating to:
- organization, authority and ownership;
- the absence of a breach or any violations of Wireless WebConnect!'s
articles of incorporation, bylaws, agreements and applicable law;
- consents and approvals;
- capitalization;
- financial statements, assets, liabilities and obligations;
- absence of certain changes or events;
- absence of undisclosed liabilities;
- compliance with laws;
- taxes;
- absence of litigation;
- title to property, including real and personal property;
- intellectual property;
- employee benefit plans;
- material contracts and agreements;
- labor matters;
- environmental matters;
- insurance;
- vote required to approve the merger agreement;
- certain business practices;
- customers and suppliers;
- bank accounts;
- year 2000 issues;
- accuracy of the information in the proxy statement; and
- brokers and finders.
The merger agreement contains representations and warranties by the
shareholders of Wireless WebConnect! relating to:
- authority and their ownership of Wireless WebConnect! common stock;
- the absence of a breach or of violations of any organizational document or
applicable law;
- consents and approvals;
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- brokers and finders; and
- representation that the investment is exempt from registration.
The merger agreement contains representations and warranties by Intellicall
and Merger Sub relating to:
- organization and authority;
- the absence of a breach or of violations of either Intellicall's
certificate of incorporation or merger sub's articles of incorporation,
bylaws, agreements and applicable law;
- consents and approvals;
- capitalization;
- SEC reports and financial statements;
- absence of certain changes;
- title to property;
- brokers;
- employee benefit plans;
- labor matters; and
- environmental matters.
OTHER AGREEMENTS AND COVENANTS
Intellicall and Wireless WebConnect! have agreed that prior to the closing
of the merger each of them will:
- use its best efforts to cause the consummation of the merger;
- operate its business in the usual and ordinary course;
- use all reasonable efforts to preserve substantially intact its business
organization and keep its material properties in as good repair and
condition as at present;
- provide reasonable access to each other to all offices, facilities and
books;
- use its best efforts to secure all necessary approvals and consents of
third parties to the merger agreement;
- deliver its disclosure schedule and all diligence materials on or prior to
the fifth business day following the date of the merger agreement;
- not adopt any amendments to its organizational documents altering the
terms of the common stock or adversely impacting the consummation of the
merger;
- not declare, set aside or pay any dividend or other distribution in
respect of its capital stock, redeem or otherwise acquire any of its
securities;
- not issue, sell, deliver or agree or commit to do so with respect to any
stock of any class or amend any of the terms of such securities or
agreements contrary to the merger agreement;
- not acquire, sell, lease or dispose of any material assets;
- not create, incur or assume any material long-term debt;
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- not mortgage, pledge or subject any of its material properties or assets
to any lien, lease security interest or other encumbrance;
- not increase the officer or director compensation table;
- not effect any reorganization or recapitalization or split, combine or
classify any of its capital stock;
- not change any of its accounting methods;
- not take, or agree in writing or otherwise take any actions that would
make any representation or warranty untrue, be inconsistent with the
merger agreement, or result in any of the conditions of the merger
agreement not being satisfied;
- not take any action that would cause the merger to fail to qualify as a
tax free reorganization under the code; and
- not agree or commit to take any action prohibited by the merger agreement.
Intellicall agreed that prior to the closing of the merger it will:
- use its best efforts to obtain the approval of the American Stock Exchange
for the listing of the common stock to be issued in connection with the
merger; and
- take all action necessary to cause the number of members constituting the
whole board of directors to be seven and to elect G.T. Finn, William O.
Hunt, John McDonald, Mike Campbell, Neil Byrne and three other designees
agreed to in writing by Intellicall and Wireless WebConnect!.
Wireless WebConnect! agreed that prior to the closing of the merger it will,
among other things:
- conduct its business only in the ordinary course consistent with past
practice;
- use its reasonable best efforts to preserve its business and retain its
customers, suppliers, creditors, officers and employees;
- permit Intellicall to have full access to the business and assets of
Wireless WebConnect!; and
- notify Intellicall of any material change in its condition, operations,
ASSETS, LIABILITIES, BUSINESS OR PROSPECTS.
Wireless WebConnect! agreed that prior to the closing of the merger it will
not:
- make certain changes in employee compensation, policies and benefit plans;
- cancel or modify any contract without Intellicall's consent except in the
ordinary course of business;
- incur indebtedness other than in the ordinary course of business, acquire
or dispose of certain assets, prepay or discharge indebtedness, discharge
or satisfy certain liens or pay or perform certain liabilities;
- enter into any mortgages or permit any liens except in the ordinary course
of business;
- participate in negotiations with any third party regarding the sale of
Wireless WebConnect!
- declare or pay any dividends;
- make any offerings, grants or issuances of its capital stock or other
securities;
- amend its articles of incorporation or bylaws;
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- adopt a plan or agreement of liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization;
- split, combine, reclassify or take similar action with respect to its
capital stock; and
- change any tax election or take action that would increase its tax
liability or reduce its tax assets.
CLOSING
As soon as practicable after the satisfaction or waiver of the conditions in
the merger agreement and prior to the filing of the certificate of merger and
articles of merger, a closing will take place at the offices of Jackson Walker
L.L.P, 901 Main Street, Suite 6000, Dallas, Texas or at such other location as
the parties may agree in writing.
CONDITIONS PRECEDENT
Intellicall's Merger Sub's and Wireless WebConnect!'s obligations under the
merger agreement are subject to the following:
- obtaining approval of the stockholders of Intellicall for the issuance of
the common stock, the increase in the authorized shares of stock and the
corporate name change to "Wireless WebConnect!;"
- obtaining approval of the common stock for listing on the American Stock
Exchange;
- obtaining any governmental or regulatory notices or approvals; and
- the absence of any governmental actions or injunction (or threat of an
injunction) which have the effect of prohibiting consummation of the
merger.
In addition to the mutual conditions described above, Intellicall's and the
Merger Sub's obligations under the merger agreement are subject to the
following:
- the receipt of Intellicall and Merger Sub of a certificate of the
President or Chief Financial Officer of Wireless WebConnect! certifying
that each of the representations and warranties made by Wireless
WebConnect! and its shareholders is true and correct as of the closing
date;
- Wireless WebConnect! and its shareholders have performed or complied in
all material respects with the agreements and covenants required by the
merger agreement prior to the closing date, and the receipt of a
certificate of the President or Chief Financial Officer of Wireless
WebConnect! certifying the performance;
- there cannot have been any change that is materially adverse to the
financial condition, operations or current business of Wireless
WebConnect!;
- the receipt by Intellicall of a written opinion from tax counsel to the
effect that the merger will constitute a tax free reorganization under
Section 368(a) of the code;
- that Intellicall's stockholders and Wireless WebConnect! shareholders have
not exercised dissenters' or appraisal rights;
- the Shareholders have executed and delivered the Escrow Agreement and the
Security Agreement;
- the receipt by Intellicall of a fairness opinion; and
- Wireless WebConnect!'s reasonable efforts to cause to be delivered to
Intellicall a current dated letter from Wireless WebConnect!'s auditors
regarding certain financial matters.
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In addition to the mutual conditions described above, Wireless WebConnect!'s
obligations under the merger agreement are subject to the following:
- the receipt of Wireless WebConnect! of a certificate of the President or
Chief Financial Officer of Intellicall and Merger Sub certifying that each
of the representations and warranties made by Intellicall and Merger Sub
is true and correct as of the closing date;
- Intellicall and Merger Sub have performed or complied in all material
respects with the agreements and covenants required by the merger
agreement prior to the closing date, and the receipt of a certificate of
the President or Chief Financial Officer of Intellicall and Merger Sub
certifying the performance;
- there cannot have been any change that is materially adverse to the
financial condition, operations or current business of Intellicall;
- the bylaws of Intellicall have been amended with respect to the election
of new directors and officers;
- the receipt by Intellicall of a fairness opinion;
- Wireless WebConnect! has obtained all necessary consents; and
- Wireless WebConnect! shall have received a legal opinion from
Intellicall's tax counsel to the effect that the merger will constitute a
tax free reorganization under Section 368(a) of the code.
Additionally, any or all of the conditions precedent to the merger may be
waived in writing by the parties to the merger agreement, in whole or in part,
to the extent permitted by applicable law. If the parties waive any material
conditions precedent to the merger, the board intends to resolicit stockholder
approval.
REGISTRATION RIGHTS
Intellicall has agreed to grant certain piggyback registration rights to the
stockholders of Wireless WebConnect! receiving common stock in the merger. If
Intellicall proposes to file a registration statement for any of the common
stock (except in connection with employee benefit plans or a Rule 145
transaction), then the holders of the common stock issued in the merger may
request Intellicall to register their shares on the same registration statement.
In that event, Intellicall must use all reasonable efforts to do so, subject to
certain limitations.
INDEMNIFICATION
Wireless WebConnect!'s shareholders have jointly and severally agreed to
indemnify Intellicall and Merger Sub and their respective directors, officers,
agents, attorneys and affiliates harmless from and against among other things,
all losses, claims and obligations, asserted against the indemnitees by reason
of or resulting from a breach of any representation, warranty or covenant of
Wireless WebConnect! or its shareholders contained in the merger agreement. The
Wireless WebConnect! shareholders' liability with respect to any such
indemnification is limited to $3.7 million, except in the case of fraud.
APPOINTMENT OF DIRECTORS
As part of the merger, Intellicall agreed to cause G.T. Finn, William O.
Hunt, John McDonald, Mike Campbell, Neil Byrne, Mr. Richard Bishop,
Mr. Richard F. Dahlson and Mr. Steven Hayes to be elected as directors.
Additionally, Intellicall agreed to take all action necessary to elect John
McDonald as Chairman and Chief Executive Officer of Intellicall, G.T. Finn as
President and Phil Boyd as Chief Financial Officer. Messrs. Dahlson and Hayes
are legal counsel for Intellicall and Wireless
30
<PAGE>
WebConnect!, respectively. Additionally, pursuant to prior agreements with
Intellicall, Banca del Gottardo has the right to designate two additional people
to the board. Presently, Banca del Gottardo has not exercised its right to
designate these two board members. If Banca del Gottardo designates its two
additional board members and the two designees are not agreeable to Mr. Finn,
then under the merger agreement Mr. Finn may designate two additional persons to
the board. The overall result of the above provisions will be to give Wireless
WebConnect! control of Intellicall's Board.
NON-SOLICITATION
Intellicall and Wireless WebConnect! have each agreed not to solicit or
encourage any of its employees, directors, agents or other related parties to
enter into a merger agreement of other business combination with any other
entity on behalf of Intellicall or Wireless WebConnect!. Both parties have
agreed to stop any existing activities.
TERMINATION
The merger agreement may be terminated by either Intellicall or Wireless
WebConnect! if the closing of the merger agreement has not occurred by February
28, 2001. Intellicall or Wireless WebConnect! may terminate and abandon the
merger agreement at any time prior to the closing, whether before or after the
approval of stockholders of Intellicall and Wireless WebConnect! by mutual
written consent of duly authorized by each board of directors to the merger
agreement.
Intellicall may terminate the merger agreement if:
- a material breach of a representation, warranty or covenant of Wireless
WebConnect! has occurred;
- the Intellicall board has withdrawn, modified or changed its approval or
recommendation of the issuance of common stock;
- Wireless WebConnect!'s deliveries or financial statements are not
reasonably satisfactory to Intellicall and no agreement is reached
regarding changes within a specified period; or
- the issuance of the common shares or the increase in the number of
authorized shares fails to receive the required stockholder vote.
Additionally, Wireless WebConnect! may terminate the merger agreement if:
- a material breach of a representation, warranty or covenant of Intellicall
has occurred;
- the Wireless WebConnect! board has withdrawn, modified or changed its
approval or recommendation of the merger; or
- Intellicall's deliveries or financial statements are not reasonably
satisfactory to Wireless WebConnect! and no agreement is reached regarding
changes within a specified period.
If either party terminates the merger agreement, the party terminating the
agreement must pay to the other party a termination fee equal to the reasonable
expenses of such other party.
31
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND
BALANCE SHEET OF THE SURVIVING CORPORATION
The following pro forma financial statements combine the historical
information of Intellicall and Wireless WebConnect! and the related pro forma
adjustments to give effect to the merger which are based on estimates and
assumptions explained in further detail in Note 1 to these statements. The pro
forma statements of operations for the year ended December 31, 1999 and for the
nine months ended September 30, 2000 reflect the consolidated operations of
Intellicall and Wireless WebConnect! as if the merger had been consummated as of
January 1, 1999. The pro forma balance sheet as of September 30, 2000 is
presented as if the merger had been consummated on that date.
The business combination will be accounted for under the provisions of
Accounting Principles Board Opinion Number 16, Accounting for Business
Combinations, as a purchase business combination. Wireless WebConnect! will be
considered the accounting acquirer since the former Wireless WebConnect!
shareholders will control Intellicall through their holdings of approximately
56% of the combined outstanding shares of Intellicall common stock and will have
control over the Board of Directors of Intellicall after the merger is
effective. Accordingly, the assets acquired and liabilities assumed will be
recorded at their respective fair values, and any excess purchase price will be
recorded as goodwill. Because Intellicall is the legal acquirer, this is
considered a "reverse acquisition."
Alternatively, if Intellicall's remaining business operations are sold prior
to the combination or if a decision is made to discontinue such operations, the
combination would be accounted for as an acquisition of assets (primarily cash)
rather than as a business combination and no goodwill would be recorded. This
accounting treatment would occur because Intellicall (the acquiree) would have
no continuing operations and Wireless WebConnect! would only be acquiring
tangible net assets consisting primarily of cash. Accordingly, the assets
acquired would be recorded at their estimated fair value with a corresponding
entry to equity for the shares issued.
Options granted to Wireless WebConnect! employees that become employees of
Intellicall will be accounted for as options granted to employees under the
Intellicall 1991 Stock Option Plan, applying the provisions of APB No. 25.
The statements of operations and balance sheet are provided for comparative
purposes only and should be read in conjunction with the historical consolidated
financial statements of Intellicall included in the Annual Report on Form 10-K/A
delivered with this Proxy Statement and the historical statements of revenues
and direct operating expenses of Wireless WebConnect! included elsewhere in this
Proxy Statement. The pro forma information presented is not necessarily
indicative of the combined financial results as they may be in the future or as
they might have been for the periods indicated had the merger been consummated
as of January 1, 1999. The pro forma information is presented assuming the
transaction is accounted for as a business combination.
32
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
WIRELESS
INTELLICALL WEBCONNECT! PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Equipment sales................................... $ 3,282 $ 207 $ 3,489
Service Revenue................................... -- 909 909
Cost of sales and revenues........................ (3,161) (442) (3,603)
------- ------ ------- -------
Gross profit...................................... 121 674 -- 795
Selling, general and administrative expenses...... 4,882 928 5,810
Provision for doubtful accounts................... 1,013 -- 1,013
Amortization expense.............................. -- -- 2,786 (b) 2,786
-- -- --
------- ------ ------- -------
Operating loss from continuing operations......... (5,774) (254) (2,786) (8,814)
Gain on sale of assets............................ 13,907 -- 13,907
Other income...................................... 84 1 85
Interest income................................... 164 -- 164
Interest expense.................................. (834) -- (834)
Equity in the loss of unconsolidated subsidiary... (51) -- (51)
------- ------ ------- -------
Income (loss) from continuing operations.......... 7,496 (253) (2,786) 4,457
Income tax benefit (expense)...................... (2,250) 169 (83)(f) (2,164)
------- ------ ------- -------
Net income (loss) from continuing operations...... $ 5,246 $ (84) $(2,869) $ 2,293
======= ====== ======= =======
Basic net income (loss) per share from continuing
operations...................................... $ 0.40 $(8.40) $ 0.08
Diluted net income (loss) per share from
continuing operations........................... $ 0.37 $(8.40) $ 0.07
Weighted average number of shares outstanding
Basic........................................... 13,056 10 16,416 (a) 29,482
Diluted......................................... 14,404 10 16,416 (a) 30,830
</TABLE>
33
<PAGE>
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER
31, 1999
<TABLE>
<CAPTION>
WIRELESS
INTELLICALL WEBCONNECT! PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Equipment sales................................... $ 11,131 $ -- $ 11,131
Service Revenue................................... -- 1,853 1,853
Cost of sales and revenues........................ (13,174) (133) (13,307)
-------- ----- ------ --------
Gross profit (loss)............................... (2,043) 1,720 (323)
Selling, general and administrative expenses...... 6,005 1,686 7,691
Provision for doubtful accounts................... 592 -- 592
Research and development expenses................. 907 -- 907
Amortization expense.............................. -- -- 3,714 (b) 3,714
-------- ----- ------ --------
Operating income (loss) from continuing
operations...................................... (9,547) 34 (3,714) (13,227)
Gain on sale of assets............................ 1,431 -- 1,431
Loss on investment................................ (338) -- (338)
Other income...................................... 346 -- 346
Interest expense.................................. (1,717) -- (1,717)
Equity in the loss of unconsolidated subsidiary... (982) -- (982)
-------- ----- ------ --------
Income (loss) from continuing operations.......... (10,807) 34 (3,714) (14,487)
Income tax benefit (expense)...................... 1,500 -- (12)(f) 1,488
-------- ----- ------ --------
Net income (loss) from continuing operations...... $ (9,307) $ 34 (3,726) $(12,999)
======== ===== ====== ========
Basic and diluted net loss per share from
continuing operations........................... $ (0.76) N/A $ (0.46)
Weighted average number of basic and diluted
shares outstanding outstanding.................. 12,132 16,426 (a) 28,558
</TABLE>
34
<PAGE>
PRO FORMA COMBINED BALANCE SHEET AS OF SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
WIRELESS
INTELLICALL WEBCONNECT! PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents...................... $ 3,899 $ 928 $ $ 4,827
Receivables, net of allowance for doubtful
accounts....................................... 651 29 (250)(g) 420
Inventories, net............................... 2,401 -- 2,401
Receivables from related party, net............ 159 -- 159
Other current assets........................... 93 16 109
-------- ------ -------- -------
Total current assets......................... 7,203 973 (250) 7,926
Fixed assets, net................................ 600 38 638
Other assets, net................................ 698 -- 698
Assets of discontinued operations................ 139 -- 139
Deferred tax asset............................... -- 169 169
Goodwill......................................... -- 11,143 (b) 11,143
-------- ------ -------- -------
Total Assets................................... $ 8,640 $1,180 $ 10,893 $20,713
======== ====== ======== =======
Current liabilities
Accounts payable............................... $ 708 $ 329 $ 1,037
Current portion of long-term debt.............. 200 -- 200
Note payable................................... -- 250 (250)(g) --
Accrued liabilities............................ 515 135 650
Deferred tax liability......................... 589 -- 589
-------- ------ -------- -------
Total current liabilities...................... 2,012 714 (250) 2,476
Long-term debt................................... 1,745 -- 1,745
Deferred revenue................................. -- 420 420
Other liabilities................................ 50 -- 50
Liabilities of discontinued operations........... 21 -- 21
-------- ------ -------- -------
Total liabilities.............................. 3,828 1,134 (250) 4,712
Stockholders' equity
Common stock................................... 131 -- 164 (c) 295
Additional paid-in capital..................... 61,604 374 (45,686)(d) 16,292
Less common stock in treasury, at cost......... (258) -- (258)
Accumulated deficit............................ (56,665) (328) 56,665 (e) (328)
-------- ------ -------- -------
Total stockholders' equity................... 4,812 46 11,143 16,001
-------- ------ -------- -------
Total liabilities and stockholders' equity....... $ 8,640 $1,180 $ 10,893 $20,713
======== ====== ======== =======
</TABLE>
35
<PAGE>
INTELLICALL, INC.
NOTES TO PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
AND BALANCE SHEET
PRO FORMA ADJUSTMENTS
The accompanying unaudited pro forma consolidated statements of operations
reflect the following adjustments:
(a) Represents additional common stock of Intellicall issued to Wireless
WebConnect! shareholders.
(b) Goodwill is recorded for the difference between the fair value of the
16,426,420 shares of common stock of Intellicall and outstanding warrants
to purchase Intellicall common stock, based on the closing price of
Intellicall's common stock for the three days prior, the day of and three
days after the merger agreement was effected, and the fair value of the
tangible net assets of Intellicall. The goodwill will be amortized over 3
years. No value has been assigned to the outstanding stock options of
Intellicall as the calculated fair value is de minimis due to the option
strike prices being significantly out of the money. If Intellicall's
remaining business operations are sold prior to the combination or if a
decision is made to discontinue such operations, the combination would be
accounted for as an acquisition of assets (primarily cash) rather than of
a business and no goodwill would be recorded.
(c) Par value of additional Intellicall shares issued to Wireless
WebConnect! shareholders (16,426,400 common stock at $.01 par value).
(d) Adjustment to restate Additional Paid-in Capital.
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Fair value of Intellicall stock issued to Wireless
WebConnect! shareholders and Intellicall warrants
outstanding............................................... $ 15,955
Less par value of common stock.............................. (295)
Treasury stock remaining.................................... 258
Additional paid-in capital of Wireless WebConnect!.......... 374
--------
Resulting additional paid-in capital, post merger........... 16,292
Less additional paid-in capital, pre-merger
Intellicall............................................. (61,604)
Wireless WebConnect!.................................... (374)
--------
Net adjustment to additional paid-in capital................ $(45,686)
========
</TABLE>
If Intellicall sells its remaining operations before the merger is
consummated, the stock issued to effect the combination would be
valued at the fair market value of the assets received from
Intellicall (primarily cash) which would reduce stockholders
equity by approximately $11.1 million from the presentation shown
above.
(e) Adjustment to eliminate Intellicall's accumulated deficit to reflect a
combination and a reverse acquisition by Wireless WebConnect! of
Intellicall.
(f) Adjustment to present tax benefit/expense as if Wireless WebConnect! had
been a C corporation as opposed to a partnership, during the period.
(g) Eliminate Intellicall's note receivable due from Wireless WebConnect!.
COMPARATIVE PER SHARE DATA
Set forth below are the comparative net income (loss) and book value per
common share data of each of Intellical and Wireless WebConnect! and the
Surviving Corporation on a pro forma combined basis giving effect to the merger
assuming it had occurred as of January 1, 1999, in each case giving effect to
the merger as a purchase by Wireless WebConnect! of all of the assets and
liabilities of Intellicall, all on the basis described in the unaudited pro
forma financial information and notes thereto included elsewhere in this Proxy
Statement. Neither company paid any dividends to their shareholders during the
periods presented.
36
<PAGE>
The information set forth below should be read in conjunction with the
respective audited and unaudited financial statements and related notes of
Intellicall and Wireless WebConnect! included elsewhere in this Proxy Statement.
PER SHARE COMMON STOCK DATA
<TABLE>
<CAPTION>
DECEMBER 31, 1999 SEPTEMBER 30, 2000
----------------- ------------------
<S> <C> <C>
Historical--Intellicall:
Basic Net Income (Loss) Per Share from Continuing
Operations.............................................. $(0.76) $ 0.40
Diluted Net Income (Loss) Per Share from Continuing
Operations.............................................. (0.76) 0.37
Basic and Diluted Net Loss Per Share from Discontinued
Operations.............................................. (0.06) (0.01)
Basic and Diluted Net Loss Per Share From Extraordinary
Items................................................... 0.00 (0.01)
Basic Net Income (Loss) Per Share......................... (0.82) 0.38
Diluted Net Income (Loss) Per Share....................... (0.82) 0.35
Historical--Wireless WebConnect!:
Basic and Diluted Net Loss Per Share from Continuing
Operations.............................................. N/A (8.40)
Basic and Diluted Net Loss Per Share...................... N/A (8.40)
Pro Forma Combined Net Income (Loss)
Basic Net Income (Loss) Per Share from Continuing
Operations.............................................. (0.46) 0.08
Diluted Net Income (Loss) Per Share from Continuing
Operations.............................................. $(0.46) $ 0.07
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 2000
------------------
<S> <C>
Book Value per Share:
Historical Intellicall--Basic............................... $ 0.37
Historical Intellicall--Diluted............................. $ 0.33
Historical Wireless WebConnect!............................. $ 4.60
Proforma Combined per Share--Basic.......................... $ 0.54
Proforma Combined per Share--Diluted........................ $ 0.52
</TABLE>
DESCRIPTION OF INTELLICALL
BUSINESS.
GENERAL DEVELOPMENTS
Intellicall-Registered Trademark-, Inc. designs, manufactures and sells
public access telecommunications equipment, and until October 21, 1999, provided
billing services and automated operator services, principally to payphone owners
and telephone companies in the United States and in developing countries.
Intellicall's line of products consists of payphone products and
accessories, network equipment and software. In various configurations, the
products permit their owners to provide traditional payphone services to users
of the products and live or automated operator services for operator-assisted
calls. In addition, the products may be used in international gateway
applications and to render prepaid or other long distance service to callers
using prepaid or other calling cards. Intellicall has historically sold most of
its products to the U.S. private pay telephone industry. In recent years, a
portion of the products has been sold in developing countries and in the United
States to regulated telephone companies.
It is the intent of Intellicall to seek strategic alternatives to exit its
current business.
Before 1998, Intellicall provided live operator services, prepaid calling
card and other long distance services principally to independent payphone
providers either directly or through a then majority-owned
37
<PAGE>
subsidiary, ILD Telecommunications, Inc. ILD was formed by Intellicall in May
1996 to conduct the long distance resale and live operator service businesses
previously owned by Intellicall. After its formation, ILD grew rapidly and
diversified its business, principally through acquisitions of related businesses
which included the prepaid calling card operations of Intellicall. As a
consequence of ILD issuing its stock to sellers of acquired businesses and of
Intellicall's sales of a portion of its ILD equity investment to third parties,
Intellicall's ownership interest in ILD's equity declined to less than 50% in
the first quarter of 1998. (See Note 1 to the Financial Statements). Because of
the change in Intellicall's ownership of ILD, ILD's financial position and
results of its operations have not been consolidated with those of the Company
since December 31, 1997. Thus, ILD's revenues and associated costs and its
individual assets and liabilities are not shown in Intellicall's 1999 and 1998
financial statements. Intellicall uses the equity method of accounting for its
investment in ILD pursuant to which Intellicall records its prorata share of
ILD's net income and net assets as single line items in its 1999 and 1998
statements of income and balance sheets.
On September 22, 1999, Intellicall elected to discontinue its billing
services operations segment effective October 21, 1999. The billing services
segment of Intellicall's business was determined to be unprofitable after taking
into account the administrative and support costs for the segment. The billing
services system is a combination of hardware and software that performs, without
human intervention, all the functions necessary for completing an operator
assisted payphone call (i.e. collect, calling card and credit card calls) and a
range of other payphone services and features. As a result of this decision,
Intellicall's revenues and operating expenses for the periods presented reflect
only the equipment operations with the net result of the billing services
operations reported on its statements of operations under the caption "Income
(loss) from discontinued operations" (See Note 16 to the Financial Statements).
On January 18, 2000, Intellicall entered into a definitive agreement to
acquire, through the exchange of common stock of Intellicall, Heads Up
Technologies, Inc. of Carrollton, Texas. Heads Up designs, manufactures and
markets interactive digital products for the aviation, mass transit and
entertainment industries. On July 24, 2000 the executives of Intellicall and
Heads Up mutually announced the cancellation of the merger between the two
companies. The business opportunities presented by the merger, including
anticipated cost reductions and the ability to expand in new markets, did not
justify the cost of combining the two companies.
On June 30, 2000 Intellicall entered into an agreement with Homisco, Inc.
whereby, Intellicall granted Homisco a non-exclusive, non-transferable license
to use the N-Genius hardware and software products. Intellicall will receive a
15% royalty on gross revenues attributed to the N-Genius products sold by
Homisco. Additionally, Homisco has assumed future warranty liabilities on any
N-Genius systems currently under warranty.
On July 11, 2000 Intellicall issued warrants to purchase 100,000 shares of
Intellicall's common stock at $1.25 per share and warrants to purchase
100,000 shares of the Company's common stock at $1.00 per share to Banca del
Gottardo. These warrants were issued in lieu of transaction fees for the sale of
the Company's interest in ILD to Banca del Gottardo and subsequent retirement of
the $2.6 million 8% convertible, subordinated notes due December 31, 2000 and
$4.8 million of the $5.0 million 8% convertible, subordinated notes due
November 22, 2000.
On August 30, 2000, Intellicall signed a definitive agreement to acquire
Wireless WebConnect!. The merger will allow Intellicall to enter into the
rapidly growing high-speed wireless mobile data access market and will provide
Intellicall with expanded technological capabilities in the public access
market.
Intellicall is a Delaware corporation with its principal executive offices
located at 2155 Chenault, Suite 410, Carrollton, Texas 75006-5023. Intellicall's
telephone number at that address is (972) 416-0022.
38
<PAGE>
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
Intellicall has one reportable industry segment--the equipment segment. The
equipment segment manufactures and sells payphones, switches and related
software. The services segment, which was discontinued effective October 21,
1999, provided billing and collection services to owners of payphones who
utilize Intellicall's automated operator technology.
PROPERTIES.
Intellicall leases approximately 32,000 square feet of space at 2155
Chenault, Carrollton, Texas, where its principal executive, sales and product
development offices are located. The lease expires May 31, 2002. Intellicall
also leases approximately 26,500 square feet of manufacturing space on a
month-to-month basis in McAllen, Texas. Intellicall considers that its
properties are generally in good condition, well-maintained and suitable to
carry on Intellicall's business.
LEGAL PROCEEDINGS.
Intellicall is subject to ordinary legal proceedings incidental to and
arising in the normal course of its business. It is the opinion of the
management of Intellicall that the ultimate disposition of these proceedings
will not have a material adverse effect on Intellicall's financial position or
results of operations.
39
<PAGE>
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
STOCK PRICES
The common stock currently trades on the American Stock Exchange under the
symbol ICL. Up to July 6, 1999 Intellicall's stock traded on the New York Stock
Exchange. The following table sets forth, for each of the periods indicated, the
reported high and low sales price per share of the common stock on the American
Stock Exchange and New York Stock Exchange.
<TABLE>
<CAPTION>
COMMON
STOCK
-----------------------
HIGH LOW
---------- ----------
<S> <C> <C>
2000
First Quarter........................................... $ 2 1/4 $ 15/16
Second Quarter.......................................... 1 6/16 9/16
Third Quarter........................................... 1 1/2 9/16
1999
First Quarter........................................... $ 3 1/2 $ 2 1/8
Second Quarter.......................................... 2 1/2 1
Third Quarter........................................... 1 9/16 11/16
Fourth Quarter.......................................... 1 3/8 1/2
1998
First Quarter........................................... $ 5 7/16 $ 4 1/8
Second Quarter.......................................... 6 3/16 3 7/8
Third Quarter........................................... 4 5/16 2
Fourth Quarter.......................................... 2 7/16 1 3/8
</TABLE>
On , 2001, Intellicall had approximately stockholders of
record.
DIVIDEND POLICY ON INTELLICALL'S COMMON STOCK
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any future earnings for use in its business and
therefore does not expect to pay any cash dividends on Common Stock in the
foreseeable future. Any future determination to pay cash dividends will depend
upon the earnings and financial position of the Company and such other factors
as the Board of Directors of the Company may deem appropriate at that time.
40
<PAGE>
SELECTED HISTORICAL FINANCIAL INFORMATION OF INTELLICALL
The following table highlights selected financial information of Intellicall
for the periods and at the dates indicated but does not necessarily include all
of the financial information that is important to you. Intellicall's statements
of operations data for each of the years in the five-year period ended
December 31, 1999 and its balance sheet data as of December 31, 1995, 1996,
1997, 1998 and 1999 are derived from Intellicall's financial statements which
have been audited. The selected financial information should be read in
conjunction with the consolidated financial statements and related notes
included in the Annual Report on Form 10-K/A being delivered to the stockholders
with this Proxy Statement. Intellicall's historical results are not necessarily
indicative of Intellicall's operating results to be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- ---------------------
1999(1) 1998(1) 1997(1) 1996(1) 1995(1) 2000 1999
-------- -------- -------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and Revenues:
Equipment sales................................ $ 11,131 $ 13,859 $ 19,313 $ 15,884 $ 19,944 $ 3,282 $ 9,210
Service revenues............................... -- -- 60,450 30,679 14,142 -- --
Total...................................... 11,131 13,859 79,763 46,563 34,086 3,282 9,210
Cost of Sales and Revenues:
Equipment sales................................ 13,174 11,600 21,929 17,690 21,454 3,161 8,312
Service revenues............................... -- -- 52,523 27,049 10,650 -- --
Total...................................... 13,174 11,600 74,452 44,739 32,104 3,161 8,312
Gross profit (loss)............................ (2,043) 2,259 5,311 1,824 1,982 121 898
Selling, general and administrative expenses... (6,005) (7,363) (12,616) (7,861) (6,058) 4,882 5,634
Provision for doubtful accounts................ (592) (876) (1,006) (364) (820) 1,013 142
Research and development expenses.............. (907) (1,587) (741) (608) (2,350) -- --
Operating loss from continuing operations...... (9,547) (7,567) (9,052) (7,009) (7,246) (5,774) (4,878)
Gain on sale of assets......................... 1,431 7,389 -- 572 1,607 13,907 --
Loss on investments............................ (338) -- -- -- -- -- --
Other income................................... 346 538 695 710 440 248 327
Interest expense............................... (1,717) (1,539) (2,660) (2,918) (3,310) (834) (1,336)
Subsidiary Loss................................ (982) (762) -- -- -- -- (833)
Minority interest.............................. -- -- (382) (113) -- (51) --
Income (loss) before income taxes from
continuing operations........................ (10,807) (1,941) (11,399) (8,758) (8,509) 7,496 (6,720)
Income tax benefit............................. 1,500 -- -- 1,303 -- 2,250 --
Income tax expense............................. -- -- (277) -- -- -- --
Net income (loss) from continuing operations... (9,307) (1,941) (11,676) (7,455) (8,509) 5,246 (6,720)
Income (loss) from discontinued operations..... (681) 85 585 2,460 2,370 (117) (557)
Net income (loss) before extraordinary items... (9,988) (1,856) (11,091) (4,995) (6,139) 5,129 (7,277)
Extraordinary items early extinguishment of
debt, net of $61 tax benefit................. -- -- -- -- -- (97) --
Net income (loss).............................. $ (9,988) $ (1,856) $(11,091) $ (4,995) $ (6,139) $ 5,032 $ (7,277)
Basic net income (loss) per share from
continuing operations........................ $ (0.76) $ (0.20) $ (1.26) $ (0.93) $ (1.11) $ 0.40 $ (0.56)
Diluted net income (loss) per share from
continuing
operations................................... $ (0.76) $ (0.20) $ (1.26) $ (0.93) $ (1.11) $ 0.37 $ (0.56)
Basic and diluted net income (loss) per share
from discontinued operations................. $ (0.06) $ 0.01 $ 0.06 $ 0.31 $ 0.31 $ (0.01) $ (0.04)
Basic and diluted net loss per share from
extraordinary items.......................... -- -- -- -- -- (0.01) --
Weighted average number of basic shares
outstanding.................................. 12,132 9,927 9,268 8,024 7,672 13,056 12,045
Weighted average number of diluted shares
outstanding.................................. 12,132 9,927 9,268 8,024 7,672 14,404 12,045
BALANCE SHEET DATA:
Working capital (CA-CL)........................ $ (1,886) $ 4,363 $ (4,379) $ 10,832 $ (469) $ 5,191 $ 2,507
Total assets................................... 12,117 24,884 84,789 45,254 48,644 8,640 13,276
Accounts payable and accrued liabilities....... 2,408 3,137 26,293 7,665 4,990 1,223 3,587
Short-term borrowings.......................... 7,630 3,811 4,928 85 15,474 200 --
Long-term debt................................. 1,557 7,312 21,217 19,312 8,620 1,745 9,243
Accumulated deficit............................ (61,697) (51,709) (49,853) (38,762) (33,767) (56,665) (58,985)
Total stockholders' equity (deficit)........... $ (338) $ 8,526 $ 9,951 $ 12,669 $ 13,243 $ 4,812 $ (1,068)
</TABLE>
------------------------------
(1) Certain prior year amounts have been reclassified to conform to current year
presentation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF INTELLICALL
BUSINESS REFOCUS
Intellicall's traditional business sells into a mature, highly competitive,
rapidly declining market with limited opportunity for growth and expansion. Due
to this unfavorable environment, management has discontinued certain product
lines and business segments. This declining market also resulted in
Intellicall's board determining that we should initiate efforts to identify and
explore alternate strategic growth alternatives. The initiative to explore
alternate opportunities includes possible mergers, acquisitions and/or other
business combinations with the goal of moving Intellicall into new, high-growth
markets.
Intellicall is considering exiting the payphone business. This exit would be
accomplished either by liquidation sales or discontinuations subject to terms
and conditions unknown at this time. If and when this occurs, traditional
revenue and expense streams can be expected to materially change and certain
material transaction, transition and disposal costs can be expected.
Furthermore, depending upon the structure and nature of the transaction to
refocus the business into new markets, significant equity and/ or debt may be
issued as consideration for the transaction.
In January 2000, Intellicall entered into a definitive agreement to acquire
Heads Up Technologies, Inc., a company that designs, manufactures and markets
interactive digital products for the aviation, mass transit and entertainment
industries. Initially, management of Intellicall determined that the merger
would provide the combined entity the ability to expand in new markets and
create cost saving synergies. However, following additional analysis, it was
determined that the business opportunities presented by the merger did not
justify the cost of combining the companies. Therefore in July 2000, Intellicall
and Heads Up announced the cancellation of the merger agreement between the two
companies.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
EQUIPMENT SALES. Equipment sales for the nine months ended September 30,
2000 were $3.3 million compared to $9.2 million for the same period last year.
The $5.9 million decrease is mainly a result of a reduction of shipments into
the Canadian market and an overall reduction in demand for payphones and their
related parts.
GROSS PROFIT. Gross profit for the nine months ended September 30, 2000 was
$.12 million compared to a gross profit of $.9 million for the same period last
year. The decline in gross profit is due to the down turn in sales as noted
above, which led to a significant reduction in production. Fixed costs
associated with excess capacity in the McAllen manufacturing facility resulted
in an increase in cost of goods sold relative to sales, thereby reducing gross
profit for the periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses ("SG&A") for the nine months ended September 30, 2000
were $4.9 million compared to $5.6 million for the same period last year. The
$.7 million decline is mainly due to cost cutting measures undertaken by
Intellicall, including a reduction in personnel in the corporate and
administrative areas. Similarly, Intellicall experienced a general reduction in
other costs as management focused on decreasing the cost to meet current
operating requirements, including outsourcing human resources and certain MIS
functions, as well as reducing travel and advertising expenses.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision for doubtful accounts expense
for the nine months ended September 30, 2000 was $1.0 million compared to
$.14 million for the same period last year. The increase is due to Intellicall
increasing reserves for bad debts during 2000.
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GAIN ON SALE OF STOCK. The gain on sale of stock of $13.9 million during
the nine months ended September 30, 2000 represents Intellicall's sale of the
majority of its interest in ILD.
INTEREST INCOME. Interest income for the nine months ended September 30,
2000 was $.16 million compared to $.15 million for the same period last year.
This $.01 million increase is a result of investing the proceeds from the ILD
stock sale.
INTEREST EXPENSE. Interest expense for the nine months ended September 30,
2000 was $.8 million compared to $1.3 million for the same period last year. The
$.5 million decrease is predominately a result of Intellicall expensing debt
costs of $.2 million relating to the retirement of the Finova obligations. The
remaining $.3 million decrease is related to Intellicall paying less interest to
RFC Capital Corporation on fewer receivables financed and the retirement of
Intellicall's notes payable during the quarter ended September 30, 2000.
EQUITY IN GAIN/LOSS OF UNCONSOLIDATED SUBSIDIARY. For the nine months ended
September 30, 2000, Intellicall reported a $.05 million loss on the equity
investment in ILD compared to $.8 million for the same period last year. The
gain and losses represents Intellicall's proportionate share, based on
ownership, of ILD's net loss for the periods.
As a result of Intellicall's change in ownership in ILD, Intellicall
discontinued reporting its investment in ILD on the equity method and has
reported its investment in ILD with its other investments as of the quarter
ended September 30, 2000. Accordingly, Intellicall no longer reports a portion
of the gains and losses from ILD in its financial statements.
DISCONTINUED OPERATIONS. On September 22, 1999, after determining it to be
unprofitable, Intellicall elected to discontinue its billing services operations
effective October 21, 1999. As a result of this action the net results of the
billing services operations are reported on the statements of operations under
the caption "Income (loss) from discontinued operations." Net revenues related
to the discontinued billing services operations were zero and $9.0 million for
the nine months ended September 30, 2000 and 1999. Net loss related to the
discontinued billing services operations were zero and $.6 million for the nine
months ended September 30, 2000 and 1999.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998.
EQUIPMENT SALES. Equipment sales declined from $13.9 million in 1998 to
$11.1 million in 1999 primarily due to reduced N-Genius system sales. Sales for
the N-Genius system declined from $2.6 million in 1998 to $.5 million in 1999,
and were impacted by the currency weakness of the Pacific Rim and certain Latin
American countries and the inability of the customer base to expand and grow
their switching systems. Phone equipment sales were relatively consistent in
1999 when compared to 1998, decreasing $.4 million in the current period from
$10.8 million in 1998 to $10.4 million in 1999.
GROSS PROFIT (LOSS). Gross profit declined $4.3 million from $2.3 million
in 1998 to a gross loss of $2.0 million in 1999, due primarily to a one-time
writeoff of goodwill and capitalized software costs of $3.2 million, as well as
excess capacity costs related to the McAllen manufacturing plant.
As of December 31, 1999, Intellicall reduced the net realizable value for
its goodwill related to the McAllen manufacturing plant ($.7 million) and
capitalized software costs related to products and services ($2.5 million) to
zero, in accordance with generally accepted accounting principles. The change in
Intellicall's manufacturing model from a full scale manufacturing environment to
an outsourced, light assembly operation led to the reduction of goodwill.
Similarly, the continued softness in the public payphone market, coupled with
the discontinuation of certain product lines and the billing services segment,
led to the reduction of capitalized software.
The Company performed an impairment analysis of the goodwill in accordance
with Statements of Financial Accounting Standards No. 121 "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
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LONG-LIVED ASSETS TO BE DISPOSED OF" ("FAS 121"), which requires that long-lived
assets held and used by an entity, or to be disposed of, be reviewed for
impairment whenever events or circumstances indicate that the net book value of
such assets may not be recoverable.
The Company performed an impairment analysis of the goodwill in accordance
with Statements of Financial Accounting Standards No. 121 "ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF"
("FAS 121"), which requires that long-lived assets held and used by an entity,
or to be disposed of, be reviewed for impairment whenever events or
circumstances indicate that the net book value of such assets may not be
recoverable.
During the fourth quarter of 1999, the Company calculated the estimated
future cash flows, undiscounted and before interest, from continuing operations
over a three-year period and determined the goodwill to be impaired.
Consequently, the Company estimated the fair value of the goodwill based on a
discounted cash flow analysis and concluded that the net book value of this
asset of $.7 million needed to be written-off.
During the fourth quarter of 1999, the Company also compared the unamortized
capitalized software costs to their net realizable value, as prescribed under
FAS 86. The Company determined the net realizable value of capitalized software
costs by estimating the future net profits from those assets over a three-year
period and concluded that the net book value of $2.5 million of capitalized
software costs as of December 31, 1999 was not recoverable.
Accordingly, the Company recorded a non-recurring, non-cash write-off of
goodwill and capitalized software costs of $3.2 million, which is presented in
cost of sales in the statement of operations for the year ended December 31,
1999.
Due to the down turn in the IPP market, which led to a significant reduction
in production, fixed costs associated with excess capacity in the McAllen
manufacturing facility resulted in an increase in cost of goods sold, thereby
reducing gross profit for the period by $.4 million.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses declined in 1999 when compared to 1998 from
$7.4 million to $6.0 million, a $1.4 million or 19% decrease. Cost reduction
programs initiated during the year had a positive impact within this cost
category. Specifically, payroll costs (salaries, wages and benefits) declined
$.8 million or 15%, from 1998 to 1999 pursuant to head count reductions of
55 employees over the course of the year. Similarly, Intellicall experienced a
general reduction in other costs as management focused on decreasing
Intellicall's cost to meet current operating requirements, including outsourcing
Human Resources and certain MIS functions, as well as reducing travel, promotion
and consulting expenses.
PROVISION FOR DOUBTFUL ACCOUNTS. Provision expense for doubtful accounts
declined from $.9 million in 1998 to $.6 million in 1999. Improvement in the
quality of Intellicall's receivables and positive collection efforts on old and
outstanding accounts contributed to an overall reduction of $.7 million in the
expense. However, this reduction was partially offset by a bad debt expense of
$.4 million that was recorded for the write down of a $1.2 million note
receivable due from New York City Telecommunications ("NYCT"). The NYCT note,
due on December 31, 2001, provides for the monthly payment of interest and
principal of $34,238. Through June 1999, NYCT had serviced the note timely and
in full at which time the outstanding principal of the note was $1.2 million.
Intellicall has initiated legal action for the immediate collection of the
principal balance pursuant to NYCT being in default of the note agreement and
has reserved $.4 million against the note subject to the outcome of the
litigation.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
decreased $.7 million from 1998 to 1999 due to the completion of all Y2K
compliance issues for products and services.
GAIN ON SALE OF ASSETS. On October 21, 1999, Intellicall sold to First
Avenue Partners, LP 5,000 shares of ILD Series A Convertible Preferred Stock.
First Avenue is an unrelated third party. Intellicall sold the shares for
$250.00 each, for a total of $1.3 million of which $1.1 million was recognized
as a
44
<PAGE>
gain and used the proceeds to fund operations. The transaction lowered
Intellicall's ownership percentage in ILD to 31.0% as of October 21, 1999.
In the fourth quarter of 1999 Intellicall recognized a $.3 million gain
relating to the sale of its prepaid services operation to ILD.
LOSS ON INVESTMENTS. Intellicall maintains a 3% equity ownership position
in NYCT which prior to 1999 was recorded on the balance sheet for $.5 million.
Intellicall is currently engaged in legal proceedings with NYCT for the
collection of a note due (See PROVISION FOR DOUBTFUL ACCOUNTS within this
section). Given the current legal situation between Intellicall and NYCT and the
lack of financial information on NYCT, Intellicall has determined the current
value of this investment to be $.1 million, has reduced the investment
accordingly, recognizing a loss on investment of $.4 million.
INTEREST EXPENSE. Interest expense was $1.7 million for 1999 compared to
$1.5 million for 1998. The increase is attributable to the payment of interest
on higher loan principal balances for the period.
EQUITY IN LOSS OF UNCONSOLIDATED SUBSIDIARY. Intellicall reported a
$1.0 million loss on the equity investment in ILD for 1999. This loss represents
Intellicall's proportionate share, based on ownership, of ILD's net loss for the
period. In 1998 the proportionate share of the loss was $.8 million.
DISCONTINUED OPERATIONS. On September 22, 1999 Intellicall elected to
discontinue its billing services operations effective October 21, 1999. The
billing services segment of Intellicall's business was determined to be
unprofitable after taking into account the administrative and support costs for
the segment. The billing services system is a combination of hardware and
software that performs, without human intervention, all the functions necessary
for completing an operator assisted payphone call (i.e., collect, calling card
and credit card calls) and a range of other payphone services and features. As a
result of this action the net results of the billing services operations are
reported on the statements of operations under the caption "Income (loss) from
discontinued operations." Net revenues related to the billing services
operations were $9.3 million and $25.8 million for the years ended December 31,
1999 and 1998. During the years ended December 31, 1999 and 1998, Intellicall
reported a net loss of $.7 million and a net income of $.08 million,
attributable to billing service operations, respectively.
Assets of the billing services operations discontinued consisted of
receivables of $.5 million, net of $1.8 million of allowance for doubtful
accounts as of December 31, 1999 and $3.6 million, net of $3.2 million of
allowance for doubtful accounts as of December 31, 1998. Liabilities of the
billing services operations discontinued consisted of payables of $.01 million
as of December 31, 1999 and $.9 million as of December 31, 1998.
Intellicall believes there is no tax impact resulting from the discontinued
operations as Intellicall has historically been in a net loss carryforward
position with a valuation allowance reserved against its deferred tax assets.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
EQUIPMENT SALES. Equipment sales declined in 1998 by $5.5 million, or
28.2%, from $19.3 million in 1997. Demand for Intellicall's payphones and
related equipment from IPPs continued to be markedly weaker than in 1997.
Delayed, sporadic and negligible payments to IPPs of dial-around compensation
appear to have diminished the incentives of IPPs to expand their routes. In lieu
of route expansion, many IPPs have chosen to rotate phones within their routes
from one location (where increased numbers of undercompensated dial-around calls
have rendered a location insufficiently profitable) to another (where a higher
rate of coin and lower rate of dial-around calls promise profitability).
Partially offsetting the weakness in the IPP market segment was the
increased demand for N-Genius systems from international customers and,
commencing in the 1998 third quarter, demand from a regulated telephone company
for ASTRATEL 2 kits. Although international sales were impacted by the currency
weakness of Pacific Rim and certain Latin American countries, Intellicall's
export sales
45
<PAGE>
continued to expand in 1998. The Company's equipment sales in 1998 to the
international and regulated telephone company segments increased by $.7 million
as compared to 1997.
GROSS PROFIT. Intellicall's gross profit on 1998 equipment sales was
$2.3 million, or 16.3% of equipment sales, compared to a $2.6 million negative
gross profit in 1997. In 1997, Intellicall provided $5.9 million for inventory
losses and the impairment of certain capitalized software costs (the "1997 Loss
Provision"), without which gross profit from equipment sales would have been
$3.3 million, or 17.0% of the 1997 equipment sales. After excluding the effect
of the 1997 Loss Provision from the comparison, the change in gross margin from
17.0% in 1997 to 16.3% in 1998 resulted principally from the lower volume of
equipment sales in 1998, offset by a $.9 million reduction in 1998 of amortized
software development costs, receipt in 1998 of a $.5 million order cancellation
fee, reduced material costs and reduced overhead costs and labor efficiency.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In 1997, ILD's and the
prepaid business' selling, general and administrative ("SG&A") expenses were
$6.1 million. Excluding ILD's and the prepaid business' SG&A expenses from the
comparison of annual expense levels, Intellicall's SG&A expenses increased by
$.9 million, or 13.8%, from $6.5 million in 1997 to $7.4 million in 1998. The
increased expenses resulted from increases in marketing, public relations and
customer service expenses, offset by a general reduction in payroll related
expenses.
DECONSOLIDATION OF ILD. In 1997 $60 million in service revenues and
$53 million in cost of sales were reported as a result of the operator services
business related to ILD. In 1998 and 1999, these items, along with other
indirect costs, were reported as one line item on Intellicall's financial
statements (Equity in the loss of subsidiary), pursuant to the deconsolidation
of ILD.
DISCONTINUED OPERATIONS. On September 22, 1999, Intellicall elected to
discontinue its billing services operations effective October 21, 1999.
Accordingly, the net results of operations for billing services for 1998 and
1997 are reported as income from discontinued operations of $.09 million and
$.6 million, respectively.
PROVISION FOR DOUBTFUL ACCOUNTS. The provision for doubtful accounts
declined from $1.0 million in 1997 to $.9 million in 1998. The $.1 million
decline is a result of the improved credit quality and lower level of
Intellicall's sales.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased $.8 million from 1997 to 1998 partially due to a $.3 million reduction
in the amount of software development costs capitalized in 1998, as compared to
1997, and an increase in research and development expenditures.
GAIN ON SALE OF ASSETS. During 1998, Intellicall reported gains on sales of
assets resulting from the sale of its prepaid services operation to ILD and from
a sale of a portion of its ownership interest in the common stock of ILD to an
unrelated third party.
INTEREST EXPENSE. Interest expense was $1.5 million for 1998 compared to
$2.7 million for 1997. Excluding interest expense of $.8 million in 1997
relating to ILD, interest expense decreased from $1.9 million in 1997 to
$1.5 million in 1998, primarily as a result of reduced debt.
LIQUIDITY AND CAPITAL RESOURCES
Intellicall reported net cash used in operating activities of $0.2 million
for the year ended December 31, 1999, which consisted primarily of a net loss
from continuing operations of $9.3 million offset by net non-cash charges of
$4.2 million and net changes in operating assets and liabilities of
$4.9 million. Non-cash charges for the year ended December 31, 1999, consisted
principally of depreciation and amortization and minority interest loss offset
by a gain on sale of assets and income tax benefit. The net change in operating
assets and liabilities for same period represented a decrease in accounts
receivable and inventory from December 31, 1998. The decline in accounts
receivable resulted primarily from lower equipment and service sales, while
inventories decreased as a result of reduced inventory purchases and improved
inventory management.
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Net cash used in operating activities reported by Intellicall for the nine
months ended September 30, 2000, was $5.3 million which consisted primarily of
net income from continuing operations of $5.0 million and net changes in
operating assets and liabilities of $1.3 million reduced by net non-cash charges
of $11.6 million. Non-cash charges for the nine months ended September 30, 1999,
consisted principally of gain on sale of stock offset by, primarily,
depreciation and amortization and the provision for doubtful accounts.
Cash flows from investing activities for the year ended December 31, 1999
were $0.2 million. Cash flows from investing activities for the nine months
ended September 30, 2000 were $16.0 million. Both periods benefited from
Intellicall's asset sales. In October 1999 Intellicall received $1.3 million
cash in consideration for its sale of 5,000 shares of ILD series A Convertible
Preferred Stock to First Avenue. In March 2000, Intellicall received
$0.2 million cash in consideration for ILD's redemption of 1,487 shares of
Series B Preferred Stock. In April 2000 Intellicall received $15.5 million cash
in consideration for its sale of 70,608 shares (Series A and Common shares
combined) of ILD to Banca del Gottardo. Cash flows from investing activities for
the year ended December 31, 1999 also included purchases of capitalized
equipment and software development costs totaling $1.1 million.
As a result of Intellicall's sales of shares in ILD through April 2000,
their ownership in ILD was reduced to 2.7% as of September 30, 2000.
Cash flows used in financing activities for the year ended December 31, 1999
were $0.9 million, which consisted of the $2.8 million repayment of the Finova
line of credit offset by net borrowings of $1.0 million and $0.8 million in
proceeds from issuance of stock. Net borrowings for the year consist of $2.0
million from Banca del Gottardo and the repayment of a $1.0 million convertible
subordinated note due to T.J. Berthel Investments, L.P. At March 31, 1999,
Intellicall was required to retire the $1.0 million convertible subordinated
note due to T.J. Berthel Investments, L.P. On April 9, 1999, Intellicall
obtained bridge financing of $1.0 million from Banca del Gottardo for the
purpose of satisfying all obligations to T.J. Berthel Investments. On June 11,
1999, Intellicall completed the sale of a $2.0 million of 7.0% convertible
subordinated note, due June 11, 2004, to Banca del Gottardo. $1.0 million of the
net proceeds from the sale of the note was used to repay the bridge financing,
with the balance utilized for working capital. The note was issued with warrants
to purchase 200,000 shares of Intellicall's Common Stock at $1.55 per share. The
note was convertible through June 11, 2004 in to 1,290,323 shares of
Intellicall's Common Stock at a price of $1.55 per share. On December 30, 1999,
Intellicall sold 1 million shares of Common Stock to Banca del Gottardo for
$0.85 per share. The purchase price represented a 15% discount to the closing
price of Intellicall's Common Stock upon the agreed upon date of December 22,
1999. The $0.8 million in proceeds from the sale were utilized for working
capital purposes.
On October 21, 1999, Intellicall received notice from Banca del Gottardo of
its intent to "put" to Intellicall the balance of the 8% convertible subordinate
notes due December 31, 2000. The agreement relating to such convertible debt
included a put option, giving Banca del Gottardo the right to tender for payment
for the outstanding balance of the notes on December 31, 1999. On December 30,
1999, Intellicall issued warrants to purchase 200,000 shares of its Common Stock
at a price of $1.00 per share to Banca del Gottardo. In consideration of the
warrants, Banca del Gottardo amended the December 29, 1995 note to postpone the
put on the notes from December 31, 1999 to June 30, 2000. The note was repaid in
April 2000.
Cash flows used in financing activities for the nine months September 30,
2000 were $7.4 million, which consisted primarily of debt repayments.
Intellicall repaid the remaining $2.6 million 8.0% convertible subordinated
Banca del Gottardo notes due December 31, 2000 and $4.8 million of the 8.0%
convertible subordinated Banca del Gottardo notes due November 22, 2001. During
February 2000 Intellicall signed a $.5 million revolving promissory note with
Bank of America, N.A. Proceeds of the note were used for working capital
purposes. The note was subsequently retired in May 2000.
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As of September 30, 2000, Intellicall's debt structure consisted of
$0.2 million of 8% convertible subordinated notes due November 22, 2001 with an
original principal amount of $5.0 million and $2.0 million of 7% convertible
subordinated notes due June 11, 2004.
In addition to using asset sales and debt financings to fund net losses and
capital purchases, on January 27, 1999, Intellicall closed and commenced funding
under a Receivables Sale Agreement (the "RFC Agreement") with RFC Capital
Corporation, or RFC, pursuant to which RFC has agreed to purchase from
Intellicall certain telecommunication receivables generated by Intellicall in
the ordinary course of its business. The RFC Agreement calls for RFC to purchase
eligible receivables from Intellicall from time to time upon presentation
thereof for a purchase price equal to the net value of such receivables. Net
value is designed to yield RFC an effective interest rate of prime plus 2.75%,
plus allow RFC to retain a holdback of 5% of the face amount of the receivables,
net of collections, against future collection risk. Under the RFC Agreement,
Intellicall performs certain servicing, administrative and collection functions
with respect to the receivables sold to RFC. Also, pursuant to the terms of the
RFC Agreement, Intellicall has granted to RFC a security interest in and to
Intellicall's receivables not sold to RFC and Intellicall's customer base
relating to the generation of such accounts receivable. The initial term of the
RFC Agreement expires on December 21, 2000.
Intellicall's management believes that cash on hand at September 30, 2000 of
$3.9 million will enable Intellicall to finance its operations for the year
ending December 31, 2000 and fund the remaining $1.3 million promissory note to
Wireless WebConnect!. Beyond 2000, Intellicall's ability to obtain further funds
from external sources will depend in part on its ability to generate operating
profits, or to substantially reduce its operating losses, through the execution
of its current business plan and the implementation of the new business strategy
related to the planned merger with Wireless WebConnect!. Intellicall's
management does not anticipate that there will be significant capital
expenditures in connection with Wireless WebConnect's business initially.
Although Intellicall's management believes they will successfully implement the
new business strategy, there can be no assurance that the events necessary for
such implementation will occur as or when expected, or that it will permit
Intellicall to finance its activities without recourse to continuing sales of
assets or external funding sources. There can be no assurance that under such
conditions, external funds would be available or, if available, would not
potentially dilute shareholders' interests or returns.
CHANGES IN CERTIFYING ACCOUNTANT.
On September 8, 2000, Intellicall dismissed PricewaterhouseCoopers, LLP as
its principal independent accountants. The decision to dismiss PWC was approved
by Intellicall's Board as well as the Audit Committee of the Board. PWC's report
on Intellical's financial statements for each of the fiscal years ended
December 31, 1999 and 1998 did not contain an adverse opinion or disclaimer of
opinion. Neither were such reports qualified or modified as to uncertainty,
audit scope or accounting principles.
During Intellicall's past two fiscal years and the periods following
December 31, 1999, there were no disagreements between Intellicall and PWC on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which if not resolved to the satisfaction of PWC
would have caused it to make reference to the subject matter(s) of the
disagreement(s) in connection with its reports.
On October 2, 2000 Intellicall retained Deloitte & Touche LLP to serve as
Intellicall's principal independent accountants. During Intellicall's past two
fiscal years and the periods following December 31, 1999, Intellicall did not
consult Deloitte & Touche LLP regarding the application of accounting principles
to a specified transaction or the type of audit opinion that might be rendered
on Intellicall's financial statements.
48
<PAGE>
INTELLICALL MANAGEMENT
The following table sets forth certain information as of December 1, 2000
regarding Intellicall's executive officers and directors:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- -----------------------------------------------
<S> <C> <C>
John J. McDonald, Jr. ............. 51 President, Chief Executive Officer and Director
R. Phillip Boyd.................... 43 Chief Financial Officer and Secretary
William O. Hunt.................... 66 Chairman of the Board of Directors
B. Michael Adler................... 53 Director
Lewis E. Brazelton III(1)(2)....... 60 Director
Richard B. Curran(1)(2)............ 65 Director
Arthur Chavoya(1)(2)............... 53 Director
</TABLE>
------------------------
(1) Member of the Organization and Compensation Committee.
(2) Member of the Audit Committee.
JOHN J. MCDONALD, JR. was appointed President and Chief Executive Officer in
May 1998. Prior to that time, he was Chief Operating Officer from July 1997 and
Senior Vice President--Sales and Marketing from February 1997. From June 1994 to
January 1997, Mr. McDonald was Senior Vice President of Intercom, Inc. Prior to
Intercom he was Vice President, Business Communications, of Ericsson Business
Communications.
R. PHILLIP BOYD has been Chief Financial Officer and Secretary of
Intellicall since October 1998. Prior to such time, Mr. Boyd was Vice President
of Business Planning after joining Intellicall in November 1997 as Executive
Director of Finance. From November 1989 to August 1997, Mr. Boyd served in
various executive capacities with Kemper National Services, Inc. in Ft.
Lauderdale, Florida. Mr. Boyd is a Certified Management Accountant and a CPA.
WILLIAM O. HUNT joined Intellicall in December 1992 as Chairman of the
Board, Chief Executive Officer and President. In May, 1998 Mr. Hunt resigned his
position as Chief Executive Officer and President. From June 1986 to July 1992,
he was Chairman of the Board and Chief Executive Officer of Alliance
Telecommunications Corporation, a wireless telecommunications company. Mr. Hunt
serves on the boards of American Homestar Corporation, Internet America, Inc.
and Mobility Electronics, Inc.
B. MICHAEL ADLER is a founder of Intellicall and was Vice Chairman of the
Board of Directors of Intellicall from December 1992 until November 1993. Prior
to that time he was Chairman of the Board of Directors from Intellicall's
inception in November 1984. He served as Chief Executive Officer of Intellicall
from November 1984 to January 1988. From November 1984 to April 1987, he was
also Intellicall's President. For the last five years, Mr. Adler has been
Chairman of the Board of The Payphone Company Limited, a Sri Lankan company, and
Chief Executive Officer of WorldQuest Networks, L. L.C., a Delaware limited
liability company.
LEWIS E. BRAZELTON III has been a director of Intellicall since 1992 and has
been Senior Vice President of Dain Rauscher, Inc., an investment banking
company, for more than the last five years.
RICHARD B. CURRAN has been a director of Intellicall since 1992 and is a
consultant and has been an investor in a number of privately held companies
since 1989 in which he has also served in either director capacities or senior
management positions. Mr. Curran is also President and Executive Director of
Folkers Foundation for Biomedical & Clinical Research.
ARTHUR CHAVOYA has been a director of Intellicall since 1997 and is
President of The Chavoya Group, Inc., a management consulting firm. From
September 1996 to October 1997, Mr. Chavoya was President and Chief Executive
Officer of Aegis Communications Group, Inc., a provider of inbound
49
<PAGE>
and outbound telemarketing services. Prior to September 1996 Mr. Chavoya spent
ten years at Electronic Data Systems in a number of executive positions
culminating in the presidency of EDS' Global Travel Services Industry strategic
business unit.
After the merger, Mr. McDonald will serve as Chairman and Chief Executive
Officer and Mr. Boyd will serve as Chief Financial Officer. Mr. Gerald T. Finn,
founder of Wireless WebConnect!, will serve as President after the merger. See
Market Price, Dividends and Stockholder Ownership after the merger for a table
of executive officers and directors after the merger and assuring each nominee
is voted to be a director.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires Intellicall's officers, directors
and persons who own more than 10% of a registered class of Intellicall's equity
securities to file initial reports of ownership and reports of changes in
ownership with the SEC and the American Stock Exchange. Such persons are
required by SEC regulation to furnish Intellicall with copies of all Section
16(a) forms they file.
Based solely on its review of the copies of such forms received by it with
respect to fiscal year 1999, or written representations from certain reporting
persons, Intellicall believes that all filing requirements applicable to its
officers, directors and persons who own more than 10% of a registered class of
Intellicall's equity securities have been complied with.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Board of Directors has established two committees, the Organization and
Compensation Committee and the Audit Committee. The Organization and
Compensation Committee, or the Compensation Committee, composed of
Messrs. Brazelton, Chavoya and Curran, met two times (in addition to actions
undertaken by unanimous consent) during the fiscal year ended December 31, 1999.
This committee reviews and approves salaries and bonuses of executive officers
and administers Intellicall's stock option and purchase plans.
The Audit Committee makes recommendations to the board regarding the
appointment of independent auditors, reviews the plan and scope of any audit to
Intellicall's financial statements and reviews Intellicall's significant
accounting policies and related matters. The board has adopted a written charter
for the Audit Committee on October 2, 2000. A copy of the Charter is attached to
this Proxy Statement as APPENDIX E. The Audit Committee has reviewed and
discussed the matters required to be discussed by SAS 61 (Codification of
Statements on Auditing Standards, AU to 380) with the independent auditors. The
Audit Committee has received the written disclosures and the letter from
Deloitte & Touche required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), as may be modified or
supplemented. Based on the review above, the Audit Committee recommended to the
board that the audited financial statements be included in Intellicall's annual
report. The Audit Committee is comprised of Messrs. Brazelton, Chavoya and
Curran, who are independent as defined in Section 121(A) of the American Stock
Exchange listing standards. The Audit Committee met two times during the fiscal
year ended December 31, 1999.
Intellicall does not have a standing nominating committee of the Board of
Directors.
The Board of Directors held nine meetings, either in person or by telephonic
conference, during the fiscal year ended December 31, 1999. None of
Intellicall's directors attended fewer than 75% of the meetings of (1) the Board
of Directors and (2) the committees on which they served, during their tenure in
calendar year 1999.
50
<PAGE>
COMPENSATION COMMITTEE INTERLOCK, AND INSIDER PARTICIPATION
Neither Messrs. Brazelton, Curran or Chavoya, who are members of
Intellicall's Compensation Committee, has at any time been an officer or
employee of Intellicall. None of Intellicall's executive officers serve as a
member of the board of directors or compensation committee of any entity which
has one or more executive officers serving as a member of Intellicall's board of
directors or compensation committee. For a description of the transactions
between Intellicall and a member of the compensation committee and entities
affiliated with any compensation committee member, see "Certain Relationships
and Related Transactions of Intellicall."
ORGANIZATION AND COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Intellicall's executive compensation plans have been designed to attract,
retain and reward high caliber executives who will formulate and execute
Intellicall's business plans in a manner that will provide Intellicall's
stockholders with a higher than average return on Intellicall's Common Stock
while ensuring that Intellicall's compensation levels are fair and appropriate
to both its executives and stockholders. With these goals in mind, Intellicall's
compensation plans and policies have been designed to have total compensation
linked significantly with the operating performance of Intellicall. Although the
Compensation Committee recognizes that the improvement of operating performance
of Intellicall and higher stock prices do not necessarily move in tandem over
the short term, the Compensation Committee believes that the two criteria will
correlate over the long term.
The Compensation Committee does not expect to pay above-average base
salaries to its executive officers, but does expect to utilize
performance-oriented and equity-based compensation to reward positive
performance and results. For the fiscal year 1999 Intellicall paid a bonus of
$25,000 to Mr. Boyd, Intellicall's Chief Financial Officer.
The Compensation Committee also supports the position that stock ownership
by Intellicall's executive officers, encouraged by equity-based compensation
plans, aligns the interests of the executive officers with Intellicall's
stockholders. By using equity-based compensation over a period of time,
Intellicall's executive officers should become larger holders of Intellicall
stock. This is intended to strengthen their identification with Intellicall's
stockholders and make increasing stockholder value an even more important focus
for Intellicall's management group. In addition, the Compensation Committee
believes that the use of equity-based compensation combined with a focus on
Intellicall's operating performance will create a balance of these two long-term
objectives.
CEO COMPENSATION
John J. McDonald, Jr. is Intellicall's President and Chief Executive
Officer. Mr. McDonald's compensation package was established by the Compensation
Committee and the Board of Directors in May 1998. The Compensation Committee and
the board were advised by an independent compensation consulting firm. In
accordance with Mr. McDonald's stated goal of building stockholder value and
consistent with the Compensation Committee's compensation philosophy described
above, a compensation package involving a lower base salary, participation in a
performance-based bonus plan and a stock option grant was agreed upon.
Intellicall's CEO compensation policy reflects the following general goals
and objectives:
- to encourage the growth of Intellicall and create increased shareholder
value by the efficient use of the corporation assets;
- to recognize the contribution at exceptional management makes;
- to provide the frame work, as a component of the total compensation
program, to attract, retain and motivate highly qualified management
personnel; and
51
<PAGE>
- to develop performance criteria measured by profit and loss performance
and other qualitative factors.
Mr. McDonald's compensation is based on a report prepared for Intellicall by
an independent compensation consulting firm. In 1998, that consulting firm
issued a compensation survey report to Intellicall, reflecting results of a
study and comparison of 29 publicly held companies in the telecommunications
equipment and services industry with annual revenues between $60 million and
$100 million. With Intellicall reporting $79.8 million in total revenues for the
year ended December 31, 1997, they fell within the revenue range of the
comparable companies. However, the telecommunications equipment and services
industry includes a broad range of products and services and Intellicall is
involved in only one aspect of the industry, sales and servicing of payphone
equipment. The sample found an average base compensation in the range of
$266,000 to $289,000 for similar CEO positions, based on 1997 CEO salaries. The
sample also reflected short term cash bonus amounts ranging from $145,000 to
$195,000, and change of control payment multiples ranging from 2.0 to 4.5 times
salary and bonus. Based on the sample, the consulting firm recommended the
salary package that was ultimately offered to Mr. McDonald. Mr. McDonald's
salary compensation is believed by Intellicall to be in the middle of the range
established by the comparison sample.
For the last completed fiscal year, Intellicall based Mr. McDonald's
compensation upon the following factors and criteria:
- Achievement of Intellicall's sales plan;
- Achievement of Intellicall's operating income plan; and
- Discretionary measures based on managerial effectiveness, including
(a) leadership exhibited through relationships with customers, vendors,
employees and shareholders; (b) planning and execution of operations,
including strategic and financial plans; (c) service to customers;
(d) new product and market development; (e) productivity factors;
(f) special problem handling and solving; and (g) overall organization and
administrative management effectiveness.
Mr. McDonald's annual salary for fiscal 1999 was $285,000. Mr. McDonald did
not receive a bonus in fiscal 1999. In addition, he is entitled to a short-term
bonus equal to 50% of his annual salary. If he is terminated by Intellicall, for
reasons other than negligence or nonfeasance, Intellicall will pay him an amount
equal to his annual salary, plus bonus and benefits. Further, upon a change of
control of Intellicall, Mr. McDonald will receive a lump sum amount equal to the
aggregate amount of his annual salary, bonus and benefits, multiplied by two.
The change of control payment will be "grossed-up," so that Mr. McDonald would
receive a net amount, after taxes, equal to the amount that he would have
received if income taxes had not been imposed. Mr. McDonald agreed to forgo the
payments due to him upon a change of control upon the closing of the merger with
Wireless WebConnect! in exchange for the Intellicall board agreeing to vest
immediately upon the closing of the merger 565,000 non-qualified stock options
issued under the 1991 Stock Option Plan.
Upon the closing of the merger the board has agreed to enter into a new
employment agreement with Mr. McDonald as under his existing agreement. Under
the new agreement, Mr. McDonald's salary, benefits and vacation remain the same.
Mr. McDonald is entitled to a bonus of up to 50% of his annual salary, and
reimbursement for reasonable travel expenses. The new agreement provides that
Mr. McDonald is entitled to receive a lump sum change in control payment if he
is terminated within twelve months of a change in control. The amount of the
change in control payment is equal to two times the sum of his salary, bonus and
cost of benefits. The payment will be "grossed up" to minimize tax consequences
similar to the prior agreement. The new agreement contains confidentiality
provisions as well as a clause prohibiting Mr. McDonald from making disparaging
remarks about Intellicall. The new agreement also sets forth certain termination
events, including expiration, death, disability, lack of cause and constructive
termination. In the event of a termination event, Mr. McDonald is entitled to
receive his salary, 100% of the average of the prior two years' bonuses and
benefits for a one-year period.
52
<PAGE>
Additionally, upon closing of the merger, the board has agreed to enter into
an employment agreement with Mr. Finn. Mr. Finn's salary will be $220,000 and he
is entitled to a bonus of up to 50% of his salary. He is also entitled to
benefits and reasonable travel expenses. His agreement will also contain
confidentiality provisions and a prohibition on disparaging remarks. The
agreement will also set forth termination events that entitle him to receive his
salary, bonus and benefits for a one-year period. Finally, Mr. Finn is also
entitled to receive a lump sum payment if his employment is terminated within
twelve months following a change in control. This lump sum payment equals two
times the sum of his salary, bonus and benefits. This payment will also be
"grossed up" to minimize the tax consequences to Mr. Finn.
The Compensation Committee:
Lewis E. Brazelton III
Richard B. Curran
Arthur Chavoya
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the compensation
to (1) Intellicall's chief executive officer at December 31, 1999 and
(2) Intellicall's other most highly compensated executive officer during 1999
(collectively, the "Named Executive Officers"), for services rendered during the
fiscal years ended December 31, 1999, 1998 and 1997. Intellicall did not have
any other executive officers with salaries in excess of $100,000 during 1999.
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION(1) ----------------------
-------------------------------------- SECURITIES
OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION($) AWARDS($) OPTIONS(#)
--------------------------- -------- --------- -------- --------------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
John J. McDonald, Jr. ................. 1999 $285,000 $ -- $2,137 $ -- --
President, Chief Executive Officer 1998 $260,156 $71,250 $2,500 $180,000 --
and Director after May 1998, 1997 $185,896 -- $2,375 -- --
Senior Vice President Sales &
Marketing before May 1998
R. Phillip Boyd........................ 1999 $130,000 $25,000 $1,000 -- --
Chief Financial Officer and Secretary 1998 -- -- --
from October 1998, Vice 1997 -- --
President of Business Planning
</TABLE>
------------------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation described in this table does not include medical, group life
insurance or other benefits which are available generally to all of our
salaried employees and certain perquisites and other personal benefits
received which do not exceed the lesser of $50,000 or 10% of any officer's
salary and bonus disclosed in this table.
(2) All "Other Compensation" consists of Intellicall's matching payments
pursuant to its 401(k) Plan.
OPTION GRANTS IN LAST FISCAL YEAR
No stock options were granted to the Named Executive Officers during the
year ended December 31, 1999.
53
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information regarding the stock options
exercised during 1999 and the stock options held as of December 31, 1999 by the
Named Executive Officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT DECEMBER 31,
DECEMBER 31, 1999 1999(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John J. McDonald, Jr. ......................... 255,000 45,000 -- --
R. Phillip Boyd................................ 23,750 6,250 -- --
</TABLE>
------------------------
(1) Market value of underlying securities at December 31, 1999 less the exercise
price.
DIRECTOR COMPENSATION
During 1999 each member of the board of directors who was not an officer or
employee of Intellicall received an annual $13,500 director's retainer for
serving on the board. Additionally each director was paid a fee of $675 for each
directors meeting he attended and a $675 fee for each committee meeting he
attended other than committee meetings held on the same day as a directors
meeting. Directors were also reimbursed for expenses relating to attendance at
meetings.
INDEMNIFICATION ARRANGEMENTS
Intellicall's bylaws provide for the indemnification of its executive
officers and directors, and the advancement to them of expenses in connection
with proceedings and claims, to the fullest extent permitted by the Delaware
General Corporation Law. Intellicall has also entered into indemnification
agreements with its executive officers and directors that contractually provide
for indemnification and expense advancement and include related provisions meant
to facilitate the indemnitees' receipt of such benefits.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to Intellicall's directors, officers and controlling persons
pursuant to the foregoing provisions, or otherwise, Intellicall has been advised
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than our
payment of expenses incurred or paid by one of Intellicall's directors, officers
or controlling persons in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, Intellicall will, unless in the
opinion of Intellicall's counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by Intellicall is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
1991 STOCK OPTION PLAN
For a description of Intellicall's 1991 Stock Option Plan and certain
proposed amendments thereto, see "Proposal No. 4--Amendment of the Plan" set
forth elsewhere in this Proxy Statement.
EMPLOYEE STOCK PURCHASE PLAN. Intellicall's Board of Directors adopted the
1995 Employee Stock Purchase Plan for employees of Intellicall and its
subsidiaries. Intellicall's stockholders approved the plan in 1996. Up to
300,000 shares of Common Stock are authorized to be issued under the Employee
Stock Purchase Plan. The purpose of the Employee Stock Purchase Plan is to
provide employees of Intellicall and its designated subsidiaries with an
opportunity to purchase Intellicall Common Stock at a
54
<PAGE>
discount through accumulated payroll deductions. The Employee Stock Purchase
Plan is also intended to motivate such persons to exert their best efforts on
behalf of Intellicall.
The Employee Stock Purchase Plan is administered by the Compensation
Committee of the Board of Directors. Participating employees are entitled to
enroll during one or both of two six month offering periods during each calendar
year. Eligible employees may elect to have payroll deductions made on each
payday during each offering period in an amount not exceeding ten percent (10%)
of the compensation which he or she receives on each such payday. At the end of
each offering period the accumulated payroll deductions are utilized to purchase
shares of Common Stock from Intellicall pursuant to the exercise of options
granted at the beginning of each offering period. The purchase price for the
shares purchased with the payroll deductions is equal to eighty-five percent
(85%) of the fair market value of a share of Common Stock on the first trading
day or the last trading day of each offering period, whichever is lower.
At October 1, 2000 Intellicall and its subsidiaries had approximately 48
employees who are eligible to participate in the Employee Stock Purchase Plan,
of which one employee is actually participating in the Employee Stock Purchase
Plan.
STOCK PERFORMANCE CHART
The following chart compares the yearly percentage change in the cumulative
total stockholder return on Intellicall's Common Stock during the five years
ended December 31, 1999, with the cumulative total return of (1) Standard &
Poors 500 Stock Index, (2) the Standard & Poors Small Cap 600 Index and (3) the
Standard & Poors Telephone Manufacturers Index. The comparison assumes $100 was
invested on December 31, 1994 in Intellicall's common stock and in each of the
other indices and assumes reinvestment of dividends. Intellicall paid no
dividends during the five year period.
COMPARISON OF FIVE YEAR CUMULATIVE RETURN AMONG INTELLICALL,
S&P 500 INDEX, S&P SMALL CAP 600 INDEX, AND
S&P TELEPHONE MANUFACTURER'S INDEX.*
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
S&P SMALL TELEPHONE MANUFACTURER'S
<S> <C> <C> <C> <C>
Intellicall S&P 500 Index Cap 600 Composite Index
12/31/94 $100 $100 $100 $100
12/31/95 $100 $138 $130 $151
12/31/96 $157 $169 $158 $152
12/31/97 $137 $226 $198 $212
12/31/98 $58 $290 $195 $312
12/31/99 $30 $351 $220 $330
</TABLE>
* TOTAL RETURN BASED ON $100 INITIAL INVESTMENT & REINVESTMENT OF
DIVIDENDS.
55
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF INTELLICALL
The following table sets forth, as of October 1, 2000, the number and
percentage of outstanding shares of common stock beneficially owned by:
- each of the named executive officers;
- each person known by Intellicall to be the beneficial owner of more than
5% of Intellicall's common stock,
- each director and each person nominated to be elected a director of
Intellicall; and
- all officers and directors as a group.
Unless otherwise noted, the persons named below have sole voting and
investment power with respect to the shares shown as beneficially owned by them.
For additional information regarding stock ownership after the merger, see the
table under "Market Price, Dividends and Stockholder Matters."
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK PERCENTAGE
NAME OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) OF CLASS
--------------------------- --------------------- ----------
<S> <C> <C>
William O. Hunt(3).......................................... 962,000 7.0%
Banca Del Gottardo(4)....................................... 4,578,658 29.2%
viale S. Franscini 8
6901 Lugano
Switzerland
B. Michael Adler(5)......................................... 646,813 4.9%
Lewis E. Brazelton III(6)................................... 116,373 *
Arthur Chavoya(7)........................................... 30,000 *
Richard B. Curran(8)........................................ 86,250 *
John J. McDonald, Jr.(9).................................... 873,800 6.3%
R. Phillip Boyd (10)........................................ 33,500 *
All officers and directors as a group (7 persons)(11)....... 2,748,736 18.4%
</TABLE>
------------------------
* less than one percent
(1) The persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them,
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) Includes shares issuable upon the conversion of subordinated debt or shares
issuable upon exercise of options or warrants that have or will vest within
60 days. All options granted under the 1991 stock option plan will vest upon
the change-of-control that will result if the merger is approved. The
amounts reflected in this table assume approval of the merger.
(3) Includes 175,825 shares as to which Mr. Hunt has shared voting and
investment power and 670,000 shares of common stock issuable upon exercise
of options.
(4) Includes 2,604,473 shares of common stock issuable upon conversion of
subordinated debt and exercise of a warrants.
(5) Includes (i) 37,000 shares held in the name of Adler Computer
Systems, Inc., a company wholly owned by Mr. Adler and (ii) 170,000 shares
of common stock issuable upon exercise of options.
(6) Includes 5,091 shares owned by Mr. Brazelton's wife, as to which
Mr. Brazelton disclaims beneficial ownership, and 30,000 shares of common
stock issuable upon exercise of options.
(7) Includes 30,000 shares of common stock issuable upon exercise of options.
56
<PAGE>
(8) Includes 36,250 shares held by Mr. Curran's wife and a trust of which
Mr. Curran's wife is a beneficiary, as to which Mr. Curran disclaims
beneficial ownership, and 30,000 shares of common stock issuable upon
exercise of options.
(9) Includes 300,000 shares of common stock issuable upon exercise of options
and 565,000 shares of common stock issuable upon exercise of options that
vest upon approval of the Issuance.
(10) Includes 30,000 shares of common stock issuable upon exercise of options.
(11) Includes 1,825,000 shares of common stock issuable upon exercise of
options.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF INTELLICALL
As of December 31, 1998, The Payphone Company, Ltd., or Payphone, owed
Intellicall $269,887 for trade receivables. In December 1998, Intellicall's
management completed the establishment of a full reserve for such amount. B.
Michael Adler was a director of Payphone and of Intellicall. Mr. Adler and other
members of Mr. Adler's family own the majority of Payphone's stock.
On February 15, 1994, Intellicall issued a $1 million, 10% convertible
subordinated note to T.J. Berthel Investments, L.P., an affiliate of Thomas J.
Berthel, who previously served as a director of Intellicall. An amended and
restated note was issued on August 9, 1994. Interest is payable quarterly and
the entire principal amount matured and was paid in full on March 31, 1999.
On February 11, 2000, Intellicall signed a $.5 million revolving promissory
note with Bank of America, N.A., due February 11, 2001. Interest is payable
monthly at its prime rate commencing on March 11, 2000 with the principal of the
note guaranteed by Mr. William O. Hunt, Chairman of the Board of Intellicall,
and B&G Partnership, Ltd, an affiliate of Mr. Hunt. Intellicall may repay and
re-borrow under the terms of the note at any time, up to a maximum aggregate
outstanding balance equal to the principal amount of the note. Proceeds of the
note were used for working capital purposes. On May 1, 2000, Intellicall paid
off the $.5 million note.
Intellicall's debt financing with Banca del Gottardo, a 29.2% beneficial
owner of Intellicall common stock, includes the following as of December 31,
1999 and 1998:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
8% Convertible subordinated notes, due 2000................. $ 2,630 $ 2,630
8% Convertible subordinated notes, due 2001................. 5,000 5,000
7% Convertible subordinated notes, due 2004................. 2,000 --
Convertible subordinated note, due 1999..................... -- 1,000
Asset-based note collateralized by certain assets, due
1999...................................................... -- 2,811
------- -------
9,630 11,441
Less: Unamortized debt discount............................. (443) (318)
------- -------
9,187 11,123
Less: Current portion of long-term debt..................... (7,630) (3,811)
------- -------
Total long-term debt...................................... $ 1,557 $ 7,312
======= =======
</TABLE>
For the year 1999, Intellicall entered into the following transactions with
Banca del Gottardo:
On April 9, 1999, Intellicall obtained bridge financing of $1.0 million from
Banca del Gottardo for the purpose of satisfying all obligations to T.J. Berthel
Investments.
On June 11, 1999, Intellicall completed the sale of $2.0 million of a 7.0%
convertible subordinated note, due June 11, 2004, to Banca del Gottardo.
$1.0 million of the net proceeds from the sale of the note was used to repay the
bridge financing, with the balance utilized for working capital. The note was
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issued with warrants to purchase 200,000 shares of Intellicall's common stock at
$1.55 per share. The stock purchase warrants were valued at $160,456 and
recorded as deferred debt costs by Intellicall. The unamortized portion of those
deferred debt costs was $141,779 as of December 31, 1999.
On October 21, 1999, Intellicall received notice from Banca del Gottardo of
its intent to "put" to Intellicall the balance of the 8.0% convertible
subordinated notes due December 31, 2000. The agreement, relating to such
convertible debt includes a put option, giving Banca del Gottardo the right to
tender payment for the outstanding balance of the notes on December 31, 1999.
Intellicall repaid these notes in April, 2000.
On December 30, 1999, Intellicall issued warrants to purchase 200,000 shares
of its common stock at a price of $1.00 per share to Banca del Gottardo. In
consideration of the warrants, Banca del Gottardo amended the 8% convertible,
subordinated notes due December 31, 2000 to postpone the put on the notes from
December 31, 1999 to June 30, 2000.
On December 30, 1999, Intellicall sold 1 million shares of common stock to
Banca del Gottardo for $0.85 per share. The purchase price represented a 15%
discount to the closing price of Intellicall's common stock upon the agreed upon
date of December 22, 1999. Proceeds from the sale were utilized for working
capital purposes.
In 1999, Intellicall paid $804,545 for interest and fees associated with the
financing arrangements with Banca del Gottardo.
DESCRIPTION OF WIRELESS WEBCONNECT!, INC.
SELECTED HISTORICAL FINANCIAL DATA OF WIRELESS WEBCONNECT!
The following table highlights selected financial information of Wireless
WebConnect! for the periods and at the dates indicated but does not necessarily
include all of the financial information that is important to you. Wireless
WebConnect!'s Statement of Operations Data for all of the years in the
three-year period ended December 31, 1999 and its balance sheet data as of
December 31, 1998, and 1999 are derived from Wireless WebConnect!'s financial
statements that have been audited by Deloitte & Touche LLP, independent
auditors. The selected financial information should be read in conjunction with
the financial statements and notes included elsewhere in this Proxy Statement.
Wireless WebConnect!'s historical results are not necessarily indicative of
Wireless WebConnect!'s operating results to be expected in the future.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------- -------------------
1996 1997 1998 1999 1999 2000
----------- ----------- -------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues...................... $1,000 $1,384 $ 1,402 $ 1,853 $ 1,447 $ 1,116
Net income (loss)............. 116 59 120 34 117 (84)
Net loss per common share..... (a) (a) (a) (a) (a) $ (8.40)
Balance Sheet Data: (UNAUDITED)
Total Assets................... 177 197 240 231 377 1,180
Owners' Equity................ $ 116 $ 101 $ 206 $ 174 $ 273 $ 46
</TABLE>
------------------------
(a) Income per common share is not presented for the periods the entity operated
as a partnership.
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WIRELESS WEBCONNECT! BUSINESS
Wireless WebConnect! is a reseller of high-speed, mobile wireless Internet
service for mobile professionals and secure wireless access to corporate
computer networks through VPN (Virtual Private Networking) services. Wireless
WebConnect! acquires, services and supplies mobile professional customers with
fast, wireless data access. Wireless WebConnect! has developed a subscriber
acquisition model that includes coordinating the activities of marketing and
public relations, inbound and outbound call centers, outside sales programs,
e-commerce and customer retention activities, including technical support,
customer service and marketing.
Wireless WebConnect! was founded in 1991 under the name Business Tel to
integrate the disciplines of public relations, marketing, inbound and outbound
call centers, inside and outside sales and customer retention activities to
round out a full-service subscriber acquisition model. As of December 1, 2000,
there were 66 employees of Wireless WebConnect!. Wireless WebConnect! started
out in the long distance reselling industry where it established sales offices
for a publicly held company in numerous major United States markets and
supported them via a centralized 100-person call center operation.
In 1995 Wireless WebConnect! became a strategic partner with Metricom, Inc.
in locating subscribers to use Metricom's Ricochet 28.8 kpbs wireless data
network. Wireless WebConnect! has worked directly with Metricom and the Ricochet
service for the last five years and signed up over 50% of the Ricochet 28.8 kbps
subscriber base. Wireless WebConnect! has established and managed inbound and
outbound call centers, retail stores, airport booths, government sales programs
and sales teams targeting subscribers in Fortune 1000 companies, small to medium
sized businesses, small-office/home-office (SOHO), government agencies and the
educational market. Wireless WebConnect! has established sales offices in all
Ricochet 28.8 kbps metropolitan service areas, including Seattle, Washington
D.C., San Francisco and the Silicon Valley.
In June 2000, Wireless WebConnect! entered into an agreement with Metricom
to become a Ricochet Authorized Service Provider, and now provides 128 kbps
Ricochet high-speed wireless mobile access under the brand name Ricochet
WebConnect!, its anchor service. Wireless WebConnect! used its subscriber
acquisition model to support Metricom's launch of 128 kbps Ricochet in San Diego
and Atlanta in July 2000 and will continue to support the offering as it rolls
out nationwide. In addition to retailing Ricochet service and hardware, Wireless
WebConnect! is a full service provider of customer, network and administrative
support and care for its wireless subscribers.
Metricom informed its Ricochet 28.8 kbps subscriber base in September 2000
that it had contracted with Wireless WebConnect! to be the exclusive provider of
the Ricochet 28.8 kbps service to Metricom's existing customers, allowing
customers the choice of continuing with their original Ricochet 28.8 kbps
service or advancing to the new 128 kbps high-speed service. Wireless
WebConnect! is now expanding rapidly as a wireless Internet service provider
with Ricochet WebConnect! as its core service offering.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF WIRELESS WEBCONNECT!
You should read the following discussion of Wireless WebConnect!'s financial
condition and results of operations in conjunction with the Wireless WebConnect!
financial statements and the notes thereto included elsewhere in this Proxy
Statement. The results shown in this Proxy Statement are not necessarily
indicative of the results Wireless WebConnect! will achieve in any future
periods.
OVERVIEW
Wireless WebConnect! provides wireless services for mobile professionals.
Wireless WebConnect!'s revenue is primarily generated from the resale of
wireless Internet data services and mobile Internet connection devices used by
subscribers. Wireless WebConnect! began selling subscriptions to mobile
professionals for wireless data services in July 1995. Since Wireless
WebConnect!'s inception Wireless WebConnect! has internally funded the continued
activity of signing up mobile professionals for wireless Internet services.
Recently Wireless WebConnect! invested to expand its call center, sales offices,
marketing activities and delivery capabilities. Wireless WebConnect!'s plan is
to continue investing in these activities and expand its customer base by
identifying and providing cutting edge wireless services to mobile professionals
throughout the United States. With the introduction of new wireless services in
major US markets Wireless WebConnect! expects to incur significant operating
losses for at least the next several quarters. Wireless WebConnect!'s
profitability will be dependent upon revenue generated from a growing customer
base.
Wireless WebConnect!'s revenue is primarily generated from the sales of
wireless devices (modems) and the resale of wireless subscriber services
provided by Metricom, Inc. Prior to the launch of Metricom's Ricochet 128k
wireless Internet service ("R2") in July 2000, Wireless WebConnect!'s revenue
was generated primarily from commissions paid for subscribers acquired by
Wireless WebConnect! for Metricom. This revenue accounted for 99% of Wireless
WebConnect!'s revenue in 1997, 94% of Wireless WebConnect!'s revenue in 1998 and
91% in 1999. Upon the introduction of the R2 offering from Metricom in July
2000, Wireless WebConnect! became a national wireless Internet service
provider/reseller, wherein Wireless WebConnect! provides comprehensive customer
interface and support including subscription services, modem sales and technical
support. These changes allow Wireless WebConnect! to better service the end user
and own the customers Wireless WebConnect! generates.
Wireless WebConnect!'s revenues and expenses will change going forward with
the R2 offering due to the change in its relationship with Metricom. Previously,
Wireless WebConnect! was a reseller and marketing agent for Metricom's Ricochet
service, signing up customers owned and serviced by Metricom. Under the new
structure, Wireless WebConnect! is the service provider and has the primary
customer relationship. As a result, it will earn the monthly service fee for
Internet service and will incur additional expenses in the form of marketing,
personnel costs, overhead and payments to Metricom for providing access to its
network for Wireless WebConnect! customers. Additionally, Wireless WebConnect!
has increased its territory from three markets to eleven markets, and intend to
deliver service in all forty-six Metricom markets as soon as those markets
become available. Revenues will also increase due to the revenue generated from
modem sales. Wireless WebConnect! discontinued selling Ricochet 28.8 kbps in
early 2000 in preparation for the R2 service. Metricom will start transition of
its 28.8 kbps customers to Wireless WebConnect! on an exclusive basis for
delivery and ownership beginning in January 2001. The arrangement does not allow
for new subscribers to the 28.8 kbps service, but rather, only a continuation of
the 28.8 kbps service to existing customers who do not choose to upgrade to the
R2 service.
Wireless WebConnect!'s R2 offering enables Wireless WebConnect!'s customers
to receive 128k or better mobile wireless Internet service with unlimited usage
and no roaming charges for $74.95 per
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month. This service includes full Internet access and email equivalent to full
desktop service but with no phone lines or other wired access within the
coverage area. Annual rates provide a free month of service with no activation
fee when paid in advance. Monthly subscribers pay $74.95 monthly with a $30
activation fee. All customers will be given a 30 day money back guarantee
excluding the activation fee. Additionally, all customers will have the option
to purchase the wireless modem of their choice with an average cost of $99.
These devices are modems that work on any platform and soon will include a
PCMCIA card for use on laptops and other handheld computers.
Wireless WebConnect!'s subscriber acquisition costs consist primarily of the
establishment and running of sales offices, call centers, marketing, and
management expenses. Modem devices are purchased from third party manufacturers
and there may be a need to subsidize these devices in order to stay competitive.
Wireless WebConnect!'s delivery expenses include technical delivery and support
personnel, equipment and maintenance, bandwidth, systems, automation and content
development and the management of these activities. In 2000 and 2001, Wireless
WebConnect! expects its sales and marketing expense to increase substantially as
a percentage of its annual revenues. Wireless WebConnect!'s general and
administrative expenses consist primarily of cash compensation and related costs
for general corporate, business development and technology development
personnel, along with rent and other related costs.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
30, 2000
COMMISSIONS AND RELATED REVENUE. Commissions and related revenue decreased
from $1,312,881 for the nine months ended September 30, 1999 to $705,513 for the
nine months ended September 30, 2000. This decrease was due primarily to
temporary cessation in April 2000 of marketing and selling the original
Ricochet 28.8 mobile wireless Internet service ("R1") in order to prepare for
the launch of the new 128k Mobile wireless Internet service ("R2") in July 2000.
The difference between commissions and related revenue and services revenue
is that commissions and related revenue were one time commission and related
payments for the delivery of new customers to Metricom. Service revenues are
service fees charged to customers by Wireless WebConnect! for wireless internet
access service. Wireless WebConnect! purchases the service from Metricom for
resale to its customers.
SERVICES REVENUE. Services revenue increased from $133,812 for the nine
months ended September 30, 1999 to $203,786 for the nine months ended
September 30, 2000. The increase is a result of Wireless Webconnect! becoming a
service provider for all customers and, therefore, has services revenue from new
customers. Prior to the launch of the R2 service in July 2000, the Company's
only reseller activity to date was to U.S. government customers. As of
September 30, 2000, the Company had approximately 2,400 customers to whom it
resold service, 400 of which were U.S. government customers. All of the
approximate 2,000 non-U.S. government customers have been obtained by the
Company since July 2000.
EQUIPMENT REVENUE. Equipment revenue of $206,938 for the nine months ended
September 30, 2000, represents the sale of wireless modems to new customers.
COST OF SERVICES AND EQUIPMENT REVENUE. Costs of services revenue increased
from $113,648 for the nine months ended September 30, 1999 to $442,599 for the
nine months ended September 30, 2000. The increase is a result of increases in
fees to Metricom as well as new costs associated with equipment (wireless
modems) sales for new customers.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased from $1,216,408 for the nine months ended September 30, 1999
to $928,347 for the nine months ended September 30, 2000. This decrease was due
primarily to temporary cessation in April 2000 of marketing and selling R1 in
order to prepare for the launch of R2.
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YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
COMMISSIONS AND RELATED REVENUE. Commission and related revenue increased
from $1,311,633 for the year ended December 31, 1998 to $1,678,566 for the year
ended December 31, 1999. This was due primarily to an increase in the number of
subscribers signed-up in the year ended December 31, 1999. The subscribers
signed up increased from 3,447 for the year ended December 31, 1998 to 4,016 for
the year ended December 31, 1999. This increase was due primarily to expanded
sales and marketing efforts.
SERVICES REVENUE. Services revenue increased from $88,205 for the year
ended December 31, 1998 to $157,660 for the year ended December 31, 1999. This
increase was due primarily to an increase in services provided to the US
government as part of Wireless WebConnect!'s government reseller contract during
the year ended December 31, 1999.
COST OF SERVICES REVENUE. Costs of services revenue increased from $74,029
for the year ended December 31, 1998 to $133,467 for the year ended
December 31, 1999. This increase was due primarily to an increase in services
provided to the US government as part of Wireless WebConnect!'s government
reseller contract during the year ended December 31, 1999.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased from $1,207,742 for the year ended December 31, 1998 to
$1,685,944 for the year ended December 31, 1999. This increase was due primarily
to an increase in advertising costs and salaries and commissions paid to
additional personnel performing sales and marketing activities for the year
ended December 31, 1999. Prior to May 2000, Wireless WebConnect! was organized
as a partnership, thus no tax expense or benefit was recognized.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
COMMISSIONS AND RELATED REVENUE. Commission and related revenue decreased
from $1,364,162 for the year ended December 31, 1997 to $1,311,633 for the year
ended December 31, 1998. This was due primarily to a commission structure
change. The commission structure change involved Metricom paying Wireless
WebConnect! a lower initial commission per sale and the introduction of a tiered
commission program and production bonuses. During 1997, Wireless WebConnect! was
on-site at Metricom running its call center and Wireless WebConnect!'s earned
fees based on staffed hours. Wireless WebConnect! moved off-site in February
1998. The number of subscribers signed-up did increase from 2,860 for the year
ended December 31, 1997 to 3,447 for the year ended December 31, 1998. This
increase was due primarily to expanded sales and marketing efforts.
SERVICES REVENUE. Services revenue increased from $17,628 for the year
ended December 31, 1997 to $88,205 for the year ended December 31, 1998. This
increase was due primarily to an increase in services provided to the US
government as part of Wireless WebConnect!'s governmental reseller contract
during the year ended December 31, 1998.
COST OF SERVICES REVENUE. Costs of services revenue increased from $15,009
for the year ended December 31, 1997 to $74,029 for the year ended December 31,
1998. This increase was due primarily to an increase in services provided to the
US government as part of Wireless WebConnect!'s governmental reseller contract
during the year ended December 31, 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses decreased from $1,309,932 for the year ended December 31, 1997 to
$1,207,742 for the year ended December 31, 1998. This decrease was due primarily
to a decrease in expenses related to call center activities for the year ended
December 31, 1998, as a result of the move off-site in February 1998 as
mentioned above.
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LIQUIDITY AND CAPITAL RESOURCES
Since Wireless WebConnect!'s inception, Wireless WebConnect! has financed
its operations solely through revenue generated by the business. Cash provided
by operations has increased from $30,000 in 1998 to $74,000 in 1999. This
increase in cash is primarily attributable to changes in working capital
accounts including increases in accounts payable and accrued expenses.
Distributions were made to the owners of the business of approximately $15,000
and $82,000 for 1998 and 1999, respectively.
On August 29, 2000, Wireless WebConnect! signed a promissory note with
Intellicall in the amount of $1.5 million bearing interest at 8%. Funding of the
note is subject to certain conditions before scheduled disbursements are
provided, including pre-approval by Intellicall of the use of funds. Advances
are expected to be $250,000 per month. As of September 30, 2000, $250,000 has
been advanced to Wireless WebConnect! under the provisions of the note agreement
and as of December 15, 2000 the amount advanced was $750,000. Proceeds of the
note have been used to expand sales activities, purchase equipment and systems
and meet general operating expenses of Wireless WebConnect!. Under the terms of
the agreement, upon the completion of the merger, all accrued interest and
outstanding principal will be forgiven.
The successful expansion of the business into emerging markets is dependent
on the Wireless WebConnect!'s ability to fund operations internally and/or
procure adequate external financing in a timely basis. Currently, Wireless
WebConnect! has no other external sources of working capital funds. If Wireless
WebConnect!'s plans or assumptions change or are inaccurate, Wireless
WebConnect! may be required to seek additional capital or seek capital sooner
than anticipated. In the event additional financing is not available, Wireless
WebConnect! will be required to significantly reduce its expenses and/or retract
its expansion plans.
MARKET PRICE, DIVIDENDS AND STOCKHOLDER OWNERSHIP AFTER THE MERGER
There is no public market for the common stock of Wireless WebConnect!. As
of the date of this Proxy Statement there are six holders of the common stock of
Wireless WebConnect!.
The issuance of Intellicall common stock with respect to the merger will
have the effects set forth in the column entitled "Percentage of Class" on
Intellicall's 5% or more stockholders, each director
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and nominee and director's and officer's as a group and Intellicall's present
commitment to each of the above with respect to the issuance of common stock.
<TABLE>
<CAPTION>
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENTAGE
OWNED(2) OF CLASS
NAME AND ADDRESS OF ---------------- ------------
BENEFICIAL OWNER(1) TITLE AFTER THE MERGER AFTER MERGER
------------------- ----- ---------------- ------------
<S> <C> <C> <C>
EXISTING EXECUTIVE OFFICERS AND
DIRECTORS
Chairman of the Board (before
William O. Hunt................. the merger) 962,000 3.2%
B. Michael Adler................ Director 646,813 2.2%
Lewis E. Brazelton III.......... Director 116,373 *
Arthur Chavoya.................. Director 30,000 *
Richard B. Curran............... Director 86,250 *
President (before the merger),
Chief Executive Officer and
Director, Chairman of the
John J. McDonald, Jr............ Board (after the merger) 873,800 2.9%
Chief Financial Officer and
R. Phillip Boyd................. Secretary 33,500 --
10% SHAREHOLDERS
Banca Del Gottardo.............. 4,578,658 14.3%
NEW ADDITIONAL EXECUTIVE
OFFICERS AND DIRECTORS
FOLLOWING THE MERGER
G. T. Finn(3)................... President (after the merger) 6,734,832 22.8%
Mike Campbell(4)................ Director 5,092,190 17.3%
Neil Byrne...................... Director 3,449,548 11.7%
Richard Bishop.................. Director --
Richard F. Dahlson.............. Director --
Steven Hayes.................... Director --
All officers and directors as a
group (10 persons)............ 18,025,306 57.5%
</TABLE>
------------------------
* less than one percent
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(1) The persons named in the table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws, where applicable, and the information
contained in the footnotes to the table.
(2) Includes shares issuable upon the conversion of subordinated debt or shares
issuable upon exercise of options or warrants that have or will vest within
60 days. All options granted under the 1991 Stock Option Plan will vest upon
the change-of-control that will result if the merger is approved. The
amounts reflected in this table assumes approval of the merger.
(3) Includes 1,642,642 shares owned by Mr. Finn's wife.
(4) Includes 1,642,642 shares owned by Mr. Campbell's wife.
(5) This table does not include any of the 1.5 million options issuable pursuant
to the merger agreement to former Wireless WebConnect! employees who became
Intellicall employees.
PROPOSAL NO. 2
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO CHANGE THE NAME TO WIRELESS WEBCONNECT!, INC.
The Board of Directors has adopted a resolution approving an amendment to
the certificate of incorporation to change Intellicall's name to "Wireless
WebConnect!, Inc." The approval of the name change is a condition precedent to
the merger and the merger will not be consummated without that approval. If the
stockholders do not approve the merger, the name of Intellicall will not be
changed.
The amended certificate of incorporation, assuming approval of the issuance
of common stock with respect to the merger by the stockholders at the meeting,
will be filed with the Secretary of State of the State of Delaware as soon as
practicable after the date of the meeting. Without any further action on the
part of Intellicall or the stockholders, the amendment will become effective on
the date of such filing.
SUBJECT TO THE APPROVAL OF THE STOCKHOLDERS OF THE ISSUANCE OF COMMON STOCK
IN THE MERGER AS SET FORTH UNDER PROPOSAL NO. 1 ABOVE, THE BOARD RECOMMENDS THAT
THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO CHANGE THE NAME OF INTELLICALL TO
"WIRELESS WEBCONNECT!, INC."
PROPOSAL NO. 3
AMENDMENT TO THE CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
In connection with the transactions contemplated by the merger agreement,
including the issuance of 16,426,420 shares of common stock, and the proposal in
this Proxy Statement to increase the shares authorized under the 1991 Stock
Option Plan, the board has unanimously approved, subject to approval by the
stockholders, a proposal to amend the certificate of incorporation to increase
the number of shares of common stock authorized and available for issuance from
20,000,000 to 60,000,000. The approval of the amendment to the certificate of
incorporation to increase the number of outstanding shares of common stock is a
condition precedent to the merger. If the stockholders do not approve the
increase in the number of authorized shares, Intellicall will not have a
sufficient amount of shares to issue in the merger; and the merger will not be
consummated.
In addition to providing a sufficient number of shares for the issuance of
common stock pursuant to the merger, and the granting of options under the 1991
Option Plan to certain former Wireless WebConnect! employees who become
Intellicall employees after the merger, the board believes that the increase
would benefit Intellicall by providing greater flexibility to facilitate an
acquisition strategy, to provide stock-related employee benefits, to effect
stock splits of the outstanding common stock, and to provide flexibility for
raising additional capital to fund a growth strategy and other general corporate
needs. Although Intellicall is not currently reviewing any specific acquisition
opportunities, there may
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be future acquisitions and the increase would allow Intellicall to issue common
stock in other future acquisitions. As of the Record Date, Intellicall had
issued and outstanding [13,081,889] shares of common stock and
[1,830,890] shares of common stock reserved for issuance under its 1991 Stock
Option Plan.
The Amended Certificate of Incorporation, assuming approval by the
stockholders at the meeting, will be filed with the Secretary of State of the
State of Delaware as soon as practicable after the date of the Meeting. Without
any further action on the part of Intellicall or the stockholders, the amendment
will become effective on the date of such filing.
If the amendment to the certificate of incorporation to increase the number
of outstanding shares of common stock is approved at the meeting, other than
approval of the issuance of common stock under Proposal No. 1 and the approval
to increase the shares available for issuance under the 1991 Stock Option Plan
in Proposal No. 4, generally, no stockholder approval would be necessary for the
issuance of all or any portion of the additional shares of common stock unless
required by law or any rule or regulations to which Intellicall is subject.
Intellicall has no plans to issue any additional shares in connection with the
merger other than the shares issuable upon exercise of the 1.5 million options
that will be available for grant to former Wireless WebConnect! employees who
become employees of Intellicall after the merger.
Depending upon the consideration per share received by Intellicall for any
subsequent issuance of common stock, such issuance could have a dilutive effect
on those stockholders who paid a higher consideration per share for their stock.
Also, future issuances will increase the number of outstanding shares of common
stock, thereby decreasing the percentage ownership in Intellicall (for voting,
distributions and all other purposes) represented by existing shares of common
stock. The availability for issuance of the additional shares of common stock
and any issuance thereof, or both may be viewed as having the effect of
discouraging an unsolicited attempt by another person or entity to acquire
control of Intellicall. Intellicall's certificate of incorporation also contains
a provision limiting the number of directors to nine and provides for the
issuance of preferred stock over which the board retains the right to determine
voting rights. These provisions may have an anti-takeover effect. The present
proposal with respect to the increase in authorized shares is not a part of a
plan by Intellicall's management to adopt a series of anti-takeover measures,
and management does not presently intend to propose other anti-takeover measures
in future proxy solicitations.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND
THE CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMMON
STOCK TO 60,000,000. ALTHOUGH THE CLOSING OF THE MERGER IS DEPENDENT UPON THE
APPROVAL OF THIS PROPOSAL BY THE STOCKHOLDERS, THE BOARD RECOMMENDS THAT THE
STOCKHOLDERS VOTE FOR THIS PROPOSAL EVEN IN THE EVENT THE MERGER IS NOT
APPROVED, BASED UPON THE REASONS SET FORTH ABOVE.
PROPOSAL NO. 4
AMENDMENT OF THE PLAN
The board has adopted a resolution to amend the 1991 Stock Option Plan to
increase the aggregate number of shares of common stock that may be issued
thereunder to 9,495,000, which would provide shares available for the issuance
of up to 6,995,000 incentive stock options, 2,000,000 nonqualified stock options
and 500,000 nonemployee directors stock options. This proposed plan amendment
will provide enough authorized shares to grant up to an aggregate of
1.5 million options to purchase common stock after the merger described in
Proposal No. 1 to the former employees of Wireless WebConnect! who become
employees of Intellicall, which is a covenant in the merger agreement. The
employees of Wireless WebConnect! who may become eligible to receive grants with
respect to the 1.5 million options have not been identified. The proposed plan
amendment will also provide flexibility to issue additional grants in the
future.
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The board has also adopted resolutions to (1) change the automatic grants to
nonemployee directors upon initial election to the Board from February 1 to the
date of election to the Board and to provide for automatic annual grants on the
date of the annual meeting and (2) to increase the initial grant to nonemployee
directors from an option to purchase 20,000 shares to an option to purchase
25,000 shares of common stock and to provide for automatic annual grants of
options to purchase 12,500 shares of common stock. The foregoing proposed
amendments to the 1991 Stock Option Plan are referred to herein as the plan
amendment. No other amendments to the 1991 Stock Option Plan are currently
contemplated.
The description in this Proxy Statement of the 1991 Stock Option Plan is
included solely as a summary, does not purport to be complete, and is qualified
in its entirety by the full text of the 1991 Stock Option Plan, as amended to
reflect the proposed changes, attached hereto as APPENDIX D.
GENERAL
The 1991 Stock Option Plan is an arrangement under which certain individuals
may be granted awards for incentive stock options, non-qualified stock options
and directors' options. The purpose of the 1991 Stock Option Plan is to provide
incentives to officers, directors and employees of Intellicall, to attract
individuals with a high degree of training, experience, expertise and ability,
to provide an opportunity to such individuals to acquire a proprietary interest
in the success of Intellicall, to increase their interest in Intellicall's
welfare, to align their interests with those of Intellicall's stockholders and
to encourage them to remain with Intellicall.
ADMINISTRATION OF THE 1991 PLAN
The Option Plan is administered by the Compensation Committee composed of
non-employee directors of Intellicall who meet the requirements of
"disinterested person" in Section 16b of the Securities Exchange Act of 1934.
ELIGIBILITY
Awards may be granted under the 1991 Stock Option Plan to employees of
Intellicall, including officers and directors, and, in accordance with the
nondiscretionary formula mentioned above, non-employee directors of Intellicall.
However, only employees of Intellicall are entitled to receive incentive stock
option Awards. The Compensation Committee, in its discretion as outlined in the
1991 Stock Option Plan, determines which individuals are eligible to receive
Awards under the 1991 Stock Option Plan.
The approximate number of individuals who were eligible to participate in
the 1991 Stock Option Plan as officers or employees of as of October 1, 2000 was
48.
GRANT, TERM, AND RESTRICTIONS ON AWARDS
Awards granted under the 1991 Stock Option Plan may include incentive stock
options, which are qualified under Section 422A of the Internal Revenue Code of
1986 (the "Code"), non-qualified stock options, which are not qualified under
Section 422A of the Code, and directors' options.
In the event common stock purchased upon exercise of incentive options is
disposed within a two year period after the options are granted under the 1991
Stock Option Plan or within one year after the option is exercised, the optionee
is required to so notify Intellicall and deliver to Intellicall the amount of
any applicable withholding taxes. In either such event, the options lose their
status as incentive options under Section 422A of the Code and are treated as
non-qualified options under the 1991 Stock Option Plan. The maximum value of
incentive options that can become first exercisable in any one year can be no
more than $100,000.
67
<PAGE>
Each Award is to be granted under an agreement between Intellicall and the
individual receiving the Award. Each agreement specifies the exercise periods of
options. Intellicall receives no consideration upon the grant of an Award. The
rights under the agreement are not transferable by the individual receiving an
Award except under the laws of descent and distribution. During the lifetime of
the individual receiving an Award, only the individual or his legal
representative may exercise the Award.
PURCHASE PRICE FOR INCENTIVE OPTIONS
The purchase price for each share of common stock subject to an incentive
option granted under the 1991 Stock Option Plan may not be less than the greater
of the par value of such share and 100% of the fair market value of such share
on the date that the incentive option is granted (110% in the case of an
incentive option granted to a person who owns more than ten percent of the total
combined voting power of all classes of stock of Intellicall). The purchase
price of common stock may be paid by cash, check, or shares of common stock
which have been held for at least six months.
TERMINATION OF AWARDS
Awards of incentive options granted under the 1991 Stock Option Plan
generally terminate with respect to any portion of the incentive option not
previously exercised by an individual after ten years from the date that the
incentive option is granted (five years in the case of an incentive option
granted to a person who owns more than ten percent of the total combined voting
power of all classes of stock of Intellicall), unless the option terminates
sooner by reason of termination of employment, disability, or death. The
unexercised or restricted portion of an Award shall terminate immediately if an
individual's employment is terminated for cause. If termination of employment is
voluntary or by Intellicall for reasons other than cause, such portion of the
Award shall terminate three months after employment terminates. The unexercised
or restricted portion of an Award will terminate twelve months after the
occurrence of the disability or death of an individual.
CERTAIN EVENTS
The 1991 Stock Option Plan contains antidilution provisions applicable in
the event of any change in the number of outstanding shares of common stock of
Intellicall or any change in the character or rights of the common stock which
occurs by reason of a reclassification, recapitalization, merger, consolidation,
reorganization, stock dividend, stock split or reverse stock split, combination
or exchange of shares or other similar events. In any such event, appropriate
adjustments will be made in the maximum number of shares which may be issued
under the 1991 Stock Option Plan and the number of shares under and exercise
price of outstanding Awards.
In addition, in the case of (1) a dissolution or liquidation of Intellicall
or (2) a merger or consolidation of Intellicall the 1991 Stock Option Plan and
all options granted thereunder shall continue in effect and each holder of an
option shall be entitled to receive in respect of each share of common stock
subject to an outstanding Award, upon exercise of such Award, the same number
and kind of stock, securities, cash, property or other consideration that each
holder of Common Stock was entitled to receive in such transaction in respect of
a share of Common Stock.
In the event of a Change in Control of Intellicall (as defined in the 1991
Stock Option Plan), all outstanding Awards shall become immediately and fully
exercisable. Upon the consummation of the merger, a Change of Control will be
deemed to have occurred because the former Wireless WebConnect! shareholders
will hold approximately 56% of the outstanding common stock.
68
<PAGE>
AMENDMENTS
The board or the Compensation Committee may at any time, without the consent
of the holders of Awards, alter, amend, revise, suspend, or discontinue the 1991
Stock Option Plan, provided that such action shall not adversely affect Awards
previously granted. Any amendments to the 1991 Stock Option Plan that would
(1) materially increase the benefits accruing to individuals participating in
the 1991 Stock Option Plan, (2) materially increase the number of shares of
common stock subject to the 1991 Stock Option Plan, or (3) materially modify the
requirements as to eligibility for participation in the 1991 Stock Option Plan
must be approved by the holders of a majority of shares of common stock
represented and entitled to vote thereon at a meeting of the stockholders of
Intellicall.
OPTIONS GRANTED
As of December 1, 2000, options to purchase 1,857,200 shares of common stock
had been granted under the 1991 Stock Option Plan, of which options to purchase
423,340 shares of common stock had been exercised, options to purchase
1,433,860 shares of common stock remained outstanding and had not yet been
exercised and options to purchase 397,200 shares remained available for grant.
Assuming, the merger is approved by the Intellicall stockholders, all
outstanding options under the 1991 Stock Option Plan will immediately vest and
become exercisable due to the occurrence of a change of control created by the
merger.
As of December 1, 2000, 15 Intellicall employees were eligible to
participate in the 1991 Stock Option Plan. Only one employee, Wynn Goolsby
received options to purchase 6,500 shares of common stock at an aggregate value
of $19,500 during fiscal 1999. As a group the non-employee directors of
Intellicall received no options to purchase common stock during 1999. If the
1991 Stock Option Plan, as amended by this Proposal, had been in place during
fiscal 1999, the nonemployee directors as a group would have received options to
purchase 37,500 shares of common stock (12,500 per nonemployee director). All
other grants under the 1991 Stock Option Plan are not determinable because only
nonemployee directors receive automatic grants. The last reported sales price of
the common stock on the American Stock Exchange as of January 4, 2001 was
$0.6875.
FEDERAL INCOME TAX CONSEQUENCES
An optionee who receives an incentive stock option under the 1991 Stock
Option Plan will ordinarily not recognize any income for federal income tax
purposes as a result of the receipt or exercise of such option. However, the
exercise of an incentive stock option will give rise to an increase in the
optionee's alternative minimum taxable income for purposes of the alternative
minimum tax in an amount equal to the excess of the fair market value of the
common stock at the time the optionee's rights to the stock are freely
transferable or are not subject to a substantial risk of forfeiture over the
exercise price. Intellicall will not be entitled to a compensation deduction for
federal income tax purposes with respect to either the grant of an incentive
stock option under the 1991 Stock Option Plan or the exercise of such an option
by the optionee. If the optionee does not dispose of the shares of common stock
acquired through the exercise of the incentive stock option within two years of
the date of the grant of such option, and within one year after the exercise
date, and if the optionee is employed by Intellicall (or certain related
entities) from the time the option is granted until three months before its
exercise, any gain or loss recognized upon the disposition will constitute a
long-term capital gain or loss, and Intellicall will not be entitled to a
deduction. If an optionee disposes of the shares prior to the expiration of such
holding periods (a "disqualified disposition"), the optionee will recognize, at
the time of such disposition, ordinary income equal to the difference between
the exercise price and the lower of (1) the fair market value of the shares
subject to the option on the date of exercise or (2) the amount realized by the
optionee on the sale of such shares, any remaining gain shall be taxed as a
capital gain. In the event of a disqualified disposition, Intellicall will be
entitled to a deduction in an amount equal to the income recognized by the
optionee.
69
<PAGE>
If an optionee pays the exercise price of an incentive stock option solely
with common stock, and if the shares surrendered are (1) shares not received
pursuant to the exercise of an incentive stock option and not subject to a
substantial risk of forfeiture or (2) the result of the optionee's exercise of
another incentive stock option, the exercise of which satisfied the above stated
holding period requirements, the optionee will not recognize income and the
basis and holding period of the surrendered common stock shall be transferred to
that number of new shares equal to the number of old shares surrendered. If more
shares are received than were surrendered, the additional shares' basis will be
zero. If these conditions are not met, the payment of the exercise price with
shares of common stock may be treated as a disqualified disposition or otherwise
taxable disposition.
THE BOARD RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE AMENDMENT TO THE
1991 STOCK OPTION PLAN TO INCREASE THE AGGREGATE AMOUNT AUTHORIZED FOR ISSUANCE
TO 9,495,000. SINCE THE AMENDMENT WILL INCREASE THE NUMBER OF OPTIONS THAT MAY
BE GRANTED TO ALL DIRECTORS AND EXECUTIVE OFFICERS OF INTELLICALL, CERTAIN OF
THE DIRECTORS AND EXECUTIVE OFFICERS OF INTELLICALL HAVE AN INTEREST IN, AND MAY
BENEFIT FROM, THE ADOPTION OF THE PLAN AMENDMENT. ALTHOUGH THE MERGER AGREEMENT
CONTAINS A COVENANT TO MAKE AVAILABLE 1.5 MILLION OPTIONS UNDER THE 1991 OPTION
PLAN TO EMPLOYEES OF WIRELESS WEBCONNECT! WHO BECOME INTELLICALL EMPLOYEES AFTER
THE MERGER WHICH WOULD REQUIRE APPROVAL OF THIS PROPOSAL, THE BOARD RECOMMENDS
THAT THE STOCKHOLDERS VOTE FOR THIS PROPOSAL EVEN IN THE EVENT THE MERGER IS NOT
APPROVED, BASED UPON THE REASONS SET FORTH ABOVE.
PROPOSAL NO. 5
ELECTION OF DIRECTORS
There are eight directors to be elected for terms expiring at Intellicall's
annual meeting of stockholders in 2001 or when their successors have been
elected and qualified. It is intended that the names of the persons indicated
below will be placed in nomination and that the persons named in the Proxy will
vote for their election. Each of the nominees has indicated his willingness to
serve as a member of the board if elected; however, in case any nominee shall
become unavailable for election to the board for any reason not presently known
or contemplated, the proxy holders have discretionary authority to vote the
proxy for a substitute nominee or nominees. Proxies cannot be voted for more
than eight nominees. The following sets forth information as of the Record Date
as to the nominees for election at the meeting, including their ages, present
principal occupations, other business experience during the last five years,
membership on committees of the board and directorships in other publicly-held
companies.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- -----------------------------------------------
<S> <C> <C>
William O. Hunt............ 67 Chairman of the Board
John McDonald.............. 51 President, Chief Executive Officer and Director
Mike Campbell.............. 45 Nominee
G.T. Finn.................. 53 Nominee
Neil Byrne................. 38 Nominee
Richard Bishop............. -- Nominee
Richard F. Dahlson......... 42 Nominee
Steven Hayes............... -- Nominee
</TABLE>
NEIL BYRNE has been Wireless WebConnect!'s Senior Vice President of New
Office Establishment from August 1997 until the present. Prior to that, from
November 1996 until August 1997, Mr. Byrne served as the Senior Vice President
of New Business Development. He also served as a Regional Sales Manager of
Wireless WebConnect! from October 1995 until November 1996.
MIKE CAMPBELL is the Senior Vice President of Administration of Wireless
WebConnect!, and has served in that capacity since February 1998. From August
1997 until February 1998, he was Senior Vice President of New Business
Development for Wireless WebConnect!. Prior to that, from October 1995 until
July 1997, he worked as a Regional Sales Manager for Wireless WebConnect!.
70
<PAGE>
GERALD T. FINN founded Wireless WebConnect!, which was formerly known as
Business Tel, in 1991 and has served as Chairman of the Board, Chief Executive
Officer and President since its inception.
WILLIAM O. HUNT joined Intellicall in December 1992 as Chairman of the
Board, Chief Executive Officer and President. In May, 1998 Mr. Hunt resigned his
position as Chief Executive Officer and President. From June 1986 to July 1992,
he was Chairman of the Board and Chief Executive Officer of Alliance
Telecommunications Corporation, a wireless telecommunications company. Mr. Hunt
serves on the boards of American Homestar Corporation, Internet America, Inc.
and Mobility Electronics, Inc.
JOHN J. MCDONALD, JR. was appointed President and Chief Executive Officer in
May 1998. Prior to that time, he was Chief Operating Officer of Intellicall from
July 1997 and Senior Vice President--Sales and Marketing from February 1997.
From June 1994 to January 1997, Mr. McDonald was Senior Vice President of
Intercom, Inc. Prior to that he was Vice President, Business Communications, of
Ericsson Business Communications.
RICHARD BISHOP
RICHARD F. DAHLSON is a partner of Jackson Walker L.L.P., a law firm
headquartered in Dallas, Texas and has served as outside legal counsel to
Intellicall since January 2000. Mr. Dahlson has been with Jackson Walker since
1984. Mr. Dahlson received his B.S.B.A. from the University of Minnesota and a
J.D. degree from the University of Wisconsin. Mr. Dahlson is a director of
Medical Alliance, Inc.
STEVEN HAYES is a practicing attorney with over two decades of private
practice experience. Mr. Hayes is a graduate of the University of Arkansas, and
received his JD with honors from the University of San Francisco Law School.
Since January of 2000, Mr. Hayes has served as general counsel for Bulldog
Capital Limited Partnership, an investment advisor to four hedge funds and a
venture capital fund. Bulldog Capital Management Limited Partnership has in
excess of $500 million under management. In addition to his duties as general
counsel to Bulldog Capital Management Limited Partnership, Mr. Hayes continues
to represent selected clients through Steven L. Hayes, A Law Corporation,
including Wireless WebConnect!.
CHANGES TO THE INTELLICALL BOARD IF THE INTELLICALL STOCKHOLDERS DO NOT APPROVE
THE ISSUANCE.
In the event the Intellicall stockholders do not approve the Issuance in
connection with the merger, Messrs. Finn, Campbell, Byrne, Bishop, Dahlson and
Hayes have agreed to resign from the Intellicall Board immediately following the
Meeting. The Intellicall board will then appoint to the board Mr. Lewis E.
Brazelton III, Mr. Richard B. Curran, Mr. Arthur Chavoya and Mr. B. Michael
Adler, each of whom are current members of the board. The biographies of
Messrs. Brazelton, Curran, Chavoya and Adler are set forth under "Proposal
No. 1--Approval of Issuance of Common Stock and Options--Intellicall
Management."
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR THE ELECTION OF EACH OF
THE EIGHT NOMINEES.
WHERE YOU CAN FIND MORE INFORMATION
Intellicall files annual, quarterly and special reports, proxy statements
and other information with the Securities and Exchange Commission. You may read
and copy any reports, statements or other information Intellicall files at the
Securities and Exchange Commission's public reference rooms in Washington, D.C.,
New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Our Securities and Exchange Commission filings are also
available to the public from commercial document retrieval services and at the
Internet Website maintained by the Securities and Exchange Commission at
HTTP://WWW.SEC.GOV.
71
<PAGE>
STOCKHOLDER PROPOSALS
Stockholders may submit proposals on matters appropriate for stockholder
action at our annual meetings consistent with Rule 14a-8 promulgated under the
Exchange Act. Any proposal which a shareholder intends to present at the 2001
annual meeting must be received by Intellicall at its principal executive office
no later than [ ] in order to be included in the proxy material
for the Meeting.
INDEPENDENT PUBLIC ACCOUNTANTS
Intellicall's principal auditors for the fiscal year 2000 are Deloitte &
Touche LLP. A representative of Deloitte & Touche LLP will be present at the
Meeting and will have the opportunity to make any desired statement and will be
available to respond to appropriate questions. Intellicall's principal auditors
for the fiscal year 1999 were PricewaterhouseCoopers LLC. See "Proposal
No. 1--Approval of Issuance of Common Stock--Changes in Certifying Accountants"
for a description of the dismissal of PricewaterhouseCoopers LLP and the
appointment of Deloitte & Touche LLP.
OTHER BUSINESS
The board of directors knows of no matter other than those described herein
that will be presented for consideration at the meeting. However, should any
other matters properly come before the meeting or any adjournment thereof, it is
the intention of the persons named in the accompanying proxy to vote on such
matters in accordance with their best judgment in the interest of Intellicall.
MISCELLANEOUS
All costs incurred in the solicitation of proxies will be borne by
Intellicall. Intellicall estimates those costs to be $25,000. In addition to
solicitation by mail, officers and employees of Intellicall may solicit proxies
by telephone, telegraph or personally, without additional compensation.
Intellicall may also make arrangements with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation
materials to the beneficial owners of shares of common stock held of record by
such persons, and Intellicall may reimburse such brokerage houses and other
custodians, nominees and fiduciaries for their out-of-pocket expenses incurred
in connection therewith.
Accompanying this Proxy Statement is a copy of Intellicall's Annual Report
on Form 10-K/A for the fiscal year ended December 31, 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE MATTERS PROPOSED HEREIN. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM WHAT IS CONTAINED IN THIS PROXY STATEMENT. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THE PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE HEREOF, AND THE MAILING OF THIS PROXY STATEMENT TO INTELLICALL
STOCKHOLDERS SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
By Order of the Board of Directors
[SIGNATURE]
William O. Hunt
Chairman of the Board of Directors
72
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C>
Financial Statements of Intellicall, Inc.
Balance Sheets at September 30, 2000 (Unaudited) and
December 31, 1999...................................... F-2
Statements of Operations for each of the three month
periods ended September 30, 2000 and 1999
(Unaudited)............................................ F-4
Statements of Operations for each of the nine month
periods ended September 30, 2000 and 1999
(Unaudited)............................................ F-5
Statement of Stockholders' Equity for the nine months
ended September 30, 2000............................... F-6
Statements of Cash Flows for each of the nine month
periods ended September 30, 2000 and 1999
(Unaudited)............................................ F-7
Notes to Financial Statements (Unaudited)............... F-8
Financial Statements of Wireless WebConnect!, Inc.
Independent Auditors' Report............................ F-14
Balance Sheets as of December 31, 1998 and 1999 and
September 30, 2000 (unaudited)......................... F-15
Statements of Income for the years ended December 31,
1997, 1998 and 1999 and the nine months ended
September 30, 1999 (unaudited) and 2000 (unaudited).... F-16
Statements of Changes in Owners' Equity for the years
ended December 31, 1997, 1998 and 1999 and nine months
ended September 30, 1999 (unaudited) and 2000
(unaudited)............................................ F-17
Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and the nine months
ended September 30, 1999 (unaudited) and 2000
(unaudited)............................................ F-18
Notes to Financial Statements........................... F-19
</TABLE>
F-1
<PAGE>
INTELLICALL, INC.
BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets
Cash and cash equivalents................................. $ 3,899 $ 694
Receivables, net of allowance for doubtful accounts of
$1,771 and $764......................................... 651 1,455
Inventories, net.......................................... 2,401 3,088
Receivables from related party, net....................... 159 1,258
Deferred tax asset........................................ -- 1,500
Other current assets...................................... 93 157
------- -------
Total current assets.................................... 7,203 8,152
Fixed assets, net........................................... 600 980
Investment in unconsolidated subsidiary..................... -- 1,835
Other assets, net........................................... 698 637
Assets of discontinued operations, net...................... 139 513
------- -------
Total assets.............................................. $ 8,640 $12,117
======= =======
</TABLE>
See notes to financial statements.
F-2
<PAGE>
INTELLICALL, INC.
BALANCE SHEETS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- -------------
(UNAUDITED)
<S> <C> <C>
Current liabilities
Accounts payable........................................ $ 708 $ 1,798
Accrued liabilities..................................... 515 610
Current portion of long-term debt....................... 200 7,630
Deferred tax liability.................................. 589 --
-------- --------
Total current liabilities............................... 2,012 10,038
Long-term debt............................................ 1,745 1,557
Deferred gain on sale of assets........................... -- 730
Other liabilities......................................... 50 50
Liabilities of discontinued operations.................... 21 80
-------- --------
Total liabilities....................................... 3,828 12,455
-------- --------
Commitments and contingent liabilities.................... -- --
Stockholders' equity (deficit)
Common stock, $.01 par value; 20,000,000 shares
Authorized; 13,081,889 and 13,080,175 shares issued,
respectively.......................................... 131 131
Additional paid-in capital.............................. 61,604 61,486
Less common stock in treasury, at cost; 24,908 shares... (258) (258)
Accumulated deficit..................................... (56,665) (61,697)
-------- --------
Total stockholders' equity (deficit).................... 4,812 (338)
-------- --------
$ 8,640 $ 12,117
======== ========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
INTELLICALL, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Equipment sales............................................. $ 1,253 $ 2,830
Cost of sales and revenues.................................. 1,060 2,390
------- --------
Gross profit................................................ 193 440
Selling, general and administrative expenses................ 1,394 1,683
Provision for doubtful accounts............................. 654 57
------- --------
Operating loss from continuing operations................... (1,855) (1,300)
Gain on sale of stock....................................... 12 --
Other income................................................ 27 16
Interest income............................................. 70 26
Interest expense............................................ (125) (330)
Equity in the loss of unconsolidated subsidiary............. -- (212)
------- --------
Loss from continuing operations before income taxes......... (1,871) (1,800)
Income tax benefit.......................................... 1,349 --
------- --------
Loss from continuing operations............................. (522) (1,800)
Loss from discontinued operations........................... (117) (189)
------- --------
Net loss.................................................... $ (639) $ (1,989)
======= ========
Basic and diluted net loss per share from continuing
operations................................................ $ (0.04) $ (0.15)
======= ========
Basic and diluted net loss per share from discontinued
operations................................................ $ (0.01) $ (0.02)
======= ========
Basic and diluted net loss per share........................ $ (0.05) $ (0.17)
======= ========
Weighted average number of basic and diluted shares
outstanding............................................... 13,057 12,055
======= ========
</TABLE>
See notes to financial statements.
F-4
<PAGE>
INTELLICALL, INC.
UNAUDITED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Equipment sales............................................. $ 3,282 $ 9,210
Cost of sales and revenues.................................. 3,161 8,312
------- -------
Gross profit................................................ 121 898
Selling, general and administrative expenses................ 4,882 5,634
Provision for doubtful accounts............................. 1,013 142
------- -------
Operating loss from continuing operations................... (5,774) (4,878)
Gain on sale of stock....................................... 13,907 --
Other income................................................ 84 181
Interest income............................................. 164 146
Interest expense............................................ (834) (1,336)
Equity in the loss of unconsolidated subsidiary............. (51) (833)
------- -------
Income (loss) from continuing operations before income
taxes..................................................... 7,496 (6,720)
Income tax expense.......................................... (2,250) --
------- -------
Income (loss) from continuing operations.................... 5,246 (6,720)
Loss from discontinued operations........................... (117) (557)
------- -------
Income (loss) before extraordinary items.................... 5,129 (7,277)
Extraordinary items--loss on early extinguishment of debt,
net of $61 tax benefit.................................... (97) --
------- -------
Net income (loss)........................................... $ 5,032 $(7,277)
======= =======
Basic net income (loss) per share from continuing
operations................................................ $ 0.40 $ (0.56)
======= =======
Diluted net income (loss) per share from continuing
operations................................................ $ 0.37 $ (0.56)
======= =======
Basic and diluted net loss per share from discontinued
operations................................................ $ (0.01) $ (0.04)
======= =======
Basic and diluted net loss per share from extraordinary
items..................................................... $ (0.01) $ --
======= =======
Basic net income (loss) per share........................... $ 0.38 $ (0.60)
======= =======
Diluted net income (loss) per share......................... $ 0.35 $ (0.60)
======= =======
Weighted average number of basic shares outstanding......... 13,056 12,045
======= =======
Weighted average number of diluted shares outstanding....... 14,404 12,045
======= =======
</TABLE>
See notes to financial statements.
F-5
<PAGE>
INTELLICALL, INC.
UNAUDITED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- PAID-IN ------------------- ACCUMULATED
SHARES AMOUNT CAPITAL SHARES COST DEFICIT TOTAL
-------- -------- ---------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at January 1, 2000.............. 13,080 $131 $61,486 (25) $(258) $ 61,697) $ (338)
Employee stock purchase plan........... 2 -- 1 -- -- -- 1
Issuance of warrants................... -- -- 117 -- -- -- 117
Net income............................. -- -- -- -- -- 5,032 5,032
------ ---- ------- --- ----- -------- ------
Balances at September 30, 2000........... 13,082 $131 $61,604 (25) $(258) $(56,665) $4,812
====== ==== ======= === ===== ======== ======
</TABLE>
See notes to financial statements.
F-6
<PAGE>
INTELLICALL, INC.
UNAUDITED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 5,032 $ (7,277)
Adjustments to reconcile net income (loss) to net cash
provided by continuing operations:
Loss from discontinued operations....................... 117 557
Gain on sale of stock................................... (13,907) --
Depreciation and amortization........................... 803 1,537
Provision for doubtful accounts......................... 1,013 142
Provision for inventory losses.......................... 305 120
Equity in loss of unconsolidated subsidiary............. 51 833
Changes in operating assets and liabilities:
Receivables........................................... (210) 2,712
Inventories........................................... 382 1,249
Receivables from related party, net................... 102 371
Other current assets.................................. 64 (167)
Notes receivable...................................... -- 166
Accounts payable...................................... (1,090) 396
Accrued income taxes.................................. 2,089 --
Accrued liabilities................................... (95) 55
Other................................................. 11 (64)
--------- --------
Net cash (used in) provided by continuing
operations.......................................... (5,333) 630
Cash flows from investing activities:
Net cash flows from discontinued operations............... 199 2,161
Capital expenditures...................................... -- (162)
Capitalized software...................................... -- (815)
Cash received on sale of stock............................ 15,769 --
--------- --------
Net cash provided by investing activities............. 15,968 1,184
Cash flows from financing activities:
(Repayments) borrowings on notes payable.................. (7,430) 1,000
Net repayments on line of credit.......................... -- (2,811)
--------- --------
Net cash used in financing activities................. (7,430) (1,811)
Net increase in cash and cash equivalents................... 3,205 3
Cash and cash equivalents at beginning of period............ 694 16
--------- --------
Cash and cash equivalents at end of period.................. $ 3,899 $ 19
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 827 $ 1,180
========= ========
Income taxes paid......................................... $ 100 $ --
========= ========
NON-CASH INVESTING TRANSACTIONS:............................
Issuance of stock warrants................................ $ 117 $ --
========= ========
</TABLE>
See notes to financial statements.
F-7
<PAGE>
INTELLICALL, INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited financial statements, in the opinion of the
Company's management, contain all material, normal and recurring adjustments
necessary to present accurately the financial condition of the Company and the
results of its operations for the periods indicated. The results of operations
for the interim periods reported are not necessarily indicative of the results
to be experienced for the entire year.
These unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1999, as amended. Significant
accounting policies followed by the Company were disclosed in the notes to the
Company's Annual Report on Form 10-K. The year-end balance sheet data included
herein was derived from the audited financial statements, but does not include
all of the disclosures required by generally accepted accounting principles.
BUSINESS: Intellicall, Inc. ("Intellicall" or the "Company") designs,
engineers, manufactures and sells pay telephones and retrofit kits and parts in
the United States and internationally.
CREATION OF ILD TELECOMMUNICATIONS, INC. ("ILD"): On May 10, 1996, the
Company entered into an agreement with certain investor groups to create ILD, a
new long-distance re-sale and operator services company. At that time the
Company transferred ownership in its wholly owned subsidiary, Intellicall
Operator Services, Inc. ("IOS"), to ILD.
On January 4, 2000 the Company was notified by ILD of its intention to
redeem Intellicall's interest in ILD's Series B preferred convertible stock. ILD
is to redeem 5,000 shares for $100 per share plus accrued and unpaid dividends.
As of September 30, 2000, ILD had remitted $.3 million to the Company, redeeming
1,975 shares of the Series B preferred convertible stock and became current on
all accrued and unpaid dividends. As a result of the transaction, the Company
recorded a $.1 million gain on the sale of the stock to ILD. Proceeds from the
sale were used for general operating purposes.
On April 11, 2000 the Company sold the majority of its interest in ILD (See
NOTE 8). Accordingly, the Company discontinued reporting its investment in ILD
on the equity method under the caption "Investment in Unconsolidated Subsidiary"
as was required under the Accounting Principles Board Opinion 18 ("APB 18") "The
Equity Method of Accounting for Investments in Common Stock." As of April 11,
2000 the Company no longer reports a portion of gains and losses from ILD in its
financial statements. Additionally, the Company has reported its investment in
ILD with its other investments under the caption "Other Assets".
As of September 30, 2000 and December 31, 1999, the Company's ownership
percentage in ILD was 2.7% and 30.0%.
SOFTWARE DEVELOPMENT COSTS: Effective January 1, 2000 and as a result of
the impairment charge on capitalized software costs recorded by the Company on
December 31, 1999, the Company decided to expense as incurred all future costs
related to the development of software products for payphone equipment. The
amounts of software development costs capitalized for the quarters ended
September 30, 2000 and 1999 were zero and $.3 million. The Company recorded zero
and $.2 million of software amortization expense for the quarters ended
September 30, 2000 and 1999. Approximately $.1 million of software development
costs were expensed as incurred during the three months ended September 30,
2000.
F-8
<PAGE>
INTELLICALL, INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The amounts of software development costs capitalized for the nine months
ended September 30, 2000 and 1999 were zero and $.8 million. The Company
recorded zero and $.7 million of software amortization expense for the nine
months ended September 30, 2000 and 1999. Approximately $.4 million of software
development costs were expensed as incurred during the nine months ended
September 30, 2000.
RECLASSIFICATIONS: Certain prior year amounts have been reclassified to
conform with the current year presentation.
NOTE 2--INVENTORIES
The components of inventories are (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Raw materials............................................... $ 3,167 $ 3,362
Work in process............................................. 27 133
Finished goods.............................................. 698 1,003
------- -------
3,892 4,498
Less reserves for obsolescence.............................. (1,491) (1,410)
------- -------
Net inventory............................................... $ 2,401 $ 3,088
======= =======
</TABLE>
NOTE 3--FIXED ASSETS
The components of fixed assets are (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Office equipment............................................ $ 3,340 $ 3,404
Tooling and other equipment................................. 5,001 5,001
------- -------
8,341 8,405
Less accumulated depreciation............................... (7,741) (7,425)
------- -------
$ 600 $ 980
======= =======
</TABLE>
F-9
<PAGE>
INTELLICALL, INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--LONG-TERM DEBT
The Company's debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
8% Convertible subordinated notes, due 2000................. -- 2,630
8% Convertible subordinated notes, due 2001................. 200 5,000
7% Convertible subordinated notes, due 2004................. 2,000 2,000
------ -------
2,200 9,630
Less: Unamortized debt discount............................. (255) (443)
------ -------
1,945 9,187
Less: Current portion of long-term debt..................... (200) (7,630)
------ -------
Total long-term debt.................................... $1,745 $ 1,557
====== =======
</TABLE>
On February 11, 2000 the Company signed a $.5 million revolving promissory
note with Bank of America due February 11, 2001. Interest is payable monthly at
Prime commencing on March 11, 2000 with the principal of the note guaranteed by
Bill Hunt, Chairman of the Board of Intellicall. The Company may repay and
re-borrow under the terms of the note at any time, up to a maximum aggregate
outstanding balance equal to the principal amount of the note. Proceeds of the
note were used for working capital purposes. On May 1, 2000 the Company used a
portion of the proceeds from the sale of its ownership in ILD (See NOTE 8) to
retire the $.5 million note to Bank of America.
On April 27, 2000 the Company used a portion of the proceeds from the sale
of its ownership in ILD (See NOTE 8) to retire the remaining $2.6 million 8.0%
convertible subordinated notes due December 31, 2000 and $4.8 million of the
8.0% convertible subordinated notes due November 22, 2001, both due to Banca del
Gottardo. The Company incurred a $.1 million expense, net of $.06 million income
tax benefit, relating to the extinguishment of the $2.6 million 8.0% convertible
subordinated notes due December 31, 2000, which has been reported in its
statements of operations and statements of cash flow under the caption
"Extraordinary items--early extinguishment of debt." This expense resulted from
the Company paying to Banca del Gottardo a 6.0% premium on the outstanding
principle balance of the note upon its retirement as required by the note
agreement.
NOTE 5--DISCONTINUED OPERATIONS
On September 22, 1999 the Company elected to discontinue its billing
services operations effective October 21, 1999. The billing services segment of
the Company's business was determined to be unprofitable after taking into
account the administrative and support costs for the segment. The Company's
billing services system is a combination of hardware and software that performs,
without human intervention, all the functions necessary for completing an
operator assisted payphone call (i.e., collect, calling card and credit card
calls) and a range of other payphone services and features. During the quarters
ended September 30, 2000 and 1999, the Company reported a loss from discontinued
operations of $.1 million and $.2 million. As a result of this action, the
Company's revenues and operating expenses for the periods presented herein
reflect only the equipment operations with the net results of the billing
services operations reported on its statements of operations under the caption
"Income (loss) from discontinued operations." Net revenues related to the
discontinued billing services
F-10
<PAGE>
INTELLICALL, INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--DISCONTINUED OPERATIONS (CONTINUED)
operations were zero and $2.9 million for the quarters ended September 30, 2000
and 1999, and zero and $9.0 million for the nine months ended September 30, 2000
and 1999.
NOTE 6--BUSINESS COMBINATIONS
On January 18, 2000, Intellicall entered into a definitive agreement to
acquire, through the exchange of common stock of Intellicall, Heads Up
Technologies, Inc. ("Heads Up") of Carrollton, Texas. On July 24, 2000 the
executives of the Company and Heads Up mutually announced the cancellation of
the merger between the two companies. The business opportunities presented by
the merger, including anticipated cost reductions and the ability to expand in
new markets, did not justify the cost of combining the two companies.
On August 29, 2000, Intellicall entered into an agreement and plan of merger
with Wireless WebConnect! Inc ("WWC"), a reseller of high-speed, mobile wireless
internet service. Pursuant to the merger agreement, Intellicall will issue to
the shareholders of WWC 16,426,420 shares of common stock of Intellicall. After
the combination, WWC will own approximately 56% of the outstanding stock of
Intellicall.
The merger is subject to certain conditions, including approval by
Intellicall's stockholders. There are no assurances that the conditions
precedent will be satisfied or that the merger will be consummated.
NOTE 7--NEW CONTRACT
On June 30, 2000 the Company entered into an agreement with Homisco, Inc.
("Homisco") whereby, the Company granted Homisco a non-exclusive,
non-transferable license to use the Company's N-Genius hardware and software
products. The Company will receive a 15.0% royalty on gross revenues attributed
to the N-Genius products sold by Homisco. Additionally, Homisco has assumed
future warranty liabilities on any N-Genius systems currently under warranty.
NOTE 8--SALE OF ILD STOCK
On April 11, 2000 the Company sold to Banca del Gottardo the Company's
remaining ownership in ILD, exclusive of 6,239 shares of Series A preferred
convertible stock the Company is required to hold pursuant to the ILD
Organization Agreement. The Company's ownership in ILD included approximately
58,772 shares of ILD Series A convertible stock, 725 shares of ILD Common stock
and 11,111 shares of ILD Common stock obtainable upon conversion of the
$1.0 million subordinated convertible note (the "Note") due from ILD to
Intellicall, dated May 10, 1996. Pursuant to the sale to Banca del Gottardo,
Intellicall, as of March 10, 2000, elected to convert the entire principal
balance of the Note into 11,111 shares of ILD Common stock.
The terms of the offer included the purchase of the ownership of ILD (70,608
combined shares of Series A and Common shares) for $220 per share or
$15.5 million. The Company previously reported in error that it had an option to
repurchase such shares at $250 per share. The Company and Banca del Gottardo
entered into an amendment to the ILD stock purchase agreement effective June 1,
2000 to delete the provision of that agreement providing for such option and to
correctly reflect their original intent. The amendment was duly executed on
November 3, 2000. The Company has filed the corrected amendment with this Report
on Form 10-Q, which deletes the option as intended by both
F-11
<PAGE>
INTELLICALL, INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--SALE OF ILD STOCK (CONTINUED)
parties. The reports on Form 10-Q previously filed by the Company for the
quarters ended March 31, 2000 and June 30, 2000 have been revised accordingly.
The Company has a right of first refusal, should Banca del Gottardo desire to
transfer or sell the ILD stock to a third party. The Company recorded a gain on
the sale of $13.8 million. As a result of the ILD stock sale to Banca del
Gottardo, the Company's ownership in ILD decreased to 2.7%. Accordingly, the
Company discontinued reporting its investment in ILD on the equity method of
accounting and no longer reports a portion of gains and losses from ILD in its
financial statements (See NOTE 1).
The Company received $1.0 million on March 13, 2000 from Banca del Gottardo
as an advance payment toward the ILD stock sale. On April 27, 2000, the Company
received the remaining proceeds from Banca del Gottardo.
Proceeds of the stock sale have been used to pay off all of the $2.6
million, 8% convertible subordinated noted due December 31, 2000, $4.8 million
of the $5.0 million, 8% convertible subordinated noted due November 22, 2001,
and the $.5 million revolving promissory note due February 11, 2001 (See
NOTE 4). The remainder of the proceeds will be used for working capital
purposes.
On July 11, 2000 the Company issued warrants to purchase 100,000 shares of
the Company's common stock at $1.25 per share and warrants to purchase 100,000
shares of the Company's common stock at $1.00 per share to Banca del Gottardo.
These warrants were issued in lieu of transaction fees for the sale of the
Company's interest in ILD to Banca del Gottardo and subsequent retirement of the
$2.6 million 8% convertible, subordinated notes due December 31, 2000 and
$4.8 million of the $5.0 million 8% convertible, subordinated notes due
November 22, 2000 (See NOTE 4). Although the issuance of the warrants was
finalized on July 11, 2000, it was contemplated during the second quarter as
part of the sale of the Company's interest in ILD. As such, the Company recorded
the fair value of the warrants as additional paid in capital in the second
quarter and as a cost of the sale of ILD stock.
NOTE 9--INCOME TAXES
The Company provided for income taxes on a current year-to-date basis, based
on the effective tax rate expected to be applicable for the full fiscal year. As
a result, the Company recorded an income tax expense of $2.3 million.
NOTE 10--BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic and diluted net income (loss) per share has been computed in
accordance with the Statement of Financial Standards No. 128 "Earnings per
Share" ("FAS 128") and is based on the weighted average number of common shares
outstanding for the quarters and nine months ended September 30, 2000 and 1999.
Diluted net income (loss) per share gives effect to all dilutive potential
common shares that were outstanding during the period.
F-12
<PAGE>
INTELLICALL, INC
NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10--BASIC AND DILUTED NET INCOME (LOSS) PER SHARE (CONTINUED)
The weighted average basic and diluted common shares outstanding are as
follows (in thousands):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------- -------------------
BASIC DILUTED BASIC DILUTED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET LOSS
Income (loss) from continuing operations................ $ (522) $ (522) $(1,800) $(1,800)
Loss from discontinued operations....................... (117) (117) (189) (189)
------- ------- ------- -------
Net loss................................................ $ (639) $ (639) $(1,989) $(1,989)
======= ======= ======= =======
AVERAGE EQUIVALENT SHARES
Weighted average shares outstanding..................... 13,057 13,057 12,055 12,055
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------------------------------
SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------- -------------------
BASIC DILUTED BASIC DILUTED
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET INCOME (LOSS)
Income (loss) from continuing operations................ $ 5,246 $ 5,246 $(6,720) $(6,720)
Interest charges applicable to convertible debt......... -- 72 -- --
------- ------- ------- -------
Income (loss) from continuing operations................ 5,246 5,318 (6,720) (6,720)
Loss from discontinued operations....................... (117) (117) (557) (557)
------- ------- ------- -------
Income (loss) before extraordinary item................. 5,129 5,201 (7,277) (7,277)
Extraordinary item, net................................. (97) (97) -- --
------- ------- ------- -------
Net income (loss)....................................... $ 5,032 $ 5,104 $(7,277) $(7,277)
======= ======= ======= =======
AVERAGE EQUIVALENT SHARES
Weighted average shares outstanding..................... 13,056 13,056 12,045 12,045
Warrants to purchase common shares...................... -- 17 -- --
Convertible debt........................................ -- 1,331 -- --
------- ------- ------- -------
Total average shares equivalent......................... 13,056 14,404 12,045 12,045
======= ======= ======= =======
</TABLE>
Excluded from the diluted earnings per share calculation for the quarter and
nine months ended September 30, 2000 are options to purchase 1,436,980 shares of
the Company's common stock. Additionally, warrants to purchase 1,809,623 and
1,509,623 shares of the Company's common stock as of the quarter and year to
date ended September 30, 2000 were excluded from the diluted earnings per share
calculation. These options and warrants were excluded because they have an
antidilutive effect as their exercise price exceeds the average market price of
the Company's common stock.
NOTE 11--WORKING CAPITAL FUNDING
Beyond 2000, the Company's ability to obtain further funds from external
sources will depend on its ability to find strategic partners and/or
opportunities. Although management of the Company believes that the WWC
acquisition will provide a strategic partnership, there can be no assurance that
the conditions precedent to the merger will be satisfied or that the merger will
be consummated. In the event of the consummation of the merger, there can be no
assurance that external funds would be available or, if available, would not
potentially dilute shareholders' interests or returns.
F-13
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
Wireless WebConnect!, Inc.
We have audited the accompanying balance sheets of Wireless
WebConnect!, Inc. (formerly known as Business Tel, a California partnership) as
of December 31, 1999 and 1998, and the related statements of income, owners'
equity, and cash flows for each of the years in the three year period ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1999 and
1998, and the results of its operations and its cash flows for each of the years
in the three year period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
September 20, 2000
Dallas, Texas
F-14
<PAGE>
WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
BALANCE SHEETS
SEPTEMBER 30, 2000 (UNAUDITED), DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
2000 1999 1998
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 928,024 $ 44,587 $ 63,848
Accounts receivable, net of allowance of $0 for all
periods................................................. 29,063 121,150 125,356
Prepaid expenses and other current assets................. 15,551 17,595 --
---------- -------- --------
Total current assets.................................. 972,638 183,332 189,204
PROPERTY AND EQUIPMENT--Net (Note 2)........................ 37,820 47,215 50,554
DEFERRED TAX ASSET.......................................... 169,086
---------- -------- --------
TOTAL....................................................... $1,179,544 $230,547 $239,758
========== ======== ========
LIABILITIES AND OWNERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 328,951 $ 52,825 $ --
Accrued expenses.......................................... 135,492 4,089 34,073
Note payable.............................................. 250,000
---------- -------- --------
Total current liabilities............................. 714,443 56,914 34,073
COMMITMENTS AND CONTINGENCIES (Note 4)
DEFERRED REVENUE............................................ 419,491
OWNERS' EQUITY:
Common stock, 10,000 shares authorized, issued and
outstanding, no par value, at September 30, 2000........ -- -- --
Paid-in capital........................................... 373,836 -- --
Retained deficit.......................................... (328,226) -- --
Partners' capital......................................... -- 173,633 205,685
---------- -------- --------
Total owners' equity.................................. 45,610 173,633 205,685
---------- -------- --------
TOTAL....................................................... $1,179,544 $230,547 $239,758
========== ======== ========
</TABLE>
See accompanying notes to the financial statements
F-15
<PAGE>
WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
----------------------- ------------------------------------
2000 1999 1999 1998 1997
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE:
Commissions and related.......... $ 705,513 $1,312,881 $1,678,566 $1,311,633 $1,364,162
Services......................... 203,876 133,812 157,660 88,205 17,628
Equipment........................ 206,938 --
Other............................ 1,111 665 16,835 1,684 1,963
---------- ---------- ---------- ---------- ----------
Total revenues................. 1,116,327 1,447,358 1,853,061 1,401,522 1,383,753
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Cost of services and equipment
revenues....................... 442,599 113,648 133,467 74,029 15,009
Selling, general and
administrative................. 928,347 1,216,408 1,685,944 1,207,742 1,309,932
---------- ---------- ---------- ---------- ----------
Total operating expenses....... 1,370,946 1,330,056 1,819,411 1,281,771 1,324,941
---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)............ (253,508) 117,302 33,650 119,751 58,812
INCOME TAX BENEFIT................. 169,086 -- -- -- --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS).................. $ (84,422) $ 117,302 $ 33,650 $ 119,751 $ 58,812
========== ========== ========== ========== ==========
PRO FORMA INCOME TAX BENEFIT
(EXPENSE)........................ 86,000 (40,000) (12,000) (41,000) (20,000)
---------- ---------- ---------- ---------- ----------
PRO FORMA NET INCOME (LOSS)........ $ (167,508) $ 77,302 $ 21,650 $ 78,751 $ 38,812
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to the financial statements
F-16
<PAGE>
WIRELESS WEBCONNECT!, INC. (FORMERLY KNOWN AS BUSINESS TEL)
STATEMENTS OF CHANGES IN OWNERS' EQUITY
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
------------------- RETAINED PARTNERS'
SHARES AMOUNT PAID-IN CAPITAL DEFICIT CAPITAL TOTAL
-------- -------- --------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997................... $ 115,500 $ 115,500
Distributions to partners.................. (73,363) (73,363)
Net income................................. 58,812 58,812
--------- ---------
BALANCE AT DECEMBER 31, 1997................. 100,949 100,949
Distributions to partners.................. (15,015) (15,015)
Net income................................. 119,751 119,751
--------- ---------
BALANCE AT DECEMBER 31, 1998................. 205,685 205,685
Distributions to partners.................. (65,702) (65,702)
Net income................................. 33,650 33,650
--------- ---------
BALANCE AT DECEMBER 31, 1999................. 173,633 173,633
--------- ---------
Net income--January 1, 2000 to May 29, 2000
(unaudited).............................. 243,804 243,804
Distributions (unaudited).................. (43,601) (43,601)
Contribution by partners of partnership net
assets to corporation (unaudited)........ 10,000 $ -- $373,836 (373,836) --
Net loss--May 30, 2000 to September 30,
2000 (unaudited)......................... -- -- -- $(328,226) -- (328,226)
------ -------- -------- --------- --------- ---------
BALANCE AT SEPTEMBER 30, 2000 (unaudited).... 10,000 $ -- $373,836 $(328,226) $ -- $ 45,610
====== ======== ======== ========= ========= =========
</TABLE>
See accompanying notes to the financial statements
F-17
<PAGE>
WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2000, AND 1999 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
---------------------- -------------------------------
2000 1999 1999 1998 1997
----------- -------- --------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss)...................... $ (84,422) $117,302 $ 33,650 $119,751 $ 58,812
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation......................... 12,399 11,514 15,252 11,604 7,010
Deferred tax benefit................. (169,086)
Changes in operating assets and
liabilities:
Accounts receivable.............. 92,087 (5,119) 4,206 (43,015) 12,074
Prepaid expenses and other
current assets................. 2,044 (17,595)
Accounts payable and accrued
expenses....................... 407,529 69,994 22,841 (58,609) 31,336
Deferred revenue................. 419,491
--------- -------- --------- -------- --------
Net cash provided by operating
activities................... 680,042 193,691 58,354 29,731 109,232
--------- -------- --------- -------- --------
INVESTING ACTIVITIES:
Additions to property and equipment.... (3,004) (10,811) (11,913) (30,695) (17,811)
--------- -------- --------- -------- --------
Net cash used in investing
activities................... (3,004) (10,811) (11,913) (30,695) (17,811)
FINANCING ACTIVITIES:
Distributions to partners.............. (43,601) (50,000) (65,702) (15,015) (73,363)
Advances from/(repayments to)
partners............................. -- -- (2,939) 2,939
Proceeds from note payable............. 250,000
--------- -------- --------- -------- --------
Net cash provided by (used in)
financing activities......... 206,399 (50,000) (65,702) (17,954) (70,424)
--------- -------- --------- -------- --------
NET INCREASE (DECREASE) IN CASH.......... 883,437 132,880 (19,261) (18,918) 20,997
CASH, BEGINNING OF PERIOD................ 44,587 63,848 63,848 82,766 61,769
--------- -------- --------- -------- --------
CASH, END OF PERIOD...................... $ 928,024 $196,728 $ 44,587 $ 63,848 $ 82,766
========= ======== ========= ======== ========
</TABLE>
See accompanying notes to the financial statements
F-18
<PAGE>
WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS--Wireless WebConnect!, Inc., (the "Company") was
originally formed in 1996 as Business Tel, a California Partnership. The Company
provides customer acquisition services to Metricom, Inc. ("Metricom") for
Metricom's Ricochet wireless Internet access services and is a reseller of
Metricom's services to selected customers.
On May 30, 2000, the Company was incorporated by the partners contributing
their respective interests in the net assets of the partnership to a newly
formed Florida corporation, Wireless WebConnect!, Inc., in exchange for all of
the corporation's issued and outstanding common stock.
Effective July, 2000, the Company, along with other competitors, will be
marketing and providing Metricom's 128.8 kbps wireless Internet access service.
Additionally, the Company has contracted with Metricom to be the exclusive
provider of 28.8 kbps service to Metricom's existing customers in certain
geographic service areas. A portion of these customers were previously acquired
for Metricom by the Company. The Company has formed strategic relationships with
Metricom and an Internet service provider who together will provide mobile
computer users high speed wireless communications services that will be resold
by the Company.
The Company operates in a highly competitive environment subject to rapid
technological change and emergence of new technology. Although management
believes its services are transferable to emerging technologies, rapid changes
in technology could have an adverse financial impact on the Company. The Company
is highly dependent on Metricom for wireless communication services and the
further deployment of the wireless Internet access network.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting periods. Actual results
could differ from those estimates.
PROPERTY AND EQUIPMENT--Property and equipment are stated at cost.
Depreciation is provided on the straight-line method over the estimated useful
lives of the related assets ranging from five to seven years. Expenditures for
maintenance and repairs are charged to expense as incurred.
LONG-LIVED ASSETS--The Company periodically reviews the values assigned to
long-lived assets, such as property and equipment, to determine if any
impairments have occurred. Provisions for asset impairment are based on
discounted cash flow projections in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" and such assets
are written down to their estimated fair values.
REVENUE RECOGNITION--Prior to July 2000 the Company derived commission
revenue from Metricom for the sale of Metricom's wireless Internet services.
Commission revenues were recognized as customer contracts were delivered to
Metricom. Effective July 2000, the Company began reselling wireless Internet
access devices and service. Revenues for the sale of devices are recognized as
the devices are delivered. Prepaid annual services fees are initially deferred
and recognized as revenue as the services are provided over the related contract
term. Revenues derived from monthly subscribers
F-19
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WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are recognized as the services are provided. Activation fees, which relate only
to month-to-month agreements, are deferred and are recognized over the expected
period of performance, which is estimated to be one year. Management of the
Company believes that the Company's accounting policies comply with Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements."
INCOME TAXES--As a partnership, the partners were taxed on their
proportionate share of the Partnership's income. Therefore, no provision or
liability for federal or state income taxes has been included in these financial
statements, until the Company was incorporated in May 2000. Upon incorporation,
the Company, which has elected a C Corporation tax status, is subject to federal
and state income taxes. Deferred tax assets and liabilities, if any, are
recognized for the future tax consequences attributable to differences between
the carrying amount of existing assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in years in which those temporary differences are expected to reverse.
CONCENTRATIONS OF CREDIT RISK AND REVENUES--Financial instruments that
potentially subject the Company to a concentration of credit risk consist of
accounts receivable. The Company performs periodic credit evaluations of its
customers but generally does not require collateral. All of the Company's
commissions and related revenues were earned from Metricom during the nine
months ended September 30, 2000 (unaudited), and the years ended December 31,
1999 and 1998, and approximately 95% were earned from Metricom during the year
ended December 31, 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amounts of the Company's
financial instruments, which include cash, accounts receivable, accounts
payable, and accrued expenses approximate their fair values due to their
relative short time to maturity.
COMPREHENSIVE INCOME--The Company has no components of other comprehensive
income. Accordingly, comprehensive is the same as net income for the nine months
ended September 30, 2000, and for each of the years ended December 31, 1999,
1998 and 1997.
RECENT ACCOUNTING PRONOUNCEMENTS--In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivatives and Hedging
Activities ("SFAS 133"), which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. SFAS 133, as amended, is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. As the Company does not currently intend to
engage in derivatives or hedging transactions, the Company does not anticipate
any effect on its results of operations, financial position or cash flows upon
the adoption of SFAS 133.
F-20
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WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
2. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
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DECEMBER 31,
SEPTEMBER 30, ---------------------
2000 1999 1998
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment................................. $ 48,222 $ 45,218 $ 38,696
Office furniture and other......................... 36,228 36,228 30,837
--------- --------- ---------
84,450 81,446 69,533
Accumulated depreciation........................... (46,630) (34,231) (18,979)
--------- --------- ---------
$ 37,820 $ 47,215 $ 50,554
========= ========= =========
</TABLE>
Depreciation expense totaled $12,399, $15,252, $11,604 and $7,010 for the
nine months ended September 30, 2000 (unaudited), and for the years ended
December 31, 1999, 1998 and 1997 respectively.
3. PARTNERS' CAPITAL
In addition to distributions, the partners (and subsequent to the
incorporation of the Company, shareholders) received salaries and other payments
which are included in selling, general and administrative expenses totaling
$214,847, $352,321, $213,005 and $368,746 for the nine months ended September
30, 2000 (unaudited) and the years ended December 31, 1999, 1998 and 1997,
respectively.
4. COMMITMENTS AND CONTINGENCIES
At December 31, 1999, the Company was the lessee under month-to-month lease
agreements for office space and equipment. For the nine month period ended
September 30, 2000 (unaudited) and the years ended December 31, 1999, 1998 and
1997, rent expense totaled approximately $65,000, $37,000, $40,600 and $26,400,
respectively.
5. SUBSEQUENT EVENTS
In July and August 2000, the Company entered into three lease agreements for
office space which will require total rental payments of $18,130 for the
remainder of 2000 and $15,722 for 2001.
On August 29, 2000, the Company's shareholders entered into an Agreement and
Plan of Merger with Intellicall, Inc. ("Intellicall") and its wholly owned
subsidiary WWC Acquisition, Inc. whereby the Company's shareholders will
exchange all of their shares of the Company for 16,426,420 shares of Intellicall
common stock. After the combination, the Company's shareholders will own
approximately 56% of the outstanding stock of Intellicall. The transaction is
expected to close by December 31, 2000.
The business combination will be accounted for under the provisions of
Accounting Principles Board Opinion Number 16, Accounting for Business
Combinations as a purchase business combination. Wireless WebConnect! will be
considered the accounting acquirer since the former Wireless WebConnect!
shareholders will control Intellicall through their holdings of approximately
56% of the
F-21
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WIRELESS WEBCONNECT!, INC.
(FORMERLY KNOWN AS BUSINESS TEL)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
5. SUBSEQUENT EVENTS (CONTINUED)
combined outstanding shares of Intellicall common stock and will have control
over the Board of Directors of Intellicall after the merger is effective.
Accordingly, the assets acquired and liabilities assumed will be recorded at
their respective fair values, and any excess purchase price will be recorded as
goodwill. Because Intellicall is the legal acquirer, this is considered a
"reverse acquisition."
Alternatively, if Intellicall's remaining business operations are sold prior
to the combination or if a decision is made to discontinue such operations, the
combination would be accounted for as an acquisition of assets (primarily cash)
rather than as a business combination and no goodwill would be recorded. This
accounting treatment would occur because Intellicall (the acquiree) would have
no continuing operations and Wireless WebConnect! would only be acquiring
tangible net assets consisting primarily of cash. Accordingly, the assets
acquired would be recorded at their estimated fair value with a corresponding
entry to equity for the shares issued.
On August 29, 2000, the Company executed a promissory note with Intellicall
for borrowings up to $1.5 million. The promissory note bears interest at an
annual rate of 8%. The outstanding principal balance of the note and any accrued
unpaid interest are due on August 29, 2001. As of September 30, 2000, the
Company borrowed $250,000 under the terms of the promissory note. Under the
terms of the Agreement and Plan of Merger with Intellicall upon completion of
the merger all accrued interest and outstanding principal will be forgiven.
F-22
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APPENDIX A
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INTELLICALL, INC.
WWC ACQUISITION, INC.
WIRELESS WEBCONNECT!, INC.
AND
THE SHAREHOLDERS OF WIRELESS WEBCONNECT!, INC.
DATED AS OF AUGUST 29, 2000
<PAGE>
TABLE OF CONTENTS
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ARTICLE I. THE MERGER.................................................. 2
Section 1.1 The Merger.................................................. 2
Section 1.2 Effective Time of the Merger................................ 2
Section 1.3 Conversion and Cancellation of Securities................... 2
Section 1.4 Exchange and Surrender of Certificates...................... 3
ARTICLE II. LOAN........................................................ 4
Section 2.1 Loan from Parent to the Company............................. 4
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY............... 5
Section 3.1 Organization; Authority; and Ownership...................... 5
Section 3.2 No Breach................................................... 5
Section 3.3 Consents and Approvals...................................... 6
Section 3.4 Capitalization.............................................. 6
Section 3.5 Financial Statements........................................ 6
Section 3.6 Absence of Certain Changes.................................. 7
Section 3.7 Absence of the Undisclosed Liabilities...................... 7
Section 3.8 Compliance with Law......................................... 7
Section 3.9 Taxes....................................................... 7
Section 3.10 Absence of Litigation....................................... 8
Section 3.11 Title to Property........................................... 8
Section 3.12 Intellectual Property....................................... 9
Section 3.13 Employee Benefit Plans...................................... 10
Section 3.14 Material Contracts.......................................... 12
Section 3.15 Labor Matters............................................... 14
Section 3.16 Environmental Matters....................................... 15
Section 3.17 Insurance................................................... 16
Section 3.18 Vote Required............................................... 16
Section 3.19 Certain Business Practices.................................. 16
Section 3.20 Customers and Suppliers..................................... 16
Section 3.21 Bank Accounts............................................... 16
Section 3.22 Year 2000 Issues............................................ 17
Section 3.23 Proxy Statement and Other Information....................... 17
Section 3.24 Brokers and Finders......................................... 17
ARTICLE IV. REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS.......... 17
Section 4.1 Authority and Ownership..................................... 17
Section 4.2 No Breach................................................... 18
Section 4.3 Consents and Approvals...................................... 18
Section 4.4 Brokers and Finders......................................... 18
Section 4.5 Investment Representation................................... 18
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB..... 19
Section 5.1 Organization and Authority.................................. 19
Section 5.2 No Breach................................................... 20
Section 5.3 Consents and Approvals...................................... 20
</TABLE>
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Section 5.4 Capitalization.............................................. 20
Section 5.5 SEC Reports; Financial Statements........................... 21
Section 5.6 Absence of Certain Changes.................................. 21
Section 5.7 Title to Property........................................... 21
Section 5.8 Brokers..................................................... 22
Section 5.9 Employee Benefit Plans...................................... 22
Section 5.10 Labor Matters............................................... 24
Section 5.11 Environmental Matters....................................... 25
ARTICLE VI. OTHER AGREEMENTS............................................ 26
Section 6.1 Election of New Parent Directors and Officers............... 26
Section 6.2 Conduct of Business Pending Merger.......................... 26
Section 6.3 Access to Information....................................... 28
Section 6.4 Preparation of Proxy Statement.............................. 29
Section 6.5 AMEX Exchange Listing....................................... 29
Section 6.6 Reasonable Best Efforts..................................... 29
Section 6.7 Public Announcements; Confidentiality....................... 30
Section 6.8 Notification................................................ 30
Section 6.9 No Solicitation............................................. 30
Section 6.10 Regulatory and Other Authorizations......................... 31
Section 6.11 Further Assurances.......................................... 32
Section 6.12 Assumed Options............................................. 32
Section 6.13 Letter from Accountants..................................... 33
Section 6.14 Employee Benefits........................................... 33
Section 6.15 Piggyback Registration Rights............................... 33
Section 6.16 Delivery of Certain Documents............................... 35
ARTICLE VII. CLOSING AND CLOSING DATE; CONDITIONS TO CLOSING............. 35
Section 7.1 Closing and Closing Date.................................... 35
Section 7.2 Conditions to the Obligations of the Company, Parent and 35
Merger Sub................................................
Section 7.3 Additional Conditions to Obligations of Parent and Merger 36
Sub.......................................................
Section 7.4 Additional Conditions to Obligations of the Company......... 37
ARTICLE VIII. TERMINATION................................................. 38
Section 8.1 Termination................................................. 38
Section 8.2 Effect of Termination....................................... 40
Section 8.3 Fees and Expenses........................................... 40
ARTICLE IX. INDEMNIFICATION............................................. 40
Section 9.1 Indemnification by Shareholders............................. 41
Section 9.2 Conditions of Indemnification............................... 41
ARTICLE X. MISCELLANEOUS............................................... 42
Section 10.1 Survival of Representations and Warranties and 42
Indemnification...........................................
Section 10.2 Amendment................................................... 42
Section 10.3 Waiver...................................................... 43
Section 10.4 Entire Agreement............................................ 43
Section 10.5 Notices..................................................... 43
Section 10.6 Governing Law............................................... 44
Section 10.7 Descriptive Headings........................................ 44
</TABLE>
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<S> <C> <C>
Section 10.8 Parties in Interest......................................... 44
Section 10.9 Counterparts................................................ 44
Section 10.10 Certain Definitions......................................... 45
Section 10.11 Binding Effect, Assignment.................................. 45
Section 10.12 Severability................................................ 45
Section 10.13 Specific Performance........................................ 46
Section 10.14 Legal Fees; Costs........................................... 46
Section 10.15 Failure or Indulgence Not Waiver; Remedies Cumulative....... 46
Section 10.16 Shareholder Releases; Consent............................... 46
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT"), dated as of
August 29, 2000, is made by and among Wireless WebConnect!, Inc., a Florida
corporation (the "COMPANY"), each of the shareholders of the Company, all of
whom are set forth on EXHIBIT A (the "SHAREHOLDERS"), Intellicall, Inc., a
Delaware corporation (the "PARENT"), and WWC Acquisition, Inc., a Florida
corporation and wholly-owned subsidiary of Parent ("MERGER SUB").
W I T N E S S E T H:
WHEREAS, Merger Sub will merge with and into the Company (the "MERGER")
pursuant to the Florida Business Corporation Act (the "FBCA") and upon the terms
and subject to the conditions set forth in this Agreement, and pursuant thereto
each outstanding share of Common Stock of the Company, par value $.01 per share
(the "COMPANY COMMON STOCK"), not owned directly or indirectly by the Company or
Parent or their respective subsidiaries will be converted into the number of
shares of Common Stock of Parent, par value $.01 per share (the "PARENT COMMON
STOCK"), to be determined in the manner set forth herein;
WHEREAS, the Board of Directors of the Company has determined that the
Merger is fair to, and in the best interests of, the Company and its
shareholders and has approved this Agreement and the transactions contemplated
hereby and recommended approval of this Agreement by the Shareholders and the
Shareholders have approved this Agreement and the transactions contemplated
hereby;
WHEREAS, the Board of Directors of Parent has determined that the Merger is
fair to, and in the best interests of, Parent and its stockholders and has
approved this Agreement and the transactions contemplated hereby and recommended
approval by the stockholders of Parent of the issuance of Parent Common Stock in
connection with this Agreement;
WHEREAS, the Board of Directors of Merger Sub has approved this Agreement
and Parent, as the sole stockholder of Merger Sub, will approve this Agreement
promptly after the execution hereof by the parties hereto; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
qualify as a reorganization under the provisions of Section 368(a) of the United
States Internal Revenue Code of 1986, as amended (the "CODE");
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants, agreements and conditions set forth below, the parties
hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I.
THE MERGER
Section 1.1 THE MERGER.
(a) Subject to the terms and conditions hereof and in accordance with the
FBCA, at the Effective Time (as defined in Section 1.2): (i) Merger Sub shall be
merged with and into the Company and the separate existence of Merger Sub shall
cease; (ii) the Company, as the surviving corporation in the Merger (the
"SURVIVING CORPORATION"), (A) shall be a wholly-owned subsidiary of Parent,
(B) shall continue its corporate existence under the laws of the State of
Florida, and (C) shall succeed to all rights, assets, liabilities and
obligations of Merger Sub and the Company in accordance with the FBCA;
(iii) the Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall remain the articles of incorporation of the
Surviving Corporation; (iv) the bylaws of the Company,
A-1
<PAGE>
as in effect immediately prior to the Effective Time, shall remain the bylaws of
the Surviving Corporation; (v) the directors of the Merger Sub immediately prior
to the Effective Time shall be the directors of the Surviving Corporation, each
to hold office in accordance with the articles of incorporation and bylaws of
the Surviving Corporation, and (vi) the officers of the Merger Sub immediately
prior to the Effective Time shall be the officers of the Surviving Corporation,
each to hold office in accordance with the bylaws of the Surviving Corporation,
in each case until their respective successors are duly elected or appointed and
qualified. From and after the Effective Time, the Merger shall have all the
effects provided by applicable law.
(b) At the Effective Time: (i) the Articles of Incorporation of Parent shall
be amended to change the name of Parent to Wireless WebConnect!, Inc. and
increase the authorized shares of Parent Common Stock.
Section 1.2 EFFECTIVE TIME OF THE MERGER. As soon as practicable after the
Closing Date (as defined in Section 7.1 hereof) the parties shall cause the
Merger to be consummated by filing Articles of Merger (the "ARTICLES OF MERGER")
with the Secretary of State of Florida, in such form as required by, and
executed in accordance with the relevant provisions of, the FBCA, (the date and
time of such filing, or such later date or time agreed upon by Parent and the
Company and set forth therein, being called the "EFFECTIVE TIME").
Section 1.3 CONVERSION AND CANCELLATION OF SECURITIES.
(a) At the Effective Time, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time (other than shares of
Company Common Stock described in Section 1.3(b) hereof) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into the number of shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock held by a Shareholder multiplied by
1,642.642 (the "EXCHANGE RATIO"). Set forth across from the name of each
Shareholder on EXHIBIT A, is the number of shares of Company Common Stock owned
by each Shareholder immediately before the Merger and the number of shares of
Parent Common Stock to be owned immediately after the Merger.
(b) At the Effective Time, each share of Company Common Stock held in the
treasury of the Company and each share of Company Common Stock owned by Parent
or any direct or indirect wholly-owned subsidiary of the Company or Parent
immediately prior to the Effective Time, shall by virtue of the Merger and
without any action on the part of the holder thereof, be automatically canceled
and retired and cease to exist, and no cash, securities or other property shall
be payable in respect thereof.
(c) At the Effective Time, each share of Merger Sub common stock, par value
$.01 per share ("MERGER SUB COMMON STOCK"), validly issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action by the holder thereof, be converted into one validly issued,
fully paid and nonassessable share of Common Stock, par value $.01 per share, of
the Surviving Corporation ("SURVIVING CORPORATION COMMON STOCK").
(d) Notwithstanding the foregoing, if between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock or Company
Common Stock shall have been changed into a different number of shares or a
different class, by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
Section 1.4 EXCHANGE AND SURRENDER OF CERTIFICATES.
(a) As soon as practicable after the Effective Time, upon the proper
surrender of certificates previously representing shares of Company Common Stock
(the "CERTIFICATES") to Parent, together with
A-2
<PAGE>
a properly completed and duly executed letter of transmittal and such other
documents as may be reasonably required by Parent, subject to Section 1.4(h) the
Shareholder shall be entitled to receive in exchange therefor certificates
representing the shares of Parent Common Stock that Shareholder has the right to
receive pursuant to the terms hereof (together with any dividend or distribution
with respect thereto made after the Effective Time), and the Certificates so
surrendered shall be canceled.
(b) Except as specified in Section 1.4(f), after the Effective Time, each
outstanding Certificate which theretofore represented shares of Company Common
Stock shall, until surrendered for exchange in accordance with this Section 1.4,
be deemed for all purposes to evidence ownership of the number of full shares of
Parent Common Stock into which the shares of Company Common Stock (which, prior
to the Effective Time, were represented thereby) shall have been so converted.
(c) At the Effective Time, the stock transfer books of the Company shall be
closed and no transfer of shares of Company Common Stock shall thereafter be
made.
(d) None of Parent, Merger Sub, the Company or the Surviving Corporation
will be liable to any holder of shares of Company Common Stock for any shares of
Parent Common Stock, dividends or distributions with respect thereto delivered
to a state abandoned property administrator or other public official pursuant to
any applicable abandoned property, escheat or similar law.
(e) If any Certificates shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificates to
be lost, stolen or destroyed, and delivery of such bond or other indemnity as
Parent may reasonably request, Parent will deliver in exchange for such lost,
stolen or destroyed Certificates one or more certificates representing the
Parent Common Stock deliverable in respect thereof, as determined in accordance
with the terms hereof.
(f) No dividend or other distribution declared or made with respect to the
Parent Common Stock with a record date after the Effective Time shall be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock issuable upon surrender thereof until the holder of such
Certificate shall surrender such Certificate in accordance with Section 1.4(a).
Subject to the effect of applicable law, following surrender of any such
Certificate there shall be paid, without interest, to the record holder of each
certificate representing whole shares of Parent Common Stock issued in exchange
therefor: (i) at the time of such surrender, the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of Parent Common Stock, and (ii) at the appropriate
payment date, the amount of dividends or other distributions with a record date
after the Effective Time but prior to surrender of such Certificate and a
payment date subsequent to such surrender payable with respect to such whole
shares of Parent Common Stock.
(g) Parent shall be entitled to deduct and withhold from the consideration
otherwise payable pursuant to this Agreement to any former holder of Company
Common Stock such amounts as Parent is required to deduct and withhold with
respect to the making of such payment under the Code, or any other provision of
federal, state, local or foreign tax law. To the extent that amounts are so
withheld by Parent, the withheld amounts shall be treated for all purposes of
this Agreement as having been paid to the former holder of the Company Common
Stock Shares in respect of which such deduction and withholding was made by
Parent.
(h) Notwithstanding anything to the contrary in this Agreement, Parent shall
withhold in the aggregate 1,642,642 of the shares (10%) of Parent Common Stock
to be issued to the Shareholders pursuant to this Agreement (the "ESCROWED
SHARES"), which shall be held pursuant to the terms of the Escrow Agreement in
the form attached hereto as EXHIBIT B (the "ESCROW AGREEMENT").
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ARTICLE II.
LOAN
Section 2.1 LOAN FROM PARENT TO THE COMPANY. Upon the execution and
delivery of this Agreement: (i) Parent shall execute and deliver to the Company
that certain Promissory Note attached hereto as EXHIBIT C (the "NOTE"); and
(ii) Parent and the Company shall execute and deliver that certain related
Security Agreement, the form of which is attached hereto as EXHIBIT D (the
"SECURITY AGREEMENT") and all related financing statements.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent as follows:
Section 3.1 ORGANIZATION; AUTHORITY; AND OWNERSHIP.
(a) The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Florida, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing would not have a Company Material Adverse Effect.
(The term "COMPANY MATERIAL ADVERSE EFFECT" as used in this Agreement shall mean
any change or effect that, individually or when taken together with all other
such changes or effects, would be materially adverse to the financial condition,
operations or current business of the Company, excluding, however, all changes
or effects caused by general economic or industry-wide conditions or resulting
from any change in law or GAAP (as defined in Section 3.5).) The Company has
delivered true and complete copies of its articles of incorporation and bylaws
to Parent. The Company has all requisite corporate power and authority to
execute and deliver this Agreement, Note and Security Agreement (collectively,
the "OTHER DOCUMENTS") and to consummate the transactions contemplated hereby
and thereby. All necessary action, corporate or otherwise, required to have been
taken by or on behalf of it by applicable law, its articles of incorporation or
otherwise to authorize (i) the approval, execution and delivery on its behalf of
this Agreement and Other Documents and (ii) its performance of its obligations
under this Agreement and Other Documents and the consummation of the
transactions contemplated hereby and thereby have been taken. This Agreement and
Other Documents constitute the Company's valid and binding agreement,
enforceable against the Company in accordance with its terms, except (A) as the
same may be limited by applicable bankruptcy, insolvency, moratorium or similar
laws of general application relating to or affecting creditors' rights,
including without limitation, the effect of statutory or other laws regarding
fraudulent conveyances and preferential transfer, and (B) for the limitations
imposed by general principles of equity.
(b) The Company does not have any subsidiaries (as that term is defined in
Section 10.10). Except as disclosed in SECTION 3.1(B) OF THE COMPANY DISCLOSURE
SCHEDULE, the Company does not directly or indirectly own any interest in any
other corporation, partnership, joint venture or other business association or
entity.
Section 3.2 NO BREACH. Assuming the consents described in SECTION 3.3 OF
THE COMPANY DISCLOSURE SCHEDULE are obtained, the execution and delivery of this
Agreement and Other Documents do not, and the consummation of the transactions
contemplated hereby and thereby will not, (i) violate or conflict with the
Company's articles of incorporation or bylaws or (ii) constitute a breach or
default (or an event that with notice or lapse of time or both would become a
breach or default) or give rise to any lien, third party right of termination,
cancellation, material modification or acceleration under any
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agreement, understanding or undertaking to which the Company or any subsidiary
is a party or by which it is bound, or (iii) constitute a violation of any law,
rule or regulation to which the Company is subject.
Section 3.3 CONSENTS AND APPROVALS. Except as set forth in SECTION 3.3 OF
THE COMPANY DISCLOSURE SCHEDULE, neither the execution and delivery by the
Company of this Agreement or the Other Documents nor the consummation by the
Company of the transactions contemplated hereby or thereby will require the
Company to obtain any consent, approval, authorization or permit of, or to make
any filing with or give any notification to, any governmental or regulatory
authority, any lender or lessor or any other person or entity.
Section 3.4 CAPITALIZATION.
(a) The Company's authorized capital stock consists of 10,000 shares of
Company Common Stock, of which 10,000 were issued and outstanding as of June 30,
2000 (with zero shares held in treasury). Since June 30, 2000, no shares of
Company Common Stock were issued. As of June 30, 2000, except for the option
plan set forth in SECTION 3.13(J) OF THE COMPANY DISCLOSURE SCHEDULE, there were
no outstanding options and warrants to purchase shares of Company Common Stock
and no warrants or option were issued after June 30, 2000. Each of the issued
shares of capital stock of the Company is duly authorized, validly issued and
fully paid and nonassessable, and has not been issued in violation of (nor are
any of the authorized shares of capital stock of, or other equity interests in,
the Company subject to) any preemptive or similar rights created by statute, the
articles of incorporation or bylaws of the Company, or any agreement to which
the Company is a party or is bound. Except for such stock options and warrants,
there are no existing options, warrants, calls, subscriptions, or other rights
or other agreements or commitments obligating the Company to issue, transfer or
sell any shares of capital stock of the Company. There are no voting trusts or
other agreements or understandings to which the Company is a party with respect
to the capital stock of the Company.
(b) No bonds, debentures, notes or other indebtedness of the Company having
the right to vote (or convertible into or exchangeable or exercisable for
securities having the right to vote) on any matters on which shareholders may
vote is issued or outstanding.
Section 3.5 FINANCIAL STATEMENTS. The Company will deliver to Parent true
and complete copies of (i) Business Tel, a predecessor of the Company
("PREDECESSOR") balance sheets as of December 31, 1998 and 1999, (ii) Business
Tel's statements of operations, stockholders' equity and cash flows for each of
the three fiscal years in the period ended December 31, 1999 and (iii) the notes
thereto, within five (5) business days of the date of this Agreement. Such
financial statements will be prepared in accordance with United States generally
accepted accounting principles applied on a consistent basis with prior periods
("GAAP") and present fairly Business Tel's and the Company's financial position
and the results of its operations and cash flows as of the relevant dates
thereof and for the periods covered thereby. The Company has also delivered to
Parent true and complete copies of (i) Predecessor's and its balance sheets as
of June 30, 1999 and June 30, 2000, respectively, (ii) Predecessor's and its
consolidated statements of operations, stockholder's equity and cash flows for
the six months ended June 30, 1999 and 2000, respectively, and (iii) the notes
thereto. Such unaudited financial statements were prepared in accordance with
GAAP, and present fairly the Company's financial position and the results of its
operations and cash flows as of the relevant dates thereof and for the periods
covered thereby, subject to year-end adjustments.
Section 3.6 ABSENCE OF CERTAIN CHANGES. Except as otherwise disclosed in
SECTION 3.6 OF THE COMPANY DISCLOSURE STATEMENT, since December 31, 1999 there
have not been any events or conditions of any character that, individually or in
the aggregate, have or would reasonably be expected to have a Company Material
Adverse Effect. During the period from December 31, 1999 to the date of this
Agreement, the Company has not engaged in any conduct that is proscribed during
the period from the date of this Agreement to the Effective Time by clauses
(i) through (x) of Section 6.2(b).
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Section 3.7 ABSENCE OF THE UNDISCLOSED LIABILITIES. Except as set forth in
SECTION 3.7 OF THE COMPANY DISCLOSURE SCHEDULE, there exist no indebtedness,
liabilities or obligations of the Company whether accrued, contingent or
otherwise, which would be required under GAAP to be reflected or disclosed on a
financial statement of the Company other than (i) that reflected or reserved
against in the balance sheet dated as of June 30, 2000, delivered to Parent or
(ii) that have or will occur after June 30, 2000, in the ordinary course of
business and are of the types and in the material amounts as set forth in the
June 30, 2000 balance sheet.
Section 3.8 COMPLIANCE WITH LAW. The Company holds all licenses,
franchises, certificates, consents, permits and authorizations from all
governmental authorities necessary for the lawful conduct of its business. The
Company has not violated, nor is it in violation of, any such licenses,
franchises, certificates, consents, permits or authorizations or, any applicable
statutes, laws, ordinances, rules and regulations (including, without
limitation, any of the foregoing related to occupational safety, environmental
protection, unfair competition, labor practices or corrupt practices) of any
governmental authorities except where such violations do not, and insofar as
reasonably can be foreseen will not, have a Company Material Adverse Effect, and
the Company has not received any notice from a governmental or regulatory
authority within three years of the date hereof of any such violation.
Section 3.9 TAXES.
(a) All Tax Returns required to be filed before the date hereof by the
Company with respect to any of its income, properties or operations, are in all
material respects true, complete and correct and have been duly filed in a
timely manner, and all taxes shown as due on such Tax Returns have been paid,
except where the failure to so file or pay would not have a Company Material
Adverse Effect. For purposes of this Agreement, "TAX RETURN" means any return,
report, statement, information statement and the like required to be filed with
any authority with respect to any tax imposed by any governmental authority;
"TAX" means any tax of any nature whatsoever, levy, assessment, tariff, duty,
deficiency, or other fee, any amount that is required to be withheld or
collected and remitted to any Governmental Entity pursuant to applicable law,
and any related charge or amount (including any fine, penalty, interest or
addition to tax), imposed, assessed or collected by or under the authority of
any Governmental Entity or payable pursuant to any tax-sharing agreement or
other contract relating to the sharing or payment of any Tax; and "GOVERNMENTAL
ENTITY" means any (i) national, state, county, city, district, or other
jurisdiction of any nature; (ii) federal, state, local, municipal, foreign, or
other government; (iii) governmental or quasi-governmental authority of any
nature; (iv) multinational organization or body; or (v) body exercising, or
entitled to exercise, any administrative, executive, judicial, legislative,
police, regulatory, or taxing authority or power of any nature.
(b) The amount of the Company's liability for unpaid Taxes does not in the
aggregate, exceed the Company's current liability accrual for Taxes.
(c) To the Company's knowledge, (i) there are no claims, investigations or
assessments pending or threatened against the Company for any alleged deficiency
in taxes, (ii) there is no audit or investigation currently being conducted that
could cause the Company to be liable for any taxes, which in any case would have
a Company Material Adverse Effect; and (iii) and no Governmental Entity has
proposed in writing any adjustment relating to any Tax Return that has not been
adequately provided for or satisfied.
(d) The Company has complied in all material respects with all Tax
withholding provisions of applicable federal, state and local laws and have paid
over to the proper governmental authorities all amounts required to be so
withheld or paid over before the date hereof, except where the failure to so
withhold or pay would not have a Company Material Adverse Effect.
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(e) The Company has never been a member of an affiliated group as defined in
Code Section 1504 nor has the Company ever been a party to any tax-sharing
agreement with any entity, or assumed the liability of any other person for the
payment of any Taxes.
(f) The Company has not filed a consent pursuant to Section 341(f) of the
Code (or any corresponding provision of state, local or foreign income tax law).
The Company has not made any payments, is not obligated to make any payments,
nor is a party to any agreement that under certain circumstances could obligate
it to make any payments that will not be deductible under Code Section 280G.
Section 3.10 ABSENCE OF LITIGATION. There are no claims, actions, suits,
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the Company, or any properties or rights of the Company,
before any court, arbitrator or administrative, governmental or regulatory
authority or body, domestic or foreign.
Section 3.11 TITLE TO PROPERTY.
(a) REAL PROPERTY. A description of all interests in real property owned by
the Company (collectively, the "COMPANY REAL PROPERTY") is set forth in SECTION
3.11(A) OF THE COMPANY DISCLOSURE SCHEDULE. Except as set forth in SECTION
3.11(A) OF THE COMPANY DISCLOSURE SCHEDULE, the Company has good, valid and
marketable title to all the Company Real Property. The Company Real Property and
the leased real property referred to in Section 3.11(c) constitute the only real
property used in the conduct of the business of the Company.
(b) PERSONAL PROPERTY. Except as set forth in SECTION 3.11(B) OF THE
COMPANY DISCLOSURE SCHEDULE, the Company has good, valid and marketable title to
all tangible and intangible personal property owned by it (collectively, the
"COMPANY PERSONAL PROPERTY"). The Company Personal Property and the leased
personal property referred to in Section 3.11(c) constitute the only personal
property used in the conduct of the business of the Company.
(c) LEASES. A list and brief description of all leases of real and
personal property to which the Company is a party, either as lessor or lessee,
are set forth in SECTION 3.11(C) OF THE COMPANY DISCLOSURE SCHEDULE. All such
leases are valid and enforceable in accordance with their respective terms
except as may be limited by applicable bankruptcy, insolvency or similar laws
affecting creditors' rights generally or the availability of equitable remedies.
(d) RIGHT TO USE ASSETS. The Company owns, leases or otherwise possesses a
right to use all assets used in the conduct of the business of the Company,
which will not be impaired by the consummation of the transactions contemplated
hereby.
Section 3.12 INTELLECTUAL PROPERTY.
(a) OWNERSHIP. The Company owns all patents, trade-marks, service marks
and copyrights, if any, necessary to conduct its business, or possesses adequate
licenses or other rights, if any, therefor, without conflict with the rights of
others. Set forth in SECTION 3.12(A) OF THE COMPANY DISCLOSURE SCHEDULE is a
true and correct description of the following (the "COMPANY PROPRIETARY
RIGHTS"):
(i) all trade-marks, trade-names, service marks and other trade
designations, including common law rights, registrations and applications
therefor, and all patents, copyrights and applications currently owned, in
whole or in part, by the Company with respect to the business of the
Company, and all licenses, royalties, assignments and other similar
agreements relating to the foregoing to which the Company is a party
(including expiration date if applicable); and
(ii) all agreements relating to technology, know-how or processes that
the Company is licensed or authorized to use by others, or which it licenses
or authorizes others to use.
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(b) CONFLICTING RIGHTS OF THIRD PARTIES. The Company has the sole and
exclusive right to use the Company Proprietary Rights without infringing or
violating the rights of any third parties. Use of the Company Proprietary Rights
does not require the consent of any other person and the Company Proprietary
Rights are freely transferable. No claim has been asserted by any person to the
ownership of or right to use any Company Proprietary Right or challenging or
questioning the validity or effectiveness of any license or agreement
constituting a part of any Company Proprietary Right, and the Company does not
know of any valid basis for any such claim. Each of the Company Proprietary
Rights is valid and subsisting, has not been cancelled, abandoned or otherwise
terminated and, if applicable, has been duly issued or filed.
(c) CLAIMS OF OTHER PERSONS. The Company has no knowledge of any claim
that, or inquiry as to whether, any product, activity or operation of the
Company infringes upon or involves, or has resulted in the infringement of, any
proprietary right of any other person, company or other entity; and no
proceedings have been instituted, are pending or are threatened that challenge
the rights of the Company with respect thereto. The Company has not given and is
not bound by any agreement of indemnification for any Company Proprietary Right
as to any property manufactured, used or sold by it.
Section 3.13 EMPLOYEE BENEFIT PLANS.
(a) SECTION 3.13(A) OF THE COMPANY DISCLOSURE SCHEDULE lists all employee
benefit plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
employee of the Company, any trade or business (whether or not incorporated)
which is a member of a controlled group including the Company or which is under
common control with the Company (a "COMPANY ERISA AFFILIATE") within the meaning
of section 414 of the Code, as well as each plan with respect to which the
Company or a Company ERISA Affiliate could incur liability under Section 4069
(if such plan has been or was terminated) or Section 4212(c) of ERISA (together,
the "COMPANY BENEFIT PLANS"), excluding former agreements under which the
Company has no unpaid obligations. Copies of each of the following, to the
extent applicable, have been made available to Parent with respect to each
Company Benefit Plan: the most recent annual report (Form 5500) filed with the
Internal Revenue Service (the "IRS"), the plan document, the trust agreement,
the most recent summary plan description if required by ERISA, the most recent
actuarial report or valuation relating to each Company Benefit Plan subject to
Title IV of ERISA, and the most recent determination letter issued by the IRS
with respect to any Company Benefit Plan intended to be qualified under section
401 of the Code.
(b) With respect to each Company Benefit Plan, no event has occurred and, to
the knowledge of the Company, there exists no condition or set of circumstances
in connection with which the Company could be subject to any liability under the
terms of such Company Benefit Plan, ERISA, the Code, or any other applicable
law.
(c) Each Company Benefit Plan intended to be qualified under section 401 of
the Code (i) satisfies in form the requirements of such section except to the
extent amendments are not required by law to be made until a date after the
Effective Time, (ii) has received a favorable determination letter from the IRS
regarding such qualified status, and (iii) has not, since receipt of the most
recent favorable determination letter, been amended in a way that would
adversely affect its qualified status.
(d) There are no actions, suits, or claims pending (other than routine
claims for benefits) or, to the knowledge of the Company, threatened against, or
with respect to, any Company Benefit Plan.
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(e) To the knowledge of the Company, there is no matter pending (other than
routine qualification determination filings) with respect to any Company Benefit
Plans before the IRS, the U.S. Department of Labor, the Pension Benefit Guaranty
Corporation (the "PBGC") or any other governmental authority.
(f) All material contributions required to be made to Company Benefit Plans
pursuant to their terms and the provisions of ERISA, the Code, or any other
applicable law have been timely made.
(g) As to each Company Benefit Plan subject to Title IV of ERISA, (i) there
has been no event or condition which presents a significant risk of plan
termination, (ii) no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or section 412 of the Code has been
incurred, (iii) no reportable event within the meaning of Section 4043 of ERISA
(for which the disclosure requirements of Regulation section 4043.1 et seq.,
promulgated by the PBGC, have not been waived) has occurred within six years
prior to the date of this Agreement, (iv) no notice of intent to terminate such
Company Benefit Plan has been given under Section 4041 of ERISA, (v) no
proceeding has been instituted under Section 4042 of ERISA to terminate such
Company Benefit Plan, (vi) no liability to the PBGC has been incurred (other
than with respect to required premium payments), (vii) no withdrawal liability,
within the meaning of Section 4201 of ERISA, has been incurred, which withdrawal
liability has not been satisfied, and (viii) the assets of the Company Benefit
Plan equal or exceed the actuarial present value of the benefit liabilities,
within the meaning of Section 4041 of ERISA, under the Company Benefit Plan,
based upon reasonable actuarial assumptions and the asset valuation principles
established by the PBGC for the termination of such plans.
(h) No Company Benefit Plan provides retiree medical or retiree life
insurance benefits to any person.
(i) Neither the Company nor any Company ERISA Affiliate contributes or has
an obligation to contribute, and has not within six years prior to the date of
this Agreement contributed or had an obligation to contribute to, a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(j) SECTION 3.13(J) OF THE COMPANY DISCLOSURE SCHEDULE sets forth a true and
complete list, as of the date of this Agreement, of each current or former
employee, officer or director of the Company who holds any option to purchase
Company Common Stock (collectively, the "COMPANY STOCK OPTIONS"), together with
the number of shares of Company Common Stock which are subject to such option,
the date of grant of such option, the extent to which such option is vested (or
will become vested within six months after the date hereof, or as a result of,
the Merger), the option price of such option (to the extent determined as of the
date hereof), whether such option is intended to qualify as an incentive stock
option within the meaning of Section 422(b) of the Code (an "ISO"), and the
expiration date of such option. SECTION 3.13(J) OF THE COMPANY DISCLOSURE
SCHEDULE also sets forth the total number of such ISOs and such nonqualified
options. The Company has furnished Parent with complete copies of the plans
(collectively, the "COMPANY OPTION PLANS") pursuant to which the Company Stock
Options were issued.
(k) The Company has made available to Parent: (i) copies of all employment
agreements with officers of the Company; (ii) a schedule listing all officers of
the Company who have executed a non-competition agreement with the Company;
(iii) copies (or descriptions) of all severance agreements, programs and
policies of the Company with or relating to its employees, except programs and
policies required to be maintained by law; and (iv) copies of all plans,
programs, agreements and other arrangements of the Company with or relating to
its employees which contain change in control provisions.
(l) Except as set forth in SECTION 3.13(L) OF THE COMPANY DISCLOSURE
STATEMENT, the consummation of the transactions will not (i) entitle any
employees of the Company to severance pay or (ii) accelerate the time of payment
or vesting or trigger any payment or funding (through a grantor trust or
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otherwise) of compensation or benefits under, increase the amount payable or
trigger any other material obligation pursuant to, any of the Company Benefit
Plans.
Section 3.14 MATERIAL CONTRACTS.
(a) SECTION 3.14(A) OF THE COMPANY DISCLOSURE SCHEDULE contains a complete
and accurate list, and the Company has delivered to Parent true and complete
copies, of the following (each a "COMPANY MATERIAL CONTRACT"):
(i) partnership or joint venture agreement;
(ii) deed of trust or other security agreement;
(iii) guaranty or suretyship, indemnification or contribution agreement
or performance bond;
(iv) employment, consulting or compensation agreement or arrangement,
including the election or retention in office of any director or officer;
(v) labor or collective bargaining agreement;
(vi) debt instrument, loan agreement or other obligation relating to
indebtedness for borrowed money or money lent or to be lent to another;
(vii) deed or other document evidencing an interest in or contract to
purchase or sell real property;
(viii) agreement with dealers or sales or commission agents, public
relations or advertising agencies, accountants or attorneys;
(ix) lease of real or personal property, whether as lessor, lessee,
sublessor or sublessee;
(x) agreement between the Company and any affiliate of the Company;
(xi) agreement relating to any material matter or transaction in which
an interest is held by a person or entity that is an affiliate of the
Company;
(xii) any agreement for the acquisition of services, supplies,
equipment or other personal property by or to the Company and involving more
than $5,000 in the aggregate;
(xiii) powers of attorney;
(xiv) contracts containing noncompetition covenants;
(xv) any other contract or arrangement that involves either an
unperformed commitment in excess of $5,000 or that terminates more than 30
days after the date hereof;
(xvi) agreement providing for the purchase from a supplier of all or
substantially all of the requirements of the Company of a particular product
or service; or
(xvii) any other agreement or commitment not made in the ordinary course
of business or that is material to the business or financial condition of
the Company.
True, correct and complete copies of the written Company Material Contracts, and
true, correct and complete written descriptions of the oral Company Material
Contracts, have heretofore been delivered or made available to Parent. There are
no existing defaults, events of default or events, occurrences, acts or
omissions that, with the giving of notice or lapse of time or both, would
constitute defaults by the Company, and no penalties have been incurred nor are
amendments pending, with respect to the Company Material Contracts, except as
described in SECTION 3.14(A) OF THE COMPANY DISCLOSURE SCHEDULE. The Company
Material Contracts are in full force and effect and are valid and enforceable
obligations of the parties thereto in accordance with their respective terms,
and no defenses, off-sets or counterclaims have been asserted or, to the best
knowledge of the Company, may be made by any party thereto, nor has the Company
waived any rights thereunder, except as described in SECTION 3.14(A) OF THE
COMPANY DISCLOSURE SCHEDULE. The Company has not received notice of any default
with respect to any Company Material Contracts.
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(b) NO CANCELLATION OR TERMINATION OF COMMITMENT. Except as contemplated
hereby, the Company has not received notice of any plan or intention of any
other party to any Company Material Contracts to exercise any right to cancel or
terminate any Company Material Contracts or agreement, and the Company does not
know of any fact that would justify the exercise of such a right. The Company
does not currently contemplate, or has reason to believe any other person or
entity currently contemplates, any amendment or change to any Commitment. Except
as listed in SECTION 3.14(B) OF THE COMPANY DISCLOSURE SCHEDULE, none of the
customers or suppliers of the Company has refused, or communicated that it will
or may refuse, to purchase or supply goods or services, as the case may be, or
has communicated that it will or may substantially reduce the amounts of goods
or services that it is willing to purchase from, or sell to, the Company.
Section 3.15 LABOR MATTERS.
(a) CASH COMPENSATION. SECTION 3.15(A) OF THE COMPANY DISCLOSURE SCHEDULE
(a) contains a complete and accurate list of the names, titles and cash
compensation, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "COMPANY CASH
COMPENSATION") of all employees of the Company. In addition, SECTION 3.15(A) OF
THE COMPANY DISCLOSURE SCHEDULE (a) contains a complete and accurate description
of (i) all increases in Cash Compensation of employees of the Company during the
current and immediately preceding fiscal years of the Company and (ii) any
promised increases in Company Cash Compensation of employees of the Company that
have not yet been effected.
(b) COMPENSATION PLANS. SECTION 3.15(B) OF THE COMPANY DISCLOSURE SCHEDULE
contains a complete and accurate list of all compensation plans, arrangements or
practices (the "COMPANY COMPENSATION PLANS") sponsored by the Company or to
which the Company contributes on behalf of its employees, other than Company
Benefit Plans listed in SECTION 3.13(A) OF THE COMPANY DISCLOSURE SCHEDULE. The
Company Compensation Plans include without limitation plans, arrangements or
practices that provide for severance pay, deferred compensation, incentive,
bonus or performance awards, and stock ownership or stock options. The Company
has provided Parent with a copy of each written Company Compensation Plan and a
written description of each unwritten Company Compensation Plan. Each of the
Company Compensation Plans can be terminated or amended at will by the Company.
(c) EMPLOYMENT AGREEMENTS. SECTION 3.15(C) OF THE COMPANY DISCLOSURE
SCHEDULE contains a complete and accurate list of all employment agreements (the
"COMPANY EMPLOYMENT AGREEMENTS") to which the Company is a party with respect to
its employees. The Company Employment Agreements include without limitation
employee leasing agreements, employee services agreements and noncompetition
agreements. The Company has provided Parent a copy of each written Company
Employment Agreement and a written description of each unwritten Company
Employment Agreement.
(d) EMPLOYEE POLICIES AND PROCEDURES. SECTION 3.15(D) OF THE COMPANY
DISCLOSURE SCHEDULE contains a complete and accurate list of all employee
manuals, policies, procedures and work-related rules (the "COMPANY EMPLOYEE
POLICIES AND PROCEDURES") that apply to employees of the Company. The Company
has provided Parent a copy of all written Company Employee Policies and
Procedures and a written description of all unwritten Company Employee Policies
and Procedures. Each of the Company Employee Policies and Procedures can be
amended or terminated at will by the Company.
(e) UNWRITTEN AMENDMENTS. No unwritten amendments have been made, whether by
oral communication, pattern of conduct or otherwise, with respect to any Company
Compensation Plans, Company Employment Agreements or Company Employee Policies
and Procedures.
(f) LABOR COMPLIANCE. Except as set forth in SECTION 3.15(F) OF THE COMPANY
DISCLOSURE SCHEDULE, the Company (i) has been and is in compliance with all
laws, rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and
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hours, and (ii) is not liable for any arrears of wages or penalties for failure
to comply with any of the foregoing.
(g) The Company has not engaged in any unfair labor practice or
discriminated on the basis of race, color, religion, sex, national origin, age
or handicap in its employment conditions or practices.
(h) There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sexual, national origin, age or handicap discrimination
charges or complaints pending or threatened against the Company before any
federal, state or local court, board, department, commission or agency nor does
any basis therefor exist or (ii) existing or threatened labor strikes, disputes,
grievances, controversies or other labor troubles affecting the Company, nor
does any basis therefor exist.
(i) UNIONS. The Company has never been a party to any agreement with any
union, labor organization or collective bargaining unit. No employee of the
Company is represented by any union, labor organization or collective bargaining
unit. To the best knowledge of the Company, the employees of the Company have no
intention to and have not threatened to organize or join a union, labor
organization or collective bargaining unit.
(j) ALIENS. All employees of the Company are citizens of, or are authorized
to be employed in, the United States.
Section 3.16 ENVIRONMENTAL MATTERS. The Company (i) has obtained all
applicable permits, licenses and other authorizations which are required under
foreign, federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by the Company (or its agents); (ii) is in compliance
with all terms and conditions of such required permits, licenses and
authorizations, and also are in compliance with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in such laws or contained in any regulation,
code, plan, order, decree, judgment, notice or demand letter issued, entered,
promulgated or approved thereunder; (iii) is not aware of nor has received
notice of any event, condition, circumstance, activity, practice, incident,
action or plan which is reasonably likely to interfere with or prevent continued
compliance with or which would give rise to any common law or statutory
liability, or otherwise form the basis of any claim, action, suit or proceeding,
based on or resulting from the Company's (or any of its agents') manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling or the emission, discharge or release into the environment, of any
pollutant, contaminant, or hazardous or toxic material or waste; and (iv) has
taken all actions necessary under applicable requirements of foreign, federal,
state or local laws, rules or regulations to register any products or materials
required to be registered by the Company (or any of its agents) thereunder.
Section 3.17 INSURANCE. The Company maintains general liability and other
business insurance that the Company believes to be reasonably prudent for its
business. A list and brief description of all insurance policies of the Company
are set forth in SECTION 3.17 OF THE COMPANY DISCLOSURE SCHEDULES. All of such
policies are valid and enforceable policies. Such insurance shall be outstanding
and duly in force without interruption up to and including the Closing Date.
True, complete and correct copies of all such policies have been provided to
Parent on or prior to the date hereof.
Section 3.18 VOTE REQUIRED. The affirmative vote of a majority of the
outstanding Common Stock is the only vote of the holders of any class or series
of the Company's capital stock necessary to approve this Agreement and the
Merger.
Section 3.19 CERTAIN BUSINESS PRACTICES. None of the Company or any
directors, officers, agents or employees of the Company has (a) used any funds
for unlawful contributions, gifts, entertainment or
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other unlawful expenses relating to political activity, (b) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"), (c) consummated
any transaction, made any payment, entered into any agreement or arrangement or
taken any other action in violation of Section 1128B(b) of the Social Security
Act, as amended, or (d) made any other unlawful payment.
Section 3.20 CUSTOMERS AND SUPPLIERS. SECTION 3.20 OF THE COMPANY
DISCLOSURE SCHEDULE sets forth the 20 most significant third-party suppliers to,
and the 20 most significant third-party customers of, the Company (in terms of
payments to or by such person) during the twelve-month period ending on
June 30, 1999. To the knowledge of the Company, there is no present intent of
any significant customer or supplier of the Company to discontinue or
substantially alter its relationship with the Company or do so upon consummation
of the Merger.
Section 3.21 BANK ACCOUNTS. SECTION 3.21 OF THE COMPANY DISCLOSURE
SCHEDULE sets forth each bank, savings institution and other financial
institution with which the Company has an account or safe deposit box and the
names of all persons authorized to draw thereon or have access thereto.
Section 3.22 YEAR 2000 ISSUES. Except for matters which, individually and
in the aggregate, would not have a Material Adverse Effect on the Company, all
proprietary and third-party licensed computer systems, including computer
hardware and software, owned, leased or licensed by the Company and computer
software incorporated in products manufactured by the Company (a) can accurately
and without interruption recognize and manipulate date information relating to
dates prior to, on and after January 1, 2000 and (b) can accurately and without
interruption interact with other year 2000 compliant computer systems and
computer software in a way that does not compromise their ability to correctly
recognize the advent of the year 2000 or to accurately and without interruption
recognize and manipulate date information relating to dates prior to, on or
after January 1, 2000. The Company has not experienced any year 2000 related
problems to date and it does not anticipate that it will have to incur any costs
in the future to achieve year 2000 compliance of its computer systems, hardware,
software, or products.
Section 3.23 PROXY STATEMENT AND OTHER INFORMATION. None of the
information related to Company which is supplied by the Company for inclusion in
the Proxy Statement described in Section 6.4(a) hereof will, at the time the
Proxy Statement is mailed or at the time of the meeting of shareholders to which
the Proxy Statement relates, contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Section 3.24 BROKERS AND FINDERS. Except for RC&A Group, Inc. and Kaufman
Bros., L.P., neither the Company nor any of its officers, directors or employees
has employed any broker or finder or incurred any liability for any brokerage
fees, commissions or finder's fees in connection with the transactions
contemplated herein.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder, as to itself, represent and warrant to Parent as follows:
Section 4.1 AUTHORITY AND OWNERSHIP.
(a) Such Shareholder has all requisite power and authority to execute and
deliver this Agreement and the Escrow Agreement and to consummate the
transactions contemplated hereby. All necessary action required to have been
taken by or on behalf of such Shareholder by applicable law or otherwise to
authorize (i) the approval, execution and delivery on its behalf of this
Agreement and the Escrow
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Agreement and (ii) its performance of its obligations under this Agreement and
the Escrow Agreement and the consummation of the transactions contemplated
hereby and thereby have been taken. This Agreement and the Escrow Agreement
constitutes such Shareholder's valid and binding agreement, enforceable against
such Shareholder in accordance with its terms, except (A) as the same may be
limited by applicable bankruptcy, insolvency, moratorium or similar laws of
general application relating to or affecting creditors' rights, including
without limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfer, and (B) for the limitations imposed by
general principles of equity.
(b) OWNERSHIP OF COMPANY COMMON STOCK. Such Shareholder owns, beneficially
and of record, good and marketable title to the Company Common Stock listed
opposite its name on EXHIBIT A, free and clear of all security interests, liens,
adverse claims, encumbrances, equities, proxies, options, voting agreements,
shareholders' agreements or restrictions.
Section 4.2 NO BREACH. The execution and delivery of this Agreement and
the Escrow Agreement do not, and the consummation of the transactions
contemplated hereby or thereby will not, (i) violate or conflict with and
organizational or governance document of such Shareholder or (ii) constitute a
breach or default (or an event that with notice or lapse of time or both would
become a breach or default) or give rise to any lien, third party right of
termination, cancellation, material modification or acceleration under any
agreement, understanding or undertaking to which such Shareholder is a party or
by which it is bound, or (iii) constitute a violation of any law, rule or
regulation to which such Shareholders is subject.
Section 4.3 CONSENTS AND APPROVALS. Neither the execution and delivery by
such Shareholder of this Agreement or the Escrow Agreement nor the consummation
by such Shareholder of the transactions contemplated hereby or thereby will
require such Shareholder to obtain any consent, approval, authorization or
permit of, or to make any filing with or give any notification to, any
governmental or regulatory authority, any lender or lessor or any other person
or entity.
Section 4.4 BROKERS AND FINDERS. Such Shareholder has not employed any
broker or finder or incurred any liability for any brokerage fees, commissions
or finder's fees in connection with the transactions contemplated herein.
Section 4.5 INVESTMENT REPRESENTATION. In connection with the receipt of
the Parent Common Stock, such Shareholder has been advised that the issuance of
the Parent Common Stock has not been registered with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
and the Parent Common Stock is being issued to the Shareholders in reliance upon
an exemption from such registration. In that regard, such Shareholder is
sophisticated in financial matters and is able to evaluate the risks and
benefits relating to the acquisition of the Parent Common Stock. The Parent
Common Stock is to be acquired for such Shareholder's own account and not with a
view to, or intention of, distribution thereof in violation of the Securities
Act, or any applicable state securities laws, and the Parent Common Stock will
not be disposed of by such Shareholder in contravention of the Securities Act or
any applicable state securities laws. Such Shareholder understands that Parent
is under no obligation to register the sale, transfer or other disposition of
the Parent Common Stock by such Shareholder or on such Shareholder's behalf
under the Securities Act or any state securities law, and such Shareholder is
able to bear the economic risk of his investment in the Parent Common Stock for
an indefinite period of time because the Parent Common Stock has not been
registered under the Securities Act and, therefore, cannot be sold unless
subsequently registered under the Securities Act or an exemption from such
registration is available.
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ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each, jointly and severally, represents and warrants
to the Company as follows:
Section 5.1 ORGANIZATION AND AUTHORITY.
(a) Each of Parent and the Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
in the case of Parent, and Florida in the case of Merger Sub, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and is duly qualified and in
good standing to do business in each jurisdiction in which the nature of the
business conducted by it or the ownership or leasing of its properties makes
such qualification necessary, other than where the failure to be so duly
qualified and in good standing would not have a Parent Material Adverse Effect.
(The term "PARENT MATERIAL ADVERSE EFFECT" as used in this Agreement shall mean
any change or effect that, individually or when taken together with all such
other changes or effects, would be materially adverse to the financial
condition, operations or current business of Parent, excluding, however, all
changes or effects caused by general economic or industry-wide conditions or
resulting from any change in law or GAAP.) Parent and Merger Sub have all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby. All necessary action,
corporate or otherwise, required to have been taken by or on behalf of it by
applicable law, its charter document or otherwise to authorize (i) the approval,
execution and delivery on its behalf of this Agreement and (ii) its performance
of its obligations under this Agreement and the consummation of the transactions
contemplated hereby has been taken by Parent and Merger Sub, except that the
transactions must be approved by their stockholders. This Agreement constitutes
Parent's and Merger Subs' valid and binding agreement, enforceable against each
in accordance with its terms, except (A) as the same may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws of general
application relating to or affecting creditors' rights, including without
limitation, the effect of statutory or other laws regarding fraudulent
conveyances and preferential transfers, and (B) for the limitations imposed by
general principles of equity.
(b) Except as disclosed in SECTION 5.1(B) OF THE PARENT DISCLOSURE SCHEDULE,
Parent does not directly or indirectly own any interest in any other
corporation, partnership, joint venture or other business association or entity
which is material to Parent.
Section 5.2 NO BREACH. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated hereby will not,
(i) violate or conflict with its certificate of incorporation or bylaws or
(ii) constitute a breach or default (or an event that with notice or lapse of
time or both would become a breach or default) or give rise to any lien, third
party right of termination, cancellation, material modification or acceleration
under any agreement, understanding or undertaking to which it is a party or by
which Parent is bound, except where such breach, default, lien, third party
right, cancellation, modification or acceleration would not have a Parent
Material Adverse Effect, or (iii) constitute a violation of any law, rule or
regulation to which Parent is subject.
Section 5.3 CONSENTS AND APPROVALS. Neither the execution and delivery of
this Agreement by it nor its consummation of the transactions contemplated
hereby will require Parent or Merger Sub to obtain any consent, approval,
authorization or permit of, or to make any filing with or give any notification
to, any governmental or regulatory authority, except (i) for filings required
under the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), and (ii) where
the failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent it from performing its
obligations under this Agreement without having a Parent Material Adverse
Effect.
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Section 5.4 CAPITALIZATION.
(a) Parent's authorized capital stock consists of (i) 20,000,000 shares of
Parent Common Stock, of which 13,080,894 were issued and outstanding as of
June 30, 2000, and (ii) 1,000,000 shares of Preferred Stock, par value $.01 per
share, of which no shares were issued and outstanding as of June 30, 2000. Since
June 30, 2000, no shares of Parent Common Stock have been issued. No other
shares of Parent Common Stock have been issued, except upon exercise of employee
stock options or upon conversion of shares of Preferred Stock or pursuant to
Parent's Employee Stock Purchase Plan and no additional shares of Preferred
Stock have been issued. As of June 30, 2000, there were outstanding options to
purchase 1,497,980 shares of Parent Common Stock and no options have been
granted after June 30, 2000, except for options granted to employees in the
ordinary course of business consistent with past practice. As of the date of
this Agreement, warrants to purchase 1,809,623 shares of Parent Common Stock are
issued outstanding. In addition, as of June 30, 2000 there were issued and
outstanding convertible debt of Parent to purchase up to 1,330,323 shares of
Parent Common Stock. Each of the issued shares of capital stock of, or other
equity interests in, of Parent is duly authorized, validly issued and, in the
case of shares of capital stock, fully paid and nonassessable, and have not been
issued in violation of (nor are any of the authorized shares of capital stock
of, or other equity interests in, Parent subject to) any preemptive or similar
rights created by statute, the certificate of incorporation or bylaws of Parent,
or any agreement to which Parent is a party or is bound.
(b) Except as disclosed in SECTION 5.4 OF THE PARENT DISCLOSURE SCHEDULE, no
bonds, debentures, notes or other indebtedness of Parent having the right to
vote (or convertible into or exchangeable or exercisable for securities having
the right to vote) on any matters on which stockholders may vote is issued or
outstanding.
(c) Merger Sub's authorized capital stock consists of 1,000 shares of Merger
Sub Common Stock, all of which have been issued to Parent and are outstanding.
Section 5.5 SEC REPORTS; FINANCIAL STATEMENTS. Parent has filed all
required forms, reports and documents with the Securities and Exchange
Commission ("SEC") pursuant to the Exchange Act since December 31, 1999
(collectively, the "PARENT'S SEC REPORTS"). The audited financial statements of
Parent contained, or incorporated by reference, in Parent's Annual Report on
Form 10-K for the year ended December 31, 1999, which consist of
(i) consolidated balance sheets as of December 31, 1998 and 1999
(ii) consolidated statements of income, stockholders' equity and cash flows for
each of the three fiscal years in the period ended December 31, 1999, and
(iii) the notes thereto, certified by PriceWaterhouseCoopers LLP ("PARENT'S
AUDITORS"), whose report thereon is included therewith, were prepared in
accordance with GAAP and present fairly Parent's financial condition and the
results of its operations as of the relevant dates thereof and for the periods
covered thereby. The unaudited financial statements of Parent contained in its
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1999 (the
"PARENT 10-Q"), which consists of condensed consolidated balance sheets as of
March 31, 1999 and March 31, 2000, condensed consolidated statements of income,
stockholder's equity and cash flows for the three months ended March 31, 1999
and 2000, and notes thereto, were prepared in accordance with GAAP, and present
fairly Parent's financial condition and the results of its operations as of the
relevant dates thereof and for the period covered thereby, subject to year-end
adjustments.
Section 5.6 ABSENCE OF CERTAIN CHANGES.
(a) Except as otherwise disclosed in Parent's SEC Reports (without further
amendment) or SECTION 5.6 OF THE PARENT DISCLOSURE SCHEDULE, since March 31,
2000 there have not been any events or conditions of any character that,
individually or in the aggregate, have or would reasonably be expected to have a
Parent Material Adverse Effect.
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(b) During the period from March 31, 2000 to the date of this Agreement,
Parent has not engaged in any conduct that is proscribed during the period from
the date of this Agreement to the Effective Time by clauses (i) through (x) of
Section 6.2(b).
Section 5.7 TITLE TO PROPERTY. Parent has defensible title to all of its
properties and assets, free and clear of all liens, charges and encumbrances
except liens for taxes not yet due and payable and such liens or other
imperfections of title, if any, as do not materially detract from the value of
or interfere with the present use of the property affected thereby or which
would not have a Parent Material Adverse Effect. To Parent's knowledge, all
leases pursuant to which Parent leases from others real or personal property are
valid and effective in accordance with their respective terms, and there is not,
to the knowledge of Parent, under any of such leases, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a material default or event of default and in respect of which the
Parent has not taken adequate steps to prevent such a default from occurring)
except where the lack of such validity and effectiveness, or the existence of
such default or event of default would not have a Parent Material Adverse
Effect.
Section 5.8 BROKERS. Except for Houlihan, Lokey, Howard & Zukin, neither
Parent, the Merger Sub nor any of their officers, directors or employees has
employed any broker or finder or incurred any liability for any brokerage fees,
commissions or finder's fees in connection with the transactions contemplated
herein.
Section 5.9 EMPLOYEE BENEFIT PLANS.
(a) SECTION 5.9(A) OF THE PARENT DISCLOSURE SCHEDULE lists all employee
benefit plans (as defined in Section 3(3) of ERISA) and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements, and any current or former employment or executive compensation or
severance agreements, written or otherwise, for the benefit of, or relating to,
any employee of Parent, any trade or business (whether or not incorporated)
which is a member of a controlled group including Parent or which is under
common control with Parent (a "PARENT ERISA AFFILIATE") within the meaning of
section 414 of the Code, as well as each plan with respect to which the Parent
or a Parent ERISA Affiliate could incur liability under Section 4069 (if such
plan has been or was terminated) or Section 4212(c) of ERISA (together, the
"PARENT BENEFIT PLANS"), excluding former agreements under which Parent has no
unpaid obligations. Copies of each of the following, to the extent applicable,
have been made available to the Company with respect to each Parent Benefit
Plan: the most recent annual report (Form 5500) filed with the IRS, the plan
document, the trust agreement, the most recent summary plan description if
required by ERISA, the most recent actuarial report or valuation relating to
each Parent Benefit Plan subject to Title IV of ERISA, and the most recent
determination letter issued by the IRS with respect to any Parent Benefit Plan
intended to be qualified under section 401 of the Code.
(b) With respect to each Parent Benefit Plan, no event has occurred and, to
the knowledge of Parent, there exists no condition or set of circumstances in
connection with which Parent could be subject to any liability under the terms
of such Parent Benefit Plan, ERISA, the Code, or any other applicable law.
(c) Each Parent Benefit Plan intended to be qualified under section 401 of
the Code (i) satisfies in form the requirements of such section except to the
extent amendments are not required by law to be made until a date after the
Effective Time, (ii) has received a favorable determination letter from the IRS
regarding such qualified status, and (iii) has not, since receipt of the most
recent favorable determination letter, been amended in a way that would
adversely affect its qualified status.
(d) There are no actions, suits, or claims pending (other than routine
claims for benefits) or, to the knowledge of Parent, threatened against, or with
respect to, any Parent Benefit Plan.
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(e) To the knowledge of Parent, there is no matter pending (other than
routine qualification determination filings) with respect to any Parent Benefit
Plans before the IRS, the U.S. Department of Labor, the PBGC or any other
governmental authority.
(f) All material contributions required to be made to Parent Benefit Plans
pursuant to their terms and the provisions of ERISA, the Code, or any other
applicable law have been timely made.
(g) As to each Parent Benefit Plan subject to Title IV of ERISA, (i) there
has been no event or condition which presents a significant risk of plan
termination, (ii) no accumulated funding deficiency, whether or not waived,
within the meaning of Section 302 of ERISA or section 412 of the Code has been
incurred, (iii) no reportable event within the meaning of Section 4043 of ERISA
(for which the disclosure requirements of Regulation section 4043.1 et seq.,
promulgated by the PBGC, have not been waived) has occurred within six years
prior to the date of this Agreement, (iv) no notice of intent to terminate such
Parent Benefit Plan has been given under Section 4041 of ERISA, (v) no
proceeding has been instituted under Section 4042 of ERISA to terminate such
Parent Benefit Plan, (vi) no liability to the PBGC has been incurred (other than
with respect to required premium payments), (vii) no withdrawal liability,
within the meaning of Section 4201 of ERISA, has been incurred, which withdrawal
liability has not been satisfied, and (viii) the assets of the Parent Benefit
Plan equal or exceed the actuarial present value of the benefit liabilities,
within the meaning of Section 4041 of ERISA, under the Parent Benefit Plan,
based upon reasonable actuarial assumptions and the asset valuation principles
established by the PBGC for the termination of such plans.
(h) No Parent Benefit Plan provides retiree medical or retiree life
insurance benefits to any person.
(i) Neither the Parent nor any Parent ERISA Affiliate contributes or has an
obligation to contribute, and has not within six years prior to the date of this
Agreement contributed or had an obligation to contribute to, a multiemployer
plan within the meaning of Section 3(37) of ERISA.
(j) SECTION 5.9(J) OF THE PARENT DISCLOSURE SCHEDULE sets forth a true and
complete list, as of the date of this Agreement, of each current or former
employee, officer or director of Parent who holds any option to purchase Parent
Common Stock (collectively, the "PARENT STOCK OPTIONS"), together with the
number of shares of Parent Common Stock which are subject to such option, the
date of grant of such option, the extent to which such option is vested (or will
become vested within six months after the date hereof, or as a result of, the
Merger), the option price of such option (to the extent determined as of the
date hereof), whether such option is an ISO, and the expiration date of such
option. SECTION 5.9(J) OF THE PARENT DISCLOSURE SCHEDULE also sets forth the
total number of such ISOs and such nonqualified options. Parent has furnished
the Company with complete copies of the plans (collectively, the "PARENT OPTION
PLANS") pursuant to which the Parent Stock Options were issued.
(k) Parent has made available to the Company: (i) copies of all employment
agreements with officers of Parent; (ii) a schedule listing all officers of
Parent who have executed a non-competition agreement with Parent; (iii) copies
(or descriptions) of all severance agreements, programs and policies of Parent
with or relating to its employees, except programs and policies required to be
maintained by law; and (iv) copies of all plans, programs, agreements and other
arrangements of Parent with or relating to its employees which contain change in
control provisions.
(l) Except as set forth in SECTION 5.9(L) OF THE PARENT DISCLOSURE
STATEMENT, the consummation of the transactions will not (i) entitle any
employees of Parent to severance pay or (ii) accelerate the time of payment or
vesting or trigger any payment or funding (through a grantor trust or otherwise)
of compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the Parent Benefit Plans.
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Section 5.10 LABOR MATTERS.
(a) CASH COMPENSATION. SECTION 5.10(A) OF THE PARENT DISCLOSURE SCHEDULE
(a) contains a complete and accurate list of the names, titles and cash
compensation, including without limitation wages, salaries, bonuses
(discretionary and formula) and other cash compensation (the "PARENT CASH
COMPENSATION") of all employees of Parent. In addition, SECTION 5.10(A) OF THE
PARENT DISCLOSURE SCHEDULE (a) contains a complete and accurate description of
(i) all increases in Cash Compensation of employees of Parent during the current
and immediately preceding fiscal years of Parent and (ii) any promised increases
in Parent Cash Compensation of employees of Parent that have not yet been
effected.
(b) COMPENSATION PLANS. SECTION 5.10(B) OF THE PARENT DISCLOSURE SCHEDULE
contains a complete and accurate list of all compensation plans, arrangements or
practices (the "PARENT COMPENSATION PLANS") sponsored by Parent or to which
Parent contributes on behalf of its employees, other than Parent Benefit Plans
listed in SECTION 5.9(A) OF THE PARENT DISCLOSURE SCHEDULE. The Parent
Compensation Plans include without limitation plans, arrangements or practices
that provide for severance pay, deferred compensation, incentive, bonus or
performance awards, and stock ownership or stock options. Parent has provided
the Company with a copy of each written Parent Compensation Plan and a written
description of each unwritten Parent Compensation Plan. Each of the Parent
Compensation Plans can be terminated or amended at will by Parent.
(c) EMPLOYMENT AGREEMENTS. SECTION 5.10(C) OF THE PARENT DISCLOSURE SCHEDULE
contains a complete and accurate list of all employment agreements (the "PARENT
EMPLOYMENT AGREEMENTS") to which Parent is a party with respect to its
employees. The Parent Employment Agreements include without limitation employee
leasing agreements, employee services agreements and noncompetition agreements.
Parent has provided the Company a copy of each written Parent Employment
Agreement and a written description of each unwritten Parent Employment
Agreement.
(d) EMPLOYEE POLICIES AND PROCEDURES. SECTION 5.10(D) OF THE PARENT
DISCLOSURE SCHEDULE contains a complete and accurate list of all employee
manuals, policies, procedures and work-related rules (the "PARENT EMPLOYEE
POLICIES AND PROCEDURES") that apply to employees of Parent. Parent has provided
the Company a copy of all written Parent Employee Policies and Procedures and a
written description of all unwritten Parent Employee Policies and Procedures.
Each of the Parent Employee Policies and Procedures can be amended or terminated
at will by Parent.
(e) UNWRITTEN AMENDMENTS. No unwritten amendments have been made, whether by
oral communication, pattern of conduct or otherwise, with respect to any Parent
Compensation Plans, Parent Employment Agreements or Parent Employee Policies and
Procedures.
(f) LABOR COMPLIANCE. Except as set forth in SECTION 5.10(F) OF THE PARENT
DISCLOSURE SCHEDULE, Parent (i) has been and is in compliance with all laws,
rules, regulations and ordinances respecting employment and employment
practices, terms and conditions of employment and wages and hours, and (ii) is
not liable for any arrears of wages or penalties for failure to comply with any
of the foregoing.
(g) Parent has not engaged in any unfair labor practice or discriminated on
the basis of race, color, religion, sex, national origin, age or handicap in its
employment conditions or practices.
(h) There are no (i) unfair labor practice charges or complaints or racial,
color, religious, sexual, national origin, age or handicap discrimination
charges or complaints pending or threatened against Parent before any federal,
state or local court, board, department, commission or agency nor does any basis
therefor exist or (ii) existing or threatened labor strikes, disputes,
grievances, controversies or other labor troubles affecting Parent, nor does any
basis therefor exist.
(i) UNIONS. Parent has never been a party to any agreement with any union,
labor organization or collective bargaining unit. No employee of Parent is
represented by any union, labor organization or
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collective bargaining unit. To the best knowledge of Parent, the employees of
Parent have no intention to and have not threatened to organize or join a union,
labor organization or collective bargaining unit.
(j) ALIENS. All employees of Parent are citizens of, or are authorized to be
employed in, the United States.
Section 5.11 ENVIRONMENTAL MATTERS. Parent (i) has obtained all applicable
permits, licenses and other authorizations which are required under foreign,
federal, state or local laws relating to pollution or protection of the
environment, including laws relating to emissions, discharges, releases or
threatened releases of pollutants, contaminants, or hazardous or toxic materials
or wastes into ambient air, surface water, ground water or land or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of pollutants, contaminants or hazardous or
toxic materials or wastes by Parent (or its agents); (ii) is in compliance with
all terms and conditions of such required permits, licenses and authorizations,
and also are in compliance with all other limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules and timetables
contained in such laws or contained in any regulation, code, plan, order,
decree, judgment, notice or demand letter issued, entered, promulgated or
approved thereunder; (iii) is not aware of nor has received notice of any event,
condition, circumstance, activity, practice, incident, action or plan which is
reasonably likely to interfere with or prevent continued compliance with or
which would give rise to any common law or statutory liability, or otherwise
form the basis of any claim, action, suit or proceeding, based on or resulting
from Parent's (or any of its agents') manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling or the emission,
discharge or release into the environment, of any pollutant, contaminant, or
hazardous or toxic material or waste; and (iv) has taken all actions necessary
under applicable requirements of foreign, federal, state or local laws,
rules or regulations to register any products or materials required to be
registered by Parent (or any of its agents) thereunder.
ARTICLE VI.
OTHER AGREEMENTS
Section 6.1 ELECTION OF NEW PARENT DIRECTORS AND OFFICERS. Subject to
occurrence of the Merger, Parent shall take all action necessary under its
bylaws or otherwise to cause the number of members constituting the whole Board
of Directors of Parent to be seven (7) and to elect G.T. Finn, William O. Hunt,
John McDonald, Mike Campbell, Philip Jepsen and two (2) other designees agreed
to in writing by Parent and WWC to Parent's Board of Directors, effective the
Effective Time; provided, however, if Banco Del Gottardo exercises its right to
designate two (2) additional persons to Parent's Board of Directors, and such
persons are not agreeable to Mr. Finn, then Mr. Finn shall have the right to
designate two (2) additional persons to Parent's Board of Directors. Such
persons shall hold office until the next annual meeting of Parent's stockholders
and until their successors shall have been elected and qualified. Subject to the
occurrence of the Merger, Parent shall take all action necessary to elect John
McDonald as Chairman and Chief Executive Officer of Parent, G.T. Finn as
President of Parent and Phil Boyd as Chief Financial Officer of Parent. On or
before the Effective Date, Parent will take all necessary steps to amend its
bylaws, if necessary, to allow eleven members of Parent's Board of Directors.
Section 6.2 CONDUCT OF BUSINESS PENDING MERGER.
(a) From the date of this Agreement until the Effective Time, unless
otherwise contemplated by this Agreement or consented to in writing by the other
party or set forth in SECTION 6.2 OF THE COMPANY DISCLOSURE SCHEDULE, each of
the Company and Parent shall:
(i) operate its business in all material respects in the usual and
ordinary course consistent with past practice; and
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(ii) use all commercially reasonable efforts to preserve substantially
intact its business organization, maintain and keep its material properties
and assets in as good repair and condition as at present, ordinary wear and
tear excepted, retain the services of its respective key employees and
maintain its relationships with its material customers and suppliers.
(b) Except as contemplated by this Agreement or otherwise consented to in
writing by the other party, from the date of this Agreement until the Effective
Time, each of the Company and Parent shall not do any of the following:
(i) adopt any amendments to its certificate or articles of incorporation
which would alter the terms of the Company Common Stock or Parent Common
Stock or would have an adverse impact on the consummation of the
transactions contemplated by this Agreement;
(ii) declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in respect
of its capital stock, or, except as provided in the terms of Parent's
Preferred Stock, redeem or otherwise acquire any of its securities;
(iii) issue, sell, deliver or agree or commit to issue, sell or deliver
(whether through the issuance or granting of options, warrants, commitments,
subscriptions, rights to purchase or otherwise) any stock of any class or
any other securities or amend any of the terms of any such securities or
agreements outstanding on the date hereof; PROVIDED, HOWEVER, the Company or
Parent may issue shares of Company Common Stock or Parent Common Stock,
respectively, upon the exercise of employee stock options issued pursuant to
the Company's option plan described in Section 3.3(j) of the Company
Disclosure Schedule, Parent's Employee Stock Purchase Plan or Parent's
Preferred Stock outstanding on the date hereof or upon the exercise of
warrants outstanding on the date of this Agreement;
(iv) (A) create, incur or assume any long-term debt (including
obligations in respect of capital leases but excluding any intercompany
indebtedness) that is material to the Company or Parent, as the case may be,
(B) assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any
person other than the Company or Parent that is material to the Company or
Parent, as the case may be, or (C) make any loans, advances or capital
contributions to, or investments in, any person other than the Company or
Parent, which loans, advances or capital contributions are material to the
Company or Parent, as the case may be;
(v) acquire, sell, lease or dispose of any assets that are material to
the Company or Parent, as the case may be, other than sales that are in the
ordinary and usual course of business consistent with past practice;
(vi) mortgage, pledge or subject to any lien, lease, security interest
or other charge or encumbrance any of its properties or assets, tangible or
intangible, material to the Company or Parent, as the case may be;
(vii) (A) increase the compensation payable to or to become payable to
any director or officer, except for increases in salary or wages payable or
to become payable in the ordinary course of business and consistent with
past practice or (B) grant any severance or termination pay (other than
pursuant to agreements in effect on the date of this Agreement) to, or enter
into or amend any benefit plan (except for administrative or technical
amendments necessary to comply with applicable law) or any employment or
severance agreement with, any director, officer or employee;
(viii) (A) effect any reorganization or recapitalization or (B) split,
combine or reclassify any of its capital stock 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 capital stock;
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(ix) change any of its methods of accounting in effect at June 30, 2000,
except as may be required by law or GAAP; or
(x) take, or agree in writing or otherwise to take, any of the foregoing
actions or any actions that would (A) make any representation or warranty of
the Company or Parent, as the case may be, contained in this Agreement
untrue or incorrect as of the date when made or as of the Closing Date,
(B) result in any of the conditions of this Agreement not being satisfied or
(C) be inconsistent with the terms of this Agreement or the transactions
contemplated hereby.
Notwithstanding anything to the contrary set forth above, Parent shall be
entitled to sell or otherwise dispose of, or discontinue in any manner, its
operating business.
Section 6.3 ACCESS TO INFORMATION.
(a) Between the date of this Agreement and the Effective Time, the Company
will (i) give Parent and its authorized representatives reasonable access,
during regular business hours upon reasonable notice, to all offices and other
facilitates and to all of its books and records, (ii) permit Parent to make such
reasonable inspections as it may require, and (iii) cause its officers and those
of its subsidiaries to furnish Parent with such financial and operating data and
other information with respect to the business and properties of the Company as
Parent may from time to time reasonably request and as the Company may have on
hand or be able to produce without hardship.
(b) Between the date of this Agreement and the Effective Time, Parent will
(i) give the Company and its authorized representatives reasonable access,
during regular business hours upon reasonable notice, to all offices and other
facilitates and to all of its books and records, (ii) permit the Company to make
such reasonable inspections as it may require and (iii) cause its officers to
furnish the Company with such financial and operating data and other information
with respect to the business and properties of Parent as the Company may from
time to time reasonably request and as Parent may have on hand or be able to
produce without hardship.
(c) Notwithstanding the foregoing provisions of this Section 6.3, neither
party shall be required to grant access or furnish information to the other
party to the extent that such access or the furnishing of such information is
prohibited by law or by confidentiality agreements with third parties in effect
on the date hereof.
(d) Each party to this Agreement shall hold in confidence all nonpublic
information received from the other party to this Agreement until such time as
such information is otherwise publicly available and, if this Agreement is
terminated, each party will deliver to the other party all documents, work
papers and other materials (including copies) obtained by such party or on its
behalf from the other party as a result of this Agreement or in connection
herewith, whether so obtained before or after the execution hereof.
Section 6.4 PREPARATION OF PROXY STATEMENT.
(a) Parent shall prepare and file with the SEC at such appropriate time as
determined by Parent, a proxy statement relating to the stockholders' meeting of
Parent to be held in connection with the Merger, as amended or from time to time
(as so amended the "PROXY STATEMENT"). Parent and the Company shall cooperate
with each other in the preparation of the Proxy Statement and any amendment
thereto, and each shall notify the other of the receipt of any comments of the
SEC with respect to the Proxy Statement or for additional information, and shall
provide to the other promptly copies of all correspondence between Parent or the
Company, as the case may be, and the SEC with respect to the Proxy Statement.
Each of Parent and the Company agrees to use all commercially reasonable
efforts, after consultation with each other, to respond promptly to all such
comments of and requests by the SEC and to cause the final Proxy Statement to be
filed with the SEC and to be mailed
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to the holders of Parent Common Stock entitled to vote at the meeting of the
stockholders of Parent at the earliest practicable time.
(b) Notwithstanding the preceding provisions of this Section 6.4, as a
condition (which shall be for the benefit of both the Company and Parent) to the
recommendation of the Board of Directors of the Company or Parent to their
stockholders, the holding of a stockholders' meeting and the mailing of the
Proxy Statement, (i) Parent must receive (A) the opinion of Houlihan, Lokey,
Howard & Zukin to the effect that the Merger is fair to Parent and its
stockholders from a financial point of view, and (B) the letters of [the
Company's auditors] referred to in Section 6.13, and (ii) neither of such
opinion or letters shall have been withdrawn, revoked or modified.
Section 6.5 AMEX EXCHANGE LISTING. Parent shall use all commercially
reasonable efforts to obtain, prior to the Effective Time, approval for listing
of Parent Common Stock to be issued pursuant to the Merger on the AMEX upon
official notice of issuance.
Section 6.6 REASONABLE BEST EFFORTS. Subject to the fiduciary duties of
the Company's and Parent's Board of Directors, each of the parties hereto agrees
to use all commercially reasonable efforts to take, or cause to be taken, all
appropriate action, and to do, or cause to be done, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement in the most
expeditious manner practicable, including, but not limited to, the satisfaction
of all conditions to the Merger.
Section 6.7 PUBLIC ANNOUNCEMENTS; CONFIDENTIALITY. Except as may be
required by applicable law, no party hereto shall make any public announcements
or otherwise communicate with any news media or any other party with respect to
this Agreement or any of the transactions contemplated hereby without prior
consultation with the other parties as to the timing and contents of any such
announcement or communications as may be reasonable under the circumstances;
PROVIDED, HOWEVER, that nothing contained herein shall prevent any party from
(i) promptly making all filings with governmental authorities as may, in its
judgment, be required or advisable in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby or
(ii) disclosing the terms of this Agreement to such party's legal counsel,
financial advisors or accountants in furtherance of the transactions
contemplated by this Agreement. The press release announcing the execution and
delivery of this Agreement shall be a joint press release of the Company and
Parent.
Section 6.8 NOTIFICATION. Each party hereto shall, in the event of, or
promptly after obtaining knowledge of the occurrence or threatened occurrence
of, any fact or circumstance that would cause or constitute a material breach of
any of its representations and warranties set forth herein, give notice thereof
to the other parties and shall use its reasonable best efforts to prevent or
promptly to remedy such breach.
Section 6.9 NO SOLICITATION.
(a) Subject to Section 6.9(c), Parent shall not (and Parent shall use all
commercially reasonable efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, provide any
information to, or enter into any agreement with, any person (other than the
Company, any of its affiliates or representatives) concerning any merger,
business combination, tender offer, exchange offer, sale of assets (other than
as expressly permitted by Section 6.2), sale of shares of capital stock or debt
securities or similar transactions involving Parent or any division or operating
or principal business unit of Parent, excluding Parent's current operating
business (a "PARENT ACQUISITION PROPOSAL"). Parent will immediately cease any
existing activities, discussions or negotiations with any parties (other than
the Company) conducted heretofore with respect to any of the foregoing.
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(b) Subject to Section 6.9(c), the Company shall not (and shall use its
reasonable best efforts to cause its officers, directors, employees,
representatives and agents, including, but not limited to, investment bankers,
attorneys and accountants, not to), directly or indirectly, encourage, solicit,
participate in or initiate discussions or negotiations with, provide any
information to, or enter into any agreement with, any person (other than Parent,
any of its affiliates or representatives) concerning any merger, business
combination, tender offer, exchange offer, sale of assets (other than as
expressly permitted by Section 6.2), sale of shares of capital stock or debt
securities or similar transactions involving the Company or any division or
operating or principal business unit of the Company (a "COMPANY ACQUISITION
PROPOSAL"). The Company will immediately cease any existing activities,
discussions or negotiations with any parties (other than Parent) conducted
heretofore with respect to any of the foregoing.
(c) Notwithstanding the provisions of Section 6.9(a) and (b), prior to the
approval by its stockholders of the transactions contemplated by this Agreement,
Parent or the Company, as the case may be, may, directly or indirectly, provide
access to furnish information concerning its business, properties or assets to
any person pursuant to appropriate confidentiality agreements, and may negotiate
and participate in discussions and negotiations with such person, if (i) such
person has submitted an unsolicited bona fide written proposal to the Board of
Directors of Parent or the Company, as the case may be, relating to any such
transaction, (ii) such proposal provides for the acquisition for cash and/or
publicly traded securities of all of the outstanding Parent Common Stock or
Company Common Stock, (iii) the Board of Directors of Parent or the Company, as
the case may be, determines in good faith, after consultation with its
independent financial advisor, that such proposal is more favorable to the
holders of Parent Common Stock or Company Common Stock than the Merger and is
fully financed or reasonably capable of being financed or otherwise consummated,
and (iv) the Board of Directors of Parent or the Company, as the case may be,
determines in good faith, after consultation with independent legal counsel,
that the failure to provide such information or access or to engage in such
discussions or negotiations would be inconsistent with their fiduciary duties to
Parent's or the Company's stockholders under applicable law. A proposal meeting
all of the criteria in the preceding sentence is referred to as a "SUPERIOR
PROPOSAL". Parent or the Company will immediately notify the other party of
Parent Acquisition Proposal, or Company Acquisition Proposal, respectively, and
will keep the other party fully apprised of all developments with respect to any
such Acquisition Proposal. Subject to the last sentence of this Section
6.9(c) and notwithstanding anything to the contrary contained in this Agreement,
except in connection with the valid termination of this Agreement pursuant to
Section 8.1(b)(ii) or 8.1(c)(ii) hereof, neither the Board of Directors of
Parent or the Company nor any committee thereof shall (i) approve or recommend,
or propose to approve or recommend, any Parent Acquisition Proposal or Company
Acquisition Proposal respectively, (ii) enter into any agreement (other than a
confidentiality agreement) with respect to any Parent Acquisition Proposal or
Company Acquisition Proposal or (iii) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to the other party, the approval or
recommendation by its Board of Directors or a committee thereof of the Merger,
this Agreement or the issuance of Parent Common Stock to be issued pursuant to
the Merger. Nothing contained in this Section shall prohibit Parent or its Board
of Directors from taking and disclosing to their stockholders a position with
respect to a tender offer by a third party pursuant to Rules 14d-9 and
14e-2(a) promulgated under the Exchange Act.
Section 6.10 REGULATORY AND OTHER AUTHORIZATIONS.
(a) Each party hereto agrees to use its reasonable best efforts to obtain
all authorizations, consents, orders and approvals of federal, state, local and
foreign regulatory bodies and officials and non-governmental third parties that
may be or become necessary for (i) its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement and (ii) the
ownership of the
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Surviving Corporation by Parent, and each party will cooperate fully with the
other parties in promptly seeking to obtain all such authorizations, consents,
orders and approvals.
(b) In connection with and without limiting the foregoing, the Company and
Parent shall (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation is or becomes applicable to the Merger,
this Agreement or any of the other transaction contemplated hereby and (ii) if
any state takeover statute or similar statute or regulation becomes applicable
to the Merger, this Agreement or any of the other transactions contemplated
hereby, take all action necessary to ensure that the Merger and the other
transactions contemplated hereby may be consummated as promptly as practicable
on the terms contemplated by this Agreement and otherwise to minimize the effect
of such statute or regulation on the Merger and the other transactions
contemplated by this Agreement.
Section 6.11 FURTHER ASSURANCES. Each of the parties hereto shall execute
such documents and other instruments and take such further actions as may be
reasonably required or desirable to carry out the provisions hereof and
consummate the transactions contemplated hereby or, at and after the Effective
Time, to evidence the consummation of the transactions contemplated by this
Agreement. Upon the terms and subject to the conditions hereof, each of the
parties hereto shall take or cause to be taken all actions and to do or cause to
be done all other things necessary, proper or advisable to consummate and make
effective as promptly as practicable the transactions contemplated by this
Agreement and to obtain in a timely manner all necessary waivers, consents and
approvals and to effect all necessary registrations and filings.
Section 6.12 ASSUMED OPTIONS.
(a) Parent shall assume, effective at the Effective Time, each Company
Option Plan and each Company Stock Option that remains unexercised in whole or
in part as of the Effective Time and substitute shares of Parent Common Stock
for the shares of Company Common Stock purchasable under each such assumed
option ("ASSUMED OPTION"), which assumption and substitution shall be effected
as follows:
(i) the Assumed Option shall have the same terms and conditions as the
Company Stock Option being assumed, subject to Section 6.12(a)(ii) and
(iii) below;
(ii) the number of shares of Parent Common Stock purchasable under the
Assumed Option shall be equal to the number of shares of Parent Common Stock
that the holder of the Company Stock Option being assumed would have
received (without regard to any vesting schedule) upon consummation of the
Merger had such Company Stock Option been exercised in full immediately
prior to consummation of the Merger; and
(iii) the per share exercise price of such Assumed Option shall be an
amount (rounded to the nearest cent) equal to the per share exercise price
of the Company Stock Option being assumed divided by the number of shares of
Parent Common Stock issuable in the Merger for each share of Company Common
Stock.
If the foregoing calculation results in an Assumed Option being exercisable for
a fraction of a share of Parent Common Stock, then the number of shares of
Parent Common Stock subject to such Assumed Option shall be rounded down to the
nearest whole number of shares, and the total exercise price for the Assumed
Option shall be reduced by the exercise price of the fractional share.
(b) Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of the Assumed Options.
Section 6.13 LETTER FROM ACCOUNTANTS. (a) The Company shall use reasonable
best efforts to cause to be delivered to the Company and Parent two letters from
[the Company's auditors], one dated no earlier than three business days prior to
the date on which the Proxy Statement is mailed to Parent's
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stockholders and one dated no earlier than three business days prior to the
Closing Date, each addressed to the Boards of Directors of the Company and
Parent concerning the Company, in form reasonably satisfactory to Parent and
customary in scope for comfort letters delivered by independent public
accountants in connection with registration statements containing a prospectus
similar to the Proxy Statement.
Section 6.14 EMPLOYEE BENEFITS. Parent hereby agrees to provide to
officers and employees of the Company who become or remain regular (full-time)
employees of Parent or any of its subsidiaries ("CONTINUING EMPLOYEES") employee
benefits, no less favorable than those provided by Parent to their similarly
situated officers and employees. Any employee of the Company who becomes a
participant in any employee benefit plan, program, policy or arrangement of
Parent or any of its subsidiaries after the Effective Time shall be given credit
under such plan, program, policy or arrangement for all service with the Company
prior to becoming such a participant for purposes of eligibility and vesting. In
addition, Parent agrees to assume any employee agreement between Company and its
employees who become Continuing Employees.
Section 6.15 PIGGYBACK REGISTRATION RIGHTS.
(a) If Parent at any time proposes to register any of its equity securities
under the Securities Act on any form other than Form S-4 or Form S-8 (or any
similar or successor form then in effect), whether or not for sale for its own
account, and if the registration form proposed to be used may be used for the
registration of Parent Common Stock, the Company will in each such case give
prompt written notice (and in any event at least 10 business days' prior written
notice prior to the filing of such registration statement) to the Shareholders
of Parent's intention to do so, such notice to specify the securities to be
registered, the proposed numbers and amounts thereof and the date not less than
20 days thereafter by which Parent must receive the Shareholders' written
indication of whether the Shareholders wish to include their Parent Common Stock
in such registration statement and advising the Shareholders of their rights
under this Section 6.15. Upon the written request of any Shareholder made on or
before the date specified in such notice (which request shall specify the number
of shares of Parent Common Stock intended to be disposed of by such
Shareholder), Parent will, to the extent permitted under subsection (d) below,
use its best efforts to cause all such shares of Parent Common Stock, which the
Shareholders have so requested the registration thereof, to be registered under
the Securities Act (with the securities that Parent at the time proposes to
register), to the extent requisite to permit the sale or other disposition (in
accordance with the intended methods thereof as aforesaid) by the Shareholders
of the shares of Parent Common Stock to be so registered.
(b) Notwithstanding anything to the contrary in this Section 6.15, Parent
shall have the right to discontinue any registration under this Section 6.15 at
any time prior to the effective date of such registration if the registration of
other securities giving rise to such registration under this Section 6.15 is
discontinued.
(c) In the case of a registration under subsection (a) above, if Parent
determines to enter into an underwriting agreement in connection therewith, all
shares of Parent Common Stock to be included in such registration shall be
subject to such underwriting agreement and no person may participate in such
registration unless such person agrees to sell such person's securities on the
basis provided in such underwriting agreement and completes and/or executes all
questionnaires, indemnities, and other reasonable documents which must be
executed under the terms of such underwriting agreement.
(d) If Parent's managing underwriter shall advise Parent and the
Shareholders in writing that the inclusion in any registration pursuant hereto
of some or all of (i) the shares of Parent Common Stock sought to be registered
by the Shareholders, and (ii) the securities of Parent sought to be registered,
creates a substantial risk that the proceeds or price per unit that will be
derived from such registration will be reduced or that the number of securities
to be registered is too large a number to be reasonably sold, (i) first, the
number of securities of Parent (or securities of other persons exercising
"demand
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rights") sought to be registered shall be included in such registration, and
(ii) next, the number of shares of Parent Common Stock and other securities of
persons exercising "piggyback rights" shall be included in such registration to
the extent permitted by the Company's managing underwriter (if the offering is
underwritten) with the number of shares of Parent Common Stock and such other
securities being registered being based on the respective rights of each party
and the decision of Parent.
(e) If a registration hereunder shall be in connection with an underwritten
public offering, the participating Shareholders shall be deemed to have agreed
by acquisition of their shares of Parent Common Stock not to effect any public
sale or distribution, including any sale pursuant to Rule 144 under the
Securities Act, of any shares of Parent Common Stock and to use their best
efforts not to effect any such public sale or distribution of any other equity
security of Parent or of any security convertible into or exchangeable or
exercisable for any equity security of Parent (other than as part of such
underwritten public offering) within 20 days before or 90 days after the
effective date of such registration statement. In such event, such participating
Shareholders agree, if requested, to sign a customary market stand-off letter
with Parent's managing underwriter, and to comply with applicable rules and
regulations of the Securities Exchange Commission.
(f) If and to the extent that any Shareholder sells or otherwise disposes of
shares of Parent Common Stock in any transaction that does not require
registration under the Securities Act (other than a transaction exempt under
Rule 144), the rights of such Shareholder hereunder with respect to such shares
of Parent Common Stock will be assignable to the transferee of such shares of
Parent Common Stock; provided, however, that such transferee agrees in writing
to be bound by all the terms and conditions of this Section 6.15.
Section 6.16 DELIVERY OF CERTAIN DOCUMENTS. On or prior to the fifth
business day following the date of this Agreement: (i) Parent shall deliver to
the Company the Parent Disclosure Schedule and all diligence materials
reasonably requested by the Company and not previously delivered to the Company
(collectively, the "PARENT DELIVERIES"); and (ii) the Company shall deliver to
Parent EXHIBIT A, the Company Disclosure Schedule and all diligence materials
reasonably requested by Parent and not previously delivered to Parent
(collectively, the "COMPANY DELIVERIES").
ARTICLE VII.
CLOSING AND CLOSING DATE; CONDITIONS TO CLOSING
Section 7.1 CLOSING AND CLOSING DATE. As soon as practicable after the
satisfaction or waiver of the conditions set forth herein and prior to the
filing of the Certificate of Merger and Articles of Merger, a closing of the
transactions contemplated hereby (the "CLOSING") shall take place at the offices
of Jackson Walker L.L.P., 901 Main Street, Suite 6000, Dallas, Texas or at such
other location as the parties may agree in writing. The date on which the
Closing occurs is referred to as the "CLOSING DATE."
Section 7.2 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY, PARENT AND MERGER
SUB. The respective obligations of the Company, on the one hand, and Parent and
Merger Sub, on the other hand, to consummate the transactions contemplated
hereby are subject to the satisfaction at or prior to the Closing Date of the
following conditions, any or all of which may be waived in writing by the
parties hereto, in whole or in part, to the extent permitted by applicable law:
(a) the issuance of Parent Common Stock pursuant to the Merger, the change
of Parent's name and the increase in the number of authorized shares of Parents'
Common Stock shall have been approved by the stockholders of Parent as
contemplated hereby;
(b) the shares of Parent Common Stock to be issued in the Merger shall have
been approved for listing on the AMEX upon official notice of issuance;
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(c) any governmental or regulatory notices or approvals, including blue sky
approvals, required with respect to the transactions contemplated hereby shall
have been either filed or received; and
(d) no federal, state or foreign governmental authority or other agency or
commission or court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any statute or rule, regulation, injunction or
other order (whether temporary, preliminary or permanent) which remains in
effect and which has the effect of making the transactions contemplated hereby
illegal or otherwise prohibiting the transactions contemplated by this
Agreement, or which questions the validity or the legality of the transactions
contemplated hereby and which could reasonably be expected to materially and
adversely affect the value of the business of the Company or Parent.
Section 7.3 ADDITIONAL CONDITIONS TO OBLIGATIONS OF PARENT AND MERGER
SUB. The obligations of Parent and Merger Sub to effect the Merger and the
other transactions contemplated hereby are also subject to the satisfaction at
or prior to the Closing Date of the following conditions, any or all of which
may be waived in writing by Parent, in whole or in part, to the extent permitted
by applicable law:
(a) each of the representations and warranties of the Company and
Shareholders contained in this Agreement shall be true and correct (except to
the extent that the breach thereof shall not constitute a Company Material
Adverse Effect) as of the Closing Date as though made on and as of the Closing
Date (except to the extent such representations and warranties specifically
relate to an earlier date, in which case such representations and warranties
shall be true and correct as of such earlier date), and Parent and Merger Sub
shall have received a certificate of the President or Chief Financial Officer of
the Company and each of the Shareholders, dated the Closing Date, to such
effect;
(b) the Company and Shareholders shall have performed or complied in all
material respects with all agreements and covenants required by this Agreement
to be performed or complied with by it on or prior to the Closing Date, and
Parent and Merger Sub shall have received a certificate of the President or the
Chief Financial Officer of the Company and each of the Shareholders, dated the
Closing Date, to that effect;
(c) since the date of this Agreement, there shall not have been the
occurrence of a Company Material Adverse Effect;
(d) Jackson Walker L.L.P. shall have delivered to Parent its written opinion
(which may be based upon certain representations of management of the Company
and Parent and others and upon certain assumptions) as of the date that the
Proxy Statement is first mailed to Parent's stockholders substantially to the
effect that (i) the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code and (ii) Parent, Merger Sub and the Company will
each be a party to that reorganization within the meaning of Section 368(b) of
the Code, and such opinion shall not have been withdrawn, rescinded, revoked or
modified in any material respect;
(e) the condition set forth in the last sentence of Section 6.4(b) above
shall have been satisfied as provided therein;
(f) The holders of shares of Parent Common Stock and the holders of shares
of Company Common Stock shall not have exercised dissenters' or appraisal
rights;
(g) Shareholders shall have executed and delivered the Escrow Agreement and
such agreement shall constitute the legal, valid and binding obligations of the
parties thereto; and
(h) The Company and Shareholders shall have executed the Security Agreement
and all related financing statements, documents and agreements.
Section 7.4 ADDITIONAL CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligations of the Company to effect the Merger and the other transactions
contemplated hereby are also subject to the
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satisfaction at or prior to the Closing Date of the following conditions, any or
all of which may be waived in writing by the Company, in whole or in part, to
the extent permitted by applicable law:
(a) each of the representations and warranties of Parent and Merger Sub
contained in this Agreement shall be true and correct (except to the extent that
the breach thereof shall not constitute a Parent Material Adverse Effect) as of
the Closing Date as though made on and as of the Closing Date (except to the
extent such representations and warranties specifically relate to an earlier
date, in which case such representations and warranties shall be true and
correct as of such earlier date), and the Company shall have received a
certificate of the President or the Chief Financial Officer of each of Parent
and Merger Sub, dated the Closing Date, to such effect;
(b) Parent and Merger Sub shall have performed or complied in all material
respects with all agreements and covenants required by this Agreement to be
performed or complied with by them on or prior to the Closing Date, and the
Company shall have received a certificate of the President or the Chief
Financial Officer of each of Parent and Merger Sub, dated the Closing Date, to
that effect;
(c) Since the date of this Agreement, there shall not have occurred a Parent
Material Adverse Effect;
(d) Jackson Walker L.L.P. shall have delivered to the Company its written
opinion (which may be based upon certain representations of management of the
Company and Parent and others and upon certain assumptions) as of the date that
the Proxy Statement is first mailed to the Company's shareholders substantially
to the effect that (i) the Merger will constitute a reorganization within the
meaning of section 368(a) of the Code, (ii) Parent, Merger Sub and the Company
will each be a party to that reorganization within the meaning of section
368(b) of the Code, and (iii) no gain or loss for U.S. federal income tax
purposes will be recognized by the holders of Company Common Stock upon receipt
of shares of Parent Common Stock in the Merger, except with respect to any cash
received in lieu of a fractional share interest in Parent Common Stock, and such
opinion shall not have been withdrawn or modified in any material respect;
(e) The bylaws of Parent shall have been amended, effective as of the
Effective Time, in compliance with Section 6.1 of this Agreement; and
(f) The Company shall have obtained the consent or approval of each person
set forth in SECTION 3.3 OF THE COMPANY DISCLOSURE SCHEDULE.
ARTICLE VIII.
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned at any time prior to the
Effective Time, whether before or after approval of this Agreement by the
Company's or Parent's stockholders:
(a) by mutual written consent duly authorized by the Boards of Directors of
the Company and Parent;
(b) by Parent:
(i) upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 7.3(a) or
Section 7.3(b) of this Agreement, as the case may be, would be incapable of
being satisfied by November 30, 2000 (the "OUTSIDE DATE"); PROVIDED,
HOWEVER, that in any case a willful material breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of this
Section 8.1(b);
A-29
<PAGE>
(ii) if, prior to the Effective Time, the Board of Directors of Parent
(or any committee thereof) shall have withdrawn, or modified or changed in a
manner adverse to the Company, its approval or recommendation of the
issuance of shares of Parent Common Stock pursuant to the Merger in order to
approve and permit Parent to execute a definitive agreement providing for a
Superior Proposal; provided that (A) at least 5 business days prior to
terminating this Agreement pursuant to this Section 8.1(b)(ii) Parent has
provided the Company with written notice advising the Company that the Board
of Directors of Parent has received a Superior Proposal that it intends to
accept, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal,
(B) Parent shall have caused its financial and legal advisors to negotiate
in good faith with the Company to make such adjustments in the terms and
conditions of this Agreement as would enable Parent to proceed with the
transactions contemplated herein on such adjusted terms, (C) simultaneously
with any termination of this Agreement pursuant to Section 8.1(b)(ii),
Parent shall pay to the Company the Termination Fee (as defined in Section
8.3(c)) and (D) Parent may not terminate this Agreement pursuant to this
Section 8.1(b)(ii) if Parent is in material breach of this Agreement; or
(iii) if the Company Deliveries or financial statements to be delivered
to Parent pursuant to Section 3.5 above are not reasonably satisfactory to
Parent, and Parent is unable to reach agreement with the Company as to any
requested changes, additions or modifications within fifteen days following
the expiration of the five-day period set forth in Section 6.16 or Section
3.5 above, respectively.
(c) by the Company:
(i) upon a material breach of any representation, warranty, covenant or
agreement on the part of Parent or Merger Sub set forth in this Agreement,
or if any representation or warranty of Parent shall have become untrue, in
either case such that the conditions set forth in Section 7.4(a) or Section
7.4(b) of this Agreement, as the case may be, would be incapable of being
satisfied by the Outside Date; PROVIDED, HOWEVER, that in any case, a
willful breach shall be deemed to cause such conditions to be incapable of
being satisfied for purposes of this Section 8.1(c);
(ii) if, prior to the Effective Time, the Board of Directors of the
Company (or any committee thereof) shall have withdrawn, or modified or
changed in a manner adverse to Parent, its approval or recommendation of the
Merger in order to approve and permit the Company to execute a definitive
agreement providing for a Superior Proposal; provided that (A) at least 5
business days prior to terminating this Agreement pursuant to this Section
8.1(c)(ii) the Company has provided Parent with written notice advising
Parent that the Board of Directors of the Company has received a Superior
Proposal that it intends to accept, specifying the material terms and
conditions of such Superior Proposal and identifying the person making such
Superior Proposal, (B) the Company shall have caused its financial and legal
advisors to negotiate in good faith with Parent to make such adjustments in
the terms and conditions of this Agreement as would enable Parent to proceed
with the transactions contemplated herein on such adjusted terms;
(C) simultaneously with any termination of this Agreement pursuant to this
Section 8.1(c)(ii), the Company shall pay to Parent the Termination Fee (as
defined in Section 8.3(c)) and (D) the Company may not terminate this
Agreement pursuant to this Section 8.1(c)(ii) if the Company is in material
breach of this Agreement; or
(iii) if the Parent Deliveries are not reasonably satisfactory to the
Company, and the Company is unable to reach agreement with Parent as to any
requested changes, additions or modifications within fifteen days following
the expiration of the five-day period set forth in Section 6.16 above.
(d) by either Parent or the Company if the Merger shall not have been
consummated on or before the Outside Date; or
A-30
<PAGE>
(e) by Parent if the issuance of Parent Common Stock in connection with the
Merger or the increase in the number of authorized shares of Parent Common Stock
shall fail to receive the requisite vote for approval by the stockholders of
Parent at Parent's stockholders' meeting referred to in Section 6.4.
The right of any party hereto to terminate this Agreement pursuant to this
Section 8.1 shall remain operative and in full force and effect regardless of
any investigation made by or on behalf of any party hereto or any of their
respective officers, directors, representatives or agents, whether prior to or
after the execution of this Agreement.
Section 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to Section 8.1 hereof, this Agreement, except as provided in
Sections 8.3 and 10.14, shall forthwith become null and void and have no effect,
without any liability on the part of any party or its directors, officers or
stockholders except as set forth in Sections 8.3 and 10.14.
Section 8.3 FEES AND EXPENSES.
(a) Subject to Section 8.3(c), all Expenses (as defined in paragraph (b) of
this Section 8.3) incurred by the parties hereto shall be (i) borne solely and
entirely by the party which has incurred such Expenses; PROVIDED, HOWEVER, that
(i) the allocable share of Parent and Merger Sub as a group and the Company for
all Expenses related to printing and mailing the Proxy Statement shall be three-
fourths by Parent and one-fourth by the Company; (ii) that Parent may, at its
option, pay any Expenses of the Company, and (iii) Parent shall pay all SEC
filing fees.
(b) "EXPENSES" as used in this Agreement shall include all out-of-pocket
expenses (including, without limitation, all fees and expenses of counsel,
accountants, investment bankers, experts and consultants to a party 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, the preparation, printing, filing and mailing of
the Proxy Statement, the solicitation of stockholder approvals and all other
matters related to the consummation of the transactions contemplated hereby.
(c) If Parent shall terminate this Agreement pursuant to Section
8.1(b)(ii) or the Company shall terminate the Agreement pursuant to Section
8.1(c)(ii), the party terminating this Agreement shall pay to the other party
(not later than five business days after such termination of this Agreement) an
amount equal to the reasonable Expenses of such other party (the "TERMINATION
FEE").
(d) Parent and the Company agree that the agreements contained in Section
8.3(c) are an integral part of the transactions contemplated by this Agreement
and constitute liquidated damages and not a penalty. If one party fails to
promptly pay to the other any amounts due under such Section 8.3(c), the
defaulting party shall pay the costs and expenses (including legal fees and
expenses) in connection with any action, including the filing of any lawsuit or
other legal action, taken to collect payment, together with interest on any
unpaid amounts at the publicly announced prime or base rate of THE WALL STREET
JOURNAL--SOUTHWEST EDITION from the date such amount was required to be paid.
ARTICLE IX.
INDEMNIFICATION
Section 9.1 INDEMNIFICATION BY SHAREHOLDERS. Subject to the terms and
conditions of this Article, Shareholders jointly and severally agree to
indemnify, defend and hold Purchaser and Merger Sub and their respective
directors, officers, agents, attorneys and affiliates harmless from and against
all losses, claims, obligations, demands, assessments, penalties, liabilities,
costs, damages, attorneys' fees and expenses (collectively, "DAMAGES"), asserted
against or incurred by such indemnitees by reason of or resulting from a breach
of any representation, warranty or covenant of the Company or Shareholders
contained herein, in any exhibit, schedule, certificate or financial statement
delivered hereunder, or in
A-31
<PAGE>
any agreement executed in connection with the transactions contemplated hereby;
provided, however, that (i) no claim shall be made for indemnification under
this Article IX until, and such claims may be made only to the extent that, the
dollar amount of all such Damages exceed $75,000, individually or in the
aggregate (the "BASKET"); (ii) indemnification for breaches of representations
and warranties contained in Article IV of this Agreement or any covenant made by
a Shareholder shall be solely from the Shareholder breaching such Article IV or
such covenant; and (iii) the liability of the Shareholders for Damages shall not
exceed $3.7 million in the aggregate, except in the case of fraud.
Section 9.2 CONDITIONS OF INDEMNIFICATION. The obligations and liabilities
of Shareholders (the "INDEMNIFYING PARTY") to Parent or Merger Sub (the "PARTY
TO BE INDEMNIFIED") under Section 9.1 with respect to claims resulting from the
assertion of liability by third parties ("THIRD PARTY CLAIMS") shall be subject
to the following terms and conditions:
(a) Within 20 days (or such earlier time as might be required to avoid
prejudicing the indemnifying party's position) after receipt of notice of
commencement of any action evidenced by service of process or other legal
pleading, the party to be indemnified shall give the indemnifying party written
notice thereof together with a copy of such claim, process or other legal
pleading, and the indemnifying party shall have the right to undertake the
defense thereof by representatives of its own choosing and at its own expense;
provided that the party to be indemnified may participate in the defense with
counsel of its own choice, the fees and expenses of which counsel shall be paid
by the party to be indemnified unless (i) the indemnifying party has agreed to
pay such fees and expenses, (ii) the indemnifying party has failed to assume the
defense of such action or (iii) the named parties to any such action (including
any impleaded parties) include both the indemnifying party and the party to be
indemnified and the party to be indemnified has been advised by counsel that
there may be one or more legal defenses available to it that are different from
or additional to those available to the indemnifying party (in which case, if
the party to be indemnified informs the indemnifying party in writing that it
elects to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such action
on behalf of the party to be indemnified, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys at any
time for the party to be indemnified, which firm shall be designated in writing
by the party to be indemnified).
(b) In the event that the indemnifying party, by the 30th day after receipt
of notice of any such claim (or, if earlier, by the 10th day preceding the day
on which an answer or other pleading must be served in order to prevent judgment
by default in favor of the person asserting such claim), does not elect to
defend against such claim, the party to be indemnified will (upon further notice
to the indemnifying party) have the right to undertake the defense, compromise
or settlement of such claim on behalf of and for the account and risk of the
indemnifying party and at the indemnifying party's expense, subject to the right
of the indemnifying party to assume the defense of such claims at any time prior
to settlement, compromise or final determination thereof.
(c) Notwithstanding the foregoing, the indemnifying party shall not settle
any claim without the consent of the party to be indemnified unless such
settlement involves only the payment of money and the claimant provides to the
party to be indemnified a release from all liability in respect of such claim.
If the settlement of the claim involves more than the payment of money, the
indemnifying party shall not settle the claim without the prior consent of the
party to be indemnified.
(d) The party to be indemnified and the indemnifying party will each
cooperate with all reasonable requests of the other.
A-32
<PAGE>
ARTICLE X.
MISCELLANEOUS
Section 10.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION. The representations and warranties of the Company and the
Shareholders contained herein shall survive the Closing until the earlier of:
(i) March 1, 2002; or (ii) thirty (30) days following the date of delivery to
the entire Board of Directors of Parent of a consolidated audited statement of
operations, stockholders' equity and cash flow of Parent for fiscal year 2001,
ending December 31, 2001 (the "INDEMNIFICATION PERIOD"). The indemnification
obligations of the Shareholders under Section 9.1 above shall survive the
Closing until the expiration of the Indemnification Period; provided, however,
that if prior to the expiration of the Indemnification Period the indemnifying
party shall have been notified of a claim for indemnity under Section 9.1 and
such claim shall not have been finally resolved or disposed of at the end of the
Indemnification Period, then the Indemnification Period shall be extended, for
such claim only, until such time as such claim is finally resolved or disposed
of. The representations and warranties of the Purchaser and Merger Sub contained
herein shall not survive beyond the Effective Time. This Section 10.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
Section 10.2 AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Effective Time; PROVIDED, HOWEVER, that after approval
of this Agreement by the stockholders of the Company or Parent, (i) no
amendment, which under applicable law may not be made without the approval of
the shareholders of the Company, may be made without such approval, and (ii) no
amendment, which under the applicable rules of the AMEX or applicable law, may
not be made without the approval of the stockholders of Parent, may be made
without such approval. This Agreement may not be amended except by an instrument
in writing signed by all parties hereto.
Section 10.3 WAIVER. At any time prior to the Effective Time, either party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or covenants contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby. For purposes of this Section 10.3,
Parent and Merger Sub shall be deemed to be one party.
Section 10.4 ENTIRE AGREEMENT. This Agreement (together with the Exhibits,
the Company Disclosure Statement and Parent Disclosure Statement) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof.
Section 10.5 NOTICES. All notices and other communications hereunder shall
be in writing and shall be given by personal delivery, mailed by registered or
certified mail (postage prepaid, return receipt requested), sent by a nationally
recognized overnight courier service or sent by electronic submission to the
parties at the following addresses (or at such other address for a party as is
specified by like change of address):
IF TO PARENT OR MERGER SUB:
Intellicall Inc.
2155 Chenault, Suite 410
Carrollton, TX 75006-5023
Telecopy: 972-416-9454
Attention: John McDonald
A-33
<PAGE>
WITH A COPY TO:
Richard F. Dahlson, Esq.
Jackson Walker L.L.P.
901 Main Street, Suite 6000
Dallas, TX 75202
Telecopy: 214-953-6187
IF TO THE COMPANY:
Wireless WebConnect!, Inc.
620 Lakeview Drive
Clearwater, Florida 33756
Attention: G. T. Finn
WITH A COPY TO:
Steven L. Hayes, Esq.
1015 Oneonta Drive
Los Angeles, California 90065
Telecopy: 323-255-7412
IF TO THE SHAREHOLDERS:
to the addresses set forth opposite
each Shareholder on EXHIBIT A
Notice shall be deemed received (a) on the business day following the date on
which it is deposited with a nationally recognized and reputable overnight
courier service, (b) on the date on which it is delivered personally, (c) when
sent by facsimile with confirmation of receipt received by sender, or (d) on the
third business day following the date on which it is deposited in the U. S.
mail.
Section 10.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
Section 10.7 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
Section 10.8 PARTIES IN INTEREST. 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 confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
Section 10.9 COUNTERPARTS. This Agreement may be executed in counterparts,
by original or facsimile signatures, each of which shall be deemed to be an
original, but all of which shall constitute one and the same agreement.
Section 10.10 CERTAIN DEFINITIONS. For the purposes of this Agreement, the
term:
(a) "AFFILIATE" means a person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
(b) "BUSINESS DAY" means any day other than a day on which banks in the
State of Texas are authorized or obligated to close;
A-34
<PAGE>
(c) "KNOWLEDGE" or "KNOWN" shall mean, with respect to any matter in
question, if an executive officer of the Company or Parent, as the case may
be, has actual knowledge of such matter or should have had knowledge with
the exercise of due diligence;
(d) "PERSON" means an individual, corporation, partnership, association,
trust, unincorporated organization or other entity; and
(e) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, Parent, the Surviving
Corporation or any other person, means any corporation, partnership, joint
venture or other legal entity of which the Company, Parent, the Surviving
Corporation or any such other person, as the case may be (either alone or
through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests, the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
References herein to the shares of capital stock of any subsidiary not
organized as a corporation shall be deemed to relate to the equity interests
in such subsidiary, however denominated.
When used in this Agreement, the plural includes the singular, and vice
versa, a neuter pronoun includes the masculine and feminine, and, whether
expressly stated or not, the term "including" means including without
limitation.
Section 10.11 BINDING EFFECT, ASSIGNMENT. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective legal
representatives and successors. This Agreement may not be assigned by any party
hereto.
Section 10.12 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions 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 to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 10.13 SPECIFIC PERFORMANCE. The parties hereby acknowledge and
agree that the failure of any party to perform its agreements and covenants
hereunder, including its failure to take all actions as are necessary on its
part to the consummation of the Merger, will cause irreparable injury to the
other parties for which damages, even if available, will not be an adequate
remedy. Accordingly, each party hereby consents to the issuance of injunctive
relief by any court of competent jurisdiction to compel performance of such
party's obligations and to the granting by any court of the remedy of specific
performance of its obligations hereunder.
Section 10.14 LEGAL FEES; COSTS. If any party hereto institutes any action
or proceeding, whether before a court or arbitrator, prior to the Effective
Date, to enforce any provision of this Agreement, the prevailing party therein
shall be entitled to receive from the losing party reasonable attorneys' fees
and costs incurred in such action or proceeding, whether or not such action or
proceeding is prosecuted to judgment.
Section 10.15 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement are cumulative to, and not exclusive to, and not exclusive
of, any rights or remedies otherwise available.
A-35
<PAGE>
Section 10.16 SHAREHOLDER RELEASES; CONSENT. Effective as of the Effective
Date, each Shareholder (i) hereby irrevocably waives, releases, and discharges
the Company and each affiliate of the Company and its subsidiaries from any and
all liabilities and obligations to such Shareholder of any kind or nature
whatsoever, whether as a stockholder, officer, director or employee of the
Company, any of its subsidiaries or otherwise, existing as of the Effective Time
(except for those set forth in continuing employment agreements, salary and
benefits, and other ordinary course of business items such as expense
reimbursements) including without limitation liabilities or obligations relating
to rights of contribution or indemnification, in each case whether absolute or
contingent, liquidated or unliquidated, and whether arising at law or in equity,
and each Shareholder hereby agrees that he will not seek to recover any amounts
in connection therewith or thereunder from the Company, or any of its
subsidiaries, and (ii) hereby agrees that any and all agreements to which such
Shareholder is a party and which relate to Shareholder's ownership or voting of
Company Common Stock or options to acquire Company Common Stock (other than this
Agreement) or the right to designate directors are terminated and of no further
force or effect. By executing and delivering this Agreement the Sellers
irrevocably consent pursuant to Section 394 of the FBCA to this Agreement, the
Merger, and all of the transactions contemplated by this Agreement, such consent
to have the same effect as a vote by the Shareholders at a meeting duly called
and held for the purpose of acting on proposals to approve this Agreement, the
Merger, and the other transactions contemplated by this Agreement.
A-36
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by one of its officers thereunto duly authorized,
effective as of the day and year first above written.
<TABLE>
<S> <C> <C>
INTELLICALL, INC.
By: /s/ JOHN MCDONALD
-----------------------------------------
Name: John McDonald
Title: PRESIDENT AND CHIEF EXECUTIVE
OFFICER
WWC ACQUISITION, INC.
By: /s/ JOHN MCDONALD
-----------------------------------------
Name: John McDonald
Title: PRESIDENT
WIRELESS WEBCONNECT!, INC.
By: /s/ G.T. FINN
-----------------------------------------
Name: G.T. Finn
Title: PRESIDENT
/S/ G.T. FINN
-----------------------------------------
G.T. Finn
/s/ MICHAEL CAMPBELL
-----------------------------------------
Michael Campbell
/s/ NEIL BYRNE
-----------------------------------------
Neil Byrne
/s/ PHILIP JEPSEN
-----------------------------------------
Philip Jepsen
/s/ RAYLNN FINN
-----------------------------------------
Raylnn Finn
/s/ MARY CAMPBELL
-----------------------------------------
Mary Campbell
</TABLE>
A-37
<PAGE>
EXHIBIT A TO THE MERGER AGREEMENT
<TABLE>
<CAPTION>
SHARES OF PARENT
NAME OF SHARES OF COMPANY COMMON STOCK TO BE
SHAREHOLDER ADDRESS COMMON STOCK OWNED ISSUED IN THE MERGER
----------- --------------------------- ------------------ --------------------
<S> <C> <C> <C>
G. T. Finn................... 1733 Laurie Lane 3,100 5,092,190
Belleair, FL 33756
Michael Campbell............. 1238 S. Missouri Ave., #116 2,100 3,449,548
Clearwater, FL 33756
Neil Byrne................... 2635 Fillmore Street, #202 2,100 3,449,548
San Francisco, CA 94115
Philip Jepsen................ 1121 Haley Lane 700 1,149,850
Dunedin, FL 34698-6121
Ralynn Finn.................. 1733 Laurie Lane 1,000 1,642,642
Belleair, FL 33756
Mary Campbell................ 1238 S. Missouri Ave., #116 1,000 1,642,642
Clearwater, FL 33756
------ ----------
TOTAL...................... 10,000 16,426,420
====== ==========
</TABLE>
AA-1
<PAGE>
EXHIBIT B TO THE MERGER AGREEMENT
STOCK ESCROW AGREEMENT
This Stock Escrow Agreement (this "Agreement") is made and entered into as
of the 29th day of August, 2000, by and among the persons listed on SCHEDULE I
attached hereto (each, a "Shareholder" and collectively, the "Shareholders"),
Intellicall, Inc., a Delaware corporation ("Parent") and Jackson Walker L.L.P.
("Escrow Agent"). Terms used herein but not otherwise defined shall have the
meanings ascribed thereto in the Agreement and Plan of Merger (as hereinafter
defined).
WHEREAS, the Shareholders, WWC Acquisition, Inc., a Florida corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), Parent and Wireless
WebConnect!, Inc., a Florida corporation ("WWC"), have entered into that certain
Agreement and Plan of Merger, of even date herewith (the "Agreement and Plan of
Merger"), pursuant to which, among other things, Merger Sub merged with and into
WWC; and
WHEREAS, pursuant to the Agreement and Plan of Merger, the Parent and
Shareholders have agreed that in the aggregate 1,642,642 of the shares (10%) of
Parent Common Stock delivered to the Shareholders under the Agreement and Plan
of Merger (the "Escrowed Shares") shall be deposited hereunder;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. APPOINTMENT OF ESCROW AGENT. Parent and the Shareholders hereby
designate Jackson Walker L.L.P., as Escrow Agent, and Escrow Agent accepts such
appointment for the purposes hereinafter set forth.
2. DEPOSIT INTO ESCROW. Concurrently with the Closing, Parent shall
deliver to Escrow Agent the Escrowed Shares, which Escrowed Shares shall be
treated for all purposes as issued and outstanding capital stock of Parent. The
Escrowed Shares shall be allocated among the Shareholders as provided in
SCHEDULE I. The Escrowed Shares shall be distributed by Escrow Agent only in
accordance with Section 5 below.
3. DUTIES OF ESCROW AGENT.
(a) The duties of Escrow Agent hereunder shall be limited to the safekeeping
of the Escrowed Shares and to the transfer and distribution of the same in
accordance with the provisions of this Agreement, and no implied duties or
obligations shall be read into this Agreement against Escrow Agent. Escrow Agent
shall be protected in acting in accordance with the provisions of this Agreement
upon any written notice, request, waiver, consent, receipt, certificate or other
document furnished to it, as to its validity, the effectiveness of its
provisions, the identity or authority of the person executing or depositing the
same, the truth and acceptability of any information therein contained, which
Escrow Agent in good faith believes to be genuine. Escrow Agent will not be
liable for any error of judgment, or any act or step taken or omitted by it in
good faith, or for any mistake of fact or law or for anything it might do or
refrain from doing in connection herewith, except to the extent such action
shall be proved to constitute gross negligence or willful misconduct on the part
of Escrow Agent. Escrow Agent shall have no duties except those that are
expressly stated herein, and it shall not be bound by any notice of any claim,
or demand with respect thereto, or any waiver, modification, amendment or
termination of this Agreement until written notice of the same shall have been
received by it and approved by it.
(b) Escrow Agent shall have no responsibility or obligation of any kind in
connection with this Agreement or the Escrowed Shares except as set forth herein
and shall not be required to deliver the
AB-1
<PAGE>
Escrowed Shares or any part thereof or take any action with respect to any
matters that might arise in connection therewith, other than to receive, hold
and deliver the Escrowed Shares as herein provided.
4. APPOINTMENT OF REPRESENTATIVE. The Shareholders hereby appoint
G.T. Finn as their agent and representative for the purposes set forth herein
("Representative"), and Representative hereby accepts such appointment. Any and
all determinations with respect to Claims (as defined below) made by
Representative on behalf of the Shareholders shall be made in accordance with
the instructions received from the holders of a majority-in-interest of the
Escrowed Shares, on a Claim-by-Claim basis. Any and all costs incurred by the
Shareholders in contesting any Claim made by Parent shall be borne pro rata by
all Shareholders (except for a Claim under Article IV of the Agreement and Plan
of Merger which shall be borne by the Shareholder allegedly responsible for such
Claim).
5. DISTRIBUTIONS.
(a) In the event that Parent has any claim for Damages under the Agreement
and Plan of Merger (each, a "Claim", and collectively, the "Claims"), Parent
shall deliver written notice to Escrow Agent and the Shareholders, duly executed
by Parent, which shall (i) state the basis of the indemnification claim and
(ii) state the amount of the indemnification claimed. The liability of
Shareholders for Claims shall be subject to the Basket. The procedure for Third
Party Claims shall be handled as provided in Section 9.2 of the Agreement and
Plan of Merger and subsection (e) below, with all other Claims being handled as
provided in subsections (b), (c) and (d) below. Escrow Agent shall deliver to
Parent the number of Escrowed Shares as determined in accordance with
subsection (g) below, together with stock powers, executed in blank, upon a
Claim becoming a "Final Claim" as defined under subsections (b), (c), (d) or (e)
below.
(b) If the Shareholders do not dispute a Claim, Representative shall deliver
to Escrow Agent a written notice to that effect. Upon receipt by Escrow Agent of
such notice, the Claim shall be considered to be a "Final Claim" for purposes of
subsection (a) above. If no notice is received by Escrow Agent from
Representative by the fifteenth day after the date of Parent's original notice,
the Claim shall be considered to be a "Final Claim" for purposes of
subsection (a) above.
(c) If the Shareholders dispute all or a portion of a Claim, Representative
shall deliver to Escrow Agent a written notice to that effect within fifteen
days after the date of Parent's original notice and Parent and the Shareholders
shall attempt to reach an agreement with respect to the Claim for a period of
thirty (30) days after the date of Parent's original notice. In the event Parent
and the Shareholders reach an agreement on a Claim, Parent and Representative
shall deliver to Escrow Agent a joint written notice to that effect, which
contains the information required under subsection (a) above. Upon receipt by
Escrow Agent of such notice, the Claim (as described in the joint written
notice) shall be considered to be a "Final Claim" for purposes of
subsection (a) above.
(d) In the event the Shareholders dispute all or a portion of a Claim and
Parent and the Shareholders are unable to reach an agreement regarding the Claim
within 30 days after the date of the original notice from Parent, the Claim will
be submitted to binding arbitration in Dallas, Texas (or such other venue as
agreed to by Parent and Representative), pursuant to the Commercial Rules of the
American Arbitration Association. In the event that Parent and the Shareholders
resolve a Claim after arbitration is commenced but prior to the issuance of the
final arbitration decision, Parent and Representative shall deliver to Escrow
Agent a joint written notice to that effect, which contains the information
required under subsection (a) above. Upon receipt by Escrow Agent of such notice
from Parent and Representative or receipt by Escrow Agent of a written
arbitration decision which instructs Escrow Agent to pay a Claim to Parent and
contains the information required under subsection (a) above, the Claim (as
described in the joint written notice or arbitrator's decision) shall be
considered to be a "Final Claim" for purposes of subsection (a) above.
AB-2
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(e) Upon resolution of a Third Party Claim by: (i) mutual agreement of
Parent and the applicable Shareholders, Parent and Representative shall give
written notice to Escrow Agent of the terms of such agreement; or
(ii) determination of a Court of competent jurisdiction, Parent shall deliver to
Escrow Agent the written judgment of such Court. Upon the occurrence of either
event described in the preceding sentence, the Claim shall be considered a
"Final Claim" for purposes of subsection (a) above.
(f) The Escrowed Shares shall be held in escrow hereunder by Escrow Agent
for the Indemnification Period, subject to the remainder of this
subsection (f). Upon the expiration of the Indemnification Period, Escrow Agent
shall deliver to Representative all Escrowed Shares then being held in escrow
hereunder. Representative shall then, in turn, deliver the same to the
Shareholders in accordance with their allocation percentages set forth on
SCHEDULE I, except that such allocation shall be adjusted for Final Claims that
were satisfied against one or more Shareholders in a manner other than on a pro
rata basis (as in the case of a Final Claim against a single Shareholder under
Article IV of the Agreement and Plan of Merger). Notwithstanding the foregoing,
an amount of Escrow Shares sufficient to secure a Claim made by Parent prior to
the expiration of the Indemnification Period that has not become a Final Claim
shall continue to be held by the Escrow Agent under the terms of this Agreement
until receipt of a written notice or arbitrator's decision in accordance with
subsections (b), (c), (d) or (e) above, at which time such retained Escrowed
Shares shall either be distributed to Parent in accordance with such written
notice or decision or shall be delivered to the Shareholders.
(g) For purposes of determining the number of Escrowed Shares to be
delivered to Parent by Escrow Agent pursuant to subsections (b)-(e) above,
Escrow Agent shall divide the amount of the Final Claim by the Share Price (as
defined below) (as adjusted from time to time under Section 6(e) below). The
result shall be the number of Escrowed Shares to be delivered to Parent. As used
herein, the term "Share Price" shall mean the price at which the Parent Common
Stock was issued under the Agreement and Plan of Merger, which was $0.75 per
share.
6. ADDITIONAL RIGHTS AND OBLIGATIONS.
(a) The Escrowed Shares shall be registered in the name of the Escrow Agent.
Subject to the provisions of subsection (b) below, all stock dividends or stock
splits with respect to the Escrowed Shares shall be paid directly to the Escrow
Agent and shall be deemed to be Escrowed Shares.
(b) If the outstanding shares of Parent Common Stock shall be changed into
or exchanged for a different number or kind of shares of stock or other shares
of Parent or of another corporation, whether through reorganization, stock
split-up, combination of shares, sale of assets, merger or consolidation,
whether or not Parent is the surviving corporation, then Parent shall be
obligated to substitute for the Escrowed Shares the number and kind of shares of
stock or other securities into which each outstanding share of Parent Common
Stock shall be so changed. In such event, such additional or substituted
securities shall be deemed "Escrowed Shares" as such term is used in this
Agreement.
(c) With respect to any Escrowed Shares held pursuant to this
Agreement: (i) the Shareholders shall be entitled to exercise the voting power
with respect to the Escrowed Shares with respect to their proportionate share;
and (ii) all dividends paid on such shares will be paid to the Shareholders in
their proportionate amount.
(d) During the Escrow Period, the Shareholders shall be not entitled to sell
any of the Escrowed Shares.
(e) In the event a contingency described in subsections (a) or (b) occurs,
the Share Price shall be appropriately adjusted in a manner as agreed by the
Parent and the Shareholders within 30 days of such event. In the event the
Parent and the Shareholders are unable to reach an agreement within
AB-3
<PAGE>
30 days, the Share Price adjustment will be submitted to binding arbitration in
a manner described in Section 5(d) above.
7. INDEMNIFICATION. Parent and each Shareholder, jointly and severally,
hereby agrees to indemnify and defend Escrow Agent against and hold Escrow Agent
harmless from, any costs, damages, judgments, attorneys' fees, expenses,
obligations and liabilities of any kind or nature that may be suffered or
incurred by Escrow Agent as a result of, in connection with or hereby arising
out of the acts or omissions of Escrow Agent in the performance of, or pursuant
to, this Agreement. If any controversy arises between the parties or with any
other person with respect to the subject matter of this Agreement, Escrow Agent
shall not be required to determine the same or to take any action thereupon, but
may await the settlement or disposition of any such controversy. In such event,
Escrow Agent shall not be liable for interest or damages, except to the extent
such action shall be proved to constitute gross negligence or willful misconduct
on the part of Escrow Agent.
8. RIGHT OF INTERPLEADER. Should any controversy arise involving the
parties hereto or any of them or any other person, firm or entity with respect
to this Agreement or the Escrowed Shares, or should a substitute escrow agent
fail to be designated as provided in Section 12 hereof, or if Escrow Agent
should be in doubt as to what action to take, Escrow Agent shall have the right,
but not the obligation, either to (a) withhold delivery of the Escrowed Shares
until the controversy is resolved, the conflicting demands are withdrawn or its
doubt is resolved or (b) institute a petition for interpleader in any court of
competent jurisdiction to determine the rights of the parties hereto. In the
event Escrow Agent is a party to any dispute, Escrow Agent shall have the
additional right to refer such controversy to binding arbitration. The parties
hereto: (i) acknowledge that Escrow Agent serves as legal counsel to Parent; and
(ii) agree that Escrow Agent shall not be precluded from serving as legal
counsel to Parent in any dispute between any of the parties hereto, and the
parties hereto waive any conflicts that Escrow Agent may have as a result of
this Agreement.
9. NOTICES. All notices given by any party to any other party under this
Agreement shall be in writing and shall either be delivered by facsimile or
overnight courier, mailed postage prepaid by registered or certified mail with
return receipt requested, or delivered in person to the intended addressee. For
purposes of such notice, the addresses of the party shall be as set forth in the
Agreement and Plan of Merger, and shall be deemed given as provided in the
Agreement and Plan of Merger. The address of Escrow Agent is 901 Main Street,
Suite 6000, Dallas, Texas 75202.
10. GOVERNING LAW. This Agreement and the obligations of the parties
hereunder shall be governed and construed in accordance with the laws of the
State of Delaware.
11. ENTIRE AGREEMENT; AMENDMENTS. This Agreement contains the entire
agreement between the parties relating to the subject matter hereof. This
Agreement may be amended, extended or changed only by appropriate written
instrument or by instruments duly executed by each party to this Agreement.
12. SUCCESSORS AND ASSIGNS. This Agreement and all of the terms,
provisions and conditions hereof shall be binding upon and inure to the benefit
of the parties hereto, their respective heirs, legal representatives, successors
and assigns. Escrow Agent may resign at any time by giving Parent and the
Shareholders thirty (30) days prior written notice. In the event of such
resignation, Parent and the Shareholders shall agree within fifteen (15) days of
such notice upon a successor escrow agent, and failing such agreement, the
successor escrow agent shall be any additional banking association selected by
Parent with deposits in excess of $100,000,000.00. In the event a successor
escrow agent is not appointed by the end of such 30-day period, Escrow Agent may
petition a court of competent jurisdiction for the appointment of a successor
escrow agent, and Escrow Agent shall retain the Escrowed Shares until such
appointment.
AB-4
<PAGE>
13. COUNTERPARTS. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original, and all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
day and year first above written.
<TABLE>
<S> <C> <C>
INTELLICALL, INC.
By: /s/ JOHN J. MCDONALD, JR.
-----------------------------------------
John J. McDonald, Jr.
CHIEF EXECUTIVE OFFICER
/s/ G.T. FINN
---------------------------------------------
G.T. Finn
/s/ MICHAEL CAMPBELL
---------------------------------------------
Michael Campbell
/s/ NEIL BYRNE
---------------------------------------------
Neil Byrne
/s/ PHILIP JEPSEN
---------------------------------------------
Philip Jepsen
/s/ RALYNN FINN
---------------------------------------------
Ralynn Finn
/s/ MARY CAMPBELL
---------------------------------------------
Mary Campbell
ESCROW AGENT:
JACKSON WALKER L.L.P.
By: /s/ RICHARD F. DAHLSON
-----------------------------------------
Richard F. Dahlson, PARTNER
</TABLE>
AB-5
<PAGE>
SCHEDULE I TO THE MERGER AGREEMENT
<TABLE>
<CAPTION>
TAXPAYER NUMBER OF
NAME AND ADDRESS OF SHAREHOLDER IDENTIFICATION NUMBER ESCROWED SHARES
------------------------------- --------------------- ---------------
<S> <C> <C>
G.T. Finn ................................................. ###-##-#### 509,219
1733 Laurie Lane
Belleair, FL 33756
Michael Campbell .......................................... ###-##-#### 344,955
1238 S. Missouri Ave., #116
Clearwater, FL 33756
Neil Byrne ................................................ ###-##-#### 344,955
2635 Fillmore Street, #202
San Francisco, CA 94115
Philip Jepsen ............................................. ###-##-#### 114,985
1121 Haley Lane
Dunedin, FL 34698-6121
Ralynn Finn ............................................... ###-##-#### 164,264
1733 Laurie Lane
Belleair, FL 33756
Mary Campbell ............................................. ###-##-#### 164,264
1238 S. Missouri Ave., #116
Clearwater, FL 33756
</TABLE>
AB-6
<PAGE>
EXHIBIT C TO THE MERGER AGREEMENT
THIS PROMISSORY NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), NOR UNDER ANY STATE SECURITIES LAW AND MAY NOT BE
PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNTIL (1) A
REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE UNDER THE ACT AND ANY
APPLICABLE STATE SECURITIES LAW OR (2) THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY'S COUNSEL
THAT THIS PROMISSORY NOTE MAY BE PLEDGED, SOLD, ASSIGNED, HYPOTHECATED OR
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
APPLICABLE STATE SECURITIES LAWS.
WIRELESS WEBCONNECT!, INC.
PROMISSORY NOTE
$1,500,000 August 29, 2000
FOR VALUE RECEIVED, the undersigned, Wireless WebConnect!, Inc., a Florida
corporation ("Maker"), hereby promises to pay to the order of Intellicall, Inc.,
a Delaware corporation, or its successors or assigns ("Payee"), the lower of One
Million Five Hundred Thousand and No/100 Dollars ($1,500,000) or the unpaid
principal balance of the Drawdowns (as defined below), together with interest
thereon which shall accrue at a rate equal to eight percent (8%) per annum. All
payments on this Note (this "Note") shall be due and payable in lawful money of
the United States of America.
This Note is being made in connection with that certain Agreement and Plan
of Merger, of even date herewith, by and among Maker, Payee and a wholly-owned
subsidiary of Payee (the "Merger Agreement").
1. DRAWDOWNS. Upon delivery of the Company Deliveries (as defined in the
Merger Agreement), Payee shall advance to Maker under this Note the principal
amount of $100,000 (the "Initial Drawdown"). Upon mutual agreement and
satisfaction of Maker and Payee as to the items being delivered by Make and
Payee to each other described in Sections 8.1 subpart (b)(iii) and (e)(iii) of
the Merger Agreement, Payee shall advance to Maker under this Note the principal
amount of $150,000 (the "Second Drawdown"). After the advance of the Second
Drawdown and upon the submission by Maker to Payee of a written description of
the use of an Additional Drawdown (as defined below), Payee shall advance to
Maker under this Note the principal amount of $250,000 (each such advance an
"Additional Drawdown" and together the "Additional Drawdowns") until the
remaining principal amount of $1,250,000 has been advanced in full.
Notwithstanding anything to the contrary contained in this Note, Payee shall not
advance any Additional Drawdowns if, in Payee's sole discretion, the negotiation
of the Merger Agreement has terminated prior to its execution or the executed
Merger Agreement is terminated pursuant to its terms. The Initial Drawdown,
Second Drawdown and each Additional Drawdown are sometimes referred to herein as
the "Drawdowns".
2. PRINCIPAL AND INTEREST PAYMENTS. The principal of this Note, together
with all accrued but unpaid interest hereon, shall be due and payable on August
29, 2001; provided, however, the principal of this Note, together with all
accrued but unpaid interest hereon, shall be immediately due and payable upon
the closing by Maker of any capital financing transaction (debt or equity); and
Maker shall give Payee immediate written notice of such event.
3. PREPAYMENTS. At the option of Payee, the unpaid principal balance of
this Note shall be prepaid in whole together with all accrued but unpaid
interest only upon the occurrence of a Triggering Event (as defined below).
Maker agrees to provide Payee written notice of a Triggering Event at least
thirty (30) days prior to the Triggering Event. A "Triggering Event" shall mean:
(i) the consolidation or
AC-1
<PAGE>
merger of Maker (other than pursuant to the Merger Agreement) with or into
another corporation or business entity pursuant to which immediately following
such merger or consolidation, Maker's securityholders fail to hold a least a
majority of the voting equity of the surviving entity; or (ii) the sale or other
transfer in a single transaction or a series of related transactions of all or
substantially all of the assets of Maker, except to a majority-owned subsidiary
of Maker.
4. METHOD OF PAYMENT. All payments made under this Note, whether of
principal or interest, shall be made by Maker to Payee on the date specified or
provided herein and shall be delivered by means of certified or cashiers' check
or wire transfer or immediately available funds to an account specified by the
holder hereof. Whenever payment hereunder shall be due on a day which is not a
Business Day (as hereinafter defined), the date for payment thereof shall be
extended to the next succeeding Business Day. If the date for any payment is
extended by operation of law or otherwise, interest thereon shall be payable for
such extended time. "Business Day" means every day which is not a Saturday,
Sunday or legal holiday.
5. SECURITY. This Note is secured by a security interest in certain assets
of Maker, as granted by that certain Security Agreement, of even date herewith,
by and between Maker and Payee (the "Security Agreement").
6. EVENTS OF DEFAULT. The following shall constitute events of default
("Event of Default") hereunder;
(a) failure of Maker to make any payment on this Note as and when the same
becomes due and payable in accordance with the terms hereof and the continuance
of such failure for a period of five (5) days after written notice specifying
such default has been delivered to Maker by Payee;
(b) failure of Maker to perform any other covenant contained herein, if the
same has continued for thirty (30) days after written notice specifying such
default has been delivered to Maker by Payee;
(c) if Maker makes an assignment for the benefit of creditors, or petitions
or applies for the appointment of a liquidator, receiver or custodian (or
similar official) of it or of any substantial part of its assets, or if Maker
commences any proceeding or case relating to it under the Bankruptcy Code or any
other bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation or similar law of any jurisdiction, or takes any
action to authorize any of the foregoing; or
(d) if any petition or application of the type described in subparagraph (c)
immediately above is filed or if any such proceeding or case described in
subparagraph (c) is commenced against Maker and is not dismissed within sixty
(60) days, or if Maker indicates its approval thereof, consents thereto or
acquiesces therein, or if an order is entered appointing any such liquidator or
receiver or custodian (or similar official), or adjudicating Maker bankrupt or
insolvent, or approving a petition in any such proceeding, or if a decree or
order for relief is entered in respect of Maker in an involuntary case under the
Bankruptcy Code or any other bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation or similar law of
any jurisdiction.
In the event any one or more of the Events of Default specified above occurs
and is continuing, the holder of this Note may (i) enforce its rights, if any,
under the Security Agreement, (ii) accelerate the maturity of this Note with
notice to Maker at which time all such amounts shall be immediately due and
payable, (iii) proceed to protect and enforce its rights either by suit in
equity or by action at law, or by other appropriate proceedings, whether for the
specific performance of any covenant or agreement contained in this Note or in
the Security Agreement or in aid of the exercise of any power or right granted
by this Note or the Security Agreement, and/or (iv) enforce any other legal or
equitable right of the holder of this Note or in the Security Agreement.
7. DELAY OR OMISSION NOT WAIVER. No delay or omission on the part of the
holder of this Note in the exercise of any power, remedy or right under this
Note, or under any other instrument executed
AC-2
<PAGE>
pursuant hereto, shall operate as a waiver thereof, nor shall a single or
partial exercise of any such power or right preclude any other or further
exercise thereof or the exercise of any other right or power hereunder.
8. WAIVER. Any term, covenant, agreement or condition of this Note may,
with the written consent of Maker and Payee, be amended or compliance therewith
may be waived (either generally or in a particular instance and either
retroactively or prospectively), altered, modified or amended.
9. ATTORNEYS' FEES AND COSTS. In the event an Event of Default shall
occur, and in the event that thereafter this Note is placed in the hands of an
attorney for collection, or in the event this Note is collected in whole or in
part through legal proceedings of any nature, then and in any such case Maker
promises to pay all costs of collection, including, but not limited to,
reasonable attorneys' fees and court costs incurred by the holder hereof on
account of such collection, whether or not suit is filed.
10. SUCCESSORS AND ASSIGNS. All of the covenants, stipulations, promises
and agreements in this Note made by Maker and Payee (by virtue of its acceptance
of this Note) shall bind its successors and assigns, whether so expressed or
not.
11. MAXIMUM LAWFUL RATE. It is the intent of the Maker and holder of this
Note to conform to and contract in strict compliance with applicable usury law
from time to time in effect. In no way, nor in any event or contingency
(including but not limited to prepayment, default, demand for payment, or
acceleration of the maturity of any obligation), shall the rate of interest
taken, reserved, contracted for, charged or received under this Note exceed the
highest lawful interest rate permitted under applicable law. If the holder of
this Note shall ever receive anything of value which is characterized as
interest under applicable law and which would apart from this provision be in
excess of the highest lawful interest rate permitted under applicable law, an
amount equal to the amount which would have been excessive interest shall,
without penalty, be applied to the reduction of the principal amount owing on
this Note in the inverse order of its maturity and not to the payment of
interest, or refunded to Maker or the other payor thereof if and to the extent
such amount which would have been excessive exceeds such unpaid principal. All
interest paid or agreed to be paid to the holder hereof shall, to the extent
permitted by applicable law, be amortized, prorated, allocated and spread
throughout the full stated term (including any renewal or extension) of this
Note so that the amount of interest on account of such obligation does not
exceed the maximum permitted by applicable law. As used in this Section, the
term "applicable law" shall mean the laws of the State of Delaware or the
federal laws of the United States, whichever laws allow the greater interest, as
such laws now exist or may be changed or amended or come into effect in the
future.
12. GOVERNING LAW. This Note shall be governed by and construed in
accordance with the substantive laws (but not the rules governing conflicts of
laws) of the State of Delaware.
13. NOTICE. Any notice or demand given hereunder shall be deemed to have
been given and received (i) when actually received by the receiving party, if
delivered in person, by facsimile transmission (as evidenced by confirmation) or
by overnight courier service, or (ii) if mailed, on the earlier of the date
actually received or (whether ever received or not) three Business Days after a
letter containing such notice, certified or registered, with postage prepaid,
addressed to the receiving party, is deposited in the United States mail. The
address of: (i) Maker is 620 Lakeview Drive, Clearwater, Florida 33756,
Attention: Mike Campbell; and (ii) Payee is 2155 Chenault, Suite 410,
Carrollton, Texas 75006, Attention: John McDonald; in each case of (i) or (ii)
above, or such other address as either Maker or Payee shall advise the other by
the procedure set forth above.
AC-3
<PAGE>
14. SEVERABILITY. In case any one or more of the provisions contained in
this Note shall be any reason be held to be invalid, illegal or unenforceable in
any respect, such invalidity, illegality or unenforceability shall not affect
any other provision hereof.
EXECUTED as of the date set forth above.
<TABLE>
<S> <C> <C>
WIRELESS WEBCONNECT!, INC.
By: /s/ G.T. Finn
-----------------------------------------
Its: President
-----------------------------------------
</TABLE>
AC-4
<PAGE>
EXHIBIT D TO THE MERGER AGREEMENT
SECURITY AGREEMENT
This Security Agreement, dated as of August 29, 2000, is by and between
Wireless WebConnect!, Inc., a Florida corporation (the "Debtor"), and
Intellical, Inc., a Delaware corporation ("Secured Party").
WITNESSETH:
WHEREAS, pursuant to that certain Promissory Note (the "Note"), dated of
even date herewith, made by Debtor and payable to the order of Secured Party,
Secured Party has agreed to make a loan (the "Loan") to Debtor in the amount of
$1.5 million upon the terms and conditions set forth therein; and
WHEREAS, it is a condition precedent to the obligation of Secured Party to
make the Loan to Debtor that Debtor shall have executed and delivered this
Security Agreement to Secured Party;
NOW, THEREFORE, in consideration of the premises and to induce Secured Party
to make the Loan to Debtor upon the terms and subject to the conditions set
forth in the Note, Debtor hereby agrees with Secured Party as follows:
Section 1. DEFINED TERMS As used herein, the following terms shall have
the following meanings:
"ACCOUNTS" means all accounts receivable, customer lists, subscription
lists, invoices, agings, verification reports and other records relating in
any way to such accounts receivable, credit files, book debts, notes,
drafts, instruments, documents, acceptances and other forms of obligations
now owned or hereafter received or acquired by or belonging or owing to
Debtor (including under any trade names, styles or divisions thereof)
whether arising out of goods sold or leased by it or services rendered by it
or from any other transaction, whether or not the same involves the sale or
lease of goods or performance of services by Debtor and all of Debtor's
rights in, to and under all purchase orders now owned or hereafter received
or acquired by it for goods or services, and all of Debtor's rights to any
goods represented by any of the foregoing and all moneys due or to become
due to Debtor under all contracts for the sale or lease of goods and/or the
performance of services by it (whether or not yet earned by performance) or
in connection with any other transaction, now in existence or hereafter
arising, including without limitation the right to receive the Proceeds of
said purchase orders and contracts, and all collateral security and
guarantees of any kind given by any person or entity with respect to any of
the foregoing.
"CHATTEL PAPER" has the meaning assigned in the UCC.
"COLLATERAL" shall have the meaning assigned to it in Section 2 of this
Security Agreement.
"CONTRACTS" means any and all contracts between Debtor and any person as
the same may from time to time be amended, supplemented or otherwise
modified, including, without limitation, (a) all rights of Debtor to receive
monies due and to become due to it thereunder or in connection therewith,
(b) all rights of Debtor to damages arising out of, or for, breach or
default in respect thereof and (c) all rights of Debtor to perform and to
exercise all remedies thereunder.
"DOCUMENT" has the meaning assigned in the UCC.
"EVENT OF DEFAULT" shall have the meaning set forth in the Note.
"EQUIPMENT" means all machinery, equipment, tools, apparatus and
furniture, now owned or hereafter acquired by Debtor or in which Debtor now
has or hereafter may acquire any right, title or interest and any and all
additions, substitutions and replacements thereof, wherever located,
AD-1
<PAGE>
together with all attachments, components, parts, equipment and accessories
installed therein or affixed thereto, including, but not limited to, all
"equipment" as defined in the UCC and the equipment described on SCHEDULE 1
attached hereto and made a part hereof.
"GENERAL INTANGIBLES" has the meaning assigned in the UCC.
"INSTRUMENT" has the meaning assigned in the UCC.
"INVENTORY" means all inventory, wherever located, now owned or
hereafter acquired by Debtor or in which Debtor now has or hereafter may
acquire any right, title, or interest, including, without limitation, all
goods and other personal property now or hereafter owned by Debtor which are
held for sale or lease or are furnished or are to be furnished under a
contract of service or which constitute raw materials, work in process or
materials used or consumed or to be used or consumed in Debtor's business,
or in the processing, packaging or shipping of the same, and all finished
goods, including, but not limited to all "inventory" as defined in the UCC.
"OBLIGATIONS" means all indebtedness, obligations and liabilities of
Debtor to Secured Party under the Note, this Security Agreement, and any and
all other agreements, instruments and documents executed in connection
herewith or therewith, and all extensions, renewals, amendments,
modifications or substitutions hereof or thereof.
"PROCEEDS" has the meaning assigned in the UCC.
"SECURITY AGREEMENT" means this Security Agreement, as amended,
supplemented or otherwise modified from time to time.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the State of California.
"VEHICLES" means all cars, trucks, trailers owned or leased by Debtor,
including, without limitation, the vehicles listed on SCHEDULE 2 hereto.
Section 2. GRANT OF SECURITY INTEREST As collateral security for the
prompt and complete payment and performance when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations, Debtor hereby grants
to Secured Party a security interest in all of the following property wherever
located and now owned or at any time hereafter acquired by Debtor or in which
Debtor now has or at any time in the future may acquire any right, title or
interest (collectively, the "Collateral"): (1) all Accounts; (2) all Documents;
(3) all Chattel Paper; (4) all Contracts; (5) all Equipment; (6) all General
Intangibles; (7) all Instruments; (8) all Inventory; (9) all Vehicles; (10) all
monies and other property and assets of Debtor of any kind, whether in Debtor's
possession or under the control of Secured Party or a bailee; and (11) to the
extent not otherwise included, all accessions, substitutions, replacements,
betterments, Proceeds and products of any and all of the foregoing.
Section 3. RIGHTS OF SECURED PARTY; LIMITATIONS ON SECURED PARTY'S
OBLIGATIONS.
(a) Company Remains Liable under Accounts and Contracts. Anything herein
to the contrary notwithstanding, Debtor shall remain liable under each of
the Accounts and Contracts to observe and perform all the conditions and
obligations to be observed and performed by it thereunder, all in accordance
with the terms of any agreement giving rise to each such Account and in
accordance with and pursuant to the terms and provisions of each such
Contract. Secured Party shall have no obligation or liability under any
Account (or any agreement giving rise thereto) or Contract by reason of or
arising out of this Security Agreement or the receipt by Secured Party of
any payment relating to such Account or Contract pursuant hereto, nor shall
Secured Party be obligated in any manner to perform any of the obligations
of Debtor under or pursuant to any Account (or any agreement giving rise
thereto) or under or pursuant to any Contract, to make any payment, to make
any inquiry as to the nature or the sufficiency of any payment received by
it or as to the
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sufficiency of any performance by any party under any Account (or any
agreement giving rise thereto) or under any Contract, to present or file any
claim, to take any action to enforce any performance or to collect the
payment of any amounts which may have been assigned to it or to which it may
be entitled at any time or times.
(b) Notice to Account Debtors and Contracting Parties. Upon the request
of Secured Party at any time, Debtor shall notify account debtors on the
Accounts and parties to the Contracts that the Accounts and the Contracts
have been assigned to Secured Party and that payments in respect thereof
shall be made directly to Secured Party. Secured Party may in its own name
or in the name of others, communicate with account debtors on the Accounts
and parties to the Contracts to verify with them to its satisfaction the
existence, amount and terms of any Accounts or Contracts.
Section 4. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and
warrants that:
(a) TITLE; LIENS. (i) Debtor is the legal and beneficial owner of each
item of the Collateral free and clear of any and all liens or claims of
others; and (ii) no security agreement, financing statement or other public
notice with respect to all or any part of the Collateral is on file or of
record in any public office.
(b) PERFECTED PRIORITY LIENS/SUBORDINATION AGREEMENTS. The liens granted
pursuant to this Security Agreement constitute perfected liens on the
Collateral in favor of Secured Party, which are prior to all other liens on
the Collateral created by Debtor and in existence on the date hereof and
which are enforceable as such against all creditors of and purchasers from
Debtor and against any owner or purchaser of the real property where any of
the Collateral is located and any present or future creditor obtaining a
lien on such real property.
(c) CONSENTS. No consent or authorization of, filing with, or other act
by or in respect of, any arbitrator or any governmental body, agency or
official and no consent of any other person (including, without limitation,
any stockholder or creditor of Debtor), is required in connection with the
execution, delivery, performance, validity or enforceability of this
Security Agreement.
(d) LOCATION OF TANGIBLE PROPERTY. The Inventory and Equipment are kept
at the locations listed on SCHEDULE 3 hereto.
(e) CHIEF EXECUTIVE OFFICE. Debtor has one place of business. Debtor's
chief executive office is located at 620 Lakeview Road, Clearwater, Florida
33756.
(f) POWER AND AUTHORITY; AUTHORIZATION. Debtor has the corporate power
and authority and the legal right to execute and deliver, to perform its
obligations under, and to grant the lien on the Collateral pursuant to, this
Security Agreement and has taken all necessary corporate action to authorize
its execution, delivery and performance of, and grant of the lien on the
Collateral pursuant to, this Security Agreement.
(g) ENFORCEABILITY. This Security Agreement constitutes a legal, valid
and binding obligation of Debtor enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally.
(h) NO CONFLICT. The execution, delivery and performance of this
Security Agreement will not violate any provision of any applicable law,
rule, regulation or contractual obligations of Debtor and will not result in
the creation or imposition of any lien on any of the properties or revenues
of Debtor pursuant to any applicable law, rule, regulation or contractual
obligations of Debtor, except as contemplated hereby.
Section 5. COVENANTS. Debtor covenants and agrees with Secured Party that,
from and after the date of this Security Agreement until the Obligations are
paid in full:
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(a) ADDITIONAL DOCUMENTS; PLEDGE OF INSTRUMENTS. Debtor agrees to
promptly and duly execute and deliver all such other and further documents,
agreements and instruments and take such further action as Secured Party may
reasonably request for the purpose of obtaining or preserving the full
benefits of this Security Agreement and of the rights and powers herein
granted, including, without limitation, the filing of any financing or
continuation statements under the UCC in effect in any jurisdiction with
respect to the liens created hereby. Debtor also hereby authorizes Secured
Party to file any such financing or continuation statement without the
signature of Debtor to the extent permitted by applicable law. A carbon,
photographic or other reproduction of this Security Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
(b) MAINTENANCE OF RECORDS. Debtor will keep and maintain at its own
cost and expense satisfactory and complete records of the Collateral,
including, without limitation, a record of all payments received and all
credits granted with respect to the Accounts and Contracts. Debtor will mark
its books and records pertaining to the Collateral to evidence this Security
Agreement and the security interests granted hereby. For the further
security of Secured Party, Secured Party shall have a security interest in
all of Debtor's books and records pertaining to the Collateral, and Debtor
shall turn over any such books and records to Secured Party or to its
representatives during normal business hours at the request of Secured
Party.
(c) RIGHT OF INSPECTION. Secured Party shall have the right to inspect
Debtor's books and records upon request. Upon notice to Debtor, Secured
Party and its representatives shall at all times also have the right to
enter into and upon any premises where any of the Inventory or Equipment is
located for the purpose of inspecting the same, observing its use or
otherwise protecting its interests therein.
(d) COMPLIANCE WITH LAWS, ETC. Debtor will not directly or indirectly,
violate the provisions of any laws.
(e) LIMITATION ON LIENS ON COLLATERAL/SUBORDINATION AGREEMENT. Debtor
will not create, assume or permit to exist, will defend the Collateral
against, and will take such other action as is necessary to remove, any lien
or claim on or to the Collateral and will defend the right, title and
interest of Secured Party in and to any of the Collateral against the claims
and demands of all Persons whomsoever.
(f) MAINTENANCE OF INSURANCE. Debtor will maintain, or cause to be
maintained, insurance as is reasonable and customary with Secured Party
being named as loss payee and additional insured on all insurance policies
which pertain to the Collateral.
(g) FURTHER IDENTIFICATION OF COLLATERAL. Debtor will furnish to Secured
Party from time to time upon request statements and schedules further
identifying and describing the Collateral and such other reports in
connection with the Collateral as Secured Party may reasonably request, all
in reasonable detail and in form satisfactory to Secured Party.
(h) NOTICES. Debtor will advise Secured Party promptly, in reasonable
detail, (i) of any lien (other than liens created hereby) on, or claim
asserted against, any of the Collateral other than permitted encumbrances
and (ii) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral hereunder.
(i) CHANGES IN LOCATIONS, NAME, ETC. Debtor will not (i) change the
location of its chief executive office from that specified in Section 4(e),
(ii) permit any of the Inventory or Equipment to be kept at a location other
than those listed on SCHEDULE 3 or (iii) change its name, identity or
corporate structure to such an extent that any financing statement filed by
Secured Party in connection with this Security Agreement would become
seriously misleading, unless it shall give prior written notice as soon as
practicable thereof and prior to effecting any such change take such
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steps as Secured Party may deem necessary or advisable to continue the
perfection and priority of the security interest granted pursuant hereto.
Section 6. SECURED PARTY'S APPOINTMENT AS ATTORNEY-IN-FACT.
(a) POWERS. Debtor hereby irrevocably constitutes and appoints Secured
Party and any officer or agent thereof, with full power of substitution, as
its true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Debtor and in the name of Debtor or in
its own name, from time to time in Secured Party's discretion, for the
purpose of carrying out the terms of this Security Agreement, to take any
and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes
of this Security Agreement. Debtor hereby ratifies all that said attorneys
shall lawfully do or cause to be done by virtue hereof. This power of
attorney is power coupled with an interest and shall be irrevocable until
the Obligations shall have been paid in full or this Security Agreement
shall have been terminated.
(b) NO DUTY ON THE PART OF SECURED PARTY. The powers conferred on
Secured Party hereunder are solely to protect the interests of Secured Party
in the Collateral and shall not impose any duty upon Secured Party to
exercise any such powers. Secured Party shall be accountable only for
amounts that it actually receives as a result of the exercise of such
powers, and neither it nor any of its officers, directors, employees or
agents shall be responsible to Debtor for any act or failure to act
hereunder, except for its own gross negligence or willful misconduct, it
being the intent of the parties hereto that Secured Party shall not be
accountable for its own negligence.
Section 7. PERFORMANCE BY SECURED PARTY OF COMPANY'S OBLIGATIONS. If
Debtor fails to perform or comply with any of its agreements contained herein
and Secured Party, as provided for by the terms of this Security Agreement,
shall itself perform or comply, or otherwise cause performance or compliance,
with such agreement, the expenses of Secured Party incurred in connection with
such performance or compliance, together with interest thereon at the maximum
lawful rate, shall be payable by Debtor to Secured Party on demand and shall
constitute obligations secured hereby.
Section 8. PROCEEDS. All proceeds received by Debtor consisting of cash,
checks and other non-cash items (a) (i) shall be held by Debtor in trust for
Secured Party, segregated from other funds of Debtor or, (ii) if the Proceeds
are received in the form of checks and if Debtor so elects, shall be endorsed to
Secured Party, and (b) shall, forthwith upon receipt by Debtor, be forwarded to
Secured Party. At the request of Secured Party, such Proceeds shall be deposited
in a blocked account in the exact form received by Debtor (duly endorsed by
Debtor to Secured Party, if required), and applied in the manner specified in
the Note.
Section 9. REMEDIES If an Event of Default shall occur and be continuing,
Secured Party may exercise, in addition to all other rights and remedies granted
to them in this Security Agreement and in any other instrument or agreement
securing, evidencing or relating to the Obligations, all rights and remedies of
a secured party under the UCC. Without limiting the generality of the foregoing
Secured Party, without demand of performance or other demand, presentment,
protest, advertisement or notice of any kind (except any notice required by law
referred to below) to or upon Debtor or any other Person (all and each of which
demands, offenses, advertisements and notices are hereby waived), may in such
circumstances forthwith collect, receive, appropriate and realize upon the
Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give,
option or options to purchase, or otherwise dispose of and deliver the
Collateral or any part thereof (or contract to do any of the foregoing), in one
or more parcels at public or private sale or sales, at any exchange, broker's
board or office of Secured Party or elsewhere upon such terms and conditions as
it may deem advisable and at such prices as it may deem best, for cash or on
credit or for future delivery without assumption of any credit risk. Secured
Party shall have the right upon any such public sale or sales, and, to the
extent permitted by law, upon any such private sale or sales, to purchase the
whole or any part of the Collateral so sold,
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free of any right or equity of redemption in Debtor, which right or equity is
hereby waived and released. Debtor further agrees, at Secured Party's request,
to assemble the Collateral and make it available to Secured Party at places
which Secured Party shall reasonably select, whether at Debtor's premises or
elsewhere. Secured Party shall apply the net Proceeds of any such collection,
recovery, receipt, appropriation, realization or sale, after deducting all
reasonable costs and expenses of every kind inquired therein or incidental to
the care or safekeeping of any of the Collateral or in any way relating to the
Collateral or the rights of Secured Party hereunder, including without
limitation, reasonable attorneys' fees and disbursements, to the payment in
whole or in part of the Obligations, in such order as Secured Party may elect,
and only after such application and after the payment by Secured Party of any
other amount required by any provision of law, need Secured Party account for
the surplus, if any, to Debtor. To the extent permitted by applicable law,
Debtor waives all claims, damages and demands it may acquire against Secured
Party arising out of the exercise by them of any rights hereunder. If any notice
of a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least five (5)
days before such sale or other disposition. Debtor shall remain liable for any
deficiency if the Proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by Secured Party to collect such deficiency.
Section 10. LIMITATION ON DUTIES REGARDING PRESERVATION OF
COLLATERAL. Secured Party's sole duty with respect to the custody, safekeeping
and physical preservation of the Collateral in its possession, under the UCC or
otherwise, shall be to deal with it in the same manner as Secured Party deals
with similar property for its own account. Neither Secured Party, nor any of its
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon all or any part of the Collateral or for any delay in
doing so or shall be under any obligation to sell or otherwise dispose of any
Collateral upon the request of Debtor or otherwise.
Section 11. MAXIMUM LAWFUL RATE. Regardless of any provision contained
herein or in the Note, the Secured Party shall never be entitled to receive,
collect, or apply, as interest on the indebtedness, any amount in excess of the
maximum lawful rate, and in the event Secured Party ever receives, collects or
applies as interest any such excess, such amount which would be deemed excessive
interest shall be deemed a partial prepayment of principal and treated hereunder
as such; and if the Loan is paid in full, any remaining excess shall promptly be
paid to Debtor. In determining whether or not the interest paid or payable under
any specific contingency exceeds the maximum lawful rate, Debtor and the Secured
Party shall, to the extent permitted under applicable law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effects thereof and (c) amortize,
prorate, allocate and spread, in equal parts, the total amount of the interest
throughout the entire contemplated term of the Note, so that the interest rate
is the maximum lawful rate throughout the entire term of the Note; provided,
however, that if the unpaid principal balance thereof is paid and performed in
full prior to the end of the full contemplated term thereof, and if the interest
received for the actual period of existence thereof exceeds the maximum lawful
rate, the Secured Party shall refund to Debtor the amount of such excess and, in
such event, the Secured Party shall not be subject to any penalties provided by
any laws for contracting for charging, taking, reserving or receiving interest
in excess of the maximum lawful rate.
Section 12. POWERS COUPLED WITH AN INTEREST. All authorizations and
agencies herein contained with respect to the Collateral are irrevocable and
powers coupled with an interest.
Section 13. SEVERABILITY. Any provision of this Security Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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Section 14. PARAGRAPH HEADINGS. The paragraph headings used in this
Security Agreement are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.
Section 15. NO WAIVER; CUMULATIVE REMEDIES. Secured Party shall not by any
act (except by a written instrument pursuant to Section 16 hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of Secured Party, any right, power or
privilege hereunder shall operate as a waiver thereof. No single or partial
exercise of any right, power or privilege hereunder shall preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
A waiver by Secured Party of any right or remedy hereunder on any one occasion
shall not be construed as a bar to any right or remedy which Secured Party would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive of
any rights or remedies provided by law or in any of the other loan documents.
Section 16. WAIVERS AND AMENDMENTS; SUCCESSORS AND ASSIGNS; GOVERNING
LAW. None of the terms or provisions of this Security Agreement may be waived,
amended, supplemented or otherwise modified, altered or amended except by a
written instrument executed by Debtor and Secured party. This Security Agreement
shall be binding upon the successors and assigns of Debtor and shall inure to
the benefit of Secured Party and its successors and assigns.
Section 17. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
DELAWARE.
Section 18. NOTICES. Notices to be given hereunder, may be given by mail,
by telex or by facsimile transmission, addressed or transmitted to either party
at its address or transmission number set forth below effective (a) in the case
of mail, 3 days after deposit in the postal system, first class postage prepaid,
and (b) in the case of telex or facsimile notices, when sent. Each party hereto
may change its address and transmission number by written notice to the other
party.
Section 19. FINAL AGREEMENT. THIS SECURITY AGREEMENT AND THE NOTE
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES RELATING TO THE LOAN AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.
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IN WITNESS WHEREOF, Debtor and Secured Party have caused this Security
Agreement to be duly executed and delivered as of the date first above written.
<TABLE>
<S> <C> <C>
WIRELESS WEBCONNECT!, INC.
By: /s/ G.T. Finn
-----------------------------------------
Title: PRESIDENT
----------------------------------------
Address: 620 Lakeview Drive
Clearwater, Florida 33756
Telecopy No. 727-448-0949
INTELLICALL, INC.
By: /s/ John J. McDonald, Jr.
-----------------------------------------
Title: PRESIDENT & CEO
----------------------------------------
Address: 2155 Chenault, Suite 410
Carrollton, Texas 75006
Telecopy No. 972-416-9454
</TABLE>
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APPENDIX B
AMENDMENT NO. 1 TO AGREEMENT
AND PLAN OF MERGER
THIS AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "AMENDMENT") is
executed as of October 13, 2000, by and among Wireless WebConnect!, Inc., a
Florida corporation, (the "COMPANY"), Intellicall, Inc., a Delaware corporation
(the "PARENT"), and WWC Acquisition, Inc., a Florida corporation and
wholly-owned subsidiary of Parent ("MERGER SUB").
RECITALS:
A. The Company, Parent, and Merger Sub are parties to that certain Agreement
and Plan of Merger, dated as of August 29, 2000 (the "AGREEMENT").
B. The Company, Parent, and Merger Sub desire to amend the Agreement to the
extent provided below.
C. NOW, THEREFORE, in consideration of the mutual covenants set forth
herein and for good and valuable consideration, the adequacy, receipt and
sufficiency of which are hereby acknowledged, the undersigned hereby agree as
follows:
AMENDMENTS
1. AMENDMENT TO SECTION 8.1(b)(I). Section 8.1(b)(i) of the Agreement
shall be amended and replaced in its entirety by the following:
(i) upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 7.3(a) or Section
7.3(b) of this Agreement, as the case may be, would be incapable of being
satisfied by December 31, 2000 (the "OUTSIDE DATE"); PROVIDED, HOWEVER, that
in any case a willful material breach shall be deemed to cause such
conditions to be incapable of being satisfied for purposes of this Section
8.1(b);
2. AMENDMENT TO SECTION 6.1. Section 6.1 of the Agreement shall be amended
and replaced in its entirety by the following:
Section 6.1 ELECTION OF NEW PARENT DIRECTORS AND OFFICERS. Subject to
occurrence of the Merger, Parent shall take all action necessary under its
bylaws or otherwise to cause the number of members constituting the whole
Board of Directors of Parent to be eight (8) and to nominate G.T. Finn,
William O. Hunt, John McDonald, Mike Campbell, Neil Byrne and three (3)
other designees agreed to in writing by Parent and WWC to Parent's Board of
Directors at the meeting of Intellicall stockholders held with respect to
the matters contained in the Proxy Statement (defined below); provided,
however, if Banco Del Gottardo exercises its right to designate two
(2) additional persons to Parent's Board of Directors, and such persons are
not agreeable to Mr. Finn, then Mr. Finn shall have the right to designate
two (2) additional persons to Parent's Board of Directors. Such persons
shall hold office until the next annual meeting of Parent's stockholders and
until their successors shall have been elected and qualified. Subject to the
occurrence of the Merger, Parent shall take all action necessary to elect
John McDonald as Chairman and Chief Executive Officer of Parent, G.T. Finn
as President of Parent and Phil Boyd as Chief Financial Officer of Parent.
On or before the Effective Date, Parent will take all
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necessary steps to amend its bylaws, if necessary, to allow twelve members
of Parent's Board of Directors.
AMENDMENT TO SECTION 6.12. Section 6.12 of the Agreement shall be amended
and replaced in its entirety by the following:
Section 6.12. OPTIONS. Parent and the Company agree that effective at
the Effective Time, a pool of 1.5 million options shall be available for
grant under Parent's 1991 Stock Option Plan to the former employees of the
Company who become employees of the Parent in the Merger. Such former
employees of the Company shall receive credit for time served as an employee
of the Company with respect to the employee's eligibility to participate in
the 1991 Stock Option Plan.
MISCELLANEOUS
1. CONTINUING EFFECT. Except as modified and amended hereby, the Agreement
is and shall remain in force and effect in accordance with its terms.
2. COUNTERPARTS. This Amendment may be executed in several counterparts,
all of which are identical, each of which shall be deemed an original, and all
of which counterparts together shall constitute one and the same instrument.
3. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under principles of conflicts of laws applicable thereto.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf by one of its officers thereunto duly authorized,
effective as of the day and year first above written.
<TABLE>
<S> <C> <C>
WIRELESS WEBCONNECT!, INC.
By: /s/ G.T. FINN
-----------------------------------------
Name: G.T. Finn
Title: PRESIDENT
INTELLICALL, INC.
By: /s/ JOHN J. MCDONALD
-----------------------------------------
Name: John J. McDonald
Title: PRESIDENT & CEO
WWC ACQUISITION, INC.
By: /s/ JOHN J. MCDONALD
-----------------------------------------
Name: John J. McDonald
Title: PRESIDENT
</TABLE>
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APPENDIX C
AMENDMENT NO. 2 TO AGREEMENT
AND PLAN OF MERGER
THIS AMENDMENT NO. 2 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") is
executed as of December 21, 2000, by and among Wireless WebConnect!, Inc., a
Florida corporation, (the "Company"), Intellicall, Inc., a Delaware corporation
(the "Parent"), and WWC Acquisition, Inc., a Florida corporation and
wholly-owned subsidiary of Parent ("Merger Sub").
RECITALS:
A. The Company, Parent, and Merger Sub are parties to that certain Agreement
and Plan of Merger, dated as of August 29, 2000 (the "AGREEMENT").
B. The Company, Parent and Merger Sub previously amended the Agreement
pursuant to Amendment No. 1 to Agreement dated October 13, 2000.
C. The Company, Parent, and Merger Sub desire to amend the Agreement
further to the extent provided below.
D. NOW, THEREFORE, in consideration of the mutual covenants set forth herein
and for good and valuable consideration, the adequacy, receipt and sufficiency
of which are hereby acknowledged, the undersigned hereby agree as follows:
AMENDMENT
Section 8.1(b)(i) of the Agreement shall be amended and replaced in its
entirety by the following:
(i) upon a material breach of any representation, warranty, covenant or
agreement on the part of the Company set forth in this Agreement, or if any
representation or warranty of the Company shall have become untrue, in
either case such that the conditions set forth in Section 7.3(a) or
Section 7.3(b) of this Agreement, as the case may be, would be incapable of
being satisfied by February 28, 2001 (the "OUTSIDE DATE"); PROVIDED,
HOWEVER, that in any case a willful material breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of this
Section 8.1(b);
MISCELLANEOUS
1. CONTINUING EFFECT. Except as modified and amended hereby, the Agreement
is and shall remain in force and effect in accordance with its terms.
2. COUNTERPARTS. This Amendment may be executed in several counterparts,
all of which are identical, each of which shall be deemed an original, and all
of which counterparts together shall constitute one and the same instrument.
3. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with, the laws of the State of Delaware, regardless of the laws that
might otherwise govern under principles of conflicts of laws applicable thereto.
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IN WITNESS WHEREOF, each of the parties has caused this Amendment to be
executed on its behalf by one of its officers thereunto duly authorized,
effective as of the day and year first above written.
<TABLE>
<S> <C> <C>
WIRELESS WEBCONNECT!, INC.
By: /s/ MIKE CAMPBELL
--------------------------------------
Name: Mike Campbell
--------------------------------------
Title: Sr. VP Administration
--------------------------------------
INTELLICALL, INC.
By: /s/ JOHN J. MCDONALD
--------------------------------------
Name: John J. McDonald
--------------------------------------
Title: President & CEO
--------------------------------------
WWC ACQUISITION, INC.
By: /s/ JOHN J. MCDONALD
--------------------------------------
Name: John J. McDonald
--------------------------------------
Title: President
--------------------------------------
</TABLE>
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APPENDIX D
AS AMENDED OCTOBER 2, 2000
INTELLICALL, INC.
1991 STOCK OPTION PLAN
WHEREAS, the Company previously adopted the Intellicall, Inc. Incentive
Stock Option Plan, the Intellicall, Inc. Non-Qualified Stock Option Plan and the
Intellicall, Inc. Directors' Stock Option Plan (collectively, the "Plans"), and
WHEREAS, the Plans were previously approved by shareholders in accordance
with Rule 16b-3 promulgated under the Securities Exchange Act of 1934, and
WHEREAS, the Company previously adopted an amendment to administer the Plans
as a single Plan in compliance with Rule 16b-3; and
WHEREAS, the Company previously restated the Plans in their entirety in a
single document; and
WHEREAS, the Company now wishes to increase the total number of Shares
issuable under the plan to 9,495,000 to provide that shares are available for
the issuance of up to 6,995,000 incentive stock options, 2,000,000 nonqualified
stock options and 500,000 nonemployee directors stock options Shares available
for issuance of up to 6,995,000 Incentive Stock Options; and
WHEREAS, the Company now wishes to amend Section 5 of the Plan to change the
number and timing of Director Options for Nonemployee Directors;
1. PURPOSE. The purpose of this Plan is to strengthen Intellicall, Inc. by
providing an incentive to its key employees and directors thereby encouraging
them. to devote their abilities and industry to the success, of the Company's
business enterprise. It is intended that this purpose be achieved by extending
to any employees and directors of the Company an added long-term incentive for
high levels of performance and unusual efforts through the grant of options to
purchase shares of the Company's common stock under the Intellicall, Inc. 1991
Stock Option plan.
2. DEFINITIONS. For purposes of the Plan:
(a) "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means (i) intentional failure to perform reasonably assigned
duties, (ii) dishonesty or willful misconduct in the performance of an
Optionee's duties, (iii) any act of (A) fraud or intentional misrepresentation,
or (B) embezzlement, misappropriation or conversion of assets or opportunities
of the Company or (iv) willful violation of any law, rule or regulation in
connection with the performance of an Optionee's duties (other than traffic
violations or similar offenses).
(d) "Change in Capitalization" means any increase or reduction in the number
of Shares, or any change (including, but not limited to, a change in value) in
the Shares or exchange of Shares for a different number or kind of shares or
other securities of the Company, by reason of a reclassification,
recapitalization, merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, combination or exchange of shares or other similar
events.
(e) A "Change in Control" shall be deemed to have occurred when the first of
the following events occurs:
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(i) when the Company acquires actual knowledge that any person or group
(as such term are used in Sections 13(d) and 14(d) (2) of the Exchange Act),
other than an employee benefit plan established or maintained by the Company
or any of its subsidiaries or the current largest stockholder, is or becomes
the beneficial owner (as defined under Rule l3d-3 of the Exchange Act)
directly or indirectly, of securities of the Company reporting 30 percent or
more of the combined voting power of the Company's then outstanding
securities entitled generally to vote for the election of the Company's
directors; (ii) upon the approval by the Company's stockholders of (A) a
merger or consolidation of the Company with or into another Corporation
(other than a merger or consolidation in which the Company is the surviving
corporation and which does not result in any capital reorganization or
reclassification or other change in the Company's then outstanding shares of
common stock), (B) a sale or disposition of all or substantially all of the
Company's assets of (C) a plan of liquidation or dissolution of the Company;
or (iii) if, at any time, two-thirds of the members of the Board are not
"Continuing Directors." For this purpose "Continuing Directors" shall mean
the members of the Board of Directors as of May 1, 1991, and any individual
who becomes a member of the Board thereafter if his or her election or
nomination for election as a director was approved by a vote or at least
two-thirds of the Continuing Directors then in office.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
(g) "Committee" means a committee consisting of at least two
(2) Disinterested Directors appointed by the Board to administer the Plan and to
perform the functions set forth herein.
(h) "Company" means Intellicall, Inc., a Delaware corporation.
(i) "Director Option" means an Option granted to a Nonemployee Director
pursuant to Section 5.
(j) "Disability" means a physical or mental infirmity which impairs the
Optionee's ability to perform substantially his or her duties for a period of
one hundred eighty (180) consecutive days.
(k) "Disinterested Director" means a director of the Company who is
"disinterested" within the meaning of Rule l6b-3 under the Exchange Act.
(l) "Eligible Employee" means any officer or other key employee of the
Company or a Subsidiary designated by the Committee as eligible to receive
Options subject to the conditions set forth herein.
(m) "Employee Options" means an Option granted to an Eligible Employee
pursuant to Section 6.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(o) "Fair Market Value" on any date means the closing price of the Shares on
such date on the principal national securities exchange on which such Shares are
listed or admitted to trading, or if such Shares are not so listed or admitted
to trading, the arithmetic mean of the per Share closing bid price and per Share
closing asked price on such date as quoted on the National Association of
Securities Dealers Automated Quotation System or such then market in which such
prices are regularly quoted, or, if there have been no published bid or asked
quotations with respect to Shares on such date, the Fair Market Value shall be
the value established by the Board in good faith and in accordance with Section
422 of the Code.
(p) "Incentive Stock Option" means an Option satisfying the requirements of
Section 422 of the Code and designated by the Committee as an Incentive Stock
Option.
(q) "Nonqualified Stock Option" means an Option which is not an Incentive
Stock Option.
(r) "Nonemployee Director" means a director of the Company who is not an
employee of the Company or any Subsidiary.
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(s) "Option" means an Employee Option, a Director Option, or either or both
of them.
(t) "Optionee" means a person to whom an Option has been granted under the
Plan.
(u) "Parent" means any corporation which is a parent corporation (within the
meaning of Section 424(e) of the Code) with respect to the Company.
(v) "Plan" means the Intellicall, Inc. 1991 Stock Option Plan.
(w) "Shares" means the common stock, par value $.01 per share, of the
Company.
(x) "Subsidiary" means any corporation which is a subsidiary corporation
(within the meaning of Section 424(f) of the Code) with respect to the Company.
(y) "Successor Corporation" means a corporation, or a parent or subsidiary
thereof within the meaning of section 424(a) of the Code, which issues or
assumes a stock option in a transaction to which Section 424(a) of the Code
applies.
(z) "Ten-Percent Stockholder" means an Eligible Employee, who, at the time
an Incentive Stock Option is to be granted to him or her, owns (within the
meaning of Section 422(b) (6) of the Code) stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of the
Company, or of a Parent or a Subsidiary.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Committee which shall hold
meetings at such times as may be necessary for the proper administration of the
Plan. The Committee shall keep minutes of its meetings. A quorum shall consist
of not less than two members of the Committee and a majority of a quorum may
authorize any action. Any decision or determination reduced to writing and
signed by a majority of all of the members shall be as fully effective as if
made by a majority vote at a meeting duty called and held. Each member of the
Committee shall be a Disinterested Director. No member of the Committee shall be
liable for any action, failure to act, determination or interpretation made in
good faith with respect to this Plan or any transaction hereunder, except for
liability arising from his or her own willful misfeasance, gross negligence or
reckless disregard of his or her duties. The Company hereby agrees to indemnify
each member of the Committee for all costs and expenses and, to the extent
permitted by applicable law, any liability incurred in connection with defending
against, responding to, negotiation for the settlement of or otherwise dealing
with any claim, cause of action or dispute of any kind arising in connection
with any actions in administering this Plan or in authorizing or denying
authorization to any transaction hereunder.
(b) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time to determine those Eligible
Employees to whom Employee Options shall be granted under the Plan and the
number of Incentive Stock Options and/or Nonqualified Stock Options to be
granted to each Eligible Employee and to prescribe the terms and conditions
(which need not be identical) of each Employee Option, including the purchase
price per Share subject to each Employee Option, and make any amendment or
modification to any Agreement consistent with the terms of the Plan;
(c) Subject to the express terms and conditions set forth herein, the
Committee shall have the power from time to time:
(1) to construe and interpret the Plan and the Options granted
thereunder and to establish, amend and revoke rules and regulations for the
administration of the Plan, including, but not limited to, correcting any
defect or supplying any omission, or reconciling any inconsistency in the
Plan or in any Agreement, in the manner and to the extent it shall deem
necessary or advisable to make the Plan fully effective, and all decisions
and determinations by the Committee in the
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exercise of this power shall be final, binding and conclusive upon the
Company, its Subsidiaries, the Optionees and all other persons having any
interest therein;
(2) to determine the duration and purposes for leaves of absence which may
be granted to an Optionee on an individual basis without constituting a
termination of employment or service for purposes of the Plan;
(3) to exercise its discretion with respect to the powers and rights
granted to it as set forth in the Plan;
(4) generally, to exercise such powers and to perform such acts as are
deemed necessary or advisable to promote the best interests of the Company
with respect to the Plan.
4. STOCK SUBJECT TO PROGRAM.
(a) The maximum number of Shares that may be made the subject of Options
granted under the Plan is as follows: 6,995,000 Shares with respect to Incentive
Stock Options; 2,000,000 Shares with respect to Nonqualified Stock Options; and
500,000 Shares with respect to Director Options (or, in each case, the number
and kind of shares of stock or other securities to which such Shares are
adjusted upon a Change in Capitalization pursuant to Section 8) and the Company
shall reserve for the purposes of the Plan, out of its authorized but unissued
Shares or out of Shares held in the Company's treasury, or partly out of each,
such number of Shares as shall be determined by the Board.
(b) Whenever any outstanding Option or portion thereof expires, is cancelled
or is otherwise terminated for any reason (other than upon the surrender of the
Option pursuant to Section 7(e) hereof), the Shares allocable to the cancelled
or otherwise terminated Option or portion thereof may again be the subject of
Options granted hereunder.
5. OPTIONS GRANT FOR NONEMPLOYEE DIRECTORS.
(a) GRANT. Each person who first becomes a Nonemployee Director shall
receive a grant of Director Options in respect of (i) 25,000 Shares on the date
such Nonemployee Director first becomes a Nonemployee Director (the "Election
Date") and (ii) 12,500 Shares thereafter on the date of the Company's Annual
Meeting each year such Nonemployee Director remains a Nonemployee Director. The
purchase price therefor of each Director Option shall be as provided in this
Section 5 and such Director Options shall be exercisable, in whole or in part,
immediately upon the date of grant (the "Grant"). Such Director Options shall be
evidenced by an Agreement containing such other terms and conditions not
inconsistent with the provisions of this Plan as determined by the Board.
(b) PURCHASE PRICE. The purchase price for Shares under each Director
Option shall be at least equal to 100% of the Fair Market Value of a Share on
the date the Director Option is granted.
(c) DURATION. Director Options shall be for a term of ten (10) years.
(d) AMENDMENT. The provisions in this Section 5 shall not be amended more
than once every six months, other than to comport with changes in the Code or
the rules and regulations thereunder.
6. OPTION GRANTS FOR ELIGIBLE EMPLOYEES.
(a) GRANT. Subject to the provisions of the Plan and to Section 4
(a) above, the Committee shall have full and final authority to select those
Eligible Employees who will receive Employee Options, the terms and conditions
of which shall be set forth in an Agreement; PROVIDED, HOWEVER, that no Eligible
Employee shall receive any Incentive Stock Options unless he is an employee of
the Company, a Parent or a Subsidiary at the time the Incentive Stock Option is
granted.
(b) PURCHASE PRICE. The purchase price or the manner in which the purchase
price is to be determined for Shares under each Employee Option shall be
determined by the Committee and set forth in the Agreement, provided that the
purchase price per Share under each Employee Option shall
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not be less than 100% of the Fair Market Value of a Share on the date the
Employee Option is granted (110% in the case of an Incentive Stock Option
granted to a Ten-Percent Stockholder).
(c) DURATION. Employee Options granted hereunder shall be for such term as
the Committee shall determine, provided that no Employee Option shall be
exercisable after the expiration of ten (10) years from the date it is granted
(five (5) years in the case of an Incentive Stock Option granted to a
Ten-Percent Stockholder). The Committee may, subsequent to the granting of any
Employee Option, extend the term thereof but in no event shall the term as so
extended exceed the maximum term provided for in the preceding sentence.
(d) MODIFICATION OR SUBSTITUTION. The Committee may, in its discretion,
modify outstanding Employee Options or accept the surrender or outstanding
Employee Options (to the extent not exercised) and grant new Options in
substitution for them. Notwithstanding the foregoing, no modification of an
Employee Option shall adversely alter or impair any rights or obligations under
the Employee Option without the Optionee's consent.
7. TERMS AND CONDITIONS APPLICABLE TO ALL OPTIONS.
(a) NON-TRANSFERABILITY. No Option granted hereunder shall be transferable
by the Optionee to whom granted otherwise than by will or the laws of descent
and distribution, and an Option may be exercised during the lifetime of such
Optionee only by the Optionee or his or her guardian or legal representative.
The terms of such Option shall be final, binding and conclusive upon the
beneficiaries, executors, administrators, heirs and successors of the Optionee.
(b) VESTING AND METHOD OF EXERCISE.
(1) Subject to Section 7(e) hereof, each Option shall become exercisable
in the manner, including installments (which need not be equal), and at such
times as may be designated by the Committee and set forth in the Agreement.
To the extent not exercised, installment shall accumulate and be
exercisable, in whole or in part, at any time after becoming exercisable,
but not later than the date the Option expires; provided, however, that the
Agreement may provide for the forfeiture of vested and non-vested Options
upon the occurrence of specified events. The Committee may accelerate the
exercisability of any Option or portion thereof at any time.
(2) The exercise of an Option shall be made only by a written notice
delivered in person or by mail to the Secretary of the Company at the
Company's principal executive office, specifying the number of Shares to be
purchased and accompanied by payment therefor and otherwise in accordance
with the Agreement pursuant to which the Option was granted. The purchase
price for any Shares purchased pursuant to the exercise of an Option shall
be paid in full upon such exercise, by any one or a combination of the
following: (i) cash or (ii) transferring Shares to the Company upon such
terms and conditions as determined by the Committee. The written notice
pursuant to this Section 7(b)(2) may also provide instructions from the
Optionee to the Company that upon receipt of the purchase price in cash from
the Optionee's broker or dealer, designated as such on the written notice,
in payment for any Shares purchased pursuant to the exercise of an Option,
the Company shall issue such Shares directly to the designated broker or
dealer. Any Shares transferred to the Company as payment of the purchase
price under an Option shall be valued at their Fair Market Value on the day
preceding the date of exercise of such Option. If requested by the
Committee, the Optionee shall deliver the Agreement evidencing the option to
the Secretary of the Company who shall endorse thereon a notation of such
exercise and return such Agreement to the Optionee. No fractional Shares (or
cash in lieu thereof) shall be issued upon exercise of an Option and the
number of Shares that may be purchased upon exercise shall be rounded to the
nearest number of whole Shares.
(c) RIGHTS OF OPTIONEES. No Optionee shall be deemed for any purpose to be
the owner of any Shares subject to any Option unless and until (i) the Option
shall have been exercised pursuant to the
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terms thereof, (ii) the Company shall have issued and delivered the Shares to
the Optionee and (iii) the Optionee's name shall have been entered as a
stockholder of record on the books of the Company. Thereupon, the Optionee shall
have fall voting, dividend and other ownership rights with respect to such
Shares.
(d) TERMINATION OF EMPLOYMENT OR SERVICE. Unless otherwise provided in the
Agreement evidencing the Option, an Option shall terminate upon or following an
Optionee's termination of employment with the Company and its Subsidiaries or
service as a director of the Company and its Subsidiaries as follows:
(1) if an Optionee's employment or service as a director terminates for
any reason other than death, Disability or Cause, the Optionee may at any
time within three (3) months after his or her termination of employment or
service as a director, exercise an Option to the extent, and only to the
extent, that the Option or portion thereof was exercisable on the date of
termination;
(2) in the event the Optionee's employment or service as a director
terminates as a result of Disability, the optionee may at any time within
one (1) year after such termination exercise such Option to the extent, and
only to the extent, the Option or portion thereof was exercisable at the
date of such termination;
(3) if an Optionee's employment or service as a director terminates for
Cause, the Option shall terminate immediately and no rights thereunder may
be exercised;
(4) if an Optionee dies while a director or an employee of the Company
or any Subsidiary or within three months after termination as described in
clause (1) of this Section 7(d) or within one (1) year after termination as
a result of Disability as described in clause (2) of this Section 7(d), the
Option may be exercised at any time within one (1) year after the Optionee's
death by the person or persons to whom such rights under the Option shall
pass by will or by the laws of descent and distribution; PROVIDED, HOWEVER,
that an Option may be exercised to the extent, and only to the extent, dig
the Option or portion thereof was exercisable on the date of death or
earlier termination.
Notwithstanding the foregoing, (i) in no event may any Option be exercised
by anyone after the expiration of the term of the Option and (ii) a termination
of service as a director shall not be deemed to occur so long as the director
continues to serve the Company as either a director or director emeritus.
(e) EFFECT OF CHANGE IN CONTROL.
Notwithstanding anything contained in the Plan or an Agreement to the
contrary, in the event of a Change in Control, all Options outstanding on the
date of such Change in Control shall become immediately and fully exercisable.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) Subject to Section 9, in the event of a Change in Capitalization, the
maximum number and class of Shares or other stock or securities with respect to
which Options may be granted under the Plan, the number and class of Shares or
other stock or securities which are subject to outstanding Options granted under
the Plan, and the purchase price therefor, if applicable shall be appropriately
and equitable adjusted.
(b) Any such adjustment in the Shares or other stock or securities subject
to outstanding Incentive Stock Options (including any adjustments in the
purchase price) shall be made in such manner as not to constitute a modification
as defined by Section 424(h) (3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code.
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(c) If, by reason of a change in Capitalization, an Optionee shall be
entitled to exercise an Option with respect to new, additional or different
shares of stock or securities, such new, additional or different shares shall
thereupon be subject to all of the conditions which were applicable to the
Shares subject to the Option, as the case may be, prior to such Change in
Capitalization.
9. EFFECT OF CERTAIN TRANSACTIONS.
Subject to Section 7(e), in the event of (i) the liquidation or dissolution
of the Company or (ii) a merger or consolidation of the Company (a
"Transaction"), the Plan and the Options issued hereunder shall continue in
effect in accordance with their respective terms and each Optionee shall be
entitled to receive in respect of each Share subject to any outstanding Options,
as the case may be, upon exercise of any Option, the same number and kind of
stock, securities, cash, property, or other consideration that each holder of a
Share was entitled to receive in the Transaction in respect of a Share. In the
event that, after a Transaction, there occurs any change of a type described in
Section 2(d) hereof with respect to the shares of the surviving or resulting
corporation, then adjustments similar to, and subject to the same conditions as,
those in Section 8 hereof shall be made by the Committee.
10. TERMINATION AND AMENDMENT OF THE PLAN.
(a) The Plan shall terminate on the day preceding the tenth anniversary of
the date of its adoption by the Board and no Option may be granted thereafter.
The Board may sooner terminate or amend the Plan at any time and from time to
time; PROVIDED, HOWEVER, that to the extent necessary under Section 16(b) of the
Exchange Act and the rules and regulations promulgated thereunder or other
applicable law, no amendment shall be effective unless approved by the
stockholders of the Company in accordance with applicable law and regulations at
an annual or special meeting held within twelve (12) months after the date of
adoption of such amendment.
(b) Except as provided in Sections 8 and 9 hereof, rights and obligations
under any Option granted before any amendment or termination of the Plan shall
not be adversely altered or impaired by such amendment or termination, except
with the consent of the Optionee, nor shall any amendment or termination deprive
any Optionee of any Shares which he may have acquired through or as a result of
the Plan.
11. NON-EXCLUSIVITY OF THE PLAN. The Adoption of the Plan by the Board
shall not be construed as amending, modifying or rescinding any previously
approved incentive arrangement or as creating any limitations on the power of
the Board to adopt such other incentive arrangements as it may deem desirable,
including, without limitation, the granting of stock options otherwise than
under the Plan, and such arrangements may be either applicable generally or only
in specific cases.
12. LIMITATION OF LIABILITY. As illustrative of the limitations of
liability of the Company, but not intended to be exhaustive thereof, nothing in
the Plan shall be construed to:
(a) give any person any right to be granted an Option other than at the sole
discretion of the Committee;
(b) give any person any rights whatsoever with respect to Shares except as
specifically provided in the Plan;
(c) limit in any way the right of the Company to terminate the employment of
any person at any time; or
(d) be evidence of any agreement or understanding, expressed or implied,
that the Company will employ any person at any particular rate of compensation
or for any particular period of time.
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13. REGULATIONS AND OTHER APPROVALS; GOVERNING LAW.
(a) This Plan and the rights of all persons claiming hereunder shall be
construed and determined in accordance with the laws of the State of Texas.
(b) The obligation of the Company to sell or deliver Shares with respect to
Optionee granted under the Plan shall be subject to all applicable laws,
rules and regulations, including all applicable federal and state securities
laws, and the obtaining of all such approvals by governmental agencies as may be
deemed necessary or appropriate by the Committee.
(c) The Plan is intended to comply with Rule 16b-3 promulgated under the
Exchange Act and the Committee shall interpret and administer the provisions of
the Plan or any Agreement in a manner consistent therewith. Any provisions
inconsistent with such Rule shall be inoperative and shall not affect the
validity of the Plan.
(d) The Board may make such changes as may be necessary or appropriate to
comply with the rules and regulations of any government authority, or to obtain
for Eligible Employees granted Incentive Stock Options the tax benefits under
the applicable provisions of the Code and regulations promulgated thereunder.
(e) Each Option is subject to the requirement that, if at any time the
Committee determines, in its discretion, that the listing, registration or
qualification of Shares issuable pursuant to the Plan is required by any
securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the grant of an Option or the issuance of
Shares, no Options shall be granted or payment made or Shares issued, in whole
or in part, unless listing, registration, qualification, consent or approval has
been effected or obtained free of any conditions as acceptable to the Committee.
(f) Notwithstanding anything contained in the Plan to the contrary, in the
event that the disposition of Shares acquired pursuant to the Plan is not
covered by a then current registration statement under the Securities Act of
1933, as amended, and is not otherwise exempt from such registration, such
Shares shall be restricted against transfer to the extent required by the
Securities Act of 1933, as amended, and rule 144 or other regulations
thereunder. The Committee may require any individual receiving Shares pursuant
to the Plan, as a condition precedent to receipt of such Shares upon exercise of
an Option, to represent and warrant to the Company in writing that the Shares
acquired by such individual are acquired without a view to any distribution
thereof and will not be sold or transferred other than pursuant to an effective
registration thereof under said Act or pursuant to an exemption applicable under
the Securities Act of 1933, as amended, or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall be
appropriately amended to reflect their status as restricted securities as
aforesaid.
14. MISCELLANEOUS.
(a) MULTIPLE AGREEMENTS. The terms of each Option may differ from other
Options granted under the Plan at the same time, or at some other time. The
Committee may also grant more than one Option to a given Eligible Employee
during the term of the Plan, either in addition to, or in substitution for, one
or more Options previously granted to that Eligible Employee.
(b) WITHHOLDING OF TAXES.
(1) The Company shall have the right to deduct from any distribution of
cash to any Optionee, an amount equal to the federal, state and local income
taxes and other amounts as may be required by law to be withheld (the
"Withholding Taxes") with respect to any Option. If an Optionee is entitled
to receive Shares upon exercise of an Option, the Optionee shall pay the
Withholding Taxes to the Company prior to the issuance, or release from
escrow, of such Shares. In satisfaction of the Withholding Taxes to the
company, the Optionee may make a written election
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(the "Tax Election"), which may be accepted or rejected in the discretion of
the Committee, to have withheld a portion of the Shares issuable to him or
her upon exercise of the Option having an aggregate Fair Market Value, on
the date preceding the date of exercise, equal to the Withholding Taxes,
provided that in respect of an Optionee who may be subject to liability
under Section 16(b) of the Exchange Act either (i) (A) the Optionee makes
the Tax Election at least six (6) months after the date the Option was
granted, (B) the Option is exercised during the ten day period beginning on
the third business day and ending on the twelfth business day following the
release for publication of the Company's quarterly or annual statements of
earnings (a "Window Period") and (C) the Tax Election is made during the
window Period in which the Option is exercised or prior to such Window
Period and subsequent to the immediately preceding Window Period or
(ii) (A) the Tax Election is made at least six (6) months prior to the date
the Option is exercised and (B) the Tax Election is irrevocable with respect
to the exercise of all Options which are exercised prior to the expiration
of six (6) months following an election to revoke the Tax Election.
Notwithstanding the foregoing, the Committee may, by the adoption of
rules or otherwise, (i) modify the provisions in the preceding sentence or
impose such other restrictions or limitations on Tax Elections as may be
necessary to ensure that the Tax Elections will be exempt transactions under
Section 16(b) of the Exchange Act, and (ii) permit Tax Elections to be made
at such other times and subject to such other conditions as the Committee
determines will constitute exempt transactions under Section l6(b) of the
Exchange Act.
(2) If an Optionee makes a disposition, within the meaning of Section
424(c) of the Code and regulations promulgated thereunder, of any Share or
Shares issued to such Optionee pursuant to the exercise of an Incentive
Stock Option within the two-year period commencing on the day after the date
of the grant or within the one-year period commencing on the day after the
date of transfer of such Share or Shares to the Optionee pursuant to such
exercise, the Optionee shall, within ten (10) days of such disposition,
notify the Company thereof, by delivery of written notice to the Company at
its principal executive office, and immediately deliver to the Company the
amount of Withholding Taxes.
15. EFFECTIVE DATE. The effective date of the Plan shall be the date of
its adoption by the Board.
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APPENDIX E
AUDIT COMMITTEE CHARTER
The Board of Directors (the "Board") of Intellicall, Inc., a Delaware
corporation (the "Company"), approves and adopts the following Audit Committee
Charter to specify the composition, roles and responsibilities of the Audit
Committee. As used in this Charter, (i) "Company" includes the Company and its
subsidiaries unless the context otherwise requires, (ii) "AMEX" means the
American Stock Exchange (iii) "SEC" means the Securities and Exchange
Commission.
PURPOSE
The function of the Audit Committee is to assist the Board in fulfilling its
oversight responsibilities with respect to the accounting, financial reporting
and related matters described below.
COMPOSITION
The Audit Committee shall consist of not less than three members, comprised
solely of independent directors, each of whom shall not have:
- been employed by the Company or its affiliates in the current or past
three years;
- accepted any compensation from the Company or its affiliates in excess
of $60,000 during the previous fiscal year, except for board service,
retirement plan benefits or non-discretionary compensation;
- an immediate family member who is, or has been in the past three years,
employed by the Company or its affiliates as an executive officer;
- been a partner, controlling shareholder or an executive officer of any
for-profit business to which the Company made, or from which it
received, payments, other than those which arise solely from
investments in the Company's securities, that exceed five percent of
the Company's consolidated gross revenues for that year, or $200,000,
whichever is more, in any of the past three years; or
- been employed as an executive of another entity where any of the
Company's executives serve on such entity's compensation committee.
[AMEX Section 121(A)]
In addition, each member of the Audit Committee shall be able to read and
understand fundamental financial statements, including the Company's balance
sheet, income statement and cash flow statement, or will become able to do so
within a reasonable period of time after his or her appointment to the Audit
Committee. Moreover, at least one member of the Audit Committee shall have past
employment experience in finance or accounting, requisite professional
certification in accounting or any comparable experience or background which
results in financial sophistication, including being or having been a chief
executive officer, chief financial officer or other senior officer with
financial oversight responsibilities. [AMEX Section 121(B)(b)(i)] The
qualifications required of Audit Committee members shall be interpreted in
conformity with Sections 121(A) and 121(B)(b) of the American Stock Exchange
Guide.
The Chairman of the Audit Committee shall be designated by the Board;
provided that if a Chairman is not designated by the Board or present at a
meeting, the Audit Committee may designate a Chairman by majority vote of the
Audit Committee members then in office.
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ROLES AND RESPONSIBILITIES
RELATIONSHIP WITH THE OUTSIDE AUDITORS
The Company's outside auditors are ultimately responsible to the Board and
the Audit Committee, as representatives of the Company's shareholders. [AMEX
Section 121(B)(a)(iii)]
The Board and the Audit Committee, as the Company's shareholders
representatives, have the ultimate authority and responsibility to select,
evaluate and, where appropriate, replace the outside auditors (or to nominate
the outside auditors to be proposed for shareholder approval in any proxy
statement). [AMEX Section 121(B)(a)(ii) and (iii)] The Audit Committee also has
the authority and responsibility to evaluate and make recommendations to the
Board regarding the selection and replacement of outside auditors (or the
nomination of the outside auditors to be proposed for stockholder approval in
any proxy statement). [AMEX Section 121(B)(a)(ii) and (iii)]
The Audit Committee has the further authority and responsibility to review
the fees charged by the outside auditors, the scope of their engagement and
proposed audit approach and to recommend such review or auditing steps as the
Audit Committee may consider desirable.
The Audit Committee shall review and confirm the independence of the outside
auditors by requiring that the outside auditors submit to the Audit Committee on
a periodic basis a formal written statement delineating all relationships
between the outside auditors and its related entities and the Company and its
related entities, engaging in a dialogue with the outside auditors with respect
to any disclosed relationships or services that may impact their objectivity and
independence and taking, or recommending, that the Board take appropriate action
to oversee the independence of the outside auditors. [AMEX Section
121(B)(a)(ii)] In addition to disclosing all relationships between the outside
auditors and its affiliates and the Company and its affiliates, the outside
auditors' formal written statement shall also contain a confirmation that, in
the outside auditors' professional judgment, it is independent of the Company
within the meaning of the federal securities laws. [AMEX Section
121(B)(a)(ii) and Independence Standards Board Standard No. 1]
Management is responsible for preparing the Company's financial statements.
The Company's outside auditors are responsible for auditing the financial
statements. The activities of the Audit Committee are in no way designed to
supersede or alter these traditional responsibilities.
INTERNAL CONTROLS
In consultation with management and the outside auditors, the Audit
Committee shall consider the Company's significant financial risk exposures and
the steps management has taken to monitor, control and report such exposures.
The Audit Committee shall consider the extent to which internal control
recommendations made by outside auditors have been implemented by management.
The Audit Committee shall request that the outside auditors keep the Audit
Committee informed about fraud, illegal acts and deficiencies in internal
controls that come to their attention and such other matters as the outside
auditors conclude should be brought to the attention of the Audit Committee.
FINANCIAL REPORTING
GENERAL
The Audit Committee shall review with management and the outside auditors
significant accounting and reporting issues applicable to the Company, including
recent professional and regulatory pronouncements, and their impact on the
financial statements.
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ANNUAL FINANCIAL STATEMENTS
The Audit Committee shall meet with management and the outside auditors to
review the annual financial statements and the results of the annual audit prior
to the release to the public of the results of operations for each fiscal year.
[SEC SK Section 306(a)(1)]
The Audit Committee shall review the annual financial statements prior to
release to the public or filing with the SEC. [SEC SK Section 306(a)(1)]
The Audit Committee shall consider management's handling of proposed audit
adjustments identified by the outside auditors.
The Audit Committee shall discuss with management and the outside auditors
any significant changes to the Company's accounting principles, the degree of
aggressiveness or conservatism of the accounting principles and underlying
estimates used in the preparation of the Company's financial statements, and any
items required to be communicated by the outside auditors in accordance with
Statement of Auditing Standards ("SAS") No. 61. [SEC SK Section 306(a)(2) and
note 29 to SEC Release 34-42266]
Based on the review and discussions with management and outside auditors
contemplated by this Charter, the Audit Committee shall recommend to the Board
whether the audited annual financial statements be included in the Company's
Form 10-K Annual Report. [SEC SK Section 306(b)(4)]
INTERIM FINANCIAL STATEMENTS
The Audit Committee shall meet with management and the outside auditors to
review the interim financial statements and the results of the auditors' review
thereof prior to the release to the public of the results for each quarter.
The Audit Committee shall review the quarterly financial statements prior to
release to the public or filing with the SEC.
COMPLIANCE WITH LAWS AND REGULATIONS
The Audit Committee shall review the effectiveness of the system for
monitoring compliance with laws and regulations and the results of management's
investigation of and follow-up (including disciplinary action) on any fraudulent
acts or accounting irregularities.
COMPLIANCE WITH CODES OF CONDUCT
The Audit Committee shall review the program for monitoring compliance with
the codes of conduct.
OTHER RESPONSIBILITIES
The Audit Committee may meet with the outside auditors, management and any
employee seeking to meet with the Audit Committee about any matter within its
purview in separate executive sessions to discuss any matters that the Committee
or these persons believe should be discussed privately.
The Audit Committee shall review, with the Company's counsel, any legal
matters that could have a significant impact on the Company's financial
statements.
The Audit Committee shall perform other oversight functions as requested by
the Board.
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<PAGE>
CHARTER SCOPE
The Audit Committee shall review and reassess the adequacy of this Charter
at least annually. [AMEX Section 121(B)(a)]
The Audit Committee shall submit this Charter to the Board for approval, and
have the Charter published at least every three years in accordance with the
rules of the SEC from time to time in effect. [SEC Schedule 14A Item
7(e)(iv)(A)]
REPORTING RESPONSIBILITIES
The Audit Committee shall regularly update the Board about Audit Committee
activities and make appropriate recommendations.
The Audit Committee shall annually prepare a report to stockholders as
required by SEC rules for inclusion in the Company's proxy statement. [SEC SK
Section 306; SEC Schedule 14A Item 7(e)(3)]
MEETINGS
The Audit Committee shall meet at least four times annually and may meet
more frequently as circumstances dictate.
Meetings of the Audit Committee may be in person or by conference call in
accordance with the Bylaws of the Company.
Meetings of the Audit Committee shall be held at such time and place, and
upon such notice, as the Chairman of the Audit Committee may from time to time
determine.
The Chairman of the Audit Committee shall develop the agenda for each
meeting and in doing so may consult with management and the outside auditors.
Except as specifically provided in this Charter, the provisions of the
Bylaws of the Company with respect to committees of the Board shall apply to the
Audit Committee.
AUTHORITY
The Audit Committee shall have the authority to conduct any investigation
appropriate to fulfilling its responsibilities and shall have direct access to
the outside auditors as well as anyone in the Company.
The Audit Committee shall have the ability to retain, at the Company's
expense, such special legal, accounting or other consultants or experts it deems
necessary in the performance of its duties.
The Audit Committee may from time to time delegate to its Chairman or any of
its members the responsibility for any particular matters.
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<PAGE>
Draft dated January 5, 2001
APPENDIX F
, 2001 To the Board of Directors
Intellicall, Inc.
We understand that on August 29, 2000, Intellicall, Inc. ("Intellicall" or the
"Company") entered into a definitive agreement to acquire Wireless
WebConnect!, Inc. ("Wireless WebConnect!") in a reverse merger. Pursuant to the
Agreement and Plan of Merger by and among Intellicall, Wireless WebConnect!, WWC
Acquisition, Inc. (a wholly owned subsidiary of Intellicall referred to herein
as the "Merger Sub") and the shareholders of Wireless WebConnect! (the
"Agreement"), as amended, the Merger Sub will merge with and into Wireless
WebConnect! and the separate existence of the Merger Sub shall cease. Wireless
WebConnect! will be the surviving corporation and will become a wholly owned
subsidiary of Intellicall. The Company will issue a total of 16,426,420 shares
of Intellicall common stock in the merger. At the effective time of the merger,
each of Wireless WebConnect!'s 10,000 common shares issued and outstanding will
be converted into 1,642.642 shares of Intellicall's common stock (the "Exchange
Ratio"). After the merger is completed, former holders of Wireless WebConnect!
common stock will own approximately 56% of the Company. Such transaction and all
related transactions are referred to collectively herein as the "Transaction."
You have requested our opinion (the "Opinion") as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's Form 10-K for the fiscal year ended 1999 and
quarterly reports on Form 10-Q for the quarter ended September 30, 2000,
as well as the amendments to each of those reports which the Company's
management has identified as being the most current financial statements
available;
2. reviewed copies of the following agreements:
a. Agreement and Plan of Merger by and among Intellicall, Inc., Wireless
WebConnect!, Inc., WWC Acquisition, Inc. and the shareholders of
Wireless WebConnect! dated August 29, 2000
b. Intellicall preliminary proxy statement dated January 5, 2001
c. Richochet Channel Partner Agreement for Authorized Service Providers
between Metricom, Inc. and Wireless WebConnect! dated June 13, 2000,
including amendments and related agreements;
3. met and had discussions with certain members of the senior management of
the Company and Wireless WebConnect! to discuss the operations, financial
condition, future prospects and projected operations and performance of
the Company and Wireless WebConnect!;
4. reviewed a liquidation scenario of the Company prepared by Intellicall
management;
5. had discussions with Company management regarding the preliminary terms,
conditions and economic benefits of a potential transaction related to
the divestiture of Intellicall's payphone business;
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<PAGE>
6. visited certain facilities and business offices of the Company and
Wireless WebConnect!;
7. reviewed forecasts and projections prepared by Wireless WebConnect!
management for the years ended December 31, 2000 through 2002;
8. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
9. reviewed certain other publicly available financial data for certain
companies that we deem comparable to the Company and Wireless
WebConnect!, and publicly available prices and premiums paid in other
transactions that we considered similar to the Transaction;
10. reviewed drafts of certain documents to be delivered at the closing of
the Transaction; and
11. conducted such other studies, analyses and inquiries as we have deemed
appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecasts and projections provided to us have been reasonably prepared
and reflect the best currently available estimates of the future financial
results and condition of the Company and Wireless WebConnect!, and that there
has been no material change in the assets, financial condition, business or
prospects of the Company and Wireless WebConnect! since the date of the most
recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and Wireless WebConnect!,
and do not assume any responsibility with respect to it. We have not made any
physical inspection or independent appraisal of any of the properties or assets
of the Company and Wireless WebConnect!. Our opinion is necessarily based on
business, economic, market and other conditions as they exist and can be
evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that the
Transaction is fair, from a financial point of view, to Intellicall.
HOULIHAN LOKEY HOWARD & ZUKIN FINANCIAL ADVISORS, INC.
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<PAGE>
PROXY CARD
INTELLICALL, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby (1) acknowledges receipt of the Notice of Annual
Meeting of Stockholders of Intellicall, Inc. (the "Company") to be held at the
Addison Conference and Theatre Centre, 15650 Addison Road, Addison, Texas 75248,
on , 2001, at 10:00 a.m., Dallas time, and the Proxy Statement in
connection therewith and (2) appoints William O. Hunt and John J. McDonald, Jr.,
and each of them, the undersigned's proxy with full power of substitution for
and in the name, place and steady of the undersigned, to vote upon and act with
respect to all of the shares of Common Stock of the Company standing in the name
of the undersigned, or with respect to which the undersigned is entitled to vote
and act, at the meeting and at any adjournment thereof.
This proxy will be voted as specified on the reverse side. If no
specification is made, this proxy will be voted (i) FOR the approval of the
issuance (the "Issuance") of shares of common stock of Intellicall, par value
$.01 per share (the "Common Stock"), pursuant to an Agreement and Plan of Merger
between Intellicall, a wholly-owned subsidiary of Intellicall and Wireless
WebConnect!, Inc.; (ii) FOR the approval of the amendment to Intellicall's
certificate of incorporation to change its name to Wireless WebConnect!, Inc.
(the "Name Change") assuming the stockholders approve the Issuance; (iii) FOR
the approval of an amendment to Intellicall's certificate of incorporation to
increase the number of authorized shares of Common Stock to 60,000,000 (the
"Increase"); (iv) FOR the approval of the amendment to Intellicall's 1991 Stock
Option Plan to increase the shares of Common Stock authorized for issuance
thereunder and to modify the terms of options issuable to nonemployee directors
(the "Plan Amendment"); (v) FOR the election of eight members of the Board of
Directors; and (vi) such other matters as may properly come before the Meeting
and any adjournments thereof.
The undersigned hereby revokes any proxy heretofore given to vote or act
with respect to the Common Stock of the Company and hereby ratifies and confirms
all that the proxies, their substitutes, or any of them may lawfully do by
virtue hereof.
If more than one of the proxies named shall be present in person or by
substitute at the meeting or at any adjournment thereof, the majority of the
proxies so present and voting, either in person or by substitute, shall exercise
all of the powers hereby given.
PLEASE DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE
IS REQUIRED IF MAILED IN THE UNITED STATES.
(CONTINUED AND TO BE DATED AND SIGNED ON THE OTHER SIDE.)
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<S> <C>
The Undersigned directs that this Proxy be voted as follows: Please mark your vote as indicated in this example /X/
</TABLE>
<TABLE>
<S> <C>
1. Approval of the Issuance 2. Approval of the Name Change
/ / FOR / / AGAINST / / ABSTAIN / / FOR / / AGAINST / / ABSTAIN
3. Approval of the Increase 4. Approval of the Plan Amendment
/ / FOR / / AGAINST / / ABSTAIN / / FOR / / AGAINST / / ABSTAIN
</TABLE>
<TABLE>
<S> <C> <C>
5. Election of Directors
FOR all nominees listed to the WITHHOLD AUTHORITY William O. Hunt, G.T. Finn, Mike Campbell, Neil Byrne, John
right TO VOTE FOR ALL NOMINEES LISTED TO J. McDonald, Jr., Richard Bishop, Richard Dahlson and Steven
(EXCEPT AS MARKED TO THE CONTRARY) THE RIGHT / / Hayes
/ /
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, WRITE THAT NOMINEE'S NAME ON THE LINE PROVIDED BELOW.)
</TABLE>
--------------------------------------------------------------------------------
6. In the Discretion of the Proxies, on any other matter which may properly
come before the meeting.
Please date this proxy and sign your name exactly as it appears hereon.
Where there is more than one owner, each should sign. When signing as an
attorney, administrator, executor, guardian or trustee, please add your title as
such. If executed by a corporation, the proxy should be signed by a duly
authorized officer.
Dated _________________________, 2001
_____________________________________
Signature of Stockholder
_____________________________________
Signature of Stockholder
Please mark, date, sign and mail your
Proxy promptly in the envelope
provided.
