SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended Commission File Number
June 30, 1999 1-10210
EGLOBE, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3486421
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(State or other jurisdiction (I.R.S. Employer
of incorporation of Identification No.)
organization)
1250 24TH STREET, NW, SUITE 725, WASHINGTON, DC 20037
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(Address of principal executive offices)
Registrant's telephone number, including area code: (202) 822-8981
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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The number of shares outstanding of each of the registrant's classes of common
stock, as of August 1, 1999 is 20,064,043 shares, all of one class of $.001 par
value Common Stock.
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EGLOBE, INC.
FORM 10-Q
QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
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PAGE
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PART I Item 1 Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3 - 4
Consolidated Statements of Operations for the three months ended June 30, 1999
and 1998 5
Consolidated Statements of Comprehensive Income (Loss) for the three months
ended June 30, 1999 and 1998 6
Consolidated Statements of Operations for the six months ended June 30, 1999 and 1998 7
Consolidated Statement of Comprehensive Income (Loss) for the six months
ended June 30, 1999 and 1998 8
Consolidated Statements of Cash Flows for the six months
ended June 30, 1999 and 1998 9 - 10
Supplemental Disclosures of Cash Flow Information 11 - 12
Notes to Consolidated Financial Statements 13 - 38
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations 39 - 46
Item 7A Quantitative and Qualitative Disclosure About Market Risk 47
PART II Item 1 Legal Proceedings 47
Item 2 Changes in Securities 47
Item 3 Defaults Upon Senior Securities 47
Item 4 Submission of Matters to a Vote of Security Holders 48 - 49
Item 5 Other Information 50
Item 6 Exhibits and Reports on Form 8-K 50 - 51
SIGNATURES 52
</TABLE>
2
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EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
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PRO FORMA
JUNE 30, 1999
(UNAUDITED) JUNE 30, 1999
(NOTE 12) (UNAUDITED) DECEMBER 31, 1998
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<S> <C> <C> <C>
ASSETS
CURRENT:
Cash and cash equivalents $5,699,870 $ 2,201,681 $1,407,131
Restricted cash 155,843 155,843 100,438
Accounts receivable, less 8,244,941 8,244,941 6,850,872
allowance of $1,438,057, $1,438,057
and $986,497 for doubtful accounts
Other current assets 1,383,648 1,383,648 494,186
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TOTAL CURRENT ASSETS 15,484,302 11,986,113 8,852,627
PROPERTY AND EQUIPMENT, 18,257,682 13,320,682 13,152,410
net of accumulated depreciation
and amortization of $15,901,656,
$15,407,956 and $13,648,667
GOODWILL, net of accumulated
amortization of $1,471,868, 16,844,152 16,844,152 11,865,142
$1,471,868, and $140,391
OTHER INTANGIBLE ASSETS, 10,632,035 10,632,035 241,461
net of accumulated amortization of
$1,043,552, $1,043,552 and $786,074
OTHER:
Advances to a non-affiliate (Note 4) - - 970,750
Deposits 677,502 677,502 518,992
Deferred financing and acquisition costs 393,620 483,620 736,071
Other assets 399,787 399,787 50,708
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TOTAL OTHER ASSETS 1,470,909 1,560,909 2,276,521
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TOTAL ASSETS $62,689,080 $ 54,343,891 $36,388,161
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
3
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1999 AND DECEMBER 31, 1998
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PRO FORMA
JUNE 30, 1999
(UNAUDITED) JUNE 30, 1999
(NOTE 12) (UNAUDITED) DECEMBER 31, 1998
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<S> <C> <C> <C>
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT:
Accounts payable $ 7,979,873 $ 7,572,873 $ 5,798,055
Accrued expenses 7,710,682 8,777,399 6,203,177
Income taxes payable 1,319,410 1,319,410 1,914,655
Notes payable and line of credit principally 1,275,000 5,693,024 6,298,706
related to acquisitions (Notes 5, 6 and 12)
Notes payable and current maturities of 5,749,877 16,638,772 8,540,214
long-term debt (Notes 7 and 12)
Deferred revenue (Note 5) 994,977 994,977 485,804
Other liabilities 493,273 493,273 567,488
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TOTAL CURRENT LIABILITIES 25,523,092 41,489,728 29,808,099
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LONG-TERM DEBT, net of current maturities 9,895,622 4,198,311 1,237,344
(Notes 5, 7 and 12)
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TOTAL LIABILITIES 35,418,714 45,688,039 31,045,443
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COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK, 3,006,411 3,006,411 -
6% Series G Cumulative Convertible Redeemable
Preferred Stock, $.001 par value, 1 share
authorized and outstanding (Note 8)
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STOCKHOLDERS' EQUITY:
Preferred stock, all series, $.001 par value, 2,413 1,513 501
10,000,000, 10,000,000, and 5,000,000
shares authorized (Note 9)
Common stock, $.001 par value, 100,000,000 shares 20,063 19,923 16,362
authorized, 20,064,043, 19,923,444 and 16,362,966
shares outstanding (Note 9)
Additional paid-in capital 67,099,970 51,776,496 33,975,268
Stock to be issued (Note 9) 4,268,690 978,690 -
Accumulated deficit (47,315,780) (47,315,780) (28,566,346)
Accumulated other comprehensive income (loss) 188,599 188,599 (83,067)
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TOTAL STOCKHOLDERS' EQUITY 24,263,955 5,649,441 5,342,718
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TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK $ 62,689,080 $54,343,891 $ 36,388,161
AND STOCKHOLDERS' EQUITY
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
4
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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REVENUE $9,115,824 $ 7,686,335
COST OF REVENUE 9,251,885 4,040,483
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GROSS PROFIT (LOSS) (136,061) 3,645,852
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COSTS AND EXPENSES:
Selling, general and administrative 5,947,134 3,625,522
Deferred compensation related to acquisitions 43,080 -
Depreciation and amortization 888,571 687,326
Amortization of goodwill and other intangible assets 1,044,048 -
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TOTAL COSTS AND EXPENSES 7,922,833 4,312,848
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LOSS FROM OPERATIONS (8,058,894) (666,996)
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OTHER INCOME (EXPENSE):
Interest expense related to acquisitions (180,819) -
Other interest expense (3,021,651) (290,848)
Other income (expense) 13,543 (50,256)
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TOTAL OTHER INCOME (EXPENSE) (3,188,927) (341,104)
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LOSS BEFORE INCOME TAXES (11,247,821) (1,008,100)
TAXES ON INCOME - -
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NET LOSS (11,247,821) (1,008,100)
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PREFERRED STOCK DIVIDENDS (Note 9) 616,594 -
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NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (11,864,415) $ (1,008,100)
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NET LOSS PER SHARE (Note 10):
BASIC $ (0.60) $ (0.06)
DILUTED $ (0.60) $ (0.06)
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
5
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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THREE MONTHS THREE MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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<S> <C> <C>
NET LOSS $(11,247,821) $(1,008,100)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 176,916 (12,277)
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COMPREHENSIVE NET LOSS $(11,070,905) $(1,020,377)
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
6
<PAGE>
<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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<S> <C> <C>
REVENUE $17,500,874 $ 15,225,372
COST OF REVENUE 17,236,637 8,228,059
GROSS PROFIT 264,237 6,997,313
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COSTS AND EXPENSES:
Selling, general and administrative 10,607,955 7,172,599
Corporate realignment expense - 967,715
Deferred compensation related to acquisitions 962,400 -
Depreciation and amortization 1,782,465 1,501,198
Amortization of goodwill and other intangible assets 1,598,794 -
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TOTAL COSTS AND EXPENSES 14,951,614 9,641,512
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LOSS FROM OPERATIONS (14,687,377) (2,644,199)
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OTHER INCOME (EXPENSE):
Proxy related litigation expense - (3,526,874)
Interest expense related to acquisitions (418,744) -
Other interest expense (3,648,855) (1,008,680)
Other income (expense) 5,542 (282,565)
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TOTAL OTHER INCOME (EXPENSE) (4,062,057) (4,818,119)
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LOSS BEFORE INCOME TAXES (18,749,434) (7,462,318)
TAXES ON INCOME - 1,500,000
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NET LOSS (18,749,434) (8,962,318)
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PREFERRED STOCK DIVIDENDS (Note 9) 4,328,973 -
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NET LOSS ATTRIBUTABLE TO COMMON STOCK $ (23,078,407) $ (8,962,318)
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NET LOSS PER SHARE (Note 10):
BASIC $ (1.22) $ (0.52)
DILUTED $ (1.22) $ (0.52)
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
7
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998
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<S> <C> <C>
NET LOSS $(18,749,434) $(8,962,318)
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS 271,666 (12,277)
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COMPREHENSIVE NET LOSS $(18,477,768) $(8,974,595)
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements
8
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
OPERATING ACTIVITIES:
Net loss $ (18,749,434) $ (8,962,318)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation and amortization 3,381,259 1,501,198
Provision for bad debts 371,618 838,910
Deferred compensation 962,400 -
Non-cash interest expense 201,956 -
Issuance of options and warrants for services 18,849 220,000
Amortization of debt discount 3,019,993 478,580
Proxy related litigation expense - 3,500,000
Other, net - 189,032
Changes in operating assets and liabilities:
Accounts receivable (1,699,235) (114,895)
Other current assets (758,873) 196,634
Other assets (542,213) -
Accounts payable 1,301,544 1,818,775
Income taxes payable (595,245) -
Accrued expenses (255,016) (39,786)
Deferred revenue (100,227) -
Other liabilities (93,254) (134,442)
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CASH USED IN OPERATING ACTIVITIES (13,535,878) (508,312)
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INVESTING ACTIVITIES:
Advances to non-affiliates subsequently acquired - (950,000)
Purchase of Telekey, net of cash acquired (95,287) -
Purchase of ConnectSoft, net of cash acquired (1,546,140) -
Purchases of property and equipment (240,681) (779,269)
Restricted cash (2,004) (300,000)
Other assets (158,510) (515,669)
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CASH USED IN INVESTING ACTIVITIES (2,042,622) (2,544,938)
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</TABLE>
9
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
1999 1998
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<S> <C> <C>
FINANCING ACTIVITIES:
Proceeds from notes payable 7,769,925 7,997,787
Proceeds from issuance of preferred stock 10,000,000 -
Stock issuance costs (703,769) -
Deferred acquisition and financing costs (87,133) -
Principal payments on notes payable (329,850) (7,196,098)
Payments on capital leases (276,123) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES 16,373,050 801,689
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 794,550 (2,251,561)
CASH AND CASH EQUIVALENTS, beginning of period 1,407,131 3,787,881
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CASH AND CASH EQUIVALENTS, end of period $2,201,681 $ 1,536,320
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
SIX MONTHS ENDED
JUNE 30,
1999 1998
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<S> <C>
Cash paid during the period for:
Interest $ 321,115 -
Income taxes $ 264,977 $129,010
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Non-cash investing and financing activities:
Equipment acquired under capital lease obligations $ 440,270 -
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Unamortized debt discount related to warrants $ 428,138 -
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Common stock issued in payment of debt $ 1,223,198 -
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Preferred stock dividends $ 4,328,973 -
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Value of warrants issued and reflected as debt discount $ 2,870,782 -
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Increase in value of preferred stock as a result of changes in $ 1,485,000 -
conversion feature
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</TABLE>
11
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<TABLE>
<CAPTION>
EGLOBE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998 (UNAUDITED)
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
CONNECTSOFT ACQUISITION, NET OF CASH ACQUIRED (Note 11)
FOR THE SIX MONTHS ENDED JUNE 30,
1999 1998
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<S> <C> <C>
Working capital deficit, other than cash acquired $ (2,118,111) $ -
Property and equipment 513,437 -
Intangible assets 9,120,000 -
Purchase price in excess of the net assets acquired 993,440 -
Acquired debt (2,991,876) -
Advances to ConnectSoft prior to beginning of the
period (970,750) -
Issuance of Series G Cumulative
Convertible Redeemable Preferred stock (3,000,000) -
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Net cash used to acquire ConnectSoft $ 1,546,140 $ -
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</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION (CONTINUED)
TELEKEY ACQUISITION, NET OF CASH ACQUIRED (Note 11)
FOR THE SIX MONTHS ENDED JUNE 30,
1999 1998
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<S> <C> <C>
Working capital deficit, other than cash acquired $ (1,284,060) $ -
Property and equipment 481,289 -
Intangible assets 1,500,000 -
Purchase price in excess of the net assets acquired 3,500,436 -
Acquired debt (1,017,065) -
Notes payable issued in acquisition (150,000) -
Issuance of Series F Convertible Preferred Stock (1,010) -
Additional paid-in capital (1,955,613) -
Stock to be issued (978,690) -
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Net cash used to acquire Telekey $ 95,287 $ -
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</TABLE>
See accompanying summary of accounting policies and notes to consolidated
financial statements.
12
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - BASIS OF PRESENTATION
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The accompanying consolidated financial statements have been prepared
in accordance with United States generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments considered necessary for a
fair presentation have been included. Operating results for the three
and six month periods ended June 30, 1999 are not necessarily
indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Form 10-K for the nine months ended December 31, 1998.
The accompanying financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All material intercompany
transactions and balances have been eliminated in consolidation.
Certain consolidated financial amounts have been reclassified for
consistent presentation. In December 1998, the Company acquired IDX
International, Inc. ("IDX"), a supplier of Internet Protocol ("IP")
transmission services, principally to telecommunications carriers, in
14 countries. Also, in December 1998, the Company acquired UCI Tele
Networks, LTD. ("UCI"), a development stage calling card business with
contracts to provide calling card services in Cyprus and Greece. In
February 1999, the Company completed the acquisition of Telekey, Inc.
("Telekey"), a provider of card-based telecommunications services (see
Notes 9 and 11). In June 1999, the Company, through its newly formed
subsidiary Vogo Networks, LLC ("Vogo"), purchased substantially all of
the assets of ConnectSoft Communications Corporation ("ConnectSoft"),
which developed and continues to enhance a server based communication
system that integrates various forms of messaging, Internet and web
content, personal services, and provides telephone access to Internet
content (including email and e-commerce functions). (See Notes 4, 6, 8
and 11 for further discussion).
Recent Accounting Pronouncements - The Financial Accounting Standards
Board ("FASB") has issued Statement of Financial Accounting Standards
("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 requires companies to record derivatives on
the balance sheet as assets or liabilities, measured at fair market
value. Gains or losses resulting from changes in the values of those
derivatives are accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for
hedge accounting is that the hedging relationship must be highly
effective in achieving offsetting changes in fair value or cash flows.
SFAS No. 133 is effective for fiscal years beginning after June 15,
2000. Management believes that the adoption of SFAS No. 133 will have
no material effect on its financial statements.
13
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 2 - CHANGE OF COMPANY NAME
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At the annual meeting of the stockholders of the Company on June 16,
1999, the stockholders approved and adopted a proposal for amending the
Certificate of Incorporation to change the name of the Company from
Executive TeleCard, Ltd. to eGlobe, Inc.
NOTE 3 - MANAGEMENT'S PLAN
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As of June 30, 1999, the Company had a net working capital deficiency
of $29.5 million. This net working capital deficiency resulted
principally from a loss from operations of $14.6 million (including
depreciation, amortization and other non-cash charges) for the six
months ended June 30, 1999. Also contributing to the working capital
deficiency was $16.6 million in current maturities on long-term debt,
short term indebtedness for $5.7 million related to acquisitions, and
$16.4 million in accounts payable and accrued expenses. The $16.6
million of long term debt currently due consisted primarily of $7.5
million of debt which was paid in July 1999 and $7.0 million which was
a bridge loan subsequently incorporated into a larger financing
completed in July 1999 with the Company's largest stockholder. The
indebtedness related to acquisitions includes $0.4 million related to
the Telekey acquisition in February 1999 and $4.9 million related to
IDX and UCI, two acquisitions completed in December 1998. Of this
latter amount, up to $4.4 million (plus accrued interest) was eligible
to be paid, at the Company's sole discretion, by the issuance of
common stock. In July 1999, the Company restructured the IDX purchase
agreement and in so doing converted $4.0 million of the debt to
preferred stock and $.4 million to common stock. See Note 12 for
further discussion.
On April 9, 1999, the Company entered into a financing commitment
totaling $20.0 million with the Company's largest stockholder in the
form of long-term debt. This commitment was approved by the Company's
stockholders at its annual meeting in June 1999. (See Note 12 for
additional information on this financing.) Under the terms of the
financing commitment, the lender provided the Company with a short term
$7.0 million unsecured loan, which was repaid out of the larger, long
term $20.0 million financing received after stockholder approval.
On the operating level, the Company is renegotiating its relationship
with an entity that was formerly one of its largest customers. At June
30, 1999, 22% of the Company's net accounts receivable of $8.2 million
was due from this entity for which extended credit terms have been
granted. The new arrangement will assure more effective and timely
collection of receivables from that customer to permit renewed growth
in that customer's business. This arrangement will also assist in the
collection of certain amounts impacted by the extended credit terms --
the anticipated arrangements will include the Company managing the cash
collections from the ultimate users of the services supplied to the
customer.
14
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EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
This series of transactions provides net working capital of $21.0
million, extends payment periods of certain indebtedness and improves
the balance sheet of the Company. Combined, these transactions would
help fund existing operating losses and would provide a modest base for
growth; but they do not represent sufficient capital to meet the plan
established by management.
The estimated capital requirement through mid 2000, needed to continue
to fund certain anticipated operating losses, to meet the pre-existing
1999 cash obligations of approximately $6.0 million and finance the
growth plan, is approximately $20.0 million. Add to that the
anticipated requirements of a more active acquisition program of
approximately $20.0 million. The resulting capital needs to achieve the
full growth targeted in the Company's business plan over the next
twelve months reach approximately $40.0 million.
The Company anticipates seeking to meet these cash needs in the latter
part of the year from (1) a private placement of equity in the third
quarter of $10.0 million and (2) a capital market financing of debt or
equity in the fourth quarter of up to $30.0 million, with the
possibility that some of this total will be diminished by secured,
equipment-based financing. There can be no assurance that the Company
will raise additional capital or generate funds from operations
sufficient to meet its obligations and planned requirements. Should the
Company be unable to raise additional funds from these or other
sources, then its plans would need to be sharply curtailed and its
business adversely affected.
NOTE 4 - ADVANCES TO A NON-AFFILIATE SUBSEQUENTLY ACQUIRED
- --------------------------------------------------------------------------------
In June 1999, the Company through its subsidiary Vogo purchased
substantially all the assets of ConnectSoft, including $500,000 in cash
and promissory notes from the seller (paid in June and July 1999), for
which the Company issued one share of its 6% Series G Cumulative
Convertible Redeemable Preferred Stock valued at $3.0 million, assumed
liabilities of approximately $5.0 million, consisting primarily of
long-term lease obligations, and issued a $0.5 million promissory note.
Additionally, advances to ConnectSoft totaling $1.8 million made by the
Company prior to the acquisition were converted into part of the
purchase price.
The note to the seller bears interest at a variable rate (8.0% at June
30, 1999). Principal and interest payments are due in twelve (12) equal
monthly payments commencing on September 1, 1999. The remaining
principal and accrued interest also become due on the first date on
which (i) the Company receives in any transaction or series of
transactions any equity or debt financing of at least $50.0 million or
(ii) Vogo receives in any transaction or series of transactions any
equity or debt financing of at least $5.0 million. (See Note 7, 8 and
11 for further discussion).
15
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 5 - DEFERRED REVENUE
- --------------------------------------------------------------------------------
Some revenues from the Company's card services business come from
supplying underlying services to issuers of prepaid cards. Those
issuers prepay some or all of the services provided. Payments received
in advance for such services are recorded in the accompanying balance
sheets as deferred revenue. Consequently, revenues from such services
are recognized as the cards are used and service provided. When a card
for which service has been contracted expires without being fully used
(cards have effective lives of up to one year), then the unused value
is referred to as breakage and recorded as revenue at the date of
expiration.
16
<PAGE>
<TABLE>
<CAPTION>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
- -------------------------------------------------------------------------------------------------------------
NOTE 6 - NOTES PAYABLE AND LINE OF CREDIT PRINCIPALLY RELATED TO ACQUISITIONS
- -------------------------------------------------------------------------------------------------------------
JUNE 30, DECEMBER 31,
1999 1998
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
12 % unsecured term note payable to an investor, net of $250,000 $ 223,649
unamortized discount of $0 and $26,351, interest and principal
payable in September 1999. (1)
Convertible subordinated promissory note for acquisition of - 1,000,000
IDX, interest and principal repaid March 1999 through issuance
of common stock. (2)
Convertible subordinated promissory note for acquisition of 418,024 418,024
IDX, interest and principal payable July 1999. (2)
Convertible subordinated promissory note for acquisition of 1,500,000 1,500,000
IDX. (2)
Convertible subordinated promissory note for acquisition of 2,500,000 2,500,000
IDX. (2)
8% promissory note for acquisition of UCI, interest and 500,000 457,033
principal payable June 1999, net of unamortized discount of $0
and $42,967. (3)
Short-term loan from two officers. - 100,000
Short-term note payable to an investor. 100,000
Line of credit of Telekey, principal due on demand, interest 425,000 -
payable quarterly at a variable rate (8.25% at June 30, 1999),
expires in October 1999. (4)
Non-interest bearing note for acquisition of Telekey, payable 100,000 -
in equal monthly principal payments over one year. (4)
- -------------------------------------------------------------------------------------------------------------
Total notes payable and line of credit $ 5,693,024 $6,298,706
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(1) In September 1998, a subsidiary of the Company entered into a
bridge loan agreement with an investor for $250,000. The proceeds
were advanced to ConnectSoft, a company acquired in June 1999 as
discussed in Note 4. In connection with this transaction, the
lender was granted warrants to purchase 25,000 shares of the
Company's common stock at a price of $2.00 per share. The value
assigned to the warrants of $26,351 was recorded as a discount to
the note and has been fully amortized as of June 30, 1999 as
additional interest expense. The warrants expire on September 1,
2003, and as of June 30, 1999 these warrants have not been
exercised.
17
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
As part of the acquisition of ConnectSoft, the Company
renegotiated the terms of this note with the investor in July
1999. Pursuant to the renegotiations, the original note has been
replaced with a new note dated July 14, 1999 with a face value of
$276,408 representing principal plus accrued interest due on the
original note. The new note has a maturity date of September 12,
1999. In connection with this new note, the lender was granted
warrants to purchase 25,000 shares of the Company's common stock
at a price of $2.82 per share. The value of $33,979 assigned to
the warrants will be recorded as a discount to the note and will
be amortized over the term of the loan. The warrants expire on
July 14, 2004.
(2) In December 1998, the Company acquired IDX. In connection with
this transaction, convertible subordinated promissory notes were
issued in the amount of $5.0 million. An additional note of $0.4
million for accrued but unpaid dividends owed by IDX was also
issued by the Company, due May 31, 1999. The notes bear interest
at LIBOR plus 2.5% (7.75% as defined). Each of the notes, plus
accrued interest, could be paid in cash or shares of the Company's
common stock, at the sole discretion of the Company. If the
Company elected to pay the notes with common stock, the price of
the common stock on the due date of the notes would determine the
number of shares to be issued. In March 1999, the Company elected
to pay the first note, which had a face value of $1.0 million,
plus accrued interest, in shares of common stock and issued
431,728 shares of common stock to discharge this indebtedness. In
connection with the discharge of this indebtedness, IDX
stockholders were granted warrants expiring March 23, 2002 to
purchase 43,173 shares of the Company's common stock at a price of
$2.37 per share. The value assigned to the warrants of $62,341 was
recorded as interest expense in March 1999. At June 30, 1999 these
warrants have not been exercised. (See Note 11 for further
discussion of the acquisition.)
In July 1999, the Company renegotiated the terms of the purchase
agreement with IDX stockholders as discussed further in Note 12.
As a result of the renegotiations, the parties agreed to convert
the notes payable of $1.5 million and $2.5 million (previously due
in June 1999 and October 1999, respectively) into 400,000 shares
of Series I Convertible Optional Redemption Preferred Stock
("Series I Preferred Stock"), with a par value of $.001 per share.
In addition, the maturity date of the $418,024 note was extended
to July 15, 1999 from May 31, 1999, and subsequently paid by
issuance of 140,599 shares of Common Stock.
(3) On December 31, 1998, the Company acquired UCI. In connection with
this transaction, the Company issued a promissory note for $0.5
million bearing interest at 8% due June 27, 1999. In connection
with the note, UCI was granted warrants to purchase 50,000 shares
of the Company's common stock at a price of $1.63 per share. The
warrants expire on December 31, 2003. The value assigned to the
warrants of $42,967 was recorded as a discount to the note and was
amortized through June 1999 as additional interest expense. At
June 30, 1999, these warrants have not been
18
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
exercised. In August, the Company completed renegotiation of the
terms of this loan with the new terms providing that 50% of the
principal will be paid in August and 50% plus accrued interest on
December 21, 1999.
(4) On February 12, 1999, the Company acquired Telekey. In connection
with this transaction, the Company issued a non-interest bearing
note for $0.15 million. (See Notes 9 and 11). Telekey also has a
$1.0 million line of credit expiring October 29, 1999 to
facilitate operational financing needs. The line of credit is
personally guaranteed by previous members of Telekey and is due on
demand. Interest is at a variable rate (8.25% at June 30, 1999).
19
<PAGE>
NOTE 7 - NOTES PAYABLE AND LONG-TERM DEBT
- --------------------------------------------------------------------------------
At June 30, 1999 and December 31, 1998, notes payable and long-term
debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
8.875% unsecured term note payable to a telecommunications company, $ 7,389,333 $ 7,294,068
interest and principal payable August 1999, net of unamortized discount
of $110,667 and $205,932. (1)
8.875% unsecured term note payable to a stockholder, interest and 966,452 954,156
principal payable December 1999, net of unamortized discount of
$33,548 and $45,844. (2)
8% promissory note for acquisition of UCI, interest and principal 500,000 500,000
payable June 2000. (3)
8% mortgage note, payable monthly, including interest through March 300,285 305,135
2010, with an April 2010 balloon payment; secured by deed of trust on
the related land and building.
10% promissory note of Telekey payable to a telecommunication company, 453,817 -
interest payable quarterly, principal due December 2000. (4)
Promissory note with interest at a variable rate (8.0% at June 30, 300,000
1999), principal and interest payable in twelve (12) equal monthly
installments commencing September 1999. (5)
8% unsecured term note payable to a stockholder, interest payable 6,716,077 -
monthly, and principal payable April 2000, net of unamortized discount
of $283,923 and $0. (6)
Capitalized lease obligations (7) 4,211,119 724,199
- ----------------------------------------------------------------------------------------------------------------------
Total 20,837,083 9,777,558
Less current maturities, net of unamortized 16,638,772 8,540,214
discount of $428,138 and $251,776
- --------------------------------------------------------------------------------------------------------------------
Total long-term debt $4,198,311 $1,237,344
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
EGLOBE, INC.
(1) In February 1998, the Company borrowed $7.5 million from a
telecommunications company. In connection with this transaction,
the lender was granted warrants to purchase 500,000 shares of the
Company's common stock at a price of $3.03 per share. The warrants
expire on February 23, 2001. The value assigned to such warrants
when granted in connection with the above note agreement was
approximately $0.5 million and was recorded as a discount to
long-term debt. The discount is being amortized over the term of
the note as interest expense. In January 1999, pursuant to the
anti-dilution provisions of the loan agreement, the exercise price
of the warrants was adjusted to $1.5125 per share, resulting in
additional debt discount of $0.2 million. This amount is being
amortized over the remaining term of the note. At June 30, 1999,
these warrants have not been exercised. In July 1999, this note
plus accrued interest was repaid and the remaining unamortized
discount was recorded as interest expense.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(2) In June 1998, the Company borrowed $1.0 million from an existing
stockholder. In connection with this transaction, the lender was
granted warrants expiring June 2001 to purchase 67,000 shares of
the Company's common stock at a price of $3.03 per share. The
stockholder also received as consideration for the loan, the
repricing and extension of a warrant for 55,000 shares to be
exercisable before February 2001 at a price of $3.75 per share.
The value assigned to such warrants, including the revision of
terms, of approximately $68,846, was recorded as a discount to the
note payable and is being amortized over the term of the note as
interest expense. In January 1999, the exercise price of the
122,000 warrants was lowered to $1.5125 per share and the
expiration dates were extended through January 31, 2002. The value
of $19,480 assigned to the revision in terms has been recorded as
additional debt discount and is being amortized to interest
expense through December 31, 1999. At June 30, 1999, these
warrants have not been exercised.
(3) On December 31, 1998, the Company acquired UCI. In connection with
this transaction, the Company issued a $0.5 million note with 8%
interest payable monthly due no later than June 30, 2000.
(4) On February 12, 1999, the Company acquired Telekey. Telekey has an
outstanding promissory note for $0.454 million bearing interest
payable quarterly at 10% due on December 31, 2000.
(5) On June 17, 1999, the Company through its subsidiary Vogo
purchased substantially all the assets of ConnectSoft. In
connection with this purchase, the Company issue a $0.5 million
note to the seller ($300,000 received as of June 30, 1999 and
$200,000 received in July 1999). The note bears interest at a
variable rate ( 8.0% at June 30, 1999) and principal and interest
payments are due in twelve (12) equal monthly payments commencing
on September 1, 1999. The remaining principal and accrued
interest also become due on the first date on which (i) the
Company receives in any transaction or series of transactions any
equity or debt financing of at least $50.0 million or (ii) Vogo,
a subsidiary of the Company, receives in any transaction or
series of transactions any equity or debt financing of at least
$5.0 million. See Notes 4, 8 and 11 for further discussion.
(6) In April 1999, the Company received a financing commitment of
$20.0 million in the form of long-term debt from its largest
stockholder ("Lender"). Under the terms of the Loan and Note
Purchase Agreement ("Agreement"), the Company initially received
an unsecured loan ("Loan") of $7.0 million bearing interest at 8%
payable monthly with principal and remaining interest due on the
earlier of (i) April 2000, (ii) the date of closing of an offering
by the Company from which the Company receives net proceeds of
$30.0 million or more, and (iii) the closing of the $20.0 million
purchase of the Company's 5% Secured Notes. As additional
consideration, the Lender received warrants to purchase 1,500,000
shares of the Company's common stock at an exercise price of $0.01
per share, of which 500,000 warrants were immediately exercisable
and 1,000,000 warrants were exercisable only in the event that the
stockholders did not approve a $20.0 million credit facility
committed by the lender or the Company elected not to draw it
down. The 1,000,000 warrants did not become exercisable because
both stockholder approval occurred and the Company elected to draw
down the funds as discussed below.
21
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
The value of approximately $2.9 million assigned to the 500,000
warrants was recorded as a discount to the note payable. The
discount is being amortized through July 1999 and approximately
$2.6 million was amortized through June 1999 as additional
interest expense. At June 30, 1999, these warrants have not been
exercised.
Under the Agreement, the Lender purchased $20.0 million of 5%
Secured Notes ("Notes") at the Company's request in July 1999,
which was approved by the Company's stockholders at the annual
stockholders meeting. The initial $7.0 million Loan was repaid
from the proceeds of the Notes. See Note 12 for further
discussion.
(7) The Company is committed under capital leases for certain property
and equipment. These leases are for terms of 36 months and bear
interest ranging from 8.49% to 9.07%.
In June 1999, the Company acquired certain capital lease
obligations related to the ConnectSoft acquisition. These leases
were then refinanced for a total of $2,992,000
22
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
with a term of 36 months and bear interest at rates ranging from
10.24% to 11.40% and contain certain buyout options at the end of
the lease terms.
NOTE 8- SERIES G CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
- --------------------------------------------------------------------------------
In connection with the purchase of substantially all of the assets of
ConnectSoft in June 1999, the Company issued 1 share of 6% Series G
Cumulative Convertible Redeemable Preferred Stock ("Series G
Preferred") valued at $3.0 million. (See Note 11 for further
information regarding the purchase). The Series G Preferred carries an
annual dividend of 6%, payable annually beginning June 30, 2000.
The one share of Series G Preferred is convertible, at the holder's
option, into shares of the Company's common stock any time after
October 1, 1999 at a conversion price equal to the greater of (i) 75%
of the market price of the common stock on the date the conversion
notification is received by the Company and (ii) a minimum purchase
price of $3.00. The Company shall redeem the Series G Preferred Stock
upon the first to occur of the following dates (a) on the first day on
which the Company receives in any transaction or series of transactions
any equity financing of at least $25.0 million or (b) on June 14, 2004.
NOTE 9- STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
PREFERRED STOCK AND REDEEMABLE PREFERRED STOCK
At the June 16, 1999 annual stockholder meeting, a proposal to amend
the Company's Certificate of Incorporation to increase the Company's
authorized preferred stock to 10,000,000 was approved and adopted. Par
value for all preferred stock remained at $.001 per share. In addition,
the stockholders also approved and adopted a prohibition on
stockholders increasing their percentage of ownership of the Company
above 30% of the outstanding stock or 40% on a fully diluted basis
other than by a tender offer resulting in the stockholder owning 85% or
more of the outstanding common stock. The following is a summary of the
Company's series of preferred stock and the amounts authorized and
outstanding at June 30, 1999 and December 31, 1998:
Series B Convertible Preferred Stock, 500,000 shares
authorized and issued and outstanding at both June 30, 1999
and December 31, 1998. (0 shares outstanding as of August 1999
-- these shares were reacquired by the Company in exchange for
Series H Convertible Preferred Stock as described in Note 12)
8% Series C Cumulative Convertible Preferred Stock, 275
shares authorized, 0 and 75 shares, respectively, issued and
outstanding
8% Series D Cumulative Convertible Preferred Stock, 125 shares
authorized, 50 and 0 shares, respectively, issued and
outstanding ($5.0 million aggregate liquidation preference)
8% Series E Cumulative Convertible Preferred Stock, 125 shares
authorized, 50 and 0 shares, respectively, issued and
outstanding
23
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Series F Convertible Preferred Stock, 2,020,000 authorized,
1,010,000 and 0 shares, respectively, issued and outstanding
6% Series G Cumulative Convertible Redeemable Preferred Stock,
1 share authorized, 1 and 0 share, respectively, issued and
outstanding
Two additional series of preferred stock, issued subsequent to June 30,
1999, are described in Note 12.
Following is a detailed discussion of each series of preferred stock
outstanding at June 30, 1999:
SERIES B CONVERTIBLE PREFERRED STOCK
------------------------------------
On December 2, 1998, the Company acquired all of the common and
preferred stock of IDX, a privately-held IP based fax and telephone
company, for (a) 500,000 shares of the Company's Series B Convertible
Preferred Stock ("Series B Preferred") originally valued at $3.5
million which are convertible into 2,500,000 shares (2,000,000 shares
until stockholder approval was obtained on June 16, 1999 and subject to
adjustment as described below) of common stock; (b) warrants ("IDX
Warrants") to purchase up to an additional 2,500,000 shares of common
stock (subject to stockholder approval which was obtained on June 16,
1999 and an adjustment as described below); (c) $5.0 million in 7.75%
convertible subordinated promissory notes ("IDX Notes") (subject to
adjustment as described below); (d) $1.5 million in bridge loan
advances to IDX made by the Company prior to the acquisition which were
converted into part of the purchase price plus associated accrued
interest of $0.04 million; (e) $0.4 million for IDX dividends accrued
and unpaid on IDX's Preferred Stock under a convertible subordinated
promissory note and (f) direct costs associated with the acquisition of
$0.6 million. The Company also advanced approximately $0.4 million to
IDX prior to acquisition under an agreement to provide IDX up to $2.3
million for working capital purposes over the next twelve months. These
pre-acquisition advances were not considered part of the purchase
price. At the Company's annual meeting in June 1999, the stockholders
approved the increase of the convertibility of the Series B Preferred
and IDX Warrants as discussed in (a) and (b) above, respectively. As a
result, the acquired goodwill associated with the IDX purchase was
increased by approximately $1.5 million to reflect the higher
conversion feature approved in June 1999.
24
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
This acquisition has been accounted for under the purchase method of
accounting. The financial statements of the Company reflect the
preliminary allocation of the purchase price. The preliminary
allocation has resulted in acquired goodwill of $12.6 million that is
being amortized on a straight-line basis over seven years. The Company
has not completed the review of the purchase price allocation and will
determine the final allocation based on appraisals and other
information. To the extent that the estimated useful lives of other
identified intangibles are less than seven years, the related
amortization expense could be greater. In addition, the purchase price
allocation has not been finalized as of June 30, 1999 pending
resolution of several purchase price elements, which are contingent
upon the following:
(a) IDX's ability to achieve certain revenue and EBITDA (EBITDA
represents operating income before interest expense, income
taxes, depreciation and amortization) objectives during the
twelve months after the acquisition date may limit the amount
of warrants to be granted as well as eliminate the Company's
price guarantee as discussed in (d) below.
(b) The shares of Series B Preferred stock are convertible at the
holders' option at any time at the then current conversion
rate. The shares of Series B Preferred stock will
automatically convert into shares of common stock on the
earlier to occur of (a) the first date that the 15 day average
closing sales price of common stock is equal to or greater
than $8.00 or (b) 30 days after December 2, 1999. The Company
has guaranteed a price of $8.00 per share on December 2, 1999,
subject to IDX's achievement of certain revenue and EBITDA
objectives. If the market price of the common stock is less
than $8.00 on December 2, 1999, and IDX has met its
performance objectives, the Company will issue additional
shares of common stock upon conversion of the Series B
Preferred stock based on the ratio of $8.00 to the market
price (as defined, but not less than $3.3333 per share), but
not more than 3.5 million additional shares of common stock
will be issued.
(c) The Company has guaranteed a price of $8.00 per common stock
share relative to the warrants issuable as of December 2,
1999, subject to IDX's achievement of certain revenue and
EBITDA objectives. If these objectives are achieved and the
market price of the common stock is less than $8.00 on
December 2, 1999, the Company will issue additional shares of
common stock upon exercise of the IDX Warrants based on the
ratio of $8.00 to the market price (as defined, but not less
than $3.3333 per share), up to a maximum of 3.5 million
additional shares of common stock. However, if the average
closing sales price of the common stock for any 15 consecutive
days equals or is greater than $8.00 per share prior to
December 2, 1999 there is no price guarantee upon exercise of
the warrants.
(d) IDX must meet certain working capital levels at the date of
acquisition. To the extent that IDX has a working capital
deficiency, as defined, as of the date of
25
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
acquisition, the Company may reduce the number of shares of
the Series B Preferred Stock currently held by the
stockholders and may in some circumstances reduce the amount
outstanding on the principal balance of the third IDX note
referred to below.
(e) The Company is obligated to pay accrued but unpaid dividends
("Accrued Dividends") on IDX's previously outstanding
preferred stock under an interest bearing convertible
subordinated promissory note in the principal amount of
approximately $0.4 million originally due May 31, 1999. The
Company, however, is entitled to reduce the $2.5 million
principal balance of the third IDX Note as discussed below and
in Note 6 by the amount of the Accrued Dividends and certain
defined amounts unless offset by proceeds from the sale of an
IDX subsidiary and a note issued to IDX by an option holder.
The Company may also elect to pay this obligation in cash or
in shares of common stock.
(f) The IDX Notes consisted of four separate notes payable in cash
or common stock at the Company's sole discretion. The notes
have varying maturity dates through October 31, 1999. See Note
6 for the terms and conditions of the IDX Notes and discussion
of the payment of the $1.0 million promissory note and accrued
interest with common stock and warrants in March 1999. Payment
of the IDX Notes is subject to adjustment upon the resolution
of certain contingencies as discussed above.
Based on the contingent purchase price elements as listed above,
goodwill associated with the acquisition may materially increase when
these contingencies are resolved.
The holders of the Series B Preferred Stock are not entitled to
dividends unless declared by the Board of Directors. The shares of
Series B Preferred Stock are not redeemable. Further, the Company has
agreed to register for resale the shares of common stock underlying the
conversion rights of the holders of the Series B Preferred Stock, the
IDX warrants and the IDX Notes.
At the acquisition date, the stockholders of IDX received Series B
Preferred Stock and warrants as discussed above, which are ultimately
convertible into common stock subject to IDX meeting its performance
objectives. These stockholders in turn granted preferred stock and
warrants, each of which is convertible into a maximum of 300,000 shares
(240,000 shares until stockholder approval was obtained on June 16,
1999) of the Company's common stock, to IDX employees. The increase in
the market price during the first half of 1999 of the underlying common
stock granted by the IDX stockholders to certain employees has resulted
in a charge to income of $0.4 million. The actual number of common
shares issued upon conversion of the preferred stock and warrants will
ultimately be determined by the achievement, by IDX, of certain
performance goals and the market price of the Company's stock over the
contingency period of up to twelve
26
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
months from the date of acquisition. The stock grants are performance
based and will be adjusted each reporting period (but not below zero)
for the changes in stock price until the shares and/or warrants (if and
when) issued are converted to common stock.
In July 1999 the Company renegotiated the terms of the IDX purchase
price with the IDX stockholders. See Note 12 for a discussion of the
exchange agreement, under which the Company reacquired the Series B
Preferred Stock, the warrants and the promissory notes discussed above
for shares of two new series of preferred stock and warrants with
different performance objectives to purchase a lesser number of shares.
SERIES C CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------
In February 1999, the Company issued 3,000,000 shares of common stock
in exchange for the 75 shares of outstanding Series C Cumulative
Convertible Preferred (convertible into 1,875,000 shares of common
stock on the exchange date) to Mr. Ronald Jensen, the Company's largest
stockholder. The market value of the 1,125,000 incremental shares of
common stock issued was recorded as a preferred stock dividend of
approximately $2.2 million with a corresponding credit to paid-in
capital. This transaction was contemporaneous with the Company's
issuance of Series E Preferred stock to an affiliate of Mr. Jensen,
which is discussed below.
SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------
In January 1999, the Company issued 30 shares of Series D Cumulative
Convertible Preferred Stock ("Series D Preferred") to a private
investment firm for $3.0 million. The holder agreed to purchase 20
additional shares of Series D Preferred stock for $2.0 million upon
registration of the common stock issuable upon conversion of this
preferred stock. In connection with this transaction, the Company
issued warrants to purchase 112,500 shares of common stock with an
exercise price of $0.01 per share and warrants to purchase 60,000
shares of common stock with an exercise price of $1.60 per share. The
value assigned to such warrants when granted was approximately $0.3
million and was originally recorded as a discount to the Series D
Preferred.
Upon the Company's registration in May 1999 of the common stock
issuable upon the conversion of the Series D Preferred, the investor
purchased 20 additional shares of Series D Preferred plus warrants for
$2.0 million. The Company issued warrants to purchase 75,000 shares of
common stock with an exercise price of $.01 per share and warrants to
purchase 40,000 shares of common stock with an exercise price of $1.60.
The value assigned to these warrants when granted was approximately
$0.3 million and was originally recorded as a discount to the Series D
Preferred.
The discounts associated with the value of the warrants are being
amortized as deemed preferred dividends over the periods from the dates
of the grants to the dates that the
27
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Series D Preferred can first be converted into common stock defined as
90 days from issuance.
The Series D Preferred stock carries an annual dividend of 8%, payable
quarterly beginning December 31, 1999. The Company has accrued
approximately $126,000 in cumulative Series D Preferred dividends as of
June 30, 1999. The shares of Series D Preferred stock are convertible,
at the holder's option, into shares of the Company's common stock any
time after 90 days from issuance at a conversion price equal to the
lesser of $1.60 or, in the case of the Company's failure to achieve
positive EBITDA or to close a $20 million public offering by the third
fiscal quarter of 1999, the market price just prior to the conversion
date. The shares of Series D Preferred stock will automatically convert
into common stock upon the earliest of (i) the first date on which the
market price of the common stock is $5.00 or more per share for any 20
consecutive trading days, (ii) the date on which 80% or more of the
Series D Preferred stock has been converted into common stock, or (iii)
the date the Company closes a public offering of equity securities at a
price of at least $3.00 per share with gross proceeds of at least $20
million.
As additional consideration, the Company agreed to issue to the
investor for no additional consideration, additional warrants to
purchase the number of shares of common stock equal to $0.3 million
(based on the market price of the common stock on the last trading day
prior to July 1, 2000, as the case may be), or pay $0.3 million in
cash, if the Company does not achieve, in the fiscal quarter commencing
July 1, 2000, an aggregate amount of gross revenues equal to or in
excess of 200% of the aggregate amount of gross revenues achieved by
the Company in the fiscal quarter ended December 31, 1998.
The shares of Series D Preferred stock must be redeemed if it ceases to
be convertible (which would happen if the number of shares of common
stock issuable upon conversion of the Series D Preferred stock exceeded
19.9% of the number of shares of common stock outstanding when the
Series D Preferred stock was issued, less shares reserved for issuance
under warrants). Redemption is in cash at a price equal to the
liquidation preference of the Series D Preferred stock at the holder's
option or the Company's option 45 days after the Series D Preferred
stock ceases to be convertible. The Company received stockholder
approval to increase the number of shares issuable and will issue the
full amount of common stock upon conversion of the Series D Preferred
stock even if the number of shares exceeds the 19.9% maximum number.
Due to the Company's failure to consummate a specific merger
transaction by May 30, 1999, the Company issued to the investor a
warrant exercisable August 1, 1999 to purchase 76,923 shares of common
stock with an exercise price of $.01 per share. The value assigned to
the warrant when granted was approximately $0.3 million and was
recorded as a preferred stock dividend. The warrant is exercisable for
three years.
28
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
-----------------------------------------------
In February 1999, the Company issued 50 shares of Series E Cumulative
Convertible Redeemable Preferred stock ("Series E Preferred") to the
Company's largest stockholder, for $5.0 million. The Series E Preferred
carries an annual dividend of 8%, payable quarterly beginning December
31, 2000. As additional consideration, the Company agreed to issue to
the holder three year warrants to purchase 723,000 shares of common
stock at $2.125 per share and 277,000 shares of common stock at $0.01
per share. The value assigned to such warrants when granted was
approximately $1.1 million and was recorded as a deemed dividend
because the Series E Preferred stock was convertible at the election of
the holder at the issuance date.
The Series E Preferred holder had the option to elect to make the
shares of Series E Preferred stock convertible into shares of common
stock (rather than redeemable) at any time after issuance. The Company
could have elected to make the shares of Series E Preferred stock
convertible, but only if (i) it had positive EBITDA for at least one of
the first three fiscal quarters of 1999 or (ii) completed a public
offering of equity securities for a price of at least $3.00 per share
and with gross proceeds to the Company of at least $20 million on or
before the end of the third fiscal quarter of 1999. In connection with
a debt placement concluded in April 1999, the Series E Preferred holder
elected to make such shares convertible; accordingly, such shares are
no longer redeemable. As a result, the carrying value of the Series E
Preferred stock was reclassified from Redeemable Preferred Stock to
Stockholders' Equity as permanent equity in April 1999.
The shares of Series E Preferred stock will automatically be converted
into shares of the Company's common stock, on the earliest to occur of
(x) the first date as of which the last reported sales price of the
Company's common stock on Nasdaq is $5.00 or more for any 20
consecutive trading days during any period in which the Series E
Preferred stock is outstanding, (y) the date that 80% or more of the
Series E Preferred stock has been converted into common stock, or (z)
the Company completes a public offering of equity securities at a price
of at least $3.00 per share and with gross proceeds to the Company of
at least $20 million. The initial conversion price for the Series E
Preferred stock is $2.125, subject to adjustment if the Company issues
common stock for less than the conversion price.
SERIES F CONVERTIBLE PREFERRED STOCK
------------------------------------
On February 12, 1999, the Company completed the acquisition of Telekey
for which it paid: (i) $0.1 million at closing; (ii) issued a
promissory note for $0.2 million payable in equal monthly installments
over one year; (iii) issued 1,010,000 shares of Series F Convertible
Preferred Stock ("Series F Preferred"); and (iv) agreed to issue at
least 505,000 and up to an additional 1,010,000 shares of Series F
Preferred two years from the date of closing (or upon a change of
control or certain events of default if they occur
29
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
before the end of two years), subject to Telekey meeting certain
revenue and EBITDA objectives.
The shares of Series F Preferred initially issued will automatically
convert into shares of common stock on the earlier to occur of (a) the
first date as of which the market price is $4.00 or more for any 15
consecutive trading days during any period that the Series F Preferred
stock is outstanding, or (b) July 1, 2001. The Company has guaranteed a
price of $4.00 per share at December 31, 1999 to recipients of the
common stock issuable upon the conversion of the Series F Preferred,
subject to Telekey's achievement of certain defined revenue and EBITDA
objectives. If the market price is less that $4.00 on December 31,
1999, the Company will issue additional shares of common stock upon
conversion of the Series F Preferred based on the ratio of $4.00 to the
market price, but not more than an aggregate of 600,000 additional
shares of common stock.
This acquisition has been accounted for using the purchase method of
accounting. The financial statements of the Company reflect the
preliminary allocation of the purchase price. The preliminary
allocation based on management's review and preliminary appraisals has
resulted in acquired goodwill of $3.6 million and an acquired
intangible of approximately $1.5 million related to the value of
certain distribution networks. These acquired intangibles are being
amortized on a straight-line basis over their estimated useful lives of
seven years. The Company has not completed the review of the purchase
price allocation and will determine the final allocation based on final
appraisals and other information. To the extent that the estimated
useful lives of the other identified intangibles are less than seven
years, the related amortization expense could be greater. In addition,
the purchase price allocation has not been finalized pending resolution
of several purchase price elements, which are contingent upon the
following:
(a) Telekey's ability to achieve certain revenue and EBITDA
objectives two years from the date of closing (or upon a change
of control or certain events of default if they occur before the
end of two years) may limit the amount of additional shares to be
issued (with at least 505,000 being issued and up to a maximum of
1,010,000 shares of Series F Preferred being issued) as well as
eliminate the Company's price guarantee as discussed in (b)
below.
(b) The Company has guaranteed a price of $4.00 per common stock
share at December 31, 1999 to recipients of the common stock
issuable upon the conversion of the Series F Preferred Stock,
subject to Telekey's achievement of certain defined revenue and
EBITDA objectives. If the market price is less than $4.00 on
December 31, 1999, the Company will issue additional shares of
common stock upon the conversion of the Series F Preferred Stock
based on the ratio of $4.00 to the market price, but not more
than an aggregate of 600,000 additional shares of common stock.
30
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
Based on the contingent purchase price elements as listed above,
goodwill associated with the acquisition may materially increase when
these contingencies are resolved.
The holders of the Series F Preferred Stock are not entitled to
dividends unless declared by the Board of Directors. The shares of
Series F Preferred Stock are not redeemable. Further, the Company has
registered for resale the shares of common stock, underlying the
conversion rights of the holders of the Series F Preferred Stock.
At the acquisition date, the stockholders of Telekey received Series F
Preferred Stock, which are ultimately convertible into common stock. In
addition, the stockholders may receive additional shares of Series F
Preferred Stock subject to Telekey meeting its performance objectives.
These stockholders in turn granted a total of 240,000 shares of eGlobe
common stock to certain Telekey employees. Of this total, 60,000 shares
will be issued only if Telekey meets certain performance objectives. As
of June 30, 1999, the value of the underlying non-contingent 180,000
shares of common stock granted by the Telekey stockholders to certain
employees has resulted in a charge to income of $0.5 million. The stock
grants are performance based and will be adjusted each reporting period
(but not less than zero) for the changes in the stock price until the
shares are issued to the employees.
SERIES G CONVERTIBLE PREFERRED STOCK
------------------------------------
Described in Note 8.
COMMON STOCK
As discussed earlier, in February 1999, the Company issued 3,000,000
shares of common stock in exchange for the 75 outstanding shares of
Series C Preferred stock.
In March 1999, the Company elected to pay the IDX $1.0 million
promissory note and accrued interest with shares of common stock. The
Company issued 431,728 shares of common stock and warrants to purchase
43,173 shares of common stock to discharge this indebtedness. In
addition, the Company agreed to repay a $200,000 note payable and
related accrued interest with 125,000 shares of common stock to be
issued subsequent to quarter end. In connection with this transaction,
the Company also issued 80,000 five-year warrants to purchase common
shares at an exercise price of $1.60.
See Note 12 for a discussion of transactions occurring subsequent to
June 30, 1999 that will result in the issuance of shares of common
stock.
EMPLOYEE AND DIRECTOR STOCK OPTION PLANS
On June 16, 1999, the Company's stockholders adopted an amendment to
increase the number of shares of the Company's common stock that may be
issued to employees by
31
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
1.5 million shares. This increase includes the reduction of the number
of shares available for issuance under the Company's 1995 Director
Stock Option and Appreciation Rights Plan by 0.4 million shares.
NOTE 10 - BASIC NET LOSS PER SHARE OF COMMON STOCK
- --------------------------------------------------------------------------------
Earnings (loss) per share are calculated in accordance with SFAS No.
128, "Earnings Per Share". The net loss of $11.9 million and $23.1
million attributable to common stock for the three and six months ended
June 30, 1999 includes preferred stock dividends of $0.6 million and
$4.3 million, respectively. For the three and six month periods ended
June 30, 1998, the Company had no preferred stock dividends. The
weighted average shares outstanding for calculating basic earnings
(loss) per share were 19,913,449 and 17,346,766 for the three months
ended June 30, 1999 and 1998, respectively. The weighted average shares
outstanding for the six month periods ended June 30, 1999 and 1998,
respectively, were 18,904,001 and 17,520,879. Common stock options and
warrants of 1,518,982 and 203,782 for the three months and 1,066,457
and 222,961 for the six months ended June 30, 1999 and 1998 were not
included in diluted earnings(loss) per share as the effect was
antidilutive due to the Company recording a loss in the periods
presented.
Options and warrants to purchase 675,955 and 1,535,897 shares of common
stock at exercise prices from $3.50 to $6.61 and $2.88 to $6.61 per
share were outstanding at June 30, 1999 but were not included in the
computation of diluted earnings (loss) per share for the three and six
months ended June 30, 1999 because the exercise prices were greater
than the average market price of the common shares during that period.
Options and warrants to purchase 1,534,814 shares of common stock at
exercise prices from $3.19 to $6.94 per share were outstanding at June
30, 1998 but were not included in the computation of diluted (loss) per
share for the three and six months ended June 30, 1998 because the
exercise prices were greater than the average market price of the
common shares during that period.
In addition, convertible preferred stock and convertible subordinated
promissory notes convertible into 12.0 million shares of common stock
were not included in diluted earnings (loss) per share for the three
and six months ended June 30, 1999 due to the losses for the respective
periods. See Note 12 for discussion of transactions subsequent to June
30, 1999 that will affect diluted earnings (loss) per share.
NOTE 11 - ACQUISITIONS
- --------------------------------------------------------------------------------
On February 12, 1999, the Company completed the acquisition of Telekey
for which it paid: (i) $0.1 million at closing; (ii) issued a
promissory note for $0.2 million payable in equal monthly installments
over one year; (iii) issued 1,010,000 shares of Series F Convertible
Preferred Stock ("Series F Preferred"); and (iv) agreed to issue at
least
32
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
505,000 and up to an additional 1,010,000 shares of Series F Preferred
two years from the date of closing (or upon a change of control or
certain events of default if they occur before the end of two years),
subject to Telekey meeting certain revenue and EBITDA objectives. See
Notes 6 and 9 for further discussion.
In June 1999, the Company through its subsidiary Vogo purchased
substantially all the assets of ConnectSoft, including (a) one share of
the Company's 6% Series G Cumulative Convertible Redeemable Preferred
Stock valued at $3.0 million; (b) assumed liabilities of approximately
$5.0 million, consisting primarily of long-term lease obligations; (c)
$1.8 million in advances to ConnectSoft made by the Company prior to
the acquisition which were converted into part of the purchase price
and (d) direct costs associated with the acquisition of $0.4 million.
This acquisition has been accounted for under the purchase method of
accounting. The financial statements of the Company reflect the
preliminary allocation of the purchase price. The preliminary
allocation has resulted in acquired intangibles of $10.1 million that
are being amortized on a straight-line basis over their estimated
useful lives. The acquired intangibles consist of goodwill of $1.0
million to be amortized over seven years, existing technology of $8.4
million to be amortized over five years and other identified
intangibles of $0.7 million to be amortized over seven years. The
preliminary allocation of the purchase price was based on appraisals
performed by a third party.
The Company also borrowed $0.5 million from the seller which bears
interest at a variable rate (8.0% at June 30, 1999). Principal and
interest payments are due in twelve (12) equal monthly payments
commencing on September 1, 1999. The remaining principal and accrued
interest also become due on the first date on which (i) the Company
receives in any transaction or series of transactions any equity or
debt financing of at least $50.0 million or (ii) Vogo receives in any
transaction or series of transactions any equity or debt financing of
at least $5.0 million. (See Notes 4, 7 and 8 for further discussion).
As discussed in Notes 6 and 9, the Company acquired IDX on December 2,
1998 and UCI on December 31, 1998. The results of operations for these
two acquisitions are included in the consolidated results of operations
for the three and six months ended June 30, 1999.
The following unaudited pro forma consolidated results of operations
are presented as if the IDX, UCI, Telekey and the ConnectSoft
acquisitions had been made at the beginning of the periods presented.
Since Telekey was acquired in February 1999, the Company has included
Telekey's January 1999 results in its pro forma results of operations
for the six months ended June 30, 1999 for comparative purposes. Since
ConnectSoft was acquired in June 1999, the Company has included
ConnectSoft's April and May 1999 results and January through May 1999
results in its pro forma results of operations for the three months and
six months ended June 30, 1999, respectively, for comparative purposes.
33
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
<TABLE>
<CAPTION>
PRO FORMA RESULTS FOR THE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
NET REVENUE $ 9,144,824 $ 9,007,411 $ 17,763,996 $ 18,474,070
NET LOSS $ (12,329,808) $ (4,267,327) $ (21,556,356) $ (16,217,787)
NET LOSS ATTRIBUTABLE TO $ (12,946,402) $ (4,267,327) $ (25,885,329) $ (16,217,787)
COMMON STOCK
NET LOSS PER SHARE $ (0.52) $ (0.19) $ (1.08) $ (0.71)
</TABLE>
- --------------------------------------------------------------------------------
NOTE 12 - PRO FORMA BALANCE SHEET AND SUBSEQUENT EVENTS
Subsequent to the close of the quarter ended June 30, 1999, the Company
completed its financing with its largest stockholder for $20.0 million
and paid off $7.5 million of unsecured debt payable to a
telecommunications company plus related interest of approximately $0.9
million. The Company also restructured its purchase agreement with IDX
and completed the acquisition of Swiftcall Equipment and Services (USA)
("Swiftcall"), a telecommunications company, and certain network
operating equipment held by an affiliate of Swiftcall.
FINANCING COMMITMENT
In April 1999, the Company received a financing commitment of $20.0
million in the form of long-term debt from its largest stockholder
("Lender"). This financing was approved by the stockholders at the
annual meeting in June 1999. Under the terms of the Loan and Note
Purchase Agreement ("Agreement"), the Company initially received an
unsecured loan ("Loan") of $7.0 million bearing interest at 8% payable
monthly as discussed in Note 7.
Under the Agreement, in July 1999, the Lender purchased $20.0 million
of 5% Secured Notes ("Notes") at the Company's request. Issuance of the
Notes was approved by the Company's stockholders at the annual
stockholders meeting in June 1999. The initial $7.0 million Loan was
repaid from the proceeds of the Notes. Additionally, proceeds from the
Notes were used to repay a short-term note and accrued interest
totaling $8.4 million.
Principal and interest on the Notes are payable over three years in
monthly installments of $377,000 with a balloon payment for the
remaining balance due on the third anniversary date. Alternatively, the
Company may elect to pay up to 50% of the original principal
34
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
amount of the Notes in shares of the Company's common stock, at its
option, if: (i) the closing price of the Company's common stock is
$8.00 per share for more than 15 consecutive trading days; (ii) the
Company completes a public offering of equity securities at a price of
at least $5.00 per share and with proceeds of at least $30.0 million;
or (iii) the Company completes an offering of securities with proceeds
in excess of $100.0 million. These Notes are secured by substantially
all of the Company's existing operating assets, although the Company
can pursue certain additional financing, including secured debt or
lease financing, for certain capital expenditures. The agreement
contains certain debt covenants and restrictions by and on the Company,
as defined.
As additional consideration for the Notes, the Lender was granted
warrants to purchase 5,000,000 shares of the Company's common stock at
an exercise price of $1.00 per share. The warrants expire in three
years. The value assigned the warrants of $10.7 million will be
recorded as a discount to the Notes and will be amortized during the
term of the Notes as additional interest expense.
RENEGOTIATION OF THE TERMS TO THE IDX PURCHASE AGREEMENT
In July 1999 the Company renegotiated the terms of the IDX purchase
agreement with the IDX stockholders as follows:
(a) The 500,000 shares of Series B Convertible Preferred Stock have
been reacquired by the Company in exchange for 500,000 shares of
Series H Convertible Preferred Stock ("Series H Preferred"), with
a par value of $.001 per share. (See Notes 6, 9 and 11 for
further discussion).
(b) The Company has reacquired the original warrants in exchange for
new warrants to acquire up to 1,250,000 shares of the Company's
common stock, subject to IDX meeting certain revenue, traffic and
EBITDA levels at September 30, 2000 or December 31, 2000.
(c) The Company has reacquired the notes payable of $1.5 million and
$2.5 million (previously due in June 1999 and October 1999
respectively) in exchange for 400,000 shares of Series I
Convertible Optional Redemption Preferred Stock ("Series I
Preferred") with a par value of $.001 per share. (See Notes 6, 9
and 11 for further discussion).
(d) The maturity date of the convertible subordinated promissory
note, face value of $418,024, was extended to July 15, 1999 from
May 31, 1999, and subsequently paid by issuance of 140,599 shares
of common stock.
(e) The Company waived its right to reduce the principal balance of
the $2.5 million note payable by certain claims as provided for
under the terms of the original IDX purchase agreement.
35
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
The shares of Series H Preferred Stock convert automatically into up to
3,750,000 shares of common stock, subject to adjustment as described
below, on January 31, 2000 or earlier if the 15 day average closing
sales price of the common stock is equal to or greater than $6.00. The
Company has guaranteed a price of $6.00 per share on January 31, 2000.
If the market price of the common stock is less than $6.00 per share on
January 31, 2000, the Company will issue additional shares of common
stock upon conversion of the Series H Preferred Stock based on the
ratio of $6.00 to the market price (as defined, but not less than
$3.3333 per share), but not more than 3.0 million additional shares of
common stock.
The Company may redeem 150,000 shares of its Series I Preferred Stock
prior to February 14, 2000 and the remainder prior to July 17, 2000 at
a price of $10 per share plus 8% of the value of the Series I Preferred
Stock per annum from December 2, 1998 through the date of redemption.
The redemption may be made in cash, common stock or a combination of
the two. Any Series I Preferred Stock not redeemed by the applicable
date will be converted automatically into common stock based on a
conversion price of $10 per share plus 8% of the value of the Series I
Preferred Stock per annum from December 2, 1998 through the date of
conversion up to a maximum of 3.9 million shares of common stock.
As a result of the exchange agreement, the Company will record the
excess of the fair value of the new preferred stock issuances and the
warrants over the carrying value of the reacquired preferred stock,
warrants and notes payable as a dividend to the Series B Preferred
stockholders. The estimated dividend of approximately $6.4 million will
be recorded in July 1999. In addition, upon the conversion of the
Series H Preferred Stock, an additional dividend of up to $9.0 million
may be recorded if more than 3,750,000 shares of common stock are
issued.
ACQUISITION
In August 1999, the Company acquired all the common stock of Swiftcall,
a privately-held telecommunications company, and certain network
operating equipment held by an affiliate of Swiftcall. The aggregate
purchase price equaled $3.3 million, due in two equal payments on
December 3, 1999 and June 2, 2000. The payments may be made at the
option of the Company, in whole or in part, (i) in cash or (ii) in
stock, by issuing to the stockholder of Swiftcall the number of shares
of common stock of the Company equal to the first payment amount or the
second payment amount, as the case may be, divided by the Market Price.
On August 12, 1999 the Company elected to make payment on both notes by
issuing common stock.
As part of the transaction, the former stockholder of Swiftcall, which
also owns VIP Communications, Inc., a calling card company in Reston,
Virginia, has agreed to cause VIP to purchase services from the
Company, of the type presently being purchased by
36
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
VIP from the Company's IDX subsidiary, which result in revenue to the
Company of at least $500,000 during the 12 months ending August 3,
2000. Any revenue shortfall must be paid in cash by the former
stockholder of Swiftcall. The Company may offset any shortfall
outstanding on June 1, 2000 by depositing the applicable portion of the
second payment into escrow.
37
<PAGE>
EGLOBE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
The following unaudited pro forma condensed consolidated balance sheet assumes
the following transactions were completed as of June 30, 1999 ($ in thousands):
(a) receipt of $20.0 million financing, of which $3.6 million represents the
current portion, net of the value of the associated warrants of $10.7
million. These proceeds were used to repay the related $7.0 million
short-term note and other short-term debt of $7.5 million plus accrued
interest of $0.9 million;
(b) renegotiation of the IDX purchase agreement, whereby (i) notes for $4.0
million and accrued interest of $0.2 million were exchanged for Series I
Preferred Stock; (ii) a note for $0.4 million and accrued interest of $0.02
million were exchanged for common stock; and (iii) shares of Series B
Preferred Stock were exchanged for Series H Preferred Stock; and,
(c) the acquisition of Swiftcall, consisting of property and equipment valued
at $4.9 million, for (i) future issuances of common stock valued at $3.3
million; (ii) potential payment of up to $0.4 million, if assumed
liabilities are less than agreed upon amounts, (iii) direct costs of $0.09
million, including $0.05 million of accrued costs; and (iv) payment of an
obligation for $1.1 million.
<TABLE>
<CAPTION>
Unaudited
June 30, 1999 Pro forma Pro forma
(Unaudited) Adjustments June 30, 1999
----------- ----------- -------------
<S> <C> <C> <C>
Current assets $ 11,986 $ 3,498 $ 15,484
Property and equipment, net 13,320 4,938 18,258
Goodwill, net 16,844 -- 16,844
Intangible assets and other, net 12,193 (90) 12,103
----------- ----------- -----------
Total assets $ 54,343 $ 8,346 $ 62,689
---------- ---------- ----------
Current liabilities $ 41,490 $ (15,967) $ 25,523
Long-term debt 4,198 5,698 9,896
----------- ----------- -----------
Total liabilities 45,688 (10,269) 35,419
----------- ----------- -----------
Redeemable preferred stock 3,006 -- 3,006
Stockholders' equity 5,649 18,615 24,264
----------- ----------- -----------
Total liabilities, redeemable
preferred stock and stockholders' equity $ 54,343 $ 8,346 $ 62,689
----------- ----------- -----------
</TABLE>
38
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
- --------------------------------------------------------------------------------
Statements included in Management's Discussion and Analysis of
Financial Condition and Results of Operations which are not historical
in nature are intended to be, and are hereby identified as,
"forward-looking statements" for purposes of the safe harbor provided
by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements may be identified by words including
"believes," "anticipates," "expects" and similar expressions. The
Company cautions readers that forward-looking statements, including
without limitation, those relating to the Company's business
operations, business plan, revenues, working capital, liquidity, need
for funding and income, are subject to certain risks and uncertainties
that would cause actual results to differ materially from those
indicated in the forward-looking statements, due to several important
factors such as the rapid technological and market changes that create
significant business risks in the market for the Company's services,
the intensely competitive nature of the Company's industry and the
possible adverse effects of such competition, the Company's need for
significant additional financing, the availability of such financing,
and the Company's dependence on strategic relationships, among others,
and other risks and factors identified from time to time in the
Company's reports filed with the Securities and Exchange Commission,
including the risk factors set forth under the caption "The Business -
Risk Factors" in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
RESULTS OF OPERATIONS
Overview
The Company continued growing in the second quarter, with revenue
reaching more than $9.1 million as compared to $8.4 million in the
previous quarter and $7.7 million in the same quarter last year.
Revenues for the Company's new IP Voice Services (the "Network
Services") grew while revenue for Card Services declined. Global Office
Services (the unified messaging and telephone access to Internet
Services of newly acquired Vogo Networks) did not contribute materially
to revenue during the quarter - the first service was launched in late
July. The progress of Network Services continued with the expansion of
the direct network to 16 countries by the end of the second quarter and
an increase in minutes from the first to the second quarter of more
than 131%, from 7,314,918 to 16,926,401 minutes. The Card Services
revenue decline resulted primarily from the tightening of contracts and
procedures related to providing underlying services to issuers of
prepaid cards in the United States; the legacy business of providing
services to issuers of post paid cards around the world remained
constant.
Analyzing Network Services on a route-by-route basis, operating margins
for the provision of service improved when adjusted for the up-front
costs of implementing new direct routes for IP Voice, although that
investment in new routes did result in overall
39
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
negative gross margins for Network Services. The Company showed
substantial improvement in margins for Card Services. Global Office
Services contributed expenses without revenues in June. In addition,
the Company incurred significant non-cash charges to income related
primarily to goodwill and warrant amortization associated with various
acquisitions and financings completed since December 1998. Overall,
gross margin was consistent with the previous quarter.
The Company experienced an anticipated increase in cost of revenue
related to leases of capacity and other up-front costs necessary to
implement new routes and support new business arrangements and
contracts, as well as an anticipated increase in expenses related to
the operational needs of new contracts that are expected to be
concluded later in 1999. The gross margin loss for the period included
not only the up-front costs to increase transmission routes but a
margin loss of approximately $0.7 million related to up-front pricing
inducements on new contracts designed to build toward a profitable
long-term revenue stream. Management views these costs and expenses as
an investment in the future of the Company.
Primarily as a result of the increased costs and expenses and non-cash
charges, the Company incurred net losses of $11.2 million and $18.7
million for the three and six months ended June 30, 1999 compared to a
net loss of $1.0 million and $9.0 million for same periods last year.
The table below shows a comparative summary of certain significant
charges to income in the periods, which affected the reported loss:
<TABLE>
<CAPTION>
(IN MILLIONS)
QUARTER ENDED SIX MONTHS
JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Acquisition - related:
Goodwill amortization $ 0.9 $ -- $ 1.6 $ --
Deferred compensation, to 0.1 -- 1.0 --
employees of acquired companies
Warrant issuances associated with 2.7 -- 3.2 --
acquisitions and financings
Proxy-related litigation settlement -- -- -- 3.5
costs
Additional income tax provision -- -- -- 1.5
Corporate realignment costs -- -- -- 1.0
------ ------- ------- --------
$ 3.7 $ -- $ 5.8 $ 6.0
====== ======= ======= ========
</TABLE>
40
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
After deducting these items, the loss for the second quarter of 1999
was $7.5 million (1998 - $1.0 million), which included charges for
depreciation and amortization of property and equipment of $0.9 million
(1998 - $0.7 million). For the six months ended June 30, 1999 and 1998
depreciation and amortization for property and equipment was $1.8
million and $1.5 million respectively. Included in the three and six
months ended June 30, 1999 loss are operating losses, excluding
depreciation and amortization, of its newly acquired subsidiaries, IDX,
UCI, Telekey and ConnectSoft, totaling approximately $2.6 million for
the three months and $3.9 million for the six months, respectively.
Contemporaneous with a first quarter issuance of convertible preferred
stock to the Company's largest stockholder (see Note 7 to the
Consolidated Financial Statements), the Company issued warrants which
were fully amortized as deemed preferred stock dividends ($2.2 million)
in that quarter. Additionally, values of the warrants issued with both
first and second quarter preferred stock financings described below are
being amortized as deemed preferred stock dividends which for the three
and six months ended June 30, 1999 amounted to $0.4 million and $1.8
million. For the three and six months ended June 30, 1999, preferred
stock dividends of $ 0.1 million and $0.2 million were recorded
comprising both deemed and accrued dividends. After giving effect to
these dividends of $ 0.6 million and $4.3 million, the net loss
attributable to the holders of common stock was $11.9 million and $23.1
million for the three and six months ended June 30, 1999.
Revenue
Revenue increased to $9.1 million in the second quarter as compared to
$7.7 million for the same quarter last year. For the six months ended
June 30, 1999 and 1998 revenue increased to $17.5 million from $15.2
million. Of this amount, approximately $2.9 million and $5.6 million,
respectively, for the three and six month periods ended June 30, 1999
was derived from Card Services provided globally to post paid card
issuers - that is, to customers who were in place by the second quarter
of 1998. Contracts and business arrangements entered into in the last
twelve months accounted for approximately $6.2 and $11.9 million of the
revenue for the three and six month periods ended June 30, 1999 and
included $3.8 million and $1.8 million, respectively, in revenue from
Network Services. Network Services is expected to generate additional
revenue growth in future reporting periods. The services of Vogo
Networks (unified messaging and telephone access to Internet content
and services) have just been launched with its first customer and
probably will not contribute materially to revenues this year, although
it is anticipated that there will be recognizable growth this year and
a measurable revenue stream in 2000.
Gross Profit
Gross profit (loss) was ($0.1 million) and $3.6 million for the three
months ended June 30, 1999 and 1998. For the six months ended June 30,
1999 and 1998, gross profit was
41
<PAGE>
$0.3 million and $7.0 million respectively. An anticipated increase in
the cost of revenue related to leases of capacity and other up-front
costs necessary to implement new routes and services in Network
Services was the key element of this margin difference - as long as the
IP voice network is growing with new routes and services, such up-front
costs will be incurred. The total for the three months ending June 30,
1999 also includes approximately $0.2 million of costs attributable to
the first quarter. Also reflected in the difference for the six month
period ending June 30, 1999 with the prior year period are costs
incurred in the first quarter of 1999 (and in the first month of the
second quarter) due to pricing decisions which led to large negative
margins in some card service contracts those costs are no longer being
incurred.
Selling, General and Administrative Expenses ("SG&A")
These expenses totaled $5.9 million and $3.6 million, respectively, for
the second quarter of 1999 and 1998, and $10.6 million and $7.2 million
for the six months ended June 30, 1999 and 1998. Included in these
amounts is a provision for doubtful accounts of $0.2 million and $ 0.1
million for the three months ended June 30, 1999 and 1998. The
provision for doubtful accounts was $0.4 million and $0.7 million for
the six-month period ended June 30, 1999 and 1998, respectively.
Excluding these charges, SG&A was $5.7 million and $10.2 million for
the three and six months ended June 30, 1999 as compared to $3.5
million and $6.5 million for the same periods in 1998. The increase is
mainly due to the inclusion in the first and second quarters of 1999 of
the operating results of the newly acquired subsidiaries for which SG&A
expenses, principally employee compensation, totaled $ 2.7 million.
Deferred Compensation
These non-cash credits/charges totaled a charge of $0.04 million and
$1.0 million for the three and six month period ended June 30, 1999 and
relate to the stock allocated to employees of acquired companies by
their former owners out of the acquisition consideration paid by the
Company. Such transactions, adopted by the acquired companies prior to
acquisition, require the Company to record the market value of the
stock issuable to employees as of the date of acquisition as
compensation expense with a corresponding credit to stockholders'
equity and to continue to record the effect of subsequent changes in
the market price of the issuable stock until actual issuance.
Accordingly, deferred compensation in future reporting periods will be
reported based on changes in the market price of the Company's common
stock.
Depreciation and Amortization Expense
These expenses increased from $0.7 million and $1.5 million to $1.9
million and $3.4 million for the three and six month periods ended June
30, 1999 and 1998, principally due to charges for goodwill amortization
of $1.0 million and $1.6 million in the three and six months ended June
30, 1999 related to acquisitions concluded since December 1998.
42
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
Proxy Related Litigation Expense
In the quarter ended March 31, 1998, the Company recorded a $3.5
million charge for the value of stock issued in connection with the
settlement of stockholder class action litigation.
Interest Expense
Interest expense totaled $3.2 million and $4.1 million compared to $0.3
million and $1.0 million for the three and six-month periods ended June
30, 1999 and 1998, respectively. This increase was primarily due to
interest expense related to acquisitions and financings.
Taxes on Income
In the quarter ended March 31, 1998, the Company recorded a $1.5
million provision for income taxes based on the initial results of a
restructuring study which identified potential international tax
issues. No provision was required for the first and second quarters of
1999.
LIQUIDITY, CAPITAL RESOURCES AND OTHER FINANCIAL DATA
Management is continuing its aggressive growth plan for 1999 and
intends to pursue that plan into the foreseeable future. Implementing
that plan will continue the large cash demands by the Company and the
need for aggressive cash management. To accomplish all of the
Company's objectives, management raised significant financing in the
first half of 1999 and is focused on raising additional capital
through the end of the fiscal year.
Cash and cash equivalents were $2.2 million at June 30, 1999 compared
to $1.4 million at December 31, 1998. Accounts receivable, net,
increased $1.4 million to $8.2 million at June 30, 1999 from $6.8
million at December 31, 1998, mainly due to higher revenues. Accounts
payable and accrued expenses totaled $16.4 million at June 30, 1999
($12.0 million at December 31, 1998) resulting principally from
deferrals of payments to certain vendors, accruals for interest costs
on debt payable only at maturity and the assumption of approximately
$2.2 million of such liabilities in the ConnectSoft acquisition. Cash
outflows from operating activities for the six-month period ended June
30, 1999 totaled $13.5 million, compared to cash inflows of $3.6
million for the nine-month period ended December 31, 1998.
On the operating level, the Company is renegotiating its relationship
with an entity that was formerly one of its largest customers. At June
30, 1999, 22% of the Company's net accounts receivable of $8.2 million
was due from this entity for which extended credit terms have been
granted. The new arrangement will assure more effective and timely
collection of receivables from that customer to permit renewed growth
in that customer's business. This arrangement will also assist in the
collection of certain amounts impacted by the extended credit terms -
the anticipated arrangements will include the Company
43
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
managing the cash collections from the ultimate users of the services
supplied to the customer.
There was a net working capital deficiency of $29.5 million at June 30,
1999 compared to a deficiency of $21.0 million at December 31, 1998.
Cash outflows from investing activities for the six-month period ended
June 30, 1999 totaled $2.0 million, compared to $5.3 million for the
nine-month period ended December 31, 1998. In the six-month period
ended June 30, 1999, the Company made other investments, principally
the purchase of ConnectSoft with net cash outflows of $1.5 million,
which the Company acquired in June (see Note 11 to the Consolidated
Financial Statements).
Cash generated from financing activities totaled $16.4 million during
the six-month period ended June 30, 1999 compared to $0.7 million
during the nine-month period ended December 31, 1998. In April 1999,
the Company entered into a financing transaction which included
convertible debt and warrants for a commitment totaling $20.0 million,
and provided an immediate unsecured loan of $7.0 million (see Notes 7
and 12 to the Consolidated Financial Statements). Proceeds from this
financing through June 30, 1999 were $7.0 million, with the remaining
$13.0 million received in early July after stockholder approval of the
transaction. An additional $2.0 million was received in June 1999
representing proceeds from the second tranche of Series D Convertible
shares which were issued upon registering the underlying common stock
issuable on conversion (see Note 9 to the Consolidated Financial
Statements).
CURRENT FUNDING REQUIREMENTS
The Company has the following estimated firm cash obligations and
requirements during the remainder of calendar 1999:
(in millions)
Capital lease payments 0.6
Payment of promissory notes issued in
connection with acquisitions 1.3
Repayment of subsidiary's Line of Credit 0.4
Repayment of term loan principal 1.0
Current payments on notes 1.1
Y2K compliance program (see below) 0.8
Other obligations 0.8
------
$ 6.0
44
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
Through June 30, 1999 the Company has acquired new funding and
commitments in excess of $32.0 million: $10.0 million from the sale of
convertible stock; $20.0 million in long-term debt; and more than $2.0
million in vendor financing for network equipment purchases. These
funds alone will not permit the Company to achieve the growth, both
short and long-term, that management is targeting. That growth will
require additional capital. The plan under which the Company is
currently operating requires cash in the second half of 1999 through
mid 2000. The Company anticipates that this capital will come from (1)
a private placement of equity in the third quarter of up to $10
million, (2) an additional financing of debt or equity in the second
half of the year of up to $30.0 million with the possibility that this
total will be diminished by secured equipment-based financings.
These funds will be used for operations as required, for network
expansion and upgrade, for acquisitions and investments and, in
particular, for the launch of new services such as the Global Office
Services. If significantly less capital is available, it would force
the Company to curtail its existing and planned levels of operations
and would therefore have a material adverse effect on the Company's
business, results of operations and financial condition.
ACCOUNTING PRONOUNCEMENTS AND YEAR 2000 ISSUES
Recent Accounting Pronouncements
The Financial Accounting Standards Board ("FASB") has issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities."
SFAS No. 133 requires companies to record derivatives on the balance
sheet as assets or liabilities, measured at fair market value. Gains or
losses resulting from changes in the values of those derivatives are
accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. The key criterion for hedge accounting
is that the hedging relationship must be highly effective in achieving
offsetting changes in fair value or cash flows. SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000 and is
currently not applicable to the Company because the Company does not
enter into hedging or derivative transactions.
Year 2000 Issues
The Company is aware of the issues associated with the programming code
in existing computer systems as the year 2000 approaches. The "Year
2000 Issue" or "Y2K Issue" arises because many computer and hardware
systems use only two digits to represent the year. As a result, these
systems and programs may not process dates beyond the year 1999, which
may cause errors in information or system failures. Assessments of the
potential effects of the Y2K issue vary markedly among different
companies, governments, consultants, economists and commentators, and
it is not possible to predict what the actual impact may be. Because
the Company uses Unix-based systems for its platforms and operating
systems to deliver service to customers, the Company has
45
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
asserted that material operating systems modifications may not be
required to ensure Y2K compliance. This assertion was validated by
testing the operating software resident on the Unix-based system which
was completed in June 1999. The Company has completed its internal
analysis, assessment and planning for critical systems requirements.
The Company is using internal resources to identify, correct or
reprogram, and test its computer systems for Y2K compliance.
Reprogramming and testing of the Company's core application software is
in progress. It is anticipated that all reprogramming efforts,
including testing, will be completed by October 1999. Deployment of Y2K
compliant hardware and software is expected to be complete by November.
Management is currently evaluating the financial impact for Y2K
compliance and expects that total remaining costs for the Company will
not exceed $0.8 million. Material costs have been incurred during the
six months ended June 30, 1999 totaling $338,000. The Company believes
that it will be able to correct any potential "Year 2000" problems in
its critical systems. Nevertheless, the Company is preparing a
contingency plan, which is in the process of being finalized and should
be complete by September 1999. The Company is also in the process of
assessing Year 2000 readiness of its key suppliers and customers. This
project has been undertaken with a view toward assuring that the
Company has adequate resources to cover its various telecommunications
requirements. A failure of the Company's suppliers or customers to
address adequately their Year 2000 readiness could affect the Company's
business adversely. The Company's worst-case Year 2000 scenarios would
include: (i) undetected errors or uncorrected defects in its current
product offerings; (ii) corruption of data contained in its internal
information systems; and (iii) the failure of infrastructure services
provided by external providers. The Company is in the process of
reviewing its contingency planning in all of these areas and expects
the plans to include, among other things, the availability of support
personnel to assist with customer support issues, manual "work arounds"
for internal software failure, and substitution of systems, if needed.
The Company anticipates that it will have a contingency plan in place
by September 1999. In addition, the Company is aware of the potential
for claims against it for damages arising from products and services
that are not Year 2000 ready. The Company believes that such claims
against it would be without merit. Finally, the Year 2000 presents a
number of risks and uncertainties that could affect the Company,
including utilities failures, competition for personnel skilled in the
resolution of Year 2000 issues and the nature of government responses
to the issues among others. The Company's expectations as to the extent
and timeliness of modifications required in order to achieve Year 2000
compliance is a forward-looking statement subject to risks and
uncertainties. Actual results may vary materially as a result of a
number of factors, including, among others, those described in this
paragraph. There can be no assurance however, that the Company will be
able to successfully modify on a timely basis such products, services
and systems to comply with Year 2000 requirements, which failure could
have a material adverse effect on the Company's business, results of
operations and financial condition.
46
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- --------------------------------------------------------------------------------
The Company measures its exposure to market risk at any point in time
by comparing the open positions to a market risk of fair value. The
market prices the Company uses to determine fair value are based on
management's best estimates, which consider various factors including:
closing exchange prices, volatility factors and the time value of
money. At June 30, 1999, the Company was exposed to some market risk
through interest rates on its long-term debt and preferred stock and
foreign currency. At June 30, 1999, the Company's exposure to market
risk was not material. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
ITEM 1 - LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
The following information sets forth information relating to material
legal proceedings involving the Company and certain of its executive
officers and directors. From time to time, the Company and its
executive officers and directors become subject to litigation which is
incidental to and arises in the ordinary course of business. Other than
as set forth herein, there are no material pending legal proceedings
involving the Company or its executive officers and directors.
A former officer of the Company who was terminated in the fall of 1997
filed suit against the Company in July 1998. The executive entered
into a termination agreement. The Company made the determination that
there were items which the executive failed to disclose to the Company
and, therefore, the Company ceased making payments to the executive
pending further investigation. The executive sued claiming employment
benefits including expenses, vacation pay and rights to options. The
parties agreed, in principle, to a settlement which the parties were
not able to conclude. The Company is defending its position vigorously
and believes that, ultimately, it will prevail.
The Company is in arbitration with a distributor of prepaid cards which
claims that the Company violated a nondisclosure agreement. The Company
contends that the card distributor owes approximately $390,000 for
goods and services provided. The parties have agreed, in principle, to
a settlement.
ITEM 2 - CHANGES IN SECURITIES
- --------------------------------------------------------------------------------
None
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------------------------------------------------
None
47
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
On June 16, 1999, the Company held its 1999 annual meeting of
stockholders ("Annual Meeting"). At the Annual Meeting, the Company's
stockholders took the following actions:
1. ELECTED DIRECTORS. The Company's stockholders elected seven directors
of the Company's Board of Directors. The names of the elected directors
are Christopher J. Vizas, David W. Warnes, Richard A. Krinsley, Donald
H. Sledge, James O. Howard, and Richard Chiang (each whom had served
prior to the Annual Meeting) and John Wall.
ELECTION OF DIRECTORS
Name of Nominee For Withheld
--------------- --- --------
Vizas 13,356,837 507,235
Warnes 13,349,453 514,619
Krinsley 13,357,272 506,800
Sledge 13,357,272 506,800
Howard 13,349,018 515,054
Chiang 13,357,272 506,800
Wall 13,357,272 506,800
2. AMENDED THE COMPANY'S CERTIFICATE OF INCORPORATION. The Company's
stockholders adopted the following amendments to the Company's
certificate of incorporation:
(a)CHANGE THE COMPANY'S NAME TO EGLOBE, INC.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
18,794,597 567,432 12,914
</TABLE>
(b)INCREASE THE AUTHORIZED PREFERRED STOCK AVAILABLE FOR ISSUANCE FROM
5,000,000 TO 10,000,000
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,604,045 1,055,689 34,488
</TABLE>
(c)PROVIDE FOR CLASSIFICATION OF THE COMPANY'S BOARD OF DIRECTORS INTO
THREE CLASS OF DIRECTORS SERVING STAGGERED TERMS OF OFFICE.
48
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
11,623,197 1,288,535 69,044
</TABLE>
(d)PROHIBIT STOCKHOLDERS FROM INCREASING THEIR PERCENTAGE OF OWNERSHIP OF
THE COMPANY ABOVE 30% OF THE OUTSTANDING STOCK OR 40% ON A FULLY
DILUTED BASIS OTHER THAN BY A TENDER OFFER RESULTING IN THE STOCKHOLDER
OWNING 85% OR MORE OF THE OUTSTANDING COMMON STOCK.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,776,724 1,079,977 832,002
</TABLE>
3. APPROVAL OF THE RESTATEMENT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
12,097,882 749,383 131,279
</TABLE>
4. AMENDED THE COMPANY'S 1995 EMPLOYEE STOCK OPTION AND APPRECIATION
RIGHTS PLAN. The Company's stockholders adopted an amendment to
increase the number of shares of the Company's Common Stock that may be
issued under the Company's employee stock option plan by 1,500,000,
which increase includes the reduction of the number of shares available
for issuance under the Company's director stock option plan by 437,000
shares, and effect various changes to the Company's employee stock
option plan.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,349,577 1,200,814 139,991
</TABLE>
5. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON THE CONVERSION AND
EXERCISE OF THE SERIES B PREFERRED STOCK, CERTAIN WARRANTS, AND
CONVERTIBLE PROMISSORY NOTES. The Company's stockholders approved the
possible issuance of shares of the Company's Common Stock upon the
conversion and exercise of shares of the Company's Series B Convertible
Preferred Stock, warrants and promissory notes issued in connection
with the Series B Convertible Preferred Stock, where the number of
shares issuable may equal or exceed 20% of the Company's Common Stock
outstanding at the time these securities were issued.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,360,705 762,867 84,720
</TABLE>
49
<PAGE>
EGLOBE, INC.
JUNE 30, 1999
6. APPROVAL OF THE ISSUANCE OF COMMON STOCK UPON THE EXERCISE OF CERTAIN
WARRANTS AND IN POSSIBLE PAYMENT OF UP TO 50% OF $20.0 MILLION OF
SECURED FINANCING. The Company's stockholders approved the possible
issuance of the Company's Common Stock upon the exercise of warrants
granted to EXTL Investors when the Company borrowed up to $20 million
from EXTL Investors and the possible repayment of up to 50% of the
amount borrowed using shares of the Company's Common Stock, where the
number of shares issuable may equal or exceed 20% of the Company's
Common Stock outstanding.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,542,090 764,540 390,531
</TABLE>
7. APPROVAL OF EXTL INVESTORS OWNING IN EXCESS OF 19.9% OF THE COMPANY'S
COMMON STOCK NOW OR IN THE FUTURE. The Company's stockholders approved
allowing EXTL Investors LLC, the Company's largest stockholder, to own
20% or more of the Company's Common Stock outstanding now or in the
future.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,525,890 797,187 374,084
</TABLE>
8. APPROVAL OF THE ISSUANCE OF SHARES OF THE COMPANY'S COMMON STOCK UPON
THE CONVERSION AND EXERCISE OF SERIES D PREFERRED STOCK AND CERTAIN
WARRANTS. The Company's stockholders approved the possible issuance of
shares of the Company's Common Stock upon the conversion and exercise
of shares of the Company's Series D Cumulative Convertible Preferred
Stock and warrants issued in connection with the 8% Series D Cumulative
Convertible Preferred Stock exceeding 20% of the Company's Common Stock
outstanding at the time these securities were issued.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
10,771,289 786,965 181,952
</TABLE>
ITEM 5 - OTHER INFORMATION
- --------------------------------------------------------------------------------
None
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
- --------------------------------------------------------------------------------
(a) Exhibits
3.1 Restated Certificate of Incorporation, dated June 16, 1999.
50
<PAGE>
3.2 Certificate of Amendment to Restated Certificate of
Incorporati on, dated July 7, 1999.
4.1 Certificate of Designations, Rights and Preferences of 6%
Series G Cumulative Convertible Redeemable Preferred Stock
of the Company. (Incorporated by reference to Exhibit 4.1 in
Current Report on Form 8-K of the Company, dated July 2,
1999).
4.2 Certificate of Designations, Rights and Preferences of
Series H Convertible Preferred Stock.
4.3 Certificate of Designations, Rights and Preferences of
Series I Convertible Optional Redemption Preferred Stock.
4.4 Certificate of Elimination of Series A Participation
Preferred Stock.
10. Agreement and Plan of Merger dated July 12, 1999 for the
acquisition of Swiftcall.
27. Financial Data Schedule
(b) Reports on Form 8-K and 8-K/A
(i) A report on Form 8-K/A, amending a report on Form 8-K dated
December 2, 1998 reporting the acquisition of IDX
International, Inc. and Telekey, Inc. under Item 2, was
filed with the Commission on April 30, 1999 including
required financial statements and pro formas.
(ii) A report on Form 8-K was filed with the Commission on May
19, 1999 to report repeal of the Company's "poison pill"
shareholder rights plan.
(iii) A report on Form 8-K was filed with the Commission on July
2, 1999 to report completion of the acquisition of
ConnectSoft Communications.
(iv) A report on Form 8-K was filed with the Commission on July
19, 1999 to report completion of a $20 million secured
notes financing by EXTL Investors.
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed in its
behalf by the undersigned, thereunto duly authorized.
eGlobe, Inc.
(Registrant)
Date: August 16, 1999 By /S/ Anne Haas
----------------------------------------------
Anne Haas
Controller, Treasurer
(Principal Accounting Officer)
Date: August 16, 1999 By /S/ Christopher J. Vizas
-------------------------------------------------
Christopher J. Vizas
Chairman of the Board of Directors, and
Chief Executive Officer
(Principal Executive Officer)
52
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
EXECUTIVE TELECARD, LTD.
-------------------------------------------
(adopted in accordance with the provisions of
Section 245 of the Delaware General Corporation Law)
-------------------------------------------
It is hereby certified that:
1. The name of the corporation (the "Corporation") is Executive
TeleCard, Ltd.
2. The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of the State of Delaware on February 19, 1987,
with the original name International 800 Telecard, Inc.
3. This Restated Certificate of Incorporation amends, restates and
integrates the Corporation's Certificate of Incorporation as heretofore amended,
supplemented, and restated to read in its entirety as follows:
ARTICLE I
Name
The name of the Corporation is:
eGlobe, Inc.
1
<PAGE>
ARTICLE II
Registered Office and Agent
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The Corporation's registered agent at such address is
The Corporation Trust Company.
ARTICLE III
Purpose
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware ("DGCL").
ARTICLE IV
Capital Stock
The total number of shares of all classes of stock which the
Corporation shall have authority to issue is (i) 100,000,000 shares of Common
Stock, with a par value of $0.001 and (ii) 10,000,000 shares of Preferred Stock
with a par value of $0.001 per share, of which (a) 1,000,000 shares have been
designated Series A Participating Preference Stock, the designations, rights and
preferences of which are as set forth in Exhibit 1 attached hereto and made a
part hereof, (b) 500,000 shares have been designated Series B Convertible
Preferred Stock, the designations, rights and preferences of which are as set
forth in Exhibit 2 attached hereto and made a part hereof, (c) 275 shares have
been designated 8% Series C Cumulative Convertible Preferred Stock, the
designations, rights and preferences of which are as set forth in Exhibit 3
attached hereto and made a part hereof, (d) 125 shares have been designated 8%
Series D Cumulative Convertible Preferred Stock, the designations, rights and
preferences of which are as set forth in Exhibit 4 attached hereto and made a
part hereof, (e) 125 shares have been designated 8% Series E Cumulative
Convertible Redeemable Preferred Stock, the designations, rights and preferences
of which are as set forth in Exhibit 5 attached hereto and made a part hereof,
and (f) 2,020,000 shares have been designated Series F Convertible Preferred
Stock, the designations, rights and preferences of which are as set forth in
Exhibit 6 attached hereto and made a part hereof.
The Board of Directors of the Corporation (the "Board of Directors" or
the "Board") is hereby authorized to divide the Preferred Stock into one or
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more series of stock and to fix and determine the relative rights and
preferences of the various series, including but not limited to: the rate of
dividend, if any; whether dividends will be cumulative or non-cumulative;
whether preferred stockholders will participate in dividends declared on Common
Stock, if any; whether Preferred Stock may be redeemed and the terms of any such
redemption; the amount payable upon shares in the event of voluntary or
involuntary liquidation; the terms on which Preferred Stock may be converted to
Common Stock, if any; and the voting rights, if any, of holders of Preferred
Stock.
ARTICLE V
Management and Indemnification
Section 1. Management. The business and affairs of the Corporation
shall be managed by the Board of Directors.
Section 2. No Ballot. The directors need not be elected by written
ballot unless the by-laws of the Corporation shall so provide.
Section 3. Number; Election. The number of directors of the Corporation
shall not be fewer than three nor more than 15, and shall be fixed from time to
time by the affirmative vote of a majority of the total number of directors
which the Corporation would have, prior to any increase or decrease, if there
were no vacancies. The directorships (i.e., the particular number of seats on
the Board) shall be classified into three classes as nearly equal in number as
possible. With respect to newly created or eliminated directorships resulting
from an increase or decrease, respectively, in the number of directors, the
Board shall determine and designate to which class of directorships each
director belongs. The term of any director elected at an annual meeting of
stockholders shall expire at the annual meeting of stockholders held in the
third year following the year of the director's election.
Section 4. (a) (1) Liability. A director of the Corporation shall not
be personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts of omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL,
or (iv) for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended after this Restated Certificate of Incorporation
becomes effective to authorize corporate action further eliminating or limiting
the personal liability of directors, then the
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liability of a director of the Corporation shall be eliminated or limited to the
fullest extent permitted by the DGCL, as so amended.
(2) Any repeal or modification of the foregoing
subparagraph (a) (1) by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification.
(b) (1) Right to Indemnification. Each person who was or is
made a party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she, or a person of whom he or she is a legal representative, is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director or officer of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action or inaction in an official capacity as a director or officer or
in any other capacity while serving as a director or officer, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the DGCL, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment permits
the Corporation to provide broader indemnification rights than said law
permitted the Corporation to provide prior to such amendment), against all
expense, liability and loss (including attorney's fees, judgments, fines, ERISA
excise taxes or penalties, and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith and such
indemnification shall continue as to a person who has ceased to be a director or
officer and shall inure to the benefit of his or hers heirs, executors and
administrators; provided, however, that, except as provided in this paragraph
(b), the Corporation shall indemnify any such person seeking indemnification in
connection with a proceeding (or part thereof) initiated by such person only if
such proceeding (or part thereof) was authorized by the Board of Directors. The
right to indemnification conferred in this paragraph (b) shall be a contract
right and shall include the right to be paid by the Corporation the expenses
incurred in defending any such proceeding in advance of its final disposition;
provided, however, that, if the DGCL requires, the payment of such expenses
incurred by a director or officer in his or her capacity as a director or
officer of the Corporation (and not in any other capacity in which service was
or is rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the Corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced if it shall ultimately be determined that such director or
officer is not entitled to be indemnified
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under this Section or otherwise. The Corporation may, by action of its Board of
Directors, provide indemnification to employees and agents of the Corporation,
and to a person who is or was serving at the request of the Corporation as an
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, with the same scope and effect as the foregoing
indemnification of directors and officers.
(2) Right of Claimant to Bring Suit. If a claim under
paragraph (b) (1) is not paid in full by the Corporation within 30 days after a
written claim has been received by the Corporation, the claimant may at any time
thereafter bring suit against the Corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
Corporation) that the claimant has not met the standards of conduct which make
it permissible under the DGCL for the Corporation to indemnify the claimant for
the amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the DGCL, nor an actual
determination by the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) that the claimant has not met such
applicable standard of conduct, shall be a defense to the action to create a
presumption that the claimant has not met the applicable standard of conduct.
(3) Non-Exclusivity of Rights. The right to
indemnification and the payment of expenses incurred in defending a proceeding
in advance of its final disposition conferred in this paragraph (b) shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, by-law,
agreement, vote of stockholders or disinterested directors or otherwise.
(4) Insurance. The Corporation may maintain insurance,
at its expense, to protect itself and any director, officer, employee or agent
of the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the DGCL.
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ARTICLE VI
Meetings of Stockholders
Meetings of the stockholders may be held within or without the State of
Delaware as the by-laws may provide. The books of the Corporation may be kept,
subject to any provision contained in Delaware statutes, outside the State of
Delaware at such place(s) as may be designated from time to time by the Board of
Directors or in the by-laws of the Corporation. Any action required or permitted
to be taken by the stockholders of the Corporation must be effected at a duly
called Annual or Special Meeting of such holders and may not be effected by a
consent in writing by any such holders. This Article may not be amended except
by the affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the shares of stock of the Corporation issued and
outstanding and entitled to vote.
ARTICLE VII
By-Laws
In furtherance and not in limitation of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized to
adopt, amend or repeal the by-laws of the Corporation.
ARTICLE VIII
Perpetual Existence
The Corporation is to have perpetual existence.
ARTICLE IX
Compromise or Arrangement
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
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be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
ARTICLE X
Amendments and Repeal
The Corporation reserves the right to amend, alter, change, or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by the laws of the State of Delaware, and all
rights herein conferred are granted subject to this reservation.
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This Restated Certificate of Incorporation was declared advisable,
recommended and approved by the Board of Directors and duly adopted in
accordance with the provisions of Sections 222, 242 and 245 of the DGCL.
Dated: June 16, 1999
Executive TeleCard, Ltd.
By: /s/ Christopher J. Vizas
--------------------------------
Christopher J. Vizas
Chairman of the Board and
Chief Executive Officer
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EXHIBIT 1
CERTIFICATE OF DESIGNATIONS OF
SERIES A PARTICIPATING PREFERENCE STOCK OF
EXECUTIVE TELECARD, LTD.
(Pursuant to Section 151 of the
DGCL)
Executive Telecard, Ltd., a corporation organized and existing under
the DGCL, hereby certifies that the following resolution was adopted by the
Board of Directors as required by Section 151 of the DGCL at a meeting duly
called and held on February 5, 1997:
WHEREAS, the Board of Directors is authorized to provide for the
issuance of the shares of preferred stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, and to fix the
designations, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof;
WHEREAS, the Board of Directors desires, pursuant to its authority as
aforesaid, to designate a new series of preferred stock, set the number of
shares constituting such series and fix the rights, preferences, privileges and
restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
creates a series of preferred stock, par value $.001 per share (the "Preferred
Stock"), of the Corporation and hereby states the designation and number of
shares, and fixes the relative rights, preferences, and limitations thereof, in
addition to the provisions set forth in the Certificate of Incorporation of the
Corporation which are applicable to Preference Stock of all series, as follows:
Series A Participating Preference Stock:
Section 1. Designation, Amount and Par Value. The series of
Preference Stock shall be designated as "Series A Participating Preference
Stock" (the "Series A Preference Stock"), and the number of shares so designated
shall be 1,000,000. The par value of each share of Preferred Stock shall be
$.001. Such number of shares may be increased or decreased by resolution of the
Board of Directors; provided, that no decrease shall reduce the number of shares
of Series A Preference Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, rights or warrants or upon
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the conversion of any outstanding securities issued by the Corporation
convertible into Series A Preference Stock.
Section 2. Dividends and Distributions.
(A) Subject to the rights of the holders of any shares of any
series of Preference Stock (or any similar stock) ranking prior and
superior to the Series A Preference Stock with respect to dividends,
the holders of shares of Series A Preference Stock, in preference to
the holders of Common Stock, par value $.001 per share (the "Common
Stock"), of the Corporation, and of any other junior stock, shall be
entitled to receive, when, as and if declared by the Board of Directors
out of funds legally available for the purpose, quarterly dividends
payable in cash on the first day of March, June, September and December
in each year (each such date being referred to herein as a "Quarterly
Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share
of Series A Preference Stock, in an amount per share (rounded to the
nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock
or a subdivision of the outstanding shares of Common Stock (by
reclassification or otherwise), declared on the Common Stock since the
immediately preceding Quarterly Dividend Payment Date or, with respect
to the first Quarterly Dividend Payment Date, since the first issuance
of any share or fraction of a share of Series A Preference Stock. In
the event the Corporation shall at any time declare or pay any dividend
on the Common Stock payable in shares of Common Stock, or effect a
subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a
dividend in shares of Common Stock) into a greater or lesser number of
shares of Common Stock, then in each such case the amount to which
holders of shares of Series A Preference Stock were entitled
immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which
is the number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) The Corporation shall declare a dividend or distribution
on the Series A Preference Stock as provided in paragraph (A) of this
Section immediately after it declares a dividend or distribution on the
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Common Stock (other than a dividend payable in shares of Common Stock);
provided that, in the event no dividend or distribution shall have been
declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series A Preference
Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on
outstanding shares of Series A Preference Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares,
unless the date of issue of such shares is prior to the record date for
the first Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend Payment
Date or is a date after the record date for the determination of
holders of shares of Series A Preference Stock entitled to receive a
quarterly dividend and before such Quarterly Dividend Payment Date, in
either of which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued but
unpaid dividends shall not bear interest. Dividends paid on the shares
of Series A Preference Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such shares at
the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Preference Stock
entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A
Preference Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set
forth, each share of Series A Preference Stock shall entitle the holder
thereof to 100 votes on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in
shares of Common Stock, or effect a subdivision or combination or
consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares
of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to which
holders of shares of Series A Preference Stock were entitled
immediately prior to such event shall be adjusted by multiplying such
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number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
(B) Except as otherwise provided herein, in any other
Certificate of Designations creating a series of Preference Stock or
any similar stock, or by law, the holders of shares of Series A
Preference Stock and the holders of shares of Common Stock and any
other capital stock of the Corporation having general voting rights
shall vote together as one class on all matters submitted to a vote of
stockholders of the Corporation.
(C) Except as set forth in the Certificate of Incorporation or
herein, or as otherwise provided by law, holders of Series A Preference
Stock shall have no special voting rights and their consent shall not
be required (except to the extent they are entitled to vote with
holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. Reacquired Shares. Any shares of Series A
Preference Stock purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares shall upon their cancellation become authorized but
unissued shares of Preference Stock and may be reissued as part of a new series
of Preference Stock subject to the conditions and restrictions on issuance set
forth herein, in the Certificate of Incorporation, or in any other Certificate
of Designations creating a series of Preference Stock or any similar stock or as
otherwise required by law.
Section 5. Liquidation, Dissolution or Winding Up. Upon any
liquidation, dissolution or winding up of the Corporation, no distribution shall
be made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series A
Preference Stock unless, prior thereto, the holders of shares of Series A
Preference Stock shall have received $100 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series A
Preference Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 100
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series A Preference Stock, except distributions made ratably on the Series A
Preference Stock and all such parity stock in proportion to the total amounts to
which the holders of all such shares are entitled upon such
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liquidation, dissolution or winding up. In the event the Corporation shall at
any time declare or pay any dividend on the Common Stock payable in shares of
Common Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series A Preference Stock were entitled immediately prior
to such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 6. Consolidation, Merger, etc. In case the Corporation
shall enter into any consolidation, merger, combination or other transaction in
which the shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Preference Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time declare or pay any dividend on
the Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series A Preference Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. No Redemption. The shares of Series A Preference
Stock shall not be redeemable.
Section 8. Rank. The Series A Preference Stock shall be of
equal rank in respect of the preference as to dividends and to payments upon the
liquidation, dissolution or winding up, whether voluntary or involuntary, of the
Corporation, with all shares of Preference Stock of all series.
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Section 9. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preference
Stock so as to affect them adversely without the affirmative vote of the holders
of at least two-thirds of the outstanding shares of Series A Preference Stock,
voting together as a single class.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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EXHIBIT 2
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
EXECUTIVE TELECARD, LTD.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the DGCL
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the authority
contained in Article IV of the Restated Certificate of Incorporation of
Executive TeleCard, Ltd., a Delaware corporation, and in accordance with Section
151 of the DGCL, the Board of Directors has authorized the creation of Series B
Convertible Preferred Stock having the designations, rights and preferences as
are set forth in Exhibit 2-A hereto and made a part hereof and that the
following resolution was duly adopted by the Board of Directors:
RESOLVED, that a series of authorized Preferred
Stock, par value $.001 per share, of the Corporation be, and it hereby
is, created; that the shares of such series shall be, and they hereby
are, designated as "Series B Convertible Preferred Stock;" that the
number of shares constituting such series shall be, and it hereby is,
500,000; and that the designations, rights
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and preferences of the shares of such series are as set forth in
Exhibit 2-A attached hereto and made a part hereof.
<PAGE>
EXHIBIT 2-A
SERIES B CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and preferences,
and the qualifications, limitations and restrictions thereof, of the
Corporation's Series B Convertible Preferred Stock, par value $.001 per share
("Series B Preferred"). Capitalized terms used herein are defined in Section 6
below.
Section 1. Voting Rights.
Except as otherwise provided herein or as required by law, the Series B
Preferred shall vote with the shares of the Common Stock of the Corporation (and
each other class of stock so voting), and not as a separate class, at any annual
or special meeting of stockholders of the Corporation, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series B Preferred shall be entitled
to such number of votes as shall be equal to 25% of the number of shares of
Common Stock into which such holder's aggregate number of shares of Series B
Preferred are convertible pursuant to Section 5 below immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent, rounded up to the nearest whole number; provided,
however, that the Series B Preferred shall not have any voting rights in
connection with a Series B Shareholder Approval (as defined below).
Section 2. No Redemption.
Series B Preferred shall not be redeemable.
Section 3. Dividend Rights.
Except as otherwise provided herein or as required by law, holders of
Series B Preferred shall be entitled to receive dividends only when and as
declared by the Corporation's Board of Directors with respect to Series B
Preferred, only out of funds that are legally available therefor and only in the
event that the Corporation at the same time declares or pays any dividends upon
the Common Stock (whether payable in cash, securities or other property). In the
event that the Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) on or prior to the
Series B Adjustment Date, other than dividends payable solely in shares of
Common Stock, the Corporation shall
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also declare and pay to the holders of the Series B Preferred, at the same time
that it declares and pays such dividends to the holders of the Common Stock, the
dividends which would have been declared and paid with respect to the Common
Stock issuable upon conversion of the Series B Preferred had all of the
outstanding Series B Preferred been converted immediately prior to the record
date for such dividend, or if no record date is fixed, the date as of which the
record holders of Common Stock entitled to such dividends are to be determined.
Section 4. Liquidation Rights.
Upon any Liquidation, after the payment of the full liquidation
preference of any series of preferred stock senior to the Series B Preferred,
the holders of Series B Preferred shall be entitled to participate in
distributions to holders of the Common Stock (along with each other class of
stock with similar rights) such that the holders of Series B Preferred receive
aggregate distributions equal to the amounts that such holders would have
received if the Series B Preferred Stock had been converted into Common Stock
immediately prior to such Liquidation.
Section 5. Conversion.
The holders of the Series B Preferred shall have the following rights
with respect to the conversion of the Series B Preferred into shares of Common
Stock:
5A. Optional Conversion. At any time and from time to time after the
issuance thereof, subject to and in compliance with the provisions of this
Section 5, any shares of Series B Preferred may, at the option of the holder, be
converted at any time into fully-paid and nonassessable shares of Common Stock
(provided, that if the Series B Adjustment Date has occurred but the Series B
Determination Date has not occurred, the Corporation may postpone any conversion
of Series B Preferred until the Series B Determination Date, but then shall take
appropriate steps to put each holder of Series B Preferred who exercised such
holder's right to convert Series B Preferred shares prior to the Series B
Determination Date in the same economic position as if such conversion had
occurred on the date of exercise and the Common Stock received upon such
conversion held until the Series B Determination Date). The number of shares of
Common Stock to which a holder of Series B Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series B Conversion
Rate" then in effect (determined as provided in Section 5B) by the number of
shares of Series B Preferred being converted.
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5B. Series B Conversion Rate.
(i) Series B Conversion Rate Formula. The conversion rate in effect
at any time for conversion of the Series B Preferred (the "Series B Conversion
Rate") shall be the product of (i) five (5), multiplied by (ii) the quotient
obtained by dividing $8.00 by the applicable "Series B Market Factor"
(determined as provided in Section 5B(ii)); provided, however, that the Series B
Conversion Rate shall not exceed four (4) unless and until the Series B
Shareholder Approval (as defined below) has been obtained.
(ii) Series B Market Factor. The Series B Market Factor shall mean
the following: (A) if the Market Price is less than or equal to $3.33-1/3 as of
the Series B Adjustment Date, the Series B Market Factor shall equal $3.33-1/3;
(B) if the Market Price is greater than $3.33-1/3 but less than $8.00 as of the
Series B Adjustment Date, the Series B Market Factor shall equal the Market
Price; and (C) if the Market Price is greater than or equal to $8.00 as of the
Series B Adjustment Date, the Series B Market Factor shall equal $8.00;
provided, however, that notwithstanding clauses (A), (B) and (C) of this Section
5B(ii), if Series B Preferred is converted prior to the Series B Adjustment Date
(whether by the holder or automatically pursuant to Section 5F(i)), or if the
Target Achievement Percentage (as defined in the Series B Side Letter) equals
zero (0), the Series B Market Factor shall equal $8.00.
(iii) Adjustment. The Series B Conversion Rate shall be subject to
adjustment pursuant to Section 5C.
5C. Adjustment for Stock Splits and Combinations, Common Stock
Dividends and Distributions. If the Corporation shall at any time or from time
to time after the date of the initial issuance of Series B Preferred (the
"Original Series B Issue Date") effect a subdivision of the outstanding Common
Stock, the Series B Conversion Rate in effect immediately before that
subdivision shall be proportionately increased. Conversely, if the Corporation
shall at any time or from time to time after the Original Series B Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares,
the Series B Conversion Rate in effect immediately before the combination shall
be proportionately decreased. Any adjustment under this Section 5(d) shall
become effective at the close of business on the date the subdivision or
combination becomes effective.
If the Corporation at any time or from time to time after the Original
Series B Issue Date makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive, a divided or other distribution
payable in additional shares of Common Stock, in each such event the Series B
Conversion Rate that is then in effect shall be
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increased as of the time of such issuance or, in the event such record date is
fixed, as of the close of business on such record date, by multiplying the
Series B Conversion Rate then in effect by a fraction (1) the numerator of which
is the total number of shares of Common Stock issued and outstanding immediately
prior to the time of such issuance or the close of business on such record date
plus the number of shares of Common Stock issuable in payment of such dividend
or distribution, and (2) the denominator of which is the total number of shares
of Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date; provided, however, that
if such record date is fixed and such dividend is not fully paid or if such
distribution is not fully made on the date fixed therefor, the Series B
Conversion Rate shall be recomputed accordingly as of the close of business on
such record date and thereafter the Series B Conversion Rate shall be adjusted
pursuant to this Section 5C to reflect the actual payment of such dividend or
distribution.
5D. Reorganizations, Mergers or Consolidations. If at any time or from
time to time after the Original Series B Issue Date, the Common Stock is
converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such transaction, provision shall be made so that the holders of the Series B
Preferred shall thereafter be entitled to receive upon conversion of the Series
B Preferred the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled in connection with such
transaction, subject to adjustment in respect of such stock or securities by the
terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Series B Preferred after such transaction to the end that the
provisions of this Section 5 (including adjustment of the Series B Conversion
Rate then in effect and the number of shares issuable upon conversion of the
Series B Preferred) shall be applicable after that event and be as nearly
equivalent as practicable. In the case of any reorganization, merger or
consolidation in which the Corporation is not the surviving entity, the
Corporation shall not consummate the transaction unless the entity surviving
such transaction assumes all of the Corporation's obligations hereunder.
If at any time or from time to time after the Original Series B Issue
Date, the Common Stock issuable upon the conversion of the Series B Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock
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dividend or a reorganization, merger or consolidation provided for elsewhere in
this Section 5), in any such event each holder of Series B Preferred shall have
the right thereafter to convert such stock into the kind and amount of stock and
other securities and property receivable in connection with such
recapitalization, reclassification or other change with respect to the maximum
number of shares of Common Stock into which such shares of Series B Preferred
could have been converted immediately prior to such recapitalization,
reclassification or change, all subject to further adjustments as provided
herein or with respect to such other securities or property by the terms
thereof.
5E. Notices.
(i) Immediately upon any adjustment of the Series B Conversion Rate
other than as contemplated in Section 5B, the Corporation shall give written
notice thereof to all holders of Series B Preferred, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(ii) Upon (A) any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or (B)
any reorganization, any reclassification or recapitalization of the capital
stock of the Corporation, any merger or consolidation of the Corporation with or
into any other corporation, or any Liquidation, the Corporation shall mail to
each holder of Series B Preferred at least twenty (20) days prior to the record
date specified therein a notice specifying (1) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger or Liquidation
is expected to become effective, and (3) the date, if any, that is to be fixed
for determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger or Liquidation.
5F. Automatic Conversion. Each share of Series B Preferred shall
automatically be converted into shares of Common Stock, based on the
then-effective Series B Conversion Rate, on the earliest to occur of (i) the
first date as of which the Market Price is $8.00 or more for any 15 consecutive
trading days during any period in which Series B Preferred is outstanding and
(ii) the date that is 30 days after the later of the Series B Determination Date
and the date any required Series B Shareholder Approval is received.
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5G. Mechanics of Conversion.
(i) Optional Conversion. Each holder of Series B Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
5 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series B Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the same. Such notice shall state the number of shares of
Series B Preferred being converted. Thereupon, the Corporation shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled and a
certificate representing any Series B Preferred shares which were represented by
the certificate or certificates delivered to the Corporation in connection with
such conversion but which were not converted. Such conversion shall be deemed to
have been made at the close of business on the date of such surrender of the
certificate representing the shares of Series B Preferred to be converted, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
(ii) Automatic Conversion. Upon the occurrence of the event
specified in Section 5F, the outstanding shares of Series B Preferred shall be
converted into Common Stock automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series B Preferred are either delivered
to the Corporation or its transfer agent as provided below, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series B Preferred at the office of
the Corporation or any transfer agent for the Series B Preferred, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series B Preferred surrendered were convertible on the date on which such
automatic conversion occurred. Until surrendered as provided above, each
certificate formerly representing shares of Series B Preferred shall be deemed
for all corporate purposes to represent the number of shares of Common Stock
resulting from such automatic conversion.
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5H. Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series B Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series B Preferred by a holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion. Notwithstanding the foregoing, in the event that any
holder converts shares of Series B Preferred ten times within any one year
period, the Corporation shall not be obligated to pay any cash amount for
fractional shares upon any subsequent conversion(s) by such holder during such
year, but may withhold the fractional share(s) and aggregate such fractional
share(s) with any additional fractional share(s) issuable to such holder during
such year, and pay the cash (if any) required by this section for any fractional
shares remaining after such aggregation at the end of such year.
5I. Reservation of Shares. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the shares of Series B
Preferred, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series B
Preferred. All shares of Common Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of the Series B Preferred, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
5J. Payment of Taxes. The issuance of certificates for shares of Common
Stock upon conversion of Series B Preferred shall be made without charge to the
holders of such Series B Preferred for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Common Stock, excluding any tax or other
charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Series B Preferred so converted were registered.
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Section 6. Definitions.
"Series B Adjustment Date" means the date that is 12 months after the
date of the closing of the merger of a wholly-owned subsidiary of the
Corporation into IDX pursuant to the Series B Merger Agreement.
"Closing Price" of each share of Common Stock or other security means
the composite closing price of the sales of the Common Stock or such other
security on all securities exchanges on which such security may at the time be
listed (as reported in The Wall Street Journal), or, if there has been no sale
on any such exchange on any day, the average of the highest bid and lowest asked
prices of the Common Stock or such other security on all such exchanges at the
end of such day, or, if such security is not so listed, the closing price (or
last price, if applicable) of sales of the Common Stock or such other security
in the Nasdaq National Market (as reported in The Wall Street Journal) on such
day, or if such security is not quoted in the Nasdaq National Market but is
traded over-the-counter, the average of the highest bid and lowest asked prices
on such day in the over-the-counter market as reported by the National Quotation
Bureau Incorporated, or any similar successor organization.
"Common Stock" means, collectively, the Corporation's common stock, par
value $.001 per share; and if there is a change such that the securities
issuable upon conversion of Series B Preferred are issued by an entity other
than the Corporation or there is a change in the class of securities so
issuable, then the term "Common Stock" shall mean the shares of the security
issuable upon conversion of Series B Preferred if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"Series B Determination Date" means the date (following the Series B
Adjustment Date) on which the Corporation has determined the Series B Conversion
Rate as of the Series B Adjustment Date and mailed written notice thereof to
each holder of record of Series B Preferred.
"IDX" means IDX International, Inc., a Virginia corporation.
"Liquidation" means the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary; provided, however, that neither
the consolidation or merger of the Corporation into or with any other entity or
entities, nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation, shall be
deemed to be a Liquidation.
"Market Price" means (i) if the Common Stock is listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
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over-the-counter market throughout the period of 15 consecutive trading days
consisting of the day as of which the Market Price is being determined and the
14 consecutive trading days prior to such day (the "Pricing Period"), the
Closing Price of the Common Stock averaged over the 15 consecutive trading
constituting the Pricing Period, or (ii) if the Common Stock is not listed on
any securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the Pricing Period, the fair value of the
Common Stock determined by agreement between the Corporation and the holders of
a majority of the outstanding Series B Preferred or, if they are unable to reach
agreement within a reasonable period of time, the fair value of the Common Stock
as determined by an independent appraiser selected by the Corporation (which
appraiser may be the Corporation's investment banker, and the fees and expenses
of such appraiser shall be borne by the Corporation), which determination shall
be final and binding upon the Corporation and the holders of the outstanding
Series B Preferred.
"Series B Merger Agreement" means the Agreement and Plan of Merger
dated as of June 10, 1998 by and among the Corporation, IDX and the stockholders
of IDX.
"Series B Preferred" means the Corporation's Series B Convertible
Preferred Stock, par value $.001 per share.
"Series B Shareholder Approval" means any approval of stockholders of
the Corporation which may be required, in the reasonable determination of the
Corporation upon advice of its counsel, under the rules or regulations of the
Nasdaq Stock Market, as in effect at the applicable time, with respect to the
issuance of 20% or more of the Common Stock in connection with the acquisition
of IDX.
"Series B Side Letter" means the side letter, dated as of June 10, 1998
by and among the Corporation, IDX and stockholders of IDX, which sets forth the
procedure for calculating the Target Achievement Percentage.
Section 7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or provisions
of the Series B Preferred shall be binding or effective without the prior
approval (by vote or written consent) of the holders of a majority of the Series
B Preferred then outstanding. Any amendment, modification or waiver of any of
the terms or provisions of the Series B Preferred with such approval, whether
prospective or retroactively effective, shall be binding upon all holders of
Series B Preferred.
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Section 8. Registration of Transfer.
The Corporation shall keep at its principal office a register for the
registration of Series B Preferred. Upon the surrender of any certificate
representing Series B Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Series B Preferred shares
represented by the surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of Series B Preferred
shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Series B Preferred, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Corporation (provided
that if the holder is a financial institution or other institutional investor,
its own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like kind
representing the number of Series B Preferred shares represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
Section 10. Notices.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed (i) if to the Corporation, to its principal executive
offices, and (ii) if to stockholders, to each holder of record at the address of
such holder appearing on the books of the Corporation.
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EXHIBIT 3
CERTIFICATE OF DESIGNATIONS
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
OF 8% SERIES C CUMULATIVE CONVERTIBLE
PREFERRED STOCK BY RESOLUTION OF
THE BOARD OF DIRECTORS OF
EXECUTIVE TELECARD, LTD.
PURSUANT TO SECTION 151 OF THE DGCL
8% SERIES C CUMULATIVE CONVERTIBLE
PREFERRED STOCK
I, Christopher J. Vizas, Chairman of the Board of Executive TeleCard,
Ltd., a corporation organized and existing under and by virtue of the DGCL, DO
HEREBY CERTIFY that, pursuant to authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation, as amended, of the Corporation,
the Board of Directors, in accordance with the provisions of Section 151 of the
DGCL, adopted the following resolution, effective as of October 22, 1998,
providing for the creation of the 8% Series C Cumulative Convertible Preferred
Stock:
RESOLVED that, pursuant to Article IV of the Restated Certificate of
Incorporation of the Corporation, there be and hereby is authorized and created
a series of Cumulative Convertible Preferred Stock consisting of 275 shares
having a par value of $.001 per share, which series shall be titled "8% Series C
Cumulative Convertible Preferred Stock."
The designations, rights, preferences, privileges and restrictions of
the 8% Series C Cumulative Convertible Preferred Stock shall be made as follows:
1. Designation and Amount. This series of Preferred Stock shall be
designated and known as "8% Series C Cumulative Convertible Preferred Stock"
(the "Series C Preferred Stock") and shall consist of 275 shares. The shares of
the Series C Preferred Stock may be issued in different series if more than one
Series C Closing shall occur. All the series of the Series C Preferred Stock
shall have identical rights, preferences, privileges and restrictions as set
forth below, except with respect to the date of the Series C Closing, the First
Series C Conversion Date and the Series C Conversion Price. The par value of the
Series C Preferred Stock shall be $.001 per share. Certain defined terms used
herein are defined in paragraph 11 below.
2. Voting. (a) Except as may be otherwise provided by these terms of
the Series C Preferred Stock or by law, the holders of Series C Preferred Stock
shall have no voting rights unless dividends payable on the shares of Series C
Preferred
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Stock are in arrears for six quarterly periods, in which case the holders of
Series C Preferred Stock voting separately as a class with the shares of any
other Preferred Stock having similar voting rights, will be entitled at the next
regular or special meeting of stockholders of the Corporation to elect one
director (such voting rights will continue until such time as the dividend
arrearage on Series C Preferred Stock has been paid in full). The affirmative
vote or consent of holders of at least 66 2/3% of the outstanding shares of
Series C Preferred Stock will be required for the issuance of any class or
series of stock of the Corporation ranking senior to or pari passu with the
shares of Series C Convertible Preferred Stock (other than the Series A
Preference Stock), each par value $.001 per share, authorized as of the date
hereof) as to dividends or rights on liquidation, winding up and dissolution.
(b) Whenever holders of Series C Preferred Stock are required or
permitted to take any action by vote as a single class or series, such action
may be taken without a meeting by written consent, setting forth the action so
taken and signed by the holders of the Series C Preferred Stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
3. Dividends. (a) The holders of the Series C Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when, as and if
declared by the Board of Directors, cumulative annual dividends of 8.0% of the
Series C Liquidation Amount (as defined below) per share of Series C Preferred
Stock outstanding (the "Series C Accruing Dividends"). Series C Accruing
Dividends shall accrue from the Series C Issue Date (whether or not the
Corporation has earnings, there are funds legally available therefor or such
dividends are declared) and shall be fully cumulative. Series C Accruing
Dividends shall be payable quarterly out of assets legally available therefor on
March 31, June 30, September 30 and December 31 (each of such dates being
hereinafter referred to as a "Series C Dividend Payment Date"), commencing
September 30, 2000, when, as and if declared by the Board of Directors.
(b) On each Series C Dividend Payment Date commencing September 30,
2000, Series C Accruing Dividends, may at the option of the Corporation, be
payable (i) in cash, (ii) in kind in additional fully paid nonassessable shares
of Series C Preferred Stock (including fractional shares, as necessary) at the
rate of .01 share of Series C Preferred Stock for each $1,000 of such dividend
not made in cash, or (iii) a combination thereof.
(c) All shares of Series C Preferred Stock which may be issued as a
dividend will thereupon be duly authorized, validly issued, fully paid and
nonassessable.
(d) The record date for the payment of Series C Accruing Dividends
shall, unless otherwise altered by the Corporation's Board of Directors, be the
fifteenth
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day of the month immediately preceding the month in which the Series C Dividend
Payment Date occurs, but in no event more than sixty (60) days nor less than ten
(10) days prior to the Series C Dividend Payment Date
(e) No dividends shall be granted on any Common Stock or Preferred
Stock junior to Series C Preferred Stock unless and until all accrued but unpaid
dividends with respect to the Series C Preferred Stock have been paid in full.
4. Liquidation. (a) (i) Upon any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holder(s) of each
outstanding share of Series C Preferred Stock shall first be entitled, before
any distribution or payment is made upon any Series C Junior Stock (as herein
defined), to be paid, in the case of each such share, an amount equal to
$100,000 per share of Series C Preferred Stock (the "Series C Liquidation
Amount"), plus accrued and unpaid dividends thereon (collectively, the "Series C
Liquidation Preference"). If upon such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series C Preferred Stock shall be insufficient to permit
payment in full to all holders of Series C Preferred Stock of the aggregate
Series C Liquidation Preference and the amount of any payment to all holders of
any other class or series of Preferred Stock ranking on parity with the Series C
Preferred Stock as to liquidation, then the entire assets of the Corporation to
be so distributed shall be distributed ratably among the holders of Series C
Preferred Stock and the holders of any other class or series of Preferred Stock
ranking on parity with the Series C Preferred Stock as to liquidation, in
accordance with the respective amounts payable on liquidation upon the shares of
Series C Preferred Stock and such Preferred Stock ranking on parity with the
Series C Preferred Stock as to liquidation. After payment in full to the holders
of Series C Preferred Stock of the aggregate Series C Liquidation Preference as
aforesaid, holders of the Series C Preferred Stock shall, as such, have no right
or claim to any of the remaining assets of the Corporation.
(ii) Written notice of any such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
given (A) by certified or registered mail, postage prepaid, (B) by a nationally
known overnight delivery service or (C) by hand, not less than 45 days prior to
the payment date stated therein, to each holder of record of Series C Preferred
Stock, such notice to be addressed to each such holder at its address as shown
by the records of the Corporation.
(b) None of the merger or the consolidation of the Corporation, or the
sale, lease or conveyance of all or substantially all of its property and
business as an entirety, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this paragraph 4, unless
such sale, lease, or conveyance shall be in connection with a plan of
liquidation, dissolution or winding up of the Corporation.
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5. Conversion. The holders of shares of Series C Preferred Stock
shall have the following conversion rights:
5A. Right to Convert. Subject to the terms and conditions of this
paragraph 5, the holder of any share or shares of Series C Preferred Stock shall
have the right at the option of the holder to convert any such share or shares
of Series C Preferred Stock, at any time following the 180th day following the
relevant Series C Closing (the "First Series C Conversion Date"), into such
number of fully paid and nonassessable shares of Common Stock (the "Series C
Conversion Rate") as is obtained by (i) multiplying the number of shares of
Series C Preferred Stock by the Series C Liquidation Amount and (ii) dividing
the result by the initial conversion price equal to the greater of (x) 90% of
the average of the last reported sales price of the Common Stock on Nasdaq for
the ten trading days prior to the First Series C Conversion Date, provided,
however, that the Series C Conversion Price shall for the purposes of this
clause (x) neither be less than $4 nor greater than $6 per share, and (y) the
last reported sales price of the Common Stock on Nasdaq on the trading day prior
to the relevant Series C Closing (such conversion price, as it may have last
been adjusted pursuant to the terms hereof, is referred to herein as the "Series
C Conversion Price").
Upon any Change of Control, however, each holder of Series C Preferred
Stock shall, in the event that the last reported sale price of the Common Stock
on Nasdaq on the date immediately preceding the date of the Change of Control
(the "Market Price") is less than the Series C Conversion Price, have a one time
right to convert such holder's shares of Series C Preferred Stock into shares of
the Common Stock at a conversion price equal to the Market Price. In lieu of
issuing the shares of Common Stock issuable upon conversion in the event of a
Change of Control, the Corporation may, at its option, make a cash payment equal
to the number of shares of Common Stock to be converted multiplied by the Market
Price.
Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Series C Preferred Stock into Common Stock and by surrender of a
certificate or certificates for the shares to be so converted, duly endorsed to
the Corporation or in blank, to the Corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the Series C Preferred Stock) at any time
during its usual business hours on the date or dates set forth in such notice,
together with a statement of the name or names (with address) in which the
certificate or certificates for shares of Common Stock shall be issued;
provided, however, that the Corporation shall not be obligated to issue
certificates for shares of Common Stock in any name other than the name or names
set forth on the certificates for the shares of Series C Preferred Stock being
converted unless all requirements for transfer of Series C Preferred Stock have
been complied with. Conversion shall be effective upon receipt by the
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Corporation of the notice and the share certificate or certificates contemplated
by the preceding sentence; provided, that the holder may, but shall not be
required to deliver such notice and such certificate or certificates on the same
date.
In case of (i) the redemption of any shares of Series C Preferred Stock
pursuant to paragraph 6, such right of conversion shall cease and terminate, as
to the shares to be redeemed, at the close of business on the second business
day preceding the date fixed for such redemption, unless the Corporation shall
thereafter default in the payment of the Series C Redemption Price for the
shares to be so redeemed or (ii) any liquidation of the Corporation, such right
shall cease and terminate at the close of business on the business day preceding
the date fixed for payment of the amount to be distributed to the holders of the
Series C Preferred Stock pursuant to paragraph 4.
The number of shares into which the Series C Preferred Stock is
convertible will be determined without giving effect to any Series C Accruing
Dividends on the Series C Preferred Stock, no consideration will be payable in
respect of any Accrued Dividends that may exist with respect to any Series C
Preferred Stock that the holder elects to convert into Common Stock and the
exercise by a holder of Series C Preferred Stock into Common Stock shall
constitute a waiver in all respects of any and all rights that the holder may
have to such Series C Accruing Dividends.
Common Stock issued upon conversion will include rights to purchase
Series A Participating Preference Stock of the Corporation (the "Rights") in
accordance with the terms of the Corporation's Rights Agreement, if such
conversion occurs prior to the distribution of such Rights or the redemption or
expiration thereof.
5B. Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in subparagraph 5A and surrender
of the certificate or certificates for the share or shares of Series C Preferred
Stock to be converted, the Corporation shall issue and deliver or cause to be
issued and delivered, to such holder of Series C Preferred Stock or to such
holder's nominee or nominees, registered in such name or names as such holder
may direct, a certificate or certificates for the number of shares of Common
Stock, including, subject to subparagraph 5C below, fractional shares, as
necessary, issuable upon the conversion of such share or shares of Series C
Preferred Stock. Such conversion shall be deemed to have been effected as of the
close of business on the date on which such written notice shall have been
received by the Corporation and the certificate or certificates for such share
or shares of Series C Preferred Stock to be so converted shall have been
surrendered as aforesaid, and at such time the rights of the holder of such
share or shares of Series C Preferred Stock shall cease, and the Person or
Persons in whose name or names any certificate or certificates for shares of
Common Stock shall be issuable upon such conversion shall be deemed to have
become the holder or holders of record of the shares represented thereby.
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5C. Fractional Shares; Partial Conversion. In the event that the
computation pursuant to subparagraph 5A of the number of shares of Common Stock
issuable upon conversion of shares of Series C Preferred Stock results in any
fractional share of Common Stock, the Corporation may, at its option, issue
fractional shares or scrip representing fractional shares of Common Stock or pay
in cash the value of such fractional shares of Common Stock upon such
conversion, which for this purpose shall be deemed to equal the last reported
sales price of the Common Stock prior to the First Series C Conversion Date. In
case the number of shares of Series C Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 5A exceeds the
number of shares converted, the Corporation shall, upon such conversion, issue
and deliver to the holder of the Certificate or Certificates so surrendered, at
the expense of the Corporation, a new certificate or certificates for the number
of shares of Series C Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted, and which new
certificate or certificates shall entitle the holder thereof to the rights of
the shares of Series C Preferred Stock represented thereby to the same extent as
if the Certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
5D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 5M below or in the case of any Permitted Issuance, if
and whenever the Corporation shall issue or sell, or is, in accordance with
subparagraphs 5D(1) through 5D(4), deemed to have issued or sold, any shares of
Common Stock for a consideration per share less than the Series C Conversion
Price, forthwith upon such issue or sale, the Series C Conversion Price shall be
reduced to the price determined by multiplying the Series C Conversion Price by
a fraction (i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding (on a fully diluted basis as
provided in subparagraph 5D(5) below) immediately prior to such issue or sale
and (B) the number of shares of Common Stock that the consideration, if any,
received by the Corporation upon such issuance or sale would have purchased at
the Series C Conversion Price divided by the Series C Conversion Price and (ii)
the denominator of which shall be equal to the total number of shares of Common
Stock outstanding (on a fully diluted basis as provided in subparagraph 5D(5))
immediately after such issue or sale.
For purposes hereof, "Permitted Issuances" means the issue or sale of
(i) shares of Common Stock by the Corporation pursuant to the exercise or
conversion, as the case may be, of Convertible Securities outstanding, or
issuable under a binding contract existing, immediately prior to the first
Series C Closing (as adjusted pursuant to the terms of such securities to give
effect to stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Series C Closing), and (ii) options to
acquire Common Stock by the Corporation pursuant to a resolution of, or a stock
option plan approved by a resolution of, the Board of Directors (or the
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compensation committee thereof) to the Corporation's employees or directors, and
(iii) shares of Series B Convertible Preferred Stock of the Corporation which
may be designated and issued in connection with the acquisition of IDX
International, Inc.
For purposes of this subparagraph 5D, the following subparagraphs 5D(1)
to 5D(5) shall also be applicable:
5D(1). Issuance of Rights or Options. Except in the event of any
Permitted Issuance, in case at any time the Corporation shall in any manner
grant or sell (whether directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable (with or without further consideration) for Common Stock (such
warrants, rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible Securities"), whether
or not such Options or the right to convert or exchange any such Convertible
Securities are immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as consideration for
the granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of all such Options,
plus, in the case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable upon the
issue or sale by the Corporation of all such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of shares of
Common Stock issuable upon the exercise of all such Options or upon the
conversion or exchange of all such Convertible Securities issuable upon the
exercise of such Options) shall be less than the Series C Conversion Price, then
the total maximum number of shares of Common Stock issuable upon the exercise of
all such Options or upon conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options shall be deemed to have
been issued for such price per share as of the date of granting of such Options
and thereafter shall be deemed to be outstanding when computing the Series C
Conversion Price. Except as otherwise provided in subparagraph 5D(3), no
adjustment of the Series C Conversion Price shall be made upon the actual issue
of Common Stock or Convertible Securities upon exercise of such Options or upon
the actual issue of Common Stock upon conversion or exchange of such Convertible
Securities.
5D(2). Issuance of Convertible Securities. Except in the event of any
Permitted Issuance, in case at any time the Corporation shall in any manner
issue (whether directly or upon assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the total amount received or receivable by the Corporation as
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consideration for the issue or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Series C Conversion Price,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding when
computing the Series C Conversion Price; provided, that (A) except as otherwise
provided in subparagraph 5D(3), no adjustment of the Series C Conversion Price
shall be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities and (B) if any such issue or sale of
such Convertible Securities is made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Series C Conversion
Price have been or are to be made pursuant to other provisions of this
subparagraph 5D, no further adjustment of the Series C Conversion Price shall be
made by reason of such issue or sale.
5D(3). Change in Option Price or Series C Conversion Rate. If (i) the
exercise price provided for in any Option referred to in subparagraph 5D(1),
(ii) the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 5D(1) or
5D(2), (iii) the additional consideration, if any, payable upon the issuance of
any Convertible Securities issuable upon the exercise of any Options referred to
in subparagraph 5D(1), (iv) the number of shares of Common Stock issuable upon
the exercise of Options referred to in subparagraph 5D(1), or (v) the rate at
which Convertible Securities referred to in subparagraph 5D(1) or 5D(2) are
convertible into or exchangeable for Common Stock, shall change at any time
(including, but not limited to, changes under or by reason of provisions
designed to protect against dilution), then upon the happening of such event the
Series C Conversion Price shall forthwith be readjusted to the Series C
Conversion Price which would have been in effect had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration, number of shares or conversion rate, as the case may
be, at the time initially granted, issued or sold. Upon the expiration of any
Option referred to in subparagraph 5D(1) or the expiration or termination of any
right to convert or exchange Convertible Securities referred to in subparagraphs
5D(1) or (2), the Series C Conversion Price then in effect hereunder shall
forthwith be increased to the Series C Conversion Price which would have been in
effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued;
5D(4). Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor,
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without deduction therefrom of any amounts paid or receivable for accrued
interest or accrued dividends and any expenses incurred or any underwriting
commissions or concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Corporation shall be deemed to be
the fair value of such consideration at the time of such issuance or sale as
determined in good faith by the Board of Directors, without deduction of any
amounts paid or receivable for accrued interest or accrued dividends and any
expenses incurred or any underwriting commissions or concessions therewith. In
case any Options shall be issued in connection with the issue and sale of other
securities of the Corporation, together comprising one integral transaction in
which no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such consideration
as determined in good faith by the Board of Directors. If the Board of Directors
shall not make any determination, the consideration for the options shall be
deemed to be zero.
5D(5). Treasury Shares: Full Dilution. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares shall
be considered an issue or sale of Common Stock for the purpose of this
subparagraph 5D. The number of shares outstanding at any given time shall
include, in addition to shares of Common Stock then issued and outstanding, all
shares of Common Stock issuable upon the exercise of all Options or Convertible
Securities outstanding.
5E. Subdivision or Combination of Common Stock or Series C Preferred
Stock. In case the Corporation shall at any time subdivide (by any stock split,
stock dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Series C Conversion Price shall be proportionately
reduced, and, conversely, in case the outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Series C Conversion Price shall
be proportionately increased. Any dividend or other distribution made upon any
capital stock of the Corporation payable in Common Stock or in any security
convertible into or exercisable for Common Stock (other than the Series C
Preferred Stock) without or for de minimus consideration shall be deemed to be a
subdivision for purposes of this subparagraph 5E. In the event of a subdivision
or combination of the Series C Preferred Stock, the Series C Liquidation Amount
shall be proportionately reduced or increased, as the case may be.
5F. Reorganization. Reclassification. Merger or Distribution. If any of
the following shall occur: (i) any distribution on the capital stock of the
Corporation or capital reorganization or reclassification of such capital stock
which is effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, evidence of indebtedness or other assets (other
than cash dividends out of
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current or retained earnings) with respect to or in exchange for Common Stock,
(ii) any consolidation or merger to which the Corporation is a party other than
a merger in which the Corporation is the continuing corporation and which does
not result in any reclassification of, or change (other than a change in name,
or par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination) in, the outstanding
shares of Common Stock, or (iii) any sale or conveyance of all or substantially
all of the property or business of the Corporation as an entirety, then, as a
condition of such distribution, reorganization, classification, consolidation,
merger, sale or conveyance, lawful and adequate provisions shall be made whereby
each holder of a share or shares of Series C Preferred Stock shall thereupon
have the right to receive, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore receivable upon the conversion of such share or shares of Series C
Preferred Stock, such shares of stock, securities, evidence of indebtedness or
assets as may be issued or payable in such transaction with respect to or in
exchange for a number of outstanding shares of such Common Stock equal to the
number of shares of such Common Stock immediately theretofore receivable upon
such conversion had such distribution, reorganization, reclassification,
consolidation, merger, sale or conveyance not already taken place, and in such
case appropriate provisions shall be made with respect to the right and
interests of such holder to the end that the provisions hereof (including
without limitation provisions for adjustment of the Series C Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any shares
of stock, securities, evidence of indebtedness or assets thereafter deliverable
upon the exercise of such conversion rights. Anything herein to the contrary
notwithstanding, if the provisions of this subparagraph 5F shall be deemed to
apply to any distribution, reorganization, reclassification, consolidation,
merger, sale or conveyance in respect of the Corporation or its capital stock,
no duplicative adjustments shall be made to the Series C Conversion Price
pursuant to subparagraph 5D or 5E upon the occurrence of such distribution,
reorganization, reclassification, consolidation, merger, sale or conveyance.
5G. Notice of Adjustment. Upon any adjustment of the Series C
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, (i) by certified or registered mail, postage prepaid, (ii) by a
nationally known overnight delivery service or (iii) delivered by hand,
addressed to each holder of shares of Series C Preferred Stock at the address of
such holder as shown on the books of the Corporation, which notice shall state
the Series C Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
5H. Other Notices. In case at any time:
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(i) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any distribution (other than a cash dividend)
on the capital stock of the Corporation or capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give (A) by
certified or registered mail, return receipt requested, postage prepaid, (B) by
a nationally known overnight delivery service or (C) delivered by hand,
addressed to each holder of any shares of Series C Preferred Stock at the
address of such holder as shown on the books of the Corporation at least 30
days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and the date when the same shall take place. Such
notice in accordance with the foregoing sentence shall also specify, in the case
of any such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto and the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
5I. Stock to be Reserved. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, solely for
the purpose of issuance upon the conversion of Series C Preferred Stock as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding shares of Series C Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be required to assure that the par
value per share of the Common Stock is at all times equal to or less than the
lowest Series C Conversion Price in effect at the time. The Corporation will
take all such action as may be necessary to
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assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Series C
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of the Series C Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Certificate of Incorporation.
5J. Reissuance of Preferred Stock. Shares of Series C Preferred Stock
which are converted into shares of Common Stock as provided herein shall resume
the status of authorized and unissued shares of Preferred Stock without
designation as to series or class until shares are once more designated as part
of a particular series or class by the Board of Directors.
5K. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series C Preferred Stock shall be made without charge to the
holders thereof for any issuance tax in respect thereof; provided. that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Series C Preferred Stock which is
being converted.
5L. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series C Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series C Preferred Stock in any manner which interferes with the timely
conversion of such Series C Preferred Stock, except as may otherwise be required
to comply with applicable securities laws.
5M. Limitations on Adjustments. Anything herein to the contrary
notwithstanding, no adjustment in the Series C Conversion Price shall be
required unless such adjustment, either by itself or with other adjustments not
previously made, would require a change of at least $0.01 (one cent) in such
Series C Conversion Price; provided, that any adjustment which by reason of this
subparagraph 5M is not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations of shares of Common
Stock or Series C Preferred Stock under this paragraph 5 shall be rounded to the
nearest three decimal points.
6. Redemption. The shares of Series C Preferred Stock shall be subject
to redemption, at the option of the Corporation, as follows:
6A. Optional Redemption. The shares of Series C Preferred Stock may not
be redeemed prior to two years from the Series C Issue Date. On or after the
second anniversary of the Series C Issue Date, the shares of the Series C
Preferred Stock may be redeemed, in whole or in part, at the option of the
Corporation, (i) in cash,
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(ii) by delivery of such number of fully paid shares of Common Stock, valued at
the average of the last reported sales price of the Common Stock on Nasdaq for
ten trading days before the Series C Redemption Date or (iii) a combination
thereof, at the redemption price set forth below:
Years After Series Percentage of Series C
C Issue Date Liquidation Preference
during Year 3 105%
during Year 4 104%
during Year 5 103%
during Year 6 102%
during Year 7 101%
Year 8 and beyond 100%
6B. Redemption Mechanics. The Corporation shall give a redemption
notice (the "Series C Redemption Notice") not less than thirty (30) and not more
than sixty (60) days prior to the Series C Redemption Date (i) by certified
mail, postage prepaid, (ii) by a nationally known overnight delivery service or
(iii) delivered by hand, addressed to each holder of record of shares of Series
C Preferred Stock, notifying such holder of the redemption and specifying the
Series C Redemption Price applicable to the Series C Preferred Stock, the Series
C Redemption Date and the place where said Series C Redemption Price shall be
payable. The Series C Redemption Notice shall be addressed to each holder at his
address as shown by the records of the Corporation. Except as provided in
paragraph 8 below, on or after the Series C Redemption Date fixed in such Series
C Redemption Notice, each holder of shares of Series C Preferred Stock to be so
redeemed shall present and surrender the certificate or certificates for such
shares to the Corporation at the place designated in said notice and thereupon
the Series C Redemption Price of such shares shall be paid to, or to the order
of, the Person whose name appears on such certificate or certificates as the
owner thereof. From and after the close of business on the Series C Redemption
Date, unless (i) there shall have been a default in the payment of the Series C
Redemption Price upon surrender of a certificate or certificates representing
shares of Series C Preferred Stock to be redeemed or (ii) the provisions of
paragraph 8 below shall be applicable, all rights of holders of shares of Series
C Preferred Stock subject to redemption on the Series C Redemption Date (except
the right to receive the Series C Redemption Price upon surrender of a
certificate or certificates representing shares of Series C Preferred Stock to
be redeemed, but without interest) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever.
7. Certain Approvals. The Corporation acknowledges that as a
prerequisite to the conversion of Series C Preferred Stock as contemplated
hereby it may be necessary for a holder of Series C Preferred Stock to comply
with the filing and notice requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976,
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as amended (the filing fee for which shall be paid by the Corporation; provided,
that all reasonable efforts shall be made by the holders of Series C Preferred
Stock to require only one such filing), the requirements of any exchange or
market on which the Common Stock may be listed (including, without limitation,
the requirement of shareholder approval prior to the issuance of Common Stock
upon conversion) or other laws, rules or regulations applicable to such
conversion. The Corporation will, at its expense, fully cooperate with the
holders of Series C Preferred Stock and use its best efforts to cause any such
prerequisite to be met. In the event such prerequisite has not been met on the
applicable conversion date, then such date shall, as to such holder of Series C
Preferred Stock, be extended until such prerequisite is met, and during such
time Series C Accruing Dividends shall continue to accrue as contemplated by
paragraph 3 above and such shares of Series C Preferred Stock shall remain
outstanding and be entitled to all rights and preferences provided herein;
provided, however, that if such prerequisite has not been met by the end of the
six months following the Series C Redemption Date at which time the Series C
Preferred Stock may be redeemed at the Series C Redemption Price, if applicable,
then in effect in any manner in accordance with applicable law, rule or
regulation and the provisions of paragraph 6 above.
8. Registration. The holders of Series C Preferred Stock shall be
entitled to the benefit of the Series C Registration Rights Agreement to be
entered into between each holder and the Corporation at each Series C Closing.
9. Warrant. In the event the Corporation does not achieve for the four
calendar quarters beginning July 1, 1999 an aggregate amount of gross revenues
in excess of 150% of the aggregate amount of gross revenues achieved by the
Corporation in the four calendar quarters ended June 30, 1998 as reported in the
Corporation's publicly filed financial statements, the Corporation will issue,
for no additional consideration, to the holders of outstanding Series C
Preferred Stock, a warrant (the "Series C Warrant") to purchase 5,000 shares of
Common Stock for each share of Series C Preferred Stock of which the holder is
the record owner as of June 30, 2000, appropriately adjusted for stock splits,
stock dividends and reclassifications as therein provided. The Series C Warrants
will have an exercise price of $0.01 per share and shall be issuable and
exercisable only insofar as the last reported sales price of the Common Stock on
Nasdaq has not exceeded for 20 consecutive trading days or is not trading June
30, 2000 at a price per share equal to 125% of the Series C Conversion Price.
The form of Series C Warrant will be as attached hereto as Annex A.
10. Information Rights. Each holder of Series C Preferred Stock will be
entitled to copies of all material provided to holders of Common Stock and
copies of all filings made with the Securities and Exchange Commission pursuant
to rules and regulations thereof upon request by such holder.
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11. Definitions.
(a) "Affiliate" of a Person shall mean someone that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is
under common control with, such Person.
(b) "Board of Directors" shall mean the Board of Directors of the
Corporation.
(c) "Change of Control" shall mean the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially
all of the assets of the Corporation to any Person or group of related
Persons for purposes of Section 13(d) of the Exchange Act (a "Group"),
together with any Affiliates thereof; (ii) the approval by the holders of
the capital stock of the Corporation of any plan or proposal for the
liquidation or dissolution of the Corporation; (iii) any Person or Group
shall become the owner, directly or indirectly, beneficially or of
record, of shares representing more than 50.0% of the aggregate ordinary
voting power represented by the issued and outstanding capital stock of
the Corporation; or (iv) the replacement of a majority of the Board of
Directors over a two-year period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors
then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such
Board of Directors at the beginning of such period or whose election as a
member of such Board of Directors was previously so approved.
(d) "Series C Closing" shall mean the date of closing of a purchase and sale
of shares of Series C Preferred Stock, which may occur on one or more
dates.
(e) "Common Stock" shall mean the common stock, $.001 par value, of the
Corporation.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
(g) "Series C Issue Date" shall mean the date of original issuance of any
share of Series C Preferred Stock.
(h) "Series C Junior Stock" shall mean any class or series of capital stock
of the Corporation other than Series A Convertible Preference Stock of
the Corporation which may be issued which, at the time of issuance, is
not declared to be on a parity with or senior to the Series C Preferred
Stock as to dividends and rights upon liquidation and which has received
the consent required by Section 2(a) hereto.
(i) "Nasdaq" shall mean the Nasdaq Stock Market.
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(j) "Person" shall mean an individual, corporation, trust partnership,
limited liability company, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or
other entity.
(k) "Preferred Stock" shall mean any class or series of preferred stock of
the Corporation.
(l) "Series C Redemption Date" shall mean the date fixed for redemption of
Series C Preferred Stock at any time two years from the Series C Issue
Date.
(m) "Series C Registration Rights Agreement" shall mean the Series C
Registration Rights Agreement dated the date of the Series C Closing
entered into between each holder of the shares of Series C Preferred
Stock and the Corporation.
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ANNEX A
FORM OF WARRANT
NEITHER THE WARRANTS REPRESENTED HEREBY NOR THE SECURITIES ISSUABLE UPON
EXERCISE THEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). NONE OF SUCH SECURITIES MAY BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT, OR (II) AN AVAILABLE
EXEMPTION FROM REGISTRATION UNDER THE ACT RELATING TO THE DISPOSITION OF
SECURITIES AND UPON DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE COMPANY, THAT SUCH EXEMPTION FROM REGISTRATION
UNDER THE ACT IS AVAILABLE.
DATE: ____________, 2000
NO.: W-_________________
WARRANT TO PURCHASE
SHARES OF
COMMON STOCK
OF
EXECUTIVE TELECARD, LTD.
Executive Telecard, Ltd. (also d/b/a eGlobe), a Delaware corporation
(the "Corporation"), hereby issues to _____________________________ (the
"Holder") this warrant to purchase from the Corporation, for a price per share
equal to $0.01, __________ shares of common stock, $.001 par value per share of
the Corporation (the "Common Stock"). 1/
1. Exercise.
1.1 Exercise Method. The rights represented by this warrant may be
exercised, in whole or in part at any time beginning on the date hereof until
5:00 PM (New York, New York time) on the first anniversary of the date hereof
(the "Exercise Period"), by (a) the surrender of this warrant, along with the
purchase form attached as Exhibit A (the "Purchase Form"), properly executed, at
the address
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1/ Holder will be entitled to 5,000 shares of Common Stock (subject to
adjustment as specified in section 2) per share of 8% Series C Cumulative
Convertible Preferred Stock (the "Shares") if certain revenue targets are not
satisfied for the four calendar quarters beginning July 1, 1999 and if the
Common Stock has not traded or is not trading at a certain level as more fully
described in the Certificate of Designations of the Shares.
AN-1
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of the Corporation set forth in section 6.2 (or such other address as the
Corporation may designate by notice in writing to the Holder at its address set
forth in section 6.2) and (b) the payment to the Corporation of the exercise
price by check, payable to the order of the Corporation, for the number of
shares of Common Stock specified in the Purchase Form, together with any
applicable stock transfer taxes. A certificate representing the shares of Common
Stock so purchased and, in the event of an exercise of fewer than all the rights
represented by this warrant, a new warrant in the form of this warrant issued in
the name of the Holder or its designee(s) and representing a new warrant to
purchase a number of shares of Common Stock equal to the number of shares of
Common Stock as to which this warrant was theretofore exercisable less the
number of shares of Common Stock as to which this warrant shall theretofore have
been exercised, shall be delivered to the Holder or such designee(s) as promptly
as practicable, but in no event later than three business days, after this
warrant shall have been so exercised.
1.2 Exercise Condition. This warrant shall be exercisable if the last
reported sales price of the Common Stock on the Nasdaq National Market has not
exceeded for 20 consecutive trading days during the Exercise Period a price per
share greater than 125% of the Conversion Price (as defined in the Certificate
of Designations for the 8% Series C Cumulative Convertible Preferred Stock of
the Corporation (the "Shares")) of the Shares.
2. Antidilution. In case the Corporation shall (i) pay a dividend in
shares of Common Stock or make a distribution in shares of Common Stock, (ii)
subdivide its outstanding shares of Common Stock (including, without limitation,
by way of stock splits and the like), (iii) combine its outstanding shares of
Common Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the
Corporation (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the surviving corporation),
the number of shares of Common Stock purchasable upon exercise of this warrant
immediately prior thereto shall be adjusted so that the Holder shall be entitled
to receive the number of shares of Common Stock or the kind and number of other
securities of the Corporation which it would have owned or have been entitled to
receive after the happening of any of the events described above had this
warrant been exercised immediately prior to the happening of such event or any
record date with respect thereto, and the price per share set forth in Section 2
shall be adjusted appropriately. An adjustment made pursuant to this section 2
shall become effective immediately after the effective date of each such event
retroactive to the record date, if any, for such event, without amendment or
modification required to this document.
3. Transfer. Subject to applicable law (including the requirements set
forth in the legend at the beginning of this warrant), this warrant may be
transferred at any time, in whole or in part, to any person or persons. Any
transfer shall be effected by the surrender of this warrant, along with the form
of assignment
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attached as Exhibit B, properly executed, at the address of the Corporation set
forth in section 6.2 (or such other address as the Corporation may designate by
notice in writing to the Holder at its address set forth in section 6.2).
Thereupon, the Corporation shall issue in the name or names specified by the
Holder a new warrant or warrants of like tenor and representing a warrant or
warrants to purchase in the aggregate a number of shares equal to the number of
shares to which this warrant was theretofore exercisable less the number of
shares as to which this warrant shall theretofore have been exercised.
4. Payment of Taxes. The Corporation shall cause all shares of Common
Stock issued upon the exercise of this warrant to be validly issued, fully paid
and nonassessable and not subject to preemptive rights. The Corporation shall
pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to. the issuance or delivery of the
shares of Common Stock upon exercise of this warrant, unless such tax or charge
is imposed by law upon the Holder.
5. Reservation of Shares. From and after the date of this warrant, the
Corporation shall at all times reserve and keep available for issuance upon the
exercise of this warrant a number of its authorized but unissued shares of
Common Stock sufficient to permit the exercise in full of this warrant.
6. Miscellaneous.
6.1 Securities Act Restrictions. The Holder acknowledges that this
warrant may not be sold, transferred or otherwise disposed of without
registration under the Securities Act of 1933, as amended (the "Act") or an
applicable exemption from the registration requirements of the Act and,
accordingly, this warrant and all certificates representing the Common Stock
issuable upon the exercise of this warrant shall bear a legend in the form set
forth on the top of page one of this warrant.
6.2 Notices. Any notices and other communications under this warrant
shall be in writing and may be given by any of the following methods: (a)
personal delivery; (b) facsimile transmission; (c) registered or certified mail.
postage prepaid, return receipt requested; or (d) overnight delivery service.
Notices shall be sent to the appropriate party at its address or facsimile
number given below (or at such other address or facsimile number for such party
as shall be specified by notice given hereunder): (a) if to the Corporation, to
it at: 1720 S. Bellaire Street, 10th Floor, Denver, CO 80222, Fax No. (303)
691-1861, Attention: Chief Executive Officer, and if to the Holder, to it at
his/her address appearing on the stock records of the Corporation at the time
that a notice shall be mailed, or at such other address as the party to be
notified shall from time to time have furnished to the Corporation. All such
notices and communications shall be deemed received upon (a) actual receipt
thereof by the addressee, (b) actual delivery thereof to the
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appropriate address or (c) in the case of a facsimile transmission. upon
transmission thereof by the sender and issuance by the transmitting machine of a
confirmation slip confirming that the number of pages constituting the notice
have been transmitted without error. In the case of notices sent by facsimile
transmission, the sender shall contemporaneously mail a copy of the notice to
the addressee at the address provided for above. However, such mailing shall in
no way alter the time at which the facsimile notice is deemed received.
6.3 Amendment. This warrant may be modified or amended or the
provisions of this warrant may be waived only with the written consent of the
Corporation and the Holder.
6.4 Governing Law. This warrant shall be governed by the law of the
State of Delaware, without regard to the provisions thereof relating to
conflicts of laws.
EXECUTIVE TELECARD, LTD.
By: __________________________________
Name:
Title:
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EXHIBIT A
PURCHASE FORM
[To be executed only upon exercise of warrant]
The undersigned registered owner of this warrant irrevocably exercises
this warrant for the purchase of shares of common stock, $.001 par value per
share (the "Common Stock") of Executive Telecard, Ltd., and herewith makes
payment therefor, all at the price and on the terms and conditions specified in
this warrant and requests that certificates for the shares of Common Stock
hereby purchased be issued in the name of and delivered to ________________
whose address is ________________________________ and, if such shares of Common
Stock shall not include all of the shares of Common Stock issuable as provided
in this warrant, that a new warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
Dated:_________________________ _________________________________________
(Name of Registered Owner)
_________________________________________
(Signature of Registered Owner)
_________________________________________
(Street Address)
_________________________________________
(City) (State) (Zip Code)
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED. the undersigned registered owner of this warrant
hereby sells, assigns and transfers to the assignee named below all of the
rights of the undersigned under this warrant with respect to the number of
shares of common stock, $.001 par value per share of Executive Telecard, Ltd.
set forth below:
Name and Address of Assignee No. of Shares of Common Stock
and does hereby irrevocably constitute and appoint ____________________
attorney-in-fact to register such transfer on the books of Executive Telecard,
Ltd. maintained for the purpose, with full power of substitution in the
premises.
Dated:____________________ Print Name:___________________________________
Signature:____________________________________
Witness:_____________________________
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EXHIBIT 4
CERTIFICATE OF DESIGNATIONS
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
OF 8% SERIES D CUMULATIVE CONVERTIBLE
PREFERRED STOCK BY RESOLUTION OF
THE BOARD OF DIRECTORS OF
EXECUTIVE TELECARD, LTD.
PURSUANT TO SECTION 151 OF THE DGCL
8% SERIES D CUMULATIVE CONVERTIBLE
PREFERRED STOCK
I, Christopher J. Vizas, Chairman of the Board of Executive TeleCard,
Ltd., a corporation organized and existing under and by virtue of the DGCL, DO
HEREBY CERTIFY that, pursuant to authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation, as amended, of the Corporation,
the Board of Directors, in accordance with the provisions of Section 151 of the
DGCL, adopted the following resolution, effective as of January 12, 1999
providing for the creation of the 8% Series D Cumulative Convertible Preferred
Stock:
RESOLVED that, pursuant to Article IV of the Restated Certificate of
Incorporation of the Corporation, there be and hereby is authorized and created
a series of Cumulative Convertible Preferred Stock consisting of 125 shares
having a par value of $.001 per share, which series shall be titled "8% Series D
Cumulative Convertible Preferred Stock."
The designations, rights, preferences, privileges and restrictions of
the 8% Series D Cumulative Convertible Preferred Stock shall be made as follows:
1. Designation and Amount. This series of Preferred Stock shall be
designated and known as "8% Series D Cumulative Convertible Preferred Stock"
(the "Series D Preferred Stock") and shall consist of 125 shares. The shares of
the Series D Preferred Stock may be issued in different series if more than one
Series D Closing shall occur. All the series of the Series D Preferred Stock
shall have identical rights, preferences, privileges and restrictions as set
forth below, except with respect to the date of the Series D Closing, the First
Series D Conversion Date and the Series D Conversion Price. The par value of the
Series D Preferred Stock shall be $.001 per share. Certain defined terms used
herein are defined in paragraph 8 below.
2. Voting. 2(a) Except as may be otherwise provided by these terms of
the Series D Preferred Stock or by law, the holders of Series D Preferred Stock
shall
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have no voting rights unless dividends payable on the shares of Series D
Preferred Stock are in arrears for six quarterly periods, in which case the
holders of Series D Preferred Stock voting separately as a class with the shares
of any other Preferred Stock having similar voting rights, will be entitled at
the next regular or special meeting of stockholders of the Corporation to elect
one director (such voting rights will continue until such time as the dividend
arrearage on Series D Preferred Stock has been paid in full). The affirmative
vote or consent of holders of at least 66 2/3% of the outstanding shares of
Series D Preferred Stock will be required for the issuance of any class or
series of stock of the Corporation ranking senior to or pari passu with the
shares of Series D Convertible Preferred Stock (other than the Series A
Preference Stock and Series C Preferred Stock), each par value $.001 per share,
authorized as of the date hereof) as to dividends or rights on liquidation,
winding up and dissolution.
2(b) Whenever holders of Series D Preferred Stock are required or
permitted to take any action by vote as a single class or series, such action
may be taken without a meeting by written consent, setting forth the action so
taken and signed by the holders of the Series D Preferred Stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
3. Dividends. 3(a) The holders of the Series D Preferred Stock shall
be entitled to receive, out of funds legally available therefor, when, as and if
declared by the Board of Directors, cumulative annual dividends of 8.0% of the
Series D Liquidation Amount (as defined below) per share of Series D Preferred
Stock outstanding (the "Series D Accruing Dividends"). Series D Accruing
Dividends shall accrue from the Series D Issue Date (whether or not the
Corporation has earnings, there are funds legally available therefor or such
dividends are declared) and shall be fully cumulative. Series D Accruing
Dividends shall be payable quarterly out of assets legally available therefor on
March 31, June 30, September 30 and December 31 (each of such dates being
hereinafter referred to as a "Series D Dividend Payment Date"), commencing
December 31, 1999, when, as and if declared by the Board of Directors. All
dividends that would accrue through December 31, 2000 on each share of Series D
Preferred Stock (whether or not then accrued) shall be payable in full upon
conversion of such share (when, as and if declared by the Board of Directors).
3(b) On each Series D Dividend Payment Date commencing December 31,
2000, or upon conversion of Series D Preferred Stock (subject to Section
5(a)(vi)), Series D Accruing Dividends, may at the option of the Corporation, be
payable (i) in cash, (ii) in kind in additional fully paid nonassessable shares
of Series D Preferred Stock (including fractional shares, as necessary) at the
rate of .01 share of Series D Preferred Stock for each $1,000 of such dividend
not made in cash, or (iii) a combination thereof.
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3(c) All shares of Series D Preferred Stock which may be issued as a
dividend will thereupon be duly authorized, validly issued, fully paid and
nonassessable.
3(d) The record date for the payment of Series D Accruing Dividends
shall, unless otherwise altered by the Corporation's Board of Directors, be the
fifteenth day of the month immediately preceding the month in which the Series D
Dividend Payment Date occurs, but in no event more than sixty (60) days nor less
than ten (10) days prior to the Series D Dividend Payment Date
3(e) No dividends shall be granted on any Common Stock or other Series
D Junior Stock unless and until all accrued but unpaid dividends with respect to
the Series D Preferred Stock have been paid in full. Series D Accruing Dividends
shall not be payable unless and until all accrued but unpaid dividends with
respect to any Series D Senior Stock then outstanding have been paid in full.
4. Liquidation. 4(a) (i) Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holder(s) of each
outstanding share of Series D Preferred Stock shall first be entitled, before
any distribution or payment is made upon any Series D Junior Stock but after the
full Series D Liquidation Preference has been paid with respect to all Series D
Senior Stock, to be paid, in the case of each such share, an amount equal to
$100,000 per share of Series D Preferred Stock (the "Series D Liquidation
Amount"), plus accrued and unpaid dividends thereon (collectively, the "Series D
Liquidation Preference"). If upon such liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the assets to be distributed
among the holders of Series D Preferred Stock shall be insufficient to permit
payment in full to all holders of Series D Preferred Stock of the aggregate
Series D Liquidation Preference and the amount of any payment to all holders of
any other class or series of Preferred Stock ranking on parity with the Series D
Preferred Stock as to liquidation, then the entire assets of the Corporation to
be so distributed shall be distributed ratably among the holders of Series D
Preferred Stock and the holders of any other class or series of Preferred Stock
ranking on parity with the Series D Preferred Stock as to liquidation, in
accordance with the respective amounts payable on liquidation upon the shares of
Series D Preferred Stock and such Preferred Stock ranking on parity with the
Series D Preferred Stock as to liquidation. After payment in full to the holders
of Series D Preferred Stock of the aggregate Series D Liquidation Preference as
aforesaid, holders of the Series D Preferred Stock shall, as such, have no right
or claim to any of the remaining assets of the Corporation.
(ii) Written notice of any such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
given (A) by certified or registered mail, postage prepaid, (B) by a nationally
known overnight delivery service or (C) by hand, not less than 45 days prior to
the payment date stated therein, to each holder of record of Series D Preferred
Stock,
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such notice to be addressed to each such holder at its address as shown by the
records of the Corporation.
4(b) None of the merger or the consolidation of the Corporation, or
the sale, lease or conveyance of all or substantially all of its property and
business as an entirety, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this paragraph 4, unless
such sale, lease, or conveyance shall be in connection with a plan of
liquidation, dissolution or winding up of the Corporation.
5. Conversion. The holders of shares of Series D Preferred Stock
shall have the following conversion rights:
5(a). Right to Convert. (i) Subject to the terms and conditions of
paragraph 5, including this paragraph 5(a)(i), the holder of any share or shares
of Series D Preferred Stock shall have the right at the option of the holder to
convert any such share or shares of Series D Preferred Stock, at any time
following the 90th day following the relevant Series D Closing (the "First
Series D Conversion Date"), into such number of fully paid and nonassessable
shares of Common Stock (the "Series D Conversion Rate") as is obtained by (1)
multiplying the number of shares of Series D Preferred Stock by the Series D
Liquidation Amount and (2) dividing the result by the initial conversion price
equal to the lesser of (x) $1.60 and (y) in the event (and only in the event)
that the Corporation does not have positive EBITDA for any fiscal quarter
commencing with the quarter in which the first Series D Closing occurs and the
third fiscal quarter of the Corporation's 1999 fiscal year and does not complete
a public offering of equity securities at a price of at least $3.00 per share
and with gross proceeds to the Corporation of at least $20 million on or prior
to the end of the third fiscal quarter of the Corporation's 1999 fiscal year,
the last reported closing bid price of the Common Stock on Nasdaq on the last
trading day prior to the Corporation's receipt of the written notice referred to
in subparagraph 5(a)(iv) of such conversion (such conversion price, as it may
have last been adjusted pursuant to the terms hereof, is referred to herein as
the "Series D Conversion Price"). Notwithstanding the foregoing, except as
provided below, the Series D Preferred Stock (including any shares issued in
payment of dividends) may be converted into a maximum of 3,260,091 shares of
Common Stock (reduced by the number of shares that are issued upon the exercise
of any Warrants), and from and after issuance of such number of shares of Common
Stock upon conversion of the Series D Preferred Stock, all shares of the Series
D Preferred Stock (whether or not then outstanding) shall cease to be
convertible (a "Cessation of Conversion Event"). On or after forty-five (45)
days following the Cessation of Conversion Event, the Corporation shall, upon
written election by the Corporation or any holder, redeem the number of
outstanding shares of Series D Preferred Stock as are indicated in such written
election for an amount equal to the Series D Liquidation Preference of such
shares. Any redemption by the Corporation shall be made ratably among the
holders of Series D Preferred Stock. In the event that the Corporation receives
all
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requisite shareholder approvals to issue more than the maximum number of shares
of Common Stock set forth above, the Corporation shall issue all shares of
Common Stock issuable upon conversion of the Series D Preferred Stock, even if
such number exceeds the maximum share limitation set forth above.
(ii) Each share of Series D Preferred Stock shall automatically be
converted into shares of Common Stock, based on the then-effective Series D
Conversion Rate, on the earliest to occur of (1) the first date as of which the
last reported sales price of the Common Stock on Nasdaq is $5.00 or more for any
20 consecutive trading days during any period in which Series D Preferred Stock
is outstanding, (2) the date that 80% or more of the Series D Preferred Stock
issued by the Corporation, cumulatively from and after the date hereof
(including without limitation all Series D Preferred Stock issued in the first
Series D Closing), whether or not such Series D Preferred Stock is then
outstanding, has been converted into Common Stock, the holders thereof have
agreed with the Corporation in writing to convert such Series D Preferred Stock
into Common Stock or a combination of the foregoing, or (3) the Corporation
closes a public offering of equity securities of the Corporation at a price of
at least $3.00 per share and with gross proceeds to the Corporation of at least
$20 million.
(iii) Upon any Change of Control, however, each holder of Series D
Preferred Stock shall, in the event that the last reported sale price of the
Common Stock on Nasdaq on the date immediately preceding the date of the Change
of Control (the "Change of Control Price") is less than the Series D Conversion
Price, have a one time right to convert such holder's shares of Series D
Preferred Stock into shares of the Common Stock at a conversion price equal to
the Change of Control Price. In lieu of issuing the shares of Common Stock
issuable upon conversion in the event of a Change of Control, the Corporation
may, at its option, make a cash payment equal to the number of shares of Common
Stock to be converted multiplied by the Change of Control Price.
(iv) Such rights of conversion (other than automatic conversion)
shall be exercised by the holder thereof by giving written notice that the
holder elects to convert a stated number of shares of Series D Preferred Stock
into Common Stock. Such written notice may be given by telecopying a written and
executed notice of conversion to the Corporation at its main telecopier number
at its principal office and delivering within five (5) business days thereafter,
to the Corporation at its principal office (or such other office or agency of
the Corporation as the Corporation may designate by notice in writing to the
holders of the Series D Preferred Stock), together with a copy to the
Corporation's transfer agent, the original notice of conversion by express
courier, together with a certificate or certificates for the shares to be so
converted, duly endorsed to the Corporation or in blank, and with a statement of
the name or names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued; provided, however, that the Corporation
shall not be obligated to issue certificates for shares of Common Stock
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in any name other than the name or names set forth on the certificates for the
shares of Series D Preferred Stock being converted unless all requirements for
transfer of Series D Preferred Stock have been complied with. Conversion shall
be effective upon receipt by the Corporation and the transfer agent of the
telecopied notice (provided that the original notice and the share certificate
or certificates are sent to the Corporation and the transfer agent as
contemplated above).
(v) In case of any liquidation of the Corporation, all rights of
conversion shall cease and terminate at the close of business on the business
day preceding the date fixed for payment of the amount to be distributed to the
holders of the Series D Preferred Stock pursuant to paragraph 4.
(vi) The number of shares into which the Series D Preferred Stock is
convertible will be determined without giving effect to any Series D Accruing
Dividends on the Series D Preferred Stock. No consideration will be payable in
respect of any Accrued Dividends that may exist with respect to any Series D
Preferred Stock that the holder elects to convert into Common Stock and the
exercise by a holder of Series D Preferred Stock into Common Stock shall
constitute a waiver in all respects of any and all rights that the holder may
have to such Series D Accruing Dividends, except for Series D Accruing Dividends
which accrue through December 31, 2000, which shall be payable in full upon
conversion, as provided in the last sentence of paragraph 3(a).
(vii) Notwithstanding anything herein to the contrary, a holder shall
not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series D Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series D Preferred Stock in
shares of Common Stock at a time when the Common Stock underlying the Series D
Preferred Stock is not registered for resale under the Securities Act) if and to
the extent that the issuance to the holder of shares of Common Stock upon such
conversion (or payment of dividends) would result in the holder owning more than
9.9% of the shares of Common Stock outstanding after such conversion.
(viii) Common Stock issued upon conversion will include rights to
purchase Series A Preference Stock (the "Rights") in accordance with the terms
of the Corporation's Rights Agreement, if such conversion occurs prior to the
distribution of such Rights or the redemption or expiration thereof.
5(b). Issuance of Certificates; Time Conversion Effected. (i) Promptly
after the receipt of the written notice referred to in subparagraph 5(a)(iv) and
surrender of the certificate or certificates for the share or shares of Series D
Preferred Stock to be converted, the Corporation shall issue and deliver or
cause to be issued and delivered, to such holder of Series D Preferred Stock or
to such holder's nominee or nominees, registered in such name or names as such
holder may direct, a certificate or certificates for the number of shares of
Common Stock, including, subject to
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subparagraph 5(c) below, fractional shares, as necessary, issuable upon the
conversion of such share or shares of Series D Preferred Stock. Such conversion
shall be deemed to have been effected as of the close of business on the date on
which such written notice shall have been received by the Corporation and its
transfer agent (by mail or telecopier); provided that the original notice and
the certificate or certificates for such share or shares of Series D Preferred
Stock to be so converted shall have been surrendered to the Corporation and the
transfer agent within five (5) days of the date of receipt of such notice, and
at such time the rights of the holder of such share or shares of Series D
Preferred Stock shall cease, and the Person or Persons in whose name or names
any certificate or certificates for shares of Common Stock shall be issuable
upon such conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby.
(ii) In the case of automatic conversion, the outstanding shares of
Series D Preferred Stock shall be converted into Common Stock automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Series D Preferred
Stock are either delivered to the Corporation or its transfer agent as provided
below, or the holder notifies the Corporation or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with such certificates. Upon surrender by any
holder of the certificates formerly representing shares of Series D Preferred
Stock at the office of the Corporation or any transfer agent for the Series D
Preferred Stock, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series D Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred. Until
surrendered as provided above, each certificate formerly representing shares of
Series D Preferred Stock shall be deemed for all corporate purposes to represent
the number of shares of Common Stock resulting from such automatic conversion.
5(c). Fractional Shares; Partial Conversion. In the event that the
computation pursuant to subparagraph 5(a) of the number of shares of Common
Stock issuable upon conversion of shares of Series D Preferred Stock results in
any fractional share of Common Stock, the Corporation may, at its option, issue
fractional shares or scrip representing fractional shares of Common Stock or pay
in cash the value of such fractional shares of Common Stock upon such
conversion, which for this purpose shall be deemed to equal the last reported
sales price of the Common Stock prior to the First Series D Conversion Date. In
case the number of shares of Series D Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 5(a) exceeds
the number of shares
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converted, the Corporation shall, upon such conversion, issue and deliver to the
holder of the Certificate or Certificates so surrendered, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series D Preferred Stock represented by the certificate or certificates
surrendered which are not to be converted, and which new certificate or
certificates shall entitle the holder thereof to the rights of the shares of
Series D Preferred Stock represented thereby to the same extent as if the
Certificate theretofore covering such unconverted shares had not been
surrendered for conversion.
5(d). Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 5(m) below or in the case of any Permitted Issuance, if
and whenever the Corporation shall issue or sell, or is, in accordance with
subparagraphs 5(d)(1) through 5(d)(4), deemed to have issued or sold, any shares
of Common Stock for a consideration per share less than the Series D Conversion
Price, forthwith upon such issue or sale, the Series D Conversion Price shall be
reduced to the price determined by multiplying the Series D Conversion Price by
a fraction (i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding (on a fully diluted basis as
provided in subparagraph 5(d)(5) below) immediately prior to such issue or sale
and (B) the number of shares of Common Stock that the consideration, if any,
received by the Corporation upon such issuance or sale would have purchased at
the Series D Conversion Price divided by the Series D Conversion Price and (ii)
the denominator of which shall be equal to the total number of shares of Common
Stock outstanding (on a fully diluted basis as provided in subparagraph 5(d)(5))
immediately after such issue or sale.
For purposes hereof, "Permitted Issuances" means the issue or sale of
(i) shares of Common Stock by the Corporation pursuant to the exercise or
conversion, as the case may be, of Convertible Securities outstanding, or
issuable under a binding contract existing, immediately prior to the first
Series D Closing (as adjusted pursuant to the terms of such securities to give
effect to stock dividends or stock splits or a combination of shares in
connection with a recapitalization, merger, consolidation or other
reorganization occurring after the Series D Closing), and (ii) options to
acquire Common Stock by the Corporation pursuant to a resolution of, or a stock
option plan approved by a resolution of, the Board of Directors (or the
compensation committee thereof) to the Corporation's employees or directors.
For purposes of this subparagraph 5(d), the following subparagraphs
5(d)(1) to 5(d)(5) shall also be applicable:
5(d)(1). Issuance of Rights or Options. Except in the event of any
Permitted Issuance, in case at any time the Corporation shall in any manner
grant or sell (whether directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable (with or without
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further consideration) for Common Stock (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or securities being
called "Convertible Securities"), whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale by the Corporation of all
such Convertible Securities and upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the exercise of
all such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Series D Conversion Price, then the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per share as of the
date of granting of such Options and thereafter shall be deemed to be
outstanding when computing the Series D Conversion Price. Except as otherwise
provided in subparagraph 5(d)(3), no adjustment of the Series D Conversion Price
shall be made upon the actual issue of Common Stock or Convertible Securities
upon exercise of such Options or upon the actual issue of Common Stock upon
conversion or exchange of such Convertible Securities.
5(d)(2). Issuance of Convertible Securities. Except in the event of any
Permitted Issuance, in case at any time the Corporation shall in any manner
issue (whether directly or upon assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Series D Conversion Price,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding when
computing the Series D Conversion Price; provided, that (A) except as otherwise
provided in subparagraph 5(d)(3), no adjustment of the Series D Conversion Price
shall be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible
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Securities and (B) if any such issue or sale of such Convertible Securities is
made upon exercise of any Options to purchase any such Convertible Securities
for which adjustments of the Series D Conversion Price have been or are to be
made pursuant to other provisions of this subparagraph 5(d), no further
adjustment of the Series D Conversion Price shall be made by reason of such
issue or sale.
5(d)(3). Change in Option Price or Series D Conversion Rate. If (i) the
exercise price provided for in any Option referred to in subparagraph 5(d)(1),
(ii) the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 5(d)(1) or
5(d)(2), (iii) the additional consideration, if any, payable upon the issuance
of any Convertible Securities issuable upon the exercise of any Options referred
to in subparagraph 5(d)(1), (iv) the number of shares of Common Stock issuable
upon the exercise of Options referred to in subparagraph 5(d)(1), or (v) the
rate at which Convertible Securities referred to in subparagraph 5(d)(1) or
5(d)(2) are convertible into or exchangeable for Common Stock, shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), then upon the happening of
such event the Series D Conversion Price shall forthwith be readjusted to the
Series D Conversion Price which would have been in effect had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration, number of shares or conversion rate, as the
case may be, at the time initially granted, issued or sold. Upon the expiration
of any Option referred to in subparagraph 5(d)(1) or the expiration or
termination of any right to convert or exchange Convertible Securities referred
to in subparagraphs 5(d)(1) or (2), the Series D Conversion Price then in effect
hereunder shall forthwith be increased to the Series D Conversion Price which
would have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued;
5(d)(4). Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any amounts paid or
receivable for accrued interest or accrued dividends and any expenses incurred
or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration at the
time of such issuance or sale as determined in good faith by the Board of
Directors, without deduction of any amounts paid or receivable for accrued
interest or accrued dividends and any expenses incurred or any underwriting
commissions or concessions therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific
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consideration is allocated to such Options by the parties thereto, such Options
shall be deemed to have been issued for such consideration as determined in good
faith by the Board of Directors. If the Board of Directors shall not make any
determination, the consideration for the options shall be deemed to be zero.
5(d)(5). Treasury Shares: Full Dilution. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares shall
be considered an issue or sale of Common Stock for the purpose of this
subparagraph 5(d). The number of shares outstanding at any given time shall
include, in addition to shares of Common Stock then issued and outstanding, all
shares of Common Stock issuable upon the exercise of all Options or Convertible
Securities outstanding.
5(e). Subdivision or Combination of Common Stock or Series D Preferred
Stock. In case the Corporation shall at any time subdivide (by any stock split,
stock dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Series D Conversion Price shall be proportionately
reduced, and, conversely, in case the outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Series D Conversion Price shall
be proportionately increased. Any dividend or other distribution made upon any
capital stock of the Corporation payable in Common Stock or in any security
convertible into or exercisable for Common Stock (other than the Series D
Preferred Stock) without or for de minimus consideration shall be deemed to be a
subdivision for purposes of this subparagraph 5(e). In the event of a
subdivision or combination of the Series D Preferred Stock, the Series D
Liquidation Amount (and the public offering price referred to in paragraph 5(a))
shall be proportionately reduced or increased, as the case may be.
5(f). Reorganization. Reclassification. Merger or Distribution. If any
of the following shall occur: (i) any distribution on the capital stock of the
Corporation or capital reorganization or reclassification of such capital stock
which is effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, evidence of indebtedness or other assets (other
than cash dividends out of current or retained earnings) with respect to or in
exchange for Common Stock, (ii) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is the
continuing corporation and which does not result in any reclassification of, or
change (other than a change in name, or par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination) in, the outstanding shares of Common Stock, or (iii) any sale or
conveyance of all or substantially all of the property or business of the
Corporation as an entirety, then, as a condition of such distribution,
reorganization, classification, consolidation, merger, sale or conveyance,
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Series D Preferred Stock shall thereupon have the right to receive,
upon the basis
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and upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore receivable upon the conversion of such
share or shares of Series D Preferred Stock, such shares of stock, securities,
evidence of indebtedness or assets as may be issued or payable in such
transaction with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore receivable upon such conversion had such distribution,
reorganization, reclassification, consolidation, merger, sale or conveyance not
already taken place, and in such case appropriate provisions shall be made with
respect to the right and interests of such holder to the end that the provisions
hereof (including without limitation provisions for adjustment of the Series D
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities, evidence of indebtedness or assets
thereafter deliverable upon the exercise of such conversion rights. Anything
herein to the contrary notwithstanding, if the provisions of this subparagraph
5(f) shall be deemed to apply to any distribution, reorganization,
reclassification, consolidation, merger, sale or conveyance in respect of the
Corporation or its capital stock, no duplicative adjustments shall be made to
the Series D Conversion Price pursuant to subparagraph 5(d) or 5(e) upon the
occurrence of such distribution, reorganization, reclassification,
consolidation, merger, sale or conveyance.
5(g). Notice of Adjustment, Redemption. Upon any adjustment of the
Series D Conversion Price, then and in each such case the Corporation shall give
written notice thereof, (i) by certified or registered mail, postage prepaid,
(ii) by a nationally known overnight delivery service or (iii) delivered by
hand, addressed to each holder of shares of Series D Preferred Stock at the
address of such holder as shown on the books of the Corporation, which notice
shall state the Series D Conversion Price resulting from such adjustment,
setting forth in reasonable detail the method upon which such calculation is
based.
Any election of redemption pursuant to paragraph 5(a) shall be by a
written redemption notice (the "Series D Redemption Notice"), delivered (i) by
certified or registered mail, postage prepaid, (ii) by a nationally known
overnight delivery service or (iii) delivered by hand, addressed to the
Corporation or each holder of shares of Series D Preferred Stock at the address
of such holder as shown on the books of the Corporation, as applicable,
notifying such holders or the Corporation of the redemption and specifying the
redemption price applicable to the Series D Preferred Stock and the redemption
date (which shall not be earlier than 30 days following delivery of the Series D
Redemption Notice). On or after the redemption date fixed in such Series D
Redemption Notice, each holder of shares of Series D Preferred Stock to be so
redeemed shall present and surrender the certificate or certificates for such
shares to the Corporation at its principal place of business and thereupon the
redemption price of such shares shall be paid to, or to the order of, the holder
whose name appears on such certificate or certificates as the owner thereof.
From and after the close of business on the redemption date, unless (i)
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there shall have been a default in the payment of the redemption price upon
surrender of a certificate or certificates representing shares of Series D
Preferred Stock to be redeemed or (ii) the provisions of paragraph 6 below shall
be applicable, all rights of holders of shares of Series D Preferred Stock
subject to redemption on the redemption date (except the right to receive the
redemption price upon surrender of a certificate or certificates representing
shares of Series D Preferred Stock to be redeemed, but without interest) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever.
5(h). Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any distribution (other than a cash
dividend) on the capital stock of the Corporation or capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give (A) by
certified or registered mail, return receipt requested, postage prepaid, (B) by
a nationally known overnight delivery service or (C) delivered by hand,
addressed to each holder of any shares of Series D Preferred Stock at the
address of such holder as shown on the books of the Corporation at least 30
days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and the date when the same shall take place. Such
notice in accordance with the foregoing sentence shall also specify, in the case
of any such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto and the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
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5(i). Stock to be Reserved. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, solely for
the purpose of issuance upon the conversion of Series D Preferred Stock as
herein provided, such number of shares of Common Stock as shall then be issuable
upon the conversion of all outstanding shares of Series D Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be required to assure that the par
value per share of the Common Stock is at all times equal to or less than the
lowest Series D Conversion Price in effect at the time. The Corporation will
take all such action as may be necessary to assure that all such shares of
Common Stock may be so issued without violation of any applicable law or
regulation, or of any requirement of any national securities exchange upon which
the Common Stock may be listed. The Corporation will not take any action which
results in any adjustment of the Series D Conversion Price if the total number
of shares of Common Stock issued and issuable after such action upon conversion
of the Series D Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Certificate of Incorporation.
5(j). Reissuance of Preferred Stock. Shares of Series D Preferred Stock
which are converted into shares of Common Stock as provided herein shall resume
the status of authorized and unissued shares of Preferred Stock without
designation as to series or class until shares are once more designated as part
of a particular series or class by the Board of Directors.
5(k). Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Series D Preferred Stock shall be made without charge
to the holders thereof for any issuance tax in respect thereof; provided. that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of the Series D Preferred Stock which is
being converted.
5(l). Series D Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series D Preferred Stock or of
any shares of Common Stock issued or issuable upon the conversion of any shares
of Series D Preferred Stock in any manner which interferes with the timely
conversion of such Series D Preferred Stock, except as may otherwise be required
to comply with applicable securities laws.
5(m). Limitations on Adjustments. Anything herein to the contrary
notwithstanding, no adjustment in the Series D Conversion Price shall be
required unless such adjustment, either by itself or with other adjustments not
previously made, would require a change of at least $0.01 (one cent) in such
Series D
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Conversion Price; provided, that any adjustment which by reason of this
subparagraph 5(m) is not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations of shares of Common
Stock or Series D Preferred Stock under this paragraph 5 shall be rounded to the
nearest three decimal points.
6. Certain Approvals. The Corporation acknowledges that as a
prerequisite to the conversion of Series D Preferred Stock as contemplated
hereby it may be necessary for a holder of Series D Preferred Stock to comply
with the filing and notice requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the filing fee for which shall be paid by
the Corporation; provided, that all reasonable efforts shall be made by the
holders of Series D Preferred Stock to require only one such filing), the
requirements of any exchange or market on which the Common Stock may be listed
(including, without limitation, the requirement of shareholder approval prior to
the issuance of Common Stock upon conversion) or other laws, rules or
regulations applicable to such conversion. The Corporation will, at its expense,
fully cooperate with the holders of Series D Preferred Stock and use its best
efforts to cause any such prerequisite to be met. In the event such prerequisite
has not been met on the applicable conversion date, then such date shall, as to
such holder of Series D Preferred Stock, be extended until such prerequisite is
met, and during such time Series D Accruing Dividends shall continue to accrue
as contemplated by paragraph 3 above and such shares of Series D Preferred Stock
shall remain outstanding and be entitled to all rights and preferences provided
herein.
7. Information Rights. Each holder of Series D Preferred Stock will be
entitled to copies of all material provided to holders of Common Stock and
copies of all filings made with the Securities and Exchange Commission pursuant
to rules and regulations thereof upon request by such holder.
8. Definitions.
"Affiliate" of a Person shall mean someone that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Corporation to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with any
Affiliates thereof; (ii) the approval by the holders of the capital stock of the
Corporation of any plan or proposal for the liquidation or dissolution of the
Corporation; (iii) any Person or Group shall become the owner,
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directly or indirectly, beneficially or of record, of shares representing more
than 50.0% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of the Corporation; or (iv) the replacement of a
majority of the Board of Directors over a two-year period, and such replacement
shall not have been approved by a vote of at least a majority of the Board of
Directors then still in office who either were members of such Board of
Directors at the beginning of such period or whose election as a member of such
Board of Directors at the beginning of such period or whose election as a member
of such Board of Directors was previously so approved.
"Series D Closing" shall mean the date of closing of a purchase and
sale of shares of Series D Preferred Stock, which may occur on one or more
dates.
"Common Stock" shall mean the common stock, $.001 par value, of the
Corporation.
"EBITDA" means the earnings before interest, taxes, depreciation and
amortization of the Corporation, determined in accordance with applicable
generally accepted accounting principles, applied in a manner consistent with
the Corporation's publicly filed financial statements.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Series D Issue Date" shall mean the date of original issuance of any
share of Series D Preferred Stock.
"Series D Junior Stock" shall mean any class or series of capital stock
(including Common Stock) of the Corporation (other than Series A Preference
Stock and Series C Preferred Stock) which may be issued which, at the time of
issuance, is not declared to be on a parity with or senior to the Series D
Preferred Stock as to dividends and rights upon liquidation (or in the case of
Preferred Stock issued after the date hereof which has not received the consent
required by paragraph 2(a) hereto).
"Nasdaq" shall mean the Nasdaq Stock Market.
"Person" shall mean an individual, corporation, trust partnership,
limited liability company, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or other
entity.
"Preferred Stock" shall mean any class or series of preferred stock of
the Corporation.
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"Series D Senior Stock" shall mean any class or series of Preferred
Stock of the Corporation (including Series A Preference Stock and Series C
Preferred Stock) which, at the time of issuance, is declared to be senior to the
Series D Preferred Stock as to dividends and rights upon liquidation and (in the
case of Preferred Stock issued after the date hereof) which has received the
consent required by paragraph 2(a) hereto.
"Series A Preference Stock" shall mean the Series A Participating
Preference Stock, par value $.001 per share, of the Corporation.
"Series C Preferred Stock" shall mean the 8% Series C Cumulative
Convertible Preferred Stock, par value $.001 per share, of the Corporation.
"Warrants" shall have the meaning set forth in the Stock Purchase
Agreement dated January 12, 1999.
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EXHIBIT 5
CERTIFICATE OF DESIGNATIONS
RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
OF 8% SERIES E CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK BY RESOLUTION OF
THE BOARD OF DIRECTORS OF
EXECUTIVE TELECARD, LTD.
PURSUANT TO SECTION 151 OF THE DGCL
8% SERIES E CUMULATIVE CONVERTIBLE
REDEEMABLE PREFERRED STOCK
I, Christopher J. Vizas, Chairman of the Board of Executive TeleCard,
Ltd., a corporation organized and existing under and by virtue of the DGCL, DO
HEREBY CERTIFY that, pursuant to authority conferred upon the Board of Directors
by the Restated Certificate of Incorporation, as amended, of the Corporation,
the Board of Directors, in accordance with the provisions of Section 151 of the
DGCL, adopted the following resolution, effective as of January 10, 1999
providing for the creation of the 8% Series E Cumulative Convertible Redeemable
Preferred Stock:
RESOLVED that, pursuant to Article IV of the Restated Certificate of
Incorporation of the Corporation, there be and hereby is authorized and created
a series of Cumulative Convertible Redeemable Preferred Stock consisting of 125
shares having a par value of $.001 per share, which series shall be titled "8%
Series E Cumulative Convertible Redeemable Preferred Stock."
The designations, rights, preferences, privileges and restrictions of
the 8% Series E Cumulative Convertible Redeemable Preferred Stock shall be made
as follows:
1. Designation and Amount. This series of Preferred Stock shall be
designated and known as "8% Series E Cumulative Convertible Redeemable Preferred
Stock" (the "Series E Preferred Stock") and shall consist of 125 shares. The par
value of the Series E Preferred Stock shall be $.001 per share. Certain defined
terms used herein are defined in paragraph 10 below.
2. Voting. 2(a) Except as may be otherwise provided by these terms of
the Series E Preferred Stock or by law, the holders of Series E Preferred Stock
shall have no voting rights unless dividends payable on the shares of Series E
Preferred Stock are in arrears for six quarterly periods, in which case the
holders of Series E Preferred Stock voting separately as a class with the shares
of any other Preferred Stock having similar voting rights, will be entitled at
the next regular or special
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meeting of stockholders of the Corporation to elect one director (such voting
rights will continue until such time as the dividend arrearage on Series E
Preferred Stock has been paid in full). The affirmative vote or consent of
holders of at least 66 2/3% of the outstanding shares of Series E Preferred
Stock will be required for the issuance of any class or series of stock of the
Corporation ranking senior to or pari passu with the shares of Series E
Convertible Preferred Stock (other than the Series A Preference Stock, Series C
Preferred Stock and Series D Preferred Stock), each par value $.001 per share,
authorized as of the date hereof) as to dividends or rights on liquidation,
winding up and dissolution.
2(b) Whenever holders of Series E Preferred Stock are required or
permitted to take any action by vote as a single class or series, such action
may be taken without a meeting by written consent, setting forth the action so
taken and signed by the holders of the Series E Preferred Stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted.
3. Dividends. 3(a) The holders of the Series E Preferred Stock shall be
entitled to receive, out of funds legally available therefor, when, as and if
declared by the Board of Directors, cumulative annual dividends of 8.0% of the
Series E Liquidation Amount (as defined below) per share of Series E Preferred
Stock outstanding (the "Series E Accruing Dividends"). Series E Accruing
Dividends shall accrue from the Series E Issue Date (whether or not the
Corporation has earnings, there are funds legally available therefor or such
dividends are declared) and shall be fully cumulative. Series E Accruing
Dividends shall be payable quarterly out of assets legally available therefor on
March 31, June 30, September 30 and December 31 (each of such dates being
hereinafter referred to as a "Series E Dividend Payment Date"), commencing
December 31, 2000, when, as and if declared by the Board of Directors. All
dividends that would accrue through December 31, 2000 on each share of Series E
Preferred Stock (whether or not then accrued) shall be payable in full upon
conversion of such share (when, as and if declared by the Board of Directors).
3(b) On each Series E Dividend Payment Date commencing December 31,
2000, or upon conversion of Series E Preferred Stock (subject to Section
5(a)(viii)), Series E Accruing Dividends, may at the option of the Corporation,
be payable (i) in cash, (ii) in kind in additional fully paid nonassessable
shares of Series E Preferred Stock (including fractional shares, as necessary)
at the rate of .01 share of Series E Preferred Stock for each $1,000 of such
dividend not made in cash, or (iii) a combination thereof; provided, however
that the Corporation may pay Series E Accruing Dividends in kind only to the
extent that such payment would not require shareholder approvals (including
under rules of the Nasdaq Stock Market) or such shareholder approvals shall have
been obtained.
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3(c) All shares of Series E Preferred Stock which may be issued as a
dividend will thereupon be duly authorized, validly issued, fully paid and
nonassessable.
3(d) The record date for the payment of Series E Accruing Dividends
shall, unless otherwise altered by the Corporation's Board of Directors, be the
fifteenth day of the month immediately preceding the month in which the Series E
Dividend Payment Date occurs, but in no event more than sixty (60) days nor less
than ten (10) days prior to the Series E Dividend Payment Date.
3(e) No dividends shall be granted on any Common Stock or other Series
E Junior Stock unless and until all accrued but unpaid dividends with respect to
the Series E Preferred Stock have been paid in full. Series E Accruing Dividends
shall not be payable unless and until all accrued but unpaid dividends with
respect to any Series E Senior Stock then outstanding have been paid in full.
All dividends with respect to the Series E Preferred Stock shall be payable on a
parity basis with dividends (including accrued but unpaid dividends) on Series E
Parity Stock.
4. Liquidation. 4(a) (i) Upon any liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary, the holder(s) of each
outstanding share of Series E Preferred Stock shall first be entitled, before
any distribution or payment is made upon any Series E Junior Stock but after the
full Series E Liquidation Preference has been paid with respect to all Series E
Senior Stock, and on a parity basis with all Series E Parity Stock, to be paid,
in the case of each such share, an amount equal to $100,000 per share of Series
E Preferred Stock (the "Series E Liquidation Amount"), plus accrued and unpaid
dividends thereon (collectively, the "Series E Liquidation Preference"). If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series E Preferred Stock shall be insufficient to permit payment in full to all
holders of Series E Preferred Stock of the aggregate Series E Liquidation
Preference and the amount of any payment to all holders of any other class or
series of Preferred Stock ranking on parity with the Series E Preferred Stock as
to liquidation, then the entire assets of the Corporation to be so distributed
shall be distributed ratably among the holders of Series E Preferred Stock and
the holders of any other class or series of Preferred Stock ranking on parity
with the Series E Preferred Stock as to liquidation, in accordance with the
respective amounts payable on liquidation upon the shares of Series E Preferred
Stock and such Preferred Stock ranking on parity with the Series E Preferred
Stock as to liquidation. After payment in full to the holders of Series E
Preferred Stock of the aggregate Series E Liquidation Preference as aforesaid,
holders of the Series E Preferred Stock shall, as such, have no right or claim
to any of the remaining assets of the Corporation.
(ii) Written notice of any such liquidation, dissolution or winding up,
stating a payment date and the place where said payments shall be made, shall be
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given (A) by certified or registered mail, postage prepaid, (B) by a nationally
known overnight delivery service or (C) by hand, not less than 45 days prior to
the payment date stated therein, to each holder of record of Series E Preferred
Stock, such notice to be addressed to each such holder at its address as shown
by the records of the Corporation.
4(b) None of the merger or the consolidation of the Corporation, or
the sale, lease or conveyance of all or substantially all of its property and
business as an entirety, shall be deemed to be a liquidation, dissolution or
winding up of the Corporation within the meaning of this paragraph 4, unless
such sale, lease, or conveyance shall be in connection with a plan of
liquidation, dissolution or winding up of the Corporation.
5. Conversion. The holders of shares of Series E Preferred Stock
shall have the following conversion rights:
5(a). Right to Convert. (i) Subject to the terms and conditions of
paragraph 5, including this paragraph 5(a)(i), from and after the Convertibility
Date (as defined below), any share or shares of Series E Preferred Stock shall
be convertible into such number of fully paid and nonassessable shares of Common
Stock (the "Series E Conversion Rate") as is obtained by (1) multiplying the
number of shares of Series E Preferred Stock by the Series E Liquidation Amount
and (2) dividing the result by an initial conversion price equal to $2.125 (such
conversion price, as it may have last been adjusted pursuant to the terms
hereof, is referred to herein as the "Series E Conversion Price"). The
Convertibility Date shall mean the earliest to occur of (1) an election by the
holder (a "Convertibility Election"), by written notice to the Corporation to
make such share or shares convertible (which election may be made at any time
following the Series E Issue Date of such shares), (2) an election by the
Corporation, by written notice to the holders, to make all such shares of Series
E Preferred Stock convertible (which election may be made at any time in the
event (and only in the event) that the Corporation has positive EBITDA for at
least one of the first, second or third fiscal quarters of the Corporation's
1999 fiscal year or the Corporation completes a public offering of equity
securities at a price of at least $3.00 per share and with gross proceeds to the
Corporation of at least $20 million on or prior to the end of the third fiscal
quarter of the Corporation's 1999 fiscal year), or (3) immediately prior to the
automatic conversion of the Series E Preferred Stock into Common Stock pursuant
to Section 5(a)(ii).
(ii) Each share of Series E Preferred Stock shall automatically be
converted into shares of Common Stock, based on the then-effective Series E
Conversion Rate, on the earliest to occur of (1) the first date as of which the
last reported sales price of the Common Stock on Nasdaq is $5.00 or more for any
20 consecutive trading days during any period in which Series E Preferred Stock
is outstanding, (2) the date that 80% or more of the Series E Preferred Stock
issued by the Corporation,
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cumulatively from and after the date hereof, whether or not such Series E
Preferred Stock is then outstanding, has been converted into Common Stock, the
holders thereof have agreed with the Corporation in writing to convert such
Series E Preferred Stock into Common Stock or a combination of the foregoing, or
(3) the Corporation closes a public offering of equity securities of the
Corporation at a price of at least $3.00 per share and with gross proceeds to
the Corporation of at least $20 million.
(iii) Upon any Change of Control, however, each holder of Series E
Preferred Stock shall, in the event that the last reported sale price of the
Common Stock on Nasdaq on the date immediately preceding the date of the Change
of Control (the "Change of Control Price") is less than the Series E Conversion
Price, have a one time right to convert such holder's shares of Series E
Preferred Stock into shares of the Common Stock at a conversion price equal to
the Change of Control Price. In lieu of issuing the shares of Common Stock
issuable upon conversion in the event of a Change of Control, the Corporation
may, at its option, make a cash payment equal to the number of shares of Common
Stock to be converted multiplied by the Change of Control Price.
(iv) A holder's rights of conversion shall be exercised by the holder
thereof by giving written notice that the holder elects to convert a stated
number of shares of Series E Preferred Stock into Common Stock. Such written
notice may be given by telecopying a written and executed notice of conversion
to the Corporation at its main telecopier number at its principal office and
delivering within five (5) business days thereafter, to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series E
Preferred Stock), together with a copy to the Corporation's transfer agent, the
original notice of conversion by express courier, together with a certificate or
certificates for the shares to be so converted, duly endorsed to the Corporation
or in blank, and with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued;
provided, however, that the Corporation shall not be obligated to issue
certificates for shares of Common Stock in any name other than the name or names
set forth on the certificates for the shares of Series E Preferred Stock being
converted unless all requirements for transfer of Series E Preferred Stock have
been complied with. Conversion shall be effective upon receipt by the
Corporation and the transfer agent of the telecopied notice (provided that the
original notice and the share certificate or certificates are sent to the
Corporation and the transfer agent as contemplated above).
(v) The Corporation's rights of conversion shall be exercised by the
Corporation by giving written notice to all holders of Series E Preferred Stock
that the Corporation elects to convert a stated number of shares of Series E
Preferred Stock into Common Stock. If the Corporation elects to convert less
than all of the then outstanding Series E Preferred Stock into Common Stock,
such conversion
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shall be effected ratably among the holders of Series E Preferred Stock. Such
written notice may be given by mailing to such holders, at their addresses on
the records of the Corporation, together with a copy to the Corporation's
transfer agent. Upon receipt of such notice of conversion, the holders shall
surrender to the Corporation the certificate or certificates for the shares to
be so converted, duly endorsed to the Corporation or in blank, and with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued; provided, however, that
the Corporation shall not be obligated to issue certificates for shares of
Common Stock in any name other than the name or names set forth on the
certificates for the shares of Series E Preferred Stock being converted unless
all requirements for transfer of Series E Preferred Stock have been complied
with. Conversion shall be effective five days after mailing by the Corporation,
to the holders of Series E Preferred Stock Corporation and the transfer agent,
of the notice of conversion.
(vi) In the case of automatic conversion, the outstanding shares of
Series E Preferred Stock shall be converted into Common Stock automatically
without any further action by the holders of such shares or by the Corporation
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent.
(vii) In case of any liquidation of the Corporation, all rights of
conversion shall cease and terminate at the close of business on the business
day preceding the date fixed for payment of the amount to be distributed to the
holders of the Series E Preferred Stock pursuant to paragraph 4.
(viii) The number of shares into which the Series E Preferred Stock is
convertible will be determined without giving effect to any Series E Accruing
Dividends on the Series E Preferred Stock. No consideration will be payable in
respect of any Series E Accrued Dividends that may exist with respect to any
Series E Preferred Stock that the holder elects to convert into Common Stock and
the exercise by a holder of Series E Preferred Stock into Common Stock shall
constitute a waiver in all respects of any and all rights that the holder may
have to such Series E Accruing Dividends, except for Series E Accruing Dividends
which accrue through December 31, 2000, which shall be payable in full upon
conversion, as provided in the last sentence of paragraph 3(a).
(ix) Common Stock issued upon conversion will include rights to
purchase Series A Preference Stock (the "Rights") in accordance with the terms
of the Corporation's Rights Agreement, if such conversion occurs prior to the
distribution of such Rights or the redemption or expiration thereof.
5(b). Issuance of Certificates; Time Conversion Effected. (i) Promptly
after the receipt of the written notice referred to in subparagraph 5(a)(iv) or
5(a)(v), or upon automatic conversion as referred to in subparagraph 5(a)(vi),
as applicable,
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and surrender of the certificate or certificates for the share or shares of
Series E Preferred Stock to be converted, the Corporation shall issue and
deliver or cause to be issued and delivered, to such holder of Series E
Preferred Stock or to such holder's nominee or nominees, registered in such name
or names as such holder may direct, a certificate or certificates for the number
of shares of Common Stock, including, subject to subparagraph 5(c) below,
fractional shares, as necessary, issuable upon the conversion of such share or
shares of Series E Preferred Stock. Upon the effectiveness of conversion the
rights of the holder of such share or shares of Series E Preferred Stock being
converted shall cease, and the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby.
(ii) The Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series E Preferred Stock are either
delivered to the Corporation or its transfer agent as provided below, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series E Preferred Stock at the
office of the Corporation or any transfer agent for the Series E Preferred
Stock, there shall be issued and delivered to such holder promptly at such
office and in its name as shown on such surrendered certificate or certificates,
a certificate or certificates for the number of shares of Common Stock into
which the shares of Series E Preferred Stock surrendered were convertible on the
date on which such automatic conversion occurred. Until surrendered as provided
above, each certificate formerly representing shares of Series E Preferred Stock
shall be deemed for all corporate purposes to represent the number of shares of
Common Stock resulting from such automatic conversion.
5(c). Fractional Shares; Partial Conversion. In the event that the
computation pursuant to subparagraph 5(a) of the number of shares of Common
Stock issuable upon conversion of shares of Series E Preferred Stock results in
any fractional share of Common Stock, the Corporation may, at its option, issue
fractional shares or scrip representing fractional shares of Common Stock or pay
in cash the value of such fractional shares of Common Stock upon such
conversion, which for this purpose shall be deemed to equal the last reported
sales price of the Common Stock prior to the First Series E Conversion Date. In
case the number of shares of Series E Preferred Stock represented by the
certificate or certificates surrendered pursuant to subparagraph 5(a) exceeds
the number of shares converted, the Corporation shall, upon such conversion,
issue and deliver to the holder of the Certificate or Certificates so
surrendered, at the expense of the Corporation, a new certificate or
certificates for the number of shares of Series E Preferred Stock represented by
the certificate or certificates surrendered which are
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not to be converted, and which new certificate or certificates shall entitle the
holder thereof to the rights of the shares of Series E Preferred Stock
represented thereby to the same extent as if the Certificate theretofore
covering such unconverted shares had not been surrendered for conversion.
5(d). Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 5(m) below or in the case of any Permitted Issuance, if
and whenever the Corporation shall issue or sell, or is, in accordance with
subparagraphs 5(d)(1) through 5(d)(4), deemed to have issued or sold, any shares
of Common Stock for a consideration per share less than the Series E Conversion
Price, forthwith upon such issue or sale, the Series E Conversion Price shall be
reduced to the price determined by multiplying the Series E Conversion Price by
a fraction (i) the numerator of which shall be equal to the sum of (A) the
number of shares of Common Stock outstanding (on a fully diluted basis as
provided in subparagraph 5(d)(5) below) immediately prior to such issue or sale
and (B) the number of shares of Common Stock that the consideration, if any,
received by the Corporation upon such issuance or sale would have purchased at
the Series E Conversion Price divided by the Series E Conversion Price and (ii)
the denominator of which shall be equal to the total number of shares of Common
Stock outstanding (on a fully diluted basis as provided in subparagraph 5(d)(5))
immediately after such issue or sale.
For purposes hereof, "Permitted Issuances" means the issue or sale of
(i) shares of Common Stock by the Corporation pursuant to the exercise or
conversion, as the case may be, of Convertible Securities outstanding, or
issuable under a binding contract existing, immediately prior to the first
issuance date of the Series E Preferred Stock (as adjusted pursuant to the terms
of such securities to give effect to stock dividends or stock splits or a
combination of shares in connection with a recapitalization, merger,
consolidation or other reorganization occurring after the first issuance date of
the Series E Preferred Stock), and (ii) options to acquire Common Stock by the
Corporation pursuant to a resolution of, or a stock option plan approved by a
resolution of, the Board of Directors (or the compensation committee thereof) to
the Corporation's employees or directors.
For purposes of this subparagraph 5(d), the following subparagraphs
5(d)(1) to 5(d)(5) shall also be applicable:
5(d)(1). Issuance of Rights or Options. Except in the event of any
Permitted Issuance, in case at any time the Corporation shall in any manner
grant or sell (whether directly or by assumption in a merger or otherwise) any
warrants or other rights to subscribe for or to purchase, or any options for the
purchase of, Common Stock or any stock or security convertible into or
exchangeable (with or without further consideration) for Common Stock (such
warrants, rights or options being called "Options" and such convertible or
exchangeable stock or securities being called "Convertible Securities"), whether
or not such Options or the right to convert
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or exchange any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon the exercise of such
Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the granting of such Options, plus the
minimum aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options which
relate to Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale by the Corporation of all
such Convertible Securities and upon the conversion or exchange thereof, by (ii)
the total maximum number of shares of Common Stock issuable upon the exercise of
all such Options or upon the conversion or exchange of all such Convertible
Securities issuable upon the exercise of such Options) shall be less than the
Series E Conversion Price, then the total maximum number of shares of Common
Stock issuable upon the exercise of all such Options or upon conversion or
exchange of all such Convertible Securities issuable upon the exercise of such
Options shall be deemed to have been issued for such price per share as of the
date of granting of such Options and thereafter shall be deemed to be
outstanding when computing the Series E Conversion Price. Except as otherwise
provided in subparagraph 5(d)(3), no adjustment of the Series E Conversion Price
shall be made upon the actual issue of Common Stock or Convertible Securities
upon exercise of such Options or upon the actual issue of Common Stock upon
conversion or exchange of such Convertible Securities.
5(d)(2). Issuance of Convertible Securities. Except in the event of any
Permitted Issuance, in case at any time the Corporation shall in any manner
issue (whether directly or upon assumption in a merger or otherwise) or sell any
Convertible Securities, whether or not the rights to exchange or convert any
such Convertible Securities are immediately exercisable, and the price per share
for which Common Stock is issuable upon such conversion or exchange (determined
by dividing (i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of all such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Corporation upon the conversion or exchange thereof, by (ii) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Series E Conversion Price,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding when
computing the Series E Conversion Price; provided, that (A) except as otherwise
provided in subparagraph 5(d)(3), no adjustment of the Series E Conversion Price
shall be made upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities and (B) if any such issue or sale of
such Convertible Securities is made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Series E Conversion
Price have been or are to be made pursuant
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to other provisions of this subparagraph 5(d), no further adjustment of the
Series E Conversion Price shall be made by reason of such issue or sale.
5(d)(3). Change in Option Price or Series E Conversion Rate. If (i) the
exercise price provided for in any Option referred to in subparagraph 5(d)(1),
(ii) the additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 5(d)(1) or
5(d)(2), (iii) the additional consideration, if any, payable upon the issuance
of any Convertible Securities issuable upon the exercise of any Options referred
to in subparagraph 5(d)(1), (iv) the number of shares of Common Stock issuable
upon the exercise of Options referred to in subparagraph 5(d)(1), or (v) the
rate at which Convertible Securities referred to in subparagraph 5(d)(1) or
5(d)(2) are convertible into or exchangeable for Common Stock, shall change at
any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), then upon the happening of
such event the Series E Conversion Price shall forthwith be readjusted to the
Series E Conversion Price which would have been in effect had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration, number of shares or conversion rate, as the
case may be, at the time initially granted, issued or sold. Upon the expiration
of any Option referred to in subparagraph 5(d)(1) or the expiration or
termination of any right to convert or exchange Convertible Securities referred
to in subparagraphs 5(d)(1) or (2), the Series E Conversion Price then in effect
hereunder shall forthwith be increased to the Series E Conversion Price which
would have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued;
5(d)(4). Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any amounts paid or
receivable for accrued interest or accrued dividends and any expenses incurred
or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of Common Stock, Options
or Convertible Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration at the
time of such issuance or sale as determined in good faith by the Board of
Directors, without deduction of any amounts paid or receivable for accrued
interest or accrued dividends and any expenses incurred or any underwriting
commissions or concessions therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
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the Board of Directors. If the Board of Directors shall not make any
determination, the consideration for the options shall be deemed to be zero.
5(d)(5). Treasury Shares: Full Dilution. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any such shares shall
be considered an issue or sale of Common Stock for the purpose of this
subparagraph 5(d). The number of shares outstanding at any given time shall
include, in addition to shares of Common Stock then issued and outstanding, all
shares of Common Stock issuable upon the exercise of all Options or Convertible
Securities outstanding.
5(e). Subdivision or Combination of Common Stock or Series E Preferred
Stock. In case the Corporation shall at any time subdivide (by any stock split,
stock dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Series E Conversion Price shall be proportionately
reduced, and, conversely, in case the outstanding shares of Common Stock shall
be combined into a smaller number of shares, the Series E Conversion Price shall
be proportionately increased. Any dividend or other distribution made upon any
capital stock of the Corporation payable in Common Stock or in any security
convertible into or exercisable for Common Stock (other than the Series E
Preferred Stock) without or for de minimus consideration shall be deemed to be a
subdivision for purposes of this subparagraph 5(e). In the event of a
subdivision or combination of the Series E Preferred Stock, the Series E
Liquidation Amount (and the public offering price referred to in paragraph 5(a))
shall be proportionately reduced or increased, as the case may be.
5(f). Reorganization. Reclassification. Merger or Distribution. If any
of the following shall occur: (i) any distribution on the capital stock of the
Corporation or capital reorganization or reclassification of such capital stock
which is effected in such a way that holders of Common Stock shall be entitled
to receive stock, securities, evidence of indebtedness or other assets (other
than cash dividends out of current or retained earnings) with respect to or in
exchange for Common Stock, (ii) any consolidation or merger to which the
Corporation is a party other than a merger in which the Corporation is the
continuing corporation and which does not result in any reclassification of, or
change (other than a change in name, or par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination) in, the outstanding shares of Common Stock, or (iii) any sale or
conveyance of all or substantially all of the property or business of the
Corporation as an entirety, then, as a condition of such distribution,
reorganization, classification, consolidation, merger, sale or conveyance,
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Series E Preferred Stock shall thereupon have the right to receive,
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon the
conversion of such
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share or shares of Series E Preferred Stock, such shares of stock, securities,
evidence of indebtedness or assets as may be issued or payable in such
transaction with respect to or in exchange for a number of outstanding shares of
such Common Stock equal to the number of shares of such Common Stock immediately
theretofore receivable upon such conversion had such distribution,
reorganization, reclassification, consolidation, merger, sale or conveyance not
already taken place, and in such case appropriate provisions shall be made with
respect to the right and interests of such holder to the end that the provisions
hereof (including without limitation provisions for adjustment of the Series E
Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities, evidence of indebtedness or assets
thereafter deliverable upon the exercise of such conversion rights. Anything
herein to the contrary notwithstanding, if the provisions of this subparagraph
5(f) shall be deemed to apply to any distribution, reorganization,
reclassification, consolidation, merger, sale or conveyance in respect of the
Corporation or its capital stock, no duplicative adjustments shall be made to
the Series E Conversion Price pursuant to subparagraph 5(d) or 5(e) upon the
occurrence of such distribution, reorganization, reclassification,
consolidation, merger, sale or conveyance.
5(g). Notice of Adjustment. Upon any adjustment of the Series E
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, (i) by certified or registered mail, postage prepaid, (ii) by a
nationally known overnight delivery service or (iii) delivered by hand,
addressed to each holder of shares of Series E Preferred Stock at the address of
such holder as shown on the books of the Corporation, which notice shall state
the Series E Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
5(h). Other Notices. In case at any time:
(i) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the holders of
its Common Stock;
(ii) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any class or
other rights;
(iii) there shall be any distribution (other than a cash
dividend) on the capital stock of the Corporation or capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
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then, in any one or more of said cases, the Corporation shall give (A) by
certified or registered mail, return receipt requested, postage prepaid, (B) by
a nationally known overnight delivery service or (C) delivered by hand,
addressed to each holder of any shares of Series E Preferred Stock at the
address of such holder as shown on the books of the Corporation at least 30
days' prior written notice of the date on which the books of the Corporation
shall close or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up and the date when the same shall take place. Such
notice in accordance with the foregoing sentence shall also specify, in the case
of any such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto and the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
5(i). Stock to be Reserved. The Corporation shall at all times reserve
and keep available out of its authorized but unissued Common Stock, solely for
the purpose of issuance upon the conversion of Series E Preferred Stock as
herein provided, including any dividends that accrue on the Series E Preferred
Stock, as specified in paragraph 3 above, such number of shares of Common Stock
as shall then be issuable upon the conversion of all outstanding shares of
Series E Preferred Stock. The Corporation covenants that all shares of Common
Stock which shall be so issued shall be duly and validly issued and fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof, and, without limiting the generality of the foregoing, the
Corporation covenants that it will from time to time take all such action as may
be required to assure that the par value per share of the Common Stock is at all
times equal to or less than the lowest Series E Conversion Price in effect at
the time. The Corporation will take all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed. The Corporation
will not take any action which results in any adjustment of the Series E
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of the Series E Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Certificate of Incorporation.
5(j). Reissuance of Preferred Stock. Shares of Series E Preferred Stock
which are converted into shares of Common Stock as provided herein shall resume
the status of authorized and unissued shares of Preferred Stock without
designation as to series or class until shares are once more designated as part
of a particular series or class by the Board of Directors.
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5(k). Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Series E Preferred Stock shall be made without charge
to the holders thereof for any issuance tax in respect thereof; provided. that
the Corporation shall not be required to pay any tax which may be payable in
respect of any transfer involved in the issuance and delivery of any certificate
in a name other than that of the holder of the Series E Preferred Stock which is
being converted.
5(l). Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series E Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series E Preferred Stock in any manner which interferes with the timely
conversion of such Series E Preferred Stock, except as may otherwise be required
to comply with applicable securities laws.
5(m). Limitations on Adjustments. Anything herein to the contrary
notwithstanding, no adjustment in the Series E Conversion Price shall be
required unless such adjustment, either by itself or with other adjustments not
previously made, would require a change of at least $0.01 (one cent) in such
Series E Conversion Price; provided, that any adjustment which by reason of this
subparagraph 5(m) is not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations of shares of Common
Stock or Series E Preferred Stock under this paragraph 5 shall be rounded to the
nearest three decimal points.
6. Redemption. The shares of Series E Preferred Stock shall be subject
to redemption, as follows.
6(a). Redemption Rights. The shares of Series E Preferred Stock shall
be subject to redemption, at any time following the date that is five years
after the Series E Issue Date, either (i) at the option of the Corporation, or
(ii) at the option of any holder, provided that the holder has not previously
made a Conversion Election. The shares of the Series E Preferred Stock may be
redeemed, in whole or in part, at the option of the Corporation, (i) in cash,
(ii) by delivery of such number of fully paid shares of Common Stock, valued at
the average of the last reported sales price of the Common Stock on Nasdaq for
ten trading days before the Series E Redemption Date or (iii) a combination
thereof, at a redemption price equal to the Series E Liquidation Preference.
6(b). Redemption Mechanics. The Corporation shall give a redemption
notice (the "Series E Redemption Notice") not less than thirty (30) and not more
than sixty (60) days prior to the Series E Redemption Date (i) by certified
mail, postage prepaid, (ii) by a nationally known overnight delivery service or
(iii) delivered by hand, addressed to each holder of record of shares of Series
E Preferred Stock, notifying such holder of the redemption and specifying the
Series E
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Redemption Price applicable to the Series E Preferred Stock, the Series E
Redemption Date and the place where said Series E Redemption Price shall be
payable. The Series E Redemption Notice shall be addressed to each holder at his
address as shown by the records of the Corporation. Except as provided in
paragraph 7 below, on or after the Series E Redemption Date fixed in such Series
E Redemption Notice, each holder of shares of Series E Preferred Stock to be so
redeemed shall present and surrender the certificate or certificates for such
shares to the Corporation at the place designated in said notice and thereupon
the Series E Redemption Price of such shares shall be paid to, or to the order
of, the Person whose name appears on such certificate or certificates as the
owner thereof. From and after the close of business on the Series E Redemption
Date, unless (i) there shall have been a default in the payment of the Series E
Redemption Price upon surrender of a certificate or certificates representing
shares of Series E Preferred Stock to be redeemed or (ii) the provisions of
paragraph 7 below shall be applicable, all rights of holders of shares of Series
E Preferred Stock subject to redemption on the Series E Redemption Date (except
the right to receive the Series E Redemption Price upon surrender of a
certificate or certificates representing shares of Series E Preferred Stock to
be redeemed, but without interest) shall cease with respect to such shares, and
such shares shall not thereafter be transferred on the books of the Corporation
or be deemed to be outstanding for any purpose whatsoever.
7. Certain Approvals. The Corporation acknowledges that as a
prerequisite to the conversion of Series E Preferred Stock as contemplated
hereby it may be necessary for a holder of Series E Preferred Stock to comply
with the filing and notice requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the filing fee for which shall be paid by
the Corporation; provided, that all reasonable efforts shall be made by the
holders of Series E Preferred Stock to require only one such filing), the
requirements of any exchange or market on which the Common Stock may be listed
(including, without limitation, the requirement of shareholder approval prior to
the issuance of Common Stock upon conversion) or other laws, rules or
regulations applicable to such conversion. The Corporation will, at its expense,
fully cooperate with the holders of Series E Preferred Stock and use its best
efforts to cause any such prerequisite to be met. In the event such prerequisite
has not been met on the applicable conversion date, then such date shall, as to
such holder of Series E Preferred Stock, be extended until such prerequisite is
met, and during such time Series E Accruing Dividends shall continue to accrue
as contemplated by paragraph 3 above and such shares of Series E Preferred Stock
shall remain outstanding and be entitled to all rights and preferences provided
herein.
8. Registration. Each holder of Series E Preferred Stock will be
entitled to the benefit of the Series E Registration Rights Agreement to be
entered into between each holder and the Corporation.
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9. Information Rights. Each holder of Series E Preferred Stock will be
entitled to copies of all material provided to holders of Common Stock and
copies of all filings made with the Securities and Exchange Commission pursuant
to rules and regulations thereof upon request by such holder.
10. Definitions.
"Affiliate" of a Person shall mean someone that directly, or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Person.
"Board of Directors" shall mean the Board of Directors of the
Corporation.
"Change of Control" shall mean the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Corporation to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group"), together with any
Affiliates thereof; (ii) the approval by the holders of the capital stock of the
Corporation of any plan or proposal for the liquidation or dissolution of the
Corporation; (iii) any Person or Group shall become the owner, directly or
indirectly, beneficially or of record, of shares representing more than 50.0% of
the aggregate ordinary voting power represented by the issued and outstanding
capital stock of the Corporation; or (iv) the replacement of a majority of the
Board of Directors over a two-year period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors then
still in office who either were members of such Board of Directors at the
beginning of such period or whose election as a member of such Board of
Directors at the beginning of such period or whose election as a member of such
Board of Directors was previously so approved.
"Common Stock" shall mean the common stock, $.001 par value, of the
Corporation.
"EBITDA" means the earnings before interest, taxes, depreciation and
amortization of the Corporation, determined in accordance with applicable
generally accepted accounting principles, applied in a manner consistent with
the Corporation's publicly filed financial statements.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"Series E Issue Date" shall mean the date of original issuance of any
share of Series E Preferred Stock.
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"Series E Junior Stock" shall mean any class or series of capital stock
(including Common Stock) of the Corporation (other than Series A Preference
Stock, Series C Preferred Stock and Series D Preferred Stock) which may be
issued which, at the time of issuance, is not declared to be on a parity with or
senior to the Series E Preferred Stock as to dividends and rights upon
liquidation (or in the case of Preferred Stock issued after the date hereof
which has not received the consent required by paragraph 2(a) hereto).
"Nasdaq" shall mean the Nasdaq Stock Market.
"Series E Parity Stock" shall mean any class or series of Preferred
Stock of the Corporation (including Series D Preferred Stock) which, at the time
of issuance, is declared to be on a parity with the Series E Preferred Stock as
to dividends and rights upon liquidation and (in the case of Preferred Stock
issued after the date hereof) which has received the consent required by
paragraph 2(a) hereto.
"Person" shall mean an individual, corporation, trust partnership,
limited liability company, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof, or other
entity.
"Preferred Stock" shall mean any class or series of preferred stock of
the Corporation.
"Series E Senior Stock" shall mean any class or series of Preferred
Stock of the Corporation (including Series A Preference Stock and Series C
Preferred Stock) which, at the time of issuance, is declared to be senior to the
Series E Preferred Stock as to dividends and rights upon liquidation and (in the
case of Preferred Stock issued after the date hereof) which has received the
consent required by paragraph 2(a) hereto.
"Series A Preference Stock" shall mean the Series A Participating
Preference Stock, par value $.001 per share, of the Corporation.
"Series C Preferred Stock" shall mean the 8% Series C Cumulative
Convertible Preferred Stock, par value $.001 per share, of the Corporation.
"Series D Preferred Stock" shall mean the 8% Series D Cumulative
Convertible Preferred Stock, par value $.001 per share, of the Corporation.
"Warrants" shall have the meaning set forth in the Stock Purchase
Agreement dated February 16, 1999.
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EXHIBIT 6
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES F CONVERTIBLE PREFERRED STOCK
OF
EXECUTIVE TELECARD, LTD.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the DGCL
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the authority
contained in Article IV of the Restated Certificate of Incorporation of
Executive TeleCard, Ltd., a Delaware corporation, and in accordance with Section
151 of the DGCL, the Board of Directors has authorized the creation of Series F
Convertible Preferred Stock having the designations, rights and preferences as
are set forth in Exhibit 6-A hereto and made a part hereof and that the
following resolution was duly adopted by the Board of Directors:
RESOLVED, that a series of authorized Preferred Stock, par
value $.001 per share, of the Corporation be, and it hereby is,
created; that the shares of such series shall be, and they hereby are,
designated as "Series F Convertible Preferred Stock"; that the number
of shares constituting such series shall be, and it hereby is,
2,020,000; and that the designations, rights and preferences of the
shares of such series are as set forth in Exhibit 6-A attached hereto
and made a part hereof.
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EXHIBIT 6-A
SERIES F CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and preferences,
and the qualifications, limitations and restrictions thereof, of the
Corporation's Series F Convertible Preferred Stock, par value $.001 per share
("Series F Preferred"). Capitalized terms used herein are defined in Section 6
below.
SECTION 1. VOTING RIGHTS.
Except as otherwise provided herein or as required by law, the Series F
Preferred shall vote with the shares of the Common Stock of the Corporation (and
each other class of stock so voting), and not as a separate class, at any annual
or special meeting of stockholders of the Corporation, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series F Preferred shall be entitled
to such number of votes as shall be equal to 25% of the number of shares of
Common Stock into which such holder's aggregate number of shares of Series F
Preferred are convertible pursuant to Section 5 below immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent, rounded up to the nearest whole number.
SECTION 2. NO REDEMPTION.
Series F Preferred shall not be redeemable.
SECTION 3. DIVIDEND RIGHTS.
Except as otherwise provided herein or as required by law, holders of
Series F Preferred shall be entitled to receive dividends only when and as
declared by the Corporation's Board of Directors with respect to Series F
Preferred, only out of funds that are legally available therefor and only in the
event that the Corporation at the same time declares or pays any dividends upon
the Common Stock (whether payable in cash, securities or other property). In the
event that the Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) on or prior to the
Adjustment Date, other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Series F
Preferred, at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series F
Preferred had all of the outstanding Series F Preferred been converted
immediately prior to the record date for such dividend, or if no record date is
fixed, the date as. of which the record holders of Common
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Stock entitled to such dividends are to be determined. Series F dividend rights
shall be junior to the dividend rights of all earlier series of preferred stock.
SECTION 4. LIQUIDATION RIGHTS.
Upon any Liquidation, after the payment of the full liquidation
preference of any series of preferred stock senior to the Series F Preferred,
the holders of Series F Preferred shall be entitled to participate in
distributions to holders of the Common Stock (along with each other class of
stock with similar rights) such that the holders of Series F Preferred receive
aggregate distributions equal to the amounts that such holders would have
received if the Series F Preferred Stock had been converted into Common Stock
immediately prior to such Liquidation. Series F liquidation rights shall be
junior to the liquidation rights of all earlier series of preferred stock.
SECTION 5. CONVERSION.
The holders of the Series F Preferred shall have the following rights
with respect to the conversion of the Series F Preferred into shares of Common
Stock:
5A. Optional Conversion. At any time and from time to time after the
issuance thereof, subject to and in compliance with the provisions of this
Section 5, any shares of Series F Preferred may, at the option of the holder, be
converted at any time into fully-paid and nonassessable, shares of Common Stock.
The number of shares of Common Stock to which a holder of Series F Preferred
shall be entitled upon conversion shall be the product obtained by multiplying
the "Series F Conversion Rate" then in effect (determined as provided in Section
5B) by the number of shares of Series F Preferred being converted.
5B. Series F Conversion Rate.
(i) Series F Conversion-Rate Formula. The conversion rate in effect
at any time for conversion of the Series F Preferred (the "Series F Conversion
Rate") shall be equal to the quotient obtained by dividing $4.00 by the
applicable "Series F Market Factor" (determined as provided in Section 5B(ii)).
(ii) Series F Market Factor. The Series F Market Factor for
the Tranche 1 Shares shall mean the following: (A) if the Market Price is less
than or equal to $2.50 as of the Adjustment Date, the Series F Market Factor
shall equal $2.50; (B) if the Market Price is greater than $2.50 but less than
$4.00 as of the Adjustment Date, the Series F Market Factor shall equal the
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Market Price; and (C) if the Market Price is greater than or equal to $4.00 as
of the Adjustment Date, the Series F Market Factor shall equal $4.00. The Series
F Market Factor for the Tranche 2 Shares shall mean the following: (A) if the
Market Price is less than or equal to $2.50 as of the Series F Determination
Date, the Series F Market Factor shall equal $2.50; (B) if the Market Price is
greater than $2.50 but less than $4.00 as of the Series F Determination Date,
the Series F Market Factor shall equal the Market Price; and (C) if the Market
Price is greater than or equal to $4.00 as of the Series F Determination Date,
the Series F Market Factor shall equal $4.00. Notwithstanding the foregoing, (i)
the Series F Market Factor shall equal $4.00 (1) for any Series F Preferred that
is converted prior to the Adjustment Date (whether by the holder or
automatically pursuant to Section 5E), and (2) for any Series F Preferred if the
Target Achievement Percentage (as defined in the Series F Side Letter) is fifty
percent (50%), and (ii) the Series F Market Factor shall equal $2.50 for the
Tranche 2 Shares if it is not deemed to equal $4.00 under clause (i) of this
sentence and the Series F Determination Date occurs as a result a Default Event
prior to the occurrence of all dates referred to in clauses (i) and (iii) of the
definition of Series F Determination Date.
5C. Reorganizations, Mergers or Consolidations. If at any time or from
time to time after the Original Series F Issue Date, the Common Stock is
converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such transaction ("Change of Control Transaction"), provision shall be made so
that the holders of the Series F Preferred shall thereafter be entitled to
receive upon conversion of the Series F Preferred the number of shares of stock
or other securities or property of the Corporation to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled in connection with such transaction, subject to adjustment in respect
of such stock or securities by the terms thereof In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section 5
with respect to the rights of the holders of Series F Preferred after such
transaction to the end that the provisions of this Section 5 (including
adjustment of the Series F Conversion Rate then in effect and the number of
shares issuable upon conversion of the Series F Preferred) shall be applicable
after that event and be as nearly equivalent as practicable. In the case of any
reorganization, merger or consolidation in which the Corporation is not the
surviving entity, the Corporation shall not consummate the transaction unless
the entity surviving such transaction assumes all of the Corporation's
obligations hereunder.
If at any time or from time to time after the Original Series F Issue
Date, the Common Stock issuable upon the conversion of the Series F Preferred is
changed into the same or a different number of shares of any class or classes of
stock, whether by recapitalization, reclassification or otherwise (other than a
subdivision or combination of shares or stock dividend or a reorganization,
merger or consolidation provided for elsewhere in this Section 5), in any such
event each holder of Series F Preferred shall have the right thereafter to
convert such stock into the kind and amount of stock and other securities and
property receivable in connection with such recapitalization, reclassification
or other change with respect to the maximum number of shares of Common Stock
into which such shares of Series F Preferred could have been converted
immediately prior to such
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recapitalization, reclassification or change, all subject to further adjustments
as provided herein or with respect to such other securities or property by the
terms thereof
5D. Notices.
(i) Immediately upon any adjustment of the Series F Conversion Rate
other than as contemplated in Section 5B, the Corporation shall give written
notice thereof to all holders of Series F Preferred, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(ii) Upon (A) any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or (B)
any reorganization, any reclassification or recapitalization of the capital
stock of the Corporation, any merger or consolidation of the Corporation with or
into any other corporation, or any Liquidation, the Corporation shall mail to
each holder of Series F Preferred at least twenty (20) days prior to the record
date specified therein a notice specifying (1) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger or Liquidation
is expected to become effective, and (3) the date, if any, that is to be fixed
for determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger or Liquidation.
5E. Automatic Conversion. Each share of Series F Preferred then
outstanding shall automatically be converted into shares of Common Stock, based
on the then-effective Series F Conversion Rate, on the earliest to occur of (i)
the first date as of which the Market Price is $4.00 or more for any 15
consecutive trading days during any period in which Series F Preferred is
outstanding and (ii) July 1, 2001. Any Series F Preferred issued at any time
after an automatic conversion under the prior sentence shall be converted
automatically into shares of Common Stock, based on the then-effective Series F
Conversion Rate, on the earliest to occur of (i) the first date after the date
of issuance of such Series F Preferred as of which the Market Price is $4.00 or
more for any 15 consecutive trading days during any period in which such Series
F Preferred is outstanding and (ii) July 1, 2001.
5F. Mechanics of Conversion.
(i) Optional Conversion. Each holder of Series F Preferred who
desires to convert the same into shares of Common Stock pursuant to this Section
5 shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or any transfer agent for the Series F Preferred,
and shall give written notice to the Corporation at such office that such holder
elects to convert the
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<PAGE>
same. Such notice shall state the number of shares of Series F Preferred being
converted. Thereupon, the Corporation shall promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled and a certificate representing any
Series F Preferred shares which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted. Such conversion shall be deemed to have been made at
the close of business on the date of such surrender of the certificate
representing the shares of Series F Preferred to be converted, and the person
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder of such shares of Common
Stock on such date.
(ii) Automatic Conversion. Upon the occurrence of the event
specified in Section 5E, the outstanding shares of Series F Preferred shall be
converted into Common Stock automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series F Preferred are either delivered
to the Corporation or its transfer agent as provided below, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series F Preferred at the office of
the Corporation or any transfer agent for the Series F Preferred, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series F Preferred surrendered were convertible on the date on which such
automatic conversion occurred. Until surrendered as provided above, each
certificate formerly representing shares of Series F Preferred shall be deemed
for all corporate purposes to represent the number of shares of Common Stock
resulting from such automatic conversion.
5G. Fractional Shares. No fractional shares of Common Stock shall be
issued upon conversion of Series F Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share of
Series F Preferred by a holder thereof shall be aggregated for purposes of
determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion. Notwithstanding the foregoing, in the event that any
holder converts
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shares of Series F Preferred ten times within any one year period, the
Corporation shall not be obligated to pay any cash amount for fractional shares
upon any subsequent conversion(s) by such holder during such year, but may
withhold the fractional share(s) and aggregate such fractional share(s) with any
additional fractional share(s) issuable to such holder during such year, and pay
the cash (if any) required by this section for any fractional shares remaining
after such aggregation at the end of such year.
5H. Reservation of Shares. The Corporation shall at all times reserve
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon the conversion of the shares of Series F
Preferred, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series F
Preferred. All shares of Common Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable, and free from all
taxes, liens and charges. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of the Series F Preferred, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
5I. Payment of Taxes. The issuance of certificates for shares of Common
Stock upon conversion of Series F Preferred shall be made without charge to the
holders of such Series F Preferred for any issuance tax in respect thereof or
other cost incurred by the Corporation in connection with such conversion and
the related issuance of shares of Common Stock, excluding any tax or other
charge imposed in connection with any transfer involved in the issue and
delivery of shares of Common Stock in a name other than that in which the shares
of Series F Preferred so converted were registered.
SECTION 6. DEFINITIONS.
"Adjustment Date" means the earlier of the date of a Change of Control
Transaction (as defined in Section 5C) or December 31, 1999.
"Closing Price" of each share of Common Stock or other security means
the composite closing price of the sales of the Common Stock or such other
security on all securities exchanges on which such security may at the time be
listed (as reported in The Wall Street Journal) or, if there has been no sale on
any such exchange on any day, the average of the highest bid and lowest asked
prices of the Common Stock or such other security on all such exchanges at the
end of such day, or, if such security is not so listed, the closing price (or
last price, if applicable) of sales of the Common Stock or such other security
in the Nasdaq National Market (as reported in The Wall Street Journal on such
day, or if such security is not quoted in the Nasdaq National Market but is
traded over-the-counter, the average
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of the highest bid and lowest asked prices on such day in the over-the-counter
market as reported by the National Quotation Bureau Incorporated, or any similar
successor organization.
"Common Stock" means, collectively, the Corporation's common stock, par
value $.001 per share; and if there is a change such that the securities
issuable upon conversion of Series F Preferred are issued by an entity other
than the Corporation or there is a change in the class of securities so
issuable, then the term "Common Stock" shall mean the shares of the security
issuable upon conversion of Series F Preferred if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
"Series F Determination Date" means the earliest to occur of (i) a
Change of Control Transaction (as defined in Section 5C), (ii) a Default Event
(as defined in the Series F Side Letter), or (iii) the date that is the earlier
of March 30, 2001 or the date when the Corporation announces its fourth quarter
and annual financial results for the 2000 fiscal year.
"Liquidation" means the liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary; provided, however, that neither
the consolidation or merger of the Corporation into or with any other entity or
entities, nor the sale or transfer by the Corporation of all or any part of its
assets, nor the reduction of the capital stock of the Corporation, shall be
deemed to be a Liquidation.
"Market Price" means (i) if the Common Stock is listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the period of 15 consecutive trading days
consisting of the day as of which the Market Price is being determined and the
14 consecutive trading days prior to such day (the "Pricing- Period"), -the
Closing Price of the Common Stock averaged over the 15 consecutive trading days
constituting the Pricing Period, or (ii) if the Common Stock is not listed on
any securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the Pricing Period, the fair value of the
Common Stock determined by agreement between the Corporation and the holders of
a majority of the outstanding Series F Preferred or, if they are unable to reach
agreement within a reasonable period of time, the fair value of the Common Stock
as determined by an independent appraiser selected by the Corporation (which
appraiser may be the Corporation's investment banker, and the fees and expenses
of such appraiser shall be borne by the Corporation), which determination shall
be final and binding upon the Corporation and the holders of the outstanding
Series F Preferred.
"Series F Merger Agreement" means the Agreement and Plan of Merger
dated as of February 3, 1999 by and among the Corporation, TeleKey, the
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stockholders of TeleKey, and eGlobe Merger Sub No. 2, Inc., a wholly-owned
subsidiary of the Corporation.
"Original Series F Issue Date" means the Effective Time, as such term
is defined in the Merger Agreement.
"Series F Preferred" means the Corporation's Series F Convertible
Preferred Stock, par value $.001 per share.
"Series F Side Letter" means the side letter, dated as of 1998 by and
among the Corporation, TeleKey and the stockholders of TeleKey, which sets forth
the procedure for calculating the Target Achievement Percentage.
"TeleKey" means TeleKey, Inc., a Georgia corporation.
"Tranche 1 Shares" means 1,010,000 shares of Series F Preferred to be
issued on the Closing Date, as such term is defined in the Merger Agreement.
"Tranche 2 Shares" means the up to 1,010,000 shares of Series F
Preferred constituting the Acquiror Convertible Preferred Stock Tranche 2, as
such term is defined in the Series F Side Letter.
SECTION 7. AMENDMENT AND WAIVER.
No amendment, modification or waiver of any of the terms or provisions
of the Series F Preferred shall be binding or effective without the prior
approval (by vote or written consent) of the holders of a majority of the Series
F Preferred then outstanding. Any amendment, modification or waiver of any of
the terms or provisions of the Series F Preferred with such approval, whether
prospective or retroactively effective, shall be binding upon all holders of
Series F Preferred.
SECTION 8. REGISTRATION OF TRANSFER.
The Corporation shall keep at its principal office a register for the
registration of Series F Preferred. Upon the surrender of any certificate
representing Series F Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at the
Corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of Series F Preferred shares
represented by the surrendered certificate. Each such new certificate shall be
registered in such name and shall represent such number of Series F Preferred
shares as is requested by the holder of the surrendered certificate and shall be
substantially identical in form to the surrendered certificate.
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SECTION 9. REPLACEMENT.
Upon receipt of evidence reasonably satisfactory to the Corporation (an
affidavit of the registered holder shall be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Series F Preferred, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Corporation (provided
that if the holder is a financial institution or other institutional investor,
its own agreement shall be satisfactory), or, in the case of any such mutilation
upon surrender of such certificate, the Corporation shall (at its expense)
execute and deliver in lieu of such certificate a new certificate of like kind
representing the number of Series F Preferred shares represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate.
SECTION 10. NOTICES.
Except as otherwise expressly provided hereunder, all notices referred
to herein shall be in writing and shall be deemed effectively given: (i) upon
personal delivery to the party to be notified, (ii) when sent by confirmed telex
or facsimile if sent during normal business hours of the recipient; if not, then
on the next business day, (iii) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid, or (iv)
one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All notices
shall be addressed (i) if to the Corporation, to its principal executive
offices, and (ii) if to stockholders, to each holder of record at the address of
such holder appearing on the books of the Corporation.
6-A-9
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
eGLOBE, INC.
eGlobe, Inc. (the "Corporation"), a corporation organized and existing
under the General Corporation Law of the State of Delaware, does hereby certify
as follows:
FIRST: That in accordance with the requirements of Section 242 of the
General Corporation Law of the State of Delaware, the Board of Directors of the
Corporation, acting at a meeting of the directors of the Corporation at which a
quorum was present duly adopted resolutions proposing and declaring advisable a
prohibition on the acquisition by any person of more than 30% of the outstanding
Common Stock or 40% of the Common Stock outstanding on a fully diluted basis
except through a qualifying offer and recommending that such prohibition be
submitted to the stockholders of the Corporation for their consideration, action
and approval.
SECOND: That the amendment to the Restated Certificate of Incorporation
of the Corporation is as follows:
A new ARTICLE XI of the Restated Certificate of Incorporation is hereby
added which shall read as follows:
ARTICLE XI
Ownership Above Specified Levels
(a) No person shall become an excess shares owner unless:
(1) Prior to such time the board of directors of the corporation
approved such person becoming the owner of shares in excess of the
permitted number (and in such case such person shall be permitted to
acquire only up to the maximum number of shares approved by the board of
directors to be acquired by such person);
(2) The transaction which resulted in the person becoming an excess
shares owner constituted a qualifying offer; or
(3) At or subsequent to such time such person becoming the owner of
shares in excess of the permitted number is approved by the board of
directors and authorized at an annual or special meeting of stockholders,
and not by written consent, by the affirmative vote of at least 66-2/3% of
the outstanding voting stock which is not owned by the excess shares owner
(and in such case such person shall be permitted to acquire only up to the
1
<PAGE>
maximum number of shares approved by the board of directors and
stockholders to be acquired by such person).
(b) For purposes of this Article XI only, the term:
(1) "Affiliate" means a person that directly, or indirectly through 1
or more intermediaries, controls, or is controlled by, or is under common
control with, another person.
(2) "Associate," when used to indicate a relationship with any person,
means: (i) Any corporation, partnership, unincorporated association or
other entity of which such person is a director, officer or partner or is,
directly or indirectly (including in street name accounts), the owner of
20% or more of any class of voting stock; (ii) any trust or other estate in
which such person has at least a 20% beneficial interest or as to which
such person serves as trustee or in a similar fiduciary capacity; and (iii)
any relative or spouse of such person, or any relative of such spouse, who
has the same residence as such person.
(3) "Common stock" shall mean all classes or series of common stock of
the corporation which constitute voting stock of the corporation.
(4) "Control," including the terms "controlling," "controlled by" and
"under common control with," means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting stock, by
contract or otherwise. A person who is the owner of 20% or more of the
outstanding voting stock of any corporation, partnership, unincorporated
association or other entity shall be presumed to have control of such
entity, in the absence of proof by a preponderance of the evidence to the
contrary; Notwithstanding the foregoing, a presumption of control shall not
apply where such person holds voting stock, in good faith and not for the
purpose of circumventing this section, as an agent, bank, broker, nominee,
custodian or trustee for 1 or more owners who do not individually or as a
group have control of such entity.
(5) "Excess shares" shall mean the excess of the number of shares of
common stock held by an excess shares owner above the permitted number of
shares of common stock.
(6) "Excess shares owner" shall mean the owner of more than the
permitted number of shares of common stock, but shall not include (1) a
person becomes the owner of more than the permitted number of shares of
common stock inadvertently and (i) as soon as practicable divests itself of
ownership of sufficient shares so that the stockholder ceases to be the
owner of more than the permitted number of shares of common stock, and (ii)
would not, at any time within the 3-year period immediately prior thereto,
have
2
<PAGE>
been the owner of more than the permitted number of shares of common stock
but for the inadvertent acquisition of ownership, or (2) a person becomes
the owner of more than the permitted number of shares of common stock as
the result of action taken solely by the corporation; provided that such
person shall be an excess shares owner if thereafter such person acquires
additional shares of voting stock of the corporation, except as a result of
further corporate action not caused, directly or indirectly, by such
person.
(7) "Fully diluted" shall mean, as of any particular date, the total
number of shares of common stock that would then be outstanding assuming
(1) the conversion of all then outstanding convertible securities
(including preferred stock of the corporation) where no price must be paid
for conversion or the price, if any, is less than the then market price of
the common stock, (2) the exercise of any then outstanding options,
warrants or similar rights to acquire common stock or other securities of
the corporation where the exercise price is less than the then market price
of the common stock, and (3) the issuance of all securities (and the
conversion of any convertible securities or exercise of options or warrants
in accordance with clauses (1) and (2)) which are subject to achievement of
performance criteria under a then existing contract, the terms of preferred
stock or warrants, or other valid and binding arrangement.
(8) "Outstanding," with reference to stock (other than stock
outstanding on a fully diluted basis), shall not include any unissued stock
of the corporation which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights,
warrants or options, or otherwise.
(9) "Owner," including the terms "own" and "owned," when used with
respect to any stock, means a person that individually or with or through
any of its affiliates or associates:
(i) Owns such stock, directly or indirectly (including in street
name accounts); or
(ii) Has (A) when determining shares owned on a fully diluted
basis, the right to acquire such stock (whether such right is
exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement or understanding, or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise
(when determining shares owned on an outstanding basis, such shares
shall not be considered owned); provided, however, that a person shall
not be deemed the owner of stock tendered pursuant to a tender or
exchange offer made by such person or any of such person's affiliates
or associates until such tendered stock is accepted for purchase or
3
<PAGE>
exchange; or (B) the right to vote such stock pursuant to any
agreement, arrangement or understanding; provided, however, that a
person shall not be deemed the owner of any stock because of such
person's right to vote such stock if the agreement, arrangement or
understanding to vote such stock arises solely from a revocable proxy
or consent given in response to a proxy or consent solicitation made
to 10 or more persons; or
(iii) Has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting (except voting pursuant
to a revocable proxy or consent as described in item (B) of
subparagraph (ii) of this paragraph), or disposing of such stock
with any other person that owns, or whose affiliates or
associates own, directly or indirectly (including in street name
accounts), such stock.
(10) The "permitted number" of shares of common stock of the
corporation shall be (i) one share less than the number of shares of
common stock of the corporation constituting 30% of the outstanding
common stock and (ii) one share less than the number of shares of
common stock constituting 40% of the common stock then outstanding on
a fully diluted basis.
(11) "Person" means any individual, corporation, partnership,
unincorporated association or other entity.
(12) "Qualifying offer" shall mean any fully financed, all-cash
tender offer to purchase all of the outstanding shares of common
stock, on a fully diluted basis: (i) that is subject to Section
14(d)(1) of the Securities Exchange Act of 1934, as amended; (ii) that
is first proposed on or after June 16, 1999; and (iii) that is subject
to no condition other than (A) the tender to the offeror of at least
85% of the shares of common stock outstanding at the time of
commencement (as such term is used in Rule 14d-2 promulgated by the
SEC under the Securities Exchange Act of 1934) of the offer, excluding
for purposes of determining the number of shares outstanding those
shares owned (I) by persons who are directors and also officers and
(II) employee stock plans in which employee participants do not have
the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer, (B) the
expiration of any waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 applicable to the purchase of common stock
pursuant to the offer, and (C) other customary conditions dealing with
the following subjects: (1) pending or threatened legal or
administrative proceedings, (2) governmental action or enactment or
application of statutes or regulations, (3) extraordinary changes in
economic or political conditions, (4) extraordinary actions or
transactions by the corporation with respect to its capitalization,
and (5) agreement with the corporation on an alternative transaction.
4
<PAGE>
(13) "Redemption value" of a share of the corporation's stock of
any class or series shall mean the average closing price for such a
share for each of the 45 most recent days on which shares of stock of
such class or series shall have been traded preceding the date on
which notice of redemption shall be given pursuant to paragraph (e) of
this Article XI; provided, however, that if shares of stock of such
class or series are not traded on any securities exchange or in the
over-the-counter market, redemption value shall be determined by the
board of directors in good faith. "Closing price" on any day means the
reported closing sales price or, in case no such sale takes place, the
average of the reported closing bid and asked prices on the principal
United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock
is not listed on any such exchange, the highest closing sales price or
bid quotation for such stock on the National Association of Securities
Dealers, Inc. Automated Quotations system or any similar system then
in use, or if no such prices or quotations are available, the fair
market value on the day in question as determined by the board of
directors in good faith.
(14) "Redemption date" shall mean the date fixed by the board
of directors for the redemption of any shares of stock of the
corporation pursuant to this Article XI.
(15) "Redemption securities" shall mean any debt or equity
securities of the corporation, any of its subsidiaries or any other
corporation, or any combination thereof, having such terms and
conditions (including, without limitation, in the case of debt
securities, repayment over a period of up to thirty years, or a longer
period) as shall be approved by the board of directors and which,
together with any cash to be paid as part of the redemption price, in
the opinion of any nationally recognized investment banking firm
selected by the board of directors (which may be a firm which provides
other investment banking, brokerage or other services to the
corporation), has a value, at the time notice of redemption is given
pursuant to paragraph (e) of this Article XI, at least equal to the
price required to be paid pursuant to paragraph (e) of this Article XI
(assuming, in the case of redemption securities to be publicly traded,
such redemption securities were fully distributed and subject only to
normal trading activity).
(16) "Stock" means capital stock of the corporation.
(17) "Voting stock" means, stock of any class or series entitled
to vote generally in the election of directors and, with respect to
any entity that is not a corporation, any equity interest entitled to
vote generally in the election of the governing body of such entity.
5
<PAGE>
(c) The provisions of this Article XI shall not apply at any time when the
corporation does not have a class of voting stock that is publicly traded.
(d) All determinations regarding matters arising under this Article XI
including without limitation determining the permitted number, the meaning or
interpretation as of any particular date of the term fully diluted, and whether
or not any offer is a qualifying offer, and resolving any ambiguity, shall be
made by two-thirds of the directors.
(e) If the board of directors shall at any time determine in good faith
that any event has taken place that results in a person becoming an excess
shares owner, the excess shares shall not have any voting rights. In addition,
the corporation may take such action as it deems advisable, including, to the
extent permitted by applicable law, to redeem the excess shares as provided
below or, to the extent permitted by applicable law, to seek equitable relief,
including injunctive relief, to enforce the provisions of this Article XI.
The terms and conditions of a redemption of excess shares, to the
extent permitted by applicable law, shall be as follows:
(1) The redemption price of the excess shares to be redeemed
shall be equal to the lesser of (i) the redemption value or (ii) if
such stock was purchased by the excess shares owner within one year of
the redemption date, such excess shares owner's purchase price for
such shares;
(2) The redemption price of such shares may be paid in cash,
redemption securities or any combination thereof;
(3) If less than all the shares held by excess shares owner are
to be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the board of directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot or selection in any other manner determined by the
board of directors;
(4) At least 30 days' written notice of the redemption date shall
be given to the record holders of the shares selected to be redeemed
(unless waived in writing by any such holder), provided that the
redemption date may be the date on which written notice shall be given
to record holders if the cash or redemption securities necessary to
effect the redemption shall have been deposited in trust for the
benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates of their shares to be
redeemed.
6
<PAGE>
(5) From and after the redemption date, any and all rights of
whatever nature which may be held by the owners of shares selected for
redemption (including without limitation any rights to vote or
participate in dividends declared on stock of the same class or series
as such shares) shall cease and terminate and such owners shall
thenceforth be entitled only to receive the cash or redemption
securities payable upon redemption; and
(6) The redemption shall be on such other terms and conditions as
the board of directors shall determine.
(f) Notwithstanding any other provisions of the certificate of
incorporation or bylaws of the corporation, affirmative vote of at least 75% of
the outstanding voting stock which is not owned by any excess shares owner shall
be required to amend, alter, change, repeal, or adopt any provisions
inconsistent with, the provisions of this Article XI.
THIRD: That thereafter, pursuant to resolution of the Board of
Directors, at least a majority of the outstanding stock of the Corporation
entitled to vote thereon, acting at a meeting of stockholders of the Corporation
at which a quorum was present in accordance with the General Corporation Law of
the State of Delaware, duly approved the aforesaid amendment to the Restated
Certificate of Incorporation of the Corporation.
FOURTH: That the aforesaid amendment to the Restated Certificate of
Incorporation of the Corporation was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
7
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment of Restated Certificate of Incorporation of the Corporation to be duly
executed and acknowledged in accordance with Section 103 of the General
Corporation Law of the State of Delaware on this 7th day of July, 1999.
eGLOBE, INC.
By: /s/ Christopher J. Vizas
--------------------------
Name: Christopher J. Vizas
Title: Chairman of the Board and
Chief Executive Officer
EXHIBIT 4.2
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES H CONVERTIBLE PREFERRED STOCK
OF
eGLOBE, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the
authority contained in Article IV of the Restated Certificate of Incorporation
of eGlobe, Inc., a Delaware corporation (the "Corporation"), and in accordance
with Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation has authorized the creation of Series H
Convertible Preferred Stock having the designations, rights and preferences as
are set forth in Exhibit A hereto and made a part hereof and that the following
resolution was duly adopted by the Board of Directors of the Corporation:
RESOLVED, that a series of authorized Preferred
Stock, par value $.001 per share, of the Corporation be, and it hereby
is, created; that the shares of such series shall be, and they hereby
are, designated as "Series H Convertible Preferred Stock;" that the
number of shares constituting such series shall
<PAGE>
be, and it hereby is, 500,000; and that the designations, rights and
preferences of the shares of such series are as set forth in Exhibit A
attached hereto and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and Chief
Executive Officer and attested to by its Secretary this 3rd day of August, 1999.
eGLOBE, INC.
By: /s/ Christopher J. Vizas
--------------------------------------------
[SEAL] Name: Christopher J. Vizas
Title: President and Chief Executive Officer
ATTEST:
/s/ Graeme S.R. Brown
- ------------------------------------
Name: Graeme S.R. Brown
Title: Assistant Secretary
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<PAGE>
EXHIBIT A
SERIES H CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and
preferences, and the qualifications, limitations and restrictions thereof, of
the Corporation's Series H Convertible Preferred Stock, par value $.001 per
share ("Series H Preferred").
Capitalized terms used herein are defined in Section 6 below.
Section 1. Voting Rights.
Except as otherwise provided herein or as required by law, the
Series H Preferred shall vote with the shares of the Common Stock of the
Corporation (and each other class of stock so voting), and not as a separate
class, at any annual or special meeting of stockholders of the Corporation, and
may act by written consent in the same manner as the Common Stock, in either
case upon the following basis: each holder of shares of Series H Preferred shall
be entitled to such number of votes as shall be equal to 25% of the number of
shares of Common Stock into which such holder's aggregate number of shares of
Series H Preferred are convertible pursuant to Section 5 below immediately after
the close of business on the record date fixed for such meeting or the effective
date of such written consent, rounded up to the nearest whole number.
Section 2. No Redemption.
Series H Preferred shall not be redeemable.
Section 3. Dividend Rights.
Except as otherwise provided herein or as required by law,
holders of Series H Preferred shall be entitled to receive dividends only when
and as declared by the Corporation's Board of Directors with respect to Series H
Preferred, only out of funds that are legally available therefor and only in the
event that the Corporation at the same time declares or pays any dividends upon
the Common Stock (whether payable in cash, securities or other property). In the
event that the Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) on or prior to the
Adjustment Date, other than dividends payable solely in shares of Common Stock,
the Corporation shall also declare and pay to the holders of the Series H
Preferred, at the same time that it declares and pays such dividends to the
holders of the Common Stock, the dividends which would have been declared and
paid with respect to the Common Stock issuable upon conversion of the Series H
Preferred had all of the outstanding Series H Preferred been converted
immediately prior to the record date for such
<PAGE>
dividend, or if no record date is fixed, the date as of which the record holders
of Common Stock entitled to such dividends are to be determined.
Section 4. Liquidation Rights.
Upon any Liquidation, after the payment of the full
liquidation preference of any series of preferred stock senior to the Series H
Preferred, the holders of Series H Preferred shall be entitled to participate in
distributions to holders of the Common Stock (along with each other class of
stock with similar rights) such that the holders of Series H Preferred receive
aggregate distributions equal to the amounts that such holders would have
received if the Series H Preferred Stock had been converted into Common Stock
immediately prior to such Liquidation.
Section 5. Conversion.
The holders of the Series H Preferred shall have the following
rights with respect to the conversion of the Series H Preferred into shares of
Common Stock:
5A. Series H Conversion Rate.
(i) Conversion Rate Formula. The conversion rate in
effect at any time for conversion of the Series H Preferred (the "Series H
Conversion Rate") shall be the product of (i) seven and a half (7.5), multiplied
by (ii) the quotient obtained by dividing $6.00 by the applicable "Series H
Market Factor" (determined as provided in Section 5B(ii)).
(ii) Series H Market Factor. The Series H Market
Factor shall mean the following: (A) if the Market Price is less than or equal
to $3.33-1/3 as of the Adjustment Date, the Series H Market Factor shall equal
$3.33-1/3; (B) if the Market Price is greater than $3.33-1/3 but less than $6.00
as of the Adjustment Date, the Series H Market Factor shall equal the Market
Price; and (C) if the Market Price is greater than or equal to $6.00 as of the
Adjustment Date, the Series H Market Factor shall equal $6.00; provided,
however, that notwithstanding clauses (A), (B) and (C) of this Section 5A(ii),
if Series H Preferred is converted prior to the Adjustment Date (whether by the
holder or automatically pursuant to 5F(i)), the Series H Market Factor shall
equal $6.00.
(iii) Adjustment. The Series H Conversion Rate shall
be subject to adjustment pursuant to Section 5C.
5B. Adjustment for Stock Splits and Combinations, Common Stock
Dividends and Distributions. If the Corporation shall at any time or from time
to time after the date of the initial issuance of Series H Preferred (the
"Original Series
-2-
<PAGE>
H Issue Date") effect a subdivision of the outstanding Common Stock, the Series
H Conversion Rate in effect immediately before that subdivision shall be
proportionately increased. Conversely, if the Corporation shall at any time or
from time to time after the Original Series H Issue Date combine the outstanding
shares of Common Stock into a smaller number of shares, the Series H Conversion
Rate in effect immediately before the combination shall be proportionately
decreased. Any adjustment under this Section 5C shall become effective at the
close of business on the date the subdivision or combination becomes effective.
If the Corporation at any time or from time to time after the
Original Series H Issue Date makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Series H
Conversion Rate that is then in effect shall be increased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Series H Conversion Rate then in effect
by a fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series H Conversion Rate shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series H Conversion Rate shall be adjusted pursuant to this
Section 5B to reflect the actual payment of such dividend or distribution.
5C. Reorganizations, Mergers or Consolidations. If at any time
or from time to time after the Original Series H Issue Date, the Common Stock is
converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such transaction, provision shall be made so that the holders of the Series H
Preferred shall thereafter be entitled to receive upon conversion of the Series
H Preferred the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled in connection with such
transaction, subject to adjustment in respect of such stock or securities by the
terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Series H Preferred after such transaction to the end that the
provisions of this Section 5 (including adjustment of the Series H Conversion
Rate then in effect and the number of shares issuable upon conversion of the
Series H Preferred) shall be applicable after that event and be as nearly
equivalent as
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<PAGE>
practicable. In the case of any reorganization, merger or consolidation in which
the Corporation is not the surviving entity, the Corporation shall not
consummate the transaction unless the entity surviving such transaction assumes
all of the Corporation's obligations hereunder.
If at any time or from time to time after the Original Series
H Issue Date, the Common Stock issuable upon the conversion of the Series H
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger or consolidation provided for elsewhere in this Section
5), in any such event each holder of Series H Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable in connection with such recapitalization,
reclassification or other change with respect to the maximum number of shares of
Common Stock into which such shares of Series H Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustments as provided herein or with respect to
such other securities or property by the terms thereof.
5D. Notices.
(i) Immediately upon any adjustment of the Series H
Conversion Rate, the Corporation shall give written notice thereof to all
holders of Series H Preferred, setting forth in reasonable detail and certifying
the calculation of such adjustment.
(ii) Upon (A) any taking by the Corporation of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
or (B) any reorganization, any reclassification or recapitalization of the
capital stock of the Corporation, any merger or consolidation of the Corporation
with or into any other corporation, or any Liquidation, the Corporation shall
mail to each holder of Series H Preferred at least twenty (20) days prior to the
record date specified therein a notice specifying (1) the date on which any such
record is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger or Liquidation
is expected to become effective, and (3) the date, if any, that is to be fixed
for determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger or Liquidation.
5E. Automatic Conversion. Each share of Series H Preferred
shall automatically be converted into shares of Common Stock, based on the
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<PAGE>
then-effective Series H Conversion Rate, on the earliest to occur of (i) the
first date as of which the Market Price is $6.00 or more for any 15 consecutive
trading days during any period in which Series H Preferred is outstanding and
(ii) the Adjustment Date. The number of shares of Common Stock to which a holder
of Series H Preferred shall be entitled upon conversion shall be the product
obtained by multiplying the "Series H Conversion Rate" then in effect
(determined as provided in Section 5A) by the number of shares of Series H
Preferred being converted.
5F. Mechanics of Conversion. Upon the occurrence of the event
specified in Section 5E, the outstanding shares of Series H Preferred shall be
converted into Common Stock automatically without any further action by the
holders of such shares and whether or not the certificates representing such
shares are surrendered to the Corporation or its transfer agent; provided,
however, that the Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series H Preferred are either delivered
to the Corporation or its transfer agent as provided below, or the holder
notifies the Corporation or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series H Preferred at the office of
the Corporation or any transfer agent for the Series H Preferred, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series H Preferred surrendered were convertible on the date on which such
automatic conversion occurred. Until surrendered as provided above, each
certificate formerly representing shares of Series H Preferred shall be deemed
for all corporate purposes to represent the number of shares of Common Stock
resulting from such automatic conversion.
5G. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series H Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series H Preferred by a holder thereof shall be aggregated for purposes
of determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion. Notwithstanding the foregoing, in the event that any
holder converts shares of Series H Preferred ten times within any one year
period, the Corporation shall not be obligated to pay any cash amount for
fractional shares upon any subsequent conversion(s) by such holder during such
year, but may withhold the
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<PAGE>
fractional share(s) and aggregate such fractional share(s) with any additional
fractional share(s) issuable to such holder during such year, and pay the cash
(if any) required by this section for any fractional shares remaining after such
aggregation at the end of such year.
5H. Reservation of Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the shares of
Series H Preferred, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Series H Preferred. All shares of Common Stock which are so issuable shall, when
issued, be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges. If at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then-outstanding shares of the Series H Preferred, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
5I. Payment of Taxes. The issuance of certificates for shares
of Common Stock upon conversion of Series H Preferred shall be made without
charge to the holders of such Series H Preferred for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common Stock, excluding any tax
or other charge imposed in connection with any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in which the
shares of Series H Preferred so converted were registered.
Section 6. Definitions.
"Adjustment Date" means January 31, 2000.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or any similar successor
organization.
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<PAGE>
"Common Stock" means, collectively, the Corporation's common
stock, par value $.001 per share; and if there is a change such that the
securities issuable upon conversion of Series H Preferred are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" shall mean the shares of
the security issuable upon conversion of Series H Preferred if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Corporation" means eGlobe, Inc. a Delaware corporation.
"IDX" means IDX International, Inc., a Virginia corporation.
"Liquidation" means the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary; provided, however, that
neither the consolidation or merger of the Corporation into or with any other
entity or entities, nor the sale or transfer by the Corporation of all or any
part of its assets, nor the reduction of the capital stock of the Corporation,
shall be deemed to be a Liquidation.
"Market Price" means (i) if the Common Stock is listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the period of 15 consecutive trading days
consisting of the day as of which the Market Price is being determined and the
14 consecutive trading days prior to such day (the "Pricing Period"), the
Closing Price of the Common Stock averaged over the 15 consecutive trading days
constituting the Pricing Period, or (ii) if the Common Stock is not listed on
any securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the Pricing Period, the fair value of the
Common Stock determined by agreement between the Corporation and the holders of
a majority of the outstanding Series H Preferred or, if they are unable to reach
agreement within a reasonable period of time, the fair value of the Common Stock
as determined by an independent appraiser selected by the Corporation (which
appraiser may be the Corporation's investment banker, and the fees and expenses
of such appraiser shall be borne by the Corporation), which determination shall
be final and binding upon the Corporation and the holders of the outstanding
Series H Preferred.
"Series H Preferred" means the Corporation's Series H
Convertible Preferred Stock, par value $.001 per share.
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<PAGE>
Section 7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or
provisions of the Series H Preferred shall be binding or effective without the
prior approval (by vote or written consent) of the holders of a majority of the
Series H Preferred then outstanding. Any amendment, modification or waiver of
any of the terms or provisions of the Series H Preferred with such approval,
whether prospective or retroactively effective, shall be binding upon all
holders of Series H Preferred.
Section 8. Registration of Transfer.
The Corporation shall keep at its principal office a register
for the registration of Series H Preferred. Upon the surrender of any
certificate representing Series H Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Series H Preferred
shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such number of Series H
Preferred shares as is requested by the holder of the surrendered certificate
and shall be substantially identical in form to the surrendered certificate.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series H Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor, its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Series H Preferred shares
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 10. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written
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<PAGE>
verification of receipt. All notices shall be addressed (i) if to the
Corporation, to its principal executive offices, and (ii) if to stockholders, to
each holder of record at the address of such holder appearing on the books of
the Corporation.
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EXHIBIT 4.3
CERTIFICATE OF DESIGNATIONS,
RIGHTS AND PREFERENCES
OF
SERIES I CONVERTIBLE OPTIONAL
REDEMPTION PREFERRED STOCK
OF
eGLOBE, INC.
- --------------------------------------------------------------------------------
Pursuant to Section 151
of the General Corporation Law
of the State of Delaware
- --------------------------------------------------------------------------------
The undersigned DOES HEREBY CERTIFY that, pursuant to the
authority contained in Article IV of the Restated Certificate of Incorporation
of eGlobe, Inc., a Delaware corporation (the "Corporation"), and in accordance
with Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation has authorized the creation of Series I
Convertible Optional Redemption Preferred Stock having the designations, rights
and preferences as are set forth in Exhibit A hereto and made a part hereof and
that the following resolution was duly adopted by the Board of Directors of the
Corporation:
RESOLVED, that a series of authorized Preferred
Stock, par value $.001 per share, of the Corporation be, and it hereby
is, created; that the shares of such series shall be, and they hereby
are, designated as "Series I Convertible Optional
<PAGE>
Redemption Preferred Stock;" that the number of shares constituting
such series shall be, and it hereby is, 400,000; and that the
designations, rights and preferences of the shares of such series are
as set forth in Exhibit A attached hereto and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate to be signed by its President and Chief
Executive Officer and attested to by its Secretary this 3rd day of August, 1999.
eGLOBE, INC.
By: /s/ Christopher J. Vizas
-------------------------------------------
[SEAL] Name: Christopher J. Vizas
Title: President and Chief Executive Officer
ATTEST:
/s/ Graeme S.R. Brown
- --------------------------------------------
Name: Graeme S.R. Brown
Title: Assistant Secretary
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<PAGE>
EXHIBIT A
SERIES I CONVERTIBLE PREFERRED STOCK
The following sections set forth the powers, rights and preferences,
and the qualifications, limitations and restrictions thereof, of the
Corporation's Series I Convertible Preferred Stock, par value $.001 per share
("Series I Preferred"). Capitalized terms used herein are defined in Section 6
below.
Section 1. Voting Rights.
Except as otherwise provided herein or as required by law, the Series I
Preferred shall have no voting rights.
Section 2. Redemption. The shares of Series I Preferred shall be
subject to redemption, as follows.
2A. Redemption Rights. At the option of the Corporation, in
its sole discretion,
(i) Up to 150,000 shares of Series I Preferred (the "First
Redemption Shares") on a pro rata basis from the holders of the Series I
Preferred (based upon the aggregate number of shares of Series I Preferred held
by such holders) shall be subject to redemption at any time prior to February
14, 2000 (the "First Redemption Period").
(ii) All shares of Series I Preferred other than the First
Redemption Shares (the "Second Redemption Shares") shall be subject to
redemption at any time prior to July 17, 2000 (the "Second Redemption Period"
and together with the First Redemption Period, the "Redemption Periods"). Any
such redemption shall be on a pro rata basis from the holders of the Series I
Preferred based upon the aggregate number of shares of Series I Preferred held
by such holders.
The shares of the Series I Preferred may be redeemed, in whole or in part, at
the option of the Corporation at a redemption price (the "Redemption Price") per
share equal to $10 (the "Current Amount") plus an amount equal to the Current
Amount times an 8% annual interest rate calculated from December 2, 1998 through
the date on which redemption takes place (the "Redemption Date"). The Redemption
Price is payable in (i) cash, (ii) by delivery of shares of Common Stock, valued
at the Market Price or (iii) a combination thereof.
<PAGE>
2B. Redemption Mechanics. The Corporation shall give a
redemption notice (the "Redemption Notice") on or prior to the final day of the
relevant Redemption Periods (i) by certified mail, postage prepaid, (ii) by a
nationally known overnight delivery service or (iii) delivered by hand,
addressed to each holder of record of shares of Series I Preferred, notifying
such holder of the redemption and specifying the Redemption Price applicable to
the Series I Preferred, the Redemption Date and the place where said Redemption
Price shall be payable. The Redemption Notice shall be addressed to each holder
at his address as shown by the records of the Corporation. On or after the
Redemption Date fixed in such Redemption Notice, each holder of shares of Series
I Preferred to be so redeemed shall present and surrender the certificate or
certificates for such shares to the Corporation at the place designated in said
notice and thereupon the Redemption Price of such shares shall be paid to, or to
the order of, the Person whose name appears on such certificate or certificates
as the owner thereof. From and after the close of business on the Redemption
Date, unless there shall have been a default in the payment of the Redemption
Price upon surrender of a certificate or certificates representing shares of
Series I Preferred to be redeemed, all rights of holders of shares of Series I
Preferred subject to redemption on the Redemption Date (except the right to
receive the Redemption Price upon surrender of a certificate or certificates
representing shares of Series I Preferred to be redeemed, but without interest)
shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever.
Section 3. Dividend Rights.
Except as otherwise provided herein or as required by law, holders of
Series I Preferred shall be entitled to receive dividends only when and as
declared by the Corporation's Board of Directors with respect to Series I
Preferred, only out of funds that are legally available therefor and only in the
event that the Corporation at the same time declares or pays any dividends upon
the Common Stock (whether payable in cash, securities or other property). In the
event that the Corporation declares or pays any dividends upon the Common Stock
(whether payable in cash, securities or other property) on or prior to the
Redemption Date or Conversion Date (as defined below), other than dividends
payable solely in shares of Common Stock, the Corporation shall also declare and
pay to the holders of the Series I Preferred, at the same time that it declares
and pays such dividends to the holders of the Common Stock, the dividends which
would have been declared and paid with respect to the Common Stock issuable upon
conversion of the Series I Preferred had all of the outstanding Series I
Preferred been converted immediately prior to the record date for such dividend,
or if no record date is fixed, the date as of which the record holders of Common
Stock entitled to such dividends are to be determined.
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<PAGE>
Section 4. Liquidation Rights.
Upon any Liquidation, after the payment of the full liquidation
preference of any series of preferred stock senior to the Series I Preferred,
the holders of Series I Preferred shall be entitled to participate in
distributions to holders of the Common Stock (along with each other class of
stock with similar rights) such that the holders of Series I Preferred receive
aggregate distributions equal to the amounts that such holders would have
received if the Series I Preferred Stock had been converted into Common Stock
immediately prior to such Liquidation.
Section 5. Conversion.
5A. Automatic Conversion.
(i) All First Redemption Shares not redeemed by the
Corporation prior to the First Redemption Date shall automatically be converted
into shares of Common Stock on February 14, 2000 (the "First Conversion Date").
(ii) Each Second Redemption Share not redeemed by the
Corporation prior to the Second Redemption Date shall automatically be converted
into shares of Common Stock on July 17, 2000 (the "Second Conversion Date" and
together with the First Conversion Date, the "Conversion Date"). The number of
shares of Common Stock to which a holder of Series I Preferred shall be entitled
upon conversion shall be the product obtained by multiplying the "Series I
Conversion Rate" then in effect (determined as provided in 5B) by the number of
shares of Series I Preferred being converted.
(iii) Notwithstanding the foregoing, the Series I Preferred
may be converted into a maximum of 3,900,000 shares of Common Stock, and from
and after issuance of such number of shares of Common Stock upon conversion of
the Series I Preferred, all shares of the Series I Preferred shall cease to be
convertible (a "Cessation of Conversion Event"). Following the Cessation of
Conversion Event, the Corporation shall redeem all then outstanding shares of
Series I Preferred (on the applicable Conversion Date) for an amount equal to
the Redemption Price.
5B. Conversion Rate Formula. The conversion rate in effect
at any time for conversion of the Series I Preferred (the "Series I Conversion
Rate") shall equal (1) $10 plus an amount equal to the Current Amount times an
8% annual interest rate calculated from December 2, 1998 through the Conversion
Date, divided by (2) the greater of the Market Price of the Common Stock on the
date of conversion and $2.00. The Series I Conversion Rate shall be adjusted to
the extent required by Section 5A(iii). The Series I Conversion Rate shall be
subject to adjustment pursuant to Section 5C.
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<PAGE>
5C. Adjustment for Stock Splits and Combinations, Common
Stock Dividends and Distributions. If the Corporation shall at any time or from
time to time after the date of the initial issuance of Series I Preferred (the
"Original Series I Issue Date") effect a subdivision of the outstanding Common
Stock, the Series I Conversion Rate in effect immediately before that
subdivision shall be proportionately increased. Conversely, if the Corporation
shall at any time or from time to time after the Original Series I Issue Date
combine the outstanding shares of Common Stock into a smaller number of shares,
the Series I Conversion Rate in effect immediately before the combination shall
be proportionately decreased. Any adjustment under this Section 5C shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
If the Corporation at any time or from time to time after the
Original Series I Issue Date makes, or fixes a record date for the determination
of holders of Common Stock entitled to receive, a dividend or other distribution
payable in additional shares of Common Stock, in each such event the Series I
Conversion Rate that is then in effect shall be increased as of the time of such
issuance or, in the event such record date is fixed, as of the close of business
on such record date, by multiplying the Series I Conversion Rate then in effect
by a fraction (1) the numerator of which is the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date plus the number of shares of Common
Stock issuable in payment of such dividend or distribution, and (2) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date; provided, however, that if such record date is
fixed and such dividend is not fully paid or if such distribution is not fully
made on the date fixed therefor, the Series I Conversion Rate shall be
recomputed accordingly as of the close of business on such record date and
thereafter the Series I Conversion Rate shall be adjusted pursuant to this
Section 5C to reflect the actual payment of such dividend or distribution.
5D. Reorganizations, Mergers or Consolidations. If at any
time or from time to time after the Original Series I Issue Date, the Common
Stock is converted into other securities or property, whether pursuant to a
reorganization, merger, consolidation or otherwise (other than a
recapitalization, subdivision, combination, reclassification, exchange or
substitution of shares provided for elsewhere in this Section 5), as a part of
such transaction, provision shall be made so that the holders of the Series I
Preferred shall thereafter be entitled to receive upon conversion of the Series
I Preferred the number of shares of stock or other securities or property of the
Corporation to which a holder of the number of shares of Common Stock
deliverable upon conversion would have been entitled in connection with such
transaction, subject to adjustment in respect of such stock or securities by the
terms thereof. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 5 with respect to the rights of
the holders of Series I Preferred after such transaction to the end that the
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<PAGE>
provisions of this Section 5 (including adjustment of the Series I Conversion
Rate then in effect and the number of shares issuable upon conversion of the
Series I Preferred) shall be applicable after that event and be as nearly
equivalent as practicable. In the case of any reorganization, merger or
consolidation in which the Corporation is not the surviving entity, the
Corporation shall not consummate the transaction unless the entity surviving
such transaction assumes all of the Corporation's obligations hereunder.
If at any time or from time to time after the Original Series
I Issue Date, the Common Stock issuable upon the conversion of the Series I
Preferred is changed into the same or a different number of shares of any class
or classes of stock, whether by recapitalization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend or a
reorganization, merger or consolidation provided for elsewhere in this Section
5), in any such event each holder of Series I Preferred shall have the right
thereafter to convert such stock into the kind and amount of stock and other
securities and property receivable in connection with such recapitalization,
reclassification or other change with respect to the maximum number of shares of
Common Stock into which such shares of Series I Preferred could have been
converted immediately prior to such recapitalization, reclassification or
change, all subject to further adjustments as provided herein or with respect to
such other securities or property by the terms thereof.
5E. Notices.
(i) Immediately upon any adjustment of the Series I Conversion
Rate, the Corporation shall give written notice thereof to all holders of Series
I Preferred, setting forth in reasonable detail and certifying the calculation
of such adjustment.
(ii) Upon (A) any taking by the Corporation of a record of the
holders of any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or (B)
any reorganization, any reclassification or recapitalization of the capital
stock of the Corporation, any merger or consolidation of the Corporation with or
into any other corporation, or any Liquidation, the Corporation shall mail to
each holder of Series I Preferred at least twenty (20) days prior to the record
date specified therein a notice specifying (1) the date on which any such record
is to be taken for the purpose of such dividend or distribution and a
description of such dividend or distribution, (2) the date on which any such
reorganization, reclassification, transfer, consolidation, merger or Liquidation
is expected to become effective, and (3) the date, if any, that is to be fixed
for determining the holders of record of Common Stock (or other securities) that
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such reorganization,
reclassification, transfer, consolidation, merger or Liquidation.
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<PAGE>
5F. Mechanics of Conversion. Upon the occurrence of the
applicable event specified in Section 5A, the outstanding shares of Series I
Preferred shall be converted into Common Stock automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; provided, however, that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless the certificates evidencing such shares of Series I Preferred are either
delivered to the Corporation or its transfer agent as provided below, or the
holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates. Upon surrender by any holder of the
certificates formerly representing shares of Series I Preferred at the office of
the Corporation or any transfer agent for the Series I Preferred, there shall be
issued and delivered to such holder promptly at such office and in its name as
shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
Series I Preferred surrendered were convertible on the date on which such
automatic conversion occurred. Until surrendered as provided above, each
certificate formerly representing shares of Series I Preferred shall be deemed
for all corporate purposes to represent the number of shares of Common Stock
resulting from such automatic conversion.
5G. Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of Series I Preferred. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Series I Preferred by a holder thereof shall be aggregated for purposes
of determination whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of any fractional share, the Corporation shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board)
on the date of conversion. Notwithstanding the foregoing, in the event that any
holder converts shares of Series I Preferred ten times within any one year
period, the Corporation shall not be obligated to pay any cash amount for
fractional shares upon any subsequent conversion(s) by such holder during such
year, but may withhold the fractional share(s) and aggregate such fractional
share(s) with any additional fractional share(s) issuable to such holder during
such year, and pay the cash (if any) required by this section for any fractional
shares remaining after such aggregation at the end of such year.
5H. Reservation of Shares. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon the conversion of the shares of
Series
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<PAGE>
I Preferred, such number of shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series I
Preferred. All shares of Common Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of all
then-outstanding shares of the Series I Preferred, the Corporation will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
5I. Payment of Taxes. The issuance of certificates for shares
of Common Stock upon conversion of Series I Preferred shall be made without
charge to the holders of such Series I Preferred for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Common Stock, excluding any tax
or other charge imposed in connection with any transfer involved in the issue
and delivery of shares of Common Stock in a name other than that in which the
shares of Series I Preferred so converted were registered.
Section 6. Definitions.
"Closing Price" of each share of Common Stock or other
security means the composite closing price of the sales of the Common Stock or
such other security on all securities exchanges on which such security may at
the time be listed (as reported in The Wall Street Journal), or, if there has
been no sale on any such exchange on any day, the average of the highest bid and
lowest asked prices of the Common Stock or such other security on all such
exchanges at the end of such day, or, if such security is not so listed, the
closing price (or last price, if applicable) of sales of the Common Stock or
such other security in the Nasdaq National Market (as reported in The Wall
Street Journal) on such day, or if such security is not quoted in the Nasdaq
National Market but is traded over-the-counter, the average of the highest bid
and lowest asked prices on such day in the over-the-counter market as reported
by the National Quotation Bureau Incorporated, or any similar successor
organization.
"Common Stock" means, collectively, the Corporation's common
stock, par value $.001 per share; and if there is a change such that the
securities issuable upon conversion of Series I Preferred are issued by an
entity other than the Corporation or there is a change in the class of
securities so issuable, then the term "Common Stock" shall mean the shares of
the security issuable upon conversion of Series I Preferred if such security is
issuable in shares, or shall mean the smallest unit in which such security is
issuable if such security is not issuable in shares.
"Corporation" means eGlobe, Inc. a Delaware corporation.
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<PAGE>
"Liquidation" means the liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary; provided, however, that
neither the consolidation or merger of the Corporation into or with any other
entity or entities, nor the sale or transfer by the Corporation of all or any
part of its assets, nor the reduction of the capital stock of the Corporation,
shall be deemed to be a Liquidation.
"Market Price" means (i) if the Common Stock is listed on any
securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the period of 15 consecutive trading days
immediately prior to the Conversion Date (the "Pricing Period"), the Closing
Price of the Common Stock averaged over the 15 consecutive trading days
constituting the Pricing Period, or (ii) if the Common Stock is not listed on
any securities exchange, quoted in the Nasdaq National Market, or quoted in the
over-the-counter market throughout the Pricing Period, the fair value of the
Common Stock determined by agreement between the Corporation and the holders of
a majority of the outstanding Series I Preferred or, if they are unable to reach
agreement within a reasonable period of time, the fair value of the Common Stock
as determined by an independent appraiser selected by the Corporation (which
appraiser may be the Corporation's investment banker, and the fees and expenses
of such appraiser shall be borne by the Corporation), which determination shall
be final and binding upon the Corporation and the holders of the outstanding
Series I Preferred.
"Series I Preferred" means the Corporation's Series I
Convertible Preferred Stock, par value $.001 per share.
Section 7. Amendment and Waiver.
No amendment, modification or waiver of any of the terms or
provisions of the Series I Preferred shall be binding or effective without the
prior approval (by vote or written consent) of the holders of a majority of the
Series I Preferred then outstanding. Any amendment, modification or waiver of
any of the terms or provisions of the Series I Preferred with such approval,
whether prospective or retroactively effective, shall be binding upon all
holders of Series I Preferred.
Section 8. Registration of Transfer.
The Corporation shall keep at its principal office a register
for the registration of Series I Preferred. Upon the surrender of any
certificate representing Series I Preferred at such place, the Corporation
shall, at the request of the record holder of such certificate, execute and
deliver (at the Corporation's expense) a new certificate or certificates in
exchange therefor representing in the aggregate the number of Series I Preferred
shares represented by the surrendered certificate. Each such new certificate
shall be registered in such name and shall represent such
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<PAGE>
number of Series I Preferred shares as is requested by the holder of the
surrendered certificate and shall be substantially identical in form to the
surrendered certificate.
Section 9. Replacement.
Upon receipt of evidence reasonably satisfactory to the
Corporation (an affidavit of the registered holder shall be satisfactory) of the
ownership and the loss, theft, destruction or mutilation of any certificate
evidencing shares of Series I Preferred, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor, its own agreement shall be satisfactory), or, in the
case of any such mutilation upon surrender of such certificate, the Corporation
shall (at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of Series I Preferred shares
represented by such lost, stolen, destroyed or mutilated certificate and dated
the date of such lost, stolen, destroyed or mutilated certificate.
Section 10. Notices.
Except as otherwise expressly provided hereunder, all notices
referred to herein shall be in writing and shall be deemed effectively given:
(i) upon personal delivery to the party to be notified, (ii) when sent by
confirmed telex or facsimile if sent during normal business hours of the
recipient; if not, then on the next business day, (iii) five (5) days after
having been sent by registered or certified mail, return receipt requested,
postage prepaid, or (iv) one (1) day after deposit with a nationally recognized
overnight courier, specifying next day delivery, with written verification of
receipt. All notices shall be addressed (i) if to the Corporation, to its
principal executive offices, and (ii) if to stockholders, to each holder of
record at the address of such holder appearing on the books of the Corporation.
-9-
EXHIBIT 4.4
CERTIFICATE OF ELIMINATION
OF
eGLOBE, INC.
eGlobe, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of the
Corporation, resolutions were duly adopted setting forth the proposed
elimination of the Series A Participation Preferred Stock as set forth herein:
RESOLVED, that, no authorized shares of Series A Participation
Preferred Stock (the "Series A Preferred Stock") are outstanding and
none of such authorized shares will be issued subject to the
certificate of designations previously filed with respect to the Series
A Preferred Stock;
RESOLVED FURTHER, that, the Board hereby authorizes, empowers,
and directs, in the name and on behalf of the Corporation, the officers
of the Corporation, or any one or more of them, to, pursuant to Section
151(g) of the Delaware General Corporation Law, execute and file a
Certificate of Elimination with the Secretary of State of the State of
Delaware which shall have the effect when filed with the Secretary of
State of the State of Delaware of eliminating from the Corporation's
Restated Certificate of Incorporation all matters set forth in the
certificate of designations with respect to the Series A Preferred
Stock.
SECOND: None of the authorized shares of the Series A
Participation Preferred Stock are outstanding and none will be issued.
THIRD: In accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, all references to the Series A
Participation Preferred Stock in the Restated Certificate of Incorporation are
hereby eliminated.
<PAGE>
IN WITNESS WHEREOF, said eGlobe, Inc. has caused this
certificate to be signed by Christopher J. Vizas, its Chairman of the Board of
Directors and Chief Executive Officer, this 3rd day of August, 1999.
eGLOBE, INC.
By: /s/ Christopher J. Vizas
------------------------------------------
Christopher J. Vizas
Chairman of the Board of
Directors and Chief Executive Officer
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
EGLOBE, INC.,
EGLOBE MERGER SUB NO. 3, INC.,
SWIFTCALL EQUIPMENT AND SERVICES (USA) INC.,
SWIFTCALL HOLDINGS (USA) LTD.,
AND
ANDVILLE TECHNOLOGY (IRL) LIMITED
Dated as of the 12th day of July, 1999
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TABLE OF CONTENTS
<S> <C>
AGREEMENT AND PLAN OF MERGER.................................................1
ARTICLE I. THE MERGER.......................................................1
SECTION 1.1. THE MERGER......................................................1
SECTION 1.2. EFFECTIVE TIME..................................................1
SECTION 1.3. EFFECT OF THE MERGER............................................2
SECTION 1.4. ARTICLES OF INCORPORATION, BYLAWS...............................2
SECTION 1.5. DIRECTORS AND OFFICERS..........................................2
SECTION 1.6. CLOSING.........................................................2
SECTION 1.7. SUBSEQUENT ACTIONS.............................................2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES...............3
SECTION 2.1. CONVERSION OF SECURITIES........................................3
SECTION 2.2. DELIVERY OF CERTIFICATES........................................4
SECTION 2.3. STOCK TRANSFER BOOKS............................................4
SECTION 2.4. RELEASE OF STOCKHOLDER AND AFFILIATE DEBT.......................4
ARTICLE III REPRESENTATIONS AND WARRANTIES OF SWIFTCALL E&S AND
THE STOCKHOLDER AND THE AFFILIATE...............................5
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES....................5
SECTION 3.2. ARTICLES OF INCORPORATION AND BYLAWS............................6
SECTION 3.3. CAPITALIZATION..................................................6
SECTION 3.4. AUTHORITY.......................................................6
SECTION 3.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS......................7
SECTION 3.6. FINANCIAL STATEMENTS............................................8
SECTION 3.7. ACCOUNTS RECEIVABLE.............................................9
SECTION 3.8. OWNERSHIP AND CONDITION OF THE ASSETS...........................9
SECTION 3.9. LEASES.........................................................10
SECTION 3.10. OTHER AGREEMENTS..............................................11
SECTION 3.11. REAL PROPERTY.................................................12
SECTION 3.12. ENVIRONMENTAL MATTERS.........................................13
SECTION 3.13. LITIGATION....................................................14
SECTION 3.14. COMPLIANCE WITH LAWS; LICENSES AND PERMITS....................14
SECTION 3.15. INTELLECTUAL PROPERTY.........................................14
SECTION 3.16. TAXES AND ASSESSMENTS.........................................16
SECTION 3.17. EMPLOYMENT MATTERS............................................18
SECTION 3.18. TRANSACTIONS WITH RELATED PARTIES.............................19
SECTION 3.19. INSURANCE.....................................................19
SECTION 3.20. VOTING REQUIREMENTS...........................................20
SECTION 3.21. BROKERS.......................................................20
SECTION 3.22. COMPLIANCE WITH FOREIGN CORRUPT PRACTICES ACT.................20
SECTION 3.23. DISCLOSURE....................................................20
</TABLE>
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ARTICLE IV ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE
STOCKHOLDER AND THE AFFILIATE...................................20
SECTION 4.1. TITLE TO SWIFTCALL E&S STOCK...................................21
SECTION 4.2. NO REGISTRATION UNDER THE SECURITIES ACT.......................21
SECTION 4.3. ACQUISITION FOR INVESTMENT.....................................21
SECTION 4.4. EVALUATION OF MERITS AND RISKS OF INVESTMENT...................21
ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR.......................22
SECTION 5.1. ORGANIZATION AND QUALIFICATION.................................22
SECTION 5.2. CERTIFICATE OF INCORPORATION AND BYLAWS........................22
SECTION 5.3. CAPITALIZATION.................................................22
SECTION 5.4. AUTHORITY......................................................23
SECTION 5.5. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.....................23
SECTION 5.6. FINANCIAL STATEMENTS...........................................24
SECTION 5.7. ABSENCE OF CERTAIN CHANGES OR EVENTS...........................24
SECTION 5.8. AGREEMENTS.....................................................24
SECTION 5.9. LITIGATION.....................................................25
SECTION 5.10. TAXES AND ASSESSMENTS.........................................25
SECTION 5.11. BROKERS.......................................................25
SECTION 5.12. DISCLOSURE....................................................25
ARTICLE VI REPRESENTATIONS AND WARRANTIES OF MERGER SUB....................26
SECTION 6.1. ORGANIZATION AND QUALIFICATION.................................26
SECTION 6.2. ARTICLES OF INCORPORATION AND BYLAWS...........................26
SECTION 6.3. AUTHORITY. 26
SECTION 6.4. NO CONFLICT; REQUIRED FILINGS AND CONSENTS.....................27
SECTION 6.5. DISCLOSURE.................................................... 27
ARTICLE VII COVENANTS..................................................... 27
SECTION 7.1. AFFIRMATIVE COVENANTS OF SWIFTCALL E&S AND THE
STOCKHOLDER AND THE AFFILIATE..................................27
SECTION 7.2. NEGATIVE COVENANTS OF SWIFTCALL E&S AND THE
STOCKHOLDER AND THE AFFILIATE..................................28
ARTICLE VIII ADDITIONAL AGREEMENTS.........................................30
SECTION 8.1. PREPARATION OF THE REGISTRATION STATEMENTS....................30
SECTION 8.2. CONSENTS AND APPROVALS; FILINGS AND NOTICES....................30
SECTION 8.3. ACCESS AND INFORMATION.........................................31
SECTION 8.4. CONFIDENTIALITY................................................31
SECTION 8.5. FURTHER ACTION; REASONABLE BEST EFFORTS........................32
SECTION 8.6. PUBLIC ANNOUNCEMENTS...........................................32
SECTION 8.7. NO SOLICITATION................................................32
SECTION 8.8. STOCK LISTING..................................................32
SECTION 8.9. EMPLOYEE MATTERS..............................................32
SECTION 8.10. BLUE SKY......................................................33
SECTION 8.11. ASSET TRANSFER................................................33
</TABLE>
ii
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SECTION 8.12. UPGRADE CREDITS...............................................33
SECTION 8.13. MINIMUM REVENUES..............................................33
SECTION 8.14. MAXIMUM DEBT..................................................34
SECTION 8.15. RACK SPACE....................................................34
ARTICLE IX. CLOSING CONDITIONS.............................................35
SECTION 9.1. CONDITIONS TO OBLIGATIONS OF ACQUIROR AND MERGER SUB...........35
SECTION 9.2. CONDITIONS TO OBLIGATIONS OF SWIFTCALL E&S.....................37
ARTICLE X TERMINATION, AMENDMENT AND WAIVER................................38
SECTION 10.1. TERMINATION...................................................38
SECTION 10.2. EFFECT OF TERMINATION.........................................39
SECTION 10.3. AMENDMENT.....................................................39
SECTION 10.4. WAIVER........................................................39
ARTICLE XI SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES..........39
SECTION 11.1. SURVIVAL OF REPRESENTATIONS...................................39
SECTION 11.2. AGREEMENT OF THE STOCKHOLDER AND THE AFFILIATE
TO INDEMNIFY..................................................40
SECTION 11.3. AGREEMENT OF ACQUIROR TO INDEMNIFY............................40
SECTION 11.4. CONDITIONS OF INDEMNIFICATION.................................41
SECTION 11.5 LIMITATIONS....................................................42
SECTION 11.6. SATISFACTION OF CLAIMS........................................42
SECTION 11.7. NO RECOURSE AGAINST SWIFTCALL E&S.............................43
SECTION 11.8. REMEDIES CUMULATIVE...........................................43
ARTICLE XII GENERAL PROVISIONS.............................................44
SECTION 12.1. NOTICES.......................................................44
SECTION 12.2. CERTAIN DEFINITIONS...........................................45
SECTION 12.3. HEADINGS......................................................47
SECTION 12.4. SEVERABILITY..................................................47
SECTION 12.5. ENTIRE AGREEMENT..............................................47
SECTION 12.6. SPECIFIC PERFORMANCE..........................................48
SECTION 12.7. ASSIGNMENT....................................................48
SECTION 12.8. THIRD PARTY BENEFICIARIES.....................................48
SECTION 12.9. GOVERNING LAW.................................................48
SECTION 12.10. COUNTERPARTS.................................................48
SECTION 12.11. FEES AND EXPENSES............................................48
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is
entered into this 12th day of July, 1999, by and among EGLOBE, INC., a Delaware
corporation ("Acquiror"), EGLOBE MERGER SUB NO. 3, INC., a Virginia corporation
and a wholly-owned subsidiary of Acquiror ("Merger Sub"), SWIFTCALL EQUIPMENT
AND SERVICES (USA) INC., a Virginia corporation ("Swiftcall E&S"), SWIFTCALL
HOLDINGS (USA), LTD., a Bahamian corporation ("Swiftcall Bahamas" or
"Stockholder")), and ANDVILLE TECHNOLOGY (IRL) LIMITED, a corporation duly
organized under the laws of Republic of Ireland ("Andville" or "Affiliate").
WHEREAS, the parties hereto wish to provide that, upon the
terms and subject to the conditions of this Agreement, and in accordance with
the Virginia Stock Corporation Act ("Virginia Law"), Merger Sub will merge with
and into Swiftcall E&S.
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:
ARTICLE I.
THE MERGER
SECTION 1.1. The Merger.
Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with Virginia Law, Merger Sub shall be merged with
and into Swiftcall E&S (the "Merger"). As a result of the Merger, the separate
corporate existence of Merger Sub, shall cease and Swiftcall E&S shall continue
as the surviving corporation of the Merger (the "Surviving Corporation") and
wholly owned subsidiary of Acquiror. The name of the Surviving Corporation
following the Merger shall be eGlobe Equipment and Services, Inc.
SECTION 1.2. Effective Time.
At the Closing (as defined in Section 1.6), the parties hereto
shall cause the Merger to be consummated by filing articles of merger (the
"Articles of Merger") for the Merger with the Virginia State Corporation
Commission, in such form as required by, and executed in accordance with the
relevant provisions of, Virginia Law, and in such form as approved by the
Stockholder and Acquiror prior to such filing (the date and time of the filing
and acceptance of the Articles of
<PAGE>
Merger for the Merger or such subsequent dateor time specified therein being the
"Effective Time").
SECTION 1.3. Effect of the Merger.
At the Effective Time, the effect of the Merger shall be as
provided in the applicable provisions of Virginia Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, except
as otherwise provided herein, all the property, rights, privileges, powers and
franchises of Merger Sub shall vest in the Surviving Corporation and all debts,
liabilities and duties of Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.4. Articles of Incorporation, Bylaws.
At the Effective Time, the articles of incorporation of Merger
Sub as in effect immediately prior to the Effective Time and as amended by the
Articles of Merger, shall be the articles of incorporation of the Surviving
Corporation and the bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation.
SECTION 1.5. Directors and Officers.
The directors of Merger Sub (or such other or additional
individuals as Acquiror may designate prior to the Closing) shall be the initial
directors of the Surviving Corporation, each to hold office in accordance with
the articles of incorporation and bylaws of the Surviving Corporation; and the
officers of Merger Sub shall be the initial officers of the Surviving
Corporation, in each case until their respective successors are duly elected or
appointed and qualified.
SECTION 1.6. Closing.
Subject to the terms and conditions of this Agreement, the
closing of the Merger (the "Closing") will take place as promptly as practicable
after satisfaction of the latest to occur or, if permissible, waiver of the
conditions to the Merger set forth in Article IX hereof (the "Closing Date"), at
the offices of Acquiror, 2000 Pennsylvania Avenue, NW, Suite 4800, Washington,
D.C. 20006, unless another date or place is agreed to in writing by the parties
hereto.
SECTION 1.7. Subsequent Actions.
If, at any time after the Effective Time, the Surviving
Corporation shall consider or be advised that any deeds, bills of sale,
assignments, assurances or any other actions or things are necessary or
desirable to continue in, vest, perfect or
2
<PAGE>
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties, privileges, franchises
or assets of either of its constituent corporations acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger
or otherwise to carry out this Agreement, the officers and directors of the
Surviving Corporation shall be directed and authorized to execute and deliver,
in the name and on behalf of either of such constituent corporations, all such
deeds, bills of sale, assignments and assurances and to take and do, in the name
and on behalf of each of such corporations or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in the Surviving Corporation or otherwise to
carry out this Agreement.
ARTICLE II
CONVERSION OF SECURITIES;
EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Securities.
At the Effective Time, by virtue of the Merger and without any
action on the part of the parties hereto or the holders of the following
securities:
(a) Conversion of Swiftcall E&S Stock. All of the shares of
common stock, par value $.01 per share (the "Swiftcall E&S Common Stock"), and
any other capital stock of Swiftcall E&S ("Swiftcall E&S Stock") issued and
outstanding immediately prior to the Effective Time (excluding any shares
described in Section 2.1(c)), shall be converted into and exchanged for, in the
aggregate the following (the "Purchase Price"): (i) an amount equal to
$1,645,000 (the "First Payment Amount") payable on December 3, 1999 (the "First
Payment Date") and (ii) an amount equal to $1,645,000 (the "Second Payment
Amount") payable on June 1, 2000 (the "Second Payment Date"), payable as
provided in Section 2.1(b), or in each case the Alternative Payment described in
Section 2.1(b), subject in each case to offset pursuant to Section 11.6 and to
allocation as provided in Section 2.1(e).
(b) Payment of Purchase Price. The First Payment Amount and
the Second Payment Amount shall be made, at the option of the Acquiror, in whole
or in part, (i) in cash, payable by electronic funds wire transfer, or (ii) in
stock, by issuing to the Stockholder the number of shares of common stock, par
value $.001 per share, of Acquiror ("Acquiror Common Stock"), equal to the First
Payment Amount or the Second Payment Amount, as the case may be, divided by the
Market Price (as defined below) of a share of Acquiror Common Stock (the "Stock
Equivalent Amount"); provided, however, that the Stockholder may elect, by
providing written notice of such election to Acquiror on or before November 2,
1999 (with respect to the First Payment Amount) or on or before May 1, 2000
(with respect to the Second
3
<PAGE>
Payment Amount), to receive, in lieu of the First Payment Amount or the Second
Payment Amount (whether such amount would be cash or stock or a combination
thereof), as the case may be, 226,897 shares of Acquiror Common Stock (the
"Alternative Payment"), which issuance (following such election by the
Stockholder) would be in full satisfaction of the First Payment Amount or the
Second Payment Amount, as the case may be. All amounts paid pursuant to this
Section 2.1(b) shall be subject to offset pursuant to Section 11.6.
(c) Treasury Stock. All shares of capital stock of Swiftcall
E&S held in the treasury of Swiftcall E&S immediately prior to the effective
time of the Merger shall be canceled and extinguished without any conversion
thereof and no cash, Acquiror Common Stock or other consideration shall be
delivered or deliverable in exchange therefor.
(d) Merger Sub Stock. Each share of common stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one (1) duly and
validly issued, fully paid and nonassessable share of common stock of the
Surviving Corporation.
(e) Allocation. In the event that the Transfer Assets are
transferred to the Acquiror or a subsidiary thereof (as provided in Section
8.11), the Purchase Price shall be allocated among the Transfer Assets and the
Swiftcall E&S Stock in such proportions as reasonably determined by the
Acquiror. In the event of such an allocation, all references to the Stockholder
shall (except where the context requires otherwise) be deemed to refer to the
Stockholder and the Affiliate.
SECTION 2.2. Delivery of Certificates.
At the Closing, the Stockholder shall deliver to Acquiror
certificates evidencing all of the outstanding shares of Swiftcall E&S as of the
Effective Time, duly canceled, duly endorsed in blank or with duly executed
stock powers attached.
SECTION 2.3. Stock Transfer Books.
At the Effective Time, the stock transfer books of Swiftcall
E&S with respect to all shares of capital stock of Swiftcall E&S shall be closed
and no further registration of transfers of such shares of capital stock shall
thereafter be made on the records of Swiftcall E&S.
SECTION 2.4. Release of Stockholder and Affiliate Debt.
Prior to the Effective Time, the Stockholder and the Affiliate
shall cause all indebtedness of Swiftcall E&S to the Stockholder and the
Affiliate and their affiliates to be released without any liability to or
payment by Swiftcall E&S,
4
<PAGE>
or Swiftcall E&S recognizing any income for federal or state income tax
purposes. Such release shall be in form reasonably acceptable to Acquiror.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SWIFTCALL
E&S AND THE STOCKHOLDER AND THE AFFILIATE
Swiftcall E&S and the Stockholder and the Affiliate hereby
jointly and severally represent and warrant to Acquiror and Merger Sub as
follows:
SECTION 3.1. Organization and Qualification; Subsidiaries.
(a) Swiftcall E&S is a corporation duly organized, validly
existing and in good standing under the laws of the Commonwealth of Virginia.
Swiftcall E&S has the requisite power and authority to own, operate, lease and
otherwise to hold and operate its assets and properties and to carry on its
business as now being conducted and as proposed to be conducted and to perform
the terms of this Agreement and the transactions contemplated hereby. Swiftcall
E&S is duly qualified to conduct its business, and is in good standing, in each
jurisdiction in which the character of its properties owned, operated or leased
or the nature of its activities makes such qualification necessary. Swiftcall
E&S has no subsidiaries or any equity or similar interest in any entity.
(b) Swiftcall Bahamas is a corporation duly organized, validly
existing and in good standing under the laws of the Bahamas. Swiftcall Bahamas
has the requisite power and authority to own, operate, lease and otherwise to
hold and operate its assets and properties and to carry on its business as now
being conducted and as proposed to be conducted and to perform the terms of this
Agreement and the transactions contemplated hereby. Swiftcall Bahamas is duly
qualified to conduct its business, and is in good standing, in each jurisdiction
in which the character of its properties owned, operated or leased or the nature
of its activities makes such qualification necessary.
(c) Andville is a corporation duly organized, validly existing
and in good standing under the laws of the Republic of Ireland. Andville has the
requisite power and authority to own, operate, lease and otherwise to hold and
operate its assets and properties and to carry on its business as now being
conducted and as proposed to be conducted and to perform the terms of this
Agreement and the transactions contemplated hereby. Andville is duly qualified
to conduct its business, and is in good standing, in each jurisdiction in which
the character of its properties owned, operated or leased or the nature of its
activities makes such qualification necessary.
5
<PAGE>
SECTION 3.2. Articles of Incorporation and Bylaws.
Swiftcall E&S has heretofore delivered to Acquiror a complete
and correct copy of the articles of incorporation and bylaws of Swiftcall E&S as
amended to date. Such articles of incorporation, bylaws and other organizational
or governing documents are in full force and effect. Swiftcall E&S is not in
violation of any of the provisions of its articles of incorporation or bylaws or
other organizational or governing document.
SECTION 3.3. Capitalization.
(a) The authorized capital stock of Swiftcall E&S consists of
five thousand (5,000) shares of Swiftcall E&S Common Stock, of which five
thousand (5,000) shares are issued and outstanding; all shares of the issued and
outstanding shares of Swiftcall E&S Common Stock are owned beneficially and of
record by Swiftcall Bahamas, free and clear of all Encumbrances. There are no
options, warrants or other rights, agreements, arrangements or commitments of
any character relating to the issued or unissued capital stock of Swiftcall E&S
or obligating Swiftcall E&S to issue or sell any shares of capital stock of, or
other equity interests in Swiftcall E&S including any securities directly or
indirectly convertible into or exercisable or exchangeable for any capital stock
or other equity securities of Swiftcall E&S. There are no outstanding
obligations of Swiftcall E&S to repurchase, redeem or otherwise acquire any
shares of its capital stock or make any investment (in the form of a loan,
capital contribution or otherwise) in any other person. All of the issued and
outstanding shares of Swiftcall E&S Common Stock have been duly authorized and
validly issued in accordance with applicable laws and are fully paid and
nonassessable and not subject to preemptive rights. No shares of capital stock
of Swiftcall E&S have been reserved for any purpose.
(b) Except as set forth in Schedule 3.3(b), Swiftcall E&S has
no outstanding indebtedness for borrowed money.
SECTION 3.4. Authority.
(a) The execution and delivery of this Agreement by Swiftcall
E&S and the consummation by Swiftcall E&S of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
and no other corporate proceedings on the part of Swiftcall E&S are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Swiftcall E&S and,
assuming the due authorization, execution and delivery by Acquiror and Merger
Sub, constitutes a legal, valid and binding obligation of Swiftcall E&S
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws of
6
<PAGE>
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
(b) The execution and delivery of this Agreement by the
Stockholder and the Affiliate and the consummation by the Stockholder and the
Affiliate of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Stockholder and the Affiliate are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by the Stockholder and the Affiliate and,
assuming the due authorization, execution and delivery by Acquiror and Merger
Sub, constitutes a legal, valid and binding obligation of the Stockholder and
the Affiliate enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws of general applicability relating to or
affecting creditors' rights generally and by the application of general
principles of equity.
SECTION 3.5. No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 3.5(a), the execution and
delivery of this Agreement by Swiftcall E&S do not, and the performance by
Swiftcall E&S of its obligations under this Agreement will not, (i) conflict
with or violate the articles of incorporation or bylaws of Swiftcall E&S, (ii)
conflict with or violate any Law applicable to Swiftcall E&S or the Assets, or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under any material note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which Swiftcall E&S is a party or
by which Swiftcall E&S is bound or by which any of the Assets is subject.
(b) Except as set forth in Schedule 3.5(b), the execution and
delivery of this Agreement by Swiftcall E&S does not, and the performance of
this Agreement by Swiftcall E&S will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Government
Entity, except for the filing and recordation of appropriate merger documents as
required by Virginia Law.
(c) Except as set forth in Schedule 3.5(c), the execution and
delivery of this Agreement by the Stockholder and the Affiliate do not, and the
performance by the Stockholder and the Affiliate of its obligations under this
Agreement will not, (i) conflict with or violate the articles of incorporation
or bylaws of any of the Stockholder and the Affiliate, (ii) conflict with or
violate any Law applicable to any of the Stockholder and the Affiliate or the
Assets, or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under any
material note, bond, mortgage, indenture, contract,
7
<PAGE>
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Stockholder and the Affiliate are a party or by which the
Stockholder and the Affiliate are bound or by which any of the Assets is
subject.
(d) Except as set forth in Schedule 3.5(d), the execution and
delivery of this Agreement by the Stockholder and the Affiliate do not, and the
performance of this Agreement by the Stockholder and the Affiliate will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Government Entity.
SECTION 3.6. Financial Statements.
(a) Swiftcall E&S has prepared and furnished to Acquiror (a)
the unaudited balance sheet of Swiftcall E&S as of the end of the fiscal year
ended December 31, 1998, and the fiscal quarter ended March 31, 1999, the
unaudited statement of income of Swiftcall E&S for such fiscal year and quarter
and the statement of cash flows for such fiscal quarter, if any, and (b) the
federal tax return of Swiftcall E&S for calendar year 1997. The financial
statements referred to in this Section 3.6(a) and the financial statements of
Swiftcall E&S provided to Acquiror pursuant to this Agreement (the "Financial
Statements") present fairly, in all material respects, the financial condition
of Swiftcall E&S as of the respective dates and the results of operations and
cash flows for the respective periods indicated and have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis throughout the periods involved (except that such unaudited statements do
not contain all required footnotes). The tax return referred to in this Section
3.6(a) is correct and complete in all material respects. Except as reflected in
the unaudited balance sheet of Swiftcall E&S as of March 31, 1999 (the "Balance
Sheet Date") or as described on Schedule 3.6(a), Swiftcall E&S has incurred no
liabilities, contingent or absolute, matured or unmatured, known or unknown,
except for liabilities incurred in the ordinary course of business since the
Balance Sheet Date which would not have a Material Adverse Effect.
(b) Since the Balance Sheet Date, there has been no Material
Adverse Effect. Since the Balance Sheet Date, Swiftcall E&S has conducted its
business in the ordinary course, and Swiftcall E&S has not (a) paid any dividend
or distribution in respect of, or redeemed or repurchased any of, its capital
stock; (b) incurred loss of, or significant injury to, any of the Assets,
whether as the result of any natural disaster, labor trouble, accident, other
casualty, or otherwise; (c) incurred, or become subject to, any obligation or
liability (absolute or contingent, matured or unmatured, known or unknown),
except current liabilities incurred in the ordinary course of business; (d)
mortgaged, pledged or subjected to any Encumbrance any of the Assets; (e) sold,
exchanged, transferred or otherwise disposed of any of the Assets except in the
ordinary course of business, or canceled any debts or claims; (f) written down
the value of any Assets or written off as uncollectible any accounts receivable,
except write downs and write-offs in the
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ordinary course of business, none of which, individually or in the aggregate,
are material; (g) entered into any transactions other than in the ordinary
course of business; (h) made any change in any method of accounting or
accounting practice; or (i) made any agreement to do any of the foregoing.
(c) The Stockholder and the Affiliate have, and as of the
Effective Time will have, sufficient assets and the ability to perform their
obligations pursuant to this Agreement.
SECTION 3.7. Accounts Receivable.
The accounts receivable of Swiftcall E&S shown on the balance
sheet described in Section 3.6 and on Schedule 3.7, if any, or thereafter
acquired by Swiftcall E&S, have been collected or are bona fide, arose in the
ordinary course of business, and to the knowledge of Swiftcall E&S or the
Stockholder and the Affiliate, are not subject to any disputes or offsets.
SECTION 3.8. Ownership and Condition of the Assets.
(a) Swiftcall E&S is the sole and exclusive legal and
equitable owner of and has good and marketable title to the respective Assets
(other than the Transfer Assets), as indicated on Schedule 3.8(a) and, except as
set forth in Schedule 3.8(a), such Assets are free and clear of all
Encumbrances. Schedule 3.8(a) lists all Assets, whether encumbered or not, and
indicates the owner and the extent of any Encumbrance on any encumbered Asset,
whether presently held or contemplated to be held as of the Closing Date (and in
such case the present holder). No person or Government Entity has an option to
purchase, right of first refusal or other similar right with respect to all or
any part of the Assets.
(b) Schedule 3.8(b) lists all assets to be transferred (the
"Asset Transfer") from the Stockholder and the Affiliate to Swiftcall E&S (or,
as provided in Section 8.11, to the Acquiror or a subsidiary) prior to the
Effective Time (the "Transfer Assets"), including without limitation the lease
with DSC Alcatel, dated May 11, 1998 (the "DSC Alcatel Lease"), and all rights
(the "DSC Alcatel Related Rights") of the Stockholder, Affiliate or any of their
respective affiliates relating to the DSC Alcatel Lease and the subject matter
thereof (including all rights arising from warranties and support agreements).
Following the Asset Transfer, Swiftcall E&S (or the Acquiror or its subsidiary,
as the case may be) shall be the sole and exclusive legal and equitable owner of
and have good and marketable title to the Transfer Assets and, except as set
forth in Schedule 3.8(b), such Transfer Assets shall be free and clear of all
Encumbrances.
(c) All of the personal property of Swiftcall E&S is in good
working order and repair, ordinary wear and tear excepted, and is suitable and
adequate for the uses for which it is intended or is being used.
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(d) Schedule 3.8(d) lists all hardware, computer software,
know-how (and the manner in which such know-how is memorialized) and other
technology (collectively, the "Swiftcall E&S Technology") which Swiftcall E&S
owns or licenses and the nature of such entity's rights in each item of the
Swiftcall E&S Technology. The Swiftcall E&S Technology operates materially in
accordance with the product literature for such technology (a copy of which, to
the extent Swiftcall E&S has a copy, has provided to Acquiror), and Swiftcall
E&S and the Stockholder and the Affiliate are not aware of any significant
limitations or operational deficiencies to which the Swiftcall E&S Technology is
subject.
SECTION 3.9. Leases.
(a) Schedule 3.9(a) lists and briefly describes all Material
Leases under which Swiftcall E&S is lessee or lessor, or holds, manages or
operates any Asset owned by any third party, or of which any Asset is the
subject. Each such Material Lease is in full force and effect and constitutes a
legal, valid and binding obligation of, and is legally enforceable against, the
respective parties thereto and grants the leasehold estate it purports to grant
free and clear of all Encumbrances. All necessary governmental approvals with
respect thereto have been obtained, all necessary filings or registrations
therefor have been made, and there have been no threatened cancellations thereof
and are no outstanding disputes thereunder which have not been resolved. Except
as provided in Section 3.9(c), Swiftcall E&S has performed in all material
respects all obligations under all Material Leases required to be performed by
it to date. Except as provided in Section 3.9(c), no party is in default in any
material respect under any of the foregoing, and to the knowledge of Swiftcall
E&S, Swiftcall E&S and the Stockholder and the Affiliate, there has not occurred
any event which (whether with or without notice, lapse of time or the happening
or occurrence of any other event) would constitute such a default.
(b) Schedule 3.9(b) lists and briefly describes all Material
Leases under which any Stockholder and Affiliate is lessee or lessor of any
Asset, or holds, manages or operates any Asset owned by any third party, or
under which any Asset owned by any Stockholder and Affiliate is held, operated
or managed by a third party. All such Material Leases will be transferred to
Swiftcall E&S prior to Closing without any breach or default occurring
thereunder (or payment or agreement to avoid such breach or default) and as of
the Closing no Stockholder and Affiliate shall have any interest in or claim
under such Material Lease. Each such Material Lease is in full force and effect
and constitutes a legal, valid and binding obligation of, and is legally
enforceable against, the respective parties thereto and grants the leasehold
estate it purports to grant free and clear of all Encumbrances. All necessary
governmental approvals with respect thereto have been obtained, all necessary
filings or registrations therefor have been made, and there have been no
threatened cancellations thereof and are no outstanding disputes thereunder.
Except as provided in Section 3.9(c), the Stockholder and Affiliate that is a
party
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thereto has performed in all material respects all obligations under all
Material Leases required to be performed by it to date. Except as provided in
Section 3.9(c), no party is in default in any material respect under any of the
foregoing, and to the knowledge of Swiftcall E&S and the Stockholder and the
Affiliate, there has not occurred any event which (whether with or without
notice, lapse of time or the happening or occurrence of any other event) would
constitute such a default.
(c) Except for arrearages of up to $181,091.66 under the DSC
Alcatel Lease, Swiftcall E&S and any Stockholder and Affiliate party thereto
have performed in all material respects all obligations under the DSC Alcatel
Lease and all documents relating to DSC Alcatel Related Rights required to be
performed by them to date. Except for arrearages of up to $181,091.66 under the
DSC Alcatel Lease, no party is in default in any material respect under the DSC
Alcatel Lease or such documents, and to the knowledge of Swiftcall E&S and the
Stockholder and the Affiliate, there has not occurred any event which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute such a default. Upon payment of arrearages of up
to $181,091.66 under the DSC Alcatel Lease (or their deferral as contemplated by
Section 9.1(k)) and its assignment to Swiftcall E&S (or the Acquiror or its
subsidiary, as the case may be) in the Asset Transfer, Swiftcall E&S and the
Stockholder and the Affiliate will be in full compliance with the DSC Alcatel
Lease and such documents, the DSC Alcatel Lease and the DSC Alcatel Related
Rights will be in full force and effect, the DSC Alcatel Lease will constitute a
legal, valid and binding obligation of, and be legally enforceable against,
Swiftcall E&S and DSC Alcatel and grant the leasehold estate it purports to
grant, and Swiftcall E&S will be entitled and vested with all of the DSC Alcatel
Related Rights, in each case free and clear of all Encumbrances, and all
necessary governmental and other approvals with respect thereto will have been
obtained, all necessary filings or registrations therefor will have been made,
and there will be no threatened cancellations thereof and no outstanding
disputes thereunder. The outstanding lease balance under the DSC Alcatel Lease
as of July 7, 1999 equals $1,227,207.56, not including arrearages of
$181,091.66.
SECTION 3.10. Other Agreements.
(a) Schedule 3.10(a) lists all Material Contracts to which
Swiftcall E&S is a party or by which Swiftcall E&S is bound, and Swiftcall E&S
has delivered to Acquiror true and correct copies of all such agreements. Each
such Material Contract is in full force and effect and constitutes a legal,
valid and binding obligation of, and is legally enforceable against, the
respective parties thereto. All necessary governmental approvals with respect
thereto have been obtained, all necessary filings or registrations therefor have
been made, and there have been no threatened cancellations thereof and are no
outstanding disputes thereunder. Swiftcall E&S has in all material respects
performed all the obligations thereunder required to be performed by Swiftcall
E&S to date. No party is in default in any material respect under any of the
agreements described in
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Schedule 3.10(a), and there has not occurred any event which (whether with or
without notice, lapse of time or the happening or occurrence of any other event)
would constitute such a default.
(b) Schedule 3.10(b) lists all Material Contracts to which any
Stockholder and Affiliate is a party or by which any Stockholder and Affiliate
is bound relating to the business of Swiftcall E&S or which will constitute an
Asset as of the Closing Date, and the Stockholder and the Affiliate have
delivered to Acquiror true and correct copies of all such agreements. Each such
Material Contract is in full force and effect and constitutes a legal, valid and
binding obligation of, and is legally enforceable against, the respective
parties thereto. All necessary governmental approvals with respect thereto have
been obtained, all necessary filings or registrations therefor have been made,
and there have been no threatened cancellations thereof and are no outstanding
disputes thereunder. Each Stockholder and Affiliate has in all material respects
performed all the obligations thereunder required to be performed by each
Stockholder and Affiliate to date. No party is in default in any material
respect under any of the agreements described in Schedule 3.10(b), and there has
not occurred any event which (whether with or without notice, lapse of time or
the happening or occurrence of any other event) would constitute such a default.
Each such Material Contract will be transferred to Swiftcall E&S prior to
Closing without any breach or default occurring thereunder (or payment or
agreement to avoid such breach or default) and as of the Closing no Stockholder
and Affiliate shall have any interest in or claim under any such Material
Contract.
SECTION 3.11. Real Property.
Schedule 3.11 contains a list and brief description of all
leasehold interests in real estate, easements, rights to access, rights-of-way
and other real property interests which are owned, leased, used or held for use
(collectively, the "Real Property") by Swiftcall E&S. The Real Property
described in Schedule 3.11 constitutes all real property interests necessary to
conduct the business and operations of Swiftcall E&S as now conducted or which
will constitute Assets as of the Closing. Neither Swiftcall E&S nor any
Stockholder and Affiliate is aware of any easement or other real property
interest, other than those described in Schedule 3.11, that is required, or that
has been asserted by a Government Entity or other person to be required, to
conduct the business and operations of Swiftcall E&S. Swiftcall E&S has
delivered to Acquiror true and complete copies of all deeds, leases, easements,
rights-of-way and other instruments pertaining to the Real Property (including
any and all amendments and other modifications of such instruments). All Real
Property (including the improvements thereon) (i) is in good condition and
repair consistent with its present use, (ii) is (or at Closing will be)
available to Swiftcall E&S for immediate use in the conduct of its business and
operations, and (iii) to the knowledge of either of Swiftcall E&S or any
Stockholder
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and Affiliate, complies in all material respects with all applicable building or
zoning codes and the regulations of any Government Entity having jurisdiction.
SECTION 3.12. Environmental Matters.
(a) Swiftcall E&S has complied in all material respects and
such entities and the Assets are and at Closing will be in material compliance
with all Environmental Laws (as defined below). There are no pending or, to the
knowledge of any of Swiftcall E&S or any Stockholder and Affiliate, threatened
actions, suits, claims, legal proceedings or other proceedings based on, and
neither Swiftcall E&S nor the Stockholder and the Affiliate directly or
indirectly received any notice of any complaint, order, directive, citation,
notice of responsibility, notice of potential responsibility, or information
request from any Government Entity or any other person arising out of or
attributable to: (i) the current or past presence at any part of the Real
Property of Hazardous Materials (as defined below) or any substances that pose a
hazard to human health or an impediment to working conditions; (ii) the current
or past release or threatened release into the environment from the Real
Property (including, without limitation, into any storm drain, sewer, septic
system or publicly owned treatment works) of any Hazardous Materials or any
substances that pose a hazard to human health or an impediment to working
conditions; (iii) the off-site disposal of Hazardous Materials originating on or
from the Real Property; (iv) any facility operations or procedures of Swiftcall
E&S which do not conform to requirements of the Environmental Laws; or (v) any
violation of Environmental Laws at any part of the Real Property or otherwise
arising from Swiftcall E&S's activities involving Hazardous Materials.
(b) Swiftcall E&S has been duly issued, and currently has and
will maintain through the Effective Time, all permits, licenses, certificates
and approvals required to be maintained by Swiftcall E&S under any Environmental
Law with respect to the use or ownership of the Real Property by Swiftcall E&S.
A true and complete list of such permits, licenses, certificates and approvals,
all of which are valid and in full force and effect, is set out in Schedule
3.12. Except in accordance with such permits, licenses, certificates and
approvals, there has been no discharge of any Hazardous Materials or any other
material regulated by such permits, licenses, certificates or approvals.
(c) To the knowledge of Swiftcall E&S, none of the Real
Property contains any underground storage tanks, or underground piping
associated with such tanks, used currently or in the past for Hazardous
Materials.
(d) As used herein, these terms shall have the following
meanings:
(i) "Environmental Laws" means all applicable foreign,
federal, state and local laws (including the common law), rules, requirements
and regulations relating to pollution, the environment (including, without
limitation,
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ambient air, surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including, without
limitation, laws and regulations relating to releases of Hazardous Materials, or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Hazardous Materials or relating to
management of asbestos in buildings.
(ii) "Hazardous Materials" means wastes, substances, or
materials (whether solids, liquids or gases) that are deemed hazardous, toxic,
pollutants, or contaminants, including without limitation, substances defined as
"hazardous substances", "toxic substances", "radioactive materials", or other
similar designations in, or otherwise subject to regulation under, any
Environmental Laws.
SECTION 3.13. Litigation.
Except as described in Schedule 3.13, there is no action,
suit, investigation, claim, arbitration or litigation pending or, to the
knowledge of any of Swiftcall E&S or any Stockholder and Affiliate, threatened
against or involving Swiftcall E&S, the Assets or the business and operations of
Swiftcall E&S, at law or in equity, or before or by any court, arbitrator or
Government Entity. Swiftcall E&S is not operating under or subject to any
judgment, writ, order, injunction, award or decree of any court, judge, justice
or magistrate, including any bankruptcy court or judge, or any order of or by
any Government Entity.
SECTION 3.14. Compliance with Laws; Licenses and Permits.
Swiftcall E&S has complied and is and at Closing will be in
compliance in all material respects with all laws, ordinances, regulations,
awards, orders, judgments, decrees and injunctions applicable to Swiftcall E&S,
the Assets and the business and operations of Swiftcall E&S, including all
federal, state and local laws, ordinances, regulations and orders pertaining to
employment or labor, safety, health, environmental protection, zoning and other
matters. Swiftcall E&S has obtained and holds all permits, licenses and
approvals (none of which has been modified or rescinded and all of which are in
full force and effect) from all governmental authorities necessary to conduct
the business and operations of Swiftcall E&S as now conducted and as proposed to
be conducted (including following all transfers of Assets contemplated to occur
prior to Closing) and to own, use and maintain the Assets.
SECTION 3.15. Intellectual Property.
(a) Swiftcall E&S owns, or is or will at Closing be licensed
or otherwise possess all necessary rights to use all patents, trademarks, trade
names, service marks, copyrights and any applications therefor, maskworks, net
lists,
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schematics, technology, know-how, trade secrets, inventory, ideas, algorithms,
processes, computer software programs and applications (in both source code and
object code form), and tangible or intangible proprietary information or
material ("Intellectual Property") constituting any Asset or that are used or
marketed in the business of Swiftcall E&S as presently conducted and as proposed
to be conducted (including following all transfers of Assets contemplated to
occur prior to Closing) or included or proposed to be included in Swiftcall
E&S's products or proposed products.
(b) Schedule 3.15(b) lists all (i) patents, registered and
unregistered trademarks, trade names and service marks, registered and
unregistered copyrights, and maskworks, included in the Intellectual Property,
including the jurisdictions in which each such Intellectual Property right has
been issued or registered or in which any application for such issuance and
registration has been filed, (ii) licenses, sublicenses and other agreements as
to which Swiftcall E&S is a party and pursuant to which any person is authorized
to use any Intellectual Property, and (iii) licenses, sublicenses and other
agreements as to which Swiftcall E&S is a party and pursuant to which Swiftcall
E&S is (or at Closing will be) authorized to use any third party patents,
trademarks or copyrights, including software ("Third Party Intellectual Property
Rights") which are incorporated in, are, or form a part of any product of
Swiftcall E&S or any Asset.
(c) To the knowledge of any of Swiftcall E&S or any
Stockholder and Affiliate, there is no unauthorized use, disclosure,
infringement or misappropriation of any Intellectual Property rights of
Swiftcall E&S any trade secret material to Swiftcall E&S or any Intellectual
Property right of any third party to the extent licensed by or through Swiftcall
E&S by any third party, including any employee or former employee of Swiftcall
E&S. Except as set forth in Schedule 3.15(c), Swiftcall E&S has not entered into
any agreement to indemnify any other person against any charge of infringement
of any Intellectual Property. Except as set forth in Schedule 3.15(c), there are
no royalties, fees or other payments payable by Swiftcall E&S to any person by
reason of the ownership, use, sale or disposition of Intellectual Property.
(d) Swiftcall E&S is not, nor will it be following the
execution and delivery of this Agreement or the performance of its obligations
under this Agreement or as of the Closing Date, in breach of any license,
sublicense or other agreement relating to the Intellectual Property or Third
Party Intellectual Property Rights.
(e) Neither Swiftcall E&S nor any Stockholder and Affiliate
has (i) been served with process, is aware that any person is intending to serve
process on Swiftcall E&S in any suit, action or proceeding which involves a
claim of infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third party and
(ii) has not
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brought any action, suit or proceeding for infringement of Intellectual Property
or breach of any license or agreement involving Intellectual Property against
any third party. The business of Swiftcall E&S as presently conducted and as
proposed to be conducted, and Swiftcall E&S's products or proposed products do
not infringe any patent, trademark, service mark, copyright, trade secret or
other propriety right of any third party.
(f) Swiftcall E&S has, to the extent it deemed necessary and
appropriate, obtained or entered into written agreements with third parties in
connection with the disclosure to, or use or appropriation by, third parties, of
trade secret or proprietary Intellectual Property owned by Swiftcall E&S and not
otherwise protected by a patent, a patent application, copyright, trademark, or
other registration or legal scheme (the "Swiftcall Confidential Information"),
and does not know of any situation involving such third party use, disclosure or
appropriation of Swiftcall Confidential Information where the lack of such a
written agreement is likely to result in any Material Adverse Effect.
SECTION 3.16. Taxes and Assessments.
(a) Except as set forth in Schedule 3.16(a), Swiftcall E&S has
(or, in the case of returns becoming due after the date hereof and on or before
the Closing Date, will have prior to the Closing Date) duly filed all Swiftcall
E&S Tax Returns required to be filed by Swiftcall E&S on or before the Closing
Date with respect to all applicable Taxes, and no penalties or other charges are
or will become due with respect to any of Swiftcall E&S Tax Returns as the
result of the late filing thereof. All of the Swiftcall E&S Tax Returns are (or,
in the case of returns becoming due after the date hereof and on or before the
Closing Date, will be) true and complete in all material respects. Except as set
forth in Schedule 3.16(a), Swiftcall E&S: (i) has paid all Taxes due or claimed
to be due by any Taxing authority in connection with any of the Swiftcall E&S
Tax Returns; or (ii) has established (or, in the case of amounts becoming due
after the date hereof, prior to the Closing Date will have paid or established)
in the Financial Statements adequate reserves (in conformity with generally
accepted accounting principles consistently applied) for the payment of such
Taxes. The amounts set up as reserves for Taxes on the Financial Statements are
sufficient for the payment of all unpaid Taxes, whether or not such Taxes are
disputed or are yet due and payable, for or with respect to the period, and for
which Swiftcall E&S may be liable in its own right or as a transferee of the
Assets of, or successor to, any corporation, person, association, partnership,
joint venture or other entity.
(b) Except as set forth in Schedule 3.16(b), Swiftcall E&S has
not, nor will Swiftcall E&S have on the Closing Date, either in its own right
(including Taxes resulting from Swiftcall E&S having been (or ceasing to be)
included in any affiliated, consolidated, combined or unitary Swiftcall E&S Tax
Return) or as a transferee, any liability for Taxes payable for or with respect
to any periods prior to
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and including the Closing Date in excess of the amounts actually paid prior to
the Closing Date or reserved for in the Financial Statements.
(c) There is no action, suit, proceeding, audit, investigation
or claim pending or, to the knowledge of Swiftcall E&S, threatened in respect of
any Taxes for which Swiftcall E&S is or may become liable, nor has any
deficiency or claim for any such Taxes been proposed, asserted or, to the
knowledge of Swiftcall E&S, threatened. Except as set forth in Schedule 3.16(c),
Swiftcall E&S has not consented to any waivers or extensions of any statute of
limitations with respect to any taxable year of Swiftcall E&S. Except as set
forth in Schedule 3.16(c), there is no agreement, waiver or consent providing
for an extension of time with respect to the assessment or collection of any
Taxes against Swiftcall E&S, and no power of attorney granted by Swiftcall E&S
with respect to any tax matters is currently in force.
(d) Swiftcall E&S has furnished to Acquiror true and complete
copies of all the Swiftcall E&S Tax Returns for the past two (2) years and all
written communications relating to any such Swiftcall E&S Tax Returns or to any
deficiency or claim proposed and/or asserted, irrespective of the outcome of
such matter, but only to the extent such items relate to tax years (i) which are
subject to an audit, investigation, examination or other proceeding, or (ii)
with respect to which the statute of limitations has not expired.
(e) Schedule 3.16(e) sets forth (i) all federal tax elections
that currently are in effect with respect to Swiftcall E&S and (ii) all
elections for purposes of foreign, state or local Taxes and all consents or
agreements for purposes of federal, foreign, state or local Taxes in each case
that reasonably could be expected to have a material effect on Swiftcall E&S or
any of the Assets or its operations after the Closing. Schedule 3.16(e) sets
forth all changes in accounting methods for Tax purposes at any time made,
agreed to, requested or required with respect to Swiftcall E&S within the past
five (5) years.
(f) Swiftcall E&S (i) is not and within the past five (5)
years has not been a partner in a partnership or an owner of an interest in an
entity treated as a partnership for federal income tax purposes; (ii) has not
executed or filed with the Internal Revenue Service any consent to have the
provisions of Section 341(f) of the Code apply to it; (iii) is not subject to
Section 999 of the Code; (iv) is not a passive foreign investment company as
defined in Section 1296(a) of the Code; (v) is not and has not been a United
States Real Property Holding Corporation within the meaning of Section 897(c)(2)
of the Code; and (vi) is not a party to an agreement relating to the sharing,
allocation or payment of, or indemnity for, Taxes.
(g) Except as set forth in Schedule 3.16(a), Swiftcall E&S has
withheld and paid all Taxes required to have been withheld and paid in
connection
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with amounts paid to any employee, independent contractor, creditor, stockholder
or other third party.
(h) As used herein, the term "Taxes" shall mean all federal,
state, local and foreign taxes (including, without limitation, income, profit,
franchise, sales, use, VAT, real property, personal property, ad valorem,
excise, employment, social security and wage withholding taxes) and installments
of estimated taxes, assessments, deficiencies, levies, imports, duties, license
fees, registration, fees, withholdings or other similar charges of every kind,
character or description imposed by any governmental authorities, and any
interest, penalties or additions to tax imposed thereon or in connection
therewith.
(i) As used herein, the term "Swiftcall E&S Tax Returns" means
all federal, state, local, foreign and other applicable tax returns,
declarations of estimated tax reports required to be filed by Swiftcall E&S
(without regard to extensions of time permitted by law or otherwise).
SECTION 3.17. Employment Matters.
(a) Neither Swiftcall E&S nor any Employee Benefit Plan (as
such term is defined in ERISA) maintained by Swiftcall E&S to which Swiftcall
E&S has or has had the obligation to contribute in respect of any Swiftcall E&S
employees is in violation of any provisions of Law; no reportable event, within
the meaning of ERISA, ss. 4043(c)(1), (2), (3), (5), (6), (7) or (10), has
occurred and is continuing with respect to any such Employee Benefit Plan and no
prohibited transaction, within the meaning of Title I of ERISA, has occurred
with respect to any such Employee Benefit Plan. No Employee Benefit Plan
maintained by Swiftcall E&S is a Multiemployer Plan (as such term is defined in
ERISA), is subject to Title IV of ERISA or provides post-retirement medical,
life insurance or other benefits except to the extent required to comply with
the health care continuation coverage requirements of ERISA and the Code.
(b) There are no collective bargaining agreements applicable
to any Swiftcall E&S employees and Swiftcall E&S has no duty to bargain with any
labor organization with respect to any such persons. There is not pending any
demand for recognition or any other request or demand from a labor organization
for representative status with respect to any persons employed by Swiftcall E&S.
There are no strikes, work stoppages, grievance proceedings, union organization
efforts or other material controversies pending, or, to the knowledge of
Swiftcall E&S, threatened and (i) any current or former employees of Swiftcall
E&S or (ii) any union or other collective bargaining unit representing such
employees.
(c) Schedule 3.17(c) contains a true and complete list of
names, positions and rates of compensation of all directors, officers and
employees of Swiftcall E&S or who is expected to be an employee as of the
Closing Date showing
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each such person's name, position, and annual remuneration, bonuses (except
bonuses which have not been determined for the current fiscal year) and fringe
benefits for the current fiscal year and the most recently completed fiscal year
(which will also be in effect as of the Closing Date). With respect to any
persons employed by Swiftcall E&S, to the knowledge of Swiftcall E&S, Swiftcall
E&S is in compliance with all Laws respecting employment conditions and
practices, has withheld all amounts required by any applicable Laws to be
withheld from wages or any Taxes or penalties for failure to comply with any of
the foregoing.
(d) With respect to any persons employed by Swiftcall E&S, (i)
Swiftcall E&S has not engaged in any unfair labor practice within the meaning of
the National Labor Relations Act or has violated any legal requirement
prohibiting discrimination on the basis of race, color, national origin, sex,
religion, age, marital status, or handicap in its employment conditions or
practices; and (ii) there are no pending or, to the knowledge of Swiftcall E&S,
threatened unfair labor practice charges or discrimination complaints relating
to race, color, national origin, sex, religion, age, marital status, or handicap
against Swiftcall E&S before any Government Entity nor, to the knowledge of
Swiftcall E&S, does any basis therefor exist.
SECTION 3.18. Transactions with Related Parties.
Except as set forth in Schedule 3.18(a), neither any present
or former officer, director, stockholder or person known by Swiftcall E&S or any
Stockholder and Affiliate to be an affiliate of Swiftcall E&S or any Stockholder
and Affiliate nor any person known by Swiftcall E&S to be an affiliate of any
such person, is currently (or will be at Closing) a party to any transaction or
agreement with Swiftcall E&S including, without limitation, any agreement
providing for the employment of, furnishing of services by, rental of Assets
from or to, or otherwise requiring payments to, any such officer, director,
stockholder or affiliate.
SECTION 3.19. Insurance.
Swiftcall E&S has made available to Acquiror copies of all
policies of title, property, fire, casualty, liability, life, workmen's
compensation and other forms of insurance of any kind relating to the Assets or
the business and operations of Swiftcall E&S. All such policies: (a) are in full
force and effect; (b) are sufficient for compliance by Swiftcall E&S with all
requirements of applicable Law and of all licenses, franchises and other
agreements to which Swiftcall E&S is a party; (c) are valid, outstanding, and
enforceable policies; and (d) insure against risks of the kind customarily
insured against and in amounts customarily carried by corporations similarly
situated and provide adequate insurance coverage for the Assets and the business
and operations of Swiftcall E&S.
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SECTION 3.20. Voting Requirements.
The affirmative vote of the holders of a majority of all
outstanding shares of Swiftcall E&S Common Stock to adopt this Agreement is the
only vote of the holders of any class or series of Swiftcall E&S capital stock
necessary to approve and adopt this Agreement and the transactions contemplated
hereby, including the Merger.
SECTION 3.21. Brokers.
Except as set forth on Schedule 3.21(a), no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Swiftcall E&S or any Stockholder
and Affiliate.
SECTION 3.22. Compliance with Foreign Corrupt Practices Act.
Swiftcall E&S is not in violation of the Foreign Corrupt
Practices Act of 1977, as amended, which prohibits businesses and business
people from providing any payment or gratuity to foreign officials in exchange
or obtaining or retaining business.
SECTION 3.23. Disclosure.
No representations or warranties by Swiftcall E&S or any
Stockholder and Affiliate in this Agreement and no statement or information
contained in the Schedules hereto or any certificate furnished or to be
furnished by Swiftcall E&S or any Stockholder and Affiliate to Acquiror or
Merger Sub pursuant to the provisions of this Agreement (taken collectively),
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF THE STOCKHOLDER AND THE AFFILIATE
In addition to the representations and warranties made by the
Stockholder and the Affiliate in Article III hereof, the Stockholder and the
Affiliate hereby represent and warrant to Acquiror and Merger Sub as follows:
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SECTION 4.1. Title to Swiftcall E&S Stock.
The Stockholder is and as of the Effective Time will be the
sole legal, beneficial and record owner of all shares of Swiftcall E&S Stock
outstanding. Since the date of issuance or sale of such shares of Swiftcall E&S
Stock to the Stockholder, there has been no event, or action taken (or failure
to take action) by or against the Stockholder, which has resulted or might
result in the creation of any Encumbrance on such shares. The Stockholder has,
and as of the Effective Time the Stockholder will have, good, valid and
marketable title to all shares of Swiftcall E&S Stock free and clear of all
Encumbrances, except such restrictions on the transfer of such shares as may be
applicable under federal and state securities laws, with full right and lawful
authority to sell and transfer the shares to Acquiror pursuant to this
Agreement. Immediately following the Effective Time, Acquiror will acquire good,
valid and marketable title thereto, free and clear of all Encumbrances, except
such restrictions on the transfer of such shares as may be applicable under
federal and state securities laws.
SECTION 4.2. No Registration Under the Securities Act.
The Stockholder understands that any shares of Acquiror Common
Stock which may be issued to the Stockholder under this Agreement have not been
and will not be registered under the Securities Act of 1933, as amended (the
"Securities Act"), when issued in reliance upon exemptions contained in the
Securities Act or interpretations thereof, and such shares of Acquiror Common
Stock can not be offered for sale, sold or otherwise transferred unless such
shares are so registered or qualify for exemption from registration under the
Securities Act.
SECTION 4.3. Acquisition for Investment.
The shares of Acquiror Common Stock which may be issued to the
Stockholder under this Agreement, if any, would be acquired by the Stockholder
in good faith solely (in each case) for the Stockholder's own account, for
investment and not with a view toward resale or other distribution within the
meaning of the Securities Act. Such shares will not be offered for sale, sold or
otherwise transferred by the Stockholder without either registration or
exemption from registration under the Securities Act.
SECTION 4.4. Evaluation of Merits and Risks of Investment.
The Stockholder has such knowledge and experience in financial
and business matters that the Stockholder is capable of evaluating the merits
and risks of the Stockholder's investment in any shares of Acquiror Common Stock
issued under this Agreement. The Stockholder understands and is able to bear any
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economic risks associated with such investment (including, without limitation,
the necessity of holding such shares for an indefinite period of time, inasmuch
as the shares have not been registered under the Securities Act). The
Stockholder confirms that Acquiror has made available to the Stockholder and its
representatives and agents the opportunity to ask questions of the officers and
management employees of Acquiror about the business and financial condition of
Acquiror as the Stockholder or its representatives have requested.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror represents and warrants to Swiftcall E&S and the
Stockholder and the Affiliate as follows:
SECTION 5.1. Organization and Qualification.
Acquiror is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Acquiror has the
requisite power and authority to own, lease and operate its assets and
properties, to carry on its business as now being conducted and to perform the
terms of this Agreement and the transactions contemplated hereby. Acquiror is
duly qualified to conduct its business, and is in good standing, in each
jurisdiction where the ownership or leasing of its properties or the nature of
its activities in connection with the conduct of its business makes such
qualification necessary.
SECTION 5.2. Certificate of Incorporation and Bylaws.
Acquiror has herewith delivered to Swiftcall E&S and the
Stockholder and the Affiliate a complete and correct copy of the certificate of
incorporation and the bylaws of Acquiror, each as amended to date. Such
certificate of incorporation and bylaws are in full force and effect. Acquiror
is not in violation of any of the provisions of its certificate of incorporation
or bylaws or other organizational or governing document.
SECTION 5.3. Capitalization.
The authorized capital stock of Acquiror consists of: (i) one
hundred million (100,000,000) shares of Acquiror Common Stock of which nineteen
million nine hundred nineteen thousand six hundred ninety-four (19,919,694)
shares are issued and outstanding on the date of execution of this Agreement;
and (ii) ten million (10,000,000) shares of preferred stock, par value $.001 per
share, of which; (a) one million (1,000,000) shares of Series A Participation
Preferred Stock are authorized, of which no shares are issued and outstanding;
(b) five hundred
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thousand (500,000) shares of Series B Convertible Preferred Stock are
authorized, issued and outstanding; (c) two hundred (200) shares of 8% Series C
Cumulative Convertible Preferred Stock are authorized, of which no shares are
issued and outstanding; (d) one hundred twenty-five (125) shares of 8% Series D
Cumulative Convertible Preferred Stock are authorized, of which fifty (50)
shares are issued and outstanding; (e) one hundred twenty-five (125) shares of
8% Series E Cumulative Convertible Redeemable Preferred Stock are authorized, of
which fifty (50) shares are issued and outstanding; (f) 2,020,000 shares of
Series F Convertible Preferred Stock are authorized, of which 1,010,000 shares
are issued and outstanding; and (g) 1 share of 6% Series G Cumulative
Convertible Redeemable Preferred Stock is authorized, issued and outstanding.
Except as set forth in Schedule 5.3, there are no options, warrants or other
rights, agreements, arrangements or commitments of any character relating to the
issued or unissued capital stock of Acquiror or obligating Acquiror to issue or
sell any shares of capital stock of, or other equity interests in Acquiror,
including any securities directly or indirectly convertible into or exercisable
or exchangeable for any capital stock or other equity securities of Acquiror.
Except as set forth in Schedule 5.3, there are no outstanding obligations of
Acquiror to repurchase, redeem or otherwise acquire any shares of its capital
stock or make any investment (in the form of a loan, capital contribution or
otherwise) in any other person.
SECTION 5.4. Authority.
The execution and delivery of this Agreement by Acquiror and
the consummation by Acquiror of the transactions contemplated hereby have been
duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Acquiror are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This Agreement
has been duly executed and delivered by Acquiror and, assuming the due
authorization, execution and delivery by Swiftcall E&S and the Stockholder and
the Affiliate, constitutes a legal, valid and binding obligation of Acquiror,
enforceable in accordance with its terms, except as such enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws of general applicability relating to or affecting creditors' rights
generally and by the application of general principles of equity.
SECTION 5.5. No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 5.5, the execution and
delivery of this Agreement by Acquiror do not, and the performance by Acquiror
of its obligations under this Agreement will not, (i) conflict with or violate
the certificate of incorporation or bylaws of Acquiror, (ii) conflict with or
violate any Law applicable to Acquiror or its assets and properties, or (iii)
result in any breach of or constitute a default under any Acquiror Material
Contracts (as defined below).
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(b) Except as set forth in Schedule 5.5, the execution and
delivery of this Agreement by Acquiror do not, and the performance of this
Agreement by Acquiror will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Government Entity, except for
the filing and recordation of appropriate merger documents as required by
Virginia Law.
SECTION 5.6. Financial Statements.
The audited consolidated balance sheet of Acquiror as of the
end of the nine-month fiscal year commencing April 1, 1998 and ending December
31, 1998, and the consolidated audited statement of income and cash flows for
such period (collectively, the "Audited Financial Statements") and the
consolidated unaudited balance sheet of the Acquiror as of March 31, 1999 and
the consolidated unaudited statements of income and cash flows for the
three-month period ended March 31, 1999 (the "Unaudited Financial Statements")
present fairly, in all material respects, the financial condition of Acquiror as
of the respective dates and the results of operations and cash flows for the
respective periods indicated and have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis throughout the
periods involved (except that such unaudited statements do not contain all
required footnotes and are subject to normal recurring year-end adjustments).
Except as reflected in the unaudited balance sheet of Acquiror as of March 31,
1999 (the "Acquiror Balance Sheet Date"), Acquiror has no liabilities,
contingent or absolute, matured or unmatured, known or unknown, except for
liabilities incurred in the ordinary course of business since the Acquiror
Balance Sheet Date that would not have an Acquiror Material Adverse Effect.
SECTION 5.7. Absence of Certain Changes or Events.
Except as set forth in Schedule 5.7, since March 31, 1999,
Acquiror has not incurred any material liability, except in the ordinary course
of its business consistent with its past practices, and Acquiror has conducted
its business in the ordinary course consistent with its past practices. Except
as set forth in Schedule 5.7, since March 31, 1999, there has not been any
change in the business, condition (financial or otherwise) or results of
operations of Acquiror, including any transaction, commitment, dispute, damage,
destruction or loss, whether or not covered by insurance, or other event of any
character (whether or not in the ordinary course of business) individually or in
the aggregate which has had, or is reasonably likely to have, an Acquiror
Material Adverse Effect.
SECTION 5.8. Agreements.
Except as set forth in Schedule 5.8, all existing agreements
that are or will be required to be filed as an exhibit to reports filed by the
Acquiror with the Securities and Exchange Commission (the "SEC") (collectively,
the "Acquiror
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Material Contracts") are valid and in full force and effect on the date hereof,
and Acquiror has not (and has no knowledge that any party thereto has) violated
any provision of, or committed or failed to perform any act which with or
without notice, lapse of time or both would constitute a default under the
provisions of, any Acquiror Material Contract, except for defaults which would
not reasonably be expected to have an Acquiror Material Adverse Effect.
SECTION 5.9. Litigation.
Except as set forth in Schedule 5.9, there is no action, suit,
investigation, claim, arbitration or litigation pending or, to the knowledge of
Acquiror, threatened against or involving Acquiror or the business and
operations of Acquiror, at law or in equity, or before or by any court,
arbitrator or Government Entity. Acquiror is not operating under or subject to
any judgment, writ, order, injunction, award or decree of any court, judge,
justice or magistrate, including any bankruptcy court or judge, or any order of
or by any Government Entity.
SECTION 5.10. Taxes and Assessments.
Except as set forth in Schedule 5.10, Acquiror has (i) duly
and timely paid all Taxes which have become due and payable by it; (ii) Acquiror
has received no notice of, nor does Acquiror have any knowledge of, any notice
of deficiency or assessment or proposed deficiency or assessment from any taxing
Government Entity; and (iii) to Acquiror's knowledge, there are no audits
pending and there are no outstanding agreements or waivers by Acquiror that
extend the statutory period of limitations applicable to any federal, state,
local, or foreign tax returns or Taxes.
SECTION 5.11. Brokers.
Except as set forth on Schedule 5.11, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Acquiror.
SECTION 5.12. Disclosure.
No representations or warranties by Acquiror in this Agreement
and no statement or information contained in the Schedules hereto or any
certificate furnished or to be furnished by Acquiror to Swiftcall E&S and the
Stockholder and the Affiliate pursuant to the provisions of this Agreement
(taken collectively), contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was made, in order to make the
statements herein or therein not misleading.
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ARTICLE Vi
REPRESENTATIONS AND WARRANTIES OF MERGER SUB
Acquiror and Merger Sub jointly and severally represent and
warrant to Swiftcall E&S and the Stockholder and the Affiliate as follows:
SECTION 6.1. Organization and Qualification.
Merger Sub is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of Virginia. Merger Sub
was formed solely for the purpose of engaging in the transactions contemplated
by this Agreement. As of the date of this Agreement, except for obligations or
liabilities incurred in connection with its incorporation or organization and
the transactions contemplated by this Agreement, Merger Sub has not incurred,
directly or indirectly, any obligations or liabilities or engaged in any
business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
SECTION 6.2. Articles of Incorporation and Bylaws.
Merger Sub has heretofore made available to Swiftcall E&S and
the Stockholder and the Affiliate a complete and correct copy of the articles of
incorporation and the bylaws of Merger Sub, as amended to date. Such articles of
incorporation and bylaws are in full force and effect. Merger Sub is not in
violation of any of the provisions of its articles of incorporation or bylaws or
other organizational or governing document.
SECTION 6.3. Authority.
Merger Sub has the necessary corporate power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Merger Sub and the consummation by Merger Sub of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of
Merger Sub are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by Merger Sub and, assuming the due authorization, execution and
delivery by Swiftcall E&S, the Stockholder and the Affiliate and Acquiror,
constitutes a legal, valid and binding obligation of Merger Sub, enforceable in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors' rights generally and
by the application of general principles of equity.
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SECTION 6.4. No Conflict; Required Filings and Consents.
(a) Except as set forth in Schedule 6.4, the execution and
delivery of this Agreement by Merger Sub do not, and the performance by Merger
Sub of its obligations under this Agreement will not, (i) conflict with or
violate the certificate of incorporation or bylaws of Merger Sub, (ii) conflict
with or violate any Law applicable to Merger Sub or its assets and properties,
or (iii) result in any breach of or constitute a default under any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Merger Sub is a party or by which Merger
Sub is bound, or by which any of its properties or assets is subject.
(b) Except as set forth in Schedule 6.4, the execution and
delivery of this Agreement by Merger Sub do not, and the performance of this
Agreement by Merger Sub will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any Government Entity, except
for the filing and recordation of appropriate merger documents as required by
Virginia Law.
SECTION 6.5. Disclosure.
No representations or warranties by Merger Sub in this
Agreement and no statement or information contained in the Schedules hereto or
any certificate furnished or to be furnished by Merger Sub to Swiftcall E&S and
the Stockholder and the Affiliate pursuant to the provisions of this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein or therein not
misleading.
ARTICLE VII
COVENANTS
SECTION 7.1. Affirmative Covenants of Swiftcall E&S and the
Stockholder and the Affiliate.
Swiftcall E&S and the Stockholder and the Affiliate hereby
covenant and agree that, prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing by Acquiror, (a) the
business of Swiftcall E&S and the Assets shall be operated in the usual and
ordinary course consistent with past practices and in accordance with applicable
Laws; (b) Swiftcall E&S shall preserve substantially intact its business
organization, rights and franchises, services of its respective principal
officers and key employees and relationships with suppliers, contractors,
distributors, customers and others having business relationships with it; (c)
Swiftcall E&S shall maintain
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its properties and assets (including the Assets) in as good repair and condition
as at present, ordinary wear and tear excepted, and (d) Swiftcall E&S shall keep
insurance in full force and effect comparable in amount and scope of coverage to
that currently maintained.
Swiftcall E&S shall notify Acquiror promptly of any material
adverse change in the business, operations, prospects, condition (financial or
otherwise), assets or liabilities of Swiftcall E&S or any Asset, including,
without limitation, information (including, without limitation, copies of all
documents relating thereto) concerning all claims instituted, threatened or
asserted against or affecting Swiftcall E&S or its business or Assets at law or
in equity, before or by any court or governmental authority. Swiftcall E&S also
shall notify Acquiror promptly in writing of the occurrence of any event, or the
failure of any event to occur, prior to the Closing that results in a material
omission from, or material breach of, any of the covenants, representations or
warranties made by or on behalf of Swiftcall E&S or the Stockholder and the
Affiliate in this Agreement or the Disclosure Schedule. Swiftcall E&S shall keep
proper books of record and account in which true and complete entries will be
made of all transactions in accordance with generally accepted accounting
principles applied on a basis consistent with prior periods, and shall supply to
Acquiror such documents (financial or otherwise) with respect thereto as
Acquiror shall reasonably request. Swiftcall E&S shall inform and discuss with
Acquiror on a regular and ongoing basis the management of the business of
Swiftcall E&S and Assets, including, without limitation, (i) any significant new
agreements or transactions proposed to be entered into, (ii) persons proposed to
be employed or terminated by Swiftcall E&S outside of the ordinary course of
business, and (iii) any other significant developments relating to the business
of Swiftcall E&S or the Assets.
SECTION 7.2. Negative Covenants of Swiftcall E&S and the Stockholder
and the Affiliate.
Except as expressly contemplated by this Agreement or
otherwise consented to in writing by Acquiror, from the date hereof until the
Effective Time, Swiftcall E&S and the Stockholder and the Affiliate shall cause
Swiftcall E&S not to do any of the following:
(a) (i) increase the compensation payable to or to become
payable to any of its directors, officers or employees, except for increases in
salary, wages or bonuses payable or to become payable in the ordinary course of
business and consistent with past practice; (ii) grant any severance or
termination pay to, or enter into or modify any employment or severance
agreement with, any of its directors, officers or employees; or (iii) adopt or
amend any employee benefit plan or arrangement, except as may be required by
applicable Law;
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(b) declare, set aside or pay any dividend on, or make any
other distribution in respect of, any of its capital stock;
(c) (i) redeem, repurchase or otherwise reacquire any share of
its capital stock or any securities or obligations convertible into or
exchangeable for any share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its capital stock or any
such securities or obligations; (ii) effect any reorganization or
recapitalization; or (iii) 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;
(d) (i) issue, deliver, award, grant or sell, or authorize or
propose the issuance, delivery, award, grant or sale (including the grant of any
Encumbrances) of, any shares of any class of its capital stock (including shares
held in treasury) or other equity securities, any securities or obligations
directly or indirectly convertible into or exercisable or exchangeable for any
such shares or securities, or any rights, warrants or options directly or
indirectly to acquire any such shares or securities; or (ii) amend or otherwise
modify the terms of any such securities, obligations, rights, warrants or
options in a manner inconsistent with the provisions of this Agreement or the
effect of which shall be to make such terms more favorable to the holders
thereof;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association or
other business organization or division thereof, or otherwise acquire or agree
to acquire any assets of any other person (other than the purchase of inventory
in the ordinary course of business and consistent with past practice), or make
or commit to make any capital expenditures other than capital expenditures in
the ordinary course of business consistent with past practice;
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its assets except for dispositions of
inventory in the ordinary course of business and consistent with past practice;
(g) propose or adopt any amendments to its articles of
incorporation or bylaws;
(h) (i) change any of its methods of accounting in effect at
January 1, 1998, or (ii) make or rescind any express or deemed election relating
to taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes, or change
any of its methods of reporting income or deductions for federal income tax
purposes from those employed in the preparation of the federal income tax
returns for the taxable year ending
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December 31, 1997, except, in the case of clause (i) or clause (ii), as may be
required by law or generally accepted accounting principles, consistently
applied;
(i) prepay, before the scheduled maturity thereof, any of its
long-term debt, or incur any obligation for borrowed money, whether or not
evidenced by a note, bond, debenture or similar instrument, other than trade
payables incurred in the ordinary course of business consistent with past
practices;
(j) enter into or modify in any material respect any agreement
which, if in effect as of the date hereof, would have been required to be
disclosed on Schedule 3.10, or enter into any agreement, understanding,
commitment or other arrangement (whether written or oral) with any affiliate or
any officer, director, employee or agent thereof; except as required to carry
out the Asset Transfer;
(k) take any action that would or could reasonably be expected
to result in any of its representations and warranties set forth in this
Agreement being untrue or in any of the conditions to the Merger set forth in
Article IX not being satisfied; or
(l) agree in writing or otherwise to do any of the foregoing.
ARTICLE VIIi
ADDITIONAL AGREEMENTS
Section 8.1. Preparation of the Registration Statements.
In the event that shares of Acquiror Common Stock are issued in payment
of the Purchase Price, as soon as reasonably practicable, with a goal of filing
within sixty (60) days, but in any event no later than one hundred twenty (120)
days after each of the First Payment Date or the Second Payment Date, as
applicable, at Acquiror's sole expense, Acquiror shall prepare and file with the
SEC one or more registration statements (the "Registration Statements")
registering such shares of Acquiror Common Stock for resale under the Securities
Act.
Acquiror shall maintain the effectiveness of each Registration
Statement until all Acquiror Common Stock issued pursuant to this Agreement and
registered pursuant to such Registration Statement has been disposed of by the
Stockholder and the Affiliate or such Acquiror Common Stock is otherwise
eligible for public resale under applicable securities laws.
SECTION 8.2. Consents and Approvals; Filings and Notices.
Swiftcall E&S and the Stockholder and the Affiliate shall use
reasonable efforts to as promptly as possible make all filings with, provide all
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notices to and obtain all consents and approvals from third parties required to
be obtained by Swiftcall E&S and the Stockholder and the Affiliate in connection
with the transactions contemplated hereunder, including, without limitation, all
filings, with, notices to and consents and approvals from Government Entity and
other persons.
SECTION 8.3. Access and Information.
From the date hereof to the Effective Time, Swiftcall E&S and
the Stockholder and the Affiliate shall afford to Acquiror and its officers,
employees, accountants, consultants and legal counsel of Acquiror access during
normal business hours to the properties, books, records, contracts, facilities,
premises, and equipment relating to the Assets and Swiftcall E&S (including
without limitation, operating and financial information with respect to
Swiftcall E&S) as Acquiror may reasonably request.
SECTION 8.4. Confidentiality.
Notwithstanding anything to the contrary contained in this
Agreement, and subject only to any disclosure requirements which may be imposed
upon any party under applicable state or federal securities or antitrust laws,
it is expressly understood and agreed by the parties that, except with respect
to matters or information which are publicly available other than by reason of a
breach of this Section 8.4, each party hereto will, and will cause its officers,
employees, counsel, accountants and other authorized representatives to,
maintain strictly confidential all financial information, business records and
other non-public documents or information, concerning any party hereto, obtained
in connection with the transactions contemplated by this Agreement except as
otherwise consented to in writing by the other parties hereto or thereto. The
parties hereto shall use their best efforts to avoid disclosure of any of the
foregoing or undue disruption of any of the business operations or personnel of
the parties, and no party shall issue any press release or other public
announcement regarding the transactions contemplated hereby without the prior
written approval of each other party (such approval not to be unreasonably
withheld or delayed) unless otherwise required under applicable laws and
regulations, including SEC rules and regulations. In the event that the
transactions contemplated hereby shall not be consummated for any reason, each
party covenants and agrees that neither it nor any of its representatives shall
retain (other than information which is publicly available other than by reason
of a breach of this Section 8.4) any documents, lists or other writings of any
other party which it may have received or obtained in connection herewith or any
documents incorporating any of the information contained in any of the same (all
of which, and all copies thereof in the possession or control of the recipient
or its representatives, shall be returned to the party which provided the
information).
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SECTION 8.5. Further Action; Reasonable Best Efforts.
Each of the parties shall use reasonable best efforts to take, or cause
to be taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Laws or otherwise to consummate
and make effective the transactions contemplated by this Agreement as promptly
as practicable, including, without limitation, using its reasonable best efforts
to obtain all licenses, permits, consents, approvals, authorizations,
qualifications and orders of Government Entities and parties to contracts with
Swiftcall E&S (or the Stockholder and the Affiliate, in the case of Assets held
by them) or Acquiror as are necessary for the transactions contemplated herein.
SECTION 8.6. Public Announcements.
Swiftcall E&S, the Stockholder and the Affiliate, and Acquiror
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Merger and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by Law.
SECTION 8.7. No Solicitation.
During the term of this Agreement, neither Swiftcall E&S, the
Stockholder and the Affiliate nor any of their affiliates or any person acting
on behalf of such party shall (a) solicit or favorably respond to indications of
interest from, or enter into negotiations with, any third party for any proposed
merger, consolidation, sale or acquisition of Swiftcall E&S, the Assets or any
capital stock of Swiftcall E&S or (b) furnish or cause to be furnished any
nonpublic information concerning Swiftcall E&S or the Assets to any person other
than in the ordinary course of business or pursuant to applicable Law and after
prior written notice to Acquiror.
SECTION 8.8. Stock Listing.
In the event that shares of Acquiror Common Stock are issued
in payment of the Purchase Price, Acquiror shall use reasonable best efforts, at
Acquiror's expense, to cause such shares of Acquiror Common Stock to be approved
for listing on the Nasdaq National Market, subject to official notice of
issuance, prior to the first date on which such shares of Acquiror Common Stock
are issued.
SECTION 8.9. Employee Matters.
Acquiror shall have the right, but not the obligation, to
cause the Surviving Corporation to offer employment following the Effective
Time, to any
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number of the employees of Swiftcall E&S; provided, however, that nothing in
this Section 8.9 shall require the Acquiror or the Surviving Corporation to
offer such employment or require particular terms and conditions for any such
offer that is made voluntarily, and nothing in this Section 8.9 shall limit or
otherwise restrict the ability of Acquiror or the Surviving Corporation to
terminate, lay off or reduce the work hours with respect to the employment of
any such employees following any initial employment with the Surviving
Corporation or the Acquiror after the Effective Time.
SECTION 8.10. Blue Sky.
Acquiror shall use reasonable best efforts to obtain prior to
the Closing Date any necessary blue sky permits and approvals required to permit
the distribution of the shares of the Acquiror Common Stock, if any, to be
issued in accordance with the provisions of this Agreement.
SECTION 8.11. Asset Transfer.
The Stockholder and the Affiliate shall transfer good and
marketable title of the Transfer Assets to Swiftcall E&S prior to the Closing on
terms acceptable to the Acquiror in its sole discretion, provided, however, that
if the Acquiror so requests, the Transfer Assets shall be transferred at Closing
to the Acquiror or a subsidiary thereof designated by the Acquiror.
SECTION 8.12. Upgrade Credits.
To the extent that Andville, Swiftcall Bahamas or any other
Swiftcall entity has credits, discounts or other similar interests for future
switch or equipment upgrades from DSC Alcatel, the Stockholder and the Affiliate
will use reasonable best efforts to ensure that these will be transferred to
Swiftcall E&S prior to Closing.
SECTION 8.13. Minimum Revenues.
(a) Swiftcall Bahamas shall cause VIP Communications, Inc.
(formerly Swiftcall (USA) Inc.), a Virginia corporation wholly-owned by
Swiftcall Bahamas ("VIP"), to purchase services from Acquiror or its
subsidiaries of the type presently being purchased by VIP from IDX
International, Inc., a subsidiary of the Acquiror ("IDX"), at a price which is
the lower of (i) the average cost to IDX of the best two off-net routes (as
defined below) to each destination for transport, plus an Overhead Recovery
Factor (as defined below) or (ii) the best price offered to any other customer
of Acquiror or its subsidiaries. Initially the Overhead Recovery Factor shall
equal $0.0025 per minute. If requested by either Acquiror or VIP, the Overhead
Recovery Factor shall be re-calculated every three (3) months, such
re-
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calculated cost to be the average of the cost per minute across the circuits
in the U.S. to Acquiror's U.S. carriers using an average cost of $600 per T1
circuit. For purposes of this Section 8.13(a), "off-net route" means a route
sending traffic from Acquiror's Reston, VA switch to Acquiror's U.S.-based
carriers.
(b) Such purchases shall result in revenue to Acquiror or its
subsidiaries of at least five hundred thousand dollars ($500,000) during the
period beginning on the Effective Date and ending on the twelve (12) month
anniversary date thereof (the "Revenue Date"). On the Second Payment Date, if
100% of such minimum revenue is not reached, the shortfall shall be subtracted
from the Second Payment Amount (or Alternative Payment, as applicable) and
placed in an escrow account ("Revenue Escrow Amount"), under the terms of the
Escrow Agreement (as defined in Section 11.6 hereto). In the event that 100% of
such minimum revenue amount is not reached by the Revenue Date (a "Revenue
Shortfall"), the shortfall shall constitute a claim (a "Revenue Shortfall
Claim") which shall be satisfied from the Revenue Escrow Amount. To the extent
there is no Revenue Shortfall Claim, the Revenue Escrow Amount shall be paid on
the Revenue Date.
SECTION 8.14. Maximum Debt.
In the event that Swiftcall E&S's total indebtedness and
liabilities on the Closing Date ("Indebtedness"), including, but not limited to,
indebtedness in connection with the Assets, plus the indebtedness owed by VIP to
IDX and to Acquiror, exceeds $1,815,000, the excess shall constitute a claim (an
"Excess Debt Claim") which shall be paid in cash by the Stockholder on the
Closing Date, or if not so paid, shall be satisfied by offset against the First
Payment Amount. In the event that Swiftcall E&S's Indebtedness plus VIP's
indebtedness to IDX and to Acquiror on the Closing Date is less than $1,815,000,
the difference between the amount and $1,815,000 shall be added to the First
Payment Amount (or Alternative Payment, as applicable).
SECTION 8.15. Rack Space.
Acquiror shall ensure that the Surviving Corporation makes
available, free of charge, to VIP the use of up to two (2) racks designated by
the Surviving Corporation on an as-available basis, for a period of twenty-four
(24) months beginning on the Effective Date.
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ARTICLE IX.
CLOSING CONDITIONS
SECTION 9.1. Conditions to Obligations of Acquiror and Merger Sub.
The obligations of Acquiror and Merger Sub to effect the
Merger and the other transactions contemplated in this Agreement are also
subject to the following conditions, any or all of which may be waived, in whole
or in part, to the extent permitted by applicable law, in writing by Acquiror
and Merger Sub:
(a) Representations and Warranties. The representations and
warranties of Swiftcall E&S and the Stockholder and the Affiliate made in this
Agreement shall be true and correct in all material respects, on and as of the
Effective Time with the same effect as though such representations and
warranties had been made on and as of the Effective Time (provided that any
representation or warranty contained herein that is qualified by a materiality
standard shall not be further qualified hereby), except for representations and
warranties that speak as of a specific date or time other than the Effective
Time (which need only be true and correct in all material respects as of such
date or time). Acquiror shall have received a certificate of the president or
vice-president of Swiftcall E&S and a certificate of the Stockholder and the
Affiliate to that effect.
(b) Agreements and Covenants. The agreements and covenants of
Swiftcall E&S and the Stockholder and the Affiliate required to be performed on
or before the Effective Time shall have been performed in all material respects.
Acquiror shall have received a certificate of the president or vice-president of
Swiftcall E&S and a certificate of the Stockholder and the Affiliate to that
effect.
(c) No Order. No Government Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger or any other transactions contemplated in this Agreement; provided,
however, that the parties shall use their reasonable efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted, and any
such action or proceeding to be dismissed.
(d) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit or invalidate the Merger or other transactions contemplated
by
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this Agreement other than an action or proceeding instituted or threatened by
Acquiror.
(e) No Material Adverse Effect. Since the date of this
Agreement, no Material Adverse Effect shall have occurred and be continuing.
(f) Required Consents. Swiftcall E&S and the Stockholder and
the Affiliate shall have delivered to Acquiror at or before Closing all
consents, assignments or notices necessary to be obtained or made by Swiftcall
E&S and the Stockholder and the Affiliate in connection with the transactions
contemplated by this Agreement.
(g) Appraisal. Acquiror shall have received an appraisal of
the value of the Assets from American Appraisal Associates reasonably
satisfactory to Acquiror.
(h) Merger Filings. Evidence of the filing of the Articles of
Merger with the Virginia State Corporation Commission.
(i) Swiftcall E&S Stock Certificates. Delivery by Swiftcall
Bahamas of the Swiftcall E&S Stock certificates as provided in Section 2.2
hereof.
(j) Asset Transfer. The Asset Transfer shall have been
completed no later than three (3) days prior to the Effective Time (or at the
Effective Time, in the case of an Asset Transfer to the Acquiror or its
subsidiary) and all documentation effecting such Asset Transfer shall have been
reasonably approved in writing by Acquiror. The Asset Transfer documentation
shall be delivered to the Acquiror no later than seven (7) days prior to the
Asset Transfer.
(k) DSC Alcatel Switch. Acquiror shall have reached an
agreement with DSC Alcatel to waive all outstanding defaults under the DSC
Alcatel Lease and documents evidencing the DSC Alcatel Related Rights, which
other than such waivers (and changes acceptable to Acquiror in its discretion)
shall be in the form provided to Acquiror prior to the date hereof, and shall
have reached an agreement satisfactory to Acquiror in its discretion with DSC
Alcatel to defer payment of an agreed portion of the amounts in arrears under
the lease with DSC Alcatel as of the Closing Date until the date on which the
final monthly payment under the lease with DSC Alcatel (as provided to Acquiror
prior to the date hereof) is due and to ensure that Acquiror or the Surviving
Corporation has full benefit of and entitlement to the DSC Alcatel Related
Rights.
(l) Other Closing Documents. Swiftcall E&S and the Stockholder
and the Affiliate shall have executed and/or delivered to Acquiror such
additional documents, certificates and agreements as Acquiror may reasonably
request.
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SECTION 9.2. Conditions to Obligations of Swiftcall E&S.
The obligations of Swiftcall E&S and the Stockholder and the
Affiliate to effect the Merger and the other transactions contemplated in this
Agreement are also subject to the following conditions any or all of which may
be waived, in whole or in part, to the extent permitted by applicable law in
writing by Swiftcall E&S:
(a) Representations and Warranties. The representations and
warranties of Acquiror and Merger Sub made in this Agreement shall be true and
correct in all material respects, on and as of the Effective Time with the same
effect as though such representations and warranties had been made on and as of
the Effective Time (provided that any representation or warranty contained
herein that is qualified by a materiality standard shall not be further
qualified hereby), except for representations and warranties that speak as of a
specific date or time other than the Effective Time (which need only be true and
correct in all material respects as of such date or time). The Stockholder and
the Affiliate shall have received a certificate of the Chief Executive Officer
or Chief Financial Officer of Acquiror and Merger Sub to that effect.
(b) Agreements and Covenants. The agreements and covenants of
Acquiror and Merger Sub required to be performed on or before the Effective Time
shall have been performed in all material respects. The Stockholder and the
Affiliate shall have received a certificate of the Chief Executive Officer or
Chief Financial Officer of Acquiror and Merger Sub to that effect.
(c) No Order. No Government Entity or federal or state court
of competent jurisdiction shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, judgment,
injunction or other order (whether temporary, preliminary or permanent), in any
case which is in effect and which prevents or prohibits consummation of the
Merger or any other transactions contemplated in this Agreement; provided,
however, that the parties shall use their reasonable efforts to cause any such
decree, judgment, injunction or other order to be vacated or lifted, and any
such action or proceeding to be dismissed.
(d) Legal Proceedings. No action or proceeding before any
Government Entity shall have been instituted or threatened (and not subsequently
settled, dismissed, or otherwise terminated) which is reasonably expected to
restrain, prohibit or invalidate the Merger or other transactions contemplated
by this Agreement other than an action or proceeding instituted or threatened by
Swiftcall E&S or the Stockholder and the Affiliate.
(e) Merger Filings. Evidence of the filing of the Articles of
Merger with the Virginia State Corporation Commission.
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(f) Other Closing Documents. Acquiror shall have executed
and/or delivered to the Stockholder and the Affiliate such additional documents,
certificates and agreements as Swiftcall E&S and the Stockholder and the
Affiliate may reasonably request.
ARTICLE X
TERMINATION, AMENDMENT AND WAIVER
SECTION 10.1. Termination.
This Agreement may be terminated at any time prior to the
Closing Date:
(a) by mutual written consent of Acquiror and Swiftcall E&S
and the Stockholder and the Affiliate;
(b) by Acquiror if Swiftcall E&S or the Stockholder and the
Affiliate shall have breached any of its or their representations, warranties,
covenants or agreements contained in this Agreement, or any such representation
or warranty shall have become untrue, in any such case such that the conditions
precedent to the obligations of Acquiror to close specified in Section 9.1 will
not be satisfied;
(c) by Swiftcall E&S and the Stockholder and the Affiliate if
Acquiror or Merger Sub shall have breached any of their representations,
warranties, covenants or agreements contained in this Agreement, or any such
representation or warranty shall have become untrue, in any such case such that
the conditions precedent to the obligation of Swiftcall E&S and the Stockholder
and the Affiliate to close specified in Section 9.2 will not be satisfied;
(d) by either Acquiror or Swiftcall E&S and the Stockholder
and the Affiliate if any decree, permanent injunction, judgment, order or other
action by any court of competent jurisdiction or any Government Entity
preventing or prohibiting consummation of the Merger shall have become final and
nonappealable; or
(e) by either Acquiror or Swiftcall E&S and the Stockholder
and the Affiliate if the Effective Time has not occurred on or prior to July 31,
1999 (unless such date shall be extended by the mutual written consent of the
parties); provided, that the right to terminate this Agreement under this
Section 10.1(e) shall not be available to any party whose breach of
representations, warranties, covenants or agreements contained in this Agreement
has been the cause of, or resulted in, the failure of the Closing to occur by
such date or the inability of such condition to be satisfied.
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SECTION 10.2. Effect of Termination.
If this Agreement is terminated pursuant to Section 10.1, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of any party hereto, except that the provisions of
Sections 8.4 and 12.11 shall not be extinguished but shall survive such
termination, and nothing herein shall relieve any party from liability for any
breach hereof and each party shall be entitled to any remedies at law or in
equity for such breach.
SECTION 10.3. Amendment.
This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 10.4. Waiver.
At any time prior to the Effective Time the parties may (a)
extend the time for the performance of any of the obligations or other acts of
the other party, (b) waive any inaccuracies in the representations and
warranties contained in this Agreement or in any document delivered pursuant to
this Agreement and (c) waive compliance by the other party with any of the
agreements or conditions contained in this Agreement. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. No delay or failure on the part of any party hereto in
exercising any right, power or privilege under this Agreement or under any other
instrument or document given in connection with or pursuant to this Agreement
shall impair any such right, power or privilege or be construed as a waiver of
any default or any acquiescence therein. No single or partial exercise of any
such right, power or privilege shall preclude the further exercise of such
right, power or privilege, or the exercise of any other right, power or
privilege.
ARTICLE XI
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
SECTION 11.1. Survival of Representations.
All representations, warranties, covenants, indemnities and
other agreements made by any party to this Agreement herein or pursuant hereto,
shall be deemed made on and as of the Effective Time as though such
representations, warranties, covenants, indemnities and other agreements were
made on and as of such date, and all such representations, warranties,
covenants, indemnities and other agreements shall survive the Effective Time and
any investigation, audit or inspection at any time made by or on behalf of any
party hereto, as follows:
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(a) unless otherwise specified below, representations and warranties shall
survive for a period of one (1) year after the Effective Time; (b)
representations and warranties with respect to Taxes shall survive until the
expiration of the applicable statute of limitations; (c) representations,
warranties and covenants for matters relating to title to the capital stock of
Swiftcall E&S and the Assets shall continue in full force and effect in
perpetuity; and (d) the covenants and agreements in this Article XI and the
covenants and agreements which by their terms survive the Effective Time shall
continue in full force and effect until fully discharged. Notwithstanding
anything herein to the contrary, any representation, warranty, covenant or
agreement which is the subject of a claim which is asserted in writing prior to
the expiration of the applicable period set forth above shall survive with
respect to such claim or dispute until the final resolution thereof.
SECTION 11.2. Agreement of the Stockholder and the Affiliate to
Indemnify.
Subject to the conditions and provisions of this Article XI,
the Stockholder and the Affiliate hereby agree, jointly and severally, to
indemnify, defend and hold harmless Acquiror and its officers, directors,
employees, agents and representatives (collectively, the "Acquiror Indemnified
Persons") from and against and in respect of all Losses resulting from, imposed
upon or incurred by the Acquiror Indemnified Persons, directly or indirectly, by
reason of or resulting from any misrepresentation or breach of any
representation or warranty, or noncompliance with any conditions or other
agreements including, without limitation, failure to obtain consents required in
Sections 3.5, and failure to complete the Asset Transfer as provided for in
Sections 8.11 and 9.1 hereof, given or made by it, Swiftcall E&S or the
Stockholder and the Affiliate in this Agreement or in any document, certificate
or agreement furnished by or on behalf of any such party pursuant to this
Agreement. It shall be a condition to the right of any Acquiror Indemnified
Person to indemnification pursuant to this Section that such Acquiror
Indemnified Person shall assert a claim for such indemnification within the
applicable survival periods set forth in Section 11.1 hereof.
SECTION 11.3. Agreement of Acquiror to Indemnify.
Subject to the conditions and provisions of this Article XI,
Acquiror hereby agrees to indemnify, defend and hold harmless the Stockholder
and the Affiliate from and against and in respect of all Losses resulting from,
imposed upon or incurred by the Stockholder and the Affiliate, directly or
indirectly, by reason of or resulting from any misrepresentation or breach of
any representation or warranty, or noncompliance with any conditions or other
agreements, given or made by Acquiror or Merger Sub in this Agreement or in any
document, certificate or agreement furnished by or on behalf of Acquiror or
Merger Sub pursuant to this Agreement. It shall be a condition to the rights of
the Stockholder and the Affiliate
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to indemnification pursuant to this Section that such party shall assert a claim
for such indemnification within the applicable survival periods set forth in
Section 11.1 hereof.
SECTION 11.4. Conditions of Indemnification.
The obligations and liabilities of the Stockholder and the
Affiliate and Acquiror hereunder with respect to their respective indemnities
pursuant to this Article XI, resulting from any Third Party Claim shall be
subject to the following terms and conditions:
(a) The party seeking indemnification (the "Indemnified
Party") must give the other party (the "Indemnifying Party"), notice of any
Third Party Claim which is asserted against, imposed upon or incurred by the
Indemnified Party and which may give rise to liability of the Indemnifying Party
pursuant to this Article XI, stating (to the extent known or reasonably
anticipated) the nature and basis of such Third Party Claim and the amount
thereof; provided that the failure to give such notice shall not affect the
rights of the Indemnified Party hereunder except to the extent that the
Indemnifying Party shall have suffered actual material damage by reason of such
failure.
(b) Subject to Section 11.4(c) below, the Indemnifying Party
shall have the right to undertake, by counsel or other representatives of its
own choosing, the defense of such Third Party Claim at the Indemnifying Party's
risk and expense.
(c) In the event that (i) the Indemnifying Party shall elect
not to undertake such defense, (ii) within a reasonable time after notice from
the Indemnified Party of any such Third Party Claim, the Indemnifying Party
shall fail to undertake to defend such Third Party Claim, or (iii) there is a
reasonable probability that such Third Party Claim may materially and adversely
affect the Indemnified Party other than as a result of money damages or other
money payments, then the Indemnified Party (upon further written notice to the
Indemnifying Party) shall have the right to undertake the defense, compromise or
settlement of such Third Party Claim, by counsel or other representatives of its
own choosing, on behalf of and for the account and risk of the Indemnifying
Party. In the event that the Indemnified Party undertakes the defense of a Third
Party Claim under this Section 11.4(c), the Indemnifying Party shall pay to the
Indemnified Party, in addition to the other sums required to be paid hereunder,
the reasonable costs and expenses incurred by the Indemnified Party in
connection with such defense, compromise or settlement as and when such costs
and expenses are so incurred.
(d) Anything in this Section 11.4 to the contrary
notwithstanding, (i) the Indemnifying Party shall not, without the Indemnified
Party's written
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consent, settle or compromise such Third Party Claim or consent to entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the Indemnified Party of a release from all
liability in respect of such Third Party Claim in form and substance reasonably
satisfactory to the Indemnified Party; (ii) in the event that the Indemnifying
Party undertakes the defense of such Third Party Claim, the Indemnified Party,
by counsel or other representative of its own choosing and at its sole cost and
expense, shall have the right to participate in the defense, compromise or
settlement thereof and each party and its counsel and other representatives
shall cooperate with the other party and its counsel and representatives in
connection therewith; and (iii) in the event that the Indemnifying Party
undertakes the defense of such Third Party Claim, the Indemnifying Party shall
have an obligation to keep the Indemnified Party informed of the status of the
defense of such Third Party Claim and furnish the Indemnified Party with all
documents, instruments and information that the Indemnified party shall
reasonably request in connection therewith.
SECTION 11.5 Limitations.
Anything contained herein to the contrary notwithstanding, no claim
shall be made by Acquiror under this Article XI until the aggregate of any such
damages exceeds $50,000; provided, however, if the aggregate of such damage
exceeds $50,000, the Stockholder and the Affiliate shall be liable for all such
damages, not just the excess over $50,000; provided, further, that this
limitation shall not apply to any claims relating to matters described in
Section 3.8(a), 3.18, 3.21, 4.1, 8.10, 8.11, 8.12, 8.13 or 8.14, hereof. All
claims made by Acquiror under this Article XI shall be satisfied, and shall be
subject to the limitations, as provided in Section 11.6.
SECTION 11.6. Satisfaction of Claims.
(a) Each claim for indemnification by Acquiror Indemnified
Persons, including under this Article XI, that is agreed to or approved by the
Stockholder prior to the Second Payment Date; any Revenue Shortfall Claim; any
Unpaid Taxes Claim; and any Excess Debt Claim shall be satisfied by offset
against the First Payment Amount (or, if such claim is not made (or agreed to or
approved, if applicable) prior to the First Payment Date, against the Second
Payment Amount).
(b) In the event one or more claims for indemnification made
by Acquiror Indemnified Persons (which claims shall be made in good faith,
providing a detailed explanation of the basis of such claim), including under
this Article XI, are not agreed to or approved by the Stockholder prior to the
Second Payment Date, Acquiror may withhold a portion of the Second Payment equal
to the lesser of the aggregate amount of such claims and $500,000, and place it
into escrow under the terms of the Escrow Agreement (the "Escrow Agreement"), a
form of which is
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attached hereto as Exhibit A, to be entered into in such event at the Second
Payment Date by and among Acquiror, Swiftcall E&S, the Stockholder and the
Escrow Agent named therein (the "Escrow Agent"). The amount deposited into
escrow (the "Escrow Amount") shall be held by the Escrow Agent in escrow until
the final resolution thereof. The Acquiror shall have the option to deliver the
Escrow Amount in Acquiror Common Stock (the number of shares of which shall be
determined in the same manner as the Second Payment Amount) or cash. Any
Acquiror Common Stock delivered as part of the Escrow Amount and ultimately
applied toward satisfaction of any claim against the escrow shall be valued, for
such purpose, at the Market Price of the Acquiror Common Stock on the Second
Payment Date.
(c) Nothing in this Article XI shall preclude any Acquiror
Indemnified Person from pursuing the resolution of an indemnification claim in
any federal or state court, nor shall any Acquiror Indemnified Person be
required to pursue such indemnification claim through arbitration or any other
alternative dispute resolution process. However, in the event any amounts are
placed in escrow following a claim, the claiming party shall pursue resolution
of such claim diligently with a view to obtaining a prompt resolution of the
matter.
(d) In the event of an allocation under Section 2.1(e), any
claim shall be allocated against, and deducted from, the First Payment Amount
and the Second Payment Amount in the same proportions as contemplated by the
allocation of the Purchase Price under Section 2.1(e).
SECTION 11.7. No Recourse Against Swiftcall E&S.
The Stockholder and the Affiliate hereby irrevocably waive any
and all right to recourse against Swiftcall E&S with respect to any
misrepresentation or breach of any representation, warranty or indemnity, or
noncompliance with any conditions or covenants, given or made by the Stockholder
and the Affiliate or Swiftcall E&S in this Agreement or any document,
certificate or agreement entered into or delivered pursuant hereto. The
Stockholder and the Affiliate shall not be entitled to contribution from,
subrogation to or recovery against Swiftcall E&S with respect to any liability
of the Stockholder and the Affiliate or Swiftcall E&S that may arise under or
pursuant to this Agreement or the transactions contemplated hereby.
SECTION 11.8. Remedies Cumulative.
The remedies provided herein shall be cumulative and shall not
preclude the assertion by the parties hereto of any other rights or the seeking
of any other remedies against the other, or their respective successors or
assigns.
43
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ARTICLE XII
GENERAL PROVISIONS
SECTION 12.1. Notices.
All notices and other communications given or made pursuant
hereto shall be in writing and shall be deemed to have been duly given or made
as of the date delivered, mailed or transmitted, and shall be effective upon
receipt, if delivered personally, mailed by registered or certified mail
(postage prepaid, return receipt requested) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
changes of address) or sent by electronic transmission to the telecopier number
specified below:
(a) If to Acquiror or Merger Sub:
eGlobe, Inc.
2000 Pennsylvania Avenue, NW
Suite 4800
Washington, DC 20006
Telecopier No.: (202) 822-8984
Attention: General Counsel and Vice President of
Corporate Development
(b) If to Swiftcall E&S or Stockholder and the Affiliate:
Graham Milne
14215 Rock Canyon Drive
Centreville, VA 22021
Telecopier No.: (603) 297-6455
with a copy to:
Nixon Peabody LLP
One Thomas Circle, N.W.
Washington, DC 20005
Telecopier No.: (202) 457-5355
Attention: Jeff M. Cohen
44
<PAGE>
SECTION 12.2. Certain Definitions.
For 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) "Assets" shall mean the assets, rights and properties,
whether owned, leased or licensed, real, personal or mixed, tangible or
intangible, including without limitation the Transfer Assets, that are used,
useful or held for use in connection with the business of Swiftcall E&S or are
contemplated to be so held following the Asset Transfer or as of the Closing
Date, or transferred pursuant to the Asset Transfer to the Acquiror or a
subsidiary thereof, as contemplated by Section 8.11.
(c) "Acquiror Material Adverse Effect" means any material
adverse effect on the assets, business, financial condition or results of
operations of Acquiror and its subsidiaries, taken as a whole.
(d) "Closing Price" of each share of Acquiror Common Stock
means the composite closing price of the sales of the Acquiror Common Stock on
all securities exchanges on which such security may at the time be listed (as
reported in The Wall Street Journal), or, if there has been no sale on any such
exchange on any day, the average of the highest bid and lowest asked prices of
the Acquiror Common Stock on all such exchanges at the end of such day, or, if
such security is not so listed, the closing price (or last price, if applicable)
of sales of the Acquiror Common Stock in the Nasdaq National Market (as reported
in The Wall Street Journal) on such day, or if such security is not quoted in
the Nasdaq National Market but is traded over-the-counter, the average of the
highest bid and lowest asked prices on such day in the over-the-counter market
as reported by the National Quotation Bureau Incorporated, or any similar
successor organization.
(e) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as trustee
or executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
(f) "Encumbrances" means mortgages, liens, pledges,
encumbrances, security interests, deeds of trust, options, encroachments,
reservations, orders, decrees, judgments, restrictions, charges, contract
rights, claims or equity of any kind.
(g) "Government Entity" means any United States or other
national, state, municipal or local government, domestic or foreign, any
subdivision,
45
<PAGE>
agency, entity, commission or authority thereof, or any quasi-governmental or
private body exercising any regulatory, taxing, importing or other governmental
or quasi-governmental authority.
(h) "Laws" means all foreign, federal, state and local
statutes, laws, ordinances, regulations, rules, resolutions, orders,
determinations, writs, injunctions, awards (including, without limitation,
awards of any arbitrator), judgments and decrees applicable to the specified
persons or entities.
(i) Losses" means all demands, losses, claims, actions or
causes of action, assessments, damages, liabilities, costs and expenses,
including, without limitation, interest, penalties and reasonable attorneys'
fees and disbursements.
(j) "Market Price" means (1) if the Acquiror Common Stock is
listed on any securities exchange, quoted in the Nasdaq National Market, or
quoted in the over-the-counter market throughout the period of 15 consecutive
trading days consisting of the day as of which the Market Price is being
determined and the 14 consecutive trading days prior to such day (the "Pricing
Period"), the Closing Price of the Acquiror Common Stock averaged over the 15
consecutive trading days constituting the Pricing Period, or (2) if the Acquiror
Common Stock is not listed on any securities exchange, quoted in the Nasdaq
National Market, or quoted in the over-the-counter market throughout the Pricing
Period, the fair value of the Acquiror Common Stock determined by agreement
between the Acquiror and the Stockholder or, if they are unable to reach
agreement within a reasonable period of time, the fair value of the Acquiror
Common Stock as determined by an independent appraiser selected by the Acquiror
and the Stockholder (the fees and expenses of such appraiser shall be borne by
the Acquiror), which determination shall be final and binding upon the Acquiror
and the Stockholder.
(k) "Material Adverse Effect" means any material adverse
effect on the Assets or on the business, financial condition or results of
operations of Swiftcall E&S.
(l) "Material Contracts" means, collectively, all contracts
which (1) involve an aggregate annual expenditure by Swiftcall E&S of $5,000 or
more, (2) are not cancelable by Swiftcall E&S without cost on 60 days or less
notice, (3) are with any current customer, supplier or distribution partner and
have an unexpired term of 2 or more years, and (4) restrict or regulate in any
manner the conduct of business of Swiftcall E&S, require the referral of any
business by Swiftcall E&S, or require or purport to require the payment of money
or the acceleration of performance of any obligations of Swiftcall E&S by virtue
of the Closing and "Material Contract" means each of the Material Contracts,
individually.
(m) "Material Leases" means, collectively, all leases which
(a) involve an aggregate annual expenditure by Swiftcall E&S of $5,000 or more,
(b) are not cancelable by Swiftcall without cost on 60 days or less notice, or
(c) have a term which
46
<PAGE>
extends for more than one year from the Closing and "Material Lease" means each
of the Material Leases, individually.
(n) "Person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group.
(o) "Subsidiary" means a corporation, partnership, joint
venture or other entity of which Swiftcall E&S owns, directly or indirectly, at
least 50% of the outstanding securities or other interests the holders of which
are generally entitled to vote for the election of the board of directors or
other governing body or otherwise exercise control of such entity.
(p) "Third Party Claim" means any claim or other assertion of
liability by a third party.
SECTION 12.3. Headings.
The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
SECTION 12.4. 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 12.5. Entire Agreement.
This Agreement (together with the Exhibits, the Schedules and
the other documents delivered pursuant hereto) constitutes the entire agreement
of the parties and supersede all prior agreements and undertakings, both written
and oral, between the parties, or any of them, with respect to the subject
matter hereof and, except as otherwise expressly provided herein, are not
intended to confer upon any other person any rights or remedies hereunder.
47
<PAGE>
SECTION 12.6. Specific Performance.
The transactions contemplated by this Agreement are unique.
Accordingly, each of the parties acknowledges and agrees that, in addition to
all other remedies to which it may be entitled, each of the parties hereto is
entitled to a decree of specific performance, provided such party is not in
material default hereunder.
SECTION 12.7. Assignment.
Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any of the parties hereto (whether by
operation of law or otherwise) without the prior written consent of the other
party; provided, however, that Acquiror and Merger Sub shall have the right to
assign this Agreement for collateral purposes without the prior written consent
of Swiftcall E&S or the Stockholder and the Affiliate. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors and assigns.
SECTION 12.8. Third Party Beneficiaries.
This Agreement shall be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or implied,
is intended to or shall confer upon any other person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except for
the Acquiror Indemnified Persons under Article XI hereof.
SECTION 12.9. Governing Law.
This Agreement shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Virginia (without regard to the
choice of law rules thereof).
SECTION 12.10. Counterparts.
This Agreement may be executed and delivered in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed and delivered shall be deemed to be an original but all
of which taken together shall constitute one and the same agreement.
SECTION 12.11. Fees and Expenses.
Except as otherwise provided for in this Agreement, each party
hereto shall pay its own fees, costs and expenses incurred in connection with
this
48
<PAGE>
Agreement and in the preparation for and consummation of the transactions
provided for herein.
49
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
AGREEMENT AND PLAN OF MERGER to be executed and delivered as of the date first
written above.
EGLOBE, INC.
By: /s/ Christopher J. Vizas
---------------------------
Name: Christopher J. Vizas
Title: Chief Executive Officer
EGLOBE MERGER SUB NO. 3, INC.
By: /s/ Christopher J. Vizas
---------------------------
Name: Christopher J. Vizas
Title: Chief Executive Officer
SWIFTCALL EQUIPMENT AND SERVICES (USA) INC.
By: /s/ Graham Milne
---------------------------
Name: Graham Milne
Title: President/Director
SWIFTCALL HOLDINGS (USA), LTD.
By: /s/ Graham Milne
---------------------------
Name: Graham Milne
Title: Attorney-in-Fact
ANDVILLE TECHNOLOGY (IRL) LIMITED
By: /s/ Tom McCabe
---------------------------
Name: Tom McCabe
Title: Director
50
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<NAME> eGlobe, Inc.
<MULTIPLIER> 1
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
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