SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of report: January 21, 2000
(Date of earliest event reported)
eLEC Communications Corp.
(Exact name of Registrant as specified in its charter)
New York
(State or other jurisdiction of incorporation)
0-4465 13-2511270
(Commission File No.) (I.R.S. Employer
Identification No.)
37 North Avenue
Norwalk, Connecticut 06851
(Address of principal executive offices; zip code)
(203) 750-1000
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if changed Since Last Report)
<PAGE>
Item 2. Acquisition or Distribution of Assets
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On January 21, 2000, eLEC Communications Corp., a New York corporation
(the "Company"), acquired Telecarrier Services, Inc., a Delaware corporation
("Telecarrier"), pursuant to the merger (the "Merger") of eLEC Communications
Sub I, Inc., a Delaware corporation and a wholly-owned subsidiary of the Company
(the "Sub"), with and into Telecarrier. Upon consummation of the Merger,
Telecarrier became a wholly-owned subsidiary of the Company. The Merger was
effected pursuant to an Agreement and Plan of Merger dated as of January 21,
2000, by and among the Company, the Sub, Telecarrier, Michael Lagana and Zina
Hassel (the "Merger Agreement").
The consideration paid by the Company pursuant to the Merger Agreement
consisted of (a) $30,000 in cash from the Company's working capital reserves,
(b) 500,000 shares of the Company's Common Stock, of which 400,000 shares were
issued at the closing of the Merger and 100,000 shares were reserved for
issuance upon completion of an audit of Telecarrier's financial statements and
(c) 280,000 shares of the Company's Common Stock, which shares shall be issued
in such amounts and at such times as set forth in the Merger Agreement. In
connection with the Merger, the Company repaid certain promissory notes of
Telecarrier by issuing a total of 32,000 shares of the Company's Common Stock
and paying $14,200 in cash from the Company's working capital reserves.
Telecarrier, a privately-held company, is a competitive local exchange
carrier that provides local exchange services in New Jersey, New York,
Massachusetts and Rhode Island, and long distance service in California,
Connecticut, Delaware, Florida, Georgia, Massachusetts, New Hampshire, New
Jersey, New York, North Carolina, Pennsylvania, Rhode Island and Texas. The
acquisition of Telecarrier increases to 14 the total number of states in which
the Company operates. Telecarrier has approximately 4,000 lines in service with
approximately 50% of those lines providing local services.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Financial Statements of Business Acquired.
Financial statements, if any, required by this item will be filed by
amendment not later than April 5, 2000.
(b) Exhibits.
The Company hereby furnishes the following exhibits:
2.1 Agreement and Plan of Merger dated as of January 21, 2000,
among the Company, the Sub, Telecarrier, Michael Lagana and
Zina Hassel.
2.2 Press Release of the Company dated January 24, 2000.
<PAGE>
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 hereunto duly authorized.
Dated: February 2, 2000
eLEC COMMUNICATIONS CORP.
(Registrant)
By:/s/ Paul H. Riss
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Paul H. Riss
Chief Executive Officer
EXECUTION COPY
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AGREEMENT AND PLAN OF MERGER
Dated as of January 21, 2000
Among
eLEC COMMUNICATIONS CORP.,
eLEC COMMUNICATIONS SUB I, INC.,
and
TELECARRIER SERVICES, INC.,
MICHAEL LAGANA
AND ZINA HASSEL
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER (the "Agreement"), dated as of January 21,
2000, by and among ELEC COMMUNICATIONS CORP., a New York corporation ("eLEC" or
the "Purchaser"), eLEC COMMUNICATIONS SUB I, INC., a Delaware corporation and a
first tier wholly-owned subsidiary of the Purchaser ("Mergeco"), TELECARRIER
SERVICES, INC., a Delaware corporation ("Telecarrier"), MICHAEL LAGANA, an
individual residing at 26 Grandview Drive, Holmdel, New Jersey 07733, and ZINA
HASSEL, an individual residing at 53 Ivanhoe Drive, Manalapan, New Jersey 07726,
(Michael Lagana and Zina Hassel are hereinafter sometimes referred to
collectively as the "Stockholders" and individually as a "Stockholder").
WHEREAS, Telecarrier is certified to resell local and long distance
telecommunications exchange services and other public telecommunications
services anywhere within the States referred to herein;
WHEREAS, the Stockholders collectively own all of the issued and
outstanding shares of capital stock of Telecarrier ("Telecarrier Common Stock");
WHEREAS, eLEC is the owner of all of the issued and outstanding capital
stock of Mergeco; and
WHEREAS, the Boards of Directors of eLEC and Mergeco, and the Board of
Directors of Telecarrier, have approved the merger of Mergeco with and into
Telecarrier (the "Merger"), pursuant to which Telecarrier shall be the surviving
entity, in accordance with the provisions of applicable law and become a
wholly-owned subsidiary of eLEC, and the Stockholders will receive common stock
of eLEC in exchange for their shares of Telecarrier capital stock in accordance
with the terms and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual agreements contained
herein, intending to be legally bound hereby, the parties hereto agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
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As used in this Agreement each of the following terms shall have the
following meaning:
1.01 "AAA" shall have the meaning set forth in Section 9.05(c).
1.02 "Affiliate" shall mean an affiliate of an individual or entity as
the term "affiliate" is defined in the rules and regulations promulgated
under the Securities Act of 1933, as amended.
1.03 "Acquired Assets" shall have the meaning set forth in Section
5.15.
1.04 "Additional Shares" shall have the meaning set forth in Section
2.07 (b)(i).
1.05 "Audit" shall mean any audit, assessment of Taxes, any other
examination or claim by any Tax Authority, judicial, administrative or other
proceeding or litigation (including any appeal of any such judicial,
administrative or other proceeding or litigation) relating to Taxes and/or Tax
Returns.
1.06 "Authorizations" shall have the meaning set forth in Section
5.23(b).
1.07 "Certificate of Merger" shall have the meaning set forth in
Section 2.04
1.08 "Claims" shall have the meaning set forth in Section 8.02.
1.09 "Closing" shall have the meaning set forth in Section 3.01.
1.10 "Closing Date" shall have the meaning set forth in Section 3.01.
1.11 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.12 "Commission" shall mean those certain state utility regulatory
commissions and the FCC under whose respective authorities the Stockholders and
Telecarrier have received Telecommunication Authorizations to offer
telecommunication services.
1.13 "Computer Equipment" shall mean all computer equipment, devices
and accessories (including personal computers, workstations, servers, data
processing hardware and related telecommunications equipment, media and tools)
used in the Telecommunication Business.
1.14 "Confidential Information" shall have the meaning set forth in
Section 4.01(b).
1.15 "Damages" shall have the meaning set forth in Section 8.03(a).
1.16 "Dispute" shall have the meaning set forth in Section 9.05(b).
1.17 "Effective Time" shall have the meaning set forth in Section 2.04.
1.18 "eLEC Commission Reports" shall have the meaning set forth in
Section 6.06.
1.19 "eLEC Common Stock" shall mean the common stock, par value $0.10
per share, of eLEC.
1.20 "Employees" shall have the meaning set forth in Section 5.20(b).
1.21 "Encumbrance" shall mean any claim, mortgage, pledge, lien,
security or other third party right or interest of any kind whatsoever,
conditional sales agreement, option, encumbrance or charge of any kind affecting
real or personal property.
1.22 "Environmental Claims" shall mean any and all claims, actions,
causes of action, or other written notices by any Person alleging potential
liability (including, without limitation, potential liability for investigatory
costs, cleanup costs, governmental response costs, natural resources damages,
property damages, personal injuries, or civil or criminal penalties) arising out
of or resulting from (i) circumstances forming the basis of any violation of any
Environmental Laws or (ii) any releases of Hazardous Materials at any real or
personal property presently or formerly owned, leased or managed by Telecarrier
at any disposal facility which may have received Hazardous Materials generated
by Telecarrier.
1.23 "Environmental Laws" shall mean any applicable federal, state,
local or foreign law, treaty, judicial decision, regulation, rule, judgment,
order, decree, injunction, permit or governmental restriction, each as in effect
on or prior to the Closing Date, relating to the environment, safety or health.
1.24 "Environmental Permits" shall mean Permits required by
Environmental Laws.
1.25 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.26 "FCC" shall mean the Federal Communication Commission.
1.27 "First Determination Period" shall have the meaning set forth in
Section 2.07(b)(ii)(A).
1.28 "GAAP" shall mean generally accepted accounting principles.
1.29 "Governmental Authority" shall mean the government of the United
States or any state or political subdivision thereof and any entity, body or
authority exercising executive, legislative, judicial regulatory or
administrative function of or pertaining to government.
1.30 "Hazardous Materials" shall include (a) any element, compound or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substance, extremely hazardous
substance or chemical, hazardous waste, biohazardous or infectious waste,
special waste, or solid waste under Environmental Laws; (b) petroleum,
petroleum-based or petroleum-derived products; (c) polychlorinated biphenyls;
(d) any substance exhibiting a hazardous waste characteristic, including but not
limited to corrosivity, ignitability, toxicity or reactivity, as well as any
radioactive or explosive materials; and (e) any asbestos-containing materials.
1.31 "Indemnification Notice" shall have the meaning set forth in
Section 8.02.
1.32 "Indemnified Party" shall have the meaning set forth in Section
8.02.
1.33 "Indemnitor" shall have the meaning set forth in Section 8.02.
1.34 "Intellectual Property" shall mean all common law and statutory
rights and interests in, to and under any patent, trademark, service mark,
copyright, trade name or logo-type, trade dress or appearance, any registration,
reissue, division, continuation, continuation-in-part or extension of any
thereof, any application to register or pending registration of any thereof and
any and all goodwill associated therewith.
1.35 "Investment" shall mean, as applied to any Person, (i) any direct
or indirect purchase or other acquisition by such Person of any notes,
obligations, instruments, stock, securities or ownership interest (including
partnership interests and joint venture interests) of any Person and (ii) any
capital contribution by such Person to any other Person. 1.36 "Issued Shares"
shall have the meaning set forth in Section 2.07(b)(i).
1.37 "Leased Property" shall have the meaning set forth in Section
5.17.
1.38 "Leased Tangible Property" shall mean all machinery, furniture,
equipment and other tangible personal property leased by Telecarrier.
1.36 "Liability" shall have the meaning set forth in Section 5.27.
1.37 "Material Adverse Effect" shall mean an effect on the business,
assets, liabilities, prospects, condition (financial or otherwise) or results of
operations of Telecarrier, which effect, either individually or when aggregated
with other such effects, is adverse and material.
1.38 "Merger Consideration" shall have the meaning set forth in Section
2.07(b).
1.39 "Non-Compete Term" shall have the meaning set forth in Section
4.01(a).
1.40 "Owned Tangible Property" shall mean all machinery, furniture,
equipment and other tangible personal property owned by Telecarrier.
1.42 "Permit" shall mean any license, franchise, permit, consent,
concession, order, approval, authorization or registration from, of or with a
governmental entity.
1.43 "Person" shall mean an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
1.44 "Plans" shall have the meaning set forth in Section 5.24(a).
1.45 "Promissory Note" shall have the meaning set forth in Section
2.07(b).
1.46 "Proprietary Information" shall mean any process, design, formula,
know-how, information, invention, trade secret, technology or research,
marketing or other data that has not entered the public domain.
1.47 "Purchaser Affiliate" shall have the meaning set forth in Section
8.03(a).
1.48 "Real Property Permits" shall have the meaning set forth in
Section 5.17.
1.49 "Related Documents" shall mean, with respect to any party
hereunder, such other agreements, instruments, documents and certificates to be
executed and delivered by such party pursuant hereto or in connection with the
transactions contemplated hereby or thereby.
1.50 "Release" shall mean any spilling, leaking, pumping, emitting,
emptying, discharging, injecting, escaping, leaching, migrating, dumping or
disposing of Hazardous Materials (including the abandonment or discarding of
barrels, containers or other closed receptacles containing Hazardous Materials)
into the environment.
1.51 "Reserved Shares" shall have the meaning set forth in Section
2.07(b)(i).
1.52 "Restricted Persons" shall have the meaning set forth in Section
4.01(a).
1.53 "Satisfaction Shares" shall have the meaning set forth in Section
4.05 hereof.
1.54 "Second Determination Period" shall have the meaning set forth in
Section 2.07(b)(ii)(B).
1.55 "Securities Act" shall have the meaning set forth in Section
2.07(b) (iv).
1.56 "Stockholders" shall mean Michael Lagana and Zina Hassel, each
individually a "Stockholder."
1.57 "Stockholder Affiliates" shall have the meaning set forth in
Section 8.03(b).
1.58 "Subsidiary" shall mean with respect to any Person, each entity of
which a majority of the voting power of the voting equity securities or equity
interest is owned, directly or indirectly, by such Person.
1.59 "Subsisting Contract" shall mean any material contract, agreement,
commitment, lease or restriction of any kind to which Telecarrier is a party or
by which Telecarrier is bound or to which any of Telecarrier's assets are
subject, including without limitation Third Party Licenses, telecommunications
service agreements, contracts with local exchange carriers, agent contracts,
distributors contracts, customer contracts, vendor agreements and billing
agreements.
1.60 "Surviving Corporation" shall have the meaning set forth in
Section 2.01.
1.61 "Tangible Property" shall mean the Owned Tangible Property and the
Leased Tangible Property.
1.62 "Tangible Property Leases" shall mean any Subsisting Contract
granting a right to use Leased Tangible Property.
1.63 "Taxes" shall mean any federal, state, local or foreign income,
gross receipts, license, payroll, wage, employment, excise, utility,
communications, production, occupancy, severance, stamp, occupation, premium,
windfall profits, environmental, customs duties, capital stock, capital levy,
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, without limitation, penalties, additions
to tax, and interest attributable thereto (together with any interest on any
such interest, penalties and additions to tax).
1.64 "Tax Authority" shall mean the Internal Revenue Service ("IRS")
and any other domestic or foreign authority responsible for the administration
of any Taxes.
1.65 "Tax Laws" shall mean the Code, federal, state, county, local or
foreign laws related to Taxes and any regulations or official administrative
pronouncements released thereunder.
1.66 "Tax Returns" shall mean all original and amended Federal, state,
local and foreign tax returns, declarations, statements, reports, schedules,
forms and information returns relating to Taxes.
1.67 "Telecarrier Agent" shall have the meaning set forth in Section
2.12.
1.68 "Telecarrier Common Stock" shall mean all of the issued and
outstanding shares of common stock, no par value, of Telecarrier.
1.69 "Telecommunication Authorization" shall mean all orders, approvals
and consents granted by any Governmental Authority, and registrations made with
any Governmental Authority, permitting the provision of local or long distance
or international telecommunication services.
1.70 "Telecommunication Business" shall mean the telecommunication
services that Telecarrier provides as of the Closing Date or are authorized to
provide pursuant to the respective Telecommunication Authorizations that it has
been granted.
1.71 "Third Party License" shall mean the grant to Telecarrier by any
Person of any right to use any Intellectual Property Right, Proprietary
Information, Program or other intangible personal property.
ARTICLE II
THE MERGER
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2.01 Surviving Corporation. Upon the terms and subject to the
conditions of this Agreement, in a transaction the parties intend to qualify as
a tax-free reorganization under Section 368(a)(2)(E) of the Code and in
accordance with the Delaware General Corporation Law ("DGCL"), Mergeco shall be
merged with and into Telecarrier, and Telecarrier shall be the surviving
corporation after the Merger (the "Surviving Corporation") and shall continue
its corporate existence under the laws of the State of Delaware. The name of the
Surviving Corporation shall remain "Telecarrier Services, Inc." The separate
existence of Mergeco shall cease upon the Effective Time.
2.02 Certificate of Incorporation and Bylaws. From and after the
Effective Time, the Certificate of Incorporation and the Bylaws of Telecarrier,
each as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation and the Bylaws, respectively, of the Surviving
Corporation until thereafter amended in accordance with applicable law or as
provided therein.
2.03 Directors and Officers. From and after the Effective Time, the
directors of the Surviving Corporation shall be the persons who were the
directors of Mergeco immediately prior to the Effective Time. Each director of
the Surviving Corporation shall hold office for the balance of his or her
unexpired term or his or her earlier death, resignation or removal. The officers
of the Surviving Corporation shall be the persons who were the officers of
Telecarrier immediately prior to the Effective Time, and such officers shall
hold office in accordance with the provisions of the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
2.04 Effective Time. The Merger shall be effected by filing at the time
of Closing, or as soon thereafter as practicable, a certificate of merger (the
"Certificate of Merger") executed in accordance with Delaware law, and shall
make all other filings and recordings required under Delaware law. The Merger
shall become effective (the "Effective Time") upon the acceptance of the filing
of the Certificate of Merger with the Secretary of State of the State of
Delaware, or at such later date as specified in the Certificate of Merger.
2.05 Effect of Merger.
(a) Except as otherwise specifically set forth herein, the
identity, existence, purposes, powers, franchises, rights and immunities of
Telecarrier shall continue unaffected and unimpaired by the Merger, and the
corporate identity, existence, purposes, powers, franchises and immunities of
Mergeco shall be merged into Telecarrier, and Telecarrier, as the Surviving
Corporation, shall be fully vested therewith. The separate existence and
corporate organization of Mergeco (except insofar as may be continued by
applicable law) shall cease as of the Effective Time.
(b) At the Effective Time:
(i) the rights, privileges, good will and franchises
and all property, real, personal and mixed, and all debts due on whatever
account and all other things in action belonging to Mergeco shall be bargained,
conveyed, granted, confirmed, transferred, assigned and set over to and vested
in the Surviving Corporation, by operation of law and without further act or
deed, and all property and rights, and all and every other interest of Mergeco
shall be as effectively the property, rights and interests of the Surviving
Corporation, as they were of Mergeco; and
(ii) no action or proceeding, whether civil or
criminal, pending at the Effective Time by or against either Telecarrier or
Mergeco, or any stockholder, officer or director thereof, shall abate or be
discontinued by the Merger, but may be enforced, prosecuted, settled or
compromised as if the Merger had not occurred, or the Surviving Corporation may
be substituted in such action or proceeding in place of Mergeco; and
(iii) all rights of employees and creditors and all
liens upon the property of Mergeco shall be preserved unimpaired, limited in
lien to the property affected by such liens at the Effective Time, and all of
the debts, liabilities, obligations and duties of Mergeco shall attach to the
Surviving Corporation, and shall be enforceable against the Surviving
Corporation to the same extent as if all such debts, liabilities, obligations
and duties had been incurred or contracted by the Surviving Corporation.
2.06 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (a) to vest,
perfect or confirm, of record or otherwise, in the Surviving Corporation, title
to and possession of any property or right of Mergeco acquired or to be acquired
by reason of, or as a result of, the Merger, or (b) otherwise to carry out the
purposes of this Agreement, Mergeco and its proper officers and directors shall
be deemed to have granted to the Surviving Corporation an irrevocable power of
attorney to execute and deliver all such proper deeds, assignments and
assurances in law and to do all acts necessary or proper to vest, perfect or
confirm title to and possession of such property or rights in the Surviving
Corporation and otherwise to carry out the purposes of this Agreement; and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of Mergeco or otherwise to take any and all such actions.
2.07 Conversion of Capital Stock.
(a) At the Effective Time, each share of common stock, par
value $0.01 per share, of Mergeco outstanding immediately prior to the Effective
Time and all rights with respect thereto, by virtue of the Merger and without
any action on the part of the stockholders of Mergeco, shall be converted into
one validly issued, fully paid and non-assessable share of common stock, par
value $0.01 per share, of the Surviving Corporation.
(b) (i) At the Effective Time and subject to subparagraphs
(b)(ii) and (iii) below, each share of Telecarrier Common Stock issued and
outstanding immediately prior to the Effective Time and all rights with respect
thereto, by virtue of the Merger and without any action on the part of the
Stockholders, shall be converted into the right to receive its proportionate
share of (A) an aggregate amount of cash equal to $30,000, (B) 500,000 shares of
eLEC Common Stock (the "Issued Shares"), of which 400,000 shares shall be issued
at Closing and 100,000 shares (the "Reserved Shares") shall be issued upon
completion of the audit set forth in subparagraph (b)(iii) below, and (C)
280,000 shares of eLEC Common Stock (the "Additional Shares"), which shares
shall be issued in such amounts and at such times as shall be determined
pursuant to subsection (b)(ii) below (collectively, the "Merger Consideration").
The parties hereto acknowledge and agree that the fair market value of the eLEC
Common Stock to be issued on the date hereof is $3.25 per share, which was the
closing price of the eLEC Common Stock on January 20, 2000.
(ii) The Additional Shares shall be issued only as follows:
(A) (1) 60,000 of the Additional Shares shall be
issued if the net revenues of Telecarrier, determined on a consolidated
basis in accordance with GAAP, for the twelve month period ending
January 31, 2001 (the "First Determination Period") exceed Four Million
Dollars ($4,000,000), (2) an additional 60,000 of the Additional Shares
shall be issued if the net revenues of Telecarrier, determined on a
consolidated basis in accordance with GAAP, for the First Determination
Period exceed Six Million Dollars ($6,000,000), (3) an additional
80,000 of the Additional Shares shall be issued if the net revenues of
Telecarrier, determined on a consolidated basis in accordance with
GAAP, for the First Determination Period exceed Eight Million Dollars
($8,000,000), and (4) an additional 80,000 of the Additional Shares
shall be issued if the net revenues of Telecarrier, determined on a
consolidated basis in accordance with GAAP, for the First Determination
Period exceed Ten Million Dollars ($10,000,000).
(B) (1) 60,000 of the Additional Shares, less any
Additional Sharespreviously issued pursuant to subsection
2.07(b)(ii)(A) above, shall be issuedif the net revenues of
Telecarrier, determined on a consolidated basis in accordance with
GAAP, for the twelve month period ending January 31, 2002 (the "Second
Determination Period") exceed Four Million Dollars ($4,000,000), (2) an
additional 60,000 of the Additional Shares, less any Additional Shares
previously issued pursuant to subsection 2.07(b)(ii)(A) above, shall be
issued if the net revenues of Telecarrier, determined on a consolidated
basis in accordance with GAAP, for the Second Determination Period
exceed Six Million Dollars ($6,000,000), (3) an additional 80,000 of
the Additional Shares, less any Additional Shares previously issued
pursuant to subsection 2.07(b)(ii)(A) above, shall be issued if the net
revenues of Telecarrier, determined on a consolidated basis in
accordance with GAAP, for the Second Determination Period exceed Eight
Million Dollars ($8,000,000), and (4) an additional 80,000 of the
Additional Shares, less any Additional Shares previously issued
pursuant to subsection 2.07(b)(ii)(A) above, shall be issued if the net
revenues of Telecarrier, determined on a consolidated basis in
accordance with GAAP, for the Second Determination Period exceed Ten
Million Dollars ($10,000,000).
(C) The pro rata portion of the Additional Shares
issuable to Michael Laganashall be issued to him in the event his
employment with the Purchaser is terminated by the Purchaser without
"cause," as defined in his employment agreement with the Purchaser,
prior to January 31, 2002, and the pro rata portion of the Additional
Shares issuable to Zina Hassel shall be issued to her in the event her
employment with the Purchaser is terminated by the Purchaser without
"cause," as defined in her employment agreement with the Purchaser,
prior to January 31, 2002.
(D) Except as provided in subparagraph(b)(ii)(C)
above, none of the Additional Shares shall be issued if the net
revenues of Telecarrier, determined on a consolidated basis in
accordance with GAAP, for each of the First Determination Period and
the Second Determination Period is less than Four Million Dollars
($4,000,000). In no event shall more than 280,000 Additional Shares be
issued.
(iii) (A) Within sixty (60) days following the Closing Date,
Greenberg & Company shall, at the expense of the Purchaser, complete an
audit of the financial statements of Telecarrier for the year ended
December 31, 1999.
(B) If the accounting firm set forth in subparagraph
(b) (iii)(A) is unable to complete the audit referenced in subparagraph
(b)(iii)(A) prior to sixty (60) days following the Closing Date for any
reason other than through the fault of eLEC, then the aggregate value
of the Merger Consideration may be adjusted and reduced, at the sole
and absolute discretion of eLEC, to an amount equal to not less than
nineteen and one-half percent (19.5%) of the amount of eLEC's
consolidated assets, as set forth on the November 30, 1999 balance
sheet of eLEC, and the Stockholders shall have no claim to any
additional part of the Merger Consideration otherwise payable pursuant
to Section 2.07(b).
(C) Any adjustment to the value of the Merger
Consideration made pursuant to subparagraph (b)(iii)(B) above may be
made by offsetting such amount against all or a portion of the Reserved
Shares, as determined in eLEC's sole and absolute discretion.
Notwithstanding the foregoing, in any adjustment pursuant to
subparagraph (b)(iii)(B), eLEC shall not be limited to offsetting
against the Reserved Shares.
(D) Following the adjustment, if any, pursuant to
subparagraphs (b)(iii)(B) and (C), the Reserved Shares to which the
Stockholders are entitled, if any, shall be issued by eLEC to the
Stockholders.
(iv) The Issued Shares and the Additional Shares will be issued
pursuant to Rule 506 of Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"), shall not be registered pursuant to the
Securities Act and shall be subject to certain trading restrictions set forth in
Rule 144 of the Securities Act.
(v) At and after the Effective Time, each Stockholder shall cease
to have any rights as a stockholder of Telecarrier, except as otherwise
specifically provided in this Section 2.07 (and except for appraisal rights
provided under the DGCL), and no transfer of shares of Telecarrier Common Stock
shall thereafter be made on the stock transfer books of the Surviving
Corporation.
(c) At the Effective Time, each share of Telecarrier Common Stock held
in Telecarrier's treasury immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Telecarrier, be
canceled and retired and cease to exist, without any conversion thereof or any
payment of any consideration therefor.
(d) Each share of eLEC Common Stock and all options and warrants to
acquire shares of eLEC Common Stock outstanding immediately prior to the
Effective Time shall all remain outstanding after the Merger.
2.08 Approval. Each of Mergeco and Telecarrier shall promptly submit to
its respective shareholders for adoption and approval this Agreement and the
Merger. Each of Mergeco and Telecarrier shall use its best efforts to cause the
Merger to be consummated in accordance with the terms hereof.
2.09 Exchange of Certificates. From and after the Effective Time, each
holder of an outstanding certificate which immediately prior to the Effective
Time represented Telecarrier Common Stock shall be entitled to receive in
exchange therefor, upon surrender thereof to the Secretary of eLEC, such
holder's pro rata portion of the Merger Consideration.
2.10 Telecarrier Agent. Telecarrier hereby appoints, and eLEC and
Mergeco hereby accept, Michael Lagana to act as Telecarrier's agent (the
"Telecarrier Agent") to represent the interests of the Stockholders from and
after the Closing Date. The Telecarrier Agent shall perform all duties required
to be performed under this Agreement, specifically including Article VIII
hereof.
ARTICLE III
CLOSING AND PAYMENT OBLIGATION
------------------------------
3.01 Closing. The consummation of the transactions contemplated by this
Agreement (the "Closing") shall be held at the offices of Pryor Cashman Sherman
& Flynn LLP, 410 Park Avenue, New York, New York 10022, simultaneously with the
execution and delivery of this Agreement, provided that all of the conditions to
Closing set forth in Article VII hereof have been satisfied or waived (by eLEC,
in the case of the conditions in Section 7.01, and by the Stockholders in the
case of the conditions in Section 7.02). The date of the Closing is sometimes
herein referred to as the "Closing Date."
3.02 Deliveries by Stockholders. Subject to the terms and conditions of
this Agreement, the Stockholders agree to deliver (or cause to be delivered) to
eLEC at the Closing the following agreements and documents, all satisfactory in
form and substance to eLEC and its legal counsel:
(a) (i) a certificate of Telecarrier's corporate secretary or
assistant secretary as to resolutions of its Board of Directors or shareholder
action, as required, approving and authorizing the execution, delivery and
performance of this Agreement and each of the Related Documents, to the extent a
party thereto, and its Certificate of Incorporation and By-laws and all
amendments to date as being in full force and effect, with true, correct and
complete copies of such resolutions, Certificate of Incorporation and By-laws
attached thereto, (ii) an incumbency certificate of Telecarrier's officers
executing this Agreement and the Related Documents to which it is a party and
(iii) certificates of good standing of Telecarrier, dated as of a recent date
prior to the Closing, issued by the Secretaries of State of Delaware and each of
the other jurisdictions listed on Schedule 5.01 hereto;
(b) all corporate minute and stock books, stock ledgers and c
orporate seals of Telecarrier;
(c) written opinion(s) from counsel to Telecarrier and the
Stockholders, dated the Closing Date, addressed to eLEC, in the form attached
hereto as Exhibit 3.02(c);
(d) a duly executed counterpart of the Employment Agreement of
Michael Lagana in the form attached hereto as Exhibit 3.02(d), executed by
Michael Lagana;
(e) a duly executed counterpart of the Employment Agreement of
Zina Hassel in the form attached hereto as Exhibit 3.02(e), executed by Zina
Hassel;
(f) a complete list of documents delivered to eLEC in connection
with the investigation of Telecarrier; and
(g) such other documents and instruments as in the opinion of
counsel for eLEC may be reasonably required to effectuate the terms of this
Agreement and to comply with the terms hereof.
3.03 Deliveries by eLEC and Mergeco. Subject to the terms and
conditions of this Agreement, in reliance on the representations, warranties and
agreements of Telecarrier and the Stockholders contained herein and the
covenants regarding non-competition and confidentiality contained or referred to
in Section 4.01 hereof, eLEC agrees to deliver to Telecarrier and the
Stockholders at the Closing the following:
(a) a certificate of the corporate secretary or assistant
secretary of each of eLEC and Mergeco as to resolutions of its Board of
Directors or shareholder action, as required, approving and authorizing the
execution, delivery and performance of this Agreement and each of the Related
Documents, to the extent a party thereto;
(b) a written opinion from counsel to eLEC and Mergeco, dated the
Closing Date, addressed to Telecarrier and the Stockholders, in the form
attached hereto as Exhibit 3.03(b); and
(c) a duly executed counterpart of the Employment Agreement of
Michael Lagana in the form attached hereto as Exhibit 3.02(c), executed by eLEC;
(d) a duly executed counterpart of the Employment Agreement of
Zina Hassel in the form attached hereto as Exhibit 3.02(d), executed by eLEC;
(e) checks in the aggregate amount of $30,000 in payment of the
cash portion of the Merger Consolidation;
(f) certificates representing 400,000 shares of eLEC Common Stock;
(g) those documents and shares of eLEC Common Stock issued
pursuant to Section 4.05 hereof;
(h) a duly executed counterpart of a shareholders' agreement in
the form attached hereto as Exhibit 3.02(h), duly executed by eLEC; and
(i) such other documents and instruments as in the opinion of
counsel for Telecarrier and Stockholders may be reasonably required to
effectuate the terms of this Agreement and to comply with the terms hereof.
ARTICLE IV
ADDITIONAL AGREEMENTS
---------------------
4.01 Agreement Not to Compete and to Maintain Confidentiality.
(a) For good and valuable consideration, each of the
Stockholders agrees that for a period commencing on the date of this Agreement
and ending on the later of (i) the third (3rd) (for Michael Lagana) or second
(2nd) (for Zina Hassel) anniversary of the Closing Date or (ii) one year
following the expiration of the employment term of such Stockholder (as defined
in the respective Employment Agreements of the Stockholders (the "Non-Compete
Term"), neither of the Stockholders shall, and each of such Persons shall use
their respective best efforts to ensure that any agents, representatives and any
other Persons acting on their behalf (the Stockholders and such agents,
representatives and other Persons being collectively referred to as the
"Restricted Persons") do not, directly or indirectly, for the benefit of any of
such Restricted Persons or their respective Affiliates,
(i) directly or indirectly (whether as principal,
agent, independent contractor, partner or otherwise or by any other
means) own, manage, operate, control, participate in, perform services
for or otherwise carry on any business or division or line of any
business in the United States (A) which engages in a business
competitive with or, in the case of Michael Lagana, similar to, the
Telecommunication Business, or (B) that has or uses a name (or which
offers any product or service having a name) that constitutes any item
of intellectual property included in the Intellectual Property Rights
or Proprietary Information of eLEC or any of its subsidiaries,
including the surviving corporation; provided, however, that it will
not be deemed a breach of this clause (i) if all Restricted Persons and
their Affiliates collectively hold less than two percent (2%) of any
class of security that is publicly traded on a national securities
exchange or actively traded in a recognized over-the-counter market;
(ii) induce or attempt to persuade any customer of
the Purchaser or the Telecommunication Business to terminate its
relationship with the Purchaser or Telecarrier or any of their
respective Affiliates; or
(iii) induce or attempt to persuade any Business
Personnel (as defined below) to terminate or to refuse to enter into
any employment, agency or other business relationship with the
Purchaser in order to enter into any such relationship on behalf of any
other organization that engages in a business similar to or competitive
with the Telecommunication Business. For purposes of this clause (iii),
"Business Personnel" shall mean any Person (A) who is an employee of,
or consultant or freelance worker for, any of the Purchaser,
Telecarrier or an Affiliate of Purchaser or an Affiliate of Telecarrier
or (B) who has been an employee of, or consultant or freelance worker
for, any of Purchaser, Telecarrier or an Affiliate of Purchaser or an
Affiliate of Telecarrier, within one (1) year prior to such
solicitation, employment or engagement.
(b) Each of the Stockholders acknowledges that such
Stockholder has knowledge of certain technical, commercial and marketing
information, data and material regarding Telecarrier and the Telecommunication
Business (including without limitation lists of customers, product
documentation, development work, lead lists, trade secrets and other Proprietary
Information of Telecarrier) (the "Confidential Information"). Each Stockholder
agrees that the Confidential Information is confidential and proprietary and
that a substantial portion of the Merger Consideration is being paid for such
Confidential Information and that it represents a substantial investment having
great economic and commercial value to the Purchaser, and constitutes a
substantial part of the value to Purchaser of the Telecommunication Business.
Each Stockholder acknowledges that the Purchaser would be irreparably damaged if
any of the Confidential Information was disclosed to, or used or exploited on
behalf of, any Person other than Purchaser, Telecarrier or any of their
respective Affiliates. Accordingly, each Stockholder covenants and agrees that
such Stockholder shall not, and shall use such Stockholder's best efforts to
ensure that each other Restricted Person does not, without the prior written
consent of the Purchaser, disclose, use or exploit any such Confidential
Information, for the benefit of any of such Restricted Persons or of any third
party, except that Stockholders may disclose, use or exploit a particular item
of Confidential Information if and to the extent (but only if and to the extent)
that such item:
(i) is or becomes publicly known or generally known
in the industry through no act of any Restricted Person;
(ii) is required to be disclosed to or by order of a
governmental agency or a court of law or otherwise as required by law;
provided that prior to any such disclosure notice of such requirement
of disclosure is provided to the Purchaser and the Purchaser is
afforded the reasonable opportunity to object to such disclosure; or
(iii) is required to be disclosed to the parties'
attorneys, accountants or other agents or employees working on this
transaction.
(c) Stockholders hereby expressly acknowledge that the
covenants contained in this Section 4.01 are integral to the transactions
contemplated by this Agreement and that without the protection of such
covenants, Purchaser would not have entered into this Agreement. The Merger
Consideration bears no relationship to the damages Purchaser may suffer in the
event of any breach of the covenants, and that such covenants contain
limitations as to time, geographical area and/or scope of activity to be
restrained that are reasonable and necessary to protect the Purchaser's business
interests. If this Section 4.01 shall nevertheless for any reason be held to be
excessively broad as to time, duration, geographical scope, activity or subject,
it shall be enforceable to the extent compatible with applicable laws that shall
then apply. Stockholders hereby further acknowledge that money damages will be
impossible to calculate and may not adequately compensate the Purchaser in
connection with an actual or threatened breach by a Restricted Person of the
provisions of this Section 4.01. Accordingly, on their own behalves and on
behalf of each of the other Restricted Persons, the Stockholders hereby
expressly waive all rights to raise the adequacy of the Purchaser's remedies at
law as a defense if the Purchaser seeks to enforce by injunction or other
equitable relief the due and proper performance and observance of the provisions
of this Section 4.01. In addition, the Purchaser shall be entitled to pursue any
other available remedies at law or equity, including the recovery of money
damages, in respect of the actual or threatened breach of the provisions of this
Section 4.01.
(d) The Stockholders hereby expressly waive any right to
assert inadequacy of consideration as a defense to enforcement of the
non-competition and confidentiality covenants in this Section 4.01 should such
enforcement ever become necessary.
4.02 Investigation. The Stockholders and Telecarrier agree to cooperate
fully with the Purchaser and to give to the Purchaser, its officers, employees,
auditors, legal counsel, representatives and agents reasonable access during
normal business hours to all such information, documents, premises and employees
as the Purchaser considers necessary or advisable for purposes of the
Purchaser's investigation of Telecarrier and the Telecommunication Business. The
Purchaser agrees to consult with the Stockholders in an effort to establish
procedures designed to implement the provisions of this Section 4.02 in order to
minimize disruption to the Telecommunication Business.
4.03 Tax Matters.
(a) Tax Returns. The Stockholders shall duly prepare, or cause
to be prepared, and file, or cause to be filed at their own expense, on a timely
basis all Tax Returns with respect to Telecarrier for any taxable periods ending
on or before the Closing Date (the "Pre-Closing Tax Periods"). Such Tax Returns
shall be filed on a basis consistent with Telecarrier's past practice in filing
its Tax Returns. The Purchaser shall duly prepare, or cause to be prepared, and
file, or cause to be filed, all Tax Returns with respect to Telecarrier for any
taxable periods beginning after the Closing Date (the "Post-Closing Tax
Periods") and for any taxable period that includes but does not end on the
Closing Date (the "Straddle Period"). Unless Stockholders' written consent is
first obtained, the Purchaser shall not take any action that would in any way
alter the balance of Taxes owing or Tax refunds or credits obtainable with
respect to any Pre-Closing Tax Periods. For purposes of this Agreement, in the
case of any Straddle Period, Taxes of Telecarrier (the "Pre-Closing Straddle Tax
Liability") for the portion of any Straddle Period (a "Pre-Closing Straddle
Period") ending on and including the Closing Date shall, where possible, be
computed as if such taxable period ended as of the close of business on the
Closing Date. For purposes of the foregoing, any items attributable to a
Straddle Period that cannot be taken into account in the manner so provided, as
well as any net operating losses attributable to the Straddle Period, shall be
allocated to the Pre-Closing Straddle Period for purposes of determining the
Pre-Closing Straddle Tax Liability, pro rata, based upon the number of days in
the Pre-Closing Straddle Period, as compared to the total number of days in the
Straddle Period, provided that if any Straddle Period Tax is based on income,
then such allocation shall be based upon the amount of net income of Telecarrier
during such Pre-Closing Straddle Period as compared to the total net income in
the Straddle Period. Unless otherwise indicated, a Pre-Closing Straddle Period
shall be treated as a "Pre-Closing Tax Period" for purposes of this Agreement.
If there is a tax Audit adjustment during the Pre-Closing Tax Period that is the
result of an income or deduction timing difference, the parties will use best
efforts to minimize any potential penalties associated with any additional Tax
and Share attributable to the Audit adjustment.
(b) Cooperation on Tax Matters. The Purchaser, Telecarrier and
the Stockholders shall cooperate fully, as and to the extent reasonably
requested by the other party, in connection with the filing of Tax Returns
pursuant to this Section 4.03 (including amended Tax Returns for any tax period
prior to the Closing Date (or portions thereof) that the Stockholders may
reasonably request the Purchaser to file) and any Audit (including pursuant to
Section 2.07(b)(iii) hereof). Such cooperation shall include the retention and
(upon the other party's request) the provision of records and information which
are reasonably relevant to such Audit. The Purchaser shall not dispose of any
records relating to Taxes paid or payable by Telecarrier and that are
attributable to Pre-Closing Tax Periods prior to the later of the expiration of
the applicable limitations period on assessment with respect to any such Taxes,
the sixth anniversary of the Closing Date or the final resolution of all
litigation initiated prior to the sixth anniversary of the Closing Date relating
to any such Taxes.
(c) Audits. With respect to Audits relating to Pre-Closing Tax
Periods (other than Pre-Closing Straddle Periods) (a "Pre-Closing Audit"), the
Stockholders shall control all proceedings and may make all decisions taken in
connection therewith at the Stockholders' sole discretion, provided that any
such proceeding and any such decision taken in connection therewith does not
have any adverse effect on any Taxes or Tax Returns relating to any Straddle
Period or any Post-Closing Tax Period. Otherwise, no such decision shall be
implemented or effectuated without the prior written consent of the Purchaser.
The Stockholders shall keep the Purchaser fully apprised of all aspects of any
Audit. With respect to any Audits relating to Straddle Periods or Post-Closing
Tax Periods, the Purchaser shall control all proceedings and may make all
decisions taken in connection therewith at Purchaser's sole discretion. The
Purchaser shall keep the Stockholders fully apprised of all aspects of any Audit
relating to a Straddle Period.
4.04 Rule 144 Reporting. With a view to making available to the
Stockholders the benefits of certain rules and regulations of the Securities and
Exchange Commission which may permit the sale of eLEC Common Stock to the public
without registration, eLEC agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(b) File with the Securities and Exchange Commission in a
timely manner all reports and other documents required of eLEC under the
Securities Act and the Exchange Act;
(c) Furnish to any Stockholder so long as such Stockholder
owns any eLEC Common Stock forthwith upon request a written statement by the
Purchaser that it has complied with the reporting requirements of said Rule 144,
and of the Exchange Act, a copy of the most recent annual or quarterly report of
eLEC, and such other reports and documents so filed by eLEC as may be reasonably
requested in availing any Stockholder of any rule or regulation of the
Securities and Exchange Commission permitting the selling of any such securities
without registration.
4.05 Satisfaction of Loan Obligations.
(a) At the Closing, eLEC shall issue to each of Gregory Lagana
and Annette Lagana 16,000 shares of eLEC Common Stock (the "Satisfaction
Shares") and shall pay $7,500 in cash to Gregory Lagana and $6,700 in cash to
Annette Lagana (collectively, the "Satisfaction Payment") in full satisfaction
of the obligations of Telecarrier under the loan agreements entered into between
Telecarrier and each of Gregory Lagana and Annette Lagana.
(b) eLEC shall cause the release Michael Lagana from his
obligations under the guarantees listed on Schedule 4.05(c) within 60 days of
the date hereof, and eLEC shall indemnify Michael Lagana against any and all
liabilities thereunder.
4.06 Separateness. On or before April 30, 2000, eLEC shall lend to the
Surviving Corporation an amount equal to Two Hundred Fifty Thousand Dollars
($250,000) for working capital purposes. Such loan shall be on a demand basis
and shall be at a rate equal to eLEC's cost of funds. At all times prior to
January 31, 2002, eLEC shall operate the Surviving Corporation as a separate
subsidiary or division, with separate financial statements adequate for the
purposes of determining whether the Additional Shares shall vest, and shall
operate the Surviving Corporation in a manner reasonably designed to maximize
the potential of the vesting of the Additional Shares, subject to its fiduciary
duties to its stockholders to run all of its business operations in a reasonable
and prudent manner.
4.07 Bank Accounts. Telecarrier and the Stockholders shall take all
actions necessary to amend the corporate banking resolutions or other documents
relating to all accounts or arrangements listed on Schedule 5.33 to add Paul H.
Riss, a director of the Surviving Corporation and an officer of eLEC, as a
signatory and an individual holding a Power of Attorney from Telecarrier.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
TELECARRIER AND THE STOCKHOLDERS
--------------------------------
Telecarrier and the Stockholders jointly and severally represent and
warrant to eLEC and Mergeco as follows:
5.01 Organization. Telecarrier is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
Telecarrier does not have any Subsidiaries. Telecarrier has all requisite
corporate power and authority to enable it to own, lease or otherwise hold its
properties and assets and to carry on the Telecommunication Business as
presently conducted. Telecarrier is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or the
ownership, leasing or holding of its properties makes such qualification
necessary, except where the absence of such qualifications, individually or in
the aggregate, would not have a Material Adverse Effect. A list of the
jurisdictions in which Telecarrier is so qualified is set forth on Schedule 5.01
hereto.
5.02 Capital Stock and Related Matters; No Investments.
(a) The authorized capital stock of Telecarrier consists of
200 shares of common stock, no par value per share, of which 120 shares are
issued and outstanding. The Telecarrier Common Stock constitutes all of the
issued and outstanding capital stock of Telecarrier and are held by the
Stockholders in the amounts set forth opposite each Stockholder's name on
Schedule 5.02(a) hereto.
(b) Telecarrier does not have any outstanding stock or
securities convertible into or exchangeable for any shares of its capital stock
or containing any profit participation features, nor does it have outstanding
any rights or options to subscribe for or purchase its capital stock or any
stock securities convertible into or exchangeable for any shares of its capital
stock or any stock appreciation rights or phantom stock plans. Telecarrier is
not subject to any obligation (contingent or otherwise) to repurchase or
otherwise acquire or retire any shares of its capital stock or any warrants,
options or other rights to acquire its capital stock. All of the outstanding
shares of Telecarrier capital stock have been validly issued and are fully paid
and nonassessable and are owned by the Stockholders free and clear of any
Encumbrances.
(c) Except as set forth on Schedule 5.02(c) hereof, there are
no statutory or contractual stockholders, preemptive rights or rights of refusal
with respect to the sale of the Telecarrier Common Stock pursuant to the Merger
hereunder. Neither Telecarrier nor the Stockholders have violated any applicable
federal or state securities laws in connection with the sale of the Telecarrier
Common Stock.
(d) Telecarrier does not own or hold any Investment in any
other Person.
(e) Each Stockholder represents that he or she is an
"accredited investor" as such term is defined in Regulation D under the
Securities Act;
(f) Each Stockholder understands and acknowledges that (i)
he/she may not be able to resell readily the Issued Shares and the Additional
Shares purchased hereunder because (A) none of the Issued Shares or the
Additional Shares have been registered under the Securities Act and, therefore,
the Issued Shares and the Additional Shares can only be resold if they are
subsequently registered under the Securities Act or an exemption from such
registration is available; and (B) except as provided in the shareholders'
agreement referred to in Section 3.03(h), the Purchaser has not agreed to
register any of the Issued Shares or the Additional Shares for resale under the
Securities Act; and (ii) the issuance of the Issued Shares and the Additional
Shares are intended to be exempt from the registration requirements of the
Securities Act. No aspect of this Agreement has been reviewed by the Securities
and Exchange Commission or the securities regulatory authorities of any state.
(g) Each Stockholder is acquiring the Issued Shares and the
Additional Shares for his or her own account and not on behalf of other Persons,
for investment purposes, and not with a view to distribution or resale to
others; neither Stockholder is participating, directly or indirectly, in an
underwriting of any such distribution or other transfer of the Issued Shares and
the Additional Shares and each Stockholder understands that the Purchaser is
relying upon the truth and accuracy of this representation and warranty.
5.03 Authorization. Telecarrier and each Stockholder have all requisite
power and authority (or legal capacity, as the case may be) to enter into this
Agreement and the Related Documents to be executed and delivered by Telecarrier
or such Stockholder pursuant hereto or in connection with the transactions
contemplated hereby or thereby, and to consummate the transactions contemplated
hereby and thereby. All acts and other proceedings required to be taken by
Telecarrier or such Stockholder to authorize the execution, delivery and
performance of this Agreement and the Related Documents of which it is a party,
and the consummation of the transactions contemplated hereby and thereby have
been duly and properly taken.
5.04 Valid and Binding. This Agreement constitutes (and, when executed
and delivered at Closing, each Related Document, to the extent that Telecarrier
or a Stockholder is a party thereto, will constitute) a valid and binding
obligation of Telecarrier or such Stockholder, enforceable against the signatory
in accordance with its terms, except that (i) such enforcement may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
5.05 No Violation. The execution and delivery of this Agreement and
each Related Document by Telecarrier and the Stockholders, and the consummation
of the transactions contemplated hereby and thereby and compliance with the
terms hereof and thereof does not and will not violate any law or conflict with,
or result in any violation of or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under or result
in the creation of any Encumbrance of any kind upon any of Telecarrier's assets
under, any provision of (i) the Certificate of Incorporation or Bylaws of
Telecarrier, (ii) any note, bond, mortgage, indenture, deed of trust, license,
lease, contract, commitment or loan or other agreement to which Telecarrier or
any of the Stockholders is a party or by which any of their respective
properties or assets are bound, or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to Telecarrier or any Stockholder
or the property or assets of any of them.
5.06 Consents and Approvals. Except as set forth on Schedule 5.06 and
the filing of the Certificate of Merger with the Secretary of State of the State
of Delaware, no Telecommunication Authorization, consent, permit, approval or
authorization of, or declaration, filing or registration with, or cooperation
from, any Governmental Authority or any court or other tribunal, and no consent
or waiver of any party to any Subsisting Contract is required to be obtained by
Telecarrier or any Stockholder in connection with the execution, delivery and
performance of this Agreement, the Related Documents or the consummation of the
transactions contemplated hereby or thereby.
5.07 Financial Statements. Stockholders and Telecarrier have furnished
to eLEC true, correct and complete copies of unaudited consolidated balance
sheets and related statements of income of Telecarrier for the fiscal years
ended December 31, 1996, 1997 and 1998 and the nine months ended September 30,
1999 (collectively, the "Financial Statements"), copies of which are attached
hereto as Schedule 5.07. The Financial Statements have been prepared by
Telecarrier on the basis of the books and records maintained by Telecarrier in
the ordinary course of business in a manner consistently used and applied
throughout the periods involved. The Financial Statements present fairly the
assets, liabilities and financial condition of Telecarrier as at the respective
dates thereof. The books and records of Telecarrier to which such statements
relate fully and fairly reflect bona fide transactions set forth therein..
5.08 No Adverse Effect or Changes. Since September 30, 1999 until the
date of this Agreement, Telecarrier has conducted its business in all respects
only in the ordinary course and consistent with past practices. Without limiting
the foregoing, except as set forth on Schedule 5.08 hereof, since September 30,
1999 until the date of this Agreement, Telecarrier has not:
(a) suffered any Material Adverse Effect and neither
Telecarrier nor any Stockholder has knowledge of any existing facts which are
likely to result in a Material Adverse Effect;
(b) incurred any liabilities or obligations (absolute,
accrued, contingent or otherwise), except in the ordinary and usual course of
business and consistent with past practice, or increased, or experienced any
change in any assumptions underlying or methods of calculating, any bad debt,
contingency or other reserves;
(c) paid, discharged or satisfied any claims, liabilities or
obligations (absolute, accrued, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary and usual course of business
and consistent with past practice of liabilities and obligations incurred in the
ordinary and usual course of business and consistent with past practice;
(d) permitted or allowed any of Telecarrier's assets to be
subjected to any Encumbrance;
(e) canceled any debts owing to Telecarrier or waived any
claims or rights;
(f) sold, transferred or otherwise disposed of any of its
assets or properties, except in the ordinary and usual course of business and
consistent with past practice;
(g) disposed of, or to the best knowledge of the Stockholders,
failed to take reasonable steps to protect, or permitted to lapse, any rights
for the use of, any Intellectual Property, or disposed of, failed to take
reasonable steps to protect, or disclosed to any Person any Proprietary
Information or Confidential Information not theretofore a matter of public
knowledge;
(h) made any change in any method of accounting or accounting
practice;
(i) written off as uncollectible any notes or accounts
receivable, other than in the ordinary course of business consistent with past
practice; (j) made any single capital expenditure commitment in excess of
$10,000 for additions to property, plant, equipment or intangible capital assets
or made capital expenditure commitments in excess of $20,000 in the aggregate
for additions to property, plant, equipment or intangible capital assets;
(k) made any change in the manner in which products or
services have been developed or marketed, except in the ordinary course of
business consistent with past practice;
(l) had any labor dispute or received notice of any grievance;
(m) borrowed or agreed to borrow any funds;
(n) paid and/or declared any dividends with respect to its
shares of capital stock, whether in cash, shares of capital stock or other
property;
(o) granted to any officer or employee any increase in
compensation or benefits, other than increases of compensation or benefits to
employees in the ordinary course of business and consistent with past practice;
(p) paid any pension, retirement allowance or other employee
benefit not required by any plan, policy or program identified on Schedule 5.24
hereto; (q) adopted, agreed to adopt, or made any announcement regarding the
adoption of (i) any new pension, retirement or other employee benefit plan,
program or policy or (ii) any amendment to any existing plan, policy or program
as identified on Schedule 5.24 hereto, unless required by applicable law;
(r) had any of its Acquired Assets affected in any way as a
result of fire, explosion or other casualty (whether or not covered by
insurance);
(s) had any of its assets, including those utilized in
connection with the Telecommunication Business, affected in any manner as a
result of the Year 2000, unless such effects, in the aggregate, would not have a
Material Adverse Effect; or
(t) suffered or agreed, whether orally or in writing, to do
any of the foregoing.
5.09 Undisclosed Liabilities. Except for liabilities or obligations
disclosed on Schedule 5.09 hereto, Telecarrier does not have any liabilities or
obligations of any nature (whether accrued, absolute, contingent or otherwise)
in the aggregate in excess of $10,000, except (i) for those arising in the
ordinary course of business consistent with past practice under any Subsisting
Contract or (ii) for liabilities and obligations incurred in the ordinary course
of business consistent with past practice since December 31, 1998.
5.10 Taxes. Except as set forth on Schedule 5.10:
(a) Telecarrier has filed or will timely file all Tax Returns
required by applicable law to be filed by it for all Pre-Closing Tax Periods
(other than Pre-Closing Straddle Periods), and such Tax Returns that have been
filed are, and those Tax Returns to be filed will be, true, correct and complete
in all respects. Telecarrier has paid, or will pay, all Taxes required to be
paid on or before the Closing Date, or where payment is not yet due, has
established or will establish, on or before the Closing Date, an adequate
reserve on its books and financial records for the payment of all Taxes due from
Telecarrier (including any Pre-Closing Straddle Tax Liability), with respect to
any Pre-Closing Tax Period. All Taxes that Telecarrier is or was required by law
to withhold, deposit or collect have been duly withheld, deposited or collected
and, to the extent required, have been paid to the relevant Tax Authority.
(b) There are no ongoing Audits of Telecarrier and Telecarrier
has not been notified, formally or informally, by any Tax Authority, nor is any
Stockholder otherwise aware, that any such Audit is contemplated, threatened or
pending. No information regarding any Tax matter has been requested by any Tax
Authority and no issue has been raised or is currently pending by any Tax
Authority in connection with any of the Tax Returns of Telecarrier.
(c) There are no claims, investigations, actions or
proceedings pending or, to the knowledge of Telecarrier and the Stockholders,
threatened, against Telecarrier by any Tax Authority for any past due Taxes with
respect to which Telecarrier would be liable. There has been no waiver of any
applicable statute of limitations nor any consent for the extension of the time
for the assessment of any Tax against Telecarrier.
(d) Telecarrier is not delinquent in the payment of any amount
of Taxes and has not received written notice that there are any Tax liens upon
any property or assets of Telecarrier.
(e) Telecarrier has not agreed to nor is it required to make
any adjustment under Section 481(a) of the Code by reason of a change in
accounting method or otherwise.
(f) Telecarrier is not liable for the Taxes of any Person,
including, without limitation, (a) under U.S. Treasury Regulations Section
1.1502-6 (or comparable provision of state, local or foreign law), (b) as a
transferee or successor, or (c) by contract, indemnity or otherwise.
(g) Telecarrier has never been a party to any Tax sharing
agreements, Tax indemnity agreements or other similar Tax sharing arrangements.
(h) No claim has ever been received from an authority in a
jurisdiction where Telecarrier does not file Tax Returns that it is or may be
subject to taxation by that jurisdiction.
(i) Telecarrier is not required to file income or franchise
Tax Returns (or similar type of Tax Returns) in any state other than those
listed on Schedule 5.10.
(j) Telecarrier has, within the meaning of Section
6662(d)(2)(B)(ii)(I) of the Code, adequately disclosed on its federal income Tax
Returns the relevant facts affecting any item or position taken for which
substantial authority (within the meaning of Section 6662(d)(2)(B)(i) of the
Code) did not exist at the time the return was filed. Telecarrier has not
reflected on any Tax Return any item the tax treatment for which there was no
"reasonable basis" (within the meaning of Section 6662(d)(2)(B)(ii)(II) of the
Code).
(k) Telecarrier has provided, or will provide to or make
available for review by, Purchaser with copies of: (i) all Tax Returns filed by,
or on behalf of, Telecarrier for periods beginning on or after January 1, 1995
(the "Post-1995 Period"); (ii) all notices, protests or other correspondence
relating to any Post-1995 Period Taxes or Tax Returns; (iii) any elections or
disclosure of any controversial positions filed by or on behalf of Telecarrier
with any Tax Authority (whether or not filed with any Tax Return); (iv) any
letter rulings, determination letters or similar documents issued by any Tax
Authority with respect to Telecarrier; (v) any closing agreement entered into
with any Tax Authority; and (vi) Tax Return workpapers.
5.11 Inventory. All inventory of Telecarrier relating to the
Telecommunication Business has been acquired in the ordinary and usual course of
business, in the ordinary and customary quantities and amounts, and at then
prevailing market prices. The inventory of Telecarrier at December 31, 1998, has
been valued at cost or market, whichever is lower, and all damaged or otherwise
unmerchantable inventory and all obsolete items of inventory have been written
down to realizable market value or adequate reserves have been provided
therefor, in a manner consistently used and applied and consistent with past
practice. All inventory of Telecarrier, other than that written down in
accordance with the preceding sentence, is usable and salable in the ordinary
and usual course of business at usual and normal prices.
5.12 Condition and Sufficiency of Assets. All Tangible Property of
Telecarrier is in good operating condition and repair, reasonable wear and tear
excepted, and all such Tangible Property is adequate for the uses to which it is
being put. None of such Tangible Property is in need of maintenance or repairs
except for ordinary, routine maintenance and repairs which are not material in
nature or cost. Immediately after the Closing, Telecarrier shall own or have a
right to use all the assets, properties, rights, know-how, key personnel,
processes and ability that are required for or currently used in connection with
the operation of its Telecommunication Business as it is currently conducted.
Such assets, properties and rights were sufficient to produce the income of the
Telecommunication Business as shown on the Financial Statements.
5.13 Contracts and Commitments. (a) Schedule 5.13 lists all Subsisting
Contracts (copies of which have heretofore been delivered to Purchaser) and all
currently effective oral agreements and commitments, if any, to which
Telecarrier is a party; (i) all such Subsisting Contracts constitute valid and
binding agreements of each of the parties thereto, enforceable in accordance
with their terms, (ii) with respect to such Subsisting Contracts there are no
existing defaults, and, to the best knowledge of Telecarrier and the
Stockholders, there is no event which (whether with or without notice, lapse of
time or the happening or occurrence of any other event) would constitute a
default under such Subsisting Contracts, (iii) Telecarrier is not restricted by
agreement from carrying on in any geographical location the Telecommunication
Business as conducted on the Closing Date, (iv) there are no negotiations
pending or in progress to revise any Subsisting Contract, and (v) to the best
knowledge of Telecarrier and the Stockholders, Telecarrier has not failed to
provide products or services under the terms of any customer agreements.
(b) Schedule 5.13(b) hereto contains an accurate and complete
list of all Tangible Property Leases included in the Telecommunication Business.
All such leases are valid, binding and enforceable against each of the parties
thereto in accordance with their terms. Such leases are in full force and
effect; with respect to each, there are no existing defaults, and, to the best
knowledge of Telecarrier and the Stockholders, there is no event which (whether
with or without notice, lapse of time or the happening or occurrence of any
other event) would constitute a default thereunder of a party thereto.
(c) Each of the leases for real property to which Telecarrier
is a party (the "Leases") and all amendments, modifications and/or extensions
thereto are listed on Schedule 5.13(c) hereto. Schedule 5.13(c) hereto also
lists, with respect to each Lease, the name of the tenant(s), landlord(s) and
whether the Lease is a lease or a sublease. With respect to the Leases, (i) the
Leases are in full force and effect, are unmodified (other than as listed on
Schedule 5.13(c) hereto) and are binding and enforceable in accordance with
their terms; (ii) all rental and other charges payable pursuant to the terms and
conditions of the Leases have been paid and no rent has been paid in advance
more than 30 days; (iii) there are no charges, offsets or defenses against the
enforcement by the lessors thereunder of any agreement, covenant or condition on
the part of Telecarrier, as the case may be, to be performed or observed
pursuant to the terms of the Leases; (iv) there are no defaults by Telecarrier,
of any agreement, covenant or condition on the part of Telecarrier, to be
performed or observed pursuant to the terms of the Leases; (v) there are no
actions or proceedings pending or to the best of Telecarrier's knowledge,
threatened, by any lessor under the Leases; (vi) Telecarrier is not entitled to
any free rent, abatement of rent or similar concession under any Lease; (vii)
except for the security deposits identified on Schedule 5.13(c) hereto, no
lessor holds any deposits for Telecarrier's accounts on any Lease; (viii) the
Merger will not constitute a prohibited transfer or assignment under any of the
Leases; and (ix) there are no defaults by any of the respective lessors of any
agreement, covenant or condition on the part of the lessor to be performed or
observed pursuant to the terms of the Leases. Telecarrier does not owns any real
property. The current expiration dates and remaining options to extend the
Leases are as set forth on Schedule 5.13(c) hereto. Minimum monthly rent and
additional rent under the Leases are set forth on Schedule 5.13(c) hereto.
(d) Each Third Party License is a valid, legally binding
agreement, enforceable against each party thereto in accordance with its terms.
Each Third Party License is in full force and effect and, with respect to each,
there is no default and, to the best knowledge of Telecarrier and the
Stockholders, there is no event which, whether with or without notice, lapse of
time, or the occurrence of any other event would constitute a default.
5.14 Telecommunication Authorizations. Schedule 5.14 sets forth a true,
accurate and complete list of all Telecommunication Authorizations held by each
of Telecarrier and the Stockholders. All such Telecommunication Authorizations
are validly held and in full force and effect and are not subject to any
conditions outside the ordinary course. Except for the Telecommunication
Authorizations set forth on Schedule 5.14, there are no Telecommunication
Authorizations, whether federal, state, local or foreign, that are necessary for
the lawful operation of the Telecommunication Business.
5.15 Title to the Acquired Assets; Encumbrances; Real Property.
Telecarrier has good and marketable title to, or a valid leasehold interest in,
the properties and assets included on the September 30, 1999 balance sheet
delivered to the Purchaser or acquired thereafter (the "Acquired Assets") free
and clear of all Encumbrances, except for properties and assets disposed of in
the ordinary course of business since September 30, 1999. The items of Tangible
Property of Telecarrier are in good operating condition in all material respects
and are fit for use in the ordinary course of business. Telecarrier owns, or has
a valid leasehold or other interest in, and after the Closing Telecarrier will
continue to own, or have a valid leasehold or other interest in, all assets
necessary for the conduct of the Telecommunication Business as presently
conducted by Telecarrier and to permit Telecarrier to continue to conduct the
Telecommunication Business in all respects in substantially the same manner as
the Telecommunication Business has been conducted through the date hereof.
5.16 Intellectual Property. Schedule 5.16 lists (a) all identifiable
Intellectual Property Rights (including where applicable for each such
Intellectual Property Right the registration, serial or patent number, the
country, the filing and expiration date and the title, mark or class thereof)
relating to the Telecommunication Business and (b) all Third Party Licenses to
Telecarrier is a party or to which any of its respective assets are otherwise
subject, other than shrink-wrap licenses readily available from third-parties.
(b) All present and prior versions of the Programs are
protected by valid and subsisting statutory copyrights. In no instance has the
eligibility of the Programs for protection under applicable copyright law been
forfeited to the public domain by omission of any required notice or any other
action or inaction.
(c) Telecarrier has not promulgated a trade secret protection
program, however all source code and Technical Documentation relating to the
Programs and Proprietary Information (1) have at all times been maintained in
confidence and (2) have been disclosed by Telecarrier only to employees and
consultants having a "need to know" the contents thereof in connection with the
performance of their duties to Telecarrier.
(d) To the knowledge of Telecarrier and the Stockholders, no
claims of infringement or other wrongful act have been asserted by any Person
with respect to the use by Telecarrier of any Intellectual Property Rights or
Proprietary Information (whether or not related to the Telecommunication
Business), and to the best of Telecarrier's knowledge there is no valid basis
for any such claim. Telecarrier has not, nor has it been alleged to have,
infringed upon any Intellectual Property Rights of any other Person or
misappropriated or misused any Proprietary Information of any other Person
(whether or not related to the Telecommunication Business). Telecarrier has not
asserted any claim of infringement, misappropriation or misuse with respect to
any of their respective assets, nor is Telecarrier or any of the Stockholders
aware of any basis on which to allege such an infringement, misappropriation or
misuse. Neither Telecarrier nor any of the Stockholders is aware that any Person
is using or attempting to use any of Telecarrier's assets, except pursuant to
written permission of Telecarrier granted in the ordinary course of business.
5.17 Zoning and Land Use Matters. All required licenses, permits,
certificates and approvals, including building and use permits, planning
permissions and building regulations consents (collectively, the "Real Property
Permits"), were obtained and remain valid for the construction, use and
occupancy and operation of the property covered by the Leases (the "Leased
Property"), except where such failure to obtain or such invalidity would not
have a Material Adverse Effect. Each parcel of Leased Property and all
improvements located thereon are zoned or have a variance or conditional use
permit or valid planning permission for the intended use by the zoning
jurisdictions or planning authority in which it is located, and is in full
compliance with all conditions and requirements of any building permit, use
permits, conditional use permits or zoning classifications, subdivision
approvals, zoning restrictions, building codes, environmental zoning and
land-use laws and planning permissions, and other applicable national, regional,
provincial, state or local laws and regulations and comply with the requirements
of all conditions, covenants and restrictions applicable thereto. There are no
pending or, to the knowledge of Telecarrier or any of the Stockholders,
threatened, actions or proceedings that might prohibit, restrict or impair the
use and occupancy of the Leased Property, or result in the suspension,
revocation, impairment, forfeiture or non-renewal of any of the Real Property
Permits, other than such prohibitions, restrictions, suspensions, revocations,
impairments, forfeitures and non-renewals that would not result in a Material
Adverse Effect.
5.18 Environmental Matters.
(a) Compliance.
(i) To Stockholders' knowledge, Telecarrier is in
compliance with all applicable Environmental Laws, except where the
failure to be so in compliance would not have a Material Adverse
Effect;
(ii) Telecarrier has not received any written
communication from any Person or governmental entity that alleges that
Telecarrier is not in compliance with applicable Environmental Laws;
and
(iii) There have not been any Releases of Hazardous
Materials by Telecarrier or, to the knowledge of Telecarrier or any
Stockholder, by any non-Affiliate of Telecarrier, at any property
currently or formerly owned or operated by Telecarrier that occurred
during the period of Telecarrier's ownership or operation of such
property, except where such Releases would not have a Material Adverse
Effect.
(b) Environmental Permits. Telecarrier has all Environmental
Permits necessary for the conduct and operation of the Telecommunication
Business, and all such permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval, and
Telecarrier is in compliance with all terms and conditions of all such
Environmental Permits and is not required to make any expenditure in order to
obtain or renew any Environmental Permits, except where the failure to obtain or
be in such compliance and the requirement to make such expenditure would not
have a Material Adverse Effect on the Telecommunication Business.
(c) Environmental Claims. There are no Environmental Claims
pending or, to the knowledge of Telecarrier or any Stockholder, threatened
against either Telecarrier, or against any real or personal property or
operation that Telecarrier owns, leases or manages.
5.19 Insurance. Telecarrier maintains policies of fire and casualty,
liability and other forms of insurance in such amounts, with such deductibles
and against such risks and losses, as, to the Stockholders' knowledge, are
customary for companies engaged in similar businesses to Telecarrier to protect
the employees, properties, assets, businesses and operations of Telecarrier will
continue such insurance in effect through the Closing. The insurance policies
currently maintained with respect to Telecarrier and its assets and properties
are listed on Schedule 5.19 hereto and true and complete copies thereof have
been provided to Purchaser. All such policies are in full force and effect, all
premiums due and payable thereon have been paid and no written or oral notice of
cancellation or termination has been received with respect to any such policy
which was not replaced on substantially similar terms prior to the date of such
cancellation. All such policies will remain in full force and effect at least
until the Closing Date and will not in any way be affected by, or terminate or
lapse by reason of, any of the transactions contemplated hereby.
5.20 Employees and Labor Relations. (a) (i) There is no labor strike or
work stoppage or lockout actually pending, or to the knowledge of Telecarrier
and the Stockholders, threatened, against or materially affecting Telecarrier;
during the past three years there has not been any such action actually pending
against either; and, to the knowledge of Telecarrier and the Stockholders, there
has not been any such action threatened against or materially affecting
Telecarrier; (ii) none of the employees of Telecarrier is represented by a union
or subject to a collective bargaining agreement and, to the knowledge of
Telecarrier and the Stockholder, no union organizational campaign is in progress
with respect to the employees of Telecarrier and no question concerning
representation exists respecting such employees; and (iii) Telecarrier is in
compliance in all material respects with all applicable laws respecting
employment and employment practices terms and conditions of employment and wages
and hours and is not engaged in any unfair labor practice. Except as disclosed
on Schedule 5.20(a) hereto, there are no agreements or arrangements between
Telecarrier and an individual consultant, former consultant, employee or former
employee obligating Telecarrier to make any payment to any such individual as a
result of the transactions contemplated by this Agreement.
(b) Schedule 5.20(b) hereto contains the names of all persons
currently employed by Telecarrier in the Telecommunication Business (the
"Employees") and accurate details of the material terms of their employment,
including an indication of which employees are part-time or temporary employees,
current salary, commission, bonus entitlement and profit share arrangements both
contractual and discretionary, life insurance, medical or permanent health
insurances, date of commencement of employment, and description of their
function in the Telecommunication Business.
(c) A full copy of the standard terms of the employment of the
Employees and a copy of the terms of employment of each Employee employed on
terms other than the standard terms is attached hereto as Schedule 5.20(c).
(d) There are no loans outstanding from Telecarrier to any of
the Employees.
(e) To the knowledge of Telecarrier and the Stockholders,
Telecarrier or any Stockholder is in breach of the terms of employment of any of
the Employees nor so far as Telecarrier or any Stockholder is aware is any
Employee in breach of his or her employment relationship.
(f) Except as specifically set forth on Schedule 5.20(b), none
of the Employees has given or received notice of termination of his or her
employment.
(g) None of the Employees is the subject of any material
disciplinary action nor is any Employee engaged in any grievance procedure and,
to the best knowledge of Telecarrier and the Stockholders, there is no matter or
fact in existence which can be reasonably foreseen as likely to give rise to the
same.
5.21 Licenses; Permits. Telecarrier has duly obtained and now holds all
licenses, permits and authorizations issued or granted by national, regional,
state or local Governmental Authorities or agencies, including the Commission,
which are necessary or desirable for the conduct of the Telecommunication
Business by Telecarrier. Telecarrier has complied in all material respects with
all requirements in connection therewith and, except as indicated on Schedule
5.06, the same will not be subject to suspension, modification or revocation as
a result of this Agreement or the consummation of the transactions contemplated
hereby.
5.22 Litigation. (a) There is no action, proceeding or investigation
pending or, to the best knowledge of Telecarrier or any Stockholder, threatened:
(i) that is or may be brought against or which
involves Telecarrier or the Telecommunication Business or which arises from any
act or omission by any present or former officer, director, agent or employee of
Telecarrier;
(ii) that questions or challenges the validity of, or
seeks damages or equitable relief on the basis of, this Agreement or any action
taken or to be taken by Telecarrier or any Stockholder pursuant to this
Agreement or in connection with the transactions contemplated hereby; or
(iii) that might affect the right of eLEC after the
Closing Date to conduct the Telecommunication Business as presently conducted;
nor to the knowledge of Telecarrier or any Stockholder is there any valid basis
for any such action, proceeding or investigation.
(b) None of Telecarrier or any Stockholder knows of any facts
that could reasonably be expected to serve as the basis for any action,
proceeding or investigation against itself (or the eLEC upon consummation of the
Merger), its present or former directors, officers, or employees, affecting,
involving, or relating to the Telecommunication Business or the assets of either
Telecarrier.
5.23 Court Orders, Decrees, and Laws. (a) There is no outstanding or,
to the best knowledge of Telecarrier or any Stockholder, threatened order, writ,
injunction, or decree of any court, governmental agency, or arbitration tribunal
against Telecarrier affecting, involving or relating to the Telecommunication
Business. Telecarrier is not in violation of any applicable federal, state or
local law, regulation, ordinance, zoning requirement, governmental restriction,
order, judgment or decree affecting, involving or relating to the
Telecommunication Business except where noncompliance has no Material Adverse
Effect on the Telecommunication Business (including under ownership by
Purchaser), and Telecarrier has not received any notices of any allegation of
any such violation. The foregoing shall be deemed to include laws and
regulations relating to the federal patent, copyright, and trademark laws, state
trade secret an unfair competition laws, and to all other applicable laws,
including equal opportunity, wage and hour, and other employment matters, and
antitrust and trade regulations, safety (including OSHA), environmental
(including wetlands), antipollution, building, zoning or health laws, ordinances
and regulations.
(b) Schedule 5.23(b) sets forth, with respect to Telecarrier,
all approvals, authorizations, certifications, consents, variances, permissions,
licenses, or permits to or from, or filings, notices, or recordings to or with,
federal, state, or local Governmental Authorities, including the Commission (the
"Authorizations"). The Authorizations constitute all approvals, authorizations,
certifications, consents, variances, permissions, licenses, or permits to or
from, or filings, notices, or recordings to or with, federal, state, or local
Governmental Authorities, including the Commission, that are required for the
ownership and use of the assets of Telecarrier and the conduct of the
Telecommunication Business under federal, state, and local law, regulation,
ordinance, zoning requirement, governmental restriction, order, judgment, or
decree. Telecarrier is in compliance with all terms and conditions of such
required Authorizations. All of the Authorizations are in full force and effect,
and to the best of Telecarrier's knowledge, no suspension or cancellation of any
of them is being threatened, nor will any of the Authorizations be affected by
the consummation of the transactions described in this Agreement. Telecarrier is
in compliance with all other applicable limitations, restrictions, conditions,
standards, prohibitions, requirements, obligations, schedules, and timetables
contained in those laws or contained in any law, regulation, code, plan, order,
decree, judgment, notice, or demand letter issued, entered, promulgated, or
approved thereunder relating to or affecting the Telecommunication Business,
except where such noncompliance would not have a Material Adverse Effect.
5.24 Employee Benefit Plans; ERISA.
(a) Schedule 5.24 hereto contains a list of each employment,
consulting, bonus, deferred compensation, incentive compensation, severance,
termination or post-employment pay, disability, hospitalization or other
medical, dental, vision, life or other insurance, stock purchase, stock option,
stock appreciation, stock award, pension, profit sharing, 401(k) or retirement
plan, agreement or arrangement, and each other employee benefit plan or
arrangement arising out of the employment or the termination of employment of an
employee, former employee, retiree or sales personnel by Telecarrier, whether
written or oral, tax-qualified under the Code, and the rules and regulations
promulgated thereunder or non-qualified, whether covered by the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or not, maintained
or contributed to by Telecarrier covering its employees, former employees,
retirees or sales personnel (collectively, "Plans"). Telecarrier has no oral or
written formal or informal plan or commitment, whether covered by ERISA or not,
to create any additional plan, agreement or arrangement or to modify or change
any existing Plan in any manner that would affect any of its employees, former
employees, retirees or sales personnel. Telecarrier has made available to
Purchaser true and complete copies of the Plans, the trusts and other contracts
(including any amendments to any of the foregoing) relating to the Plans and all
other relevant documents governing or relating to the Plans in effect on the
date hereof (including without limitation, the latest summary plan description,
the latest annual report (and all attachments) filed with the Internal Revenue
Service with respect to each of the Plans, and the latest favorable
determination letter issued by the Internal Revenue Service for each of the
Plans as applicable). Telecarrier has delivered to Purchaser annual expenses for
wages, sales commissions, bonuses, group health plan, 401(k) plan, long-term
incentive plan and other employee benefits for the last three fiscal years.
(b) Any Plan, including but not limited to any Plan that was
an "employee pension benefit plan" covered by Section 3(2) of ERISA, that
Telecarrier ever sponsored or maintained, or in which Telecarrier ever
participated or contributed, on behalf of its employees, former employees,
retirees or sales personnel which was subsequently terminated was terminated in
compliance with the requirements of the Code and ERISA and Telecarrier has not
incurred any liability with respect to such plan or the termination of such Plan
that is due and owing and has not yet been satisfied under the terms of the
Plan, the Code, ERISA or any other law or regulation pursuant to which the
Purchaser may incur liability or have liability attributed to it under any
federal, state or local law as a result of the consummation of the transactions
contemplated by this Agreement. Telecarrier does not maintain, nor has it ever
maintained or contributed to, a "multiemployer plan", as that term is defined in
Section 3(37) of ERISA. No amount is due or owing from Telecarrier on account of
a "multiemployer plan" or on account of any withdrawal therefrom.
(c) Full payment has been made of all amounts other than
routine claims for benefits which Telecarrier is required to pay under the terms
of any Plan, or such amount has been accrued in accordance with GAAP.
(d) Each of the Plans is and has been operated and
administered in all material respects in accordance with applicable laws,
including but not limited to, ERISA and the Code, and all required governmental
filings and material participant disclosures have been made on a timely basis.
Each Plan subject to Section 401(a) of the Code has received a favorable
determination from the IRS that the Plan satisfies the requirements of Section
401(a) of the Code, and to the best of Telecarrier's and each Stockholder's
knowledge no facts exist which could reasonably be expected to adversely affect
the tax-qualified status of any such Plan.
(e) There are no pending, or to the best knowledge of
Telecarrier or any Stockholder, pending, threatened or anticipated claims,
litigation, administrative actions or proceedings against or otherwise involving
any of the Plans or related trusts, or any fiduciary thereof, by any
governmental agency, or by any employee, former employee, retiree or sales
personnel or by any participant or beneficiary covered under any of the Plans,
or otherwise involving the Plans (other than routine claims for benefits). There
is no judgment, decree, injunction, rule or order of any court, governmental
body, commission, agency or arbitrator outstanding against or in favor of any
Plan or any fiduciary thereof in that capacity.
(f) Each Plan that is a "group health plan" (as defined in
Section 607(1) of ERISA) has been operated in compliance with the provisions of
COBRA (Section 4980B of the Code), the Health Insurance Portability and
Accountability Act of 1996 and any applicable similar state law. Each Plan that
is an "employee welfare benefit plan" within the meaning of Section 3(1) of
ERISA may be terminated after the Closing Date in accordance with the terms of
any underlying contract without liability to Telecarrier other than liabilities
relating to claims incurred prior to the effective date of the termination of
such Plan. In addition, except as provided in Schedule 5.24(f), Telecarrier does
not currently provide nor has it ever provided for post-retirement or
post-employment benefits, including but not limited to, severance, salary
continuation, termination, disability, death, or retiree health or medical
benefits except as required by applicable law.
(g) The consummation of the transactions contemplated by this
Agreement will not, of itself, entitle any current or former employee of
Telecarrier to severance pay, unemployment compensation or any similar payment
or accelerate the time of payment or vesting, or increase the amount of
compensation due to, or in respect of, any current or former employee.
5.25 Customers and Suppliers. (a) Schedule 5.25(a) hereto includes a
true, complete and current list of all the customers of the Telecommunication
Business actually billed in the past 30 days. Except as set forth in Schedule
5.25(a) hereto, no customer of Telecarrier accounted for more than five percent
(5%) of Telecarrier's revenues during fiscal year 1998, 1997 or 1996.
(b) Telecarrier has Subsisting Contracts in writing with each
licensor, developer, remarketer, distributor and supplier of property or
services to Telecarrier. Schedule 5.25(b) identifies each such Person to whom
Telecarrier paid in the aggregate $10,000 or more during the most recent fiscal
year, together with, in each case, the amount paid or billed during such period.
(c) To the best knowledge of Telecarrier and the Stockholders,
and except as may result solely from a public announcement of the transactions
contemplated by this Agreement, there is no reason why the relationship with any
Person referred to in paragraphs (a) or (b) of this Section 5.25 might not be
continued indefinitely by Purchaser, after its acquisition of the
Telecommunication Business, at least at substantially the same level of business
and on substantially the same terms as Telecarrier experienced during the twelve
(12)-month period preceding the Closing. No customer or supplier listed on
Schedules 5.25(a) and (b) has notified Telecarrier in writing of an intention on
its part to terminate such customer's or vendor's agreement for services with
Telecarrier. None of Telecarrier or any of the Stockholders have taken any
actions specifically intended to lead to the termination of any such Person's
agreement with Telecarrier.
5.26 Accounts Receivable. Except as set forth in Schedule 5.26 hereof,
all trade accounts receivable of Telecarrier have arisen in the ordinary course
of business in arms-length transactions for goods actually sold and services
actually performed and are collectible in the ordinary course of business.
Telecarrier has available in its records copies of invoices and of customer
agreements with respect to all such accounts receivable.
5.27 Product Liabilities. (a) Telecarrier has been notified in the
ordinary course of business by users of its products or services about alleged
"defects", "deficiencies" or "unsatisfactory operational characteristics" with
respect to products offered prior to the Closing or services rendered by
Telecarrier prior to the Closing. The practice of Telecarrier in handling such
notifications has been to investigate and provide a product fix or to include an
enhancement of the feature causing the notification in a future version of the
product or service. No such prior notification has resulted in litigation. No
Stockholder has any reason to believe that any liability, damage, loss, cost or
expense ("Liability") incurred as a result of such condition would be deemed to
be material or that any such condition would constitute a breach of any express
or implied warranty (including without limitation any warranty of
merchantability or fitness), any doctrine of common law (tort, contract or
other), or any statutory provision or other legal principle, and irrespective of
whether the Liability for such deficiency has been assumed by the Purchaser or
is covered by insurance.
5.28 Broker's Fees. None of Telecarrier, the Stockholders or anyone
acting on their behalf have made any commitment or done any other act which
would create any liability for any brokerage, finder's or similar fee or
commission in connection with the transactions contemplated by this Agreement,
other than fees of RFC Capital which shall be paid pursuant to Section 6.05
hereof.
5.29 Related-Party Transactions. Except as set forth on Schedule 5.29,
Telecarrier is not a party to any contract, agreement, license, lease or
arrangement with, or any other commitment to, directly or indirectly, (1) any
officer or salaried employee of Telecarrier in office within two (2) years of
the date of execution hereof; (2) any corporation, trust or other entity in
which any such officer or salaried employee has a material equity or
participating interest; or (3) or any partnership in which any such officer or
salaried employee has a partnership or participating interest, in each case,
relating to or involving the Telecommunication Business, except, in each
instance, for existing compensation arrangements listed in Schedule 5.24. Each
such contract, agreement, license, lease, arrangement and commitment listed was
entered into by Telecarrier in the ordinary course of business upon terms that
are fair and reasonable to Telecarrier without regard to the status and
relationship of such parties.
5.30 Net Book Value. The net book value of Telecarrier on December 31,
1999, determined in accordance with GAAP, equaled or exceeded $1.00.
5.31 Disclosure. No representation or warranty by Telecarrier or any
Stockholder in this Agreement and no statement contained herein or in any
document (including, without limitation, financial statements, exhibits and
schedules), certificate, or other writing furnished or to be furnished by
Telecarrier or any Stockholder to the Purchaser pursuant to the provisions
hereof or in connection with the transactions contemplated hereby, taken as a
whole, contains or will contain any untrue statement of material fact or omits
or will omit to state any material fact necessary in order to make the
statements herein or therein not misleading. Telecarrier and the Stockholders
have disclosed to the Purchaser all facts known or reasonably available to
Telecarrier or any Stockholder that are material to the business, assets,
liabilities, condition (financial or otherwise) or results of operations of
Telecarrier. Except as specifically set forth in this Agreement, neither
Telecarrier nor the Stockholders makes any representation or warranty to eLEC.
5.32 Form of Entity. Since Telecarrier's formation, it has been treated
as an "S" corporation for Federal income tax purposes. Telecarrier has provided
its form of election to eLEC.
5.33 Bank Accounts. Schedule 5.33 contains a true and complete list of
(a) the names and locations of all financial institutions at which Telecarrier
maintains a checking account, deposit account, securities account, safety
deposit box or other deposit or safekeeping arrangement, the numbers or other
identification of all such accounts and arrangements and the names of all
Persons authorized to draw against any funds therein and (b) the names of all
Persons holdings powers of attorney from Telecarrier.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
The Purchaser hereby represents and warrants to the Stockholders as follows:
6.01 Corporate Organization; Due Authorization. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New York and has full corporate power to execute, deliver and
perform this Agreement and any Related Document to which it is a party. Mergeco
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has full corporate power to execute, deliver
and perform this Agreement and any Related Document to which it is a party. The
execution, delivery and performance of this Agreement and the Related Documents
to which it is a party have been duly and validly authorized by all necessary
corporate actions on the part of the Purchaser or Mergeco, as the case may be
(or will be so authorized prior to Closing), and constitute valid and binding
obligations of the Purchaser or Mergeco, as the case may be, enforceable in
accordance with their terms, except that (i) such enforcement may be limited by
or subject to any bankruptcy, insolvency, reorganization, moratorium or similar
laws now or hereafter in effect relating to or limiting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief are subject to certain equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Mergeco is a first tier subsidiary of the Purchaser.
6.02 Authorization. Each of the Purchaser and Mergeco has all requisite
power and authority to enter into this Agreement and each Related Document to
which it is a party, and to consummate the transactions contemplated hereby and
thereby. All acts and other proceedings required to be taken by each of the
Purchaser and Mergeco to authorize the execution, delivery and performance of
this Agreement and the Related Documents to which it is a party, and the
consummation of the transactions contemplated hereby and thereby have been duly
and properly taken (or will be so taken prior to Closing).
6.03 Consents and Approvals of Governmental Authorities. Except as set
forth on Schedule 6.03, no consent, permit, approval or authorization of, or
declaration, filing or registration with, any Governmental Authority or any
court or other tribunal, and no consent or waiver of any third party is required
to be obtained by the Purchaser or Mergeco in connection with the execution,
delivery and performance of this Agreement, the Related Documents to which it is
a party or the consummation of the transactions contemplated hereby or thereby,
except for informational filings with the Securities and Exchange Commission and
as may be required under state securities or "blue sky" laws.
6.04 No Violation. The execution and delivery by the Purchaser and
Mergeco of this Agreement and each Related Document to which it is a party by
the signatories thereto, and the consummation by the Purchaser and Mergeco of
the transactions contemplated hereby and thereby and compliance with the terms
hereof and thereof does not and will not, conflict with, or result in any
violation of or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration of
any obligation or to loss of a material benefit under or result in the creation
of any Encumbrance of any kind upon any of the properties or assets of the
Purchaser or Mergeco, as the case may be, under, any provision of (i) the
Certificate of Incorporation or By-laws of the Purchaser or Mergeco, as the case
may be, (ii) any note, bond, mortgage, indenture, deed of trust, license, lease,
contract, commitment or loan or other agreement to which the Purchaser or
Mergeco, as the case may be, is a party or by which any of their respective
properties or assets are bound, or (iii) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Purchaser or Mergeco, as
the case may be, or their respective property or assets.
6.05 Broker's Fees. Other than fees payable to RFC Capital, which fees
shall be borne by the Purchaser, neither the Purchaser nor anyone acting on its
behalf has made any commitment or done any other act which would create any
liability for any brokerage, finder's or similar fees or commissions in
connection with the transactions contemplated by this Agreement.
6.06 Delivery of Documents; Securities Law Matters. eLEC has delivered
to the Stockholders its Annual Report on Form 10-K for the fiscal year ended
November 30, 1998, its Quarterly Reports on Form 10-Q for the fiscal quarters
ended August 31, 1999, May 31, 1999 and February 28, 1999, its Current Reports
on Form 8-K dated August 11, 1999, as amended, and November 16, 1999, its Proxy
Statement dated October 6, 1999, and its Registration Statement on Form S-3
filed with the Securities and Exchange Commission on January 12, 2000
(collectively, the "eLEC Commission Reports"). As of the date of each such
filing, the eLEC Commission Reports did not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. eLEC has filed all forms, reports and
documents with the Securities and Exchange Commission required to be filed by it
pursuant to the Securities Act and the Exchange Act and the rules and
regulations promulgated thereunder, each of which complied as to form, at the
time such form, document or report was filed, in all material respects with the
applicable requirements of the Securities Act and the Exchange Act and the
applicable rules and regulations promulgated thereunder.
6.07 Capital Stock.
(a) The authorized capital stock of eLEC consists of
20,000,000 shares of eLEC Common Stock, of which 11,450,164 shares are issued
and outstanding (prior to any issuance of eLEC Common Stock hereunder) and
1,000,000 shares of preferred stock, par value $0.10 per share, of which 176
shares of Series A preferred stock are issued and outstanding.
(b) There are no statutory or contractual stockholders,
preemptive rights or rights of first refusal with respect to the issuance of the
Issued Shares, the Additional Shares or the Satisfaction Shares hereunder.
Assuming the accuracy of the representations of the Stockholders hereunder, eLEC
has not violated any applicable federal or state securities laws in connection
with the issuance of the Issued Shares, the Additional Shares or the
Satisfaction Shares.
(c) The shares of eLEC Common Stock to be issued and delivered
pursuant to the terms of this Agreement have been duly authorized and will, when
so issued and delivered, be validly issued, fully paid and non-assessable. No
shareholder of eLEC is entitled as such to any preemptive or other rights to
subscribe for any of the shares of eLEC Common Stock to be issued and delivered
pursuant to the terms of this Agreement.
6.08 Litigation. There is no action, proceeding or investigation
pending or, to the best knowledge of eLEC, threatened:
(a) that questions or challenges the validity of, or seeks
damages or equitable relief on the basis of, this Agreement or any action taken
or to be taken by eLEC pursuant to this Agreement or in connection with the
transactions contemplated hereby; or.
(b) that might affect the right of the Stockholders after the
Closing Date to own the Issued Shares or any Additional Shares; nor to the
knowledge of eLEC is there any valid basis for any such action, proceeding or
investigation.
ARTICLE VII
CONDITIONS TO CLOSING
---------------------
7.01 Conditions Precedent to the Obligations of Purchaser and Mergeco
Hereunder. All obligations of the Purchaser and Mergeco hereunder are subject to
the fulfillment, to the satisfaction of the Purchaser, Mergeco and their legal
counsel, prior to or at the Closing, of each of the following conditions (any or
all of which may be waived by Purchaser and Mergeco in their sole discretion):
(a) The representations and warranties contained in Article V
hereof, the Schedules hereto and in all certificates and other documents
delivered or to be delivered by Telecarrier or any Stockholder pursuant hereto
or in connection with the transactions contemplated hereby shall be true,
complete and accurate in all material respects as of the date when made and at
and as of the Closing Date.
(b) Telecarrier and each Stockholder shall have performed and
complied in all material respects with all agreements, obligations and
conditions required by this Agreement to be performed or complied with by it or
him or her on or prior to the Closing.
(c) No suit, action, investigation, inquiry or other
proceeding by any governmental body or other Person or legal or administrative
proceeding shall have been instituted or threatened which seeks to restrain,
enjoin, prevent the consummation or otherwise affect the transactions
contemplated by this Agreement or which questions the validity or legality of
the transactions contemplated hereby.
(d) The Certificate of Merger shall have been executed and
filed with the Secretary of State of Delaware.
(e) The Merger and the transactions contemplated by this
Agreement shall have been approved and ratified by all necessary and appropriate
corporate proceedings including, without limitation, approval by the
Stockholders and the Board of Directors of Telecarrier as required under the
applicable provisions of Delaware law.
(f) The Stockholders shall have delivered to the Purchaser, or
caused to be delivered to Purchaser, the other items required to be delivered to
the Purchaser in accordance with Section 3.02 hereof.
(g) The Purchaser shall have completed its business and legal
due diligence investigation of Telecarrier to its reasonable satisfaction.
(h) Telecarrier and the Stockholders shall have furnished
Purchaser and Mergeco with such certificates of Telecarrier or the Stockholders,
as applicable, to evidence compliance with the conditions set forth in this
Section 7.01 as may reasonably be requested by Purchaser, Mergeco or their legal
counsel.
7.02 Conditions Precedent to the Obligations of Telecarrier and the
Stockholders Hereunder. All obligations of Telecarrier and the Stockholders
hereunder are subject to the fulfillment to the satisfaction of Telecarrier, the
Stockholders and their legal counsel, prior to or at the Closing, of each of the
following conditions (any or all of which may be waived by Telecarrier and the
Stockholders in their sole discretion):
<PAGE>
(a) The representations and warranties contained in Article VI
hereof, the Schedules hereto and in all certificates and other documents
delivered or to be delivered by eLEC pursuant hereto or in connection with the
transactions contemplated hereby shall be true, complete and accurate in all
material respects as of the date when made and at and as of the Closing Date.
(b) The Purchaser shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be performed or complied with by the Purchaser on or prior to
the Closing.
(c) No suit, action, investigation, inquiry or other
proceeding by any governmental body or other Person or legal or administrative
proceeding shall have been instituted or threatened which seeks to restrain,
enjoin, prevent the consummation of or otherwise affect the transactions
contemplated by this Agreement or which questions the validity or legality of
the transactions contemplated hereby.
(d) The Certificate of Merger shall have been executed and
filed with the Secretary of State of Delaware.
(e) The Merger and the transactions contemplated by this
Agreement shall have been approved and ratified by all necessary and appropriate
corporate proceedings, as required under the applicable provisions of Delaware
law.
(f) The Purchaser shall have delivered to the Stockholders, or
caused to be delivered to the Stockholders, the other items required to be
delivered to the Stockholder in accordance with Section 3.03 hereof.
(g) Purchaser and Mergeco shall have furnished Telecarrier and
the Stockholders with such certificates of Purchaser or Mergeco, as applicable,
to evidence compliance with the conditions set forth in this Section 7.02 as may
reasonably be requested by Telecarrier and the Stockholders or their legal
counsel.
7.03 Frustration of Conditions. No party may rely upon the failure of
any condition set forth in this Article VII to be satisfied if such failure was
caused by such party's failure to act in good faith or to use its best efforts
to cause the Closing to occur.
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS
AND WARRANTIES; INDEMNIFICATION
-------------------------------
8.01 Survival of Representations and Warranties. All representations
and warranties made by any party hereto in this Agreement or in the attached
Schedules or in any exhibit or certificate delivered pursuant hereto shall
survive the Closing hereunder and any investigation at any time made by or on
behalf of any other party through June 30, 2001, except with respect to Sections
5.18 and 5.23, which shall survive until January 21, 2003, and Sections 5.01,
5.02, 5.03, 5.04, 5.05, 5.10, 5.24, 6.01, 6.02, 6.04 and 6.07, which shall
survive until the expiration of the statute of limitations applicable thereto.
No investigation by any party hereto shall relieve any other party hereto from
any liability for any misrepresentation, misleading statement or omission made
in this Agreement or in connection with the transactions contemplated hereby.
8.02 Notice of Damages. A party seeking indemnity hereunder (the
"Indemnified Party") will give the party from whom indemnity is sought hereunder
(the "Indemnitor") prompt notice (hereinafter, the "Indemnification Notice") of
any demands, claims, actions or causes of action (collectively, "Claims")
asserted against the Indemnified Party. Failure to give such notice shall not
relieve the Indemnitor of any obligations which the Indemnitor may have to the
Indemnified Party under this Article VIII, except to the extent that such
failure has materially adversely prejudiced the Indemnitor under the provisions
for indemnification contained in this Agreement. For purposes of this Article
VIII, Purchaser, on the one hand, and the Stockholders, on the other hand, shall
be deemed to be the "Indemnified Party" or the "Indemnitors", as the case may
be.
8.03 Agreements to Indemnify.
(a) Subject to the terms and conditions of this Article VIII,
the Stockholders jointly and severally covenant and agree to indemnify, defend
and hold harmless the Purchaser and its Affiliates (including any officer,
director, stockholder, partner, member, employee, agent or representative of any
thereof) (a "Purchaser Affiliate") from and against all assessments, losses,
damages, liabilities, costs and expenses, including without limitation interest,
penalties and reasonable fees and expenses of legal counsel chosen by the
Purchaser or a Purchaser Affiliate (collectively, "Damages"), imposed upon or
incurred by the Purchaser or a Purchaser Affiliate arising out of or in
connection with or resulting from any breach of any representation or warranty
of, or nonfulfillment of any covenant or agreement of, either Telecarrier or any
Stockholder contained in or made pursuant to this Agreement or any Schedule
hereto, or any certificate furnished or to be furnished to the Purchaser
hereunder or thereunder.
(b) The Purchaser covenants and agrees to indemnify, defend
and hold harmless the Stockholders and their respective Affiliates (including
any successor or assigns, officer, director, stockholder, partner, member,
employee, agent or representative thereof) ("Stockholder Affiliates") from and
against all Damages imposed upon or incurred by such indemnified party arising
out of or in connection with or resulting from any breach of any representation
or warranty of, or nonfulfillment of any covenant or agreement of, the Purchaser
contained in or made pursuant to this Agreement or any Schedule hereto, or any
certificate or other instrument furnished or to be furnished to Stockholders
hereunder or thereunder.
(c) The Indemnitor shall reimburse an Indemnified Party
promptly after delivery of an Indemnification Notice certifying that the
Indemnified Party has incurred Damages after compliance with the terms of this
Article VIII, provided, however, that the Indemnitor shall have the right to
contest any such Damages in good faith.
8.04 Conditions of Indemnification of Third Party Claims. The
obligations and liabilities of an Indemnitor under Section 8.03 hereof with
respect to Damages resulting from Claims by Persons not party to this Agreement
shall be subject to the following terms and conditions:
(a) Promptly after delivery of an Indemnification Notice in
respect of a Claim and subject to paragraph (c) of this Section 8.04, the
Indemnitor may elect, by written notice to the Indemnified Party, to undertake
the defense thereof with counsel reasonably satisfactory to the Indemnified
Party, at the sole cost and expense of Indemnitor. If the Indemnitor chooses to
defend any claim, the Indemnified Party shall cooperate with all reasonable
requests of the Indemnitor and shall make available to the Indemnitor any books,
records or other documents within its control that are necessary or appropriate
for such defense.
(b) In the event that the Indemnitor, within a reasonable time
after receipt of an Indemnification Notice, does not so elect to defend such
Claim, the Indemnified Party will have the right (upon further notice to the
Indemnitor) to undertake the defense, compromise or settlement of such Claim for
the account of the Indemnitor, subject to the right of the Indemnitor to assume
the defense of such Claim pursuant to the terms of paragraph (a) of this Section
8.04 at any time prior to settlement, compromise or final determination thereof,
provided, that the Indemnitor reimburses in full all costs of the Indemnified
Party (including reasonable attorney's fees and expenses) incurred by it in
connection with such defense prior to such assumption.
(c) Anything in this Section 8.04 to the contrary
notwithstanding, (i) if the Indemnified Party believes there is a reasonable
probability that a Claim may materially and adversely affect the Indemnified
Party, the Indemnified Party shall have the right to participate in the defense,
compromise or settlement of such Claim, provided that the Indemnitor shall not
be liable for expenses of separate counsel of the Indemnified Party engaged for
such purpose, and (ii) no Person who has undertaken to defend a Claim under
Section 8.04(a) hereof shall, without written consent of all Indemnified
Parties, settle or compromise any Claim or consent to entry of any judgment
which does not include as an unconditional term thereof the release by the
claimant or the plaintiff of all Indemnified Parties from all liability arising
from events which allegedly give rise to such Claim.
8.05 Limitation on Indemnification. Notwithstanding anything to the
contrary provided elsewhere in this Agreement, the obligations of any Indemnitor
under this Agreement to indemnify any Indemnified Party with respect to any
Claim pursuant to Section 8.03 shall be of no force and forever barred unless
the Indemnified Party has given the Indemnitor notice of such claim prior to
June 30, 2001; provided that with respect to Sections 5.18 and 5.23, notice of
such claim shall be given prior to January 21, 2003, and provided that there
shall be no time limit for Claims made for a breach of the representations and
warranties contained in Sections 5.01, 5.02, 5.03, 5.04, 5.05, 5.10, 5.24, 6.01,
6.02, 6.04 and 6.07 other than the statute of limitations applicable thereto. In
any event, the parties shall fully cooperate with each other and their
respective counsel in accordance with Section 8.04 in connection with any such
litigation, defense, settlement or other attempted resolution. Nothing in this
Section 8.05 shall be construed to limit the obligation of the Purchaser to
issue the Additional Shares pursuant to the terms of this Agreement.
8.06 Limitation upon De Minimis Indemnification Obligations. No party
shall be required to indemnify another party hereunder until such time as the
Indemnified Party's actual damages and losses in the aggregate equal or exceed
$25,000, and then only to the extent of the excess. This limitation shall not
apply to the issuance of the Reserved Shares or the Additional Shares.
8.07 Sole Remedy. The provisions of this Article VIII shall be the sole
remedy for money damages of the parties hereto with respect to the matters
herein.
ARTICLE IX
MISCELLANEOUS PROVISIONS
------------------------
9.01 Expenses. Except as otherwise provided herein, each of the parties
hereto will pay its own expenses incurred by or on its behalf in connection with
this Agreement or any transaction contemplated by this Agreement, whether or not
such transaction shall be consummated, including without limitation all fees of
its respective legal counsel and accountants.
9.02 Notices. All notices, requests, demands, consents or waivers and
other communications required or permitted hereunder shall be in writing and
shall be deemed to have been duly given if delivered by hand or by telecopy
(with immediate confirmation), one business day after being sent if by
nationally recognized overnight courier or if mailed, then four days after being
sent by certified or registered mail, return receipt requested with postage
prepaid:
(i) If to the Stockholders, to:
MICHAEL LAGANA
26 Grandview Drive
Holmdel, New Jersey 07733
and
ZINA HASSEL
53 Ivanhoe Drive
Manalapan, New Jersey 07726
with a copy to:
BERKOWITZ, LICHTSTEIN, KURITSKY,
GIASULLO & GROSS, LLC
443 Northfield Avenue
West Orange, New Jersey 07052
Attention: Jonathan M. Gross, Esq.
Telecopy: (973) 325-7930
(ii) If to eLEC or Telecarrier, to:
eLEC COMMUNICATIONS CORP.
37 North Avenue
Norwalk, Connecticut 06851
Attention: Chief Executive Officer
Telecopy: (203) 750-1003
with a copy to:
PRYOR CASHMAN SHERMAN &
FLYNN LLP
410 Park Avenue
New York, New York 10022
Attention: Eric M. Hellige, Esq.
Telecopy: (212) 326-0806
or, in each case, to such other Person or address as any party shall furnish to
the other parties in writing.
9.03 Binding; No Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder shall be assigned by
any of the parties hereto without the prior written consent of the other
parties, except by operation of law and except that the Purchaser may assign all
or part of this Agreement and its rights hereunder (a) to a Purchaser Affiliate
or (b) from and after the Closing to a Person, not a party to this Agreement,
who acquires substantially all of the assets of the Purchaser and who assumes
all of the obligations of the Purchaser hereunder, provided in each such case
that no such assignment shall release the Purchaser from its duties and
obligations hereunder.
9.04 Severability; Suspension Provisions. If in any jurisdiction, any
provision of this Agreement or its application to any party or circumstance is
restricted, prohibited or unenforceable, such provision shall, as to such
jurisdiction, be ineffective only to the extent of such restriction, prohibition
or unenforceability without invalidating the remaining provisions hereof and
without affecting the validity or enforceability of such provision in any other
jurisdiction or its application to other parties or circumstances. In addition,
if any one or more of the provisions contained in this Agreement shall for any
reason in any jurisdiction be held to be excessively broad as to time, duration,
geographical scope, activity or subject, it shall be construed, by limiting and
reducing it, so as to be enforceable to the extent compatible with the
applicable law of such jurisdiction as it shall then appear.
9.05 Governing Law; Arbitration.
(a) All of the terms, conditions, and other provisions of this
Agreement shall be interpreted and governed by reference to the laws of the
State of New York, and any dispute arising therefrom and the remedies available
shall be determined in accordance with such laws without giving effect to the
principles of conflicts of law.
(b) Any disagreement, dispute, controversy or claim arising
out of or relating to this Agreement, or the breach, termination or validity
thereof (a "Dispute"), shall first be negotiated between Mr. Michael Lagana or
his designee (on behalf of Stockholders), on the one hand, and the Chief
Executive Officer of Purchaser or his designee (on behalf of the Purchaser), on
the other hand, for attempted resolution by good faith negotiation within thirty
(30) days after the parties have been notified that a Dispute exists.
(c) In the event that Mr. Michael Lagana and the Chief
Executive Officer of Purchaser (or their designees) are unable to resolve such
Dispute within such thirty (30) day period, said Dispute shall be submitted to
binding arbitration before the American Arbitration Association ("AAA") in
accordance with its rules of Commercial Arbitration. The decision of the arbiter
shall be final and binding upon the parties, and it may be entered in any court
of competent jurisdiction. The arbitration shall take place in New York, New
York. The arbiter shall be bound by the laws of the State of New York applicable
to all relevant privileges and the attorney work product doctrine. The arbiter
shall have the power to grant equitable relief where applicable under New York
law and shall not be entitled to make an award of punitive damages. The arbiter
shall issue a written opinion setting forth its decision and the reasons
therefor within thirty (30) days after the arbitration proceeding is concluded.
The obligation of the parties to submit any dispute arising under or related to
this Agreement to arbitration as provided in this Section shall survive the
expiration or earlier termination of this Agreement. Notwithstanding the
foregoing, any party may seek an injunction or other appropriate relief from a
court of competent jurisdiction to preserve or protect the status quo with
respect to any matter pending conclusion of the arbitration proceeding, but no
such application to a court shall in any way be permitted to stay or otherwise
impede the progress of the arbitration proceeding. Each party shall pay its own
costs (including, without limitation, attorney's fees and disbursements) and
expenses in connection with any arbitration proceeding.
(d) The Purchaser, Telecarrier and the Stockholder hereby
consent to the jurisdiction of the AAA and the courts of the State of New York
and the United States District Courts in the State of New York, as well as to
the jurisdiction of all courts from which an appeal may be taken from such
courts, for the purpose of any arbitration, suit, action or other proceeding
arising out of any of their obligations arising hereunder or with respect to the
transactions contemplated hereby and expressly waive any and all objections they
may have as to venue in any of such courts.
(e) Each party hereto irrevocably and unconditionally consents
to the service of any and all process in any such action or proceeding by the
mailing of copies of such process by certified mail to such party and its, his
or her counsel at their respective addresses specified in Section 9.02
9.06 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
9.07 Headings. The title of this Agreement and the headings of the
Sections and Articles of and the Schedules to this Agreement are for reference
purposes only and shall not be used in construing or interpreting this
Agreement.
9.08 Entire Agreement; Amendment; Waiver. This Agreement, including any
exhibits and schedules hereto and other documents, instruments and certificates
delivered pursuant to the terms hereof, sets forth the entire agreement and
understanding of the parties hereto in respect of the subject matter hereof, and
supersedes all prior agreements, promises, covenants, arrangements,
representations or warranties, whether oral or written, by any party hereto or
any officer, director, employee or representative of any party hereto. No
modification or waiver of any provision of this Agreement shall be valid unless
it is in writing and signed by the party to be charged therewith. The waiver of
breach of any term or condition of this Agreement shall not be deemed to
constitute a waiver of any other breach of the same or any other term or
condition.
9.09 Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any Person other than the parties hereto and their
successors or assigns any rights or remedies under or by reason of this
Agreement.
9.10 Publicity. From the date hereof through the Closing Date, except
as required by law, none of Stockholders, Telecarrier or Purchaser shall make
any announcement of the transactions contemplated hereby without the prior
written consent of the other parties. From and after the Closing Date, except as
otherwise required by law, none of Stockholders or Telecarrier shall make any
announcement, issue any press release or disseminate information to the press or
any third party regarding this Agreement or the transactions contemplated by
this Agreement without the prior written consent of the Purchaser. The parties
will cooperate with each other for an internal announcement designed to provide
information to employees of Telecarrier as to transition issues and to promote a
smooth transition.
9.11 Reference to Days. All references to days in this Agreement shall
be deemed to refer to calendar days, unless otherwise specified.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in New York, New York, all on the day and year first
above written.
PURCHASER:
eLEC COMMUNICATIONS CORP.
By:/s/ Paul H. Riss
----------------
Paul H. Riss
Chief Executive Officer
eLEC COMMUNICATIONS SUB I, INC.
By:/s/ Paul H. Riss
----------------
Paul H. Riss
Chief Executive Officer
TELECARRIER:
TELECARRIER SERVICES, INC.
By:/s/ Michael Lagana
------------------
Michael Lagana
President
STOCKHOLDERS:
/s/ Michael Lagana
-------------------
MICHAEL LAGANA
/s/ Zina Hassel
----------------
ZINA HASSEL
FOR IMMEDIATE RELEASE Summary: eLEC announces acquisition of New Jersey-based
CLEC, Telecarrier Services, Inc. Telecarrier
adds approximately 4,000 total lines, direct
sales capabilities and experienced telecommun-
ications management to eLEC.
Contact: Paul Riss, CEO, eLEC 203-750-1000
[email protected]
Michael Lagana, CEO, Telecarrier,
732-417-9300
[email protected]
Zina Hassel, VP, Telecarrier,
732-417-9300
[email protected]
Norwalk, CT... January 24, 2000 --- eLEC Communications Corp. (NASDAQ:ELEC)
announced today the acquisition of Telecarrier Services, Inc., a competitive
local exchange carrier ("CLEC") that provides local exchange services in four
states and long distance service in 13 states. The acquisition increases to 14
the total number of states in which eLEC operates. Telecarrier has approximately
4,000 lines in service, with approximately 50% of those lines providing local
services. eLEC plans to convert Telecarrier's resale lines in New York and
Massachusetts to eLEC's Unbundled Network Elements Platform ("UNE-P") based
leased network.
Paul Riss, eLEC's CEO, stated, "We are very pleased with the additional
resources that this acquisition brings to eLEC. Telecarrier has successfully
combined 4,000 long distance lines with approximately 2,000 local lines and
operated a break-even business under local resale. We plan to convert most of
the local lines to UNE-P so that we can create a more profitable book of
business from this customer base."
"We are also very pleased to welcome Michael Lagana, an executive with over 25
years of telecom experience, to our management team," continued Mr. Riss.
"Michael will be a significant addition to our sales and marketing effort, as he
will head up our direct sales efforts and manage the sales we make through
agents and interconnect companies. We need this distribution channel to
complement our telemarketing efforts so that not only can we continue to enjoy
the rapid growth that we have been experiencing, but also expand our base to
include larger commercial customers who will utilize more of our bundled product
offerings. Michael's extensive experience in the CPE (customer premise
equipment) telecom business is a valuable asset to eLEC and to the larger, more
sophisticated commercial market. His knowledge of telecom equipment and services
brings a `single-source' vendor concept to the eLEC customer base. This
background allows off site management experience for those commercial accounts
that are not quite large enough to justify a dedicated telecom manager.
Michael's experience and industry contacts are a valuable addition to our
company and his record in building telecom companies is impressive."
Michael Lagana, CEO of Telecarrier, added, "I am very excited with the direction
eLEC is taking. eLEC will provide us with greatly enhanced margins on our local
business and expand our bundle of products to include Web design, Web hosting,
dial-up Internet access, xDSL and other data services. We have managed to build
a significant distribution network of agents and interconnect companies with
limited resources. With eLEC's resources and product offerings, we expect to be
able to expand our distribution network and rapidly accelerate our combined
growth."
Telecarrier was founded in 1992 by Michael Lagana and is licensed as a CLEC in
New Jersey, New York, Massachusetts and Rhode Island. It also resells multiple
vendor long distance services, in addition to providing calling cards and
equipment rentals. Its focus on customer service, comprehensive invoicing for
multiple products and locations, and monthly telecom usage reports for
management's review has helped to create a customer base that averages 10 lines
per account. The monthly management report, a standard reporting feature for
Telecarrier customers, is of great value in the monthly monitoring of telecom
cost distribution. Telecarrier offers long distance services in California,
Connecticut, Delaware, Florida, Georgia, Massachusetts, New Hampshire, New
Jersey, New York, North Carolina, Pennsylvania, Rhode Island and Texas.
eLEC Communications Corp. is a publicly-traded local telecommunications
company that seeks to take advantage of the convergence of the current and
future competitive technological and regulatory developments in the Internet and
telecommunications markets. eLEC provides an integrated suite of communications
services to small and medium-sized business customers, including local, long
distance, dial-up access, dedicated access, xDSL, and Web site design and
hosting.
*********
This release contains forward-looking statements that involve risks and
uncertainties. eLEC's actual results may differ materially from the results
discussed in the forward-looking statements. Factors that might cause such a
difference include, among others, availability of management; availability,
terms, and deployment of capital; eLEC's ability to successfully market its
services to current and new customers, generate customer demand for its product
and services in the geographical areas in which eLEC can operate, access new
markets, negotiate and maintain suitable interconnection agreements with the
incumbent local exchange carriers, and negotiate and maintain suitable vendor
relationships, all in a timely manner, at reasonable cost and on satisfactory
terms and conditions, as well as regulatory, legislative and judicial
developments that could cause actual results to vary in such forward-looking
statements.
