U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Act of 1934
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Date of Report (Date of earliest event reported) . . . . . . . August 3, 1998
WORLDPORT COMMUNICATIONS, INC.
(Exact name of small business registrant as specified in its charter)
Delaware 33-32341-D 84-1127336
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(State or other (Commission File Number) (I.R.S. Employer
Jurisdiction Identification Number)
of incorporation)
1825 Barrett Lakes Blvd.
Suite 100
Kennesaw, GA 30144
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(Address, including zip code of
principal executive offices)
(770) 792-8735
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(Registrant's telephone number)
Item 2. Acquisition or Disposition of Assets
On August 3, 1998, the Registrant completed the acquisition of International
InterConnect, Inc. ("IIC"), a corporation specializing in international long
distance services primarily via international callback, which are marketed
through international distributors primarily in Latin America. The transaction
was effected through a merger of IIC with and into a wholly-owned subsidiary of
the Registrant. In the merger, the sole stockholder of IIC will receive an
aggregated of $750,000 cash and 916,520 shares of the Registrant s Common Stock,
$.0001 par value per share. The consideration was determined through arm s
length negotiations.
Item 7. Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
Audited Financial Statements of IIC for the years ended December 31,
1997 and 1996 and the Unaudited Financial Statements of IIC for the
three months ended March 31, 1998.
(b) Pro Forma Financial Information
Unaudited Pro Forma Consolidated Financial Statements of the
Registrant for the year ended December 31, 1997 and the three months
ending March 31, 1998.
(c) Exhibits
Exhibit No. Description
2.1 Merger Agreement, dated May 22, 1998, by and among
WorldPort Communications, Inc., IIC Acquisition Corp.,
International InterConnect, Inc. and Mr. Ralph
Abravaya, with attached list of schedules.
2.2 Amendment to Merger Agreement, dated July 30, 1998, by
and among WorldPort Communications, Inc., IIC
Acquisition Corp., International InterConnect, Inc. and
Mr. Ralph Abravaya.
99.1 Audited Financial Statements of IIC for the years ended
December 31, 1997 and 1996 and the Unaudited Financial
Statements of IIC for the three months ended March 31,
1998
99.2 Unaudited Pro Forma Consolidated Financial Statements
of the Registrant for the year ended December 31, 1997
and the three months ending March 31, 1998
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WORLDPORT COMMUNICATIONS, INC.
Date: August 13, 1998
By: /s/ Phillip S. Magiera
Name: Phillip S. Magiera
Title: Chief Financial Officer
MERGER AGREEMENT
By and Among
MR. RALPH ABRAVAYA,
INTERNATIONAL INTERCONNECT, INC
and
WORLDPORT COMMUNICATIONS, INC.
and
IIC ACQUISITION CORP.
dated as of
May 22, 1998
MERGER AGREEMENT
Merger Agreement (the "Agreement") entered into as of May 22, 1998, by and
between Mr. Ralph Abravaya ("Seller"), International InterConnect, Inc. (the
"Company"), WorldPort Communications, Inc., a Delaware corporation ("Purchaser")
and IIC Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Purchaser ("Newco"). Seller, the Company, Purchaser and Newco are referred
to collectively herein as the "Parties."
Seller owns all of the outstanding capital stock of the Company.
This Agreement contemplates a transaction in which, through a merger of the
Company with and into Newco, Purchaser will acquire all of the outstanding
capital stock of the Company and Seller will receive cash and an equity interest
in Purchaser. It is contemplated by the Parties that the transaction will
qualify as a "reorganization" under Section 368 the Code.
Now, therefore, in consideration of the premises and the actual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
Section 1. Definitions.
"Adjusted Merger Consideration" has the meaning set forth in Section 2(e).
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, complaints, claims, demands, injunctions, judgments, orders,
decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in
settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and fees,
including court costs and reasonable attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
Sec. 1504.
"Agreement" has the meaning set forth in the first paragraph hereof.
"CERCLA" has the meaning set forth in Section 3(y)(iii).
"Certificate of Merger" has the meaning set forth in Section 2(c)(i).
"Closing" has the meaning set forth in Section 2(b).
"Closing Date" has the meaning set forth in Section 2(b).
"Closing Date Balance Sheet" has the meaning set forth in Section 2(e)(ii).
"Code" means the Internal Revenue Code of 1986, as amended.
"Commitments" has the meaning set forth in Section 5(h)(i).
"Company" has the meaning set forth in the preface hereof.
"Controlled Group of Corporations" means a controlled group of corporations
under Code Sec. 414(b) and trades or businesses under common control under Code
Sec. 414(c).
"Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 3.
"Draft Closing Date Balance Sheet" has the meaning set forth in Section
2(e)(i).
"Effective Time" has the meaning set forth in Section 2(d)(i).
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), (d) Employee Welfare Benefit Plan, or (e) any bonus,
incentive, severance, stock option, stock purchase, short-term disability plan
or other material fringe benefit plan, program or arrangement, including
policies concerning holidays, vacations and salary continuation during short
absences for illness or otherwise.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA Sec.
3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA Sec.
3(1).
"Employment Agreement" has the meaning set forth in Section 6(a)(vii).
"Environmental, Health, and Safety Requirements" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Clean Air Act, the Federal Water
Pollution Control Act, the Safe Drinking Water Act, the Toxic Substance Control
Act, the Emergency Planning and Community Right-to-Know Act of 1986, the
Hazardous Material Transportation Act, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, injunctions, judgments, orders, decrees, and rulings) of
federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials (including petroleum products and
asbestos) or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport, or handling of pollutants, contaminants, or
chemical, industrial, hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Escrow" has the meaning set forth in Section 2(d)(v).
"Escrow Agent" has the meaning set forth in Section 2(d)(v).
"Escrow Agreement" has the meaning set forth in Section 2(d)(v).
"Escrow Amount" has the meaning set forth in Section 2(d)(v).
"Estimated Net Working Capital" means the estimated amount of Net Working
Capital at Closing as set forth on an officer's certificate delivered to
Purchaser prior to Closing.
"Financial Statements" has the meaning set forth in Section 3(h).
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 8(d)(i).
"Indemnifying Party" has the meaning set forth in Section 8(d)(i).
"Intellectual Property" means (a) all trade secrets and confidential
business information (including customer and supplier lists, ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
pricing and cost information, and business and marketing plans and proposals),
(b) all trademarks, service marks, trade dress, logos, trade names, and
corporate names, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith, (c) all
inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations, continuations-
in-part, revisions, extensions, and reexaminations thereof, (d) all
copyrightable works, all copyrights, and all applications, registrations, and
renewals in connection therewith, (e) all mask works and all applications,
registrations, and renewals in connection therewith, (f) all computer software
(including data and related documentation), (g) all other proprietary rights,
and (h) all copies and tangible embodiments thereof (in whatever form or
medium).
"Key Employees" has the meaning set forth in Section 6(a)(vii).
"Key Employee Agreements" has the meaning set forth in Section 6(a)(vii).
"knowledge" as it applies to the Company, means the knowledge of Seller
and each of the officers and directors of the Company.
"Letter Agreement" has the meaning set forth in Section 2(d)(v).
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Merger" has the meaning set forth in Section 2(a).
"Merger Consideration" has the meaning set forth in Section 2(d)(v).
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in Section
3(h).
"Most Recent Fiscal Month End" has the meaning set forth in Section 3(h).
"Most Recent Fiscal Year End" has the meaning set forth in Section 3(h).
"Multiemployer Plan" has the meaning set forth in ERISA Sec. 3(37).
"Net Working Capital" means, as of the Closing Date, the Company's current
assets less its current liabilities (determined on a basis in accordance with
GAAP applied on a basis consistent with the principles used in preparation of
the Company's Most Recent Financial Statements).
"Party" has the meaning set forth in the preface above.
"Payoff Indebtedness" means all indebtedness of the Company identified on
Exhibit A which will be paid off at the Closing.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Exceptions" has the meaning set forth in Section 5(h)(i).
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a limited liability company or partnership, a trust, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
" Preliminary Merger Consideration" has the meaning set forth in Section
2(d)(v).
"Prohibited Transaction" has the meaning set forth in ERISA Sec. 406 and
Code Sec. 4975.
"Purchaser" has the meaning set forth in the preface above.
"Real Property" has the meaning set forth in Section 5(h).
"Real Property Closing Date" has the meaning set forth in Section 5(h).
"Real Property Seller" has the meaning set forth in Section 5(h).
"Reportable Event" has the meaning set forth in ERISA Sec. 4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any lien, encumbrance, mortgage, pledge, or other
security interest, excluding purchase money security interests arising in the
ordinary course of business and liens arising by operation of law for Taxes not
yet due and payable.
"Seller" has the meaning set forth in the first paragraph hereof.
"Shares" means all of the issued and outstanding shares of common stock,
$1.00 par value, of the Company.
"Software" means all computer hardware and software programs, program
specifications, charts, procedures, source codes (including annotations), object
codes, input data, diagnostic and other routines, data bases and report layouts
and formats, record file layouts, diagrams, functional specifications and
narrative descriptions and flow charts owned or used by the Company.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Surveys" has the meaning set forth in Section 5(h)(ii).
"Survey Defect" has the meaning set forth in Section 5(h)(iii).
"Surviving Corporation" has the meaning set forth in Section 2(a).
"SWDA" has the meaning set forth in Section 3(y)(iii).
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Sec. 59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including interest, penalty, or
additions thereto, whether disputed or not, and whether or not accrued on the
Financial Statements.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 8(d)(i).
"Title Company" has the meaning set forth in Section 5(h)(i).
"Title Policy" has the meaning set forth in Section 5(h)(i).
"Unpermitted Exception" has the meaning set forth in Section 5(h)(iii).
"WorldPort Common Stock" means the common stock, par value $.0001 per
share, of Purchaser.
Section 2. Basic Transaction.
(a) The Merger. On and subject to the terms and conditions of this
Agreement, the Company will merge with and into Newco (the "Merger") at the
Effective Time. Newco shall be the corporation surviving the Merger (the
"Surviving Corporation").
(b) The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at the offices of McDermott,
Will & Emery, 227 West Monroe Street, Suite 5500, Chicago, Illinois 60606,
commencing at 9:00 a.m. local time on the second business day following the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than conditions with
respect to actions the respective Parties will take at the Closing itself) or
such other place or date as the Parties may mutually determine (the "Closing
Date").
(c) Deliveries at the Closing. At the Closing:
(i) the Company and Newco will file with each of the Secretaries
of State of the States of Delaware and Florida Certificates of Merger in
the forms acceptable to the Parties (the "Certificate of Merger")
(ii) Newco will deliver to Seller the Preliminary Merger
Consideration in the manner provided in Section 2(d)(v) below;
(iii) Purchaser and Newco will deliver to Seller (A)
certified copies of resolutions duly adopted by the boards of directors of
Purchaser and Newco authorizing the execution, delivery and performance of
this Agreement, (B) certified copies of Purchaser's and Newco's certificate
of incorporation and bylaws, (C) a short-form certificate of good standing
of each of Purchaser and Newco, certified by the Secretary of State of
Delaware, as of a date not more than three business days prior to the
Closing Date, and (D) all other certificates, instruments, and documents
referred to in Section 6(b) below;
(iv) Seller shall deliver to Purchaser (A) certified copies of
resolutions duly adopted by the board of directors and the sole stockholder
of the Company authorizing the execution, delivery and performance of this
Agreement, (B) certified copies of the certificate of incorporation and by-
laws of the Company, (C) a short-form certificate of good standing of the
Company, certified by the Secretary of State of the State of the Company's
incorporation as of a date not more than three business days prior to the
Closing Date, (D) certificates representing the Shares together with
appropriate stock powers executed in blank, and (E) all other certificates,
instruments, and documents referred to in Section 6(a) below.
(d) Effect of Merger.
(i) General. The Merger shall become effective
at the time (the "Effective Time") the Company and Newco
file the Certificate of Merger with the Secretaries of State of the
States of Delaware and Florida. The Merger shall have the
effect set forth in the Delaware General Corporation Law and the
Florida General Corporation Law. The Surviving Corporation
may, at any time after the Effective Time, take any action (including
executing and delivering any document) in the name and
on behalf of either the Company or Newco in order to carry out and
effectuate the transactions contemplated by this Agreement.
(ii) Certificate of Incorporation. The Certificate
of Incorporation of the Surviving Corporation shall be
amended and restated to read as did the Certificate of Incorporation
of Newco immediately prior to the Effective Time (except
that the name of the Surviving Corporation will be changed to
International InterConnect, Inc.).
(iii) Bylaws. The Bylaws of the Surviving
Corporation shall be amended and restated to read as did the
Bylaws of Newco immediately prior to the Effective Time (except that
the name of the Surviving Corporation will be changed to
International InterConnect, Inc.).
(iv) Directors and Officers. The directors and
officers of Newco shall become the directors and officers
of the Surviving Corporation at and as of the Effective Time
(retaining their respective positions and terms of office) until
their respective successors are duly elected and qualified.
(v) Purchase Price; Conversion of Shares.
(A) An amount equal to $250,000 shall be paid
to Seller, as the sole stockholder of the Company, by
delivery of cash payable by wire transfer or delivery of
other immediately available funds, upon the satisfaction of
those items outlined in that certain letter agreement, dated
as of the date hereof, by and between Purchaser and
Seller (the "Letter Agreement").
(B) At and as of the Effective Time, all of
the Shares issued and outstanding immediately prior to
the Effective Time shall be converted into the right to
receive an aggregate amount (the "Merger Consideration") equal
to (i) $2,950,000, plus (ii) 550,000 shares of WorldPort
Common Stock, plus (iii) the Estimated Net Working Capital
less (iv) the Payoff Indebtedness (the "Preliminary Merger
Consideration"). The Preliminary Merger Consideration
shall be paid as follows: (1) (A) an amount equal to
$2,950,000, plus the Estimated Net Working Capital and less the
Payoff Indebtedness shall be paid to Seller at the Closing,
by delivery of cash payable by wire transfer or delivery
of other immediately available funds and (B) a stock
certificate representing 511,500 shares of WorldPort Common Stock
shall be delivered to Seller at the Closing; and (2) a
stock certificate representing 38,500 shares of WorldPort
Common Stock (the "Escrow Amount") shall at the Closing be
deposited in an escrow account (the "Escrow") established
pursuant to the terms and conditions of the escrow agreement by
and among Purchaser, Newco, Seller and an escrow agent
(the "Escrow Agent") substantially in the form of Exhibit B
attached hereto (the "Escrow Agreement"). The Preliminary
Merger Consideration will be subject to post-closing
adjustment, as set forth in Section 2(e) below and, as so
adjusted is referred to herein as the "Adjusted Merger
Consideration", and to additional post-Closing adjustment, as
set forth in Section 8 below and, as so additionally adjusted,
is referred to herein as the "Merger Consideration".
(C) No Shares shall be deemed to be
outstanding or to have any rights other than those set forth
above in this Section 2(d)(v) after the Effective Time.
(D) All Shares that immediately prior to
the Effective Time are owned by the Company shall
automatically be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(vi) Conversion of Capital Stock of Newco. At and
as of the Effective Time, each outstanding share of the
capital stock of Newco shall be converted into one share of common
stock of the Surviving Corporation.
(e) Preparation of Closing Date Balance Sheet.
(i) Within 90 days after the Closing Date, Purchaser
will prepare and deliver to Seller a draft balance sheet
(the "Draft Closing Date Balance Sheet") for the Company as of the
close of business on the Closing Date and a computation and
determination of Net Working Capital and the Adjusted Merger
Consideration in accordance with the provisions of this Section
2(e). Purchaser will prepare the Draft Closing Date Balance Sheet in
accordance with GAAP applied on a basis consistent with
the preparation of the Financial Statements, through full
application of the procedures used in preparing the most recent
audited balance sheet included within the Financial Statements.
(ii) If Seller has any objection to the Draft Closing
Date Balance Sheet, he will deliver a detailed statement
describing his objections to Purchaser within 30 days after
receiving the Draft Closing Date Balance Sheet. Purchaser and
Seller will use reasonable efforts to resolve any such objections.
If the Parties do not obtain a final resolution within 30
days after Purchaser has received the statement of objections,
however, Purchaser and Seller will select an accounting firm
mutually acceptable to them to resolve any remaining objections. If
Purchaser and Seller are unable to agree on the choice of
an accounting firm, they will select a nationally-recognized
accounting firm by lot (after excluding their respective regular
outside accounting firms). The determination of any accounting firm
so selected will be set forth in writing and will be
conclusive and binding upon the Parties. Purchaser will revise the
Draft Closing Date Balance Sheet as appropriate to reflect
the resolution of any objections thereto pursuant to this Section
2(e)(ii). The "Closing Date Balance Sheet" shall mean the
Draft Closing Date Balance Sheet together with any revisions thereto
pursuant to this Section 2(e)(ii). The "Adjusted Merger
Consideration" shall mean the Preliminary Merger Consideration,
together with any revisions thereto pursuant to this Section
2(e), including the determination of the Accountant.
(iii) In the event the Parties submit any unresolved
objections to an accounting firm for resolution as provided in
Section 2(e)(ii) above, Purchaser and Seller will share equally the
responsibility for the fees and expenses of the accounting
firm.
(iv) Purchaser will make the work papers and back-up
materials used in preparing the Draft Closing Date Balance
Sheet, and the books, records, and financial staff of the
Company, available to Seller and his accountants and other
representatives at reasonable times and upon reasonable notice at any
time during (A) the preparation by Purchaser of the
Draft Closing Date Balance Sheet, (B) the review by Seller of the
Draft Closing Date Balance Sheet, and (C) the resolution by
the Parties of any objections thereto.
(v) The Adjusted Merger Consideration will be determined
by adjusting the Preliminary Merger Consideration as
follows:
(A) The Preliminary Merger Consideration will be
increased by the amount, if any by which the Net Working
Capital is greater than the Estimated Net Working Capital; and
(B) The Preliminary Merger Consideration will be
decreased by the amount, if any by which the Net Working
Capital is less than the Estimated Net Working Capital.
(vi) If the Adjusted Merger Consideration exceeds the
Preliminary Merger Consideration, Purchaser shall pay to
Seller an amount in cash equal to such excess by delivery of cash
payable by wire transfer or delivery of other immediately
available funds. If the Adjusted Merger Consideration is less than
the Preliminary Merger Consideration, Seller shall pay to
Purchaser an amount in cash equal to such deficiency by delivery
of cash payable by wire transfer or delivery of other
immediately available funds. Such payments shall be made no later
than five business days after (A) the 30th day after the
Draft Closing Date Balance Sheet has been given by Purchaser to
Seller, if Seller has not objected to the Draft Closing Date
Balance Sheet within such 30 day period; (B) Purchaser and Seller
have resolved any objection raised by Seller; or (C) the
date the determination of the accountant described in clause (ii) above
is given to Purchaser and Seller.
(f) Seller Release. Effective on the Closing, Seller hereby
releases the Company from any and all claims (other than
employee compensation and related benefits accrued through the Closing Date)
of Seller whether arising before or after the Closing
against the Company or Liabilities or obligations of the Company to Seller
as a result of Seller having served as a stockholder,
director, officer, employee, or agent of the Company.
Section 3. Representations and Warranties Concerning the Company.
Each of Seller and the Company, jointly and severally,
represents and warrants to Purchaser and Newco that the statements contained in
this Section 3 are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date
(as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this Section 3), except
as set forth in the disclosure schedule accompanying this
Agreement (the "Disclosure Schedule"). The Disclosure Schedule will be
arranged in paragraphs corresponding to the lettered and
numbered paragraphs contained in this Section 3.
(a) Organization, Qualification, and Corporate Power. The
Company is a corporation duly organized, validly existing,
and in good standing under the laws of the jurisdiction of its incorporation.
The Company is duly authorized to conduct business and is
in good standing under the laws of each jurisdiction where such qualification
is required. The Company has full power and authority
and all licenses, permits, and authorizations necessary to carry on the
businesses in which it is engaged and to own and use the
properties owned and used by it. Section 3(a) of the Disclosure Schedule
lists the directors and officers of the Company. Seller has
made available to Purchaser correct and complete copies of the charter and
bylaws of the Company (as amended to date). The minute
books (containing the records of meetings of the stockholders, the board of
directors, and any committees of the board of directors),
the stock certificate books, and the stock record books of the Company are
correct and complete in all material respects. The Company
is not in default under or in violation of any provision of its charter or
bylaws.
(b) Capitalization. The entire authorized capital stock of the
Company consists of 7,500 Shares, of which 100 Shares
are issued and outstanding. All of the issued and outstanding Shares have
been duly authorized, are validly issued, fully paid, and
nonassessable and are held of record by Seller. There are no
outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts
or commitments that could require the Company to issue,
sell, or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Company. There are no voting trusts, proxies, or other
agreements or understandings with respect to the voting of the capital stock of
the Company.
(c) Authorization. The Company has full power and authority
(including full corporate power and authority) to execute
and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement by the
Company has been duly authorized and approved by its Board of Directors and no
other corporate proceedings on the part of the Company
are necessary to authorize this Agreement and the transactions contemplated
hereby. This Agreement constitutes the valid and legally
binding obligation of the Company, enforceable in accordance with its terms and
conditions.
(d) Noncontravention. Except as set forth in Section 3(d) of
the Disclosure Schedule, neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby will (i) violate any constitution, statute,
regulation, rule, injunction, judgment, order, decree, ruling, or other
restriction of any government, governmental agency, or court to
which the Company is subject, or any provision of the charter or bylaws of
the Company or (ii) conflict with, result in a breach of,
constitute a default under, result in the acceleration of, create in any party
the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Company is a party
or by which it is bound or to which any of its assets is subject (or result in
the imposition of any Security Interest upon any of its
assets). Except as set forth on Section 3(d) of the Disclosure Schedule, the
Company does not need to give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any
government or governmental agency in order for the Parties to
consummate the transactions contemplated by this Agreement.
(e) Broker's Fees. Except as set forth in Section 3(e) of
the Disclosure Schedule, the Company has no Liability or
obligation to pay any fees, expenses, or commissions to any professional
representative, attorney, consultant, broker, finder, or agent
with respect to the transactions contemplated by this Agreement.
(f) Title to Assets. The Company has good and marketable
title to, or a valid leasehold interest in, the properties
and assets used by it, located on its premises, or shown on the Most Recent
Balance Sheet or acquired after the date thereof, free and
clear of all Security Interests, except for properties and assets disposed of
in the ordinary course of business since the date of such
Most Recent Balance Sheet.
(g) Subsidiaries. The Company has no Subsidiaries.
(h) Financial Statements. Attached hereto as Exhibit C are
the following financial statements (collectively, the
"Financial Statements"): (i) audited balance sheets and statements of income,
changes in stockholders' equity, and cash flow as of and
for the fiscal year ended December 31, 1997, (the "Most Recent Fiscal Year
End") for the Company; and (ii) audited balance sheet and
statements of income, changes in stockholders' equity, and cash flow (the "Most
Recent Financial Statements") as of and for the three
months ended March 31, 1998 (the "Most Recent Fiscal Month End") for the
Company. The Financial Statements (including the notes
thereto) have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby, present
fairly the financial condition of the Company as of such dates and the
results of operations of the Company for such periods, are
correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete);
provided, however, that the Most Recent Financial Statements are subject to
normal year-end adjustments which will not be material.
(i) Events Subsequent to Most Recent Fiscal Year End. Since
the Most Recent Fiscal Year End, there has not been any
material adverse change in the business, financial condition, operations,
results of operations, or future prospects of the Company.
Without limiting the generality of the foregoing, since the Most Recent Fiscal
Year End:
(i) the Company has not sold, leased, transferred, or
assigned any of its assets, tangible or intangible, other
than for a fair consideration in the ordinary course of business;
(ii) the Company has not entered into any agreement,
contract, lease, or license (or series of related agreements,
contracts, leases, and licenses) outside the ordinary course of
business;
(iii) no party (including the Company) has accelerated,
terminated, modified, or cancelled any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) to which the Company is a party or by
which it is bound;
(iv) the Company has not imposed any Security Interest upon
any of its assets, tangible or intangible;
(v) the Company has not made any capital investment in,
any loan to, or any acquisition of the securities or
assets of, any other Person (or series of related capital investments,
loans, and acquisitions);
(vi) the Company has not issued any note, bond, or
other debt security or created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease
obligation;
(vii) the Company has not delayed or postponed the
payment of accounts payable and other Liabilities outside the
ordinary course of business, failed to maintain the level or
quality of its inventory consistent with past practice or
accelerated the collection of accounts, notes or other receivables;
(viii) the Company has not cancelled, compromised, waived,
or released any right or claim (or series of related
rights and claims) outside the ordinary course of business;
(ix) there has been no change made or authorized in the
charter or bylaws of the Company;
(x) the Company has not issued, sold, or otherwise
disposed of any of its capital stock, or granted any options,
warrants, or other rights to purchase or obtain (including upon
conversion, exchange, or exercise) any of its capital stock;
(xi) the Company has not declared, set aside, or paid any
dividend or made any distribution with respect to its
capital stock (whether in cash or in kind) or redeemed, purchased, or
otherwise acquired any of its capital stock;
(xii) the Company has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its
property;
(xiii) the Company has not made any loan to, or entered
into any other transaction with, any of its directors,
officers, and employees outside the ordinary course of business; and
(xiv) the Company has not granted any increase in the base
compensation of, or made other changes in employment
terms for, any of its directors, officers, and employees outside the
ordinary course of business.
(j) Undisclosed Liabilities. The Company has no Liability
(and there is no basis for any present or future action,
suit, proceeding, hearing, investigation, complaint, claim, or demand
against it giving rise to any Liability), except for (i)
Liabilities set forth on the Most Recent Balance Sheet, and (ii) Liabilities
which have arisen after the Most Recent Fiscal Month End
in the ordinary course of business (none of which results from, arises out of,
relates to, is in the nature of, or was caused by any
breach of contract, breach of warranty, tort, infringement, or violation of
law).
(k) Legal Compliance. Each of the Company and its
predecessors and Affiliates has complied with all applicable laws
(including rules, regulations, codes, injunctions, judgments, orders,
decrees, and rulings of federal, state, local, and foreign
governments (and all agencies thereof)), and no action, suit, proceeding,
hearing, complaint, claim, demand, notice or investigation
has been filed or commenced, or to the knowledge of the Company, threatened
against the Company alleging any failure so to comply.
(l) Tax Matters.
(i) The Company has at all times since its inception
qualified, and presently qualifies, as an "S corporation"
(as defined by Section 1361 of the Code) and neither the Company nor
Seller is aware of any facts which could form a basis for
the termination of such qualification. The Company has filed all Tax
Returns it was required to file. All such Tax Returns
were correct and complete in all respects. All Taxes owed by the
Company (whether or not shown on any Tax Return) have been
paid. The Company currently is not the beneficiary of any extension of
time within which to file any Tax Return. No claim is
currently pending by an authority in a jurisdiction where the Company
does not file Tax Returns that the Company is or may be
subject to taxation by that jurisdiction. There are no Security
Interests on any of the assets of any of the Company that
arose in connection with any failure (or alleged failure) to pay any
Tax.
(ii) The Company has withheld and paid all Taxes
required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party.
(iii) No shareholder or director or officer (or employee
responsible for Tax matters) of the Company expects any
authority to assess any additional Taxes for any period for which Tax
Returns have been filed. There is no dispute or claim
concerning any Tax Liability of the Company either (A) claimed or
raised by any authority in writing or (B) as to which any of
the shareholders, directors and officers (and employees responsible
for Tax matters) of the Company has knowledge based upon
personal contact with any agent of such authority. Section 3(l) of
the Disclosure Schedule lists all federal, state, local,
and foreign income Tax Returns filed with respect to the Company
for taxable periods ended on or after December 31, 1992,
indicates those Tax Returns that have been audited, and indicates
those Tax Returns that currently are the subject of audit.
Seller has made available to Purchaser correct and complete copies of
all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company
since December 31, 1992.
(iv) The Company has not waived any statute of limitations
in respect of Taxes or agreed to any extension of time
with respect to a Tax assessment or deficiency.
(v) The Company has not made any payments, is not
obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under Code Sec.
280G. The Company has not been a United States real property
holding corporation within the meaning of Code Sec. 897(c)(2)
during the applicable period specified in Code Sec. 897(c)(1)(A)(ii).
The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the
meaning of Code Sec. 6662. The Company is not a party to any Tax
allocation or sharing agreement. The Company (A) has not
been a member of an Affiliated Group filing a consolidated federal
income Tax Return and (B) has no Liability for the Taxes of
any Person under Treas. Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(vi) Section 3(l) of the Disclosure Schedules sets forth
the following information with respect to the Company as
of the most recent practicable date: (A) the basis of the Company in
its assets; (B) the amount of any net operating loss, net
capital loss, unused investment or other credit, unused foreign
tax, or excess charitable contribution allocable to the
Company; and (C) the amount of any deferred gain or loss allocable
to the Company arising out of any Deferred Intercompany
Transaction.
(vii) The unpaid Taxes of the Company (A) did not, as of
the Most Recent Fiscal Month End, exceed the reserve for
such Taxes excluding any reserve for deferred taxes and (B) do not
exceed that reserve as adjusted for the passage of time
through the Closing Date in accordance with GAAP consistent with past
practice.
(m) Real Property.
(i) Section 3(m)(i) of the Disclosure Schedule lists and
describes briefly all real property that the Company
owns. With respect to each such parcel of owned real property:
(A) the Company has good and marketable title
to the parcel of real property, free and clear of any
Security Interest, easement, covenant, or other restriction,
except for installments of special assessments not yet
delinquent and recorded easements, covenants, and other
restrictions which are not violated by and do not impair the
current use of the property subject thereto;
(B) there are no pending or threatened
condemnation proceedings, lawsuits, or administrative actions
relating to the property or other matters affecting adversely
the current use, occupancy or value thereof;
(C) the legal description for the parcel
contained in the deed thereof describes such parcel fully and
adequately, the buildings and improvements are located within
the boundary lines of the described parcels of land, are
not in violation of applicable setback requirements, zoning
laws, and ordinances (and none of the properties or
buildings or improvements thereon are subject to
"permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any
easement which may burden the land, the land does not serve
any adjoining property for any purpose inconsistent with the
use of the land, and the property is not located within
any flood plain or subject to any similar type restriction
for which any permits or licenses necessary to the use
thereof have not been obtained;
(D) all facilities have received all approvals
of governmental authorities (including licenses and
permits) required in connection with the ownership or
operation thereof as owned and operated by the Company and have
been operated and maintained in accordance with applicable
laws, rules, and regulations, and the zoning of each parcel
of real property permits the existing improvements and the
continuation following consummation of the transaction
contemplated hereby of the business as presently conducted
thereon;
(E) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting
to any party or parties the right of use or occupancy of any
portion of the parcels of real property;
(F) there are no outstanding options or rights of
first refusal to purchase the parcel of real property,
or any portion thereof or interest therein;
(G) there are no parties (other than the
Company) in possession of the parcel of real property, other
than tenants under any leases disclosed in Section 3(m)(i) of
the Disclosure Schedule who are in possession of space
to which they are entitled;
(H) all facilities located on the parcel of real
property are supplied with utilities and other services
(including gas, electricity, water, telephone, sanitary sewer,
and storm sewer) and the Company has all easements and
rights (including easements for all utilities, services,
roadway, railway and other means of ingress and egress)
reasonably necessary for the current lawful use and operation
of such facilities and the business of Company conducted
thereon, and, to the knowledge of the Company, all of the
utility and other services are adequate in accordance with
all applicable laws, ordinances, rules, and regulations
and are provided via public roads or via permanent,
irrevocable, appurtenant easements benefiting the parcel of
real property and no fact or condition exists which would
result in the termination or impairment of access to the real
property or discontinuation of utility or other services
to the real property; and
(I) each parcel of real property abuts on and has
direct vehicular access to a public road, or has access
to a public road via a permanent, irrevocable, appurtenant
easement benefiting the parcel of real property, and access
to the property is provided by paved public right-of-way with
adequate curb cuts available.
(ii) Section 3(m)(ii) of the Disclosure Schedule lists
and describes briefly all real property leased or subleased
to the Company. Seller has made available to Purchaser correct and
complete copies of the leases and subleases listed in
Section 3(m)(ii) of the Disclosure Schedule (as amended to date).
With respect to each lease and sublease listed in Section
3(m)(ii) of the Disclosure Schedule:
(A) the lease or sublease is legal, valid,
binding, enforceable, and in full force and effect;
(B) the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(C) no party is in breach or default under the
lease or sublease, and no event has occurred which, with
notice or lapse of time, would constitute a breach or
default or permit termination, modification or acceleration
thereunder;
(D) no party to the lease or sublease has
repudiated any provision thereof;
(E) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or
sublease;
(F) with respect to each sublease, the
representations and warranties set forth in subsections (A)
through (E) above are true and correct with respect to the
underlying lease;
(G) the Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any
interest in the leasehold or subleasehold;
(H) all facilities leased or subleased thereunder
have received all approvals of governmental authorities
(including licenses and permits) required in connection
with the operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and
regulations; and
(I) all facilities leased or subleased
thereunder are supplied with utilities and other services
reasonably necessary for the operation of said facilities.
(n) Intellectual Property.
(i) The Company owns or has the right to use
pursuant to license, sublicense, agreement, or permission all
Intellectual Property necessary or desirable for the operation of
the business of the Company as presently conducted and as
presently proposed to be conducted. Each item of Intellectual
Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company
on identical terms and conditions immediately subsequent
to the Closing hereunder. The Company has taken all necessary
action to maintain and protect each item of Intellectual
Property that it owns or uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated or otherwise come into conflict with any
Intellectual Property rights of third parties and the Company has
never received any complaint, claim, demand, or notice
alleging any such interference, infringement or misappropriation
(including any claim that of the Company must license or
refrain from using any Intellectual Property rights of any third
party). To the Company's knowledge, no third party has
interfered with, infringed upon, misappropriated, or otherwise come
into conflict with any Intellectual Property rights of the
Company.
(iii) Section 3(n)(iii) of the Disclosure Schedule
identifies each patent or registration which has been issued to
of the Company with respect to any of its Intellectual Property,
identifies each pending patent application or application for
registration which the Company has made with respect to any of
its Intellectual Property, and identifies each license,
agreement, or other permission which the Company has granted to
any third party with respect to any of its Intellectual
Property (together with any exceptions). Section 3(n)(iii) of the
Disclosure Schedule also identifies each trade name or
unregistered trademark used by of the Company in connection with any of
its business.
(iv) Section 3(n)(iv) of the Disclosure Schedule
identifies each item of Intellectual Property that any third
party owns and that the Company uses pursuant to license, sublicense,
agreement, or permission. Seller has made available to
Purchaser correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date).
With respect to each such item of used Intellectual Property required
to be identified in Section 3(n)(iv) of the Disclosure
Schedule:
(A) the license, sublicense, agreement, or
permission covering the item is legal, valid, binding,
enforceable, and in full force and effect;
(B) the license, sublicense, agreement, or
permission will continue to be legal, valid, binding,
enforceable and in full force and effect on identical
terms following the consummation of the transactions
contemplated hereby;
(C) no party to the license, sublicense,
agreement, or permission is in breach or default, and no event
has occurred which with notice or lapse of time would
constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(D) no party to the license, sublicense,
agreement, or permission has repudiated any provision thereof;
(E) with respect to each sublicense, the
representations and warranties set forth in subsections (A)
through (D) above are true and correct with respect to the
underlying license;
(F) the underlying item of Intellectual Property
is not subject to any outstanding injunction, judgment,
order, decree, or ruling;
(G) no action, suit, proceeding, hearing,
investigation, complaint, claim, or demand is pending or
threatened which challenges the legality, validity, or
enforceability of the underlying item of Intellectual Property;
and
(H) the Company has not granted any sublicense or
similar right with respect to the license, sublicense,
agreement, or permission.
(v) To the Company's knowledge, the Company will not
interfere with, infringe upon, misappropriate, or otherwise
come into conflict with, any Intellectual Property rights of third
parties as a result of the continued operation of its
businesses as presently conducted.
(o) Year 2000 Compatibility. To the Company's knowledge, all
Software owned or otherwise used by the Company which
contains or calls on a calendar function shall record, store, process,
provide and, where appropriate, insert true and correct dates
and calculations for dates and spans prior to, including and following January
1, 2000.
(p) Tangible Assets. The Company owns or leases all
buildings, machinery, equipment and other tangible assets
necessary for the conduct of its business as presently conducted. Each such
tangible asset is free from defects (patent and latent),
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and
tear), and is suitable for the purposes for which it presently is used.
(q) Contracts. Section 3(q) of the Disclosure Schedule
lists the following contracts and other agreements to which
the Company is a party:
(i) any agreement (or group of related agreements) for
the lease of personal property to or from any Person
providing for lease payments in excess of $20,000 per annum;
(ii) any agreement (or group of related agreements) for
the purchase or sale of commodities, supplies, products,
or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period
of more than one year, that would result in a loss to the Company if
terminated or that involves consideration in excess of
$20,000;
(iii) any agreement constituting a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed, or guaranteed
any indebtedness for borrowed money, or any capitalized lease
obligation, in excess of $20,000 or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any agreement with Seller and his Affiliates;
(vii) any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or
other plan or arrangement for the benefit of its current or former
directors, officers, and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual
on a full-time, part-time, consulting, or other basis
providing annual compensation in excess of $50,000 or providing
severance benefits;
(x) any agreement under which it has advanced or
loaned any amount to any of its directors, officers, and
employees outside the ordinary course of business;
(xi) any agreement under which the consequences of a
default or termination could have a material adverse effect
on the business, financial condition, operations, results of
operations, or future prospects of the Company; or
(xii) any other agreement (or group of related
agreements) the performance of which involves consideration in
excess of $50,000.
Seller has made available to Purchaser a correct and complete copy of each
written agreement listed in Section 3(q) of the Disclosure
Schedule (as amended to date) and a written summary setting forth the terms
and conditions of each oral agreement referred to in
Section 3(q) of the Disclosure Schedule. With respect to each such
agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) there shall be no breach or
other violation resulting from the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time
would constitute a breach or default, or permit termination, modification, or
acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(r) Notes and Accounts Receivable. All notes and accounts
receivable of the Company are reflected properly on its
books and records, are valid receivables subject to no setoff or
counterclaims, are current and collectible and will be collected in
accordance with their terms at their recorded amounts, subject only to the
reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with
the past custom and practice of the Company.
(s) Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company.
(t) Insurance. Section 3(t) of the Disclosure Schedule sets
forth a description of each insurance policy (including
policies providing property, casualty, liability, and workers' compensation
coverage and bond and surety arrangements) to which the
Company has been a party, a named insured, or otherwise the beneficiary of
coverage at any time within the past five years. With
respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the
policy will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the
consummation of the transactions contemplated hereby; (C) neither the Company
nor any other party to the policy is in breach or default
(including with respect to the payment of premiums or the giving of notices),
and no event has occurred which, with notice or the lapse
of time, would constitute such a breach or default, or permit termination,
modification, or acceleration, under the policy; and (D) no
party to the policy has repudiated any provision thereof. The Company has been
covered during the past ten (10) years by insurance in
scope and amount customary and reasonable for the businesses in which it has
engaged during the aforementioned period. Section 3(t) of
the Disclosure Schedule describes any self-insurance arrangements affecting the
Company.
(u) Litigation. Section 3(u) of the Disclosure Schedule sets
forth each instance in which the Company (i) is subject
to any outstanding injunction, judgment, order, decree, ruling, or charge or
(ii) is a party or is threatened to be made a party to any
action, suit, proceeding, hearing, or investigation of, in, or before any
court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator.
None of the actions, suits, proceedings, hearings, and
investigations set forth in Section 3(u) of the Disclosure Schedule is likely
to result in any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. The Company has no reason to believe that
any such action, suit, proceeding, hearing, or investigation may be brought or
threatened against it.
(v) Employees.
(i) To the knowledge of the Company, no executive, key
employee, or group of employees has any plans to terminate
employment with the Company.
(ii) Except as set forth on Section 3(v) of the
Disclosure Schedule, (A) the Company is not a party to any
collective bargaining agreement or similar agreement with respect to
its employees; (B) there is no labor strike, slowdown,
work stoppage, or lockout in effect or threatened against or
otherwise affecting or involving the business of the Company nor
has any such labor strike, slowdown, work stoppage, or lockout
occurred within the past three years; (C) there is no current,
written, unresolved grievance which is likely to have a material
adverse effect on the business, financial condition,
operations, results of operations, or future prospects of the Company
and no arbitration proceeding is pending or threatened
and no claim therefor has been asserted; (D) there is no unfair
labor practice charge or complaint pending or threatened
relating to the business of the Company; (E) no representation
question has been brought to the attention of the Company
respecting any of the employees of the Company within the past three
years, nor are any campaigns being conducted to solicit
cards from any of the employees of the Company to authorize
representation by any labor organization; (F) no collective
bargaining agreement relating to any of the employees of the Company
is being negotiated; (G) payment in full to all of the
employees of the Company of all wages, salaries, commissions, bonuses,
benefits, and other compensation lawfully due and owing
to such employees or otherwise arising under any policy, practice,
agreement, plan, program, statute, or other law has been
made; and (H) no facility of the Company has been closed, there have
not been any layoffs of any of its employees sufficient
to require notification under the Workers Adjustment and Retraining
Notification Act of 1988, as amended, or implementations
of any early retirement, separation, or window program within the
past three years with respect to the Company, nor, other
than as contemplated herein, are there any plans or announcements of
any such action or program for the future.
(w) Employee Benefits.
(i) Section 3(w) of the Disclosure Schedule lists each
Employee Benefit Plan that the Company maintains or to
which of the Company contributes.
(A) Each such Employee Benefit Plan (and each
related trust, insurance contract, or fund) complies in
form and in operation in all material respects with its terms
and with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports,
PBGC-1's, and Summary Plan Descriptions) have been filed or
distributed appropriately with respect to each such
Employee Benefit Plan. The requirements of Part 6 of Subtitle
B of Title I of ERISA and of Code Sec. 4980B have been
met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer
contributions and employee salary reduction contributions)
which are due have been paid to each such Employee Benefit
Plan which is an Employee Pension Benefit Plan and all
contributions for any pay period ending on or before the
Closing Date which are not yet due have been paid to each
such Employee Pension Benefit Plan or accrued in accordance
with the past custom and practice of the Company. All
premiums or other payments due for all periods ending on or
before the Closing Date have been paid with respect to
each such Employee Benefit Plan which is an Employee Welfare
Benefit Plan.
(D) Each such Employee Benefit Plan which is an
Employee Pension Benefit Plan and is intended to meet the
requirements of a "qualified plan" under Code Sec. 401(a)
meets such requirements and has received, within the last
two years, a favorable determination letter from the Internal
Revenue Service.
(E) The market value of assets under each such
Employee Benefit Plan which is an Employee Pension Benefit
Plan (other than any Multiemployer Plan) equals or exceeds
the present value of all vested and nonvested Liabilities
thereunder determined in accordance with PBGC methods,
factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the date for determination.
(F) Seller has delivered to Purchaser correct and
complete copies of the plan documents and summary plan
descriptions, the most recent determination letter received
from the Internal Revenue Service, the most recent Form
5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which
implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan (other
than any Multiemployer Plan) that the Company and the
Controlled Group of Corporations which includes the Company
maintains, ever has maintained, or to which any of them
contributes, ever has contributed, or ever has been required to
contribute:
(A) No such Employee Benefit Plan which is an
Employee Pension Benefit Plan has been completely or
partially terminated or been the subject of a Reportable Event
as to which notices would be required to be filed with
the PBGC. No proceeding by the PBGC to terminate any such
Employee Pension Benefit Plan has been instituted or
threatened.
(B) There have been no Prohibited Transactions
with respect to any such Employee Benefit Plan. No
Fiduciary has any Liability for breach of fiduciary duty or
any other failure to act or comply in connection with the
administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing,
or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan
(other than any Multiemployer Plan), other than routine
claims for benefits, is pending or threatened. The Company
has no knowledge of any basis for any such action, suit,
proceeding, hearing, or investigation.
(C) The Company has not incurred, nor has any
reason to expect that the Company will incur, any Liability
to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA (including any withdrawal
Liability) or under the Code with respect to any such Employee
Benefit Plan which is an Employee Pension Benefit Plan.
(iii) The Company and the other members of the Controlled
Group of Corporations that includes the Company does not
contribute to, never has contributed to, and never has been
required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any Multiemployer
Plan.
(iv) The Company does not maintain or contribute to any
Employee Welfare Benefit Plan providing medical, health,
or life insurance or other welfare-type benefits for current or
future retired or terminated employees, their spouses, or
their dependents (other than in accordance with Code Sec. 4980B).
(x) Guaranties. The Company is not a guarantor or otherwise
is liable for any Liability or obligation (including
indebtedness) of any other Person.
(y) Environment, Health, and Safety.
(i) The Company and its predecessors and Affiliates has
complied and is in compliance with all Environmental,
Health, and Safety Requirements. Without limiting the generality
of the foregoing, the Company and its Affiliates has
obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required
pursuant to Environmental, Health, and Safety Requirements for the
occupation of its facilities and the operation of its
business.
(ii) Neither the Company nor its predecessors or
Affiliates has received any written or oral notice, report or
other information regarding any actual or alleged violation of
Environmental, Health, and Safety Requirements, or any
liabilities or potential liabilities (whether accrued, absolute,
contingent, unliquidated or otherwise), including any
investigator, remedial or corrective obligations, relating to any of
them or its facilities arising under Environmental,
Health, and Safety Requirements.
(iii) None of the following exists at any property or
facility owned or operated by Company: (1) underground
storage tanks, (2) asbestos-containing material in any form
or condition, (3) materials or equipment containing
polychlorinated biphenyls, or (4) landfills, surface impoundments, or
disposal areas. None of the Company or its predecessors
or Affiliates has treated, stored, disposed of, arranged for or
permitted the disposal of, transported, handled, or released
any substance, including without limitation any hazardous substance,
or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a
manner that has given or would give rise to liabilities,
including any liability for response costs, corrective action
costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), the Solid Waste Disposal Act, as amended
("SWDA") or any other Environmental, Health, and Safety
Requirements.
(z) Certain Business Relationships with the Company. None
of Seller and his Affiliates has been involved in any
business arrangement or relationship with the Company within the past 12
months, and none of Seller and his Affiliates owns any asset,
tangible or intangible, which is material to the business of the Company.
(aa) Customers, Supplier, Agents, Distributors and Resellers.
Section 3(aa) of the Disclosure Schedule sets forth an
accurate, correct and complete list of each of the 20 largest customers,
suppliers, agents, distributors and resellers of the Company,
for each of the last three fiscal years. The Company has no reason to
believe that any customer, supplier, agent, distributor or
reseller will cease to do business with the Company after, or as a result of,
the consummation of any transactions contemplated hereby
or that any customer, supplier, agent, distributor or reseller is threatened
with bankruptcy or insolvency. The Company does not know
of any fact, condition or event which would adversely affect its
relationship with any customer, supplier, agent, distributor or
reseller.
(bb) Bank Accounts. Section 3(bb) of the Disclosure Schedule
sets forth all the bank accounts of any of the Company.
(cc) Disclosure. The representations and warranties contained
in this Section 3 do not contain any untrue statement of
a material fact or omit to state any material fact necessary in order to make
the statements and information contained in this Section
3 not misleading.
Section 4. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of Purchaser. Each of
Newco and Purchaser, jointly and severally, represents and
warrants to Seller and the Company that the statements contained in this
Section 4(a) are correct and complete as of the date of this
Agreement and will be correct and complete as of the Closing Date (as though
made then and as though the Closing Date were substituted
for the date of this Agreement throughout this Section 4(a)), except as set
forth in the Disclosure Schedule. The Disclosure Schedule
will be arranged in paragraphs corresponding to the lettered and numbered
paragraphs contained in this Section 4(a).
(i) Organization of Purchaser. Each of Purchaser and
Newco is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Delaware.
(ii) Authorization of Transaction. Each of Purchaser and
Newco has full corporate power and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
This Agreement constitutes the valid and legally binding
obligation of each of Purchaser and Newco, enforceable in accordance
with its terms and conditions.
(iii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order,
decree, ruling, or other restriction of any government, governmental
agency, or court to which either Purchaser or Newco is
subject or any provision of the charter or bylaws of either or (ii)
conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right
to accelerate, terminate, modify, or cancel, or require
any notice under any agreement, contract, lease, license, instrument,
or other arrangement to which Purchaser or Newco is a
party or by which it is bound or to which any of Purchaser's or
Newco's assets is subject which conflict, breach, default,
acceleration or right would have a material adverse effect on the
business, operations or financial condition of Purchaser or
Newco or otherwise adversely affect Purchaser's or Newco's
ability to consummate the transactions contemplated hereby.
Neither Purchaser nor Newco needs to give any notice to, make any
filing with, or obtain any authorization, consent, or
approval of any government or governmental agency in order for the
Parties to consummate the transactions contemplated by this
Agreement.
(iv) Capitalization. The authorized capital stock of
Purchaser consists of: (i) 10,000,000 shares of Preferred
Stock, of which (A) 750,000 shares have been designated as Series A
Preferred Stock shares (of which 493,889 shares were
issued and outstanding as of May 1, 1998) and (B) 3,000,000 shares
have been designated as Series B Convertible Preferred
Stock (of which 1,864,344 shares were issued and outstanding as of
May 1, 1998) and (ii) 65,000,000 shares of Common Stock of
which 17,453,333 shares were outstanding as of May 1, 1998.
(v) WorldPort Common Stock. Upon issuance to Seller and
to the Escrow in accordance with this Agreement, the
shares of WorldPort Common Stock to be issued pursuant to Section
2(d) hereof, will be validly issued, fully paid and non-
assessable securities of Purchaser and not subject to any preemptive
rights.
(vi) Reports and Financial Statements.
(A) From January 1, 1997 to the date hereof,
except where failure to have done so did not and would
not have a material adverse effect on Purchaser, Purchaser
has filed all reports, registrations and statements,
together with any required amendments thereto, that it was
required to file with the Securities and Exchange
Commission (the "SEC"), including, but not limited to, Forms
10-KSB, Forms 10-QSB and Forms-8-K (collectively, the
"WorldPort Reports"). As of their respective dates (but
taking into account any amendments filed prior to the date of
this Agreement), the WorldPort Reports complied in all
material respects with all the rules and regulations
promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under
which they were made, not misleading.
(B) Purchaser has previously furnished
Seller true and complete copies of the WorldPort Reports.
The audited and unaudited financial statements contained in
the WorldPort Reports present fairly the consolidated
financial condition and results of operations and changes
in stockholders' equity and changes in the financial
position of Purchaser as of the dates and for the periods
indicated except as may otherwise be stated in such
financial statements and except, in the case of the unaudited
statements, as permitted by Form 10-QSB. For purposes
of this Agreement, all financial statements of Purchaser
shall be deemed to include any notes to such financial
statements.
(b) Representations and Warranties of Seller. Seller
represents and warrants to Purchaser and Newco that the
statements contained in this Section 4(b) are correct and complete as of the
date of this Agreement and will be correct and complete as
of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this
Section 4(b)), except as set forth in the Disclosure Schedule. The Disclosure
Schedule will be arranged in paragraphs corresponding to
the lettered and numbered paragraphs contained in this Section 4(b).
(i) Authorization of Transaction. Seller has full power
and authority to execute and deliver this Agreement and
to perform his obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Seller,
enforceable in accordance with its terms and conditions.
(ii) Noncontravention. Neither the execution and the
delivery of this Agreement, nor the consummation of the
transactions contemplated hereby, will (A) violate any constitution,
statute, regulation, rule, injunction, judgment, order,
decree, ruling, or other restriction of any government,
governmental agency, or court to which Seller is subject or (B)
conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license,
instrument, or other arrangement to which Seller is a party or by
which he is bound or to which any of his assets is subject.
Seller need not give any notice to, make any filing with, or obtain
any authorization, consent, or approval of any government
or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(iii) Shares. Seller holds of record and owns all of the
Shares, free and clear of any restrictions on transfer
(other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, and
claims. Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require
Seller to sell, transfer, or otherwise dispose of any
capital stock of the Company (other than this Agreement). Seller
is not a party to any voting trust, proxy, or other
agreement or understanding with respect to the voting of any capital
stock of the Company.
(iv) Tax Status. Seller is not a "nonresident alien
individual" for purposes of Code Sec. 897(a)(1).
(v) Investment Representations. (A) Seller acknowledges
that the shares of WorldPort Common Stock which he is to
receive pursuant to this Agreement have not been registered under the
Securities Act, or the securities laws of any state or
regulatory body and are being offered and sold in reliance upon
exemptions from the requisite requirements of the Securities
Act and such laws and may not be transferred or resold without
registration under such laws unless an exemption is available.
Each certificate for shares of the WorldPort Common Stock received by
Seller pursuant to this Agreement will bear a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, HYPOTHECATED, OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS
EFFECTIVE UNDER SUCH ACT AND UNDER ANY APPLICABLE STATE
SECURITIES LAWS UNLESS, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE COMPANY, AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND STATE SECURITIES LAWS IS AVAILABLE."
(B) Seller is acquiring the shares of WorldPort Common
Stock for investment and not with a view to the resale or
distribution thereof.
(C) Seller is an "accredited investor" (as that term is
defined in Rule 501 of Regulation D promulgated under the
Securities Act), is sophisticated in financial matters and is familiar
with the business of Purchaser so that he is capable
of evaluating the merits and risks of his investment in Purchaser and
has the capacity to protect his own interests. Seller
has had the opportunity to investigate on his own Purchaser's
business, management and financial affairs and has had the
opportunity to review Purchaser's operations and facilities and to
ask questions and obtain whatever other information
concerning Purchaser as Seller has deemed relevant in making his
investment decision.
(D) Seller has completed and delivered to Purchaser an
accredited investor questionnaire, substantially in the form
attached hereto as Exhibit D. All information provided in such
questionnaire is true and correct as of the date hereof and
does not omit to state any material fact necessary in order to make the
information contained therein not misleading.
Notwithstanding the limitations set forth in the preceding sentence, claims for
indemnification timely made pursuant to this Section 8
shall survive until resolved or judicially determined.
Section 5. Pre-Closing Covenants. The Parties agree as follows
with respect to the period between the execution of this
Agreement and the Closing.
(a) General. Each of the Parties will use its best efforts to
take all action and to do all things necessary, proper,
or advisable in order to consummate and make effective the transactions
contemplated by the Letter Agreement and this Agreement
(including satisfaction, but not waiver, of the closing conditions set forth in
Section 6 below).
(b) Notices and Consents. Each of the Parties will give any
notices to, make any filings with, and use its reasonable
efforts to obtain any authorizations, consents, and approvals of governments
and governmental agencies in connection with the matters
referred to in Section 3(d) above or set forth in Section 3(d) of the Disclosure
Schedule.
(c) Operation of Business Except as contemplated by this
Agreement, the Company will not engage in any practice, take
any action, or enter into any transaction outside the ordinary course of
business. Without limiting the generality of the foregoing,
the Company will not:
(i) declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock (whether
in cash or in kind) or redeem, purchase, or otherwise acquire any of
its capital stock;
(ii) sell, lease, transfer, or assign any of its assets,
tangible or intangible, to any third party (including any
intercompany transfer) other than for a fair consideration in the
ordinary course of business;
(iii) enter into any agreement, contract, lease, or
license (or series of related agreements, contracts, leases,
and licenses) outside the ordinary course of business;
(iv) accelerate, terminate, cancel, or, outside the
ordinary course of business, modify any agreement, contract,
lease, or license (or series of related agreements, contracts,
leases, and licenses) to which the Company is a party or by
which it is bound;
(v) other than in the ordinary course of business, impose
any Security Interest upon any of its assets, tangible
or intangible;
(vi) fail to make any necessary capital expenditure or
defer or fail to make any scheduled budgeted capital
expenditure;
(vii) make any capital investment in, any loan to, or any
acquisition of the securities or assets of, any other
Person (or series of related capital investments, loans, and
acquisitions);
(viii) issue any note, bond or other debt security or incur,
assume or guarantee any indebtedness for borrowed money
or capitalized lease obligation;
(ix) delay or postpone the payment of accounts payable
and other Liabilities outside the ordinary course of
business;
(x) fail to maintain the level or quality of its inventory
consistent with past conduct and practice;
(xi) accelerate the collection of accounts, notes, or other
receivables;
(xii) cancel, compromise, waive, or release any right or
claim (or series of related rights and claims) outside the
ordinary course of business;
(xiii) grant any license or sublicense of any rights under or
with respect to any Intellectual Property;
(xiv) change or authorize a change in the charter or bylaws
of the Company;
(xv) issue, sell or otherwise dispose of any of its
capital stock, or grant any options, warrants, or other rights
to purchase or obtain (including upon conversion, exchange, or
exercise) any of its capital stock;
(xvi) make any loan to, or enter into any other transaction
with, any of its directors, officers, and employees;
(xvii) adopt, amend, modify, or terminate any Employee
Benefit Plan outside the ordinary course of business;
(xviii) enter into any employment contract or collective
bargaining agreement, written or oral, or modify the terms
of any existing such contract or agreement;
(xix) grant any increase in the compensation (including
base salary and bonus) of any of its directors, officers,
and employees;
(xx) make any other change in employment terms for any
of its directors, officers, and employees outside the
ordinary course of business; and
(xxi) make or pledge to make any charitable or other capital
contribution outside the ordinary course of business.
(d) Preservation of Business. The Company will keep its
business and properties substantially intact, including its
present operations, physical facilities, working conditions, and relationships
with lessors, licensers, suppliers, customers, agents,
distributors, resellers and employees.
(e) Full Access. The Company will permit representatives
of Purchaser and Newco at reasonable times and upon
reasonable notice to have reasonable access to the premises, properties,
personnel, books, records (including Tax records), contracts,
and documents of or pertaining to the Company. This access includes access for
Purchaser and Newco to conduct environmental assessment
investigations of the premises and properties, which investigations shall be
conducted at reasonable hours, upon reasonable notice to
the Company and without causing an unreasonable interference to the Company's
operations. The Company will fully cooperate with such
environmental assessment investigation.
(f) Notice of Developments. Seller will give prompt written
notice to Purchaser and Newco, and Purchaser and Newco
will give prompt written notice to Seller of any of its own representations
and warranties in Section 3 and Section 4(b) above. No
disclosure by any Party pursuant to this Section 5(f), however, shall be
deemed to amend or supplement the Disclosure Schedule or to
prevent or cure any misrepresentation, breach of warranty, or breach of
covenant.
(g) Exclusivity. Seller and the Company will not (i)
solicit, initiate, or encourage the submission of any proposal
or offer from any Person relating to the acquisition of any capital stock or
other voting securities, or any substantial portion of the
assets, of the Company (including any acquisition structured as a merger,
consolidation, or share exchange), or (ii) participate in any
discussions or negotiations regarding, furnish any information with respect
to, assist or participate in, or facilitate in any other
manner any effort or attempt by any Person to do or seek any of the foregoing.
Seller will not vote his Shares in favor of any such
acquisition structured as a merger, consolidation, or share exchange. Seller
will notify Purchaser and Newco immediately if any Person
makes any proposal, offer, or bona fide inquiry with respect to any of the
foregoing.
(h) Real Estate Matters. The Parties hereby acknowledge
that, during the period between the execution of this
Agreement and the Closing, the Company may acquire that certain real property
located in Melbourne, Florida identified on Section 5(h)
of the Disclosure Schedule (the "Real Property"). Seller and the Company
hereby agree, however, that the Real Property may not be
acquired by the Company unless the Company and Seller comply with the terms of
this Section 5(h).
(i) At least 10 business days prior to the closing of the
purchase by the Company of the Real Property (the "Real
Property Closing Date"), Seller shall obtain and deliver to
Purchaser commitments (the "Commitments") issued by a Chicago
Title Insurance Company or any other title company reasonably
acceptable to Purchaser (the "Title Company") and dated not
earlier than the date of this Agreement for the issuance of an ALTA
Owners or Leasehold Policy of Title Insurance Form B
(1970) (the "Title Policy") for each parcel of the Real Property.
The Title Policy shall be in the amount designated by
Purchaser, showing fee simple title to all such parcels of the
Real Property in the seller thereof (the "Real Property
Seller"), subject only to current real estate taxes not yet due and
payable as of the Real Estate Closing Date and such other
covenants, conditions, easements, and exceptions to title as
Purchaser may approve in writing (collectively, the "Permitted
Exceptions"). The Commitments and the Title Policy to be issued by
the Title Company shall have all Standard and General
Exceptions deleted so as to afford full "extended form coverage" and
shall contain an ALTA Zoning Endorsement 3.1, contiguity
(where appropriate), non-imputation, and such other endorsements as
may be reasonably requested by Purchaser. At the Real
Property Closing, Seller shall cause the Real Property Seller to
deliver such affidavits or other instruments as the Title
Company may reasonably require to delete Standard and General
Exceptions and to provide the special endorsements required
hereunder. Seller shall cause the Commitments to be later-dated to
cover the Real Property Closing and to cause the Title
Company to deliver the Title Policy at the Real Property Closing as
directed by Purchaser.
(ii) At least 15 days prior to the Real Property Closing,
Seller shall cause to be delivered to Purchaser and the
Title Company an as-built plat of survey of each parcel of the Real
Property (the "Surveys") prepared by a registered land
surveyor or engineer, licensed in the respective states in which
the Real Property is located, dated on or after the date
hereof, certified to Purchaser, the Company, the Title Company and
such other entities as Purchaser may designate in writing
to Seller prior to the Real Property Closing, and conforming to
current ALTA Minimum Detail Requirements for Land Title
Surveys, sufficient to cause the Title Company to delete the standard
printed survey exception. Each Survey shall show access
from the land to dedicated public roads and shall include a flood
plain certification. Seller shall use its best efforts to
cause the Real Property Seller to pay the entire cost of obtaining
the Surveys. Any Survey may be a recertification of a
prior survey, provided that it meets the above-described criteria.
(iii) If (A) any Commitment discloses a title
exception other than a Permitted Exception (an "Unpermitted
Exception") or (B) any Survey discloses any encroachment, overlap,
or gap or any other matter which renders title to any
parcel of the Real Property unmarketable or reflects that any utility
service to the improvements or access thereto does not
lie wholly within the applicable parcel of the Real Property or an
unencumbered easement for the benefit of such parcel of the
Real Property or reflects any other matter adversely affecting the
use or improvements of such parcel of the Real Property (a
"Survey Defect"), then unless Seller shall have, prior to the Real
Property Closing, the Unpermitted Exception removed from
such Commitment or the Survey Defect corrected or insured over by an
appropriate title insurance endorsement, all in a manner
reasonably satisfactory to Purchaser, the Company shall not acquire the
Real Property.
(i) Transfer of Assets from Interlink Enterprises, Inc. Seller
shall cause all of those assets set forth on Exhibit E
(the "Interlink Assets") which are currently owned by Interlink Enterprises,
Inc., a corporation wholly-owned by Seller to be
transferred to the Company, free and clear of all Security Interests, Taxes,
claims, covenants and restrictions.
Section 6. Conditions to Obligation to Close.
(a) Conditions to Obligation of Purchaser and Newco. The
obligations of Purchaser and Newco to consummate the
transactions to be performed by it in connection with the Closing is subject to
satisfaction of the following conditions:
(i) the conditions set forth in the Letter Agreement shall
have been satisfied;
(ii) the representations and warranties set forth in
Section 3 and Section 4(b) above shall be true and correct in
all material respects at and as of the Closing Date;
(iii) Each of Seller and the Company shall have performed
and complied with all of his or its covenants hereunder
in all material respects through the Closing;
(iv) the Company shall have provided all of the third
party consents specified in Section 3(d) of the Disclosure
Schedule and all of the title insurance commitments, policies,
riders and surveys specified in Section 5(h) above and any
Unpermitted Exception shall have been removed and any Survey Defects
shall have been corrected or otherwise insured over to
the reasonable satisfaction of Purchaser and Newco.
(v) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction wherein an
unfavorable injunction, judgment, order, decree, or ruling
would (A) prevent consummation of any of the transactions
contemplated by this Agreement, (B) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation, or (C) affect materially and adversely the right of
Purchaser to control the Surviving Corporation, or (D) affect
adversely and materially the right of the Company to own its
assets and to operate its businesses (and no such injunction, judgment,
order, decree, or ruling shall be in effect);
(vi) Seller shall have delivered to Purchaser and Newco
the Company's officer's certificate setting forth the
Estimated Net Working Capital;
(vii) Seller and either Purchaser or Newco shall have
entered into an employment agreement in the form attached
hereto as Exhibit F (the "Employment Agreement") and either Purchaser
or Newco and those individuals identified on Exhibit G
(the "Key Employees") shall have entered into employment agreements
in the form attached hereto as Exhibit F (the "Key
Employee Agreements");
(viii) the Company shall be the sole and exclusive legal and
equitable owner of all right, title and interest in the
Interlink Assets, free and clear of all Security Interests, Taxes,
claims, covenants or restrictions.
(ix) Seller shall have delivered to Purchaser and Newco a
certificate to the effect that each of the conditions
specified above in Section 6(a)(i)-(viii) is satisfied;
(x) Seller, the Company, Purchaser and Newco shall have
received all authorizations, consents, and approvals of
governments and governmental agencies referred to in Section 3(d) of
the Disclosure Schedules;
(xi) Purchaser and/or Newco shall have obtained the
financing necessary to consummate the transactions
contemplated hereby;
(xii) Purchaser and Newco shall have received and be
satisfied, in its sole discretion, with the results of its
environmental assessment or audit of the Company;
(xiii) Purchaser and Newco shall have received the opinion
of Reinman Matheson Kostro & Vaughan, P.A., counsel to
the Company and Seller, addressed to Purchaser and Newco and dated
the Closing Date in the form attached to this Agreement as
Exhibit H subject to standard and customary exceptions and
qualifications; and
(xiv) all actions to be taken by Seller and the Company in
connection with consummation of each of the transactions
contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to Purchaser and Newco.
Purchaser or Newco shall be deemed to have waived any condition specified in
this Section 6(a) if Purchaser executes a writing so
stating at or prior to the Closing. The disclosure of any matter prior to the
Closing shall not be deemed to amend or supplement the
Disclosure Schedule or to have caused Purchaser or Newco to have waived
any condition specified in this Section 6(a) or any
representation, warranty, or covenant.
(b) Conditions to Obligation of Seller and the Company. The
obligations of Seller and the Company to consummate the
transactions to be performed by them in connection with the Closing is subject
to satisfaction of the following conditions:
(i) the representations and warranties set forth in
Section 4(a) above shall be true and correct in all material
respects at and as of the Closing Date;
(ii) Each of Purchaser and Newco shall have performed
and complied with all of its covenants hereunder in all
material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending
before any court or quasi-judicial or administrative agency
of any federal, state, local, or foreign jurisdiction wherein an
unfavorable injunction, judgment, order, decree, or ruling,
would (A) prevent consummation of any of the transactions contemplated
by this Agreement or (B) cause any of the transactions
contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, or
ruling shall be in effect);
(iv) Purchaser or Newco and Seller shall have entered
into the Employment Agreement and Purchaser or Newco shall
have used its best efforts to enter into a Key Employment Agreement
with each Key Employee;
(v) Purchaser shall have delivered to Seller and the
Company a certificate to the effect that each of the
conditions specified above in Section 6(b)(i)-(iv) is satisfied; and
(vi) all actions to be taken by Purchaser or Newco
in connection with consummation of the transactions
contemplated hereby and all certificates, opinions, instruments,
and other documents required to effect the transactions
contemplated hereby will be reasonably satisfactory in form and
substance to Seller.
Seller shall be deemed to have waived any condition specified in this Section
6(b) if it executes a writing so stating at or prior to
the Closing.
Section 7. Termination.
(a) Termination of Agreement. Purchaser and Seller may
terminate this Agreement as provided below:
(i) Purchaser or Seller may terminate this Agreement in
accordance with the terms of the Letter Agreement;
(ii) Purchaser and Seller may terminate this Agreement by
mutual written consent at any time prior to the Closing;
(iii) Purchaser may terminate this Agreement by giving
written notice to Seller at any time prior to the Closing in
the event Seller or the Company has breached any representation,
warranty, or covenant contained in this Agreement in any
material respect, and such breach is not cured upon the earlier to
occur of (x) five business days after notice of such breach
has been given by Purchaser to Seller or (y) the date this Agreement is
otherwise terminated;
(iv) Seller may terminate this Agreement by giving written
notice to Purchaser at any time prior to the Closing in
the event Purchaser or Newco has breached any representation,
warranty, or covenant contained in this Agreement in any
material respect, and such breach is not cured upon the earlier to
occur of (x) five business days after notice of such breach
has been given by Seller to Purchaser or (y) the date this Agreement is
otherwise terminated; and
(v) Purchaser or Seller may terminate this Agreement if
the Closing has not occurred by September 1, 1998,
although nothing herein shall prevent the Closing from occurring prior
to such date.
(b) Effect of Termination. If Purchaser or Seller
terminates this Agreement pursuant to Section 7(a) above, all
rights and obligations of the Parties hereunder shall terminate without any
Liability of any Party, except for any Liability of any
Party then in breach or as provided in Section 7(c) below. In the event the
transactions are not consummated as contemplated in this
Agreement for any reason other than Seller voluntarily withdrawing from the
transactions contemplated by this Agreement than Purchaser
shall forfeit all right, title and interest in the $250,000 paid to Seller upon
satisfaction of the conditions set forth in the Letter
Agreement; provided, however, that, in the event of Seller's voluntary
withdrawal from the transactions contemplated by this Agreement,
in addition to any other rights and remedies to which Purchaser might be
entitled, Purchaser shall be entitled to receive from Seller
such $250,000;
(c) Specific Performance. Notwithstanding anything in this
Agreement to the contrary, if, prior to the termination of
this Agreement, Purchaser and Newco (i) have complied with all of the
conditions to Closing contained in Section 6(b), (ii) have
notified Seller of their intention to consummate the transactions contemplated
under this Agreement, and (iii) is ready and able to
deliver the Preliminary Merger Consideration and furnishes evidence to that
effect to Seller, and if the Closing does not then occur
due to the refusal of Seller to so consummate the transactions contemplated
under this Agreement, each of Purchaser and Newco will be
entitled to specifically enforce the terms of this Agreement in a court of
competent jurisdiction, it being acknowledged that monetary
damages due Purchaser or Newco in such case cannot be adequately determined at
law.
Section 8. Survival and Indemnification.
(a) Survival of Representations and Warranties. All of the
representations, warranties, covenants, and agreements
contained in this Agreement have been relied upon and shall survive the
Closing, provided, that any representation and warranty
contained in this Agreement or in any certificate, schedule, document or
other writing delivered pursuant hereto (other than the
representations and warranties contained in Section 3(l) which shall survive
for 90 days after the applicable statue of limitations
period provided for in the Code) shall be fully effective and enforceable only
for a period from the Closing Date through and until the
first anniversary of the Closing Date and shall thereafter be of no further
force or effect. Notwithstanding the limitations set forth
in the preceding sentence, claims for indemnification timely made pursuant to
this Section 8 shall survive until resolved or judicially
determined.
(b) Indemnification Provisions for the Benefit of Purchaser
and Newco. In the event of a misrepresentation or breach
(or in the event any third party alleges facts that, if true, would mean a
misrepresentation or breach) of any of Seller's or the
Company's representations, warranties, and covenants contained in this
Agreement, and, provided Purchaser or Newco makes a written
claim for indemnification against Seller pursuant to Section 9(g) below within
the survival period, if any, set forth in Section 8(a)
above, then Seller agrees to indemnify Purchaser and Newco from and against
any Adverse Consequences Purchaser or Newco may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences Purchaser or Newco may suffer after the
end of the survival period, if any, set forth in Section 8(a) above) resulting
from, arising out of, relating to, in the nature of, or
caused by the misrepresentation or breach (or alleged breach). In the event
that Purchaser or Newco is entitled to receive any amounts
from Seller pursuant to this Section 8, such amounts shall be received by
Purchaser or Newco in the same percentages of cash and shares
of WorldPort Common Stock in which the Preliminary Merger Consideration is paid
to Seller. For purposes of the immediately preceding
sentence, the shares of WorldPort Common Stock shall be deemed to have a value
equal to the closing price at which a share of WorldPort
Common Stock is traded on the over the counter market on the last trading date
prior to the Closing. Stock certificates representing
any shares of WorldPort Common Stock to which Purchaser or Newco may become
entitled pursuant to this Section 8 shall be surrendered by
Seller and/or the Escrow Agent to Purchaser for no additional consideration.
(c) Indemnification Provisions for the Benefit of Seller. In
the event of a misrepresentation or breach (or in the
event any third party alleges facts that, if true, would mean a
misrepresentation or breach) of any of Purchaser's or Newco's
representations, warranties, and covenants contained in this Agreement, and,
provided Seller makes written claim for indemnification
against Purchaser or Newco pursuant to Section 9(g) below within the survival
period, if any, set forth in Section 8(a) above, then
Purchaser agrees to indemnify Seller from and against any Adverse
Consequences Seller may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences Seller may
suffer after the end of the survival period set forth in
Section 8(a) above) resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the
"Indemnified Party") with respect to any matter (a "Third
Party Claim") which may give rise to a claim for indemnification
against the other Party (the "Indemnifying Party") under this
Section 8, then the Indemnified Party shall promptly notify the
Indemnifying Party thereof in writing; provided, however, that
no delay on the part of the Indemnified Party in notifying the
Indemnifying Party shall relieve the Indemnifying Party from
any obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) The Indemnifying Party will have the right to defend
the Indemnified Party against the Third Party Claim with
counsel of its choice satisfactory to the Indemnified Party so long
as (A) the Indemnifying Party notifies the Indemnified
Party in writing within 10 business days after the Indemnified
Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and
against any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of,
or caused by the Third Party Claim, (B) the Indemnifying
Party provides the Indemnified Party with evidence reasonably
acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third
Party Claim and fulfill its indemnification obligations
hereunder, (C) the Third Party Claim involves only money damages and
does not seek an injunction or other equitable relief,
(D) settlement of, or an adverse judgment with respect to, the Third
Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a presidential custom of
practice adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the defense
of the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting
the defense of the Third Party Claim in accordance with
Section 8(d)(ii) above, (A) the Indemnified Party may retain separate
co-counsel at its sole cost and expense and participate
in the defense of the Third Party Claim, (B) the Indemnified Party
will not consent to the entry of any judgment or enter into
any settlement with respect to the Third Party Claim without the
prior written consent of the Indemnifying Party (not to be
withheld unreasonably), and (C) the Indemnifying Party will not
consent to the entry of any judgment or enter into any
settlement with respect to the Third Party Claim without the
prior written consent of the Indemnified Party (not to be
withheld unreasonably).
(iv) In the event any of the conditions in Section
8(d)(ii) above is or becomes unsatisfied, however, (A) the
Indemnified Party may defend against, and consent to the entry of any
judgment or enter into any settlement with respect to,
the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or
obtain any consent from, the Indemnifying Party in connection
therewith), (B) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable
attorneys' fees and expenses), and (C) the Indemnifying Party will
remain responsible for any Adverse Consequences the
Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim
to the fullest extent provided in this Section 8.
(e) Limitation on Representations and Indemnification;
Adjustment to Merger Consideration. Notwithstanding anything
set forth herein, neither Purchaser nor Newco shall not be entitled to
indemnity unless and until all Adverse Consequences for which
Purchaser and/or Newco is entitled to be indemnified for the breach of any
representation or warranty under Section 3 or Section 4(b)
of this Agreement exceed $10,000 in the aggregate, at which time Purchaser or
Newco shall be entitled to recover for the amount of such
Adverse Consequences relating back to the first dollar and up to the amounts
held in the Escrow. Notwithstanding anything to the
contrary continued herein, neither Seller nor Purchaser (together with Newco)
shall be able to collect any amounts pursuant to this
Section 8 with respect to Adverse Consequences in an amount in excess of the
sum of the Adjusted Merger Consideration plus the amounts
paid to Seller pursuant to Section 2(d)(v)(A) hereof. All indemnification
payments under this Section 8 shall be deemed adjustments to
the Adjusted Merger Consideration.
(f) Insurance Proceeds. The parties shall use reasonable
efforts to collect the proceeds of any insurance which would
have the effect of reducing an Adverse Consequence (in which case such proceeds
shall reduce such Adverse Consequences). To the extent
any Adverse Consequences of an Indemnified Party is reduced by receipt of
payment (i) under insurance policies which are not subject to
retroactive adjustment or other reimbursement to the insurer in respect of such
payment, or (ii) from third parties not affiliated with
the Indemnified Party, such payments (net of the expenses of the recovery
thereof) shall be credited against such Adverse Consequences.
Section 9.
Miscellaneous.
(a) Confidentiality, Press Release, and Public
Announcements. Except as may be required by law or legal or
administrative process or as otherwise permitted or expressly contemplated
herein, no Party or their respective Affiliates, employees,
agents and representatives shall disclose to any third party this Agreement,
the subject matter or terms hereof or any confidential
information or other proprietary knowledge concerning the business or affairs
of any other Party which it may have acquired from such
Party in the course of pursuing the transactions contemplated by this
Agreement, without the prior consent of the other Parties;
provided, however, that any information that is otherwise publicly available,
without breach of this provision, or has been obtained
from a third party without a breach of such third party's duties, shall not
be deemed confidential information. The Parties further
agree that, from and the date hereof through the Closing Date, no public
release or announcement concerning the transactions
contemplated hereby shall be issued or made by any Party without the prior
consent of the other Parties (which consent shall not be
unreasonably withheld), except for such releases or announcements which may
be required by law or the rules or regulations of the
United States Securities and Exchange Commission, the National Association of
Securities Dealers or NASDAQ, in which case the Party
required to make the release or announcement shall allow the other Parties
reasonable time to review such release or announcement in
advance of its issuance. Notwithstanding the foregoing, Purchaser and Seller
shall cooperate to prepare joint press releases to be
issued (A) promptly following the execution of this Agreement and (B) on the
Closing Date.
(b) No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any Person other than
the Parties and their respective successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents
referred to herein) constitutes the entire agreement
between the Parties and supersedes any prior understandings, agreements, or
representations by or between the Parties, written or oral,
to the extent they related in any way to the subject matter hereof.
(d) Succession and Assignment. This Agreement shall be
binding upon and inure to the benefit of the Parties named
herein and their respective successors, assigns, distributes, and heirs. No
Party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other Party; provided, however, that Purchaser
and Newco may each (i) assign any or all of its rights and interests hereunder
to one or more of its Affiliates and (ii) designate one
or more of its Affiliates to perform its obligations hereunder (in any or
all of which cases Purchaser or Newco nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an
original but all of which together will constitute one and the same instrument.
(f) Headings. The section headings contained in this
Agreement are inserted for convenience only and shall not affect
in any way the meaning or interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and
other communications hereunder will be in writing. Any
notice, request, demand, claim, or other communication hereunder shall be deemed
duly given upon receipt if it is sent by facsimile, or
reputable express courier, and addressed or otherwise sent to the intended
recipient as set forth below:
If to Seller or, prior to the Closing, the Company:
Mr. Ralph Abravaya
4345 Canard Road
Melbourne, Florida 32934
Facsimile: 407-635-9510
Copy to:
Mr. Victor S. Kostro
Reinman Matheson Kostro & Vaughan, P.A.
1825 Riverview Drive
Melbourne, Florida 32901
Facsimile: 407-676-0729
If to Purchaser or Newco or, following the Closing, the
Company:
Mr. Phillip S. Magiera
WorldPort Communications, Inc.
1825 Barrett Lakes Blvd.
Atlanta, Georgia 30144
Facsimile: 770-792-0676
Copy to:
Ms. Helen R. Friedli
McDermott, Will & Emery
227 West Monroe Street, Suite 5500
Chicago, Illinois 60606
Facsimile: (312) 984-3669
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address or
facsimile number set forth above using any other means (including personal
delivery, messenger service, ordinary mail, or electronic
mail), but no such notice, request, demand, claim, or other communication
shall be deemed to have been duly given unless and until it
actually is received by the intended recipient. Any party may change the
address or facsimile number to which notices, requests,
demands, claims, and other communications hereunder are to be delivered by
giving the other Party notice in the manner herein set
forth.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE
STATE OF FLORIDA WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW
PROVISION OR RULE (EITHER OF THE STATE OF FLORIDA OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF FLORIDA.
(i) Amendments and Waivers. No amendment of any provision of
this Agreement shall be valid unless the same shall be
in writing and signed by Purchaser, Newco, the Company, and Seller. No
waiver by any Party of any default, misrepresentation, or
breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default,
misrepresentation, or breach of warranty or covenant hereunder or affect in
any way any rights arising by virtue of any prior or
subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement
that is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or
enforceability of the offending term or provision in any other situation or in
any other jurisdiction.
(k) Expenses. Except as set forth herein, each of
Purchaser, Newco and Seller will bear its or his own costs and
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The
Company shall bear no expenses in connection with this Agreement or the
transactions contemplated hereby.
(l) Construction. Any reference to any federal, state, local,
or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context
requires otherwise. The word "including" shall mean including
without limitation. Nothing in the Disclosure Schedule shall be deemed
adequate to disclose an exception to a representation or
warranty made herein unless the Disclosure Schedule identifies the exception
with reasonable particularity. The Parties intend that
each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any
representation, warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall
not detract from or mitigate the fact that the Party is in breach of the first
representation, warranty, or covenant.
(m) Incorporation of Exhibits and Schedules. The
Exhibits and Schedules (including the Disclosure Schedule)
identified in this Agreement are incorporated herein by reference and made a
part hereof.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
WORLDPORT
COMMUNICATIONS, INC.
By:
Name:
____________________________
Title:
_____________________________
IIC ACQUISITION
CORP.
By:
Name:
____________________________
Title:
_____________________________
INTERNATIONAL
INTERCONNECT, INC.
By:
Name:
____________________________
Title:
_____________________________
MR. RALPH ABRAVAYA
EXHIBITS
Exhibit A Payoff Indebtedness
Exhibit B Escrow Agreement
Exhibit C Company Financial Statements
Exhibit D Accredited Investor Questionnaire
Exhibit E Assets to be Transferred From Interlink Enterprises, Inc.
Exhibit F -- Employment Agreement with Ralph Abravaya
Exhibit G List of Key Employees and Form of Employment Agreements with Key
Employees
Exhibit H Opinion of Seller's counsel
AMENDMENT TO MERGER AGREEMENT
This Amendment to Merger Agreement (the "Amendment") is entered into as of
July __, 1998, by and between Mr. Ralph Abravaya ("Seller"), International
InterConnect, Inc. (the "Company"), WorldPort Communications, Inc., a Delaware
corporation ("Purchaser") and IIC Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Purchaser ("Newco"). Seller, the Company,
Purchaser and Newco are referred to collectively herein as the "Parties."
The Parties executed a Merger Agreement (the "Agreement") on May 22, 1998.
The Parties desire to amend certain provisions of the Agreement, as set
forth herein.
Now, therefore, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Parties agree as follows.
Section 1. Closing. The Parties hereby agree that they will use their
reasonable best efforts to cause all of the conditions to Closing contained in
the Agreement to be satisfied on or before August 1, 1998, and to consummate the
Closing on August 1, 1998.
Section 2. Amendment to Section 2(d)(v)(B). Section 2(d)(v)(B) of the
Agreement is hereby amended and restated in its entirety to read as follows:
"(B) At and as of the Effective Time, all of the Shares issued and
outstanding immediately prior to the Effective Time shall be converted into
the right to receive an aggregate amount (the "Merger Consideration") equal
to (i) $500,000, plus (ii) 772,727 shares of WorldPort Common Stock, plus
(iii) shares of WorldPort Common Stock representing the Estimated Net
Working Capital less the Payoff Indebtedness, calculated at a value of
$11.00 per share (the "Preliminary Merger Consideration"). The Preliminary
Merger Consideration shall be paid as follows: (1) (A) an amount equal to
$250,000 shall be paid to Seller at the Closing, by delivery of cash
payable by wire transfer or delivery of other immediately available funds
and (B) a stock certificate (the "Stock Certificate") shall be delivered to
Seller at the Closing representing 734,227 shares of WorldPort Common Stock
plus such number of shares of WorldPort Common Stock as represents the
value of the Estimated Net Working Capital less the Payoff Indebtedness,
calculated at $11.00 per share, (2) a stock certificate representing 38,500
shares of WorldPort Common Stock (the "Escrow Amount") shall at the Closing
be deposited in an escrow account (the "Escrow") established pursuant to
the terms and conditions of the escrow agreement by and among Purchaser,
Newco, Seller and an escrow agent (the "Escrow Agent") substantially in the
form of Exhibit B attached hereto (the "Escrow Agreement"); and (3) an
amount equal to $250,000 shall be paid to Seller on or before the closing
of the notes offering currently contemplated by Purchaser, but in any event
no later than September 1, 1998, by delivery of cash payable by wire
transfer or delivery of other immediately available funds. The Preliminary
Merger Consideration will be subject to post-closing adjustment, as set
forth in Section 2(e) below and, as so adjusted is referred to herein as
the "Adjusted Merger Consideration", and to additional post-Closing
adjustment, as set forth in Section 8 below and, as so additionally
adjusted, is referred to herein as the "Merger Consideration"."
Section 3. Amendments to Section 2(e)(v). Section 2(e)(vi) of the
Agreement is hereby amended and restated in its entirety to read as follows:
"If the Adjusted Merger Consideration exceeds the Preliminary Merger
Consideration, Purchaser shall deliver to Seller a stock certificate
representing such number of shares of WorldPort Common Stock as represents
such excess, calculated based on a per share price of $11.00. If the
Adjusted Merger Consideration is less than the Preliminary Merger
Consideration, Seller shall cause to be delivered to Purchaser such number
of shares of WorldPort Common Stock as represents such deficiency,
calculated based on a per share price of $11.00, by delivery of the Stock
Certificate to Purchaser's transfer agent with instructions to transfer the
appropriate number of shares to Purchaser and to issue a certificate to
Seller for the balance. Such payments shall be made no later than five
business days after (A) the 30th day after the Draft Closing Date Balance
Sheet has been given by Purchaser to Seller, if Seller has not objected to
the Draft Closing Date Balance Sheet within such 30 day period; (B)
Purchaser and Seller have resolved any objection raised by Seller; or (C)
the date the determination of the accountant described in clause (ii) above
is given to Purchaser and Seller."
Section 4. Amendment to Section 8(b). The third sentence of Section 8(b)
is hereby amended and restated in its entirety as follows:
"For purposes of the immediately preceding sentence, the shares of
WorldPort Common Stock shall be deemed to have a value equal to $11.00 per
share."
Section 5. Amendments to Exhibits F and G. Exhibits F and G to the
Agreement shall be amended and restated in their entirety such that the
Employment Agreement to be entered into between Seller and either Purchaser or
Newco, pursuant to Section 6(a)(vii) and Section 6(b)(iv), shall be in the form
attached hereto as Exhibit F and the Key Employee Agreements to be entered into
between either Purchaser or Newco and the Key Employees, pursuant to Section
6(a)(vii) and Section 6(b)(iv), shall be in the form attached hereto as Exhibit
G.
Section 6. Commitments by Purchaser.
(a) Switch. Purchaser hereby agrees that, as soon as practicable
following the Closing, it shall use its reasonable best efforts to transfer to
the Surviving Corporation, or otherwise grant the Surviving Corporation access
to, a switch of appropriate size to meet the Company's current revenue growth
outlook.
(b) Analyst. Purchaser hereby agrees that, as soon as practicable
following the Closing, it shall use its reasonable best efforts to cause the
Surviving Corporation to employ, or otherwise obtain access to, an analyst or
other appropriate individual to assist the Surviving Corporation in the
development of its Argentina PTO business plan by September 15, 1998.
Section 7. Terms of the Agreement Survive. Except as otherwise provided
herein, all terms of the Agreement shall survive. All capitalized terms used
but not defined herein shall have the meanings given in the Agreement.
Section 8. Miscellaneous.
(a) Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(b) Headings. The section headings contained in this Amendment are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Amendment.
(c) GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF FLORIDA WITHOUT GIVING
EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (EITHER OF THE STATE
OF FLORIDA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE
LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF FLORIDA.
* * * * *
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
WORLDPORT COMMUNICATIONS, INC.
By:
Name: ____________________________
Title: _____________________________
IIC ACQUISITION CORP.
By:
Name: ____________________________
Title: _____________________________
INTERNATIONAL INTERCONNECT, INC.
By:
Name: ____________________________
Title: _____________________________
MR. RALPH ABRAVAYA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To International Interconnect, Inc.:
We have audited the accompanying balance sheet of INTERNATIONAL INTERCONNECT,
INC. (a Florida corporation) as of December 31, 1997 and 1996 and the related
statement of operations, shareholder's equity, and cash flows for the year
then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of International Interconnect,
Inc. as of December 31, 1997 and 1996 and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Atlanta, Georgia
May 22, 1998
<TABLE>
INTERNATIONAL INTERCONNECT, INC.
BALANCE SHEETS
<CAPTION>
March 31, December 31, December 31,
ASSETS 1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 380,969 $ 95,856 $ 219,478
Accounts receivable, net of
allowance for doubtful accounts
of 60,000, 56,000, and 279,826 at
March 31, 1998, December 31,
1997, and December 31, 1996, 560,134 559,817 506,990
respectively
Notes receivable 0 0 1,200
Unbilled accounts receivable 727,537 574,831 504,315
Other receivables 84,859 42,184 4,250
Total current assets 1,753,499 1,272,688 1,236,233
PROPERTY AND EQUIPMENT, net 222,378 200,738 58,028
OTHER ASSETS:
Deposits 197,751 172,751 139,650
Total assets $ 2,173,628 $1,646,177 $1,433,911
LIABILITIES AND SHAREHOLDER'S EQUITY March 31, December 31 December 31,
1998 1997 1996
(Unaudited)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,026,750 $ 593,558 $ 628,928
Accrued expenses 34,182 19,043 27,471
Customer deposits 75,604 67,204 70,000
Other current liabilities 60,412 79,143 10,109
Total current 1,196,948 758,948 736,508
liabilities
NONCURRENT LIABILITIES:
Loan from bank 18,463 18,463 31,000
Due to related party 9,389 57,269 342,786
Total noncurrent 27,852 75,732 373,786
liabilities
Total liabilities 1,224,800 834,680 1,204,099
COMMITMENTS AND CONTINGENCIES
(Note 5)
SHAREHOLDER'S EQUITY:
Common stock, $1 par value;
7,500 shares authorized, 100
shares issued and outstanding 100 100 100
Retained earnings 948,728 811,397 343,517
Total shareholder's 948,828 811,497 343,617
equity
Total liabilities and $ 2,173,628 $1,646,177 $1,433,911
shareholder's equity
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<TABLE>
INTERNATIONAL INTERCONNECT, INC.
STATEMENTS OF OPERATIONS
<CAPTION>
MARCH 31, December 31, March 31, December 31,
1998 1997 1997 1996
(UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C>
REVENUES $2,075,261 $6,977,676 $1,629,109 $4,440,527
COST OF SERVICES 1,528,269 4,955,727 1,069,444 2,857,175
GROSS MARGIN 546,992 2,021,949 559,665 1,583,352
OPERATING EXPENSES:
Selling, general, and
administrative expenses 422,296 1,524,559 425,256 1,144,522
Depreciation and amortization 14,288 46,014 11,504 26,227
Total operating
expenses 436,584 1,570,573 436,760 1,170,749
OPERATING INCOME 110,408 451,376 122,905 412,603
OTHER INCOME 26,923 16,504 2,405 3,689
NET INCOME $ 137,331 $ 467,880 $ 125,310 $ 416,292
The accompanying notes are an integral part of these statements.
</TABLE>
<TABLE>
INTERNATIONAL INTERCONNECT, INC.
STATEMENT OF SHAREHOLDER'S EQUITY
<CAPTION>
COMMON RETAINED
STOCK EARNINGS TOTAL
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $100 $(72,775) $(72,675)
Net income 0 416,292 416,292
BALANCE, December 31, 1996 100 343,517 343,617
Net income 0 467,880 467,880
BALANCE, DECEMBER 31, 1997 $100 $811,397 $811,497
The accompanying notes are an integral part of this statement.
</TABLE>
<TABLE>
INTERNATIONAL INTERCONNECT, INC.
STATEMENTS OF CASH FLOWS
<CAPTION>
March 31, December 31, March 31, December 31,
1998 1997 1997 1996
(UNAUDITED) (Unaudited)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $137,331 $467,880 $125,310 $416,292
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 14,288 46,014 11,504 26,227
Provision for doubtful accounts 4,000 364,274 91,069 223,826
Changes in operating assets and liabilities:
Accounts receivable (4,317) (417,101) (187,900) (671,322)
Unbilled accounts receivable (152,706) (70,516) (40,605) (504,315)
Other receivables (42,675) (36,734) (1,300) (4,250)
Accounts payable 433,192 (35,370) (14,490) 551,259
Accrued expenses and other current 4,808 57,810 51,981 105,378
liabilities
Net cash provided by operating 393,921 376,257 35,569 143,095
activities
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (35,928) (188,724) (61,405) (66,253)
Other (25,000) (33,101) (33,101) (109,650)
Net cash used in investing activities (60,928) (221,825) (94,506) (175,905)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments on) proceeds from note payable 0 (12,537) 0 31,000
(Payments to) advances from related party (47,880) (265,517) 36,350 221,286
Net cash (used in) provided by
financing activities (47,880) (278,054) 36,350 252,286
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
285,113 (123,622) (22,587) 219,478
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 95,856 219,478 219,478 0
CASH AND CASH EQUIVALENTS, END OF PERIOD $380,969 $ 95,856 $196,891 219,478
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest $ 252 $ 1,153 $ 310 $ 0
The accompanying notes are an integral part of these statements.
</TABLE>
INTERNATIONAL INTERCONNECT, INC.
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
International InterConnect, Inc. (the "Company") was incorporated in the
state of Florida in May 1994. The Company provides domestic and
international long-distance telephone services throughout the world.
The Company provides these services via international callback.
2. SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND USE OF ESTIMATES
The accompanying financial statements include the accounts of the Company
and are prepared on the accrual basis of accounting. The preparation of
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosures
of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
QUARTERLY INFORMATION
The balance sheet as of March 31, 1998 and the statements of operations and
cash flows for the three months ended March 31, 1997 and 1998 are unaudited
and have been prepared by the management of the Company in accordance with
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the statements contain all adjustments (consisting
of only normal recurring items) necessary for the fair presentation of the
financial position and results of operations for the interim periods. The
results of operations for the three months ended March 31, 1998 are not
necessarily indicative of the results to be expected for the entire year.
SOURCE OF SUPPLIES
The Company owns telecommunication switches; however, the Company does
not own a transmission network and, accordingly, relies on facilities-
based long-distance carriers to provide transmission of its subscribers'
long-distance calls. The Company currently purchases wholesale minutes
from several carriers to provide the least costly routing and redundancy.
On February 13, 1997, under the World Trade Organization agreement,
certain countries tentatively agreed to significant modifications to
international telecommunications regulations and tariffs. If these
modifications are implemented as currently agreed, it may impact the
results of operations of the Company.
CREDIT RISK
The Company's accounts receivable potentially subject the Company to
credit risk, as collateral is generally not required. The Company's
risk of loss is limited due to advance billings to individual customers
for services, the use of preapproved charges to customer credit cards,
and the ability to terminate access on delinquent accounts. The carrying
amount of the company's receivables approximates their fair value.
CASH AND CASH EQUIVALENTS
The Company considers all short-term, highly liquid investments with an
original maturity of three months or less to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Expenditures for improvements
are capitalized as property. Replacements, maintenance, and repairs that
do not improve or extend the lives of the respective assets are expensed
as incurred. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, commencing when the assets are
installed or placed in service. Leasehold improvements are amortized
over the shorter of the expected lease term or the useful life. The
estimated useful lives are as follows:
Telecommunications equipment Five years
Computer equipment Three years
Vehicles Five years
Furniture and fixtures Five years
Leasehold improvements are amortized using the straight-line method over
the shorter of the service lives of the improvements or the remaining term
of the lease.
LONG-LIVED ASSETS
The Company periodically reviews the values assigned to long-lived assets
such as property and equipment to determine whether any impairment is other
than temporary. Management believes that the long-lived assets on the
accompanying balance sheet are appropriately valued.
INCOME TAXES
The shareholder of the Company has elected to have the Company treated as
an S corporation. The Internal Revenue Code and certain applicable state
statutes provide that the income and expenses of an S corporation are not
taxable separately to the corporation but rather accrue directly to the
shareholders. Accordingly, no provisions for federal and certain state
income taxes related to the Company have been made in the accompanying
financial statements.
REVENUE RECOGNITION
Revenues are recognized as services are provided to customers. The
Company records revenue for long-distance services provided to customers,
but not yet billed. Approximately $575,000 and $504,000 of unbilled
revenue is included in the current assets section in the accompanying
balance sheet as of December 31, 1997 and 1996, respectively.
ADVERTISING COSTS
The Company expenses all advertising costs as incurred.
DUE TO RELATED PARTY
This balance represents amounts due to the Company's shareholder,
net of any advances.
3. PROPERTY AND EQUIPMENT
The major classes of property and equipment at December 31, 1997 and 1996
are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Telecommunications equipment $169,203 $ 36,891
Computer equipment 65,088 20,134
Vehicles 31,000 31,000
Leasehold improvements 28,461 18,303
Furniture and fixtures 1,815 515
Property and equipment 295,567 106,843
Less accumulated depreciation (94,829) (48,815)
$200,738 $ 58,028
</TABLE>
4. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space under a noncancelable operating lease.
This lease expires at the end of the first quarter of 1998. Rent expense
under operating leases was not material for the years ended December 31,
1997 and 1996, respectively.
The Company will continue the lease on a month-to-month basis until such
time as the company closes on a new commitment for office space at another
location, currently in process.
LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims that arise in the
ordinary course of business. There are no pending legal proceedings to
which the Company is a party that management believes will have a material
adverse affect on the financial position or results of operation of the
Company.
5. SHAREHOLDER'S EQUITY
The Company has 7,500 shares of common stock ($1 par value) authorized,
of which 100 shares are issued and outstanding. The Company was
capitalized with an initial contribution of $100.
6. LOAN FROM BANK
The Company has a car loan with SunTrust Bank in connection with the
purchase of a vehicle. The loan bears interest at 4%, and payments
are made monthly in the amount of $572. The loan matures December
2001, and interest expense is recorded in selling, general, and
administrative expenses in the accompanying income statements.
7. SUBSEQUENT EVENTS
Acquisition of the Company
In May 1998, the Company signed a letter of intent for a proposed merger
with Worldport Communications, Inc. ("Worldport") whereby Worldport
agreed to purchase the Company for approximately $0.8 million in cash
and approximately 795,000 shares of Worldport common stock (of which
$250,000 was placed in escrow). The acquisition is expected to close in
the third quarter of 1998.
UNAUDITED PRO FORMA FINANCIAL DATA
The following pro forma balance sheet reflects the acquisition of EnerTel
N.V. ("EnerTel") and International InterConnect, Inc. ("IIC") (collectively, the
"Acquisitions") and the Bridge Loan facility, as if each had occurred on March
31, 1998. The following pro forma statement of operations for the three months
ended March 31, 1998 reflects the Acquisitions and the Bridge Loan as if each
had occurred on January 1, 1997. The following pro forma statement of
operations for the year ended December 31, 1997 reflects the Acquisitions, the
Bridge Loan, and the acquisitions of Telenational Communications Limited
Partnership ("TNC") and The Wallace Wad Company ("WWC") as if each had occurred
on January 1, 1997. The pro forma financial information does not purport to
represent what the Company's consolidated results of operations would have been
if the Acquisitions and the Bridge Loan had in fact occurred on these dates, nor
does it purport to indicate the future consolidated financial position or future
consolidated results of operations of the Company. The pro forma adjustments
are based on currently available information and certain assumptions that
management believes to be reasonable.
<TABLE>
UNAUDITED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(DOLLARS AND SHARES IN THOUSANDS)
<CAPTION>
TRANSACTIONS
PRO FORMA PRO
HISTORICAL ENTERTEL(H) IIC SUBTOTAL ADJUSTMENTS FORMA
<S> <C> <C> <C> <C> <C> <C>
REVENUES $ 948 $4,070 $2,075 $ 7,093 $(1,288) (A) $ 5,805
COST OF SERVICES 891 3,004 1,528 5,423 (815) (A) 4,608
GROSS MARGIN 57 1,066 547 1,670 473 1,197
OPERATING EXPENSES:
SELLING, OPERATIONS, AND ADMINISTRATION 2,255 6,978 422 9,655 (898) (A) 8,533
(224) (B)
DEPRECIATION AND AMORTIZATION 631 1,599 14 2,244 (49) (A) 3,702
96 (B)
1,411 (C)
TOTAL OPERATING EXPENSES 2,886 8,577 436 11,899 336 12,235
OPERATING INCOME (LOSS) (2,829) (7,511) 111 (10,229) (809) (11,038)
OTHER INCOME (EXPENSE):
INTEREST INCOME (EXPENSE), NET (176) (145) 27 (294) (191) (B) (8,795)
(8,310) (D)
OTHER 0 0 0 0 0 0
TOTAL OTHER INCOME (EXPENSE) (176) (145) 27 (294) (8,501) (8,795)
INCOME (LOSS) BEFORE MINORITY INTEREST (3,005) (7,656) 138 (10,523) (9,310) (19,833)
MINORITY INTEREST 0 0 0 0 (1,148) (E) (1,148)
NET LOSS $(3,005) $(7,656) $ 138 $ (10,523) $(8,162) $(18,685)
PRO FORMA BASIC NET LOSS $ (0.18) $ (1.04)
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 17,174 773 (G) 17,947
</TABLE>
<TABLE>
Unaudited Consolidated Pro Forma Statement of Operations
For the Year Ended December 31, 1997
(Dollars and Shares in Thousands)
<CAPTION>
TRANSACTIONS
PRO FORMA
HISTORICAL ENTERTEL(H) IIC TNC WWC SUBTOTAL ADJUSTMENTS CONSOLIDATED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 2,778 $ 2,594 $6,978 $ 3,577 $ 0 $ 15,927 $ (1,175) (a) $14,752
Cost of services 2,606 1,893 4,956 3,629 0 13,084 (701) (a) 12,383
Gross margin 172 701 2,022 (52) 0 2,843 (474) 2,369
Operating expenses:
Selling, operations, and administration 2,724 28,523 1,525 1,562 13 34,347 (4,391) (a) 29,022
Depreciation and amortization 819 2,434 46 175 0 3,474 382 (b) 9,862
Total operating expenses 3,543 30,957 1,571 1,737 (13) 37,821 1,063 38,884
Operating income (loss) (3,371) (30,256) 451 (1,789) (13) (34,978) (1,537) (36,515)
Other income (expense):
Interest income (expense), net (128) (136) 17 (138) 0 (385) (764) (b) (34,387)
Other 6 0 0 (178) 0 (172) 0 (172)
Total other income (expense) (122) (136) 17 (316) 0 (557) (34,002) (34,559)
Income (loss) before minority interest (3,493) (30,392) 468 (2,105) (13) (35,535) (35,539) (71,074)
Minority interest 0 0 0 0 0 0 (4,559)(e) (4,559)
Net loss $(3,493) $(30,392) $ 468 $(2,105) $(13) $(35,535) $(30,980) $(66,515)
Pro forma basic net loss $ (0.26) $ (4.11)
Weighted average common and common equivalent 13,245 3,348 (g) 16,593
</TABLE>
(a) Reflects the elimination of revenues and expenses associated with a segment
of EnerTel's Bel 1600 business which the Company anticipates selling in
1998.
(b) Reflects the adjustment of costs associated with the lease of the EnerTel
fiber network which was treated as an operating lease by EnerTel, but which
qualifies as a capital lease under U.S. generally accepted accounting
principles.
(c) Reflects additional depreciation and amortization based on the preliminary
purchase price allocations and the following amortization periods:
Customer base/acquired contracts 5 years
Fiber network 20 years
Goodwill 20 years
The preliminary estimate of net assets acquired represents management's best
estimate based on currently available information; however, such estimate may
be revised up to one year from the acquisition date.
(d) Reflects additional interest expense (including amortization of debt
issuance costs) associated with the interim loan used to effect the
Acquisitions including the accretion of the debt discount associated with
the warrants of $14 million.
(e) Reflects the anticipated 15% minority interest in EnerTel.
(f) Reflects the following adjustments related to the acquisition of TNC and
WWC (whose separate results are presented for the period from January 1,
1997 until acquisition): (i) elimination of TNC management charges and
(ii) amortization of acquired contracts and goodwill over 5 and 10 years,
respectively.
(g) Reflects 772,727 shares issued in conjunction with the Acquisitions.
Additionally, the year ended December 31, 1997 reflects the 3,750,000 and
1,400,000 shares issued in conjunction with the TNC and WWC Acquisitions,
respectively, as if they were outstanding from January 1, 1997 to the
acquisition date.
(h) EnerTel's revenues and expenses were translated into U.S. dollars at the
average exchange rate for the period, 1 Dutch guilder = 0.5117 U.S. dollars
and 1 Dutch guilder = 0.4846 U.S. dollars for the year ended December 31,
1997 and the three months ended March 31, 1998, respectively.
<TABLE>
Unaudited Consolidated Pro Forma Balance Sheet
as of March 31, 1998
(Dollars in Thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 6,488 $ 0 $ 381 $ 6,869 $ 115,200 (a) $ 21,714
(91,472)(a)
(381)(d)
(8,502)(e)
Accounts receivable 472 1,543 1,288 3,303 (1,288)(d) 15,515
Prepaid expenses and other current assets 190 4,463 85 4,738 (85) (d) 4,653
Total current assets 7,150 6,006 1,754 14,910 26,972 41,882
Property and equipment, net 4,791 25,013 222 30,026 6,805 (c) 66,831
Customer base 0 0 0 0 6,898 (d) 6,898
Goodwill 6,126 0 0 6,126 55,259 (d) 61,385
Other assets 2,070 13,995 198 16,263 4,800 (a) 7,068
Total assets $20,137 $45,014 $ 2,174 $ 67,325 $ 116,739 $ 184,064
Liabilities and stockholder's equity:
Accounts payable and accrued expenses $ 2,386 $ 6,868 $ 1,061 $ 10,315 $ (1,061) (d) $ 9,254
Short-term note payable 500 0 0 500 0 500
Current portion of notes payable 175 0 0 175 0 175
Current portion of capital lease obligations 1,264 0 0 1,264 0 1,264
Bridge Loan 0 0 0 0 106,034 (a) 106,034
Other current liabilities 20 13,919 137 14,076 (137) (d) 5,437
Total current liabilities 4,345 20,787 1,198 26,330 96,334 122,664
Notes payable-long-term 0 23,985 27 24,012 (24,012) (d) 0
Long-term obligations under capital leases 2,643 4,536 0 7,179 7,038 (c) 14,217
Other long-term liabilities 44 0 0 44 0 44
Minority interest 0 0 0 0 13,500 (g) 13,500
Preferred stock 0 0 0 0 0 0
Common stock 2 0 0 2 0 2
Additional paid-in capital 21,150 35,736 0 56,886 6,568 (b) 27,718
Warrants 0 0 0 0 13,966 (a) 13,966
Amounts due from shareholders (1,215) 0 0 (1,215) 0 (1,215)
Cumulative translation adjustment (4) 407 0 403 (407) (d) (4)
Retained earnings (accumulated deficit) (6,828) (40,437) 949 (46,316) 39,488 (d) (6,828)
Total liabilities and stockholder's equity
$20,137 $45,014 $ 2,174 $67,325 $ 116,739 $184,064
</TABLE>
Notes to Unaudited Consolidated Pro Forma Balance Sheet
(a) Reflects the Bridge Loan net of estimated fees and adjusted for the fair
market value of the 1,644,969, $0.01 warrants associated with the loan as
follows (in millions):
Face value $120.0
Estimated fees (4.8)
Net cash proceeds to the Company 115.2
Fair market value of warrants (14.0)
Net carrying value of debt $101.2
(b) Reflects the consideration to be paid to effect the Acquisitions as
follows:
EnerTel IIC Total
Cash (1) (2) $90,722 $ 750 $91,472
Common stock (3) 0 6,568 6,568
Total $90,722 $ 7,318 $98,040
(1) Includes estimated acquisition costs in an aggregate approximate
amount of $1.5 million.
(2) The cash purchase price for EnerTel of 186 million Dutch guilders
was translated into U.S. dollars at an exchange rate on March 31,
1998 of 1 Dutch guilder equals 0.4797 U.S. dollars, the closing
exchange rate on March 31, 1998.
(3) Based on $8.50 per share of common stock.
(c) Reflects the recognition of the lease of EnerTel's fiber network as a
capital lease in accordance with U.S. generally accepted accounting
principles.
(d) Reflects the allocation of the purchase price to assets acquired in the
Acquisitions. The following table summarizes the purchase price, net
assets acquired at historical cost, fair market adjustments, identifiable
intangibles and goodwill by acquisition:
<TABLE>
<CAPTION>
EnerTel IIC Total
<S> <C> <C> <C>
Purchase price $ 90,722 $ 7,318 $ 98,040
Net assets at historical cost (4,294) 949 (3,345)
Less net liabilities at historical cost not assumed 9,757 (529) 9,228
Net assets acquired at historical cost 5,463 420 5,883
Fair market value adjustments 30,000 0 30,000
Identifiable intangibles:
Customer base/acquired contracts 0 6,898 6,898
Goodwill 55,259 0 55,259
</TABLE>
(e) Reflects the repayment of EnerTel's line of credit facility upon
acquisition of EnerTel by the Company.
(f) EnerTel's functional currency is the Dutch guilder. Balance sheet
amounts (exclusive of accumulated deficit) are translated at the
average exchange rate for the three months ended March 31, 1998 of
1 Dutch guilder = 0.4797 U.S. dollars. Accumulated deficit was
translated at the average exchange rate for the three months ended
March 31, 1998 of 1 Dutch guilder = 0.4846 U.S. dollars.
(g) Reflects the anticipated sale of a 15% interest in EnerTel to former
EnerTel shareholders.
