-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RJPeRWUtGUZFqDABKo5DEAwCvMeWuLvMopQVOXtVus0hMCOREqBLgjEgbTSftkAe VvpcwuEpE41KLdQqpR1KOg== 0000950144-99-008831.txt : 19990715 0000950144-99-008831.hdr.sgml : 19990715 ACCESSION NUMBER: 0000950144-99-008831 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: WORLD ACCESS INC /NEW/ CENTRAL INDEX KEY: 0001071645 STANDARD INDUSTRIAL CLASSIFICATION: COMMUNICATIONS EQUIPMENT, NEC [3669] IRS NUMBER: 582398004 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-29782 FILM NUMBER: 99664301 BUSINESS ADDRESS: STREET 1: 945 EAST PACES FERRY ROAD STREET 2: SUITE 2240 CITY: ATLANTA STATE: GA ZIP: 30326 BUSINESS PHONE: 4042312025 MAIL ADDRESS: STREET 1: 945 EAST PACES FERRY ROAD STREET 2: SUITE 2240 CITY: ATLANTA STATE: GA ZIP: 30326 FORMER COMPANY: FORMER CONFORMED NAME: WAXS INC DATE OF NAME CHANGE: 19981006 8-K 1 WORLD ACCESS, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 8-K Current Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): June 30, 1999 WORLD ACCESS, INC. (Exact Name of Registrant as Specified in Charter) DELAWARE 0-29782 58-2398004 (State of (Commission File No.) (I.R.S. Employer Incorporation) Identification No.) 945 E. PACES FERRY ROAD, SUITE 2200 ATLANTA, GEORGIA 30326 (Address of principal executive offices, including zip code) (404) 231-2025 (Registrant's telephone number, including area code) 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS. Effective June 30, 1999, WA Telcom Products Co., Inc., a wholly-owned subsidiary of World Access, Inc. ("WAXS"), acquired substantially all of the assets and assumed certain liabilities of Comm/Net Holding Corporation and its wholly-owned subsidiaries, Enhanced Communications Corporation, Comm/Net Services Corporation and Long Distance Exchange Corporation (Comm/Net Holding Corporation and each of its wholly-owned subsidiaries are referred to herein collectively as "Comm/Net"). Comm/Net, headquartered in Plano, Texas, is a facilities-based provider of wholesale international long distance and wholesale prepaid calling card services, primarily to the Texas and Mexico telecommunications markets. Comm/Net had revenues of approximately $38 million during the year ended December 31, 1998. Pursuant to the terms of an Agreement and Plan of Reorganization, dated May 27, 1999, WAXS paid a total consideration of approximately $27 million, primarily in the form of newly issued shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Preferred Stock"). The consideration was determined through arms-length negotiations between the parties and estimated values of the assets and liabilities of Comm/Net and is subject to adjustment based on the receipt by WAXS of Comm/Net's 1998 audited financial statements, which shall be satisfactory to WAXS in its reasonable judgment. The Preferred Stock pays dividends on a quarterly basis and is convertible into shares of WAXS common stock at a conversion rate of $16.00 per common share, subject to standard antidilution adjustments. If the closing trading price of WAXS common stock exceeds $16.00 per share for 45 consecutive trading days, the Preferred Stock will automatically convert into WAXS common stock. The closing price of WAXS common stock on June 30, 1999 was $14.125 per share. Each holder of Preferred Stock has the right to vote, on an as-converted basis, on all matters voted on by the holders of WAXS common stock, voting together as a single class with the holders of WAXS common stock and other holders of preferred stock of WAXS. The acquisition is intended to qualify as a tax-free reorganization under Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended. The foregoing description of the transaction is qualified in its entirety by reference to the press release attached hereto as Exhibit No. 99 and incorporated herein by reference. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements. In accordance with Item 7(a)(4) of Form 8-K, the historical financial statements of Comm/Net required to be filed with the Commission will be filed as an amendment to this report under cover of Form 8-K/A on or before September 13, 1999. (b) Pro Forma Financial Information. In accordance with Item 7(b)(2) of Form 8-K, any pro forma financial information required to be filed with the Commission will be filed as an amendment to this report under cover of Form 8-K/A on or before September 13, 1999. (c) Exhibits. 2 3 EXHIBIT NUMBER DESCRIPTION 2 Agreement and Plan of Reorganization, dated May 27, 1999, by and among WA Telcom Products Co., Inc., World Access, Inc., Comm/Net Holding Corporation, Enhanced Communications Corporation, Comm/Net Services Corporation, Long Distance Exchange Corporation, Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc., Jeff Becker, Michael Billingsly, Chris Johns and Denny D. Somers. The following is a list of omitted schedules, exhibits and other attachments which World Access, Inc. agrees to furnish supplementally to the Commission upon request: SCHEDULES TO AGREEMENT 1.1(a) Assets 1.1(b) Excluded Assets 1.4 Assumed Liabilities 3.1(a) Qualification; Good Standing 3.1(b) Subsidiaries 3.1(d) Officers and Directors 3.2 Authorized and Outstanding Stock 3.4 Financial Statements 3.5 Undisclosed Liabilities 3.7(a) Real and Personal Property 3.7(b)(1) Permitted Liens 3.7(b)(2) Off-Premise Property 3.7(c) Other Property Restrictions 3.8 Leases 3.9 Indebtedness 3.10(a) Patents, Trademarks, etc. 3.10(b) Software and Databases 3.11 Litigation 3.12 Salaried Employees 3.13 Employee Benefit Plans 3.14 Collective Bargaining 3.16 Bank Accounts 3.17 Investments 3.18 Tax Matters 3.20 Licenses and Permits 3.21 Insurance Policies 3.22 Major Suppliers and Customers 3.23 Contracts and Commitments 3.24 No Conflict 3.25 Agreements in Full Force and Effect 3.26 Required Consents and Approvals 3.27 Certain Changes and Events 3.28 Accounts Receivable 4.3 No Conflict 4.5 Capitalization 11.11(a) Brokerage 11.11(b) Brokerage 3 4 EXHIBITS TO AGREEMENT C Non-Competition Agreements OTHER ATTACHMENTS Letter dated June 30, 1999 regarding post-closing purchase price adjustments 4.1 Certificate of Designation of 4.25% Cumulative Junior Convertible Preferred Stock, Series B. 4.2 Registration Rights Agreement, dated June 30, 1999, by and among Comm/Net Holding Corporation, Gregory A Somers, Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc., Chris Johns, Jeff Becker, Michael Billingsly and World Access, Inc. 99 Press Release dated July 1, 1999 announcing the acquisition of substantially all of the assets of the Comm/Net group of companies. 4 5 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on behalf of the undersigned hereunto duly authorized. WORLD ACCESS, INC. Date: July 14, 1999 By: /s/ MARTIN D. KIDDER --------------------- Martin D. Kidder Vice President and Controller 5 6 EXHIBIT INDEX Exhibit No. Document 2 Agreement and Plan of Reorganization, dated May 27, 1999, by and among WA Telcom Products Co., Inc., World Access, Inc., Comm/Net Holding Corporation, Enhanced Communications Corporation, Comm/Net Services Corporation, Long Distance Exchange Corporation, Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc., Jeff Becker, Michael Billingsly, Chris Johns and Denny D. Somers. The following is a list of omitted schedules, exhibits and other attachments which World Access, Inc. agrees to furnish supplementally to the Commission upon request: SCHEDULES TO AGREEMENT 1.1(a) Assets 1.1(b) Excluded Assets 1.4 Assumed Liabilities 3.1(a) Qualification; Good Standing 3.1(b) Subsidiaries 3.1(d) Officers and Directors 3.2 Authorized and Outstanding Stock 3.4 Financial Statements 3.5 Undisclosed Liabilities 3.7(a) Real and Personal Property 3.7(b)(1) Permitted Liens 3.7(b)(2) Off-Premise Property 3.7(c) Other Property Restrictions 3.8 Leases 3.9 Indebtedness 3.10(a) Patents, Trademarks, etc. 3.10(b) Software and Databases 3.11 Litigation 3.12 Salaried Employees 3.13 Employee Benefit Plans 3.14 Collective Bargaining 3.16 Bank Accounts 3.17 Investments 3.18 Tax Matters 3.20 Licenses and Permits 3.21 Insurance Policies 3.22 Major Suppliers and Customers 3.23 Contracts and Commitments 3.24 No Conflict 3.25 Agreements in Full Force and Effect 3.26 Required Consents and Approvals 3.27 Certain Changes and Events 3.28 Accounts Receivable 4.3 No Conflict 4.5 Capitalization 6 7 11.11(a) Brokerage 11.11(b) Brokerage EXHIBITS TO AGREEMENT C Non-Competition Agreements OTHER ATTACHMENTS Letter dated June 30, 1999 regarding post-closing purchase price adjustments 4.1 Certificate of Designation of 4.25% Cumulative Junior Convertible Preferred Stock, Series B. 4.2 Registration Rights Agreement, dated June 30, 1999, by and among Comm/Net Holding Corporation, Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc., Chris Johns, Jeff Becker, Michael Billingsly and World Access, Inc. 99 Press Release dated July 1, 1999 announcing the acquisition of substantially all of the assets of the Comm/Net group of companies. 7 EX-2 2 AGREEMENT AND PLAN OF REORGANIZATION 1 EXHIBIT 2 AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), effective as of the 27th day of May, 1999, by and among World Access, Inc., a Delaware corporation ("WAXS"), WA Telcom Products Co., Inc., a Delaware corporation and wholly-owned subsidiary of WAXS ("Buyer"), Comm/Net Holding Corporation, a Texas corporation ("Comm/Net Holding"), Enhanced Communications Corporation, a Texas corporation ("Encom"), Long Distance Exchange Corporation, a Texas corporation ("LDEC"), Comm/Net Services Corporation, a Texas corporation ("Comm/Net Services" and collectively with Comm/Net Holding, Encom and LDEC, the "Companies"), Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc., an Iowa corporation ("Teleplus"), Jeff Becker, Michael Billingsly and Chris Johns (each, a "Shareholder" and collectively, the "Shareholders"), and Denny D. Somers ("D. Somers"). W I T N E S S E T H: WHEREAS, the Companies are in the business of providing a variety of telecommunications services (the "Business"); WHEREAS, the Shareholders own all of the issued and outstanding capital stock of Comm/Net Holding; WHEREAS, Encom, LDEC and Comm/Net Services are wholly-owned, directly or indirectly, by Comm/Net Holding; WHEREAS, the Companies desire to transfer substantially all of their assets to Buyer solely in exchange for voting convertible preferred stock of WAXS and the assumption by Buyer of certain of the liabilities of the Companies, as more specifically provided herein; WHEREAS, WAXS desires that Buyer acquire the Business and substantially all of the assets of the Companies on the terms and conditions set forth herein; WHEREAS, in order to facilitate the transactions contemplated by this Agreement, each of Encom, LDEC and Comm/Net Services shall be liquidated immediately prior to the Closing (as defined in Section 1.5) so that, upon such liquidation, Comm/Net Holding will directly hold all of the assets and liabilities comprising the Companies; and 2 WHEREAS, the parties expressly intend that the transactions contemplated by this Agreement shall qualify as a "reorganization" within the meaning of Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended (the "Code"), and accordingly, as an integral part of such reorganization, Comm/Net Holding shall promptly after the Closing distribute the voting convertible preferred stock of WAXS (and any remaining assets other than those retained to pay liabilities) to the Shareholders in complete liquidation of Comm/Net Holding and dissolve; NOW, THEREFORE, in consideration of the mutual representations, warranties and covenants contained herein, and upon and subject to the terms and the conditions hereinafter set forth, the parties do hereby agree as follows: ARTICLE I THE EXCHANGE 1.1 Transfer of the Assets. Subject to the terms and conditions set forth in this Agreement, on and as of the Closing Date, Comm/Net Holding agrees to convey, assign, and transfer to Buyer, and Buyer agrees to acquire, accept and take from Comm/Net Holding all of the assets, properties and rights of every kind, nature, character and description, whether real, personal or mixed, whether tangible or intangible, whether accrued, contingent or otherwise relating to or utilized by the Companies, directly or indirectly, in whole or in part, in existence on the date hereof and any additions thereto on or before the Closing Date, whether or not carried on the books and records of the Companies and wherever located, including, without limitation, the assets, properties and rights set forth on SCHEDULE 1.1(A) (the "Assets"), except for those assets, properties and rights set forth on SCHEDULE 1.1(B) (the "Excluded Assets"). 1.2 Exchange Consideration. Subject to the terms and conditions set forth in this Agreement, and in exchange for the transfer of the Assets to Buyer as described in Section 1.1, on and as of the Closing Date, WAXS shall cause Buyer to deliver to Comm/Net Holding a certificate or certificates representing 23,174 shares of WAXS's 4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Preferred Shares"), having such powers, preferences, rights, qualifications, limitations and restrictions as set forth in the Certificate of Designation therefor attached hereto as EXHIBIT A. 1.3 Manner of Effecting Exchange. The conveyance, transfer, assignment and delivery of the Assets by Comm/Net Holding to Buyer shall be effected by such deeds, bills of sale, endorsements, assignments, transfers and other instruments of transfer and conveyance in such form, including, without limitation, warranties of title, as Buyer or Buyer's attorney shall reasonably request (the "Conveyance Documents"). 2 3 1.4 Liabilities. It is understood and agreed that Buyer shall not assume or become liable for the payment of any debts, liabilities, losses, accounts payable, bank indebtedness, mortgages, or other obligations of the Companies, whether the same are known or unknown, now existing or hereafter arising, of whatever nature or character, whether absolute or contingent, liquidated or disputed, except as expressly set forth on SCHEDULE 1.4 hereto (the "Assumed Liabilities"). Effective upon the Closing, Buyer shall, by written instrument in form and substance reasonably satisfactory to Comm/Net Holding, assume and agree to pay, perform and discharge, and to indemnify Comm/Net Holding against and hold it harmless from all obligations and liabilities of Comm/Net Holding relating to the Assumed Liabilities. WAXS shall not assume or become liable for the payment of any debts, liabilities, losses, accounts payable, bank indebtedness, mortgages or other obligations of the Companies including, without limitation, the Assumed Liabilities; provided however, that, effective upon the Closing and subject to any and all defenses and rights of offset against claims or actions by the Shareholders, D. Somers or Comm/Net Holding which Buyer would have if such claims or actions were made or brought against Buyer, WAXS shall, by written instrument in form and substance reasonably satisfactory to Comm/Net Holding, guarantee the obligations of Buyer set forth in this Section 1.4. 1.5 Closing. Subject to the satisfaction or waiver of the conditions set forth herein, the consummation of the transfer of the Assets (the "Closing") shall take place at 9:00 a.m. on June 30, 1999 in the offices of Long Aldridge & Norman LLP, Suite 5300, 303 Peachtree Street, Atlanta, Georgia, or on such other date at such other time and place as the parties shall agree in writing (the "Closing Date"). 1.6 Deliveries at Closing. Subject to satisfaction or waiver of the conditions set forth herein, the parties shall take the following actions at the Closing: (a) Comm/Net Holding and the Shareholders shall deliver, or cause to be delivered, (i) the Registration Rights Agreement substantially in the form of EXHIBIT B hereto; (ii) the Conveyance Documents; (iii) the certificate more fully described in Section 8.1 hereof; (iv) a certificate, executed by a duly authorized officer of Comm/Net Holding and dated the Closing Date, to the effect that the 1998 Audited Financial Statements (as defined in Section 5.10) have been prepared in accordance with GAAP, are true, correct and complete in all material respects and present fairly the financial position of Encom, LDEC and Comm/Net Services as of December 31, 1998, and the related results of their operations for the periods then ended; (v) the opinion more fully described in Section 8.6 hereof; and (vi) any other documents or agreements contemplated hereunder. (b) The Shareholders and D. Somers shall deliver (i) the non-competition agreements substantially in the form of EXHIBIT C hereto; and (ii) any other documents or agreements contemplated hereunder. 3 4 (c) Buyer and WAXS shall deliver, or cause to be delivered, (i) the Registration Rights Agreement substantially in the form of EXHIBIT B; (ii) the certificate more fully described in Section 7.1; and (iii) any other documents or agreements contemplated hereunder. ARTICLE II REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER AND D. SOMERS Each Shareholder and D. Somers jointly and severally represent and warrant to Buyer and WAXS as follows: 2.1 Organization. Teleplus is a corporation, duly organized, validly existing and in good standing under the laws of the State of Iowa and has all requisite power and authority, corporate or otherwise, to carry on and conduct its business as it is now being conducted and to own or lease its properties and assets, and is duly qualified and in good standing in every state or other jurisdiction (within or outside of the United States of America (the "US")) in which its conduct of business or ownership of property requires it to be so qualified. 2.2 Capitalization of Teleplus. D. Somers and Gregory A. Somers own all of the issued and outstanding capital stock of Teleplus. All of the issued and outstanding shares of capital stock of Teleplus are validly issued, fully paid and non-assessable. There is not outstanding, nor is Teleplus bound by, any subscriptions, options, preemptive rights, warrants, calls, commitments or agreements or rights of any character requiring Teleplus to issue or entitling any person or entity to acquire any additional share of capital stock or any other equity security of Teleplus. Teleplus is not obligated to issue or transfer any shares of its capital stock for any purpose. 2.3 Power and Authority. The Shareholders and D. Somers have the right, power and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary action, corporate or otherwise, on the part of the Shareholders and D. Somers. This Agreement has been duly and validly executed and delivered by the Shareholders and D. Somers and constitutes their legal, valid and binding obligation, enforceable in accordance with its terms. The execution and delivery of this Agreement by the Shareholders and D. Somers, the consummation of the transactions contemplated herein by the Shareholders and D. Somers, and the performance of the covenants and agreements of the Shareholders and D. Somers will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of any Shareholder; (ii) violate, conflict with or result in 4 5 a breach or default under or cause termination of any term or condition of any mortgage, indenture, contract, license, permit, instrument, trust document, or other agreement, document or instrument to which any Shareholder or D. Somers is a party or by which any Shareholder or D. Somers or any of its or their properties may be bound; or (iii) violate any provision of law, statute, rule, regulation, court order, judgment or decree, or ruling of any governmental authority, to which any Shareholder or D. Somers is a party or by which any Shareholder or D. Somers or its or their properties may be bound. 2.4 Securities Law Representations of the Shareholders. (a) The Preferred Shares to be received by the Shareholders upon consummation of the transactions contemplated hereby are being acquired for the Shareholders' own account; not as a nominee or agent, and not with a view to the direct or indirect sale or distribution of any part thereof and the Shareholders have no present intention of selling, granting any participation in, or otherwise distributing the same, except in compliance with the Securities Act of 1933, as amended (the "Securities Act"). (b) The Shareholders understand and acknowledge that (i) the Preferred Shares (X) have not been registered under the Securities Act or any state securities laws, (Y) are being sold in reliance upon an exemption or exemptions from the registration and prospectus delivery requirements of the Securities Act and applicable state securities laws, and (Z) must be held by the Shareholders indefinitely unless a subsequent disposition thereof is registered under the Securities Act and applicable state securities laws or is exempt therefrom, and (ii) there is not currently a trading market for the Preferred Shares and there can be no assurances that the Preferred Shares will be listed on any exchange or quoted on any quotation system. (c) The Shareholders, together with their advisors, have knowledge, skill and experience in financial, business and investment matters relating to an investment of this type and are capable of evaluating the merits and risks of such investment and protecting their interests in connection with the acquisition of the Preferred Shares. The Shareholders understand that the acquisition of the Preferred Shares is a speculative investment and involves substantial risks and that each Shareholder could lose its entire investment in the Preferred Shares. To the extent deemed necessary by a Shareholder, such Shareholder has retained, at its own expense, and has relied upon appropriate professional advice regarding the investment, tax and legal merits and consequences of purchasing and owning the Preferred Shares. Each Shareholder has the ability to bear the economic risk of investment in WAXS, including a complete loss of investment, and such Shareholder has no need for liquidity in such investment. 5 6 ARTICLE III REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER, D. SOMERS AND THE COMPANIES REGARDING THE COMPANIES The Shareholders, D. Somers and the Companies hereby, jointly and severally, represent and warrant to Buyer as set forth below. For purposes of the following representations and warranties, the term the "Company" shall refer to Comm/Net Holding, Encom, LDEC and/or Comm/Net Services, and any Subsidiary (as defined below) of Comm/Net Holding, Encom, LDEC and/or Comm/Net Services. 3.1 Organization and Authorization. (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas and has all requisite power and authority, corporate or otherwise, to carry on and conduct its business as it is now being conducted and to own or lease its properties and assets, and is duly qualified and in good standing in the states or other jurisdictions (within or outside of the US) set forth on SCHEDULE 3.1(A). The Company is duly qualified and in good standing in every state of the US and in such other jurisdictions (within or outside of the US) in which the conduct of the Business or the ownership of the Company's properties and assets requires it to be so qualified, except where the failure to be so qualified would not have a material adverse effect on the Company. (b) SCHEDULE 3.1(B) sets forth (i) every entity in which the Company owns, or will own prior to the Closing, fifty percent (50%) or more of the outstanding equity, directly or indirectly (each a "Subsidiary" and collectively, the "Subsidiaries"), and (ii) the equity interest in such entity that is owned by the Company. Except as noted on SCHEDULE 3.1(B), all outstanding shares of capital stock of the Subsidiaries (the "Subsidiary Shares") are owned by the Company, directly or indirectly, free and clear of all liens, restrictions, claims, equities, charges, options, rights of first refusal or encumbrances, with no defects of title whatsoever. The Company has full power, right and authority to vote all of the outstanding shares of capital stock of each Subsidiary. The Company is not a party to or bound by any agreement affecting or relating to its right to transfer or vote the outstanding shares of capital stock of any Subsidiary. (c) The copies of the charter documents and bylaws of the Company that have been previously delivered to Buyer are the complete, true and correct charter documents and bylaws of the Company in effect as of the date hereof. The minutes of directors' and shareholders' meetings and the stock books of the Company that have previously been delivered to Buyer are the complete, true and correct records of directors' and shareholders' meetings and stock issuances through and including the date hereof and reflect all 6 7 transactions and other matters required to be reflected in such records, as well as such other matters customarily contained in records of such type. (d) The current officers and directors of the Company are listed on SCHEDULE 3.1(D). (e) The Company has the right, power and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary action, corporate or otherwise, on the part of the Company. This Agreement has been duly and validly executed and delivered by the Company and constitutes the Company's legal, valid and binding obligation, enforceable in accordance with its terms. 3.2 Authorized and Outstanding Stock. The authorized capital stock of the Company, the number of issued and outstanding shares thereof and the record holders of such issued and outstanding shares of the Company's capital stock are set forth in SCHEDULE 3.2. All of such issued and outstanding shares of capital stock of the Company are validly issued, fully paid and nonassessable. 3.3 Absence of Other Claims. There is not outstanding, nor is the Company bound by, any subscriptions, options, preemptive rights, warrants, calls, commitments or agreements or rights of any character requiring the Company to issue or entitling any person or entity to acquire any additional shares of capital stock or any other equity security of the Company, including any right of conversion or exchange under any outstanding security or other instrument, and the Company is not obligated to issue or transfer any shares of its capital stock for any purpose. There are no outstanding obligations of the Company to repurchase, redeem or otherwise acquire any outstanding shares of capital stock of the Company. 3.4 Financial Statements. SCHEDULE 3.4 contains (i) the unaudited balance sheet of each of Encom, LDEC and Comm/Net Services as of December 31, 1996, and the related unaudited statements of income, retained earnings, and cash flows for the year then ended, and the related notes thereto; (ii) the audited balance sheet of each of Encom, LDEC and Comm/Net Services as of December 31, 1997, and the related audited statements of income, retained earnings, and cash flows for the year then ended, and the related notes thereto; (iii) the unaudited balance sheet of each of Encom, LDEC and Comm/Net Services as of December 31,1998, and the related unaudited statements of income, retained earnings, and cash flows for the year then ended, and the related notes thereto; and (iv) the unaudited balance sheet of each of Encom, LDEC, Comm/Net Services and Comm/Net Holding as of April 30, 1999, and the related unaudited profit and loss statements for the four-month period then ended, and the related notes thereto (the "Interim Financial Statements") (collectively, the "Financial Statements"). The Financial Statements are true, correct and complete in all 7 8 material respects and present fairly the financial position of Encom, LDEC, Comm/Net Services and Comm/Net Holding, as the case may be, as of the dates thereof, and the related results of their operations for the periods then ended. The Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") on a basis consistent with prior periods subject, in the case of the Interim Financial Statements, to normal and recurring year-end audit adjustments, which adjustments will not, individually or in the aggregate, be material in amount. All adjustments (including, without limitation, all adjustments related to billing services provided on behalf of the Company), consisting of normal, recurring accruals necessary for a fair presentation, have been made in the Financial Statements. 3.5 No Undisclosed Liabilities. Except as and to the extent reflected and adequately reserved against in the Financial Statements or as shown on SCHEDULE 3.5, as of December 31, 1998, the Company had no material liabilities or obligations whatsoever, whether accrued, absolute, contingent or otherwise. Since December 31, 1998, the Company has not incurred any liability or obligation whatsoever, except for (i) liabilities and obligations incurred in the ordinary course of business consistent with past practice which do not in any event exceed $50,000 in the aggregate or (ii) as reflected on SCHEDULE 3.5 (which Schedule shall describe the character and amount of such liability and obligation). 3.6 No Violation of Law. The Company is not, has not been and will not be (by virtue of any past or present action, omission to act, contract to which it is a party or any occurrence or state of facts whatsoever) in violation of any applicable local, state, federal or international law, ordinance, regulation, order, injunction or decree, or any other requirement of any governmental body, agency or authority or court binding on it, or relating to its property or the Business or its advertising, sales or pricing practices (including, without limitation, any antitrust laws and regulations), nor will the Company hereafter suffer or incur any loss, liability, penalty or expense (including, without limitation, attorneys' fees) by virtue of any such violation. 3.7 Property. (a) SCHEDULE 3.7(A) sets forth a complete and accurate list and description of all the real and personal property that the Company owns or leases, has agreed (or has an option) to purchase, sell or lease, or may be obligated to purchase, sell or lease, and with respect to personal property the net book value of which, as properly reflected in the books and records of the Company, on an individual item-by-item basis, exceeds $25,000. The Company has made available to Buyer true, correct, and complete copies of, with respect to each parcel of real property listed or described in SCHEDULE 3.7 (A), the deed evidencing the Company's ownership of such property, each mortgage or other encumbrance thereon reflected in a written instrument, each instrument (if any) evidencing a grant by or to the Company of an option to purchase or lease such property, each lease and leasehold 8 9 mortgage (if any) with respect to such property, and any title policies or commitments and surveys with respect to such property. (b) Subject to Section 3.7(c) hereof, the Company (i) has good and marketable fee simple title to all of its real property and has good and valid title to all the personal and mixed, tangible and intangible properties and assets which it purports to own, including all the real and personal properties and assets reflected, but not shown as leased or encumbered, in the Financial Statements (except for inventory and assets sold in the ordinary course of business consistent with past practice and supplies consumed in the ordinary course of business consistent with past practice); and (ii) except for Permitted Liens (as defined hereafter), owns such real and personal property free and clear of all title defects or objections, liens, restrictions, claims, charges, security interests, easements or other encumbrances of any nature whatsoever, including any mortgages, leases, chattel mortgages, conditional sales contracts, collateral security arrangements and other title or interest retention arrangements. "Permitted Liens" shall mean (x) the security interests, easements or other encumbrances described in SCHEDULE 3.7(B)(1); and (y) liens for Taxes not yet due and payable. All properties and assets of the Company are in the possession or control of the Company. SCHEDULE 3.7(B)(2) sets forth a general description and the location of any personal property (including all improvements on any real property owned by the Company) and leasehold improvements which are not located on the premises of the principal business operations of the Company. (c) Except for Permitted Liens and other matters set forth in SCHEDULE 3.7(C), no real property owned or leased by the Company is subject to (i) any governmental decree or order (or threatened or proposed order known to the Company) to be sold or taken by public authority; or (ii) any rights of way, building use restrictions, exceptions, variances, reservations or limitations of any nature whatsoever. (d) The plants, structures and equipment owned or leased by the Company are structurally sound with no known material defects, are in good and safe operating condition and repair and are adequate for the uses to which they are being put. (e) The rights, properties and other assets presently owned, leased or licensed by the Company and described in SCHEDULE 3.7(A) include all rights, properties and other assets necessary to permit the Company to conduct its business in the same manner as its business has been conducted in prior periods, without any need for replacement, refurbishment or extraordinary repair. (f) All of the inventory is merchantable and of a quality and quantity usable and saleable in the ordinary and usual course of the business of the Company, and the quantities of each type of inventory (whether raw materials, work-in-process, or finished goods) are not excessive, but are reasonable, adequate and appropriate in the present 9 10 circumstances of the Company. All of the inventory included on the Financial Statements are valued for the purposes thereof at the lower of cost or market. 3.8 Leases. SCHEDULE 3.8 contains a complete and accurate list of all leases (including any capital leases) and lease-purchase arrangements pursuant to which the Company leases real or personal property from others. SCHEDULE 3.8 specifies which of such leases, if any, are capital leases. All leases that are required to be capitalized by GAAP have been so accounted for in the Financial Statements. The Company has provided to Buyer a true, correct, and complete copy of each of the items listed on SCHEDULE 3.8. 3.9 Indebtedness. SCHEDULE 3.9 sets forth a complete and accurate list and description of all instruments or other documents relating to any direct or indirect indebtedness for borrowed money of the Company, as well as indebtedness by way of lease-purchase arrangements, guarantees, undertakings on which others rely in extending credit and all conditional sales contracts, chattel mortgages and other security arrangements with respect to personal property used or owned by the Company. The Company has provided to Buyer a true, correct, and complete copy of each of the items listed on SCHEDULE 3.9. 3.10 Intellectual Property. (a) Generally. SCHEDULE 3.10(A) sets forth a complete and accurate list and description of (i) all patents, trademarks, service marks, trademark and service mark registrations, trademark and service mark registration applications, label filings, copyrights, inventions, patents and patent applications owned or used by the Company and all agreements with respect thereto, and the jurisdiction (within or outside of the US) in or by which such trademarks, service marks, trademark and service mark registrations, trademark and service mark registration applications, label filings, copyrights, patents and patent applications have been registered, filed or issued; (ii) all trade names owned or used by the Company, and, in the case of each trade name owned by the Company, the jurisdiction (within or outside of the US) in which such trade name has been registered or filed; and (iii) all contracts, agreements or understandings pursuant to which the Company has authorized any person to use or any person has the right to use, in any business or commercial activity, any of the items listed in clauses (i) and (ii) above that are owned or used by the Company. The Company has not heretofore infringed upon, and it is not now infringing upon, any patent, service mark, trade name, trademark, copyright, trade secret, or other intellectual property belonging to any other person. The Company does not know of any person infringing upon any of the Company's patents, service marks, trademarks, copyrights, trade secrets, or other intellectual property. The Company has provided to Buyer true, correct and complete copies of each trademark and service mark registration or application therefor, patent or patent application or other item listed in SCHEDULE 3.10(A) and each assignment or license with respect to any thereof. 10 11 (b) Computer Software and Databases. SCHEDULE 3.10(B) accurately identifies, and describes the functions of, all computer software and databases owned, licensed, leased, internally developed or otherwise used in connection with the Business. The Company has, and upon consummation of the transactions contemplated by this Agreement, Buyer will have, all computer software and databases that are necessary to conduct the Business as presently conducted by the Company and all documentation relating to all such computer software and databases. The computer software and databases perform in accordance with the documentation related thereto or used in connection therewith and are free of defects in programming and operation. SCHEDULE 3.10(B) identifies each person to whom the Company, in the last two (2) years, has sold, licensed, leased or otherwise transferred or granted any interest or rights to any of the computer software and databases and the date of each such sale, license, lease or other transfer or grant. The Company has previously delivered to Buyer complete and accurate copies of all documents relating to each such sale, license, lease or other transfer or grant. Except as set forth in SCHEDULE 3.10(B), to the best of the Company's knowledge (after reasonable inquiry), all computer hardware and software (including all computer hardware and software contained in imbedded systems) used in the Business or included in products previously or currently manufactured by the Company (whether such hardware and software is owned by the Company or is licensed from third parties) (collectively, the "Technology Systems") is designed to be used prior to, during and after the calendar year 2000 and such hardware and software will continue to operate during each such time period to accurately process date data (including, but not limited to calculating, comparing and sequencing) from, into and between the twentieth and twenty-first centuries, including leap year calculations ("Year 2000 Compliance"). To the best of the Company's knowledge (after reasonable inquiry), the occurrence of the calendar year 2000 will not adversely affect the Technology Systems of the Company or of third parties using products manufactured, or services provided, by the Company. To the best of the Company's knowledge (after reasonable inquiry), no expenditures in excess of currently budgeted items is necessary to cause Technology Systems to operate properly prior to, during and after the calendar year 2000. The Company has taken reasonable steps to determine whether the failure of any third parties with which the Company has a material relationship to achieve Year 2000 Compliance could have a material adverse effect on the Company. To the best of the Company's knowledge (after reasonable inquiry), all computer hardware and software embedded in products manufactured, or services provided, by the Company, when used in combination with, or interfacing with computer hardware and software of any other person, shall accurately accept, release and exchange date data, and shall continue to function in the same manner as it performs today and shall not otherwise impair the accuracy or function ability of such person's computer hardware or software. 3.11 Litigation. Schedule 3.11 sets forth all litigation, claims, suits, actions, investigations, indictments or informations, proceedings or arbitrations, grievances or other procedures (including grand jury investigations, actions or proceedings, and product liability and workers' compensation suits, actions or proceedings) pending, or to the knowledge of the Shareholders or the Company, threatened, before any court, commission, arbitration tribunal, 11 12 or judicial, governmental or administrative department, body, agency, administrator or official, grand jury, or any other forum for the resolution of grievances, against the Company or involving any of the Assets or the Business, and (ii) indicates which of such matters are being defended by an insurance carrier, and which of the matters being so defended are being defended under a reservation of rights. Further, except as set forth in SCHEDULE 3.11, there are no judgments, orders, writs, injunctions, decrees, indictments or informations, grand jury subpoenas or civil investigative demands, plea agreements, stipulations or awards (whether rendered by a court, commission, arbitration tribunal, or judicial, governmental or administrative department, body, agency, administrator or official, grand jury or any other forum for the resolution of grievances) against or relating to the Company or involving any of the Assets or the Business. The Company has provided to Buyer true, correct, and complete copies of pleadings, briefs and other documents filed in each pending litigation, claim, suit, action, investigation, indictment or information, proceeding, arbitration, grievance or other procedure listed in SCHEDULE 3.11, and the judgements and informations, grand jury subpoenas and civil investigative demands, plea agreements, stipulations and awards listed in said Schedule. 3.12 Salaried Employees. SCHEDULE 3.12 sets forth the names, titles and current compensation (broken down by category, e.g., salary, bonus, commission) of all employees of the Company, together with the date and amount of the last increase in compensation for each such person. 3.13 Employee Benefit Plans. Except as described on SCHEDULE 3.13, the Company does not now have, maintain or contribute (and has not previously had, maintained or contributed to) any employee benefit plans, as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or any other type of retirement, deferred compensation, insurance, bonus, medical, stock option or other plan to benefit any employees or former employees of the Company (collectively, "Employee Benefit Plans"). The Company warrants and represents that neither it nor any member of its controlled group of corporations (as defined in Code Section 414) contributes or has contributed to a pension plan (as defined in Section 3(2) of ERISA) or a multiemployer plan (as defined in Section 3(37) of ERISA) which is subject to Title IV of ERISA. The Company warrants and represents that the Employee Benefit Plans have been maintained in material compliance with all applicable laws and regulations (including ERISA and the Code). The Company has received no notice that any of the Assets are currently subject to a lien or other process under Title IV of ERISA and knows of no threatened or pending action related to the Employee Benefit Plans by an employee or former employee, a plan participant, the Department of Labor, Internal Revenue Service or Pension Benefit Guaranty Corporation. 3.14 Collective Bargaining. Except as set forth on SCHEDULE 3.14, there are no labor contracts, collective bargaining agreements, letters of understanding or other arrangements, formal or informal, with any union or labor organization covering any of the Company's employees and none of said employees are represented by any union or labor 12 13 organization. The Company has made available to Buyer a true, correct, and complete copy of each agreement listed on SCHEDULE 3.14. 3.15 Labor Disputes. The Company is in compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours. The Company is not and has not been engaged in any unfair labor practice, and no unfair labor practice complaint against the Company is pending before the National Labor Relations Board. Neither the Company nor the Shareholders know or have reason to know of any labor strike or other labor trouble actually pending, being threatened against, or affecting the Company. Relations between management and labor are amicable and there have not been, nor are there presently, any attempts to organize non-union employees, nor are there plans for any such attempts. 3.16 Bank Accounts. SCHEDULE 3.16 sets forth a complete and accurate list of each bank or financial institution in which the Company has an account or safe deposit box (giving the address and account numbers) and the names of the persons authorized to draw thereon or to have access thereto. 3.17 Investments. Except for the Subsidiary Shares and as disclosed on SCHEDULE 3.17, the Company does not own any capital stock or other securities or have any other investment in any person or other entity. 3.18 Tax Matters. Except as set forth on SCHEDULE 3.18: (a) The Company has timely filed all Tax Returns or extensions that it was required to file. All such Tax Returns were true, correct and complete in all material respects. Except for those Taxes which constitute Assumed Liabilities, all Taxes (including penalties and interest in respect thereof, if any) owed by the Company (whether or not shown on any Tax Return) have been or will be by the Closing Date timely paid. The Company is not the beneficiary of any extension of time within which to file any Tax Return. The Company has not been notified by any taxing authority in a jurisdiction where it did file any Tax Returns that it is or may be subject to Taxation by that jurisdiction. There are no security interests on any of the Assets that arose in connection with any failure (or alleged failure) to pay any Tax. (b) All Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, independent contractor, creditor, shareholder, or other third party for income, social security, payroll or other Taxes have been properly withheld and, if required prior to the Closing Date, have been deposited with the appropriate taxing authority. (c) The Company and the Shareholders do not expect any taxing authority to assess any additional Taxes for any period for which Tax Returns have been 13 14 filed. There is no dispute or claim concerning any Tax liability of the Company either (i) claimed, threatened or raised by any authority in writing or (ii) as to which either the Company or any Shareholder has knowledge. SCHEDULE 3.18 lists with respect to the Company all currently pending Tax audits or other Tax examinations, all completed audits or Tax examinations for periods ending on or after December 31, 1994, and all jurisdictions in which the Company has filed Tax Returns for any period ending on or after December 31, 1994. The Company has delivered to Buyer correct and complete copies of all federal and state income Tax Returns, examination reports, and statements of deficiencies assessed against or agreed to by the Company for Taxable periods ended on or after December 31, 1994. (d) The Company has not waived any statute of limitations in respect to Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. (e) The Company has disclosed on its federal income Tax Returns all positions taken therein that could give rise to a substantial understatement of federal income Tax within the meaning of Code Section 6662. Neither the Company nor any of its Subsidiaries (i) has been a member of an affiliated group filing a consolidated federal income Tax Return (other than the affiliated group the common parent of which is Comm/Net Holding that was created as of January 27, 1999), or (ii) has any liability for the Taxes of any individual, trust, corporation, partnership or any other entity under Treasury Regulations Section 1.1502-6 (or any similar provision of state, local, or foreign law), as a transferee or successor, by contract, or otherwise. The Company has not agreed to, nor is it required to make, any adjustment under Code Section 481(a) by reason of a change in accounting method or otherwise. (f) The unpaid Taxes of the Company (i) did not, as of the most recent fiscal month end, exceed the reserve for Tax liability (exclusive of any reserve for deferred Taxes) set forth in the Financial Statements (rather than in any notes thereto), and (ii) do not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Company in filing its Tax Returns. (g) For purposes of this Agreement, "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including Taxes under Code Section 59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use transfer, registration, value added, alternative or add-on minimum, estimated, or other Tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not. "Tax Returns" means any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. 14 15 3.19 Environmental, Health and Safety Matters. No claims have been made by any governmental authority, and to the knowledge of the Company and the Shareholders, no such claim is anticipated, to the effect that the Company fails or may fail to comply with any applicable governmental, public utility, health, safety and environmental laws, regulations, orders, permits, licenses, approvals, ordinances and directives. 3.20 Required Licenses and Permits. The Company has all licenses, tariffs, permits or other authorizations of governmental authorities necessary for the production and sale of its products and provision of its services and all other licenses, tariffs, permits or other authorizations of governmental authorities necessary for the conduct of the Business. A correct and complete list of all such licenses, tariffs, permits and other authorizations is set forth on Schedule 3.20. The Company has provided to Buyer true, correct, and complete copies of all written licenses, tariffs, permits and other authorizations listed on SCHEDULE 3.20. 3.21 Insurance Policies. SCHEDULE 3.21 sets forth a complete and accurate list and description of all insurance policies in force naming the Company, or any employees thereof in their capacity as such, as an insured or beneficiary or as a loss payable payee, or for which the Company has paid or is obligated to pay all or part of the premiums. The Company has not received notice of any pending or threatened termination or premium increase (retroactive or otherwise) with respect thereto, and the Company is in compliance with all conditions contained therein. There have been no lapses (whether cured or not) in the coverage provided under the insurance policies, referenced herein and as set forth on SCHEDULE 3.21, during the term of such policies, as extended or renewed. The Company has provided to Buyer true, correct, and complete copies of each of the policies listed on SCHEDULE 3.21. 3.22 Major Suppliers and Customers. SCHEDULE 3.22 sets forth a list of each supplier of goods or services to, and each customer of, the Company, to whom the Company paid or billed in the aggregate more than $100,000 during the 12-month period ended March 31, 1999, together, in each case, with the amount paid or billed during such period. The Company is not engaged in any dispute with any of such suppliers or customers. Neither the Company nor any Shareholder knows or has any reason to believe that the consummation of the transactions contemplated hereunder will have any adverse effect on the business relationship of the Company with any such supplier or customer. 3.23 Contracts and Commitments. Except as set forth in SCHEDULES 3.8, 3.9, 3.13, 3.14, 3.21, and 3.23: (a) The Company does not have any agreement or contract that is material to its business, operations or prospects; 15 16 (b) No contracts or commitments of the Company continue for a period of more than six (6) months from the date hereof or may require payments, in the aggregate, in excess of $10,000; (c) The Company does not have any outstanding contract, written or oral, with any officer, employee, agent, consultant, advisor, salesman, manufacturer's representative, distributor, dealer, subcontractor, or broker that is not cancelable by the Company, on notice of not longer than thirty (30) days and without liability, penalty or premium of any kind, except liabilities which arise as a matter of law upon termination of employment, or any agreement or arrangement providing for the payment of any bonus or commission based on sales or earnings; (d) The Company is not under any liability or obligation under any agreement pursuant to which third parties have been provided with products that can be returned to the Company or a Subsidiary in the event they are not sold and which could involve a liability of the Company of $10,000 or more in the aggregate; (e) The Company does not have (i) any outstanding loan or loan commitment (excluding credit extended in the ordinary course of business consistent with past practice to purchasers of inventory) to any person, or (ii) any factoring, credit line or subordination agreement; (f) Except as noted on SCHEDULE 3.9 and except for negotiable instruments in the process of collection, the Company does not have any power of attorney outstanding or any contract, commitment or liability (whether absolute, accrued, contingent or otherwise), as guarantor, surety, co-signer, endorser, co-maker, indemnitor in respect of the contract or commitment of any other person, corporation, partnership, joint venture, association, organization or other entity; (g) There are no contracts or agreements with any director, officer or shareholder of the Company, or with any person related to any such person or with any company or other organization in which any director, officer, or shareholder of the Company, or anyone related to any such person, has a direct or indirect financial interest; (h) The Company is not subject to any contract or agreement containing covenants limiting the freedom of the Company to compete in any line of business in any geographic area or requiring the Company to share any profits; (i) To the knowledge of the Shareholders and the Company, the Company is not a party to or bound by any presently existing contract, agreement or other arrangement that has had or may in the future have a material adverse effect upon the business, earnings, prospects or financial condition of the Company; 16 17 (j) There is no contract, agreement or other arrangement entitling any person or other entity to any profits, revenues or cash flows of the Company or requiring any payments or other distributions based on such profits, revenues, or cash flows; and (k) The Company has provided to Buyer true, correct and complete copies of each of the agreements listed on SCHEDULE 3.23. 3.24 No Conflict. The execution and delivery of this Agreement by the Company, the consummation of the transactions contemplated herein by the Company, and the performance of the covenants and agreements of the Company will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of the Company; or (ii) except as set forth in SCHEDULE 3.24, violate, conflict with or result in a breach or default under or cause termination of any term or condition of any mortgage, indenture, contract, license, permit, instrument, trust document, will, or other agreement, document or instrument to which the Company is a party or by which the Company or its properties may be bound; or (iii) violate any provision of law, statute, regulation, court order or ruling of any governmental authority, to which the Company is a party or by which it or its properties may be bound; or (iv) result in the creation or imposition of any lien, claim, charge, restriction, security interest or encumbrance of any kind whatsoever upon any Asset. 3.25 Agreements in Full Force and Effect. Except as expressly set forth in SCHEDULE 3.25, all contracts, agreements, plans, leases, policies, licenses, permits, tariffs, or other authorizations referred to, or required to be referred to, in any Schedule delivered hereunder are valid and binding, and are in full force and effect and are enforceable in accordance with their terms, except to the extent that the validity or enforceability thereof may be limited by bankruptcy, insolvency, reorganization and other similar laws affecting creditors' rights generally. Neither the Shareholders nor the Company has any knowledge of any pending or threatened bankruptcy, insolvency or similar proceeding with respect to any party to such agreements, and no event has occurred which (whether with or without notice, lapse of time or the happening or occurrence of any other event) would constitute a default thereunder by the Company or to the knowledge of the Shareholders and the Company any other party thereto. 3.26 Required Consents and Approvals. Except as set forth in SCHEDULE 3.26, no consent or approval is required by virtue of the execution hereof by the Company or the consummation of any of the transactions contemplated herein by the Company to avoid the violation or breach of, or the default under, or the creation of a lien on any Asset of the Company pursuant to the terms of, any regulation, order, decree or award of any court or governmental agency or any lease, agreement, contract, mortgage, note, license, permit, tariff, authorization or any other instrument to which the Company is a party or to which it or any of its property or any of its capital stock is subject. 17 18 3.27 Absence of Certain Changes and Events. Except as set forth in SCHEDULE 3.27, since December 31, 1998, the Company has conducted its business only in the ordinary course, and has not: (a) suffered any damage or destruction adversely affecting the Assets or the Business; (b) made any declaration, setting aside or payment of any dividend or other distribution of assets (whether in cash, stock or property) with respect to the capital stock of the Company, or any direct or indirect redemption, purchase or other acquisition of such stock, or otherwise made any payment of cash or any transfer of other assets, to any shareholder or affiliate thereof (including, without limitation, the repayment of or on any indebtedness or other obligation); or transferred any assets from a Subsidiary to the Company; (c) suffered any material adverse change in its working capital, assets, liabilities, financial condition, business prospects, or relationships with any suppliers or customers listed on SCHEDULE 3.22; (d) except for customary increases based on term of service or regular promotion of non-officer employees, increased (or announced any increase in) the compensation payable or to become payable to any employee, or increased (or announced any increase in) any bonus, insurance, pension or other employee benefit plan, payment or arrangement for such employees, or entered into or amended any employment, consulting, severance or similar agreement; (e) incurred, assumed or guaranteed any liability or obligation (absolute, accrued, contingent or otherwise) other than in the ordinary course of business consistent with past practice; (f) paid, discharged, satisfied or renewed any claim, liability or obligation other than payment in the ordinary course of business and consistent with past practice; (g) permitted any Asset to be subjected to any mortgage, lien, security interest, restriction, charge or other encumbrance of any kind except for Permitted Liens; (h) waived any material claims or rights; (i) sold, transferred or otherwise disposed of any Asset, except in the ordinary course of business consistent with past practice; 18 19 (j) made any single capital expenditure or investment in excess of $10,000; (k) made any change in any method, practice or principle of financial or tax accounting; (l) managed working capital components, including cash, receivables, other current assets, trade payables and other current liabilities in a fashion inconsistent with past practice, including failing to sell inventory and other property in an orderly and prudent manner or failing to make all budgeted and other normal capital expenditures, repairs, improvements and dispositions; (m) paid, loaned, advanced, sold, transferred or leased any Asset to any employee, except for normal compensation involving salary and benefits; (n) issued or sold any of its capital stock or issued any warrant, option or other right to purchase shares of its capital stock, or any security convertible into its capital stock; (o) entered into any material commitment or transaction, other than in the ordinary course of business consistent with past practice, affecting the Business; or (p) agreed in writing, or otherwise, to take any action described in this Section 3.27. 3.28 Accounts Receivable. (a) All accounts receivable owed to the Company by any director, officer, shareholder or employee of the Company or any relative of any such person (including those accounts receivable reflected on the Financial Statements and incurred since the dates thereof ) have been paid in full prior to the date hereof or shall have been paid in full prior to the Closing Date. (b) All accounts receivable of the Company (i) are valid, existing and fully collectible (subject to an allowance for doubtful accounts in the amount of $76,000 (in the case of LDEC); $126,282.86 (in the case of Encom); and $701,162.61 (in the case of Comm/Net Services)) without resort to legal proceedings or collection agencies, (ii) represent monies due for goods sold or services rendered in the ordinary course of business, and (iii) are not subject to any defenses, rights of set-off, assignment, restrictions, security interests or other encumbrances. Except as shown on SCHEDULE 3.28, as of the date of such Schedule, all such accounts receivable were less than ninety (90) days past due from the date the customer therefor was billed, and neither the Company nor any Shareholder is aware of any dispute regarding the collectibility of any such accounts receivable. All reserves shown on 19 20 the Financial Statements were adequate as of such dates calculated consistent with past practice. 3.29 Disclosure. No representations, warranties, assurances or statements by any Shareholder or the Company in this Agreement and no statement contained in any document (including the Financial Statements and the Schedules), certificates or other writings furnished or to be furnished by any Shareholder or the Company (or caused to be furnished by any Shareholder or the Company) to Buyer or any of its representatives pursuant to the provisions hereof contains or will contain any untrue statement of material fact, or omits or will omit to state any fact necessary, in light of the circumstances under which it was made, in order to make the statements herein or therein not misleading. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND WAXS Buyer and WAXS hereby represent and warrant to the Companies, D. Somers and the Shareholders as follows: 4.1 Organization. Buyer and WAXS are corporations duly organized, validly existing and in good standing under the laws of the State of Delaware and have all requisite corporate power and authority to effect the transactions contemplated hereunder. 4.2 Authorization. Buyer and WAXS have the right, power and capacity to execute, deliver and perform this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of Buyer and WAXS. This Agreement has been duly and validly executed and delivered by Buyer and WAXS and constitutes a legal, valid and binding obligation of Buyer and WAXS, enforceable in accordance with its terms. 4.3 No Conflict. The execution and delivery of this Agreement by Buyer and WAXS, the consummation of the transactions contemplated herein by Buyer and WAXS, and the performance of the covenants and agreements of Buyer or WAXS will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of Buyer or WAXS; (ii) subject to obtaining the consents set forth on SCHEDULE 4.3, violate, conflict with or result in a breach or default under or cause termination of any term or condition of any mortgage, indenture, contract, license, permit, instrument, trust document, or other agreement, document or instrument to which Buyer or WAXS is a party or by which Buyer or WAXS or any of its or their properties may be bound; or (iii) violate any provision of law, statute, rule, regulation, 20 21 court order, judgment or decree, or ruling of any governmental authority, to which Buyer or WAXS is a party or by which Buyer or WAXS or any of its or their properties may be bound. 4.4 Validity of Issuance. The Preferred Shares, when issued in accordance with Section 1.2 hereof, will be duly authorized, validity issued, fully paid and nonassessable. 4.5 Capitalization. As of the date hereof, the authorized capital stock of WAXS consists of 150,000,000 shares of common stock, par value $0.01 per share ("Common Stock"), and 10,000,000 shares of preferred stock, par value $.01 per share ("Preferred Stock"), of which as of the date hereof, 44,802,809 shares of Common Stock and 50,000 shares of Preferred Stock are issued and outstanding. Except as set forth on SCHEDULE 4.5, there is not outstanding, nor is WAXS bound by, any subscriptions, options, preemptive rights, warrants, calls, commitments or agreements or rights of any character requiring WAXS to issue or entitling any person or entity to acquire any additional shares of capital stock or any other equity security of WAXS, including any right of conversion or exchange under any outstanding security or other instrument, and WAXS is not obligated to issue or transfer any shares of its capital stock for any purpose. 4.6 Reports and Financial Statements. (a) WAXS has filed all reports required to be filed by it with the SEC since December 31, 1998 pursuant to Sections 13, 14 and 15 of the Securities Exchange Act of 1934, as amended. None of the WAXS SEC Reports, as of their respective dates, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. For purposes of this Section 4.6, "WAXS SEC Reports" means, with respect to WAXS, its (i) Annual Report on Form 10-K for the year ended December 31, 1998, filed with the Securities and Exchange Commission ("SEC"), (ii) proxy statement relating to a meeting of stockholders scheduled to occur on June 15, 1999, as filed with the SEC on April 30, 1999, (iii) Quarterly Reports on Form 10-Q filed by WAXS with the SEC since December 31, 1998, and (iv) Current Reports on Form 8-K filed by WAXS with the SEC since December 31, 1998. (b) Except as disclosed in the WAXS SEC Reports filed prior to the date hereof, since March 31, 1999, WAXS has not incurred any liabilities that are of a nature that would be required to be disclosed on a balance sheet of WAXS, other than (i) liabilities incurred in the ordinary course of business, or (ii) liabilities that would not have a material adverse effect on WAXS. 4.7 Employee Benefit Plans. The WAXS Employee Benefit Plans have been maintained in material compliance with all applicable laws and regulations (including ERISA and the Code). For purposes of this Section 4.7, "WAXS Employee Benefit Plans" shall mean any employee benefit plans, as defined in Section 3(3) of ERISA, or any other type of 21 22 retirement, deferred compensation, insurance, bonus, medical, stock option or other plan to benefit any employees or former employees of WAXS. ARTICLE V COVENANTS OF THE SHAREHOLDERS AND THE COMPANIES 5.1 Pre-Closing Operations of the Companies. The Shareholders and the Companies hereby covenant and agree that, except as consented to in writing by Buyer, pending the Closing, the Companies will operate and conduct the Business, and the Shareholders shall cause the Companies to conduct the Business, only in the ordinary course in accordance with prior practice, and carry on the Business diligently and substantially in the manner as heretofore conducted and not make or institute any methods of manufacture, purchase, sale, lease, management, accounting or operation except in the ordinary course of business consistent with past practice. Pursuant thereto and not in limitation of the foregoing (for purposes of this Section 5.1, the term the "Company" shall refer to Comm/Net Holding, Encom, LDEC, Comm/Net Services and/or any Subsidiary thereof): (a) The Company shall manage its working capital, including cash, receivables, other current assets, trade payables and other current liabilities, in a fashion consistent with past practice, including by selling inventory and other property in an orderly and prudent manner and paying outstanding obligations, trade accounts and other indebtedness as they come due. (b) No material contract or commitment of any kind relating to the Company or the Business shall be entered into without the prior written consent of Buyer (for purposes hereof, the word "material" shall refer to any contract or commitment which, if it had been entered into prior to execution of this Agreement, would have been disclosed in Schedules 3.8, 3.9, 3.13, 3.14, 3.21 or 3.23). Any such contract, entered into with the prior written consent of the Buyer, shall be deemed to have been disclosed in the appropriate schedule. (c) The Company shall maintain the Assets in their present state of repair (ordinary wear and tear excepted), shall use its best efforts to keep available the services of its employees, and preserve the goodwill of its business and relationships with the customers, licensors, suppliers, distributors and brokers with whom it has business relations. (d) Except as otherwise provided for herein, the Company shall not take any of the following actions after the date of this Agreement without the prior written consent of Buyer: 22 23 (i) Dispose of any Assets other than in the ordinary course of business consistent with past practice; (ii) Mortgage, pledge or subject to liens or other encumbrances any Assets, except by incurring Permitted Liens; (iii) Purchase or commit to purchase any capital asset for a price exceeding $10,000; (iv) Increase (or announce any increase of) any salaries, wages or employee benefits or hire or commit to hire any employee for a salary or wage or with benefits in excess of those paid or provided by the Company in the ordinary course of business; (v) Amend any charter document or bylaw; (vi) Issue, sell or repurchase any of its capital stock, or make any change in its issued and outstanding capital stock, or issue any warrant, option or other right to purchase shares of its capital stock or any security convertible into its capital stock, or redeem, purchase or otherwise acquire any shares of its capital stock, or declare any dividends or make any other distribution with respect to its stock; (vii) Incur, assume or guarantee any obligation or liability for borrowed money, or exchange, refund or renew any outstanding indebtedness in such a manner as to reduce the principal amount of such indebtedness and increase the interest rate or balance outstanding; (viii) Cancel any debts; (ix) Amend or terminate any material agreement (except as otherwise contemplated by this Agreement) or any insurance policy, in force on the date hereof; (x) Make any changes in accounting methods, principles or practices; (xi) Do any act, omit to do any act or permit any act within the Shareholders' or the Company's control which will cause a breach of any representation, warranty or obligation contained in this Agreement or any obligations contained in any contract; or (xii) Issue substitute stock certificates to replace certificates which have been lost, misplaced, destroyed, stolen or are otherwise irretrievable, unless an adequate 23 24 bond or indemnity agreement approved by Buyer has been duly executed and delivered to the Company. 5.2 Access. From the date of this Agreement through the Closing Date, the Companies shall (i) provide Buyer and its designees (i.e., officers, counsel, accountants, actuaries, and other authorized representatives) with such information as Buyer may from time to time reasonably request with respect to the Companies and the transactions contemplated by this Agreement; (ii) provide Buyer and its designees, access during regular business hours and upon reasonable notice to the books, records, offices, personnel, counsel, accountants and actuaries of the Companies, as Buyer or its designees may from time to time reasonably request; and (iii) permit Buyer and its designees to make such inspections thereof as Buyer and its designees may reasonably request. Any investigation shall be conducted in such a manner so as not to interfere unreasonably with the operation of the business of the Companies. No such investigation shall limit or modify in any way the Shareholders' or the Companies' obligations with respect to any breach of their representations, warranties, covenants or agreements contained herein. 5.3 Interim Financials. As promptly as practicable after each regular accounting period subsequent to April 30, 1999, and prior to the Closing Date, each Company will deliver to Buyer periodic financial reports in the form which it customarily prepares for its internal purposes concerning the Company and, if available, unaudited statements of the financial position of the Company as of the last day of each accounting period and statements of income and changes in financial position of the Company for the period then ended. 5.4 Taxes. Except to the extent that Taxes of the Companies constitute Assumed Liabilities, Comm/Net Holding and the Shareholders shall be severally responsible for all Taxes imposed separately on each of them, including but not limited to, document recording fees, real property transfer taxes, sales and excise taxes, arising out of or in connection with the consummation of the transactions contemplated hereby. 5.5 Exclusivity. Pending the Closing, the Companies, D. Somers and the Shareholders (including their respective representatives, agents and/or advisors) will not, and the Shareholders will not cause or permit the Companies (including their respective representatives, agents and/or advisors) to, (i) solicit, initiate, or encourage the submission of any proposal or offer from any person relating to the acquisition of any capital stock or other voting securities of the Companies, or any substantial portion of the Assets (including, any acquisition structured as a merger, consolidation, reorganization or share exchange) or (ii) participate in any discussions or negotiations regarding, furnish any information with respect to, assist or participate in, or facilitate in any other manner any effort or attempt by any person to do or seek any of the foregoing. The Companies, D. Somers and the Shareholders, as applicable, will notify Buyer immediately if any person makes any proposal, offer, inquiry or contact with respect to any of the foregoing. 24 25 5.6 Termination of Employee Benefit Plans. As soon as practical following the Closing Date, Comm/Net Holding shall terminate, or cause to be terminated, each Employee Benefit Plan listed on SCHEDULE 3.13. Neither Buyer nor WAXS shall adopt, assume or otherwise become responsible for, either primarily or as a successor employer, any assets or liabilities of any employee benefit plans, arrangements, commitments or policies currently provided by any of the Companies (including but not limited to those identified on SCHEDULE 3.13); and if and to the extent that Buyer or WAXS is deemed by law or otherwise to be liable as a successor employer for such purposes, Comm/Net Holding and the Shareholders shall jointly and severally indemnify Buyer and WAXS for the full and complete costs, fees and other liabilities which result therefrom. 5.7 Liquidation of Encom, LDEC, and Comm/Net Services. Unless this Agreement is earlier terminated pursuant to Article XI hereof, on or before the Closing Date, Comm/Net Holding shall cause each of Encom, LDEC and Comm/Net Services to be completely liquidated into Comm/Net Holding pursuant to their respective articles of incorporation, bylaws, and the applicable provisions of the Texas Business Corporation Act (including, without limitation, Sections 6.02 or 6.03, 6.04, 6.06, 6.07 and 7.12 thereof), intending in each case that such liquidations shall constitute a "complete liquidation" by Comm/Net Holding of Encom, LDEC and Comm/Net Services within the meaning of Section 332 of the Code. 5.8 Tax-Free Reorganization. The parties hereto have structured the transactions contemplated in this Agreement intending that such transactions qualify as a "reorganization" within the meaning of Section 368(a)(1)(C) of the Code and hereby agree not to take any action with the intention of causing the transactions contemplated hereunder to fail to so qualify; provided however, that the foregoing is not intended in any way to limit a party's exercise of its rights under this Agreement. From and after the Closing and as required by Section 368(a)(2)(G) of the Code, Comm/Net Holding shall cease to engage in any business and, in accordance with its articles of incorporation, bylaws, the Texas Business Corporation Act and other applicable Texas statutes, shall promptly liquidate and dissolve as a corporation and shall distribute to the Shareholders in complete liquidation all of its remaining assets (including the Preferred Shares received by it pursuant to the terms and conditions hereof), other than assets retained to satisfy its liabilities. Comm/Net Holding shall not transfer any of the Preferred Shares (or any interest or right therein), except to the Shareholders as part of the liquidation described in this Section 5.8; provided, however, that Comm/Net Holding may transfer such number of Preferred Shares to Buis & Co. as are necessary to compensate Buis & Co. for services provided to Comm/Net Holding in connection with the transactions contemplated hereby. The Companies shall timely file all remaining unfiled Tax Returns required to be filed by them, including the final Tax Returns reflecting their complete liquidation, and shall pay all Taxes reflected on all such Tax Returns, except for those Taxes which constitute Assumed Liabilities. All of the parties hereto agree that the books and records of Comm/Net Holding, Buyer, WAXS and the Shareholders shall be maintained and their respective Tax Returns filed in a manner 25 26 consistent with qualification as a "reorganization," and each party shall provide to each other party such tax information, reports or schedules as may be reasonably required to assist such party in accounting for and reporting the transactions contemplated in this Agreement as so qualified. Comm/Net Holding and the Shareholders expressly acknowledge and agree that WAXS and Buyer shall have no liability whatsoever to any party or taxing authority in the event that the transactions contemplated by this Agreement do not qualify as a "reorganization" under the Code, and Comm/Net Holding and the Shareholders hereby jointly and severally indemnify and agree to hold WAXS and Buyer harmless with respect to any such claim or assertion; provided, however, that Comm/Net Holding and the Shareholders shall have no obligation to jointly and severally indemnify WAXS and Buyer with respect to any such claim or assertion where the failure of the transactions contemplated by this Agreement to qualify as a "reorganization" under the Code is expressly identified as having been caused by a breach by WAXS or Buyer of their respective obligations under this Agreement. 5.9 Post-Closing Drop-Down of Assets. After the Closing and pursuant to the plan of reorganization set forth in this Agreement, Buyer intends to transfer the Assets (and some or all of the Assumed Liabilities) to World Access Telecommunications Group, Inc. and shall effectuate any such transfer in a manner permitted under Section 368(a)(2)(C) of the Code and Treasury Regulation Section 1.368-2(k). WAXS shall continue the historic business of Comm/Net Holding or use a significant portion of Comm/Net Holding's historic business assets in a business, in each case, within the meaning of Treasury Regulation Section 1.368-1(d). 5.10 Preparation of Financial Statements. Comm/Net Holding shall prepare, or cause to be prepared, the audited balance sheet of each of Encom, LDEC and Comm/Net Services as of December 31, 1998, and the related audited statements of income, retained earnings, and cash flows for the year then ended, and the related notes thereto (the "1998 Audited Financial Statements"). 5.11 Preparation of Supporting Documents. In addition to such actions as the Companies may otherwise be required to take under this Agreement or applicable law in order to consummate this Agreement and the transactions contemplated hereby, the Shareholders and the Companies shall take such action, shall furnish such information, and shall prepare, or cooperate in preparing, and execute and deliver such certificates, agreements and other instruments as Buyer may reasonably request from time to time, before, at or after the Closing, with respect to compliance with the obligations of Buyer, the Shareholders or the Companies in connection with the transactions contemplated herein. Any information furnished by the Shareholders or the Companies before or at the Closing shall be true, current and complete in all material respects and shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. 26 27 5.12 Notification. Between the date hereof and the Closing Date, the Shareholders, the Companies and D. Somers shall promptly notify Buyer in writing if any of the Shareholders, the Companies or D. Somers become aware of any fact, matter or condition that causes or constitutes a breach of any representation or warranty contained in this Agreement, or if the Shareholders, the Companies or D. Somers become aware of the occurrence after the date hereof of any fact, matter or condition that, had it existed on the date hereof, would cause or constitute a breach of any representation or warranty had such representation or warranty been made as of the time of the occurrence or discovery of such fact, matter or condition. If any such fact, matter or condition would require a change in a Schedule if such Schedule were dated as of the occurrence or discovery of such fact, matter or condition, the Shareholders, the Companies and D. Somers shall promptly deliver to Buyer a supplemented Schedule specifying such change. During the same period, the Shareholders, the Companies and D. Somers shall promptly notify Buyer of any breach of any covenant or agreement in this Agreement or of the occurrence of any event that may make the satisfaction of the conditions in Section 8 impossible or unlikely. Except with respect to the disclosure on a supplemental Schedule of actions taken after the date hereof by the Shareholders, the Companies and/or D. Somers which are expressly permitted under Sections 5.1(b) or (d) of this Agreement, no disclosure or supplement pursuant to this Section 5.12 shall be deemed to prevent or cure any breach of representation or warranty or failure to perform any covenant or agreement hereunder for purposes of Section 8.1. ARTICLE VI COVENANTS OF THE PARTIES The Companies, the Shareholders and Buyer, respectively, hereby covenant to and agree with one another as follows: 6.1 Approvals of Third Parties; Satisfaction of Conditions to Closing. The Companies, the Shareholders and Buyer will use their reasonable, good faith efforts, and will cooperate with one another, to secure all necessary consents, approvals, authorizations and exemptions from governmental agencies and other third parties, including, without limitation, all consents required by Sections 8.4 and 8.5. If any consent or approval is not obtained prior to or on the Closing Date, and such consent or approval relates to the transfer or assignment to Buyer of a lease, contract, mortgage, note, Remaining License (as defined in Section 6.6) or other agreement or arrangement to which one or more of the Companies is a party (a "Company Instrument"), Comm/Net Holding shall hold such Company Instrument in trust for the use and benefit of Buyer, and shall take such other action as may be reasonably requested by Buyer in order to place Buyer in the same position as if such consents or approvals had been obtained. The Companies and the Shareholders will use their reasonable, good faith efforts to obtain the satisfaction of the conditions specified in Article 27 28 VIII. Buyer will use its reasonable, good faith efforts to cause or obtain the satisfaction of the conditions specified in Article VII. 6.2 Confidentiality. In connection with this Agreement the parties may have access to information which is nonpublic, confidential or proprietary in nature. All of such information, in whole or in part, together with any analyses, compilations, studies or other documents prepared by any party, which contain or otherwise reflect any such information is hereinafter referred to as the "Information". Each party hereby agrees that the Information will be kept confidential and shall not, without the prior mutual written consent of the parties, be disclosed, in any manner whatsoever, in whole or in part, and shall not be used by any party following the termination of this Agreement. Each party agrees to transmit the Information only to its respective employees and representatives who need to know the Information and who shall agree to be bound by the terms and conditions of this Agreement. In any event, each party shall be responsible for any breach of this Agreement by its respective employees or representatives. If the transactions contemplated hereunder are not consummated, the Information, except for that portion of the Information which consists of analyses, compilations, studies or other documents prepared by each party's respective employees and representatives, will be returned to the other promptly upon request and no party shall retain any copies. That portion of the Information, and all copies thereof, which consists of analyses, compilations, studies or other documents prepared by each party's respective employees and representatives will be kept confidential and subject to the terms of this Agreement or destroyed. In the event any party becomes legally compelled to disclose any of the Information, such party will provide to the other parties prompt notice so that each other party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or compliance with the provisions of this Agreement is waived, a party will furnish only that portion of the Information which is legally required, and to the extent requested by the other parties, will exercise its best efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Information. The term "Information" does not include information which (i) was known to any party about another party prior to its disclosure, provided that such information was lawfully obtained or developed, (ii) becomes generally available to the public other than as a result of a disclosure by a party in violation of this Agreement, or (iii) becomes available from a source other than a party to this Agreement, if the source is not bound by a confidentiality agreement and such source lawfully obtained such information. 6.3 Casualty. The Companies shall bear the risk of any loss or damage or destruction to any of the Assets from fire or other casualty or cause at all times prior to the Closing. Upon the occurrence of any loss or damage to any portion of the Assets as a result of fire, casualty, or other cause prior to the Closing, the Companies shall immediately notify Buyer of the same in writing, stating with particularly the extent of loss or damage incurred, the cause thereof, if known, and the extent to which restoration, replacement, and repair of the Assets lost or destroyed will be reimbursed under any insurance policy with respect 28 29 thereto. Buyer shall have the option, but not the obligation, exercisable within ten (10) days after receipt of such notice from the Company to: (a) Elect to consummate the Closing and accept the Assets in their "then" condition, in which event the Companies shall assign to Buyer all rights under any insurance claim covering the loss and pay over to Buyer any proceeds under any such insurance policy theretofore received by the Companies with respect thereto; or (b) Terminate this Agreement, whereupon this Agreement shall be of no further force or effect and neither the Companies nor Buyer shall have any further rights, duties, or obligations hereunder. 6.4 Hart-Scott-Rodino Notifications. The parties shall promptly prepare and file any required notifications with the United States Justice Department (the "Justice Department") and the Federal Trade Commission (the "FTC") as required by the Hart-Scott- Rodino Antitrust Improvements Act of 1976, as amended ("H-S-R"). The parties shall cooperate with each other in connection with the preparation of such notifications, including sharing information concerning sales and ownership and such other information as may be needed to complete such notification, and providing a copy of such notifications to the other prior to filing; provided, that Buyer and WAXS shall have the right to redact any dollar revenue information from the copies of such notifications provided to the other parties. The parties shall keep all information about the other obtained in connection with the preparation of such notification confidential pursuant to the terms of Section 6.2. Each party shall pay the filing fee required by the regulations promulgated pursuant to H-S-R with respect to the notification for which such party is the "Acquiring Person" (as defined in the regulations promulgated pursuant to H-S-R). In the event that any party shall receive any request for additional information or documentary material from the Justice Department or the FTC (i) Buyer shall be primarily responsible for responding to such request, (ii) the other parties shall provide Buyer with all information, documents and other assistance as Buyer may request in connection with responding to such request, and (iii) Comm/Net Holding shall not respond to such request or furnish any additional information or documentary material except as consented to or requested by Buyer or as required by applicable law. 6.5 Shareholder Promissory Notes. (a) As of the date hereof, the aggregate outstanding amount owed under (i) that certain Promissory Note, dated January 27, 1999, by Comm/Net Holding, as maker, in favor of R. Scott Birdwell, as holder, (ii) that certain Promissory Note, dated January 27, 1999, by Comm/Net Holding, as maker, in favor of Gregory A. Somers, as holder, (iii) that certain Promissory Note, dated January 27, 1999, by Comm/Net Holding, as maker, in favor of Teleplus, as holder, and (iv) that certain Promissory Note, dated January 27, 1999, by Comm/Net Holding, as maker, in favor of Kelli J. Somers, as holder, is $3,478,670.90, of which $78,670.90 represents accrued but unpaid interest and $3,400,000 represents the 29 30 outstanding principal amount (collectively, the "Notes"; individually, a "Note"). Prior to the Closing, (a) interest shall accrue under the Notes in accordance with their terms and (b) no amendment or modification shall be made to the Notes and no payments shall be made under or with respect thereto. (b) Pursuant to Section 1.4, at the Closing, Buyer shall assume the outstanding balance due under each Note. Immediately following the Closing, Buyer shall pay off the outstanding balance due under each Note pursuant to written instructions delivered by R. Scott Birdwell, Gregory A. Somers, Teleplus and Kelli J. Somers at least three (3) business days prior to the Closing. Immediately upon receipt of such payment, the original Notes marked "Paid in Full" shall be delivered to Buyer and all obligations thereunder or with respect thereto shall be satisfied. 6.6 Governmental Authorizations. (a) Upon execution of this Agreement, the Companies shall, and the Shareholders shall cause the Companies to, take all reasonable actions to secure any and all necessary consents or approvals required to transfer to Buyer or its ultimate designee, World Access Telecommunications Group, Inc., as well as one or more controlled subsidiaries in order to effectuate the post-Closing drop-down of the Assets contemplated by Section 5.9 hereof (hereinafter, "Buyer or its designee"), the licenses, permits or other authorizations of governmental authorities which regulate the conduct of business within the telecommunications industry (the "Licenses"), including, without limitation, those Licenses set forth on SCHEDULE 3.20, except for those Licenses which are set forth on SCHEDULE 1.1(B); provided, however, that neither the Companies nor the Shareholders shall be required to make any expenditure of funds in connection therewith. (b) If all of the conditions to Buyer's obligations to consummate the transactions contemplated hereunder have been satisfied (or waived by Buyer) except that all consents or approvals required to transfer any License have not been obtained (the "Remaining Licenses"), Buyer may, in its sole discretion, waive any relevant closing condition and proceed to consummate the transactions contemplated hereunder; provided however, that: (i) Comm/Net Holding shall, and the Shareholders shall cause Comm/Net Holding to, continue to take all reasonable actions to secure any and all consents or approvals required to transfer the Remaining Licenses to Buyer or its designee; provided, however, that neither Comm/Net Holding nor the Shareholders shall be required to make any expenditure of funds in connection therewith; (ii) Until such consents or approvals have been obtained, Comm/Net Holding shall grant to Buyer or its designee an irrevocable, non-royalty bearing 30 31 license and right to use the Remaining Licenses in connection with the operation of the Business, subject to obtaining any applicable regulatory approval; (iii) Pending the receipt of such consents or approvals, Comm/Net Holding shall, and the Shareholders shall cause Comm/Net Holding to, maintain the Remaining Licenses in full force and effect; provided, however, that neither Comm/Net Holding nor the Shareholders shall be required to make any expenditure of funds in connection therewith; and (iv) If, after six (6) months from the Closing Date, all of the Remaining Licenses which are legally transferrable have not been transferred to Buyer or its designee, the parties shall, in good faith, determine the value of the Remaining Licenses which have not been transferred to Buyer or its designee as of such time, and Comm/Net Holding or the Shareholders, as applicable, shall deliver to Buyer an appropriate number of Preferred Shares based upon such valuation; provided, however, that Comm/Net Holding or the Shareholders, as appropriate, shall not be required to deliver to Buyer more than 50 Preferred Shares. If the parties are unable to agree on the value of the Remaining Licenses not transferred to Buyer or its designee in accordance with this Section 6.6 or the number of Preferred Shares to be delivered to Buyer, if any, the parties shall resolve such dispute by arbitration. 6.7 Schedules. The parties acknowledge that the Shareholders, D. Somers and the Companies have not delivered to Buyer, as of the date hereof, the following Schedules (the "Post-Signing Schedules"): 1.1(b); 1.4; 3.1(a); 3.4; 3.7(a); 3.8; 3.9; 3.18; 3.20; 3.23; 3.24; 3.26; 3.28; and 11.11(a). The Shareholders, D. Somers and the Companies shall deliver all of the Post-Signing Schedules to Buyer not later than June 4, 1999. If all of the Post-Signing Schedules (i) are not delivered to Buyer by June 4, 1999, or (ii) are not satisfactory to Buyer (in its sole discretion) in form and substance, then Buyer shall have the right to terminate this Agreement, without liability, by written notice to the Shareholders, D. Somers and the Companies on or before June 18, 1999. ARTICLE VII CONDITIONS TO OBLIGATIONS OF COMM/NET HOLDING AND THE SHAREHOLDERS The obligations of Comm/Net Holding and the Shareholders to consummate the transactions to be performed by them in connection with the Closing shall be subject to the satisfaction (or waiver by Comm/Net Holding or the Shareholders) at or prior to the Closing Date of each of the following conditions: 31 32 7.1 Representations and Warranties True at Closing Date. Each of Buyer's representations and warranties contained in this Agreement which are qualified by materiality shall be true in all respects and each of Buyer's representations and warranties which are not qualified by materiality shall be true in all material respects, in each case, on and as of the Closing Date with the same force and effect as though made on and as of such date; Buyer shall have complied in all material respects with the covenants and agreements set forth herein to be performed or complied with by it on or before the Closing Date; and Buyer shall have delivered to Comm/Net Holding and the Shareholders a certificate dated the Closing Date and signed by its duly authorized officer to all such effects, and confirming such other matters as may be reasonably requested by Comm/Net Holding and the Shareholders. 7.2 Litigation. No suit, investigation, action or other proceeding shall be pending or overtly threatened against the Companies before any court or governmental agency which has resulted in the restraint or prohibition of Comm/Net Holding, or, could in the reasonable opinion of counsel for Comm/Net Holding, result in the obtaining of material damages or other relief from Comm/Net Holding, in connection with this Agreement or the consummation of the transactions contemplated hereby. 7.3 Registration Rights Agreement. WAXS shall have executed and delivered to Comm/Net Holding and the Shareholders a Registration Rights Agreement in the form of Exhibit B attached hereto. 7.4 Required Governmental Approvals. All governmental authorizations, consents and approvals necessary for the valid consummation of the transactions contemplated hereby shall have been obtained and shall be in full force and effect. All applicable governmental pre-acquisition filing, information furnishing and waiting period requirements, including expiration of all applicable waiting periods pursuant to H-S-R, shall have been met or such compliance shall have been waived by the governmental authority having authority to grant such waivers. 7.5 Other Necessary Consents. Either (i) all consents and approvals listed on SCHEDULE 3.26 shall have been obtained, or (ii) Buyer shall have agreed to defend, indemnify and hold harmless the Companies and the Shareholders from and against any Losses (as defined in Section 9.1) suffered or incurred by the Companies with respect to each Company Instrument, except Losses related to claims, obligations and liabilities, actual or contingent, arising out of (A) events prior to the Closing, (B) any Company's default or breach of a Company Instrument prior to the Closing, or (C) any act or omission of a Company after the Closing which results in a default or breach of a Company Instrument. 32 33 ARTICLE VIII CONDITIONS TO OBLIGATIONS OF BUYER The obligations of Buyer and WAXS to consummate the transactions to be performed by them in connection with the Closing shall be subject to the satisfaction (or waiver by Buyer or WAXS) on or before the Closing Date of each of the following conditions: 8.1 Representations and Warranties True at Closing Date. Each of the representations and warranties of the Shareholders, D. Somers and the Companies contained in this Agreement which are qualified by materiality shall be true in all respects and each of the representations and warranties of the Shareholders, D. Somers and the Companies which are not qualified by materiality shall be true in all material respects, in each case, on and as of the Closing Date with the same force and effect as though made on and as of such date (provided that, solely for the purpose of determining the foregoing, any representation or warranty contained herein and otherwise limited to the Shareholders', D. Somers' or the Companies' knowledge shall not be limited to such knowledge); the Shareholders, D. Somers and the Companies shall have performed and complied in all material respects with the respective covenants and agreements set forth herein to be performed or complied with by each of them on or before the Closing Date; and the Shareholders, D. Somers and Comm/Net Holding shall have delivered to Buyer a certificate signed by D. Somers, on behalf of Comm/Net Holding by its President and on behalf of the Shareholders by a duly authorized representative to all such effects, and confirming such other matters as may be reasonably requested by Buyer or WAXS. 8.2 No Material Change. The Companies shall not have suffered any material adverse change since December 31, 1998 in their business, prospects, financial condition, working capital, assets, liabilities (absolute, accrued, contingent or otherwise), reserves or operations. 8.3 Litigation. No suit, investigation, action or other proceeding shall be pending or overtly threatened against Buyer, WAXS, any Shareholder, D. Somers or the Companies before any court or governmental agency, which has resulted in the restraint or prohibition of any such party, or, in the reasonable opinion of counsel for Buyer and WAXS, could result in the obtaining of material damages or other relief from any such party, in connection with this Agreement or the consummation of the transactions contemplated hereby. 8.4 Required Governmental Approvals. All governmental authorizations, consents and approvals necessary for the valid consummation of the transactions contemplated hereby shall have been obtained and shall be in full force and effect. Buyer or its designee shall have obtained all governmental authorizations, consents and approvals necessary for the conduct of the Business in the State of Texas by Buyer or its designee and 33 34 such authorizations, consents and approvals shall be in full force and effect; provided however, that Buyer or its designee shall have taken commercially reasonable efforts to apply for such authorizations, consents and approvals, or the transfer or assignment thereof to Buyer or its designee, by June 18, 1999. All applicable governmental pre-acquisition filing, information furnishing and waiting period requirements, including expiration of all applicable waiting periods pursuant to H-S-R, shall have been met or such compliance shall have been waived by the governmental authority having authority to grant such waivers. 8.5 Other Necessary Consents. All consents and approvals listed on SCHEDULES 3.26 AND 4.3 shall have been obtained. With respect to each such consent or approval, Buyer shall have received written evidence, satisfactory to it, that such consent or approval has been duly and lawfully filed, given, obtained or taken and is effective, valid and subsisting. 8.6 Opinion of Counsel to the Shareholders, D. Somers and the Companies. Buyer shall have received from counsel to the Shareholders, D. Somers and the Companies an opinion, dated the Closing Date, in a form reasonably satisfactory to Buyer. 8.7 Shareholder Approval. The transactions contemplated by this Agreement, including, without limitation, the ultimate liquidation and dissolution of Comm/Net Holding pursuant to the terms hereof, shall have received the requisite Shareholders' approval under Texas law and there shall not be any dissenters. 8.8 Due Diligence Review. Representatives of Buyer shall have completed the due diligence review of the operations, condition (financial and other), prospects, assets and liabilities of, and other matters related to, the Companies, the Assets and the Business and the results of such due diligence shall have been satisfactory to Buyer. 8.9 Financial Statements. Buyer shall have received the 1998 Audited Financial Statements, which statements shall be satisfactory to Buyer in its reasonable judgment. 8.10 Non-competition Agreements. Each of the Shareholders and D. Somers shall have executed and delivered to Buyer a non-competition agreement in the form of EXHIBIT C hereto. 8.11 Liquidation of Comm/Net Subsidiaries. Buyer shall have received such documentary evidence as is satisfactory to it that the liquidation of Encom, LDEC and Comm/Net Services pursuant to Section 5.7 hereof has been duly and validly authorized and that each of Encom, LDEC and Comm/Net Services has been validly dissolved under Texas law. 34 35 ARTICLE IX INDEMNIFICATION 9.1 Remedies. (a) Except as otherwise limited by this Article IX, Comm/Net Holding, D. Somers and each Shareholder shall jointly and severally indemnify and reimburse Buyer and WAXS for any and all claims, losses, liabilities, damages, costs (including court costs) and expenses (including reasonable attorneys' and accountants' fees) suffered or incurred by Buyer or WAXS, its successors or assigns, and their respective officers, employees, consultants and agents (the "Buyer Protected Parties") (hereinafter "Loss" or "Losses"), as a result of, or with respect to, (i) any breach or inaccuracy of any representation or warranty of the Companies, D. Somers or any Shareholder set forth in this Agreement or in any certificate or other document delivered pursuant hereto or in connection herewith, whether such breach or inaccuracy exists or is made on the date of this Agreement or as of the Closing Date; (ii) any breach or inaccuracy of any representation or warranty of the Companies, D. Somers or any Shareholder set forth in the certificate to be provided to Buyer pursuant to Section 8.1 hereof, without regard to the materiality qualification contained in such certificate; (iii) any breach of or noncompliance by the Companies, D. Somers or any Shareholder with any covenant or agreement of the Companies, D. Somers or any Shareholder contained in this Agreement; (iv) any and all liabilities and obligations of the Companies other than the Assumed Liabilities; (v) any and all liabilities and obligations arising out of any breach by the Companies of any agreement assumed by Buyer at the Closing by written instrument executed by Buyer pursuant to this Agreement; and (vi) any and all claims asserted by the Companies' creditors, except where such claims are in connection with the Assumed Liabilities (for the purposes of this Agreement, "creditors" shall mean (1) all persons or entities who are known by the Companies, D. Somers or the Shareholders to assert claims against the Companies even though such claims are disputed, as well as (2) all general creditors, all secured creditors, all lien creditors, and all representatives of creditors). (b) Except as otherwise limited by this Article IX, WAXS and Buyer shall jointly and severally indemnify and reimburse Comm/Net Holding, D. Somers and each Shareholder for any and all Losses suffered or incurred by Comm/Net Holding, D. Somers and each Shareholder, its or their successors or assigns, and their respective officers, employees, consultants and agents (the "Seller Protected Parties") as a result of, or with respect to (i) any breach or inaccuracy of any representation or warranty of WAXS or Buyer set forth in this Agreement or in any certificate or other document delivered pursuant hereto or in connection herewith, whether such breach or inaccuracy exists or is made on the date of this Agreement or as of the Closing Date; (ii) any breach or inaccuracy of any representation or warranty of WAXS or Buyer set forth in the certificate to be provided to Comm/Net Holding and the Shareholders pursuant to Section 7.1 hereof, without regard to 35 36 the materiality qualification contained in such certificate; and (iii) any breach of or noncompliance by WAXS or Buyer with any covenant or agreement of WAXS or Buyer contained in this Agreement. 9.2 Indemnity Claims. (a) Survival. The representations and warranties of the parties hereto contained herein or in any certificate or other document delivered pursuant hereto or in connection herewith shall not be extinguished by the Closing but shall survive the Closing, subject to the limitations set forth in Section 9.2(b) hereof with respect to the time periods within which claims for indemnity must be asserted, and the covenants and agreements of the parties contained herein shall survive without limitation as to time except as may be otherwise specified herein. No investigation or other examination of the Companies by Buyer, its designees or representatives or of WAXS or Buyer by Comm/Net Holding, the Shareholders or D. Somers, or their designees or representatives, shall affect the term of survival of any representation or warranty contained herein or in any certificate or other document delivered pursuant hereto or in connection herewith, or the term of the right of the Buyer Protected Parties or the Seller Protected Parties, as applicable, to seek indemnification with respect to any of the Surviving Matters (as defined in subsection 9.2(b) hereof). (b) Time to Assert Claims. All claims for indemnification hereunder shall be asserted no later than two (2) years after the Closing Date, except as follows: (i) claims by a Buyer Protected Party with respect to Losses arising out of or related in any way to the matters described in Sections 9.1(a) (iii), (iv), (v) and (vi) may be made without limitation, except as limited by law; (ii) claims by a Buyer Protected Party with respect to Losses arising out of or related in any way to any breach of or inaccuracy in the representations and warranties contained in Sections 3.7(b), 3.18 or 3.19 hereof may be made until, and shall be made no later than, thirty (30) days after the expiration of the applicable statute of limitations relative to the liability relating to such representation or warranty; and (iii) claims by a Seller Protected Party with respect to Losses arising out of or related in any way to the matters described in Section 9(b)(iii) may be made without limitation, except as limited by law. (The matters cited in clauses (i), (ii) and (iii) above being hereinafter collectively referred to as the "Surviving Matters"). Nothing herein shall be deemed to prevent Buyer, Comm/Net Holding, the Shareholders or D. Somers from making a claim for a Loss hereunder for potential or contingent claims or demands provided the notice of Loss sets forth the specific basis for any such potential or 36 37 contingent claim or demand to the extent then feasible and the party making the claim has reasonable grounds to believe that such a claim or demand may become actual. 9.3 Deductible. (a) Except for claims made in connection with a breach of the provisions of Section 11.11 hereof, the Buyer Protected Parties shall make no claim against Comm/Net Holding, D. Somers or the Shareholders for indemnification under Section 9.1(a)(i) or (ii) hereof for a breach of representation or warranty contained herein unless and until the aggregate amount of such claims exceeds $100,000 (the "Deductible Amount"), in which event the Buyer Protected Parties may claim indemnification for the amount of such claims in excess of the Deductible Amount. (b) Except for claims made in connection with a breach of the provisions of Section 11.11 hereof, none of the Seller Protected Parties shall make any claim against Buyer of WAXS for indemnification under Section 9.1(b)(i) or (ii) hereof for a breach of representation or warranty contained herein unless and until the aggregate amount of such claims exceeds the Deductible Amount, in which event the Seller Protected Parties may claim indemnification for the amount of claims in excess of the Deductible Amount. 9.4 Notice of Claim. Buyer, WAXS, Comm/Net Holding, the Shareholders or D. Somers, as applicable (the "Indemnified Party"), shall notify Comm/Net Holding, D. Somers, the Shareholders, Buyer or WAXS, as applicable (the "Indemnifying Party"), in writing, of any claim for indemnification, specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount, of the liability arising therefrom. The Indemnified Party shall provide to the Indemnifying Party as promptly as practicable thereafter such information and documentation as may be reasonably requested to support and verify the claim asserted, so long as such disclosure would not violate the attorney-client privilege of the Indemnified Party. 9.5 Defense. For purposes of this Section 9.5, a "Protected Party" shall refer to a Buyer Protected Party or a Seller Protected Party, as appropriate. If the facts pertaining to a Loss arise out of the claim of any third party, or if there is any claim against a third party (other than an Indemnified Party or a Protected Party) available by virtue of the circumstances of the Loss, the Indemnifying Party may assume the defense or the prosecution thereof by prompt written notice to the Indemnified Party and the affected Protected Party, including the employment of counsel or accountants, at its cost and expense. The Indemnified Party and the affected Protected Party shall have the right to employ counsel separate from counsel employed by the Indemnifying Party in any such action and to participate therein, but the fees and expenses of such counsel employed by the Indemnified Party and the affected Protected Party shall be at their expense. The Indemnifying Party shall not be liable for any settlement of any such claim effected without its prior written consent, which shall not be unreasonably withheld; provided that if the Indemnifying Party does not 37 38 assume the defense or prosecution of a claim as provided above within thirty (30) days after notice thereof from any Protected Party, the Indemnified Party and the affected Protected Party may settle such claim without the Indemnifying Party's consent. The Indemnifying Party shall not agree to a settlement of any claim which provides for any relief other than the payment of monetary damages or which could have a material precedential impact or effect on the business or financial condition of any Protected Party without the Indemnified Party's and the affected Protected Party's prior written consent. Whether or not the Indemnifying Party chooses to so defend or prosecute such claim, all the parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information and testimony, and attend such conferences, discovery proceedings, hearings, trials and appeals, as may be reasonably requested in connection therewith. The Indemnifying Party shall be subrogated to all rights and remedies of any Protected Party. 9.6 Satisfaction of Obligations. Subject to the provisions of this Section 9.6, WAXS shall, at the request of Buyer, pay directly to Buyer the amounts or obligations otherwise payable or owed with respect to the Preferred Shares under the Certificate of Designation attached hereto as EXHIBIT A, in satisfaction of any and all obligations of Comm/Net Holding, D. Somers or the Shareholders arising under or related to this Agreement (each, a "Seller Obligation"), including but not limited to, the indemnification obligations set forth in this Article IX, until such obligations are fully satisfied or resolved through negotiations between Buyer and the Obligor (as defined herein). Buyer agrees that any exercise of its rights under this Section 9.6 must be made in good faith. If a Seller Obligation is not fully satisfied or resolved through negotiations between Buyer and the Obligor within six (6) months of the date Comm/Net Holding, D. Somers and/or the Shareholders, as applicable (the "Obligor"), received notice from Buyer of its or their non-compliance with such obligation (or in the case of a Loss, within six (6) months of the date the Indemnifying Party was provided notice of such Loss pursuant to Section 9.4), Buyer shall offer to resolve by arbitration any disputes between Buyer and the Obligor related to such Seller Obligation. If the Obligor rejects such offer, Buyer shall continue to hold the applicable amounts or obligations otherwise payable or owed with respect to the Preferred Shares until the Seller Obligation is fully satisfied or resolved through negotiations between Buyer and the Obligor. All arbitration pursuant to this Section 9.6 shall be before the American Arbitration Association ("AAA") in accordance with the Commercial Arbitration Rules of the AAA as in effect from time to time. ARTICLE X TERMINATION PRIOR TO CLOSING 10.1 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing: 38 39 (a) By the mutual written consent of Buyer, WAXS, the Companies, D. Somers and the Shareholders; (b) By the Companies, D. Somers and the Shareholders in writing, without liability, if Buyer or WAXS shall (i) fail to perform in any material respect its agreements contained herein required to be performed by it on or prior to the Closing Date, or (ii) materially breach any of its representations, warranties or covenants contained herein, which failure or breach is not cured within ten (10) days after the Companies, D. Somers and the Shareholders have notified Buyer of their intent to terminate this Agreement pursuant to this subparagraph (b); (c) By Buyer or WAXS in writing, without liability, if any of the Companies, D. Somers or any Shareholder shall (i) fail to perform in any material respect their agreements contained herein required to be performed by them on or prior to the Closing Date, or (ii) materially breach any of their representations, warranties or covenants contained herein, which failure or breach is not cured within ten (10) days after Buyer has notified the Companies, D. Somers and the Shareholders of its intent to terminate this Agreement pursuant to this subparagraph (c); (d) By either the Companies, D. Somers, the Shareholders, Buyer or WAXS in writing, without liability, if there shall be any order, writ, injunction or decree of any court or governmental or regulatory agency binding on Buyer, WAXS, the Shareholders, D. Somers or the Companies, which prohibits or restrains Buyer, WAXS, the Shareholders, D. Somers or the Company from consummating the transactions contemplated hereby, provided that Buyer, WAXS, the Shareholders, D. Somers and the Companies shall have used their reasonable, good faith efforts to have any such order, writ, injunction or decree lifted and the same shall not have been lifted within 30 days after entry, by any such court or governmental or regulatory agency; (e) By either the Companies, the Shareholders, D. Somers, Buyer or WAXS in writing, without liability, if for any reason the Closing has not occurred by August 31, 1999, other than as a result of the breach of this Agreement by the party attempting to terminate the Agreement; or (f) By Buyer or WAXS in writing, without liability, pursuant to Section 6.7 hereof. 10.2 Termination of Obligations. Termination of this Agreement pursuant to this Article X shall terminate all obligations of the parties hereunder, except for the obligations under Sections 6.2, 10.2, 11.9 and 11.13 hereof; provided, however, that termination pursuant to subparagraphs (b), (c), (e) or (f) of Section 10.1 hereof shall not relieve a defaulting or breaching party from any liability to the other party hereto. 39 40 ARTICLE XI MISCELLANEOUS 11.1 Bulk Sales Law. Buyer hereby waives compliance by Comm/Net Holding with the provisions of the bulk sales law of any state, and Comm/Net Holding covenants and agrees to pay and discharge when due all claims of creditors which could be asserted against Buyer or WAXS by reason of such non-compliance to the extent such liabilities are not assumed by Buyer under this Agreement. 11.2 No Liens Created. This Agreement shall not be construed to create any lien or encumbrance on any of the Assets, or to create any rights in any third persons. 11.3 Entire Agreement. This Agreement (including the Schedules and Exhibits) constitutes the sole understanding of the parties with respect to the subject matter hereof; provided, however, that this provision is not intended to abrogate any other written agreement between the parties executed with or after this Agreement. 11.4 Amendment. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto. 11.5 Parties Bound by Agreement; Successors and Assigns. The terms, conditions and obligations of this Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns thereof. Without the prior written consent of Buyer, neither the Shareholders nor D. Somers nor the Companies may assign their rights, duties or obligations hereunder or any part thereof to any other person or entity. Buyer may assign its rights and duties hereunder in whole or in part (before or after the Closing) to one or more affiliates but if it does so, it shall remain liable for all Buyer's obligations hereunder. 11.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 11.7 Headings. The headings of the Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 11.8 Modification and Waiver. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. 40 41 No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). 11.9 Expenses. Except as otherwise provided herein, (a) the Shareholders, on their behalf and on behalf of the Companies, shall pay all costs and expenses incurred by each of them or the Companies, or on their behalf, and (b) WAXS and Buyer shall pay all costs and expenses incurred by each of them or on their behalf, in each case in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of their own brokers, financial consultants, accountants and counsel. Furthermore, the Shareholders agree that any cost or expense which they have agreed to pay (on their behalf or on behalf of the Companies) or which has been allocated to them under this Agreement shall be paid using personal funds and not the funds of the Companies; provided, however, that the Shareholders shall be entitled to use Company funds for the payment of all reasonable accountants' expenses incurred in connection with the preparation of the 1998 Audited Financial Statements. 11.10 Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered personally (including by overnight courier or express mail service) or sent by registered or certified mail, postage or fees prepaid, if to the Shareholders, D. Somers or the Companies to: Comm/Net Holding Corporation 2301 Ohio Drive, Suite 285 Plano, Texas 75093 Attention: Gregory A. Somers with a copy to: B. Bruce Johnson, Esq. 5550 LBJ Freeway, Suite 550 Dallas, Texas 75240 if to Buyer or WAXS to: World Access, Inc. 945 E. Paces Ferry Road, Suite 2200 Atlanta, Georgia 30326 Attention: W. Tod Chmar with a copy to: 41 42 Long Aldridge & Norman LLP Suite 5300 303 Peachtree Street Atlanta, Georgia 30308 Attention: H. Franklin Layson, Esq. or at such other address for a party as shall be specified by like notice. Any notice which is delivered personally in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party or the office of such party. Any notice which is addressed and mailed in the manner herein provided shall be conclusively presumed to have been duly given to the party to which it is addressed at the close of business, local time of the recipient, on the fourth business day after the day it is so placed in the mail or, if earlier, the time of actual receipt. 11.11 Brokerage. Except as set forth on SCHEDULE 11.11(A) (in the case of the Companies, the Shareholders and D. Somers) or SCHEDULE 11.11(B) (in the case of WAXS and Buyer), the Companies, the Shareholders, D. Somers, WAXS and Buyer do hereby expressly warrant and represent, each to the other, that no broker, agent, or finder has rendered services in connection with the transactions contemplated under this Agreement. D. Somers, the Companies and the Shareholders hereby jointly and severally indemnify and agree to hold harmless Buyer and WAXS from and against any and all losses, costs, damages, and expenses (including reasonable attorneys' fees) arising or resulting, or sustained or incurred by Buyer or WAXS, by reason of any claim by any broker, agent, finder, or other person or entity based upon any arrangement or agreement made or alleged to have been made by the Companies, the Shareholders and D. Somers in connection with the transactions contemplated under this Agreement. WAXS and Buyer do hereby jointly and severally indemnify and agree to hold harmless the Companies, D. Somers and the Shareholders from and against any and all losses, costs, damages, and expenses (including reasonable attorneys' fees) arising or resulting, or sustained or incurred by the Companies, D. Somers and the Shareholders, by reason of any claim by any broker, agent, finder, or other person or entity based upon any arrangement or agreement made or alleged to have been made by Buyer in connection with the transactions contemplated under this Agreement. 11.12 Governing Law. This Agreement is executed by Buyer in, and shall be construed in accordance with and governed by the laws of the State of Georgia without giving effect to the principles of conflicts of law thereof. 11.13 Public Announcements. No public announcement shall be made by any person with regard to the transactions contemplated by this Agreement without the prior consent of the parties hereto; provided that any party may make such disclosure if advised by counsel that it is legally required to do so. The parties will discuss any public announcements or disclosures concerning the transactions contemplated by this Agreement with the other parties prior to making such announcements or disclosures. 42 43 11.14 Shareholders' and the Company's Knowledge. As used herein, the terms "the Shareholders' knowledge" and "to the knowledge of the Shareholders" with respect to Shareholders shall mean the knowledge of any Shareholder (and where Shareholder is a corporation any director or officer of Shareholder), and the terms "the Companies' knowledge" or "to the knowledge of the Company" shall mean the knowledge of any Shareholder, director or officer of Comm/Net Holding, Encom, LDEC or Comm/Net Services, as the case may be, or any Subsidiary thereof. 11.15 No Third-Party Beneficiaries. With the exception of the parties to this Agreement, the Buyer Protected Parties and the Seller Protected Parties, there shall exist no right of any person to claim a beneficial interest in this Agreement or any rights occurring by virtue of this Agreement. 11.16 "Including." Words of inclusion shall not be construed as terms of limitation herein, so that references to "included" matters shall be regarded as non-exclusive, non-characterizing illustrations. 11.17 Schedules and Exhibits. Each of the Schedules and Exhibits referred to in this Agreement are and shall be incorporated herein and made a part hereof. 11.18 Buyer's Receipt of Preferred Shares. Pursuant to the plan of reorganization set forth in this Agreement, and in a transfer by WAXS to Buyer intended by WAXS to come under Section 351 of the Code, WAXS shall transfer to Buyer a certificate or certificates representing the requisite number of Preferred Shares needed by Buyer which upon such receipt from WAXS, Buyer shall immediately deliver to Comm/Net Holding to satisfy its obligations under this Agreement. (Signatures appear on following pages) 43 44 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed on its behalf as of the date indicated on the first page hereof. BUYER: WA Telcom Products Co., Inc. By: /s/ A. Lindsay Wallace --------------------------------------- Name: A. Lindsay Wallace ---------------------------------- Title: --------------------------------- WAXS: World Access, Inc. By: /s/ W. Tod Chmar --------------------------------------- Name: W. Tod Chmar ---------------------------------- Title: Executive V.P. --------------------------------- SHAREHOLDERS: /s/ Gregory A. Somers ------------------------------------------ Gregory A. Somers /s/ Kelli J. Somers ------------------------------------------ Kelli J. Somers /s/ R. Scott Birdwell ------------------------------------------ R. Scott Birdwell /s/ Jeff Becker ------------------------------------------ Jeff Becker /s/ Michael Billingsley ------------------------------------------ Michael Billingsley /s/ Chris Johns ------------------------------------------ Chris Johns 44 45 Teleplus Telecommunications, Inc. By: /s/ Denny Somers --------------------------------------- Name: Denny Somers ---------------------------------- Title: President --------------------------------- THE COMPANIES: Comm/Net Holding Corporation By: /s/ Gregory A. Somers --------------------------------------- Name: Gregory A. Somers ---------------------------------- Title: President --------------------------------- Long Distance Exchange Corporation By: /s/ Gregory A. Somers --------------------------------------- Name: Gregory A. Somers ---------------------------------- Title: President --------------------------------- Enhanced Communications Corporation By: /s/ R. Scott Birdwell --------------------------------------- Name: R. Scott Birdwell ---------------------------------- Title: President --------------------------------- Comm/Net Services Corporation By: /s/ Gregory A. Somers --------------------------------------- Name: Gregory A. Somers ---------------------------------- Title: President --------------------------------- D. SOMERS: /s/ Denny D. Somers ------------------------------------- Denny D. Somers 45 EX-4.1 3 CERTIFICATE OF DESIGNATION 1 EXHIBIT 4.1 WORLD ACCESS, INC. CERTIFICATE OF DESIGNATION OF 4.25% CUMULATIVE JUNIOR CONVERTIBLE PREFERRED STOCK, SERIES B, SETTING FORTH THE POWERS, PREFERENCES, RIGHTS, QUALIFICATIONS, LIMITATIONS AND RESTRICTIONS OF SUCH SERIES OF PREFERRED STOCK Pursuant to Section 151 of the Delaware General Corporation Law, World Access, Inc., a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY: That pursuant to the authority conferred upon the Board of Directors of the Corporation by the Certificate of Incorporation of the Corporation (the "Charter"), the Board of Directors of the Corporation on May 24, 1999 (the "Adoption Date") duly adopted the following resolution creating a series of Preferred Stock designated as 4.25% Cumulative Junior Convertible Preferred Stock, Series B, and such resolution has not been modified and is in full force and effect on the date hereof: RESOLVED that, pursuant to the authority vested in the Board of Directors of the Corporation in accordance with the provisions of the Charter, a series of the class of authorized Preferred Stock, par value $0.01 per share, of the Corporation is hereby created and that the designation and number of shares thereof and the voting powers, preferences and relative, participating, optional and other special rights of the shares of such series, and the qualifications, limitations and restrictions thereof are as follows: Section 1. Designation and Number. (a) The shares of such series shall be designated as 4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Preferred Stock"). The number of shares initially constituting the Preferred Stock shall be 23,174, which number may be decreased (but not increased) by the Board of Directors without a vote of stockholders; provided, however, that such number may not be decreased below the number of then outstanding shares of Preferred Stock. (b) The Preferred Stock shall, with respect to dividend rights and rights on liquidation, dissolution or winding up, rank (i) prior to all other classes and series of Junior Stock (as defined below) of the Corporation now or hereafter authorized including, without limitation, the Common Stock, and (ii) junior to the 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A, and all other classes and series of Senior Stock. (c) Capitalized terms used herein and not otherwise defined shall have the meanings set forth in Section 12 below. 2 Section 2. Dividends and Distributions. (a) The holders of shares of Preferred Stock, in preference to the holders of shares of Common Stock and of any shares of other Junior Stock of the Corporation, shall be entitled to receive, when, as and if declared by the Board of Directors, out of the assets of the Corporation legally available therefor, cumulative cash dividends at an annual rate on the Liquidation Preference thereof equal to 4.25%, calculated on the basis of a 360-day year consisting of twelve 30-day months, accruing and payable in equal quarterly payments, in immediately available funds, on the last day of March, June, September and December or, if any such day is not a Business Day, the next succeeding Business Day, in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing September 30, 1999. (b) If as of any Quarterly Dividend Payment Date there is a Dividend Arrearage (as hereinafter defined), an additional dividend (the "Additional Dividend") shall accrue on each share of the Preferred Stock for the period from such Quarterly Dividend Payment Date through the earlier of (x) the date on which such Dividend Arrearage is paid in full and (y) the next succeeding Quarterly Dividend Payment Date, in an amount equal to the product of (i) the dividend rate (calculated for such period in accordance with Section 2(a)) and (ii) the amount of such Dividend Arrearage as of such Quarterly Dividend Payment Date. For purposes of this Section 2(b), "Dividend Arrearage" shall mean, with respect to each share of Preferred Stock, as of any Quarterly Dividend Payment Date, the excess, if any of (i) the sum of all dividends theretofore accrued on such share in accordance with Section 2(a) (including those accrued as of and including such Quarterly Dividend Payment Date) plus all Additional Dividends, if any, theretofore accrued on such share in accordance with this Section 2(b) (including those accrued as of and including such Quarterly Dividend Payment Date), over (ii) all dividends actually paid with respect to such share on or before such Quarterly Dividend Payment Date. Except as provided in this Section 2(b) no dividend shall accrue and no other sums shall be payable with respect to any Dividend Arrearage. (c) Dividends payable pursuant to Section 2(a) shall begin to accrue and be cumulative from the Issue Date, and shall accrue on a daily basis, in each case whether or not declared. Dividends paid on the shares of Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares of Preferred Stock at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Preferred Stock entitled to receive payment of a dividend declared thereon, which record date shall be no more than sixty (60) days or less than ten (10) days prior to the date fixed for the payment thereof. Accumulated but unpaid dividends for any past quarterly dividend periods may be declared and paid at any time, without reference to any regular Quarterly Dividend Payment Date, to holders of record on such date, not more than sixty (60) nor less than ten (10) days preceding the payment date thereof, as may be fixed by the Board of Directors. 2 3 (d) The holders of shares of Preferred Stock shall not be entitled to receive any dividends or other distributions except as provided herein. Section 3. Voting Rights. In addition to any voting rights provided by law, so long as the Preferred Stock is outstanding, each share of Preferred Stock shall entitle the holder thereof to vote, in person or by proxy, at a special or annual meeting of stockholders, on all matters voted on by holders of Common Stock voting together as a single class with other shares entitled to vote thereon. With respect to any such vote, each share of Preferred Stock shall entitle the holder thereof to cast that number of votes per share as is equal to the number of votes that such holder would be entitled to cast had such holder converted his shares of Preferred Stock into Common Stock on the record date for determining the stockholders of the Corporation eligible to vote on any such matters. Section 4. Certain Restrictions. (a) Whenever quarterly dividends payable on shares of Preferred Stock as provided in Section 2(a) are not paid in full, at such time and thereafter until all unpaid dividends payable, whether or not declared, on the outstanding shares of Preferred Stock shall have been paid in full or declared and set apart for payment, or whenever the Corporation shall not have converted or exchanged shares of Preferred Stock at a time required by Section 8, 9 or 10, at such time and thereafter until all conversion and exchange obligations provided in Section 8, 9 or 10 that have come due shall have been satisfied or all necessary funds have been set apart for payment, the Corporation shall not: (A) declare or pay dividends, or make any other distributions, on any shares of Junior Stock or (B) declare or pay dividends, or make any other distributions, on any shares of Parity Stock, except dividends or distributions paid ratably on the Preferred Stock and all Parity Stock on which dividends are payable or in arrears, in proportion to the total amounts to which the holders of all shares of the Preferred Stock and such Parity Stock are then entitled. (b) Whenever dividends payable on shares of Preferred Stock as provided in Section 2(a) are not paid in full, at such time and thereafter until all unpaid dividends payable, whether or not declared, on the outstanding shares of Preferred Stock shall have been paid in full or declared and set apart for payment, or whenever the Corporation shall not have converted or exchanged shares of Preferred Stock at a time required by Section 8, 9 or 10, at such time and thereafter until all conversion and exchange obligations provided in Section 8, 9 or 10 that have come due shall have been satisfied or all necessary funds have been set apart for payment, the Corporation shall not redeem, purchase or otherwise acquire for consideration any shares of Junior Stock or Parity Stock; provided, however, that (A) the Corporation may accept shares of any Senior Stock, Parity Stock or Junior Stock for conversion into Junior Stock and (B) the Corporation may at any time redeem, purchase or otherwise acquire shares of any Parity Stock pursuant to any mandatory redemption, put, sinking fund or other similar obligation contained in such Parity Stock, pro rata with the 3 4 Preferred Stock in proportion to the total amount then required to be applied by the Corporation to redeem, repurchase, convert, exchange or otherwise acquire shares of Preferred Stock and shares of such Parity Stock. (c) The Corporation shall not permit any Subsidiary of the Corporation, or cause any other Person, to purchase or otherwise acquire for consideration any shares of capital stock of the Corporation unless the Corporation could, pursuant to Section 4(b), purchase such shares at such time and in such manner. Section 5. Redemption. (a) Except as otherwise set forth in this Section 5, the Corporation shall not have any right to redeem any shares of Preferred Stock prior to June 30, 2004. On and after June 30, 2004, the Corporation shall have the right, at its sole option and election, to redeem the shares of Preferred Stock, in whole or in part, on not less than ninety (90) days notice of the date of redemption (any such date an "Optional Redemption Date") at a price per share (the "Optional Redemption Price") equal to (A) the Liquidation Preference plus (B) an amount per share equal to all accrued and unpaid dividends thereon, whether or not declared or payable, to the applicable Optional Redemption Date, in immediately available funds. (b) Notice of any redemption of shares of Preferred Stock pursuant to Section 5(a) shall be mailed at least ten (10), but not more than sixty (60), days prior to the applicable Optional Redemption Date to each holder of shares of Preferred Stock to be redeemed, at such holder's address as it appears on the transfer books of the Corporation. In order to facilitate the redemption of shares of Preferred Stock, the Board of Directors may fix a record date for the determination of shares of Preferred Stock to be redeemed, or may cause the transfer books of the Corporation for the Preferred Stock to be closed, not more than sixty (60) days or less than ten (10) days prior to the applicable Optional Redemption Date. (c) Notice of redemption having been given as aforesaid, notwithstanding that any certificates for such shares shall not have been surrendered for cancellation, from and after the Optional Redemption Date designated in the notice of redemption (i) the shares represented thereby shall no longer be deemed outstanding, (ii) the rights to receive dividends thereon shall cease to accrue and (iii) all rights of the holders of shares of Preferred Stock to be redeemed shall cease and terminate, excepting only the right to receive the Optional Redemption Price therefor and the right to convert such shares into shares of Common Stock until the close of business on such Optional Redemption Date, in accordance with Section 8. Section 6. Reacquired Shares. Any shares of Preferred Stock converted, exchanged, redeemed, purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and canceled promptly after the acquisition thereof. All such shares of Preferred Stock shall 4 5 upon their cancellation become authorized but unissued shares of preferred stock, par value $.01 per share, of the Corporation and, upon the filing of an appropriate Certificate of Designation with the Secretary of State of the State of Delaware, may be reissued as part of another series of preferred stock, par value $.01 per share, of the Corporation subject to the conditions or restrictions on issuance set forth therein, but in any event may not be reissued as shares of Preferred Stock or other Parity Stock unless all shares of the Preferred Stock issued on the Issue Date shall have already been redeemed, converted or exchanged. Section 7. Liquidation, Dissolution or Winding Up. (a) If the Corporation shall commence a voluntary case under the United States bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any other country, or consent to the entry of an order for relief in an involuntary case under any such law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the United States bankruptcy laws or any applicable bankruptcy, insolvency or similar law of any other country, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and on account of any such event the Corporation shall liquidate, dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up, no distribution shall be made: (i) to the holders of shares of Junior Stock unless, prior thereto, the holders of shares of Preferred Stock, subject to Section 8, shall have received the Liquidation Preference, plus all accrued and unpaid dividends, whether or not declared or currently payable, to the date of distribution, with respect to each share, or (ii) to the holders of shares of Parity Stock, except distributions made ratably on the Preferred Stock and all other Parity Stock in proportion to the total amounts to which the holders of all shares of the Preferred Stock and other Parity Stock are entitled upon such liquidation, dissolution or winding up. (b) Neither the consolidation or merger of the Corporation with or into any other Person nor the sale or other distribution to another Person of all or substantially all the assets, property or business of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 7. Section 8. Voluntary Conversion. (a) Any holder of Preferred Stock shall have the right, at its option, at any time and from time to time, to convert, subject to the terms and provisions of this Section 8, any or all of such holder's shares of Preferred Stock into such number of fully paid and non- 5 6 assessable shares of Common Stock as is equal, subject to Section 8(g), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price (as defined below) then in effect, except that with respect to any shares which shall be called for exchange or redemption, such right shall terminate at the close of business on the date of exchange or redemption for such shares, unless in any such case the Corporation shall default in performance or payment due upon exchange or redemption thereof. Such conversion right shall be exercised by the surrender of the shares to be converted to the Corporation at any time during usual business hours at its principal place of business to be maintained by it, accompanied by written notice that the holder elects to convert such Shares and (if so required by the Corporation) by a written instrument or instruments of transfer in form reasonably satisfactory to the Corporation duly executed by the holder or its duly authorized legal representative and transfer tax stamps or funds therefor, if required pursuant to Section 8(k). All shares of Preferred Stock surrendered for conversion shall be delivered to the Corporation for cancellation and canceled by it and no shares of Preferred Stock shall be issued in lieu thereof. (b) As promptly as practicable after the surrender, as herein provided, of any shares of Preferred Stock for conversion pursuant to Section 8(a), the Corporation shall deliver to or upon the written order of the holder of such shares so surrendered a certificate or certificates representing the number of fully paid and non-assessable shares of Common Stock into which such shares of Preferred Stock have been converted in accordance with the provisions of this Section 8. Subject to the following provisions of this paragraph and of Section 8(d), such conversion shall be deemed to have been made immediately prior to the close of business on the date that such shares of Preferred Stock shall have been surrendered in satisfactory form for conversion, and the converting holder of shares of Preferred Stock shall be treated for all purposes as having become the record holder of such Common Stock at such time, and such conversion shall be at the Conversion Price in effect at such time; provided, however, that no surrender shall be effective to constitute the converting holder of shares of Preferred Stock as the record holder of such Common Stock while the share transfer books of the Corporation shall be closed (but not for any period in excess of five (5) days), but such surrender shall be effective to constitute the converting holder of shares of Preferred Stock as the record holder thereof for all purposes immediately prior to the close of business on the next succeeding day on which such share transfer books are open, and such conversion shall be deemed to have been made at, and shall be made at the Conversion Price in effect at, such time on such next succeeding day. (c) To the extent permitted by law, when shares of Preferred Stock are converted, all dividends accrued and unpaid (whether or not declared or currently payable) on the Preferred Stock so converted to the date of conversion shall be immediately due and payable and must accompany the shares of Common Stock issued upon such conversion. (d) The Conversion Price (and the price at which a share of Common Stock is valued pursuant to Section 9(a) or Section 10) shall be subject to adjustment as follows: 6 7 (i) In case the Corporation shall at any time or from time to time (A) pay a dividend or make a distribution on the outstanding shares of Common Stock in capital stock (which, for purposes of this Section 8(d) shall include, without limitation, any options, warrants or other rights to acquire capital stock) of the Corporation, (B) subdivide the outstanding shares of Common Stock into a larger number of shares, (C) combine the outstanding shares of Common Stock into a smaller number of shares, (D) issue any shares of its capital stock in a reclassification of the Common Stock or (E) pay a dividend or make a distribution on the outstanding shares of Common Stock in securities of the Corporation pursuant to a shareholder rights plan, "poison pill" or similar arrangement, then, and in each such case, the Conversion Price in effect immediately prior to such event shall be adjusted (and any other appropriate actions shall be taken by the Corporation) so that the holder of any share of Preferred Stock thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other securities of the Corporation that such holder would have owned or would have been entitled to receive upon or by reason of any of the events described above, had such share of Preferred Stock been converted immediately prior to the occurrence of such event. An adjustment made pursuant to this Section 8(d)(i) shall become effective retroactively (A) in the case of any such dividend or distribution, to a date immediately following the close of business on the record date for the determination of holders of Common Stock entitled to receive such dividend or distribution or (B) in the case of any such subdivision, combination or reclassification, to the close of business on the day upon which such corporate action becomes effective. (ii) In case the Corporation shall at any time or from time to time issue shares of Common Stock (or securities convertible into or exchangeable for Common Stock, or any options, warrants or other rights to acquire shares of Common Stock) for a consideration per share less than the lower of the (A) Current Market Price per share of Common Stock or (B) Market Price per share of Common Stock then in effect at the record date or issuance date, as the case may be (the "Date"), referred to in the following sentence (treating the price per share of any security convertible or exchangeable or exercisable into Common Stock as equal to (A) the sum of the price for such security convertible, exchangeable or exercisable into Common Stock plus any additional consideration payable (without regard to any anti-dilution adjustments) upon the conversion, exchange or exercise of such security into Common Stock divided by (B) the number of shares of Common Stock initially underlying such convertible, exchangeable or exercisable security), then, and in each such case, the Conversion Price then in effect shall be adjusted by dividing the Conversion Price in effect on the day immediately prior to the Date by a fraction (x) the numerator of which shall be the sum of the number of shares of Common Stock outstanding on the Date plus the number of additional shares of Common Stock issued or to be issued (or the maximum number into which such convertible or exchangeable securities initially may convert or exchange or for which such options, warrants or other rights initially may be exercised) and (y) the denominator of which shall be the sum of the number of shares of Common Stock outstanding on the Date plus the number of shares of Common Stock which the aggregate consideration for the total number of such additional shares of Common Stock so issued or to be issued upon the conversion, exchange or exercise of such convertible or exchangeable securities or options, warrants or other rights (plus the aggregate amount of any 7 8 additional consideration initially payable upon such conversion, exchange or exercise of such security) would purchase at the Current Market Price or the Market Price, as applicable. Such adjustment shall be made whenever such shares, securities, options, warrants or other rights are issued, and shall become effective retroactively to a date immediately following the close of business (1) in the case of issuance to stockholders of the Corporation, as such, on the record date for the determination of stockholders entitled to receive such shares, securities, options, warrants or other rights and (2) in all other cases, on the date ("issuance date") of such issuance; provided that: (A) the determination as to whether an adjustment is required to be made pursuant to this Section 8(d)(ii) shall be made upon the issuance of such shares or such convertible or exchangeable securities, options, warrants or other rights; (B) if any convertible or exchangeable securities, options, warrants or other rights (or any portions thereof) which shall have given rise to an adjustment pursuant to this Section 8(d)(ii) shall have expired or terminated without the exercise thereof and/or if by reason of the terms of such convertible or exchangeable securities, options, warrants or other rights there shall have been an increase or increases, with the passage of time or otherwise, in the price payable upon the exercise or conversion thereof, then the Conversion Price hereunder shall be readjusted (but to no greater extent than originally adjusted) on the basis of (x) eliminating from the computation any additional shares of Common Stock corresponding to such convertible or exchangeable securities, options, warrants or other rights as shall have expired or terminated, (y) treating the additional shares of Common Stock, if any, actually issued or issuable pursuant to the previous exercise of such convertible or exchangeable securities, options, warrants or other rights as having been issued for the consideration actually received and receivable therefor and (z) treating any of such convertible or exchangeable securities, options, warrants or other rights which remain outstanding as being subject to exercise or conversion on the basis of such exercise or conversion price as shall be in effect at this time; and (C) no adjustment in the Conversion Price shall be made pursuant to this Section 8(d)(ii) as a result of any issuance of securities by the Corporation in respect of which an adjustment to the Conversion Price is made pursuant to Section 8(d)(i). (iii) In case the Corporation shall at any time or from time to time distribute to all holders of shares of its Common Stock (including any such distribution made in connection with a consolidation or merger in which the Corporation is the resulting or surviving corporation and the Common Stock is not changed or exchanged) cash, evidences of indebtedness of the Corporation or another issuer, securities of the Corporation or another issuer or other assets (excluding dividends payable in shares of Common Stock for which adjustment is made under Section 8(d)(i)) or rights or warrants to subscribe for or purchase securities of the Corporation (excluding those referred to in Section 8(d)(ii) or those in respect of which an adjustment in the Conversion Price is made pursuant to Section 8(d)(i) or (ii)), then, and in each such case, the Conversion Price then in effect shall be adjusted by 8 9 dividing the Conversion Price in effect immediately prior to the date of such distribution by a fraction (x) the numerator of which shall be the Market Price of the Common Stock on the record date referred to below and (y) the denominator of which shall be such Market Price of the Common Stock less the then Fair Market Value (as determined by the Board of Directors of the Corporation) of the portion of the cash, evidences of indebtedness, securities or other assets so distributed or of such subscription rights or warrants applicable to one share of Common Stock (but such denominator not to be less than one). Such adjustment shall be made whenever any such distribution is made and shall become effective retroactively to a date immediately following the close of business on the record date for the determination of stockholders entitled to receive such distribution. (iv) In case the Corporation, at any time or from time to time, shall take any action affecting its Common Stock similar to or having an effect similar to any of the actions described in any of Section 8(d)(i) through Section 8(d)(iii), inclusive, or Section 8(h) (but not including any action described in any such Section) and the Board of Directors of the Corporation in good faith determines that it would be equitable in the circumstances to decrease the Conversion Price as a result of such action, then, and in each such case, the Conversion Price shall be decreased in such manner and at such time as the Board of Directors of the Corporation in good faith determines would be equitable in the circumstances (such determination to be evidenced in a resolution, a certified copy of which shall be mailed to the holders of the Preferred Stock). (v) Notwithstanding anything herein to the contrary, no adjustment under this Section 8(d) need be made to the Conversion Price unless such adjustment would require an increase or decrease of at least $0.05 in the Conversion Price then in effect. Any lesser adjustment shall be carried forward and shall be made at the time of and together with the next subsequent adjustment, which, together with any adjustment or adjustments so carried forward, shall amount to an increase or decrease of at least $0.05 in such Conversion Price. Any adjustment to the Conversion Price carried forward and not theretofore made shall be made immediately prior to the conversion of any shares of Preferred Stock pursuant hereto. (vi) Notwithstanding anything herein to the contrary, no adjustment under this Section 8(d) shall be made upon (A) the grant of not more than 2,000,000 options to employees or directors of the Corporation pursuant to benefit plans approved by the Board of Directors of the Corporation or upon the issuance of shares of Common Stock upon exercise of such options, (B) the issuance of any Common Stock (or securities convertible into or exchangeable for capital stock or options, warrants or other rights to acquire capital stock) in exchange for professional or other services rendered to the Corporation up to a maximum of 500,000 shares of Common Stock per annum, but no more than 1,000,000 shares of Common Stock in the aggregate, (C) the issuance of any Common Stock pursuant to this Certificate, or (D) the sale of Common Stock by the Corporation in an underwritten public offering. (e) If the Corporation shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or other distribution, and shall 9 10 thereafter and before the distribution to stockholders thereof legally abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the Conversion Price then in effect shall be required by reason of the taking of such record. (f) Upon any increase or decrease in the Conversion Price, then, and in each such case, the Corporation promptly shall deliver to each registered holder of Preferred Stock a certificate, signed by the President or a Vice-President and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary of the Corporation, setting forth in reasonable detail the event requiring the adjustment and the method by which such adjustment was calculated and specifying the increased or decreased Conversion Price then in effect following such adjustment. (g) No fractional shares or scrip representing fractional shares shall be issued upon the conversion of any shares of Preferred Stock. If more than one share of Preferred Stock shall be surrendered for conversion at one time by the same holder, the number of full shares of Common Stock issuable upon conversion thereof shall be computed on the basis of the aggregate number of shares of Preferred Stock so surrendered. If the conversion of any share or shares of Preferred Stock results in a fraction, an amount equal to such fraction multiplied by the Market Price of the Common Stock on the Business Day preceding the day of conversion shall be paid to such holder in cash by the Corporation. (h) In case of any capital reorganization or reclassification or other change of outstanding shares of Common Stock (other than a change in par value, or from par value to no par value, or from no par value to par value), or in case of any consolidation or merger of the Corporation with or into another Person (other than a consolidation or merger in which the Corporation is the resulting or surviving Person and which does not result in any reclassification or change of outstanding Common Stock) (any of the foregoing, a "Transaction"), the Corporation, or such successor or purchasing Person, as the case may be, shall execute and deliver to each holder of Preferred Stock at least ten (10) Business Days prior to effecting any of the foregoing Transactions a certificate that the holder of each share of Preferred Stock then outstanding shall have the right thereafter to convert such share of Preferred Stock into the kind and amount of shares of stock or other securities (of the Corporation or another issuer) or property or cash receivable upon such Transaction by a holder of the number of shares of Common Stock into which such share of Preferred Stock could have been converted immediately prior to such Transaction. Such certificate shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 8. If, in the case of any such Transaction, the stock, other securities, cash or property receivable thereupon by a holder of Common Stock includes shares of stock or other securities of a Person other than the successor or purchasing Person and other than the Corporation, which controls or is controlled by the successor or purchasing Person or which, in connection with such Transaction, issues stock, securities, other property or cash to holders of Common Stock, then such certificate also shall be executed by such Person, and such Person shall, in such certificate, specifically acknowledge the obligations of such successor or purchasing Person and acknowledge its obligations to issue such stock, securities, other property or cash to the holders of Preferred Stock upon conversion of the shares of Preferred Stock as provided above. The provisions of this 10 11 Section 8(h) and any equivalent thereof in any such certificate similarly shall apply to successive Transactions. (i) In case at any time or from time to time: (i) the Corporation shall declare a dividend (or any other distribution) on its Common Stock; (ii) the Corporation shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights or warrants; (iii) there shall be any reclassification of the Common Stock, or any consolidation or merger to which the Corporation is a party and for which approval of any shareholders of the Corporation is required, or any sale or other disposition of all or substantially all of the assets of the Corporation; or (iv) there shall be any voluntary or involuntary dissolution, liquidation or winding up of the Corporation; then the Corporation shall mail to each holder of shares of Preferred Stock at such holder's address as it appears on the transfer books of the Corporation, as promptly as possible but in any event at least ten (10) days prior to the applicable date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution or rights or warrants or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such dividend, distribution or rights are to be determined, or (y) the date on which such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up is expected to become effective. Such notice also shall specify the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their Common Stock for shares of stock or other securities or property or cash deliverable upon such reclassification, consolidation, merger, sale, conveyance, dissolution, liquidation or winding up. (j) The Corporation shall at all times reserve and keep available for issuance upon the conversion or exchange of the Preferred Stock pursuant to Section 8(a), 9(a) or 10(a), such number of its authorized but unissued shares of Common Stock as will from time to time be sufficient to permit the conversion of all outstanding shares of Preferred Stock, and shall take all action required to increase the authorized number of shares of Common Stock if at any time there shall be insufficient authorized but unissued shares of Common Stock to permit such reservation or to permit the conversion of all outstanding shares of Preferred Stock. (k) The issuance or delivery of certificates for Common Stock upon the conversion or exchange of shares of Preferred Stock pursuant to Section 8(a), 9(a) or 10(a) shall be made without charge to the converting holder of shares of Preferred Stock for such certificates or for any tax in respect of the issuance or delivery of such certificates or the 11 12 securities represented thereby, and such certificates shall be issued or delivered in the respective names of the holders of the shares of Preferred Stock converted. Section 9. Mandatory Exchange. (a) If at any time on or after the fifth anniversary of the Issue Date to and including the tenth anniversary of the Issue Date, the holders of more than 50% of the shares of Preferred Stock shall deliver to the Corporation a notice demanding that the Corporation exchange the shares of Preferred Stock pursuant to this Section 9, then the Corporation shall exchange all (but not less than all) of the outstanding shares of Preferred Stock for shares of Common Stock no later than the fortieth day following the date of such notice (the "Demand Notice Date") on thirty (30) days notice of such date of exchange (the "Mandatory Exchange Date"), at a price per share equal (subject to Section 8(g)) to (i) the Liquidation Preference plus (ii) an amount per share equal to all accrued and unpaid dividends thereon, whether or not declared or currently payable, to the Mandatory Exchange Date. Any shares of Common Stock to be issued pursuant to this Section 9(a) shall be valued for such purpose at ninety-five percent (95%) of the average Market Price as of the ten (10) consecutive Trading Days immediately preceding the Mandatory Exchange Date. For all exchanges: (I) any shares of Common Stock to be exchanged shall in no event be valued at more than the Conversion Price then in effect; and (II) if less than all shares of Preferred Stock outstanding on the Mandatory Exchange Date are to be exchanged, the shares to be exchanged shall be determined pro rata or, if the shares of Preferred Stock are then publicly held, by lot. (b) Nothing in this Section 9 shall restrict or limit (i) the Corporation's right to redeem shares of Preferred Stock pursuant to Section 5(a) or convert such shares pursuant to Section 10 or (ii) the holders' right to convert shares of the Preferred Stock pursuant to Section 8(a) at any time prior to the Mandatory Exchange Date under this Section 9. (c) Notice of any exchange of shares of Preferred Stock pursuant to Section 9(a) shall be mailed at least thirty (30) days prior to the Mandatory Exchange Date fixed for exchange to each holder of shares of Preferred Stock to be exchanged, at such holder's address as it appears on the transfer books of the Corporation. In order to facilitate the exchange of shares of Preferred Stock, the Board of Directors may fix a record date for the determination of shares of Preferred Stock to be exchanged, or may cause the transfer books of the Corporation for the Preferred Stock to be closed, not less than thirty (30) days prior to the date fixed for such exchange. (d) Notice of mandatory exchange having been given as aforesaid, notwithstanding that any certificates for such shares shall not have been surrendered for cancellation, from and after the Mandatory Exchange Date (i) the shares represented thereby shall no longer be deemed outstanding, (ii) the rights to receive dividends thereon shall cease to accrue and (iii) all rights of the holders of shares of Preferred Stock to be exchanged shall 12 13 cease and terminate, excepting only the right to receive the shares of Common Stock and the right to convert such Preferred Stock into shares of Common Stock until the close of business on the Mandatory Exchange Date, in accordance with Section 8. Section 10. Mandatory Conversion. (a) If for forty-five (45) consecutive Trading Days the Market Price of the Common Stock for each day of such period exceeds the Conversion Price in effect on each such Trading Day, then on the Business Day next succeeding such forty-five (45) day period (the "Mandatory Conversion Date"), the outstanding shares of Preferred Stock shall automatically be converted into such number of fully paid and non-assessable shares of Common Stock as is equal, subject to Section 8(g), to the product of the number of shares of Preferred Stock being so converted multiplied by the quotient of (i) the Liquidation Preference divided by (ii) the Conversion Price in effect on the Mandatory Conversion Date. (b) Within thirty (30) Business Days of the Mandatory Conversion Date, the Corporation shall deliver to each holder of Preferred Stock being converted (i) an officer's certificate attesting to the satisfaction of the condition precedent to mandatory conversion and (ii) a certificate or certificates representing the number of fully paid and non-assessable shares of Common Stock into which such shares of Preferred Stock have been converted in accordance with this Section 10. Such conversion shall be deemed to have been made immediately prior to the close of business on the Mandatory Conversion Date, and the converting holder of shares of Preferred Stock shall be treated for all purposes as having become the record holder of such Common Stock at such time, and such conversion shall be at the Conversion Price in effect at such time. (c) To the extent permitted by law, when shares of Preferred Stock are converted, all dividends accrued and unpaid (whether or not declared or currently payable) on the Preferred Stock so converted to the date of conversion shall be immediately due and payable and must accompany the shares of Common Stock issued upon such conversion. (d) Notice of any conversion of shares of Preferred Stock pursuant to Section 9(a) shall be mailed at least ten (10), but not more than sixty (60), days prior to the date fixed for conversion to each holder of shares of Preferred Stock to be converted, at such holder's address as it appears on the transfer books of the Corporation. In order to facilitate the conversion of shares of Preferred Stock, the Board of Directors may fix a record date for the determination of shares of Preferred Stock to be converted, or may cause the transfer books of the Corporation for the Preferred Stock to be closed, not more than sixty (60) days or less than ten (10) days prior to the date fixed for such conversion. (e) Notwithstanding that any certificates for such shares shall not have been surrendered for cancellation, from and after the Mandatory Conversion Date (i) the shares represented thereby shall no longer be deemed outstanding, (ii) the rights to receive dividends thereon shall cease to accrue, and (iii) all rights of the holders of shares of Preferred Stock to be converted shall cease and terminate, excepting only the right to receive the shares of Common Stock and dividends. 13 14 Section 11. Right to Offset. Pursuant and subject to Section 9.6 of the Agreement and Plan of Reorganization by and among the Corporation, WA Telcom Products Co., Inc. ("Buyer"), Comm/Net Holding Corporation ("Comm/Net Holding"), Enhanced Communications Corporation, Long Distance Exchange Corporation, Comm/Net Services Corporation, Gregory A. Somers ("G. Somers"), Kelli J. Somers ("K. Somers"), R. Scott Birdwell ("R. Birdwell"), Jeff Becker ("J. Becker"), Chris Johns ("C. Johns"), Michael Billingsly ("M. Billingsly"), Teleplus Telecommunications, Inc. ("Teleplus," and together with G. Somers, K. Somers, J. Becker, C. Johns, M. Billingsly and R. Birdwell, the "Shareholders") and Denny D. Somers ("D. Somers"), dated May 27, 1999 (the "Purchase Agreement"), the Corporation shall, at the request of Buyer, pay directly to Buyer the amounts or obligations otherwise payable or owed with respect to the Preferred Stock under this Certificate of Designation in satisfaction of any and all obligations of Comm/Net Holding, D. Somers or the Shareholders arising under or related to the Purchase Agreement (each, a "Seller Obligation"), including but not limited to, the indemnification obligations set forth in Article IX thereof, until such obligations are fully satisfied or resolved through negotiations between Buyer and the Obligor (as defined herein). Buyer agrees that any exercise of its rights under Section 9.6 of the Purchase Agreement must be made in good faith. If a Seller Obligation is not fully satisfied or resoled through negotiations between Buyer and the Obligor within six (6) months of the date Comm/Net Holding, D. Somers and/or the Shareholders, as applicable (the "Obligor"), received notice from Buyer of its or their non-compliance with such obligation (or in the case of a Loss (as defined in Section 9.1 of the Purchase Agreement), within six (6) months of the date the Indemnifying Party (as defined in Section 9.4 of the Purchase Agreement) received notice of such Loss pursuant to Section 9.4 of the Purchase Agreement), Buyer shall offer to resolve by arbitration any disputes between Buyer and the Obligor related to such Seller Obligation. If the Obligor rejects such offer, Buyer shall continue to hold the applicable amounts or obligations otherwise payable or owed with respect to the Preferred Shares until the Seller Obligation is fully satisfied or resolved through negotiations between Buyer and the Obligor. All arbitration pursuant to Section 9.6 of the Purchase Agreement shall be before the American Arbitration Association ("AAA") in accordance with the Commercial Arbitration Rules of the AAA as in effect from time to time. Section 12. Definitions. For the purposes of this Certificate of Designation of Preferred Stock, the following terms shall have the meanings indicated: "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of the General Rules and Regulations under the Exchange Act. "Business Day" shall mean any day other than a Saturday, Sunday or other day on which commercial banks in Atlanta, Georgia are authorized or required by law or executive order to close. 14 15 "Common Stock" shall mean and include the Common Stock, par value $.01 per share, of the Corporation and each other class of capital stock of the Corporation that does not have a preference over any other class of capital stock of the Corporation as to dividends or upon liquidation, dissolution or winding up of the Corporation and, in each case, shall include any other class of capital stock of the Corporation into which such stock is reclassified or reconstituted. "Conversion Price" shall mean $16.00, subject to adjustments as set forth in Section 8(d). "Current Market Price" per share shall mean, on any date specified herein for the determination thereof, (a) the average daily Market Price of the Common Stock for those days during the period of twenty (20) days, ending on such date, which are Trading Days, and (b) if the Common Stock is not then listed or admitted to trading on any national securities exchange or quoted in the over-the-counter market, the Market Price on such date. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission thereunder. "Fair Market Value" shall mean the amount which a willing buyer, under no compulsion to buy, would pay a willing seller, under no compulsion to sell, in an arm's-length transaction. "Issue Date" shall mean the original date of issuance of shares of Preferred Stock to the holders pursuant to the Purchase Agreement. "Junior Stock" shall mean any capital stock of the corporation ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Preferred Stock including, without limitation, the Common Stock. "Liquidation Preference" with respect to a share of Preferred Stock shall mean $1,000.00. "Market Price" shall mean, per share of Common Stock on any date specified herein: (a) if the Common Stock is not then listed or admitted to trading on any national securities exchange but is designated as a national market system security, the last trading price of the Common Stock on such date; or (b) if there shall have been no trading on such date or if the Common Stock is not so designated, the average of the reported closing bid and asked prices of the Common Stock on such date as shown by NASDAQ and reported by any member firm of the NYSE, selected by the Corporation. If neither (a) or (b) is applicable, Market Price shall mean the Fair Market Value per share determined in good faith by the Board of Directors of the Corporation unless holders of at least fifty-one percent (51%) of the outstanding shares of Preferred Stock request that the Corporation obtain an opinion of a nationally recognized investment banking firm chosen by such holders and the Corporation (at the Corporation's expense), in which event Fair Market Value shall be determined by such investment banking firm. 15 16 "NASDAQ" shall mean the National Market System of the NASDAQ Stock Market. "NYSE" shall mean the New York Stock Exchange, Inc. "Parity Stock" shall mean any capital stock of the Corporation, including the Preferred Stock, ranking on a par (either as to dividends or upon liquidation, dissolution or winding up) with the Preferred Stock. "Per Share Equity Value" of a share of Common Stock shall mean the quotient obtained by dividing (a) the "as if fully distributed value" of all the Corporation's outstanding shares of Common Stock (on a fully diluted basis) without consideration of any minority investment discounts or discounts related to illiquidity or restrictions on transferability, by (b) the number of outstanding shares of Common Stock on a fully diluted basis. "Person" shall mean any individual, firm, corporation, partnership, limited liability company, trust, incorporated or unincorporated association, joint venture, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind, and shall include any successor (by merger) of such entity. "Preferred Stock" shall have the meaning set forth in Section 1(a) hereof. "Senior Stock" shall mean any capital stock of the Corporation ranking senior to the Preferred Stock (either as to dividends or upon liquidation, dissolution or winding up), including, without limitation, the 4.25% Cumulative Senior Perpetual Convertible Preferred Stock, Series A. "Subsidiary" shall mean, with respect to any Person, a corporation or other entity of which 50% or more of the voting power of the voting equity securities or equity interest is owned, directly or indirectly, by such Person. "Trading Days" shall mean a day on which the national securities exchanges are open for trading. 13. Modification or Amendment. Except as specifically set forth herein, modifications or amendments to this Certificate of Designation may be made by the Corporation with the consent of the holders of more than 50% of the outstanding shares of Preferred Stock. 16 17 IN WITNESS WHEREOF, World Access, Inc. has caused this Certificate to be duly executed in its corporate name on this 29 day of June, 1999. WORLD ACCESS, INC. By: /s/ W. Tod Chmar ------------------------------ Name: W. Tod Chmar Title: Executive V.P. 16 EX-4.2 4 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 30, 1999, is by and among Comm/Net Holding Corporation, a Texas corporation ("Comm/Net Holding"), Gregory A. Somers, Kelli J. Somers, R. Scott Birdwell, Teleplus Telecommunications, Inc., an Iowa corporation, Chris Johns, Jeff Becker and Michael Billingsly (collectively, the "Stockholders"), and World Access, Inc., a Delaware corporation ("WAXS"). WHEREAS, pursuant to an Agreement and Plan of Reorganization, dated May 27, 1999 (the "Reorganization Agreement"), between WAXS, WA Telcom Products Co., Inc., a Delaware corporation and wholly-owned subsidiary of WAXS ("Buyer"), the Stockholders, Enhanced Communications Corporation ("Encom"), Long Distance Exchange Corporation ("LDEC"), Comm/Net Services Corporation ("Comm/Net Services") and Denny D. Somers, Buyer will acquire certain of the assets (the "Assets") of Comm/Net Holding, Encom, LDEC and Comm/Net Services; WHEREAS, the Reorganization Agreement provides that a form of consideration to be paid to Comm/Net Holding for the Assets shall include shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B of WAXS (the "Preferred Stock"), which are convertible into shares of WAXS common stock, par value $.01 per share ("WAXS Stock"), pursuant to the terms of the Certificate of Designation setting forth the rights and preferences of the Preferred Stock; WHEREAS, promptly following the consummation of the transactions contemplated by the Reorganization Agreement, Comm/Net Holding will liquidate and dissolve as a corporation and distribute to the Stockholders all of its remaining assets (including the Preferred Stock); and WHEREAS, in the event that the shares of Preferred Stock held by the Stockholders are converted into shares of WAXS Stock, WAXS has agreed to grant to the Stockholders certain rights with respect to the sale of the Stockholders' Registrable Securities (as defined below) in accordance with the terms of this Agreement; NOW THEREFORE, for and in consideration of the premises, the mutual promises herein contained, and for other good and valuable consideration, the receipt and adequacy of which are acknowledged, the parties agree as follows: 1. CERTAIN DEFINITIONS. As used in this Agreement, the following initially capitalized terms shall have the following meanings: (a) "Affiliate" means, with respect to any person, any other person who, directly or indirectly, is in control of, is controlled by or is under common control with such person. (b) "Holder(s)" means the Stockholders who are holders of Registrable Securities. (c) "Registrable Securities" means the shares of WAXS Stock issued to the Stockholders upon the conversion of shares of Preferred Stock held by the Stockholders, any stock or other securities into which or for which such shares of WAXS Stock may hereafter be changed, converted 2 or exchanged, and any other securities issued to the Holders of such shares of WAXS Stock (or such shares into which or for which such shares are so changed, converted or exchanged) upon any reclassification, share combination, share subdivision, share dividend, merger, consolidation or similar transactions or events; provided that any such securities shall cease to be Registrable Securities if (i) a registration statement with respect to the sale of such securities shall have become effective under the Securities Act (as defined below) and such securities shall have been disposed of in accordance with the plan of distribution set forth in such registration statement, (ii) such securities shall have been transferred pursuant to Rule 144 (as defined below), (iii) the rights and obligations related thereto under this Agreement shall have been transferred in violation of Section 9, or (iv) at any time the total number of Registrable Securities held by the Holder may then be distributed by the Holder in one transaction pursuant to Rule 144. (d) "Registration Expenses" means all reasonable expenses incurred by WAXS in connection with any registration of Registrable Securities pursuant to this Agreement including, without limitation, the following: (i) SEC filing fees; (ii) the fees, disbursements and expenses of WAXS's counsel(s) and accountants in connection with the registration of the Registrable Securities to be disposed of under the Securities Act; (iii) all expenses of WAXS and its agents and representatives in connection with the preparation, printing and filing of the registration statement, any preliminary prospectus or final prospectus and amendments and supplements thereto and the mailing and delivering of a reasonable number of copies thereof to any Holders, underwriters and dealers and all actual expenses incidental to delivery of the Registrable Securities; (iv) the cost of producing blue sky memoranda (but specifically not including legal investment or foreign blue sky memoranda); (v) all expenses in connection with the qualification of the Registrable Securities to be disposed of for offering and sale under state securities laws; (vi) the filing fees incident to securing any required review by the National Association of Securities Dealers, Inc. of the terms of the sale of the Registrable Securities to be disposed of; (vii) the expenses of WAXS's transfer agent and registrar appointed in connection with such offering; (viii) all engraving and printing expenses for the WAXS securities being offered; and (ix) all fees and expenses payable in connection with the listing of the Registrable Securities on each securities exchange or inter-dealer quotation system on which a class of common equity securities of WAXS is then listed. (e) "Rule 144" means Rule 144 promulgated under the Securities Act (as defined below), or any successor rule to similar effect. (f) "SEC" means the United States Securities and Exchange Commission. (g) "Securities Act" means the Securities Act of 1933, as amended, or any successor statute. 2. DEMAND REGISTRATION. (a) At any time following the date of this Agreement and upon written notice from a Holder or Holders of at least 51% of the Registrable Securities in the manner set forth in Section 10(h) hereof requesting that WAXS effect the registration under the Securities Act of any or all of the Registrable Securities held by such Holder as described in Section 2(b) (which notice shall specify the intended method or methods of disposition of such Registrable Securities), WAXS shall use its reasonable best efforts to effect, in the manner set forth in Section 5, the registration under the Securities Act of such Registrable Securities for disposition in accordance with the intended method or methods of disposition stated in such request; provided that: 2 3 (i) if, prior to receipt of a registration request pursuant to this Section 2(a), WAXS had commenced a financing plan and held or identified a date to hold a formal "all hands" meeting with outside advisors, including an underwriter if such financing plan is an underwritten offering, and, in the good faith business judgment of WAXS's underwriter (or outside advisors, if no underwriter), a registration at the time and on the terms requested could materially and adversely affect or interfere with such financing plan of WAXS or its subsidiaries (a "Transaction Blackout"), WAXS shall not be required to effect a registration pursuant to this Section 2(a) until the earliest of (A) the abandonment of such offering or (B) sixty (60) days after the termination of such offering; provided that WAXS shall only be permitted to delay a requested registration under this Section 2(a), whether in reliance on this subsection (i) or on subsection (ii) below, twice during the term of this Agreement. (ii) if, while a registration request is pending pursuant to this Section 2(a), WAXS has determined in good faith that (A) the filing of a registration statement could jeopardize or delay any contemplated material transaction other than a financing plan involving WAXS or would require the disclosure of material information that WAXS had a bona fide business purpose for preserving as confidential; or (B) WAXS then is unable to comply with SEC requirements applicable to the requested registration (notwithstanding its reasonable best efforts to so comply), WAXS shall not be required to effect a registration pursuant to this Section 2(a) until the earlier of (A) the date upon which such contemplated transaction is completed or abandoned or such material information is otherwise disclosed to the public or ceases to be material or WAXS reasonably is able to so comply with applicable SEC requirements, as the case may be, and (B) thirty (30) days after WAXS makes such good-faith determination; provided that WAXS shall only be permitted to delay a requested registration under this Section 2(a), whether in reliance on this subsection (ii) or on subsection (i) above, twice during the term of this Agreement. (iii) WAXS shall not be obligated to file more than one (1) registration statement under the Securities Act relating to a registration request pursuant to this Section 2(a) and shall not be obligated in any event if such registration request is for a number of Registrable Securities which have an aggregate market value less than $1 million. If such request shall be for an underwritten offering, such request must be for a number of Registrable Securities which have an aggregate market value of at least $5 million. (b) Notwithstanding any other provision of this Agreement to the contrary, a registration requested by a Holder pursuant to this Section 2 shall not be deemed to have been effected (and, therefore, not requested for purposes of Section 2(a): (A) if it is withdrawn based upon material adverse information relating to WAXS that is different from the information (x) known to the Holder requesting registration at the time of their request for registration, or (y) promptly disclosed by WAXS to the Holder at the time of their request for registration; (B) if, when effective, it includes fewer than ninety (90%) percent of the number of shares of Registrable Securities which were the subject matter of the request; (C) if after it has become effective such registration is interfered with by any stop order, injunction or other order or requirement of the SEC or other governmental agency or court for any reason other than a misrepresentation or an omission by such Holder and, as a result thereof, less than ninety (90%) percent of the Registrable Securities requested to be registered can be completely distributed in accordance with the plan of distribution set forth in the related registration statement. (c) In the event that any registration pursuant to this Section 2 shall involve, in whole or in part, an underwritten offering, WAXS shall have the right to designate the underwriter or underwriters, including the lead managing underwriter of such underwritten offering. 3 4 (d) Holders other than the Holder initiating the demand pursuant to Section 2(a) and holders of other registrable securities with the right to participate in a WAXS registration statement shall have the right to include their shares of Registrable Securities or other registrable securities, as the case may be, in any registration pursuant to Section 2(a). In connection with those registrations in which multiple Holders or holders of other registrable securities with the right to participate in such registration ("piggy-back rights holders") participate, in the event the facilitating broker/dealer or, in an underwritten offering, the lead managing underwriter advises that marketing factors require a limitation on the number of shares to be sold, the number of shares to be included in the sale or underwriting and registration shall be allocated pro rata among the Holders and the holders seeking registration pursuant to piggy-back registration rights otherwise granted by WAXS on the basis of the estimated proceeds from the sale of the securities covered by such registration. (e) WAXS shall have the right to cause the registration of additional securities for sale for the account of WAXS in any registration of Registrable Securities requested by a Holder pursuant to Section 2(a) which involves an underwritten offering; provided that WAXS shall not have the right to cause the registration of such additional securities if such Holder is advised in writing (with a copy to WAXS) by the lead managing underwriter designated pursuant to Section 2(c) that, in such firm's good faith opinion, registration of such securities in addition to those securities included pursuant to Sections 2(a)-(d) hereof would materially adversely affect the offering and sale of the Registrable Securities then contemplated by such Holder. 3. PIGGY-BACK REGISTRATION. At any time during the term of this Agreement if WAXS proposes to register any of its WAXS Stock or any other of its common equity securities (but not including debt instruments or preferred stock convertible into its common equity securities) (collectively, "Other Securities") under the Securities Act (other than a registration on Form S-4 or S-8 or any successor form thereto), whether or not for sale for its own account, in a manner which would permit registration of Registrable Securities for sale for cash to the public under the Securities Act, it will each such time give prompt written notice to each Holder of its intention to do so at least ten (10) days prior to the anticipated filing date of the registration statement relating to such registration. Such notice shall offer each such Holder the opportunity to include in such registration statement such number of Registrable Securities as each such Holder may request. Upon the written request of any such Holder, made no later than 5:00 p.m. Dallas, Texas time on the fifth (5th) day after the receipt of WAXS's notice (which request shall specify the number of Registrable Securities intended to be disposed of and the intended method of disposition thereof), WAXS shall use its reasonable best efforts to effect, in the manner set forth in Section 5, in connection with the registration of the Other Securities, the registration under the Securities Act of all Registrable Securities which WAXS has been so requested to register, to the extent required to permit the disposition (in accordance with such intended methods thereof) of the Registrable Securities so requested to be registered; provided that: (a) if at any time after giving written notice of its intention to register any securities and prior to the effective date of such registration, WAXS shall determine for any reason not to register or to delay registration of such securities, WAXS may, at its election, give written notice of such determination to the Holder and, thereupon, (A) in the case of a determination not to register, WAXS shall be relieved of its obligation to register any Registrable Securities in connection with such registration and (B) in the case of a determination to delay such registration, WAXS shall be permitted to delay registration of any Registrable Securities requested to be included in such registration for the same period as the delay in registering such Other Securities; (b) if the registration referred to in the first sentence of this Section 3 is to be an underwritten registration, and the managing underwriter advises WAXS in writing that, in such firm's 4 5 opinion, such offering would be materially and adversely affected by the inclusion therein of the Registrable Securities requested to be included therein, WAXS shall include in such registration: (1) first, all securities WAXS proposes to sell for its own account ("WAXS Securities") if WAXS Securities are proposed to be included in such registration, (2) second, up to the full number of Registrable Securities in excess of the number or dollar amount of WAXS Securities, which, in the good faith opinion of such managing underwriter, can be so sold without materially and adversely affecting such offering (and, if less than the full number of such Registrable Securities, allocated among the Holders of such Registrable Securities and holders (other than WAXS) of Other Securities to be included in such registration pursuant to agreements with WAXS ("Other Holders") pro rata on the basis of the net proceeds from the sale thereof), and (3) third, all other securities proposed to be registered. Notwithstanding any other provision in this Agreement to the contrary, WAXS shall not be required to include Registrable Securities in any registration statement if the inclusion of such Registrable Securities would violate the provisions of any agreements or arrangements pursuant to which such registration is being effected or entered into in connection with such registration; (c) WAXS shall not be required to effect any registration of Registrable Securities under this Section 3 incidental to the registration of any of its securities in connection with mergers, acquisitions, dividend reinvestment plans or stock option or award or other executive or employee benefit or compensation plans; and (d) no registration of Registrable Securities effected under this Section 3 shall relieve WAXS of its obligation to effect a registration of Registrable Securities pursuant to Section 2 hereof. 4. EXPENSES. WAXS agrees to pay all Registration Expenses with respect to an offering pursuant to Section 2 and Section 3 hereof (but not any fees or expenses of counsel to any Holder or the Holders or commissions or underwriting discount in connection with an offering which shall be the expense of the Holder(s)). 5. REGISTRATION AND QUALIFICATION. If and whenever WAXS is required to use its reasonable best efforts to effect the registration of any Registrable Securities under the Securities Act as provided in Section 2 or 3 hereof, WAXS shall: (a) prepare and file a registration statement under the Securities Act relating to the Registrable Securities to be offered as soon as practicable, but in no event later than forty-five (45) days (ninety (90) days if the applicable registration form is other than Form S-3) after the date notice is given, and use its reasonable best efforts to cause the same to become effective as promptly as practicable; (b) prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for thirty (30) days (or, in the case of an underwritten offering, such shorter time period as the underwriters may require); (c) furnish to the Holders and to any underwriter of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (in each case including all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Securities Act, and such other documents, as the Holders or such underwriter may reasonably request in order to facilitate the public sale of the Registrable Securities, and a copy of any and all transmittal letters or other correspondence to, or received from, the SEC or any other 5 6 governmental agency or self-regulatory body or other body having jurisdiction (including any domestic or foreign securities exchange) relating to such offering; (d) use its reasonable best efforts to register or qualify all Registrable Securities covered by such registration statement under the securities or blue sky laws of such United States jurisdictions as the Holders or any underwriter of such Registrable Securities shall request, and use its best efforts to obtain all appropriate registrations, permits and consents required in connection therewith, and do any and all other acts and things which may be necessary or advisable to enable the Holders or any such underwriter to consummate the disposition in such jurisdictions of its Registrable Securities covered by such registration statement; provided that WAXS shall not for any such purpose be required to register or qualify generally to do business as a foreign corporation in any jurisdiction wherein it is not so qualified, or to subject itself to taxation in any such jurisdiction, or to consent to general service of process in any such jurisdiction; (e) in connection with any underwritten offering, (i) use its reasonable best efforts to furnish an opinion of counsel for WAXS addressed to the underwriters and each Holder of Registrable Securities included in such registration (each a "Selling Holder") and dated the date of the closing under the underwriting agreement (if any) (or if such offering is not underwritten, dated the effective date of the registration statement), and (ii) use its reasonable best efforts to furnish a "cold comfort" letter addressed to each Selling Holder, if permissible under applicable accounting practices, and signed by the independent public accountants who have audited WAXS's financial statements included in such registration statement, in each such case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities and such other matters as the Selling Holders may reasonably request and, in the case of such accountants' letter, with respect to events subsequent to the date of such financial statements; (f) immediately notify the Selling Holders in writing (i) at any time when a prospectus relating to a registration pursuant to Section 2 or 3 hereof is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and (ii) of any request by the SEC or any other regulatory body or other body having jurisdiction for any amendment of or supplement to any registration statement or other document relating to such offering, and in either such case (i) or (ii) at the request of the Selling Holders, subject to Section 4 hereof, prepare and furnish to the Selling Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they are made, not misleading; (g) list all such Registrable Securities covered by such registration on each national securities exchange and United States inter-dealer quotation system on which a class of common equity securities of WAXS is then listed, with expenses in connection therewith to be paid in accordance with Section 4 hereof; and (h) furnish unlegended certificates representing ownership of the Registrable Securities being sold in such denominations as shall be requested by the Selling Holders or the underwriters with expenses therewith to be paid in accordance with Section 4 hereof. 6 7 6. UNDERWRITING, DUE DILIGENCE. (a) If requested by the underwriters for any underwritten offering of Registrable Securities pursuant to a registration requested under this Agreement, WAXS shall enter into an underwriting agreement with such underwriters for such offering, such agreement to contain such representations and warranties by WAXS and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnities and contribution substantially to the effect and to the extent provided in Section 7 hereof and the provision of opinions of counsel and accountants' letters to the effect and to the extent provided in Section 5(e) hereof. The Selling Holders on whose behalf the Registrable Securities are to be distributed by such underwriters shall be parties to any such underwriting agreement and the representations and warranties by, and the other agreements on the part of, WAXS to and for the benefit of such underwriters, shall also be made to and for the benefit of such Selling Holders. Such underwriting agreement shall also contain such representations and warranties by the Selling Holders on whose behalf the Registrable Securities are to be distributed as are customarily contained in underwriting agreements with respect to secondary distributions. Selling Holders may require that any additional securities included in an offering proposed by a Holder be included on the same terms and conditions as the Registrable Securities that are included therein. (b) In the event that any registration pursuant to Section 3 shall involve, in whole or in part, an underwritten offering, WAXS may require the Registrable Securities requested to be registered pursuant to Section 3 to be included in such underwriting on the same terms and conditions as shall be applicable to the other securities being sold through underwriters under such registration. If requested by the underwriters for such underwritten offering, the Selling Holders on whose behalf the Registrable Securities are to be distributed shall enter into an underwriting agreement with such underwriters, such agreement to contain such representations and warranties by the Selling Holders and such other terms and provisions as are customarily contained in underwriting agreements with respect to secondary distributions, including, without limitation, indemnities and contribution substantially to the effect and to the extent provided in Section 7 hereof. Such underwriting agreement shall also contain such representations and warranties by WAXS and such other person or entity for whose account securities are being sold in such offering as are customarily contained in underwriting agreements with respect to secondary distributions. (c) In connection with the preparation and filing of each registration statement registering Registrable Securities under the Securities Act, WAXS shall give, subject to all parties executing confidentiality agreements with WAXS on terms reasonably acceptable to WAXS, the Holders of such Registrable Securities and the underwriters, if any, and their respective counsel and accountants, such reasonable and customary access to its books and records and such opportunities to discuss the business of WAXS with its officers and the independent public accountants who have certified WAXS's financial statements as shall be necessary, in the opinion of such Holder and such underwriters or their respective counsel, to conduct a reasonable investigation within the meaning of the Securities Act. 7. INDEMNIFICATION AND CONTRIBUTION. (a) In the case of each offering of Registrable Securities made pursuant to this Agreement, WAXS agrees to indemnify and hold harmless each Holder, its officers and directors, managers and members, as the case may be, each underwriter of Registrable Securities so offered and each person, if any, who controls any of the foregoing persons within the meaning of the Securities Act, from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject, under the Securities Act or otherwise, including any 7 8 amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any reasonable legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) or any amendment thereof or supplement thereto, or in any document incorporated by reference therein, or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that WAXS shall not be liable to a particular Holder in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement, or any omission, if such statement or omission shall have been made in reliance upon and in conformity with information relating to such Holder furnished to WAXS in writing by or on behalf of such Holder specifically for use in the preparation of the registration statement (or in any preliminary or final prospectus included therein) or any amendment thereof or supplement thereto. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of a Holder and shall survive the transfer of such securities. The foregoing indemnity agreement is in addition to any liability which WAXS may otherwise have to each Holder, its officers and directors, members and managers, as the case may be, underwriters of the Registrable Securities or any controlling person of the foregoing; provided, further, that, as to any underwriter or any person controlling any underwriter, this indemnity does not apply to any loss, liability, claim, damage or expense arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus if a copy of a prospectus was not sent or given by or on behalf of an underwriter to such person asserting such loss, claim, damage, liability or action at or prior to the written confirmation of the sale of the Registrable Securities as required by the Securities Act and such untrue statement or omission had been corrected in such prospectus. (b) In the case of each offering made pursuant to this Agreement, each Holder of Registrable Securities included in such offering, by exercising its registration rights hereunder, agrees to indemnify and hold harmless WAXS, its officers, directors, agents and Affiliates and each person, if any, who controls any of the foregoing within the meaning of the Securities Act (and if requested by the underwriters, each underwriter who participates in the offering and each person, if any, who controls any such underwriter within the meaning of the Securities Act), from and against any and all claims, liabilities, losses, damages, expenses and judgments, joint or several, to which they or any of them may become subject under the Securities Act or otherwise, including any amount paid in settlement of any litigation commenced or threatened, and shall promptly reimburse them, as and when incurred, for any reasonable legal or other expenses incurred by them in connection with investigating any claims and defending any actions, insofar as any such losses, claims, damages, liabilities or actions shall arise out of, or shall be based upon, any untrue statement or alleged untrue statement of a material fact contained in the registration statement (or in any preliminary or final prospectus included therein) or any amendment thereof or supplement thereto, or any omission or alleged omission to state therein a material fact relating to the Holder required to be stated therein or necessary to make the statements therein not misleading, but in each case only to the extent that such untrue statement of a material fact is contained in, or such material fact relating to the Holder is omitted from, information relating to such Holder furnished in writing to WAXS by or on behalf of such Holder specifically for use in the preparation of such registration statement (or in any preliminary or final prospectus included therein). The foregoing indemnity is in addition to any liability which such Holder may otherwise have to WAXS, or any of its directors, officers or controlling persons; provided, however, that, as to any underwriter or any person controlling any underwriter, this indemnity does not apply to any loss, liability, claim, damage or expense arising out of or based upon any untrue statement or alleged untrue statement or omission or alleged omission in any preliminary prospectus if a copy of a prospectus was not sent to or given by or on behalf of an underwriter to such person asserting such loss, claim, damage, liability or action at or prior to the 8 9 written confirmation of the sale of the Registrable Securities as required by the Securities Act and such untrue statement or omission had been corrected in such prospectus. (c) Procedure for Indemnification. Each party indemnified under paragraph (a) or (b) of this Section 7 shall, promptly after receipt of notice of any claim or the commencement of any action against such indemnified party in respect of which indemnity may be sought, notify the indemnifying party in writing of the claim or the commencement thereof; provided that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party on account of the indemnity agreement contained in paragraph (a) or (b) of this Section 7, except to the extent the indemnifying party was prejudiced by such failure, and in no event shall relieve the indemnifying party from any other liability which it may have to such indemnified party. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate therein, and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 7 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided that each indemnified party, its officers and directors, if any, and each person, if any, who controls such indemnified party within the meaning of the Securities Act, shall have the right to employ separate counsel reasonably approved by the indemnifying party to represent them if the named parties to any action (including any impleaded parties) include both such indemnified party and an indemnifying party or an affiliate of an indemnifying party, and such indemnified party shall have been advised by counsel either (i) that there are one or more legal defenses available to such indemnified party that are different from or additional to those available to such indemnifying party or such affiliate or (ii) a conflict may exist between such indemnified party and such indemnifying party or such affiliate, and in that event the fees and expenses of one such separate counsel for all such indemnified parties shall be paid by the indemnifying party. An indemnified party will not enter into any settlement agreement which is not approved by the indemnifying party, such approval not to be unreasonably withheld. The indemnifying party may not agree to any settlement of any such claim or action which provides for any remedy or relief other than monetary damages for which the indemnifying party shall be responsible hereunder, without the prior written consent of the indemnified party, which consent shall not be unreasonably withheld. In any action hereunder as to which the indemnifying party has assumed the defense thereof with counsel reasonably satisfactory to the indemnified party, the indemnified party shall continue to be entitled to participate in the defense thereof, with counsel of its own choice, but, except as set forth above, the indemnifying party shall not be obligated hereunder to reimburse the indemnified party for the costs thereof. In all instances, the indemnified party shall cooperate fully with the indemnifying party or its counsel in the defense of each claim or action. If the indemnification provided for in this Section 7 shall for any reason be unavailable to an indemnified party in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to herein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, in such proportion as shall be appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the indemnifying party on the one hand 9 10 or the indemnified party on the other, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission, but not by reference to any indemnified party's stock ownership in WAXS. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this paragraph shall be deemed to include, for purposes of this paragraph, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. RULE 144. WAXS shall take such measures and timely file such information, documents and reports as shall be required by the SEC as a condition to the availability of Rule 144 and to remain in compliance with the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. 9. TRANSFER OF REGISTRATION RIGHTS. A Holder may not transfer all or any portion of its rights and obligations under this Agreement to any transferee without the prior written consent of WAXS, which consent shall not be unreasonably withheld. 10. MISCELLANEOUS. (a) Injunctions. Each party acknowledges and agrees that irreparable damage would occur in the event that any of the provisions of this Agreement was not performed in accordance with its specific terms or was otherwise breached. Therefore, each party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically the terms and provisions hereof in any court having jurisdiction, such remedy being in addition to any other remedy to which such party may be entitled at law or in equity. (b) Severability. If any term or provision of this Agreement shall be held by a court of competent jurisdiction to be invalid, void or unenforceable, the remainder of the terms and provisions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and each of the parties shall use its best efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term or provision. (c) Further Assurances. Subject to the specific terms of this Agreement, each of the parties hereto shall make, execute, acknowledge and deliver such other instruments and documents, and take all such other actions, as may be reasonably required in order to effectuate the purposes of this Agreement and to consummate the transactions contemplated hereby. (d) Waivers, etc. No failure or delay on the part of either party (or the intended third-party beneficiaries referred to herein) in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power preclude any other or further exercise thereof or the exercise of any other right or power. No modification or waiver of any provision of this Agreement nor consent to any departure therefrom shall in any event be effective unless the same shall be in writing and signed by an authorized officer of each of the parties, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. 10 11 (e) Entire Agreement. This Agreement contains the entire understanding of the parties with respect to its subject matter. This Agreement supersedes all prior agreements and understandings between the parties, whether written or oral, with respect to the subject matter hereof. The paragraph headings contained in this Agreement are for reference purposes only, and shall not affect in any manner the meaning or interpretation of this Agreement. (f) Counterparts. For the convenience of the parties, this Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original but all of which together shall be one and the same instrument. (g) Amendment. This Agreement may be amended only by a written instrument duly executed by an authorized officer of each of WAXS and the Holders of at least 51% of the Registrable Securities. (h) Notices. Unless expressly provided herein, all notices, claims, certificates, requests, demands and other communications hereunder shall be in writing and shall be deemed to be duly given (i) when personally delivered, (ii) if mailed by registered or certified mail, postage prepaid, return receipt requested, on the date the return receipt is executed or the letter refused by the addressee or its agent, (iii) if given by telex or telecopier, once such notice or other communication is transmitted to the telex or telecopier number specified below and the appropriate answer back or telephonic confirmation is received; provided that such notice or other communication is mailed in accordance with clause (ii) hereof or (iv) if sent by overnight courier which delivers only upon the signed receipt of the addressee, on the date the receipt acknowledgment is executed or refused by the addressee or its agent: if to the Stockholders: Comm/Net Holding Corporation 2301 Ohio Drive, Suite 285 Plano, Texas 75093 Attention: Gregory A. Somers with a copy to: B. Bruce Johnson 5550 LBJ Freeway, Suite 550 Dallas, Texas 75240 if to WAXS to: World Access, Inc. 945 E. Paces Ferry Road, Suite 2200 Atlanta, Georgia 30326 Attn: W. Tod Chmar 11 12 with a copy to: Long Aldridge & Norman LLP 303 Peachtree Street Suite 5300 Atlanta, Georgia 30308 Attn: H. Franklin Layson, Esq. (i) Governing Law. This Agreement is executed by WAXS in, and shall be construed in accordance with and governed by the laws of the State of Georgia without giving effect to the principles of conflicts of laws thereof. (j) Term. This Agreement shall be effective as to each Stockholder that is a party to this Agreement upon the issuance of any Registrable Securities to such Stockholder and shall remain in full force and effect until there are no Registrable Securities outstanding or until terminated by the mutual agreement of WAXS and the Holders of at least 51% of the Registrable Securities. (k) Assignment. Without the prior written consent of WAXS (which consent shall not be unreasonably withheld), the Stockholders may not assign their rights, duties or obligations hereunder or any part thereof to any other person or entity. WAXS may assign its rights and duties hereunder in whole or in part to one or more entities but if it does so, it shall remain liable for all of its obligations hereunder. This Agreement, and all of the obligations hereunder, shall be binding upon and enforceable against all permitted assigns and transferees. [Signatures on next page] 12 13 IN WITNESS WHEREOF, the Stockholders and WAXS have caused this Agreement to be duly executed by their authorized representatives as of the date first above written. STOCKHOLDERS: COMM/NET HOLDING CORPORATION By: /s/ Gregory A. Somers ----------------------------------------- Name: Gregory A. Somers --------------------------------------- Title: President -------------------------------------- /s/ Gregory A. Somers -------------------------------------------- Gregory A. Somers /s/ Kelli J. Somers -------------------------------------------- Kelli J. Somers /s/ R. Scott Birdwell -------------------------------------------- R. Scott Birdwell /s/ Chris Johns -------------------------------------------- Chris Johns /s/ Jeff Becker -------------------------------------------- Jeff Becker /s/ Michael Billingsley -------------------------------------------- Michael Billingsley TELEPLUS TELECOMMUNICATIONS, INC. By: /s/ Denny D. Somers ----------------------------------------- Name: Denny D. Somers --------------------------------------- Title: President -------------------------------------- WAXS: WORLD ACCESS, INC. By: /s/ W. Tod Chmar ----------------------------------------- Name: W. Tod Chmar --------------------------------------- Title: Executive V.P. -------------------------------------- 13 EX-99 5 PRESS RELEASE DATED JULY 1, 1999 1 Exhibit 99 (WORLD ACCESS LOGO) WORLD ACCESS COMPLETES ACQUISITION OF THE COMM/NET GROUP OF COMPANIES Acquisition Will Strengthen Telecommunications Group Network Through Dedicated Bandwidth Agreements to Mexico Comm/Net Platform is Expected to Facilitate Telecommunication Group's Expansion Plans into Latin America ATLANTA, GEORGIA - July 1, 1999 -- World Access, Inc. (Nasdaq:WAXS), announced today that it has completed its acquisition of the assets of Comm/Net Holding Corporation and its wholly-owned subsidiaries, Enhanced Communications Corporation, Comm/Net Services Corporation and Long Distance Exchange Corporation, effective June 30, 1999. Pursuant to the terms of the agreement, World Access will pay a total consideration of approximately $27 million, primarily in the form of newly issued shares of 4.25% Cumulative Junior Convertible Preferred Stock, Series B (the "Preferred Stock"). The Preferred Stock is convertible into shares of World Access common stock at a conversion rate of $16.00 per common share, subject to standard anti-dilution adjustments. If the closing trading price of World Access common stock exceeds $16.00 per share for 45 consecutive trading days, the Preferred Stock will automatically convert into common stock. The acquisition is intended to qualify as a tax-free "reorganization" under Section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended. John D. Phillips, Chairman, Chief Executive Officer and President of World Access, stated, "We are pleased to be acquiring the operations of Comm/Net, as its facilities and dedicated bandwidth agreements will significantly expand our dedicated network facilities into Mexico and serve as a foundation for network development in other Latin American countries. Comm/Net has an excellent track record of performing in this market in recent years and is poised for continued growth in revenues and EBITDA during 1999. We are optimistic that, backed by the financial resources of World Access and as an integral component of our Telecommunications Group, Comm/Net will continue to prosper." Comm/Net, headquartered in Plano, Texas, is a facilities-based provider of wholesale international long distance and wholesale prepaid calling card services, primarily to the Mexican telecommunications markets. Comm/Net had revenues of approximately $38 million during the year ended December 31, 1998. Greg Somers, former President of Comm/Net, has been named Senior Vice President of Operations, World Access Telecommunications Group. World Access provides wholesale international long distance services and designs a broad range of wireline and wireless telecommunications products for service providers worldwide. Through its facilities based network and various termination and resale relationships, The World Access Telecommunications Group provides international long distance services to more than 200 countries. The World Access Equipment Group develops and markets a suite of solutions ranging from single products to comprehensive network solutions including intelligent multiplexers, digital microwave radio systems, digital switches, billing and network telemanagement systems, cellular base stations, fixed wireless local loop systems and engineering services. For more information regarding World Access and its divisions, please refer to the Company's website at www.waxs.com. THIS PRESS RELEASE MAY CONTAIN FINANCIAL PROJECTIONS OR OTHER FORWARD-LOOKING STATEMENTS MADE PURSUANT TO THE SAFE HARBOR PROVISIONS OF THE SECURITIES REFORM ACT OF 1995. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES WHICH MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY. THESE RISKS INCLUDE THE COMPANY'S ABILITY TO IDENTIFY, COMPLETE AND INTEGRATE ACQUISITIONS AND OTHER RISKS DESCRIBED IN THE COMPANY'S SEC FILINGS, INCLUDING THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998, THE COMPANY'S QUARTERLY REPORT ON FORM 10-Q AND THE COMPANY'S REGISTRATION STATEMENT ON FORM S-3 (NO. 333-43497) INCORPORATED BY REFERENCE IN THIS PRESS RELEASE. WORLD ACCESS CONTACT: NANCY L. DE JONGE (404-231-2025) DIRECTOR OF INVESTOR RELATIONS http://www.waxs.com -----END PRIVACY-ENHANCED MESSAGE-----