AGREEMENT AND PLAN OF MERGER I-55 INTERNET SERVICES, INC., XFONE, INC. AND XFONE USA, INC.

Exhibit 10.47

 

AGREEMENT AND PLAN OF MERGER

By and Among

I-55 INTERNET SERVICES, INC.,

XFONE, INC. AND XFONE USA, INC.

Dated August 18, 2005

 

 

 

 

 

Exhibits

Exhibit A - Articles of Merger

Exhibit B - Escrow Agreement

Exhibit C - McAllister Employment Agreement

Exhibit D - Acosta Employment Agreement

Exhibit E - Release

Exhibit F - Restricted Area

 

Schedules

 

 

 

 

 

 

 

AGREEMENT AND PLAN OF MERGER

 

This AGREEMENT AND PLAN OF MERGER ("Agreement"), dated as of August 18, 2005 by and among I-55 INTERNET SERVICES, INC., a corporation organized under the laws of the State of Louisiana (“I-55” or the “Company”), XFONE, INC., a corporation organized under the laws of the State of Nevada ("Parent"), XFone USA, Inc. (“Subsidiary”), a corporation organized under the laws of the State of Mississippi, a wholly owned subsidiary of Parent , and Hunter McAllister, Brian Acosta (the "Principals").

 

BACKGROUND

 

A. The Board of Directors of each of Parent, Subsidiary, and the Company believe it is in the best interests of their respective companies and their respective shareholders that Parent acquire the Company through the statutory merger of the Company with and into the Subsidiary (the " Merger ") and, in furtherance thereof, have approved the Merger.

 

B. Pursuant to the Merger, among other things, all of the issued and outstanding capital stock of the Company shall be acquired and converted into the right to receive the consideration upon the terms and conditions set forth herein.

 

C. The Company and each of the Principals, on the one hand, and Parent and Subsidiary, on the other hand, desire to make certain representations, warranties, covenants and other agreements in connection with the Merger.

 

D. Concurrently with the execution and delivery of this Agreement, as material inducements to Parent and Subsidiary to enter into this Agreement: (i) Parent, the Subsidiary, the Escrow Agent (as defined herein) and the Principals are entering into an Escrow Agreement, in the form attached as Exhibit B (the " Escrow Agreement "); (ii) Subsidiary and Hunter McAllister are entering into an Employment Agreement in the form attached as Exhibit C (the " McAllister Employment Agreement ") and (iii) Subsidiary and Brian Acosta are entering into an Employment Agreement in the form attached as Exhibit D (" Acosta Employment Agreement " and together with the McAllister Employment Agreement, the " Principals Employment Agreements ").

 

NOW, THEREFORE, in consideration of the covenants, promises and representations set forth in this Agreement, the parties agree as follows:

 

ARTICLE I  

THE MERGER

 

1.01   The Merger; Effective Time . The Company shall be merged with and into Subsidiary, and Subsidiary shall be the surviving corporation (sometimes referred to herein as the "Surviving Corporation"). The Merger shall be consummated effective at the time Articles of Merger attached hereto as Exhibit A , are completed, executed and filed with the later of the Mississippi and Louisiana Secretaries of State. The date and time of such consummation are referred to as the "Closing Date" and the "Effective Time," respectively.

 

1.02   Effect of the Merger . At the Effective Time, (i) the separate existence of the Company shall cease and the Company shall be merged with and into Subsidiary, (ii) Subsidiary shall continue to possess all of the rights, privileges and franchises possessed by it and shall, at the Effective Time, become vested with and possess all property, rights, privileges, powers and franchises possessed by and all the property, real or personal, causes of action and every other asset of the Company, (iii) Subsidiary shall be responsible for all of the liabilities and obligations of the Company in the same manner as if Subsidiary had itself incurred such liabilities or obligations, and the Merger shall not affect or impair the rights of the creditors or of any persons dealing with the Company, (iv) the Articles of Incorporation and the Bylaws of Subsidiary shall become the Articles of Incorporation and the Bylaws of the Company, (v) the existing officers and directors of Subsidiary shall remain in such offices, and (vi) the Merger shall have all the effects provided by applicable Mississippi law.

 

1.03   Consideration; Conversion of Shares .

 

(a)  Definitions . For all purposes of this Agreement, the following terms shall have the following respective meanings:

 

(i) " Aggregate Merger Consideration " shall mean the: (1) the Parent Stock Consideration, and (2) the Parent Warrant Consideration.

 

(1) " Parent Stock Consideration " shall mean a number of shares of the common stock of the Parent Common Stock with an agreed market value of $2,569,445 determined using the weighted average price as reported on the website of the American Stock Exchange of the Parent Common Stock for the ten (10) trading days preceding the trading day immediately prior to the Closing Date (which weighted average price shall in no event be less than $2.70 per share or greater than $3.70 per share).

 

(2) " Parent Warrant Consideration " shall mean a number of Parent Stock Warrants with a value of $1,284,722 with the value calculated as of the Closing Date assuming 90% volatility of the underlying Parent Common Stock pursuant to the Black Scholes option - pricing model.

 

(ii) " Company Common Stock " shall mean shares of the Company's common stock.

 

(iii) " Company Stockholders " or " Company Shareholders " shall mean the holders of the Total Company Common Stock at the Effective Time.

 

(iv) " Escrow Agent " shall mean Trustmark National Bank or such other person or entity mutually agreed to by the parties to serve as an escrow agent under the Escrow Agreement.

 

(v) " GAAP " shall mean U.S. generally accepted accounting principles.

 

(vi) " Knowledge " shall mean (i) with respect to the Company, the actual knowledge of any of the Company's officers or directors or either of the Principals and the knowledge that such persons would have obtained of the matter represented after reasonable inquiry thereof under the circumstances; and (ii) with respect to the Parent and Subsidiary, the actual knowledge of the Parent's and Subsidiary’s Chairman, President or any Executive Vice President and the knowledge that such person would have obtained of the matter represented after reasonable inquiry thereof under the circumstances.

 

(vii) " Material Adverse Effect " shall mean any change, event or effect that is materially adverse to the business, assets, financial condition, prospects or results of operations of the Company and its Subsidiaries, taken as a whole.

 

(viii) " Parent Common Stock " shall mean shares of the common stock of Parent.

 

(ix) " Parent Stock Warrants " shall mean warrants convertible on a one to one basis into Parent Common Stock with a term of five (5) years, a strike price that is 10% above the closing price of the Parent Common Stock on the Closing Date with the Parent Common Stock into which the warrant is convertible is restricted stock.

 

(x) " SEC " shall mean the U.S. Securities and Exchange Commission.

 

(xi) " Total Company Common Stock " shall be the aggregate number of all shares of Company Common Stock issued and outstanding immediately prior to the Effective Time.

 

(b) The Aggregate Merger Consideration shall be allocated among the Company Stockholders as of the Effective Date as follows:

 

(c)  Each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than Dissenting Shares as defined in Section 1.04) will be canceled and extinguished and be converted automatically into the right to receive upon surrender of certificate(s) representing Company Common Stock (i) an amount of the Parent Stock Consideration equal to the product of one times the Parent Stock Consideration divided by the Total Company Common Stock; and (ii) an amount of the Parent Warrant Consideration equal to the product of one times the Parent Warrant Consideration divided by the Total Company Common Stock.

 

1.04   Dissenting Shares .

 

(a) Notwithstanding any other provisions of this Agreement to the contrary, any shares of Company Common Stock held by a Company Shareholder who has exercised and perfected appraisal rights for such Company Common Stock, if available because this Agreement and Plan of Merger was not approved by at least eighty percent (80%) of the total voting power of the Shareholders of the Company in accordance with the Business Corporation Law of Louisiana, and who has not effectively withdrawn or lost such appraisal rights (" Dissenting Shares "), shall not be converted into or represent a right to receive the consideration set forth in Section 1.03, but the holder shall only be entitled to such rights as are provided by the Business Corporation Law of Louisiana.

 

(b) Notwithstanding the provisions of Section 1.04(a) hereof, if any holder of Dissenting Shares shall effectively withdraw or lose (through failure to perfect or otherwise) such holder's appraisal rights under the Business Corporation Law of Louisiana, then, as of the later of the Effective Time and the occurrence of such event, such holder's shares shall automatically be converted into and represent only the right to receive the consideration set forth in Section 1.03 hereof, without interest thereon, upon surrender of the certificate(s) representing such shares.

 

(c) The Company shall give Parent (i) prompt notice of any written demand for appraisal received by the Company pursuant to the applicable provisions of the Business Corporation Law of Louisiana; and (ii) the opportunity to participate in all negotiations and proceedings with respect to such demands. The Company shall not, except with the prior written consent of Parent or as required by law, including the Business Corporation Law of Louisiana, make any payment with respect to any such demands or offer to settle or settle any such demands. To the extent that Parent or the Company makes any payment or payments to any Dissenting Shares, Parent shall be entitled to recover under the terms of Article VI hereof the aggregate amount by which such payment or payments exceed the aggregate consideration that otherwise would have been payable in respect of the stock of any Dissenting Shares.

 

1.05   Surrender of Certificates .

 

(a)  Exchange Agent . Transfer Online, Inc. shall serve as the exchange agent (the " Exchange Agent ") for the Merger.

 

(b)  Parent to Provide Parent Common Stock and Parent Stock Warrants . Upon the terms and subject to the conditions of Section 1.03, promptly after the Effective Time, in exchange for outstanding Company Common Stock, Parent shall make available to the Exchange Agent for exchange in accordance with this Article I, the Aggregate Consideration issuable pursuant to Section 1.03, less the Parent Common Stock and Parent Stock Warrants being escrowed in accordance with Section 6.02(b) hereof (the "Escrow Shares"), which Parent shall deposit into the Escrow Fund as defined in Section 6.02(b) hereof.

 

(c)  Exchange Procedures . As promptly as practicable after the Effective Time, Parent shall cause the Exchange Agent to mail to each holder of record of a certificate(s) which, immediately prior to the Effective Time, represented outstanding Company Common Stock(the " Certificates "), whose Company Common Stock was converted into the right to receive shares of Parent Common Stock and Parent Stock Warrants pursuant to Section 1.03: (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates shall pass, only upon delivery of the Certificates to the Exchange Agent and shall be in such form and have such other provisions as Parent may reasonably specify); and (ii) instructions for use in effecting the surrender of the Certificates in exchange for certificate(s) representing shares of Parent Common Stock and for the Parent Stock Warrants. Upon surrender of Certificates for cancellation to the Exchange Agent or to such other agent or agents as may be appointed by Parent, together with such letter of transmittal, duly completed and validly executed in accordance with the instructions thereto, the holders of such Certificates shall be entitled to receive in exchange therefor certificate(s) representing the number of whole shares of Parent Common Stock and Parent Stock Warrants, and the Certificates so surrendered shall forthwith be canceled. Until so surrendered, outstanding Certificates will be deemed from and after the Effective Time, for all corporate purposes other than the payment of dividends, to evidence the ownership of the number of full shares of Parent Common Stock and Parent Stock Warrants into which such Company Common Stock shall have been so converted.

 

(d)  Distributions With Respect to Unexchanged Shares . No dividends or other distributions declared or made after the Effective Time with respect to Parent Common Stock with a record date after the Effective Time will be paid to the holder of any unsurrendered Certificate with respect to the Parent Common Stock represented thereby until the holder of record of such Certificates shall surrender such Certificates. Subject to applicable law, as promptly as practicable following surrender of any such Certificates, the Exchange Agent shall deliver to the record holder thereof, without interest, (i) certificate(s) representing whole shares of Parent Common Stock and Parent Stock Warrants issued in exchange therefore, and (ii) the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender payable with respect to such whole shares of Parent Common Stock.

 

(e)  No Liability . Notwithstanding anything to the contrary in this Section 1.05, neither the Exchange Agent, the Surviving Corporation nor any party hereto shall be liable to a holder of shares of Company Common Stock or Company Preferred Stock for any amount properly paid to a public official pursuant to any applicable abandoned property, escheat or similar law.

 

1.06   Value of Parent Common Stock . For purposes of the indemnification obligations described in Article VI hereof, the parties hereto agree that the Parent Common Stock shall be deemed to have a value determined using the weighted average price as reported on the website of the American Stock Exchange for the ten (10) trading days preceding the date on which a claim for indemnification is made, and Parent Stock Warrants issued in the Merger shall be deemed to have a value per share equal to the value per share determined in accordance with Section 1.03.

 

1.07   Treatment of the Company Options and Warrants . All outstanding options, warrants and other rights to purchase Company Common Stock or any other equity interest in the Company as set forth in Section 2.03 that remain unexercised as of the Effective Time will be terminated, and the rights granted thereunder will be forfeited. Prior to the Closing Date, the Company shall provide all necessary notifications, and obtain all necessary consents, releases or cancellation agreements from the holders of such options, warrants and other rights as Parent may reasonably require.

 

1.08   No Further Ownership Rights in the Company Capital Stock . The shares of Parent Common Stock and Parent Stock Warrants paid in respect of the surrender for exchange of Company Common Stock in accordance with the terms hereof (including any cash paid with respect to fractional shares of Parent Common Stock or Parent Stock Warrants) shall be deemed to be in full satisfaction of all rights pertaining to such Company Common Stock, and there shall be no further registration of transfers on the records of the Surviving Corporation of capital stock that was outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Article I.

 

1.09   Lost, Stolen or Destroyed Certificates . In the event any certificates evidencing shares of Company Common Stock shall have been lost, stolen or destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or destroyed certificates, upon the making of an affidavit of that fact by the holder thereof, such shares of Parent Common Stock, Parent Stock Warrants or such cash consideration as may be required pursuant to Section 1.03 hereof; provided, however, that Parent may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates to deliver a bond in such amount as it may reasonably direct against any claim that may be made against Parent or the Exchange Agent with respect to the certificates alleged to have been lost, stolen or destroyed.

 

1.10   Taking of Necessary Action; Further Action . If at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement and to vest the Surviving Corporation with full right, title and possession to all assets, property, rights, privileges, powers and franchises of the Company, then the officers, directors and employees of the Company, Parent and Subsidiary are fully authorized in the name of their respective companies or otherwise to take, and will take, all such lawful and necessary action.

 

1.11   Tax Consequences . It is intended that the Merger shall constitute a reorganization within the meaning of Section 368(a)(1)(A), by reason of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement shall constitute a "plan of reorganization" within the meaning of Section 368 of the Code.

 

ARTICLE II  

REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE PRINCIPALS

 

The Company, and each of the Principals, hereby represent and warrant to Parent and Subsidiary that on the date hereof and as of the Effective Time as though made on the Effective Date as follows:

 

2.01   Corporate Organization . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Louisiana. The Company has all requisite power and authority to own, lease and operate its properties and to carry on its business as now being conducted, and is duly licensed or qualified to do business in each jurisdiction in which its ownership or leasing of its properties or the nature of the business conducted by the Company makes such licensing or qualification necessary. The copies of the Articles of Incorporation of the Company and the Bylaws of the Company, certified by its Secretary as of the date of this Agreement, which are being delivered to Parent and Subsidiary herewith, are complete and correct copies of such documents in effect as of the date of this Agreement. The minute books of the Company contain true and complete records of all meetings and other corporate actions of its shareholders and their Boards of Directors (including all committees of their Boards of Directors).

 

2.02   Subsidiaries . There is no other corporation, limited liability company, partnership, association, joint venture or other business entity that the Company owns or controls, directly or indirectly.

 

2.03   Capital Structure .

 

(a) The authorized capital stock of the Company consists of (i) 100,000,000 shares of Company Common Stock, 11,110,000 shares of which are issued and outstanding. The capitalization of the Company is as set forth on Schedule 2.03(a) hereto. The names, addresses, number of shares held and domiciles of each of the Company Shareholders are set forth on Schedule 2.03(a) hereto. Except as set forth on Schedule 2.03(a) hereto, there are no shares of capital stock of the Company authorized, issued or outstanding. Except for Company Common Stock set forth on Schedule 2.03(a) hereto, there are no classes or series of ownership interests of the Company of any kind authorized, outstanding or issuable. All outstanding shares of Company Common Stock are duly authorized, validly issued, fully paid and non-assessable, and are not subject to preemptive rights created by statute, the Articles of Incorporation or Bylaws of the Company, or any agreement to which the Company is a party or by which it is bound. All shares of Company Common Stock have been issued in compliance with all applicable federal and state securities laws. The designations, powers, preferences, rights, qualifications, limitations and restrictions in respect of Company Common Stock are as set forth in Schedule 2.03(a) hereto. There are no declared or accrued but unpaid dividends with respect to any shares of the Company capital stock and none of the Company capital stock is held in treasury.

 

(b) As of the date hereof, except for the 5,982,307.69 warrants issued in favor of MCG Capital Finance, Inc. (“MCG”), there are no other options, warrants or similar rights outstanding. Of the 5,982,307.69 warrants issued to MCG, 2,777,500 are currently vested. Schedule 2.03(b) sets forth the full name of MCG and the domicile address of MCG, the number of shares of Company Common Stock issuable upon the exercise of such warrants, the exercise price of such warrants, the vesting schedule for such warrants (including any vesting acceleration triggered by this Agreement, upon events following the Closing, or the transactions contemplated hereby), and whether such right is intended to qualify as an incentive stock option as defined in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). As of the Closing Date, all such warrants, written or unwritten, to purchase any of the Company's authorized or unissued capital stock shall have been exercised or will have terminated. There are no outstanding or authorized stock appreciation, phantom stock, profit participation, or other similar rights with respect to the Company. There are no voting trusts, proxies, or other agreements or understandings with respect to Company Common Stock of which the Company or any Principal has knowledge. To the Company’s and the Principals’ knowledge, the shareholders of the Company have good, valid and marketable title to Company Common Stock free and clear of any claim, lien, pledge, charge, security interest options, charges, assessments or other encumbrance of any nature whatsoever.

 

(c) The requisite vote required to approve the Merger under Louisiana law, the Company's Articles of Incorporation, Bylaws and any other agreement to which the Company or any Shareholder of the Company is two-thirds of the Company Common Stock voting as a class.

 

2.04   Authority . The Company and each of the Principals have all requisite power and authority to enter into this Agreement and any Related Agreement (as defined below) to which they are party and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement, any Related Agreement to which the Company is party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of the Company, subject to the approval of the Company Shareholders. No further action is required on the part of any of the Principals to authorize the Agreement, any Related Agreement to which they are a party and the transactions contemplated hereby and thereby. This Agreement, any Related Agreement to which the Company is a party and the Merger have been unanimously approved by the board of directors of the Company, and the Board of Directors will recommend to the Company Shareholders to vote in favor of this Agreement, the Merger and the transactions contemplated thereby. This Agreement and any Related Agreement to which the Company and/or any of the Principals is a party has been duly executed and delivered by the Company and/or the Principals, as the case may be, and constitute the valid and binding obligations of the Company and each of the Principals, enforceable against each such party in accordance with their respective terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. For the purposes of this Agreement, the term " Related Agreements " shall mean the Escrow Agreement, the McAllister Employment Agreement, the Acosta Employment Agreement, the Articles of Merger, and any other agreements to which the Company and/or the Principals is a party that is entered into in order to consummate the transactions contemplated hereby or thereby.

 

2.05   No Conflict . The execution and delivery by the Company and each of the Principals of this Agreement and any Related Agreement to which the Company and/or any Principal is a party, and the consummation of the transactions contemplated hereby and thereby, will not conflict with or result in any violation of or default under (with or without notice or lapse of time, or both) or give rise to a right of termination, cancellation, modification or acceleration of any obligation or loss of any benefit under (any such event, a " Conflict "): (i) any provision of the Articles of Incorporation or Bylaws of the Company, each as amended to date; (ii) any contract to which the Company is a party, or to which any of the Principals, is subject; or (iii) any judgment, order, decree, statute, law, ordinance, rule or regulation applicable to the Company or any respective properties or assets, or applicable to any of the Principals.

 

2.06   Consents . No consent, waiver, approval, order or authorization of, or registration, declaration or filing with any court, administrative agency or commission or other federal, state, county, local or other foreign governmental authority, instrumentality, agency, commission, military division or department, inspectorate, minister, ministry or public or statutory person (whether autonomous or not) thereof (or of any political subdivision thereof) (each, a " Governmental Entity "), is required by or with respect to the Company, or any of the Principals in connection with the execution and delivery of this Agreement, any of the Related Agreements to which the Company, or any Principal is a party, or the consummation of the transactions contemplated hereby or thereby, except for: (i) the filing of the Articles/Certificate of Merger with the Secretary of State of the State of Mississippi and Louisiana; (ii) the approval of this Agreement and the transactions contemplated hereby by the Company Shareholders; (iii) the consents as set forth in Section 5.02(b); and (iv) such other consents, filings, approvals, registrations or declarations, the failure of which to make or obtain is not reasonably likely, individually, or in the aggregate, to have a Material Adverse Effect.

 

2.07   The Company Financial Statements . Attached as Schedule 2.07 are the (i) audited balance sheet as of December 31, 2002, 2003 and 2004, and the Profit and Loss Statement for the Company for the years ended December 31, 2002, 2003 and 2004 and (ii) the unaudited balance sheet as of June 30, 2005 and the consolidated Profit and Loss Statement for the Company for the three months ending June 30, 2005 (collectively, the " Financials "). The Financials are true, correct and accurate and have been based upon the information contained in the books and records of the Company and have been prepared in accordance with GAAP except that the June 30, 2005 Financials do not have notes thereto and may be subject to normal and recurring year end adjustments consistently applied throughout the periods covered thereby. The Financials present fairly the financial condition, operating results and cash flows of the Company (and their predecessors) as of the dates and during the periods indicated therein. The Company's unaudited balance sheet as of June 30, 2005 is referred to hereinafter as the " Current Balance Sheet ." The Company maintains and will continue, prior to the Effective Time, to maintain a standard system of accounting established and administered in accordance with GAAP. The Parent, Subsidiary, and the Company acknowledge that the Financials do not reflect receivables owed to the Company by I-55 Telecommunications, L.L.C. and that the representations of this paragraph are limited by this acknowledgement.

 

2.08   No Undisclosed Liabilities . Except as and to the extent reflected or reserved against in the Financials or as disclosed on Schedule 2.08 , which shall include all the Company's accounts payable and other accrued expenses as of the date of this Agreement, and subject to the thresholds set forth in Section 2.13 of this Agreement (except that the thresholds of Section 2.13 shall not apply if the cumulative undisclosed liabilities based on such threshold exceed $50,000), the Company has no liabilities, claims or obligations (whether accrued, absolute, contingent, unliquidated or otherwise, whether or not known to the Company or Principals or any directors, officers or employees of the Company, whether due to become payable and regardless of when or by whom asserted) or any unrealized or anticipated losses from any unrealized or anticipated losses of a contractual nature.

 

2.09   No Changes . Except as set forth on Schedule 2.09 , since the Current Balance Sheet Date, there has not been, occurred or arisen any of the following with respect to the Company:

 

(a) material transaction by the Company except in the ordinary course of business consistent with past practices;

 

(b) amendments or changes to the organizational documents of the Company;

 

(c) capital expenditure or capital expenditure commitment exceeding $5,000 individually or $20,000 in the aggregate;

 

(d) payment, discharge or satisfaction, in any amount in excess of $5,000 in any one case, or $20,000 in the aggregate, of any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than payments, discharges or satisfactions made or given in the ordinary course of business consistent with past practices;

 

(e) destruction of, damage to or loss of any material assets or material business or loss of any material customer (whether or not covered by insurance);

 

(f) claim of wrongful discharge or other unlawful labor practice or action;

 

(g) material change in accounting methods or practices (including any change in depreciation or amortization policies or rates by the Company) other than as required by GAAP;

 

(h) change in any election in respect of Taxes (as defined below), adoption or change in any accounting method in respect of Taxes, agreement or settlement of any claim or assessment in respect of Taxes, or extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes;

 

(i) revaluation by the Company of any of their respective assets;

 

(j) declaration, setting aside or payment of a dividend or other distribution (whether in cash, stock or property) in respect of any share of capital stock, or any split, combination or reclassification in respect of any share of capital stock, or any issuance or authorization of any issuance of any other securities in respect of, in lieu of or in substitution for any share of capital stock, or any direct or indirect repurchase or redemption of any share of capital stock (or options or other rights convertible into, exercisable or exchangeable therefor);

 

(k) increase in the salary or other compensation (cash, equity or otherwise) payable by the Company to any officers, directors, employees or advisors, or the declaration, or commitment or obligation of any kind for the payment by the Company of a severance payment, termination payment, bonus or other additional salary or compensation (cash, equity or otherwise) to any such person;

 

(l) sale, lease or other disposition of any of the material assets or material properties or any creation of any security interest in such material assets or material properties;

 

(m) loan by the Company to any person or entity, incurring by the Company of any indebtedness, guaranteeing of any indebtedness (in each case, except in the ordinary course of business and consistent with past practice, including, without limitation, travel and related expenses advanced to employees), issuance or sale of any debt securities or guaranteeing of any debt securities of others, except for advances to employees for travel and business expenses in the ordinary course of business consistent with past practices;

 

(n) waiver or release of any material or valuable right or claim of the Company , including any write-off or other compromise of any account receivable of the Company ;

 

(o) the commencement, settlement, notice or threat of any lawsuit or proceeding or other investigation against the Company or its affairs, or any reasonable basis for any of the foregoing;

 

(p) notice to the Company, or their respective directors, officers or managers or advisors of any claim of ownership by any person other than the Company of the intellectual property owned by or developed or created by the Company or of infringement by the Company of any other person's intellectual property;

 

(q) issuance or sale, or contract to issue or sell, by the Company of any capital stock, or any securities, warrants, options or rights to purchase any of the foregoing (other than a transfer of capital stock occasioned by the exercise of the MCG Warrants);

 

(r) agreement or modification to any agreement pursuant to which any other party was granted marketing, distribution, development or similar rights of any type or scope with respect to any products or technology of the Company;

 

(s) hiring or termination of any employee of the Company;

 

(t) event or condition of any character that has had or is reasonably likely to have a Material Adverse Effect; or

 

(u) agreement by the Company, or any officer, manager or employee thereof on behalf of the Company to do any of the things described in the preceding clauses (a) through (t) (other than negotiations with Parent and its representatives regarding the transactions contemplated by this Agreement).

 

2.10   Tax Matters .

 

(a)  Definition of Taxes . For the purposes of this Agreement, the term " Tax " or, collectively, " Taxes " shall mean: (i) any and all federal, state, local and foreign taxes, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, capital gains, capital stock, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, stamp, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts (whether payable directly or by withholding, and whether or not requiring the filing of a Return (defined below)); (ii) any liability for the payment of any amounts of the type described in clause (i) above as a result of being a member of an affiliated, consolidated, combined or unitary group for any period; and (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) above as a result of any express or implied obligation to indemnify any other person or as a result of any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.

 

(b)  Taxes . All Taxes which are due and payable by the Company and any interest or penalties thereon have been paid in full or accrued on the balance sheets included in the Financials. All federal, state and other tax returns of the Company required by law to be filed have been timely filed, and Company has paid or accrued on the balance sheets included in the Financials (including taxes on properties, income, franchises, licenses, sales and payrolls) all taxes which have become due pursuant to such returns or pursuant to any assessment. All such tax returns have been prepared in compliance with all applicable laws and regulations and are true and accurate in all material respects. The amounts set up as provisions for Taxes (including provision for deferred income taxes) on the Financials are sufficient for the payment of all unpaid federal, state, county and local taxes accrued for or applicable to all periods (or portions thereof) ending on or before the Effective Date. There are no tax liens on any of the property of the Company except those with respect to taxes not yet due and payable. There are no pending tax examinations nor has the Company received a revenue agent's report asserting a tax deficiency. The Company does not expect any taxing authority to claim or assess any amount of additional taxes against it. No claim has ever been made by a taxing authority in a jurisdiction where the Company does not file tax returns that the Company is or may be subject to taxes assessed by such jurisdiction.

 

Copies of Company’s last three federal, state and local income tax returns are included as Schedule 2.10(b) . No waivers of any statute of limitations relating to the payment of taxes have been given by the Company and no waivers therefor have been requested by the Internal Revenue Service from the Company . No extensions have been obtained to file any tax return which has not heretofore been filed. The Company has withheld from each payment made to employees of the Company the amount of all taxes (including, but not limited to, federal, state and local income taxes, Federal Insurance Contribution Act taxes and Unemployment Tax Act taxes) required to be withheld therefrom and all amounts customarily withheld therefrom, and have set aside all other employee contributions or payments customarily set aside with respect to such wages and have paid or will pay the same to, or have deposited or will deposit such payment with, the proper tax receiving officers or other appropriate authorities. All Taxes and other amounts required to be collected and paid to a third party as required by law from customers' payments have been timely withheld and paid by the Company.

 

2.11   Restrictions on Business Activities . There is no agreement (noncompete or otherwise), commitment, judgment, injunction, order or decree to which the Company is a party or otherwise binding upon the Company , which has or may reasonably be expected to have the effect of prohibiting or impairing in any material respect any business practice, any acquisition of property, the conduct of business as currently conducted or otherwise materially limiting the freedom of the Company to engage in any line of business or to compete with any person.

 

2.12   Title of Properties; Absence of Liens and Encumbrances; Condition of Equipment .

 

(a) The Company has good and valid title to, or, in the case of leased properties and assets, valid leasehold interests in, all of its properties and assets, real, personal and mixed, used or held for use in its business, free and clear of any Liens, except: (i) as reflected in the Financials; (ii) Liens for Taxes not yet due and payable; and (iii) such imperfections of title and encumbrances, if any, which do not detract materially from the value of, or interfere materially with the present use of, the property subject thereto or affected thereby.

 

(b)  Schedule 2.12(b) contains an accurate and complete list and description of all real property owned by the Company or in which the Company has a leasehold or other interest or which is used by the Company in connection with the operation of its business, together with a description of each lease, sublease, license, or any other instrument under which the Company claims or holds such leasehold or other interest or right to the use thereof or pursuant to which the Company has assigned, sublet or granted any rights therein, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof, and all machinery, tools, equipment, motor vehicles, rolling stock and other tangible personal property (other than inventory and supplies), owned, leased or used by the Company except for items having a value of less than $2,000 which do not, in the aggregate, have a total value of more than $10,000, setting forth with respect to all such listed property a summary description of all leases, liens, claims, encumbrances, charges, restrictions, covenants and conditions relating thereto, identifying the parties thereto, the rental or other payment terms, expiration date and cancellation and renewal terms thereof.

 

(c) The Company has not granted to any third party any right or license to use the Company's customer lists, customer contact information, customer correspondence or customer licensing and purchasing histories relating to its current and former customers.

 

2.13   Material or Significant Agreements, Contracts and Commitments .

 

(a) Except as set forth on Schedule 2.13(a) , the Company is not presently a party to or bound by:

 

(i) any employment, consulting or sales agreement with any employee, consultant or salesperson of the Company that is not otherwise terminable without penalty upon no more than 30 days notice or involves payments of more than $10,000 per annum;

 

(ii) any agreement or plan relating to employee benefits or compensation involving payments of more than $10,000 per annum, including without limitation any option plan or purchase plan with respect to Equity Interests of the Company , any of the benefits of which will be increased, or the vesting of benefits of which will be accelerated, by the occurrence of any of the transactions contemplated by this Agreement or the value of any of the benefits of which will be calculated on the basis of any of the transactions contemplated by this Agreement;

 

(iii) any material fidelity or surety bond or completion bond;

 

(iv) any lease of personal property having an annual rental rate in excess of $2,000 individually or $20,000 in the aggregate;

 

(v) any agreement, contract or commitment relating to capital expenditures and involving future payments in excess of $5,000 individually or $20,000 in the aggregate;

(vi) any agreement, contract or commitment relating to the disposition or acquisition of assets or any interest in any business enterprise outside the ordinary course of the Company's business that involves future payments of more than $10,000;

 

(vii) any payables, mortgages, indentures, guarantees, loans or credit agreements, security agreements or other agreements or instruments relating to the borrowing of money or extension of credit or evidencing any debt or any payable, debt or agreement which is secured by any assets of the Company and has a balance of more than $5,000.00;

 

(viii) any purchase order or contract for the purchase of materials or services involving in excess of $2,000 individually or $20,000 in the aggregate;

 

(ix) any material construction contracts;

 

(x) any dealer, distribution, joint marketing or development agreement or agreements relating to territorial arrangements, sales representation, operating or consulting agreements that is not otherwise terminable without penalty upon no more than 30 days notice or involves payments of more than $10,000 per annum;

 

(xi) any remarketer, reseller or other agreement for use or distribution of the Company's products, technology or services that may not be cancelled without penalty upon no more than 30 days notice;

 

(xii) any supplier or third party provider agreements that involves future payments in excess of $10,000 per annum and is not cancelable without penalty within 30 calendar days;

 

(xiii) any joint venture, partnership or other management agreements that involves future payments of more than $10,000;

 

(xiv) any advertising, marketing, telemarketing or promotional agreements that involves future payments of more than $5,000;

 

(xv) any material tax sharing agreement with any other party;

 

(xvi) any non-compete or other agreements restricting the business in any way;

 

(xvii) any independent agent or independent contractor agreements that is not cancelable without penalty within 30 calendar days;

 

(xviii) any agreements for the discount of the services or products offered by the Company that involve discounts of more than $5,000 per annum;

 

(xix) any material agreements pursuant to which the Company is obligated to indemnify any party;

 

(xx) any agreements that involves future payments of more than $5,000 or which is not otherwise cancelable without penalty within 30 calendar days with any current or former officer, director, employee, consultant or equity holder or any partnership, corporation, joint venture or other entity in which any such person has an interest;

 

(xxi) any irrevocable right of use or similar agreements that is not cancelable without penalty within 30 calendar days;

 

(xxii) any agreement providing for the purchase of telecommunications minutes, services or traffic that involves future payments of more than $5,000 or which is not otherwise cancelable without penalty within 30 calendar days; or

 

(xxiii) any other agreement, contract or commitment that involves $2,000 individually or $20,000 in the aggregate or more and is not cancelable without penalty within thirty (30) calendar days.

 

The undisclosed liabilities based on the thresholds as provided in this Section 2.13(a) do not exceed in the aggregate $50,000.

 

(b) The Company is in compliance with and has not breached, violated or defaulted under, or received notice that it has breached, violated or defaulted under, any of the terms or conditions of any agreement, contract, lease, license or commitment to which it is a party or by which it is bound, including those included on Schedule 2.13(a) (collectively, the " Contracts "), nor does the Company have knowledge of any event that would constitute such a material breach, violation or default with the lapse of time, giving of notice or both. Each Contract is in full force and effect and is not subject to any material default thereunder, nor, to the Knowledge of the Company, is any party obligated to the Company pursuant thereto subject to any material default thereunder.

 

(c) The Company has obtained, or will obtain prior to the Effective Time, all necessary consents, waivers and approvals of parties to any Contract as are required thereunder in connection with the Merger or for such Contracts to remain in effect without modification, limitation or alteration after the Effective Date. Following the Effective Date, the Company will be permitted to exercise all of its rights under the Contracts without the payment of any additional amounts or consideration other than amounts or consideration which the Company would otherwise be required to pay had the transactions contemplated by this Agreement not occurred.

 

2.14   Interested Party Transactions . No officer, director, employee, shareholder, manager or member of the Company (nor any ancestor, sibling, descendant or spouse of any such person, or trust, partnership or corporation in which any such person has or has had an interest) has or has had, directly or indirectly: (i) an interest in any entity which furnished or sold, or furnishes or sells, services, products or technology that the Company furnishes or sells; (ii) any interest in any entity that purchases from or sells or furnishes to the Company, any goods or services; or (iii) a beneficial interest in any Contract to which the Company is a party; provided, however, that ownership of no more than 1% of the outstanding voting stock of a publicly traded corporation shall not be deemed to be an "interest in any entity" for purposes of this Section 2.14.

 

2.15   Governmental Authorization .

 

(a) Each consent, license, permit, grant, certificate, approval or other authorization (i) pursuant to which the Company currently operates or holds any interest in any of its properties, or (ii) which is required for the operation of its business as currently conducted or the holding of any such interest has been issued or granted and is listed on Schedule 2.15 (collectively, the " the Company Authorizations "). The Company is operating in compliance with all Company Authorizations. Each Company Authorization has been lawfully and validly issued and no proceeding or investigation is currently pending or threatened, and the Company has received no notice of any investigation, revocation, cancellation or modification with respect to any Company Authorization and knows of no basis therefor. The Company has timely filed all reports, data and other information required to be filed with any governmental entity or as required to maintain the Company Authorizations. The Company Authorizations are in full force and effect, and, shall remain in full force and effect without modification after the Effective Time.

 

2.16   Litigation . Except as set forth on Schedule 2.16 , there is no action, suit, claim or proceeding of any nature pending or threatened against the Company or any Principal or their respective properties or any person or entity whose liability the Company or any Principal may have retained or assumed, either contractually or by operation of law, nor, to the Knowledge of the Company or Principals, is there any reasonable basis therefor. There is no investigation or other proceeding pending or threatened against the Company or any Principal, any of their respective properties or any person or entity whose liability the Company or any Principal may have retained or assumed, either contractually or by operation of law, by or before any Governmental Entity, nor, to the Knowledge of the Company or Principals, is there any reasonable basis therefor. Except as set forth on Schedule 2.16 , no Governmental Entity has at any time challenged or questioned the legal right of the Company to conduct their respective operations as presently or previously conducted.

 

2.17   Accounts Receivable . Except for any receivables owed to the Company by I-55 Telecommunications, L.L.C., all receivables of the Company (including accounts receivable, loans receivable and advances) which are reflected in the Balance Sheet, and all such receivables which will have arisen since the date thereof, shall have arisen only from bona fide transactions in the ordinary course of the business of the Company and shall be (or have been) fully collected when due, or in the case of each account receivable within 90 days after it arose, without resort to litigation and without offset or counterclaim, in the aggregate face amounts thereof except to the extent of the normal allowance for doubtful accounts with respect to accounts receivable computed as a percentage of sales consistent with the Company's prior practices as reflected on the Financials.

 

2.18   Assets Necessary to Business . The Company presently has and at Closing will have title to all property and assets, real, personal and mixed, tangible and intangible, and all leases, licenses and other agreements, necessary to permit Subsidiary to carry on the business of the Company, as currently conducted.

 

2.19   Minute Books . The minutes of the Company made available to counsel for Parent are the only minutes of the Company and contain substantially accurate summaries of all material meetings of the board of directors (or committees thereof), the board of managers (or committees thereof), the shareholders (or committees thereof), the members (or committees thereof) of the Company , as applicable, and each action by written consent since the inception of each such entity.

 

2.20   Environmental Matters .

 

(a)  Hazardous Material . The Company has not: (i) operated any underground storage tanks at any property that the Company has at any time owned, operated, occupied or leased; or (ii) illegally released any amount of any substance that has been designated by any Governmental Entity or by applicable federal, state or local law to be radioactive, toxic, hazardous or otherwise a danger to health or the environment, including without limitation PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as hazardous substances pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended, or defined as a hazardous waste pursuant to the United States Resource Conservation and Recovery Act of 1976, as amended, and the regulations promulgated pursuant to said laws (a " Hazardous Material "). To the Knowledge of the Company, no Hazardous Materials are present in, on or under any property, including the land and the improvements, ground water and surface water thereof, that the Company or any Subsidiary has at any time owned, operated, occupied or leased.

 

(b)  Hazardous Materials Activities . The Company has not transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law in effect on or before the Effective Time, nor has the Company or any Subsidiary disposed of, transported, sold, or manufactured any product containing a Hazardous Material (any or all of the foregoing being collectively referred to herein as " Hazardous Materials Activities ") in violation of any rule, regulation, treaty or statute promulgated by any Governmental Entity in effect prior to or as of the date hereof to prohibit, regulate or control Hazardous Materials or any Hazardous Material Activity.

(c)  Permits . The Company currently holds all environmental approvals, permits, licenses, clearances and consents (the " Environmental Permits ") necessary for the conduct of Hazardous Material Activities by them, respectively, and other businesses of the Company as such activities and businesses are currently being conducted.

 

(d)  Environmental Liabilities . No action, proceeding, revocation proceeding, amendment procedure, writ, injunction or claim is pending or, to the Knowledge of the Company, threatened concerning any Environmental Permit, Hazardous Material or any Hazardous Materials Activity of the Company or any Subsidiary. The Company has no Knowledge of any fact or circumstance that is reasonably likely to involve the Company in any environmental litigation or impose upon the Company any environmental liability.

 

2.21   Brokers' and Finders' Fees . The Company has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement or any transaction contemplated hereby.

 

2.22   Employee Benefit Plans and Compensation .

 

(a)  Definitions . For all purposes of this Agreement, the following terms shall have the following respective meanings:

 

(i) " Affiliate " shall mean any other person or entity under common control with the Company or Parent, as applicable, within the meaning of Section 414(b), (c), (m) or (o) of the Code, and the regulations issued thereunder.

 

(ii) " COBRA " shall mean the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended.

 

(iii) " the Company Employee Plan " shall mean any plan, program, policy, practice, contract, agreement or other material arrangement providing for compensation, severance, termination pay, deferred compensation, performance awards, stock or stock related awards, fringe benefits or other employee benefits or remuneration of any kind, whether written, unwritten or otherwise, funded or unfunded, including without limitation, each "employee benefit plan," within the meaning of Section 3(3) of ERISA which is or has been maintained, contributed to, or required to be contributed to, by the Company or any Affiliate for the benefit of any Employee, or with respect to which the Company or any Affiliate has or may have any liability or obligation.

 

(iv) " DOL " shall mean the United States Department of Labor.

 

(v) " Employee " shall mean any current or former employee, consultant or director of the Company or any Affiliate.

 

(vi) " Employment Agreement " shall mean each management, employment, severance, consulting, relocation, repatriation, expatriation, visas, work permit or other agreement, or contract between the Company or any Affiliate and any Employee.

 

(vii) " ERISA " shall mean the Employee Retirement Income Security Act of 1974, as amended.

 

(viii) " FMLA " shall mean the Family Medical Leave Act of 1993, as amended.

 

(ix) " IRS " shall mean the United States Internal Revenue Service.

 

(x) " Pension Plan " shall mean each the Company Employee Plan, which is an "employee pension benefit plan," within the meaning of Section 3(2) of ERISA.

 

(b)  Schedule . Schedule 2.22(b) contains an accurate and complete list of each the Company Employee Plan and each Employment Agreement. The Company has no plan or commitment to establish any new the Company Employee Plan or Employment Agreement, to modify any the Company Employee Plan or Employment Agreement (except to the extent required by law), or to enter into any the Company Employee Plan or Employee Agreement.

 

(c)  Documents . The Company has provided to Parent correct and complete copies of: (i) all documents embodying each the Company Employee Plan and each Employment Agreement including (without limitation) all amendments thereto and all related trust documents, administrative service agreements, group annuity contracts, group insurance contracts, and policies pertaining to fiduciary liability insurance covering the fiduciaries for each Plan; (ii) the most recent annual actuarial valuations, if any, prepared for each the Company Employee Plan; (iii) the three (3) most recent annual reports (Form Series 5500 and all schedules and financial statements attached thereto), if any, required under ERISA or the Code in connection with each the Company Employee Plan; (iv) if the Company Employee Plan is funded, the most recent annual and periodic accounting of the Company Employee Plan assets; (v) the most recent summary plan description together with the summary(ies) of material modifications thereto, if any, required under ERISA with respect to each the Company Employee Plan; (vi) all IRS determination, opinion, notification and advisory letters, and all applications and correspondence to or from the IRS or the DOL with respect to any such application or letter; (vii) all communications material to any Employee or Employees relating to any the Company Employee Plan and any proposed the Company Employee Plans, in each case, relating to any amendments, terminations, establishments, increases or decreases in benefits, acceleration of payments or vesting schedules or other events which would result in any material liability to the Company; (viii) all correspondence to or from any governmental agency relating to any the Company Employee Plan; (ix) all COBRA forms and related notices (or such forms and notices as required under comparable law); (x) the three (3) most recent plan years discrimination tests for each the Company Employee Plan; and (xi) all registration statements, annual reports (Form 11-K and all attachments thereto) and prospectuses prepared in connection with each Company Employee Plan.

 

(d)  Employee Plan Compliance . Except as set forth on Schedule 2.22(d) , (i) the Company has performed in all material respects all obligations required to be performed by it under, is not in material default or violation of, and has no knowledge of any material default or violation by any other party to each the Company Employee Plan, and each the Company Employee Plan has been established and maintained in all material respects in accordance with its terms and in compliance with all applicable laws, statutes, orders, rules and regulations, including but not limited to ERISA or the Code; (ii) each the Company Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination, opinion, notification or advisory letter from the IRS with respect to each such Company Employee Plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a letter and make any amendments necessary to obtain a favorable determination as to the qualified status of each such Company Employee Plan; (iii) no "prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 4975 of the Code or Section 408 of ERISA (or any administrative class exemption issued thereunder), has occurred with respect to any the Company Employee Plan; (iv) there are no actions, suits or claims pending, or, to the Knowledge of the Company, threatened or reasonably anticipated (other than routine claims for benefits) against any the Company Employee Plan or against the assets of any the Company Employee Plan; (v) each Company Employee Plan can be amended, terminated or otherwise discontinued after the Effective Time, without material liability to the Parent, the Subsidiary, or the Company (other than ordinary administration expenses); (vi) there are no audits, inquiries or proceedings pending or, to the Knowledge of the Company , threatened by the IRS or DOL with respect to any Company Employee Plan; and (vii) the Company is not subject to any penalty or tax with respect to any the Company Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the Code.

 

(e)  No Pension Plans . The Company has not ever maintained, established, sponsored, participated in, or contributed to, any (i) Pension Plans subject to Title IV of ERISA or Section 412 of the Code; (ii) "multiemployer plan" within the meaning of Section (3)(37) of ERISA; or (iii) multiemployer plan, or to any plan described in Section 413 of the Code.

 

(f)  No Post-Employment Obligations . No Company Employee Plan provides, or reflects or represents any liability to provide, retiree life insurance, retiree health or other retiree employee welfare benefits to any person for any reason, except as may be required by COBRA or other applicable statute, and the Company has never represented, promised or contracted (whether in oral or written form) to any Employee (either individually or to Employees as a group) or any other person that such Employee(s) or other person would be provided with retiree life insurance, retiree health or other retiree employee welfare benefit, except to the extent required by statute.

 

(g)  Health Care Compliance . The Company has not , prior to the Effective Time and in any material respect, violated any of the health care continuation requirements of COBRA, the requirements of FMLA, the requirements of the Health Insurance Portability and Accountability Act of 1996, the requirements of the Women's Health and Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers' Health Protection Act of 1996, or any amendment to each such act, or any similar provisions of state law applicable to its Employees.

 

(h)  Effect of Transaction .

 

(i) Execution of this Agreement and the consummation of the transactions contemplated hereby will not constitute an event under any Company Employee Plan, Employment Agreement, trust or loan that will or may result in any payment (whether of severance pay or otherwise), acceleration, forgiveness of indebtedness, vesting, distribution, increase in benefits or obligation to fund benefits with respect to any Employee.

 

(ii) No payment or benefit which will or may be made by the Company with respect to any Employee or any other "disqualified individual" (as defined in Code Section 280G and the regulations thereunder) will be characterized as a "parachute payment," within the meaning of Section 280G(b)(2) of the Code.

 

(i)  Employment Matters . The Company : (i) is in compliance with all applicable foreign, federal, state and local laws, rules and regulations respecting employment, employment practices, terms and conditions of employment and wages and hours, in each case, with respect to Employees; (ii) has withheld and reported all amounts required by law or by agreement to be withheld and reported with respect to wages, salaries and other payments to Employees; (iii) is not liable for any arrears of wages or any taxes or any penalty for failure to comply with any of the foregoing; and (iv) is not liable for any payment to any trust or other fund governed by or maintained by or on behalf of any governmental authority, with respect to unemployment compensation benefits, social security or other benefits or obligations for Employees (other than routine payments to be made in the normal course of business and consistent with past practice). There are no pending or, to the knowledge of the Company or Principals, threatened or reasonably anticipated claims or actions against the Company under any worker's compensation policy or long-term disability policy.

 

(j)  Labor . No work stoppage or labor strike against the Company is pending, or, to the knowledge of the Company or Principals, threatened or reasonably anticipated. To the knowledge of the Company or Principals, there are neither any activities nor proceedings of any labor union to organize any Employees, nor have there ever been. There are no actions, suits, claims, labor disputes or grievances pending, or, to the knowledge of the Company or Principals, threatened or reasonably anticipated relating to any labor, safety or discrimination matters involving any Employee, including without limitation charges of unfair labor practices or discrimination complaints. The Company has not has engaged in any unfair labor practices within the meaning of the National Labor Relations Act. The Company is not presently, or has been in the past, a party to, or bound by, any collective bargaining agreement or union contract with respect to Employees and no collective bargaining agreement is being negotiated by the Company.

 

(k)  Employees . Schedule 2.22(k) contains a true and complete list of the names and current salary rates and bonus commitments to all present employees of the Company and Schedule 2.22(k) or other Schedules attached as part of Section 2.22 contains a list of all contracts, agreements, Company Employee Plans, arrangements, commitments and understanding (formal and informal) pertaining to terms of employment, compensation, bonuses, profit sharing, stock purchases, stock repurchases, stock options, commissions, incentives, loans or loan guarantees, severance pay or benefits, change in control payments, use of the Company's property and related matters of the Company with any current or former officer, director, employee or consultant, and true and complete copies of all such contracts, agreements, plans, arrangements and understandings have been delivered to Parent heretofore.

 

(l) Except for the Principals, the Company will not have any responsibility for continuing any person in the employ (or retaining any person as a consultant) of the Subsidiary from and after the Effective Time or have any liability for any severance payments to or similar arrangements with any such person who shall cease to be an employee or consultant of the Company at or prior to the Effective Time.

 

(m) No facts or circumstances are known to exist that could provide a reasonable basis for a claim of wrongful termination or employment discrimination by any current or former employee of the Company against the Company.

 

2.23   Compliance with Laws; Relations with Governmental Entities . The Company has complied in all respects with, is not in violation of, and has not received any notices of violation with respect to, any foreign, federal, state or local statute, law or regulation. Neither the Company nor any Principal, nor, to the Knowledge of the Company or any Principal, any of the Company's officers, directors, employees or agents (or shareholders, distributors, representatives or other persons acting on the express, implied or apparent authority of the Company) have paid, given or received or have offered or promised to pay, give or receive, any bribe or other unlawful payment of money or other thing of value, any unlawful discount, or any other unlawful inducement, to or from any person or Governmental Entity in the United States or elsewhere in connection with or in furtherance of the business of the Company (including any offer, payment or promise to pay money or other thing of value (a) to any foreign official, political party (or official thereof) or candidate for political office for the purposes of influencing any act, decision or omission in order to assist the Company in obtaining business for or with, or directing business to, any person or entity, or (b) to any person or entity, while knowing that all or a portion of such money or other thing of value will be offered, given or promised to any such official or party for such purposes. To the knowledge of the Company or any Principal, the business of the Company is not in any manner dependent upon the making or receipt of such payments, discounts or other inducements. The Company nor any Principal has otherwise taken any action that would cause the Company to be in violation of the Foreign Corrupt Practices Act of 1977, as amended, or any applicable Laws of similar effect.

 

2.24   Merger Tax Matters . The Company and each Principal represents that each of them and the Company Shareholders understands that he or she must rely solely on his or her advisors and not on any statements or representations by Parent, or its agents, with respect to Tax consequences of the Merger and that the Company is relying on its own advisors as to such matters. No tax opinions are being required under Article V of this Agreement.

 

2.25   Intellectual Property . Schedule 2.25 contains a true, correct and complete listing of all Intellectual Property owned or licensed by or registered in the name of the Company and used or held for use in operations of the Business, all of which are transferable to Buyer by the sole act and deed of the Company , and no consent on the part of any other person is necessary to effectuate the transfer to Buyer of such Intellectual Property. The Company pays no royalty to anyone with respect to the Intellectual Property and has the right to bring action for the infringement thereof. The Company owns or possesses all rights to use all such Intellectual Property necessary to or useful for the conduct of the Business. The Company has not received any notice to the effect that any service rendered by the Company relating to the Business may infringe on any Intellectual Property right or other legally protectable right of another, nor does the Company or any Principal otherwise have any knowledge of any such infringement.

 

2.26    Customer Contracts . The contracts, agreements, understandings and commitments set forth and described in Schedule 2.26 (the "Customer Contracts") are the current forms of all of the types of customer contracts, agreements, commitments or understandings relating to the business and operations thereof to which the Company is a party. Separately described in Schedule 2.26 are all Customer Contracts of the Company that have generated $2,000 or more in revenue in any month since June 1, 2004 ("Significant Customer Contracts") and a list of all current customers of the Company.

 

The Company has not entered into any binding agreement with respect to any Customer Contract that could adversely affect the Company’s ability to enforce its rights under such Customer Contract. The Company has delivered true and complete copies of all written Significant Customer Contracts (and all amendments and modifications thereto) to Parent and Subsidiary prior to the execution of this Agreement, and each Significant Customer Contract represents the entire agreement between the Company and any other party to such Significant Customer Contract.

 

Since 120 days prior to the date of this Agreement, (i) no customer (or group of related customers) purchasing in the aggregate $25,000 in products and services over the past twelve (12) months-has terminated its relationship with the Company , and (ii) the Company has not received any written or oral communication from any customer (or group of related customers) purchasing in the aggregate $25,000 in products and services over the past twelve (12) months to the effect that such customer (or group of related customers) is experiencing financial difficulties which reasonably could be expected to affect adversely full and timely payment by such customer for services rendered by the Company.

 

2.27   Relationships with Suppliers . The Company or any Principal does not know of any written or oral communication, fact, event or action which exists or has occurred within 120 days prior to the date of this Agreement which would indicate that any current supplier to the Company or its Subsidiaries of items or services essential to the conduct of the business of the Company and its Subsidiaries may terminate or materially reduce its business with the Company.

 

2.28   Investment Representation; Legends .

 

(a) The Company understands that the Parent Common Stock and the Parent Stock Warrants to be issued pursuant to the terms of this Agreement have not been registered under the Securities Act of 1933 as amended (the "Securities Act") and the Parent Common Stock and Parent Stock Warrants are "restricted securities" as the term is defined in Rule 144 promulgated by the Securities and Exchange Commission (the "SEC") under the Securities Act and the Company shareholders cannot transfer any of such Parent Common Stock and Parent Stock Warrants unless such shares are subsequently registered under the Securities Act or in a transfer that, in the opinion of legal counsel to Parent, is exempt from such registration.

 

(b) Each Company shareholder has been advised that the Parent Company Stock and the Parent Stock Warrants issued hereunder have not been and are not being registered under the Securities Act or under the Blue Sky laws of any jurisdiction, and that Parent in issuing such shares is relying upon, among other things, the representations and warranties of the Company and Principals contained in this Section including that such issuance is a "private offering" and does not require compliance with the registration provisions of the Securities Act.

 

2.29   Stockholder Matters . Set forth on Schedule 2.29 is a list of all holders of the Company's capital stock as of the date hereof and Schedule 2.29 identifies each holder of the Company's capital stock that is an accredited investor as defined in Rule 501(a) under the Securities Act of 1933, as amended.

 

2.30   Banking and Insurance .

 

(a)   Schedule 2.30(a) contains a true and complete list of the names and locations of all financial institutions at which the Company maintains a checking account, deposit account, securities account, safety deposit box or other deposit or safekeeping arrangement, the number or other identification of all such accounts and arrangements and the names of all persons authorized to draw against any funds therein.

 

(b)   Schedule 2.30(b) contains a true and complete list of all insurance policies and bonds and self insurance arrangements currently in force that cover or purport to cover risks or losses to or associated with the Company's business, operations, premises, properties, assets, employees, agents and directors and sets forth, with respect to each such policy, bond and self insurance arrangement, a description of the insured loss coverage, the expiration date and time of coverage, the dollar limitations of coverage, a general description of each deductible feature and principal exclusion and the premiums paid and to be paid prior to expiration. The Company has no obligation, liability or other commitment relating to any contract of insurance containing a provision for retrospective rating or adjustment of the Company's premium obligation. To the Company’s knowledge, no facts or circumstances exist that would cause the Company to be unable to renew its existing insurance coverage as and when the same shall expire other than possible increases in premiums that do not result from any act or omission of the Company.

 

2.31   Representations Complete . None of the representations or warranties made by the Company or any Principal in this Agreement, or to be furnished in or in connection with documents mailed or delivered to the Company Shareholders for use in soliciting their consent to this Agreement and the Merger, contains or, with respect to documents to be mailed to the Company Shareholders, will when mailed contain, any untrue statement of a material fact or omits or, with respect to documents to be mailed to the Company Shareholders, will when mailed omit, to state any material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. No representations and warranties by the Company and Principals in this Agreement and no statement in this Agreement or any document or certificate furnished or to be furnished to Parent or Subsidiary pursuant hereto contains or will contain any untrue statement or omits or will omit to state a fact necessary in order to make the statements contained therein not misleading. The Company and Principals have disclosed to Parent and Subsidiary all facts known to any of them material to the assets, liabilities, business, operation and property of the Company or its Subsidiaries. There are no facts known to the Company or Principals not yet disclosed which would adversely affect the Company's business, financial condition or future operations of the Company's business. All facts of material importance to the assets and to the business have been fully and truthfully disclosed to Parent and Subsidiary in this Agreement.

 

ARTICLE III  

REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY

 

Parent and Subsidiary represent and warrant to the Company that on the date hereof and as of the Effective Date as though made at the Effective Time as follows:

 

3.01   Organization and Standing . Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the State of Mississippi. Each of Parent and Subsidiary has the full and unrestricted corporate power and authority to carry on its business as currently conducted. Each of Parent and Subsidiary has the full and unrestricted corporate power and authority to execute and deliver this Agreement, the Related Agreements and each other document required hereunder and to carry out the transactions contemplated hereby and thereby. Parent has the full and unrestricted corporate power and authority to issue the Parent Common Stock and Parent Stock Warrants hereunder and to carry out the transactions to be carried out by it as contemplated by this Agreement and all other Related Agreements.

 

3.02   Authorization . The execution, delivery and performance by each of Parent and Subsidiary of this Agreement and each other Related Agreement, the fulfillment of and compliance with the respective terms and provisions hereof and thereof, and the consummation by each of Parent and Subsidiary of the transactions contemplated hereby and thereby have been duly authorized by their respective Board of Directors and subject to the approval of the shareholders of the Parent and shareholders of the Subsidiary (a) will not conflict with, or violate any term or provision of (i) any law having applicability to each of Parent and Subsidiary, the effect of which would have an adverse material effect on the business of Parent or Subsidiary, or (ii) any provision of the certificate of incorporation or bylaws of Parent or Subsidiary; (b) will not conflict with, or result in any material breach of, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, any material agreement to which Parent or Acquisition Sub is a party or by which it is bound; or (c) will not result in or require the creation or imposition of or result in the acceleration of any indebtedness, or of any encumbrance of any nature upon, or with respect to, Parent or Subsidiary. No other corporate action on the part of Parent or Subsidiary is necessary for Parent or Subsidiary to enter into this Agreement and all other Related Agreements and to consummate the transactions contemplated hereby and thereby, other than the approval of the Parent as the sole shareholder of the Subsidiary. The issuance by Parent of the Parent Common Stock and Parent Stock Warrants hereunder and the performance by Parent or Subsidiary of the terms and provisions of this Agreement and each other Related Agreements required to be performed by it have been duly authorized by all necessary corporate action of Parent (which authorization has not been modified or rescinded and is in full force and effect) other than the approval of the Parent as sole shareholder of the Subsidiary.

 

3.03   Binding Obligation . This Agreement and each other agreement to be executed by Parent or Subsidiary hereunder constitutes a valid and binding obligation of the Parent or Subsidiary, as applicable, enforceable against the Parent or Subsidiary, as applicable, in accordance with its terms, except as such enforceability may be subject to the laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.

 

3.04   Issuance of Parent Common Stock and Parent Stock Warrants . All of the Parent Common Stock and Parent Stock Warrants to be issued pursuant to this Agreement have been duly authorized by Parent and, when issued in accordance with the terms of this Agreement, shall be validly issued, fully paid and nonassessable.

 

3.05   Litigation . There are no actions, suits, claims, arbitrations, proceedings or investigations pending, threatened or reasonably anticipated against, or involving Parent or Subsidiary or the transactions contemplated by this Agreement or any other Related Agreement, at law or in equity, or before or by any arbitrator or governmental authority, domestic or foreign, which could reasonably be expected to have a material adverse effect on the Parent or Subsidiary. Neither Parent nor Subsidiary is operating under, subject to or in default with respect to any order, award, writ, injunction, decree or judgment of any arbitrator or governmental authority relating to Parent or Subsidiary or their respective employees.

 

3.06   Securities and Exchange Commission Filings . Parent and Subsidiary have furnished the Company and the Principals with a true and complete copy of each final annual, quarterly and current report and each final prospectus filed by Parent with the SEC since January 1, 2002. No such filing with the SEC by Parent contained to Parent's Knowledge, as of the time of such filing, any untrue statement of a material fact or omitted a material fact necessary in order to make the statements made therein, in the light of the circumstances under which they were made, not misleading.

 

ARTICLE IV  

COVENANTS OF PARTIES PRIOR TO THE EFFECTIVE TIME

 

4.01   Preparation of Proxy Statement .

 

(a) Immediately after the execution of this Agreement, the Company shall prepare, with the cooperation of Parent and Subsidiary, a Proxy Statement for the Company Shareholders to approve this Agreement, the Merger and the transactions contemplated hereby and thereby. The Proxy Statement shall include a disclosure document for the offer and issuance of the shares of Parent Common Stock and Parent Stock Warrants to be received by the holders of Company Common Stock in the Merger. Parent and the Company shall each use commercially reasonable efforts to cause the Proxy Statement to comply with applicable federal and state securities laws requirements. Each of Parent and the Company agrees to provide promptly to the other such information concerning its business and financial statements and affairs as, in the reasonable judgment of the providing party or its counsel, may be required or appropriate for inclusion in the Proxy Statement, or in any amendments or supplements thereto, and to cause its counsel, accountants and auditors to cooperate with the other's counsel, accountants and auditors in the preparation of the Proxy Statement. The Company will promptly advise Parent, and Parent will promptly advise the Company, in writing if at any time prior to the Effective Date either the Company or Parent shall obtain Knowledge of any facts that might make it necessary or appropriate to amend or supplement the Proxy Statement in order to make the statements contained or incorporated by reference therein not misleading or to comply with applicable law. The Proxy Statement shall contain the recommendation of the Board of Directors of the Company that the Company Shareholders approve the Merger and this Agreement and the conclusion of the Board of Directors that the terms and conditions of the Merger are fair and reasonable to the Company Shareholders, unless the Company's Board of Directors shall have determined in good faith that the failure to do so would violate the Board of Directors' fiduciary duties to the Company Shareholders under applicable law. Anything to the contrary contained herein notwithstanding, the Company shall not include in the Proxy Statement any information with respect to Parent, the Subsidiary or their affiliates or associates, the form and content of which information shall not have been approved by Parent prior to such inclusion.

 

4.02   Restrictions on Transfer; Legends . The Parent Common Stock and all the Parent Stock Warrants to be issued in the Merger shall be characterized as "restricted securities" for purposes of Rule 144 under the Securities Act, and each certificate representing any of such shares shall bear a legend identical or similar in effect to the following legend (together with any other legend or legends required by applicable state securities laws or otherwise):

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED THE "ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT AND SUCH LAWS OR IN COMPLIANCE WITH AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS. IN ADDITION, THE SECURITIES REPRESENTED HEREBY ARE SUBJECT TO CERTAIN SALE RESTRICTIONS AS PROVIDED IN SECTION 8.11 OF THAT CERTAIN AGREEMENT AND PLAN OF MERGER BY AND AMONG I-55 INTERNET SERVICES, INC., XFONE, INC. AND XFONE USA, INC. DATED AS OF AUGUST ___, 2005.

 

4.03   Access to Information .

 

(a) The Company shall afford Parent, Subsidiary and its accountants, counsel and other representatives, reasonable access during the period prior to the Effective Date and during normal business hours upon reasonable advance notice to (i) all of the Company's properties, books, contracts, commitments and records; (ii) all other information concerning the business, properties and personnel (subject to restrictions imposed by applicable law) of the Company as Parent may reasonably request; and (iii) all employees of the Company as identified by Parent. The Company agrees to provide to Parent and its accountants, counsel and other representatives copies of internal financial statements (including Tax returns and supporting documentation) promptly upon request.

 

(b) No information or knowledge obtained in any investigation pursuant to this Section 4.03 shall affect or be deemed to modify: any representation or warranty contained herein, the conditions to the obligations of the parties to consummate the Merger in accordance with the terms and provisions hereof, or the indemnification obligations of the Company and the Principals.

 

(c) All information furnished by one party to another pursuant hereto shall be treated as the sole property of the party furnishing the information until consummation of the Merger contemplated hereby and, if such Merger shall not occur, the party receiving the information shall retrieve, if necessary, and return to the party which furnished such information all documents or other materials containing, reflecting or referring to such information, shall use its best efforts to keep confidential all of such information, and shall not directly or indirectly use such information for any competitive or other commercial purpose. If the Merger is not consummated, the obligation to keep such information confidential shall continue for two (2) years from the date the proposed Merger is abandoned and shall not apply to (i) any information which (a) the party receiving the information can establish by convincing evidence was already in its possession prior to the disclosure thereof by the party furnishing the information, (b) was then generally known to the public or set forth in public records, (c) became known to the public through no fault of the party receiving the information, or (d) was disclosed to the party receiving the information by a third party not bound by an obligation of confidentiality, or (ii) disclosures in accordance with an order of a court of competent jurisdiction.

 

4.04   Public Disclosure . The parties hereto agree that prior to the Effective Time, none of them will make or engage in any press release, publicity or other public disclosure of the matters which are the subject of this Agreement without the prior written consent of Parent and the Company, unless such party believes in good faith upon consultation with counsel that such press release, publicity or other public disclosure is required by law or legal process, in which event such party will give Parent and the Company as much advance notice thereof as is practicable under the circumstances and will give good faith consideration to any comments made with respect thereto by the other parties hereto prior to the time when such press release, publicity or other public disclosure is made.

 

4.05   Conduct Business in Ordinary Course . The Company shall, through the Closing Date, use its best efforts to preserve its business and the assets and maintain its existing contracts and licenses and to preserve for the Subsidiary the present relationships with customers, employees, lessors and any other persons having business relations with the Company. Except as contemplated by this Agreement or as reasonably required to carry out its obligations hereunder, the Company shall, through the Closing Date, maintain and service the business and the assets only in the ordinary course of business and, in addition, shall not (except to the extent that Parent has consented in advance in writing thereto: (i) enter into any agreement in connection with the business or assets that may not be terminated on less than thirty (30) days' notice or that may reasonably be expected to have a Material Adverse Effect on the business or assets, (ii) make any capital purchases or commitments relating to the Assets that exceed, individually or in the aggregate, $10,000; (iii) place, or allow to be placed, an Encumbrance on any of the assets, (iv) sell, assign, lease or otherwise transfer or dispose of any interest in any asset (other than in the ordinary course of business), (v) commit any act or omit to do any act, or engage in any activity or transaction or incur any obligation (by conduct or otherwise), that (individually or in the aggregate) reasonably could be expected to have a Material Adverse Effect on the business or assets; (vi) do or omit to do any act (or permit such action or omission) which reasonably could be expected to cause a breach of any contract or Governmental Authorizations, or (vii) take any action or fail to take any action that would reasonably be expected to cause any of the representations, warranties or covenants contained herein to be untrue or incorrect or incapable of being performed or satisfied on the Closing Date. Through the Closing Date, the Company shall not (except to the extent that Parent has consented in advance in writing thereto): (i) provide service or agree to provide service to any customer at rates that are different than those that were in effect for such customer (or would have been in effect for any new customer) as of June 23, 2005, (ii) offer any promotions or special incentives or arrangements to customers that were not being offered to all customers at June 23, 2005, including, but not limited to, any promotions or special incentives or arrangements with respect to pricing or usage, or (iii) amend or modify any Customer Contract. Prior to and through the day following the Closing Date, the Company and its Subsidiaries shall maintain in full force and effect all of its existing casualty, liability, and other insurance in amounts not less than those in effect on the date hereof, except for changes in such insurance that are made in the Ordinary Course of Business.

 

4.06   Consents and Approvals . The Company shall use its best efforts to obtain, prior to the Closing, all waivers, consents and approvals including those as provided in Schedule 5.02(b) , that are required in order to effect the Merger so as to preserve all rights of and benefits of the Company thereunder for the Subsidiary. Parent and Subsidiary shall use commercially reasonable efforts to assist the Company in the Company's efforts to obtain such waivers, consents and approvals. In addition, the Company and Parent and Subsidiary shall use their commercially reasonable efforts to obtain all other waivers, consents and approvals of all Governmental Authorities that are required in order for them to consummate the transactions contemplated by this Agreement or to perform the other obligations of the Company and Parent and Subsidiary hereunder. The Company and Parent and Subsidiary shall: (i) cooperate in the filing of all forms, notifications, reports and information, if any, required or reasonably deemed advisable pursuant to applicable statutes, rules, regulations or orders of any Governmental Authority or supra-governmental authority in connection with the transactions contemplated by this Agreement; and (ii) use their respective best efforts to cause any applicable waiting periods thereunder to expire and any objections to the transactions contemplated hereby to be withdrawn before the Effective Date. All expenses incurred in obtaining the waivers, consents and approvals described in this Section 4.06 shall be paid by the Company.

 

4.07   Financial Statements . The Company shall provide Parent with unaudited statements of assets and liabilities of the Company , and statements of revenues and expenses reflecting the results of operations of the Company for each month beginning with August 2005 within twenty (20) days of the end of each such month. All of the foregoing financial statements shall comply with the requirements concerning financial statements set forth in Section 2.07.

 

4.08   Notification of Certain Matters .

 

(a) The Company and each of the Principals, as the case may be, shall give prompt written notice to Parent of: (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Company or any of the Principals, respectively and as the case may be, contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Date; and (ii) any failure of the Company or any of the Principals, as the case may be, to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.08(a) shall not constitute an acknowledgment or admission of a breach of this Agreement. No disclosure by the Company or any of the Principals pursuant to this Section 4.08(a) shall be deemed to have cured any breach of any representation or warranty made in this Agreement for purposes of determining whether or not the conditions set forth in Article V have been satisfied, or be deemed to have cured any such breach of a representation or warranty in this Agreement and to have been disclosed as of the date of this Agreement for purposes of Article VI hereof.

 

(b) The Parent and Subsidiary shall give prompt written notice to the Company of: (i) the occurrence or non-occurrence of any event, the occurrence or non-occurrence of which is likely to cause any representation or warranty of the Parent and Subsidiary contained in this Agreement to be untrue or inaccurate in any material respect at or prior to the Effective Time; and (ii) any failure of the Parent and Subsidiary to comply with or satisfy any covenant, condition or agreement to be complied with or satisfied by it hereunder; provided, however, that the delivery of any notice pursuant to this Section 4.08(b) shall not constitute an acknowledgment or admission of a breach of this Agreement. No disclosure by the Company or any of the Principals pursuant to this Section 4.08(b) shall be deemed to have cured any breach of any representation or warranty made in this Agreement for purposes of determining whether or not the conditions set forth in Article VI have been satisfied, or be deemed to have cured any such breach of a representation or warranty in this Agreement and to have been disclosed as of the date of this Agreement for purposes of Article VI hereof.

 

4.09   Additional Documents and Further Assurances . Each party hereto, at the request of another party hereto, shall execute and deliver such other instruments and do and perform such other acts and things as may be necessary or desirable for effecting completely the consummation of the Merger and the transactions contemplated hereby.

 

4.10   Federal and State Securities Exemptions . The parties agree to use commercially reasonable efforts to ensure that the issuance of the Parent Stock Consideration will be exempt from registration under the Securities Act by reason of Section 4(2) and/or Regulation D thereof (the "Private Placement Exemption ").

 

4.11   Shareholder List . As of a date which is two (2) calendar days prior to the Effective Date, the Company shall provide Parent and its counsel with a statement certified by the principal executive officer of the Company and Principals setting forth any changes which would have been required to be set forth on Schedule 2.03 or Schedule 2.29 as if such had been made and certification that there are no outstanding options or other rights to any equity interest in the Company (the " Updated Capitalization Certificate ").

 

4.12   Non-Competition and Non-Solicitation .

 

(a) As a material inducement to Parent and Subsidiary to enter into and perform their obligations under this Agreement, and in order to preserve and protect the trade secrets and proprietary, confidential information of Parent and Subsidiary after the Closing, during the period of employment and for a period of two (2) years following the date that the employment by the Subsidiary (or an affiliate thereof) of the Principal ends (the " Noncompetition Period "), no Principal will, directly or indirectly, either for themselves or for any partnership, limited liability company, individual, corporation, joint venture or any other entity "participate in" (as defined below) any business (including, without limitation, any division, group or franchise of a larger organization) which engages in any "Internet Services and Telecommunications Business" in the parishes and counties listed on Exhibit “F” (the "Restricted Area"). For purposes of this Agreement, " Internet Services and   Telecommunications Business " shall mean the business of providing any type of telecommunication services or internet access services to any person or customer within the Restricted Area, including, without limitation, local, long distance, broadband, dial up data services, wireless, DSL, Voice-over-Internet Protocol (VoIP) and any other service or product being offered or provided by the Parent or Subsidiary or any of its affiliates. For purposes of this Agreement, the term "participate in" shall include, without limitation, having any direct or indirect interest in any corporation, partnership, limited liability company, joint venture or other entity, whether as a sole proprietor, owner, shareholder, partner, member, manager, joint venturer, creditor or otherwise, or rendering any direct or indirect service or assistance to any individual corporation, partnership, limited liability company, joint venture and other business entity (whether as a director, officer, manager, supervisor, employee, agent, consultant or otherwise). Notwithstanding the foregoing, nothing in this Section 4.12 shall prohibit any Principal or any other Non-Compete Party from owning not more than five percent (5%) of the debt or equity securities of a publicly traded corporation which may compete with Parent.

 

(b) During the Noncompetition Period, and in order to preserve and protect the trade secrets and proprietary, confidential information of Parent and the Subsidiary after the Effective Date, no Principal or any Non-Compete Party shall (i) induce or attempt to induce any employee of Parent or the Subsidiary to leave the employ of Parent or the Subsidiary, or in any way interfere with the relationship between Parent or Subsidiary or any employee thereof, (ii) hire directly or through another entity any individual employed by Parent or the Subsidiary who was previously employed by the Company, or (iii) induce or attempt to induce any customer, supplier, licensee, distributor or other business relation of Parent or the Subsidiary to cease doing business with Parent or the Subsidiary, or in any way interfere with the relationship between any such customer, supplier, licensee, distributor or business relation and Parent or the Subsidiary (including, without limitation, making any negative statements or communications concerning Parent or the Subsidiary).

 

(c) If, at the time of enforcement of this Section 4.12, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties hereto agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law. Each of the Principals with respect to the terms of this Section 4.12 agrees (and each other Non-Compete Party shall agree) that the restrictions contained in this Section 4.12 are reasonable.

 

(d) If at any time during the Noncompetition Period a Principal or any other Non-Compete Party desires to participate in an activity that he or she believes might be prohibited by this Section 4.12, such person may request in writing (a " Clarification Request ") a determination by Parent as to whether such proposed activity would violate this Section 4.12. Parent shall respond in writing to such Clarification Request (a " Clarification Response ") within thirty (30) days of receipt thereof from the requesting person.

 

(e) Each Principal by execution of this Agreement agrees to the terms of this Section 4.12 as to himself.

 

(f) The non-competition and non-solicitation obligations of each Principal shall be set forth more fully in the Employment Agreements to be executed between each Principal, respectively, and Subsidiary, on the forms attached to this Agreement as Exhibits “C” and “D.”

 

4.13   Approval of Shareholders . The Company will (i) take all steps necessary to call, give notice of, convene and hold a special meeting of its shareholders as soon as practicable for the purpose of approving and adopting this Agreement and the transactions contemplated thereby and for such other purposes as may be necessary or desirable, (ii) recommend to its shareholders the approval of this Agreement and the transactions contemplated thereby and such other matters as may be submitted to its shareholders in connection with this Agreement, and (iii) cooperate and consult with Parent and Subsidiary with respect to each of the foregoing matters. The Principals agree to vote all of their Company Common Stock in favor of the Merger.

 

4.14   No Shop . Until such time, if any, as this Agreement is terminated pursuant to Article VII, neither the Company or any of the Principals will not and each of their representatives will not directly or indirectly solicit, initiate, or encourage any inquiries or proposals from, any person (other than Parent) relating to any transaction involving the sale of the business or assets of the Company, or any of the capital stock of the Company (other than a transfer of Capital Stock caused by the exercise of the MCG Warrants), or any merger, consolidation, business combination, or similar transaction involving the Company.

 

ARTICLE V  

CONDITIONS TO THE MERGER

 

5.01   Conditions to Obligations of Each Party to Effect the Merger . The respective obligations of the Company, Parent and Subsidiary to effect the Merger shall be subject to the satisfaction at or prior to the Effective Date of the following conditions:

 

(a)  Shareholder Approval . This Agreement and the Merger shall be approved and adopted (i) by the Company Shareholders by the requisite vote under applicable law and the Company's Articles of Incorporation, (ii) by the shareholders of Subsidiary by the requisite vote under applicable law and the Subsidiary’s Certificate of Incorporation, and (iii) by the shareholders of the Parent by the requisite vote under applicable law and the Parent's Certificate of Incorporation.

 

(b)  No Order . No Governmental Entity shall have enacted, issued, promulgated, enforced or entered any statute, rule, regulation, executive order, decree, injunction or other order (whether temporary, preliminary or permanent) which is in effect and which has the effect of making the Merger illegal or otherwise prohibiting consummation of the Merger.

 

(c)  No Injunctions or Restra