MERGER AND REORGANIZATION AGREEMENT
THIS MERGER AND REORGANIZATION AGREEMENT dated as of January 31, 1998,
is entered into among GLOBAL TELECOMMUNICATION SOLUTIONS, INC., a Delaware
corporation ("GTS"), NETWORKS ACQUISITION CORP., a New Jersey corporation and
wholly-owned subsidiary of GTS ("Merger Subsidiary"), NETWORKS AROUND THE WORLD,
INC., a New Jersey corporation ("Networks"), XXXXXXXX XXXXXXX, residing at 000
Xx. Xxxxx Xxxxxx, Xxxxxxxxxxxxx, Xxx Xxxxxx 00000 ("Xxxxxxx"), and XXXX XXXXXXX,
residing at 00 Xxxxxxxxx Xxxxxx, Xxxxxxx, Xxx Xxxxxx 00000 ("Xxxxxxx"), (Xxxxxxx
and Xxxxxxx being referred to collectively herein as the "Stockholders").
WHEREAS, the Stockholders are the owners of all of the outstanding
capital stock of Networks in the respective amounts set forth in Exhibit A;
WHEREAS, subject to the terms and conditions of this Merger and
Reorganization Agreement ("Agreement"), the Parties desire to consummate a
merger, as contemplated herein, pursuant to which the Networks shall be merged
with and into Merger Subsidiary so that Networks will cease to be a separate
corporate entity; and
WHEREAS, for Federal income tax purposes, the parties intend that such
merger qualify as a reorganization under the provisions of Section 368(a) of the
United States Internal Revenue Code of 1986, as amended (the "Code").
IT IS AGREED:
ARTICLE I
THE MERGER
Section 1.1 The Merger (a) At the Effective Time (as defined in Section 1.2) and
subject to the terms and conditions hereof, Networks shall be merged with and
into the Merger Subsidiary and the separate existence of Networks shall
thereupon cease (the "Merger") in accordance with the relevant provisions of the
Business Corporation Act of the State of New Jersey (the "BCA").
(b) The Merger Subsidiary shall be the surviving corporation in the Merger
(the "Surviving Corporation") and will continue to be governed by the laws of
the State of New Jersey, and the separate corporate existence of the Merger
Subsidiary and all of its rights, privileges, immunities and franchises, public
or private, and all its duties and liabilities as a corporation under the BCA,
will continue unaffected by the Merger.
(c) The Merger will have the effects specified by the BCA.
Section 1.2 Effective Time. As soon as practicable following the
Closing, Networks and the Merger Subsidiary shall file with the New Jersey
Secretary of State in accordance with the BCA an executed copy of the
Certificate of Merger in the form of Exhibit B hereto (the "Certificate of
Merger") reflecting (i) the Merger and (ii) providing for an amendment to the
certificate of incorporation of the Merger Subsidiary, as the Surviving
Corporation, to effect a change in the name of the Merger Subsidiary to
"Networks Around the World, Inc." The Merger shall become effective at such time
as the Certificate of Merger is so filed with the New Jersey Secretary of State
(the "Effective Time"). To the extent permitted under law, the Stockholders
hereby waive publication of the Articles of Merger. The Stockholders hereby
agree to the adoption and filing of this Agreement and the Plan of Merger as
required under the BCA, and acknowledge and agree that their respective
signatures hereto shall constitute their written consent for purposes of
authorizing the foregoing by unanimous written consent of stockholders as
provided under the BCA.
Section 1.3 The Surviving Corporation Certificate of Incorporation and By.
The Certificate of Incorporation and the By-Laws of the Merger Subsidiary shall
be the Certificate of Incorporation and By-Laws of the Surviving Corporation at
the Effective Time.
Section 1.4 Directors and Officers of the Surviving Corporation. At the
Effective Time, the Board of Directors and officers of the Surviving Corporation
shall consist of the p each to serve until his or her successor is duly elected
and qualified.
ARTICLE II
CONVERSION OF SHARES AND RELATED MATTERS
Section 2.1 Status of Merger Subsidiary Shares. At the Effective Time, by
virtue of the Merger and without any action on the part of any holder of capital
stock of the Merger Subsidiary, each issued and outstanding share of common
stock, no par value of the Merger Subsidiary shall continue unchanged and remain
outstanding as a share of common stock, no par value of the Surviving
Corporation.
Section 2.2 Conversion of Networks Shares in the Merger. Subject to the
provisions of Section 1.2, all of the outstanding shares of common stock, par
value $1.00 per share, of Networks that are outstanding immediately prior to the
Effective Time (the "Network Shares") shall be converted into and be exchanged
for the right to receive from GTS, at the Closing, an aggregate amount equal to
$6,150,000 (the "Merger Consideration"). Upon the Merger, the Networks shares
shall be canceled. The Merger Consideration shall be comprised of an aggregate
of $2,000,000 in immediately available funds (the "Cash Consideration") and a
number of shares ("Stock Consideration") of GTS's common stock, par value $.01
per share ("GTS Stock"), determined by dividing $3,150,000 by the average of the
closing sales price of one share of GTS Stock on the twenty consecutive trading
days ending two days immediately prior to the Closing Date, as set forth in
Exhibit C attached hereto. The number of shares of GTS Stock constituting the
consideration payable to any Stockholder shall be rounded up or down to the
nearest whole number of shares. The Cash Consideration and the Stock
Consideration shall be apportioned among the Stockholders as set forth in
Exhibit C attached to this Agreement. In addition to the Cash Consideration and
the Stock Consideration, GTS shall deliver secured non-negotiable promissory
notes to both Xxxxxxx and Xxxxxxx, substantially in the form of Exhibits D and E
attached to this Agreement (the "Xxxxxxx Promissory Note" and the "Xxxxxxx
Promissory Note", respectively). The principal amount of the Xxxxxxx Note shall
be Nine Hundred Thousand Dollars ($900,000.00), and the principal amount of the
Xxxxxxx Promissory Note shall be One Hundred Thousand Dollars ($100,000.00).
Both promissory notes shall accrue interest at the rate of six percent (6%) per
annum, payable as follows: (a) fifty percent (50%) of the principal and all
interest accrued thereon for each promissory note shall be due and owing on
November 1, 1998; (b) the remaining principal of each note shall be due and
payable, together with all interest accrued thereon, in four equal installments
on April 1, 1999, July 1, 1999, October 1, 1999 and January 1, 2000.
Amounts payable under the Xxxxxxx Promissory Note and Xxxxxxx Promissory
Note will be secured by a security interest in the assets of the Surviving
Corporation pursuant to a Security Agreement in the form attached hereto as
Exhibit F delivered by Merger Subsidiary to the Stockholders concurrently with
the execution of this Agreement (the "Security Agreement").
Section 2.3 Earn Out. In addition to the conversion of the Networks shares
set forth in Section 2.2 immediately above, GTS agrees to pay Xxxxxxx an earn
out (the "Earn Out") in accordance with the terms and conditions of the Earn Out
Agreement of even date herewith, which is attached to this Agreement as Exhibit
G (the "Earn Out").
Section 2.4 GTS Stock. The GTS Stock, upon issuance under Section 2.2
shall be subject to the restrictions of Rule 144 promulgated by the United
States of America Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"), until properly
disposed of in accordance with the terms and conditions of Rule 144.
Notwithstanding the foregoing, if GTS intends to register any shares of GTS
Stock for resale with the SEC under a form of registration adopted by the SEC
which does not by its terms prohibit the concurrent registration of the GTS
Stock issued in connection with this Agreement (the "Registrable Shares"), it
shall provide written notice of such proposed registration statement (the
"Registration Notice") to Xxxxxxx at least thirty (30) days prior to the filing
of such registration statement. In the event Xxxxxxx provides GTS with written
notice indicating his desire to have the Registrable Shares included in such
registration statement no later than fifteen (15) days after Xxxxxxx' receipt of
the Registration Notice, GTS shall use its reasonable efforts to include the
Registrable Shares in such registration statement so as to permit the resale or
other disposition of such shares. Notwithstanding the foregoing, GTS shall have
no obligation to include the Registrable Shares in any registration statement
filed with the SEC if (i) such registration statement is being filed in
connection with an underwriting of securities and GTS' underwriter in such
transaction indicates that the inclusion of the Registrable Shares could
adversely affect the underwriting; or (ii) such registration statement is being
filed in connection with a major transaction and GTS' board of directors
believes, in its sole discretion, that inclusion of the Registrable Shares in
such registration statement could adversely affect the transaction. Each person
whose GTS Stock will be registered shall furnish to GTS a completed
questionnaire provided by GTS requesting information customarily sought of
selling securityholders and shall indemnify GTS for any liability arising from
false or materially misleading information furnished to GTS.
Section 2.5 Balance Sheet Adjustment. The Cash consideration shall be
adjusted based upon Network's balance sheet on the Closing Date (the "Balance
Sheet Adjustment") to reflect X in the following formula:
X = Y - Z, where
X = the dollar amount of the increase or decrease in the Cash
Consideration;
Y = The total cash and the net realizable value of Networks' accounts
receivable as of the Closing Date plus reimbursement for the actual cost of
those phone cards printed for Networks prior to the Closing Date but which
remain unactivated on the Closing Date. For purposes of this section, "net
realizable value" shall mean the total amount received in connection with any of
such accounts receivable within 75 days of the date hereof; and
Z = the total of all of Network's liabilities as of the Closing Date,
except those liabilities set forth on Schedule 2.5.
If X is a positive number, then GTS shall distribute to the Shareholders,
such amount in immediately available funds. Alternately, if X is a negative
number, then the Shareholders shall pay such negative sum to GTS in immediately
available funds, or if the Shareholders fail to so pay, then GTS shall be
entitled, without the consent of the Shareholders, to decrease the principal
amount of the Xxxxxxx Promissory Note and Xxxxxxx Promissory Note, in proportion
to their respective ownership interests in Networks immediately prior to the
Merger, by the amount of X.
The Balance Sheet Adjustment shall be determined on or before 90 days after
the Closing Date. GTS and the Stockholders will cooperate in good faith to
prepare the Balance Sheet Adjustment. If any dispute arises over the preparation
of the Balance Sheet Adjustment which cannot be reconciled by the Stockholders
and GTS in good faith, the Stockholders and GTS will engage a mutually
acceptable independent public accounting firm to determine the Balance Sheet
Adjustment, such accounting fees to be paid by the parties equally. The Balance
Sheet Adjustment determined by that accounting firm will be binding upon the
Stockholders and GTS.
Section 2.6 Additional Payments. If the Balance Sheet Adjustment results in
the obligation of either party to pay the other, such amount shall be paid
within ten (10) days after the final determination of the Balance Sheet
Adjustment.
ARTICLE III
Closing
Section 3.1 Time and Place of the Closing. Subject to the terms and
conditions of this Agreement, the consummation of the transactions contemplated
by this Agreement pursuant hereto shall take place at a closing (the "Closing")
to be held concurrently with the execution of this Agreement, at the offices of
Mesirov Xxxxxx Xxxxx Xxxxxx & Xxxxxxxx, on a date and at a time mutually
agreeable to the parties (the "Closing Date").
Section 3.2 Procedure at the Closing. At the Closing, the parties agree to
take the following steps in the order listed below (provided, however, that upon
their completion all of these steps shall be deemed to have occurred
simultaneously):
(a) GTS shall deliver the Cash Consideration and certificates
representing the Stock Consideration to the Stockholders in accordance with
Schedule 3.2;
(b) The Stockholders shall deliver to GTS certificates representing
their respective shares of Networks common stock, duly endorsed or accompanied
by duly executed stock powers and with all requisite transfer tax stamps;
(c) Merger Subsidiary and Networks shall duly execute the Merger
Documents and file the Merger Documents with the Office of the Secretary of
State of New Jersey.
(d) GTS shall duly execute and deliver the Xxxxxxx Promissory Note to
Xxxxxxx and the Xxxxxxx Promissory Note to Xxxxxxx, and the Merger Subsidiary
shall duly execute and deliver the Security Agreement to Xxxxxxx and Xxxxxxx;
(e) GTS and Xxxxxxx shall execute and deliver to each other an
employment agreement substantially in the form of Exhibit H annexed hereto (the
"Xxxxxxx Employment Agreement");and GTS and Xxxx Xxxxxxx shall execute and
deliver to each other an employment agreement substantially in the form of
Exhibit I hereto (the "Xxxxxxx Employment Agreement).
(f) Networks shall deliver to GTS and the Merger Subsidiary certified
copies of resolutions of the Stockholders and directors of Networks authorizing
the execution and delivery of this Agreement by Networks and the performance of
Network's obligations hereunder and its consummation of the transaction
contemplated hereby;
(g) Merger Subsidiary shall deliver to the Stockholders certified
copies of resolutions of the directors of Merger Subsidiary authorizing the
execution and delivery of this Agreement by Merger Subsidiary and the
performance of Merger Subsidiary's obligations hereunder and its consummation of
the transaction contemplated hereby;
(h) GTS shall deliver to the Stockholders certified copies of
resolutions of the directors of GTS authorizing the execution and delivery of
this Agreement by GTS and the performance of GTS's obligations hereunder and its
consummation of the transaction contemplated hereby;
(i) Networks shall deliver the corporate books and records,
correspondence and employment records to Merger Subsidiary;
(j) Networks shall deliver the opinion of counsel of Mesirov Xxxxxx
Xxxxx Xxxxxx & Xxxxxxxx, counsel to Networks and Xxxxxxx, in the form annexed
hereto as Exhibit J;
(k) Merger Subsidiary and GTS shall deliver the opinion of counsel of
Xxxxxxxx Xxxxxx & Xxxxxx, counsel to GTS and Merger Subsidiary, in the form
annexed hereto as Exhibit K; and
(l) The Stockholders shall execute and deliver to GTS the Lock-Up
Agreements annexed to this Agreement as Exhibit L.
(m) The Stockholders shall execute and deliver to GTS the Releases set
forth on Exhibit M attached hereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF NETWORKS AND XXXXXXX
In order to induce GTS and Merger Subsidiary to enter into this
Agreement and to consummate the transactions contemplated under this Agreement,
Xxxxxxx and Networks, jointly and severally, hereby make the following
representations and warranties each of which is relied upon by GTS and Merger
Subsidiary regardless of any other action, omission to act, investigation made
or information obtained by GTS and Merger Subsidiary:
Section 4.1 Organization, Power and Authority of Networks. Networks is a
corporation duly organized, validly existing and in good standing under the laws
of the State of New Jersey and Networks has the requisite corporate power and
authority to own or lease its properties and to carry on its business as it is
now being conducted. Networks is duly qualified as a foreign corporation and is
in good standing under the laws of each other jurisdiction in which the conduct
of its business or the ownership of its assets requires such qualification,
except where the failure to qualify would not result in a material adverse
effect on Networks or its business. Networks has no subsidiaries.
Section 4.2 Due Authorization; Binding Obligation. Networks has the
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. This Agreement has
been duly and validly executed and delivered by Networks and is the legal, valid
and binding obligation of Networks, enforceable in accordance with its terms.
Except for any corporate action required by Networks, no other action on the
part of any individual or other person or entity is necessary to authorize this
Agreement or for the consummation of the transactions contemplated by this
Agreement. Networks has duly executed this Agreement and authorized the
execution of this Agreement and the consummation of the transactions
contemplated by this Agreement as required under the New Jersey Business
Corporation Law. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement will: (i)
conflict with or violate any provision of Networks' Articles of Incorporation or
by-laws, or any law, ordinance or regulation or any decree or order of any court
or administrative or other governmental body which is either applicable to,
binding upon or enforceable against Networks; (ii) result in any material breach
of or default under any material mortgage, other contract, agreement, indenture,
will, trust or other instrument which is either binding upon or enforceable
against Networks or any of Networks' assets; (iii) result in any breach of or
default under any contract; (iv) violate any legally protected right of any
individual or entity or give to any individual or entity a right or claim
against Networks or GTS; or, (v) impair or in any way limit any material
governmental or official license, approval, permit or authorization of Networks
conduct its business (to the best of Networks' and Xxxxxxx' knowledge in
connection with Networks' failure to obtain any such license, approval, permit
or authorization for the provision of telecommunications services). Attached to
this Agreement and marked as Exhibit N are true, correct and complete copies of
the Articles of Incorporation, as amended, and Bylaws, as amended, of Networks.
Section 4.3 Financial Statements. Attached to this Agreement as Exhibit
O are true, correct and complete copies of the unaudited financial statements of
Networks as of December 31, 1997 and the related statements of earnings and
changes in financial position for the period then ended (collectively, the
"Financial Statements"). Subject to the provisions of Section 6.7 hereinafter,
the Financial Statements (i) have been prepared in accordance with generally
accepted accounting principles ("GAAP"), consistently applied, on a basis
consistent with past practices; (ii) are true, complete and correct; (iii)
fairly present the financial condition of Networks as of their respective dates
and results of its operations for the periods ending on their respective dates;
and (iv) do not include or omit to state any fact which renders those statements
misleading.
Section 4.4 No Undisclosed Liabilities. Networks has no liabilities or
obligations (whether secured, unsecured, absolute, accrued, asserted, contingent
or otherwise) of any nature, whether as principal, agent, partner, co-venturer,
guarantor or in any other capacity except: (i) the liabilities and obligations
of Networks that are reflected in the Financial Statements and only to the
extent reflected; (ii) liabilities incurred or accrued in the ordinary course of
business since November 30, 1997 which do not, either individually or in the
aggregate, have a material adverse effect on the financial condition of
Networks; or (iii) liabilities otherwise disclosed in Schedule 4.4.
Section 4.5 Licenses; Compliance. Except as set forth on Schedule 4.5,
to the best of Networks' and Xxxxxxx' knowledge, Networks possesses all licenses
and other required governmental or official approvals, permits, consents and
authorizations necessary for the operation of the Business, all of which are
listed on Schedule 4.5 (collectively the "Authorizations"). Networks is in
material compliance with: (i) the terms of all Authorizations; (ii) except as
set forth on Schedule 4.5, all laws, ordinances, statutes and regulations where
noncompliance would have a material adverse effect on Networks and its business
or assets; and, (iii) all judgments, orders, rulings or other decisions of any
governmental or other regulatory authority, court or arbitrator having
jurisdiction over Networks. Neither the execution, delivery or performance of
this Agreement nor the performance of the transactions contemplated by this
Agreement will affect the validity of any Authorizations and the same shall
remain in full force and effect upon the consummation of the transactions
contemplated by this Agreement, except for Authorizations which by their terms
are not transferable.
Section 4.6 Consents and Approvals. No approval, consent or authorization
must be obtained by Networks for the execution, delivery or performance of this
Agreement or for the consummation of the transactions contemplated by this
Agreement, including, without limitation, to the best of Networks' and Xxxxxxx'
knowledge, the filing or registration with any governmental or other regulatory
authority.
Section 4.7 No Stockholder or Affiliate Relationships with Networks'
Customers; Networks' Interest in Other Businesses. Neither Networks nor any of
the Stockholders or their respective affiliates (as such term is defined in Rule
405 promulgated by the SEC under the Securities Act of 1933, as
amended)("Affiliate") has, or during the past 5 years had, any direct or
indirect material interest in any of Networks' customers. Networks does not have
any financial interest in any person, firm or corporation which is, or during
the past 5 years was, directly or indirectly, (a) engaged in the business
engaged in by Networks or (b) a customer or supplier of Networks, other than
ownership of not more than 1% of the equity securities of a company whose common
stock is publicly traded.
Section 4.8 Litigation, Orders and Decrees. Except as listed on
Schedule 4.8, there are no actions, suits, claims, governmental investigations
or arbitration proceedings pending or to the best of Networks' and the
Stockholder's knowledge, threatened against or affecting Networks or the
Business, assets, or financial condition of Networks and there are no facts or
circumstances which are reasonably likely to create a basis for any of the
foregoing. There are no outstanding orders, decrees or stipulations issued by
any local, state or federal judicial authority in any proceeding to which
Networks is or was a party which may have a material adverse effect on Networks.
Section 4.9 Real Property Owned or Leased. Networks does not own any
real property. Attached to this Agreement as Schedule 4.9 are true and complete
copies of all leases of real property (the "Leased Real Property") to which
Networks is a party, including all amendments and modifications thereto (the
"Real Property Leases"). Networks enjoys peaceful and undisturbed possession of
the Leased Real Property, and the Real Property Leases are the valid and legally
binding obligations of Networks and the respective lessors, enforceable against
Networks and the respective lessors in accordance with their respective terms,
subject to the effect of any bankruptcy or other similar law affecting
creditors' rights generally, and are in full force and effect, subject to the
effect of any bankruptcy or other similar law affecting creditors' rights
generally. Networks (i) has not received written notice of default under any of
the Real Property Leases, (ii) is not in material default of any Real Property
Leases and (iii) no event has occurred which, with the passage of time or the
giving of notice or both, would constitute a material default under any of the
Real Property Leases.
Section 4.10 Personal Property Leased and Purchase Options. Attached as
Schedule 4.10 is a list of all leases of personal property (the "Personal
Property Leases") which: (i) Networks is a party to; and, (ii) are listed on
Schedule 2.5. Networks has provided to GTS true and complete copies of the
Personal Property Leases, including all amendments and modifications thereto and
true and complete copies of all agreements regarding Networks' rights to
purchase the leased personal property which is the subject of the Personal
Property Leases ("the Leased Personal Property") on or before the expiration of
the Personal Property Leases, including all amendments and modifications thereto
(the "Purchase Options"). Networks enjoys peaceful and undisturbed possession of
the Leased Personal Property, and the Personal Property Leases and Purchase
Options are the valid and legally binding obligations of Networks and the
respective lessors and option grantors, enforceable against Networks and the
respective lessors and option grantors in accordance with their respective
terms, subject to the effect of any bankruptcy or other similar law affecting
creditors' rights generally, and are in full force and effect. Networks (i) has
not received written notice of default under any of the Personal Property
Leases, (ii) is not in default of any Personal Property Leases, and (iii) no
event has occurred which, with the passage of time or the giving of notice or
both, would constitute a material default under any of the Personal Property
Leases. None of the Purchase Options, if any, have expired.
Section 4.11 Title to Purchased Assets. Networks has good and marketable
title to all of its property, tangible or intangible, subject to liens for
current taxes and assessments not yet due and payable. All of the Purchased
Assets are free and clear of restrictions on or conditions to transfer or
assignment, and are free and clear of any mortgage, lien, charge, encumbrance,
security interest or other restrictions.
Section 4.12 Condition of Purchased Assets. All of the tangible Purchased
Assets of Networks and the Leased Personal Property are in good condition, in
good operating order and are fit for the purposes for which those assets are
used or intended to be used, subject to normal wear and tear.
Section 4.13 Material Contracts. Attached as Schedule 4.13 is a
complete and correct list of each of the following types of contracts or
commitments (whether oral or written) to which Networks is a party
(collectively, the "Networks Contracts" or the "Contracts"): (i) Networks
Contracts for the employment of any officer or employee and all bonus, incentive
compensation, profit-sharing, retirement, pension, group insurance, death
benefit or other fringe benefit plans, deferred compensation or post-termination
obligations; (ii) Networks Contracts for the future purchase of materials,
inventory, supplies, services or equipment; (iii) distributor agreements and
contracts for the purchase or sale of inventory or supplies; (iv) agreements or
arrangements for the purchase, sale or lease of any other assets; (v) pledges,
sales contracts, leases, security agreements or other similar agreements with
respect to Networks' properties; (vi) leases of machinery or equipment; (vii)
loan agreements, promissory notes, guarantees, subordination or similar type
agreements; (viii) consulting agreements; and, (ix) any contract not otherwise
covered by clauses (i) through (viii) above which involves annual or aggregate
payments in excess of $1,000. Networks has furnished to GTS true, complete and
accurate copies of all Networks Contracts that are in writing and has provided,
in the case of oral contracts, complete and accurate descriptions of all Network
Contracts that are not in writing. Except as set forth in Schedule 4.13,
Networks has performed all of the obligations required to be performed by it to
date under Networks Contracts, and is not in default (with notice or lapse of
time or both) under any of Networks Contracts. Networks has obtained all
necessary consents with respect to any Networks Contract requiring consent on or
prior to the date hereof. Except as set forth on Schedule 4.13, the consummation
of the transactions contemplated by this Agreement will not materially affect
the continuation, validity or effectiveness of any of Networks Contracts.
Section 4.14 Contracts with Customers. Schedule 4.14 sets forth (a) all
Networks Contracts or other understandings or arrangements to which Networks is
a party relating to the sale or furnishing by it of goods or services where the
consideration for such sale is $1,000 or more, in any single case, (b) any
claims by parties other than Networks with respect thereto, (c) product
guarantees or warranties made by Networks relating to its goods or services, and
(d) any pending claims by Networks with respect to a breach of any of the
Networks Contracts. None of the customers, suppliers or other persons which is a
party to any of the Contracts listed in Schedule 4.14 has notified Networks of
any intention to terminate its contract or arrangement for service.
Section 4.15 Contracts Valid; No Default. All Networks Contracts
required to be listed in any of the Schedules referred to in this Agreement are
valid and binding, enforceable in accordance with their respective terms,
subject to the effect of any bankruptcy or other similar law affecting
creditors' rights generally, and are in full force and effect. Except as set
forth in such Schedules, there is not under any such Contract, (a) any existing
default by Networks, or any event which, after notice or lapse of time, or both,
would constitute a default by Networks or result in a right to accelerate by any
other person or a loss of any rights of Networks and (b) to the best of
Networks' and Xxxxxxx' knowledge, any default by any other person, or any event
which, after notice or lapse of time, or both, would constitute a default by any
such person or result in a right to accelerate by Networks or a loss of any
rights of any such person. No existing written Networks Contract relating to the
business of Networks is by its terms cancelable by any other party thereto or is
likely to be canceled or is subject to renegotiation; provided, however,
Networks makes no representation concerning any oral Networks Contracts in the
immediately preceding statement. Except as disclosed in such Schedules, Networks
is not a party to or bound by any Contract which, upon performance, is
reasonably expected to result in any loss or liability to Networks. True and
complete copies of all written Contracts and other written documents listed on
such Schedules (together with any and all amendments thereto) have been
delivered to GTS.
Section 4.16 Labor Matters. Networks is not a party to any collective
bargaining agreements with its employees. Networks is in compliance with all
federal, state and local laws regarding employment and employment practices,
conditions of employment, wages and hours and occupational laws, the violation
of which would have a material adverse effect on Networks. Networks is not
engaged in unfair labor practices, and there are no unfair labor practice
complaints pending or threatened against Networks before the National Labor
Relations Board or any other governmental or regulatory board or agency
performing similar functions. There is no labor strike, slowdown, work stoppage
or dispute pending or threatened against or involving Networks. To the best of
Networks' and Xxxxxxx' knowledge, none of Networks' employees are engaged in
organizing or are members of any union or other employee group that is seeking
recognition as a bargaining unit.
Section 4.17 Absence of Changes. Except as set forth in Schedule 4.17,
since December 31, 1997, there has not been: (i) any material adverse change in
the financial condition, assets, liabilities, Business or operations of
Networks; (ii) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, financial
condition or business of Networks; (iii) any change in the outstanding capital
stock of Networks; (iv) declared, paid or set aside for payment any dividend or
other distribution (whether in cash, stock, property or any combination thereof)
in respect of Networks' common stock or any cancellation, exercise or redemption
or other acquisition by Networks of any shares of Networks' common stock; (v)
any increase in the rate or terms of compensation payable or to become payable
by Networks to any of its officers, directors or key employees or any increase
in the rate or terms of contribution to any employee benefit plans, except as
required by law; (vi) any liabilities or obligations incurred or agreed to be
incurred (whether absolute, accrued, contingent or otherwise), except as
incurred in the ordinary course of business consistent with past practices;
(vii) any material capital expenditure or commitment for replacements or
additions or improvements; (viii) any change by Networks in accounting methods,
principles or practices; (ix) any disposal, mortgage, pledge or other
disposition of any of its assets other than in the ordinary course of business;
or (x) receipt by Networks of any notice of termination of any contract, lease
or other agreement.
Section 4.18 Accuracy of Documents, Exhibits and Schedules. All
contracts, instruments, agreements and other documents delivered by Networks to
GTS for GTS's review in connection with this Agreement and the transactions
contemplated hereby, including all articles of incorporation, by-laws, corporate
minutes, stock record books and tax returns are true, correct and complete
copies of all those contracts, instruments, agreements and other documents. All
Exhibits and Schedules to this Agreement are true correct and complete as of the
date hereof. No statement contained in this Agreement or in any certificate,
Exhibit, Schedule or instrument furnished to GTS pursuant to the provisions of
this Agreement or in connection with the consummation of the contemplated
transactions contains or will contain any untrue statement of a material fact or
does not include or omit or will omit to state a material fact necessary in
order to make those statements not misleading.
Section 4.19 Investment Representations. All shares of GTS Stock to be
acquired by the Stockholders pursuant to this Agreement will be acquired for its
account and not with a view towards distribution thereof. Networks and the
Stockholders understand that they must bear the economic risk of the investment
in the GTS Stock, which cannot be sold by them unless they are registered under
the Securities Act, or an exemption therefrom is available thereunder. Xxxxxxx
is an "Accredited Investor" as defined in Regulation D promulgated under the
Securities Act. The Stockholders, acting through their representatives, have had
both the opportunity to ask questions and receive answers from the officers and
directors of GTS and all persons acting on its behalf concerning the business
and operations of GTS and to obtain any additional information to the extent GTS
possesses or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of such information. The
Stockholders acknowledge receiving copies of the SEC Filings referred to in
Section 5.5. The certificates representing the shares of Common Stock shall bear
the legends set forth in Exhibit P.
Section 4.20 Proprietary Rights.
(a) Except as listed on Schedule 4.20(a), there are no trademarks,
trademark applications, trade names, assumed names, service marks, logos,
patents, patent applications, copyrights and copyright registrations, owned or
licensed by Networks and used in or necessary for the conduct of the business
and operation of Networks (the foregoing together with all inventions, trade
secrets, customer lists and confidential processes, and all other similar rights
presently owned or licensed by Networks are the "Proprietary Rights"). Networks
owns or possesses the royalty-free license or other right to use all of the
Proprietary Rights which are required to be listed on Schedule 4.20(a) or which
are necessary to conduct its business as presently operated, and, except as set
forth on Schedule 4.20(a), no person, firm, corporation or other entity is
entitled to restrain Networks from using any such Proprietary Rights. No other
Proprietary Rights are used in or are necessary for the conduct of the business
and operation of Networks as presently conducted.
(b) To the best of Xxxxxxx' knowledge, except as disclosed in Schedule
4.20 (b), no Proprietary Rights or know-how used in or necessary for the conduct
of the business and operation of Networks conflict with or infringe upon any
similar rights or services of any other person. Except as disclosed in Schedule
4.20 (b), no claims have been asserted by any person with respect to the
ownership, validity, license or use of the Proprietary Rights or the provision
of any services by Networks and there is no basis for any such claim.
(c) Schedule 4.20(c) accurately identifies all material databases and
computer software owned, licensed or otherwise used in connection with Networks'
business. Except as set forth on Schedule 4.20(c), Networks owns or has the
right to use all the databases and computer software used or necessary to
conduct Networks' business.
Section 4.21 Records. The books and records, correspondence, employment
records and files of or relating to the Networks' business are complete and
correct in all material respects, and there have been, and will be, no material
transactions which are required to be set forth therein which have not been so
set forth.
Section 4.22 Taxes, Tax Returns. All federal, state, local and foreign
income, property, sales, and other taxes, assessments, governmental charges,
penalties, interest and fines due and payable by Networks and by any other
person, firm or corporation which will or may be liabilities of Networks
("Taxes"), for all periods ending on or before the Balance Sheet Date, have been
paid in full or have been fully reserved against on the Balance Sheet. Networks
has filed all federal, state, local and foreign income, excise, property, sales,
withholding, social security, information returns, and other tax returns,
reports and related information ("Returns") required to have been filed by it to
the date hereof, and no extension of the time for filing a Return is presently
in effect. The Returns that have been filed have been accurately prepared and
have been duly and timely filed. Networks' federal income tax returns have been
filed with the Internal Revenue Service for all fiscal years through the year
ended December 31, 1996. There are no agreements, waivers or other arrangements
providing for an extension of time with respect to the filing of any Return, or
payment of any tax, governmental charge or assessment or deficiency, by
Networks; and there are no actions, suits, proceedings, investigations or claims
now threatened or pending against Networks in respect of taxes, governmental
charges or assessments, or any matter under discussion with any governmental
authority relating to taxes, governmental charges or assessments asserted by any
such authority.
Section 4.23 Environmental Matters; Health and Safety Laws. Networks is,
and on the Closing Date will be, in material compliance with all federal, state
and local laws, regulations, permits, orders and decrees relating to protection
of the environment and employee health and safety ("Applicable Requirements").
Networks has not received any notice to the effect that its operations are not
in compliance with any of the Applicable Requirements or the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to a release of any toxic or hazardous waste or other substance
(including petroleum products) into the environment and Networks knows of no
facts which could constitute the basis for any thereof.
Section 4.24 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Networks.
Section 4.25 Nature and Survival of Representations and Warranties of
Networks. All statements contained in any Schedule, document, certificate or
other instrument delivered by or on behalf of Networks or Stockholder pursuant
hereto or in connection with the transactions contemplated hereby shall be
deemed representations, warranties, covenants and agreements made by Networks
and Stockholder. Each representation, warranty, covenant and agreement made or
deemed made by Networks or Stockholder shall survive the Closing for a period of
two (2) years from the date thereof. The representations, warranties, covenants
and agreements made or deemed made by Networks or Stockholder in this Agreement
shall not be affected or deemed waived by reason of the fact that GTS or its
representative knew or should have known that any such representations,
warranties, covenants or agreement is or might be inaccurate in any respect. Any
furnishing of information to GTS by Networks or Stockholder pursuant to, or
otherwise in connection with, this Agreement, including, without limitation, any
information contained in any document, contract, book or record of Networks or
Stockholder to which GTS shall have access or any information obtained by, or
made available to, GTS as a result of any investigation made by or on behalf of
GTS prior to or after the date of this Agreement, shall not affect GTS's right
to rely on any representation, warranty, covenant or agreement made or deemed
made by Networks or Stockholder in this Agreement and shall not be deemed a
waiver thereof.
Section 4.26 Capitalization. The number of authorized and issued shares of
capital stock of Networks is set forth in Schedule 4.26. The Stockholders (and
their respective residential addresses) are set forth on Exhibit A, and are the
record and beneficial owners of all of the outstanding capital stock of
Networks, free and clear of all Liens. There are no options, warrants or other
contractual rights outstanding which require, or give any person the right to
require, the issuance of any capital stock of Networks, whether or not such
rights are presently exercisable. The representations and warranties made in the
second sentence of this Section 4.26 with respect to any Stockholder are made
only by such Stockholder solely with respect to itself.
Section 4.27 Employee Benefit Plans. Schedule 4.27 sets forth a list of
all the employee benefit plans (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA")), programs and
arrangements maintained for the benefit of any current or former employee,
officer or director of Networks (collectively, the "Networks Benefit Plans").
Each Network Benefit Plan and any related trust intended to be qualified under
Sections 401(a) and 501(a) of the Code has received a favorable determination
letter from the Internal Revenue Service that it is so qualified and nothing has
occurred since the date of such letter that could reasonably be expected to
materially adversely affect the qualified status of such Networks Benefit Plan
or related trust. Each Network Benefit Plan has been operated in all material
respects in accordance with the terms and requirements of applicable law and all
required returns and filings for each Networks Benefit Plan have been timely
made. Neither Networks nor any entity under common control with Networks has
incurred any direct or indirect liability under, arising out of or by operation
of Title I or Title IV of ERISA in connection with any Networks Benefit Plan and
no fact or event exists that could reasonably be expected to give rise to any
such liability. All contributions due and payable on or before the date hereof
in respect of each Networks Benefit Plan have been made in full and in proper
form.
Section 4.28 Insurance Policies; Claims. Schedule 4.28 sets forth all
insurance policies and bonds maintained by or on behalf of Networks. Except as
disclosed in Schedule 4.28, the insurance policies and bonds set forth in
Schedule 4.28, are provided by reputable insurers or issuers, and provide
adequate coverage for all normal risks incident to the businesses of Networks
and its assets. No claims have been made against Networks as a result of
allegedly defective products and none of the Stockholders or Networks knows of
any basis for the assertion of any such claim. No insurance policy issued to or
on behalf of Networks has ever been canceled by the policy issuer.
Section 4.29 Bank Accounts. Schedule 4.29 sets forth the name of each bank
in which Networks has an account or safe deposit box, vault, lock-box or other
arrangement, the account number and description of each account at each bank and
the names of all persons authorized to draw thereon or to have access thereto;
and the names of all persons, if any, holding tax or other powers of attorney
from Networks.
Section 4.30 Records. The books of account, minute books, stock certificate
books and stock transfer ledgers of Networks are complete and correct in all
material respects, and there have been no material transactions involving
Networks of the type typically recorded in such records that have not been
recorded.
Section 4.31 No Illegal or Improper Transactions. Except as set forth on
Schedule 4.31, Networks nor any officer, director, employee, agent or affiliate
of Networks has offered, paid or agreed to pay to any person or entity
(including any governmental official) or solicited, received or agreed to
receive from any such person or entity, directly or indirectly, any money or
anything of value for the purpose or with the intent of (i) obtaining or
maintaining business for the benefit of Networks, (ii) illegally or improperly
facilitating the purchase or sale of any product or service, or (iii) avoiding
the imposition of any fine or penalty, in any manner which is in violation of
any applicable ordinance, regulation or law.
Section 4.32 Related Transactions. Except as disclosed in Schedule
4.32, and for compensation and related arrangements with employees for services
rendered consistent with past practices, no current or former director, officer,
employee or stockholder of Networks has been, (a) a party to any transaction
with Networks (including, but not limited to, any contract, agreement or other
arrangements providing for the furnishing of services by, or rental of real or
personal property from, or otherwise requiring payments to, any such director,
officer, employee or shareholder), or (b) the direct or indirect owner of an
interest in any corporation, firm, association or business organization which is
a present competitor, supplier or customer of Networks, nor does any such person
receive income from any source other than Networks which relates to the business
of, or should properly accrue to, Networks.
ARTICLE V
Representations and Warranties of GTS
In order to induce the Stockholder to enter into this Agreement and to
consummate the transactions contemplated under this Agreement, GTS and Merger
Subsidiary hereby make the following representations and warranties each of
which is relied upon by Networks and the Stockholders regardless of any other
action, omission to act, investigation made or information obtained by Networks
or the Stockholders:
Section 5.1 Organization, Power and Authority. GTS and Merger Subsidiary
are corporations duly organized and validly existing under the laws of the
States of Delaware and New Jersey, respectively, and have the requisite
corporate power and authority to own or lease its properties and to carry on its
business as it is now being conducted. GTS and Merger Subsidiary are duly
qualified as foreign corporations and are in good standing under the laws of
each other jurisdiction in which the conduct of its business or the ownership of
its assets requires such qualification, except where the failure to qualify
would not result in a material adverse effect on GTS or Merger Subsidiary.
Section 5.2 Due Authorization; Binding Obligation. The execution,
delivery and performance of this Agreement, the Promissory Note, the Employment
Agreement and all other agreements contemplated by this Agreement, the
consummation of the transactions contemplated by this Agreement and the issuance
of the Common Stock have been duly authorized by all necessary corporate action
of GTS and Merger Subsidiary. This Agreement has been duly executed and
delivered by GTS and Merger subsidiary and is the valid and binding obligation
of GTS and Merger subsidiary, enforceable in accordance with its terms. Neither
the execution and delivery of this Agreement nor the consummation of the
transactions contemplated by this Agreement will: (i) conflict with or violate
any provision of the articles of incorporation or by-laws of GTS, or of any law,
ordinance or regulation or any decree or order of any court or administrative or
other governmental body which is either applicable to, binding upon or
enforceable against GTS; (ii) result in any material breach of or default under
any material mortgage, contract, agreement, indenture, will, trust or other
instrument which is either binding upon or enforceable against GTS or its
assets; (iii) result in any breach of or default under any contract; (iv)
violate any legally protected right of any individual or entity or give to any
individual or entity a right or claim against Networks or GTS; or, (v) impair or
in any way limit any material governmental or official license, approval, permit
or authorization of GTS or any of its subsidiaries to conduct their respective
businesses.
Section 5.3 Shares. When issued in accordance with the terms of this
Agreement, the GTS Stock to be issued to the Stockholders shall be validly
issued, fully paid and non-assessable and shall be free and clear of any liens
or encumbrances whatsoever.
Section 5.4 Consents and Approvals. The execution and delivery of this
Agreement by GTS do not, and the performance of this Agreement by GTS will not,
require GTS to obtain any consent, approval, authorization or other action by,
or to make any filing with or notification to, any governmental or regulatory
authority.
Section 5.5 SEC Reports. GTS has delivered to the Stockholder the
following: its Annual Report on Form 10-KSB for the fiscal year ended December
31, 1996 ("10-K"), and its Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1997, June 30, 1997 and September 30, 1997 ("10-Qs") and
collectively, with the 8-Ks and the 10-K, the "SEC Filings"). Each of the SEC
Filings, including the financial statements contained therein, as of their
filing dates, complied in all material respects with the requirements of the
rules and regulations promulgated by the Securities and Exchange Commission (the
"Commission") with respect thereto and did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 5.6 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of GTS.
ARTICLE VI
Covenants of the Stockholders
Section 6.1 Further Assurances. From time to time after the date of this
Agreement, the Stockholders shall execute and deliver such other instruments and
shall take such other actions as GTS may reasonably request to effectuate the
transactions contemplated by this Agreement. The Stockholders agree to take
whatever action may be necessary as soon as practicable after execution of this
Agreement to ensure that any governmental licenses or certificates held by the
Networks prior to the Closing and necessary for GTS' operation of Networks are
transferred from Networks to Merger subsidiary as soon as practicable after the
Closing Date.
Section 6.2 Restrictive Covenant.
(a) To assure that GTS will realize the value inherent in the
transactions contemplated by this Agreement, Xxxxxxx and Xxxxxxx each agree with
GTS that neither Cherkas, Liguori, nor any of their respective Affiliates
(except for Xxxxxxx' and Xxxxxxx'x performance under their respective Employment
Agreements with GTS) nor any person or entity controlling, controlled by or in
any common control with Xxxxxxx, Xxxxxxx or their respective Affiliates
(collectively, a "Stockholder Affiliate") shall, directly or indirectly, for a
period of four (4) years following the Closing Date in any state of the United
States of America:
(i) own, manage, operate, control or otherwise engage in a business or
enterprise similar in nature to GTS or otherwise operate a business in
competition with GTS;
(ii) attempt to solicit or solicit the customers or facilities serviced by
GTS (including, without limitation, those acquired by GTS hereunder) in
connection with the sale, marketing or promotion of prepaid phone cards,
enhanced telecommunications products or other telecommunication services; or
(iii) attempt to solicit, solicit or employ any person employed or
contracted by GTS to leave their employment or not fulfill their contractual
responsibility, whether or not the employment or contracting is full-time or
temporary, pursuant to a written or oral agreement, or for a determined period
or at will.
Notwithstanding the foregoing, in the event GTS (i) materially breaches
its obligations to pay Xxxxxxx or Xxxxxxx the amounts due to Xxxxxxx or Xxxxxxx
under the Xxxxxxx Promissory Note or Xxxxxxx Promissory Note, as the case may
be, the Earn Out (in the case of Xxxxxxx) or their Employment Agreements and
(ii) does not cure such breach after receipt of the requisite notice from
Xxxxxxx or Xxxxxxx in accordance with the periods permitted therein, then
Xxxxxxx' and Xxxxxxx'x obligations under this
Section 6.2(a) shall cease.
(b) If Section 6.2(a) of this Agreement, as applied to Xxxxxxx, Xxxxxxx or
any other person, is adjudged by a court to be invalid or unenforceable, the
same will in no way affect any other provision of that Section or any other part
of this Agreement, the application of that provision in any other circumstances
or the validity or enforceability of this Agreement. If any provision, or any
part of any provision, is held to be unenforceable because of the duration of
the provision or the area covered by the provision, the parties agree that the
court making such determination will have the power to reduce the duration
and/or area of the provision to the longest permissible duration and largest
permissible area, and/or to delete specific words or phrases, and in its reduced
form Section 6.2(a) will then be enforced.
Each of the Stockholders agrees that they will not, at any time,
directly or indirectly, disclose to any person any information concerning the
methods of operation, sales, cost or pricing methods, employees (number and
location), customers (names, needs or requirements), contracts or agreements of
Networks' business.
Because GTS will be irreparably damaged if the provisions of this
Section 6.2 are not specifically enforced, GTS shall be entitled to an
injunction restraining any violation or threatened violation of this Section
6.2, or any other appropriate decree of specific performance, without the
necessity of showing any actual damage or that monetary damages would not
provide an adequate remedy. Such remedies shall not be exclusive and shall be in
addition to any other remedy which GTS may have as a result of any such
violation. Nothing contained in this Section shall be construed as prohibiting
GTS, its Affiliates, successors and assigns from pursuing all other remedies
available to them for a breach of the provisions of Section 6.2. Xxxxxxx and
Xxxxxxx further acknowledge and agree that the covenants contained in Section
6.2 are necessary for the protection of the Networks' and GTS' legitimate
business and professional duties, ethical obligations and interests, and are
reasonable in scope and content.
Section 6.3 Press Releases. Neither the Stockholders nor any of their
Affiliates shall issue or cause to be issued any press release in connection
with or referring to any of the transactions contemplated by this Agreement.
Section 6.4 Non-use of Name. From and after the date hereof, no Stockholder
or any of their Affiliates shall establish or otherwise be associated with, as
an owner, partner, shareholder, employee or otherwise, any firm which utilizes
the name "Networks Around The world" or any variant thereof as part of its
business name other than in connection with their employment by GTS itself after
the Closing Date or grant to any person or entity the right to use he name
"Networks Around The World" or any variant thereof.
Section 6.5 Maintenance of Networks Employee Medical Benefits. From the
date hereof, through the last day of the month in which the Closing takes place,
Networks shall continue to afford coverage under its existing health and medical
plans to those employees of Networks that are covered under such plans as of the
date hereof.
Section 6.6 Lock-Up Agreements. Concurrently with the execution of this
Agreement, each of the Stockholders will execute and deliver to GTS a Lock-Up
Agreement substantially in the form of Exhibit L annexed to this Agreement
pursuant to which they agree to not sell any shares of Common Stock acquired by
them for the period of time indicated therein.
Section 6.7 Consolidation of Year-End Financials. Whereas, as of the
Closing Date, Global Phone Cards, L.L.C. ("GPC") merged with and into Networks,
with Networks being the surviving corporation in such merger, which merger was
consummated immediately prior to the Merger, and, whereas, the financial
statements of GPS and Networks were not consolidated and re-stated as of
December 31, 1997 to give effect to the merger of GPC with and into Networks,
Networks and its Stockholders hereby covenant and agree to prepare and deliver
to GTS, within five (5) business days after the Closing, consolidated and
re-stated financial statements and the related statements of income and retained
earnings for the years ended December 31, 1997 and December 31, 1996, which
gives effect to the merger of GPC into Networks and which consolidated financial
statements will then become attached to and a part of, as if included on the
Closing Date, Exhibit O and shall become a part of and included in the
representation and warranties set forth in Section 4.3. GTS and Merger
Subsidiary hereby acknowledge and agree that neither Networks, Xxxxxxx or
Xxxxxxx shall be deemed to have violated the terms of Section 4.3 herein if the
requirements of this Section 6.7 are satisfied.
ARTICLE VII
Covenants of GTS
Section 7.1 Further Assurances. From time to time after the date of this
Agreement, GTS shall execute and deliver such other instruments and shall take
such other actions as the Stockholders may reasonably request to effectuate the
transactions contemplated by this Agreement.
Section 7.2 Disclosure. GTS will not be required to obtain the prior
written consent of the Stockholders to disclose the existence or any term or
condition of this Agreement if GTS believes (based upon the advice of counsel)
such disclosure is required under the securities laws of the United States.
Section 7.3 Membership of Purchaser's Board of Directors. GTS agrees (i) to
cause its board of directors (the "Board") to appoint Xxxxxxx as a member to the
Board at the Effective Time and (ii) to nominate Xxxxxxx for membership to GTS's
board of directors at each annual meeting of its stockholders for so long as
Xxxxxxx remains an Executive Officer of GTS.
ARTICLE VIII
Indemnification
Section 8.1 Indemnification by Xxxxxxx. Subject to Section 8.4, Xxxxxxx
agrees to indemnify and hold harmless GTS, the Surviving Corporation, any
Affiliate of GTS and the Surviving Corporation, and the directors, officers and
employees of GTS, the Surviving Corporation or any of their Affiliates from and
against any and all claims, liabilities, losses, damages, costs and expenses,
including reasonable counsel fees and disbursements (singularly, a "Loss," and
collectively, the "Losses"), arising out of any claim by a third party or
between the parties hereto relating to: (a) liabilities or obligations of
Networks (whether absolute, accrued, contingent or otherwise) arising out of the
Networks' business or operations prior to or after the Closing, whether (i)
existing as of the Closing, (ii) arising out of facts or circumstances existing
at or prior to the Closing, or (iii) whether or not those liabilities or
obligations were known at the time of the Closing (except for those post-closing
contractual obligations of Networks specifically set forth on Schedule 2.5); or
(b) any misrepresentation of fact or breach by Networks or Xxxxxxx of any
representation or warranty made by Networks or Xxxxxxx in this Agreement,
including any certificate, Schedule, employment or other agreement delivered by
Networks or Xxxxxxx pursuant to this Agreement; and, (c) any failure to perform
or breach by the Stockholders of any covenant, agreement, obligation or
undertaking made by Networks or the Stockholders in this Agreement, including
any certificate, Schedule or other agreement delivered by Networks or the
Stockholders pursuant to this Agreement.
Section 8.2 Indemnification by GTS. Subject to Section 8.4, GTS agrees
to indemnify and hold harmless Xxxxxxx or any Affiliate thereof from and against
any and all Losses, arising out of or related to: (a) any misrepresentation of
fact or breach by GTS of any representation or warranty made by GTS in this
Agreement, including any certificate, Schedule or other agreement delivered by
GTS pursuant to this Agreement; (b) any failure to perform or breach by GTS of
any covenant, obligation or undertaking made by GTS in this Agreement, including
any certificate, Schedule or other agreement delivered pursuant to this
Agreement; (c) any failure after the Closing to perform any of the ongoing
contractual obligations which are set forth on Schedule 2.5; or (d) liabilities
or obligations of GTS and the Merger Subsidiary (whether absolute, accrued,
contingent or otherwise) arising our of their respective businesses or
operations prior to or after the Closing, whether existing as of the Closing,
and whether or not those liabilities or obligations were known at the Closing.
Section 8.3 Indemnification for Access. Notwithstanding the provisions
of Sections 8.1 and 8.2, respectively, and subject to Section 8.4, the first
$50,000 of aggregate Losses arising out of or related to the Company's
relationship with Access Telecom, Inc. ("Access Losses"), a Florida corporation
("Access"), shall be paid by GTS out of that certain deposit Networks has
provided to Access in the same amount; provided, however, that to the extent
such Access Losses are less than $50,000, GTS will assign any and all of its
right, interest and title in such deposit with Access to Xxxxxxx. Any Access
Losses in excess of $50,000 up to an aggregate total of $200,000 in Access
Losses shall be entirely paid by GTS, and any Access Losses in excess of
$200,000 shall be born equally by GTS and Xxxxxxx.
Section 8.4 Procedure for Claims. A Party required to make an
indemnification payment pursuant to this Agreement ("Indemnifying Party") shall
have no liability with respect to any claim or otherwise with respect to any
covenant, representation, warranty, agreement, undertaking or obligation under
this Agreement unless the Party entitled to receive such indemnification payment
("Indemnified Party") gives notice to the Indemnifying Party specifying (i) the
covenant, representation or warranty, agreement, undertaking or obligation
contained herein which it asserts has been breached, (ii) in reasonable detail,
the nature and dollar amount of any Claim the Indemnified Party may have against
the Indemnifying Party by reason thereof under this Agreement, and (iii) whether
or not the Claim is a Claim a person, firm, corporation or government entity
other than a party hereto or any affiliate of such party ("Third-Party Claims").
With respect to Third-Party Claims, an Indemnified Party (a) shall give the
Indemnifying Party prompt notice of any Third-Party Claim, (b) prior to taking
any action with respect to such Third-Party Claim, shall consult with the
Indemnifying Party as to the procedure to be followed in defending, settling, or
compromising the Third-Party Claim, (c) shall not consent to any settlement or
compromise of the Third-Party Claim without the written consent of the
Indemnifying Party (which consent, unless the Indemnifying Party has elected to
assume the exclusive defense of such Claim, shall not be unreasonably withheld
or delayed) and (d) shall permit the Indemnifying Party, with the Indemnified
Party's prior written consent, which consent shall not be unreasonably withheld,
if it so elects, to assume the exclusive defense of such Third-Party Claim
(including, except as provided in the penultimate sentence of this Section 8.3,
the compromise or settlement thereof) at its own cost and expense. The
Indemnifying Party will not compromise or settle any Third-Party Claim without
the written consent of the Indemnified Party if the relief provided is other
than monetary damages and such relief would materially adversely affect the
Indemnified Party.
Section 8.5 Threshold; Ceiling; Right of Setoff. Notwithstanding the
foregoing, Xxxxxxx shall only have an obligation to indemnify GTS, the Surviving
Corporation, any Affiliate of GTS and the Surviving Corporation, and the
directors, officers and employees of GTS, the Surviving Corporation or any of
their Affiliates to the extent that the aggregate amount of Losses exceeds
$10,000. In any event, Xxxxxxx shall not be required to indemnify any of the
above-mentioned parties for whatever reason in excess of the aggregate sum of
$7,400,000. In addition to any other rights or remedies GTS may have, it shall
be entitled to withhold from any amounts payable to the Stockholders in the
following order: first against payments due Xxxxxxx pursuant to the Earn Out
Agreement and second against payments due Xxxxxxx pursuant to the Xxxxxxx
Promissory Note. Such right of set-off shall include, without limitation, the
amount of any and all Losses for which GTS is indemnified pursuant to Section
8.1, and GTS shall not be liable for any amounts so set off.
ARTICLE IX
Miscellaneous
Section 9.1 Survival of Representations and Warranties. All of the
respective representations and warranties of the parties to this Agreement shall
survive the consummation of the transactions contemplated by this Agreement for
a period of twenty four (24) months following the Closing. All covenants of the
parties to this Agreement shall survive the consummation of the transactions
contemplated by this Agreement.
Section 9.2 Amendment and Modification. The parties to this Agreement may
amend, modify and supplement this Agreement but only in a writing signed by all
the parties.
Section 9.3 Binding Effect. This Agreement shall be binding upon and inure
to the benefit of the parties and their respective successors, assigns, heirs,
estates, beneficiaries, executors and legal and personal representatives.
Section 9.4 Entire Agreement. This instrument and the Exhibit and Schedules
attached to this Agreement contain the entire agreement of the parties with
respect to the acquisition and the other transactions contemplated in this
Agreement, and supersede all prior understandings and agreements of the parties
with respect to the subject matter of this Agreement. Any reference in this
Agreement shall be deemed to include the Exhibits and the Schedules.
Section 9.5 Headings. The descriptive headings in this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
Section 9.6 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original.
Section 9.7 Notices. Any notice, request, information or other document to
be given hereunder to any of the parties by any other party shall be in writing
and delivered personally, sent by reputable overnight courier delivery, prepaid,
or by facsimile transmission as follows:
If to GTS: Global Telecommunication Solutions, Inc.
0000 Xxxxxx Xxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx
Attn: Xxxxx X. Xxxxx,
General Counsel
Facsimile: (000) 000-0000
With a copy to: Xxxxxxxx Xxxxxx & Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxxx Xxxx Xxxxxx, Esq.
Facsimile: (000) 000-0000
If to Networks
or the Stockholders: Networks Around The World, Inc.
000 Xx. Xxxxx Xxxxxx
Xxxxxxxxxxxxx, Xxx Xxxxxx 00000
Attention: Xxxxxxxx Xxxxxxx,
President
Facsimile: (000)000-0000
with a copy to: Mesirov Xxxxxx Xxxxx Xxxxxx & Xxxxxxxx
0000 Xxxxxx Xxxxxx
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000
Attn: Xxxxxx X. XxXxxxx Xx., Esq.
Facsimile: (000) 000-0000
Any party may change the address to which notices under this Agreement are
to be sent to it by giving written notice of a change of address in the manner
provided in this Agreement for giving notice. Any notice delivered personally
shall be deemed to have been given on the date it is so delivered, and any
notice delivered by reputable overnight courier delivery or by fax shall be
deemed to have been given on the date it is received.
Section 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made and to be performed in New York without reference to the choice
of law principles. Each Party hereby submits to the exclusive jurisdiction of
the courts (city, state and federal) located in the County of New York, State of
New York, for pursuant to this Agreement or any other agreement, instrument or
other document any action, proceeding or claim brought by any other Party
executed and delivered in connection with this Agreement or pursuant hereto.
Service of process in any such action or proceeding brought against a Party may
be made by registered mail addressed to such Party at the address set forth in
Section 9.7 or to such other address as such Party shall notify the other Party
in writing is to be used for such purpose pursuant to Section 9.7. For purposes
hereof, the address designated for Networks shall also be the address designated
for the Stockholders.
Section 9.9 Expenses. All accounting, legal and other costs and expenses
incurred in connection with this Agreement and the transactions contemplated by
this Agreement shall be paid by the party incurring those fees, costs and
expenses. All expenses incurred by Global Phonecards, L.L.C., Networks or
Xxxxxxx or Xxxxxxx, either in their capacities as individuals or officers and/or
directors of Networks, as the case may be, which arise in connection with this
Agreement and the transactions contemplated hereunder shall be paid solely by
Xxxxxxx and Xxxxxxx and shall not be the responsibility of GTS, Networks or any
of, their respective affiliates.
Section 9.10 Waiver. Any party to this Agreement may extend the time for or
waive the performance of any of the obligations of the other, waive any
inaccuracies in the representations or warranties by the other, or waive
compliance by the other with any of the covenants or conditions contained in
this Agreement. Any such extension or waiver shall be in writing and signed by
the parties. No such waiver shall operate or be construed as a waiver of any
subsequent act or omission of the parties.
Section 9.11 Severability. The invalidity or unenforceability of any one or
more of the words, phrases, sentences, clauses, or sections contained in this
Agreement shall not affect the validity or enforceability of the remaining
provisions of this Agreement or any part of any provision, all of which are
inserted conditionally on their being valid in law, and in the event that any
one or more of the words, phrases, sentences, clauses or sections contained in
this Agreement shall be declared invalid or unenforceable, this Agreement shall
be construed as if such invalid or unenforceable word or words, phrase or
phrases, sentence or sentences, clause or clauses, or section or sections had
not been inserted or shall be enforced as nearly as possible according to their
original terms and intent to eliminate any invalidity or unenforceability. If
any invalidity or unenforceability is caused by the length of any period of time
or the size of any area set forth in any part of this Agreement, the period of
time or area, or both, shall be considered to be reduced to a period or area
which would cure the invalidity or unenforceability.
Section 9.12 Attorney's Fees. In the event of any arbitration or
litigation, including appeals, with regard to this Agreement, the prevailing
party shall be entitled to recover from the non-prevailing party all reasonable
fees, costs, and expenses of counsel (at pre-trial, trial and appellate levels).
Section 9.13 No Breach. The parties agree that the execution of this
Agreement shall not be deemed to be an assignment of any contract where consent
to such assignment is required by the terms of the contract provided that the
foregoing shall not affect Networks' obligation to obtain all consents as
provided in this Agreement.
Section 9.14 Construction. This Agreement shall be construed without regard
to any presumption or other rule requiring construction against the party
causing this Agreement to be drafted. If any words in this Agreement have been
stricken out or otherwise eliminated (whether or not any other words or phrases
have been added) and the stricken words initialed by the party against whom the
words are construed, this Agreement shall be construed as if the words so
stricken out or otherwise eliminated were never included in this Agreement and
no implication or inference shall be drawn from the fact that those words were
stricken out or otherwise eliminated.
Section 9.15 No Jury Trial EACH PARTY WAIVES ALL RIGHTS TO ANY TRIAL BY
JURY IN ALL LITIGATION RELATING TO OR ARISING OUT OF THIS AGREEMENT.
IN WITNESS WHEREOF, the parties to this Agreement have caused this
Agreement to be duly executed as of the date hereof.
GLOBAL TELECOMMUNCATION SOLUTIONS, INC.,
a Delaware corporation
By: ________________________________
Xxxxxx Xxxxx, President
NETWORKS ACQUISITION CORPORATION,
A New Jersey corporation
By: ________________________________
Xxxxxx Xxxxx, President
NETWORKS AROUND THE WORLD, INC.,
a New Jersey corporation
By: _________________________________
Xxxxxxxx Xxxxxxx, President
STOCKHOLDERS:
---------------------------------
Xxxxxxxx Xxxxxxx
--------------------------------
Xxxx Xxxxxxx
EXHIBIT C
ALLOCATION OF MERGER CONSIDERATION
Subject to the terms and conditions of the Merger and Reorganization
Agreement to which this exhibit is attached, the Merger Consideration shall be
distributed as follows:
$1,800,000 in immediately available funds to Xxxxxxx
$200,000 in immediately available funds to Xxxxxxx
In addition, the total number of shares of Common Stock of GTS which result from
the calculation set forth in Section 2.2 of the Merger and Reorganization
Agreement will be distributed as follows:
433,387 shares to Xxxxxxx
72,231 shares to Xxxxxxx
EXHIBIT A
Upon the merger of Global Phonecards, L.L.C., a New Jersey limited liability
company, with and into Networks Around the World, Inc. ("Networks"), the
Stockholders of Networks shall be Xxxxxxxx Xxxxxxx and Xxxx Xxxxxxx with 100
shares and 11 shares of Common Stock of Networks, respectively.
EXHIBIT B
EXHIBIT C
EXHIBIT D
EXHIBIT E
EXHIBIT F
EXHIBIT G
EXHIBIT H
EXHIBIT I
EXHIBIT J
EXHIBIT K
EXHIBIT L
EXHIBIT M
EXHIBIT N
EXHIBIT O
EXHIBIT P
