XFone 8-K
UNITED
STATES
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): August
18, 2005
XFONE,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
(State
or
other jurisdiction of incorporation or organization)
Commission
File No. 333-67232
11-3618510
(I.R.S.
Employer Identification Number)
960
High Road
London
N12 9RY, United Kingdom
(Address
of principal executive offices) (Zip Code)
011.44.8451087777
(Registrant’s
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|_|
Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|_|
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|_|
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act
(17 CFR 240.14d-2(b))
|_|
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange
Act
(17 CFR 240.13e-4(c))
Item
8.01. Other Events.
AGREEMENT
AND PLAN OF MERGER
On
August
22, 2005, the Registrant announced by press release the signing on August 18,
2005, of an Agreement and Plan of Merger ("the Agreement") to acquire I-55
Internet Services, Inc. ("I-55 Internet"). A copy of the press release is
attached hereto as Ex. 99.1 and incorporated herein by reference.
Under
the
Agreement the Registrant will acquire I-55 Internet, a Louisiana corporation,
through the statutory merger of I-55 Internet with and into the Registrant‘s
wholly owned subsidiary Xfone USA, Inc. ("Xfone USA") (the "Acquisition").
I-55
Internet was incorporated in the State of Louisiana in 1996 and is headquartered
in Hammond, Louisiana. I-55 Internet serves both residential and commercial
customers in Louisiana, Mississippi and Alabama, offering a full complement
of
Internet services, including digital high speed access, dial-up access, email
services, professional web development, web hosting and co-location and
networking services. Mr. Hunter McAllister is the President/Director and Chief
Executive Officer of I-55 Internet and Mr. Brian Acosta is its Chairman/ Chief
Technical Officer.
Xfone
USA
was incorporated in the State of Mississippi on May 28, 2004, is headquartered
in Jackson, Mississippi, and has two wholly owned subsidiaries, eXpeTel
Communications, Inc. and Gulf Coast Utilities, Inc. Xfone USA is a
telecommunications service provider that owns and operates its own
facilities-based, telecommunications switching system. Xfone USA provides
residential and business customers with high quality local and long distance
services, as well as cable television and high speed Internet services to
planned and multi-dwelling apartment communities in Mississippi, Alabama,
Louisiana, Florida and Georgia. Xfone USA's integrated multi-media services,
combining digital voice, data and video over third-generation broadband
infrastructure, are available to customers on a single itemized
bill.
The
Registrant is currently the sole shareholder of Xfone USA and upon completion
of
the acquisition, Xfone USA will continue to be the Registrant's wholly owned
subsidiary. No change in control of the Registrant will occur as a result of
the
acquisition.
The
Agreement
The
terms
and conditions of the Agreement provide that:
1)
All of
I-55 Internet's issued and outstanding capital stock will be acquired and
converted into the right to receive from the Registrant certain shares of its
restricted common stock and warrants convertible into shares of its common
stock; and
2)
The
Registrant will issue a number of shares of its restricted common stock valued
in the aggregate at $2,569,445, determined using the weighted average price
as
reported on the website of the American Stock Exchange of the Registrant Common
Stock for the ten (10) trading days preceding the trading day immediately prior
to the Closing Date (which weighted average price shall in no event be less
than
$2.70 per share or greater than $3.70 per share); and
3)
The
Registrant will issue a number of warrants valued in the aggregate at
$1,284,722, with the value calculated as of the Closing Date assuming 90%
volatility of the underlying Registrant Common Stock pursuant to the Black
Scholes option - pricing model; and
4)
Each share
of I-55 Internet common stock issued and outstanding immediately prior to the
Effective Time (other than dissenting shares if such a situation was to arise)
will be canceled and extinguished and be converted automatically into the right
to receive upon surrender of certificate(s) representing I-55 Internet common
stock (i) an amount of the Registrant's stock consideration equal to the product
of one times the Registrant's stock consideration divided by the Total I-55
Internet Common Stock; and (ii) an amount of the Registrant's warrant
consideration equal to the product of one times the Registrant's warrant
consideration divided by the total I-55 Internet common stock; and
5)
MCG Debt
and Warrants. MCG Capital Finance, Inc. (“MCG”) shall have been paid in full for
the MCG Debt of $1,763,000, and all obligations owed by I-55 Internet to MCG
under the MCG Credit Facility shall have been extinguished, including, but
not
limited to, the MCG Warrants. As of the date of the Agreement, except for the
5,982,307.69 warrants issued in favor of MCG, there are no other options,
warrants or similar rights outstanding. Of the 5,982,307.69 warrants issued
to
MCG, 2,777,500 are currently vested. As of the Closing Date, all such warrants,
written or unwritten, to purchase any of I-55 Internet's authorized or unissued
capital stock shall have been exercised or will have terminated; and
6)
Completion
of the Acquisition is subject to certain conditions, including: (a) approval
of
the Agreement and the Acquisition by the shareholders; (b) the signing of a
definitive purchase agreement by the Registrant and Xfone USA to acquire I-55
Telecommunications, LLC,("I-55 Telecom") a related company of I-55 Internet,
without any adverse tax consequences to I-55 Internet and I-55 Telecom and
their
shareholders; (c) receipt of regulatory approvals where relevant; (d) and (e)
certain other customary conditions; and
7)
Concurrent
with the execution of the Agreement and as material inducements to the
Registrant and I-55 Internet as the acquired company, the following agreements
will be entered into (Exhibits B-D to the Agreement): (a) employment agreement
between Xfone USA, Inc. and Hunter McAllister; (b) employment agreement between
Xfone USA, Inc. and Brian Acosta; and (c) escrow agreement by and among the
Registrant, Xfone USA, Inc., Hunter McAllister, Brian Acosta, and the escrow
agent.
Employment
Agreement between Xfone, USA, Inc. and Hunter McAllister
The
employment agreement between Xfone, USA, Inc. and Hunter McAllister (otherwise
known as "Executive" in the employment agreement), provides that Xfone USA
(otherwise known as "Employer" in the employment agreement) will pay Hunter
McAlister: an annual salary of $100,000.00 for Employment Year 1; $103,000
for
Employment Year 2 and $106,090.00 for Employment Year 3 (the "Salary"), which
will be payable in equal periodic installments according to the Employer's
customary payroll practices, but no less frequently than monthly, and shall
be
subject to all applicable withholding and other applicable taxes as required
by
law.
Currently
the Registrant does not have an Executive Incentive Compensation Plan; however,
the Executive will participate in such plan if and when developed.
The
employment agreement further provides that on the first business day of
Employment Year 1, the Executive shall be granted and issued options for 200,000
shares of restricted Registrant's Common Stock (25,000 of which shall be
attributable to Employment Year 1, 50,000 of which shall be attributable to
Employment Year 2, and 125,000 of which shall be attributable to Employment
Year
3) (the "Options"). The Options shall vest as follows: Options for 25,000 shares
of restricted Registrant Stock shall vest 3 years from the grant date, options
for 50,000 shares of restricted Registrant Stock shall vest 4 years from the
grant date and options for 125,000 shares of restricted Registrant Stock shall
vest 5 years from the grant date. The stock options shall provide for a five
(5)
year term from the vesting date, a strike price that is 10% above the closing
price of the Registrant Common Stock on the date of issue of the Options. The
parties agree that the terms “Options” and “Registrant Stock Options” as used in
the employment agreement include only those Options granted pursuant to the
employment agreement.
In
the
event of any Executive Termination Without Cause other than a Termination by
the
Executive due to a disability that leaves him unable to work, the Executive
agrees to pay as liquidated damages to the Employer an amount equal as
follows:
If
the
Executive Termination Without Cause occurs during Employment Year 1, then the
Executive shall immediately pay to the Employer an amount equal to $225,000.00.
If
the
Executive Termination Without Cause occurs during Employment Year 2, then the
Executive shall immediately pay to the Employer an amount equal to
$150,000.00.
If
the
Executive Termination Without Cause occurs during Employment Year 3, then the
Executive shall immediately pay to the Employer an amount equal to
$75,000.000.
Employment
Agreement between Xfone, USA, Inc. and Brian Acosta.
The
employment agreement between Xfone, USA, Inc. and Brian Acosta (otherwise known
as "Executive" in the employment agreement), provides that Xfone USA (otherwise
known as "Employer" in the employment agreement) will pay Brian Acosta: an
annual salary of $132,000.00 for Employment Year 1; $135,960.00 for Employment
Year 2 and $140,039.00 for Employment Year 3 (the "Salary"), which will be
payable in equal periodic installments according to the Employer's customary
payroll practices, but no less frequently than monthly, and shall be subject
to
all applicable withholding and other applicable taxes as required by
law.
Currently
the Registrant does not have an Executive Incentive Compensation Plan; however,
the Executive will participate in such plan if and when developed.
The
employment agreement provides on the first business day of Employment Year
1,
the Executive shall be granted and issued options for 200,000 shares of
restricted Registrant Common Stock (25,000 of which shall be attributable to
Employment Year 1, 50,000 of which shall be attributable to Employment Year
2,
and 125,000 of which shall be attributable to Employment Year 3) (the
"Options"). The Options shall vest as follows: Options for 25,000 shares of
restricted Registrant Stock shall vest 3 years from the grant date, options
for
50,000 shares of restricted Registrant Stock shall vest 4 years from the grant
date and options for 125,000 shares of restricted Registrant Stock shall vest
5
years from the grant date. The stock options shall provide for a five (5) year
term from the vesting date, a strike price that is 10% above the closing price
of the Registrant Common Stock on the date of issue of the Options. The parties
agree that the terms “Options” and “Registrant Stock Options” as used in the
employment agreement include only those Options granted pursuant to the
employment agreement.
In
the
event of any Executive Termination Without Cause other than a Termination by
the
Executive due to a disability that leaves him unable to work, the Executive
agrees to pay as liquidated damages to the Employer an amount equal as
follows:
If
the
Executive Termination Without Cause occurs during Employment Year 1, then the
Executive shall immediately pay to the Employer an amount equal to $225,000.00.
If
the
Executive Termination Without Cause occurs during Employment Year 2, then the
Executive shall immediately pay to the Employer an amount equal to
$150,000.00.
If
the
Executive Termination Without Cause occurs during Employment Year 3, then the
Executive shall immediately pay to the Employer an amount equal to
$75,000.000.
Item
9.01. Financial Statements and Exhibits.
(a)
Financial Statements of Businesses to be Acquired.
The
financial statements required by this Item 9.01(a) are not included in this
initial report on Form 8-K since the acquisition is not completed. The financial
statements will be filed by amendment to this report no later than 71 calendar
days after the completion of the acquisition of I-55 Internet.
(c)
Exhibits.
EXHIBITS
Exhibit
3.6 By-Laws
of Xfone USA, Inc. (1)
Exhibit
10.47 Agreement and Plan
of
Merger (including exhibits).
Exhibit
99.1
Press
Release issued by the Registrant dated August 22, 2005, headed “XFONE USA SIGNS
AN AGREEMENT AND PLAN OF MERGER WITH I-55
INTERNET SERVICES,
INC., A LEADING LOUISIANA-BASED INTERNET SERVICE PROVIDER."
(1)
Denotes previously filed exhibit: filed on June 1, 2004, with Xfone, Inc.'s
Form
8-K.
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the Registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
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Date:
August 22, 2005
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Xfone,
Inc.
/s/
Guy Nissenson
By:
Guy Nissenson
President
and Chief Executive Officer
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